10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 2, 2006

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10233

MAGNETEK, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE	95-3917584
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
8966 Mason Ave. Chatsworth, California	91311
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (818) 727-2216

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange
	on which registered
Common Stock, $.01 par value	New York Stock Exchange
Preferred Stock Purchase Rights	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:       None

Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes  x No

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of $3.25, per share as reported by the New York Stock Exchange, on December 30, 2005 (the last business day of the Company’s most recently completed second fiscal quarter), was $91,340,711. Shares of common stock held by each executive officer and director have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of the Registrant’s Common Stock, as of September 1, 2006 was 29,312,512 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Magnetek, Inc. 2006 Annual Report for the fiscal year ended July 2, 2006 are incorporated by reference into Part II of this Form 10-K. With the exception of those portions which are expressly incorporated by reference into this Form 10-K, the Magnetek, Inc. 2006 Annual Report is not deemed filed as part of this Form 10-K.

Portions of the Magnetek, Inc. definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended July 2, 2006 are incorporated by reference into Part III of this Form 10-K.

MAGNETEK, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JULY 2, 2006

		Page
	PART I
ITEM 1.	DESCRIPTION OF BUSINESS	2
ITEM 1A.	RISK FACTORS	7
ITEM 1B.	UNRESOLVED STAFF COMMENTS	7
ITEM 2.	PROPERTIES	7
ITEM 3.	LEGAL PROCEEDINGS	7
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	8
	PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	8
ITEM 6.	SELECTED FINANCIAL DATA	9
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	9
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	9
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	9
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	9
ITEM 9A.	CONTROLS AND PROCEDURES	9
ITEM 9B	OTHER INFORMATION	11
	PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	11
ITEM 11.	EXECUTIVE COMPENSATION	12
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	12
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	12
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	12
	PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	12
	SIGNATURES	15

The Company uses a 52-53 week fiscal year which ends on the Sunday nearest June 30. Fiscal years 2006 and 2004 contained 52 weeks; fiscal year 2005 contained 53 weeks.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

Magnetek, Inc. (“Magnetek” or “the Company”) has been a global provider of digital power products used primarily in information technology, telecommunications, consumer products, transportation, industrial automation and energy markets. Magnetek’s products are sold directly or through manufacturers’ representatives to original equipment manufacturers (OEMs) for incorporation into their products, to system integrators and value-added resellers for assembly and incorporation into end-user systems, to distributors for resale to OEMs and contractors, and to end-users for repair and replacement purposes. Magnetek operates in a single segment, Digital Power Control Systems. The Company was founded in July 1984 and is listed on the New York Stock Exchange (NYSE: MAG).

In the fourth quarter of fiscal 2006, Magnetek’s management completed a review of various cash raising alternatives to enable the Company to address certain pending obligations and provide funds for future growth initiatives. As a result of this review, the Company entered into an agreement following July 2, 2006 to divest its power electronics business, including related assets and liabilities. The power electronics business is comprised mainly of Magnetek’s wholly-owned subsidiaries, Magnetek S.p.A. (Italy), Magnetek Kft. (Hungary) and Magnetek Electronics Co., Ltd. (China), and a North American division located in Chatsworth, California. The power electronics business accounted for $166 million, or 69% of the Company’s reported net sales for fiscal year 2005 of $242 million. Upon divestiture of this business, the Company’s remaining operations will be located primarily in North America and in fiscal 2006 generated sales of approximately $83 million. The divestiture is expected to be completed before the end of October 2006. As a result of the divestiture, much of the following description of Magnetek’s business, operations and assets does not include the power electronics business and related assets and liabilities. As described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2006 Annual Report, in the fourth quarter of fiscal 2006, operations associated with this business were reclassified as discontinued operations and the assets and liabilities of this business were reclassified as held for sale.

Digital Power Control Systems

Power-Control Systems. Power-control systems is comprised primarily of programmable motion control and power conditioning systems. The Company is North America’s largest independent supplier of digital drives, radio controls, software and accessories for industrial cranes and hoists, and is also the largest independent supplier of digital motion control systems for elevators. Customers include most of the industrial crane and hoist companies in North America and most of the world’s leading elevator builders. Magnetek was the world’s first and is the largest independent builder of power conditioners for commercial stationary fuel cells, its principal customer being United Technologies. The Company also designs and builds digital power inverters for renewable energy sources such as wind turbines.

Backlog. Magnetek’s backlog as of the end of fiscal 2006 was $9.7 million versus $10.8 million at the end of fiscal 2005. The decrease in backlog reflects, primarily, a slowdown in overall economic activity. The Company expects most of the orders in its backlog to be filled during first half of fiscal 2007.

Competition. Magnetek’s primary competitors during fiscal 2006 included: Control Techniques; KCI/Konecranes, OMRON, Yaskawa, Toshiba, Bubenzer, Johnson Industries, Fronius, SMA, SatCon Technology, Semikron, Telemics and Xantrex. Some of these companies have substantially greater financial, marketing and other resources, larger product portfolios and greater brand recognition than Magnetek.

Competitive Strengths

Management believes that Magnetek benefits most from competitive advantages in the following areas:

Technological Capabilities. Magnetek emphasizes and leverages its ability to provide custom-designed and customized solutions for power and motion control applications through digital power-electronic technology. The Company recruits top talent from universities that stress power electronics in their curricula, and its technical personnel possess substantial expertise in disciplines central to digital power systems and applications. These include analog-to-digital circuit design, thermal management technology, wireless communication technology, and the application of microprocessors, digital signal processors and software algorithms in the development of “smart” power and motion control systems.

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Customer Relationships. Magnetek has established long-term relationships with major manufacturers of fuel cells, cranes and hoists, elevators and mining equipment, among others. The Company believes that these relationships have resulted from its reliability and responsiveness, and readiness to meet special customer requirements based on innovative technology, the quality and cost-effectiveness of its products, and its commitment to stand behind its products.

Manufacturing and Systems Integration. Magnetek competes as a supplier of high-performance systems and subsystems that are incorporated into customers’ products, systems and operations. The Company has taken steps to enhance its competitive position by adopting and implementing ISO process guidelines, implementing demand-flow and cellular manufacturing techniques, and investing in state-of-the-art manufacturing capabilities and advanced electronic test equipment, to assure product quality and reliability.

Product Breadth and Market Diversity. Magnetek provides a variety of products to each of its major markets. Since product breadth and subsystems integration capability are important to certain OEM customers, system integrators, dealers, contractors and end-users, these attributes have helped Magnetek establish OEM relationships and sales channel partnerships. Magnetek also addresses a number of end-markets and serves a range of customers in the belief that market diversity and a broad customer base reduce the Company’s susceptibility to economic cycles and increase its prospects for profitable growth.

Systems Sales Channels. Management believes that Magnetek’s well established network of some 800 “Electromotive Systems™” dealers, “Performance Plus” centers and key OEM customers constitute a significant competitive advantage in the North American materials handling marketplace.

Competitive Weaknesses

Management considers the Company’s primary competitive weaknesses to be its limited size and financial resources.

Based upon current plans and business conditions, the Company believes that proceeds from the divestiture of its power electronics business, borrowing capacity under our various credit facilities, and internally generated cash flows will be sufficient to fund anticipated operational needs, capital expenditures and other near-term commitments. However, some of the Company’s competitors have substantially greater financial resources than Magnetek.

Restructuring and Current Strategy

Since the mid-1990s, Magnetek has undertaken a series of strategic initiatives to tighten its business focus, strengthen its financial position and improve its competitiveness. From 1998 through 2001, a number of electrical commodity product businesses, representing more than three-quarters of the Company’s revenue, were divested (Motors and Generators in 1999 and Standard Drives, Lighting Ballasts and Component Transformers in 2001). Proceeds from these divestitures were applied to eliminate the Company’s long-term debt, repurchase Company stock, and make product-line acquisitions.

Magnetek’s current strategy is centered primarily on raising cash to enable the Company to address pending debt repayment and pension obligations, as well as provide funds for future growth initiatives. As a result, the Company has decided to divest its power electronics business. The Company intends to use the proceeds from the sale of the business to repay debt and fund pension obligations.

In addition, the Company intends to continue to build on its competitive strengths in established material handling, elevator, and mining markets, and to continue to invest in research and development to expand the Company’s product portfolio aimed at penetrating growing and emerging markets for digital power-based systems, such as alternative energy. Management believes that attractive growth opportunities exist in North American alternative energy markets for Magnetek’s power control systems, and that attractive growth opportunities may exist in Europe and Asia for Magnetek’s power control systems that have achieved substantial market positions in North America, primarily material handling and elevator systems.

International Operations

International sales accounted for 19% of Magnetek’s net revenues in fiscal 2006. The Company defines international sales as sales of products manufactured by its facilities outside the U.S. that are sold outside of the U.S., as well as sales of products manufactured in the U.S. to purchasers outside of the U.S.

For the Company’s 2006, 2005, and 2004 fiscal years, revenues derived from domestic sales were $67.1 million, $61.3 million and $55.6 million, respectively, and revenues derived from international sales were $16.0 million, $14.7 million and $12.3 million, and the Company continues to expand sales to global customers.

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The majority of the Company’s international operations are in Canada. The Company’s continuing operations hold assets in the U.S., Canada and the United Kingdom totaling $87.2 million, of which $5.7 million are held in Canada and $0.8 million are in the United Kingdom.

Suppliers and Raw Materials

Virtually all materials and components purchased by the Company are available from multiple suppliers. During fiscal 2006, raw materials purchases accounted for approximately 70% of the Company’s cost of sales. Production of digital power control systems depends on various electronic components. The Company seeks to obtain competitive pricing on these raw materials by utilizing multiple suppliers and leveraging its combined purchasing requirements. Based on analyses of the costs and benefits of its level of vertical integration, Magnetek is continuing to increase its outsourcing of certain materials and component parts that previously have been produced internally.

Research and Development

Magnetek’s research and development activities, which are conducted primarily in Menomonee Falls, Wisconsin, are directed toward developing new products, improving existing products and customizing or modifying products to meet customers’ specific needs. Total research and development expenditures were approximately $4.1 million, $3.9 million, and $3.1 million respectively, for the Company’s 2006, 2005 and 2004 fiscal years.

Intellectual Property

Magnetek holds numerous patents, trademarks and copyrights, and believes that it holds or licenses all of the patent, trademark, copyright and other intellectual property rights necessary to conduct its business. The Company generally relies upon patents, copyrights, trademarks and trade secret laws to establish and maintain its proprietary rights in its technology and products. There can be no assurance that any of its patents, trademarks or other intellectual property rights will not be challenged, invalidated or circumvented, or that any rights granted there under will provide competitive advantages to the Company. In addition, there can be no assurance that patents will be issued from pending patent applications filed by the Company, or that claims allowed on any future patents will be sufficiently broad to protect Magnetek’s technology. Further, the laws of some foreign countries may not permit the protection of Magnetek’s proprietary rights to the same extent as do the laws of the United States. Although the Company believes the protection afforded by its patents, patent applications, trademarks and copyrights has value, rapidly changing technology in the power control systems industry and shortened product life cycles make Magnetek’s future success dependent primarily on the innovative skills, technological expertise, research and development and management capabilities of its employees rather than on patent, copyright, and trademark protection.

Employee Relations

As of September 29, 2006, the Company had approximately 200 salaried employees and approximately 100 hourly employees, none of whom were covered by collective bargaining agreements with unions. The Company believes that its relationships with its employees are favorable.

Available Information

The Company’s Internet address is www.magnetek.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports that are filed by the Company with the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge at or through the Company’s website.

Environmental Matters

From time to time, Magnetek has taken action to bring certain facilities associated with previously owned businesses into compliance with applicable environmental laws and regulations. Upon the subsequent sale of certain businesses, the Company agreed to indemnify the buyers against environmental claims associated with the divested operations, subject to certain conditions and limitations. Remediation activities, including those related to the Company’s indemnification obligations, did not involve material expenditures during fiscal years 2006 2005 or 2004.

The Company has also been identified by the United States Environmental Protection Agency and certain state agencies as a potentially responsible party for cleanup costs associated with alleged past waste disposal practices at several

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previously owned facilities and offsite locations. Its remediation activities as a potentially responsible party were not material in fiscal years 2006, 2005 and 2004. Although the materiality of future expenditures for environmental activities may be affected by the level and type of contamination, the extent and nature of cleanup activities required by governmental authorities, the nature of the Company’s alleged connection to the contaminated sites, the number and financial resources of other potentially responsible parties, the availability of indemnification rights against third parties and the identification of additional contaminated sites, the Company’s estimated share of liability, if any, for environmental remediation, including its indemnification obligations, is not expected to be material.

Century Electric (McMinnville, Tennessee)

Prior to the Company’s purchase of Century Electric, Inc. (“Century Electric”) in 1986, Century Electric acquired a business from Gould Inc. (“Gould”) in May 1983 that included a leasehold interest in a fractional horsepower electric motor manufacturing facility located in McMinnville, Tennessee. Gould agreed to indemnify Century Electric from and against liabilities and expenses arising out of the handling and cleanup of certain waste materials, including but not limited to cleaning up any polychlorinated biphenyls (“PCBs”) at the McMinnville facility (the “1983 Indemnity”). The presence of PCBs and other substances, including solvents, in the soil and in the groundwater underlying the facility and in certain offsite soil, sediment and biota samples has been identified. The McMinnville plant is listed as a Tennessee Inactive Hazardous Waste Substance Site and plant employees were notified of the presence of contaminants at the facility. Gould has completed an interim remedial excavation and disposal of onsite soil containing PCBs and a preliminary investigation and cleanup of certain onsite and offsite contamination. The Company believes the cost of further investigation and remediation (including ancillary costs) are covered by the 1983 Indemnity. The Company sold its leasehold interest in the McMinnville plant in August 1999 and while the Company believes that Gould will continue to perform substantially under its indemnity obligations, Gould’s substantial failure to perform such obligations could have a material adverse effect on the Company’s financial position, cash flows and results of operations.

Effect of Fruit of the Loom Bankruptcy (Bridgeport, Connecticut)

In 1986, the Company acquired the stock of Universal Manufacturing Company (“Universal”) from a predecessor of Fruit of the Loom (“FOL”), and the predecessor agreed to indemnify the Company against certain environmental liabilities arising from pre-acquisition activities at a facility in Bridgeport, Connecticut. Environmental liabilities covered by the indemnification agreement include completion of additional cleanup activities, if any, at the Bridgeport facility (sold in connection with the sale of the transformer business in June 2001) and defense and indemnification against liability for potential response costs related to offsite disposal locations. FOL, the successor to Universal’s indemnification obligation, filed a petition for Reorganization under Chapter 11 of the Bankruptcy Code in 1999 and the Company filed a proof of claim in the proceeding for obligations related to the environmental indemnification agreement. The Company believes that FOL had substantially completed the clean-up obligations required by the indemnification agreement prior to the bankruptcy filing. In November 2001, the Company and FOL entered into an agreement involving the allocation of certain potential tax credits and Magnetek withdrew its claims in the bankruptcy proceeding. FOL’s obligation to the state of Connecticut was not discharged in the reorganization proceeding. FOL’s inability to satisfy its remaining obligations related to the Bridgeport facility and any offsite disposal locations, or the discovery of additional environmental contamination at the Bridgeport facility could have a material adverse effect on the Company’s financial position or results of operations.

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Supplemental Information-Executive Officers of the Company

The following table sets forth certain information regarding the current executive officers of the Company.

Name	Age		Position
Andrew G. Galef		73	Chairman of the Board
Thomas G. Boren		57	President and Chief Executive Officer
Antonio Canova, Ph.D		64	Executive Vice President, Power Electronic Products
Alexander Levran, Ph.D		56	Executive Vice President, Chief Technology Officer
Peter M. McCormick		46	Executive Vice President, Power Control Systems
David P. Reiland		52	Executive Vice President and Chief Financial Officer
Stephen Torres		41	Executive Vice President, Alternative Energy
Tina D. McKnight		48	Vice President, General Counsel and Secretary
Marty J. Schwenner		45	Vice President, Controller and Chief Accounting Officer

Andrew Galef has been the Chairman of the Board of Directors since July 1984 and served as the President and Chief Executive Officer of Magnetek from September 1993 until June 1996 and from May 1999 until May 2005, when he voluntarily resigned his position, at which time he ceased to be an executive officer of the Company. Mr. Galef has been President of The Spectrum Group, Inc., a private investment and management firm, since its incorporation in California in 1978 and has served as Chairman and Chief Executive Officer of the Spectrum Group since 1987.

Thomas Boren has served on the Company’s Board of Directors since 1997 and has served as the Company’s President and Chief Executive Officer since May 9, 2005. Mr. Boren has held executive positions in the energy products and services sector since 1980, most recently as Executive Vice President of PG&E Corporation, and as President and Chief Executive Officer of PG&E’s National Energy Group from August 1999 until December 2002. Prior to joining PG&E Corporation, Mr. Boren was an Executive Vice President with Southern Company and served as President and CEO of Southern Energy Inc., Southern Company’s worldwide power plant, energy trading, and energy services businesses.

Antonio Canova is the Executive Vice President responsible for the Company’s Power Electronic Products Group in Europe and North America. Dr. Canova joined Magnetek when it acquired Plessey S.p.A. in 1991 and assumed responsibility for the Company’s European power components business at that time. With the acquisition of Omega Power Systems, Inc. in 1998, Dr. Canova assumed responsibility for the North American power components business as well. Prior to joining Magnetek, Dr. Canova was the Managing Director of Plessey S.p.A. from 1988 until its acquisition by Magnetek in 1991 and served as its General Manager from 1969 to 1988.

Alexander Levran is Executive Vice President and Chief Technology Officer of the Company. Dr. Levran joined the Company in July 1993 as its Vice President, Technology after serving as Vice President of Engineering and Technology for EPE Technologies, Inc., a subsidiary of Groupe Schneider, from 1991 until 1993. From 1981 until 1991, Dr. Levran held various engineering management positions with Teledyne Inet, a subsidiary of Teledyne, Inc., most recently as Vice President of Engineering.

Peter McCormick is the Executive Vice President responsible for the Company’s Power Systems Group (formerly the Industrial Controls Group and the Telecom Power Group). Mr. McCormick has had primary responsibility for the Company’s Industrial Controls Group (now part of the Power Systems Group) since 2002. Prior to that, he served as the President of Industrial Controls from 1999 until 2002. Since joining the Company in 1996, Mr. McCormick has also served as the Vice President of Operations for the drives group from 1998 until 1999 and as Vice President of the custom products business group from 1996 until 1998.

David Reiland is an Executive Vice President of the Company and has been its Chief Financial Officer since 1988. In 2003, Mr. Reiland assumed temporary responsibility for the Company’s Telecom Power Group during a management restructure. Mr. Reiland has also served as the Controller of the Company from 1986 until 1993 and as Vice President, Finance from 1987 to 1989. Before joining Magnetek, Mr. Reiland was an Audit Manager with Arthur Andersen & Co. where he served in various capacities since 1980. Mr. Reiland is a Certified Public Accountant.

Stephen Torres is the Executive Vice President responsible for the Alternative Energy business. Mr.Torres joined the Company in April, 2005 after serving for four years as the Vice President responsible for marketing and project development for FuelCell Energy, Inc. Before that, Mr. Torres was director of business development, channel management and Latin America marketing for Capstone Turbine Corporation. Prior to joining Capstone, Mr. Torres was Manager, Manufacturing Practice, with Deloitte Consulting Group for five years, where he focused on marketing, supply chain processes and operations improvement. Before joining Deloitte Consulting Group, he served in brand management and technical sales with Procter & Gamble and General Electric.

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Tina McKnight joined the Company in September 2000 as Vice President, General Counsel and Secretary. Prior to joining Magnetek, Ms. McKnight was Vice President and Assistant General Counsel of creditcards.com from 1999 to 2000 and Vice President, Senior Counsel and Assistant Secretary of Great Western Bank from 1990 to 1999. Ms. McKnight was an attorney with the law firms of Brobeck, Phleger & Harrison in Los Angeles, California from 1987 until 1990 and with Peterson, Ross, Schloerb & Seidel in Los Angeles, California from 1985 until 1987.

Marty Schwenner has been a Vice President of the Company since 2003 and Controller since 2002. Mr. Schwenner was Vice President of Finance for the Power Electronic Group from 1998 until 2002. Mr. Schwenner also served as the Chief Financial Officer of the Company’s European Operations from 1992 to 1998 and as Internal Audit Manager from 1991 until 1992. Mr. Schwenner joined Magnetek as an Internal Auditor in 1989. Before joining Magnetek, Mr. Schwenner was a Financial Analyst with Nortek, Inc. since 1985. Mr. Schwenner is a Certified Public Accountant and a Certified Internal Auditor.

ITEM 1A. RISK FACTORS

The information called for by this Item 1A is hereby incorporated by reference to the section of the Company’s 2006 Annual Report entitled “Risk Factors Affecting the Company’s Outlook.”

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

Magnetek’s headquarters and each of its manufacturing facilities for the continuing operations of the Company are listed below, each of which is leased.

Location	Lease Term	Approximate Size (Sq.Ft.)		Principal Use
Menomonee Falls, Wisconsin	2009		84,000	Power control systems manufacturing
Mississauga, Canada	2006		18,000	Power control systems manufacturing
Pittsburgh, Pennsylvania	2009		9,000	Power control systems manufacturing

The Company believes its facilities are in satisfactory condition and are adequate for its continuing operations.

ITEM 3. LEGAL PROCEEDINGS

Litigation—Product Liability

The Company has settled or otherwise resolved all of the product liability lawsuits associated with its discontinued business operations. The last remaining limited obligation to defend and indemnify the purchaser of a discontinued business operation against new product liability claims expired in December 2003 and the Company believes that any new claims would either qualify as an assumed liability, as defined in the various purchase agreements, or would be barred by an applicable statute of limitations. The Company is also a named party in two product liability lawsuits related to the Telemotive Industrial Controls business acquired in December 2002 through the purchase of the stock of MXT Holdings, Inc. Both claims were tendered to the insurance companies that provided coverage for MXT Holdings, Inc., against such claims and the defense and indemnification has been accepted by the carriers, subject to a reservation of rights. Management believes that the insurers will bear all liability, if any, with respect to both cases and that the proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s results of operations or financial position.

In August 2006, Pamela L. Carney, Administrator of the Estate of Michael J. Carney, filed a lawsuit in the Court of Common Pleas of Westmoreland County, Pennsylvania, against the Company and other defendants, alleging that a product manufactured by the Telemotive Industrial Controls business acquired by the Company in December 2002 contributed to an accident that resulted in the death of Michael J. Carney in August 2004. The claim has been tendered to the Company’s insurance carrier and legal counsel has been retained to represent the Company. Plaintiff’s claim for damages is unknown at this time, but management believes that its insurer will bear all liability for the claim, if any.

The Company has been named, along with multiple other defendants, in asbestos-related lawsuits associated with business operations previously acquired by the Company, but which are no longer owned. During the Company’s ownership, none of the businesses produced or sold asbestos-containing products. With respect to these claims, the Company is either contractually indemnified against liability for asbestos-related claims or believes that it has no liability for such claims. The Company aggressively seeks dismissal from these proceedings, and has also tendered the defense of these cases to the

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insurers of the previously acquired businesses and is awaiting their response. The Company has also filed a late claim in the amount of $2.5 million in the Federal-Mogul bankruptcy proceedings to recover attorney’s fee paid for the defense of these claims, which the Company believes is an obligation of Federal Mogul although the claim is subject to challenge. Management does not believe the asbestos proceedings, individually or in the aggregate, will have a material adverse effect on its financial position or results of operations.

Litigation—Patent Infringement

In April 1998, Ole K. Nilssen filed a lawsuit in the U.S. District Court for the Northern District of Illinois alleging infringement by the Company of seven of his patents pertaining to electronic ballast technology, and seeking unspecified damages and injunctive relief to preclude the Company from making, using or selling products allegedly infringing his patents. The Company denied that its products infringed any valid patent and filed a response asserting affirmative defenses, as well as a counterclaim for a judicial declaration that its products do not infringe the patents asserted by Mr. Nilssen and also that the asserted patents are invalid. In June 2001, the Company sold its lighting business to Universal Lighting Technologies, Inc. (“ULT”), and agreed to provide a limited indemnification against certain claims of infringement that Nilssen might allege against ULT. In April 2003, Nilssen’s lawsuit and the counterclaims were dismissed with prejudice and both parties agreed to submit limited issues in dispute to binding arbitration before an arbitrator with a relevant technical background. The arbitration occurred in November, 2004 and a decision awarding Nilssen $23.4 million was issued on May 3, 2005, to be paid within ten days of the award. Nilssen’s counsel filed a motion to enter the award in U.S. District Court for the Northern District of Illinois, and Magnetek filed a counter-motion to vacate the award for a number of reasons, including that the award was fraudulently obtained. Magnetek’s request for oral argument was granted and the hearing took place on October 19, 2005. A decision has not been announced. An unfavorable decision by the Court would likely result in payment of the award to Nilssen.

In February 2003, Nilssen filed a second lawsuit in the U.S. District Court for the Northern District of Illinois alleging infringement by ULT of twenty-nine of his patents pertaining to electronic ballast technology, and seeking unspecified damages and injunctive relief to preclude ULT from making, using or selling products allegedly infringing his patents. ULT made a claim for indemnification, which the Company accepted, subject to the limitations set forth in the sale agreement. The case is now pending in the Central District of Tennessee. Nilssen voluntarily dismissed all but four of the patents from the lawsuit. The Company denies that the products for which it has an indemnification obligation to ULT infringe any valid patent and responded on behalf of ULT asserting affirmative defenses, as well as a counterclaim for a judicial declaration that the patents are unenforceable and invalid and that the products do not infringe Nilssen’s patents. ULT requested a re-examination of the patents at issue by the Patent and Trademark Office and the request was granted. Meanwhile, the case against ULT has been stayed pending Nilssen’s appeal of an unfavorable decision against him in another case that could influence the outcome of his lawsuits against ULT. The Company will continue to aggressively defend the claims against ULT that are subject to defense and indemnification; however, an unfavorable decision could have a material adverse effect on the Company’s financial position, cash flows and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to the stockholders of the Company during the quarter ended July 2, 2006.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth the high and low sales prices of the Company’s Common Stock during each quarter of fiscal 2006 and 2005:

	High		Low
Fiscal Year 2006
First quarter	$	3.70	$	2.37
Second quarter	3.50		2.37
Third quarter	4.10		3.03
Fourth quarter	4.19		2.01
Fiscal Year 2005
First quarter	$	8.40	$	5.26
Second quarter	7.87		5.97
Third quarter	6.94		4.50
Fourth quarter	5.40		1.90

8

The Company’s Common Stock is listed for trading on the New York Stock Exchange under the ticker symbol “MAG.” As of September 1, 2006 there were 198 record holders of Magnetek’s Common Stock.

Magnetek has not paid any cash dividends on its Common Stock and does not anticipate paying cash dividends in the near future. The ability of the Company to pay dividends on its Common Stock is restricted by provisions in the Company’s 2006 bank loan agreement, which provides that the Company may not declare or pay any dividend or make any distribution with respect to its capital stock.

The Company did not repurchase any of its Common Stock during fiscal year 2006.

ITEM 6. SELECTED FINANCIAL DATA

The information called for by this Item 6 is hereby incorporated by reference to the section of the Company’s 2006 Annual Report entitled “Selected Financial Data.”

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information called for by this Item 7 is hereby incorporated by reference to the section of the Company’s 2006 Annual Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this Item 7A is hereby incorporated by reference to the section of the Company’s 2006 Annual Report entitled “Quantitative and Qualitative Disclosures About Market Risk.”

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this Item 8 is hereby incorporated by reference to the Company’s Consolidated Financial Statements and the corresponding Report of Independent Registered Public Accounting Firm in the Company’s 2006 Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Magnetek had no disagreements with its independent accountants in fiscal 2006 with respect to accounting and financial disclosure, and has not changed its independent accountants during the two most recent fiscal years.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Explanation of Disclosure Controls and Procedures

Management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation and because of the material weakness identified below, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of the end of July 2, 2006.

(b) Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial control is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that:

   I.Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company;

 II.Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and

9

that the receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

III.Provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable assurance with respect to the reliability of financial reporting and the preparation and presentation of financial statements. Also, projections of any evaluation about the effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management evaluated the effectiveness of the Company’s internal control over financial reporting as of July 2, 2006. In making this evaluation, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of July 2, 2006, management has concluded that the organizational structure of the Company’s European subsidiary, Magnetek S.p.A., lacks adequate levels of personnel to timely perform certain critical accounting activities, including the review and approval of accounting adjustments and account reconciliations. Management has concluded that this control deficiency constitutes a material weakness. As a result of the material weakness noted, management has concluded that the Company did not maintain effective control over financial reporting as of July 2, 2006 based on the criteria set forth in Internal Control-Integrated Framework issued by the COSO. This European subsidiary is being divested as part of the Company’s power electronics business, as described elsewhere in this Report on Form 10-K.

Management’s evaluation of the effectiveness of internal control over financial reporting as of July 2, 2006, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

(c) Changes in Controls and Procedures

No change in internal control over financial reporting occurred during the period ended July 2, 2006, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Magnetek, Inc.

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that Magnetek, Inc. did not maintain effective internal control over financial reporting as of July 2, 2006, because of the effect of a material weakness identified in management’s assessment as described below, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Magnetek, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

10

transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment. The organizational structure of the Company’s European subsidiary, Magnetek S.p.A., lacks adequate levels of personnel to timely perform certain critical accounting activities, including the review and approval of accounting adjustments and account reconciliations. This material weakness affected several financial statement accounts, including inventory, cost of sales, deferred income taxes, and provision for income taxes and resulted in adjustments to the consolidated financial statements. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the July 2, 2006 consolidated financial statements, and this report does not affect our report dated September 28, 2006 on those financial statements.

In our opinion, management’s assessment that Magnetek, Inc. did not maintain effective internal control over financial reporting as of July 2, 2006, is fairly stated, in all material respects, based on the COSO control criteria. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Magnetek, Inc. has not maintained effective internal control over financial reporting as of July 2, 2006, based on the COSO control criteria.

	/s/ Ernst & Young LLP
Woodland Hills, California
September 28, 2006

ITEM 9B. OTHER INFORMATION

No other information is required to be reported for matters not disclosed on Form 8-K during the period ended July 2, 2006.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding the Company’s directors called for by this Item 10 is hereby incorporated by reference to the sections of the Company’s 2006 Proxy Statement entitled “Proposal No. 1 – Election of Board of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance”.

The information regarding the Company’s executive officers required by this item is included in Part I, Item 1, under the caption “Supplementary Information – Executive Officers of the Company” and is hereby incorporated by reference into this section.

Supplemental Information-Code of Ethics

The Company has adopted a Code of Ethics for all of its directors and employees that contains portions specifically applicable to executives and officers of the Company, including the Chief Executive Officer, the Chief Financial Officer, the Controller and employees performing financial functions for individual business units of the Company. The Code of Ethics is posted on Magnetek’s website at www.magnetek.com. A copy of the Code of Ethics is available, without charge, to any shareholder who sends a written request to the Corporate Secretary at 8966 Mason Ave., Chatsworth, California 91311.

11

ITEM 11. EXECUTIVE COMPENSATION

The information called for by this Item 11 is hereby incorporated by reference to the section of the Company’s 2006 Proxy Statement entitled “Executive Compensation”.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners and Management

The information called for by this Item 12 is hereby incorporated by reference to the sections of the Company’s 2006 Proxy Statement entitled “Beneficial Ownership of Magnetek, Inc. Common Stock by Directors, Officers and Certain Other Officers” and “Securities Authorized For Issuance Under Equity Compensation Plans”.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 is hereby incorporated by reference to the sections of the Company’s 2006 Proxy Statement entitled “Relationships and Related Transactions” and “Compensation Committee Interlocks and Insider Participation”.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information called for by this Item 14 is hereby incorporated by reference to the section of the Company’s 2006 Proxy Statement entitled “Proposal No. 2 – Ratification of the Appointment of Independent Registered Public Accountants Firm”.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Index to Consolidated Financial Statements, Consolidated Financial Statement Schedules and Exhibits:

		Annual Report to Stockholders Page
1.	Consolidated Financial Statements
	Consolidated Statements of Operations for Years Ended July 2, 2006, July 3, 2005, and June 27, 2004	17
	Consolidated Balance Sheets at July 2, 2006 and July 3, 2005	18
	Consolidated Statements of Stockholders’ Equity for Years Ended July 2, 2006, July 3, 2005, and June 27, 2004	19
	Consolidated Statements of Cash Flows for Years Ended July 2, 2006, July 3, 2005, and June 27, 2004	20
	Notes to Consolidated Financial Statements	21
	Report of Independent Registered Public Accounting Firm	42
2.	Consolidated Financial Statement Schedule
	Schedule II—Valuation and Qualifying Accounts	58
	Report of Independent Registered Public Accounting Firm	60

All other financial statement schedules have been omitted because of the absence of conditions under which they are required or applicable, or because the information required is included in the Consolidated Financial Statements and related notes.

12

3. Exhibit Index

The following exhibits are filed as part of this Annual Report Form 10-K, or are incorporated herein by reference. Where an exhibit is incorporated by reference, the number which precedes the description of the exhibit indicates the documents to which the cross-reference is made.

Exhibit
No.	Note	Description of Exhibit
3.1	(1)	Restated Certificate of Incorporation of the Company, as filed with the Delaware Secretary of State on November 21, 1989.
3.2	(2)	By-laws of the Company, as amended and restated.
4.1	(3)	Registration Rights Agreement dated as of April 29, 1991 among the Company, Andrew G. Galef, Frank Perna, Jr. and the other entities named therein.
4.2	(4)	Registration Rights Agreement dated as of June 28, 1996 by and between the Company and U.S. Trust Company of California, N.A..
4.3	(21)	Registration Rights Agreement dated as of June 26, 2002 by and between the Company and U. S. Trust Company N.A
4.4	(10)	Rights Agreement dated as of April 30, 2003 between the Company and The Bank of New York, as Rights Agent.
4.5	(21)	Agreement for Registration of Rights dated as of September 15, 2003 between the Company and SEI Private Trust Company.
4.6	(26)	Registration Rights Agreement dated as of October 3, 2003 between the Company and each B. Riley Investor.
10.1	(6)	Second Amended and Restated 1989 Incentive Stock Compensation Plan of Magnetek, Inc. (“1989 Plan”).
10.2	(4)	Amendment No. 1 to 1989 Plan.
10.3	(4)	Standard Terms and Conditions Relating to Non-Qualified Stock Options, revised as of July 24, 1996, pertaining to the 1989 Plan.
10.4	(4)	Form of Non-Qualified Stock Option Agreement Pursuant to the Second Amended and Restated 1989 Incentive Stock Compensation Plan of the Company.
10.5	(7)	Magnetek, Inc. 1997 Non-Employee Director Stock Option Plan (the “DSOP”).
10.6	(8)	First Amendment to the DSOP dated as of July 26, 2000.
10.7	(5)	1991 Discretionary Director Incentive Compensation Plan of the Company.
10.8	(9)	1999 Stock Incentive Plan of the Company (the “1999 Plan”).
10.9	(9)	2000 Employee Stock Plan of the Company (the “2000 Plan”).
10.10	(9)	Standard Terms and Conditions Relating to Non-Qualified Stock Options, effective as of October 19, 1999, pertaining to the 1999 Plan and the 2000 Plan.
10.11	(11)	Magnetek, Inc. Amended and Restated Director Compensation and Deferral Investment Plan (the “DDIP”).
10.12	(22)	Amendment to the DDIP dated April 17, 2002.
10.13	(12)	Non-Qualified Stock Option Agreement between the Company and David P. Reiland.
10.14	(29)	2004 Stock Incentive Plan of Magnetek, Inc.
10.15	(30)	Form of Non-Qualified Stock Option Agreement Pursuant to 2004 Stock Incentive Plan.
10.16	(30)	Form of Restricted Stock Award Agreement Pursuant to 2004 Stock Incentive Plan.
10.17	(29)	Second Amendment to the 1997 Non-Employee Director Stock Option Plan of Magnetek, Inc.
10.18	(27)	Executive Employment Agreement dated as of May 9, 2005 between the Company and Thomas G. Boren.
10.19	(16)	Change of Control Agreement dated October 20, 1998 between Antonio Canova and the Company.
10.20	(16)	Change of Control Agreement dated October 20, 1998 between Alexander Levran and the Company.
10.21	(16)	Change of Control Agreement dated October 20, 1998 between David P. Reiland and the Company.
10.22	(17)	Change of Control Agreement dated November 1, 2000 between Tina McKnight and the Company.
10.23	(23)	Amended and Restated Change of Control Agreement dated April 30, 2003 between Tina McKnight and the Company.
10.24	(19)	Change of Control Agreement dated December 11, 2002, between Peter McCormick and the Company.
10.25	(21)	Change of Control Agreement dated July 29, 2003 between Marty Schwenner and the Company.
10.26	(31)	Change of Control Agreement dated September 29, 2005 between Stephen Torres and the Company.
10.27	(18)	Tax Agreement dated as of February 12, 1986 between the Company and Farley Northwest Industries, Inc.
10.28	(30)	Credit Agreement dated as of September 30, 2005, among the Company, Magnetek ADS Power, Inc., Magnetek Mondel Holding, Inc., and Wells Fargo Foothill, Inc.

13

10.29	(30)	Credit Agreement dated as of September 30, 2005, among the Company, Magnetek ADS Power, Inc., Magnetek Mondel Holding, Inc., MagneTek National Electric Coil, Inc., Magnetek Alternative Energy, Inc., Mondel ULC, and Ableco Finance, LLC.
10.30	(30)	Definitions to Credit Agreements referenced in Exhibits 10.28 and 10.29 above.
10.31	(32)	First Amendment to Credit Agreement and Waiver dated as of November 29, 2005, among the Company, certain subsidiaries of the Company party thereto, the lenders party thereto and Wells Fargo Foothill, Inc., as administrative agent.
10.32	(32)	Amendment No. 1 to Financing Agreement dated as of November 29, 2005, among the Company, certain subsidiaries of the Company party thereto, the lenders party thereto and Ableco Finance LLC, as collateral agent and administrative agent.
10.33	(33)	Second Amendment to Credit Agreement and Waiver dated as of April 20, 2006, among the Company, certain subsidiaries of the Company party thereto, the lenders party thereto and Wells Fargo Foothill, Inc., as administrative agent.
10.34	(33)	Amendment No. 2 to Financing Agreement dated as of April 24, 2006, among the Company, certain subsidiaries of the Company party thereto, the lenders party thereto and Ableco Finance LLC, as collateral agent and administrative agent.
10.35	(15)	Lease of Pomaz, Hungary facility.
10.36	(20)	Lease of Menomonee Falls, Wisconsin facility dated as of July 23, 1999.
10.37	(24)	Contract for Current Account Credit With Mortgage Lien Pursuant to Article 38 and Subsequent Articles of Legislative Decree No. 385/1993 (Republic of Italy).
10.38	(25)	Joinder Agreement dated as of April 23, 2004 by and among the Company, SEI Private Trust Company and LaSalle Bank, N.A.
10.39	**	Agreement for the Sale of Magnetek, Inc. Power Electronics Group dated as of September 28, 2006, by and between the Company and Power-One, Inc.
10.40	**	Forbearance Agreement dated as of September 22, 2006, among the Company, certain subsidiaries of the Company party thereto, the lenders party thereto and Ableco Finance LLC, as collateral agent and administrative agent.
10.41	**	Forbearance Agreement dated as of September 22, 2006, among the Company, certain subsidiaries of the Company party thereto, the lenders party thereto and Wells Fargo Foothill, Inc. as administrative agent.
13.1	**	2006 Annual Report.
21.1	**	Subsidiaries of the Registrant as of July 2, 2006.
23.1	**	Consent of Independent Registered Public Accounting Firm.
31.1	**	Certification Pursuant to 15 U.S.C. Section 7241.
31.2	**	Certification Pursuant to 15 U.S.C. Section 7241.
32.1	**	Certifications Pursuant to 18 U.S.C. Section 1350.

**	Filed with this Form 10-K.
(1)	Previously filed with the Registration Statement on Form S-3 filed on August 1, 1991, Commission File No. 33-41854, and incorporated herein by this reference.
(2)	Previously filed with Form 8-K filed August 1, 2006 and incorporated herein by this reference.
(3)	Previously filed with Form 10-K for Fiscal Year ended June 30, 1991 and incorporated herein by this reference.
(4)	Previously filed with Form 10-K for Fiscal Year ended June 30, 1996 and incorporated herein by this reference.
(5)	Previously filed with Form 10-K for Fiscal Year ended June 30, 1992 and incorporated herein by this reference.
(6)	Previously filed with Form 10-Q for quarter ended December 31, 1994 and incorporated herein by this reference.
(7)	Previously filed with the Registration Statement on Form S-8 filed on February 10, 1998, Commission File No. 333-45935, and incorporated herein by this reference.
(8)	Previously filed with Form 10-Q for quarter ended September 30, 2000 and incorporated herein by this reference.
(9)	Previously filed with Form 10-Q/A for quarter ended September 30, 1999 and incorporated herein by this reference.
(10)	Previously filed with Form 8-K filed May 12, 2003 and incorporated herein by this reference.
(11)	Previously filed with the Registration Statement on Form S-8 filed on February 10, 1998, Commission File No. 333-45939, and incorporated herein by this reference.

14

(16)	Previously filed with Form 10-Q for quarter ended December 31, 1998 and incorporated herein by this reference.
(17)	Previously filed with Form 10-Q for quarter ended December 31, 2000 and incorporated herein by this reference.
(18)	Previously filed with Amendment No. 1 to Registration Statement filed on February 14, 1986 and incorporated herein by this reference.
(19)	Previously filed with Form 10-Q for Quarter ended December 31, 2002, and incorporated herein by this reference.
(20)	Previously filed with Form 10-K for Fiscal Year ended June 27, 1999 and incorporated herein by this reference.
(22)	Previously filed with Form 10-Q for quarter ended March 31, 2002 and incorporated herein by this reference.
(24)	Previously filed with Registration Statement on Form S-3 filed on November 13, 2003, Commission File No. 333-110460, and incorporated herein by this reference.
(25)	Previously filed with Registration Statement on Form S-3 filed on May 21, 2004, Commission File No. 333-115724, and incorporated herein by this reference.
(26)	Previously filed with Form 8-K dated October 21, 2003 and incorporated herein by this reference.
(27)	Previously filed with Form 8-K dated June 30, 2005.
(29)	Previously filed with Form 10-Q for quarter ended December 31, 2004, and incorporated herein by this reference.
(30)	Previously filed with Form 10-Q for quarter ended October 2, 2005, and incorporated herein by this reference.
(31)	Previously filed with Form 10-K for Fiscal Year ended July 3, 2005 and incorporated herein by this reference.
(32)	Previously filed with Form 8-K filed December 6, 2005 and incorporated herein by this reference..
(33)	Previously filed with Form 8-K filed April 26, 2006 and incorporated herein by this reference.

SCHEDULE II

MAGNETEK, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 27, 2004, JULY 2, 2005 AND JULY 2, 2006

(amounts in thousands)

	Balance at Beginning of year			Additions charged to earnings			Deductions from Allowance				Other(a)				Balance at end of year
June 27, 2004
Allowance for doubtful receivables		$	709		$	-		$	(143	)		$	(168	)		$	398
July 3, 2005
Allowance for doubtful receivables		$	398		$	603		$	(255	)		$	1			$	747
July 2, 2006
Allowance for doubtful receivables		$	747		$	11		$	(192	)		$	2			$	568

(a)Represents primarily a decrease to pre-existing allowances for doubtful accounts for the year ended June 27, 2004.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Chatsworth, State of California, on the 29th day of September, 2006.

MAGNETEK, INC.
(Registrant)
	/s/ THOMAS G. BOREN
	Thomas G. Boren
	Chief Executive Officer

15

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/ ANDREW G. GALEF Andrew G. Galef	Chairman of the Board of Directors	September 29, 2006
/s/ THOMAS G. BOREN Thomas G. Boren	Director and Chief Executive Officer	September 29, 2006
/s/ DEWAIN K. CROSS Dewain K. Cross	Director	September 29, 2006
/s/ YON Y. JORDEN Yon Y. Jorden	Director	September 29, 2006
/s/ PAUL J. KOFMEHL Paul J. Kofmehl	Director	September 29, 2006
/s/ MITCHELL I. QUAIN Mitchell I. Quain	Director	September 29, 2006
/s/ ROBERT E. WYCOFF Robert E. Wycoff	Director	September 29, 2006
/s/ DAVID P. REILAND David P. Reiland	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	September 29, 2006
/s/ MARTY J. SCHWENNER Marty J. Schwenner	Vice President and Controller (Principal Accounting Officer)	September 29, 2006

Chief Executive Officer and Chief Financial Officer Certifications

The certifications of Magnetek’s Chief Executive Officer and Chief Financial Officer required under Section 302 and 906 of the Sarbanes-Oxley Act of 2002 have been filed with the Securities and Exchange Commission as Exhibits 31.1, 31.2, and 32.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2006.

Additionally, in December 2005, Magnetek’s Chief Executive Officer filed with the New York Stock Exchange (“NYSE”) the annual certification required to be furnished pursuant to Section 303A.12 of the NYSE Listed Company Manual. The certification confirmed that Magnetek’s Chief Executive Officer was not aware of any violation by Magnetek of the NYSE’s corporate governance listing standards.

16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Magnetek, Inc.

We have audited the consolidated financial statements of Magnetek, Inc. as of July 2, 2006 and July 3, 2005 and for each of the three years in the period ended July 2, 2006, and have issued our report thereon dated September 28, 2006 (included elsewhere in this Annual Report on Form 10-K). Our audits also included the financial statement schedule listed in Item 15(a) of this Annual Report on Form 10-K. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Woodland Hills, California

September 28, 2006

17

EX-10.39

Exhibit 10.39

Final Execution Copy

SALE OF MAGNETEK, INC.

