<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1998.
REGISTRATION NO. 333-61057
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ZENITH ELECTRONICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3651 36-1996520
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
----------------
1000 MILWAUKEE AVENUE
GLENVIEW, ILLINOIS 60025-2493
TELEPHONE: (847) 391-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
----------------
EDWARD J. MCNULTY
1000 MILWAUKEE AVENUE
GLENVIEW, ILLINOIS 60025-2493
TELEPHONE: (847) 391-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
RICHARD F. VITKUS JAMES H.M. SPRAYREGEN
ZENITH ELECTRONICS CORPORATION KIRKLAND & ELLIS
1000 MILWAUKEE AVENUE 200 EAST RANDOLPH DRIVE
GLENVIEW, ILLINOIS 60025-2493 CHICAGO, ILLINOIS 60601
(847) 391-7000 (312) 861-2000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1998
DISCLOSURE STATEMENT AND
PROXY STATEMENT-PROSPECTUS FOR THE SOLICITATION
OF VOTES FOR THE PREPACKAGED PLAN OF REORGANIZATION OF
ZENITH ELECTRONICS CORPORATION
Zenith Electronics Corporation ("Zenith" or the "Company"), upon the terms
and subject to the conditions set forth in this Disclosure Statement and Proxy
Statement-Prospectus (the "Disclosure Statement") and the accompanying forms of
Ballot or Master Ballot (each as defined herein), hereby solicits from each
holder of Impaired Claims (as defined herein) as of the close of business on
, 1998 (the "Voting Record Date") acceptance of a prepackaged plan
of reorganization (the "Prepackaged Plan") under chapter 11 of Title 11 of the
United States Code, as amended (the "Bankruptcy Code").
The Prepackaged Plan provides, among other things, that as of the date the
Prepackaged Plan becomes effective (the "Effective Date"), holders of the
Company's 6 1/4% Convertible Subordinated Debentures due 2011 having an
aggregate principal amount outstanding of $103.5 million (the "Old Subordinated
Debentures"), issued under the Indenture dated as of April 1, 1986 between the
Company and State Street Bank & Trust Company, as trustee (the "Old
Subordinated Debenture Indenture"), shall receive a pro rata distribution of
$40 million of new 6 1/4% Subordinated Debentures due 2010 (the "New
Subordinated Debentures"). IN THE EVENT THAT HOLDERS OF THE OLD SUBORDINATED
DEBENTURES DO NOT APPROVE THE PREPACKAGED PLAN, HOWEVER, THE PREPACKAGED PLAN
PROVIDES FOR A "CRAM DOWN" MECHANISM WITH RESPECT TO THE CLASS (AS DEFINED
HEREIN) COMPOSED OF THE HOLDERS OF THE OLD SUBORDINATED DEBENTURES. IF SUCH A
"CRAM DOWN" IS APPROVED BY THE BANKRUPTCY COURT, HOLDERS OF THE OLD
SUBORDINATED DEBENTURE CLAIMS WOULD RECEIVE NO DISTRIBUTION AND RETAIN NO
PROPERTY. Confirmation of the Prepackaged Plan pursuant to section 1129 of the
Bankruptcy Code ("Confirmation") is subject to judicial approval of this
solicitation and the terms of the Prepackaged Plan including, as necessary,
under the "cram down" provisions of the Bankruptcy Code.
In connection with the financial restructuring contemplated by the
Prepackaged Plan (the "Financial Restructuring"), the Company expects to
implement an operational restructuring plan (the "Operational Restructuring,"
and together with the Financial Restructuring, the "Restructuring") which is
designed to leverage the Company's brand, distribution and technology
strengths, and which includes reducing costs, outsourcing substantially all
components and products, selling certain assets and capitalizing on the
Company's patented digital television technologies, all as more fully described
in this Disclosure Statement.
The Company believes that confirmation of the Prepackaged Plan is necessary
for successful implementation of the Operational Restructuring. There can be no
assurance, however, that the Company will be able to consummate the Financial
Restructuring or the Operational Restructuring. If the Prepackaged Plan is not
confirmed, holders of claims (as defined in section 101(5) of the Bankruptcy
Code) ("Claims") against the Company would likely receive less than they would
receive pursuant to the Prepackaged Plan and in the case of the holders of the
Old Subordinated Debentures, would likely receive no distribution and retain no
property. The holders of Equity Interests (as defined herein) would receive no
distribution and retain no property under any circumstances. See "RISK
FACTORS."
(continued on next page)
-----------
THE VOTING DEADLINE TO ACCEPT OR REJECT THE PREPACKAGED PLAN IS 5:00 PM., NEW
YORK CITY TIME, ON , 1998, UNLESS EXTENDED.
THE SOLICITATION AGENT IS:
GEORGESON & COMPANY INC.
THE DATE OF THIS DISCLOSURE STATEMENT IS , 1998.
<PAGE>
(cover page continued)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH A VOTE ON THE PREPACKAGED PLAN, SEE "RISK FACTORS" BEGINNING ON PAGE 24.
FOR AN INDEX TO THE CAPITALIZED TERMS DEFINED IN THIS PROXY STATEMENT-
PROSPECTUS, SEE "INDEX TO DEFINED TERMS" BEGINNING ON PAGE 154.
DURING THE PENDENCY OF THE BANKRUPTCY CASE THAT WILL BE FILED IN CONNECTION
WITH THE RESTRUCTURING, THE COMPANY INTENDS TO OPERATE ITS BUSINESS IN THE
ORDINARY COURSE AND TO MAKE PAYMENT IN FULL ON A TIMELY BASIS TO ALL OF ITS
GENERAL UNSECURED CREDITORS, INCLUDING ALL TRADE CREDITORS, CUSTOMERS, LESSORS
AND EMPLOYEES FOR ALL AMOUNTS DUE PRIOR TO AND DURING THE BANKRUPTCY CASE.
Pursuant to the Prepackaged Plan and the Restructuring Agreement, dated as
of August 7, 1998 (as amended, the "Restructuring Agreement"), between the
Company and LG Electronics Inc., a corporation organized under the laws of the
Republic of Korea ("LGE"), LGE has agreed to restructure substantially all of
its Claims against and all of its Equity Interests in the Company. The
following chart summarizes the Claims projected to be held by LGE as of
December 31, 1998.
<TABLE>
<CAPTION>
CLASSIFICATION
PROJECTED AS OF UNDER
TYPE OF SUPPORT DECEMBER 31, 1998 LGE CLAIMS
- --------------- ----------------- ------------------------------------
<S> <C> <C>
LGE Demand Loan Claims:
Direct secured loan to $45.0 million LGE Tranche B Claims (as defined
Zenith (the "LGE Demand herein) to the extent (if any) that
Loan Claims") the sum of (i) the first $50 million
of LGE Reimbursement Claims, (ii)
the first $140 million of LGE
Extended Payables Claims and (iii)
LGE Guarantee Fee Claims is less
than $200 million. The balance will
be classified as LGE Tranche A
Claims (as defined herein).
LGE Reimbursement
Claims:
Guarantees of Zenith's $72.0 million The first $50 million will be LGE
obligations under Tranche B Claims with all excess
unsecured demand note over $50 million classified as LGE
financing transactions Tranche A Claims.
with Bank of America,
First National Bank of
Chicago--NBD, Societe
Generale, Seoul Branch
and Credit Agricole
Indosuez, Seoul Branch
(the "Unsecured Bank
Loans"). As of
September 26, 1998, LGE
had made payments under
demands against
guarantees on $72
million of the
Unsecured Bank Loans.
Under the Reimbursement
Agreement (as defined
herein), the Company is
obligated to LGE for
these payments plus
interest at a rate per
annum equal to Bank of
America National Trust
and Savings
Association's announced
reference rate plus two
percent (the "LGE
Reimbursement Claims").
As of September 26,
1998 $1.28 million of
such interest was
accrued and unpaid.
Under the Restructuring
Agreement interest
accrued through
November is required to
be paid on November 30,
1998, and thereafter,
interest is required to
be paid monthly in
arrears.
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
CLASSIFICATION
PROJECTED AS OF UNDER
TYPE OF SUPPORT DECEMBER 31, 1998 LGE CLAIMS
- --------------- ----------------- ------------------------------------
<S> <C> <C>
LGE Leveraged Lease
Claims:
Guarantees of Zenith's $ 90.1 million LGE Tranche A Claims
obligations under or
related to leveraged
leases with respect to
equipment at its
Melrose Park, Illinois
plant (the "Leveraged
Lease (Melrose Park)")
and at its Reynosa,
Mexico and Juarez,
Mexico facilities (the
"Leveraged Lease
(Mexico)") and together
with the Leveraged
Lease (Melrose Park),
the "Leveraged
Leases"). On July 22,
1998, LGE made payment
under the guarantees of
the Leveraged Leases in
the amount of
approximately $90.1
million as the result
of a demand made under
the guarantees by the
lessor. Under the
Restructuring
Agreement,
approximately $8.0
million of these Claims
will be satisfied by
LGE retaining title to
certain equipment
(collectively, the "LGE
Leveraged Lease
Claims"). Interest
accrues on these claims
at a rate per annum
equal to LIBOR plus six
and one-half percent.
As of September 26,
1998 $1.74 million of
interest was accrued
and unpaid with respect
to these Claims. Under
the Restructuring
Agreement interest
accrued through
November is required to
be paid on November 30,
1998, and thereafter,
interest is required to
be paid monthly in
arrears. A maximum of
$2.6 million of such
interest is required to
be paid in cash, and
any interest in excess
of that amount will
accrue and will be
treated as additional
LGE Tranche A Claims.
LGE Extended Payables
Claims:
Vendor credit line for $140.0 million The first $140 million will be LGE
Zenith's purchase of Tranche B Claims, with the excess,
products from LGE (the if any, over $140 million classified
"LGE Extended Payables as General Unsecured Claims
Claims"). As of
September 26, 1998, the
outstanding balance on
the vendor credit line
was approximately $134
million.
LGE Technical Services
Claims:
Fees owed for certain $ 10.5 million LGE Tranche A Claims
technical and other
services (the "LGE
Technical Services
Claims")
LGE Guarantee Fee
Claims:
Fees for the guarantees $ 1.6 million LGE Tranche B Claims
of the Unsecured Bank
Loans (the "LGE
Guarantee Fee Claims")
</TABLE>
iii
<PAGE>
Pursuant to the Restructuring Agreement, under the Prepackaged Plan, LGE
will receive a promissory note issued by the Company (the "LGE New
Restructured Senior Note"), the principal amount of which is projected to be
approximately $118.8 million assuming an Effective Date of December 31, 1998,
and certain property, plant and equipment owned by Zenith's subsidiaries
located in Reynosa, Tamaulipas, Mexico (the "Reynosa Assets") having an
appraised value of approximately $32.4 million in satisfaction of the
following Claims against the Company held by LGE: (i) the LGE Leveraged Lease
Claims, (ii) the LGE Technical Services Claims and (iii) that portion of the
LGE Reimbursement Claims and the LGE Demand Loan Claims not classified as LGE
Tranche B Claims (collectively, the "LGE Tranche A Claims"). The appraisals
relating to the value of the Reynosa Assets should be read in their entirety
and state an opinion of value as of the date of the report and are subject to
assumptions and limiting conditions stated in each report. If for any reason
the Reynosa Assets are not transferred to LGE, LGE and Zenith expect to enter
into a management or lease agreement on mutually satisfactory terms pursuant
to which LGE will operate the Reynosa facility on behalf of, or lease the
Reynosa facility from, the Company and the principal amount of the LGE New
Restructured Senior Note would be increased by approximately $32.4 million
(the amount of Claims that would have been exchanged for the Reynosa Assets).
In addition, pursuant to the Restructuring Agreement and under the
Prepackaged Plan, LGE will receive 1,000 shares of common stock, par value
$0.01 per share (the "New Common Stock") of the reorganized corporation ("New
Zenith"), representing 100% of the New Common Stock outstanding following the
Effective Date, in satisfaction of $200 million of Claims held by LGE against
the Company. The Claims held by LGE that will be converted into 100% of the
New Common Stock are comprised of the following Claims, which will not exceed
$200 million in the aggregate: (i) the LGE Extended Payables Claims, not to
exceed $140 million; (ii) the LGE Reimbursement Claims, not to exceed $50
million; (iii) the LGE Guarantee Fee Claims; and (iv) the LGE Demand Loan
Claims in an amount (if any) sufficient when aggregated with the amounts
described in clauses (i) through (iii) to equal $200 million (collectively,
the "LGE Tranche B Claims"). LGE Tranche A Claims and LGE Tranche B Claims are
collectively referred to herein as the "LGE Claims."
For a description of LGE's additional financial support and relationships
with the Company, see "SPECIAL FACTORS--Events Leading to the Restructuring"
and "CERTAIN TRANSACTIONS."
Under the terms of the Prepackaged Plan, on the Effective Date, all of the
shares of common stock, par value $1.00 per share, of the Company (the "Old
Common Stock"), including the 38,155,000 shares of Old Common Stock (which
represents approximately 56.5% of the Old Common Stock including vested but
unexercised options) held by LGE and LG Semicon Co., Ltd. ("LG Semicon"),
together with all outstanding options, warrants or rights to acquire shares of
common stock (together with the Old Common Stock, "Equity Interests") will be
cancelled and the holders thereof will receive no distribution and retain no
property on account of such Equity Interests upon the occurrence of the
Effective Date ("Consummation") of the Prepackaged Plan.
The Company will not hold a creditors' or shareholders' meeting to vote on
the Prepackaged Plan. Rather, the Company is soliciting acceptances of the
Prepackaged Plan by means of Ballots and Master Ballots (the "Solicitation").
Any entity that is the beneficial owner of a Claim and is entitled to vote
with respect to the Prepackaged Plan should complete, sign and return the
applicable Ballot or Master Ballot in accordance with the instructions set
forth in this Disclosure Statement. See "SOLICITATION; VOTING PROCEDURES."
Under the Prepackaged Plan, all Claims and Equity Interests have been placed
in various classes, based on the nature and priority of the Claim or Equity
Interest. Each Class (as defined herein) is either impaired or unimpaired
under the Prepackaged Plan. See "SUMMARY--The Prepackaged Plan" and "THE
PREPACKAGED PLAN." Each Class of Unimpaired Claims is conclusively presumed to
have accepted the Prepackaged Plan under the Bankruptcy Code. Accordingly,
acceptances of the Prepackaged Plan are being solicited only from holders of
Impaired Claims. A Class of Impaired Claims will have accepted the Prepackaged
Plan if the Prepackaged Plan is accepted by creditors that hold at least two-
thirds in dollar amount and a majority
iv
<PAGE>
in number of the Claims of holders in that Class who cast Ballots or Master
Ballots. Only those holders who vote to accept or reject the Prepackaged Plan
will be counted for purposes of determining acceptance or rejection of the
Prepackaged Plan. Therefore, the Prepackaged Plan could be accepted by any
Class of Impaired Claims with the affirmative vote of significantly less than
two-thirds in dollar amount and a majority in number of Claims in a Class. The
Prepackaged Plan also provides that all of the Equity Interests of the
Company, including the Old Common Stock (including those held by LGE and LG
Semicon) will be cancelled. The holders of Equity Interests, including holders
of Old Common Stock, will receive no distributions and retain no property
pursuant to the Prepackaged Plan, and are therefore deemed to have rejected
the Prepackaged Plan. The Bankruptcy Court may nevertheless confirm the
Prepackaged Plan at the Company's request if at least one Class of Impaired
Claims has accepted the Prepackaged Plan (with such acceptance determined
without including the acceptance of any "insider" in such Class).
IN DECIDING WHETHER TO VOTE IN FAVOR OF THE PREPACKAGED PLAN, HOLDERS OF
CLAIMS SHOULD CAREFULLY CONSIDER THE TYPE, AMOUNT AND TERMS OF THE SECURITIES
AND OTHER TREATMENT BEING OFFERED, AS WELL AS CERTAIN RISK FACTORS. SEE
"SPECIAL FACTORS--PURPOSES AND EFFECTS OF THE FINANCIAL RESTRUCTURING" AND
"RISK FACTORS."
THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF THE COMPANY (THE "SPECIAL
COMMITTEE"), WHICH IS COMPOSED OF DIRECTORS OF THE COMPANY WHO ARE NOT
OFFICERS OR DIRECTORS OF LGE OR CURRENT OFFICERS OF THE COMPANY, HAS
UNANIMOUSLY RECOMMENDED TO THE BOARD OF DIRECTORS OF THE COMPANY (THE
"BOARD"), AND THE BOARD HAS UNANIMOUSLY APPROVED, THE RESTRUCTURING AGREEMENT
AND THE PREPACKAGED PLAN. THE BOARD RECOMMENDS THAT ALL HOLDERS OF IMPAIRED
CLAIMS VOTE TO ACCEPT THE PREPACKAGED PLAN.
Pursuant to the Restructuring Agreement, LGE has agreed to vote for the
Prepackaged Plan. LGE's obligation to consummate the transactions contemplated
by the Restructuring Agreement is subject to numerous conditions. See "SPECIAL
FACTORS--The Restructuring Agreement."
AT ALL TIMES, THE COMPANY RESERVES THE RIGHT IN ITS SOLE DISCRETION NOT TO
FILE THE PREPACKAGED PLAN, OR, IF IT FILES THE PREPACKAGED PLAN, TO WITHDRAW
THE PREPACKAGED PLAN AT ANY TIME PRIOR TO CONFIRMATION, IN WHICH CASE THE
PREPACKAGED PLAN WILL BE DEEMED TO BE NULL AND VOID.
THE NEW SUBORDINATED DEBENTURES WILL NOT BE LISTED ON ANY EXCHANGE. THERE
CAN BE NO ASSURANCE THAT AN ACTIVE TRADING MARKET WILL DEVELOP. THERE CAN BE
NO ASSURANCE AS TO THE PRICE AT WHICH THE NEW SUBORDINATED DEBENTURES WILL
TRADE.
----------------
NEITHER THIS TRANSACTION NOR THESE SECURITIES NOR THE PREPACKAGED PLAN HAVE
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THESE
TRANSACTIONS OR THE ACCURACY OR ADEQUACY OF THIS DISCLOSURE STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
SINCE NO BANKRUPTCY CASE HAS BEEN FILED, THIS DISCLOSURE STATEMENT HAS NOT
BEEN APPROVED BY ANY BANKRUPTCY COURT. HOWEVER, IF THE PREPACKAGED CHAPTER 11
CASE IS COMMENCED, THE COMPANY INTENDS TO PROMPTLY SEEK AN ORDER FROM THE
BANKRUPTCY COURT THAT THE SOLICITATION OF VOTES FOR THE PREPACKAGED PLAN BY
MEANS OF THIS DISCLOSURE STATEMENT WAS IN COMPLIANCE WITH THE BANKRUPTCY CODE.
----------------
THIS DISCLOSURE STATEMENT IS FIRST BEING MAILED TO HOLDERS OF CLAIMS AND
EQUITY INTERESTS ON , 1998.
v
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Financial Restructuring. As permitted by the rules
and regulations of the Commission, this Disclosure Statement omits certain
information, exhibits and undertakings contained in the Registration
Statement. Such additional information, exhibits and undertakings can be
inspected at and obtained from the Commission in the manner set forth below.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement, and the financial
schedules and exhibits filed as a part thereof and the exhibits thereto.
Statements contained in this Disclosure Statement as to the terms of any
contract or other documents are not necessarily complete, and, in each case,
reference is made to the copy of each such contract or other document that has
been filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files periodic reports and other information with the Commission.
Such reports and other information filed with the Commission, as well as the
Registration Statement, can be inspected and copied at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
7 World Trade Center, New York, New York 10048. Copies of such material can
also be obtained by mail from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains an Internet web site at http://www.sec.gov that
contains reports, proxy statements and other information. Historically, the
Old Common Stock was listed on the New York, Chicago, Basel, Geneva and
Zurich, Switzerland Stock Exchanges and the Old Subordinated Debentures were
listed on the New York Stock Exchange. On May 22, 1998, the New York Stock
Exchange suspended trading of both the Old Common Stock and the Old
Subordinated Debentures. The Company believes that the Old Common Stock
continues to be traded in the over-the-counter market. Reports, proxy
statements and other information with respect to the Company are available for
inspection at the offices of the New York Stock Exchange, Inc. (the "NYSE"),
20 Broad Street, New York, New York 10005 and the Chicago Stock Exchange,
Inc., One Financial Place, 440 South LaSalle Street, Chicago, Illinois 60605.
No person has been authorized to give any information or make any
representation not contained in this Disclosure Statement and, if given or
made, such information or representation must not be relied upon. This
Disclosure Statement does not constitute an offer to sell or the solicitation
of an offer to buy any securities other than those to which it relates, or an
offer to sell or a solicitation of an offer to buy any securities in any
jurisdiction in which, or to any person to whom, it is unlawful to make such
offer or solicitation. Neither the delivery of this Disclosure Statement nor
the distribution of any securities hereunder shall, under any circumstances,
create an implication that there has been no change in the affairs of the
Company or in the information contained herein since the date hereof.
vi
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements in this Disclosure Statement are forward-looking
statements that involve known and unknown risks, uncertainties and other
factors which may cause the actual results of the Company to be materially
different from any future results expressed or implied by such forward-looking
statements. Forward-looking statements include, among others, statements
regarding the ability of the Company to successfully implement the Operational
Restructuring and achieve the Business Plan Projections (as defined herein)
and the projected or assumed future operations and financial results of the
Company. Factors that may cause actual results of the Company to differ from
future results expressed or implied by forward-looking statements include,
among others, the following: general economic and business conditions, both in
the United States and other countries in which the Company sells its products
and from which the Company obtains supplies; the effect of competition in the
markets served by the Company; the risks described under the caption "RISK
FACTORS"; the ability of the Company to obtain confirmation of the Prepackaged
Plan; and the ability of the Company to successfully implement the
Restructuring and achieve the Business Plan Projections. Given these
uncertainties, holders of Impaired Claims are cautioned not to place undue
reliance on any forward-looking statements in determining whether to vote to
accept or reject the Prepackaged Plan. The Company claims the protection of
the disclosure liability safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995.
vii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... vi
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................ vii
SUMMARY................................................................... 1
The Company............................................................. 1
The Prepackaged Plan.................................................... 1
Special Factors......................................................... 6
The Prepackaged Proceeding; Classification and Impairment of Creditors.. 10
Historical and Pro Forma Capitalization................................. 13
Business Plan Projections............................................... 14
Comparison of the Old Subordinated Debentures to the New Subordinated
Debentures............................................................. 18
Voting Procedures....................................................... 19
U.S. Federal Income Tax Matters......................................... 22
Risk Factors............................................................ 23
RISK FACTORS.............................................................. 24
Recent Operating Results, Independent Auditor's Report and High
Leverage............................................................... 24
Certain Risks Relating to the Business Plan Projections................. 24
Risks Associated with Proposed Operational Restructuring................ 27
Legal Proceedings....................................................... 35
Financing Agreement Restrictions........................................ 35
Possible Defaults; Risk of Acceleration or Termination.................. 36
Control by LGE.......................................................... 36
Certain Bankruptcy Considerations....................................... 36
Readiness for the Year 2000............................................. 39
Dependence on Patents and Proprietary Technology........................ 40
SPECIAL FACTORS........................................................... 42
Events Leading to the Restructuring..................................... 42
Purposes and Effects of the Financial Restructuring..................... 52
LGE Agreements Related to Common Stock.................................. 53
Alternatives to Confirmation and Consummation of the Prepackaged Plan... 53
Going Private Transaction............................................... 54
Recommendation of the Board............................................. 54
LGE's Position Regarding the Financial Restructuring.................... 57
Liquidation and Going Concern Analyses.................................. 57
The Restructuring Agreement............................................. 60
Amendments to Certificate of Incorporation and By-Laws.................. 65
Interests of Certain Persons in the Financial Restructuring; Conflicts
of Interest............................................................ 65
Liquidity Pending Consummation of the Restructuring..................... 67
Dissenters' Rights...................................................... 67
THE PREPACKAGED PLAN...................................................... 68
General................................................................. 68
Classification of Claims and Equity Interests under the Prepackaged
Plan................................................................... 69
Summary of Treatment Under the Prepackaged Plan......................... 71
Summary of Other Provisions of the Prepackaged Plan..................... 74
Conditions to Confirmation/Consummation................................. 81
Effect of Consummation of the Prepackaged Plan.......................... 81
</TABLE>
viii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Modification of the Prepackaged Plan.................................... 82
Intended Actions During the Prepackaged Chapter 11 Case................. 83
Confirmation Standards.................................................. 84
Confirmation of the Prepackaged Plan Without Acceptance by All Classes
of Impaired Claims..................................................... 85
Certain Consequences of Non-Acceptance of the Prepackaged Plan.......... 86
MARKET PRICES OF THE COMMON STOCK......................................... 87
MARKET PRICES OF THE OLD SUBORDINATED DEBENTURES.......................... 88
HISTORICAL AND PRO FORMA CAPITALIZATION................................... 89
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA........................... 90
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION.............................. 91
BUSINESS PLAN PROJECTIONS................................................. 96
Assumptions Underlying all Business Plan Projections.................... 104
THE OPERATIONAL RESTRUCTURING............................................. 108
ACCOUNTING TREATMENT...................................................... 109
LIQUIDATION ANALYSIS...................................................... 109
DESCRIPTION OF DEBT AND CREDIT ARRANGEMENTS............................... 114
Short-Term Debt......................................................... 114
Long-Term Debt.......................................................... 115
DESCRIPTION OF NEW SUBORDINATED DEBENTURES................................ 116
SUMMARY OF LGE NEW RESTRUCTURED SENIOR NOTE............................... 120
SUMMARY OF LGE NEW CREDIT FACILITY........................................ 121
SOLICITATION; VOTING PROCEDURES........................................... 123
General................................................................. 123
Voting Record Date...................................................... 124
Expiration Date; Extensions; Amendments................................. 124
Voting Procedures and Other Requirements................................ 124
Agreements Upon Furnishing Ballots...................................... 128
Method of Delivery of Ballots........................................... 128
Withdrawal of Ballots; Revocation....................................... 128
Solicitation Agent...................................................... 129
Notice Agent............................................................ 129
Waivers of Defects, Irregularities, Etc................................. 129
MANAGEMENT................................................................ 130
Current Directors of the Company........................................ 130
Board and Committee Meetings and Directors' Compensation................ 132
Current Executive Officers of the Company............................... 134
SECURITY OWNERSHIP........................................................ 137
Security Ownership of Certain Beneficial Owners......................... 137
DESCRIPTION OF CAPITAL STOCK.............................................. 138
Old Common Stock and Old Preferred Stock................................ 138
New Common Stock........................................................ 138
Delaware Anti-Takeover Law.............................................. 138
CERTAIN TRANSACTIONS...................................................... 139
</TABLE>
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APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS TO RESALES OF NEW
SECURITIES............................................................... 143
Transfers of New Subordinated Debentures................................ 143
Certain Transactions by Stockbrokers.................................... 143
Issuance of New Common Stock............................................ 144
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS............................ 144
Consequences to Holders of the Old Subordinated Debentures.............. 144
Consequences to Holders of Other Claims................................. 148
Consequences to Holders of Equity Interests in the Company.............. 148
Consequences to LGE..................................................... 148
Consequences to the Company............................................. 149
ESTIMATED FEES AND EXPENSES............................................... 152
Advisors................................................................ 152
LEGAL MATTERS............................................................. 153
EXPERTS................................................................... 153
INDEX OF CERTAIN DEFINED TERMS............................................ 154
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
ANNEX A--THE PREPACKAGED PLAN............................................. A-1
ANNEX B--CERTAIN HISTORICAL INFORMATION REGARDING ZENITH.................. B-1
Results of Operations: Third Quarter of 1998 Compared to Third Quarter
of 1997................................................................ B-1
Nine Months of 1998 Compared to Nine Months of 1997..................... B-2
Liquidity and Capital Resources......................................... B-3
Results of Operations for 1995-1997..................................... B-4
Cash Flows.............................................................. B-7
Financial Condition..................................................... B-9
Readiness for the Year 2000............................................. B-11
BUSINESS.................................................................. B-12
General................................................................. B-12
Raw Materials........................................................... B-12
Patents................................................................. B-12
Seasonal Variations in Business......................................... B-13
Major Customers......................................................... B-13
Competitive Conditions.................................................. B-13
Research and Development................................................ B-13
Environmental Matters................................................... B-13
Employees............................................................... B-13
Financial Information about Foreign and Domestic Operations and Export
Sales.................................................................. B-14
Properties of the Company............................................... B-15
Subsidiaries............................................................ B-16
Legal Proceedings....................................................... B-16
Executive Compensation and Other Information............................ B-19
Employment Agreements................................................... B-20
OPTION/SAR GRANTS IN 1997................................................. B-21
Aggregated Option/SAR Exercises in 1997 and Year-End Option/SAR Values.. B-21
ANNEX C--REPORTS OF PETER J. SOLOMON COMPANY LIMITED...................... C-1
</TABLE>
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements contained elsewhere in this Disclosure
Statement. Unless the context otherwise requires, references in this Disclosure
Statement to "Subsidiaries" shall mean the Company's subsidiaries.
THE COMPANY
Zenith was founded in 1918. The Company's operations include the design,
development, manufacturing and marketing of video products (including color
television sets and other consumer products) along with parts and accessories
for such products. These products, along with purchased VCRs and accessories,
are sold principally to retail dealers in the United States and to retail
dealers and wholesale distributors in other countries. The Company also sells
directly to buying groups, private label customers and customers in the
lodging, health care and rent-to-own industries. The Company also produces
video products, such as color picture tubes, for other manufacturers, and
network systems products, such as digital and analog set-top boxes and cable
modems, interactive television and data communication products for cable
television operators, telecommunications companies and other commercial users
of these products in the United States and abroad.
The Company has incurred losses in all but one of the years since 1985, and
is currently experiencing severe financial difficulties. The Company projects
that fiscal 1998 cash flows will be insufficient to meet all of the Company's
working capital requirements, scheduled cash debt service obligations and
anticipated capital expenditures. As a result, during the first quarter of
fiscal 1998, management developed and began implementing the Operational
Restructuring to enhance the long-term viability of the Company by reducing
production costs and concentrating on areas in which the Company believes it
can operate profitably. Pursuant to the Operational Restructuring, the Company
intends to become a sales, distribution and technology company by discontinuing
substantially all of its manufacturing operations, outsourcing substantially
all components and products, selling certain assets and focusing on the
development of its technologies, patent rights, parts and service operations
and accessory business.
The Company has concluded that it cannot implement the Operational
Restructuring with its present capital structure. Therefore, during the first
quarter of fiscal 1998 the Company commenced efforts to restructure its debt
and equity capitalization in order to enable it to implement the Operational
Restructuring. The Prepackaged Plan and the Financial Restructuring
contemplated thereby are the products of these efforts.
The principal offices of the Company are located at 1000 Milwaukee Avenue,
Glenview, Illinois 60025-2495. The Company's telephone number is (847) 391-
7000.
For additional information concerning the Company and its business, financial
position and operations, see "SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA,"
"INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA," "ANNEX B--MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
"ANNEX B--BUSINESS."
THE PREPACKAGED PLAN
Upon the terms and subject to the conditions set forth in this Disclosure
Statement and the accompanying forms of Ballot and Master Ballot, the Company
hereby solicits acceptances of the Prepackaged Plan under the Bankruptcy Code
from holders of the Old Subordinated Debentures, the LGE Claims and the
Unsecured Bank
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<PAGE>
Loans (collectively, the "Impaired Claims") as of the close of business on the
Voting Record Date. The following table summarizes the classification and
treatment of the various Classes of Claims against, and Equity Interests in,
Zenith under the Prepackaged Plan. See "--THE PREPACKAGED PROCEEDING;
CLASSIFICATION AND IMPAIRMENT OF CREDITORS" and "THE PREPACKAGED PLAN." The
following description is qualified in its entirety by reference to the detailed
provisions of the Prepackaged Plan set forth in Annex A to this Disclosure
Statement.
CLASS/TYPE OF
CLAIM/ESTIMATED
AMOUNT
AS OF DECEMBER
31, 1998 DESCRIPTION AND TREATMENT OF CLAIMS
- --------------- -----------------------------------
ADMINISTRATIVE CLAIMS These Claims consist of the Claims for costs and
expenses of administration under section 503(b),
(The Company is not 507(b) or 1114(e)(2) of the Bankruptcy Code,
currently able to including: (a) the actual and necessary costs and
estimate the number of expenses incurred after the Petition Date (as
holders or amount of defined herein) of preserving the estate of the
claims in this Class) Company and operating the business of the Company
(such as wages, salaries or commissions for
services and payments for goods and other services
and leased premises); (b) compensation for legal,
financial advisory, accounting and other services
and reimbursement of expenses awarded or allowed
under section 330(a) or 331 of the Bankruptcy Code;
and (c) all fees and charges assessed against the
estate under Chapter 123 of Title 28 United States
Code, 28 U.S.C. (S)(S) 1911-1930 ("Administrative
Claims"). Subject to the provisions of sections
330(a) and 331 of the Bankruptcy Code, each holder
of an Allowed Administrative Claim will be paid the
full unpaid amount of such Allowed Administrative
Claim in cash on the Effective Date, or upon such
other terms as may be agreed upon by such holder
and the Company or otherwise upon order of the
Bankruptcy Court; provided, however, that Allowed
Administrative Claims representing obligations
incurred in the ordinary course of business by the
Company pursuant to the Prepackaged Plan will be
paid or performed by New Zenith when due in
accordance with the terms and conditions of the
particular agreements governing such obligations.
PRIORITY TAX CLAIMS These Claims consist of all Claims of a
governmental unit of the kind specified in section
(The Company is not 507(a)(8) of the Bankruptcy Code ("Priority Tax
currently able to Claims"). On the Effective Date, each holder of a
estimate the number of Priority Tax Claim due and payable on or prior to
holders or amount of the Effective Date shall be paid cash in an amount
claims in this Class) equal to the amount of such Allowed Claim, or shall
be paid on account of its Allowed Claim on such
other terms as have been or may be agreed upon by
such holder and the Company.
CLASS 1--OTHER PRIORITY This Class of Claims consists of all Claims
CLAIMS accorded priority in right of payment under section
507(a) of the Bankruptcy Code, other than Priority
(Unimpaired, not entitled Tax Claims or Administrative Claims ("Other
to vote) Priority Claims"). Unless the holder of such Claim
and the Company agree to a different treatment,
(The Company is not each holder of an Allowed Other Priority Claim
currently able to shall receive one of the following alternative
estimate the number of treatments, at the election of the Company: (a) to
holders or amount of the extent then due and owing on the Effective
claims in this Class) Date, such Claim will be paid in full in cash by
New Zenith; (b) to the extent not due and owing on
the Effective Date, such Claim (A) will be paid in
full in cash by New Zenith, or (B) will be paid in
full in cash by New Zenith when and as such Claim
becomes due and owing
2
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<TABLE>
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CLASS/TYPE OF
CLAIM/ESTIMATED
AMOUNT
AS OF DECEMBER
31, 1998 DESCRIPTION AND TREATMENT OF CLAIMS
- --------------- -----------------------------------
<S> <C>
in the ordinary course of business; or (c) such
Claim will be otherwise treated in any other manner
so that such Claims shall otherwise be rendered
unimpaired pursuant to section 1124 of the
Bankruptcy Code.
CLASS 2--CITIBANK SECURED This Class of Claims (the "Citibank Secured
CLAIMS Claims") consists of all Claims arising from or
relating to the Company's $125 million senior
(Unimpaired, not entitled secured credit facility (the "Amended Citibank
to vote) Credit Facility"). On the Effective Date, unless
the holders of such Claims and the Company agree to
(This Class has 9 holders a different treatment, the holders of such Claims
and $44.4 million of (i) will be paid in full in cash by New Zenith or
Claims) (ii) will be otherwise treated in any manner so
that such Claims shall otherwise be unimpaired
pursuant to section 1124 of the Bankruptcy Code.
CLASS 3--OTHER SECURED This Class of Claims consists of all secured Claims
CLAIMS against the Company, other than secured Claims
classified in a different Class (the "Other Secured
(Unimpaired, not entitled Claims"). The legal, equitable and contractual
to vote) rights of the holders of Other Secured Claims are
unaltered by the Prepackaged Plan. Unless the
(The Company is not holder of such Claim and the Company agree to a
currently able to different treatment, each holder of an allowed
estimate the number of Other Secured Claim shall receive one of the
holders or amount of following alternative treatments, at the election
claims in this Class) of the Company: (a) the legal, equitable and
contractual rights to which such Claim entitled the
holder thereof shall be unaltered by the
Prepackaged Plan; (b) the Company shall surrender
all collateral securing such Claim to the holder
thereof, without representation or warranty by or
recourse against the Company or New Zenith; or (c)
such Claim will be otherwise treated in any other
manner so that such Claims shall otherwise be
rendered unimpaired pursuant to section 1124 of the
Bankruptcy Code.
CLASS 4--BANK LENDER
CLAIMS This Class of Claims consists of all Claims arising
from or relating to the Unsecured Bank Loan (the
(Impaired, entitled to "Bank Lender Claims"). On the Effective Date, the
vote) holder of the Bank Lender Claims shall receive a
new unsecured term note that shall mature one year
(This Class has 1 holder from the Effective Date in full satisfaction of its
and $30 million of Claims (the "New Bank Lender Note").
Claims)
CLASS 5--GENERAL This Class of Claims consists of all unsecured
UNSECURED CLAIMS Claims against the Company that are not Bank Lender
(Unimpaired, not entitled Claims, Old Subordinated Debenture Claims or LGE
to vote) Tranche A Claims or LGE Tranche B Claims (the
"General Unsecured Claims"). Unless the holder of
(The Company estimates such Claim and the Company agree to a different
this Class has treatment, each holder of an Allowed General
approximately 900 trade Unsecured Claim shall receive one of the following
creditors, 60 carrier alternative treatments, at the election of the
claimants, 70,000 service Company: (a) to the extent then due and owing on
contract creditors, 200 the Effective Date, such Claim will be paid in full
holders of unknown claims in cash by New Zenith; (b) to the extent not due
and an undetermined and owing on the Effective Date, such Claim (X)
number of warranty and will be paid in full in cash by New Zenith, or (Y)
other claimants, will be paid in full in cash by New Zenith when and
aggregating approximately as such Claim becomes due and owing in the ordinary
$184.3 million of Claims) course of business; or (c) such Claim will be
otherwise treated in any other manner so that such
Claims shall otherwise be rendered unimpaired
pursuant to section 1124 of the Bankruptcy Code.
</TABLE>
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<PAGE>
CLASS/TYPE OF
CLAIM/ESTIMATED
AMOUNT
AS OF DECEMBER
31, 1998 DESCRIPTION AND TREATMENT OF CLAIMS
- --------------- -----------------------------------
CLASS 6--OLD SUBORDINATED
DEBENTURE CLAIMS This Class of Claims consists of all Claims arising
(Impaired, entitled to from or relating to the Old Subordinated Debentures
vote) (the "Old Subordinated Debenture Claims"). If the
holders of the Old Subordinated Debenture Claims
(This Class has accept the Prepackaged Plan, they will receive a
approximately 270 holders pro rata distribution of the New Subordinated
of record and $105.1 Debentures. IF THE HOLDERS OF THESE CLAIMS DO NOT
million of Claims ACCEPT THE PREPACKAGED PLAN, THE COMPANY INTENDS TO
including principal and INITIATE A "CRAM DOWN" PROCEDURE WITH RESPECT TO
interest) THE CLASS COMPOSED OF THE HOLDERS OF THE OLD
SUBORDINATED DEBENTURES. IF SUCH A "CRAM DOWN" IS
APPROVED BY THE BANKRUPTCY COURT, HOLDERS OF THE
OLD SUBORDINATED DEBENTURE CLAIMS SHALL RECEIVE NO
DISTRIBUTION AND RETAIN NO PROPERTY UNDER THE
PREPACKAGED PLAN. IF APPROVED, THE "CRAM DOWN"
WOULD NOT RESULT IN ANY OTHER CHANGE TO THE TERMS
OF THE PREPACKAGED PLAN. HOWEVER, NEW ZENITH'S
INDEBTEDNESS WOULD BE REDUCED BY $40 MILLION AS A
RESULT.
CLASS 7--LGE CLAIMS
(Impaired, entitled to The LGE Tranche A Claims consist of the following
vote) Claims held by LGE (i) the LGE Leveraged Lease
LGE TRANCHE A CLAIMS: Claims, (ii) the LGE Technical Services Claims and
(iii) that portion of the LGE Reimbursement Claims
(This Class has 1 and the LGE Demand Loan Claims not classified as
holder and LGE Tranche B Claims. On the Effective Date, LGE
approximately $159.2 will receive the LGE New Restructured Senior Note
million of Claims) and the Reynosa Assets in full satisfaction of the
LGE Tranche A Claims. If for any reason the Reynosa
Assets are not transferred to LGE, LGE and Zenith
expect to enter into a management or lease
agreement on mutually satisfactory terms pursuant
to which LGE will operate the Reynosa facility on
behalf of, or lease the Reynosa facility from, the
Company and the principal amount of the LGE New
Restructured Senior Note would be increased by
approximately $32.4 million (the amount of Claims
that would have been exchanged for the Reynosa
Assets).
LGE TRANCHE B CLAIMS:
The LGE Tranche B Claims consist of $200 million of
(This Class has 1 the following Claims held by LGE (i) the LGE
holder and $200 million Extended Payables Claims, not to exceed $140
of Claims) million; (ii) the LGE Reimbursement Claims, not to
exceed $50 million; (iii) the LGE Guarantee Fee
Claims; and (iv) the LGE Demand Loan Claims in an
amount (if any) sufficient when aggregated with the
amounts described in clauses (i) through (iii) to
equal $200 million. On the Effective Date, LGE will
receive the New Common Stock in full satisfaction
of the LGE Tranche B Claims.
CLASS 8--EQUITY INTERESTS This Class consists of holders of Equity Interests.
(Impaired, deemed to Holders of Equity Interests in the Company shall
reject, not entitled to receive no distribution and retain no property
vote) under the Prepackaged Plan. All Old Common Stock
will be cancelled.
(The Company estimates
this Class has 11,470
holders of record of
67,525,447 shares of Old
Common Stock)
For a complete description of each Class and the treatment of such Classes
under the Prepackaged Plan, see "THE PREPACKAGED PLAN--Classification and
Treatment of Claims and Equity Interests under the Prepackaged Plan."
4
<PAGE>
Releases
In consideration of the contributions of certain parties to the chapter 11
case commenced by the Company ("Prepackaged Chapter 11 Case"), including, but
not limited to, (i) the commitment and obligation of LGE to provide the
financial support necessary for Consummation of the Prepackaged Plan, and (ii)
the service of certain designated individuals to facilitate the expeditious
reorganization of the Company and the implementation of the Restructuring, the
Prepackaged Plan provides for certain waivers, exculpation, releases and
injunctions. The Prepackaged Plan provides an injunction barring the
commencement or continuation of any Claims released pursuant to its terms.
Specifically, the Prepackaged Plan provides that the Company and its
Subsidiaries will release, upon the Effective Date, (i) all officers,
directors, employees, attorneys, financial advisors, agents and representatives
of the Company and its Subsidiaries who served in such capacity on or after
January 1, 1998, in each case in their capacity as such (collectively, "D&O
Releasees"), and (ii) LGE, LG Semicon, and each of their current and former
parents, subsidiaries and affiliates and their respective officers, directors,
employees, attorneys, financial advisors, agents and representatives
(collectively, "Investor Releasees"), from any and all Claims and causes of
action, whether known or unknown, foreseen and unforeseen, existing or
hereafter arising, that the Company or its Subsidiaries would have been legally
entitled to assert in their own right or on behalf of the holder of any Claim
or Equity Interest or other person or entity against any of them relating to
any event occurring on or before the Effective Date of the Prepackaged Plan,
including avoidance actions under sections 544, 547, 548, 549 and 550 of the
Bankruptcy Code. The release of the D&O Releasees by the Company and its
Subsidiaries does not affect certain loans or contracts such parties have
entered into in the ordinary course of business.
In addition, the Prepackaged Plan provides that each holder of any Claim that
has accepted the Prepackaged Plan, whose Claim is part of a Class of Claims as
defined in the Prepackaged Plan (a "Class") that has accepted (or is deemed to
accept) the Prepackaged Plan, or that is entitled to receive a distribution of
property under the Prepackaged Plan, is deemed to release, upon the Effective
Date, any and all Claims and causes of action, whether known or unknown,
foreseen or unforeseen, existing or hereafter arising, that it would have been
legally entitled to assert against the D&O Releasees and the Investor Releasees
relating to the Company or its Subsidiaries, the Prepackaged Chapter 11 Case,
or the negotiation, formulation and preparation of the Prepackaged Plan and
related documents.
The Prepackaged Plan also provides that the Company, each of its
Subsidiaries, the D&O Releasees, and the Investor Releasees shall be exculpated
from any liability to any person or entity (as defined in the Bankruptcy Code)
for any act or omission in connection with or related to the negotiation,
formulation, preparation and Confirmation of the Prepackaged Plan, the
Consummation and administration of the Prepackaged Plan, the Prepackaged
Chapter 11 Case, or the property distributed under the Prepackaged Plan, except
by virtue of any willful misconduct or gross negligence, as determined by a
court of competent jurisdiction.
In the course of the Special Committee's work and review of the proposed
release of LGE, the Special Committee sought to determine whether impaired
classes would be likely to receive a greater recovery in a hypothetical
restructuring occurring without the Investor Releases and without LGE's
participation. In that regard, the Special Committee and its counsel reviewed
and investigated significant transactions between LGE and the Company. Based on
that investigation, the Special Committee concluded that any value that might
be attributed to these releases was less than the overall value created by the
Restructuring, and that absent LGE's agreement to participate in a
restructuring (which was conditioned on, among other things, obtaining the
releases) there was no value available for distribution to holders of either
the Old Common Stock or the Old Subordinated Debentures.
5
<PAGE>
The Company believes that these provisions of the Prepackaged Plan are
permissible under the Bankruptcy Code but acknowledges that arguments exist
that certain case law would permit a contrary conclusion. Parties with standing
may object to such provision of the Prepackaged Plan in the Bankruptcy Court.
It is a condition to LGE's obligations under the Restructuring Agreement that
the Investor Releasees receive the releases, waivers and injunctions as set
forth in the Prepackaged Plan. See "SPECIAL FACTORS--Interests of Certain
Persons in the Financial Restructuring; Conflicts of Interest" and "--The
Restructuring Agreement."
General Unsecured Creditors
During the pendency of the Prepackaged Chapter 11 Case, the Company intends
to operate its business in the ordinary course and to make payment in full on a
timely basis to all of its general unsecured creditors. The Company also will
seek approval of the United States Bankruptcy Court (the "Bankruptcy Court")
immediately upon the filing of the petition to pay in full in the ordinary
course of business the pre-petition claim of each holder of a General Unsecured
Claim. Management expects that the Company will have sufficient funds from
operations and a debtor in possession credit facility to continue to pay its
general unsecured creditors in the ordinary course of business through the
conclusion of the Prepackaged Chapter 11 Case, and to have sufficient liquidity
under its lending facilities and from operations to make such payments
thereafter. Under the Prepackaged Plan, holders of General Unsecured Claims
will not be required to file proofs of claim with the Bankruptcy Court, and it
is not expected that they will be required to take any other action to receive
payment on their Claims.
The Subsidiaries of Zenith are not parties to the Prepackaged Plan and will
not file for chapter 11 bankruptcy protection as part of the Prepackaged Plan.
Accordingly, those Subsidiaries intend to continue to operate their businesses
in the ordinary course of business and pay their trade and other creditors in
full and on time.
SPECIAL FACTORS
Events Leading to the Restructuring
For a description of events leading to the Restructuring, see "SPECIAL
FACTORS--Events Leading to the Restructuring."
Purposes and Effects of the Financial Restructuring
The purpose of the Financial Restructuring is to reduce the Company's debt
service obligations, to facilitate future borrowing to fund liquidity needs and
to permit it to implement the Operational Restructuring. The Prepackaged Plan
will benefit the Company and reduce its overall debt and other obligations by
approximately $300 million by exchanging (i) $200 million of debt and other
liabilities owed to LGE for the New Common Stock; (ii) the Old Subordinated
Debentures in an aggregate principal amount of $103.5 million plus accrued
interest thereon for New Subordinated Debentures in an aggregate principal
amount of $40 million; and (iii) approximately $32.4 million of indebtedness to
LGE for the Reynosa Assets, which have an appraised value equal to such amount.
Such appraisals should be read in their entirety and state an opinion of value
as of the date of the report and are subject to assumptions and limiting
conditions stated in each report. In addition, assuming Consummation of the
Prepackaged Plan, on a projected basis as of December 31, 1998, the Company's
annual interest obligations are expected to be reduced to approximately $23.2
million in 1999 (compared to projected interest charges of approximately $37.3
million for 1999 assuming the Restructuring does not occur).
As a result of the Financial Restructuring, the Company will also have
significantly more liquidity. For example, the Company's cash interest
obligations will be reduced because the LGE New Restructured Senior
6
<PAGE>
Note will have a "payment in kind" ("PIK") interest feature pursuant to which
interest will be payable during the two years following consummation of the
Prepackaged Plan by the issuance of additional LGE New Restructured Notes
unless the Company's ratio of operating income (loss) including royalties
before interest expense, income taxes, depreciation, amortization and
restructuring expenses ("EBITDA") to cash interest expense for the immediately
preceding four fiscal quarters exceeds 1.5. See "SUMMARY OF LGE NEW
RESTRUCTURED NOTE--Payment of Principal and Interest; Maturity." In addition,
pursuant to the Restructuring Agreement, LGE has agreed to provide additional
credit support of up to $60 million that, if needed by the Company, may take
the form of direct loans or credit support, such as a guarantee provided to a
third-party lender, in form and in an amount to be set on the Effective Date
based on the financing necessary to enable the Company to implement the
Operational Restructuring (the "LGE New Credit Support"). Finally, the Company
is in discussions with potential lenders regarding credit facilities following
Consummation of the Prepackaged Plan. It is a condition to Consummation
pursuant to the Restructuring Agreement that the Company have such a credit
facility in an amount not less than $100 million. The combination of the PIK
feature of the LGE New Restructured Senior Note, the LGE New Credit Support and
the financing to be provided by a third-party lender is expected to enhance the
liquidity of the Company following the Consummation of the Prepackaged Plan.
Finally, as a consequence of the Financial Restructuring, the Old Common
Stock will be cancelled and the holders of the Old Common Stock (including LGE
and LG Semicon) will receive no distributions and retain no property in respect
of their holdings of Old Common Stock under the Prepackaged Plan. See "SPECIAL
FACTORS--Purposes and Effects of the Financial Restructuring."
Upon consummation of the Prepackaged Plan, New Zenith will be a wholly owned
subsidiary of LGE. Material existing transactions between LGE and Zenith have
been approved by at least a majority of the disinterested members of Zenith's
Board. LGE has advised Zenith that no general policy has been established for
intercompany transactions after New Zenith becomes a wholly owned subsidiary of
LGE. Following the Restructuring, Zenith expects to continue purchasing some
finished products from LGE, including VCRs. Additionally, Zenith expects to
purchase mid-size televisions produced by LGE in its operation of the Reynosa
Assets. Because the Company intends to outsource substantially all of its
product lines following the Restructuring, the Company expects that tit will
continue to purchase some finished products, components and other technical
services from LGE.
Alternatives to Confirmation and Consummation of the Prepackaged Plan
If the Company commences the Prepackaged Chapter 11 Case and the Prepackaged
Plan is not subsequently confirmed by the Bankruptcy Court and consummated, the
alternatives include (i) liquidation of the Company under chapter 7 or chapter
11 of the Bankruptcy Code and (ii) confirmation of an alternative plan of
reorganization under chapter 11 of the Bankruptcy Code. The Company believes
the Prepackaged Plan is significantly more attractive than these alternatives
because it could, among other things, maximize the value of the Company's net
operating loss tax attributes ("NOLs"), minimize disputes during such
proceeding concerning the reorganization of the Company, significantly shorten
the time required to accomplish the reorganization, reduce the expenses of a
case under chapter 11 of the Bankruptcy Code, minimize the disruption to the
Company's business that would result from a protracted and contested bankruptcy
case and ultimately result in a larger distribution to creditors than would
other types of reorganizations under chapter 11 of the Bankruptcy Code or a
liquidation under chapter 7 of the Bankruptcy Code. The Company's ability to
implement the Operational Restructuring is dependent upon the Confirmation and
Consummation of the Prepackaged Plan, among other things, because its ability
to obtain or retain contracts for outsourcing of products would be
substantially more difficult if the Company were in a traditional chapter 11
bankruptcy proceeding. See "SPECIAL FACTORS--Alternatives to Confirmation and
Consummation of the Prepackaged Plan."
7
<PAGE>
Pursuant to the Restructuring Agreement, in the event that the Company
pursues an alternative reorganization, restructuring, liquidation or similar
transaction during the period ending 12 months after termination of the
Restructuring Agreement, the Company may be required to reimburse LGE for
certain fees and expenses incurred in connection with the proposed
Restructuring and LGE may be entitled to a transaction fee of $8 million. SEE
"SPECIAL FACTORS--The Restructuring Agreement--Transaction Expenses and
Transaction Fee upon Termination under Certain Circumstances."
Recommendation of the Board
The Special Committee has unanimously recommended to the Board, and the Board
has unanimously approved, the Restructuring Agreement and the Prepackaged Plan.
The Board recommends that all holders of Impaired Claims vote to accept the
Prepackaged Plan. For a description of the material factors considered by the
Special Committee and the Board in reaching their respective conclusions, see
"SPECIAL FACTORS--Recommendation of the Board."
Liquidation and Going Concern Analyses
The Board has reviewed and considered liquidation and going concern analyses
with respect to the Company, each developed by Peter J. Solomon Company Limited
("PJSC"), the Company's investment banker and financial advisor. See "SPECIAL
FACTORS--Liquidation and Going Concern Analyses" for a description of the
review undertaken and assumptions made by PJSC in developing its analyses.
Based upon the enterprise value of the Company under the liquidation and going
concern analyses, and based upon the assumptions utilized therein, these
analyses concluded that there was no value available to holders of Equity
Interests, and demonstrated that under the Financial Restructuring, the value
to be received by holders of Impaired Claims was equal to or greater than the
amount that would be received by such holders in the hypothetical absolute
priority distribution of the Company's assets, under both the going concern
valuation and the liquidation valuation. These analyses also concluded that
under the treatment offered in the Prepackaged Plan, LGE would receive less
with respect to its general unsecured Claims than holders of the Old
Subordinated Debentures (as a percentage of their respective Claims). See
"SPECIAL FACTORS--Recommendation of the Board," "--Liquidation and Going
Concern Analyses" and "LIQUIDATION ANALYSIS."
Interests of Certain Persons in the Financial Restructuring; Conflicts of
Interest
In considering the recommendation of the Board with respect to the
Restructuring, the holders of Claims should be aware that the Board and members
of management have certain interests which give rise to actual and potential
conflicts of interest with respect to the Restructuring. Six of the eleven
members of the Board are officers of and/or affiliated with LGE and/or its
affiliates. LGE and its affiliates are currently the Company's largest
shareholder and creditor, and a supplier to and a customer of the Company. LGE
subsidiaries serve as the Company's distributors in Canada and Mexico, and the
Company has leased space from LGE subsidiaries in Hunstville, Alabama, Ontario,
California and San Jose, California. In addition, the Company and LGE are
operating under several technology agreements and licenses, LGE has donated
certain employee services to the Company and a U.S. affiliate of LGE has
guaranteed the Company's obligations under the employment and indemnity
agreement with the Company's President and Chief Executive Officer. The
Prepackaged Plan provides for certain releases in favor of the D&O Releasees
and the Investor Releasees and the preservation of indemnification rights held
by directors and officers of the Company. See "SPECIAL FACTORS--Events Leading
to the Restructuring" and "--Interests of Certain Persons in the Financial
Restructuring; Conflicts of Interest," "MANAGEMENT" and "CERTAIN TRANSACTIONS."
Although the Board recognizes the existence of the conflicts of interest
described herein, the Board does not believe that such conflicts of interest
had the effect of causing the terms of the Financial Restructuring to be
different in any material respect than such terms would have been in the
absence of such conflicts of interests.
8
<PAGE>
Moreover, the Board established the Special Committee specifically to address
and mitigate against any potential conflicts of interest. See "SPECIAL
FACTORS--Events Leading to the Restructuring."
Liquidity Pending Consummation of the Restructuring
Until the Prepackaged Plan is implemented on the Effective Date, the Company
will be required to rely on its cash resources to operate its business, service
certain of its debt and pay other costs. Currently, the Company has access to
funds under the Amended Citibank Credit Facility with Citibank, N.A.
("Citibank") and a consortium of other financial institutions and the LGE
Demand Loan Facility (as defined herein) to supplement cash flow from
operations. The Amended Citibank Credit Facility expires on the earlier of the
Company's filing for bankruptcy or December 31, 1998. The Company is in
negotiations to extend or replace the Amended Citibank Credit Facility. In
addition, the Company is in negotiations with potential lenders regarding
financing during the Prepackaged Chapter 11 Case. See "RISK FACTORS--Recent
Operating Results, Independent Auditor's Report and High Leverage" and "--
Possible Defaults; Risk of Acceleration or Termination" and "SPECIAL FACTORS--
Liquidity Pending Consummation of Restructuring."
Dissenters' Rights
There are no dissenters' rights available under applicable law with respect
to the Restructuring. If the Prepackaged Plan is confirmed by the Bankruptcy
Court and the Restructuring is consummated in accordance therewith, holders of
the Old Subordinated Debentures that do not vote in favor of the Prepackaged
Plan will nevertheless be bound by all the terms and conditions thereof.
Retention and Incentive Programs
In connection with the Restructuring, in early 1998 the Company developed a
retention program for 14 key executives and senior managers, not including the
Chief Executive Officer. Under this executive retention program, the Company
may be obligated to pay participants up to an aggregate of $1.2 million in
retention bonuses. Additionally, in July 1998, the Company established short-
term and long-term incentive programs for two tiers of 15 key executives and
senior managers, not including the Chief Executive Officer. Those incentive
programs are based on achieving certain performance goals in connection with
the Restructuring. The Company may be obligated to make payments to the two
tiers of 15 key executives and senior managers aggregating up to $2.1 million
under the short-term incentive program and $6.5 million under the long-term
incentive program, including up to $1.2 million and $1.1 million payable under
the retention, short-term and long-term incentive programs to the Company's
Senior Vice President and General Counsel and the Company's Senior Vice
President and Chief Financial Officer, respectively. The following chart
summarizes the retention bonuses and incentives the Company may be obligated to
pay.
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM
SHORT-TERM LONG-TERM
RETENTION INCENTIVE INCENTIVE
EXECUTIVE GROUP BONUS PAYMENT PAYMENT TOTAL
- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tier One Executives and Senior
Managers......................... $ 670,332 $1,615,680 $4,847,040 $7,133,052
Tier Two Executives and Senior
Managers......................... 553,280 461,572 1,659,840 2,674,692
---------- ---------- ---------- ----------
Total........................... $1,223,612 $2,077,252 $6,506,880 $9,807,744
========== ========== ========== ==========
</TABLE>
The Company's Chief Executive Officer's incentive programs and bonuses are
established under his employment contract. Some payments under that contract
are tied to certain performance goals in connection with the Restructuring,
including (a) an annual target bonus, $400,000 of which is guaranteed and which
may be increased to $600,000 for achieving certain specific target performance
objectives, and (b) long-term incentive
9
<PAGE>
plan cash payments equal to $6 million if target performance is achieved or up
to $12 million if maximum stated performance values are achieved.
The Company has also established retention and stay bonus programs covering
approximately 175 other key managers and employees. Certain employees in areas
of ongoing operation will also be provided with limited short-term incentive
programs. See "MANAGEMENT--Executive Retention Programs" and "--Current
Executive Officers of the Company." The Company intends to seek court authority
to honor its obligations under the retention programs after the filing of the
Prepackaged Chapter 11 Case. See "THE PREPACKAGED PLAN--Intended Actions During
the Prepackaged Chapter 11 Case--Provisions for Employees; Retention Programs;
Employment Contracts."
THE PREPACKAGED PROCEEDING; CLASSIFICATION AND IMPAIRMENT OF CREDITORS
The Prepackaged Proceeding
The Prepackaged Plan provides specified treatment to the various Classes of
Claims against and Equity Interests in the Company. The Company believes the
Prepackaged Plan provides treatment for all Classes of Claims and Equity
Interests that reflects an appropriate resolution of the Claims and Equity
Interests taking into account the differing nature and priority (including
applicable contractual subordination) of such Claims and Equity Interests. The
Bankruptcy Court must find, however, that a number of statutory tests are met
before it may confirm the Prepackaged Plan. See "THE PREPACKAGED PLAN--
Confirmation Standards."
The Company intends to seek relief from the Bankruptcy Court as to various
matters, including, for example, approvals to honor outstanding payroll checks,
to make scheduled payments under employment, consulting and retirement
agreements, to permit employees to utilize their accrued paid vacation time, to
continue paying medical benefits under health plans, to maintain their cash
management systems, to retain certain attorneys, financial advisors and other
professionals (the "Professionals") to represent or assist the Company in the
Prepackaged Chapter 11 Case, and to maintain and continue their insurance
programs, including workers' compensation, as such programs are presently
administered. There can be no assurance, however, that any such approvals will
be granted.
In accordance with Section 1102 of the Bankruptcy Code, as soon as
practicable after the filing of the petition for relief in this case, the U.S.
trustee may appoint a committee of creditors holding unsecured claims and may
appoint additional committees of creditors or of Equity Interest holders as the
U.S. trustee deems appropriate. Any such committee may, among other things:
consult with the trustee or Company concerning the administration of the case;
investigate the acts, conduct, assets, liabilities, and financial condition of
the Company, the operation of the Company's business, and any other matter
relevant to the case or to the formulation of a plan; and perform such other
services as are in the interest of those represented.
Under Section 1109(b) of the Bankruptcy Code a party in interest, including
the Company, the trustee, a creditor's committee, an Equity Interest holders'
committee, a creditor, an Equity Interest holder, or any indenture trustee, may
appear and be heard on any issue in this case.
Classification of Creditors
Section 1122 of the Bankruptcy Code requires that the Prepackaged Plan
classify Claims against, and Equity Interests in, the Company. The Bankruptcy
Code also provides that, except for certain Claims classified for
administrative convenience, the Prepackaged Plan may place a Claim or Equity
Interest in a particular Class only if such Claim or Equity Interest is
substantially similar to the other Claims or Equity Interests of such Class.
The Company believes that all Claims and Equity Interests have been
appropriately classified in the Prepackaged Plan. The Company has elected to
separately classify General Unsecured Claims because this Class is comprised
10
<PAGE>
largely of trade creditors. Many of these creditors are key suppliers of
products and services used by the Company. Accordingly, any impairment of these
Claims could be detrimental to the ability of the Company to obtain essential
trade credit and could substantially impair the ability of the Company to do
business with trade creditors whose goods and services are essential to the
Company. Bank Lender Claims have been separately classified because the Company
believes that LGE's guaranty of these Claims renders their legal and financial
position substantially unlike other unsecured Claims. LGE Claims have been
separately classified because the holder of these Claims has voluntarily agreed
to convert a substantial portion of its Claims to equity and because LGE is an
insider. LGE has consented to the separate classification of its Claims as
provided in the Prepackaged Plan. Finally, because the Old Subordinated
Debenture Indenture contains subordination provisions, the Old Subordinated
Debentures are not held by insiders, and the Old Subordinated Debenture Claims
are not guaranteed by LGE, the Company contends that the Old Subordinated
Debenture Claims are significantly different from the other unsecured debt and
therefore may be classified separately. The LGE Demand Loan Claims, the LGE
Reimbursement Claim and the LGE Guarantee Fee Claims, as secured claims, are
senior in priority to the Old Subordinated Debentures to the extent provided in
Section 502 of the Bankruptcy Code. In addition, the LGE Extended Payables
Claims, the LGE Demand Loan Claims and the LGE Reimbursement Claims are senior
in right of payment to the Old Subordinated Debentures pursuant to the
subordination provision of the Old Subordinated Debenture Indenture. The LGE
Technical Services Claims and the LGE Leveraged Lease Claims are pari passu
with the Old Subordinated Debentures. For a more detailed description of the
classification and treatment of Claims, see "THE PREPACKAGED PLAN--
Classification and Treatment of Claims and Equity Interests under the
Prepackaged Plan."
Impairment of Creditors
Only Classes that are impaired under the Prepackaged Plan are entitled to
vote to accept or reject the Prepackaged Plan, unless the Class is to receive
no distribution under the Prepackaged Plan and is, consequently, deemed to have
rejected the Prepackaged Plan. Under section 1124 of the Bankruptcy Code, a
class of claims or interests is impaired unless, with respect to each claim or
interest of such class, the plan:
(i) leaves unaltered the legal, equitable and contractual rights to which
the claim or interest entitles the holder thereof; or
(ii) with certain exception, cures any default which occurred before or
after the commencement of the chapter 11 case, reinstates the original
maturity of the claim or interest and compensates the holder for any
damages resulting from any reasonable reliance by the holder on a
contractual provision or applicable law that permits acceleration of the
debt.
The Prepackaged Plan has four Impaired Classes: (1) Class 4 which consists of
the Bank Lender Claims; (2) Class 6 which consists of the Old Subordinated
Debenture Claims; (3) Class 7 which consists of the LGE Claims; and (4) Class 8
which consists of Equity Interests.
The Prepackaged Plan provides that the holder of Bank Lender Claims shall
receive the New Bank Lender Note in full satisfaction of its Claims. The New
Bank Lender Note shall have the same principal but will not be payable upon
demand to Zenith.
The Prepackaged Plan provides that the holders of the Old Subordinated
Debenture Claims shall receive a pro rata distribution of the New Subordinated
Debentures. See "DESCRIPTION OF NEW SUBORDINATED DEBENTURES--Comparison of the
Old Subordinated Debentures and the New Subordinated Debentures."
The Prepackaged Plan provides that LGE shall receive 100% of the New Common
Stock in exchange for the LGE Tranche B Claims and the LGE New Restructured
Senior Note and the Reynosa Assets in exchange for the LGE Tranche A Claims,
unless the Reynosa Asset transfer does not occur, in which case the principal
amount of the New Restructured Senior Note shall be increased by $32.4 million
(the value of the Reynosa Assets).
11
<PAGE>
The Prepackaged Plan provides that holders of Equity Interests shall receive
no distribution and retain no property on account of their interests. On
November 13, 1998 the last trading price for the Old Common Stock was $0.4531
per share.
Notice to Creditors and Holders of Equity Interests
The Company intends to deliver a notice, as soon after the commencement of
the Prepackaged chapter 11 case as the Company is authorized by the Bankruptcy
Court, advising parties in interest of the commencement of the case, the date
set for the hearing on confirmation of the Prepackaged Plan, and such other
matters as the Bankruptcy Court may direct. Such notice will instruct parties
in interest on the procedure for objecting to confirmation of the Prepackaged
Plan. Due to large number of creditors and holders of Equity Interests and the
volume of documents involved in this case, the Company will not send all
documents and pleadings to all parties in interest. Should a party in interest
who was not designated by the Bankruptcy Court wish to receive copies of
documents related to this case, it may seek to do so by filing an appropriate
motion with the Bankruptcy Court.
In accordance with section 1125 of the Bankruptcy Code and Bankruptcy Rule
3018(b), the Bankruptcy Court must determine whether all impaired creditors and
holders of Equity Interests were provided with sufficient information and time
in order to consider the Prepackaged Plan. If insufficient information or
inadequate time was provided, the ballots received from those creditors and
holders of Equity Interests regarding the Prepackaged Plan may be voided, in
whole or in part, by the Bankruptcy Court.
Conditions to Confirmation/Consummation
It is a condition to Confirmation of the Prepackaged Plan that all
provisions, terms and conditions of the Prepackaged Plan have been approved in
the Confirmation Order.
It is a condition to Consummation of the Prepackaged Plan that the following
conditions have been satisfied or waived pursuant to the Prepackaged Plan:
1. the Confirmation Order shall have been signed by the Bankruptcy Court
and duly entered on the docket for the Prepackaged Chapter 11 Case by the
Clerk of the Bankruptcy Court, in form and substance acceptable to the
Company;
2. the Confirmation Order shall be an order or judgment of the Bankruptcy
Court, or other court of competent jurisdiction with respect to the subject
matter, which has not been reversed, stayed, modified or amended, and as to
which the time to appeal or seek certiorari has expired and no appeal or
petition for certiorari has been timely taken, or as to which any appeal
that has been taken or any petition for certiorari that has been or may be
filed has been resolved by the highest court to which the order or judgment
was appealed or from which certiorari was sought ("Final Order");
3. a revolving credit facility and letter of credit subfacility shall be
available to the Company in an amount not less than $100 million and on
such terms and conditions as set forth in the Restructuring Agreement; and
4. all conditions precedent to the "Closing," as defined in the
Restructuring Agreement, shall have been satisfied or waived pursuant to
the terms thereof.
Other than as set forth in the Prepackaged Plan, the Company, in its sole
discretion, may waive any of the conditions to Confirmation of the Prepackaged
Plan and/or to Consummation of the Prepackaged Plan set forth in the
Prepackaged Plan at any time, without notice, without leave or order of the
Bankruptcy Court, and without any formal action other than proceeding to
confirm and/or consummate the Prepackaged Plan. In the event the Company waives
such a condition, the Company does not intend to resolicit approval of the
Prepackaged Plan. Pursuant to the Restructuring Agreement, however, LGE's
consent is required for any such waiver. See "SPECIAL FACTORS--The
Restructuring Agreement" and "THE PREPACKAGED PLAN--Conditions to
Confirmation/Consummation--Waiver of Conditions."
12
<PAGE>
HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth the consolidated capitalization and cash and
cash equivalents of the Company at (i) September 26, 1998 on an historical
basis and on a pro forma basis giving effect to the Financial Restructuring as
if it had occurred on September 26, 1998 and (ii) December 31, 1998 on a
projected basis as if the Financial Restructuring had not occurred and on a pro
forma basis giving effect to the Financial Restructuring as if it had occurred
on December 31, 1998. During 1998, the Company expects to incur certain charges
associated with its Operational Restructuring that are not included herein. The
table should be read in conjunction with "ANNEX B--MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the Company's
consolidated financial statements, including the notes thereto, located
elsewhere in this Disclosure Statement. See "SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA" and "PRO FORMA CONSOLIDATED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 26, PROJECTED AS OF
1998 DECEMBER 31, 1998
--------------- ---------------------------
WITHOUT WITH
PRO FINANCIAL FINANCIAL
ACTUAL FORMA RESTRUCTURING RESTRUCTURING
------- ------ ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Cash.............................. $ -- $ 15.0 $ -- $ --
======= ====== ======= ======
LGE Extended Payables Claims...... $ 134.0 $ -- $ 140.0 $ --
======= ====== ======= ======
Debt:
Bank Lender Claims(1)........... $ 30.0 $ 30.0 $ 30.0 $ 30.0
Amended Citibank Credit
Facility....................... 77.9 -- 13.1 --
Post-Restructuring bank credit
facility....................... -- 77.9 -- 13.1
LGE Leveraged Lease Claims...... 90.1 -- 90.1 --
LGE Reimbursement Claims........ 72.0 -- 72.0 --
LGE Demand Loan Claims.......... 30.0 -- 45.0 --
Old Subordinated Debentures (at
face value).................... 103.5 -- 103.5 --
New Subordinated Debentures (at
face value).................... -- 40.0 -- 40.0
LGE New Restructured Senior
Note........................... -- 111.7 -- 118.8
------- ------ ------- ------
Total debt.................... $ 403.5 $259.6 $ 353.7 $201.9
======= ====== ======= ======
Stockholders' equity:
Old Common Stock, $1.00 par
value, 150,000,000 shares
authorized, 67,525,447 shares
issued and outstanding(2)...... $ 67.6 $ -- $ 67.6 $ --
New Common Stock, $0.01 par
value, 1,000 shares authorized,
1,000 shares issued and
outstanding(3)................. -- -- -- --
Additional paid-in capital,
old............................ 506.8 572.7 506.8 572.7
Additional paid-in capital,
new............................ -- 200.0 -- 200.0
Retained earnings (deficit)..... (849.5) (805.6) (858.9) (814.7)
Treasury stock.................. (1.7) -- (1.7) --
------- ------ ------- ------
Total stockholders' equity.... $(276.8) $(32.9) $(286.2) $(42.0)
======= ====== ======= ======
</TABLE>
- --------
(1) Represents the Company's credit facility with Credit Agricole Indosuez.
(2) Excludes 5,644,400 shares of Old Common Stock issuable upon exercise of
outstanding stock options as of September 26, 1998, of which 3,965,000
shares are issuable to LGE and 1,679,400 shares are issuable to employees.
There will be no such options outstanding on a pro forma basis.
(3) New Common Stock does not show a value due to rounding in millions.
13
<PAGE>
BUSINESS PLAN PROJECTIONS
In connection with the planning and development of the Prepackaged Plan,
certain financial projections were prepared by the Company to present the
anticipated impact of the Prepackaged Plan and the Operational Restructuring
(the "Business Plan Projections"). Such projections assume that the Prepackaged
Plan will be implemented in accordance with its terms. Since the projections
are based on forecasts of key economic variables, including without limitation
estimated domestic market television sales, the introduction of digital
television products, the Company's ability to exit manufacturing in an
efficient manner, and the availability of externally sourced product at
acceptable prices, the estimates and assumptions underlying the projections are
inherently uncertain, and are subject to significant business, economic and
competitive uncertainties. Accordingly, such projections, estimates and
assumptions are not necessarily indicative of current values or future
performance of the Company, which may be significantly less favorable or more
favorable than as set forth. Holders of Claims are cautioned not to place undue
reliance on the following projections. See "BUSINESS PLAN PROJECTIONS"; "RISK
FACTORS--Certain Risks Relating to the Business Plan Projections" and
"CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS."
For presentation purposes, it is assumed that the Company files and emerges
from chapter 11 in the fourth quarter of 1998 (the "Reorganization Period")
thus completing the Financial Restructuring of the Company. All costs presented
in the Restructuring columns of the Business Plan Projections are assumed to
take place during the Reorganization Period. However, not all costs presented
in the column relate directly to the Financial Restructuring; some costs relate
to the Operational Restructuring which coincides with the timing of the
Financial Restructuring.
14
<PAGE>
ZENITH ELECTRONICS CORPORATION
PROJECTED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PROJECTED FOR THE YEAR ENDED
1998 DECEMBER 31,
------------------------------------------------------ ------------------------------------------
ACTUAL
FIRST
THROUGH PROJECTED PROJECTED
THIRD FOURTH PROJECTED RESTRUCTURING PROJECTED
QUARTERS QUARTER UNADJUSTED ADJUSTMENTS ADJUSTED 1999 2000 2001 2002 2003
-------- --------- ---------- ------------- --------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $ 675.1 $290.5 $ 965.6 $ 0.0 $ 965.6 $876.1 $889.3 $935.1 $987.6 $1,018.3
Cost of products sold... 621.6 267.3 888.9 4.5(a) 893.4 802.1 807.6 837.7 880.7 903.0
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
Gross Margin............ 53.5 23.2 76.7 (4.5) 72.2 74.0 81.7 97.4 106.9 115.3
Gross Margin............ 7.9% 8.0% 7.9% 7.5% 8.4% 9.2% 10.4% 10.8% 11.3%
Selling, general and
administrative......... 89.8 35.3 125.1 4.3(h) 129.4 110.4(h) 100.4 99.9 99.4 98.9
Engineering and
research............... 31.9 14.0 45.9 -- 45.9 14.5 12.0 11.4 10.8 10.3
Restructuring
expense (b)............ 75.5 -- 75.5 -- 75.5 -- -- -- -- --
Other operating expense
(income), net (c)...... (16.9) (15.2) (32.1) -- (32.1) (34.2) (34.8) (43.6) (56.5) (55.2)
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
Operating income
(loss)................. (126.8) (10.9) (137.7) (8.8) (146.5) (16.7) 4.1 29.7 53.2 61.3
Gain (loss) on asset
sales.................. (0.2) 15.9 15.7 -- 15.7 6.8 -- -- -- --
Finance guarantee fee
charge (d)............. (32.3) -- (32.3) (1.8) (34.1) -- -- -- -- --
Interest expense, net... (28.5) (14.5) (43.0) -- (43.0) (23.2) (25.7) (27.1) (27.4) (24.2)
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
Income (loss) before
reorganization items... (187.8) (9.5) (197.3) (10.6) (207.9) (33.1) (21.6) 2.6 25.8 37.1
Reorganization
items (e).............. -- -- -- 139.1 139.1 -- -- -- -- --
Taxes on income/ (income
tax benefit)........... -- -- -- -- -- -- -- -- -- --
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
Net earnings (loss)
before extraordinary
items.................. (187.8) (9.5) (197.3) (149.7) (347.0) (33.1) (21.6) 2.6 25.8 37.1
Extraordinary gain on
debt retirement (f) ... -- -- -- 63.6 63.6 -- -- -- -- --
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
Net earnings (loss)..... $(187.8) $ (9.5) $(197.3) $(86.1) $(283.4) $(33.1) $(21.6) $ 2.6 $ 25.8 $ 37.1
======= ====== ======= ====== ======= ====== ====== ====== ====== ========
Memo:
Operating income
(loss)................ $(126.8) $(10.9) $(137.7) $ (8.8) $(146.5) $(16.7) $ 4.1 $ 29.7 $ 53.2 $ 61.3
Restructuring
expense (b)........... 75.5 -- 75.5 -- 75.5 -- -- -- -- --
Depreciation and
Amortization.......... 23.8 7.5 31.3 4.5 35.8 6.1 3.2 3.6 3.9 4.2
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
EBITDA (g).............. $ (27.5) $ (3.4) $ (30.9) $ (4.3) $ (35.2) $(10.6) $ 7.3 $ 33.3 $ 57.1 $ 65.5
======= ====== ======= ====== ======= ====== ====== ====== ====== ========
</TABLE>
15
<PAGE>
- --------
(a) Cost of products sold increase represents the estimated provision required
to write-down inventories of raw materials and work-in-process to net
realizable value upon shutdown of the manufacturing facilities.
(b) Restructuring expenses are as follows:
<TABLE>
<C> <S> <C>
(i) Professional Fees............................................ $10.8
(ii) Melrose Park shift reduction................................. 1.4
Exit from Analog Set-Top Boxes............................... 3.6
(iii) Loss on Leveraged Lease termination.......................... 68.8
Deferred gain from 1997 sale of Leveraged Lease assets....... (9.1)
Total........................................................ $75.5
</TABLE>
--------
(i) Professional fees for advisors and consultants to assist in
formulating and implementing the Prepackaged Plan.
(ii) Various costs incurred to implement the Operational Restructuring
including staff reductions, facility closures, and product line
eliminations.
(iii) The loss on the termination of the leveraged Leases is measured as
the difference between the liability to LGE, of $90.1, based upon
its payment in performance of its gaurantee of the Leveraged
Leases, and the Other Receivable. The Other Receivable is stated
at the appraised value of the assets to be received by the Company
during the Reorganization Period. Simultaneous with the
recognition of the loss, a lease related gain of $9.1 is
recognized. This amount is the acceleration of the balance of a
deferred gain on the 1997 sale of fixed assets into the Leveraged
Leases. Historically, the gain was being amortized to income over
the life of the lease.
These costs are classified as Restructuring expenses because they are not
incurred during the Reorganization Period as defined above.
(c) Other operating expense (income) includes royalty income from domestic VSB,
tuner patent/other sources and other miscellaneous items in amounts per
year as follows:
<TABLE>
<CAPTION>
ROYALTY
INCOME OTHER
----------- INCOME/
VSB OTHER (EXPENSE)
----- ----- ---------
<S> <C> <C> <C>
1998................................................. $-- $28.6 $ 3.5
1999................................................. 2.2 29.7 2.3
2000................................................. 6.1 30.2 (1.5)
2001................................................. 14.3 30.8 (1.5)
2002................................................. 26.6 31.4 (1.5)
2003................................................. 35.5 21.2 (1.5)
</TABLE>
Royalty income amounts represent estimated gross revenues. Accordingly, the
foregoing does not include any adjustments for costs or reductions relating
to development, marketing and legal costs, which costs are included
elsewhere in components of the Statement of Operations.
(d) Finance guarantee fees represent the accelerated write-off of unamortized
deferred charges (bank, attorney, and LGE guarantee fees) associated with
financing agreements terminated in the third quarter of 1998 and during the
Reorganization Period. These are non-cash amortization expenses.
(e) Reorganization items of $139.1 are as follows:
<TABLE>
<S> <C>
Reorganization expenses (i):
Severance......................................................... $ 48.6
Legal for plant closures.......................................... 2.4
Outplacement...................................................... 1.1
Headquarters relocation expenses.................................. 1.7
Plant closure/exit costs.......................................... 17.7
Purchase contracts................................................ 1.1
Professional fees................................................. 9.4
Exit from analog set-top boxes.................................... 2.9
------
Total Reorganization expenses...................................... 84.9
Asset impairment (ii).............................................. 54.2
------
Total.............................................................. $139.1
======
</TABLE>
--------
(i) estimated Reorganization expenses related to executing the
Prepackaged Plan and Business Plan Projections. The timing and
amount of these charges could vary significantly from the estimates
presented depending on the actual implementation of the Business
Plan Projections and the timing of the bankruptcy proceedings.
(ii) the estimated impairment, of $54.2, on property, plant and
equipment that occurs at the confirmation of the Prepackaged Plan.
It is measured as the difference between the book value of assets
and the estimated (by appraisal) fair value in an orderly
liquidation, including estimated environmental obligations.
16
<PAGE>
(f)Extraordinary Gain represents the gain realized on the retirement of the Old
Subordinated Debentures at a discount from face value:
<TABLE>
<S> <C>
Old Subordinated Debentures before restructuring (Current
portion)....................................................... $ 5.8
Old Subordinated Debentures before restructuring (Long Term
portion)....................................................... 97.8
less: New Subordinated Debentures (at face value)............... (40.0)
------
Gain........................................................... $ 63.6
======
</TABLE>
(g) EBITDA represents operating income (loss) including royalties before
interest expense, income taxes, depreciation and amortization, and
restructuring expenses. EBITDA is not intended to represent cash flow from
operations or net income as defined by generally accepted accounting
principles and should not be considered as a measure of liquidity or an
alternative to, or more meaningful than, operating income or operating cash
flow as an indication of the Company's operating performance. EBITDA is
included herein because management believes that certain investors find it
a useful tool for measuring the Company's ability to service its debt.
(h) Selling, general and administrative expenses in 1998 include retention plan
payments of $4.3 for corporate and manufacturing employees. Selling,
general and administrative expenses in 1999 include $1.8 in retention plan
expenses.
17
<PAGE>
COMPARISON OF THE OLD SUBORDINATED DEBENTURES TO THE NEW SUBORDINATED
DEBENTURES
The following is a brief comparison of certain provisions of the Old
Subordinated Debentures with the New Subordinated Debentures. For a more
detailed description of the provisions of the New Subordinated Debentures, see
"DESCRIPTION OF NEW SUBORDINATED DEBENTURES."
<TABLE>
<CAPTION>
OLD SUBORDINATED DEBENTURES NEW SUBORDINATED DEBENTURES
---------------------------- ----------------------------
<S> <C> <C>
Aggregate Principal
Amount Outstanding...... $103.5 million $40 million
Maturity Date........... April 1, 2011 April 1, 2010
Interest................ 6 1/4% per annum, payable in 6 1/4% per annum, payable in
cash on April 1 and October cash on April 1 and October
1 of each year 1 of each year
Redemption.............. The Old Subordinated The New Subordinated
Debentures may be redeemed Debentures may be redeemed
at the option of the at the option of the
Company, in whole or in Company, in whole or in
part, at a premium which part, at par.
declined to par on April 1,
1996.
Conversion.............. The Old Subordinated The New Subordinated
Debentures are convertible Debentures are not
into shares of the Company's convertible.
common stock at any time
prior to maturity at a
conversion price of $31.25
per share (subject to
adjustment).
Ranking; Security....... The Old Subordinated Same
Debentures are subordinated
to the prior payment when
due of all Senior
Indebtedness (as defined in
the Old Subordinated
Debenture Indenture,
including the Citibank
Secured Claims, the Other
Secured Claims, the Bank
Lender Claims, and certain
LGE Claims) and are not
secured.
Sinking Fund............ The Company is required to None
provide through the
operation of a sinking fund
for the retirement on April
1 in each of the years 1997
to and including 2010 of 5%
of the principal amount of
the Old Subordinated
Debentures at par. The
Company may increase any
sinking fund payment to
retire up to an additional
5% of the principal amount
of the Old Subordinated
Debentures originally issued
at par.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
OLD SUBORDINATED DEBENTURES NEW SUBORDINATED DEBENTURES
---------------------------- ----------------------------
<S> <C> <C>
Events of Default....... Events of Default with Same
respect to the Old
Subordinated Debentures
include, among other things,
default in payment of
principal or premium,
default for 30 days in
payment of interest, default
in the performance of other
covenants for 90 days after
notice, the acceleration of
any indebtedness for
borrowed money of the
Company or any Subsidiary
aggregating at least $5
million and not rescinded
within 10 days after written
notice, and certain events
of bankruptcy, insolvency or
reorganization.
Remedies................ If an Event of Default Same
occurs, the Trustee or the
holders of at least 25% in
principal amount of all Old
Subordinated Debentures then
outstanding may declare the
principal of all the Old
Subordinated Debentures due
and payable.
Covenants............... The Old Subordinated Same
Debenture Indenture does not
contain restrictive
covenants. The only
covenants of the Company are
those regarding (i) payment,
(ii) provision of periodic
reporting, (iii)
substitution of successors,
and (iv) administrative
matters, such as maintenance
of a register of debenture
holders, offices for notice
and payment, filling
vacancies in the trustee's
office and the provision of
a paying agent.
</TABLE>
VOTING PROCEDURES
The Bankruptcy Code provides that acceptances obtained prior to the filing of
a petition will be effective in a chapter 11 case if the pre-petition
solicitation of the acceptances complies with applicable non-bankruptcy law
governing the adequacy of disclosure or, if there is no such applicable non-
bankruptcy law, "adequate information" as defined under the Bankruptcy Code is
furnished in connection with the Solicitation. The Company intends to use the
ballots ("Ballots") and master ballots ("Master Ballots") received pursuant to
this Solicitation to confirm the Prepackaged Plan once it has filed its
Prepackaged Chapter 11 Case. The Company believes that this Solicitation
complies with such applicable non-bankruptcy law and otherwise contains
"adequate information" and will seek appropriate findings from the Bankruptcy
Court in this regard.
19
<PAGE>
Acceptance of the Prepackaged Plan
The Company will not hold a creditors' or shareholders' meeting to vote on
the Prepackaged Plan. Rather, the Company is soliciting acceptances of the
Prepackaged Plan by means of Ballots and Master Ballots. Any holder of Impaired
Claims who wishes to vote with respect to the Prepackaged Plan should complete,
sign and return the applicable Ballot or Master Ballot in accordance with the
instructions set forth in this Disclosure Statement.
All holders of Unimpaired Claims (as defined herein) are conclusively
presumed under the Bankruptcy Code to have accepted the Prepackaged Plan.
Consequently, the Company is not soliciting acceptance of the Prepackaged Plan
from holders of Unimpaired Claims.
Any Class not receiving or retaining any consideration under the Prepackaged
Plan is deemed to have rejected the Prepackaged Plan. Consequently, holders of
Equity Interests are presumed under the Bankruptcy Code to have rejected the
Prepackaged Plan, and the Company is not soliciting acceptance of the
Prepackaged Plan from holders of Equity Interests.
The following Classes of Claims are impaired under the Prepackaged Plan, and
all holders of Claims in such Classes as of the Voting Record Date are entitled
to vote to accept or reject the Prepackaged Plan: (i) Class 4--Bank Lender
Claims; (ii) Class 6--Old Subordinated Debenture Claims; and (iii) Class 7--LGE
Claims. A Class of Claims will have accepted the Prepackaged Plan if votes to
accept are cast by the holders of at least two-thirds in amount and more than
one-half in number of Claims of such Class that vote on the Prepackaged Plan.
See "RISK FACTORS--Certain Bankruptcy Considerations--Nonacceptance of the
Prepackaged Plan--Confirmation by Cram Down." Any holder of Claims in more than
one Class is required to vote separately with respect to each Class in which
such holder has Claims. Please use a separate Ballot of the appropriate form to
vote each such Class of Claims.
Pursuant to the terms and conditions of the Restructuring Agreement, LGE has
agreed to vote all of its Claims in favor of the Prepackaged Plan. Because LGE
is an "insider" within the meaning of Section 101(31) of the Bankruptcy Code,
the Class containing its claims cannot be an impaired accepting class for
purposes of the "cram down" provisions of the Bankruptcy Code, however. No
other creditor has any agreement with the Company with respect to its voting
for or against the Prepackaged Plan.
In the event any impaired Class of Claims does not accept the Prepackaged
Plan, the Bankruptcy Court may nevertheless confirm the Prepackaged Plan at the
Company's request pursuant to the "cram down" provisions of the Bankruptcy Code
if at least one impaired Class has accepted the Prepackaged Plan (with such
acceptance being determined without including the acceptance of any "insider"
in such Class) and, as to each impaired Class which has not accepted the
Prepackaged Plan, the Bankruptcy Court determines, among other things, that the
Prepackaged Plan "does not discriminate unfairly" and is "fair and equitable"
with respect to such Class of impaired Claims. See "THE PREPACKAGED PLAN--
Confirmation of the Prepackaged Plan Without Acceptance by All Classes of
Impaired Claims." Because the holders of Equity Interests will receive no
distribution and retain no property under the Prepackaged Plan, that Class is
presumed to have rejected the Prepackaged Plan pursuant to section 1126(g) of
the Bankruptcy Code. Therefore, that Class will be subject to "cram down" as
part of the Confirmation of the Prepackaged Plan. IN ADDITION, IF THE HOLDERS
OF THE OLD SUBORDINATED DEBENTURE CLAIMS DO NOT ACCEPT THE PREPACKAGED PLAN,
THE COMPANY INTENDS TO INITIATE A "CRAM DOWN" PROCEDURE WITH RESPECT TO THE
CLASS COMPOSED OF THE HOLDERS OF THE OLD SUBORDINATED DEBENTURES. IF SUCH A
"CRAM DOWN" IS APPROVED BY THE BANKRUPTCY COURT, HOLDERS OF THE OLD
SUBORDINATED DEBENTURE CLAIMS WOULD RECEIVE NO DISTRIBUTION AND RETAIN NO
PROPERTY.
This Disclosure Statement, together with the accompanying forms of Ballot and
Master Ballot, pre-addressed postage-paid envelope and other materials (the
"Solicitation Materials"), are being furnished to
20
<PAGE>
holders of the Old Subordinated Debentures (i.e., holders whose respective
names (or the names of whose nominees) appear as of the Voting Record Date on
the securityholder lists maintained by State Street Bank & Trust Company,
indenture trustee under the Old Subordinated Debenture Indenture or, if
applicable, who are listed as participants in a clearing agency's security
position listing). If such persons or entities do not hold for their own
account, they should provide copies of this Disclosure Statement and the
appropriate Solicitation Materials to the beneficial owners of the Old
Subordinated Debentures for whose account they hold.
THE SOLICITATION PURSUANT TO THIS DISCLOSURE STATEMENT WILL EXPIRE ON
. TO BE COUNTED, BALLOTS AND, WHEN APPROPRIATE, MASTER BALLOTS,
MUST BE RECEIVED BY 5:00 PM., NEW YORK CITY TIME, ON (THE
"EXPIRATION DATE"), UNLESS THE COMPANY, IN ITS SOLE DISCRETION, EXTENDS OR
WAIVES THE PERIOD DURING WHICH BALLOTS AND MASTER BALLOTS WILL BE ACCEPTED BY
THE COMPANY, IN WHICH CASE THE TERM "EXPIRATION DATE" FOR SUCH SOLICITATION
SHALL MEAN THE LAST TIME AND DATE TO WHICH SUCH SOLICITATION IS EXTENDED.
Except to the extent the Company so determines or as permitted by the
Bankruptcy Court, Ballots or Master Ballots received after the Expiration Date
will not be accepted or counted in connection with the request for Confirmation
of the Prepackaged Plan.
The Company expressly reserves the right, at any time or from time to time,
to extend the period during which the Solicitation is open. During any
extension of the Solicitation, all Ballots and Master Ballots previously given
will remain subject to all the terms and conditions of the Solicitation,
including the revocation rights specified herein. To extend the Expiration
Date, the Company will notify the Solicitation Agent of any extension by oral
or written notice and will make a public announcement thereof, each at any time
prior to 10:00 a.m., New York City Time, on the next business day after the
previously scheduled Expiration Date. Without limiting the means by which the
Company may choose to make any public announcement, the Company will not have
any obligation, unless otherwise required by law, to publish, advertise or
otherwise communicate any such public announcement other than by issuing a news
release through the Dow Jones News Service. There can be no assurance that the
Company will exercise its right to extend the Solicitation.
Ballots or Master Ballots previously delivered may be withdrawn or revoked at
any time prior to the Expiration Date by the beneficial owner on the Voting
Record Date who completed the original Ballot or by the nominee who completed
the Master Ballot on such beneficial owner's behalf, as the case may be. The
Company does not intend to commence a case under chapter 11 of the Bankruptcy
Code prior to the Expiration Date, although it reserves the right to do so in
its sole discretion. After commencement of a case under the Bankruptcy Code,
withdrawal or revocation of any Ballot or Master Ballot may be effected only
with the approval of the Bankruptcy Court.
The Company expressly reserves the right to amend, at any time and from time
to time, the terms of the Solicitation and the Prepackaged Plan (subject to
compliance with the requirements of section 1127 of the Bankruptcy Code, the
Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules") and any applicable
non-bankruptcy laws and, pursuant to the Restructuring Agreement, the approval
of LGE).
Beneficial owners of Claims as of the Voting Record Date electing to vote on
the Prepackaged Plan should complete and sign the applicable Ballot and, when
applicable, Master Ballot, and check the box entitled "Accepts the Prepackaged
Plan" or "Rejects the Prepackaged Plan," as appropriate. Except as provided on
the applicable Ballot or Master Ballot, the applicable duly completed Ballot or
Master Ballot must be mailed or delivered to the Solicitation Agent at the
address listed on the back cover of this Disclosure Statement. It is incumbent
upon each holder of an Impaired Claim to select a delivery method for the
submission of its Ballot or Master Ballot that will ensure timely receipt
thereof in accordance with the instructions for voting set forth herein. Any
beneficial owner whose securities were registered or held of record in the name
of his broker, dealer,
21
<PAGE>
commercial bank, trust company, savings and loan or other nominee ("Nominee")
who wishes to vote on the Prepackaged Plan, but who does not have a Ballot,
should contact such Nominee and request a Ballot from such Nominee and return a
completed Ballot to such Nominee.
Under the Bankruptcy Code, for purposes of determining whether the requisite
acceptances have been received by an impaired Class of Claims, only beneficial
owners who vote will be counted. Failure of a beneficial owner to send to its
Nominee or to the Solicitation Agent a properly executed Ballot or Master
Ballot will be deemed to constitute an abstention by such beneficial owner with
respect to a vote regarding the Prepackaged Plan. Abstentions, as a result of
not submitting a properly executed Ballot or Master Ballot, will not be counted
as votes for or against the Prepackaged Plan.
Issues or disputes relating to the classification of holders of Claims or
Equity Interests could result in a delay in the Confirmation and Consummation
of the Prepackaged Plan, and could increase the risk that the Prepackaged Plan
will not be consummated. See "RISK FACTORS--Certain Bankruptcy Considerations."
Solicitation Agent
Georgeson & Company Inc. will act as the solicitation and voting agent (the
"Solicitation Agent") in connection with the Solicitation. Its telephone number
is (800) 223-2064. All inquiries relating to the Solicitation, including any
inquiries concerning the voting, should be directed to the Solicitation Agent
at such telephone number. All deliveries to the Solicitation Agent relating to
the Solicitation should be directed to the address set forth on the back cover
page of this Disclosure Statement. Requests for information or additional
copies of this Disclosure Statement or Ballots should be directed to the
Solicitation Agent. See "SOLICITATION; VOTING PROCEDURES--Withdrawal of
Ballots; Revocation."
Notice Agent
The Company intends to seek approval of the Bankruptcy Court to hire Poorman
Douglas Corporation as the notice agent in connection with the Prepackaged
Chapter 11 Case (the "Notice Agent"). The Notice Agent will process and deliver
notices as required during the Prepackaged Chapter 11 Case. It may also assist
the Company with other tasks.
U.S. FEDERAL INCOME TAX MATTERS
Upon consummation of the transactions contemplated by the Prepackaged Plan,
the Company anticipates realizing approximately $63.5 million of cancellation
of debt income attributable to the exchange of New Subordinated Debentures for
the Old Subordinated Debentures and possibly an additional amount of
cancellation of debt income attributable to the satisfaction of certain other
Claims. The Company had an estimated $835.6 million NOL carryover as of
December 31, 1997, which may be decreased by the amount of cancellation of debt
income realized as a result of the Restructuring.
In addition, the Company anticipates that it will undergo an "ownership
change" within the meaning of Section 382 of the Internal Revenue Code of 1986,
as amended ("Tax Code") as a result of the Restructuring. Generally, if a
corporation undergoes an ownership change, its annual use of its NOL carryover
to offset taxable income in taxable years after the ownership change will be
limited by Section 382 of the Tax Code (the "Section 382 Limitation"). The
Section 382 Limitation is generally equal to the product of the net equity
value of all of the corporation's stock immediately before the ownership change
and the long-term tax-exempt rate for the month in which the ownership change
occurs. (The long-term tax exempt rate for November 1998 is 5.02%).
Section 382(l)(5) provides an exception to the application of the Section 382
Limitation for ownership changes which occur as a result of a bankruptcy
reorganization. The Section 382(l)(5) exception will apply if the
22
<PAGE>
corporation's pre-bankruptcy shareholders and holders of "qualifying debt" own
at least 50% of the corporation's stock after the reorganization. The Company
believes that the exchanges contemplated by the Prepackaged Plan will qualify
for the Section 382(l)(5) exception so that the Company's use of its NOL
carryover after consummation of the Prepackaged Plan will generally continue
unimpaired. However, under Section 382(l)(5), such NOL carryover will not
survive a subsequent ownership change if such ownership change occurs during
the 2-year period immediately following Consummation of the Prepackaged Plan.
If the Company does not qualify for Section 382(l)(5) or elects not to apply
Section 382(l)(5), Section 382(l)(6) will apply, in which case the Section 382
Limitation will be calculated by reference to the net equity value of the
Company's stock immediately after the ownership change (as opposed to
immediately before the ownership change, as is the case for non-bankruptcy
ownership changes). In such case, since it is unclear what the net equity value
of the Company immediately after consummation of the Prepackaged Plan will be,
the Company's use of its NOL carryover may be substantially limited after the
ownership change.
The rules regarding ownership changes are very complicated, and although the
Company believes there will be an ownership change upon consummation of the
Prepackaged Plan, it is possible that such change will not constitute an
ownership change. In such case, any change after the Effective Date that
affects the percentage stock ownership of a 5% shareholder may trigger an
ownership change upon such event. If the Company is not in bankruptcy at such
time, neither the Section 382(l)(5) nor Section 382(l)(6) exception will be
available, and the Company's use of its NOL carryover will be subject to the
general Section 382 Limitation as described above.
RISK FACTORS
Acceptance of the Prepackaged Plan and ownership of the Company's securities
involves a high degree of risk. Prior to deciding whether and how to vote on
the Prepackaged Plan, each holder of Impaired Claims should consider carefully
all of the information contained in this Disclosure Statement, especially the
factors described in "RISK FACTORS."
23
<PAGE>
RISK FACTORS
Holders of Impaired Claims should read and carefully consider the factors
set forth below, as well as the other information set forth or otherwise
referenced in this Disclosure Statement, prior to voting to accept or reject
the Prepackaged Plan. See "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS."
RECENT OPERATING RESULTS, INDEPENDENT AUDITOR'S REPORT AND HIGH LEVERAGE
The Company faces liquidity problems caused by its significant debt burden
and its historical net losses. The Company incurred net losses of $178.0
million and $299.4 million for the years ended December 31, 1996 and 1997,
respectively. The Company had a net loss of $187.8 million (including $107.8
million of restructuring charges) for the nine months ended September 26,
1998. The Company's cash flows in 1996 and 1997 were, and its projected cash
flows in the current and future years are projected to be, insufficient to
meet its operating expenses, including its current interest and principal
repayment obligations. The Company's independent public accountants included
in their report on the Company's consolidated financial statements for the
fiscal year ended December 31, 1997 an explanatory paragraph that describes
the significant uncertainty about the Company's ability to continue as a going
concern due to recurring losses and a negative working capital position, and
that the Company's financial statements do not reflect any adjustment that
might result from the outcome of this uncertainty. See "INDEX TO FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA" and "ANNEX B--MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
As of September 26, 1998 the Company had $672.4 million in total current
liabilities (including a $134.0 million vendor credit line payable to LGE) and
a deficit in stockholders' equity of $276.8 million. As of September 26, 1998,
the Company's current liabilities included $30 million in demand loans
guaranteed by LGE, and $72 million of LGE Reimbursement Claims resulting from
LGE payments of $72 million under guarantees of other demand loans. Although
the Financial Restructuring will reduce the Company's debt obligations by
approximately $300 million upon the Confirmation of the Prepackaged Plan, the
Company projects it will still have $233.2 million of indebtedness and will
therefore remain highly leveraged after the Financial Restructuring. The
Company's high leverage poses substantial risks to holders of the Company's
debt and equity securities.
The Amended Citibank Credit Facility currently expires on the earlier of a
bankruptcy filing by the Company or December 31, 1998. The Company is in
negotiations to extend or replace the Amended Citibank Credit Facility, but
there can be no assurance that the Company will be able to do so or of the
terms on which it would be able to do so. See "--Possible Defaults; Risk of
Acceleration or Termination." In addition, the Company is in discussions with
potential lenders regarding financing during the Prepackaged Chapter 11 Case
and following Consummation of the Prepackaged Plan. The Company believes that
if it obtains satisfactory financing, following Consummation of the
Prepackaged Plan, the Company's cash generated by operations and the estimated
levels of liquidity available to the Company will be sufficient to permit the
Company to satisfy its debt service requirements and other capital
requirements. However, such belief is based on various assumptions, including
those regarding the terms of new financing and those underlying the Business
Plan Projections. Accordingly, there can be no assurance that the Company's
financial resources will be sufficient for the Company to satisfy its debt
service obligations and other capital requirements.
CERTAIN RISKS RELATING TO THE BUSINESS PLAN PROJECTIONS
The Company has developed its 1999-2003 business plan based on certain
assumptions concerning its business, its ability to implement the Operational
Restructuring, the general domestic market for consumer electronics products,
its ability to sell assets, and timelines relating to its restructuring
activities. See "BUSINESS PLAN PROJECTIONS." In the event that the actual
performance of the Company is below that projected, the domestic market or
demand for consumer electronics products is less than projected or the time
24
<PAGE>
required to achieve certain milestones in the Operational Restructuring is
greater than expected, the Company may not be able to generate sufficient cash
flow to meet its debt service requirements or operating cash needs.
The Company prepared the Business Plan Projections in connection with the
planning and development of the Operational Restructuring and the Prepackaged
Plan. The Business Plan Projections assume that all aspects of the Prepackaged
Plan and the Operational Restructuring will be successfully implemented on the
terms outlined in this Disclosure Statement. Because such projections are
based on forecasts of key economic variables, the estimates and assumptions
underlying the Business Plan Projections are inherently uncertain and, though
considered reasonable by the Company, are subject to significant business,
economic and competitive uncertainties. The current economic crisis in Asia,
where many major consumer electronics companies are headquartered and where a
significant percentage of consumer electronics products are manufactured, may
have a material impact on the Company's ability to realize the Business Plan
Projections. The Company could face increased competition and price pressure
for its products if Asian manufacturers shift sales to the U.S. domestic
markets as a result of decreased consumer demand in other markets. Many of the
Company's competitors are larger, more vertically integrated, currently
manufacture in and sell to a number of international markets and may have
greater access to capital during prolonged economic difficulties. There can be
no assurance that the Business Plan Projections will be realized, and actual
results may vary materially and adversely from those shown. The Business Plan
Projections were developed in connection with the development of the
Prepackaged Plan and should not be relied on for any other purpose. See
"BUSINESS PLAN PROJECTIONS."
Operating Entities, Facilities and Business Assumptions
The Business Plan Projections include projected income, expenses and cash
requirements of the Company's consumer electronics core businesses for all
periods covered by the Business Plan Projections. The Business Plan
Projections do not include income, expenses or cash requirements of the
Company's Network Systems Division ("NWS") after 1998, as the Business Plan
Projections assume that all or a portion of those business lines will be sold
during 1998. The Business Plan Projections incorporate the proceeds of the
sale of manufacturing facilities and also include certain expenses associated
with such sales, including environmental clean-up costs, employee severance
and relocation expenses and brokerage fees associated with the sale of assets
or operating businesses. The Business Plan Projections contemplate that the
Company will outsource all or substantially all products and exit
manufacturing by the end of the first quarter of 1999, and that all
manufacturing facilities will be transferred or sold to third parties by the
third quarter of 1999. The Company has taken significant charges in 1998
related to termination of the Leveraged Leases.
The Business Plan Projections assume that products required for the
Company's offered lines in 1999 and later years will be available and
obtainable from third parties, including LGE, at the prices or margins set
forth in the Business Plan Projections. No allowances have been made or
contingencies budgeted for in the event there are shortages in raw materials,
component parts or finished product within the requirements of the Company's
projected product lines. No allowances have been made for increased costs or
for extraordinary costs associated with procuring or shipping necessary
component parts or finished product in the event of unforseen economic or
political difficulties in the locations from which the Company currently
expects to obtain such goods. If the Company is unable to obtain outsourced
product on expected terms or due to shortages or political or economic
uncertainties or hostilities in any location from which it currently expects
to obtain products, the Company may not be able to meet the timetable or
budget for outsourced products.
The Business Plan Projections also include and assume certain costs and
expenses associated with the transformation from manufacturing to a sales,
distribution and technology strategy. Such costs and expenses include
severance and vacation relating to layoffs in the manufacturing segments of
the Company's business, legal costs for contract terminations, environmental
charges associated with the disposition of facilities, outplacement expenses
for personnel, retention program costs for key personnel and consultant fees
for professionals. The Company's estimates and assumptions with respect to all
such fees include estimates of the time required to complete project phases.
If the outsourcing initiatives take more time than assumed in the
25
<PAGE>
Business Plan Projections, or if unexpected additional expenses are incurred,
the Company may not be able to achieve its timetable and budget for the
outsourcing initiatives.
The Business Plan Projections also include certain assumptions concerning
accounts receivables and inventory turns, as well as for capital budget
requirements and depreciation expense. Those assumptions are based on current
performance and the expectation of improved performance during the Company's
restructuring and conversion to outsourcing. Such improvements in performance,
particularly with respect to inventory and accounts receivable turns, depend
in part on factors outside of the control of the Company, such as the market
for consumer electronics and the general economy. Lack of demand for consumer
goods and a general downturn in the economy would have a detrimental effect on
the Company's planned performance in these areas. The Company anticipates that
additional costs will be incurred, including increased interest and carrying
costs, if it is unable to achieve the performance levels and timing for
performance as contemplated in the Operational Restructuring. If the Company
is unable to meet improved performance goals, the Company may not be able to
meet the budget established under the Business Plan Projections.
Assumptions Concerning Credit Facilities
The Company executed the Amended Citibank Credit Facility as of June 29,
1998. The Amended Citibank Credit Facility expires on the earlier of a
bankruptcy filing by the Company or December 31, 1998. The Company is in
negotiations to extend or replace the Amended Citibank Credit Facility. See
"--Possible Defaults; Risk of Acceleration or Termination." The Company also
is in discussions with lenders regarding debtor-in-possession financing to
cover the period during the pendency of the bankruptcy proceeding and a new
credit facility to cover the period following Consummation of the Prepackaged
Plan. In addition, pursuant to the Restructuring Agreement, LGE has agreed to
provide the LGE New Credit Support and has provided a letter of intent
covering such facility. LGE's obligation to provide such financing is subject
to the conditions set forth in the Restructuring Agreement. The Business Plan
incorporates certain assumptions about the terms, conditions and available
borrowings under both the debtor-in-possession ("DIP") and post-restructuring
financing arrangements. In particular, the Company assumes that it would be
able to obtain a DIP facility of not less than $125 million in total
availability, secured by the Company's assets, including inventory,
receivables, fixed assets and intellectual property, at interest rates
comparable to market rates and margins for similar facilities offered to other
debtors. The Company assumes that it will be able to obtain post-restructuring
financing in an amount of not less than $100 million on terms satisfactory to
the Company, and at market rates and margins offered to similarly situated
borrowers. Failure of the Company to obtain credit facilities meeting the
availability levels or on less favorable terms than those included in the
Business Plan Projections may adversely affect the Company's ability to
implement the Operational Restructuring.
Assumptions Concerning VSB
The Company has developed the vestigial sideband ("VSB") digital
transmission system adopted by the Federal Communications Commission as part
of the Advanced Television Systems Committee ("ATSC") digital television
broadcast standard for terrestrial broadcasting. Any consumer product that
receives an ATSC digital television signal will require the use of the
Company's technology. However, the rate of absorption of the technology into
the U.S. consumer electronics industry cannot be determined with certainty at
this time.
Initial digital broadcasts began in the U.S. in selected markets in November
1998. All digital signals originating at or directly from broadcasters'
terrestrial transmission antennas are mandated to use the ATSC digital signal
standard. The ATSC mandate will not, however, apply to non-terrestrial digital
signals such as cable or satellite system signals under current regulations.
Cable or satellite system operators may elect to use or carry some form of
ATSC digital signal, but will not be required to do so. In the United States,
the cable television industry, which provides television transmissions to
approximately 70% of U.S. households, has not currently indicated that it will
carry transmissions in VSB-compatible formats.
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The Business Plan Projections assume certain timing and absorption of
digital products by consumer markets, and that the current federally mandated
timing of HDTV and digital broadcasts would be met. While initial digital
broadcasts began in November 1998, the amount of programming is expected to be
limited for some time. In addition, television manufacturers, including the
Company, are experiencing delays in getting digital products to market at
mass-market price points. The Business Plan Projections contemplate that
domestic VSB royalties, excluding development costs, received by the Company
in cash will account for a significant portion of the Company's cash flow by
2003. See "BUSINESS PLAN PROJECTIONS." These royalties would be received from
the integration of the VSB technology into televisions, VCRs, DVDs, converter
boxes, personal computers, satellite boxes, cable boxes and add-in cards for
personal computers.
The Business Plan Projections also include certain assumptions concerning
the royalty rates that the Company will be able to negotiate from other
consumer electronics companies and other potential users of VSB technology.
There can be no assurance that the Company will be able to obtain the royalty
rates included in its projections. Additionally, the Company's cash flow
income from VSB royalties may be adversely impacted by royalty free cross-
licensing agreements involving VSB which are required in order to give the
Company access to technologies which it believes are necessary for its own
product lines.
The absorption rate of VSB technology into other non-television consumer
electronics, such as personal computers, is uncertain at this time. There can
be no assurance that VSB technologies will be incorporated into non-television
consumer electronics within the time periods and at the absorption rates
contemplated by the Business Plan Projections.
There can be no assurance that the ATSC digital television standard will be
adopted in other countries. Canada, Taiwan, the Republic of Korea and
Argentina have adopted the ATSC digital television standard that would
incorporate VSB technologies but Western Europe and Australia have already
adopted a non-VSB digital broadcast standard and Japan appears likely to adopt
a non-VSB standard. The Business Plan Projections do not include non-domestic
(i.e., non-United States) revenues from licensing activity and royalties
relating to VSB technologies because the Company believes such revenues to be
highly speculative and unreliable for business planning purposes. Potential
non-domestic VSB revenues are subject to certain risks and variables that are
far more extensive and material than the risks and variables presented by the
Company's domestic VSB revenue projections. These risks and variables include:
international economic conditions, both market-by-market and global; standards
adoption processes and the interaction between de facto and government decreed
standards (for countries that have yet to adopt a standard); influence of
infrastructural elements; lack of historical information for the potential
market; market drivers and consumer adoption; political and economic
influences as among potential market countries; source of transmission
content; lack of patent protection in some countries; technical
considerations; broadcaster plans; and consumer electronics equipment
manufacturer plans. See "BUSINESS PLAN PROJECTIONS--Assumptions Concerning
VSB."
Additionally, the ATSC digital television standard is one of several
technologies currently competing for dominance in digital broadcasting
internationally. In addition to the alternative broadcast standard adopted in
Western Europe and Australia, cable television and satellite providers each
employ a different competing standard that allows for digital broadcasts over
those systems. Japan has also developed an alternative digital broadcasting
standard. In all cases, the companies associated with competing digital
broadcast standards are currently involved in efforts to seek adoption of
those competing standards in other countries that have not yet established
national standards. In many cases, those companies have greater resources
available to promote the competing standards than those resources available to
the Company for similar efforts. There can be no assurance that the ATSC
standard, and therefore VSB technology, will achieve a significant market
share globally, or that, in the face of technological innovation, will remain
the standard in markets where it is currently adopted.
RISKS ASSOCIATED WITH PROPOSED OPERATIONAL RESTRUCTURING
The Company has formulated the Operational Restructuring, which contemplates
that the Company will substantially restructure the way in which it does
business. The Company plans to transform its primary business
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operations from those of a vertically integrated television manufacturer, with
research and development design, manufacturing, marketing, sales,
distribution, parts and service functions, to a sales, distribution, and
technology company with all or substantially all product lines produced on an
outsourced basis. There are potential disadvantages, adverse consequences and
risks associated with the Operational Restructuring.
Exiting Manufacturing
Zenith currently operates six major manufacturing centers in the United
States and Mexico for the production and assembly of televisions and
television components and accessories, and for cable and satellite set-top
boxes. The Operational Restructuring includes initiatives to sell or close its
Melrose Park, Illinois operations by the end of the fourth quarter of 1998.
The Operational Restructuring contemplates that the other manufacturing
facilities will close by the end of the first quarter of 1999 and be sold by
the end of the third quarter of 1999. Until a sale or closure of any facility
has been finalized, the Company would continue to bear some costs associated
with basic maintenance relating to plant and equipment. With respect to the
closing or sale of the Company's Mexican operations, under Mexican law,
certain tax, administrative, severance and other employee benefit claims enjoy
priority treatment and will be paid first from potential proceeds of the sale
or transfer of such assets. The Company currently estimates the aggregate of
such payments to be approximately $44.2 million. Additionally, the Company
expects that it will incur additional expenses related to expatriate U.S.
workers assigned to Mexican facilities, including relocation costs.
The Company may not be able to accomplish the sale of each of its facilities
within the time frame contemplated by the Operational Restructuring or may be
unable to obtain offers at the price levels contemplated in the Business Plan
Projections. Failure to finalize any sale within the schedule of the
Operational Restructuring will result in additional costs and expenses to the
Company. Failure to achieve the sale price contemplated by the Business Plan
Projections may result in a shortfall in cash required to accomplish the
Operational Restructuring. Such additional costs and expenses or cash
shortfalls could have a material adverse effect on the Company's business,
financial condition, results of operations, ability to implement the
Restructuring and ability to meet its financial obligations, including those
under the New Subordinated Debentures. Additionally, the disposition schedule
contemplated by the Operational Restructuring and the nature of the market for
the facilities may adversely affect the selling price for the facilities. The
Company's plants vary in layout, age, features and condition, and may not be
suitable for alternative uses.
In October 1998, the Company announced plans to close its Melrose Park color
picture tube plant in December 1998 and notified its labor unions and
employees concerning the possible plant closure. In November 1998, the Company
entered into an agreement with a major international consumer electronics
company for the purchase of some of the equipment located at the Company's
Melrose Park facility, including some of the equipment previously leased by
the Company under the Leveraged Lease (Melrose Park). A portion of the sale
price of such equipment will be in credits against future purchases of color
picture tubes from that company. The sale of such equipment will preclude
additional picture tube manufacturing at the Melrose Park facility after the
plant closure. There can be no assurance that the Company will be successful
in its attempts to locate a buyer or achieve the selling prices within the
schedule or budget set forth in the Operational Restructuring for the
property, plant and the remaining equipment located in Melrose Park.
On October 7, 1998, the Company sold its Glenview, Illinois headquarters
building to BRE/Glenview I Inc. The terms of the sale included a lease
agreement under which the Company will continue to be a tenant in the building
through December 1999. The proceeds of the sale were used, as required under
the Amended Citibank Credit Facility, to repay certain debt under that
facility, which permanently reduced that portion of the facility secured by
the Company's real estate assets.
The sale of the Mexican manufacturing facilities is dependent in part on the
condition of the real estate market in Mexico in general and in the
"maquiladora" designated regions in particular. International trade
considerations, including customs, duties, North American Free Trade Agreement
("NAFTA") requirements and the currency markets with respect to the Mexican
Peso and currencies of other competing off-shore
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manufacturing areas influence the decision of other companies to select Mexico
as a manufacturing location. There are substantial risks associated with
changes in international economies, particularly those in Asia, that may
influence the Company's ability to sell its Mexican operations within the
schedule and budget set forth in the Operational Restructuring.
The Company will depend on third-party suppliers to provide the Company with
substantially all of the Company's 1999 consumer electronics product line. If
the Company is unable to enter into necessary outsourcing contracts for its
1999 model year by January 1, 1999, as contemplated by the Operational
Restructuring, the Company may be unable to sell or close some plants and
equipment and/or reduce inventories as contemplated by the Operational
Restructuring. Failure to sell these assets as contemplated by the Operational
Restructuring would result in a shortfall in cash required to implement the
Operational Restructuring and could have a material adverse effect on the
Company's business, financial condition, results of operations, ability to
implement the Restructuring and ability to meet its financial obligations,
including those under the New Subordinated Debentures.
The Financial Restructuring currently anticipates that the Company will
transfer the Reynosa Assets to LGE in exchange for the forgiveness of debt
owed by the Company to LGE, and the Operational Restructuring currently
provides that the Company will outsource certain products from the LGE-owned
Reynosa Assets after the Restructuring. The Company and LGE have not yet
entered into any agreement or contract concerning the products to be
outsourced from the Reynosa Assets after the transfer to LGE, nor has pricing
for those products been established; however, the parties are engaged in
negotiations while the structure of the Reynosa Assets transfer under the
Financial Restructuring is being finalized. The Company believes that it would
be beneficial to its outsourcing efforts to have the Reynosa Assets (while
owned by LGE) provide certain products due to the general unavailability of
certain screen-sized televisions and uniquely designed commercial products
models through other manufacturers. The Company currently anticipates
purchasing approximately $469 million in finished products and components from
the Reynosa facility for its 1999 model year. Because no contract concerning
transfer of the Reynosa Assets or outsourcing from the Reynosa Assets
following the transfer to LGE currently exists, there can be no assurance that
the Company will be able to procure products from this source at prices or in
volumes anticipated by the Operational Restructuring.
The Company currently manufactures certain components and sub-assemblies at
the Reynosa facility that may be required by suppliers to the Company
following its exit from manufacturing. The Company and LGE have not yet
reached agreement on whether LGE will continue the manufacture of those
components and sub-assemblies following the transfer of the Reynosa Assets. If
those components and sub-assemblies are not manufactured at Reynosa following
the transfer, the Company may need to seek alternative sources, pre-build
parts and inventories of finished goods, or delay some of its intended product
lines until suitable component and sub-assembly manufacturers can be located
and contracts secured for the Company's products. If the Company is unable to
reach agreement with LGE concerning outsourcing and component supply, the
Company may not be able to implement the Operational Restructuring. See "--
Outsourcing Initiatives."
Environmental issues associated with each property may also affect the value
from the sale of the manufacturing facilities realized by the Company. The
manufacture of televisions and television components involves the use of
hazardous chemicals and substances including metals, caustics, acids, volatile
and semivolatile organic chemicals, plastics and resins. Potential purchasers
of any one of the manufacturing facilities offered for sale by the Company may
require escrows, indemnities or other financial considerations from the
Company. See "RISK FACTORS--Legal Proceedings."
Outsourcing Initiatives
The Operational Restructuring calls for the Company to outsource all or
substantially all of its product lines beginning in 1999. While the Company
currently outsources some small screen televisions, all of its VCRs, and many
television components and accessories, there are substantial risks associated
with the Company's plan to outsource all or substantially all of its product
lines within the time frame provided for in the Operational
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Restructuring, including without limitation: (i) limited manufacturing
capacity within the television and consumer electronics industries; (ii) many
sources of manufacturing capacity for the Company's outsourcing requirements
are the Company's competitors within the United States domestic television
market and may be unwilling to supply products with features and at prices
assumed in the Business Plan Projections; (iii) trade restrictions and customs
duties related to products produced outside of the territories covered by
NAFTA may significantly affect the Company's ability to import goods or
components, particularly high end or high featured televisions, at competitive
prices; (iv) the Company may not be able to meet financial requirements,
including payment and security terms, imposed by outsourcing manufacturers and
component suppliers; and (v) long lead-times required for the design and
sourcing of televisions and consumer electronics (generally in the six- to
twelve-month range) may delay implementation or continued performance of the
Operational Restructuring.
In October and November 1998, Zenith signed definitive supply agreements
with vendors relating to significant portions of its 1999 model year
requirements. These contracts cover console televisions, some small and medium
screen direct view sets, TV/VCR combination sets, and large screen projection
television sets. These contracts are with a number of international consumer
electronics companies and a major specialty consumer electronics assembler. No
minimum purchase volume is established under any of the contracts. Each
agreement provides for price adjustments for changes in Zenith's product
specifications and is subject to finalizing product specifications. In some
cases, the Company has not yet tendered its design or feature specifications
to the manufacturer. Other provisions pertaining to scheduling and unique
parts procurement may also not be finalized in some agreements. Additionally,
some of the agreements have specific financial requirements concerning payment
terms and conditions that may be subject to credit availability under the
Company's DIP or post-restructuring credit facilities during the 1999 model
year.
The Company has also entered into supply agreements with two international
consumer electronics companies relating to color picture tube requirements for
the 1999 model year. Each of the supply agreements requires that the seller
supply a specific percentage of the Company's medium screen color picture tube
requirements. One of the agreements includes provisions relating to the
purchase of some of the equipment located at the Company's Melrose Park
facility, including some of the equipment previously leased by the Company
under the Leveraged Lease (Melrose Park).
While the Company has identified parties that it believes have the capacity
and interest to provide all or substantially all of the products in its 1999
model year line, the Company has not yet entered into definitive agreements
concerning its 1999 model year requirements for HDTV products, front-
projection televisions, VCRs or the medium screen and large screen direct view
televisions that the Company expects to purchase from an affiliate of LGE
after the transfer of the Reynosa Assets or for some accessories and
components.
The ability of the Company to achieve its Operational Restructuring requires
that all outsourcing contract negotiations be finalized within sufficient lead
time to allow product sources to order components and schedule production and
delivery to meet the Company's forecasts. Such lead time schedules vary from
supplier to supplier. Failure of the Company to finalize all product
specifications, allowing suppliers' scheduling of component parts,
manufacturing or delivery could result in delays in delivery of products,
which could, in turn, have a material adverse effect on the Company's
business, financial condition, results of operations, ability to implement the
Restructuring and ability to meet its financial obligations, including those
under the New Subordinated Debentures. Failure of the Company to obtain credit
facilities with sufficient capacity to meet the requirements of those
contracts could result in delays of product delivery and materially impact the
Company's ability to implement the Restructuring.
Pursuant to the Prepackaged Plan, the Company may transfer to LGE the
Reynosa Assets in return for the forgiveness of debt. The Company is currently
negotiating terms with LGE under which the Company will procure certain
products from Reynosa following that transfer but no contract relating to that
outsourcing relationship has been completed at this time. In some cases such
contract may be at prices or under terms less favorable to the Company than
those included in assumptions used in formulation of the Operational
Restructuring. The Company expects, however, that initial pricing terms for
outsourcing from Reynosa to fall
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within the assumptions underlying the Business Plan Projections. The Company
currently anticipates purchasing approximately $469 million in finished
products and components from the Reynosa facility for its 1999 model year, a
portion of which is expected to be purchased following the transfer of the
Reynosa Assets to LGE in connection with the Restructuring. See "BUSINESS PLAN
PROJECTIONS--Cost of Goods Assumptions."
Due to continuing industry production under-capacity for new technology
products, particularly in high end, high feature television sets, the Company
may not be able to offer expanded product lines incorporating such new
technologies at attractive prices. Such products include HDTV sets and plasma
screen monitors. Many of these products typically have higher margins than
older technology, smaller screen products or products with fewer features.
Additionally, manufacturers with over-capacity in these product lines may be
unwilling or unable to manufacture sets to Company specifications or to unique
Company designs due to tooling requirements. Successful brand definition
through unique designs and features is critical to the ability of the
Company's outsourcing efforts. The Company believes it must be able to provide
products which are easily differentiated from those of its competitors,
including competitors providing outsourced products to the Company, in order
for a marketing plan to be successful.
There can be no assurance that the Company will be successful in procuring
all outsourced products at the prices and covering the product lines
contemplated by the Operational Restructuring for the 1999 model year or for
any model year thereafter. With the exception of the picture tube agreement
described above, the Company has not yet entered into any agreements with
suppliers for model years after 1999. Failure of the Company to provide its
planned product line at the designated price points could adversely impact the
ability of the Company to place products in targeted retail outlets or
maintain targeted market share and could have a material adverse effect on the
Company's business, financial condition, results of operations, ability to
implement the Restructuring and ability to meet its financial obligations,
including those under the New Subordinated Debentures. Continued delays in the
implementation of all aspects of the Operational Restructuring or in the
confirmation of the Prepackaged Plan may also adversely influence consumer
attitudes toward the Company's products.
Assumptions Concerning Other Royalty Revenue
The majority of the Company's current royalty income relates to several core
patents used in tuner applications on consumer electronics. Those tuner
patents are scheduled to expire by 2003. The Business Plan Projections assume
that the royalty revenue from licenses associated with the tuner patents,
excluding development and management costs, will be more than $25 million for
each of the years 1998-2002 and $14 million in 2003. In June 1998, Funai
Electric Co., Ltd., a licensee of the Company's tuner patents, filed suit
against the Company seeking a declaratory judgment that the Company's tuner
patents were invalid and unenforceable, or that the plaintiff's use of certain
technologies in its current products did not infringe on the Company's tuner
patents. The complaint seeks the return of previously paid royalties. The
plaintiff is also seeking a preliminary injunction precluding the Company from
terminating its licensing agreement and allowing it to pay future royalties
into an escrow. See "RISK FACTORS--Legal Proceedings" and "BUSINESS--Legal
Proceedings." If a challenge to the tuner patents were successful prior to
2003, or if an alternative technology was developed which alleviated the
requirement that televisions or VCRs include the Company's patented processes,
income received from such patents could be significantly reduced during the
term of the Operational Restructuring. The loss of all or a substantial
portion of such tuner patent royalties would have a material adverse effect on
the Company's business, financial condition, results of operations, ability to
implement the Operational Restructuring and ability to meet its financial
obligations, including those under the New Subordinated Debentures.
Timing
The Business Plan Projections include a number of assumptions concerning the
time within which the Company will achieve certain milestones in its
conversion from a manufacturing to a sales, distribution and technology
company. The Company believes that it will be able to achieve the timetable
established in the
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Operational Restructuring. However, most, if not all, steps in the Operational
Restructuring require actions by parties (such as lenders, suppliers,
customers and purchasers of assets to be sold) or the occurrence of events
(such as asset sales and agreement on outsourcing arrangements) that are
outside of the control of the Company for completion. Any delay in achieving
any portion of the Operational Restructuring could result in additional costs
or expenses to the Company, for which the Company will incur additional cash
needs. Such additional cash needs may not be covered by or available under the
capital and funding structure available to the Company and upon which the
Business Plan Projections are based. For example, elements of the Operational
Restructuring, such as the sale or divestiture of certain assets, the ability
to enter into contracts for outsourced products at the prices and on the
schedules included in the Business Plan Projections, the ability of the
Company to reduce its inventories through sales or the ability of the Company
to draw under certain credit facilities, are all time sensitive within the
Operational Restructuring and are not yet certain. There can be no assurance
that the Company will meet the milestones required under the Operational
Restructuring in accordance and within the time frame assumed in the Business
Plan Projections.
On November 16, 1998, the Company and LGE entered into Amendment No. 1 and
Waiver to the Restructuring Agreement to extend the delivery date of the
Implementation Program (as defined) from August 31, 1998 to November 30, 1998
and to waive until November 30, 1998 the Company's obligation to pay interest
to LGE on certain amounts owed by the Company to LGE.
The Company anticipates that additional modifications to the Restructuring
Agreement will be necessary before the Restructuring can be consummated. For
instance, the Company has revised its Business Plan Projections. Pursuant to
the Restructuring Agreement, material changes to the Business Plan Projections
must be satisfactory to LGE. In addition, LGE may terminate the Restructuring
Agreement if the Prepackaged Plan is not consummated prior to December 15,
1998. The Company does not believe that the Prepackaged Plan will be
consummated prior to such date. The Company and LGE are in discussions
concerning the revisions to the Business Plan Projections, the extension of
the December 15 deadline and related matters, but there can be no assurance
that an agreement can be reached with respect to these issues. If an agreement
is not reached with respect to these issues, the Company will be in default of
the Restructuring Agreement, the conditions to LGE's participation in the
Restructuring will not be met, and the Company will not likely be able to
complete the Restructuring.
Ability to Maximize Value for Network Systems Division
Pursuant to the Operational Restructuring, the Company intends to seek an
investor for, or sell all or a portion of, NWS during 1999. NWS has designed,
manufactured and distributed set top boxes for the cable and satellite
television industries for the past 15 years. The majority of NWS' current
business is derived from two strategic contractual relationships with
Americast and with affiliates of News Corporation for the production of
digital set top boxes. Americast is a consortium of four Regional Bell
Operating Companies which compete with cable and satellite providers in the
delivery of video entertainment services to subscribers. Zenith sells digital
satellite receivers to News Corporation-affiliated satellite network
providers. NWS' main domestic competitors have substantially greater market
share and have strong relationships with large, traditional, domestic cable
television service providers. The Company's current financial situation has to
some extent affected NWS' ability to attract additional business. NWS' main
contracts with Americast and affiliates of News Corporation are assignable
under certain circumstances. Both major NWS customers currently have
alternative sources for some or all set top box models they offer in their
businesses. NWS and its advisors have informed Americast, the consortium
members, and News Corporation of its intention to locate an investor for the
business and elicited their support. The Americast agreement has been amended
to adjust volume, pricing and products covered and to permit the sale of NWS
to a list of certain preapproved parties. The value obtainable for NWS may
also be affected by further contract negotiations involving changes in prices
or volumes. There can be no assurance that the Company will be able to locate
an investor in or to sell NWS within the time period or for the price
contemplated in the Operational Restructuring or that Americast or News
Corporation or their successors will
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consent to any such transaction. Additionally, there can be no assurance that
the Company will continue as a major supplier to Americast or News Corporation
or their affiliates, or that the current contracts will remain in force for
the term of the Business Plan Projections. The Company has received
preliminary bids or indications of interest relating to the purchase of NWS,
all of which are subject to due diligence reviews. No definitive agreement or
letter of intent has been entered into with any of the prospective buyers.
Failure to locate an investor in or to sell NWS on the terms and timing
contemplated by the Business Plan Projections or to continue to be a major
supplier to Americast or News Corporation could result in increased costs,
expenses and cash shortfalls, and could have a material adverse effect on the
Company's business, financial condition, results of operations, ability to
implement the Operational Restructuring and ability to meet its financial
obligations, including those under the New Subordinated Debentures.
Sales, Distribution and Technology Company
The Company's Operational Restructuring contemplates that the Company will
exit manufacturing and will become a sales, distribution and technology
company, capable of designing and specifying features for its products on a
year-by-year basis and largely outsourcing the manufacture of those goods. The
Operational Restructuring assumes that the Company will be able to adopt a
"best of the breed" design philosophy, incorporating the newest and highest
demand features and capacities into its models each year, without regard to
the restrictions of manufacturing capabilities within any supplier's
facilities. The Operational Restructuring also contemplates that the Company
will maintain or build its current warranty, parts and service and accessory
businesses. Failure to implement such design philosophy (or to maintain or
build warranty, accessory, parts and service businesses, including increasing
margins in some of those areas) could have a material adverse effect on the
Company's business, financial condition, results of operations, ability to
implement the Operational Restructuring and ability to meet its financial
obligations, including those under the New Subordinated Debentures.
The Business Plan Projections also assume that the Company's market share
will remain consistent with the Company's historical market share, except that
the Operational Restructuring contemplates that the Company will focus its
efforts in larger screen sizes and in digital products. The Business Plan
Projections assume that the Company will be able to achieve at least a 4% to
7% share of the digital product market in the later years of the Operational
Restructuring. There can be no assurance, however, that the Company will be
able to achieve such market share. The Business Plan Projections assume
certain timing and absorption of digital products by consumer markets, and
that the current federally mandated timing of HDTV and digital broadcasts
would be met. While initial digital television broadcasts began in November
1998, the amount of programming is expected to be limited for some time. In
addition, television manufacturers, including the Company, are experiencing
delays in getting digital products to market at mass-market price points. The
Company has delayed the consumer release of its rear-projection HDTV due to
manufacturing issues and cost considerations.
The television and consumer electronics industries have seen substantial
price erosion since the late 1980s. Since 1994, consumer prices have declined,
on average, from 2% to 5% per year. While high end, large screen sizes have
historically exhibited price erosion at lesser rates or levels than smaller
screen sizes, the price erosion has accelerated in higher end products. The
Business Plan Projections forecast similar price erosion will occur in future
years, with accelerated price erosion in digital products as those products
are more widely produced and available. The Company cannot predict or control
further price erosion. Most television and consumer electronics companies are
vertically integrated, allowing absorption of price erosion across a broad
band of related functions. The highest profit margins within an integrated
business generally are obtainable in the research and development areas
(royalty and licensing payments) and in the sale of after market applications
such as gaming software or accessories. The next highest margins are generally
available in the components and parts and service segments of the industry.
The lowest profit margins generally exist in the assembly and sales segments
of the industry. The Operational Restructuring contemplates that the Company
will retain one segment--sales--with traditionally the lowest margins, one
segment in the mid-range (parts and service), and limited functions in one
high range segment (research and development). Continued price erosion in
consumer electronics beyond that forecast by
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the Business Plan Projections would severely impact the Company's ability to
maintain profit margins contemplated in the Operational Restructuring and
would have a material adverse effect on the Company's business, financial
condition, results of operations, ability to implement the Operational
Restructuring and ability to meet its financial obligations, including those
under the New Subordinated Debentures. The Business Plan Projections also
assume that the Company will be able to reposition its brand, which
repositioning will allow the Company to increase its prices while maintaining
projected volume. There can be no assurance that the Company will be able to
reposition its brand while maintaining projected volumes with increased prices
within the time frames contemplated by the Business Plan Projections.
Manufacturing Alliances to Leverage Technology Applications
The Company currently owns certain patent rights in VSB technology and other
technologies that may be employed in high definition television. While the
Company's VSB technology has been approved by the Federal Communications
Commission as part of the ATSC terrestrial broadcast standard in the U.S., the
Company has very limited resources with which to either develop the technology
or to extend the applications of the technology as the standard in other
markets internationally.
The Operational Restructuring requires that the Company exploit its
technologies, including VSB. Because of the Company's limited resources, such
activities are likely to be undertaken through joint ventures or technical
alliances with third parties. Such joint ventures or alliances would likely be
with other companies currently in the consumer electronics industry that have
manufacturing or marketing synergies with the Company. The Operational
Restructuring contemplates that the Company will locate and enter into
agreements with partners for continued development of projection television,
high definition television and digital set top boxes. LGE does have
manufacturing, technology and marketing capabilities which may be beneficial
to the Company in its efforts to advance the ATSC broadcast standard in
certain key markets and the Company has had discussions with LGE concerning
its interest and the resources available to assist in expanding the
application of the ATSC broadcast standard in other markets, particularly in
Asia and South America. No definitive agreement has been reached concerning
joint efforts between the Company and LGE in those areas. The achievement of
the results contemplated by the Operational Restructuring does not require
that LGE will be one of the parties with whom the Company seeks joint venture
or technological partnerships.
There can be no assurance that the Company will be successful in locating
joint venture partners or technology alliance partners in order to achieve
market or financial returns on its technologies. Many of the Company's
competitors in the consumer electronics industry may have similar technologies
or strategies and the financial resources to proceed without the requirement
of a joint venture or technology alliance. If the competitors are successful
in advocating alternative strategies and technologies that do not include the
Company's patents, the Company will be unable to achieve significant licensing
income from its applications. Failure to locate joint venture partners or
technology alliance partners to achieve acceptable returns on its technology
would have a material adverse effect on the Company's business, financial
condition, results of operations, ability to implement the Operational
Restructuring and ability to meet its financial obligations, including those
under the New Subordinated Debentures.
Employee Retention
The Company's ability to consummate the Operational Restructuring is
dependent in part on its ability to retain and motivate its officers and key
employees. The Company's current financial difficulties have had a detrimental
effect on its ability to attract or retain key officers and employees. The
Company has experienced over the last two years, and continues to experience,
high turnover in the ranks of its executives, professionals, sales and
marketing personnel and technical and engineering staff. In particular,
several key digital technology and software engineers have recently left the
Company. There can be no assurance that the Company will be able to retain or
employ technical and engineering personnel necessary to meet the research and
development goals of the Operational Restructuring. The Company is
implementing a retention program which includes base salary adjustments,
short- and long-term incentive bonuses and retention and stay bonuses for key
senior
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management personnel and approximately 175 other key managers and employees.
See "MANAGEMENT--Executive Officers of the Company." There can be no
assurance, however, that such programs will be successful, and the Company's
inability to retain key individuals could have a material adverse effect on
the Company's business, financial condition, results of operations, its
ability to implement the Operational Restructuring and ability to meet its
financial obligations, including those under the New Subordinated Debentures.
LEGAL PROCEEDINGS
In June 1998, Funai Electric Co., Ltd., a licensee of the Company's tuner
patents, filed suit against the Company seeking a declaratory judgment that
the Company's tuner patents were invalid and unenforceable, or that the
plaintiff's use of certain technologies in its current products did not
infringe on the Company's tuner patents. The complaint seeks the return of
previously paid royalties. The plaintiff is also seeking a preliminary
injunction precluding the Company from terminating its licensing agreement and
allowing it to pay future royalties into an escrow. The court has denied the
plaintiff's request for a temporary restraining order against the Company. See
"--Risks Associated with Proposed Operational Restructuring--Assumptions
Concerning Other Royalty Revenue."
In June 1998, the Company's president and chief executive officer, its
directors, and an affiliate of LGE were named as defendants in a suit filed by
a shareholder in a state court in New Jersey entitled Vengrove v. Gannon, et
al. The suit alleges breach of fiduciary duties by the directors, the officer
and the LGE affiliate arising out of the Company and the Board's actions
related to the Financial Restructuring and Prepackaged Plan. The plaintiff
seeks to be certified as a class representative and the suit designated as a
class action. The suit seeks to enjoin the defendants from proceeding with the
cancellation of the Old Common Stock held by minority shareholders or to
provide compensation to the minority holders for such cancellation. The
Company does not anticipate that the Vengrove litigation will have an adverse
effect on the Company's ability to effectuate the Restructuring. However, if
the court in which the Vengrove litigation is pending were to grant some or
all of the relief sought by the plaintiff, such a ruling could result in a
delay of the commencement of the Prepackaged Chapter 11 Case or of the
consummation of Restructuring.
The Company is also involved in various other legal actions, environmental
matters, and other proceedings relating to a wide range of matters that are
incidental to the conduct of its business. See "BUSINESS--Legal Proceedings."
FINANCING AGREEMENT RESTRICTIONS
The Company is currently engaged in discussions of the terms of both DIP and
post-restructuring facilities with potential lenders. No binding commitment
has been issued by any lender and no facility has been entered into by the
Company covering the DIP or post-restructuring periods. The Business Plan
Projections incorporates assumptions about the terms, conditions and available
borrowings under both the DIP and post-restructuring financing arrangements.
See "BUSINESS PLAN ASSUMPTIONS--Financing Assumptions." Such assumptions were
based on preliminary proposals received from prospective lenders. In
particular, the Company assumes that it would be able to obtain a DIP facility
of not less than $125 million in total availability, secured by the Company's
assets, including inventory, receivables, fixed assets and intellectual
property, at interest rates comparable to market rates and margins for similar
facilities offered to other debtors. The Company assumes that it will be able
to obtain post-restructuring financing in an amount of not less than $100
million on terms satisfactory to the Company, and at market rates and margins
offered to similarly situated borrowers. There can be no assurance that the
Company will obtain either DIP or post-restructuring financing, or that the
terms or conditions of or availability of borrowings under such facilities, if
obtained, will be consistent with the assumptions underlying the Business Plan
Projections. If the Company is unable to obtain financing in an amount and
under terms sufficient to meet the requirements of the Business Plan
Projections, the Company may be unable to complete its Operational
Restructuring. See "DESCRIPTION OF DEBT AND CREDIT ARRANGEMENTS--Short-Term
Debt."
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POSSIBLE DEFAULTS; RISK OF ACCELERATION OR TERMINATION
The Company is a party to a number of financing arrangements. Default by the
Company of its obligations under any such arrangement could result in the
acceleration of the Company's obligations under such arrangements. In the
event such an acceleration were to occur, the full amount of principal and
interest due with respect to the accelerated debt would be immediately due and
payable. In addition, substantially all of the Company's outstanding
indebtedness contains cross-acceleration provisions which could allow the
requisite holder(s) of such indebtedness to accelerate all of its indebtedness
in the event of an acceleration of any portion. The Amended Citibank Credit
Facility expires on the earlier of a bankruptcy filing by the Company or
December 31, 1998. The Company is in negotiations to extend or replace the
Amended Citibank Credit Facility, but there can be no assurance that the
Company will be able to do so, or of the terms upon which if would be able to
do so. If a material amount of the Company's indebtedness were to be
accelerated (which could occur at any time and whether or not there are delays
in obtaining requisite acceptances of the Prepackaged Plan and the filing of
the Prepackaged Chapter 11 Case) or to become due without a replacement
facility, the Company likely would be unable to repay such indebtedness. Under
such circumstances, the Company might have no choice but to seek immediate
relief under the Bankruptcy Code. In the event the Company were required to
commence a chapter 11 case without a pre-approved plan of reorganization, the
Company believes that there is a risk that little, if any, value would be
available for distribution to unsecured creditors. Furthermore, there can be
no assurance that the Company would be able to emerge from such a proceeding
under the Bankruptcy Code, in which case the Company might be forced into a
liquidation proceeding under chapter 7 or chapter 11 of the Bankruptcy Code.
If the Company is sold, the Company believes that the ability of holders of
Claims to recover on their investments would be impaired to an even greater
degree.
CONTROL BY LGE
LGE and LG Semicon presently beneficially own 56.5% of the Old Common Stock
(including vested but unexercised options) and control a majority of the
Board. Following consummation of the Financial Restructuring, LGE will own
100% of the New Common Stock. Accordingly, LGE will continue to have the
ability to control the management policy of the Company and all fundamental
corporate actions, including mergers, substantial acquisitions and
divestitures and other agreements and the election of the Board. See "SECURITY
OWNERSHIP."
LGE may have an interest in pursuing acquisitions, divestitures, financings
or other transactions that, in their judgment, could enhance their investment
in the Company even though such transactions might involve increased risk to
the holders of the New Subordinated Debentures. In addition to their
investment in the Company, LGE is a global consumer electronics company and
along with its affiliates, has, and may develop, additional relationships with
businesses that are or may be competitive with the Company. The Company has
engaged in, and expects to continue to engage in, a number of other
transactions with LGE. For example, if the Prepackaged Plan is consummated and
the Reynosa Assets are transferred to LGE, LGE will sell televisions produced
at the Reynosa facility to the Company for resale by the Company in the United
States. The Company would expect to purchase approximately $469 million of
product in 1999 from LGE under such arrangement. If the Reynosa Asset transfer
does not occur, the Company expects to enter into a management or lease
agreement with LGE pursuant to which LGE would operate such facility. The
Company and LGE are in discussions concerning the joint development of HDTV
products, which may eventually be manufactured by LGE for the Company for
resale by the Company in the United States. See "SPECIAL FACTORS--Events
Leading to the Restructuring" and "CERTAIN TRANSACTIONS."
CERTAIN BANKRUPTCY CONSIDERATIONS
Method of Solicitation
Section 1126(b) of the Bankruptcy Code provides that the holder of a Claim
against, or Equity Interest in, a debtor who accepts or rejects a plan of
reorganization before the commencement of a chapter 11 case is deemed
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to have accepted or rejected such plan under the Bankruptcy Code so long as
the solicitation of such acceptance was made in accordance with applicable
non-bankruptcy law governing the adequacy of disclosure in connection with
such solicitations, or, if such laws do not exist, such acceptance was
solicited after disclosure of "adequate information," as defined under the
Bankruptcy Code. This Disclosure Statement is being presented to all holders
of Impaired Claims in order to satisfy the requirements of section 1126(b) of
the Bankruptcy Code.
The Company believes that the use of the Disclosure Statement and of Ballots
and Master Ballots for the purpose of obtaining acceptances of the Prepackaged
Plan and the Solicitation is in compliance with the Bankruptcy Code. However,
there can be no assurance that the Bankruptcy Court will decide that the
Solicitation meets the requirements of section 1126(b) of the Bankruptcy Code.
If the Bankruptcy Court determines that the Solicitation does not comply with
the requirements of section 1126(b) of the Bankruptcy Code, the Company may
seek to resolicit acceptances, and, in such event, Confirmation of the
Prepackaged Plan could be delayed and possibly jeopardized.
Classification and Treatment of Claims and Equity Interests
Section 1122 of the Bankruptcy Code requires that the Prepackaged Plan
classify Claims against, and Equity Interests in, the Company. The Bankruptcy
Code also provides that, except for certain Claims classified for
administrative convenience, the Prepackaged Plan may place a Claim or Equity
Interest in a particular Class only if such Claim or Equity Interest is
substantially similar to the other Claims or Equity Interests of such Class.
The Company believes that all Claims and Equity Interests have been
appropriately classified in the Prepackaged Plan. The Company has elected to
separately classify General Unsecured Claims because this Class is comprised
largely of trade creditors. Many of these creditors are key suppliers of
products and services used by the Company. Accordingly, any impairment of
these Claims could be detrimental to the ability of the Company to obtain
essential trade credit and could substantially impair the ability of the
Company to do business with trade creditors whose goods and services are
essential for the Company. Bank Lender Claims have been separately classified
because the Company believes that LGE's guaranty of these Claims renders their
legal and financial position substantially unlike other unsecured Claims. LGE
Claims have been separately classified because the holder of these Claims has
voluntarily agreed to convert their debt to equity and because LGE is an
insider. LGE has consented to the separate classification of its Claims as
provided in the Prepackaged Plan. Finally, because the Old Subordinated
Debenture Indenture contains subordination provisions, the Old Subordinated
Debentures are not held by insiders, and the Old Subordinated Debenture Claims
are not guaranteed by LGE, the Company believes that the Old Subordinated
Debenture Claims are significantly different from the other unsecured debt and
therefore must be classified separately.
To the extent that the Bankruptcy Court finds that a different
classification is required for the Prepackaged Plan to be confirmed, the
Company presently anticipates that it would seek (i) to modify the Prepackaged
Plan to provide for whatever reasonable classification might be required for
Confirmation and (ii) to use the acceptances received from any creditor
pursuant to this solicitation for the purpose of obtaining the approval of the
Class or Classes of which such creditor ultimately is deemed to be a member.
Any such reclassification of creditors, although subject to the notice and
hearing requirements of the Bankruptcy Code, could adversely affect the Class
in which such creditor was initially a member, or any other Class under the
Prepackaged Plan, by changing the composition of such Class and the vote
required for approval of the Prepackaged Plan. There can be no assurance that
the Bankruptcy Court, after finding that a classification was inappropriate
and requiring a reclassification, would approve the Prepackaged Plan based
upon such reclassification. Except to the extent that modification of
classification in the Prepackaged Plan requires resolicitation, the Company
will, in accordance with the Bankruptcy Code and the Bankruptcy Rules, seek a
determination by the Bankruptcy Court that acceptance of the Prepackaged Plan
by any holder of Claims pursuant to this solicitation will constitute a
consent to the Prepackaged Plan's treatment of such holder regardless of the
Class as to which such holder is ultimately deemed to be a member. The Company
believes that under the Federal Rules of Bankruptcy Procedure the Company
would be required to resolicit votes for or against the Prepackaged Plan only
when a modification
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adversely affects the treatment of the claim of any creditor or equity
securityholder. See "THE PREPACKAGED PLAN--Modification of the Prepackaged
Plan."
The Bankruptcy Code also requires that the Prepackaged Plan provide the same
treatment for each Claim or Equity Interest of a particular Class unless the
holder of a particular Claim or Equity Interest agrees to a less favorable
treatment of its Claim or Equity Interest. The Company believes it has
complied with the requirement of equal treatment. To the extent that the
Bankruptcy Court finds that the Prepackaged Plan does not satisfy such
requirements, the Bankruptcy Court could deny Confirmation of the Prepackaged
Plan.
Issues or disputes relating to classification and/or treatment could result
in a delay in the Confirmation and Consummation of the Prepackaged Plan and
could increase the risk that the Prepackaged Plan will not be consummated.
Nonacceptance of the Prepackaged Plan--Confirmation by "Cram Down"
In the event any impaired Class of Claims does not accept the Prepackaged
Plan, the Bankruptcy Court may nevertheless confirm the Prepackaged Plan at
the Company's request pursuant to the "cram down" provisions of the Bankruptcy
Code if at least one impaired Class has accepted the Prepackaged Plan (with
such acceptance being determined without including the acceptance of any
"insider" in such Class) and, as to each impaired Class which has not accepted
the Prepackaged Plan, the Bankruptcy Court determines that the Prepackaged
Plan "does not discriminate unfairly" and is "fair and equitable" with respect
to such Impaired Class. See "THE PREPACKAGED PLAN--Confirmation of the
Prepackaged Plan Without Acceptance by All Classes of Impaired Claims." In the
event that the Class of holders of the Old Subordinated Debentures fails to
accept the Prepackaged Plan, the Company intends (and the Prepackaged Plan so
provides) to seek Confirmation of the Prepackaged Plan without the acceptance
of such Class and reserves the right to request Confirmation in the event that
any other Class of Impaired Claims fails to accept the Prepackaged Plan. IF
THE HOLDERS OF THE OLD SUBORDINATED DEBENTURE CLAIMS DO NOT ACCEPT THE
PREPACKAGED PLAN, THE COMPANY INTENDS TO INITIATE A "CRAM DOWN" PROCEDURE WITH
RESPECT TO THE CLASS COMPOSED OF THE HOLDERS OF THE OLD SUBORDINATED
DEBENTURES. IF SUCH A "CRAM DOWN" IS APPROVED BY THE BANKRUPTCY COURT, HOLDERS
OF THE OLD SUBORDINATED DEBENTURE CLAIMS WOULD RECEIVE NO DISTRIBUTION AND
RETAIN NO PROPERTY. If the Prepackaged Plan is not consummated, the Company
may be required to sell its assets, and the Company believes that in the event
of a liquidation, holders of the Old Subordinated Debentures would receive no
distribution and retain no property. Because the holders of Equity Interests
receive no distribution and retain no property under the Prepackaged Plan,
that Class is presumed to have rejected the Prepackaged Plan pursuant to
section 1126(g) of the Bankruptcy Code. Therefore, that Class will be subject
to "cram down" as part of the Confirmation of the Prepackaged Plan.
The Company also reserves the right to modify the terms of the Prepackaged
Plan as necessary for the Confirmation of the Prepackaged Plan without the
acceptance of other Classes of Impaired Claims. Such modification could result
in a less favorable treatment to any non-accepting Class or Classes, as well
as any Classes junior to such non-accepting Classes, than the treatment
currently provided in the Prepackaged Plan. Such less favorable treatment
could include a distribution to the affected Class of property of less value
than that currently provided in the Prepackaged Plan or, in certain cases, no
distribution of property under the Prepackaged Plan, as modified. Any such
modification may require resolicitation of one or more Classes of Impaired
Claims and could result in a delay in the Confirmation and Consummation of the
Prepackaged Plan and could increase the risk that the Prepackaged Plan will
not be consummated. See "THE PREPACKAGED PLAN--Modification of the Prepackaged
Plan." However, except as described above, the Company may choose not to seek
Confirmation of the Prepackaged Plan in the event one or more Classes of
Claims do not accept the Prepackaged Plan, but may choose instead to pursue an
alternative means to restructure the Company.
Certain Risks of Non-Confirmation
Even if the requisite acceptances are received, there can be no assurance
that the Bankruptcy Court will confirm the Prepackaged Plan. A non-accepting
creditor of the Company might challenge the adequacy of the
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disclosure or the solicitation procedures and results as not being in
compliance with the Bankruptcy Code. Even if the Bankruptcy Court were to
determine that the disclosure and the balloting procedures and results were
appropriate, the Bankruptcy Court could still decline to confirm the
Prepackaged Plan if it were to find that any statutory conditions to
confirmation had not been met. Section 1129 of the Bankruptcy Code sets forth
the requirements for confirmation and requires, among other things, a finding
by the Bankruptcy Court that the confirmation of the Prepackaged Plan is not
likely to be followed by a liquidation or a need for further financial
reorganization and that the value of distributions to non-accepting Classes of
Impaired Claims and Equity Interests will not be less than the value of
distributions such Classes of Impaired Claims and Equity Interests would
receive if the Company were liquidated under chapter 7 of the Bankruptcy Code.
See "THE PREPACKAGED PLAN--Confirmation Standards." While there can be no
assurance that the Bankruptcy Court will conclude that these requirements have
been met, the Company believes that the Prepackaged Plan will not be followed
by a liquidation or the need for further financial reorganization and that
non-accepting holders of Impaired Claims and Equity Interests will receive
distributions at least as great as would be received following a liquidation
pursuant to chapter 7 of the Bankruptcy Code. The Company believes that
holders of Old Common Stock would receive no distribution under either a
liquidation pursuant to chapter 7 or a liquidation or reorganization pursuant
to chapter 11. See "THE PREPACKAGED PLAN--Confirmation Standards."
The Confirmation and Consummation of the Prepackaged Plan are also subject
to certain conditions. See "THE PREPACKAGED PLAN--Summary of Other Provisions
of the Prepackaged Plan." No assurance can be given that these conditions will
be satisfied or if not satisfied that the Company would waive such conditions.
If the Prepackaged Plan, or a plan determined not to require resolicitation
of any Classes by the Bankruptcy Court, were not to be confirmed in a timely
manner, it is unclear whether the Restructuring could be implemented and what
holders of Claims and Equity Interests would ultimately receive with respect
to their Claims and Equity Interests. If an alternative reorganization could
not be agreed to in a timely manner, it is possible that the Company would
have to liquidate its assets, in which case it is likely that holders of
Claims and Equity Interests would receive less than they would have received
pursuant to the Prepackaged Plan. See "SPECIAL FACTORS--Alternatives to
Confirmation and Consummation of the Prepackaged Plan--Liquidation Under
Chapter 7."
Risk of Subsequent Insolvency Proceeding
There may be significant consequences to holders of the New Subordinated
Debenture in the event of a subsequent bankruptcy. A holder of New
Subordinated Debentures will have a smaller claim with respect to New
Subordinated Debentures in a subsequent bankruptcy than it currently has with
respect to the Old Subordinated Debentures and may therefore receive a smaller
distribution in a subsequent bankruptcy. Similarly, there may be significant
consequences to LGE in the event of a subsequent bankruptcy. LGE will have a
smaller claim, and will hold equity interests in the Company, in a subsequent
bankruptcy (as opposed to holding the LGE Claims), and may therefore receive a
smaller distribution in a subsequent bankruptcy.
READINESS FOR THE YEAR 2000
The Company is employing a combination of internal resources and outside
consultants to coordinate and implement its Year 2000 Readiness initiatives.
The Company has established a Company-wide Year 2000 Task Force, led by the
Company's technology group, with representation from its major business
segments, to evaluate and address Year 2000 issues. The Year 2000 Task Force's
responsibilities include, without limitation, (i) conducting an evaluation of
the Company's computer-based systems, facilities and products (and those of
dealers, vendors and other third parties with which the Company does business)
to determine their Year 2000 Readiness, (ii) coordinating the replacement
and/or upgrade of non-compliant systems, as necessary, (iii) promoting the
Company-wide awareness of Year 2000 issues through education and training, and
(iv) developing, and overseeing the implementation of all of the Company's
other Year 2000 Readiness initiatives.
The Company has completed its evaluation of its computer-based systems,
facilities and products to determine whether they are "Year 2000 Ready." The
Company has identified certain information and computer
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systems that are not Year 2000 Ready and is in the process of purchasing
software and hardware upgrades and replacements for these systems. The Company
anticipates that each of these upgrades and replacements will be implemented
prior to the Year 2000. Additionally, the Company believes that its material
non-information technology systems will be Year 2000 Ready prior to the Year
2000. The Company believes that most of its currently manufactured products
are Year 2000 Ready. The Company has sent Year 2000 Readiness Questionnaires
to its existing key vendors and suppliers to assess the Year 2000 Readiness of
their systems and products. The responses to these Questionnaires have
indicated that the Company's vendors or suppliers are addressing their Year
2000 issues and expect to be Year 2000 Ready by the Year 2000. While the
Company is working to achieve Year 2000 Readiness, there can be no assurance
that it will successfully achieve all of its goals. At this time, and based on
the Company's current implementation plan, the Company does not believe that
its Year 2000 related issues will have a material adverse effect on the
Company's business. As a result, no contingency plan has been deemed to be
necessary.
In connection with the Operational Restructuring, the Company plans to
discontinue substantially all of its manufacturing operations and to outsource
substantially all components and products. The Company believes its principal
exposure to Year 2000 risks are related to the ability of its vendors to
provide the Company with Year 2000 Ready components and products and to assure
that such vendors otherwise are Year 2000 Ready so that they are able to
provide the Company with components and products in a timely manner. The
Company has not yet determined all of those vendors on which it will rely
following completion of the Operational Restructuring. The Company is aware,
however, that Year 2000 issues may exist with respect to vendors with which
they have or will have a material relationship, and Year 2000 Readiness will
be a material consideration in the Company's selection of, and contract
negotiations with, such third-party vendors.
Prior to 1998, the Company spent in the aggregate approximately $1.8 million
on software and hardware upgrades and replacements and approximately $200,000
in other costs (i.e., labor, consulting fees and other expenses) in connection
with Year 2000 Readiness. The Company has budgeted a total of $2 million for
1998 (approximately $400,000 for software and hardware upgrades and
approximately $1.6 million for other costs) and $2.1 million for 1999
(approximately $1 million for software and hardware upgrades and approximately
$1.1 million for other expenses) with respect to Year 2000 Readiness. Most of
the costs incurred by the Company in addressing Year 2000 Readiness are
expected to be expensed as incurred, in compliance with generally accepted
accounting principles. The Company continues to evaluate the estimated costs
associated with its Year 2000 Readiness efforts. While the Year 2000
transition efforts may involve costs in addition to those currently budgeted
or anticipated to be budgeted, at this time, the Company has not yet
determined the full costs of the modifications that may be necessary to
address all Year 2000 issues.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
In connection with the Operational Restructuring, the Company intends to
become a sales, distribution and technology development company. As a result,
the Company will continue to be dependent on its ability to protect and
utilize its proprietary technologies. The Company currently holds many patents
relating to VSB technologies, HDTV and digital television related inventions.
The Company's ability to commercialize many of the products it has under
development will depend, in part, on its ability, both in the United States
and in other countries, to obtain and maintain patents, enforce those patents,
preserve trade secrets, operate without infringing on the proprietary rights
of third parties and obtain licenses to use patents held by third parties when
necessary.
There can be no assurance that the patents currently owned or licensed by
the Company, or any future patents owned or licensed by the Company, will
prevent other companies from developing similar or technologically equivalent
products, or that other companies will not be issued patents that may prevent
the sale of the Company's products or require licensing and the payment of
significant fees or royalties by the Company. There can be no assurance that
pending or future patent applications licensed to or owned by the Company will
result in issued patents, patent protection will be secured for any particular
technology, any patent rights that have been or may be issued to the Company
or its licensors will be valid or enforceable, any patent rights that have
been or may be issued to the Company or its licensors will not infringe upon
the patents of third parties or
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that the Company's patents will provide meaningful protection to the Company.
The Company may be unable to avoid infringement of third-party patents and may
have to obtain licenses, defend infringement actions or challenge the validity
of those patents in court. There can be no assurance that a license will be
available to the Company on terms and conditions acceptable to the Company, if
at all, or that the Company will prevail in any patent dispute. Patent
litigation is costly and time consuming, and there can be no assurance the
Company will have, or will devote, resources sufficient to pursue such
litigation. If the Company does not obtain a license under such patents, is
found liable for infringement, or is not able to have such patents declared
invalid, the Company may be liable for significant monetary damages, may
encounter significant delays in bringing products to market, or may be
precluded from participating in the manufacture, use or sale of products or
technologies protected by such patents.
The Company relies on trade secrets and other unpatented proprietary
information in connection with its product development activities. To the
extent that the Company relies on confidential information to maintain its
competitive position, there can be no assurance that other parties may not
independently develop the same or similar information. The Company seeks to
protect trade secrets and proprietary knowledge, in part, through
confidentiality agreements with its employees, consultants, advisors and
collaborators. These agreements may not effectively prevent disclosure of the
Company's confidential information and may not provide the Company with an
adequate remedy in the event of unauthorized disclosure of such information.
If the Company's employees, scientific consultants or collaborators develop
inventions or technologies independently that may be applicable to the
Company's products under development, disputes may arise about ownership of
proprietary rights to those inventions and technologies. Such inventions and
technologies will not necessarily become the Company's property, but may
remain the property of those persons or their employers. Protracted and costly
litigation could be necessary to enforce and determine the scope of the
Company's proprietary rights. There can be no assurance that the Company will
have, or will devote, sufficient resources to pursue such litigation. The
Company's failure to obtain or maintain patent and trade secret protection,
for any reason, could have a material adverse effect on the Company's
business, financial position and results of operations.
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SPECIAL FACTORS
EVENTS LEADING TO THE RESTRUCTURING
The Company has for many years experienced and continues to experience,
severe financial difficulties, resulting in the immediate need to restructure
both its business operations and its capital structure. The Company has
incurred losses in all but one of the years since 1985. These results
generally reflect, among other things: significant and persistent declines in
the Company's gross margins, largely resulting from reductions in color
television prices driven by competitive factors, and high operating costs and
performance difficulties associated with product development programs and new
automated production processes.
In light of the Company's net losses, the competitive environment and
inflationary cost pressures over the past several years, and in an effort to
increase gross margins and lower costs, the Company has undertaken various
cost reduction programs, profit improvement initiatives, design,
manufacturing, logistics and distribution improvements and various business
consolidations. While the Company has been able to achieve some operating
improvements through these measures, it has been unable to generate sufficient
revenues to support its continued business operations in the absence of a
significant operational and financial restructuring.
LGE Acquisition of Controlling Interest
Beginning in 1994 and as part of its strategy to return to profitability,
the Company developed plans to expand and modernize its production facilities
in the United States and Mexico. Those plans, which in 1994 had projected
costs of $150 million, necessitated that the Company initiate discussions with
possible joint venture partners because the Company did not have sufficient
financial resources to undertake the planned projects without additional
capital. In January 1995, the Company retained Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") to assist in the exploration of possible
strategic alternatives, focusing on alternatives for raising equity and
locating potential investors or strategic partners. In early 1995, the Company
had discussions with potential investors, none of which resulted in a
transaction. At this time, the Company also approached and had numerous
discussions with LGE, with which the Company had a long-term supply
relationship and which had already purchased 4.97% of the Company's Old Common
Stock in 1991 for $15 million, concerning its willingness to make an
investment in the Company to provide capital necessary for the Company's
expansion and modernization plans. Discussions between the Company and LGE
resulted in an agreement (the "LGE Stock Purchase Agreement"), which was
approved by the stockholders of the Company. In November 1995, pursuant to the
LGE Stock Purchase Agreement, LGE and LG Semicon purchased 18,619,000 shares
of Old Common Stock at $10.00 per share from the Company's stockholders
pursuant to a tender offer and 16,500,000 newly issued shares of Old Common
Stock at $10.00 per share from the Company. After giving effect to such
transactions, which resulted in a $186.2 million aggregate payment to the
stockholders of the Company and a $165 million capital contribution to the
Company, LGE and LG Semicon owned approximately 57.7% of the Old Common Stock.
Pursuant to the Prepackaged Plan, the $366.2 million equity investment of LGE
and LG Semicon will be cancelled.
Financing Transactions
In 1996 the Company continued to experience price competition in the color
television markets and delays in production of new high-margin products. The
Company's losses accelerated in 1996 and 1997 as it attempted to modernize and
automate its manufacturing facilities. The Company invested heavily in
upgrading portions of its color picture tube operations in Melrose Park and in
setting up a new automated manufacturing line for computer display terminals
("CDTs"). The Company's CDT line was set up to produce low definition, small
screen size displays. By the time the CDT line was operational, the market for
such displays was limited, having been replaced in demand by higher
definition, larger screen sizes capable of handling the requirements of
advanced gaming and software developments. In order to make the CDT line
economically feasible, the Company would have to invest substantial additional
funding. Such funding will not be available under the
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Business Plan Projections. Additionally, reconfiguring the production line
would take substantial time and expense relating to the process of bringing
the production line up to capacity.
After an initial investment of $9.8 million, the Company abandoned its plans
to build a fully automated plant in Woodridge, Illinois to provide larger
screen size picture tubes when the projected cost of the facility
significantly exceeded its budget and available funding.
Despite initiatives to reduce costs, including restructuring some of its
business lines and reducing its workforce, the Company experienced
deteriorating working capital levels. In response, LGE began to provide
additional funding to the Company through extended payment terms on interest
bearing acceptances for products, such as VCRs, manufactured by LGE for the
Company. LGE also extended payment terms to the Company on other payables owed
by the Company to LGE.
In 1997, facing decreasing liquidity due to losses of $178 million in 1996
and expenditures in excess of $100 million on the revised expansion and
modernization plan for its Melrose Park facility, the Company sought to
refinance its existing credit facility. During March and April 1997, the
Company entered into financing arrangements with two consortia of financial
institutions led by Citibank. The Company obtained a three year $110 million
secured credit facility (the "Citibank Credit Facility") and a three year
trade receivables securitization facility (the "Citibank Receivables
Facility"). In 1997, the Company also consummated $87 million in sale-
leaseback transactions in which the Company sold and leased back new and
existing manufacturing equipment in its Melrose Park, Illinois plant and the
Reynosa, Mexico and Juarez, Mexico facilities pursuant to the Leveraged
Leases. The term of the Leveraged Leases was 12 1/2 years and annual payments
under the Leveraged Leases averaged approximately $10 million in the
aggregate. The Company's payment obligations, along with certain other
obligations under the Leveraged Leases, were fully guaranteed by LGE.
LGE's credit support in respect of such new financings included a
performance undertaking and letter of credit in connection with the Citibank
Receivables Facility and guarantees in respect of the Leveraged Leases.
In addition, in April 1997, the Company and LGE entered into arrangements
pursuant to which LGE extended a vendor credit line to the Company for a
period of up to three years to finance the Company's purchase of product from
LGE. Prior to April 1997, the Company's accounts payable arising in the
ordinary course of business to LGE were extended for certain periods of time,
but no formal agreement existed. As of December 31, 1996 and 1997, $106.8
million and $144.3 million, respectively, of accounts payable were extended
pursuant to these arrangements. Such extended payables bear interest at market
rates. Accounts receivable from LGE and LG Semicon during such periods were
not material at such dates.
In consideration of such support, the Audit Committee of the Board (the
"Audit Committee"), which is comprised of independent directors of the Board,
approved a guarantee fee equal to 2% per annum of the fair value of the
amounts of such LGE commitments, payable in stock options to purchase 3.9
million shares of Old Common Stock at an exercise price of $0.01 per share.
All such options will be cancelled pursuant to the Prepackaged Plan.
In August 1997, due to losses of $74.5 million in the first two quarters,
the Company required an additional infusion of cash to meet operating
expenses. The Company received $30.0 million from an LGE subsidiary,
representing payments in advance for 1997 sales of products from the Company
to several LGE subsidiaries. As of March 28, 1998, this liability to LGE had
been applied in full by the Company against amounts owed to the Company by
LGE's Canadian affiliate.
In September 1997, the Company required financing to develop further its
HDTV receiver project, but such funding was not available under its existing
credit arrangements. As a result, LGE agreed to provide $4.5 million in
funding for the HDTV receiver project. LGE is to be repaid the $4.5 million
advance, without interest, from the royalties generated from future VSB
licensing.
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Due to losses of $143.7 million in the first three quarters of 1997, the
Company was forced to obtain waivers of certain provisions and to amend in
certain respects the Citibank Credit Facility on three separate occasions. The
Company was again compelled to obtain waivers from Citibank in March of 1998.
In October 1997, the Company realized that it would require additional
financing to meet its operating expenses. LGE agreed to provide credit support
for up to $160 million of third-party financing in consideration of a credit
support fee of approximately 2% per annum on amounts outstanding under the
facilities actually obtained by the Company and guaranteed by LGE (to be paid
in cash or equity). This credit support fee was also approved by the Audit
Committee, subject to receipt of an independent opinion letter. This fee will
be converted into New Common Stock under the Prepackaged Plan. With the credit
support of LGE, and following an amendment to the Citibank Credit Agreement
and a covenant thereunder requiring the Company to have availability of $160
million from other lenders on an unsecured basis by December 31, 1997, between
November 1997 and February 1998, the Company entered into a series of new
unsecured financing transactions with each of Bank of America, First National
Bank of Chicago-NBD, Societe Generale, Seoul Branch and Credit Agricole
Indosuez, Seoul Branch, pursuant to which the Company borrowed $102 million.
The Company was unable to obtain additional facilities up to the $160 million
level required under the Citibank Credit Facility. When the Company was unable
to obtain the full $160 million in available unsecured lines, the Citibank
Credit Facility was amended twice to provide that the Company had until June
1998 to obtain the additional financing. The Company continued to be unable to
obtain the additional financing, and in June 1998, the Citibank Credit
Facility was amended and restated, and the requirement for the additional
financing was eliminated. See "DESCRIPTION OF DEBT AND CREDIT ARRANGEMENTS--
Short Term Debt." In connection with the Unsecured Bank Loans, the Company and
LGE entered into a reimbursement agreement (as amended, the "Reimbursement
Agreement") pursuant to which the Company agreed to reimburse LGE for amounts
paid pursuant to the guarantees and granted liens, junior to the lien securing
the Citibank Credit Facility, in favor of LGE on the capital stock of the
Company's domestic subsidiaries and the equipment, real property and
intellectual property of the Company and its Subsidiaries (other than tuner
and VSB patents, patent royalties and related license agreements) to secure
these reimbursement obligations. In December 1997 and January 1998, in
connection with and as a requirement to being able to obtain other unsecured
financing, including the Unsecured Bank Loans, the Company redeemed the
remaining $25 million of aggregate principal amount under its 8.5% Senior
Subordinated Convertible Debentures due November 2000 and January 2001 at a
redemption price of 104% of such principal amount, plus accrued interest
through the redemption date. Without defeasing or calling such debentures, the
Company would have been unable to obtain the additional financing necessary
for continuing working capital and operating requirements of the Company.
In March 1998, the Company entered into that certain Demand Note dated March
31, 1998 issued by the Company to LGE, which provides for borrowings of up to
$45 million (the "LGE Demand Loan Facility"). The term of the facility is one
year from the date of the first borrowing which was in May 1998, subject to
LGE's right to demand repayment at any time after June 30, 1998. In June 1998,
this facility was amended to provide that, in the absence of an event of
default, demand for repayment may not occur prior to December 31, 1998.
Repayment is due in full at the end of the term. The facility is secured by a
second lien on the assets that secure the Company's obligations under the
Reimbursement Agreement and a second lien on the Company's VSB patents.
In June 1998, LGE paid $50 million of the Unsecured Bank Loans pursuant to
its guarantees of those obligations. In September 1998, LGE paid an additional
$22 million of the Unsecured Bank Loans pursuant to such guarantees. Pursuant
to the Reimbursement Agreement, the Company is obligated to LGE for these
payments plus interest.
On July 22, 1998, LGE made a negotiated settlement payment of $90.1 million
under the guarantees of the Leveraged Leases. The Company is obligated under
documents related to the Leveraged Leases for the repayment of this settlement
amount.
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Other Transactions with LGE
In addition to the financing transactions described above, the Company has
engaged in a number of transactions with LGE, including purchases of products
and equipment, sales of products, technical agreements and service agreements.
The Company believes that the transactions between the Company and LGE have
been conducted on terms no less favorable to the Company than could have been
obtained with unrelated third parties. See "CERTAIN TRANSACTIONS" for
additional information about these transactions, including the amounts of such
transactions.
Product purchases: In the ordinary course of business, the Company purchases
VCRs, television-VCR combinations and components from LGE and LG Semicon. In
1998, the Company and LGE entered into a direct shipment arrangement pursuant
to which LGE sells and ships VCRs directly to the Company's two largest
customers and pays the Company a license fee for the use of the Company's
brand names on such products and the inclusion of the Company's patented tuner
technology in such products. A similar arrangement was entered into in April
1997 in Canada where LGE's Canadian affiliate sells Zenith branded VCRs under
a license from the Company. Following the Restructuring, it is expected that
LGE will own and operate the Reynosa Assets, and the Company currently
anticipates purchasing finished products and components produced at the
Reynosa facility for its 1999 model year.
Equipment purchases: During 1996 and 1997, the Company purchased from LGE
production machinery and equipment for the manufacture of computer display
tubes and the automation of existing production lines in the Company's Melrose
Park picture tube plant.
Product and other sales: The Company sells televisions, picture tubes, yokes
and other manufactured subassemblies to LGE. In December 1996, the Company
closed its wholly-owned Canadian distributor and sold the remaining inventory
to LGE at book value. The Company entered into a distributor agreement with an
LGE subsidiary whereby such subsidiary became the Canadian distributor for the
Company. During 1997, the Company entered into a similar agreement with an LGE
subsidiary in Mexico to sell the Company's product in Mexico. In 1997, an
affiliate of LGE entered into an agreement with the Company concerning a
license for the use of the Company's "Z-Tac" set-top box technology pursuant
to which the Company received an up-front license fee as well as fees from the
sale of set-top box kits.
Technical agreements: The Company and LGE are currently operating under
several technology agreements and licenses related to HDTV, flat tension mask
products, and the Company's patents on television tuners. Under a technical
cooperation agreement entered into by the Company and LGE in 1990, the Company
agreed to pay LGE 33% of the royalties received by the Company from the use in
Korea of certain HDTV technologies and 1% of the royalties received from such
technologies from all other countries. Under a separate agreement, the Company
has licensed its tuner patents to LGE. In September 1997, LGE agreed to
provide the Company with $4.5 million in funding for the Company's HDTV
receiver project. LGE is to be repaid the $4.5 million advance, without
interest, from the royalties generated from future VSB licensing.
In May 1997, the Company and LGE entered into a patent collaboration
agreement which provides that (a) LGE will assist the Company in identifying
infringements of the Company's patents and technologies, in return for 10% of
all royalties collected as a result of such efforts, and defending against
third party intellectual property claims, and (b) LGE has the option to
acquire patent rights the Company intends to abandon for nominal amounts and
to acquire any other patent rights for mutually agreed upon prices plus the
payment by LGE to the Company of 10% of all future royalty income, if any,
received from such other patent rights. Under a separate agreement, the
Company has assigned to LGE's telecommunications affiliate a patent relating
to cordless telephone technology. The Company retained a royalty-free, non-
exclusive license and 50% of all royalties collected by the LGE affiliate
related to such patent. An affiliate of LGE has also licensed certain
technological information from Zenith relating to the manufacture of VSB
modulation equipment under a 1998 agreement. That agreement allows the LGE
affiliate to use technical information and design schematics as the basis for
further development of commercial products.
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Service Assistance: In 1996 and 1997, employees of LGE provided certain
technical support services to the Company for which LGE was not compensated by
the Company. In addition, employees of LGE provided certain technical support
services to the Company at cost in 1997 and 1998 that were covered under
service agreements. In addition, a U.S. affiliate of LGE has provided a
guarantee of the Company's obligations under the employment agreement and
indemnity agreement with Jeffrey P. Gannon, the Company's President and Chief
Executive Officer.
In late December 1997, the Company entered into an agreement with LG
Software India Ltd. pursuant to which LG Software India Ltd. provides certain
software development, design and support services to the Company. Projects
under the agreement include the Company's Year 2000 Readiness support.
Other Items: The Company currently leases space from an LGE subsidiary in
(i) Huntsville, Alabama, for its Parts and Service group, (ii) Ontario,
California, for a warehouse and (iii) San Jose, California, for NWS. The
Company and LGE are in discussions concerning the joint development of HDTV
products, which may eventually be manufactured by LGE for the Company for
resale by the Company in the United States.
The Development of the Restructuring
In August 1997, as a result of the Company's worsening operational
performance, the Company and LGE began evaluating the Company's business and
operations to identify possible means by which the Company's operations could
be improved. LGE also explored through the fall of 1997 the possibility of
bringing in a partner, but advised the Company that such a strategy appeared
untenable due to the Company's persistent losses and the absence of any
concrete business plan or strategy to return to profitability. LGE advised the
Company that it believed that the Company could not demonstrate to a potential
investor the means by which an investment in the Company would generate an
attractive return.
In October 1997, the Company began to evaluate options for additional
financing or capital in light of its continuing cash requirements and
continuing losses from operations. Beginning in November 1997, LGE advised the
Company that it faced increasing financial pressures due to the broad
deterioration of the Korean economy and the effect of such developments on
LGE. The uncertain economic and political situation made it less clear that
LGE would be able or willing to continue to provide funding for the Company's
operating losses, which losses in 1997 totaled $299.4 million. In November
1997, LGE engaged legal counsel to assist it in connection with a possible
financial restructuring of the Company. In addition, LGE introduced the
Company to PJSC, with which LGE had been in communication regarding PJSC's
possible engagement by LGE to assist LGE in connection with a possible
reorganization of the Company. LGE initially interviewed PJSC to act as LGE's
financial advisor in connection with the Restructuring. At the request of the
Company's independent directors, PJSC was retained to act as the Company's
investment banker and financial advisor in evaluating the Company's strategic
and financial alternatives. LGE has advised the Company that it and its
affiliates (other than the Company) have not had, and do not presently
contemplate having, any material relationship with PJSC. None of the fees or
expenses of PJSC will be borne by LGE. The Company and the Board retained PJSC
based on its experience in the restructuring of other public companies in
similar types of transactions. The Company engaged PJSC pursuant to an
engagement letter dated November 28, 1997, as amended. See "ESTIMATED FEES AND
EXPENSES--Advisors."
In December 1997, LGE informed the Company that it was considering, in
general terms, possible courses of action, and determined to continue to
provide funding to the Company on a limited basis while a new business plan
was being developed. LGE also advised the Company, in response to a request
for additional funding, that the Company needed to develop a detailed business
plan and complete its search to engage a new chief executive officer to
replace Mr. Willmott, who had announced in September 1997 his intention to
resign.
On January 12, 1998, the Board elected Jeffrey P. Gannon as President and
Chief Executive Officer of the Company, and elected Robert N. Dangremond as
Acting Chief Financial Officer of the Company. The Company also engaged Jay
Alix & Associates ("Jay Alix") as restructuring advisors. Jay Alix was engaged
by the
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Company based on its prior experience in the restructuring of other public
companies in similar types of transactions. Robert N. Dangremond, a principal
with Jay Alix, served as the Company's Acting Chief Financial Officer from
January 1998 to June 1998, and currently serves as the Company's Senior Vice
President, Restructuring. Mr. Dangremond has served as chief executive officer
and as a director of other companies which have undergone restructuring,
including companies which have sought protection under the Bankruptcy Code.
Other Jay Alix employees serve in financial positions at the Company. The
Company has engaged Jay Alix pursuant to an engagement letter dated as of
December 1997, as amended, under which Jay Alix agreed to assist the Company
in business planning, cash management and forecasting, financial reporting,
contingency and restructuring planning and such other matters as may be
mutually agreed upon. See "ESTIMATED FEES AND EXPENSES--Advisors." LGE advised
the Company that it and its affiliates (other than the Company) have not had,
and do not presently contemplate having, any material relationship with Jay
Alix. None of the fees or expenses of Jay Alix will be borne by LGE.
Also in January 1998, the Company's independent auditors communicated to
management of the Company and the Audit Committee that the Company's 1997
financial statements would likely contain an explanatory paragraph that
describes the significant uncertainty about the Company's ability to continue
as a going concern due to recurring losses and a negative working capital
position, and that the Company's financial statements do not reflect any
adjustment that might result from the outcome of this uncertainty.
During January and February 1998, Mr. Gannon and his management team began
developing a new business strategy, while at the same time implementing a
number of changes designed to reduce costs and improve revenues. In February
1998, the Company's management presented a proposed strategy for the Company
to the Board and outlined its key elements, including cessation of
substantially all manufacturing operations, outsourcing of most product lines
and focusing on sales, distribution and technology. Such strategy addressed
the need for additional credit sources, the possibility of a strategic
investment in the Company, the sale of certain of the Company's assets or
businesses, recruiting and retention programs and work force restructuring,
the search for partners to aid in market development, steps in the transition
from manufacturing to outsourcing and the need to explore opportunities to
improve the value of VSB rights.
During January and February of 1998, LGE monitored the Company's performance
and evaluated the business plan being developed by new management of the
Company as it considered its strategy with the Company. LGE retained Lazard
Freres & Co. LLC ("Lazard") as of February 1, 1998 to act as its investment
banker to assist LGE's evaluation of restructuring alternatives.
During February and March 1998 and under the direction of Mr. Gannon,
members of management and PJSC began identifying potential investors, joint
venture partners and other sources of capital and investigating industry or
technological synergies that the Company might have with such parties.
Beginning in this period (and continuing through June), the Company and PJSC,
at the direction of the Company, contacted over 15 parties (including
strategic investors in the consumer electronics industry and financial
investors) concerning a transaction and discussed the Operational
Restructuring and the Company's strong brand and distribution and technology
capabilities. LGE supported management's effort to attract a new investor or
joint venture partner and provided introductions to certain potential
investors. While several parties indicated that they might have some interest
in providing the Company with outsourced product under the Operational
Restructuring, no party approached in this effort expressed an interest in an
investment or other transaction with the Company sufficient to provide the
funding to the Company to implement the Operational Restructuring.
