Magnetek Announces Settlement of Legal Dispute

June 16, 2008 by Jeff Shepard

Magnetek, Inc. announced that it has entered into a settlement agreement with Ole K. Nilssen and Geo Foundation, Ltd. ("Geo") in a long-standing patent dispute.

In April 2008, the United States District Court for the Northern District of Illinois confirmed an arbitration award in favor of Nilssen and Geo as a judgment. As a result of the judgment, the net amount due to Nilssen and Geo from Magnetek was $22.0 million. Also in April 2008, Magnetek filed an appeal of the judgment with the Court of Appeals for the Seventh Circuit, and Nilssen and Geo brought a motion for modification of the judgment to include post-award prejudgment interest calculated by Nilssen at $5.9 million. Magnetek subsequently filed a motion in opposition to the award of interest.

Under the terms of the settlement agreement dated June 12, 2008, Magnetek has agreed to pay $18.75 million in full satisfaction of the claims that Nilssen and/or Geo have to the unpaid balance of the arbitration award as well as claims for post-award, prejudgment interest and post-judgment interest. The settlement amount had to be paid by Magnetek no later than June 14, 2008.

Commenting on the settlement agreement, Magnetek’s President and CEO David P. Reiland said, "While we were disappointed with the ruling in this case, we felt it was in Magnetek’s best interests to put this issue behind us. Although the settlement amount is not insignificant, after making the payment, we remain debt free with over $12 million in cash available to fund our growth initiatives and ongoing operations."

The company had recorded a liability in prior periods of $25.6 million related to the arbitration award and subsequent judgment, including estimated interest on the award. As a result of the settlement agreement, the company will record the excess of the recorded liability less the settlement amount as income from discontinued operations in its fiscal fourth quarter.