POWER ELECTRONICS GROUP

to

POWER-ONE INC.,

a Delaware corporation;

As of September 28, 2006

TABLE OF CONTENTS

		Page
ARTICLE I THE ACQUISITION		1
1.1	Purchase and Sale of Acquired Shares and Purchase Assets	1
1.2	Assumption of Liabilities	2
1.3	Retained Assets	2
1.4	Retained Liabilities	2
1.5	Consideration	3
1.6	Initial Closing Indebtedness Amount	4
1.7	Post-Closing Adjustment to Purchase Price	4
1.8	Closing	6
1.9	Closing Deliveries	6
1.10	Purchase Price Allocation	8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER		8
2.1	Organization	8
2.2	Organizational Documents	9
2.3	Subsidiaries; Ownership of Shares	9
2.4	Authority	9
2.5	Non-Contravention; Required Consents	10
2.6	Capitalization	10
2.7	Financial Statements; Accounting Controls	10
2.8	Absence of Changes	11
2.9	Suppliers and Customers	12
2.10	Intellectual Property	12
2.11	Real Property; Title to Assets; Equipment	14
2.12	Related Party Transactions	15

i

		Page
2.13	Contracts	15
2.14	Legal Proceedings	17
2.15	Governmental Authorizations; Legal Compliance	17
2.16	Tax Matters	18
2.17	Employee Benefit Matters	19
2.18	Environmental Matters	20
2.19	Labor Relations	21
2.20	Product Warranty and Product Liability	22
2.21	Brokers	23
2.22	Insurance	23
2.23	Bank Accounts; Powers of Attorney	23
2.24	Sarbanes Oxley Certifications	23
2.25	Export Control	23
2.26	HSR Act	24
2.27	Disclaimer of Representations and Warranties	24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER		24
3.1	Due Organization	24
3.2	Authority; Binding Nature	24
3.3	Non-Contravention; Consents	24
3.4	Brokers	25
3.5	Litigation	25
3.6	Sufficient Funds	25
3.6	Sufficient Funds	25
3.8	Acknowledgment Regarding Transaction	25

ii

		Page
ARTICLE IV CERTAIN COVENANTS OF THE PARTIES		25
4.1	Access to Information	25
4.2	Operation of the Group	25
4.3	No Solicitation	27
4.4	Confidentiality	27
4.5	Filings; Consents	28
4.6	Further Assurances	28
4.7	Public Disclosure	28
4.8	Notification of Certain Matters; Effect of Notification	29
4.9	Tax Returns	29
4.10	Expenses	31
4.11	Pending Litigation	32
4.12	[Intentionally Omitted]	32
4.13	Limitations	32
4.14	Approvals	34
4.15	Notices and Cooperation	34
4.16	Accounts Receivable	34
4.17	Disclosure Schedule Updates	35
4.18	Delivery of Monthly Financial Statements	35
4.19	Employees	35
4.20	Intellectual Property Licenses	36
ARTICLE V CLOSING CONDITIONS		36
5.1	Conditions to Each Party’s Obligations	36
5.2	Conditions to Buyer’s Obligations	37

iii

		Page
5.3	Conditions to Obligations of Seller	38
ARTICLE VI TERMINATION		38
6.1	Termination	38
6.2	Effect of Termination	39
6.3	Procedure Upon Termination	39
ARTICLE VII INDEMNIFICATION		39
7.1	Survival of Representations, Warranties and Covenants	39
7.2	Indemnification by Seller	40
7.3	Limitations on Seller’s Indemnification Liability	40
7.4	Indemnification by Buyer	42
7.5	Notice of Claim	43
7.6	Defense of Third-Party Claims	43
7.7	Resolution of Claims	43
7.8	Purchase Price Adjustment	43
7.9	Exclusive Remedy; Limitation on Damages	44
7.10	Damages Net of Insurance; Taxes	44
7.11	Environmental Indemnity Procedures	44
ARTICLE VIII MISCELLANEOUS PROVISIONS		45
8.1	Amendment; Waiver	45
8.2	Applicable Law; Severability	45
8.3	Attorneys’ Fees	45
8.4	Venue for Dispute Resolution	45
8.5	Assignability; Third Party Beneficiary	46
8.6	Notices	46

iv

		Page
8.7	Construction	47
8.8	Interpretation	48
8.9	Counterparts	48
8.10	Telecopy Execution and Delivery	48
8.11	Entire Agreement	48
8.12	Equitable Relief; Cumulative Remedies	48
ARTICLE IX DEFINITIONS		48

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PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (this “Agreement”), dated as of September 28, 2006, is made by and among Magnetek, Inc., a Delaware corporation (“Seller”) and Power-One Inc, a Delaware corporation (“Buyer”).  Except as otherwise indicated, capitalized terms have the meanings set forth in Article IX.

BACKGROUND

WHEREAS, Seller, Magnetek, S.p.A., a società per azioni organized and existing under the laws of Italy, with registered office in Terranuova Bracciolini (Arezzo, Italy) at Via San Giorgio 642, fiscal code/Register of Enterprises of Arezzo no. 09286180154, fully paid-in corporate capital of Euro 22,000,000.00 (“Magnetek Italy”), Magnetek kFT, a Hungarian corporation and wholly-owned subsidiary of Magnetek Italy (“Magnetek Hungary”), Magnetek Vetriebsgesellschaft GmbH, a German corporation and wholly-owned subsidiary of Magnetek Italy (“Magnetek Germany”), and Magnetek Electronics (Shenzhen) Co. Ltd., a Chinese corporation and wholly-owned subsidiary of Magnetek Italy (“Magnetek China”, and together with Magnetek Italy, Magnetek Germany and Magnetek Hungary, the “Companies”, and each a “Company”) have heretofore collectively and individually engaged (including through the operations of Seller currently conducted in Chatsworth, California), inter alia, in the business of designing, manufacturing and selling digital and analog power electronic products, including custom and standard power components and alternative energy power conversion products, as well as integrated power and control systems (including motor control systems of appliances and white goods) used in a variety of industries, through Seller’s Power Electronics group (the “Group”) (hereinafter, the above-referenced business of the Group is referred to as the “Business”, and the Business conducted by Seller at its facility in Chatsworth, California is referred to as the “US Business”);

WHEREAS, Seller owns all of the issued and outstanding stock of Magnetek Italy, consisting of 22,000,000 shares of common stock, par value 1 Euro each (collectively, the “Acquired Shares”); and

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Group, such sale to be effected by the conveyance to Buyer of (i) all of the Acquired Shares and (ii) all of the rights, properties and other assets of every kind and nature, tangible and intangible, absolute or contingent, of Seller used primarily in or relating to the US Business (including but not limited to those set forth on Schedule 1.1, but excluding the Retained Assets (collectively, the items described in this clause (ii) are referred to herein as the “Purchase Assets”)), subject to the liabilities of Seller primarily relating to the Business (excluding the Indemnified Liabilities), for the consideration and on the terms set forth in this Agreement (the “Acquisition”).

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I
THE ACQUISITION

1.1Purchase and Sale of Acquired Shares and Purchase Assets.  Subject to the terms and conditions of this Agreement, at the Closing, Seller will sell, convey, transfer and deliver to Buyer, and Buyer will acquire and accept from Seller, all right, title and interest of Seller in and to the Acquired Shares and the Purchase Assets.

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1.2Assumption of Liabilities.  On the terms and subject to the conditions of this Agreement, Buyer agrees to assume, effective as of the Closing, and thereafter to pay, perform or discharge the Assumed Liabilities.  The “Assumed Liabilities” shall mean only the Liabilities of Seller primarily arising out of the operations of the US Business, absolute or contingent, whether arising before or after the Closing, including the following but in any case excluding the Indemnified Liabilities:

(a)all Liabilities under the Assigned Contracts; and

(b)all accrued and unpaid payables of the US Business to the extent accrued as a liability on the Final Closing Balance Sheet, to the extent not paid prior to Closing.

1.3Retained Assets.  Notwithstanding anything herein to the contrary, the assets listed on Schedule 1.3 are not included in the Purchase Assets and shall be retained by Seller (the “Retained Assets”).

1.4Indemnified Liabilities.  Except as expressly assumed by Buyer pursuant to Section 1.2, none of Buyer or any of its Affiliates will assume or be liable for any Liabilities of Seller, whether arising before or after the Closing, and whether relating to periods before or after the Closing (collectively, the “Retained Seller Liabilities”). In addition to and without limiting the generality of the prior sentence, each of the following Liabilities, whether arising before or after the Closing and whether relating to periods before or after the Closing are collectively referred to in this Agreement as the “Indemnified Group Liabilities” and, together with the Retained Seller Liabilities, are collectively referred to in this Agreement as the “Indemnified Liabilities”:

(a)all Liabilities under the Non-Assigned Contracts;

(b)all Liabilities of Seller under or arising or resulting from any Employee Benefit Plan whether or not set forth on Schedule 2.17(a), whether relating to periods before or after the Closing Date, and including all Liabilities disclosed on Schedule 2.17(c) and Schedule 2.17(d) or arising with respect to the matters identified on Schedule 2.17(e);

(c)all Liabilities for Taxes of Seller, except to the extent provided in Section 4.10;

(d)all Indebtedness of Seller, other than obligations under capitalized leases to the extent accrued as a liability on the Final Closing Balance Sheet

(e)all Liabilities arising or resulting from the Retained Assets;

(f)all Liabilities for fees and expenses (except to the extent provided in Section 4.10) incurred by or on behalf of Seller or its Affiliates prior to or at the Closing in connection with this Agreement, any Transaction Document or the Acquisition, including any finder’s fee or similar charge or commission due to any Person who has acted for Seller or its Affiliates in connection with the transactions contemplated by this Agreement;

(g)all Liabilities arising or resulting from Legal Proceedings relating to the Business that are pending as of the Closing (regardless of whether the Liabilities are known or alleged as of the Closing, and regardless of whether the Liabilities arise before or after the Closing but only to the extent that such Liabilities arise or result from such Legal Proceedings), including those Legal Proceedings set forth on Schedule 2.14(a);

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(h)all Liabilities arising or resulting from any Pending Claims and all Liabilities arising or resulting from the matters described in the letter set forth on Schedule 2.10(b)(1)(B), or any counterclaims arising or resulting therefrom;

(i)all Liabilities arising or resulting from Environmental Claims, subject to Section 7.11;

(j)all Liabilities arising or resulting from any third-party claim of infringement, violation, or misappropriation of any Intellectual Property Rights of any Person related to or arising from any lighting product that is or was included in any Product of Seller;

(k)all Liabilities owing by any Company to Seller or any Affiliate of Seller (other than a Company);

(l)all Liabilities owing by Magnetek Italy to the directors of Magnetek Italy in their capacity as director before the Closing, to the extent that a release therefor for the benefit of Magnetek Italy is not obtained from such director as of the Closing;

(m)all Liabilities arising or resulting from claims under any Warranty provided by the Business prior to the Closing Date made within eighteen (18) months following the Closing Date (provided that Buyer notifies Seller within 30 days of the expiration of such period) for service, repair, replacement or similar work with respect to any Products manufactured or sold or services provided by the Business on or before the Closing Date, the aggregate costs and expenses of which, at shop level cost (direct materials, direct labor and factory overhead) as well as out-of-pocket costs and expenses in connection with servicing such claims (including site visit and field support), exceed the warranty reserve on the Final Closing Balance Sheet.  To the extent Warranty claims are made after the Closing Date in respect of Products manufactured prior to the Closing Date but sold thereafter, Seller’s liability shall be limited to the terms of its Warranty provided for such product prior to the Closing Date; and

(n)all reasonable out-of-pocket costs and expenses up to but not exceeding $250,000 incurred by any Buyer Indemnitee in connection with moving the facility referenced on Schedule 2.11(d) to another location as a result of circumstances disclosed in the last two sentences on Schedule 2.11(d) and consisting solely of the costs and expenses of (i) moving the facility, (ii) tenant improvements at a new location and (iii) any Damages imposed by a Governmental Entity arising from such disclosed circumstances.

In addition to the foregoing, and notwithstanding any other provision of this Agreement to the contrary, on the Closing Date Seller will repay the receivable of Magnetek Italy in an amount (the “Euro Dollar Amount”) calculated as set forth on Schedule 1.4.

1.5Consideration; Payments.

(a) Subject to the terms and conditions of this Agreement, the total consideration (the “Purchase Price”) for the purchase of the Acquired Shares and the Purchase Assets will be (a) $71,700,000, plus the Euro Dollar Amount, plus or minus the further adjustments at the Closing set forth in Section 1.6, minus the Escrow Amount (such amount, after making such additions or subtractions, the “Closing Payment”), and (b) the assumption of the Assumed Liabilities.

(b)The Closing Payment shall be paid by Buyer to Seller in cash, by wire transfer of immediately available funds in U.S. dollars, to an account designated by the Seller to the Buyer in writing at least two Business Days in advance.

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(c)The Purchase Price is based on the Balance Sheet (as defined in Section 2.7(a)) and the principles, methods and practices used by Seller in the preparation thereof. The Purchase Price is subject to further adjustments pursuant to Section 1.7 after the Closing.  For purposes of any calculations made pursuant to Section 1.6 or 1.7 for amounts expressed in any currency other than U.S. Dollars, such amounts shall be converted into U.S. dollars at the applicable foreign currency-to-U.S. Dollar exchange rate (based upon the arithmetic average of the closing exchange rates for the five (5) Business Days ending two (2) Business Days prior to the Closing Date) as reported at www.oanda.com.

1.6Adjustment to Purchase Price at Closing.

(a) Initial Closing Balance Sheet.  For purposes of determining the Closing Payment, Seller shall prepare and deliver to Buyer, at least five (5) Business Days before the Closing Date, Seller’s good faith best estimate of the combined unaudited balance sheet of the Business as of the Closing Date (the “Initial Closing Balance Sheet”) together with a schedule setting forth the Adjusted Tangible Net Worth based on the Initial Closing Balance Sheet (the “Initial Adjusted Tangible Net Worth”) and a schedule setting forth the Closing Net Indebtedness Amount based on the Initial Closing Balance Sheet (the “Initial Closing Net Indebtedness Amount”).  The Initial Closing Balance Sheet and such schedules shall be accompanied by reasonable supporting documentation.  The Initial Closing Balance Sheet shall fairly present Seller’s best estimate of the financial condition of the Business (excluding the Retained Assets and the Indemnified Liabilities) as of the Closing Date in accordance with GAAP, consistently applied in accordance with those principles, methods and practices used in the preparation of the Balance Sheet.

(b)Right of Review. Buyer shall have the right to review the Initial Closing Balance Sheet, such schedules and such supporting documentation or other data as Buyer may reasonably request from Seller.  If Buyer does not agree with the Initial Closing Balance Sheet, the Initial Adjusted Tangible Net Worth, or the Initial Closing Net Indebtedness Amount, Buyer and Seller shall negotiate in good faith to mutually agree on an acceptable Initial Closing Balance Sheet, the Initial Adjusted Tangible Net Worth, or the Initial Closing Net Indebtedness Amount, and the Seller shall consider in good faith any proposed comments or changes that Buyer may reasonably suggest; provided, however, that the failure to include in the Initial Closing Balance Sheet or the calculation of the Initial Adjusted Tangible Net Worth or the Initial Closing Net Indebtedness Amount any changes proposed by Buyer, or the acceptance by Buyer of any the foregoing, shall not (i) limit or otherwise affect Buyer’s remedies under this Agreement, including Buyer’s right to include such changes or other changes in the Final Closing Balance Sheet, or (ii) constitute an acknowledgment by Buyer of the accuracy of the Initial Closing Balance Sheet or the Initial Adjusted Tangible Net Worth or the Initial Closing Net Indebtedness Amount.

(c)Purchase Price Adjustment. The Closing Payment and the Purchase Price shall be increased or decreased by the amount (the “Initial Net Worth Adjustment”) by which the Initial Adjusted Tangible Net Worth exceeds (expressed as a positive number) or is exceeded by (expressed as a negative number) $48,780,000 (the “Target”).  In addition, the Closing Payment and the Purchase Price shall be decreased by the amount that the Initial Closing Net Indebtedness Amount exceeds $16,676,000.  There will be no change in the Closing Payment or Purchase Price if the Initial Closing Net Indebtedness Amount is equal to or less than $16,676,000.  The Target has been calculated as set forth on Schedule 1.6(c).

1.7Post-Closing Adjustment to Purchase Price.

(a)Final Closing Balance Sheet.  Within sixty (60) days after the Closing Date, Buyer, at Buyer’s expense, shall prepare and deliver to Seller a combined unaudited balance sheet of the Business as of the close of business on the Closing Date, including only the Group Assets and the Group

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Liabilities and excluding the Retained Assets and the Indemnified Liabilities (the “Final Closing Balance Sheet”), together with a schedule setting forth the Adjusted Tangible Net Worth based on the Final Closing Balance Sheet (the “Final Adjusted Tangible Net Worth”) and a schedule setting forth the Closing Net Indebtedness Amount based on the Final Closing Balance Sheet (the “Final Closing Net Indebtedness Amount”).  The Final Closing Balance Sheet shall fairly present the financial condition of the Business (excluding the Retained Assets and the Indemnified Liabilities) as of the Closing Date in accordance with GAAP, consistently applied in accordance with those principles used in the preparation of the Balance Sheet, except that it is agreed and acknowledged that the inventory reserve set forth on the Final Closing Balance Sheet shall equal the inventory reserve set forth on the Balance Sheet, other than reductions in the reserve that may have occurred since the Balance Sheet date for the disposal of inventory to which the reserve related as of the Balance Sheet date.  The Final Closing Balance Sheet shall become final and binding according to Section 1.7(b).  The sum of (i) amount by which the Final Adjusted Tangible Net Worth exceeds (expressed as a positive number) or is exceeded by (expressed as a negative number) the Initial Adjusted Tangible Net Worth, minus (ii) the amount by which the Final Closing Net Indebtedness Amount exceeds the greater of (1) the Initial Closing Net Indebtedness Amount and (2) $16,676,000, shall be referred to as the “Purchase Price Adjustment.”

(b)Disagreements as to Final Closing Balance Sheet.  During the 30 days immediately following Seller’s receipt of the Final Closing Balance Sheet, Seller shall be entitled to review at its own expense the Final Closing Balance Sheet and Buyer’s working papers relating to the Final Closing Balance Sheet, and Buyer shall provide Seller reasonable access to its personnel, properties, books and records to the extent relevant to such audit and/or review.  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.  Any Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted.  If a timely Notice of Disagreement is received by Buyer with respect to the Final Closing Balance Sheet, then the Final Closing Balance Sheet (as revised in accordance with clauses (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 all differences they have with respect to all matters specified in a Notice of Disagreement or (y) the date all matters properly in dispute are finally resolved in writing by the Accounting Firm (as defined below).  During the thirty (30) days immediately following the delivery of any Notice of Disagreement, Seller and Buyer shall seek in good faith to resolve in writing all 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 reasonable access to the other party’s working papers relating to such party’s preparation or review of the Final Closing Balance Sheet or the Notice of Disagreement, as applicable.  At the end of such 30-day period, Seller and Buyer shall submit to an independent accounting firm (the “Accounting Firm”) for review and resolution of 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 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.  The Accounting Firm shall be PricewaterhouseCoopers, 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 within 10 Business Days of the end of such 30-day period; provided that if they cannot so agree, then each of the Buyer and the Seller shall select one accounting firm within such 10 Business Day period, and both accounting firms so selected shall then choose a third accounting firm (which shall be independent from both Buyer and Seller) within 10 Business Days, which shall then be the Accounting Firm for purposes of this Section.  The Accounting Firm’s sole authority will be to resolve amounts in disagreement related to the Final Closing Balance Sheet, and the Accounting Firm will have no authority over any other disagreement (including but not limited to questions of law, interpretation of contract, and

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fraud). The Accounting Firm shall be instructed to provide a written report of its findings and determination to Buyer and Seller within 30 days of its appointment. The fees and expenses of the Accounting Firm in connection with the procedures contemplated pursuant to this Section 1.7(b) shall be borne 50% by Buyer and 50% by Seller.

(c)Purchase Price Adjustment.  Based on the Final Closing Balance Sheet and the Purchase Price Adjustment as determined under subsections (a) and (b) above, the Purchase Price will be adjusted as provided herein.  In the event that a timely Notice of Disagreement has been given, the Purchase Price Adjustment shall be calculated (x) by the parties pursuant to the resolution in writing of any differences between them, or (y) by the Accounting Firm, in writing, as part of its final resolution of disputes.  In the event that no Notice of Disagreement has been given, the Purchase Price Adjustment will be calculated by Buyer and delivered to Seller within three (3) Business Days following the date on which the Final Closing Balance Sheet becomes final and binding.  The Purchase Price Adjustment shall represent an increase (if a positive number) or decrease (if a negative number) in the Purchase Price.  In the event the Purchase Price Adjustment is a positive number, then Buyer shall pay to Seller (as additional Purchase Price) an amount equal to the Purchase Price Adjustment plus an additional amount equal to interest thereon calculated at the Applicable Rate for the period from (and including) the Closing Date to (but not including) the date such payment is made (the “Interest Period”), and in the event the Purchase Price Adjustment is a negative number, then Seller shall pay to Buyer (as a refund of Purchase Price) an amount equal to the Purchase Price Adjustment (expressed as if a positive number) plus an additional amount equal to interest thereon calculated at the Applicable Rate for the Interest Period.  Within three (3) Business Days following determination of the Purchase Price Adjustment, such payment shall be made in cash, via wire transfer to an account designated in writing at least 48 hours in advance by the party to receive such payment, by Buyer or Seller, as the case may be, to the other party.

1.8Closing.  The consummation of the purchase and sale of the Acquired Shares and the Purchase Assets (the “Closing”) provided for in this Agreement will take place at the offices of counsel to Seller at 333 S. Grand Avenue, 47th Floor, Los Angeles, California 90071 at 9:00 a.m. on (i) the third Business Day following the date on which all conditions to Closing specified in Article V of this Agreement (except for the conditions that will only be satisfied on the Closing Date) have been satisfied or waived, or (ii) at such other time and place as the parties may agree in writing (the “Closing Date”).  Subject to the provisions of Section 6.1, failure to consummate the Acquisition provided for in this Agreement on the date and time and at the place determined pursuant to this Section 1.8 alone will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement.  Once consummated, the Closing shall be deemed effective at 12:01 a.m. on the day of the Closing.

1.9Closing Deliveries.

(a)Seller Deliveries.  At the Closing, Seller will deliver to Buyer:

(i) a certificate or certificates representing the Acquired Shares, duly endorsed (or accompanied by duly executed stock powers or the equivalent under foreign Legal Requirements) by Seller for transfer to Buyer;

(ii) certificates from appropriate authorities as to the good standing (or equivalent status under foreign Legal Requirements) of Magnetek Italy in Italy and each jurisdiction in which Magnetek Italy is qualified to do business as a foreign corporation, each dated not earlier than thirty (30) days prior to the Closing Date;

(iii) a cross-receipt for receipt of the Purchase Price signed by Seller;

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(iv) certificates from appropriate authorities as to the good standing (or equivalent status under foreign Legal Requirements) of each other Company in its jurisdiction of formation, each dated not earlier than thirty (30) days prior to the Closing Date; provided, that with respect to Magnetek China, such delivery shall be deemed satisfied upon delivery of (1) a certified copy of Magnetek China’s current business license with an annual inspection stamp thereon indicating that Magnetek China has passed the latest annual inspection (2) a copy of the search result (dated not earlier than thirty (30) days prior to the Closing Date) of the records of the relevant office of the Administration for Industry and Commerce, which shall indicate that Magnetek China remains duly registered as a wholly foreign owned enterprise in China and remains a wholly-owned subsidiary of Seller, each as of the date of the search, and (3) investment certificate or certificates issued by Magnetek China representing all of its registered capital;

(v)copies of minutes of the shareholders’ meetings of Magnetek Italy, duly recorded in Magnetek Italy’s relevant corporate book, held pursuant to Section 5.2(g);

(vi)a Bill of Sale and Assumption Agreement in substantially the form attached hereto as Exhibit A, a Patent Assignment in substantially the form attached hereto as Exhibit B, and a Trademark Assignment in substantially the form attached hereto as Exhibit C (collectively, the “Ancillary Agreements”), each duly executed by Seller, and all other assignments, endorsements and instruments of transfer as shall be necessary or appropriate to carry out the intent of this Agreement and as shall be sufficient to vest in Buyer all of Seller’s right, title and interest in the Purchase Assets;

(vii)letters of resignation dated as of the Closing and in substantially the form attached hereto as Exhibit D from each director of each Company or evidence of prior termination of any such directors;

(viii) all original shareholders’ ledger and minute books of the meetings of the board of directors and shareholders, and all other corporate records of each Company and all of the Business Records of the Group (provided that this obligation will be deemed satisfied to the extent located at a facility of the Business at one of the Real Properties); and

(ix) the additional documents described in Section 5.2 of this Agreement.

(b)Buyer Closing Deliveries.  At the Closing, Buyer will make the following deliveries:

(i) Buyer will deliver to Seller, by wire transfer of immediately available funds in U.S. dollars to an account(s) designated by Seller, the Closing Payment;

(ii) Buyer will deliver to Seller a cross-receipt for receipt of the Acquired Shares;

(iii)Buyer will execute and deliver the instruments described in clause (vi) of Section 1.9(a) above, as applicable;

(iv)Buyer will deliver to Seller a California resale certificate, providing that the inventory held in Seller’s Chatsworth facility is being purchased for resale, in form and substance reasonably satisfactory to Seller; and

(v) Buyer will deliver the additional documents described in Section 5.3 of this Agreement.

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1.10Purchase Price Allocation.  Schedule 1.10 sets forth an initial allocation of the Purchase Price (to the extent treated as purchase price paid for the Purchase Assets and Acquired Shares for U.S. federal income tax purposes) as between the Purchase Assets, on the one hand, and the Acquired Shares, on the other hand, subject to adjustment pursuant to the next sentence.  Within 60 calendar days after the determination of the Final Closing Balance Sheet, the Buyer will prepare and deliver to Seller a schedule setting forth a proposed final allocation of the Purchase Price and the Assumed Liabilities (to the extent taken into account as purchase price for U.S. federal income tax purposes) among the Purchase Assets and the Acquired Shares.  During the 30 calendar days following such 60 calendar day period, Buyer and Seller will use their reasonable efforts to collectively determine whether the Buyer’s proposed final allocation will be used as the basis for an asset allocation for purposes of Section 1060 of the Code and to determine if any adjustments are appropriate and, regardless, will use reasonable efforts to allocate the Purchase Price and such Assumed Liabilities among the Purchase Assets and the Acquired Shares in accordance with Section 1060 of the Code.  If the parties agree to an allocation within such 30-day period, such allocation will be reflected on each party’s Form 8594, and each party will prepare and file its respective federal, state and local Tax Returns, as applicable, consistent with such allocation.  If the parties are unable to agree to an allocation within such period, each party will prepare and file its own Form 8594.  Whether or not the parties agree upon an allocation, each party shall provide to the other a copy of the Form 8594 that was actually filed by such other party for federal income tax purposes with respect to the transaction described herein upon request from the other party.  Similar timing and procedures shall apply with respect to any Form 8883 to be filed in connection with a Section 338 Election, except that the 60-day period referred to above shall commence five calendar months following the month in which the Closing occurs.  Regardless of the foregoing, Buyer and Seller agree that neither the portion of the Purchase Price allocable to the Purchase Assets nor the “fair market value” (determined under the procedures specified in 16 CFR 801.10(c)(3)) of the Purchase Assets is equal to, or in excess of, $56.7 million.

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth in the disclosure schedule delivered by Seller to Buyer on the date of this Agreement and attached hereto as Exhibit E and incorporated herein (the “Disclosure Schedule”), Seller represents and warrants to Buyer that the statements contained in this Article II are true, correct and complete as of the date of this Agreement and as of the Closing Date (or, if made as of a specified date, as of such date).

2.1Organization.  Each of Seller and Magnetek Italy is a corporation (or similar organization under foreign Legal Requirements) duly organized, validly existing and in good standing (or equivalent status under foreign Legal Requirements) under the laws of the jurisdiction of its organization, and has the necessary corporate (or comparable power under foreign Legal Requirements) power and authority to conduct its business in the manner in which its business is currently being conducted and to own or lease such of the Group Assets as it owns or leases.  Magnetek Italy is qualified to do business in each jurisdiction listed on Schedule 2.1, and Magnetek Italy is qualified and in good standing (or equivalent status under foreign Legal Requirements) under the laws of each jurisdiction where the nature of its business requires such qualification, except where the failure to so qualify would not have a Material Adverse Effect.  Seller is qualified and in good standing (or equivalent status under foreign Legal Requirements) under the laws of each jurisdiction where the nature of its business requires such qualification, except where the failure to so qualify would not have a Material Adverse Effect.  There is no pending or threatened proceeding for the dissolution or liquidation of Magnetek Italy.  No Company operates (nor has operated in the past five years) under any name other than the respective names set forth in their respective charter. Seller does not, with respect to the Business, operate (and has not operated in the past five years) under any name other than the name set forth in its charter

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2.2Organizational Documents.  Magnetek Italy has delivered to Buyer or its counsel complete and accurate copies of the following: (a) the atto costitutivo and statuto of Magnetek Italy, as currently in effect, and (b) minutes and other records of the meetings and other proceedings of the board of directors and shareholders of Magnetek Italy.  Magnetek Italy is not in violation of any provisions of its atto costitutivo or statuto.

2.3Subsidiaries; Ownership of Shares.

(a)Schedule 2.3(a) sets forth, for each Company (i) the jurisdiction of its incorporation or organization, (ii) the number and type of authorized and outstanding equity securities or registered capital of such Company and a list of the holders thereof, (iii) the names of its officers and directors, and (iv) the jurisdiction in which it is qualified or holds licenses to do business or otherwise conducts business.  Except for the Companies, Magnetek Italy does not own or have any right or obligation to acquire, directly or through a Company, any equity, participation, or ownership interest in any other Person or otherwise Control any Person.  There is no pending or threatened proceeding for the dissolution or liquidation of any Company.

(b)Each Company is duly organized, validly existing and in good standing (or equivalent status under foreign Legal Requirements) under the laws of the jurisdiction of its organization.  Each Company has the necessary corporate (or comparable power under foreign Legal Requirements) power and authority to conduct its business in the manner in which its business is currently being conducted and to own or lease such of the Group Assets as it owns or leases.  Each Company is qualified to do business in each jurisdiction where the nature of its business requires such qualification, except where the failure to so qualify would not have a Material Adverse Effect.  Seller has delivered to Buyer or its counsel complete and accurate copies of the organizational documents of each Company, as currently in effect, and has made available to Buyer the minutes of the board of directors and shareholders of each Company.  No Company is in violation of any provisions of its organizational documents.

(c)Except as set forth in Schedule 2.3(c), no Company is a general or limited partner of any general partnership, limited partnership or other Person.

(d)Seller is the sole record and beneficial owner of the Acquired Shares, which represent all of the outstanding shares of Magnetek Italy, and has no other equity, participation, or ownership interest in Magnetek Italy or any right to acquire any of the foregoing.  Magnetek Italy or a Company is the sole record and beneficial owner of all outstanding shares of capital stock or, as the case may be, the entire registered capital, of each Company (collectively, the “Company Shares”).  Except as set forth in Schedule 2.3(d), the Acquired Shares and the Company Shares are not subject to any Encumbrance or any rights of first refusal of any kind.  Seller has good and valid title to and has the right to transfer and sell the Acquired Shares to Buyer in accordance with the terms of this Agreement.

2.4Authority.  Seller has the corporate (or comparable power under foreign Legal Requirements) power and authority to execute, deliver and perform its obligations under this Agreement and each of the Transaction Documents required to be delivered by it pursuant to the terms of this Agreement and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement by Seller, and of the Transaction Documents it is party to, and the consummation of the Acquisition and the transactions contemplated by this Agreement and by the Transaction Documents it is party to, have been duly authorized and approved by all necessary corporate action on the part of Seller.  This Agreement and each of the Transaction Documents that Seller is party to have been duly and validly executed and delivered by such party and constitute the legal, valid and binding obligation of such party, enforceable against such party in accordance with their terms, subject to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors

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generally and (b) rules of law and equity governing specific performance, injunctive relief and other equitable remedies.

2.5Non-Contravention; Required Consents.  The execution and delivery of this Agreement by Seller and of the Transaction Documents it is party to do not, and the consummation by Seller of the Acquisition and the transactions contemplated by this Agreement and the Transaction Documents it is party to will not (a) conflict with or violate any provisions of the Certificate of Incorporation or Bylaws (or similar governing documents) of Seller or any Company; (b) violate any Legal Requirement applicable to Seller or any Company; (c) result in a breach, cause a default under, or give rise to a right of payment under or the right to terminate, amend, modify, abandon or accelerate or increase obligations under (in any case with due notice or lapse of time or both), any Material Contract; (d) result in the imposition of any Encumbrance against any material Group Asset; or (e) require any Approval, including any filings or notifications that may be required under the HSR Act, except for the third party consents or notices set forth on Schedule 2.5 (the “Required Consents”).  No consent or approval of the stockholders of Seller is required in connection with the transactions contemplated hereby.

2.6Capitalization.

(a)Schedule 2.6 sets forth the number of shares of capital stock (or the total registered capital) of each Company authorized, issued and outstanding as of the date hereof.  There are no options, warrants, convertible securities, subscription rights, conversion rights, preemptive rights, exchange rights, or other Contracts to which Seller or any Company is a party relating to the issuance or sale of any securities or other equity or ownership interest in any Company.  All of the outstanding shares of capital stock and, where applicable, the registered capital of each Company are duly authorized, validly issued, fully paid and nonassessable.

(b)All of the shares of capital stock of the Companies were issued in conformity with applicable Legal Requirements and without violating any preemptive rights.  There are no voting agreements with respect to any securities of any Company.

(c) There are no obligations, contingent or otherwise, of any Company to repurchase, redeem or otherwise acquire any shares of capital stock or any of the registered capital of such Company or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity.  Any shares of capital stock and any amount of registered capital of a Company that were issued and reacquired by such Person were so reacquired (and, if reissued, so reissued) in compliance with all applicable Legal Requirements, and no Company has any outstanding Liability with respect thereto.  There are no accrued and unpaid dividends with respect to any outstanding shares or registered capital of any Company.

2.7Financial Statements; Accounting Controls.

(a)Attached hereto as Schedule 2.7(a)(1) are complete copies of the unaudited consolidated balance sheet of the Group as of July 2, 2006 (the “Balance Sheet”), the unaudited consolidated balance sheet of the Group as of July 3, 2005, and the unaudited consolidated statements of operations, stockholders’ equity and cash flows of the Group for the fiscal years ended July 2, 2006, July 3, 2005 and June 27, 2004, together with notes thereto (collectively, the “Financial Statements”). The material principles, methods and practices used by Seller in preparation of the Balance Sheet are set forth on Schedule 2.7(a)(2).  Except as set forth therein or as disclosed in Schedule 2.7(a)(2), the Financial Statements (1) were prepared in accordance with GAAP consistently applied in accordance with past practice and (2) present fairly the financial position of the Group as of the date thereof and the results of its operations for the periods then ended in all material respects.

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(b)The inventories on the balance sheets included within the Financial Statements were valued in accordance with GAAP consistently applied in accordance with past practice and in accordance with Seller’s inventory policy attached as Schedule 2.7(b).  All inventory classified as such in the Balance Sheet which is on hand and all additions to inventory since the date of the Balance Sheet consist of items of a quantity and quality usable or salable in the ordinary course of the business consistent with past practice, subject to any reserves set forth on the Final Closing Balance Sheet.

(c)All accounts receivable reflected on the Financial Statements and all accounts receivable to be reflected on the Final Closing Balance Sheet arise from sales actually made in the ordinary course of business consistent with past practice and are not subject to any dispute, defense, setoff or similar claim.  No further goods or services are required to be provided by the Seller or Company to which any such account receivable is owing in order to entitle such Person (or its assignee, as the case may be) to collect such account receivable in full, and no receivable to be reflected on the Final Closing Balance Sheet will be pledged or assigned to any Person other than Buyer.  Schedule 2.7(c) sets forth a list of the accounts receivable of the Business as of the date set forth thereon, showing the aging thereof.

(d)The Group has no Liabilities (other than Indemnified Liabilities), either direct or indirect, matured or unmatured, or absolute, contingent or otherwise, except for (i) those Liabilities set forth on the Balance Sheet, (ii) Liabilities arising in the ordinary course of business consistent with past practices since the date of the Balance Sheet, (iii) Liabilities incurred after the date hereof in compliance with this Agreement, and (iv) Liabilities that are not in excess of $200,000, individually or in the aggregate.

(e)None of the Seller (with respect to the Business) or any Company has identified or been made aware of (i) any significant deficiency or material weakness in its system of internal accounting controls, policies or procedures, (ii) any fraud, whether or not material, that involves the management or other employees, contractors or consultants who have a role in the preparation of financial statements or the internal accounting controls utilized by it or (iii) any claim or allegation regarding any of the foregoing.

(f)The Group maintains records in reasonable detail to accurately and fairly reflect the transactions involving the assets and liabilities of the Business and to maintain accountability therefor.

2.8Absence of Changes.  Except as contemplated by this Agreement, since the date of the Balance Sheet, Seller and each Company have operated the Business and the Group only in the ordinary and normal course, consistent with past practice, and since the date of the Balance Sheet, neither Seller (with respect to the Business) nor any Company has:

(a)suffered any Material Adverse Effect;

(b)incurred any material obligations or Liabilities other than in the ordinary course consistent with past practices;

(c)permitted or allowed any of the Group’s material properties or assets to be mortgaged, pledged or subject to any Encumbrance, except liens for Permitted Encumbrances;

(d)entered into any Contract (including but not limited to any Contract for the purchase, sale, transfer, license, lease, or disposition of any assets), other than (i) the sale of inventory in the ordinary course of business consistent with past practices, (ii) customer, distributor or supplier agreements entered into in the ordinary course of business consistent with past practices, and (iii)

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Contracts (other than those described in the immediately preceding clause (ii)) providing for payments by or to either Seller or Magnetek Italy in the aggregate of less than $100,000;

(e)caused or experienced the acceleration, termination, modification, or cancellation of any Material Contract, or received written notice that any other Person intends to accelerate, terminate, modify or cancel any Material Contract;

(f)made or committed to any capital expenditure (or series of related capital expenditures) for additions to property, plant or equipment except for expenditures made in the ordinary course of business consistent with past practices and involving no more than $50,000 individually or $100,000 in the aggregate;

(g)made any capital investment in, loan to or acquisition of the securities, equity interests or assets of, any other Person;

(h)granted any increase in compensation or benefits of employees (including any increase pursuant to any new or presently existing Employee Benefit Plan), or any increase in any such compensation payable or to become payable to any officer or employee except in the ordinary course of business consistent with past practices;

(i)issued any securities or registered capital of any Company or any right to acquire any securities or registered capital of any Company;

(j)waived any right of material value, or initiated, settled or compromised any material claim;

(k)engaged in channel loading (e.g. pre-selling to customers or distributors) or otherwise accelerated sales or collections of receivables (other than factoring of receivables), or delayed the payment of payables (other than in the ordinary course of business consistent with past practice).

(l)made any capital contributions to any Company to the extent such contributions reduced the outstanding Indebtedness of the Group; or

(m)authorized, approved or committed to do any of the foregoing.

2.9Suppliers and Customers.  Schedule 2.9 sets forth a list of each supplier to whom the Group collectively made payments aggregating $100,000 or more (each, a “Key Supplier”) and each customer (including distributors and resellers) from whom the Group collectively received payments aggregating $1,000,000 or more (each, a “Key Customer”), in each case for the fiscal year ended July 2, 2006, together with a list of each sole source supplier to whom the Group collectively made payments aggregating at least $50,000 during such fiscal year (each, a “Key Sole Source Supplier”).  Schedule 2.9 shows, with respect to each Key Customer, Key Supplier and Key Sole Source Supplier, the name and dollar volume involved.  To the Seller’s Knowledge, since January 1, 2005 no Key Supplier, Key Sole Source Supplier, or Key Customer has given written notice to Seller or any Company of such Person’s intention to terminate or substantially reduce the extent of its business relationship with the Group.  Since January 1, 2005, to the Knowledge of Seller, neither the Seller nor any Company has experienced or been notified of any shortage in goods or services that are material to the Business.

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2.10Intellectual Property.

(a)Schedule 2.10(a) lists all United States or foreign patents, applications for patent, copyright, mask work, trademark or service mark registrations, domain name registrations, and applications for any such registrations included in the Group Intellectual Property owned by Seller or any of the Companies, indicating for each, the patent number, registration or application number, filing jurisdiction, date of issue or filing, and current owner of record (the “Group Registered Intellectual Property”).  The Group Registered Intellectual Property is owned exclusively by Seller and the Companies free and clear of all joint ownership, assignments and Encumbrances (other than Permitted Encumbrances) (except for any of the foregoing arising under any licenses or related agreements that are disclosed on Schedule 2.13).  All of the issued Group Registered Intellectual Property (i.e., excluding any applications for patent or for registration of any copyright, mask work, domain name, trademark or service mark) that have not expired are valid, subsisting, have not expired and, except as noted on Schedule 2.10(a), have not been abandoned (except that such representation and warranty as to validity with respect to patents is to the Knowledge of Seller).  Seller has Made Available To Buyer true and correct copies of each of the foregoing applications, registrations, filings, and any unprivileged related correspondence in the possession of Seller or any of the Companies.

(b)Except as set forth on Schedule 2.10(b)(1), (i) the Group is not misappropriating, infringing or violating, and has not since January 1, 2004 misappropriated, infringed or violated, any mask works, copyrights or trade secrets of any other Person or, to the Knowledge of Seller, any other Intellectual Property Rights of any other Person and (ii) the Group has not received any notice or claim alleging that the Group or the Business infringes, misappropriates or otherwise violates the Intellectual Property Rights of any other Person. Except as set forth on Schedule 2.10(b)(2), to the Knowledge of Seller, no third party currently is infringing, violating, misappropriating, or has, since January 1, 2004, infringed, misappropriated or violated, any rights in the Intellectual Property Rights included in the Group Assets. Neither Seller nor any Company has entered into any Contract granting any Person the right to bring infringement actions with respect to, or otherwise to enforce, against third parties any of the material Group Intellectual Property owned by or exclusively licensed to Seller or any Company, other than such rights arising by operation of law under or as a result of any exclusive license of any such Group Intellectual Property.

(c)Seller and the Companies own or have valid license rights to use all Intellectual Property Rights necessary for the Group to conduct its Business as presently conducted, including without limitation the right to make, have made, use, offer for sale, sell, import, reproduce, create derivative works based on, translate, distribute, transmit, display, perform, license, sublicense, assign, transfer, sell and otherwise exploit the Products to the extent currently done by the Seller and the Companies in conducting the Business, without any misappropriation, infringement, or violation of any mask works, copyrights or trade secrets of any other Person or, to the Knowledge of Seller, any other Intellectual Property Rights of any other Person.

(d)All Intellectual Property Rights in and to all material inventions, know-how and works of authorship developed by employees, consultants or independent contractors of the Business in the course of their employment or engagement have been validly transferred and assigned by such employees, consultants and independent contractors to Seller or a Company by a written “work made for hire” or assignment agreement. Seller and the Companies have taken reasonable steps (including entering into confidentiality and nondisclosure agreements with employees, consultants and other Persons with access to or knowledge of confidential and proprietary information of the Business) to safeguard and maintain the secrecy and confidentiality of the Group’s material confidential and proprietary information.

(e)Except as provided in Schedule 2.10(e), neither Seller nor any Company has transferred any ownership or joint ownership of, or granted any exclusive license of, any material Group

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Intellectual Property to any Person or authorized any Person to modify, improve or create derivative works of any material Group Intellectual Property.

(f)Except as provided in Schedule 2.10(f), no Product or portion thereof constituting computer software and no other computer software in which Seller or any of the Companies owns the Intellectual Property Rights (“Proprietary Software”) has been or is being distributed, in whole or in part, or was used, or is being used by Seller or any Company in conjunction with any Public Software in a manner which would require that source code for such Product or Proprietary Software be disclosed or distributed under terms that permit disclosure of such source code in the absence of a binding obligation of confidentiality. “Public Software” means any software that is distributed as free software, open source software (e.g., Linux) or under similar licensing or distribution models, including but not limited to any software licensed or distributed under the following: (i) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL), (ii) the Artistic License (e.g., PERL), (iii) the Mozilla Public License, (iv) the Netscape Public License, (v) the Sun Community Source License (SCSL), (vi) the Sun Industry Standards License (SISL), (vii) the BSD License, and (viii) the Apache License.

2.11Real Property; Title to Assets; Equipment.

(a)Schedule 2.11(a) sets forth a complete list of all of the real property owned by Seller (as it relates to the Business or the Group) or any Company (the “Owned Properties”).  Each of Seller and each Company has good, valid and marketable title to each parcel of Owned Property, free and clear of any Encumbrance (other than Permitted Encumbrances).

(b)Schedule 2.11(b) sets forth a complete list of (i) all of the leases, subleases or other similar agreements (the “Leases”) under which Seller (as it relates to the Business or the Group)or any Company uses or occupies or has the right to use or occupy any real property (the “Leased Properties” and, with the Owned Properties and the Ownership Rights (as defined below), the “Real Properties”), and (ii) all material licenses, easements, rights of way, access and other similar arrangements under which Seller (as it relates to the Business or the Group) or any Company otherwise uses or occupies or has the right to use or occupy any real property (the “Ownership Rights”).  Seller and each Company is, and to Seller’s Knowledge, all other parties under the Leases are in compliance in all material respects with the terms of all Leases, and all such Leases are valid, subsisting and in full force and effect, and free and clear of any Encumbrance (other than Permitted Encumbrances).  Seller has Made Available To Buyer true and correct copies of all Ownership Rights.