At a meeting on March 11, 1998, LGE reported to the Board that it was
considering whether and on what terms it would be prepared to participate in a
long-term restructuring of the Company. In addition, LGE anticipated that
approval of several Korean government ministries would be required for any
such participation and expressed concern that the economic and political
situation in Korea at that time might adversely impact its participation in
any such long-term restructuring of the Company. On March 12, 1998, LGE's
advisors provided the Company with a timeline and conditions related to a
possible long-term restructuring in the event that LGE determined it would
provide financial support in connection with any such restructuring. The
outline
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contemplated, subject to LGE's willingness and ability to proceed, that the
restructuring would be accomplished pursuant to a prepackaged plan of
reorganization, but did not make any specific proposal with respect to the
treatment of any Class of Claims or Equity Interests, including the Claims and
Equity Interests of LGE. The conditions included: (i) the continued service of
Mr. Gannon as Chief Executive Officer of the Company; (ii) the formulation and
implementation of detailed programs satisfactory to LGE for the Company to
outsource production, the sale of certain nonessential assets and maximization
of the value of VSB technology; (iii) the availability of at least $150
million of financing from sources other than LGE; (iv) business results
consistent with the Company's business plan; (v) the absence of default under
any LGE short-term financing; (vi) LGE's satisfaction with the terms of the
restructuring, including the availability of releases in favor of LGE and
Zenith's officers and directors; (vii) Korean governmental approvals; and
(viii) various other customary conditions. Notwithstanding the possibility of
LGE support of a long-term restructuring, the Company continued to explore all
possible restructuring and financing alternatives, including investments in
the Company, the sale of all or certain of the Company's assets, possible
partnerships or alliances and additional financing sources as alternatives to
an LGE-sponsored restructuring.
On March 26, 1998, the Board established the Special Committee, comprised of
directors T. Kimball Brooker, Eugene B. Connolly, Andrew McNally IV and Peter
S. Willmott, and authorized the Special Committee to assess and negotiate
along with management any proposal made by LGE with respect to providing long-
term financial support necessary or appropriate to allow the Company to pursue
its proposed business plan. None of the members of the Special Committee is an
officer or director of LGE or an officer of the Company, although Mr. Connolly
was one of the directors designated by LGE in 1995 pursuant to the LGE Stock
Purchase Agreement and Mr. Willmott served as the Company's Chief Executive
Officer from January 1997 to January 1998. At its first meeting on March 29,
1998, the Special Committee retained Sidley & Austin as its special counsel.
Prior to this time, Sidley & Austin had regularly acted as one of the
Company's outside counsel.
At the end of March 1998, LGE made the $45 million LGE Demand Loan Facility
available to the Company, which was secured by a second lien on the assets
securing the Company's obligations under the Reimbursement Agreement and a
second lien on the Company's VSB patents. The loan was intended to provide
sufficient funds for operations of the Company through June 30, 1998 and to
provide additional time for the Company to refine its business plan and for
LGE to decide whether it would participate in a restructuring of the Company.
The Special Committee recommended the terms of the LGE Demand Loan Facility to
the Board which approved the LGE Demand Loan Facility.
During March and early April of 1998, the Company, LGE and their advisors
considered alternatives for the Company, including attracting a new investor
for the Company, a cash-out merger, a traditional chapter 11 reorganization, a
liquidation and a prepackaged plan of reorganization. LGE advised the Company
that it favored the Prepackaged Plan, and rejected other alternatives, for the
reasons stated in "--Alternatives to Confirmation and Consummation of the
Prepackaged Plan" and "--LGE's Position Regarding the Financial
Restructuring." On April 16, 1998, LGE presented its initial proposal, which
contemplated that pursuant to a prepackaged plan of restructuring: (i) the
Citibank Credit Facility and the Citibank Receivables Facility would be
restructured or refinanced; (ii) the Company's general unsecured claims would
be unimpaired; (iii) the holders of Old Subordinated Debentures would receive
an aggregate of $26 million of new 10% subordinated debentures due 2011 (which
debentures would not be convertible); (iv) LGE would receive all of the common
stock of New Zenith, the Reynosa Assets and an aggregate of $152.7 million of
new senior notes due 2008 in exchange for its extended payables, guarantee of
the Company's demand loans and leveraged leases, direct loans, and servicing
fees; and (v) Zenith's existing Common Stock would be canceled. The conditions
to LGE's obligations in the initial proposal were substantially identical to
those provided to the Company on March 12, although the requirement regarding
available non-LGE financing was reduced to $100 million, and the provision
regarding releases was modified to require releases from the Company, its
creditors and interest holders. Discussions among the Company, the Special
Committee and representatives of LGE concerning possible restructuring
alternatives continued throughout April and May of 1998.
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The Special Committee, in person or by conference telephone, met seven times
in April and May to consider various long-term financing alternatives for the
Company, including the financial restructuring outlined by LGE. The Special
Committee discussed and reviewed with PJSC and the Company certain preliminary
going concern and liquidation scenarios as well as certain related
hypothetical sensitivity analyses and discussed and reviewed with management
and LGE the Company's business plan at the time and the various alternatives
for the Company on a going-forward basis. In light of the expressed intention
of LGE to include releases in favor of itself in a possible restructuring, the
Special Committee discussed and reviewed with its special counsel the
reasonableness and effects of any such releases. In that regard, the Special
Committee's deliberations focused on whether the value, if any, attributable
to the requested release of LGE would cause LGE to obtain a disproportionate
recovery relative to other creditors and whether other creditors would receive
more with LGE participating in the Company's proposed financial restructuring
and receiving releases than if no such releases were provided and the proposed
restructuring did not proceed. Throughout this period, the Special Committee,
the Company's management and their advisors and representatives of LGE
continued their discussions and negotiations concerning the terms of a
financial restructuring. As a consequence of those negotiations, LGE made a
subsequent proposal which provided for the same treatment of the Citibank
Credit Facility and the Citibank Receivables Facility, the Company's general
unsecured claims, LGE and holders of the Old Common Stock, but contemplated
that the holders of Old Subordinated Debentures would receive an aggregate of
$40 million of new 6 1/4% subordinated debentures due 2010 (which debentures
would not be convertible). The conditions to LGE's obligations in the
subsequent proposal were similar to those included in the initial proposal,
but the conditions contained in the subsequent proposal also included: (i) the
continued service of Mr. Gannon's direct reports or appointment of
replacements satisfactory to the Board; (ii) implementation on or before June
30, 1998 of a comprehensive compensation plan for Zenith salaried employees,
including retention bonuses, incentive compensation and employment agreements
satisfactory to LGE; (iii) a July 31, 1998 deadline for formulation of
detailed programs to outsource production, sell nonessential assets and
maximize VSB technology and a requirement of execution of necessary contracts
satisfactory to LGE of such programs; (iv) commitments of the sale or
liquidation of nonessential assets at prices consistent with the Company's
business plan; (v) caps on the deviation of results from the Company's
business plan with respect to the projected cumulative funding requirement to
December 15, 1998, actual cumulative funding requirement for any three-month
period, projected cumulative EBITDA to December 31, 1998 and actual EBITDA;
(vi) review on or before June 30, 1998 by the Company's independent public
auditors of the assets listed on the Company's June 30, 1998 balance sheet
satisfactory to LGE; (vii) absence of material contingent liabilities other
than specified liabilities; (viii) a cap on actual and projected cash
restructuring expenses; and (ix) execution of definitive documentation
satisfactory to LGE on or before the earlier of the filing of the Registration
Statement or June 30, 1998, filing of the Registration Statement on or before
June 30, 1998 and confirmation of the Prepackaged Plan on or before December
15, 1998. In addition, LGE withdrew its request for a release from interest
holders.
At a Special Committee meeting on May 21, 1998, PJSC presented to the
Special Committee and to the Company's management and their advisors a report
summarizing the history of the negotiations and PJSC's preliminary analyses of
the terms of the proposed financial restructuring as negotiated with LGE. PJSC
advised the Special Committee that, based upon the going concern and
liquidation analyses and reasonable variations of the assumption contained
therein, no value existed for the holders of Old Common Stock. PJSC further
advised the Special Committee (and subsequently the Board) based upon the
liquidation analysis, the holders of unsecured Claims, including the holders
of the Old Subordinated Debentures, were likely to receive no distribution or
a lower distribution than if the Company were restructured as a going concern
pursuant to the terms of the proposed financial restructuring as negotiated
with LGE. Mr. Gannon reported to the Special Committee on the status of
contacts with potential acquirors and outside investors, concluding that no
outside party contacted by PJSC or the Company was presently willing to
provide the financing or other investment required to provide the funding to
implement the Operational Restructuring. Based on the factors described
herein, the Special Committee unanimously recommended to the Board that the
Company accept in principle the terms of the proposed financial restructuring
as negotiated with LGE. See "--Liquidation and Going Concern Analyses." This
recommendation included a recommended acceptance of the release requested by
LGE, which had been presented as a prerequisite to LGE's proceeding with its
restructuring proposal. In that regard, the
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Special Committee concluded that the Company's creditors, including in
particular its unsecured holders of Old Subordinated Debentures, would receive
far more with LGE participating in the Company's proposed financial
restructuring and receiving releases than if no such release were provided and
the proposed restructuring did not proceed, in which event there would likely
be no value at all available for distribution to the unsecured holders of Old
Subordinated Debentures.
At the May 21, 1998 Board meeting, convened subsequent to the Special
Committee meeting of the same date, the Board heard (i) a report from Mr.
Gannon regarding the status of contacts with potential acquirors and outside
strategic investors and (ii) a report from PJSC regarding (A) the status of
its efforts in connection with potential investment in or sale of NWS, (B) the
status of negotiations with prospective lenders and (C) its preliminary
valuation analysis of the Company, both as a going-concern and in a
liquidation scenario. The Board then received a detailed presentation of the
terms of the proposed financial restructuring as negotiated with LGE. The
Special Committee reported to the Board regarding the negotiation process,
including the Special Committee's considerations with respect to the proposed
release in favor of LGE, and concluded its report by recommending that the
Board accept in principle the terms of the proposed financial restructuring as
negotiated with LGE. Management of the Company also recommended that the Board
accept such restructuring plan. After further deliberation, the Board
unanimously voted to accept in principle, and subject to the negotiation and
execution of definitive documentation and final approval thereof, the terms of
the proposed financial restructuring as negotiated with LGE.
Subsequent to the May 21, 1998 Board meeting, management and the Company's
advisors began negotiating the Restructuring Agreement. On July 17, 1998, the
Special Committee met to review the then-current draft of the Restructuring
Agreement, to discuss the Restructuring with the Company's restructuring
counsel and to receive an updated financial analysis from PJSC. Based on such
information, the Special Committee confirmed its earlier decision to approve
in principle the terms of the proposed financial restructuring as negotiated
with LGE. The Special Committee also received an update from management and
PJSC about contacts with possible acquirors or alternative investors, none of
which had been successful.
On July 20, 1998, the Special Committee met by conference telephone to
receive a status report. It was advised that certain of the changes to the
Restructuring Agreement which had been requested by it had been agreed to by
LGE, including the elimination of a so-called "no shop" provision.
On July 22, 1998, the Special Committee, based upon discussions with the
Company's restructuring counsel and PJSC, the recommendation of management and
upon various other factors, including the absence of any viable alternatives,
unanimously determined to recommend the Restructuring Agreement to the Board
for its approval.
At a meeting of the Board on July 22, 1998, the Board received a further
report from Mr. Gannon and PJSC regarding the status of contacts with
potential acquirors and stating that no outside party contacted by PJSC or the
Company appeared willing to provide the financing or investment required to
provide the funding to implement the Operational Restructuring. PJSC presented
to the Board its report on a liquidation analysis and a going concern analysis
with respect to the Company. See "--Liquidation and Going Concern Analyses."
PJSC also discussed with the Board the terms of the Company's business plan
and the terms of the Restructuring Agreement. The Special Committee reported
its recommendation to the Board that the Restructuring Agreement be approved.
Management of the Company also recommended that the Board accept the
Restructuring Agreement as negotiated. The Board unanimously voted to approve
the terms of the Restructuring Agreement, subject only to management's
completion of documentation. The Company and LGE entered into the
Restructuring Agreement on August 7, 1998 and entered into Amendment No. 1 and
Waiver to the Restructuring Agreement on November 16, 1998. See "--The
Restructuring Agreement."
On November 16, 1998, PJSC presented to the Special Committee a liquidation
analysis and a going concern analysis based on the Company's November Business
Plan Projections. See "--Liquidation and Going Concern Analyses" for a
description of the review undertaken and assumptions made by PJSC in
developing its analyses and "BUSINESS PLAN PROJECTIONS."
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Debenture Committee
In June 1998, the Company was contacted by two significant holders of Old
Subordinated Debentures, Loomis Sayles & Company and Mariner Investment Group,
Inc./Caspian Capital Partners, L.L.P. (the "Debenture Committee"), to discuss
the proposed Prepackaged Chapter 11 Case and Prepackaged Plan. The members of
the Debenture Committee represented to the Company that they collectively held
or controlled over 50% of outstanding principal amount of the Old Subordinated
Debentures. The Debenture Committee retained Crossroads Capital Partners, LLC
("Crossroads") as its financial advisor and Hebb & Gitlin as its legal
advisor.
The Company entered into a letter agreement, dated June 30, 1998, with
Crossroads pursuant to which, among other things, the Company agreed to pay to
Crossroads certain fees in consideration of Crossroad's agreement to render
financial advisory services on behalf of the Debenture Committee in connection
with the Prepackaged Chapter 11 Case and the Prepackaged Plan. As compensation
for its services, the Company agreed to pay to Crossroads $80,000 per month
for the ninety day period from and after June 8, 1998. At the later to occur
of (i) ninety days, (ii) the entry of an agreement in principle between the
Company and the Debenture Committee with respect to the restructuring of the
Old Subordinated Debentures, and (iii) a cessation of negotiations between the
Company and the Debenture Committee, the fee payable to Crossroads will be
reduced to $25,000 per month, plus an additional amount, if any, at
Crossroad's hourly billing rates if Crossroads incurs greater than sixty hours
service on behalf of the Debenture Committee in such month. The letter
agreement is terminable by the Company upon five business days notice at any
time after the initial ninety day period. Through September 26, 1998, the
Company has paid $340,120 to Crossroads in respect of such arrangements.
The Company entered into a letter agreement, dated June 30, 1998, with the
law firm of Hebb & Gitlin pursuant to which the Company agreed to pay the
reasonable legal fees and expenses of such law firm in connection with such
law firm's representation of the Debenture Committee. As compensation for its
services, the Company agreed to provide Hebb & Gitlin with an initial fee
reserve of $100,000 to be applied against fees and expenses to be incurred in
connection with such law firm's representation of the Debenture Committee. The
letter agreement is terminable at will by either the Company or Hebb & Gitlin
on five business days prior written notice provided to the other party.
Through September 26, 1998, the Company has paid $233,164 to Hebb & Gitlin in
respect of such arrangements.
Commencing in June 1998, the Debenture Committee's advisors embarked upon a
due diligence investigation of the Company and its legal and financial
affairs. The Company and the Debenture Committee presently are engaged in
discussions regarding the Prepackaged Plan.
Equity Interest Holders
In September 1998, the Company was contacted by the law firm of Katten
Muchin & Zavis, purporting to represent certain institutional and individual
holders of Equity Interests. The Company has not entered into any agreement
with such Equity Interest holders or their legal representatives, nor has the
Company engaged in any negotiations with such Equity Interest holders.
In October 1998, the Katten Muchin & Zavis law firm, on behalf of its
clients, requested that the Company agree to fund certain expenses of such
Equity Interest holders in connection with the proposed restructuring,
including the fees and expenses of their advisors. In addition, the Katten
Muchin & Zavis law firm, on behalf of its clients, requested access to certain
books and records of the Company. In November 1998, the Company agreed to
cooperate by responding to any appropriate informational request that might be
made by such Equity Interest holders, subject to the execution of appropriate
confidentiality agreements. However, the Company concluded that it would be
inconsistent with the Company's obligations to creditors for the Company to
make any payment to Equity Interest holders or their advisors when the Company
was unable to provide full payment to all creditors.
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PURPOSES AND EFFECTS OF THE FINANCIAL RESTRUCTURING
The purpose of the Financial Restructuring is to reduce the Company's debt
service obligations, to facilitate future borrowing to fund liquidity needs
and to permit it to implement the Operational Restructuring. The Prepackaged
Plan will benefit the Company and reduce its overall debt and other
obligations by approximately $300 million by exchanging (i) $200 million of
debt and other liabilities owed to LGE for the New Common Stock; (ii) the Old
Subordinated Debentures in an aggregate principal amount of $103.5 million
plus accrued interest thereon for New Subordinated Debentures in an aggregate
principal amount of $40 million; and (iii) approximately $32.4 million of
indebtedness to LGE for the Reynosa Assets, which have an appraised value
equal to such amount. Such appraisals should be read in their entirety and
state an opinion of value as of the date of the report and are subject to
assumptions and limiting conditions stated in each report. In addition,
assuming consummation of the Prepackaged Plan, on a projected basis as of
December 31, 1998, the Company's annual interest obligations are expected to
be reduced to approximately $23.2 million in 1999 (compared to projected
interest charges of approximately $37.3 million for 1999 if the Restructuring
does not occur).
As a result of the Financial Restructuring, the Company will also have
significantly more liquidity. For example, the Company's cash interest
obligations will be reduced because the LGE New Restructured Senior Note will
have a PIK interest feature pursuant to which interest will be payable during
the two years following consummation of the Prepackaged Plan by the issuance
of additional LGE New Restructured Notes unless the Company's ratio of EBITDA
to cash interest expense for the immediately preceding four fiscal quarters
exceeds 1.5. See "SUMMARY OF LGE NEW RESTRUCTURED NOTE--Payment of Principal
and Interest; Maturity." In addition, pursuant to the Restructuring Agreement,
LGE has agreed to provide additional credit support of up to $60 million
pursuant to the LGE New Credit Support. Finally, the Company is in discussions
with potential lenders regarding credit facilities following Consummation of
the Prepackaged Plan. It is a condition to Consummation pursuant to the
Restructuring Agreement that the Company have such a credit facility in an
amount not less than $100 million. The combination of the PIK feature of the
LGE New Restructured Senior Note, the LGE New Credit Support and the financing
to be provided by a third-party lender is expected to enhance the liquidity of
the Company following the Consummation of the Prepackaged Plan.
Although the Financial Restructuring will have a detrimental effect on LGE
and the holders of Old Subordinated Debentures in that they will receive less
than face value with respect to their claims (with holders of Old Subordinated
Debentures receiving an aggregate of $40 million in principal amount of New
Subordinated Debentures in exchange for $103.5 million in principal amount of
Old Subordinated Debentures, and LGE receiving the Reynosa Assets and
securities having an aggregate principal amount of $118.8 million plus the New
Common Stock in exchange for $359.2 million of claims), the Company believes
that LGE and the holders of Old Subordinated Debentures would receive even
less in any reasonably likely alternative transaction. The Financial
Restructuring has a detrimental effect on holders of Old Common Stock
(including LGE and LG Semicon), who receive no distribution and retain no
property pursuant to the Prepackaged Plan. In addition, following the
Effective Date LGE will own all of the Common Stock of New Zenith and will,
therefore, have 100% of the interests in New Zenith's net book value and net
earnings. Following the Restructuring, Zenith expects to continue purchasing
some finished products from LGE, including VCRs. Additionally, Zenith expects
to purchase medium and large screen direct view televisions produced by LGE in
its operation of the Reynosa Assets. Because the Company intends to outsource
substantially all of its product lines following the Restructuring, the
Company expects that it will continue to purchase some finished products,
components and technical services from LGE.
The Company will not pay the fees and expenses of LGE or its professionals
in connection with the Restructuring, except as provided in the Restructuring
Agreement. See "SPECIAL FACTORS--The Restructuring Agreement."
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LGE AGREEMENTS RELATED TO COMMON STOCK
On March 25, 1997, LG Semicon granted LGE an irrevocable proxy to vote all
shares of common stock owned by LG Semicon. By its terms, the proxy terminates
after thirteen years. On March 3, 1998, LGE purchased 2,000,000 shares of Old
Common Stock from LG Semicon.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PREPACKAGED PLAN
If the Company commences the Prepackaged Chapter 11 Case and the Prepackaged
Plan is not subsequently confirmed by the Bankruptcy Court and consummated,
the alternatives include (i) liquidation of the Company under chapter 7 or
chapter 11 of the Bankruptcy Code and (ii) confirmation of an alternative plan
of reorganization under chapter 11 of the Bankruptcy Code. If the Prepackaged
Plan is not confirmed, the Company will decide which alternative to pursue by
weighing each of the available options and choosing the alternative or
alternatives that are in the best interests of the Company, its creditors and
other parties in interest.
Liquidation Under Chapter 7 or Chapter 11
If no plan of reorganization is confirmed (and in certain other
circumstances), the Prepackaged Chapter 11 Case may be converted to a case
under chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be
elected or appointed to liquidate the assets of the Company for distribution
to creditors in accordance with the priorities established by the Bankruptcy
Code. A discussion of the potential effects that a chapter 7 liquidation would
have on the recovery of holders of Claims and Equity Interests is set forth
under "LIQUIDATION ANALYSIS." In a liquidation, the assets of the Company
would be sold in exchange for cash, securities or other property, which would
then be distributed to creditors. In contrast to the Prepackaged Plan (or an
alternative reorganization under chapter 11 of the Bankruptcy Code) in which
creditors would receive debt or equity securities of the Company and would be
subject to the risks associated with holding such securities, in a liquidation
creditors might receive cash or other assets which are not subject to those
risks. See "RISK FACTORS." However, the Company believes that liquidation
under chapter 7 would result in smaller distributions (and, as to certain
Classes, no distributions) as compared to those provided for in the
Prepackaged Plan because of, among other things, (i) failure to realize the
greater going concern value of the Company's assets and the erosion in value
of assets in a chapter 7 case due to the expeditious liquidation required and
the "forced sale" atmosphere that would prevail, (ii) additional
administrative expenses involved in the appointment of a trustee and
professional advisors to such trustee and (iii) additional expenses and
Claims, some of which would be entitled to priority, which would be generated
during the liquidation and from the rejection of leases and other executory
contracts in connection with a cessation of the operations of the Company. In
addition, a chapter 7 liquidation is likely to result in substantial
litigation and delays in ultimate distributions to creditors. In the event of
a chapter 7 liquidation, the Company believes that there would not be
sufficient assets to make any distribution to any unsecured creditors.
In a liquidation under chapter 11, the Company's assets could be sold in an
orderly fashion over a more extended period of time than in a liquidation
under chapter 7, potentially resulting in somewhat greater (but indeterminate)
recoveries. Although preferable to a chapter 7 liquidation, the Company
believes that a liquidation under chapter 11 would still not realize the full
going concern value of the Company's assets or the value of the accumulated
NOLs. First, the going concern value is predicated upon the Company continuing
in operation. In contrast, liquidation value assumes that the Company would be
unable to continue functioning as a going concern and its assets would be sold
separately. Second, due to certain provisions of the Tax Code, it is unlikely
that any purchaser of the Company other than LGE could take advantage of the
Company's accumulated NOLs. See "CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS--Consequences to the Company--Section 382 Limitation."
Consequently, the Company believes that a liquidation under chapter 11 is a
less attractive alternative to creditors than the Prepackaged Plan because of
the likelihood of a greater recovery provided for by the Prepackaged Plan. See
"THE PREPACKAGED PLAN" and "LIQUIDATION ANALYSIS."
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Alternative Plans of Reorganization
If the Prepackaged Plan is not confirmed, the Company (or, if the exclusive
period in which to file a plan of reorganization has expired or is terminated
by the Bankruptcy Court, any other party in interest) could attempt to
formulate a different plan of reorganization. Such a plan might involve either
a reorganization and continuation of the Company's business or an orderly
liquidation of its assets.
The Company believes that the Prepackaged Plan is a significantly more
attractive alternative than these alternatives, because it could, among other
things, maximize the value of the Company's NOLs, minimize disputes during
such proceeding concerning the reorganization of the Company, significantly
shorten the time required to accomplish the reorganization, reduce the
expenses of a case under chapter 11 of the Bankruptcy Code, minimize the
disruption of the Company's business that would result from a protracted and
contested bankruptcy case and ultimately result in a larger distribution to
creditors than would other types of reorganizations under chapter 11 of the
Bankruptcy Code or a liquidation under chapter 7 or chapter 11 of the
Bankruptcy Code. The Company's ability to implement the Operational
Restructuring is dependent upon the confirmation and consummation of the
Prepackaged Plan.
GOING PRIVATE TRANSACTION
As of September 26, 1998, there were issued and outstanding 67,525,447
shares of Old Common Stock and approximately 11,470 holders of record of Old
Common Stock. As a consequence of the Financial Restructuring, the Old Common
Stock will be cancelled (including that of LGE and LG Semicon) and the holders
of the Old Common Stock (including LGE and LG Semicon) will receive no
distributions and retain no property in respect of their holdings of the Old
Common Stock. The Company believes that the Old Common Stock has no value, and
after evaluating various factors, the Board believes that the Financial
Restructuring provides the Company with best opportunity to enhance its long-
term viability. See "--Recommendation of the Board."
In satisfaction of the LGE Tranche B Claims of $200 million, LGE will
receive all of the issued and outstanding New Common Stock of New Zenith.
After consummation of the Financial Restructuring, all of the outstanding New
Common Stock of New Zenith will be held by LGE and thus, with respect to such
New Common Stock, New Zenith will no longer be subject to the proxy rules
under the Exchange Act.
The New Subordinated Debentures will not be convertible. However, the New
Subordinated Debentures will continue to be publicly held after the Financial
Restructuring and New Zenith will remain subject to the reporting requirements
under the Exchange Act. LGE has advised Zenith that it intends for New Zenith
to file periodic reports with the Commission for such time as the New
Subordinated Debentures remain outstanding.
RECOMMENDATION OF THE BOARD
The Special Committee of the Board has unanimously recommended to the Board,
and the Board has unanimously approved, the Restructuring Agreement and the
Prepackaged Plan. Since the holders of the Old Common Stock will receive no
distributions and retain no property under the Financial Restructuring, they
are deemed to reject the Prepackaged Plan and are not entitled to vote. See
"THE PREPACKAGED PLAN--Confirmation Standards." Thus, the following discussion
of the Financial Restructuring as it affects the holders of Old Common Stock
is for disclosure purposes only.
The following is a summary of the material factors considered by the Special
Committee in reaching its recommendation to the Board.
(1) Going Concern Valuation and Liquidation Analyses. The Special
Committee considered analyses prepared by PJSC of the value of the
Company's assets based both on the continuation of the Company as a going
concern and on the liquidation of the Company's assets. See "--Liquidation
and Going Concern Analyses" for a description of the review undertaken and
assumptions made by PJSC in developing its analyses. In the course of its
discussions with representatives of LGE, the Special Committee reviewed a
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number of possible alternatives and scenarios for the analyses, including
the risks associated therewith, and believed that the assumptions
underlying the going concern valuation and the liquidation analysis were
reasonable. The Special Committee believed that the optimal outcome for the
Company was a restructuring in which LGE participates for a number of
reasons, including the Company's ability to realize greater value due to
its ability to utilize the Company's NOLs.
The Special Committee noted that under both the going concern analysis
and the liquidation analysis there was no value available to holders of
Equity Interests, and that under the terms of the proposed financial
restructuring as negotiated with LGE, even considering the release
requested by LGE, the treatment offered to holders of Impaired Claims was
equal to or greater than the amount that would be received by such holders
in the hypothetical absolute priority distribution of the Company's assets
which is a part of both the going concern valuation and the liquidation
valuation prepared by PJSC. See "LIQUIDATION ANALYSIS."
The Special Committee also noted that under the terms of the proposed
financial restructuring as negotiated with LGE, the amount to be received
by LGE with respect to its unsecured Claims is reasonable in comparison to
the amount offered to holders of the Old Subordinated Debentures (as a
percentage of such Claims). In this regard, the Special Committee noted
that, under PJSC analyses, the percentage face value to be received by LGE
with respect to its unsecured Claims is less than the percentage face value
to be received by the holders of the Old Subordinated Debentures with
respect to their claims (assuming the holders of the Old Subordinated
Debentures approve the restructuring and thereby receive a distribution).
The Special Committee further noted that absent LGE's agreement to
participate in the proposed restructuring, there would be no value
available for distribution to holders of the Old Subordinated Debentures.
In addition, the Special Committee concluded that the more favorable
treatment of other Classes of unsecured Claims was appropriate, because (a)
such treatment is essentially being funded at the expense of LGE, and not
the holders of the Old Subordinated Debentures, and (b) the Company's
ability to announce favorable treatment of trade creditors would optimize
value for the benefit of all Classes of Claims and the Company as a whole.
Based on the foregoing, the Special Committee viewed the going concern
and liquidation analyses as strongly supporting its recommendation to the
Board that it approve the terms of the financial restructuring as
negotiated with LGE.
(2) The Lack of Available Alternatives. In the course of its negotiations
with LGE, the Special Committee investigated and considered the
availability of alternatives to the terms of the proposed financial
restructuring as negotiated with LGE. Specifically, the Special Committee
investigated whether the Company could obtain interim financing from LGE
absent the proposed restructuring, obtain a significant investment by a
strategic investor, a cash-out merger, or arrange for an "exchange" or
"rights" offering pursuant to the Securities Act or the sale of all or a
portion of the Company or its assets.
The Special Committee concluded that each of these alternatives was
unobtainable, unworkable or inappropriate. Specifically, the Special
Committee determined that LGE was unwilling to provide continued interim
financing absent the proposed financial restructuring and further concluded
that even if such short-term interim financing were available, it would not
resolve the Company's need to restructure its obligations on a long-term
basis in order to reduce its debt service obligations. The Special
Committee also concluded that no third-party interested in providing the
required capital (such as strategic investors or buyers for the Company as
a whole) exists, and noted that none had come forward or expressed interest
despite the efforts of management and PJSC to identify such a third party.
In reaching this conclusion, the Special Committee took into account the
beliefs of management and PJSC, each of which expressed the view that no
such third party likely exists. Finally, the Special Committee concluded
that no "exchange" or "rights" offering was viable, both because of the
Company's financial circumstances and that a sale of the Company's assets
to one or more third parties would, even if possible, not be likely to
produce as much value as would result under the LGE proposed financial
restructuring and also would not result in an adequate, long-term
reordering of the Company's debt obligations.
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(3) Procedural Considerations. In evaluating the aggregate consideration
available for distribution under the terms of the proposed financial
restructuring as negotiated with LGE, the Special Committee considered the
fact that the terms of the proposed financial restructuring as negotiated
with LGE resulted from an arm's length negotiation process which was
designed to obtain the maximum amount of proceeds for the Company. These
negotiations were held between representatives of and advisors to LGE, on
the one hand, and the Special Committee, the Company and their respective
advisors, on the other hand. Such arm's length negotiation process resulted
in various changes and modifications to the terms of the financial
restructuring as initially proposed by LGE which improved the status of
certain Claims and resulted in an enhanced distribution of proceeds. It was
the belief of the Special Committee that no further improvements in the
terms of the proposed financial restructuring as negotiated with LGE could
be obtained by additional negotiation with LGE and that, taking into
account the substantive and procedural requirements of the Bankruptcy Code,
the proposed financial restructuring is fair to unaffiliated
securityholders.
With respect to the procedural fairness of a prepackaged bankruptcy
proceeding to the holders of the Old Subordinated Debentures, the Special
Committee noted that (i) confirmation of a prepackaged plan would require
that the Bankruptcy Court find that the prepackaged plan is in the "best
interests" of the holders of the Old Subordinated Debentures who do not
vote to accept the prepackaged plan; and (ii) any holder of the Old
Subordinated Debentures that objects to the confirmation of a prepackaged
plan will be entitled, subject to compliance with the procedural, standing
and other requirements of the Bankruptcy Code, to file an objection with
the Bankruptcy Court and to have such objection considered at the
Confirmation Hearing. The Bankruptcy Code requires, subject to certain
exceptions, that the Prepackaged Plan be accepted by all Impaired Classes
of Claims, with acceptance defined to be acceptance by holders of at least
66 2/3% in dollar amount and more than one-half of the number of Allowed
Claims in a class, but counts only those claims that have been voted on the
plan.See "--Events Leading to the Restructuring" and "THE PREPACKAGED
PLAN--Confirmation Standards."
A finding by the Bankruptcy Court that a prepackaged plan is in the "best
interests" of the holders of the Old Subordinated Debentures who do not
vote to accept such prepackaged plan generally means that the court has
determined that they will receive property of a value that is not less than
the value such holders would receive if the debtor were liquidated under
chapter 7 of the Bankruptcy Code on the effective date of the prepackaged
plan. Such a finding does not necessarily imply that the prepackaged plan
is fair to the holders of Claims in all respects. However, it provides a
significant procedural safeguard to the holders of Claims in that it
requires that the Bankruptcy Court determine that the value of the
consideration to be paid to the holders of such Claims in the prepackaged
plan exceeds the value of the distributions they would receive in a
hypothetical chapter 7 liquidation. See "--Alternatives to Confirmation and
Consummation of the Prepackaged Plan" and "THE PREPACKAGED PLAN--
Confirmation Standards."
The Board considered the following material factors, each of which, in the
view of the Board, supported its determination to approve and recommend the
terms of the proposed financial restructuring as negotiated with LGE to the
holders of the Old Subordinated Debentures: (1) the conclusions and
recommendations of the Special Committee; (2) the considerations referred to
above as having been taken into account by the Special Committee, including
the analyses of PJSC, which are attached hereto as Annex C, and (3) the fact
that the terms of the proposed financial restructuring as negotiated with LGE
were the result of arms-length negotiations between the Special Committee,
management and LGE and their respective advisors. The Board did not, however,
receive any fairness opinion with respect to the Restructuring.
In evaluating the foregoing factors, the members of the Board, including the
members of the Special Committee, evaluated the terms of the proposed
financial restructuring as negotiated with LGE based upon their business
judgment and in light of their knowledge of and familiarity with, and
information provided by management with respect to, the Company's business,
prospects, financial condition, results of operations and current business
strategy, assets, liabilities and current industry, economic and market
conditions.
The foregoing discussion of the factors and information considered by the
Special Committee and the Board is not intended to be exhaustive, but includes
material factors considered by both the Special Committee and the
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Board. In view of the circumstances and the wide variety of factors considered
in connection with its evaluation of the terms of the proposed financial
restructuring as negotiated with LGE, the Special Committee and Board did not
find it practicable to assign relative weights to the factors considered in
reaching its determination to recommend the terms of the proposed financial
restructuring as negotiated with LGE to the holders of the Old Subordinated
Debentures.
The Company believes that the Prepackaged Plan complies with all applicable
requirements for confirmation under 11 U.S.C. (S)1129, including that the
Prepackaged Plan is fair and equitable with respect to each Class of Claims
and Equity Interests.
LGE'S POSITION REGARDING THE FINANCIAL RESTRUCTURING
LGE advised the Company that, based on the liquidation and going concern
analyses presented to the Board by PJSC and the expected cost of a prolonged
liquidation or traditional bankruptcy proceeding as compared to the cost of
the Restructuring, LGE is willing to proceed with the Restructuring pursuant
to the Restructuring Agreement. LGE advised the Company that it did not find
it practicable to, and did not, quantify or otherwise attach relative weights
to such factors. LGE has made no recommendation in support of or in opposition
to the Prepackaged Plan, but has agreed to vote its Claims in favor of the
Prepackaged Plan.
LGE engaged Lazard to act as its investment banker in connection with the
Restructuring. Lazard was retained based on its prior experience in
restructurings of other public companies in similar types of transactions. LGE
advised the Company that Lazard has not provided investment banking services
to LGE or its affiliates (including the Company) in the last two years. LGE
advised the Company that it retained Lazard to assist it in reviewing the
analyses prepared by PJSC and to advise LGE with respect to, and to assist in,
the negotiation of a restructuring of the Company. The terms of the proposed
financial restructuring were the result of arms-length negotiations among the
Company, the Special Committee and their advisors, on the one hand, and LGE
and its advisors, on the other. Lazard was not engaged to and did not render
an opinion, valuation or appraisal, make any finding or make any
recommendation with respect to the terms of the proposed financial
restructuring as negotiated with the Company. With Lazard's advice, LGE
formulated its proposed revised capital structure for the Company, including
the amount of indebtedness that should be converted into LGE New Restructured
Senior Note versus New Common Stock.
LIQUIDATION AND GOING CONCERN ANALYSES
In November 1998, the Special Committee considered certain liquidation and
going concern analyses developed by PJSC based on the Company's November 1998
Business Plan Projections. These analyses concluded that there was no value
available to holders of the Company's Equity Interests, and that the value
offered holders of Impaired Claims under the Prepackaged Plan was equal to or
greater than the amount that would be received by such holders in the
hypothetical absolute priority distribution of the Company's assets in
bankruptcy, under both the going concern valuation and the liquidation
valuation. These analyses also concluded that under Financial Restructuring,
LGE is offered less with respect to its general unsecured Claims than are
holders of the Old Subordinated Debentures (as a percentage of such Claims).
See "--Recommendation of the Board."
PJSC was instructed by the Company to prepare a going concern analysis of
the Company, a hypothetical Chapter 7 liquidation analysis of the Company, and
to compare the results of its final analyses with its immediately prior going
concern and liquidation analyses prepared in July 1998. In preparing the
liquidation and going concern analyses, PJSC: (i) reviewed information
supplied by the Company's management, including the Business Plan Projections,
dated November 12, 1998; (ii) reviewed the financial terms and provisions of
the Financial Restructuring; (iii) reviewed certain historical, financial and
other information for recent years and interim periods that was publicly
available or furnished to PJSC by the Company, including information provided
during discussions with representatives thereof; (iv) compared certain
financial and securities data of the Company with various other companies
deemed generally comparable to the operating business of the Company
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whose securities are traded in public markets; and (v) conducted such other
financial studies, analyses and investigations as PJSC deemed appropriate for
purposes of preparing its analyses. The following is a brief summary of the
liquidation and going concern analyses. For purposes of this summary, "Company
Peer Group" means Hitachi, Ltd., Matsushita Electric Industrial Co.,
Mitsubishi Electronic Corp., Philips Electronics N.V., Pioneer Electronic
Corporation and Sony Corporation.
Although PJSC conducted a review and analysis of the Company's business,
operating assets and liabilities and business plans, PJSC assumed and relied
on the accuracy and completeness of all financial and other information
furnished to it by the Company and publicly available information. With
respect to the projected adoption rates for VSB-technology in consumer
electronics products, PJSC relied on information obtained through discussions
with Forrester Research, Inc. (for domestic markets) and a report prepared by
Gartner Consulting/ Dataquest (for international markets). Such firms also
reviewed PJSC's analyses in developing its cash flow models for VSB-based
consumer electronics products. The firms were selected based on their
familiarity with the developing market for VSB-based consumer electronics
products. In addition, PJSC relied on the evaluations of the Reynosa Assets
contained in certain third party appraisals. See note (j) of the Notes to the
Business Plan Projections. PJSC did not independently verify management's
projections in connection with its analyses and, other than with respect to
certain fixed assets, no independent evaluations or appraisals of the
Company's assets were sought or obtained. PJSC did not receive any other
instructions or limitations with respect to the analyses.
Liquidation Analysis
The liquidation analysis presented to the Special Committee is substantially
identical to the liquidation analysis set forth herein under the heading
"LIQUIDATION ANALYSIS."
Going Concern Analysis
The going concern analysis presented to the Special Committee utilized a
discounted cash flow analysis procedure to separately value the cash flows
generated by the Company's Business Plan Projections, net of the VSB royalties
and tuner patent royalties. In the case of the Business Plan Projections, the
going concern analysis applies a range of discount rates from 12% to 16%. The
12% rate is equal to the weighted average cost of capital of the Company Peer
Group. A premium was applied to the weighted average cost of capital to
reflect the international presence, profitable sales and more diversified
product base of the Company Peer Group. To arrive at a terminal value, the
going concern analysis utilizes a range of illustrative sales multiples
derived from the lowest end of the Company Peer Group's latest twelve months
sales multiples discounted by 50% to 66.6% (the "Sales Multiples Approach").
With respect to domestic VSB, the going concern analysis applies a 25%
discount rate methodology to net projected VSB royalty income. The 25%
discount rate represents an estimate of the discount rates applied by equity
analysts and investors to analogous companies that have products in
development that have been approved by appropriate regulators but that are not
producing commercial cash flows. With respect to non-domestic VSB, the going
concern analysis includes potential revenues from licensing activity and
royalties in countries that (i) have adopted the ATSC digital television
standard, or (ii) are deemed likely to adopt such standard for some level of
national use by Gartner Consulting/Dataquest, the Company's technology
professionals. Non-domestic VSB revenue estimates were derived from projected
adoption and utilization rates in such countries. With respect to non-domestic
VSB, the going concern analysis applies a 40% and a 55% discount rate
methodology to net projected VSB revenue for countries that have adopted the
ATSC digital television standard or are deemed likely to adopt such standard,
respectively. The 40% and 55% discount rates reflect not only the same
underlying assumptions as the discount rate applied for domestic VSB revenue,
but are further adjusted to account for the significantly increased
uncertainty and speculative nature of such revenues. See "BUSINESS PLAN
PROJECTIONS--Assumptions Concerning VSB." The going concern analysis does not
include revenues for countries that are deemed unlikely to adopt the ATSC
digital television standard or that have already adopted an alternative
standard. With respect to tuner patent cash flows, the going concern analysis
applies discount rates ranging from 18% to 22% to net tuner patent cash flows.
These rates reflect the potential risks associated with recent disputes and
negotiations regarding the tuner patent that suggest uncertainty in the
stability of these cash flows.
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In addition, the going concern analysis utilized the following material
assumptions and/or methodologies: (i) with respect to VSB, that the Company
will be able to utilize certain carry-forward tax attributes to offset future
taxable royalty income, (ii) with respect to VSB, that the Company will
realize royalty rates between $5.00/unit and $1.00/unit for different classes
of consumer products, including televisions, video recorders, DVD
players/recorders, converter boxes, satellite boxes, cable boxes, personal
computers and computer add-in cards, (iii) with respect to VSB, that the
technology will receive, over time, varying rates of adoption and absorption
in the different classes of consumer products, (iv) with respect to VSB, that
the discount rates reasonably reflect the timing issues and risks in the
projected royalty fee cash flows through 2011, (v) with respect to enterprise
value, that the Company's operational performance and timing of the
disposition of material assets related to the integrated manufacturing base of
Zenith prior to its operational restructuring and substantive reductions in
inventory held for the manufacturing process, will be consistent with the
assumptions set forth in the Business Plan Projections, and (vi) due to the
unique character of the Company's VSB technology, which is not yet
commercialized, that the enterprise value of the Company as a going concern
and the value of the Company's VSB technology are separately valued, and then
aggregated to determine going concern value.
Under the going concern analysis presented by PJSC, the Company's enterprise
value (which includes indebtedness) was estimated at $125.0 million and VSB
technology value was estimated at $130.6 million, for a total going concern
value of $255.6 million.
The going concern and liquidation analyses referred to herein are based upon
a number of significant assumptions. While presented with numerical
specificity, these analyses are based upon a variety of assumptions (which the
Company believes are reasonable) and are subject to significant business,
economic, and competitive uncertainties and contingencies, many of which are
beyond the control of the Company. Consequently, the inclusion of these
analyses herein should not be regarded as a presentation by the Company (or
PJSC) that the values contained in the analyses would be realized, and actual
values may vary materially and adversely from those presented herein. Such
analyses are subject to significant uncertainty and are based upon certain
assumptions which may or may not prove to be correct. Neither the Company nor
PJSC intends to update or otherwise revise the going concern or liquidation
analyses to reflect circumstances existing after the date hereof or to reflect
the occurrence of unanticipated events, even in the event that any or all of
the underlying assumptions are shown to be in error, except as required by
applicable law.
Other Board Review
At a meeting of the Board on July 22, 1998, the Board considered certain
liquidation and going concern analyses with respect to the Company developed
by PJSC in connection with the Company's then existing business plan
projections dated June 26, 1998. The principal differences between the July
analyses and the November analyses are as follows: (i) the November going
concern and liquidation analyses include discounted projected non-domestic VSB
royalty and licensing revenue, which values were not capable of reasonable
estimation at the time the July analyses were prepared; (ii) the July analyses
were generated using financial projections from the business plan projections
dated June 26, 1998, while the November analyses incorporated projections from
the Business Plan Projections dated November 12, 1998; (iii) the November
analyses utilize updated assumptions concerning the disposition of certain
assets of the Company, reflecting both actual and projected changes from the
assumptions used in the July analyses (e.g., the November analyses reflect the
October 1998 sale of the Company's Glenview property, which under the July
analyses was projected to have been sold in the first quarter 1999; the
November analyses reflect the fourth quarter 1998 sale of the Company's
Melrose Park equipment, which under the July analyses was projected to have
been sold in the first quarter 1999); and (iv) the November analyses include
updated assumptions concerning certain domestic VSB revenue projections for
personal computers, principally relating to (x) a decrease in the assumed
general adoption and utilization rates of the Company's VSB technology in
personal computers based on the demonstrated market trend towards lower-cost
units, which are less likely to have VSB capability, and (y) an increase in
the assumed VSB royalty rate for personal computers ($5.00/unit in the
November analyses, as compared to $2.50/unit in the July analyses) to reflect
assumed greater royalty revenue potential in the higher-cost units, which are
likely to
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have VSB capability. In addition, with respect to the going concern analyses,
the November analyses utilized updated tax assumptions to reflect (A) the
projection of the Company's accountants that the Company may be subject to
alternative minimum tax, which were not included in the July analyses, and (B)
the Company's assumed foreign tax liability with respect to non-domestic VSB
revenues, which were not included in the July analyses. With respect to the
liquidation analyses, (A) the November analyses allocate projected warranty
expenses against both finished goods and trademark and distribution values,
while the July analyses allocated such expenses solely to finished goods
value, and (B) the November analyses apply a three year 10% discount rate to
projected net liquidated proceeds to more accurately reflect the present value
of liquidation distributions at the conclusion of the assumed 2 to 4 year
hypothetical liquidation period of the Company.
Prior to the July 22, 1998 meeting of the Board, the Board and the Special
Committee reviewed certain preliminary liquidation and going concern analyses
also prepared by PJSC, including at the May 21, 1998 meetings of the Board.
The principal differences between the preliminary analyses previously reviewed
by the Board and the Special Committee and the analyses presented on July 22,
1998 are as follows: (i) the preliminary analyses estimated values as of
January 1, 1998, while the July analyses estimated values as of January 1,
1999, the assumed confirmation date of the Prepackaged Plan, (ii) the
preliminary analyses were generated using financial projections from a
preliminary draft of the business plan projections, while the July analyses
incorporated projections from the Business Plan Projections dated June 26,
1998, (iii) with respect to VSB, the July valuation analyses utilize reduced
royalty revenue projections to reflect projected royalty-free cross-licenses,
which were included in the July analyses to reflect the Company's market
experience, and (iv) the July valuation analyses substantially reduced the
projected value of LGE's secured claim against the Company arising from the
leveraged lease guaranty resulting from bifurcation of the claim to reflect
that the leased property had a value less than the claim. In addition, with
respect to the liquidation analyses, (A) the July analyses utilized updated
asset realization percentages derived from a more detailed analysis of
projected asset class recoveries by the Company's management, and (B) the July
analyses assumed that projected liquidation recoveries from certain Mexican
assets of the Company would be net of projected liquidation and severance
costs associated with such assets. With respect to the going concern analyses,
(A) the enterprise value in the preliminary analyses was derived from a 14.0x
earnings before income and taxes ("EBIT") multiple (the median enterprise
value multiple of last twelve months EBIT derived from the Company Peer Group)
and a 12% discount rate (the weighted average cost of capital of the Company
Peer Group), while the enterprise value for the July analyses was derived from
a Sales Multiples Approach, and (B) in the July analyses, the Company's tuner
patent technology was separately valued, in part to better reflect the
anticipated cessation of such royalties at the expiration of their term or
otherwise. Specifically with respect to asset realization percentages, the
preliminary analyses utilize a 15% recovery rate for raw materials, while the
July analyses utilize a 20% recovery rate, resulting in a $2.1 million
increase in projected available liquidation proceeds. In addition, certain
categories of assets include in the preliminary analyses are omitted in the
July analyses because such assets are projected to have already been
liquidated as of the effective date of the final analyses, resulting in a
$49.4 million decrease in projected available liquidation proceeds.
In the preliminary analyses, the enterprise value of the Company was
estimated at $127.0 million and domestic VSB technology value was estimated at
$186.0 million, for a preliminary total going concern value of $313.0 million.
In the July report, enterprise value was estimated at $125.0 million and
domestic VSB technology value was estimated at $180.0 million for a total
going concern value of $305.0 million. In the preliminary analyses, the
liquidation analysis estimated a gross asset recovery from liquidation, net of
liquidation expenses and administrative and priority claims, of $256.4
million. In the July analyses, the liquidation analysis estimated a gross
asset recovery from liquidation, net of liquidation expenses and
administrative and priority claims, of $162.7 million.
THE RESTRUCTURING AGREEMENT
Based upon the agreement in principle of the Board and LGE, in June of 1998,
the Company and LGE began to negotiate the terms of a definitive agreement to
effectuate the Financial Restructuring. On August 7, 1998, the Company and LGE
executed the Restructuring Agreement.
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On November 16, 1998, the Company and LGE entered into Amendment No. 1 and
Waiver to the Restructuring Agreement to extend the delivery date of the
Implementation Program (as defined) from August 31, 1998 to November 30, 1998
and to waive until November 30, 1998 the Company's obligation to pay interest
to LGE on certain amounts owed by the Company to LGE.
The Company anticipates that additional modifications to the Restructuring
Agreement will be necessary before the Restructuring can be consummated. For
instance, the Company has revised its Business Plan Projections. Pursuant to
the Restructuring Agreement, material changes to the Business Plan Projections
must be approved by LGE. In addition, LGE may terminate the Restructuring
Agreement if the Prepackaged Plan is not consummated prior to December 15,
1998. The Company does not believe that the Prepackaged Plan will be
consummated prior to such date. The Company and LGE are in discussions
concerning the revisions to the Business Plan Projections, the extension of
the December 15 deadline and related matters, but there can be no assurance
that an agreement can be reached with respect to these issues.
The description of the Restructuring Agreement contained in this Disclosure
Statement describes the material terms of the Restructuring Agreement but does
not purport to be complete and is qualified in its entirety by reference to
the Restructuring Agreement, a copy of which is included as an exhibit to the
Registration Statement of which this Disclosure Statement forms a part and is
incorporated herein by reference.
The Transactions
In addition to the transactions contemplated by the Financial Restructuring,
the Restructuring Agreement provides that, upon the terms and subject to the
conditions set forth in the Restructuring Agreement, LGE may, at the option of
LGE and the Company, lend to the Company or provide indirect credit support to
the Company, such as a guarantee of financing provided by a third-party
lender, in an amount not to exceed $60 million, to the extent necessary to
enable the Company to implement the Operational Restructuring.
Agreements
Pursuant to the Restructuring Agreement, the Company has agreed to, and to
cause its subsidiaries to, use commercially reasonable efforts to, among other
things, consummate the Financial Restructuring and the other transactions
provided for in the Prepackaged Plan. The Company has also agreed, among other
things, (i) not to consent to any amendment of the Prepackaged Plan or the
Disclosure Statement without the prior written consent of LGE; (ii) to deliver
to LGE prior to November 30, 1998 an implementation program (the
"Implementation Program"), reasonably satisfactory to LGE, for the
discontinuation of the manufacturing operations of the Company and its
Subsidiaries, the outsourcing of the production of the Company's products and
the maximization of the value of the VSB technology; (iii) to give LGE and its
representatives full access to all properties and records relating to the
Company and its Subsidiaries, keep LGE generally informed as to the Company's
affairs and deliver to LGE certain financial statements; (iv) to promptly
notify LGE if any information is requested from it or any negotiations or
discussions are sought to be initiated with the Company concerning any merger,
consolidation, business combination, liquidation, reorganization, sale of
substantial assets, sale of shares of capital stock, purchase of claims or
similar transactions involving the Company or any subsidiary or any division
of any thereof (an "Alternative Proposal") and promptly communicate to LGE the
terms of any proposal or inquiry which it may receive in respect of any
Alternative Proposal; (v) to deliver to LGE after the end of each fiscal month
a certificate of the Company restating certain representations and warranties
relating to the Business Plan Projections contained in the Restructuring
Agreement; and (vi) to pay LGE each month in arrears (x) all interest accruing
on amounts owed but unpaid by the Company to LGE under the Reimbursement
Agreement and (y) up to $2,635,468 of interest accruing on amounts owed but
unpaid by the Company to LGE under the Financial Support Agreement. The
Company has agreed to conduct business in the ordinary course and to use
commercially reasonable efforts to retain key employees and business
relationships. The Company has agreed not to, and to cause its subsidiaries
not to, without the consent of LGE, (i) acquire or agree to acquire any
business or any assets (other than inventory) that would be material to the
Company; (ii) sell, lease, license or otherwise dispose of any of the assets
or properties of the Company or its subsidiaries other
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than in the ordinary course of business or pursuant to the Business Plan
Projections; (iii) amend its Certificate of Incorporation or By-laws; (iv)
redeem or otherwise acquire any shares of its capital stock or issue any
capital stock or any option, warrant or right relating thereto; (v) incur any
liabilities, obligations or indebtedness for borrowed money or guarantee any
such liabilities, obligations or indebtedness; (vi) permit or allow any of the
assets or properties of the Company or any subsidiary to be subject to any
lien, subject to certain customary exceptions; (vii) cancel any material
indebtedness or waive any claims or rights of material value; (viii) make any
change in any method of accounting or accounting practice or policy; (ix)
modify, amend, terminate or permit the lapse of any material lease of real
property; (x) enter into any material contract or arrangement; (xi) enter into
any agreement or take any action in violation of the terms of the
Restructuring Agreement or the Restructuring; (xii) settle any material tax
audit or make or change any material tax election, (xiii) hire any new
executive officers of the Company or any of its subsidiaries; (xiv) subject to
certain exceptions, grant any employee of the Company or any of its
subsidiaries an increase in compensation, severance or termination pay, enter
into any employment, severance or termination agreement with any such employee
or adopt any new benefit plan or arrangement or amend any such plan; (xv)
enter any new line of business; or (xvi) agree, whether in writing or
otherwise, to do any of the foregoing. The Company has also agreed to, and to
cause its subsidiaries to, (i) use commercially reasonable efforts to take all
actions to fulfill its obligations in respect of the Restructuring Agreement;
(ii) make all filings required under any applicable law or regulation and use
all reasonable efforts to obtain all permits necessary to be obtained by the
Company or any of its subsidiaries, (iii) cooperate with LGE in exchanging
information and supplying assistance in connection with filings contemplated
by the Restructuring Agreement; (iv) not issue any press release or make any
other public statement regarding the Restructuring without the prior consent
of LGE; and (v) perform all obligations under and comply with all terms and
provisions of the Leveraged Leases other than obligations to pay "Basic Rent"
under the Leveraged Leases. The Company has agreed to promptly notify LGE in
writing of any fact, condition, event or occurrence that could reasonably be
expected to result in the failure of any conditions contained in the
Restructuring Agreement to be satisfied.
Pursuant to the Restructuring Agreement, LGE has agreed: (i) subject to
compliance with applicable non-bankruptcy and bankruptcy laws, to vote all
Claims against and Equity Interests in the Company in favor of the Prepackaged
Plan; (ii) to use commercially reasonable efforts to take all actions in order
for it to fulfill its obligations under the Restructuring Agreement, including
making all filings required under any applicable law or regulation, obtaining
all permits necessary to be obtained by LGE or any of its subsidiaries, making
all necessary and desirable appearances before the Bankruptcy Court, and
promptly notifying the Company of any fact, condition, event or occurrence
that could reasonably be expected to result in the failure of any conditions
contained in the Restructuring Agreement to be satisfied; and (iii) to
cooperate with the Company in exchanging information and supplying assistance
in connection with filings contemplated by the Restructuring Agreement and
provide the Company with information regarding LGE's performance and ability
to perform under the Restructuring Agreement.
Conditions to the Consummation of the Restructuring
Each party's obligation to consummate the transaction contemplated by the
Restructuring Agreement is subject to the following conditions: (i) obtaining
necessary regulatory approvals; (ii) the absence of pending or threatened
litigation, injunctions or restraints in respect of the transactions
contemplated by the Prepackaged Plan or seeking material damages; (iii) the
confirmation by the Bankruptcy Court of the Prepackaged Plan and the existence
of a Final Order with respect to such confirmation; (iv) the notification of
the Company and LGE pursuant to the Hart-Scott-Rodino Antitrust Improvement
Act of 1976 and expiration of the applicable waiting period; and (v) to LGE's
and the Company's satisfaction, in their respective sole discretion, that the
Prepackaged Plan contain releases from the Company and its creditors of any
potential claims and liabilities against the individual members of the Board,
the Company and LGE and their respective affiliates and representatives.
The Company's obligation to consummate the transaction contemplated by the
Restructuring Agreement is subject to the following additional conditions: (i)
the accuracy of LGE's representations and warranties; and (ii) LGE's
performance in all material respects of its obligations under the
Restructuring Agreement.
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LGE's obligation to consummate the transaction contemplated by the
Restructuring Agreement is subject to various additional conditions, which
include, in addition to certain other customary closing conditions, the
following: (i) the accuracy of the Company's representations and warranties;
(ii) the Company's performance in all material respects of its obligations;
(iii) the retention of Mr. Gannon and certain key employees, or replacements
who are reasonably satisfactory to LGE; (iv) obtaining new senior financing by
the Company of not less than $100 million on terms reasonably satisfactory to
LGE; (v) LGE's satisfaction with all material changes to the Business Plan
Projections and with the Company's actions under the Implementation Program;
(vi) the Company's operating results being consistent with the Business Plan
Projections; (vii) the absence of any material, undisclosed, contingent
liabilities on the part of the Company; (viii) LGE's satisfaction with the
Arthur Andersen LLP report relating to the Company's June 27, 1998 balance
sheet; (ix) LGE's reasonable satisfaction with, and the Company's filing with
the Commission of, the Disclosure Statement; (x) LGE's satisfaction with the
purchase or other agreement with respect to certain employee benefit plan
arrangements and with the agreement relating to the purchase by LGE of the
Reynosa Assets as contemplated under the Prepackaged Plan, and in the event
that such purchase does not occur, the agreement relating to the operation by
LGE of such Reynosa Assets; (xi) the absence of a material adverse effect on
the business, properties, assets, results of operation, liabilities, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries
taken as a whole or on the ability of the Company or its subsidiaries to
consummate the transaction contemplated by the Restructuring Agreement or to
perform their respective obligations under the definitive transaction
agreements to be entered into in connection with the Restructuring Agreement
subsequent to the date of the Restructuring Agreement; (xii) the absence of
any increase or decrease of 20% or more in the United States/Republic of Korea
currency exchange rate from the rate existing on the date of the Restructuring
Agreement (or a suspension of, or limitation on, the markets therefor), a
declaration of a banking moratorium in the United States or the Republic of
Korea, any limitation by any regulatory authority or other event that
materially adversely affects the ability of LGE to consummate the transactions
contemplated by the Restructuring Agreement, or a commencement of a war or
other national or international calamity involving the United States or the
Republic of Korea; (xiii) LGE's satisfaction with any settlement arrangements
with respect to licensing of technology entered into by the Company with the
Sony Corporation or any of its affiliates; (xiv) LGE's determination, in its
sole discretion, that the aggregate tuner patent royalties between the date of
the consummation of the Prepackaged Plan and December 31, 2003 will not be
less than 70% of the aggregate amount of such royalties projected under the
Business Plan Projections; and (xv) the absence of any default or event of
default under any of the Company's financing arrangements or any other
agreement that is material to the Company to which the Company or any of its
subsidiaries is a party or by which any of them is bound.
Waiver of Conditions
To the extent permitted by law, the Company and LGE may waive any of their
respective conditions set forth in the Restructuring Agreement without notice
to, or approval from, the Bankruptcy Court or any other party.
Termination by Either Party
The Restructuring Agreement may be terminated at any time prior to the
consummation of the Prepackaged Plan by mutual written consent of the Company
and LGE, or by either the Company or LGE if (i) the transactions contemplated
by the Restructuring Agreement shall not have occurred prior to December 15,
1998; or (ii) any statute shall make consummating the transactions under the
Restructuring Agreement illegal, or any court or other regulatory authority
shall have issued a judgment, order, decree or ruling enjoining the
consummation of the transactions contemplated by the Restructuring Agreement
and such judgment, order, decree or ruling shall have become final and non-
appealable.
Termination by LGE
The Restructuring Agreement may also be terminated by LGE if (i) the Company
fails to perform in any material respect any obligation or breaches any
representation or warranty, and the Company fails to perform
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such obligation or cure any such breach capable of being cured within 30 days'
notice by LGE; (ii) the Board or the Special Committee withdraws or modifies,
in a manner adverse to LGE (as determined by LGE in its reasonable judgment),
its approval or recommendation of the Restructuring Agreement or the
Restructuring; or (iii) any condition to LGE's obligations under the
Restructuring Agreement becomes impossible to fulfill (other than as a result
of any breach by LGE).
Termination by the Company
The Restructuring Agreement may be terminated by the Company if (i) LGE
fails to perform in any material respect any obligation or breaches any
representation or warranty, and LGE fails to perform such obligation or cure
any such breach capable of being cured within 30 days' notice by the Company;
(ii) any condition to the Company's obligations under the Restructuring
Agreement becomes impossible to fulfill (other than as a result of any breach
by the Company); or (iii) there is an Alternative Proposal which the Board in
good faith determines represents a superior transaction for the Company as
compared to the Financial Restructuring, and the Board determines, after
consultation with counsel, that failure to terminate the Restructuring
Agreement would be inconsistent with the compliance by the Board with its
fiduciary duties imposed by law; provided, however, that the Company may not
terminate the Restructuring Agreement (i) if the Alternative Proposal is
subject to a financing condition, unless the Board is of the opinion, after
consultation with PJSC or another nationally recognized investment banking
firm, that the Alternative Proposal is financeable, (ii) if, prior to or
concurrently with any purported termination, (x) the Company or the person or
entity that made the Alternative Proposal (the "New Investor") shall not have
paid the Transaction Expenses (as defined below) contemplated by the
Restructuring Agreement and (y) the Company and the New Investor shall not
have entered into a legal, valid and binding agreement with LGE pursuant to
which such New Investor agrees to pay LGE the Transaction Fee (as defined
below) contemplated by the Restructuring Agreement upon the earlier of (A) the
consummation of such Alternative Proposal and (B) the termination of such
Alternative Proposal, or (iii) if the Company has not provided LGE with five
business days' prior written notice of its intent to so terminate the
Restructuring Agreement together with a summary of the material terms and
conditions of such Alternative Proposal.
Effect of Termination
Termination by either the Company or LGE will void the Restructuring
Agreement, without any liability or obligation on the part of LGE or the
Company with respect to the transactions contemplated under the Restructuring
Agreement, except to the extent that such termination results from the willful
and material breach by a party of any of its representations, warranties,
covenants or agreements set forth in the Restructuring Agreement, and except
under circumstances in which the Transaction Expenses and the Transaction Fee
are due.
Transaction Expenses and Transaction Fee upon Termination under Certain
Circumstances
In the event that (i) the Board or the Special Committee shall have
withdrawn or modified, in a manner adverse to LGE, its approval of the
Restructuring Agreement or the transactions contemplated by the Restructuring
Agreement or by the Restructuring, and LGE terminates the Restructuring
Agreement, (ii) the Bankruptcy Court approves, or enters an order authorizing,
an offer, proposal or agreement to effect an Alternative Proposal, or (iii)
during the period ending twelve months after the termination of the
Restructuring Agreement, the Company consummates, becomes a party to or enters
into an agreement relating to, or publicly announces, an Alternative Proposal,
the Company shall promptly, but in no event later than three business days
after the first of such events to occur, reimburse LGE and its affiliates for
all reasonable out-of-pocket expenses and fees (including, without limitation,
fees and expenses payable to all banks, investment banking firms and other
financial institutions and their respective agents and counsel, for
structuring the transactions contemplated hereby and all reasonable fees of
counsel, accountants, experts and consultants to LGE and its affiliates, and
all printing and advertising expenses) incurred or accrued by it or on its
behalf in connection with the negotiation, preparation, execution and
performance of the Restructuring Agreement and the Restructuring (the
"Transaction Expenses"); provided, however, that LGE shall not be entitled to
such Transaction Expenses if the Company
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terminates the Restructuring Agreement due to a material breach by LGE of its
obligations under the Restructuring Agreement.
In the event that during the twelve months after the termination of the
Restructuring Agreement the Company consummates, becomes a party to or enters
into an agreement relating to, or publicly announces, an Alternative Proposal,
the Company shall, or shall cause the New Investor to, pay LGE a transaction
fee of $8 million (the "Transaction Fee") upon the earlier of (x) the
consummation of such Alternative Proposal or (y) the termination of such
Alternative Proposal.
Withdrawal or Modification of Recommendations
Either the Board or the Special Committee may at any time withdraw or modify
its approval or recommendation of the Restructuring Agreement or the
transactions contemplated thereby or by the Restructuring in the event that it
determines, after consultation with counsel, that failure to so withdraw or
modify its recommendation would not be consistent with compliance with its
fiduciary duties imposed by law; provided, however, that such withdrawal or
modification shall not in any manner release the Company from its obligations
under the Restructuring Agreement unless LGE exercises its right to terminate
the Restructuring Agreement, in which case the termination and expense
provisions of the Restructuring Agreement shall govern.
AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BY-LAWS
The Bankruptcy Code requires that upon the confirmation of a plan of
reorganization a debtor's charter documents must contain certain provisions
including a provision prohibiting the issuance of non-voting equity
securities. To comply with such requirement, the Prepackaged Plan provides
that the Company will file an amended Certificate of Incorporation with the
Secretary of State of the State of Delaware in accordance with the Delaware
General Corporation Law (the "Amended Certificate of Incorporation"). The
Amended Certificate of Incorporation will prohibit the issuance of nonvoting
equity securities to the extent required by section 1123(a) of the Bankruptcy
Code, change the number of authorized shares of New Common Stock to 1,000,
change the par value of the New Common Stock to $0.01 and eliminate the
authorization of preferred stock. Following confirmation of the Prepackaged
Plan, there is no legal requirement for New Zenith's certificate of
incorporation to contain provisions prohibiting the issuance of nonvoting
equity securities. After the Effective Date, New Zenith reserves the right to
amend and restate its Amended Certificate of Incorporation and other
constituent documents as permitted by the Delaware General Corporation Law. At
present, the Company does not contemplate any such amendments.
INTERESTS OF CERTAIN PERSONS IN THE FINANCIAL RESTRUCTURING; CONFLICTS OF
INTEREST
In considering the recommendation of the Board with respect to the
Restructuring, holders of Impaired Claims should be aware that the Board and
members of the Company's management have certain interests described below,
which give rise to actual and potential conflicts of interest with respect to
the Prepackaged Plan. The Board was aware of these conflicts in making its
recommendation regarding the Restructuring to holders of the Old Subordinated
Debentures. However, in recommending the Restructuring, the Board itself is
acting upon the recommendation of the Special Committee, which is comprised
solely of directors who are not officers or directors of LGE or current
officers of the Company and which the Board had established specifically to
mitigate some of the conflicts of interests described below. See "--Events
Leading to the Restructuring."
LGE Directors
The current Board consists of eleven directors. LGE and LG Semicon
beneficially own approximately 56.5% of the Old Common Stock (including vested
but unexercised stock options) and, pursuant to the Company's Charter and
Bylaws, LGE effectively has the power to elect all eleven members of the
Board. In addition, pursuant to the LGE Stock Purchase Agreement, LGE has the
contractual right to designate six members of the Board. Presently, six
members of the Board are officers of and/or affiliated with LGE and/or its
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affiliates. Moreover, LGE itself is a creditor of the Company being the holder
of the LGE Claims and a guarantor on behalf of the Company on various credit
instruments. LGE also supplies products to and purchases products from the
Company and has a number of other relationships with the Company. See "--
Events Leading to the Restructuring--Other Transactions with LGE." As a result
of the foregoing, LGE has a conflict of interest.
Releases, Indemnifications and Limitations of Liability
In consideration of the contributions of certain parties to the Prepackaged
Chapter 11 Case, including, but not limited to, (i) the commitment and
obligation of LGE to provide the financial support necessary for Consummation
of the Prepackaged Plan, and (ii) the service of certain designated
individuals to facilitate the expeditious reorganization of the Company and
the implementation of the Restructuring, the Prepackaged Plan provides for
certain waivers, exculpation, releases and injunctions. The Prepackaged Plan
provides an injunction barring the commencement or continuation of any Claims
released pursuant to its terms.
Specifically, the Prepackaged Plan provides that the Company and its
Subsidiaries will release, upon the Effective Date, the D&O Releasees and the
Investor Releasees from any and all Claims and causes of action, whether known
or unknown, foreseen and unforeseen, existing or hereafter arising, that the
Company or its Subsidiaries would have been legally entitled to assert in
their own right or on behalf of the holder of any Claim or Equity Interest or
other person or entity against any of them relating to any event occurring on
or before the Effective Date of the Prepackaged Plan, including avoidance
actions under sections 544, 547, 548, 549 and 550 of the Bankruptcy Code. The
release of the D&O Releasees by the Company and its Subsidiaries does not
affect certain loans or contracts such parties have entered into in the
ordinary course of business.
In the course of the Special Committee's work and review of the proposed
release of LGE, the Special Committee sought to determine whether impaired
classes would be likely to receive a greater recovery in a hypothetical
restructuring occurring without the Investor Releases and without LGE's
participation. In that regard, the Special Committee and its counsel reviewed
and investigated significant transactions between LGE and the Company. Based
on that investigation, the Special Committee concluded that any value that
might be attributed to these releases was less than the overall value created
by the Restructuring, and that absent LGE's agreement to participate in a
restructuring (which was conditioned on, among other things, obtaining the
releases) there was no value available for distribution to holders of either
the Old Common Stock or the Old Subordinated Debentures.
In addition, the Prepackaged Plan provides that each holder of any Claim
that has accepted the Prepackaged Plan, whose Claim is part of a Class that
has accepted (or is deemed to accept) the Prepackaged Plan, or that is
entitled to receive a distribution of property under the Prepackaged Plan, is
deemed to release, upon the Effective Date, any and all Claims and causes of
action, whether known or unknown, foreseen and unforeseen, existing or
hereafter arising, that it would have been legally entitled to assert against
the D&O Releasees or the Investor Releasees relating to the Company or its
Subsidiaries, the Prepackaged Chapter 11 Case, or the negotiation, formulation
and preparation of the Prepackaged Plan and related documents.
The Prepackaged Plan also provides that the Company, its Subsidiaries, the
D&O Releasees, and the Investor Releasees shall be exculpated from any
liability to any person or entity (as defined in the Bankruptcy Code) for any
act or omission in connection with or related to the negotiation, formulation,
preparation and Confirmation of the Prepackaged Plan, the Consummation and
administration of the Prepackaged Plan, the Prepackaged Chapter 11 Case, or
the property distributed under the Prepackaged Plan, except by virtue of any
willful misconduct or gross negligence, as determined by a court of competent
jurisdiction. The Company believes that these provisions of the Prepackaged
Plan are permissible under the Bankruptcy Code but acknowledges that arguments
exist that certain case law would permit a contrary conclusion. Parties with
standing may object to such provision in the Bankruptcy Court proceeding.
The releases and indemnification provisions provided by the Prepackaged Plan
create a conflict of interest for all of the Company's directors and officers
in that such provisions may cause the directors and officers to support the
Prepackaged Plan as opposed to any alternative that did not provide such
releases or indemnification.
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Effect of Conflicts of Interest on the Board's Recommendation
Although the Board recognizes the existence of the conflicts of interest
described in the foregoing paragraphs, the Board does not believe that such
conflicts of interest had the effect of causing the terms of the Financial
Restructuring to be different in any material respect than such terms would
have been in the absence of such conflicts of interests. Moreover, the Board
established the Special Committee specifically to address and mitigate against
any potential conflicts of interest of LGE or certain directors. See "--Events
Leading to the Restructuring."
LIQUIDITY PENDING CONSUMMATION OF THE RESTRUCTURING
Until the Prepackaged Plan is implemented on the Effective Date, the Company
may be required to rely on its cash resources to operate the business of the
Subsidiaries, service certain of its debt and pay other costs. Currently, the
Company has access to funds under the Amended Citibank Credit Facility and the
LGE Demand Loan Facility to supplement cash flow from operations. The Amended
Citibank Credit Facility currently expires on the earlier of a bankruptcy
filing by the Company or December 31, 1998. The Company is in negotiations to
extend or replace the Amended Citibank Credit Facility. In addition, the
Company is in discussions with potential lenders regarding DIP financing
during the Prepackaged Chapter 11 Case. See "RISK FACTORS--Recent Operating
Results, Independent Auditor's Report and High Leverage" and "--Possible
Defaults; Risk of Acceleration or Termination."
DISSENTERS' RIGHTS
There are no dissenters' rights available under applicable law with respect
to the Restructuring. If the Prepackaged Plan is confirmed by the Bankruptcy
Court and the Restructuring is consummated in accordance therewith, holders of
the Old Subordinated Debentures that do not vote in favor of the Prepackaged
Plan will nevertheless be bound by all the terms and conditions thereof.
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THE PREPACKAGED PLAN
GENERAL
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11 of the Bankruptcy Code, a debtor is
authorized to reorganize its business for the benefit of its creditors and
stockholders. In addition to permitting rehabilitation of the debtor, chapter
11 seeks to promote equality of treatment of creditors and equity security
holders of equal rank with respect to the distribution of a debtor's assets.
In furtherance of these two goals, upon the filing of a petition for
reorganization under chapter 11, section 362 of the Bankruptcy Code generally
provides for an automatic stay of substantially all acts and proceedings
against the debtor and its property, including all attempts to collect Claims
or enforce liens that arose prior to the commencement of the debtor's case
under chapter 11.
The consummation of a plan of reorganization is the principal objective of a
chapter 11 reorganization case. A plan of reorganization sets forth the means
for satisfying Claims against, and Equity Interests in, a debtor. Confirmation
of a plan of reorganization by the Bankruptcy Court makes the plan binding
upon the debtor, any issuer of securities under the plan, any person acquiring
property under the plan and any creditor, equity security holder or general
partner in the debtor. Subject to certain limited exceptions, the confirmation
order discharges the debtor from any debt that arose prior to the date of
confirmation of the plan and substitutes therefor the obligations specified
under the confirmed plan. If sufficient votes for acceptance of the
Prepackaged Plan are received, the Company intends to file a chapter 11
reorganization case and promptly seek Confirmation by the Bankruptcy Court of
the Prepackaged Plan.
The Prepackaged Plan provides specified treatment to the various Classes of
Claims against and Equity Interests in the Company. The Company believes the
Prepackaged Plan provides treatment for all Classes of Claims and Equity
holders that reflects an appropriate resolution of their Claims and Equity
Interests taking into account the differing nature and priority (including
applicable contractual subordination) of such Claims and Equity Interests. The
Bankruptcy Court must find, however, that a number of statutory tests are met
before it may confirm the Prepackaged Plan. See "--Confirmation Standards."
Many of these tests are designed to protect the interests of holders of Claims
or Equity Interests that do not vote to accept the Prepackaged Plan but that
will be bound by the provisions of the Prepackaged Plan if it is confirmed by
the Bankruptcy Court.
The Bankruptcy Code generally provides for the appointment of a committee of
unsecured creditors in a Chapter 11 case. The appointment is made by either
the bankruptcy judge (in non-U.S. Trustee districts) or the U.S. Trustee.
Ordinarily, the committee will consist of the seven largest unsecured
creditors that are willing to serve, however, the Bankruptcy Code does not
place a limitation as to the size of any particular committee. Under certain
circumstances, additional committees may be appointed as well, or no
committees may be appointed. If appointed, a Chapter 11 creditors' committee
possesses authority to promote and to protect the interests of its creditor
constituency. In this regard, Section 1103(c) of the Bankruptcy Code provides,
among other things, that a duly-appointed committee may: consult with the
trustee or debtor in possession concerning the administration of the case;
investigate the acts, conduct, assets, liabilities, and financial condition of
the debtor, the operation of the debtor's business and the desirability of the
continuance of such business, and any other matter relevant to the case or to
the formulation of a plan; and perform such other services as are in the
interest of those represented. To carry out these functions, a creditors'
committee appointed pursuant to Section 1102 of the Bankruptcy Code may employ
professionals, may raise and may appear and be heard on any issue in the case,
and may transact such business as may be necessary and proper with the trustee
or debtor in possession.
THE FOLLOWING IS A SUMMARY OF CERTAIN OF THE MORE SIGNIFICANT MATTERS TO
OCCUR EITHER PURSUANT TO OR IN CONNECTION WITH CONFIRMATION OF THE PREPACKAGED
PLAN, A COPY OF WHICH ACCOMPANIES THIS DISCLOSURE STATEMENT AS ANNEX A AND TO
WHICH REFERENCE SHOULD BE MADE FOR A FULL STATEMENT OF ITS TERMS. THIS SUMMARY
ONLY HIGHLIGHTS CERTAIN SUBSTANTIVE PROVISIONS OF THE PREPACKAGED PLAN AND IS
NOT A COMPLETE DESCRIPTION OF, OR A SUBSTITUTE
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FOR, A FULL AND COMPLETE READING OF THE PREPACKAGED PLAN, WHICH ALL HOLDERS OF
CLAIMS AND EQUITY INTERESTS ARE URGED TO REVIEW CAREFULLY. THE PREPACKAGED
PLAN, IF CONFIRMED, WILL BE BINDING UPON THE COMPANY AND ALL HOLDERS OF CLAIMS
AND EQUITY INTERESTS. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE PREPACKAGED PLAN.
The Prepackaged Plan defines two significant dates, the Confirmation Date
and the Effective Date. The "Confirmation Date" is the date on which the
Bankruptcy Court enters an Order confirming the Prepackaged Plan in its
docket, within the meaning of Bankruptcy Rules 5003 and 9021. The Effective
Date is the date selected by the Company on or after the Confirmation Date on
which (a) no stay of the Confirmation Order is in effect and (b) the
conditions specified in the Prepackaged Plan shall all have been satisfied or
waived pursuant to the Prepackaged Plan.
DURING THE PENDENCY OF THE BANKRUPTCY CASE THAT WILL BE FILED IN CONNECTION
WITH THE RESTRUCTURING, THE COMPANY INTENDS TO OPERATE ITS BUSINESS IN THE
ORDINARY COURSE OF BUSINESS AND TO MAKE PAYMENT IN FULL ON A TIMELY BASIS TO
ALL OF ITS GENERAL UNSECURED CREDITORS. THE COMPANY ALSO WILL SEEK APPROVAL
IMMEDIATELY UPON THE FILING OF THE PETITION TO PAY IN FULL IN THE ORDINARY
COURSE OF BUSINESS THE PRE-PETITION CLAIM OF EACH HOLDER OF A GENERAL
UNSECURED CLAIM. MANAGEMENT EXPECTS THAT THE COMPANY WILL HAVE SUFFICIENT
FUNDS FROM OPERATIONS AND A DEBTOR IN POSSESSION CREDIT FACILITY TO CONTINUE
TO PAY ITS GENERAL UNSECURED CREDITORS IN THE ORDINARY COURSE OF BUSINESS
THROUGH THE CONCLUSION OF THE PREPACKAGED CHAPTER 11 CASE, AND TO HAVE
SUFFICIENT LIQUIDITY UNDER ITS LENDING FACILITIES AND FROM OPERATIONS TO MAKE
SUCH PAYMENTS THEREAFTER. Under the Prepackaged Plan, holders of General
Unsecured Claims will not be required to file proofs of claim with the
Bankruptcy Court, and it is not expected that they will be required to take
any other action to receive payment on their Claims.
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS UNDER THE PREPACKAGED PLAN
Section 1122 of the Bankruptcy Code requires that the Prepackaged Plan
classify the Claims against, and Equity Interests in, the Company. The
Bankruptcy Code also provides that, except for certain Claims classified for
administrative convenience, the Prepackaged Plan may place a Claim or Equity
Interest in a particular Class only if such Claim or Equity Interest is
substantially similar to the other Claims or Equity Interests of such Class.
The Company believes that all Claims and Equity Interests have been
appropriately classified in the Prepackaged Plan. The Company has elected to
separately classify General Unsecured Claims because this Class is comprised
largely of trade creditors. Many of these creditors are key suppliers of
products and services used by the Company. Accordingly, any impairment of
these Claims could be detrimental to the ability of the Company to obtain
essential trade credit and could substantially impair the ability of the
Company to do business with trade creditors whose goods and services are
essential for the Company. Bank Lender Claims have been separately classified
because the Company believes that LGE's guaranty of these Claims renders their
legal and financial position substantially unlike other unsecured Claims. LGE
Claims have been separately classified because LGE has voluntarily agreed to
convert its debt to equity and because LGE is an insider. LGE has consented to
the separate classification of its Claims as provided in the Prepackaged Plan.
Finally, because the Old Subordinated Debenture Indenture contains
subordination provisions, the Old Subordinated Debentures are not held by
insiders, and the Old Subordinated Debenture Claims are not guaranteed by LGE,
the Company contends that the Old Subordinated Debenture Claims are
significantly different from the other unsecured debt and therefore must be
classified separately.
To the extent that the Bankruptcy Court finds that a different
classification is required for the Prepackaged Plan to be confirmed, the
Company would seek (i) to modify the Prepackaged Plan to provide for whatever
reasonable classification might be required for Confirmation and (ii) to use
the acceptances received from any
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holder of Claims pursuant to this solicitation for the purpose of obtaining
the approval of the Class or Classes of which such holder ultimately is deemed
to be a member. Any such reclassification of holders, although subject to the
notice and hearing requirements of the Bankruptcy Code, could adversely affect
the Class in which such holder was initially a member, or any other Class
under the Prepackaged Plan, by changing the composition of such Class and the
vote required for approval of the Prepackaged Plan. There can be no assurance
that the Bankruptcy Court, after finding that a classification was
inappropriate and requiring a reclassification, would approve the Prepackaged
Plan based upon such reclassification. Except to the extent that modification
of classification in the Prepackaged Plan adversely affects the treatment of a
holder of Claims and requires resolicitation, the Company will, in accordance
with the Bankruptcy Code and the Bankruptcy Rules, seek a determination by the
Bankruptcy Court that acceptance of the Prepackaged Plan by any holder of
Claims pursuant to this solicitation will constitute a consent to the
Prepackaged Plan's treatment of such holder regardless of the Class as to
which such holder is ultimately deemed to be a member.
The Bankruptcy Code also requires that the Prepackaged Plan provide the same
treatment for each Claim or Equity Interest of a particular Class unless the
holder of a particular Claim or Equity Interest agrees to a less favorable
treatment of its Claim or Equity Interest. The Company believes it has
complied with the requirement of equal treatment.
Only Classes that are impaired (as defined under section 1124 of the
Bankruptcy Code) under the Prepackaged Plan are entitled to vote to accept or
reject the Prepackaged Plan, unless the Class is deemed to have rejected the
Prepackaged Plan. As a general matter, a Class of Claims or Equity Interests
is considered to be "unimpaired" under a plan of reorganization if the plan
does not alter the legal, equitable and contractual rights of the holders of
such Claims or Equity Interests. Under the Bankruptcy Code, holders of
Unimpaired Claims are conclusively presumed to have accepted the Prepackaged
Plan. Holders of Claims or Equity Interests which do not receive or retain
anything under the Prepackaged Plan are deemed to have rejected the
Prepackaged Plan.
The categories of Claims and Equity Interests listed below classify Claims
and Equity Interests for all purposes, including voting, confirmation and
distribution pursuant to the Prepackaged Plan and pursuant to sections 1122
and 1123(a)(1) of the Bankruptcy Code. A Claim or Equity Interest shall be
deemed classified in a particular Class only to the extent that the Claim or
Equity Interest qualifies within the description of that Class and shall be
deemed classified in a different Class to the extent that any remainder of
such Claim or Equity Interest qualifies within the description of such
different Class. A Claim or Equity Interest is in a particular Class only to
the extent that such Claim or Equity Interest is Allowed in that Class and has
not been paid or otherwise settled prior to the Effective Date. A Claim or
Equity Interest is "Allowed" if the Claim or Equity Interest is: (a) a Claim
that has been scheduled by the Company in its schedule of liabilities as other
than disputed, contingent or unliquidated and as to which the Company or other
party in interest has not filed an objection by the Effective Date; (b) a
Claim that either is not subject to a timely objection in accordance with the
Bankruptcy Code or disputed by the Company or has been allowed by a Final
Order; (d) a Claim that is allowed: (i) in any stipulation of amount and
nature of Claim executed prior to the Confirmation Date and approved by the
Bankruptcy Court; (ii) in any stipulation with the Company of amount and
nature of Claim executed on or after the Confirmation Date; or (iii) in any
contract, instrument, indenture or other agreement entered into or assumed in
connection with the Prepackaged Plan; (e) a Claim relating to a rejected
executory contract or unexpired lease that either (i) is not subject to a
timely objection in accordance with the Bankruptcy Code or disputed by the
Company or (ii) has been allowed by a Final Order, in either case only if a
proof of Claim has been deemed timely filed under the Prepackaged Plan; or (f)
a Claim that is allowed pursuant to the terms of the Prepackaged Plan.
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The classification of Claims and Equity Interests pursuant to the
Prepackaged Plan is as follows:
<TABLE>
<CAPTION>
CLASS STATUS VOTING RIGHTS
----- ------ -------------
<S> <C> <C>
Class 1--Other Priority Claims Unimpaired --not entitled to vote
Class 2--Citibank Secured Claims Unimpaired --not entitled to vote
Class 3--Other Secured Claims Unimpaired --not entitled to vote
Class 4--Bank Lender Claims Impaired --entitled to vote
Class 5--General Unsecured Claims Unimpaired --not entitled to vote
Class 6--Old Subordinated Debenture Impaired --entitled to vote
Claims
Class 7--LGE Claims: Impaired --entitled to vote
LGE Tranche A Claims
LGE Tranche B Claims
Class 8--Equity Interests Impaired --not entitled to vote;
deemed to reject
</TABLE>
The Prepackaged Plan divides Claims against the Company into eight Classes
and Equity Interests in the Company are in one Class. Distributions will be
made to persons holding Claims and Equity Interests in various Classes as
described below.
SUMMARY OF TREATMENT UNDER THE PREPACKAGED PLAN
A. Administrative Claims
Administrative Claims consist of the Claims for the costs and expenses of
administration under sections 503(b), 507(b) or 1114(e)(2) of the Bankruptcy
Code, including: (a) the actual and necessary costs and expenses in preserving
the estates of the Company following the commencement of the chapter 11 case
and operating the business of the Company (such as wages, salaries or
commissions for services and payments for goods and other services and leased
premises); (b) compensation for legal, financial advisory, accounting and
other services and reimbursement of expenses awarded or allowed under sections
330(a) or 331 of the Bankruptcy Code; and (c) all fees and charges assessed
against the estate under Chapter 123 of Title 28 United States Code, 28
U.S.C.(S)(S) 1911-1930. Subject to the provisions of sections 330(a) and 331
of the Bankruptcy Code, each holder of an Allowed Administrative Claim will be
paid the full unpaid amount of such Allowed Administrative Claim in cash on
the Effective Date, or upon such other terms as may be agreed upon by such
holder and the Company or otherwise upon order of the Bankruptcy Court;
provided, however, that Allowed Administrative Claims representing obligations
incurred in the ordinary course of business by the Company pursuant to the
Prepackaged Plan will be paid or performed by New Zenith when due in
accordance with the terms and conditions of the particular agreements
governing such obligations.
B. Priority Tax Claims
The Bankruptcy Code provides for priority payment of certain other Claims,
subject to certain limitations, such as allowed unsecured Claims of
governmental units for certain taxes of the kind specified in section
507(a)(8) of the Bankruptcy Code. On the Effective Date, each holder of a
Priority Tax Claim due and payable on or prior to the Effective Date shall be
paid cash in an amount equal to the amount of such Allowed Claim, or shall be
paid on account of its Allowed Claim on such other terms as have been or may
be agreed upon by such holder and the Company. The amount of any Priority Tax
Claim that is not an Allowed Claim or that is not otherwise due and payable on
or prior to the Effective Date, and the rights of the holder of such Claim, if
any, to payment in respect thereof shall (i) be determined in the manner in
which the amount of such Claim and the rights of the holder of such Claim
would have been resolved or adjudicated if the Prepackaged Chapter 11 Case had
not been commenced, (ii) survive the Effective Date and Consummation of the
Prepackaged Plan as if the Prepackaged Chapter 11 Case had not been commenced,
and (iii) not be discharged pursuant to section 1141 of the Bankruptcy Code.
In accordance with section 1124 of the Bankruptcy Code, the Prepackaged Plan
shall leave unaltered the legal, equitable, and contractual rights of each
holder of a Priority Tax Claim.
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Class 1--Other Priority Claims
Classification: Other Priority Claims consist of all Claims accorded
priority in right of payment under section 507(a) of the Bankruptcy Code,
other than a Priority Tax Claim or Administrative Claims.
Treatment: The legal, equitable and contractual rights of the holders of
Other Priority Claims are unaltered by the Prepackaged Plan. Unless the holder
of such Claim and the Company agree to a different treatment, each holder of
an Allowed Other Priority Claim shall receive one of the following alternative
treatments, at the election of the Company:
(a) to the extent then due and owing on the Effective Date, such Claim
will be paid in full in cash by New Zenith;
(b) to the extent not due and owing on the Effective Date, such Claim (A)
will be paid in full in cash by New Zenith, or (B) will be paid in full in
cash by New Zenith when and as such Claim becomes due and owing in the
ordinary course of business; or
(c) such Claim will be otherwise treated in any other manner so that such
Claims shall otherwise be rendered unimpaired pursuant to section 1124 of
the Bankruptcy Code.
Any default with respect to any Other Priority Claim that existed
immediately prior to the filing of the Prepackaged Chapter 11 Case shall be
deemed cured upon the Effective Date.
Voting: Other Priority Claims are not impaired and the holders of Other
Priority Claims are conclusively deemed to have accepted the Prepackaged Plan
pursuant to section 1126(f) of the Bankruptcy Code. Therefore, the holders of
Other Priority Claims are not entitled to vote to accept or reject the
Prepackaged Plan.
Class 2--Citibank Secured Claims
Classification: Citibank Secured Claims consist of all Claims arising from
or relating to the Amended Citibank Credit Facility.
Treatment: The legal, equitable and contractual rights of the holders of
Citibank Secured Claims are unaltered by the Prepackaged Plan. On the
Effective Date, unless the holder of such Claims and the Company agree to a
different treatment, at the election of the Company, the Allowed Citibank
Secured Claims (i) will be paid in full in cash by New Zenith or (ii) will be
otherwise treated in any other manner so that such Claims shall otherwise be
rendered unimpaired pursuant to section 1124 of the Bankruptcy Code.
Voting: Citibank Secured Claims are not impaired and the holders of Citibank
Secured Claims are conclusively deemed to have accepted the Prepackaged Plan
pursuant to section 1126(f) of the Bankruptcy Code. Therefore, the holders of
Citibank Secured Claims are not entitled to vote to accept or reject the
Prepackaged Plan.
Class 3--Other Secured Claims
Classification: Other Secured Claims consist of all Other Secured Claims
against the Company, other than secured Claims classified in a different
Class.
Treatment: The legal, equitable and contractual rights of the holders of
Other Secured Claims are unaltered by the Prepackaged Plan. Unless the holder
of such Claim and the Company agree to a different treatment, each holder of
an Allowed Secured Claim shall receive one of the following alternative
treatments, at the election of the Company:
(a) the legal, equitable and contractual rights to which such Claim
entitled the holder thereof shall be unaltered by the Prepackaged Plan;
(b) the Company shall surrender all collateral securing such Claim to the
holder thereof, without representation or warranty by or recourse against
the Company or New Zenith; or
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(c) such Claim will be otherwise treated in any other manner so that such
Claims shall otherwise be rendered unimpaired pursuant to section 1124 of
the Bankruptcy Code.
Any default with respect to any Secured Claim that existed immediately prior
to the filing of the Prepackaged Chapter 11 Case shall be deemed cured upon
the Effective Date.
Voting: Other Secured Claims are not impaired and the holders of Secured
Claims are conclusively deemed to have accepted the Prepackaged Plan pursuant
to section 1126(f) of the Bankruptcy Code. Therefore, the holders of Other
Secured Claims are not entitled to vote to accept or reject the Prepackaged
Plan.
Class 4--Bank Lender Claims
Classification: Bank Lender Claims consist of the Claims of the Bank Lender
arising from or relating to the Unsecured Bank Loans.
Treatment: The holder of Bank Lender Claims shall receive the New Bank
Lender Note in full satisfaction of its Claims.
Voting: Bank Lender Claims are impaired and the holder of Bank Lender Claims
is entitled to vote to accept or reject the Prepackaged Plan.
Class 5--General Unsecured Claims
Classification: General Unsecured Claims consist of the unsecured Claims
that are not Bank Lender Claims, Old Subordinated Debenture Claims, or LGE
Tranche A Claims or LGE Tranche B Claims.
Treatment: The legal, equitable and contractual rights of the holders of
General Unsecured Claims are unaltered by the Prepackaged Plan. Unless the
holder of such Claim and the Company agree to a different treatment, each
holder of an Allowed General Unsecured Claim shall receive one of the
following alternative treatments, at the election of the Company:
(a) to the extent then due and owing on the Effective Date, such Claim
will be paid in full in cash by New Zenith;
(b) to the extent not due and owing on the Effective Date, such Claim (X)
will be paid in full in cash by New Zenith, or (Y) will be paid in full in
cash by New Zenith when and as such Claim becomes due and owing in the
ordinary course of business; or
(c) such Claim will be otherwise treated in any other manner so that such
Claims shall otherwise be rendered unimpaired pursuant to section 1124 of
the Bankruptcy Code.
Any default with respect to any General Unsecured Claim that existed
immediately prior to the filing of the Prepackaged Chapter 11 Case shall be
deemed cured upon the Effective Date.
Voting: General Unsecured Claims are not impaired and the holders of General
Unsecured Claims are conclusively deemed to have accepted the Prepackaged Plan
pursuant to section 1126(f) of the Bankruptcy Code. Therefore, the holders of
General Unsecured Claims are not entitled to vote to accept or reject the
Prepackaged Plan.
Class 6--Old Subordinated Debenture Claims
Classification: Old Subordinated Debenture Claims consist of the Claims of
holders of the Old Subordinated Debentures.
Treatment: If Class 6 accepts the Prepackaged Plan, on or as soon as
practicable after the Effective Date, each holder of an Allowed Old
Subordinated Debenture Claim shall receive, in full and final satisfaction of
such
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Claim, a pro rata distribution of the New Subordinated Debentures. If Class 6
rejects the Prepackaged Plan, the holders of the Old Subordinated Debentures
will not receive or retain any property on account of their Claims. The
Company believes that this treatment is permissible under the Bankruptcy Code.
The Company recognizes that arguments exist that certain case law would permit
a contrary conclusion.
Voting: Old Subordinated Debenture Claims are impaired and the holders of
Allowed Old Subordinated Debenture Claims are entitled to vote to accept or
reject the Prepackaged Plan.
Class 7--LGE Claims
Classification: The LGE Claims consist of the LGE Tranche A Claims and the
LGE Tranche B Claims. The division of the LGE Claims into two groups is for
distribution purposes only. The LGE Tranche A Claims consist of (i) the LGE
Leveraged Lease Claims, (ii) the LGE Technical Services Claims and (iii) that
portion of the LGE Reimbursement Claims and the LGE Demand Loan Claims not
classified as LGE Tranche B Claims. The LGE Tranche B Claims consist of (i)
the LGE Extended Payables Claims, not to exceed $140 million; (ii) the LGE
Reimbursement Claims, not to exceed $50 million; (iii) the LGE Guarantee Fee
Claims; and (iv) the LGE Demand Loan Claims in an amount (if any) sufficient
when aggregated with the amounts described in clauses (i) through (iii) to
equal $200 million.
Treatment:
LGE Tranche A Claims--On the Effective Date, or as soon thereafter as
practicable, LGE shall receive (A) the LGE New Restructured Senior Note, and
(B) the Reynosa Assets, in full and complete satisfaction of the Allowed LGE
Tranche A Claims.
LGE Tranche B Claims--On the Effective Date, or as soon thereafter as
practicable, LGE shall receive 100% of the New Common Stock, in full and
complete satisfaction of the Allowed LGE Tranche B Claims.
Voting: LGE Claims are impaired and the holder of the Allowed LGE Claims is
entitled to vote to accept or reject the Prepackaged Plan.
Class 8--Equity Interests
Classification: Class 8 consists of all Equity Interests of the Company,
including the Old Common Stock.
Treatment: On the Effective Date, the holders of Equity Interests shall
receive no distributions and retain no property under the Prepackaged Plan.
Voting: No distributions will be made to holders of Equity Interests nor
will such holders retain any property, and consequently such holders are
deemed to reject the Prepackaged Plan. Holders of Equity Interests are not
entitled to vote to accept or reject the Prepackaged Plan.
SUMMARY OF OTHER PROVISIONS OF THE PREPACKAGED PLAN
Releases
In consideration of the contributions of certain parties to the Prepackaged
Chapter 11 Case, including, but not limited to, (i) the commitment and
obligation of LGE to provide the financial support necessary for Consummation
of the Prepackaged Plan, and (ii) the service of certain designated
individuals to facilitate the expeditious reorganization of the Company and
the implementation of the Restructuring, the Prepackaged Plan provides for
certain waivers, exculpation, releases and injunctions. The Prepackaged Plan
provides an injunction barring the commencement or continuation of any Claims
released pursuant to its terms.
Specifically, the Prepackaged Plan provides that the Company and its
Subsidiaries will release, upon the Effective Date, (i) the D&O Releasees, and
(ii) the Investor Releasees, from any and all Claims and causes of
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action, whether known or unknown, foreseen and unforeseen, existing or
hereafter arising, that the Company or its Subsidiaries would have been
legally entitled to assert in their own right or on behalf of the holder of
any Claim or Equity Interest or other person or entity against any of them
relating to any event occurring on or before the Effective Date of the
Prepackaged Plan, including avoidance actions under sections 544, 547, 548,
549 and 550 of the Bankruptcy Code. The release of the D&O Releasees by the
Company and its Subsidiaries does not affect certain loans or contracts such
parties have entered into in the ordinary course of business.
In addition, the Prepackaged Plan provides that each holder of any Claim
against the Company that has accepted the Prepackaged Plan, whose Claim is
part of a Class that has accepted (or is deemed to accept) the Prepackaged
Plan, or that is entitled to receive a distribution of property under the
Prepackaged Plan, is deemed to release, upon the Effective Date, any and all
Claims and causes of action, whether known or unknown, foreseen or unforeseen,
existing or hereafter arising, that it would have been legally entitled to
assert against the D&O Releasees and the Investor Releasees relating to the
Company or its Subsidiaries, the Prepackaged Chapter 11 Case, or the
negotiation, formulation and preparation of the Prepackaged Plan and related
documents.
The Prepackaged Plan also provides that the Company, each of its
Subsidiaries, the D&O Releasees, and the Investor Releasees shall be
exculpated from any liability to any person or entity (as defined in the
Bankruptcy Code) for any act or omission in connection with or related to the
negotiation, formulation, preparation and Confirmation of the Prepackaged
Plan, the Consummation and administration of the Prepackaged Plan, the
Prepackaged Chapter 11 Case, or the property distributed under the Prepackaged
Plan, except by virtue of any willful misconduct or gross negligence, as
determined by a court of competent jurisdiction.
In the course of the Special Committee's work and review of the proposed
release of LGE, the Special Committee sought to determine whether impaired
classes would be likely to receive a greater recovery in a hypothetical
restructuring occurring without the Investor Releases and without LGE's
participation. In that regard, the Special Committee and its counsel reviewed
and investigated significant transactions between LGE and the Company. Based
on that investigation, the Special Committee concluded that any value that
might be attributed to these releases was less than the overall value created
by the Restructuring, and that absent LGE's agreement to participate in a
restructuring (which was conditioned on, among other things, obtaining the
releases) there was no value available for distribution to holders of either
the Old Common Stock or the Old Subordinated Debentures.
It is a condition to LGE's obligations under the Restructuring Agreement
that the Investor Releasees receive the releases, waivers and injunctions as
set forth in the Prepackaged Plan. See "SPECIAL FACTORS--Interests of Certain
Persons in the Financial Restructuring; Conflicts of Interest" and "--The
Restructuring Agreement." The Company believes that these provisions of the
Prepackaged Plan are permissible under the Bankruptcy Code but acknowledges
that arguments exist that certain case law would permit a contrary conclusion.
Parties with standing may object to such provision in the Bankruptcy Court
proceeding.
Executory Contracts and Unexpired Leases
Under the Bankruptcy Code, the Company may assume or reject executory
contracts and unexpired leases. As a general matter, an "executory contract"
has been determined to be a contract under which material performance (other
than solely the payment of money) remains to be made by each party. On the
Effective Date, all executory contracts and unexpired leases of the Company
will be deemed assumed in accordance with the provisions and requirements of
sections 365 and 1123 of the Bankruptcy Code, except those executory contracts
and unexpired leases that (i) have been rejected by order of the Bankruptcy
Court, (ii) are the subject of a motion to reject pending on the Effective
Date, (iii) are identified on a list to be filed with the Bankruptcy Court on
or before the Confirmation Date, as to be rejected, or (iv) are rejected
pursuant to the terms of the Prepackaged Plan. All proofs of Claim with
respect to Claims arising from rejection must be filed with the Bankruptcy
Court within 60 days after the later of (i) the date of entry of an order of
the Bankruptcy Court approving such rejection and (ii) the Confirmation Date.
Any Claims not timely filed will be forever barred from assertion.
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Notwithstanding anything to the contrary contained herein, on the Effective
Date, the Leveraged Leases shall be deemed rejected pursuant to section 365(a)
of the Bankruptcy Code. Any Claim arising from or out of rejection, including,
but not limited to those arising under section 502 of the Bankruptcy Code,
shall be part of and included in the LGE Leveraged Lease Claims. Other than on
account of the LGE Leveraged Lease Claims, LGE shall not receive any property
or distribution arising from or related to such rejection. Except as otherwise
provided in the Restructuring Agreement, on the Effective Date, all property
that is the subject of the Leveraged Leases shall be vested in New Zenith free
and clear of all liens, claims and encumbrances.
Indemnification of Directors, Officers and Employees
The Prepackaged Plan provides that the obligations of the Company to
indemnify any person serving at any time on or prior to the Effective Date as
one of its directors, officers or employees by reason of such person's service
in such capacity, to the extent provided in the Company's constituent
documents or by written agreement or Delaware law, shall be deemed and treated
as executory contracts that are assumed by the Company as of the Effective
Date. Accordingly, such indemnification obligations shall be treated as
General Unsecured Claims and shall survive unimpaired and unaffected by entry
of the Confirmation Order, irrespective of whether such indemnification is
owed for an act or event occurring before or after the filing of the
Prepackaged Chapter 11 Case.
The Company is not aware of any material actual or contingent
indemnification obligations of the Company, except as might arise as a result
of certain shareholder litigation discussed herein. See "RISK FACTORS--Legal
Proceedings." In the event any such claims were asserted against the Company,
such claims would likely constitute general unsecured claims of the Company,
which would be paid in full under the terms of the Prepackaged Plan.
Accordingly, the Company's proposed treatment of such indemnification
obligations provides the holders of such claims with the same economic
treatment that such persons would otherwise be entitled to receive under the
Prepackaged Plan.
Continued Corporate Existence and Vesting of Assets in New Zenith
The Company shall continue to exist after the Effective Date as a separate
corporate entity, with all the powers of a corporation under the laws of the
State of Delaware and without prejudice to any right to alter or terminate
such existence (whether by merger or otherwise) under such applicable state
law. Except as otherwise provided in the Prepackaged Plan, the Restructuring
Agreement, the LGE New Credit Facility, the LGE New Restructured Senior Note,
the New Subordinated Debentures, or any agreement, instrument or indenture
relating thereto, on and after the Effective Date, all property of the Company
and any property acquired by the Company under the Prepackaged Plan shall vest
in New Zenith, free and clear of all Claims, liens, charges, or other
encumbrances and Equity Interests. On and after the Effective Date, New Zenith
may operate its business and may use, acquire or sell property and compromise
or settle any Claims or Equity Interests, without supervision or approval by
the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or
Bankruptcy Rules, other than those restrictions expressly imposed by the
Prepackaged Plan and the order of the Bankruptcy Court confirming the
Prepackaged Plan.
Amendments to Certificate of Incorporation and By-Laws
The Bankruptcy Code requires that upon the confirmation of a plan of
reorganization a debtor's charter documents must contain certain provisions
including a provision prohibiting the issuance of non-voting equity
securities. To comply with this requirement, the Prepackaged Plan provides
that the Company will file an Amended Certificate of Incorporation with the
Secretary of State of the State of Delaware in accordance with sections 102
and 103 of the Delaware General Corporation Law. The Amended Certificates of
Incorporation will prohibit the issuance of nonvoting equity securities to the
extent required by section 1123(a) of the Bankruptcy Code, change the number
of authorized shares of New Common Stock to 1,000, change the par value of the
New Common Stock to $0.01 and eliminate the authorization of preferred stock.
After the Effective Date, New Zenith reserves the right to amend and restate
its Amended Certificate of Incorporation and other constituent
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documents as permitted by the Delaware General Corporation Law. At present,
the Company does not contemplate any such amendments.
Retention of Jurisdiction by the Bankruptcy Court
Under the terms of the Prepackaged Plan, the Bankruptcy Court will retain
jurisdiction in the following instances notwithstanding entry of the
Confirmation Order or the occurrence of the Effective Date. The Bankruptcy
Court will retain exclusive jurisdiction over the reorganization proceedings
relating to the Company to: (i) allow, disallow, determine, liquidate,
classify, estimate or establish the priority or secured or unsecured status of
any Claim, including the resolution of any request for payment of any
Administrative Claim and the resolution of any and all objections to the
allowance or priority of Claims; (ii) grant or deny any applications for
allowance of compensation or reimbursement of expenses authorized pursuant to
the Bankruptcy Code or the Prepackaged Plan, for periods ending on or before
the Effective Date; (iii) resolve any matters related to the assumption,
assumption and assignment or rejection of any executory contract or unexpired
lease to which the Company is a party or with respect to which the Company may
be liable and to hear, determine and, if necessary, liquidate, any Claims
arising therefrom, including those matters related to the amendment after the
Effective Date pursuant to the Prepackaged Plan to add any executory contracts
or unexpired leases to the list of executory contracts and unexpired leases to
be rejected; (iv) ensure that distributions to holders of Allowed Claims are
accomplished pursuant to the provisions of the Prepackaged Plan, including
ruling on any motion filed pursuant to the Prepackaged Plan; (v) decide or
resolve any motions, adversary proceedings, contested or litigated matters and
any other matters and grant or deny any applications involving the Company
that may be pending on the Effective Date; (vi) enter such orders as may be
necessary or appropriate to implement or consummate the provisions of the
Prepackaged Plan and all contracts, instruments, releases, indentures and
other agreements or documents created in connection with the Prepackaged Plan
or the Disclosure Statement; (vii) resolve any cases, controversies, suits or
disputes that may arise in connection with the Consummation, interpretation or
enforcement of the Prepackaged Plan or any obligations incurred in connection
with the Prepackaged Plan; (viii) issue injunctions, enter and implement other
orders or take such other actions as may be necessary or appropriate to
restrain interference with Consummation or enforcement of the Prepackaged
Plan; (ix) resolve any cases, controversies, suits or disputes with respect to
the releases, injunction and other provisions contained in the Prepackaged
Plan and enter such orders as may be necessary or appropriate to implement
such releases, injunction and other provisions; (x) enter and implement such
orders as are necessary or appropriate if the Confirmation Order is for any
reason modified, stayed, reversed, revoked or vacated; (xi) determine any
other matters that may arise in connection with or relate to the Prepackaged
Plan, the Disclosure Statement, the Confirmation Order or any contract,
instrument, release, indenture or other agreement or document created in
connection with the Prepackaged Plan or the Disclosure Statement; and (xii)
enter an order and/or final decree concluding the Prepackaged Chapter 11 Case.
Cancellation of Securities and Agreements
On the Effective Date, the Old Subordinated Debentures and all Equity
Interests will be deemed cancelled. In addition, the Old Subordinated
Debenture Indenture will be cancelled and will have no further force or
effect.
Issuance of New Securities and Execution of Certain Documents
On the Effective Date, New Zenith shall issue all securities, notes,
instruments, certificates, and other documents required to be issued pursuant
to the Prepackaged Plan, including, without limitation, the LGE New
Restructured Senior Note, the New Bank Lender Note, the New Subordinated
Debentures, and the New Common Stock, all of which shall be distributed as
provided in the Prepackaged Plan. New Zenith shall execute and deliver such
other agreements, documents and instruments as are required to be executed
pursuant to the terms of the Prepackaged Plan.
Management
The Prepackaged Plan provides for the executive officers of the Company
immediately before confirmation of the Prepackaged Plan to continue to serve
immediately after confirmation of the Prepackaged Plan in their
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respective capacities. Upon the Effective Date, the Board shall consist of
members elected by LGE, the owner of 100% of the New Common Stock following
Consummation of the Prepackaged Plan.
Subordination
The classification and manner of satisfying all Claims and Equity Interests
and the respective distributions and treatments under the Prepackaged Plan
takes into account the relative priority of the Claims and Equity Interests in
each Class in connection with any contractual, legal or equitable
subordination rights relating thereto, whether arising under general
principles of equitable subordination, section 510(b) of the Bankruptcy Code
or otherwise, and any and all such rights are settled, compromised and
released pursuant to the Prepackaged Plan. Accordingly, without limitation,
the Confirmation Order will permanently enjoin, effective as of the Effective
Date, all persons and entities from enforcing or attempting to enforce any
contractual, legal or equitable subordination rights satisfied, compromised
and settled under the Prepackaged Plan.
Resolution of Disputed Claims
With respect to holders of Claims that are not Impaired Claims ("Unimpaired
Claims"), their legal, equitable and contractual rights will be unaltered by
the Prepackaged Plan. Consequently, it is anticipated that any disputes with
respect to such Claims will be resolved outside of the Prepackaged Chapter 11
Case. As such, all General Unsecured Claims, including litigation against the
Company, will be substantially unaffected by the Prepackaged Chapter 11 Case
and will remain subject to all legal and equitable defenses of the Company.
Nothing under the Prepackaged Plan will affect the Company's rights,
including, but not limited to, all rights in respect of legal and equitable
defenses to or setoffs or recoupments against such Unimpaired Claims, except
as expressly provided in the Prepackaged Plan.
After the Confirmation Date, only the Company will have the authority to
file objections to Claims or settle, compromise, withdraw or litigate to
judgment objections to Claims. As of the Confirmation Date, the Company can
settle or compromise disputed Claims without Bankruptcy Court approval. The
Company reserves the right to ask the Bankruptcy Court to estimate any
contingent Claim regardless of whether there has been a previous objection to
such Claim. The estimated amount will be either the allowed amount or a
maximum limitation on such Claim, as determined by the Bankruptcy Court. If
the estimated amount constitutes a maximum limitation, the Company can pursue
a supplemental proceeding to object to the payment of such Claim.
Under the Prepackaged Plan, holders of Claims (other than Claims arising
from the rejection of executory contracts or unexpired leases) would not be
required to file proofs of Claim with the Bankruptcy Court. In order to
utilize the Claims disallowance procedures of the Bankruptcy Code against a
holder of a Claim, the Company would be required to schedule as disputed,
unsold or contingent any Claim to which it objects or to file a separate
objection to such Claim and to obtain an order from a court sustaining such
objection. Additionally, the Company would be permitted to object to or
contest any Claim in the Bankruptcy Court or in any appropriate non-bankruptcy
forum, and, if such Claim is discharged pursuant to the Prepackaged Plan, to
assert as a defense that such Claim has been discharged.
Distributions for Claims Allowed as of the Effective Date
Except as otherwise provided in the Prepackaged Plan or as may be ordered by
the Bankruptcy Court, distributions to be made on the Effective Date on
account of Claims that are allowed as of the Effective Date and are entitled
to receive distributions under the Prepackaged Plan shall be made on the
Effective Date or as soon thereafter as is practical. Distributions on account
of Claims that become Allowed Claims after the Effective Date shall be made
pursuant to the applicable provisions of the Prepackaged Plan described below.
For purposes of determining the accrual of interest or rights in respect of
any other payment from and after the Effective Date, the LGE New Restructured
Senior Note, the New Bank Lender Note, the New Subordinated Debentures, and
the New Common Stock to be issued under the Prepackaged Plan shall be deemed
issued as of
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the Effective Date regardless of the date on which they are actually dated,
authenticated or distributed; provided, however, that New Zenith shall
withhold any actual payment until such distribution is made and no interest
shall accrue or otherwise be payable on any such withheld amounts.
Distributions by the Company; Distributions with Respect to the Old
Subordinated Debentures
The Company shall make all distributions required under the Prepackaged
Plan. Notwithstanding provisions in the Prepackaged Plan regarding the
cancellation of the Old Subordinated Debenture Indenture, the Old Subordinated
Debenture Indenture shall continue in effect to the extent necessary to allow
the Company to receive and make distributions pursuant to the Prepackaged Plan
on account of the Old Subordinated Debentures.
Delivery and Distributions and Undeliverable or Unclaimed Distributions
Distributions to holders of Allowed Claims shall be made at the address of
the holder of such Claim as indicated on the records of the Company. Except as
otherwise provided by the Prepackaged Plan or the Bankruptcy Code with respect
to undeliverable distributions, distributions to holders of Citibank Secured
Claims, Bank Lender Claims and Old Subordinated Debenture Claims shall be made
in accordance with the provisions of the applicable indenture, participation
agreement, loan agreement or analogous instrument or agreement, and
distributions will be made to holders of record as of the close of business on
the business day immediately preceding the Effective Date (the "Distribution
Record Date"). In an effort to ensure that all holders of valid claims receive
their allocated distributions, the Company will file with the Bankruptcy
Court, a listing of unclaimed distribution holders. This list will be
maintained for as long as the bankruptcy case stays open. This process will
provide unclaimed distribution information in a public forum and increase the
possibility of notice of an unclaimed distribution to previously "lost"
claimholders.
If any distribution is returned to the Company as undeliverable, no further
distributions shall be made to such holder unless and until the Company is
notified in writing of such holder's then-current address. Undeliverable
distributions shall remain in the possession of the Company until such time as
a distribution becomes deliverable. Undeliverable distributions (including
interest and maturities on the New Subordinated Debentures) shall not be
entitled to any interest, dividends or other accruals of any kind.
Within 20 days after the end of each calendar quarter following the
Effective Date, the Company shall make all distributions that become
deliverable during the preceding calendar quarter.
Any holder of an Allowed Claim that does not assert a Claim pursuant to the
Prepackaged Plan for an undeliverable distribution within five years after the
Effective Date shall have its Claim for such undeliverable distribution
discharged and shall be forever barred from asserting any such Claim against
New Zenith or its respective property. As described in the Prepackaged Plan,
in such cases: (i) any cash held for distribution on account of such Claims
shall be property of New Zenith, free of any restrictions thereon; and (ii)
any New Subordinated Debentures held for distribution on account of such
Claims shall be cancelled and of no further force or effect. Nothing contained
in the Prepackaged Plan requires the Company to attempt to locate any holder
of an Allowed Claim.
In connection with the Prepackaged Plan, to the extent applicable, the
Company shall comply with all tax withholding and reporting requirements
imposed on it by any governmental unit, and all distributions pursuant to the
Prepackaged Plan shall be subject to such withholding and reporting
requirements.
Distribution Record Date
As of the close of business on the Distribution Record Date, the transfer
register for the Old Subordinated Debentures as maintained by the Company, the
trustee of the Old Subordinated Debenture Indenture, or their respective
agents, shall be closed and the transfer of the Old Subordinated Debentures,
or any interest therein, will be prohibited. Moreover, the Company shall have
no obligation to recognize the transfer of any Old
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Subordinated Debentures occurring after the Distribution Record Date, and
shall be entitled for all purposes herein to recognize and deal only with
those holders of record as of the close of business on the Distribution Record
Date.
Minimum Distribution
The New Subordinated Debentures will be issued in denominations of $1,000
and integral multiples thereof. No New Subordinated Debenture will be issued
in a denomination of less than $1,000. In the event a holder of an Allowed
Class 6 Claim is entitled to distribution of New Subordinated Debentures that
is not an integral multiple of $1,000, such distribution shall be aggregated
by the Company (or its agent), and as soon as practicable after the Effective
Date, such interests shall be sold by the Company (or its agent) in a
commercially reasonable manner and, upon the completion of such sale, the net
proceeds thereof shall be distributed (without interest) pro rata to the
holders of Allowed Class 6 Claims based upon the fraction of New Subordinated
Debentures each such holder would have been entitled to receive or deemed to
hold had the Company issued New Subordinated Debentures in integral multiples
smaller than $1,000, such distribution being in lieu of any other distribution
thereon. The Company believes that the sale of New Subordinated Debentures is
exempted from registration under the federal securities laws pursuant to
section 1145 of the Bankruptcy Code.
Setoffs
New Zenith may, pursuant to section 553 of the Bankruptcy Code or any other
applicable bankruptcy or non-bankruptcy law, set off against any Allowed Claim
and the distributions to be made pursuant to the Prepackaged Plan on account
of such Claim (before any distribution is made on account of such Claim), the
Claims, rights and causes of action of any nature that the Company or New
Zenith may hold against the holder of such Allowed Claim; provided, however,
that neither the failure to effect such a setoff nor the allowance of any
Claim hereunder shall constitute a waiver or release by the Company or New
Zenith of any such Claims, rights and causes of action that the Company or New
Zenith may possess against such holder.
Surrender of Cancelled Instruments or Securities
As a condition precedent to receiving any distribution pursuant to the
Prepackaged Plan on account of an Allowed Claim evidenced by the instruments,
securities or other documentation cancelled pursuant to the Prepackaged Plan,
the holder of such Claim shall tender the applicable instruments, securities
or other documentation evidencing such Claim to the Company. Any New
Subordinated Debentures or New Common Stock to be distributed pursuant to the
Prepackaged Plan on account of any such Claim shall, pending such surrender,
be treated as an undeliverable distribution.
Notes and Debentures
Each holder of an impaired Allowed Claim shall tender any notes or
debentures relating to such Claim to the Company in accordance with written
instructions to be provided to such holders by the Company as promptly as
practicable following the Effective Date. Such instructions shall specify that
delivery of such notes or debentures will be effected, and risk of loss and
title thereto will pass, only upon the proper delivery of such notes or
debentures with a letter of transmittal in accordance with such instructions.
Failure to Surrender Cancelled Instruments
Any holder that fails to surrender or is deemed to have failed to surrender
its Old Subordinated Debentures required to be tendered hereunder within five
years after the Effective Date shall have its Claim for a distribution
pursuant to the Prepackaged Plan on account of such Old Subordinated
Debentures discharged and shall be forever barred from asserting any such
Claim against New Zenith or its property.
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Lost, Stolen, Mutilated or Destroyed Debt Securities
In addition to any requirements under the applicable note or debenture, or
any related agreement, any holder of a Claim evidenced by a note or debenture
that has been lost, stolen, mutilated or destroyed shall, in lieu of
surrendering such note or debenture, deliver to the Company: (1) evidence
satisfactory to the Company of the loss, theft, mutilation or destruction; and
(2) such security or indemnity as may be required by the Company to hold the
Company harmless from any damages, liabilities or costs incurred in treating
such individual as a holder of an Allowed Claim. Upon compliance with this
provision by a holder of a Claim evidenced by a note or debenture, such holder
shall, for all purposes under the Prepackaged Plan, be deemed to have
surrendered such note or debenture.
CONDITIONS TO CONFIRMATION/CONSUMMATION
It is a condition to Confirmation of the Prepackaged Plan that all
provisions, terms and conditions of the Prepackaged Plan have been approved in
the Confirmation Order.
It is a condition to Consummation of the Prepackaged Plan that the following
conditions have been satisfied or waived pursuant to the Prepackaged Plan:
1. the Confirmation Order shall have been signed by the Bankruptcy Court
and duly entered on the docket for the Prepackaged Chapter 11 Case by the
Clerk of the Bankruptcy Court in form and substance acceptable to the
Company;
2. the Confirmation Order shall be a Final Order;
3. a revolving credit facility and letter of credit subfacility shall be
available to the Company in the amounts and on such terms and conditions as
set forth in the Restructuring Agreement; and
4. all conditions precedent to the "Closing," as defined in the
Restructuring Agreement, shall have been satisfied or waived pursuant to
the terms thereof.
Waiver of Conditions
Other than as set forth in the Prepackaged Plan, the Company, in its sole
discretion, may waive any of the conditions to Confirmation of the Prepackaged
Plan and/or to Consummation of the Prepackaged Plan set forth in the
Prepackaged Plan at any time, without notice, without leave or order of the
Bankruptcy Court, and without any formal action other than proceeding to
confirm and/or consummate the Prepackaged Plan. Pursuant to the Restructuring
Agreement, however, LGE's consent is required for any such waiver. See
"SPECIAL FACTORS--The Restructuring Agreement."
Effect of Non-occurrence of Conditions to Consummation
If the Confirmation Order is vacated, the Prepackaged Plan shall be null and
void in all respects and nothing contained in the Prepackaged Plan or the
Disclosure Statement shall: (1) constitute a waiver or release of any Claims
by or against, or any Equity Interests in, the Company; (2) prejudice in any
manner the rights of the Company; or (3) constitute an admission,
acknowledgment, offer or undertaking by the Company in any respects.
EFFECT OF CONSUMMATION OF THE PREPACKAGED PLAN
Vesting of Rights
Except as provided in the Prepackaged Plan and the Restructuring Agreement,
on the Effective Date all assets of the Company's bankruptcy estate shall vest
in New Zenith free and clear of all liens, claims and encumbrances.
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Discharge
Except as provided in the Prepackaged Plan, the Restructuring Agreement or
in the LGE New Restructured Senior Note, the New Bank Lender Note or the New
Subordinated Debentures, (1) the rights afforded in the Prepackaged Plan and
the treatment of all Claims and Equity Interests therein, shall be in exchange
for and in complete satisfaction, discharge and release of Claims and Equity
Interests of any nature whatsoever, including any interest accrued on such
Claims from and after the date the Company files the Prepackaged Chapter 11
Case with the Bankruptcy Court ("Petition Date"), against the Company, or any
of its assets or properties, (2) on the Effective Date, all such Claims
against, and Equity Interests in the Company shall be satisfied, discharged
and released in full and (3) all persons and entities shall be precluded from
asserting against New Zenith, its successors or its assets or properties any
other or further Claims or Equity Interests based upon any act or omission,
transaction or other activity of any kind or nature that occurred prior to the
Confirmation Date.
Binding Effect
The provisions of the Prepackaged Plan, if confirmed, will bind all holders
of Claims and Equity Interests regardless of whether they accept the
Prepackaged Plan or are entitled to vote with respect to the Prepackaged Plan.
The distributions provided for in the Prepackaged Plan, if any, will be in
exchange for and in complete satisfaction, discharge and release of all
Impaired Claims against and Equity Interests in the Company or any of its
assets or properties, including any Impaired Claim or Equity Interest accruing
after the Petition Date and prior to the Confirmation Date. All holders of
Impaired Claims and Equity Interests will be precluded from asserting any
Claim against the Company or its assets or properties based on any transaction
or other activity of any kind that occurred prior to the Confirmation Date.
MODIFICATION OF THE PREPACKAGED PLAN
Except as otherwise provided in the Restructuring Agreement, amendments to
the Prepackaged Plan may be made by the Company, subject to the limitations
contained in the Prepackaged Plan and in the Restructuring Agreement, either
before or after the Petition Date. Any amendments or modifications to the
Prepackaged Plan made after the Petition Date and before or after the
Confirmation Date shall be made in accordance with the provisions of section
1127 of the Bankruptcy Code and the Bankruptcy Rules. The Company reserves the
right to use acceptances to confirm any amendments to the Prepackaged Plan to
the extent permitted by law.
In accordance with Bankruptcy Rule 3019, the Company will resolicit
acceptances of the Prepackaged Plan only if a modification to the plan
adversely changes the treatment of the claim of any creditor or the interest
of any equity security holder who has not accepted in writing the
modification. Bankruptcy Rule 3019 provides: "If the court finds after hearing
on notice to the trustee, any committee appointed under the Code and any other
entity designated by the court that the proposed modification does not
adversely change the treatment of the claim of any creditor or the interest of
any equity security holder who has not accepted in writing the modification,
it shall be deemed accepted by all creditors and equity security holders who
have previously accepted the plan." As such, the Company believes that unless
the Bankruptcy Court finds otherwise, a modification to the Prepackaged Plan
that does not adversely change the treatment of claims does not require
resolicitation.
At all times the Company reserves the right in its sole discretion not to
file the Prepackaged Plan, or, if it files the Prepackaged Plan, to withdraw
the Prepackaged Plan at any time prior to confirmation, in which case the
Prepackaged Plan will be deemed to be null and void. In such an event, nothing
contained in the Prepackaged Plan or the Disclosure Statement will be deemed
to constitute a waiver or release of any Claims by or against the Company or
any other person, nor shall the Prepackaged Plan or the Disclosure Statement
prejudice in any manner the rights of the Company or constitute an admission,
acknowledgment, offer or undertaking by the Company in any respects.
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<PAGE>
INTENDED ACTIONS DURING THE PREPACKAGED CHAPTER 11 CASE
In addition to seeking Confirmation of the Prepackaged Plan, during the
pendency of the Prepackaged Chapter 11 Case, the Company intends to seek
relief from the Bankruptcy Court as to various matters, certain of which are
described below. While the Company believes each of the requests, if granted,
would facilitate the Prepackaged Chapter 11 Case, there can be no assurance
that the Bankruptcy Court will grant any such relief.
Provisions for Employees; Retention Programs; Employment Contracts
The Company believes that salaries or wages, as the case may be, accrued and
unpaid vacation, health benefits, severance benefits and similar employee
benefits should be unaffected by the filing of the Prepackaged Chapter 11
Case. The Company intends to seek the approval of the Bankruptcy Court,
immediately upon commencement of the Prepackaged Chapter 11 Case, to honor
payroll checks outstanding as of the Petition Date, to permit employees to
utilize their paid vacation time which was accrued prior to the filing and to
continue paying medical and other employee benefits under the applicable
health plans. The Company also intends to seek the authority (i) to honor its
executive retention program and employee retention program and (ii) to assume
employee contracts with Messrs. Gannon and Vitkus and other executives and key
managers. There can be no assurance, however, that any necessary approval will
be obtained. Employee Claims and benefits not paid or honored, as the case may
be, prior to the Consummation of the Prepackaged Plan, will be paid or honored
upon Consummation or as soon thereafter as such payment or other obligation
becomes due or payable. Employee benefit Claims that accrue prior to the
Petition Date will receive unimpaired treatment under the terms of the
Prepackaged Plan.
Cash Management
The Company believes it would be disruptive to the operations of its
Subsidiaries if it were forced to significantly change its cash management
system upon the commencement of the Prepackaged Chapter 11 Case. The Company
intends to seek relief from the Bankruptcy Court immediately upon commencement
of the Prepackaged Chapter 11 Case (i) to be authorized to maintain its cash
management system and (ii) to grant superpriority claims equal to the net cash
upstreamed to the Company, if any, by such Subsidiaries through the
consolidated cash management system during the Prepackaged Chapter 11 Case.
Retention of Professionals
The Company intends to seek authority to employ Jay Alix as its
restructuring advisor, PJSC as its financial advisor and investment banker,
Arthur Andersen LLP as its auditor and Kirkland & Ellis as its attorneys.
Warranties and Customer Programs
The Company intends to seek authority to honor pre-petition warranty
obligations and pre-petition customer programs. The Company believes
continuing these services is essential to maintaining customer loyalty.
Customs Duties
The Company intends to seek authority to pay pre-petition customs duties
paid by its customs agents. The Company believes timely payment of these
expenses is necessary to maintain an efficient international shipping
mechanism.
Insurance Programs
The Company intends to seek the authority to maintain and continue its
insurance programs, including workers' compensation, as such programs are
presently administered.
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<PAGE>
Trade Payables
The Company intends to seek the authority to pay all pre-petition trade
payables and to honor all obligations to its trade vendors.
Utility Service
The Company intends to seek an order restraining utilities from
discontinuing, altering or refusing service.
CONFIRMATION STANDARDS
Section 1129 of the Bankruptcy Code sets forth the requirements that must be
satisfied to confirm a plan of reorganization. A number of the more
significant Confirmation requirements are discussed below. The Company
believes that it has complied or will comply with each of these requirements.
Good Faith and Compliance with Law
The Bankruptcy Code requires that a plan of reorganization be proposed in
good faith and disclose certain relevant information regarding payments due
and the nature of compensation to insiders. The Company believes it has
satisfied these requirements and will seek a ruling to that effect from the
Bankruptcy Court in connection with Confirmation of the Prepackaged Plan.
Best Interests
Section 1129(a)(7) of the Bankruptcy Code requires that, with respect to
each Impaired Class, each member of such Class either (a) has accepted the
Prepackaged Plan, or (b) will receive or retain under the Prepackaged Plan on
account of its Claim or Equity Interest property of a value, as of the
Effective Date, that is at least equal to the amount that such member of the
Class would receive or retain if the Company was liquidated under chapter 7 of
the Bankruptcy Code. The Company believes that the Prepackaged Plan meets this
test and will seek appropriate findings from the Bankruptcy Court in
connection with the Confirmation of the Prepackaged Plan. See "SPECIAL
FACTORS--Alternatives to Confirmation and Consummation of the Prepackaged
Plan--Liquidation Under Chapter 7" and "LIQUIDATION ANALYSIS."
Feasibility
The Bankruptcy Court must also determine that the Prepackaged Plan is
feasible and is not likely to be followed by liquidation or further
reorganization of the Company. To determine whether the Prepackaged Plan meets
this requirement, the Company has analyzed their ability to meet their
obligations under the Prepackaged Plan. This analysis includes a forecast of
financial performance of the reorganized Company. Such forecast, together with
the underlying assumptions, is set forth below under "BUSINESS PLAN
PROJECTIONS." Based upon such forecast, the Company believes that it will have
the financial capability to satisfy its obligations following the Effective
Date. Accordingly, the Company will seek a ruling to that effect in connection
with the Confirmation of the Prepackaged Plan.
Prepackaged Plan Acceptance
The Bankruptcy Code requires, subject to certain exceptions, that the
Prepackaged Plan be accepted by all Impaired Classes of Claims and Equity
Interests. Classes of claims that are not "impaired" under a plan are deemed
to have accepted the plan and are not entitled to vote. The Bankruptcy Code
defines acceptance of a plan of reorganization by a class of claims as
acceptance by holders of at least 66 2/3% in dollar amount and more than one-
half in number of the Allowed Claims in that class, but for this purpose
counts only those claims that have been voted on the plan. Holders of claims
who fail to vote or who abstain will not be counted to determine the
acceptance or rejection of the Prepackaged Plan by any impaired class of
claims. The Company may,
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<PAGE>
however, request Confirmation of the Prepackaged Plan even though some
impaired Classes have not accepted the Prepackaged Plan. See "--Confirmation
of the Prepackaged Plan Without Acceptance by All Classes of Impaired Claims."
The Bankruptcy Code provides that acceptances obtained prior to the filing
of a petition will be effective in a chapter 11 case only if the pre-petition
solicitation of the acceptances complied with applicable non-bankruptcy law
governing the adequacy of disclosure, such as federal securities laws and
regulations. For example, under Section 5(c) of the Securities Act, no offer
to buy or sell a security may be made except pursuant to an effective
registration statement. If there is no such applicable non-bankruptcy law,
"adequate information" as defined under the Bankruptcy Code is furnished in
connection with the solicitation. The Company intends to use the Ballots or
Master Ballots received pursuant to this Solicitation to confirm the
Prepackaged Plan once it has filed its Prepackaged Chapter 11 Case. The
Company believes that this Solicitation complies with such applicable non-
bankruptcy law and otherwise contains "adequate information" and will seek
appropriate findings from the Bankruptcy Court in this regard.
CONFIRMATION OF THE PREPACKAGED PLAN WITHOUT ACCEPTANCE BY ALL CLASSES OF
IMPAIRED CLAIMS
The requirements for acceptance of the Prepackaged Plan by impaired Classes
are described under""--Classification and Treatment of Claims and Equity
Interests under the Prepackaged Plan." The Bankruptcy Code also provides a
procedure by which the Prepackaged Plan may be confirmed despite the non-
acceptance of one or more Impaired Classes. This procedure is known as a "cram
down." If less than all of the impaired Classes accept the Prepackaged Plan,
the Prepackaged Plan may nevertheless be confirmed by the Bankruptcy Court
under section 1129(b) of the Bankruptcy Code, so long as at least one impaired
Class has affirmatively voted to accept the Prepackaged Plan, ignoring for
this purpose any acceptance by insiders of the Company as defined under the
Bankruptcy Code. To obtain Confirmation pursuant to section 1129(b) of the
Bankruptcy Code, the Company must demonstrate to the Bankruptcy Court that, as
to each non-accepting Class, the Prepackaged Plan "does not discriminate
unfairly" and is "fair and equitable." In general, a plan does not
discriminate unfairly if, among other things, it accords a dissenting class
treatment substantially equivalent to that accorded to other classes of equal
rank, taking into account for this purpose the effect of applicable
subordination rights. The Company believes that the Prepackaged Plan does not
discriminate unfairly against any Class. The Bankruptcy Code establishes
different "fair and equitable" tests for secured creditors, unsecured
creditors and interest holders as follows:
1. Secured Creditors. A secured creditor in a dissenting class of secured
claims must retain the lien(s) securing its claim and receive under the
plan cash payments that total at least the allowed amount of the secured
claim and have a present value at least equal to the value of the
collateral securing such creditor's claim.
2. Unsecured Creditors. An unsecured creditor in a dissenting class of
unsecured claims must receive or retain under the plan property of a value
at least equal to the amount of its allowed claim, or the holders of the
claims or equity interests junior to the claims of the dissenting class of
unsecured creditors must neither receive nor retain any property under the
plan on account of such junior claim or interest.
3. Equity Interest Holders. An equity interest holder must receive or
retain under the plan property of a value equal to the greatest of the
allowed amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled, or
the value of such interest or the holder of any equity interest that is
junior to the equity interests of such class must neither receive nor
retain any property under the plan on account of such junior interest.
The Company will seek Confirmation of the Prepackaged Plan under section
1129(b) of the Bankruptcy Code in view of the deemed rejection by the holders
of Equity Interests. In the event that any impaired Class fails to accept the
Prepackaged Plan (other than the Equity Interest holders) in accordance with
section 1129(a)(8) of the Bankruptcy Code, the Company reserves the right (i)
to request that the Bankruptcy Court confirm the Prepackaged Plan in
accordance with section 1129(b) of the Bankruptcy Code and/or (ii) to modify
85
<PAGE>
the Prepackaged Plan in accordance with the Prepackaged Plan. IN THE EVENT
THAT HOLDERS OF THE OLD SUBORDINATED DEBENTURES DO NOT APPROVE THE PREPACKAGED
PLAN, THE COMPANY INTENDS (AND THE PREPACKAGED PLAN SO PROVIDES) TO SEEK
CONFIRMATION OF THE PREPACKAGED PLAN UNDER THE "CRAM DOWN" PROVISIONS WITH
RESPECT TO THE CLASS COMPOSED OF THE HOLDERS OF THE OLD SUBORDINATED
DEBENTURES. IF SUCH A "CRAM DOWN" IS APPROVED BY THE BANKRUPTCY COURT, HOLDERS
OF THE OLD SUBORDINATED DEBENTURE CLAIMS WOULD RECEIVE NO DISTRIBUTION AND
RETAIN NO PROPERTY. Any such Confirmation would be subject to judicial
approval of this solicitation and the Prepackaged Plan, including as required
under the "cram down" provisions of the Bankruptcy Code. See "RISK FACTORS--
Certain Bankruptcy Considerations--Nonacceptance of the Prepackaged Plan--
Confirmation by Cram Down."
CERTAIN CONSEQUENCES OF NON-ACCEPTANCE OF THE PREPACKAGED PLAN
If the requisite acceptances are not received by the Expiration Date, the
Company will be forced to evaluate options then available to it. Options
available to the Company could include extending the Solicitation period,
seeking non-consensual confirmation of the Prepackaged Plan on the basis
described above or on some other basis, submission of a revised prepackaged
plan of reorganization to its creditors and Equity Interest holders, filing
for protection under the Bankruptcy Code without a preapproved plan of
reorganization or pursuing a non-bankruptcy restructuring.
In the event a bankruptcy proceeding is commenced without the prior
acceptance of the Prepackaged Plan, there is a risk that the Prepackaged Plan
may be found not to satisfy the "cram down" standards and would not be
confirmed. In this scenario, there may be little, if any, value available for
distribution to unsecured creditors of the Company, including holders of the
Old Subordinated Debentures. Furthermore, there can be no assurance that the
Company would be able to emerge from such a proceeding under the Bankruptcy
Code, in which case the Company might be forced into a liquidation proceeding
under chapter 7 of the Bankruptcy Code. See "RISK FACTORS--High Leverage and
Recent Operating Results; Independent Auditor's Report; and High Leverage" and
"--Certain Bankruptcy Considerations--Certain Risks of Nonconfirmation." If,
on the other hand, the requisite acceptances are obtained and the Prepackaged
Plan is confirmed, the treatment and settlement of Claims provided for in the
Prepackaged Plan for each Class of the Company's debt and equity securities
will be made to each holder of a Claim or Equity Interest, whether or not they
have voted to accept the Prepackaged Plan.
In addition, the Prepackaged Plan may be confirmed if certain conditions are
met even if the Prepackaged Plan is not accepted by each Class of Claims
entitled to vote. As described above, the Prepackaged Plan provides for
certain alternative treatments in the event requisite approval of the
Prepackaged Plan by holders of the Old Subordinated Debentures is not
obtained. The Company also reserves the right to modify the terms of the
Prepackaged Plan as necessary for the confirmation of the Prepackaged Plan
without acceptance by other Impaired Classes. Such modification could result
in a less favorable treatment to holders of the Old Subordinated Debentures
than the treatment currently provided in the Prepackaged Plan or a
distribution of no property. See "THE PREPACKAGED PLAN--Confirmation of the
Prepackaged Plan Without Acceptance by All Classes of Impaired Claims."
However, except as described above with respect to a "cram-down" of the Old
Subordinated Debentures, the Company may choose not to seek Confirmation of
the Prepackaged Plan in the event one or more Classes of Claims do not accept
the Prepackaged Plan, but may choose instead to seek an alternative means to
restructure the Company, including the options described above.
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<PAGE>
MARKET PRICES OF THE COMMON STOCK
The Old Common Stock was historically listed and traded on the NYSE. On May
21, 1998, the Company announced the terms of the Financial Restructuring. On
May 22, 1998, the NYSE suspended trading of the Old Common Stock. The Old
Common Stock has traded in the over-the-counter market since that time. The
following table sets forth for the periods indicated the high and low trading
prices per share of Old Common Stock on the NYSE through May 21, 1998 and in
the over-the-counter market since May 22, 1998.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter.......................................... 7 1/2 5 7/8
Second Quarter......................................... 25 3/4 6 1/8
Third Quarter.......................................... 17 1/2 8 1/8
Fourth Quarter......................................... 16 5/8 10 1/4
1997
First Quarter.......................................... 12 1/2 9
Second Quarter......................................... 13 1/8 9 5/8
Third Quarter.......................................... 12 15/16 9 3/4
Fourth Quarter......................................... 10 1/4 5 1/8
1998
First Quarter.......................................... 7 3/4 5 7/16
Second Quarter (through May 21, 1998).................. 6 13/16 5/8
Second Quarter (from May 22, 1998)..................... .71875 .25000
Third Quarter.......................................... .75000 .26563
Fourth Quarter (through November 13, 1998)............. .63000 .37500
</TABLE>
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<PAGE>
MARKET PRICES OF THE OLD SUBORDINATED DEBENTURES
The Old Subordinated Debentures were historically listed and traded on the
NYSE. On May 21, 1998, the Company announced the terms of the Financial
Restructuring. On May 22, 1998, the NYSE suspended trading of the Old
Subordinated Debentures. The following table sets forth, for the periods
indicated, the high and low trading price for the Old Subordinated Debentures
on the NYSE Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter............................................. 69 7/8 68
Second Quarter............................................ 81 77 1/4
Third Quarter............................................. 86 82
Fourth Quarter............................................ 81 70 1/2
1997
First Quarter............................................. 79 3/4 72 1/2
Second Quarter............................................ 84 1/4 81 1/2
Third Quarter............................................. 85 76 1/4
Fourth Quarter............................................ 74 1/2 49
1998
First Quarter............................................. 75 57
Second Quarter (through May 21, 1998)..................... 71 1/4 20
</TABLE>
On May 21, 1998, the last trading day prior to the suspension of trading of
the Old Subordinated Debentures, the closing sales price of the Old
Subordinated Debentures on the New York Stock Exchange was 25 3/8. Although
the Company believes that there has been trading in the Old Subordinated
Debentures from time to time, the Company has not been able to obtain regular
market prices for the Old Subordinated Debentures since May 21, 1998.
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HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth the consolidated capitalization and cash and
cash equivalents of the Company at (i) September 26, 1998 on an historical
basis and on a pro forma basis giving effect to the Financial Restructuring as
if it had occurred on September 26, 1998 and (ii) December 31, 1998 on a
projected basis as if the Financial Restructuring had not occurred and on a
pro forma basis giving effect to the Financial Restructuring as if it had
occurred on December 31, 1998. During 1998, the Company expects to incur
certain charges associated with its Operational Restructuring that are not
included herein. The table should be read in conjunction with "ANNEX B--
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and the Company's consolidated financial statements, including the
notes thereto, located elsewhere in this Disclosure Statement.
<TABLE>
<CAPTION>
AS OF SEPTEMBER PROJECTED
26, 1998 AS OF DECEMBER 31, 1998
------------------ ---------------------------
WITHOUT WITH
FINANCIAL FINANCIAL
ACTUAL PRO FORMA RESTRUCTURING RESTRUCTURING
------- --------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Cash............................ $ -- $ 15.0 $ -- $ --
======= ====== ======= ======
LGE Extended Payables Claims.... $ 134.0 $ -- $ 140.0 $ --
======= ====== ======= ======
Debt:
Bank Lender Claims(1)......... $ 30.0 $ 30.0 $ 30.0 $ 30.0
Amended Citibank Credit
Facility..................... 77.9 -- 13.1 --
Post-Restructuring bank credit
facility..................... -- 77.9 -- 13.1
LGE Leveraged Lease Claims.... 90.1 -- 90.1 --
LGE Reimbursement Claims...... 72.0 -- 72.0 --
LGE Demand Loan Claims........ 30.0 -- 45.0 --
Old Subordinated Debentures
(at face value).............. 103.5 -- 103.5 --
New Subordinated Debentures
(at face value).............. -- 40.0 -- 40.0
LGE New Restructured Senior
Note......................... -- 111.7 -- 118.8
------- ------ ------- ------
Total debt.................. $ 403.5 $259.6 $ 353.7 $201.9
======= ====== ======= ======
Stockholders' equity:
Old Common Stock, $1.00 par
value, 150,000,000 shares
authorized, 67,525,447 shares
issued and outstanding (2)... $ 67.6 $ -- $ 67.6 $ --
New Common Stock, $0.01 par
value, 1,000 shares
authorized, 1,000 shares
issued and outstanding(3).... -- -- -- --
Additional paid-in capital,
old.......................... 506.8 572.7 506.8 572.7
Additional paid-in capital,
new.......................... -- 200.0 -- 200.0
Retained earnings (deficit)... (849.5) (805.6) (858.9) (814.7)
Treasury stock................ (1.7) -- (1.7) --
------- ------ ------- ------
Total stockholders' equity.. $(276.8) $(32.9) $(286.2) $(42.0)
======= ====== ======= ======
</TABLE>
- --------
(1) Represents the Company's credit facility with Credit Agricole Indosuez.
(2) Excludes 5,644,400 shares of Old Common Stock issuable upon exercise of
outstanding stock options as of September 26, 1998, of which 3,965,000
shares are issuable to LGE and 1,679,400 shares are issuable to employees.
There will be no such options outstanding on a pro forma basis.
(3) New Common Stock does not show a value due to rounding in millions.
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<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
information of the Company for the five years ended December 31, 1997, and the
nine-month periods ended September 26, 1998 and September 27, 1997. The
selected annual historical consolidated financial information presented below
has been derived from and should be read in conjunction with the Consolidated
Financial Statements of the Company and its Subsidiaries which were audited by
Arthur Andersen LLP, whose report with respect to certain of such financial
statements appears elsewhere in this Disclosure Statement. The selected
unaudited historical financial information for the nine-month periods ended
September 26, 1998 and September 27, 1997 has been derived from unaudited
consolidated financial statements prepared by the Company, which reflect all
adjustment, consisting only of normal recurring adjustments, that, in the
opinion of the Company, are necessary for a fair presentation. The following
financial information should be read in conjunction with "PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION," "ANNEX B--MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the Company's
Consolidated Financial Statements and related notes thereto appearing
elsewhere in this Disclosure Statement. See "INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA."
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED DECEMBER 31,
--------------------------- ------------------------------------------------
(UNAUDITED)
SEPTEMBER 26, SEPTEMBER 27,
1998 1997 1997 1996 1995(1) 1994(1) 1993(1)
------------- ------------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of operations:
Net sales............. $ 675.1 $ 825.4 $1,173.1 $1,287.9 $1,273.9 $1,469.0 $1,228.2
Pre-tax income
(loss)............... (187.8) (144.7) (300.2) (177.8) (98.5) (14.8) (93.2)
Net income (loss)..... (187.8) (143.7) (299.4) (178.0) (90.8) (14.5) (93.2)
Financial Position:
Total assets.......... $ 504.4 $ 707.3 $ 527.7 $ 765.3 $ 700.7 $ 662.4 $ 568.5
Long term debt........ 97.8 161.6 132.8 152.7 168.8 182.0 170.0
Stockholders' equity
(deficit)............ (276.8) 64.6 (85.3) 162.0 317.5 237.1 161.5
Per share of common
stock:
Net income (loss)..... $ (2.78) $(2.16) $ (4.49) $ (2.73) $ (1.85) $ (0.35) $ (2.89)
Book value (deficit).. (4.10) 0.96 (1.27) 2.44 5.00 5.19 4.50
</TABLE>
- --------
(1) Restated to reflect the Company's change in its inventory costing method
for its picture tube inventories from LIFO to FIFO.
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<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated balance sheet as of September
26, 1998 set forth below has been prepared as if the Financial Restructuring
had been completed as of September 26, 1998. The unaudited pro forma
statements of consolidated operations for the year ended December 31, 1997 and
the nine months ended September 26, 1998 set forth below have been prepared as
if the Financial Restructuring had been completed as of January 1, 1997. Pro
forma adjustments solely reflect the pro forma effects of the Financial
Restructuring. During 1998, the Company expects to incur certain charges
associated with its Operational Restructuring that are not included herein.
The Business Plan Projections included in this Disclosure Statement include
the projected financial statement impact of the Company's Financial and
Operational Restructuring and should be read in conjunction with this pro
forma financial information. Upon consummation of the Financial Restructuring,
the Company's consolidated financial statements will continue to be accounted
for on a historical basis. "Fresh start" reporting has not been applied in the
pro forma statements, since upon consummation of the Financial Restructuring,
no change in control will occur as defined by the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code." The pro forma
financial information should be read in conjunction with "ANNEX B--
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and the Company's Consolidated Financial Statements and related
notes thereto appearing elsewhere in this Disclosure Statement. The pro forma
financial data does not purport to represent the Company's actual financial
condition or results of operations had the prepackaged Plan actually been
completed on the date indicated, nor does it project the Company's financial
position or results of operations for any future dates of periods.
The purpose of the Financial Restructuring is to reduce the Company's debt
service obligations, to facilitate future borrowing to fund liquidity needs
and to permit it to implement the Operational Restructuring. The Prepackaged
Plan will benefit the Company and reduce its overall debt and other
obligations by approximately $300 million by exchanging (i) $200 million of
debt and other liabilities owed to LGE for the New Common Stock; (ii) the Old
Subordinated Debentures in an aggregate principal amount of $103.5 million
plus accrued interest thereon for New Subordinated Debentures in an aggregate
principal amount of $40 million; and (iii) approximately $32.4 million of
indebtedness to LGE for the Reynosa Assets, which have an appraised value
equal to such amount. Such appraisals should be read in their entirety and
state an opinion of value as of the date of the report and are subject to
assumptions and limiting conditions stated in each report.
As a consequence of the Financial Restructuring, the Old Common Stock will
be cancelled and the holders of the Old Common Stock (including LGE and LG
Semicon) will receive no distributions and retain no property in respect of
their holdings of Old Common Stock under the Prepackaged Plan.
91
<PAGE>
ZENITH ELECTRONICS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 26, 1998
---------------------------------------------------
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
---------- --------------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................... $ -- $ 15.0 (a) $ 15.0
Receivables, net......... 143.4 -- 143.4
Inventories.............. 164.8 -- 164.8
Other.................... 14.5 (1.1)(b) 13.4
------- ------- -------
Total current assets... 322.7 13.9 336.6
Property, plant and
equipment, net.......... 155.1 (36.4)(c)(d) 118.7
Receivable from related
party................... 21.3 (21.3)(d)(g) --
Other.................... 5.3 (1.3)(b) 4.0
------- ------- -------
Total assets........... $ 504.4 $ (45.1) $ 459.3
======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.......... $ 107.8 $ -- $ 107.8
Short-term debt with
related party........... 192.1 (192.1)(a)(e)(f)(g) --
Current portion of long-
term debt............... 5.8 (5.8)(h) --
Accounts payable......... 87.8 -- 87.8
Accounts payable to
related party........... 134.9 (134.0)(i) 0.9
Income taxes payable..... 0.6 -- 0.6
Other accrued expenses... 143.4 -- 143.4
------- ------- -------
Total current
liabilities........... 672.4 (331.9) 340.5
Long-term debt............. 97.8 (57.8)(h) 40.0
Long-term debt with related
party..................... -- 111.7 (c)(e)(f)(g)(j) 111.7
Other long term
liabilities............... 11.0 (11.0)(j) --
Stockholders' equity:
Preferred stock.......... -- -- --
Old Common Stock......... 67.6 (67.6)(k) --
New Common Stock......... -- -- (e)(f)(i)(j) --
Old additional paid-in
capital................. 506.8 65.9 (k) 572.7
New additional paid-in
capital................. -- 200.0 (e)(f)(i)(j) 200.0
Retained earnings
(deficit)............... (849.5) 43.9 (b)(c)(h) (805.6)
Old treasury stock....... (1.7) 1.7 (k) --
------- ------- -------
Total stockholders'
equity.................. (276.8) 243.9 (32.9)
------- ------- -------
Total liabilities and
stockholders' equity.. $ 504.4 $ (45.1) $ 459.3
======= ======= =======
</TABLE>
92
<PAGE>
NOTES TO THE PRO FORMA BALANCE SHEET
(a) The Company receives $15.0 million of additional direct secured loans from
LGE. The cash is required to fund operating losses through the remainder
of the year.
<TABLE>
<C> <S> <C> <C>
Dr. Cash........................................................ $15.0
Cr. Short-term debt with related party........................ $15.0
</TABLE>
(b) Other current and non-current assets will be reduced as a result of
writing off deferred charges (bank, attorney and guarantee fees) related
to the Old Subordinated Debentures and the LGE Extended Payables Claims.
These items will be written off as the corresponding agreements will no
longer be in place.
<TABLE>
<CAPTION>
NON-
CURRENT CURRENT TOTAL
PORTION PORTION WRITEOFF
------- ------- --------
<S> <C> <C> <C>
Old Subordinated Debentures deferred charges....... $ 0.1 $0.8 $0.9
LGE Extended Payables Claims deferred charges...... 1.0 0.5 1.5
----- ---- ----
$ 1.1 $1.3 $2.4
===== ==== ====
</TABLE>
<TABLE>
<C> <S> <C> <C>
Dr. Restructuring expense....................................... $ 2.4
Cr. Other current assets...................................... $ 1.1
Cr. Other non-current assets.................................. 1.3
</TABLE>
(c) The Reynosa Assets, having a book value of $49.7 million, will be written
down to their appraised fair value of $32.4 million and transferred to
LGE. Such appraisals should be read in their entirety and state an opinion
of value as of the date of the report and are subject to assumptions and
limiting conditions stated in each report. This will reduce the amount of
the LGE Claims that are converted into the LGE New Restructured Senior
Note.
<TABLE>
<C> <S> <C> <C>
Dr. Asset impairment charge..................................... $17.3
Dr. Long-term debt with related party........................... 32.4
Cr. Property, plant and equipment............................. $49.7
</TABLE>
(d) Upon cancellation of the Leveraged Leases, machinery and equipment with an
appraised fair value of $13.3 million will be distributed to the Company.
<TABLE>
<C> <S> <C> <C>
Dr. Property, plant and equipment............................... $13.3
Cr. Receivable from related party............................. $13.3
</TABLE>
(e) The LGE Demand Loan Claims, which will total $45.0 million, will be
settled partially through the issuance of New Common Stock ($14.7 million)
and partially by the LGE New Restructured Senior Note ($30.3 million). The
Financial Restructuring will result in the issuance of a total of 1,000
shares of New Common Stock, par value of $0.01 per share, which amount is
not shown on the Pro Forma balance sheet because amounts are presented
rounded to the nearest million.
<TABLE>
<C> <S> <C> <C>
Dr. Short-term debt with related party.......................... $45.0
Cr. New Common Stock.......................................... $ --
Cr. New additional paid-in capital............................ 14.7
Cr. Long-term debt with related party......................... 30.3
</TABLE>
(f) The LGE Reimbursement Claims ($72.0 million) will be settled partially
through the issuance of New Common Stock ($50.0 million) and partially by
the LGE New Restructured Senior Note ($22.0 million).
<TABLE>
<C> <S> <C> <C>
Dr. Short-term debt with related party........................... $72.0
Cr. New common stock........................................... $--
Cr. New additional paid-in capital............................. 50.0
Cr. Long-term debt with related party.......................... 22.0
</TABLE>
93
<PAGE>
(g) The Leveraged Lease Claims ($90.1 million) will be settled partially by
the LGE New Restructured Senior Note ($82.1 million) and partially by LGE
retaining title to certain equipment related to the Leveraged Leases that
has an appraised fair value of approximately $8.0 million.
<TABLE>
<C> <S> <C> <C>
Dr. Short-term debt with related party........................ $ 90.1
Cr. Long-term debt with related party....................... $ 82.1
Cr. Receivable from related party........................... 8.0
(h) The Old Subordinated Debentures will be retired and as a result, current
portion of long-term debt ($5.8 million) and long-term debt ($97.8
million) will be reduced. The New Subordinated Debentures ($40.0 million)
will be recorded at face value. The retirement of the Old Subordinated
Debentures will give rise to an extraordinary gain of $63.6 million.
Dr. Current portion of long-term debt......................... $ 5.8
Dr. Long-term debt............................................ 97.8
Cr. Long-term debt.......................................... $ 40.0
Cr. Extraordinary gain...................................... 63.6
(i) The LGE Extended Payable Claims ($134.0 million) will be settled through
the issuance of New Common Stock.
Dr. Accounts payable to related party......................... $134.0
Cr. New Common Stock........................................ $ --
Cr. New additional paid-in capital.......................... 134.0
(j) The LGE Technical Services Claims ($9.7 million) and the LGE Guarantee Fee
Claims ($1.3 million) will be settled partially through the issuance of
New Common Stock ($1.3 million) and partially by the LGE New Restructured
Senior Note ($9.7 million).
Dr. Other long-term liabilities............................... $ 11.0
Cr. New Common Stock........................................ $ --
Cr. New additional paid-in capital.......................... 1.3
Cr. Long-term debt with related party....................... 9.7
(k) As part of the Financial Restructuring, the Old Common Stock ($67.6
million) and the old treasury stock ($1.7 million) will be cancelled and
the net amount ($65.9 million) is transferred to old additional paid-in
capital.
Dr. Old Common Stock.......................................... $ 67.6
Cr. Old additional paid-in capital.......................... $ 65.9
Cr. Old treasury stock...................................... 1.7
</TABLE>
94
<PAGE>
ZENITH ELECTRONICS CORPORATION
PRO FORMA STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 26, 1998 YEAR ENDED DECEMBER 31, 1997
------------------------------- --------------------------------
PRO FORMA PRO PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 675.1 $ -- $675.1 $1,173.1 $ -- $1,173.1
------- ------- ------ -------- ----- --------
Cost, expenses and
other:
Cost of products
sold................. 621.6 (5.4)(a) 616.2 1,180.5 (9.1)(a) 1,171.4
Selling, general and
administrative....... 93.4 -- 93.4 178.3 -- 178.3
Engineering and
research............. 32.0 -- 32.0 42.9 -- 42.9
Other operating
expense (income),
net.................. (24.3) -- (24.3) 42.4 -- 42.4
Restructuring
charges.............. 107.8 (107.8)(b) -- -- -- --
------- ------- ------ -------- ----- --------
Operating income
(loss)................. (155.4) 113.2 (42.2) (271.0) 9.1 (261.9)
Gain (loss) on asset
sales, net............. 0.1 -- 0.1 (4.6) -- (4.6)
Interest expense........ (12.2) 4.3 (c) (7.9) (11.9) 4.4 (c) (7.5)
Interest expense-related
party.................. (21.0) 10.9 (c) (10.1) (13.6) 0.3 (c) (13.3)
Interest income......... 0.7 -- 0.7 0.9 -- 0.9
------- ------- ------ -------- ----- --------
Income (loss) before
income taxes........... (187.8) 128.4 (59.4) (300.2) 13.8 (286.4)
Income tax (credit)..... -- -- -- (0.8) -- (0.8)
------- ------- ------ -------- ----- --------
Net income (loss)....... $(187.8) $ 128.4 $(59.4) $ (299.4) $13.8 $ (285.6)
======= ======= ====== ======== ===== ========
Net income (loss) per
common share........... $ (2.78) $ 1.90 $(0.88) $ (4.49) $0.21 $ (4.28)
======= ======= ====== ======== ===== ========
</TABLE>
- --------
(a) Decrease in cost of products sold reflects the elimination of lease
expense related to the cancelled Leveraged Leases.
(b) Decrease in restructuring charges reflects the elimination of costs
incurred as a direct result of the Company's efforts to achieve a
financial restructuring including costs related to (i) a $68.8 million
loss on the termination of the Company's Leveraged Leases, (ii) $32.3
million of deferred charges (bank, attorney and guarantee fees) that were
written off, (iii) accelerated amortization of the remaining deferred gain
($9.1 million) related to the 1997 sale of the assets into the Leveraged
Leases, (iv) $11.6 million of professional fees (associated with work
performed by outside consultants to support the development of the
Operational and Financial Restructuring and the Prepackaged Plan) and
financing charges (relative to amending the Citicorp credit agreement),
and (v) $4.2 million of severance charges and other charges related
primarily to the Company's exiting of its analog set-top box product line.
(c) Net reduction of interest expense as a result of the Financial
Restructuring has been estimated as follows:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED 9/26/98 12/31/97
------------- ----------
<S> <C> <C>
Interest expense on the new debt:
LGE New Restructured Senior Note, at LIBOR
(adjusted quarterly) + 6.5%, (estimated herein
as 12%) (principal --$111.7 million)............ $ 10.1 $13.4
New Subordinated Debentures (principal --$40.0
million at face value).......................... 1.9 2.5
Reversal of actual interest expense:
Old Subordinated Debentures...................... (5.0) (6.9)
A portion ($30.0 million) of the Unsecured Bank
Loans........................................... (1.2) --
LGE Extended Payables............................ (12.3) (9.6)
Amortization of LGE Guarantee Fee Claims related
to various financing activities................. (4.7) (4.1)
LGE Leveraged Lease payable...................... (1.6) --
LGE Reimbursement Claims......................... (1.2) --
LGE Demand Loan Claims........................... (1.2) --
------ -----
Net reduction in interest.......................... $(15.2) $(4.7)
====== =====
</TABLE>
Note: The following items are non-recurring and as such are not presented in
the Pro Forma Statements of Consolidated Operations. Footnote references
relate to the Notes to the Pro Forma Balance Sheet.
<TABLE>
<S> <C>
$(0.9) Old Subordinated Debentures deferred charges written off. See footnote (b).
(1.5) LGE Extended Payables Claims deferred charges written off. See footnote (b).
63.6 Extraordinary gain on retirement of the Old Subordinated Debentures. See footnote (h).
(17.3) Writedown of Reynosa Assets to fair market value. See footnote (c).
------
$43.9
======
</TABLE>
95
<PAGE>
BUSINESS PLAN PROJECTIONS
In connection with the planning and development of the Prepackaged Plan, the
Business Plan Projections were prepared by the Company to present the
anticipated impact of the Prepackaged Plan and the Operational Restructuring.
The Business Plan Projections assume that the Prepackaged Plan will be
implemented in accordance with its terms. Because the projections are based on
forecasts of key economic variables, including without limitation estimated
domestic market television sales, the introduction of digital television
products, and the Company's ability to implement the Operational Restructuring
as planned, the estimates and assumptions underlying the Business Plan
Projections are inherently uncertain. Though considered reasonable by the
Company as of the date hereof, the Business Plan Projections are subject to
significant business, economic and competitive uncertainties. Accordingly,
such projections, estimates and assumptions are not necessarily indicative of
current values or future performance, which may be significantly less
favorable or more favorable than as set forth.
The Business Plan Projections are only an estimate of future results of
operations, and actual results may vary considerably from the Business Plan
Projections. In addition, the uncertainties which are inherent in the Business
Plan Projections increase for later years in the projection period, due to the
increased difficulty associated with forecasting levels of economic activity
and corporate performance at more distant points in the future. Consequently,
the projected information included herein should not be regarded as a
representation by the Company, the Company's advisors or any other person that
the projected results will be achieved. The projections were not prepared with
a view towards public disclosure or compliance with Generally Accepted
Accounting Principles, the published guidelines of the Securities and Exchange
Commission or the American Institute of Certified Public Accountants regarding
projections or forecasts. Arthur Andersen LLP, the Company's independent
auditors, have neither examined nor compiled the Business Plan Projections,
and consequently do not express an opinion or any other form of assurance with
respect thereto.
The Company does not intend to update or otherwise revise the Business Plan
Projections to reflect circumstances existing after the date hereof or to
reflect the occurrence of unanticipated events, even in the event that any or
all of the underlying assumptions are shown to be in error, except as required
by applicable law.
The projections should be read together with the other information contained
herein under the headings "The Restructuring," "Selected Financial
Information," "Pro Forma Financial Information," and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company and related notes included
elsewhere in the Disclosure Statement.
Certain statements in this Disclosure Statement are forward-looking
statements that involve known and unknown risks, uncertainties and other
factors which may cause the actual results of the Company to be materially
different from any future results expressed or implied by such forward-looking
statements. Forward-looking statements include, among others, statements
regarding the ability of the Company to successfully implement the
Restructuring and the Business Plan Projections and the projected or assumed
future operations and financial results of the Company. Factors that may cause
actual results of the Company to differ from future results expressed or
implied by forward-looking statements include, among others, the following:
general economic and business conditions, both in the United States and other
countries in which the Company sells its products and from which the Company
obtains supplies; the effect of competition in the markets served by the
Company; the risks described under the caption "RISK FACTORS"; the ability of
the Company to obtain confirmation of the Prepackaged Plan; and the ability of
the Company to successfully implement the Restructuring and the Business Plan
Projections. The Company claims the protection of the disclosure liability
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
HOLDERS OF IMPAIRED CLAIMS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
BUSINESS PLAN PROJECTIONS IN DETERMINING WHETHER TO VOTE TO ACCEPT OR REJECT
THE PREPACKAGED PLAN. PLEASE REVIEW THE SECTION TITLED "RISK FACTORS" IN ORDER
TO GAIN MORE DETAIL ON THE POTENTIAL FACTORS WHICH COULD AFFECT THE COMPANY'S
ABILITY TO ACHIEVE THE PERFORMANCE INDICATED IN THE PROJECTIONS.
96
<PAGE>
ZENITH ELECTRONICS CORPORATION
PROJECTED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PROJECTED FOR THE YEAR ENDED
1998 DECEMBER 31,
------------------------------------------------------ ------------------------------------------
ACTUAL
FIRST
THROUGH PROJECTED PROJECTED
THIRD FOURTH PROJECTED RESTRUCTURING PROJECTED
QUARTERS QUARTER UNADJUSTED ADJUSTMENTS ADJUSTED 1999 2000 2001 2002 2003
-------- --------- ---------- ------------- --------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.................. $ 675.1 $290.5 $ 965.6 $ 0.0 $ 965.6 $876.1 $889.3 $935.1 $987.6 $1,018.3
Cost of products sold.. 621.6 267.3 888.9 4.5(a) 893.4 802.1 807.6 837.7 880.7 903.0
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
Gross Margin........... 53.5 23.2 76.7 (4.5) 72.2 74.0 81.7 97.4 106.9 115.3
Gross Margin %......... 7.9% 8.0% 7.9% 7.5% 8.4% 9.2% 10.4% 10.8% 11.3%
Selling, general and
administrative........ 89.8 35.3 125.1 4.3(q) 129.4 110.3(q) 100.4 99.9 99.4 98.9
Engineering and
research.............. 31.9 14.0 45.9 -- 45.9 14.5 12.0 11.4 10.8 10.3
Restructuring
expense(b)............ 75.5 -- 75.5 -- 75.5 -- -- -- -- --
Other operating expense
(income), net(c)...... (16.9) (15.2) (32.1) -- (32.1) (34.2) (34.8) (43.6) (56.5) (55.2)
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
Operating income
(loss)................ (126.8) (10.9) (137.7) (8.8) (146.5) (16.7) 4.1 29.7 53.2 61.3
Gain (loss) on asset
sales................. (0.2) 15.9 15.7 -- 15.7 6.8 -- -- -- --
Finance guarantee fee
charge(d)............. (32.3) -- (32.3) (1.8) (34.1) -- -- -- -- --
Interest expense, net.. (28.5) (14.5) (43.0) -- (43.0) (23.2) (25.7) (27.1) (27.4) (24.2)
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
Income (loss) before
reorganization items.. (187.8) (9.5) (197.3) (10.6) (207.9) (33.1) (21.6) 2.6 25.8 37.1
Reorganization
items(e).............. -- -- -- 139.1 139.1 -- -- -- -- --
Taxes on income/
(income tax benefit).. -- -- -- -- -- -- -- -- -- --
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
Net earnings (loss)
before extraordinary
items................. (187.8) (9.5) (197.3) (149.7) (347.0) (33.1) (21.6) 2.6 25.8 37.1
Extraordinary gain on
debt retirement(f).... -- -- -- 63.6 63.6 -- -- -- -- --
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
Net earnings (loss).... $(187.8) $ (9.5) $(197.3) $(86.1) $(283.4) $(33.1) $(21.6) $ 2.6 $ 25.8 $ 37.1
======= ====== ======= ====== ======= ====== ====== ====== ====== ========
Memo:
Operating income
(loss)............... $(126.8) $(10.9) $(137.7) $ (8.8) $(146.5) $(16.7) $ 4.1 $ 29.7 $ 53.2 $ 61.3
Restructuring
expense(b)........... 75.5 -- 75.5 -- 75.5 -- -- -- -- --
Depreciation and
Amortization......... 23.8 7.5 31.3 4.5 35.8 6.1 3.2 3.6 3.9 4.2
------- ------ ------- ------ ------- ------ ------ ------ ------ --------
EBITDA(g)............. $ (27.5) $ (3.4) $ (30.9) $ (4.3) $ (35.2) $(10.6) $ 7.3 $ 33.3 $ 57.1 $ 65.5
======= ====== ======= ====== ======= ====== ====== ====== ====== ========
</TABLE>
97
<PAGE>
ZENITH ELECTRONICS CORPORATION
PROJECTED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1998 PROJECTED AS OF DECEMBER 31,
-------------------------------------------------- -------------------------------------------
PROJECTED
ACTUAL UNADJUSTED PROJECTED PROJECTED
SEPTEMBER DECEMBER RESTRUCTURING ADJUSTED
26 31 ADJUSTMENTS DECEMBER 31 1999 2000 2001 2002 2003
--------- ---------- ------------- ----------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash.................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Accounts receivable..... 143.4 182.2 -- 182.2 155.1 148.5 143.3 144.1 148.3
Inventory............... 164.8 82.6 (4.5)(h) 78.1 58.8 60.0 62.2 65.4 67.1
Other current assets.... 14.5 9.0 -- 9.0 16.9 11.2 11.5 11.5 11.5
------- ------- ------- ------- ------- ------- ------- ------- -------
Total current assets.... 322.7 273.8 (4.5) 269.3 230.8 219.7 217.0 221.0 226.9
Plant, property and
equipment, net......... 155.1 101.9 (45.2)(j) 56.7 14.9 16.6 18.0 19.1 19.9
Plant, property and
equipment,
environmental reserve.. -- -- (23.9)(k) (23.9) -- -- -- -- --
Other assets............ 5.3 6.8 (1.8)(l) 5.0 2.7 2.3 3.9 2.9 1.9
Other receivable........ 21.3 21.3 (i) (21.3) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total assets............ $ 504.4 $ 403.8 $ (96.7) $ 307.1 $ 248.4 $ 238.6 $ 238.9 $ 243.0 $ 248.7
======= ======= ======= ======= ======= ======= ======= ======= =======
LIABILITIES AND DEFICIT:
Short-term debt......... $ 305.8 $ 256.0 $(181.6) $ 74.4 $ 157.8 $ 157.7 $ 159.5 $ 138.1 $ 107.5
Accounts payable........ 88.7 48.1 -- 48.1 57.0 74.1 76.9 80.8 82.9
Accrued liabilities..... 144.0 136.2 -- 136.2 98.8 94.2 82.8 82.8 82.8
Restructuring........... -- -- 57.9 (m) 57.9 2.4 0.0 0.0 0.0 0.0
Long-term debt.......... 97.8 97.8 61.0 158.8 111.5 120.4 130.5 130.5 130.5
Other liabilities....... 11.0 12.1 (7.9)(n) 4.2 26.5 19.4 13.8 9.6 6.8
LGE Extended Payables
Claims................. 134.0 140.0 (140.0) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total liabilities....... 781.3 690.1 (210.6) 479.6 454.0 465.8 463.5 441.8 410.4
------- ------- ------- ------- ------- ------- ------- ------- -------
Stockholders' Equity.... (276.9) (286.4) 113.9 (o) (172.5) (205.6) (227.2) (224.6) (198.8) (161.7)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total liabilities and
stockholders' equity... $ 504.4 $ 403.8 $ (96.7) $ 307.1 $ 248.4 $ 238.6 $ 238.9 $ 243.0 $ 248.7
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
98
<PAGE>
ZENITH ELECTRONICS CORPORATION
PROJECTED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1998 PROJECTED AS OF DECEMBER 31,
----------------------------- --------------------------------------
ACTUAL
FIRST
THROUGH PROJECTED
THIRD FOURTH FULL YEAR
QUARTERS QUARTER PROJECTED 1999 2000 2001 2002 2003
-------- --------- --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA.................. $ (27.5) $ (3.4) $ (30.9) $(10.6) $ 7.3 $ 33.3 $ 57.1 $ 65.5
======= ====== ======= ====== ====== ====== ====== ======
WORKING CAPITAL CHANGES:
Accounts receivable.... (11.0) (38.8) (49.8) 27.1 6.6 5.2 (0.8) (4.2)
Inventory.............. 0.7 82.2 82.9 19.3 (1.2) (2.2) (3.2) (1.7)
Accounts payable....... (4.2) (40.6) (44.8) 8.9 17.1 2.8 3.9 2.0
Accrued liabilities.... 1.6 (7.8) (6.2) (37.4) (4.6) (11.4) -- --
Others, net............ 8.5 5.1 13.6 (7.2) (0.9) (7.5) (3.2) (1.8)
------- ------ ------- ------ ------ ------ ------ ------
Cash flow from
operations before
restructuring charges.. (31.9) (3.3) (35.2) 0.1 24.3 20.2 53.8 59.8
Restructuring payments.. (10.5) (28.2) (38.7) (55.5) (2.4) -- -- --
Loss of Leveraged
Leases................. (68.8) -- (68.8) -- -- -- -- --
Other receivable, asset
interests.............. (21.3) -- (21.3) -- -- -- -- --
Capital expenditures.... (6.7) (3.0) (9.7) (5.4) (5.0) (5.0) (5.0) (5.0)
Proceeds from asset
sales, net............. 5.7 64.6 70.3 47.9 -- -- -- --
------- ------ ------- ------ ------ ------ ------ ------
Free cash flow from
operations............. (133.5) 30.1 (103.4) (12.9) 16.9 15.2 48.8 54.8
Long-term debt
(service)/borrowing.... (35.0) -- (35.0) (59.7) -- -- -- --
LGE Extended Payables
Claims, net............ (10.3) 6.0 (4.3) -- -- -- -- --
Interest................ (28.5) (14.5) (43.0) (10.8) (16.7) (17.1) (27.4) (24.2)
Change in cash
position............... -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------ ------ ------
Short-term debt
service/(borrowing).... $(207.3) $ 21.6 $(185.7) $(83.4) $ 0.2 $ (1.9) $ 21.4 $ 30.6
======= ====== ======= ====== ====== ====== ====== ======
</TABLE>
99
<PAGE>
ZENITH ELECTRONICS CORPORATION
PROJECTED DEBT STRUCTURE (P)
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1998 PROJECTED AS OF DECEMBER 31,
--------------------------------------------------- ----------------------------------
PROJECTED PROJECTED PROJECTED
ACTUAL UNADJUSTED REORGANIZATION ADJUSTED
SEPTEMBER 26 DECEMBER 31 ADJUSTMENTS DECEMBER 31 1999 2000 2001 2002 2003
------------ ----------- -------------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM DEBT:
Secured Tranche A
(working capital)...... $ 77.9 $ 13.1 $ 31.3 $ 44.4 $ 90.9 $ 92.5 $ 77.9 $ 80.0 $ 77.5
Bank Lender Claims...... 30.0 30.0 -- 30.0 30.0 30.0 30.0 30.0 30.0
LGE Reimbursement
Claims................. 72.0 72.0 (72.0) -- -- -- -- -- --
LGE Leveraged Lease
Claims................. 90.1 90.1 (90.1) -- -- -- -- -- --
LGE Demand Loan Claims.. 30.0 45.0 (45.0) -- -- -- -- -- --
LGE New Credit Support.. -- -- 0.0 0.0 36.9 35.2 51.6 28.1 --
------ ------ ------- ------ ------ ------ ------ ------ ------
300.0 250.2 (175.8) 74.4 157.8 157.7 159.5 138.1 107.5
Current portion of
long-term debt:
Old Subordinated
Debentures............. 5.8 5.8 (5.8) -- -- -- -- -- --
------ ------ ------- ------ ------ ------ ------ ------ ------
Total Short-term debt... $305.8 $255.9 $(181.6) $ 74.4 $157.8 $157.7 $159.5 $138.1 $107.5
====== ====== ======= ====== ====== ====== ====== ====== ======
LONG-TERM DEBT:
Old Subordinated
Debentures............. 97.8 97.8 (97.8) -- -- -- -- -- --
New Subordinated
Debentures............. -- -- 40.0 40.0 40.0 40.0 40.0 40.0 40.0
LGE New Restructured
Senior Note(r)......... -- -- 118.8 118.8 71.5 80.4 90.5 90.5 90.5
------ ------ ------- ------ ------ ------ ------ ------ ------
Total Long-term debt.... 97.8 97.8 61.0 158.8 111.5 120.4 130.5 130.5 130.5
====== ====== ======= ====== ====== ====== ====== ====== ======
Total debt.............. $403.6 $353.8 $(120.6) $233.2 $269.3 $278.1 $290.0 $268.6 $238.0
====== ====== ======= ====== ====== ====== ====== ====== ======
LGE Extended Payables
Claims................. $134.0 $140.0 $(140.0) $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
100
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO THE PROJECTED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
For presentation purposes, it is assumed that the Company files and emerges
from chapter 11 in the fourth quarter of 1998, thus completing the Financial
Restructuring of the Company. All costs presented in the restructuring columns
of the statements are assumed to take place during the Reorganization Period
(the fourth quarter of 1998). However not all of the costs presented in that
column relate directly to the Financial Restructuring, rather some costs relate
to the Operational Restructuring which coincides with the timing of the
Financial Restructuring.
(a) Cost of products sold increase represents the estimated provision required
to write-down inventories of raw materials and work-in-process to net
realizable value upon shutdown of the manufacturing facilities.
(b) Restructuring expenses are as follows:
<TABLE>
<S> <C>
Professional Fees(i)................................................ $10.8
Melrose Park shift reduction(ii).................................... 1.4
Exit from Analog Set-Top Boxes...................................... 3.6
Loss on Leveraged Lease termination(iii)............................ 68.8
Deferred gain from 1997 sale of Leveraged Lease assets.............. (9.1)
-----
Total............................................................... $75.5
=====
</TABLE>
(i) Professional fees for advisors and consultants to assist in
formulating and implementing the Prepackaged Plan.
(ii) Various costs incurred to implement the Operational Restructuring
including staff reductions, facility closures, and product line
eliminations.
(iii) The loss on the termination of the Leveraged Leases is measured
as the difference between the liability to LGE, of $90.1, based
upon its payment in performance of its guarantee of the Leveraged
Leases, and the Other Receivable. The Other Receivable is stated
at the appraised value of the assets to be received by the
Company during the Reorganization Period. Simultaneous with the
recognition of the loss, a lease related gain of $9.1 is
recognized. This amount is the acceleration of the balance of a
deferred gain on the 1997 sale of fixed assets into the Leveraged
Leases. Historically, the gain was being amortized to income over
the life of the lease.
These costs are classified as Restructuring expenses because they are not
incurred during the Reorganization Period as defined above.
(c) Other operating expense (income) includes royalty income from domestic VSB,
tuner patent/other sources and other miscellaneous items in amounts per
year as follows:
<TABLE>
<CAPTION>
ROYALTY
INCOME OTHER
----------- INCOME/
VSB OTHER (EXPENSE)
----- ----- ---------
<S> <C> <C> <C>
1998................................................ $ -- $28.6 $ 3.5
1999................................................ 2.2 29.7 2.3
2000................................................ 6.1 30.2 (1.5)
2001................................................ 14.3 30.8 (1.5)
2002................................................ 26.6 31.4 (1.5)
2003................................................ 35.5 21.2 (1.5)
</TABLE>
Royalty amounts represent estimated gross revenues. Accordingly, the
foregoing does not include any adjustments for costs or reductions relating
to development, marketing and legal costs, which costs are included
elsewhere in components of the Statement of Operations.
(d) Finance guarantee fees represent the accelerated write-off of unamortized
deferred charges (bank, attorney, and LGE guarantee fees) associated with
financing agreements terminated in the third quarter of 1998 and during the
Reorganization Period. These are non-cash amortization expenses.
101
<PAGE>
(e) Reorganization items of $139.1 are as follows:
<TABLE>
<S> <C>
Reorganization expenses (i):
Severance......................................................... $ 48.6
Legal for plant closures.......................................... 2.4
Outplacement...................................................... 1.1
Headquarters relocation expenses.................................. 1.7
Plant closure/exit costs.......................................... 17.7
Purchase contracts................................................ 1.1
Professional fees................................................. 9.4
Exit from analog set-top boxes.................................... 2.9
Total Reorganization expenses...................................... 84.9
Asset impairment (ii).............................................. 54.2
------
Total.............................................................. $139.1
======
</TABLE>
(i) estimated Reorganization expenses related to executing the
Prepackaged Plan and Business Plan Projections. The timing and
amount of these charges could vary significantly from the estimates
presented depending on the actual implementation of the Business
Plan Projections and the timing of the bankruptcy proceedings.
(ii) the estimated impairment, of $54.2, on property, plant and
equipment that occurs at the confirmation of the Prepackaged Plan.
It is measured as the difference between the book value of assets
and the estimated (by appraisal) fair value in an orderly
liquidation, including estimated environmental obligations.
(f) Extraordinary Gain represents the gain realized on the retirement of the
Old Subordinated Debentures at a discount from face value:
<TABLE>
<S> <C>
Old Subordinated Debentures before restructuring (Current
portion)........................................................ $ 5.8
Old Subordinated Debentures before restructuring (Long Term
portion)........................................................ 97.8
less: New Subordinated Debentures (at face value)................ (40.0)
-----
Gain........................................................... $63.6
=====
</TABLE>
(g) EBITDA represents operating income (loss) including royalties before
interest expense, income taxes, depreciation and amortization, and
restructuring expenses. EBITDA is not intended to represent cash flow from
operations or net income as defined by generally accepted accounting
principles and should not be considered as a measure of liquidity or an
alternative to, or more meaningful than, operating income or operating
cash flow as an indication of the Company's operating performance. EBITDA
is included herein because management believes that certain investors find
it a useful tool for measuring the Company's ability to service its debt.
(h) Inventory decrease represents the estimated provision required to write-
down inventories of raw materials and work-in-process to net realizable
value upon shutdown of the manufacturing facilities.
(i) Other Receivable, created at the third quarter termination of the
Leveraged Lease, represents the Company's rights, under the Restructuring
Agreements. The asset is stated at the appraised value (see also footnotes
(b) and (j)).
(j) Property, Plant and Equipment decreases are due to transferring a portion
of the Company's Reynosa Assets to LGE at an independently appraised
value, receiving the Leveraged Lease assets from LGE, transferring a
portion of the assets previously under the Leveraged Lease to LGE, and a
charge for an impairment of the assets. The property, plant and equipment
being transferred to LGE as the Reynosa Assets consist of the three main
buildings housing manufacturing operations in the Company's Reynosa
facility, the real property associated with those buildings, and a
significant portion of the manufacturing and assembly equipment currently
housed within those buildings. The real estate and buildings have an
appraised value of $17.9 and the equipment has an appraised value of
$14.4. Such appraisals should be read in their entirety and state an
opinion of value as of the date of report and are subject to assumptions
and limiting conditions stated in each report. The asset impairment charge
occurs during the Reorganization Period because the timing and estimated
valuations used to estimate the charge are contingent upon the
implementation of the Prepackaged Plan.
<TABLE>
<S> <C>
Certain Reynosa Assets transferred to LGE........................ $(32.4)
Other Receivable, from LGE, acquired at termination of Leveraged
Leases.......................................................... 21.3
Reynosa Leveraged Lease assets transferred to LGE................ (8.0)
Asset Impairment per appraisal................................... (26.1)
------
Total........................................................... $(45.2)
======
</TABLE>
102
<PAGE>
(k) Property, plant and equipment Environmental Reserves are from the
additional asset impairment charge attributable to estimated environmental
obligations associated with manufacturing facilities still held by the
Company. After the disposal of the facilities, as the Company will retain
the liability for remediation, the Reserve will be reclassified to Other
Liabilities (see footnote (e)(ii) for further information).
(l) Other Assets decrease represents the write-off of the Long Term portion of
unamortized LGE guarantee fees Claims on the LGE Extended Payables Claims.