(c)The Purchase Assets constitute all of the assets and properties reasonably required to conduct the US Business of Seller in the manner in which and to the extent to which such Business was conducted during the periods reflected in the Financial Statements and is currently being conducted.  Seller does not provide any material services to any Company, except as set forth on Schedule 2.11(c).

(d)Except as set forth in Schedule 2.11(d), the items of equipment, buildings, structures, improvements and other tangible assets owned or leased by Seller (with respect to the Business) or owned or leased by a Company are reasonably adequate for their current uses, are in good condition and repair (ordinary wear and tear excepted), and, to the Knowledge of Seller, are free from material defect.

(e)Neither Seller nor any Company has received written notice of any condemnation or eminent domain Legal Proceedings or written notice of any threat thereof with respect to any interest in any of the Real Properties and is not in negotiations with any Governmental Entity with respect to

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condemnation of, or the exercise by such Governmental Entity of the right of eminent domain in respect of, any Real Properties.

(f)Each Company has good and marketable title to, or a valid leasehold interest in, all of the Group Assets that it owns or leases, and has a valid right to use all other Group Assets that it uses, in each case free and clear of all Encumbrances (other than Permitted Encumbrances).  Schedule 2.11(f) lists individually all fixed assets (within the meaning of GAAP) included in the Group Assets having a book value greater than $1,000 indicating the cost, accumulated book depreciation (if any) and the net book value of each such fixed asset as of the date of such list.

(g)Seller has good and marketable title to, or a valid leasehold interest in, all of the Purchase Assets, in each case free and clear of all Encumbrances (other than Permitted Encumbrances).

2.12Related Party Transactions.  Except as disclosed in Schedule 2.12, no Person who is an officer or director of Seller or any Company, or any Affiliate of Seller or any Company, or any officer or director of any such Affiliate, or to the Knowledge of Seller, any family member of any of the foregoing, (i) is an officer, director or Affiliate of, or has any direct or indirect interest in, any Person that purchases from or sells or furnishes to the Group, any goods or services, or (ii) is a party to any Contract to which the Group is a party, except insofar as is disclosed or reflected in the Financial Statements or in which the amount involved is less than $60,000; provided, however, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed to be an “interest in any Person” for purposes of this Section.

2.13Contracts.

(a)Except as set forth in Schedule 2.13, neither the Seller in respect of the Group or the Business, nor any of the Companies is party to or bound by any Contract of any of the following types (collectively, the “Material Contracts”):

(i)any Contract providing guaranty or suretyship, providing for the issuance of letters of credit, or any pledge, bond or similar arrangement given by or running to the account of a Company;

(ii)any Contract relating to the purchase, lease, license, maintenance, management, acquisition, sale, use, disposition or furnishing of assets properties, goods, products, materials, supplies, merchandise, machinery, equipment, parts or any other property or services, excluding, however, (1) any purchase orders or other customer contracts entered into in the ordinary course of business consistent with past practice, (2) supplier or vendor contracts entered into in the ordinary course of business consistent with past practice, and (3) any Contract not described in (1) or (2) above that is made in the ordinary course of business consistent with past practice that involves revenues or expenditures equal to or less than $25,000 in the aggregate;

(iii)any Contract obligating Seller or any Company to refrain from (1) competing with or engaging in any business, or (2) conducting the Business in any particular jurisdiction;

(iv)any employment or consulting Contract other than employment or consulting Contracts that can be terminated without penalty, severance, liability or premium upon notice of 90 days or less;

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(v)any Contract relating to Indebtedness or under which the Seller or any Company has created, incurred, assumed or guaranteed (or may create, incur, assume or guarantee) Indebtedness or any material Encumbrance;

(vi)any Contract set forth on Schedule 2.12;

(vii)any Contract (excluding any purchase orders) with any Person set forth on Schedule 2.9;

(viii)any Contract involving annual payments to or from the Seller (in respect of the Business) and the Companies, taken as a whole, of more than $100,000;

(ix)any Contract (1) for the cleanup, abatement or other actions in connection with any hazardous material, the remediation of any existing environmental Liabilities, violation of any Environmental Laws or relating to the performance of any environmental audit or study, or (2) containing any undertaking, term or condition under which a seller under the Contract assumes or agrees to perform, be responsible for, or indemnify the buyer against, any of the buyer’s responsibilities under Waste Electrical and Electronic Equipment regulations (e.g., Directive 2002/96/EC of the European Parliament, amendments thereto, or any comparable national or regional supplements or enabling legislation);

(x)any Contract related to any material Intellectual Property Rights or that is set forth on Schedule 2.13(e);

(xi)any instrument set forth on Schedule 2.11(b);

(xii)any Contract not listed above which is or would reasonably be expected to be material to the Group;

(xiii)any Contract containing “non-cancelable non-returnable” provisions relating to the ordering and purchasing of inventory or materials of any nature in excess of $50,000;

(xiv)any Contract which transfers to a Key Customer (either immediately, or upon the occurrence of events specified therein) any Intellectual Property Rights necessary to manufacture a Group product, for the purpose of enabling such Key Customer to take over such manufacture from Seller or a Company, as the case may be;

(xv)any Contract concerning the establishment or operation of a partnership, joint venture or other Person or any capital investment in, loan to or acquisition of the securities, equity interests or assets of, any Person or the acquisition of a business or Person; or

(xvi)any Contract with any union or any collective bargaining agreement.

(b)Each Material Contract, as amended to date, has been Made Available To Buyer, is a bona fide, valid and binding obligation of Seller or the Company party to such Contract, as applicable, is enforceable against such party and, to the Knowledge of Seller, the other parties thereto, in accordance with its terms, and does not violate in any material respect any Legal Requirement applicable to Seller or any Company, as the case may be.  Neither Seller nor any Company that is party to a Material Contract is in material default under any such Material Contract nor has any event or omission occurred, which through the passage of time or the giving of notice, or both, would constitute a material default thereunder or cause the acceleration of any of Sellers’ or the Companies’ obligations thereunder, and, to

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the Knowledge of Seller, neither Seller nor any Company is alleged to be in breach or default in any material respect thereunder.  Neither Seller nor any Company has given written notice to any other Person that such Person has breached, violated or defaulted in any material respect under any Group Material Contract (which breach, violation or default has not been resolved or cured).

(c)The Material Contracts that are included within the Assigned Contracts are denoted with an asterisk (*) on Schedule 2.13.

2.14Legal Proceedings.  Except as set forth on Schedule 2.14(a), there are no material Legal Proceedings pending, or to the Knowledge of Seller, threatened against Seller (relating to the Group or the Business) or any Company. Furthermore, (a) neither Seller (as relates to the Group or the Business) nor any Company is subject to any judgment, decree, injunction or order of any Governmental Entity, (b) no Legal Proceeding has been instituted against Seller or any Company before any Governmental Entity by any Person seeking to restrain or prohibit the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, and (c) neither Seller nor any Company has received any written notice of any investigation or review by any Governmental Entity with respect to the Group and, to the Knowledge of Seller, no investigation or review by any Governmental Entity with respect to the Group is pending or threatened.  Neither Seller (as relates to the Group or the Business) nor any Company has given written notice threatening to initiate any Legal Proceeding against any Person.  Except as set forth on Schedule 2.14(b), there are no Legal Proceedings related to the Group or the Business in which Seller or any Company is plaintiff or claimant (the “Pending Claims”).

2.15Governmental Authorizations; Legal Compliance.

(a)Seller and each Company has all material Governmental Authorizations to enable it to conduct the Business in the manner in which the Business is currently being conducted or has been conducted during the period reflected in the Financial Statements, and Seller and each Company is in compliance in all material respects with the terms and requirements of such Governmental Authorizations.  Schedule 2.15(a) sets forth each such material Governmental Authorization.  Since January 1, 2004, neither Seller (as relates to the Group or the Business) nor any Company has received any written notice or other written communication from any Governmental Entity (i) asserting any material violation of or failure to comply with any Legal Requirement of any Governmental Authorization or (ii) notifying such party of the revocation or withdrawal of any Governmental Authorization relating to the Group.

(b)Each of Seller (as relates to the Group or the Business) and the Companies is in material compliance with all applicable Legal Requirements.  None of Seller (as it relates to the Business) nor any Company is subject to any material judicial order, decree, decision, award, injunction, stipulation, holding, judgment or writ that by its terms expressly applies to such Person.  Since January 1, 2004, neither Seller (as relates to the Group and the Business) nor any Company has been cited, fined or otherwise notified in writing of any failure to comply with any material Legal Requirement and no Legal Proceeding with respect to any such violation is pending or, to the Knowledge of Seller, threatened.

(c)Since January 1, 2004, none of Seller or any Company, or any director, officer, employee or shareholder thereof, nor, to the Knowledge of Seller, any agent, representative, or any Person acting for or on behalf of any of them, has directly or indirectly (i) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment or item of value to any Person, private or public, regardless of what form, whether or not in money, property, or services (A) to obtain or pay for favorable treatment or special concessions or to secure Contracts, or pay for favorable treatment, special concessions or Contracts already obtained or (B) in violation of any applicable Legal Requirement, or (ii)

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established or maintained any fund or asset that has not been recorded in the books and records of the Group.

2.16Tax Matters.

(a)Except as set forth on Schedule 2.16(a), all Tax Returns required to be filed with any Governmental Entity by any Company have been filed.  All Tax Returns filed by or on behalf of any Company were, in all material respects, properly and timely filed when due (taking into account extension of time validly obtained), and in all material respects, accurately reflect the Taxes of such Company for the periods covered thereby in all material respects.  Except as set forth on Schedule 2.16, each Company has paid or has had paid on its behalf all Taxes required to have been paid by such Company.

(b)None of the Companies has executed any waiver of any statute of limitations on or extending the period for the assessment or collection of any tax that remains outstanding.

(c)All jurisdictions where any Company was required to or has filed income Tax Returns for which the applicable statute of limitations applicable to the Taxes reportable on such Tax Returns remains open are set forth on Schedule 2.16(c).

(d)Except as set forth on Schedule 2.16(d), no Tax deficiency or delinquency is being asserted in writing or, to the Knowledge of Seller, threatened against any Company and no audit, action or similar Legal Proceeding relating to Tax matters is pending or, to the Knowledge of Seller, threatened by any Governmental Entity against any Company.  No outstanding adjustment relating to any Tax Return of any Company has been proposed in writing or, to the Knowledge of the Company, otherwise, by any Governmental Entity.

(e)Except as set forth on Schedule 2.16(e), there are no Encumbrances for Taxes (except Encumbrances for current Taxes not yet delinquent) upon any of the Group Assets or the Acquired Stock.

(f)Seller or each Company has Made Available To Buyer, copies of all Tax Returns filed by or on behalf of such Company for the applicable statute of limitations applicable to the Taxes reported on such Tax Returns remains open.

(g) None of the Companies has assets that are treated as “tax-exempt use property” for United States Tax purposes.

(h)None of the Companies has (i) ever been a party to any Tax sharing, indemnification, allocation or other similar agreement that will remain in effect following the Closing, other than such agreements with lessors regarding payment of property Taxes, vendors and service providers regarding payment of sales/use Taxes and the like arising in the ordinary course of business of the Companies (“Ordinary Course Tax Agreements”), (ii) any liability for the Taxes of any person (other than the Companies), under any provision of applicable law, as a transferee or successor, by contract or agreement, or otherwise (other than Ordinary Course Tax Agreements), (iii) ever been a party to any joint venture, partnership or other arrangement that could be treated as a partnership for Tax purposes that will continue following the Closing, or (iv) is treated as other than an association taxable as a corporation for United States federal income Tax purposes.

(i)Neither Seller nor any of the Companies has been deemed to be either a “distributing corporation” or a “controlled corporation” in (i) a distribution of stock intended to qualify for tax-free treatment under Section 355 of the Code in the two years prior to the date of this Agreement

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or (ii) a distribution of stock which would otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the Acquisition.

(j)None of the Companies is subject to Tax in any jurisdiction other than its place of incorporation or formation by virtue of having a permanent establishment or other place of business or by virtue of having a source of income in that jurisdiction.  None of the Companies is liable for any Tax as the agent of any other person or business nor constitutes a permanent establishment or other place of business of any other person, business or enterprise for any Tax purposes.

(k)None of the Companies will be required to include any material income or gain or exclude any deduction or loss from taxable income as a result of (i) any change in method of accounting, closing agreement, deferred intercompany gain or excess loss account or any similar provision under any applicable law arising prior to Closing, (ii) installment sale or open transaction disposition consummated prior to Closing or (iii) prepaid amount received prior to Closing, except in each case to the extent the Tax liability from such event has been properly reflected in the Financial Statements in accordance with GAAP.

2.17Employee Benefit Matters.

(a)Schedule 2.17(a) sets forth a true and complete list of all oral and written plans, trust agreements, Contracts, policies or arrangements relating to any pension, thrift, savings, profit sharing, retirement, bonus, incentive, medical, dental, death, accident, disability, stock purchase, stock option, phantom stock or phantom stock option, stock appreciation, deferred compensation, hospitalization, “parachute,” severance, vacation, sick leave or personal leave or any other direct or indirect form of compensation maintained by Seller and the Companies or to which Seller or any Company contributes, is liable for, or may become liable for in the future, for the benefit of any current or former Group Employee or independent contractor or consultant, including all “employee benefit plans” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), whether or not subject to ERISA.  The items described in the foregoing sentence are referred to collectively as “Employee Benefit Plans.”

(b)True and correct copies of the written Employee Benefit Plans, including all amendments thereto, along with a written description of any Employee Benefit Plan that is not set forth in a written document will be provided to Buyer at or before the Closing Date.  In addition, at or before the Closing Date, Buyer will also be provided with the following documentation regarding any Employee Benefit Plan maintained, contributed to or with respect to which, any one or more of the Companies may now or in the future have any liability with respect to (collectively, the “Company Benefit Plans”): (i) the most recent annual actuarial valuation, if any, (ii) all Internal Revenue Service or Department of Labor determination, opinion, notification and advisory letters or similar correspondence from non-U.S. Governmental Entities, (iii) the most recent annual report (including all schedules and financial statements attached thereto), if any, (iv) all material correspondence to or from any Governmental Entity received in the last three years, (v) any discrimination tests for the most recent plan year, and (vi) all material written agreements and contracts currently in effect, including (without limitation) administrative service agreements, group annuity Contracts, and group insurance Contracts.  No Employee Benefit Plan is a “multiemployer plan” (as defined in Section 3(37) of ERISA), and Seller and the Companies have not ever contributed or been obligated to contribute to any multiemployer plan.  Except as set forth on Schedule 2.17(b), no Employee Benefit Plan is an “employee pension benefit plan” (as defined in Section 3(2) of ERISA) subject to the provisions of Title IV of ERISA, nor has Seller (in any capacity which could result in Liability to Buyer) nor any Company ever contributed or been obligated to contribute to any such employee pension benefit plan.  Except as set forth on Schedule 2.17(b), no Employee Benefit Plan is (i) a plan described in Section 413 of the Code, (ii) a plan subject to the minimum funding

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standards of Section 412 of the Code or Section 302 of ERISA, or (iii) a defined-benefit pension plan maintained outside of the U.S. (other than plans sponsored by a Governmental Entity), nor has Seller (in respect of the Business or in any other capacity which could result in Liability to Buyer) or any Company ever contributed or been obligated to contribute to any such plans.  Schedule 2.17(b) contains a list of each defined-benefit pension plan or similar plan maintained outside of the U.S. by (i) any one or more of the Companies or (ii) the Seller (but only with respect to any Seller plans that could result in Liability to Buyer), other than any such plans that are required to be maintained by Seller or one or more of the Companies under the applicable Legal Requirements, and for each such plan listed on Schedule 2.17(b), sets forth the plan’s “projected benefit obligation” and fair value of plan assets (each, calculated in accordance with GAAP) as of July 2, 2006.  Except as set forth on Schedule 2.17(b), Seller and the Companies have complied with, and each Employee Benefit Plan conforms in form and operation to, all applicable Laws, including, but not limited, to ERISA and the “Prohibited Transactions” rules thereunder, and those provisions of the Code or similar non-U.S. Law, with which compliance is required to obtain any intended favorable Tax treatment, in all material respects.  All contributions required to be made with respect to any Employee Benefit Plan have been made.

(c)There are no actions, suits or claims pending (other than routine claims for benefits) or, to Seller’s Knowledge, threatened with respect to any Employee Benefit Plan or against the assets of any Employee Benefit Plan.  Except as set forth in Schedule 2.17(c), each Employee Benefit Plan is in compliance with any legally applicable minimum funding standard.

(d)Except as provided on Schedule 2.17(d), no Employee Benefit Plan provides, or reflects or represents any Liability to provide, benefits (including, without limitation, death or medical benefits), whether or not insured, with respect to any former or current employee, or any spouse or dependent of any such employee, beyond the employee’s retirement or other termination of employment, other than any such benefits required to be provided under applicable Law.

(e)Except as set forth on Schedule 2.17(e), as of the Closing Date, no Group Employee will be a “disqualified individual” within the meaning of Section 280G of the Code and the regulations thereunder.  The execution of this Agreement and the consummation of the transactions contemplated by this Agreement (alone or together with any other event which, standing alone, would not by itself trigger such entitlement or acceleration) will not (1) entitle any Group Employee to any payment, forgiveness of indebtedness, vesting, distribution, or increase in benefits under or with respect to any Employee Benefit Plan or (2) solely with respect to the Companies, otherwise trigger any acceleration (of vesting, funding or payment of benefits or otherwise) under or with respect to any Company Benefit Plan.

2.18Environmental Matters.

(a)Compliance.  Seller (in respect of the US Business) and each Company are in compliance with all applicable Environmental Laws.  Since January 1, 2004, neither Seller nor any Company has received any written notice or other communication from a Governmental Entity or any other Person that alleges that the Business is not in compliance with any Environmental Law.

(b)Claims.  There is no Environmental Claim pending or, to the Knowledge of the Seller, threatened against (i) Seller or any Company with respect to the Business or (ii) any Person whose Liability for any Environmental Claim the Seller or any Company has or may have retained or assumed either contractually or by operation of law.

(c)Hazardous Materials.  Neither Seller or any Company nor, to the Knowledge of Seller, any other Person, has treated, stored, disposed of, arranged for the disposal of, transported to, or Released in reportable quantities any Hazardous Materials from, on, at or under any Real Property, or, to

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the Knowledge of the Seller, any property formerly owned or occupied by the Business, or any third party location to which Hazardous Materials were sent, or caused to be sent, from a Real Property except (A) in compliance with applicable Environmental Laws, and (B) in a manner that has not resulted in and is not reasonably likely to result in an Environmental Claim or required remediation under any Environmental Law.

(d)Reports.  The Seller and the Companies have provided to Buyer copies of all material written environmental reports, assessments, audits or investigations in their possession or control relating to the Real Properties.

2.19Labor Relations.

(a)Employees.  Schedule 2.19(a)(1) includes a complete and correct list, as of the date hereof, of all Group Employees as well as all independent contractors and consultants of the Seller (as it relates to the Group or the Business) or a Company. Opposite the name of each individual on Schedule 2.19(a)(1) is (i) solely with respect to each Group Employee in the United States, a notation classifying each as regular employee, leased employee, temporary employee, part-time employee, independent contractor or consultant; (ii) such person’s current compensation rate; (iii) such individual’s employer, (iv) the current accrual of vacation pay for each such individual; and (v) to the extent allowable by applicable law, a notation as to whether such individual is a member of a union related to the Business and, if a member of a union, the name of the union to which they are a member.  No bonus, severance or other payments or benefits of any kind are due to any Group Employee, consultant or independent contractor as a result of the transactions contemplated by this Agreement. To the Knowledge of the Seller, all Group Employees (other than leased employees, temporary employees, and part-time employees) that were hired to devote all or substantially all of their business time to the conduct of the Business are so devoting all or substantially all of their business time to the conduct of the Business.  Except as set forth on Schedule 2.19(a)(2), no Group Employee is on leave for any reason.  All Group Employees, consultants and independent contractors are properly classified in accordance with applicable Legal Requirements and have had appropriate withholdings from income reported and severance indemnity amounts accrued as required by applicable Legal Requirements.  To the Knowledge of the Seller, no Group Employee with the title of manager or higher, or with a position comparable thereto, has, within the past 3 months, expressed an intent to terminate his or her employment within the next 3 months.  Except as set forth on Schedule 2.19(a)(2)(3), neither Seller nor any Company has, within the past 3 months, terminated or given notice of termination to any Group Employee with a title of manager or higher, or with a position comparable thereto.

(b)Labor Relations.  Except as set forth in Schedule 2.19(b), (i) no collective bargaining agent has been certified as a representative of any of the Group Employees, (ii) there is no request before Seller or any Company for union representation with respect to any Group Employee, and there are no pending labor negotiations with respect to the Group or the Business, and (iii) to the Knowledge of Seller, no organizing activity or representation campaign or election is now in progress with respect to any Group Employee. There are no unfair labor practice complaints, or to the Knowledge of Seller, threatened, relating to or affecting the Group or the Business, except as would not reasonably be expected to result in any material liability.  Since June 30, 2004, there has not been any material labor strike, labor slowdown, work stoppage, labor picketing or lockout involving employees of the Group or the Business.

(c)Complaints.  Except as set forth in Schedule 2.19(c), (i) there are no Legal Proceedings, pending or, to the Knowledge of Seller, threatened, (ii) there have been no written claims given to Seller or any Company since January 1, 2006, and (iii) there are no internal investigations currently pending, in any case regarding harassment, discrimination, wages, hours, equal opportunity,

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occupational safety and health, or the payment of social security and other taxes, in any case relating to or affecting the Group or the Business. Seller (as relates to the Group or the Business) and each Company have complied with all applicable Legal Requirements relating to the hiring and retention of all Group Employees relating to wages, hours, equal opportunity, collective bargaining, immigration and naturalization, the payment of social security and other taxes, and any other employment-related Legal Requirements.

(d)Compensation.  Neither Seller nor any Company is delinquent in any payment to any Group Employee for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by them or amounts required to be reimbursed to such employees including but not limited to amounts for regular time and overtime and compensatory time. Any accruals for incentive bonuses to Group Employees for the current fiscal year are accurately reflected on the Balance Sheet.

2.20Product Warranty and Product Liability.

(a)Schedule 2.20(a) lists the standard forms of terms and conditions regarding Warranties that have not lapsed or expired.  No Product has been manufactured, leased or sold by or on behalf of Seller or any Company with any Warranty that is materially less favorable to Seller or any Company than the terms and conditions described on Schedule 2.20(a).

(b)Schedule 2.20(b) describes in reasonable detail all Product recalls since January 1, 2004. No recall or post-sale notice or warning is pending or, to the Knowledge of Seller, threatened in connection with any Product and, to the Knowledge of Seller, no basis exists for any such recall, notice or warning.

(c)Each Product is free of any design defect (including bugs, errors, viruses, “Trojan horses” or other disabling software code) or failure to warn and complies in all material respects with all applicable (i) Legal Requirement and (ii) binding customer-mandated specifications and Contract commitments therefor as agreed to and accepted by Seller or any Company (including but not limited to those customer-mandated specifications or requirements that explicitly require or specify that a Product be designed, developed, manufactured, or sold in compliance with the Restriction of Hazardous Substances Directive (RoHS) 2002/95/EC (the “RoHS Directive”).  Schedule 2.20(c) lists, to the Knowledge of Seller, any claims for any injury, damage, loss or failure arising in connection with a Product that, since January 1, 2004, have been alleged in writing in amounts exceeding $100,000, other than claims arising solely out of any warranty.

(d)Except as set forth on Schedule 2.20(d), there are no pending material disputes with respect to the Warranties.

(e)Except as set forth on Schedule 2.20(e), (i) no aggregate returns of any Product during any 12-month period since January 1, 2004 have exceeded 1% of the aggregate unit sales of such Product during such 12-month period, (ii) to the Knowledge of the Seller, no customer of the Business experienced failures or serious product performance defects in greater than 1% of the units purchased by such customer during any 12-month period since January 1, 2004, (iii) to the Knowledge of the Seller, there has been no Liability as a result of, or based upon or arising from or out of, or in connection with any injury to any individual or property as a result of the ownership, possession or use of the Products, and (iv) to the Knowledge of Seller, there have been no investigations by any Governmental Entity into any defects or alleged defects of the Products.  To the Knowledge of the Seller, none of the foregoing has occurred with respect to components, products, parts or other supplies provided to the Group by suppliers of the Business.

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(f)Except as set forth in Schedule 2.20(f), or unless otherwise directed by customer specifications, contractual understandings or customer acknowledgements regarding the acceptability to said customer of RoHS Directive non-compliance for a particular product, each product of the Business for which development commenced after January 1, 2006 has been designed and developed to be compliant with the RoHS Directive, as of the time when such product is or will be released for production and offered for sale.

2.21Brokers.  Except for commissions, fees and costs payable to Stephens Inc. in connection with the Acquisition (which commissions, fees and costs shall be borne exclusively by Seller), no broker, finder or investment banker is entitled to any brokerage, finder’s or other cost, fee or commission in connection with the Acquisition based upon arrangements made by or on behalf of Seller or any Company.  Notwithstanding anything to the contrary contained in this Agreement, Seller is not responsible for any fees or costs incurred by Buyer in obtaining financing in connection with the Acquisition, including any financing fees and costs payable by Buyer to Stephens Inc. (which fees and costs shall be borne exclusively by Buyer).

2.22Insurance.  Schedule 2.22 lists all insurance policies relating primarily to the Group (the “Insurance Policies”).  Neither Seller nor any Company is in material default under any Insurance Policy, and none has received any notice or other indication from any insurer or agent of any intent to cancel or not renew any of such Insurance Policy.

2.23Bank Accounts; Powers of Attorney.  Schedule 2.23 sets forth a true and complete list of all bank accounts, safe deposit boxes and lock boxes of the Group, including, with respect to each such account and lock box, the names in which such accounts or boxes are held and identification of all Persons authorized to draw thereon or have access thereto.  Schedule 2.23 also sets forth the name of each Person holding a general or special power of attorney from the Group and a description of the terms of such power.

2.24Sarbanes Oxley Certifications.  Each Company has executed and delivered to Seller a compliance checklist in the form attached hereto as Schedule 2.24(a) in connection with the Sarbanes-Oxley Act for each fiscal quarter of Seller during the past three fiscal years.  Attached hereto as Schedule 2.24(b) is a list of each signatory to each such executed checklist.  Attached hereto as Schedule 2.24(c) is a list of all exceptions identified in each such executed checklist.  Seller hereby confirms that the certifications contained in its filings under the Securities Exchange Act of 1934, as amended, pursuant to Sections 302, 404 and 906 of the Sarbanes-Oxley Act, are true and correct as of the date hereof.  None of Seller (in respect of the Business) or any Company has identified or been made aware of (i) any significant deficiency or material weakness in its system of internal accounting controls, policies or procedures, (ii) any fraud, whether or not material, that involves the management or other employees, contractors or consultants who have a role in the preparation of financial statements or the internal accounting controls utilized by it or (iii) to the Knowledge or Seller, any claim or allegation regarding any of the foregoing.

2.25Export Control.  Seller (in respect of the Business) and each Company has complied in all material respects with the export control laws of the United States, including but not limited to the export control laws administered by the Bureau of Industry and Security of the U.S. Department of Commerce and the International Traffic in Arms Regulations administered by the U.S. Department of State, with respect to the export of goods, services and technology from the United States and the re-export of U.S. origin goods, services and technology from third countries, as well as with the export control laws of any other jurisdiction, to the extent such U.S. and other laws were or are applicable to the Seller (in respect of the Business or the Group) and each of the Companies.  The Group has no Liability for material non-compliance with Legal Requirements imposing economic sanctions upon countries, Governmental

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Entities or other Persons, including, without limitation, any Legal Requirement administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control.

2.26HSR Act; Turnover in Italy.  The Companies (a) do not, in the aggregate, hold assets located in the United States with a fair market value of $56.7 million or more and (b) did not, in the aggregate, make sales in or into the United States of $56.7 million or more in the most recent fiscal year, as calculated under the rules and regulations of the HSR Act. Seller’s aggregate turnover in Italy did not exceed Euro 40,000,000 for its fiscal year ending July 2, 2006.

2.27Disclaimer of Representations and Warranties.  EXCEPT AS EXPRESSLY SET FORTH HEREIN, SELLER DOES NOT MAKE, AND SELLER EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, WHETHER EXPRESS OR IMPLIED, AND WHETHER BY COMMON LAW, STATUTE, FOREIGN LAW OR OTHERWISE, REGARDING ANY EXPECTED YIELD OR RETURN FROM ANY INVESTMENT HEREUNDER, INCLUDING THE QUALITY, CONDITION, OR OPERABILITY OF THE BUSINESS, THE GROUP, THE ACQUIRED SHARES, THE PURCHASE ASSETS OR THE GROUP ASSETS, INCLUDING, WITHOUT LIMITATION, ANY BUSINESS, ASSETS, IMPROVEMENTS, PERSONAL PROPERTY, EQUIPMENT, OR FIXTURES OF THE PURCHASE ASSETS OR GROUP ASSETS.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Seller that the statements contained in this Article III are true, correct and complete as of the date of this Agreement (or, if made as of a specified date, as of such date).

3.1Due Organization.Buyer is a corporation duly organized, validly existing and in good standing under the laws of State of Delaware and has the necessary corporate power and authority to own or lease its properties and conduct its business as currently conducted.

3.2Authority; Binding Nature.  Buyer has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and each of the Transaction Documents required to be delivered by Buyer pursuant to the terms of this Agreement and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement by Buyer and the Transaction Documents to which Buyer is a party, and the consummation of the Acquisition and the transactions contemplated by this Agreement and the Transaction Documents to which Buyer is a party, have been duly authorized and approved by all necessary corporate action on the part of Buyer.  This Agreement and the Transaction Documents to which Buyer is a party have been duly and validly executed and delivered by Buyer and constitute the legal, valid and binding obligations of Buyer, enforceable against it in accordance with their terms, subject to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (b) rules of law and equity governing specific performance, injunctive relief and other equitable remedies.

3.3Non-Contravention; Consents.  The execution and delivery of this Agreement by Buyer and each of the Transaction Documents to which Buyer is a party, and the consummation of the Acquisition and the transactions contemplated by this Agreement and the Transaction Documents to which Buyer is a party, will not (a) conflict with or violate any provisions of the Certificate of Incorporation or Bylaws (or similar governing documents) of Buyer, (b) violate any Legal Requirement applicable to Buyer; or (c) require any Approval, except for (i) any filings or notifications that may be required under the HSR Act or the competition law of any applicable jurisdiction and (ii) third party Approvals set forth on Schedule 3.3.

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3.4Brokers.  Except for commissions, fees and costs payable to Needham & Company in connection with the Acquisition (which commissions, fees and costs shall be borne exclusively by Buyer), no broker, finder or investment banker is entitled to any brokerage, finder’s or other cost, fee or commission in connection with the Acquisition based upon arrangements made by or on behalf of Buyer.  Buyer is responsible for all fees or costs incurred by Buyer in connection with obtaining financing for the Acquisition, including any fees or costs payable by Buyer to Stephens Inc. (which fees and costs shall be borne exclusively by Buyer).

3.5Litigation.  There is no litigation pending or threatened in writing against Buyer in any court or any proceeding before any Governmental Entity that would prevent or materially hinder the consummation of the Transactions by Buyer.

3.6Sufficient Funds.  Immediately prior to the Closing Buyer will have sufficient funds to enable Buyer to pay the Closing Payment and all other fees and expenses payable by it at the Closing related to the Acquisition.

3.7Turnover in Italy.  Buyer’s aggregate turnover in Italy did not exceed Euro 100,000,000 for its fiscal year ending December 31, 2005.

3.8Acknowledgment Regarding Transaction.  Buyer represents that in making the decision to enter into this Agreement, it has relied solely on its own independent investigation, the express, representations, warranties, and covenants set forth in this Agreement, and Buyer’s own assessment of the past, current, and future business requirements of the Group.  Accordingly, Buyer acknowledges, represents and warrants that, except as expressly set forth in this Agreement, neither Seller nor any Company nor any Representative has made, and Buyer has not relied upon, any representations and warranties of any nature whatsoever.  Specifically (but without limitation) Buyer acknowledges that Seller makes no representation or warranty with respect to any projections or forecasts Made Available To Buyer or any of its Representatives.

ARTICLE IV
CERTAIN COVENANTS OF THE PARTIES

4.1Access to Information.  During the period from the date of this Agreement through the Closing Date, Seller shall, and shall cause the Companies and their respective Representatives to, provide Buyer and Buyer’s Representatives with reasonable access to Representatives of such party, and to all personnel, properties, Contracts, assets, Business Records, Tax Returns, work papers and other documents and information relating to the Group or the Business.  Following the Closing, Buyer and Seller agree to use commercially reasonable efforts to promptly furnish to the other party information in its possession to enable the other party to properly prepare financial statements and tax and other documents required to be filed with any Governmental Entity, regulatory authority or stock exchange.  Buyer will maintain copies of all material Business Records of the Group delivered to Buyer at the Closing (which shall be deemed to include such records as are at offices of any Company as of the Closing), in particular those pertaining to Taxes, for such period as is consistent with Buyer’s record-retention policies and practices (but in any event, with respect to Taxes, for the period specified in Section 4.9(a)) and will permit the Seller to have reasonable access (at Seller’s expense) thereto to enable Seller to prepare financial statements or Tax Returns or defend any Tax Proceedings.

4.2Operation of the Group.  Except as contemplated or permitted by this Agreement, or approved in writing by Buyer, and save as otherwise required by applicable Legal Requirements, at all times from and after the date of this Agreement until the Closing Date, Seller will conduct, and shall cause the Companies to conduct, the operations of the Group in the ordinary course consistent with past

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practices and will use commercially reasonable efforts to preserve intact the Group’s business organization, to keep available the services of the Group’s current officers and employees, to maintain insurance with respect to the Business consistent with past practice and to preserve the goodwill of and maintain satisfactory relationships with those Persons and entities having business relationships with the Group. Without limiting the generality of the foregoing, at all times from and after the date of this Agreement until the Closing Date, Seller shall not, and shall not permit any Company to (without Buyer’s prior written consent, which consent will not be unreasonably withheld or delayed):

(a)sell, dispose of, grant, assign, lease, or transfer an interest in any Group Asset (including Real Property and Group Intellectual Property), or subject any Group Asset (including Real Property and Group Intellectual Property) to any Encumbrance, other than (i) a Permitted Encumbrance, (ii) non-exclusive licenses of Group Intellectual Property in the ordinary course of business consistent with past practice, and (iii) inventory in the ordinary course of business consistent with past practice;

(b) acquire or purchase assets, properties or rights (other than inventory in the ordinary course of business consistent with past practice) with a book or fair market value in excess of $50,000 individually or in the aggregate;

(c)amend or terminate any Material Contract, or enter into any new Contract that would be a Material Contract if it had been effect on the date hereof, except for purchase orders in the ordinary course of business consistent with past practice; provided that without limiting the foregoing, in no event shall the Company enter into any real property lease;

(d)adopt, or amend or modify in an material respect, an Employee Benefit Plan, or make any material change with respect to the compensation or other benefits payable to any Group Employee except, in each case, in the ordinary course of business consistent with past practice;

(e)terminate, amend, or fail to renew any material Governmental Authorization;

(f)materially change the nature or operation of the Business;

(g)grant, issue, or sell any securities of any Company or any option, warrant or other right to acquire any securities of any Company;

(h)engage in channel loading (e.g. pre-selling to customers or distributors) or otherwise accelerate sales or collections of receivables (but excluding factoring of receivables), or delay the payment of payables (other than in the ordinary course of business consistent with past practice);

(i)incur any Liabilities other than in the ordinary course of business consistent with past practice;

(j)initiate, settle or compromise any material Legal Proceeding or waive or compromise any material right, claim or debt (including account receivables), other than any Pending Claim if such waiver, settlement or compromise does not impose any injunction, order or other equitable remedy on the Business or any Company;

(k)fire any Group Employee with the title of manager or higher, or with a position comparable thereto, or otherwise materially decrease the workforce of the Business;

(l)hire any Group Employee with the title of manager or higher, or with a position comparable thereto, or otherwise materially increase the workforce of the Business;

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(m) incur any Indebtedness except under existing credit facilities as currently in effect, or guaranty any obligation of any Person other than a Company;

(n)make any capital contributions to any Company if such contributions have the effect of reducing the outstanding Indebtedness of the Group;

(o)take any action that could reasonably be expected to cause the conditions set forth in Article V not to be satisfied as of the Closing Date; or

(p)authorize, agree to or commit to any of the foregoing.

4.3No Solicitation.  Prior to the Closing or termination of this Agreement, Seller will not, directly or indirectly, and will not authorize, encourage, permit or instruct any of its Representatives or any of the Companies to, directly or indirectly:

(a)solicit, initiate or encourage the making, submission or announcement of, or take any action that could reasonably be expected to lead to any proposal by a third party (other than Buyer) to directly or indirectly (i) acquire the Group, the Business or any material portion thereof through a merger or consolidation or otherwise, (ii) acquire a material portion of the Group Assets, (iii) acquire any shares of Magnetek Italy or any Company; or (iv) engage in any other transaction designed to acquire the Group or the Business (each, an “Acquisition Proposal”);

(b)participate in any discussions or negotiations or provide any information regarding any Acquisition Proposal by any Person; or

(c)authorize, approve, adopt, execute, enter into or become bound by any letter of intent or other Contract or understanding that is related to or provides for any Acquisition Proposal.

Seller shall, and shall cause its Representatives and the Companies to, immediately discontinue and not resume or otherwise continue any discussions with respect to any Acquisition Proposal (other than with the Buyer and its Representatives).  Seller agrees to promptly inform Buyer of the nature and terms and offeror of any proposal or inquiry received by Seller or by any Company or any Representative of any of them regarding any Acquisition Proposal.

4.4Confidentiality.  Subject to any obligation to comply with (a) any Legal Requirement, (b) any rule or regulation of any Governmental Entity, (c) obligations under any listing agreement with or rules of any security exchange applicable to Buyer (including financial reporting obligations), or (d) any subpoena or other legal process to make information available to the Persons entitled thereto, whether or not the transactions contemplated hereby are consummated, all non-public information obtained by any party about any other party, and all of the terms and conditions of this Agreement, shall be kept in confidence by each party, and each party shall cause its Representatives to hold such information confidential.  Each party shall maintain such confidentiality to the same degree as it maintains its own confidential information until such time, if any, as any such data or information either is, or becomes, published or a matter of public knowledge; provided, however, that the foregoing will not apply to any information received by a party from a third party not under any obligation to keep such information confidential, nor to any information obtained by a party that is generally known to the public, nor to any disclosure by any party to its Representatives.  If this Agreement is terminated for any reason, each party must return or cause to be returned to the other, or certify as to the destruction of, all written data, information, files, records and copies of documents, worksheets and other materials obtained by that party in connection herewith, except as required by applicable Legal Requirements.  The provisions of this Section 4.4 shall supersede the obligations of the parties pursuant to the confidentiality agreement, dated

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February 8, 2006, between Buyer and Seller (through Stephens Inc., as representative of Seller).  Notwithstanding any provision of this Section 4.4, from and after the Closing, neither this Section nor the Confidentiality Agreement shall apply to or restrict in any manner (i) Buyer’s use or disclosure of any such information relating to the Group or the Business (ii) Seller’s use or disclosure of any such information as permitted under Section 4.11(b), or (iii) the inclusion of such confidential information in a court filing in connection with the prosecution or defense of any Pending Claim so long as such filing is maintained under court-ordered seal.  Except for the foregoing, Seller shall keep strictly confidential all confidential or proprietary information relating to the Purchase Assets and the Business, except as otherwise agreed by Buyer or as permitted in clauses (a), (b), (c) or (d) of this Section 4.4 or as necessary to perform its obligations under this Agreement (including under Article VII).

4.5Filings; Consents.

(a)Seller and Buyer will: (i) promptly make and effect all registrations, filings and submissions required to be made or effected by them under the HSR Act and other applicable Legal Requirements with respect to this Agreement and the transactions contemplated under this Agreement; and (ii) use reasonable efforts to cause to be taken on a timely basis, all other actions necessary or appropriate for the purpose of consummating and effectuating the Acquisition, including the obtaining before the Closing of all necessary Approvals from third parties including, without limitation, all Required Consents (notwithstanding that fewer than all Required Consents are set forth on Schedule 5.2(d)).  Buyer will reasonably cooperate in efforts to obtain such consents, waivers and approvals.

(b)Seller shall (and shall cause the Companies to) and Buyer shall (i) promptly provide all information requested by any Governmental Entity in connection with this Agreement or the Acquisition, and (ii) promptly take, and cause its Representatives to take, all actions and steps reasonably necessary to obtain (1) any merger or other competition or regulatory notification required by law or any Governmental Entity and (2) any antitrust or similar clearance or approval required by applicable Legal Requirements, if any, on terms reasonably satisfactory to Buyer and Seller.

(c)Seller and Buyer shall: (i) give the other party prompt notice of the commencement of any investigation, action or Legal Proceeding by or before any Governmental Entity with respect to this Agreement or the Acquisition, (ii) keep the other party informed as to the status of any such investigation, action or Legal Proceeding, and (iii) promptly inform the other party of any communication to or from the Federal Trade Commission, the Antitrust Group of the Department of Justice or any other Governmental Entity regarding this Agreement or the Acquisition. The parties agree to use their reasonable efforts to defend any Legal Proceedings challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed.

4.6Further Assurances.  Subject to the terms and conditions of this Agreement, each of the parties agrees to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Legal Requirements to cause the conditions precedent set forth in Article V to be satisfied and to consummate and make effective the Acquisition.  The parties shall from time to time after the Closing, at the request of the other and without further consideration, execute and deliver further instruments and documents as may be reasonably necessary to effectuate the provisions hereof, including such instruments of transfer and assignment and take such other action as Buyer may reasonably require to more effectively transfer and assign to Buyer the Acquired Shares and the Purchase Assets.

4.7Public Disclosure.  Buyer and Seller shall consult with each other before issuing, and give each other a reasonable opportunity to review and comment upon, any press release or other public

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statements with respect to the Acquisition and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Legal Requirements or obligations under any listing agreement with any securities exchange, in which case the disclosing party shall use its commercially reasonable efforts to limit the disclosure and to provide a copy of the disclosure to the other party in advance of such disclosure and to confer with such other party with respect thereto.  The parties agree that the initial press release to be issued with respect to the Acquisition will be in a form agreed upon by the parties.

4.8Notification of Certain Matters; Effect of Notification.  Between the date hereof and the Closing, each party (as such, the “Disclosing Party”) shall give prompt notice to the other party of the discovery by the Disclosing Party of (a) any material inaccuracy in any representation or warranty of the Disclosing Party, (b) any material failure by the Disclosing Party to comply with any of such party’s covenants contained in this Agreement, or (c) the occurrence of any event or the existence of any circumstances that would make satisfaction of any of the conditions to the other party’s obligation to consummate the Closing set forth in Article V impossible or unlikely.  Regardless of the foregoing and regardless of Section 4.1, all information or knowledge obtained by either party under Article IV is informational only and shall not in any manner constitute or cause a waiver by such party of any of the conditions precedent to the Closing hereunder or an amendment to any representation, warranty or covenant contained herein, unless they are incorporated into this Agreement by a written amendment signed by the parties hereto or as otherwise provided in Section 4.17.  After the Closing, Seller shall hold in trust for the Buyer and promptly deliver to Buyer all payments received by Seller with respect to the Purchase Assets or the Business, and shall use its commercially reasonable efforts to promptly deliver to Buyer all mail, faxes, e-mails, deliveries and correspondence received by Seller with respect to the Purchase Assets or the Business.

4.9Tax Returns.

(a)Cooperation as to Tax Matters.  From and after the Closing, Seller and Buyer will cooperate with each other in connection with the preparation and filing of all Tax Returns required to be filed by the Companies and Seller with respect to taxable periods ending on or before the Closing Date, and for periods beginning before and ending after the Closing Date (“Straddle Period”), and in the conduct of any audit, examination of other proceeding with respect to Taxes (“Tax Proceedings”).  Seller shall control any and all Tax Proceedings pertaining to the Companies for all periods ending on or before the Closing Date.  With respect to any Straddle Period, the party that owned (directly or indirectly) the Company for the greatest number of days during such Straddle Period shall control the Tax Proceedings with respect to such Straddle Period.  Buyer shall control all other Tax Proceedings.  Buyer may assume control over any Tax Proceedings that otherwise would be controlled by Seller if Seller fails, upon written request from Buyer, to (i) affirm its obligation to indemnify Buyer for pre-Closing Taxes arising from such Tax Proceeding, to the extent such Taxes are within the indemnification obligations of Seller pursuant to this Agreement, and (ii) demonstrate to Buyer’s reasonable satisfaction that it has the wherewithal to satisfy such indemnification obligation (and if Seller fails to satisfy clause (i) or (ii) and Buyer assumes control over a Tax Proceeding, Seller shall reimburse Buyer for its reasonable out-of-pocket costs incurred as a result of assuming such control).  The party in control of a Tax Proceeding shall keep the other party informed and cooperate with such other party with respect thereto if such other party could be adversely affected thereby.  Notwithstanding the foregoing, if the results of a Tax Proceeding controlled by either party could reasonably be expected to have a material adverse effect on the other party, then there shall be no settlement or closing or other agreement with respect thereto without the consent of the other party, which consent shall not be unreasonably withheld or delayed.  Furthermore, if the results of a Tax Proceeding controlled either party could reasonably be expected to have a material adverse effect on the other party, then at the request of the party not in control of such Tax Proceeding, such party shall be given reasonable notice of and an opportunity to participate at its expense in any

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meetings or telephone calls with Tax authorities pertaining to such Tax Proceeding, and shall be given a reasonable opportunity to review and provide input on material correspondence submitted to such Tax authority prior to submission thereof to such Tax authority.  Each party shall reasonably promptly provide to the other party notice of any Tax Proceeding with respect to Taxes for which such other party could be liable as well as copies of all written correspondence with the Tax authority with respect thereto.  Buyer shall retain in its possession or cause the Companies to retain in their possession, and shall provide Seller reasonable access to (including the right to make copies of), such Business Records and any other materials that Seller may reasonably specify with respect to matters relating to Taxes for any taxable period ending on or prior to or which includes the Closing Date until the expiration of the relevant statute of limitations.  After such time, Buyer may dispose of such material unless Seller has made a request therefor.