It is assumed that the unamortized LGE guarantee fees will be expensed at
the time of the recapitalization of the Company and the termination of the
financing arrangements to which these costs relate. These are non-cash
amortization expenses.
(m) The Restructuring liability represents the accrued cash portion of
estimated Reorganization expenses referred to above in Note (e)(i), less
payments which were made in conjunction with executing the Prepackaged
Plan.
<TABLE>
<S> <C>
Estimated cash reorganization charges.......................... $ 84.9
Estimated cash payments made coincident with the Prepackaged
Plan.......................................................... (27.0)
------
Total......................................................... $(57.9)
======
</TABLE>
(n) Other Liabilities changes reflect the following:
<TABLE>
<S> <C>
LGE Technical Service Claims..................................... $(10.5)
LGE Guarantee Fee Claims......................................... (1.6)
Reclassification of Environmental Obligations (see footnote(k)).. 4.2
------
Total........................................................... $ (7.9)
======
</TABLE>
(o) The change in equity is due to the conversion of debt to equity, and the
income statement related changes that arose out of executing the
Prepackaged Plan.
<TABLE>
<S> <C>
Conversion of debt to equity
LGE Extended Payables Claims................................... $ 140.0
LGE Demand Loan Claims......................................... 8.4
LGE Guarantee Fee Claims....................................... 1.6
LGE Reimbursement Claims....................................... 50.0
-------
Total debt converted........................................... $ 200.0
Income statements effects (of Reorganization Adjustments)
Write-off of excess obsolete inventory (see footnote (h))....... $ (4.5)
Retention Plan expenses (see footnote (q))..................... (4.3)
Accelerated write-off of unamortized deferred charges (see
footnote (d))................................................. (1.8)
Reorganization items (see footnote (e))........................ (139.1)
Extraordinary gain on debt retirement (see footnote (f))....... 63.6
-------
Total of income statement effects.............................. $ (86.1)
-------
Total........................................................ $ 113.9
=======
</TABLE>
(p) Assumes that the Company is able to refinance their current Amended
Citibank Credit Facility with new facilities titled Secured Tranche A
(Working Capital). The projections of borrowing availability are based on
a current proposed financing package offered by a potential lender.
(q) Selling, general and administrative expenses in 1998 include retention
plan payments of $4.3 for corporate and manufacturing employees. Selling,
general and administrative expenses in 1999 include $1.8 in retention plan
expenses.
(r) The LGE New Restructured Senior Note of $118.8 represents the Company's
obligations under the following LGE Claims:
<TABLE>
<S> <C>
LGE Leveraged Lease Claims...................................... $ 90.1
Less: Leveraged Lease equipment retained by LGE (at appraised
value)......................................................... (8.0)
Less: Reynosa Assets transferred by the Company to LGE (at
appraised value--see note (j))................................. (32.4)
LGE Demand Loan Claims.......................................... 36.6
LGE Technical Services Claims................................... 10.5
LGE Reimbursement Claims........................................ 22.0
------
$118.8
======
</TABLE>
103
<PAGE>
ASSUMPTIONS UNDERLYING ALL BUSINESS PLAN PROJECTIONS
In 1998, the Company intends to operate as an integrated manufacturer and
distributor of consumer electronics products. In 1999 and for all years beyond
1999, the Company intends to operate as a sales, distribution and technology
company. The Business Plan Projections assume that in 1998 and for significant
periods relating to the 1998 model year production requirements (which is a
12-month period beginning April 1, 1998), the Company will operate its own
manufacturing facilities in the United States and Mexico for the production of
significant portions of its product line. The Company has historically
outsourced some of its product lines and, for the 1998 model year, that
outsourcing includes VCRs, DVDs, small screen televisions and certain
accessories. In 1999 and for the 1999 model year and going forward, the
Company intends to outsource all or substantially all of its product lines.
The Business Plan Projections assume that the Company will obtain the balance
of most 1998 model year requirements and some portion of its future
outsourcing requirements from the Reynosa Assets following Confirmation and
the transfer of the Reynosa Assets to LGE.
The Business Plan Projections also include certain assumptions concerning
the outsourcing initiatives of the Company under the Operational
Restructuring. The Business Plan Projections assume that the Company will be
successful in locating sources for all or substantially all of its intended
product lines at prices and with resulting margins to the Company as reflected
in the Business Plan Projections.
The Business Plan Projections include projected income, expenses and cash
requirements of the Company's consumer electronics core businesses for all
periods covered by the Business Plan Projections. The Business Plan
Projections do not include income, expenses or cash requirements of NWS after
1998, as the plan assumes that all or a portion of those business lines will
be sold at 1998 year end. The Business Plan Projections incorporate the
proceeds of the sale of manufacturing facilities and also includes certain
expenses associated with such sales, including environmental clean-up costs,
employee severance and relocation expenses and brokerage fees associated with
the sale of assets or operating businesses. The Business Plan Projections
contemplate that the Company will outsource all or substantially all products
and exit manufacturing during the first quarter of 1999, and that all
manufacturing facilities will be transferred or sold to third parties by the
third quarter of 1999. Equipment leases, including the Leveraged Leases, are
expected to be terminated and certain charges associated with those
terminations will be made against the Company's capital structure.
Financing Assumptions
The Business Plan incorporates certain assumptions about the terms,
conditions and available borrowings under both the DIP and post-restructuring
financing arrangements. The Company assumes that it would be able to obtain a
DIP facility of not less than $125 million in total availability, secured by
the Company's assets, including inventory, receivables, fixed assets and
intellectual property, at interest rates comparable to market rates and
margins for similar facilities offered to other debtors. The Company assumes
that it will be able to obtain post-restructuring financing in an amount of
not less than $100 million on terms satisfactory to the Company, and at market
rates and margins offered to similarly situated borrowers. The Company assumes
that each of these financings will provide sufficient letter of credit
capacity to meet expected needs for an outsourced product line. The Business
Plan Projections also assume that the terms, including interest rates and
maturity dates, of the LGE New Credit Support, the LGE New Restructured Senior
Note and the New Subordinated Debentures will be as described herein.
Working Capital Assumptions
The Business Plan Projections assume certain inventory, accounts payable and
accounts receivable balances applicable to a typical sales and distribution
company, which are different from the historical performance of the Company.
The Business Plan Projections assume accounts receivable days outstanding
will be reduced from approximately 50 to 40 from 1998 through 2003 (adjusted
for seasonality); inventory turns will increase from approximately 5 to 12 per
year from 1998 through 2003; and the accounts payable days outstanding will be
104
<PAGE>
approximately 33.5 for the period of the Business Plan Projections (adjusted
for seasonality). The Company believes that such improvement in working
capital measures will be required for the Company to be successful in
achieving the Business Plan Projections. Increased inventory turns should be
obtained as the Company only carries finished goods inventory for the 1999
model year and beyond.
Property, Plant and Equipment Assumptions
Because the Company will be exiting manufacturing and dispose of many
capital assets, capital expenditures and depreciation are assumed to decrease
after 1998. Capital expenditures are assumed to be approximately $9.7 million
in 1998 and decrease to $5 million per year from 1999 through 2002 while
depreciation decreases from $31.3 million in 1998 to approximately $4.2
million in 2002. The Company assumes that it will require significantly less
capital expenditures than in prior years due to its planned exit from
manufacturing. The reduced capital expenditure budget is expected to be enough
to support a distribution organization.
Revenue Assumptions
The Business Plan Projections assume that the consumer electronics industry
for the term covered by the Business Plan Projections will be relatively
stable in terms of capacity and demand. The Business Plan Projections do not
take into account any possible economic downturn or other economic factors
that would significantly diminish total capacity or demand from current
levels. Historically, consumer electronics prices have declined, on average,
from 2% to 5% per year. Higher end, larger screen products have historically
exhibited erosion at lower rates or levels than small screen sizes. Price
erosion has accelerated in the higher end products in recent years. The
Business Plan Projections also anticipate the Company will be able to upgrade
its brand, so that the Company will experience price erosion at rates less
than historical industry standards for analog televisions, with accelerated
price erosion in digital products as those products become more widely
produced and available.
The Business Plan Projections for 1998 incorporate the product plan and
expected sales and margins for the current model year. The Business Plan
Projections for 1999 and 2000 reflect detailed product plans that have been
developed by the Company for those years, taking into consideration certain
product lines and product features of the 1998 model year and currently
available products and features not included in the Company's 1998 product
line which the Company intends to add to its lines in the future. For Business
Plan Projections in the years of 2001 and following, the Company has relied on
industry forecasts compiled by the Electronics Industry Association concerning
demand for screen size, features and products, and for overall market demand
during those periods. The Business Plan Projections for those years assume
that the Company's market share will remain constant with the Company's
historical market share, except that the Business Plan Projections contemplate
that the Company will focus its efforts in larger screen sizes and in digital
products. The Business Plan Projections assume that the Company will be able
to achieve at least a 4% to 7% share of the digital product market in the
later years of the projections. This digital market share would be lower than
the Company's current or projected market share in non-digital products.
Cost of Goods Assumptions
The Business Plan Projections assume that the Company will be able to secure
outsourced products in all or substantially all of its product lines and that
those products will be purchased by the Company at certain price ranges which
were derived from the Company's standard cost structure currently in use and
certain industry differentials currently known to exist relating to picture
tube prices. The Business Plan Projections also assume certain profit margins
will be obtainable by the Company over its costs of goods. The Business Plan
Projections assume that the Company will be able to obtain annual cost
improvements from sourced products from materials and manufacturing savings
that reflect historical cost improvements in the industry. The Company has
assumed that, with the exception of its Melrose Park operations, its
historical costs and cost improvements have been representative of overall
industry trends. The Company believes that improvements in the business can be
105
<PAGE>
obtained through annual material cost savings and design-to-cost savings. As a
result of applying the cost of goods assumptions listed above, the Company
projects the following gross margins:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Gross Margin............................. 7.5% 8.4% 9.2% 10.4% 10.8% 11.3%
</TABLE>
Other Cost Assumptions and General and Administrative Costs
In general, costs relating to overhead, general and administrative expenses
and other costs not directly related to the costs of goods have been developed
in the Business Plan Projections based on "green field" methodology. That is,
putting aside its current structure and operating methods, the Company has
developed a structure which it believes reflects what an industry leader in
consumer electronics would require in terms of head count, facilities, capital
expenditures and tooling, assuming a distribution and technology operation
without manufacturing. The Business Plan Projections reflect overhead, general
and administrative and other costs in accordance with the model developed.
Tax Assumptions
It is assumed that New Zenith will be able to utilize NOLs thus shielding
income from taxation for the projection period. As a result no income tax
liability is presented. Additionally the Company may or may not have enough
state tax NOLs available to shelter state income taxes.
Assumptions Concerning VSB
The assumptions relating to domestic (i.e., United States) VSB market
absorption, royalty income levels and royalty rate suggestions incorporated
into the Business Plan Projections were developed by the Company with the
assistance of PJSC and Forrester Research, Inc., technology professionals
retained by the Company. The Business Plan Projections reflect domestic cash
flows expected from the incorporation of VSB technologies into televisions,
VCRs, DVDs, converter boxes, personal computers, satellite boxes, cable boxes
and add-in cards for personal computers.
Aggregate potential non-domestic (i.e., non-United States) revenues from
licensing activity and royalties relating to VSB technologies are not included
in the Business Plan Projections. These revenues were excluded because the
Company and Gartner Consulting/Dataquest, technology professionals retained by
the Company, believe such revenues to be highly speculative. The unreliability
of potential non-domestic VSB revenues is due to the substantial difficulty in
assessing and quantifying the risks and variables identified by Gartner
Consulting/Dataquest in analyzing potential non-domestic VSB revenues, which
risks and variables are far more extensive and material than the risks and
variables presented by the Company's domestic VSB revenue projections. These
risks and variables include:
. international economic conditions, both market-by-market and global;
. standards adoption processes and the interaction between de facto and
government decreed standards (for countries that have yet to adopt a
standard);
. influence of infrastructural elements;
. lack of historical information for the potential market;
. market drivers and consumer adoption;
. political and economic influences as among potential market countries;
. sources of transmission content;
. lack of patent protection in some countries;
. technical considerations;
. broadcaster plans; and
. consumer electronics equipment manufacturer plans.
106
<PAGE>
ACCORDINGLY, THE COMPANY BELIEVES THAT NON-DOMESTIC MARKET ASSUMPTIONS AND
REVENUE PROJECTIONS WITH RESPECT TO VSB TECHNOLOGY ARE UNRELIABLE FOR BUSINESS
PLANNING PURPOSES.
The Business Plan Projections also include certain assumptions relating to
royalty-free cross licenses and other similar agreements with regard to the
Company's intellectual property, particularly its patents.
Assumptions Concerning Asset Disposition
As part of its preparation for the Restructuring, the Company retained
certain nationally recognized professionals who inspected the Company's
plants, land, equipment and inventories and provided appraisals concerning the
value of these assets under circumstances approximating those contemplated in
the Operational Restructuring.
The Company, and Jackson National Life Insurance Company, as a potential
lender, engaged the Valuation and Advisory Service of Cushman & Wakefield of
Illinois, Inc. and Cushman & Wakefield of Arizona, Inc. to prepare appraisals
concerning the Company's real estate assets in the United States and Mexico.
These Cushman & Wakefield Companies are part of a network of Cushman &
Wakefield affiliates which are nationally recognized real estate advisors and
providers of appraisal services and have recognized expertise in evaluating
the current market for office, manufacturing and warehouse space. The
appraisals prepared for the Company were performed in accordance with the
Uniform Standards of Professional Appraisal Practices of the Appraisal
Foundation and in accordance with instructions from the Company's potential
lenders. In preparing its appraisals, the appraisers considered regional and
neighborhood analysis for each property location, the current market for
similar types of property, real estate taxes and assessments and zoning. The
appraisers provided appraised values of each property or facility including
both fair market value and "quick sale estimates." Such appraisals should be
read in their entirety and state an opinion of value as of the date of the
report and are subject to assumptions and limiting conditions stated in each
report. As compensation for its services, the Cushman & Wakefield Companies
received $80,000 for their initial appraisals of the Company's real estate
assets, and $7,500 relating to additional work performed subsequent to the
delivery of their initial appraisals.
The Company engaged the services of Greenwich Industrial Services, a
subsidiary of Greenwich Financial Group, to provide appraisals of the
Company's machinery and equipment. Greenwich Industrial Services is a
nationally recognized appraiser, a member of the American Society of
Appraisers, and has experience in the area of evaluating assets in plant
closings, liquidations, and insurance appraisals. Greenwich conducted on site
inspections of the Company's facilities in the United States and Mexico,
examined the Company's capital assets records and conducted offsite review,
research and analysis of the assets, including review of comparable sales of
similar pieces of equipment. In arriving at its conclusions as to the value of
the Company's machinery and equipment, Greenwich Industrial Services
considered workflow of the products produced, capability constraints, safety
issues, quality controls, maintenance of the equipment, industry trends,
location of the facilities, current technology and overall working conditions
and environment. Greenwich Industrial Services provided a range of appraised
values: fair market value in-place, fair market value, and forced liquidation
value. As compensation for its services, Greenwich Industrial Services
received fees totaling $102,800.
Based on the appraisals described above, the Business Plan Projections
include proceeds, net of selling costs, from the sale of assets equal to $70.3
million in 1998 and $47.9 million in 1999. The Business Plan Projections also
assume that cash realized from the sale of assets will be used to repay credit
facilities then outstanding, as required by the anticipated terms of those
facilities.
In its assumptions concerning environmental costs associated with the
disposition of its manufacturing facilities and other real estate, the Company
retained environmental professionals to evaluate historical site use and to
estimate clean-up costs and reserves likely to be associated with such
disposition.
Assumptions Concerning Certain Other Areas of the Company's Business
The Business Plan Projections assume that the Company's relative share of
the total consumer electronics market will not vary significantly from its
present market share during the term of the Business Plan Projections. As a
result, the Business Plan Projections also assume that the Company's service
business will not grow
107
<PAGE>
significantly during the terms of the Business Plan Projections. The Business
Plan Projections do assume that the Company will be able to expand its current
parts and accessories business significantly. Historically, this segment of
the Company's business has been underutilized. The Business Plan Projections
assume that the Company will continue to achieve above-average margins (when
compared to its television lines) in its parts and accessories businesses.
THE OPERATIONAL RESTRUCTURING
Under the Operational Restructuring, the Company intends to transform itself
from an integrated manufacturer and distributor of consumer electronics
products into a sales, distribution and technology company. The Operational
Restructuring requires that the Company close and dispose of all, or
substantially all, of its manufacturing facilities and outsource all, or
substantially all, product lines beginning with the 1999 model year.
Closing Manufacturing Operations and Disposition of Assets
The Company has announced that it intends to close its Melrose Park
manufacturing facility in December 1998, and has entered into a contract with
one of the Company's picture tube suppliers to sell some of the manufacturing
equipment located at the Company's Melrose Park facility, including some of
the equipment previously leased by the Company under the Leveraged Lease
(Melrose Park). The purchase price of the Melrose Park equipment will be paid
in the form of credits against future picture tube purchases by the Company.
The Company's Glenview, Illinois headquarters building was sold to a third
party in October 1998 on terms consistent with the price and timing ranges
contemplated by the Business Plan Projections.
The Company is currently marketing portions of its operations, properties,
equipment and inventories for sale as going concerns or as individual asset
sales. The Company has received preliminary bids or indications of interest
relating to the sale of its NWS division. To date, no definitive agreements
have been entered into concerning the sale of any of these operations or
assets.
Outsourcing Contracts
To date, the Company has entered into contracts covering significant
portions of its 1999 model year requirements. These contracts cover console
television sets, some small and medium screen sized direct view television
sets, TV/VCR combo sets, and large screen projection television sets. These
contracts are with a number of international consumer electronics companies
and a major specialty consumer electronics assembler. The contracts do not
require that Zenith purchase a minimum quantity of products. Some of the terms
relating to such contracts have not yet been finalized, including, in some
cases, delivery schedules and product specifications. The Company has entered
into supply agreements with two international consumer electronics companies
for color picture tube requirements for the 1999 model year. Each of the color
picture tube supply agreements requires that the seller supply a specific
percentage of the Company's medium screen color picture tube requirements. No
definitive agreements concerning the Company's 1999 model year requirements
for HDTV products, front-projection televisions, VCRs or for some accessories
and components have been completed.
The console television manufacturing agreement between the Company and an
assembler for consumer electronics requires that the assembler manufacture and
deliver Zenith-designed console televisions for delivery against firm purchase
orders. The color picture tube manufacturing agreement with a major
international consumer electronics company requires that company to supply the
majority of the Company's picture tube requirements for the next three model
years for 25 inch and 27 inch television set sizes, with additional
requirements to provide 32 inch picture tubes in 2000 and 2001. The picture
tube supply agreement includes provisions relating to the purchase of some of
the equipment and assets located at the Company's Melrose Park facility,
including Leveraged Lease (Melrose Park) assets. LGE or an affiliate of LGE
has agreed to take assignment of Zenith's obligations under the picture tube
supply agreement after transfer of the Reynosa Assets to LGE. The projection
television agreement, with a second major international consumer electronics
company, provides for the manufacture of Zenith-designed high-end, high
featured large screen projection televisions.
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<PAGE>
ACCOUNTING TREATMENT
The Restructuring will be accounted for in accordance with the requirements
of AICPA Statement of Position 90-7 "Financial Reporting By Entities in
Reorganization Under the Bankruptcy Code." Based upon the provisions of the
SOP, New Zenith will not qualify for "fresh start" reporting because a
substantive and non-temporary change in control in the Company will not occur.
Assets will be recorded at their historical cost prior to the Restructuring.
Liabilities compromised by the Prepackaged Plan will be adjusted to the
present values of amounts to be paid, determined at appropriate current
interest rates. Forgiveness of debt by unrelated third parties will be
reported as an extraordinary item in the Company's results of operations.
Forgiveness of debt due to related parties will be accounted for as a capital
contribution.
LIQUIDATION ANALYSIS
General
If the Prepackaged Plan is not confirmed, and the Prepackaged Chapter 11
Case is converted to a case under chapter 7 of the Bankruptcy Code, a trustee
would be elected to liquidate the Company's assets. The proceeds of the
liquidation would be distributed to the respective holders of Allowed Claims
against the Company in accordance with the priorities established by the
Bankruptcy Code. The chapter 7 trustee would be entitled to a percentage fee
for his/her services which is based upon the total amount of funds disbursed
to parties in interest. Pursuant to section 326 of the Bankruptcy Code, the
trustee would be entitled to up to a 25% fee of the first $5,000 disbursed, up
to a 10% of the amounts disbursed between $5,000 and $50,000, up to a 5% of
the amount between $50,000 and $1 million, and reasonable compensation not to
exceed 3% of the amount disbursed in excess of $1 million. The trustee is also
authorized to retain professionals, including accountants and attorneys, to
liquidate the chapter 7 estate.
Under chapter 7, a secured creditor whose Claim is fully secured would be
entitled to full payment, including, without limitation, interest from the
proceeds of the sale of its collateral. Unless its Claim is nonrecourse, a
secured creditor whose collateral is insufficient to pay its Claim in full
would be entitled to assert an unsecured Claim for its deficiency. Claims
entitled to priority under the Bankruptcy Code would be paid in full before
any distribution to General Unsecured Creditors, including, without
limitation, the chapter 7 trustee's fee and the amounts due to the
professionals retained by the chapter 7 trustee. Funds, if any, remaining
after payment of secured Claims and priority Claims would be distributed pro
rata to General Unsecured Creditors. If subordination agreements were to be
enforced, senior unsecured Claims would be paid in full before any
distribution would be made to subordinated creditors.
The Company believes that liquidation under chapter 7 would result in a
substantial diminution of the value of the estate because of (i) additional
administrative expenses involved in the appointment of trustees and attorneys,
accountants and other professionals to assist such trustees; (ii) additional
expenses and Claims, some of which would be entitled to priority, that would
arise by reason of the liquidation and from the rejection of leases and other
executory contracts in connection with a cessation of the Company's
operations; (iii) failure to realize the greater going-concern value of the
Company's assets; (iv) the erosion in value of the assets of the Company in
the context of expeditious liquidation required under chapter 7 and the
"forced sale" atmosphere that would prevail and (v) the costs attributable to
the time value of money resulting from what is likely to be a more protracted
proceeding than if the Prepackaged Plan is confirmed (because of the time
required to liquidate the assets of the Company, resolve claims and related
litigation and prepare for distributions).
The Liquidation Analysis
PJSC, at the direction of management, prepared the following hypothetical
chapter 7 liquidation analysis to assist holders of Impaired Claims to reach
their determination as to whether to accept or reject the Prepackaged Plan.
The liquidation analysis indicates the estimated values which may be obtained
by Classes of Claims and of
109
<PAGE>
Equity Interests if the Company's assets are liquidated, pursuant to chapter
7, as an alternative to the continued operation of the Company's businesses.
The liquidation analysis set forth below is provided solely to disclose the
effects of a hypothetical liquidation of the Company under chapter 7 of the
Bankruptcy Code, subject to the assumption set forth below. The liquidation
analysis will be available for inspection and copying at the principal
executive offices of the Company during its regular business hours by any
interested holder of a Claim or Equity Interests or his representative who has
been so designated in writing. See "SPECIAL FACTORS--Liquidation and Going
Concern Analyses" for a description of the review undertaken and assumptions
made by PJSC in developing its analyses.
Underlying the liquidation analysis are a number of estimates and
assumptions that, although developed and considered reasonable by management
of the Company, are inherently subject to economic and competitive
uncertainties and contingencies that are beyond the Company's control.
Accordingly, there can be no assurance that the values assumed in the
liquidation analysis would be realized if the Company were in fact liquidated.
In addition, any liquidation that would be undertaken would necessarily take
place in future circumstances which cannot currently be predicted.
Accordingly, while the liquidation analysis is necessarily presented with
numerical specificity, if the Company were in fact liquidated, the actual
liquidation proceeds would likely vary from the amounts set forth below. Such
actual liquidation proceeds could be materially lower, or higher, than the
amounts set forth below and no representation or warranty can be or is being
made with respect to the actual proceeds that could be received in a chapter 7
liquidation. The liquidation analysis has been prepared solely for purposes of
estimating the proceeds available in a chapter 7 liquidation of the Company
and does not represent values that may be appropriate for any other purpose.
Nothing contained in the liquidation analysis is intended or may constitute a
concession or admission of the Company for any other purpose.
The liquidation proceeds realized by the Company are heavily dependent upon
liquidation of inventories and sale of real properties, plants and equipment
in a timely and efficient manner. Consequently, the liquidation analysis
assumes that appropriate professionals would be employed to oversee the
process of disposition of the Company's assets. During the liquidation, the
Company believes there would be significant costs of the liquidation and
employee turnover. See notes accompanying the liquidation analysis.
The Company believes, based on the assumptions set forth herein, that the
value of the distributions offered to the members of each Class of Impaired
Claims under the Prepackaged Plan will be greater than the distribution such
creditors would receive in a liquidation under chapter 7.
Section 1129(a)(7)(A)(ii) of the Bankruptcy Code states that the Bankruptcy
Court shall confirm a plan of reorganization only if certain requirements are
met, including a requirement that each holder of an Impaired Claim or Equity
Interest who does not consent to the plan receive or retain property that has
a value at least equal to the distribution such holder would receive if the
company were liquidated under chapter 7 of the Bankruptcy Code.
110
<PAGE>
STATEMENT OF ASSETS AND LIQUIDATION PROCEEDS:
JANUARY 1, 1999
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ESTIMATED
RECOVERY
ESTIMATED AS A ESTIMATED
BOOK VALUE AS OF PERCENTAGE LIQUIDATION
NOTE JANUARY 1, 1999 OF BOOK VALUE
REFERENCE (UNAUDITED) VALUE (UNAUDITED)
------------ ---------------- ---------- -----------
<S> <C> <C> <C> <C>
Cash..................... $ 0 0% $ 0
Accounts Receivable...... (p) 158.3 65 102.9
Inventories.............. (e)
Finished Good.......... 43.1 75 32.3
Less Warranty........ (0.4)
Net Finished Goods..... 31.9
Work in Process........ 10.5 5 0.5
Raw Materials.......... 24.4 20 4.9
Fixed Assets............. (f)(g) n/a 36.7
Brand and Technology
Assets.................. (a)(b)(c)(d) n/a 92.3
-------
Total Assets............. 269.3
Less Costs Associated
with Liquidation:
Professional Fees...... (h) (24.0)
Corporate Overhead..... (e) (24.8)
Trustee Fees........... (i) (4.7)
Brokerage Fees......... (j) (10.1)
Wind Down Costs........ (k) (5.6)
WARN Act............... (l) (21.0)
Environmental.......... (o) (23.8)
-------
Total Costs Associated
with Liquidation........ (114.0)
Aggregate net proceeds... 155.3
Net Estimated Liquidation
Proceeds Available for
Distribution............ (q) 116.7
</TABLE>
CALCULATION OF NET PROCEEDS AVAILABLE TO HOLDERS OF CLAIMS
UNDER PREPACKAGED PLAN AND IN A LIQUIDATION UNDER A HYPOTHETICAL CHAPTER 7
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HYPOTHETICAL
CHAPTER 7 LIQUIDATION
---------------------
CLAIM %
AMOUNT DISTRIBUTION RECOVERY
------ ------------ --------
<S> <C> <C> <C>
Net Estimated Liquidation Proceeds Available for
Distribution.................................... $116.7
Citibank Secured Claims (r)...................... $26.9 26.9 100.0%
LGE Secured Claims(m)............................ 160.6 89.8 55.9
Other Priority Claims............................ -- $0.0 0.0
General Unsecured Claims......................... -- $0.0 0.0
LGE Unsecured Claims(n).......................... 228.6 $0.0 0.0
Old Subordinated Debenture Claims................ 103.5 $0.0 0.0
Equity Interests................................. n/a $0.0 0.0
</TABLE>
111
<PAGE>
The accompanying notes are an integral part of this liquidation analysis.
Unless otherwise stated, estimates were made by the Company's management. The
aggregate amount of Claims in certain Classes projected to receive no recovery
in the event of a chapter 7 liquidation are not expected due to the
potentially material amount of contingent and unliquidated Claims in such
Classes.
(a) VSB TECHNOLOGY (TAX-AFFECTED): VSB value discounted to January 1, 1999,
assumes a sale to a third party and utilizes VSB royalty revenue, net of
associated costs and expenses, with the following adjustments: 38.0% tax
rate applied to net cash flows, 35.0% discount rate on domestic net cash
flows, a 50% discount rate on non-domestic net cash flows for countries
that have adopted the ATSC digital television standard, no non-domestic
revenues for countries that have not adopted the ATSC digital television
standard, and royalty rates lower than the Business Plan Projections of
VSB by $0.50-$1.50 depending on the component (e.g., a $4.00 royalty fee
for television versus a $5.00 royalty fee in the Business Plan
Projections). The discount rates reflect a premium over the discount rates
used in the going concern analysis based on the assumption that a forced
sale would negatively affect royalty rates and buyer pricing strategy.
Reflects reduction in income related to anticipated cross licenses based
on the use of bulk cross licenses in the consumer electronics industry
which results in a significant portion of the market paying significantly
less than standard royalty fees. With respect to the projected adoption
rates for VSB technology in consumer electronics products, PJSC relied on
information obtained through discussions with Forrester Research, Inc.
(for domestic markets) and a report prepared by Gartner
Consulting/Dataquest (for international markets). Such firms also reviewed
PJSC's analyses in developing its cash flow models for VSB-based consumer
electronics products. The firms were selected based on their familiarity
with the developing market for VSB-based consumer electronics products.
(b) TRADEMARK AND DISTRIBUTION NETWORK: Value of trademark and distribution
network discounted to January 1, 1999. Assumes liquidation will occur
through the sale of Zenith's trademark and distribution network to a
strategic buyer who would absorb Zenith's market share at an assumed EBIT
(earnings before interest and taxes) margin of 2.5%. Analysis assumes that
a strategic buyer would have a weighted average cost of capital of 12% and
would therefore discount projected cash flows from the distribution
network at a weighted average cost of capital of 12.0% and utilize an
incremental tax rate of 38.0%. Also assumes that a liquidation would lead
to a 50.0% reduction in Zenith's domestic television market share to 5.0%,
and a contraction in Zenith's overall market share of 2.0% per year.
Scenario assumes a 25 million unit domestic television market and a $300
per television unit price. Assumed strategic buyer EBIT margin based on
comparable company median EBIT margin adjusted to approximate a domestic
television market EBIT margin. Value based on perpetuity growth rate
calculation. Trademark and Distribution is net of assumed present and
future warranty claims and administrative expenses estimated to be
approximately $33.3 million, discounted over 8 quarters at 12.0%.
(c) TUNER PATENT: Tuner patent cash flows discounted to January 1, 1999 at a
rate of 25.0%, assumes a sale to a third party and utilizes Business Plan
Projections of tuner patent cash flow, net of associated cost and
expenses. The 25% discount rate reflects a premium over the discount rate
used in the going concern analysis based on the assumption that the tuner
patent and related licenses would be subject to more frequent challenges
if sold in a forced liquidation. Valuation assumes a 38.0% tax rate.
(d) FLAT TENSION MASK AND OTHER INTANGIBLES: Flat tension mask represents
50.0% of Zenith management's estimate of fair market value. Other
intangibles relates primarily to touch screen technology.
(e) INVENTORIES: Value of total inventories estimated at January 1, 1999.
.Net Finished Goods are net of assumed present and future warranty claims
and administrative expenses estimated to be approximately $0.4 million.
.Analysis assumes no finished CRT's in inventory at January 1, 1999.
(f) REAL ESTATE:
.Domestic real estate at liquidation values provided by Insignia/ESG.
.Mexican gross real estate value at liquidation values provided by
Bermudez-Binswanger in a summary and value estimate of the Company's
Mexican real estate that was prepared prior to
112
<PAGE>
Binswanger/Bermudez's engagement by Zenith as real estate broker
concerning the Mexican properties. Such summary and estimate is not an
appraisal, nor was it prepared in accordance with MAI standards.
.Mexican real estate and Mexican furniture, fixtures and equipment are
presented net of $38.8 million in Mexican severance, benefit and other
priority claims. Assumes reduction in Mexican real estate first, which
nets liquidation value of Mexican real estate to $0.0 million.
(g) FURNITURE, FIXTURE AND EQUIPMENT:
.Domestic furniture, fixture and equipment at liquidation values provided
by Greenwich Industrial Services.
.Mexican furniture, fixture and equipment at liquidation values provided by
Greenwich Industrial Services.
.Gross value of Mexican furniture, fixture and equipment of $28.7 million
has been reduced to $18.9 million by the balance of the Mexican severance,
benefit and other priority claims that were not met by the value of the
Mexican real estate.
.Mexican furniture, fixture and equipment includes the liquidation value of
certain leveraged lease equipment per Greenwich Industrial Services.
(h) PROFESSIONAL FEES: Assumes a 4-year liquidation. Assumes fees of $2.0
million each month the first 6 months, $1.5 million for each of the next
six months, $1.2 million for the entire third year, and $0.6 million for
the fourth and final year.
(i) TRUSTEE FEES: Assumed at 3.0% of net liquidation proceeds.
(j) BROKERAGE FEES: Assumes 6.0% of gross asset recovery, plus $38.8 million
Mexican claim addback adjustment, but excludes Accounts Receivable and
Inventory.
(k) WIND DOWN COSTS: Comprised of real estate taxes plus on site security and
wind down teams at each location during an assumed 12 month disposition
period.
(l) WARN ACT: Estimated by the Company based on headcount and assumed
compensation levels.
(m) The LGE Secured Claims are as follows:
<TABLE>
<CAPTION>
CLAIM AMOUNT
----- --------------
<S> <C>
LGE Reimbursement Claims.................................. $ 72.0 million
LGE Demand Loan Claims.................................... $ 45.0 million
LGE Payment of Bank Lender Claims......................... $ 30.0 million
Secured portion of LGE Leveraged Lease Claims
(representing the estimated liquidation value of the
equipment under the Leveraged Leases) per Greenwich
Industrial Services...................................... $ 13.6 million
</TABLE>
(n) The LGE Unsecured Claims are as follows:
<TABLE>
<CAPTION>
CLAIM AMOUNT
----- --------------
<S> <C>
LGE Extended Payables Claims.............................. $140.0 million
Deficiency portion of LGE Leveraged Leases Claims......... $ 76.5 million
LGE Guarantee Fee Claims.................................. $ 1.6 million
LGE Technical Services Claims............................. $ 10.5 million
</TABLE>
(o) Environmental: Estimated by the Company.
(p) Accounts Receivable: The balance of Accounts Receivable at December 31,
1998 projected by the Company is adjusted to exclude receivables on
account of the sale of certain equipment.
(q) A three year 10% discount rate is applied to the aggregate net liquidation
proceeds to reflect the projected 2 to 4 year hypothetical liquidation
period of the Company.
(r) The Citibank Secured Claim amount is comprised of the debt balance
projected by the Company at December 31, 1998 prior to restructuring
costs, plus assumed fourth quarter 1998 cash restructuring costs
anticipated to be incurred in a liquidation scenario.
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<PAGE>
DESCRIPTION OF DEBT AND CREDIT ARRANGEMENTS
SHORT-TERM DEBT
Citibank Credit Facility and Amended Citibank Credit Facility
In April 1997, the Company obtained a three-year, $110 million revolving
credit facility, composed of a $45 million term tranche and a $65 million
revolving tranche, with a bank group syndicated by Citibank. This Citibank
Credit Facility replaced the Company's previous credit agreement with a
lending group which was syndicated by General Electric Capital Corporation
("GECC Credit Facility"). Under the revolving credit line, the maximum
commitment of funds available for borrowing was limited by a defined borrowing
base formula related to eligible inventory. Initially, the facility was
secured by the Company's inventory, domestic fixed assets, stock of the
Company's subsidiaries and tuner patent royalties, along with the related
patents, licenses and other general intangibles. Interest on borrowings is
based on market rates.
The Citibank Credit Facility contained certain covenants that had to be met
in order to remain in compliance with the facility, including financial
covenants that had to be maintained as of the end of each fiscal quarter.
During 1997, the Company amended the Citibank Credit Facility to relax certain
financial covenants and to provide additional collateral. As amended, the
financial covenants include a minimum EBITDA amount, a current ratio test, a
funded debt/total capitalization ratio test, a tuning patent royalties test
and an LGE payable test. As a result of waivers obtained from the bank group
in December 1997 and March 1998, only the tuning patent royalties test and the
LGE payable test were in effect as of December 31, 1997 and March 31, 1998,
and the Company was in compliance with both of those covenants. In addition,
there were restrictions regarding investments, acquisitions, guarantees,
transactions with affiliates, sales of assets, mergers and additional
borrowings, along with limitations on liens, along with dividend payments on
the Company's common stock.
On June 29, 1998 the Citibank Credit Facility was amended and restated and
the Citibank Receivables Facility was terminated. The Amended Citibank Credit
Facility provides for up to $125.0 million of revolving loans, subject to
borrowing base restrictions, including up to $25.0 million in letters of
credit and up to $11.0 million in swing line loans. The revolving loans must
be repaid on or before the earlier of the Company's filing for bankruptcy or
December 31, 1998. In addition, the Company is required to make repayments:
(i) to the extent of the excess of borrowings over the borrowing base and (ii)
with the proceeds of any sale of capital stock (other than upon exercise of
certain options) or assets (other than ordinary course sales of inventory and
the sale of undeveloped real estate it owns in Woodridge, Illinois).
At the Company's option, the interest rates applicable to the loans under
the Amended Citibank Credit Facility will be floating rate of interest
measured by reference to one or more of (i) the Base Rate (as defined in the
Amended Citibank Credit Facility) plus 2.0% per annum or (ii) the relevant
Eurodollar Rate (as defined in the Amended Citibank Credit Facility) plus
3.25%.
The obligations of the Company under the Amended Citibank Credit Facility
are secured by certain of the Company's assets, including its inventory
accounts, accounts receivable, deposit accounts, trademark property, tuning
patents, stock in subsidiaries and domestic properties, plant and equipment.
The Amended Citibank Credit Facility requires the Company to meet financial
tests regarding the amount of tuning patent royalties and the average
outstanding payables to LGE for products purchased in the ordinary course. The
Amended Citibank Credit Facility also contains covenants which, among other
things, restrict the ability of the Company and its Subsidiaries to incur
indebtedness, issue guarantees, incur liens, declare dividends or pay
management or consulting fees to affiliates, make loans and investments,
engage in transactions with affiliates, liquidate, sell assets or engage in
mergers. The Amended Citibank Credit Facility also requires the Company to
satisfy certain customary affirmative covenants.
The Amended Citibank Credit Facility contains certain customary events of
default, including payment defaults, breach of representations or warranties,
covenant defaults, a change of control, certain bankruptcy events with respect
to the Company or LGE, judgment defaults, violations under the Employee
Retirement Income Security Act ("ERISA") and cross-defaults to certain other
indebtedness.
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<PAGE>
The LGE Demand Loan Facility
In March 1998, the Company entered into the LGE Demand Loan Facility, which
provides for borrowings of up to $45 million. The term of the facility is one
year from the date of the first borrowing, subject to LGE's right to demand
repayment at anytime after June 30, 1998. In June 1998, this facility was
amended to provide that demand for repayment may not occur prior to December
31, 1998. Repayment is due in full at the end of the term. The facility is
secured by a second lien on the assets that secure the Company's obligations
under the Reimbursement Agreement and a second lien on the Company's VSB
patents. As of September 26, 1998, the Company had borrowed $30 million under
the LGE Demand Loan Facility.
Other Facilities
Between November 1997 and February 1998 the Company entered into a series of
new financing transactions designed to enhance the Company's liquidity and
financial flexibility. The Company obtained a total of $110 million in
unsecured and uncommitted credit facilities through four lines of credit with
Bank of America ($30 million), the First National Bank of Chicago--NBD ($30
million), Societe Generale ($20 million) and Credit Agricole Indosuez ($30
million). As of June 27, 1998, a total of $102 million was outstanding under
these credit lines. Amounts owed to First National Bank of Chicago--NBD,
Societe Generale and Bank of America totaling $72 million have been paid by
LGE pursuant to its guarantee as of September 26, 1998. Under the terms of the
Reimbursement Agreement, the Company is obligated to pay back LGE the amount
paid by LGE plus interest.
The credit lines are guaranteed by LGE for which LGE has a Claim against the
Company for a fee in an amount up to 2% per annum of the outstanding amount of
the loan, in the form of cash or the Company's equity and subject to the
approval of the Finance Committee of the Board and in the case of equity, the
approval of the Company's stockholders. Under the Reimbursement Agreement, the
Company granted certain second liens in favor of LGE to secure the Company's
reimbursement obligations with respect of the guarantees of LGE for borrowings
under these credit lines.
Borrowings and interest rates on short-term debt were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Maximum month-end borrowings......................... $72.0 $72.6 $69.5
Average daily borrowings............................. 26.4 18.3 37.2
Weighted average interest rate....................... 9.1% 8.8% 10.5%
</TABLE>
LONG-TERM DEBT
The components of long-term debt were:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------------
1997 1996
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
6 1/4% Convertible Subordinated Debentures due
2011............................................. $ 109.3 $ 115.0
8.5% Senior Subordinated Convertible Debentures
due 2000......................................... -- 23.8
8.5% Senior Subordinated Convertible Debentures
due 2001......................................... 0.5 0.5
Term Loans........................................ 38.3 31.2
---------- ----------
Total............................................. 148.1 170.5
Less current portion.............................. 15.3 17.8
---------- ----------
Total long-term debt.............................. $132.8 $ 152.7
========== ==========
</TABLE>
115
<PAGE>
Old Subordinated Debentures
The Old Subordinated Debentures are unsecured general obligations,
subordinate in right of payment to certain other debt obligations, and are
convertible into common stock at $31.25 per share. Terms of the Old
Subordinated Debenture Indenture include annual sinking-fund payments of $5.75
million beginning in April 1997 and provisions which could result in the
acceleration of their payment in the event the Company is in default on
provisions of other debt agreements. The debentures are redeemable at the
option of the Company, in whole or in part, at specified redemption prices at
par or above.
The LGE Demand Loan Claims, the LGE Reimbursement Claim and the LGE
Guarantee Fee Claims, as secured claims, are senior in priority to the Old
Subordinated Debentures to the extent provided in Section 502 of the
Bankruptcy Code. In addition, the LGE Extended Payables Claims, the LGE Demand
Loan Claims and the LGE Reimbursement Claims are senior in right of payment to
the Old Subordinated Debentures pursuant to the subordination provision of the
Old Subordinated Debenture Indenture. The LGE Technical Services Claims and
the LGE Leveraged Lease Claims are pari passu with the Old Subordinated
Debentures. The Company has been advised by legal counsel to the Debenture
Committee that the Debenture Committee may dispute the seniority of the LGE
Extended Payables. In addition, the Company has been advised by legal counsel
to the Debenture Committee that the Debenture Committee may assert that some
or all of the LGE Claims are capable of being equitably subordinated to the
Old Subordinated Debenture Claims and/or recharacterized as Equity Interests
of the Company.
In April 1997, the Company redeemed at par value $5.75 million of the Old
Subordinated Debentures in accordance with the regular sinking fund procedures
set forth in the Old Subordinated Debenture Indenture. In April 1998, the
Company met its regular sinking fund requirements by purchasing $5.735 million
face value Old Subordinated Debentures in the open market and delivering those
securities for cancellation. The balance of the Company's 1998 required
sinking fund payment was satisfied by certain holders' elections to convert
their Old Subordinated Debentures to common stock.
Payment on Senior Subordinated Debentures
In December 1997 the Company redeemed the 8.5% Senior Subordinated
Convertible Debentures due November 2000. There was $23.8 million principal
amount of such debentures outstanding and the redemption price of such
debentures was 104% of such principal amount plus accrued interest through the
redemption date. The loss on extinguishment of this debt was not material.
In January, 1998, the Company redeemed the 8.5% Senior Subordinated
Convertible Debentures due January 2001. There was $0.5 million principal
amount of such debentures outstanding and the redemption price of such
debentures was 104% of such principal amount plus accrued interest through the
redemption date. The loss on extinguishment of this debt was not material.
DESCRIPTION OF NEW SUBORDINATED DEBENTURES
In satisfaction of all amounts owed with respect to the Old Subordinated
Debentures, the Company intends to issue New Subordinated Debentures pursuant
to an indenture (the "New Indenture") dated as of the Effective Date between
the Company and , as Trustee. The following description
makes use of terms described in the New Indenture and are qualified in their
entirety by reference to the New Indenture, a copy of which is filed as an
exhibit to the Registration Statement.
The New Subordinated Debentures are to be issued under the New Indenture and
will represent unsecured general obligations of the Company, subordinate in
right of payment to certain other debt obligations of the Company. See "--
Subordination of New Subordinated Debentures." The New Subordinated Debentures
will bear interest from , 1998, at the rate shown by their title,
payable on April 1 and October 1 in each year, commencing April 1, 1999, to
holders of record at the close of business on the immediately preceding
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March 15 and September 15. Interest will be paid by check mailed to such
holders. The New Subordinated Debentures mature on April 1, 2010. The New
Subordinated Debentures are not convertible.
Principal of and premium, if any, on the New Subordinated Debentures are
payable, and the New Subordinated Debentures may be presented for conversion,
transfer and exchange, at the office of the Trustee in and at the
office of its agent in . New Subordinated Debentures will be
issued in denominations of $1,000 and integral multiples of $1,000. The New
Subordinated Debentures are not subject to a sinking fund.
Redemption of New Subordinated Debentures
The New Subordinated Debentures may be redeemed at the option of the Company
at par, as a whole or from time to time in part, on not less than 20 nor more
than 60 days' notice.
If fewer than all the New Subordinated Debentures are to be redeemed, the
Trustee shall select, in such manner as in its sole discretion it shall deem
appropriate and fair, the New Subordinated Debentures or portions thereof to
be redeemed.
Subordination of New Subordinated Debentures
The indebtedness evidenced by the New Subordinated Debentures is subordinate
to the prior payment when due of the principal of and premium, if any, and
interest on all Senior Indebtedness (as defined herein). During the
continuance of any default with respect to Senior Indebtedness, or if any such
default would be caused by any payment upon or in respect of the New
Subordinated Debentures, no payment may be made by the Company upon or in
respect of the New Subordinated Debentures. Upon any distribution of assets of
the Company in any dissolution, winding up, liquidation or reorganization of
the Company, payment of the principal of and premium, if any, and interest on
the New Subordinated Debentures will be subordinated, to the extent and in the
manner set forth in the New Indenture, to the prior payment in full of all
Senior Indebtedness. As of the Effective Date, the New Subordinated Debentures
will be subordinate to all of the Company's short-term and long-term debt (as
defined in the New Indenture). By reason of such subordination, in the event
of the Company's insolvency, holders of Senior Indebtedness may receive more,
ratably, and holders of the New Subordinated Debentures may receive less,
ratably, than the other creditors of the Company. Such subordination will not
prevent the occurrence of any Event of Default (as defined in the attached New
Indenture).
Definition of Senior Indebtedness
The term "Senior Indebtedness" is defined to mean the principal of and
premium, if any, and interest on the following, whether outstanding on the
date of execution of the New Indenture or thereafter incurred or created: (a)
indebtedness of the Company for money borrowed by the Company (including
purchase money obligations with an original maturity in excess of one year) or
evidenced by debentures (other than the New Subordinated Debentures), notes,
banker's acceptances or other corporate debt securities or similar instruments
issued by the Company; (b) obligations with respect to letter of credit; (c)
indebtedness of the Company constituting a guarantee of indebtedness of others
of the type referred to in the preceding clauses (a) and (b); or (d) renewals,
extensions or refunding of any of the indebtedness referred to in the
preceding clauses (a), (b) and (c) unless, in the case of any particular
indebtedness, renewal, extension or funding, under the express provisions of
the instrument creating or evidencing the same, or pursuant to which the same
is outstanding, such indebtedness or such renewal, extension or refunding
thereof is not superior in right of payment to the New Subordinated
Debentures.
Events of Default
An "Event of Default" is defined in the New Indenture as being: default in
payment of any principal of or premium on the New Subordinated Debentures;
default for 30 days in payment of any interest on the New Subordinated
Debentures; default for 90 days after notice in the observance or performance
of any other covenant
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in the New Indenture; failure to pay at maturity, or the acceleration of,
$5,000,000 or more in principal amount of any indebtedness for money borrowed
by the Company or any Subsidiary under the terms of the instrument under which
such indebtedness is outstanding if such acceleration is not annulled or such
indebtedness is not paid, within 10 days after written notice; or certain
events in bankruptcy, insolvency, or reorganization (each, individually, an
"Indenture Event of Default").
In case an Indenture Event of Default shall occur and be continuing, the
Trustee or the holders of not less than 25% in principal amount of the New
Subordinated Debentures then outstanding may declare the principal of all the
New Subordinated Debentures to be due and payable. The New Indenture provides
that the Trustee shall, within 90 days after the occurrence of a default, mail
to the holders of the New Subordinated Debentures notice of all uncured
defaults known to it (the term default to include the events specified above
without grace); provided, that, except in the case of default in the payment
of principal (or premium, if any) or interest on any of the New Subordinated
Debentures or in the making of any sinking fund payment, the Trustee shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interests of the holders of the New
Subordinated Debentures.
The New Indenture includes a covenant that the Company will file with the
Trustee and the Commission, in accordance with the rules and regulations of
the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants
provided for the New Indenture as may be required by such rules and
regulations.
Subject to the provisions of the New Indenture relating to the duties of the
Trustee in case an Indenture Event of Default shall occur and be continuing,
the Trustee is under no obligation to exercise any of the rights or powers
under the New Indenture at the request, order or direction of any of the New
Subordinated Debenture holders, unless such New Subordinated Debenture holders
shall have offered to the Trustee reasonable security or indemnity. Subject to
such provision for the indemnification of the Trustee and certain limitations
contained in the Indenture, the holders of a majority in principal amount of
the New Subordinated Debentures at the time outstanding shall have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
The New Indenture does not contain restrictive covenants. The only covenants
of the Company are those regarding (i) payment of principal, premium and
interest, (ii) provision of periodic reporting to the Trustee, (iii)
substitution of successors, and (iv) administrative matters, such as
maintenance of a register of debenture holders, offices for notice and
payment, filling vacancies in the trustee's office and the provision of a
paying agent.
Modification of the New Indenture
The New Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than 66 2/3% in principal
amount of the New Subordinated Debentures at the time outstanding, to modify
the New Indenture or any supplemental indenture or the rights of the holders
of the New Subordinated Debentures, except that no such modification shall (i)
extend the fixed maturity of any New Subordinated Debenture, reduce the rate
or extent the time of payment of interest thereon, reduce the principal amount
thereof or redemption premium thereon or change the currency in which the New
Subordinated Debentures are payable, without the consent of the holder of each
New Subordinated Debenture so affected, or (ii) reduce the aforesaid
percentage of New Subordinated Debentures, the consent of the holders of which
is required for any such modification, without the consent of the holders of
all of the New Subordinated Debentures.
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Concerning the Trustee
is the Trustee under the New Indenture (the "Trustee").
Comparison of the Old Subordinated Debentures and the New Subordinated
Debentures
<TABLE>
<CAPTION>
OLD SUBORDINATED DEBENTURES NEW SUBORDINATED DEBENTURES
--------------------------- ---------------------------
<S> <C> <C>
Aggregate Principal $103.5 million $40 million
Amount
Outstanding
Maturity Date........... April 1, 2011 April 1, 2010
Interest................ 6 1/4% per annum, payable in 6 1/4% per annum, payable in
cash on April 1 and October 1 cash on April 1 and October 1
of each year of each year
Redemption.............. The Old Subordinated Debentures The New Subordinated
may be redeemed at the option Debentures may be redeemed at
of the Company, in whole or in the option of the Company, in
part, at a premium which whole or in part, at par.
declined to par on April 1,
1996.
Conversion.............. The Old Subordinated Debentures The New Subordinated
are convertible into shares of Debentures are not
the Company's common stock at convertible.
any time prior to maturity at a
conversion price of $31.25 per
share (subject to adjustment).
Ranking; Security....... The Old Subordinated Debentures Same
are subordinated to the prior
payment when due of all Senior
Indebtedness (as defined in the
Old Subordinated Debenture
Indenture, including the
Citibank Secured Claims, the
Other Secured Claims, the Bank
Lender Claims, and certain LGE
Claims) and are not secured.
Sinking Fund............ The Company is required to None
provide through the operation
of a sinking fund for the
retirement on April 1 in each
of the years 1997 to and
including 2010 of 5% of the
principal amount of the Old
Subordinated Debentures at par.
The Company may increase any
sinking fund payment to retire
up to an additional 5% of the
principal amount of the Old
Subordinated Debentures
originally issued at par.
Events of Default....... Events of Default with respect Same
to the Old Subordinated
Debentures include, among other
things, default in payment of
payment of principal or
premium, default for 30 days in
payment of interest, default in
the
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
OLD SUBORDINATED DEBENTURES NEW SUBORDINATED DEBENTURES
------------------------------- ------------------------------
<S> <C> <C>
performance of other covenants
for 90 days after notice, the
acceleration of any
indebtedness for borrowed money
of the Company or any
Subsidiary aggregating at least
$5 million and not rescinded
within 10 days after written
notice, and certain events of
bankruptcy, insolvency or
reorganization.
Remedies........... If an Event of Default occurs, Same
the Trustee or the holders of
at least 25% in principal
amount of all the Old
Subordinated Debentures then
outstanding may declare the
principal of all the Old
Subordinated Debentures due and
payable.
Covenants.......... The Old Subordinated Debenture Same
Indenture does not contain
restrictive covenants. The only
covenants of the Company are
those regarding (i) payment,
(ii) provision of periodic
reporting, (iii) substitution
of successors, and (iv)
administrative matters, such as
maintenance of a register of
debenture holders, offices for
notice and payment, filling
vacancies in the trustee's
office and the provision of a
paying agent.
</TABLE>
SUMMARY OF LGE NEW RESTRUCTURED SENIOR NOTE
As partial payment for certain obligations to LGE, the Company will issue to
LGE the LGE New Restructured Senior Note with the following terms:
Payment of Principal and Interest; Maturity
The LGE New Restructured Senior Note will be issued in an aggregate
principal amount equal to the aggregate amount of the LGE Tranche A Claims
less $32,379,300 if the Reynosa Assets are transferred to LGE and will mature
on November 1, 2008. The LGE New Restructured Senior Note will bear interest
from the Effective Date, at a rate per annum equal to LIBOR plus 6.5%, payable
on February 1, May 1, August 1 and November 1 in each year, commencing
February 1, 1999, to holders of record at the close of business on the
immediately preceding January 15, April 15, July 15 and October 15. Interest
will be paid in cash only to the extent that the Company's ratio of EBITDA to
cash interest expense for the immediately preceding four fiscal quarters
exceeds 1.5; if such test is not met, interest will be payable by the issuance
of additional LGE New Restructured Senior Notes.
Collateral and Guarantees
Except as otherwise agreed to by LGE and the Company, the LGE New
Restructured Senior Note will be secured by a second lien on all assets of the
Company and its Subsidiaries other than receivables and inventory, junior only
to the lien granted pursuant to the LGE New Credit Facility. The LGE New
Restructured Senior Note will be guaranteed by each of the Company's
Subsidiaries.
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Mandatory Prepayment
To the extent permitted under the Company's senior bank credit agreement and
subject to any restrictions set forth in other financing agreements executed
by the Company, the Company will be required to make mandatory prepayments on
the LGE New Restructured Senior Note, upon any sale of assets of the Company
(other than inventory sold in the ordinary course of the Company's business)
and to the extent the Company has excess cash (to be defined in a mutually
satisfactory manner) following payments under its other indebtedness,
including under the LGE New Credit Support.
Ranking
Except as otherwise agreed to by LGE and the Company, the indebtedness
evidenced by the LGE New Restructured Senior Note is pari passu with all
Senior Indebtedness of the Company existing at the Effective Date or incurred
thereafter and will rank senior to all subordinated indebtedness of the
Company, including the New Subordinated Debentures.
Events of Default
An "Event of Default" is defined in the LGE New Restructured Senior Note as
being: default in payment of any principal of or premium on the LGE New
Restructured Senior Note; default for 5 days in payment of any interest on the
LGE New Restructured Senior Note; default for 30 days after notice in the
observance or performance of any other covenant in the LGE New Restructured
Senior Note; failure to pay at maturity, or any event of default relating to
$5 million or more in principal amount of any indebtedness for money borrowed
by the Company or any Subsidiary under the terms of the instrument under which
such indebtedness is outstanding if such acceleration is not annulled or such
indebtedness is not paid, within 10 days after written notice; or certain
events in bankruptcy, insolvency, or reorganization (each, individually, an
"LGE Restructured Notes Default").
In case an LGE Restructured Notes Default shall occur and be continuing, the
holders of not less than 25% in principal amount of the LGE New Restructured
Senior Note then outstanding may declare the principal of all the LGE New
Restructured Senior Note to be due and payable.
Modification of the LGE New Restructured Senior Note
The LGE New Restructured Senior Note may be modified only with the consent
of the Company and the holders of not less than 66 2/3% in principal amount of
the LGE New Restructured Senior Note at the time outstanding, except that no
such modification shall (i) extend the fixed maturity of LGE New Restructured
Senior Note, reduce the rate or extend the date of payment of interest
thereon, reduce the principal amount thereof or redemption premium thereon or
change the currency in which the LGE New Restructured Senior Note is payable,
without the consent of all of the holders of LGE New Restructured Senior Note
so affected, or (ii) reduce the aforesaid percentage of LGE New Restructured
Senior Note, the consent of the holders of which is required for any such
modification, without the consent of the holders of all of the LGE New
Restructured Senior Note.
SUMMARY OF LGE NEW CREDIT FACILITY
The LGE New Credit Support may, at the option of LGE and the Company, take
the form of a direct loan or a credit support, such as a guarantee of new
financing provided by a third-party lender. Any LGE New Credit Support
(including any guarantee) will rank pari passu with all Senior Indebtedness of
the Company existing at the Effective Date or incurred thereafter and will
rank senior to all subordinated indebtedness of the Company (including the New
Subordinated Debentures). If the New Credit Support is provided through an LGE
guarantee, the Company's reimbursement obligation in respect of such LGE
guarantee will be entitled to the same collateral and subsidiary guarantees
described below. If the LGE New Credit Support takes the form of a direct
loan, LGE
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<PAGE>
and the Company will enter into a credit agreement (the "LGE New Credit
Facility"). The terms of the LGE New Credit Facility will be as follows.
Principal Amount
The Company will be permitted to borrow under the LGE New Credit Facility up
to a maximum amount to be set by LGE and the Company on the Effective Date
based on the financing deemed necessary to enable the Company to execute the
Operational Restructuring. Such amount may not exceed $60 million.
Maturity
November 1, 2001.
Payment of Interest
The obligations of the Company under the LGE New Credit Facility will bear
interest from the Effective Date, at a rate per annum equal to LIBOR plus
6.5%, payable on February 1, May 1, August 1 and November 1 in each year,
commencing , 1999. Interest will be paid in cash.
Collateral and Guarantees
Except as otherwise agreed to by LGE and the Company, the Company's
obligations under the LGE New Credit Facility (including reimbursement
obligations in respect of any guarantee) will be secured by a first lien on
all assets of the Company and its Subsidiaries other than receivables and
inventory. The LGE New Credit Facility (including reimbursement obligations in
respect of any guarantee) will be guaranteed by each of the Company's
Subsidiaries.
Mandatory Prepayment
The Company will be required to make mandatory prepayments on the LGE New
Credit Facility and reduce LGE's lending commitment thereunder upon any sale
of assets of the Company (other than inventory sold in the ordinary course of
the Company's business) and to the extent the Company has excess cash (to be
defined in a mutually satisfactory manner) following payments under its other
indebtedness.
Ranking
The obligations of the Company under the LGE New Credit Facility (including
any guarantee) will rank pari passu with all Senior Indebtedness of the
Company existing at the Effective Date or incurred thereafter and will rank
senior to all subordinated indebtedness of the Company (including the New
Subordinated Debentures).
Conditions to Issuance
LGE's obligation to enter into the LGE New Credit Facility is conditioned
upon the satisfaction or waiver of all of the conditions to LGE's obligations
under the Restructuring Agreement, including the Company's release of the
Investor Releasees from any and all Claims and liabilities.
Events of Default
An "Event of Default" is defined in the LGE New Credit Facility as being:
default in payment of any principal of or premium on the LGE New Credit
Facility; default for 5 days in payment of any interest on the LGE New Credit
Facility; default for 30 days after notice in the observance or performance of
any other covenant in the LGE New Credit Facility; failure to pay at maturity,
or any event of default relating to, $5,000,000 or more in principal amount of
any indebtedness for money borrowed by the Company or any Subsidiary under the
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<PAGE>
terms of the instrument under which such indebtedness is outstanding if such
acceleration is not annulled or such indebtedness is not paid, within 10 days
after written notice; or certain events in bankruptcy, insolvency, or
reorganization (each, individually, a "LGE New Credit Facility Event of
Default").
In case a LGE New Credit Facility Event of Default shall occur and be
continuing, the holders of not less than 25% in principal amount of the
indebtedness under the LGE New Credit Facility then outstanding may declare
the principal of all such indebtedness to be due and payable.
Modification of the LGE New Credit Facility
The LGE New Credit Facility may be modified only with the consent of the
Company and the holders of not less than 66 2/3% in principal amount of the
indebtedness under the LGE New Credit Facility at the time outstanding, except
that no such modification shall (i) extend the fixed maturity of LGE New
Credit Facility, reduce the rate or extent the time of payment of interest
thereon, reduce the principal amount thereof or redemption premium thereon or
change the currency in which obligations under the LGE New Credit Facility are
payable, or (ii) reduce the aforesaid percentage of indebtedness, the consent
of the holders of which is required for any such modification, without the
consent of the holders of all indebtedness outstanding under the LGE New
Credit Facility.
SOLICITATION; VOTING PROCEDURES
GENERAL
The Company, upon the terms and subject to the conditions set forth herein,
is soliciting an acceptance of the Prepackaged Plan from each person or entity
that is or was a beneficial interest holder, as of the Voting Record Date, of
an Impaired Claim. With respect to the Old Subordinated Debentures, this
Disclosure Statement, together with the accompanying forms of Ballot and
Master Ballot, envelope and other materials, are being furnished to the
holders of the Old Subordinated Debentures (i.e., holders whose respective
names (or the names of whose nominees) appear as of the Voting Record Date on
the securityholder lists maintained by the trustee (or its agent) under the
Old Subordinated Debenture Indenture or, if applicable, that are listed as
participants in a clearing agency's security position listing). If such
persons or entities do not hold for their own account, they should provide
copies of this Disclosure Statement and the appropriate Solicitation Materials
to their customers and to beneficial interest holders for whose account they
hold. A beneficial interest holder is a holder of a beneficial interest in a
Claim that entitles such holder to rights or benefits of ownership even though
such holder may not be the holder of record at the Voting Record Date.
Securities owned beneficially would include not only securities held by such
beneficial interest holder for its own benefit in its own name, but would also
include securities held by others for such beneficial interest holder's
benefit, such as securities held by banks or other custodians, brokers
(whether in such beneficial interest holder's name, the nominee's name or
"street name"), executors, administrators or trustees, guardians, attorneys-
in-fact, officers of a corporation, general partners of a partnership or other
persons acting in a fiduciary or representative capacity. WITH RESPECT TO THE
OLD SUBORDINATED DEBENTURES, ANY BENEFICIAL INTEREST HOLDER THAT HAS NOT
RECEIVED THIS DISCLOSURE STATEMENT AND A BALLOT SHOULD CONTACT HIS, HER OR ITS
NOMINEE. The Company does not intend to file schedules in its bankruptcy case
since general unsecured claims will be unimpaired. As such, no claims will be
classified as contingent, unliquidated or disputed.
In the event that the Company decided to object to any claim or seek
designation of any vote, the Company would be required to file a motion
seeking such relief with the Bankruptcy Court and would be required to serve a
copy of that motion on the affected creditor, who as a party in interest would
have the right to respond to the Company's motion.
In addition, under the Bankruptcy Code and Bankruptcy Rules, the Bankruptcy
Court has jurisdiction to determine the validity, timeliness and amount of any
ballot and any creditor, as a party in interest, has an opportunity to appear
and be heard regarding its voting rights with respect to its claim.
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<PAGE>
VOTING RECORD DATE
Consistent with the provisions of Rule 3018 of the Bankruptcy Rules, the
Company has fixed 5:00 p.m., New York City Time, on as the
time and date for determining which holders of Claims are eligible to vote on
the Prepackaged Plan pursuant to the procedures set forth herein.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
THE SOLICITATION PURSUANT TO THIS DISCLOSURE STATEMENT WILL EXPIRE ON
. TO BE COUNTED, BALLOTS AND, WHEN APPROPRIATE, MASTER BALLOTS
MUST BE RECEIVED BY 5:00 PM., NEW YORK CITY TIME, ON , UNLESS THE
COMPANY, IN ITS SOLE DISCRETION, EXTENDS OR WAIVES THE PERIOD DURING WHICH
BALLOTS AND MASTER BALLOTS WILL BE ACCEPTED BY THE COMPANY, IN WHICH CASE THE
TERM "EXPIRATION DATE" FOR SUCH SOLICITATION SHALL MEAN THE LAST TIME AND DATE
TO WHICH SUCH SOLICITATION IS EXTENDED.
Except to the extent the Company so determines or as permitted by the
Bankruptcy Court, Ballots and Master Ballots received after the Expiration
Date will not be accepted or counted in connection with the request for
Confirmation of the Prepackaged Plan.
The Company expressly reserves the right, at any time or from time to time,
to extend the period during which the Solicitation is open. During any
extension of the Solicitation, all Ballots and Master Ballots previously given
will remain subject to all the terms and conditions of the Solicitation,
including the revocation rights specified herein. To extend the Expiration
Date, the Company will notify the Solicitation Agent of any extension by oral
or written notice and will make a public announcement thereof, each at any
time prior to 10:00 a.m., New York City Time, on the next business day after
the previously scheduled Expiration Date. Without limiting the means by which
the Company may choose to make any public announcement, the Company will not
have any obligation, unless otherwise required by law, to publish, advertise
or otherwise communicate any such public announcement other than by issuing a
news release through the Dow Jones News Service. There can be no assurance
that the Company will exercise its right to extend the Solicitation period for
the receipt of Ballots and Master Ballots.
The Company expressly reserves the right to amend, at any time and from time
to time, the terms of the Solicitation or the Prepackaged Plan (subject to
compliance with the requirements of section 1127 of the Bankruptcy Code and
the Bankruptcy Rules and any applicable non-bankruptcy laws and, pursuant to
the Restructuring Agreement, with the approval of LGE). If the Company makes a
material change in the terms of the Solicitation or the Prepackaged Plan, or
if it waives a material condition, the Company will disseminate additional
solicitation materials and will extend the Solicitation, in each case to the
extent required by law.
VOTING PROCEDURES AND OTHER REQUIREMENTS
Persons Entitled to Vote
The following Classes of Claims are impaired under the Prepackaged Plan and
all holders of Claims in such Classes as of the Voting Record Date are
entitled to vote to accept or reject the Prepackaged Plan upon the terms and
subject to the conditions set forth herein and in the Prepackaged Plan:
Class 4--Bank Lender Claims
Class 6--Old Subordinated Debenture Claims
Class 7--LGE Claims
To be entitled to vote to accept or reject the Prepackaged Plan, a person
must be the beneficial interest holder of a Claim in the impaired, voting
Class on the Voting Record Date, regardless of whether such Claims are held of
record on the Voting Record Date in such holder's name or in the name of such
holder's broker, dealer, commercial bank, trust Company or other nominee. For
purposes of determining whether the requisite
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number of acceptances is received to approve the Prepackaged Plan, only votes
which are cast at the direction of beneficial interest holders in accordance
with the procedures set forth herein may be counted. The Ballots are being
distributed to holders of Claims in Class 4, Class 6 and Class 7. The Master
Ballots are being distributed to holders of Claims in Class 6.
Voting Procedures
Holders of Impaired Claims are requested to complete an appropriate Ballot
and, when appropriate, Master Ballot, in accordance with the instructions set
forth thereon and the procedures set forth below and in the Prepackaged Plan.
Beneficial Interest Holders
Any beneficial interest holder of Claims can vote on the Prepackaged Plan
through a nominee by following these instructions:
1. Provide all the applicable information on the Ballot in accordance
with the instructions set forth thereon, including the amount of the Claims
held.
2. Indicate acceptance or rejection of the Prepackaged Plan by checking
either the box entitled "Accepts the Prepackaged Plan" or "Rejects the
Prepackaged Plan" set forth on the Ballot.
3. Sign and date the Ballot and provide your name and mailing address if
different from the printed address which appears on the Ballot or if no
preprinted address appears on the Ballot. If you are completing the Ballot
on behalf of another entity, indicate the name of such entity, your
relationship with such entity and/or the capacity in which you are signing.
4. (a) If you hold Old Subordinated Debentures in "street name" through a
brokerage firm, bank, trust company or other source, return the Ballot to
the nominee as promptly as possible so that the nominee may complete and
submit a Master Ballot prior to the Expiration Date. If no pre-addressed,
postage-paid envelope was enclosed, contact the Solicitation Agent for
instructions.
(b) If you are both the beneficial interest holder and the record holder
of Claims return the Ballot directly to the Solicitation Agent in the
enclosed pre-addressed envelope so that it will be received prior to the
Expiration Date.
Brokerage Firms, Banks and Other Nominees
A brokerage firm which is the registered or record holder of the Old
Subordinated Debentures for a beneficial interest holder can vote on behalf of
such beneficial interest holder by (i) distributing a copy of this Disclosure
Statement, all appropriate Ballots and the other Solicitation Materials to
such beneficial interest holder for execution; (ii) collecting all such
completed and executed Ballots; (iii) completing a Master Ballot compiling the
votes and other information from the Ballots collected; and (iv) transmitting
such Master Ballot to the Solicitation Agent on or before the Expiration Date.
A proxy intermediary acting on behalf of a brokerage firm or bank may follow
the procedures outlined in the preceding sentence to vote on behalf of such
beneficial interest holder.
Each brokerage firm, bank, or other nominee which submits a Master Ballot
must retain all ballots submitted to it by beneficial interest holders for
disclosure to the Bankruptcy Court, if so ordered.
Any Ballot submitted to a brokerage firm, proxy intermediary or other
nominee will not be counted until such nominee properly completes and delivers
to the Solicitation Agent a corresponding Master Ballot that reflects such
beneficial interest holder's vote. Any record holder which is also a
beneficial interest holder of the Old Subordinated Debentures should either
(i) return a Ballot to the Solicitation Agent or (ii) prepare and retain a
Ballot and include the information from such ballot on the Master Ballot
submitted to the Solicitation Agent.
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Holders may receive multiple mailings containing Ballot(s), especially if
holders own Old Subordinated Debentures, in street name through more than one
broker, bank or other nominee. A beneficial interest holder that holds the Old
Subordinated Debentures through more than one broker, bank or other nominee
must so disclose on each ballot such holder completes and must cast the same
vote on the Prepackaged Plan on each ballot such holder completes. A
beneficial interest holder's vote either to accept or to reject the
Prepackaged Plan will be counted only once for each Class of Claims held by
the holder, regardless of the number of record holders through which such
Claims are held. By executing a ballot, a holder certifies, among other
things, that, to the extent applicable, such holder has disclosed any
bifurcation of beneficial ownership of the Old Subordinated Debentures and
that such holder has cast the same vote on any multiple ballots for holdings
in a single Class of Claims. THE NAMES OF ALL BROKER-DEALERS OR OTHER
INTERMEDIARIES OR PERSONS THAT HOLD THE OLD SUBORDINATED DEBENTURES FOR A
BENEFICIAL INTEREST HOLDER SHOULD BE INDICATED ON THE BALLOTS. AUTHORIZED
SIGNATORIES (OTHER THAN BROKERAGE FIRMS AND OTHER PARTICIPANTS) SHOULD SUBMIT
SEPARATE BALLOTS FOR EACH BENEFICIAL INTEREST HOLDER FOR WHOM THEY ARE VOTING.
Other
If a Ballot is signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations, or others acting in a fiduciary
or representative capacity, such persons should indicate such capacity when
signing in accordance with the procedures set forth under "Certifications"
below and, unless otherwise determined by the Company, must submit proper
evidence satisfactory to the Company of authority to so act on behalf of a
beneficial interest holder.
The Company, in its sole discretion, may waive any defect in any Ballot or
Master Ballot at any time, either before or after the close of voting, and
without notice. Except as provided below, unless the Ballot or Master Ballot
being furnished is timely submitted to the Solicitation Agent on or prior to
the Expiration Date together with any other documents required by such Ballot
or Master Ballot, as the case may be, the Company may, in its sole discretion,
reject such Ballot or Master Ballot as invalid and, therefore, decline to
utilize it in connection with seeking Confirmation of the Prepackaged Plan by
the Bankruptcy Court.
In the event a Claim is disputed or designated under section 1126(e) of the
Bankruptcy Code, any vote to accept or reject the Prepackaged Plan cast with
respect to such Claim will not be counted for purposes of determining whether
the Prepackaged Plan has been accepted or rejected, unless the Bankruptcy
Court orders otherwise.
Certifications
For purposes of determining whether the requisite number of acceptances is
received to approve the Prepackaged Plan, only votes which are cast by or at
the direction of beneficial interest holders of Impaired Claims may be
counted. By executing and returning a Ballot, a person or entity (i) will
certify to the Bankruptcy Court and the Company that either (a) such person or
entity is the beneficial interest holder of the Claims or securities being
voted or (b) such person or entity is an authorized signatory for someone or
some entity that or which is a beneficial interest holder of the Claims or
securities being voted; (ii) will certify to the Bankruptcy Court and the
Company that such person or entity (or in the case of an authorized signatory,
the beneficial interest holder) has received a copy of this Disclosure
Statement and Solicitation Materials and will acknowledge that the
Solicitation is being made pursuant to the terms and conditions set forth
therein; (iii) will certify to the record holder, the Bankruptcy Court and the
Company that either (a) such person or entity has not submitted any other
Ballots for such Class of Claims, as the case may be, held in other accounts
or other registered names or (b) such person or entity has disclosed on each
Ballot completed by such person or entity the existence of Claims in the same
Class held in other accounts, or other registered names and the submission of
other Ballots for such Claims; (iv) will certify to the record holder, the
Bankruptcy Court and the Company that such person or entity has cast the same
vote on every Ballot completed by such person or entity with respect to
holdings in a single
126
<PAGE>
Class of Claims; and (v) will request that such person or entity (or in the
case of an authorized signatory, the beneficial interest holder) be treated as
the record holder of such securities for purposes of voting on the Prepackaged
Plan.
A brokerage firm or other nominee which is a registered holder will prepare,
execute and deliver a Master Ballot to the Solicitation Agent to reflect the
votes of the beneficial interest holders it represents. By executing and
returning a Master Ballot, such nominee (i) will certify to the Bankruptcy
Court and the Company that (a) such nominee has received a copy of this
Disclosure Statement, Ballot and other Solicitation Materials and has
delivered the same to the beneficial interest holders listed thereon by such
nominee, (b) such nominee has received a completed and signed Ballot from each
such beneficial interest holder, (c) such nominee is the registered holder of
the securities being voted, (d) such nominee has been authorized by each such
beneficial interest holder to vote on the Prepackaged Plan, and (e) the
beneficial interest holder has certified to such nominee that such beneficial
interest holder has not submitted any other Ballots for such Class of Claims
held in other accounts or other registered names, or, if held in other
accounts or registered names, that the beneficial interest holder has
certified to such nominee that such beneficial interest holder has cast the
same vote for such Class of Claims, and such nominee will disclose such other
accounts or registered holders and such other ballots; (ii) will request that
such nominee be treated as the beneficial interest holder of the securities
for purposes of voting on the Prepackaged Plan, unless otherwise authorized by
the Bankruptcy Court; (iii) will disclose (a) the number of such beneficial
interest holders, (b) the respective principal amounts and issues of the Old
Subordinated Debentures owned, as the case may be, by each such beneficial
interest holder, (c) each beneficial interest holder's respective vote
concerning the Prepackaged Plan, (d) the customer account or other
identification number for each such beneficial interest holder; and (iv) will
agree to maintain Ballots returned by beneficial interest holders (whether
properly completed or defective) for disclosure to the Bankruptcy Court if so
ordered.
Ballots
A separate form of Ballot and, when applicable, Master Ballot, is to be used
for each Class of Impaired Claims. Holders of Claims should take care to use
the correct Ballot(s) in voting on the Prepackaged Plan. See "--Incomplete
Ballots." If any Ballots are damaged or lost, or if a holder has any questions
concerning this Solicitation, it may contact the Solicitation Agent at the
address or phone number listed on the back cover of this Disclosure Statement.
Voting Multiple Claims
EACH BENEFICIAL INTEREST HOLDER WHICH HOLDS A CLAIM IN MORE THAN ONE CLASS
IS REQUIRED TO VOTE SEPARATELY WITH RESPECT TO EACH CLASS IN WHICH SUCH
BENEFICIAL INTEREST HOLDER HOLDS A CLAIM.
A separate Ballot of the appropriate form should be used to vote on the
Prepackaged Plan with respect to each Impaired Class of Claims. Votes must be
made on the appropriate Ballot in order to be counted. A beneficial interest
holder's vote on the Prepackaged Plan will be counted only once for each Class
of Claims held by the holder, regardless of the number of Ballots submitted
for such Class.
A holder may not split its vote within a Class of Impaired Claims. For
example, if a holder of the Old Subordinated Debentures is submitting a Ballot
as to the Old Subordinated Debentures which such holder beneficially owns,
such holder must vote all its Old Subordinated Debentures the same way (i.e.,
all "Accepts the Prepackaged Plan" or "Rejects the Prepackaged Plan"). If a
holder of Claims in more than one Class executes one or more Ballots for only
one such Class, such holder's vote will count as a vote only once with respect
to such Class and will not count as a vote with respect to any Claims in other
Classes held by such holder.
127
<PAGE>
Incomplete Ballots
It is important that all holders of Impaired Claims vote to accept or reject
the Prepackaged Plan, because under the Bankruptcy Code, for purposes of
determining whether the requisite acceptances have been received by an
Impaired Class of Claims, the vote will be tabulated based on the ratio of
accepting holders of Impaired Claims to all voting holders of Impaired Claims.
Therefore, it is possible that the Prepackaged Plan could be approved by any
Impaired Class of Claims with the affirmative vote of significantly less than
two-thirds in amount and one-half in number of the entire Class of Claims.
Failure by a holder of an Impaired Claim to submit a properly executed Ballot
or Master Ballot (as appropriate) or to indicate acceptance or rejection of
the Prepackaged Plan in accordance with the instructions set forth thereon and
the procedures set forth herein shall be deemed to constitute an abstention by
such holder with respect to a vote regarding the Prepackaged Plan, unless
cured or waived. Abstentions as a result of failing to submit a properly
executed Ballot or Master Ballot (when appropriate) or failing to indicate a
vote either for acceptance or rejection of the Prepackaged Plan will not be
counted as votes for or against the Prepackaged Plan. The Company, in its sole
discretion, may waive any defect in any Ballot or Master Ballot at any time,
either before or after the close of voting, and without notice. No assurance
can be given, however, that the Bankruptcy Court will recognize any such
waiver.
AGREEMENTS UPON FURNISHING BALLOTS
The delivery of a Ballot or Master Ballot indicating a vote to accept the
Prepackaged Plan by a holder of an Impaired Claim pursuant to the procedures
set forth above will constitute an agreement between such holder and the
Company to accept (i) all the terms of, and conditions to, this Solicitation
and (ii) all the terms of the Prepackaged Plan.
METHOD OF DELIVERY OF BALLOTS
THE METHOD OF DELIVERY OF BALLOTS AND MASTER BALLOTS TO BE DELIVERED TO THE
SOLICITATION AGENT IS AT THE ELECTION AND RISK OF EACH HOLDER OF AN IMPAIRED
CLAIM. Except as otherwise provided herein, such delivery will be deemed made
only when the original executed Ballot is actually received by the
Solicitation Agent. Instead of effecting delivery by mail, it is recommended,
though not required, that such holders use an overnight or hand delivery
service. In all cases, sufficient time should be allowed to assure timely
delivery. DELIVERY OF A BALLOT BY FACSIMILE, E-MAIL OR ANY OTHER ELECTRONIC
MEANS WILL NOT BE ACCEPTED. NO BALLOTS OR MASTER BALLOTS SHOULD BE SENT TO THE
COMPANY, ANY INDENTURE TRUSTEE, OR THE COMPANY'S FINANCIAL OR LEGAL ADVISORS.
WITHDRAWAL OF BALLOTS; REVOCATION
Any holder of Impaired Claims that has delivered a valid Ballot or Master
Ballot, as appropriate, voting on the Prepackaged Plan may withdraw such vote
by delivery of a written notice of withdrawal to the Solicitation Agent at any
time prior to the earlier of (i) the commencement by the Company of the
Prepackaged Chapter 11 Case or (ii) the Expiration Date. Thereafter, Ballots
or Master Ballots may be revoked only with the approval of the Bankruptcy
Court. Votes cast pursuant to a Master Ballot may be withdrawn or modified on
an individual beneficial interest holder basis. In the case where more than
one timely, properly completed Ballot or Master Ballot relating to a
particular Class of Claims held by a particular holder is received, only the
Ballot or Master Ballot, as the case may be, which bears the latest date will
be counted for purposes of determining the vote.
A notice of withdrawal, to be valid, must (i) contain the description of the
Claim to which it relates and the aggregate principal amount represented by
such Claim, (ii) be signed by the holder of such Claim in the same manner as
the original Ballot or Master Ballot, (iii) contain a certification that the
withdrawing party was the beneficial interest holder of the Claim on the
Voting Record Date and possesses the right to withdraw the vote sought to be
withdrawn and (iv) be received by the Solicitation Agent in a timely manner as
described above. Prior to the filing of the Prepackaged Plan, the Company
intends to consult with the Solicitation Agent to determine whether any
withdrawals of Ballots were received. The Company expressly reserves the
absolute right to contest the validity of any such withdrawals of Ballots. See
"--Waivers of Defects, Irregularities, Etc."
128
<PAGE>
Unless otherwise determined by the Company or directed by the Bankruptcy
Court, a purported notice of withdrawal of a Ballot or Master Ballot which is
not received in a timely manner by the Solicitation Agent will not be
effective to withdraw a previously furnished Ballot or Master Ballot.
THE COMPANY WILL PAY ALL REASONABLE AND CUSTOMARY COSTS, FEES AND EXPENSES
RELATING TO THE SOLICITATION, INCLUDING WITHOUT LIMITATION, MAILING AND
HANDLING COSTS OF BROKERS, DEALERS, COMMERCIAL BANKS, TRUSTEES, INDENTURE
TRUSTEES AND OTHER NOMINEES. THE COMPANY WILL NOT PAY ANY INCENTIVE OR
ACCEPTANCE FEES IN CONNECTION WITH THE SOLICITATION.
SOLICITATION AGENT
The Company has engaged Georgeson & Company Inc. as the Solicitation Agent
in connection with the Solicitation. The Company expects that the Solicitation
Agent will receive reasonable and customary compensation for services rendered
in connection with the Solicitation, will be reimbursed for reasonable out-of-
pocket expenses and will be indemnified against certain expenses in connection
therewith. All deliveries to the Solicitation Agent relating to the
Solicitation should be directed to one of the addresses set forth on the back
cover page of this Disclosure Statement. REQUESTS FOR INFORMATION OR
ADDITIONAL COPIES OF THIS DISCLOSURE STATEMENT, BALLOTS OR MASTER BALLOTS
SHOULD BE DIRECTED TO THE SOLICITATION AGENT AT (800) 223-2064.
NOTICE AGENT
The Company intends to seek approval of the Bankruptcy Court to hire Poorman
Douglas Corporation as the Notice Agent. The Notice Agent will process and
deliver notices as required during the Prepackaged Chapter 11 Case. It may
also assist the Company with other tasks.
WAIVERS OF DEFECTS, IRREGULARITIES, ETC.
Unless otherwise directed by the Bankruptcy Court, all questions as to the
validity, form, eligibility (including time of receipt), acceptance and
revocation or withdrawal of Ballots or Master Ballots will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all Ballots
or Master Ballots not in proper form, the acceptance of which, in the opinion
of the Company or its counsel, would not be in accordance with the provisions
of the Bankruptcy Code. The Company further reserves the right to waive any
defects or irregularities or conditions of delivery as to any particular
Ballot unless otherwise directed by the Bankruptcy Court. The Company's
interpretation of the terms and conditions of the Prepackaged Plan (including
the Ballot or Master Ballot and these respective Voting Instructions thereto),
unless otherwise directed by the Bankruptcy Court, shall be final and binding
on all parties. Unless waived, any defects or irregularities in connection
with deliveries of Ballots or Master Ballots must be cured within such time as
the Company (or the Bankruptcy Court) determines. Neither the Company nor any
other person or entity will be under any duty to provide notification of
defects or irregularities with respect to deliveries of Ballots or Master
Ballots nor will any of them incur any liabilities for failure to provide such
notification. Unless otherwise directed by the Bankruptcy Court, delivery of
such Ballots or Master Ballots will not be deemed to have been made until such
irregularities have been cured or waived. Ballots or Master Ballots previously
furnished (and as to which any irregularities have not theretofore been cured
or waived) will not be counted.
129
<PAGE>
MANAGEMENT
The following tables set forth the name, age at November 12, 1998 and
business experience of each of the current directors and executive officers of
the Company. The composition of the Board following Consummation of the
Prepackaged Plan has not yet been determined. The Company's By-Laws currently
provide that the Board shall consist of the number of directors as determined
from time to time by resolution of the Board. The Board has set the number of
directors at eleven. The terms of office of all directors expire at the Annual
Meetings of Stockholders. Successors to any directors whose terms are expiring
are elected to one year terms and hold office until his or her successor is
elected and qualified. The table captioned "Current Directors of the Company"
sets forth the year in which each director first became a director of the
Company. For information regarding the Old Common Stock ownership of the
Company's current directors and executive officers, see "SECURITY OWNERSHIP--
Security Ownership of Certain Beneficial Owners." Following Confirmation, LGE
will be the sole shareholder of New Zenith and will have the right to
determine the composition of the Board of Directors of New Zenith.
CURRENT DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE BACKGROUND INFORMATION
- ---- --- -------- ----------------------
<S> <C> <C> <C>
T. Kimball Brooker...... 59 1989 President, Barbara Oil Company (investments
and oil and gas exploration) since 1989;
Managing Director, Chicago Office, Morgan
Stanley & Company, Incorporated, 1978-1988.
Also Director of Cutler Oil & Gas Corporation,
Arthur J. Gallagher & Company and Miami
Corporation.
Ki-Song Cho............. 48 1995 Managing Director, Overseas Sales of Display
Division of LG Electronics Inc. since December
1997. Managing Director, President of North
America Operation, LG Electronics Inc. from
November 1996 to December 1997; Managing
Director, Corporate Planning & Coordination,
LG Electronics Inc. from March 1995 to October
1996; Executive Director, Strategic Planning
Division, LG Electronics Inc. from 1992 to
1995. Employed by the Strategic Planning
Division, LG Electronics Inc. from 1989 to
1992.
Eugene B. Connolly...... 66 1995 Chairman Emeritus and former President and
Chief Executive Officer of USG Corporation and
employed in varying capacities with USG
Corporation and its affiliates since 1958;
Director of the Pepper Companies, Inc. and
LaSalle National Bank; Advisory Board member
of Good Shepherd Hospital, Kellogg Graduate
School of Management, Northwestern University
and Indiana University School of Business.
Robert A. Helman........ 64 1996 Partner in the law firm of Mayer, Brown &
Platt since 1967; also Director, Northern
Trust Corporation, Dreyer's Grand Ice Cream,
Inc. and the Chicago Stock Exchange.
Cha Hong (John) Koo..... 51 1995 Vice-Chairman of the Board of Zenith
Electronics Corporation since November 1,
1996; President and Chief Executive Officer of
LG Electronics Inc. since 1995; Executive Vice
President from 1991 to 1994; Senior Managing
Director from 1988 to 1991.
</TABLE>
130
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE BACKGROUND INFORMATION
- ---- --- -------- ----------------------
<S> <C> <C> <C>
Seung Pyeong Koo... 56 1997 Executive Vice President of LG Electronics
Inc. since 1996 and a Director of LG
Electronics Inc. from 1996 to 1998; President
of Display Division, LG Electronics Inc. since
1992; Senior Managing Director of LG
Electronics Inc. from 1995 to 1996; Managing
Director of LG Electronics from 1991 to 1995,
Vice President of TV Display Division 1990 to
1992.
Hun Jo Lee......... 66 1995 Chairman of the Board of Zenith Electronics
Corporation since 1995; Advisor to LG
Electronics Inc. since 1998; Chairman of LG
Academy from 1996 to 1998; Director of LG
Electronics Inc. from 1989 to 1998; Chairman
of LG Academy from 1996 to 1998; Chairman and
Chief Executive Officer of LG Electronics Inc.
from 1994 to 1995; Vice-Chairman and Chief
Executive Officer of LG Electronics Inc. from
1993 to 1994; President and Chief Executive
Officer of LG Electronics Inc. from 1989 to
1993.
Andrew McNally IV.. 59 1990 Managing Director of Hammond, Kennedy, Whitney
& Company, Inc. (private equity investments).
Former Chairman and Chief Executive Officer
and current Director of Rand McNally & Company
(printing, publishing and map making);
Director of Hubbell Incorporated, Mercury
Finance Company, Borg-Warner Securities
Corporation and Morgan Stanley Funds.
Yong Nam........... 50 1995 President, Chief Executive Officer and
Chairman of the Board of LG Telecom., Ltd.
since October 1998; Executive Vice President
of LG Electronics Inc. and President of Multi-
media Division, LG Electronics Inc. from
December 1997 to October 1998; Executive Vice
President of LG Group Chairman's Office from
January 1997 to December 1997; Senior Managing
Director of LG Group Chairman's Office in
1996; Managing Director of LG Group Chairman's
Office from 1993 to 1995.
Peter S. Willmott.. 61 1990 President and Chief Executive Officer of
Zenith Electronics Corporation from January
1997 to January 1998; Interim Chief Executive
Officer from July 1996 to January 1997;
Chairman and Chief Executive Officer, Willmott
Services, Inc. (retailing, consulting and
investing) since 1989; Chairman, President and
Chief Executive Officer, Carson Pirie Scott &
Company (retail and food service industries),
1983-1989. Also Director of Federal Express
Corporation and Security Capital Group, Inc.
</TABLE>
131
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE BACKGROUND INFORMATION
- ---- --- -------- ----------------------
<S> <C> <C> <C>
Nam Woo............ 49 1995 Senior Managing Director of LG Electronics
Inc. and President of North American
Operations of LG Electronics Inc. since
January, 1998; Executive Vice President of
Zenith Electronics Corporation from October
1997 to January 1998; Director of LG
Electronics Inc. from 1997 to 1998; Senior
Managing Director, Corporate Planning and
Coordination, LG Electronics Inc. from
November 1996 to October 1997; President of LG
Electronics U.S.A. Inc. & North American
Operations from February 1995 to November
1996; President of European Operations of LG
Electronics Inc. from 1990 to 1995; Managing
Director of LG Electronics Inc. from 1994 to
1996; Executive Director of LG Electronics
Inc. from 1990 to 1994. Did not serve as a
Director of the Company during 1996.
</TABLE>
Mr. Helman is a partner in the law firm of Mayer, Brown & Platt which has
provided from time to time in the past and may continue to provide legal
services to the Company and its Subsidiaries. Mayer, Brown & Platt also
provides legal services to LGE. Messrs. Cho, C.H. Koo, S.P. Koo, Woo and Nam
are employees of LGE, and Mr. Lee is a retired employee of LGE. Pursuant to
the Stock Purchase Agreement under which LGE and LG Semicon acquired a
majority stake in the Company in 1995, LGE and LG Semicon were provided with
the right to designate six directors to the Board immediately following the
stock purchase. At that time, LGE and LG Semicon designated Mr. Lee, Mr. C. H.
Koo, Mr. Nam, Mr. Woo, Mr. Cho and Mr. Connolly as directors. Since 1995,
candidates for the Board have been nominated by the sitting Board. With the
exception of Mr. S. P. Koo and Mr. Woo, the current Board was nominated for
election by the Board at its January 31, 1997 meeting. Mr. S. P. Koo and Mr.
Woo were nominated and elected to the Board at its October 27, 1997 meeting.
As the holder or beneficial owner of the majority of the Company's outstanding
shares of Old Common Stock, LGE has the ability to elect all of the Company's
directors. Together with LG Semicon, LGE collectively beneficially owns
approximately 56.5% of the Company's stock including vested but unexercised
options. LGE has been in the past and is expected to continue to be a
significant customer and supplier of the Company. See "CERTAIN TRANSACTIONS."
USG Corporation, of which Mr. Connolly was formerly the Chairman and Chief
Executive Officer, implemented a "prepackaged" plan of reorganization under
the federal bankruptcy laws on May 6, 1993. Mr. McNally is a director of
Mercury Finance Company, against which an involuntary petition under chapter
11 of the Bankruptcy Code was filed on July 6, 1998 in the United States
Bankruptcy Court for the Northern District of Illinois.
BOARD AND COMMITTEE MEETINGS AND DIRECTORS' COMPENSATION
To permit the Board of the Company to more efficiently discharge its duties,
the Company has four standing Board Committees: the Executive Committee, the
Audit Committee, the Organization and Compensation Committee and the Stock
Compensation Committee. In addition, in March 1998 the Board established the
Special Committee. See "SPECIAL FACTORS--Events Leading to the Restructuring."
Committee membership and functions are set out below. The Company does not
have a nominating committee.
The Executive Committee ("Executive Committee") currently consists of
Messrs. Nam (Chairman), Brooker, Connolly, Helman, McNally and Willmott. When
the Board is not in session, the Executive Committee has all of the authority
of the Board except with respect to certain matters such as amendments of the
Restated Certificate of Incorporation or By-Laws, mergers, dispositions of
substantially all of the assets of the Company, dissolution of the Company,
declaration of dividends or the election, compensation or removal of officers
of the Company or members of the Committee.
132
<PAGE>
The Audit Committee of the Board currently consists of Messrs. McNally
(Chairman), Brooker and Connolly. The Committee nominates the Company's
independent auditors, reviews the auditing engagement, the fees charged by the
independent auditors and the Company's internal auditing program. The
Committee also reviews and monitors significant transactions between the
Company and LGE. In 1997, of the six meetings held by the Audit Committee, two
were special meetings in which the Audit Committee acted as a finance
committee to consider various financing alternatives for the Company.
The Organization and Compensation Committee ("Organization and Compensation
Committee") currently consists of Messrs. Connolly (Chairman), Helman and
McNally. The Committee establishes compensation policies, as well as salary
ranges, salaries and annual incentive awards for executives and approves
employment contracts.
The Stock Compensation Committee ("Stock Compensation Committee"), which
currently consists of Messrs. Connolly and McNally, authorizes grants of
stock, stock options and other equity-based awards under the Long-Term Equity
Compensation Plan.
Directors of the Company who are also employees of the Company, of LGE or
its affiliates receive no remuneration for serving on the Board or on any
Committees. Other directors are compensated at the rate of $18,000 per year,
payable in quarterly installments. The Chairman of the Audit Committee and the
Chairman of the Organization and Compensation Committee each receives $2,000
annually for serving in those capacities. In addition, directors who are not
employees of the Company, LGE or its affiliates receive $1,000 for each Board
meeting and for each Committee meeting attended. All directors are entitled to
be reimbursed for their expenses for attending Board or Committee meetings.
Under the terms of the Company's Long-Term Equity Compensation Plan, approved
by the stockholders in May 1997, directors are eligible to receive awards of
stock options, stock appreciation rights, restricted stock and performance
units/shares. Messrs. Brooker, Connolly, Helman and McNally were each granted
an option to purchase 2,000 shares of Company stock on July 18, 1997, at the
market price of the Company stock on that date. In 1987 the Company adopted a
contingent compensation plan for non-employee directors ("Contingent
Compensation Plan"). The number of phantom stock appreciation units granted to
each named non-employee director in previous years under the Contingent
Compensation Plan (all of which are vested) are as follows: Mr. Brooker,
3,000; Messrs. McNally and Willmott, 2,000 each. The units are valued at the
closing price of the Company's common stock on the date of grant. Participants
are paid for each unit the amount by which the average price of a share of the
Company's common stock over the 20 trading days immediately preceding the
distribution date exceeds the grant price. Distributions may be, at the
election of the participant, in a lump sum, in five annual installments or ten
annual installments commencing on the distribution date. Participants may
elect a distribution date which is two years from the date of grant, or 30
days after the participant ceases to be a director, or a specified date not
earlier than the participant's 65th birthday. Except for $143.75 distributed
to Mr. McNally in exchange for 1,000 units, no amounts have been distributed
to current directors pursuant to the Contingent Compensation Plan.
Directors who are not employees of the Company, LGE or its affiliates
participate in the retirement plan which provides for an annual retirement
benefit of $11,000 for such directors who have served on the Board for five
years and who retire after the age of 62 ("Directors' Retirement Plan"). For
purposes of the Directors' Retirement Plan, years of service on the Board do
not include periods during which the director is a salaried officer of the
Company or a subsidiary. The benefit is payable in equal quarterly
installments during the director's lifetime for a period equal to but not in
excess of the number of years of service on the Board. In the event of a
change in control of the Company, directors not continuing after a change in
control but otherwise entitled to retirement benefits under the Directors'
Retirement Plan are entitled to receive, in a lump sum, the discounted present
value of those benefits.
133
<PAGE>
CURRENT EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AGE OFFICE HELD
---- --- ---------------------------------------------------
<C> <C> <S>
Jeffrey P. Gannon..... 47 President and Chief Executive Officer, since
January 1998. Previously held a variety of senior
positions at General Electric during a 24-year
career, including Corporate Vice President,
International Business Development from October
1997 to January 1998 and President & Chief
Executive Officer of General Electric Lighting's
Asia Pacific Operations from 1994 to 1997.
Edward J. McNulty..... 58 Senior Vice President and Chief Financial Officer
since June 1998. Previously Chief Financial Officer
of General Binding Corporation from 1984 to 1998.
Richard F. Vitkus..... 59 Senior Vice President, General Counsel since 1994.
Secretary since 1995. Previously Senior Vice
President, General Counsel, and Director of
Corporate Development at Vanstar Corporation
(formerly ComputerLand Corporation) from 1991 to
1994.
Robert N. Dangremond.. 55 Senior Vice President, Restructuring since June
1998; Acting Chief Financial Officer from January
1998 to June 1998. Principal with Jay Alix &
Associates, a consulting and accounting firm
specializing in corporate restructurings and
turnaround activities, since August 1989.
Previously, beginning in August 1995, Mr.
Dangremond has held the position of interim Chief
Executive Officer and President of Forstmann &
Company, Inc. and was Chairman of the Board,
President and Chief Executive Officer of AM
International, Inc. from February 1993 to September
1994. Currently Mr. Dangremond is a Director of AM
International, Inc. and Viskase Companies, Inc.
</TABLE>
Executive Retention and Incentive Programs
In connection with the Restructuring, in early 1998 the Company developed a
retention program for 14 key executives and senior managers, not including the
Chief Executive Officer. Under this executive retention program, the Company
may be obligated to pay participants up to an aggregate of $1.2 million in
retention bonuses. Such program was developed based on benchmarked, publicly
available studies of similar programs. The short- and long-term incentive
bonuses have been divided into two tiers, with seven key executives in tier 1
and eight key executives and senior managers in tier 2. The Company's Chief
Executive Officer's incentive programs and bonuses are established under his
employment contract. See "--Employment Agreements."
The aggregate amount of retention bonuses payable to the fourteen key
executives totals $1.2 million and is payable in two equal installments on or
about December 31, 1998 and July 1, 1999. The short-term incentive program for
tier 1 executives is targeted at 50% of base salary and has a maximum payment
of 100% of base salary for any individual. For tier 2 executives, the short-
term incentive program is targeted at 20 to 30% of base salary and has a
maximum payment of 30 to 45% of base salary for any individual. Tier 1 and
tier 2 short-term incentive programs have a maximum pay out value of
approximately $1.6 million and $0.5 million, respectively, and are payable on
March 31, 1999. The long-term incentive program for tier 1 level executives is
targeted at 225% of base salary, with a maximum payment of 300% of base
salary, and for tier 2 level executives, the long-term incentive program is
targeted at 100% of base salary, with a maximum payment of 150% of base
salary. Tier 1 and tier 2 long-term incentive programs have a maximum payout
value of approximately $4.8 million and $1.7 million. All long-term incentive
bonus payments are payable on March 31, 2001. Tier 1 and tier 2 short-term and
long-term incentive programs cover 15 key executives and senior managers, not
including the Chief Executive Officer. Those incentive programs are based on
achieving certain performance goals in connection with the Restructuring. The
Company could be required to make payments to 15 key executives and senior
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managers aggregating up to $2.1 million under the short-term incentive program
and $6.5 million under the long-term incentive program. The following chart
summarizes the retention bonuses and incentives the Company may be obligated
to pay.
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM
SHORT-TERM LONG-TERM
RETENTION INCENTIVE INCENTIVE
EXECUTIVE GROUP BONUS PAYMENT PAYMENT TOTAL
- --------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tier One Executives and Senior
Managers......................... $ 670,332 $1,615,680 $4,847,040 $7,133,052
Tier Two Executives and Senior
Managers......................... 553,280 461,572 1,659,840 2,674,692
---------- ---------- ---------- ----------
Total............................. $1,223,612 $2,077,252 $6,506,880 $9,807,744
========== ========== ========== ==========
</TABLE>
The Company has also established retention bonus and stay bonus programs
covering approximately 175 other key managers and employees, with these plans
paying up to 33.3% of the base salaries of those employees. Stay bonuses are
provided to employees in operations targeted for disposition or closing under
the Operational Restructuring and are payable at the end of the relevant stay
period. Retention bonuses are payable in two equal installments on or about
December 31, 1998 and July 1, 1999. Certain employees in areas of ongoing
operations will also be provided with limited short-term incentive programs.
Those stay, retention and short-term incentive programs have an aggregate
estimated cost of approximately $3.6 million to the Company. The Company has
set salaries for its key executives at the 75th percentile of stand-alone
companies which are the same or greater in size. Retention bonuses have been
set at 50% of base salaries for tier 1 and tier 2 executives and senior
managers. Short-term and long-term incentive bonuses are benchmarked at levels
approximately equal to those available in similarly sized companies.
Employment Agreements
Mr. Jeffrey P. Gannon was elected President and Chief Executive Officer of
the Company as of January 19, 1998. Mr. Gannon has entered into a three-year
employment agreement with the Company which expires on January 18, 2001. Mr.
Gannon's contract has been amended as part of plans relating to the
Restructuring. The employment agreement provides for: (a) a base salary of
$600,000 per year; (b) a guaranteed special annual bonus of $500,000, payable
in equal installments at the end of each quarter; (c) an annual target bonus,
$400,000 of which is guaranteed and which may be increased up to $600,000 for
achieving specific target performance objectives, payable in equal
installments at the end of each quarter; (d) long-term incentive plan cash
payments equal to $6 million if target performance is achieved or up to $12
million if the maximum stated performance values are achieved; and (e)
participation in various insurance and benefit plans of the Company. The stock
and option grants provided under Mr. Gannon's original employment agreements
were eliminated with the amendment.
Upon termination of Mr. Gannon's employment other than for death,
disability, retirement or by the Company for cause, he shall be entitled to
receive (a) a lump sum cash payment equal to his base compensation and
guaranteed bonuses for the remainder of the employment term; and (b)
continuation of certain benefits for a one-year period following his
termination. In addition, the Company has established a letter of credit for
the benefit of Mr. Gannon permitting him to draw against it under certain
circumstances for his base salary and guaranteed bonuses for the term of his
employment agreement. A subsidiary of LGE has guaranteed Mr. Gannon's base
salary and guaranteed bonuses in the event the letter of credit is
unavailable.
In connection with the Restructuring, the Company has entered into amended
employment agreements (the "Employment Agreements") with a number of key
executives, including Richard F. Vitkus (the "Key Executives"). The Employment
Agreements generally provide for an employment period which ends on December
31, 2000. Each Employment Agreement provides for payment of a retention bonus
payable in two installments, each in the amount of 25% of the Key Executives'
salary, on each of January 1, 1999 and July 1, 1999, so long as the Key
Executive remains continuously in the Company's employ through the date such
installment is due. Upon either a non-renewal of the Employment Agreements by
the Company or upon
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termination of employment by the Company without cause, a Key Executive will
be entitled to receive (a) a lump sum severance payment equal to, if the
termination occurs prior to January 1, 2000, an amount equal to one and one-
half times the sum of the Key Executive's annual base compensation and annual
incentive compensation for the year in which termination occurs, or if the
termination occurs after January 1, 2000, an amount equal to one times the sum
of the Key Executive's base compensation and annual incentive compensation for
the year in which termination occurs; (b) a pro rata portion of the Key
Executive's (i) targeted annual incentive compensation for the year in which
termination occurs and (ii) long-term incentive compensation (based on the
appropriate percentage of the Key Executive's aggregate base compensation
earned from January 1, 1998 through the end of the month in which termination
occurs, as determined by the Board after prorating the applicable performance
criteria through the end of the month in which termination occurs on a
straight-line basis over the three year period); (c) continued coverage, or
substantially equivalent coverage (for either one and one-half years or one
year, as determined according to the severance payment), under all welfare
plans including group medical and dental, health and accident, long-term
disability, short-term disability, group life insurance and executive
insurance in which the Key Executives were participating at the time of
termination (if the Company is unable to provide such continued coverage or
substantially similar coverage, the Company will pay the Key Executive a lump
sum cash amount equal to the present value of such benefits); and (d)
outplacement services not to exceed 15% of the Key Executive's base
compensation. Mr. Vitkus' Employment Agreement further provides that, upon at
least 90 days notice, he may voluntarily terminate his contract effective
December 31, 1999 and still be entitled to receive (i) his severance payment,
(ii) his actual annual incentive compensation for 1999 and (iii) the benefits
described in (c) and (d) above.
Upon termination of employment of any of the Key Executives within two years
after a change in control of the Company ("Change in Control Period"), the
Employment Agreements provide for various severance pay and benefits. Change
in control is defined in the Employment Agreements to exclude any further
acquisition by LGE and the Restructuring. During the Change in Control Period,
severance pay and benefits will not be paid if employment is terminated
because of death, disability or retirement, or by the Company for cause, or by
the Key Executive other than for good reason. Upon termination of employment
during a Change in Control Period, the Employment Agreements provide for (i) a
pro rata portion of the Key Executive's annual incentive compensation and
long-term incentive bonus, (ii) a lump sum payment equal to three times the
highest annual base compensation during the three full fiscal years prior to
termination, (iii) three times the greater of (A) the highest annual incentive
compensation payable during the three full fiscal years prior to termination
and (B) the target annual incentive compensation payable for the year in which
termination occurs and (iv) any retention bonuses not previously paid, whether
or not then due. Other provisions of the Employment Agreements require the
Company to maintain for the benefit of the Key Executive for a period of three
years after termination, all employee benefits including group medical and
dental, health and accident, long term disability and group life insurance in
which the Key Executive was participating at the time of termination. If the
Company is unable to provide such continued coverage or substantially similar
coverage, the Company will pay the Key Executive a lump sum cash amount equal
to the present value of such benefits. The Company shall also pay for
outplacement services not to exceed 15% of the Key Executive's base
compensation.
The Employment Agreements further provide for payment of an amount
sufficient to put the Key Executive in the same after-tax position as if no
excise taxes imposed by Section 4999 of the Internal Revenue Code had been
imposed on any payments which are contingent on a change in control and which
equal or exceed three times the average taxable compensation for the prior
five years or their period of employment. The Company is obligated to
reimburse the Key Executive for legal fees and expenses incurred in
successfully enforcing the Employment Agreements.
The Company intends to seek court authority to honor its obligations under
the retention programs and to assume the employment contracts of Messrs.
Gannon and Vitkus and other executives and managers after the filing of the
Prepackaged Chapter 11 Case. See "THE PREPACKAGED PLAN--Intended Actions
During the Prepackaged Chapter 11 Case--Provisions for Employees; Retention
Programs; Employment Contracts."
Other employees of the Company may be parties to employment agreements that
will not be affected by the Restructuring or the Prepackaged Plan.
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SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Old and New Common Stock as of September 26, 1998 and after
the Restructuring by (i) all persons who are known by the Company to
beneficially own more than 5% of the outstanding shares of the common stock of
the Company; (ii) each director and Executive Officer of the Company; and
(iii) all directors and Executive Officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES
OWNED PRIOR TO BENEFICIALLY OWNED
RESTRUCTURING(1) AFTER RESTRUCTURING
------------------------ ----------------------
NAME NUMBER PERCENT(2) NUMBER PERCENT
- ---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
LG Electronics Inc........... 12,059,800(3) 17.9% 1,000 100%
LG Semicon Company Ltd....... 26,095,200 38.6% 0 0
Richard F. Vitkus............ 33,000(4) * 0 0
Peter S. Willmott............ 25,000 * 0 0
T. Kimball Brooker........... 11,000 * 0 0
Andrew McNally IV............ 8,000 * 0 0
Eugene B. Connolly........... 2,000 * 0 0
Robert A. Helman............. 1,000 * 0 0
Michael Ahn.................. 0 0 0 0
Ramesh G. Amin............... 0 0 0 0
Ki-Song Cho.................. 0 0 0 0
Roger A. Cregg............... 0 0 0 0
Cha Hong (John) Koo.......... 0 0 0 0
Seung Pyeong Koo............. 0 0 0 0
Hun Jo Lee................... 0 0 0 0
Yong Nam..................... 0 0 0 0
Dennis R. Winkleman.......... 0 0 0 0
Nam Woo...................... 0 0 0 0
Directors and All Executive
Officers as group (16
persons).................... 80,000 * 0 0
</TABLE>
- --------
*Less than 1%
(1) The "Zenith Stock Fund," a fund available under the Zenith Salaried
Retirement Savings Plan and the Zenith Hourly Profit-Sharing Retirement
Plans, held 660,235 shares of Old Common Stock as of September 30, 1998.
(2) Percentage based on shares issued and outstanding on September 26, 1998.
(3) As of September 26, 1998, LGE beneficially owned 12,059,800 shares
directly as to which it had sole voting and dispositive power. Such amount
includes 1,586,000 shares obtainable through the exercise of stock
options. LG Semicon has given LGE an irrevocable proxy to vote the
26,095,200 shares owned by LG Semicon as to which LG Semicon retains
dispositive power.
(4) Includes 30,000 outstanding shares for Mr. Vitkus which are subject to
conditions of vesting (one-third vests on the third, fourth and fifth
anniversary of the May 21, 1996 grant date), forfeiture, restrictions on
sales, transfer and other dispositions.
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DESCRIPTION OF CAPITAL STOCK
OLD COMMON STOCK AND OLD PREFERRED STOCK
The Company is presently authorized to issue 150,000,000 shares of Old
Common Stock, par value $1.00 per share, and 8,000,000 shares of preferred
stock, par value $1.00 per share (the "Old Preferred Stock"). As of September
26, 1998, there were issued and outstanding 67,525,447 shares of Old Common
Stock and no shares of Old Preferred Stock. Except as may be otherwise
required by applicable law, the holders of the Old Common Stock vote together
as a Class and are entitled to one vote per share on any matter submitted to a
vote of the Company's stockholders. The issuance, designations, preferences
and voting rights of the Old Preferred Stock are as determined from time to
time by the Board. The shares of Old Common Stock have no preemptive or other
subscription rights and there are no conversion, redemption or sinking fund
provisions with respect to such shares.
NEW COMMON STOCK
Giving effect to the transactions contemplated by the Prepackaged Plan, the
Old Common Stock will be cancelled and, pursuant to the Amended Certificate of
Incorporation, the Company will be authorized to issue 1,000 shares of New
Common Stock, par value $0.01 per share. Immediately after the Restructuring,
there will be issued and outstanding 1,000 shares of New Common Stock, all of
which will be owned by LGE. Holders of the New Common Stock will be entitled
to one vote per share on any matter submitted to a vote of the Company's
stockholders. The shares of New Common will have no preemptive or other
subscription rights and there will be no conversion, redemption or sinking
fund provisions with respect to such shares.
DELAWARE ANTI-TAKEOVER LAW
The Company presently is (and, upon Consummation of the Restructuring, will
be) subject to the provisions of section 203 (the "Delaware anti-takeover
law") of the Delaware General Corporation Law (the "DGCL"). Under the Delaware
anti-takeover law, certain "business combinations" between a Delaware
corporation, whose stock generally is publicly traded or held of record by
more than 2,000 stockholders, and an "interested stockholder" are prohibited
for a three-year period following the date that such stockholder became an
interested stockholder, unless, among other conditions, (i) the corporation
has elected in its certificate of incorporation not to be governed by the
Delaware anti-takeover law, (ii) the business combination was approved by the
board of directors of the corporation before the other party to the business
combination became an interested stockholder, (iii) upon consummation of the
transaction that made it an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers or held in employee benefit plans in which the employees do
not have a confidential right to tender or vote stock held by the plan) or
(iv) the business combination was approved by the board of directors of the
corporation and ratified by 66 2/3% of the voting stock which the interested
stockholder did not own. The three-year prohibition also does not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors.
The term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an "interested stockholder,"
transactions with an "interested stockholder" involving the assets or stock of
the corporation or its majority-owned subsidiaries and transactions which
increase an interested stockholder's percentage ownership of stock. The term
"interested stockholder" is defined generally as any person who becomes the
beneficial owner of 15% or more of a Delaware corporation's voting stock. The
Delaware anti-takeover law could prohibit or delay the accomplishment of
mergers or other takeover or change in control attempts with respect to the
Company and, accordingly, may discourage attempts to acquire the Company.
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CERTAIN TRANSACTIONS
The Company has several financings, supply and other arrangements with LGE
and its affiliates. See "SPECIAL FACTORS--Events Leading to the
Restructuring--Financing Transactions" and "--Other Transactions with LGE."
In November 1995, a change in control of the Company occurred, in which LGE
and LG Semicon purchased shares of the Company pursuant to a combined tender
offer and purchase of newly issued shares of common stock from the Company. As
of September 26, 1998, LGE beneficially owned or held an irrevocable proxy to
vote 38,155,000 shares of common stock from the Company. As of September 26,
1998, LGE beneficially owned or held an irrevocable proxy to vote 38,155,000
shares of common stock of the Company which represents 56.5% of the
outstanding common stock. Because LGE owns and/or has the ability to vote a
majority of the issued and outstanding common stock, it effectively controls
the outcome of any matter requiring action by a majority of the Company's
stockholders, including the election of a majority of the Company's directors
and any future change in control of the Company.
LGE is a leading international brand-name manufacturer of five main groups
of products: televisions; audio and video equipment; home appliances;
computers and office automation equipment; and other products, including video
displays, telecommunication products and components, and magnetic media. The
Company and LGE engaged in the following material transactions in 1996 and
1997 and the first three quarters of 1998.
Product purchases: In the ordinary course of business, the Company purchases
VCRs, television-VCR combinations and components from LGE and LG Semicon. The
Company purchased $93.3 million and $128.8 million of these items in 1997 and
1996, respectively. Sales of products purchased from LGE and LG Semicon
contributed $112.3 million and $141.4 million to sales in 1997 and 1996,
respectively, and $19.0 million and $12.6 million to gross margin in 1997 and
1996, respectively.
In 1998, the Company and LGE entered into a direct shipment arrangement
pursuant to which LGE sells and ships VCRs directly to the Company's two
largest customers and pays the Company a license fee for the use of the
Company's brand names on such products and the inclusion of the Company's
patented tuner technology in such products. The license fee payable by LGE is
comparable to royalty rates charged by the Company to unrelated parties. The
Company believes that the direct shipment program is beneficial to the Company
because it reduces the Company's inventory costs and maintains sales to
customers that might not have continued to purchase products directly from the
Company due to the Company's current financial difficulties. During the first
three quarters of 1998, the Company received approximately $1.4 million in
royalties for the use of the Company's brand names pursuant to this direct
shipment program. A similar arrangement was entered into in April 1997 in
Canada where LGE's Canadian affiliate sells Zenith branded VCRs under a
license from the Company. Pursuant to that arrangement the Company received
payment from LGE of less than $60,000 in 1997 and approximately $100,000
during the first three quarters of 1998.
Following the Restructuring, it is expected that LGE will own and operate
the Reynosa Assets, and the Company currently anticipates purchasing
approximately $469 million in finished products and components produced at the
Reynosa facility for its 1999 model year, a portion of which will occur
following the transfer of the Reynosa Assets to LGE under the Restructuring.
Equipment purchases: As contemplated when LGE became a majority stockholder
in 1995, the Company purchased approximately $37 million of production
machinery and equipment from LGE during 1997 and 1996. The machinery and
equipment related primarily to new production lines for the manufacture of
computer display tubes and the automation of existing production lines in the
Company's Melrose Park picture tube plant. A portion of the purchased
machinery and equipment was manufactured by LGE, with the balance procured by
LGE on the Company's behalf from third party vendors. LGE acted as the
coordinating purchasing agent for the Company because the equipment and
machinery was part of an integrated production system based on a similar
facility designed and owned by LGE.
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Product and other sales: The Company sells televisions, picture tubes, yokes
and other manufactured subassemblies to LGE at prices that equate to amounts
charged by the Company to its major customers. Sales in 1996, 1997 and the
first three quarters of 1998 by the Company to LGE and to subsidiaries of LGE
were $29.4 million, $55.1 million and $30.7 million, respectively.
In December 1996, the Company closed its wholly-owned Canadian distributor
and sold the remaining inventory to LGE at book value. The Company entered
into a Distributor Agreement with an LGE subsidiary whereby such subsidiary
became the Canadian distributor for the Company. During 1997, the Company
entered into a similar agreement with an LGE subsidiary in Mexico to sell the
Company's product in Mexico. The Company sold the inventory of its Canadian
distributor to LGE after consideration of the business alternatives for
continuing operation or a commercial presence in Canada. The determination of
the selling price of such inventory took into consideration the cost to the
Company (including customs and duties), the point in time within the model
year, the costs associated with other methods of disposal of such inventory,
and the requirement that the new Canadian distributor would require certain
inventories in order to meet customer expectations for product support. There
was no comparable sale of Mexican inventory as Zenith goods were sold in
Mexico from the United States. During the first three quarters of 1998, the
Company's sales to the LGE Canadian and Mexican subsidiaries were $16.2
million and $11.0 million, respectively. In 1997, an affiliate of LGE entered
into an agreement with the Company concerning a license for the use of the
Company's "Z-Tac" set-top box technology. Under that agreement, the Company
has received $250,000 in an up-front license fee and approximately $850,000
from the sale of set-top box kits at its standard pricing schedule for such
kits.
Technical agreements: The Company and LGE are currently operating under
several technology agreements and licenses related to HDTV, flat tension mask
products, and the Company's patents on television tuners. Under a technical
cooperation agreement entered into by the Company and LGE in 1990, the Company
agreed to pay LGE 33% of the royalties received by the Company from the use in
Korea of certain HDTV technologies and 1% of the royalties received from such
technologies from all other countries. As of September 26, 1998, the Company
had not received any such royalties, however, and accordingly no payments have
been made to LGE pursuant to such agreement. Under a separate agreement, the
Company has licensed its tuner patents to LGE. LGE's payments to the Company
under tuner licenses were $1.0 million, $0.6 million, and $0.2 million in
1996, 1997 and the first three quarters of 1998, respectively. In September
1997, LGE agreed to provide the Company with $4.5 million in funding for the
Company's HDTV receiver project. LGE is to be repaid the $4.5 million advance,
without interest, from the royalties generated from future VSB licensing.
Pursuant to the HDTV receiver project agreement, intellectual property
developed jointly during the project will be jointly owned, and intellectual
property developed solely by one party during the project will be owned
exclusively by such party, provided that the other party will be granted a
non-exclusive, non-transferable, royalty-free license to use such intellectual
property.
In May 1997, the Company and LGE entered into a patent collaboration
agreement which provides that (a) LGE will assist the Company in identifying
infringements of the Company's patents and technologies, in return for 10% of
all royalties collected as a result of such efforts, and defending against
third party intellectual property claims, and (b) LGE has the option to
acquire patent rights the Company intends to abandon for nominal amounts and
to acquire any other patent rights for mutually agreed upon prices plus the
payment by LGE to the Company of 10% of all future royalty income, if any,
received from such other patent rights. As of September 26, 1998, the Company
had assigned to LGE or its affiliates for a total of approximately $6,000 one
U.S. patent, one foreign patent and one foreign patent application relating to
television and telecommunication technology. The Company retains a non-
exclusive, royalty-free license to the use of any patents so assigned. The
agreement also provides that LGE may file patent applications in respect of
the Company's technologies in any foreign jurisdiction in which the Company
does not intend to protect its potential patent rights, provided that LGE pays
the Company 10% of all royalties received by LGE in respect of such rights. As
of September 26, 1998, the Company believes that LGE had exercised its right
to file foreign applications in respect of 35 of the Company's U.S. patented
technologies. No royalty income from such foreign rights assignments had been
realized by Zenith as of September 26, 1998. Additionally, under a separate
agreement the Company assigned to LGE's
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telecommunications affiliate a patent relating to cordless telephone
technologies for $75,000. The Company retained a royalty-free, non-exclusive
license and 50% of all royalties collected by the LGE affiliate related to
such patent.
An affiliate of LGE has also licensed certain technological information from
Zenith relating to the manufacture of VSB modulation equipment under a 1998
agreement. That agreement allows the LGE affiliate to use technical
information and design schematics as the basis for further development of
commercial products. Under the agreement, Zenith is to receive $300,000 in
1998 in up-front payments and additional royalty payments per unit sold by the
LGE affiliate based on Zenith's designs. The agreement does not include a VSB
patent license.
Service Assistance: In 1996 and 1997, employees of LGE provided certain
technical support services to the Company for which LGE was not compensated by
the Company. LGE donated $2.2 million of such services in 1997. The services
were not material in 1996. In addition, employees of LGE provided certain
technical support services to the Company at cost in 1997 and 1998 that were
covered under service agreements. The Company's obligations to LGE for such
services totaled $4.8 million in 1997 and $1.3 million in the first three
quarters of 1998. In addition, a U.S. affiliate of LGE has provided a
guarantee of the Company's obligations under the employment agreement and
indemnity agreement with Jeffrey P. Gannon, the Company's President and Chief
Executive Officer.
In late December 1997, the Company entered into an agreement with LG
Software India Ltd. pursuant to which LG Software India Ltd. provides certain
software development, design and support services to the Company. Projects
under the agreement include the Company's Year 2000 Readiness support. The
Company expects to pay $1.1 million to LG Software India Ltd. for its services
during 1998.
Financial Assistance: In 1997, the Company consummated $87 million in sale-
leaseback transactions in which it sold and leased back new and existing
manufacturing equipment in its Melrose Park, Illinois plant and the Reynosa,
Mexico and Juarez, Mexico facilities pursuant to the Leveraged Leases. The
term of the Leveraged Leases was 12 1/2 years and annual payments under the
Leveraged Leases averaged approximately $10 million in the aggregate. The
Company's payment obligations, along with certain other obligations under the
Leveraged Leases, were fully guaranteed by LGE. On July 22, 1998, LGE made a
negotiated settlement payment of $90.1 million under the guarantees of the
Leveraged Leases. The Company is obligated under documents related to the
Leveraged Leases for the repayment of this settlement amount. In March 1998,
the Company entered into the LGE Demand Loan Facility, which provides for
borrowings of up to $45 million. The interest rate is LIBOR plus 6.5% per
annum. The term of the facility is one year from the date of the first
borrowing, subject to LGE's right to demand repayment at anytime after June
30, 1998. In June 1998, this facility was amended to provide that, in the
absence of an event of default, demand for repayment may not occur prior to
December 31, 1998. Repayment is due in full at the end of the term. The
Company has borrowed $30 million under such facility through October 31, 1998
and has paid $1.2 million of interest through September 26, 1998. The facility
is secured by a second lien on the assets that secure the Company's
obligations under the Reimbursement Agreement and a second lien on the
Company's VSB patents. In October 1997, in conjunction with amendments to the
Citibank Credit Facility, LGE agreed to provide credit support for up to $160
million of third-party financing in consideration of a credit support fee of
approximately 2% per annum of the facilities actually obtained by the Company
and guaranteed by LGE (to be paid in cash or equity). With credit support from
LGE, between November 1997 and February 1998, the Company entered into the
Unsecured Bank Loans pursuant to which the Company borrowed approximately $102
million. In connection with the Unsecured Bank Loans, the Company entered into
the Reimbursement Agreement pursuant to which the Company agreed to reimburse
LGE for amounts paid pursuant to the guarantees (plus interest at the
Reference Rate announced by Bank of America plus 2% per annum) and granted
liens, junior to the liens securing the Citibank Credit Facility, in favor of
LGE on the capital stock of the Company's domestic subsidiaries and the
equipment, real property and certain intellectual property of the Company and
its Subsidiaries. As of September 26, 1998, LGE had made payments pursuant to
demands on its guarantees in connection with $72 million of the Unsecured Bank
Loans. As of
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September 26, 1998, $1.3 million of interest had accrued on amounts owed LGE
under the Reimbursement Agreement. LGE has waived payment of such interest
through November 30, 1998.
In September 1997, the Company and LGE entered into an High Definition TV
Receiver Project Agreement. As called for in the agreement, the Company
received $4.5 million from LGE toward funding for the project. In return, LGE
will receive a percentage of applicable royalties the Company anticipates
receiving until such time as LGE has received $4.5 million. The $4.5 million
is included in long-term liabilities.
In August 1997, the Company received $30.0 million from subsidiaries of LGE
representing payments in advance for 1997 sales from the Company to LGE. The
amount was recorded as a liability and as sales were made to LGE, the
liability balance was reduced. As of December 31, 1997, $0.6 million of the
liability to subsidiaries of LGE remained and is included in other accrued
expenses.
In April 1997, the Company and LGE entered into an arrangement whereby LGE
provided a vendor credit line to the Company to finance the Company's purchase
of certain goods from LGE in the ordinary course of business. Prior to April
1997, the Company's accounts payables arising in the ordinary course of
business to LGE were extended for certain periods of time, but no formal
arrangement was in place. The amount of extended payables was $106.8 million,
$144.3 million and $134 million as of December 31, 1996, 1997 and September
26, 1998, respectively. The Company is charged interest in respect of each
vendor credit advance at varying rates equal to LIBOR plus an applicable
margin, which has increased over the period during which such vendor credit
remains outstanding. As a result, the interest rate per annum payable in
respect of individual credit advances varies over time and has ranged from a
low of 6% to a high of 20.7% in respect of advances that have been outstanding
for the longest period. During 1997 and the first three quarters of 1998, the
Company has accrued approximately $9.6 million and $12.3 million of interest,
respectively, under this credit arrangement.
As of December 31, 1997 and 1996, accounts payable included $145.9 million
and $124.5 million, respectively, to LGE and its affiliates. The amount of
receivables from LGE and its affiliates was not material as of December 31,
1997 and 1996.
In return for LGE providing support for certain financing activities of the
Company entered into in April 1997, the Company granted options to LGE to
purchase approximately 3.9 million common shares of the Company at an exercise
price of $0.01 per share, exercisable over time. The accounting for these
stock options was based upon their fair value with that fair value being
amortized on a straight-line basis over the term of the associated
commitments. The related deferred financing charge, net of amortization, is
recorded as follows: $30.1 million in noncurrent other assets and $5.1 million
in current other assets. LGE's stock options will be cancelled under the
Prepackaged Plan.
Other Items: The Company currently leases space from an LGE subsidiary in
(i) Huntsville, Alabama, for its Parts and Service group, (ii) Ontario,
California, for a warehouse and (iii) San Jose, California, for NWS. Zenith's
rental payments in respect of the Huntsville, Ontario and San Jose properties
totaled approximately $138,000, $135,000 and $59,000, respectively, in 1997
and approximately $218,000, $180,000, and $54,000, respectively, for the first
three quarters of 1998.
The Company and LGE are in discussions concerning the joint development of
HDTV products, which may eventually be manufactured by LGE for the Company for
resale by the Company in the United States.
The Company believes that the transactions between the Company and LGE have
been conducted on terms no less favorable to the Company than could have been
obtained with unrelated third parties. Upon consummation of the Prepackaged
Plan, New Zenith will be a wholly owned subsidiary of LGE. LGE has advised
Zenith that no general policy has been established for intercompany
transactions after New Zenith becomes a wholly owned subsidiary of LGE.
Following the Restructuring, Zenith expects to continue purchasing some
finished products from LGE, including VCRs. Additionally, Zenith expects to
purchase mid-size televisions produced by LGE in its operation of the Reynosa
Assets. Because the Company intends to outsource substantially
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all of its product lines following the Restructuring, the Company expects that
it will continue to purchase some finished products, components and other
technical services from LGE.
APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS
TO RESALES OF NEW SECURITIES
Certain holders of Claims are offered securities under the Prepackaged Plan.
Section 1145 of the Bankruptcy Code creates certain exemptions from the
registration and licensing requirements of federal and state securities laws
with respect to the distribution of securities pursuant to a plan of
reorganization as well as resales of the securities by certain recipients
thereof.
TRANSFERS OF NEW SUBORDINATED DEBENTURES
The New Subordinated Debentures to be issued pursuant to the Prepackaged
Plan may be freely transferred by most recipients thereof, and all resales and
subsequent transactions in the New Subordinated Debentures are exempt from
registration under federal and state securities laws, unless the holder is an
"underwriter" with respect to such securities. Section 1145(b) of the
Bankruptcy Code defines four types of "underwriters":
(i) persons who purchase a Claim against, an interest in, or a Claim for
administrative expense against the debtor with a view to distributing any
security received or to be received in exchange for such a Claim or
interest;
(ii) persons who offer to sell securities offered or sold under the plan
for the holders of such securities;
(iii) persons who offer to buy such securities from the holders of such
securities, if the offer to buy is (a) with a view to distributing such
securities and (b) made under an agreement made in connection with the
plan, with the consummation of the plan or with the offer or sale of
securities under the plan; and
(iv) a person who is an "issuer" with respect to the securities, as the
term "issuer" is defined in section 2(11) of the Securities Act.
Whether or not any particular person would be deemed to be an "underwriter"
or an "affiliate" with respect to the New Subordinated Debentures to be issued
pursuant to the Prepackaged Plan would depend upon various facts and
circumstances applicable to that person. Accordingly, the Company expresses no
view as to whether any person would be an "underwriter" or an "affiliate" with
respect to any security to be issued pursuant to the Prepackaged Plan.
GIVEN THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A PARTICULAR
PERSON MAY BE AN UNDERWRITER OR AN AFFILIATE, THE COMPANY MAKES NO
REPRESENTATIONS CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE NEW
SUBORDINATED DEBENTURES TO BE DISTRIBUTED PURSUANT TO THE PREPACKAGED PLAN.
THE COMPANY RECOMMENDS THAT POTENTIAL RECIPIENTS OF THE NEW SUBORDINATED
DEBENTURES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE
SUCH NEW SUBORDINATED DEBENTURES.
CERTAIN TRANSACTIONS BY STOCKBROKERS
Under section 1145(a)(4) of the Bankruptcy Code, stockbrokers are required
to deliver a copy of the Disclosure Statement (and supplements hereto, if any,
if ordered by the Bankruptcy Court) at or before the time of delivery of
securities issued under the Prepackaged Plan to their customers for the first
40 days after the Effective Date. This requirement specifically applies to
trading and other aftermarket transactions in such securities.
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ISSUANCE OF NEW COMMON STOCK
The New Common Stock to be issued to LGE is exempt from registration under
federal and state securities law pursuant to section 1145 of the Bankruptcy
Code as they are (i) being issued under a plan of reorganization, (ii) LGE
holds a Claim against the Company, and (iii) the stock is being issued
entirely in exchange for LGE's claim.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
Kirkland & Ellis, special counsel to the Company ("Tax Counsel"), has
advised the Company that the following discussion, except as otherwise
indicated, expresses its opinion (the "Tax Opinion") as to all material U.S.
federal income tax consequences of the Prepackaged Plan to the Company and the
holders of certain Claims and Equity Interests of the Company. This summary
and the Tax Opinion are based upon the Tax Code, the United States Treasury
Department regulations promulgated thereunder (the "Treasury Regulations"),
judicial authority and current administrative rulings and practice now in
effect, all of which are subject to change at any time (possibly with
retroactive effect) or different interpretations. Prospective participants in
the Prepackaged Plan should be aware that many of the tax consequences are
unclear under existing law and, as a result, many alternative tax consequences
are possible. This summary and the Tax Opinion do not discuss all aspects of
U.S. federal income taxation that may be relevant to a particular holder in
light of the holder's particular circumstances or to holders subject to
special treatment under the U.S. federal income tax laws (including dealers in
securities, foreign persons, life insurance companies, tax-exempt
organizations, financial institutions and taxpayers subject to the alternative
minimum tax), and this summary and the Tax Opinion do not discuss any aspects
of state, local or foreign tax laws.
Due to the complexity of certain aspects of the Prepackaged Plan, the lack
of applicable legal precedent, the possibility of changes in the law, the
differences in the nature of the Claims (including Claims within the same
Class), the holder's status and methods of accounting (including holders
within the same Class) and the potential for disputes as to legal and factual
matters with the Internal Revenue Service ("IRS"), the tax consequences
described herein and in the Tax Opinion are subject to significant
uncertainties.
NO RULING WILL BE SOUGHT FROM THE IRS WITH RESPECT TO ANY OF THE TAX ASPECTS
OF THE PREPACKAGED PLAN. UNLIKE A RULING FROM THE IRS, AN OPINION OF COUNSEL
HAS NO BINDING EFFECT ON THE IRS. THE AUTHORITIES ON WHICH THIS SUMMARY AND
THE TAX OPINION ARE BASED ARE SUBJECT TO VARIOUS INTERPRETATIONS, AND THERE
CAN BE NO ASSURANCE THAT THE IRS WILL NOT CHALLENGE THE CONCLUSIONS SET FORTH
IN THIS SUMMARY AND THE TAX OPINION, OR THAT A COURT WOULD SUSTAIN SUCH
CONCLUSIONS IF CHALLENGED BY THE IRS. EACH HOLDER IS URGED TO CONSULT WITH ITS
OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE PREPACKAGED PLAN.
CONSEQUENCES TO HOLDERS OF THE OLD SUBORDINATED DEBENTURES
General
In general, a holder of an Old Subordinated Debenture will realize gain or
loss on the exchange of an Old Subordinated Debenture for a New Subordinated
Debenture in an amount equal to the difference between (i) the amount realized
(i.e., the "issue price" of the New Subordinated Debenture as described under
"Issue Price" below ("Issue Price")) in respect of the Old Subordinated
Debenture and (ii) his or her adjusted tax basis in the Old Subordinated
Debenture.
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Whether or not a holder of an Old Subordinated Debenture will be required or
allowed to recognize the gain or loss realized on the exchange of such
debenture for a New Subordinated Debenture depends on whether the exchange
constitutes a tax-free recapitalization. This, in turn, depends upon whether
the Old and New Subordinated Debentures constitute "securities" for federal
income tax purposes. Whether an instrument constitutes a "security" is
determined based on all the facts and circumstances. Certain authorities have
held that the length of the term of a debt instrument is a factor in
determining whether such instrument is a security for federal income tax
purposes. These authorities have indicated that a term of less than five years
is evidence that the instrument is not a security, whereas a term of ten years
or more is evidence that it is a security. There are numerous other factors
that could be taken into account in determining whether a debt instrument is a
security, including, among others, the security for payment, the
creditworthiness of the obligor, the subordination or lack thereof to other
creditors, the right to vote or otherwise participate in the management of the
obligor, convertibility of the instrument into an equity interest of the
obligor, whether payments of interest are fixed, variable or contingent, and
whether such payments are made on a current basis or accrued. Since the Old
Subordinated Debentures mature in 2011 and the New Subordinated Debentures
mature in 2010, both debentures have terms greater than ten years, and it is
likely that they will be treated as securities for federal income tax
purposes.
In general, if they are treated as securities, the exchange of the Old
Subordinated Debentures for New Subordinated Debentures will constitute a
recapitalization and a holder will not recognize any gain or loss on the
exchange, except that a holder will recognize gain, but not loss, to the
extent of the lesser of (i) the amount of gain realized or (ii) the amount of
cash received (reduced by the amount of such cash that is allocated to accrued
but unpaid interest, as discussed below). The tax basis of a holder of a New
Subordinated Debenture received in the exchange generally will be equal to the
adjusted tax basis of such holder in the Old Subordinated Debenture
surrendered in the exchange therefor increased by the gain, if any,
recognized, and reduced by the amount of cash received, by the holder. The
holding period of a holder of a New Subordinated Debenture received in the
exchange generally will include the holding period of such holder in the Old
Subordinated Debenture surrendered in exchange therefor (provided such Old
Subordinated Debenture was held as a capital asset at the time of the
exchange).
If the Old and New Subordinated Debentures do not constitute securities, the
exchange will not constitute a recapitalization, and a holder will recognize
the entire amount of gain or loss realized, as discussed above. The tax basis
of a holder in a New Subordinated Debenture, in such case, will be equal to
the issue price of the New Subordinated Debenture at the time of the exchange
(as described in "--Issue Price" below). In such event, the holding period of
a holder of a New Subordinated Debenture will begin on the day following the
day of the exchange.
Except for the amount of gain attributable to accrued market discount on an
Old Subordinated Debenture that was purchased with market discount (as
described in "--Accrued Market Discount" below), any gain or loss recognized
on the exchange will be capital gain or loss if the Old Subordinated Debenture
is a capital asset in the hands of the holder. Such gain or loss will be long-
term capital gain or loss if the holder's holding period with respect to the
Old Subordinated Debenture surrendered exceeds one year at the time of the
exchange.
Accrued Interest
Regardless of whether a holder of the Old Subordinated Debentures recognizes
gain on the exchange, such holder will be treated as receiving an interest
payment to the extent that a portion of a New Subordinated Debenture received
is allocable to accrued interest on an Old Subordinated Debenture exchanged
therefor. Accordingly, a holder of the Old Subordinated Debentures who had not
previously included such accrued interest in income would recognize taxable
income with respect to such interest payment, and a holder who had previously
included such accrued interest in income would recognize gain or loss (or,
possibly, a write-off against a reserve for bad debts) equal to the difference
between the holder's basis in such interest (i.e., the amount of such accrued
interest recognized as income by such holder) and the amount of the payment.
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Original Issue Discount
In general, a New Subordinated Debenture will be considered for federal
income tax purposes to be issued with original issue discount ("OID") if the
"stated redemption price at maturity" of the debenture exceeds its "issue
price" by more than a de minimis amount (0.25% of the stated redemption price
at maturity multiplied by the number of complete years from the issue date to
the maturity date). OID with respect to a New Subordinated Debenture is
includible in the income of a holder on a constant-yield-to-maturity basis,
based on the original yield-to-maturity of the debenture calculated by
reference to its issue price, regardless of the holder's method of accounting
and regardless of when interest is actually paid in cash. Accordingly, if a
New Subordinated Debenture is issued with OID, a holder of such a debenture
may be required to take OID into income prior to the receipt of cash payments
with respect to the New Subordinated Debenture.
The stated redemption price at maturity of a New Subordinated Debenture is
the aggregate of all payments due to the holder under such debenture at or
before its maturity date, other than "qualified stated interest." Qualified
stated interest is generally interest that is unconditionally payable in cash
or property (other than debt instruments of the issuer) at fixed intervals of
one year or less during the entire term of the instrument at certain specified
rates. See "--Issue Price" below. It is unclear whether the stated redemption
price at maturity of a New Subordinated Debenture will exceed its issue price
by more than a de minimis amount at the time of its issuance.
The amount of OID, if any, allocable to an accrual period is an amount equal
to the excess, if any, of (a) the product of the New Subordinated Debenture's
"adjusted issue price" at the beginning of such accrual period and its yield-
to-maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period)
over (b) the sum of any qualified stated interest payments on the New
Subordinated Debenture allocable to the accrual period. The "adjusted issue
price" of a New Subordinated Debenture at the start of any accrual period is
equal to its issue price increased by the accrued OID for each prior accrual
period and reduced by any prior payments with respect to such debenture that
were not qualified stated interest payments.
If a New Subordinated Debenture is issued with OID, and if a holder's tax
basis on the issue date in a New Subordinated Debenture exceeds its issue
price, the debt instrument will be treated as having been acquired with
"acquisition premium," and the holder may be allowed to reduce its OID
accruals with respect to such debenture by the proportion of the aggregate
amount of OID remaining to be accrued that is represented by the amount of
such excess.
Accrued Market Discount
A debt instrument has "market discount" if its stated redemption price at
maturity exceeds its tax basis in the hands of the holder immediately after
its acquisition, unless a statutorily defined de minimis exception applies. If
the exchange of an Old Subordinated Debenture with market discount for a New
Subordinated Debenture pursuant to the Prepackaged Plan does not qualify as a
recapitalization, a holder generally will recognize ordinary income on the
exchange equal to the lesser of (a) the holder's gain on the exchange and (b)
the amount of market discount that accrued during the holder's period of
ownership. This rule will not apply to a holder who had previously elected to
include market discount in income as it accrued for federal income tax
purposes.
Amortizable Bond Premium
If the tax basis of an exchanging holder's New Subordinated Debenture
exceeds the debenture's stated redemption price at maturity, then such
debenture will not be treated as issued with OID and such excess will be
"amortizable bond premium." If the holder makes (or has made) a timely
election under Section 171 of the Tax Code, such holder may amortize the bond
premium, on a constant yield basis, by offsetting the interest income from the
New Subordinated Debenture.
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If the holder of a New Subordinated Debenture makes an election to amortize
bond premium, the tax basis of the debt instrument must be reduced by the
amount of the aggregate amortization deductions allowable for the bond
premium. Any such election to amortize bond premium would apply to all debt
instruments held or subsequently acquired by the electing holder and cannot be
revoked without permission from the IRS.
This discussion of amortizable bond premium will not apply to a holder of a
New Subordinated Debenture if such holder does not make an election under
Section 171 of the Tax Code. Thus, such holder will not be allowed to amortize
bond premium (if any) and will thus not be allowed to offset its interest
income on the New Subordinated Debenture. Such holder will also not be
required to reduce its basis in the debt instrument as described in the
preceding paragraph.
Issue Price
The "issue price" of a New Subordinated Debenture issued pursuant to the
Prepackaged Plan is relevant in determining a holder's gain or loss on an
exchange and whether the debt instrument is issued with OID. The issue price
of a New Subordinated Debenture depends, in part, on whether the New
Subordinated Debentures or the Old Subordinated Debentures are publicly
traded. In general, the New Subordinated Debentures or the Old Subordinated
Debentures will be treated as publicly traded if, at any time during the 60-
day period ending 30 days after the issue date of the New Subordinated
Debentures (the "60-Day Period"), a substantial amount of the New Subordinated
Debentures or the Old Subordinated Debentures are traded on an established
market, as defined in Treasury Regulations. Subject to certain exceptions, the
New Subordinated Debentures or the Old Subordinated Debentures will be treated
as traded on an established market if (1) either is listed on certain
securities exchanges, interdealer quotation systems, or designated foreign
exchanges or boards of trade, (2) either is traded on certain boards of trade
that are designated as contract markets or on an interbank market, (3) either
appears on a system of general circulation that provides a reasonable basis to
determine fair market value by disseminating either recent price quotations of
identified brokers, dealers or traders, or actual prices of recent sales
transaction, or (4) price quotations are readily available from brokers,
dealers or traders. If the New Subordinated Debentures or the Old Subordinated
Debentures are traded on an established market, the issue price of a New
Subordinated Debenture will be the fair market value of the New Subordinated
Debenture or the Old Subordinated Debenture for which it is issued, as the
case may be, on the issue date as determined by such trading.
The issue price of a New Subordinated Debenture that is neither publicly
traded nor issued for an Old Subordinated Debenture so traded will be its
stated principal amount if the New Subordinated Debenture provides for
"adequate stated interest," and otherwise will be its "imputed principal
amount." In general, a New Subordinated Debenture will have adequate stated
interest so long as interest is payable on the instrument at a rate at least
equal to the appropriate applicable federal rate ("AFR") published by the IRS.
The "imputed principal amount" of a New Subordinated Debenture is computed by
discounting all cash payments, including interest, required to be made under
the New Subordinated Debenture at the AFR. Because the AFR that will apply in
determining the issue price of a New Subordinated Debenture is presently
unknown, the Company cannot predict with certainty whether a New Subordinated
Debenture will have adequate stated interest. While the Company anticipates
that the interest rate payable under the terms of the New Subordinated
Debentures will exceed the AFR, it is possible that the interest rate will be
less than the AFR as of the issue date and that, in such an event, the issue
price of a New Subordinated Debenture will be its "imputed principal amount."
If, however, the IRS were to contend successfully that either (i) the New
Subordinated Debentures or the Old Subordinated Debentures are traded on an
established securities market during the 60-Day Period or (ii) the New
Subordinated Debentures do not bear adequate stated interest, then the issue
price of a New Subordinated Debenture could be materially less than the issue
price that would result if neither were publicly traded and the New
Subordinated Debentures bore adequate stated interest. In that event, a New
Subordinated Debenture could have OID or additional OID, as the case may be,
that would be includible in a holder's income. Since the determination of
whether (i) the New Subordinated Debentures and the Old Subordinated
Debentures will be treated as publicly traded or (ii) the New Subordinated
Debentures will have adequate stated interest will depend in large part upon
facts as they exist in the future, Tax Counsel is unable to express an opinion
on such issues.
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Backup Withholding
A holder of a New Subordinated Debenture may be subject to backup
withholding at the rate of 31% with respect to "reportable payments," which
include payments in respect of interest or accrued OID, and the proceeds of a
sale, exchange or redemption of a New Subordinated Debenture. The Company will
be required to deduct and withhold the prescribed amount if (a) the holder
fails to furnish a taxpayer identification number ("TIN") to the Company in
the manner required, (b) the IRS notifies the Company that the TIN furnished
by the holder is incorrect, (c) there has been a failure of the holder to
certify under penalty of perjury that the holder is not subject to withholding
under Section 3406(a)(1)(C) of the Tax Code, or (d) the holder is notified by
the IRS that he or she failed to report properly payments of interest and
dividends and the IRS has notified the Company that he or she is subject to
backup withholding.
Amounts paid as backup withholding do not constitute an additional tax and
will be credited against the holder's U.S. federal income tax liabilities, so
long as the required information is provided to the IRS. The Company will
report to the holders of New Subordinated Debentures and to the IRS the amount
of any "reportable payments" for each calendar year and the amount of tax
withheld, if any, with respect to payments on such securities to any
noncorporate holder other than an "exempt recipient."
CONSEQUENCES TO HOLDERS OF OTHER CLAIMS
A holder of another Claim whose Claim is satisfied in full on the Effective
Date will recognize gain or loss for federal income tax purposes on the
exchange of such Claim for cash equal to the difference between (i) the amount
realized (i.e., the amount of cash received) in respect of such Claim and (ii)
his or her adjusted tax basis in such Claim.
A holder of any such Claim which is restructured, provided that such
restructuring does not result in a "significant modification" of the Claim for
federal income tax purposes, will not realize gain or loss as a result of the
Prepackaged Plan. However, a holder whose Claim is restructured or modified in
a way that is considered a "significant modification" for federal income tax
purposes, or who is treated as having received interest, damages, or other
income in connection with a restructuring or modification, will realize gain
or loss for U.S. federal income tax purposes. Such gain or loss will be
recognized unless such restructuring or modification constitutes a tax-free
recapitalization, which is unlikely.
If a holder receives property in satisfaction of his or her Claim, he or she
will be treated as receiving an interest payment to the extent that the amount
received is allocable to interest that accrued while he or she held the Claim,
regardless of whether the receipt of the property would otherwise result in
recognition of gain or loss. Accordingly, a holder who had not previously
included such accrual interest in income would recognize taxable income with
respect to such interest payment, and a holder who had previously included
such interest in income would recognize gain or loss (or, possibly, a write-
off against a reserve for bad debts) equal to the difference between the
holder's basis in such interest and the amount of the payment.
CONSEQUENCES TO HOLDERS OF EQUITY INTERESTS IN THE COMPANY
A holder of any Equity Interest in the Company cancelled under the
Prepackaged Plan will be allowed a "worthless stock deduction" in an amount
equal to the holder's adjusted basis in his or her Equity Interest. A
"worthless stock deduction" is a deduction allowed to a holder of a
corporation's stock for the taxable year in which such stock becomes
worthless. If the holder held the Equity Interest as a capital asset, the loss
will be treated as a loss from the sale or exchange of such capital asset.
CONSEQUENCES TO LGE
LGE is a corporation not organized under the laws of the United States. The
transactions contemplated in the Prepackaged Plan may consequently have tax
ramifications to LGE under applicable U.S. and non-U.S. law.
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CONSEQUENCES TO THE COMPANY
Realization of Cancellation of Indebtedness Income:
Generally, a debtor recognizes an amount of cancellation of debt ("COD")
income upon satisfaction of its outstanding indebtedness equal to the excess
of (i) the amount of the indebtedness discharged, over (ii) the issue price of
any new indebtedness issued, the amount of cash paid, and the fair market
value of any other consideration (including stock of the debtor) given in
satisfaction of the indebtedness. As discussed below, there is a bankruptcy
exception to the recognition of COD income which will apply to the Company in
connection with the Prepackaged Plan.
A debtor is not required to include COD income in gross income if the debt
discharge occurs in a Title 11 case. However, under the Tax Code the debtor
must, as of the first day of the next taxable year, reduce its tax attributes
(in general, first its NOL carryover and then tax credits and capital loss
carryovers, and then the tax basis of its assets) by the amount of COD income
excluded from gross income by this exception. As an exception to the order of
tax attribute reduction described above, a taxpayer can elect to reduce its
tax basis in its depreciable assets first, then its NOL carryforwards.
The Company believes that under the Prepackaged Plan it will realize
approximately $63.5 million of COD income attributable to the exchange of New
Subordinated Debentures for the Old Subordinated Debentures and possibly an
additional amount of COD income attributable to satisfaction of certain other
Claims. Because the COD income will be realized in a case filed under the
Bankruptcy Code, the Company will not be required to include the COD income in
taxable income, but will be required to reduce its NOL carryover by the amount
of the COD income. The Company had an estimated $835.6 million NOL carryover
as of December 31, 1997, which may be decreased by the amount of COD income
realized as a result of the Restructuring.
Section 382 Limitation
Generally, pursuant to Section 382 of the Tax Code, if there is an
"ownership change" with respect to a corporation with NOL carryovers, such
corporation will be subject to limitation (the "Section 382 Limitation") on
its use of any NOL carryover incurred prior to the ownership change to offset
taxable income earned in any year after the ownership change. Except as
discussed below, the Section 382 Limitation on such corporation's NOL
carryover will be equal to the product of (i) the net equity value of all of
the corporation's stock immediately before the ownership change and (ii) the
long-term tax-exempt rate for the month in which the ownership change occurs.
(The long-term tax exempt rate for November 1998 is 5.02%).
If a corporation that undergoes an ownership change has a "net unrealized
built-in loss," subject to certain limitations, any "recognized built-in loss"
during the five-year period beginning with the date of the ownership change
(the "recognition period") is generally treated as a pre-change loss and is
subject to the Section 382 Limitation described above. If the corporation has
a "net unrealized built-in gain," subject to certain limitations, the Section
382 Limitation for any taxable year within the recognition period will be
increased by the "recognized built-in gain" for such taxable year. A net
unrealized built-in gain or net unrealized built-in loss exists to the extent
the fair market value of the corporation's assets is more or less,
respectively, than the aggregate adjusted tax basis of the its assets
immediately before an ownership change, provided the resulting net unrealized
built-in gain or net unrealized built-in loss is greater than the lesser of
(i) 15% of the fair market value of the corporation's assets or (ii) $10
million. Under current IRS administrative policy, the amount of the COD income
recognized upon an ownership change is treated as an item of income
attributable to the pre-change period under Section 382(h)(6) of the Tax Code,
and such COD income is added to the gross fair market value of the
corporation's assets in determining whether the loss corporation has a net
unrealized built-in loss.
An "ownership change" occurs if the percentage of stock of the corporation
owned actually or constructively by one or more "5-percent shareholders"
increases by more than 50 percentage points on any "testing date" (taking into
account all relevant adjustments as of the end of a "testing date") as
compared to
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<PAGE>
the lowest percentage of stock of the corporation owned by those 5%
shareholders at any time during the statutory "testing period" (generally, the
past three years or, if shorter, the period since the last ownership change).
Generally, a "testing date" is any date on which there is any change in the
ownership of stock that affects the percentage stock ownership of a 5%
shareholder. A "5% shareholder" is one who owns at least 5% of the stock of
the corporation, and all stock owned by shareholders who are not 5%
shareholders ("Public shareholders") is generally treated as being owned by
one 5% shareholder.
The Company believes that the implementation of the Prepackaged Plan will
cause an ownership change for U.S. federal income tax purposes. As a result,
to the extent not reduced by the amount of realized COD income as discussed
above, the use of the remaining NOL carryover will be subject to the Section
382 Limitation unless the exception described below applies.
Section 382(l)(5) of the Tax Code provides a special rule applicable in the
case of a bankruptcy reorganization. If a corporation qualifies for and does
not elect out of the application of Section 382(l)(5), Section 382 will not
limit the use of the corporation's NOL carryover on account of the ownership
change occurring as a result of the bankruptcy reorganization. The corporation
will qualify if the corporation's pre-bankruptcy shareholders and holders of
certain debt ("Qualifying Debt") own at least 50% of the stock of the
corporation after the bankruptcy reorganization. Qualifying Debt is a Claim
which (i) was held by the same creditor for at least 18 months prior to the
bankruptcy filing or (ii) arose in the ordinary course of a corporation's
trade or business and has been owned at all times by the same creditor.
Indebtedness will be treated as arising in the ordinary course of a
corporation's trade or business if such indebtedness is incurred by the
corporation in connection with the normal, usual or customary conduct of the
corporation's business. For the purpose of determining whether a Claim
constitutes Qualifying Debt, special rules may apply to treat a subsequent
transferee as the transferor creditor.
The Company believes that the exchanges contemplated by the Prepackaged Plan
will qualify for the bankruptcy reorganization exception under Section
382(l)(5). However, since rules relating to Section 382(l)(5) are extremely
complicated, there can be no assurance that the exchanges will qualify for
such tax treatment, that the IRS will not challenge the Company's conclusion
or that a court will sustain such conclusion if challenged by the IRS. Tax
Counsel consequently is unable to express an opinion as to this issue. The
material tax consequences of both qualifying and not qualifying for the tax
treatment under Section 382(l)(5) are discussed immediately below.
If the exchanges contemplated by the Prepackaged Plan qualify for the tax
treatment under Section 382(l)(5), the Company's NOL carryover will be
available for future use without any Section 382 Limitation (subject to any
pre-existing Section 382 Limitation and after reduction of the Company's NOL
carryover by the aggregate amount of all interest deductions in respect of
debt exchanged for Company stock during the three prior taxable years and a
portion of the current taxable year ending on the Effective Date). However,
under Section 382(l)(5), such NOL carryover will not survive a subsequent
ownership change if such ownership change occurs during the 2-year period
immediately following Consummation of the Prepackaged Plan.
If the exchanges do not qualify for the tax treatment under Section
382(1)(5) or the Company elects not to utilize Section 382(l)(5), the
Company's use of its NOL carryover to offset taxable income earned after the
ownership change will be subject to the Section 382 Limitation. Since the
Company will be in bankruptcy, however, Section 382(l)(6) of the Tax Code will
generally apply. Under Section 382(l)(6), the Section 382 Limitation will be
calculated by reference to the net equity value of the Company's stock
immediately after the ownership change (rather than immediately before the
ownership change, as is the case for non-bankruptcy ownership changes). In
such case, since it is unclear what the net equity value of the Company
immediately after the exchanges contemplated by the Prepackaged Plan will be,
the Company's use of its NOL carryover may be substantially limited after the
ownership change.
The rules regarding ownership changes are very complicated, and although the
Company believes there will be an ownership change upon consummation of the
Prepackaged Plan, it is possible that such change will not constitute an
ownership change. Tax Counsel consequently is unable to express an opinion as
to this issue. If
150
<PAGE>
consummation of the Prepackaged Plan does not result in an ownership change,
however, any change after the Effective Date that affects the percentage stock
ownership of a 5% shareholder may trigger an ownership change upon such event.
If the Company is not in bankruptcy at such time, neither the Section
382(l)(5) nor Section 382(l)(6) exception will be available, and the Company's
use of its NOL carryover will be subject to the general Section 382 Limitation
as described above.
Applicable High Yield Discount Obligations
In general, OID, if any, on the New Subordinated Debentures will not be
deductible until paid by the Company if the New Subordinated Debentures are
treated as "applicable high yield discount obligations" ("AHYDOs"). Under the
AHYDO rules contained in Sections 163(e) and 163(i) of the Tax Code, if the
New Subordinated Debentures have a term of more than five years, "significant"
OID (as defined in the Tax Code), and a yield to maturity of 5% or more in
excess of the AFR in effect for the month that includes the issue date,
interest deductions in respect of OID accruing on such debenture will be
deferred until amounts in respect of such OID are paid in cash. Moreover, to
the extent the yield to maturity of an AHYDO exceeds the AFR in effect for the
month that includes the issue date plus 6%, the deduction for a ratable
portion of the OID will be permanently disallowed (the "Disqualified OID").
It is not expected that the New Subordinated Debentures will be AHYDOs.
However, if the Old Subordinated Debentures or New Subordinated Debentures are
treated as traded on an established securities market within the 60-Day
Period, it is possible that the New Subordinated Debentures may be treated as
AHYDOs. Because the determination of whether the New Subordinated Debentures
or the Old Subordinated Debentures will be treated as publicly traded depend
in large part upon facts as they exist in the future, Tax Counsel cannot
provide an opinion as to whether the New Subordinated Debentures will be
AHYDOs. If the New Subordinated Debentures are treated as AHYDOs, the Company
would not be permitted to deduct any OID in respect of the New Subordinated
Debentures until such OID is paid. In addition, the Company will be denied OID
deductions in respect of a ratable portion of the OID equal to any
Disqualified OID.
THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PREPACKAGED PLAN ARE
COMPLEX. THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF CERTAIN CLAIMS
AND EQUITY INTERESTS IN LIGHT OF SUCH HOLDER'S PARTICULAR CIRCUMSTANCES AND
INCOME TAX SITUATION. ALL HOLDERS SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS CONTEMPLATED BY
THE PREPACKAGED PLAN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGE IN APPLICABLE TAX LAWS.
151
<PAGE>
ESTIMATED FEES AND EXPENSES
The estimated fees and expenses expected to be incurred by the Company and
that LGE has advised the Company that it expects to incur in connection with
the Restructuring are approximately $24.4 million.
ESTIMATED COSTS AND FEES OF THE COMPANY
<TABLE>
<S> <C>
Investment banking fees and expenses......................... $ 5,700,000
Bank transaction fees and expenses........................... 3,200,000
Fees of other advisors....................................... 4,000,000
Legal fees and expenses...................................... 3,200,000
Accounting fees and expenses................................. 500,000
Printing and mailing fees.................................... 500,000
Fees relating to new securities.............................. 250,000
Miscellaneous................................................ 250,000
-----------
Total.................................................... $17,600,000
===========
ESTIMATED COSTS AND FEES OF LGE
Investment banking fees and expenses......................... $ 2,000,000
Fees of other advisors....................................... 700,000
Legal fees and expenses...................................... 4,000,000
Accounting fees and expenses................................. 100,000
-----------
Total.................................................... $ 6,800,000
===========
</TABLE>
ADVISORS
PJSC has been engaged by the Company in connection with the Restructuring.
PJSC was chosen to act as financial advisor and investment banker in the
Restructuring because of its experience in the restructuring of other public
companies in similar types of transactions. For its services as financial
advisor and investment banker, PJSC will receive (i) a fixed monthly cash
advisory fee, a portion of which will be applied against future transaction
fees, and (ii) transaction fees based upon (a) successful completion of a
refinancing or new financing transaction ($2.25 million); (b) restructuring or
replacement of certain existing debt ($1.0 million); and (c) other
transactions, including asset dispositions or mergers (in which case the fee
would be based on a graduated, decreasing percentage of total consideration).
The Company currently estimates that the total fees payable to PJSC will be
$5,700,000. The portion of the fees associated with the restructuring or
replacement of the Old Subordinated Debentures ($1.0 million) is contingent on
the effectiveness of the restructuring of the Old Subordinated Debentures.
Through September 26, 1998, the Company had paid PJSC $2.4 million in fees and
expenses, including $0.75 million in fees related to obtaining the Amended
Citibank Credit Facility.
Jay Alix was engaged by the Company based on its prior experience in the
restructuring of other public companies in similar types of transactions.
Robert N. Dangremond, a principal with Jay Alix, served as the Company's
Acting Chief Financial Officer from January 1998 to June 1998, and currently
serves as the Company's Senior Vice President, Restructuring. See "SPECIAL
FACTORS--Events Leading to the Restructuring." For its services, Jay Alix
receives a fixed monthly fee plus expenses, and upon successful completion of
the Financial Restructuring, will receive a success fee ($1.0 million). The
Company currently estimates that the total fees payable to Jay Alix in
connection with the Restructuring will be $4.0 million of which $1.0 million
is designated as a success fee, contingent on successful completion of the
Financial Restructuring, which includes consummation of the Prepackaged Plan.
Through September 26, 1998, the Company had paid $2.3 million in fees and
expenses to Jay Alix. The Company will request approval of these fees through
the filing of appropriate applications with the Bankruptcy Court.
152
<PAGE>
Following commencement of the Prepackaged Chapter 11 Case, the Company
intends to seek authority to employ Jay Alix as its restructuring advisor,
PJSC as its financial advisor and investment banker, Arthur Andersen LLP as
its auditor and Kirkland & Ellis as its attorneys.
LEGAL MATTERS
Certain legal matters in connection with the New Subordinated Debentures
offered hereby will be passed upon by Kirkland & Ellis, counsel to the
Company.
EXPERTS
The Company's annual historical audited financial statements included in
this Disclosure Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report.
153
<PAGE>
INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<S> <C>
60-Day Period.............................................................. 147
Administrative Claims...................................................... 2
AFR........................................................................ 147
AHYDOs..................................................................... 151
Allowed.................................................................... 70
Alternative Proposal....................................................... 61
Amended Certificate of Incorporation....................................... 65
Amended Citibank Credit Facility........................................... 3
ATSC....................................................................... 26
Audit Committee............................................................ 43
Ballots.................................................................... 19
Bank Lender Claims......................................................... 3
Bankruptcy Code............................................................ i
Bankruptcy Court........................................................... 6
Bankruptcy Rules........................................................... 21
Board...................................................................... v
Business Plan Projections.................................................. 14
CDT........................................................................ 42
CERCLA..................................................................... B-17
Change in Control Period................................................... 136
Citibank................................................................... 9
Citibank Credit Facility................................................... 43
Citibank Receivables Facility.............................................. 43
Citibank Secured Claims.................................................... 3
Claims..................................................................... i
Class...................................................................... 5
COD........................................................................ 149
Commission................................................................. vi
Company.................................................................... i
Company Peer Group......................................................... 58
Confirmation............................................................... i
Confirmation Date.......................................................... 69
Consumer Electronics....................................................... B-4
Consummation............................................................... iv
Contingent Compensation Plan............................................... 133
Crossroads................................................................. 51
D&O Releasees.............................................................. 5
Delaware anti-takeover law................................................. 138
Debenture Committee........................................................ 51
DGCL....................................................................... 138
DIP........................................................................ 26
Directors' Retirement Plan................................................. 133
Disclosure Statement....................................................... i
Disqualified OID........................................................... 151
Distribution Record Date................................................... 79
EBIT....................................................................... 60
EBITDA..................................................................... 7
Effective Date............................................................. i
Employment Agreements...................................................... 135
Equity Interests........................................................... iv
ERISA...................................................................... 114
Exchange Act............................................................... vi
Executive Committee........................................................ 132
Executive Officers......................................................... B-19
Expiration Date............................................................ 21
Final Order................................................................ 12
Financial Restructuring.................................................... i
GECC Credit Facility....................................................... 114
General Unsecured Claims................................................... 3
Impaired Claims............................................................ 2
</TABLE>
<TABLE>
<S> <C>
Implementation Program...................................................... 61
Indenture Event of Default.................................................. 118
Investor Releasees.......................................................... 5
IRS......................................................................... 144
Issue Price................................................................. 144
Jay Alix.................................................................... 46
Key Executives.............................................................. 135
Lazard...................................................................... 47
Leveraged Lease (Melrose Park).............................................. iii
Leveraged Lease (Mexico).................................................... iii
Leveraged Leases............................................................ iii
LG Semicon.................................................................. iv
LGE......................................................................... ii
LGE Claims.................................................................. iv
LGE Demand Loan Claims...................................................... ii
LGE Demand Loan Facility.................................................... 44
LGE Extended Payables Claims................................................ iii
LGE Guarantee Fee Claims.................................................... iii
LGE Leveraged Lease Claims.................................................. iii
LGE New Credit Facility..................................................... 122
LGE New Credit Facility Event of Default.................................... 123
LGE New Credit Support...................................................... 7
LGE New Restructured Senior Note............................................ iii
LGE Reimbursement Claims.................................................... ii
LGE Restructured Notes Default.............................................. 121
LGE Stock Purchase Agreement................................................ 42
LGE Technical Services Claims............................................... iii
LGE Tranche A Claims........................................................ iv
LGE Tranche B Claims........................................................ iv
Master Ballots.............................................................. 19
Merrill Lynch............................................................... 42
NAFTA....................................................................... 28
New Bank Lender Note........................................................ 3
New Common Stock............................................................ iv
New Indenture............................................................... 116
New Investor................................................................ 64
New Subordinated Debentures................................................. i
New Zenith.................................................................. iv
NOLs........................................................................ 7
Nominee..................................................................... 22
Notice Agent................................................................ 22
NWS......................................................................... 25
NYSE........................................................................ vi
OID......................................................................... 146
Old Common Stock............................................................ iv
Old Preferred Stock......................................................... 138
Old Subordinated Debenture Claims........................................... 4
Old Subordinated Debenture Indenture........................................ i
Old Subordinated Debentures................................................. i
Operational Restructuring................................................... i
Organization and Compensation Committee..................................... 133
Other Priority Claims....................................................... 2
Other Secured Claims........................................................ 3
Petition Date............................................................... 82
PIK......................................................................... 7
PJSC........................................................................ 8
Prepackaged Chapter 11 Case................................................. 5
Prepackaged Plan............................................................ i
Priority Tax Claims......................................................... 2
Professionals............................................................... 10
</TABLE>
154
<PAGE>
<TABLE>
<S> <C>
PRP........................................................................ B-17
Public shareholders........................................................ 150
Qualifying Debt............................................................ 150
Recognition Period......................................................... 149
Registration Statement..................................................... vi
Reimbursement Agreement.................................................... 44
Reorganization Period...................................................... 14
Restructuring.............................................................. i
Restructuring Agreement.................................................... ii
Reynosa Assets............................................................. iv
Sales Multiples Approach................................................... 58
Section 382 Limitation..................................................... 22
Securities Act............................................................. vi
Senior Indebtedness........................................................ 117
Solicitation............................................................... iv
Solicitation Agent......................................................... 22
Solicitation Materials..................................................... 20
</TABLE>
<TABLE>
<S> <C>
Special Committee.......................................................... v
Stock Compensation Committee............................................... 133
Subsidiaries............................................................... 1
Tax Code................................................................... 22
Tax Counsel................................................................ 144
Tax Opinion................................................................ 144
TIN........................................................................ 148
Transaction Expenses....................................................... 64
Transaction Fee............................................................ 65
Treasury Regulations....................................................... 144
Trustee.................................................................... 119
Unimpaired Claims.......................................................... 78
Unsecured Bank Loans....................................................... ii
US EPA..................................................................... B-18
Voting Record Date......................................................... i
VSB........................................................................ 26
Zenith..................................................................... i
</TABLE>
155
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Statements of Operations (Unaudited) for the Three
and Nine Months Ended September 26, 1998 and September 27, 1997.......... F-2
Condensed Consolidated Balance Sheets (Unaudited) at September 26, 1998,
December 31, 1997 and September 27, 1997................................. F-3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 26, 1998 and September 27, 1997................... F-4
Notes to Condensed Consolidated Financial Statements (Unaudited).......... F-5
Statements of Consolidated Operations and Retained Earnings (Deficit) for
the Years Ended December 31, 1997, 1996 and 1995......................... F-10
Consolidated Balance Sheets at December 31, 1997 and 1996................. F-11
Statements of Consolidated Cash Flows for the Years Ended December 31,
1997, 1996 and 1995...................................................... F-12
Notes to Consolidated Financial Statements................................ F-13
Report of Independent Public Accountants.................................. F-30
</TABLE>
F-1
<PAGE>
ZENITH ELECTRONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales............... $ 230.4 $304.5 $ 675.1 $ 825.4
------- ------ ------- -------
Costs, expenses and
other:
Cost of products
sold................. 203.3 308.3 621.6 800.8
Selling, general and
administrative....... 31.5 44.6 93.4 122.7
Engineering and
research............. 9.8 10.6 32.0 31.4
Other operating
expense (income), net
(Note 4)............. (9.2) 5.2 (24.3) (5.0)
Restructuring charges
(Note 3)............. 100.4 -- 107.8 --
------- ------ ------- -------
Operating income
(loss)................. (105.4) (64.2) (155.4) (124.5)
Gain (loss) on asset
sales, net............. -- 1.1 0.1 0.2
Interest expense........ (4.1) (3.5) (12.2) (11.8)
Interest expense--
related party.......... (9.6) (3.6) (21.0) (9.2)
Interest income......... 0.1 -- 0.7 0.6
------- ------ ------- -------
Income (loss) before
income taxes........... (119.0) (70.2) (187.8) (144.7)
Income taxes (credit)... -- (1.0) -- (1.0)
------- ------ ------- -------
Net income (loss)....... $(119.0) $(69.2) $(187.8) $(143.7)
======= ====== ======= =======
Net income (loss) per
share of common stock
(Note 5)............... $ (1.76) $(1.04) $ (2.78) $ (2.16)
======= ====== ======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-2
<PAGE>
ZENITH ELECTRONICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
IN MILLIONS
<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 31, SEPTEMBER 27,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................ $ -- $ -- $ --
Receivables, net of allowance for
doubtful accounts of $36.3, $-- and
$--, respectively (Note 6)......... 143.4 21.7 17.1
Inventories (Note 7)................ 164.8 165.5 275.4
Transferor certificates............. -- 99.7 102.4
Other............................... 14.5 26.3 29.0
------- ------- -------
Total current assets.............. 322.7 313.2 423.9
Property, plant and equipment, net.... 155.1 171.1 243.5
Receivable from related party (Note
8)................................... 21.3 -- --
Other................................. 5.3 43.4 39.9
------- ------- -------
Total assets...................... $ 504.4 $ 527.7 $ 707.3
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt (Note 8)............ $ 107.8 $ 72.0 $ 25.0
Short-term debt with related party
(Note 8)........................... 192.1 -- --
Current portion of long-term debt
(Note 8)........................... 5.8 15.3 14.7
Accounts payable.................... 87.8 92.9 119.1
Accounts payable with related party
(Note 9)........................... 134.9 144.3 140.2
Income taxes payable................ 0.6 0.7 0.8
Cccrued expenses.................... 143.4 141.7 172.3
------- ------- -------
Total current liabilities......... 672.4 466.9 472.1
Long-term liabilities................. -- 8.8 9.0
Long-term liabilities with related
party................................ 11.0 8.2 --
Long-term debt (Note 8)............... 97.8 132.8 161.6
Stockholders' equity:
Preferred stock..................... -- -- --
Common stock........................ 67.6 67.1 67.1
Additional paid-in capital.......... 506.8 507.3 505.2
Retained earnings (deficit)......... (849.5) (661.7) (506.0)
Treasury stock...................... (1.7) (1.7) (1.7)
------- ------- -------
Total stockholders' equity........ (276.8) (89.0) 64.6
------- ------- -------
Total liabilities and
stockholders' equity............. $ 504.4 $ 527.7 $ 707.3
======= ======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE>
ZENITH ELECTRONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
IN MILLIONS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
NINE MONTHS ENDED
---------------------------
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $(187.8) $(143.7)
Adjustments to reconcile net income (loss) to net
cash used by operations:
Depreciation................................... 24.4 26.4
Employee retirement plan contribution made in
stock......................................... -- 4.9
Other.......................................... (1.8) (0.2)
Gain on asset sales, net....................... (0.1) (0.2)
Non-cash restructuring charges................. 95.4 --
Changes in assets and liabilities:
Current accounts............................. (18.3) 37.5
Other assets................................. 3.0 1.4
Other liabilities............................ 3.1 --
------- -------
Net cash used by operating activities............ (82.1) (73.9)
------- -------
Cash flows from investing activities:
Capital additions................................ (6.4) (68.0)
Proceeds from asset sales........................ 36.2 161.8
Distribution of investor certificates............ (41.0) (5.0)
------- -------
Net cash provided (used) by investing
activities...................................... (11.2) 88.8
------- -------
Cash flows from financing activities:
Short-term borrowings, net....................... 137.8 (22.0)
Proceeds from issuance of long-term debt......... -- 45.0
Proceeds from issuance of common stock, net...... -- 1.3
Principal payments on long-term debt............. (44.5) (39.2)
------- -------
Net cash provided (used) by financing
activities...................................... 93.3 (14.9)
------- -------
Increase (decrease) in cash........................ -- --
Cash at beginning of period........................ -- --
------- -------
Cash at end of period.............................. $ -- $ --
======= =======
Increase (decrease) in cash attributable to changes
in current accounts:
Receivables, net................................. $(121.7) $ 191.2
Transferor certificates.......................... 110.7 (167.4)
Income taxes, net................................ (0.1) (0.5)
Inventories...................................... 0.7 (19.7)
Other assets..................................... 6.8 (12.4)
Accounts payable and accrued expenses............ (14.7) 46.3
------- -------
Net change in current accounts................... $ (18.3) $ 37.5
======= =======
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest....................................... $ 28.4 $ 18.9
Income taxes................................... (0.8) (8.1)
Non-cash activity:
Asset and additional paid-in capital recorded
related to guarantee fee...................... $ -- $ 39.7
Liability recorded related to deferred gain on
sale leaseback................................ -- 10.2
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-4
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE ONE--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
("financial statements") have been prepared in accordance with generally
accepted accounting principles and pursuant to the rules and regulations of
the Securities and Exchange Commission. The accuracy of the amounts in the
financial statements is in some respects dependent upon facts that will exist,
and procedures that will be performed by the company, later in the year. In
the opinion of management, all adjustments necessary for a fair presentation
of the financial statements have been included and are of a normal, recurring
nature. For further information, refer to the consolidated financial
statements and notes thereto included in the company's Form 10-K for the year
ended December 31, 1997.
NOTE TWO--SUBSEQUENT EVENTS
Subsequent to September 26, 1998, the company announced plans to close its
Melrose Park, Illinois, color picture tube plant in December 1998. This
decision is consistent with the company's restructuring plan announced earlier
this year, which disclosed plans to sell or close the plant by the end of 1998
unless operations improved considerably. Costs associated with the plant
closure are included in the potential 1998 restructuring and reorganization
charges discussed in "Note Three--Restructuring charges".
Subsequent to September 26, 1998, the company completed the sale of its
headquarters building in Glenview, Illinois. As a result of the sale, the
company's fourth-quarter financial statements will reflect a significant gain
on the sale of the building.
NOTE THREE--RESTRUCTURING CHARGES
During the first nine months of 1998, the company recorded $107.8 million of
restructuring charges. Of this total amount, $100.4 million was recorded
during the third quarter of 1998 and related to (i) a $68.8 million loss on
the termination of the company's leveraged lease (as discussed in "Note
Eight--Short-term debt and credit arrangements; Long-term debt"), (ii) $32.3
million of deferred charges (bank, attorney and guarantee fees) that were
written off (as discussed in "Note Six--Receivables" and "Note Eight--Short-
term debt and credit arrangements; Long-term debt"), (iii) accelerated
amortization of the remaining deferred gain ($9.1 million) related to the 1997
sale of the assets into the leveraged lease (as discussed in "Note Eight--
Short-term debt and credit arrangements; Long-term debt"), (iv) $7.0 million
of professional fees (associated with work performed by outside consultants to
support the development of the operational and financial restructuring plans
and the pre-packaged plan of reorganization) and financing charges (relative
to amending the Citicorp credit agreement), and (v) $1.4 million of other
charges, related primarily to the company's exiting of its analog set-top box
product line.
F-5
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the restructuring charges for the first nine months of 1998 is
as follows:
<TABLE>
<CAPTION>
RESTRUCTURING
RESTRUCTURING RESERVE AT
CHARGES AT ASSET CASH SEPTEMBER 26,
INCEPTION WRITEOFF PAYMENT 1998
------------- -------- ------- -------------
<S> <C> <C> <C> <C>
Loss on termination of
leveraged lease............. $ 68.8 $(68.8) $ -- $--
Deferred finance charges..... 32.3 (32.3) -- --
Accelerated amortization of
deferred gain............... (9.1) 9.1 -- --
Professional fees and
financing charges........... 11.6 (1.5) (9.5) 0.6
Severance costs.............. 1.4 -- (0.9) 0.5
Other........................ 2.8 (1.9) (0.3) 0.6
------ ------ ------ ----
Total restructuring charges.. $107.8 $(95.4) $(10.7) $1.7
====== ====== ====== ====
</TABLE>
On August 10, 1998, the company filed a Registration Statement on Form S-4
which contains information relating to the company's proposed financial and
operational restructuring plans along with information regarding a pre-
packaged plan of reorganization. The Registration Statement discusses
potential 1998 restructuring, reorganization and special one-time charges that
are projected to be approximately $242 million for the full year. The $242
million of potential restructuring, reorganization and special one-time
charges are composed of (i) non-cash asset impairments ($70 million), (ii) the
non-cash loss on termination of a lease ($69 million) which was recorded in
the third quarter and is shown above, (iii) severance and costs for staff
reductions ($47 million), (iv) plant closure and business exit costs ($18
million), (v) professional fees ($17 million) (vi) non-cash inventory
writedowns ($9 million) and (vii) other costs associated with the
restructuring effort. The 1998 restructuring and reorganization charges are
partially offset by a potential extraordinary gain on debt retirement of
approximately $64 million.
NOTE FOUR--OTHER OPERATING EXPENSE (INCOME)
Royalty income accrued in relation to tuning system patents was $7.7 million
and $20.4 million for the three and nine months ended September 26, 1998,
respectively, and $5.7 million and $16.9 million for the three and nine months
ended September 27, 1997, respectively. These amounts are included in other
operating expense (income).
During the third quarter of 1997, the company recorded a charge of $10.0
million related to the impairment of certain long-lived assets to be disposed
of. The charge related primarily to (i) assets that were sold or scrapped as a
result of the company's decision to phase out of its printed circuit board
operation, (ii) assets were sold or scrapped as a result of the company's
decision not to develop the proposed large-screen picture tube plant in
Woodridge, Illinois, and (iii) a building in Canada that was sold in December
1997. The amount of the charge is included in other operating expense
(income).
NOTE FIVE--EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", the company computed earnings per share by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings (loss) per share, assuming
conversion of the 6 1/4 percent convertible subordinated debentures and
outstanding stock options are not presented because the effect of the assumed
conversion is antidilutive. The weighted average number of shares was
67.5million for
F-6
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
both the three and nine months ended September 26, 1998, and 66.6 million and
66.5 million for the three and nine months ended September 27, 1997,
respectively.
NOTE SIX--RECEIVABLES
During the third quarter of 1998, the company's trade receivables
securitization (which was provided through a Citicorp commercial paper conduit)
was terminated. As a result, the company's third quarter financial statements
reflect the following: (i) receivables are no longer sold and transferor
certificates (which represented the company's retained interest in the pool of
receivables that were sold) do not exist, and (ii) a non-cash restructuring
charge of $3.9 million was made to write-off deferred charges (bank, attorney
and guarantee fees) related to the receivable securitization.
NOTE SEVEN--INVENTORIES
Inventories consisted of the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 31, SEPTEMBER 27,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Raw materials and work-in-
process...................... $ 71.2 $ 96.9 $144.6
Finished goods................ 93.6 68.6 130.8
------ ------ ------
Total inventories............. $164.8 $165.5 $275.4
====== ====== ======
</TABLE>
NOTE EIGHT--SHORT-TERM DEBT AND CREDIT ARRANGEMENTS; LONG-TERM DEBT
In January 1998, the company redeemed its 8.5 percent Senior Subordinated
Convertible Debentures due January 2001. There was $0.5 million principal
amount of such debentures outstanding and the redemption price of such
debentures was 104 percent of such principal amount plus accrued interest
through the redemption date. The loss on extinguishment of this debt was not
material.
Between November 1997 and February 1998 the company entered into a series of
financing transactions designed to enhance the company's liquidity and
financial flexibility. The company obtained a total of $110 million in
unsecured and uncommitted credit facilities through four lines of credit with
Bank of America ($30 million), First Chicago NBD ($30 million), Societe
Generale ($20 million) and Credit Agricole ($30 million). The credit lines are
guaranteed by LG Electronics Inc. ("LGE") for which LGE is entitled to receive
a fee in an amount up to 2 percent of the outstanding amount of the loans. As
of September 26, 1998, only the Credit Agricole loan remains outstanding, in
the amount of $30.0 million. During the second and third quarter of 1998, LGE
made payments under demands against guarantees on $72.0 million of the
facilities and the company is obligated to LGE for these payments plus
interest. The company's obligations to LGE are secured by a second lien on
certain assets of the company.
In March 1998, the company entered into a secured credit facility with LGE
which provides for borrowings of up to $45 million. As of September 26, 1998,
$30.0 million was outstanding under the facility. See Note Nine for further
discussion.
During the third quarter of 1998, the company's existing Citicorp credit
facility (initially composed of a $45.0 million amortizing term loan and a
$65.0 million revolving credit line) was amended and restated. The amended
Citibank credit facility provides for up to $125 million of revolving loans,
subject to borrowing base restrictions. The revolving loans must be repaid on
or before the earlier of (a) the company's court filing for a pre-packaged plan
of reorganization or (b) December 31, 1998. In addition, the company is
required to make
F-7
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
repayments: (i) to the extent of the excess of borrowings over the borrowing
base and (ii) with the proceeds of most sales of capital stock or assets. The
obligations of the company under the amended Citibank credit facility are
secured by certain of the company's assets. The amended Citibank credit
facility requires the company, among other things, to meet certain financial
tests regarding the amount of tuner patent royalties and the average
outstanding payable to LGE for products purchased in the ordinary course of
business. The facility also contains covenants which, among other things,
restrict the ability of the company and its subsidiaries to incur indebtedness,
issue guarantees, incur liens, declare dividends or pay management or
consulting fees to affiliates, make loans and investments, engage in
transactions with affiliates, liquidate, sell assets or engage in mergers.
Interest on borrowings is based on market rates.