(b)Preparation of Tax Returns.  From and after the Closing, Buyer shall prepare or cause to be prepared all Tax Returns for the Companies for all periods required to be filed following the Closing Date, including such Tax Returns for periods ending on or prior to the Closing Date and for the Straddle Period.  All Tax Returns described in this Section 4.9(b), with respect to periods ending prior to the Closing Date, shall be prepared in a manner consistent with past practices, unless such past practices are not in accordance with applicable law.  With respect to each income Tax Return or other material Tax Return described in Section 4.9(b), Buyer will provide to Seller a draft of such Tax Return at least thirty (30) Business Days prior to the filing date (taking into account extensions of time to file).  Seller shall be provided an opportunity to review such Tax Returns and all supporting workpapers, schedules and information, and to propose changes, not later than fifteen (15) Business Days prior to the filing date of such Tax Returns.  If Seller fails to propose changes to Buyer with respect to such Tax Returns before five (5) Business Days prior to filing date of such Tax Returns, Seller shall be deemed to have approved such Tax Returns. Seller and Buyer shall attempt in good faith mutually to resolve any disagreements regarding Tax Returns described in Section 4.9(b) prior to the due date for filing thereof.  If the parties are unable to resolve such dispute within such fifteen (15) day period, the dispute shall be resolved by independent accountants acceptable to the Buyer and Seller, and the filing date shall be extended to the extent any such extension is available under applicable law.  The independent accountants shall finally and conclusively resolve any dispute relating to matters set forth in this Section 4.9(b) within thirty (30) days of receipt of the submission.  The independent accountants shall determine, only with respect to the specific disagreements submitted in writing by Seller and Buyer, the manner in which such item or items in dispute should be resolved; provided, however, that the dollar amount of any such item or items shall be determined within the range of dollar amounts proposed by Seller and Buyer.  Any finding by the independent accountants shall be a reasoned award stating the findings of fact and conclusions of law (if any) on which it is based, shall be final and binding upon the parties absent manifest error and shall be the sole and exclusive remedy between the parties regarding the disputed items so presented.  The fees and expenses of the independent accountants shall be shared 50% by Buyer and 50% by Seller, unless the independent account determines that based on the positions taken by the parties another method for allocating its fees and expenses would be more equitable, and the parties shall otherwise bear their own expenses incurred in any dispute resolution pursuant to this Section 4.9(a).

(c)Payment of Taxes.  Seller shall pay all Taxes with respect to any taxable periods ending prior to the Closing Date unless and to the extent such Taxes appear as an accrual on the Final Closing Balance Sheet, in which case Buyer shall be responsible entirely for and shall promptly pay any such Taxes up to the amount of such accrual.  Taxes attributable to Straddle Periods (including any Taxes resulting from a Tax audit or administrative or court proceeding) shall be apportioned to the period ending on the Closing Date and to the period beginning on the day after the Closing Date by means of a closing of the books and records of the Companies as of the close of business on the Closing Date and, to the extent not susceptible to such allocation, by apportionment on the basis of elapsed days.  Seller shall pay that portion of such Straddle Period Taxes attributable to the portion of the Straddle Period ending on the

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Closing Date, other than (i) such Taxes that arise on the Closing Date outside of the ordinary course of business of the Companies and at the request of Buyer, and (ii) Taxes that appear as an accrual on the Final Closing Balance Sheet, in which case Buyer shall be responsible entirely for and shall promptly pay any such Taxes up to the amount of such accrual.  Taxes that are the responsibility of Seller shall be paid by Seller to Buyer no later than three (3) days before the later of (i) the date such Taxes are payable by the Companies, or (ii) written notice from Buyer as to the amount due from Seller, and shall be paid by Buyer to the applicable Tax authority promptly following receipt from Seller except to the extent such Taxes already were paid by Buyer.  Notwithstanding the foregoing, (i) Seller’s liability for any Taxes with respect to periods ending prior to the Closing Date, and with respect to Taxes for the pre-Closing portion of any Straddle Period, shall be reduced as provided in Section 7.3(d); and (ii) Seller shall not be liable for any penalties or interest attributable to (A) the late payment of Taxes if Seller pays such Taxes within the time periods specified in this Section 4.9(c), or (B) the late filing of Tax Returns or late payments of Taxes resulting from a failure of Buyer to follow the procedures specified in Section 4.9(b) with respect to the related Tax Return.

(d) Amended Tax Returns.  Neither Buyer nor Seller nor any of their respective Affiliates or successors shall (or shall cause or permit the Companies to) amend, refile or otherwise modify any Tax Return relating in whole or in part to the Companies with respect to any taxable year or period ending on or before or including the Closing Date, without the prior written consent of the Seller, or Buyer, as applicable, not to be unreasonably withheld or delayed.

(e)Refunds or Credits of Taxes.  Any refunds or credits of Taxes of the Companies paid with respect to periods ending before the Closing Date that are not otherwise accrued as assets on the Final Closing Balance Sheet shall be for the account of Seller and shall be promptly paid to Seller upon receipt.  Any refunds or credits of Taxes of the Companies paid with respect to any Straddle Period shall be apportioned to the period ending on the Closing Date and to the period beginning on the day after the Closing Date by means of a closing of the books and records of the Companies as of the close of business on the Closing Date, and Buyer will promptly remit to Seller the portion due to it.  Buyer and Seller shall cooperate to effect the purposes of the foregoing provisions.

(f)Buyer shall have the right to cause the Companies to make an election under Section 338 with respect to the Companies, provided that no such election shall be made unless (i) Buyer notifies Seller of such election on or prior to June 30, 2007, and (ii) Buyer makes such an election for all of the Companies.  Except as otherwise required by law, Buyer shall not make or permit to be made any other election with respect to the Companies that would increase the liability of Seller for Taxes under Section 4.9(c) above the liability that would have been incurred by Seller but for such election.

(g)In the event of an inconsistency between the provisions of this Section 4.9 and the provisions of Article VII (other than Sections 7.3(d) and 7.3(e)), this Section 4.9 shall control, and in no event shall any indemnification for Taxes under Section 4.9(c) be subject to the limitations of Section 7.3(a), Section 7.3(b) or Section 7.3(c).  The obligations of the parties set forth in this Section 4.9 shall remain in effect until the expiration of the applicable statute of limitations, including any extensions of the statute, plus 60 days.

4.10Expenses.

(a)Each party will pay the out-of-pocket fees, expenses and disbursements it incurs in connection with the execution, delivery and performance of this Agreement and the transactions contemplated by the Agreement, except that Seller shall bear all such out-of-pocket fees and expenses incurred by the Companies before the Closing.  Buyer and Seller shall share equally all of the filing fees in connection with any filings required under the HSR Act or other competition or investment laws, if

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any.  Except as aforesaid or in Section 4.10(b), the parties shall pay their own fees and expenses incurred in connection with the Acquisition.

(b)All sales and use, stamp, documentary, filing, recording, transfer, real estate transfer, stock transfer, gross receipts, registration, duty, securities, transactions or similar fees or Taxes (together with any interest or penalty, addition to tax or additional amount imposed), if any, due under applicable laws as a result of the purchase and sale of the Purchase Assets and the Acquired Shares (collectively, “Transfer Taxes”) shall be borne 50% by Seller and 50% by Buyer, until the aggregate of such Transfer Taxes paid by each party is $200,000 ($400,000 total), and thereafter shall be borne by Seller.  The parties shall cooperate and use reasonable efforts to pay any such Taxes, and file any such forms or reports related thereto, in a timely manner.  The fees and expenses incurred by Seller and the Companies in connection with the completion of the audit contemplated by Section 5.2(j) shall be borne 50% by Seller and 50% by Buyer, until the aggregate of such fees and expenses paid by each party is $50,000 ($100,000 total), and thereafter shall be borne by Seller.

4.11Pending Litigation.  From and after the Closing:

(a)Payments. Any monetary Damages awarded to a Company after the final resolution of any Pending Claim, after deducting therefrom all Damages reasonably incurred by Buyer, the Companies, or their Affiliates in connection with the prosecution, defense, settlement, or final judgment of the Pending Claims or any counterclaims arising in connection therewith, will be paid over to Seller promptly after receipt thereof by Buyer or such Company, and will be considered Retained Assets for purposes of this Agreement.

(b)Cooperation.  At Seller’s expense (limited, however, to Buyer’s reasonable out-of-pocket expenditures), Buyer shall reasonably cooperate with Seller in Seller’s defense and prosecution of the Pending Claims and will provide or make available to Seller, during normal business hours, with reasonable prior notice, in a manner so as not to interfere with the normal operations of Buyer and the Companies, subject to customary confidentiality obligations reasonably satisfactory to Buyer, (i) any Business Records existing as of the Closing to the extent related to the Pending Claims, subject to execution and delivery to Buyer by Seller of a reasonable and appropriate confidentiality agreement, and (ii) such employees of the Companies employed by the Business as of the Closing who have material information related to the Pending Claims. At Seller’s expense (limited, however, to Buyer’s reasonable out-of-pocket expenditures), Buyer shall make reasonably available to Seller with reasonable prior notice, in a manner so as not to interfere with the normal operations of Buyer and the Companies, subject to customary confidentiality obligations reasonably satisfactory to Buyer, the individuals set forth on Schedule 4.11(b) (collectively, the “Key Witnesses”) to testify as witnesses in the Pending Litigation (with all of Buyer’s reasonable out-of-pocket expenditures in connection therewith to be borne by Seller).  Buyer will have the right to receive from Seller copies of all pleadings, notices and communications with respect to the Pending Claims, shall have the right to participate in, but not control (except as otherwise provided herein), settlement negotiations with respect to the Pending Claims, and shall otherwise be entitled to receive from Seller such information related to the Pending Claims as it may reasonable request.  Seller shall coordinate all requests under this Section 4.11(b) only through Buyer’s General Counsel.

4.12[Intentionally Omitted]

4.13Limitations.

(a)From and after the Closing, Seller agrees not to directly or indirectly use (or permit, agree to or cause any Person to use) for commercial purposes the name of any product of the

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Business, or any variation thereof, or any trade name, trade mark, service mark, slogan, logo or like property of the Buyer other than “Magnetek”. Buyer will change the legal name of each Company as soon as reasonably practical after the Closing so as not to contain the name “Magnetek”. Except as provided in the preceding sentence, from and after the Closing, Buyer agrees not to use, and to cause the Companies not to use, the name “Magnetek” and related trade names, trade marks, service marks and corporate names incorporating “Magnetek” and the stylized “Magnetek” logos; provided, however, Buyer may continue to use such names, marks and logos (i) in displays, signage and postings for a period of not more than four (4) months after the Closing Date or such shorter time as may be required to permit the reasonably prompt removal of such name and logos, but only to the extent such displays, signage or postings exist on the Closing Date; (ii) for a period of six (6) months after the Closing Date, to state the Companies’ former affiliation with Seller (e.g., “formerly a division of Magnetek, Inc.”); and (iii) to the extent any such trade names, trade marks, service marks or logos appear on stationary, packaging materials, or supplies 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 in this clause (iii), such continued use will cease on the first anniversary of the Closing Date. Regardless, the preceding sentence shall not apply with respect to, or limit in any way the disposition of (including by incorporation of components in a Product) inventory of the Business existing as of the Closing, except that Buyer shall use its commercially reasonable efforts to deplete first any such inventory that contains external markings with any such trade names, trade marks, service marks or logos.

(b)For a period of three (3) years after the Closing Date (the “Restriction Period”), Seller will not (and will not permit, agree to or cause any Controlled Affiliate to), directly or indirectly, whether for its own benefit or as an owner, proprietor, shareholder, partner, employee, officer, director, advisor, creditor, or otherwise as agent for another, engage in any Competing Business.  “Competing Business” means designing, manufacturing, developing, marketing, promoting, distributing or selling (i) digital or analog power electronic products for use in AC/DC or Board Mounted DC/DC embedded power supplies, railway applications, streetlight monitoring systems, or consumer products, including but not limited to washing machines, heating, ventilating and air-conditioning products (HVAC), refrigerators and high-powered tools, anywhere in the world or (ii) alternative energy power conversion products under 10 kW anywhere in the world.

(c)Regardless of Section 4.13(b), Seller may engage in a Competing Business after the Closing only if such Competing Business is acquired by Seller after the Closing as part of the acquisition of a larger business by Seller if (i) the total revenues from the Competing Business so acquired by Seller in each of the two fiscal years immediately prior to the closing of such acquisition are less than 10% of the total revenues attributable to the larger business so acquired in each such fiscal year and (ii) Seller uses reasonable efforts to exit such acquired Competing Business as soon as commercially practicable following the closing of such acquisition of such Competing Business and, in connection therewith, in good faith reasonably provides Buyer with the first opportunity to negotiate in good-faith for the purchase of such Competing Business.

(d)To protect Buyer against interference with the Business, for a period of three (3) years after the Closing Date, Seller will not (and will not permit, agree to or cause any Controlled Affiliate to), directly or indirectly, whether for its own benefit or as an owner, proprietor, shareholder, partner, employee, officer, director, advisor, creditor, or otherwise as agent for another, (i) divert or attempt to divert from the Business any Competing Business of any customer, supplier, or business partner of the Business or (ii) solicit the employment or consulting services of any employee or consultant of the Business.  Nothing herein shall be deemed to prevent Seller from hiring any Person solely in response to the general announcement, advertisement or solicitation of an employment opportunity that are not specifically targeted to the Business, Buyer, or any Company.

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(e)The parties agree that a breach of any covenant set forth in this Section would cause irreparable harm to Buyer, that Buyer’s remedies at law upon any such breach would be inadequate, and that, accordingly, to the extent such a remedy is available under applicable law, upon any such breach a restraining order or injunction or both may be issued, in addition to any other rights and remedies which are available to Buyer.  The parties agree that the restrictions set forth in this Section are reasonable and appropriate but that if a court of competent jurisdiction finds this Section more restrictive than permitted by applicable Legal Requirements of any jurisdiction in which Buyer seeks enforcement hereof, this Section will be limited to the extent required to permit enforcement under such Legal Requirements. In particular, the parties intend that the covenants contained in this Section will be construed as a series of separate covenants, including one for each county in each state in each country. Except for geographic coverage, each such separate covenant will be deemed identical in terms. If, in any judicial proceeding, a court refuses to enforce any of the separate covenants deemed included in this Section, then only such unenforceable covenant will be deemed eliminated from these provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforced.  In addition, if a court refuses to enforce any of the covenants throughout the full length of the Restriction Period, the parties agree that the Restriction Period will be deemed amended to the longest period (not to exceed three (3) years) that is permissible.

4.14Approvals.  To the extent that the Approval with respect to any Contract or Governmental Authorization included within the Purchase Assets is required in connection with the Transactions, the parties will use their reasonable efforts to obtain such Approval between the date hereof and the Closing, and if any such Approval is not obtained before the Closing (but without limiting Buyer’s rights under Article V), (a) the parties hereto acknowledge and agree that at the Closing Seller will not assign to Buyer any such Contract or Governmental Authorization that by its terms requires, before such assignment, the Approval of any third Person, unless such Approval is obtained, (b) Seller will cooperate with Buyer to maintain each such Contract or Governmental Authorization in full force and effect for the benefit of Buyer until such Approval is obtained, and (c) Seller will use reasonable efforts to obtain each such Approval as promptly as practicable and will assign such Contract or Governmental Authorization to Buyer as soon as such Approval is obtained.

4.15Notices and Cooperation.  During the period from the date of this Agreement through the Closing Date, each party will (a) promptly provide the other parties with copies of all correspondence and inquiries to and from, and all filings made with, any Governmental Entity (including any Governmental Entity with responsibility, oversight or regulatory authority with respect to Environmental Laws) or any union and to review any and all filings or written correspondence before they are made or sent, (b) keep the other party apprised as to all discussions or negotiations with any Governmental Entity and with any union and permit such other party to participate therein and (c) reasonably cooperate with such other party with respect to the foregoing.

4.16Accounts Receivable.  From and after the Closing, Seller agrees to forward to Buyer, within three Business Days after receipt thereof, any and all proceeds from accounts receivable that are received by Seller after the Closing Date.  Notwithstanding the foregoing, 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 (“Seller Accounts Receivable”) and to Buyer, the Business or a Company, on the other hand (“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, Seller will first contact the payor to determine the payor’s intended allocation of the payment and such allocation will govern, and if the payor does not provide the intended allocation, 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

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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.

4.17Disclosure Schedule Updates.  Seller shall have the right to deliver to the Buyer, at any time prior to the 3rd Business Day prior to the Closing Date, updated Disclosure Schedules that are revised only (i) to reflect any event that occurs after the date hereof outside of the reasonable control of the Seller or (ii) to reflect the listing of additional Contracts on Schedule 2.13 and that in each case causes Section 2.13(a) to be untrue or inaccurate as of the date hereof.  If Seller updates the Disclosure Schedule pursuant to clause (i) of the immediately preceding sentence, Buyer will have the right, in its sole discretion, to terminate this Agreement at any time prior to the Closing if the condition set forth in Section 5.2(a) would not be satisfied if Seller had not made any updates to the Disclosure Schedule.  If Seller updates the Disclosure Schedule pursuant to clause (ii) of the first sentence of this Section 4.17, Buyer will have the right, in its reasonable discretion, to terminate this Agreement if the Buyer determines in good faith that such disclosure adversely affects the Business in a material manner.  If Buyer elects to close the transactions contemplated hereby notwithstanding such updates to the Disclosure Schedule, absent fraud by Seller or any of its Representatives, Buyer shall not have any claim under Section 7.2(a)(i) as a result of such updates to the Disclosure Schedule except for a breach of the representation and warranty as so revised.

4.18Delivery of Monthly Financial Statements. Seller shall deliver to Buyer, within 21 calendar days of the end of each month during the period between the date hereof and Closing, unaudited financial statements (including balance sheet and statements of income and cash flows) for such month in a form consistent with the Financial Statements, which monthly financial statements shall be prepared in accordance with GAAP applied on a consistent basis with past practice and presenting fairly the financial position and the results of operations of the Group for the month then ended.

4.19Employees.

(a)At the Closing, Buyer shall offer employment to commence as of the Closing Date to all employees of Seller primarily employed in the Business as of the Closing at the same initial base salaries and wages (but excluding any bonus and incentive programs) as those in effect on or immediately prior to the Closing Date and shall offer such employees the same initial benefits as Buyer offers its own similarly-situated employees.  Seller will (i) use commercially reasonable efforts to assist Buyer in hiring such employees, (ii) consult with Buyer on all material oral or written communications or meetings regarding future employment with Buyer of any such employees, (iii) release from employment, effective no later than the Closing Date, each such employee who accepts such offer (each a “Transferred Employee”) and shall not enforce against any such employee any non-compete or similar contractual obligations or otherwise assert with respect to any such employee claims that would otherwise prohibit, restrict or place conditions on such employee’s acceptance of the Buyer’s offer or thereafter such employee’s continuing employment by the Buyer, and (iv) pay to such Transferred Employees on the date of such termination all salaries, wages, accrued vacation and other compensation required to be paid by applicable Legal Requirements. Regardless of anything else contained in this Agreement, the parties do not intend to, and no provision of this Agreement shall, create or confer any rights or obligations except as between the parties, and no past, present or future employee or consultant of Seller or Buyer will be treated as third-party beneficiaries of this Agreement.

(b)With respect to participation in Buyer’s 401(k) plan and with respect to the rate of accrual under Buyer’s vacation policy, 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 for which such service was recognized by Seller and its Affiliates.

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(c)Buyer shall cause its 401(k) plan to accept direct rollovers of cash from Seller’s 401(k) plans for those Transferred Employees who elect such direct rollovers.

4.20Intellectual Property Licenses.  Prior to the Closing, Seller shall use commercially reasonable efforts to obtain licenses and pay all license fees owed to any third party with respect to the use by the Group on or before the Closing of any software or other Intellectual Property Rights of such third party without a fully-paid license therefor. After the Closing, Buyer and Seller shall cooperate to obtain, for the benefit of the Business, licenses from third parties with respect to all software or other Intellectual Property Rights used by the Group on or before the Closing without a fully-paid license therefor; provided that Buyer shall control the negotiations with respect thereto and Seller shall pay all of the license fees and related expenses (including interest and penalties with respect thereto, if any) to such third parties in connection therewith; provided further that if any such license is time-bound, Seller shall only be obligated to pay the portion of the license fee (including interest and penalties with respect thereto, if any) applicable to the period of time before the Closing. Seller shall indemnify and hold harmless the Buyer Indemnitees from (a) the failure to make any such payment described in the preceding sentence and (b) any and all Damages resulting from third party claims related to the use before the Closing by the Group of software or other Intellectual Property Rights without a fully-paid license therefor. In connection with Seller’s obligation under this Section 4.20, at Closing, Buyer will subtract from the Purchase Price and deposit in escrow, pursuant to an escrow agreement reasonably acceptable to Buyer, Seller and the Escrow Agent to be entered into at the Closing (the “Escrow Agreement”), by wire transfer of immediately available funds to an account established at the escrow agent identified in the Escrow Agreement (the “Escrow Agent”), an amount equal to $500,000 (the “Escrow Amount”).  Any amounts owed to the Buyer Indemnitees under this Section 4.20 shall first be satisfied out of the escrow account to the extent of the Escrow Amount and thereafter by Seller. Any portion of the Escrow Amount remaining in the escrow account on the twelve-month anniversary of the Closing shall be paid to the Seller; provided, however, that if any claims are then pending under this Section 4.20, then an amount equal to the aggregate dollar amount of such claims shall remain in the escrow account pending resolution of such claims.

ARTICLE V
CLOSING CONDITIONS

5.1Conditions to Each Party’s Obligations.  Each party’s obligation to consummate the Acquisition is subject to the satisfaction or waiver at or prior to the Closing, of each of the following conditions:

(a)HSR Act and Other Regulatory Compliance.  To the extent that a filing or Approval is required under the HSR Act or the antitrust or competition laws of another jurisdiction outside the United States of America, all waiting periods (and any extensions thereof) applicable to the Acquisition under the HSR Act, or the antitrust or competition laws of another jurisdiction outside of the United States of America, shall have expired or early termination of such waiting periods shall have been granted by the Federal Trade Commission or the Antitrust Group of the Department of Justice, or other competent authorities of another jurisdiction outside of the United States of America, and all such Approvals shall have been granted, received or satisfied, in each case without condition or requirement for the disposition or divestiture of any product or other asset of Seller or Buyer.

(b)No Injunctions or Restraints.  No temporary restraining order, preliminary or permanent injunction (nor any equivalent under applicable foreign Legal Requirements) or other order issued by any Governmental Entity or other material legal restraint or prohibition issued or promulgated by a Governmental Entity preventing the consummation of the Acquisition shall be in effect or shall be

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threatened, and there shall not be any Legal Requirement enacted or deemed applicable by such a Governmental Authority to the Acquisition that makes consummation of such transaction illegal.

5.2Conditions to Buyer’s Obligations.  The obligation of Buyer to consummate the Acquisition and complete the Closing are subject to the satisfaction or waiver by Buyer in its sole discretion, at or prior to the Closing, of each of the following conditions:

(a)Accuracy of Representations and Warranties; Closing Certificate.  Each of the representations and warranties of Seller set forth in this Agreement (i) that are not qualified by materiality must be true and correct in all material respects as of the Closing Date, and (ii) that are qualified by materiality must be true and correct in all respects as of the Closing Date.

(b)Performance.  All of the obligations, covenants and agreements of Seller to be performed under this Agreement at or prior to the Closing shall have been complied with and performed in all material respects as of the Closing Date.

(c)Corporate Certificate.  Seller shall have delivered to Buyer an attestation certifying that the conditions set forth in clauses (a), (b), (d), (e) and (f) of this Section 5.2 have been satisfied at the Closing, certified in each case as of the Closing Date by the President and Chief Financial Officer of Seller as being correct and complete, and attaching thereto copies of all resolutions approved by Seller’s Board of Directors related to the transactions contemplated hereby (or an attestation by such individuals regarding the substance of same).

(d)Consents.  Seller shall have received and furnished to Buyer all Required Consents listed on Schedule 5.2(d) in form and substance reasonably acceptable to Buyer, and each such Required Consent will be in effect as of the Closing Date.

(e)Material Adverse Effect.  There shall not have been a Material Adverse Effect since the date of this Agreement.

(f)Encumbrances.  Provision reasonably satisfactory to Buyer shall have been made for the release as of the Closing Date of any and all Encumbrances on any and all of the Purchase Assets, Owned Properties and Acquired Shares (except, in the case of Purchase Assets and Owned Properties, for Encumbrances described in clauses (i) — (iv) of the definition of Permitted Encumbrances and, in the case of Owned Properties, for the Encumbrances identified as remaining post-Closing on Schedule 2.11(a)).

(g)Shareholders Meetings of Magnetek Italy. Seller shall have caused to have occurred as of the Closing Date (i) an extraordinary shareholders’ meeting of Magnetek Italy to resolve to modify the current by-laws of Magnetek Italy in the form of Exhibit F hereto or as otherwise requested in writing by Buyer and (ii) an ordinary shareholders’ meeting of Magnetek Italy to resolve upon the appointment as members of the board of director of Magnetek Italy the individuals set forth on Schedule 5.2(g)(i), as members of the panel of statutory auditors of Magnetek Italy the individuals set forth on Schedule 5.2(g)(ii), and as statutory auditing company (“società di revisione addetta al controllo contabile”) of Magnetek Italy, Deloitte & Touche or an Affiliate thereof designated by Buyer, or in each case as otherwise requested in writing by Buyer.

(h)Audited Financial Statements.  By no later than five (5) Business Days prior to the Closing Date, the Buyer shall have received the combined audited balance sheet of the Group for each of the fiscal years ended July 3, 2005 and July 2, 2006, together with the combined audited related statements of income and of cash flows for each of the three fiscal years ended June 27, 2004, July 3,

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2005 and July 2, 2006, including notes thereto, together with the report thereon of Ernst & Young LLP, independent certified public accountants of the Seller.

(i)Withdrawal from Consortium.  As of the Closing, Seller and each Company shall have withdrawn its membership with the PMBus consortium without any post-Closing liability on behalf of Buyer or any Company, and Seller shall have provided Buyer evidence thereof.

(j)Transitional Agreement.  Seller shall have executed and delivered to Buyer a transition services agreement in substantially the form as set forth in Exhibit I attached hereto.

5.3Conditions to Obligations of Seller.  The obligation of Seller to consummate the Acquisition and complete the Closing is subject to the satisfaction or waiver by Seller in its sole discretion, at or prior to the Closing, of the following conditions:

(a)Closing Certificate.  Each of the representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects as of the Closing Date.  At the Closing, Buyer shall have delivered to Seller an attestation certifying that the conditions set forth in this clause (a) and in clause (b) of this Section 5.3 have been satisfied at the Closing, certified in each case as of the Closing Date by an officer of Buyer as being correct and complete.

(b)Performance of Covenants.  All of the obligations, covenants and agreements of Buyer to be performed under this Agreement at or prior to the Closing shall have been complied with and performed in all material respects.

(c)Alternative Energy Agreement.  Buyer shall have executed and delivered to Seller the Alternative Energy Agreement in substantially the form as set forth in Exhibit G attached hereto.

(d)Supply Agreement.  Buyer shall have executed and delivered to Seller the Supply Agreement in substantially the form as set forth in Exhibit H.

(e)Transitional Agreement.  Buyer shall have executed and delivered to Seller a transition services agreement in substantially the form as set forth in Exhibit I attached hereto.

ARTICLE VI
TERMINATION

6.1Termination.  This Agreement may be terminated prior to the Closing Date:

(a)by mutual written consent of Buyer and Seller; or

(b)by either Buyer or Seller, if the Acquisition has not been consummated by December 31, 2006 (the “Termination Date”), provided that the right so to terminate shall not be available to either party if it is then in material breach of this Agreement;

(c) by Buyer or Seller, if a final, non-appealable injunction, restraining order or decree of any nature of any Governmental Authority of competent jurisdiction is issued that prohibits the consummation of the Acquisition; provided, however, that the party seeking to terminate this Agreement pursuant to this clause (c) shall have used its commercially reasonable efforts to have such injunction, order or decree vacated or denied; or

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(d)by either Buyer or Seller by written notice to the other party if there has been a material misrepresentation or material breach of a covenant or agreement contained in this Agreement on the part of the other and such breach, if curable, has not been cured within 30 days of such notice and the terminating party is not on the date of termination in material breach of any material provision of this Agreement.

6.2Effect of Termination.  If this Agreement is terminated as provided in Section 6.1, this Agreement will be of no further force or effect; provided, however, that:

(a)Sections 4.4 (Confidentiality) and 4.7 (Public Disclosure), this Section 6.2 (Effect of Termination) and Article VIII (Miscellaneous) will survive the termination of this Agreement and remain in full force and effect, and

(b)the termination of this Agreement will not relieve any party from any liability for any breach of this Agreement; provided, however, in the event that this Agreement is terminated prior to Closing, no party will have any liability to another party under Article VII of this Agreement or otherwise as a result of any breach or inaccuracy of any representation or warranty contained in this Agreement, other than in the case of fraud.

6.3Procedure Upon Termination.  Subject to the provisions of Section 6.2 above, in the event of the termination and abandonment of this Agreement, written notice thereof shall promptly be given by the terminating party to the other party, and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned without further action by any of the parties hereto.

ARTICLE VII

INDEMNIFICATION

7.1Survival of Representations, Warranties and Covenants. Subject to Section 7.3(c):

(a)Representations and Warranties of Seller. The representations and warranties of Seller in Article II will survive the Closing and will terminate upon the 18-month anniversary of the Closing Date, except for (i) the representations and warranties in Sections 2.3(d), 2.4, 2.6(a), and 2.11(g), each of which shall have no expiration, (ii) the representations and warranties in Sections 2.16, 2.18, 2.21, and 2.25, each of which will survive until the expiration of the applicable statute of limitations with respect to the subject matter thereof, and (iii) the representations and warranties in Section 2.17 to the extent the underlying claim arising from a breach thereof is for Taxes, each of which will survive until the expiration of the applicable statute of limitations with respect to the subject matter thereof.

(b)Buyer’s Representations and Warranties.  The representations and warranties of Buyer in Article III will survive the Closing and will terminate upon the 18-month anniversary of the Closing Date, except for the representations and warranties contained in Section 3.2, which shall have no expiration, and the representations and warranties contained in Section 3.4, which will survive until the expiration of the applicable statute of limitations with respect to the subject matter thereof.

(c)Covenants.  All covenants of the parties will survive according to their respective terms.

(d)Certain Definitions.  Subject to reduction in accordance with Section 7.10 below, the term “Damages” means any and all Liabilities, losses, claims, expenses, costs, fines, fees, penalties, settlement payments, obligations or injuries, including those resulting from claims, actions, suits,

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demands, assessments, investigations, judgments, penalties, fines, awards, arbitrations or other proceedings, together with reasonable costs and expenses, including the reasonable attorneys’ fees and expenses (including those incurred in the investigation, prosecution and defense of third party Claims).  The term “Claim” means a claim for indemnification for Damages brought by a Buyer Indemnitee or Seller Indemnitee under Article VII.  The term “Buyer Indemnitees” means Buyer and any present or future officer, director, employee, Representative, Affiliate, subsidiary, successor or permitted assign of Buyer.  The term “Seller Indemnitees” means Seller, and any present or future officer, director, Representative, employee, successor or permitted assign of Seller.  “Indemnified Party” means any Buyer Indemnitee or Seller Indemnitee, as applicable.  “Indemnifying Party” means Seller, with respect to any Claim brought by a Buyer Indemnitee, or Buyer, with respect to any Claim brought by a Seller Indemnitee.

7.2Indemnification by Seller.

(a)Subject to the provisions of Section 7.3 below, Seller will indemnify, defend and hold harmless the Buyer Indemnitees from and against any and all Damages directly or indirectly incurred, paid or accrued in connection with or resulting from or arising out of:

(i)the breach or inaccuracy of any representation or warranty of Seller contained in Article II of this Agreement;

(ii)the breach or violation of any covenant or other obligation of Seller under this Agreement; and

(iii)each Indemnified Liability.

(b) Notwithstanding anything to the contrary contained in this Section 7.2 or elsewhere in this Agreement, Seller shall not be obligated under this Agreement to indemnify, defend and hold harmless any Buyer Indemnitee against any Damage resulting from a breach or inaccuracy of any representation or warranty, covenant or agreement to the extent an adjustment reducing the Purchase Price is made in respect thereof in accordance with the provisions of Section 1.6 or Section 1.7 of this Agreement.

7.3Limitations on Seller’s Indemnification Liability.

(a)Threshold for Bringing Claims Against Seller.  If a Buyer Indemnitee seeks indemnification for matters identified in Section 7.2(a)(i), Seller will not have any obligation to indemnify the Buyer Indemnitee unless and until the aggregate Damages for all Claims giving rise to Damages under Section 7.2(a)(i) exceeds $500,000 (the “Indemnification Threshold”) at which time (and subject to the limitation set forth in Section 7.3(b) below) Seller must indemnify the Buyer Indemnitee for the full amount of Damages incurred to date, including the Damages included in determining that the Indemnification Threshold has been met.  The foregoing threshold shall not apply to any Claim for Damages arising from fraud by Seller or its Representatives.

(b)Limitation of Aggregate Amount of Seller Liability.  Except in the case of fraud by Seller or its Representatives, in no event will the total cumulative amount of Damages for which Seller may be liable to Buyer Indemnitees under Section 7.2(a)(i) exceed $5,744,375 (the “Cap”), except in respect of Claims for the breach by Seller of the representations and warranties described in Section 7.1(a)(i) and (ii) and (iii) (collectively, the “Fundamental Representations”). Regardless of the foregoing, Damages owing under Section 7.2(a)(ii), 7.2(a)(iii) and under Section 7.2(a)(i) with respect to the Fundamental Representations shall not count towards the Cap.

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(c)Time Limit for Claims against Seller.  Except in the case of fraud by Seller or its Representatives, no Claims for Damages arising from or relating to a breach of the representations and warranties of Seller referred to in Section 7.1 of this Agreement may be brought at any time after the expiration of such representations and warranties. Regardless of the foregoing, any Claim for Damages that is brought at any time prior to the expiration of the applicable expiration date set forth in Section 7.1 will not expire on such expiration date and instead may be prosecuted by the Buyer Indemnitee until its conclusion (which may be after such expiration date).

(d)No Liability for Post-Closing Taxes.  Notwithstanding anything in this Article VII or elsewhere in this Agreement to the contrary, Seller shall not be liable for and shall not indemnify Buyer for any Taxes of or relating to the Companies for taxable periods ending after the Closing Date, other than (i) for Seller’s obligation with respect to the pre-Closing portion of a Straddle Period as and to the extent provided in Section 4.9(c), (ii) any Tax liability incurred by any Buyer Indemnitee resulting from receipt of any indemnification payment hereunder that is not treated as an adjustment to Purchase Price, net of the Tax benefit of the underlying claim giving rise to such payment and only to the extent such liability exceeds the additional Tax liability that would have resulted from treating the indemnification payment as a reduction in Purchase Price and only to the extent Buyer and its Affiliates complied with Section 7.8, and (iii) as provided in Section 7.3(e).

(e)Credit for Tax Attributes.  Subject to Section 7.3(f), the amount of Taxes for which Seller is responsible with respect to any taxable period ending prior to the Closing Date, and with respect to any pre-Closing portion of a Straddle Period, shall be determined by providing Seller with the benefit of any net operating losses or other deferred tax assets of the Companies as of the Closing Date as determined as of the Closing Date prior to any adjustments resulting thereto by any taxing authority following the Closing Date (collectively, “Deferred Tax Assets”), without any reduction for income accruing or other events occurring following the Closing.  By way of example and not limitation, if there is an adjustment increasing the taxable income of Magnetek Italy for a pre-Closing period and a net operating loss arising in a pre-Closing period would have been available to offset such income but for taxable income earned in a post-Closing period, Seller’s obligation for such pre-Closing Taxes shall be determined as if such net operating loss were not reduced by such post-Closing income and were fully available to offset such income and, to the extent of such offset, Seller’s obligation shall be reduced, except to the extent provided in the last sentence in this Section 7.3(e) and in Section 7.3(f).  In addition, if there is an adjustment increasing the taxable income of Magnetek Italy for a pre-Closing period but such adjustment has the effect of reducing a previously reported net operating loss and does not giving rise to a tax liability with respect to a pre-Closing period, Seller shall not be liable for the utilization of such net operating loss, except to the extent provided in the last sentence in this Section 7.3(e) and in Section 7.3(f).  Notwithstanding the foregoing, if Seller’s indemnity obligation was reduced by reason of this Section 7.3(e) on the assumption that a Deferred Tax Asset was available, and it later is determined by a final decision that such Deferred Tax Asset was not available, and if Buyer complied in all material respects with the provisions of Section 4.9 that pertain to such Deferred Tax Asset, then Seller shall be required to pay to Buyer the amount of any indemnity payment that would have been payable by Seller had such final determination occurred prior to the time the initial indemnity claim was resolved.  For purposes of the preceding sentence, “final determination” shall mean a Tax Proceeding concluded, with no further right to appeal to a Tax authority or a court of competent jurisdiction, in accordance with Section 4.9(a) hereof.

(f)Limitation on Credit for Tax Attributes.  Notwithstanding Section 7.3(d) or Section 7.3(e), the maximum benefit of the Deferred Tax Asset (which Deferred Tax Asset, in the case of a net operating or other loss or deduction, shall equal the amount of such loss or deduction multiplied by the tax rate applicable in the jurisdiction in which such loss is available as a tax benefit) that may be used to offset Seller’s indemnity obligations hereunder for Taxes attributable to periods prior to the Closing Date

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as provided in Section 7.3(e) shall be 3 Million Euros.  If, as a result of an audit or other action by a taxing authority, an adjustment to taxable income of the Companies during any Tax period ending prior to the Closing Date, or the Straddle Period prior to the Closing Date, results in the utilization of more than 3 Million Euros of Deferred Tax Assets against liabilities for Taxes arising in periods prior to the Closing (the excess of such Deferred Tax Assets utilized to offset such pre-Closing Taxes in excess of 3 Million Euros, the “Excess Utilization”), then Seller shall pay (or reimburse Buyer for) any Taxes paid or accrued by Buyer or the Companies that the Buyer or the Companies would not have paid or accrued had the Excess Utilization not occurred.  By way of clarification, the parties agree that the utilization of Deferred Tax Assets to offset income in periods following the Closing Date shall not be taken into account in determining the Excess Utilization.  In no event shall Seller’s liability under this Article VII be increased by reason of this Section 7.3(f) in an amount greater than the Excess Utilization, and there shall be no duplicate recovery by Buyer of amounts described in the penultimate sentence of Section 7.3(e) and amounts described in this Section 7.3(f).

7.4Indemnification by Buyer.

(a)Subject to the provisions of this Section 7.4 below, Buyer will indemnify, defend and hold harmless the Seller Indemnitees from and against any and all Damages directly or indirectly incurred, paid or accrued in connection with or resulting from or arising out of:

(i)the breach or inaccuracy of any representation or warranty of Buyer contained in Article III of this Agreement;

(ii)the breach or violation of any covenant or other obligation of Buyer under this Agreement; and

(iii)each Assumed Liability, except to the extent that the Buyer Indemnitees are entitled to indemnification pursuant to Section 7.2 by virtue of the circumstances relating to or giving rise to the matter resulting in such Damages.

(b)Time Limit for Claims against Buyer.  Except in the case of fraud by Buyer or its Representatives, no Claims for Damages arising from or relating to a breach of the representations and warranties of Buyer referred to in Section 7.1 of this Agreement may be brought at any time after the expiration of such representations and warranties; provided, however, that any Claim for Damages that is brought at any time prior to the expiration of the applicable expiration date set forth in Section 7.1 will not expire on such expiration date and instead may be prosecuted by the Seller Indemnitee until its conclusion (which may be after such expiration date).

(c) Threshold for Bringing Claims Against Buyer.  If a Seller Indemnitee seeks indemnification for matters identified in Section 7.4(a)(i), Buyer will not have any obligation to indemnify the Seller Indemnitee unless and until the aggregate Damages for all Claims giving rise to Damages under Section 7.4(a)(i) exceeds $500,000 (the “Buyer Indemnification Threshold’”) at which time (and subject to the limitation set forth in Section 7.4(d) below) Buyer must indemnify the Seller Indemnitee for the full amount of Damages incurred to date, including the Damages included in determining that the Buyer Indemnification Threshold has been met.  The foregoing threshold shall not apply to any Claim for Damages arising from fraud by Buyer or its Representatives.

(d) Limitation of Aggregate Amount of Buyer Liability.  Except in the case of fraud by Buyer or its Representatives, in no event will the total cumulative amount of Damages for which Buyer may be liable to Seller Indemnitees under Section 7.4(a)(i) exceed $5,744,375 (the “Buyer Cap”), except in respect of Claims for the breach by Buyer of the representations and warranties described in

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Section 3.2 or Section 3.4. Regardless of the foregoing, Damages owing under Section 7.4(a)(ii), 7.4(a)(iii) and under Section 7.4(a)(i) with respect to the representations and warranties described in Section 3.2 or Section 3.4 shall not count towards the Buyer Cap.

7.5Notice of Claim.

(a)Notice Requirement.  Promptly after becoming aware of the existence of a potential Claim, the Indemnified Party will give to the Indemnifying Party a written notice of the Claim executed by an officer of such Indemnified Party (a “Notice of Claim”).  No delay on the part of the Indemnified Party in giving a Notice of Claim will relieve the Indemnifying Party from any of its obligations unless and only to the extent that the Indemnifying Party is materially prejudiced by the delay.  The written assertion of a claim, demand, suit, action, arbitration, investigation, inquiry or proceeding brought by a third party against an Indemnified Party that is based upon, or includes assertions relating to any item listed in Section 7.2 or Section 7.4, as applicable, is referred to in this Agreement as a “Third Party Claim.”

(b)Contents of Notice of Claim.  Each Notice of Claim will contain (i) the good faith estimate (if an estimate can reasonably be made) of the Indemnified Party of the reasonably foreseeable amount of the alleged Damages arising from the Claim, and (ii) a brief description of the material facts, circumstances or events giving rise to the alleged Damages based on information reasonably available to the Indemnified Party, and copies of any formal demand or complaint.

7.6Defense of Third Party Claims.  The Indemnifying Party will have 14 days after receipt of a Notice of Claim related to a Third Party Claim to notify the Indemnified Party whether or not it desires to defend the Indemnified Party (with counsel reasonably acceptable to the Indemnified Party) against such Third-Party Claim.  If the Indemnifying Party so elects to defend such claim, the Indemnifying Party shall not be liable to the Indemnified Party for legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof unless (a) the Indemnifying Party does not promptly defend or settle any such claims, in which case the Indemnified Party will have the right to control any defense or settlement, at the expense of the Indemnifying Party, or (b) a conflict of interest prevents the counsel appointed by the Indemnifying Party from representing the Indemnified Party.  The Indemnifying Party shall obtain the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed) before entering into any settlement of a claim or ceasing to defend such claim if, pursuant to or as a result of such settlement or cessation, injunctive or other equitable relief will be imposed against the Indemnified Party or if such settlement does not expressly and unconditionally release the Indemnified Party from all liabilities and obligations with respect to such claim, except for payments that would be required to be paid by the Indemnifying Party hereunder.  The Indemnified Party will at all times also have the right to participate in, but not control (except as otherwise provided herein), the defense at its own expense.  The parties will cooperate in the defense of all Third-Party Claims that may give rise to Indemnifiable Claims hereunder.  In connection with the defense of any claim, each party will make available to the party controlling such defense any books, records or other documents within its control that are reasonably requested in the course of such defense during normal business hours and in such a manner so as not to interfere with the Indemnified Party’s operations.

7.7Claims Between the Parties.  If the Indemnified Party has a claim against the Indemnifying Party that does not involve a Third Party Claim, then the terms of Section 8.4 will apply.

7.8Purchase Price Adjustment.  Any payment made by Seller under this Article VII will be paid to Buyer and treated by the parties and their Affiliates as a reduction of the Purchase Price.

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7.9Exclusive Remedy; Limitation on Damages. From and after the Closing, other than as provided in Section 1.7, Section 8.12 and except for fraud by the other party or its Representatives, this Article VII shall be the sole and exclusive remedy for any claim or controversy arising out of or relating to (i) any breach or inaccuracy of any representation or warranty made by Buyer or Seller in connection with the Acquisition (including, without limitation, any claims based upon any violation of state or federal securities laws in connection with the sale of the Acquired Shares to Buyer), or (ii) any breach or violation of any covenant (including all covenants for indemnification, wherever set forth in this Agreement) or other obligation of Buyer or Seller or (iii) any claim of Buyer or Seller arising under this Agreement.  Without limiting the foregoing, the parties acknowledge and agree that no Buyer Indemnitee or Seller Indemnitee shall be entitled to indemnification for punitive, special, or 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 (other than any of the foregoing representing Damages payable by an Indemnified Party pursuant to a Third Party Claim).  From and after the Closing, other than as provided in Section 1.7, this Article VII, Section 8.12 and except for fraud by the other party or its Representatives, Buyer and Seller, on their own behalf and on behalf of all Buyer Indemnitees and Seller Indemnitees, respectively, waive any and all additional rights they may have by operation of applicable law arising from the Acquisition including, without limitation, any such rights in respect of CERCLA and other Environmental Law, under Italian law in respect of affiliated Persons, and under any other law which may give rise to any recourse against any director, officer, shareholder, employee or agent of the other party.

7.10Damages Net of Insurance; Taxes.

(a)The amount of any Damages for which indemnification is provided under this Article VII with respect to a particular Claim for Damages shall be net of (i) any amounts actually recovered by the Person entitled to indemnification under insurance policies (but without any obligation of such Person to actually seek recovery under such insurance policy) with respect to such Claim and (ii) the amount of any reduction or refund of Taxes actually realized by the Indemnified Party during or prior to the year an indemnity payment is paid with respect to such Claim.

(b)If any party makes any payment under this Article VII in respect of any Claim for Damages, such Indemnifying Party shall be subrogated, to the extent of such payment and to the extent that such subrogation is permitted by applicable law and any applicable Contract related to the claim, to the rights of indemnification (but not the rights of insurance) of such Indemnified Party against any applicable third party (other than a provider of insurance) with respect to such Damages.

7.11Environmental Indemnity Procedures.

(a)Seller’s indemnity with respect to Environmental Claims pursuant to Sections 1.4(g) and 7.2(a) shall be subject to this Section 7.11. 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 Claims relating to the presence or Release of Hazardous Materials; provided, however, that in such circumstances, Seller shall (i) not unreasonably interfere with or disrupt Buyer’s operations and (ii) subject to Buyer’s consent not to be unreasonably withheld, be permitted to place title or use restrictions on any affected property, provided such restrictions do not materially interfere with the current industrial use thereof or violate the terms of any Leased Real Property; 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 in any case fails to promptly commence or diligently continue to control, investigate and remediate, Buyer may exercise such right and Seller will indemnify Buyer pursuant to Article VII hereof.

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(b)Seller shall not have any obligation to indemnify any Buyer Indemnitee from and against (i) any Environmental Claims arising from or related to any material change in the use of any Real Properties from their current industrial use; (ii) any Environmental Claims to the extent arising from or related to any amendment to or change in any Environmental Law from that which is in effect on the date hereof or (iii) any remediation or other liability arising as a result of the presence of non-friable asbestos in or upon any of the improvements located on any Owned Real Property or Leased Real Property at any time.  Seller will not have any obligation to indemnify Buyer Indemnitees from any Environmental Claims arising with respect to any release of Hazardous Materials resulting solely from Buyer’s or any of its Affiliate’s activities or omissions.  Seller will not have any obligation to indemnify Buyer with respect to Buyer’s supervision or oversight costs in connection with any remediation or other activities performed by Seller.  Seller’s obligation with respect to indemnification for Environmental Claims pursuant to Sections 1.4(g) and 7.2(a) shall be limited solely to the extent necessary to satisfy the requirements of the Governmental Entity or other third party asserting such Environmental Claim; provided, however, that Buyer shall be permitted to participate in (but not control except as otherwise provided herein) any discussions with such Governmental Entity or third party in respect of such Environmental Claim.

ARTICLE VIII
MISCELLANEOUS PROVISIONS

8.1Amendment; Waiver.  This Agreement may not be amended except by an instrument in writing signed by Seller and Buyer.  At any time prior to the Closing, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, or (c) waive compliance with any of the agreements or conditions contained in this Agreement.  Waiver of any term or condition of this Agreement will only be effective if and to the extent documented in a writing signed by the party making or granting such waiver and will not be construed as a waiver of any subsequent breach or waiver of the same term or condition, or a waiver of any other term or condition of this Agreement.  Upon the request of Buyer, the parties agree to amend this Agreement to substitute in place of Buyer any other wholly-owned direct or indirect Affiliate of Buyer; provided, however, notwithstanding such substitution, Buyer shall remain jointly and severally liable for any breaches by Buyer or its substituted Affiliate of the terms and provisions of this Agreement.

8.2Applicable Law; Severability.  This Agreement shall be governed by and construed under the laws of the State of New York, exclusive of the body of law known as conflicts of law.  Should a court or other body of competent jurisdiction determine that any term or provision of this Agreement is excessive in scope or duration or is illegal, invalid or unenforceable, then the parties agree that such term or provision shall not be voided or made unenforceable, but rather shall be modified so as to be valid, legal and enforceable to the maximum extent possible, under the purposes stated in the preceding sentence and with applicable law, and all other terms and provisions of this Agreement shall remain valid and fully enforceable.

8.3Attorneys’ Fees.  If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, including any proceeding under Section 8.4, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

8.4Venue for Dispute Resolution.  Except as set forth in Section 1.7 of this Agreement, any Claim, potential Claim, or other controversy, claim or dispute relating thereto or otherwise arising out of or relating to this Agreement or the transactions contemplated hereby, whether based on contract, tort, statute or any other legal or equitable theory (“Dispute”), unless resolved by the parties, shall be brought in the state or federal courts in the Central District of the State of California.  Each of the parties hereto

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consents to and expressly submits to the exclusive jurisdiction of such courts and waives any claim of improper jurisdiction or lack of venue in connection with any claim or controversy that may be brought in connection with this Agreement.  Each party hereby agrees that such courts, as applicable, shall have in personam jurisdiction with respect to such party, and such party hereby submits to the personal jurisdiction of such courts.

8.5Assignability; Third Party Beneficiary.  This Agreement will be binding upon, enforceable by and inure solely to the benefit of, the parties and their respective permitted successors and assigns.  This Agreement shall not be assigned by any party hereto without the prior written consent of the non-assigning party, provided that Buyer may assign its rights and/or its obligations hereunder to any Affiliate of Buyer so long as Buyer remains a guarantor of the obligations assumed by any such Affiliate, and provided, further, that Buyer may assign its rights and obligations under this Agreement without the consent of Seller (a) by operation of law in connection with the merger, consolidation or similar reorganization of Buyer, (b) in connection with a sale of all or substantially all of the Business, and (c) as part of a pledge in connection with a financing.  Except as otherwise expressly provided in this Agreement, nothing in this Agreement (except for the indemnification of Buyer Indemnitees is intended to or will confer upon any Person, other than the parties to the Agreement, any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

8.6Notices.  All notices and other communications under this Agreement must be in writing and will be deemed given if delivered personally, faxed, sent by internationally recognized overnight courier, or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as such party specifies by like notice):

To Buyer:

Power-One, Inc.
740 Calle Plano
Camarillo, CA 93012
Attention:  General Counsel
Telephone: (805) 987-8741
Fax: (805) 383-5898
Email: randy.holliday@power-one.com

with a copy, which shall not constitute notice, to:

O’Melveny & Myers LLP
1999 Avenue of the Stars, Suite 700
Los Angeles, CA 90067
Attention: Allison Keller, Esq.
Telephone: (310) 553-6700
Fax: (310) 246-6779
Email: akeller@omm.com

To Seller, prior to the Closing:

Magnetek, Inc.
8966 Mason Avenue
Chatsworth, California 91311
Attention:  Tina D. McKnight

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Telephone: (818) 727-2216
Fax: (818) 886-1523
Email: tmcknight@magnetek.com

To Seller, following the Closing:

Magnetek, Inc.
N49 W13650 Campbell Drive
Menomenee Falls, Wisconsin 53051
Attention:  General Counsel
Fax: (262) 783-3510

in each case, with a copy, which shall not constitute notice, to:

Gibson, Dunn & Crutcher LLP

333 South Grand Avenue

Los Angeles, California 90071

Attention:  Jennifer Bellah Maguire, Esq.

Telephone: (213) 229-7986

Fax: (213) 229-6986

Email: JBellah@gibsondunn.com

All such notices and other communications will be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of a facsimile, when the party sending such facsimile has a written confirmation that the transmission was received by the receiver’s facsimile machine, (c) in the case of delivery by internationally recognized overnight courier, on the next Business Day following dispatch, (d) in the case of mailing, on the fifth (5th) Business Day following such mailing, and (e) in the case of instant electronic communication, on the date of actual receipt.

8.7Construction.

(a)For purposes of this Agreement, whenever the context requires: the singular number includes the plural, and vice versa; the masculine gender includes the feminine and neuter genders; the feminine gender includes the masculine and neuter genders; and the neuter gender includes the masculine and feminine genders.

(b)As used in this Agreement, the words “include” and “including,” and variations thereof, will not be deemed to be terms of limitation, but rather will be deemed to be followed by the words “without limitation.”

(c)The titles and captions of the Sections of this Agreement are included for convenience of reference only and will have no effect on the construction or meaning of this Agreement.

(d)Except as otherwise indicated, all references in this Agreement to “Sections” and “Exhibits” are intended to refer to Sections of this Agreement and Exhibits to this Agreement, and all references to “Schedules” refer to the Schedules attached to or delivered with this Agreement, as appropriate.

(e)As used in this Agreement, (i) the word “or” shall be inclusive and not exclusive, (ii) each reference to “herein” means a reference to “in this Agreement,” (iii) each reference to “$” or “dollars” shall be to United States dollars, (iv) each reference to “days” shall be to calendar days unless

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“Business Day” is used, (v) each reference to any Contract shall be to such Contract as amended, supplemented, waived or otherwise modified from time to time, and (vi) accounting terms which are not otherwise defined in this Agreement shall have the meanings given to them under GAAP; provided, that to the extent that a definition of a term in this Agreement is inconsistent with the meaning of such term under GAAP, the definition set forth in this Agreement will control.

8.8Interpretation.  The parties hereto have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.  Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.

8.9Counterparts.  This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

8.10Telecopy Execution and Delivery.  The parties may execute and deliver this Agreement by facsimile or similar electronic transmission device under which the signature of or on behalf of such party can be seen, and such execution and delivery will be considered valid, binding and effective for all purposes.

8.11Entire Agreement.  This Agreement and the other agreements referred to in this Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the parties with respect to the subject matter hereof and thereof.

8.12Equitable Relief; Cumulative Remedies.  Each of the parties acknowledges and agrees that the other party would be damaged irreparably in the event any of the provisions of this Agreement are note performed in accordance with their specific terms or otherwise are breached.  Accordingly, each of the parties agrees that the other party will be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof, in addition to any other remedy to which they may be entitled, at law or in equity.  Except only as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.

ARTICLE IX

DEFINITIONS

As used in this Agreement, the following terms have the following meanings:

“Accounting Firm” is defined in Section 1.7(b).

“Acquired Shares” is defined in the background.

“Ancillary Agreements” is defined in Section 1.9(a).

“Acquisition” is defined in the background.

“Acquisition Proposal” is defined in Section 5.3(a).

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“Adjusted Tangible Net Worth” means (a) total assets, excluding (1) goodwill and (2) all deferred Tax assets, minus (b) total liabilities, in each case calculated as of the Closing Date from the applicable balance sheet.

“Affiliate” means a Person who, with respect to another Person, Controls, is Controlled by or is under common Control with such other Person.

“Agreement” is defined in the preamble.

“Applicable Rate” means the “prime rate” as set forth in the Wall Street Journal, Western Edition on the Closing Date, and if such publication shall contain more than one “prime rate” on such date, then the average of such rates.

“Approval” means any approval, authorization, consent, qualification or registration required to be obtained from, or any notice, statement, application or other filing required to be made with, any Governmental Entity or any other Person, or any waiver of any of the foregoing.

“Assigned Contracts” means Contracts, bids, quotations and proposals of Seller as of the Closing Date primarily related to the US Business and all Contracts entered into in the ordinary course of business between the date hereof and Closing (subject to Article IV), but in any event excluding those identified as “Non-Assigned Contracts” on Schedule 1.3.

“Assumed Liabilities” is defined in Section 1.2.

“Business” is defined in the background.

“Business Day” means a day other than a Saturday or Sunday or other day on which commercial banks in New York are authorized or required by law to close.

“Business Records” means all correspondence, marketing and sales information, pricing, marketing plans, business plans, financial statements, financial and business projections, customer lists, financial books and records and ledgers, sales order files, purchase order files, engineering order files, production and quality control records, warranty and repair files, supplier and distributor lists, studies, surveys, analyses, designs, specifications, and other files and records of any Company and, to the extent related to the Business or the Group, Seller, but excluding, to the extent exclusion is required by applicable state or federal law, (i) any personnel files of any former employee of Magnetek Italy, and (ii) any personnel files of any employee who does not consent to the disclosure of his or her personnel file to Buyer.

“Buyer” is defined in the preamble.

“Buyer Accounts Receivable” is defined in Section 4.16.

“Buyer Indemnitee” is defined in Section 7.1(d).

“Claim” is defined in Section 7.1(d).

“Closing” is defined in Section 1.8.

“Closing Date” is defined in Section 1.8.

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“Closing Net Indebtedness Amount” means (a) the aggregate Indebtedness of the Companies, together with the aggregate Indebtedness of Seller to the extent included in the Assumed Liabilities, including all long-term debt and the current portion of long-term debt, minus (b) cash and cash equivalents of the Companies, in each case calculated as of the Closing from the applicable balance sheet.

“Code” means the Internal Revenue Code of 1986, as amended, and the rulings and regulations promulgated thereunder.

“Company” is defined in the Background.

“Contract” means any written or oral agreement, contract, subcontract, lease, instrument, note, option, purchase order, license, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of any nature.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of stock or other equity interests, as an officer, director, trustee or executor, by contract or otherwise.

“Damages” is defined in Section 7.1(d).

“Disclosure Schedule” is defined in the preamble to Article II.

“Dispute” is defined in Section 8.4(a).

“Employee Benefit Plans” is defined in Section 2.17(a).

“Encumbrance” means any option, easement, license, sublicense, deed of trust, covenant, lien, pledge, collateral assignment, hypothecation, charge, mortgage, security interest, title retention, conditional sale or other security arrangement, or any charge, adverse claim of title, ownership or right to use, or any other encumbrance of any kind whatsoever.

“Environmental Claim” means any claim, action, litigation, notice of violation, cause of action, consent order, consent decree, investigation or written notice by any Person alleging potential liability arising out of, based on or resulting from (a) the presence or Release of any Hazardous Materials in, on, from or under any of the Real Properties, any property formerly owned or occupied by the Business, or any third party location to which Seller or any Company sent, or caused to be sent, Hazardous Materials or (b) any violation or alleged violation of any Environmental Law, in each case (a) or (b), occurring prior to the Closing Date.

“Environmental Law” means any Legal Requirement relating to pollution or protection of the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or natural resources, including any law or regulation relating to emissions, discharges or releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, importation, use, treatment, storage, disposal, transport or handling of Hazardous Materials.

“ERISA” is defined in Section 2.17(a).

“Escrow Amount” is defined in Section 4.20.

“Escrow Agent” is defined in Section 4.20.

“Escrow Agreement” is defined in Section 4.20.

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“Final Adjusted Tangible Net Worth” is defined in Section 1.7(a).

“Final Closing Balance Sheet” is defined in Section 1.7(a).

“Final Closing Net Indebtedness Amount” is defined in Section 1.7(a).

“Financial Statements” is defined in Section 2.7.

“GAAP” means generally accepted accounting principles in the United States applied on a consistent basis in accordance with Seller’s written policies.

“Governmental Authorization” means any permit, registration, qualification or authorization granted or issued by a Governmental Entity.

“Governmental Entity” means any government or any agency, district, bureau, board, commission, court, department, official, office, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.

“Group” is defined in the Background.

“Group Assets” means all rights, properties and assets of every kind and nature, tangible and intangible, absolute or contingent, currently used primarily (and not merely incidentally) by Seller or any Company in the operations of the Business.

“Group Employee” means any Person employed by Seller with respect to the Group, or any Company, including, without limitation, all regular employees, leased employees, temporary employees, and part-time employees, and any such person on lay-off, leave of absence, sick or short-term disability leave.

“Group Intellectual Property” means all Intellectual Property Rights that are primarily used by Seller or any Company in connection with the Business.

“Group Liabilities” means the Liabilities primarily arising out of the operations of the Business.

“Hazardous Materials” means all materials, wastes or substances defined by, or regulated under, any Environmental Law as a hazardous waste, hazardous material, hazardous substance, extremely hazardous waste, restricted hazardous waste, contaminant, pollutant, toxic waste, or toxic substance, including petroleum, petroleum products, asbestos, urea, formaldehyde, radioactive materials and polychlorinated biphenyls.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.

“Indebtedness” of any Person means, as of any date, the amount equal to the sum (without any double-counting) of the following obligations (whether or not then due and payable, but not including all prepayment premiums, penalties, breakage costs, costs, expenses and other payment obligations that would arise if such obligations were prepaid in full on such date) to the extent they are of such Person or guaranteed by such Person: (A) all outstanding indebtedness for borrowed money owed to third parties, (B) accrued interest payable with respect to Indebtedness referred to in clause (A), (C) all obligations for the deferred purchase price of property or services, (D) all obligations evidenced by notes (including all prepayment penalties), bonds, debentures (including all prepayment penalties) or other similar

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instruments, (E) all obligations arising out of any financial hedging arrangements, (F) obligations under conditional sale or other title retention agreements related to purchase d property, and (G) all obligations under capitalized leases.  For the avoidance of doubt, “Indebtedness” shall not include any obligations under any operating leases.

“Indemnification Threshold” is defined in Section 7.3(a).

“Indemnified Liabilities” is defined in Section 1.4.

“Indemnified Party” is defined in Section 7.1(d).

“Indemnifying Party” is defined in Section 7.1(d).

“Initial Closing Indebtedness Amount” is defined in Section 1.6.

“Intellectual Property Rights” means all rights in trademarks and service marks (including any trade names, brand names, corporate names, d/b/a’s, assumed names, fictitious names, slogans, logos, trade dress, and business names in any jurisdiction), whether registered or unregistered, and all registrations and applications for registration of the foregoing; Internet domain names and addresses; patents and patent applications (including provisional patent applications) in any jurisdiction and all reissues, divisions, continuations, continuations in part, and extensions thereof; copyrights, copyright registrations and applications for copyright registration in any jurisdiction and all extensions and renewals thereof; rights in inventions and invention disclosures; rights in databases, works of authorship, mask works, trade secrets and confidential information; moral rights; and all claims for the past or present infringement or misappropriation of the foregoing.

“Interest Period” is defined in Section 1.7(c).

“Key Witnesses” is defined in Section 4.12.

“Knowledge,” means, with respect to (i) Seller, the actual knowledge that each person set forth on Schedule 2 has, combined with the knowledge that each such person has or would reasonably be expected to have after performing a reasonable internal investigation, or (ii) Buyer, the actual knowledge of any of the officers, directors or other managing personnel of Buyer.

“Leases” is defined in Section 2.11(b).

“Legal Proceeding” means any action, suit, litigation, arbitration, proceeding or hearing, whether administrative, civil or criminal, and whether at law or in equity, conducted or heard by or before any court or other Governmental Entity or any arbitrator or arbitration panel.

“Legal Requirement” means laws, statutes, ordinances, rules, regulations, decrees, writs, injunctions, judgments, rulings or orders adopted or promulgated by any Governmental Entity or any treaty or other requirement having the force of law.

“Liabilities” means liabilities, Indebtedness, guarantees, obligations or other commitments of any nature, absolute, accrued, contingent, or otherwise, whether matured or unmatured, and whether material or not material.

“Made Available To Buyer” means delivered to Buyer or its counsel or made available in Seller’s electronic data room.

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“Magnetek Italy” is defined in the Background.

“Material Adverse Change” or “Material Adverse Effect,” means any fact, event, change, violation, inaccuracy, circumstance or effect that is or is reasonably likely to (1) be, individually or in the aggregate, materially adverse to the business, condition (financial or otherwise) or results of operations of the Business or the Group, taken as a whole, (2) materially adversely affect Seller’s ability to perform its obligations under this Agreement or in connection with the transactions contemplated hereby or (3) materially adversely affect the enforceability of this Agreement.  Notwithstanding anything to the contrary contained in this paragraph, none of the following shall be deemed, singly or in the aggregate, to constitute a Material Adverse Effect or Material Adverse Change:  (a) any failure by the Group to meet projections or forecasts for any period ending on or after the date of this Agreement; or (b) any adverse change, effect, event, violation, inaccuracy, circumstance, state of facts or development resulting from or relating to (directly or indirectly) any of the following:  (i) the announcement or pendency of the Acquisition (including any cancellations of or delays in orders, any reduction in sales, any disruption in supplier, distributor, partner or similar relationships or any loss of employees); (ii) conditions affecting the industries in which the Group participate, the U.S. economy as a whole or foreign economies in any locations where the Group has material operations or sales, including, without limitation, war or acts of terrorism, except to the extent that such conditions described in this clause (ii) disproportionately affects the Business or the Group; (iii) out-of-pocket fees and expenses (including legal, accounting, investment banking and other fees and expenses) incurred in connection with the Acquisition; (iv) compliance by the parties with the terms of, or the taking of any action required by, this Agreement or (v) any change in accounting requirements or principles or any change in applicable laws, rules or regulations or the interpretation thereof, except to the extent that such change in accounting requirements or principles disproportionately affects the Business or the Group.

“Material Contracts” is defined in Section 2.13(a).

“Non-Assigned Contract” means any Contract designated as such on Schedule 1.3.

“Notice of Claim” is defined in Section 7.5(a).

“Notice of Disagreement” is defined in Section 1.6(b).

“Owned Properties” is defined in Section 2.11(a).

“Permitted Encumbrances” means (i) Encumbrances for Taxes not yet due and payable, (ii) mechanics’, carriers’, workmen’s, repairmen’s or other like Encumbrances arising or incurred in the ordinary course of business consistent with past practice for monies not yet due and payable, (iii) Encumbrances arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business consistent with past practice, (iv) other imperfections of title, restrictions or other Encumbrances, if any, which imperfections of title, restrictions or other Encumbrances do not, individually or in the aggregate, materially impair the continued use and operation of or materially detract from the value of the specific assets to which they relate, and (v) Encumbrances disclosed in the Financial Statements.

“Pending Claims” is defined in Section 2.14.

“Person” means any individual, or any U.S. or non-U.S. corporation, partnership, joint venture, estate, trust, company (including limited liability company and joint stock company), association, organization, firm, enterprise or other entity or any Governmental Entity.

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“Product” means any product manufactured, leased or sold by or on behalf of Seller or any Company in connection with the Business.

“Public Software” is defined in Section 2.10(f).

“Purchase Assets” is defined in the Background.

“Purchase Price” is defined in Section 1.5.

“Purchase Price Adjustment” is defined in Section 1.8(c).

“Real Properties” is defined in Section 2.11(b).

“Release” means any release, spill, emission, discharge, leaking, pumping, pouring, dumping, injection, deposit, disposal, dispersal, leaching or migration of Hazardous Materials into the environment (including, ambient air, surface water, groundwater and surface or subsurface strata)/

“Representatives” of a Person means the officers, directors, employees, agents, attorneys, accountants, investment bankers, advisors Controlled Affiliates and other representatives of that Person.

“Required Consents” is defined in Section 2.5.

“Retained Assets” is defined in Section 1.3.

“Indemnified Liabilities” is defined in Section 1.4.

“Seller” is defined in the preamble.

“Seller Accounts Receivable” is defined in Section 4.16.

“Seller Indemnitees” is defined in Section 7.1(d).

“Tax” means, with respect to Seller and any Company, (i) any and all taxes under all laws applicable to such Person, including Taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property Taxes, together with all interest, penalties and additions imposed with respect to such amounts, (ii) any liability for the payment of any amounts of the type described in clause (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for any period, and (iii) any liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result of any express or implied obligation to indemnify any other person or as a result of any obligation under any agreement or arrangement with any other person with respect to such amounts and including any liability for Taxes of a predecessor entity.

“Tax Return” means any return (including any information return) and any schedule, exhibit or attachment thereto, filed with or submitted to, or required to be filed with or submitted to, any Governmental Entity in connection with the determination, assessment, collection, claim for refund or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.

“Termination Date” is defined in Section 6.1(a).

“Third Party Claim” is defined in Section 7.5(a).

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“Transaction Documents” means (i) the Supply Agreement referenced in Section 5.3(d), (ii) the Alternative Energy Agreement referenced in Section 5.3(c), (iii) the Transitional Agreement referenced in Section 5.3(e), (iv) the Ancillary Agreements, and (v) any other certificate, document or agreement delivered or executed pursuant to this Agreement or any of the foregoing.

“Transferred Employee” has the meaning set forth in Section 4.19(a).

“Warranty” means any guaranty, warranty, remedy (including repair or replacement), liability, limitation, indemnification matters or similar obligation provided in connection with any Product.

[Remainder of page left intentionally blank]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written.

BUYER:
POWER-ONE, INC.,
a Delaware corporation
By:	/s/ William T. Yeates
Name:		William T. Yeates
Title:		Chief Executive Officer
SELLER:
MAGNETEK, INC.,
a Delaware corporation
By:	/s/ David P. Reiland
Name:		David P. Reiland
Title:		Executive Vice President and
		Chief Financial Officer

EX-10.40

Exhibit 10.40

FORBEARANCE AGREEMENT

THIS FORBEARANCE AGREEMENT (this “Agreement”), dated as of September 22, 2006, is entered into by and among the Lenders signatory hereto, ABLECO FINANCE LLC, a Delaware limited liability company, as collateral agent and administrative agent for the Lenders (in such capacities, “Agent”), MAGNETEK, INC., a Delaware corporation (“Borrower”), and each of Borrower’s Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Borrower, are referred to hereinafter as a “Loan Party” and individually and collectively, jointly and severally, as the “Loan Parties”).  Terms used herein without definition shall have the meanings ascribed to them in the Financing Agreement defined below.

RECITALS

A.            The Lenders, Agent and Loan Parties have previously entered into that certain Financing Agreement dated September 30, 2005, as amended by that certain Amendment No. 1 to Financing Agreement and Waiver, dated November 29, 2005 and by that certain Amendment No. 2 to Financing Agreement, dated April 24, 2006 (as amended, modified and supplemented from time to time, the “Financing Agreement”), pursuant to which the Lenders have made certain loans and financial accommodations available to the Loan Parties.

B.            Certain Events of Default have occurred and are continuing under the Financing Agreement due to Loan Parties’ failure to (i) achieve the minimum amount of TTM EBITDA set forth in Section 7.03(c) of the Financing Agreement for the period ending June 30, 2006, (ii) maintain the minimum Fixed Charge Coverage Ratio set forth in Section 7.03(b) of the Financing Agreement as of June 30, 2006 and (iii) maintain a Leverage Ratio of no more than the amount set forth in Section 7.03(a) of the Financing Agreement as of June 30, 2006 (collectively, the “Known Existing Defaults”).

C.            The Loan Parties have requested that the Agent and Lenders forbear from exercising their rights and remedies under the Financing Agreement and the other Loan Documents in order to give the Loan Parties time to negotiate a sale of the Stock of MagneTek S.p.A., a company organized under the laws of Italy, and of certain other assets associated with its “Power Electronics Group” division.

D.            Agent and the Lenders are willing, for a limited period of time and on the terms and conditions set forth herein, to forbear from exercising their rights and remedies under the Financing Agreement and the other Loan Documents with respect to the Known Existing Defaults.

E.             The Loan Parties are entering into this Agreement with the understanding and agreement that, except as specifically provided herein, none of the Agent’s or Lenders’ rights or remedies as set forth in the Financing Agreement or any other Loan Document are being waived or modified by the terms of this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.             Incorporation of Recitals.  Each of the above recitals is expressly incorporated herein and is represented by each Loan Party to be true and correct.

2.             Reaffirmation of Obligations.  Each Loan Party hereby acknowledges that the Loan Documents and the Obligations constitute the valid and binding obligations of such Loan Party enforceable against such Loan Party in accordance with their respective terms, and each Loan Party hereby reaffirms its

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obligations under the Loan Documents.  Agent’s and the Lenders’ entry into this Agreement or any of the documents referenced herein, their negotiations with any party with respect to any Loan Document, their conduct of any analysis or investigation of any Collateral for the Obligations or any Loan Document, their acceptance of any payment from any Loan Party or any other party of any payments made prior to the date hereof, or any other action or failure to act on the part of Agent or any Lender shall not constitute (a) a modification of any Loan Document or (b) a waiver of any Default or Event of Default under the Financing Agreement, including, without limitation, the Known Existing Defaults, or a waiver of any term or provision of any Loan Document.

3.             Agreement to Forbear.  For the Forbearance Period (as defined below), the Agent and Lenders shall not take any action or commence any proceedings with respect to the enforcement of any of their rights or remedies under the Loan Documents as a result of the Known Existing Defaults.  The parties agree that neither the foregoing agreement by Agent and Lenders nor the acceptance by Agent or Lenders of any of the payments provided for in the Loan Documents, nor any payment prior to the date hereof shall, however, (a) excuse any party from any of its obligations under the Loan Documents (other than as set forth in Section 5 below), or (b) toll the running of any time periods applicable to any such rights and remedies, including, without limitation, any grace periods with respect to Defaults under the Loan Documents or otherwise.  Each Loan Party agrees that it will not assert laches, waiver or any other defense to the enforcement of any of the Loan Documents based upon the foregoing agreement Agent and Lenders to forbear or the acceptance by Agent or Lenders of any of the payments provided for in the Loan Documents or any payment prior to the date hereof.  As used herein, “Forbearance Period” shall mean the period commencing upon the effectiveness of this Agreement and continuing until the earlier to occur of: (x) any Default or Event of Default under any of the Loan Documents (other than any Known Existing Default) or (y) October 31, 2006.

4.             Termination of Agreement to Forbear.  Each Loan Party acknowledges and agrees that upon the termination of the Agent and Lenders’ agreement to forbear as provided in Section 3 hereof, Agent, on behalf of the Lenders, shall be entitled to exercise any or all of its remedies under the Loan Documents, including, without limitation, the appointment of a receiver, the acceleration of the Obligations and the enforcement under the Code of any liens in favor of Agent, as a result of the Known Existing Defaults, and at any time Agent and Lenders shall be entitled to exercise any or all of their remedies under the Loan Documents as a result of any other Default or Event of Default under the Loan Documents.

5.             Agreement to Defer October 1, 2006 Principal Payment.  Anything in Section 2.03(b) of the Financing Agreement notwithstanding, the parties hereby agree that the October 1, 2006 installment principal payment of $1,000,000 shall not be due until the end of the Forbearance Period.

6.             Release; Covenant Not to Sue.

(a)           Each Loan Party hereby absolutely and unconditionally releases and forever discharges Agent and Lenders, and any and all of their respective participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing (each a “Released Party”), from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which such Loan Party has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Agreement, whether such claims, demands and causes of action are matured or unmatured or known or unknown.  It is the intention of each Loan Party in providing this release that the same shall be effective as a bar to each and every claim, demand and cause of action specified, and in furtherance of this intention it waives and relinquishes all rights and benefits under Section 1542 of the Civil Code of the State of California (or any comparable provision of any other applicable law), which provides:

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“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him might have materially affected his settlement with the debtor.”

Each Loan Party acknowledges that it may hereafter discover facts different from or in addition to those now known or believed to be true with respect to such claims, demands, or causes of action and agrees that this instrument shall be and remain effective in all respects notwithstanding any such differences or additional facts.  Each Loan Party understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.

(b)           Each Loan Party, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Released Party above that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Released Party on the basis of any claim released, remised and discharged by such Loan Party pursuant to the above release.  If any Loan Party or any of its successors, assigns or other legal representations violates the foregoing covenant, each Loan Party, for itself and its successors, assigns and legal representatives, agrees to pay, in addition to such other damages as any Released Party may sustain as a result of such violation, all attorneys’ fees and costs incurred by such Released Party as a result of such violation.

7.             Effectiveness of this Agreement.  Agent must have received the following items, in form and content acceptable to Agent, before this Agreement is effective and the Lenders are required to resume making extensions of credit to Loan Parties under the Financing Agreement.

(a)           Agreement; Acknowledgement and Release.  This Agreement and the attached Acknowledgement and Release by Guarantors, each fully executed in a sufficient number of counterparts for distribution to all parties.

(b)           Forbearance as to First Lien Credit Agreement, etc.  Evidence that the Loan Parties, First Lien Agent and the Lenders (as defined in the First Lien Credit Agreement) have entered into a forbearance agreement with respect to the First Lien Credit Agreement reflecting substantially the same terms set forth in this Agreement (the “First Lien Forbearance”) or otherwise satisfactory to Agent.

(c)           Representations and Warranties.  Except for the existence of the Known Existing Defaults, the representations and warranties set forth herein and in the Financing Agreement must be true and correct in all material respects (except where any such representation and warranty is already subject to a materiality standard, in which case such representation and warranty is true and correct in all respects) on and as of the date hereof as though made on and as of the date hereof (other than any such representations and warranties that, by their terms, are specifically made as of a date other than the date hereof).

(d)           Other Required Documentation.  All other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered or executed or recorded, as required by Agent.

8.             Representations and Warranties.  Each Loan Party represents and warrants as follows:

(a)           Authority.  Each Loan Party has the requisite corporate power and authority to execute and deliver this Agreement, and to perform its obligations hereunder and under the Loan Documents to which it is a party.  The execution, delivery and performance by each Loan Party of this Agreement have been duly approved by all necessary corporate action and no other corporate proceedings are necessary to consummate such transactions.

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(b)           Enforceability.  This Agreement has been duly executed and delivered by each Loan Party.  This Agreement and each Loan Document is the legal, valid and binding obligation of each Loan Party, enforceable against such Loan Party in accordance with its terms, and is in full force and effect.

(c)           Representations and Warranties.  The representations and warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are true and correct in all material respects (except where any such representation and warranty is already subject to a materiality standard, in which case such representation and warranty is true and correct in all respects) on and as of the date hereof as though made on and as of the date hereof.

(d)           Due Execution.  The execution, delivery and performance of this Agreement are within the power of each Loan Party, have been duly authorized by all necessary corporate action, have received all necessary governmental approval, if any, and do not contravene any law or any contractual restrictions binding on such Loan Party.

(e)           No Default.  Other than the Known Existing Defaults, no event has occurred and is continuing that constitutes a Default or an Event of Default.

(f)            No Duress.  This Agreement has been entered into without force or duress, of the free will of each Loan Party.  Each Loan Party’s decision to enter into this Agreement is a fully informed decision and such Loan Party is aware of all legal and other ramifications of such decision.

(g)           Counsel.  Each Loan Party has read and understands this Agreement, has consulted with and been represented by legal counsel in connection herewith, and has been advised by its counsel of its rights and obligations hereunder and thereunder.

9.             Choice of Law.  The validity of this Agreement, its construction, interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the internal laws of the State of New York governing contracts only to be performed in that State.

10.           Counterparts.  This Agreement may be executed in any number of counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument.  Delivery of an executed counterpart of a signature page to this Agreement by telefacsimile or other similar method of electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement.

11.           Reference to and Effect on the Loan Documents.

(a)           Upon and after the effectiveness of this Agreement, each reference in the Financing Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Financing Agreement, and each reference in the other Loan Documents to “the Financing Agreement”, “thereof” or words of like import referring to the Financing Agreement, shall mean and be a reference to the Financing Agreement as supplemented hereby.

(b)           The Financing Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed and shall constitute the legal, valid, binding and enforceable obligations of each Loan Party to Agent and Lenders.

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(c)           The execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any right, power or remedy of the Agent or Lenders under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.

12.           Ratification.  Each Loan Party hereby restates, ratifies and reaffirms each and every term and condition set forth in the Financing Agreement and the Loan Documents effective as of the date hereof.

13.           Integration.  This Agreement, together with the other Loan Documents, incorporates all negotiations of the parties hereto with respect to the subject matter hereof and is the final expression and agreement of the parties hereto with respect to the subject matter hereof.

14.           Severability.  In case any provision in this Agreement shall be invalid, illegal or unenforceable, such provision shall be severable from the remainder of this Agreement and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

15.           Submission of Amendment.  The submission of this Agreement to the parties or their agents or attorneys for review or signature does not constitute a commitment by Agent or the Lenders to forbear from exercising any of their rights and remedies under the Loan Documents, and this Agreement shall have no binding force or effect until all of the conditions to the effectiveness of this Agreement have been satisfied as set forth herein.

16.           Modification.  This Agreement may not be amended, waived or modified in any manner without the written consent of the party against whom the amendment, waiver or modification is sought to be enforced.

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IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date first above written.

BORROWER:
MAGNETEK, INC.
By:	/s/ David P. Reiland
Name:			David P. Reiland
Title:		Executive VP and CFO
GUARANTORS:
MAGNETEK ADS POWER, INC.
By:	/s/ David P. Reiland
Name:			David P. Reiland
Title:		Executive VP and CFO
MAGNETEK MONDEL HOLDING, INC.
By:	/s/ David P. Reiland
Name:			David P. Reiland
Title:		Executive VP and CFO
MONDEL ULC
By:	/s/ David P. Reiland
Name:			David P. Reiland
Title:		Executive VP and CFO
MAGNETEK NATIONAL ELECTRIC COIL, INC.
By:	/s/ David P. Reiland
Name:			David P. Reiland
Title:		Executive VP and CFO
MAGNETEK ALTERNATIVE ENERGY, INC.
By:	/s/ David P. Reiland
Name:			David P. Reiland
Title:		Executive VP and CFO

[MAGNETEK, INC.]

[SIGNATURE PAGE TO FORBEARANCE AGREEMENT]

COLLATERAL AGENT AND
ADMINISTRATIVE AGENT:
ABLECO FINANCE LLC
By:	/s/ Michael Grenier
Name:			Michael Grenier
Title:		Vice President
LENDERS:
ABLECO FINANCE LLC,
on behalf of itself and its affiliate assigns
By:	/s/ Michael Grenier
Name:			Michael Grenier
Title:		Vice President

[MAGNETEK, INC.]

[SIGNATURE PAGE TO FORBEARANCE AGREEMENT]

EX-10.41

Exhibit 10.41

FORBEARANCE AGREEMENT

THIS FORBEARANCE AGREEMENT (this “Agreement”), dated as of September 22, 2006, is entered into by and among the Lenders signatory hereto, WELLS FARGO FOOTHILL, INC., a California corporation, in its capacity as agent for the Lenders and Bank Product Providers (in such capacity “Agent”), MAGNETEK, INC., a Delaware corporation (“Parent”), and each of Parent’s Subsidiaries identified on the signature pages hereof (such Subsidiaries, together with Parent, are referred to hereinafter as a “Borrower” and individually and collectively, jointly and severally, as the “Borrowers”).  Terms used herein without definition shall have the meanings ascribed to them in the Credit Agreement defined below.

RECITALS

A.            The Lenders, Agent and Borrowers have previously entered into that certain Credit Agreement dated September 30, 2005, as amended by that certain First Amendment to Credit Agreement and Waiver, dated November 29, 2005 and by that certain Second Amendment to Credit Agreement and Waiver, dated April 20, 2006 (as amended, modified and supplemented from time to time, the “Credit Agreement”), pursuant to which the Lenders have made certain loans and financial accommodations available to Borrowers.

B.            Certain Events of Default have occurred and are continuing under the Credit Agreement due to Borrowers’ failure to (i) achieve the minimum amount of TTM EBITDA set forth in Section 6.16(a)(i) of the Credit Agreement for the period ending June 30, 2006, (ii) maintain the minimum Fixed Charge Coverage Ration set forth in Section 6.16(a)(iii) of the Credit Agreement as of June 30, 2006 and (iii) maintain a Leverage Ratio of no more than the amount set forth in Section 6.16(a)(iv) of the Credit Agreement as of June 30, 2006 (collectively, the “Known Existing Defaults”).

C.            Borrowers have requested that the Agent and Lenders forbear from exercising their rights and remedies under the Credit Agreement and the other Loan Documents in order to give Borrowers time to negotiate a sale of the Stock of MagneTek S.p.A., a company organized under the laws of Italy and of certain other assets of Parent associated with its “Power Electronics Group” division.

D.            Agent and the Lenders are willing, for a limited period of time and on the terms and conditions set forth herein, to forbear from exercising their rights and remedies under the Credit Agreement and the other Loan Documents with respect to the Known Existing Defaults.

E.             Borrowers are entering into this Agreement with the understanding and agreement that, except as specifically provided herein, none of the Lender Group’s rights or remedies as set forth in the Credit Agreement or any other Loan Document is being waived or modified by the terms of this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.             Incorporation of Recitals.  Each of the above recitals is expressly incorporated herein and is represented by each Borrower to be true and correct.

2.             Reaffirmation of Obligations.  Each Borrower hereby acknowledges that the Loan Documents and the Obligations constitute the valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their respective terms, and each Borrower hereby reaffirms its obligations under the Loan Documents.  Agent’s and the Lenders’ entry into this Agreement or any of the documents referenced herein, their negotiations with any party with respect to any Loan Document, their conduct of any analysis or

investigation of any Collateral for the Obligations or any Loan Document, their acceptance of any payment from any Borrower or any other party of any payments made prior to the date hereof, or any other action or failure to act on the part of any member of the Lender Group shall not constitute (a) a modification of any Loan Document or (b) a waiver of any Default or Event of Default under the Credit Agreement, including, without limitation, the Known Existing Defaults, or a waiver of any term or provision of any Loan Document.

3.             Agreement to Forbear.  For the Forbearance Period (as defined below), the Lender Group shall not take any action or commence any proceedings with respect to the enforcement of any of its rights or remedies under the Loan Documents as a result of the Known Existing Default.  The parties agree that neither the foregoing agreement by the Lender Group nor the acceptance by any member of the Lender Group of any of the payments provided for in the Loan Documents, nor any payment prior to the date hereof shall, however, (a) excuse any party from any of its obligations under the Loan Documents, or (b) toll the running of any time periods applicable to any such rights and remedies, including, without limitation, any grace periods with respect to Defaults under the Loan Documents or otherwise.  Each Borrower agrees that it will not assert laches, waiver or any other defense to the enforcement of any of the Loan Documents based upon the foregoing agreement by the Lender Group to forbear or the acceptance by any member of the Lender Group of any of the payments provided for in the Loan Documents or any payment prior to the date hereof.  As used herein, “Forbearance Period” shall mean the period commencing upon the effectiveness of this Agreement and continuing until the earliest to occur of:  (x) any Default or Event of Default under any of the Financing Agreements (other than the Known Existing Default) or (y) October 31, 2006.

4.             Termination of Agreement to Forbear.  Each Borrower acknowledges and agrees that upon the termination of the Lender Group’s agreement to forbear as provided in Section 3 hereof, Agent, on behalf of the Lender Group, shall be entitled to exercise any or all of its remedies under the Loan Documents, including, without limitation, the appointment of a receiver, the acceleration of the Obligations and the enforcement under the Code of any liens in favor of Agent, as a result of the Known Existing Defaults, and at any time the Lender Group shall be entitled to exercise any or all of their remedies under the Loan Documents as a result of any other Default or Event of Default under the Loan Documents.

5.             Agreement to Defer October 1, 2006 Principal Payment.  Anything in Section 2.03(b) of the Financing Agreement notwithstanding, the parties hereby agree that the October 1, 2006 installment principal payment of $1,000,000 shall not be due until the end of the Forbearance Period.

6.             Release; Covenant Not to Sue.

(a)           Each Borrower hereby absolutely and unconditionally releases and forever discharges the Lender Group, and any and all of their respective participants, parent corporations, subsidiary corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the foregoing (each a “Released Party”), from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which such Borrower has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date of this Agreement, whether such claims, demands and causes of action are matured or unmatured or known or unknown.  It is the intention of each Borrower in providing this release that the same shall be effective as a bar to each and every claim, demand and cause of action specified, and in furtherance of this intention it waives and relinquishes all rights and benefits under Section 1542 of the Civil Code of the State of California (or any comparable provision of any other applicable law), which provides:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him might have materially affected his settlement with the debtor.”

Each Borrower acknowledges that it may hereafter discover facts different from or in addition to those now known or believed to be true with respect to such claims, demands, or causes of action and agree that this instrument shall be and remain effective in all respects notwithstanding any such differences or additional facts.  Each Borrower understands, acknowledges and agrees that the release set forth above may be pleaded as

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a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.

(b)           Each Borrower, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Released Party above that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Released Party on the basis of any claim released, remised and discharged by such Borrower pursuant to the above release.  If any Borrower or any of its successors, assigns or other legal representations violates the foregoing covenant, each Borrower, for itself and its successors, assigns and legal representatives, agrees to pay, in addition to such other damages as any Released Party may sustain as a result of such violation, all attorneys’ fees and costs incurred by such Released Party as a result of such violation.

6.             Effectiveness of this Agreement.  Agent must have received the following items, in form and content acceptable to Agent, before this Agreement is effective and the Lenders are required to resume making extensions of credit to Borrowers under the Credit Agreement.

(a)           Agreement; Acknowledgement and Release.  This Agreement and the attached Acknowledgement and Release by Guarantors, each fully executed in a sufficient number of counterparts for distribution to all parties.

(b)           Forbearance as to Second Lien Loan Agreement, etc.  Evidence that the Borrowers, Second Lien Agent and the Second Lien Lenders have entered into a forbearance agreement with respect to the Second Lien Loan Agreement reflecting substantially the same terms set forth in this Agreement (the “Second Lien Forbearance”) or otherwise satisfactory to Agent.

(c)           Representations and Warranties.  Except for the existence of the Known Existing Defaults, the representations and warranties set forth herein and in the Credit Agreement must be true and correct in all material respects (except where any such representation and warranty is already subject to a materiality standard, in which case such representation and warranty must be true and correct in all respects) on and as of the date hereof as though made on and as of the date hereof (other than any such representations and warranties that, by their terms, are specifically made as of a date other than the date hereof).

(d)           Other Required Documentation.  All other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered or executed or recorded, as required by Agent.

7.             Representations and Warranties.  Each Borrower represents and warrants as follows:

(a)           Authority.  Each Borrower has the requisite corporate power and authority to execute and deliver this Agreement, and to perform its obligations hereunder and under the Loan Documents to which it is a party.  The execution, delivery and performance by each Borrower of this Agreement have been duly approved by all necessary corporate action and no other corporate proceedings are necessary to consummate such transactions.