In April 1997, the company entered into a sale-leaseback transaction whereby
the company sold and leased back manufacturing equipment in its Melrose Park,
Illinois, plant and in its Reynosa and Juarez, Mexico, facilities. The
company's payment obligations, along with certain other items under the lease
agreement were fully guaranteed by LGE. In July 1998, LGE made payment under
the guarantees of the leases in the amount of $90.1 million under a negotiated
settlement with the lessor. As a result, the company's third quarter financial
statements reflect a $90.1 million current liability to LGE (included in
"Short-term debt with related party" on the balance sheet), a $21.3 million
Other Receivable from LGE, and a loss on termination of the lease of $68.8
million. The receivable from LGE represents the fair value of the manufacturing
equipment receivable from LGE as a result of their performance under the terms
of the guarantee and negotiated settlement with the lessor. In addition, the
financial statements reflect a non-cash restructuring charge of $28.3 million
to write-off deferred charges (bank, attorney and guarantee fees) related to
the lease, offset by a non-cash restructuring gain of $9.1 million which
represents the accelerated amortization of the deferred gain on the 1997 sale
of the assets into the lease.
NOTE NINE--RELATED PARTY
In November 1995, a change in control of the company occurred, in which LGE
and an affiliate purchased shares of the company pursuant to a combined tender
offer and purchase of newly issued shares of common stock from the company. As
of September 26, 1998, LGE "beneficially" owned 36,569,000 shares of common
stock of the company which represents 54.2 percent of the outstanding common
stock. Because LGE owns a majority of the issued and outstanding common stock,
it effectively controls the outcome of any matter requiring action by a
majority of the company's stockholders, including the election of a majority of
the company's directors and any future change in control of the company.
On August 7, 1998, the company entered into a restructuring agreement with
LGE which sets forth the terms and conditions pursuant to which LGE has agreed
to participate in and assist the company with its proposed financial and
operational restructuring plans. The agreement is listed as exhibit 10 under
"Item 6. Exhibits and Reports on Form 8-K".
LGE is a leading international brand-name manufacturer of five main groups of
products: televisions; audio and video equipment; home appliances; computers
and office automation equipment; and other products, including video displays,
telecommunication products and components, and magnetic media. The following
represent the most significant transactions between the company and LGE during
the three and nine months ended September 26, 1998 and September 27, 1997.
Product purchases: In the ordinary course of business, the company purchases
VCRs, TV-VCR combinations and components from LGE and its affiliates. The
company purchased $11.6 million and $34.7 million of these items during the
three and nine months ended September 26, 1998, and $38.1 million and $64.8
million during the three and nine months ended September 27, 1997,
respectively. Sales of products purchased
F-8
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
from LGE and its affiliates contributed $11.2 million and $46.5 million to
sales during the three and nine months ended September 26, 1998, respectively,
and $31.7 million and $75.5 million to sales during the three and nine months
ended September 27, 1997, respectively.
Product and other sales: The company sells TVs, picture tubes, yokes and
other manufactured subassemblies to LGE and its affiliates. Sales by the
company to LGE and its affiliates were $8.2 million and $30.7 million during
the three and nine months ended September 26, 1998, respectively, and $18.6
million and $32.0 million during the three and nine months ended September 27,
1997, respectively.
Other Items: In March 1998, the company entered into a secured credit
facility with LGE which provides for borrowings of up to $45 million. The term
of the facility is one year from the date of the first borrowing, subject to
LGE's right to demand repayment at anytime after December 31, 1998 (as
amended). Repayment is due in full at the end of the term. The first such
borrowing occurred in May 1998, and as of September 26, 1998, $30.0 million
was outstanding under the facility. The facility is secured by a second lien
on certain of the company's assets, including its VSB technology and is
subject to certain terms and conditions.
Accounts payable included $134.9 million and $140.2 million to LGE and its
affiliates as of September 26, 1998 and September 27, 1997, respectively. In
April 1997, the company and LGE entered into an arrangement whereby LGE
provided a vendor credit line to the company to finance the company's
purchases of certain goods from LGE in the ordinary course of business. Prior
to April 1997, the company's accounts payables arising in the ordinary course
of business to LGE were extended for certain periods of time, but no formal
arrangement was in place. The amount of extended payables was $134.0 million
and $133.5 million as of September 26, 1998 and September 27, 1997,
respectively. The company is charged interest on the extended period at rates
reflecting then-current market conditions in Korea.
F-9
<PAGE>
ZENITH ELECTRONICS CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Net sales...................................... $1,173.1 $1,287.9 $1,273.9
-------- -------- --------
Costs, Expenses and Other
Cost of products sold.......................... 1,180.5 1,257.0 1,188.8
Selling, general and administrative (Note
Four)......................................... 178.3 167.8 128.8
Engineering and research....................... 42.9 46.7 43.5
Other operating expense (income), net (Notes
One, Three and Ten)........................... 42.4 (26.3) (30.1)
Restructuring and other charges (Note Seven)... -- 9.3 21.6
-------- -------- --------
Income
Operating income (loss)........................ (271.0) (166.6) (78.7)
Gain (loss) on asset sales, net................ (4.6) 0.3 (1.7)
Interest expense............................... (11.9) (12.5) (19.1)
Interest expense--related party (Note Six)..... (13.6) (2.6) (0.8)
Interest income................................ 0.9 3.6 1.8
-------- -------- --------
Income (loss) before income taxes.............. (300.2) (177.8) (98.5)
Income taxes (credit) (Note Eight)............. (0.8) 0.2 (7.7)
-------- -------- --------
Net income (loss).............................. $ (299.4) $ (178.0) $ (90.8)
======== ======== ========
Per Share
Income (loss) per common share (Note
Eighteen)..................................... $ (4.49) $ (2.73) $ (1.85)
======== ======== ========
Retained Earnings (Deficit)
Balance at beginning of year................... $ (362.3) $ (184.3) $ (93.5)
Net income (loss).............................. (299.4) (178.0) (90.8)
-------- -------- --------
Retained earnings (deficit) at end of year..... $ (661.7) $ (362.3) $ (184.3)
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-10
<PAGE>
ZENITH ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
(IN MILLIONS,
EXCEPT SHARE
AND PER SHARE
DATA)
<S> <C> <C>
ASSETS
Current Assets
Cash (Note One)............................................ $ -- $ --
Receivables, net of allowance for doubtful accounts of $--
and $6.2.................................................. 21.7 208.3
Inventories (Note Eleven).................................. 165.5 255.7
Transferor Certificates (Note Twelve)...................... 99.7 --
Other...................................................... 26.3 11.1
------- -------
Total current assets..................................... 313.2 475.1
Noncurrent Assets
Property, plant and equipment, net (Note Thirteen)......... 171.1 278.3
Other (Note Six)........................................... 43.4 11.9
------- -------
Total assets............................................. $ 527.7 $ 765.3
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt (Note Fifteen)............................. $ 72.0 $ 47.0
Current portion of long-term debt (Note Sixteen)........... 15.3 17.8
Accounts payable........................................... 91.3 109.6
Accounts payable to related party (Note Six)............... 145.9 124.5
Compensation and retirement benefits (Note Nineteen)....... 41.2 43.2
Product warranties......................................... 18.3 32.1
Co-op advertising and merchandising programs............... 30.6 20.5
Income taxes payable....................................... 0.7 1.3
Other accrued expenses..................................... 51.6 54.6
------- -------
Total current liabilities................................ 466.9 450.6
Noncurrent Liabilities
Long-term liabilities (Note Six)........................... 8.8 --
Long-term liabilities to related party (Note Six).......... 8.2 --
Long-term debt (Note Sixteen).............................. 132.8 152.7
Stockholders' Equity
Preferred stock, $1 par value; 8,000,000 shares authorized;
none outstanding.......................................... -- --
Common stock, $1 par value; 150,000,000 shares authorized;
67,130,628 and 66,564,119 shares issued................... 67.1 66.6
Additional paid-in capital................................. 507.3 459.4
Retained earnings (deficit)................................ (661.7) (362.3)
Cost of 105,181 common shares in treasury.................. (1.7) (1.7)
------- -------
Total stockholders' equity (Note Seventeen).............. (89.0) 162.0
------- -------
Total liabilities and stockholders' equity............... $ 527.7 $ 765.3
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-11
<PAGE>
ZENITH ELECTRONICS CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN
CASH
YEAR ENDED DECEMBER
31,
------------------------
1997 1996 1995
------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss).................................. $(299.4) $(178.0) $(90.8)
Adjustments to reconcile net income (loss) to net
cash used by operations:
Depreciation..................................... 38.0 35.0 32.1
Charge for asset impairment...................... 63.7 -- --
Employee retirement plan contribution in stock... 4.9 5.3 --
(Gain) loss on asset sales, net.................. 4.6 (.3) 1.7
Charge for donated services...................... 2.2 -- --
Other............................................ .5 1.6 .5
Changes in assets and liabilities:
Current accounts............................... 149.4 116.4 19.9
Other assets................................... 3.6 (3.9) 3.4
Other liabilities.............................. 7.6 -- --
------- ------- ------
Net cash used by operating activities.............. (24.9) (23.9) (33.2)
------- ------- ------
Cash Flows from Investing Activities
Capital additions.................................. (69.5) (105.0) (51.9)
Capital additions purchased from related party..... (13.0) (24.0) --
Proceeds from asset sales.......................... 187.7 4.3 2.9
Distribution of Investor Certificates.............. (84.0) -- --
------- ------- ------
Net cash provided (used) by investing activities... 21.2 (124.7) (49.0)
------- ------- ------
Cash Flows from Financing Activities
Short-term borrowings, net......................... 25.0 47.0 --
Proceeds from issuance of long-term debt........... 45.0 -- 40.0
Proceeds from issuance of common stock, net........ 1.1 15.7 170.7
Principal payments on long-term debt............... (67.4) (7.3) (44.2)
------- ------- ------
Net cash provided by financing activities.......... 3.7 55.4 166.5
------- ------- ------
Cash
Increase (decrease) in cash........................ -- (93.2) 84.3
Cash at beginning of year.......................... -- 93.2 8.9
------- ------- ------
Cash at end of year................................ $ -- $ -- $ 93.2
======= ======= ======
Changes in Current Assets and Liabilities
Increase (decrease) in cash attributable to changes
in:
Receivables, net................................. 186.6 $ (7.5) $ 10.2
Transferor Certificates.......................... (110.7) -- --
Income taxes, net................................ (0.6) .1 (6.0)
Inventories...................................... 90.2 (53.1) 51.4
Other assets..................................... (9.7) (3.3) 2.2
Accounts payable and accrued expenses............ (6.4) 180.2 (37.9)
------- ------- ------
Net change in current accounts................... $ 149.4 $ 116.4 $ 19.9
======= ======= ======
Supplemental Disclosure
Supplemental disclosure of cash flow information--
Cash paid (refunded) during the period for:
Interest....................................... $ 24.8 $ 14.1 $ 20.6
Income taxes................................... (9.3) .9 (.1)
Non-cash activity:
Asset and additional paid-in capital recorded
related to guarantee fee $ 39.7 $ -- $ --
Liability recorded related to deferred gain on
sale leaseback................................ 10.2 -- --
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-12
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE--SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation: The consolidated financial statements include
the accounts of Zenith Electronics Corporation and all domestic and foreign
subsidiaries (the company). All significant intercompany balances and
transactions have been eliminated.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Statements of consolidated cash flows: The company considers time deposits,
certificates of deposit and all highly liquid investments purchased with an
original maturity of three months or less to be cash.
Inventories: Inventories are stated at the lower of cost or market. Costs
are determined for all inventories using the first-in, first-out (FIFO)
method.
Properties and depreciation: Property, plant and equipment is stated at
cost. Additions of machinery and equipment with lives of eight years or more
are depreciated by the straight-line method over their useful lives, which
range between 8 to 12 years. Accelerated methods are used for depreciation of
all other machinery and equipment items, including high technology equipment
that may be subject to rapid economic obsolescence. Useful lives for these
items range from 4 to 5 years. Additions of buildings are depreciated by the
straight-line method over their useful lives, which range from 10 to 33 years.
Property held for disposal is reported at the lower of carrying amount or
fair value, less cost to sell, and is included in Other noncurrent assets.
This property includes certain facilities and land no longer used in the
company's operations.
Rental expenses under operating leases were $20.7 million, $12.8 million,
and $15.3 million in 1997, 1996 and 1995, respectively. The 1997 increase in
rental expense was due to the sale-leaseback transaction that was entered into
in April 1997. See Note Fourteen for additional information on the sale-
leaseback transaction.
The company capitalizes interest on major capital projects. The company
capitalized $4.1 million and $2.3 million of interest in 1997 and 1996,
respectively. The amount was not material in 1995.
Engineering, research, product warranty and other costs: Engineering and
research costs are expensed as incurred. Estimated costs for product
warranties are provided at the time of sale based on experience factors. The
costs of co-op advertising and merchandising programs are also provided at the
time of sale.
Foreign currency: The company uses the U.S. dollar as the functional
currency for all foreign subsidiaries. Foreign exchange gains and losses are
included in Other operating expense (income) and were not material in 1997,
1996 and 1995.
Stock options: During 1996, the company adopted Statement of Financial
Accounting Standards ("FAS") No. 123, "Accounting for Stock-Based
Compensation". The accounting standard requires the company to value all
stock-based compensation based on the estimated fair value at the grant date
and spread the deemed cost over the vesting period. The standard permits a
choice of whether to charge operations or disclose the calculated cost, as pro
forma information. The company has chosen to disclose the calculated cost, as
pro forma information (see Note Seventeen).
F-13
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impairment of Long-lived Assets: The company periodically assesses whether
events or circumstances have occurred that may indicate the carrying value of
its long-lived assets may not be recoverable. When such events or
circumstances indicate the carrying value of an asset may be impaired, the
company uses an estimate of the future undiscounted cash flows to be derived
from the remaining useful life of the asset to assess whether or not the asset
is recoverable. If the future undiscounted cash flows to be derived over the
life of the asset do not exceed the asset's net book value, the company
recognizes an impairment loss for the amount by which the net book value of
the asset exceeds its estimated fair market value. See Note Three for
additional information.
NOTE TWO--FINANCIAL RESULTS AND LIQUIDITY:
The company has incurred net losses of $299.4 million, $178.0 million, and
$90.8 million in 1997, 1996 and 1995, respectively. For many years the
company's major competitors, many with greater resources, have aggressively
lowered their selling prices in an attempt to increase market share. Although
the company has benefited from cost reduction programs, these lower color
television prices together with inflationary cost increases have more than
offset such cost reduction benefits.
Since joining the company in January 1998, the new Chief Executive Officer,
along with the rest of the company's management team has been developing a
broad operational and financial restructuring plan. A broad outline of that
plan has been presented to the company's Board of Directors in March 1998. The
plan, which is designed to leverage the company's brand, distribution and
technology strengths, includes reducing costs, outsourcing of certain
components and products, disposition of certain assets and capitalizing on the
company's patented digital television technologies. Restructuring costs must
be incurred to implement the plan.
Despite its negative cash flow, the company has been able to secure
financing to support its operations to date, based on credit support from LGE.
Between November 1997 and February 1998, the company (with the guarantee of
LGE) entered into a series of new lending agreements with commercial lenders
for unsecured lines of credit totaling more than $100 million, all of which
has been drawn as of March 31, 1998.
Going forward, significant amounts of additional cash will be needed to pay
the restructuring costs to implement the proposed business plan and to fund
losses until the company has returned to profitability. Based on management's
proposed plan, the company estimates that at least $225 million would be
required to fund the company's restructuring costs and operations through the
end of 1998 and that additional amounts could be required thereafter.
While there is no assurance that funding will be available to execute the
plan, the company is continuing to seek financing to support its turnaround
efforts and is exploring a number of alternatives in this regard. LGE has
agreed to provide up to $45 million in additional funding for one year from
the date of the first borrowing, subject to LGE's right to demand repayment at
anytime after June 30, 1998, and is secured by certain assets of the company.
The company believes that this additional short-term financing, along with its
current credit facilities, will be sufficient to support the company's
liquidity requirements through June 30, 1998, depending on operating results
and the level of continued trade support. In addition, the company is engaged
in ongoing discussions with LGE concerning the company's business plan, and
LGE is considering whether to provide additional long-term financial support.
However, LGE has no obligation to do so. Any such support by LGE would be
subject to a number of conditions, including the operating results of the
company, third-party consents, Republic of Korea regulatory approvals and
other conditions. No decision has been made at this time by LGE or the company
regarding additional financial support, and there can be no assurance that any
additional financial support will be forthcoming from LGE.
In the absence of long-term financial support from LGE, there can be no
assurance that additional financing can be obtained from conventional sources.
Management is exploring alternatives that include seeking strategic
F-14
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
investors, lenders and/or technology partners, selling substantial company
assets or pursuing other transactions that could result in diluting LGE to a
less than majority position. There can be no assurance that management's
efforts in this regard will be successful.
To implement the proposed business plan and to fund associated restructuring
costs and operating losses, the company will be required to restructure
certain of its outstanding debt and other financing arrangements (See Notes
Six, Fourteen, Fifteen and Sixteen for a description of certain debt and
financing arrangements.) A number of alternatives, including out-of-court and
in-court financial restructurings, are being considered. Management believes
that, under any restructuring scenario, the company's common stock would
likely be subject to massive dilution as a result of the conversion of debt to
equity or otherwise. There can be no assurances as to what value, if any,
would be ascribed to the common stock in a restructuring. In addition, the
company's subordinated debentures could suffer substantial impairment in a
restructuring. Due to a number of uncertainties, many of which are outside the
control of the company, there can be no assurance that the company will be
able to consummate any operational or financial restructuring.
The company's independent public accountants have included a "going concern"
emphasis paragraph in their audit report accompanying the 1997 financial
statements. The paragraph states that the company's recurring losses and
negative working capital raise substantial doubt about the company's ability
to continue as a going concern and cautions that the financial statements do
not include adjustments that might result from the outcome of this
uncertainty.
Existing credit facilities are not expected to be sufficient to cover
liquidity requirements after June 30, 1998, and the company is currently
facing the prospect of not having adequate funds to operate its business.
There can be no assurance that additional credit facilities can be arranged or
that any long-term restructuring alternative can be successfully initiated or
implemented by June 30, 1998, in which case the company may be compelled to
pursue a bankruptcy filing in the absence of a proposed or pre-approved
financial restructuring. The company will be required to obtain waivers under
its financing arrangements for periods subsequent to June 30, 1998 and the
lenders thereunder are under no obligation to provide such waivers.
Management believes that, despite the financial hurdles and funding
uncertainties going forward, it has under development a business plan that, if
successfully funded and executed as part of a financial restructuring, can
significantly improve operating results. The support of the company's vendors,
customers, lenders, stockholders and employees will continue to be key to the
company's future success.
NOTE THREE--IMPAIRMENT OF LONG-LIVED ASSETS:
During the fourth quarter of 1997, an impairment was recognized for the
Consumer Electronics business since the future undiscounted cash flows of
assets were estimated to be insufficient to recover their related carrying
values. As such, the company recognized an expense of $53.7 million and
established a valuation reserve for the write-down of the excess carrying
value over fair market value. The fair market value used in determining the
impairment loss was based upon management and third party valuations,
including estimates of potential environmental liabilities. This FAS 121
charge is included in Other operating expense (income).
The impairment related primarily to the company's assets associated with its
color picture tube (CPT), and computer display tube (CDT) plant at Melrose
Park, Illinois, and certain assembly plant operations in Reynosa, Mexico. An
accumulation of many adverse circumstances during 1997 called into question
the recovery of the carrying values of Melrose Park including: the company's
decision to exit from 19/209 tube production; unrecoverable new capital costs
significantly in excess of plans ($118 million v. $81 million) for partial
plant automation and new CDT production capability; the inability to produce
the new CDTs either technologically or
F-15
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
economically; sudden adverse market developments in 159-CDT demand, and 15/179
CDT pricing; and persistent historic and projected operating cash flow losses
along with the need for continuing maintenance capital investment. Further, at
the Reynosa, Mexico, assembly plant, certain facts indicated potential
impairment: its exit from small TV assembly; the relocation of certain
parts/service operations to Huntsville, Alabama; and the planned vacating
certain buildings on site. These factors during 1997, coupled with historic and
projected operating cash flow losses, the need for continuing maintenance
capital, and uncertainties discussed in Note Two indicated that an impairment
existed in the company's Consumer Electronics manufacturing assets.
During the third quarter of 1997, the company recorded a charge of $10.0
million related to the impairment of certain long-lived assets to be disposed
of. The charge relates primarily to (i) assets that will be sold or scrapped as
a result of the company's decision to phase out of its printed circuit board
operation (ii) assets that will be sold or scrapped as a result of the
company's decision not to develop the proposed large-screen picture tube plant
in Woodridge, Illinois and (iii) a building in Canada that was sold in December
1997. The amount of the charge is included in Other operating expense (income).
The impairment charges discussed above are based upon management's best
estimates of the recoverability of long-lived assets and the fair value of the
related assets. It is reasonably possible that the company's estimates of the
recoverability of long-lived assets and the fair value will change. See Note
Two for additional information.
NOTE FOUR--CHARGE FOR BAD DEBTS:
In November 1995 the company entered into a contract with a customer in
Brazil to purchase TVs and TV kits and to assemble and distribute Zenith brand
TVs in that country. In early 1997, this customer discontinued timely payments
of its obligations, and sought to renegotiate both the timing and the amount of
the obligations to the company. While the company and this customer continued
to negotiate in an attempt to reach a business solution, litigation was
commenced by both parties in Brazil. The company had also initiated litigation
against this customer in the United States. In late 1997, this matter was
settled. The agreement provides that the company will make certain parts and
components available to this customer, and will receive an $11.0 million
settlement payable in installments over eleven months. As a result of the above
problems, the company recorded a $21.3 million bad debt charge during 1997
related to this customer, which reflects the company's estimated loss as of
December 31, 1997. The bad debt charge affected the transferor certificate
valuation allowance.
NOTE FIVE--ACCOUNTING CHANGES:
During 1997 the company changed its accounting policy for most tooling
expenditures. The old policy was to charge most tooling expenditures to expense
in the period acquired. The new policy is to defer the tooling charges incurred
subsequent to March 29, 1997, over a 20-month period in order to more
appropriately match the costs with their period of benefit. The accounting
policy for picture tube tooling remains the same, which is to amortize that
tooling over a four-year period. This change was accounted for as a change in
accounting estimate effected by a change in accounting principle and will be
accounted for on a prospective basis. The change decreased tooling expense by
$8.9 million, and decreased the loss per share by $.13 in 1997.
Effective January 1, 1996, the company changed its inventory costing method
for its picture tube inventories from LIFO to FIFO. There has been a strategic
marketing shift in the company toward selling more larger-screen television
sets and less smaller-screen sets. The picture tubes for the smaller-screen
television sets are manufactured by the company and have been costed using
LIFO. It is expected that the LIFO picture tube inventory pool will decrease
and this decrease would create a LIFO liquidation resulting in a poor matching
of current costs with current revenues. As a result, the company believes that
the FIFO method is preferable as it will provide a more appropriate and
consistent matching of costs against revenues. This change in accounting
F-16
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
had no material impact on quarterly results and as a result, quarterly
information is not restated. The effect of this change in accounting principle
was to reduce the net loss reported for 1996 by $2.7 million, or $.04 per
share, retroactively restating the financial statements. The effect of this
change for 1995 was to reduce the net loss reported by $1.6 million, or $.03
per share.
NOTE SIX--RELATED PARTY:
In November 1995, a change in control of the company occurred, in which LGE
purchased shares of the company pursuant to a combined tender offer and
purchase of newly issued shares of common stock from the company. As of
December 31, 1997, LGE owned 36,569,000 shares of common stock of the company
which represents 55 percent of the outstanding common stock. Because LGE owns
a majority of the issued and outstanding common stock, it effectively controls
the outcome of any matter requiring action by a majority of the company's
stockholders, including the election of a majority of the company's directors
and any future change in control of the company.
LGE is a leading international brand-name manufacturer of five main groups
of products: televisions; audio and video equipment; home appliances;
computers and office automation equipment; and other products, including video
displays, telecommunication products and components, and magnetic media. The
following represent the most significant transactions between the company and
LGE during 1997 and 1996.
Product purchases: In the ordinary course of business, the company purchases
VCRs, TV-VCR combinations and components from LGE and its affiliates. The
company purchased $93.3 million and $128.8 million of these items in 1997 and
1996, respectively. Sales of products purchased from LGE and its affiliates
contributed $112.3 million and $141.4 million to sales in 1997 and 1996,
respectively, and $19.0 million and $12.6 million to gross margin in 1997 and
1996, respectively.
Equipment purchases: The company purchased approximately $37 million of
production machinery and equipment from LGE during 1997 and 1996. The
machinery and equipment related primarily to new production lines in the
company's picture tube plant for the manufacture of computer display tubes.
Product and other sales: The company sells TVs, picture tubes, yokes and
other manufactured subassemblies to LGE and its affiliates at prices that
equate to amounts charged by the company to its major customers. Sales in 1997
and 1996 by the company to LGE and its affiliates were $55.1 million and $29.4
million, respectively.
In December 1996, the company closed its wholly-owned Canadian distributor
and sold the remaining inventory to LGE at book value. The company entered
into a Distributor Agreement with an LGE subsidiary whereby LGE will be the
Canadian distributor for the company. During 1997, the company entered into a
similar agreement with an LGE subsidiary in Mexico to sell the company's
product in Mexico.
Technical agreements: The company and LGE are currently operating under
several technology agreements and licenses, including: LGE engineering support
for HDTV development and related technical and intellectual property;
technology and patent licenses to LGE to develop flat tension mask products;
and agreements granting LGE the right to use the company's patents on TV
tuners. LGE's payment in 1997 and 1996 to the company under these agreements
and licenses was $.6 million and $1.0 million, respectively.
Service Assistance: In 1997, employees of LGE provided certain services to
the company for which LGE was not compensated. These donated services were
valued at $2.2 million and the accounting treatment was to
F-17
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recognize the value of these expenses in the company's income statement and in
additional paid-in capital. In 1996, employees of LGE provided certain
services to the company for which LGE was not compensated. The value of these
services was not material in 1996.
In 1997, employees of LGE provided certain services to the company that were
covered under service agreements. The company's payments ($1.1 million) and
payable ($3.7 million) to LGE for such services totaled $4.8 million. The
payable is included in Long-term liabilities.
Other Items: In March 1998, the company entered into a secured credit
facility with LGE which provides for borrowings of up to $45 million. The term
of the facility is one year from the date of the first borrowing, subject to
LGE's right to demand repayment at anytime after June 30, 1998. Repayment is
due in full at the end of the term. The facility is secured by liens on
certain of the company's assets and is subject to certain terms and
conditions.
In September 1997, the company and LGE entered into an High Definition TV
Receiver Project Agreement. As called for in the agreement, the company
received $4.5 million from LGE toward funding for the project. In return, LGE
will receive a percentage of applicable royalties the company anticipates
receiving until such time as LGE has received $4.5 million. The $4.5 million
is included in Long-term liabilities.
In August 1997, the company received $30.0 million from LGE representing
payments in advance for 1997 sales from the company to LGE. The amount was
recorded as a liability and as sales were made to LGE, the liability balance
was reduced. As of December 31, 1997, $.6 million of the liability to LGE
remained and is included in Other accrued expenses.
In April 1997, the company and LGE entered into an arrangement whereby the
company's accounts payables arising in the ordinary course of business to LGE
would be extended for certain periods of time. Prior to April 1997, the
company's accounts payables arising in the ordinary course of business to LGE
were extended for certain periods of time, but no formal arrangement was in
place. The amount of extended payables was $144.3 million and $106.8 million
as of December 31, 1997 and 1996, respectively. Interest expense related to
the extended payables was $9.6 million, $2.6 million and $0.8 million in 1997,
1996 and 1995, respectively.
In return for LGE providing support for certain financing activities of the
company entered into in April 1997, the company granted options to LGE to
purchase approximately 3.9 million common shares of the company at an exercise
price of $0.01 per share. These options are exercisable over a 12 1/2 year
period with 793,000 options vesting in each of the first three years, 175,000
options vesting in years 4 through 12 and 11,000 options vesting in the last
half year. The accounting for these stock options was based upon their fair
value with that fair value being amortized straight-line over the term of the
associated commitments. The quoted market price of the stock at the time of
issuance was $10.00 per share. The market price was used as the fair value of
the options as the company believed this provided the best representation of
the options fair value. The related deferred financing charge, net of
amortization, is recorded as follows: $30.1 million in Noncurrent other assets
and $5.1 million in Current other assets.
As of December 31, 1997 and 1996, accounts payable included $145.9 million
and $124.5 million, respectively, to LGE and its affiliates. The amount of
receivables from LGE and its affiliates was not material as of December 31,
1997 and 1996.
The company currently leases space from an LGE subsidiary in (i) Huntsville,
Alabama, for its Parts & Service group, (ii) Ontario, California, for a
warehouse and (iii) San Jose, California, for its Network Systems group.
F-18
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE SEVEN--RESTRUCTURING AND OTHER CHARGES:
During the fourth quarter of 1996, the company recorded $9.3 million of
restructuring charges. The restructuring was composed of $5.2 million of
charges related to severance costs associated with employment reductions
(mostly in the company's U.S. salaried workforce) and $4.1 million of charges
associated with the shutdown of the company's wholly-owned Canadian
distributor. Substantially all of the provisions were related to cash
expenditures made during 1997. A summary of the restructuring reserve activity
related to the restructuring is as follows:
<TABLE>
<CAPTION>
RESTRUCTURING RESTRUCTURING
RESERVE AT RESERVE AT
DECEMBER 31, ASSET CASH RESERVE DECEMBER 31,
1996 WRITEOFF PAYMENTS RELEASES 1997
------------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Severance costs......... $5.2 $ -- $(5.2) $ -- $--
Canadian distributor
shutdown............... 4.1 (0.3) (2.7) (1.1) --
---- ----- ----- ----- ----
Total restructuring
charges.. $9.3 $(0.3) $(7.9) $(1.1) $--
==== ===== ===== ===== ====
</TABLE>
During the fourth quarter of 1995, the company recorded charges totaling
$3.6 million that were incurred as a consequence of the LGE purchase of common
stock as described in Note Six. During the second quarter of 1995, the company
recorded a charge of $18.0 million primarily to restructure its core Consumer
Electronics and Network Systems business. The major elements of the
restructuring related to severance expenses associated with employment
reductions, primarily in the company's U.S. salaried workforce and costs
associated with realigned distribution activities as the company changed to
direct-to-retail distribution on a nationwide basis. The remaining charges
related to other non-recurring items, including certain environmental, legal
and other regulatory matters, along with trade receivable write-offs
(primarily for accounts in Mexico as a result of the December 1994 peso
devaluation). A summary of the restructuring and other reserves activity is as
follows:
<TABLE>
<CAPTION>
BEGINNING RESTRUCTURING
RESTRUCTURING RESERVE AT
AND OTHER ASSET CASH RESERVE DECEMBER 31,
RESERVE WRITEOFF PAYMENTS RELEASES 1996
------------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Restructuring charges:
Severance costs....... $ 9.6 $ -- $ (9.6) $-- $--
Realigned distribution
costs................ 2.7 -- (2.7) -- --
----- ----- ------ ---- ----
Total restructuring
charges.............. 12.3 -- (12.3) -- --
----- ----- ------ ---- ----
Other charges:
Environmental, legal
and regulatory
costs................ 4.8 (0.3) (4.5) -- --
LGE transaction
costs................ 3.6 (2.3) (1.3) -- --
Trade receivable
write-offs........... 0.9 (0.9) -- -- --
----- ----- ------ ---- ----
Total other charges... 9.3 (3.5) (5.8) -- --
----- ----- ------ ---- ----
Total restructuring and
other charges.......... $21.6 $(3.5) $(18.1) $-- $--
===== ===== ====== ==== ====
</TABLE>
F-19
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE EIGHT--INCOME TAXES:
The components of income taxes (credit) were:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------
1997 1996 1995
---- ---- -----
(IN MILLIONS)
<S> <C> <C> <C>
Currently payable (refundable):
Federal.............................................. $ .1 $-- $(7.8)
State................................................ (.9) .2 .1
---- ---- -----
Total income taxes (credit).......................... $(.8) $ .2 $(7.7)
==== ==== =====
</TABLE>
The $7.7 million income tax credit in 1995 included a $7.5 million tax
refund (including interest) due the company as a result of certain foreign tax
credit issues in audits of prior years. The company received this tax refund
during 1997.
The statutory federal income tax rate and the effective tax rate are
compared below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate............... (35.0)% (35.0)% (35.0)%
State income taxes, net......................... -- -- .1
Foreign tax effects............................. 2.2 1.0 1.5
Tax benefits not recognized subject to future
realization.................................... 32.8 34.0 33.5
Net operating loss carryback/refund............. -- -- (8.4)
----- ----- -----
Effective tax rate.............................. (--)% (--)% (8.3)%
===== ===== =====
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
Loss carryforwards...................................... $ 353.5 $ 228.2
Inventory valuation..................................... 22.6 23.8
Transferor certificate valuation reserve................ 14.6 --
PP&E valuation reserve.................................. 22.9 --
Product warranty........................................ 9.4 11.5
Co-op advertising....................................... 3.7 6.3
Merchandising........................................... 2.6 3.8
Other................................................... 35.6 38.0
------- -------
Deferred tax assets................................... 464.9 311.6
------- -------
Depreciation............................................ 3.4 (6.6)
Other................................................... (1.3) 5.5
------- -------
Deferred tax liabilities.............................. 2.1 (1.1)
------- -------
Valuation allowance..................................... (467.0) (310.5)
------- -------
Net deferred tax assets............................... $ -- $ --
======= =======
</TABLE>
The valuation allowance was established since the realization of these
assets cannot be reasonably assured, given the company's recurring losses.
F-20
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1997, the company had $835.6 million of total net
operating loss carryforwards (NOLs) available for federal income tax purposes
(which expire from 2004 through 2011) and unused tax credits of $3.9 million
(which expire from 2000 through 2002).
The stock purchase by LGE described in Note Six created an "ownership
change" of the company for federal income tax purposes, with the effect that
the company's annual usage of its NOLs will be limited to approximately $27
million, which represents the product of (i) a tax-exempt rate of return
announced monthly by the Internal Revenue Service (5.75 percent for ownership
changes occurring in the month of November 1995) and (ii) the value of the
company immediately before the ownership change, as determined under
applicable tax regulations. This limitation applies to approximately $481
million of the company's available NOL carryovers, which represents the losses
generated prior to the "ownership change". The company's remaining loss
carryovers are not subject to this limitation. In addition, this limitation,
appropriately modified, will also apply to the company's utilization of most
of its tax credit carryovers. The effect of this annual limit will depend upon
the generation of sufficient taxable income in the future and certain other
factors.
NOTE NINE--GEOGRAPHIC SEGMENT DATA:
The company's operations involve a dominant industry segment -- the design,
development, manufacture and distribution of video products, including color
TV sets, VCRs and other consumer electronics products, color picture tubes,
cable TV products and parts and accessories for these products.
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales:
Domestic companies...................... $1,144.9 $1,221.4 $1,212.7
Foreign companies....................... 28.2 66.5 61.2
-------- -------- --------
Total net sales......................... $1,173.1 $1,287.9 $1,273.9
======== ======== ========
Income (loss) before income taxes:
Domestic companies...................... $ (295.3) $ (171.5) $ (94.5)
Foreign companies....................... (4.9) (6.3) (4.0)
-------- -------- --------
Total income (loss) before income
taxes.................................. $ (300.2) $ (177.8) $ (98.5)
======== ======== ========
Identifiable assets:
Domestic companies...................... $ 405.1 $ 615.5 $ 548.5
Foreign companies....................... 122.6 149.8 152.2
-------- -------- --------
Total identifiable assets............... $ 527.7 $ 765.3 $ 700.7
======== ======== ========
</TABLE>
Foreign operations consist of manufacturing and sales subsidiaries in
Mexico, a distribution subsidiary in Canada (which was closed in December
1996) and a purchasing office in Taiwan. Sales to affiliates are principally
accounted for at amounts based on local costs of production plus a reasonable
return.
Sales to a single customer, Circuit City Stores, Inc., amounted to $138.6
million (12 percent) in 1997, $187.2 million (15 percent) in 1996, and $172.1
million (14 percent) in 1995. Sales to a second customer, Sears, Roebuck and
Company, accounted for $132.4 million (11 percent) in 1997 and $140.9 million
(11 percent) in 1996. No other customer accounted for 10 percent or more of
net sales.
F-21
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE TEN--OTHER OPERATING EXPENSE (INCOME):
Major manufacturers of TVs and VCRs agreed during 1992 to take licenses
under some of the company's U.S. tuning system patents (the licenses expire in
2003). Royalty income related to the tuning system patents was $26.0 million,
$26.6 million, and $25.9 million in 1997, 1996 and 1995, respectively, and is
included in Other operating expense (income). See Note Three for further
discussion on Other operating expense (income).
NOTE ELEVEN--INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Raw materials and work-in-process.......................... $ 96.9 $152.1
Finished goods............................................. 68.6 103.6
------ ------
Total inventories.......................................... $165.5 $255.7
====== ======
</TABLE>
NOTE TWELVE--TRANSFEROR CERTIFICATES:
The Financial Accounting Standards Board issued FAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," in 1996. The accounting standard provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. This statement was adopted by the company
during the second quarter of 1997 in connection with the three-year trade
receivables securitization that was entered into in April 1997. Pursuant to
the new statement, the trade receivable securitization was accounted for as a
sale of receivables.
Transferor certificates represent the company's retained interest in the
pool of saleable receivables that have been sold by the company to a special-
purpose trust, but can not or have not yet been sold to outside investors in
the commercial paper market via a multi-seller conduit pursuant to the trade
receivables securitization agreement. Outside investors hold investor
certificates which evidence their ownership of a portion of the assets
contained in the special multi-purpose trust. Transferor certificates are
valued at historical cost not to exceed their net realizable value. This cost
approximates the value of the previous carrying amount (prior to transfer),
allocated between the assets sold and the retained interest, based on their
relative fair values at the date of the transfer, as required by FAS 125.
NOTE THIRTEEN--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
Land $ 2.7 $ 9.9
Buildings............................................... 147.9 135.5
Machinery and equipment................................. 640.9 696.6
------- -------
791.5 842.0
Less accumulated depreciation........................... (562.0) (563.7)
Less valuation reserve.................................. (58.4) --
------- -------
Total property, plant and equipment, net................ $ 171.1 $ 278.3
======= =======
</TABLE>
F-22
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997, the company reclassed $8.7 million of property pending
disposal out of Property, Plant and Equipment into Other Noncurrent Assets.
Included in this amount is $6.0 million of land, which is the primary reason
for the 1997 decrease in land, when compared to 1996.
NOTE FOURTEEN--SALE LEASEBACK TRANSACTION:
In April 1997 the company entered into an $87 million sale-leaseback
transaction whereby the company sold and leased back new and existing
manufacturing equipment in its Melrose Park, Ill., plant and in its Reynosa
and Juarez, Mexico, facilities. The result of the sale was a $10.2 million
gain for the company, which was deferred and is being amortized over the 12
1/2 year lease term.
The related lease is being accounted for as an operating lease. The rental
expense under this lease in 1997 was $8.1 million. The minimum lease payments
required by the lease over the next five years are as follows (in million):
<TABLE>
<S> <C>
Year ending December 31:
1998............................ $12.3
1999............................ 10.6
2000............................ 9.6
2001............................ 9.7
2002............................ 9.7
Thereafter...................... 78.6
------
Total minimum lease payments.... $130.5
======
</TABLE>
The company's payment obligations, along with certain other items under the
lease agreement are fully guaranteed by LGE (see discussion in Note Six). The
sale-leaseback agreement contains financial penalties which would be triggered
if the company was to terminate the lease early.
NOTE FIFTEEN--SHORT-TERM DEBT AND CREDIT ARRANGEMENTS:
In April 1997, the company obtained a $65 million revolving credit line with
Citicorp. This facility replaces the company's previous credit agreement with
General Electric Capital Corporation. Under the revolving credit line, the
maximum commitment of funds available for borrowing is limited by a defined
borrowing base formula related to eligible inventory. The facility is secured
by the company's inventory, domestic fixed assets, stock of the company's
subsidiaries and tuner patent royalties, along with the related patents,
licenses and other general intangibles. Interest on borrowings is based on
market rates.
The credit line contains certain covenants that must be met in order to
remain in compliance with the facility, including financial covenants that
must be maintained as of the end of each fiscal quarter. During 1997, the
company amended the credit facility to relax certain financial covenants. As
amended, the financial covenants include a minimum EBITDA amount, a current
ratio test, a funded debt/total capitalization ratio test, a tuning patent
royalties test and an LGE payable test. As a result of waivers obtained from
Citicorp, N.A., in December 1997 and March 1998, only the tuning patent
royalties test and the LGE payable test were in effect as of December 31, 1997
and March 31, 1998, and the company was in compliance with both of these
covenants. In addition, there are restrictions regarding investments,
acquisitions, guaranties, transactions with affiliates, sales of assets,
mergers and additional borrowings, along with limitations on liens. The credit
agreement prohibits dividend payments on the company's common stock, restricts
dividend payments on any of its preferred.
Between November 1997 and February 1998 the company entered into a series of
new financing transactions designed to enhance the company's liquidity and
financial flexibility. The company obtained a total
F-23
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of $110 million in unsecured and uncommitted credit facilities through four
lines of credit with Bank of America ($30 million), the First Chicago NBD ($30
million), Societe Generale ($20 million) and Credit Agricole ($30 million). As
of December 31, 1997, a total of $72.0 million was outstanding under these
credit lines.
The credit lines are guaranteed by LGE for which LGE will receive a fee in
an amount up to 2 percent of the face amount of the loan, in the form of cash
or the company's equity and subject to the approval of the Finance Committee
of the company's Board of Directors and in the case of equity, the approval of
the company's shareholders. The company granted liens in favor of LGE on the
capital stock of the company's domestic subsidiaries and on the company's
intellectual property (other than tuning patents, tuning patent royalties and
related license agreements) to secure the guaranties of LGE for borrowings
under these credit lines.
In March 1998, the company entered into a secured credit facility with LGE
which provides for borrowings of up to $45 million. See Note Six for further
discussion.
Borrowings and interest rates on short-term debt were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Maximum month-end borrowings................... $72.0 $72.6 $69.5
Average daily borrowings....................... 26.4 18.3 37.2
Weighted average interest rate................. 9.1% 8.8% 10.5%
</TABLE>
NOTE SIXTEEN--LONG-TERM DEBT:
The components of long-term debt were:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
6 1/4 percent convertible subordinated debentures due
2011..................................................... $109.3 $115.0
8.5 percent senior subordinated convertible debentures due
2000..................................................... -- 23.8
8.5 percent senior subordinated convertible debentures due
2001..................................................... .5 .5
Term Loan................................................. 38.3 31.2
------ ------
148.1 170.5
Less current portion...................................... 15.3 17.8
------ ------
Total long-term debt...................................... $132.8 $152.7
====== ======
</TABLE>
The 6 1/4 percent convertible subordinated debentures are unsecured general
obligations, subordinate in right of payment to certain other debt
obligations, and are convertible into common stock at $31.25 per share. Terms
of the debenture agreement include annual sinking-fund payments of $5.8
million beginning in April 1997 and provisions which could result in the
acceleration of their payment in the event the company is in default on
provisions of other debt agreements. The debentures are redeemable at the
option of the company, in whole or in part, at specified redemption prices at
par or above.
In December 1997 the company redeemed the 8.5 percent Senior Subordinated
Convertible Debentures due November 2000. There was $23.8 million principal
amount of such debentures outstanding and the redemption price of such
debentures was 104 percent of such principal amount plus accrued interest
through the redemption date. The loss on extinguishment of this debt was not
material.
F-24
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 8.5 percent debentures due 2001 are unsecured general obligations,
subordinate in right of payment to certain other debt obligations, and are
convertible into shares of common stock at an initial conversion price of
$10.00 per share. Subsequent to December 31, 1997, the company redeemed the
8.5 percent Senior Subordinated Convertible Debentures due January 2001. There
was $.5 million principal amount of such debentures outstanding and the
redemption price of such debentures was 104 percent of such principal amount
plus accrued interest through the redemption date. The loss on extinguishment
of this debt was not material.
In April 1997 the company entered into a $45 million term loan with
Citicorp. This facility replaces the company's previous credit term loan with
General Electric Capital Corporation. The term loan requires scheduled
quarterly principal payments of $2.3 million with a balloon payment of $20.3
million at maturity. The facility is secured by the company's inventory,
domestic fixed assets, stock of the company's subsidiaries and tuner patent
royalties, along with the related patents, licenses and other general
intangibles. Interest on borrowings is based on market rates.
The term loan contains certain covenants that must be met in order to remain
in compliance with the facility, including financial covenants that must be
maintained as of the end of each fiscal quarter. During 1997, the company
amended the credit facility to relax certain financial covenants. As amended,
the financial covenants include a minimum EBITDA amount, a current ratio test,
a funded debt/total capitalization ratio test, a tuning patent royalties test
and an LGE payable test. As a result of waivers obtained from Citicorp, N.A.,
in December 1997 and March 1998, only the tuning patent royalties test and the
LGE payable test were in effect as of December 31, 1997 and March 31, 1998,
and the company was in compliance with both of these covenants. The long-term
portion of the term loan has been classified in the accompanying balance sheet
based on the company's intention to seek additional waivers or amendments for
any future noncompliance prior to the expiration of the March 1998 waiver in
June 1998 that extent to a period subsequent to January 1, 1999. There are no
assurances that such waivers or amendments will be granted.
In addition, the term loan contains restrictions regarding investments,
acquisitions, guaranties, transactions with affiliates, sales of assets,
mergers and additional borrowings, along with limitations on liens. The term
loan prohibits dividend payments on the company's common stock and restricts
dividend payments on any of its preferred stock.
The fair value of long-term debt is $90.8 million as of December 31, 1997,
as compared to the carrying amount of $132.8 million. The fair value of the 6
1/4 percent convertible subordinated debentures is based on the quoted market
price from the New York Stock Exchange. The fair value of the 8.5 percent
convertible senior subordinated debentures is based on the quoted price
obtained from third party financial institutions. The fair value of the term
loan approximates the carrying value as interest on the loan is based on
market rates. As of December 31, 1997, the company's credit agreement and term
loan would not allow the company to extinguish the long-term debt through
purchase and thereby realize the gain.
F-25
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE SEVENTEEN--STOCKHOLDERS' EQUITY:
Changes in stockholders' equity accounts are shown below:
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TREASURY
STOCK CAPITAL SHARES
------ ---------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, December 31, 1994.................... $45.7 $285.4 $ (.5)
Sales of common stock....................... 17.8 152.6 --
Stock issued for stock options.............. -- .3 --
Other....................................... -- 1.7 (1.2)
----- ------ -----
Balance, December 31, 1995.................... 63.5 440.0 (1.7)
Stock issued for benefit plans.............. .8 4.5 --
Stock issued for stock options.............. 1.9 13.9 --
Other....................................... .4 1.0 --
----- ------ -----
Balance, December 31, 1996.................... 66.6 459.4 (1.7)
Stock issued for benefit plans.............. .5 4.4 --
Stock issued for stock options.............. .1 1.0 --
Paid in capital--LGE guarantee.............. -- 39.7 --
Paid in capital--LGE services............... -- 2.2 --
Other....................................... (.1) .6 --
----- ------ -----
Balance, December 31, 1997.................... $67.1 $507.3 $(1.7)
===== ====== =====
</TABLE>
During 1997, the company entered into certain transactions with LGE that
effected paid in capital. These transaction dealt with the granting of stock
options and donated services. See Note Six for further discussion on these
items.
During 1996, the company sold 1.9 million shares of authorized but unissued
common stock to employees of the company via the exercise of previously issued
stock options. During 1995, the company sold 16.5 million shares of authorized
but unissued common stock to LGE for a price of $10 per share (see Note Six
for further discussion). Also during 1995 the company sold 1.3 million shares
of authorized but unissued shares of common stock to investors under
registration statements that had been filed with the Securities and Exchange
Commission.
The company has authorized 8 million shares of preferred stock of which none
are issued or outstanding as of December 31, 1997. The Board of Directors of
the company is authorized to issue the preferred stock from time to time in
one or more series and to determine all relevant terms of each such series,
including but not limited to the following (i) whether and upon what terms,
the shares of such series would be redeemable; (ii) whether a sinking fund
would be provided for the redemption of the shares of such series and, if so,
the terms thereof; and (iii) the preference, if any, to which shares of such
series would be entitled in the event of voluntary or involuntary liquidation
of the company.
NOTE EIGHTEEN--STOCK OPTIONS AND AWARDS:
Stock Options: The 1987 Stock Incentive Plan, which expired in April 1997,
and the Long Term Equity Compensation Plan, approved by the company's
shareholders in May 1997, authorize the granting of incentive and non-
qualified stock options and restricted stock awards to key management
personnel. The purchase price of shares under option is the market price of
the shares on the date of grant. Options expire 10 years from the date
granted. The company accounts for employee stock options under APB Opinion No.
25, under which no
F-26
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
compensation cost has been recognized. Had compensation cost been determined
based on the fair value of options at their grant dates consistent with the
method of FAS 123, the company's net income (loss) and earnings (loss) per
share would have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Net income (loss):
As reported.................................. $(299.4) $(178.0) $(90.8)
Pro forma.................................... (301.1) (179.1) (92.5)
Earnings (loss) per share:
As reported.................................. $ (4.49) $ (2.73) $(1.85)
Pro forma.................................... (4.52) (2.75) (1.88)
</TABLE>
Because the FAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the pro forma compensation cost may not be
representative of the pro forma cost to be expected in future years.
A summary of the status of the company's outstanding stock options at
December 31, 1997, 1996 and 1995 and changes during the years then ended is
presented in the table and narrative below:
<TABLE>
<CAPTION>
NON-EMPLOYEES EMPLOYEES
---------------- ---------------------------------------------------
1997 1997 1996 1995
---------------- ---------------- ----------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE (000'S) PRICE
------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at
January 1.............. -- $ -- 968 $ 9.92 2,588 $8.25 2,027 $8.66
Options granted......... 3,965 0.01 952 11.10 456 12.54 738 7.16
Options exercised....... -- -- (154) 7.80 (1,889) 8.33 (38) 7.69
Options canceled........ -- -- (260) 11.20 (187) 9.30 (139) 8.66
----- ----- ----- ------ ------ ----- ----- -----
Options outstanding at
December 31............ 3,965 $0.01 1,506 $10.66 968 $9.91 2,588 $8.25
===== ===== ===== ====== ====== ===== ===== =====
Options exercisable at
December 31............ 793 $0.01 486 $ 9.05 427 $8.27 2,081 $8.34
Shares available for
grant at
December 31............ N/A 1,340 1,329 1,269
</TABLE>
The non-employee stock options were granted to LGE during 1997. See Note Six
for further discussion.
Of the employee options outstanding at December 31, 1997, 516,300 had
exercise prices between $6.25 and $10.69, with a weighted average exercise
price of $8.30 and a weighted average remaining contractual life of 6.52
years. The remaining 989,500 had exercise prices between $11.00 and $14.75,
with a weighted average exercise price of $11.90 and a weighted average
remaining contractual life of 9.05 years.
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model, using the following assumptions;
weighted average risk-free interest rates of 5.76 percent, 6.25 percent and
6.83 percent for grants in 1997, 1996, and 1995, respectively; zero expected
dividend yields, and expected volatility of 43.69 percent for 1997 and 62.35
percent for years 1996 and 1995. A 3.5 year estimated life was used for all
employee grants. The weighted average fair value of employee options granted
during 1997, 1996 and 1995 was $11.16, $13.93 and $7.16, respectively.
F-27
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Restricted stock awards: The company had 234,500 and 270,090 restricted
stock awards issued and outstanding as of December 31, 1997 and 1996,
respectively. The market value of the restricted shares is deferred in the
additional paid-in capital account and is generally amortized over the years
the restrictions lapse. The 1996 increase in restricted stock was caused by
issuances to new members of the company's management. Total compensation
expense in 1997 and 1996, related to these awards, was not material.
NOTE NINETEEN--RETIREMENT PLANS AND EMPLOYEE BENEFITS:
Virtually all employees in the United States are eligible to participate in
noncontributory defined contribution retirement plans after completing one
full year of service. The plans provide for an annual minimum contribution of
between 3 and 6 percent of employees' eligible compensation, based partially
on employees' contribution to the plans. Contributions above the minimum could
be required based upon profits in excess of a specified return on net worth.
Retirement plan expenses were $7.8 million, $8.6 million, $8.8 million and in
1997, 1996 and 1995, respectively. The company's 1997 contribution to the
retirement plans will be made during 1998. The company's 1996 and 1995
contributions to the retirement plans were partially funded through the
issuance of approximately 466,535 and 782,000 shares, respectively, of the
company's common stock.
Employees in Mexico are covered by government-mandated plans, the costs of
which are accrued by the company.
Benefits payable to employees when they leave the company other than by
reason of retirement did not have a material effect on the financial
statements of the company.
NOTE TWENTY--EARNINGS PER SHARE:
In accordance with FAS 128, "Earnings Per Share", the company computed
earnings per share by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the year. Diluted earnings
(loss) per share, assuming conversion of the 6 1/4 percent convertible
subordinated debentures, the 8.5 percent Senior Subordinated Convertible
Debentures due 2001 and outstanding stock options are not presented because
the effect of the assumed conversion is antidilutive.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Net Income (Loss).............................. $(299.4) $(178.0) $(90.8)
Weighted average common shares outstanding..... 66.6 65.2 49.2
Earnings per share............................. $ (4.49) $ (2.73) $(1.85)
</TABLE>
NOTE TWENTY ONE--CONTINGENCIES:
The company is involved in various legal actions, environmental matters,
patent claims, and other proceedings relating to a wide range of matters that
are incidental to the conduct of its business. In addition, the company
remains liable for certain retained obligations of a discontinued business,
principally income and other taxes prior to the closing of the sale.
Furthermore, the company has been named as a defendant in certain cases which
relate to keyboards allegedly manufactured or designed by the company for the
discontinued business.
In 1994, the company notified its 15 independent distributors of its intent
to change to direct-to-retail distribution on a nationwide basis during 1995.
A suit arising in connection with this change in distribution was filed in
April 1995 by an independent distributor. The lawsuit sought approximately $13
million in damages under the Wisconsin Fair Dealership Law. In January 1996
the court denied the company's motion for summary judgment and granted the
plaintiff's motion for summary judgment, finding the company liable. A jury
trial on
F-28
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
damages was held in May 1996, and the jury awarded the plaintiff $2.37
million. The company has appealed the judgment, contesting both the summary
judgment finding of liability and the damages awarded and is awaiting the
appellate court's decision.
The company believes that, after reviewing such matters with the company's
counsel, any liability that may ultimately be incurred with respect to these
matters is not expected to have a material effect on either the company's
consolidated financial position or results of operations.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Zenith Electronics Corporation:
We have audited the accompanying consolidated balance sheets of Zenith
Electronics Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related statements of consolidated
operations and retained earnings and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Zenith
Electronics Corporation and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the company will continue as a going concern. As discussed in
Note Two to the financial statements, the Company has suffered recurring
losses from operations and has negative working capital that raises
substantial doubt about the ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note Two.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
As explained in Note Five to the financial statements, the Company changed
its methods of accounting for tooling costs in 1997, and picture tube
inventories in 1996.
/s/ Arthur Andersen LLP
-------------------------------------
Arthur Andersen LLP
Chicago, Illinois
March 27, 1998
F-30
<PAGE>
ANNEX A--THE PREPACKAGED PLAN
[Important: A Bankruptcy Case Has Not Been
Commenced as of the Date of the Distribution of this Document]
IN THE UNITED STATES BANKRUPTCY COURT
IN RE:
CHAPTER 11
ZENITH ELECTRONICS CORPORATION,
CASE NO. 98- ( )
DEBTOR.
- ----------------------------------
- --------------------------------------------------------------------------------
PREPACKAGED PLAN OF REORGANIZATION
OF ZENITH ELECTRONICS CORPORATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
- --------------------------------------------------------------------------------
James H.M. Sprayregen
Matthew N. Kleiman
Anup Sathy
KIRKLAND & ELLIS
200 E. Randolph Drive
Chicago, Illinois 60601
(312) 861-2000
Counsel to
ZENITH ELECTRONICS CORPORATION,
debtor and debtor-in-possession
Dated: [ ]
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I.
DEFINED TERMS, RULES OF INTERPRETATION, COMPUTATION OF TIME AND
GOVERNING LAW....................................................... 4
A. Rules of Interpretation, Computation of Time and Governing Law... 4
B. Defined Terms.................................................... 4
ARTICLE II.
ADMINISTRATIVE AND PRIORITY TAX CLAIMS............................... 9
A. Administrative Claims............................................ 9
B. Priority Tax Claims.............................................. 9
ARTICLE III.
CLASSIFICATION AND TREATMENT OF CLASSIFIED CLAIMS AND EQUITY
INTERESTS........................................................... 9
A. Summary.......................................................... 9
B. Classification and Treatment..................................... 12
C. Special Provision Governing Unimpaired Claims.................... 14
ARTICLE IV.
ACCEPTANCE OR REJECTION OF THE PLAN.................................. 15
A. Voting Classes................................................... 15
B. Acceptance by Impaired Classes................................... 15
C. Presumed Acceptance of Plan...................................... 15
D. Presumed Rejection of Plan....................................... 15
E. Non-Consensual Confirmation...................................... 15
ARTICLE V.
MEANS FOR IMPLEMENTATION OF THE PLAN................................. 15
Continued Corporate Existence and Vesting of Assets in the
A. Reorganized Debtor............................................... 15
Cancellation of Notes, Instruments, Debentures, Common Stock and
B. Stock Options.................................................... 16
C. Issuance of New Securities; Execution of Related Documents....... 16
Corporate Governance, Directors and Officers, and Corporate
D. Action........................................................... 16
E. LGE New Credit Support........................................... 17
F. Sources of Cash for Plan Distribution............................ 17
ARTICLE VI.
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES................ 17
A. Assumption of Executory Contracts and Unexpired Leases........... 17
Claims Based on Rejection of Executory Contracts or Unexpired
B. Leases........................................................... 17
Cure of Defaults for Executory Contracts and Unexpired Leases
C. Assumed.......................................................... 18
D. Indemnification of Directors, Officers and Employees............. 18
E. Compensation and Benefit Programs................................ 18
ARTICLE VII.
PROVISIONS GOVERNING DISTRIBUTIONS................................... 18
A. Distributions for Claims Allowed as of the Effective Date........ 18
Distributions by the Reorganized Debtor; Distributions with
B. Respect to Debt Securities....................................... 18
Delivery and Distributions and Undeliverable or Unclaimed
C. Distributions.................................................... 18
D. Distribution Record Date......................................... 18
E. Timing and Calculation of Amounts to be Distributed.............. 20
F. Minimum Distribution............................................. 20
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
G. Setoffs............................................................ 20
H. Surrender of Canceled Instruments or Securities.................... 20
I. Lost, Stolen, Mutilated or Destroyed Debt Securities............... 20
ARTICLE VIII.
PROCEDURES FOR RESOLVING DISPUTED CLAIMS............................... 21
A. Prosecution of Objections to Claims................................ 21
B. Estimation of Claims............................................... 21
C. Payments and Distributions on Disputed Claims...................... 22
ARTICLE IX.
CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE P......... 22
A. Condition Precedent to Confirmation................................ 22
B. Conditions Precedent to Consummation............................... 22
C. Waiver of Conditions............................................... 22
D. Effect of Non-occurrence of Conditions to Consummation............. 22
ARTICLE X.
RELEASE, INJUNCTIVE AND RELATED PROVISIONS............................. 23
A. Subordination...................................................... 23
B. Limited Releases by the Debtor..................................... 23
C. Limited Releases by Holder of Claims............................... 23
D. Preservation of Rights of Action................................... 23
E. Exculpation........................................................ 24
F. Injunction......................................................... 24
ARTICLE XI.
RETENTION OF JURISDICTION.............................................. 24
ARTICLE XII.
MISCELLANEOUS PROVISIONS............................................... 25
A. Dissolution of Committee(s)........................................ 25
B. Payment of Statutory Fees.......................................... 25
C. Discharge of Debtor................................................ 25
D. Modification of Plan............................................... 25
E. Revocation of Plan................................................. 25
F. Successors and Assigns............................................. 26
G. Reservation of Rights.............................................. 26
H. Section 1146 Exemption............................................. 26
I. Further Assurances................................................. 26
J. Service of Documents............................................... 26
K. Filing of Additional Documents..................................... 26
</TABLE>
A-3
<PAGE>
- -------------------------------------------------------------------------------
PREPACKAGED PLAN OF REORGANIZATION
OF ZENITH ELECTRONICS CORPORATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
- -------------------------------------------------------------------------------
Pursuant to chapter 11, title 11 of the United States Code, 11 U.S.C. (S)(S)
101 et seq., Zenith Electronics Corporation, debtor and debtor-in-possession
in the above-captioned and numbered case, hereby respectfully proposes the
following Prepackaged Plan of Reorganization under Chapter 11 of the
Bankruptcy Code:
ARTICLE I.
DEFINED TERMS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW
A. Rules of Interpretation, Computation of Time and Governing Law
1. For purposes of the Plan: (a) whenever from the context it is
appropriate, each term, whether stated in the singular or the plural, shall
include both the singular and the plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, feminine and
the neuter gender; (b) any reference in the Plan to a contract, instrument,
release, indenture or other agreement or document being in a particular form
or on particular terms and conditions means that such document shall be
substantially in such form or substantially on such terms and conditions; (c)
any reference in the Plan to an existing document or exhibit Filed, or to be
Filed, shall mean such document or exhibit, as it may have been or may be
amended, modified or supplemented; (d) unless otherwise specified, all
references in the Plan to Sections, Articles and Exhibits are references to
Sections, Articles and Exhibits of or to the Plan; (e) the words "herein" and
"hereto" refer to the Plan in its entirety rather than to a particular portion
of the Plan; (f) captions and headings to Articles and Sections are inserted
for convenience of reference only and are not intended to be a part of or to
affect the interpretation of the Plan; (g) the rules of construction set forth
in section 102 of the Bankruptcy Code shall apply; and (h) any term used in
capitalized form in the Plan that is not defined herein but that is used in
the Bankruptcy Code or the Bankruptcy Rules shall have the meaning assigned to
such term in the Bankruptcy Code or the Bankruptcy Rules, as the case may be.
2. In computing any period of time prescribed or allowed by the Plan, the
provisions of Bankruptcy Rule 9006(a) shall apply.
3. Except to the extent that the Bankruptcy Code or Bankruptcy Rules are
applicable, and subject to the provisions of any contract, instrument,
release, indenture or other agreement or document entered into in connection
with the Plan, the rights and obligations arising under the Plan shall be
governed by, and construed and enforced in accordance with, the laws of the
State of in which the Bankruptcy Court resides, without giving effect to the
principles of conflict of laws thereof.
B. Defined Terms
Unless the context otherwise requires, the following terms shall have the
following meanings when used in capitalized form in the Plan:
1. "Administrative Claim" means a Claim for costs and expenses of
administration under section 503(b), 507(b) or 1114(e)(2) of the Bankruptcy
Code, including: (a) the actual and necessary costs and expenses incurred
after the Petition Date of preserving the Estate and operating the business
of the Debtor (such as wages, salaries or commissions for services and
payments for goods and other services and leased premises); (b)
compensation for legal, financial advisory, accounting and other services
and reimbursement of expenses awarded or allowed under section 330(a) or
331 of the Bankruptcy Code; and (c) all fees and
A-4
<PAGE>
charges assessed against the Estate under chapter 123 of title 28 United
States Code, 28 U.S.C. (S)(S) 1911-1930.
2. "Allowed" means, with respect to any Claim, except as otherwise
provided herein: (a) a Claim that has been scheduled by the Debtor in its
schedule of liabilities as other than disputed, contingent or unliquidated
and as to which the Debtor or other party in interest has not Filed an
objection by the Effective Date; (b) a Claim that either is not a Disputed
Claim or has been allowed by a Final Order; (c) a Claim that is allowed:
(i) in any stipulation of amount and nature of Claim executed prior to the
Confirmation Date and approved by the Bankruptcy Court; (ii) in any
stipulation with the Debtor of amount and nature of Claim executed on or
after the Confirmation Date; or (iii) in any contract, instrument,
indenture or other agreement entered into or assumed in connection with the
Plan; (d) a Claim relating to a rejected executory contract or unexpired
lease that either (i) is not a Disputed Claim or (ii) has been allowed by a
Final Order, in either case only if a proof of Claim has been Filed by the
Bar Date or has otherwise been deemed timely Filed under applicable law; or
(e) a Claim that is allowed pursuant to the terms of this Plan.
3. "Allowed . . . Claim" means an Allowed Claim in the particular Class
described.
4. "Amended Certificate of Incorporation" means the Certificate of
Incorporation of the Reorganized Debtor, as restated as described in
Article V.D.1 of the Plan, the form of which shall be Filed on or before
the Confirmation Date.
5. "Amended Citibank Credit Agreement" means that certain Amended and
Restated Credit Agreement dated June 29, 1998 among the Corporation, the
Lenders designated therein, Citibank, N.A., as Issuing Bank, and Citicorp
North America, Inc., as Agent for the Issuing Bank and the Lenders,
together with all related notes, certificates, security agreements,
mortgages, pledges, indemnities, collateral assignments, undertakings,
guaranties, and other instruments and documents, as each may have been
amended or modified from time to time.
6. "Ballot Date" means the date stated in the Voting Instructions by
which all Ballots must be received.
7. "Ballots" mean the ballots accompanying the Disclosure Statement upon
which Holders of Impaired Claims shall indicate their acceptance or
rejection of the Plan in accordance with the Plan and the Voting
Instructions.
8. "Bank Lender Claims" means the Claims of the Bank Lender arising from
or relating to the Bank Loan.
9. "Bank Lender" means Credit Agricole Indosuez, Seoul Branch.
10. "Bank Loan" means the financial accommodations provided by the Bank
Lender to the Corporation, including, but not necessary limited to,
pursuant to that certain Loan Agreement dated December 31, 1997 by and
between the Corporation and Credit Agricole Indosuez, Seoul Branch.
11. "Bankruptcy Code" means title I of the Bankruptcy Reform Act of 1978,
as amended from time to time, as set forth in sections 101 et seq. of title
11 of the United States Code, and applicable portions of titles 18 and 28
of the United States Code.
12. "Bankruptcy Court" means the United States District Court having
jurisdiction over the Prepackaged Chapter 11 Case and, to the extent of any
reference made pursuant to section 157 of title 28 of the United States
Code and/or the General Order of such District Court pursuant to section
151 of title 28 of the United States Code, the bankruptcy unit of such
District Court.
13. "Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure,
as amended from time to time, as applicable to the Prepackaged Chapter 11
Case, promulgated under 28 U.S.C. (S) 2075 and the General, Local and
Chambers Rules of the Bankruptcy Court.
14. "Bar Date" means the Bar Date for Filing of proofs of claim with
respect to executory contracts and unexpired leases which are rejected
pursuant to this Plan or otherwise pursuant to section 365 of the
Bankruptcy Code.
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15. "Beneficial Holder" means the Person or Entity holding the beneficial
interest in a Claim or Equity Interest.
16. "Business Day" means any day, other than a Saturday, Sunday or "legal
holiday" (as defined in Bankruptcy Rule 9006(a)).
17. "By-Laws" mean the By-Laws of the Reorganized Debtor, the form of
which shall be Filed on or before the Confirmation Date.
18. "Cash" means cash and cash equivalents.
19. "Causes of Action" mean all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialities,
covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages or judgments.
20. "Citibank Secured Claims" means all Claims arising from or relating
to the Amended Citibank Credit Agreement.
21. "Claim" means a claim (as defined in section 101(5) of the Bankruptcy
Code) against the Debtor, including, but limited to: (a) any right to
payment from the Debtor whether or not such right is reduced to judgment,
liquidated, unliquidated, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured; or (b) any right to an
equitable remedy for breach of performance if such performance gives rise
to a right of payment from the Debtor, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or unsecured.
22. "Claim Holder" or "Claimant" means the Holder of a Claim.
23. "Class" means a category of Holders of Claims or Equity Interests as
set forth in Article III of the Plan.
24. "Committee" or "Committees" means a statutory official committee (or
committees, if more than one) appointed in the Prepackaged Chapter 11 Case
pursuant to section 1102 of the Bankruptcy Code, if any.
25. "Common Stock" means the authorized common stock of the Corporation.
26. "Confirmation" means the entry of the Confirmation Order, subject to
all conditions specified in Article IX.A of the Plan having been (i)
satisfied or (ii) waived pursuant to Article IX.C.
27. "Confirmation Date" means the date upon which the Confirmation Order
is entered by the Bankruptcy Court in its docket, within the meaning of
Bankruptcy Rules 5003 and 9021.
28. "Confirmation Order" means the order of the Bankruptcy Court
confirming the Plan pursuant to section 1129 of the Bankruptcy Code.
29. "Consummation" means the occurrence of the Effective Date.
30. "Corporation" means Zenith Electronics Corporation, a Delaware
corporation.
31. "Creditor" means any Holder of a Claim.
32. "D&O Releasees" means all officers, directors, employees, attorneys,
financial advisors, accountants, investment bankers, agents and
representatives of the Debtor and its subsidiaries who served in such
capacity on or after January 1, 1998, in each case in their capacity as
such.
33. "Debtor" means the Corporation, as debtor in the Prepackaged Chapter
11 Case.
34. "Debtor in Possession" means the Corporation, as debtor in possession
in the Prepackaged Chapter 11 Case.
35. "Delaware General Corporation Law" means title 8 of the Delaware
Code, as now in effect or hereafter amended.
36. "Disclosure Statement" means the Disclosure Statement and Proxy
Statement-Prospectus for the Solicitation of Votes for the Prepackaged Plan
of the Corporation dated [ ], as amended, supplemented, or
modified from time to time, describing the Plan, that is prepared and
distributed in
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accordance with sections 1125, 1126(b) and/or 1145 of the Bankruptcy Code
and Bankruptcy Rule 3018 and/or other applicable law.
37. "Disputed" means, with respect to any Claim or Equity Interest, any
Claim or Equity Interest: (a) listed on the Schedules as unliquidated,
disputed or contingent; or (b) as to which the Debtor or any other party in
interest have interposed a timely objection or request for estimation in
accordance with the Bankruptcy Code and the Bankruptcy Rules or is
otherwise disputed by the Debtor in accordance with applicable law, which
objection, request for estimation or dispute has not been withdrawn or
determined by a Final Order.
38. "Distribution Record Date" means the close of business on the
Business Day immediately preceding the Effective Date.
39. "Effective Date" means the date selected by the Corporation which is
a Business Day after the Confirmation Date on which: (a) no stay of the
Confirmation Order is in effect, and (b) all conditions specified in both
Article IX.A and IX.B of the Plan have been (i) satisfied or (ii) waived
pursuant to Article IX.C.
40. "Entity" means an entity as defined in section 101(15) of the
Bankruptcy Code.
41. "Equity Interest" means any equity interest of the Corporation,
including, but not limited to, all issued, unissued, authorized or
outstanding shares or stock (including the Common Stock), together with any
warrants, options or contract rights to purchase or acquire such interests
at any time.
42. "Estate" means the estate of the Debtor created by section 541 of the
Bankruptcy Code upon the commencement of the Prepackaged Chapter 11 Case.
43. "File" or "Filed" means file or filed with the Bankruptcy Court in
the Prepackaged Chapter 11 Case.
44. "Final Decree" means the decree contemplated under Bankruptcy Rule
3022.
45. "Final Order" means an order or judgment of the Bankruptcy Court, or
other court of competent jurisdiction with respect to the subject matter,
which has not been reversed, stayed, modified or amended, and as to which
the time to appeal or seek certiorari has expired and no appeal or petition
for certiorari has been timely taken, or as to which any appeal that has
been taken or any petition for certiorari that has been or may be filed has
been resolved by the highest court to which the order or judgment was
appealed or from which certiorari was sought.
46. "General Unsecured Claim" means any Unsecured Claim that is not a
Bank Lender Claim, Old Subordinated Debenture Claim, LGE Tranche A Claim or
LGE Tranche B Claim.
47. "Holder" means a Person or Entity holding an Equity Interest or
Claim, and with respect to a vote on the Plan, means the Beneficial Holder
as of the Voting Record Date or any authorized signatory who has completed
and executed a Ballot or on whose behalf a Master Ballot has been completed
and executed in accordance with the Voting Instructions.
48. "Impaired Claim" means a Claim classified in an Impaired Class.
49. "Impaired Class" means each of Classes 4, 6, 7 and 8 as set forth in
Article III of the Plan.
50. "Investor Releasees" means LGE and LG Semicon Co., Ltd. and their
current and former parents, subsidiaries and affiliates and their
respective officers, directors, employees, attorneys, financial advisors,
accountants, investment bankers, agents and representatives, in each case
in their capacity as such.
51. "Leveraged Lease (Melrose Park)" means that certain Lease Agreement
dated as of March 26, 1997 by and among Fleet Bank as Owner Trustee for
Zenith Electronics Equipment Owner Trustee 1997-I, as Lessor, and the
Corporation, as Lessee, as supplemented by that certain Lease Supplement
dated April 2, 1997 by and between Fleet Bank, as Lessor, and the
Corporation, as Lessee, together with all related notes, certificates,
security agreements, mortgages, pledges, indemnities, collateral
assignments, undertakings, guaranties, and other instruments and documents,
as each may have been amended or modified from time to time, including, but
not limited to, that certain Participation Agreement dated as of March 26,
1997 by
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and among the Corporation, as Lessee, General Foods Credit Corporation, as
Owner Participant, Fleet Bank, as Owner Trustee, the Lenders designated
therein, and First Security Bank, National Association, as Indenture
Trustee.
52. "Leveraged Lease (Mexico)" means that certain Lease Agreement dated
as of March 26, 1997 by and among Fleet Bank as Owner Trustee for Zenith
Electronics Equipment Owner Trustee 1997-II, as Lessor, and Zenith
Electronics Corporation of Texas, as Lessee, as supplemented by that
certain Lease Supplement dated April 2, 1997 by and between Fleet Bank, as
Lessor, and Zenith Electronics Corporation of Texas, as Lessee, together
with all related notes, certificates, security agreements, mortgages,
pledges, indemnities, collateral assignments, undertakings, guaranties, and
other instruments and documents, as each may have been amended or modified
from time to time, including, but not limited to, that certain
Participation Agreement dated as of March 26, 1997 by and among Zenith
Electronics Corporation of Texas, as Lessee, General Foods Credit
Corporation, as Owner Participant, Fleet Bank, as Owner Trustee, the
Lenders designated therein, and First Security Bank, National Association,
as Indenture Trustee, and, that certain Parent Guaranty dated March 26,
1997 by and among the Debtor, the Owner Trustee, and Owner Participant, the
Indenture Trustee and the Lenders.
53. "Leveraged Leases" means the Leveraged Lease (Melrose Park) and the
Leveraged Lease (Mexico).
54. "LGE" means LG Electronics Inc., a corporation organized under the
laws of the Republic of Korea.
55. "LGE Bank Guarantee" means the guarantee from LGE to the Bank Lender
issued in connection with the Bank Loan.
56. "LGE Claims" means the LGE Tranche A Claims and the LGE Tranche B
Claims, to be restructured as provided in the Restructuring Agreement.
57. "LGE Demand Loan Claims" means any and all Claims of LGE against the
Debtor relating to that certain $45,000,000 Demand Note issued by the
Debtor to LGE on March 31, 1998, together with all related notes,
certificates, security agreements, mortgages, pledges, indemnities,
collateral assignments, undertakings, guaranties, and other instruments and
documents, as each may have been amended or modified from time to time.
58. "LGE Extended Payables Claims" means any and all Claims of LGE
against the Debtor arising under or relating to that certain vendor credit
line extended by LGE to the Debtor pursuant to that certain Financial
Support Agreement dated March 31, 1997 by and between the Debtor and LGE.
59. "LGE Guaranty Fee Claims" means any and all Claims of LGE against the
Debtor arising from or relating to any and all fees payable by the Debtor
to LGE on account of LGE issuing the LGE Bank Guarantee.
60. "LGE Leveraged Lease Claims" means any and all Claims of LGE against
the Debtor relating to the Leveraged Leases, including, but not limited to,
Claims relating to (a) that certain Guaranty dated as of March 26, 1997
from LGE to the parties designated therein, relating to the Leveraged Lease
(Melrose Park), (b) that certain Guaranty dated as of March 26, 1997 from
LGE to the parties designated therein, relating to the Leveraged Lease
(Mexico), (c) those certain Guaranty Payment Agreements each dated as of
July 17, 1998, by and between LGE, the Indenture Trustee, the Lenders, the
Owner Participant and the Owner Trustee, as acknowledged and agreed to by
the Debtor.
61. "LGE New Credit Support" means, at the option of LGE and Debtor,
either (a) a line of credit to be made available to the Debtor by LGE on or
after the Effective Date, (b) a guarantee or other credit support to be
provided by LGE to a third-party lender to support credit provided by such
lender to the Debtor on or after the Effective Date, or (c) a combination
of both (a) and (b), in all cases in an aggregate amount not to exceed
$60,000,000, to be provided to the Debtor, if at all, on the terms and
conditions of the Restructuring Agreement.
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62. "LGE Reimbursement Claims" means any and all claims of LGE against
the Debtor arising from or relating to the Reimbursement Agreement or the
LGE Bank Guarantee, other than the LGE Guaranty Fee Claims.
63. "LGE New Restructured Senior Note" means that certain new secured
note in a principal amount equal to the aggregate amount of the LGE Tranche
A Claims minus $32,379,300, bearing interest at LIBOR plus 6.5%, and
maturing on November 1, 2008 to be issued to LGE on account of the LGE
Tranche A Claims in Class 7, as provided in the Restructuring Agreement,
the form of which shall be Filed on or before the Confirmation Date.
Interest on the LGE New Restructured Senior Note will be paid in cash only
to the extent that the Debtor's ratio of EBITDA to cash interest expense
for the immediately preceding four fiscal quarters exceeds 1.5; if such
test is not met, interest will be payable by the issuance of additional LGE
New Restructured Senior Notes.
64. "LGE Technical Services Fee Claims" means any and all Claims of LGE
against the Debtor relating to servicing fees resulting from LGE's
provision of certain technical and other related services to the Debtor in
connection with the Debtor's research and development activities.
65. "LGE Tranche A Claims" means those Claims against the Debtor held by
LGE arising from or relating to (a) the LGE Leveraged Lease Claims, (b) the
LGE Technical Services Fee Claims, and (c) that portion of the LGE
Reimbursement Claims and the LGE Demand Loan Claims not classified as LGE
Tranche B Claims.
66. "LGE Tranche B Claims" means Claims against the Debtor equal to
$200,000,000 held by LGE arising from or relating to (a) the LGE Extended
Payables Claims (but not to exceed $140,000,000), (b) the LGE Reimbursement
Claims (but not to exceed $50,000,000), (c) the LGE Guaranty Fee Claims,
and (d) the LGE Demand Loan Claims in an amount sufficient when aggregated
with the Claims described in items (a) through (c) to equal $200,000,000.
67. "Master Ballots" mean the master ballots accompanying the Disclosure
Statement upon which Holders of Impaired Claims shall indicate the
acceptance or rejection of the Plan in accordance with the Voting
Instructions.
68. "New Bank Lender Note" means that certain term note issued by the
Reorganized Debtor to be distributed to the Holder of Allowed Claims in
Class 4, with a maturity of one year from the Effective Date, the form of
which shall be Filed on or before the Confirmation Date.
69. "New Common Stock" means the 1000 shares of Common Stock of the
Reorganized Debtor, par value $0.01 per share, authorized pursuant to the
Amended Certificate of Incorporation.
70. "New Subordinated Debentures" means those certain $40,000,000 of new
6 1/4% Subordinated Debentures due 2010 issued by the Reorganized Debtor,
offered to the Holders of Allowed Claims in Class 6, the form of which
shall be Filed on or before the Confirmation Date.
71. "Nominee" means any Beneficial Holder whose securities were
registered or held of record in the name of his broker, dealer, commercial
bank, trust company, savings and loan or other nominee.
72. "Old Subordinated Debenture Claims" means all Claims arising from or
related to the Old Subordinated Debentures or the Old Subordinated
Debenture Indenture.
73. "Old Subordinated Debentures" mean the 6 1/4% Convertible
Subordinated Debentures due 2011, issued by the Corporation under the Old
Senior Subordinated Debenture Indenture.
74. "Old Subordinated Debenture Indenture" means the Indenture, dated as
of April 1, 1986 between the Corporation and State Street Bank & Trust
Company, as trustee, relating to the Old Subordinated Debentures.
75. "Other Priority Claims" mean any Claim accorded priority in right of
payment under section 507(a) of the Bankruptcy Code, other than a Priority
Tax Claim or an Administrative Claim.
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76. "Other Secured Claims" mean, collectively, all Secured Claims against
the Debtor held by any Person or Entity, other than Claims classified in
Class 2 or Class 7.
77. "Person" means a person as defined in section 101(41) of the
Bankruptcy Code.
78. "Petition Date" means the date on which the Debtor filed its petition
for relief commencing the Prepackaged Chapter 11 Case.
79. "Plan" or "Prepackaged Plan" means this Chapter 11 Prepackaged Plan
of Reorganization, either in its present form or as it may be altered,
amended, modified or supplemented from time to time in accordance with the
Plan, the Bankruptcy Code and the Bankruptcy Rules.
80. "Prepackaged Chapter 11 Case" means the case under chapter 11 of the
Bankruptcy Code, commenced by the Debtor in the Bankruptcy Court.
81. "Priority Tax Claim" means a Claim of a governmental unit of the kind
specified in section 507(a)(8) of the Bankruptcy Code.
82. "Pro Rata" means proportionately so that with respect to an Allowed
Claim, the ratio of (a) (i) the amount of property distributed on account
of a particular Allowed Claim to (ii) the amount of the Allowed Claim, is
the same as the ratio of (b) (i) the amount of property distributed on
account of all Allowed Claims of the Class in which the particular Allowed
Claim is included to (ii) the amount of all Allowed Claims in that Class.
83. "Professionals" means a Person or Entity (a) employed pursuant to a
Final Order in accordance with sections 327 and 1103 of the Bankruptcy Code
and to be compensated for services rendered prior to the Effective Date,
pursuant to sections 327, 328, 329, 330 and 331 of the Bankruptcy Code, or
(b) for which compensation and reimbursement has been allowed by the
Bankruptcy Court pursuant to section 503(b)(4) of the Bankruptcy Code.
84. "Reimbursement Agreement" means that certain Reimbursement Agreement
dated as of November 3, 1997 by and between the Debtor and LGE, together
with all related notes, certificates, security agreements, mortgages,
pledges, indemnities, collateral assignments, undertakings, guaranties, and
other instruments and documents, as each may have been amended or modified
from time to time, pursuant to which the Debtor agreed to reimburse LGE for
amounts paid pursuant to the LGE Bank Guarantees.
85. "Reorganized Debtor" means the Debtor and the Debtor in Possession,
or any successor thereto, by merger, consolidation, or otherwise, on and
after the Effective Date.
86. "Restructuring Agreement" means that certain Restructuring Agreement
dated as of August 7, 1998 by and between the Debtor and LGE (as amended on
November 16, 1998 and as thereafter amended and supplemented from time to
time), a copy of which is set forth as an exhibit to the Disclosure
Statement.
87. "Reynosa Assets" means that certain property, plant and equipment
owned by a subsidiary or subsidiaries of the Debtor located in Reynosa,
Tamaulipas, Mexico, as specifically set forth in the Restructuring
Agreement.
88. "Reynosa Purchase Agreement" means that certain agreement, dated the
Effective Date, among LGE, Zenith Electronics Corporation of Texas and
Partes de Television de Reynosa, pursuant to which the Reynosa Assets will
be transferred to LGE or its affiliate, as specifically set forth in the
Restructuring Agreement.
89. "Schedules" mean the schedules of assets and liabilities, schedules
of executory contracts, and the statement of financial affairs as the
Bankruptcy Court requires the Debtor to file pursuant to section 521 of the
Bankruptcy Code, the Official Bankruptcy Forms and the Bankruptcy Rules, as
they may be amended and supplemented from time to time.
90. "Secured Claim" means (a) a Claim that is secured by a lien on
property in which the Estate has an interest, which lien is valid,
perfected and enforceable under applicable law or by reason of a Final
Order, or that is subject to setoff under section 553 of the Bankruptcy
Code, to the extent of the value of the Claim Holder's interest in the
Estate's interest in such property or to the extent of the amount subject
to setoff, as
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applicable, as determined pursuant to section 506(a) of the Bankruptcy
Code, or (b) a Claim Allowed under this Plan as a Secured Claim.
91. "Securities Act" means the Securities Act of 1933, 15 U.S.C. sections
77a-77aa, as now in effect or hereafter amended.
92. "Unimpaired Claim" means an unimpaired Claim within the meaning of
section 1124 of the Bankruptcy Code.
93. "Unimpaired Class" means an unimpaired Class within the meaning of
section 1124 of the Bankruptcy Code.
94. "Unsecured Claim" means any Claim against the Debtor that is not a
Secured Claim, Administrative Claim, Priority Tax Claim or Other Priority
Claim.
95. "Voting Instructions" mean the instructions for voting on the Plan
contained in the section of the Disclosure Statement entitled
"SOLICITATION; VOTING PROCEDURES" and in the Ballots and the Master
Ballots.
96. "Voting Record Date" means [ ].
ARTICLE II.
ADMINISTRATIVE AND PRIORITY TAX CLAIMS
A. Administrative Claims
Subject to the provisions of section 330(a) and 331 of the Bankruptcy Code,
each Holder of an Allowed Administrative Claim will be paid the full unpaid
amount of such Allowed Administrative Claim in Cash on the Effective Date, or
upon such other terms as may be agreed upon by such Holder and the Reorganized
Debtor or otherwise upon order of the Bankruptcy Court; provided, however,
that Allowed Administrative Claims representing obligations incurred in the
ordinary course of business or otherwise assumed by the Debtor pursuant to the
Plan will be assumed on the Effective Date and paid or performed by the
Reorganized Debtor when due in accordance with the terms and conditions of the
particular agreements governing such obligations.
B. Priority Tax Claims
On the Effective Date, each Holder of a Priority Tax Claim due and payable
on or prior to the Effective Date shall be paid Cash in an amount equal to the
amount of such Allowed Claim, or shall be paid on account of its Allowed Claim
on such other terms as have been or may be agreed upon by such Holder and the
Debtor. The amount of any Priority Tax Claim that is not an Allowed Claim or
that is not otherwise due and payable on or prior to the Effective Date, and
the rights of the Holder of such Claim, if any, to payment in respect thereof
shall (i) be determined in the manner in which the amount of such Claim and
the rights of the Holder of such Claim would have been resolved or adjudicated
if the Prepackaged Chapter 11 Case had not been commenced, (ii) survive the
Effective Date and Consummation of the Plan as if the Prepackaged Chapter 11
Case had not been commenced, and (iii) not be discharged pursuant to section
1141 of the Bankruptcy Code. In accordance with section 1124 of the Bankruptcy
Code, the Plan shall leave unaltered the legal, equitable, and contractual
rights of each Holder of a Priority Tax Claim.
ARTICLE III.
CLASSIFICATION AND TREATMENT
OF CLASSIFIED CLAIMS AND EQUITY INTERESTS
A. Summary
The categories of Claims and Equity Interests listed below classify Claims
and Equity Interests for all purposes, including voting, confirmation and
distribution pursuant to the Plan and pursuant to sections 1122 and 1123(a)(1)
of the Bankruptcy Code. A Claim or Equity Interest shall be deemed classified
in a particular Class
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only to the extent that the Claim or Equity Interest qualifies within the
description of that Class and shall be deemed classified in a different Class
to the extent that any remainder of such Claim or Equity Interest qualifies
within the description of such different Class. A Claim or Equity Interest is
in a particular Class only to the extent that such Claim or Equity Interest is
Allowed in that Class and has not been paid or otherwise settled prior to the
Effective Date.
The classification of Claims and Equity Interests pursuant to this Plan is
as follows:
<TABLE>
<CAPTION>
Class Status Voting Rights
<S> <C> <C>
Class 1--Other Priority Claims Unimpaired --not entitled to vote
Class 2--Citibank Secured Claims Unimpaired --not entitled to vote
Class 3--Other Secured Claims Unimpaired --not entitled to vote
Class 4--Bank Lender Claims Impaired --entitled to vote
Class 5--General Unsecured Claims Unimpaired --not entitled to vote
Class 6--Old Subordinated Debenture Claims Impaired --entitled to vote
Class 7--LGE Claims: Impaired --entitled to vote
LGE Tranche A Claims
LGE Tranche B Claims
Class 8--Equity Interests Impaired --not entitled to vote
</TABLE>
B. Classification and Treatment
1. Class 1--Other Priority Claims
(a) Classification: Class 1 consists of all Other Priority Claims.
(b) Treatment: The legal, equitable and contractual rights of the Holders
of Class 1 Claims are unaltered by the Plan. Unless the Holder of such
Claim and the Debtor agree to a different treatment, each Holder of an
Allowed Class 1 Claim shall receive one of the following alternative
treatments, at the election of the Debtor:
(i) to the extent then due and owing on the Effective Date, such
Claim will be paid in full in Cash by the Reorganized Debtor;
(ii) to the extent not due and owing on the Effective Date, such
Claim (A) will be paid in full in Cash by the Reorganized Debtor, or
(B) will be paid in full in Cash by the Reorganized Debtor when and as
such Claim becomes due and owing in the ordinary course of business; or
(iii) such Claim will be otherwise treated in any other manner so
that such Claims shall otherwise be rendered unimpaired pursuant to
section 1124 of the Bankruptcy Code.
Any default with respect to any Class 1 Claim that existed immediately
prior to the filing of the Prepackaged Chapter 11 Case shall be deemed
cured upon the Effective Date.
(c) Voting: Class 1 is not impaired and the Holders of Class 1 Claims are
conclusively deemed to have accepted the Plan pursuant to section 1126(f)
of the Bankruptcy Code. Therefore, the Holders of Claims in Class 1 are not
entitled to vote to accept or reject the Plan.
2. Class 2--Citibank Secured Claims
(a) Classification: Class 2 consists of the Citibank Secured Claims.
(b) Treatment: The legal, equitable and contractual rights of the Holders
of Class 2 Claims are unaltered by the Plan. On the Effective Date, unless
the Holder of such Claim and the Debtor agree to a different treatment, at
the election of the Debtor, the Allowed Class 2 Claims (i) will be paid in
full in Cash by the Reorganized Debtor or (ii) will be otherwise treated in
any other manner so that such Claims shall otherwise be rendered unimpaired
pursuant to section 1124 of the Bankruptcy Code.
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(c) Voting: Class 2 is not impaired and the Holders of Class 2 Claims are
conclusively deemed to have accepted the Plan pursuant to section 1126(f)
of the Bankruptcy Code. Therefore, the Holders of Claims in Class 2 are not
entitled to vote to accept or reject the Plan.
3. Class 3--Other Secured Claims
(a) Classification: Class 3 consists of the Other Secured Claims.
(b) Treatment: The legal, equitable and contractual rights of the Holders
of Class 3 Claims are unaltered by the Plan. Unless the Holder of such
Claim and the Debtor agree to a different treatment, each Holder of an
Allowed Class 3 Claim shall receive one of the following alternative
treatments, at the election of the Debtor:
(i) the legal, equitable and contractual rights to which such Claim
entitles the Holder thereof shall be unaltered by the Plan;
(ii) the Debtor shall surrender all collateral securing such Claim to
the Holder thereof, without representation or warranty by or recourse
against the Debtor or the Reorganized Debtor; or
(iii) such Claim will be otherwise treated in any other manner so
that such Claims shall otherwise be rendered unimpaired pursuant to
section 1124 of the Bankruptcy Code.
Any default with respect to any Class 3 Claim that existed immediately
prior to the filing of the Prepackaged Chapter 11 Case shall be deemed
cured upon the Effective Date.
(c) Voting: Class 3 is not impaired and the Holders of Class 3 Claims are
conclusively deemed to have accepted the Plan pursuant to section 1126(f)
of the Bankruptcy Code. Therefore, the Holders of Claims in Class 3 are not
entitled to vote to accept or reject the Plan.
4. Class 4--Bank Lender Claims
(a) Classification: Class 4 consists of the Claims of the Holder of Bank
Lender Claims.
(b) Treatment: On the Effective Date, unless the Holder of such Claims
and the Debtor agree to a different treatment, the Holder of the Bank
Lender Claims shall receive the New Bank Lender Note in full satisfaction
of its Claims.
(c) Voting: Class 4 is impaired and the Holder of Allowed Class 4 Claims
is entitled to vote to accept or reject the Plan.
5. Class 5--General Unsecured Claims
(a) Classification: Class 5 consists of the Claims of Holders of General
Unsecured Claims.
(b) Treatment: The legal, equitable and contractual rights of the Holders
of Class 5 Claims are unaltered by the Plan. Unless the Holder of such
Claim and the Debtor agree to a different treatment, each Holder of an
Allowed Class 5 Claim shall receive one of the following alternative
treatments, at the election of the Debtor:
(i) to the extent then due and owing on the Effective Date, such
Claim will be paid in full in Cash by the Reorganized Debtor;
(ii) to the extent not due and owing on the Effective Date, such
Claim (A) will be paid in full in Cash by the Reorganized Debtor, or
(B) will be paid in full in Cash by the Reorganized Debtor when and as
such Claim becomes due and owing in the ordinary course of business; or
(iii) such Claim will be otherwise treated in any other manner so
that such Claims shall otherwise be rendered unimpaired pursuant to
section 1124 of the Bankruptcy Code.
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Any default with respect to any Class 5 Claim that existed immediately
prior to the filing of the Prepackaged Chapter 11 Case shall be deemed
cured upon the Effective Date.
(c) Voting: Class 5 is not impaired and the Holders of Class 5 Claims are
conclusively deemed to have accepted the Plan pursuant to section 1126(f)
of the Bankruptcy Code. Therefore, the Holders of Claims in Class 5 are not
entitled to vote to accept or reject the Plan.
6. Class 6--Old Subordinated Debenture Claims
(a) Classification: Class 6 consists of the Claims of Holders of Old
Subordinated Debentures.
(b) Treatment: If Class 6 accepts the Plan, on or as soon as practicable
after the Effective Date, each Holder of an Allowed Old Subordinated
Debenture Claim shall receive, in full and final satisfaction of such
Claim, a pro rata distribution of the New Subordinated Debentures;
provided, however, if Class 6 rejects the Plan, the Holders of Old
Subordinated Debentures will not receive or retain any property on account
of their Old Subordinated Debentures.
(c) Voting: Class 6 is impaired and the Holders of Allowed Class 6 Claims
are entitled to vote to accept or reject the Plan.
7. Class 7--LGE Claims
(a) Classification: Class 7 consists of the LGE Claims (but excluding any
other Claim or any Equity Interests held by LGE).
(b) Treatment:
(i) LGE Tranche A Claims--On the Effective Date, or as soon
thereafter as practicable, LGE shall receive (A) the LGE New
Restructured Senior Note, and (B) the Reynosa Assets, in full and
complete satisfaction of the Allowed LGE Tranche A Claims. In
connection with the delivery of the Reynosa Assets, on or before the
Effective Date, the Reorganized Debtor shall cause its subsidiaries,
Zenith Electronics Corporation of Texas and Partes de Television de
Reynosa, to enter into the Reynosa Purchase Agreement.
(ii) LGE Tranche B Claims-On the Effective Date, or as soon
thereafter as practicable, LGE shall receive 100% of the New Common
Stock, in full and complete satisfaction of the Allowed LGE Tranche B
Claims.
(c) Voting: Class 7 is impaired and the Holder of the Allowed Class 7
Claims is entitled to vote to accept or reject the Plan.
8. Class 8--Equity Interests
(a) Classification: Class 8 consists of all Equity Interests.
(b) Treatment: On the Effective Date, the Holders of Equity Interests
shall neither receive any distributions nor retain any property under the
Plan. All Common Stock issued before the Petition Date will be canceled.
(c) Voting: Class 8 is impaired, but because no distributions will be
made to Holders of Class 8 Equity Interests nor will such Holders retain
any property, such Holders are deemed to reject the Plan pursuant to
section 1126(g) of the Bankruptcy Code. Class 8 is not entitled to vote to
accept or reject the Plan.
C. Special Provision Governing Unimpaired Claims
Except as otherwise provided in the Plan, including as provided in Article
X, nothing under the Plan shall affect the Debtor's or the Reorganized
Debtor's rights in respect of any Unimpaired Claims, including, but not
limited to, all rights in respect of legal and equitable defenses to or
setoffs or recoupments against such Unimpaired Claims.
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ARTICLE IV.
ACCEPTANCE OR REJECTION OF THE PLAN
A. Voting Classes
Each Holder of an Allowed Claim in Classes 4, 6, and 7 shall be entitled to
vote to accept or reject the Plan.
B. Acceptance by Impaired Classes
An Impaired Class of Claims shall have accepted the Plan if (a) the Holders
(other than any Holder designated under section 1126(e) of the Bankruptcy
Code) of at least two-thirds in amount of the Allowed Claims actually voting
in such Class have voted to accept the Plan and (b) the Holders (other than
any Holder designated under section 1126(e) of the Bankruptcy Code) of more
than one-half in number of the Allowed Claims actually voting in such Class
have voted to accept the Plan.
C. Presumed Acceptance of Plan
Classes 1, 2, 3, and 5 are unimpaired under the Plan, and, therefore,
conclusively are presumed to have accepted the Plan pursuant to section
1126(f) of the Bankruptcy Code.
D. Presumed Rejection of Plan
Class 8 is impaired and shall receive no distributions, and, therefore, is
presumed to have rejected the Plan pursuant to section 1126(g) of the
Bankruptcy Code.
E. Non-Consensual Confirmation
The Debtor will seek Confirmation of the Plan under section 1129(b) of the
Bankruptcy Code, to the extent applicable, in view of the deemed rejection by
Class 8. In the event that any Impaired Class of Claims shall fail to accept
the Plan in accordance with section 1129(a)(8) of the Bankruptcy Code, the
Debtor reserves the right (a) to request that the Bankruptcy Court confirm the
Plan in accordance with section 1129(b) of the Bankruptcy Code and/or (b) to
modify the Plan in accordance with Article XII.D of the Plan. In addition, as
set forth in Article III.B.6(b), if Class 6 rejects the Plan, the Holders of
Old Subordinated Debentures will not receive or retain any property on account
of their Old Subordinated Debentures.
ARTICLE V.
MEANS FOR IMPLEMENTATION OF THE PLAN
A. Continued Corporate Existence and Vesting of Assets in the Reorganized
Debtor
The Debtor shall, as a Reorganized Debtor, continue to exist after the
Effective Date as a separate corporate entity, with all the powers of a
corporation under the laws of the State of Delaware and without prejudice to
any right to alter or terminate such existence (whether by merger or
otherwise) under such applicable state law. Except as otherwise provided in
the Plan, the Restructuring Agreement, the LGE New Restructured Senior Note,
the New Subordinated Debentures, or any agreement, instrument or indenture
relating thereto, on or after the Effective Date, all property of the Estate,
and any property acquired by the Debtor or the Reorganized Debtor under the
Plan, shall vest in the Reorganized Debtor, free and clear of all Claims,
liens, charges, or other encumbrances and Equity Interests. On and after the
Effective Date, the Reorganized Debtor may operate its business and may use,
acquire or dispose of property and compromise or settle any Claims or Equity
Interests, without supervision or approval by the Bankruptcy Court and free of
any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those
restrictions expressly imposed by the Plan and the Confirmation Order. In
accordance with section 1109(b) of the Bankruptcy Code, nothing in this
Article V shall preclude any party in interest from appearing and being heard
on any issue in the Prepackaged Chapter 11 Case.
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B. Cancellation of Notes, Instruments, Debentures, Common Stock and Stock
Options
On the Effective Date, except to the extent provided otherwise in the Plan,
(i) all notes, instruments, certificates, and other documents evidencing the
Citibank Secured Claims, LGE Claims, Other Secured Claims, and Bank Lender
Claims, (ii) the Old Subordinated Debentures, and (iii) all Equity Interests,
including all Common Stock, shall be canceled and deemed terminated. On the
Effective Date, except to the extent provided otherwise in the Plan, any
indenture relating to any of the foregoing, including, without limitation, the
Old Subordinated Debenture Indenture, shall be deemed to be canceled, as
permitted by section 1123(a)(5)(F) of the Bankruptcy Code.
C. Issuance of New Securities; Execution of Related Documents
On the Effective Date, the Reorganized Debtor shall issue all securities,
notes instruments, certificates, and other documents required to be issued
pursuant to the Plan, including, without limitation, the LGE New Restructured
Senior Note, the New Bank Lender Note, the New Subordinated Debentures, and
the New Common Stock, each of which shall be distributed as provided in the
Plan. The Reorganized Debtor shall execute and deliver such other agreements,
documents and instruments as are required to be executed pursuant to the terms
of the Plan or the Restructuring Agreement.
D. Corporate Governance, Directors and Officers, and Corporate Action
1. Amended Certificate of Incorporation
On the Effective Date, the Reorganized Debtor will file its Amended
Certificate of Incorporation with the Secretary of the State of Delaware in
accordance with sections 102 and 103 of the Delaware General Corporation Law.
The Amended Certificate of Incorporation will, among other things, prohibit
the issuance of nonvoting equity securities to the extent required by section
1123(a) of the Bankruptcy Code, change the number of authorized shares of New
Common Stock to 1,000, change the par value of the New Common Stock to $0.01
and eliminate the authorization of preferred stock. After the Effective Date,
the Reorganized Debtor may amend and restate its Amended Certificate of
Incorporation and other constituent documents as permitted by the Delaware
General Corporation Law.
2. Directors and Officers of the Reorganized Debtor
Subject to any requirement of Bankruptcy Court approval pursuant to section
1129(a)(5) of the Bankruptcy Code, as of the Effective Date, the initial
officers of the Reorganized Debtor shall be the officers of the Debtor
immediately prior to the Effective Date. On the Effective Date, LGE will be
the sole shareholder of the Reorganized Debtor, and will have the right to
determine the composition of the board of directors of the Reorganized Debtor.
Pursuant to section 1129(a)(5), the Debtor will disclose, on or prior to the
Confirmation Date, identity and affiliations of any Person proposed to serve
on the initial board of directors of the Reorganized Debtor, and, to the
extent such Person is an Insider, the nature of any compensation for such
Person. The classification and composition of the board of directors shall be
consistent with the Amended Certificate of Incorporation. Each such director
and officer shall serve from and after the Effective Date pursuant to the
terms of the Amended Certificate of Incorporation, other constituent documents
and the Delaware General Corporation Law.
3. Corporate Action
On the Effective Date, the adoption of the Amended Certificate of
Incorporation or similar constituent documents, the amendment of the By-laws,
the selection of directors and officers for the Reorganized Debtor, and all
actions contemplated by the Plan and the Restructuring Agreement shall be
authorized and approved in all respects (subject to the provisions of the
Plan). All matters provided for in the Plan and the Restructuring Agreement
involving the corporate structure of the Debtor or the Reorganized Debtor, and
any corporate action required by the Debtor or the Reorganized Debtor in
connection with the Plan, shall be deemed to have occurred
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and shall be in effect, without any requirement of further action by the
security holders or directors of the Debtor or the Reorganized Debtor. On the
Effective Date, the appropriate officers of the Reorganized Debtor and members
of the board of directors of the Reorganized Debtor are authorized and
directed to issue, execute and deliver the agreements, documents, securities
and instruments contemplated by the Plan in the name of and on behalf of the
Reorganized Debtor.
E. LGE New Credit Support
On or after the Effective Date, pursuant to the terms and conditions of the
Restructuring Agreement, LGE will provide the Debtor with the LGE New Credit
Support.
F. Sources of Cash for Plan Distribution
All Cash necessary for the Reorganized Debtor to make payments pursuant to
the Plan shall be obtained from existing Cash balances, the operations of the
Debtor or Reorganized Debtor, or post-confirmation borrowing under other
available facilities of the Debtor or Reorganized Debtor, including, without
limitation, to the extent available, the LGE New Credit Support. The
Reorganized Debtor may also make such payments using Cash received from its
subsidiaries through the Reorganized Debtor's consolidated cash management
system and from advances or dividends from such subsidiaries in the ordinary
course.
ARTICLE VI.
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
A. Assumption of Executory Contracts and Unexpired Leases
Immediately prior to the Effective Date, all executory contracts or
unexpired leases of the Reorganized Debtor will be deemed assumed in
accordance with the provisions and requirements of sections 365 and 1123 of
the Bankruptcy Code except those executory contracts and unexpired leases that
(1) have been rejected by order of the Bankruptcy Court, (2) are the subject
of a motion to reject pending on the Effective Date, (3) are identified on a
list to be filed with the Bankruptcy Court on or before the Confirmation Date,
as to be rejected, or (4) are rejected pursuant to the terms of the Plan.
Entry of the Confirmation Order by the Bankruptcy Court shall constitute
approval of such assumptions and rejections pursuant to sections 365(a) and
1123 of the Bankruptcy Code.
Notwithstanding anything to the contrary contained herein, on the Effective
Date, the Leveraged Leases shall be deemed rejected pursuant to section 365(a)
of the Bankruptcy Code. Any Claim arising from such rejection, including, but
not limited to, those Claims arising under section 502 of the Bankruptcy Code,
shall be part of and are included in the LGE Leveraged Lease Claims. Other
than on account of the LGE Leveraged Lease Claims, LGE shall not receive any
property or distribution arising from or related to such rejection. Except as
provided in the Restructuring Agreement, on the Effective Date, all property
that is the subject of the Leveraged Leases shall be vested in the Reorganized
Debtor free and clear of all liens, claims and encumbrances.
B. Claims Based on Rejection of Executory Contracts or Unexpired Leases
All proofs of claim with respect to Claims arising from the rejection of
executory contracts or unexpired leases, if any, must be Filed with the
Bankruptcy Court within sixty (60) days after the date of entry of an order of
the Bankruptcy Court approving such rejection. Any Claims arising from the
rejection of an executory contract or unexpired lease not Filed within such
times will be forever barred from assertion against the Debtor or Reorganized
Debtor, its estate and property unless otherwise ordered by the Bankruptcy
Court or provided in this Plan, all such Claims for which proofs of claim are
required to be Filed will be, and will be treated as, General Unsecured Claims
subject to the provisions of Article VIII hereof.
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C. Cure of Defaults for Executory Contracts and Unexpired Leases Assumed
Any monetary amounts by which each executory contract and unexpired lease to
be assumed pursuant to the Plan is in default shall be satisfied, pursuant to
section 365(b)(1) of the Bankruptcy Code, by payment of the default amount in
Cash on the Effective Date or on such other terms as the parties to such
executory contracts or unexpired leases may otherwise agree. In the event of a
dispute regarding: (1) the amount of any cure payments, (2) the ability of the
Reorganized Debtor or any assignee to provide "adequate assurance of future
performance" (within the meaning of section 365 of the Bankruptcy Code) under
the contract or lease to be assumed, or (3) any other matter pertaining to
assumption, the cure payments required by section 365(b)(1) of the Bankruptcy
Code shall be made following the entry of a Final Order resolving the dispute
and approving the assumption.
D. Indemnification of Directors, Officers and Employees
The obligations of the Debtor to indemnify any Person or Entity serving at
any time on or prior to the Effective Date as one of its directors, officers
or employees by reason of such Person's or Entity's service in such capacity,
or as a director, officer or employee of any other corporation or legal
entity, to the extent provided in the Debtor's constituent documents or by a
written agreement with the Debtor or the Delaware General Corporation Law,
shall be deemed and treated as executory contracts that are assumed by the
Debtor pursuant to the Plan and section 365 of the Bankruptcy Code as of the
Effective Date. Accordingly, such indemnification obligations shall be treated
as General Unsecured Claims, and shall survive unimpaired and unaffected by
entry of the Confirmation Order, irrespective of whether such indemnification
is owed for an act or event occurring before or after the Petition Date.
E. Compensation and Benefit Programs
Except as otherwise expressly provided hereunder, all employment and
severance policies, and all compensation and benefit plans, policies, and
programs of the Debtor applicable to its employees, retirees and non-employee
directors and the employees and retirees of its subsidiaries, including,
without limitation, all savings plans, retirement plans, health care plans,
disability plans, severance benefit plans, incentive plans, and life,
accidental death, and dismemberment insurance plans are treated as executory
contracts under the Plan and on the Effective Date will be assumed pursuant to
the provisions of sections 365 and 1123 of the Bankruptcy Code.
ARTICLE VII.
PROVISIONS GOVERNING DISTRIBUTIONS
A. Distributions for Claims Allowed as of the Effective Date
1. Except as otherwise provided in this Article VII or as may be ordered by
the Bankruptcy Court, distributions to be made on the Effective Date on
account of Claims that are allowed as of the Effective Date and are entitled
to receive distributions under the Plan shall be made on the Effective Date.
Distributions on account of Claims that become Allowed Claims after the
Effective Date shall be made pursuant to Articles VII.C and VIII.C below.
2. For purposes of determining the accrual of interest or rights in respect
of any other payment from and after the Effective Date, the LGE New
Restructured Senior Note, the New Bank Lender Note, the New Subordinated
Debentures, and the New Common Stock to be issued under the Plan shall be
deemed issued as of the Effective Date regardless of the date on which they
are actually dated, authenticated or distributed; provided, however, that the
Reorganized Debtor shall withhold any actual payment until such distribution
is made and no interest shall accrue or otherwise be payable on any such
withheld amounts.
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B. Distributions by the Reorganized Debtor; Distributions with Respect to Debt
Securities
The Reorganized Debtor shall make all distributions required under the Plan.
Notwithstanding the provisions of Article V.B above regarding the cancellation
of the Old Subordinated Debenture Indenture, the Old Subordinated Debenture
Indenture shall continue in effect to the extent necessary to allow the
Reorganized Debtor to receive and make distributions pursuant to the Plan on
account of the Old Subordinated Debentures. Each indenture trustee providing
services related to distributions to the Holders of Allowed Old Subordinated
Debenture Claims shall receive, from the Reorganized Debtor, with such
approval as the Bankruptcy Court may require, reasonable compensation for such
services and reimbursement of reasonable out-of-pocket expenses incurred in
connection with such services. These payments shall be made on terms agreed to
with the Reorganized Debtor.
C. Delivery and Distributions and Undeliverable or Unclaimed Distributions
1 Delivery of Distributions in General
Distributions to Holders of Allowed Claims shall be made at the address of
the Holder of such Claim as indicated on records of the Debtor. Except as
otherwise provided by the Plan or the Bankruptcy Code with respect to
undeliverable distributions, distributions to Holders of Citibank Secured
Claims, LGE Claims, Bank Lender Claims, and Old Subordinated Debenture Claims
shall be made in accordance with the provisions of the applicable indenture,
participation agreement, loan agreement or analogous instrument or agreement,
and distributions will be made to Holders of record as of the Distribution
Record Date.
2. Undeliverable Distributions
(a) Holding of Undeliverable Distributions. If any Allowed Claim Holder's
distribution is returned to Reorganized Debtor as undeliverable, no further
distributions shall be made to such Holder unless and until the Reorganized
Debtor is notified in writing of such Holder's then-current address.
Undeliverable distributions shall remain in the possession of the Reorganized
Debtor pursuant to this Article VII.C until such time as a distribution
becomes deliverable. Undeliverable cash (including interest and maturities on
the New Subordinated Debentures) shall not be entitled to any interest,
dividends or other accruals of any kind.
(b) After Distributions Become Deliverable. Within 20 days after the end of
each calendar quarter following the Effective Date, the Reorganized Debtor
shall make all distributions that become deliverable during the preceding
calendar quarter.
(c) Failure to Claim Undeliverable Distributions. The Company will file with
the Bankruptcy Court, from time to time, a listing of the Holders of unclaimed
distributions. This list will be maintained until the entry of an order and/or
final decree concluding the Prepackaged Chapter 11 Case. Any Holder of an
Allowed Claim that does not assert a Claim pursuant to the Plan for an
undeliverable distribution within five years after the Effective Date shall
have its Claim for such undeliverable distribution discharged and shall be
forever barred from asserting any such Claim against the Reorganized Debtor or
its property. In such cases: (i) any Cash held for distribution on account of
such Claims shall be property of the Reorganized Debtor, free of any
restrictions thereon; and (ii) any New Subordinated Debentures held for
distribution on account of such Claims shall be canceled and of no further
force or effect. Nothing contained in the Plan shall require the Reorganized
Debtor to attempt to locate any Holder of an Allowed Claim.
(d) Compliance with Tax Requirements. In connection with the Plan, to the
extent applicable, the Reorganized Debtor shall comply with all tax
withholding and reporting requirements imposed on it by any governmental unit,
and all distributions pursuant to the Plan shall be subject to such
withholding and reporting requirements.
D. Distribution Record Date
As of the close of business on the Distribution Record Date, the transfer
register for the Old Subordinated Debentures as maintained by the Debtor, the
trustee of the Old Subordinated Debenture Indenture, or their
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respective agents, shall be closed and the transfer of Old Subordinated
Debentures, or any interest therein, will be prohibited. Moreover, the
Reorganized Debtor shall have no obligation to recognize the transfer of any
Old Subordinated Debentures occurring after the Distribution Record Date, and
shall be entitled for all purposes herein to recognize and deal only with
those Holders of record as of the close of business on the Distribution Record
Date.
E. Timing and Calculation of Amounts to be Distributed
On the Effective Date, each Holder of an Allowed Claim against the Debtor
shall receive the full amount of the distributions that the Plan provides for
Allowed Claims in the applicable Class. Beginning on the date that is 20
calendar days after the end of the calendar quarter following the Effective
Date and 20 calendar days after the end of each calendar quarter thereafter,
distributions shall also be made, pursuant to Article VIII.C below, to Holders
of Disputed Claims in any such Class whose Claims were allowed during the
preceding calendar quarter. Such quarterly distributions shall also be in the
full amount that the Plan provides for Allowed Claims in the applicable Class.
F. Minimum Distribution
The New Subordinated Debentures will be issued in denominations of $1,000
and integral multiples thereof. No New Subordinated Debenture will be issued
in a denomination of less than $1,000. In the event a Holder of an Allowed
Class 6 Claim is entitled to distribution of New Subordinated Debentures that
is not an integral multiple of $1,000, such distribution shall be aggregated
by the Company (or its agent), and as soon as practicable after the Effective
Date, such interests shall be sold by the Company (or its agent) in a
commercially reasonable manner and, upon the completion of such sale, the net
proceeds thereof shall be distributed (without interest) pro rata to the
Holders of Allowed Class 6 Claims based upon the fraction of New Subordinated
Debentures each such Holder would have been entitled to receive or deemed to
hold had the Company issued New Subordinated Debentures in integral multiples
smaller than $1,000, such distribution being in lieu of any other distribution
thereon.
G. Setoffs
The Reorganized Debtor may, pursuant to section 553 of the Bankruptcy Code
or applicable non-bankruptcy law, set off against any Allowed Claim and the
distributions to be made pursuant to the Plan on account of such Claim (before
any distribution is made on account of such Claim), the claims, rights and
causes of action of any nature that the Debtor or Reorganized Debtor may hold
against the Holder of such Allowed Claim; provided, however, that neither the
failure to effect such a setoff nor the allowance of any Claim hereunder shall
constitute a waiver or release by the Debtor or Reorganized Debtor of any such
claims, rights and causes of action that the Debtor or Reorganized Debtor may
possess against such Holder.
H. Surrender of Canceled Instruments or Securities
As a condition precedent to receiving any distribution pursuant to the Plan
on account of an Allowed Claim evidenced by the instruments, securities or
other documentation canceled pursuant to Article V.B above, the Holder of such
Claim shall tender the applicable instruments, securities or other
documentation evidencing such Claim to the Reorganized Debtor. Any New Bank
Lender Note, New Subordinated Debentures or New Common Stock to be distributed
pursuant to the Plan on account of any such Claim shall, pending such
surrender, be treated as an undeliverable distribution pursuant to Article
VII.C above.
1. Notes and Debentures
Each Holder of an Old Subordinated Debenture Claim shall tender its Old
Subordinated Debenture relating to such Claim to the Reorganized Debtor in
accordance with written instructions to be provided to such Holders by the
Reorganized Debtor as promptly as practicable following the Effective Date.
Such instructions shall
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specify that delivery of such Old Subordinated Debenture will be effected, and
risk of loss and title thereto will pass, only upon the proper delivery of
such Old Subordinated Debentures with a letter of transmittal in accordance
with such instructions. All surrendered Old Subordinated Debentures shall be
marked as canceled.
2. Failure to Surrender Canceled Instruments
Any Holder of Old Subordinated Debentures that fails to surrender or is
deemed to have failed to surrender the applicable Old Subordinated Debentures
required to be tendered hereunder within five years after the Effective Date
shall have its Claim for a distribution pursuant to the Plan on account of
such Old Subordinated Debenture discharged and shall be forever barred from
asserting any such Claim against the Reorganized Debtor or its respective
property. In such cases, any New Subordinated Debentures held for distribution
on account of such Claim shall be disposed of pursuant to the provisions set
forth above in Article VII.C.
I. Lost, Stolen, Mutilated or Destroyed Debt Securities
In addition to any requirements under the Old Subordinated Debenture
Indenture, or any related agreement, any Holder of a Claim evidenced by an Old
Subordinated Debenture that has been lost, stolen, mutilated or destroyed
shall, in lieu of surrendering such Old Subordinated Debenture, deliver to the
Reorganized Debtor: (1) evidence satisfactory to the Reorganized Debtor of the
loss, theft, mutilation or destruction; and (2) such security or indemnity as
may be required by the Reorganized Debtor to hold the Reorganized Debtor
harmless from any damages, liabilities or costs incurred in treating such
individual as a Holder of an Allowed Claim. Upon compliance with this Article
VII.I by a Holder of a Claim evidenced by an Old Subordinated Debenture, such
Holder shall, for all purposes under the Plan, be deemed to have surrendered
such note or debenture.
ARTICLE VIII.
PROCEDURES FOR RESOLVING DISPUTED CLAIMS
A. Prosecution of Objections to Claims
After the Confirmation Date, the Debtor and the Reorganized Debtor shall
have the exclusive authority to File objections, settle, compromise, withdraw
or litigate to judgment objections to Claims. From and after the Confirmation
Date, the Debtor and the Reorganized Debtor may settle or compromise any
Disputed Claim without approval of the Bankruptcy Court.
B. Estimation of Claims
The Debtor or the Reorganized Debtor may, at any time, request that the
Bankruptcy Court estimate any contingent or unliquidated Claim pursuant to
section 502(c) of the Bankruptcy Code regardless of whether the Debtor or the
Reorganized Debtor has previously objected to such Claim or whether the
Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court
will retain jurisdiction to estimate any Claim at any time during litigation
concerning any objection to any Claim, including during the pendency of any
appeal relating to any such objection. In the event that the Bankruptcy Court
estimates any contingent or unliquidated Claim, that estimated amount will
constitute either the allowed amount of such Claim or a maximum limitation on
such Claim, as determined by the Bankruptcy Court. If the estimated amount
constitutes a maximum limitation on such Claim, the Debtor or Reorganized
Debtor may elect to pursue any supplemental proceedings to object to any
ultimate payment on such Claim. All of the aforementioned Claims objection,
estimation and resolution procedures are cumulative and not necessarily
exclusive of one another. Claims may be estimated and subsequently
compromised, settled, withdrawn or resolved by any mechanism approved by the
Bankruptcy Court.
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C. Payments and Distributions on Disputed Claims
Notwithstanding any provision in the Plan to the contrary, except as
otherwise agreed by the Reorganized Debtor in its sole discretion, no partial
payments and no partial distributions will be made with respect to a Disputed
Claim until the resolution of such disputes by settlement or Final Order.
Subject to the provisions of this Article VIII.C, as soon as practicable after
a Disputed Claim becomes an Allowed Claim, the Holder of such Allowed Claim
will receive all payments and distributions to which such Holder is then
entitled under the Plan. Notwithstanding the foregoing, any Person or Entity
who holds both an Allowed Claim(s) and a Disputed Claim(s) will receive the
appropriate payment or distribution on the Allowed Claim(s), although, except
as otherwise agreed by the Reorganized Debtor in its sole discretion, no
payment or distribution will be made on the Disputed Claim(s) until such
dispute is resolved by settlement or Final Order.
ARTICLE IX.
CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
A. Condition Precedent to Confirmation
It shall be a condition to Confirmation of the Plan that the following
condition shall have been satisfied or waived pursuant to the provisions of
Article IX.C of the Plan: approval of all provisions, terms and conditions of
the Prepackaged Plan in the Confirmation Order.
B. Conditions Precedent to Consummation
It shall be a condition to Consummation of the Plan that the following
conditions shall have been satisfied or waived pursuant to the provisions of
Article IX.C of the Plan:
1. the Confirmation Order shall have been signed by the Bankruptcy Court
and duly entered on the docket for the Prepackaged Chapter 11 Case by the
Clerk of the Bankruptcy Court in form and substance acceptable to the
Debtor;
2. the Confirmation Order shall be a Final Order;
3. a revolving credit facility and letter of credit subfacility shall be
available to the Debtor in an amount not less than $100 million and on such
terms and conditions as set forth in the Restructuring Agreement; and
4. all conditions precedent to the "Closing," as defined in the
Restructuring Agreement, shall have been satisfied or waived pursuant to
the terms thereof.
C. Waiver of Conditions
Other than the condition precedent to Consummation set forth in Article
IX.B.4, which may not be waived without the consent of LGE, the Debtor, in its
sole discretion, may waive any of the conditions to Confirmation of the Plan
and/or to Consummation of the Plan set forth in Articles IX.A and IX.B of the
Plan at any time, without notice, without leave or order of the Bankruptcy
Court, and without any formal action other than proceeding to confirm and/or
consummate the Plan.
D. Effect of Non-occurrence of Conditions to Consummation
If the Confirmation Order is vacated, the Plan shall be null and void in all
respects and nothing contained in the Plan or the Disclosure Statement shall:
(1) constitute a waiver or release of any Claims by or against, or any Equity
Interests in, the Debtor; (2) prejudice in any manner the rights of the
Debtor, or (3) constitute an admission, acknowledgment, offer or undertaking
by the Debtor in any respects.
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ARTICLE X.
RELEASE, INJUNCTIVE AND RELATED PROVISIONS
A. Subordination
The classification and manner of satisfying all Claims and Equity Interests
and the respective distributions and treatments under the Plan take into
account and/or conform to the relative priority and rights of the Claims and
Equity Interests in each Class in connection with any contractual, legal and
equitable subordination rights relating thereto whether arising under general
principles of equitable subordination, section 510(b) of the Bankruptcy Code
or otherwise, and any and all such rights are settled, compromised and
released pursuant to the Plan. The Confirmation Order shall permanently
enjoin, effective as of the Effective Date, all Persons and Entities from
enforcing or attempting to enforce any such contractual, legal and equitable
subordination rights satisfied, compromised and settled pursuant to this
Article X.A.
B. Limited Releases by the Debtor
Except as otherwise specifically provided in the Plan, for good and valuable
consideration, including, but not limited to, the commitment and obligation of
the Investor Releasees to provide the financial support necessary for
consummation of the Plan, including the financial accommodations reflected in
the LGE New Credit Support, the obligations and undertakings of the Investor
Releasees set forth in the Restructuring Agreement, including LGE's agreement
to the treatment of its Claims and Equity Interests as provided in the Plan,
and the service of the D&O Releasees to facilitate the expeditious
reorganization of the Debtor and the implementation of the restructuring
contemplated by the Plan, on and after the Effective Date, the Investor
Releasees and the D&O Releasees are released by the Debtor and the Reorganized
Debtor and its subsidiaries from any and all claims (as defined in section
101(5) of the Bankruptcy Code), obligations, rights, suits, damages, causes of
action, remedies and liabilities whatsoever, whether known or unknown,
foreseen or unforeseen, existing or hereafter arising, in law, equity or
otherwise, that the Debtor or its subsidiaries would have been legally
entitled to assert in their own right (whether individually or collectively)
or on behalf of the Holder of any Claim or Equity Interest or other Person or
Entity, based in whole or in part upon any act or omission, transaction,
agreement, event or other occurrence taking place on or before the Effective
Date, except in the case of the D&O Releasees, for claims or liabilities (i)
in respect of any loan, advance or similar payment by the Debtor or its
subsidiaries to any such Person, or (ii) in respect of any contractual
obligation owed by such Person to the Debtor or its subsidiaries.
C. Limited Releases by Holder of Claims
On and after the Effective Date, each Holder of a Claim (i) who has accepted
the Plan, (ii) whose Claim is in a Class that has accepted or is deemed to
have accepted the Plan pursuant to section 1126 of the Bankruptcy Code, or
(iii) who is entitled to receive a distribution of property under the Plan,
shall be deemed to have unconditionally released the Investor Releasees and
the D&O Releasees from any and all claims (as defined in section 101(5) of the
Bankruptcy Code), obligations, rights, suits, damages, causes of action,
remedies and liabilities whatsoever, whether known or unknown, foreseen or
unforeseen, existing or hereafter arising, in law, equity or otherwise, that
such Person or Entity would have been legally entitled to assert (whether
individually or collectively), based in whole or in part upon any act or
omission, transaction, agreement, event or other occurrence taking place on or
before the Effective Date in any way relating or pertaining to (x) the Debtor
or the Reorganized Debtor, (y) the Debtor's Prepackaged Chapter 11 Case, or
(z) the negotiation, formulation and preparation of the Plan, the
Restructuring Agreement or any related agreements, instruments or other
documents.
D. Preservation of Rights of Action
Except as otherwise provided in the Plan or in any contract, instrument,
release, indenture or other agreement entered into in connection with the
Plan, in accordance with section 1123(b) of the Bankruptcy Code, the
Reorganized Debtor shall retain and may exclusively enforce any claims, rights
and Causes of Action that the Debtor or Estate may hold against any Person or
Entity. The Reorganized Debtor may pursue such retained
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claims, rights or causes of action, as appropriate, in accordance with the
best interests of the Reorganized Debtor. On the Effective Date, the
Reorganized Debtor shall be deemed to waive and release any claims, rights or
Causes of Action arising under sections 544, 547, 548, 549 and 550 of the
Bankruptcy Code held by the Reorganized Debtor against any Person or Entity.
E. Exculpation
The Debtor, the Reorganized Debtor, the Investor Releasees, the D&O
Releasees, and the Committee(s) and its members and Professionals (acting in
such capacity) shall neither have nor incur any liability to any Person or
Entity for any act taken or omitted to be taken in connection with or related
to the formulation, preparation, dissemination, implementation,
administration, Confirmation or Consummation of the Plan, the Disclosure
Statement or any contract, instrument, release or other agreement or document
created or entered into in connection with the Plan, including the
Restructuring Agreement, or any other act taken or omitted to be taken in
connection with the Debtor's Prepackaged Chapter 11 Case; provided, however,
that the foregoing provisions of this Article X.E shall have no effect on the
liability of any Person or Entity that results from any such act or omission
that is determined in a Final Order to have constituted gross negligence or
willful misconduct.
F. Injunction
From and after the Effective Date, all Persons and Entities are permanently
enjoined from commencing or continuing in any manner, any suit, action or
other proceeding, on account of or respecting any claim, obligation, debt,
right, Cause of Action, remedy or liability released or to be released
pursuant to this Article X.
ARTICLE XI.
RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order and the occurrence of
the Effective Date, the Bankruptcy Court shall retain such jurisdiction over
the Prepackaged Chapter 11 Case after the Effective Date as legally
permissible, including jurisdiction to:
A. Allow, disallow, determine, liquidate, classify, estimate or establish
the priority or secured or unsecured status of any Claim, including the
resolution of any request for payment of any Administrative Claim and the
resolution of any and all objections to the allowance or priority of
Claims;
B. Grant or deny any applications for allowance of compensation or
reimbursement of expenses authorized pursuant to the Bankruptcy Code or the
Plan, for periods ending on or before the Effective Date;
C. Resolve any matters related to the assumption, assumption and
assignment or rejection of any executory contract or unexpired lease to
which the Debtor is a party or with respect to which the Debtor may be
liable and to hear, determine and, if necessary, liquidate, any Claims
arising therefrom, including those matters related to the amendment after
the Effective Date pursuant to Article VI above to add any executory
contracts or unexpired leases to the list of executory contracts and
unexpired leases to be rejected;
D. Ensure that distributions to Holders of Allowed Claims are
accomplished pursuant to the provisions of the Plan, including ruling on
any motion Filed pursuant to Article VII;
E. Decide or resolve any motions, adversary proceedings, contested or
litigated matters and any other matters and grant or deny any applications
involving the Debtor that may be pending on the Effective Date;
F. Enter such orders as may be necessary or appropriate to implement or
consummate the provisions of the Plan and all contracts, instruments,
releases, indentures and other agreements or documents created in
connection with the Plan or the Disclosure Statement;
G. Resolve any cases, controversies, suits or disputes that may arise in
connection with the Consummation, interpretation or enforcement of the Plan
or any Person's or Entity's obligations incurred in connection with the
Plan;
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H. Issue injunctions, enter and implement other orders or take such other
actions as may be necessary or appropriate to restrain interference by any
Person or Entity with Consummation or enforcement of the Plan, except as
otherwise provided herein;
I. Resolve any cases, controversies, suits or disputes with respect to
the releases, injunction and other provisions contained in Article X and
enter such orders as may be necessary or appropriate to implement such
releases, injunction and other provisions;
J. Enter and implement such orders as are necessary or appropriate if the
Confirmation Order is for any reason modified, stayed, reversed, revoked or
vacated;
K. Determine any other matters that may arise in connection with or
relate to the Plan, the Disclosure Statement, the Confirmation Order or any
contract, instrument, release, indenture or other agreement or document
created in connection with the Plan or the Disclosure Statement; and
L. Enter an order and/or final decree concluding the Prepackaged Chapter
11 Case.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
A. Dissolution of Committee(s)
On the Effective Date, the Committee(s) shall dissolve and members shall be
released and discharged from all rights and duties arising from, or related
to, the Prepackaged Chapter 11 Case.
B. Payment of Statutory Fees
All fees payable pursuant to section 1930 of title 28 of the United States
Code, as determined by the Bankruptcy Court at the hearing pursuant to section
1128 of the Bankruptcy Code, shall be paid on or before the Effective Date.
C. Discharge of Debtor
Except as otherwise provided herein or in the LGE New Restructured Senior
Note, the New Bank Lender Note or the New Subordinated Debentures, (1) the
rights afforded in the Plan and the treatment of all Claims and Equity
Interests therein, shall be in exchange for and in complete satisfaction,
discharge and release of Claims and Equity Interests of any nature whatsoever,
including any interest accrued on such Claims from and after the Petition
Date, against the Debtor and the Debtor in Possession, or any of its assets or
properties, (2) on the Effective Date, all such Claims against, and Equity
Interests in the Debtor shall be satisfied, discharged and released in full
and (3) all Persons and Entities shall be precluded from asserting against the
Reorganized Debtor, its successors or its assets or properties any other or
further Claims or Equity Interests based upon any act or omission, transaction
or other activity of any kind or nature that occurred prior to the
Confirmation Date.
D. Modification of Plan
Subject to the limitations contained herein, (1) the Debtor reserves the
right, in accordance with the Bankruptcy Code and the Bankruptcy Rules, to
amend or modify the Plan prior to the entry of the Confirmation Order and (2)
after the entry of the Confirmation Order, the Debtor or the Reorganized
Debtor, as the case may be, may, upon order of the Bankruptcy Court, amend or
modify the Plan, in accordance with section 1127(b) of the Bankruptcy Code, or
remedy any defect or omission or reconcile any inconsistency in the Plan in
such manner as may be necessary to carry out the purpose and intent of the
Plan.
E. Revocation of Plan
The Debtor reserves the right, at any time prior to the entry of the
Confirmation Order, to revoke and withdraw the Plan.
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F. Successors and Assigns
The rights, benefits and obligations of any Person or Entity named or
referred to in the Plan shall be binding on, and shall inure to the benefit of
any heir, executor, administrator, successor or assign of such Person or
Entity.
G. Reservation of Rights
Except as expressly set forth herein, this Plan shall have no force or
effect unless the Bankruptcy Court shall enter the Confirmation Order. None of
the filing of this Plan, any statement or provision contained herein, or the
taking of any action by the Debtor with respect to this Plan shall be or shall
be deemed to be an admission or waiver of any rights of the Debtor with
respect to the Holders of Claims or Equity Interests prior to the Effective
Date.
H. Section 1146 Exemption
Pursuant to section 1146(c) of the Bankruptcy Code, the issuance, transfer,
or exchange of any security under the Plan, or the making or delivery of an
instrument of transfer under this Plan, may not be taxed under any law
imposing a stamp tax or similar tax.
I. Further Assurances
The Debtor, the Reorganized Debtor, LGE and all Holders of Claims receiving
distributions under the Plan and all other parties in interest shall, from
time to time, prepare, execute and deliver any agreements or documents and
take any other actions as may be necessary or advisable to effectuate the
provisions and intent of this Plan.
J. Service of Documents
Any pleading, notice or other document required by the Plan to be served on
or delivered to the Reorganized Debtor shall be sent by first class U.S. mail,
postage prepaid to:
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, Illinois 60025-2493
Attn: General Counsel
with copies to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, Illinois 60601
Attn: James H.M. Sprayregen, Esq.
K. Filing of Additional Documents
On or before the Effective Date, the Debtor may file with the Bankruptcy
Court such agreements and other documents as may be necessary or appropriate
to effectuate and further evidence the terms and conditions of the Plan.
Respectfully Submitted,
Zenith Electronics Corporation
By: _________________________________
Name:
Title:
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ANNEX B--CERTAIN HISTORICAL INFORMATION REGARDING ZENITH
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis of the Company's results of operations
and financial condition for the first nine months of 1998 compared with the
first nine months of 1997, set forth below, have largely been excerpted from
the Company's Quarterly Report on Form 10-Q for the quarter ended September
26, 1998. Management's discussion and analysis of the Company's results of
operations and financial condition for the fiscal years 1997, 1996 and 1995,
also set forth below, have largely been excerpted from the Company's 1997
Annual Reports on Form 10-K. Accordingly, such discussions generally do not
reflect the financial impact of the Restructuring and should therefore be read
in conjunction with the information contained in "PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION," "SELECTED CONSOLIDATED FINANCIAL DATA" and the
Company's Consolidated Financial Statements and related notes thereto
contained elsewhere in this Disclosure Statement. See "INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
RESULTS OF OPERATIONS: THIRD QUARTER OF 1998 COMPARED TO THIRD QUARTER OF 1997
The Company's third-quarter net loss, excluding restructuring and asset
impairment charges, was $18.6 million in 1998 compared to $59.2 million a year
ago. Including a $100.4 million restructuring charge, the Company reported a
third-quarter net loss of $119.0 million or $1.76 per share. In the 1997 third
quarter, including a $10 million asset impairment charge, the Company reported
a net loss of $69.2 million or $1.04.
The third-quarter 1998 restructuring charge related to (i) a $68.8 million
loss on the termination of the Leveraged Leases, (ii) $32.3 million of
deferred charges (bank, attorney and guarantee fees) that were written off,
(iii) accelerated amortization of the remaining deferred gain ($9.1 million)
related to the 1997 sale of the assets into the Leveraged Leases, (iv) $7.0
million of professional fees (associated with work performed by outside
consultants to support the development of the Operational and Financial
Restructuring and the Prepackaged Plan) and financing charges (relative to
amending the Citibank Credit Facility), and (v) $1.4 million of other charges,
related primarily to the Company's exiting of its analog set-top box product
line.
Total third-quarter sales were $230.4 million in 1998 compared with $304.5
million in 1997. Consumer electronics sales declined in the 1998 quarter
compared with the same period last year, driven largely by planned sales
reductions in lower-margin color TV products and a change in distribution
strategy whereby certain VCRs are sold directly from the manufacturer (LGE)
rather than through the Company's direct sales organization. The Company
receives a royalty for these sales. Sales of NWS products increased
significantly in the third quarter of 1998 compared with a year ago due to
shipments of digital set-top boxes.
The Company's 1998 third-quarter gross margin was $27.1 million compared to
the prior year of $(3.8) million. This was primarily the result of (i)
significant 1997 third-quarter excess and obsolete inventory charges, (ii)
decreased 1998 third-quarter raw material costs, (iii) lower depreciation
expense in the 1998 third quarter (due to the asset impairment charges the
Company recorded in December 1997) and (iv) large 1997 third-quarter losses in
color picture tube operations which resulted from high operating costs and
performance difficulties associated with new product start-up and new
automated production processes.
Selling, general and administrative expenses were $31.5 million in the third
quarter of 1998, compared with $44.6 million in the previous year. The
decrease was primarily caused by (i) the 1997 third quarter bad debt charge of
$6.0 million related to a Brazilian customer's receivable, (ii) lower
advertising costs in the 1998 third quarter compared to the prior year and
(iii) expense savings related to lower sales.
Other operating expense (income) for the third quarter of 1998 includes $7.7
million of accrued royalty income from tuner patent licenses. This income was
$5.7 million in the third quarter of 1997. During the third
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quarter of 1997, the Company recorded a charge of $10.0 million related to the
impairment of certain long-lived assets to be disposed. The charge related
primarily to (i) assets that were sold or scrapped as a result of the
Company's decision to phase out of its printed circuit board operation, (ii)
assets that were sold or scrapped as a result of the Company's decision not to
develop the proposed large-screen picture tube plant in Woodridge, Illinois,
and (iii) a building in Canada that was sold in December 1997. The amount of
the charge is included in other operating expense (income).
Interest expense was $13.7 million in the third quarter of 1998, compared
with $7.1 million in the previous year. The change resulted from higher
funding requirements (at generally higher interest rates) for Company
operations and the Company began accruing interest to LGE on the $90.1 million
the Company owes LGE for LGE's payment under the guarantee of the Company's
obligation under the sale-leaseback agreement.
For the first nine months of 1998 the Company reported a net loss of $187.8
million, or $2.78 per share, compared with a net loss of $143.7 million, or
$2.16 per share for the first nine months of 1997. Nine-month sales were
$675.1 million in 1998 compared with $825.4 million in 1997.
NINE MONTHS OF 1998 COMPARED TO NINE MONTHS OF 1997
The Company's 1998 nine-month net loss, excluding restructuring and asset
impairment charges, was $80.0 million compared to $133.7 million a year ago.
Including a $107.8 million restructuring charge, the Company reported a 1998
nine-month net loss of $187.8 million or $2.78 per share. In the 1997 nine-
month period, including a $10 million asset impairment charge, the Company
reported a net loss of $143.7 million or $2.16.
The 1998 restructuring charge related to (i) a $68.8 million loss on the
termination of the Leveraged Leases, (ii) $32.3 million of deferred charges
(bank, attorney and guarantee fees) that were written off, (iii) accelerated
amortization of the remaining deferred gain ($9.1 million) related to the 1997
sale of the assets into the Leveraged Leases, (iv) $11.6 million of
professional fees (associated with work performed by outside consultants to
support the development of the Operational and Financial Restructuring and the
Prepackaged Plan) and financing charges (relative to amending the Citibank
Credit Facility), (v) $1.4 million of severance costs and (vi) $2.8 million of
other charges, related primarily to the Company's exiting of its analog set-
top box product line.
Total nine-month sales were $675.1 million in 1998 compared with $825.4
million in 1997. Consumer electronics sales declined in the 1998 period
compared with the same period last year, driven largely by planned sales
reductions in lower-margin color TV products and a change in distribution
strategy whereby certain VCRs are sold directly from the manufacturer (LGE)
rather than through the Company's direct sales organization. The Company
receives a royalty for these sales. Sales of NWS products increased
significantly in the nine-month period of 1998 compared with a year ago due to
shipments of digital set-top boxes.
The Company's 1998 nine-month gross margin was $53.5 million compared to the
prior year of $24.6 million. This was primarily the result of (i) significant
1997 excess and obsolete inventory charges, (ii) decreased 1998 raw material
costs, (iii) lower depreciation expense in the 1998 period (due to the asset
impairment charges the Company recorded in December 1997) and (iv) large 1997
losses in color picture tube operations which resulted from high operating
costs and performance difficulties associated with new product start-up and
new automated production processes.
Selling, general and administrative expenses were $93.4 million in the nine-
month period of 1998, compared with $122.7 million in the previous year. The
decrease was primarily caused by (i) the 1997 bad debt charge of $21.0 million
related to a Brazilian customer's receivable, (ii) lower advertising costs in
the 1998 period compared to the prior year and (iii) expense savings related
to lower sales.
Other operating expense (income) for the nine-month period of 1998 includes
$20.4 million of accrued royalty income from tuner patent licenses. This
income was $16.9 million in the same period of 1997. During the nine-month
period of 1997, the Company recorded a charge of $10.0 million related to the
impairment of
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certain long-lived assets to be disposed. The charge related primarily to (i)
assets that were sold or scrapped as a result of the Company's decision to
phase out of its printed circuit board operation, (ii) assets that were sold
or scrapped as a result of the Company's decision not to develop the proposed
large-screen picture tube plant in Woodridge, Illinois, and (iii) a building
in Canada that was sold in December 1997. The amount of the charge is included
in other operating expense (income).
Interest expense was $33.2 million in the first nine months of 1998,
compared with $21.0 million in the previous year. The change resulted from
higher funding requirements (at generally higher interest rates) for Company
operations and the Company began accruing interest to LGE on the $90.1 million
the Company owes LGE for LGE's payment under the guarantee of the Company's
obligation under the sale-leaseback agreement.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 26, 1998, $82.1 million of cash was
used by operating activities principally to fund $67.0 million of net losses
from operations, as adjusted for $94.8 million of non-cash restructuring
charges and $24.4 million of depreciation. In addition, $17.7 million of cash
was used to fund the change in current accounts, which was principally
composed of a $121.7 million increase in receivables and a $14.1 million
decrease in accounts payable and accrued expenses, offset by a $110.7 million
decrease in transferor certificates and a $6.8 million decrease in other
assets. The increase in receivables and the decrease in transferor
certificates were mainly due to the Citibank Receivables Facility being
terminated during the third quarter of 1998. As a result, receivables are no
longer sold and transferor certificates (which represented the Company's
retained interest in the pool of receivables that were sold) do not exist.
During the nine months ended September 26, 1998, $11.2 million of cash was
used by investing activities. This was composed of $30.0 million of cash
received from the sale of receivables under the now terminated Citibank
Receivables Facility and $6.2 million of cash received from the sale of
certain property held for disposal, offset by $6.4 million of cash used for
capital additions and $41.0 million used to pay off the investor certificates
upon the termination of the Citibank Receivables Facility. The capital
additions during the first nine months of 1998 were significantly lower than
the $68.0 million spent during the same period in 1997. The 1997 capital
additions were the result of spending related to projects primarily in the
color picture tube area, which included new automated production processes and
the addition of new production lines for computer display tubes.
During the nine months ended September 26, 1998, $93.3 million of cash was
provided by financing activities. This was composed of $77.8 million of
borrowings under the Amended Citibank Credit Facility, $30.0 million of
borrowings under the Company's remaining unsecured and uncommitted credit
facilities, $30.0 million of borrowings under the secured credit facility with
LGE, offset by cash used to pay the current portion ($5.8 million) of the
Subordinated Debentures, cash used to pay off the old term loan ($38.2
million) and cash used to redeem the Company's 8.5 percent Senior Subordinated
Convertible Debentures due January 2001 ($0.5 million).
As of September 26, 1998, the Company had $537.4 million of interest-bearing
obligations which consisted of: (i) $134.0 million of extended-term payables
with LGE, (ii) $103.5 million of Old Subordinated Debentures (the current
portion of which is $5.8 million), (iii) $30.0 million currently payable under
the remaining unsecured and uncommitted credit facilities, (iv) $77.8 million
currently payable under the Amended Citibank Credit Facility, (v) $30.0
million outstanding under a secured credit facility with LGE, (vi) $90.1
million owed to LGE as a result of LGE's payment under the guarantees of the
Leveraged Leases and (vii) $72.0 million owed to LGE as a result of LGE's
payments under demands against guarantees on the unsecured and uncommitted
credit facilities.
Between November 1997 and February 1998, the Company obtained a total of
$110.0 million in unsecured and uncommitted credit facilities through lines of
credit with Bank of America ($30.0 million), First Chicago NBD ($30.0
million), Societe Generale ($20.0 million) and Credit Agricole Indosuez ($30.0
million). The credit lines are guaranteed by LGE for which LGE is entitled to
receive a fee in an amount up to 2 percent of the
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outstanding amount of the loans. The Company granted liens in favor of LGE on
the capital stock of the Company's domestic subsidiaries, on the Company's
intellectual property (other than tuning patents, tuning patent royalties and
related license agreements) and certain other Company assets to secure the
guarantees of LGE for borrowings under these credit lines. As of September 26,
1998, only the Credit Agricole loan remains outstanding in the amount of $30.0
million. During the second and third quarter of 1998, LGE made payments under
demands against guarantees on $72.0 million of the facilities and the Company
is obligated to LGE for these payments plus interest.
In March 1998, the Company entered into a secured credit facility with LGE
which provides for borrowings of up to $45 million. The term of the facility
is one year from the date of the first borrowing, subject to LGE's right to
demand repayment at anytime after December 31, 1998 (as amended). Repayment is
due in full at the end of the term. The first such borrowing occurred in May
1998, and as of September 26, 1998, $30.0 million was outstanding under the
facility. The facility is secured by liens on certain of the Company's assets
and is subject to certain terms and conditions.
During the third quarter of 1998, the Citicorp Credit Facility (initially
composed of a $45.0 million amortizing term loan and a $65.0 million revolving
credit line) was amended and restated. The Amended Citibank Credit Facility
provides for up to $125.0 million of revolving loans, subject to borrowing
base restrictions. The revolving loans must be repaid on or before the earlier
of (a) the Company's court filing for the Prepackaged Plan or (b) December 31,
1998. The Company is in discussions with lenders regarding debtor-in-
possession financing to cover the period during the court proceeding related
to the Prepackaged Plan and a new credit facility to cover the period
following consummation of the Prepackaged Plan. In addition, pursuant to the
Restructuring Agreement, LGE has agreed to provide additional credit support.
LGE's obligation to provide such financing is subject to the conditions set
forth in the Restructuring Agreement.
In April 1997, the Company entered into a sale-leaseback transaction whereby
the Company sold and leased back manufacturing equipment in its Melrose Park,
Illinois, plant and in its Reynosa and Juarez, Mexico, facilities. The
Company's payment obligations, along with certain other items under the lease
agreement were fully guaranteed by LGE. In July 1998 LGE made payment under
the guarantees of the lease in the amount of $90.1 million as a result of a
demand made under the guarantees by the lessor.
Following the filing of the 1997 Form 10-K, the New York Stock Exchange
("NYSE") contacted the Company regarding the continuing listing status of the
Old Common Stock. On May 21, 1998, the Company announced the terms of the
Financial Restructuring, and on May 22, 1998, the NYSE suspended trading of
the Old Common Stock. The Old Common Stock has traded in the over-the-counter
market since that time.
RESULTS OF OPERATIONS FOR 1995-1997
Revenues
Sales in 1997 were $1,173 million down 9% from 1996 sales of $1,288 million.
Sales in 1996 increased 1% as compared to 1995 sales of $1,274 million.
The Company's core business--the development, manufacture and distribution
of a broad range of products for the delivery of video entertainment--is
composed of two major product areas, Consumer Electronics (which includes
color picture tube operations) ("Consumer Electronics") and NWS.
In Consumer Electronics, the color television market remains extremely
competitive. Price competition continued during 1997 and 1996 forcing the
Company to reduce color television prices in each year to maintain sales
volumes and market share. This price competition may continue to adversely
affect the Company's performance.
Consumer Electronics sales decreased 7% in 1997 from 1996 primarily due to
soft demand for direct-view color television sets (particularly during the
traditionally strong fourth quarter) and lower VCR sales. In addition,
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sales continued to be negatively impacted as the Company suffered delays in
production of new high-margin Consumer Electronics products. Because of
picture tube availability problems, the Company's domestic direct-view color
television unit sales declined compared with 1996, but the Company gained
market share in key large-screen categories. The industry color television
unit sales to dealers (including projection television) decreased by 4% in
1997 to 24.5 million units (following a decrease of 3% to 25.5 million units
in 1996 and a decrease of 4% to 26.2 million units in 1995). The Zenith brand
remains one of the top three U.S. color television brands.
Sales in 1997 were negatively impacted as a result of a dispute the Company
had with a Brazilian customer. The Company shipped dramatically less to this
customer during 1997, and as a result the Company's international sales have
been lower than expected.
Consumer Electronics sales increased 3% in 1996 from 1995, driven largely by
higher VCR sales. The Company's domestic direct-view color television unit
sales in 1996 were flat compared with 1995, while industry color television
unit sales to dealers declined. As a result, the Company's market share
increased slightly during 1996. The industry color television unit sales to
dealers (including projection televisions) decreased by 3% to 25.5 million
units in 1996 (following a decrease of 4% to 26.2 million units in 1995 and an
increase of 10% to 27.4 million units in 1994).
Sales in 1996 were negatively impacted as the Company suffered delays in
production of new high-margin Consumer Electronics products.
In NWS, which includes the design and manufacture of digital and analog set-
top boxes, along with data modems sold primarily to cable television
operators, 1997 sales were down significantly compared with 1996 due to
slowing industry-wide demand for analog set-top boxes as cable operators
prepare to launch digital networks. Industry and the Company's shipments of
cable modems, while still relatively small, rose during 1997. During 1996, the
Company signed a multi-year agreement with the Americast programming venture
to provide digital set-top boxes to a consortium of telecommunications
companies. Initial shipments under this contract began in 1997. NWS 1996 sales
were down significantly compared with 1995 for the reasons discussed above.
Costs and Expenses
In light of the Company's net losses, the competitive environment and
inflationary cost pressures, the Company has undertaken major cost reduction
programs in each of the last three years. These programs included cost control
and profit improvement initiatives; design, manufacturing, logistics and
distribution improvements; and business consolidations. The Company continues
to seek ongoing additional cost reduction opportunities.
The 1997 results included large losses in color picture tube operations
along with significant charges related to inventory valuation (approximately
$44 million) and bad debts (approximately $25 million) which are significantly
higher that last year. The large losses in the Company's color picture tube
plant resulted from high operating costs and performance difficulties
associated with new product start-up and new automated production processes.
These product and process problems created a large amount of rework inventory
that necessitated significant charges for excess and obsolete inventory. These
items combined to negatively impact the Company's gross margin. The charges
for bad debts affected selling, general and administrative expenses and are
discussed below.
The 1996 results also included significant charges. The majority of these
charges related to selling, general and administrative expenses, but a
significant amount of the charges were included in costs of products sold and
negatively impacted the Company's gross margin. The charges included in costs
of products sold were primarily associated with inventories (particularly
write-offs of excess and obsolete inventory), and also included charges for
hourly employees severance.
Selling, general and administrative expenses were $178 million in 1997, $168
million in 1996 and $129 million in 1995. These expenses as a percent of
revenues were 15% in 1997, 13% in 1996 and 10% in 1995. The
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increase in 1997, as compared to 1996, was primarily the result of a $21
million bad debt charge related to a dispute the Company had with a Brazilian
customer. See Note Four to the Company's Consolidated Financial Statements for
further information. The increase in 1996, as compared to 1995, was the result
of the unusual charges which included severance charges for salaried employees
(including executive severance), consulting fees and provisions for bad debts.
Amounts that the Company spends each year on engineering and research
relating to new products and services and to improvements of existing products
and services are expensed as incurred. These amounts were $43 million in 1997,
$47 million in 1996 and $44 million in 1995. These expenses as a percentage of
revenues were approximately 4% in each year during the three years ended
December 31, 1997.
Other Operating Expense (Income)
Other Operating Expense (Income) contains royalty income received from
manufacturers of television sets and VCRs who have taken licenses under some
of the Company's U.S. tuning system patents. Royalty income from tuning system
patents was $26 million in 1997, $27 million in 1996 and $26 million in 1995.
Also included in Other operating expense (income) are foreign exchange gains
and losses. These amounts have traditionally not been material.
In 1997, Other Operating Expense (Income) was significantly impacted as the
Company recorded $64 million in charges for asset impairments. As required by
Statement of Financial Accounting Standards (FAS) No. 121, long-lived assets
to be held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be
recoverable. During the fourth quarter of 1997, an impairment was recognized
for the Consumer Electronics business since the future undiscounted cash flows
of assets were estimated to be insufficient to recover their related carrying
values. As such, the Company recognized an expense of $54 million and
established a valuation reserve for the write-down of the excess carrying
value over fair market value. The fair market value used in determining the
impairment loss was based upon management and third party valuations.
Also in accordance with FAS 121, certain long-lived assets to be sold are
reported at the lower of carrying amount or fair value less cost to sell.
During the third quarter of 1997, the Company recorded a charge of $10 million
related to the impairment of certain long-lived assets to be sold. The charge
relates primarily to (i) assets that will be sold or scrapped as a result of
the Company's decision to phase out of its printed circuit board operation
(ii) assets that will be sold or scrapped as a result of the Company's
decision not to develop the proposed large-screen picture tube plant in
Woodridge, Illinois and (iii) a building in Canada that was sold in December
1997.
The impairment charges discussed above are based upon management's best
estimates of the recoverability of long-lived assets and the fair value of the
related assets. It is reasonably possible that the Company's estimates of the
recoverability of long-lived assets and the fair value will change. See the
Outlook section of Management's Discussion and Analysis of Financial Condition
and Results of Operations for further information.
Restructuring and Other Charges
There were no Restructuring and Other Charges during 1997, however, if the
Company executes its business plan for 1998, significant restructuring charges
are expected to be incurred during 1998. See the Outlook section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations for further information.
During the fourth quarter of 1996, the Company recorded $9 million of
restructuring charges. The restructuring was composed of $5 million of charges
related to severance costs associated with employment reductions (mostly in
the Company's U.S. salaried workforce) and $4 million of charges associated
with the shutdown of the Company's wholly-owned Canadian distributor.
Substantially all of the provisions are related to cash expenditures that were
made during 1997.
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During 1995, the Company recorded $22 million of restructuring and other
charges. The main component of this was a second-quarter charge of $18 million
primarily to restructure its core Consumer Electronics and NWS business. The
charge was mainly comprised of provisions made in anticipation of cash
expenditures that were paid in the second half of 1995 or in the first half of
1996. The major elements of the restructuring related to severance expenses
($10 million) associated with employment reductions (mostly in the Company's
U.S. salaried workforce) and costs associated with realigned distribution
activities ($3 million) as the Company changed to direct-to-retail
distribution on a nationwide basis. The remaining charges related to other
non-recurring items, including certain environmental, legal and other
regulatory matters, and trade receivable write-offs (primarily for accounts in
Mexico as a result of the peso devaluation).
The remainder of the 1995 charges related to fourth-quarter charges totaling
$4 million that were incurred as a consequence of the LGE purchase of Old
Common Stock.
Interest Expense
Interest expense was $26 million in 1997, $15 million in 1996 and $20
million in 1995. The increased amounts in 1997 and 1995, when compared to
1996, resulted from higher funding requirements for Company operations. To
assist in funding these requirements, the Company entered into various
financing transactions.
Income Taxes
Due to the Company's continuing losses, provisions made for income taxes
during the last three years have not been material. In 1995, the Company
recorded an income tax credit of $8 million (including interest) that related
to a tax refund due the Company as a result of certain foreign tax credit
issues in audits of prior years.
Net Income
As a result of the factors described above, net losses were $299 million in
1997, $178 million in 1996 and $91 million in 1995. Corresponding per share
losses were $4.49 in 1997, $2.73 in 1996 and $1.85 in 1995.
In recent years, the Company has announced product initiatives based on its
digital set-top box and cable modem technologies. The Company has not yet
recognized any significant revenues from these product initiatives. Whether
the Company will achieve significant revenues or profits from these product
initiatives in the near term or ever will depend largely on market acceptance
of the products and the existence of competitive products. The Company expects
from time to time in the future to announce other product initiatives. The
ultimate contribution of any such initiatives to the financial performance of
the Company will similarly depend on such factors.
CASH FLOWS
Operating Activities
A principal use of the Company's liquidity is the cash used by operating
activities which consists of the Company's net loss as adjusted for non-cash
operating items and the changes in current assets and liabilities such as
receivables, inventories and payables.
In 1997, $25 million of cash was used by operating activities principally to
fund $193 million of net losses from operations as adjusted for depreciation,
charges for asset impairments and losses on asset sales. The change in current
accounts provided $149 million of cash and was principally composed of a $187
million decrease in receivables and a $90 million decrease in inventories,
offset by a $111 million increase in transferor certificates. The decrease in
receivables and the increase in transferor certificates were mainly due to the
receivable securitization agreement with Citicorp being put in place during
1997 which accounts for transactions under this
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agreement as the sale of receivables. The net effect of the decrease in
receivables and the increase in transferor certificates was a decrease of $76
million which was primarily related to the lower sales levels, particularly in
the fourth quarter of 1997, the $21 million bad debt charge related to a
dispute the Company had with a Brazilian customer, and the sale of receivables
to outside investors under the receivable securitization agreement. The
decrease in inventories was related to reduced amounts of purchases in
anticipation of the lower fourth quarter sales. In addition, the Company
reduced cash used by operating activities by issuing Old Common Stock to the
retirement savings plans to fulfill the 1996 obligation to salaried employees.
This issuance increased stockholders' equity by $5 million.
In 1996, $24 million of cash was used by operating activities principally to
fund $143 million of net losses from operations as adjusted for depreciation.
The change in current accounts provided $116 million of cash and was
principally composed of a $180 million increase in accounts payable and
accrued expenses offset by a $53 million increase in inventories and an $8
million increase in receivables. The increase in accounts payable and accrued
expenses was mainly due to increased amounts of accounts payable, composed of
(i) contracts with LGE which permit the Company to elect interest-bearing
extended-payment terms ($107 million at December 31, 1996, and $9 million at
December 31, 1995) and (ii) all other accounts payable ($110 million at
December 31, 1996 and $63 million at December 31, 1995). The increase in the
LGE Extended Payables Claims is due to a lengthening of the terms, while the
increase in the other accounts payable is due mainly to the increased levels
of inventory. In addition, the Company reduced cash used by operating
activities by issuing common stock to the profit-sharing retirement plans to
fulfill the 1995 obligation to salaried employees and some hourly employees.
This issuance increased stockholders' equity by $5 million.
In 1995, $33 million of cash was used by operating activities principally to
fund $57 million of net losses from operations as adjusted for depreciation
and a loss on asset sales. The change in current accounts provided $20 million
of cash and was principally composed of a $51 million decrease in inventories
offset by a $38 million decrease in accounts payable and accrued expenses. The
decreases in inventories and accounts payable were due in part to lower levels
of color television production caused by lower sales levels. Inventories also
were reduced as a result of process improvements implemented during 1995.
Investing Activities
The principal recurring investing activity is the addition of property,
plant and equipment. These expenditures are primarily for equipment and
tooling related to product improvements, more efficient production methods and
replacement for normal wear. Beginning in 1997, another major investing
activity became the distribution of investor certificates that were generated
under the receivable securitization with Citibank.
In 1997, investing activities provided $21 million of cash, which consisted
of $188 million of proceeds from asset sales offset by capital additions of
$83 million and the distribution of $84 million of investor certificates. The
proceeds from asset sales were primarily composed of $95 million of cash
received from the sale of receivables (sold via the Citibank Receivables
Facility) and $87 million of cash received in connection with a sale-leaseback
transaction whereby the Company sold and leased back new and existing
manufacturing equipment in its Melrose Park, Illinois, picture tube plant and
in its Reynosa and Juarez, Mexico, facilities. Capital additions in 1997
included expenditures related to projects primarily in the color picture tube
area, which include new automated production processes and the addition of new
production lines for computer display tubes.
In 1996, investing activities used $125 million of cash, which consisted of
capital additions of $129 million offset by $4 million of proceeds from asset
sales. The level of capital additions in 1996 was significantly higher than
other years primarily to support the expansion and modernization of the
Company's Melrose Park, Illinois, picture tube plant, and its Chihuahua,
Mexico, plant for digital set-top boxes.
In 1995, investing activities used $49 million of cash, which consisted of
capital additions of $52 million offset by $3 million of proceeds from asset
sales. Capital additions in 1995 included a new production line for projection
television picture tubes in the Company's Juarez, Mexico, plant and new
industrial robotics to perform labor-intensive production processes in the
Melrose Park, Illinois, picture tube plant.
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The Company is planning a significant reduction in capital investment
projects during 1998.
Financing Activities
In 1997, financing activities provided $4 million of cash, which included
$45 million provided as a result of borrowings under the Company's new term
loan, $25 million of increased borrowings under the Company's short-term debt
agreements and $1 million provided from sales of the Company's Old Common
Stock to employees of the Company via the exercise of previously issued stock
options. This was offset by $31 million of cash used to pay off the old term
loan, $24 million of cash used to redeem the 8.5% senior subordinated
convertible debentures due November 2000, $7 million of cash used to pay
maturities of the new term loan and $6 million of cash used to pay maturities
of the 6 1/4% convertible subordinated debentures due 2011.
In 1996, financing activities provided $55 million of cash, which included
$47 million provided as a result of borrowings under the Company's credit
agreement and $15 million provided from sales of the Company's Old Common
Stock to employees of the Company via the exercise of previously issued stock
options. This was offset by $7 million of cash used to pay maturities of the
GECC Term Loan.
The 1995 increase in cash provided was due to the Company selling $171
million of Old Common Stock to investors, principally the sale at $10 per
share of 16.5 million shares to LGE in November. In addition, the Company sold
1.3 million shares to investors under a shelf registration statement. Cash
also was provided during 1995 as the Company entered into a Term Loan
Agreement for $40 million. Cash was used during 1995 as the Company
repurchased $43 million principal amount of its 8.5% Convertible Senior
Subordinated Debentures due 2000 and 2001, at par plus accrued interest. This
repurchase resulted from the exercise by certain holders of the debentures of
the right to require repurchase of all or a portion of the debentures
following a change of control of the Company, which occurred upon the purchase
of a controlling interest in the Company by LGE.
FINANCIAL CONDITION
As of March 28, 1998, the Company had $377.5 million of interest-bearing
obligations which consisted of: (i) $133.7 million of extended-term payables
with LGE; (ii) $103.5 million of the Old Subordinated Debentures due 2011 (the
current portion of which was $5.8 million); (iii) $102 million payable under
various unsecured and uncommitted credit facilities; and (iv) a $38.3 million
term loan with Citicorp (the current portion of which was $9 million). In
addition, the Company had $1 million aggregate principal amount of 8.5% Senior
Subordinated Convertible Debentures due 2001 which are classified as current
as they were redeemed subsequent to December 31, 1997.
In April 1997, the Company obtained several financing commitments. One of
the commitments is a three year $110 million credit facility composed of a $45
million term loan and a $65 million revolving credit line. This facility
replaces the Company's previous credit agreement and term loan with GECC. The
term loan requires scheduled quarterly principal payments of $2 million with a
balloon payment of $20 million at maturity in the year 2000. Under the
revolving credit line, the maximum commitment of funds available for borrowing
is limited by a defined borrowing base formula related to eligible inventory.
The facility is secured by the Company's inventory, domestic fixed assets,
stock of the Company's subsidiaries and tuner patent royalties, along with the
related patents, licenses and other general intangibles. Interest on
borrowings is based on market rates.
The facility contains certain covenants that must be met in order to remain
in compliance with the facility, including financial covenants that must be
maintained as of the end of each fiscal quarter. During 1997, the Company
amended its credit facility to relax certain financial covenants. As amended,
the financial covenants include a minimum EBITDA amount, a current ratio test,
a funded debt/total capitalization ratio test, a tuning patent royalties test
and an LGE payable test. As a result of waivers obtained from the bank group,
in December 1997 and March 1998, only the tuning patent royalties test and the
LGE payable test were in effect as of December 31, 1997 and March 31, 1998,
and the Company was in compliance with both of these covenants.
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A second commitment is a three year trade receivables securitization which
is provided through a Citibank commercial paper conduit. The availability of
funds under this receivable securitization is subject to receivables
eligibility based on such items as agings, concentrations, dilution and loss
history, subject to a maximum amount that was $165 million as of December 31,
1997, but can be increased to $200 million, assuming additional bank
commitments. LGE provides support for this facility through a performance
undertaking and a letter of credit. This trade receivable securitization was
accounted for as a sale of receivables.
Also, in April 1997, the Company entered into an $87 million sale-leaseback
transaction whereby the Company sold and leased back new and existing
manufacturing equipment in its Melrose Park, Illinois, picture tube plant and
in its Reynosa and Juarez, Mexico, facilities. The term of the lease is 12 1/2
years and annual payments under the lease will average approximately $10
million. The Company's payment obligations, along with certain other items
under the lease agreement are fully guaranteed by LGE. The lease of the
manufacturing equipment was accounted for as an operating lease.
Upon the closing of the new financing agreements described above, the
Company received $142 million of which $77 million was used to pay off
outstanding balances under the credit agreement and term loan agreement with
GECC. The remainder of the funds was used to pay certain vendors, to pay fees
related to the new financing agreements and for general corporate purposes.
Additionally in April 1997 the Company and LGE entered into an arrangement
whereby certain of the Company's accounts payables arising in the ordinary
course of business with LGE will be extended for certain periods of time with
interest being charged on the amounts extended at negotiated rates.
In return for LGE providing support for the securitizations and the sale-
leaseback transaction and the extended-term payables arrangement, the Company
has granted options to LGE to purchase approximately 3.9 million common shares
of the Company at an exercise price of $0.01 per share, exercisable over time.
The accounting for these stock options is based upon their fair value with
that fair value being amortized straight-line over the term of the associated
commitments.
In August 1997 the Company received $30 million from LGE representing
payments in advance for 1997 sales from the Company to LGE. The amount was
recorded as a liability and as sales were made to LGE, the liability balance
was reduced. As of December 31, 1997, $0.6 million of the liability to LGE
remained and is included in accrued expenses.
Between November 1997 and February 1998 the Company entered into a series of
new financing transactions designed to enhance the Company's liquidity and
financial flexibility. The Company obtained a total of $110 million in
unsecured and uncommitted credit facilities through four lines of credit with
Bank of America ($30 million), First National Bank of Chicago--NBD ($30
million), Societe Generale ($20 million) and Credit Agricole Indosuez ($30
million). The credit lines are guaranteed by LGE for which LGE will receive a
fee in an amount up to 2% of the face amount of the loan, in the form of cash
or the Company's equity and subject to the approval of the Finance Committee
of the Company's Board of Directors and in the case of equity, the approval of
the Company's shareholders. The Company granted liens in favor of LGE on the
capital stock of the Company's domestic subsidiaries and on the Company's
intellectual property (other than tuning patents, tuning patent royalties and
related license agreements) to secure the guarantees of LGE for borrowings
under these credit lines. As a result of this financing, the Company redeemed,
in December 1997, its 8.5% senior subordinated convertible debentures due
November 2000. There was $24 million principal amount of such debentures
outstanding and the redemption price of such debentures was 104% of such
principal amount plus accrued interest through the redemption date. The
Company also called for redemption, in January, 1998 its 8.5% senior
subordinated convertible debentures due January 2001. There was $1 million
principal amount of such debentures outstanding.
In March 1998, the Company entered into a secured credit facility with LGE
which provides for borrowings of up to $45 million. The term of the facility
is one year from the date of the first borrowing, subject to LGE's
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right to demand repayment at any time after June 30, 1998. The facility was
amended June 30, 1998 to allow demand for repayment any time after December
31, 1998. Repayment is due in full at the end of the term. The facility is
secured by liens on certain of the Company's assets and is subject to certain
terms and conditions.
READINESS FOR THE YEAR 2000
The Company is employing a combination of internal resources and outside
consultants to coordinate and implement its Year 2000 Readiness initiatives.
The Company has established a Company-wide Year 2000 Task Force, led by the
Company's technology group, with representation from its major business
segments, to evaluate and address Year 2000 issues. The Year 2000 Task Force's
responsibilities include, without limitation, (i) conducting an evaluation of
the Company's computer-based systems, facilities and products (and those of
dealers, vendors and other third parties with which the Company does business)
to determine their Year 2000 Readiness, (ii) coordinating the replacement
and/or upgrade of non-compliant systems, as necessary, (iii) promoting the
Company-wide awareness of Year 2000 issues through education and training, and
(iv) developing, and overseeing the implementation of all of the Company's
other Year 2000 Readiness initiatives.
The Company has completed its evaluation of its computer-based systems,
facilities and products to determine whether they are "Year 2000 Ready." The
Company has identified certain information and computer systems that are not
Year 2000 Ready and is in the process of purchasing software and hardware
upgrades and replacements for these systems. The Company anticipates that each
of these upgrades and replacements will be implemented prior to the Year 2000.
Additionally, the Company believes that its material non-information
technology systems will be Year 2000 Ready prior to the Year 2000. The Company
believes that most of its currently manufactured products are Year 2000 Ready.
The Company has sent Year 2000 Readiness Questionnaires to its existing key
vendors and suppliers to assess the Year 2000 Readiness of their systems and
products. The responses to these Questionnaires have indicated that the
Company's vendors or suppliers are addressing their Year 2000 issues and
expect to be Year 2000 Ready by the Year 2000. While the Company is working to
achieve Year 2000 Readiness, there can be no assurance that it will
successfully achieve all of its goals. At this time, and based on the
Company's current implementation plan, the Company does not believe that its
Year 2000 related issues will have a material adverse effect on the Company's
business. As a result, no contingency plan has been deemed to be necessary.
In connection with the Operational Restructuring, the Company plans to
discontinue substantially all of its manufacturing operations and to outsource
substantially all components and products. The Company believes its principal
exposure to Year 2000 risks are related to the ability of its vendors to
provide the Company with Year 2000 Ready components and products and to assure
that such vendors otherwise are Year 2000 Ready so that they are able to
provide the Company with components and products in a timely manner. The
Company has not yet determined those vendors on which it will rely following
completion of the Operational Restructuring. The Company is aware, however,
that Year 2000 issues may exist with respect to vendors with which they have
or will have a material relationship, and Year 2000 Readiness will be a
material consideration in the Company's selection of, and contract
negotiations with, such third-party vendors.
Prior to 1998, the Company spent in the aggregate approximately $1.8 million
on software and hardware upgrades and replacements and approximately $200,000
in other costs (i.e., labor, consulting fees and other expenses) in connection
with Year 2000 Readiness. The Company has budgeted a total of $2 million for
1998 (approximately $400,000 for software and hardware upgrades and
approximately $1.6 million for other costs) and $2.1 million for 1999
(approximately $1 million for software and hardware upgrades and approximately
$1.1 million for other expenses) with respect to Year 2000 Readiness. Most of
the costs incurred by the Company in addressing Year 2000 Readiness are
expected to be expensed as incurred, in compliance with generally accepted
accounting principles. The Company continues to evaluate the estimated costs
associated with its Year 2000 Readiness efforts. While the Year 2000
transition efforts may involve costs in addition to those currently budgeted
or anticipated to be budgeted, at this time, the Company has not yet
determined the full costs of the modifications that may be necessary to
address all Year 2000 issues.
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BUSINESS
The following discussion of the business of the Company has largely been
excerpted from the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997. Accordingly, the following discussion does not
reflect the Restructuring and should therefore be read in conjunction with the
information contained in "PURPOSES AND EFFECTS OF THE RESTRUCTURING." For
financial information with respect to the Company's industry segments, see
"INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA--Significant Accounting
Policies and Practices."
GENERAL
The Company was founded in 1918 and has been a leader in consumer
electronics, first in radio and later in monochrome and color television and
other video products. The Company's operations involve a dominant industry
segment, the design, development, manufacture and marketing of video products
(including color television sets and other consumer products) along with parts
and accessories for such products. These products, along with purchased VCRs,
are sold principally to retail dealers in the United States and to retail
dealers and wholesale distributors in foreign countries. The Company also
sells directly to buying groups, private label customers and customers in the
lodging, health care and rent-to-own industries. The Company's video products
also include color picture tubes that are produced for and sold to other
manufacturers and NWS products which include digital and analog set-top boxes
and cable modems, interactive television and data communication products which
are sold primarily to cable television operators, telecommunications companies
and other commercial users of these products.
The Company has incurred losses in all but one of the years since 1985.
These results reflected the cumulative effect of frequent and significant
color television price reductions during the 1980s and 1990s, and also
reflected earlier recessionary conditions in the United States. In addition,
the Company has invested significant amounts in engineering and research in
recent years, which amounts have been expensed as incurred.
In November 1995, a change in control of the Company occurred, in which LGE
purchased shares of the Company pursuant to a combined tender offer and
purchase of newly issued shares of Old Common Stock from the Company. As of
September 26, 1998, LGE and LG Semicon owned 38,155,000 shares, including
vested but unexercised options, of Old Common Stock of the Company, which
represents 56.5% of the outstanding Old Common Stock.
RAW MATERIALS
Many materials, such as copper, plastic, steel, wood, glass, aluminum and
zinc, are essential to the business. Adequate sources of supply exist for
these materials.
PATENTS
The Company holds many patents and is licensed under a number of patents
which are of importance to its business. The Company has patents and patent
applications for numerous HDTV and digital television related inventions. To
the extent these inventions are incorporated into the HDTV standard adopted by
the Federal Communications Commission, the Company expects to receive
royalties from these patents. In addition, royalties have been and may be
received from these patents for non-HDTV applications as well. Major
manufacturers of television sets and VCRs agreed during 1992 to take licenses
under some of the Company's U.S. tuner system patents. Based on 1997 U.S.
industry unit sales levels and technology, more than $25 million royalty
income is expected for each of the years 1998-2002 and $14 million in 2003,
when the last of these patents expire. The loss of any substantial portion of
the Company's patent royalties would have a material adverse effect on the
Company's business, financial condition, results of operations, ability to
implement the Operational Restructuring and ability to meet its creditor
obligations.
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SEASONAL VARIATIONS IN BUSINESS
Sales of the Company's consumer electronics products are generally at a
higher level during the second half of the year. Sales of consumer electronics
products typically increase in the fall, as the summer vacation season ends
and people spend more time indoors with the new fall programming on television
and during the Christmas holiday season. During each of the last three years,
approximately 55% of the Company's net sales were recorded in the second half
of the year and approximately 30% of the Company's net sales were recorded in
the fourth quarter of the year.
MAJOR CUSTOMERS
Sales to a single customer, Circuit City Stores, Inc., amounted to $138.6
million (12%) in 1997, $187.2 million (15%) in 1996, and $172.1 million (14%)
in 1995. Sales to a second customer, Sears, Roebuck and Company, accounted for
$132.4 million (11%) in 1997 and $140.9 million (11%) in 1996. No other
customer accounted for 10% or more of net sales.
COMPETITIVE CONDITIONS
Competitive factors in North America include price, performance, quality,
brand strength and reputation, variety of products and features offered,
marketing and sales capabilities, manufacturing costs, and service and
support. The Company's major product areas, including the color television
market, are highly competitive. The Company's major competitors are
significantly larger, 100% foreign-owned companies, generally with greater
worldwide television volume and overall resources. In efforts to increase
market share or achieve higher production volumes, the Company's major
competitors have aggressively lowered their selling prices in the past several
years.
RESEARCH AND DEVELOPMENT
During 1997 expenditures for Company-sponsored research and engineering
relating to new products and services and to improvements of existing products
and services were $42.9 million. Research and engineering expenditures were
$46.7 million in 1996 and $43.5 million in 1995.
ENVIRONMENTAL MATTERS
Compliance with federal, state and local environmental protection provisions
is not expected to have a material effect on capital expenditures, earnings or
the competitive position of the Company. Further information regarding
environmental compliance is set forth in "--Legal Proceedings."
EMPLOYEES
At September 30, 1998, the Company employed approximately 9,900 people, of
whom approximately 6,950 were hourly workers covered by collective bargaining
agreements.
At September 30, 1998, approximately 2,950 of the Company's employees were
located in the Chicago, Illinois, area, of whom approximately 1,825 were
represented by unions. Approximately 6,950 of the Company's employees are
located in Mexico, of whom approximately 5,110 were represented by unions.
Mexican labor contracts expire every two years and wages are renegotiated
annually or more frequently under rapid devaluation or high inflation periods.
The Company believes that it has good relations with its employees.
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FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Financial information regarding foreign and domestic operations is
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1997 1996 1995
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(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net Sales:
Domestic companies.......................... $1,144.9 $1,221.4 $1,212.7
Foreign companies........................... 28.2 66.5 61.2
-------- -------- --------
Total net sales............................. $1,173.1 $1,287.9 $1,273.9
======== ======== ========
Income (loss) before income taxes:
Domestic companies.......................... $ (195.3) $ (171.5) $(94.5)
Foreign companies........................... (4.9) (6.3) (4.0)
-------- -------- --------
Total income (loss) before income taxes..... $ (200.2) $ (177.8) $ (98.5)
======== ======== ========
Identifiable assets:
Domestic companies.......................... $ 405.1 $ 615.5 $ 548.5
Foreign companies........................... 122.6 149.8 152.2
-------- -------- --------
Total identifiable assets................... $ 527.7 $ 765.3 $ 700.7
======== ======== ========
</TABLE>
Foreign operations consist of manufacturing and sales subsidiaries in
Mexico, a distribution subsidiary in Canada (which was closed in December
1996) and a purchasing office in Taiwan. Sales to affiliates are principally
accounted for at amounts based on local costs of production plus a reasonable
return. Export sales are less than 10% of consolidated net sales.
Sales to a single customer, Circuit City Stores, Inc., amounted to $138.6
million (12%) in 1997, $187.2 million (15%) in 1996, and $172.1 million (14%)
in 1995. Sales to a second customer, Sears, Roebuck and Company, accounted for
$132.4 million (11%) in 1997 and $140.9 million (11%) in 1996. No other
customer accounted for 10% or more of net sales.
The Company's product lines are dependent on the continuing operations of
the Company's manufacturing and assembly facilities located in Mexico.
B-14
<PAGE>
PROPERTIES OF THE COMPANY
The Company utilizes a total of approximately 5.2 million square feet for
manufacturing, warehousing, engineering and research, administration and
distribution, as described below.
<TABLE>
<CAPTION>
LOCATION NATURE OF OPERATION SQUARE FEET
-------- ------------------- -------------
(IN MILLIONS)
<C> <S> <C>
DOMESTIC:
Chicago, Illinois Five locations-- 1.9
(including suburban locations) production of color
picture tubes, parts and
service; engineering and
research, marketing and
administration
activities; and assembly
of electronic components
(approximately 1.0
million square feet is
leased by the Company)
Fort Worth, El Paso, McAllen, Eight locations-- 0.9
Brownsville and Dallas, Texas; warehouses/offices (0.8
Huntsville, Alabama; Ontario million square feet is
and San Jose, California leased by the Company)
FOREIGN:
Mexico Four locations (twelve 2.4
manufacturing and
warehouse buildings)--
production of plastic
and wooden cabinets for
color television, sub-
assembly production of
television chassis,
tuners and other
components and final
assembly of color
television and NWS
products
Taiwan One location--purchasing --
office
---
Total 5.2
===
</TABLE>
The Company's facilities are suitable and adequate to meet current and
anticipated requirements. Mortgages exist on domestic real property as
collateral for certain of the Company's financing agreements.
B-15
<PAGE>
SUBSIDIARIES
The companies listed below are the significant subsidiaries of the Company.
<TABLE>
<CAPTION>
ORGANIZED
NAME OF COMPANY UNDER LAWS OF
--------------- --------------
<S> <C>
DOMESTIC
Interocean Advertising Corporation of Illinois Illinois
Zenith Distributing Corporation of Illinois Illinois
Zenith Electronics Corporation of Arizona Arizona
Zenith Electronics Corporation of Pennsylvania Pennsylvania
Zenith Electronics Corporation of Texas Texas
Zenith/Inteq, Inc. Delaware
Zenith Video Tech Corporation Delaware
Zenith Video Tech Corporation-Florida Delaware
INTERNATIONAL
Zenith Radio Canada, Ltd. Canada
Zenith Taiwan Corporation Taiwan
Zenith Electronics (Ireland), Ltd. Ireland
Zenith Electronics (Europe), Ltd. United Kingdom
Cableproductos de Chihuahua, S.A. de C.V. Mexico
Zenith Partes De Matamoras, S.A. de C.V. Mexico
Productos Magneticos de Chihuahua, S.A. de C.V. Mexico
Partes de Television de Reynosa, S.A. de C.V. Mexico
Telson, S.A. de D.V. Mexico
Zenco de Chihuahua, S.A. de C.V. Mexico
Radio Componentes de Mexico, S.A. de C.V. Mexico
</TABLE>
LEGAL PROCEEDINGS
Summarized below are the significant legal matters to which the Company is a
party. There is a range of possible outcomes for these matters. The Company
believes that some of the potential outcomes may have a materially adverse
effect on the Company.
Litigation
In June 1998, Funai Electric Co., Ltd., a licensee of the Company's tuner
patents, filed suit against the Company seeking a declaratory judgment that
the Company's tuner patents were invalid and unenforceable, or that the
plaintiff's use of certain technologies in its current products did not
infringe on the Company's tuner patents. The complaint seeks the return of
previously paid royalties. The plaintiff is also seeking a preliminary
injunction precluding the Company from terminating its licensing agreement and
allowing it to pay future royalties into an escrow. The court has denied the
plaintiff's request for a temporary restraining order against the Company. The
case was filed in the U.S. District Court in Los Angeles.
In June 1998, the Company's president and chief executive officer, its
directors, and an affiliate of LGE were named as defendants in a suit filed by
a shareholder in a state court in New Jersey entitled Vengrove v. Gannon, et
al. The suit alleges breach of fiduciary duties by the directors, the officer
and the LGE affiliate arising out of the Company and the Board's actions
related to the Financial Restructuring and Prepackaged Plan. The plaintiff
seeks to be certified as a class representative and the suit designated as a
class action. The suit seeks to enjoin the defendants from proceeding with the
cancellation of the Old Common Stock held by minority shareholders or
compensation for such cancellation.
B-16
<PAGE>
In May 1997, the Company's directors were named as defendants and the
Company was named as a nominal defendant in a stockholder derivative suit
entitled Fisher v. Zenith Electronics Corporation. The suit alleges breach of
fiduciary duties by the directors resulting from the issuance of stock options
to LGE to purchase Company stock for its support of certain of the Company's
financing transactions. The suit seeks to void the stock option grants and to
recover unspecified damages and attorneys' fees from the directors and LGE. A
second derivative suit entitled Lazar v. Zenith Electronics Corporation was
also filed in May 1997 alleging identical Claims of breach of fiduciary duties
by the Company's directors and requesting the identical relief as sought in
the Fisher case. Both cases were filed in the Court of Chancery, New Castle
County, Delaware. Both cases are currently inactive.
Lawsuits against major computer and peripheral equipment manufacturers are
pending in the U.S. District Court, Eastern District of New York, the U.S.
District Court of New Jersey and the New York State courts, as well as other
federal courts. These lawsuits seek several billion dollars in damages from
various defendants for repetitive stress injuries claimed to have been caused
by the use of word processor equipment. The Company had been named as a
defendant in twenty-seven of these cases which relate to keyboards allegedly
manufactured or designed by the Company for its former subsidiary, Zenith Data
Systems Corporation, which the Company sold in 1989. Of the twenty-seven cases
originally filed, only twelve remain pending against the Company. The Company
believes it has meritorious defenses to these cases. All the other cases have
been dismissed without payment of any damages by the Company.