(b)           Enforceability.  This Agreement has been duly executed and delivered by each Borrower.  This Agreement and each Loan Document is the legal, valid and binding obligation of each Borrower, enforceable against such Borrower in accordance with its terms, and is in full force and effect.

(c)           Representations and Warranties.  The representations and warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are true and correct in all material respects (except where any such representation and warranty is already subject to a materiality standard, in which case such representation

3

and warranty is true and correct in all respects) on and as of the date hereof as though made on and as of the date hereof.

(d)           Due Execution.  The execution, delivery and performance of this Agreement are within the power of each Borrower, have been duly authorized by all necessary corporate action, have received all necessary governmental approval, if any, and do not contravene any law or any contractual restrictions binding on such Borrower.

(e)           No Default.  Other than the Known Existing Defaults, no event has occurred and is continuing that constitutes a Default or an Event of Default.

(f)            No Duress.  This Agreement has been entered into without force or duress, of the free will of each Borrower.  Each Borrower’s decision to enter into this Agreement is a fully informed decision and such Borrower is aware of all legal and other ramifications of such decision.

(g)           Counsel.  Each Borrower has read and understands this Agreement, has consulted with and been represented by legal counsel in connection herewith, and has been advised by its counsel of its rights and obligations hereunder and thereunder.

8.             Choice of Law.  The validity of this Agreement, its construction, interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the internal laws of the State of New York governing contracts only to be performed in that State.

9.             Counterparts.  This Agreement may be executed in any number of counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument.  Delivery of an executed counterpart of a signature page to this Agreement by telefacsimile or other similar method of electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement.

10.           Reference to and Effect on the Loan Documents.

(a)           Upon and after the effectiveness of this Agreement, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to “the Credit Agreement”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as supplemented hereby.

(b)           The Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed and shall constitute the legal, valid, binding and enforceable obligations of each Borrower to the Lender Group and Bank Product Providers.

(c)           The execution, delivery and effectiveness of this Agreement shall not operate as a waiver of any right, power or remedy of the Lender Group under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.

11.           Ratification.  Each Borrower hereby restates, ratifies and reaffirms each and every term and condition set forth in the Credit Agreement and the Loan Documents effective as of the date hereof.

12.           Integration.  This Agreement, together with the other Loan Documents, incorporates all negotiations of the parties hereto with respect to the subject matter hereof and is the final expression and agreement of the parties hereto with respect to the subject matter hereof.

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13.           Severability.  In case any provision in this Agreement shall be invalid, illegal or unenforceable, such provision shall be severable from the remainder of this Agreement and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

14.           Submission of Amendment.  The submission of this Agreement to the parties or their agents or attorneys for review or signature does not constitute a commitment by Agent or the Lenders to forbear from exercising any of the Lender Group’s rights and remedies under the Loan Documents, and this Agreement shall have no binding force or effect until all of the conditions to the effectiveness of this Agreement have been satisfied as set forth herein.

15.           Modification.  This Agreement may not be amended, waived or modified in any manner without the written consent of the party against whom the amendment, waiver or modification is sought to be enforced.

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IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date first above written.

MAGNETEK, INC.,
a Delaware corporation
By:	/s/ David P. Reiland
Name:				David P. Reiland
Title:			Executive Vice President
MAGNETEK ADS POWER, INC.,
a Delaware corporation
By:		/s/ David P. Reiland
Name:				David P. Reiland
Title:			Executive Vice President
MAGNETEK MONDEL HOLDING, INC.,
a Delaware corporation
By:	/s/ David P. Reiland
Name:				David P. Reiland
Title:			Executive Vice President
WELLS FARGO FOOTHILL, INC.,
a California corporation,
as Agent and as sole Lender
By:	/s/ Jeffrey P. Royston
Name:				Jeffrey P. Royston
Title:			Vice President

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ACKNOWLEDGEMENT AND RELEASE BY GUARANTORS

In connection with the foregoing Forbearance Agreement (the “Agreement”), each of the undersigned, being a Guarantor (as defined in the Credit Agreement referenced in the Agreement) under their respective Guaranties (as defined in the Credit Agreement referenced in the Agreement), hereby acknowledges and agrees to the Agreement and confirms and agrees that its Guaranty is and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects.  Although Agent and the Lenders have informed Guarantors of the matters set forth above, and Guarantors have acknowledged the same, each Guarantor understands and agrees that neither the Lender Group nor the Bank Product Providers have any duty under the Credit Agreement, any Guaranty or any other agreement with any Guarantor to so notify any Guarantor or to seek such an acknowledgement, and nothing contained herein is intended to or shall create such a duty as to any transaction hereafter.

Each Guarantor hereby absolutely and unconditionally releases and forever discharges each Released Party (as defined in the Agreement), from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or otherwise, which such Guarantor has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising from the beginning of time to and including the date hereof, whether such claims, demands and causes of action are matured or unmatured or known or unknown.  It is the intention of each Guarantor in providing this release that the same shall be effective as a bar to each and every claim, demand and cause of action specified, and in furtherance of this intention it waives and relinquishes all rights and benefits under Section 1542 of the Civil Code of the State of California (or any comparable provision of any other applicable law), which provides:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him might have materially affected his settlement with the debtor.”

Each Guarantor acknowledges that it may hereafter discover facts different from or in addition to those now known or believed to be true with respect to such claims, demands, or causes of action and agree that this instrument shall be and remain effective in all respects notwithstanding any such differences or additional facts.  Each Guarantor understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.  Each Guarantor, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Released Party above that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Released Party on the basis of any claim released, remised and discharged by such Guarantor pursuant to the above release.  If any Guarantor or any of its successors, assigns or other legal representations violates the foregoing covenant, such Guarantor, for itself and its successors, assigns and legal representatives, agrees to pay, in addition to such other damages as any Released Party may sustain as a result of such violation, all attorneys’ fees and costs incurred by such Released Party as a result of such violation.

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MAGNETEK NATIONAL ELECTRIC COIL, INC.,
a Delaware corporation
By:	/s/ David P. Reiland
Name:				David P. Reiland
Title:			Executive Vice President
MAGNETEK ALTERNATIVE ENERGY, INC.,
a Delaware corporation
By:		/s/ David P. Reiland
Name:				David P. Reiland
Title:			Executive Vice President
MONDEL ULC,
a Nova Scotia unlimited liability company
By:	/s/ David P. Reiland
Name:				David P. Reiland
Title:			Executive Vice President

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EX-13.1

Exhibit 13.1

Front Cover: What is the ‘New’ Magnetek?

Magnetek was formed in July of 1984 through a leveraged buy-out of Litton Industries’ Magnetics Group and went public in July of 1989 (NYSE: MAG) as a general electrical equipment manufacturer. Today, Magnetek is much more highly focused, serving selected segments of traditional and emerging markets that are becoming increasingly dependent on digital power, control and systems technology:

·  In material handling, we provide Energy Engineered™ drives, radio remote controls, braking and collision-avoidance subsystems, motors and more to most of America’s builders of overhead cranes and hoists.

·  In people-moving we specialize in designing and manufacturing highly integrated Energy Engineered motion-control subsystems for elevators, serving the world’s foremost ‘lift’ builders.

·  In mining we focus on coal, our country’s most abundant fossil-fuel, building the Energy Engineered drives that enable mining equipment to recover that resource for refinement and, ultimately, “clean coal” energy.

·  In alternative energy which, together with coal, offers the best hope of reducing our dependence on foreign oil, we make digital power interfaces that tie fuel cells, wind turbines and solar arrays to the utility grid.

Magnetek’s Energy Engineered trademark means that our products: meet or exceed generally accepted industry and/or U.S. government standards for “high efficiency”; meet or exceed customer specifications for power efficiency and integrity; and/or, when properly applied, enhance the efficiency or environmental compatibility of the systems into which they are incorporated.

Today, Magnetek operates two manufacturing plants in the United States and one in Canada, together employing 308 talented, dedicated people. For the fiscal year ended July 2, 2006, the Company had revenue of $83 million.

Chairman/CEO Letter	1
Management’s Discussion and Analysis	5
Consolidated Financial Statements	17
Notes to Consolidated Financial Statements	21
Annual Report on Form 10K	43
Stockholder Information	Inside Back Cover

Caution Regarding Forward-Looking Statements.This Annual Report and Form 10-K, including documents incorporated herein by reference, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe”, “expect”, “estimate”, “anticipate”, “intend”, “may”, “might”, “will”, “would”, “could”, “project” and “predict”, or similar words and phrases generally identify forward-looking statements. Forward-looking statements contained or incorporated by reference in this document, including those set forth in the Chairman/CEO’s Letter, the section of this Annual Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and the section of the Form 10-K entitled “Description of Business” include, but are not limited to, statements regarding projections of revenues, income or loss, capital expenditures, plans for future operations, products or services, legal issues and financing needs or expectations, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties which in many cases are beyond the control of the Company and which cannot be predicted or quantified. As a result, future events and actual results could differ materially from those set forth in, contemplated by, or underlying forward-looking statements. Such risks and uncertainties include, but are not limited to, economic conditions in general, sensitivity to industry conditions, competitive factors such as technology and pricing pressures, business conditions in electronics, telecommunications, information technology, transportation, consumer products, industrial equipment and energy markets, international sales and operations, dependence on major customers, increased materials costs, risks and costs associated with acquisitions, litigation and environmental matters and the risk that the Company’s ultimate costs of doing business exceed present estimates. A discussion of these and other specific risks is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Risk Factors Affecting the Company’s Financial Outlook”. Forward-looking statements contained in this Annual Report and Form 10-K speak only as of the date of this document or, in the case of any document incorporated by reference, the date of that document. The Company does not have an obligation to publicly update or revise any forward-looking statement contained or incorporated by reference in these documents to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Dear Fellow Shareholder:

As the Company description on the front cover suggests, Magnetek is restructuring itself—it is, in essence, becoming a new Company.

We are in the final stages of divesting our Power Electronics Group (PEG). We expect this divestiture to leave Magnetek substantially debt-free, able to meet its financial obligations, and solidly positioned in markets offering not only long-term stability but also excellent growth potential and profitability (historically in excess of 30%, gross margin).

PEG’s fiscal 2006 and prior results have therefore been included in “Results of Discontinued Operations”. Related adjustments in operating results and asset values are reflected in the Financial Statements that follow and are addressed in Management’s Discussion and Analysis on page 5.

At first glance, the divestiture of PEG appears to change Magnetek in a big way. And quantitatively it will; as reported in last year’s annual report, in 2005 PEG accounted for two-thirds of Magnetek’s revenue (although only half of its operating profit, before corporate expense). But upon reflection, the decision to divest PEG simply accelerates Magnetek’s often-stated strategy: to concentrate increasingly on high-margin digital-power-based systems businesses. (See: What is the ‘New’ Magnetek, opposite.)

We are as convinced as ever that this strategy will pay off. But what factors led to our rather sudden up-shift in the execution of our strategy, and where will it take us?

Those who have read Magnetek’s past reports know that our Company has been operating under a burden of legacy issues. During fiscal 2005 and 2006, these issues came to the fore. Specifically:

·A patent infringement lawsuit filed against Magnetek in 1998 culminated in a $23.4 million arbitration award on May 3, 2005. We petitioned the U.S District Court for the Northern District of Illinois to vacate the award based on fraud. While the patent in question has since been declared unenforceable in another case in the same Court, we must hold funds in escrow to pay the award until a decision is reached in our case.

·We currently retain a pension obligation dating back to the mid-1990s when Magnetek was a $1.5 billion electrical equipment manufacturer. Benefits under this defined-benefit pension plan were “frozen” in 2003; but based on current actuarial measures, we must begin making cash contributions to the pension trust in October of 2007 averaging some $20 million annually for several years.

With debt-to-equity exceeding 1-to-1 and such large cash commitments looming, it would have been very difficult to finance an effective strategy of upward integration into systems. As we announced on May 12, 2006, we engaged Stephens Inc., an investment banking firm experienced in the power technology field, to help us evaluate various cash-raising alternatives, including asset sales and capital market transactions.

In the ensuing months, no viable alternative went unexplored. However, capital market transactions were relegated to options of last resort, as they would entail incurring more high-priced debt and/or risking stock dilution. On the asset-sale side, a number of operating units and product lines were assessed, and a few were “shopped” to determine their marketability. Smaller divisions and product lines were ruled out because they are not “stand-alone”, their sale would compromise the performance of sister operations, or they would not bring in enough cash.

That left the largest stand-alone parts of the Company: the Power Electronics Group (PEG) and Power Control Systems (PCS). Our decision to divest PEG was based largely on the fact that the fragmented power electronics industry is consolidating, as sheer size becomes a competitive factor, and due to cash constraints we could not be a consolidator. Our decision to retain and focus on Power Control Systems was based on our strategic business shift into systems mentioned above.

Power Electronics Group Divestiture

PEG’s products include, primarily, switching power supplies, rectifiers, battery chargers, power converters and power inverters custom-designed for original equipment manufacturers (OEMs) who “embed” them in their products. PEG operated at a loss in fiscal 2006, primarily due to inefficiencies and costs incurred in moving higher-volume manufacturing to a new factory in China while downsizing factories elsewhere.

Nevertheless, PEG made an attractive acquisition candidate because of its state-of-the-art technology, elite engineering staff, impressive customer list, and historical record of profitability. Also, PEG is well along in establishing low-cost manufacturing capability in China, an attractive capability for many prospective acquirers.

At the same time, we obviously believe that our divestiture of PEG holds immediate as well as long-term benefits for Magnetek’s shareholders. Specifically, we expect net proceeds from the sale of PEG should enable us to meet all of the following objectives by December 2007:

·Pay off Long-Term Debt. (While the arbitration case referenced above will have a bearing on this, a decision unfavorable to Magnetek would not prevent us from paying down debt with divestiture proceeds.)

·Make a sufficiently large cash contribution to Magnetek’s pension fund to reduce or potentially

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eliminate the need for further contributions to the fund, thus restoring Stockholders’ Equity to well above $100 million.

·Reduce Corporate overhead, a substantial portion of which is pension expense that would be reduced or eliminated by the aforementioned cash contributions.

·Focus on our Power Control Systems business, enabling the Company to achieve gross margins of around 30% with positive operating margins and net income.

·Use Magnetek’s $146 million of net operating loss carry-forwards (NOLs), most of which do not expire until after 2020, to shelter income from taxes.

·Generate consistent positive cash flow for investment, both internal and external, in promising growth businesses.

In short, given three to six months to consolidate operations and relocate administrative functions, we expect Magnetek to emerge as a solidly profitable company with positive cash flow, negligible debt and outstanding growth opportunities.

Prospects in Power Control Systems

Going forward, Magnetek will be exclusively a digital power-based systems integrator, serving selected segments of traditional and emerging commercial markets that are becoming increasingly dependent on “smart” power. We will no longer be in the embedded power electronic components business.

As we said in last year’s annual report, we believe that a key driver of Magnetek’s future growth and profitability will be the capability of our products to help generate and utilize energy more efficiently. We have lost none of that conviction or capability by focusing on commercial power control systems. Consider the following examples:

·Material handling automation.   In April, Magnetek signed an agreement with Eaton Corp. (NYSE: ETN), taking over responsibility for design, manufacturing, sales and service of Eaton direct DC (DDC) crane and hoist drive systems under our OmniPulse™ brand name. Already a clear leader in AC crane and hoist drive systems, Magnetek’s addition of the OmniPulse line should further enhance our position in the Overhead material handling market. In North America alone, there are some 3,000 factory cranes running with traditional DC controls that could be retrofitted with energy-saving DDC drive systems over time.

·Elevator motion control systems.   While savings vary with elevator use, high-rise building owners typically can expect energy savings of up to $2,000 a year per elevator by installing Magnetek’s new Quattro™ regenerative drive systems versus non-regenerative systems. Since it represents less than 10% of the cost of a $150,000 elevator retrofit, Quattro can pay for itself in five years. In August, we announced receipt of our first production orders for energy-saving Quattro DC drive systems from Otis Elevator and KONE Corporation.

·Commercial energy interfaces.   Clean energy is a major potential growth market that is dependent upon digital-power interfaces to connect fuel cell, wind and solar power sources to the utility grid. Magnetek has been building 250-kilowatt fuel-cell interfaces for United Technologies for more than a decade. Leveraging this technology, we developed multi-megawatt Marin™ wind inverters for large wind turbines. We expect these systems, just introduced, to be the main source of revenue in our Alternative Energy business.

Refocusing on Digital-Power-Based Systems

Magnetek’s transition from, predominantly, a manufacturer of custom power-electronic products for OEM and consumer markets to an Energy Engineered™ systems integrator changes our role from meeting customer-defined specifications to addressing market-defined needs. By so doing we stand to increase our profitability substantially; however, we must choose our markets carefully. We must see our way clear to gaining prominent share positions in well-defined market niches with constantly expanding products and services.

Our policy is not to compete in commodity markets. Furthermore, depending on the size of the market niche served, our philosophy is always to rank among the top five suppliers to that market, with the goal of being number one.

Historically, our Power Control Systems group has done this quite well. Today, Magnetek commands approximately half of the $100 million domestic crane and hoist controls market. In AC-powered crane controls, Magnetek is already the clear leader in North America, with a 73% market share. The global market for both AC and DC crane control systems exceeds half a billion dollars a year, and is growing at an estimated 20% annually. Factoring in new products like the OmniPulse™ DDC drives mentioned above and our Telemotive™ line of radio remote controls, we believe we have plenty of room for future growth just in overhead material handling.

The global elevator motion control market addressed by Magnetek amounts to an estimated $80 million a year, of which we already command approximately 25%. Including aftermarket and OEM outsourcing of motion control subsystems, this market niche is growing at an estimated 24% a year; and with state-of-the-art products such as the Quattro drive systems noted above, we believe that we can double revenues from our elevator line within three years.

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Large Wind and Coal vs. Oil Dependence

We have set our sights on promising energy markets as well. While Magnetek’s revenues from alternative energy are still relatively small, dramatic growth is possible due to our advanced technology and market-niche philosophy.

In the mid-1990s, Magnetek’s Milwaukee-based Power Control Systems group developed the first power interfaces for United Technologies’ self-contained 200-kilowatt power plant fuel cells. Today, we remain the world’s leading builder of commercial-size fuel cell power inverters, with more than 100 installations totaling over 30 megawatts and 1.5 million operating hours in the field. As previously noted, we have turned this “home-grown” technology into multi-megawatt power interface systems for commercial-size wind-turbines, and will launch a new line of commercial solar photovoltaic (PV) power inverters in 2007.

Wind power currently represents a $400-million global market for digital power interfaces, and is growing nearly 30 percent annually. Given the worldwide shortage of solar PV materials and cells, and the fact that “large wind” is now cost-competitive with fossil-fuel-generated power, we believe wind power will grow by leaps and bounds in the years immediately ahead.

Our new Marin™ wind inverters come in modular “power clusters” that can deliver up to five megawatts of clean alternating current to the utility grid from a single wind turbine. They are designed for the latest wind technology: full-conversion, variable-speed turbines with direct-drive or permanent-magnet generators. Only two independent interface builders deliver this kind of technology in the North American market; Magnetek is one of them. And we are actively targeting the 40% of large domestic turbine builders that don’t have internal power interface capabilities. This—plus the fact that we are just entering the large wind business—leads us to believe that Magnetek’s revenue growth in this business can be significant for years to come.

Geographically, there are significant opportunities in North America alone, with wind power generation expected to grow at over 24% annually through 2010. It is here that Magnetek builds all of its large power inverters, and it is here that our primary alternative energy efforts will be focused.

Nor are we counting solely on alternative energy. Magnetek’s advanced motion control systems are used in coal mining as well as material handling and people-moving. Over-dependence on foreign oil cannot be broken by alternative energy sources alone. For economic as well as environmental reasons, the United States must take advantage of its most abundant domestic energy resource through “clean coal” technology (driven by Federal energy subsidies). So Magnetek stands to benefit from both alternative and traditional energy sources in the years ahead.

2007: Entering a New Era for Magnetek

To summarize: during fiscal year 2007 we expect Magnetek to emerge as a new Company. One able to fund its pension trust, resulting in increased Stockholders Equity, cut corporate overhead in half, increase quarterly gross profit margins to near 30 percent, get back into the black, begin using its abundant NOLs to shelter profits and cash flow, and concentrate full time on its most consistent and promising businesses.

Simply stated, the new Magnetek provides power control systems for material handling, people-moving, mining and alternative energy—all markets that are becoming increasingly dependent on digital technology. We are America’s largest supplier of digital drive systems for industrial cranes, hoists and movable bridges. We are the world’s largest independent builder of digital motion control systems for elevators. We are the leading builder of power conditioners for commercial fuel cells; we are about to enter the large wind market in a big way; and we are a provider of a new generation of digital drive systems for coal mining as well.

The opportunities open to us in all of Magnetek’s addressed markets are excellent. We are preparing the Company, both operationally and financially, to take full advantage of these opportunities—and to expand upon them. We appreciate your patience through what was a watershed year in fiscal 2006, and we invite your renewed confidence and continued support as we enter a new era for Magnetek in 2007.

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SELECTED FINANCIAL DATA

The selected financial data for Magnetek, Inc. (the “Company” or “Magnetek”) presented below reflect the reclassification of the Company’s power electronics business and telecom power business as discontinued operations for all periods presented, as described in Notes 1 and 2 of Notes to Consolidated Financial Statements.

Statement of Operations Data

For the years ended (Amounts in thousands, except per share data)	July 2, 2006			July 3, 2005			June 27, 2004			June 29, 2003			June 30, 2002
Net sales	$	83,102		$	75,999		$	67,853		$	63,139			$	65,349
Gross profit	26,687			24,035			21,205			21,177				18,285
Gross profit %	32.1%			31.6%			31.3%			33.5%				28.0%
Income (loss) from operations	$	(2,877	)	$	(4,133	)	$	(4,975	)	$	27,159			$	1,790
Net income (loss):
Continuing operations	$	(7,091	)	$	(5,537	)	$	(10,680	)	$	15,411			$	2,948
Discontinued operations	(39,758		)	(21,333		)	(2,391		)	(51,255		)		(1,540		)
Net income (loss)	$	(46,849	)	$	(26,870	)	$	(13,071	)	$	(35,844	)		$	1,408
Per common share - basic and diluted:
Net income (loss) from continuing operations	$	(0.25	)	$	(0.19	)	$	(0.39	)	$	0.65			$	0.13
Net loss from discontinued operations	$	(1.37	)	$	(0.75	)	$	(0.09	)	$	(2.17	)		$	(0.07	)
Net income (loss)	$	(1.62	)	$	(0.94	)	$	(0.48	)	$	(1.52	)		$	0.06

Net loss for the fiscal year ended July 2, 2006 includes asset impairment charges of $37,843 included in discontinued operations.

Net loss for fiscal year ended July 3, 2005 includes a $21,977 patent arbitration charge included in discontinued operations.

Net loss for the fiscal year ended June 27, 2004 includes a $6,700 provision for income taxes to increase the valuation allowance against the Company’s deferred tax assets.

Net loss for the fiscal year ended June 29, 2003 includes a $27,771 pre-tax gain ($17,218 after-tax) from termination of the Company’s retiree medical plan; discontinued operations includes after-tax charges of $38,698 for asset impairment and a $3,275 after-tax charge for settlement of litigation.

Balance Sheet Data

(Amounts in thousands)	July 2, 2006		July 3, 2005		June 27, 2004		June 29, 2003		June 30, 2002
Total assets	$	232,463	$	229,180	$	228,024	$	221,326	$	304,891
Long-term debt, including current portion	27,455		3,980		4,295		9,250		-
Other long term obligations	-		-		-		-		33,699
Pension benefit obligations	45,494		70,568		31,366		51,356		74,363
Stockholders’ equity	42,908		46,060		109,922		78,671		142,819

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Since fiscal year 2001, Magnetek has been a global provider of digital power-electronic products, including electronic converters, inverters, rectifiers and systems. We have operated in a single business segment, Digital Power Products, comprised of two broad product categories, systems and components. Our products are used primarily in industrial, telecommunications, data processing, consumer, imaging, alternative energy, power generation and other applications.

Our operating results for the past several years have been negatively impacted by asset impairment and restructuring charges, and other expenses related to businesses we no longer own, including a $22 million charge for goodwill impairment in fiscal 2006 and a $22 million charge in fiscal 2005 for a patent infringement arbitration award (see Note 11 of Notes to Consolidated Financial Statements). Our fiscal 2006 cash flows have been negatively impacted by higher interest expense and costs incurred to obtain new financing agreements, and we expect our future cash flows will be impacted by scheduled debt repayments and pension contributions in fiscal years 2007 and 2008. As a result, during the fourth quarter of fiscal 2006, we completed a review of various cash raising alternatives to enable us to address these pending obligations as well as provide funds for future growth initiatives, and we decided to divest our power electronics business (components).

Going forward, we intend to focus on digital power control systems and operate solely in this product category. Our systems and subsystems are used primarily in material handling, motion control and alternative energy applications requiring precise, efficient, reliable power. We believe that with our technical and productive resources we are well positioned to respond to increasing demand for such power.

Our power control systems consist primarily of programmable motion control and power conditioning systems used in the following applications: cranes and hoists; elevators; mining; fuel cell, and wind markets.

Our power electronics business (to be divested) is engaged in the manufacture of embedded power electronic products, which are sold primarily to original equipment manufacturers for installation in their products and include: AC-to-DC switching power supplies, AC-to-DC rectifiers and battery chargers, DC to-DC power converters, and DC-to-AC power inverters. These products are used primarily in telecommunications (telecom), data processing and storage, digital imaging, semiconductor processing and testing equipment, medical instrumentation and home appliances. The business has manufacturing and administrative facilities in Italy, China, Hungary and Chatsworth, California, and accounted for $166 million, or 69%, of our reported net sales for fiscal year 2005 of $242 million. Upon divestiture of the power electronics business, we will no longer have any operations in Italy, China or Hungary, and our operations will be based primarily in North America.

Accordingly, during the fourth quarter of fiscal year 2006, we reclassified the assets and liabilities of our power electronics business as held for sale, and the results of operations of this business as discontinued operations (see Note 2 of Notes to Consolidated Financial Statements). Subsequent to July 2, 2006, we entered into an agreement to sell the business to Power One, Inc. for $71.7 million in cash plus the assumption of $16.7 million in debt. We intend to use the proceeds from the sale of the business primarily to repay debt and fund pension obligations. The transaction is expected to be completed during October 2006.

During fiscal year 2005, we reclassified the assets and liabilities of our telecom power business as held for sale, and the results of operations of this business as discontinued operations (see Note 2 of Notes to Consolidated Financial Statements). While we have not yet divested this business as of July 2, 2006, the business is being actively marketed to potential interested parties at a price that is reasonable.

We also recorded other expenses related to previously divested businesses as discontinued operations, including a fiscal 2005 charge for an arbitration award in a patent infringement claim of $22.0 million (net of an amount of $1.4 million previously recorded) and related legal fees, as well as certain expenses for product liability claims, environmental issues, and asbestos claims. All of these issues relate to businesses we no longer own and most relate to indemnification agreements we provided when we divested those businesses.

Prior period amounts related to the power electronics and telecom businesses, and expenses related to other divested businesses have also been reclassified in the accompanying consolidated financial statements and footnotes for all periods presented in order to conform to the current year presentation.

As stated above, upon divestiture of our power electronics business, our remaining power control systems business will be comprised mainly of operations in North America based in Menomonee Falls, Wisconsin. Our results of continuing operations reflected in the accompanying consolidated financial statements include the results of power control systems and

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corporate operating expenses for all periods presented. The divestiture of our power electronics business will result in a smaller company in terms of sales but our gross margins in power control systems have historically exceeded 30%. We intend to further consolidate administrative facilities during fiscal 2007, and we believe that the resulting cost savings, together with a reduction in pension expense from expected contributions to our pension plan and lower interest expense from reduced borrowings, should enable us to return to profitability and positive cash generation in the second half of fiscal 2007.

Continuing Operations

Demand in certain of our key markets, mainly material handling, was strong during fiscal 2006 and our sales increased to $83.1 million, an increase of 9% from fiscal 2005 sales of $76.0 million, while gross profit rose to 32.1% from 31.6%. Our research and development (R&D) expense increased to more than $4 million, as we continued to invest in developing new products for existing and new markets, including alternative energy products for wind applications. We will continue to invest in R&D going forward, although the rate of growth in R&D investment may slow in fiscal 2007. Fiscal 2006 selling, general and administrative (SG&A) expense increased by more than $1 million compared to fiscal 2005, and at $25.5 million, represents more than 30% of sales. Upon the divestiture of our power electronics business, we expect to consolidate administrative offices and implement cost reduction actions, both in terms of payroll costs and pension expense, as we plan to contribute to our defined benefit pension plan in fiscal 2007. Our future annual pension expense will depend on future interest rate levels, values in equity and fixed income markets, and the level and timing of contributions we make to the plan.

Capital expenditures in fiscal 2006 of $1.0 million were roughly equal to depreciation expense of $1.1 million. Our total long-term debt increased during fiscal 2006 by $23.5 million to $27.5 million, mainly due to a deposit to an escrow account in November 2005 to fund payment of a patent arbitration award in the event our appeal of the award is unsuccessful. We did not make any contributions to our defined benefit pension plan in fiscal 2006. Under current regulations, no mandatory contributions are expected through fiscal 2007, however, required contributions in periods subsequent to fiscal 2007 could be significant (see “Summary of Contractual Obligations and Commitments” below). Due mainly to an increase in interest rates during the fiscal year, our pension benefit obligation decreased by $28.8 million with a related increase in equity of $28.8 million due to a decrease in our minimum pension liability.

We are also focusing our development and marketing capabilities on higher margin systems applications and markets. As noted above, we plan to further consolidate administrative operations and functions in fiscal 2007, however future sustained profitability is dependent upon improvement in revenues and gross margins, and successful implementation of our strategy to penetrate higher margin markets.

Discontinued Operations

Our fiscal 2006 loss from discontinued operations, comprised of our power electronics business, our telecom power business and certain corporate legacy costs, was $39.8 million. The loss includes charges for goodwill impairment of $22.4 million, the write-off of the net basis of assets held for sale related to reclassification of accumulated currency translation adjustment amounts of $10.6 million, and inventory charges of $4.5 million, all related to our power electronics business.

We also incurred $3.6 million of expenses in fiscal 2006 related to businesses we no longer own, comprised mainly of environmental expenses and costs related to our appeal of the Nilssen arbitration award. In the fourth quarter of fiscal 2005, a decision was rendered in a patent infringement claim brought against us by Ole K. Nilssen (see Note 11 of Notes to Consolidated Financial Statements). In settlement of pending litigation, we had agreed to submit the matter to binding arbitration, and in May 2005, the arbitrator awarded damages to Mr. Nilssen of $23.4 million. The amount due was to be paid within ten days of the award, however, we are currently contesting the award in Federal court on grounds that the patent and related award were fraudulently obtained. Our request for oral argument was granted and a hearing took place on October 19, 2005. A decision has not been announced. Since the patent infringement award relates to a business we divested in June 2001, the accompanying consolidated financial statements reflect the impact of this award, net of amounts previously recorded of $1.4 million, in discontinued operations in fiscal 2005. Mainly as a result of this award, our fiscal 2005 loss from discontinued operations was $21.3 million.

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RESULTS OF OPERATIONS FOR YEAR ENDED JULY 2, 2006 COMPARED WITH YEAR ENDED JULY 3, 2005

Net Sales and Gross Profit

Net sales increased 9.3% to $83.1 million in fiscal 2006 from $76.0 million in fiscal 2005. The increase in net sales in fiscal 2006 is due primarily to increased sales of material handling systems, $5.4 million, and increased sales of alternative energy products, $1.6 million. Fiscal 2006 contained fifty-two weeks while fiscal 2005 contained fifty-three weeks.

Gross profit in fiscal 2006 increased to $26.7 million (32.1% of sales) compared to $24.0 million (31.6% of sales) in fiscal 2005. The $2.7 million improvement in gross profit is due to higher sales of material handling systems and reduced manufacturing costs from consolidation of our manufacturing facilities in North America.

Operating Expenses

Research and development expense was $4.1 million in fiscal 2006, or 4.9% of sales, compared to $3.9 million, or 5.1% of sales, in fiscal 2005. The increase spending in R&D expense reflects our continuing investment in product development for new markets and applications such as alternative energy for wind markets. Selling, general and administrative expense was $25.5 million, or 30.7% of sales, in fiscal 2006 compared to $24.2 million, or 31.9% of sales, in fiscal 2005. Selling expenses were $8.3 million, or 10.0% of sales, in fiscal 2006 compared to $8.1 million, 10.7% of sales, in fiscal 2005. The increase is mainly due to higher volume-related expenses in fiscal 2006 as compared to fiscal 2005. General and administrative expense (G&A) was $17.2 million in fiscal 2006 compared to $16.1 million in fiscal 2005. The increase of $1.1 million in G&A expense in fiscal 2006 is due to higher pension expense, $2.3 million, partially offset by lower restructuring expenses of $0.8 million and lower rent expense of $0.8 million from relocation and consolidation of administrative facilities.

Loss from Operations

Loss from operations was $2.9 million in fiscal 2006 compared to a loss from operations of $4.1 million in fiscal 2005. The reduced loss from operations in fiscal 2006 compared to fiscal 2005 was due to higher sales volume which resulted in increased gross profit, cost savings from consolidation of facilities, and the absence of restructuring charges in fiscal 2006, partially offset by higher pension expense and selling expenses.

Interest Income and Expense

Interest income was $0.7 million in fiscal 2006 compared to $0.1 million in fiscal 2005. Interest expense was $3.4 million in fiscal 2006 compared to $0.5 million in fiscal 2005, and as a result net interest expense increased $2.3 million in fiscal 2006 compared to fiscal 2005. The increase in net interest expense in fiscal 2006 was due to higher outstanding debt balances, due mainly to borrowings associated with the Nilssen patent arbitration award (see Note 11 of Notes to Consolidated Financial Statements), and higher deferred financing amortization expense. In November 2005, we deposited $22.6 million into escrow to satisfy payment of the award in the event our appeal is not successful. The escrow deposit was funded by our $18.0 million term loan and $4.6 million from our revolving debt facility. The term loan bears interest at a current rate of 12.6% while we receive interest on the escrow deposit at a current rate of 4.7%. As a result, both our reported interest income and expense increased in fiscal 2006 as compared to fiscal 2005.

Deferred financing amortization expense included in interest expense was $0.9 million in fiscal 2006 compared to $0.3 million in fiscal 2005. The increase in deferred financing amortization expense in fiscal 2006 compared to fiscal 2005 was due to costs incurred in obtaining our new credit agreements entered into on September 30, 2005, as well as the accelerated amortization of deferred financing costs under our previous credit agreements.

Provision for Income Taxes

We recorded a provision for income taxes of $1.5 million in fiscal 2006, comprised of $1.1 million (non-cash) primarily to increase the deferred tax liability for tax deductible amortization of goodwill and $0.4 million related to our foreign operations. As of July 2, 2006, our U.S. net operating loss carryforward (“NOL”) was approximately $146 million and our capital loss carryforwards were approximately $31 million. The potential tax benefit of these carryforwards, approximately $73 million, has been fully reserved with a valuation allowance and therefore there is no net tax asset on the consolidated balance sheets related to this asset at July 2, 2006. Our NOL and capital loss have carry-forward periods of 15 to 20 years with expiration dates ranging from 2013 to 2026. Since our balance sheet reflects no benefit of such NOL’s, we anticipate that no federal tax expense (other than alternative minimum tax) would be recorded if and when U.S. taxable income is generated and such carryforwards are utilized.

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We operate in several tax jurisdictions and are subject to a variety of income and related taxes, and as a result, we may record tax expense on a consolidated basis despite pre-tax losses in the U.S. Although we anticipate little or no tax on income generated in the U.S., income generated by our foreign operations cannot be offset with U.S. net operating losses. Therefore we anticipate there will be tax expense in fiscal 2007 associated with our foreign operations.

Loss from Continuing Operations

In fiscal 2006, we recorded a loss from continuing operations of $7.1 million, or $0.25 per share, basic and diluted, compared to a fiscal 2005 loss from continuing operations of $5.5 million, or $0.19 per share on both a basic and diluted basis.

Loss from Discontinued Operations

We recorded a loss from discontinued operations in fiscal 2006 of $39.8 million, or $1.37 per share on both a basic and diluted basis, compared to a loss from discontinued operations in fiscal 2005 of $21.3 million, or $0.75 per share on both a basic and diluted basis. The loss from discontinued operations in fiscal 2006 is comprised of a goodwill impairment charge of $22.4 million (see Note 3 of Notes to Consolidated Financial Statements), a charge for the write-off of the net basis of assets held for sale related to reclassification of accumulated currency translation adjustment amounts of $10.6 million related to the planned divestiture of our power electronics business, operating losses in our power electronics business of $2.8 million, operating losses in our telecom business of $0.4 million, and other expenses related to businesses we no longer own, mainly legal fees in the patent infringement claim and environmental issues, as well as asbestos-related costs, totaling $3.6 million. The loss from discontinued operations in fiscal 2005 is comprised of a charge for an arbitration award related to a patent infringement claim of $22.0 million, operating losses in our telecom business of $1.0 million, and other expenses related to businesses we no longer own, mainly product liability costs, legal fees in the patent infringement claim and asbestos-related costs, totaling $4.7 million, partially offset by operating income in our power electronics business of $6.4 million.

Net Loss

We recorded a net loss in fiscal 2006 of $46.8 million, or $1.62 per share on both a basic and diluted basis, compared to a fiscal 2005 net loss of $26.9 million, or $0.94 per share on both a basic and diluted basis.

RESULTS OF OPERATIONS FOR YEAR ENDED JULY 3, 2005 COMPARED WITH YEAR ENDED JUNE 27, 2004

Net Sales and Gross Profit

Net sales increased 12.0% to $76.0 million in fiscal 2005 from $67.9 million in fiscal 2004. The increase in net sales in fiscal 2005 is due primarily to increased sales of material handling systems, $6.8 million, increased sales of alternative energy products, $0.8 million, and increased sales of elevator products, $0.5 million. Fiscal 2005 contained fifty-three weeks while fiscal 2004 contained fifty-two weeks.

Gross profit in fiscal 2005 increased to $24.0 million (31.6% of sales) compared to $21.2 million (31.2% of sales) in fiscal 2004. The $2.8 million improvement in gross profit is mainly due to higher sales of material handling systems.

Operating Expenses

R&D expense was $3.9 million in fiscal 2005, or 5.1% of sales, compared to $3.1 million, or 4.6% of sales, in fiscal 2004. The increase in R&D expense reflects continued investment in product development for new markets and applications such as alternative energy for wind markets. Selling, general and administrative expense was $24.2 million, or 31.9% of sales, in fiscal 2005 compared to $23.1 million, or 34.0% of sales, in fiscal 2004. Selling expenses were $8.1 million, or 10.7% of sales, in fiscal 2005 compared to $7.1 million, 10.5% of sales, in fiscal 2004. The increase reflects higher sales volume as well as increased investment in marketing new products in alternative energy markets. G&A was $16.1 million in fiscal 2005 compared to $16.0 million in fiscal 2004. The increase of $0.1 million in G&A expense in fiscal 2005 is due to restructuring expenses of $0.8 million, payroll-related costs of $0.6 million and higher professional fees, partially offset by lower pension expense, $1.8 million.

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Loss from Operations

Our loss from operations was $4.1 million in fiscal 2005 compared to a loss from operations of $5.0 million in fiscal 2004. The reduction in loss from operations was due mainly to higher sales volume and increased gross profit, partially offset by higher spending in R&D, higher volume-related selling expenses, and restructuring expenses.

Interest and Other Income and Expenses

Interest income was $0.1 million in fiscal 2005 compared to $1.2 million in fiscal 2004. Fiscal 2004 interest income includes $1.0 million of interest income related to a tax refund. Interest expense was $0.5 million in fiscal 2005 compared to $0.9 million in fiscal 2004. Fiscal 2005 and 2004 interest expense includes $0.3 million and $0.5 million, respectively, in deferred financing amortization expense.

Other expense in fiscal 2004 of $1.0 million primarily included a $0.7 million charge for write down of investments.

Provision for Income Taxes

We recorded a provision for income taxes of $1.0 million in fiscal 2005, comprised primarily of $0.9 million (non-cash) to increase the valuation allowance against U.S. net deferred tax assets to 100%.

Our fiscal 2004 provision for income taxes of $4.9 million largely reflects an increase to the valuation allowance against U.S. deferred tax assets to 100%, offset by a U.S. income tax refund related to a settlement with the Internal Revenue Service regarding certain proposed adjustments to previously filed tax returns.

Loss from Continuing Operations

In fiscal 2005, we recorded a loss from continuing operations of $5.5 million, or $0.19 per share, basic and diluted, compared to a fiscal 2004 loss from continuing operations of $10.7 million, or $0.39 per share on both a basic and diluted basis.

Loss from Discontinued Operations

We recorded a loss from discontinued operations in fiscal 2005 of $21.3 million, or $0.75 per share on both a basic and diluted basis, compared to a loss from discontinued operations in fiscal 2004 of $2.4 million, or $0.09 per share on both a basic and diluted basis. The loss from discontinued operations in fiscal 2005 is comprised of a charge for an arbitration award related to a patent infringement claim of $22.0 million, operating losses in our telecom business of $1.0 million, and other expenses related to businesses we no longer own, mainly product liability costs, legal fees in the patent infringement claim and asbestos-related costs, totaling $4.7 million, partially offset by operating income in our power electronics business of $6.4 million. The loss from discontinued operations in fiscal 2004 is comprised of losses in our telecom business of $2.3 million, and other expenses related to businesses we no longer own, mainly product liability costs, legal fees for the patent infringement claim and asbestos-related costs, totaling $1.3 million, partially offset by operating income in our power electronics business of $1.2 million.

Net Loss

We recorded a net loss in fiscal 2005 of $26.9 million, or $0.94 per share on both a basic and diluted basis, compared to a fiscal 2004 net loss of $13.1 million, or $0.48 per share on both a basic and diluted basis.

Liquidity and Capital Resources

Our cash balances increased $22.1 million during fiscal 2006, from $0.6 million at July 3, 2005 to $22.7 million at July 2, 2006, which includes restricted cash of $22.6 million. In November 2005 we deposited $22.6 million into an escrow account to fund payment of the Nilssen arbitration award in the event that our appeal of the award is not successful (see Note 11 of Notes to Consolidated Financial Statements). The deposit was funded by our $18.0 million term loan and borrowings of $4.6 million from our revolving credit facility. As a result, our outstanding debt balance increased $23.5 million during fiscal 2006, from $3.9 million at July 3, 2005 to $27.4 million at July 2, 2006. Our primary uses of cash in fiscal 2006 were for vendor payments, capital expenditures of $1.0 million, and loan origination and legal fees related to our new financing agreements of $1.9 million. We have no current requirements or plans for additional major capacity expansion and we currently anticipate capital expenditures in fiscal 2007 will be less than $2.0 million. The expected amount

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of capital expenditures could change depending upon changes in revenue levels, our financial condition and the general economy.

During the fourth quarter of fiscal 2006, we completed our review of various cash raising alternatives to enable us to address pending dept repayment and pension obligations, as well as provide funds for operations and future growth initiatives, and we decided to divest our power electronics business. Subsequent to July 2, 2006, we entered into an agreement to sell the business to Power One, Inc. for $71.7 million in cash, plus the assumption of $16.7 million in debt. We expect the transaction to close in October 2006, and expect to use the proceeds primarily to repay debt, fund pension obligations and fund continuing operations.

On September 30, 2005, we entered into an agreement with Ableco Finance LLC providing for an $18.0 million term loan and an agreement with Wells Fargo Foothill, Inc. providing for a $13.0 million revolving credit facility. Borrowings under the term loan bear interest at the lender’s reference rate plus 5%, or, at our option, the London Interbank Offering Rate (LIBOR) plus 7.5%. Such rates may be increased by up to one percentage point depending upon the level of U.S. funded debt to EBITDA as defined in the agreement. The term loan requires quarterly principal payments of $1.0 million beginning October 1, 2006. Borrowings under the revolving loan bear interest at the bank’s prime lending rate plus 2.5% or, at our option, LIBOR plus 4%. Borrowings under the revolving credit facility are determined by a borrowing base formula as defined in the agreement, based on the level of eligible domestic accounts receivable and inventory. The revolving credit facility also supports the issuance of letters of credit. Borrowings under the term loan and revolving credit facility are secured by substantially all of our domestic assets. We used funds from the revolving credit facility to fully repay all outstanding obligations under our previous financing agreement with Chase Bank, which expired on September 30, 2005. As of July 2, 2006, the $18.0 million term loan was outstanding, and approximately $9.4 million was outstanding under our revolving credit facility. The total of these two amounts, $27.4 million, is included in current portion of long-term debt in the accompanying consolidated balance sheet as of July 2, 2006 (see Note 5 of Notes to Consolidated Financial Statements).

As a result of lower than planned performance and certain expenses of discontinued operations, we were in violation of certain financial covenants included in our credit agreements for the quarter ended July 2, 2006. Accordingly, we have entered into a forbearance agreement with our lenders whereby the lenders have agreed not to take any action with respect to the covenant violations through October 31, 2006. In addition, Ableco has agreed to defer the initial $1 million term loan principal payment to October 31, 2006. If we are not able to complete the divestiture of our power electronics business prior to October 31, 2006, the lenders could require repayment of the outstanding debt or we would need to obtain additional waivers from our lenders.

Our fiscal 2006 cash flows have been negatively impacted by higher interest expense and costs incurred to obtain new financing agreements, and we expect our future cash flows will be impacted by debt repayments and pension contributions in fiscal years 2007 and 2008. The accumulated benefit obligation of our defined benefit pension plan exceeds plan assets as of July 2, 2006 (see Note 13 of Notes to Consolidated Financial Statements). We did not make any contributions to the plan during fiscal 2006, as none were mandated. Based upon current contribution credits available under pension funding regulations, actuarial projections indicate no mandatory contributions to the plan would be required through fiscal year 2007. Depending upon changes in asset values and interest rates, as well as any discretionary contributions made by us in the interim period, required contributions in periods subsequent to fiscal 2007 could be significant.