Environmental Litigation
WVP Income III, LP has brought a legal action in the federal court for the
Northern District of California under RCRA, CERCLA and several state causes of
action, asserting that the Company caused contamination on property owned by
the plaintiff in Menlo Park, California. A wholly-owned subsidiary of the
Company, Zenith Radio Research Corporation, purchased the Menlo Park facility
newly constructed in 1959. The subsidiary ceased operations at the facility in
1972 and the property was sold in 1974. Following the Company's sale of the
property, the primary occupant was Raychem Corporation, from approximately
1976 until 1993. Plaintiff's lawsuit has named the Company and Raychem as
defendants. No work plan has yet been adopted and no estimates on the cost to
clean up the property have yet been provided to the Company. The Company has
notified its insurance carriers of the claim.
The Company has been named as one of several dozen defendants in a tort suit
filed on behalf of several hundred plaintiffs. The suit alleges exposure to
various chemicals linked to a former television manufacturing plant in Texas.
The case entitled Aaron v. Akzo et al., No. D-0157586, 136(th) Judicial
District Court, Jefferson City, Texas, was filed on November 30, 1997. The
case is in the early stages of discovery.
During the three months ended September 26, 1998, no other reportable events
or material developments occurred regarding the legal proceedings of the
Company.
Environmental Matters
The Company and/or one of its subsidiaries are currently named as
Potentially Responsible Parties ("PRP"s) under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), as a
generator of allegedly hazardous waste disposed of at eight contaminated sites
in the United States. These are: the Rocky Flats Industrial Park Superfund
Site in Jefferson County, Colorado, the Liquid Dynamics Superfund Site in
Chicago, Illinois, the Midwest Solvent Recovery Superfund Sites in Gary,
Indiana, the Galaxy/Spectron, Inc. Superfund Site in Elkton, Maryland, the
Master Metals Superfund Site in Cleveland, Ohio, the Fisher-Calo Superfund
Site in Kingsbury, Indiana, the North Penn Area 7 Superfund Site in Lansdale,
Pennsylvania and the Boarhead Farms Superfund Site in Bridgeton Township,
Pennsylvania.
Based on information available to the Company at this time, the Company
believes its share of liability at each of these Sites (other than North Penn
& Boarhead) will not be material. At the North Penn and Boarhead
B-17
<PAGE>
sites, no cost estimates are available nor has liability been imposed. The
Company has finalized a Consent Decree with the United States of America
regarding the Moyer Landfill matter in Collegeville, Pennsylvania. Under the
Consent Decree, the Company has resolved its alleged liability for hazardous
wastes disposed of at Moyer Landfill for $300,000.
In a letter dated August 13, 1997, the United States Environmental
Protection Agency ("US EPA") gave notice to Zenco de Chihuahua and,
subsequently, Zenith Electronics Corporation of Texas, wholly-owned
subsidiaries of the Company, of their alleged liability as PRPs at the Rocky
Flats Industrial Park Superfund Site under CERCLA. The US EPA issued an order
to perform a "Non-Time Critical Removal" and established the framework for an
investigation. The total cost to perform the investigation is currently
estimated not to exceed $850,000 of which the Company paid $85,000 in 1998. In
the event the investigation costs exceed $850,000, the Company may be required
to contribute an additional sum equal to 10% of the such excess costs. No
allocation has been established for future response costs. In addition, the
liability for US EPA past costs and any remedial work that may be required has
not been determined.
On September 17, 1997 the US EPA served the Company with a General Notice of
Potential Liability pursuant to Section 107(a) of CERCLA with regard to the
Liquid Dynamics, Inc., Superfund Site in Chicago, Illinois. The US EPA advised
PRPs that it would perform a preliminary investigation. US EPA advised the
PRPs that it believes the entire Liquid Dynamics portion of the investigation
will not exceed $200,000. Future US EPA response costs incurred performing the
investigation and the cost of any remedial work have not yet been determined
but will be allocated among the members of the PRP group. However, based on
information currently available, the Company believes it will be allocated a
significant share of the cost of investigation and future response costs, if
any.
The Master Metals, Inc. Superfund site is located in Cleveland, Ohio. The
Company received notice from US EPA in 1996 that it was identified as a PRP
under CERCLA and would be held responsible for a portion of the clean up costs
associated with the site. A PRP group was formed to conduct Phase I remedial
activities which the company joined and contributed $24,936 out of the total
amount of $1,700,000 assessed to finance the estimated cost of conducting the
Phase I remedial activities. This was an interim allocation based on the
estimated cost of conducting the Phase I remedial activities. At this early
stage, the estimated cost of Phase II remedial activities is not expected to
exceed a total amount of $500,000 which will be allocated among the PRP group
in accordance with the previously established allocation.
Pursuant to the terms of a lease agreement, the Company is obligated to
conduct an investigation and possible remediation of a former manufacturing
facility located in Chicago, Illinois. The Company will share the cost of the
investigation with the property's owner but will be obligated to pay the
entire cost of any remedial activities at the site.
The Company is currently conducting a closure of a hazardous waste
incinerator and is required to conduct long-term groundwater monitoring and
post-closure care at a former manufacturing facility located in Springfield,
Missouri.
In 1997, the Company entered into an agreement with the Illinois Attorney
General to settle violations of various air permit regulations. The total
penalty imposed was $458,000, which was paid in two installments ending in
1998.
In 1997, the Company settled a lawsuit in which it was named as a
potentially responsible party at a hazardous waste site located in New Jersey.
The total settlement of $140,000 is payable over 5 years. The first payment of
$27,000 was made in January 1998. The last payment of $32,000 is due in
January 2002.
Employment Cases
The Company has a number of employment Claims, charges or lawsuits alleging
various types of discrimination. There are eleven age discrimination lawsuits
in Texas and one in Illinois arising out of
B-18
<PAGE>
restructurings that took place in 1995 and 1996. The remaining matters are
charges filed with various state and federal agencies.
Product Liability
The Company is the defendant in a number of products liability cases,
including cases alleging wrongful death or severe injury resulting from
alleged defects in the Company's products. The Company has undertaken defenses
in such cases. The Company is self-insured for a portion of its products
liability claims and has established reserves at a level that it believes are
appropriate to the cases commenced.
In October 1998 the Company became aware of potential problems with certain
projection television sets manufactured by the Company. The Company is
implementing a customer notification and retrofit program, and believes it has
adequate reserves to cover the cost of such program.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following Summary Compensation Table sets forth, for the periods
indicated, the cash compensation and certain other components of compensation
of those persons who were, at December 31, 1997, the chief executive officer
of the Company and the other four most highly compensated executive officers
of the Company. The table includes the former Chief Executive Officer of the
Company, Peter S. Willmott, who left the Company in January, 1998, and two
former executive officers of the Company, Ramesh Amin and Dennis Winkleman,
who left the Company in 1997, whose compensation would have placed them in the
group of the four other most highly compensated officers of the Company had
they been executive officers as of December 31, 1997. Those listed in the
table are hereinafter referred to as the "Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) AWARDS($)(2) OPTIONS/SARS(#) COMPENSATION(3)
- --------------------------- ---- --------- -------- ------------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter S. Willmott....... 1997 775,000 0 0 1,612,500 100,000 4,800
Former President and 1996 539,192 0 0 0 2,000 0
Chief Executive Officer 1995 0 0 0 0 2,000 0
Michael Ahn............. 1997 337,992 0 0 0 0 0
Former Senior Vice 1996 118,040 0 0 0 0 0
President 1995 0 0 0 0 0 0
Ramesh G. Amin.......... 1997 333,340 200,000 0 0 60,000 329,381(5)
Former Executive Vice 1996 25,000 120,000(4) 0 0 0 0
President 1995 0 0 0 0 0 0
Roger A. Cregg.......... 1997 300,000 37,500 0 0 35,000 6,682
Former Executive Vice 1996 190,909 150,000(4) 0 525,000 37,500 0
President and Chief 1995 0 0 0 0 0 0
Financial Officer
Richard F. Vitkus....... 1997 229,999 23,000 0 0 25,000 9,600
Senior Vice President, 1996 218,333 14,000 0 420,000 30,000 9,000
General Counsel and 1995 191,000 60,000(4) 0 0 22,500 4,335
Secretary
Dennis R. Winkleman..... 1997 130,004 15,000 0 0 25,000 0
Former Vice President 1996 118,750 8,500(4) 0 0 35,000 0
1995 0 0 0 0 0 0
</TABLE>
- --------
(1) Other Annual Compensation does not reflect the value of perquisites and
other personal benefits since such compensation does not exceed minimum
disclosure thresholds.
(2) The share unit and restricted stock values shown in the table are based on
the closing price of the Company's Old Common Stock on the date of grant.
As of December 31, 1997, Mr. Cregg held an aggregate of 37,500 shares of
restricted stock valued at $203,887, Mr. Vitkus held an aggregate of
30,000 shares of restricted stock valued at $163,110 and Mr. Willmott held
an aggregate of 37,500 share units valued at $203,887. Mr. Cregg's
restricted stock was not vested when he left the Company, and, therefore,
the restricted stock was forfeited. Mr. Willmott's share units were
forfeited as part of his negotiated separation payment. See "Employment
Agreements."
B-19
<PAGE>
(3) The amount reflects the annual contribution to the Company's defined
contribution plan for Messrs. Cregg, Vitkus and Willmott. Since Messrs.
Cregg and Willmott were not fully vested at the time of their termination
of employment, the Company contributions were forfeited.
(4) Pursuant to separate agreements, Messrs. Amin, Cregg, Vitkus and Winkleman
were guaranteed bonuses relating to their initial employment.
(5) In connection with Mr. Amin's termination of employment with the Company,
he entered into a Termination Agreement which provides for severance
payments in lieu of those set forth in his employment agreement. The
amount represents 1997 payments of $15,384 of accrued vacation pay,
severance pay of $66,667, $2,834 of imputed income for Company paid term
life insurance premiums, $102,500 for loss of sale of residence, $105,190
tax gross-up for relocation related expenses and $36,806 for relocation
expenses. The Termination Agreement provides for three 1998 severance
payments of $200,000 each, payment on January 1, 1998, March 1, 1998 and
June 1, 1998. Mr. Amin is also entitled to outplacement service not to
exceed $25,000 and continued group health benefits until the earlier of
December 31, 1998, or the date when Mr. Amin becomes covered under another
health benefit plan.
EMPLOYMENT AGREEMENTS
Of the Executive Officers listed above, the only Executive Officer who is
currently an employee of the Company is Mr. Vitkus, who has a three year
employment agreement which was amended effective as of October 2, 1998 and
which expires on December 31, 2000, provided that it may be automatically
extended for additional one year periods. See "MANAGEMENT--Current Executive
Officers of the Company."
B-20
<PAGE>
OPTION/SAR GRANTS IN 1997
Shown below is information regarding 1997 grants of stock options to the
Executive Officers. No stock appreciation rights (SARs) were granted to the
Executive Officers during 1997.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#) (1) IN 1997 ($/SHARE) (2) DATE VALUE ($) (3)
- ---- --------------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Peter S. Willmott....... 100,000 10.5% $11.00 4/22/07 $916,000
Michael Ahn............. 0 0 -- -- --
Ramesh G. Amin.......... 60,000 6.3% $11.25 4/22/07 $558,600
Roger A. Cregg.......... 35,000 3.6% $11.25 4/22/07 $325,850
Richard F. Vitkus....... 25,000 2.6% $11.25 4/22/07 $232,750
Dennis R. Winkleman..... 25,000 2.6% $11.25 4/22/07 $232,750
</TABLE>
- --------
(1) Except for Mr. Willmott, all options granted and reported in this table
have the following terms: each option vests over a three year period, with
one-third of the shares each becoming exercisable on the first, second and
third anniversary after the date of grant. 50% of Mr. Willmott's options
vested on January 1, 1998, and the remaining 50% were to be vested on
December 31, 1998. Since Mr. Willmott has left the Company, all of his
stock options have now been forfeited.
(2) Exercise price is the fair market value of the shares of the Company's Old
Common Stock on the date of grant.
(3) The Black-Scholes option pricing model has been used to calculate the
present value of the options as of the date of grant. In calculating grant
date present values for options granted January 2, 1997 and April 22, 1997
as set forth in the table, factors of 75% and 73% respectively, have been
assigned to the volatility of the Old Common Stock based on weekly closing
stock market quotations for the three years preceding the date of grant,
no dividend yield on the Old Common Stock has been assumed, the risk-free
rate of return has been fixed at 6.54% and 6.84%, respectively, the rate
for a ten year U.S. Treasury Note on the date of grant and the exercise of
the options has been assumed to occur at the end of the actual option term
of ten years. There is no assurance that these assumptions will prove to
be true in the future. Consequently, the actual value, if any, that an
executive may realize will depend on the Old Common Stock price on the
date the option is exercised. There is no assurance the value realized by
an executive will be at or near the value estimated by the Black-Scholes
model.
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND YEAR-END OPTION/SAR VALUES
Shown below is information concerning the exercise in 1997 of options to
purchase Company Old Common Stock by the Executive Officers and the
unexercised options to purchase Company Old Common Stock held by the Executive
Officers at December 31, 1997. No Executive Officers exercised SARs in 1997
and no such Officer currently holds any SARs.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS AT
SHARES ACQUIRED VALUE YEAR-END (#) FISCAL YEAR-END ($)
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- ---- --------------- ------------ ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Peter S. Willmott....... 0 0 60,000/0 0/0
Michael Ahn............. 0 0 0 0/0
Ramesh G. Amin.......... 0 0 0 0/0
Roger A. Cregg.......... 0 0 0 0/0
Richard F. Vitkus....... 0 0 18,000/30,000 0/0
Dennis R. Winkleman..... 11,667 $61,981 0/0 0/0
</TABLE>
- --------
(1) The exercise price of options held by the Executive Officers exceeds
$5,437 (the closing price of the Company's Old Common Stock on December
31, 1997).
B-21
<PAGE>
ANNEX C--REPORTS OF PETER J. SOLOMON COMPANY LIMITED
PROJECT ELECTRO
SPECIAL COMMITTEE PRESENTATION
November 16, 1998
PETER J. SOLOMON COMPANY
C-1
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
This presentation has been prepared by Peter J. Solomon Company Limited
("PJSC") from materials and information supplied (whether orally or in
writing) by Zenith Electronics Corporation ("Zenith" or the "Company").
This presentation includes certain statements, estimates and projections
provided by the Company with respect to the historical and anticipated future
performance of the Company and certain potential strategic alternatives. Such
statements, estimates and projections contain or are based on significant
assumptions and subjective judgments made by Company management
("Management"). These assumptions and judgments may or may not be correct, and
there can be no assurance that any projected results are attainable or will be
realized. PJSC has not attempted to verify any such statements, estimates and
projections, and as such, PJSC makes no representation or warranty as to, and
assumes no responsibility for, their accuracy or completeness or for the
effect which any such inaccuracy or incompleteness may have on the results or
judgments contained in this presentation.
Except where otherwise indicated, this analysis speaks as of the date
hereof. Under no circumstances should the delivery of this document imply that
the analysis would be the same if made as of any other date.
THIS REPORT HAS BEEN ISSUED FOR THE BENEFIT OF THE SPECIAL COMMITTEE OF THE
COMPANY. IT IS NOT INTENDED TO BE USED, AND SHOULD NOT BE RELIED UPON, BY ANY
OTHER PERSON.
THIS REPORT IS CONFIDENTIAL AND SHOULD NOT, WITHOUT PRIOR WRITTEN CONSENT OF
PJSC, BE COPIED OR MADE AVAILABLE TO ANY PERSON OTHER THAN THE DIRECTORS OF
THE COMPANY.
PJSC SHALL NOT HAVE LIABILITY, WHETHER DIRECT OR INDIRECT, IN CONTRACT OR
TORT OR OTHERWISE, TO ANY PERSON IN CONNECTION WITH THIS PRESENTATION.
C-2
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TAB
---
<C> <S> <C>
I. Going Concern Valuation..............................................
II. Business Plan Comparison.............................................
III. One-Time Adjustments.................................................
IV. Domestic VSB Value Adjustments.......................................
V. S-4 Plan Analysis....................................................
VI. Liquidation Analysis.................................................
</TABLE>
C-3
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
I. GOING CONCERN ANALYSIS
GOING CONCERN IMPLIED EQUITY VALUATION UNDER S-4 PROPOSAL (11-12-98 BUSINESS
PLAN)
- -------------------------------------------------------------------------------
(Dollars in Millions)
SUMMARY GOING CONCERN VALUATIONS
<TABLE>
<CAPTION>
JULY 22 NOVEMBER 16
PRESENTATION PRESENTATION
VALUATION AT VALUATION AT
1/1/99 (A) 1/1/99 (B)
------------ ------------
<S> <C> <C>
Enterprise Value (c)............................. $125.0 $125.0
VSB Technology Value............................. 180.0(d) 130.6(e)(i)
====== ======
Total Value.................................... $305.0 $255.6
REORGANIZED ELECTRO DEBT PER LG PROPOSAL
Working Capital Facility......................... $ 84.5(f) $ 68.2(g)(ii)
Indo Suez........................................ 0.0 30.0
Restructured LG Notes (h)........................ 148.7 118.8
Subordinated Debentures (h)...................... 40.0 40.0
LGE New Credit Support........................... 0.0 0.0
------ ------
Total.......................................... $273.2 $257.0
====== ======
Implied Equity of Reorganized Electro............ $ 31.8 $ (1.4)
</TABLE>
- -------------------------------------------------------------------------------
(a) Per Electro Business Plan, dated June 26, 1998. Reflected in Electro Board
Presentation dated July 22, 1998.
(b) Per Electro Business Plan, dated November 12, 1998.
(c) Business plan adjusted to exclude projected VSB royalties. Enterprise
value at 1/1/99 is based on a discounted cash flow analysis utilizing a
terminal value derived by applying a multiple to LTM sales and values
Tuner Patent cash flows separately. Sales multiple based on the low-end of
an illustrative comparable company sales multiple range (see Electro
Discounted Cash Flow Analysis).
(d) VSB valuation assumes a $2.50 PC royalty fee, 25.0% discount rate applied
to Domestic royalty fee cash flows through 2011 and availability of
Company NOLs to shelter VSB and operating cash flow. Excludes any
potential value for International VSB royalties. Includes present value of
Sony settlement per Electro management.
(e) VSB valuation assumes a $5.00 PC royalty fee, 25.0% discount rate applied
to Domestic royalty fee cash flows, a 40.0% discount rate applied to
International (Adopted) royalty fee cash flows and a 55.0% discount rate
applied to International (Likely to Adopt) royalty fee cash flows through
2011 and availability of Company NOLs to shelter VSB and operating cash
flow. Includes present value of Sony settlement per Electro management.
(f) Revolver balance based on average revolver balance for Q-3 1998
($110.5MM), Q-4 1998 ($54.6MM), Q-1 1999 ($91.2MM) and Q-2 1999 ($81.7MM).
(g) Revolver balance based on average revolver balance for Q-1 1999 ($34.2MM),
Q-2 1999 ($63.6MM), Q-3 1999 ($84.2MM) and Q-4 1999 ($90.8MM).
(h) Does not reflect accruals of unpaid interest, if any. Assumes par value.
Market value may be lower.
- -------------------------------------------------------------------------------
Comments:
(i) Reflects adjustments in projected Domestic PC market and addition of
International VSB revenues.
(ii) Reflects debt balance reduction due to improvement in working capital.
C-4
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
I. GOING CONCERN ANALYSIS
ELECTRO DISCOUNTED CASH FLOW ANALYSIS (VALUE AT JANUARY 1, 1999)
- -------------------------------------------------------------------------------
(Dollars in Millions)
EBIT EXCLUDES VSB AND TUNER PATENT INCOME AND COSTS & EXPENSES (A)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED DECEMBER
31, NORMALIZED
------------------------------------------- TERMINAL
1999 2000 2001 2002 2003 CASH FLOW
------ ------ ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Revenue............. $876.1 $889.3 $935.1 $987.6 $1,018.3
--% Growth............. (9.3%) 1.5% 5.2% 5.6% 3.1%
Gross Margin %.......... 8.4% 9.2% 10.4% 10.8% 11.3%
EBITDA.................. (30.1) (16.1) 1.7 13.2 23.6
--% of Revenues........ (3.4%) (1.8%) 0.2% 1.3% 2.3%
EBIT.................... (36.2) (19.3) (1.9) 9.3 19.4
--% of Sales........... (4.1%) (2.2%) (0.2%) 1% 2%
AMT..................... 0.0 0.0 0.0 0.2 0.4
------ ------ ------ ------ --------
Tax-Adjusted EBIT....... (36.2) (19.3) (1.9) 9.1 19.0 $19.0
Depreciation and
Amortization........... 6.1 3.2 3.6 3.9 4.2 4.2
Capital Expenditures.... (4.9) (4.5) (4.5) (4.5) (4.5) (4.5)
Change in Working
Capital................ 10.7 17.0 (13.1) (3.3) (5.7) (5.7)
Proceeds from Asset
Sales.................. 47.9 0.0 0.0 0.0 0.0 0.0
Restructuring Costs..... (55.5) (2.4) 0.0 0.0 0.0 0.0
------ ------ ------ ------ -------- -----
Free Cash Flow.......... ($31.9) ($6.0) ($15.9) $ 5.2 $ 13.0 $13.0
====== ====== ====== ====== ======== =====
Growth in Free Cash
Flow................ NM NM NM NM 150%
</TABLE>
<TABLE>
<CAPTION>
ILLUSTRATIVE SALES
MULTIPLE (B) 12.5% 15.0% 17.5%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Discount Rate........... 12.0% 14.0% 16.0% 12.0% 14.0% 16.0% 12.0% 14.0% 16.0%
--------------------------------------------------------------------
Present Value of Free
Cash Flow.............. ($33.9) ($33.5) ($33.1) ($33.9) ($33.5) ($33.1) ($33.9) ($33.5) ($33.1)
Present Value of
Terminal Value......... 72.2 66.1 60.6 86.7 79.3 72.7 101.1 92.6 84.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Terminal Value &
Free Cash Flow Value... $ 38.3 $ 32.6 $ 27.5 $ 52.8 $ 45.8 $ 39.7 $ 67.2 $ 59.1 $ 51.8
Discount Rate........... 18.0% 20.0% 22.0% 18.0% 20.0% 22.0% 18.0% 20.0% 22.0%
--------------------------------------------------------------------
Present Value of Tuner
Patent (c)............. $ 70.5 $ 67.7 $ 65.0 $ 70.5 $ 67.7 $ 65.0 $ 70.5 $ 67.7 $ 65.0
Total Enterprise Value.. $108.9 $100.3 $ 92.6 $123.3 $113.5 $104.7 $137.8 $126.8 $116.8
</TABLE>
<TABLE>
<CAPTION>
Projected Fiscal Year Ended
December 31,
--------------------------------- NET PRESENT VALUE
1999 2000 2001 2002 2003 OF TUNER PATENT @
----- ----- ----- ----- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tuner Patent Cash Flows
(a).................... $25.0 $25.0 $25.0 $25.0 $14.0 18.0% 20.0% 22.0%
----- ----- -----
Tuner Patent Costs and
Expenses (d)........... (0.2) (0.2) (0.2) (0.2) (0.2) $70.5 $67.7 $65.0
Assumed Reduction (e)... 0.0 0.0 0.0 (3.0) (1.5)
----- ----- ----- ----- -----
TUNER PATENT CASH FLOWS
(INCL. REDUCTIONS)
(C).................... $24.8 $24.8 $24.8 $21.8 $12.3
</TABLE>
- -------------------------------------------------------------------------------
Source: Electro 1998-2003 Business Plan dated November 12, 1998.
(a) Cash flow analysis excludes VSB and Tuner Patent income and certain
R&D/engineering costs associated with these technology patents. VSB
related costs include Licensing, Advanced Product Development,
Transmission Technology, Broadcast Technology, Technology Adoption,
Digital Business Development, Legal and R&D and Engineering. Electro EBIT
includes approximately $2.0MM a year in royalties related to the use of
the Zenith trademark and name deemed to be recurring, $1.5MM in
international royalty income for Mexican and Canadian LG products and
income from ELO Touch and other Accessories.
(b) Illustrative LTM sales multiple range is based on the lowest comparable
company discounted at 50.0%-66.6%.
(c) Assumes Tuner Patent expires June 30, 2003 and a successful defense of
patent in current litigation.
(d) Per Electro management.
(e) Assumed reduction Per Electro Management. Reflects settlement with Sony.
- -------------------------------------------------------------------------------
C-5
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
I. GOING CONCERN ANALYSIS
VSB VALUATION ASSUMING USE OF NOLS
(DOLLARS IN MILLIONS)
VALUE AT JANUARY 1, 1999
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
DOMESTIC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggregate 0.0 0.0 0.0 2.2 6.1 14.3 26.6 35.5 43.8 57.8 78.6 102.9 119.2 147.5 176.8 181.6
Royalty Income..
VSB Associated (2.7) (2.7)
Costs(a)........ 0.0 0.0 0.0 (8.0) (8.0) (8.0) (8.0) (8.0) (5.6) (3.9) (2.7) (2.7) (2.7) (2.7)
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
Net Royalty 100.2
Income.......... 0.0 0.0 0.0 (5.8) (1.9) 6.3 18.6 27.5 38.2 53.9 75.9 116.5 144.8 174.1 178.9
Unsheltered 0.0
Earnings........ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 82.2 117.8 147.1 178.9
AMT Due(b)...... 0.0 0.0 0.0 0.0 0.0 0.1 0.4 0.5 0.8 1.1 1.5 2.0 20.5 35.3 55.9 68.0
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
NET VSB ROYALTY 98.2
INCOME.......... 0.0 0.0 0.0 (5.8) (1.9) 6.1 18.2 26.9 37.5 52.8 74.4 95.9 109.5 118.2 110.9
INTERNATIONAL ADOPTED
Aggregate 0.0 0.0 0.0 0.5 2.3 7.3 17.0 31.9 35.9 40.6 46.2 52.4 59.7 83.0 92.5 100.5
Royalty Income..
VSB Associated 0.0 0.0 0.0 (0.8) (2.1) (2.1) (2.1) (2.1) (1.5) (1.0) (0.7) (0.7) (0.7) (0.7) (0.7) (0.7)
Costs(a)........
Withholding(c) 0.0 0.0 0.0 0.0 (0.0) (0.6) (1.6) (3.3) (3.8) (4.4) (5.0) (5.7) (6.5) (9.0) (10.1) (11.0)
11.0%...........
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
Net Royalty 0.0 0.0 0.0 (0.3) 0.2 4.6 13.3 26.5 30.7 35.2 40.4 46.0 52.5 73.2 81.6 88.8
Income..........
Unsheltered 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 52.5 73.2 81.6 88.8
Earnings........
AMT Due(b)...... 0.0 0.0 0.0 0.0 0.0 0.1 0.3 0.5 0.6 0.7 0.8 0.9 13.1 22.0 31.0 33.7
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
NET VSB ROYALTY 0.0 0.0 0.0 (0.3) 0.2 4.5 13.0 26.0 30.0 34.5 39.6 45.1 39.3 51.3 50.6 55.0
INCOME..........
INTERNATIONAL LIKELY TO ADOPT
Aggregate 0.0 0.0 0.0 0.0 0.0 2.9 7.7 33.1 40.0 48.6 59.2 72.4 88.8 120.0 148.2 183.7
Royalty Income..
VSB Associated 0.0 0.0 0.0 (1.2) (3.2) (3.2) (3.2) (3.2) (2.2) (1.6) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1)
Costs(a)........
Withholding(c) 0.0 0.0 0.0 0.0 0.0 0.0 (0.5) (3.3) (4.2) (5.2) (6.4) (7.8) (9.6) (13.1) (16.2) (20.1)
11.0%...........
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
Net Royalty 0.0 0.0 0.0 (1.2) (3.2) (0.3) 4.0 26.6 33.6 41.8 51.7 63.4 78.0 105.8 130.9 162.5
Income..........
Unsheltered 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 78.0 105.8 130.9 162.5
Earnings........
AMT Due(b)...... 0.0 0.0 0.0 0.0 0.0 (0.0) 0.1 0.5 0.7 0.8 1.0 1.3 19.5 31.7 49.7 61.7
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
NET VSB ROYALTY 0.0 0.0 0.0 (1.2) (3.2) (0.3) 3.9 26.1 33.0 41.0 50.7 62.2 58.5 74.0 81.2 100.7
INCOME..........
</TABLE>
- -------------------------------------------------------------------------------
(a) Per Electro Management. Costs include Licensing, Advanced Product
Development, Transmission Technology, Broadcast Technology, Technology
Adoption, Digital Business Development, Legal and R&D and Engineering and
Capital Expenditures. VSB costs are assumed to decrease by 30% in 2004,
2005 and 2006 and remain constant thereafter. In 1999 approximately 80.0%
of the costs of VSB are allocated to Domestic VSB and 20.0% of the costs
of VSB are allocated to International VSB. In years beyond 1999, 60.0% of
the costs of VSB are allocated to Domestic VSB and 40.0% are allocated to
International VSB. In all years, 40.0% of the International VSB costs are
allocated to International Adopted countries and 60.0% are allocated to
International Likely to Adopt countries.
(b) Per guidance from Arthur Andersen, the Valuation assumes the Company pays
an AMT in the years after 2000. In the years in which the Company has
available NOLs, it pays an effective AMT of 2.0%. In the years in which
there is no available NOL, the Valuation assumes the Company pays an AMT
adjusted, effective tax rate of 25.0% in 2008, 30.0% in 2009 and 38.0%
thereafter. The Valuation assumes no foreign tax credits, but treats
assumed foreign witholding as a deduction.
(c) The witholding tax rate is equal to the weighted average of the countries'
treaty defined witholding rate. For those countries where there is no
treaty defined rate, the country's internal witholding rate was used.
Assumed witholding rates per Arthur Andersen.
C-6
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
I. GOING CONCERN ANALYSIS
-------------------------
VSB VALUATION ASSUMING USE OF NOLS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
---- ---- ------- ------ ------ ------ ------ ------ ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calculation of
Remaining
NOLs(a)
- ----------------
Pre-LG NOLs
(Year-End)(b)... $ 481.0 $481.0 $481.0 $473.8 $431.4 $344.1 $ 241.6 $ 211.0 $ 184.0 $ 157.0 $130.0 $103.0
Utilizable
Beginning....... 27.0 54.0 81.0 108.0 135.0 162.0 181.8 166.4 106.1 30.6 27.0 27.0 27.0 27.0
Pre-LG NOLs
Utilized........ 0.0 0.0 0.0 0.0 0.0 (7.2) (42.3) (87.3) (102.5) (30.6) (27.0) (27.0) (27.0) (27.0)
---- ---- ------- ------ ------ ------ ------ ------ ------- ------- ------- ------- ------ ------
Utilizable End.. 27.0 54.0 81.0 108.0 135.0 154.8 139.4 79.1 3.6 0.0 0.0 0.0 0.0 0.0
Post LG NOL
(beginning)..... $ 354.6 $373.0 $407.3 $431.3 $431.3 $431.3 $ 431.3 $ 431.3 $ 330.9 $ 189.9 $ 7.3 $ 0.0
Post LG NOL
Utilized........ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (100.4) (141.0) (182.6) (7.3) 0.0
NOL Generated... 18.4 34.3 24.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------- ------ ------ ------ ------ ------ ------- ------- ------- ------- ------ ------
Post LG NOL
(ending)........ $ 373.0 $407.3 $431.3 $431.3 $431.3 $431.3 $ 431.3 $ 330.9 $ 189.9 $ 7.3 $ 0.0 $ 0.0
<CAPTION>
2010 2011
------ ----
<S> <C> <C>
Calculation of
Remaining
NOLs(a)
- -----------------
Pre-LG NOLs
(Year-End)(b)... $76.0 $0.0
Utilizable
Beginning....... 27.0 0.0
Pre-LG NOLs
Utilized........ (27.0) 0.0
------ ----
Utilizable End.. 0.0 0.0
Post LG NOL
(beginning)..... $ 0.0 $0.0
Post LG NOL
Utilized........ 0.0 0.0
NOL Generated... 0.0 0.0
------ ----
Post LG NOL
(ending)........ $ 0.0 $0.0
</TABLE>
<TABLE>
<S> <C>
1998 Net Income........... ($283.4)
Cancellation of Debt
Income(c)................. 265.0
-------
1998 NOL.................. ($ 18.4)
1998 Net Income...........
</TABLE>
<TABLE>
<CAPTION>
NET INCOME ADJUSTED FOR 1998 1999 2000 2001 2002 2003
VSB ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Business Plan EBIT........ ($105.1) ($16.7) $ 4.1 $ 29.7 $ 53.2 $ 61.2
Domestic VSB Income (net
of costs)................. 0.0 (5.8) (1.9) 6.3 18.6 27.5
------- ------ ------ ------ ------ ------
Business Plan EBIT (Excl.
VSB)...................... (105.1) (10.9) 6.0 23.4 34.6 33.7
EBIT Differential......... 0.0 5.8 1.9 (6.3) (18.6) (27.5)
------- ------ ------ ------ ------ ------
Incremental Debt.......... 0.0 (5.8) (7.7) (1.5) 17.1 44.6
Incremental Interest
Expense @ 9.5%............ 0.0 (0.3) (0.6) (0.4) 0.7 2.9
Business Plan Net
Income.................... ($283.4) ($33.1) ($21.6) $ 2.5 $ 25.8 $ 37.1
------- ------ ------ ------ ------ ------
New Net Income (Excl.
VSB)...................... (283.4) (27.0) (19.0) (3.3) 6.4 6.7
</TABLE>
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
CALCULATION OF NOL ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
New Net Income (Excl.
VSB)...................... (283.4) (27.0) (19.0) (3.3) 6.4 6.7
Net VSB royalty before
AMT
(Int'l and Domestic)...... 0.0 (7.3) (5.0) 10.6 35.9 80.6
------- ------ ------ ------ ------ ------
Total Net Income.......... (283.4) (34.3) (24.0) 7.2 42.3 87.3
NOL
(Generated)/Utilized...... -- (34.3) (24.0) 7.2 42.3 87.3
</TABLE>
<TABLE>
<CAPTION> TOTAL
PRESENT NET PRESENT VALUE OF
VALUE DOMESTIC VSB TECHNOLOGY @
OF -------------------------------
VSB 25.0% 30.0% 35.0% 40.0%
TECHNOLOGY ------- ------- ------- -------
$130.6(d) <S> <C> <C> <C>
$94.0 $67.2 $48.9 $36.1
<CAPTION>
NET PRESENT VALUE OF
INT'L (ADOPTED) VSB TECHNOLOGY @
--------------------------------
35.0% 40.0% 45.0% 50.0%
------- ------- ------- -------
<S> <C> <C> <C>
$33.6 $26.1 $20.6 $16.5
<CAPTION>
NET PRESENT VALUE OF
INT'L (LIKELY TO ADOPT) VSB
TECHNOLOGY @
-------------------------------
45% 50% 55% 60%
------- ------- ------- -------
<S> <C> <C> <C>
$18.3 $13.8 $10.5 $8.1
</TABLE>
- -------------------------------------------------------------------------------
(a) Assumes that after 2003 NOLs are used exclusively to shelter VSB income.
(b) Source: Electro 1997 10-K. Utilizable at a maximum rate of $27MM per year
up until 2010.
(c) Based on Arthur Andersen analysis and an assumed implied equity value of
reorganized Electro.
(d) Assumes a 25.0% discount rate for Domestic VSB royalty fee income cash
flow, a 40.0% discount rate for International (Adopted) VSB royalty fee
income cash flows and a 55.0% discount rate for International (Likely to
Adopt) VSB royalty fee income cash flows.
C-7
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
II. BUSINESS PLAN COMPARISON
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FY ENDED DECEMBER 31,
BUDGET PROJECTED
BUSINESS PLAN ------ ----------------------------
DATE 1998 1999 2000 2001 2002 2003
--------------- ------ ---- ---- ---- ---- ----
INCOME STATEMENT ITEMS
<S> <C> <C> <C> <C> <C> <C> <C>
SALES................... 11/12 $ 965.6 $876.1 $889.3 $935.1 $ 987.6 $1,018.3
6/26 989.7 916.0 917.8 961.9 1,013.9 1,039.9
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 24.1) ($39.9) ($28.5) ($26.8) ($ 26.3) ($ 21.6)
======= ====== ====== ====== ======== ========
GROSS MARGIN............ 11/12 $ 72.2 $ 74.0 $ 81.7 $ 97.4 $ 106.9 $ 115.3
6/26 60.6 57.2 77.6 92.3 101.6 108.4
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 11.6 $ 16.8 $ 4.1 $ 5.1 $ 5.3 $ 6.9
======= ====== ====== ====== ======== ========
SELLING................. 11/12 $ 78.0 $ 59.0 $ 65.9 $ 69.0 $ 72.5 $ 73.7
6/26 72.5 63.0 65.3 68.7 72.6 75.1
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 5.5 ($ 4.0) $ 0.6 $ 0.3 ($ 0.1) ($ 1.4)
======= ====== ====== ====== ======== ========
G&A..................... 11/12 $ 51.4 $ 46.9 $ 30.1 $ 26.5 $ 22.5 $ 20.8
6/26 45.2 34.4 26.3 24.8 25.4 25.9
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 6.2 $ 12.5 $ 3.8 $ 1.7 ($ 2.9) ($ 5.1)
======= ====== ====== ====== ======== ========
R&D..................... 11/12 $ 45.9 $ 11.2 $ 8.7 $ 8.1 $ 7.5 $ 7.0
6/26 38.4 7.6 4.3 4.4 4.4 4.6
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 7.5 $ 3.6 $ 4.4 $ 3.7 $ 3.1 $ 2.4
======= ====== ====== ====== ======== ========
OPERATING INCOME........ 11/12 ($103.1) ($43.1) ($23.0) ($ 6.2) $ 4.4 $ 13.8
6/26 (95.5) (47.8) (18.3) (5.6) (0.8) 2.8
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 7.6) $ 4.7 ($ 4.7) ($ 0.6) $ 5.2 11.0
======= ====== ====== ====== ======== ========
ROYALTY INCOME.......... 11/12 $ 0.0 $ 4.7 $ 5.2 $ 5.8 $ 6.4 $ 7.2
6/26 2.0 2.0 2.0 2.0 2.0 1.9
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 2.0) $ 2.7 $ 3.2 $ 3.8 $ 4.4 $ 5.3
======= ====== ====== ====== ======== ========
OTHER EXPENSE (Income)
(a).................... 11/12 ($ 3.5) ($ 2.3) $ 1.5 $ 1.5 $ 1.5 $ 1.5
6/26 9.5 7.0 7.0 7.0 7.0 7.0
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 13.0) ($ 9.3) ($ 5.5) ($ 5.5) ($ 5.5) ($ 5.5)
======= ====== ====== ====== ======== ========
EBIT.................... 11/12 ($ 99.6) ($36.2) ($19.3) ($ 1.9) $ 9.3 $ 19.4
6/26 (103.0) (52.8) (23.3) (10.6) (5.8) (2.3)
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 3.4 $ 16.6 $ 4.0 $ 8.7 $ 15.1 21.7
======= ====== ====== ====== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
(a) Other Expense in 1998 @ 6/26 excludes non-cash restructuring charge of
$35.2MM
Years 2000-2003 of 11/12 plan reflect bank financing fees. Per Electro
management.
C-8
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
II. BUSINESS PLAN COMPARISON
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FY ENDED DECEMBER 31,
BUDGET PROJECTED
BUSINESS PLAN ------ ----------------------------
DATE 1998 1999 2000 2001 2002 2003
------------- ------ ---- ---- ---- ---- ----
CASH FLOW ITEMS
<S> <C> <C> <C> <C> <C> <C> <C>
DEPRECIATION &
AMORTIZATION........... 11/12 $ 35.8 $ 6.1 $ 3.2 $ 3.6 $ 3.9 $ 4.2
6/26 35.7 9.1 2.8 3.3 3.7 4.0
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ $ 0.1 ($ 3.0) $ 0.4 $ 0.3 $ 0.2 0.2
======= ====== ====== ====== ====== =====
CAPITAL EXPENDITURES.... 11/12 ($ 99.8) ($ 4.9) ($ 4.5) ($ 4.5) ($ 4.5) ($4.5)
6/26 (13.2) (4.5) (4.5) (4.5) (4.5) (4.5)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 86.6) ($ 0.4) $ 0.0 $ 0.0 $ 0.0 0.0
======= ====== ====== ====== ====== =====
CHANGE IN NET WORKING
CAPITAL................ 11/12 ($ 4.3) $ 10.7 $ 17.0 ($13.1) ($ 3.3) ($5.7)
6/26 16.8 1.6 36.0 (2.0) (3.5) (0.5)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 21.1) $ 9.1 ($19.0) ($11.1) $ 0.2 (5.2)
======= ====== ====== ====== ====== =====
PROCEEDS FROM ASSET
SALES.................. 11/12 $ 70.3 $ 47.9 $ 0.0 $ 0.0 $ 0.0 $ 0.0
6/26 31.9 93.2 0.0 0.0 0.0 0.0
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ $ 38.4 ($45.3) $ 0.0 $ 0.0 $ 0.0 0.0
======= ====== ====== ====== ====== =====
RESTRUCTURING COSTS..... 11/12 ($ 38.7) ($55.5) ($ 2.4) $ 0.0 $ 0.0 $ 0.0
6/26 (29.0) (61.5) (9.1) (6.6) (4.2) (2.8)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 9.7) $ 6.0 $ 6.7 $ 6.6 $ 4.2 2.8
======= ====== ====== ====== ====== =====
TAXES................... 11/12 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.2 $ 0.4
6/26 0.0 0.0 0.0 0.0 0.0 0.0
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.2 $ 0.4
======= ====== ====== ====== ====== =====
FREE CASH FLOW (A)...... 11/12 ($136.3) ($31.9) ($ 6.0) ($15.9) $ 5.2 $13.0
6/26 (60.8) (14.9) 1.9 (20.4) (14.3) (6.1)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 75.5) ($17.0) ($ 7.9) $ 4.5 $ 19.5 $19.1
======= ====== ====== ====== ====== =====
</TABLE>
- --------------------------------------------------------------------------------
(a) Free cash flow defined as EBIT plus all cash flow items.
C-9
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
III. ONE-TIME ADJUSTMENTS
<TABLE>
<CAPTION>
VALUE ADJUSTMENT
----------------
<C> <S>
*** ***
SALE OF GLENVIEW PROPERTY 6/26 Valuation assumed the sale of
Glenview in Q1 1999. Sale occurred in
October of 1998.
SALE OF MELROSE PARK EQUIPMENT 6/26 Valuation assumed the sale of
Melrose Park equipment in Q1 1999. Sale
occurred in Q4 1998.
VSB ADJUSTMENTS VSB Technology cash flows have been
revised to reflect (i) updated input from
Forrester Research in respect to Domestic
VSB Technology and (ii) cash flow from
international markets based upon report
from GartnerConsulting.
TAX ADJUSTMENTS Tax Treatment revised per discussions
with Arthur Andersen to reflect impact of
alternative minimum tax and foreign tax
payments.
TRADEMARK & DISTRIBUTION ADJUSTMENTS 6/26 Valuation assumed all warranty
expenses against finished goods. Current
Valuation assumes a reduction in
Trademark & Distribution on account of
warranty claims of $33.3MM discounted for
8 quarters.
LIQUIDATION PROCEEDS ADJUSTMENTS Valuation assumes distribution of net
liquidation proceeds will occur over the
course of 2 to 4 years. Accordingly, a
10% discount rate was applied to
aggregate net proceeds for 3 years.
</TABLE>
C-10
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
IV. DOMESTIC VSB VALUE ADJUSTMENTS (A)
<TABLE>
<C> <S>
TVS Percent digital has been reduced for 1999-2005 due to
higher than expected retail pricing and slower price
reduction assumptions. Percent digital figures for 2006-
2011 have been increased due to an anticipated erosion
in the price disparity between analog and digital
televisions.
PCS The decrease in the percent using VSB for PCs reflects
the rapid transition to the low-end market in PCs and
the assumption that the low-end PC will not have VSB
capability. Earlier more aggressive assumptions were
predicated on the market power of the Wintel duopoly.
The Wintel duopoly's ability to dictate to the market
has not been demonstrated by recent market events.
Notwithstanding the foregoing, there will still be a
small market dominated by enthusiasts. Accordingly, the
royalty rate assumed for PCs is $5.00.
ADD-IN CARDS Assumed market share is based on 200,000 add-in cards
being sold for analog televisions in the past year.
Valuation assumes a $5.00 royalty rate for add-in cards.
VIDEO RECORDERS/DVD-R The reduction in percent digital in the early years of
VSB adoption reflects new market data which indicates
that the majority of products sold in this group during
that time period will be VCRs with lower VSB/digital
penetration rates than will be experienced by the DVD-R
product.
DVD-P The increase in the DVD-P market size in the early years
reflects updated market data. The decrease in the market
size in the later years reflects the new assumption that
the price disparity between DVD-R and DVD-P will
sufficiently erode to encourage a market shift to DVD-R.
ATSC CONVERTERS The decrease in total VSB demodulation in years 2009-
2011 reflects updated market data indicating a projected
reduction in the number of analog televisions in use.
</TABLE>
(a) All adjustments to Domestic VSB Valuation per Forrester Research, Inc.
C-11
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
V. S-4 PROPOSAL ANALYSIS
ANALYSIS OF S-4 PROPOSAL (BASED ON 11-12-98 BUSINESS PLAN)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED
CLAIM
AMOUNT
12/31/98 PROPOSED TREATMENT UNDER S-4 PROPOSAL $ RECOVERY % RECOVERY
--------- ------------------------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CITIBANK SECURED DEBT
(A).................... $ 68.2 $125.0 $68.2 100.0%
LG CLAIMS AND INTERESTS
SECURED
--------
Secured Guarantee of
Demand Notes.......... 72.0
Secured Guarantee of
Leveraged Lease (b)... 33.7
Direct Loans........... 45.0
------
Subtotal............. $150.7 Exchanged for (i) $118.8 in restructured Secured 100.0%
SENIOR UNSECURED Notes (c), (ii) 100.0% of the equity of $159.2 (d)
LG Extended Payable.... 140.0 reorganized Zenith, (iii) ownership of Senior Unsecured 6.1%
GENERAL UNSECURED Reynosa plant ($32.4MM credit against claims),
Leveraged Lease (iv) $8.0 in leverage lease equipment retained by
Deficiency Claim...... 56.4 LG and (v) general release. General Unsecured 0.0%
Service Fees........... 10.5
Guarantee Fees......... 1.6
------
Subtotal............. 68.5
------
Total LG Claims........ $359.2
--------
GENERAL UNSECURED
CLAIMS
--------
General Unsecured
(Trade)............... 55.8 Unimpaired....................................... $55.8 100.0%
General Unsecured
(Accruals)............ 122.4 $122.4 100.0%
--------
Indo Suez.............. 30.0 Modified Terms................................... $30.0 100.0%
6 1/4 Subordinated
Convertible $40.0 million new 6 1/4% subordinated
Debentures (f)........ 105.1 debentures due 2010............................. $40.0(e) 38.1%
Common Equity.......... NA Cancelled........................................
</TABLE>
- --------------------------------------------------------------------------------
(a) S-4 Proposal assumes $125.0 million working capital facility.
(b) Represents the amount paid by LGE to purchase claims, not legal contract
amount. Claim amount at appraised value of equipment, per Electro
management. Excludes impact, if any, of sale of certain Melrose Park
equipment to Philips.
(c) Assumes treatment of Indo Suez obligations consistent with other guaranteed
demand obligations. Trading value may be lower.
(d) Excludes value of release, if any. Assumes an equity value of $0.0 million
at 12/31/98.
(e) Assumes face value. Trading value may be lower.
(f) Principal amount plus assumed accrued interest at 12/31/98.
C-12
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
VI. LIQUIDATION ANALYSIS
- -------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
VALUE AT ESTIMATED ASSET RECOVERY
1/99 (A) % RECOVERY FROM LIQUIDATION
--------- ---------- ----------------
<S> <C> <C> <C>
ASSETS
MARKETABLE ASSETS
VSB Technology (tax-affected) (b)....... $ 39.4
Trademark & Distribution (c)............ 12.1
Tuner Patent (d)........................ 38.0
Other Intangibles (e)................... 0.7
Flat Tension Mask (e)................... 2.1
CURRENT ASSETS
Cash.................................... $ 0.0 100.0% 0.0
Accounts Receivable (f)................. 158.3 65.0% 102.9
Inventories (g).........................
Finished Goods........................ 43.1 75.0% 32.3
Less: Warranty (i)...................... (0.4)
------
Net Finished Goods.................... 31.9
Work in Process....................... 10.5 5.0% 0.5
Raw Materials......................... 24.4 20.0% 4.9
FIXED ASSETS
Real Estate (h).........................
Domestic.............................. 4.4
Mexican (j)........................... 0.0
Furniture, Fixture and Equipment (h)....
Domestic (k).......................... 13.4
Mexican (j)........................... 18.9
------
Gross Asset Recovery................ $269.3
======
</TABLE>
- -------------------------------------------------------------------------------
Note: Excludes "Other Assets" which represents the book gain on sale of
certain assets.
(a) All estimated values subject to substantial due diligence and review.
(b) Represents present value discounted to 1/1/99. Assumes 38.0% tax rate.
Value assumes a 35.0% discount rate for Domestic VSB, a 50% discount rate
for International (Adopted) VSB and zero value for International (Likely
to Adopt VSB) and royalty rates lower than the Company base case. Reflects
decrease in income related to Sony and cross licenses.
(c) Assumes liquidation will result in a 50.0% decrease in market share to
5.0%, a 2.0% market share contraction, a 25 million domestic television
market, a $300/television unit price, and a discount rate equal to the
historical weighted average cost of capital of the comparable company's
and the majority shareholder's internal cost of capital of 12.0% and an
incremental tax rate of 38.0% also includes a reduction of $33.3 million
in warranty expenses discounted over 8 quarters at 12.0%.
(d) Tuner Patent cash flows are net of cost and expenses associated with them
and assume settlement with Sony. Cash flows are tax affected at 38.0% and
are discounted at 25.0%.
(e) Per Company senior patent counsel. Other intangibles relates primarily to
touch-screen technology. Represents 50.0% of management's estimate of fair
market value.
(f) Excludes receivables on account of sale of equipment to Philips.
(g) Estimated value at 1/1/99 net of reserves per Electro management.
(h) Estimated value at 1/1/99 per Electro management.
(i) Per Electro management. Payment assumed to be necessary to achieve
liquidation value. Includes future warranty claims associated with net
finished goods in inventory.
(j) Mexican real estate and furniture, fixture and equipment have been reduced
by $38.8MM in Mexican claims per Electro management. Real estate has been
reduced first.
(k) Does not reflect pending sale of certain equipment from Melrose Park to
Philips. Accordingly, actual recoveries may be lower.
C-13
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
VI. LIQUIDATION ANALYSIS
- -------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C> <C> <C>
GROSS ASSET RECOVERY............................... $269.3
LESS: LIQUIDATION EXPENSES, & ADMINISTRATIVE AND
PRIORITY TAX CLAIMS
Administrative Costs
- --------------------
Professional Fees(a)............................. $ 24.0
Corporate Overhead(b)............................ 24.8
Trustee Fees(c).................................. 4.7
Brokerage Fees(d)................................ 10.1
Wind Down Costs(e)............................... 5.6
WARN Act(b)...................................... 21.0
Environmental(b)................................. 23.8
------
Subtotal....................................... 113.9
------
AGGREGATE NET PROCEEDS............................. $155.3
LIQUIDATION PROCEEDS AVAILABLE FOR DISTRBUTION(F).. $116.7
<CAPTION>
CLAIM % RECOVERY
------ ----------
<S> <C> <C> <C>
SECURED DEBT
Citibank......................................... $ 26.9(g) $ 26.9 100.0%
Proceeds available for secured creditors after
Citibank.......................................... $ 89.8
LG Guarantee of Demand Notes..................... 102.0 57.0 55.9%
LG Guarantee of Leveraged Lease.................. 13.6(h) 7.6 55.9%
LG Direct Loans.................................. 45.0 25.2 55.9%
------ ------
Total Secured Debt................................. $187.5 $116.7
====== ======
Liquidation Proceeds Available for Priority Claims and
Unsecured Creditors and Equity........................... $ 0.0
</TABLE>
- -------------------------------------------------------------------------------
(a) Assumes 4 year liquidation. Assumes fees of $2.0MM each month the first 6
months, $1.5MM for each of the next 6 months, $1.2MM for the entire second
year, $1.2MM for the entire third year, and $.6MM for the fourth and final
year.
(b) Per Electro management.
(c) Assumed as 3.0% of net liquidation proceeds.
(d) Brokerage fees assume 6.0% of gross asset recovery excluding Accounts
Receivables and Inventory. Includes $38.8MM on account of Mexican Real
Estate and Furniture, Fixture and Equipment sold to offset Mexican
priority claims.
(e) Real estate taxes plus on-site security and wind down teams at each
location during an average twelve month disposition period.
(f) Assumes distribution of net proceeds of asset sales will occur over the
course of 2 to 4 years. Accordingly, a 10.0% discount rate was applied for
three years.
(g) Revolver balance based on the 12/31/98 balance plus Q4 cash restructuring
costs including Melrose Park idle costs ($6.3MM), engineering severance
($2.5MM) and Q4 professional fees ($5.1MM).
(h) Secured claim reflecting LG's guarantee of the leveraged lease equals the
value of the leveraged lease equipment in a liquidation per Greenwich
Industrial. Any deficiency claim is treated as unsecured.
C-14
<PAGE>
ZENITH ELECTRONICS CORPORATION
IMPORTANT
Any Holder of Old Subordinated Debentures, Bank Lender Claims or LGE Claims
who wishes to vote with respect to the Prepackaged Plan should complete and
sign the applicable Ballot or Master Ballot in accordance with the
instructions set forth in this Disclosure Statement and return such Ballot or
Master Ballot in accordance with the instructions set forth thereon. See
"SOLICITATION; VOTING PROCEDURES."
The Solicitation Agent:
GEORGESON & COMPANY INC.
By Hand Delivery or Overnight Courier: By Mail:
Georgeson & Company Inc.
Georgeson & Company Inc. Wall Street Plaza
Wall Street Plaza New York, NY 10005
New York, NY 10005
Facsimile Transmission:
(212) 440-9009
Confirm by Telephone:
(800) 223-2064
ADDITIONAL COPIES
Requests for additional copies of this Disclosure Statement should be
directed to the Solicitation Agent. You may also contact your broker, dealer,
commercial bank or trust company for assistance concerning the Solicitation.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20: INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person is or was an officer, director, employee or agent of
such corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.
Article VI of the Certificate of Incorporation, as amended and restated, of
the Company provides that no director of the corporation shall be liable to
the corporation or its stockholders for monetary damages arising from a breach
of fiduciary duty owed to the corporation or its stockholders to the fullest
extent permitted by the Delaware General Corporation Law. However, unless and
except permitted by applicable law, such provisions of Article VI shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of Delaware, (iv) for any transaction from which the director derived an
improper personal benefit, or (v) for any act or omission occurring prior to
the date Article VI became effective.
Article VII of the Certificate of Incorporation, as amended and restated,
further provides that the Company shall indemnify and hold harmless, to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but in the case of any such amendment,
only to the extent that such amendment permits the corporation to provide
broader indemnification rights than said law permitted the corporation to
provide prior to such amendment), each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
corporation, is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided below with respect to proceedings to enforce
rights to indemnification, the corporation shall indemnify any such indemnitee
in
II-1
<PAGE>
connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board. The
right to indemnification is a contract right and includes the right to be paid
by the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (advancement of expenses); provided, however,
that, if and to the extent that the Delaware General Corporation Law requires,
an advancement of expenses incurred by an indemnitee in his or her capacity as
a director or officer (and not in any other capacity in which service was or
is rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the corporation of
an undertaking by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined that such indemnitee is not
entitled to be indemnified for such expenses. The corporation may, by action
of its Board, provide indemnification to employees and agents of the
corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
Article VII of the Certificate of Incorporation, as amended and restated,
further provides that if a Claim is not paid in full by the corporation within
thirty days after a written Claim has been received by the corporation, the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the Claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
Claim. It shall be a defense to any such action (other than an action brought
to enforce a Claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the corporation) that the claimant has not met
the standards of conduct which make it permissible under the General
Corporation Law of Delaware for the corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its Board,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the General Corporation Law of Delaware, nor
an actual determination by the corporation (including its Board, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in defending
a proceeding in advance of its final disposition conferred in Article VII
shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Restated Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
Article VII of the Certificate of Incorporation, as amended and restated,
further provides that the corporation may maintain insurance, at its own
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such
expenses, liability or loss under the Delaware General Corporation Law.
All of the directors and officers of the Company are covered by insurance
policies maintained and held in effect by such corporation against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act of 1933.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
(3a) Restated Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992)
(3b) Certificate of Amendment to Restated Certificate of
Incorporation of the Company dated May 4, 1993 (incorporated by
reference to Exhibit 4(l) of the Company's Quarterly Report on
Form 10-Q for the quarter ended April 3, 1993)
(3c) By-Laws of the Company, as amended (incorporated by reference to
Exhibit (3c) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
+(4a) Amended and Restated Credit Agreement dated as of June 29, 1998,
among Zenith Electronics Corporation, Citibank N.A., Citicorp
North America, Inc. and the other lenders named
(4c) Indenture dated as of April 1, 1986 between Zenith Electronics
Corporation and The First National Bank of Boston as Trustee
with respect to the 6 1/4% Convertible Subordinated Debentures
due 2011 (incorporated by reference to Exhibit 1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1991)
(4d) Note Agreement dated as of March 31, 1998, between Zenith
Electronics Corporation and LG Electronics Inc. (incorporated by
reference to Exhibit (4a) to the Company's Quarterly Report on
Form 10-Q for the period ended March 28, 1998)
++(4e) Form of Indenture with respect to New Subordinated Debentures
++(4f) Form of LGE Secured Notes
++(4g) Form of LGE New Restructured Senior Note
++5(a) Opinion of Kirkland & Ellis
++8(a) Opinion of Kirkland & Ellis as to Tax Matters
*(10a) 1987 Zenith Stock Incentive Plan (as amended) (incorporated by
reference to Exhibit A of the Company's definitive Proxy
Statement dated March 13, 1992)
*(10b) Form of Indemnification Agreement with Officers and Directors
(incorporated by reference to Exhibit 8 of the Company's Report
on Form 10-K for the year ended December 31, 1989)
*(10c) Form of Directors 1989 Stock Units Compensation Agreement with
T. Kimball Brooker (1,000 units) (incorporated by reference to
Exhibit 9 of the Company's Report on Form 10-K for the year
ended December 31, 1989)
*(10d) Form of Directors 1990 Stock Units Compensation Agreement with
T. Kimball Brooker, Andrew McNally IV and Peter S. Willmott
(1000 units each) (incorporated by reference to Exhibit 6 of the
Company's Report on Form 10-K for the year ended December 31,
1990)
*(10e) Form of Directors 1991 Stock Units Compensation Agreement with
T. Kimball Brooker, Andrew McNally IV and Peter S. Willmott
(1,000 units each) (incorporated by reference to Exhibit 10d of
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 29, 1991)
*(10f) Form of Amendment, dated as of July 24, 1991, to Directors Stock
Units Compensation Agreements for 1990 and 1991 (incorporated by
reference to Exhibit 10e of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 29,1991)
*(10g) Directors Retirement Plan and form of Agreement (incorporated by
reference to Exhibit 10 of the Company's Report on Form 10-K for
the year ended December 31, 1989)
*(10h) Form of Amendment, dated as of July 24, 1991, to Directors
Retirement Plan and form of Agreement (incorporated by reference
to Exhibit 10f of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 29, 1991)
*(10i) Supplemental Executive Retirement Income Plan effective as of
January 1, 1994 (incorporated by reference to Exhibit 10ab to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994)
*(10j) Restated and Amended Zenith Salaried Retirement Savings Plan
(incorporated by reference to Exhibit (10j) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997)
*(10k) Long-Term Equity Compensation Plan (incorporated by reference on
Form S-8 filed June 6, 1997)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*(10l) Form of Employee Stock Option Agreement (incorporated by
reference to Exhibit 10e of the Company's Quarterly Report on
Form 10-Q for the quarter ended April 1, 1995)
*(10m) Form of Employee Stock Option Agreement, Long-Term Equity
Compensation Plan (incorporated by reference to Exhibit (10m) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997)
(10n) Stock Purchase Agreement dated July 17, 1995, between Zenith
Electronics Corporation and LG Electronics, Inc. (incorporated
by reference to Exhibit 2 of the Company's Report on Form 8-K
dated July 17, 1995)
*(10o) Employment Agreement, dated January 1, 1997, between Roger A.
Cregg and Zenith Electronics Corporation (incorporated by
reference to Exhibit 10p to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
*(10p) Employment Agreement, dated January 1, 1997, between Richard F.
Vitkus and Zenith Electronics Corporation (incorporated by
reference to Exhibit 10q to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
*(10q) Employment Agreement, dated January 1, 1997, between Peter S.
Willmott and Zenith Electronics Corporation (incorporated by
reference to Exhibit 10r to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
*(10r) Employment Agreement, dated January 1, 1997, between Dennis R.
Winkleman and Zenith Electronics Corporation (incorporated by
reference to Exhibit 10s to the Company's Annual Report on Form
10-K for the year ended December 31,1996)
(10s) Agreement between Jay Alix & Associates and Zenith Electronics
Corporation, as amended (incorporated by reference to Exhibit
(10s) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997)
(10t) Receivables Purchase Agreement dated as of March 31, 1997, among
Zenith Electronics Corporation and Zenith Finance Corporation
(incorporated by reference to Exhibit 10a to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 29,
1997)
(10u) Letter amendment, dated October 15, 1997, to Receivables
Purchase Agreement dated as of March 31, 1997, among Zenith
Electronics Corporation and Zenith Finance Corporation and to
Zenith Trade Receivable Master Trust Pooling and Servicing
Agreement dated as of March 31, 1997, among Zenith Finance
Corporation, Zenith Electronics Corporation and Bankers Trust
Company (incorporated by reference to Exhibit (10u) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997)
(10v) Receivables Purchase Agreement dated as of March 31, 1997, among
Zenith Microcircuits Corporation and Zenith Finance Corporation
(incorporated by reference to Exhibit 10b to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 29,
1997)
(10w) Zenith Trade Receivable Master Trust Pooling and Servicing
Agreement dated as of March 31, 1997, among Zenith Finance
Corporation, Zenith Electronics Corporation and Bankers Trust
Company (incorporated by reference to Exhibit 10c to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 29, 1997)
(10x) Lease Agreement dated as of March 26, 1997, by and among Fleet
National Bank and Zenith Electronics Corporation (incorporated
by reference to Exhibit 10d to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 29, 1997)
(10y) Lease Agreement dated as of March 26, 1997, by and among Fleet
National Bank and Zenith Electronics Corporation of Texas
(incorporated by reference to Exhibit 10e to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 29,
1997)
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
(10z) Participation Agreement dated as of March 26, 1997, by and among
Zenith Electronics Corporation, General Foods Credit
Corporation, Fleet National Bank and other lenders named, and
First Security Bank, National Association (incorporated by
reference to Exhibit 10f to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 29, 1997)
(10aa) Participation Agreement dated as of March 26, 1997, by and among
Zenith Electronics Corporation of Texas, General Foods Credit
Corporation, Fleet National Bank and other lenders named, and
First Security Bank, National Association (incorporated by
reference to Exhibit 10g to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 29, 1997)
(10ab) Financial Support Agreement as of March 31, 1997, between LG
Electronics Inc. and Zenith Electronics Corporation
(incorporated by reference to Exhibit 10h to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 29,
1997)
(10ac) Subordination Agreement, dated as of November 3, 1997, among
Zenith Electronics Corporation, Citicorp North America, Inc. and
LG Electronics Inc., (incorporated by reference to Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 27, 1997)
*(10ad) Performance Optimization Plan Agreement, dated April 7, 1997,
between Richard F. Vitkus and Zenith Electronics Corporation
(incorporated by reference to Exhibit (10ad) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997)
*(10ae) Employment Agreement, dated January 12, 1998, between Jeffrey P.
Gannon and Zenith Electronics Corporation (incorporated by
reference to Exhibit (10) to the Company's Quarterly Report on
Form 10-Q for the period ended March 27, 1998)
*(10af) Stock Option Agreement, Dated January 12, 1998, between Jeffrey
P. Gannon and Zenith Electronics Corporation (incorporated by
reference to Exhibit (10a) to the Company's Quarterly Report on
Form 10-Q for the period ended March 27, 1998)
*(10ag) Restricted Stock Award Agreement, Dated January 12, 1998,
between Jeffrey P. Gannon and Zenith Electronics Corporation
(incorporated by reference to Exhibit (10b) to the Company's
Quarterly Report on Form 10-Q for the period ended March 27,
1998)
+(10ah) Restructuring Agreement, dated August 7, 1998, between Zenith
Electronics Corporation and LG Electronics, Inc.
*(10ai) Amended and Restated Employment Agreement, dated October 2,
1998, between Zenith Electronics Corporation and Richard F.
Vitkus
*(10aj) Amendment dated August 7, 1998 to Employment Agreement between
Zenith Electronics Corporation and Jeffrey P. Gannon
(10ak) Reimbursement Agreement dated November 3, 1997, between LG
Electronics Inc. and Zenith Electronics Corporation
(10al) First Amendment to Reimbursement Agreement, dated January 27,
1998, between LG Electronics Inc. and Zenith Electronics
Corporation
(10am) Amendment No. 1 and Waiver to the Restructuring Agreement, dated
November 16, 1998, between Zenith Electronics Corporation and LG
Electronics, Inc.
(18) Letter re change in accounting principle (incorporated by
reference to Exhibit 18 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 28, 1997)
+(21) Subsidiaries of the Company
(23a) Consent of Independent Public Accountants
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
++(23b) Consents of Kirkland & Ellis (included in Exhibits 5a and 8a)
</TABLE>
<TABLE>
<C> <S>
(24a) Power of Attorney appointing Nam Woo as attorney-in-fact for
certain directors.
(24b) Power of Attorney appointing Richard Vitkus and Wayne Koprowski
as attorneys-in-fact for certain directors.
(27a) Financial Data Schedule for the nine months ended September 26,
1998
+(27b) Financial Data Schedule for the twelve months ended December 31,
1997
+(99a) Valuation Report, dated May 21, 1998, prepared by Peter J.
Solomon Company, Ltd.
(99b) Valuation Report, dated July 22, 1998, prepared by Peter J.
Solomon Company, Ltd. (Confidential Treatment Requested)
(99c) Complete Appraisal of Real Property, Partes Television de
Reynosa, S.A. de C.V., dated May 28, 1998, prepared by Cushman &
Wakefield of Arizona, Inc.
(99d) Property Summary and Value Estimates, Mexico Owned Facilities,
dated February, 1998, prepared by Bermudez-Binswanger
(99e) Appraisal, Zenith Electronics Corporation, Reynosa Mexico, dated
April 1, 1998, prepared by Greenwich Industrial Services, LLC.
(99f) Valuation Report, dated November 16, 1998, prepared by Peter J.
Solomon Company, Ltd. (Confidential Treatment Requested)
(99g) Forms of Ballots
(99h) Form of Master Ballot
(99i) International VSB Market Forecast prepared by Gartner
Consulting, including addendums thereto. (Confidential Treatment
Requested)
(99j) Form of letter to Securityholders
</TABLE>
- --------
* Represents a management contract, compensation plan or arrangement.
+Previously filed.
++To be filed by amendment.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
II-6
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered, therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a Claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a directors, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first Class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
VILLAGE OF GLENVIEW, STATE OF ILLINOIS, ON THE 19TH DAY OF NOVEMBER, 1998.
Zenith Electronics Corporation
/s/ Jeffrey P. Gannon
By: ____________________________
Jeffrey P. Gannon
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE 19TH DAY OF NOVEMBER,
1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Jeffrey P. Gannon President and Chief Executive Officer
___________________________________________ (Principal Executive Officer)
Jeffrey P. Gannon
/s/ Edward J. McNulty Chief Financial Officer
___________________________________________ (Principal Financial Officer)
Edward J. McNulty
/s/ Lawrence D. Panozzo Director of Corporate Accounting and
___________________________________________ Planning
Lawrence D. Panozzo (Principal Accounting Officer)
* Chairman of the Board
___________________________________________
Hun Jo Lee
** Director
___________________________________________
T. Kimball Brooker
* Director
___________________________________________
Ki-Song Cho
** Director
___________________________________________
Eugene B. Connolly
/s/ Robert A. Helman Director
___________________________________________
Robert A. Helman
* Director
___________________________________________
Cha Hong (John) Koo
* Director
___________________________________________
Seung Pyeong Koo
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
** Director
___________________________________________
Andrew McNally IV
* Director
___________________________________________
Yong Nam
** Director
___________________________________________
Peter S. Willmott
/s/ Nam Woo Director
___________________________________________
Nam Woo
</TABLE>
/s/ Nam Woo
*By_____________________________
Attorney-in-fact
/s/ Richard Vitkus
**By____________________________
Attorney-in-fact
II-9
<PAGE>
EXHIBIT 10AI
EXECUTION COPY
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement")
dated as of October 2, 1998, is by and between Zenith Electronics Corporation, a
Delaware corporation (the "Company"), and Richard F. Vitkus (the "Executive").
WHEREAS, the Executive currently serves as Senior Vice President and
General Counsel of the Company pursuant to an Employment Agreement dated as of
January 1,1997; and
WHEREAS, the Company and the Executive desire to amend and restate
the existing Employment Agreement by entering into this Agreement to provide for
the continued employment of the Executive by the Company upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and
the Executive hereby agrees to be employed by the Company upon the terms and
subject to the conditions contained in this Agreement. The term of employment
of the Executive by the Company pursuant to this Agreement (the "Employment
Period") shall commence on the date hereof and shall end on December 31, 2000,
unless earlier terminated pursuant to Section 4, provided that the Employment
Period shall automatically be extended as of December 31, 2000 for one
additional year and, if so extended, shall automatically be further extended as
of each December 31 thereafter, for additional consecutive one-year periods,
unless either the Company or the Executive elects not to extend the Agreement by
written notice given to the other party on or prior to the October 2 that
precedes such December 31.
2. Position and Duties. The Company shall employ the Executive during
the Employment Period as its Senior Vice President and General Counsel. The
Executive shall perform faithfully and loyally and to the best of his abilities
the duties assigned to him hereunder, shall devote his full business time,
attention and effort to the affairs of the Company and shall use his reasonable
best efforts to promote the interests of the Company. The Executive shall report
to such executive officer of the Company as shall be designated from time to
time by the Chief Executive Officer of the Company (the "CEO") or the Board of
Directors of the Company (the "Board"). Notwithstanding the foregoing, the
<PAGE>
Executive may engage in charitable, civic or community activities and, with the
prior approval of the CEO or the Board, may serve as a director of any business
corporation, provided that such activities of service does not materially
interfere with his duties hereunder or violate the terms of any of the covenants
contained Section 10 or 11.
3. Compensation.
------------
(a) Base Compensation. As compensation for the services to be
-----------------
provided by the Executive hereunder, the Company shall pay to the Executive
during the Employment Period a minimum annual salary of $275,000 (the "Base
----
Salary"), payable in installments in accordance with the Company's normal
- ------
payment schedule for senior management or the Company. The Executive's salary
may be increased or decreased from time to time, provided that the Executive's
salary shall not be decreased below the Base Salary specified by this Section
3(a). The Executive's annual salary in effect from time to time under this
Section 3(a) is hereinafter called his "Base Compensation."
(b) Annual Incentive Compensation. In addition to his Base
-----------------------------
Compensation, the Executive shall be entitled to receive an annual incentive
compensation award for services rendered during the Employment Period,
determined in accordance with Appendix A (the "Annual Incentive Compensation,"
---------- -----------------------------
and together with the Base Compensation, the "Annual Compensation").
-------------------
(c) Retention Bonus. In addition to his Annual Compensation,
---------------
the Executive shall be entitled to receive a retention bonus payable in two
installments, each in the amount of 25% of his Base Compensation as in effect
on the date of payment, on, or as soon as practicable after, each of January 1,
1999 and July 1, 1999 (the "Retention Bonus"); provided, however, that the right
--------------- -------- -------
to receive each such payment shall be subject to the condition (and only to the
condition) that the Executive shall not have voluntarily terminated his
employment hereunder or been terminated for Cause (as defined in Section 8)
prior to the relevant payment date (other than as a result of his death or
disability).
(d) Long-Term Incentive Bonus. In addition to his Annual
-------------------------
Compensation and his Retention Bonus, the Executive shall be entitled to receive
a long-term incentive bonus for services rendered during the Employment Period,
determined in accordance with Appendix B (the "Long-Term Incentive Bonus").
---------- -------------------------
(e) Supplemental Long-Term Disability Benefits. During the
------------------------------------------
Employment Period, the Executive shall be eligible for supplemental long-term
disability benefits, the current terms of which are described on Appendix C
----------
attached hereto.
2
<PAGE>
(f) Supplemental Life Insurance Benefits. During the Employment
------------------------------------
Period, the Executive shall be eligible for supplemental life insurance
benefits, the current terms of which are described on Appendix D attached
----------
hereto.
(g) Other Benefits. In addition to the benefits described in
--------------
subsections (c), (d), (e) and (f) above, the Executive shall be entitled to
participate in all employee benefit plans generally available to those
executives who are parties to agreements with the Company which are comparable
to this Agreement, including, as of the date of this Agreement, automobile
allowance, home observation programs, tax, legal and financial services, group
medical and dental, health and accident, group life insurance, long-term
disability, short-term disability, executive insurance, pension, profit sharing
and 401(k) plans. The Executive shall be entitled to take time off for vacation
or illness in accordance with the Company's policy for senior executives and to
receive all other fringe benefits as are from time to time made generally
available to senior executives of the Company. The Company may from time to
time modify the benefits provided to the Executive, provided that all such
modifications are made on the same basis for all executives in positions
comparable to that of the Executive.
(h) Expense Reimbursement. The Company shall reimburse the Executive
---------------------
for all proper expenses incurred by him in the performance of his duties
hereunder in accordance with the Company's policies and procedures.
(i) Entitlement to Incentive Compensation. Notwithstanding any other
-------------------------------------
provision of this Agreement, the Executive shall be entitled to receive, when
and as payable in the ordinary course, any unpaid Annual Incentive Compensation
and any unpaid Long-term Incentive Bonus which is determined by reference to a
period which has ended prior to the year in which the Termination Date occurs.
4. Termination of Employment Period. The Employment Period shall be
--------------------------------
terminated upon the first to occur of (i) termination of the employment of the
Executive by the Company at any time without Cause (as such term is defined in
Section 8) upon written notice given to the Executive at least 30 days prior to
such termination, (ii) the election by the Company pursuant to Section 1 not to
extend this Agreement in accordance with Section 1, (iii) the election by the
Executive pursuant to Section 1 not to extend this Agreement in accordance with
Section 1, (iv) termination of the employment of the Executive by the Company at
any time for Cause or Serious Misconduct upon written notice given to the
Executive, (v) termination of the employment of the Executive by the Company on
account of the Executive's having become unable (as determined by the Board in
good faith) to
3
<PAGE>
regularly perform his duties hereunder by reason of illness or incapacity for a
period of more than 180 consecutive days, (vi) termination of the employment of
the Executive by reason of retirement, (vii) the Executive's death, (viii)
termination of employment by the Executive at any time upon written notice
given to the Company at least 90 days prior to such termination which specifies
a Termination Date prior to or after December 31, 1999 or (ix) termination of
employment by the Executive upon written notice given to the Company on or prior
to October 2, 1999 which specifies a Termination Date of December 31, 1999. The
date on which the Employment Period terminates is hereinafter referred to as the
"Termination Date." Notwithstanding anything to the contrary herein, under no
----------------
circumstances shall termination of employment pursuant to clauses (i), (ii),
(iii), (v), (viii) or (ix) above be considered termination of employment by
reason of retirement (except for purposes of Appendix D).
5. Consequences of Termination Outside of a Change in Control Period.
-----------------------------------------------------------------
If a Termination Date occurs, other than within a Change in Control Period, as
defined in Section 8, the Executive shall be entitled to receive the Retention
Bonus provided in Section 3(c) (except as otherwise provided therein), any
Annual Incentive Compensation and Long Term Incentive Bonus earned under
Sections 3(b), (d) and (i) and not previously paid and the compensation and
benefits specified by this Section 5 in lieu of any severance amounts which
otherwise would be payable to the Executive.
(a) Termination by Company Without Cause. If the Employment Period
------------------------------------
terminates for a reason set forth in clause (i) of Section 4;
(i) the Company shall pay to the Executive (A) Base
Compensation otherwise payable through the Termination Date, (B)
vacation pay accrued through the Termination Date and (C)
reimbursement of expenses incurred through the Termination Date, in
each case to the extent not theretofore paid;
(ii) the Company shall pay to the Executive, if the termination
occurs prior to January 1, 2000, an amount equal to one and one-half
times the Executive's Annual Compensation for the year in which the
Termination Date occurs, or if the termination occurs on or after
January 1, 2000, one times the Executive's Annual Compensation for the
year in which the Termination Date occurs (assuming in each case that
Annual Incentive Compensation will be paid at the target level);
(iii) the Company shall pay to the Executive a pro rata portion
of (A) the Executive's targeted Annual
4
<PAGE>
Incentive Compensation for the year in which the Termination Date
occurs and (B) the Executive's Long-Term Incentive Bonus, each of
which shall be determined and payable as soon as possible; the
Long-Term Incentive Bonus portion shall be based on the
appropriate percentage of the Executive's aggregate Base
Compensation earned from January 1, 1998 through the end of the
month in which the Termination Date occurs, as determined by the
Board or its delegate in the manner described in Section 3 after
prorating through the end of the month in which the Termination
Date occurs on a straight line basis over the three year period
the applicable performance criteria set forth on (or determined
pursuant to) Appendix B;
----------
(iv) the Company shall provide the Executive with continued
coverage, or substantially equivalent coverage, during the period
represented by the amount of the Annual Compensation payment
under clause (ii) (i.e., one and one-half years or one year, as
----
the case may be) under all welfare benefit plans or arrangements
(including group medical and dental, health and accident, long-
term disability, short-term disability, group life insurance,
and executive insurance programs) unless the Executive becomes
covered under similar plans or arrangements maintained by a
subsequent employer; provided that if the Company is unable to
--------
provide such continued coverage or substantially similar
coverage, the Company shall pay the Executive a lump sum cash
amount equal to the present value of such benefits; and
(v) the Company shall provide to the Executive outplacement
services appropriate for the Executive in accordance with
industry standards (the cost of which shall not exceed 15% of the
Executive's Base Compensation).
If the Company shall cause the "Constructive Discharge" of the Executive as
defined in Section 8, it shall be treated for all purposes hereunder as a
termination of the employment of the Executive without Cause.
(b) Failure of Company to Renew Agreement. If the Employment
-------------------------------------
Period terminates for a reason set forth in clause (ii) of Section 4, in lieu of
any severance amounts which otherwise would be payable to the Executive, the
Company shall (i) pay to the Executive the amounts or provide the Executive the
benefits set forth in Sections 5(a) (i), (ii), (iii) and (v) and (ii) provide to
the Executive the benefits described in Section 5(a) (iv) for the period of one
year commencing on the Termination Date.
5
<PAGE>
(c) Termination for Cause. If the Employment Period terminates for a
---------------------
reason set forth in clause (iv) of Section 4, (1) the Company shall pay to the
Executive the amounts set forth in Section 5(a) (i), (ii) the Company may, in
its sole discretion, but shall have no obligation to, pay to the Executive the
amount of the targeted Annual Incentive Compensation for the year in which the
Termination Date occurs, prorated to the Termination Date, and (iii) the
Executive shall not be entitled to any severance payments, but shall be entitled
to any benefits payable under applicable plans.
(d) Disability, Retirement or Death. If the Employment Period
-------------------------------
terminates for any reason set forth in clause (v), (vi) or (vii) of Section 4,
(i) the Company shall pay to the Executive or his executor, administrator or
other legal representative, as the case may be, the amounts set forth in Section
5(a) (i), (ii) the Company may, in its sole discretion, but shall have no
obligation to, pay to the Executive or his executor, administrator or other
legal representative, as the case may be, the amount of the targeted Annual
Incentive Compensation for the year in which the Termination Date occurs,
prorated to the Termination Date, and (iii) and the Executive (or his executor,
administrator or other, legal representative, as the case may be) shall not be
entitled to any severance payments, but shall be entitled to any benefits
payable under applicable plans.
(e) Failure of Executive to Renew Agreement; Voluntary Termination by
-----------------------------------------------------------------
the Executive Prior to or After December 31, 1999. If the Employment Period
- -------------------------------------------------
terminates for any reason set forth in clause (iii) or (viii) of Section 4, (1)
the Company shall pay to the Executive the amounts set forth in Section 5(a)
(i), (ii) the Company may, in its sole discretion, but shall have no obligation
to, pay to the Executive the amount of the targeted Annual Incentive
Compensation for the year in which the Termination Date occurs, prorated to the
Termination Date, and (iii) the Executive shall not be entitled to any severance
payments, but shall be entitled to any benefits payable under applicable plans.
(f) Voluntary Termination by the Executive On December 31, 1999.
-----------------------------------------------------------
Notwithstanding the foregoing provisions of this Section 5, if the Employment
Period terminates for any reason set forth in clause (ix) or Section 4, and
whether or not the Termination Date occurs during a Change in Control Period, as
defined in Section 8, the Company shall (i) pay to the Executive the amounts set
forth in Section (5)(a) (i), (ii), (iii) (A) and (v) and (ii) provide to the
Executive the benefits described in Section 5(a) (iv) for the period of one and
one-half years commencing on the Termination Date; provided that, for this
purpose, the amounts set forth in Section 5(a) (iii) (A) shall be determined
based upon the actual Annual Incentive Compensation for 1999 rather than the
targeted level. The provisions of this paragraph are not intended to limit the
6
<PAGE>
Executive's right to severance payments and other benefits under Section 6 to
the extent that the Executive is entitled thereto; however, no severance
payments or other benefits shall be payable or due the Executive under this
Section 5 in any circumstance where Executive obtains the severance payments
and other benefits provided in Section 6(a).
6. Consequence of Termination Within Change in Control Period.
----------------------------------------------------------
(a) Termination Payments and Benefits. If during a Change in Control
---------------------------------
Period, as defined in Section 8, the Employment Period of the Executive
terminates other than by reason of a Nonqualifying Termination, as defined in
Section 8, then the Company shall pay or provide to the Executive (or his
executor, administrator or other legal representative, as the case may be)
within 30 days following the Termination Date, as compensation for services
rendered to the Company and in lieu of any severance amounts which otherwise
would be payable to the Executive, the following amounts:
(i) the Company shall pay to the Executive a lump sum cash
amount equal to the sum of (A) the Executive's Base Compensation,
accrued vacation pay and reimbursable expenses incurred through the
Termination Date, in each case to the extent not theretofore paid, (B)
the Executive's Annual Incentive Compensation in an amount equal to
the annualized (for any fiscal year consisting of less than 12 full
months or with respect to which the Executive has been employed by the
Company for less than 12 full months) bonus payable to the Executive
by the Company for the fiscal year in which the Termination Date
occurs (determined at the higher of the target or actual level of
performance for such year), multiplied by a fraction, the numerator of
which is the number of days in the fiscal year in which the
termination occurs prior to the Termination Date and the denominator
of which is 365 or 366, as applicable, (C) a pro rata portion of the
Executive's Long-Term Incentive Bonus, calculated in the manner
described in Section 5(a) (iii), (D) three times the Executive's
highest annual rate of Base Compensation during the three full fiscal
years prior to the Termination Date, (E) three times the greater of
(I) the Executive's highest Annual Incentive Compensation (or
predecessor annual bonus) payable during the three full fiscal years
prior to the Termination Date and (II) the target Annual Incentive
Compensation for the year in which the Termination Date occurs, (F)
any Retention Bonus not previously paid to the Executive, whether or
not then due, and (G) all
7
<PAGE>
accruals under the Zenith Electronics Corporation Supplemental
Salaried Profit Sharing Retirement Plan;
(ii) for a period of three years commencing on the Termination
Date, or until such earlier date on which the Executive becomes
covered under similar plans maintained by a subsequent employer, the
Company shall continue to provide the Executive and his dependents
with coverage, or shall provide substantially equivalent coverage,
under all welfare benefit plans or arrangements (including group
medical and dental, health and accident, long-term disability, short-
term disability, group life insurance and executive insurance
programs) with the same level of coverage, upon the same terms and
otherwise to the same extent as such plans or arrangements shall have
been in effect immediately prior to the Termination Date or, if more
favorable to the Executive, as provided generally with respect to
other peer executives of the Company. If the Company cannot provide
such continued coverage or substantially equivalent coverage, the
Company shall pay the Executive a lump sum cash amount equal to the
present value of such coverage; and
(iii) the company shall provide ourplacement services appropriate
for the Executive in accordance with industry standards (which shall
not exceed 15% of the Executive's Base Compensation).
(b) Nonqualifying Termination Within Change in Control Period. If
---------------------------------------------------------
during a Change in Control Period the Employment Period shall terminate by
reason of a Nonqualifying Termination, as defined in Section 8, then the Company
shall pay to the Executive (or to his executor, administrator or other legal
representative, as the case may be) within 30 days following the Termination
Date, a lump sum cash amount equal to the sum of the Executive's Base
Compensation payable through the Termination Date, any vacation pay accrued
prior to the Termination Date and any reimbursable expenses incurred prior to
the Termination Date, in each case to the extent not theretofore paid.
(c) Bonus Payments. In the event of a termination described in
--------------
Section 6(a) or Section 6(b) as described above, in addition to the amounts
therein provided, the Executive shall be entitled to received the Retention
Bonus provided in Section 3(c) (except as otherwise provided therein) and any
Annual Incentive Compensation and Long Term Incentive Bonus earned under
Sections 3(b), (d) and (i) and not previously paid.
7. Certain Additional Payments by the Company.
------------------------------------------
8
<PAGE>
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
or its affiliated companies to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement of otherwise, but determined without regard to any additional payments
required under this Section 7; (a "Payment") would be subject to the excise tax
-------
imposed by Section 4999 of the Internal Revenue Code of 1980, as amended (the
"Code"), or any interest or penalties are incurred by the Executive with respect
----
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
----------
the Executive shall be entitled to receive an additional payment (a "Gross-Up
--------
Payment") in an amount such that after payment by the Executive of all taxes
- -------
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
public accounting firm (the "Accounting Firm") which shall provide detailed
---------------
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, the Executive shall appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 7, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall furnish the
Executive with a written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations
------------
9
<PAGE>
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 7(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 10 business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which the Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
- -------- -------
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such
10
<PAGE>
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided further, that if the Company directs the Executive to pay
-------- -------
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and provided further, that any extension of the statute of limitations relating
-------- -------
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 7(c), the Executive becomes entitled to receive,
and receives, any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 7(c)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid; provided that to the extent that such advance being forgiven shall
result in increased federal, state and local taxes, Executive shall be paid an
additional amount (to the extent not payable pursuant to any of the other
provisions of this Agreement) sufficient, after paying all federal, state and
local taxes on such amount, to provide Executive with an amount in cash equal to
the amount of increased federal, state and local taxes incurred with respect to
such advance having been forgiven.
8. Definitions. As used in this Agreement, the following terms
-----------
shall have the respective meanings set forth below;
(a) "Cause" means (i) embezzlement or misappropriation of corporate
-----
funds by the Executive, (ii) commission by the Executive of a felony involving
moral turpitude or (iii) a material
11
<PAGE>
breach by the Executive of the Executive's duties and responsibilities to the
Company as in effect on the date hereof, including the refusal to perform or the
substantial disregard of such duties, other than as a result of incapacity due
to physical or mental illness, which is demonstrably willful and deliberate,
which is committed in bad faith or without a reasonable belief that the breach
is in the Company's best interests, and which is not remedied within a
reasonable period of time after receipt of written notice of such breach.
(b) "Change in Control" means:
-----------------
(i) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section
------
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the
"Exchange Act"), of beneficial ownership within the meaning of
------------
Rule 13d-3 promulgated under the Exchange Act, of 25% or more of
either (i) then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined
--------------------------------
voting power of then outstanding securities of the Company
entitled to vote generally in the election of, directors (the
"Outstanding Company Voting Securities"), provided such ownership
------------------------------------- --------
interest is greater than the interest then owned by LG
Electronics, Inc. and its affiliates (collectively, "LGE");
excluding, however, the following: (A) any acquisition directly
from the Company (excluding any acquisition resulting from the
exercise of an exercise, conversion or exchange privilege unless
the security being so exercised, converted or exchanged was
acquired directly from the Company), (B) any acquisition by the
Company or LGE, (C) any acquisition by an employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition by
any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (3) of this Section
8(b); provided further, that for purposes of clause (B), if any
----------------
Person (other than the Company, LGE or any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the
beneficial owner of 25% or more of the Outstanding Company Common
Stock or 25% or more of the Outstanding Company Voting Securities
by reason of an acquisition by the Company (and which ownership
interest is greater than the interest then owned by LGE), and
such Person shall, after such acquisition by the Company, become
the beneficial owner of any additional shares of the Outstanding
Company Common Stock or any additional Outstanding Company Voting
Securities and such beneficial ownership is publicly
12
<PAGE>
announced, such additional beneficial ownership shall constitute
a Change in Control;
(ii) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
---------------
at least a majority of such board; provided that any individual
--------
who becomes a director of the Company subsequent to the date
hereof whose election, or nomination for election by the
Company's stockholders, was approved by the vote or at least a
majority of the directors then comprising the Incumbent Board
shall be deemed a member of the Incumbent Board; and provided
further, that any individual who was initially elected as a
director of the Company as a result of an actual or threatened
election contest, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act, or any other
actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board shall not be deemed a
member of the Incumbent Board; and
(iii) approval by the stockholders at the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company (a "Corporate Transaction"); excluding, however, a
---------------------
Corporate Transaction pursuant to which (i) all or substantially
all of the individuals or entities who are the beneficial owners,
respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding
shares of common stock, and the combined voting power of the
outstanding securities of such corporation entitled to vote
generally in the election of directors, as the case may be, of
the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result
of such transaction owns the Company or all or substantially all
of the Company's assets either directly or indirectly) in
substantially the same proportions relative to each other as
their ownership, immediately prior to such Corporate Transaction,
of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (ii) no Person
(other than; the Company or LGE; any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company; the corporation resulting
from such Corporate Transaction; and any Person which
beneficially owned, immediately prior to such Corporate
Transaction, directly or
13
<PAGE>
indirectly, 25% or more of the Outstanding Company Common Stock
or the Outstanding Company Voting Securities, as the case may be)
will beneficially own, directly or indirectly, 25% or more of,
respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding securities of such
corporation entitled to vote generally in the election of
directors and (iii) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such
Corporate Transaction.
Notwithstanding anything else contained herein to the contrary, in no event
shall the reorganization of the Company in bankruptcy (the "Reorganization") or
--------------
the occurrence of any of the events described in paragraphs (i), (ii) or (iii)
of this Section 8(b) in connection with the Reorganization, be deemed to
constitute a Change in Control, if and to the extent that, immediately following
the Reorganization, LGE is the holder of record of not less than 50% of the
Outstanding Company Voting Securities.
(c) "Change in Control Period" means the period of time
------------------------
beginning on the date on which a Change in Control is consummated and ending on
the earlier to occur of (i) 24 months following such Change in Control and (ii)
the Executive's death.
(d) "Constructive Discharge" by the Company means the Executive
----------------------
electing to terminate his employment with the Company if (i) the Company commits
a material breach of this Agreement, (ii) Executive gives the Company written
notice of such material breach, (iii) the Company fails to fully remedy such
material breach within 30 days of Executive's written notice, and (iv) Executive
by written notice to the Company within 90 days of the expiration of such 30
days period terminates his employment.
(e) "Good Reason" means, without the Executive's express written
-----------
consent, the occurrence of any of the following events within a Change in
Control Period:
(i) any of (i) the assignment to the Executive of any
duties inconsistent in any material respect with the Executive's
position(s), duties, responsibilities or status with the Company
immediately prior to the commencement of such Change in Control
Period, (ii) a change in the Executive's reporting
responsibilities, titles or offices with the Company as in effect
immediately prior to the commencement of such Change in Control
Period or (iii) any failure to re-elect the Executive to any
position with the Company held by the
14
<PAGE>
Executive immediately prior to the commencement of such Change in
Control Period;
(ii) a reduction by the Company in the Executive's rate of Base
Compensation as in effect immediately prior to the commencement of
such Change in Control Period or as the same may be increased from
time to time thereafter or the failure by the Company to increase such
rate of Base Compensation each year after the commencement of such
Change in Control Period by an amount which at least equals, on a
percentage basis, the mean average percentage increase, during the two
full fiscal years of the Company immediately preceding the
commencement of such Change in Control Period, in the rates of base
salary for all officers of the Company elected by the Board;
(iii) the failure of the Company to pay the Executive his Annual
Incentive Compensation at or greater than the target level in effect
in the year in which the Change in Control Period commences;
(iv) any requirement of the Company that the Executive (i) be
based anywhere other than at, the facility where the Executive is
located immediately prior to the commencement of such Change in
Control Period or (ii) travel on Company business to an extent
substantially more burdensome than the travel obligations of the
Executive immediately prior to the commencement of such Change in
Control Period,
(v) an election by the Company not to extend the Employment
Period in accordance with Section 1;
(vi) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which the Executive is
participating immediately prior to the commencement of such Change in
Control Period, unless the Executive is permitted to participate in
other plans providing the Executive with substantially comparable
benefits, or the taking of any action by the Company which would
adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such plan, (ii) provide the
Executive and the Executive's dependents welfare benefits (including,
without limitation, group medical and dental, health and accident,
long-term disability, short-term disability, group life insurance, and
executive insurance programs) in accordance with the most favorable
plans, practices, programs and policies of the Company and its
affiliate companies in effect for the Executive
15
<PAGE>
immediately prior to the commencement of such Change in Control Period
or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company
and its affiliated companies, (iii) provide fringe benefits in
accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect for the
Executive immediately prior to the commencement of such Change in
Control Period or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies, (iv) provide the
Executive with paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive immediately prior
to the commencement of such Change in Control Period or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies, or (v) reimburse the Executive promptly for
all reasonable employment expenses incurred by the Executive in
accordance with the most favorable policies, practices and procedures
of the Company and its affiliated companies in effect for the
Executive immediately prior to the commencement of such Change in
Control Period, or if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies; or
(vii) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 18(b).
For purposes of this Agreement, any good faith determination of Good
Reason made by the Executive shall be conclusive; provided, however, that an
-------- -------
isolated, insubstantial and inadvertent action taken in good faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive shall not constitute Good Reason.
(f) "Nonqualifying Termination" means a termination of the Employment
-------------------------
Period (i) by the Company for Serious Misconduct, (ii) by the Executive as a
result of his election pursuant to Section 1 not to extend the Agreement in
accordance with Section 1 or by the Executive at any other time for any reason,
in either case other than for Good Reason, (iii) as a result of the Executive's
death or (iv) by the Company due to the Executive's absence from his duties with
the Company on a full-time basis for at least 180 consecutive days as a result
of the Executive's
16
<PAGE>
incapacity due to physical or mental illness. A termination of the Employment
Period for any reason not expressly set forth in the preceding sentence,
including, without limitation, the election by the Company not to extend the
Agreement pursuant to Section 1, shall not constitute a Nonqualifying
Termination.
(g) "Serious Misconduct" means (i) embezzlement or misappropriation
------------------
of corporate funds by the Executive, (ii) commission by the Executive of a
felony involving moral turpitude or (iii) a material breach by the Executive of
the Executive's duties and responsibilities to the Company as in effect prior to
the commencement of the Change in Control Period, including the refusal to
perform or the substantial disregard of such duties, other than as a result of
incapacity due to physical or mental illness, which is demonstrably willful and
deliberate, which is committed in bad faith or without a reasonable belief that
the breach is in the Company's best interests, and which is not remedied within
a reasonable period of time after receipt of written notice of such breach.
9. Federal and State Withholding. The Company shall deduct from the
-----------------------------
amounts payable to the Executive pursuant to this Agreement the amount of all
required federal and state withholding taxes in accordance with the Executive's
Form W-4 on file with the Company and all applicable social security taxes.
10. Noncompetition; Nonsolicitation.
-------------------------------
(a) The Executive acknowledges that in the course of his employment
with the Company pursuant to this Agreement he will become familiar, and during
the course of his employment with the Company or any of its subsidiaries prior
to the date of this Agreement he has become familiar, with trade secrets and
customer lists of, and other confidential information concerning, the Company
and its subsidiaries and that his services have been and will be of special,
unique and extraordinary value to the Company.
(b) The Executive agrees that during the Employment Period and, if
the Employment Period terminates for a reason set forth in clause (i) or (ii) of
Section 4, for a period of two years thereafter (the "Noncompetition Period"),
---------------------
he shall not in any manner, directly or indirectly, through any person, firm or
corporation, alone or as a member of a partnership or as an officer, director,
stockholder, investor or employee of or consultant to any other corporation or
enterprise or otherwise, engage or be engaged, or assist any other person, firm,
corporation or enterprise in engaging or being engaged, in any business being
conducted by the Company or any of its subsidiaries as of the termination of the
Employment Period in any geographic area in which the Company is then conducting
such business.
17
<PAGE>
(c) The Executive further agrees that during the Noncompetition
Period he shall not in any manner, directly or indirectly induce or attempt to
induce any employee of the Company or any of its subsidiaries to terminate or
abandon his or her employment for any purpose whatsoever.
(d) Nothing in this Section 10 shall prohibit the Executive from
being (i) a stockholder in a mutual fund or a diversified investment company or
(ii) a passive owner of not more than two percent of the outstanding stock of
any class of a corporation any equity securities of which are publicly traded,
so long as the Executive has no active participation in the business of such
corporation.
(e) If, at any time of enforcement of this Section 10, a court holds
that the restrictions stated herein unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
11. Confidentiality. The Executive shall not, at any time during the
---------------
Employment Period or thereafter, make use of or disclose, directly or
indirectly, any trade secret or other confidential or secret information of the
Company or of its subsidiaries or other technical, business, proprietary or
financial information of the Company or of its subsidiaries not available to the
public generally or to the competitors of the Company or of its subsidiaries
("Confidential Information"), except to the extent that such Confidential
------------------------
Information (a) becomes a matter of public record or is published in a
newspaper, magazine or other periodical available to the general public, other
than as a result of any act or omission of the Executive, or (b) is required to
be disclosed by any law, regulation or order of any court or regulatory
commission, department or agency. Promptly following the termination of the
Employment Period, the Executive shall surrender to the Company all records,
memoranda, notes, plans, reports, computer tapes and software and other
documents and data relating to any Confidential Information or the business of
the Company or of its subsidiaries which he may then possess or have under his
control (together with all copies thereof); provided, however, that the
Executive may retain copies of such documents as are necessary for the
preparation of his federal or state income tax returns and other personal
financial purposes (including defense and prosecution of claims); provided
further it shall not be a violation of this Agreement for Executive to disclose
Confidential Information while employed by the Company when the Executive in
good faith reasonably believes he is pursuing the Company's best interests.
18
<PAGE>
12. Enforcement. The parties hereto agree that the Company would be
-----------
damaged irreparably in the event any provision of Sections 10 or 11 of this
Agreement were not performed in accordance with their respective terms or were
otherwise breached and that money damages would be an inadequate remedy for any
such nonperformance or breach. Therefore, the Company or its successors or
assigns shall be entitled, in addition to other rights and remedies existing
in their favor, to an injunction or injunctions to prevent any breach or
threatened breach of any of such provisions and to enforce such provisions
specifically (without posting a bond or other security).
13. Survival. Sections 10, 11 and 12 of this Agreement and any rights
--------
and remedies arising out of this Agreement shall survive and continue in full
force and effect in accordance with the respective terms hereof, notwithstanding
any termination of the Employment Period.
14. Reimbursement of Expenses. If any contest or dispute shall arise
-------------------------
under this Agreement involving termination of the Executive's employment with
the Company or involving the failure or refusal of the Company to perform fully
in accordance with the terms hereof, the Company shall reimburse the Executive,
on a current basis, for all legal fees and expenses, if any, incurred by the
Executive in connection with such contest or dispute, together with interest in
an amount equal to the prime rate from time to time in effect, as published in
The Wall Street Journal under "Money Rates," but in no event higher than the
- -----------------------
maximum legal rate permissible under applicable law, such interest to accrue
from the date the Company receives the Executive's statement for such fees and
expenses through the date of payment thereof; provided, however, that in the
-------- -------
event the resolution of any such contest or dispute includes a finding denying,
in total, the Executive's claims in such contest or dispute, the Executive shall
be required to reimburse the Company, over a period of 12 months from the date
of such resolution, for all sums advanced to the Executive pursuant to this
Section 14. If the amounts of Executive's federal, state and local taxes are
increased by Executive's receipt of reimbursement pursuant to this Section 14
("Reimbursement Tax Increase"), such reimbursement shall be increased by an
--------------------------
amount ("Tax Gross-Up Amount") sufficient after paying all amounts of increases
-------------------
in federal, state and local taxes occurring by virtue of Executive's receipt of
such Tax Gross-Up Amount to provide Executive with an amount equal to such
Reimbursement Tax Increase.
15. Notices. All notices and other communications required or
-------
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered, when delivered by courier or
overnight express service or five days after having been sent by certified or
registered mail, postage
19
<PAGE>
prepaid, addressed (a) if to the Executive, to the Executive's address set forth
in the records of the Company or, if to the Company, to Jeffrey P. Gannon,
President and Chief Executive Officer, Zenith Electronics Corporation, 1000
Milwaukee Avenue 60025 or (b) to such other address as either party may have
furnished to the other party in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
16. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
and understanding between the parties with respect to the subject matter hereof
and supersedes and preempts any prior understanding, agreements or
representations (including indemnification arrangements and existing employee
benefit plans and programs) by or between the parties, written or oral, which
may have related in any manner to the subject matter hereof other than rights to
indemnification, if any, for the benefit of the Executive. Pursuant to, but not
in limitation of, the foregoing sentence, the Employment Agreement dated January
1, 1997 between the Company and the Executive shall be terminated, effective as
of the date hereof, and shall have no further force or effect, and the Executive
and the Company each release any and all claims and any rights arising
thereunder.
18. Successors; Binding Agreement.
------------------------------
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
18, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive (or his executor, administrator or
other
20
<PAGE>
legal representative, as the case may be), all of the obligations of the Company
hereunder. Failure of the Company to obtain such assumption prior to the
effectiveness of any such merger, consolidation or transfer of assets shall be a
breach of this Agreement and shall entitle the Executive to compensation and
other benefits from the Company in the same amount and on the same terms as the
Executive would be entitled hereunder if the Executive's employment were
terminated during a Change in Control Period other than by reason of a
Nonqualifying Termination. For purposes of implementing the foregoing, the date
on which any such merger, consolidation or transfer becomes effective shall be
deemed the Termination Date.
(c) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amounts would be payable to the Executive hereunder had the
Executive continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to such person or
persons appointed in writing by the Executive to receive such amounts or, if no
person is so appointed, to the Executive's estate.
19. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of Illinois
without regard to the principle of conflict of laws.
20. Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
21. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed to be an original and both of which together shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
ZENITH ELECTRONICS CORPORATION
By: /s/ Jeffrey P. Gannon
------------------------------
Its: President & Chief
Executive Officer
------------------------------
RICHARD F. VITKUS
/s/ Richard F. Vitkus
----------------------------------
<PAGE>
APPENDIX A
Annual Incentive Compensation
-----------------------------
For each fiscal year of the Company, the Executive shall be entitled
to Annual Incentive Compensation in an amount equal to between 50% (target
performance) and 100% (maximum performance) or, if applicable, a lesser amount
if target performance is not achieved for each performance criteria, of his
average Base Compensation for the year. Such Annual Incentive Compensation will
be based upon the extent to which specified target and maximum levels of
performance criteria are achieved for such year.
For 1998, the performance criteria will be comprised of the following
corporate objectives, each having the weighting allocation designated below:
1. Adjusted Operating Income 35%
2. Operating Cash Flow 35%
3. Cash Flow from Restructuring
(i.e., proceeds from assets
sales less cash for Restructuring) 30%
For years after 1998, the weighting allocation of the Annual Incentive
Compensation among each of the performance criteria and the corresponding
performance levels shall be established as soon as practicable after the
beginning of the relevant fiscal year by the Board (or a duly authorized
committee thereof) upon recommendation from the CEO. Achievement of the
performance criteria shall be determined by the Board or its delegate based on
audited financial statements of the Company; provided, however, that in
-------- -------
determining the extent to which such criteria have been attained, such criteria
shall be subject to appropriate and equitable adjustments by the Board or its
delegate to reflect extraordinary events or circumstances, such as mergers,
acquisitions, dispositions or similar events. To the extent that the performance
criteria are attained at a specified performance level for any component of the
formula which is at or above the minimum performance level, the corresponding
portion (determined based on both the weighting allocation of the performance
criteria and the level at which performance is achieved) of the Annual Incentive
Compensation shall be payable. At achievement of performance between specified
performance levels (including target and maximum levels of performance), the
percentage of Base Compensation payable with respect to a particular performance
criteria shall be determined by mathematical interpolation.
23
<PAGE>
For 1998, the performance levels for each performance criteria shall
be:
<TABLE>
<CAPTION>
Performance Minimum Level II Level III Target Maximum
- ----------- ------- -------- --------- ------ -------
Criteria (25%) (45%) (70%) (100%) (200%)
-------- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Adjusted ($155,000,000) ($140,000,000) ($130,000,000) ($117,000,000) ($45,000,000)
Operating
Income (35%)
Operating Cash ($115,000,000) ($100,000,000) ($ 90,000,000) ($ 78,000,000) $ 0
Flow (35%)
Cash Flow from ($ 20,000,000) ($ 10,000,000) ($ 2,000,000) $ 3,000,000 $20,000,000
Restructuring
(30%)
</TABLE>
For example, if the Executive's average Base Compensation for the year
was $100,000 and if the Company had earnings before taxes of
($135,000,000), operating cash flow of ($120,000,000) and cash flow from
restructuring of $25,000,000, the Executive's Annual Incentive Compensation
would be determined a follows:
(i) Adjusted Operating Income Portion: (35% weighting * (50% of
$100,000) = target) * (45% for Level II performance) + ((($140,000,000) -
($135,000,000)/($140,000,000) - ($130,000,000)) * (70% - 45%) for
interpolated portion of Level III performance) = $ 7,887.50.
(ii) Operating Cash Flow Portion: (35% weighting * (50% of $100,000)
= target) * (0% for inability to meet minimum performance level) = $0.
(iii) Cash Flow From Restructuring Portion: (30% weighting * (50% of
$100,000) = target) * (200% for maximum performance = $30,000.
Total: $ 37,887.50
=========
24
<PAGE>
APPENDIX B
Long-Term Incentive Bonus
-------------------------
The Executive shall be entitled to a Long-Term Incentive Bonus
payable on the later of March 31, 2001 or 30 days after receipt of the Company's
audited financial statements for calendar year 2000 (the "Long-Term Incentive
-------------------
Bonus"), based upon the extent to which specified target and maximum levels of
- -----
performance criteria are achieved for the three year period of 1998 to 2000. The
Executive's Long-Term Incentive Bonus will be equal to 225% of his average Base
Compensation for such three year period if target performance is achieved and
300% of such average Base Compensation if maximum performance is achieved.
The performance criteria will be comprised of the following corporate
objectives, each having the weighting allocation designated below:
1. Adjusted Operating Income 30%
2. Operating Cash Flow 30%
3. Cash Flow from Restructuring
(i.e., proceeds from assets
sales less cash for Restructuring) 20%
4. Digital Income (i.e., gross
profit on digital products
and VSB royalties) 20%
Achievement of the performance criteria shall be determined by the
Board or its delegate based on audited financial statements of the Company;
provided, however, that in determining the extent to which such criteria have
- -------- -------
been attained, such criteria shall be subject to appropriate and equitable
adjustments by the Board or its delegate to reflect extraordinary events or
circumstances, such as mergers, acquisitions, dispositions or similar events. To
the extent that the performance criteria are attained at a specified performance
level for any component of the formula which is at or above the minimum
performance level, the corresponding portion (determined based on both the
weighting allocation of the performance criteria and the level at which
performance is achieved of the Long-Term Incentive Bonus shall be payable. At
achievement of performance between specified performance levels (including
target and maximum levels of performance), the percentage of Base Compensation
payable with respect to a particular performance criteria shall be determined by
mathematical interpolation.
25
<PAGE>
Performance levels for each performance criteria for the 1998-2000
period shall be:
<TABLE>
<CAPTION>
Performance Minimum Level II Level III Target Maximum
----------- ------- -------- --------- ------ -------
Criteria (25%) (45%) (70%) (100%) (200%)
-------- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Adjusted ($245,000,000) ($225,000,000) ($205,000,000) ($187,000,000) ($90,000,000)
Operating
Income (30%)
Operating Cash ($140,000,000) ($120,000,000) ($100,000,000) ($ 83,000,000) $15,000,000
Flow (30%)
Cash Flow from ($ 20,000,000) ($ 10,000,000) $ 0 $ 8,000,000 $60,000,000
Resturcturing
(20%)
Digital Income $ 10,000,000 $ 13,000,000 $ 16,000,000 $ 20,000,000 $50,000,000
(20%)
</TABLE>
26
<PAGE>
APPENDIX C
Supplemental Long-Term Disability Benefits
------------------------------------------
(a) Purpose. The benefits provided by this Schedule shall be in
-------
addition to the benefits provided by the long term disability plan maintained by
the Company for salaried employees as of the date hereof (the "LTD Plan"),
--------
provided, however, that no benefits shall be payable under this Schedule if the
Executive does not elect to participate in the LTD Plan.
(b) Definitions. As used in this Schedule, the following terms shall
-----------
have the following respective meanings:
(i) "Disability" means the inability of the Executive arising
----------
during his employment by the Company to perform the duties pertaining
to the employment position held by the Executive with the Company at
the inception of such disability, if such inability is due to sickness
or injury. If such disability continues for a period of more than 180
days, it shall become a "total long term disability" effective upon
the expiration of such 180 days. The terms "disability" and "total
long term disability" exclude disability resulting from intentional
self-inflicted injuries or sickness.
(ii) "Maximum monthly salary" of the Executive means the maximum
----------------------
amount of monthly salary specified in the LTD Plan on which the
benefit payments under such plan will be calculated and based. (As of
the date hereof, benefits under the LTD Plan are 66-2/3% of monthly
salary. The maximum monthly salary thereunder is $6,000 and the
maximum monthly benefit thereunder is $4,000.)
(c) Benefits Payable. The amount of monthly benefits payable by the
----------------
Company to the Executive during a total long term disability of the Executive
shall be 66-2/3% of the amount, if any, by which the actual monthly salary he
was receiving immediately prior to the commencement of his disability exceeds
his maximum monthly salary as heretofore defined, provided, however, that if
such actual monthly salary exceeds $12,500, then the amount of such benefits
payable by the Company to the Executive shall be limited to 66-2/3% of the
amount by which $12,500 exceeds his maximum monthly salary.
(d) Exclusion. No benefits shall be payable under this Schedule if
---------
the LTD Plan has been terminated prior to the date of the commencement of the
disability.
(e) Period of Benefit Payment. Benefits shall be payable by the
--------------------------
Company to the Executive upon the commencement of
27
<PAGE>
the total long term disability (180 days after inception of the disability) and
thereafter as long as both of the following conditions continue to be satisfied:
(i) The long term disability continues, and
(ii) The Executive is under the care of a physician.
Notwithstanding the foregoing, the benefits hereunder shall cease and terminate
upon the first of the following to occur:
(i) The cessation of the total long term disability.
(ii) The death of the Executive.
(iii) The failure of the Executive to comply with Subsection (i)
of this Schedule.
(iv) The cessation of the payment of benefits to the Executive
under the LTD Plan for any reason not specified above.
(f) Reduction or Termination of Benefits. If during the period of
------------------------------------
total long term disability the Executive becomes employed by any employer
(including the Company) in a position substantially comparable to the employment
position held by the Executive with the Company at the inception of such
disability or if it is determined that the Executive is medically able to work
in another such position, the Company shall then or at any time or times
thereafter have the right to reduce the amount of benefits provided hereunder to
any lesser amount specified by the Company or discontinue such benefits
altogether.
(g) Effect of Termination of Long Term Disability Plan. In the event
--------------------------------------------------
the Executive elects not to participate or elects to terminate his participation
in the LTD Plan, then this Schedule shall be of no further force and effect, and
the Company shall have no obligation to provide the benefits described herein.
In the event the Executive does participate in and does not terminate his
participation in the LTD Plan, and the LTD Plan is terminated by the Company
subsequent to the commencement of the disability, the Executive shall
nevertheless continue to be entitled to the benefits provided hereunder and, in
addition, the Company shall be obligated to provide, and the Executive shall be
entitled to receive, long term disability benefits in the same amounts and under
the same terms and conditions as if the LTD Plan remained in full force and
effect. Nothing herein shall prohibit the Company from at any time, or from time
to time, establishing a substitute plan or plans for the LTD Plan, in which
event: (1) the Company shall be relieved of its obligation to continue payment
of benefits
28
<PAGE>
under the terminated LTD Plan and shall be obligated to provide benefits under
the substituted plan or plans; and (2) "maximum monthly salary" defined in
Subsection (b) (2) above shall mean the maximum monthly salary specified in such
substitute plan or plans.
(h) Determinations. All determinations as to whether a disability or
--------------
total long term disability exists at any time or has ceased to exist, all
determinations as to date of commencement or cessation of such disability or
total long term disability and all determinations as to whether the Executive is
medically able to work in another position as provided in Subsection (f) shall
be made by the Company's Corporate Medical Director (or if at any time no person
holds such a position with the Company, then by any physician designated by the
Company from time to time), which determination shall be final and binding on
the parties hereto regardless of whether such determination is in accord with
any medical or other decision made under the LTD Plan.
(i) Medical Examinations and Data. The Company at its own expense
-----------------------------
shall have the right and opportunity to make a medical examination of the person
of the Executive in the event of a sickness or injury of the Executive which
constitutes or might constitute a disability or a total long term disability as
herein defined and as often as the Company may require. Such examination shall
be conducted by the Company's Corporate Medical Director or any physician
designated by the Company from time to time. The Executive agrees to submit to
all such examinations. In addition, the Company shall be entitled to examine and
obtain copies of all medical records pertaining to such sickness or injury of
any licensed physician, hospital, organization, institution or person and the
Executive agrees to furnish the Company with written authorization to examine
and obtain copies of such records as often as required by the Company.
29
<PAGE>
APPENDIX D
Supplemental Life Insurance Benefits
------------------------------------
(a) Supplemental Life Insurance Benefit. The life insurance benefits
-----------------------------------
provided in this Schedule shall be in addition to any group term life insurance
program applying generally to salaried employees. In the event the Executive's
employment with the Company is terminated for any reason, other than by death,
prior to age fifty-five (55), no benefits shall be paid pursuant to this
Schedule.
(b) Benefit Amount - Preretirement. If the Executive shall die prior
------------------------------
to retirement, the Company shall pay to the beneficiary designated by the
Executive in writing (or, if the Executive fails to designate a beneficiary, to
the Executive's estate) a lump sum equal to one and one-half (1-1/2) times the
Executive's base salary at the date of death.
(c) Benefit Amount - Postretirement. The life insurance benefits
-------------------------------
provided under this Schedule shall continue for a period of ten (10) years from
the date of the Executive's retirement. If the Executive shall die within one
year after the date of retirement, the Company shall pay to the beneficiary
designated by the Executive in writing (or, if the Executive fails to designate
a beneficiary, to the Executive's estate) a lump sum equal to one and one-half
(1-1/2) times the Executive's base salary in effect on the date of the
Executive's retirement. Thereafter, on each yearly anniversary after
commencement of such ten (10) year period, the amount of such life insurance
benefit shall be decrease by ten percent (10%) of the amount of such benefit in
effect at the commencement of such ten (10) year period. If the Executive is
alive on the tenth (10th) anniversary of the commencement of such ten (10) year
period, the life insurance benefits provided under this Schedule shall cease and
expire and be of no further force and effect and the Company shall have no
further obligation hereunder.
(d) Purchase of Life Insurance Policy. The Company may, but is not
---------------------------------
required to, purchase a life insurance policy to fund the life insurance
benefits payable to the Executive hereunder. If such an insurance policy is
purchase by the Company, such policy shall name the Company as owner and
beneficiary and, when purchased, shall remain a general unsecured, unrestricted
asset of the Company, and neither the Executive nor any beneficiary of the
Executive shall have any rights with respect to, or claim against, such policy.
Such policy, if and when purchased by the Company, shall not be deemed to be
held under any trust for the benefit of the Executive or any beneficiary of the
Executive, nor shall such policy be deemed to be held in trust as collateral
security for fulfilling the obligations of the Company hereunder. The benefits
30
<PAGE>
provided to the Executive and any beneficiary of the Executive under this
Schedule are based upon the general credit of the Company and are otherwise
unsecured. In the event the Company shall purchase a life insurance policy as
set forth in this Subsection (d), and if a medical examination or examinations
of the Executive and/or the furnishing of a health statement signed by the
Executive (which statement may include an authorization by the Executive to any
licensed physician or any organization, institution, or person that has
knowledge of the Executive or his dependents to give such information to the
insurer), is requested by the insurer, then the Executive agrees to submit to
such examination or examinations or to provide such health statement in whatever
form required by the insurer. If the Executive refuses to submit to such
examination or examinations or to provide such health statement, then neither
the Executive nor any beneficiary of the Executive shall have any right to the
life insurance benefits provided under this Schedule and the Company shall have
no further obligation hereunder.
31
<PAGE>
EXHIBIT 10AJ
FIRST AMENDMENT TO
THE EMPLOYMENT AGREEMENT BY AND BETWEEN
JEFF GANNON AND ZENITH ELECTRONICS CORPORATION
WHEREAS, JEFF GANNON (THE "EXECUTIVE") AND ZENITH ELECTRONICS
CORPORATION (THE "COMPANY") ENTERED INTO AN EMPLOYMENT AGREEMENT, DATED AS OF
JANUARY 12, 1998 (THE "EMPLOYMENT AGREEMENT");
WHEREAS, the Executive and the Company reserved the right to amend the
Employment Agreement, by written consent of each party;
WHEREAS, the parties desire to amend the Employment Agreement in light
of the proposed restructuring of the Company through a bankruptcy reorganization
(the "Restructuring");
NOW, THEREFORE, the Employment Agreement is hereby amended in the
manner set forth below, effective as of the effective date of the Restructuring:
1. Section 2 of the Employment Agreement is amended to delete
subparagraphs (e) and (f), and to insert in lieu thereof new subparagraphs (e)
and (f) to read as follows:
(e) Performance-Based Cash Grant. As provided in Exhibit 3, which is
attached to and forms a part of this Agreement, the Executive shall be
awarded a performance-based cash grant payable after three years in
accordance with the provisions of Exhibit 2.
(f) Reserved.
2. Exhibit 2 is deleted and Exhibit 3 is renumbered as Exhibit 2 and
amended and restated in its entirety, to read as follows:
EXHIBIT 3
LONG-TERM INCENTIVE AWARD
-------------------------
<PAGE>
3-1. Long-Term Performance Award. If the Executive
---------------------------
continues in the employ of the Company from the Effective Date through
December 31, 2000, then the Executive shall have the opportunity to
receive a long-term incentive bonus, payable on the later of March 31,
2001 or 30 days after receipt of the Company's audited financial
statement for calendar year 2000, if the Company's performance meets
or exceeds certain performance targets established with respect to the
three year period of 1998 to 2000. The Executive will receive a bonus
equal to $6 million for such period if target performance is achieved,
and $12 million if maximum stated levels are achieved. The performance
criteria shall be the following four criteria, each having the
weighting designated below:
1. Earnings before taxes 30%
2. Cash flow from operations 30%
3. Cash flow relating to non-core assets less
restructuring expenses 20%
4. Business development targets (such as
market position in core products) 20%
Achievement of the corporate objectives shall be determined by the
Board or its delegate based on audited financial statements of the
Company, except for business development targets, which will be
determined by the Board of its delegate. If the objectives are
attained at target levels for any component of the formula, the
corresponding portion of such bonus shall be payable. At achievement
of performance between target and maximum levels of performance, the
percentage of Basic Compensation payable shall be determined by
mathematical interpolation. The actual performance criteria for the
1998-2000 period shall be as set forth on Appendix A hereto.
3-2. Termination Without Cause. If the Executive does not
-------------------------
continue in the employ of the Company from the Effective Date through
December 31, 2000, and his Date of Termination occurs under
circumstances described in paragraph 3(b) (relating to the Executive's
being Permanently Disabled), under circumstances described in
paragraph 3(d) (relating to constructive discharge), under
circumstances described in paragraph 3(f) (relating to termination by
the Company without Cause), or because of the Executive's death, then
he will be entitled to a cash payment equal to the amount which would
have been payable based on achievement of the performance objectives
set forth
2
<PAGE>
in Section 3-1 above, which shall be determined based on actual
performance from January 1, 1998 through the last day of the fiscal
quarter of the Company in which the Date of Termination occurs (the
"Short Period") and as if the performance objectives for the Short
Period were determined based on the business plan for the period
corresponding to the Short Period), multiplied by a fraction, the
numerator of which shall be the number of days from and including
January 1, 1998 and through and including the Date of Termination, and
the denominator of which is 1095. Distribution of any amounts payable
pursuant to this Section 3-2 shall be made not later than 90 days
following the end of the Company's fiscal quarter in which the
Executive's Date of Termination occurs.
3-3. Other Termination. If the Executive's Date of Termination
-----------------
occurs during the Agreement Term under circumstances described in
paragraph 3(c) (relating to the Executive's termination for Cause) or
paragraph 3(e) (relating to the Executive's resignation), then no
amount shall be paid under this Exhibit 3.
3. This First Amendment is a binding agreement between the parties
as of the date of execution to take effect upon the date the Company files its
petition for a prepackaged chapter 11 proceeding under the provisions of the
United States Bankruptcy Code.
IN WITNESS WHEREOF, the Executive and the duly authorized officer of
the Company have each executed this First Amendment on the date specified below.
ZENITH ELECTRONICS CORPORATION
Dated: August 7, 1998 /s/ Edward J. McNulty
----------------- -------------------------------------
Dated: August 7, 1998 /s/ Jeffrey P. Gannon
----------------- -------------------------------------
Executive
<PAGE>
Exhibit 10(a)(k)
REIMBURSEMENT AGREEMENT
THIS AGREEMENT is made as of November 3, 1997 (as from time to time
amended, supplemented or otherwise modified, this "Agreement") between LG
Electronics Inc. ("LGE") and Zenith Electronics Corporation ("Zenith").
WITNESSETH:
WHEREAS, Zenith from time to time may apply to LGE to guarantee up to
$160,000,000 of unsecured credit facilities for Zenith, and LGE may in its sole
discretion in each instance determine whether to issue each such guarantee; and
WHEREAS, Zenith and LGE desire to enter into this Agreement to set forth
the terms and provisions pursuant to which any such guarantees may be issued by
LGE and reimbursed by Zenith;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, LGE and Zenith agree as
follows:
1. GUARANTEES AND SECURITY DOCUMENTS.
1.1 Unless otherwise defined herein or in the Security Documents
referred to below, capitalized terms where used herein or in the Security
Documents shall have the meaning set forth in that certain Credit Agreement,
dated as of March 31, 1997, with Citicorp North America, Inc., as Agent, and
the other lenders parties thereto, as in effect on the date hereof without
giving effect hereafter to changes in said definitions not consented to in
writing by LGE for purposes of this Agreement.
1.2 Each guarantee requested by Zenith shall be substantially in the
form of Exhibit A hereto, with such modifications thereto as shall be agreed to
by LGE (individually a "Guarantee" and collectively the "Guarantees"). Zenith
shall not request issuance of any Guarantee except to lenders which extend
prior to December 31, 1997 unsecured credit facilities on terms substantially
the same as set forth in Exhibit B hereto ("Credit Facilities") to Zenith for
its working capital needs. Zenith shall not request Guarantees in an aggregate
principal amount outstanding at any one time in excess of $160,000,000.
1.3 Zenith agrees to reimburse LGE, immediately upon demand, for any
and all payments made from time to time by LGE under the Guarantees, with
interest on the amounts so paid by LGE from and including the date paid by LGE
to but not including the date LGE is reimbursed therefor, at the Reference Rate
(hereinafter defined) in effect on the date of payment plus two percent (2%) per
annum; Zenith's obligations under this Section 1.3 shall be referred to
collectively as the "Reimbursement Obligations." "Reference Rate" means at any
time, the rate of interest then most recently announced by Bank of America
National Trust and Savings Association at Chicago, Illinois as its reference
rate.
<PAGE>
1.4 The Reimbursement Obligations shall be secured by a valid and
continuing security interest in and lien on certain assets of Zenith and its
Material Subsidiaries, including, without limitation, all equipment, real
estate, certain general intangibles and stock of domestic Subsidiaries. Such
security interests and liens shall be prior to all other security interests and
liens other than those in favor of the Agent and Permitted Liens, all pursuant
to a security agreement by Zenith, a stock pledge agreement by Zenith, a
subsidiary security agreement by Material Subsidiaries, a mortgage by Zenith and
the Material Subsidiaries and any other documents required by LGE (together with
all UCC-1 financing statements and any other document, instrument or agreement
in connection therewith, as the same may be amended or modified from time to
time hereinafter collectively called the "Security Documents"). LGE
acknowledges that LGE's liens and security interests shall be subject to a
subordination agreement with the Agent, in form and substance satisfactory to
the Agent and LGE (the "Subordination Agreement").
1.5 The payment by Zenith of the Reimbursement Obligations under this
Agreement shall be absolute, unconditional, and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement, under all circumstances
whatsoever, including, without limiting the generality of the foregoing, the
following circumstances:
(a) any lack of validity or enforceability of any term or provision of any
of the Guarantees, this Agreement, or any other instrument, document, or
agreement entered into in connection therewith;
(b) the existence of any claim, setoff, right of recoupment, defense or
other right of Zenith against LGE or any other person or entity, whether in
connection with this Agreement or otherwise, all of which are hereby
waived;
(c) any amendment or waiver of, any full or partial release of any
collateral under, or any consent to departure from the terms or conditions
of any of the Security Documents;
(d) any decision by LGE not to issue a Guarantee in any particular
instance;
(e) any other circumstance or happening whatsoever, whether or not similar
to any of the foregoing; or
(f) notwithstanding anything to the contrary set forth above, the payment
by Zenith of the Reimbursement Obligations shall at all times be subject to
the terms of the Subordination Agreement.
2. GUARANTEE FEE AND INTEREST CALCULATION.
2.1 Zenith agrees to pay LGE a guarantee fee, as set forth in a
letter agreement between LGE and Zenith attached hereto as Exhibit C.
2
<PAGE>
2.2 Interest shall be computed on the basis of a year consisting of
360 days and paid for actual days elapsed.
3. PAYMENTS AND OFFSET.
3.1 All payments hereunder shall be made to LGE in immediately
available funds at such place as may be designated by LGE to Zenith in writing.
3.2 In addition to, and not in limitation of, all rights of offset or
recoupment that LGE may have under applicable law, unless otherwise expressly
waived by LGE in writing, LGE shall have the right to appropriate and apply to
the payment of Zenith's obligations hereunder any and all balances, credits,
deposits, accounts or moneys of Zenith then or thereafter with or owing by LGE.
4. WARRANTIES. To induce LGE to enter into this Agreement and to execute
and deliver Guarantees, Zenith warrants that:
4.1 Zenith and all of its Subsidiaries are corporations duly
organized, validly existing and in good standing under the laws of the states of
their respective incorporation, and they are duly qualified and in good standing
as foreign corporations authorized to do business in each state where, because
of the nature of their respective activities or properties, such qualification
is required.
4.2 Zenith is duly authorized to execute and deliver this Agreement
and the Security Documents and is and will continue to be duly authorized to
perform its obligations under this Agreement and the Security Documents in
accordance with its respective terms.
4.3 The execution and delivery of this Agreement and the Security
Documents, and the performance by Zenith of its obligations under this Agreement
and the Security Documents, do not and will not conflict with any provision of
law or of Zenith's charter or by-laws or of any agreement binding upon Zenith,
except under Series 2000 Debentures and Series 2001 Debentures.
4.4 This Agreement and the Security Documents, when duly executed and
delivered by Zenith and its Material Subsidiaries, as the case may be, will be
legal, valid and binding obligations of Zenith and the Material Subsidiaries to
the extent such persons are parties thereto enforceable against Zenith and the
Material Subsidiaries, as the case may be, in accordance with their respective
terms, except as enforceability may be limited by bankruptcy, insolvency or
other similar laws of general application affecting the enforcement of
creditors' rights or by general principles of equity.
5. CONDITIONS PRECEDENT TO ISSUANCE OF GUARANTEES. Although LGE shall
have no obligation to issue any Guarantee, but reserves the right to issue
Guarantees in its discretion in each instance, it is understood and agreed that
LGE will not issue any Guarantee unless
3
<PAGE>
at the time of such issuance:
5.1 The warranties contained in Section 4 hereof shall be true and
correct.
5.2 Zenith shall have delivered to LGE:
(a) A copy, duly certified as of the date hereof by Zenith's secretary or
assistant secretary, of (i) the resolutions of the Zenith's Board of
Directors authorizing the execution and delivery of this Agreement and
Security Documents, (ii) all documents evidencing other corporate action,
and (iii) all approvals or consents, if any, with respect to this Agreement
and the Security Documents.
(b) A certificate of Zenith's secretary or assistant secretary, dated the
date hereof, certifying the names of the Zenith's officers authorized to
sign this Agreement and the Security Documents and all other documents or
certificates to be delivered hereunder, together with the true signatures
of such officers.
(c) Duly executed Security Documents covering such collateral as is
satisfactory to LGE, together with the Subordination Agreement, all in form
and substance satisfactory to LGE and its counsel.
(d) A legal opinion from counsel to Zenith in form and substance
satisfactory to LGE.
6. GENERAL.
6.1 No amendment or waiver of any provision of this Agreement nor
consent to any departure by Zenith therefrom shall be effective unless the same
shall be in writing and signed by LGE, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
6.2 This Agreement is a continuing agreement and shall inure to the
benefit of and be binding on the parties hereto, their respective successors,
transferees and assigns; provided, that except as otherwise permitted by this
Agreement, Zenith may not assign any of its rights or delegate any of its
obligations to or under all or any part of this Agreement without the prior
written consent of LGE.
6.3 Zenith agrees to pay on demand all reasonable costs and expenses
in connection with the negotiation, preparation, execution, delivery and
enforcement of this Agreement, the Security Documents and any other documents
which may be delivered in connection with this Agreement and the Security
Documents, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for LGE with respect thereto and with respect to advising
LGE as to its rights and responsibilities under this Agreement and the Security
Documents and all costs and expenses, if any, in connection with the enforcement
of this Agreement, the Security Documents
4
<PAGE>
and such other documents which may be delivered in connection with this
Agreement and the Security Documents. In addition, Zenith shall pay any and all
stamp and other taxes and fees payable or determined to be payable in connection
with the execution, delivery, filing and recording of this Agreement and the
Security Documents and such other documents and agrees to save LGE harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying or omission to pay such taxes and fees.
6.4 Any provision of this Agreement which is prohibited,
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition, unenforceability
or non-authorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.
6.5 LGE's rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies LGE may have under
any other agreement, including the Guarantees and Security Documents, or by
operation of law or otherwise.
6.6 This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Illinois.
6.7 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and shall be binding upon the
parties, their successors and permitted assigns.
6.8 All notices under this Agreement or the Security Documents shall
be in writing and shall be deemed to have been given five (5) days after deposit
in the mail, or one (1) day after being entrusted to a reputable commercial
overnight delivery service, or when sent out by telex or telecopy addressed to
the party to which such notice is directed at its address.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
caused it to be executed and delivered by their duly authorized officers, all as
of the day and year first above written.
LG ELECTRONICS INC.
By:
-------------------------
Title:
----------------------
ZENITH ELECTRONICS CORPORATION
By:
-------------------------
Title:
----------------------
6
<PAGE>
Exhibit 10(a)(l)
FIRST AMENDMENT TO
REIMBURSEMENT AGREEMENT
This First Amendment to Reimbursement Agreement (this "Amendment")
effective as of January 27, 1998 between LG Electronics Inc. ("LGE") and Zenith
Electronics Corporation ("Zenith").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, LGE and Zenith have entered into that certain Reimbursement
Agreement dated as of November 3, 1997 (as amended, restated, supplemented or
otherwise modified from time to time, the "Reimbursement Agreement"); and
WHEREAS, Zenith has requested certain amendments be made to the
Reimbursement Agreement; and
WHEREAS, subject to the terms and conditions of this Amendment, LGE is
willing to agree to such amendments;
NOW THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
A. Amendment.
1. The Reimbursement Agreement is hereby amended by deleting Section 1.2
thereof in its entirety and substituting the following in lieu thereof:
"1.2 Each guaranty requested by Zenith shall be substantially in the
form of Exhibit A hereto, with such modifications thereto as shall be
agreed to by LGE, which guarantee shall include but not be limited to
guarantees issued in favor of The First National Bank of Chicago
("FNBC"), Bank of America National Trust and Savings Association
("BofA"), Societe Generale, Seoul Branch ("Soc Gen") and Credit Agricole
Indosuez, Seoul Branch ("Indosuez") whether such guarantee is in a form
of a guarantee of payment and/or a pledge of cash or other property by
LGE to secure Zenith's payment obligations to any bank (individually a
"Guarantee" and collectively the "Guarantees"). Zenith shall not request
issuance of any Guarantee except to lenders which extend prior to March
31, 1998 unsecured credit facilities on terms substantially the same as
set forth in Exhibit B hereto which facilities shall include but not be
limited to by FNBC,
<PAGE>
BofA, Soc Gen and Indosuez ("Credit Facilities") to Zenith for its
working capital needs. Zenith shall not request Guarantees in an
aggregate principal amount outstanding at any one time in excess of
$160,000,000."
2. The Reimbursement Agreement is hereby amended by deleting Section 1.3
thereof in its entirety and substituting the following in lieu thereof:
"1.3 Zenith agrees to reimburse LGE, immediately upon demand, for any
and all payments made, or realization on collateral pledged, from time
to time by LGE under the Guarantees, with interest on the amounts so
paid by LGE from and including the date paid by LGE to but not including
the date LGE is reimbursed therefor, at the Reference Rate (hereinafter
defined) in effect on the date of payment plus two percent (2%) per
annum; Zenith's obligations under this Section 1.3 shall be referred to
collectively as the "Reimbursement Obligations." "Reference Rate" means
at any time, the rate of interest then most recently announced by Bank
of America National Trust and Savings Association at Chicago, Illinois
as its reference rate."
B. General
1. Each reference in the Reimbursement Agreement to "this Agreement,"
"hereunder," "hereof," or words of like import, and each reference to
the Reimbursement Agreement in any and all instruments or documents
provided for or referred to in the Reimbursement Agreement or delivered
or to be delivered thereunder or in connection therewith, shall, except
where the context otherwise requires, be deemed a reference to the
Reimbursement Agreement, as amended hereby.
2. Except as amended hereby, the Reimbursement Agreement shall remain in
full force and effect and is hereby ratified and confirmed in all
respects.
3. Zenith agrees to pay all reasonable expenses of LGE incurred in
connection with this Amendment including, without limitation, all fees
and expenses of counsel to LGE.
4. This Amendment shall be governed by, and construed in accordance with,
the laws of the State of Illinois.
2
<PAGE>
5. This Amendment may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which, taken
together, shall constitute one and the same agreement. Delivery of an
executed counterpart of this Amendment by facsimile transmission shall
be as effective as delivery of a manually executed counterpart hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment,
or caused it to be executed and delivered by their duly authorized officers, all
as of the day and year first above written.
LG ELECTRONICS INC.
By:
---------------------------
Title:
------------------------
ZENITH ELECTRONICS CORPORATION
By:
---------------------------
Title:
------------------------
3
<PAGE>
[LOGO OF LG ELECTRONICS INC.]
EXHIBIT (10an)
November 16, 1998
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, IL 60025-2493
Amendment No. 1 and Waiver to the Restructuring Agreement
---------------------------------------------------------
Ladies and Gentlemen:
Reference is made to the Restructuring Agreement, dated as of August 10,
1998 (The "Restructuring Agreement"), between Zenith Electronics Corporation
("Zenith") and LG Electronics Inc. ("LGE"). Capitalized terms used but not
otherwise defined herein have the meanings ascribed to them in the Restructuring
Agreement.
In consideration of the mutual agreements set forth herein, the provisions
of the Restructuring Agreement are hereby amended or waived as follows:
1. Implementation Program. Section 6.7 of the Restructuring Agreement is
amended to extend the date by which Zenith must deliver the final Implementation
Program from August 31, 1998 to November 30, 1998.
2. Interest Charges. Compliance with Section 6.12 of the Restructuring
Agreement is waived through November 30, 1998.
3. Amendment to Plan and Plan Disclosure Documents. Pursuant to Section
6.4 of the Restructuring Agreement, LGE consents to the amendments and
supplements to, and modifications of, the Plan and Plan Disclosure Documents
contained in Amendment No.1 to the Registration Statement on form S-4, dated
November __, 1998 (the "Amended Registration Statement"), provided however, that
nothing herein shall be construed as a consent by LGE to any changes to the
Operating Plan reflected in the Amended Registration Statement.
1
<PAGE>
[LG Electronics Inc. logo and Letterhead]
4. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
5. Governing Law. This Amendment shall be governed by the internal laws
of the State of Delaware without giving effect to the conflict of laws rules
thereof.
6. Confirmation. Other than as expressly modified, pursuant to this
Amendment, all provisions of the Restructuring Agreement remain unmodified and
in full force and effect.
If you agree to this Amendment, please execute this letter in the space
provided and return a copy of this letter to the undersigned.
LG Electronics, Inc.
By: /s/ Cha Hong (John) Koo
-------------------------------------
Cha Hong (John) Koo
President and Chief Executive Officer
Zenith Electronics Corporation
By: /s/ Jeffrey P. Gannon
-------------------------------------
Jeffrey P. Gannon
President and Chief Executive Officer
2
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
made a part of Zenith Electronics Corporation's Amendment No. 1 to the
Registration Statement on Form S-4, Registration No. 333-61057, filed in
November 1998.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
November 19, 1998
<PAGE>
Exhibit 24a
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Nam Woo, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to the Registration Statement on Form S-4
(Registration No. 333-61057) of Zenith Electronics Corporation (the
"Registration Statement") (and any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, for the offering which this
Registration Statement relates), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated:
/s/ Ki-Song Cho /s/ Cha Hong (John) Koo
- ------------------------ -----------------------
Ki-Song Cho Cha Hong (John) Koo
/s/ Seung Pyeong Koo /s/ Hun Jo Lee
- ------------------------ -----------------------
Seung Pyeong Koo Hun Jo Lee
/s/ Yong Nam
- ------------------------
Yong Nam
<PAGE>
Exhibit (24b)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard F. Vitkus and Wayne M. Koprowski, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement (and any registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, for the
offering which this Registration Statement relates), and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
/s/ Andrew McNally IV
- ---------------------------------- Date: November 18, 1998
Andrew McNally IV
/s/ T. Kimball Brooker
- ---------------------------------- Date: November 16, 1998
T. Kimball Brooker
/s/ Eugene B. Connolly
- ---------------------------------- Date: November 16, 1998
Eugene B. Connolly
/s/ Peter S. Willmott
- ---------------------------------- Date: November 16, 1998
Peter S. Willmott
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-26-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 179
<ALLOWANCES> 36
<INVENTORY> 165
<CURRENT-ASSETS> 323
<PP&E> 795
<DEPRECIATION> 640
<TOTAL-ASSETS> 504
<CURRENT-LIABILITIES> 672
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> (345)
<TOTAL-LIABILITY-AND-EQUITY> 504
<SALES> 675
<TOTAL-REVENUES> 675
<CGS> 622
<TOTAL-COSTS> 622
<OTHER-EXPENSES> 233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> (188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (188)
<EPS-PRIMARY> (2.78)
<EPS-DILUTED> (2.78)
</TABLE>
<PAGE>
EXHIBIT 99b
CONFIDENTIAL TREATMENT REQUESTED
(Redacted text indicated by "***")
PROJECT ELECTRO
PRESENTATION TO THE BOARD OF DIRECTORS
July 22, 1998
PETER J. SOLOMON COMPANY
1
<PAGE>
PROJECT ELECTRO
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TAB PAGE
- --- ----
<S> <C>
I. Going Concern Valuation..................................... 1
II. Business Plan Comparison.................................... 6
III. One-Time Adjustments........................................ 9
IV. Methodological Comparison................................... 11
V. Electro Comparable Company Analysis......................... 13
VI. LG Plan Analysis............................................ 14
VII. Liquidation Analysis........................................ 16
VIII. Strategic Investor Contact List............................. 18
</TABLE>
2
<PAGE>
PROJECT ELECTRIC
I. GOING CONCERN ANALYSIS
Going Concern Implied Equity Valuation Under LG Proposal
- -------------------------------------------------------------------------------
(Dollars in Millions)
<TABLE>
<CAPTION>
Summary Going Concern Valuations Summary Going Concern Sensitivities
--------------------------------- --------------------------------------------------
5/21/98 Board Assumes '98 Q3 & Q4
Presentation Present Valuation Inventory Reduction
Valuation at Valuation at Per Sourcing Plan Assumes '99 Q1 & Q2
1/1/98 (a) 1/1/99 (b) Occurs in Q1 '99 Asset Sales Occur in Q3
Valuation at 1/1/99 (c) Valuation at 6/30/99 (d)
------------- ----------------- ----------------------- ------------------------
<S> <C> <C> <C> <C>
Enterprise Value (c) $127.0 $125.0 $125.0 $125.0
Domestic VSB
Technology Value (1) 186.0 $180.0 180.0 180.0
------ ------ ------ ------
Total Value $313.0 $305.0 $305.0 $305.0
====== ====== ====== ======
Reorganized Electro Debt
per I.G Proposal
Working Capital Facility $100.0 $84.5 (h) $100.0 (i) $100.0 (i)
Restructured LG Notes (g) 152.7 148.7 148.7 158.1
Subordinated Debentures (g) 40.0 40.0 40.0 40.0
New LG Financing 30.0 0.0 18.8 (i) 19.4 (i)
------ ------ ------ ------
Total $322.7 $273.2 $307.5 $317.5
Implied Equity of
Reorganized Electro $ (9.7) $ 31.8 $(2.5) $(12.5)
</TABLE>
- --------------------------------------------------------------------------------
(a) Per Electro Business Plan, dated April 16, 1998. Reflected in Electro Board
Presentation dated May 21, 1998.
(b) Per Electro Business Plan, dated June 26, 1998.
(c) Assumes that $64.2MM reduction in inventories scheduled to occur in Q-3 and
Q-4 of 1998 actually occur in Q-1 of 1999. Capitalization reflects
additional borrowing due to reduced cash flow.
(d) Assumes that asset sales scheduled to occur in Q-1 and Q-2 of 1999 are
delayed until Q-3. Reduction in asset proceeds results in elimination of
debt service in Q-1 and Q-2 of $43.2MM and $21.6MM respectively. In
addition, debt is increased by PIK interest of $4.6MM in Q-1 and $4.8MM in
Q-2.
(e) Business plan adjusted to exclude projected VSB royalties. Enterprise value
at 1/1/98 is based on 14.0x EBIT multiple and a 12.0% discount rate equal to
the weighted average cost of capital (WACC) of the comparable company
group. Enterprise value at 1/1/99 is based on the mid-range of the
illustrative LTM sales multiples and values Tuner Patent cash flows
separately.
(f) VSB valuation assumes a $2.50 PC royalty fee, 25.0% discount rate applied to
royalty fee income cash flows through 2011 and availability of Company NOLs
to shelter VSB and operating cash flow. Excludes any potential value for
international VSB royalties. Includes present value of Sony settlement per
Electro management.
(g) Assumes par value. Market value may be lower.
(h) Revolver balance based on average revolver balance for Q-3 1998, Q-4 1998,
Q-1 1999, and Q-2 1999.
(i) Balance based on modified projected cash needs and assumed availability.
3
<PAGE>
PROJECT ELECTRO
I. GOING CONCERN ANALYSIS
ELECTRO DISCOUNTED CASH FLOW ANALYSIS (VALUE AT JANUARY 1, 1999)
(Dollars in Millions)
EBIT EXCLUDES VSB AND TUNER PATENT INCOME AND COSTS & EXPENSES(a)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 2000 2001 2002 2003
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net Revenue $916.0 $917.8 $961.9 $1,013.9 $1,039.9
- --% Growth (7.4)% 0.2 % 4.8 % 5.4 % 2.6 %
Gross Margin % 6.2 % 8.5 % 9.6 % 10.0 % 10.4 %
EBITDA (43.7) (20.5) (7.4) (2.1) 1.7
- --% of Revenues (4.8)% (2.2)% (0.8)% (0.2)% $ 0.0
EBIT (52.8) (23.3) (10.7) (5.8) (2.3) NORMALIZED
- --% of Sales (5.8)% (2.5)% (1.1)% (0.6)% (0.2)% TERMINAL
Taxes 0.0% 0.0 0.0 0.0 0.0 0.0 CASH FLOW
------ ------ ------- -------- -------- -----------
Tax-Adjusted EBIT (52.8) (23.3) (10.7) (5.8) (2.3) $ (2.3)
Depreciation and Amortization 9.1 2.8 3.3 3.7 4.0 4.0
Capital Expenditures (4.5) (4.5) (4.5) (4.5) (4.5) (4.5)
Change in Working Capital 1.6 36.0 (2.0) (3.5) (0.5) (0.5)
Proceeds from Asset Sales 93.2 0.0 0.0 0.0 0.0 0.0
Restructuring Costs (61.5) (9.1) (6.6) (4.2) (2.8) 0.0
------ ------ ------- -------- -------- ------
Free Cash Flow $(14.9) $ 1.9 $(20.5) $ (14.3) $ (6.1) $ (3.3)
====== ====== ======= ======== ======== ======
Growth in Free Cash Flow NM NM -1179 % NM NM
</TABLE>
ILLUSTRATIVE SALES MULTIPLE(b)
<TABLE>
<CAPTION>
12.5 % 15.0 % 17.5 %
-------------------------- ------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Discount Rate 12.0 % 14.0 % 16.0 % 12.0 % 14.0 % 16.0 % 12.0 % 14.0 % 16.0 %
Present Value of Free Cash Flow $(38.9) $(37.1) $(35.4) $(38.9) $ (37.1) $ (35.4) $(38.9) $(37.1) $(35.4)
Present Value of Terminal Value 73.8 67.5 61.9 88.5 81.0 74.3 103.3 94.5 86.6
------ ------ ------ ------ -------- -------- ------ ------ -------
Total Terminal Value & Free
Cash Flow Value $ 34.8 $ 30.4 $ 26.5 $ 49.6 $ 43.9 $ 38.9 $ 64.3 $ 57.4 $ 51.3
------ ------ ------ ------ -------- -------- ------ ------ ------
Discount Rate 18.0 % 20.0 22.0 % 18.0 % 20.0 % 22.0 % 18.0 % 20.0 % 22.0 %
------ ------ ------ ------ -------- -------- ------ ------ ------
Present Value of Tuner Patent(c) $ 72.8 $ 69.9 $ 67.2 $ 72.8 $ 69.9 $ 67.2 $ 72.8 $ 69.9 $ 67.2
------ ------ ------ ------ -------- -------- ------ ------ ------
Total Enterprise Value $107.6 $100.3 $ 93.7 $122.4 $ 113.8 $ 106.1 $137.1 $127.3 $118.4
------ ------ ------ ------ -------- -------- ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
NET PRESENT VALUE OF
PROJECTED FISCAL YEAR ENDED DECEMBER 31, TUNER PATENT @
---------------------------------------------------------- --------------------------
1999 2000 2001 2002 2003
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tuner Patent Cash Flows(c) $26.0 $26.0 $26.0 $26.0 $13.0 18.0% 20.0% 22.0%
Tuner Patent Costs and Expenses(d) (0.2) (0.2) (0.2) (0.2) (0.2) $72.8 $69.9 $67.2
Assumed Reduction(e) 0.0 0.0 0.0 (3.0) (1.5)
----- ----- ----- ----- -----
Tuner Patent Cash Flows
(incl. reductions)(c) $25.8 $25.8 $25.8 $22.8 $11.3
</TABLE>
Source: Electro 1998-2003 Business Plan dated June 26, 1998.
(a) Business plan projected income statement excludes VSB and Tuner Patent
income and certain R & D/engineering costs associated with these technology
patents. Electro income statement includes approximately $2.0MM a year in
royalties related to the use of the Zenith trademark and name.
(b) Illustrative LTM sales multiple range is based on the lowest comparable
company to Electro discounted at 50.0%-66.6%.
(c) Assumes Tuner Patent expires June 30, 2003 and a successful defense of
patent in current lawsuit proceedings.
(d) Per Electro management.
(e) Assumed reduction per Electro management. Assumes settlement with Sony.
4
<PAGE>
PROJECT ELECTRO
I. GOING CONCERN ANALYSIS
VSB VALUATION ASSUMING USE OF NOLs
(Dollars in millions)
Value At January 1, 1999
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
---- ---- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggregate Royalty Income 0.0 0.0 0.0 3.6 14.8 32.2 53.7 70.1 85.8 102.4 115.1 127.0
VSB Associated Costs (b) 0.0 0.0 0.0 (7.1) (5.0) (5.2) (5.4) (5.5) (5.6) (5.7) (5.8) (6.0)
---- ---- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Royalty Income 0.0 0.0 0.0 (3.5) 9.8 27.0 48.3 64.6 80.2 96.7 109.2 121.0
Unsheltered Earnings 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Taxes 38.0% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
---- ---- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net VSB Royalty Income 0.0 0.0 0.0 (3.5) 9.8 27.0 48.3 64.6 80.2 96.7 109.2 121.0
CALCULATION OF REMAINING NOLs
Pre-LG NOLs (a) $481.0 $481.0 $481.0 $471.8 $442.2 $406.0 $325.8 $229.0 $184.0 $157.0
Utilizable Beginning 27.0 54.0 81.0 108.0 135.0 162.0 179.8 177.2 168.0 114.8 45.0 27.0
Pre-LG NOLs Utilized 0.0 0.0 0.0 0.0 0.0 (9.2) (29.5) (36.3) (80.2) (96.7) (45.0) (27.0)
---- ---- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Utilizable End 27.0 54.0 81.0 108.0 135.0 152.8 150.2 141.0 87.8 18.0 0.0 0.0
Post LG NOL (beginning) $354.6 $422.8 $445.8 $464.3 $464.3 $464.3 $464.3 $464.3 $464.3 $400.1
Post LG NOL Utilized 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (64.2) (94.0)
NOL Generated 68.2 23.0 18.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Post LG NOL (ending) $422.8 $445.8 $464.3 $464.3 $464.3 $464.3 $464.3 $464.3 $400.1 $306.1
<CAPTION>
2008 2009 2010 2011
------ ------ ----- -----
<S> <C> <C> <C> <C>
Aggregate Royalty Income 143.1 171.2 192.0 216.9
VSB Associated Costs (b) (6.1) (6.2) (6.3) (6.4)
------- ------- ------ -----
Net Royalty Income 137.1 165.0 185.7 210.4
Unsheltered Earnings 0.0 0.0 100.7 210.4
Taxes 38.0% 0.0 0.0 38.3 80.0
------- ------- ------ -----
Net VSB Royalty Income 137.1 165.0 147.5 130.5
CALCULATION OF REMAINING NOLs
Pre-LG NOLs (a) $ 130.0 $ 103.0 $ 76.0 $0.0
Utilizable Beginning 27.0 27.0 27.0 0.0
Pre-LG NOLs Utilized (27.0) (27.0) (27.0) 0.0
------- ------- ------ -----
Utilizable End 0.0 0.0 0.0 0.0
Post LG NOL (beginning) $ 306.1 $ 196.0 $ 58.0 $0.0
Post LG NOL Utilized (110.1) (138.0) (58.0) 0.0
NOL Generated 0.0 0.0 0.0 0.0
------- ------- ------ -----
Post LG NOL (ending) $ 196.0 $ 58.0 $ 0.0 $0.0
1998 Net Income $(300.0)
Cancellation of Debt Income (c) 231.8
-------
1998 NOL $ (68.2)
</TABLE>
CALCULATION OF NET INCOME ADJUSTED FOR THE EXCLUSION OF VSB ROYALTY INCOME:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Old EBIT $ (76.3) $(31.0) $ 11.8 $ 33.3 $ 46.5 $ 44.5
VSB Income 0.0 2.6 13.8 22.9 31.4 39.0
------- ------ ------ ------ ------ ------
Old EBIT (Excl. VSB) (76.3) (33.6) (2.0) 10.4 15.1 5.5
------- ------ ------ ------ ------ ------
EBIT Differential 0.0 (2.6) (13.8) (22.9) (31.4) (39.0)
Incremental Debt 0.0 2.6 16.4 39.3 70.7 109.7
------- ------ ------ ------ ------ ------
Incremental Interest Expense @ 9.3% 0.0 0.1 0.9 2.6 5.1 8.3
Old Net Income $(300.0) $(20.3) $(13.6) $ 7.7 $ 20.7 $ 20.5
New Net Income (Excl. VSB) (300.0) (23.0) (28.3) (17.8) (18.8) (28.3)
</TABLE>
<TABLE>
<CAPTION>
NET PRESENT VALUE OF
VSB TECHNOLOGY @
- ------------------------------
25.0% 30.0% 35.0% 40.0%
- ------- ------ ------ -----
<S> <C> <C> <C>
$180.3 $136.3 $105.4 $83.1
</TABLE>
(a) Source: Electro 1997 10-K. Utilizable at a maximum rate of $27MM per year up
until 2010. When unutilized the $27MM is cumulative.
(b) Per Electro management.
(c) Based on Arthur Andersen analysis.
5
<PAGE>
PROJECT ELECTRO
I. GOING CONCERN ANALYSIS
Summary Valuation: VSB Technology Base Case
(Amounts in Millions, Except Average Royalty Fees)
<TABLE>
<CAPTION>
Domestic 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cable Box Taxes: No
Market Size 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0
% Digital 20.0% 35.0% 50.0% 65.0% 80.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
% Using VSB Remodulation 0.0% 4.0% 7.0% 10.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%
Total VSB Remodulation 0.0 0.1 0.3 0.5 0.9 1.1 1.1 1.1 1.1 1.1 1.1
Average Royalty Fee $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50
Sony Settlement (a) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Cross License Adjustment (b) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Royalty Income $0.0 $ 0.2 $ 0.4 $ 0.7 $ 1.2 $ 1.5 $ 1.5 $ 1.5 $ 1.5 $ 1.5 $ 1.5
TVs
Market Size 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0
% Digital 1.0% 4.0% 7.0% 10.0% 14.0% 20.0% 24.0% 28.0% 32.0% 42.0% 52.0%
% Using VSB Demodulation 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Total VSB Demodulation 0.3 1.0 1.8 2.5 3.5 5.0 6.0 7.0 8.0 10.5 13.0
% Zenith (No Royalties) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Average Royalty Fee $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
Sony Settlement (a) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 0.0%
Cross License Adjustment (b) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Royalty Income $ 0.9 $ 3.6 $ 6.4 $ 9.1 $12.8 $18.2 $21.9 $25.5 $29.2 $38.3 $52.7
PCs
Market Size 11.0 13.0 14.5 16.0 17.8 19.6 21.5 23.7 26.0 28.6 31.5
% Digital 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
% Using VSB Remodulation 0.0% 15.0% 40.0% 60.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0%
Total VSB Remodulation 0.0 2.0 5.8 9.6 13.3 14.7 16.1 17.7 19.5 21.5 23.6
Average Royalty Fee $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50
Sony Settlement (a) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 0.0%
Cross License Adjustment (b) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Royalty Income $ 0.0 $ 4.3 $12.9 $21.4 $29.7 $32.7 $35.9 $39.5 $43.5 $47.8 $53.1
Add-In Cards
Market Size NA NA NA NA NA NA NA NA NA NA NA
% Digital NA NA NA NA NA NA NA NA NA NA NA
% Using VSB Remodulation NA NA NA NA NA NA NA NA NA NA NA
Total VSB Remodulation 1.0 1.3 1.5 1.8 2.0 1.7 1.2 0.7 0.2 0.0 0.0
Average Royalty Fee $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Sony Settlement (a) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Cross License Adjustment (b) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Royalty Income $ 0.9 $ 1.1 $ 1.4 $ 1.6 $ 1.8 $ 1.5 $ 1.1 $ 0.6 $ 0.2 $ 0.0 $ 0.0
<CAPTION>
Domestic 2010 2011 Total
----- ----- ------
<S> <C> <C> <C>
Cable Box Taxes: No
Market Size 8.0 8.0
% Digital 100.0% 100.0%
% Using VSB Remodulation 14.0% 14.0%
Total VSB Remodulation 1.1 1.1
Average Royalty Fee $1.50 $1.50
Sony Settlement (a) 0.0% 0.0%
Cross License Adjustment (b) 10.0% 10.0%
----- -----
Royalty Income $ 1.5 $ 1.5 $ 14.5
TVs
Market Size 25.0 25.0
% Digital 62.0% 75.0%
% Using VSB Demodulation 100.0% 100.0%
Total VSB Demodulation 15.5 18.8
% Zenith (No Royalties) 10.0% 10.0%
Average Royalty Fee $5.00 $5.00
Sony Settlement (a) 0.0% 0.0%
Cross License Adjustment (b) 10.0% 10.0%
----- -----
Royalty Income $62.8 $75.9 $357.2
PCs
Market Size 34.6 38.1
% Digital 100.0% 100.0%
% Using VSB Remodulation 75.0% 75.0%
Total VSB Remodulation 26.0 28.6
Average Royalty Fee $2.50 $2.50
Sony Settlement (a) 0.0% 0.0%
Cross License Adjustment (b) 10.0% 10.0%
----- -----
Royalty Income $58.5 $64.3 $443.7
Add-In Cards
Market Size NA NA
% Digital NA NA
% Using VSB Remodulation NA NA
Total VSB Remodulation 0.0 0.0
Average Royalty Fee $1.00 $1.00
Sony Settlement (a) 0.0% 0.0%
Cross License Adjustment (b) 10.0% 10.0%
----- -----
Royalty Income $ 0.0 $0.0 $ 10.2
</TABLE>
Note: Consumer electronic component roll-out is substantially per Forrester
Research, Inc. a Cambridge, Massachussetts based high technology research
firm.
(a) Per Electro management.
(b) Cross license assumes that 25.0% of market pays only 60.0% of royalty fee.
Per Electro management.
6
<PAGE>
PROJECT ELECTRO
I. GOING CONCERN ANALYSIS
Summary Valuation: VSB Technology Base Care
(Amounts in Millions, Except Average Royalty Fees)
<TABLE>
<CAPTION>
Domestic 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VIDEO RECORDERS/DVD-R
Market Size 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0
% Digital 1.0% 5.0% 10.0% 15.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%
% Using VSB Remod/Demod 50.0% 80.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Total VSB Remod/Demod 0.1 0.6 1.5 2.3 3.0 4.5 6.0 7.5 9.0 10.5
% Zenith (No Royalties) 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Average Royalty Fee $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
Sony Settlement (a) 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Cross License Adjustments (b) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Royalty income $0.3 $2.5 $6.3 $9.5 $12.6 $19.0 $25.3 $31.6 $37.9 $44.2
DVD-P
Market Size 0.4 0.7 0.7 0.7 0.0 0.0 0.0 0.0 0.0 0.0
% Digital 100.0% 100.0% 100.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
% Using VSB Remod/Demod 10.0% 20.0% 40.0% 60.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total VSB Remod/Demod 0.0 0.1 0.3 0.4 0.0 0.0 0.0 0.0 0.0 0.0
Average Royalty Fee $5.00 $5.00 $5.00 $5.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Sony Settlement (a) 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Cross License Adjustments (b) 10.0 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Royalty income $0.2 $0.6 $1.2 $1.8 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
CONVERTERS
Market Size N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
% Digital N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
% Using VSB Demodulation N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Total VSB Demodulation 0.3 0.4 0.5 1.9 2.2 2.5 3.8 3.9 3.7 3.0
Average Royalty Fee $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
% Zenith (No Royalties) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Sony Settlement (a) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Cross License Adjustments (b) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Royalty income $1.1 $1.5 $1.8 $6.9 $8.0 $9.1 $13.9 $14.2 $13.5 $10.9
SATELLITE BOX
Market Size 1.5 1.5 1.5 1.5 1.5 1.3 1.1 0.9 0.7 0.5
% Digital 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
% Using VSB Demodulation 4.7% 20.0% 40.0% 60.0% 86.7% 100.0% 100.0% 100.0% 100.0% 100.0%
Total VSB Demodulation 0.1 0.3 0.6 0.9 1.3 1.3 1.1 0.9 0.7 0.5
Average Royalty Fee $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
Sony Settlement (a) 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Cross License Adjustments (b) 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Royalty income $0.3 $1.1 $2.2 $3.2 $4.7 $4.7 $4.0 $3.2 $2.5 $1.8
Assumed Sharing Rate: 1.0%
Total Pre-Tax Income $3.6 $14.8 $32.2 $53.7 $70.1 $85.8 $102.4 $115.1 $127.0 $143.1
<CAPTION>
Domestic 2009 2010 2011 Total
-------- ------- -------- --------
<S> <C> <C> <C> <C>
VIDEO RECORDERS/DVD-R
Market Size 15.0 15.0 15.0
% Digital 80.0% 90.0% 100.0%
% Using VSB Remod/Demod 100.0% 100.0% 100.0%
Total VSB Remod/Demod 12.0 13.5 15.0
% Zenith (No Royalties) 3.5% 3.5% 3.5%
Average Royalty Fee $5.00 $5.00 $5.00
Sony Settlement (a) 0.0% 0.0% 0.0%
Cross License Adjustments (b) 10.0% 10.0% 10.0%
-------- -------- --------
Royalty income $52.1 $58.6 $65.1 $365.1
DVD-P
Market Size 0.0 0.0 0.0
% Digital 0.0% 0.0% 0.0%
% Using VSB Remod/Demod 0.0% 0.0% 0.0%
Total VSB Remod/Demod 0.0 0.0 0.0
Average Royalty Fee $0.00 $0.00 $0.00
Sony Settlement (a) 0.0% 0.0% 0.0%
Cross License Adjustments (b) 10.0% 10.0% 10.0%
-------- -------- --------
Royalty income $0.0 $0.0 $0.0 $ 3.8
CONVERTERS
Market Size N/A N/A N/A
% Digital N/A N/A N/A
% Using VSB Demodulation N/A N/A N/A
Total VSB Demodulation 3.0 3.0 3.0
Average Royalty Fee $5.00 $5.00 $5.00
% Zenith (No Royalties) 10.0% 10.0% 10.0%
Sony Settlement (a) 0.0% 0.0% 0.0%
Cross License Adjustments (b) 10.0% 10.0% 10.0%
-------- -------- -------
Royalty income $12.2 $12.2 $12.2 $117.4
SATELLITE BOX
Market Size 0.3 0.1 0.0
% Digital 100.0% 100.0% 100.0%
% Using VSB Demodulation 100.0% 100.0% 100.0%
Total VSB Demodulation 0.3 0.1 0.0
Average Royalty Fee $5.00 $5.00 $5.00
Sony Settlement (a) 0.0% 0.0% 0.0%
Cross License Adjustments (b) 10.0% 10.0% 10.0%
-------- -------- -------
Royalty income $1.4 $0.5 $0.0 $ 29.4
Assumed Sharing Rate: 1.0%
Total Pre-Tax Income $171.2 $192.0 $216.9 $1,327.9
</TABLE>
Note: Consumer electronic component roll-out is substantially per Forrester
Research, Inc. a Cambridge, Massachusetts based high technology research firm.
(a) Per Electro management.
(b) Cross license assumes that 25.0% of market pays only 60.0% of royalty fee.
Per Electro management.
7
<PAGE>
PROJECT ELECTRO
11. Business plan Comparison
(Dollar in Millions)
<TABLE>
<CAPTION>
Income Statement Items FY Ended December 31,
Business -------------------------------------------------------
Plan Date 1998 1999 2000 2001 2002 2003 Comments
--------- ---- ---- ---- ---- ---- ---- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 6/26 $989.7 $916.0 $917.8 $961.9 $1,013.9 $1,039.9 The 6/26 Plan includes an
4/16 989.5 908.3 892.2 939.5 997.7 N/A additional year of projections
------ ------ ------ ------ --------
Difference (6/26 vs. 4/16) $ 0.2 $ 7.7 $ 25.6 $ 22.4 $ 16.2 N/A
Gross Margin 6/26 $ 60.6 $ 57.2 $ 77.6 $ 92.3 $ 101.6 $ 108.4 Gross margin drops as a % of
4/16 57.6 58.1 78.0 93.7 107.3 N/A sales from 1999-2002 in 6/26
------ ------ ------ ------ -------- Plan, ranging from .20% to .76%
Difference (6/26 vs. 4/16) $ 3.0 $ (0.9) $ (0.4) $ (1.4) $ (5.7) N/A
Selling 6/26 $ 72.5 $ 63.0 $ 65.3 $ 68.7 $ 72.6 $ 75.1
4/16 70.9 61.8 61.6 73.7 78.0 N/A
------ ------ ------ ------ --------
Difference (6/26 vs. 4/16) $ 1.6 $ 1.2 $ 3.7 $ (5.0) $ (5.4) N/A
G&A 6/26 $ 45.2 $ 34.4 $ 26.3 $ 24.8 $ 25.4 $ 25.9 Total 6/26 G&A is higher as a %
4/16 45.6 30.2 21.0 21.5 22.0 N/A of sale but excludes VSB &
------ ------ ------ ------ -------- Tuner Patent IP costs
Difference (6/26 vs. 4/16) $ (0.4) $ 4.2 $ 5.3 $ 3.3 $ 3.4 N/A
R&D 6/26 $ 38.4 $ 7.6 $ 4.3 $ 4.4 $ 4.4 $ 4.6 Most of the differential in
4/16 $ 40.5 13.3 7.9 8.2 8.4 N/A the 6/26 Plan is the exclusion
------ ------ ------ ------ -------- of VSB related R&D costs
Difference (6/26 vs. 4/16) $ (2.1) $ (5.7) $ (3.6) $ (3.8) $ (4.0) N/A
Operating Income 6/26 $(95.5) $(47.8) $(18.3) $ (5.6) $ (0.8) $ 2.8 Operating income difference
4/16 (99.5) (47.2) (12.5) (9.7) (1.1) -- due to changes in sales levels,
------- ------ ------ ------ -------- margin and the allocation of
Difference (6/26 vs. 4/16) $ 4.0 $ (0.6) $ (5.8) $ 4.1 $ 0.3 -- VSB costs and expenses
</TABLE>
8
<PAGE>
PROJECT ELECTRO
II. Business Plan Comparison
(Dollars in Millions)
Income Statement Items (cont'd)
<TABLE>
<CAPTION>
Business FY Ended December 31,
---------------------------------------------------------
Plan Date 1998 1999 2000 2001 2002 2003 Comments
--------- --------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Royalty Income (now valued
separately) 6/26 $ 2.0 $ 2.0 $ 2.0 $ 2.0 $ 2.0 $ 1.9 6/26 reduces Tuner
4/16 31.4 29.0 29.0 29.0 29.0 NA Patent income by
------ ------ ------ ------ ------ $1.00MM, values it
Difference (6/26 vs. 4/16) ($29.4) ($27.0) ($27.0) ($27.0) ($27.0) NA separately, only
licensing & trademark
income
Other Expense (Income)(a) 6/26 $ 9.5 $ 7.0 $ 7.0 $ 7.0 $ 7.0 $ 7.0 6/26 reduction in other
4/16 12.9 10.7 10.6 10.3 10.3 NA expenses due to
------ ------ ------ ------ ------ acceleration of
Difference (6/26 vs. 4/16) ($3.4) ($3.7) ($3.6) ($3.3) ($3.3) NA amortization related to
cancelled financing
fully expensed in 1998
EBIT 6/26 ($103.0) ($52.8) ($23.3) ($10.7) ($5.8) ($2.3) EBIT difference due in
4/16 (81.0) (28.9) 5.9 9.0 17.6 -- (i) the changes in
------ ------ ------ ------ ------ operating income
Difference (6/26 vs. 4/16) ($22.0) ($23.9) ($29.2) ($19.7) ($23.4) -- identified above, (ii)
the exclusion of the
Tuner Patent in the 6/26
Plan and (iii) lower
other expenses in the
6/26 Plan
</TABLE>
- -------------------
(a) Other Expense in 1998 @ 6/26 excludes non-cash restructuring charge of
$35.2MM.
9
<PAGE>
PROJECT ELECTRO
II. BUSINESS PLAN COMPARISON
(DOLLARS IN MILLIONS)
CASH FLOW ITEMS
<TABLE>
<CAPTION>
FY ENDED DECEMBER 31,
BUSINESS --------------------------------------------------------
PLAN DATE 1998 1999 2000 2001 2002 2003 COMMENTS
--------- -------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEPRECIATION & AMORTIZATION 6/26 $ 35.7 $ 9.1 $ 2.8 $ 3.3 $ 3.7 $ 4.0
4/16 34.7 11.3 6.7 6.7 7.0 --
Difference (6/26 vs. 4/16) $ 1.0 $ (2.2) $ (3.9) $ (3.4) $ (3.3) --
CAPITAL EXPENDITURES 6/26 $ (13.2) $ (4.5) $ (4.5) $ (4.5) $ (4.5) $(4.5) 1998 cap. ex. @ 4/16 includes
4/16 (107.4) (5.0) (5.0) (5.0) (5.0) -- cash outlays related to leveraged
Difference (6/26 vs. 4/16) $ 94.2 $ 0.5 $ 0.5 $ 0.5 $ 0.5 -- lease. 6/26 excludes VSB cap. ex.
CHANGE IN NET WORKING CAPITAL 6/26 $ 16.8 $ 1.6 $ 36.0 $ (2.0) $ (3.5) $(0.5) 1998 negative change in NWC @
4/16 (55.5) 57.4 46.0 (2.1) (7.8) -- 4/16 related to buildup of inven-
Difference (6/26 vs. 4/16) $ 72.3 $ (55.8) $(10.0) $ 0.1 $ 4.3 -- tories per Company sourcing plan
PROCEEDS FROM ASSET SALES 6/26 $ 31.9 $ 93.2 $ 0.0 $ 0.0 $ 0.0 $ 0.0 6/26 asset proceeds difference
4/16 62.7 159.6 0.0 0.0 0.0 -- includes ***
Difference (6/26 vs. 4/16 $ (30.8) $ (66.4) $ 0.0 $ 0.0 $ 0.0 -- & transfer of Reynosa to
LG. 4/16 assumed sale of Reynosa.
RESTRUCTURING COSTS 6/26 $ (29.0) $ (61.5) $ (9.1) $ (6.6) $ (4.2) $(2.8)
4/16 (39.1) (51.5) (7.8) (5.6) (4.2) -- Differential primarily due to
Difference (6/26 vs. 4/16) $ 10.1 $ (10.0) $ (1.3) $ (1.0) $ 0.0 -- timing of cash flows
FREE CASH FLOW (a) 6/26 $ (60.8) $ (14.9) $ 1.9 $(20.5) $(14.3) $(6.1) 6/26 FCF excludes (i) $26.0MM
4/16 (185.6) 142.9 45.8 3.0 7.6 -- in annual Tuner Patent income
Difference (6/26 vs. 4/16) $ 124.8 $(157.8) $(43.9) $(23.5) $(21.9) -- (resulting in lower EBIT) in
1998-2002, (ii) ***
(iii) leveraged lease cash
outlay in 1998
</TABLE>
- ---------------
(a) Free cash flow defined as EBIT plus all cash flow items.
10
<PAGE>
PROJECT ELECTRO
III. ONE-TIME ADJUSTMENTS
VALUE ADJUSTMENT
- ----------------
***
VSB ADJUSTMENTS
VSB Technology cash flows have been reduced by (i) an anticipated
settlement with Sony Corporation which reduces cash flows based on Sony's
assumed market share in the applications used to value VSB up until 2008
(present value reduction = $9.0MM) and (ii) a 10.0% annual reduction in all
cash flows related to management's anticipation of certain royalty-free cross
licenses (present value reduction = $20.0MM).
CALCULATION AND TREATMENT OF LG LEVERAGED LEASE CLAIM
The 4/16 Valuation assumes that 1998 capital expenditures include a $90.5MM
buy-back of the leveraged lease equipment and restructuring payments of $21.8MM
related to the buyout of the leveraged lease penalty. The 6/26 Valuation assumes
that the leveraged lease is terminated in December 1998 without direct cash
outlay by the Company coinciding with the financial restructuring.
In addition, LG claim has been reduced from $112.3MM to $97.3MM due to
timing and negotiated terms of the LG lease settlement. A portion of the claim
is treated as secured and the deficiency is treated as unsecured based on legal
assessment on terms of reimbursement agreement. Secured claim equal to
Greenwich Industrial revised valuation made subsequent to 4/16 Valuation.
INVENTORY BUILD-UP
The 4/16 Plan assumes that Electro does not reduce its levels of inventory
until Q-1 of 1999 to reflect the timing of its sourcing plan. During Q-1 of
1999, there is a $97.1MM source of cash reflecting the reduction of inventories
per the Company's sourcing plan. The 6/26 Plan, however, begins to significantly
reduce inventories in Q-3 and Q-4 of 1998 to reflect the new timing of the
sourcing plan resulting in a $67.1MM source of cash from reduced inventories in
fiscal 1998 versus a $6.8MM reduction in cash in the 4/16 Plan. In addition to
the issue of timing, there is an aggregate $38.0MM reduction in inventories
related to a reduced need to build inventories for console and projection
television.
11
<PAGE>
PROJECT ELECTRO
III. ONE-TIME ADJUSTMENTS
REYNOSA VALUE
Reduction in value of Reynosa asset received by LG from $56.6MM to $45.7MM
(for LG's distribution in the restructuring plan) reflects LG's decision to take
only 3 of Reynosa's 6 facilities.
CAPITAL STRUCTURE
Reduced by $4.0MM to reflect a $15.0MM reduction in LG leveraged lease
claim which is offset by the $11.0MM reduction in Reynosa value.
The projected draw down of new LG Financing and the working capital
facility have declined due to (i) a $38.0MM reduction in inventories related to
console and projection television, the (ii) reversal of a $15.0MM treasury
adjustment relating to inventory turns, and (iii) a subsequent detailed
inventory forecast that further reduced inventories.
12
<PAGE>
PROJECT ELECTRO
IV. METHODOLOGICAL COMPARISON
The methodology utilized in the discounted cash flow valuation based on the June
26, 1998 Business Plan ("6/26 Valuation") differs from the methodology utilized
in valuing the April 16, 1998 Business Plan (the "4/16 Valuation") in the
following ways:
- TIME PERIOD: For purposes of the S-4, the 6/26 Valuation values
Electro's Business Plan and VSB royalties at 1/1/99 and assumes a
terminal cash flow in the fifth year at 12/31/03. The 4/16 Valuation
values Electro's Business Plan and VSB royalties at 1/1/98 and assumes
a terminal cash flow period at 12/31/02. This change resulted from the
assumption in the S-4 that Electro would emerge from bankruptcy at
1/1/99.
- TREATMENT OF VSB CASH FLOWS: VSB cash flows are valued separately in
both the 6/26 Valuation and the 4/16 Valuation. However, in the 6/26
Valuation VSB related costs are excluded from corporate SG&A and R&D
costs and are allocated directly to VSB cash flows. In addition, the
6/26 Valuation assumes a reduction in VSB cash flows related to (i) an
anticipated settlement with Sony Corporation and (ii) management's
anticipation of certain royalty-free cross licenses.
- TREATMENT OF TUNER PATENT CASH FLOWS: The Tuner Patent is valued
separately from the Business Plan cash flows in the 6/26 Valuation.
The 4/16 Valuation assumes the Tuner Patent as part of the Business
Plan operating cash flows. In the 4/16 Valuation, the Tuner Patent is
capitalized as it is incorporated into the 2002 EBIT under the
assumption that Electro has historically had a cash flow from IP
licensing. PJSC has modified its view towards capitalizing the Tuner
Patent cash flows as this income stream is finite and expires on June
30, 2003, and management has made no assumption with respect to
ongoing cash flows from replacement IP licensing. It is PJSC's
judgement that Electro's current levels of R&D spending for the
development of new technologies do not justify utilizing the Tuner
Patent as a proxy for cash flows potentially received in the future
from new patents. The Tuner Patent cash flows have been further
modified in the 6/26 Valuation by reducing the income in 2002 by
$3.0MM and $1.5MM in 2003 to account for an anticipated settlement
with Sony.
13
<PAGE>
PROJECT ELECTRO
IV. METHODOLOGICAL COMPARISON
- TERMINAL MULTIPLE: The 4/16 Valuation generates a terminal value for
the Electro business franchise by applying a multiple to the last year
(2002) projected EBIT. This multiple is based on the median EBIT
multiple of the comparable companies at May 19, 1998. The 6/26
Valuation no longer has a positive EBIT in 2002 or in 2003 after
removing the Tuner Patent cash flows. Free cash flow is also negative
in 2003. The 6/26 Valuation applies a range of sales multiples to
Electro's sales in 2003 to determine the terminal value of the
Company. Rather than using the median sales multiple of the comparable
companies, which all have positive cash flow and extensive
international sales, the 6/26 Valuation utilizes the lower end of the
comparable company sales multiples range, further adjusted by
discounts ranging from 50% to 66%, to reflect the difference between
the comparable companies and Electro. Using a discounted sales
multiple to value an unprofitable company reflects value represented
by Electro's presence and market share within the U.S. consumer
electronics industry (including its trademark, distribution network
and shelf space) and captures the potential value available if an
owner were to "cherry-pick" profitable sales from Electro's $1.0
billion of total sales.
- DISCOUNT RATE: The 6/26 Valuation and 4/16 Valuation utilize the same
discount rates in valuing the business plan of Electro and the royalty
income related to VSB technology. The Tuner Patent, which is valued
separately in the 6/26 Valuation, is valued utilizing 18.0%, 20.0%,
and 22.0% discount rates. These rates have been utilized to reflect
recent disputes and negotiations with Sony and Funai which suggest
greater uncertainty in the stability of these cash flows.
14
<PAGE>
PROJECT-ELECTRO
V. COMPARABLE COMPANY ANALYSIS
Analysis of Selected Consumer Electronics Companies
(Dollars in millions, except per share amounts)
MARKET DATA
<TABLE>
<CAPTION>
Equity Value Enterprise Value as a
Closing Price/Earnings Multiples as a Multiple Multiple of LTM
------------------------------------- -------------------------
Price on Equity CY 1998 CY 1999 of Tangible Enterprise
Selected Companies 7/15/98 Value LTM EPS EPS (a) EPS (a) Book Value Value (b) Net Sales EBIT EBITDA
- --------------------- -------- ------- ------- ------- ------- ------------- ---------- --------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hitachi, Ltd.(c) 6.481 21,633.1 27.3 43.2 36.7 0.8 30,658.3 40.1% 11.8 4.1
Matsushita Electric
Industrial Co.(d) 16.619 35,103.6 39.2 38.7 33.6 1.2 37,280.8 59.3% 13.5 6.3
Mitsubishi Electric
Corp.(e) 2.175 4,669.9 68.0 NM NM NM 11,443.1 38.1% 14.6 4.3
Philips
Electronics N.V. 93.625 34,432.1 19.0 15.9 12.8 4.4 38,440.2 98.1% 14.3 8.3
Pioneer
Electronic Corp. 20.250 3,636.3 60.9 49.7 43.2 1.5 4,091.6 96.2% 26.5 10.6
Sony Corp. 92.700 37,206.4 20.4 21.7 20.0 3.3 44,537.2 81.4% 10.5 6.6
Mean (f) 68.9% 15.2 6.7
Median (f) 70.3% 13.9 6.5
</TABLE>
OPERATING DATA
<TABLE>
<CAPTION>
Net Income
Net Sales EBITDA EBIT to Common
------------------- ------------------- ---------------- ------------------
LTM CAGR LTM CAGR LTM CAGR LTM CAGR
--------- ------ ---------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ELECTRO $ 1,135.3 (4.0%) ($ 176.2) NM ($ 216.0) NM ($242.5) NM
Hitachi, Ltd. (c) 76,403.5 (0.5%) 7,435.1 (4.7%) 2,606.1 (5.7%) 817.7 (17.3%)
Matsushita Electric Industrial Co.(d) 62,868.0 (1.3%) 5,872.5 (9.1%) 2,766.2 6.9% 1,112.3 15.9%
Mitsubishi Electric Corp. (e) 30,041.9 (4.2%) 2,676.0 (7.9%) 785.1 (18.5%) 68.7 (59.7%)
Philips Electronics N.V. 39,188.6 (1.3%) 4,611.2 1.0% 2,693.6 (0.0%) 1,719.2 0.8%
Pioneer Electronic Corp. 4,254.9 (6.8%) 387.0 0.4% 154.2 12.1% 60.4 35.1%
Sony Corp. 54,719.8 11.9% 6,709.8 33.0% 4,229.8 91.9% 1,737.2 NM
</TABLE>
SELECTED RATIOS
<TABLE>
<CAPTION>
Net Working Return on Net Debt
Capital/Sales EBITDA/Sales EBIT/Sales Net Income/Sales Common Equity Total Cap.
------------- --------------- --------------- ---------------- ------------- ----------
LTM LTM Average LTM Average LTM Average LTM LTM
------------- ----- ------- ----- ------- ----- ------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hitachi, Ltd.(c) 17.0% 9.7% 10.5% 3.4% 3.8% 1.1% 1.4% 3.0% 5.9%
Matsushita Electric
Industrial Co.(d) (49.8%) 9.3% 9.3% 4.4% 4.0% 1.8% 1.2% 3.7% (6.2%)
Mitsubishi Electric
Corp.(e) 15.8% 8.9% 9.8% 2.6% 3.5% 0.2% 1.1% 1.1% 36.4%
Philips
Electronics N.V. 7.7% 11.8% 10.8% 6.9% 5.9% 4.4% 3.4% 17.9% 19.8%
Pioneer
Electronic Corp. 28.9% 9.1% 5.9% 3.6% 0.9% 1.4% 0.2% 2.4% 11.9%
Sony Corp. 11.9% 12.3% 9.3% 7.7% 4.2% 3.2% 0.1% 12.9% 25.0%
Mean (f) 10.2% 9.3% 4.8% 3.7%
Median (f) 9.5% 9.6% 4.0% 3.9%
</TABLE>
NOTE: CAGRs (Compounded Annual Growth Rates) and Averages are for the last three
completed fiscal years for each company. All operating data has been adjusted to
exercise unusual and extraordinary items.
(a) Source of projected EPS estimates: First Call - median estimate of Wall
Street analysis as of 07/15/98.
(b) Enterprise value represents equity value plus book values of total debt,
preferred stock and minority interest less cash.
(c) LTM data is as of September 30, 1997.
(d) LTM data is as of December 31, 1997.
(e) LTM data is as of March 31, 1997.
(f) Mean and median exclude ELECTRO.
15
<PAGE>
PROJECT ELECTRO
VI. LG PLAN ANALYSIS
Analysis of LG PROPOSAL (As Revised)
(Dollars in Millions)
<TABLE>
<CAPTION>
Estimated Proposed
Claim Amount Treatment
at 12/31/98 Under LG Proposal $ Recovery
----------- ----------------- ----------
<S> <C> <C> <C>
CITIBANK SECURED DEBT (a) $ 84.5 $100.0 $ 84.5
LG CLAIMS AND INTERESTS
SECURED
Secured Guarantee of Demand Notes 102.0
Secured Guarantee of Leveraged Lease(b) 33.7
Direct Loans 45.0
------
Subtotal $180.7 Exchanged for (i) $148.7 in restructured Notes (c), (ii)
100.0% of the equity of reorganized Zenith, (iii)
UNSECURED ownership of Reynosa plant ($45.7MM credit against 226.2 (d)
IG Extended Payable 140.0 claims) and (iv) general release. In addition LG is
Leveraged Lease Deficiency Claim 63.6 providing a revolving credit facility of $60.0MM.
Servicing Fees 10.0
------
Subtotal 213.6
------
Total LG Claims $394.3
GENERAL UNSECURED CLAIMS
General Unsecured (Trade) 85.0 Unimpaired 85.0
General Unsecured (Accruals) 140.9 140.9
6 1/4 Subordinated Convertible Debentures 103.6 $40.0 million new 6 1/4% Subordinated Debentures 40.0 (e)
due 2010
Common Equity NA Cancelled
</TABLE>
- --------------------------------------------------------------------------------
(a) LG Proposal assumes $100.0 million working capital facility.
(b) Reflects Greenwich Industrial Services value for leveraged lease at
fair-market-value-in-place.
(c) $97.3MM in leveraged lease claims, $45.0MM in direct loans, and $52.0MM
in the guarantee of demand note claims are exchanged for $148.7MM in
restructured notes and the value of Reynosa ($45.7MM).
(d) Excludes value of release, if any. Assumes equity value at 1/1/99 of
$31.8MM based on Company generating cash from inventory reductions and
asset sales per Business Plan projections.
(e) Assumes face value. Trading value may be lower.
16
<PAGE>
PROJECT ELECTRO
VI. LG PLAN ANALYSIS
ANALYSIS OF ORIGINAL LG PROPOSAL BASED ON 4/16 PLAN
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ESTIMATED PROPOSED
CLAIM AMOUNT TREATMENT
3/28/98 UNDER LG PROPOSAL $ RECOVERY
------------ ----------------- ----------
<S> <C> <C> <C>
Citibank Secured Debt (a) $ 88.0 $100.0 $ 88.0
LG CLAIMS AND INTERESTS
Secured
Secured Guarantee of Demand Notes 102.0
Secured Guarantee of Leveraged Lease (b) 112.3
Direct Loans 45.0
------
Subtotal $259.3 Exchanged for (i) $152.7
in restructured Notes (b),
(ii) 100.0% of the equity of 209.3 (c)
reorganized Zenith, (iii)
ownership of Reynosa plant
UNSECURED ($66.6MM credit against
LG Extended Payable 140.0 claims) and (iv) general release.
Leveraged Lease Deficiency Claim 0.0
Servicing Fees 10.0
------
Subtotal 150.0
------
Total LG Claims $409.3
GENERAL UNSECURED CLAIMS
General Unsecured (Trade) 75.0 Unimpaired 75.0
General Unsecured (Accruals) 150.0 150.0
6 1/4 Subordinated Convertible Debentures 103.5 $40.0 million new 6 1/4% subordinated 40.0 (d)
debentures due 2010
Common Equity NA Cancelled
</TABLE>
(a) LG Proposal assumes $100.0 million working capital facility.
(b) $112.3MM in leveraged lease claims, $45.0MM in direct loans, and $52.0MM in
the guarantee of demand note claims are exchanged for $152.7MM in
restructured notes and the value of Reynosa ($56.6MM).
(c) Excludes value of release, if any. Assumes no equity value at 1/1/98.
(d) Assumes face value. Trading value may be lower.
17
<PAGE>
PROJECT ELECTRO
VII. LIQUIDATION ANALYSIS
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
VALUE AT ASSET RECOVERY
(Dollars in Millions) 1/1/99 (a) FROM LIQUIDATION
---------- ----------------
<S> <C> <C> <C>
ASSETS
Marketable Assets
VSB Technology (tax-affected) (b) $ 51.0
Trademark & Distribution (c) 42.0
Tuner Patent (d) 40.0
Other intangibles (e) 0.7
Flat Tension Mask (e) 2.1
ESTIMATED
% RECOVERY
----------
Current Assets
Cash $ 0.0 0.0
Accounts Receivable (f) 149.0 65.0% 96.9
Inventories (f)
Finished Goods 35.2 75.0% 26.4
Less Warranty (g) (23.3)
------
Net Finished Goods 3.1
Work in Process 10.8 5.0% 0.5
Raw Materials 43.1 20.0% 8.6
Fixed Assets 0.0
Real Estate (f)
Domestic 4.4
Mexican (h) 0.0
Furniture, Fixture and Equipment (f)
Domestic 13.4
Mexican (h) 25.5
------
Gross Asset Recovery $288.2
======
</TABLE>
Note: Excludes "Other Assets" which represents the book gain on sale of certain
assets.
(a) All estimated values subject to substantial due diligence and review.
(b) Represents present value discounted to 1/1/99. Assumes 38.0% tax rate. Value
assumes a 35.0% discount rate, and royalty assets lower than Company Base
Case. Reflects decrease in income related to Sony and cross licenses.
(c) Assumes liquidation will result in a 50.0% decrease in market share to 5.0%,
a 2.0% market share contraction, a 25 million domestic television market, a
$300/television unit price, and a strategic buyer that has a weighted
average cost of capital of 12.0% and an incremental tax rate of 38.0%.
(d) Tuner Patent cash flows are net of cost and expenses associated with them
and assume settlement with Sony. Cash flows are tax affected at 38.0% and
are discounted at 25.0%.
(e) Per Company senior patent counsel. Other intangibles relates primarily to
touch-screen technology. Represents 50.0% of management's estimate of fair
market value.
(f) Estimated value at 1/1/99 per Electro management.
(g) Per Electro management. Payment assumed to be necessary to achieve
liquidation value. Includes future warranty claims as well as estimated
administration expense.
(h) Mexican real estate and furniture, fixture and equipment have been reduced
by $44.2MM in Mexican claims per Electro management. Real estate has been
reduced first.
18
<PAGE>
PROJECT ELECTRO
VII. LIQUIDATION ANALYSIS
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C>
GROSS ASSET RECOVERY $288.2
Less: Liquidation Expenses, & Administrative and Priority Tax Claims
Administrative Costs
Professional Fees (a) $ 24.0
Corporate Overhead (b) 24.8
Trustee Fees (c) 4.9
Brokerage Fees (d) 19.9
Wind Down Costs (e) 6.5
WARN Act (b) 21.0
Environmental (b) 24.5
------
Subtotal 125.6
------
Liquidation Proceeds Available for Distribution to Secured Creditors $162.7
</TABLE>
<TABLE>
<CAPTION>
SECURED DEBT CLAIM % RECOVERY
- ------------- ------ ----------
<S> <C> <C> <C>
Citibank $ 84.5 (f) $ 84.5 100.0%
Proceeds available for secured creditors after Citibank $ 78.2
LG Guarantee of Demand Notes 102.0 49.7 48.7%
LG Guarantee of Leveraged Lease 13.6 (g) 6.6 48.7%
LG Direct Loans 45.0 21.9 48.7%
------ ------
Total Secured Debt $245.1 $162.7
====== ======
Liquidation Proceeds Available for Priority Claims and Unsecured Creditors $ 0.0
and Equity
</TABLE>
(a) Assumes 4 year liquidation. Assumes fees of $2.0MM each month the first
6 months, $1.5MM for each of the next 6 months, $1.2MM for the entire
second year, $1.2MM for the entire third year, and $.6MM for the fourth and
final year.
(b) Per Electro management.
(c) Assumed as 3.0% of net liquidation proceeds.
(d) Brokerage fees assume 6.0% of gross asset recovery and $44.2MM Mexican
claim addback adjustment.
(e) Real estate taxes plus on-site security and wind down teams at each
location during an average twelve month disposition period.
(f) Based on average outstanding balance in Q-3 and Q-4 of 1998 and Q-1 and
Q-2 of 1999.
(g) Secured claim reflecting LG's guarantee of the leveraged lease equals the
value of the leveraged lease equipment in a liquidation per Greenwich
Industrial. Any deficiency claim is treated as unsecured.
19
<PAGE>
PROJECT ELECTRO
VIII. STRATEGIC INVESTORS CONTACT LIST
<TABLE>
<CAPTION>
Name(1) Contact Made By Comments
- -------- --------------- --------
<S> <C> <C>
- - Philips Jeff Gannon, Bill Leuhrs, Richard Interested only in certain potential assets
Lewis, Kevin Lynch, PJSC transactions and sourcing contracts.
- - Thomson Jeff Gannon, Bill Leuhrs, Richard Interested only in certain potential assets
Lewis, Kevin Lynch, PJSC transactions and sourcing contracts
- - Microsoft Jeff Gannon, Bill Leuhrs Interested only in potential technology
cooperation.
- - Mitsubishi LG Interested only in sourcing contract.
- - Hitachi Jeff Gannon, Bill Leuhrs Interested only in potential sourcing contract.
- - Sony Jeff Gannon, Bill Leuhrs No interest.
- - Oracle Jeff Gannon No interest.
- - Sun Microsystems Jeff Gannon, Bill Leuhrs, PJSC Interested only in potential technology.
</TABLE>
(1) In addition to the contacts with potential strategic investors set forth,
PJSC had contacts with the following potential financial investors:
Kohlberg Kravis Roberts & Co.; Accel Partners; Kelso & Company; Hellman &
Friedman; and Centre Partners. Additionally LG had discussions with
Clayton, Dublilier & Rice. None of the foregoing resulted in serious
expressions of interest.
20
<PAGE>
PROJECT ELECTRO
VIII. STRATEGIC INVESTORS CONTACT LIST - (cont'd)
<TABLE>
<CAPTION>
Name Contact Made By Comments
- ----- --------------- --------
<S> <C> <C>
- - Matsushita Bill Leuhrs Pending.
- - Intel LG Pending.
- - Sanyo LG Pending.
- - Texas Instruments Jeff Gannon, Bill Leuhrs, PJSC No interest.
</TABLE>
21
<PAGE>
EXHIBIT 99C
_________________________________________________________________
COMPLETE APPRAISAL OF REAL PROPERTY
PARTES TELEVISION DE REYNOSA, S.A. DE C.V.
An Industrial Manufacturing/Warehouse Facility
Matamoros y Brecha E-99
Parque Industrial Reynosa
APDO, Postal Number 178
Reynosa, Tamaulipas, Mexico
C & W Appraisal File No. 98-90843
_________________________________________________________________
IN A COMPLETE FORMAT
As of May 28, 1998
Prepared For:
PPM FINANCE, INC.
Attention: Ms. Barbara Buck
Suite 1200
225 West Wacker Drive
Chicago, Illinois 60025
and
ZENITH ELECTRONICS CORPORATION
Attention: Ms. Beverly Wyckoff
1000 Milwaukee Avenue
Glenview, Illinois 60025
Prepared By:
CUSHMAN & WAKEFIELD OF ARIZONA, INC.
Valuation & Consulting Services
Suite 300
1850 North Central Avenue
Phoenix, Arizona 85004-4540
<PAGE>
[LETTERHEAD OF CUSHMAN & WAKEFIELD APPEARS HERE]
June 12, 1998
PPM FINANCE, INC.
Attention: Ms. Barbara Buck
Suite 1200
225 West Wacker Drive
Chicago, Illinois 60025
and
ZENITH ELECTRONICS CORPORATION
Attention: Ms. Beverly Wyckoff
1000 Milwaukee Avenue
Glenview, Illinois 60025
Re: Complete Appraisal of Real Property
Partes Television de Reynosa, S.A. de C.V.
An Industrial Manufacturing/Warehouse Facility
Matamoros y Brecha E-99
Parque Industrial Reynosa
APDO, Postal Number 178
Reynosa, Tamaulipas, Mexico
Dear Ms. Buck and Ms. Wyckoff:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield of Arizona, Inc., is pleased to transmit our report
estimating the market value of the fee simple interest in the subject property
as is.
As specified in the Letter of Engagement, the value opinion reported is
qualified by certain assumptions, limiting conditions, certifications and
definitions, which are set forth in the report. This is a complete appraisal
prepared in accordance with the Uniform Standards of Professional Appraisal
Practice of the Appraisal Foundation.
This report was prepared for the client, and it is intended only for the
specified use of the client. It may not be distributed to, or relied upon by,
other persons or entities without written permission of Cushman & Wakefield of
Arizona, Inc.
The subject consists of seven industrial buildings occupied by a single
tenant, encompassing 1,200,000 square feet, situated on seven building sites
totaling approximately 91.05 acres. The facility is utilized by a subsidiary of
Zenith for the manufacturing and warehousing of televisions. The improvements
were constructed between approximately 1980 and 1984 and are in average
condition, with no major deferred maintenance noted. Only Plant
<PAGE>
[LETTERHEAD OF CUSHMAN & WAKEFIELD APPEARS HERE]
Ms. Buck and Ms. Wyckoff
June 12, 1998
Page 2
No. 70 is not considered functional and its building area was excluded from this
analysis. This was confirmed appropriate by the Plant Manager. Because of the
site size, placement of the miscellaneous building improvements on the various
industrial sites, and difficulty in allocating the land area to the specific
building sites, the Cost Approach will consider the value of the 91.05 acre site
in total. However, within the Sales Comparison and Income approaches, we
initially considered the individual values of the buildings, then totaled these
values to reflect the market value of the total subject property, which is the
focus of this assignment. This analysis was conducted due to the subject's
highest and best use reflecting a six tenant or six building owner conclusion,
rather than the single tenant occupancy which currently exists.
Michael L. Miller, MAI inspected the subject property and prepared the
report. As a result of our analysis, we have formed an opinion that the market
value of the fee simple estate in the manufacturing facility, subject to the
assumptions, limiting conditions, certifications and definitions, as of May 28,
1998, is:
FEE SIMPLE INTEREST
-------------------
THIRTY-FOUR MILLION NINE HUNDRED FIFTY THOUSAND DOLLARS
$34,950,000
At the request of the client, we have estimated the liquidation value of
the subject property. This assumes a six month sale period, which is less than
the estimated marketing period if sold at the market value previously noted.
This estimate of liquidation value, as of the date of appraisal and assuming a
six month sale period, is:
LIQUIDATION VALUE
-----------------
THIRTY-ONE MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS
$31,850,000
This letter is invalid as an opinion of value if detached from the report,
which contains the text, exhibits, and an Addendum.
Respectfully submitted,
CUSHMAN & WAKEFIELD OF ARIZONA, INC.
Michael L. Miller, MAI
Director
Valuation Advisory Services
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
- --------------------------------------------------------------------------------
PROPERTY NAME: Partes Television de Reynosa, S.A. de C.V.
LOCATION: Carretera A, Parque Industrial Reynosa, APDO,
Postal Number 178
Reynosa, Tamaulipas, Mexico
INTEREST APPRAISED: Fee simple estate
DATE OF VALUE: May 28, 1998
DATE OF INSPECTION: May 28, 1998
OWNERSHIP: Zenith
LAND AREA: 91.05 acres, or 3,966,186 square feet
ZONING: Industrial (assembly non-contaminants)
HIGHEST AND BEST USE
If Vacant: Industrial development
As Improved: Continued single-tenant industrial use
IMPROVEMENTS
Type: Six single-tenant industrial manufacturing
and warehouse buildings
Year Built: 1980 to 1985 (according to legal recordings)
Type of Construction: Tilt wall and masonry block with roof truss
system
Gross Building Area: 1,200,000 square feet
Condition: Average
VALUE INDICATORS
MARKET VALUE
Cost Approach: $34,930,000
Land Value: $ 5,160,000
Sales Comparison Approach: $34,930,000
Income Approach: $35,100,000
<PAGE>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
- --------------------------------------------------------------------------------
VALUE CONCLUSION
Fee Simple (Market Value): $34,950,000
Liquidation Value: $31,850,000
ESTIMATED MARKETING TIME:
Fee Simple (Market Value): 12 to 18 months
Liquidation Value: Less than 6 months
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
INTRODUCTION ............................................................. 1
Identification of Property ............................................ 1
Property Ownership and Recent History ................................. 1
Purpose and Function of the Appraisal ................................. 1
Scope of the Appraisal ................................................ 1
Date of Value and Property Inspection ................................. 2
Property Rights Appraised ............................................. 2
Definitions of Value, Interest Appraised, and Other Pertinent Terms ... 2
Legal Description ..................................................... 3
Personal Property ..................................................... 3
Reporting Guidelines .................................................. 3
Marketing Time ........................................................ 3
REGIONAL ANALYSIS .......................................................... 4
MAQUILADORA ANALYSIS ....................................................... 12
MAQUILADORA INDUSTRY ....................................................... 21
INDUSTRIAL MARKET ANALYSIS ................................................. 15
NEIGHBORHOOD ANALYSIS ...................................................... 34
PROPERTY DESCRIPTION ....................................................... 36
Site Description ...................................................... 36
Improvements Description .............................................. 37
ZONING ..................................................................... 41
REAL ESTATE ASSESSMENTS AND TAXES .......................................... 42
HIGHEST AND BEST USE ....................................................... 43
VALUATION METHODOLOGY ...................................................... 46
COST APPROACH .............................................................. 47
SALES COMPARISON APPROACH .................................................. 56
INCOME APPROACH ............................................................ 63
RECONCILIATION AND FINAL VALUE ESTIMATE .................................... 67
ASSUMPTIONS AND LIMITING CONDITIONS ........................................ 69
CERTIFICATION OF APPRAISAL ................................................. 71
ADDENDA .................................................................... 72
</TABLE>
Subject Photographs
Legal Description
Building Plans
Qualifications of Appraiser
[STAMP APPEARS HERE]
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
IDENTIFICATION OF PROPERTY
The subject property is known as the Partes Television de Reynosa, S.A. de
C.V., a subsidiary of Zenith. The improvements consist of six industrial
manufacturing/warehouse buildings totaling 1,200,000 square feet of gross
building area. The site consists of 10 parcels of land assembled to form six
building sites which encompasses 91.05 acres of land. The physical address is
Carretera A, Parque Industrial Reynosa, APDO, Postal Number 178, in the city of
Reynosa, state of Tamaulipas, Mexico.
The subject property is situated within an established industrial park in
the southeast quadrant of the city of Reynosa. The subject has immediate access
to Reynosa - Matamoros Highway, a major thoroughfare in the city. The
neighborhood is predominantly industrial with residential interspersed outside
of the industrial park boundaries.
PROPERTY OWNERSHIP AND RECENT HISTORY
The subject site was acquired by the current owners from 1980 to 1985 and
subsequently constructed the building improvements. Minor interior remodeling
has periodically occurred as demands on manufacturing have changed. No prior
sales, listings, or offers are known to have occurred in the last three years.
PURPOSE AND FUNCTION OF THE APPRAISAL
The purpose of the appraisal is to provide an estimate of the market value
of the fee simple interest in the subject property as is. At the request of the
client, we have estimated the liquidation value of the subject property. This
assumes a six month sale period, which is less than the estimated marketing
period if sold at the market value previously noted. It is our understanding the
appraisal will be utilized to assist in making management decisions relative to
financing.
SCOPE OF THE APPRAISAL
In the process of preparing this appraisal, we:
. Inspected the building and site improvements with the production manager.
. Drove every major street in the community and inspected all large
commercial, industrial and office facilities and all industrial parks
within the community.
. Conducted market research and analysis regarding the socio-economic makeup
of the country and the specific community where the subject is located.
. Prepared specific interviews and reviewed business and industrial overviews
prepared by Cushman & Wakefield of Mexico, Northern Mexico's regional
economic centers, real estate brokers, and industrial developers in order
to prepare a comprehensive overview of the maquiladora market.
. Conducted market research and analysis of occupancies, asking rents,
concessions, and operating expenses at competing properties. This included
phone conversation with industrial park managers, the individual
maquiladora production managers, area real estate brokers in the U.S. and
throughout Mexico. Further, we reviewed publications put out by the State,
the local economic development council and the U.S. sister city.
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INTRODUCTION
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. Conducted market inquiries into recent sales of similar properties to
ascertain sales prices per square foot and capitalization rates. This
included reviewing all potential commercial and industrial transactions in
the community, a regional search in the City, State and a national search
of potential leases and sales
. Reviewed specific construction costs of projects recently completed, under
construction and proposed in order to substantiate a replacement cost
estimate. A land value estimate through a comparison of recent land sales
was conducted and after depreciation, used to derive a value via the Cost
Approach.
DATE OF VALUE AND PROPERTY INSPECTION
The date of value is May 28, 1998, the same as the date of inspection.
PROPERTY RIGHTS APPRAISED
Fee simple estate and liquidation value based on a six month marketing
period.
DEFINITION OF MARKET VALUE
The definition of market value taken from the Uniform Standards of
Professional Appraisal Practice, 1994 Edition, published by The Appraisal
Foundation, is as follows:
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specific date and the passing of title from
seller to buyer under conditions whereby:
(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and acting in what
they consider their own best interests;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
(5) The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
EXPOSURE TIME
Under paragraph 3 of the Definition of Market Value, the value
estimate presumes that a reasonable time is allowed for exposure in
the open market. Exposure time is defined as the estimated length of
time the property interest being appraised would have been offered on
the market prior to the hypothetical consummation of a sale at the
market value on the effective date of the appraisal. Exposure time is
presumed to precede the effective date of the appraisal.
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INTRODUCTION
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The following definitions of pertinent terms taken from the
Dictionary of Real Estate Appraisal, Third Edition (1993), published by The
American Institute of Real Estate Appraisers (now known as The Appraisal
Institute), are as follows:
FEE SIMPLE ESTATE
Absolute ownership unencumbered by other interest or estate, subject
only to the limitations imposed by the governmental powers of
taxation, eminent domain, police power and escheat.
MARKET RENT
The rental income that a property would most probably command in the
open market; indicated by the current rents paid and asked for
comparable space as of the date of the appraisal.
CASH EQUIVALENT
A price expressed in terms of cash, as distinguished from a price
expressed totally or partly in terms of the face amounts of notes or
other securities that cannot be sold at their face amounts.
MARKET VALUE AS IS ON APPRAISAL DATE
The value of specific ownership rights to an identified parcel of real
estate as of the effective date of the appraisal; related to what
physically exists and is legally permissible and excludes all
assumptions concerning hypothetical market conditions or possible
rezoning.
LEGAL DESCRIPTION
A legal description is found the Addenda.
PERSONAL PROPERTY
There is no noted personal property associated with the operations of the
subject property that would require value consideration in the analysis of the
real estate.
REPORTING GUIDELINES
Throughout this report, all figures will be reported in United States (US)
dollars, unless specifically specified as pesos. All sizes will also be reported
in square footage or in acres.
MARKETING TIME
Marketing time is an estimate of the time that might be required to sell a
real property interest at the appraised value. Marketing time is presumed to
start on the effective date of the appraisal. (Marketing time is subsequent to
the effective date of the appraisal, while the previously note exposure time is
presumed to precede the effective date of the appraisal.)
The estimate of marketing time uses some of the same data analyzed in the
process of estimating the reasonable exposure time, and it is not intended to be
a prediction of a date of sale.
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INTRODUCTION
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Our estimate of an appropiate marketing time for the subject relates to a
sale of the property in its as-is condition. Based on our assessment of the
local real estate market and economic forces in general coupled with discussions
with local and regional brokers and buyers/sellers of industrial projects
similar to the subject, we have concluded that the probable marketing period for
the subject property in today's environment would 12 to 18 months.
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REGIONAL ANALYSIS
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Since real estate is an immobile asset, economic trends affecting its
locational quality in relation to other competing properties within its market
area will also have a direct effect on its value as an investment. To accurately
reflect such influences, it is necessary to examine the past and probable future
trends that may affect the economic structure of the market area and evaluate
the impact on the market potential of the subject.
REGIONAL AND LOCAL INFLUENCES
Mexico is a country struggling to modernize its infrastructure and reform
its political system. Although changes have been made, the process has been
slow. The joining of GATT known today as the World Trade Organization (WTO) in
1987 began the process of Mexico joining the free world. The signing of the
North American Free Agreement (NAFTA) in 1994 set in motion the reduction of
tariffs between Mexico and the United States. Since then Mexico has signed
several free trade agreements in Central and South America. The involvement of
other political parties besides the Partido Revolucionario Institucional (PRI)
in the governing of Mexico has created greater participation by the people.
However, problems persist in the southern states, such as Chiapas, where the
indigenous people continue to demand a voice in the political process.
Since the devaluation of the peso in 1994, Mexico has been attempting to
create stability in the financial markets. Over the last 20 years Mexico has
devalued its currency every six years. The massive $52 billion financial aid
package the United States and the International Monetary Fund loaned Mexico in
1995 created greater restrictions on the country's federal reserve bank. Since
then the pesos has floated freely. In order for Mexico to succeed, the
corruption must be uprooted and the judicial system reformed. Nevertheless,
Mexico's close proximity to the United States, its young, inexpensive labor
force and natural resources creates a great opportunity in tourism and
manufacturing that still have not been met.
ECONOMY
Latin American countries, especially those considered mature emerging
markets, held a profitable position during 1997. The Wall Street Journal
classified Latin America as the zone which generates the world's highest
profits, with Mexico categorized as a mature emergent market. By the close of
1997, almost $12 billion in international investments occurred in all of Mexico,
establishing the country as the third most popular country for foreign
investment. The GNP grew by 7.3 percent versus the government's 5.2 percent
projection. The inflation rate was 15.72 percent.
Mexico is the largest Spanish speaking country in the world. With respect
to land area, it is the third largest country in Latin America and the
thirteenth largest in the world. The United States is Mexico's largest trade
partner, and Mexico is the third largest trade partner of the United States
after Canada and Japan. The approval of NAFTA in 1994 between Mexico, the United
States and Canada created the largest and most lucrative trade zone in the
world, with a market of more than 400 million consumers. As other Latin American
countries continue to grow economically and are incorporated in free trade
agreements with Mexico, the Mexican economy will incur the most benefits due to
its central location and recent stabilized economy.
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REGIONAL ANALYSIS
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The economy in 1996 and 1997 was presented with a slow but constant
recuperation. At the beginning of 1995, a 30 percent devaluation of the
peso/dollar exchange rate was projected. But due to strong economic indicators
in the second part of the year, the peso stabilized and created a stimulating
force for accelerated recuperation, surpassing many previous predictions
surrounding the country's capacity for recovery. Further, in 1997, Mexico
reduced its short term external debt.
Mexico City remains as the most expensive city in the country. Conversely,
the city possessed the largest number of industrial and commercial
establishments, as well as representing approximately 30 percent of the average
GNP. Moreover, according to the American Chamber of Commerce, most companies
reported domestic sales volume increased during 1997, with almost one-third
indicating net operating profits had increased by more than 30 percent.
However, the real consumer buying capability has grown more slowly.
Santander, a Spanish banking group, predicted a consumer growth of around 2.5
percent for the year's end, and a jump in sales of approximately 10 percent, in
comparison to the previous year.
After World War II, Mexico based its economic growth on a system of
import-substituting industrialization. Barriers to imports protected domestic
products from foreign competition. Although the economy grew at average annual
rates of 6 percent in the 1950s and 1960s, the limits to the import substitution
model were all too apparent by the 1982 crisis. With booming oil prices and
foreign borrowing or deficit spending foreclosed, the De le Madrid government
began to open one of the world's most closed economies to competition and to cut
back the role of the state in economic activity.
The next president, Carlos Salinas de Gotari (1988-94), stepped up the pace
of this policy, privatizing many government industries and the banks, which had
been nationalized in 1982 by De La Madrid's predecessor, Jose Lopez Portillo.
On January 1, 1994, Mexico entered the North American Free Trade Agreement
(NAFTA) with the U.S. and Canada, further reducing barriers to trade with Mexico
for U.S. and Canadian companies and removing many restrictions of foreign
investment.
The transformation of the economy begun by the De la Madrid administration
and accelerated during the Salinas six-year presidential term brought inflation
down from 159.2 percent in 1987 to 7 percent in 1994 and produced an average
annual growth rate of 3 percent between 1985 and 1994. Mexico, the darling of
the international financial community, seemed posied to take full advantage of
its recently granted membership in the Organization for Economic Cooperation and
Development (OECD).
In 1994, a presidential election year, several social and political
problems in Mexico shook investor confidence. Organized uprisings among
indigenous groups in Chiapas, the assassination of the Institutional
Revolutionary Party (Partido Revolucionario Institucional, PRI) presidential
candidate Luis Donaldo Colosio and the murder of PRI Secretary General Jose
Francisco Ruiz Massieu, all sent tremors through Mexican financial markets.
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REGIONAL ANALYSIS
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A massive exodus of capital precipitated a balance of payments crisis.
Without capital inflows, Mexico could no longer sustain a current account
deficit the size of 1994's; about 8 percent of GDP. The country's reserve
position left the government with no other option than to let the peso float.
Fondo Bancario de Proteccion al Ahorro (FOBAPROA), the Mexican equivalent of the
U.S. FDIC, has since taken $43 billion in real estate properties as the result
of the previous pesos devaluation and is now responsible for management and
disposition.
The harsh, painful adjustment sparked by the devaluation (on December 19,
1994 a dollar cost 3.4 pesos; at the end of 1995 it cost 7.7 pesos) and the
economic policies required to forestall falling back into the vicious
devaluation/inflation spirals of the past provoked the sharpest economic
contraction since the Great Depression.
The economy began to recover by late 1995, accelerated rapidly in 1996 with
growth of over 5 percent for the year and declined to 4.5 percent for 1997. It
is expected that this growth will continue in 1998 with 4.0 percent annual
growth. In addition, exchange rate volatility has since eased and inflation has
fallen from an annual rate of over 51.9 percent in the aftermath of the
devaluation to 27.7 percent at the end of 1996. By May 1997 inflation fell below
1 percent per month for the first time since December 1994. Inflation forecasts
for the end of 1997 are 16.0 percent and 11.5 percent in 1998.
The recovery was, however, unevenly distributed. On the external side
improvement was immense. Besides overcoming the liquidity crunch, Mexico
succeeded in shifting a large trade deficit of $6.4 billion in 1994 to a surplus
of more than $6.4 billion in 1996. Mexico's access to international markets was
restored in mid-1995 when the Mexican authorities took advantage of the
opportunity to issue market debt in order to prepay the rescue package. By
January 1997, the portion of the rescue package owed to the United States was
repaid in full and $5 billion of the $12.4 billion owed to the IMF was pre-paid.
Mexico was also able to build up foreign exchange reserves to pre-crisis levels,
from $4 billion in January 1995 to $22 billion on July 18, 1997. The current
account deficit also shrunk from over 7 percent of GDP in 1994 ($30 billion) to
0.4 percent in 1996 ($1.4 billion).
As the United States' third largest trading partner, Mexico represents a
thriving market for U.S. products. Not only does Mexico offer a large market for
intermediate and capital goods produced in the U.S. and Canada, but it also
offers a growing market for consumer goods.
Intermediate goods, such as parts, supplies and raw materials used in
manufacturing, account for 78.8 percent of imports, and capital goods, such as
manufacturing equipment, account for another 13.4 percent. The fact that these
two groups compose over 92 percent of Mexico's imports reflects the country's
developing industrial base. Among the main importers of these goods are Mexico's
manufacturing and maquiladora industries and the Mexican government.
Although Mexico was hit by a severe economic crisis in 1995/96, its huge
consumer market is beginning to show signs of strong recovery. Due to the
introduction of free market
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REGIONAL ANALYSIS
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policies and the recent expansion of many well-known retail chains in Mexico,
consumers are enjoying access to a wide variety of foreign goods and services.
GOVERNMENT PRIVATIZATION
From 1997 until 2000, most of Mexico's remaining public transportation will
be privatized, including fifty-eight airports, nine ports, five rail concessions
and a dozen municipal transit systems. The long-distance telecommunications
market has already been opened to competition. In 1997, the government announced
a $100 billion toll road modernization program, $15-20 billion of which will be
invested before the year 2000 to modernize Mexico's transportation
infrastructure. Mexico's government sustained IVA (Impuesto al Valor Agregado)
at 15 percent and adjusted its budget for 1998 due to fluctuations of oil
prices, because oil is Mexico's main export product.
Mexico privatized billions of dollars in state-owned industries in the
1990's, and began a steady process of opening trade that culminated with the
approval of NAFTA. However, continued progress on privatization's has been slow
and cumbersome. A Mexican-US rail consortium, Transportacion Ferroviaria
Mexicana (TFM), only recently took control of Mexico's most important railway
line in a $1.4 billion deal that completed the country's most difficult sell-
off. The long-awaited petrochemical privatization was watered down last year.
The state-owned airports are next on the list to be sold.
A $100 million investment was recently announced by the government for a
railroad modernization program, with an estimated $15 to $20 billion to be
invested before 2000 to modernize Mexico's transportation infrastructure.
TRENDS
The government's new National Program of Financing for Development 1997-
2000 (Programa Nacional de Financiamiento de Desarrollo, Pronafide) is the first
multiyear plan and has broadened the range of policy goals to include targets
for national savings, social welfare expenditures and educational attainment. It
is designed to ensure GDP growth of 5.6 percent by the year 2000. To achieve
this goal, the plan calls for raising the country's total savings rate (internal
savings, external savings and depreciation rate) by more than four percentage
points to 25.5 percent of GDP in 2000 from 20.9 percent in 1996.
According to government and industry statistics, private consumption is in
fact on the rebound, albeit at a meager rate--2 percent in the first quarter of
the year. Overall consumption rose 4 percent in the first half of 1997 and
should rise by 5 percent in the second half, compared to the same periods a year
earlier.
In preparation for increased demand, companies this year and next expect to
invest more. In 1997 alone, companies will pour 44 percent more into physical
plant improvements and expansion, acquisition of new businesses, real estate,
research and development, and personnel training than they did in 1996. Next
year, respondents expect to increase investment in these areas by an additional
32 percent.
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REGIONAL ANALYSIS
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EMPLOYMENT PROJECTIONS
Reflecting the trends in sectoral performance, manufacturing companies will
see their investment levels increase at a slower pace in 1997 (44.5 percent) and
1998 (26.7 percent) than in 1996 (57.4 percent). 1996 was one of the first
year's when the sector's strongest members first looked beyond the frail
domestic market and focused their eyes on the lucrative export market. The bulk
of investment in this sector will be seen in the expansion and construction of
new physical plant and the acquisition of equipment.
The services and retail sectors on the other hand saw 1997 as the "get-
ready" year. Service-oriented companies are especially gearing up for greater
business by investing an average of 56.1 percent more than in 1996. As could be
expected, the vast majority of the sector's investment (72.4 percent) will be in
the training of its workforce to provide better-quality service.
The retail sector, one of the most affected by the travails of the economic
recession, is betting on slow but sure increased consumption levels between now
and the end of the six-year presidential term, or sexenio, by investing more
this year in new facilities and employee training. Survey respondents to the
American Chamber of Commerce study indicated investment in the sector will grow
by an average of 31.3 percent in 1997 and an additional 24.9 percent in 1998.
Fully half of respondents belonging to the sector indicated they will channel
funds toward the construction of new facilities. Confirming this data, the
country's retail trade association, the ANTAD, said its members plan to invest a
total of $2.95 billion in new and expanded stores over the next two years. An
even greater number of respondents (69.2 percent), however, said they will
invest more to train their human resources--a sign that greater competition has
forced retailers to provide not only better choices and prices, but also better
service.
Companies in all three sectors also plan to support their growth with new
employees as well. Manufacturers and service companies expect to increase their
workforces by an average of 43 percent in 1997, and by 51 percent in 1998.
Retailers plan to hire 9.1 percent more workers in 1998 and 9.5 percent more in
1998. The government estimates that close to one million new jobs will be
created in 1998 alone. Overall, the employment outlook is extremely bright and
should continue to grow above U.S. levels.
INFRASTRUCTURE
We have provided an overview of the transportation and utility
infrastructure of the community in order to provide further insight into the
economic viability of the country.
AIRPORTS
Mexico boasts the most highly developed airport infrastructure in Latin
America with 83 public airports, of which 53 are international. Mexico has 32
international agreements which permit reciprocal service to 12 countries
throughout the Americas, 13 in Europe and seven in Asia. Deregulation in recent
years warranted an increase in the number of carriers, route expansion, more
competitive pricing and a growing number of passengers. Privatization of
Mexico's 58 existing airports, in groups of two or three, began in the second
quarter of 1997.
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REGIONAL ANALYSIS
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PORTS
Mexico has a total of 76 seaports and nine river ports. Of those, 22 ports
are located in the country's major production and consumption centers, and
handle the bulk of national and international activity. The remaining ports are
dedicated to fishing and tourism. Port activity is highly concentrated in six
ports: Salina Cruz, Lazaro Cardenas, Manzanillo on the Pacific Coast and
Coatzacoalcos, Veracruz and Tampico/Altamira on the Gulf of Mexico. Total cargo
traffic through the port network increased 25.8 percent from 1996 to 1997, with
significant increases in both imports and exports.
HIGHWAYS
Mexican highways are divided into toll roads and toll-free roads. About one
third of the overall highway system is paved. Most of the paved roads are part
of the federal highway system, which between 1989 and the end of this decade
will have increased by over 70 percent. Toll highways are generally four lanes,
modern and quite costly. In contrast, toll-free roads are usually two lanes and
in poor condition. The government maintains the country's web of toll-free roads
whereas the network of toll highways is operated by the Office of Federal
Bridges and Roads (Caminos y Puentes Federales, Capufe) or by private
concessionaires. Rural roads still represent an important element of regional
and local transit.
TELEPHONES
Telmex, once a government-owned monopoly, was privatized in 1991 and is now
the fastest-growing telephone company in the world. The concession granted to
Telmex in 1990, defined the company's operating areas and set clear service
targets. The concession permitted the new owner a near monopoly for six years,
but competition for long distance services began in August 1996 and the bidding
on local frequencies will begin in October 1997. The long distance telephone
networks in Mexico are mostly fiber optic and totally digital. Local switching
is also digital and is more widespread than in many developed countries.
WATER
The National Drinking Water and Sewage Program (Programa Nacional de Agua
Potable y Alcantarillado), launched in 1990 by the National Water Commission
Comision Nacional del Agua, CNA), achieved nearly 100-percent availability of
potable water in medium-sized cities by 1992. It also increased the sewage
treatment coverage by one third, reaching 90 percent in major cities and 80
percent in medium-sized cities. Nonetheless 16.4 percent of the Mexican
population does not have access to potable water and 33.0 percent do not have
adequate sewage.
Water experts estimate that approximately $7 billion will be needed to
complete and expand current water projects and to construct new wastewater
collection and treatment systems. Since federal and local government budget
allocations for water projects are insufficient, much of the funding will need
to come from private sources of financing.
DEMOGRAPHICS
Presently, nearly 42 million of the 95 million Mexican citizens live in
poverty, with the national minimum wage at $26.45 pesos per day (approximately
$3.23 U.S.). Less than 20 percent of the population earns more than $5,125 pesos
per month ($625 U.S. per month).
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REGIONAL ANALYSIS
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Furthermore, the World Bank estimated that 42 percent of Mexico's economic
population is employed in the informal sector.
Approximately 56.8 percent of the Mexican population is under the age of 25
years, and six of every 10 citizens reside in cities. However, this trend is
changing, as the growth rate of the four main Mexican cities decreased to 1.8
percent from the 2.0 percent national average. One of the biggest problems
facing communities is adequately housing residents.
Consorcio ARA, residential developers, reported Mexico's housing deficit
was calculated at around six to eight million residences. In order to meet the
basic demands of the rapidly growing population, the housing inventory will have
to grow by roughly 777,000 units per year. During the past year, the
metropolitan areas averaged 4.52 residents per unit, slightly below the national
average of 4.65 residents per unit. Meanwhile, 86 percent of metropolitan
housing stock has access to water, and 84 percent has access to sanitary
services and drainage. However, nearly one million homes do not have electricity
and/or potable water, although the percentage of homes with electricity rose
from 58.9 percent to 93.2 percent between 1970 and 1995.
SCHOOLS/EDUCATION
There are many private institutions that offer quality education from
kindergarten to university. Many of them are bilingual, with the best
institutions concentrated in the economic centers of Mexico City, Guadalajara
and Monterrey.
SUMMARY
The common border of Mexico with the United States represents a unique
locational perspective that in the long term will benefit both countries. Mexico
is replacing many far east countries as a preferred manufacturing location, and
for good reason. Labor costs are similar and transportation costs are reduced to
North and South American countries. Additionally, the labor market is becoming
well schooled, with recent developments consisting of state of the art
facilities where skilled labor savings can also be found.
Mexico is taking the appropriate steps to become a free market society that
can effectively operate in a global economy. Society and government has reacted
positively to these changes, thus Mexico should remain one of the fastest
growing economies, with some of the highest profit potentials, of any country in
the world.
Near term forecasts project continued government and economic growth, at
reasonable levels. Population forecasts slightly above 2.0 percent are expected,
while growth in housing should substantially exceed this level due to current
inadequate supply. Municipal services will continue to expand and the monetary
system is expected to remain stable, with future inflation increases anticipated
at five to eight percent annually. Further, foreign investment will remain at
some of the highest levels of any country in the world.
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MAQUILADORA ANALYSIS
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In this analysis, we will analyze the business of manufacturing within
Mexico, then detail an overview of the industrial market within the community
and the maquiladora market in specific. A maquiladora is defined as an in-bond
light manufacturing facility located in Mexico. It is typically associated with
a company's raw materials being transported to the maquiladora where the
product is manufactured, then the finished product is shipped to the retailer or
consumer.
MANUFACTURING IN MEXICO
Mexican manufacturers generally range from small to medium-size companies.
Of the country's almost 120,000 manufacturing companies, approximately 98
percent are micro, small or medium-size businesses, all with fewer than 250
employees. However, almost all materials used to manufacture chemical products,
electrical and electronic components, textiles and footwear are imported from
the U.S. Less than 2 percent of these materials are produced in Mexico.
U.S. companies in Mexico purchase more raw materials from the U.S. than
from Mexico, which means U.S. companies tend to have the inside track for
supplying materials to their Mexican subsidiaries and other U.S. companies in
Mexico. Buying criteria, such as terms of payment, quality standards and
delivery time, are similar to U.S. standards. The top 10 states in terms of the
number of medium and large manufacturing operations are:
1. The State of Mexico,
2. The Federal District,
3. Nuevo Leon,
4. Baja California Norte,
5. Chihuahua,
6. Jalisco,
7. Guanajuato,
8. Coahuila,
9. Puebla, and
10. Tamaulipas.
THE MAQUILADORA INDUSTRY
Maquiladora plants are twin plants that utilize imported basic American
products and convert them into the finished export merchandise ready for U.S.
and international retailers. This allows American firms to compete with other
foreign companies. The majority of the 300 maquiladora companies that in recent
years have been establishing themselves in northern cities like Mexicali and
Ciudad Juarez are export companies. In the Baja region of central Mexico, larger
manufacturers rely on large developers like Hines and Group Accion to set up
infrastructure and construction so exporting can go straight from Mexico to the
desired country. In northeast Mexico, large developers like Finsa and a
subsidiary of Security Capital (a real estate investment trust) form the bulk of
new construction activity. They have just recently provided management of the
business operations in addition to facility construction. Regardless of the
location, these frontier communities did not previously have an established
public information sector or private brokerage firm to provide companies with
the various locational
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MAQUILADORA ANALYSIS
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and business opportunities available to them. Thus, companies had to rely on
specific economic districts and the industrial park land owners for information.
Mexico's maquiladora industry continues its dynamic growth rate. This 32-year
old program is now Mexico's second largest source of foreign exchange revenue,
in excess of $6 billion. Maquiladora exports represent 45 percent of the total
Mexcian manufactured exports. Maquiladoras started 1997 with a growth rate
exceeding 1996's by 16.7 percent, and it is projected that this growth rate will
remain constant through 1998. In comparison, the non-maquiladora manufacturing
sector is growing at a rate of 7.3 percent. From January to June 1997, the
Mexican government approved permits for 283 new maquiladoras resulting in 23,902
direct jobs. In total, there are currently 3,650 maquiladoras in Mexico,
accounting for more than 920,412 direct jobs. The new maquiladoras represent the
entire gambit of manufacturing procedures, including textiles, furniture,
automotive components, toys, sporting goods and chemicals.
SUMMARY OF THE MAQUILADORA INDUSTRY
MARCH 31, 1996 JUNE 31, 1997
-------------- -------------
Number of plants 2,288 3,650
Number of jobs 710,268 920,412
It is obvious this industrial market is expanding at a rapid pace; in fact,
it is exceeding the expansion of some of the fastest growing U.S. communities.
The industrial growth for maquiladoras versus the growth of the Mexican economy
is summarized below.
INDUSTRY GROWTH
MAQUILADORAS NATIONAL AVERAGE
------------ ----------------
First Quarter 1997 14.2% 5.7%
Breakdown by Location
Border Region 76.6%
Interior 23.4%
Recent trends indicate that of the new additions to the market, greater
numbers of maquiladora plants have moved from the border areas to the interior
of Mexico. This trend is generally due to the improvement of transportation
infrastructure, facilitating the export of maquiladora-manufactured goods and
enhancing access to the border region and the U.S. market. Also, many
maquiladora employers are finding lower turnover rates in the interior cities of
Mexico, such as Durango, Puebla, Queretaro and Yucatan. We have tracked the
building permits for new maquiladoras in the states of Baja California,
Coahuila, Chihuahua, Federal District, Guanajuato, Mexico, Nuevo Leon, Puebla,
Sonora, and Tamaulipas (shown in order from bottom to top). As can be seen, Baja
California and Chihuahua rank number one and two in total building permits.
Also, construction activity in Baja California, Coahuila, Federal District,
Guanajuato, Nuevo Leon, and Tamaulipas increased in 1997 over 1996 levels. More
non-North American investment is anticipated. With the passage of NAFTA and the
strict rules of origin, goods manufactured in North America have preferential
treatment as tariff and non-tariff barriers are eliminated for the signatory
countries. These rules have encouraged Asian and European firms that want to be
competitive in the North American market to invest in one of the signatory
countries. For example, Daimler Benz from Germany has invested in both the U.S.
and Mexico and Daewoo from Korea in Mexico.
- --------------------------------------------------------------------------------
-13-
<PAGE>
MAQUILADORA ANALYSIS
- --------------------------------------------------------------------------------
NEW MAQUILADORA PERMITS
January-June 1996/January-June 1997
[Graph Appears Here]
Investments are finally targeting the Mexican market. The maquiladora
program was originally designed to allow the duty-free entry into Mexico of
parts and components which would then undergo some portion of the manufacturing
process and finally be re-exported with duties assessed only on the value added.
Until 1994, sales in Mexico from maquiladoras were strictly controlled and
essentially not permitted. However, since 1995, under the revised Federal Decree
for the Promotion and Operation of Maquiladora Export Industry (Decreto para el
Fomento y Operacion de la Industria Maquiladora de Exportacion), a maquiladora
can sell up to 65 percent of its total production in the Mexican market. This
percentage will increase over the next five years until 2001 when maquiladora
sales in the domestic market will have no limits. This option adds a new
dimension to the long-term strategies for existing maquiladoras and potential
new investment.
While turnover is still extremely high, efforts to reverse this trend are
slowly showing results. Companies are trying a variety of incentives to retain
employees, from cash bonuses based on production to more creative incentives,
such as giving away popular consumer products. Companies that invest in
employee incentives, meal programs, medical benefits and social programs are
having turnovers as low as many U.S. companies.
According to March 1997 figures, the average daily salary of maquiladora
personnel was $105.21 pesos (approximately US$13), approximately four times the
national average daily wage. Obviously, this rate is competitive with many Asian
countries and well below U.S. and Canadian levels. As such, this provides
companies with higher labor costs significant cost savings when relocating
manufacturing to Mexico. However, as will be discussed in more detail within the
Cost Approach section of this report, building costs are similar to or higher
than U.S. costs due to the lack of speculative buildings added to the market.
This provides no measurable savings in the warehousing of goods compared to the
U.S.
- --------------------------------------------------------------------------------
-14-
<PAGE>
MAQUILADORA ANALYSIS
- --------------------------------------------------------------------------------
The economic recession of 1995 in Mexico, during which the peso lost over
50 percent of its value, brought domestic growth and investment to a drastic
halt. But it also had the impact of lowering the costs of operation for those
foreign firms which have revenue in foreign currency. While the rest of the
Mexican economy experienced negative growth rates, the export sectors, primarily
the maquiladora industry, experienced positive growth rates. In the Maquiladora
market, rents have the option to be paid in pesos and/or dollars. Typically,
rent is paid in dollars and management fees in pesos. Additionally, most foreign
companies form a joint venture with a Mexican national, or a Mexican company, to
provide a slightly more favorable tax treatment. Salaries are typically also
paid in pesos, except for the production managers and executives, who are paid
in dollars. Historically, salaries were paid in cash, but companies are now
installing ATM in their facilities and employees have the ability to collect all
or a portion of their paycheck and bank the rest. This is an interesting
transition, as it is extremely important to the long-term economic viability of
the people that personal savings increase.
In the wake of the previous crisis, the prospects for investment have a
long-term positive prospectus. Efforts need to be dedicated to ensuring that
infrastructure limitations at the border do not impede the flow of goods and
people both north and southbound. As trilateral trade among the signatory
members of the NAFTA exceeds $400 billion, 70 percent of which crosses from one
country to the other through the land-based ports of entry (truck and/or rail),
there needs to be a trilateral approach to developing and enhancing north/south
trade corridors. This currently is a difficult and time consuming process.
<TABLE>
<CAPTION>
IMPORT AND EXPORT COMPARISONS
=============================================================================
Jan. - June
1995 % 1996 % 1997 %
=============================================================================
<S> <C> <C> <C> <C> <C> <C>
U.S. EXPORTS
- ------------
Mexico 46,292 7.92 56,792 9.09 32,715 9.63
Canada 127,226 21.76 134,210 21.47 75,195 22.13
Non-NAFTA Countries 411,224 70.32 434,076 69.44 231,866 68.24
------- ----- ------- ----- ------- -----
Total 584,742 100 625,075 100 339,776 100
U.S. IMPORTS
- ------------
Mexico 62,101 8.35 74,297 9.34 40,923 8.3
Canada 144,370 19.42 155,893 19.60 83,952 20.05
Non-NAFTA Countries 537,072 72.23 565,099 71.06 291,732 71.65
------- ----- ------- ----- ------- -----
Total 743,543 100 795,289 100 416,607 100
=============================================================================
MEXICAN EXPORTS
- ---------------
U.S. 66,273 88.32 80,540 83.9 44,538 84.97
Canada 1,987 2.5 2,171 2.26 1,087 2.07
Non-NAFTA Countries 11,282 14.18 13,289 13.84 6,795 12.96
------- ----- ------- ----- ------- -----
Total 79,542 100 96,000 100 52,420 100
MEXICAN IMPORTS
- ---------------
U.S. 53,902 74.4 67,555 75.51 37,504 74.52
Canada 1,374 1.90 1,744 1.95 932 1.85
Non-NAFTA Countries 17,177 23.70 20,170 22.54 11,893 23.63
------- ----- ------- ----- ------- -----
Total 72,453 100 89,469 100 50,329 100
=============================================================================
</TABLE>
Source: Banco de Mexico and U.S. Department of Commerce
- -----------------------------------------------------------------------------
-15-
<PAGE>
MAQUILADORA ANALYSIS
- --------------------------------------------------------------------------------
Regardless of NAFTA, Mexico is negotiating for other trade agreements.
Similar types of agreements with five other countries have been consummated and
are just beginning with the European Union and Mercosur (consists of Brazil,
Argentina, Paraguay and Uruguay and is seen as one of the fastest growing trade
accords in the world). When these negotiations are concluded in 1998, the
European Union could easily replace the U.S. as Mexico's largest trading
partner.
The National Foreign Investment Commission (Comision Nacional de
Inversiones Extranjeras, CNIE) within the Secretariat of Commerce and Industrial
Development (Secretaria de Comercio y Fomento Industrial, Secofi) regulates
foreign investment and can authorize majority foreign investment in areas in
which foreign capital cannot automatically exceed 49 percent.
CHANGES TO THE FOREIGN INVESTMENT LAW
Recent amendments to Mexico's Foreign Investment Law further liberalize the
regulation of foreign investment in Mexico to conform with recent privatization
initiatives and consolidate relevant provisions previously found in other laws
and regulations. Certain reporting and procedural requirements are clarified
and, in some instances, relaxed. Additionally, in many cases in which prior
government approval is still required, it is deemed to have been granted if not
denied within a specified time frame. The most significant changes to foreign
investments are as follows:
* For the first time, foreign entities may directly acquire land,
provided it is outside Mexico's restricted zones (coastal and border
areas).
* The calculation of foreign investment in a restricted enterprise will
no longer take into account minority foreign participation in the
entity or entities which own or would own such enterprise, provided
such entities are controlled by Mexican nationals.
* Limits on foreign investment in financial group holding companies,
banks, stock brokerage houses and stock market specialists are raised
from 30 percent to 49 percent, although Mexican laws regulating
financial institutions permit U.S. and Canadian financial institutions
to own up to 100 percent of qualified Mexican affiliates and acquire
up to 100 percent of all but Mexico's three largest financial
institutions. The foreign investment limit applicable to companies
formed to manage Mexico's newly-created retirement funds (Afores) is
set at 49 percent.
* The types of basic telecommunications services subject to the 49
percent limit on foreign investment have been clarified by tying the
limitation of services which require the award of a government
operating concession, with the exception of cellular telephone
services, which can exceed such percentage with prior approval from
the CNIE.
- --------------------------------------------------------------------------------
-16-
<PAGE>
MAQUILADORA ANALYSIS
- --------------------------------------------------------------------------------
. With prior governmental approval, entities with majority foreign
investment may now participate in the bidding for the privatization of
the operation of Mexico's airports, telecommunications, satellites and
railroads.
A summary of foreign investment characteristics indicate the U.S. generates
the highest investment, followed by Canada and The Netherlands. To date, this
investment totals $5,646 billion.
DISTRIBUTION OF DIRECT FOREIGN INVESTMENT
BY COUNTRY OF ORIGIN (1996)
-----------------------------------------
COUNTRY
United States 66.0%
Canada 8.7%
The Netherlands 5.8%
India 5.1%
Germany 2.9%
Japan 1.7%
France 1.2%
Switzerland 1.2%
-----------------------------------------
Source: Secofi, General Office of Foreign Investment
ACQUISITION OF MEXICAN COMPANIES
There are no restrictions on the purchase of up to 40 percent, or a lower
percentage allowed for restricted activities, of the capital of companies
controlled by Mexicans at the time of the acquisition. However, the prior
approval of the CNIE is required when the total value of assets of the relevant
Mexican company exceeds an amount periodically established by the CNIE and
which, at the time of publication, was fixed at $85 million pesos ($10,625
million at an exchange rate of 8 pesos to $1).
COMMERCIAL LOANS
Despite incipient recovery, credit is still scarce and expensive in Mexico.
The current interest rate is between 20 and 30 percent, with limited access to
commercial bank financing by many prospective borrowers. It is important to note
that, particularly in the last six months, investment funds, both domestic and
international, have increased their interest in the Mexican market. There are at
least 10 different funds that are actively seeking opportunities to finance a
project or to inject capital in Mexican-based companies.
TAX MATTERS
Mexican tax law treats foreigners doing business "with" Mexico differently
than it treats those doing business "in" Mexico. Doing business with Mexico
suggests engaging in international trade directly from a foreign home office,
whereas doing business in Mexico suggests the additional step of establishing a
physical presence in Mexico and regularly engaging in commercial activities in
the country.
- --------------------------------------------------------------------------------
-17-
<PAGE>
MAQUILADORA ANALYSIS
- --------------------------------------------------------------------------------
DOING BUSINESS "WITH" MEXICO
A foreign company can do business with Mexico from abroad in order to
minimize the tax and regulatory consequences arising from the establishment of a
presence in the country. When structuring operations in this way, however,
foreigners must be extremely careful to ensure that they do not create a
"permanent establishment" or a "fixed base" in Mexico as the income derived from
such entities is considered taxable.
DOING BUSINESS "IN" MEXICO
Foreigners may opt to do business in Mexico by employing a subordinate
agent, establishing a Mexican company, or acquiring stock in an existing Mexican
company. The use of any of these methods will create a permanent establishment
and has the following tax and regulatory consequences:
CORPORATE TAX -- A corporate tax of 34 percent must be paid annually on the
company's taxable profits. Such profits are calculated by deducting certain
allowed expenses from the total accruable income. Most of the company's
income is considered accruable for income tax purposes at the time invoices
are issued, or when goods or services are delivered to the buyer if no
invoice is issued. Basically, the allowed deductions are all discounts
and/or expenses deemed "strictly indispensable" for the carrying out of the
company's business.
TAX ON ASSETS -- There is a federal tax on corporate assets applied at a
rate of 1.8 percent. This tax is applied on the fixed, financial and
current assets of Mexican companies. This tax must be paid on an annual
basis through monthly provisional payments. The payment of the tax on
assets is not required during the pre-operational period of a company, the
year in which operations commence, the following two years of operation, or
the year in which it is liquidated.
VALUE ADDED TAX -- When the Mexican company transfers or leases goods, or
renders services in Mexico, it will be obligated to pay Value Added Tax
(Impuesto al Valor Agregado, IVA). This tax is 15 percent of the price of
the goods or services and can be transferred to the clients by including
the tax on its billing invoices. This rate is 10 percent within 20
kilometers of the border of Mexico and in all of Baja California and
Quintana Roo. However, if such goods and services are to be exported from
Mexico, the IVA is zero percent.
Reductions in both the Value Added Tax and the Tax on Assets are up for
debate in 1998's fiscal reform.
PAYROLL TAXES -- The company is subject to a local and state payroll tax at
a rate that depends on the location of the working facilities. The federal
government also taxes corporations with social security fees that amount to
a minimum of 8.95 percent of the payroll, to be paid by the employer for
old age, death, child care, retirement and disability.
- --------------------------------------------------------------------------------
-18-
<PAGE>
MAQUILADORA ANALYSIS
- --------------------------------------------------------------------------------
WAREHOUSING
Warehousing in Mexico has experienced important changes in 1997. Control of
most of the warehousing sector is being passed from the government to private
hands, leading to improvements in both infrastructure and services. Still, fewer
and smaller facilities are available in Mexico than in the U.S.
Warehousing costs are usually paid monthly and are charged in terms of
space/area occupied. Also, any merchandise placed in a warehouse should be
insured. Basic insurance policies can be obtained directly through the warehouse
or by contracting a private insurance company for a more comprehensive policy.
- --------------------------------------------------------------------------------
-19-
<PAGE>
MAQUILADORA INDUSTRY
- --------------------------------------------------------------------------------
The maquiladora industry in the state of Tamaulipas continues with its
tendency for growth. However, at the national level, the number of
establishments grew 12.8 percent, while the number in the state grew 8.3 percent
in 1997. Corresponding to employed personnel, it appears that growth at the
national level was 19.4 percent while the state of Tamaulipas had approximately
eight percent growth at the end of 1997. The last aggregate value increase at
the national level was 40.0 percent and at the state level was approximately 30
percent. Thus, it can be concluded that the number of establishments and the
relative employment increases are similar, while proportionately more is being
spent on those facilities. Again, these increases are above those being
experienced in the fastest growing U.S. metropolitan communities.
Currently, the interior states of the country are growing at much greater
rates than those on the frontier (the border between the U.S. and Mexico). The
interior communities have aggressively sought foreign investments and have
become the most attractive of all communities which use intensive manual labor.
The difference is that the maquiladora that currently settles in the northern
frontier utilizes more U.S. technology and warrants the most skilled labor in
the manufacturing process. Thus, businesses that utilize intensive and cheap
manual labor are opting for the states in the center of the republic, such as
Durango, Aguascalientes, Guanajuato, Zacatecas and Yucatan.
The employers in the frontier communities provide the greatest increase in
salaries and grants/loans that has skewed the growth in national average
employment wages upward. This implies an above average increase in salaries paid
by the maquiladora. Another consideration is that 1997 reflects three
consecutive years of considerable growth, at some of the highest levels in the
30 years the maquiladora has been Mexico.
We have documented a breakdown of the maquiladora industry adjacent to the
U.S. border for discussion.
PARTICIPATION OF THE MAQUILADORA INDUSTRY
EXPORTATION FOR THE FRONTIER ENTITIES
OCTOBER 1997
<TABLE>
<CAPTION>
=======================================================================================================
Frontier Entities Establishments Employed Personnel Aggregate Value
=======================================================================================================
Millions Of
Number % People % Dollars %
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Chihuahua 413 14.6 249,535 26.3 212 26.8
Nuevo Leon 112 4.0 41,171 4.3 43 5.4
Sonora 232 8.2 83,748 8.8 55 6.9
Coahuila 253 9.0 81,576 8.6 56 7.1
Baja California 937 33.2 210,240 22.2 193 24.4
Tamaulipas 326 11.5 142,258 15.0 118 14.9
Other Entities 550 19.5 140,130 14.8 115 14.5
------ ------ -------- ------ ---- ------
National Total 2,823 100.0 948,658 100.0 792 100.0
=======================================================================================================
</TABLE>
Source: INEGI, Direccion General de Estadistica, Direccion de Estadisticas
Economicas
(General Site of Statistics, Site of Economic Statistics).
Note: The information presented corresponds to the month of October, 1997.
- --------------------------------------------------------------------------------
-20-
<PAGE>
MAQUILADORA INDUSTRY
- --------------------------------------------------------------------------------
COMMERCIAL BALANCE
FRONTIER STATES
January-August 1997 (Millions Of Dollars)
<TABLE>
<CAPTION>
======================================================================
AGGREGATE VALUE
EXPORTS IMPORTS MAQUILADORADOR COMMERCIAL
STATE (*) (-) INDUSTRY BALANCE
======================================================================
<S> <C> <C> <C> <C>
Chihuahua 213.0 681.2 1,592.9 1,124.7
B.C.N. 292.0 841.4 1,266.0 716.6
Tamaulipas 138.1 548.0 878.8 468.9
Sonora 367.2 445.0 387.9 310.1
Coahulla 216.0 593.5 370.4 -7.1
Nuevo Leon 470.0 2,284.0 301.0 -1,513.0
======================================================================
</TABLE>
SOURCE: Secretary of Commerce and Industrial Promotion, Delegation Chihuahua,
INEGI, Statistics from the Maquiladora Export Industry.
The participation in the frontier entities in national exports is only a
small allocation. They make up only 2.4 percent of the total exports of the
country, while these states import 8.0 percent of all national imports with
respect to aggregate value. However, they have a significant bearing on their
local economies and the maquiladora industry as a whole; as these frontier
states command 85.5 percent of the $4,797 million dollars generated by the
maquiladorador industry at the national level. The state of Chihuahua has the
greatest commercial balance of any state, while Nuevo Leon and Coahuila present
deficit amounts. Within this state, Juarez is one of the largest communities
and is a young vibrant city poised to take advantage of the North American Free
Agreement (NAFTA) with its proximity to the United States. The young, educated
labor force, coupled with the low wages, provides the competitive edge for the
maquiladora industry in this market.
SUMMARY
While the maquiladora market provides only a small part of the economic
make-up of the country, it provides significant manufacturing employment and
construction dollars to those communities adjacent to the U.S. border.
Maquiladora production managers indicated that fully 60 to 80 percent of all
their manufacturing employees are women, providing employment opportunities to a
segment of the market that previously was not provided jobs. Additionally, the
expanding maquiladora market has provided workers and managers with employment
opportunities at increased wages. As such, we anticipate management and skilled
labor costs to increase significantly in the next one to three years as the
market continues to expand. From an unskilled labor perspective, additional
opportunities will allow employees to relocate to firms with enhanced benefits
and should reduce unemployment levels.
The market expansion should also provide a sense of stability to those
firms that are considering relocating to Mexico but have not made the move.
Labor costs are at some of the lowest levels in the world and, with U.S.
influences, the population is rapidly gaining housing, savings and educational
opportunities previously not available. Coupled with the relatively young
population basis, Mexico, and particularly the frontier states, should continue
to effectively compete on an international basis for new manufacturing
opportunities.
- --------------------------------------------------------------------------------
-21-
<PAGE>
INDUSTRIAL MARKET ANALYSIS
- --------------------------------------------------------------------------------
This section will review the current status of the industrial market in
Mexico and Reynosa in order to analyze those factors that will influence the
future of the subject property. There were no available municipal publications
on Reynosa's industrial market. Information was obtained from Cushman &
Wakefield of Mexico/GCI, INEGI and interviews with Finsa, Best Real Estate,
Grupo Puebla and Dynatech.
REAL ESTATE OVERVIEW
Currently, small firms, which create the lion's share of new jobs in most
economies, do not have access to either the bank loan or international markets.
Therefore, most companies are wholly owned and have limited capital for research
and development, the purchase of new technology and for expansion. Further, they
have the inability to leverage their real estate over the long term; therefore,
a large percentage of the operating funds go for real estate.
Larger companies have a competitive advantage in financing their
facilities. They have the option to lease, buy someone else's previously
occupied facility (rarely available), or work with a developer on a
build-to-suit. The latter provides a facility that is specifically catered to
the needs of the manufacturer.
DEVELOPMENT/INVESTMENT
John Deere, Rhone Poulenc, Bimbo, Calsonic and 3M made strong investments
in the industrial sector during 1997 in Mexico but, although export companies
like these grew (maquiladora business grew approximately 70 percent between 1990
and 1996), most of Mexico's domestic industries remained unchanged.
The largest communities in the country, like Mexico City, have a diverse
industry base, with a predominance of auto parts, electronics, pharmaceutical,
textiles and consumer products. In Mexico City, type A industrial space is
normally build-to-suit; therefore, the supply of new speculative industrial
buildings remains very low. As a result of this shortage of space, the few
modern facilities within the city are rapidly acquired when they become
available.
This is also true of every frontier community we inspected and surveyed -
Hermosillo, Juarez, Chihuahua, Matamoros, and Reynosa. Although their economies
are not as diverse as Mexico City, continued market expansion has caused
similarities in industry base and also the same company with multiple locations.
This provides maquiladoras to be strategically located across the southern
border of the U.S. to provide lower transportation costs. It also allows
convenient access to shipping opportunities in both the Atlantic and
Pacific oceans.
OUTLOOK
Of the 3,650 maquiladora programs in mid-1997, 68 percent were at the
northern frontier of Mexico, and 32 percent in the country's interior. In the
automotive sector alone, between 1996 and 2000, production in Mexico is expected
to grow from 1.2 million to 1.85 million vehicles. This industry investment will
average $3 billion a year and provide significant incentive to communities
catering to these companies.
- --------------------------------------------------------------------------------
-22-
<PAGE>
INDUSTRIAL MARKET ANALYSIS
- --------------------------------------------------------------------------------
In contrast to the industrial growth of the northern and interior states,
heavy industry will definitely continue leaving Mexico City to outlying
communities. However, because the Mexico City metropolitan area still comprises
the largest consumer market, most companies will focus on locating suitable
spaces for distribution or service centers -- mainly in the northern submarkets
of the city or in cities close to the metropolitan area.
REYNOSA MARKET
The strength of the Reynosa economy has created a sizable need for
industrial space. An advantage that Reynosa offers over many other frontier
communities is its diversified and well trained workforce, as well an
established supporting infrastructure. The movement of companies into Reynosa is
also being heavily influenced by the McAllen Economic District, Reynosa's U.S.
sister city north of the border. The McAllen Economic District has an
approximate $1 million budget and is directing U.S. manufacturing companies to
Reynosa, with a supplemental plant in McAllen. Market expansion since 1994 is
documented for both Reynosa and Matamoros, the two largest cities in the state,
adjacent to the U.S. border.
INDUSTRIAL MARKET EXPANSIONS
Reynosa and Matamoros
- --------------------------------------------------------------------------------
REYNOSA MATAMOROS
YEAR NEW BUILDINGS EXPANSIONS NEW BUILDINGS EXPANSIONS
- --------------------------------------------------------------------------------
1994 14 8 14 3
1995 17 5 13 3
1996 26 N/A 14 N/A
1997 19 N/A 12 N/A
- --------------------------------------------------------------------------------
As indicated, Reynosa has experienced an increase in new building activity
in 1996 and 1997, versus 1994 and 1995. Because speculative builders have just
recently entered the market, the supply of new buildings are expected to
increase. Almost all new buildings that were constructed between 1994 and 1997
were build-to-suit projects. It is our anticipation that new additions to the
markets will increase in 1998 and 1999.
Reynosa industry has traditionally been oriented towards light
manufacturing (the maquiladora), yet during 1995 and 1996 distribution centers
and high-tech space began to appear. During 1996, suppliers for the big
maquiladora plants in Reynosa and Matamoros provided increase demand of
industrial space in the 30,000 to 50,000 square feet range which was previously
not available. This market trend of building industrial space less than 50,000
square feet is a new trend precipitated by businesses entering the market at an
initially small scale and then expanding into larger spaces or constructing
additions. This trend is ocurring throughout the frontier cities that cater to
the maquiladora market.
The lack of available space with 22' clear heights or greater is another
building trend that has produced demand for new development. The supply has been
initiated by one U.S. developer who joined forces with local landowners in order
to build industrial facilities meeting U.S. standard specs. While these trends
are slowly being met by developers, it is the owners of
- --------------------------------------------------------------------------------
-23-
<PAGE>
INDUSTRIAL MARKET ANALYSIS
- --------------------------------------------------------------------------------
the industrial parks who control the supply for build-to-suit product, and
product being built outside these parks is becoming more limited due to
government restrictions and social concerns.
The Reynosa and Matamoros markets consist mainly of freestanding industrial
facilities that were constructed specifically for the tenant. Many tenants and
building owners have remained in this market since their initial building
occupancy and have expanded as demand increases. It is rare to have maquiladoras
vacant and typically occurs when businesses require larger buildings for their
operations and relocate. A thorough view of the market indicated an occupancy of
98 percent, with a majority of the inventory constructed in the 1980s. The new
speculative buildings being added to the market rarely remain vacant for three
months following completion of construction.
The lack of available vacant space has prohibited many potential tenants
from entering the market. A build-to-suit takes nine to 12 months and many
manufacturers are finding alternative U.S., Asian or European locations to meet
immediate demand. The Reynosa market did experience a reduction of net
absorption in 1997, as compared to 1996, again a result of the lack of available
industrial space the developers delaying their speculative buildings. All known
speculative buildings built during 1997 were preleased or sold before completion
of construction.
During 1997 and the first half of 1998, the first U.S. and Japanese
developers started large scale construction in Reynosa, primarily on a
build-to-suit basis. In 1998, a U.S. developer began investing on speculative
industrial buildings, primarily in the southern portion of the community.
Real estate financing is beginning to recognize the U.S. standards. New
U.S. lenders have begun to finance in Reynosa, while the U.S. border banks and
Mexican banks are very interested to lend money to the industrial market. Title
insurance companies are currently working in Reynosa providing the same title
insurance as in the United States. Every day more companies require
environmental studies for properties to be purchased or financed.
Most build-to-suit lease agreements are for five to 10 years, and the
developer will pay off the construction of the facility in approximately seven
years. This reflects an initial yield requirement (rental income as a percent of
total construction cost, including land) of at least 14 percent. Even leases
with the best credit tenants (Fortune 500 companies) warrant lease rates
exceeding 12.75 percent and range to a high of 16.0 percent. Almost all require
corporate business or personal guarantees. Buildings are rarely financed by the
owners and typically constructed under an all cash scenario. However, only the
largest developers in the community can obtain financing, with rates typically
14.0 to 18.0 percent with preleasing and corporate guarantees. However, on
speculative projects, financing rates climb to 18.0 or 22.0 percent.
The estimated 1996 vacancy rate was approximately two percent for the
community and at the end of 1997, increased to approximately three percent.
However, established industrial subdivisions, like Finsa Maquil Park, is 100
percent occupied, with only two vacant land sites available for expansion.
- --------------------------------------------------------------------------------
-24-
<PAGE>
INDUSTRIAL MARKET ANALYSIS
- --------------------------------------------------------------------------------
Industrial Market Analysis
[Map Appears Here]
- --------------------------------------------------------------------------------
-25-
<PAGE>
INDUSTRIAL MARKET ANALYSIS
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Reynosa remains one of the most attractive maquiladora markets to invest
in. Blue chip tenants and high-quality construction from reliable companies are
among the reasons why important money lenders, such as GE Capital, Texas
Commerce Bank and Heller Financial, have committed to financing new projects. It
is also why Security Capital has targeted this market for substantial
speculative building development. Thus, the long-term outlook is for stability
among existing tenants, with market expansion creating additional occupancy
alternatives previously not available. Further, if these lenders can provide
financing at levels below existing capitalization rates, building costs and
lease rates could decline. Current market leasing activity suggests that rental
rates have since stabilized, but could decline as speculative builders bring new
product to the market, reduce construction costs due to economies of scale and
better leverage their financial structure.
It should be noted that not all industrial facilities in the community are
occupied by maquiladora operators. Reynosa is an established industrial market
for many Mexican originated manufacturers. South of the community is Monterey,
the largest city in the state and the cultural and political center of northeast
Mexico. Many goods are being manufactured in Reynosa for retailers within this
large community.
Building costs in Matamoros and Reynosa are higher than other maquiladora
markets closer to the center of the state, due to the hot climate with high
humidity requiring HVAC throughout the entire building. In cities like
Chihuahua, Hermosillo and Juarez, warehouse and manufacturing space can be
cooled with evaporative coolers, decreasing building costs $1.00 to $3.00 per
square foot.
Construction activity within the areas industrial parks include two 60,000
square foot speculative buildings being built by Security Capital. Recent
build-to-suit activity includes a new 350,000 square foot facility constructed
for Masbak, a 60,000 square foot facility for Motores Hermiticas, a 60,000
square foot facility for Nokia and a 45,000 square foot facility for Bisell.
In summary, these industrial market characteristics support industrial
market, with statistics equaling some of the best levels experienced in the
highest growth communities in the U.S. It is reported that 15 percent of the
Fortune 500 companies are represented in the Reynosa market. Given the current
economic climate, the Reynosa industrial market should outperform most U.S.
metropolitan areas in terms of industrial construction, leasing activity and net
absorption. However, increased market efficiencies should cause rental rates to
stabilize or slightly decline, and speculative building activity should push
vacancies slightly upward.
PARQUE INDUSTRIAL REYNOSA
The Parque Industrial Reynosa is one of the first parks developed within
the community. It is situated within the southeast part of the community, with
access off Reynosa-Matamoros Highway. The subject is situated within this park,
along with 38 other facilities. Zenith, Delosa, and TRW all have multiple
locations within the park. Street improvements are under extension to the
southern part of the development and at least 60 lots are vacant or could be
improved within the park. Rental rates range from $4.75 to $5.70 per square
foot, and building costs range from $32.00 to $36.00 per square foot, for a
typical industrial building with standard 10 percent office finish.
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INDUSTRIAL MARKET ANALYSIS
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MANIMEX
The Manimex industrial subdivision is an older development with only four
building facilities. The subdivision was recently purchased by Finsa, who also
owns the Finsa Maquil Park industrial subdivision at the northeast part of town.
Finsa purchased Manimex due to few lots remaining in their other park and to
help control land prices on build-to-suit projects. The park has 18 improved
lots available for sale and 20 lots under development. Three lot sales have
occurred in the last year, at prices ranging from $1.61 to $1.72 per square
foot. However, this is the most peripherally located industrial park in the
community, but has ease of access to a second border crossing improved at the
east side of McAllen, approximately three miles north. This park should provide
necessary lot inventory to satisfy demand for the next 10 to 15 years.
PARQUE INDUSTRIAL DEL NORTE
This is currently the most active subdivision in the community, with 38
facilities and approximately 40 improved industrial lots. It is situated at the
southwest part of Reynosa and access to the border crossing is through the
Reynosa central business district. However, it is one of the most convenient to
area housing. It is also situated at the intersection of the Monterrey Highway
and Reynosa-Matamoros Highway. Both speculative building and build-to-suit
activity is under construction within this park.
FINSA MAQUIL PARK
Situated at the northwest part of town, this industrial park is one of the
first established parks in the community, and one of the most successful. Only
40 acres of the 90 acre parcel is allocated for industrial development. Only
four vacant lots remain, at prices of $1.61 to $1.72 per square foot. One
build-to-suit project, for Ammex, is currently under construction within the
park. Building costs are $28.00 to $32.00 per square foot, for a typical
industrial building. The subdivision is fenced, has a guard gated entrance and
most of the lots have perimeter chain link fencing. This is one of the few
parks were most of the facilities have open space landscaping along common areas
and within the individual facilities. Another bridge crossing is expected to be
improved at the western edge of McAllen within the next three years, that will
greatly enhance the subject's accessibility across the U.S.-Mexican border.
SUBMARKET SUMMARY
The most critical issue affecting an employer is finding available
industrial land close to the work force. The reason for this is reducing
tardiness and employee turn over, which is reported at approximately four
percent in Reynosa, according to area maquiladora managers. Area employee
manufacturing costs are approximately $4.50 per day.
New buildings have only three parks with sufficient improved lot inventory
that will last for the next 12 months. There are 23 industrial facilities
situated outside the industrial parks previously noted, however the trend of
industrial development outside established parks is being discouraged on by
local government.
The subject has above average access and visibility on interior
neighborhood streets within the Parque Industrial Reynosa industrial park. It is
conveniently situated adjacent to the city's freeway system and has close
proximity and convenient access to the border crossing. As a
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<PAGE>
INDUSTRIAL MARKET ANALYSIS
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FINSA MAQUILPARK
55 Wells Mfg.
56 West Bend
57 Empresas Principe
58 Antespec
59 Labinal Electronica
60 Seymour
62 Alunosa #1
63 Am-Mex #1
70 Globe Motors
75 Alunosa #3
76 Pullmex
77 Corporacion Delinc
87 Am-Mex #2
111 Labinal Aereo Space
114 Am-Mex #4
114A In-sink-erator
PARQUE INDUSTRIAL DEL NORTE
40 Alcom Electronicos
41
42 Manufacturas Halliburton
43 Lambda Electronica
44 Espirales Industriales
45 TRW del Norte
46 Impresora Donneco
47 INFASA
48 TRW Direcciones
49 Whirlpool #1
50 Whirlpool #2
64 Attwood
65 Stuart Entertainment
65A Stuart Ent. Warehouse
66 Delnosa #5
67 Delnosa #6
71 Oryx de Mexico
72 Meditron
73
74 Delco Headquarters
78 Alco Controls
79 Motores Hermeticos
80 Hoffman Engineering
84 Alunosa #5
85 Alunosa #4
86 Ametek Lamb Motores
88 Copeland
90
91 Industrias Tres Hermanos
92 Kitz
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<PAGE>
INDUSTRIAL MARKET ANALYSIS
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93 Maquiladora y Fabricacion de Equipos
94 Motores Reynosa
95 Nokia
96
100 Siecor
101 Fujitsu Ten
102 Almacenes Ibarra
108 Bissell Mexico
109 Bombardier Mexico
110 Bronco Electronics
112 Matsushita Electric Components
113 Mikuni Mexicana
121 Matsushita Battery Industrial
122 Overly de Mexico
PARQUE INDUSTRIAL PUENTE
1 Dicastomex
2 Invamex
3 Pilling de Mexico
4 Chemical Products
PARQUE INDUSTRIAL REYNOSA
5 Jen-O-Mex
6 Nibco
7 Delnosa 1
8 Delnosa 2
9 Delnosa 3
10 Delnosa 4
11 Kimco
12 Promotora Merhen
13 TRW Electronica
14 Erika Reynosa
15 Esculturas Austin
16 Lintel de Mexico
17 TRW VSSI
18 Controles Reynosa
19 Partes de Television
20 Norton Co.
21 Partes de Television
22 Empaques del Norte
23 Alunosa #2
24 Partes de Television
25 Datacom #1
26 Sociedad de Motores
27 Semtech
28 Lambda Transformers
29
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<PAGE>
INDUSTRIAL MARKET ANALYSIS
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30 Partes de Television
31 Partes de Television
32 Industrial Park Office/Magnolia
33 Industrias Valino
33A Bike Athletic
33B Magnolia International
34 Datacom 2
35 Matsushita Communication
38 Rey-Mex Bra
39 Pantimedias del Norte
82 Helios de Mexico
83 Aislantes y Acusticos de Monterrey
89 Fox Supply de Mexico
97 PMI de Mexico
98 Partes de Television
99 Precision Cable
103 Shin Estu Polymer
104 Phillips Consumer Communications
105 Controles Reynosa
106 Zapata International
107 Landis & Gyr
120 Manufacturas Electricas
126 Ryobi Power Tool Group
127 Ryobi Piedmont Casting
128 Royal Appliance
129 Meridan Medical Systems
130 Calzado Deportivo
131 Automotive Exchange
132 Brooklyn Bow
COLONIAL INDUSTRIAL PARK
123 Eaton Controls
124 C.R. Bard Reynosa
125 Magnolia Electronics (Seagate Technology)
PLANTS OUTSIDE PARKS
Xito
Sky Manufacturing de Mexico
Resortes K.L. de Mexico
Orval Kent
Maquiladora NSC
Abrigo-Mex
Alfa Celulosa
B.H.& R. International
Bryan de Mexico
Carolina Mexsew
Chippenhook Internacional
Costurex Internacional
Duro de Rio Bravo
Fundidora de Acero
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<PAGE>
INDUSTRIAL MARKET ANALYSIS
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Industria Lauro Villar
Industria Integrada Bernellet
Industrias Cantu
ITT Automotive
Lees Manufacturing
Liga Mayor de Mexico
Dulce Maquila Uno de Mexico
Maverick Servicios
Lupra
Am-Mex #3
Berkness Control & Equipment
MIRSA Manufacturing Corp.
AZ Productos
Chunma de Mexico
Fabrica de Muebles Reynosa
Mel Manufacturas
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<PAGE>
INDUSTRIAL MARKET ANALYSIS
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result, the subject and competing industrial subdivisions in Reynosa will
continue to attract maquiladoras at some of the highest levels of any Frontier
community in Mexico.
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<PAGE>
NEIGHBORHOOD ANALYSIS
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The subject property consist of 10 parcels of land within the Parque
Industrial Reynosa. Streets within the subdivision are asphalt paved and most
are improved with gutters. A total of 103 lots have been designated within the
subdivision and it is situated within the city limits of Reynosa, Tamaulipas,
Mexico. This is at the southeast part of the city, and approximately three miles
from the Mexico-U.S. border. The street frontage are interior neighborhood
streets that access the Reynosa-Matamoros Highway.
The neighborhood boundaries are the Reynosa-Matamoros Highway to the north,
the Reynosa city limits to the south, the U.S. Highway 281 to the east and the
local airport to the west. The area is industrial based, with light
manufacturing and warehousing within the park, and residential and vacant land
at the perimeter. The airport is situated approximately one mile to the west,
south of Reynosa-Matamoros Highway. Residential development is situated
sparingly outside the neighborhood, with most residences in the community
situated closer to the central business district. Further, retail is limited to
small, freestanding stores situated along the freeway and along major
thoroughfares, closer to the central business district.
The Zenith facility, known as Partes Television de Reynosa, S.A. de C.V.,
is one of the largest industrial facility in Juarez. It also is one of the
largest employers in the community. However, this is a multi-building facility,
some on noncontiguous sites, that could be utilized by one to six individual
tenants. The sites are situated throughout the park, with convenient access to
the highway.
All industrial sites within the subject and adjacent industrial parks have
all municipal utilities,including water, sewer, electric and telephone. Water
for sprinkler systems are handled by onsite water storage tanks, which is
supplied on the subject site.
All facilities within the park are single tenant industrial buildings,
typical of industrial facilities throughout the community. Improvement ratios
are typically 50 to 60 percent of the land area and parking is approximately 5.0
spaces per 1,000 square feet for office areas and one space per 1,000 square
feet for industrial space. Buildings have air conditioning throughout the
facility.
Public transportation is available within the park and is a typical
municipal route. Many maquiladoras provide additional funds to employees for
transportation costs. This is typical of other industrial parks in the
community. Overall, the subject competes well with newly constructed buildings
in the community.
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<PAGE>
PROPERTY DESCRIPTION
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SITE DESCRIPTION
This analysis will consider the 91.05 acres under consideration.
Location: The 10 parcels of land that make up the subject site
include five parcels situated along the east and west
sides of Brecha I-99, adjacent south of Reynosa-
Matamoros Highway; one site on a side street south of
the five parcels and four along Brecha E-99, at the
southern portion of the park. All are located within
the Parque Industrial Reynosa.
Shape: All sites are irregular
Area: 91.05 acres or 3,966,186 square feet
Frontage: The east and west sides of Brecha I-99, the south side
of Reynosa-Matamoros Highway; one site on a side street
off Brecha I-99, three along Brecha E-99, and one site
on a side street off Brecha E-99.
Topography/Terrain: The sites are generally level and at grade with the
roadway frontages, and a water retention basin has been
improved on the building sites.
Street Improvements: Streets are improved with asphalt paving and concrete
curbs. All streets are two lane, bi-directional
arterial interior neighborhood streets. While curb cuts
are not provided to Reynosa-Matamoros Highway, this is
a four lane, bi-directional highway with raised
overpasses.
Soil Conditions: We did not receive nor review a soil report. However,
we assume the soil's load-bearing capacity is
sufficient to support the existing structure. We did
not observe any evidence to the contrary during our
physical inspection of the property. The tract's
drainage appears to be adequate.
Utilities: All standard utilities are available to the sites
including water, sewer, electricity, and telephone
service.
Access: The building sites are accessed via curb cuts along
Brecha I-99, E-99 or the noted side streets. Direct
site access is not provided to Reynosa-Matamoros
Highway.
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<PAGE>
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
Land Use Restrictions: We were not given a title report to review. We do not
know of any easements, encroachments, or restrictions
that would adversely affect the sites' use. However, we
recommend a title search to determine whether any
adverse conditions exist.
Flood Hazard: Based on our inspection of the sites, there is minimal
probability of flooding. Additionally , an on-site
retention basins have been improved on the building
sites.
Hazardous Substances: We noted no evidence of toxic waste during our
inspection of the sites, although it was confirmed that
chemicals tanks and storage is being conducted.
However, it is important to note that we are not
experts in this field and therefore recommend the
inspection of the subject by an expert in the field of
toxic waste. An environmental assessment on the site
was not made available during the preparation of this
report. This appraisal is predicated on the assumption
that hazardous substances do not exist, however if
concerns exist, we recommend a site assessment be
conducted.
Comments: Overall, the subject sites are well suited for their
intended use, light industrial development within an
established industrial park. Considering current land
use patterns in the neighborhood, the sites are typical
of the area and offer adequate functional utility, with
above average locational characteristics.
We were provided a summary of documents filings that
were a result of a direct ownership transfer between
1984 and 1986. This also documented the parcel sizes,
although a 260,430 square foot site that was included
on the plans was excluded from this report. A copy is
included in the Addenda.
IMPROVEMENTS DESCRIPTION - ZENITH FACILITY ON THE BUILDING SITE
The subject property consists of six, one and two-story industrial
structures having a building area of 1,200,000 square feet. The project was
completed between 1980 and 1985 on a 91.05 acre site. Plant 70 is also part of
this assignment, however no consideration was given to the value of the
improvements.
A unique characteristic to the facility is that Plans 13, 12 and 27 are
connected via second story bridge walkways over the streets. A portion of this
area was modified to provide the transportation of manufactured goods between
the buildings. While some areas are not in use, they provide for a continuous
flow of management and goods between these buildings.
Based on a building area of 1,200,000 square feet and a building site of
91.05 acres, or 3,966,186 square feet, an improvement ratio of 30 percent is
indicated. The improvements are considered to be in average overall condition at
the time of inspection. The facility provides
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<PAGE>
PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
adequate open paved surface parking. Representatives of Zenith provided the
building area calculations, building sizes and land area dimensions. A review of
the limited building plans provided appeared to indicate the dimensions to be
accurate. The project is currently 100 percent occupied by the owner/occupant.
The following table depicts the area of the building allocated by type of use.
==========================================================
Square
Use Feet Percentage
==========================================================
Office
12 91,000
12a N/A
13 34,000
13a N/A
26 N/A
27 21,000 12.2
----------------------------------------------------------
Warehouse
12 133,000
12a N/A
13 30,000
13a N/A
26 N/A
27 74,000 19.8
----------------------------------------------------------
Manufacturing
12 230,000
12a 140,000
13 158,000
13a 63,000
26 100,000
27 126,000 68.1
----------------------------------------------------------
Total 1,200,000 100.0
==========================================================
The physical inspection coupled with a review of the building plans that
were provided by the client provided the basis for the following improvement
description.
GENERAL DATA
Year Built: 1980 to 1985
BUILDING DESCRIPTION
Size: 1,200,000 square feet
CONSTRUCTION DETAIL
Foundation: Reinforced concrete slab
Walls: Masonry block and concrete tilt wall
construction, with painted finish.
Decorative fascia has been added at the
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<PAGE>
PROPERTY DESCRIPTION
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front entrance to the offices. Glass
storefront is installed at the foyers
Floors: Sealed concrete slab in warehouses, and
manufacturing, commercial grade carpet, and
ceramic tile in the office areas.
Roof Structure/Cover: Prefab metal trusses with high rib metal deck
and built up roof or corrugated metal covers.
Windows: Aluminum fixed-pane windows of various sizes
Pedestrian Doors: Hollow metal exterior doors in the warehouses
and manufacturing areas; metal framed plate
glass in main entrances and hollow core wood
doors in the offices.
Loading Doors: There are overhead doors with loading docks
provided in the warehouse and manufacturing
areas.
Ceiling Height: 10 feet in the office area and 15 to 28 feet
in the warehouse and manufacturing areas.
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<PAGE>
PROPERTY DESCRIPTION
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MECHANICAL DETAIL
Heating and Cooling: The buildings have ground and
roof-mounted, electrical force cool
air-conditioning units for the buildings.
Plumbing Service: The buildings have separate restroom
facilities for the warehouse/manufacturing
areas and smaller, private bathrooms in the
offices. Electric water heaters supply hot
water to the buildings.
Electrical Service: Electric service is assumed to meet all local
municipality code.
Fire Protection: Fully sprinkler system with a self contained
holding tank installed on-site.
Security Protection: Security cameras inside the facility, fenced
lot with guard gates and security alarms
installed throughout the building. Full time
security personal are on-site.
INTERIOR DETAIL
Floor Covering: Offices feature ceramic tile and carpet
coverings; warehouse and manufacturing has
exposed concrete slab
Interior Walls: Painted and textured gypsum board in the
offices
Ceiling: Nine-foot ceilings with 2'x 4' or 2'x 2'
suspended tile in the offices; no finish in
warehouses except for insulation
Lighting: Suspended fluorescent lights in warehouse and
manufacturing; recessed fluorescent fixtures
in office suites
HAZARDOUS SUBSTANCES: We are not aware of any other potentially
hazardous materials (such as formaldehyde
foam insulation, asbestos insulation, radon
gas emitting materials, or other potentially
hazardous materials) which may be used in the
construction of the improvements. The
improvements are built of modern materials
and typical of what is currently constructed.
However, we are not qualified to detect such
materials and urge the client to employ an
expert in the field to determine if such
hazardous materials are present.
AMERICANS WITH DISABILITIES
ACT COMPLIANCE: The subject property is in Mexico and is not
subject to the American with Disabilities Act
(ADA). We have assumed
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<PAGE>
PROPERTY DESCRIPTION
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the improvements are not under the jurisdiction of
compliance and therefore, no modifications are required.
SITE IMPROVEMENTS
On-site Parking: The site improvements consist of concrete curbs and
sidewalks, chemical and water storage tanks, chain link
perimeter fencing with barb wire, iron gates at each
building site, guard houses, security lighting attached
to the building and on pole mounts. The sites are
asphalt paved spaces, with the exception of the parcel
situated west of Plans 12a and 26, which is graded, but
unpaved.
Landscaping: The property has small trees, shrubs and grass along the
front of the buildings and at landscaped islands in the
parking lot.
COMMENTS: The subject building improvements were completed in
various phases between 1980 and 1985. The improvements
are considered to be in average condition. The roof cover
on all the buildings are reportedly in good condition.
The normal life expectancy of a building of this type is
considered to be 45 years. Because of the average
condition and average maintenance of the facility, the
effective age is less than the actual average age of 15
years. We have estimated the effective age at 12 years,
and remaining economic life at 33 years. The quality of
the subject improvements, including the layout and
functional utility, are rated average.
PERSONAL PROPERTY No personal property within the building was included
INCLUDED: in the analysis.
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<PAGE>
ZONING
- --------------------------------------------------------------------------------
The subject site is zoned Light Manufacturing, by the city Reynosa. The
"Licencia de Uso de Suelo" which is the zoning permit to construct the subject
improvements was issued by the government on upon completion of construction and
reissued annually. Further, Public Deed Number 7890, Volume 210 states, "Zoning
approved by the Government of the State of Tamaulipas by Agreement published on
September 26, 1988." The subject improvements appeared to comply with all the
requirements establish by the state of Tamaulipas law for urban development
under article 5to. Fracion II y 125 de la Ley 101 de Desarollo Urbano para el
Estado de Tamaulipas. In Mexico, a property could be zoned a certain
classification but if it does not have the license for the certain use or the
"Licencia de Uso de Suelo", it would be in violation and the user could be
forced to cease operations. Municipal officers in Tamaulipas indicated that the
property is in compliance. The subject property is zoned light manufacturing use
and is also reportedly in compliance with all zoning requirements. Additionally,
local building contractors indicated that zoning requirements permit a maximum
improvement ratio of 60 percent of the land area.
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<PAGE>
REAL ESTATE ASSESSMENTS AND TAXES
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REAL ESTATE TAXES AND ASSESSMENTS
The subject property was constructed between 1980 and 1985 and periodically
assessed for tax purposes. However, the subject is a single tenant building and
taxes are the responsibility of the tenant. The tenant, in this case the owner,
has paid all previous real estate taxes. Because of the lack of comparative
buildings in the city of Reynosa and the state of Tamaulipas, and that under
this analysis all real estate taxes would be the responsibility of the tenant
(does not affect the income to the owner), we have not attempted to estimate the
reasonableness of the subject's real estate tax. Further, the local taxing and
assessment office could not provide us with an estimate of the subject's real
estate taxes.
Real Estate taxes in Mexico are very low compared to the United States. It
is unlikely that the subject would be assessed and taxed based on the estimation
of market value concluded within this report.
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<PAGE>
HIGHEST AND BEST USE
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HIGHEST AND BEST USE OF SITE
According to the Dictionary of Real Estate Appraisal, Third Edition (1993),
a publication of the Appraisal Institute, The highest and best use of the site
as though vacant is defined as:
Among all reasonable, alternative uses, the use that yields the highest
present land value, after payments are made for labor, capital, and
coordination. The use of a property based on the assumption that the parcel
of land is vacant or can be made vacant by demolishing any improvements.
We evaluated the site's highest and best use both as if vacant and as
currently improved. The highest and best use must meet four criteria. The use
must be:
(1) Legally permissible;
(2) Physically possible;
(3) Financially feasible; and
(4) Maximally productive.
AS IF VACANT
LEGALLY PERMISSIBLE
The first test concerns permitted uses. In the case of the subject, we are
analyzing 10 parcels of land assembled to form seven building sites,
encompassing 91.05 acres. According to our understanding of the zoning ordinance
noted earlier, the sites may be improved with structures that accommodate a
variety of light manufacturing, office and accessory uses. As previously
reported, the subject sites appear to be a legal and conforming use.
We would note there are no intended changes in land use regulations for the
sites or the immediate area of the neighborhood. Therefore, if vacant, the
subject sites could be improved with a similar use as currently exists on the
subject building site or adjacent single tenant industrial improvements within
the Parque Industrial Reynosa. Therefore, we view zoning as imposing no
measurable valuation constraints and buildings as large as 60 percent of the
site area could be improved. Additionally, there are no known deed restrictions
that would prohibit development.
PHYSICALLY POSSIBLE
The second test is what is physically possible. As discussed in the Property
Description, the site's size, soil, topography, etc., does not physically limit
each sites use. Their size is large enough to accommodate most permitted uses
under current zoning. The sites are fully improved, provided with all utilities,
have level topography and above average accessibility. Thus, there are no
physical barriers that would restrict their development.
FINANCIALLY FEASIBLE
Based on our analysis, the Reynosa real estate market has shown stable to
slightly increasing vacancies, stable rental rates and substantial growth in new
supply. Because of
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<PAGE>
HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
steady growth of the local economy after the economic crisis of 1994, an
increased demand for space, coupled with a majority of increases in inventory
were build-to suit projects, large scale construction has occurred in the
market. However, due to the limited number of developers in the community,
construction costs have remained stable. Increased market competition should
cause costs and rental rates to decline slightly, although land prices are
expected to increase.
The subject sites are situated in an established industrial park, with
convenient access to the community's highway system and close proximity to the
U.S. Mexico border. Within the subdivision, the subject sites have average
accessibility, street visibility and location.
The feasibility of a new project depends on the desire of a company to
locate in the city. The industrial market has been driven by built-to-suit
projects and little speculative space has been constructed. Based on year-end
1997 vacancy and 1997 absorption levels, less than a six months supply is
available within the market and within the subject's submarket, supply is less
than four months. The submarket rental rates range from $4.75 to $5.70 and when
considering typical owner expenses and turnkey build-to-suit costs of $30 to $36
per square foot, including land, the first year rate of return ranges from 14.7
to 14.8 percent, supporting feasibility. However, the financial feasibility of
any project will depend on the continued desire of a firm to move to Reynosa,
and indications are that future demand will at least be similar to historical
levels.
Reynosa has a feasibility based on its established reputation as being one
of the fastest growing maquiladora markets of any Frontier state. It has
substantial backing by the McAllen Economic District, which is acting as a
no-fee broker in bringing manufacturers to the community. It has a growing
employment and population base that is adequate to supply existing facilities.
However, substantial new growth will cause net inmigration to occur from other
parts of the country. New companies entering this market are finding out that a
relocation from the U.S. to Reynosa, increases productivity at some of the
lowest labor costs in the world. The result of operations in facilities that
could be constructed on the subject sites, could provide labor cost savings to
cover the cost of a building in one to three years.
MAXIMALLY PRODUCTIVE
In our opinion, the improvement of the subject sites with light industrial
uses would be physically possible and legally permissible, and financially
feasible, even under a speculative construction basis. However, yield rates
would be increased if an owner occupant was predetermined. However, many
potential manufacturers cannot meet building demands from existing inventory in
Reynosa, or other northern Mexico communities oriented toward large industrial
occupancies and have been unwilling to wait for a lengthy build-to-suit
transaction. Thus, the maximally productive use of the site would be for the
development of light industrial space oriented towards single tenant occupancy.
CONCLUSION - AS IF VACANT
The highest and best use of the subject sites, as if vacant, is believed to
be for light industrial development. The sites benefit from a location within an
established community that is becoming one of the fastest maquiladora markets in
the country. The metropolitan area has shown continued stability in attracting
maquiladora companies to the city. In addition, a build-to-
- -------------------------------------------------------------------------------
-43-
<PAGE>
HIGHEST AND BEST USE
- --------------------------------------------------------------------------------
suit development is always feasible, as the cost and profit requirements of
the developer are being met by market rent levels and construction costs.
AS IMPROVED - EXISTING INDUSTRIAL FACILITY
LEGALLY PERMISSIBLE
As previously stated the subject's zoning permits light industrial uses. It
appears the improved components of the subject site are a legal and conforming
use, thereby satisfying the legal permissibility criterion.
PHYSICALLY POSSIBLE
As previously stated in the Property Description section of this report,
the overall design, layout and condition of the noted improvements are adequate
and functional. Therefore, in view of the subject's zoning and physical
characteristics, the existing development is considered to satisfy the
physically possible criterion of highest and best use as improved.
FINANCIALLY FEASIBLE
Since the subject was constructed as an owner occupied facility, it has
incurred no vacancy since its construction. General real estate operating
expenses are reported to be typical of larger industrial facilities in the
region. In addition, the space is sufficiently functional to allow from one to
six occupants to also generate sufficient income to exceed expenses. Therefore,
the continued use of the subject as an industrial use, with occupancy by one to
six tenants.
MAXIMALLY PRODUCTIVE
The subject improvements have been concluded as being physically
supportable, legally permissible and financially feasible. Demolition and/or
significant renovation are not considered to be financially feasible
alternatives. Therefore, as no other utilization of the improvements would
result in a higher value, it has been determined the maximally productive use is
as improved.
CONCLUSION
Based on our analysis, we believe the current use of the site, as improved,
represents a proper use of the site within the definition of highest and best
use. However, the large size of the subject property precludes most maquiladora
users from occupying the property. This is one of the largest single tenant
facilities in the Frontier communities. The buildings are functional from a six
building, stand-alone occupancy, which would provide building sizes from 63,000
to 454,000 square feet. An analysis of these buildings individually would
enhance the market value of the property. The production manager indicated that
the bridge crossings connecting three of the buildings are rarely used and could
be easily closed down for stand-alone building security. Thus, the market value
of the subject will consists of the aggregate retail value of the six individual
value estimates. Since these buildings can be marketed simultaneously and
reflect similar 12 to 18 month marketing periods, a discount was not considered
appropriate to the aggregate retail value of the six buildings.
- --------------------------------------------------------------------------------
-44-
<PAGE>
VALUATION METHODOLOGY
- --------------------------------------------------------------------------------
Appraisers have three approaches available to them in valuing improved
property: the Cost Approach, the Sales Comparison Approach and the Income
Approach. In most instances, the real property interest being appraised (e.g.,
fee simple, leased fee or leasehold) will dictate the validity of a particular
approach.
The subject property is located in the city of Reynosa, state of
Tamaulipas, Mexico. The subject manufacturing facility was constructed for the
owner/tenant between 1980 and 1984. Furthermore, the subject property is owned
by a U.S. corporation that also has facilities in the U.S., as are most major
maquiladora facilities in Reynosa. Previously, most projects were built by the
specific company, with the use of a local building contractor, and occupied by
the owner. However, in the last few years, the demand in the rental market has
increased and lending institutions are just now starting to provide financial
leverage to building investors. Based on these facts, all three approaches to
estimate value, Cost Approach, Sales Comparison Approach and Income Approach
will be used in our analysis.
A detailed Cost Approach was performed, although the older building age
makes estimating depreciation somewhat subjective. Improved sales of similar
facilities to perform a Sales Comparison Approach were also found in Reynosa and
additional research uncovered sales throughout the Frontier communities of
northern Mexico that could also be used for comparisons. The recently negotiated
lease activity and properties available for lease, including speculative
facilities recently completed or under construction were found in within the
community of Reynosa and was supplemented by additional lease information in
Matamoros. These were relied on in estimating market rent and deriving a value
via the Income Approach.
The appraisal process is concluded by a review and re-examinations of each
of the approaches to value that have been employed. Consideration is given to
the type and reliability of data used, and the applicability of each approach.
Finally, the approaches are reconciled and a final value conclusion is
estimated.
The reconciled market value of the fee simple interest has then been
re-examined in order to estimate if any deductions need to be undertaken to
estimate a liquidation value. At the owners request, a liquidation considers a
six month sale period.
Because of the site size, placement of the miscellaneous building
improvements on the various industrial sites, and difficulty in allocating the
land area to the specific building sites, the Cost Approach will consider the
value of the 91.05 acre site in total. However, within the Sales Comparison and
Income approaches, we initially considered the individual values of the
buildings, then totaled these values to reflect the market value of the total
subject property, which is the focus of this assignment. This analysis was
conducted due to the subject's highest and best use reflecting a six tenant or
six building owner conclusion, rather than the single tenant occupancy which
currently exists.
- --------------------------------------------------------------------------------
-45-
<PAGE>
COST APPROACH
- --------------------------------------------------------------------------------
METHODOLOGY
This approach to value consists of an analysis of the physical value of the
property. The principle of substitution, which forms the underlying rationale
of this approach, holds that no prudent person will pay more for a property than
the amount with which he can obtain, by purchase of a site and construction of a
building, without undue delay, a property of equal desirability and utility.
In the Cost Approach, the following ten steps are typically employed to
reach an estimate of value:
(1) Estimate the value of the land as though vacant and available to be
developed to its highest and best use;
(2) Estimate the replacement cost of the primary structure(s) as of the
effective appraisal date. The estimate includes both direct (hard)
costs and indirect (soft) costs;
(3) Estimate other costs (indirect costs) incurred after construction to
bring the new, vacant primary structure(s) up to market conditions and
occupancy levels;
(4) Estimate an appropriate entrepreneurial profit from an analysis of the
market;
(5) Add estimated replacement or reproduction cost, indirect costs, and
the entrepreneurial profit, often expressed as a percentage of total
direct and indirect costs, to arrive at the total replacement or
reproduction cost of the primary structure(s);
(6) Estimate the amount of accrued depreciation in the structure, which is
divided into three major categories; physical deterioration,
functional obsolescence, and external obsolescence;
(7) Deduct the estimated accrued depreciation from the total reproduction
or replacement cost of the primary structure(s) to derive an estimate
of the depreciated replacement cost;
(8) Estimate replacement costs and depreciation for any accessory
buildings and site improvements, and then deduct the estimated
depreciation from the replacement costs of these improvements. Site
improvements and minor buildings are often appraised at their net
value, i.e., directly on a depreciated cost basis;
(9) Add the depreciated replacement costs of the primary structure(s), the
accessory improvements, and the site improvements to obtain the
estimated total depreciated replacement cost of all the improvements;
and
(10) Add the site value to the total depreciated replacement cost of all
the improvements to arrive at the indicated value of the fee simple
interest in the property.
- --------------------------------------------------------------------------------
-46-
<PAGE>
COST APPROACH
- --------------------------------------------------------------------------------
LAND VALUATION
Depending on the specific appraisal assignment and/or the value being
sought, any of the following methods may be used to value land that is vacant or
considered to be unimproved or vacant.
The first method is the Sales Comparison Approach, which is the process of
analyzing sales of reasonably similar, recently sold sites in order to derive an
indication of the most reasonable and probable market value of the land being
appraised.
The second method is the Land Residual Approach, which is a valuation
technique based upon the premise that income can be divided between land and
improvements, and that the residual income to the land can then be capitalized
into a value.
A third procedure, the Subdivision Development Method, may sometimes be
used to estimate the value of vacant, usually undivided land, through a process
of analyzing the cost to development (including profit) and interest carry
relative to the anticipated gross income from the retail sales of individual
lots or tracts.
The fourth and fifth methods, the Allocation and Extraction methods, which
are two techniques that permit the distribution of the total value or sales
price of a property between land and building.
The last procedure is the Ground Rent Capitalization method, where ground
rents can be capitalized at an appropriate rate to indicate the market value of
a site.
Under the right circumstances, any of the preceding methods may be useful
in forming the basis of a valid estimate of land value. However, given the
availability of sales data, the Sales Comparison Approach is considered to be
the best approach toward valuing the subject site. The most widely used and most
market-oriented unit of comparison for properties such as the subject is the
sales price per square foot. All of the comparable sales were compared on this
basis and adjustments were made to the various comparables. On the following
page is a summary of the sales we found most comparable to the subject. These
are a culmination of reviewing all known industrial subdivision activity in the
community in the last three years. Because of the site size, sales within
Reynosa were supplemented with the largest known industrial sales in Chihuahua
and Juarez that recently occurred.
As noted earlier, the subject sites are zoned for industrial development
under the jurisdiction of Reynosa. The subject sites are similar in location,
access, visibility, development potential, but differ in size. This analysis
will consider the aggregate area of the subject sites.
According to our highest and best use analysis, we have concluded
single-tenant industrial uses would be the most likely development for the
subject sites. Accordingly, a search was conducted for comparable land sales
deemed to be conducive to similar development.
- --------------------------------------------------------------------------------
-47-
<PAGE>
COST APPROACH
- --------------------------------------------------------------------------------
PARTES TELEVISION REYNOSA, S.A. DE C.V. (ZENITH)
Matamoros y Brecha E-99
Parque Industrial Reynosa
COMPARABLE LAND SALES
<TABLE>
<CAPTION>
====================================================================================================================================
Land Street Location, Industrial Location Sale Price Per Land Land
Sale Buyer, City, State Date Sale Price Square Foot Acres Square Feet
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1 Manimex Park, Reynosa-Matamoros 1997 $1,910,000 $0.24 182.00 7,927,920
Highway Finsa, Reynosa, Tamaulipas
- ------------------------------------------------------------------------------------------------------------------------------------
2 Parque Industrial Reynosa 1995 $1,100,000 $1.26 20.00 871,200
Panasonic, Reynosa, Tamaulipas
- ------------------------------------------------------------------------------------------------------------------------------------
3 Parque Industrial Reynosa 1997 $1,400,00 $1.61 20.00 871,200
Magnatec, Reynosa, Tamaulipas
- ------------------------------------------------------------------------------------------------------------------------------------
4 Parque De Complejo de Industrial 1997 $3,700,000 $1.10 77.00 3,354,120
John Deere Chihuahua, Chihuahua,
Mexico
- ------------------------------------------------------------------------------------------------------------------------------------
5 Salvacar Corridor 1997 $5,375,000 $2.50 49.36 2,150,000
SE/Kitcher Electronics Juarez,
Chihuahua, Mexico
- ------------------------------------------------------------------------------------------------------------------------------------
Subj. Matamoros y Brecha E-99, Parque N/A -- -- 91.05 3,966,186
Industrial Reynosa Zenith, Reynosa,
Tamaulipas, Mexico
====================================================================================================================================
<CAPTION>
================================================================================
Land
Sale Comments
================================================================================
<S> <C>
1 This is the purchase of the remaining
industrial lots within the park. Only
18 lots were developed, the remainder
is vacant land.
- --------------------------------------------------------------------------------
2 This reflects the purchase of a single
improved industrial lot within an
established industrial park.
- --------------------------------------------------------------------------------
3 Mid-1997 transaction, purchase by
Kitcher Electronics to construct
owner/user building
- --------------------------------------------------------------------------------
4 1997 transaction, purchase by Deere
who constructed owner/user
building; excess land evident
- --------------------------------------------------------------------------------
5 Mid-1997 transaction, purchase by
Kitcher Electronics to construct
owner/user building
- --------------------------------------------------------------------------------
Subj. 10 parcels of land assembled to form
six building sites.
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
-48-
<PAGE>
COST APPROACH
- --------------------------------------------------------------------------------
The comparables analyzed include five of the largest land sales zoned for
industrial development that have occurred in Reynosa, Chihuahua and Juarez in
the last 36 months. The preceding table depicts a summary of the land
comparables.
Note that certain adjustments to the sales will be made for comparison
purposes, but a degree of subjectivity is involved. We were unable to support
the magnitude of the adjustments by paired sales analysis, but the adjustments
do reflect our thought processes in comparing one transaction with another.
PROPERTY RIGHTS CONVEYED
All of the comparable sales involved vacant parcels of land unencumbered by
any leases. Therefore, all of the sales set forth herein represent the transfer
of the fee simple estate. Consequently, no adjustments are warranted for
differences in property rights conveyed.
SELLER FINANCING/CASH EQUIVALENCY
The sales were purchased on an all cash, or cash equivalent basis. Since we
are valuing the subject site based on a cash equivalent sale, no adjustment is
necessary.
CONDITIONS OF SALE
Sometimes sales involve certain elements, which motivate the buyer or
seller to pay or accept more or less than the market value of the property. When
such influences differ from typical market conditions, adjustments are required.
All of the comparables were subject to normal (or typical) conditions of sale
and required no adjustment.
MARKET CONDITIONS
An adjustment for market conditions, often referred to as a time
adjustment, reflects a change in the market from the sale date of the comparable
to the valuation date of the subject property. An analysis of real estate trends
indicates that the market for Reynosa has become significantly stronger since
the December 1994 devaluation of the Mexican peso.
Since the mid-1995 oldest sale comparable, rental rates on improved product
has remained relatively stable. However, net absorption has increased
significantly, but the increased market activity has caused vacancies to
increase in light of initial speculative building projects being constructed.
But construction costs are just starting to decline due to the competitiveness
of the market. It is difficult to measure these factors relative to changes in
land value over the last 36 months.
A review of land sales that have occurred since 1995, indicated a stability
in industrial land prices. Further, we could not confirm any pricing changes
within the subject's industrial market. Therefore, an adjustment for changes in
market conditions could not be supported.
LOCATION
An analysis of location involves factors such as proximity to a labor
force, major thoroughfares, surrounding influences, and area amenities. The
proximity to a labor force is critical in a country like Mexico that does not
have a good public transportation system and few industrial employees have
automobiles.
- --------------------------------------------------------------------------------
-49-
<PAGE>
COST APPROACH
- --------------------------------------------------------------------------------
Sales L-2 and L-3 are industrial sales within the subject industrial park
and reflect similar locational characteristics. Sale L-1, is the sale of the
Manimex Park, which is more peripheral zoned and considered to have inferior
locational characteristics. An upward adjustment is applied to this transaction.
Sales 4 and 5 are situated within established industrial parks within their
respective communities. They are provided all municipal services and typical
access and visibility. Overall, no locational adjustments are applied to these
sales.
ACCESS/VISIBILITY
For most industrial properties, easy access, visibility and exposure to a
major arterial are helpful but are not paramount for developmental success.
However, properties may differ in terms of frontage, access to a heavily
traveled arterial or highway access. Values for vacant industrial land are
influenced by access to highways. It is our opinion that no adjustments to the
comparables are warranted.
ZONING
Adjustments for zoning can be related to several issues, including density,
site coverage (floor area ratio), other restrictions, such as open space
requirements, etc. The main focus of adjustment under the zoning category would
be for use restrictions. As all of the comparable sales are industrially zoned
and would allow a similar industrial development as what exists on the subject
site, no adjustment is warranted.
UTILITY
The analysis of site utility considers such physical characteristics as
shape, depth, frontage, plottage, corner influence, topography, zoning, the
availability of utility services, and encumbrances, i.e. the overall usability
of the land. The shape of a property has the potential to restrict the overall
utility. The lack or presence of easements and/or restrictions must also be
considered in the comparison process.
As described previously, the subject site consists of six building sites of
irregular configuration, but have level topographies that do not affect the
costs of development. All the sales have level topography, which does not
increase the costs of development relative to the subject. None of the
comparables have any adverse physical factors, such as flood plain, easements,
encroachments, or obvious environmental problems, etc., that influenced their
respective purchase prices. Like the subject, each of the comparables offer
adequate shape, depth and the availability of utility services. However, Sale
L-1 is the sale of improved and unimproved industrial land within a park. There
are additional costs in improving the remaining lots to bring them to a
buildable level. As a result, a large upward adjustment was applied to this
comparable.
DENSITY/SIZE
The subject encompasses 91.05 acres of land; whereas, the comparables range
in size from 20.00 to 77.00 acres. Generally, the rule of quantity discount
dictates that the larger the
- --------------------------------------------------------------------------------
-50-
<PAGE>
COST APPROACH
- --------------------------------------------------------------------------------
size, the smaller the price per unit, all other factors being equal. However, to
a certain degree, a larger site will allow greater site flexibility in terms of
design and layout and may result in lower development costs because of the
economies of scale. The land comparables did not support the need for an
adjustment due to variations in size and because the subject consists of six
building sites. The following table illustrates the adjustments made to the land
comparables.
<TABLE>
<CAPTION>
================================================================================================================
Land Comparables 1 2 3 4 5
================================================================================================================
<S> <C> <C> <C> <C> <C>
Unadjusted Sale Price $1,910,000 $1,100,000 $1,400,000 $3,700,000 $5,375,000
Property Rights Conveyed 0% 0% 0% 0% 0%
Financing Terms 0% 0% 0% 0% 0%
Condition of Sales 0% 0% 0% 0% 0%
Market Conditions 0% 0% 0% 0% 0%
-- -- -- -- --
Total Adjustments 0% 0% 0% 0% 0%
-- -- -- -- --
Adjusted Sale Price $1,910,000 $1,100,000 $1,400,000 $3,700,000 $5,375,000
Adjusted Price/Sq. Ft. $0.24 $1.26 $1.61 $1.10 $2.50
Locational & Physical Adjustments
Location +40% 0% 0% 0% 0%
Access/Visibility 0% 0% 0% 0% 0%
Zoning 0% 0% 0% 0% 0%
Utility +500% 0% 0% 0% 0%
Density/size 0% 0% 0% 0% 0%
-- -- -- -- --
Total Adjustments +540% 0% 0% 0% 0%
----- -- -- -- --
Final Adjusted Price Sq. Ft. $1.30 $1.26 $1.61 $1.10 $2.50
- ----------------------------------------------------------------------------------------------------------------
Average Price Per Sq. Ft. $1.55
================================================================================================================
</TABLE>
The comparable properties range from cash equivalent prices of $0.24 to
$2.50 per square foot before the adjustment process. The indicated value of the
subject property after making the necessary adjustments, results in a value
ranging from $1.10 to $2.50 per foot, with an average of $1.55 per square foot.
If Sale L-5 is excluded, the adjusted sales price ranges from $1.10 to $1.61 per
square foot, an appropriate range to reflect the market value of the subject.
We have estimated the subject's market value of $1.30 per square foot for
the subject sites. This is only slightly below the average adjusted square foot
price and considers most weight was given to the adjusted sale prices of Sales
L-2 and L-3. Based upon the subject's highest and best use, it is our opinion
the aggregate value of the subject sites are calculated as follows:
3,966,186 Square Feet x $1.30/Square Feet= $5,156,041
Rounded $5,160,000
COSTS OF IMPROVEMENTS
The subject improvements were evaluated in terms of type of construction,
design, and building materials to arrive at an estimate of replacement cost. The
cost estimate is inclusive of indirect costs such as architectural and
engineering fees, legal fees, inspection fees and closing costs, administrative
overhead, the contractor's overhead and profit, as well as the developer's
entrepreneurial profit. All direct costs for the base structure and tenant
improvements, and the following indirect costs:
- --------------------------------------------------------------------------------
-51-
<PAGE>
COST APPROACH
- --------------------------------------------------------------------------------
1. Plans, specifications, site improvements, and building permits,
including working engineers' and architects' fees;
2. Normal fees and interest on funds during the construction period;
3. Sales taxes on materials; and
4. Contractor's overhead and profit includes workmen's compensation, fire
and liability insurance, unemployment insurance, etc.
Our estimate of replacement cost new for the subject improvements is based
on information provided by local developers, general contractors and internal
information obtained by Cushman & Wakefield/GCI on recently constructed
industrial projects. The interviews with developers and general contractors
included an itemized discussion of the applicable costs associated with
developing the respective project. Additional consideration for soft costs
considered in these costs included administrative and legal.
Because of the high cost of funds associated with lending institutions in
Mexico, that few developer's have access to construction financing, that U.S.
financing in Mexico is well below their internal lending institutional levels
and that many developers build with cash, construction interest costs were not
considered in the analysis.
Because of similarities in tenants, builders and construction material
costs throughout the Frontier communities, recently constructed facilities from
the city of Reynosa, Chihuahua, Juarez and Hermosillo were considered. A summary
of these recent construction projects are summarized:
- --------------------------------------------------------------------------------
-52-
<PAGE>
COST APPROACH
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Building Building Size/ Cost/
Location Tenant/Builder Description Cost Sq. Ft Sq. Ft
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Slavarcar Corridor Nationwide 10% office, 30' clear $1,250,000 50,000 $25.00
Juarez, Chihuahua Processing AC/Evap
- --------------------------------------------------------------------------------------------------------
Bermudas Ind. Park N/A 10% office, 30' clear $2,300,000 100,000 $23.00
Juarez, Chihuahua AC/Evap
- --------------------------------------------------------------------------------------------------------
Sin Tierra Intermex 10% office, 30' clear $1,150,000 50,000 $23.00
Chihuahua, Chihuahua AC/Evap
- --------------------------------------------------------------------------------------------------------
C.U.M. McCulloch 15% office, 22' clear $6,396,936 254,960 $25.09
Hermosillo, Sonora AC/Evap, Mezzanine
- --------------------------------------------------------------------------------------------------------
Parque Industrial Finsa 10% office, 26' clear $4,240,000 136,690 $31.00
Reynosa, Tamaulipas AC
- --------------------------------------------------------------------------------------------------------
Finsa Industrial Finsa 10% office, 26' clear $1,550,000 50,000 $31.00
Reynosa, Tamaulipas AC
- --------------------------------------------------------------------------------------------------------
</TABLE>
The cost comparables suggest a direct building cost range of $23.00 to
$25.09 per square foot for an industrial buildings in Chihuahua, Juarez and
Hermosillo with 10 to 15 percent office finish, 22 to 30 foot clear height, and
AC/Evap throughout the building. However, building costs in Reynosa average
$31.00 per square foot for a typical 50,000 to 136,690 square foot facility.
The subject is equipped with an office/cafeteria finish of approximately 12
percent, 15 to 28 foot truss heights and standard manufacturing interior finish.
Given the subject's large size, a cost range of $28.00 to $31.00 is
appropriate. This is similar to $31.00 per square foot cost for typical
industrial buildings with 10 percent office finish, 26 foot clear height, and AC
is appropriate for the subject. Given the subject's variability in size and
tenant finish, we have allocated a replacement cost as documented as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
BUILDING SF SIZE COST/SF TOTAL COST
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Plant 12 454,000 $28.00 $12,712,000
------------------------------------------------------------------------------------
Plant 12a 140,000 $29.00 $4,060,000
------------------------------------------------------------------------------------
Plant 13 222,000 $29.00 $6,438,000
------------------------------------------------------------------------------------
Plant 13a 63,000 $31.00 $1,953,000
------------------------------------------------------------------------------------
Plant 26 100,000 $29.00 $2,900,000
------------------------------------------------------------------------------------
Plant 27 221,000 $30.00 $6,630,000
------------------------------------------------------------------------------------
Total 1,200,000 $34,693,000
------------------------------------------------------------------------------------
</TABLE>
DEVELOPER'S PROFIT
Developer's profit is difficult to measure in the Frontier communities of
Mexico, due to many developer's owning the industrial park (land), build-to-
suits have an additional profit percentage on either sales or leases, and
developer's are typically the intended tenant of the facility. Only until the
last two years were speculative buildings being constructed where developer's
profit could be accurately measured, however, few developer's have access to the
necessary capital to conduct this on a large scale. Currently, Security Capital
is one of the only developer's conducting build-to-suits throughout the country.
- --------------------------------------------------------------------------------
-53-
<PAGE>
COST APPROACH
- --------------------------------------------------------------------------------
Based on recently constructed projects, developer's profit is ranging from
12 to 20 percent of total project costs. In cases where profit falls around 12
percent, the developer also has equity in the land that increases their return.
However, the market has recently become more competitive, requiring slight
reductions in developer's profits to the range of 12 to 16 percent. Only those
developers with construction financing below 12 percent or provide build-to-suit
buildings that are subsequently leased at rates above $5.25 per square foot, can
their yields increase above 18 percent.
The project developer should anticipate a 12.5 percent profit on the total
building cost, excluding land. This is at the lower end of the range, due to
large building size and the economies of scale associated with construction
management. The inclusion of a 12.5 percent developer's profit reflects the
entrepreneurial profit/incentive to construct the project and is inherent in
supporting the development feasibility for income producing properties.
ESTIMATE OF ACCRUED DEPRECIATION
Accrued depreciation is the difference between the cost new of improvements
and the current value of those improvements. Depreciation includes value losses
in three basic categories: (1) physical deterioration, (2) functional
obsolescence, and (3) external obsolescence.
The subject improvements are estimated to have an overall economic life
expectancy of approximately 45 years. Based on our observations, the effective
age of the improvements is 12 years. Therefore, the remaining economic life of
the improvements is 33 years. The use of the economic age-life method of
estimating deterioration projects a deduction of 26.7 percent (12 years/40
years).
Functional or external depreciation was not considered due to the nature of
the building improvements and their modern design.
SUMMARY OF THE COST APPROACH
Total Cost Improvement $34,693,000
Plus: Developer's Profit +4,336,625
Less: Accrued Depreciation (Cost only) -9,263,031
----------
Depreciated Value of the Improvements $29,766,594
Add: Land Value 5,160,000
----------
Total Property Value $34,926,594
Rounded to: $34,930,000
This value estimate equates to a square foot value of $29.11.
- --------------------------------------------------------------------------------
-54-
<PAGE>
SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
METHODOLOGY
In the Sales Comparison Approach, we estimated value by comparing this
property with similar, recently sold properties in the Frontier communities of
northern Mexico. Inherent in this approach is the principle of substitution,
which holds that when a property is replaceable in the market, its value tends
to be set at the cost of acquiring an equally desirable substitute property,
assuming that no costly delay is encountered in making the substitution.
By analyzing sales that qualify as arm's-length transactions between
willing and knowledgeable buyers and sellers, we can identify value and price
trends. The basic steps involved in the application of this approach are as
follows:
(1) Researching recent, relevant property sales and current offerings
throughout the competitive area;
(2) Selecting and analyzing those properties considered most similar to
the subject, considering changes in economic conditions that may have
occurred between the sale date and the date of value, and other
physical, functional or locational factors;
(3) Identifying the sales that include favorable financing and calculate
the cash equivalent price;
(4) Reducing the sale prices to common units of comparison, such as price
per square foot of building area (in this case gross leasable area);
(5) Making appropriate adjustments between the comparable properties and
the property appraised; and
(6) Interpreting the adjusted sales data and draw a logical value
conclusion.
The most widely used and market-oriented unit of comparison for properties
such as the subject is the sales price per square foot. All comparable sales
were analyzed on this basis. We present on the following page a summary of the
improved properties we compared with the subject property.
ANALYSIS OF SALES
Our market investigations began with an investigation of improved sales
that had occurred in the Reynosa area over the last several years. However, due
to low vacancy resulting from minimal tenant turnover, that most build to suit
projects have the original tenant still occupying the property and that all
speculative buildings being constructed are for lease, few sales have occurred
within the immediate community of Juarez. The building sales investigation was
expanded to include a search of industrial sales in northern Mexico communities
that also offer similar typed industrial projects, primarily Chihuahua, Juarez,
Matamoros, and Reynosa. The criterion we used was improved sales of modern
manufacturing facilities that are appropriate for maquiladora operations.
- --------------------------------------------------------------------------------
-55-
<PAGE>
PARTES TELEVISION DE REYNOSA, S.A. DE C.V. (ZENITH)
Matamoros y Brecha E-99
Parque Industrial Reynosa
COMPARABLE BUILDING SALES
<TABLE>
<CAPTION>
=============================================================================================================================
SALE BLDG. SIZE PRICE PERCENT EFFECT
NO. LOCATION/TENANT DATE (SQ.FT) SALE PRICE SQ.FT FINISH AGE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Av. Miguel de Cervante No. 140 March 229,327 $4,000,000 $17.44 15% 11 yrs.
Chihuahua, Mexico Vacant 1996
- -----------------------------------------------------------------------------------------------------------------------------
2 Parque de Complejo de Industrial April 107,000 $9,300,000 $86.92 28% New
Chihuahua, Mexico John Deere 1997 $5,845,668* $54.63*
- -----------------------------------------------------------------------------------------------------------------------------
3 Los Americas (Nelson Building) Late-1997 92,000 $1,750,000 $19.02 10% 10 yrs.
Parque Industrial Los Americas
Chihuahua, Mexico D&B to Am. Industries
- -----------------------------------------------------------------------------------------------------------------------------
4 NEC Av. Ohio and Av. Del Obreno July 35,596 $1,650,000 $46.35 10% 7 yrs.
Parque Industrial del Norte 1995 $1,150,000 $32.31* 80% AC
Matamoros, Mexico Daniel Industries
- -----------------------------------------------------------------------------------------------------------------------------
5 Av. Ponienie January 46,960 $1,597,000 $34.75 100% AC 3 yrs.
Ciudad Industrial 1995
Matamoros, Mexico United Technologies
- -----------------------------------------------------------------------------------------------------------------------------
6 Boulevard Gomez Morin Available 25,390 $ 650,000 $25.60 10% 17 yrs.
Juarez, Mexico Vacant
- -----------------------------------------------------------------------------------------------------------------------------
7 Avenue de las Torres February 52,000 $2,300,000 $44.23 10% New
Salvarcar Corridor 1998
Juarez, Mexico National Processing Company
- -----------------------------------------------------------------------------------------------------------------------------
8 Bermudas Industrial Park June 100,000 $3,100,000 $31.00 10% Under
Juarez, Mexico Build-to-Suit 1998 Constr.
- -----------------------------------------------------------------------------------------------------------------------------
9 Cleo Building Available 83,000 $2,822,000 $34.00 5% 7 yrs.
Parque Industrial Park
Reynosa, Mexico Cleo
- -----------------------------------------------------------------------------------------------------------------------------
10 Parque Industrial Park Mid-1996 83,000 $4,200,000 $50.60 15% 8 yrs.
Reynosa, Mexico Data Comp
- -----------------------------------------------------------------------------------------------------------------------------
11 Finsa Industrial Park June 50,000 $1,700,000 $34.00 10% New
Reynosa, Mexico AMMEX 1998
- -----------------------------------------------------------------------------------------------------------------------------
Subj. Matamoros y Brecha E-99, N/A 1,200,000 -- -- 5% 10 yrs.
Reynosa Industrial Park
Reynosa, Mexico Zenith
=============================================================================================================================
<CAPTION>
====================================================================================================================
NO. LOCATION/TENANT OCCUPANCY COMMENTS
- --------------------------------------------------------------------------------------------------------------------
1 Av. Miguel de Cervante No. 140 Vacant Distressed sale of vacant building
Chihuahua, Mexico Vacant
- --------------------------------------------------------------------------------------------------------------------
2 Parque de Complejo de Industrial Owner- 77 acre site purchased for
Chihuahua, Mexico John Deere occupant $3.7M, Build-to-suit for owner/tenant
- --------------------------------------------------------------------------------------------------------------------
3 Los Americas (Nelson Building) Owner- Asking price was $2,100,000,
Parque Industrial Los Americas occupant 12 month marketing period,
Chihuahua, Mexico D&B to Am. Industries 250,000SF site, sprinklered,
cafeteria
- --------------------------------------------------------------------------------------------------------------------
4 NEC Av. Ohio and Av. Del Obreno Investor 9.14 acres of excess land,
Parque Industrial del Norte masonry bdlg., good condition
Matamoros, Mexico Daniel Industries
- --------------------------------------------------------------------------------------------------------------------
5 Av. Ponienie Owner- Buyer offered $0.44/SF/Mo
Ciudad Industrial occupant Lease prior to purchase,
Matamoros, Mexico United Technologies masonry/metal constr.
- --------------------------------------------------------------------------------------------------------------------
6 Boulevard Gomez Morin Vacant Brick and concrete building
Luarez, Mexico Vacant with 10' clear. Functional
deficiencies noted.
- --------------------------------------------------------------------------------------------------------------------
7 Avenue de las Torres Owner- Evap. Warehouse, Restra
Salvarcar Corridor occupant walls, tin roof, 2 docks, Build-
Juarez. Mexico National Processing to-suit for owner/tenant
Company
- --------------------------------------------------------------------------------------------------------------------
8 Bermudas Industrial Park Owner- Build-to-suit for owner/tenant
Juarez, Mexico Build-to-Suit occupant not completed at inspection
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
9 Cleo Building Vacant Tilt and masonry, B.U roof,
Parque Industrial Park manufacturing bldg.
Reynosa, Mexico Cleo
- --------------------------------------------------------------------------------------------------------------------
10 Parque Industrial Park 100% 2-tenant bldg., 26,900 SF
Reynosa, Mexico Data Comp 68%** recently vacated; $0.52 avg.
lease rate; 11.6% OAR
- --------------------------------------------------------------------------------------------------------------------
11 Finsa Industrial Park Owner- Build-to-suit for owner/tenant;
Reynosa Mexico AMMEX occupant not completed at inspection
- --------------------------------------------------------------------------------------------------------------------
Subj. Matamoros y Brecha E-99, Owner- Build-to-suit for owner/tenant,
Reynosa Industrial Park occupant
Reynosa, Mexico Zenith
====================================================================================================================
</TABLE>
*Adjusted to reflect exclusion of excess land ** Current occupancy
-56-
<PAGE>
SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
Our search included interviews with the following brokerage firms; Enrique
Portillo with Cushman & Wakefield/GCI, CB Commercial and Binswanger. We also
interviewed the managers of the major industrial parks within the respective
communities, the maquiladora managers of most of the property sales and
industrial developers with Security Capital and Finsa.
This sales search uncovered nine sales and two listings within the
respective communities that could be used for comparison. These sales are of
typical maquiladora industrial facilities which ranged in size from 25,390 to
229,327 square feet and in effective age from new to 17 years. All, but Sale 10,
are designed for single tenant occupancy.
Two of the comparables were actually under construction at the time of
inspection and represent build-to-suit transactions, as do two other
comparables. Because of the lack of improved inventory available for sale or
lease, maquiladora and typical industrial users typically employ a developer to
construct a facility, which they will buy upon completion. This provides the
developer with a sure sale and provides the buyer with a building designed for
their specific manufacturing use. Many buyers have had to default to this
process due to the absence of available buildings, the lack of market knowledge,
real estate surveys and individuals knowledgeable of all segments of the market.
With respect to the overall analysis, it appears the variance in sale
prices is primarily associated with the quality of the building, if the
build-to-suit design created added building costs and if the building is vacant.
A vacant building within these markets reflects a somewhat distressed sale that
the market discounts substantially. However, it is important to address each
property in terms of the conventional sequence of adjustments relative to the
subject. The following analysis primarily concentrates on differences meriting
adjustment.
PROPERTY RIGHTS CONVEYED
All but Sale 10 are single tenant facilities that were vacant at the time
of sale or purchased as an owner occupant and sold in fee simple. The fee simple
interest of the subject is also under consideration. Sale 10 was a two tenant
facility with contract lease rates at market levels. A market rent equivalency
adjustment is not appropriate and no adjustment is warranted for property rights
conveyed.
SELLER FINANCING/CASH EQUIVALENCY
According to our conversations with parties familiar with the transactions,
the financing for the sales were cash to the seller. No adjustment is warranted
for financing.
CONDITIONS OF SALE
We identified no special motivational conditions concerning the comparable
sales. Therefore, in our opinion, no adjustments are warranted for special
motivational conditions.
TIME(MARKET CONDITIONS)
Changes in market conditions may be caused by fluctuations in supply and
demand, inflation, deflation or other factors. Market conditions generally
change over time and,
- --------------------------------------------------------------------------------
-57-
<PAGE>
SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
therefore, changes in market conditions from specific past sales should be
considered when making a comparative analysis of the property at the valuation
date.
Only sales that occurred after the devaluation of the peso in December 1994
were considered in this analysis. The sales reflect transactions occurring from
January 1995 to two projects currently available. Although demand continues to
increase in all of the communities in which the sales are situated, adjustments
for changes in market conditions cannot be sustained.
OTHER
The additional adjustments needed for the comparables are described for
each property, with most involving location, condition, age/quality issues or
economic characteristics. All sales will be analyzed after the adjustment for
excess land, if appropriate. The chart at the end of this analysis will then
summarize the comparisons.
Sales 1, 2 and 3 are situated in the community of Chihuahua, within the
state of Chihuahua. Although considered a Frontier community, it is closer to
the interior of the country than any communities where sales were included. The
result is a lower labor cost and lower employee turnover. Building costs are
lower due to the use of evaporative coolers in the warehouse/manufacturing area
and lower construction labor costs. Two of the Sales, 1 and 3, produced the
lowest square foot prices of the comparables. However, Sale 2, a build-to-suit
produced the highest square foot price of the comparables. But this is due to
the enhanced physical characteristics of the facility, rather than a superior
location. As a result of the previous discussion, these sales were adjusted
upward to reflect their location in a community with lower industrial costs.
Sales 4 and 5 are situated in Matamoros, a maquiladora community
immediately south of Brownsville, Texas and also within the state of Tamaulipas.
This is Reynosa's directly competing maquiladora market and has similar building
owners, developers, costs of construction, rental rates and only slightly higher
land values. As such, building sale prices are similar to those reflected in
Reynosa. These sales are considered reliable comparisons to the subject.
Sales 6, 7 and 8 are situated in Juarez, the largest industrial market were
sales could be derived. Although land costs are slightly higher than those in
Reynosa, building costs are lower. Also, industrial rental rates are similar. As
such, no adjustment was made to these comparables.
Sales 9, 10 and 11 are also situated in Reynosa. These sales similar to the
subject in locational characteristics.
Sale 1 reflects an older transaction within Chihuahua that was vacant at
the time of sale. It is also one of the largest buildings in the community and
reflected a building with considerable physical deterioration. The buyer
subsequently remodeled the interior at considerable cost. The $17.44 per square
foot price reflects the sale of a vacant building in need of remodeling. It is
inferior to the subject in physical characteristics. As a result of this
comaprable's location in an
- --------------------------------------------------------------------------------
-58-
<PAGE>
SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
inferior market, coupled with its inferior physical characteristics, a
large upward adjustment is warranted.
Sale 2 consists of the John Deere Cos. recently completed 107,000 square
foot light assembly/distribution/office facility. This project opened in April
1997 and took about 9 months to complete. The construction cost was $5,600,000
or $52.34 per square foot, however the project had 30,000 square feet of office
(28%) build-out and some specialized tenant improvements. This facility is
located in the Parque De Complejo De Industrial and according to our source is
located on arguably the best site within the park. The facility is situated on
77 acres, which was purchased for $3,700,000 or $1.10 per square foot. A
considerable portion of the land area is excess land and could be resold. An
adjustment was made to the price, however at $54.63 per square foot reflects a
newer facility with no physical deterioration, has a higher office finish and
generally represents a superior facility. Thus, the subject warrants a market
value well below $54.63 per square foot.
Sale 3 consists of a building totaling 92,000 square feet and is situated
on 250,000 square feet of land. The initial asking price was $2,300,000, while
the contracted sale price was $1,750,000, or $19.02 per square foot of building
area. The building was marketed for approximately 12 months and sold in the fall
of 1997. This vacant building was approximately 10 percent office build-out,
fully sprinklered, had ground mounted air washers (100 percent), a cafeteria and
a functional open production area. There is some added land for expansion, but
its proximity to the building would make a sale difficult, therefore no excess
was considered. At $19.02 per square foot, this comparable warrants an upward
adjustment for its location in an inferior market to reflect the market value of
the subject.
Sales 4 and 5 reflect industrial building purchases of similar facilities
in Matamoros. They range in price from $32.31 to $34.75 per square foot. These
sales reflect slightly newer construction, with slightly less physical
deterioration. In summary, the subject warrants a market value slightly below
$32.31 per square foot, as indicated by these sales.
Sales 6, 7 and 8 are situated in Juarez, with Sales 6 and 8 located within
the Bermudas Industrial Park and Sale 7 within the Salvacar Corridor. Sale 6 is
the listing of a 25,390 square foot industrial facility than is 17 years old and
has noted functional deficiencies, including low ceiling heights and partitioned
interior. At $25.60 per square foot, this price represents the extreme lower
range of what is appropriate for industrial facilities in Juarez and warrants an
upward adjustment to reflect the market value of the subject. Sale 7 is a new
facility and Sale 8 is under construction, both build-to-suit projects where the
buyer is purchasing the property upon completion of construction. At $44.23 and
$31.00, they represent slightly superior projects as compared to the subject.
Sales 9, 10 and 11 are industrial facilities situated in Reynosa. Sale 9
reflects a vacant 83,000 square foot building that is available for sale. Its
square foot asking price is less reliable for comparison. Sale 10 is an 8 year
old facility, also 83,000 square foot in size and the only multitenant facility
considered for comparison. It has a higher office finish. At $50.60 per square
foot, this represents the extreme upper market value of maquiladoras in the
Frontier communities. Sale 11 is a build-to-suit facility that is under
construction and will be purchased
- --------------------------------------------------------------------------------
-59-
<PAGE>
SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
by the tenant at completion. At $34.00 per square foot, a downward
adjustment is made to reflect the market value of the subject due to its new
construction.
SUMMARY
Overall, Sales 1,3 and 6 at $17.44, $19.02 and $25.60 reflect inferior
comparisons and warrant upward adjustments to reflect the market value of the
subject. Sales 4, 5, 8, 9 and 11 with a square foot price range from $31.00 to
$34.00 per square foot reflect slightly superior comparisons and warrant only
a slight downward adjustment. Sales 2, 7 and 10 with a square foot price range
from $44.23 to $54.63 per square foot reflect superior comparisons. Thus, a
market value between $25.60 to $31.00 per square foot is appropriate for the
subject. Discussions with industrial brokers from the respective firms
previously noted indicated that this is a reliable indication of market value
for the subject. However, some consideration must be given to the individual
building sizes at the conclusion of this analysis.
IMPROVED SALES COMPARISON
<TABLE>
<CAPTION>
=======================================================================
Sales Overall Rating
Comp. Price Relative to
No. Property Per SF* The Subject*
=======================================================================
<S> <C> <C> <C>
1 Av. Miguel de Cervante No. 140 $17.44 Inferior
Chihuahua, Mexico
-----------------------------------------------------------------------
2 Parque de Complejo de Industrial $54.63 Superior
Chihuahua, Mexico
-----------------------------------------------------------------------
3 Los Americas (Neilson Building) $19.02 Inferior
Chihuahua, Mexico
-----------------------------------------------------------------------
4 NEC Av. Ohio and Av. Del Obreno $32.31 Slightly Superior
Matamoros, Mexico
-----------------------------------------------------------------------
5 Av. Poniente $34.75 Slightly Superior
Matamoros, Mexico
-----------------------------------------------------------------------
6 Boulevard Gomez Morin $25.60 Inferior
Juarez, Mexico
-----------------------------------------------------------------------
7 Avenue de las Torres $44.23 Superior
Juarez, Mexico
-----------------------------------------------------------------------
8 Bermudas Industrial Park $31.00 Slightly Superior
Juarez, Mexico
-----------------------------------------------------------------------
9 Cleo Building $34.00 Slightly Superior
Reynosa, Mexico
-----------------------------------------------------------------------
10 Parque Industrial Park $50.60 Superior
Reynosa, Mexico
-----------------------------------------------------------------------
11 Finsa Industrial Park $34.00 Slightly Superior
Reynosa, Mexico
-----------------------------------------------------------------------
</TABLE>
*The rating evaluation considers the net effect of all adjustments on a per
unit after the exclusion of excess land a prior to adjustments for the
subject's larger building size.
Based on the preceding analysis, an estimated value of $28.50 to $30.50 per
square foot is considered reasonable for the subject building improvements. We
have included the estimated
- -------------------------------------------------------------------------------
-60-
<PAGE>
SALES COMPARISON APPROACH
- --------------------------------------------------------------------------------
market value of the subject buildings individually to arrive at a market value
of the fee simple interest in the subject property. Therefore, the subject's
total value via the sales price per square foot of building area methodology is:
<TABLE>
<CAPTION>
----------------------------------------------------------
BUILDING SF SIZE VALUE/SF TOTAL VALUE
----------------------------------------------------------
<S> <C> <C> <C>
Plant 12 454,000 $28.00 $12,712,000
----------------------------------------------------------
Plant 12a 140,000 $29.50 $ 4,130,000
----------------------------------------------------------
Plant 13 222,000 $29.50 $ 6,549,000
----------------------------------------------------------
Plant 13a 63,000 $30.50 $ 1,921,500
----------------------------------------------------------
Plant 26 100,000 $30.00 $ 3,100,000
----------------------------------------------------------
Plant 27 221,000 $29.50 $ 6,519,500
----------------------------------------------------------
TOTAL 1,200,000 $34,932,000
ROUNDED $34,930,000
----------------------------------------------------------
</TABLE>
This value estimate equates to a square foot value of $29.11.
- --------------------------------------------------------------------------------
-61-
<PAGE>
INCOME APPROACH
- --------------------------------------------------------------------------------
The subject facility contains approximately 1,200,000 square feet. The
quality of construction is considered to be average for this facility
considering its age and architectural style. The subject was designed for
single-tenant occupancy, specific to the current tenant's needs. Although the
market has historically consisted of owner occupied buildings, speculative
facilities only available for lease and build-to-suit facilities that are
leased, rather than sold to the user are now prevalent in the market. Therefore,
using the Income Approach can provide a reasonable estimate of market value for
the subject. Below, we have discussed the process used to estimate market value.
Properties such as the subject have been leased on a triple net basis, with
the tenant paying all operating expenses. If available, the subject would lease
on a triple net basis and reflect a market rental rate similar to other leased
and available industrial projects in the Reynosa industrial market. We,
therefore, have elected to look at lease rates with triple net terms. In an
effort to estimate market rent for the subject, a search was conducted of only
industrial facilities which were leased or available for lease in Reynosa and
Matamoros that could provide a general indication of market rent.
Our search uncovered 33 lease comparables that have occurred since the
beginning of 1995 and May 1998. There are also seven speculative buildings under
construction that will come available from May to November 1998 and are
currently available for lease. We concentrated on leased facilities over 95,000
square feet in size for comparison. This information is shown in the Industrial
Rent Comparable Summary below.
INDUSTRIAL RENT COMPARABLE SUMMARY
<TABLE>
<CAPTION>
=====================================================================================================
TENANT/ BUILDING TERM LEASE ANNUAL LEASE
COMP LOCATION SIZE (SF) (YEARS) DATE RATE (NNN)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Cleo Building 83,000 7 June $5.85
Parque Industrial Park, Reynosa 1998
- -----------------------------------------------------------------------------------------------------
2 Data Comp 100,000 7 1997 $6.24
Parque Industrial Park, Reynosa
- -----------------------------------------------------------------------------------------------------
3 MagnaTech 136,690 10 May $5.52
Parque Industrial Park, Reynosa 1998
- -----------------------------------------------------------------------------------------------------
4 AYUSA 46,960 7 1995 $5.28
Avenue Poniente, Matamoros
- -----------------------------------------------------------------------------------------------------
5 Confidential 50,000 5 February $5.40
Finsa Industrial Park, Reynosa 1998
- -----------------------------------------------------------------------------------------------------
Subj. Matamoros y Brecha E-99, 1,200,000 -- -- --
Aeropuerto Industrial Park
=====================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
-62-
<PAGE>
INCOME APPROACH
- --------------------------------------------------------------------------------
Trying to compare the rent comparables on a point-by-point basis to the
individual subject improvements is difficult, since some are built-to-suit
arrangements were the tenant provided some of the capital associated with
construction. However, to the best of our knowledge, the lease rates are current
and reflect the leasing activity of improved industrial properties. The subject
is occupied by an owner/user. Therefore, the comparables are discussed in a
general manner.
The comparables are all smaller in size than the subject. However, these
properties have physical amenities that are generally similar to the subject.
Age, clear height and percent office build-out also vary, but the market data
does not present a clear rental rate variation for these differences.
Rent Comparables 1, 2, 3 and 5 are situated in Reynosa, within the Parque and
Finsa industrial parks. All have similar interior subdivision access,
availability of utilities and municipal services. They produced a range in
rental rates from $5.40 to $6.40 per square foot. Rent Comparable 5 is one of
three leases that was negotiated within the Finsa Industrial Park in the last
year at rates of $5.40 to $5.52 per square foot. Rent Comparable 4 is situated
in Matamoros and reflected the older lease of a 46,960 square foot facility for
$5.28 per square foot. It was given less consideration in the estimation of the
subject's market value.
A quantitative comparison of these properties with the subject property would
be very subjective, particularly relating to an adjustment for the subject's
large size. However, utilizing a market rate slightly below the lower range as
represented by the leases within Reynosa, we have concluded that the subject's
reasonable market rent is $5.35 per square foot.
VACANCY
Vacancy rates in the Reynosa industrial market were discussed in the Market
Analysis section. Vacancy rates have increased slightly in the city and
subject's submarket in the last two years, currently standing at around three
percent. However, we expect vacancy levels will increase Reynosa in the next 12
months and it is likely that the subject's submarket will be affected. Because
the subject is configured for up to six-tenant occupancy, we would expect its
initial marketing to adversely affect the submarket and metro vacancy rate.
Coupled with the amount of speculative construction being undertaken, increased
vacancy can be expected over a typical holding period. Therefore, we have
projected stabilized vacancy to be 6.0 percent.
EXPENSES
We have estimated market rent on a triple net basis. Therefore, the landlord
is responsible for a limited amount of expenses. These expenses are listed and
discussed below.
Management - Professional management fees were obtained from Cushman &
Wakefield/GCI and Finsa. Reportedly, management fees range between 0.5
percent and 2.0 percent of effective gross income for multitenant
industrial
- --------------------------------------------------------------------------------
-63-
<PAGE>
INCOME APPROACH
- --------------------------------------------------------------------------------
facilities and a flat fee of $75,000 to $150,000 for the management of
industrial parks with 20 to 40 facilities. We assume professional
management will be required in the operation of this property on a
limited basis. Therefore, we estimate management expense at 1.0
percent.
Reserves for Replacement - This item is for replacement of major
building components, such as air conditioners, roofing, plumbing, etc.
This expense item usually ranges between $0.02 and $0.08 per square
foot of building area. We have allocated $0.05 per square foot of
total building area per year, or $60,000 annually.
Miscellaneous - This expense category includes legal and accounting
services, real estate taxes and insurance costs during periods of
vacancy, telephone and other expense items not included in other
classifications. This expense item is estimated to be 2.0 percent of
effective gross income.
Following is an Income and Expense Summary using the above discussed income
and expense items.
INCOME AND EXPENSE SUMMARY
Potential Gross Income
1,200,000 S.F. @ $5.35/S.F./Year $6,420,000
Less Vacancy (6%) -385,200
--------
Effective Gross Income $6,034,800
Less Operating Expenses:
Management (1%) $ 60,348
Reserves ($0.05/S.F.) 60,000
Miscellaneous (2%) 120,696
-------
Total Operating Expenses -241,044
--------
NET OPERATING INCOME $5,793,756
DIRECT CAPITALIZATION
Direct capitalization is used whereby we have assumed all the improvements
are leased at a market rental rate, with the appropriate deductions for vacancy
and owners expenses under net lease terms. Because some of the sales used in our
analysis were owner/user properties, capitalization rates were not always
available. However, those sales were capitalization rates could be obtained are
summarized:
SUMMARY OF OVERALL CAPITALIZATION RATES
=====================================
SALE CAPITALIZATION RATE
-------------------------------------
1-4 15.7%
-------------------------------------
1-5 14.3%
-------------------------------------
1-10 11.6%
=====================================
- --------------------------------------------------------------------------------
-64-
<PAGE>
INCOME APPROACH
- --------------------------------------------------------------------------------
Sale 1-4 reflects the purchase of a vacant building that was subsequently
leased. At 15.7 percent, this reflects the appropriate overall rate for a vacant
building in the Frontier communities oriented toward maquiladora occupancy. Sale
1-5 produced an overall rate of 14.3 percent, based on the asking lease rate at
the time of purchase. The potential tenant actually decided to purchase the
facility and conducted some remodeling at their cost. The seller would have had
to provide this additional cost if the buyer would have leased the facility,
which would have pushed the rental rate upward. Thus, a 14.3 percent overall
rate reflects the low end of the range. The buyer and seller of Sale 1-10
indicated that the purchase price was above market levels. This was due to some
internal motivations, which could not be confirmed, and pushed the overall rate
downward. An overall rate of 11.6 percent is unrealistically low to use in
capitalizing net income into value within the Mexico industrial market.
Another way of deriving overall rates is through the analysis of build-to-
suit facilities, where the facility upon completion is subsequently leased to
the tenant. Examples of industrial facilities currently under construction and
available for lease are summarized:
BUILD-TO-SUIT ANALYSIS
CONSTRUCTION COSTS, INCOME ANALYSIS AND RESULTING OVERALL RATE
<TABLE>
<CAPTION>
======================================================================================================
Building Project Approximate Overall
Comp Project Size (SF) Cost Net Income* Rate
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Morelea, Juarez 60,000 $2,400,000 $313,140 13.0%
- ------------------------------------------------------------------------------------------------------
2 Salvacar Industrial Park, Juarez 63,504 $2,032,128 $340,400 16.6%
- ------------------------------------------------------------------------------------------------------
3 Juan Gabriel, Juarez 84,000 $2,772,000 $470,000 17.0%
- ------------------------------------------------------------------------------------------------------
4 Magnatec, Reynosa 136,690 $5,640,000 $710,420 12.6%
======================================================================================================
</TABLE>
*Net income is based on asking or contract rent, market vacancy and expenses.
Developers are obtaining overall rates of 12.6 percent to 17.0 percent on
their build-to-suit projects. However, many own the industrial park and enhance
their yields considerably due to a lower cost basis in the land. The average
rate for the four comparables noted is 14.9 percent, versus 13.9 percent for the
three sales previously noted. It can be concluded that developers are making an
additional yield around 1.0 percent. It can be concluded that capitalization
rates for industrial product ranges from 11.6 percent to 17.0 percent for
institutional-grade properties. However, the subject is one of largest
industrial maquiladoras in any Frontier city and as such, provides an additional
degree of risk typically not associated with a 50,000 to 150,000 square foot
facility. Given the subject's large size, we have selected an overall rate of
16.5 percent as applied below.
DIRECT CAPITALIZATION
========================================================
Net Operating Income $ 5,793,756
--------------------------------------------------------
Divided by Overall Capitalization Rate 16.5%
--------------------------------------------------------
Indicated Value $35,113,673
--------------------------------------------------------
Rounded to: $35,110,000
========================================================
Thus, the value indication, via Income Approach, of the subject is estimated
to be $35,110,000 on a cash equivalent basis.
- --------------------------------------------------------------------------------
-65-
<PAGE>
RECONCILIATION AND FINAL VALUE CONCLUSION
- --------------------------------------------------------------------------------
Value indications for the subject property by the approaches to value are
indicated as follows:
Cost Approach $34,930,000
Sales Comparison Approach $34,930,000
Income Approach $35,110,000
In the reconciliation, each approach to value is reviewed in order to
determine the reliability of the data in each and to weigh that approach best
represents the actions of typical users and investors in the market.
The Cost Approach is generally a very reliable estimate of value in a
stable economy and when the subject is new construction with little or no
depreciation to be estimated. However, the subject property has suffered from
some physical deterioration due to its physical and effective age. Regardless,
the availability of cost information was reliable and land comparables provided
a reliable land value estimate. Because a particular purchaser of the subject
would rely less on this approach, we have given it least consideration.
The Sales Comparison Approach is based on the principle of substitution,
which implies that a prudent person will not pay more to buy a property than it
would cost to buy a comparable substitute property. The subject property, as
improved, was compared with other industrial building sales. The lack of
uniformity in the market make it somewhat difficult to objectively adjust the
comparables. However, their was adequate sales transactions to rely on, and
their square foot prices bracketed an appropriate value indication for the
subject. Based on the availability and reliability of the data, coupled with the
fact that the subject would likely be purchased by an owner user, the sales
comparison approach was given most emphasis in the estimation of market value.
Given its size, the subject is less suited to an analysis by direct
capitalization. However, a substantial amount of market data was available that
could be relied upon. If the subject were bought and sold in the investment
market, this approach is very reliable. However, given its single tenant
orientation, coupled with its large size, the subject is less desirable to the
investment market. Thus, we have given it secondary consideration.
Therefore, giving most weight to the indication of value via the Sales
Comparison Approach, it is our opinion that the market value of the fee simple
estate in the subject property, contingent upon the assumptions inherent in this
report, as of May 28, 1998, is:
THIRTY FOUR MILLION NINE HUNDRED FIFTY THOUSAND DOLLARS
$34,950,000
MARKETING TIME
Marketing time is an estimate of the time that might be required to sell a
real property interest at the appraised value. Marketing time is presumed to
start on the effective date of the appraisal. Marketing time is subsequent to
the effective date of the appraisal, whereas
- --------------------------------------------------------------------------------
-66-
<PAGE>
RECONCILIATION AND FINAL VALUE CONCLUSION
- --------------------------------------------------------------------------------
exposure time, as defined below, is presumed to precede the effective date of
the appraisal. The estimate of marketing time uses some of the same data
analyzed in the process of estimating the reasonable exposure time and is not
intended to be a prediction of a date of sale.
We have concluded that a marketing period of 12 to 18 months would be
required in order to sell the subject property. This reflects the marketing time
exhibited by the sale which have been included. The value conclusion expressed
in this report is based on the current market conditions, but the large size and
length of time required to conduct due diligence would extend the marketing
period to at least 12 months.
EXPOSURE TIME
Under paragraph 3 of the Definition of Market Value, the estimate presumes
that "...a reasonable time is allowed for exposure in the open market." Exposure
time is defined as the estimated length of time the property interest being
appraised would have been offered on the market prior to the hypothetical
consummation of a sale at the market value on the effective date of the
appraisal. Exposure time is presumed to precede the effective date of the
appraisal. We have estimated the appropriate exposure time for the subject
property to be approximately 12 to 18 months.
LIQUIDATION VALUE
At the request of the client, we have estimated the liquidation value of
the subject property. This assumes a six month sale period, which is less than
the estimated marketing period if sold at the market value previously noted.
Considerable due diligence would need to be conducted in order to complete a
transaction within this period, requiring additional costs associated with the
transaction. Further, an intense international marketing campaign would have to
be undertaken and potential purchasers targeted within one to two months.
Because few firms have this capability, a deduction to the market value would be
required.
Enrique Portillo with Cushman & Wakefield/GCI indicated a deduction of
$2.00 to $5.00 per square foot would be required to entice a buyer to close in
such a quick period. This would substantiate a deduction of approximately
$2,400,000 to $6,000,000 and reduce the market value estimate to a range of
$28,950,000 to $32,550,000, or a midpoint of $30,750,000. However, the lack of
existing vacant product in the market would provide additional incentive to
market participants and we have estimated the liquidation value at the upper
range of the adjusted values. Therefore, the estimate of liquidation value, as
of the date of appraisal and assuming a six month sale period, is:
THIRTY-ONE MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS
$31,850,000
- --------------------------------------------------------------------------------
-67-
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
- --------------------------------------------------------------------------------
Appraisal means the appraisal report and opinion of value stated
therein; or the letter opinion of value, to which these Assumptions and
Limiting Conditions are annexed.
Property means the subject of the Appraisal.
C&W means Cushman & Wakefield, Inc., or its subsidiary that issued the
Appraisal.
Appraiser(s) means the employees of C&W who prepared and signed the
Appraisal.
The Appraisal has been made subject to the following assumptions and
limiting conditions:
(1) No responsibility is assumed for the legal description or for any
matters that are legal in nature. Title to the Property is assumed to
be good and marketable and the Property is assumed to be free and
clear of all liens unless otherwise stated. No survey of the Property
was undertaken.
(2) The information contained in the Appraisal or upon which the Appraisal
is based, has been gathered from sources the Appraiser assumes to be
reliable and accurate. The owner of the Property may have provided
some of such information. Neither the Appraiser nor C&W shall be
responsible for the accuracy or completeness of such information,
including the correctness of estimates, opinions, dimensions,
sketches, exhibits and other factual matters. The Appraisal and the
opinion of value stated therein is as of the date stated in the
Appraisal. Changes since that date in external and market factors can
significantly affect property value.
(3) The Appraisal is to be used in whole and not in part. No part of the
Appraisal shall be used in conjunction with any other appraisal.
Possession of the appraisal, or a copy thereof, does not carry with it
the right of publication. Publication of the Appraisal or any portion
thereof without the prior written consent of C&W is prohibited. Except
as may be otherwise expressly stated in the letter of engagement to
prepare the Appraisal, C&W does not permit use of the Appraisal by any
person other than the party to whom it is addressed or for purposes
other than that for which it was prepared. If written permission is
given by C&W to use the Appraisal, the Appraisal must be used in its
entirety and only with proper written qualification as approved by
C&W. No part of the appraisal or the identity of the Appraiser shall
be conveyed to the public through advertising public relations, news,
sales or other media or used in any material without C&W's prior
written consent. Reference to the Appraisal Institute or to the MAI
designation is prohibited.
(4) The Appraiser shall not be required to give testimony in any court or
administrative proceeding relating to the Property or the Appraisal.
(5) The Appraisal assumes (a) responsible ownership and competent
management of the Property; (b) there are no hidden or unapparent
conditions of the Property, subsoil or structures that render the
Property more or less valuable (no responsibility is assumed for such
conditions or for arranging for engineering studies that may be
required to
- --------------------------------------------------------------------------------
-68-
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
- --------------------------------------------------------------------------------
discover them); (c) full compliance with all applicable federal,
state and local zoning and environmental regulations and laws, unless
noncompliance is stated, defined and considered in the Appraisal; and
(d) all required licenses, certificates of occupancy and other
governmental consents have been or can be obtained and renewed for any
use on which the value estimate contained in the Appraisal is based.
(6) The Appraiser or other person identified in the Appraisal bases the
physical condition of the improvements considered by the Appraisal on
visual inspection. C&W assumes no responsibility for the soundness of
structural members nor for the condition of mechanical equipment,
plumbing or electrical components.
(7) The projected potential gross income referred to in the Appraisal may
be based on lease summaries provided by the owner or third parties.
The Appraiser has not reviewed lease documents and assumes no
responsibility for the authenticity or completeness of lease
information provided by others or the bona fides of actual leases. C&W
suggests that legal advice be obtained regarding the interpretation
of lease provisions and the contractural rights of parties.
(8) The projections of income and expenses are not predictions of the
future. Rather, they are the Appraiser's best estimates of current
market thinking on future income and expenses. The Appraiser and C&W
make no warranty or representation that these projections will
materialize. The real estate market is constantly fluctuating and
changing. It is not the Appraiser's task to predict or in any way
warrant the conditions of a future real estate market; the Appraiser
can only reflect what the investment community, as of the date of the
Appraisal, evisions for the future in terms of rental rates, expenses,
and supply and demand.
(9) Unless otherwise stated in the Appraisal, the existence of potentially
hazardous or toxic materials which may have been used in the
construction or maintenance or operation of the improvements or may be
located at or about the Property was not considered in arriving at the
opinion of value stated in the Appraisal. These materials (such as
formaldehyde foam insulation, asbestos insulation, various soil
contaminants, and other potentially hazardous materials) may affect
the value of the Property. The Appraisers are not qualified to detect
such substances and C&W urges that an expert in this field be employed
to determine the economic impact of these matters on the opinion of
value stated in the Appraisal.
(10) If the Appraisal is submitted to a lender or investor with the prior
approval of C&W, such party should consider the Appraisal as one
factor, together with its independent investment considerations and
underwriting criteria, in its overall investment decision.
(11) Unless otherwise stated in the appraisal, compliance with the
requirements of the Americans With Disabilities Act of 1990 (ADA) has
not been considered in arriving at the opinion of value stated in the
appraisal. Failure to comply with the requirements of the ADA may
negatively affect the value of the property. C&W recommends that an
expert in this field be employed.
- --------------------------------------------------------------------------------
-69-
<PAGE>
ASSUMPTIONS AND LIMITING CONDITIONS
- --------------------------------------------------------------------------------
We certify that, to the best of our knowledge and belief:
(1) Michael L. Miller, MAI, has inspected the property and prepared the
report.
(2) The statements of fact contained in this report are true and correct.
(3) The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are our
personal, unbiased professional analyses, opinions, and conclusions.
(4) We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
(5) Our compensation is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of a
stipulated result, or the occurrence of a subsequent event. The
appraisal assignment was not based on a requested minimum valuation, a
specific valuation or the approval of a loan.
(6) No one provided significant professional assistance to the persons
signing this report.
(7) Our analyses, opinions, and conclusions were developed, and this
report has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation and the
Code of Professional Ethics and the Standards of Professional
Appraisal Practice of the Appraisal Institute.
(8) The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
(9) As of the date of this report, Michael L. Miller, MAI has completed
requirements of the continuing education program of the Appraisal
Institute.
(10) We have sufficient knowledge and expertise to appraise the subject
property.
Michael L. Miller, MAI
Director
Valuation Advisory Services
- --------------------------------------------------------------------------------
-70-
<PAGE>
ADDENDA
- --------------------------------------------------------------------------------
SUBJECT PHOTOGRAPHS
LOCATIONS MAP
BUILDING PLANS
QUALIFICATIONS OF APPRAISER
- --------------------------------------------------------------------------------
-71-
<PAGE>
SUBJECT PHOTOGRAPHS - REYNOSA
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
Looking south at the subject property.
[PHOTO APPEARS HERE]
Front view of offices.
<PAGE>
SUBJECT PHOTOGRAPHS - REYNOSA
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
View of site improvements.
[PHOTO APPEARS HERE]
View of Plant 12.
<PAGE>
SUBJECT PHOTOGRAPHS - REYNOSA
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
Subject bridge crossing between Plants 12 and 13.
[PHOTO APPEARS HERE]
View of subject bridge crossing between Plants 12 and 27.
<PAGE>
SUBJECT PHOTOGRAPHS - REYNOSA
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
View of Plants 12A and 26.
[PHOTO APPEARS HERE]
View of Plant 12A.
<PAGE>
SUBJECT PHOTOGRAPHS - REYNOSA
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
View of Plant 26
[PHOTO APPEARS HERE]
View of site improvements at Plants 12A and 26.
<PAGE>
SUBJECT PHOTOGRAPHS - REYNOSA
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
Interior view of warehouse in Plant 12.
[PHOTO APPEARS HERE]
View of manufacturing area in Plant 12.
<PAGE>
[AREA MAP OF REYNOSA PLANT APPEARS HERE]
<PAGE>
[REYNOSA PLANT 27 APPEARS HERE]
<PAGE>
[REYNOSA PLANT 13 APPEARS HERE]
<PAGE>
[REYNOSA PLANT 13 APPEARS HERE]
<PAGE>
[REYNOSA PRODUCTION PLANTS APPEARS HERE]
<PAGE>
[LETTERHEAD OF MARTIN, DROUGHT & TORRES APPEARS HERE]
VIA FEDERAL EXPRESS
- -------------------
Mr. Wayne M. Koprowski, Esq.
Legal Department
ZENITH ELECTRONICS CORPORATION
1000 Milwaukee Avenue
Glenview, Illinois 60025
Re: Real Estate Properties; Partes de Television de Reynosa, S.A. de
C.V.; File X1101 and; Electropartes de Matamoros, S.A. de C.V.;
File X1053
Dear Wayne:
At the request of Donna Watzida and in connection with the Real Estate
Properties owned by each company enclosed please find the following documents:
PARTES DE TELEVISION DE REYNOSA, S.A. DE C.V.
---------------------------------------------
1) Public Deed No. 7890 dated June 13, 1994, recorded in the Public Registry
of Property for the State of Tamaulipas under Section I, Registration No. 22818,
File 457, dated July 13, 1994, that contains the "Purchase and Sale Agreement"
of two Tracts of Land, the first one with a total surface area of 23,105.35
square meters and the second one with a total surface area of 2,000.00 square
meters, both in Reynosa, Tamaulipas.
2) Public Deed No. 2091 dated December 19, 1996, recorded in the Public
Registry of Property for the State of Tamaulipas under Section I, Registration
No. 134046, File 2681, dated December 27, 1996, that contains the "Termination
of a Real Estate Trust" which results in the direct ownership of a Tract of Land
with a total surface area of 10,000.00 square meters in Reynosa, Tamaulipas.
3) Public Deed No. 2092 dated December 19, 1996, recorded in the Public
Registry of Property for the State of Tamaulipas under Section I, Registration
No. 134052, File 2682, dated December 27, 1996, that contains the "Termination
of a Real Estate Trust" which results in the direct ownership of a Tract of Land
with a total surface area of 121,400.00 square meters in Reynosa, Tamaulipas.
4) Public Deed No. 2093 dated December 19, 1996, recorded in the Public
Registry of Property for the State of Tamaulipas under Section I, Registration
No. 134048, File 2681, dated December 27, 1996, that contains the "Termination
of a Real Estate Trust" which results in the direct ownership of a Tract of Land
with a total surface area of 19,349.00 square meters in Reynosa, Tamaulipas.
5) Public Deed No. 2094 dated December 19, 1996, recorded in the Public
Registry of Property for the State of Tamaulipas under Section I, Registration
No. 134054, File 2682, dated December 27, 1996, that contains the
1
<PAGE>
Mr. Wayne M. Koprowski, Esq.
Legal Department
ZENITH ELECTRONICS CORPORATION
Page 2
"Termination of a Real Estate Trust" which results in the direct ownership of a
Tract of Land with a total surface area of 29,060.00 square meters in Reynosa,
Tamaulipas.
6) Public Deed No. 2265 dated October 21, 1997, recorded in the Public
Registry of Property for the State of Tamaulipas under Section I, Registration
No. 52958, File 1060, dated February 11, 1998, that contains the "Termination
of a Real Estate Trust" which results in the direct ownership of a Tract of Land
with a total surface area of 59,543.14 square meters in Reynosa, Tamaulipas.
7) Public Deed No. 2266 dated October 14, 1997, recorded in the Public
Registry of Property for the State of Tamaulipas under Section I, Registration
No. 53125, File 1063, dated February 13, 1998, that contains the "Termination
of a Real Estate Trust" which results in the direct ownership of a Tract of Land
with a total surface area of 41,750.00 square meters in Reynosa, Tamaulipas.
ELECTROPARTES DE MATAMOROS, S.A. DE C.V.
----------------------------------------
1) Public Deed No. 2095 dated December 19, 1996, recorded in the Public
Registry of Property for the State of Tamaulipas under Section I, Registration
No. 134053, File 2682, dated December 27, 1996, that contains the "Termination
of a Real Estate Trust" which results in the direct ownership of a Tract of Land
with a total surface area of 14,203.57 square meters in Matamoros, Tamaulipas.
2) Public Deed No. 2267 dated October 21, 1997, recorded in the Public
Registry of Property for the State of Tamaulipas under Section I, Registration
No. 52957, File 1060, dated February 11, 1998, that contains the "Termination
of a Real Estate Trust" which results in the direct ownership of a Tract of Land
with a total surface area of 20,233.55 square meters in Reynosa, Tamaulipas.
The English versions should be sent to you sometime this week. Should you
have any questions please do not hesitate to call me.
Sincerely Yours;
/s/ Jorge A. Garcia-Adame
-------------------------
JORGE A. GARCIA-ADAME
JAG:et
Enclosures
2
<PAGE>
QUALIFICATIONS
- --------------------------------------------------------------------------------
Michael L. Miller, MAI
Professional Affiliations
MAI-Member of Appraisal Institute;
Certificate No. 9664 (certified through 12/31/97)
Arizona Certified General Real Estate
Appraiser No. 30172 (certified through 08/31/98)
Nevada Certified General Real Estate
Appraiser No. 01270 (certified through 07/31/97)
Licensed Real Estate Broker - State of
Texas, 1985 - 1994
Real Estate Experience
Director, Cushman & Wakefield of Arizona, Inc., Valuation Advisory
Services, Phoenix, Arizona. 1994 to present.
Assistant Vice President, CB Commercial Real Estate Group, Inc., Appraisal
Services, Phoenix, Arizona. 1990 to 1994.
Senior Staff Appraiser, Central Appraisal Corporation, Fort Worth, Texas.
1987 to 1990.
Senior Fee Appraiser, Dalton Real Estate, Fort Worth, Texas. 1985 to 1987.
Fee Appraiser, Haygood & Associates, Fort Worth, Texas. 1984 to 1985.
Commercial Sales Agent and Fee Appraiser, Ray Miller & Associates, Fort
Worth, Texas. 1983 to 1984.
Property Manager, R&J Investments, Forth Worth, Texas, 1980 to 1983.
Experience encompasses the following types of property:
Commercial Office
Retail Multifamily Residential
Residential Subdivisions Hotel/Motel
Industrial Medical Office
Recreation/Leisure Religious Facilities
Vacant Land Special Use Properties
Extensive condemnation experience dealing with local and state governments.
Valuation assignments performed in Washington, Montana, California,
Nebraska, New Mexico, Arizona, Texas and Mexico City.
Real estate consultation on various proposed land use developments.
Testified and qualified as an expert witness in District, Condemnation and
Bankruptcy Court in Texas and Arizona.
<PAGE>
QUALIFICATIONS
- --------------------------------------------------------------------------------
MICHAEL L. MILLER, MAI
EDUCATION
University of Texas, Arlington, Texas: Major - Real Estate. Minor -
Economics.
Courses included Income Property Appraisal, Single Family Appraisal, Real
Estate Law, Real Estate Principles, Contemporary Real Estate Issues, Land
Development Regional, Real Estate Investment and Investment Analysis.
<PAGE>
EXHIBIT 99D
MEXICO OWNED FACILITIES
Property Summary
and
Value Estimates
Prepared by
BERMUDEZ-BINSWANGER
February, 1998
<PAGE>
- -----------------
TABLE OF CONTENTS
- -----------------
1. STRATEGIC VALUE ANALYSIS
.MATRIX
.U.S./MEXICO BORDER MAP
2. MATAMOROS, TAMAULIPAS
.PLANT #14
.PLANTS #14W & #14A
3. REYNOSA, TAMAULIPAS
.PLANT #12
.PLANT #13
.PLANT #27
.PLANTS #12A & #26
.PLANT #13A
4. CHIHUAHUA, CHIHUAHUA
.PLANTS #4 & #4A
.PLANT #11
5. CD. JUAREZ, CHIHUAHUA
.PLANT #43
<PAGE>
STRATEGIC VALUE ANALYSIS
MATRIX
<PAGE>
REVISION "A"
STRATEGIC VALUE ANALYSIS
(ZENITH MEXICO PROPERTIES)
<TABLE>
<CAPTION>
=================================================================================================================
# PLANT LAND AREA BLDG. AREA DATE OF EST. VALUE EST. VALUE INVESTMENT
ACRES SQ. FT. CONSTRUCTION WITH LAND LEASE RATE VALUE LEASED
U.S.D PER SQ. FT. U.S.D. (18% Cap)
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
MATAMOROS, TAMAULIPAS
- -----------------------------------------------------------------------------------------------------------------
1 14 5.00 141,191 1970, 1973 $ 3,194,838 $3.50 - $4.00 $ 2,510,062
- -----------------------------------------------------------------------------------------------------------------
2 14W & 3.99 55,270 Early 1970's $ 2,077,955 $4.00 - $6.00 $ 982,577
14A
=================================================================================================================
REYNOSA, TAMAULIPAS
- -----------------------------------------------------------------------------------------------------------------
3 12 21.55 454,000 1980 $10,323,202 $4.00 - $6.00 $ 8,071,111
(14.27)
- -----------------------------------------------------------------------------------------------------------------
4 13 (Part of 12) 222,000 1979, 1993 $ 5,074,234 $4.00 - $6.00 $ 3,946,666
(7.28)
- -----------------------------------------------------------------------------------------------------------------
5 27 15.14 221,000 1994 $ 6,844,000 $4.00 - $6.00 $ 3,928,888
- -----------------------------------------------------------------------------------------------------------------
6 12A & 30.65 244,000 1985 $ 7,062,000 $4.00 - $6.00 $ 4,337,777
26
- -----------------------------------------------------------------------------------------------------------------
7 13A 4.89 66,500 1985 $ 1,623,000 $4.00 - $6.00 $ 1,182,222
=================================================================================================================
CHIHUAHUA, CHIH.
- -----------------------------------------------------------------------------------------------------------------
8 4 & 4A 16.02 191,546 1982, 1985 $ 7,799,000 $4.00 - $6.00 $ 3,405,262
- -----------------------------------------------------------------------------------------------------------------
9 11 2.87 54,950 1986 $ 1,943,886 $4.00 - $6.00 $ 976,888
=================================================================================================================
CD JUAREZ, CHIH.
- -----------------------------------------------------------------------------------------------------------------
10 43 76.56 904,000 1984 $28,000,000 $4.00 - $6.00 $16,071,111
=================================================================================================================
GRAND 176.67 2,554,457 $73,942,115 $45,412,564
TOTAL
=================================================================================================================
<CAPTION>
===========================================
# ESTIMATED TIME SUGGESTED ASKING
TO MARKET PRICE U.S.D
===========================================
<S> <C> <C>
MATAMOROS, TAMAULIPAS
- -------------------------------------------
1 24 - 36 MO's $ 3,800,000
- -------------------------------------------
2 18 - 24 MO's $ 2,500,000
===========================================
REYNOSA, TAMAULIPAS
- -------------------------------------------
3 18 - 24 MO's $12,600,000
- -------------------------------------------
4 18 - 24 MO's $ 6,200,000
- -------------------------------------------
5 18 - 24 MO's $ 8,400,000
- -------------------------------------------
6 18 - 24 MO's $ 8,600,000
- -------------------------------------------
7 18 - 24 MO's $ 2,000,000
===========================================
CHIHUAHIUA, CHIH
- -------------------------------------------
8 18 - 24 MO's $ 9,500,000
- -------------------------------------------
9 18 - 24 MO's $ 2,400,000
===========================================
CD. JUAREZ, CHIH
- -------------------------------------------
10 18 - 36 MO's $34,000,000
===========================================
GRAND $90,000,000
TOTAL
===========================================
</TABLE>
<PAGE>
[U.S.-MEXICO BORDER MAP APPEARS HERE]
<PAGE>
MATAMOROS, TAM.
PLANT #14
- ----------------
PROPERTY DESCRIPTION
Improvements: The facility is a two story building with a total of 141,191
- -------------
square feet under roof of which 63,260 sq. ft. are on the second story: the
original area built in 1970 and the expansion in 1973. There are 68 parking
spaces in the front and 150 parking spaces in the back parking lots. There is a
4540 kg. (10,000 lbs.) cargo/people elevator serving the back two story section.
Roof and mechanical systems are original with the roof undergoing repairs about
one year ago-2 years left in the warranty
Land: The land site has 5 acres fronting the city's main avenue-Carretera Lauro
- -----
Villar. Not only is this the town's main commercial and industrial thoroughfare,
but it is also the highway to the beach areas. Although it is felt that the
highest and best use continues to be industrial/maquila, some commercial use can
be considered because of its 254 ft. frontage to this principal avenue.
PROPERTY TOUR CONCLUSIONS
Three of us toured the facility and agree on the following conclusions:
Positives: The location of this facility fronting on the main
- ----------
commercial/industrial avenue is, in our opinion the main attribute. Second, the
Zenith workforce represents another significant positive provided that the next
tenant can transition into this operation in time. Third, the good condition of
the building and grounds allow a potential user occupancy within a short time
frame. Fourth, all of the mechanical systems, including a fully operational fire
protection sprinkler system are in excellent condition.
Challenges: The challenges that we noted are the existing process layouts in the
- -----------
gun area, the lower than today's typical ceiling heights, and the age- (the
look) of the entire facility. The myriad rooms that are the gun process would
have to be dismantled as a new user, more than likely would not need them. In
addition, users will have to plan for capital expenditures in their new layout
and future roof replacement.
<PAGE>
MATAMOROS, TAM.
PLANT #14 (Cont.)
- -----------------
VALUES
The values for the property, including land and building, were derived from
available current market data of city the Matamoros. Comparable value
transactions are typically not available in Mexico. However, through private
sector and governmental sources, estimates for land and building costs were
assigned with a high level of confidence. We have enclosed a chart that
summarizes all the respective property values. Land value for this property was
pegged at $2.40 per square foot and the building at $18.00 per square foot.
Matamoros, Plant #14
- --------------------
Total value empty: $3.2mm to $3.8mm
Investment value leased: $2.5mm
<PAGE>
MATAMOROS, TAM.
PLANTS #14W & 14A
- -----------------
PROPERTY DESCRIPTION
Improvements: There are two separate buildings with a total of 55.270 square
- -------------
feet under roof. This site is located in what is now a commercial/residential
area near the downtown international bridge to Brownsville, Texas. Both
buildings are one level structures with typical low ceilings and construction
techniques of the early 1970's.
Land: This site is located in what is now a commercial and residential area near
- -----
the downtown international bridge crossing to Brownsville, Texas. This site's
highest and best use is considered to be commercial use in a combination strip
shopping center and warehousing venture. However, this site can still be used
for light manufacturing "maquila" operations.
PROPERTY TOUR CONCLUSIONS
Three of us toured the facility and agree on the following conclusions:
Positives: The location of this site is now strategically located in what is now
- ----------
a commercial/residential neighborhood. Second, its proximity to the main avenue
leading to the nearby international bridge is a significant positive. Third, the
fire control system is fully operational.
Challenges: The deteriorated condition of both buildings, inside and out make it
- -----------
a marketing challenge for disposition as a "maquila" operation. Significant
capital improvements to be made, including a new roof on both buildings.
<PAGE>
MATAMOROS, TAM.
PLANTS #14W & 14A (CONT.)
- -------------------------
VALUES
The values for this property were obtained after researching land costs in this
changing part of Matamoros. Every relevant source of real estate values was
contacted. The consensus was that the commercial development possibility would
yield the most return on a potential sale. Land values were estimated to be from
$6.00 USD to $10.00 USD per square foot.
Matamoros. Tamaulipas (Plants #14W & 14A)
- -----------------------------------------
Total Value, Empty $2.1mm
Investment value, leased $1.0mm
<PAGE>
REYNOSA, TAM.
PLANT #12
- -------------
PROPERTY DESCRIPTION
IMPROVEMENTS: This facility has 454k sq.ft. under roof and is in reality two
- -------------
separate buildings adjacent to each other with four interconnecting passageways.
Construction dates back to 1980 and is typical of high-end "maquila" structures
of its time. Both buildings are 100% sprinklered sharing these and other
services. There is parking for 180 cars in addition to 31 truck docks. Clear
heights range from 29ft. to 34ft. serving both manufacturing and warehouse
activities.
LAND: This facility is on a 14.27 acre site and it is now zoned as an
- -----
industrial park. "Parque Industrial Reynosa". Access to the facility is right
off the main highway - "Reynosa-Matamoros". It is also conveniently located
approximately 10 minutes from the international crossing from McAllen, Texas.
PROPERTY TOUR CONCLUSIONS
POSITIVES: This facility is designed to easily accommodate most light
- ----------
manufacturing activities, i.e. electrical/electronics, automotive components,
etc. After a tour of the buildings, we concluded that they are in excellent
state of maintenance and could expeditiously transition to a new tenant's
manufacturing activities.
CHALLENGES: The size of this facility poses a challenge to any disposition
- -----------
activity due to the fact that most new manufacturing activities in Mexico begin
with less space requirements, typically in the 50k to 100k square foot range. An
obvious challenge for the new owner is to adequately subdivide it to accommodate
the project's initial needs within a condo concept. This requires significant
investments in capital for modifications and improvements.
<PAGE>
REYNOSA, TAM.
PLANT #12 (CONT.)
- -----------------
VALUES
The values for this property, including land and buildings, were derived from
available current market data within the Reynosa area. We have enclosed a chart
that summarizes all the respective property values. Land for this site was
valued at $2.00 per square foot and the building was valued at $20.00 per square
foot.
Reynosa Plant #12
- -----------------
Total value empty: $10.3mm to $12.6mm
Investment value, leased $8.1mm
<PAGE>
REYNOSA, TAM.