We are subject to certain potential environmental and legal liabilities associated primarily with past divestitures (see Note 11 of Notes to Condensed Consolidated Financial Statements). In the fourth quarter of fiscal 2005, a decision was rendered in a patent infringement action brought against us by Mr. Ole K. Nilssen. In settlement of pending litigation, we agreed to submit the matter to binding arbitration, and in May 2005, the arbitrator awarded damages to Nilssen of $23.4 million, to be paid within 10 days of the award. Nilssen’s counsel filed a motion to enter the award in U.S. District Court for the Northern District of Illinois, and we filed a counter-motion to vacate the award on grounds that it was fraudulently obtained. Our request for oral argument was granted and the hearing was held on October 19, 2005. The judge is expected to render his decision by mail after further consideration. An unfavorable decision by the Court could result in payment of the award by the Company to Nilssen in the amount of $22.6 million (the arbitration award of $23.4 million net of previously paid amounts of $0.8 million).

Based upon current plans and business conditions, we believe that proceeds from the sale of our power electronics business, borrowing capacity under our various credit facilities, and internally generated cash flows will be sufficient to fund anticipated operational needs, capital expenditures and other near-term commitments.

We do not have any off-balance sheet arrangements or variable interest entities as of July 2, 2006.

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Summary of Contractual Obligations and Commitments

Future payments due under contractual obligations of the Company’s continuing operations as of July 2, 2006 are as follows (in thousands):

	Less than			1 to 3		3 to 5		More than
	1 Year			Years		Years		5 Years			Total
Debt repayment		$	4,011	$	23,435	$	9		$	-	$	27,455
Operating leases		2,496		4,930		4,017			8,292		19,735
Purchase obligations		13,559		-		-			-		13,559
Pension funding		-		41,000		19,600			400		61,000
Total		$	20,066	$	69,365	$	23,626		$	8,692	$	121,749

Pension funding amounts in the table above are based on current regulations and actuarial calculations at July 2, 2006. Actual funding amounts could vary, depending on future interest rate levels and values in equity and fixed-income markets.

The figures in the table above do not include our aggregate future minimum rentals to be received under noncancelable subleases of $8.4 million as of July 2, 2006.

The figures in the table above also exclude contractual obligations of the Company’s discontinued operations, which total $60.6 million, comprised of $23.5 million of purchase obligations, $24.3 million of debt repayments, operating leases of $4.3 million, and $8.5 million of other long-term obligations.

Critical Accounting Policies

Our accounting policies are more fully described in Note 1 of Notes to Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires estimates and judgments by management that affect the reported amount of assets and liabilities, revenues, expenses, and related disclosures. Such estimates are based upon historical experience and other assumptions believed to be reasonable given known circumstances. Actual results could differ from those estimates. On an ongoing basis, we evaluate and update our estimates, and we believe the following discussion addresses our policies which are most critical to understanding our financial position and results of operations, and which require our most complex judgments.

Accounts Receivable

Accounts receivable represent amounts due from customers in the ordinary course of business. We are subject to losses from uncollectible receivables in excess of our allowances. We maintain allowances for doubtful accounts for estimated losses from customers’ inability to make required payments. In order to estimate the appropriate level of this allowance, we analyze historical bad debts, customer concentrations, current customer creditworthiness, current economic trends and changes in customer payment patterns. Our total allowance includes a specific allowance based on identification of customers where we feel full payment is in doubt, as well as a general allowance calculated based on our historical losses on accounts receivable as a percentage of historical sales. We believe that our methodology has been effective in accurately quantifying our allowance for doubtful accounts and do not anticipate changing our methodology in the future. However, if the financial conditions of any of our customers were to deteriorate and impair their ability to make payments, additional allowances may be required in future periods. We believe that all appropriate allowances have been provided.

Inventories

Our inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method, including material, labor and factory overhead. We identify potentially obsolete and excess inventory by evaluating overall inventory levels in relation to expected future requirements and market conditions, and provisions for excess and obsolete inventory and inventory valuation are recorded accordingly. Items with no usage for the past twelve months and no expected future usage are considered obsolete, and are disposed of or fully reserved. Reserves for excess inventory are determined based upon historical and anticipated usage as compared to quantities on hand. Excess inventory is defined as inventory items with on-hand quantities in excess of one year’s usage and specified percentages are applied to the excess inventory value in determining the reserve. Our assumptions have not changed significantly in the past, and are not likely to change in the future. We feel that our assumptions regarding inventory valuation have been accurate in the past.

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Long-Lived Assets and Goodwill

We periodically evaluate the recoverability of our long-lived assets, including property, plant and equipment. Impairment charges are recorded in operating results when the undiscounted future expected cash flows derived from an asset are less than the carrying value of the asset.

We are required to perform annual impairment tests of our goodwill, and may be required to test more frequently in certain circumstances. We have elected to perform our annual impairment test in the fourth quarter of our fiscal year. We have identified our Power Electronics and Power Systems groups as reporting units under Statement of Financial Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets. In assessing potential impairment, we make significant estimates and assumptions regarding the discounted future cash flows of our reporting units to determine the fair value of those reporting units. Such estimates include, but are not limited to, projected future operating results, working capital ratios, cash flow, terminal values, market discount rates and tax rates. We review the accuracy of our projections by comparing them to our actual results annually, and have determined that, historically, our cash flow estimates used in determining the fair value of our reporting units have been reasonably accurate. We use the results of this analysis as well as projected operating results to modify our estimates annually. However, if circumstances cause these estimates to change in the future, or if actual circumstances vary significantly from these assumptions, this could result in additional goodwill impairment charges. We cannot predict the occurrence of future events that may adversely affect our reported goodwill balance.

As indicated in Note 2 of Notes to Consolidated Financial Statements, during the fourth quarter of fiscal 2006, we committed to a plan to divest our power electronics business. In evaluating impairment in the carrying value of goodwill for this business, we used information contained in indications of value received from third parties during the process of marketing the business. Based on this information, we recorded a goodwill impairment charge for the power electronics business of $22.4 million in the fourth quarter of fiscal 2006, representing the difference between the estimated fair value and the carrying amount of the business (see Note 3 to Consolidated Financial Statements).

Pension Benefits

We sponsor a defined benefit plan that covers a number of current and former employees in the U.S. The valuation of our pension plan requires the use of assumptions and estimates that attempt to anticipate future events to develop actuarial valuations of expenses, assets and liabilities. These assumptions include discount rates, expected rates of return on plan assets and mortality rates. We consider market conditions, including changes in investment returns and interest rates, in making these assumptions. Our plan assets are comprised mainly of common stock and bond funds. The expected rate of return on plan assets is a long-term assumption and is generally not changed on an annual basis. The expected rate of return on plan assets was 9.0% in each of fiscal 2006, 2005 and 2004. The discount rate reflects the market for high-quality fixed income debt instruments and is subject to change each year. As of July 2, 2006, the discount rate was 6.375% as compared to 5.25% at July 3, 2005 and 6.375% at June 27, 2004. Changes in assumptions typically result in actuarial gains or losses that are amortized in accordance with the methods specified in SFAS No. 87, Employers’ Accounting for Pensions. An increase in the discount rate, as occurred during fiscal 2006, results in a decrease to our projected benefit obligation and an actuarial gain, which typically results in lower future pension expense.

Significant differences between our assumptions and actual future investment return or discount rates could have a material impact on our financial position or results of operations and related funding requirements.

Reserves for Contingencies

We periodically record the estimated impact of various conditions, situations or circumstances involving uncertain outcomes. The accounting for such events is prescribed under SFAS No. 5, Accounting for Contingencies. SFAS No. 5 defines a contingency as an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.

SFAS No. 5 does not permit the accrual of gain contingencies under any circumstances. For loss contingencies, the loss must be accrued if (1) information is available that indicates it is probable that the loss has been incurred, given the likelihood of uncertain events; and (2) the amount of the loss can be reasonably estimated.

The accrual of a contingency involves considerable judgment and we use our internal expertise and outside experts, as necessary, to help estimate the probability that a loss has been incurred and to assist in determining the amount or range of the loss. In those circumstances where we determined that it was probable that a loss had been incurred, our estimates of the amount of loss have been reasonably accurate.

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Income Taxes

We record deferred income tax assets in tax jurisdictions where we generate losses for income tax purposes. We also record valuation allowances against these deferred tax assets in accordance with SFAS No. 109, Accounting for Income Taxes, when in our judgment, the deferred income tax assets will likely not be realized in the foreseeable future.

Since fiscal 2002 we have provided valuation reserves against our U.S. deferred tax assets that result in a zero net deferred tax position (net deferred assets equal to deferred tax liabilities). A portion of our deferred tax liability relates to tax-deductible amortization of goodwill that is no longer amortized for financial reporting purposes. Under applicable accounting rules, such deferred tax liabilities are considered to have an indefinite life and are therefore ineligible to be considered as a source of future taxable income in assessing the realization of deferred tax assets.

Risk Factors Affecting the Company’s Outlook

Our future results of operations and the other forward-looking statements contained in our Report on Form 10-K and this Annual Report including this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, involve a number of risks and uncertainties. In particular, the statements regarding future economic conditions, our goals and strategies, new product introductions, penetration of new markets, projections of sales revenues, manufacturing costs and operating costs, pricing of our products and raw materials required to manufacture our products, gross margin expectations, relocation and outsourcing of production capacity, capital spending, research and development expenses, the outcome of pending legal proceedings and environmental matters, tax rates, sufficiency of funds to meet our needs including contributions to our defined benefit pension plan, and our plans for future operations, as well as our assumptions relating to the foregoing, are all subject to risks and uncertainties.

A number of other factors could cause our actual results to differ materially from our expectations. We are subject to all of the business risks facing public companies, including business cycles and trends in the general economy, financial market conditions, changes in interest rates, demand variations and volatility, potential loss of key personnel, supply chain disruptions, government legislation and regulation, and natural causes. The following list of risk factors is not all-inclusive. Other factors and unanticipated events could adversely affect our financial position or results of operations. We believe that the most significant potential risk factors that could adversely impact us are the following:

Potential Sale of Power Electronics Business and Liquidity Impact

We are in the process of divesting our power electronics business and expect to complete the transaction during October 2006. While we have entered into a definitive agreement for this divestiture, it cannot be certain that the divestiture will close. Also, while we expect the proceeds of the divestiture will be sufficient to enable us to repay debt and fund pension obligations as well as fund ongoing operations, it cannot be certain that these actions will eliminate all future pension funding obligations.  In addition, it cannot be certain that additional debt financing would not be required in the future, nor can it be certain that the performance of our remaining continuing operations can generate sufficient cash flow to fund operations.

In the event that we are not able to sell the power electronics business prior to October 31, 2006, our lenders could require repayment of our outstanding debt unless we are able to obtain additional waivers from our lenders.

Economic Conditions and Demand for our Products

Demand for our products, which impacts our revenue and gross profit, is affected by general business and economic conditions. Demand for our products is also impacted by changes in customer order patterns, such as changes in inventory levels maintained by customers and the timing of customer purchases. If demand in certain of our served markets deteriorates in subsequent periods, our operating results could be adversely affected and losses could recur.

Competitive Industry

We operate in an intensely competitive industry characterized by rapid changes in technology, product demand, prices and lead times. Our future profitability depends on our ability to successfully identify and react to these changing trends. Specifically, achievement of our sales and profit goals is dependent in part upon our ability to successfully anticipate product demand, to introduce new products to meet that demand in a timely manner at competitive prices, to gain acceptance of our products in the marketplace, and to adapt our existing product platforms in the event of changes in technology. Failure to do so could result in low returns on investment in new products and technologies, a loss of competitive position relative to our peers, obsolete products and technologies, and an adverse impact on our operating

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results. In addition, price erosion in our served markets could have a material impact on our financial position or results of operations.

Dependence on Customers and Credit Risk

We rely on several large customers for a significant portion of our sales. While we have taken actions to diversify our customer base, sales to our top three customers represented approximately 21% of our net sales in fiscal 2006. The loss of any such customers or significant decreases in any such customers’ levels of purchases could have an adverse effect on our business. In addition, we are exposed to the credit risk of our customers, including risk of bankruptcy, and are subject to losses from uncollectible accounts receivable. If the financial conditions of any of our customers deteriorates and impairs their ability to make payments, we could incur future write-offs of accounts receivable that could have a material impact on our financial position, results of operations or cash flows.

Reliance on Suppliers

We purchase raw materials and subassemblies used in our products from third-party suppliers, and also purchase finished goods for resale to customers from third party subcontractors. If our suppliers or subcontractors cannot meet their commitments to us in terms of price, delivery, or quality, it may negatively impact our ability to meet our commitments to our customers. This could result in disruption of production, delay in shipments to customers, higher material costs, quality issues with our products and damage to customer relationships. In addition, increases in the cost of raw materials purchased from third party suppliers could negatively impact our gross profit and results of operations.

Competitive Size

In power systems, we compete with crane and hoist drive manufacturers and drive system integrators, elevator drive manufactures and control system integrators, mining machinery drive builders, and power inverter builders. The total number of such enterprises with whom we compete directly is considered to be fewer than 100. However, certain of our competitors are significantly larger and have substantially greater resources than us, and some are global in scope, whereas we currently compete primarily in the North American market.

International Business

Our international operations are subject to risks associated with changes in local economic and political conditions, laws, codes and standards, currency exchange rates and restrictions, regulatory requirements and taxes. While international sales currently account for approximately 12% of our revenue, currency exchange rates could impact our results. This is partially a currency translation issue with no economic impact on actual results. However, a fluctuation in exchange rates between a foreign currency and the U.S. dollar can have an economic impact on revenue and profit. Additional weakening in the value of the dollar against other currencies or changes in any of the other risks listed previously could have an adverse effect on our financial position or results of operations.

Restructuring and Outsourcing

We have taken actions to relocate some of our production and may develop action plans regarding additional relocation or consolidation activities in the future. While we believe that these actions will result in a more competitive position and should also increase our gross profits and reduce our operating expenses, there is no guarantee that these plans will succeed. There is also no assurance that the expected cost savings and improvement in gross profits will be realized, and in addition, these actions may result in quality issues or delays in production or shipment to customers that could have an adverse impact on our results of operations. In addition, there is no assurance that any future activities not yet planned would provide any benefits to our operating results, and any such future plans may result in asset impairment charges.

Intellectual Property

We believe that our intellectual property is equal or superior to our competitors’ and we do not know of any new technologies that could cause a shift away from digital power-electronic solutions. However, as a technology-based company in an industry characterized by short product life cycles, we are highly dependent on both patented and proprietary intellectual property. Therefore, major advancements in digital power-electronic technology by competitors or the advent of technologies obviating digital power-electronic solutions could have an adverse effect on our financial position or results of operations.

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Likewise, we could be adversely affected financially should we be judged to have infringed upon the intellectual property of others.

Legal and Environmental Issues

Our results of operations could be adversely impacted by pending and future litigation, including claims related to, but not limited to, product liability, patent infringement, contracts, employment and labor issues, personal injury, and property damage, including damage to the environment.

In some cases, we have agreed to provide indemnification against legal and environmental liabilities and potential liabilities associated with operations that we have divested, including certain motor, generator, lighting ballast, transformer and drive manufacturing operations. If we are required to make payments under such indemnification obligations, such payments could have a material adverse impact on our financial position or results of operations. Further, we have been indemnified against potential legal and environmental liabilities and potential liabilities associated with operations that we have acquired, including lighting ballast, transformer, capacitor and crane brake manufacturing operations that were subsequently divested. If not borne by the indemnifiers, such liabilities, if any, could be borne by us and have an adverse effect on our financial position or results of operations.

In connection with our June 2001 sale of our lighting business to Universal Lighting Technologies, Inc. (“ULT”), we agreed to provide a limited indemnification against certain claims of patent infringement that Ole K. Nilssen might allege against ULT (see Note 11 of Notes to Consolidated Financial Statements). Mr. Nilssen subsequently filed a lawsuit against ULT alleging infringement by ULT of certain of his patents pertaining to electronic ballast technology. The lawsuit is currently pending in the U.S. District Court for the Middle District of Tennessee. ULT has made a claim for indemnification against us in respect of this matter, which we accepted. If Mr. Nilssen succeeds in his claim against ULT, our obligation to indemnify ULT for its damages payable to Mr. Nilssen could have a material adverse effect on our financial position and results of operations.

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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to market risks in the areas of foreign exchange and interest rates. To mitigate the effect of such risks, from time to time we selectively use specific financial instruments. Hedging transactions can be entered into under Company policies and procedures and are monitored monthly. Company policy prohibits the use of such financial instruments for trading or speculative purposes. A discussion of our accounting policies for derivative financial instruments is included in the Summary of Significant Accounting Policies under Note 1 in the Notes to the Consolidated Financial Statements. We did not have any outstanding hedge instruments or contracts at July 2, 2006 and July 3, 2005.

Interest Rates

The fair value of our debt of continuing operations was $27.5 million and $4.0 million at July 2, 2006 and July 3, 2005, respectively. The fair value of our debt is equal to the borrowings outstanding from domestic banks and small amounts owed under capital lease arrangements. For our debt outstanding at July 2, 2006 and July 3, 2005, a hypothetical 10% adverse change in interest rates would have increased our interest expense by approximately $0.2 million in fiscal year 2006, and would have had almost no impact on interest expense in fiscal 2005, due to the low level of debt outstanding. Prospectively we expect our interest expense to decrease upon the divestiture of our power electronics business, as we expect to use proceeds from the divestiture to reduce our outstanding debt.

Foreign Currency Exchange Rates

We generally do not enter into foreign exchange contracts to protect against reductions in value and volatility of future cash flows caused by changes in exchange rates, but we may selectively enter into foreign exchange contracts to hedge certain currency exposures. Gains and losses on these non-U.S.-currency investments would generally be offset by corresponding losses and gains on the related hedging instruments, resulting in negligible net exposure.

Our results of discontinued operations have been impacted by fluctuations in exchange rates, mainly between the U.S. dollar and the Euro, as a portion of our power electronics products are manufactured in Europe and sold in the U.S. Many of these sales to U.S. customers are denominated in U.S. dollars. Our exposure on sales by our European subsidiaries consists mainly of (1) the exposure related to a weakening U.S. dollar for U.S. dollar denominated sales, as most of our European subsidiaries’ costs are in Euro; in the event of a weakening U.S. dollar, locally recorded sales in the functional currency (the Euro) are decreased, and (2) the exposure related to a weakening U.S. dollar when payment of U.S. dollar receivables are received from customers, resulting in less local currency than was originally recorded at the date of sale.

We had no foreign currency contracts outstanding at July 2, 2006 and July 3, 2005.

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CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended (Amounts in thousands, except per share data)	July 2, 2006			July 3, 2005			June 27, 2004
Net sales	$	83,102		$	75,999		$	67,853
Cost of sales	56,415			51,964			46,648
Gross profit	26,687			24,035			21,205
Research and development	4,056			3,925			3,127
Sales, general and administrative	25,508			24,243			23,053
Loss from operations	(2,877		)	(4,133		)	(4,975		)
Non operating expense (income):
Interest income	(687		)	(138		)	(1,151		)
Interest expense	3,362			513			936
Other expense	—			—			981
Loss from continuing operations before provision for income taxes	(5,552		)	(4,508		)	(5,741		)
Provision for income taxes	1,539			1,029			4,939
Loss from continuing operations	(7,091		)	(5,537		)	(10,680		)
Loss from discontinued operations, net of taxes	(39,758		)	(21,333		)	(2,391		)
Net loss	$	(46,849	)	$	(26,870	)	$	(13,071	)
Per common share basic and diluted:
Loss from continuing operations	$	(0.25	)	$	(0.19	)	$	(0.39	)
Loss from discontinued operations	$	(1.37	)	$	(0.75	)	$	(0.09	)
Net loss	$	(1.62	)	$	(0.94	)	$	(0.48	)
Weighted average shares outstanding - basic and diluted	28,931			28,535			27,094

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS

As of (Amounts in thousands)	July 2, 2006			July 3, 2005
Assets
Current assets:
Cash	$	96		$	595
Restricted cash - escrow account	22,602			-
Accounts receivable, less allowance for doubtful accounts of $568 in 2006 and $747 in 2005	13,056			13,035
Inventories	9,836			9,060
Deferred income taxes	23			1,357
Prepaid expenses and other current assets	623			919
Assets held for sale	145,282			162,770
Total current assets	191,518			187,736
Property, plant and equipment:
Buildings and improvements	1,479			1,483
Machinery and equipment	16,560			15,896
Less accumulated depreciation	14,066			13,293
Net property, plant and equipment	3,973			4,086
Goodwill	28,150			28,073
Other assets	8,822			9,285
Total assets	$	232,463		$	229,180
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,996		$	7,410
Accrued liabilities	7,992			5,468
Accrued arbitration award	22,602			22,602
Liabilities held for sale	76,907			70,752
Current portion of long-term debt	27,412			3,927
Total current liabilities	141,909			110,159
Long-term debt, net of current portion	43			53
Pension benefit obligations, net	45,494			70,568
Deferred income taxes	2,109			2,340
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.01 par value, 100,000 shares authorized 28,712 and 28,615 shares issued and outstanding in 2006 and 2005	287			286
Additional paid-in capital	129,473			128,664
Retained earnings (deficit)	(6,831		)	40,018
Accumulated other comprehensive loss	(80,021		)	(122,908		)
Total stockholders’ equity	42,908			46,060
Total liabilities and stockholders’ equity	$	232,463		$	229,180

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock							Additional Paid-in				Retained Earnings				Accumulated Other Comprehensive
(Amounts in thousands)	Shares			Amount				Capital				(Deficit)				Loss				Total
Balance, June 29, 2003		23,696			$	237			$	106,541			$	79,959			$	(108,066	)	$	78,671
Exercise of stock options		18			–				67				–				–			67
Shares issued		4,200			42				18,480				–				–			18,522
Employee stock purchase plan		16			–				47				–				–			47
Pension plan contribution		535			6				2,386				–				–			2,392
Shares issued to trust		27			–				146				–				–			146
Deferred compensation plan		–			–				(22		)		–				–			(22		)
Share value trust		–			–				47				–				–			47
Net loss		–			–				–				(13,071		)		–			(13,071		)
Translation adjustments		–			–				–				–				2,331			2,331
Minimum pension liability		–			–				–				–				20,792			20,792
Comprehensive income		–			–				–				–				–			10,052
Balance, June 27, 2004		28,492			$	285			$	127,692			$	66,888			$	(84,943	)	$	109,922
Exercise of stock options		53			–				172				–				–			172
Shares issued		3			–				5				–				–			5
Employee stock purchase plan		6			–				37				–				–			37
Stock-based compensation expense		–			–				506				–				–			506
Shares issued to trust		61			1				283				–				–			284
Deferred compensation plan		61			1				252				–				–			253
Share value trust		(61	)		(1		)		(283		)		–				–			(284		)
Net loss		–			–				–				(26,870		)		–			(26,870		)
Translation adjustments		–			–				–				–				(199		)	(199		)
Minimum pension liability		–			–				–				–				(37,766		)	(37,766		)
Comprehensive loss		–			–				–				–				–			(64,835		)
Balance, July 3, 2005		28,615			$	286			$	128,664			$	40,018			$	(122,908	)	$	46,060
Exercise of stock options		3			–				8				–				–			8
Shares issued		4			–				13				–				–			13
Stock-based compensation expense		–			–				500				–				–			500
Shares issued to trust		90			1				288				–				–			289
Deferred compensation plan		90			1				288				–				–			289
Share value trust		(90	)		(1		)		(288		)		–				–			(289		)
Net loss		–			–				–				(46,849		)		–			(46,849		)
Translation adjustments		–			–				–				–				3,480			3,480
Reclassification of accumulated translation adjustment to assets held for sale		–			–				–				–				10,589			10,589
Minimum pension liability		–			–				–				–				28,818			28,818
Comprehensive loss		–			–				–				–				–			(3,962		)
Balance, July 2, 2006		28,712			$	287			$	129,473			$	(6,831	)		$	(80,021	)	$	42,908

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended  (Amounts in thousands)	July 2, 2006			July 3, 2005			June 27, 2004
Cash flows from continuing operating activities:
Net loss from continuing operations	$	(7,091	)	$	(5,537	)	$	(10,680	)
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) continuing operations:
Depreciation	1,081			1,419			1,372
Amortization	906			253			513
Stock based compensation expense	500			506			–
Changes in operating assets and liabilities of continuing operations	7,877			3,846			7,975
Total adjustments	10,364			6,024			9,860
Net cash provided by (used in) continuing operating activities	3,273			487			(820		)
Cash flows from discontinued operations:
Loss from discontinued operations	(39,758		)	(21,333		)	(2,391		)
Adjustments to reconcile loss from discontinued operations to net cash provided by (used in) discontinued operations:
Depreciation and amortization	6,574			7,591			7,876
Arbitration award expense	–			21,977			–
Goodwill and other asset impairment	37,843			–			–
Changes in operating assets and liabilities of discontinued operations	(1,513		)	759			(14,291		)
Capital expenditures	(5,279		)	(7,584		)	(5,300		)
Net cash provided by (used in) discontinued operations	(2,133		)	1,410			(14,106		)
Net cash provided by (used in) operating activities	1,140			1,897			(14,926		)
Cash flows from investing activities:
Proceeds from sale of businesses and other assets	–			–			1,075
Capital expenditures	(957		)	(1,405		)	(645		)
Net cash provided by (used in) investing activities	(957		)	(1,405		)	430
Cash flows from financing activities:
Deposit into escrow account	(22,602		)	–			–
Proceeds from issuance of common stock	310			430			18,760
Proceeds from employee stock purchase plan	–			37			47
Borrowings (repayments) under line-of-credit agreements	5,485			(368		)	(4,955		)
Principal payments under capital lease obligations	(10		)	–			–
Borrowings under long term notes	18,000			–			–
Borrowings under capital lease obligations	–			53			–
Increase in deferred financing costs	(1,865		)	(82		)	(570		)
Net cash provided by (used in) financing activities	(682		)	70			13,282
Net increase (decrease) in cash	(499		)	562			(1,214		)
Cash at the beginning of the year	595			33			1,247
Cash at the end of the year	$	96		$	595		$	33

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in the notes to consolidated financial statements are expressed in thousands unless otherwise noted, except share and per share data)

1.Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Magnetek, Inc. and its subsidiaries (the “Company” or “Magnetek”). All significant inter-company accounts and transactions have been eliminated.

Basis of Presentation

The accompanying consolidated financial statements have been prepared on the basis of Magnetek continuing as a going concern. During recent years, the Company has incurred significant net losses, primarily related to discontinued operations and an adverse decision in a patent arbitration (see Notes 2 and 11 of Notes to Consolidated Financial Statements). As a result the Company is not in compliance with certain financial covenants included in its credit agreements (see Note 5 of Notes to Consolidated Financial Statements). Additionally, future cash flows will be negatively impacted by scheduled debt repayments and mandatory contributions to the Company’s defined benefit pension plan. The Company’s term loan requires quarterly principal payments of $1.0 million beginning October 1, 2006. Based upon current pension funding regulations, actuarial projections indicate required contributions of $41.0 million to the Company’s defined benefit pension plan within the next three fiscal years. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

As previously disclosed in its filing on Form 10-Q for the three months ended April 2, 2006 the Company began a review of various cash raising alternatives that would enable it to address its pending obligations. During the fourth quarter of fiscal 2006, the Company completed its review and committed to a plan to divest its power electronics business. The Company intends to use proceeds from the sale of this business (see Note 20 of Notes to Consolidated Financial Statements) to repay its debt and substantially fund its pension plan which will result in a significant reduction in interest cost and pension expense. In addition, in light of its anticipated smaller size, the Company intends to further reduce its corporate overhead expenses. Management believes these actions will enable the Company to both address its pending obligations and improve future profitability and cash flow in its continuing operations. As a result, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Company’s ability to continue as a going concern.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant areas requiring management estimates include the following key financial areas:

Accounts Receivable

Accounts receivable represent receivables from customers in the ordinary course of business. The Company is subject to losses from uncollectible receivables in excess of its allowances. The Company maintains allowances for doubtful accounts for estimated losses from customers’ inability to make required payments. In order to estimate the appropriate level of this allowance, the Company analyzes historical bad debts, customer concentrations, current customer creditworthiness, current economic trends and changes in customer payment patterns. If the financial conditions of the Company’s customers were to deteriorate and to impair their ability to make payments, additional allowances may be required in future periods. The Company’s management believes that all appropriate allowances have been provided.

Inventories

The Company’s inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method, including material, labor and factory overhead. Inventory on hand may exceed future demand either

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because the product is obsolete, or the amount on hand is more than can be used to meet future needs. The Company identifies potentially obsolete and excess inventory by evaluating overall inventory levels. In assessing the ultimate realization of inventories, the Company is required to make judgments as to future demand requirements and compare those with the current or committed inventory levels. If future demand requirements are less favorable than those projected by management, additional inventory write-downs may be required.

Reserves for Litigation and Environmental Issues

The Company periodically records the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. The accounting for such events is prescribed under Statement of Financial Accounting Standard (“SFAS”) No. 5, Accounting for Contingencies. SFAS No. 5 defines a contingency as “an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.”

SFAS No. 5 does not permit the accrual of gain contingencies under any circumstances. For loss contingencies, the loss must be accrued if (1) information is available that indicates it is probable that the loss has been incurred, given the likelihood of uncertain events; and (2) that the amount of the loss can be reasonably estimated.

The accrual of a contingency involves considerable judgment on the part of management. The Company uses its internal expertise, and outside experts, as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss.

Income Taxes

The Company uses the liability method to account for income taxes. The preparation of consolidated financial statements involves estimating the Company’s current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheets. An assessment of the recoverability of the deferred tax assets is made, and a valuation allowance is established based upon this assessment.

Pension Benefits

The valuation of the Company’s pension plan requires the use of assumptions and estimates to develop actuarial valuations of expenses, assets and liabilities. These assumptions include discount rates, investment returns and mortality rates. Changes in assumptions and future investments returns could potentially have a material impact on the Company’s expenses and related funding requirements.

Revenue Recognition

The Company’s policy is to recognize revenue when the earnings process is complete. The criteria used in making this determination are persuasive evidence that an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is reasonably assured. Sales are recorded net of returns and allowances, which are estimated using historical data, at the time of sale.

Revenue is recognized upon shipment, except in those cases where product is shipped to customers with consignment stock agreements, wherein revenue is recognized when the customer removes the product from consignment stock. With the exception of consignment stock, terms of shipment are FOB shipping point, and payment is not contingent upon resale or any other matter other than passage of time. As a result, title to goods passes upon shipment. Amounts billed to customers for shipping costs are reflected in net sales; shipping costs are reflected in cost of sales.

Sales to distributors are recorded with appropriate reserves for future returns in accordance with SFAS No. 48, Revenue Recognition When Right of Return Exists, and generally do not include future installation obligations or acceptance requirements.

Property, Plant and Equipment

Additions and improvements are capitalized at cost, whereas expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided over the estimated useful lives of the respective assets principally on the straight-line method (machinery and equipment normally five to ten years, buildings and improvements normally ten to forty years).

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Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company reviews the carrying value of goodwill at least annually, and more frequently if indicators of potential impairment arise, using discounted future cash flow analyses as prescribed in SFAS 142.

Stock-Based Compensation

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123(R)”), which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

Prior to fiscal year 2006, as was permitted under SFAS No. 123, the Company accounted for stock-based awards using the intrinsic-value method under APB No. 25. Under APB No. 25, the Company recognized no compensation expense with respect to such awards, as the exercise prices of stock option grants were always equal to or greater than the market price of the stock at the grant date. Accordingly, no stock-based employee compensation expense for stock options is reflected in determining net loss in the accompanying condensed consolidated financial statements for fiscal years 2005 and 2004.

Effective July 4, 2005, the Company adopted SFAS No. 123 (R), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the Company’s financial statements based upon their fair values. The Company selected the modified prospective method of adoption in which compensation cost is recognized beginning with the effective date. Compensation cost recognized for the fiscal year ended July 2, 2006 is the same as that which would have been recognized had the fair value method of SFAS No. 123 been applied from its original effective date. In accordance with the modified prospective method of adoption, the Company’s results of operations for prior periods have not been restated.

In the fourth quarter of fiscal 2005, the Company approved the acceleration of the vesting of all out-of-the-money (“underwater”) unvested stock options held by the Company’s current employees, including executive officers, on June 1, 2005. A stock option was considered underwater if the option exercise price was greater than $2.19 per share, which was the closing price of the Company’s common stock on June 1, 2005. No stock options held by directors were subject to the acceleration. The decision to accelerate vesting of these underwater options was made primarily to avoid recognizing compensation cost in the consolidated statement of operations upon adoption of SFAS No. 123 (R), as described above. As a result of the acceleration, the Company reduced the stock option compensation expense it otherwise would be required to record by approximately $1.9 million in fiscal 2006, $1.4 million in fiscal 2007 and less than $0.1 million in fiscal 2008 on a pre-tax basis, resulting in an additional $3.4 million of pro-forma expense in fiscal 2005. The accelerated vesting was a modification of outstanding awards as defined by SFAS No. 123, which resulted in incremental pro-forma compensation expense of $0.3 million in fiscal 2005.

In August 2005, the Company granted 500,000 shares of restricted stock with a fair value of $2.77 per share. The restricted shares fully vest on January 1, 2009. The total estimated compensation expense of $1.4 million related to the grant will be recorded ratably from the grant date through the vesting date. Compensation expense related to the restricted stock grant included in the consolidated statement of operations for fiscal year 2006 is $354. The remaining portion of stock-based compensation expense recorded in fiscal year 2006 of $146 relates to non-vested director stock option grants.

In May 2005, the Company granted 240,000 shares of restricted stock with a fair value of $2.11 per share. The restricted shares fully vested on June 23, 2005. The total compensation expense related to this restricted stock grant of $506 is included in the consolidated statement of operations for fiscal year 2005.

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The following table illustrates the effect on net loss and loss per share as if the fair value method had been applied to all outstanding and unvested awards in each period:

For the years ended	July 2,			July 3,			June 27,
(Thousands except per share amounts)	2006			2005			2004
Net loss - as reported	$	(46,849	)	$	(26,870	)	$	(13,071	)
Add: Stock-based compensation expense included in reported net loss	500			506			-
Deduct: Total stock-based compensation expense determined under fair value method for all awards	(500		)	(8,894		)	(4,700		)
Pro forma net loss	$	(46,849	)	$	(35,258	)	$	(17,771	)
Loss per share as reported:
Basic and diluted	$	(1.62	)	$	(0.94	)	$	(0.48	)
Pro forma loss per share:
Basic and diluted	$	(1.62	)	$	(1.24	)	$	(0.66	)

Compensation expense related to all stock-based awards for fiscal year 2006 and 2005 is included in selling, general and administrative expense in the consolidated statements of operations. No tax benefit was recorded on the stock compensation expense for fiscal years 2005 and 2006 due to deferred tax valuation allowances recorded by the Company in those years.

The fair value of the Company’s stock option grants was estimated using the Black-Scholes valuation model, assuming no dividends, with the following assumptions:

	Options
	2006			2005			2004
Expected life (years)	6.1			6.1			6.1
Expected stock price volatility	66.6		%	72.2		%	65.8		%
Risk-free interest rate	5.1		%	4.4		%	3.5		%
Options granted	45,000			750,000			1,836,000
Exercise price of options granted	$	2.53		$	7.48		$	4.58
Fair value of options granted	$	1.65		$	5.04		$	2.83

Recent Accounting Pronouncements

In November 2005, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4.  The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current period charges and require the allocation fixed production overheads to inventory based on normal capacity of the production facilities.  The pronouncement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  The adoption of this pronouncement on July 4, 2005 did not have a material effect on the Company’s financial position, results of operations or liquidity.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections.  SFAS No. 154 replaces APB No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and establishes retrospective application as the required method for reporting a change in accounting principle.  SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable.  The reporting of a correction of an error by restating previously issued financial statements is also addressed.  SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.  The adoption of this pronouncement on July 3, 2006, is not expected to have a material effect on the Company’s financial position, results of operations or liquidity.

On July 13, 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”).  FIN 48 creates a single model to address uncertainty in tax positions, clarifying the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.  FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.  FIN 48 applies to all tax positions related to income taxes subject to SFAS No. 109, Accounting for Income Taxes.

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FIN 48 utilizes a two-step approach for evaluating tax positions.  Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is “more-likely-than-not” to be sustained upon examination.  Measurement (step two) is only addressed if step one has been satisfied.  Those tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period they meet the more-likely-than-not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. 

FIN 48 is effective for fiscal years beginning after December 15, 2006.  Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption would be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings.  The adoption of this pronouncement is not expected to have a material effect on the Company’s financial position, results of operations, or liquidity.

Research and Development

Expenditures for research and development are charged to expense as incurred and aggregated $4,056, $3,925, and $3,127 for the fiscal years 2006, 2005, and 2004, respectively.

Advertising

Expenditures for advertising are charged to expense as incurred and aggregated $245, $383, and $237 for the fiscal years 2006, 2005, and 2004, respectively.

Foreign Currency Translation

The Company’s foreign entities’ accounts are measured using local currency as the functional currency. Assets and liabilities are translated at the exchange rate in effect at year-end. Revenues and expenses are translated at the rates of exchange prevailing during the year. Unrealized translation gains and losses arising from differences in exchange rates from period to period are included as a component of accumulated other comprehensive loss in stockholders’ equity.

Derivative Financial Instruments

The Company periodically uses derivative financial instruments to reduce financial market risks. These instruments are used to hedge foreign currency and interest rate market exposures. The Company does not use derivative financial instruments for speculative or trading purposes. The accounting policies for these instruments are based on the Company’s designation of such instruments as hedging transactions. The criteria the Company uses for designating an instrument as a hedge include the instrument’s effectiveness in risk reduction and the matching of the derivative to the underlying transaction. The resulting gains or losses are accounted for as part of the transactions being hedged, except that losses not expected to be recovered upon the completion of the hedge transaction are expensed. The Company had no derivative financial instruments at July 2, 2006 and July 3, 2005.

Deferred Financing Costs

Costs incurred to obtain financing are deferred and included in other assets in the consolidated balance sheets. Deferred financing costs are amortized over the term of the financing facility, and related amortization expense was $906, $253 and $513 for the fiscal years 2006, 2005, and 2004, respectively. These expenses are included in interest expense in the consolidated statements of operations.

Earnings Per Share

In accordance with SFAS No. 128, Earnings Per Share, basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share incorporates the incremental shares issuable upon the assumed exercise of stock options as if all exercises had occurred at the beginning of the fiscal year.

Reclassification

Certain prior year amounts were reclassified to conform to the current year presentation, primarily the reclassification of prior period discontinued operations.

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Fiscal Year

The Company uses a fifty-two, fifty-three week fiscal year ending on the Sunday nearest June 30. The fiscal years ended July 2, 2006 and June 27, 2004 each contained fifty-two weeks. The fiscal year ended July 3, 2005 contained fifty-three weeks.

2.Discontinued Operations

The Company’s power electronics business and telecom power business, as well as certain expenses incurred related to businesses the Company no longer owns, are classified as discontinued operations. The results of discontinued operations are as follows:

	July 2,			July 3,			June 27,
For the years ended	2006			2005			2004
Net sales	$	175,375		$	176,737		$	174,981
Income (loss) from discontinued operations before interest and income taxes	$	(41,415	)	$	(19,988	)	$	792
Interest expense, net	1,357			1,249			1,422
Other income	-			(1,300		)	-
Provision (benefit) for income taxes	(3,014		)	1,396			1,761
Loss from discontinued operations	$	(39,758	)	$	(21,333	)	$	(2,391	)

Loss from discontinued operations for the year ended July 2, 2006 includes asset impairment charges of $37,843, comprised of charges for goodwill impairment of $22,412, the write-off of the net basis of assets held for sale related to reclassification of accumulated currency translation adjustment amounts of $10,589, inventories of $4,526, and property, plant and equipment of $316. Loss from discontinued operations for the year ended July 3, 2005 includes a charge of $21,977 related to a patent infringement claim. Loss from discontinued operations for fiscal 2004 includes a net loss of $411 from the Company’s telecom service business, divested in the first quarter of fiscal 2004.

Loss from discontinued operations for fiscal years 2006, 2005 and 2004 also includes charges of $3,615, $4,698 and $1,261 respectively, for legal fees and other costs related to the patent infringement claim and appeal of the judgment, product liability claims, environmental issues, and asbestos claims. These issues primarily relate to indemnification agreements provided by the Company upon the sale of previously owned businesses in years prior to fiscal 2004.

During the fourth quarter of fiscal year 2006, the Company committed to a plan to divest its power electronics business. Subsequent to July 2, 2006, the Company entered into an agreement to sell the business to Power-One, Inc. (see Note 20 of Notes to Consolidated Financial Statements). Management determined that the assets and liabilities to be sold constituted a disposal group under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and that all of the “assets held for sale” criteria outlined in SFAS No. 144 were met. As a result, the Company reclassified the assets and liabilities as held for sale and the results of this business as discontinued operations. The Company’s power electronics business is comprised mainly of its wholly-owned subsidiaries Magnetek S.p.A. (Italy), Magnetek Kft. (Hungary) and Magnetek Electronics Co., Ltd. (China), and a North American division located in Chatsworth, California.

The results of the Company’s power electronics business are as follows:

	July 2,			July 3,			June 27,
For the years ended	2006			2005			2004
Net sales	$	156,820		$	166,390		$	162,427
Income (loss) from discontinued operations before interest and income taxes	$	(37,388	)	$	7,701		$	4,393
Interest expense, net	1,357			1,249			1,422
Other income	-			(1,300		)	-
Provision (benefit) for income taxes	(3,014		)	1,396			1,761
Income (loss) from discontinued operations	$	(35,731	)	$	6,356		$	1,210

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Given the Company’s plan to divest of the power electronics business, in accordance with EITF 01-5, Application of FASB Statement No.52 to an Investment Being Evaluated for Impairment That Will be Disposed Of, the accumulated foreign currency translation adjustments (CTA) related to the business have been included as part of the carrying amount of the investment in subsidiary when evaluating impairment. The estimated fair value of the disposal group at July 2, 2006 is $68.4 million, which approximates the expected proceeds, net of estimated transaction costs, from the divestiture of the business. Based upon its determination of fair value, in the fourth quarter of fiscal 2006, the Company recorded a goodwill impairment charge of $22.4 million and an additional net asset impairment charge of $10.6 million, equal to the net basis of assets held for sale related to reclassification of accumulated CTA amounts, which reduced the carrying value of the business to the estimated fair value at July 2, 2006. The impairment charges are included in loss from discontinued operations in fiscal 2006 in the accompanying consolidated statements of operations.

Assets and liabilities of the Company’s power electronics business classified as held for sale as of July 2, 2006 and July 3, 2005, are as follows:

	July 2,			July 3,
	2006			2005
Cash and equivalents	$	1,491		$	6,259
Accounts receivable	51,431			41,839
Inventories	45,586			40,890
Net property, plant and equipment	27,320			27,853
Other assets	18,485			42,054
Assets of discontinued power electronics business	$	144,313		$	158,895
Eliminations	(3,616		)	(852		)
Total assets	$	140,697		$	158,043
Accounts payable	$	34,985		$	29,564
Other current liabilities	5,926			4,830
Other long term liabilities	10,728			15,663
Long term debt	24,294			19,475
Liabilities of discontinued power electronics business	$	75,933		$	69,532

During fiscal year 2005, the Company committed to a plan to divest its telecom power business, and as a result, reclassified assets and liabilities as held for sale and the results of this business as discontinued operations. While the Company has not yet divested its telecom power business as of July 2, 2006, the business is being actively marketed to potential interested parties at a price that is reasonable. Accordingly, the operating results of the telecom power business have continued to be classified as discontinued operations in the accompanying consolidated statements of operations and its assets and liabilities as held for sale in the accompanying consolidated balance sheets for all periods presented.

The results of the Company’s telecom power business are as follows:

	July 2,			July 3,			June 27,
For the years ended	2006			2005			2004
Net sales	$	18,555		$	10,347			$	11,567
Loss from discontinued operations	$	(412	)	$	(1,014	)		$	(1,929	)

No interest expense or provision for income tax was allocated to the Company’s telecom power business for any of the periods presented above.

The estimated fair value of the telecom power disposal group at July 2, 2006 is $3.5 million. Based upon its determination of fair value, the Company recorded a write-down in the carrying value of the business of $0.5 million, which is included in loss from discontinued operations in fiscal 2005 in the accompanying consolidated statements of operations. The estimated fair value at July 2, 2006 is comprised of $4.5 million in assets and $1.0 million in liabilities, as reflected in the accompanying consolidated balance sheets. Management is currently in negotiations with prospective buyers and expects the proceeds from the sale to approximate the adjusted carrying value.

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3. Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is no longer amortized but rather reviewed for impairment annually, or more frequently if certain indicators arise. The Company performed its annual impairment test for fiscal 2006 in its fourth quarter. The impairment tests, which consist primarily of discounted cash flow analyses, indicated no goodwill impairment in the Company’s power systems business as of June, 2006, but there were indicators of impairment in the carrying value of goodwill in the Company’s power electronics business.

Under the provisions of SFAS No. 142, the best indication of fair value of a reporting unit is the amount at which the unit as a whole could be bought or sold in a current transaction between willing parties. As indicated in Note 2 of Notes to Consolidated Financial Statements, during the fourth quarter of fiscal 2006, the Company committed to a plan to divest its power electronics business. Therefore, in evaluating impairment in the carrying value of goodwill for the business, management used information contained in indications of value received from third parties during the process of marketing the business. Based on this information, the Company recorded a goodwill impairment charge for the power electronics business of $22.4 million in the fourth quarter of fiscal 2006, representing the difference between the estimated fair value and the carrying amount of the reporting unit. The impairment charge is included in discontinued operations in the accompanying consolidated statement of operations.