PLANT #13
- -------------
PROPERTY DESCRIPTION
IMPROVEMENTS: This one level facility has 222,000 sq.ft. under roof and is 100%
- -------------
sprinklered. The building is divided into two sections, the original with clear
heights from 12ft. to 19ft. on 158k sq.ft. construction dating to 1979. The new
section with clear heights of 45ft. on 64k sq.ft. is all high bay warehouse type
design. There is parking for 250 cars in addition to 10 truck docks.
LAND: This facility is on a 7.28 acre site in the "Reynosa Industrial Park".
- -----
Access to the facility is from the "Reynosa-Matamoros" highway, only 10 minutes
from the international crossing from McAllen, Texas.
PROPERTY TOUR CONCLUSIONS
POSITIVES: This facility is in excellent condition and is well suited for the
- ----------
"maquila" type of manufacturing activities currently operating there. The
exceptional high-bay warehouse area also represents a positive for a user with
this type of requirement. This also allows for a rapid start-up for a new tenant
not just because of the condition of the property but of the available trained
work force in the park.
CHALLENGES: From a disposition stand-point, the size of the facility is above
- -----------
the average requirements that a typical new operation needs. The new owners will
have to consider subdividing the space to accommodate more than one user with
its significant corresponding capital improvements.
<PAGE>
REYNOSA, TAM.
PLANT #13 (Cont.)
- -----------------
VALUES
The values for this property, including land and building, were derived from
available current market data within the Reynosa area. We have enclosed a chart
that summarizes all the respective property values. Land for this site was
valued at $2.00 per square foot and the building was valued at $20.00 per square
foot.
Reynosa Plant #13
- -----------------
Total value empty: $5.1mm to $6.2mm
Investment value, leased $3.9mm
<PAGE>
REYNOSA, TAM.
PLANT #27
- -------------
PROPERTY DESCRIPTION
Improvements: This facility has 221.00 sq.ft. under roof and is 100%
- -------------
sprinklered. The design of the building is geared specifically as high tech
plastics injection molding operation built in 1994. There are 60 parking spaces
and 7 truck docks. Clear heights range from 32 ft. to 39 ft.
Land: This site contains 15.4 acres and is located in the "Reynosa Industrial
- -----
Park". Access is right off the main highway-"Reynosa-Matamoros". It is also 10
minutes from the international crossing to McAllen, Texas.
PROPERTY TOUR CONCLUSIONS
Positives: The main attribute of this facility is that it is designed as a
- ----------
state-of-the-art "plastics" manufacturing operation and is in excellent
condition. This facility ranks as one of the most modern facilities of its kind
in Latin America. A user in a similar business can have a rapid start-up by
using this facility.
Challenges: Due to its specific design as a plastics operation, the available
- -----------
potential user market is limited to companies with similar needs. The capital
improvements needed to convert this facility to a more conventional one would be
significant. In addition, the total area under roof is also above the typical
requirements for a new operation in this area.
<PAGE>
REYNOSA, TAM.
PLANT #27 (CONT.)
- -----------------
VALUES
The values for this property, including land and buildings, were derived from
available current market data within the Reynosa area. We have enclosed a chart
that summarizes all the respective property values. Land for this site was
valued at $2.00 per square foot and the building was valued at $25.00 per square
foot.
Reynosa Plant #27
- -----------------
Total value, empty: $6.8mm to $8.4mm
Investment value, leased: $3.9mm
<PAGE>
REYNOSA TAM.
PLANTS #12A & 26
- ---------------
PROPERTY DESCRIPTION
Improvements: There are two separate but interconnected buildings with a total
- -------------
of 244,000 square feet under roof and 100% sprinklered. This site is located
inside the "Reynosa Industrial Park". There is parking for 80 cars in addition
to 22 truck docks. Clear heights range from 15ft. to 25ft. All services and
infrastructure are share by both buildings.
Land: This site contains a total of 30.65 acres and is zoned for industrial
- -----
use. Access is right off the main highway-"Reynosa-Matamoros". It is also a
convenient 10 minutes from the international crossing from McAllen, Texas.
PROPERTY TOUR CONCLUSIONS
Three of us toured the facility and agree on the following conclusions:
Positives: This complex of two interconnected buildings with ample land for
- ----------
future expansion is a distinct positive for companies wanting to start
operations smaller but with potential significant future growth. These buildings
are, again, typical of "Maquila" type structures with lower clear heights than
what is now the norm. However, they are still suited for most light assembly
type projects, i.e. electronics, apparel, etc.
Challenges: The fact that both buildings share infrastructure and other
- -----------
services force a potential user to invest a significant amount to allow a
separation. This challenge also applies to the access to the land site.
<PAGE>
REYNOSA, TAM.
PLANTS #12A & 26 (Cont.)
- ------------------------
VALUES
The values for this property, land and buildings, were derived from current
available market data within the Reynosa area. We have enclosed a chart that
summarizes all the respective property values. Land for this site was valued at
$2.00 per sq. ft. and the buildings were valued at $18.00 per sq. ft.
Reynosa Plants # 12a & 26
- -------------------------
Total Value, empty: $7.1mm to $8.6 mm
Investment value, leased: $4.3mm
<PAGE>
REYNOSA, TAM.
PLANT #13A
- -------------
PROPERTY DESCRIPTION
Improvements: This one level facility has 66,500 sq. ft. under roof and is 100%
- ------------
sprinklered. The building has clear heights from 15ft. to 25ft with the
construction dating to 1985. There is parking for 40 cars in addition to 4 truck
docks.
Land: This facility is on a 4.89 acre site in the "Reynosa Industrial Park", and
- ----
is zoned for industrial use. Access to the facility is from the "Reynosa-
Matamoros" highway, only 10 minutes from the international crossing to McAllen,
Texas.
PROPERTY TOUR CONCLUSIONS
Positives: This facility is in good condition and is well suited for the
- ---------
"maquila" type of manufacturing activities currently operating there. The
relatively small size allows for a rapid start-up for a new tenant. Another
positive is the available trained work force already working in the park.
Challenges: From a disposition stand-point, the only major challenge is to
- ----------
provide adequate maintenance to the building, the grounds and all the services
and infrastructure. This facility can be brought up to snuff with a reasonable
capital investment. The site size does not allow for a future expansion.
<PAGE>
REYNOSA, TAM.
PLANT #13A (Cont.)
- ------------------
VALUES
The values for this property, including land and buildings, were derived from
available current market data within the Reynosa area. We have enclosed a chart
that summarizes all the respective property values. Land for this site was
valued at $2.00 per square foot and the building was valued at $18.00 per square
foot.
Reynosa. Plant # 13A
- --------------------
Total Value, empty: $1.6mm to $2.0mm
Investment value, leased: $1.2mm
<PAGE>
CHIHUAHUA, CHIH.
PLANTS #4 & 4A
- --------------
PROPERTY DESCRIPTION
Improvements: There are two separate buildings with 142,569 sq.ft.(bldg. 4) and
- ------------
48.977 sq.ft.(bldg. 4A) for a total 191,546 under roof. These two facilities are
100% sprinklered. There is parking for 190 cars in addition to 2 truck docks in
building 4 and 5 truck docks in building 4A. Ceiling heights in bldg. 4 range
from 19ft. to 25.5ft. and in bldg. 4A range from 14ft. to 25ft.
Land: These two buildings are on a 16.02 acre site in the "Las Americas"
- ----
industrial park. In our opinion, this site is the most strategically placed in
the park. Access to the facility is from the new ring road, "periferico", on the
west side of the city.
PROPERTY TOUR CONCLUSIONS
Positives: The buildings can only be described as excellent in every regard. The
- ---------
maintenance program that has been in place has certainly paid off. Building 4
dates to 1982 and 1986 and building 4A dates to 1986; neither show real age.
These facilities are an excellent choice to any user considering Chihuahua as a
location.
Challenges: The challenge for this site is for the potential user to be able to
- ----------
utilize both buildings all at once or to invest the necessary capital to
separate shared services and infrastructure.
<PAGE>
CHIHUAHUA, CHIH.
PLANTS #4 & 4A
(Cont.)
- ---------------
VALUES
The values for this property, land and buildings, were derived from available
current market data within the Chihuahua area. We have enclosed a chart that
summarizes all the respective property values. Land for this site was valued at
$5.00 per sq.ft. and the both buildings at $22.50 per sq.ft.
Chihuahua Plants #4 & 4A
- ------------------------
Total value, empty: $7.8mm to $9.5mm
Investment value, leased: $3.4mm
<PAGE>
CHIHUAHUA, CHIH.
PLANT #11
- ----------------
PROPERTY DESCRIPTION
Improvements: This building has 54.950 sq.ft. under roof-one level-and is 100%
- ------------
sprinklered. The construction dates to 1985. There is parking for 30 cars in
addition to 7 truck docks. Clear heights range from 12ft to 20ft.
Land: This site contains 2.87 acres in the "Las Americas" industrial park.
- ----
Access to the facility is from the new ring road, "periferico", on the west side
of the city.
PROPERTY TOUR CONCLUSIONS
Positives: This building is in excellent condition in every regard. This
- ---------
facility can be immediately occupied by a typical "maquila" user due to its
relatively small size. This facility can accommodate most light manufacturing
projects that are looking to locate in this city.
Challenges: There are no significant challenges for the disposition of this
- ----------
property.
<PAGE>
CHIHUAHUA, CHIH.
PLANT #11 (CONT.)
- -----------------
VALUES
The values for this property, including land and buildings, were derived from
available current market data within the Chihuahua area. We have enclosed a
chart that summarizes all the respective property values. Land for this site was
valued at $5.00 per square foot and the building was valued at $24.00 per square
foot.
Chihuahua, Plant # 11
- ---------------------
Total value, empty: $1.9mm to $2.4mm
Investment value, leased: $1.0mm
<PAGE>
CD. JUAREZ, CHIH.
PLANTS #43
- -----------------
PROPERTY DESCRIPTION
Improvements: There are 904.000 sq.ft. of contiguous space under roof
- ------------
encompassing this facility and is 100% sprinklered. There is parking for 626
cars in addition to 37 truck docks. Clear heights vary throughout the building
ranging from 16ft. to 17ft. in smaller areas--17ft. to 22ft. in most
manufacturing areas--and 23ft. to 27ft. in warehouse areas on the south side.
The entire facility can be opened up to one continuous flow. The original
construction dates back to 1984 with subsequent expansions in 1986 and 1993.
Land: The facility is on a 76.56 acre site in the original Chihuahua State Trust
- ----
industrial park. Access to the site is both from main state highway to Chihuahua
City and from the back lot fronting the Casas Grandes Highway. In addition, the
front of the facility is right across from the Cd Juarez airport.
PROPERTY TOUR CONCLUSIONS
Positives: The entire facility is in excellent condition. A user with this size
- ---------
requirement would have minimal trouble in readapting this facility to fit his
process. It is thought that the highest and best use continues to be industrial,
although, some warehousing and distribution activities might also be considered.
The site has over 0.38 miles that fronts the Chihuahua highway.
Challenges: The main challenge is the obvious one of size. Very few border
- ----------
industrial projects have required this size of facility. The established major
users-GE, Ford, Chrysler, United Technologies, etc., are now asking their
suppliers to come near their Mexican operations. For the most part, these are
small to medium size companies that only require 50K to 100K sq.ft. Second, the
facility is located in the south part of the city where some companies have felt
that the distance to the heart of the city was still too far.
<PAGE>
CD. JUAREZ, CHIH.
PLANT #43 (Cont.)
VALUES
The Values for this property, including land and buildings, were derived from
available current market data within the Cd. Juarez City area. We have enclosed
a chart that summarizes all the respective property values. Land for this site
was valued at $3.00 per square foot and the building was valued at $20.00 per
square foot.
Cd. Juarez plant #43
- --------------------
Total value, empty: $28.0 mm to $34.0 mm
Investment value, leased: $16.0 mm
<PAGE>
EXHIBIT 99E
ZENITH ELECTRONICS
CORPORATION
REYNOSA, MEXICO
DATE OF INSPECTIONS: MARCH 22 - APRIL 10, 1998
EFFECTIVE DATE OF VALUATION: APRIL 1, 1998
APPRAISERS: WILLIAM J. GARDNER, JR., ASA
MICHAEL J. DIPROSPERO, ASA
SCOTT C. LONKART
JAMES F. GARDNER
LEE ROBINETTE, ASA
GREENWICH INDUSTRIAL SERVICES, LLC.
611 ACCESS ROAD
STRATFORD, CONNECTICUT 06497
(203) 380-9367
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
1. Letter of Transmittal 1-5
2. Equipment 1-120
3. Photographs 121-123
4. Certification I
5. Statement of Limiting Conditions II
6. Definition of Value III-IV
7. Definition of Conditions V
8. Statement Regarding the American Society of Appraisers VI
</TABLE>
<PAGE>
[LETTERHEAD OF GREENWICH APPEARS HERE]
May 14, 1998
Mr. Richard Lewis
Director, Quality
Zenith Electronics Corp.
1000 Milwaukee Avenue
Glenview, IL 60025-2493
Re: Machinery and Equipment Appraisal
Zenith Electronics Corporation
Reynosa, Mexico
Dear Mr. Lewis:
In accordance with your recent request, Greenwich Industrial Services conducted
detailed on-site inspections between March 22 and April 10, 1998 of the
machinery and equipment belonging to Zenith Electronics Corporation, located at
Melrose Park, IL, Glenview, IL, Chicago Warehouse Plant #5, Chicago Plant #6,
Reynosa, MX, Chihuahua, MX, Ciudad Juarez, MX, and Matamoros, MX. The appraisal
consisted of on-site inspections and subsequent office review, research and
analysis. The purpose of the inspections was to determine the current Forced
Liquidation Value, Fair Market Value and Fair Market In-Place Value for
corporate decision making purposes. The effective date of this valuation is
April 1, 1998.
Greenwich Industrial Services conducted a walk through inspection in February
1998, of the equipment at each of the facilities listed above. The current
appraisal is mutually exclusive and supercedes any and all prior assessments.
Based on the detailed nature of the current assignment and additional research
conducted on the equipment, the values have been altered in numerous instances.
Zenith Electronics Corporation is an international manufacturer of televisions,
cable boxes, remote controls and related products. The company has been a well-
known producer of electronic components for many years and has significant name
brand recognition.
The Reynosa, Mexico operation includes four primary locations (Plants #12, #13,
#26, #27) contributing to the overall production, distribution, warehouse and
repair of various size televisions. The total square footage for all of the
buildings is approximately 1,125,000 feet, with all of the facilities located
within a one-mile radius. Should the need
<PAGE>
Zenith Electronics Corp.
May 14, 1998
Page 2
arise there are sufficient loading docks in each of the buildings to accommodate
a smooth machinery removal process.
The plastics operation, Plant #27, contains a world class, state of the art
injection molding area and spans approximately 220,000 square feet. The facility
has incorporated a practical workflow pattern and is kept in very good
condition. Departments include a production area, printing room, paint room,
material handling system, common office area, cafeteria, and a large warehouse.
The equipment include late model injection molders of various tonnage and shot
size, a monorail inventory handing system, automatic industrial spray paint
robots, pad printers and miscellaneous support equipment.
The main component production area Plant #12 include the assembly and surface
mount lines. The machinery and equipment inspected consisted of late model
sequencers, reflow ovens, DIP inserters, axial lead and chip shooters. The
plant incorporated the latest printed circuit board surface mount and through
hole technology and employed an up-to-date manufacturing process with a logical
organizational flow. It is important to note that since the last walk-through
appraisal, Plant #70 was transferred to the first floor within Plant #12.
Plant #13 contains the bobbin winding area as well as the Yoke assembly
operation. The equipment included coil winding, reflow ovens, injection molding
machines, a machine shop, cafeteria, office area, inspection, quality control
and a computer room. The manual component assembly lines took up a significant
portion of the space within the approximately 200,000 square foot facility.
The Rework and Repair department is located in Plant #26 and is housed in
approximately 200,000 square feet. The facility has a circuit assembly and
rework area, custom test systems, manual assembly lines, a customer service
center, cafeteria, warehouse space and an automatic inventory retrieval system.
Located in the same building is Plant #12A, which consisted of warehouse space
and is accessible and connected with Plant #26.
The following report is a detailed break out of the equipment located at the
above facility. The information contained herein is one segment in the
valuation process and should be considered within the context of the overall
assignment.
In appraising each of the facilities, Greenwich Industrial Services did not look
at the overall business value of the corporation, nor the values of the real
estate including land, building or site improvements. We did however, consider
the following: workflow of the product, capability constraints, safety issues,
quality controls, maintenance of the equipment, industry trends, location of the
facility, current technology and overall working conditions and environment.
Greenwich Industrial Services also considered all forms of obsolescence
including, economic, functional and physical deterioration.
<PAGE>
Zenith Electronics Corp.
May 14, 1998
Page 3
As part of our appraisal assignment, Zenith requested that we were to assist the
company with a new asset identification system. The scope of that process was
to tag individual pieces of equipment with an estimated liquidation value
greater than $1,000. It should be noted that we were provided with stickers
from the company and that not all of the equipment with values greater than
$1,000 were tagged due to the nature of the equipment or the fact that it may
have been in operation. The majority of office equipment was not tagged due to
the inappropriate mark the stickers would make on the furniture. Upon our final
review of each of the plants visited, we did notice that several of the stickers
had already been removed. In the future we would suggest a stronger adhesive
metal plate identification be utilized. We also left the remaining rolls of
tags with each of the Zenith facilities for identification of future
acquisitions.
Since the last Walk-Through Appraisal report was published, it is important to
note that a significant amount of changes have taken place including equipment
being transferred to other locations within Zenith, new equipment acquisitions,
new departments being added or implemented and an entire plant (Plant #70) being
moved.
It is also important to note that due to the detailed aspect of this appraisal
report, new discoveries were uncovered including: operating efficiencies and
inefficiencies, useful age/life findings on numerous key pieces of equipment and
more detailed information on all forms of obsolescence present. Greenwich
Industrial Services has also conducted further market analysis in order to find
comparable sales of similar pieces of equipment.
The Forced Liquidation Value reflected, represents the gross amount in U.S.
Dollars that, in our opinion, would be realized if the assets were sold in a
forced situation at a properly advertised and conducted public sale within a 60-
90 day time frame, under present economic trends. Conclusions taken into
consideration are physical location, difficulty of removal, physical condition,
adaptability, specialization, marketability, overall appearance and
psychological appeal of the assets. Further, the ability of the asset group to
draw sufficient prospective buyers to insure competitive offers is considered.
All assets would be sold on a piecemeal basis "as is/where is" with purchasers
responsible for removal of assets at their own risk and expense. Any deletions
or additions to the package could change the psychological and/or monetary
appeal necessary to obtain the value indicated.
The Fair Market Value reflected represents the most probable amount an asset
should bring in a competitive and open market under all conditions requisite to
a fair sale with the buyer and seller each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus; (a) buyer and seller
are typically motivated; (b) both parties are well informed or well advised, and
acting in what they consider their own best interest; (c) a reasonable time is
allowed for exposure to the open market; (d) payment is made in terms of cash in
U.S. Dollars; and (e) the price represents the normal
<PAGE>
Zenith Electronics Corp.
May 14, 1998
Page 4
consideration for the asset sold, unaffected by special or creative financing,
or sales concessions granted by anyone associated with the sale.
The Fair Market In-Place Value reflected represents the value of the assets in
their present location assuming the facility will continue in the manufacture of
its present product at a profitable level. The values reflected take into
consideration all costs associated with rigging, installation, wiring,
plumbing, and dismantling. Greenwich Industrial Services has not taken into
consideration the financial condition, goodwill, product lines, or the future
markets of Zenith Electronics Corp.
ZENITH ELECTRONICS CORPORATION
------------------------------
REYNOSA, MEXICO
---------------
PLANT #27
- ---------
TOTAL FORCED LIQUIDATION VALUE: $8,962,350.00
TOTAL FAIR MARKET VALUE: $10,496,950.00
TOTAL FAIR MARKET IN-PLACE VALUE: $12,565,950.00
PLANT #13
- ---------
TOTAL FORCED LIQUIDATION VALUE: $1,893,000.00
TOTAL FAIR MARKET VALUE: $2,532,550.00
TOTAL FAIR MARKET IN-PLACE VALUE: $3,476,850.00
PLANT #12
- ---------
TOTAL FORCED LIQUIDATION VALUE: $7,600,400.00
TOTAL FAIR MARKET VALUE: $9,520,050.00
TOTAL FAIR MARKET IN-PLACE VALUE: $11,788,200.00
PLANT #26
- ---------
TOTAL FORCED LIQUIDATION VALUE: $424,500.00
TOTAL FAIR MARKET VALUE: $608,950.00
TOTAL FAIR MARKET IN-PLACE VALUE: $931,200.00
GRAND TOTAL
- -----------
TOTAL FORCED LIQUIDATION VALUE: $18,880,250.00
TOTAL FAIR MARKET VALUE: $23,158,500.00
TOTAL FAIR MARKET IN-PLACE VALUE: $28,762,200.00
<PAGE>
Zenith Electronics Corp.
May 14, 1998
Page 5
This appraisal was conducted, and the report prepared, in accordance with the
attached Appraisal Definitions and Conditions, which are considered an integral
part thereof. This appraisal was conducted in accordance with customary
appraisal practices and represents the best judgment of the appraiser. The
appraisers further state that they have no direct or indirect, present or
contemplated future interest in the property appraised and that the fee for
services is in no way contingent on the value shown herein.
We hereby certify that, to the best of our knowledge and belief, the statements
of fact contained in this report are true and correct and this report has been
prepared in conformity with the Uniform Standards of Professional Appraisal
Practice of The Appraisal Foundation and the Principles of Appraisal Practice
and Code of Ethics of the American Society of Appraisers.
No responsibility is assumed by the appraiser for matters which are legal in
nature nor is any opinion of the title rendered herewith. This appraisal assumes
good title. Any liens or encumbrances which may exist have been disregarded, as
well as any delinquency in the payment of general taxes or special assessments.
We will retain a copy of this report in our files with the original field notes
for a period of seven years. This company considers these reports and notes
confidential, and we do not permit access to them by anyone without your
authorization.
We enclose herewith our billing for services rendered. We will maintain a work
file should you have any further questions.
Very truly yours,
/s/ William J. Gardner /s/ Michael J. DiProspero
William J. Gardner, Jr. ASA Michael J. DiProspero, ASA
President Appraiser
/s/ James F. Gardner /s/ Scott C. Lonkart
James F. Gardner Scott C. Lonkart
Appraiser Appraiser
<PAGE>
[PLANT #27 APPEARS HERE]
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
PLANT #27
PLASTICS/PLANT #27
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 213 NELMOR PORTABLE SCRAP GRANULATOR, PROP $15,000.00 $18,000.00 $21,000.00
#19259, MO7, FLEET RO81 W/SOUND,
SUPPRESSION ENCLOSURE, APPROXIMATELY 15
HP
2 229 NELMOR PORTABLE SCRAP GRANULATOR, PROP $15,000.00 $18,000.00 $21,000.00
#19261, MO8, W/SOUND, SUPPRESSION
ENCLOSURE, APPROXIMATELY 15 HP
3 243 NELMOR PORTABLE SCRAP GRANULATOR, PROP $15,000.00 $18,000.00 $21,000.00
#19262 M10, W/SOUND, SUPPRESSION
ENCLOSURE, APPROXIMATELY 15 HP
4 236 NELMOR PORTABLE SCRAP GRANULATOR, PROP $15,000.00 $18,000.00 $21,000.00
#19260 MO9, W/SOUND, SUPPRESSION
ENCLOSURE, APPROXIMATELY 15 HP
5 214 APPLICATION AUTOMATION PICK & PLACE $30,000.00 $35,000.00 $40,000.00
ROBOT, MODEL TITAN EL-1650, W/BRADLEY PLC
CONTROL, S/N 9469087, PROP #18662, RA-01
6 228 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL TITAN EL-1650, W/BRADLEY PLC CONTROL,
S/N 94D9081, PROP #18649, RA-05
7 218 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL TITAN EL-1650, W/BRADLEY PLC CONTROL,
S/N 94J9109, PROP #18641, RA-02
8 222 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL TITAN EL-1650, W/BRADLEY PLC CONTROL,
S/N 94J9088, PROP #18665, RA-03
9 231 APPLICATION AUTOMATION PICK & PLACE $30,000.00 $35,000.00 $40,000.00
ROBOT, MODEL TITAN EL-1650, W/BRADLEY PLC
CONTROL, S/N 94E9102, PROP N/A, RA-06
- ---------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $210,000.00 $247,000.00 $284,000.00
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------------
PLASTICS (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10 237 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL TITAN EL-1650, W/BRADLEY PLC CONTROL,
S/N 95A90911, PROP 318970, RA-08
11 242 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL TITAN EL-1650, W/BRADLEY PLC CONTROL,
S/N 94J9110, PROP N/A, RA-09
12 246 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL TITAN EL-1650, W/BRADLEY PLC CONTROL,
S/N 94D9082, PROP #18648, RA-13
13 260 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL TITAN EL-1650, W/BRADLEY PLC CONTROL,
S/N 95B9095, PROP #18995, RA-14
14 215 BAUER NCU CONTROL CONSOLE, #7 $10,000.00 $15,000.00 $19,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
15 245 BAUER NCU CONTROL CONSOLE, #N/A, $10,000.00 $15,000.00 $19,000,00
W/ASSOCIATED EQUIPMENT, S/N N/A
16 217 BAUER NCU CONTROL CONSOLE, #1, $10,000.00 $15,000.00 $19,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
17 238 BAUER NCU CONTROL CONSOLE, #2, $10,000.00 $15,000.00 $19,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
18 224 BAUER NCU CONTROL CONSOLE, #3 $10,000.00 $15,000.00 $19,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
19 234 BAUER NCU CONTROL CONSOLE, #5 $10,000.00 $15,000.00 $19,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
20 230 BAUER NCU CONTROL CONSOLE, #8 $10,000.00 $15,000.00 $19,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
- ---------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $190,000.00 $245,000.00 $293,000.00
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------------------------------
PLASTICS (CONT'D)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
21 241 BAUER NCU CONTROL CONSOLE, #4, $ 10,000.00 $ 15,000.00 $ 19,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
22 250 BAUER NCU CONTROL CONSOLE, #N/A, $ 10,000.00 $ 15,000.00 $ 19,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
23 221 KONA 12 ZONE HOT-RUNNER CONTROL, MODEL $ 2,500.00 $ 3,000.00 $ 3,250.00
#MF-12, S/N 1194, #18
24 252 KONA 7 ZONE HOT-RUNNER CONTROL, MODEL $ 1,500.00 $ 2,000.00 $ 2,300.00
#12G, S/N 060490, #8
25 227 1996 GAIN ALLEN BRADLEY PANEL VIEW 1200 $ 12,500.00 $ 16,000.00 $ 23,000.00
CONTROL CONSOLE, MODEL #GT-JR-IV-A, S/N 280
26 256 KONA 9 ZONE HOT-RUNNER CONTROL, S/N N/A, $ 1,600.00 $ 2,100.00 $ 2,500.00
#6
27 259 KONA 12 ZONE HOT-RUNNER CONTROL, #24 $ 2,500.00 $ 3,000.00 $ 3,250.00
28 216 1994 CINCINNATI MILACRON INJECTION MOLDING $225,000.00 $260,000.00 $310,000.00
MACHINE, MODEL #VL-1000-178, 1000 TON, S/N
H21AO194016, PROP #18635, W/AEG VACUUM
FEEDER, CAMAC VEL CONTROL CONSOLE
W/ASSOCIATED EQUIPMENT
29 219 1994 CINCINNATI MILACRON INJECTION MOLDING $225,000.00 $260,000.00 $310,000.00
MACHINE, MODEL #VL-1000-178, 1000 TON, S/N
H21AO194011, PROP #18634, W/AEG VACUUM
FEEDER, CAMAC VEL CONTROL CONSOLE
W/ASSOCIATED EQUIPMENT
30 220 1994 CINCINNATI MILACRON INJECTION MOLDING $225,000.00 $260,000.00 $310,000.00
MACHINE, MODEL #VL-1000-178, 1000 TON, S/N
H21AO194013, PROP #18636, W/AEG VACUUM
FEEDER, CAMAC VEL CONTROL CONSOLE
W/ASSOCIATED EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $745,600.00 $836,100.00 $1,002,300.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3
<PAGE>
GREENWICH INDUSTRIAL SERVICES LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
PLASTICS (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
31 223 1994 CINCINNATI MILACRON INJECTION MOLDING $225,000.00 $260,000.00 $310,000.00
MACHINE, MODEL #VL-1000-178, 1000 TON, S/N
H21AO194017, PROP #18660, W/AEG VACUUM
FEEDER, CAMAC VEL CONTROL CONSOLE
W/ASSOCIATED EQUIPMENT
32 226 1994 CINCINNATI MILACRON INJECTION MOLDING $225,000.00 $260,000.00 $310,000.00
MACHINE, ,MODEL #VL-1000-178, 1000 TON, S/N
H21AO194007, PROP #18876, W/AEG VACUUM
FEEDER, CAMAC VEL CONTROL CONSOLE
W/ASSOCIATED EQUIPMENT
33 232 1994 CINCINNATI MILACRON INJECTION MOLDING $225,000.00 $260,000.00 $310,000.00
MACHINE, MODEL #VL-1000-178, 1000 TON, S/N
H21AO194004, PROP #18877, W/AEG VACUUM
FEEDER, CAMAC VEL CONTROL CONSOLE
W/ASSOCIATED EQUIPMENT
34 233 1994 CINCINNATI MILACRON INJECTION MOLDING $225,000.00 $260,000.00 $310,000.00
MACHINE, MODEL #VL-1000-178, 1000 TON,S/N
H21AO194003, PROP #18878, W/AEG VACUUM
FEEDER, CAMAC VEL CONTROL CONSOLE
W/ASSOCIATED EQUIPMENT
35 240 1994 CINCINNATI MILACRON INJECTION MOLDING $225,000.00 $260,000.00 $310,000.00
MACHINE, MODEL #VL-1000-178, 1000 TON, S/N
H21AO195002, PROP #18668, W/AEG VACUUM
FEEDER, CAMAC VEL CONTROL CONSOL
W/ASSOCIATED EQUIPMENT
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $1,125,000.00 $1,300,000.00 $1,550,000.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 4
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
PLASTIC CONT'D
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
36 225 APPLICATION ENGINEERING TITAN PICK & PLACE $35,000.00 $40,000.00 $45,000.00
ROBOT, MODEL EL-1800, S/N 95C9100, PROP
#19087
37 235 APPLICATION ENGINEERING TITAN PICK & PLACE $34,000.00 $39,000.00 $44,000.00
ROBOT, S/N 94E9101, PROP #N/A, RA07
38 247 APPLICATION ENGINEERING TITAN PICK & PLACE $35,000.00 $40,000.00 $45,000.00
ROBOT, S/N 95C9101, PROP #18997, RA11
39 251 APPLICATION ENGINEERING TITAN PICK & PLACE $34,000.00 $39,000.00 $44,000.00
ROBOT, S/N 94E9099, PROP #N/A, RA12
40 253 APPLICATION ENGINEERING TITAN PICK & PLACE $34,000.00 $39,000.00 $44,000.00
ROBOT, S/N 94E9100, PROP #N/A, RA10
41 261 APPLICATION ENGINEERING TITAN PICK & PLACE $35,000.00 $40,000.00 $45,000.00
ROBOT, S/N 95C9103, PROP #18996, RA15
42 262 APPLICATION ENGINEERING TITAN PICK & PLACE $34,000.00 $39,000.00 $44,000.00
ROBOT, S/N 94G9082, PROP #18650, RA16
43 239 1995 CINCINNATI MILACRON INJECTION MOLDING $250,000.00 $290,000.00 $340,000.00
MACHINE, MODEL VL-1000 W/P-179, 1000 TON
W/CAMAC VEL CONTROL, AEC VACUUM FEEDER,
ASSOCIATED EQUIPMENT, S/N H21A0195001,
PROP #18669
44 244 1994 CINCINNATI MILACRON INJECTION MOLDING $300,000.00 $340,000.00 $385,000.00
MACHINE, MODEL VL 1500-232, 1500 TON
W/CAMAC VEL CONTROLS, AEC VACUUM FEEDER,
ASSOCIATED EQUIPMENT, PROP #18879, S/N
H23A0194009
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $791,000.00 $906,000.00 $1,036,000.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 5
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -----------------------------------------------------------------------------------------------------------------
PLASTIC (CONT'D)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
45 248 1994 CINCINNATI MILACRON $300,000.00 $340,000.00 $385,000.00
INJECTION MOLDING MACHINE,
MODEL VL 1500-232, 1500
TON W/CAMAC VEL CONTROLS,
AEC VACUUM FEEDER,
ASSOCIATED EQUIPMENT, PROP
#18880, S/N H23A0194006
46 249 1994 CINCINNATI MILACRON $300,000.00 $340,000.00 $385,000.00
INJECTION MOLDING MACHINE,
MODEL VL 1500-232, 1500
TON W/CAMAC VEL CONTROLS,
AEC VACUUM FEEDER,
ASSOCIATED EQUIPMENT, PROP
#18881, S/N H23A0194914
47 258 1994 CINCINNATI MILACRON $300,000.00 $340,000.00 $385,000.00
INJECTION MOLDING MACHINE,
MODEL VL 1500-232, 1500
TON W/CAMAC VEL CONTROLS,
AEC VACUUM FEEDER,
ASSOCIATED EQUIPMENT, PROP
#18994, S/N H2310195010
48 257 1994 CINCINNATI MILACRON $320,000.00 $360,000.00 $400,000.00
INJECTION MOLDING MACHINE,
MODEL VL 1500 W/P-232,
1500 TON W/CAMAC VEL
CONTROLS, AEC VACUUM
FEEDER, ASSOCIATED
EQUIPMENT, PROP #18684,
S/N H23A0194013
49 263 1994 CINCINNATI MILACRON $300,000.00 $340,000.00 $385,000.00
INJECTION MOLDING MACHINE,
MODEL VL 1500-232, 1500
TON W/CAMVAC VEL CONTROLS,
AEC VACUUM FEEDER,
ASSOCIATED EQUIPMENT, PROP
#18992, S/N H23A0195012
50 264 1994 CINCINNATI MILACRON $300,000.00 $340,000.00 $385,000.00
INJECTION MOLDING MACHINE,
MODEL VL 1500-232, 1500
TON W/CAMAC VEL CONTROLS,
AEC VACUUM FEEDER,
ASSOCIATED EQUIPMENT, PROP
#18993, S/N H23A0195011
51 212 DME 12 ZONE HOT RUNNER $2,000.00 $2,500.00 $3,000.00
CONTROL, MODEL MFP12G,
S/N W12659
- -----------------------------------------------------------------------------------------------------------------
PAGE TOTAL $1,822,000.00 $2,062,500.00 $2,328,000.00
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 6
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------
PLASTICS (CONT'D)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
52 602 KONA 12 ZONE HOT-RUNNER CONTROLS, MODEL $2,000.00 $2,500.00 $3,000.00
MF12, S/N N/A
53 605 DME 12 ZONE HOT-RUNNER CONTROLS, S/N $1,500.00 $2,000.00 $2,500.00
163215
54 607 DME 12 ZONE HOT-RUNNER CONTROLS, S/N $1,500.00 $2,000.00 $2,500.00
14001
55 611 KONA 12 ZONE HOT-RUNNER CONTROLS, MODEL $2,000.00 $2,500.00 $3,000.00
MF 12, S/N 64428
56 615 KONA 12 ZONE HOT-RUNNER CONTROLS, S/N $2,000.00 $2,500.00 $3,000.00
64436
57 210 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL EL-1650, S/N 94M9089, ALLEN BRADLEY
PLC CONTROLS, PROP #18969 R-B01
58 603 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL EL-1650, S/N 94K9088 BRADLEY
PLC CONTROLS, PROP#18640, R-B02
59 606 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL EL-1650, S/N 94K9089 BRADLEY PLC
CONTROLS, PROP#18649
60 609 APPLICATION AUTOMATION PICK & PLACE ROBOT, $30,000.00 $35,000.00 $40,000.00
MODEL EL-1650, S/N 94J9111 BRADLEY PLC
CONTROLS, PROP#18642
61 211 1994 CINCINNATI MILACRON MODEL VL1000-179, $225,000.00 $260,000.00 $310,000.00
INJECTION MOLDING MACHINE, 1000 TON
CAPACITY, S/N H21A0194015, CAMAC VEL
CONTROLS, AEC VACUUM FEEDER, PROP #18637
- -------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $354,000.00 $411,500.00 $484,000.00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 7
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA,MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
PLASTICS (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
62 601 1994 CINCINNATI MILACRON MODEL VL1000-179, $ 225,000.00 $ 260,000.00 $ 310,000.00
INJECTION MOLDING MACHINE, 1000 TON
CAPACITY, S/N H21A0194012, CAMAC VEL
CONTROLS, AEC VACUUM FEEDER, PROP #18638
63 604 1994 CINCINNATI MILACRON MODEL VL1000-179, $ 225,000.00 $ 260,000.00 $ 310,000.00
INJECTION MOLDING MACHINE, 1000 TON
CAPACITY, S/N H21A0194014 CAMAC VEL
CONTROLS, AEC VACUUM FEEDER, PROP #18639
64 607 1994 CINCINNATI MILACRON MODEL VL1000-179, $ 225,000.00 $ 260,000.00 $ 310,000.00
INJECTION MOLDING MACHINE, 1000 TON
CAPACITY, S/N H21A0194018 CAMAC VEL
CONTROLS, AEC VACUUM FEEDER, PROP #18664
65 610 1997 CINCINNATI MILACRON MODEL VL1000-179, $ 285,000.00 $ 310,000.00 $ 340,000.00
INJECTION MOLDING MACHINE, 1000 TON
CAPACITY, S/N H21A0497012 CAMAC VEL
CONTROLS, AEC VACUUM FEEDER, PROP #19518
66 616 1997 CINCINNATI MILACRON MODEL VL1000-179, $ 285,000.00 $ 310,000.00 $ 340,000.00
INJECTION MOLDING MACHINE, 1000 TON
CAPACITY, S/N H21A0497014 CAMAC VEL
CONTROLS, AEC VACUUM FEEDER, PROP #19519
67 612 AEC APPLICATION AUTOMATION PICK & PLACE $ 20,000.00 $ 24,000.00 $ 28,000.00
ROBOT, MODEL INTERCEPTOR II-1800PC, S/N
97G9237, PROP #19575
68 613 AEC APPLICATION AUTOMATION PICK & PLACE $ 20,000.00 $ 24,000.00 $ 28,000.00
ROBOT, MODEL INTERCEPTOR II-1800PC, S/N
97G9238,PROP #19578
69 617 TAMPO PRINT RAPID 2000/130 PAD PRINTER $ 4,000.00 $ 4,500.00 $ 5,000.00
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $1,289,000.00 $1,452,500.00 $1,671,000.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 8
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
PLASTICS (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
70 618 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
491
71 619 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
853
72 620 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
786
73 621 1981 CINCINNATI MILACRON 500-70, 500 TON $80,000.00 $100,000.00 $125,000.00
CAPACITY, INJECTION MOLDING MACHINE, S/N
4005A21/81-25R75, W/CAMAC VEL CONTROL, AEC
VACUUM FEEDER, PROP #19001
74 622 1981 CINCINNATI MILACRON 500-700, 500 TON $80,000.00 $100,000.00 $125,000.00
CAPACITY, INJECTION MOLDING MACHINE, S/N
4005A21/81-24R95, PROP #19002, W/CAMAC VEL
CONTROLS, AEC VACUUM FEEDER
75 623 KONA 12 TON HOT-RUNNER CONTROL, MODEL $2,000.00 $2,500.00 $3,000.00
MF12, S/N 64427
76 625 DME 12 ZONE HOT-RUNNER CONTROL, MODEL $2,000.00 $2,500.00 $3,000.00
MFP-12-G, S/N W12825
77 627 DME 12 ZONE HOT-RUNNER CONTROL, MODEL $2,000.00 $2,500.00 $3,000.00
MFP-12-G, S/N W12825
78 630 DME 12 ZONE HOT-RUNNER CONTROL, MODEL $2,000.00 $2,500.00 $3,000.00
MFP-12-G, S/N N/A
79 632 KONA 12 ZONE HOT-RUNNER CONTROL, MODEL $1,750.00 $2,000.00 $2,250.00
MF-12, S/N 63854
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $178,750.00 $221,750.00 $274,750.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 9
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ITEMS # ID # DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------
PLASTICS (CONT'D)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
80 637 KONA 12 ZONE HOT-RUNNER CONTROL, MODEL $2,000.00 $2,250.00 $2,500.00
MF-12, S/N 64430
81 638 KONA 12 ZONE HOT-RUNNER CONTROL, MODEL $2,000.00 $2,250.00 $2,500.00
MF-12, S/N 64834
82 624 VAN DORN 500 TON, INJECTION MOLDING $70,000.00 $80,000.00 $90,000.00
MACHINE W/CRT PATHFINDER CONTROLS, W/AEC
VACUUM FEEDER
83 626 1994 CINCINNATI MILACRON VH400-54 INJECTION $125,000.00 $140,000.00 $160,000.00
MOLDING MACHINE, S/N H04A0194040, 400 TON
CAPACITY, W/CAMAC VEL CONTROLS, AEC
VACUUM FEEDER, PROP #18658
84 628 1994 CINCINNATI MILACRON VH400-54 INJECTION $125,000.00 $140,000.00 $160,000.00
MOLDING MACHINE, S/N H04A0194023, 400 TON
CAPACITY, W/CAMAC VEL CONTROLS, AEC
VACUUM FEEDER, PROP #18659
85 631 1994 CINCINNATI MILACRON VH400-54 INJECTION $125,000.00 $140,000.00 $160,000.00
MOLDING MACHINE, S/N H04A0194041, 400 TON
CAPACITY, W/CAMAC VEL CONTROLS, AEC
VACUUM FEEDER, PROP #18657
86 633 1995 CINCINNATI MILACRON VH400-54 INJECTION $150,000.00 $165,000.00 $175,000.00
MOLDING MACHINE, S/N H04A0195001, 400 TON
CAPACITY, W/CAMAC VEL CONTROLS, AEC
VACUUM FEEDER, PROP #N/A
87 634 VAN DORN 400 TON INJECTION MOLDING $70,000.00 $80,000.00 $90,000.00
MACHINE W/PATH-FINDER CONTROLS, W/AEC
VACUUM FEEDER, S/N N/A
88 635 1979 CINCINNATI MILACRON 375 TON INJECTION $55,000.00 $60,000.00 $65,000.00
MOLDING MACHINE, MODEL 375T-4802 IMM, S/N
4083A21/79-51 R95, PROP #18999, W/CONTROLS
- ----------------------------------------------------------------------------------------------------------------
PAGE TOTAL $724,000.00 $809,500.00 $905,000.00
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 10
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA,MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
PLASTICS (CONT'D)
<S> <C> <C> <C> <C> <C>
89 636 1981 CINCINNATI MILACRON 375 TON INJECTION $ 55,000.00 $ 60,000.00 $ 65,000.00
MOLDING MACHINE, MODEL 375T-4802 IMM, S/N
4083A21/81-43 R95, PROP #18998, W/CAMAC VEL
CONTROLS, W/AEC FEEDER
90 639 1995 CINCINNATI MILACRON 250 TON INJECTION $115,000.00 $135,000.00 $170,000.00
MOLDING MACHINE, MODEL VH-250-21, S/N
H02A0195001, PROP #18666, W/CAMAC VEL
CONTROLS, AEC VACUUM FEEDER
91 640 1994 CINCINNATI MILACRON 250 TON INJECTION $115,000.00 $135,000.00 $170,000.00
MOLDING MACHINE, MODEL VT-110-10, S/N
135A0194095, PROP #18667, W/CAMAC VEL
CONTROLS, AEC VACUUM FEEDER
92 270 CONAIR FRANKLIN, MODEL D01-A2000-300, S/N $ 5,000.00 $ 6,000.00 $ 7,000.00
OD2106, DESICCANT DRYER, W/COMPU-DRY
CD100 COMPUTERIZED CONTROLS, HOPPER,
VACUUM FEEDER
93 271 CLARK ELECTRIC FORKLIFT, 300 LB CAPACITY S/N $ 1,500.00 $ 2,000.00 $ 2,500.00
EC300CSG-88-952-768
94 641 TOYOTA ELECTRIC FORKLIFT, MODEL SFBE10 $ 10,000.00 $ 11,000.00 $ 12,000.00
W/SIDESHIFT, S/N 12393, EXCELLENT CONDITION
95 642 TOYOTA ELECTRIC FORKLIFT, MODEL SFBE10 $ 10,000.00 $ 11,000.00 $ 12,000.00
W/SIDESHIFT, S/N 12396, EXCELLENT CONDITION
96 643 YALE ELECTRIC FORKLIFT, W/SIDESHIFT, MODEL $ 1,000.00 $ 1,250.00 $ 1,500.00
ERC055FAN485T083, S/N N338603
97 644 YALE ELECTRIC FORKLIFT, W/SIDESHIFT, MODEL $ 1,500.00 $ 1,750.00 $ 2,000.00
M40, S/N 23N652
98 645 TOYOTA ELECTRIC FORKLIFT, 2000 LB CAPACITY, $ 2,500.00 $ 3,000.00 $ 3,500.00
W/SIDESHIFT, MODEL SFBE10, S/N 11102
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $316,500.00 $366,000.00 $445,500.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 11
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA,MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
PLASTICS (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
99 262 DME 12 ZONE, HOT-RUNNER CONTROL, S/N 16852, $2,000.00 $2,500.00 $2,750.00
#3, (1986)
100 265 DME 12 NONE, HOT-RUNNER CONTROL, S/N 7282, $2,000.00 $2,500.00 $2,750.00
#13
101 267 PHD DEMAG, 20 TON BRIDGE CRANE, TOP $35,000.00 $45,000.00 $70,000.00
RUNNING W/HOIST, PENDANT CONTROL,
TROLLEY, ASSOCIATED EQUIPMENT, S/N 96394
102 272 PHD DEMAG, 20 TON BRIDGE CRANE, TOP $35,000.00 $45,000.00 $70,000.00
RUNNING W/HOIST, PENDANT CONTROL,
TROLLEY, ASSOCIATED EQUIPMENT, S/N A1192195
103 292 PHD DEMAG, 20 TON BRIDGE CRANE, TOP $35,000.00 $45,000.00 $70,000.00
RUNNING W/HOIST, PENDANT CONTROL,
TROLLEY, ASSOCIATED EQUIPMENT, S/N N/A
104 294 PHD DEMAG, 20 TON BRIDGE CRANE, TOP $35,000.00 $45,000.00 $70,000.00
RUNNING W/HOIST, PENDANT CONTROL,
TROLLEY, ASSOCIATED EQUIPMENT, S/N 103694
105 293 CUSTOM PORTABLE SCRAP GRANULATOR, $4,000.00 $5,000.00 $6,000.00
APPROXIMATELY 20 HP, W/ASSOCIATED
EQUIPMENT, S/N N/A
106 MISCELLANEOUS PLASTICS SUPPORT $80,000.00 $120,000.00 $150,000.00
EQUIPMENT INCLUDING: AEC MOLD
TEMPERATURE CONTROLS, MOTOR BELT,
CONVEYORS W/DAYTON SCR CONTROLS,
PORTABLE TOOL CARTS, SYSCON BELT
CONVEYOR, (8) PALLET DUMPERS, GLUE
DISPENSERS, WORK BENCHES, AERIAL LIFT,
SPARE BARREL, DIE LIFT TABLES, YALE
FORKLIFT, (SCRAP PARTS), HOT RUNNER
CONTROLS, MAGNETIC SEPARATORS, HOSE,
PIPES
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $228,000.00 $310,000.00 $441,600.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 12
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------
PLASTIC CONT'D
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
107 269 CUSTOM FABRICATED, MONORAIL/CONVEYOR $ 5,000.00 $20,000.00 $ 50,000.00
SYSTEM W/APPROXIMATELY 10,000 LINEAR FEET,
DRIVE MOTORS, CARRIERS, ASSOCIATED
EQUIPMENT
- ------------------------------------------------------------------------------------------------------------
MACHINE SHOP
- ------------------------------------------------------------------------------------------------------------
108 273 BRIDGEPORT VERTICAL MILLING MACHINE, $ 4,000.00 $ 4,500.00 $ 5,000.00
SERIES 1, 2 HP, 9 X 42" POWER FEED, RISER,
2 AXIS DRO, S/N 185913
109 274 BRIDGEPORT VERTICAL MILLING MACHINE, $ 4,000.00 $ 4,500.00 $ 5,000.00
SERIES 1, 2 HP, 9 X 42" POWER FEED, RISER,
2 AXIS DRO, S/N 147985
110 280 BRIDGEPORT VERTICAL MILLING MACHINE, VARI- $ 4,000.00 $ 4,500.00 $ 5,000.00
SPEED , 2 HP, 9 X 42" POWER FEED, RISER, 2
AXIS DRO, S/N N/A
111 275 WEIL SETTING, VERTICAL MILLING MACHINE, 2 HP, $ 3,000.00 $ 3,500.00 $ 4,000.00
9 X 42" TABLE, LUBE, #8, S/N N/A
112 276 VANTAGE 1740 ENGINE LATHE, 17" X 40" $ 8,000.00 $10,000.00 $11,500.00
W/TAILSTOCK, 3-JAW CHUCK, TOOLPOST, S/N 867
113 277 HARDINGE SECONDARY OPERATION LATHE, $ 6,000.00 $ 7,000.00 $ 8,000.00
MODEL HLV-H, W/TAILSTOCK, QUICK CHANGE
COLLET GRINDER, S/N 7395-S, #2
114 279 HARDINGE SECONDARY OPERATION LATHE, $ 6,000.00 $ 7,000.00 $ 8,000.00
MODEL HLV-H, W/TAILSTOCK, QUICK CHANGE
COLLET, GRINDER, S/N N/A, #3
115 278 VANTAGE VERTICAL MILLING MACHINE, MODEL $ 4,000.00 $ 4,500.00 $ 5,000.00
V1054-1, 9 X 42" TABLE, S/N 93298, #4, PROP
#18708
116 281 DOALL SURFACE GRINDER, 6 X 12" CHUCK, $ 2,500.00 $ 3,000.00 $ 3,500.00
MODEL DH612, S/N 138-682717, PROP #1242
- ------------------------------------------------------------------------------------------------------------
PAGE TOTAL $46,500.00 $68,500.00 $105,000.00
- ------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 13
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------
MACHINE SHOP (CONT'D)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
117 282 OKAMOTO SURFACE GRINDER, MODEL 6-12 $ 5,000.00 $ 5,750.00 $ 6,500.00
LINEAR, W/WALKER 6 X 12" CHUCK, #11,
S/N N/A
118 283 DOALL GRANITE SURFACE PLATE, $ 1,500.00 $ 2,000.00 $ 2,500.00
48 X 60 X 6", PROP #12558, S/N 2236-7
119 285 TRINCO DRY BLAST CABINET, W/SHOT $ 1,000.000 $ 1,400.00 $ 1,800.00
BLAST UNIT, S/N 34737-0
120 286 CINCINNATI VERTICAL MILLING MACHINE, $ 2,500.00 $ 3,000.00 $ 3,500.00
MODEL TOOLMASTER W/ROTARY TABLE,
9 X 42" TABLE, #21, S/N 6JWV5T-167
121 284 BROWN & SHARP HITE-TRONICS MICRO $ 2,000.00 $ 2,600.00 $ 3,100.00
HEIGHT GAUGE W/GRANITE SURFACE
PLATE
122 287 DOALL VERTICAL BAND SAW, W/BLADE $ 4,000.00 $ 5,000.00 $ 6,000.00
WELDER GRINDER, MODEL 5612-3, S/N
153-68937
123 288 GIOVANNI BREDA RADIAL ARM DRILL, MODEL $ 6,000.00 $ 6,750.00 $ 7,500.00
R1200L-30-540, S/N N/A, PROP #11768
124 289 BROWN & SHARP AUTOMATIC SURFACE GRINDER, $10,000.00 $12,000.00 $14,000.00
MODEL MICROMASTER 1224, W/12 X 24"
ELECTRO MAGNETIC CHUCK, S/N 523-1224-378,
PROP #1339
125 290 DR JIB FRAME W/COFFING 5 TON CHAIN HOIST, $ 1,000.00 $ 1,250.00 $ 1,500.00
PENDANT CONTROL
126 291 DEMAG BRIDGE CRANE 20 TON, TOP RUNNING, $30,000.00 $40,000.00 $60,000.00
S/N 81185, W/PENDANT CONTROL, HOIST
TROLLEY, ASSOCIATED EQUIPMENT
- ----------------------------------------------------------------------------------------------------------
PAGE TOTAL $63,000.00 $79,750.00 $106,400.00
- ----------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 14
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -----------------------------------------------------------------------------------------------------------
MACHINE SHOP (CONT'D)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
127 MISCELLANEOUS SUPPORT EQUIPMENT $27,500.00 $35,000.00 $45,000.00
INCLUDING BUT LIMITED TO: STEADY REST,
GRANITE SURFACE PLATE, CHUCKS, STEEL
SURFACE PLATE, ABRASIVE CUT OFF SAW, LAB
OVEN, BENCH VISE, STORAGE CABINETS, MILLING
VISE, DISC SANDER, DIE LIFT, FANS, COVER
KNOTCHER, DE GRINDER, FILE CABINETS, WORK
BENCHES, TOOL BOXES, ROCKWELL HARDNESS
TESTERS, BLUE PRINT FILE, SHOT BLAST UNIT,
CRIMPER, PARKER START COMPRESSES, H-
FRAME SHOP PRESS ARBOR PRESS, BENCH TOP
OVENS, DRILL PRESS HORIZONTAL
BAND SAW, STORAGE CABINETS, WELDER,
CANTILEVER, STORAGE SHELVES, HOT RUNNER
CONTROLS, TEMPERATURE CONTROLLER,
HYDRAULIC UNIT, HAND TOOLS, ROLLER, CP-200
ARC WELDER, ROLLER SYNCROWAVE 250 ARC
WELDER, CHAINS, RIGGING SUPPLIES
- -----------------------------------------------------------------------------------------------------------
GRINDING ROOM
- -----------------------------------------------------------------------------------------------------------
128 295 NELMORE PORTABLE SCRAP GRANULATOR, $30,000.00 $35,000.00 $40,000.00
APPROXIMATELY 50 HP, COMPLETE W/INCLINE,
BELT CONVEYOR FEEDER, MODEL G16295 PL, S/N
9404-34330, M-05
129 661 NELMORE PORTABLE SCRAP GRANULATOR, $30,000.00 $35,000.00 $40,000.00
APPROXIMATELY 50 HP, COMPLETE W/INCLINE,
BELT CONVEYOR FEEDER, MODEL G16295 PL, S/N
N/A, M-01
130 296 STERLING BAG HOUSE DUST COLLECTOR, S/N N/A $2,000.00 $3,000.00 $4,250.00
131 297 STERLING BAG HOUSE DUST COLLECTOR, S/N N/A $2,000.00 $3,000.00 $4,250.00
132 298 STERLING BAG HOUSE DUST COLLECTOR, S/N N/A $2,000.00 $3,000.00 $4,250.00
- -----------------------------------------------------------------------------------------------------------
PAGE TOTAL $93,500.00 $114,000.00 $137,750.00
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Page 15
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
GRINDING ROOM (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
133 662 CUSTOM DESIGNED DUST COLLECTOR SYSTEM, $ 1,500.00 $ 2,500.00 $ 3,000.00
W/BLOWER, HOPPER FEEDER
134 300 CUSTOM SCRAP GRANULATOR, APPROXIMATELY $20,000.00 $27,500.00 $ 35,000.00
40 HP, W/TEC INCLINE CLEATED CONVEYOR
BLOWER ASSOCIATED EQUIPMENT
135 299 CUSTOM SCRAP GRANULATOR, APPROXIMATELY $20,000.00 $27,500.00 $ 35,000.00
40 HP, W/TEC INCLINE CLEATED CONVEYOR
BLOWER, ASSOCIATED EQUIPMENT, M-02
136 663 POWERMATIC VERTICAL BAND SAW, 20" THROAT, $ 1,500.00 $ 2,000.00 $ 2,500.00
MODEL 87, BLADE WELDER/GRINDER, S/N 987133
137 MISCELLANEOUS SUPPORT EQUIPMENT $ 500.00 $ 600.00 $ 800.00
INCLUDING BUT NOT LIMITED TO: LOCKERS,
PORTABLE STAIRCASE, GRANULATOR (SCRAP),
PALLET JACK
- --------------------------------------------------------------------------------------------------------------------
STORE ROOM
- --------------------------------------------------------------------------------------------------------------------
138 MEDIUM DUTY STORAGE SHELVES, METAL DESK, $ 5,000.00 $ 6,500.00 $ 7,500.00
METAL STORAGE SHELVES, PEDESTAL FAN,
INDEX FILE, HAND TRUCK, SPARE PARTS
- --------------------------------------------------------------------------------------------------------------------
MATERIAL FEED ROOM
- --------------------------------------------------------------------------------------------------------------------
139 664 POWERMATIC VERTICAL BAND SAW, 20" THROAT, $ 1,500.00 $ 2,000.00 $ 2,500.00
MODEL 87, S/N 8187119, W/BLADE WELDER &
GRINDER
140 665 AEC DEHUMIDIFYING DRYING SYSTEM, WD $25,000.00 $30,000.00 $ 40,000.00
SERIES, COMPLETE W/HOPPER, BLOWER,
CONTROL CONSOLE, ASSOCIATED EQUIPMENT, D-1,
S/N N/A
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $75,000.00 $98,600.00 $126,300.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 16
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
MATERIAL FEED ROOM (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
141 667 AEC DEHUMIDIFYING DRYING SYSTEM, WD $15,000.00 $20,000.00 $30,000.00
SERIES, COMPLETE W/HOPPER, BLOWER,
CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
D-3, S/N N/A
142 666 CONAIR DEHUMIDIFYING DRYING SYSTEM, $12,500.00 $17,500.00 $25,000.00
COMPLETE W/HOPPER BLOWER, CONTROL
CONSOLE, ASSOCIATED EQUIPMENT, D-2, S/N
20132, MODEL D-800A
143 678 WHITLOCK AEC, VT POWER UNIT FEEDER, MODEL $1,000.00 $1,250.00 $1,500.00
VTP-7.50, W/VACUUM FEEDER, ASSOCIATED
EQUIPMENT
144 679 WHITLOCK AEC, VT POWER UNIT FEEDER, MODEL $1,000.00 $1,250.00 $1,500.00
VTP-7.50, W/VACUUM FEEDER, ASSOCIATED
EQUIPMENT
145 680 WHITLOCK AEC, VT POWER UNIT FEEDER, MODEL $1,000.00 $1,250.00 $1,500.00
VTP-7.50, W/VACUUM FEEDER, ASSOCIATED
EQUIPMENT
146 681 WHITLOCK AEC, VT POWER UNIT FEEDER, MODEL $1,000.00 $1,250.00 $1,500.00
VTP-7.50, W/VACUUM FEEDER, ASSOCIATED
EQUIPMENT
147 682 WHITLOCK AEC, VT POWER UNIT FEEDER, MODEL $1,000.00 $1,250.00 $1,500.00
VTP-7.50, W/VACUUM FEEDER, ASSOCIATED
EQUIPMENT
148 683 WHITLOCK AEC, VT POWER UNIT FEEDER, MODEL $1,000.00 $1,250.00 $1,500.00
VTP-7.50, W/VACUUM FEEDER, ASSOCIATED
EQUIPMENT
149 684 WHITLOCK AEC, VT POWER UNIT FEEDER, MODEL $1,000.00 $1,250.00 $1,500.00
VTP-7.50, W/VACUUM FEEDER, ASSOCIATED
EQUIPMENT
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $34,500.00 $46,250.00 $65,500.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 17
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------
MATERIAL FEED ROOM (CONT'D)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
150 685 WHITLOCK AEC, VT POWER UNIT FEEDER, $ 1,000.00 $1,250.00 $ 1,500.00
MODEL VTP-7.50, W/VACUUM FEEDER,
ASSOCIATED EQUIPMENT
151 686 WHITLOCK AEC, VT POWER UNIT FEEDER, $ 1,000.00 $ 1,250.00 $ 1,500.00
MODEL VTP-7.50, W/VACUUM FEEDER,
ASSOCIATED EQUIPMENT
152 687 WHITLOCK AEC, VT POWER UNIT FEEDER, $ 1,000.00 $ 1,250.00 $ 1,500.00
MODEL VTP-7.50, W/VACUUM FEEDER,
ASSOCIATED EQUIPMENT
153 688 WHITLOCK AEC, VT POWER UNIT FEEDER, $ 1,000.00 $ 1,250.00 $ 1,500.00
MODEL VTP-7.50, W/VACUUM FEEDER,
ASSOCIATED EQUIPMENT, PROP #19168
154 689 WHITLOCK AEC, VT POWER UNIT FEEDER, $ 1,000.00 $ 1,250.00 $ 1,500.00
MODEL VTP-7.50, W/VACUUM FEEDER,
ASSOCIATED EQUIPMENT, PROP #19167
155 690 WHITLOCK AEC, VT POWER UNIT FEEDER, $ 1,000.00 $ 1,250.00 $ 1,500.00
MODEL VTP-7.50, W/VACUUM FEEDER,
ASSOCIATED EQUIPMENT, PROP #19517
156 673 GAIN TECHNOLOGIES COMPUTER CONTROL, $ 5,000.00 $ 7,500.00 $13,000.00
MODEL GT-SR-IV-A, W/ALLEN BRADLEY
PANEL VIEW 1200, S/N 308, (1996)
157 674 GAIN TECHNOLOGIES COMPUTER CONTROL, $ 5,000.00 $ 7,500.00 $13,000.00
MODEL GT-SR-IV-A, W/ALLEN BRADLEY
PANEL VIEW 1200, S/N 309, (1996)
158 677 GAIN TECHNOLOGIES COMPUTER CONTROL, $ 5,000.00 $ 7,500.00 $13,000.00
MODEL GT-SR-IV-A, W/ALLEN BRADLEY
PANEL VIEW 1200, S/N N/A (1996)
159 675 GAIN OXYGEN ANALYZER, CONTROL CABINET, $ 4,500.00 $ 7,000.00 $12,000.00
MODEL GT-N2G-A, S/N 306 (1996)
- --------------------------------------------------------------------------------------------------------------
PAGE TOTAL $25,500.00 $37,000.00 $60,000.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Page 18
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------
MATERIAL FEED ROOM (CONT'D)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
160 676 GAIN OXYGEN ANALYZER, CONTROL CABINET, $ 4,500.00 $7,000.00 $12,000.00
MODEL GT-N2G-A, S/N 299, (1996)
161 691 AEC WHITLOCK COMPUTERIZED CONVEYING $ 4,500.00 $7,000.00 $12,000.00
SYSTEM, VACTRAC SERIES, MODEL VTC-1813,
CONTROL CONSOLE, S/N 94-DO387
162 692 AEC WHITLOCK COMPUTERIZED CONVEYING $ 4,500.00 $7,000.00 $12,000.00
SYSTEM, VACTRAC SERIES, MODEL VTC-1813,
CONTROL CONSOLE, S/N 94-KO586
163 693 AEC WHITLOCK COMPUTERIZED CONVEYING $ 4,500.00 $7,000.00 $12,000.00
SYSTEM, VACTRAC SERIES, MODEL VTC-1813,
CONTROL CONSOLE, S/N 94-KO587
164 694 AEC WHITLOCK COMPUTERIZED CONVEYING $ 5,000.00 $7,500.00 $12,500.00
SYSTEM, VACTRAC SERIES, MODEL VTC-1813,
CONTROL CONSOLE, S/N 95-BO575
165 695 AEC WHITLOCK COMPUTERIZED CONVEYING $ 6,000.00 $8,500.00 $14,000.00
SYSTEM, VACTRAC SERIES, MODEL VTC-1813,
CONTROL CONSOLE, S/N 97-D1031
166 668 CONAIR DESICCANT DRYER, MODEL CD100- $ 6,000.00 $7,000.00 $ 8,000.00
DO1A2000300, S/N DD2105, W/HOPPER,
COMPUTERIZED DRYER CONTROL, PROP #9847
167 669 AEC DEHUMIDIFYING DRYER, WID SERIES, $12,500.00 $18,000.00 $ 30,000.00
COMPLETE W/HOPPER, CONTROL CONSOLE,
BLOWER, ASSOCIATED EQUIPMENT
168 670 MCS CUSTOM DESIGNED BAG HOUSE, DUST $ 5,000.00 $ 6,500.00 $ 8,000.00
COLLECTION SYSTEM W/ASSOCIATED
EQUIPMENT
169 671 CONAIR FRANKLIN DESICCANT DRYER, MODEL $ 3,500.00 $ 4,250.00 $ 5,000.00
DO2A-800-0000, S/N OD1613
- ---------------------------------------------------------------------------------------------------------
PAGE TOTAL $56,500.00 $78,750.00 $125,500.00
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Page 19
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
Appraisal Division
ZENITH ELECTRONICS
REYNOSA, MEXICO
April 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
MATERIAL FEED ROOM (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
170 672 CONAIR FRANKLIN DESICCANT DRYER, MODEL $3,500.00 $4,250.00 $6,000.00
DO2A-800-0000, S/N 0D1608
171 706 AEC CHILLER STORAGE TANKS, C-2000-D, S/N $2,000.00 $2,500.00 $3,250.00
9400351
172 705 AEC CHILLER STORAGE TANKS, C-2000-D, S/N $2,000.00 $2,500.00 $3,250.00
9400351
173 707 TENNENT RIDE-ON ELECTRIC FLOOR SWEEPER, $8,500.00 $10,000.00 $12,000.00
MODEL 51DE, BATTERY CHARGER, PROP #19017
174 MISCELLANEOUS SUPPORT EQUIPMENT $15,000.00 $25,000.00 $35,000.00
INCLUDING: PALLET DUMPERS, CONAIR DRYER,
MATERIAL FEEDERS, PALLET JACKS, STORAGE
SHELVES, (4) HOT-RUNNER CONTROLS,
TEMPERATURE CONTROLS, POLY PRO STORAGE
TANKS, WATER FILTERS, STORAGE CAGE, TOOL
BOXES
- ---------------------------------------------------------------------------------------------------------------------------
OFFICE AREA
- ---------------------------------------------------------------------------------------------------------------------------
175 FORMICA TOP DESKS, CALCULATORS, SWIVEL $5,000.00 $6,500.00 $8,000.00
CHAIR, LINCOLN WELDER PERSONAL COMPUTER,
PALLET RACKING, METRO SHELVES, PRINTER
- ---------------------------------------------------------------------------------------------------------------------------
WAREHOUSE
- ---------------------------------------------------------------------------------------------------------------------------
176 APPROXIMATELY (1660) SECTIONS OF HEAVY $100,000.00 $120,000.00 $150,000.00
DUTY PALLET RACKING, MISCELLANEOUS
WAREHOUSE/OFFICE SUPPLIES & EQUIPMENT
INCLUDING: PALLET JACKS, APPROXIMATELY (6)
PERSONAL COMPUTERS, W/MONITORS,
PRINTERS, METAL DESKS, METAL & CLOTH
CHAIRS, METAL FILING CABINETS, (2) HI JACKER
PORTABLE TELESCOPING WORK PLATFORMS,
CUTTERMAN MAXILIFT PORTABLE TELESCOPING
WORK PLATFORMS W/CHARGER
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $136,000.00 $170,750.00 $217,500.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 20
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
WAREHOUSE (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
177 648 COBRA III SHRINK-WRAP PALLET WRAPPING $3,000.00 $3,500.00 $4,000.00
MACHINE
178 649 COBRA III SHRINK-WRAP PALLET WRAPPING $3,000.00 $3,500.00 $4,000.00
MACHINE
179 646 TOYOTA ELECTRIC FORKLIFT, 1,000 LB CAPACITY, $7,000.00 $8,000.00 $9,000.00
MODEL 5FBE10, W/SIDESHIFT, S/N 12369,
EXCELLENT CONDITION
180 647 TOYOTA ELECTRIC FORKLIFT, 1,000 LB CAPACITY, $7,000.00 $8,000.00 $9,000.00
MODEL N/A, W/SIDESHIFT, S/N 11228,
EXCELLENT CONDITION
181 651 TOYOTA ELECTRIC FORKLIFT, 2,000 LB CAPACITY, $5,000.00 $6,000.00 $7,000.00
MODEL N/A, W/SIDESHIFT, S/N 11109, FAIR
CONDITION
182 650 PORTABLE 2 TON GANTRY W/COFFING CHAIN $1,000.00 $1,250.00 $1,500.00
HOIST
183 652 STATIONARY GANTRY W/2 TON MANUAL CHAIN $750.00 $1,000.00 $1,250.00
HOIST
- ---------------------------------------------------------------------------------------------------------------------------
CAFETERIA
- ---------------------------------------------------------------------------------------------------------------------------
184 APPROXIMATELY (15) FORMICA TOP TABLES, $5,000.00 $5,500.00 $6,000.00
APPROXIMATELY (120) PLASTIC CHAIRS, "L"
SHAPED BUFFET STYLE SERVING STATIONS,
METRO SHELVING, VARIOUS POTS, PANS,
KITCHEN ACCESSORIES, INTERNATIONAL MIXER,
(2) VULCAN FRYOLATORS, STAR FRYING STATION,
WOLF RANGE COOLERS
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $31,750.00 $36,750.00 $41,750.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 21
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------
CAFETERIA (CONT'D)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
185 653 TRAULSEN 2-DOOR REFRIGERATOR $ 1,000.00 $ 1,250.00 $ 1,500.00
186 654 (2) GARLAND INDUSTRIAL OVENS $ 1,500.00 $ 1,750.00 $ 2,000.00
187 655 VULCAN INDUSTRIAL OVEN W/STOVE TOP, MODEL $ 1,000.00 $ 1,500.00 $ 2,000.00
636, S/N 481067464
- ---------------------------------------------------------------------------------------------------------------
FINISH DEPARTMENT
- ---------------------------------------------------------------------------------------------------------------
188 656 (1993) TAMPO PRINT HERMETIC 90 PAD PRINTER, $ 3,000.00 $ 3,250.00 $ 3,500.00
S/N H-696
189 657 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,000.00 $ 3,250.00 $ 3,500.00
857
190 658 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 2,500.00 $ 2,750.00 $ 3,000.00
442
191 659 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N EM $ 4,000.00 $ 4,250.00 $ 4,500.00
629
192 660 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,000.00 $ 3,250.00 $ 3,500.00
858
193 761 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N EM $ 4,000.00 $ 4,250.00 $ 4,500.00
700
194 762 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,000.00 $ 3,250.00 $ 3,500.00
505
195 763 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,500.00 $ 3,750.00 $ 4,000.00
1807
196 764 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,500.00 $ 3,750.00 $ 4,000.00
1802
197 765 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N EM $ 3,000.00 $ 3,250.00 $ 3,500.00
627
- ---------------------------------------------------------------------------------------------------------------
PAGE TOTAL $36,000.00 $39,500.00 $43,000.00
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Page 22
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
FINISH DEPARTMENT (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
198 766 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
683
199 767 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
686
200 768 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $4,000.00 $4,250.00 $4,500.00
626
201 769 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
494
202 770 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
860
203 771 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
787
204 772 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
694
205 773 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,500.00 $3,750.00 $4,000.00
1801
206 774 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
856
207 775 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $4,000.00 $4,250.00 $4,500.00
630
208 776 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $3,000.00 $3,250.00 $3,500.00
496
209 777 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $4,000.00 $4,250.00 $4,500.00
251
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $39,500.00 $42,500.00 $45,500.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 23
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
FINISH DEPARTMENT (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
210 MISCELLANEOUS SUPPORT EQUIPMENT $ 7,500.00 $ 8,500.00 $10,000.00
INCLUDING BUT NOT LIMITED TO:
APPROXIMATELY (8) SPRAY PAINT BOOTHS,
W/MASTER HEAT GUN, SPRAY PAINT NOZZLE,
HOSES, OVERHEAD LIGHTING, TOOLCARTS,
ROLLAROUND WOODEN MATERIAL/INVENTORY
CARTS, WORK BENCHES, (5) POWER BELT
CONVEYORS, APPROXIMATELY 25 YARDS EACH,
LADDERS, (5) SECTIONS 7' HIGH PALLET RACKING,
RAW MATERIAL, PERSONAL COMPUTER W/COLOR
MONITOR
211 778 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,000.00 $ 3,250.00 $ 3,500.00
493
212 779 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,000.00 $ 3,250.00 $ 3,500.00
854
213 780 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,000.00 $ 3,250.00 $ 3,500.00
488
214 781 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,000.00 $ 3,250.00 $ 3,500.00
859
215 782 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,000.00 $ 3,250.00 $ 3,500.00
685
216 783 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,000.00 $ 3,250.00 $ 3,500.00
884
217 784 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N H- $ 3,000.00 $ 3,250.00 $ 3,500.00
495
218 785 TAMPO PRINT HERMETIC 90 PAD PRINTER, S/N EM $ 4,000.00 $ 4,250.00 $ 4,500.00
717
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $32,500.00 $35,500.00 $39,000.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 24
<PAGE>
GREENWICH INDUSTRIAL SERVICES
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMPV
- -----------------------------------------------------------------------------------------------------------------------------------
PAINT & FINISH DEPARTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
219 APPROXIMATELY 20,000 LINEAR FEET OF CUSTOM $5,000.00 $10,000.00 $27,500.00
FABRICATED MONORAIL INVENTORY HANDLING
SYSTEM
- -----------------------------------------------------------------------------------------------------------------------------------
PAINT DEPARTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
220 738 LINE #1 INCLUDES: (2) PAINT ROBOTS, MODEL 014 $5,000.00 $8,000.00 $12,000.00
12187-11, 60-80 PSI, W/FLEXIBLOK PRESSURE
GAUGES, PAINT POT, FANUC SYSTEM R-H
CONTROLS, ROOM ENCLOSURE, (2) MANUAL
SPRAY PAINT BOOTHS, W/SPRAYER,
GUNS/NOZZLES, PAINT POTS, ASSOCIATED
EQUIPMENT
221 737 LINE #4 INCLUDES: (2) PAINT ROBOTS, MODEL 014 $5,000.00 $8,000.00 $12,000.00
12187-11, 60-80 PSI, W/FLEXIBLOK PRESSURE
GAUGES, PAINT POT, FANUC SYSTEM R-H
CONTROLS, ROOM ENCLOSURE, (2) MANUAL
SPRAY PAINT BOOTHS, W/SPRAYER,
GUNS/NOZZLES, PAINT POTS, ASSOCIATED
EQUIPMENT
222 736 LINE #3 INCLUDES: (2) PAINT ROBOTS, MODEL 014 $5,000.00 $8,000.00 $12,000.00
12187-11, 60-80 PSI, W/FLEXIBLOK PRESSURE
GAUGES, PAINT POT, FANUC SYSTEM R-H
CONTROLS, ROOM ENCLOSURE, (2) MANUAL
SPRAY PAINT BOOTHS, W/SPRAYER,
GUNS/NOZZLES, PAINT POTS INCLUDED 1 ROBOT,
ASSOCIATED EQUIPMENT, (NOT IN SERVICE)
223 735 LINE #2 INCLUDES: (4) MANUAL SPRAY PAINT $1,000.00 $1,500.00 $2,500.00
BOOTHS, W/SPRAYER GUNS/NOZZLES, PAINT
POTS, ASSOCIATED EQUIPMENT
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $21,000.00 $35,500.00 $66,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 25
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
PAINT DEPARTMENT (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
224 MISCELLANEOUS EQUIPMENT INCLUDING BUT $10,000.00 $15,000.00 $25,000.00
NOT LIMITED TO: (2) CAN-AM TURBO CONAIR
SYSTEM, COMPLETE W/MOTORS, ASSOCIATED
EQUIPMENT, PERSONAL COMPUTER W/COLOR
MONITOR, TOOL CARTS, FANS, (4) POWER BELT
CONVEYORS, SPRAY GUNS, NOZZLES, PAINT
MIXERS, PALLET RACKING, LOCKERS, STAINLESS
STEEL PAINT POTS/PRESSURE CYLINDERS
225 696 BAUER PACKAGE NITROGEN COMPRESSORS, $45,000.00 $55,000.00 $75,000.00
MODEL BNG-7/98/60, S/N 0003, 460
VAC/60HZ/3PH/25 SCFM, 6000PSI
226 697 BAUER PACKAGE NITROGEN COMPRESSORS, $45,000.00 $55,000.00 $75,000.00
MODEL BNG-7/98/60, S/N 0003, 460
VAC/60HZ/3PH/25 SCFM, 6000PSI
227 698 SULLAIR ROTARY SCREW PACKAGE AIR $20,000.00 $25,000.00 $30,000.00
COMPRESSORS, MODEL IS-20,1001-ACAC, SN
OB51103-141388, 100 MAX RPM
228 699 SULLAIR ROTARY SCREW PACKAGE AIR $20,000.00 $25,000.00 $30,000.00
COMPRESSORS, MODEL IS-20,1001-ACAC-24, S/N
003-141536, 100 MAX RPM
229 700 SULLAIR ROTARY SCREW PACKAGE AIR $20,000.00 $25,000.00 $30,000.00
COMPRESSORS, MODEL IS-20, 1001-ACAC-24, S/N
003-141535, 100 MAX RPM
230 701 SULLAIR REFRIGERATED COMPRESSED AIR $3,000.00 $3,500.00 $4,000.00
DRYER, MODEL #SRD-630-AC, S/N 003-D9838, R22
REFRIGERANT
231 702 SULLAIR REFRIGERATED COMPRESSED AIR $3,000.00 $3,500.00 $4,000.00
DRYER, MODEL #SRD-630-AC, S/N 003-D9838, R22
REFRIGERANT
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $166,000.00 $207,000.00 $273,000.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 26
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
PAINT DEPARTMENT (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
232 703 SULLAIR REFRIGERATED COMPRESSED AIR $ 2,500.00 $ 3,000.00 $ 4,000.00
DRYER, MODEL #SRD-630-AC, S/N 003-D9838, R22
REFRIGERANT
233 703 SULLAIR REFRIGERATED COMPRESSED AIR $ 2,500.00 $ 3,000.00 $ 4,000.00
DRYER, MODEL #SRD-630-AC, S/N 003-D9838, R22
REFRIGERANT
- ---------------------------------------------------------------------------------------------------------------------------
OUTSIDE
- ---------------------------------------------------------------------------------------------------------------------------
234 708 CARRIER LIQUID CHILLER W/4 COMPRESSORS, $ 3,000.00 $ 5,000.00 $10,000.00
ASSOCIATED EQUIPMENT, R-22
235 709 CARRIER LIQUID CHILLER W/4 COMPRESSORS, $ 3,000.00 $ 5,000.00 $10,000.00
ASSOCIATED EQUIPMENT, R-22
236 710 CARRIER LIQUID CHILLER W/4 COMPRESSORS, $ 3,000.00 $ 5,000.00 $10,000.00
ASSOCIATED EQUIPMENT, R-22
237 711 CARRIER LIQUID CHILLER W/4 COMPRESSORS, $ 3,000.00 $ 5,000.00 $10,000.00
ASSOCIATED EQUIPMENT, R-22
238 712 CARRIER LIQUID CHILLER W/4 COMPRESSORS, $ 3,000.00 $ 5,000.00 $10,000.00
ASSOCIATED EQUIPMENT, R-22
239 713 CARRIER LIQUID CHILLER W/4 COMPRESSORS, $ 3,000.00 $ 5,000.00 $10,000.00
ASSOCIATED EQUIPMENT, R-22
240 714 CARRIER SPLIT CHILLER W/ASSOCIATED $ 2,000.00 $ 3,000.00 $ 6,000.00
EQUIPMENT
241 715 CARRIER SPLIT CHILLER W/ASSOCIATED $ 2,000.00 $ 3,000.00 $ 6,000.00
EQUIPMENT
242 716 CARRIER SPLIT CHILLER W/ASSOCIATED $ 2,000.00 $ 3,000.00 $ 6,000.00
EQUIPMENT
243 717 CARRIER SPLIT CHILLER W/ASSOCIATED $ 2,000.00 $ 3,000.00 $ 6,000.00
EQUIPMENT
244 718 CARRIER SPLIT CHILLER W/ASSOCIATED $ 2,000.00 $ 3,000.00 $ 6,000.00
EQUIPMENT
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $33,000.00 $51,000.00 $98,000.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 27
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------
OUTSIDE (CONT'D)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
245 722 CARRIER SPLIT SYSTEM CHILLER $2,000.00 $3,000.00 $6,000.00
W/ASSOCIATED EQUIPMENT
246 724 CARRIER SPLIT SYSTEM CHILLER $2,000.00 $3,000.00 $6,000.00
W/ASSOCIATED EQUIPMENT
247 725 CARRIER SPLIT SYSTEM CHILLER $2,000.00 $3,000.00 $6,000.00
W/ASSOCIATED EQUIPMENT
248 727 CARRIER SPLIT SYSTEM CHILLER $2,000.00 $3,000.00 $6,000.00
W/ASSOCIATED EQUIPMENT
249 719 (4) GALVANIZED STEEL BOLTED $12,000.00 $25,000.00 $50,000.00
CONSTRUCTION AGGREGATE STORAGE
SILOS, COMPLETE W/VACUUM FEEDER,
PIPES, STAIRCASES, BLOWERS
250 721 (4) LIPP SYSTEM ALUMINUM STORAGE $18,000.00 $35,000.00 $75,000.00
SILOS, COMPLETE W/WELDED
CONSTRUCTION, ASSOCIATED PIPES,
BLOWERS
251 720 AEC WHITLOCK POWER FEED MATERIAL $6,000.00 $7,000.00 $8,000.00
HANDLING UNIT, MODEL CVP-20,
S/N 97H1414
252 723 AEC WHITLOCK POWER FEED MATERIAL $6,000.00 $7,000.00 $8,000.00
HANDLING UNIT, MODEL CVP-20,
S/N 97H1416
253 728 KOHLER POWER SYSTEM GEN-SET, $20,000.00 $25,000.00 $30,000.00
150 KW POWER GENERATOR,
W/ASSOCIATED EQUIPMENT
254 726 PHELPS INDUSTRIES DOCK LEVELING $10,000.00 $12,000.00 $15,000.00
UNLOADING SYSTEM, MODEL A221FB63,
S/N 97-1049-D01, W/HYDRAULIC UNIT,
ASSOCIATED EQUIPMENT
255 MISCELLANEOUS OUTSIDE EQUIPMENT $4,000.00 $5,000.00 $6,000.00
INCLUDING BUT NOT LIMITED TO:
ENGINE HOIST, FANS, VERTICAL BAND
SAWS, HAND TOOLS, RAW MATERIAL, LIFT
MECHANISMS, WELDING EQUIPMENT, (2)
TOLEDO HOIST, PLATES, SCALES
- ------------------------------------------------------------------------------------------------
PAGE TOTAL $84,000.00 $128,000.00 $216,000.00
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
MAINTENANCE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
256 729 MEC-SCISSOR LIFT AERIAL WORK PLATFORM $6,000.00 $7,000.00 $8,000.00
257 730 LINCOLN ELECTRIC RANGER 8, PORTABLE ARC $1,000.00 $1,250.00 $1,500.00
WELDER, GAS OPERATED
258 731 SULLAIR PACKAGE AIR COMPRESSOR, $3,000.00 $3,500.00 $4,000.00
APPROXIMATELY 15 HP, W/ASSOCIATED
EQUIPMENT
259 MISCELLANEOUS MAINTENANCE EQUIPMENT $6,000.00 $7,000.00 $8,000.00
INCLUDING BUT NOT LIMITED TO: DRILL PRESS,
FLAMMABLE CABINETS, HOPPER, RIGID
THREADER, BENCH VISE, LAWN MOWER,
PRESSURE WASHER, FLOOR POLISHER, TOOL
BOXES, MILLER WELDER, DBL ENDED GRINDER,
HAND TRUCK, POWER TOOLS, HOLE PUNCH,
STORAGE CABINET, SHELVING, ROBINAIR
REFRIGERANT RECOVERY SYSTYEM
- ----------------------------------------------------------------------------------------------------------------------------
OFFICE AREA
- ----------------------------------------------------------------------------------------------------------------------------
260 MISCELLANEOUS OFFICE EQUIPMENT INCLUDING: $13,000.00 $15,000.00 $17,000.00
EXECUTIVE OFFICE FURNITURE, METAL DESKS,
VERTICAL & LATERAL FILING CABINETS,
FAX/PRINTER, APPROXIMATELY (12) PERSONAL
COMPUTERS, PRINTERS, MONITORS,
KEYBOARDS, REFRIGERATORS, MICROWAVE, COAT
RACK, PLOTTERS, MATCHING CLOTH CHAIRS,
CONFERENCE ROOM TABLE, MATCHING CHAIRS
- ----------------------------------------------------------------------------------------------------------------------------
STORAGE AREA
- ----------------------------------------------------------------------------------------------------------------------------
261 732 CUSTOM DESIGNED ULTRASONIC WELDER, $5,000.00 $8,000.00 $15,000.00
COMPLETE W/DUKANE CONTROL CONSOLES,
POWER SUPPLY CONTROLS, ENCLOSURE,
ASSOCIATED EQUIPMENT
262 733 CUSTOM DESIGNED ULTRASONIC WELDER, $5,000.00 $8,000.00 $15,000.00
COMPLETE W/DUKANE CONTROL CONSOLES,
POWER SUPPLY, CONTROLS, ENCLOSURE,
ASSOCIATED EQUIPMENT
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $39,000.00 $49,750.00 $68,500.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 29
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -----------------------------------------------------------------------------------------------------------------------------------
STORAGE AREA (CONT'D)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
263 734 CUSTOM DESIGNED ULTRASONIC WELDER, $ 5,000.00 $ 8,000.00 $ 15,000.00
COMPLETE W/DUKANE CONTROL CONSOLES,
POWER SUPPLY CONTROLS, ENCLOSURE,
ASSOCIATED EQUIPMENT
264 MISCELLANEOUS PACKAGING SUPPORT $ 750.00 $ 1,000.00 $ 1,200.00
EQUIPMENT INCLUDING: HAND TRUCKS, PALLET
JACKS, WORK TABLES
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $ 5,750.00 $ 9,000.00 $ 16,200.00
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL PANT #27 $8,962,350.00 $10,496,950.00 $12,566,950.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 30
<PAGE>
[PLANT #13]
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------------------------------
BOBBIN DEPARTMENT PLANT #13
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
265 301 CUSTOM DESIGNED HORIZONTAL BOBBIN $8,000.00 $12,000.00 $20,000.00
WINDING MACHINE W/ALLEN BRADLEY CONTROL
DL20, FEEDER, AIR HYDRAULIC GAP FRAME
PRESS, MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #26, S/N N/A
266 303 CUSTOM DESIGNED HORIZONTAL BOBBIN $8,000.00 $12,000.00 $20,000.00
WINDING MACHINE W/ALLEN BRADLEY CONTROL
DL20, FEEDER, AIR HYDRAULIC GAP FRAME
PRESS, MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #25, S/N N/A
267 304 CUSTOM DESIGNED HORIZONTAL BOBBIN $8,000.00 $12,000.00 $20,000.00
WINDING MACHINE W/ALLEN BRADLEY CONTROL
DL20, FEEDER, AIR HYDRAULIC GAP FRAME
PRESS, MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #19, S/N N/A
268 318 CUSTOM DESIGNED HORIZONTAL BOBBIN $8,000.00 $12,000.00 $20,000.00
WINDING MACHINE W/ALLEN BRADLEY CONTROL
DL20, FEEDER, AIR HYDRAULIC GAP FRAME
PRESS, MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #X27, S/N N/A
269 319 CUSTOM DESIGNED HORIZONTAL BOBBIN $8,000.00 $12,000.00 $20,000.00
WINDING MACHINE W/ALLEN BRADLEY CONTROL
DL20, FEEDER, AIR HYDRAULIC GAP FRAME
PRESS, MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #T24, S/N N/A
270 320 CUSTOM DESIGNED HORIZONTAL BOBBIN $8,000.00 $12,000.00 $20,000.00
WINDING MACHINE W/ALLEN BRADLEY CONTROL
DL20, FEEDER, AIR HYDRAULIC GAP FRAME
PRESS, MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #L23, S/N N/A
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $48,000.00 $72,000.00 $120,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 31
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------------
BOBBIN DEPARTMENT (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
271 331 CUSTOM DESIGNED HORIZONTAL BOBBIN $ 8,000.00 $12,000.00 $20,000.00
WINDING MACHINE W/ALLEN BRADLEY CONTROL
DL20, FEEDER, AIR HYDRAULIC GAP FRAME
PRESS, MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #V8, S/N N/A
272 332 CUSTOM DESIGNED HORIZONTAL BOBBIN $ 8,000.00 $12,000.00 $20,000.00
WINDING MACHINE W/ALLEN BRADLEY CONTROL
DL20, FEEDER, AIR HYDRAULIC GAP FRAME
PRESS, MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #K11, S/N N/A
273 374 CUSTOM DESIGNED HORIZONTAL BOBBIN $10,000.00 $14,500.00 $22,000.00
WINDING MACHINE W/ALLEN BRADLEY CONTROL
DL20, FEEDER, AIR HYDRAULIC GAP FRAME
PRESS, MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #N/A, S/N N/A
274 335 CUSTOM DESIGNED HORIZONTAL BOBBIN $ 6,000.00 $ 7,000.00 $ 9,000.00
WINDING MACHINE W/PH PRESS, FEEDER,
MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT #B30, S/N31004, (NEW)
275 336 CUSTOM DESIGNED HORIZONTAL BOBBIN $ 6,000.00 $ 7,000.00 $ 9,000.00
WINDING MACHINE W/PH PRESS, FEEDER
MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #A29, S/N 31003
276 337 CUSTOM DESIGNED HORIZONTAL BOBBIN $ 6,000.00 $ 7,000.00 $ 9,000.00
WINDING MACHINE W/PH PRESS, FEEDER,
MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #B56, S/N 31002
277 338 CUSTOM DESIGNED HORIZONTAL BOBBIN $ 6,000.00 $ 7,000.00 $ 9,000.00
WINDING MACHINE W/PH PRESS, FEEDER,
MIDWEST AUTOMATION, ASSOCIATED
EQUIPMENT, #A5, S/N 31001
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $50,000.00 $66,500.00 $98,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 32
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
BOBBIN DEPARTMENT (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
278 305 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#H1, ASSOCIATED EQUIPMENT, S/N N/A
279 306 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#R2, ASSOCIATED EQUIPMENT, S/N N/A
280 307 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#13, ASSOCIATED EQUIPMENT, S/N N/A
281 308 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#E4, ASSOCIATED EQUIPMENT, S/N N/A
282 309 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#F5, ASSOCIATED EQUIPMENT, S/N N/A
283 310 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#G6, ASSOCIATED EQUIPMENT, S/N N/A
284 311 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#A7, ASSOCIATED EQUIPMENT, S/N N/A
285 312 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#U2, ASSOCIATED EQUIPMENT, S/N N/A
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $32,000.00 $40,000.00 $64,000.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 33
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
BOBBIN DEPARTMENT (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
286 313 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#16, ASSOCIATED EQUIPMENT, S/N N/A
287 314 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#D15, ASSOCIATED EQUIPMENT, S/N N/A
288 315 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#J14, ASSOCIATED EQUIPMENT, S/N N/A
289 316 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#W13, ASSOCIATED EQUIPMENT, S/N N/A
290 317 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#C12, ASSOCIATED EQUIPMENT, S/N N/A
291 333 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#S18, ASSOCIATED EQUIPMENT, S/N N/A
292 334 CUSTOM DESIGNED HORIZONTAL BOBBIN $4,000.00 $5,000.00 $8,000.00
WINDING MACHINE COMPLETE W/CONTROL
CONSOLE, DYNA HANNIFIN PNEUMATIC PRESS,
#22, ASSOCIATED EQUIPMENT, S/N N/A
293 352 TAGA HORIZONTAL BOBBIN WINDER, MODEL 181- $20,000.00 $25,000.00 $35,000.00
III RP; W/POWER SUPPLY FEEDER, W/CONTROL
CONSOLE, ASSOCIATED EQUIPMENT, S/N 1900215,
(1991), PROP #83575
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $48,000.00 $60,000.00 $91,000.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 34
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA,MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
BOBBIN DEPARTMENT (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
294 321 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #X38, (1984)
295 322 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #T35, (1990), PROP #17547
296 323 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #L54, PROP #N/A
297 324 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #N51, PROP #N/A
298 325 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #Q33, PROP #N/A
299 326 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #Z34, PROP #N/A
300 327 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #V48, PROP #N/A
301 328 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #M47, PROP #N/A
- -------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $40,000.00 $60,000.00 $88,000.00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 35
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------------------------------
BOBBIN DEPARTMENT (CONT'D)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
302 329 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #S46, PROP #N/A
303 330 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #B45, PROP #N/A
304 339 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #W50, PROP #N/A, (1987)
305 340 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #P52, PROP #N/A, (1983)
306 342 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #F44, PROP #N/A
307 343 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #H55, PROP #N/A
308 344 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #R43, PROP #N/A, (1987)
309 345 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #U49, PROP #N/A
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $40,000.00 $60,000.00 $88,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 36
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------
BOBBIN DEPARTMENT (CONT'D)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
310 346 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #D39, PROP #N/A
311 347 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #36, PROP #N/A, (1984)
312 348 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #G41, PROP #N/A
313 349 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #J40, PROP #N/A, (1986)
314 350 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #E53, PROP #N/A
315 351 UNIVERSAL 4 STATION VERTICAL BOBBIN $5,000.00 $7,500.00 $11,000.00
WINDING MACHINE, MODEL 3TVW4MP,
W/CONTROL CONSOLE FEEDER, ASSOCIATED
EQUIPMENT, #C37, PROP #N/A
316 MISCELLANEOUS SUPPORT EQUIPMENT $2,000.00 $3,000.00 $4,000.00
INCLUDING BUT NOT LIMITED TO: WABAS 1
WINDER COUNTER, INDUCTION HEATER,
BOBBINS, WORK BENCHES, STOOLS, PALLET
JACKS
- ---------------------------------------------------------------------------------------------------------------
PAGE TOTAL $32,000,00 $48,000.00 $70,000.00
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Page 37
<PAGE>
GREENWHICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------------
BOBBIN DEPARTMENT (CONT'D)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
317 373 CUSTOM DESIGNED & FABRICATED LG YOKE $5,000.00 $10,000.00 $15,000.00
COMPONENT, ASSEMBLY LINE COMPLETE W/2
TIER BELT CONVEYOR WORK STATIONS,
IMPEDANCE METER, DIES, DISPENSER
COUNTERS, LIFT UNIT, SOLDER POT WORK
STATIONS, WORK TABLES, AIR CLEANER, ARBOR
PRESS
- ------------------------------------------------------------------------------------------------------------------------------------
YOKES ASSEMBLY
- ------------------------------------------------------------------------------------------------------------------------------------
318 788 YOKES LINE #2 INCLUDING BUT NOT LIMITED TO: $1,000.00 $1,250.00 $3,000.00
(NOT IN SERVICE) 10" POWER BELT CONVEYOR
TEST EQUIPMENT, YOKE TEST STATIONS,
CONVERGENCE TESTERS, VOLTMETERS,
FUNCTION GENERATORS, OSCILLOSCOPE
319 789 LINE #3: MISCELLANEOUS EQUIPMENT FOR LINE $4,000.00 $6,000.00 $14,000.00
#3 INCLUDING BUT NOT LIMITED TO: MASTER
HEAT GUNS, TEST EQUIPMENT INCLUDING:
VOLTMETERS, MULTIMETERS, IMPEDANCE
METER, AUDIO SIGNAL GENERATOR, YOKE
INDUSTRIAL TEST STATION, OSCILLOSCOPE,
SOLDERING STATION, HOT MELT APPLICATORS,
RUSH WIRE STRIPPERS, OVEN, G E SPECTRA
DUST COLLECTOR, MODEL #700, POWER BELT 10"
CONVEYOR, CONVERGENCE TESTER, TAPE MACHINES
320 790 LINE #4: MISCELLANEOUS EQUIPMENT FOR LINE $4,000.00 $6,000.00 $14,000.00
#4 INCLUDING BUT NOT LIMITED TO: MASTER
HEAT GUNS, TEST EQUIPMENT INCLUDING:
VOLTMETERS, MULTIMETERS, IMPEDANCE
METER, AUDIO SIGNAL GENERATOR, YOKE
INDUSTRIAL TEST STATION, OSCILLOSCOPE,
SOLDERING STATION, HOT MELT APPLICATORS,
RUSH WIRE STRIPPERS, OVEN, G E SPECTRA
DUST COLLECTOR, MODEL #700, POWER BELT 10"
CONVEROR, CONVERGENCE TESTER, TAPE
MACHINES, LITTLE SQUIRT HOT MELT APPLICATOR
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $14,000.00 $23,250.00 $46,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 38
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
YOKES ASSEMBLY (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
321 791 YOKES LINES #5 INCLUDING BUT NOT LIMITED TO: $3,000.00 $5,500.00 $10,000.00
LCR METERS, 10" POWER BELT CONVEYOR,
HEATERS, IMPEDANCE METERS, WIRE
STRIPPERS, GLUE GUNS, LITTLE SQUIRT HOT
MELT APPLICATORS, VOLTMETERS, SOLDERING
STATIONS, GEOMETRY TESTER, OSCILLOSCOPES
322 792 YOKES LINE #6 INCLUDING BUT NOT LIMITED TO: $2,500.00 $4,000.00 $9,000.00
HEAT GUNS, CONVERGENCE TESTERS,
MULTIMETERS, VOLTMETERS, GLUE GUNS, WIRE
STRIPPERS, HI POT, DUST COLLECTOR
323 793 YOKES LINE #7 INCLUDING BUT NOT LIMITED TO: $3,000.00 $5,000.00 $10,000.00
(2) WIRE CRIMPING MACHINES, 6" POWER BELT
CONVEYOR, (2) JST WIRE CRIMPING MACHINES,
MECHANICAL FORCE GAUGE, CONVERGENCE
TESTERS
324 794 YOKES LINE #8 INCLUDING BUT NOT LIMITED TO: $8,000.00 $11,000.00 $18,500.00
CONVERGENCE TESTERS, 6" POWER BELT
CONVEYOR, VOLTMETERS, MULTIMETERS,
OSCILLOSCOPES, (7) UNIVERSAL MODEL GLS
WINDERS, W/IKEGAMI DISPLAY, (2) CLW MODEL
990 WINDERS, W/DIGITAL DISPLAY, AUTOMATIC
CRIMPERS
- ---------------------------------------------------------------------------------------------------------------------------
PRODUCTION AREA
- ---------------------------------------------------------------------------------------------------------------------------
325 353 ATL CUSTOM AUTOMATION ROTARY ASSEMBLY $80,000.00 $120,000.00 $190,000.00
MACHINE, MODEL #1558, S/N 693160, COMPLETE
PUMPS, ASYMTEK FRAME FEEDER, VIBRATORY
FEEDER ENCLOSURE, LIGHT CURTAIN, OPTICS
CONTROLS, ASSOCIATED EQUIPMENT
326 354 AZONICS PRODUCTS, MODEL #5500, WIRE $1,500.00 $2,250.00 $3,000.00
INSERTION MACHINE, W/CONTROL CONSOLE,
ASSOCIATED EQUIPMENT, S/N N/A
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $98,000.00 $147,750.00 $240,500.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 39
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------------------
PRODUCTION AREA (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
327 356 AZONICS PRODUCTS, MODEL #5500, $1,500.00 $2,250.00 $3,000.00
WIRE INSERTION MACHINE, w/CONTROL
CONSOLE, ASSOCIATED EQUIPMENT,
S/N N/A
328 357 AZONICS PRODUCTS, MODEL #5500, $1,500.00 $2,250.00 $3,000.00
WIRE INSERTION MACHINE, w/CONTROL
CONSOLE, ASSOCIATED EQUIPMENT,
S/N N/A
329 355 BACHI #6 BOBBIN MULTIPLE WIRE $12,500.00 $16,000.00 $22,500.00
FEEDER WINDER, TAPE DRIVE, CONTROL
CONSOLE, MODEL #160, W/ASSOCIATED
EQUIPMENT, S/N 249
330 375 BACHI #3 BOBBIN MULTIPLE WIRE $12,500.00 $16,000.00 $22,500.00
FEEDER WINDER, TAPE DRIVE, CONTROL
CONSOLE MODEL #160, W/ASSOCIATED
EQUIPMENT, S/N 57
331 376 BACHI #N/A BOBBIN MULTIPLE WIRE $12,500.00 $16,000.00 $22,500.00
FEEDER WINDER, TAPE DRIVE, CONTROL
CONSOLE, MODEL #160, W/ASSOCIATED
EQUIPMENT, S/N 177
332 380 BACHI #1, BOBBIN MULTIPLE WIRE $12,500.00 $16,000.00 $22,500.00
FEEDER WINDER, TAPE DRIVE,
CONTROL CONSOLE, MODEL #160,
W/ASSOCIATED EQUIPMENT, S/N 182
333 388 BACHI #245, BOBBIN MULTIPLE WIRE $12,500.00 $16,000.00 $22,500.00
FEEDER WINDER, TAPE DRIVE, CONTROL
CONSOLE, MODEL #160, W/ASSOCIATED
EQUIPMENT, S/N 178
334 377 BACHI #2, BOBBIN MULTIPLE WIRE $16,000.00 $21,000.00 $27,000.00
FEEDER WINDER, TAPE DRIVE, CONTROL
CONSOLE, MODEL #160, W/ASSOCIATED
EQUIPMENT, S/N 50, W/COMPUTER
CONTROLLED PROP #A533
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $81,500.00 $105,500.00 $145,500.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 40
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1988
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -----------------------------------------------------------------------------------------------------------------------
PRODUCTION AREA (CONT'D)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
335 378 BACHI BOBBIN MULTIPLE WIRE FEEDER WINDER, $16,000.00 $21,000.00 $ 27,000.00
TAPE DRIVE CONTROL CONSOLE, MODEL #160,
W/ASSOCIATED EQUIPMENT, S/N N/A,
W/COMPUTER CONTROLLED, PROP #19534
336 379 BACHI BOBBIN MULTIPLE WIRE FEEDER WINDER, $16,000.00 $ 21,000.00 $ 27,000.00
TAPE DRIVE CONTROL CONSOLE, MODEL #160,
W/ASSOCIATED EQUIPMENT, S/N 250,
W/COMPUTER CONTROLLED, PROP #N/A
337 412 BACHI #5, BOBBIN MULTIPLE WIRE FEEDER $16,000.00 $ 21,000.00 $ 27,000.00
WINDER, TAPE DRIVE CONTROL CONSOLE,
MODEL #160, W/ASSOCIATED EQUIPMENT, S/N
17621, W/COMPUTER CONTROLLED, PROP #17621
338 414 BACHI #8, BOBBIN MULTIPLE WIRE FEEDER $16,000.00 $ 21,000.00 $ 27,000.00
WINDER, TAPE DRIVE CONTROL CONSOLE,
MODEL #160, W/ASSOCIATED EQUIPMENT, S/N
309, W/COMPUTER CONTROLLED, PROP #N/A
339 358 CUSTOM DESIGNED & FABRICATED THERMAL $ 1,500.00 $ 2,000.00 $ 2,500.00
TRANSFER LABEL PRINTER, MODEL #77, S/N
8077839, W/WEB FEED, CONTROL UNIT
340 364 CUSTOM DESIGNED & FABRICATED THERMAL $ 1,500.00 $ 2,000.00 $ 2,500.00
TRANSFER LABEL PRINTER, MODEL #77, S/N
8077839, W/WEB FEED, CONTROL UNIT
341 359 ARTOS WIRE CUT-TO-LENGTH MACHINE, $ 3,000.00 $ 4,000.00 $ 5,000.00
W/FEEDER, ASSOCIATED EQUIPMENT, #4
342 360 ARTOS WIRE CUT-TO-LENGTH MACHINE, $ 2,000.00 $ 2,500.00 $ 3,250.00
W/FEEDER, ASSOCIATED EQUIPMENT, #1, S/N
22693
343 361 ARTOS WIRE CUT-TO-LENGTH MACHINE, $ 3,000.00 $ 4,000.00 $ 5,000.00
W/FEEDER, ASSOCIATED EQUIPMENT, #2, S/N
47452
344 362 ARTOS WIRE CUT-TO-LENGTH MACHINE, $ 2,000.00 $ 2,500.00 $ 3,250.00
W/FEEDER, ASSOCIATED EQUIPMENT, #5, S/N N/A
- -----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $77,000.00 $101,000.00 $129,500.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 41
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA,MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCTION AREA (CONT'D)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
345 363 ARTOS WIRE CUT-TO-LENGTH MACHINE, $2,000,00 $2,500.00 $3,250.00
W/FEEDER, ASSOCIATED EQUIPMENT, #6, S/N N/A
346 366 ARTOS WIRE CUT-TO-LENGTH MACHINE, $2,000,00 $2,500.00 $3,250.00
W/FEEDER, ASSOCIATED EQUIPMENT, #N/A, S/N
15944
347 365 ARTOS COMPUTER CONTROLLED CUT-TO- $14,000.00 $18,000.00 $23,000.00
LENGTH LINE, MODEL #CS'26, W/FEEDER,
CRIMPER, COUNTER, ASSOCIATED EQUIPMENT
348 367 ARTOS WIRE CUT-TO-LENGTH LINE, MODEL #CS- $10,000.00 $12,000.00 $14,500.00
26-A, COMPLETE W/FEEDER, SOFT GRIP FEEDER,
(2) STAMPING PRESSES, ASSOCIATED
EQUIPMENT, ID #16324, #03
349 381 EPM COIL WINDING MACHINE, MODEL #VT-2, S/N $5,500.00 $9,000.00 $13,000.00
110622, W/PWT PROGRAM PANEL, ASSOCIATED
EQUIPMENT, #VT2-6
350 382 EPM COIL WINDING MACHINE, MODEL #VT-2, S/N $5,500.00 $9,000.00 $13,000.00
0961-22, W/PWT PROGRAM PANEL, ASSOCIATED
EQUIPMENT, #VT2-3
351 383 EPM COIL WINDING MACHINE, MODEL #VT-2, S/N $5,500.00 $9,000.00 $13,000.00
0930-ZZ, W/PWT PROGRAM PANEL, ASSOCIATED
EQUIPMENT, #VT2-2
352 384 EPM COIL WINDING MACHINE, MODEL #VT-2, S/N $5,500.00 $9,000.00 $13,000.00
0729-ZZ, W/PWT PROGRAM PANEL, ASSOCIATED
EQUIPMENT, #VT2-5
353 385 EPM COIL WINDING MACHINE, MODEL #VT-2, S/N $5,500.00 $9,000.00 $13,000.00
1039-ZZ, W/PWT PROGRAM PANEL, ASSOCIATED
EQUIPMENT, #VT2-4
354 386 EPM COIL WINDING MACHINE, MODEL #VT-2, S/N $5,500.00 $9,000.00 $13,000.00
0937-ZZ, W/PWT PROGRAM PANEL, ASSOCIATED
EQUIPMENT, #VT2-7
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $61,000.00 $89,000.00 $122,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 42
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
PRODUCTION AREA (CON'T)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
355 387 EPM BOBBIN ASSEMBLY STATION, MODEL #BK-6, $2,000.00 $2,750.00 $3,500.00
S/N 0203-00, #276, W/ASSOCIATED EQUIPMENT
356 389 EPM BOBBIN FEEDER, MODEL #BK-2, S/N 0416-08, $1,500.00 $2,000.00 $2,500.00
W/CONTROL UNIT, ASSOCIATED EQUIPMENT
357 390 EPM BOBBIN FEEDER, MODEL #BK-2, S/N 0158-08, $1,500.00 $2,000.00 $2,500.00
W/CONTROL UNIT, ASSOCIATED EQUIPMENT
358 391 EPM BOBBIN FEEDER, MODEL #BK-2, S/N 0166-08 $1,500.00 $2,000.00 $2,500.00
W/CONTROL UNIT, ASSOCIATED EQUIPMENT
359 392 EPM BOBBIN FEEDER, MODEL #BK-2, S/N 0160-08 $1,500.00 $2,000.00 $2,500.00
W/CONTROL UNIT, ASSOCIATED EQUIPMENT
360 393 BRANSON ULTRASONIC WELDER, SERIES 800 $1,750.00 $2,250.00 $2,750.00
W/ASSOCIATED EQUIPMENT, S/N N/A
361 394 BOBBIN PRODUCTION ASSEMBLY LINE #8, $4,500.00 $6,000.00 $10,000.00
COMPLETE W/THE FOLLOWING: WORK BENCHES,
LIGHTS, STOOLS, (13) BENCH TOP WINDERS,
COUNTERS, BELT CONVEYOR, LOAD ANALYZER,
SOLDER POT, POLARITY TEST FIXTURE, HYPOT
TESTER, ASSOCIATED METERS & EQUIPMENT
362 395 BOBBIN PRODUCTION ASSEMBLY LINE #6 & 7, $4,500.00 $6,000.00 $10,000.00
COMPLETE W/THE FOLLOWING: WORK BENCHES,
LIGHTS, STOOLS, (18) BENCH TOP WINDERS,
COUNTERS, BELT CONVEYOR, LOAD ANALYZER,
SOLDER POT, POLARITY TEST FIXTURE, HYPOT
TESTER, ASSOCIATED METERS & EQUIPMENT
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $18,750.00 $25,000.00 $38,250.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 43
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------------
PRODUCTION AREA (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
363 396 BOBBIN PRODUCTION ASSEMBLY LINE #4 & 9, $4,500.00 $6,000.00 $10,000.00
COMPLETE W/THE FOLLOWING: WORK BENCHES,
LIGHTS, STOOLS, (18) BENCH TOP WINDERS,
COUNTERS, BELT CONVEYOR, LOAD ANALYZER,
SOLDER POT, POLARITY TEST FIXTURE, HYPOT
TESTER, ASSOCIATED METERS & EQUIPMENT,
` W/STAMPING PRESS
364 397 LINE #2 TRANSFORMER SUPER PROJECTION $3,000.00 $4,500.00 $6,000.00
ASSEMBLY LINE COMPLETE W/THE FOLLOWING:
BELT CONVEYOR, SOLDER POT, (4) FINAL TESTER
FIXTURES, (2) BJ STRESS TEST, DIGITAL
CONVERTER IMPEDANCE METER, PNEUMATIC
PRESS, POLARITY TEST FIXTURE, TEKTRONIC 465
OSCILLOSCOPE, ZENITH TEST FIXTURE,
ASSOCIATED EQUIPMENT
365 398 LINE #3 TRANSFORMER ASSEMBLY LINE $3,000.00 $4,000.00 $5,500.00
COMPLETE W/THE FOLLOWING: BELT
CONVEYOR, SOLDER POT, (4) FINAL TESTERS, (3)
C3 STRESS TEST UNITS, LABEL APPLICATOR,
PNEUMATIC PRESS, TUBE CUTTER, TEST FIXTURES,
ASSOCIATED EQUIPMENT
366 399 LINE #6S & 5S TRANSFORMER ASSEMBLY LINE $2,250.00 $3,500.00 $4,250.00
COMPLETE W/THE FOLLOWING: BELT
CONVEYOR, SOLDER POT, (2) FINAL TESTERS.
(3) C3 STRESS TEST
367 400 LINE #8S & #7S PRODUCTION ASSEMBLY LINE $4,500.00 $7,000.00 $10,000.00
COMPLETE W/(2) CUSTOM WINDING STATIONS,
STAMPING UNITS, BELT CONVEYOR, (2) MICRO
SWEEPS COMPUTER, FINAL TESTER, SOLDER POT,
PERSONAL COMPUTER, MULTIMETER, FLUID DISPENSERS,
ASSOCIATED EQUIPMENT
- ---------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $17,250.00 $25,000.00 $35,750.00
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 44
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -----------------------------------------------------------------------------------------------------------------
PRODUCTION AREA (CONT'D)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
368 401 ASSEMBLY LINE #10S & #9S COMPLETE W/BELT $4,500.OO $7,000.00 $10,000.00
CONVEYOR, (3) MICRO SWEEPS COMPUTER FINAL
TESTER, (4) MICRO MINI SWEEPS STRESS
TESTERS, STOOLS, WORK BENCHES, TEST
FIXTURES, PNEUMATIC PRESS
369 402 ASSEMBLY LINE #5 & #3 COMPLETE W/BELT $2,000.00 $2,750.00 $3,500.00
CONVEYOR, DRILL PRESS, CRIMPING PRESS,
HEAT GUN, ARBOR PRESS, HIPOT TESTER,
ASSOCIATED EQUIPMENT
370 403 ASSEMBLY LINE #8 TEST BOX, COMPLETE W/BELT $1,250.00 $1,600.00 $2,200.00
CONVEYOR, STOOLS, ARBOR PRESS, GLUE
DISPENSER, TEST FIXTURES, CRIMPER,
ASSOCIATED EQUIPMENT
371 408 AUTOMATION PROCESS CONTROL #2 FLUID $4,000.00 $5,500.00 $8,000.00
DISPENSER, MODEL #MOOV, S/N 79M3, W/MIXER
CONTROL CONSOLE, ASSOCIATED EQUIPMENT
372 409 AUTOMATION PROCESS CONTROL #3 FLUID $4,000.00 $5,500.00 $8,000.00
DISPENSER, MODEL #MOOV, S/N 780807, W/MIXER
CONTROL CONSOLE, ASSOCIATED EQUIPMENT
373 410 AUTOMATION PROCESS CONTROL #4 FLUID $3,500.00 $5,000.00 $7,500.00
DISPENSER, MODEL #MOOV, S/N N/A, W/MIXER
CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
(NOT IN SERVICE)
374 411 AUTOMATION PROCESS CONTROL #1 FLUID $4,000.00 $5,500.00 $8,000.00
DISPENSER, MODEL #MOOV, S/N 790709, W/MIXER,
CONTROL CONSOLE, ASSOCIATED EQUIPMENT
375 405 BLUE M DOUBLE DOOR OVEN, MODEL #DOM-966 $5,000.00 $6,500.00 $7,500.00
REG X, 600 DEGREES F, S/N P6-2417, DIGITAL
CONTROL
- -----------------------------------------------------------------------------------------------------------------
PAGE TOTAL $28,250.00 $39,350.00 $54,700.00
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 45
<PAGE>
GREENWHICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCTION AREA (CONT'D)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
376 404 BLUE M DOUBLE DOOR OVEN, MODEL #DOM-966 $5,000.00 $6,500.00 $7,500.00
REG X, 600 DEGREES F, S/N N/A, DIGITAL
CONTROL
377 407 WISCONSIN NO.2, 78" TUNNEL CONVEYOR OVEN, $25,000.00 $35,000.00 $50,000.00
COMPLETE W/AUTOMATIC SIGNAL SCANNER,
TEMPERATURE CONTROL 310W, S/N 028978,
ASSOCIATED EQUIPMENT, 400 DEGREES F.
378 406 WISCONSIN NO.2, 78" TUNNEL CONVEYOR OVEN, $25,000.00 $35,000.00 $50,000.00
COMPLETE W/AUTOMATIC SIGNAL SCANNER,
TEMPERATURE CONTROL 310W, S/N N/A,
ASSOCIATED EQUIPMENT, 400 DEGREES F.
379 413 BRANSON/IPC SERIES, 7000 PLASMA COATER, $10,000.00 $14,500.00 $19,000.00
W/RF GENERATOR, CONTROL CONSOLE, STOKES
VACUUM, MILLER CHILLER
380 416 BRANSON/IPC SERIES, 7000 PLASMA COATER, $8,000.00 $12,000.00 $17,000.00
W/RF GENERATOR, CONTROL CONSOLE, STOKES
VACUUM, MILLER CHILLER, IP 4000
381 415 CUSTOM BUILT SHORT TESTER, W/VIDEO $1,000.00 $1,200.00 $1,400.00
CAMERA, ASSOCIATED EQUIPMENT
382 417 CUSTOM DESIGNED ASSEMBLY LINE, (LINE #16 & $30,000.00 $45,000.00 $90,000.00
ENCAPULE), COMPLETE W/CARRIER CONVEYOR
SYSTEM, LOCTITE GLUE DISPENSING SYSTEM,
COMPUTER CONTROLLED TEST FIXTURES, BELT
CONVEYOR, HYTROL ROLLER CONVEYOR,
ELEVATOR, WORK STATIONS, WORK FIXTURES,
RAPISTAN POWER BELT CONVEYOR, SOLDER
GUNS, GAP FRAME PRESSES, ROTARY SOLDER
APPLICATION SYSTEM, ASSOCIATED EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $104,000.00 $149,200.00 $234,900.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 46
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
PRODUCTION AREA (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
383 418 IHEI COMPUTERIZED DUAL TUNNEL OVEN, W/3 $120,000.00 $180,000.00 $225,000.00
LAMPS, S/N 4630, COMPLETE W/COMPUTER
CONTROL CONSOLE, CHART RECORDER, ALLEN
BRADLEY PANEL VIEW 550 PLC CONTROL, 120
VAC CONTROL, TEMPERATURE INDICATORS,
HUBERS INSULATION FILLING STATION,
W/CONTROL CONSOLE, MIXERS, PUMPS,
ASSOCIATED EQUIPMENT, PROP #19530/19531
384 MISCELLANEOUS SUPPORT EQUIPMENT $ 7,500.00 $ 12,000.00 $ 20,000.00
INCLUDING BUT NOT LIMITED TO: AZONIC
FEEDERS, TABLE, METRO STORAGE SHELVES,
HOOPER STRIP, CUT OFF UNIT, CUSTOM DIE CUT
UNIT, PAD PRINTER, PILLAR HOUSE BOBBIN
ASSEMBLY UNIT, AZONIC 1 GAP FRAME
STAMPER, SOLDER POT, MANUAL WINDING
STATION
- ----------------------------------------------------------------------------------------------------------------------
MOLDING AREA
- ----------------------------------------------------------------------------------------------------------------------
385 368 MIR INJECTION MOLDING MACHINE, MODEL $ 55,000.00 $ 62,500.00 $ 67,500.00
#RGLIM-65-1145, S/N 75111 (1991), COMPLETE
W/CAPTROL CONTROL CONSOLE, PICK & PLACE
ROBOT, ASSOCIATED EQUIPMENT
386 369 MIR INJECTION MOLDING MACHINE, MODEL $ 55,000.00 $ 62,500.00 $ 67,500.00
#RGLIM-65-1145, S/N 7510 (1991), COMPLETE
W/CAPTROL CONTROL CONSOLE, PICK & PLACE
ROBOT, ASSOCIATED EQUIPMENT
387 370 NOVA CHILLER UNIT W/CONTROL CONSOLE, $ 5,000.00 $ 6,000.00 $ 7,000.00
MODEL #R-15, S/N M-11H03001
388 371 DOPAG DISPENSING SYSTEM, 2KM SYSTEM, $ 9,000.00 $ 12,000.00 $ 18,000.00
W/FEEDER
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $251,500.00 $335,000.00 $405,000.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 47
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------
CONSTRUCTION/PROTOTYPES
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
389 MISCELLANEOUS SUPPORT EQUIPMENT $2,000.00 $2,750,00 $3,500.00
INCLUDING BUT NOT LIMITED TO: DESK CHAIRS,
STORAGE CABINETS, PRINTER, SPARE PARTS,
TOOL BOXES, (2) BLUE M OVENS
390 372 SYSTEM ATRON BETA 500 INDUCTION HEATING $3,000.00 $4,000.00 $5,000.00
UNIT W/SQUARE D SYLMAX CONTROL CONSOLE,
VENTILATION UNIT, ASSOCIATED EQUIPMENT
391 MISCELLANEOUS EQUIPMENT INCLUDING BUT $10,000.00 $14,000.00 $18,000.00
NOT LIMITED TO: DRILL PRESS, HI TESTER, DBL
END GRINDER, POWER SUPPLY, PIPE THREADER,
GM-9 & GM-7 LEAD FORMERS, USM EYELET
INSERTERS, APPROXIMATELY (6) PERSONAL
COMPUTERS, COLOR MONITORS, PRINTERS,
ELECTRIFIED WORK STATIONS, AUTOMATIC
CRIMPING MACHINES, SOLDERING STATIONS,
OSCILLOSCOPES, FLAMMABLE CABINET,
INVENTORY CARTS, METRO CARTS, LOCKERS,
MICROSCOPE
392 795 UNIVERSAL SEQEUENCER, S/N 2596A-24400-CEHS- $2,500.00 $3,000.00 $3,500.00
2071, (NOT IN SERVICE)
393 796 UNIVERSAL DIP INSERTION MACHINE S/N 6295-206 $1,000.00 $1,250.00 $1,500.00
80D-CDH-1382 (NOT IN SERVICE)
394 797 UNIVERSAL COORDINATE MACHINE, (NOT IN SERVICE), $2,000.00 $2,500.00 $3,000.00
S/N N/A
395 798 UNIVERSAL AXIAL LEAD INSERTER, (NOT IN SERVICE), $3,000.00 $4,000.00 $5,000.00
S/N N/A
396 799 UNIVERSAL AUTOMATIC SCREEN PRINTER, (NOT IN $6,000.00 $7,500.00 $9,000.00
SERVICES), W/(2)BOARD FLO STACKER,
W/JAVELIN ELECTRONICS, S/N 4733D15506-1-43232101
- ----------------------------------------------------------------------------------------------------------------
PAGE TOTAL $29,500,00 $39,000.00 $48,500.00
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 48
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION/PROTOTYPES (CONT'D)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
397 800 (1994) MYDATA SURFACE MOUNT MACHINE, 16 $40,000.00 $50,000.00 $60,000.00
FEEDERS PER MAGAZINE, 6 MAGAZINES, MODEL
TP9, S/N 9471 (NOT IN SERVICE)
398 801 UNIVERSAL CURING OVEN, S/N N/A $1,000.00 $1,500.00 $2,000.00
399 802 NU/ERA WAVE SOLDERER, W/DIGITAL CONTROLS $15,000.00 $17,000.00 $20,000.00
FOR CONVEYOR, SOLDER POT, TEMPERATURE
CONTROL
- -----------------------------------------------------------------------------------------------------------------------------------
SUPER "A" OFFICES/HUMAN RESOURCES
- -----------------------------------------------------------------------------------------------------------------------------------
400 METAL DESKS, SWIVEL CHAIRS, BOOKCASES, $14,000.00 $17,500.00 $20,000.00
VERTICAL METAL FILING CABINETS,
APPROXIMATELY (24) PERSONAL COMPUTERS,
MONITORS, PRINTERS, METRO SHELVES,
WOODEN DESKS
401 803 UNIX COMPUTER NET WORKING SYSTEM, W/JBM $35,000.00 $50,000.00 $80,000.00
MODEL #6000, RISC SYSTEM, 900 GB HARD DRIVE,
2.5 GB RAM, W/(6) IBM PROCESSORS, MODEL
#7133-010, POWERWARE PRESTIGE, 6000 UPS,
SMART UNISON UPS, CISCO 4000 ROUTERS,
ALLIED TEKSIS ETHERNET, HC MEMORY CARD,
ASSOCIATED HARDWARE
- ------------------------------------------------------------------------------------------------------------------------------------
MODEL SHOP
- ------------------------------------------------------------------------------------------------------------------------------------
402 804 MONARCH ENGINE LATHE, 10" SWING, 20" CC, S/N $4,000.00 $4,500.00 $5,000.00
13414, W/TAILSTOCK, TOOLPOST
403 805 HARDINGE TOOLROOM LATHE, W/DOVETAIL BED, $4,000.00 $4,5000.00 $5,000.00
TAILSTOCK, TOOLPOST
404 806 BRIDGEPORT VERTICAL MIILING MACHINE, 1 1/2 $4,500.00 $5,000.00 $5,500.00
HP, 9" X 42" TABLE, POWER FEED, ACCURITE DRO,
S/N N/A
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $117,500.00 $150,000.00 $197,500.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 49
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
MODEL SHOP (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
405 807 BRIDGEPORT VERTICAL MILING MACHINE, 1 1/2 $4,000.00 $4,500.00 $5,000.00
HP, 9" X 42" TABLE, POWER FEED, ACCURITE DRO,
S/N 130654
406 808 BRIDGEPORT VERTICAL MILING MACHINE, 1 HP, $3,500.00 $4,000.00 $4,500.00
9" X 42" TABLE, POWER FEED, ACCURITE DRO, S/N
97147
407 809 BRIDGEPORT VERTICAL MILING MACHINE, 1 1/2 $4,000.00 $4,500.00 $5,000.00
HP, 9" X 42" TABLE, POWER FEED, ACCURITE DRO,
S/N N/A
408 810 BRIDGEPORT VERTICAL MILING MACHINE, 1 1/2 $4,500.00 $5,000.00 $5,500.00
HP, 9" X 42" TABLE, POWER FEED, ACCURITE DRO,
S/N N/A
409 811 SHELDON ENGINE LATHE, S/N 31609, 18" SWING, $8,000.00 $9,000.00 $10,000.00
34" CC
410 812 HARIG SURFACE GRINDER, SUPER 612, W/6" X 12" $1,000.00 $1,250.00 $1,500.00
CERAMAX PERMANENT MAGNETIC CHUCK
411 813 DOALL VERTICAL BAND SAW, MODEL #1612-0, S/N $1,500.00 $1,750.00 $2,000.00
209-63282, W/16" THROAT, WELDING ATTACHMENT
412 815 MILLER SYNCROWAVE 500 ARC WELDER $1,750.00 $2,000.00 $2,250.00
413 814 LEBLOND MAKINO ELECTRIC DISCHARGE $20,000.00 $25,000.00 $30,000.00
MACHINE (EDM), MODEL #FNC-74, S/N N/A,
W/FANUC SYSTEM 6M CONTROLS, W/20 POSITION
ATC
414 816 SODICK ELECTRIC DISCHARGE MACHINE (EDM), $25,000.00 $30,000.00 $35,000.00
MODEL #A3C-R, W/SODICK MARK V CONTROLS,
W/OILMATIC OIL TEMPERATURE REGULATOR, 16
POSITION ATC
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $73,250.00 $87,000.00 $100,750.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 50
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
MODEL SHOP (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
415 MISCELLANEOUS SUPPORT EQUIPMENT $7,000.00 $8,5000.00 $10,000.00
INCLUDING BUT NOT LIMITED TO: WILSON
ROCKWELL HARDNESS TESTERS, OVEN, ARBOR
PRESS, DRILL PRESS, MILLING VISE, BENCH VISE,
RAW MATERIAL, CHUCKS, COLLETS, MILLS,
ASSORTED TOOLING, TOOLCARTS, DBL END
GRINDERS, (2) PERSONAL COMPUTERS, BOBBIN
WIND MACHINE (SCRAP), GRANITE SURFACE
- -------------------------------------------------------------------------------------------------------------------------
CAFETERIA
- -------------------------------------------------------------------------------------------------------------------------
416 APPROXIMATELY (30) FORMICA TOP TABLES, 240 $6,000.00 $8,0000.00 $10,000.00
PLASTIC CHAIRS, "L" SHAPED SERVING STATIONS,
PERSONAL COMPUTER, METAL DESK, SHELVING,
(5) STAR TABLE TOP BURNERS, FRYOLATORS, (2)
STAINLESS DISPENSING TANKS, (2) BLODGET
OVENS, WORK TABLES, ASSORTED POTS/PANS,
UTENCILS HOBART MIXER, (3) WOLF RANGES
417 818 HOBART INDUSTRIAL DISHWASHER $2,000.00 $3,000.00 $4,000.00
418 819 VULCAN INDUSTRIAL OVEN, MODEL #E-36, S/N $1,000.00 $1,250.00 $1,500.00
481041391RR
- -------------------------------------------------------------------------------------------------------------------------
MATERIAL IN PROCESS AREA
- -------------------------------------------------------------------------------------------------------------------------
419 817 (1998) J.A.M. AUTOMATIC WIRE CRIMPING $6,000.00 $8,000.000 $10,000.00
MACHINE, MODEL #C403W11359, W/WIRE FEED
ATTACHMENT CONTROLS, DUAL SPINDLE
420 820 (1989) J.A.M. AUTOMATIC WIRE CRIMPING $6,000.00 $8,000.000 $10,000.00
MACHINE, MODEL #C403W11359, W/WIRE FEED
ATTACHMENT CONTROLS, DUAL SPINDLE
421 821 (1992) JST AUTOMATIC INSULATION $15,000.00 $19,000.00 $23,000.00
DISPLACEMENT MACHINE, MODEL SCO-M158, S/N
92014, DUAL HOPPERS, W/WIRE FEED
ATTACHMENT, 24 ROLL CAPACITY, SCD-M15B
CONTROLS
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $43,000.00 $55,750.00 $68,500.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 51
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -----------------------------------------------------------------------------------------------------------------------------------
MATERIAL IN PROCESS AREA (CONT'D)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
422 822 JST AUTOMATIC LEAD MAKING MACHINE, MODEL $14,000.00 $16,000.00 $18,000.00
#BCD-M5-B2N, W/DUAL HOPPERS, WIRE FEED
ATTACHMENT, 24 ROLL CAPACITY, BCD-M5B
CONTROLS, S/N 63010
423 823 JST AUTOMATIC LEAD MAKING MACHINE, MODEL $12,000.00 $15,000.00 $17,000.00
#BCD-M5-B2N, W/DUAL HOPPERS, WIRE FEED
ATTACHMENT, 24 ROLL CAPACITY, BCD-M5B
CONTROLS, S/N N/A
424 824 (1989) JST AUTOMATIC LEAD MAKING MACHINE, $12,000.00 $15,000.00 $17,000.00
MODEL #BCD-M5-B2N, W/DUAL HOPPERS, WIRE
FEED ATTACHMENT, 24 ROLL CAPACITY, BCD-M5B
CONTROLS, S/N 89020
425 825 (1987) JST AUTOMATIC LEAD MAKING MACHINE, $12,000.00 $15,000.00 $17,000.00
MODEL #BCD-M5-B2N, W/DUAL HOPPERS, WIRE
FEED ATTACHMENT, 24 ROLL CAPACITY, BCD-M5B
CONTROLS, S/N 62002
426 826 (1991) JST AUTOMATIC LEAD MAKING MACHINE, $14,000.00 $16,000.00 $18,000.00
MODEL #BCD-M5-B2N, W/DUAL HOPPERS, WIRE
FEED ATTACHMENT, 24 ROLL CAPACITY, BCD-M5B
CONTROLS, S/N91030
427 827 WIRE FEEDER W/MULTI DRIVE MOTOR, W/ARTOS $1,000.00 $1,500.00 $2,000.00
CUT-TO-LENGTH SPLICING MACHINE
428 828 WIRE FEEDER W/MULTI DRIVE MOTOR, W/ARTOS $1,000.00 $1,500.00 $2,000.00
CUT-TO-LENGTH SPLICING MACHINE
429 829 WIRE FEEDER W/MULTI DRIVE MOTOR, W/ARTOS $1,000.00 $1,500.00 $2,000.00
CUT-TO-LENGTH SPLICING MACHINE
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $67,000.00 $81,500.00 $93,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 52
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
ITEM # ID # DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------------
SUB ASSEMBLY/MATERIAL IN PROCESS (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
430 MISCELLANEOUS EQUIPMENT INCLUDING BUT $2,000.00 $2,750.00 $3,500.00
NOT LIMITED TO: EYELET INSERTERS, WIRE
CRIMPERS, PALLET RACKING, WORK TABLES,
PORTABLE STAIRCASE, RIVETER, DRILL PRESS,
(2) WINDSOR FLOOR SCRUBBERS, BENCH VISE,
TEEL AIR COMPRESSOR
- ---------------------------------------------------------------------------------------------------------------------------------
SUB ASSEMBLY/MATERIAL IN PROCESS
- ---------------------------------------------------------------------------------------------------------------------------------
431 831 LINE #1 INCLUDES: 10" POWER BELT CONVEYOR, $2,000.00 $2,250.00 $2,500.00
WIRE CUTTING MACHINES, EYELET INSERTING
MACHINES
432 834 LINE #2 INCLUDES: 20" POWER BELT CONVEYOR, $4,000.00 $4,250.00 $4,500.00
WIRE CUTTING MACHINES, EYELET INSERTING
MACHINES, JST WIRE CRIMPING MACHINES
433 835 LINE #3 INCLUDES: 10" POWER BELT CONVEYOR, $2,000.00 $3,000.00 $4,000.00
TAPE/LABEL MACHINES, SOLDERING STATIONS,
WIRE CUTTERS, HEAT GUNS, GAD FORMERS,
HAND TOOLS
434 836 LINE #4 INCLUDES: 10" POWER BELT CONVEYOR, $1,000.00 $1,250.00 $2,000.00
SOLDERING STATIONS, ASSOCIATED EQUIPMENT
435 837 LINE #5 & #6 INCLUDES: WIRE CUTTERS, HEAT $4,000.00 $5,000.00 $6,000.00
GUNS, (16) LEAD INSERTERS, FOOT ACTIVATED,
HERBERT STRECK, LEAD STAMPING CUTTERS,
CF7 COMPONENT FORMERS, SCALE, MOLEX WIRE
CRIMPERS, HOT MELT APPLICATORS
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $15,000.00 $18,500.00 $22,500.00
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 53
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------
STORE ROOM
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
436 MISCELLANEOUS TEST EQUIPMENT IN STORAGE $7,000.00 $10,000.00 $13,000.00
INCLUDING BUT NOT LIMITED TO: SIGNAL
GENERATORS, ANALYZERS, MULTIMETERS,
OSCILLATOR, OSCILLOSCOPE, VIDEO BRIDGE,
AUDIO GENERATOR ELECTRONIC LEAD
ANALYZER, VOLT METER, HIPOT TESTERS, DC
POWER SUPPLIES, YOKE FLYBACK TESTERS
- ----------------------------------------------------------------------------------------------------------------------------
HEAT TREAT AREA
- ----------------------------------------------------------------------------------------------------------------------------
437 419 DISPATCH OVEN, PREHEAT & VARNISH BAKE, $5,000.00 $7,500.00 $10,000.00
W/CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
350 DEGREES F, MODEL #V-39-STD, S/N 126298
438 420 DISPATCH OVEN, PREHEAT & VARNISH BAKE, $5,000.00 $7,500.00 $10,000.00
W/CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
350 DEGREES F, MODEL #V-39-STD, S/N 126299
439 421 DISPATCH OVEN, PREHEAT & VARNISH BAKE, $5,000.00 $7,500.00 $10,000.00
W/CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
350 DEGREES F, MODEL #V-39-STD, S/N 117298
440 422 DISPATCH OVEN, PREHEAT & VARNISH BAKE, $5,000.00 $7,500.00 $10,000.00
W/CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
350 DEGREES F, MODEL #V-39-STD, S/N 117300
441 423 DISPATCH OVEN, PREHEAT & VARNISH BAKE, $5,000.00 $7,500.00 $10,000.00
W/CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
350 DEGREES F, MODEL #V-39-STD, S/N 117299
422 424 DISPATCH OVEN, PREHEAT & VARNISH BAKE, $5,000.00 $7,500.00 $10,000.00
W/CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
350 DEGREES F, MODEL #V-39-STD, S/N 117297
- -----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $37,000.00 $55,000.00 $73,000.00
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 54
<PAGE>
GREENWICH INDUSTRIAL, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------------------------------
HEAT TREAT AREA (CONT'D)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
443 425 DISPATCH OVEN, PREHEAT & VARNISH BAKE, $5,000.00 $7,500.00 $10,000.00
W/CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
350 DEGREES F, MODEL #V-39-STD, S/N 133873
444 426 IMPREX PRESSURE COATING CHAMBER, $1,500.00 $2,500.00 $4,000.00
W/ASSOCIATED EQUIPMENT
445 427 IMPREX PRESSURE COATING CHAMBER, $1,500.00 $2,500.00 $4,000.00
W/ASSOCIATED EQUIPMENT
446 428 IMPREX PRESSURE COATING CHAMBER, $1,500.00 $2,500.00 $4,000.00
W/ASSOCIATED EQUIPMENT
447 MISCELLANEOUS SUPPORT EQUIPMENT $3,000.00 $4,500.00 $6,000.00
INCLUDING BUT NOT LIMITED TO: (3) PRESSURE
CYLINDERS, CHAIN HOIST, STORAGE RACK,
PALLET JACK, BLOWER
- ------------------------------------------------------------------------------------------------------------------------------------
ENGINEERING OFFICES
- ------------------------------------------------------------------------------------------------------------------------------------
448 METAL DESKS, APPROXIMATELY (40) PERSONAL $15,000.00 $20,000.00 $30,000.00
COMPUTERS, COLOR MONITORS, PRINTERS,
SWIVEL CHAIRS, LAPTOPS, FILE CABINETS,
ARTWORK CABINETS, LOCKERS, FANS,
BOOKSHELVES, FORMICA TOP TABLES, PLASTIC
CHAIRS, OVERHEAD PROJECTOR, CONFERENCE
ROOM TABLES
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $27,500.00 $39,500.00 $58,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 55
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------------
LABORATORY SUPPORT TESTING
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
449 MISCELLANEOUS LAB EQUIPMENT INCLUDING $10,000.00 $14,000.00 $18,000.00
BUT NOT LIMITED TO: OSCILLOSCOPES, PATTERN
GENERATORS, NCL METERS, VOLTMETERS,
CONVERTERS, SCOPES, MULTIMETERS, WORK
BENCHES, FORCE GAGES, ELECTRIFIED WORK
BENCHES, CAPACITORS, CURVE TRACERS,
SOLDERING GUNS, OVENS, SARTORIUS DIGITAL
SCALE, SOLDER POT, APPROXIMATELY (15)
PERSONAL COMPUTERS, COLOR MONITORS,
PRINTERS
450 830 NIKON MODEL #6C, 14" OPTICAL COMPARATOR, $2,000.00 $2,250.00 $2,500.00
S/N 43210
- ---------------------------------------------------------------------------------------------------------------------------------
STORAGE AREA
- ---------------------------------------------------------------------------------------------------------------------------------
451 838 (1997) LG ELECTRONICS NARAC CUSTOM $40,000.00 $50,000.00 $65,000.00
DESIGNED BOBBIN WINDING MACHINE,
W/NITTOKU CONTROLS, 80 U HR., W/FEEDERS
452 839 (1997) LG ELECTRONICS NARAC CUSTOM $40,000.00 $50,000.00 $65,000.00
DESIGNED BOBBIN WINDING MACHINE,
W/NITTOKU CONTROLS, W/FEEDERS
453 840 (1997) LG ELECTRONICS NARAC CUSTOM $40,000.00 $50,000.00 $65,000.00
DESIGNED BOBBIN WINDING MACHINE,
W/NITTOKU CONTROLS, W/FEEDERS
454 841 (1997) LG ELECTRONICS NARAC CUSTOM $40,000.00 $50,000.00 $65,000.00
DESIGNED BOBBIN WINDING MACHINE,
W/NITTOKU CONTROLS, W/FEEDERS
455 842 (1997) LG ELECTRONICS NARAC CUSTOM $40,000.00 $50,000.00 $65,000.00
DESIGNED BOBBIN WINDING MACHINE,
W/NITTOKU CONTROLS, W/FEEDERS
- ---------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $212,000.00 $266,250.00 $345,500.00
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 56
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------------------------------
STORAGE AREA (CONT'D)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
456 843 (1997) LG ELECTRONICS NARAC CUSTOM $40,000.00 $50,000.00 $65,000.00
DESIGNED BOBBIN WINDING MACHINE,
W/NITTOKU CONTROLS, W/FEEDERS
457 844 (1997) LG ELECTRONICS NARAC CUSTOM $40,000.00 $50,000.00 $65,000.00
DESIGNED BOBBIN WINDING MACHINE,
W/NITTOKU CONTROLS, W/FEEDERS
458 845 (1997) LG ELECTRONICS NARAC CUSTOM $40,000.00 $50,000.00 $65,000.00
DESIGNED BOBBIN WINDING MACHINE,
W/NITTOKU CONTROLS, W/FEEDERS
S/N 70101-436
- ------------------------------------------------------------------------------------------------------------------------------------
MAINTENANCE CAGE
- ------------------------------------------------------------------------------------------------------------------------------------
459 MISCELLANEOUS EQUIPMENT INCLUDING BUT $4,500.00 $5,500.00 $6,500.00
NOT LIMITED TO: OSCILLOSCOPES, SOLDERING
GUNS, TOOLING, MULTIMETERS, VOLTMETERS,
HEAT GUNS, POWER SUPPLIES, DRILL PRESSES,
WORK BENCHES, BENCH VISES, SLAUTERBACK
GLUE DISPENSERS, METAL DESKS, ARBOR
PRESS, MICROSCOPES, OVENS
- ------------------------------------------------------------------------------------------------------------------------------------
MATERIAL CAGE
- ------------------------------------------------------------------------------------------------------------------------------------
460 METAL SHELVING, PARTS BINS, SUPPLIES, $5,000.00 $6,000.00 $7,000.00
PERSONAL COMPUTER, CUTTERS, TOOLS, METAL
LOCKERS, HAND TRUCK
461 846 HARIG SURFACE GRINDER, W/6"X 12" $2,000.00 $2,500.00 $3,000.00
PERMANENT MAGNETIC CHUCK
- ------------------------------------------------------------------------------------------------------------------------------------
SWEEPS TEMPERATURE CONTROL
- ------------------------------------------------------------------------------------------------------------------------------------
462 847 THERMOTRON INDUSTRIAL OVEN $1,000.00 $1,250.00 $1,500.00
463 848 THERMOTRON INDUSTRIAL OVEN $1,000.00 $1,250.00 $1,500.00
464 849 BLUE M INDUSTRIAL OVEN $750.00 $1,000.00 $1,250.00
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $134,250.00 $167,500.00 $215,750.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 57
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------
SWEEPS TEMPERATURE CONTROL (CONT'D)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
465 850 BLUE M INDUSTRIAL OVEN $750.00 $1,000.00 $1,250.00
466 851 WEBER MODEL #4010 INDUSTRIAL OVEN $2,000.00 $3,000.00 $10,000.00
W/CONTROL PANEL
467 852 WEBER MODEL #4010 INDUSTRIAL OVEN $2,000.00 $3,000.00 $10,000.00
W/CONTROL PANEL
468 853 WEBER MODEL #4010 INDUSTRIAL OVEN $2,000.00 $3,000.00 $10,000.00
W/CONTROL PANEL
469 854 WEBER MODEL #4010 INDUSTRIAL OVEN $2,000.00 $3,000.00 $10,000.00
W/CONTROL PANEL
470 MISCELLANEOUS SUPPORT EQUIPMENT $1,0000.00 $1,500.00 $2,000.00
INCLUDING BUT NOT LIMITED TO: STRESS
TESTER, RESISTANCE EQUIPMENT, HIPOT
TESTER, LCR METER
- ----------------------------------------------------------------------------------------------------------------
OFFICE AREA 2ND FLOOR
- ----------------------------------------------------------------------------------------------------------------
471 WOODEN & METAL DESKS, BOOKCASES, FILING $1,500.00 $2,000.00 $2,500.00
CABINETS, FORMICA TOP TABLES, PERSONAL
COMPUTERS, MONITORS, PRINTERS
- ----------------------------------------------------------------------------------------------------------------
WAREHOUSE
- ----------------------------------------------------------------------------------------------------------------
472 MISCELLANEOUS EQUIPMENT INCLUDING BUT $8,000.00 $10,000.00 $12,500.00
NOT LIMITED TO: STEEL CAGE, PALLET JACKS,
HAND TRUCKS, PORTABLE STAIRCASE, (64)
SECTIONS MEDIUM DUTY PALLET RACKING,
HEAVY DUTY STAPLING MACHINES, WORK
BENCHES, OFFICE FURNITURE INCLUDING:
METAL DESKS, PERSONAL COMPUTERS,
MONITORS, PRINTERS, DIGITAL SCALE, PORTABLE
GANTRY W/CHAIN HOIST, FORKLIFTS, (SCRAP
CONDITION)
- ----------------------------------------------------------------------------------------------------------------
PAGE TOTAL $19,250.00 $26,500.00 $58,250.00
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 58
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ITEM# 1D# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------
WAREHOUSE (CONT'D)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
473 855 TOYOTA ELECTRIC FORKLIFT $2,000.00 $2,250.00 $2,500.00
474 856 TOYOTA ELECTRIC FORKLIFT, 5994 HOURS $2,000.00 $2,250.00 $2,500.00
- ----------------------------------------------------------------------------------------------------------
OFFICE AREA/FINANCE
- ----------------------------------------------------------------------------------------------------------
475 EXECUTIVE OFFICE FURNITURE, MATCHING $7,000.00 $9,000.00 $11,000.00
CONFERENCE ROOM CIRCULAR TABLE,
MATCHING CLOTH SIDE CHAIRS, METALS DESKS,
SWIVEL CHAIRS, WOODEN BOOKCASE, 8'
CONFERENCE TABLE, W/(8) MATCHING VINYL
SWIVEL CHAIRS, (4) CLOTH SIDE CHAIRS, MARKER
BOARD, COAT RACK, APPROXIMATELY (5)
PERSONAL COMPUTERS, MONITORS, PRINTERS,
FAX MACHINE, INCLUDING RECEPTION AREA
COUCHES, RECEPTIONIST DESK, MATCHING SIDE
CHAIRS
- ----------------------------------------------------------------------------------------------------------
LABOR RELATIONS OFFICE
- ----------------------------------------------------------------------------------------------------------
476 METAL DESKS, SWIVEL CHAIRS, VERTICAL METAL $4,000.00 $5,000.00 $6,000.000
FILING CABINETS, WOODEN CABINETS,
APPROXIMATELY (5) PERSONAL COMPUTERS,
PRINTERS, COLOR MONITORS, FORMICA TOP
TABLES, MEDICAL SUPPLIES
- ----------------------------------------------------------------------------------------------------------
OUTSIDE
- ----------------------------------------------------------------------------------------------------------
477 433 SULLAIR ROTARY SCREW PACKAGE AIR $10,000.00 $13,500.00 $18,000.00
COMPRESSORS, MODEL#20-100 S/N 003-643
478 434 SULLAIR ROTARY SCREW PACKAGE AIR $10,000.00 $13,500.00 $18,000.00
COMPRESSORS, MODEL #20-100F, S/N 003-74954
479 435 SULLAIR ROTARY SCREW PACKAGE AIR $10,000.00 $13,500.00 $18,000.00
COMPRESSORS, MODEL #20-100F, S/N 003-74753,
PROP #16623
- ----------------------------------------------------------------------------------------------------------
PAGE TOTAL $45,000.00 $59,000.00 $76,000.00
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Page 59
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------
OUTSIDE (CONT'D)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
480 436 SULLAIR ROTARY SCREW PACKAGE AIR $ 12,500.00 $ 16,000.00 $ 20,000.00
COMPRESSORS, MODEL #20-100F, S/N 003-140107,
PROP #16623
481 439 KOHLER GENSET FAST RESPONSE POWER $ 15,000.00 $ 19,000.00 $ 23,500.00
GENERATOR SYSTEM 100 KW, W/AUTOMATIC
BATTERY CHARGER, ASSOCIATED EQUIPMENT
482 MISCELLANEOUS SUPPORT EQUIPMENT LOCATED $ 4,000.00 $ 5,500.00 $ 7,000.00
OUTSIDE INCLUDING: CONCRETE MIXER,
CONTROL CONSOLES, BENDING BRAKE,
CRIMPER, STORAGE SHELVES, SURFACE
GRINDER, LIFT UNIT, FILE CABINETS, SHARE,
PRESSES
- ----------------------------------------------------------------------------------------------------------------
PAGE TOTAL $ 31,500.00 $ 40,500.00 $ 50,500.00
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
GRAND TOTAL PLANT #13 $1,893,000.00 $2,532,550.00 $3,476,850.00
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 60
<PAGE>
PLANT #12
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------
PLANT #12
COMPONENT ASSEMBLY
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
483 001 UNIVERSAL IN-LINE SEQUENCER COMPLETE $5,000.00 $6,500.00 $8,000.00
W/100 STATION FEEDER, ASSOCIATED
EQUIPMENT, S/N N/A, B02
484 002 UNIVERSAL IN-LINE SEQUENCER COMPLETE $5,000.00 $6,500.00 $8,000.00
W/100 STATION FEEDER, ASSOCIATED
EQUIPMENT, S/N N/A, B09
485 007 ID #007 UNIVERSAL IN-LINE SEQUENCER $6,000.00 $8,000.00 $9,500.00
COMPLETE W/120 STATION FEEDER, ASSOCIATED
EQUIPMENT, S/N 2596R-21900CEHS-1321, B04
486 012 ID #012 UNIVERSAL IN-LINE SEQUENCER $6,000.00 $8,000.00 $9,500.00
COMPLETE W/120 STATION FEEDER, ASSOCIATED
EQUIPMENT, S/N N/A, B14
487 006 UNIVERSAL IN-LINE SEQUENCER MODEL $40,000.00 $46,000.00 $52,500.00
SEQUENCE 6, COMPLETE W/80 STATION FEEDER,
CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
488 011 UNIVERSAL IN-LINE SEQUENCER MODEL $40,000.00 $46,000.00 $52,500.00
SEQUENCE 6, COMPLETE W/80 STATION FEEDER,
CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
S/N N/A, B016
489 003 UNIVERSAL DUAL HEAD DIP INSERTION MACHINE $3,000.00 $4,000.00 $5,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A, JW4
490 004 UNIVERSAL DUAL HEAD DIP INSERTION MACHINE $3,000.00 $4,000.00 $5,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A, JW3
491 005 UNIVERSAL DUAL HEAD DIP INSERTION MACHINE $3,000.00 $4,000.00 $5,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A, JW5
492 013 UNIVERSAL DUAL HEAD DIP INSERTION MACHINE $3,000.00 $4,000.00 $5,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A, JW1
- ---------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $114,000.00 $137,000.00 $160,000.00
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 61
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
COMPONENT ASSEMBLY (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
493 010 UNIVERSAL DUAL HEAD INSERTION MACHINE $ 2,250.00 $ 3,000.00 $ 3,750.00
W/ASSOCIATED EQUIPMENT, S/N N/A, G04
494 015 UNIVERSAL DUAL HEAD DIP INSERTION MACHINE $ 2,750.00 $ 3,750.00 $ 4,250,00
495 009 UNIVERSAL DUAL HEAD RIVET INSERTION $ 2,000.00 $ 2,500.00 $ 3,000.00
MACHINE, W/ASSOCIATED EQUIPMENT, Z06
496 014 UNIVERSAL DUAL HEAD RIVET INSERTION $ 2,000.00 $ 2,500.00 $ 3,000.00
MACHINE, W/ASSOCIATED EQUIPMENT, Z08
497 008 HI-CNC REPAIR AND REWORK STATION, $ 1,500.00 $ 2,000.00 $ 2,500.00
W/CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
S/N N/A
498 016 UNIVERSAL MULTI-HEAD INSERTION MACHINE, $ 50,000.00 $ 60,000.00 $ 70,000.00
MODEL #JWI-DH3, COMPLETE W/BOARD LOADER &
UNLOADER, S/N 6299B06230646224901, PROP
#19231, JW6
499 017 UNIVERSAL MULTI-HEAD INSERTION MACHINE, $ 50,000.00 $ 60,000.00 $ 70,000.00
MODEL #JWI-DH3, COMPLETE W/BOARD LOADER &
UNLOADER, S/N 6299B06213646224901, PROP
#192312, JW7
500 018 INGERSOLL & RAND PORTABLE AIR COMPRESSOR $ 1,200.00 $ 1,600.00 $ 1,900.00
2 STAGE, 5 HP
510 092 INGERSOLL & RAND PORTABLE AIR COMPRESSOR $ 1,200.00 $ 1,600.00 $ 1,900.00
2 STAGE, 5 HP
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $112,900.00 $136,950.00 $160,300.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 62
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
LINE #4 AREA
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
502 SMD ASSEMBLY LINE COMPLETE W/THE $ 10,000.00 $ 17,500.00 $ 28,000.00
FOLLOWING: BOARD LOADERS, CONVEYORS,
WORK STATIONS, UNIVERSAL PASS-THROUGHS,
PERSONAL COMPUTERS, OPTICAL INSPECTION
STATION, STATIC GUARDS, FOOT CONTROLS,
DRYER, SOLDER GUNS, TRANSFER UNITS, ETC.
503 019 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX10
504 020 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX14
505 021 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX2
506 022 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX5
507 023 TDK AVISERT, MODEL VC-5280R, W/CONTROLS, $ 40,000.00 $ 50,000.00 $ 60,000.00
OPTICS, 40 STATION FEEDER, LIGHT CURTAIN,
ASSOCIATED EQUIPMENT, S/N 8120 (1990)
508 026 TDK AVISERT, MODEL VC-7240R, W/CONTROLS, $ 65,000.00 $ 80,000.00 $100,000.00
OPTICS, 40 STATION FEEDER, LIGHT CURTAIN,
ASSOCIATED EQUIPMENT, S/N 8120 (1996)
509 025 TDK AVISERT, MODEL VC-7280R, W/CONTROLS, $ 60,000.00 $ 75,000.00 $ 95,000.00
OPTICS, 40 STATION FEEDER, LIGHT CURTAIN,
ASSOCIATED EQUIPMENT, S/N 8120 (1995), TDK 35
510 024 TDK AVISERT, MODEL N/A, W/CONTROLS, OPTICS, $ 35,000.00 $ 42,500.00 $ 48,000.00
40 STATION FEEDER, LIGHT CURTAIN, ASSOCIATED
EQUIPMENT, S/N N/A
511 028 (1996) NITTO CHIP SHOOTER, MODEL #STM-Y II, $120,000.00 $160,000.00 $200,000.00
W/NEC PC, CONTROL CONSOLE, ASSOCIATED
EQUIPMENT, S/N 7960432, PROP #19271
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $342,000.00 $439,000.00 $547,000.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMPV
- ----------------------------------------------------------------------------------------------------------
LINE #4 AREA (CONT'D)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
512 029 UNITHERM SMR-800 CURE OVEN, VITRONICS, $45,000.00 $50,000.00 $ 55,000.00
W/CONVEYOR, PC, UPS, ASSOCIATED EQUIPMENT
513 027 NITTO SCREEN PRINT MACHINE, S/N N/A $10,000.00 $12,500.00 $ 15,000.00
514 030 CUSTOM WAVE SOLDER MACHINE, W/CONTROL $ 8,000.00 $12,000.00 $ 17,000.00
CONSOLE, CONVEYOR, ASSOCIATED EQUIPMENT
515 031 CUSTOM BUILT BOARD TEST STATION, $ 3,000.00 $ 4,000.00 $ 5,000.00
W/ASSOCIATED EQUIPMENT
516 032 CUSTOM BUILT BOARD TEST STATION, $ 3,000.00 $ 4,000.00 $ 5,000.00
W/ASSOCIATED EQUIPMENT
517 033 CUSTOM BUILT BOARD TEST STATION, $ 3,000.00 $ 4,000.00 $ 5,000.00
W/ASSOCIATED EQUIPMENT
518 034 CUSTOM BUILT BOARD TEST STATION, $ 3,000.00 $ 4,000.00 $ 5,000.00
W/ASSOCIATED EQUIPMENT
519 035 CUSTOM BUILT BOARD TEST STATION, $ 3,000.00 $ 4,000.00 $ 5,000.00
W/ASSOCIATED EQUIPMENT
520 036 CUSTOM C-FRAME BOARD MOUNTING $ 1,000.00 $ 1,500.00 $ 2,000.00
MECHANISM, W/FEEDER, ASSOCIATED
EQUIPMENT
- ----------------------------------------------------------------------------------------------------------
PAGE TOTAL $79,000.00 $96,000.00 $114,000.00
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Page 64
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------
LINE# 3
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
521 SMD #3 ASSEMBLY LINE COMPLETE W/THE $ 10,000.00 $ 17,500.00 $ 28,000.00
FOLLOWING: BOARD LOADERS, CONVEYORS,
WORK STATIONS, UNIVERSAL PASS THROUGHS
PERSONAL COMPUTERS, OPTICAL INSPECTION
STATIONS, STATIC GUARDS, FOOT CONTROL
DRYER, TRANSFER UNITS, COMPUTYPE REWORK,
BOARD FLIPPER, ECT.
522 037 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX6
523 038 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX16
524 039 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX3
525 040 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX1
526 044 TDK AVISERT, MODEL #VC-5240R, W/CONTROLS, $ 25,000.00 $ 32,000.00 $ 35,500.00
OPTICS, FEEDER, LIGHT CURTAIN, ASSOCIATED
EQUIPMENT, (1988), #15
527 043 TDK AVISERT, MODEL #VC-7980R, W/CONTROLS, $ 47,500.00 $ 52,500.00 $ 57,500.00
OPTICS, FEEDER, LIGHT CURTAIN, ASSOCIATED
EQUIPMENT, (1994), #30
528 041 TDK AVISERT, MODEL #VC-7980R, W/CONTROLS, $ 50,000.00 $ 55,000.00 $ 60,000.00
OPTICS, FEEDER, LIGHT CURTAIN, ASSOCIATED
EQUIPMENT, (1995) #31
529 042 TDK AVISERT, MODEL #VC-5040R, W/CONTROLS, $ 15,000.00 $ 18,000.00 $ 22,500.00
OPTICS, FEEDER, LIGHT CURTAIN, ASSOCIATED
EQUIPMENT, (1986), #13
- --------------------------------------------------------------------------------------------------------------
PAGE TOTAL $159,500,00 $189,500.00 $219,500.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Page 65
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
LINE #3 (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
530 046 (1995) NITTO CHIP SHOOTER, MODEL #STM-YII, $85,000.00 $110,000.00 $140,000.00
W/NEC PC CONTROL CONSOLE, S/N 3951129,
PROP #19161
531 047 (1990) NITTO STM CHIP SHOOTER, W/CONTROL $40,000.00 $47,500.00 $55,000.00
CONSOLE, LINE N#8
532 045 STM NITTO SCREEN PRINTER MACHINE $10,000.00 $15,000.00 $20,000.00
533 048 CUREFLOW CURING OVEN, MODEL #2540-06-03, $15,000.00 $20,000.00 $25,000.00
S/N 50422, PROP #19017
534 049 CUSTOM DESIGNED WAVE SOLDER MACHINE, $8,000.00 $12,000.00 $17,000.00
W/CONTROL CONSOLE, CONVEYOR, ASSOCIATED
EQUIPMENT
535 050 CUSTOM DESIGNED PC BOARD TEST UNITS, $3,000.00 $4,000.00 $5,000.00
W/COMPUTER CONTROL, ASSOCIATED EQUIPMENT
536 051 CUSTOM DESIGNED PC BOARD TEST UNITS, $3,000.00 $4,000.00 $5,000.00
W/COMPUTER CONTROL, ASSOCIATED EQUIPMENT
537 052 CUSTOM DESIGNED PC BOARD TEST UNITS, $3,000.00 $4,000.00 $5,000.00
W/COMPUTER CONTROL, ASSOCIATED EQUIPMENT
538 053 CUSTOM DESIGNED PC BOARD TEST UNITS, $3,000.00 $4,000.00 $5,000.00
W/COMPUTER CONTROL, ASSOCIATED EQUIPMENT
539 054 CUSTOM C FRAME BOARD MOUNTING $1,000.00 $1,500.OO $2,000.00
MECHANISM, W/FEEDER, ASSOCIATED
EQUIPMENT
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $171,000.00 $222,000.00 $279,000.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 66
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
LINE #2
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
540 SMD ASSEMBLY LINE COMPLETE W/THE $10,000.00 $ 17,500.00 $ 28,000.00
FOLLOWING: BOARD LOADERS, CONVEYORS,
WORK STATIONS, UNIVERSAL PASS-THROUGHS,
PERSONAL COMPUTERS, OPTICAL INSPECTION
STATIONS, STATIC GUARDS, FOOT CONTROLS
DRYERS, SOLDER GUNS, TRANSFER UNITS,
COMPUTYPE REWORK UNIT, ECT.