The changes in the carrying value of goodwill for the years ended July 2, 2006 and July 3, 2005 are as follows:

	Power
	Systems
Balance at June 27, 2004		$	28,041
Currency translation		32
Balance at July 3, 2005		$	28,073
Currency translation		77
Balance at July 2, 2006		$	28,150

The goodwill related to the power electronics reporting unit is included in assets held for sale in the accompanying consolidated balance sheets.

4. Inventories

Inventories consist of the following:

	July 2,			July 3,
	2006			2005
Raw materials		$	7,579		$	7,405
Work-in-process		970			992
Finished goods		1,287			663
		$	9,836		$	9,060

5. Long-Term Debt and Bank Borrowing Arrangements

Long-term debt consists of the following:

	July 2,		July 3,
	2006		2005
Term loan	$	18,000		$	-
Revolving bank loans	9,412			3,927
Capital leases	43			53
	27,455			3,980
Less current portion	27,412			3,927
	$	43		$	53

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Bank Borrowing Arrangements

On September 30, 2005, the Company entered into an agreement with Ableco Finance LLC (Ableco) providing for an $18 million term loan and an agreement with Wells Fargo Foothill, Inc. (WFF) providing for a $13 million revolving credit facility. Borrowings under the term loan bear interest at the lender’s reference rate plus 5%, or, at the Company’s option, the London Interbank Offering Rate (LIBOR) plus 7.5% (12.6% at July 2, 2006). Such rates may be increased by up to one percentage point depending upon the level of U.S. funded debt to EBITDA as defined in the agreement. The term loan requires quarterly principal payments of $1 million beginning October 1, 2006. Borrowings under the revolving credit facility bear interest at the bank’s prime lending rate plus 2.5% or, at the Company’s option, LIBOR plus 4% (9.1% at July 2, 2006). Borrowings under the revolving credit facility are determined by a borrowing base formula as defined in the agreement, based on the level of eligible domestic accounts receivable and inventory. The revolving credit facility also supports the issuance of letters of credit. Borrowings under the term loan and revolving credit facility are secured by substantially all of the Company’s domestic assets. The Company used the proceeds from the revolving credit facility to fully repay all outstanding obligations under its previous financing agreement with Chase Bank.

In November 2005, under terms of the financing agreements with WFF and Ableco, the Company deposited $22.6 million into an escrow account to fund the Nilssen arbitration award in the event that its appeal of the award is not successful (see Note 11 of Notes to Consolidated Financial Statements). The deposit was funded by the $18.0 million term loan and borrowings of $4.6 million from the revolving credit facility, and is reported as restricted cash in the accompanying consolidated balance sheet as of July 2, 2006. As of July 2, 2006, the $18.0 million term loan and approximately $9.4 million was outstanding under the revolving credit facility. The total of these two amounts, $27.4 million, is included in current portion of long-term debt in the accompanying condensed consolidated balance sheet. This classification reflects certain provisions in the term loan and revolving credit agreements which allow the lenders to declare a default and accelerate the loans should certain events occur which could be expected to result in a “Material Adverse Effect” (as defined in the agreements) on the Company. Such provisions are considered “subjective acceleration” clauses under accounting guidelines which require the classification of debt balances as current although the related agreements have termination dates that are beyond one year from the balance sheet date.

As a result of lower than planned performance and certain expenses of discontinued operations, the Company was in violation of certain financial covenants included in its credit agreements for the quarter ended July 2, 2006. As discussed in Notes 2 and 20 of the Notes to Consolidated Financial Statements, the Company is in the process of divesting its power electronics business. The Company expects to use the proceeds of the divestiture to repay borrowings outstanding under its term loan and revolving credit facility. Accordingly, the Company has entered into a forbearance agreement with its lenders whereby the lenders have agreed not to take any action with respect to the covenant violations through October 31, 2006. In addition, Ableco has agreed to defer the initial $1 million term loan principal payment to October 31, 2006.

Aggregate principal maturities on long-term debt outstanding at July 2, 2006 of the Company’s continuing operations based on the terms of the Company’s credit agreements are as follows:

Fiscal year
2007	$	4,011
2008	23,423
2009	12
2010	9
2011	-
Thereafter	-
	$	27,455

The table above does not include debt outstanding at July 2, 2006 of the Company’s discontinued operations, which total $24.3 million.

Discontinued Operations

The Company’s European subsidiary maintains revolving borrowing arrangements with local banks, primarily to support working capital needs. The European subsidiary is part of the power electronics business which the Company is in the process of divesting. Available borrowings under these arrangements aggregate approximately Euro 20.0 million depending in part upon levels of accounts receivable, and bear interest at various rates ranging from 3% to 8%. In addition, the Company’s European subsidiary has an agreement with a European bank to provide borrowings secured by the subsidiary’s

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land and building. Borrowings under this agreement bear interest at EURIBOR plus 1.5%. The initial commitment to lend under this agreement was Euro 7.0 million, and the commitment has been reduced ratably on a quarterly basis beginning March 31, 2004 and ending September 30, 2013. As of July 2, 2006, the total amount outstanding under all European borrowing arrangements was $24.3 million, which is included in liabilities held for sale in the accompanying consolidated balance sheet as of July 2, 2006.

6. Loss Per Share

The following table sets forth the computation of basic and diluted loss per share for the fiscal years ended:

	July 2,			July 3,			June 27,
	2006			2005			2004
Numerator:
Loss from continuing operations	$	(7,091	)	$	(5,537	)	$	(10,680	)
Loss from discontinued operations	(39,758		)	(21,333		)	(2,391		)
Net loss	$	(46,849	)	$	(26,870	)	$	(13,071	)
Denominator:
Weighted average shares for basic loss per share	28,931			28,535			27,094
Add dilutive effect of stock options outstanding	–			–			–
Weighted average shares for diluted loss per share	28,931			28,535			27,094
Basic and Diluted:
Loss per share from continuing operations	$	(0.25	)	$	(0.19	)	$	(0.39	)
Loss per share from discontinued operations:	$	(1.37	)	$	(0.75	)	$	(0.09	)
Net loss per share:	$	(1.62	)	$	(0.94	)	$	(0.48	)

Due to the loss from continuing operations, the loss from discontinued operations, and the net loss for all periods presented, the dilutive effect of stock options outstanding was excluded from the calculation of diluted loss per share for all periods presented, as their impact would be anti-dilutive.

7. Fair Values of Financial Instruments

The carrying amounts of certain financial instruments such as cash, annuity contracts and borrowings under revolving credit agreements approximate their fair values, based on the short-term nature of these instruments, accounting rules requiring mark-to-market on annuity contracts, and variable rates on borrowings.

8. Asset Impairment Charges

In the fourth quarter of fiscal 2006, the Company recorded asset impairment charges related to its power electronics business aggregating $37,843. The charges consisted of $22,412 for goodwill; $10,589 for the write-off of the net basis of assets held for sale related to reclassification of accumulated currency translation adjustment amounts; $4,526 for inventories; and $316 for property, plant and equipment. The impairment charges are included in loss from discontinued operations in the accompanying consolidated statement of operations.

9. Restructuring Costs

During fiscal 2004, the Company began a series of restructuring activities that impacted both its domestic and foreign operations. SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities requires that liabilities for costs associated with exit or disposal activities initiated after December 31, 2002, be recognized when the liability is incurred, with the exception of termination of certain leases and contracts.

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During the second quarter of fiscal 2004, the Company began a workforce reduction of approximately 200 positions in Italy and the relocation of those positions to lower cost facilities, mainly in China. The Company completed these activities in fiscal 2005. Costs incurred were $296 and $1,277 for fiscal years 2005 and 2004, respectively, and are included in loss from discontinued operations in the accompanying consolidated statement of operations.

In the fourth quarter of fiscal 2004, the Company began the consolidation of its Glendale Heights, IL operation into its Menomonee Falls, WI facility. The Company completed these restructuring activities in fiscal 2005. Costs incurred were $919 for fiscal year 2005, of which $166 was included in cost of goods sold and $753 was included in selling, general and administrative expense in the accompanying consolidated statement of operations. Costs incurred for fiscal year 2004 were $359 and are included in selling, general and administrative expense in the accompanying consolidated statement of operations.

During the fourth quarter of fiscal 2006, the Company’s Italian subsidiary finalized negotiations with the labor union in Italy to further reduce the workforce at its Valdarno, Italy facility by 55 positions and communicated the planned reduction to its workforce. The reduction is expected to occur over the next three years. The Company currently estimates the total cost of the reduction at Euro 1.5 million (approximately $1.8 million). Of this amount, approximately $0.3 million has been paid to date. The Italian subsidiary is part of the power electronics business that is being divested, and as a result, the estimated cost of the workforce reduction is included in loss from discontinued operations, and the remaining liability of $1.5 million is included in liabilities held for sale in the accompanying consolidated financial statements.

10. Income Taxes

The components of provision (benefit) for income taxes allocated to continuing operations and discontinued operations are as follows:

	July 2,			July 3,				June 27,
Fiscal year ended	2006			2005				2004
Continuing Operations:
Current:
Federal	$	–			$	(85	)		$	(1,363	)
State	–				–				438
Foreign	437				203				–
Deferred:
Federal	1,102				911				5,365
State and foreign	–				–				499
Total continuing operations	$	1,539			$	1,029			$	4,939
Discontinued Operations:
Current:
Federal	$	–			$	–			$	–
State	–				–				–
Foreign	1,505				898				959
Deferred:
Federal	(3,133		)		685				715
State and foreign	(1,386		)		(187		)		87
Total discontinued operations	$	(3,014	)		$	1,396			$	1,761
Total Company:
Current:
Federal	$	–			$	(85	)		$	(1,363	)
State	–				–				438
Foreign	1,942				1,101				959
Deferred:
Federal	(2,031		)		1,596				6,080
State and foreign	(1,386		)		(187		)		586
Total income tax provision (benefit)	$	(1,475	)		$	2,425			$	6,700

The Company’s provision for income taxes for fiscal 2004 was restated in fiscal 2005. Since fiscal 2002, the Company had provided valuation reserves against its U.S. deferred tax assets that resulted in a zero net deferred tax position (net deferred assets equal to deferred tax liabilities). In fiscal 2005, the Company determined that a portion of its deferred tax liability related to tax-deductible amortization of goodwill that was no longer amortized for financial reporting purposes. These deferred tax liabilities were considered to have an indefinite life and were therefore ineligible to be considered as a source

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of future taxable income in assessing the realization of deferred tax assets. Accordingly, the Company increased its valuation allowance for deferred tax assets at July 3, 2005 by $1.6 million, resulting in an increase to the provision for income taxes of $1.6 million for fiscal 2005.

The Company further determined that such deferred tax liabilities existed at June 27, 2004, and therefore restated that year to increase its valuation allowance for deferred tax assets and the related provision for income taxes by $1.6 million. The restatement had no impact on the Company’s cash flows in fiscal 2004.

A reconciliation of the Company’s effective tax rate to the statutory Federal tax rate is as follows:

	July 2,						July 3,						June 27,
	2006						2005						2004
Fiscal year ended	Amount				%		Amount				%		Amount				%
Benefit computed at the statutory rate		$	(1,943	)	35.0			$	(1,578	)	35.0			$	(2,009	)	35.0
Losses not benefited		3,482			(62.7	)		2,607			(57.8	)		6,948			(121.0	)
Total income tax provision		$	1,539		(27.7	)		$	1,029		(22.8	)		$	4,939		(86.0	)

Income (loss) before provision for income taxes of the Company’s foreign subsidiaries was approximately $(22,058), $8,631 and $(1,173) for fiscal years 2006, 2005 and 2004, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets of continuing operations as of July 2, 2006 and July 3, 2005 are as follows:

	July 2,			July 3,
	2006			2005
Deferred tax liabilities:
Depreciation and amortization (including differences in the basis of acquired assets)	$	(2,109	)	$	(2,340	)
Total deferred tax liabilities	(2,109		)	(2,340		)
Deferred tax assets:
Inventory and other reserves	10,980			11,423
Net operating loss & capital loss carryforwards	72,520			70,470
Total gross deferred tax assets	83,500			81,893
Less: valuation allowance	(83,477		)	(80,536		)
Deferred tax assets less valuation allowance	23			1,357
Net deferred tax liability	$	(2,086	)	$	(983	)

The Company records valuation allowances against its deferred tax assets, when necessary, in accordance with SFAS No. 109, Accounting for Income Taxes. Realization of deferred tax assets (such as net operating loss carryforwards and income tax credits) is dependent on future taxable earnings and is therefore uncertain. To the extent the Company believes that recovery is unlikely, a valuation allowance is established against its deferred tax asset, increasing its income tax expense in the period such determination is made. Due to the uncertainty surrounding the timing of realizing the benefits of its deferred tax assets in future tax returns, the Company has recorded a valuation allowance against its otherwise recognizable deferred tax assets.

The Company has a net operating and capital loss carry forward for tax purposes of $146,000 and $138,000 as of July 2, 2006 and July 3, 2005, respectively, expiring between fiscal years 2013 and 2026.

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11. Commitments and Contingencies

Leases

The Company leases certain facilities and machinery and equipment primarily under operating lease arrangements. Future minimum rental payments under noncancelable operating leases of the Company’s continuing operations as of July 2, 2006 are as follows:

	Minimum			Minimum			Net
	Lease			Sublease			Lease
Fiscal Year	Payments			Rentals			Payments
2007		$	2,496		$	1,947		$	549
2008		2,471			1,986			485
2009		2,459			2,025			434
2010		2,059			2,066			-7
2011		1,958			345			1,613
Thereafter		8,292			-			8,292
		$	19,735		$	8,369		$	11,366

For the fiscal years 2006, 2005 and 2004, rent expense was $2,848, $3,601 and $3,963 respectively, while sublease rental income was $1,909, $1,871 and $2,192 respectively.

Litigation—Product Liability

The Company has settled or otherwise resolved all of the product liability lawsuits associated with its discontinued business operations. The last remaining limited obligation to defend and indemnify the purchaser of a discontinued business operation against new product liability claims expired in December 2003 and the Company believes that any new claims would either qualify as an assumed liability, as defined in the various purchase agreements, or would be barred by an applicable statute of limitations. The Company is also a named party in two product liability lawsuits related to the Telemotive Industrial Controls business acquired in December 2002 through the purchase of the stock of MXT Holdings, Inc. Both claims were tendered to the insurance companies that provided coverage for MXT Holdings, Inc., against such claims and the defense and indemnification has been accepted by the carriers, subject to a reservation of rights. Management believes that the insurers will bear all liability, if any, with respect to both cases and that the proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s results of operations or financial position.

In August 2006, Pamela L. Carney, Administrator of the Estate of Michael J. Carney, filed a lawsuit in the Court of Common Pleas of Westmoreland County, Pennsylvania, against the Company and other defendants, alleging that a product manufactured by the Telemotive Industrial Controls business acquired by the Company in December 2002 contributed to an accident that resulted in the death of Michael J. Carney in August 2004. The claim has been tendered to the Company’s insurance carrier and legal counsel has been retained to represent the Company. Plaintiff’s claim for damages is unknown at this time, but management believes that the Company’s insurer will bear all liability for the claim, if any.

The Company has been named, along with multiple other defendants, in asbestos-related lawsuits associated with business operations previously acquired by the Company, but which are no longer owned. During the Company’s ownership, none of the businesses produced or sold asbestos-containing products. With respect to these claims, the Company is either contractually indemnified against liability for asbestos-related claims or believes that it has no liability for such claims. The Company aggressively seeks dismissal from these proceedings, and has also tendered the defense of these cases to the insurers of the previously acquired businesses and is awaiting their response. The Company has also filed a late claim in the amount of $2.5 million in the Federal-Mogul bankruptcy proceedings to recover attorney’s fee paid for the defense of these claims, which the Company believes is an obligation of Federal Mogul although the claim is subject to challenge. Management does not believe the asbestos proceedings, individually or in the aggregate, will have a material adverse effect on its financial position or results of operations.

Litigation—Patent Infringement

In April 1998, Ole K. Nilssen filed a lawsuit in the U.S. District Court for the Northern District of Illinois alleging infringement by the Company of seven of his patents pertaining to electronic ballast technology, and seeking unspecified damages and injunctive relief to preclude the Company from making, using or selling products allegedly infringing his

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patents. The Company denied that its products infringed any valid patent and filed a response asserting affirmative defenses, as well as a counterclaim for a judicial declaration that its products do not infringe the patents asserted by Mr. Nilssen and also that the asserted patents are invalid. In June 2001, the Company sold its lighting business to Universal Lighting Technologies, Inc. (“ULT”), and agreed to provide a limited indemnification against certain claims of infringement that Nilssen might allege against ULT. In April 2003, Nilssen’s lawsuit and the counterclaims were dismissed with prejudice and both parties agreed to submit limited issues in dispute to binding arbitration before an arbitrator with a relevant technical background. The arbitration occurred in November, 2004 and a decision awarding Nilssen $23.4 million was issued on May 3, 2005, to be paid within ten days of the award. Nilssen’s counsel filed a motion to enter the award in U.S. District Court for the Northern District of Illinois, and Magnetek filed a counter-motion to vacate the award for a number of reasons, including that the award was fraudulently obtained. Magnetek’s request for oral argument was granted and the hearing took place on October 19, 2005. A decision has not been announced. An unfavorable decision by the Court would likely result in payment of the award to Nilssen.

In February 2003, Nilssen filed a second lawsuit in the U.S. District Court for the Northern District of Illinois alleging infringement by ULT of twenty-nine of his patents pertaining to electronic ballast technology, and seeking unspecified damages and injunctive relief to preclude ULT from making, using or selling products allegedly infringing his patents. ULT made a claim for indemnification, which the Company accepted, subject to the limitations set forth in the sale agreement. The case is now pending in the Central District of Tennessee. Nilssen voluntarily dismissed all but four of the patents from the lawsuit. The Company denies that the products for which it has an indemnification obligation to ULT infringe any valid patent and responded on behalf of ULT asserting affirmative defenses, as well as a counterclaim for a judicial declaration that the patents are unenforceable and invalid and that the products do not infringe Nilssen’s patents. ULT requested a re-examination of the patents at issue by the Patent and Trademark Office and the request was granted. Meanwhile, the case against ULT has been stayed pending Nilssen’s appeal of an unfavorable decision against him in another case that could influence the outcome of his lawsuits against ULT. The Company will continue to aggressively defend the claims against ULT that are subject to defense and indemnification; however, an unfavorable decision could have a material adverse effect on the Company’s financial position, cash flows and results of operations.

Environmental Matters - General

From time to time, Magnetek has taken action to bring certain facilities associated with previously owned businesses into compliance with applicable environmental laws and regulations. Upon the subsequent sale of certain businesses, the Company agreed to indemnify the buyers against environmental claims associated with the divested operations, subject to certain conditions and limitations. Remediation activities, including those related to the Company’s indemnification obligations, did not involve material expenditures during fiscal years 2006, 2005, or 2004.

The Company has also been identified by the United States Environmental Protection Agency and certain state agencies as a potentially responsible party for cleanup costs associated with alleged past waste disposal practices at several previously owned facilities and offsite locations. Its remediation activities as a potentially responsible party were not material in fiscal years 2006, 2005 and 2004. Although the materiality of future expenditures for environmental activities may be affected by the level and type of contamination, the extent and nature of cleanup activities required by governmental authorities, the nature of the Company’s alleged connection to the contaminated sites, the number and financial resources of other potentially responsible parties, the availability of indemnification rights against third parties and the identification of additional contaminated sites, the Company’s estimated share of liability, if any, for environmental remediation, including its indemnification obligations, is not expected to be material.

Century Electric (McMinnville, Tennessee)

Prior to the Company’s purchase of Century Electric, Inc. (“Century Electric”) in 1986, Century Electric acquired a business from Gould Inc. (“Gould”) in May 1983 that included a leasehold interest in a fractional horsepower electric motor manufacturing facility located in McMinnville, Tennessee. Gould agreed to indemnify Century Electric from and against liabilities and expenses arising out of the handling and cleanup of certain waste materials, including but not limited to cleaning up any polychlorinated biphenyls (“PCBs”) at the McMinnville facility (the “1983 Indemnity”). The presence of PCBs and other substances, including solvents, in the soil and in the groundwater underlying the facility and in certain offsite soil, sediment and biota samples has been identified. The McMinnville plant is listed as a Tennessee Inactive Hazardous Waste Substance Site and plant employees were notified of the presence of contaminants at the facility. Gould has completed an interim remedial excavation and disposal of onsite soil containing PCBs and a preliminary investigation and cleanup of certain onsite and offsite contamination. The Company believes the cost of further investigation and remediation (including ancillary costs) are covered by the 1983 Indemnity. The Company sold its leasehold interest in the

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McMinnville plant in August 1999 and while the Company believes that Gould will continue to perform substantially under its indemnity obligations, Gould’s substantial failure to perform such obligations could have a material adverse effect on the Company’s financial position, cash flows and results of operations.

Effect of Fruit of the Loom Bankruptcy (Bridgeport, Connecticut)

In 1986, the Company acquired the stock of Universal Manufacturing Company (“Universal”) from a predecessor of Fruit of the Loom (“FOL”), and the predecessor agreed to indemnify the Company against certain environmental liabilities arising from pre-acquisition activities at a facility in Bridgeport, Connecticut. Environmental liabilities covered by the indemnification agreement include completion of additional cleanup activities, if any, at the Bridgeport facility (sold in connection with the sale of the transformer business in June 2001) and defense and indemnification against liability for potential response costs related to offsite disposal locations. FOL, the successor to Universal’s indemnification obligation, filed a petition for Reorganization under Chapter 11 of the Bankruptcy Code in 1999 and the Company filed a proof of claim in the proceeding for obligations related to the environmental indemnification agreement. The Company believes that FOL had substantially completed the clean-up obligations required by the indemnification agreement prior to the bankruptcy filing. In November 2001, the Company and FOL entered into an agreement involving the allocation of certain potential tax credits and Magnetek withdrew its claims in the bankruptcy proceeding. FOL’s obligation to the state of Connecticut was not discharged in the reorganization proceeding. FOL’s inability to satisfy its remaining obligations related to the Bridgeport facility and any offsite disposal locations, or the discovery of additional environmental contamination at the Bridgeport facility could have a material adverse effect on the Company’s financial position or results of operations.

Letters of Credit

The Company had approximately $866 of outstanding letters of credit as of July 2, 2006. The Company’s Revolving Loan agreement dated September 30, 2005 permits the issuance of up to $4,000 of letters of credit.

12. Stock-Based Compensation Agreements

The Company has two stock option plans (the “Plans”), one of which provides for the issuance of both incentive stock options (under Section 422A of the Internal Revenue Code of 1986) and non-qualified stock options at exercise prices not less than the fair market value at the date of grant, and one of which only provides for the issuance of non-qualified stock options at exercise prices not less than the fair market value at the date of grant. One of the Plans also provides for the issuance of stock appreciation rights, restricted stock, incentive bonuses and incentive stock units. The total number of shares of the Company’s common stock authorized to be issued upon exercise of the stock options and other stock rights under the Plans is 2,100,000.

A summary of certain information with respect to options under the Plans follows (options in thousands):

				Weighted-			Aggregate
				Average			Intrinsic
				Exercise			Value
	Options			Price			($000’s)
Options outstanding, June 29, 2003		6,517			$	10.27
Granted		1,836			4.58
Exercised		(18	)		3.83
Cancelled		(386	)
Options outstanding, June 27, 2004		7,949			$	8.92		$	8,860
Granted		750			7.48
Exercised		(53	)		3.26
Cancelled		(468	)
Options outstanding, July 3, 2005		8,178			$	8.77		–
Granted		45			2.53
Exercised		(3	)		3.35
Cancelled		(1,131	)
Options outstanding, July 2, 2006		7,089			$	8.53		$	19
Exercisable options, June 27, 2004		4,906			$	10.91		$	968
Exercisable options, July 3, 2005		8,096			$	8.81		–
Exercisable options, July 2, 2006		7,003			$	8.59		$	8

35

The following table provides information regarding exercisable and outstanding options as of July 2, 2006 (options in thousands).

	Exercisable					Outstanding
			Weighted					Weighted			Weighted
			average					average			average
			exercise					exercise			remaining
	Options		price per			Options		price per			contractual
Range of exercise price per share	exercisable		share			outstanding		share			life (years)
Under $5.00		1,672		$	3.89		1,736		$	3.84		7.2
$5.00 - $10.00		3,380		7.78			3,402		7.78			5.3
$10.01 - $15.00		1,032		11.31			1,032		11.31			4.6
Over $15.00		919		17.03			919		17.03			2.0
Total		7,003		$	8.59		7,089		$	8.53		5.2

During fiscal year 2006, the Company issued 500,000 shares of restricted stock to key employees which vest on January 1, 2009. The total estimated compensation expense of $1.4 million related to the grant will be recorded ratably from the grant date through the vesting date. Compensation expense related to this restricted stock grant included in the consolidated statement of operations for fiscal year 2006 is $354. As of July 2, 2006, there was approximately $1.0 million of total unrecognized compensation cost related to the grant. This cost is expected to be amortized over a weighted-average period of 2.5 years.

During fiscal 2005, the Company issued 240,000 shares of restricted stock to its CEO with immediate vesting. Accordingly, the total compensation expense of $0.5 million related to the grant was recorded during fiscal 2005.

The following table provides information regarding unvested restricted stock activity for the fiscal years 2005 and 2006 (shares in thousands):

				Weighted
				average
				grant date
	Shares			fair value
Unvested at June 27, 2004		–
Granted		240			$	2.11
Vested		(240	)
Forfeited		–
Unvested at July 3, 2005		–
Granted		500			$	2.77
Vested		–
Forfeited		–
Unvested at July 2, 2006		500			$	2.77

13. Employee Benefit Plans

The Company maintains a defined benefit retirement plan (the Plan) for the benefit of eligible employees, former employees and retirees in the U.S. Effective June 30, 2003, the Plan was frozen and no future compensation credits will be accrued to participants’ individual accounts. Participant accounts will continue to be credited with interest. The Company funds the Plan in accordance with applicable employee benefit and tax laws, and did not make any contributions to the Plan during fiscal 2006. Based upon current contribution credits available under pension funding regulations, actuarial projections indicate no mandatory contributions to the plan would be required through fiscal year 2007 although the Company may elect to make contributions prior to that time. The Company elected to contribute 535,000 shares of its common stock valued at $2,391 during fiscal 2004.

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Pension benefit obligations at year-end, fair value of plan assets and prepaid benefit costs for the years ended July 2, 2006 and July 3, 2005, were as follows:

	July 2,			July 3,
	2006			2005
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	191,448		$	166,496
Interest cost	9,788			10,302
Actuarial (gain) loss	(23,869		)	25,504
Benefits paid	(11,062		)	(10,854		)
Benefit obligation at end of year	$	166,305		$	191,448
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	120,880		$	135,130
Actual return on plan assets	10,994			(3,396		)
Employer contributions	-			-
Benefits paid	(11,062		)	(10,854		)
Fair value of plan assets at end of year	$	120,812		$	120,880
Funded status	$	(45,494	)	$	(70,568	)
Unrecognized net actuarial loss	97,837			126,655
Prepaid benefit cost	$	52,343		$	56,087
Amounts Recognized in Statement of Financial Position:
Accrued benefit liability	(45,494		)	(70,568		)
Accumulated other comprehensive income	97,837			126,655
Net amount recognized	$	52,343		$	56,087

Pension plan assets do not include any shares of Company common stock as of July 2, 2006, and include 900,000 shares of Company common stock valued at $2,286 as of July 3, 2005.

Under SFAS No. 87, Employers’ Accounting for Pensions, when the accumulated benefit obligation (“ABO”) exceeds the fair value of the plan assets, a minimum liability (net of related income tax benefit) must be established on the balance sheet with a corresponding amount in other comprehensive income (loss) in stockholders’ equity. The minimum pension liability must also include any prepaid pension asset balance (the amount by which contributions to a plan have exceeded expense recorded under SFAS No. 87) as of the measurement date. Pursuant to SFAS No. 87, the Company recorded a minimum pension liability of $97,837 and $126,655 at July 2, 2006 and July 3, 2005, respectively. These amounts, net of tax benefits of $17,000, have been recorded as a reduction to equity in “Accumulated Other Comprehensive Loss” on the Company’s consolidated balance sheets as of July 2, 2006 and July 3, 2005.

Weighted average assumptions used to determine benefit cost and benefit obligation for the Plan follows:

	2006		2005
Discount rate	6.38	%	5.25	%
Expected return on plan assets	9.00	%	9.00	%
Rate of compensation increase	N/	A	N/	A
Measurement date for pension benefit obligations	July 2, 2006		July 3, 2005

The rate of increase in future compensation levels is not applicable due the freezing of the Plan in 2003. The Company determines the expected return on plan assets based upon the overall expected long-term rate of return over the period that benefits are expected to be paid. This estimate considers the targeted allocation of plan assets among securities with various risk and return profiles and incorporates historical data as well as anticipated economic and market conditions. Plan assets are invested in a diversified mix of funds containing equity and debt securities through a professional investment manager with the objective to achieve targeted risk adjusted returns while maintaining liquidity sufficient to fund current benefit payments. Expected future benefit payments under the Plan for fiscal years are as follows: $9,917 in 2007; $9,972 in 2008; $10,154 in 2009; $10,008 in 2010; $10,304 in 2011; and $57,397 in 2012 through 2016.

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The allocation of Plan assets by investment type as of July 2, 2006 and July 3, 2005 are as follows:

	July 2,			July 3,
Asset Category	2006			2005
Equity securities		66	%		66	%
Fixed income securities		34	%		34	%
Total		100	%		100	%

Net periodic benefit costs (income) for the Company’s pension plan for the years ended July 2, 2006, July 3, 2005, and June 27, 2004 were as follows:

	Pension Benefits
Fiscal year ended	July 2,			July 3,			June 27,
Components of Net Periodic Benefit Cost:	2006			2005			2004
Interest cost	$	9,788		$	10,302		$	10,250
Expected return on plan assets	(10,407		)	(11,720		)	(10,596		)
Recognized net actuarial loss	4,363			2,854			3,539
Net periodic benefit cost	$	3,744		$	1,436		$	3,193

In addition to the defined benefit retirement plans, the Company maintains a defined contribution (401k) savings plan for eligible employees. Contributions made to this plan by the Company were $507, $500, and $473 for the fiscal years 2006, 2005 and 2004 respectively.

14.Related Party Transactions

The Company had an agreement with the Spectrum Group, Inc., which expired in December 2005, whereby Spectrum provided management services to the Company at an annual fee plus out of pocket expenses. The Company’s chairman is also the chairman, president and sole shareholder of Spectrum. Services provided included consultation and direct management assistance with respect to operations, strategic planning and other aspects of the business of the Company. Fees and expenses paid to Spectrum for these services under the agreement amounted to $390, $791 and $588 for the fiscal years 2006, 2005 and 2004, respectively.

15.Accrued Liabilities

Accrued liabilities consisted of the following at fiscal year end:

	July 2,			July 3,
	2006			2005
Salaries, wages and related items		$	1,928		$	795
Environmental		844			750
Insurance		615			744
Stock appreciation rights		604			604
Audit & professional fees		437			266
Commissions		434			404
Warranty		414			260
Income Taxes		357			153
Other		2,359			1,492
		$	7,992		$	5,468

The Company offers warranties for certain products that it manufactures, with the warranty term generally ranging from one to two years. Warranty reserves are established for costs expected to be incurred after the sale and delivery of products under warranty, based mainly on known product failures and historical experience.

38

Changes in the warranty reserve for fiscal 2006 and 2005 were as follows:

	July 2,				July 3,
	2006				2005
Balance at beginning of year		$	260			$	128
Additions charged to earnings		829				774
Use of reserve for warranty obligations		(675		)		(642		)
Balance at end of year		$	414			$	260

16. Supplemental Cash Flow Information

Changes in operating assets and liabilities of continuing operations were as follows:

	July 2,			July 3,			June 27,
Fiscal year ended	2006			2005			2004
Increase in accounts receivable	$	(21	)	$	(1,307	)		$	(581	)
(Increase) decrease in inventories	(776		)	(1,706		)		2,937
(Increase) decrease in prepaids and other current assets	296			3,364				(3,238		)
Decrease in other operating assets	1,421			1,089				1,307
Increase (decrease) in accounts payable	(414		)	2,107				39
Increase (decrease) in accrued liabilities	2,524			483				(2,714		)
Increase (decrease) in deferred income taxes	1,103			(1,618		)		7,029
Increase in other operating liabilities	3,744			1,434				3,196
	$	7,877		$	3,846			$	7,975
Cash paid for interest and income taxes :
Interest	$	2,122		$	308			$	336
Income taxes	$	9		$	115			$	160

The Company also contributed 535,000 shares of its common stock valued at $2,391 (non-cash) to its defined benefit pension during fiscal 2004.

17. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consisted of the following at July 2, 2006 and July 3, 2005:

	July 2,			July 3,
	2006			2005
Minimum pension liability	$	(80,837	)	$	(109,655	)
Foreign currency translation adjustments	816			(13,253		)
	$	(80,021	)	$	(122,908	)

The accumulated other comprehensive loss related to the minimum pension liability is net of tax benefits of $17,000.

During the fourth quarter of fiscal 2006, the Company transferred $10.6 million of accumulated currency translation adjustments to assets held for sale, to reflect the asset basis of the power electronics group.

18. Business Segment and Geographic Information

The Company currently operates within a single business segment, digital power control systems. The Company sells its products primarily to large original equipment manufacturers and distributors. The Company performs ongoing credit evaluations of its customers’ financial conditions and generally requires no collateral. The Company has no single customer whose purchases represented 10% of the Company’s total revenue in fiscal year 2006.

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Information with respect to continuing operations of the Company’s foreign subsidiaries follows:

	July 2,			July 3,			June 27,
For the fiscal year	2006			2005			2004
Sales		$	9,749		$	8,931		$	6,470
Income from operations		1,192			969			862
Identifiable assets		6,509			5,955			5,779
Capital expenditures		63			64			58
Depreciation and amortization		75			78			87

Sales by foreign subsidiaries include only sales of products to customers outside of the U.S.

Export sales from the United States were $6,231, $5,802 and $5,822 in fiscal years 2006, 2005 and 2004, respectively.

19. Quarterly Results (unaudited)

The supplementary quarterly financial information presented below reflects the reclassification of the Company’s power electronics and telecom power businesses as discontinued operations for all periods presented as described in Notes 1 and 2 of Notes to Consolidated Financial Statements.

	Oct 2,			Jan 1,			Apr 2,			Jul 2,
Fiscal 2006 quarter ended	2005			2006			2006			2006
Net sales	$	20,083		$	21,801		$	19,661		$	21,557
Gross profit	6,443			7,169			5,913			7,162
Loss from operations	(506		)	(366		)	(1,595		)	(410		)
Loss from continuing operations before income taxes	(933		)	(1,068		)	(2,359		)	(1,192		)
Provision for income taxes	334			345			490			370
Loss from continuing operations	(1,267		)	(1,413		)	(2,849		)	(1,562		)
Income (loss) from discontinued operations	213			(312		)	(1,581		)	(38,078		)
Net loss	$	(1,054	)	$	(1,725	)	$	(4,430	)	$	(39,640	)
Per common share:
Basic and diluted:
Loss from continuing operations	$	(0.05	)	$	(0.05	)	$	(0.10	)	$	(0.05	)
Income (loss) from discontinued operations	$	0.01		$	(0.01	)	$	(0.05	)	$	(1.32	)
Net income (loss)	$	(0.04	)	$	(0.06	)	$	(0.15	)	$	(1.37	)

The quarter ended July 2, 2006 includes asset impairment charges of $37,843 included in loss from discontinued operations.

	Oct 3,			Jan 2,			Apr 2,			Jul 3,
Fiscal 2005 quarter ended	2004			2005			2005			2005
Net sales	$	19,105		$	19,122		$	18,583		$	19,189
Gross profit	5,688			5,979			5,995			6,373
Loss from operations	(1,552		)	(900		)	(1,504		)	(177		)
Loss from continuing operations before income taxes	(1,635		)	(977		)	(1,603		)	(293		)
Provision for income taxes	242			420			14			353
Loss from continuing operations	(1,877		)	(1,397		)	(1,617		)	(646		)
Income (loss) from discontinued operations	2,417			1,559			(23,384		)	(1,925		)
Net income (loss)	$	540		$	162		$	(25,001	)	$	(2,571	)
Per common share:
Basic and diluted:
Loss from continuing operations	$	(0.06	)	$	(0.05	)	$	(0.06	)	$	(0.02	)
Income (loss) from discontinued operations	$	0.08		$	0.06		$	(0.82	)	$	(0.07	)
Net income (loss)	$	0.02		$	0.01		$	(0.88	)	$	(0.09	)

The quarter ended January 2, 2005 includes $1,300 income from the sale and license of rights and patents in income from continuing operations.

40

The quarter ended April 2, 2005 includes a $21,977 charge for an arbitration award related to a patent infringement claim included in loss from discontinued operations.

20. Subsequent Events (unaudited)

Subsequent to July 2, 2006, on September 28, 2006 the Company entered into an agreement to sell its power electronics business (the “Business”) to Power One, Inc. for $71.7 million in cash plus the assumption of approximately $16.7 million in debt, subject to customary pre-closing and post-closing tangible net worth and net debt adjustments. Pursuant to the Purchase and Sale Agreement (the “Agreement”) dated September 28, 2006, by and between the Company and Power One, Inc., Power-One will purchase the Business through the acquisition of all of the outstanding shares of Magnetek, S.p.A., a subsidiary of the Company, and of the assets and liabilities of the U.S. division of the Business. The terms of the Agreement were negotiated at arms-length.

The Agreement provides for indemnification for breaches of representations and warranties and other customary matters that the Company believes are typical for this type of transaction, and for the satisfaction or waiver of customary closing conditions. The Company intends to use the proceeds from the sale of the Business primarily to repay debt and fund pension obligations, as well as fund ongoing operations. The Company expects the transaction to be completed during October 2006.

41

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Magnetek, Inc.

We have audited the accompanying consolidated balance sheets of Magnetek, Inc. as of July 2, 2006 and July 3, 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended July 2, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Magnetek, Inc. at July 2, 2006 and July 3, 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended July 2, 2006, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that Magnetek, Inc. will continue as a going concern.  As more fully described in Note 1, the Company has incurred recurring operating losses, has not complied with certain covenants of loan agreements with banks and has significant future cash flow commitments.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 1.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

As discussed in Note 1 to the financial statements, the Company adopted Statement of Financial Accounting Standard No. 123(R) “Share Based Payment”, effective July 4, 2005.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Magnetek, Inc.’s internal control over financial reporting as of July 2, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 28, 2006, expressed an unqualified opinion on management’s assessment and an adverse opinion on the effectiveness of internal control over financial reporting.

	/s/ Ernst & Young LLP
Woodland Hills, California
September 28, 2006

42

Board of Directors

Andrew G. Galef,  Chairman of the Board

Thomas G. Boren,  President & Chief Executive Officer, Magnetek, Inc.

Dewain K. Cross,  Retired Senior Vice President, Finance, Cooper Industries, Inc.

Yon Y. Jorden,  Former Executive Vice President & Chief Financial Officer, Advance PCS

Paul J. Kofmehl,  Retired Vice President & Group Executive, IBM

Mitchell I. Quain,  Principal at Charter House Group International, Inc.

Robert E. Wycoff,  Retired President, Atlantic Richfield Company

Corporate Officers

Thomas G. Boren,  President & Chief Executive Officer

Antonio Canova Ph.D,  Executive Vice Presient, Power Electronic Products

Alexander Levran Ph.D,  Executive Vice President, Chief Technology Officer

Peter M. McCormick,  Executive Vice President, Power Control Systems

David P. Reiland,  Executive Vice President & Chief Financial Officer

Stephen R. Torres,  Executive Vice President, Alternative Energy

Tina D. McKnight,  Vice President, General Counsel & Secretary

Marty J. Schwenner,  Vice President & Controller

Stockholder Information

10-K Report

Magnetek’s Annual Report on Form 10-K for the fiscal year ended July 2, 2006, including the Company’s financial statements and related schedules for the fiscal year ended July 2, 2006, is included herein beginning on page 43. Exhibits to Magnetek’s Form 10-K have been filed with the Securities and Exchange Commission. Most of these exhibits can be accessed from the Investor Information section of the Company’s website http://www.magnetek.com or on the SEC’s Edgar website at http://www.sec.gov/cgi-bin/browse-edgar?actiongetcurrent. Other exhibits are available upon request to Magnetek, subject to payment of a reasonable fee to cover the Company’s cost of furnishing such exhibits. To request an exhibit from the Company, please contact:

Investor Relations Department

Magnetek, Inc.
8966 Mason Avenue
Chatsworth, CA 91311
Telephone: 1-818-727-2216 (extension 111)
Web Site Address: http://www.magnetek.com

Annual Stockholders’ Meeting

Magnetek’s fiscal 2006 stockholders’ meeting will be held on Wednesday, October 25,2006 at 9:00 a.m. Pacific time at the Westwood Hotel, 10740 Wilshire Blvd., Los Angeles, CA 90024.

The following table sets forth the high and low sales prices of the Company’s Common Stock on the New York Stock Exchange during each quarter of fiscal 2006:

Quarter Ending	High	Low
October 2, 2005	$3.70	$2.37
January 1, 2005	3.50	2.37
April 2, 2006	4.10	3.03
July 2, 2006	4.19	2.01

Magnetek’s Common Stock is listed on the New York Stock Exchange under the ticker symbol “MAG”. As of September 1, 2006 there were 198 holders of record of the Company’s Common Stock. No dividends have been paid on the Common Stock. The Registrar and Transfer Agent for the Common Stock is American Stock Transfer & Trust Company: 1-718-921-8380.

EX-21.1

Exhibit 21.1

Magnetek, Inc.

Subsidiaries of the Registrant as of July 2, 2006

The following list of subsidiaries of Magnetek, Inc. indicates the jurisdiction of organization.

		Jurisdiction of		Status at
	Name	Incorporation		July 2, 2006
Magnetek, Inc.			Delaware	Active
Magnetek ADS Power, Inc. (1)			Delaware	Active
Magnetek Mondel Holding, Inc. (1)			Delaware	Active
Magnetek Alternative Energy, Inc. (1)			Delaware	Active
Magnetek S.p.A.(1)			Italy	Active
Magnetek Industrial Controls (U.K.) Limited (1)			England	Active
Mondel ULC (3)			Canada	Active
Magnetek Kft. (4)			Hungary	Active
Magnetek Electronics Co., Ltd. (4)			China	Active
Magnetek Vertriebsgesellschaft m.b.H. (4)			Germany	Active
Magnetek National Electric Coil, Inc. (1)			Delaware	Inactive
Magnetek de Mexico, S.A. de C.V. (2)			Mexico	Inactive
Manufacturas Electricas de Reynosa, S.A. de C.V. (2)			Mexico	Inactive
Mejor Electronica de Mexico S.A. de C.V. (2)			Mexico	Inactive
Servicio de Guarderas, S.C. (2)			Mexico	Inactive
Magnetek Service (U.K.) Limited (1)			England	In liquidation

(1)  100% owned by Magnetek, Inc.

(2)  99% owned by Magnetek, Inc.

(3)  100% owned by Magnetek Mondel Holding, Inc.

(4)  100% owned by Magnetek S.p.A.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-3 Nos. 33-31932, 33-40222, 33-41854, 33-43856, 33-58766, 333-110460, 333-115724, 333-15933, 333-24187 and 333-28415) of Magnetek, Inc. and in the related Prospectuses, and in the Registration Statements (Form S-8 Nos. 33-31439, 33-33887, 33-34112, 33-34834, 33-44519, 33-58929, 333-04021, 333-17889, 333-45935, 333-45939, 333-90645, 333-90647 and 333-75418) pertaining to the 1987 Stock Option Plan of Magnetek, Inc., the Magnetek, Inc. FlexCare Plus Retirement Savings Plan, the 1989 Incentive Stock Compensation Plan of Magnetek, Inc., the Magnetek Unionized Employee Savings Plan, the Amended and Restated 1989 Incentive Stock Compensation Plan of Magnetek, Inc., the Second Amended and Restated 1989 Incentive Stock Compensation Plan of Magnetek, Inc., the Magnetek, Inc. Non-Employee Director Stock Option Plan, the Magnetek, Inc. Deferred Investment Plan, the Magnetek, Inc. 1997 Non-Employee Director Stock Option Plan, the Magnetek, Inc. Amended and Restated Director Compensation and Deferral Investment Plan, the 1999 Stock Incentive Plan of Magnetek, Inc., the 2000 Employee Stock Plan of Magnetek, Inc. and the 2002 Employee Stock Purchase Plan of Magnetek, Inc. of our reports dated September 28, 2006, with respect to the consolidated financial statements and financial statement schedule of Magnetek, Inc. listed on Item 15(a), Magnetek, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Magnetek, Inc., included in this Annual Report (Form 10-K) for the year ended July 2, 2006.

/s/ ERNST & YOUNG LLP

Woodland Hills, California

September 28, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) or RULE 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas G. Boren, certify that:

1.I have reviewed this annual report on Form 10-K of Magnetek, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 29, 2006

/s/ Thomas G. Boren

Thomas G. Boren

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) or RULE 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, David P. Reiland, certify that:

1.I have reviewed this annual report on Form 10-K of Magnetek, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 29, 2006

/s/ David P. Reiland

David P. Reiland

Executive Vice-President and

Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Magnetek, Inc. (the “Company”) on Form 10-K for the period ending July 2, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Thomas G. Boren, Chief Executive Officer of the Company, and David P. Reiland, Executive Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Thomas G. Boren

Thomas G. Boren

Chief Executive Officer

/s/ David P. Reiland

David P. Reiland

Executive Vice President and

Chief Financial Officer

Date: September 29, 2006