541 055 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX-4
542 056 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX-7
543 057 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX-8
544 058 UNIVERSAL DIP INSERTER SINGLE HEAD, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/ASSOCIATED EQUIPMENT, AX-13
545 059 TDK AVISERT, MODEL #VC-7080R, W/CONTROL $50,000.00 $ 60,000.00 $ 70,000.00
CONSOLE, OPTICS, FEEDER, LIGHT CURTAIN,
ASSOCIATED EQUIPMENT, (1995) #32
546 060 TDK AVISERT, MODEL #VC-7080R, W/CONTROL $40,000.00 $ 47,500.00 $ 52,500.00
CONSOLE, OPTICS, FEEDER, LIGHT CURTAIN,
ASSOCIATED EQUIPMENT, (1994) #29
547 061 TDK AVISERT, MODEL #VC-5040, W/CONTROL $12,500.00 $ 16,000.00 $ 21,000.00
CONSOLE, OPTICS, FEEDER, LIGHT CURTAIN,
ASSOCIATED EQUIPMENT, (1986) TDK10
548 062 TDK AVISERT, MODEL #VC-7080R, W/CONTROL $12,500.00 $ 16,000.00 $ 21,000.00
CONSOLE, OPTICS, FEEDER, LIGHT CURTAIN,
ASSOCIATED EQUIPMENT, (1986), #14
549 063 NITTO MASKING STATION, W/CONTROL CONSOLE, $10,000.00 $ 15,000.OO $ 20,000.00
S/N N/A
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $147,000.00 $186,000.00 $228,500.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 67
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
LINE #2 (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
550 064 (1996) NITTO CHIP SHOOTER, MODEL #STM-Y II, $120,000.00 $160,000.00 $200,000.00
W/PC, CONTROL CONSOLE, ASSOCIATED
EQUIPMENT, S/N 3960433, PROP #19272
551 065 CUREFLOW CURING OVEN, MODEL #2540-06-03, $15,000.00 $20,000.00 $25,000.00
S/N N/A, PROP # N/A, #24
552 066 (1997) SENSBERG NITTON AUTOMATIC WAVE $70,000.00 $80,000.00 $92,500.00
SOLDERING MACHINE, MODEL #LG-400NN,
W/NORDSON MAGNETTLIC UNIT
553 067 CUSTOM BOARD TEST STATION, W/ASSOCIATED $1,500.00 $2,250.00 $3,000.00
EQUIPMENT
554 068 CUSTOM BOARD TEST STATION, W/ASSOCIATED $1,500.00 $2,250.00 $3,000.00
EQUIPMENT
555 069 CUSTOM BOARD TEST STATION, W/ASSOCIATED $3,000.00 $4,000.00 $5,000.00
EQUIPMENT, W/TESTERS, MULTIMETER, PST
EQUIPMENT
556 070 CUSTOM BOARD TEST STATION, W/ASSOCIATED $3,000.00 $4,000.00 $5,000.00
EQUIPMENT, W/TESTERS, MULTIMETER, PST
EQUIPMENT
557 071 CUSTOM BOARD TEST STATION, W/ASSOCIATED $3,000.00 $4,000.00 $5,000.00
EQUIPMENT, W/TESTERS, MULTIMETER, PST
EQUIPMENT
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $217,000.00 $276,500.00 $338,500.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 68
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
LINE #1
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
558 SMD #1 ASSEMBLY LINE COMPLETE W/THE $10,000.00 $17,500.00 $28,000.00
FOLLOWING: COMPONENTS, BOARD LOADERS,
UNIVERSAL PASS THROUGHS, OPTICAL
INSPECTION STATIONS, STATIC GUARDS, SOLDER
GUNS, COMPUTYPE REWORK UNIT, DRYERS,
FOOT CONTROL, ASSOCIATED EQUIPMENT
559 072 (1996) UNIVERSAL MODEL 2 HEAD DIP INSERTER, $70,000.00 $80,000.00 $90,000.00
MODEL #VCD-DH-6, W/BOARD LOADER PC FEEDER
560 073 UNIVERSAL SINGLE HEAD DIP INSERTER, AX-9 $3,000.00 $3,500.00 $4,000.00
561 074 UNIVERSAL SINGLE HEAD DIP INSERTER, AX-15 $3,000.00 $3,500.00 $4,000.00
562 075 TDK AVISERT MODEL #VC-5280R W/OPTICS, LIGHT $15,000.00 $22,500.00 $27,000.00
CURTAIN, CONTROL, ASSOCIATED EQUIPMENT,
(1986), #21
563 076 TDK AVISERT MODEL #VC-5280R W/OPTICS, LIGHT $25,000.00 $35,000.00 $45,000.00
CURTAIN, CONTROL, ASSOCIATED EQUIPMENT,
(1990), #7
564 078 TDK AVISERT MODEL #VC-7240R W/OPTICS, LIGHT $65,000.00 $80,000.00 $100,000.00
CURTAIN, CONTROL, ASSOCIATED EQUIPMENT,
(1996), #34, PROP #19235
565 077 TDK AVISERT MODEL #VC-7280R W/OPTICS, LIGHT $65,000.00 $80,000.00 $100,000.00
CURTAIN, CONTROL, ASSOCIATED EQUIPMENT,
(1996), #33, PROP #19234
566 079 NITTO SCREEN PRINTING MACHINE, S/N N/A $10,000.00 $15,000.00 $20,000.00
567 080 (1996) NITTO CHIP SHOOTER, MODEL $120,000.00 $160,000.00 $200,000.00
#STM-Y II, W/PC CONTROL CONSOLE S/N 396043
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $386,000.00 $497,000.00 $618,000.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 69
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM # ID # DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
LINE #1 (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
568 081 UNITHERN SMR-800 CURING OVEN, W/CONVEYOR, $15,000.00 $20,000.00 $25,000.00
CONTROL CONSOLE, VITRONICS
569 082 (1997) SOL MACH SOLDER MASK MACHINE, $55,000.00 $65,000.00 $80,000.00
MODEL #DSS-527S, W/MAGNETIC UNIT,
CONVEYOR, CONTROL CONSOLE, S/N N/A
570 083 CUSTOM PC BOARD, TEST STATION, $1,500.00 $2,250.00 $3,000.00
W/ASSOCIATED EQUIPMENT
571 084 CUSTOM PC BOARD, TEST STATION, $1,500.00 $2,250.00 $3,000.00
W/ASSOCIATED EQUIPMENT
572 085 CUSTOM PC BOARD, TEST STATION, $3,000.00 $4,000.00 $5,000.00
W/ASSOCIATED EQUIPMENT, COMPUTER
CONTROL, I TESTER, MULTIMETER
573 086 CUSTOM PC BOARD, TEST STATION, $3,000.00 $4,000.00 $5,000.00
W/ASSOCIATED EQUIPMENT, COMPUTER
CONTROL, I TESTER, MULTIMETER
574 087 CUSTOM PC BOARD, TEST STATION, $3,000.00 $4,000.00 $5,000.00
W/ASSOCIATED EQUIPMENT, COMPUTER
CONTROL, I TESTER, MULTIMETER
575 088 L 1 FINAL CHASSIS ASSEMBLY LINE COMPLETE $30,000.00 $45,000.00 $80,000.00
W/THE FOLLOWING: LIVE ROLLER CONVEYOR
SYSTEM, TAPE DISPENSER, CASE SEALER,
PALLETIZER, CONTROL CONSOLES, STACKER,
BELT CONVEYOR, OSCILLOSCOPE, HEAT RUN,
ASSEMBLY CARTS, QA CONTROL PANELS,
(6) INSPECTION STATIONS, JIB FRAME HOIST,
LIFE TESTER, RAPID TURN OVER UNITS,
PNEUMATIC HAND TOOLS, CR4 LIFT MECHANISM,
ASSOCIATED EQUIPMENT
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $112,000.00 $146,500.00 $206,000.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 70
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------------
LINE #1(CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
576 089 L 2 FINAL CHASSIS ASSEMBLY LINE COMPLETE $30,000.00 $45,000.00 $80,000.00
W/THE FOLLOWING: LIVE ROLLER CONVEYOR
SYSTEM, TAPE DISPENSER, CASE SEALER,
PALLETIZER, CONTROL CONSOLES, STACKER,
BELT CONVEYOR, OSCILLOSCOPE, HEAT RUN,
ASSEMBLY CARTS, QA CONTROL PANELS,
(6) INSPECTION STATIONS, JIB FRAME HOIST,
LIFE TESTER, RAPID TURN OVER UNITS,
PNEUMATIC HAND TOOLS, CR4 LIFT MECHANISM,
ASSOCIATED EQUIPMENT
577 090 L 3 FINAL CHASSIS ASSEMBLY LINE COMPLETE $30,000.00 $45,000.00 $80,000.00
W/THE FOLLOWING: LIVE ROLLER CONVEYOR
SYSTEM, TAPE DISPENSER, CASE SEALER,
PALLETIZER, CONTROL CONSOLES, STACKER,
BELT CONVEYOR, OSCILLOSCOPE, HEAT RUN,
ASSEMBLY CARTS, QA CONTROL PANELS,
(6) INSPECTION STATIONS, JIB FRAME HOIST,
LIFE TESTER, RAPID TURN OVER UNITS,
PNEUMATIC HAND TOOLS, CR4 LIFT MECHANISM,
ASSOCIATED EQUIPMENT
578 091 L 4 FINAL CHASSIS ASSEMBLY LINE COMPLETE $30,000.00 $45,000.00 $80,000.00
W/THE FOLLOWING: LIVE ROLLER CONVEYOR
SYSTEM, TAPE DISPENSER, CASE SEALER,
PALLETIZER, CONTROL CONSOLES, STACKER,
BELT CONVEYOR, OSCILLOSCOPE, HEAT RUN,
ASSEMBLY CARTS, QA CONTROL PANELS,
(6) INSPECTION STATIONS, JIB FRAME HOIST,
LIFE TESTER, RAPID TURN OVER UNITS,
PNEUMATIC HAND TOOLS, CR4 LIFT MECHANISM,
ASSOCIATED EQUIPMENT
- ---------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $90,000.00 $135,000.00 $240,000.00
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 71
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------------
LINE #5 & #6
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
579 093 UNIVERSAL DUAL HEAD DIP INSERTER, $5,000.00 $6,000.00 $7,000.00
W/ASSOCIATED EQUIPMENT, JWD
580 094 UNIVERSAL DUAL HEAD DIP INSERTER, $3,500.00 $4,500.00 $5,500.00
W/ASSOCIATED EQUIPMENT, A05
581 095 UNIVERSAL DUAL HEAD DIP INSERTER, $3,500.00 $4,500.00 $5,500.00
W/ASSOCIATED EQUIPMENT, A06
582 096 UNIVERSAL DUAL HEAD DIP INSERTER, $3,500.00 $4,500.00 $5,500.00
W/ASSOCIATED EQUIPMENT, C14
583 097 UNIVERSAL DUAL HEAD DIP INSERTER, $3,500.00 $4,500.00 $5,500.00
W/ASSOCIATED EQUIPMENT, C15
584 134 UNIVERSAL DUAL HEAD DIP INSERTER, $3,500.00 $4,500.00 $5,500.00
W/ASSOCIATED EQUIPMENT, G03
585 135 UNIVERSAL DUAL HEAD RIVET INSERTER, $3,500.00 $4,500.00 $5,500.00
W/ASSOCIATED EQUIPMENT, G03
586 098 TDK AVISERT, MODEL #VC-5280R, W/LIGHT $22,500.00 $27,500.00 $35,000.00
CURTAIN, OPTICS, FEEDER, ASSOCIATED
EQUIPMENT, PROP #17309, #18, (1989)
587 099 TDK AVISERT, MODEL #VC-5280R, W/LIGHT $30,000.00 $35,000.00 $45,000.00
CURTAIN, OPTICS, FEEDER, ASSOCIATED
EQUIPMENT, PROP #N/A, #19, (1990)
588 100 TDK AVISERT, MODEL #VC-7280R, W/LIGHT $75,000.00 $100,000.00 $135,000.00
CURTAIN, OPTICS, FEEDER, ASSOCIATED
EQUIPMENT, PROP #19246, #37, (1996)
589 114 TDK AVISERT, MODEL #VC-7280R, W/LIGHT $75,000.00 $100,000.00 $135,000.00
CURTAIN, OPTICS, FEEDER, ASSOCIATED
EQUIPMENT, PROP #19241, #38, (1996)
- ---------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $228,500.00 $295,500.00 $390,000.00
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 72
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
LINES #5 & #6 (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
590 115 TDK AVISERT, MODEL #VC-5240R, W/LIGHT $27,500.00 $32,500.00 $43,000.00
CURTAIN, OPTICS, FEEDER, ASSOCIATED
EQUIPMENT, PROP #N/A, (1990)
591 116 TDK AVISERT, MODEL #VC-7280R, W/LIGHT $75,000.00 $100,000.00 $135,000.00
CURTAIN, OPTICS, FEEDER, ASSOCIATED
EQUIPMENT, PROP #19242, (1996) #39
592 117 TDK AVISERT, MODEL #VC-5280R, W/LIGHT $25,000.00 $32,000.00 $40,000.00
CURTAIN, OPTICS, FEEDER, ASSOCIATED
EQUIPMENT, PROP #19242, (1989), #16
593 138 TDK CIRCUIT INSERTER, MODEL #4H-YL-1, TDK-5, $6,000.00 $8,500.00 $12,000.00
W/AVISERT, VC-4H FEEDER, 2 AXIS DRO,
ASSOCIATED EQUIPMENT, S/N N/A (1983)
594 139 TDK CIRCUIT INSERTER, MODEL #4H-YL-1, TDK-6, $6,000.00 $8,500.00 $12,000.00
W/AVISERT, VC-4H FEEDER, 2 AXIS DRO,
ASSOCIATED EQUIPMENT, S/N N/A (1983)
595 140 TDK CIRCUIT INSERTER, MODEL #4H-YL-1, TDK-6, $6,000.00 $8,500.00 $12,000.00
W/AVISERT, VC-4H FEEDER, 2 AXIS DRO,
ASSOCIATED EQUIPMENT, S/N N/A (1983)
596 101 NITTO SCREEN PRINTING MACHINE, $10,000.00 $12,500.00 $15,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
597 118 NITTO SCREEN PRINTING MACHINE, $8,000.00 $10,000.00 $12,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
598 141 NITTO SCREEN PRINTING MACHINE, $8,000.00 $10,000.00 $12,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
599 102 NITTO CHIP SHOOTER, MODEL #STM-YII, W/PC $125,000.00 $160,000.00 $200,000.00
CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
S/N 39406153
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $296,500.00 $382,500.00 $493,000.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 73
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
LINE#5 & #6 (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
600 119 NITTO CHIP SHOOTER, MODEL #STM-YII, W/PC $125,000.00 $160,000.00 $200,000.00
CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
S/N 3960943, (1996)
601 120 NITTO CHIP SHOOTER, MODEL #STM-YII, W/PC $125,000.00 $160,000.00 $200,000.00
CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
S/N 3961146, PROP #19399, (1996)
602 142 NITTO CHIP SHOOTER, MODEL #STM-YII, W/PC $125,000.00 $160,000.00 $200,000.00
CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
S/N 39406151, PROP #19399, (1994)
603 103 VITRONICS CURING OVEN, W/PC CONTROLLER, $50,000.00 $60,000.00 $70,000.00
VENTILATION UNIT, CONVEYOR, ASSOCIATED
EQUIPMENT
604 104 (1997) SENSBEY WAVE SOLDER MACHINE, MODEL $65,000.00 $72,500.00 $80,000.00
#L-G-400NN, W/CONTROL CONSOLE, MAGNAHELIC
UNIT, CONVEYOR, S/N 972093
605 122 (1997) SENSBEY WAVE SOLDER MACHINE, MODEL $65,000.00 $72,500.00 $80,000.00
#L-G-400NN, W/CONTROL CONSOLE, MAGNAHELIC
UNIT, CONVEYOR, S/N 972094
606 121 CUREFLOW CURING OVEN, MODEL N/A, $30,000.00 $35,000.00 $40,000.00
W/CONVEYOR, CONTROLS, ASSOCIATED
EQUIPMENT, S/N 52602, PROP #19203, #26
607 143 CUREFLOW CURING OVEN, MODEL N/A, $10,000.00 $12,000.00 $14,000.00
W/CONVEYOR, CONTROLS, ASSOCIATED
EQUIPMENT, S/N 33116, PROP #19021, #N/A
608 123 SOLMACH 2 DECK COOLING CONVEYOR SYSTEM, $5,000.00 $6,000.00 $7,000.00
W/FANS, CONVEYOR, ASSOCIATED EQUIPMENT
609 105 CUSTOM PRINTED CIRCUIT BOARD TEST $2,500.00 $3,250.00 $4,000.00
STATION, W/ASSOCIATED EQUIPMENT
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $602,500.00 $741,250.00 $895,000.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 74
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
LINES #5 & #6 (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
610 106 CUSTOM PRINTED CIRCUIT BOARD TEST $2,500.00 $3,250.00 $4,000.00
STATION, W/ASSOCIATED EQUIPMENT
611 124 CUSTOM PRINTED CIRCUIT BOARD TEST $2,500.00 $3,250.00 $4,000.00
STATION, W/ASSOCIATED EQUIPMENT
612 125 CUSTOM PRINTED CIRCUIT BOARD TEST $2,500.00 $3,250.00 $4,000.00
STATION, W/ASSOCIATED EQUIPMENT
613 107 CUSTOM PRINTED CIRCUIT BOARD TEST $3,500.00 $4,500.00 $5,500.00
STATION, W/COMPUTER MONITOR, ELECTRONIC
COMPONENT TEST
614 108 CUSTOM PRINTED CIRCUIT BOARD TEST $3,500.00 $4,500.00 $5,500.00
STATION, W/COMPUTER MONITOR, ELECTRONIC
COMPONENT TEST
615 109 CUSTOM PRINTED CIRCUIT BOARD TEST $3,500.00 $4,500.00 $5,500.00
STATION, W/COMPUTER MONITOR, ELECTRONIC
COMPONENT TEST
616 126 CUSTOM PRINTED CIRCUIT BOARD TEST $3,500.00 $4,500.00 $5,500.00
STATION, W/COMPUTER MONITOR, ELECTRONIC
COMPONENT TEST
617 127 CUSTOM PRINTED CIRCUIT BOARD TEST $3,500.00 $4,500.00 $5,500.00
STATION, W/COMPUTER MONITOR, ELECTRONIC
COMPONENT TEST
618 128 CUSTOM PRINTED CIRCUIT BOARD TEST $3,500.00 $4,500.00 $5,500.00
STATION, W/COMPUTER MONITOR, ELECTRONIC
COMPONENT TEST
619 129 CUSTOM BUILT PC BOARD MOUNTING STATION $1,000.00 $1,500.00 $2,000.00
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $29,500.00 $38,250.00 $47,000.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 75
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
LINE #5 & #6 (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
620 131 L-5 CHASSIS ASSEMBLY LINE COMPLETE W/THE $15,000.00 $27,500.00 $50,000.00
FOLLOWING: COMPONENTS, CARRIERS,
ASSEMBLY BENCHES, SHUTTLE CONVEYOR,
SOLDER GUNS, STATIC GUARDS, STOOLS, FOOT
CONTROLS, PNEUMATIC HAND TOOLS, GLUE
DISPENSER, FIXTURES, BOARD FLIPPERS,
ASSOCIATED EQUIPMENT
621 130 L-6 CHASSIS ASSEMBLY LINE COMPLETE W/THE $15,000.00 $27,500.00 $50,000.00
FOLLOWING: COMPONENTS, CARRIERS,
ASSEMBLY BENCHES, SHUTTLE CONVEYOR,
SOLDER GUNS, STATIC GUARDS, STOOLS, FOOT
CONTROLS, PNEUMATIC HAND TOOLS, GLUE
DISPENSER, FIXTURES, BOARD FLIPPERS,
ASSOCIATED EQUIPMENT
622 110 UNIVERSAL MULTI-HEAD AXIAL INSERTER, MODEL $60,000.00 $70,000.00 $80,000.00
#JWI-DH3, W/SHUTTLE FEED & EXIT, PC, S/N
46224902, PROD #19516
623 112 UNIVERSAL MULTI-HEAD AXIAL INSERTER, MODEL $60,000.00 $70,000.00 $80,000.00
#JWI-DH3, W/SHUTTLE FEED & EXIT, PC, S/N
46224902, PROD #19514, (1997)
624 111 UNIVERSAL MULTI-HEAD AXIAL INSERTER, MODEL $57,500.00 $65,000.00 $75,000.00
#VCD-DHG, W/SHUTTLE FEED & EXIT, PC, S/N
21401, PROD #19245, (1996)
625 113 UNIVERSAL MULTI-HEAD AXIAL INSERTER, MODEL $57,500.00 $65,000.00 $75,000.00
#VCD-DHG, W/SHUTTLE FEED & EXIT, PC, S/N
21401, PROD #19238, (1996)
626 136 UNIVERSAL MULTI-HEAD AXIAL INSERTER, MODEL $57,500.00 $65,000.00 $75,000.00
#VCD-DHG, W/SHUTTLE FEED & EXIT, PC, S/N
21401, PROD #19237, (1996)
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $322,500.00 $390,000.00 $485,000.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 76
<PAGE>
GREENWICH INDUSTRIAL SERVICES
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
LINE #5 & #6 (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
627 137 UNIVERSAL MULTI-HEAD AXIAL INSERTER, MODEL $57,500.00 $65,000.00 $75,000.00
#VCD-DHG, W/SHUTTLE FEED & EXIT, PC, S/N
21401, PROD #19243, (1996)
628 133 M1 MODULE ASSEMBLY COMPLETE W/THE $7,500.00 $12,000.00 $25,000.00
FOLLOWING COMPONENTS: BELT CONVEYOR,
WORK BENCHES, PNEUMATIC HAND TOOLS,
LABEL PRINTER, SHUTTLES, REWORK STATION,
TEST, ASSOCIATED EQUIPMENT
629 144 ULTRAPAK ELECTROVERT WAVE SOLDER $5,000.00 $7,000.00 $9,500.00
MACHINE, W/WAVE DYNAMICS, CONTROL
CONSOLE
630 145 CUSTOM BUILT ICT #1 LMI, TEST BENCH $2,750.00 $3,250.00 $4,000.00
W/FIXTURE, CONTROL CONSOLE, ASSOCIATED
EQUIPMENT
631 146 CUSTOM BUILT ICT #1 LMI, TEST BENCH $2,750.00 $3,250.00 $4,000.00
W/FIXTURE, CONTROL CONSOLE, ASSOCIATED
EQUIPMENT
632 148 CUSTOM BUILT ICT #1 LMI, TEST BENCH $2,000.00 $2,500.00 $3,000.00
W/FIXTURE, CONTROL CONSOLE, ASSOCIATED
EQUIPMENT
633 149 CUSTOM BUILT ICT #1 LMI, TEST BENCH $2,750.00 $3,250.00 $4,000.00
W/FIXTURE, CONTROL CONSOLE, ASSOCIATED
EQUIPMENT
634 150 CUSTOM BUILT ICT #1 LMI, TEST BENCH $3,000.00 $4,000.00 $5,000.00
W/FIXTURE, CONTROL CONSOLE, ASSOCIATED
EQUIPMENT, W/LEADER SCOPE, POWER
635 147 NEFF 4 PORT CUSTOM COATING PRESS, 4.7 TONS, $3,000.00 $3,500.00 $4,000.00
W/HAND ACTIVATION, ASSOCIATED EQUIPMENT,
S/N 10176, (1995)
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $86,250.00 $103,750.00 $133,500.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 77
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
LINE #5 & #6 (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
636 168 NEFF 4 POST CUSTOM COATING PRESS, 4.7 TONS, $3,000.00 $3,500.00 $4,000.00
W/HAND ACTIVATION, ASSOCIATED EQUIPMENT,
S/N 10414, (1996)
637 171 NEFF 4 POST CUSTOM COATING PRESS, 3.61 $2,500.00 $3,000.00 $3,500.00
TONS, W/HAND ACTIVATION, ASSOCIATED
EQUIPMENT, S/N 10407, (1996)
638 172 NEFF 4 POST CUSTOM COATING PRESS, 3.61 $2,500.00 $3,000.00 $3,500.00
TONS, W/HAND ACTIVATION, ASSOCIATED
EQUIPMENT, S/N 10408, (1996)
639 173 NEFF 4 POST CUSTOM COATING PRESS, 3.61 $2,500.00 $3,000.00 $3,500.00
TONS, W/HAND ACTIVATION, ASSOCIATED
EQUIPMENT, S/N 10501, (1996)
640 174 NEFF 4 POST CUSTOM COATING PRESS, 3.61 $2,500.00 $3,000.00 $3,500.00
TONS, W/HAND ACTIVATION, ASSOCIATED
EQUIPMENT, S/N 10406, (1996)
641 187 NEFF 4 POST CUSTOM COATING PRESS, 3.61 $2,500.00 $3,000.00 $3,500.00
TONS, W/HAND ACTIVATION, ASSOCIATED
EQUIPMENT, S/N 10405
642 LINE M-2 MODULE GC ASSEMBLY LINE COMPLETE $30,000.00 $45,000.00 $60,000.00
W/THE FOLLOWING COMPONENTS: SHUTTLE
CONVEYOR SYSTEM, (7) TEST BENCHES,
STORAGE CONTAINER, POWER SUPPLIES,
OSCILLOSCOPE, DRYING CONVEYOR, ASSEMBLY
BENCHES, METRO SHELVES, LIFT MECHANISMS,
BELT CONVEYORS, WORK FIXTURES,
ASSOCIATED EQUIPMENT, (NOT IN SERVICE)
643 151 ELECTROVERT #9 WAVE SOLDER MACHINE, $5,000.00 $6,000.00 $7,500.00
ULTRA PAK 445, CONTROL CONSOLE,
ASSOCIATED EQUIPMENT (NOT IN SERVICE)
644 152 CUSTOM WAVE SOLDER MACHINE, W/CONTROL $6,000.00 $7,500.00 $9,000.00
CONSOLE (NOT IN SERVICE)
- ----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $56,500.00 $77,000.00 $98,000.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 78
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------------
LINE #5 (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
645 153 ASSEMBLY LINE M-3 MODULE, COMPLETE $5,500.00 $7,000.00 $9,000.00
W/SHUTTLE CONVEYOR, VENTILATION UNITS,
BOARD FLIPPERS, ICT #1 LM3 AUTO BOARD
CHECKER, TEST FIXTURE, SHIFTER, PNEUMATIC
HAND TOOLS, ZEBRA 140 LABELLER
646 158 ASSEMBLY LINE M-4 MODULE, COMPLETE $5,000.00 $6,500.00 $8,500.00
W/SHUTTLE CONVEYOR, VENTILATION UNITS,
BOARD FLIPPERS, ICT #1 LM3 AUTO BOARD
CHECKER, TEST FIXTURE, SHIFTER, PNEUMATIC
HAND TOOLS
647 156 RIGID MODEL #535 PIPE THREADER, W/TOOLING $1,500.00 $1,750.00 $2,000.00
& EQUIPMENT
648 154 CUSTOM BUILT SSB VIDEO LM-3 TEST BENCH, $1,500.00 $2,000.00 $3,000.00
W/BOARD TESTER, DIGITIZER, SIGNAL
GENERATOR, DC POWER SUPPLY
649 155 CUSTOM BUILT SSB AUDIO LM-3 TEST BENCH, $1,600.00 $2,100.00 $3,200.00
W/BOARD TESTER, DIGITIZER, SIGNAL
GENERATOR, DC POWER SUPPLY, ASSOCIATED
EQUIPMENT
650 157 ELECTROVERT WAVE SOLDER MACHINE, MODEL $8,000.00 $12,000.00 $16,000.00
ULTRAPAK #337, 15/F, W/CONVEYOR
651 159 ELECTROVERT WAVE SOLDER MACHINE, MODEL $8,000.00 $12,000.00 $16,000.00
ULTRAPAK #337, 15/F, W/CONVEYOR
652 192 ELECTROVERT WAVE SOLDER MACHINE, MODEL $10,000.00 $14,000.00 $18,000.00
ULTRAPAK #337, 15/FA, SYSTEM, W/CONVEYOR
653 198 ELECTROVERT WAVE SOLDER MACHINE, MODEL $10,000.00 $14,000.00 $18,000.00
ULTRAPAK #337, 15/FA SYSTEM, W/CONVEYOR
654 160 LSB REP LM-4 TEST BENCH W/LEADER SCOPE $1,250.00 $1,850.00 $2,500.00
- ---------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $52,350.00 $73,200.00 $96,200.00
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 79
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
April 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------
LINE #5 & #6 (CONT'D)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
655 161 LSB REP LM-4 TEST BENCH W/LEADER SCOPE $ 1,250.00 $ 1,850.00 $ 2,500.00
656 162 ASSEMBLY LINE M-5 & M-6 COMPLETE W/SHUTTLE $10,000.00 $16,000.00 $24,000.00
CONVEYORS, STOOLS, WORK BENCHES, BELT
CONVEYOR, PNEUMATIC PRESS, SOLDER GUNS,
ARBOR PRESS, RIVETER, (3) CUSTOM VT-2 BOARD
TEST BENCHES, W/OSCILLOSCOPES,
VENTILATION UNITS
657 164 CUSTOM PROLOGIC GZ MODULE, TEST BENCH $ 2,500.00 $ 3,000.00 $ 3,500.00
RACK #2, PROP #17595, W/UNIVERSAL SOURCE,
AUDIO ANALYZER
658 165 CUSTOM PROLOGIC GZ MODULE, TEST BENCH $ 2,500.00 $ 3,000.00 $ 3,500.00
RACK #2, PROP #N/A, W/UNIVERSAL SOURCE,
AUDIO ANALYZER
659 166 MICRO STAR SIGHT CUSTOM PROLOGIC GZ $ 3,000.00 $ 3,500.00 $ 4,000.00
MODULE, TEST BENCH RACK #2, PROP #N/A,
W/UNIVERSAL SOURCE, AUDIO ANALYZER
660 175 MICRO STAR SIGHT CUSTOM PROLOGIC GZ $ 3,000.00 $ 3,500.00 $ 4,000.00
MODULE, TEST BENCH RACK #2, PROP #N/A,
W/UNIVERSAL SOURCE, AUDIO ANALYZER
661 163 (1997) SOLMACH WAVE SOLDER MACHINE, DUO- $50,000.00 $55,000.00 $60,000.00
MAX WAVE, MODEL #SAS600, W/CONTROL
CONSOLE, ASSOCIATED EQUIPMENT, S/N
SM971002
662 170 (1997) SOLMACH WAVE SOLDER MACHINE, DUO- $50,000.00 $55,000.00 $60,000.00
MAX WAVE, MODEL #SAS600, W/CONTROL
CONSOLE, ASSOCIATED EQUIPMENT, S/N
SM971008
663 178 (1997) SOLMACH WAVE SOLDER MACHINE, DUO- $50,000.00 $55,000.00 $60,000.00
MAX WAVE, MODEL #SAS600, W/CONTROL
CONSOLE, ASSOCIATED EQUIPMENT, S/N
SM971004
- ---------------------------------------------------------------------------------------------------------------
PAGE TOTAL $172,250.00 $195,850.00 $221,500.00
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Page 80
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1,1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
664 186 (1997) SOLMACH WAVE SOLDER MACHINE, DUO- $50,000.00 $ 55,000.00 $ 60,000.00
MAX WAVE, MODEL #SAS600, W/CONTROL
CONSOLE, ASSOCIATED EQUIPMENT, S/N
SM971001
665 167 CUSTOM PRO 880 RACK 2, TEST MODULE, $ 3,000.00 $ 3,500.00 $ 4,000.00
W/LEADER 100 MH, OSCILLOSCOPE, COUNTER,
MULTI METER, POWER SOURCE, FIXTURE
666 169 ASSEMBLY LINE M-7 & M-8, COMPLETE $ 8,000.00 $ 12,000.00 $ 16,000.00
W/SHUTTLE CONVEYORS, ARBOR PRESSES, BELT
CONVEYORS, FANS, MULTI METERS, POWER
SUPPLIES, DIE LIFT TABLE, SOLDER GUNS, TEST
FIXTURES, ASSOCIATED EQUIPMENT
667 177 ASSEMBLY LINE M-9 & M-10, COMPLETE $ 8,000.00 $ 12,000.00 $ 16,000.00
W/SHUTTLE CONVEYORS, ARBOR PRESSES, BELT
CONVEYORS, FANS, MULTI METERS, POWER
SUPPLIES, DIE LIFT TABLE, SOLDER GUNS, TEST
FIXTURES, ASSOCIATED EQUIPMENT
668 185 ASSEMBLY LINE M-11 & M-12, COMPLETE $ 8,000.00 $ 12,000.00 $ 16,000.00
W/SHUTTLE CONVEYORS, ARBOR PRESSES, BELT
CONVEYORS, FANS, MULTI METERS, POWER
SUPPLIES, DIE LIFT TABLE, SOLDER GUNS, TEST
FIXTURES, ASSOCIATED EQUIPMENT, W/CUSTOM
TEST BENCH
669 191 ASSEMBLY LINE M-13, COMPLETE W/SHUTTLE $ 5,000.00 $ 7,000.00 $ 10,000.00
CONVEYORS, ARBOR PRESSES, BELT
CONVEYORS, FANS, MULTI METERS, POWER
SUPPLIES, DIE LIFT TABLE, SOLDER GUNS, TEST
FIXTURES, ASSOCIATED EQUIPMENT, W/CUSTOM
TEST BENCH
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $82,000.00 $101,500.00 $122,000.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 81
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
LINE #5 & #6 (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
670 ASSEMBLY LINE M-14 & M-15, COMPLETE $ 5,000.00 $ 7,000.00 $10,000.00
W/SHUTTLE CONVEYORS, ARBOR PRESSES, BELT
CONVEYORS, FANS, MULTI METERS, POWER
SUPPLIES, DIE LIFT TABLE, SOLDER GUNS, TEST
FIXTURES, ASSOCIATED EQUIPMENT, W/CUSTOM
TEST BENCH
671 176 CUSTOM ICT #1, LM-8, CUSTOM PCB TEST BENCH, $ 1000.00 $ 1,500.00 $ 2,000.00
W/MONITOR IND. COMPUTER
672 179 CUSTOM ICT #1, LM-8, CUSTOM PCB TEST BENCH, $ 1,000.00 $ 1,500.00 $ 2,000.00
W/MONITOR IND. COMPUTER
673 184 CUSTOM ICT #1, LM-8, CUSTOM PCB TEST BENCH, $ 1,000.00 $ 1,500.00 $ 2,000.00
W/MONITOR IND. COMPUTER
674 190 CUSTOM ICT #1, LM-8, CUSTOM PCB TEST BENCH, $ 1,000.00 $ 1,500.00 $ 2,000.00
W/MONITOR IND. COMPUTER
675 193 CUSTOM ICT #1, LM-13, CUSTOM PCB TEST $ 1,000.00 $ 1,500.00 $ 2,000.00
BENCH, W/MONITOR IND. COMPUTER
676 194 CUSTOM ICT #1 LM-13, CUSTOM PCB TEST $ 1,000.00 $ 1,500.00 $ 2,000.00
BENCH, W/MONITOR IND. COMPUTER
677 180 CUSTOM PCB TEST BENCH, COMPLETE $ 1,600.00 $ 2,000.00 $ 2,800.00
W/DIGITIZER, MULTI METER, PC
678 181 CUSTOM PCB TEST BOARD, COMPLETE $ 3,500.00 $ 4,500.00 $ 5,500.00
W/DIGITIZER MULTI METER, PC, POWER SUPPLY,
LEADER PATTERN GENERATOR, WAVE FORM
679 182 CUSTOM PCB TEST BOARD, COMPLETE $ 3,500.00 $ 4,500.00 $ 5,500.00
W/DIGITIZER MULTI METER, PC, POWER SUPPLY,
LEADER PATTERN GENERATOR, WAVE FORM
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $19,600.00 $27,000.00 $35,800.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 82
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
ITEM # ID # DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------
LINE #5 & #6 (CONT'D)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
680 183 CUSTOM PCB TEST BOARD, COMPLETE $3,500.00 $4,500.00 $5,500.00
W/DIGITIZER MULTI METER, PC, POWER SUPPLY,
LEADER PATTERN GENERATOR, WAVE FORM
681 188 CUSTOM PCB TEST FIXTURE, FNC 2 PID, LM-12, $4,000.00 $5,000.00 $6,000.00
W/2 LEADER PATTERN GENERATOR, MULTI
METER, DIGITIZER, FIXTURE, PC, DC POWER
SUPPLY
682 189 CUSTOM PCB TEST FIXTURE, FNC 2 PID, LM-12, $4,000.00 $5,000.00 $6,000.00
W/2 LEADER PATTERN GENERATOR, MULTI
METER, DIGITIZER, FIXTURE, PC, DC POWER
SUPPLY
683 195 CUSTOM PCB TEST FIXTURE, FUNC. #1, LM-13, $3,000.00 $3,750.00 $4,500.00
W/LEADER PATTERN GENERATOR, SORENSEN
DC, POWER SUPPLY, PL MITAC, FIXTURE, PC,
ASSOCIATED EQUIPMENT
684 196 CUSTOM PCB TEST FIXTURE, FUNC. #1, LM-13, $3,500.00 $4,500.00 $5,500.00
W/LEADER PATTERN GENERATOR, SORENSEN
DC, POWER SUPPLY, PL MITAC, FIXTURE, PC,
ASSOCIATED EQUIPMENT, W/LEADER, 100 MHZ
OSCILLOSCOPE, MULTI METER
685 199 CUSTOM FUNC. #1, LM-14 TEST BENCH, $1,000.00 $1,500.00 $2,000.00
W/LEADER, 15 MHZ OSCILLOSCOPE, POWER
SUPPLY FIXTURE
686 200 CUSTOM FUNC. #1, LM-14 TEST BENCH, $1,000.00 $1,500.00 $2,000.00
W/LEADER, 15 MHZ OSCILLOSCOPE, POWER
SUPPLY FIXTURE
687 201 CUSTOM VT2-9-1298, W/100 MHZ OSCILLOSCOPE, $2,500.00 $3,000.00 $3,500.00
LEADER PATTERN GENERATOR, PC, POWER
SUPPLY
- -------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $22,500.00 $28,750.00 $35,000.00
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 83
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------
ACI AREA
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
688 501 UNIVERSAL SEQUENCER #6 INSERTER, DIGITAL $65,000.00 $80,000.00 $100,000.00
DISPLAYS, COMPUTER CONTROLS, 44 LINES OF
INSERTIONS, S/N N/A
689 502 UNIVERSAL SEQUENCER #6 INSERTER, DIGITAL $65,000.00 $80,000.00 $100,000.00
DISPLAYS, COMPUTER CONTROLS, 44 LINES OF
INSERTIONS, S/N N/A
690 503 UNIVERSAL SEQUENCER #6 INSERTER, DIGITAL $65,000.00 $80,000.00 $100,000.00
DISPLAYS, COMPUTER CONTROLS, 44 LINES OF
INSERTIONS, S/N N/A
691 504 UNIVERSAL SEQUENCER DIGITAL DISPLAY, S/N $ 7,000.00 $10,000.00 $ 13,000.00
2596A-24400-CEHS-1862, 28 LINES OF INSERTION
692 505 UNIVERSAL SEQUENCER DIGITAL DISPLAY, S/N $ 7,000.00 $10,000.00 $ 13,000.00
2596A-24400-CEHS-2074, 28 LINES OF INSERTION
693 506 UNIVERSAL SEQUENCER DIGITAL DISPLAY, S/N $ 7,000.00 $10,000.00 $ 13,000.00
2596A-24400-CEHS-2070, 28 LINES OF INSERTION
694 507 UNIVERSAL SEQUENCER, 28 LINES OF INSERTION, $ 6,000.00 $ 9,000.00 $ 12,000.00
DIGITAL DISPLAYS, S/N 2596R-21900-CEHS-1483
695 508 UNIVERSAL SEQUENCER, 28 LINES OF INSERTION, $ 6,000.00 $ 9,000.00 $ 12,000.00
DIGITAL DISPLAYS, S/N 2596R-21900-CEHS-1485,
696 509 UNIVERSAL SEQUENCER, 28 LINES OF INSERTION, $ 6,000.00 $ 9,000.00 $ 12,000.00
DIGITAL DISPLAYS, S/N 2596R-21900-CEHS-1324
697 510 UNIVERSAL SEQUENCER, 28 LINES OF INSERTION, $ 6,000.00 $ 9,000.00 $ 12,000.00
DIGITAL DISPLAYS, S/N 2595-A-34400-CEHS-1851
698 511 UNIVERSAL SEQUENCER, 28 LINES OF INSERTION, $ 6,000.00 $ 9,000.00 $ 12,000.00
DIGITAL DISPLAYS, S/N 2596R-21900-CEHS-1323
- ----------------------------------------------------------------------------------------------------------------
PAGE TOTAL $246,000.00 $315,000.00 $399,000.00
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 84
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1,1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
ACL AREA (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
699 512 UNIVERSAL SEQUENCER, 28 LINES OF INSERTION, $ 6,000.00 $ 9,000.00 $12,000.00
DIGITAL DISPLAYS, S/N 2596R-21000-OBHS-1983
700 513 UNIVERSAL SEQUENCER, 28 LINES OF INSERTION, $ 6,000.00 $ 9,000.00 $12,000.00
DIGITAL DISPLAYS, S/N 2596D-21900-CEHS-1682
701 514 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 3,000.00 $ 4,000.00 $ 4,750.00
MACHINE, S/N 6295-30803801-CDH-1742, SINGLE
PHASE, 60 HZ
702 515 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 3,000.00 $ 4,000.00 $ 4,750.00
MACHINE, S/N 6295-30303301C-CDI-1-16, SINGLE
PHASE, 60 HZ
703 516 UNIVERSAL DUAL-IN-LiNE PACKAGING (DIP) $ 2,000.00 $ 2,500.00 $ 3,000.00
MACHINE, S/N 6295-20680D-CDH-1411, SINGLE
PHASE, 60 HZ
704 517 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 4,000.00 $ 4,500.00 $ 5,000.00
MACHINE, S/N 3793-30127900-EI-1004, SINGLE
PHASE, 60 HZ
705 518 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 1,000.00 $ 1,250.00 $ 1,500.00
MACHINE, SIN 6284-61249-CC-4229, SINGLE
PHASE, 60 HZ
706 519 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 750.00 $ 1,000.00 $ 1,250.00
MACHINE, S/N 6187-30127900-EI-1000, SINGLE
PHASE, 60 HZ, (4) SCRAP CONDITION
707 520 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 2,000.00 $ 2,500.00 $ 3,000.00
MACHINE, S/N 6295-20680D-CDH-1414, SINGLE
PHASE, 60 HZ
708 521 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 3,000.00 $ 4,000.00 $ 4,750.00
MACHINE, S/N 6295-30803301B-CDH-1782, SINGLE
PHASE, 60 HZ
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $30,750.00 $41,750.00 $52,000.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 85
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------
ACI AREA (CONT'D)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
709 522 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 3,000.00 $ 4,000.00 $ 4,750.00
MACHINE, S/N 6295-30803301C-CDH-1814, SINGLE
PHASE, 60 HZ
710 523 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 3,000.00 $ 4,000.00 $ 4,750.00
MACHINE, S/N 6295-30803301-CDH-1697, SINGLE
PHASE, 60 HZ
711 524 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 1,500.00 $ 2,000.00 $ 2,500.00
MACHINE, S/N 6295-206800-CDH-1405, SINGLE
PHASE, 60 HZ
712 525 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 3,000.00 $ 4,000.00 $ 4,750.00
MACHINE, S/N 3732-90000190-CDH-1678, SINGLE
PHASE, 60 HZ
713 526 UNIVERSAL WIRE/GAD INSERTER SINGLE AXIS, $ 3,000.00 $ 3,500.00 $ 4,000.00
S/N 3718-30212201-CWI-048
714 527 UNIVERSAL CHIP SHOOTER W/PASS-THROUGH $ 90,000.00 $105,000.00 $ 120,000.00
CAPABILITIES, BOARD STACKERS, ROLLER
CONVEYORS, COMPUTER CONTROLS,
S/N 6298-BO6247646321401
715 528 UNIVERSAL CHIP SHOOTER W/PASS-THROUGH $ 90,000.00 $105,000.00 $ 120,000.00
CAPABILITIES, BOARD STACKERS, ROLLER
CONVEYORS, COMPUTER CONTROLS,
S/N 6298-BO6229646321401
716 529 UNIVERSAL CHIP SHOOTER W/PASS-THROUGH $ 90,000.00 $105,000.00 $ 120,000.00
CAPABILITIES, BOARD STACKERS, ROLLER
CONVEYORS, COMPUTER CONTROLS,
S/N 6298-BO6248646321401
- --------------------------------------------------------------------------------------------------------------
PAGE TOTAL $283,500.00 $332,500.00 $ 380,750.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Page 86
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------
ACI AREA (CONT'D)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
717 530 UNIVERSAL CHIP SHOOTER W/PASS-THROUGH $90,000.00 $105,000.00 $120,000.00
CAPABILITIES, BOARD STACKERS, ROLLER
CONVEYORS, COMPUTER CONTROLS,
S/N 6298-BO623164321401
718 531 AVISERT VC-44, SEQUENCER, W/TDK (4) $ 4,000.00 $ 4,500.00 $ 5,000.00
DIRECTION REVERSE UNIT, CONTROL CONSOLE,
(40) INSERTION LINES
719 532 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 4,000.00 $ 4,500.00 $ 5,000.00
MACHINE, S/N 6292A-39526-4-41044908
720 533 UNIVERSAL DUAL-IN-LINE PACKAGING (DIP) $ 4,000.00 $ 4,500.00 $ 5,000.00
MACHINE, S/N 395-30803301C-CDH-1807
721 534 AVISERT VC-4H, SEQUENCER, W/TDK (4) $ 1,500.00 $ 2,000.00 $ 2,250.00
DIRECTION REVERSE UNIT, S/N N/A, CONTROL
CONSOLE
722 535 AVISERT VC-4H, SEQUENCER, W/TDK (4) $ 3,000.00 $ 3,500.00 $ 4,000.00
DIRECTION REVERSE UNIT, S/N N/A, CONTROL
CONSOLE
723 536 AVISERT VC-4H, SEQUENCER, W/PASS-THROUGH $ 4,000.00 $ 4,500.00 $ 5,000.00
CONVEYOR UNIT, S/N N/A, CONTROL CONSOLE
724 537 AVISERT VC-4H, SEQUENCER, W/PASS-THROUGH $ 4,000.00 $ 4,500.00 $ 5,000.00
CONVEYOR UNIT, S/N N/A, CONTROL CONSOLE
725 538 AVISERT VC-4H, SEQUENCER, W/PASS-THROUGH $ 5,000.00 $ 5,500.00 $ 6,000.00
CONVEYOR UNIT, S/N N/A, CONTROL CONSOLE
726 539 AVISERT VC-4H, SEQUENCER, W/PASS-THROUGH $ 5,000.00 $ 5,500.00 $ 6,000.00
CONVEYOR UNIT, S/N N/A, CONTROL CONSOLE
727 540 AVISERT VC-5280R CHIP SHOOTER, W/AVISERT $18,000.00 $ 20,000.00 $ 22,000.00
CNC CONTROLS, ELEVATOR BOARD STACKING
SYSTEM, CONVEYOR FEED/EXIT, (80) INSERTION
- ---------------------------------------------------------------------------------------------------------------
PAGE TOTAL $142,500.00 $164,000.00 $185,250.00
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Page 87
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
ACI AREA (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
728 541 AVISERT VC-4H SEQUENCER, W/TDK (4) $4,000.00 $4,500.00 $5,000.00
DIRECTION REVERSE UNIT, CONTROL PANEL,
DIGITAL DISPLAY, (40) INSERTION LINES, S/N N/A
729 542 AVISERT VC-4H SEQUENCER, W/TDK (4) $4,000.00 $4,500.00 $5,000.00
DIRECTION REVERSE UNIT, CONTROL PANEL,
DIGITAL DISPLAY, (40) INSERTION LINES, S/N N/A
730 543 AVISERT VC-4H SEQUENCER, W/PASS-THROUGH $4,000.00 $4,500.00 $5,000.00
CONVEYOR UNIT, CONTROL PANEL, DIGITAL
DISPLAY, (40) INSERTION LINES, S/N N/A
731 544 AVISERT VC-4H SEQUENCER, W/PASS-THROUGH $4,000.00 $4,500.00 $5,000.00
CONVEYOR UNIT, CONTROL PANEL, DIGITAL
DISPLAY, (40) INSERTION LINES, S/N N/A
- ----------------------------------------------------------------------------------------------------------------------
SMD #8
- ----------------------------------------------------------------------------------------------------------------------
732 545 AVIMOUNT/TDK RX-4A CHIP SHOOTER, S/N N/A, $60,000.00 $70,000.00 $80,000.00
W/TOUCHPAD DIGITAL CONTROLS, W/PROCESS
CONTROL, MODEL #315 ELEVATOR
733 546 NITTO AUTOMATIC SCREEN PRINTER, AUTO $10,000.00 $12,000.00 $14,000.00
FEED/EXIT RELEASE, GAUGES, ASSOCIATED
EQUIPMENT, W/BOARD STACKER, BOARD HEIGHT
ADJUSTER/ELEVATOR
734 547 (1995) NITTO STM-Y-II MASS PLACEMENT $125,000.00 $160,000.00 $210,000.00
MACHINE/CHIP SHOOTER, HOPPER (80)
INSERTION LINES, DIGITAL CONTROLS, S/N
7950101, PROP #18972
735 548 (2) MASS-PLACEMENT MACHINES/CHIP SHOOTER, $30,000.00 $35,000.00 $40,000.00
HOPPER, (40) INSERTION LINES EACH, SUNX
IMAGE SENSOR, W/1983 NITTO-ROGYO SCREEN
PRINTER, S/N #610348, (NOT IN SERVICE)
736 551 UV CURING OVEN, W/BOARD STACKER, $3,000.00 $3,500.00 $4,000.00
AUTOMATIC CONVEYOR
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $244,000.00 $298,500.00 $368,000.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 88
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
SMD #9
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
737 552 (1996) NITTO AUTOMATIC SCREEN PRINTER, AUTO $ 25,000.00 $ 30,000.00 $ 35,000.00
FEED/EXIT RELEASE
738 553 PROCESS CONTROL AUTOMATIC BOARD $ 3,000.00 $ 4,000.00 $ 5,000.00
ELEVATOR
739 554 (1996) AVIMOUNT TDK-RX11A, CHIP SHOOTER, (60) $ 80,000.00 $ 90,000.00 $100,000.00
INSERTING LINES, S/N #11047, PROP #19224
740 555 PROCESS CONTROL AUTOMATIC BOARD $ 3,000.00 $ 4,000.00 $ 5,000.00
ELEVATOR
741 556 (1994) NITTO STM-Y-II MASS PLACEMENT $120,000.00 $150,000.00 $165,000.00
MACHINE/CHIP SHOOTER, HOPPER (80)
INSERTION LINES, DIGITAL CONTROLS, S/N
39406150, PROP #18972
742 557 (1994) NITTO STM-Y-II MASS PLACEMENT $120,000.00 $150,000.00 $165,000.00
MACHINE/CHIP SHOOTER, HOPPER (80)
INSERTION LINES, DIGITAL CONTROLS, S/N
39406152, PROP #18972
743 558 VICTRONICS UNITHERM SMR-800, UV CURING OVEN $ 20,000.00 $ 25,000.00 $ 35,000.00
COMPLETE W/CNC CONTROLS
744 MISCELLANEOUS SUPPORT EQUIPMENT FOR SMD $ 7,000.00 $ 8,000.00 $ 9,000.00
#9 INCLUDES: BOARD STACKERS, ELEVATORS,
CONVEYOR, BOARD CARTS, ROOM ENCLOSURE
- ----------------------------------------------------------------------------------------------------------------------
SMD #10
- ----------------------------------------------------------------------------------------------------------------------
745 559 (1995) NITTO AUTOMATIC SCREEN PRINTER, AUTO $ 14,000.00 $ 16,000.00 $ 18,000.00
FEED/EXIT RELEASE
746 560 AVIMOUNT/TDK RX-4A CHIP SHOOTER, S/N N/A, $ 80,000.00 $ 90,000.00 $100,000.00
W/TOUCHPAD DIGITAL CONTROLS, W/PROCESS
CONTROL, MODEL #315 ELEVATOR, (1995),
PROP #19014
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $472,000.00 $567,000.00 $637,000.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 89
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------
SMD #10 (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
747 561 PROCESS CONTROL AUTOMATIC BOARD $ 3,000.00 $ 4,000.00 $ 5,000.00
ELEVATOR, S/N #RX44437
748 562 (1995) NITTO KOGYO MASS PLACEMENT $125,000.00 $160,000.00 $200,000.00
MACHINE/CHIP SHOOTER, HOPPER (80)
INSERTION LINES, DIGITAL CONTROLS, S/N
3961045, PROP #18972
749 563 (1996) NITTO STM-Y-II MASS PLACEMENT $140,000.00 $165,000.00 $215,000.00
MACHINE/CHIP SHOOTER, HOPPER (80)
INSERTION LINES, DIGITAL CONTROLS, S/N
3950102, PROP #18973
750 564 ETS UV CURING OVEN $ 7,000.00 $ 9,000.00 $ 11,000.00
751 MISCELLANEOUS SUPPORT EQUIPMENT FOR SMD $ 7,000.00 $ 8,000.00 $ 9,000.00
#10 INCLUDES: BOARD STACKERS, ELEVATORS,
CONVEYOR, BOARD CARTS, ROOM ENCLOSURE
- ----------------------------------------------------------------------------------------------------------------------
SMD #11
- ----------------------------------------------------------------------------------------------------------------------
752 565 NITTO AUTOMATIC SCREEN PRINTER $ 40,000.00 $ 45,000.00 $ 50,000.00
W/CONTROLS, W/(1989) NITTO TRIPLE STATION
MASS PLACEMENT MACHINE/CHIP SHOOTER, STM
3, (80) INSERTION LINES EACH, S/N N/A,
W/SOLDER, S/N #2990240, S/N #3890428
753 570 NITTO DUAL STATION MASS PLACEMENT $ 30,000.00 $ 35,000.00 $ 40,000.00
MACHINE/CHIP SHOOTER, STM, (80) INSERTION
LINES EACH
754 572 UV CURING OVEN $ 3,000.00 $ 3,500.00 $ 4,000.00
755 MISCELLANEOUS SUPPORT EQUIPMENT FOR SMD $ 4,000.00 $ 5,000.00 $ 6,000.00
#11 INCLUDES: BOARD STACKERS, ELEVATORS,
CONVEYOR, BOARD CARTS, ROOM ENCLOSURE
- ----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $359,000.00 $434,500.00 $540,000.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 90
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
SMD #12
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
756 573 MPM AUTOMATIC SCREEN PRINTER, MODEL #AP- $8,000.00 $10,000.00 $12,000.00
20, S/N #5039
757 574 (1991) TDK AVIMOUNT VACUUM MOUNT/IC $60,000.00 $70,000.00 $85,000.00
PLACEMENT, MODEL #CX-5030DV, S/N #CX-51178,
PROP #17975, W/TOKYO ELECTRONIC CAMERA
CONTROL UNIT, W/VMS-500A, MONITOR,
TOUCH PAD, DIGITAL CONTROLS
758 575 VITRONICS UV CURING OVEN $12,000.00 $14,000.00 $16,000.00
759 MISCELLANEOUS SUPPORT EQUIPMENT FOR SMD $4,000.00 $5,000.00 $6,000.00
#12 INCLUDES: BOARD STACKERS, ELEVATORS,
CONVEYOR, BOARD CARTS, ROOM ENCLOSURE
- --------------------------------------------------------------------------------------------------------------------
SMD #13
- --------------------------------------------------------------------------------------------------------------------
760 576 TDK AVIMOUNT BOARD STACKER, W/CONVEYOR, $4,000.00 $4,500.00 $5,000.00
MODEL #SYB-51, S/N #7M0010
761 577 MPM AUTOMATIC SCREEN PRINTER, $40,000.00 $50,000.00 $60,000.00
MODEL #UP2030, S/N #20507, W/DISPENSER
REGULATOR, CNC CONTROLS, PROP #19269
762 578 (1996) TDK AVIMOUNT CHIP SHOOTER, MODEL $90,000.00 $105,000.00 $120,000.00
#RX-11A, S/N #RX-11048, (60) INSERTION LINES,
CNC CONTROLS, PROP #19225
763 579 (1996) TDK AVIMOUNT VACUUM MOUNT/IC $80,000.00 $95,000.00 $110,000.00
PLACEMENT, MODEL #SS-2, S/N #SS-28011, W/CNC
CONTROLS, PROP #19226
764 580 VITRONICS UNITHERM SMR-800 UV CURING OVEN $20,000.00 $22,000.00 $24,000.00
765 581 TDK AVIMOUNT BOARD STACKER, W/CONVEYOR, $4,000.00 $4,500.00 $5,000.00
MODEL #SYB-51, S/N #7M0010
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $322,000.00 $380,000.00 $443,000.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 91
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -----------------------------------------------------------------------------------------------------------------------
SMD #13 (CONT'D)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
766 MISCELLANEOUS SUPPORT EQUIPMENT FOR SMD $4,000.00 $5,000.00 $6,000.00
#12 INCLUDES: BOARD STACKERS, ELEVATORS,
CONVEYOR, BOARD CARTS, ROOM ENCLOSURE
- -----------------------------------------------------------------------------------------------------------------------
ACI-EQUIPMENT PENDING DISPOSITION
- -----------------------------------------------------------------------------------------------------------------------
767 489 UNIVERSAL DIP MACHINE W/DUAL INSERTION $1,000.00 $1,500.00 $2,000.00
LINES, PROP #A-03
768 490 UNIVERSAL DIP MACHINE W/DUAL INSERTION $1,000.00 $1,500.00 $2,000.00
LINES, PROP #A-02
769 491 UNIVERSAL DIP MACHINE W/DUAL INSERTION $1,000.00 $1,500.00 $2,000.00
LINES, PROP #A-01
770 492 UNIVERSAL DIP MACHINE W/DUAL INSERTION $1,000.00 $1,500.00 $2,000.00
LINES, PROP #A-04
771 493 UNIVERSAL DIP MACHINE W/DUAL INSERTION $1,000.00 $1,500.00 $2,000.00
772 494 UNIVERSAL HEAD INSERTER, ONE INSERTION $1,000.00 $1,500.00 $2,000.00
LINE, PROP #GTA5
773 495 UNIVERSAL SEQUENCER, MACHINE S/N #2596A- $2,000.00 $3,000.00 $4,000.00
244000-LEHS-1912, PROP #13019
774 496 NNN CHIP SHOOTER SINGLE STATION, $12,500.00 $16,000.00 $21,000.00
W/CONTROL CONSOLE, ASSOCIATED EQUIPMENT
775 497 TECH DEVICES WAVE SOLDER MACHINE, MODEL $3,000.00 $4,000.00 $5,000.00
SPECIAL-R-DUAL-15", S/N #3596-4325, (NOT IN
SERVICE)
776 498 LANTECH TWO STATION ROTARY PALLET $3,000.00 $4,000.00 $5,000.00
WRAPPER
- -----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $30,500.00 $41,000.00 $53,000.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 92
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -----------------------------------------------------------------------------------------------------------------------
ACI EQUIPMENT PENDING DISPOSITION (CONT'D)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
777 MISCELLANEOUS EQUIPMENT IN STORAGE $8,000.00 $10,000.00 $12,000.00
INCLUDING: CIRCUIT BOARD TEST EQUIPMENT
INCLUDING, TEST BEDS, TEST FIXTURES,
CONTROL CABINETS, OSCILLOSCOPES,
MONITORS, POWER SUPPLIES, SIGNAL &
PATTERN GENERATOR, AUDIO ANALYZER, METRO
CARTS
778 MISCELLANEOUS SUPPORT EQUIPMENT $50,000.00 $90,000.00 $140,000.00
INCLUDING BUT NOT LIMITED TO: WORK
BENCHES, STOOLS, BENCH VISES, PERSONAL
COMPUTERS, METRO STORAGE SHELVES, DESKS,
SWIVEL CHAIRS, PALLET JACK, WATER COOLERS,
SHOP VACUUMS, INVENTORY CARTS, LOCKERS,
FILE CABINETS, TABLES, PCB BRUSHES,
FEEDERS, GAUGES, PALLET RACKING, ROLLER
CONVEYORS, TOLEDO HONEST WEIGHT SCALE,
METAL LOCKERS, PNEUMATIC TOOLS, METERS,
AIR COMPRESSORS, STAINLESS STEEL TABLES,
HAND TOOLS, TEST STATIONS, INSPECTION
STATION, SPARE PARTS
- -----------------------------------------------------------------------------------------------------------------------
DOC DEPARTMENT
- -----------------------------------------------------------------------------------------------------------------------
779 484 UN HOLTZ DICKIE DROP VIBRATION TEST UNIT, $50,000.00 $65,000.00 $80,000.00
MODEL #R-150, S/N #712, PROP #19088
W/CONTROL CONSOLE, PRINTER, BLOWER,
ASSOCIATED EQUIPMENT
780 935 CUSTOM CRATE DROP TEST MECHANISM, $2,000.00 $2,750.00 $3,500.00
W/GAYNES CONTROL CONSOLE, 1000 VM
781 MISCELLANEOUS SUPPORT EQUIPMENT $3,000.00 $4,000.00 $5,000.00
INCLUDING: SOUND BOOTH, VARIABLE
TRANSFORMERS MULTI METERS, POWER
SUPPLY, (2) DROP MECHANISMS, PERSONAL
COMPUTER, PRINTER, VIBRATION TEST UNIT,
BLOWER, CM MAX CHAIN HOIST, 200 LBS CAP.
- -----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $113,000.00 $171,750.00 $240,500.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 93
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- -----------------------------------------------------------------------------------------------------------------------
OOC DEPARTMENT (CONT'D)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
782 499 PRO TECH FOAM PUMPING STATION, MODEL $ 2,000.00 $ 2,500.00 $ 3,000.00
#2100, W/ASSOCIATED EQUIPMENT, S/N N/A
783 500 ASSEMBLY REWORK LINE, COMPLETE W/24" X 50' $ 1,000.00 $ 1,500.00 $ 2,000.00
BELT, CONVEYOR, LIGHT, VENTILATION UNITS,
(2) PRO TECH E2 PACKERS
784 864 WHITE OLIVER LPG FORKLIFT UNIT, MODEL #2-44 $ 6,000.00 $ 8,000.00 $ 11,000.00
FL, W/PNEUMATIC TIRES, OROP, DUAL MAST, #100,
S/N #214-433-483
- -----------------------------------------------------------------------------------------------------------------------
MODEL SHOP
- -----------------------------------------------------------------------------------------------------------------------
785 866 JONES & LAMSON 14" OPTICAL COMPARATOR TC- $ 2,000.00 $ 3,000.00 $ 4,000.00
14 MEASURING MACHINE, S/N E40328
786 867 VULCAN-VERTICAL MACHINING CENTER, S/N $ 20,000.00 $ 25,000.00 $ 30,000.00
17362, 12 ATC, W/DELTA 10 CNC CONTROLS
787 868 VULCAN-VERTICAL MACHINING CENTER, S/N N/A, $ 20,000.00 $ 25,000.00 $ 30,000.00
12 ATC, W/DELTA 10 CNC CONTROLS
788 869 VULCAN-VERTICAL MACHINING CENTER, S/N N/A, $ 20,000.00 $ 25,000.00 $ 30,000.00
12 ATC, W/DYNAPATH SYSTEM 10 CONTROLS
789 870 ULTRAMILL-VERTICAL MACHINING CENTER, $ 25,000.00 $ 30,000.00 $ 35,000.00
MODEL #5000, W/DYNAPATH DELTA CNC
CONTROLS, S/N N/A
790 871 JOURNEYMAN VERTICAL MILLING MACHINE, $ 5,000.00 $ 6,000.00 $ 7,000.00
W/CNC CONTROLS, 11" X 48" TABLE, MODEL #200R
791 872 WOTAN HORIZONTAL BORING MACHINE, MODEL $ 20,000.00 $ 25,000.00 $ 30,000.00
#B75, S/N 01114, 31" X 40" TABLE, HEAVY DUTY
KNEE, W/ACU-RITE III DRO,PENDANT CONTROLS
792 874 DOALL SURFACE GRINDER, MODEL #DH-612, $ 2,500.00 $ 3,000.00 $ 3,500.00
S/N 138-682810, W/6" X 12" PERMANENT
MAGNETIC CHUCK
- -----------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $123,500.00 $154,000.00 $185,500.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 94
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
MODEL SHOP (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
793 875 SUPERTEC SURFACE GRINDER, MODEL #P-1022A, $4,000.00 $4,500.00 $5,000.00
S/N P38513, W/WALKER CERAMAX 8" X 18"
PERMANENT MAGNETIC CHUCK
794 876 HARIG-SUPER 618 SURFACE GRINDER, S/N N/A, $3,000.00 $3,500.00 $4,000.00
W/6" X 18" PERMANENT MAGNETIC CHUCK
795 877 HARIG-618W SURFACE GRINDER, S/N N/A, W/6" X $2,500.00 $3,000.00 $3,500.00
18" PERMANENT MAGNETIC CHUCK
796 878 MILLPORT SURFACE GRINDER S/N N/A, MODEL $4,000.00 $4,500.00 $5,000.00
#2A, 8" X 18" PERMANENT MAGNETIC CHUCK
797 879 HARIG-618W SURFACE GRINDER, S/N N/A, W/6" X $2,000.00 $2,500.00 $3,000.00
18" PERMANENT MAGNETIC CHUCK
798 880 MILLPORT SURFACE GRINDER S/N N/A, MODEL $4,000.00 $4,500.00 $5,000.00
#2A, 8" X 18" PERMANENT MAGNETIC CHUCK
799 911 1991 KIKINOA SURFACE GRINDER, MODEL #URB- $14,000.00 $18,000.00 $20,000.00
1000-A, S/N 7735, W/12" X 39 1/2" ELECTRO
MAGNETIC CHUCK
800 881 HARDING TOOLROOM LATHE W/ASSOCIATED $2,000.00 $2,500.00 $3,000.00
EQUIPMENT
801 882 HARDING TOOLROOM LATHE W/ASSOCIATED $1,500.00 $2,000.00 $2,500.00
EQUIPMENT
802 883 DOALL ML VERTICAL BANK SAW, 16" THROAT, $1,500.00 $1,750.00 $2,000.00
W/WELDER ATTACHMENT, S/N 5463364C
803 884 DOALL ML VERTICAL BANK SAW, 15" THROAT, $1,250.00 $1,500.00 $1,750.00
W/WELDER ATTACHMENT, S/N 146-59172, MODEL
#1612-U
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $39,750.00 $48,250.00 $54,750.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 95
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
MODEL SHOP (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
804 885 FEELER SERIES II, TOOLROOM LATHE $7,000.00 $8,000.00 $9,000.00
W/TOOLPOST
805 886 MILLPORT-ENGINE LATHE, MODEL #1540, S/N 1193, $4,000.00 $4,750.00 $5,500.00
CAPACITY 15" SWING, 40" CENTERS
806 887 MILLPORT-ENGINE LATHE, MODEL #1540, S/N N/A, $3,500.00 $4,000.00 $4,500.00
CAPACITY 15" SWING, 40" CENTERS
807 888 MILLPORT-ENGINE LATHE, MODEL #1540, S/N N/A, $4,000.00 $4,750.00 $5,500.00
CAPACITY 15" SWING, 40" CENTERS
808 889 MILLPORT ENGINE LATHE, MODEL #SJ1640G, S/N $5,500.00 $6,000.00 $6,500.00
770136, 15" SWING, 40" CC, W/MINI WIZARD 2 AXIS
DRO
809 890 MILLPORT ENGINE LATHE, MODEL #SJ1640G, S/N $5,500.00 $6,000.00 $6,500.00
770137, 15" SWING, 40" CC, W/ACU-RITE, DRO
810 891 1984 MILLPORT-ENGINE LATHE, MODEL #SJ1540G, $5,500.00 $6,000.00 $6,500.00
S/N 840906, W/ANILAM MICRO WIZARD DRO, 15"
SWING, 40" CC
811 892 MILLPORT VERTICAL MILLING MACHINE, 9" X 42" $2,500.00 $3,000.00 $3,500.00
TABLE, SERVOTYPE 140 POWER FEED, ACU-RITE
DRO, S/N N/A
812 893 MILLPORT VERTICAL MILLING MACHINE 2 HP, $3,500.00 $4,000.00 $4,500.00
W/MINI-WIZARD DRO, S/N N/A
813 894 MILLPORT VERTICAL MILLING MACHINE, 3 HP, 9" X $2,000.00 $2,500.00 $3,000.00
42" TABLE, ACU-RITE DRO, S/N N/A, POWER FEED
814 895 BRIDGEPORT VERTICAL MILLING MACHINE, 2 HP, $4,000.00 $4,500.00 $5,000.00
9" X 42" TABLE, W/ACU-RITE II DRO, POWER FEED,
S/N 146084
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $47,000.00 $53,500.00 $60,000.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 96
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
MODEL SHOP (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
815 896 BRIDGEPORT VERTICAL MILLING MACHINE, $3,000.00 $3,500.00 $4,000.00
1 1/2 HP, W/ACU-RITE III DRO, S/N N/A
816 897 BRIDGEPORT VERTICAL MILLING MACHINE, $3,000.00 $3,500.00 $4,000.00
1 1/2 HP, W/ACU-RITE III DRO, S/N N/A
817 898 BRIDGEPORT VERTICAL MILLING MACHINE, 9" X $3,000.00 $3,500.00 $4,000.00
42", POWER FEED, S/N 219788
818 899 MILLPORT VERTICAL MILLING MACHINE, 9' X 42", $3,000.00 $3,500.00 $4,000.00
POWER FEED, S/N N/A
819 900 MILLPORT VERTICAL MILLING MACHINE, $3,000.00 $3,500.00 $4,000.00
W/BRIDGEPORT SERIES I HEAD, 2 HP, 9" X 42"
TABLE, POWER FEED, S/N N/A
820 901 BRIDGEPORT SERIES I VERTICAL MILLING $4,000.00 $5,000.00 $6,000.00
MACHINE, 2 HP, 9" X 42" TABLE, S/N 218910,
POWER FEED
821 902 BRIDGEPORT SERIES I VERTICAL MILLING $2,000.00 $2,250.00 $2,500.00
MACHINE, 2 HP, 9" X 42" TABLE, S/N96394,
W/SHAPER
822 903 MILLPORT VERTICAL MILLING MACHINE, S/N N/A, $2,000.00 $2,250.00 $2,500.00
9" X 42" TABLE, MITUTOYO DRO, TYPE 140 SERVO,
POWER FEED
823 904 MILLPORT VERTICAL MILLING MACHINE, 2 HP, S/N $2,000.00 $2,250.00 $2,500.00
N/A 9" X 42" TABLE, MITUTOYO DRO, TYPE 140
SERVO POWER FEED
824 905 BRIDGEPORT VERTICAL MILLING MACHINE, 1/2 HP, $2,500.00 $3,000.00 $3,250.00
S/N N/A, 9" X 42" TABLE, POWER FEED ACCU-RITE
825 906 MILLPORT VERTICAL MILLING MACHINE, 3 HP, S/N $4,000.00 $4,500.00 $5,000.00
N/A, 9" X 42" TABLE, POWER FEED ACCU-RITE III
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $31,500.00 $36,750.00 $41,750.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 97
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
MODEL SHOP (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
826 907 MILLPORT VERTICAL MILLING MACHINE, 3 HP, S/N $4,000.00 $4,500.00 $5,000.00
N/A, 9" X 42" TABLE, POWER FEED ACCU-RITE III
827 908 MILLPORT VERTICAL MILLING MACHINE, S/N N/A $4,000.00 $4,500.00 $5,000.00
828 909 MILLPORT VERTICAL MILLING MACHINE, S/N N/A $4,000.00 $4,500.00 $5,000.00
829 911 1981 LVD 50 TON PRESS BRAKE, MODEL #55-BH- $14,000.00 $16,000.00 $18,000.00
04N, S/N10119
830 912 CHICAGO DREIS & KRUMP PRESS BRAKE, $13,000.00 $15,000.00 $16,000.00
W/MULTI DRIVE SPEED CONTROLS, S/N N/A
831 913 DOALL VERTICAL BAND SAW, MODEL #2012-2H, $2,500.00 $3,000.00 $3,500.00
S/N 383-82212, 20" THROAT W/WELDING
ATTACHMENT
832 914 HORIZONTAL METAL CUTTING BAND SAW, S/N $500.00 $750.00 $1,000.00
11089
833 915 WILSON/ROCKWELL HARDNESS TESTER, SERIES $1,000.00 $1,250.00 $1,500.00
500, MODEL #504-R, S/N 80110404
834 937 WYSONG & MILES COMPANY SQUARING SHEAR, $1,500.00 $2,250.00 $3,000.00
S/N 552-A, 5' WIDTH CAPACITY
835 941 GURU CUSTOM GAP BED ENGINE LATHE, MODEL $10,000.00 $11,000.00 $13,000.00
#19-41, S/N 2000350, 75" CC
836 942 MILLER SYNCROWAVE 300 WELDER $1,000.00 $1,250.00 $1,500.00
837 943 HENDRICK 53" CAPACITY METAL CUTTING BAND $1,000.00 $1,250.00 $1,500.00
SAW, W/BALDOR MOTOR
838 944 STRIPPIT CNC TURRET TYPE PUNCH PRESS, $15,000.00 $17,000.00 $20,000.00
MODEL #FC-750, S/N 6543080, 20 ATC
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $71,500.00 $82,250.00 $94,000.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 98
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
MODEL SHOP (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
839 946 DIACRO PRESS BRAKE W/ASSOCIATED EQUIPMENT, $4,000.00 $5,000.00 $6,000.00
S/N 1715
840 947 STRIPPIT CNC TURRET TYPE PUNCH PRESS, MODEL $15,000.00 $17,000.00 $20,000.00
#FC-750, S/N 04922880R, 20 ATC
841 MISCELLANEOUS SUPPORT EQUIPMENT INCLUDING BUT $30,000.00 $37,500.00 $45,000.00
NOT LIMITED TO: RAW MATERIAL, PARTS BINS,
MISCELLANEOUS TOOLING, COLLETS, MILLING VISES,
TAPERS, POWER MAX 800 HYPERTHERM ARC WELDERS,
BENCH VISES, DISC SANDERS, OVENS, METAL CUTTING
SAWS, CIRCULAR SAWS, METAL CABINETS, PALLET
RACKING, SANDBLAST CABINET, CORNER
NOTCHERS, ARBOR PRESS, "H" FRAME PRESS, PRESS
BRAKE DIES, PUNCH #2, DBL END GRINDERS,
PERISHABLE TOOLING
842 MODEL SHOP OFFICE AREA INCLUDES METAL DESKS, $800.00 $1,100.00 $1,500.00
LOCKERS, PLOTTER, (4) PERSONAL COMPUTERS, TYPEWRITER
- --------------------------------------------------------------------------------------------------------------------
SHIPPING DOCK
- --------------------------------------------------------------------------------------------------------------------
843 MISCELLANEOUS SUPPORT EQUIPMENT INCLUDING: PALLET $750.00 $1,000.00 $1,250.00
JACKS, DOCK LIGHTS, DESK, PUSH CARTS
- --------------------------------------------------------------------------------------------------------------------
MATERIAL HANDLING MAINTENANCE
- --------------------------------------------------------------------------------------------------------------------
844 MISCELLANEOUS SUPPORT EQUIPMENT INCLUDING BUT NOT $4,000.00 $4,750.00 $5,500.00
LIMITED TO: GANTRY FRAME BENCH VISES, WORK BENCHES,
GRINDERS, PEDESTAL DRILL PRESS, (2) STRUT
COMPRESSION UNITS, ABRASIVE CUT OFF SAW, BATTERY
CHARGERS, ASSORTED HAND TOOLS, CHAIN HOIST, DESKS,
PRINTERS, LIFTS, SPARE PARTS, (2) PERSONAL COMPUTERS,
MILLER TIG WELDER, MOTORS, 200 AMP WELDING POWER
SOURCE, (5) FORKLIFT TRUCKS (NOT IN SERVICE)
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $54,550.00 $66,350,00 $79,250,00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PAGE 99
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- -------------------------------------------------------------------------------------------------------------------------
MATERIAL HANDLING MAINTENANCE (CONT'D)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
845 202 CLAUSING VERTICAL MILLING MACHINE, S/N N/A $1,000.00 $1,200.00 $1,400.00
846 203 PETTIBONE ELECTRIC 3 WHEEL FORKLIFT TRUCK $1,250.00 $1,500.00 $1,750.00
847 204 TENNENT RIDE-ON LPG FLOOR SWEEPER, $8,000.00 $10,000.00 $14,000.00
MODEL #528, S/N 528-32502, PROP #19187
848 206 NISSAN ELECTRIC FORKLIFT 5,000 LB, MODEL N/A, $4,000.00 $4,500.00 $5,000.00
W/CUSHION TIRES, DUAL MAST OROP, S/N N/A
849 205 NISSAN ELECTRIC FORKLIFT, MODEL N/A, $2,500.00 $3,000.00 $3,500.00
W/CUSHION TIRES, TRIPLE MAST OROP, S/N N/A
850 939 NISSAN ELECTRIC FORKLIFT, MODEL N/A, $2,500.00 $3,000.00 $3,500.00
W/CUSHION TIRES, TRIPLE MAST OROP,S/N N/A
851 488 NISSAN ELECTRIC FORKLIFT TRUCK, MODEL N/A $2,500.00 $3,000.00 $3,5000.00
W/CUSHION TIRES, TRIPLE MAST OROP, S/N N/A
852 207 TOYOTA ELECTRIC FORKLIFT TRUCK, 3,000 LB $3,500.00 $4,000.00 $4,500.00
CAPACITY, OROP CUSHION TIRES, DUAL MAST,
S/N N/A
- -------------------------------------------------------------------------------------------------------------------------
WAREHOUSE
- -------------------------------------------------------------------------------------------------------------------------
853 584 1994 RAYMOND 537 CSR-30T, NARROW AISLE $45,000.00 $55,000.00 $65,000.00
FORKLIFT, S/N ###-##-####, 3,000 LB CAPACITY
854 585 1994 RAYMOND 537 CSR-30T, NARROW AISLE $45,000.00 $55,000.00 $65,000.00
FORKLIFT, S/N ###-##-####, 3,000 LB CAPACITY
855 587 1994 RAYMOND 537 CSR-30T, NARROW AISLE $45,000.00 $55,000.00 $65,000.00
FORKLIFT, S/N 537-94-01120, 3,000 LB CAPACITY
856 588 1994 RAYMOND 537 CSR-30T, NARROW AISLE $45,000.00 $55,000.00 $65,000.00
FORKLIFT, S/N 537-94-01117, 3,000 LB CAPACITY
- -------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $205,250.00 $250,200.00 $297,150.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 100
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------------
WAREHOUSE (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
857 591 NISSAN ELECTRIC FORKLIFT 5,000 LB CAPACITY $3,000.00 $3,250.00 $3,500.00
858 592 CLARK ELECTRIC FORKLIFT, 5,695 HOURS $2,000.00 $2,250.00 $2,500.00
859 594 CLARK ELECTRIC FORKLIFT, 6,701 HOURS $1,500.00 $1,750.00 $2,000.00
860 595 CLARK ELECTRIC FORKLIFT, 8,371 HOURS, S/N $1,500.00 $2,000.00 $2,500.00
38B02-002323
861 596 TOYOTA ELECTRIC FORKLIFT, 223 HOURS, S/N $3,000.00 $3,500.00 $4,000.00
2FBC815-119-10
862 597 NISSAN ELECTRIC FORKLIFT, MODEL #C4B02, S/N $6,000.00 $6,500.00 $7,000.00
N/A, W/CLAMP ATTACHMENT
863 598 NISSAN ELECTRIC FORKLIFT, MODEL #36V, 2,500 $6,000.00 $6,500.00 $7,000.00
LB CAPACITY, PROP #381124, W/CLAMP
864 487 CAT ELECTRIC FORKLIFT, 3,000 LB CAPACITY, $1,500.00 $2,000.00 $2,500.00
MODEL #MC30, S/N 41W04247
865 486 TOYOTA ELECTRIC FORKLIFT, MODEL N/A, S/N $1,000.00 $1,500.00 $2,000.00
N/A
866 940 NISSAN ELECTRIC FORKLIFT, MODEL #CYB02L205, $2,000.00 $2,500.00 $3,000.00
S/N N/A
867 599 NISSAN ELECTRIC FORKLIFT, 5,000 LB CAPACITY, $6,750.00 $7,500.00 $8,000.00
MODEL #CYM02125S, PROP #CYM02-003365,
W/CLAMP ATTACHMENT, 3,861 HOURS
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $34,250.00 $39,250.00 $44,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 101
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------
WAREHOUSE 2ND FLOOR TEST AREA
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
868 MISCELLANEOUS TESTING EQUIPMENT $ 15,000.00 $ 18,000.00 $ 20,000.00
INCLUDING BUT NOT LIMITED TO:
OSCILLOSCOPES, POWER SUPPLIES, UNIVERSAL
COUNTER, MODULATION ANALYZERS,
CALIBRATORS, AMPLIFIERS, TV PATTERN
GENERATOR, MULTIMETER, COLOR ANALYZERS,
OPTOMETERS, XANTRES, MITAC INDUSTRIAL
COMPUTERS, W/MISCELLANEOUS OFFICE
EQUIPMENT INCLUDING BUT NOT LIMITED TO:
METAL DESKS, SWIVEL CHAIRS, PERSONAL
COMPUTERS, METAL VERTICAL FILING CABINETS,
METRO CARTS
869 590 FINAL ASSEMBLY CONVEYOR CONTROL ROOM, $ 30,000.00 $ 40,000.00 $ 50,000.00
INCLUDING: TELEVISION STEREO GENERATOR,
MODULATOR, PATTERN GENERATORS, SIGNAL
SOURCE, VIDEO GENERATORS, POWER
SUPPLIES, ETHERNET REPEATER, CRYSTAL
CONTROLLED COUNTER, AGILE MODULATORS
870 MISCELLANEOUS SUPPORT EQUIPMENT $ 80,000.00 $100,000.00 $120,000.00
INCLUDING BUT NOT LIMITED TO:
APPROXIMATELY (370) UNITS OF HEAVY DUTY 20'
HIGH PALLET RACKING, 6 ELECTROPPER PIN
INSERTERS, WRIST/STRAP FOOTWEAR STATIC
TESTER, TOLEDO DIGITAL SCALE FANS, PALLET
JACKS, PERSONAL COMPUTERS, METAL DESK
- ----------------------------------------------------------------------------------------------------------------------------
OFFICE AREA (1ST FLOOR) PLANT AUDIT/MATERIAL CONTROLS
- ----------------------------------------------------------------------------------------------------------------------------
871 MISCELLANEOUS OFFICE & TESTING EQUIPMENT $ 25,000.00 $ 30,000.00 $ 40,000.00
INCLUDING BUT NOT LIMITED TO: METAL DESKS,
APPROXIMATELY (3O) PERSONAL COMPUTERS,
MONITORS, METAL FILING CABINETS, LOCKERS,
EXECUTIVE OFFICE FURNITURE, SCOPES, OVENS,
MULTIMETERS, LCR METERS, HARDNESS
TESTERS, POWER SUPPLIES, HIPOTRONICS,
CONFERENCE ROOM TABLE, APPROXIMATELY (50)
SWIVEL CHAIRS
- ----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $150,000.00 $188,000.00 $230,000.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 102
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------------
RELIABILITY/AGELIFE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
872 480 SCSI ENVIRONMENTAL TEST CHAMBER, $20,000.00 $35,000.00 $60,000.00
W/DIGITAL DISPLAY TEST DIAGRAM/CHART
RECORDER, REFRIGERATION UNITS, ASSOCIATED
EQUIPMENT
873 481 SCSI ENVIRONMENTAL TEST CHAMBER, $20,000.00 $35,000.00 $60,000.00
W/DIGITAL DISPLAY TEST DIAGRAM/CHART
RECORDER, REFRIGERATION UNITS, ASSOCIATED
EQUIPMENT
874 482 SCSI ENVIRONMENTAL TEST CHAMBER, $20,00.00 $35,000.00 $60,000.00
W/DIGITAL DISPLAY TEST DIAGRAM/CHART
RECORDER, REFRIGERATION UNITS, ASSOCIATED
EQUIPMENT
875 483 ESPEC MODEL #ETS-133SA, S/N 253086, $75,000.00 $105,000.00 $140,000.00
ENVIRONMENTAL TEST CHAMBER, TEMPERATURE
RANGE-75 TO 200 DEGREES C, W/TOUCHPAD
DIGITAL DISPLAY, PROPERTY #19600
876 MISCELLANEOUS SUPPORT EQUIPMENT $10,000.00 $13,000.00 $17,000.00
INCLUDING BUT NOT LIMITED TO: MICROSCOPES,
WORK TABLES, COPPER INSPECTION BOOTHS,
PLOTTER, SURFACE SLATES, TEST BOOTHS,
VARIABLE TRANSFORMER, PERSONAL
COMPUTERS, DRAFTING TABLE, DESKS, VCR,
PRINTERS, FANS, TEKTRONIX 420A, 200 MHZ
OSCILLOSCOPE, LEADER PATTERN GENERATOR,
FAX MACHINE, VERTICAL FILE CABINETS
877 (7) CUSTOM BUILT RELIABILITY LIFE TEST $3,000.00 $5,000.00 $12,500.00
BENCHES, W/ELECTRIFIED POWER SUPPLIES,
ASSOCIATED EQUIPMENT, LEADER PATTERN
GENERATOR, POWER SUPPLIES, METRO
SHELVES, DISTRIBUTION BUFFER, ASSOCIATED
EQUIPMENT
- ----------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $148,000.00 $228,000.00 $349,500.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 103
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------
MAINTENANCE OFFICE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
878 MISCELLANEOUS OFFICE EQUIPMENT INCLUDING $1,000.00 $1,500.00 $2,000.00
BUT NOT LIMITED TO: METAL DESKS, SWIVEL
CHAIRS, PERSONAL COMPUTER, FAX MACHINE,
PLOTTER, TYPEWRITER, VERTICAL FILING
CABINET
879 485 MATHEWS ROADACARGA PALLET TRANSFER $12,000.00 $20,000.00 $30,000.00
SYSTEM, COMPLETE W/(2) ELEVATORS, (2) LANES
W/LIVE ROLLER CONVEYORS, LIGHT SENSORS,
DRIVE MOTORS
- ----------------------------------------------------------------------------------------------------------------------------
OFFICE AREA FOR AUTO INSERTION
- ----------------------------------------------------------------------------------------------------------------------------
880 MISCELLANEOUS OFFICE & INSPECTION $6,000.00 $7,000.00 $8,000.00
EQUIPMENT INCLUDING BUT NOT LIMITED TO:
PERSONAL COMPUTERS, PRINTERS, METAL
DESKS, SWIVEL CHAIRS, BENCH VISES,
MISCELLANEOUS TEST EQUIPMENT, SCOPES,
SOLDERING GUNS, POWER SUPPLIES, METAL
VERTICAL FILING CABINETS, PIN INSERTERS
- ----------------------------------------------------------------------------------------------------------------------------
WELDING SHOP
- ----------------------------------------------------------------------------------------------------------------------------
881 MISCELLANEOUS WELDING SUPPORT EQUIPMENT $5,000.00 $6,000.00 $7,000.00
INCLUDING BUT NOT LIMITED TO: CIRCULAR SAW,
VISES, DRILL PRESSES, ACETYLENE TORCH
CARTS, WORK BENCHES, DBL END GRINDER,
METAL LOCKERS, OVEN, TORCH MASKS, PIPE
BENDER, HAND TRUCK, WET/DRY VAC, WELDING
SUPPLIES, MILLER 300SS ARC WELDER
- ----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $24,000.00 $34,500.00 $47,000.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 104
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------
MAIN OFFICE AREA
- ----------------------------------------------------------------------------------------------------------------------------
FLOOR #1 SOURCE/BUYER/RECEPTION
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
882 MISCELLANEOUS SUPPORT OFFICE EQUIPMENT $ 50,000.00 $ 70,000.00 $ 90,000.00
INCLUDING BUT NOT LIMITED TO: RECEPTIONIST
DESK, LEATHER SOFAS, WOODEN AND METAL
SHELVING, METAL VERTICAL AND LATERAL FILING
CABINETS, METAL DESKS, WOODEN DESKS,
SWIVEL UPHOLSTERED CHAIRS, SIDE CHAIRS,
COMPUTER WORK STATIONS, APPROXIMATELY
(70) PERSONAL COMPUTERS, PRINTERS, FAX
MACHINES, COLOR MONITORS, CORK AND
MARKER BOARDS, LAPTOP COMPUTERS,
LEATHER SIDE CHAIRS, EXECUTIVE OFFICE
FURNITURE, 5' METAL PARTITIONS
883 EPSON DFX-5000 PRINTERS, S/N OG20A27942 $ 1,000.00 $ 1,250.00 $ 1,500.00
- ----------------------------------------------------------------------------------------------------------------------------
FLOOR #2/EXECUTIVE OFFICES/FINANCE
- ----------------------------------------------------------------------------------------------------------------------------
884 MISCELLANEOUS SUPPORT OFFICE EQUIPMENT $ 30,000.00 $ 35,000.00 $ 40,000.00
INCLUDING BUT NOT LIMITED TO: RECEPTIONIST
DESK, LEATHER SOFAS, WOODEN AND METAL
SHELVING, METAL VERTICAL AND LATERAL FILING
CABINETS, METAL DESKS, WOODEN DESKS,
SWIVEL UPHOLSTERED CHAIRS, SIDE CHAIRS,
COMPUTER WORK STATIONS, APPROXIMATELY
(70) PERSONAL COMPUTERS, PRINTERS, FAX
MACHINES, COLOR MONITORS, CORK AND
MARKER BOARDS, LAPTOP COMPUTERS,
LEATHER SIDE CHAIRS, EXECUTIVE OFFICE
FURNITURE, 5' METAL PARTITIONS, CONFERENCE
TABLE, (18) MATCHING LEATHER CONFERENCE
ROOM CHAIRS, EXECUTIVE MATCHING OFFICE
FURNITURE, ARTWORK, PLANTS, MARKER
BOARDS, EASELS, LAPTOP COMPUTERS,
APPROXIMATELY (35) PERSONAL COMPUTERS
W/COLOR MONITORS, KEYBOARDS, BACK UPS, HP
DRAFT MASTER, RX PLOTTER
- ----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $ 81,000.00 $106,250.00 $131,500.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 105
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------
SECOND FLOOR COMPUTER ROOM
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
885 COMPAG PROLIANT 5000, Z SERVER 433DE-CVI 50 $ 35,000.00 $ 40,000.00 $ 45,000.00
MHZ ADVANTAGE 486, LANCAST SUPERSWITCH
5708, TURBO STACK TS24TR ETHERNET 24 PORT
HUB, APC 1400 SMART UPS, ROUTERS, 10 BASE T
PORT ACTIVITY, PLOTTERS, OSCILLOSCOPES,
APPROXIMATELY (15) PERSONAL COMPUTERS,
W/COLOR MONITORS, KEYBOARDS, (3)
PRINTRONIX SHEET FED PRINTERS, DATA
PRODUCTS, ACCOUNTING PRINTER, 10"
CRAFTSMAN DRILL PRESS
886 MISCELLANEOUS OFFICE EQUIPMENT INCLUDING $ 1,500.00 $ 2,000.00 $ 2,500.00
BUT NOT LIMITED TO: METAL DESKS, FORMICA
TOP TABLES, SWIVEL CHAIRS, METAL 2 DOOR
LOCKERS, INSPECTION STATIONS, VERTICAL
METAL FILING CABINETS
- ----------------------------------------------------------------------------------------------------------------------------
ELECTRICAL DESIGN/PROTOTYPE/MECHANICAL DESIGN
- ----------------------------------------------------------------------------------------------------------------------------
FIRST FLOOR OFFICE AREA FORMERLY PLANT #70
- ----------------------------------------------------------------------------------------------------------------------------
887 MISCELLANEOUS OFFICE SUPPORT EQUIPMENT $140,000.00 $190,000.00 $250,000.00
INCLUDING BUT NOT LIMITED TO: METAL DESKS,
SWIVEL UPHOLSTERED CHAIRS, MATCHING SIDE
CHAIRS, METAL SHELVING, METAL LOCKERS,
VERTICAL METAL FILING CABINETS, FORMICA TOP
TABLES, COAT RACKS, METRO SHELVING,
MODULAR COMPUTER WORKSTATIONS, MARKER
BOARDS, APPROXIMATELY (110) PERSONAL
COMPUTERS, W/COLOR MONITORS, KEYBOARDS,
PRINTERS, FAX MACHINES, PLOTTERS, LAPTOP
COMPUTERS, TESTING EQUIPMENT INCLUDING:
OSCILLOSCOPES, SPECTRUM ANALYZERS,
DC POWER SUPPLY, TV SIGNAL GENERATORS,
MULTIMETER, SIGNAL GENERATOR, PATTERN
GENERATORS, SOLDERING GUNS, PROBE
CONTROLS AND POWER MODULES, SPECTRUM
ANALYZER, PANASONIC 40 MPS DIGITAL
OSCILLOSCOPES
- ----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $176,500.00 $232,000.00 $297,500.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 106
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
FIRST FLOOR ELECTRICAL DESIGN
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
888 HEWLETT PACKARD 8591A SPECTRUM ANALYZER $5,000.00 $7,000.00 $9,000.00
W/HEWLETT PACKARD 1142A PROBE CONTROL
AND POWER MODULE
889 (16) TEKTRONIX TDS 420A FOUR CHANNEL $30,000.00 $34,000.00 $38,000.00
DIGITIZING OSCILLOSCOPES, 200 MHZ
890 (2) TEKTRONIX TM502A, AM503B CURRENT PROBE $2,000.00 $3,000.00 $4,000.00
AMPLIFIERS
891 HEWBETT PACKARD 4194A IMPEDANCE/GAIN- $10,000.00 $14,000.00 $16,000.00
PHASE ANALYZER, S/N 2830J02599
892 (3) FLUKE 54200 TV SIGNAL GENERATORS $12,000.00 $15,000.00 $18,000.00
893 TEKTRONIX 2445B, 150 MHZ OSCILLOSCOPE $2,000.00 $3,000.00 $4,000.00
- --------------------------------------------------------------------------------------------------------------------
FIRST FLOOR STORAGE AREA/CAGE
- --------------------------------------------------------------------------------------------------------------------
894 MISCELLANEOUS SUPPORT EQUIPMENT $12,500.00 $16,000.00 $22,000.00
INCLUDING BUT NOT LIMITED TO: METAL
RACKING, PALLET JACKS, PART BINS, METAL
DESKS, HEAVY DUTY PALLET RACKING,
ELECTRICAL SUPPLIES, HARDWARE SUPPLIES,
MISCELLANEOUS SUPPORT SUPPLIES, PERSONAL
COMPUTERS
- --------------------------------------------------------------------------------------------------------------------
CAFETERIA
- --------------------------------------------------------------------------------------------------------------------
895 MISCELLANEOUS CAFETERIA EQUIPMENT $10,000.00 $12,000.00 $14,000.00
INCLUDING BUT NOT LIMITED TO:
APPROXIMATELY (75) FORMICA TOP TABLES,
APPROXIMATELY (600) PLASTIC CHAIRS, COFFEE
MAKERS, FREEZERS, METRO PORTABLE CARTS,
"L" SHAPED SERVING STATIONS, CASH
REGISTERS, FOOD BINS, PLASTIC TRAYS,
ASSORTED STAINLESS POTS/PANS, COOLERS,
FRYERS, (3) STAINLESS DISPENSING TANKS,
PALLET RACKING, NUEVOLEON SCALE, ZENITH
STEREO SYSTEM, SENTRY 1380 SAFE
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $83,500.00 $104,000.00 $125,000.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 107
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
CAFETERIA (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
896 HOBART 3 STAGE CENTRAL DISPENSING SYSTEM $2,000.00 $3,000.00 $4,000.00
DISHWASHER
897 (2) HOBART COMMERCIAL OVENS, DIGITAL $2,000.00 $3,000.00 $4,000.00
DISPLAY
898 SUPER SYSTEM MODEL #9-3, S/N 591, $3,000.00 $4,000.00 $5,000.00
COMMERCIAL OVEN
899 (2) VULCAN BURNER TOP STOVES, MODEL #E-36, $4,000.00 $5,000.00 $6,000.00
S/N 8673580
900 HOBART 4 SPEED HEAVY DUTY MIXER, MODEL #L- $2,000.00 $3,000.00 $4,000.00
800, S/N 11-1039-392
901 WELBERT FRYMASTER, (2) GENERAL ELECTRIC $2,000.00 $3,000.00 $4,000.00
FRYOLATORS, S/N N/A
902 MASTEBILT COMMERCIAL 3 DOOR GLASS $1,000.00 $2,000.00 $3,000.00
REFRIGERATOR, S/N 164064
903 (3) VOLLRATH WALKIN COOLERS, MODEL #17703- $1,500.00 $2,000.00 $2,500.00
S, S/N 90039010R-FN-1, S/N N/A
- --------------------------------------------------------------------------------------------------------------------
SECOND FLOOR OFFICE AREA
- --------------------------------------------------------------------------------------------------------------------
OC/MANUFACTURING/PROCESS ENGINEERING
- --------------------------------------------------------------------------------------------------------------------
904 MISCELLANEOUS OFFICE EQUIPMENT INCLUDING $45,000.00 $50,000.00 $55,000.00
BUT NOT LIMITED TO: 8' OVAL FORMICA TOP
CONFERENCE ROOM TABLE, (14) UPHOLSTERED
MATCHING SIDE CHAIRS, MARKER BOARD, RICOH
PORTABLE WRITEBOARD, METAL DESKS, METAL
LOCKERS, CORKBOARD, EXECUTIVE OFFICE
FURNITURE, SWIVEL UPHOLSTERED CHAIRS,
VERTICAL AND LATERAL METAL FILING CABINETS,
APPROXIMATELY (70) PERSONAL COMPUTERS
W/COLOR MONITORS, PRINTERS, ROYAL MODEL
#2270 COPIER, MICROWAVE
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $62,500.00 $75,000.00 $87,500.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 108
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------
FIRST FLOOR TESTING DEPARTMENT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
905 MISCELLANEOUS TESTING EQUIPMENT $12,000.00 $15,000.00 $18,000.00
INCLUDING BUT NOT LIMITED TO: MULTIMETERS,
OSCILLOSCOPES, AGILE MODULATORS,
UNIVERSAL COUNTERS, TV STEREO
GENERATORS, PATTERN GENERATORS, POWER
SUPPLIES, PROBE AMPLIFIER, SOLDERING
STATIONS, MISCELLANEOUS OFFICE EQUIPMENT
& MACHINE INCLUDING BUT NOT LIMITED TO:
METAL DESKS, SWIVEL CHAIRS, METAL VERTICAL
FILING CABINETS, PORTABLE METRO CARTS,
PLOTTERS, PERSONAL COMPUTERS W/COLOR
MONITORS, KEYBOARDS, DBL END GRINDER,
BUFFALO DRILL PRESS, CORNER NOTCHER #1,
ELECTRIFIED INSPECTION STATIONS, METAL
SHELVING
906 ENCO VERTICAL MILLING MACHINE, 9" X 30" $ 1,500.00 $ 1,750.00 $ 2,000.00
TABLE, POWER FEED
- ----------------------------------------------------------------------------------------------------------------------------
FIRST FLOOR BOARD ROOM AREA
- ----------------------------------------------------------------------------------------------------------------------------
907 APPROXIMATELY (25) UPHOLSTERED CHAIRS, "U" $ 6,000.00 $ 8,000.00 $10,000.00
SHAPED WOODEN BOARD ROOM TABLE W/(2)
MATCHING CREDENZAS, OVERHEAD PROJECTOR,
PODIUM, ARTWORK, OVAL SHAPED CONFERENCE
TABLES, APPROXIMATELY (16) MATCHING CHAIRS
- ----------------------------------------------------------------------------------------------------------------------------
SECOND FLOOR A/P DEPARTMENT
- ----------------------------------------------------------------------------------------------------------------------------
908 MISCELLANEOUS OFFICE EQUIPMENT INCLUDING $13,000.00 $16,000.00 $20,000.00
BUT NOT LIMITED TO: METAL DESKS,
APPROXIMATELY (30) PERSONAL COMPUTERS,
MONITORS, KEYBOARDS, PRINTERS, SWIVEL
CHAIRS, VERTICAL METAL FILING CABINETS,
MATCHING SIDE CHAIRS
- ----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $32,500.00 $40,750.000 $50,000.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 109
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------
COMMUNICATION DEPARTMENT (2ND FLOOR)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
909 582 COMPUTER NETWORKING SYSTEM INCLUDING: $15,000.00 $20,000.00 $30,000.00
UNISON UNIPOWER PS8.0, CISCO 4000 SERIES,
T-ICSU PLUS, RAD D XC-2, ALLIED TELESIS,
3008SL, 8 PORT REPEATER, PRESTIGE UPS
910 583 NORTHERN TELECOMM PBX PHONE SYSTEM $12,000.00 $18,500.00 $25,000.00
QPC188D, INCLUDING: MULTIPLEXORS, CHANNEL
LINKS, MICROWAVE, (ALLOWS CONNECTIVITY
INTERNATIONALLY), ROCKWELL WESCOM 3605-00,
INCLUDING APPROXIMATELY 700 INDIVIDUAL
HANDSETS
911 MISCELLANEOUS SUPPORT EQUIPMENT $2,000.00 $3,000.00 $4,000.00
INCLUDING BUT NOT LIMITED TO: PERSONAL
COMPUTERS, PRINTERS, WORKSTATIONS, METAL
DESKS, A/C WALL UNIT, SWIVEL CHAIRS
- ----------------------------------------------------------------------------------------------------------------------------
OUTSIDE BUILDING
- ----------------------------------------------------------------------------------------------------------------------------
912 861 SULLAIR PACKAGED ROTARY SCREW AIR $12,000.00 $16,000.00 $20.000.00
COMPRESSORS, MODEL #24KT
913 862 SULLAIR PACKAGED ROTARY SCREW AIR $12,000.00 $16,000.00 $20,000.00
COMPRESSORS, MODEL #24KT
914 863 SULLAIR PACKAGED ROTARY SCREW AIR $25,000.00 $30,000.00 $35,000.00
COMPRESSORS, MODEL #24KT, W/DIGITAL
CONTROL CONSOLE
915 MISCELLANEOUS EQUIPMENT IN COMPRESSOR $1,500.00 $2,000.00 $2,500.00
AREA INCLUDING: SULLAIR PURE-AIRE AIR
DRYERS, CHILLER UNITS
916 MISCELLANEOUS EQUIPMENT IN STORAGE $5,000.00 $6,000.00 $7,000.00
OUTSIDE INCLUDING BUT NOT LIMITED TO:
PEDESTAL STITCHES, (2) WAVE SOLDERS, OBI
PRESS WORK TABLES, PALLET RACKING
917 865 DATSUN LPG FORKLIFT MODEL #CF01A-15, S/N $2,000.00 $2,500.00 $3,000.00
022463, 3,000 LB CAPACITY, 3,642 HOURS, OROP
- ----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $86,500.00 $114,000.00 $146,500.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 110
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
OUTSIDE BUILDING (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
918 MISCELLANEOUS EQUIPMENT OUTSIDE $1,500.00 $2,000.00 $2,500.00
INCLUDING BUT NOT LIMITED TO: TAPE
DISPENSING CASE SEALER, PNEUMATIC
STAMPING PRESSES, SCISSOR LIFT, SULLAIR AIR
COMPRESSOR, TABLE SAW, CLAMP ATTACHMENT,
CUT-OFF SAW, PALLET RACKING, STORAGE
SHELVES, FANS, HORIZONTAL BAND SAW, DRILL
PRESS, WELDING SUPPLIESBAND SAW, DRILL
PRESS, WELDING SUPPLIES
919 209 CHENG KI VERTICAL MILLING MACHINE W/POWER $2,500.00 $3,000.00 $3,500.00
FEED MILLING VISE
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $4,000.00 $5,000.00 $6,000.00
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
GRAND TOTAL PLANT #12 $7,600,400.00 $9,520,050.00 $11,788,200.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 111
<PAGE>
[PLANT #26 APPEARS HERE]
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------
REPAIR & REWORK AREA
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
920 452 CUSTOMER REPAIR & REWORK ASSEMBLY LINE #6A $ 10,000.00 $ 20,000.00 $ 40,000.00
COMPLETE W/PROTECH EZ PACKER, WORK
STATIONS, PNEUMATIC HAND TOOLS, LEADER
OCILLOSCOPES, CARRIER CONVEYOR SYSTEM,
(2) PCB TEST FIXTURES, ASSOCIATED EQUIPMENT
921 458 CUSTOM REPAIR & REWORK ASSEMBLY LINE #5B $ 15,000.00 $ 35,000.00 $ 85,000.00
& 5A COMPLETE W/PROTECH EZ-PACKER, BUAL
BELT CONVERYOR, OSCILLOSCOPES, (17) CUSTOM
TEST FIXTURES, (2) MICROCOMPUTER TEST
SYSTEMS, AUDIO TEST FIXTURE, TELEVISIONS,
STEREO MODUALTION, DISTORTION ANANLYZER,
PATTERN GENERATOR, (2) MICROCOMPUTER
TEST SYSTEMS, VENTILATION UNITS,
ASSOCAITED EQUIPMENT
922 453 ZENITH CIRCUIT BOARD TEST STATION, $ 1,500.00 $ 2,000.00 $ 2,750.00
W/MULTIMETER, POWER SUPPLY, IND. PC.
DIGITIZER, FIXTURE
923 459 ZENITH CIRCUIT BOARD TEST STATION, $ 2,000.00 $ 2,500.00 $ 3,550.00
W/MULTIMETER, POWER SUPPLY, IND. PC.
DIGITIZER, FIXTURE W/AUDIO ANALYZER
924 460 ZENITH CIRCUIT TEST STATION COMPLETE $ 3,000.00 $ 4,000.00 $ 5,000.00
W/FIXTURE, PANASONIC 40 MHZ OSCILLOSCOPE,
(2) LEADER PATTERN GENERATORS, HP
MULTIMETER, HP DC POWER SUPPLY IND PC
925 457 CUSTOM WAVE SOLDER MACHINE W/CONVEYOR $ 7,000.00 $ 10,000.00 $ 13,000.00
CONTROL CONSOLE, ASSOCIATED EQUIPMENT,
S/N N/A
926 461 PROTECH FLUID PUMPING STATION, MODEL #2100 $ 1,500.00 $ 2,250.00 $ 3,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
- ----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $ 40,000.00 $ 75,750.00 $152,250.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 112
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------------
REPAIRS & REWORK AREA (CONT'D)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
927 462 PROTECH FLUID PUMPING STATION, MODEL #2100 $1,500.00 $2,250.00 $3,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
928 468 PROTECH FLUID PUMPING STATION, MODEL #2100 $1,500.00 $2,250.00 $3,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
929 471 PROTECH FLUID PUMPING STATION, MODEL #2100 $1,500.00 $2,250.00 $3,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
930 474 PROTECH FLUID PUMPING STATION, MODEL #2100 $1,500.00 $2,250.00 $3,000.00
W/ASSOCIATED EQUIPMENT, S/N N/A
931 453 TDK AIR MOUNT AXIAL LEAD INSERTER, MODEL $27,000.00 $35,000.00 $45,000.00
#RX-4A, W/CONTROL CONSOLE, ASSOCIATED
EQUIPMENT, S/N N/A
932 454 NNN DUAL STATION CHIP SHOOTER, $20,000.00 $30,000.00 $45,000.00
W/COMPUTER CONTROL SOLDER MASK,
CONVEYOR, ASSOCIATED EQUIPMENT, S/N N/A
933 455 NNN DUAL STATION CHIP SHOOTER, $20,000.00 $30,000.00 $45,000.00
W/COMPUTER CONTROL SOLDER MASK,
CONVEYOR, ASSOCIATED EQUIPMENT, S/N N/A
934 456 IUOCN CONVEYOR CURING OVEN, W/CONTROL $3,000.00 $3,500.00 $4,000.00
CONSOLE, ASSOCIATED EQUIPMENT, S/N N/A
935 462 REPAIR & REWORK ASSEMBLY LINE #4B & #4A, $3,000.00 $4,500.00 $7,000.00
COMPLETE W/(2) PRO TECH EZ PACKER, DUAL
BELT CONVEYOR, (10) CUSTOM TEST FIXTURES,
ASSOCIATED EQUIPMENT
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $79,000.00 $112,000.00 $158,000.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 113
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
REPAIR & REWORK AREA (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
936 467 ZENITH REPAIR & REWORK ASSEMBLY LINE #3A & $17,500.00 $30,000.00 $85,000.00
#3B, COMPLETE W/DUAL BELT CONVEYORS, (6)
CUSTOM TEST FIXTURES, DC POWER SUPPLY,
WORK BENCHES, TELEVISIONS, EZ PACKERS,
WORK STATIONS, LEADER PATTERN GENERATOR,
(12) LEADER OSCILLOSCOPES, HAMEB
OSCILLOSCOPE, (2) PROTECH EZ PACKER,
LEADER, PC, (2) CUSTOM CIRCUIT TEST UNITS
937 464 ZENITH CUSTOM TEST BENCH, COMPLETE $3,000.00 $4,000.00 $5,000.00
W/MONITOR, IND, PC, LEADER PATTERN
GENERATOR, HP MULTIMETER, AGILE
MODULATION, SWITCH CONTROL, FIXTURE,
PANASONIC 40 MHZ OSCILLOSCOPE
938 465 ZENITH CUSTOM TEST BENCH COMPLETE $2,750.00 $3,500.00 $4,500.00
W/LEADER 100MHZ DIGITAL OSCILLOSCOPE,
KIETHLY MULTIMETER HP MULTIMETER, TEST
FIXTURE, MONITOR
939 466 ZENITH CUSTOM PCB TEST BENCH, COMPLETE $6,000.00 $8,000.00 $10,000.00
W/DC POWER SUPPLIES, MONITOR, AUDIO
ANALYZER, MULTIMETER, TEKTRONIX DIGITIZER,
HP SIGNA GENERATOR, TV, STEREO
GENERATOR, CATEL TV MODULATOR, BOARD
FIXTURE, ASSOCIATED EQUIPMENT
940 469 ZENITH PCB TEST STATION MAIN REPAIR, PLT- $7,000.00 $9,500.00 $12,500.00
13A, W/HP MULTIMETER, ATEL TV MODULATOR,
SIGNAL GENERATOR, DIGITIZER, IND. PC,
PRODUCTION FIXTURE, HP WAVE FORM
SYNTHESIZER, DC POWER SUPPLY, KIKUSUI
AUTOMATION W/I TESTER 9000, SUPERIOR
STABLILINE UPS, ASSOCIATED EQUIPMENT
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $36,250.00 $55,000.00 $117,000.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 114
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- --------------------------------------------------------------------------------------------------------------------
REPAIR & REWORK AREA (CONT'D)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
941 470 ZENITH PCB TEST STATION MAIN REPAIR, PLT- $ 6,000.00 $ 8,000.00 $10,000.00
13A, W/HP MULTIMETER, ATEL TV MODULATOR,
SIGNAL GENERATOR, DIGITIZER, IND. PC,
PRODUCTION FIXTURE, HP WAVE FORM
SYNTHESIZE, DC POWER SUPPLY, ASSOCIATED
EQUIPMENT
942 472 ZENITH REPAIR & REWORK ASSEMBLY LINE #2A, $10,000.00 $ 20,000.00 $30,000.00
COMPLETE W/(2) PRO TECH EZ PACKERS, DUAL
BELT CONVEYOR, TEST FIXTURES, PRODUCTION,
PCB TEST STATIONS, OSCILLOSCOPES,
TELEVISIONS
943 473 ZENITH PCB TEST STATION, COMPLETE W/HP DC $12,000.00 $ 16,000.00 $25,000.00
POWER SUPPLY, IND PC, LEADER, SIGNAL
GENERATOR, AUDIO ANALYZER, MONITOR,
STABLINE UPS, WORK FIXTURE, WAVEFORM
SYNTHESIZER, CATEL COLOR TV MODULATOR,
ASSOCIATED EQUIPMENT
944 475 ASSEMBLY LINE #1B & 1A, COMPLETE W/DUAL $ 7,000.00 $ 12,000.00 $18,000.00
BELT CONVEYOR, (2) PROTECH EZ PACKERS,
WORK LIGHTS, ASSOCIATED EQUIPMENT, (NOT IN
SERVICE)
945 476 BUSCHMAN ROTARY CAROUSEL CONVEYOR UNIT, $14,000.00 $ 20,000.00 $27,500.00
COMPLETE W/MOTOR CONTROL, ELECTRIFIED
CARRIERS, ASSOCIATED EQUIPMENT, S/N N/A
946 477 BUSCHMAN ROTARY CAROUSEL CONVEYOR UNIT, $14,000.00 $ 20,000.00 $27,500.00
COMPLETE W/MOTOR CONTROL, ELECTRIFIED
CARRIERS, ASSOCIATED EQUIPMENT, S/N N/A
947 478 BUSCHMAN ROTARY CAROUSEL CONVEYOR UNIT, $14,000.00 $ 20,000.00 $27,500.00
COMPLETE W/MOTOR CONTROL, ELECTRIFIED
CARRIERS, ASSOCIATED EQUIPMENT, S/N N/A
- --------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $77,000.00 $116,000.00 $165,000.00
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 115
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------
REPAIR & REWORK AREA (CONT'D)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
948 MISCELLANEOUS SUPPORT EQUIPMENT $350.00 $450.00 $600.00
INCLUDING BUT NOT LIMITED TO: CARRIERS,
PALLET JACKS, WORK BENCHES, LOCKERS,
PALLET RACKING
- ----------------------------------------------------------------------------------------------------------------------------
STORAGE & CAGE AREA
- ----------------------------------------------------------------------------------------------------------------------------
949 MISCELLANEOUS SUPPORT EQUIPMENT $17,500.00 $25,000.00 $32,500.00
INCLUDING BUT NOT LIMITED TO: LEADER
OSCILLOSCOPES, TEST FIXTURES, WAVEFORM
SYNTHESIZER, HEAT GUN, SOLDER GUN,
PERSONAL COMPUTERS, TV STEREO
GENERATOR, POWER SUPPLIES, TV MODULATOR,
MULTIMETER, UPS PATTERN GENERATOR, TV
DEMODULATOR, VOLTMETER, HV METER,
FUNCTION GENERATOR, METRO SHELVES,
SURFACE MOUNT UNIT,PALLET RACKING
- ----------------------------------------------------------------------------------------------------------------------------
OUTSIDE MAINTENANCE
- ----------------------------------------------------------------------------------------------------------------------------
950 AIR TANKS, 4 POST PRESS, DAYTON DRILL PRESS, $400.00 $500.00 $600.00
LINCOLN ARC WELDER, DIE LIFT TABLE, STORAGE
SHELVES
- ----------------------------------------------------------------------------------------------------------------------------
REWORK/REPAIR
- ----------------------------------------------------------------------------------------------------------------------------
951 916 MUNCK AUTECH INVENTORY RETRIEVAL SYSTEM $30,000.00 $40,000.00 $60,000.00
W/RODACARGA MATHEWS POWER ROLLER
CONVEYORS, S/N 1004, 180 SECTIONS OF HEAVY
DUTY 20" HIGH PALLET RACKING, 700 LB
CAPACITY, PENDANT CONTROLS, W/(3) MUNCK
AUTECH PLATFORM RETRIEVERS
- ----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $48,250.00 $65,950.00 $93,700.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 116
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------------
WAREHOUSE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
952 MISCELLANEOUS EQUIPMENT INCLUDING BUT $20,000.00 $28,000.00 $40,000.00
NOT LIMITED TO: IR OVENS, AQUA STATION 3
CHAMBER BOARD WASHER, 18" BELT CONVEYOR,
FANS, PALLET JACKS, PERSONAL COMPUTERS
W/MONITORS, PORTABLE STAIRCASE
APPROXIMATELY 50 SECTIONS OF MEDIUM DUTY
20' HIGH PALLET RACKING, APPROXIMATELY 145
SECTIONS OF 20' HIGH PALLET RACKING
- ---------------------------------------------------------------------------------------------------------------------------------
CAFETERIA
- ---------------------------------------------------------------------------------------------------------------------------------
953 MISCELLANEOUS EQUIPMENT INCLUDING BUT $6,000.00 $7,000.00 $12,000.00
NOT LIMITED TO: APPROXIMATELY (20) FORMICA
TOP FOLD-UP TABLES, APPROXIMATELY (120)
PLASTIC CHAIRS, CASH REGISTER, BUFFET STYLE
STAINLESS SERVING LINES, ALTO SHAAM-HALO
HEAT DUAL INDUSTRIAL OVENS, MODEL #1000-TH
1, FRYOLATOR, SURFACE TOP BURNERS/FRYERS,
VULCAN INDUSTRIAL OVEN W/BURNER TOP, ICE-O
MATIC HOBART REFRIGERATOR
954 922 (2) KOLPAK WALK-IN COOLERS $1,500.00 $2,000.00 $3,000.00
955 923 HOBART WALK-IN COOLER, S/N 53781-411 $1,000.00 $1,500.00 $2,000.00
- --------------------------------------------------------------------------------------------------------------------------------
OFFICE AREA FIRST FLOOR
- --------------------------------------------------------------------------------------------------------------------------------
956 MISCELLANEOUS OFFICE EQUIPMENT INCLUDING $5,000.00 $6,500.00 $8,000.00
BUT NOT LIMITED TO: METAL DESKS, SWIVEL
CHAIRS, VERTICAL METAL FILING CABINETS,
APPROXIMATELY (10) PERSONAL COMPUTERS,
W/COLOR MONITORS, PRINTERS, FAX MACHINE,
FORMICA TOP CONFERENCE TATLE W/(8) PLASTIC
CHAIRS, WOODEN DESK, WORK TABLES,
PLOTTERS
- --------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $33,500.00 $45,000.00 $65,000.00
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 117
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1,1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM# ID# DESCRIPTION FLV FMV FMIPV
- ----------------------------------------------------------------------------------------------------------------------------
STORAGE AREA
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
957 (2) COLTERMAN TELESCOPING WORK PLATFORM $ 4,500.00 $ 6,000.00 $ 8,000.00
MAXI-LIFTS, HAND TRUCK, CHAIRS, METAL
SHELVING, BARREL CARTS, TOOL CARTS,
ELECTRIFIED WORK BENCHES, LADDERS,
OSCILLOSCOPES, TEST FIXTURES, POWER
SUPPLIES
958 924 AEC INDUSTRIAL CHILLER, MODEL #DSA-5CH, S/N $ 2,000.00 $ 3,000.00 $ 5,000.00
851264, REFRIGERANT R22
959 925 SULLAIR, MODEL #PAR 170, S/N 003-01813, $ 1,000.00 $ 1,500.00 $ 2,250.00
DRYER/FILTRATION SYSTEM
960 926 UNIVERSAL SEQUENCER, S/N 2596R-21900-CEHS- $ 4,000.00 $ 5,000.00 $ 6,000.00
1377, 42 INSERTION LINES
961 927 UNIVERSAL DIP MACHINE, S/N 6295-20803201-CDH- $ 2,500.00 $ 3,500.00 $ 4,500.00
1730
962 928 UNIVERSAL SURFACE/VACUUM MOUNT MACHINE, $ 3,000.00 $ 4,000.00 $ 5,000.00
S/N N/A
963 929 AVI-SERT VC-4H SEQUENCER, 40 INSERTION $ 6,000.00 $ 7,000.00 $ 8,000.00
LINES, TCK-4 DIRECTION REVERSE UNIT
964 930 UNIVERSAL PASS THROUGH SEQUENCER, 30 $ 5,000.00 $ 6,000.00 $ 7,000.00
INSERTION LINES, W/STACKER
965 934 UNIVERSAL SURFACE MOUNT INSERTION $ 2,000.00 $ 3,000.00 $ 4,000.00
MACHINE, W/HOPPER ATTACHMENT
966 931 UNIVERSAL SURFACE MOUNT INSERTION $ 3,000.00 $ 4,000.00 $ 5,000.00
MACHINE,W/REEL ATTACHMENT
- ----------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $33,000.00 $43,000.00 $54,750.00
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 118
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ---------------------------------------------------------------------------------------------------------------------------
COMPUTER/SIGNAL ROOM
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
967 COMPLETE SIGNAL GENERATION ROOM $40,000.00 $50,000.00 $ 70,000.00
INCLUDING: SIGNAL GENERATORS, INDUSTRIAL
PERSONAL COMPUTERS, TV MODULATORS, DC
POWER SUPPLIES, OSCILLOSCOPES, CONTROL
CABINETS, PATTERN TEST GENERATORS, AUDIO
SYNTHESIZERS, ASSOCIATED METERS AND
EQUIPMENT
- ---------------------------------------------------------------------------------------------------------------------------
COMPRESSOR ROOM
- ---------------------------------------------------------------------------------------------------------------------------
968 479 QUINCY AIR DRYER $1,500.00 $2,000.00 $2,500.00
969 931 SULLAIR MODEL #LS-201001-ACAG, 24 KT $5,000.00 $6,500.00 $8,000.00
PACKAGED ROTARY SCREW AIR COMPRESSORS
970 932 SULLAIR MODEL #LS-201001-ACAG, 24 KT $20,000.00 $25,000.00 $30,000.00
PACKAGED ROTARY SCREW AIR COMPRESSORS,
S/N 003-141387
971 MISCELLANEOUS COMPRESSOR ROOM $ 1,000.00 $ 1,750.00 $2,500.00
INCLUDING TWO SULLAIR REFRIGERATED AIR
DRYERS, FANS
- ---------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $67,500.00 $85,250.00 $113,000.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 119
<PAGE>
GREENWICH INDUSTRIAL SERVICES, LLC
APPRAISAL DIVISION
ZENITH ELECTRONICS
REYNOSA, MEXICO
APRIL 1, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM # ID# DESCRIPTION FLV FMV FMIPV
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICE AREA 2ND FLOOR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
972 MISCELLANEOUS OFFICE EQUIPMENT INCLUDING: $ 10,000.00 $ 11,000.00 $ 12,000.00
WOODEN & METAL DESKS, SWIVEL CHAIRS,
APPROXIMATELY (15) PERSONAL COMPUTERS,
COLOR MONITORS, PRINTERS, VERTICAL METAL
FILING CABINETS, FOLD-UP FORMICA TOP
TABLES, PLASTIC CHAIRS, TV STAND, DATA
PRODUCTS PRINTER
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE TOTAL $ 10,000.00 $ 11,000.00 $ 12,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL PLANT #26 $ 424,500.00 $ 608,960.00 $ 931,200.00
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL REYNOSA $ 18,880,250.00 $ 23,158,500.00 $ 28,762,200.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 120
<PAGE>
[PHOTO APPEARS HERE]
RANDOM VIEW OF BOBBIN DEPARTMENT
[PHOTO APPEARS HERE]
RANDOM VIEW OF ASSEMBLY LINES
<PAGE>
[PHOTO APPEARS HERE]
SENSBEY WAVE SOLDER MACHINE
[PHOTO APPEARS HERE]
SODICK ELECTRICAL DISCHARGE MACHINE
<PAGE>
[PHOTO APPEARS HERE]
CINCINNATI MILACRON INJECTION MOLDING MACHINE
[PHOTO APPEARS HERE]
VIEW OF STORAGE SILOS
<PAGE>
CERTIFICATION
-------------
Greenwich Industrial Services, LLC (GIS) hereby certifies that we have
personally inspected the property or information provided. We certify that, to
the best of our knowledge and belief:
. The statement of fact contained in this report is true and correct.
. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, are our personal, unbiased
professional analyses, opinions, and conclusions.
. GIS has no present or contemplated future interest in the property that is
the subject of this report, and we have no specified personal interest or
bias with respect to the parties involved.
. GIS compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the
occurrence of a subsequent event.
. GIS's analyses, opinions, and conclusions were developed, and this report has
been prepared in conformity with Uniform Standards of Professional
Appraisal Practice and the Code of Professional Ethics and Standards of the
American Society of Appraisers.
. No one provided significant professional assistance to the person signing
this report. (If there are exceptions, the name of each individual providing
professional assistance must be stated.)
GREENWICH INDUSTRIAL SERVICES, LLC
By: /s/ [SIGNATURE ILLEGIBLE] Date: 5/14/98
----------------------------- --------------------
I
<PAGE>
STATEMENT OF LIMITING CONDITIONS
--------------------------------
1. All facts and data set forth in this report are true and accurate to the
best of the appraisers knowledge and belief.
2. Neither the appraiser nor any officer or employee of Greenwich Industrial
Services, LLC has any financial interest in the subject property appraised.
3. No investigation of legal fee of title to the fixtures and equipment has
been made and the owner's or tenant's claim to property has been assumed to
be valid. No consideration has been given to liens or encumbrances which
may be against the property except as specifically stated in the appraisal
report.
4. All opinions as to market value are represented as the appraiser's
considered unbiased opinion based on the facts and date set forth in the
report. The appraiser assumes no responsibility for changes in market
condition or for the inability to locate a purchaser at appraised value.
5. The appraiser herein, by reason of this appraisal, is not required to give
testimony or attend court or any governmental hearing with reference to
property in question without a prior agreement as to fee for additional
services.
6. The information in this report is not to be reproduced in part or in full
nor used out of context in any form without the written consent of the
appraiser(s).
7. We have attempted to identify leased equipment in the report. We make no
guarantee that all leased equipment is identified or eliminated from the
inventory and report.
8. Information furnished by others, upon which any portion of this report are
based is believed to be reliable, but has been verified in all cases. No
guarantee is given as to the accuracy of such information.
9. The fee for the appraisal is not contingent upon the values reported.
II
<PAGE>
DEFINITIONS OF VALUE
--------------------
New Replacement Cost: The amount, or opinion of value, required to replace
- --------------------
property (equipment) with a modern new unit utilizing the most current;
technology and materials, that will duplicate the product capacity and utility
of an existing unit, at current market prices for materials, taxes, freight, and
cartage costs, labor, and installation costs, contractors' overhead and profit
and fees; but without provision for overtime, bonuses for labor, premiums for
materials, or equipment. The value is predicated upon replacing the equipment
package at one time.
Fair Market In-Place/In Use Value reflected represents the value of the assets
- ---------------------------------
in their present location assuming the facility will continue in the manufacture
of its present product at a profitable level. The values reflected take into
consideration all costs associated with rigging, installation, wiring, plumbing,
and dismanting. Greenwich Industrial Services has not taken into consideration
the financial condition, goodwill, product lines, or the future markets of the
company.
Fair Market Value reflected represents the most probable amount an asset should
- -----------------
bring in a competitive and open market under all conditions requisite to a fair
sale with the buyer and seller each acting prudently and knowledgeably with
equity to both, and assuming the price is not affected by undue stimulus: (a)
buyer and seller are typically motivated; (b) both parties are well informed or
well advised, and acting in what they consider their own best interest; (c) a
reasonable time is allowed for exposure to the open market; (d) payment is made
in terms of cash in U.S. dollars; and (e) the price represents the normal
consideration for the asset sold, unaffected by special or creative financing,
or sales concessions granted by anyone associated with the sale.
Orderly Liquidation Value reflected represents the gross amount that, in our
- -------------------------
opinion, would be realized if the assets were sold by conducting a well
advertised orderly liquidation (privately negotiated sales) with the seller
being compelled, over a reasonable period of time. All assets are to be sold on
a piecemeal basis "as is" "where is" with purchasers responsible for removal of
assets at their own risk and expense. Any deletion or additions to the total
package could change the psychological and/or monetary appeal necessary to gain
the value indicated.
Auction/Forced Liquidation Value reflected represents the amount that, in our
- --------------------------------
opinion, would be realized if the assets were sold in a forced situation, at a
properly advertised and conducted public auction sale usually with a 30 - 60 day
timeframe, under present economic trends. Conclusions taken into consideration
are physical location, difficulty of removal, physical condition, adaptability,
specialization, marketability, overall appearance and psychological appeal.
Further, the ability of the asset group to draw sufficient prospective buyers to
insure competitive offers is considered. All assets are to be sold on a
piecemeal basis "as is" "where is" with purchasers responsible for removal of
assets at their own risk and expense. Any deletions or additions to the package
could change the psychological and/or monetary appeal necessary to obtain the
value indicated.
Note: The above definitions have been adopted from the definitions set forth by
The American Society of Appraisers.
III
<PAGE>
DEFINITIONS OF TERMS
--------------------
A further explanation of Fair Market Value in Use
FAIR VALUE
Definition of, as established by the Comptroller of the Currency
FAIR VALUE is the cash price that might reasonably be anticipated in a current
sale under all conditions requisite to a fair sale in an "as is" condition. A
fair sale means that the buyer and seller are each acting prudently,
knowledgeably, and under no necessity to buy or sell (i.e., other than in a
forced or liquidation sale). The appraiser should estimate the cash price that
might be received upon exposure to the open market for a reasonable time,
considering the property type and local market conditions. When a current sale
is unlikely (i.e., when it is unlikely that the sale can be completed within
eighteen (18) months, the appraiser must discount all cash flows generated by
the property to obtain the estimate of fair value. These cash flows include, but
are not limited to, those arising from ownership, development, operations, and
sale of property. The discount applied shall reflect the appraiser's judgment of
what a prudent, knowledgeable purchaser under no necessity to buy would be
willing to pay to purchase the property in a current sale.
FAIR VALUE
By Treasury Regulation 20.2031-1(b)
FAIR MARKET VALUE is the price at which the property would change hands between
a willing buyer and a willing seller, neither being under any compulsion to buy
or to sell and both having reasonable knowledge of relevant facts. The fair
market value of a particular item of property includible in the decedent's gross
estate is not to be determined by a forced sale price, nor is the fair market
value of an item of property to be determined by the sale price of the item in a
market other than that in which such item is most commonly sold to the public,
taking into account the location of the item wherever appropriate. Thus, in the
case of an item of property includible in the decedent's gross estate, which is
generally obtained by the public in the retail market, the fair market value of
such an item of property is the price at which the item or a comparable item
would be sold at retail.
IV
<PAGE>
DEFINITION OF CONDITIONS
NEW (N) - 100% estimated remaining life
This term describes an item of equipment not used before and capable of being
utilized for it's entire normal useful life.
VERY GOOD (VG) - 70-99% estimated remaining life
This term describes an item of equipment in excellent condition capable of being
used for its designed purpose in present condition.
GOOD CONDITION (G) - 50-69% estimated remaining life
This term describes those items of equipment which may have been modified or
repaired but are being used at or near their fully specified capacity. The
effects of age and/or utilization indicate that some minor repairs have to be
made or that the item may have to be used to some slightly lesser degree than
its original purpose in the foreseeable future.
FAIR CONDITION (F) - 30-49% estimated remaining life
This term describes those items of equipment which are being used at some point
below their fully specified design because of the effects of age and/or
application and which require general repairs. This may require some replacement
of minor elements in the foreseeable future to bring the level of use to or near
their original specifications.
POOR CONDITION (P) - 10-29% estimated remaining life
This term is used to describe those items of equipment which can only be used at
some point well below their original design and it is not possible to realize
full capability in their current condition without extensive repairs and/or the
replacement of major elements.
SCRAP CONDITION (X) - 0.9% estimated remaining life
This term is used to describe those items of equipment which are no longer
serviceable and which cannot be used to any practical degree regardless of the
extent of the repairs or modifications to which they may be subjected. This
condition applies to items of equipment which have been used for 100% of their
useful life or which are 100% technologically or functionally obsolete.
Provision is given in the percentage values that part of a scrap machine may
have use as a reparable spare for a like machine.
These description or similar descriptions have appeared
in various appraisal literature of
The American Society of Appraisers.
Percentage adjustments are the opinion of
Greenwhich Industrial Services, LLC
V
<PAGE>
STATEMENT REGARDING THE AMERICAN SOCIETY OF APPRAISERS
------------------------------------------------------
The American Society of Appraisers was founded in 1952 and is comprised of
professional individuals, drawn together to form the only major appraisal
organization representing multiple disciplines. The organization consists of
valuation specialists in land, equipment, buildings, art objects, finance,
assessment, insurance, law, accounting, natural resources, public utilities,
gems, securities, equities, in short, all types of tangible property, real or
personal.
Each Society member, who has satisfactorily demonstrated that he or she is
qualified to appraise one or more of the types of property, has been granted the
right to use the professional designation. The examination process consists of
submission of representative appraisal reports, a minimum of five years of full
time valuation experience and screening of the applicant's professional and
ethical practices.
Additionally, the Society members are required to update and add to their skills
through attending a minimum number of continuing education classes required for
recertification every five years.
Ethical practices and conduct required of Society members are clearly defined in
"The Principles of Appraisal Practice and Code of Ethics" of the American
Society of Appraisers. Each member of the Society is sworn to perform and
operate his business within the frame work of this code.
The purpose of promulgating the Principle of Appraisal Practice and Code of
Ethics are to:
1. Inform those who use the services of appraisers what, in the opinion of the
Society constitutes competent and ethical appraisal practice.
2. Serve as a guide to its own members in achieving competency in appraisal
practice and adhering to ethical standards.
3. Aid in the accomplishment of the purpose of the Society including,
fostering appraisal education, improving and developing of appraisal
techniques, encouraging sound professional practices, establishing criteria
regarding the use of employers or staff appraisers and enforcing the
ethical conduct and practice by its members.
4. Provide means, in addition to those used in examining applicants, for
admission to the grades of Member and Senior Member of the Society for
judging their skill, competence and understanding of ethical principles.
5. Epitomize those appraisal practices that experience has found to be
effective in protecting the public against exploitation.
VI
<PAGE>
ANNEX C--REPORTS OF PETER J. SOLOMON COMPANY LIMITED
PROJECT ELECTRO
SPECIAL COMMITTEE PRESENTATION
November 16, 1998
PETER J. SOLOMON COMPANY
C-1
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
This presentation has been prepared by Peter J. Solomon Company Limited
("PJSC") from materials and information supplied (whether orally or in
writing) by Zenith Electronics Corporation ("Zenith" or the "Company").
This presentation includes certain statements, estimates and projections
provided by the Company with respect to the historical and anticipated future
performance of the Company and certain potential strategic alternatives. Such
statements, estimates and projections contain or are based on significant
assumptions and subjective judgments made by Company management
("Management"). These assumptions and judgments may or may not be correct, and
there can be no assurance that any projected results are attainable or will be
realized. PJSC has not attempted to verify any such statements, estimates and
projections, and as such, PJSC makes no representation or warranty as to, and
assumes no responsibility for, their accuracy or completeness or for the
effect which any such inaccuracy or incompleteness may have on the results or
judgments contained in this presentation.
Except where otherwise indicated, this analysis speaks as of the date
hereof. Under no circumstances should the delivery of this document imply that
the analysis would be the same if made as of any other date.
THIS REPORT HAS BEEN ISSUED FOR THE BENEFIT OF THE SPECIAL COMMITTEE OF THE
COMPANY. IT IS NOT INTENDED TO BE USED, AND SHOULD NOT BE RELIED UPON, BY ANY
OTHER PERSON.
THIS REPORT IS CONFIDENTIAL AND SHOULD NOT, WITHOUT PRIOR WRITTEN CONSENT OF
PJSC, BE COPIED OR MADE AVAILABLE TO ANY PERSON OTHER THAN THE DIRECTORS OF
THE COMPANY.
PJSC SHALL NOT HAVE LIABILITY, WHETHER DIRECT OR INDIRECT, IN CONTRACT OR
TORT OR OTHERWISE, TO ANY PERSON IN CONNECTION WITH THIS PRESENTATION.
C-2
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TAB
---
<C> <S> <C>
I. Going Concern Valuation..............................................
II. Business Plan Comparison.............................................
III. One-Time Adjustments.................................................
IV. Domestic VSB Value Adjustments.......................................
V. S-4 Plan Analysis....................................................
VI. Liquidation Analysis.................................................
</TABLE>
C-3
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
I. GOING CONCERN ANALYSIS
GOING CONCERN IMPLIED EQUITY VALUATION UNDER S-4 PROPOSAL (11-12-98 BUSINESS
PLAN)
- -------------------------------------------------------------------------------
(Dollars in Millions)
SUMMARY GOING CONCERN VALUATIONS
<TABLE>
<CAPTION>
JULY 22 NOVEMBER 16
PRESENTATION PRESENTATION
VALUATION AT VALUATION AT
1/1/99 (A) 1/1/99 (B)
------------ ------------
<S> <C> <C>
Enterprise Value (c)............................. $125.0 $125.0
VSB Technology Value............................. 180.0(d) 130.6(e)(i)
====== ======
Total Value.................................... $305.0 $255.6
REORGANIZED ELECTRO DEBT PER LG PROPOSAL
Working Capital Facility......................... $ 84.5(f) $ 68.2(g)(ii)
Indo Suez........................................ 0.0 30.0
Restructured LG Notes (h)........................ 148.7 118.8
Subordinated Debentures (h)...................... 40.0 40.0
LGE New Credit Support........................... 0.0 0.0
------ ------
Total.......................................... $273.2 $257.0
====== ======
Implied Equity of Reorganized Electro............ $ 31.8 $ (1.4)
</TABLE>
- -------------------------------------------------------------------------------
(a) Per Electro Business Plan, dated June 26, 1998. Reflected in Electro Board
Presentation dated July 22, 1998.
(b) Per Electro Business Plan, dated November 12, 1998.
(c) Business plan adjusted to exclude projected VSB royalties. Enterprise
value at 1/1/99 is based on a discounted cash flow analysis utilizing a
terminal value derived by applying a multiple to LTM sales and values
Tuner Patent cash flows separately. Sales multiple based on the low-end of
an illustrative comparable company sales multiple range (see Electro
Discounted Cash Flow Analysis).
(d) VSB valuation assumes a $2.50 PC royalty fee, 25.0% discount rate applied
to Domestic royalty fee cash flows through 2011 and availability of
Company NOLs to shelter VSB and operating cash flow. Excludes any
potential value for International VSB royalties. Includes present value of
Sony settlement per Electro management.
(e) VSB valuation assumes a $5.00 PC royalty fee, 25.0% discount rate applied
to Domestic royalty fee cash flows, a 40.0% discount rate applied to
International (Adopted) royalty fee cash flows and a 55.0% discount rate
applied to International (Likely to Adopt) royalty fee cash flows through
2011 and availability of Company NOLs to shelter VSB and operating cash
flow. Includes present value of Sony settlement per Electro management.
(f) Revolver balance based on average revolver balance for Q-3 1998
($110.5MM), Q-4 1998 ($54.6MM), Q-1 1999 ($91.2MM) and Q-2 1999 ($81.7MM).
(g) Revolver balance based on average revolver balance for Q-1 1999 ($34.2MM),
Q-2 1999 ($63.6MM), Q-3 1999 ($84.2MM) and Q-4 1999 ($90.8MM).
(h) Does not reflect accruals of unpaid interest, if any. Assumes par value.
Market value may be lower.
- -------------------------------------------------------------------------------
Comments:
(i) Reflects adjustments in projected Domestic PC market and addition of
International VSB revenues.
(ii) Reflects debt balance reduction due to improvement in working capital.
C-4
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
I. GOING CONCERN ANALYSIS
ELECTRO DISCOUNTED CASH FLOW ANALYSIS (VALUE AT JANUARY 1, 1999)
- -------------------------------------------------------------------------------
(Dollars in Millions)
EBIT EXCLUDES VSB AND TUNER PATENT INCOME AND COSTS & EXPENSES (A)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED DECEMBER
31, NORMALIZED
------------------------------------------- TERMINAL
1999 2000 2001 2002 2003 CASH FLOW
------ ------ ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Revenue............. $876.1 $889.3 $935.1 $987.6 $1,018.3
--% Growth............. (9.3%) 1.5% 5.2% 5.6% 3.1%
Gross Margin %.......... 8.4% 9.2% 10.4% 10.8% 11.3%
EBITDA.................. (30.1) (16.1) 1.7 13.2 23.6
--% of Revenues........ (3.4%) (1.8%) 0.2% 1.3% 2.3%
EBIT.................... (36.2) (19.3) (1.9) 9.3 19.4
--% of Sales........... (4.1%) (2.2%) (0.2%) 1% 2%
AMT..................... 0.0 0.0 0.0 0.2 0.4
------ ------ ------ ------ --------
Tax-Adjusted EBIT....... (36.2) (19.3) (1.9) 9.1 19.0 $19.0
Depreciation and
Amortization........... 6.1 3.2 3.6 3.9 4.2 4.2
Capital Expenditures.... (4.9) (4.5) (4.5) (4.5) (4.5) (4.5)
Change in Working
Capital................ 10.7 17.0 (13.1) (3.3) (5.7) (5.7)
Proceeds from Asset
Sales.................. 47.9 0.0 0.0 0.0 0.0 0.0
Restructuring Costs..... (55.5) (2.4) 0.0 0.0 0.0 0.0
------ ------ ------ ------ -------- -----
Free Cash Flow.......... ($31.9) ($6.0) ($15.9) $ 5.2 $ 13.0 $13.0
====== ====== ====== ====== ======== =====
Growth in Free Cash
Flow................ NM NM NM NM 150%
</TABLE>
<TABLE>
<CAPTION>
ILLUSTRATIVE SALES
MULTIPLE (B) 12.5% 15.0% 17.5%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Discount Rate........... 12.0% 14.0% 16.0% 12.0% 14.0% 16.0% 12.0% 14.0% 16.0%
--------------------------------------------------------------------
Present Value of Free
Cash Flow.............. ($33.9) ($33.5) ($33.1) ($33.9) ($33.5) ($33.1) ($33.9) ($33.5) ($33.1)
Present Value of
Terminal Value......... 72.2 66.1 60.6 86.7 79.3 72.7 101.1 92.6 84.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Terminal Value &
Free Cash Flow Value... $ 38.3 $ 32.6 $ 27.5 $ 52.8 $ 45.8 $ 39.7 $ 67.2 $ 59.1 $ 51.8
Discount Rate........... 18.0% 20.0% 22.0% 18.0% 20.0% 22.0% 18.0% 20.0% 22.0%
--------------------------------------------------------------------
Present Value of Tuner
Patent (c)............. $ 70.5 $ 67.7 $ 65.0 $ 70.5 $ 67.7 $ 65.0 $ 70.5 $ 67.7 $ 65.0
Total Enterprise Value.. $108.9 $100.3 $ 92.6 $123.3 $113.5 $104.7 $137.8 $126.8 $116.8
</TABLE>
<TABLE>
<CAPTION>
Projected Fiscal Year Ended
December 31,
--------------------------------- NET PRESENT VALUE
1999 2000 2001 2002 2003 OF TUNER PATENT @
----- ----- ----- ----- ----- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tuner Patent Cash Flows
(a).................... $25.0 $25.0 $25.0 $25.0 $14.0 18.0% 20.0% 22.0%
----- ----- -----
Tuner Patent Costs and
Expenses (d)........... (0.2) (0.2) (0.2) (0.2) (0.2) $70.5 $67.7 $65.0
Assumed Reduction (e)... 0.0 0.0 0.0 (3.0) (1.5)
----- ----- ----- ----- -----
TUNER PATENT CASH FLOWS
(INCL. REDUCTIONS)
(C).................... $24.8 $24.8 $24.8 $21.8 $12.3
</TABLE>
- -------------------------------------------------------------------------------
Source: Electro 1998-2003 Business Plan dated November 12, 1998.
(a) Cash flow analysis excludes VSB and Tuner Patent income and certain
R&D/engineering costs associated with these technology patents. VSB
related costs include Licensing, Advanced Product Development,
Transmission Technology, Broadcast Technology, Technology Adoption,
Digital Business Development, Legal and R&D and Engineering. Electro EBIT
includes approximately $2.0MM a year in royalties related to the use of
the Zenith trademark and name deemed to be recurring, $1.5MM in
international royalty income for Mexican and Canadian LG products and
income from ELO Touch and other Accessories.
(b) Illustrative LTM sales multiple range is based on the lowest comparable
company discounted at 50.0%-66.6%.
(c) Assumes Tuner Patent expires June 30, 2003 and a successful defense of
patent in current litigation.
(d) Per Electro management.
(e) Assumed reduction Per Electro Management. Reflects settlement with Sony.
- -------------------------------------------------------------------------------
C-5
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
I. GOING CONCERN ANALYSIS
VSB VALUATION ASSUMING USE OF NOLS
(DOLLARS IN MILLIONS)
VALUE AT JANUARY 1, 1999
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
DOMESTIC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggregate 0.0 0.0 0.0 2.2 6.1 14.3 26.6 35.5 43.8 57.8 78.6 102.9 119.2 147.5 176.8 181.6
Royalty Income..
VSB Associated (2.7) (2.7)
Costs(a)........ 0.0 0.0 0.0 (8.0) (8.0) (8.0) (8.0) (8.0) (5.6) (3.9) (2.7) (2.7) (2.7) (2.7)
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
Net Royalty 100.2
Income.......... 0.0 0.0 0.0 (5.8) (1.9) 6.3 18.6 27.5 38.2 53.9 75.9 116.5 144.8 174.1 178.9
Unsheltered 0.0
Earnings........ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 82.2 117.8 147.1 178.9
AMT Due(b)...... 0.0 0.0 0.0 0.0 0.0 0.1 0.4 0.5 0.8 1.1 1.5 2.0 20.5 35.3 55.9 68.0
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
NET VSB ROYALTY 98.2
INCOME.......... 0.0 0.0 0.0 (5.8) (1.9) 6.1 18.2 26.9 37.5 52.8 74.4 95.9 109.5 118.2 110.9
INTERNATIONAL ADOPTED
Aggregate 0.0 0.0 0.0 0.5 2.3 7.3 17.0 31.9 35.9 40.6 46.2 52.4 59.7 83.0 92.5 100.5
Royalty Income..
VSB Associated 0.0 0.0 0.0 (0.8) (2.1) (2.1) (2.1) (2.1) (1.5) (1.0) (0.7) (0.7) (0.7) (0.7) (0.7) (0.7)
Costs(a)........
Withholding(c) 0.0 0.0 0.0 0.0 (0.0) (0.6) (1.6) (3.3) (3.8) (4.4) (5.0) (5.7) (6.5) (9.0) (10.1) (11.0)
11.0%...........
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
Net Royalty 0.0 0.0 0.0 (0.3) 0.2 4.6 13.3 26.5 30.7 35.2 40.4 46.0 52.5 73.2 81.6 88.8
Income..........
Unsheltered 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 52.5 73.2 81.6 88.8
Earnings........
AMT Due(b)...... 0.0 0.0 0.0 0.0 0.0 0.1 0.3 0.5 0.6 0.7 0.8 0.9 13.1 22.0 31.0 33.7
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
NET VSB ROYALTY 0.0 0.0 0.0 (0.3) 0.2 4.5 13.0 26.0 30.0 34.5 39.6 45.1 39.3 51.3 50.6 55.0
INCOME..........
INTERNATIONAL LIKELY TO ADOPT
Aggregate 0.0 0.0 0.0 0.0 0.0 2.9 7.7 33.1 40.0 48.6 59.2 72.4 88.8 120.0 148.2 183.7
Royalty Income..
VSB Associated 0.0 0.0 0.0 (1.2) (3.2) (3.2) (3.2) (3.2) (2.2) (1.6) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1)
Costs(a)........
Withholding(c) 0.0 0.0 0.0 0.0 0.0 0.0 (0.5) (3.3) (4.2) (5.2) (6.4) (7.8) (9.6) (13.1) (16.2) (20.1)
11.0%...........
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
Net Royalty 0.0 0.0 0.0 (1.2) (3.2) (0.3) 4.0 26.6 33.6 41.8 51.7 63.4 78.0 105.8 130.9 162.5
Income..........
Unsheltered 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 78.0 105.8 130.9 162.5
Earnings........
AMT Due(b)...... 0.0 0.0 0.0 0.0 0.0 (0.0) 0.1 0.5 0.7 0.8 1.0 1.3 19.5 31.7 49.7 61.7
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
NET VSB ROYALTY 0.0 0.0 0.0 (1.2) (3.2) (0.3) 3.9 26.1 33.0 41.0 50.7 62.2 58.5 74.0 81.2 100.7
INCOME..........
</TABLE>
- -------------------------------------------------------------------------------
(a) Per Electro Management. Costs include Licensing, Advanced Product
Development, Transmission Technology, Broadcast Technology, Technology
Adoption, Digital Business Development, Legal and R&D and Engineering and
Capital Expenditures. VSB costs are assumed to decrease by 30% in 2004,
2005 and 2006 and remain constant thereafter. In 1999 approximately 80.0%
of the costs of VSB are allocated to Domestic VSB and 20.0% of the costs
of VSB are allocated to International VSB. In years beyond 1999, 60.0% of
the costs of VSB are allocated to Domestic VSB and 40.0% are allocated to
International VSB. In all years, 40.0% of the International VSB costs are
allocated to International Adopted countries and 60.0% are allocated to
International Likely to Adopt countries.
(b) Per guidance from Arthur Andersen, the Valuation assumes the Company pays
an AMT in the years after 2000. In the years in which the Company has
available NOLs, it pays an effective AMT of 2.0%. In the years in which
there is no available NOL, the Valuation assumes the Company pays an AMT
adjusted, effective tax rate of 25.0% in 2008, 30.0% in 2009 and 38.0%
thereafter. The Valuation assumes no foreign tax credits, but treats
assumed foreign witholding as a deduction.
(c) The witholding tax rate is equal to the weighted average of the countries'
treaty defined witholding rate. For those countries where there is no
treaty defined rate, the country's internal witholding rate was used.
Assumed witholding rates per Arthur Andersen.
C-6
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
I. GOING CONCERN ANALYSIS
-------------------------
VSB VALUATION ASSUMING USE OF NOLS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
---- ---- ------- ------ ------ ------ ------ ------ ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calculation of
Remaining
NOLs(a)
- ----------------
Pre-LG NOLs
(Year-End)(b)... $ 481.0 $481.0 $481.0 $473.8 $431.4 $344.1 $ 241.6 $ 211.0 $ 184.0 $ 157.0 $130.0 $103.0
Utilizable
Beginning....... 27.0 54.0 81.0 108.0 135.0 162.0 181.8 166.4 106.1 30.6 27.0 27.0 27.0 27.0
Pre-LG NOLs
Utilized........ 0.0 0.0 0.0 0.0 0.0 (7.2) (42.3) (87.3) (102.5) (30.6) (27.0) (27.0) (27.0) (27.0)
---- ---- ------- ------ ------ ------ ------ ------ ------- ------- ------- ------- ------ ------
Utilizable End.. 27.0 54.0 81.0 108.0 135.0 154.8 139.4 79.1 3.6 0.0 0.0 0.0 0.0 0.0
Post LG NOL
(beginning)..... $ 354.6 $373.0 $407.3 $431.3 $431.3 $431.3 $ 431.3 $ 431.3 $ 330.9 $ 189.9 $ 7.3 $ 0.0
Post LG NOL
Utilized........ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (100.4) (141.0) (182.6) (7.3) 0.0
NOL Generated... 18.4 34.3 24.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------- ------ ------ ------ ------ ------ ------- ------- ------- ------- ------ ------
Post LG NOL
(ending)........ $ 373.0 $407.3 $431.3 $431.3 $431.3 $431.3 $ 431.3 $ 330.9 $ 189.9 $ 7.3 $ 0.0 $ 0.0
<CAPTION>
2010 2011
------ ----
<S> <C> <C>
Calculation of
Remaining
NOLs(a)
- -----------------
Pre-LG NOLs
(Year-End)(b)... $76.0 $0.0
Utilizable
Beginning....... 27.0 0.0
Pre-LG NOLs
Utilized........ (27.0) 0.0
------ ----
Utilizable End.. 0.0 0.0
Post LG NOL
(beginning)..... $ 0.0 $0.0
Post LG NOL
Utilized........ 0.0 0.0
NOL Generated... 0.0 0.0
------ ----
Post LG NOL
(ending)........ $ 0.0 $0.0
</TABLE>
<TABLE>
<S> <C>
1998 Net Income........... ($283.4)
Cancellation of Debt
Income(c)................. 265.0
-------
1998 NOL.................. ($ 18.4)
1998 Net Income...........
</TABLE>
<TABLE>
<CAPTION>
NET INCOME ADJUSTED FOR 1998 1999 2000 2001 2002 2003
VSB ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Business Plan EBIT........ ($105.1) ($16.7) $ 4.1 $ 29.7 $ 53.2 $ 61.2
Domestic VSB Income (net
of costs)................. 0.0 (5.8) (1.9) 6.3 18.6 27.5
------- ------ ------ ------ ------ ------
Business Plan EBIT (Excl.
VSB)...................... (105.1) (10.9) 6.0 23.4 34.6 33.7
EBIT Differential......... 0.0 5.8 1.9 (6.3) (18.6) (27.5)
------- ------ ------ ------ ------ ------
Incremental Debt.......... 0.0 (5.8) (7.7) (1.5) 17.1 44.6
Incremental Interest
Expense @ 9.5%............ 0.0 (0.3) (0.6) (0.4) 0.7 2.9
Business Plan Net
Income.................... ($283.4) ($33.1) ($21.6) $ 2.5 $ 25.8 $ 37.1
------- ------ ------ ------ ------ ------
New Net Income (Excl.
VSB)...................... (283.4) (27.0) (19.0) (3.3) 6.4 6.7
</TABLE>
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
CALCULATION OF NOL ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
New Net Income (Excl.
VSB)...................... (283.4) (27.0) (19.0) (3.3) 6.4 6.7
Net VSB royalty before
AMT
(Int'l and Domestic)...... 0.0 (7.3) (5.0) 10.6 35.9 80.6
------- ------ ------ ------ ------ ------
Total Net Income.......... (283.4) (34.3) (24.0) 7.2 42.3 87.3
NOL
(Generated)/Utilized...... -- (34.3) (24.0) 7.2 42.3 87.3
</TABLE>
<TABLE>
<CAPTION> TOTAL
PRESENT NET PRESENT VALUE OF
VALUE DOMESTIC VSB TECHNOLOGY @
OF -------------------------------
VSB 25.0% 30.0% 35.0% 40.0%
TECHNOLOGY ------- ------- ------- -------
$130.6(d) <S> <C> <C> <C>
$94.0 $67.2 $48.9 $36.1
<CAPTION>
NET PRESENT VALUE OF
INT'L (ADOPTED) VSB TECHNOLOGY @
--------------------------------
35.0% 40.0% 45.0% 50.0%
------- ------- ------- -------
<S> <C> <C> <C>
$33.6 $26.1 $20.6 $16.5
<CAPTION>
NET PRESENT VALUE OF
INT'L (LIKELY TO ADOPT) VSB
TECHNOLOGY @
-------------------------------
45% 50% 55% 60%
------- ------- ------- -------
<S> <C> <C> <C>
$18.3 $13.8 $10.5 $8.1
</TABLE>
- -------------------------------------------------------------------------------
(a) Assumes that after 2003 NOLs are used exclusively to shelter VSB income.
(b) Source: Electro 1997 10-K. Utilizable at a maximum rate of $27MM per year
up until 2010.
(c) Based on Arthur Andersen analysis and an assumed implied equity value of
reorganized Electro.
(d) Assumes a 25.0% discount rate for Domestic VSB royalty fee income cash
flow, a 40.0% discount rate for International (Adopted) VSB royalty fee
income cash flows and a 55.0% discount rate for International (Likely to
Adopt) VSB royalty fee income cash flows.
C-7
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
II. BUSINESS PLAN COMPARISON
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FY ENDED DECEMBER 31,
BUDGET PROJECTED
BUSINESS PLAN ------ ----------------------------
DATE 1998 1999 2000 2001 2002 2003
--------------- ------ ---- ---- ---- ---- ----
INCOME STATEMENT ITEMS
<S> <C> <C> <C> <C> <C> <C> <C>
SALES................... 11/12 $ 965.6 $876.1 $889.3 $935.1 $ 987.6 $1,018.3
6/26 989.7 916.0 917.8 961.9 1,013.9 1,039.9
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 24.1) ($39.9) ($28.5) ($26.8) ($ 26.3) ($ 21.6)
======= ====== ====== ====== ======== ========
GROSS MARGIN............ 11/12 $ 72.2 $ 74.0 $ 81.7 $ 97.4 $ 106.9 $ 115.3
6/26 60.6 57.2 77.6 92.3 101.6 108.4
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 11.6 $ 16.8 $ 4.1 $ 5.1 $ 5.3 $ 6.9
======= ====== ====== ====== ======== ========
SELLING................. 11/12 $ 78.0 $ 59.0 $ 65.9 $ 69.0 $ 72.5 $ 73.7
6/26 72.5 63.0 65.3 68.7 72.6 75.1
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 5.5 ($ 4.0) $ 0.6 $ 0.3 ($ 0.1) ($ 1.4)
======= ====== ====== ====== ======== ========
G&A..................... 11/12 $ 51.4 $ 46.9 $ 30.1 $ 26.5 $ 22.5 $ 20.8
6/26 45.2 34.4 26.3 24.8 25.4 25.9
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 6.2 $ 12.5 $ 3.8 $ 1.7 ($ 2.9) ($ 5.1)
======= ====== ====== ====== ======== ========
R&D..................... 11/12 $ 45.9 $ 11.2 $ 8.7 $ 8.1 $ 7.5 $ 7.0
6/26 38.4 7.6 4.3 4.4 4.4 4.6
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 7.5 $ 3.6 $ 4.4 $ 3.7 $ 3.1 $ 2.4
======= ====== ====== ====== ======== ========
OPERATING INCOME........ 11/12 ($103.1) ($43.1) ($23.0) ($ 6.2) $ 4.4 $ 13.8
6/26 (95.5) (47.8) (18.3) (5.6) (0.8) 2.8
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 7.6) $ 4.7 ($ 4.7) ($ 0.6) $ 5.2 11.0
======= ====== ====== ====== ======== ========
ROYALTY INCOME.......... 11/12 $ 0.0 $ 4.7 $ 5.2 $ 5.8 $ 6.4 $ 7.2
6/26 2.0 2.0 2.0 2.0 2.0 1.9
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 2.0) $ 2.7 $ 3.2 $ 3.8 $ 4.4 $ 5.3
======= ====== ====== ====== ======== ========
OTHER EXPENSE (Income)
(a).................... 11/12 ($ 3.5) ($ 2.3) $ 1.5 $ 1.5 $ 1.5 $ 1.5
6/26 9.5 7.0 7.0 7.0 7.0 7.0
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 13.0) ($ 9.3) ($ 5.5) ($ 5.5) ($ 5.5) ($ 5.5)
======= ====== ====== ====== ======== ========
EBIT.................... 11/12 ($ 99.6) ($36.2) ($19.3) ($ 1.9) $ 9.3 $ 19.4
6/26 (103.0) (52.8) (23.3) (10.6) (5.8) (2.3)
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 3.4 $ 16.6 $ 4.0 $ 8.7 $ 15.1 21.7
======= ====== ====== ====== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
(a) Other Expense in 1998 @ 6/26 excludes non-cash restructuring charge of
$35.2MM
Years 2000-2003 of 11/12 plan reflect bank financing fees. Per Electro
management.
C-8
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
II. BUSINESS PLAN COMPARISON
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FY ENDED DECEMBER 31,
BUDGET PROJECTED
BUSINESS PLAN ------ ----------------------------
DATE 1998 1999 2000 2001 2002 2003
------------- ------ ---- ---- ---- ---- ----
CASH FLOW ITEMS
<S> <C> <C> <C> <C> <C> <C> <C>
DEPRECIATION &
AMORTIZATION........... 11/12 $ 35.8 $ 6.1 $ 3.2 $ 3.6 $ 3.9 $ 4.2
6/26 35.7 9.1 2.8 3.3 3.7 4.0
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ $ 0.1 ($ 3.0) $ 0.4 $ 0.3 $ 0.2 0.2
======= ====== ====== ====== ====== =====
CAPITAL EXPENDITURES.... 11/12 ($ 99.8) ($ 4.9) ($ 4.5) ($ 4.5) ($ 4.5) ($4.5)
6/26 (13.2) (4.5) (4.5) (4.5) (4.5) (4.5)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 86.6) ($ 0.4) $ 0.0 $ 0.0 $ 0.0 0.0
======= ====== ====== ====== ====== =====
CHANGE IN NET WORKING
CAPITAL................ 11/12 ($ 4.3) $ 10.7 $ 17.0 ($13.1) ($ 3.3) ($5.7)
6/26 16.8 1.6 36.0 (2.0) (3.5) (0.5)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 21.1) $ 9.1 ($19.0) ($11.1) $ 0.2 (5.2)
======= ====== ====== ====== ====== =====
PROCEEDS FROM ASSET
SALES.................. 11/12 $ 70.3 $ 47.9 $ 0.0 $ 0.0 $ 0.0 $ 0.0
6/26 31.9 93.2 0.0 0.0 0.0 0.0
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ $ 38.4 ($45.3) $ 0.0 $ 0.0 $ 0.0 0.0
======= ====== ====== ====== ====== =====
RESTRUCTURING COSTS..... 11/12 ($ 38.7) ($55.5) ($ 2.4) $ 0.0 $ 0.0 $ 0.0
6/26 (29.0) (61.5) (9.1) (6.6) (4.2) (2.8)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 9.7) $ 6.0 $ 6.7 $ 6.6 $ 4.2 2.8
======= ====== ====== ====== ====== =====
TAXES................... 11/12 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.2 $ 0.4
6/26 0.0 0.0 0.0 0.0 0.0 0.0
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.2 $ 0.4
======= ====== ====== ====== ====== =====
FREE CASH FLOW (A)...... 11/12 ($136.3) ($31.9) ($ 6.0) ($15.9) $ 5.2 $13.0
6/26 (60.8) (14.9) 1.9 (20.4) (14.3) (6.1)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 75.5) ($17.0) ($ 7.9) $ 4.5 $ 19.5 $19.1
======= ====== ====== ====== ====== =====
</TABLE>
- --------------------------------------------------------------------------------
(a) Free cash flow defined as EBIT plus all cash flow items.
C-9
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
III. ONE-TIME ADJUSTMENTS
<TABLE>
<CAPTION>
VALUE ADJUSTMENT
----------------
<C> <S>
*** ***
SALE OF GLENVIEW PROPERTY 6/26 Valuation assumed the sale of
Glenview in Q1 1999. Sale occurred in
October of 1998.
SALE OF MELROSE PARK EQUIPMENT 6/26 Valuation assumed the sale of
Melrose Park equipment in Q1 1999. Sale
occurred in Q4 1998.
VSB ADJUSTMENTS VSB Technology cash flows have been
revised to reflect (i) updated input from
Forrester Research in respect to Domestic
VSB Technology and (ii) cash flow from
international markets based upon report
from GartnerConsulting.
TAX ADJUSTMENTS Tax Treatment revised per discussions
with Arthur Andersen to reflect impact of
alternative minimum tax and foreign tax
payments.
TRADEMARK & DISTRIBUTION ADJUSTMENTS 6/26 Valuation assumed all warranty
expenses against finished goods. Current
Valuation assumes a reduction in
Trademark & Distribution on account of
warranty claims of $33.3MM discounted for
8 quarters.
LIQUIDATION PROCEEDS ADJUSTMENTS Valuation assumes distribution of net
liquidation proceeds will occur over the
course of 2 to 4 years. Accordingly, a
10% discount rate was applied to
aggregate net proceeds for 3 years.
</TABLE>
C-10
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
IV. DOMESTIC VSB VALUE ADJUSTMENTS (A)
<TABLE>
<C> <S>
TVS Percent digital has been reduced for 1999-2005 due to
higher than expected retail pricing and slower price
reduction assumptions. Percent digital figures for 2006-
2011 have been increased due to an anticipated erosion
in the price disparity between analog and digital
televisions.
PCS The decrease in the percent using VSB for PCs reflects
the rapid transition to the low-end market in PCs and
the assumption that the low-end PC will not have VSB
capability. Earlier more aggressive assumptions were
predicated on the market power of the Wintel duopoly.
The Wintel duopoly's ability to dictate to the market
has not been demonstrated by recent market events.
Notwithstanding the foregoing, there will still be a
small market dominated by enthusiasts. Accordingly, the
royalty rate assumed for PCs is $5.00.
ADD-IN CARDS Assumed market share is based on 200,000 add-in cards
being sold for analog televisions in the past year.
Valuation assumes a $5.00 royalty rate for add-in cards.
VIDEO RECORDERS/DVD-R The reduction in percent digital in the early years of
VSB adoption reflects new market data which indicates
that the majority of products sold in this group during
that time period will be VCRs with lower VSB/digital
penetration rates than will be experienced by the DVD-R
product.
DVD-P The increase in the DVD-P market size in the early years
reflects updated market data. The decrease in the market
size in the later years reflects the new assumption that
the price disparity between DVD-R and DVD-P will
sufficiently erode to encourage a market shift to DVD-R.
ATSC CONVERTERS The decrease in total VSB demodulation in years 2009-
2011 reflects updated market data indicating a projected
reduction in the number of analog televisions in use.
</TABLE>
(a) All adjustments to Domestic VSB Valuation per Forrester Research, Inc.
C-11
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- --------------------------------------------------------------------------------
V. S-4 PROPOSAL ANALYSIS
ANALYSIS OF S-4 PROPOSAL (BASED ON 11-12-98 BUSINESS PLAN)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED
CLAIM
AMOUNT
12/31/98 PROPOSED TREATMENT UNDER S-4 PROPOSAL $ RECOVERY % RECOVERY
--------- ------------------------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CITIBANK SECURED DEBT
(A).................... $ 68.2 $125.0 $68.2 100.0%
LG CLAIMS AND INTERESTS
SECURED
--------
Secured Guarantee of
Demand Notes.......... 72.0
Secured Guarantee of
Leveraged Lease (b)... 33.7
Direct Loans........... 45.0
------
Subtotal............. $150.7 Exchanged for (i) $118.8 in restructured Secured 100.0%
SENIOR UNSECURED Notes (c), (ii) 100.0% of the equity of $159.2 (d)
LG Extended Payable.... 140.0 reorganized Zenith, (iii) ownership of Senior Unsecured 6.1%
GENERAL UNSECURED Reynosa plant ($32.4MM credit against claims),
Leveraged Lease (iv) $8.0 in leverage lease equipment retained by
Deficiency Claim...... 56.4 LG and (v) general release. General Unsecured 0.0%
Service Fees........... 10.5
Guarantee Fees......... 1.6
------
Subtotal............. 68.5
------
Total LG Claims........ $359.2
--------
GENERAL UNSECURED
CLAIMS
--------
General Unsecured
(Trade)............... 55.8 Unimpaired....................................... $55.8 100.0%
General Unsecured
(Accruals)............ 122.4 $122.4 100.0%
--------
Indo Suez.............. 30.0 Modified Terms................................... $30.0 100.0%
6 1/4 Subordinated
Convertible $40.0 million new 6 1/4% subordinated
Debentures (f)........ 105.1 debentures due 2010............................. $40.0(e) 38.1%
Common Equity.......... NA Cancelled........................................
</TABLE>
- --------------------------------------------------------------------------------
(a) S-4 Proposal assumes $125.0 million working capital facility.
(b) Represents the amount paid by LGE to purchase claims, not legal contract
amount. Claim amount at appraised value of equipment, per Electro
management. Excludes impact, if any, of sale of certain Melrose Park
equipment to Philips.
(c) Assumes treatment of Indo Suez obligations consistent with other guaranteed
demand obligations. Trading value may be lower.
(d) Excludes value of release, if any. Assumes an equity value of $0.0 million
at 12/31/98.
(e) Assumes face value. Trading value may be lower.
(f) Principal amount plus assumed accrued interest at 12/31/98.
C-12
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
VI. LIQUIDATION ANALYSIS
- -------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
VALUE AT ESTIMATED ASSET RECOVERY
1/99 (A) % RECOVERY FROM LIQUIDATION
--------- ---------- ----------------
<S> <C> <C> <C>
ASSETS
MARKETABLE ASSETS
VSB Technology (tax-affected) (b)....... $ 39.4
Trademark & Distribution (c)............ 12.1
Tuner Patent (d)........................ 38.0
Other Intangibles (e)................... 0.7
Flat Tension Mask (e)................... 2.1
CURRENT ASSETS
Cash.................................... $ 0.0 100.0% 0.0
Accounts Receivable (f)................. 158.3 65.0% 102.9
Inventories (g).........................
Finished Goods........................ 43.1 75.0% 32.3
Less: Warranty (i)...................... (0.4)
------
Net Finished Goods.................... 31.9
Work in Process....................... 10.5 5.0% 0.5
Raw Materials......................... 24.4 20.0% 4.9
FIXED ASSETS
Real Estate (h).........................
Domestic.............................. 4.4
Mexican (j)........................... 0.0
Furniture, Fixture and Equipment (h)....
Domestic (k).......................... 13.4
Mexican (j)........................... 18.9
------
Gross Asset Recovery................ $269.3
======
</TABLE>
- -------------------------------------------------------------------------------
Note: Excludes "Other Assets" which represents the book gain on sale of
certain assets.
(a) All estimated values subject to substantial due diligence and review.
(b) Represents present value discounted to 1/1/99. Assumes 38.0% tax rate.
Value assumes a 35.0% discount rate for Domestic VSB, a 50% discount rate
for International (Adopted) VSB and zero value for International (Likely
to Adopt VSB) and royalty rates lower than the Company base case. Reflects
decrease in income related to Sony and cross licenses.
(c) Assumes liquidation will result in a 50.0% decrease in market share to
5.0%, a 2.0% market share contraction, a 25 million domestic television
market, a $300/television unit price, and a discount rate equal to the
historical weighted average cost of capital of the comparable company's
and the majority shareholder's internal cost of capital of 12.0% and an
incremental tax rate of 38.0% also includes a reduction of $33.3 million
in warranty expenses discounted over 8 quarters at 12.0%.
(d) Tuner Patent cash flows are net of cost and expenses associated with them
and assume settlement with Sony. Cash flows are tax affected at 38.0% and
are discounted at 25.0%.
(e) Per Company senior patent counsel. Other intangibles relates primarily to
touch-screen technology. Represents 50.0% of management's estimate of fair
market value.
(f) Excludes receivables on account of sale of equipment to Philips.
(g) Estimated value at 1/1/99 net of reserves per Electro management.
(h) Estimated value at 1/1/99 per Electro management.
(i) Per Electro management. Payment assumed to be necessary to achieve
liquidation value. Includes future warranty claims associated with net
finished goods in inventory.
(j) Mexican real estate and furniture, fixture and equipment have been reduced
by $38.8MM in Mexican claims per Electro management. Real estate has been
reduced first.
(k) Does not reflect pending sale of certain equipment from Melrose Park to
Philips. Accordingly, actual recoveries may be lower.
C-13
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
- -------------------------------------------------------------------------------
VI. LIQUIDATION ANALYSIS
- -------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C> <C> <C>
GROSS ASSET RECOVERY............................... $269.3
LESS: LIQUIDATION EXPENSES, & ADMINISTRATIVE AND
PRIORITY TAX CLAIMS
Administrative Costs
- --------------------
Professional Fees(a)............................. $ 24.0
Corporate Overhead(b)............................ 24.8
Trustee Fees(c).................................. 4.7
Brokerage Fees(d)................................ 10.1
Wind Down Costs(e)............................... 5.6
WARN Act(b)...................................... 21.0
Environmental(b)................................. 23.8
------
Subtotal....................................... 113.9
------
AGGREGATE NET PROCEEDS............................. $155.3
LIQUIDATION PROCEEDS AVAILABLE FOR DISTRBUTION(F).. $116.7
<CAPTION>
CLAIM % RECOVERY
------ ----------
<S> <C> <C> <C>
SECURED DEBT
Citibank......................................... $ 26.9(g) $ 26.9 100.0%
Proceeds available for secured creditors after
Citibank.......................................... $ 89.8
LG Guarantee of Demand Notes..................... 102.0 57.0 55.9%
LG Guarantee of Leveraged Lease.................. 13.6(h) 7.6 55.9%
LG Direct Loans.................................. 45.0 25.2 55.9%
------ ------
Total Secured Debt................................. $187.5 $116.7
====== ======
Liquidation Proceeds Available for Priority Claims and
Unsecured Creditors and Equity........................... $ 0.0
</TABLE>
- -------------------------------------------------------------------------------
(a) Assumes 4 year liquidation. Assumes fees of $2.0MM each month the first 6
months, $1.5MM for each of the next 6 months, $1.2MM for the entire second
year, $1.2MM for the entire third year, and $.6MM for the fourth and final
year.
(b) Per Electro management.
(c) Assumed as 3.0% of net liquidation proceeds.
(d) Brokerage fees assume 6.0% of gross asset recovery excluding Accounts
Receivables and Inventory. Includes $38.8MM on account of Mexican Real
Estate and Furniture, Fixture and Equipment sold to offset Mexican
priority claims.
(e) Real estate taxes plus on-site security and wind down teams at each
location during an average twelve month disposition period.
(f) Assumes distribution of net proceeds of asset sales will occur over the
course of 2 to 4 years. Accordingly, a 10.0% discount rate was applied for
three years.
(g) Revolver balance based on the 12/31/98 balance plus Q4 cash restructuring
costs including Melrose Park idle costs ($6.3MM), engineering severance
($2.5MM) and Q4 professional fees ($5.1MM).
(h) Secured claim reflecting LG's guarantee of the leveraged lease equals the
value of the leveraged lease equipment in a liquidation per Greenwich
Industrial. Any deficiency claim is treated as unsecured.
C-14
<PAGE>
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF _____________
IN RE: ) CHAPTER 11
)
ZENITH ELECTRONICS CORPORATION ) CASE NO. 98 - ____ (___)
)
DEBTOR. )
BALLOT FOR ACCEPTING OR REJECTING THE PREPACKAGED
PLAN OF REORGANIZATION DATED ____________, 1998 OF
ZENITH ELECTRONICS CORPORATION
CLASS 4 - BANK LENDER CLAIMS
PLEASE READ AND FOLLOW THE ENCLOSED
VOTING INSTRUCTIONS CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN.
- --------------------------------------------------------------------------------
. THIS BALLOT IS ACCOMPANIED BY A RETURN ENVELOPE THAT IS ADDRESSED TO
GEORGESON & COMPANY INC. ____________________ (THE "SOLICITATION AGENT").
THIS BALLOT MUST BE RECEIVED BY THE SOLICITATION AGENT BY 5:00 P.M., NEW
YORK CITY TIME, ______________, 1998 (THE "EXPIRATION DATE"), UNLESS THE
COMPANY, IN ITS SOLE DISCRETION, EXTENDS OR WAIVES THE PERIOD DURING WHICH
BALLOTS WILL BE ACCEPTED BY THE COMPANY, IN WHICH CASE THE TERM "EXPIRATION
DATE" FOR SUCH SOLICITATION SHALL MEAN THE LAST TIME AND DATE TO WHICH SUCH
SOLICITATION IS EXTENDED.
- --------------------------------------------------------------------------------
All capitalized terms used in the Ballot or Voting Instructions but not
otherwise defined therein shall have the meanings ascribed to them in the
Prepackaged Plan of Reorganization dated _____________, 1998 of Zenith
Electronics Corporation (the "Prepackaged Plan").
ITEM 1. AMOUNT AND TYPE OF CLAIM.
The undersigned is the beneficial holder of the Company holding a Class 4
Claim in the aggregate outstanding amount of $___________.
ITEM 2. CERTIFICATIONS.
By signing this Ballot, the undersigned certifies:
(i) to the Bankruptcy Court and the Company that either (a) such
person or entity is the beneficial interest holder of the Claims or
securities being voted or (b) such person or entity is an authorized
signatory for someone or some entity that or which is a beneficial interest
holder of the Claims or securities being voted;
(ii) to the Bankruptcy Court and the Company that such person or
entity (or in the case of an authorized signatory, the beneficial interest
holder) has received a copy of the Disclosure Statement and Solicitation
Materials and will acknowledge that the Solicitation is being made pursuant
to the terms and conditions set forth therein;
(iii) to the Bankruptcy Court and the Company that either (a) such
person or entity has not submitted any other Ballots for such Class of
Claims, as the case may be, held in other accounts or other registered
names or (b) such person or entity has disclosed on each Ballot completed
by such person or entity the existence of Claims in the same Class held in
other accounts or other registered names, and the submission of other
Ballots for such Claims;
(iv) to the Bankruptcy Court and the Company that such person or
entity has cast the same vote on every Ballot completed by such person or
entity with respect to holdings in a single Class of Claims;
<PAGE>
(v) that no other Ballots with respect to the amount of the Claims
identified in Item 1 have been cast or, if any other Ballots have been cast
with respect to such Claims, such earlier Ballots are hereby revoked; and
(vi) that such person or entity (or in the case of an authorized
signatory, the beneficial interest holder) be treated as the record holder
of such Claims for purposes of voting on the Prepackaged Plan.
ITEM 3. CLASS 4 VOTE.
The holder of the Class 4 Claim set forth in Item 1, votes (please check
one):
[_] To ACCEPT the Prepackaged Plan [_] To REJECT the Prepackaged Plan
THE BOARD OF DIRECTORS OF ZENITH ELECTRONICS CORPORATION
RECOMMENDS THAT YOU ACCEPT THE PREPACKAGED PLAN
BY CHECKING THE "TO ACCEPT THE PREPACKAGED PLAN" BOX IN ITEM 3.
Dated:______________
Name of Voter:_________________________________________
(Print or Type)
Social Security or Tax I.D. No.________________________
Signature:_____________________________________________
By:____________________________________________________
(If Appropriate)
Title:_________________________________________________
(If Appropriate)
Street Address:________________________________________
City, State and Zip Code:______________________________
-2-
<PAGE>
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER - ZENITH ELECTRONICS CORPORATION:
GEORGESON & COMPANY INC.
WALL STREET PLAZA
NEW YORK, NY 10005
ATTN.: TABULATIONS
BY 5:00 P.M. NEW YORK CITY TIME ON OR
BEFORE ____________, 1998, OR YOUR VOTE WILL NOT BE COUNTED
1. All capitalized terms used in the Ballot or Voting Instructions but not
otherwise defined therein shall have the meaning ascribed to them in the
Prepackaged Plan of Reorganization dated ___________, 1998 of Zenith Electronics
Corporation (the "Prepackaged Plan").
2. The Prepackaged Plan can be confirmed by the Bankruptcy Court, and therefore
made binding on you, if it is accepted by the holders of two-thirds in amount
and more than one-half in number of debt claims in each impaired debt class
voting on the Prepackaged Plan. Please review the Disclosure Statement for more
information.
3. To ensure that your vote is counted, you must (i) complete the Ballot, (ii)
indicate your decision either to accept or reject the Prepackaged Plan in the
boxes provided in Item 3 of the Ballot, and (iii) sign and return the Ballot to
the address set forth on the enclosed prepaid envelope. Your Ballot must be
received by Georgeson & Company Inc.________________________________ (the
"Solicitation Agent") by 5:00 p.m., New York City Time on or before
_______________, 1998 (the "Expiration Date"). If a Ballot is received after the
Expiration Date, it will not be counted. THE METHOD OF DELIVERY OF BALLOTS TO BE
SENT TO THE SOLICITATION AGENT IS AT THE ELECTION AND RISK OF EACH HOLDER OF A
CLAIM. Except as otherwise provided herein, such delivery will be deemed made
only when the original executed Ballot is actually received by the Solicitation
Agent. Instead of effecting delivery by mail, it is recommended, though not
required, that such holders use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. DELIVERY OF
A BALLOT BY FACSIMILE, E-MAIL OR ANY OTHER ELECTRONIC MEANS WILL NOT BE
ACCEPTED. NO BALLOT SHOULD BE SENT TO THE COMPANY, ANY INDENTURE TRUSTEE, OR THE
COMPANY'S FINANCIAL OR LEGAL ADVISORS.
4. If multiple Ballots are received from an individual holder of Claims with
respect to the same Claims prior to the Expiration Date, the last Ballot timely
received will supersede and revoke any earlier received Ballot.
5. The Ballot is not a letter of transmittal and may not be used for any
purpose other than to vote to accept or reject the Prepackaged Plan and to
determine the alleged amount of a beneficial holder's claim. Accordingly, at
this time, creditors should not surrender certificates or instruments
---
representing or evidencing their Claims, and neither the Company nor the
Solicitation Agent will accept delivery of such certificates or instruments
surrendered together with a Ballot. The remittance of your notes or other
evidence of your claims for exchange pursuant to the Prepackaged Plan may only
be made by you, and will only be accepted if certificates or instruments
representing your Claims (in proper form for transfer) are delivered together
with a letter of transmittal that will be furnished to you as provided under the
Prepackaged Plan or as notified following confirmation of the Prepackaged Plan
by the Bankruptcy Court.
6. This Ballot does not constitute, and shall not be deemed to be, a proof of
claim or equity interest or an assertion or admission of a claim or equity
interest.
7. Please be sure to sign and date your Ballot. If you are completing the
Ballot on behalf of an entity, indicate your relationship with such entity and
the capacity in which you are signing. In addition, please provide your name
and mailing address if different from that set forth on the attached mailing
label or if no such mailing label is attached to the Ballot.
8. If you hold Claims or Equity Interests in more than one class under the
Prepackaged Plan, you may receive more than one Ballot coded for each different
Class. Each Ballot votes only your claims indicated on that Ballot. Please
complete and return each Ballot you received.
9. The Ballot must be returned in sufficient time to allow it to be RECEIVED by
the Solicitation Agent by no later than 5:00 p.m., New York City Time, on or
before the Expiration Date. If you believe you have received the wrong Ballot,
please contact the Solicitation Agent or your broker or bank immediately.
PLEASE MAIL YOUR BALLOT PROMPTLY!
---------------------------------
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT
OR THE VOTING PROCEDURES,
PLEASE CALL THE SOLICITATION AGENT AT 1-800-223-2064.
-3-
<PAGE>
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF _____________
IN RE: ) CHAPTER 11
)
ZENITH ELECTRONICS CORPORATION ) CASE NO. 98 - ____ (___)
)
DEBTOR. )
BALLOT FOR ACCEPTING OR REJECTING THE PREPACKAGED
PLAN OF REORGANIZATION DATED ____________, 1998 OF
ZENITH ELECTRONICS CORPORATION
CLASS 6 - OLD SUBORDINATED DEBENTURE CLAIMS
(HOLDERS OF 6 1/4% CONVERTIBLE SUBORDINATED NOTES DUE 2011)
PLEASE READ AND FOLLOW THE ENCLOSED
VOTING INSTRUCTIONS CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN.
- --------------------------------------------------------------------------------
. THIS BALLOT IS ACCOMPANIED BY A RETURN ENVELOPE THAT IS ADDRESSED TO
GEORGESON & COMPANY INC. ____________________ (THE "SOLICITATION AGENT").
THIS BALLOT MUST BE RECEIVED BY THE SOLICITATION AGENT BY 5:00 P.M., NEW
YORK CITY TIME, ______________, 1998 (THE "EXPIRATION DATE"), UNLESS THE
COMPANY, IN ITS SOLE DISCRETION, EXTENDS OR WAIVES THE PERIOD DURING WHICH
BALLOTS WILL BE ACCEPTED BY THE COMPANY, IN WHICH CASE THE TERM "EXPIRATION
DATE" FOR SUCH SOLICITATION SHALL MEAN THE LAST TIME AND DATE TO WHICH SUCH
SOLICITATION IS EXTENDED.
- --------------------------------------------------------------------------------
All capitalized terms used in the Ballot or Voting Instructions but
not otherwise defined therein shall have the meanings ascribed to them in the
Prepackaged Plan of Reorganization dated _____________, 1998 of Zenith
Electronics Corporation (the "Prepackaged Plan").
ITEM 1. AMOUNT AND TYPE OF CLAIM.
The undersigned is the beneficial holder of the Company holding a
Class 6 Claim in the aggregate outstanding amount of $___________.
ITEM 2. DESCRIPTION OF CLASS 6 CLAIMS.
Please provide the information required by this Item 2 in the following
table (use additional sheets of paper if necessary):
Names of Holder* Account Number** Face Amount of Notes Held
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Total Amount of Claims $___________________________
(must be same as Item 1)
* Insert your name if the Class 6 Claims are held by you in record name, or,
if held by a broker or bank (or agent thereof), insert the name of the
broker or bank (or agent thereof) through which you own the Class 6 Claims.
** Please indicate the account number of the broker or bank where the account
is held.
<PAGE>
ITEM 3. CERTIFICATIONS.
By signing this Ballot, the undersigned certifies:
(i) to the Bankruptcy Court and the Company that either (a) such
person or entity is the beneficial interest holder of the Claims or
securities being voted or (b) such person or entity is an authorized
signatory for someone or some entity that or which is a beneficial interest
holder of the Claims or securities being voted;
(ii) to the Bankruptcy Court and the Company that such person or
entity (or in the case of an authorized signatory, the beneficial interest
holder) has received a copy of the Disclosure Statement and Solicitation
Materials and will acknowledge that the Solicitation is being made pursuant
to the terms and conditions set forth therein;
(iii) to the Bankruptcy Court and the Company that either (a) such
person or entity has not submitted any other Ballots for such Class of
Claims, as the case may be, held in other accounts or other registered
names or (b) such person or entity has disclosed on each Ballot completed
by such person or entity the existence of Claims in the same Class held in
other accounts or other registered names, and the submission of other
Ballots for such Claims;
(iv) to the Bankruptcy Court and the Company that such person or
entity has cast the same vote on every Ballot completed by such person or
entity with respect to holdings in a single Class of Claims;
(v) that no other Ballots with respect to the amount of the Claims
identified in Item 1 have been cast or, if any other Ballots have been cast
with respect to such Claims, such earlier Ballots are hereby revoked; and
(vi) that such person or entity (or in the case of an authorized
signatory, the beneficial interest holder) be treated as the record holder
of such Claims for purposes of voting on the Prepackaged Plan.
ITEM 4. CLASS 6 VOTE.
The holder of the Class 6 Claim set forth in Item 1, votes (please check
one):
[_] To ACCEPT the Prepackaged Plan [_] To REJECT the Prepackaged Plan
THE BOARD OF DIRECTORS OF ZENITH ELECTRONICS CORPORATION
RECOMMENDS THAT YOU ACCEPT THE PREPACKAGED PLAN
BY CHECKING THE "TO ACCEPT THE PREPACKAGED PLAN" BOX IN ITEM 4.
Dated:_____________
Name of Voter:_________________________________________
(Print or Type)
Social Security or Tax I.D. No.________________________
Signature:_____________________________________________
By:___________________________________________________
(If Appropriate)
Title:_________________________________________________
(If Appropriate)
Street Address:________________________________________
City, State and Zip Code:______________________________
-2-
<PAGE>
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER - ZENITH ELECTRONICS CORPORATION:
GEORGESON & COMPANY INC.
WALL STREET PLAZA
NEW YORK, NY 10005
ATTN.: TABULATIONS
BY 5:00 P.M. NEW YORK CITY TIME ON OR
BEFORE ____________, 1998, OR YOUR VOTE WILL NOT BE COUNTED
1. All capitalized terms used in the Ballot or Voting Instructions but not
otherwise defined therein shall have the meaning ascribed to them in the
Prepackaged Plan of Reorganization dated ___________, 1998 of Zenith Electronics
Corporation (the "Prepackaged Plan").
2. The Prepackaged Plan can be confirmed by the Bankruptcy Court, and therefore
made binding on you, if it is accepted by the holders of two-thirds in amount
and more than one-half in number of debt claims in each impaired debt class
voting on the Prepackaged Plan. Please review the Disclosure Statement for more
information.
3. To ensure that your vote is counted, you must (i) complete the Ballot, (ii)
indicate your decision either to accept or reject the Prepackaged Plan in the
boxes provided in Item 4 of the Ballot, and (iii) sign and return the Ballot to
the address set forth on the enclosed prepaid envelope. Your Ballot must be
received by Georgeson & Company Inc. _________________________________ (the
"Solicitation Agent") by 5:00 p.m., New York City Time on or before
_______________, 1998 (the "Expiration Date"). If a Ballot is received after the
Expiration Date, it will not be counted. THE METHOD OF DELIVERY OF BALLOTS TO BE
SENT TO THE SOLICITATION AGENT IS AT THE ELECTION AND RISK OF EACH HOLDER OF A
CLAIM. Except as otherwise provided herein, such delivery will be deemed made
only when the original executed Ballot is actually received by the Solicitation
Agent. Instead of effecting delivery by mail, it is recommended, though not
required, that such holders use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. DELIVERY OF
A BALLOT BY FACSIMILE, E-MAIL OR ANY OTHER ELECTRONIC MEANS WILL NOT BE
ACCEPTED. NO BALLOT SHOULD BE SENT TO THE COMPANY, ANY INDENTURE TRUSTEE, OR THE
COMPANY'S FINANCIAL OR LEGAL ADVISORS.
4. If multiple Ballots are received from an individual holder of Claims with
respect to the same Claims prior to the Expiration Date, the last Ballot timely
received will supersede and revoke any earlier received Ballot.
5. The Ballot is not a letter of transmittal and may not be used for any
purpose other than to vote to accept or reject the Prepackaged Plan and to
determine the alleged amount of a beneficial holder's claim. Accordingly, at
this time, creditors should not surrender certificates or instruments
---
representing or evidencing their Claims, and neither the Company nor the
Solicitation Agent will accept delivery of such certificates or instruments
surrendered together with a Ballot. The remittance of your notes or other
evidence of your claims for exchange pursuant to the Prepackaged Plan may only
be made by you, and will only be accepted if certificates or instruments
representing your Claims (in proper form for transfer) are delivered together
with a letter of transmittal that will be furnished to you as provided under the
Prepackaged Plan or as notified following confirmation of the Prepackaged Plan
by the Bankruptcy Court.
6. This Ballot does not constitute, and shall not be deemed to be, a proof of
claim or equity interest or an assertion or admission of a claim or equity
interest.
7. Please be sure to sign and date your Ballot. If you are completing the
Ballot on behalf of an entity, indicate your relationship with such entity and
the capacity in which you are signing. In addition, please provide your name
and mailing address if different from that set forth on the attached mailing
label or if no such mailing label is attached to the Ballot.
8. If you hold Claims or Equity Interests in more than one class under the
Prepackaged Plan, you may receive more than one Ballot coded for each different
Class. Each Ballot votes only your claims indicated on that Ballot. Please
complete and return each Ballot you received.
9. The Ballot must be returned in sufficient time to allow it to be RECEIVED by
the Solicitation Agent by no later than 5:00 p.m., New York City Time, on or
before the Expiration Date. If you believe you have received the wrong Ballot,
please contact the Solicitation Agent or your broker or bank immediately.
PLEASE MAIL YOUR BALLOT PROMPTLY!
---------------------------------
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT
OR THE VOTING PROCEDURES,
PLEASE CALL THE SOLICITATION AGENT AT 1-800-223-2064.
-3-
<PAGE>
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF _____________
IN RE: ) CHAPTER 11
)
ZENITH ELECTRONICS CORPORATION ) CASE NO. 98 - ____ (___)
)
DEBTOR. )
BALLOT FOR ACCEPTING OR REJECTING THE PREPACKAGED
PLAN OF REORGANIZATION DATED ____________, 1998 OF
ZENITH ELECTRONICS CORPORATION
CLASS 7 - LGE CLAIMS
PLEASE READ AND FOLLOW THE ENCLOSED
VOTING INSTRUCTIONS CAREFULLY BEFORE COMPLETING THE BALLOT.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATE
YOUR ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN.
- --------------------------------------------------------------------------------
. THIS BALLOT IS ACCOMPANIED BY A RETURN ENVELOPE THAT IS ADDRESSED TO
GEORGESON & COMPANY INC. ____________________ (THE "SOLICITATION AGENT").
THIS BALLOT MUST BE RECEIVED BY THE SOLICITATION AGENT BY 5:00 P.M., NEW YORK
CITY TIME, ______________, 1998 (THE "EXPIRATION DATE"), UNLESS THE COMPANY,
IN ITS SOLE DISCRETION, EXTENDS OR WAIVES THE PERIOD DURING WHICH BALLOTS WILL
BE ACCEPTED BY THE COMPANY, IN WHICH CASE THE TERM "EXPIRATION DATE" FOR SUCH
SOLICITATION SHALL MEAN THE LAST TIME AND DATE TO WHICH SUCH SOLICITATION IS
EXTENDED.
- --------------------------------------------------------------------------------
All capitalized terms used in the Ballot or Voting Instructions but not
otherwise defined therein shall have the meanings ascribed to them in the
Prepackaged Plan of Reorganization dated _____________, 1998 of Zenith
Electronics Corporation (the "Prepackaged Plan").
ITEM 1. AMOUNT AND TYPE OF CLAIM.
The undersigned is the beneficial holder of the Company holding a
Class 7 Claim in the aggregate outstanding amount of $___________.
ITEM 2. CERTIFICATIONS.
By signing this Ballot, the undersigned certifies:
(i) to the Bankruptcy Court and the Company that either (a) such
person or entity is the beneficial interest holder of the Claims or
securities being voted or (b) such person or entity is an authorized
signatory for someone or some entity that or which is a beneficial interest
holder of the Claims or securities being voted;
(ii) to the Bankruptcy Court and the Company that such person or
entity (or in the case of an authorized signatory, the beneficial interest
holder) has received a copy of the Disclosure Statement and Solicitation
Materials and will acknowledge that the Solicitation is being made pursuant
to the terms and conditions set forth therein;
(iii) to the Bankruptcy Court and the Company that either (a) such
person or entity has not submitted any other Ballots for such Class of
Claims, as the case may be, held in other accounts or other registered
names or (b) such person or entity has disclosed on each Ballot completed
by such person or entity the existence of Claims in the same Class held in
other accounts or other registered names, and the submission of other
Ballots for such Claims;
(iv) to the Bankruptcy Court and the Company that such person or
entity has cast the same vote on every Ballot completed by such person or
entity with respect to holdings in a single Class of Claims;
<PAGE>
(v) that no other Ballots with respect to the amount of the Claims
identified in Item 1 have been cast or, if any other Ballots have been cast
with respect to such Claims, such earlier Ballots are hereby revoked; and
(vi) that such person or entity (or in the case of an authorized
signatory, the beneficial interest holder) be treated as the record holder
of such Claims for purposes of voting on the Prepackaged Plan.
ITEM 3. CLASS 7 VOTE.
The holder of the Class 7 Claim set forth in Item 1, votes (please
check one):
[ ] To ACCEPT the Prepackaged Plan [ ] To REJECT the Prepackaged Plan
THE BOARD OF DIRECTORS OF ZENITH ELECTRONICS CORPORATION
RECOMMENDS THAT YOU ACCEPT THE PREPACKAGED PLAN
BY CHECKING THE "TO ACCEPT THE PREPACKAGED PLAN" BOX IN ITEM 3.
Dated:____________
Name of Voter:________________________________________
(Print or Type)
Social Security or Tax I.D. No._______________________
Signature:_____________________________________________
By:____________________________________________________
(If Appropriate)
Title:_________________________________________________
(If Appropriate)
Street Address:________________________________________
City, State and Zip Code:______________________________
-2-
<PAGE>
VOTING INSTRUCTIONS
PLEASE COMPLETE, SIGN AND DATE
THE BALLOT AND RETURN IT PROMPTLY
YOUR BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER - ZENITH ELECTRONICS CORPORATION:
GEORGESON & COMPANY INC.
WALL STREET PLAZA
NEW YORK, NY 10005
ATTN.: TABULATIONS
BY 5:00 P.M. NEW YORK CITY TIME ON OR
BEFORE ____________, 1998, OR YOUR VOTE WILL NOT BE COUNTED
1. All capitalized terms used in the Ballot or Voting Instructions but not
otherwise defined therein shall have the meaning ascribed to them in the
Prepackaged Plan of Reorganization dated ___________, 1998 of Zenith Electronics
Corporation (the "Prepackaged Plan").
2. The Prepackaged Plan can be confirmed by the Bankruptcy Court, and
therefore made binding on you, if it is accepted by the holders of two-thirds in
amount and more than one-half in number of debt claims in each impaired debt
class voting on the Prepackaged Plan. Please review the Disclosure Statement for
more information.
3. To ensure that your vote is counted, you must (i) complete the Ballot, (ii)
indicate your decision either to accept or reject the Prepackaged Plan in the
boxes provided in Item 3 of the Ballot, and (iii) sign and return the Ballot to
the address set forth on the enclosed prepaid envelope. Your Ballot must be
received by Georgeson & Company Inc. _______________________________________
(the "Solicitation Agent") by 5:00 p.m., New York City Time on or before
_______________, 1998 (the "Expiration Date"). If a Ballot is received after the
Expiration Date, it will not be counted. THE METHOD OF DELIVERY OF BALLOTS TO BE
SENT TO THE SOLICITATION AGENT IS AT THE ELECTION AND RISK OF EACH HOLDER OF A
CLAIM. Except as otherwise provided herein, such delivery will be deemed made
only when the original executed Ballot is actually received by the Solicitation
Agent. Instead of effecting delivery by mail, it is recommended, though not
required, that such holders use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. DELIVERY OF
A BALLOT BY FACSIMILE, E-MAIL OR ANY OTHER ELECTRONIC MEANS WILL NOT BE
ACCEPTED. NO BALLOT SHOULD BE SENT TO THE COMPANY, ANY INDENTURE TRUSTEE, OR THE
COMPANY'S FINANCIAL OR LEGAL ADVISORS.
4. If multiple Ballots are received from an individual holder of Claims with
respect to the same Claims prior to the Expiration Date, the last Ballot timely
received will supersede and revoke any earlier received Ballot.
5. The Ballot is not a letter of transmittal and may not be used for any
purpose other than to vote to accept or reject the Prepackaged Plan and to
determine the alleged amount of a beneficial holder's claim. Accordingly, at
this time, creditors should not surrender certificates or instruments
---
representing or evidencing their Claims, and neither the Company nor the
Solicitation Agent will accept delivery of such certificates or instruments
surrendered together with a Ballot. The remittance of your notes or other
evidence of your claims for exchange pursuant to the Prepackaged Plan may only
be made by you, and will only be accepted if certificates or instruments
representing your Claims (in proper form for transfer) are delivered together
with a letter of transmittal that will be furnished to you as provided under the
Prepackaged Plan or as notified following confirmation of the Prepackaged Plan
by the Bankruptcy Court.
6. This Ballot does not constitute, and shall not be deemed to be, a proof of
claim or equity interest or an assertion or admission of a claim or equity
interest.
7. Please be sure to sign and date your Ballot. If you are completing the
Ballot on behalf of an entity, indicate your relationship with such entity and
the capacity in which you are signing. In addition, please provide your name
and mailing address if different from that set forth on the attached mailing
label or if no such mailing label is attached to the Ballot.
8. If you hold Claims or Equity Interests in more than one class under the
Prepackaged Plan, you may receive more than one Ballot coded for each different
Class. Each Ballot votes only your claims indicated on that Ballot. Please
complete and return each Ballot you received.
9. The Ballot must be returned in sufficient time to allow it to be RECEIVED
by the Solicitation Agent by no later than 5:00 p.m., New York City Time, on or
before the Expiration Date. If you believe you have received the wrong Ballot,
please contact the Solicitation Agent or your broker or bank immediately.
PLEASE MAIL YOUR BALLOT PROMPTLY!
---------------------------------
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT
OR THE VOTING PROCEDURES,
PLEASE CALL THE SOLICITATION AGENT AT 1-800-223-2064.
-3-
<PAGE>
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ___________________
IN RE: ) CHAPTER 11
)
ZENITH ELECTRONICS CORPORATION ) CASE NO. 98 - ___ (___)
)
DEBTOR. )
MASTER BALLOT FOR ACCEPTING OR REJECTING THE
PREPACKAGED PLAN OF REORGANIZATION DATED
__________________, 1998 OF ZENITH ELECTRONICS CORPORATION
CLASS 6 - OLD SUBORDINATED DEBENTURE CLAIMS
(HOLDERS OF 6 1/4% SUBORDINATED NOTES DUE 2011)
This Master Ballot may not be used for any purpose other than for casting votes
to accept or reject the Prepackaged Plan (as defined herein). All capitalized
terms used in the Master Ballot or Voting Instructions but not otherwise defined
therein shall have the meaning ascribed to them in the Prepackaged Plan of
Reorganization dated ____________, 1998 of Zenith Electronics Corporation (the
"Prepackaged Plan").
This Master Ballot is being sent to brokers, proxy intermediaries, and other
nominees of Beneficial Holders (as defined herein) and is to be used by brokers,
proxy intermediaries or other nominees for casting votes to accept or reject the
Prepackaged Plan on behalf of and in accordance with the Ballots cast by the
Beneficial Holders holding Class 6 Claims through such brokers, proxy
intermediaries, or other nominees.
The Prepackaged Plan referred to in this Master Ballot can be confirmed by the
Bankruptcy Court and thereby made binding on all holders of Claims if it is
accepted by the holders of two-thirds in amount and more than one-half in number
of Claims in each impaired debt class voting on the Prepackaged Plan. To have
the votes of your Beneficial Holders count, you must complete and return this
Master Ballot.
PLEASE READ AND FOLLOW THE ENCLOSED VOTING INSTRUCTIONS
CAREFULLY BEFORE COMPLETING THE MASTER BALLOT.
THE BOARD OF DIRECTORS OF ZENITH ELECTRONICS CORPORATION
RECOMMENDS ACCEPTANCE OF THE PREPACKAGED PLAN.
-----------------------------------------------------------------------------
. THIS MASTER BALLOT IS ACCOMPANIED BY A RETURN ENVELOPE THAT IS ADDRESSED TO
GEORGESON & COMPANY INC. ____________________ (THE "SOLICITATION AGENT").
THIS BALLOT MUST BE RECEIVED BY THE SOLICITATION AGENT BY 5:00 P.M., NEW YORK
CITY TIME, ______________, 1998 (THE "EXPIRATION DATE"), UNLESS THE COMPANY,
IN ITS SOLE DISCRETION, EXTENDS OR WAIVES THE PERIOD DURING WHICH MASTER
BALLOTS WILL BE ACCEPTED BY THE COMPANY, IN WHICH CASE THE TERM "EXPIRATION
DATE" FOR SUCH SOLICITATION SHALL MEAN THE LAST TIME AND DATE TO WHICH SUCH
SOLICITATION IS EXTENDED.
-----------------------------------------------------------------------------
ITEM 1. AMOUNT AND TYPE OF CLAIM.
The undersigned is the record holder of __________ Class 6 Claims in
the aggregate outstanding amount of $___________, for which voting instructions
have been received from holders of the beneficial interests of such Claims (the
"Beneficial Holders") as listed in Item 3 below.
ITEM 2. CLASS 6 VOTE
As instructed by the Beneficial Holders of the aggregate number of
Class 6 Claims as set forth in Item 1 above, the undersigned transmits the
following votes of such Beneficial Holders in respect of their Class 6 Claims:
<PAGE>
To ACCEPT (Vote FOR) the
Prepackaged Plan.
__________________________________ ______________________________
Aggregate number of Class 6 Claims Amount of Old
Subordinated Debentures Claims
To REJECT (vote AGAINST) the
Prepackaged Plan.
__________________________________ ______________________________
Aggregate number of Class 6 Claims Amount of Old
Subordinated Debentures Claims
ITEM 3. CLASS 6 VOTE - NUMBER OF HOLDERS OF CLASS 6 CLAIMS
The following Beneficial Holders of Class 6 Claims, as identified by
their respective customer account numbers or the respective sequence numbers set
forth below, have delivered to the undersigned Ballots casting votes (indicate
the aggregate amount for each respective account under the appropriate column;
please use additional sheets of paper if necessary):
- --------------------------------------------------------------------------------
INSERT AMOUNT OF CLAIMS VOTED
- --------------------------------------------------------------------------------
Customer Account No. Accept the Prepackaged Plan Reject the Prepackaged Plan
and/or Customer Name (VOTE FOR) (VOTE AGAINST)
- --------------------------------------------------------------------------------
1.
- --------------------------------------------------------------------------------
2.
- --------------------------------------------------------------------------------
3.
- --------------------------------------------------------------------------------
4.
- --------------------------------------------------------------------------------
5.
- --------------------------------------------------------------------------------
6.
- --------------------------------------------------------------------------------
7.
- --------------------------------------------------------------------------------
ITEM 4. CERTIFICATION
By signing this Master Ballot, the undersigned certifies:
(i) that (a) it has received a copy of the Disclosure
Statement, Ballot and other Solicitation Materials and has delivered
the same to the Beneficial Holders listed thereon, (b) it has received
a completed and signed Ballot from each such Beneficial Holder, (c) it
is the registered holder of the securities being voted, (d) it has
been authorized by each such Beneficial Holder to vote on the
Prepackaged Plan, and (e) the Beneficial Holder has certified to such
nominee that such Beneficial Holder has not submitted any other
Ballots for such Class of Claims held in other accounts or other
registered names, or, if held in other accounts or registered names,
that the Beneficial Holder has certified to such nominee that such
Beneficial Holder has cast the same vote for such Class of Claims, and
such nominee will disclose such other accounts or registered holders
and such other Ballots;
(ii) that it be treated as the Beneficial Holder of the Claims
for purposes of voting on the Prepackaged Plan, unless otherwise
authorized by the Bankruptcy Court;
(iii) that it has properly disclosed (a) the number of such
Beneficial Holders, (b) the respective amounts and issues of the Old
Subordinated Debentures owned, as the case may be, by each such
Beneficial Holder, (c) each Beneficial
-2-
<PAGE>
Holder's respective vote concerning the Prepackaged Plan, (d) the
customer account or other identification number for each such
Beneficial Holder; and
(iv) that it will maintain Ballots returned by Beneficial
Holders (whether properly completed or defective) for disclosure to
the Bankruptcy Court or Company if so ordered.
Dated:________________________ Name of Voter:_______________________________
(Print or Type)
Social Security or Tax I.D. No.:_____________
Signature:___________________________________
By:__________________________________________
(If Appropriate)
Title:_______________________________________
(If Appropriate)
Street Address:______________________________
City, State and Zip Code:____________________
THIS MASTER BALLOT MUST BE RECEIVED BY:
BALLOT TABULATION CENTER - ZENITH ELECTRONICS CORPORATION GROUP
C/O GEORGESON & COMPANY INC.
WALL STREET PLAZA
NEW YORK, NY 10005
ATTN.: TABULATIONS
BY 5:00 P.M. NEW YORK CITY TIME
ON OR BEFORE ________________, 1998, OR THESE VOTES WILL NOT BE COUNTED
-3-
<PAGE>
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
The Company is soliciting the votes of holders of Class 6 Claims with
respect to the Prepackaged Plan of Reorganization dated ___________, 1998 of
Zenith Electronics Corporation (the "Prepackaged Plan") referred to in the
Disclosure Statement (a copy of which is attached hereto).
The Prepackaged Plan can be confirmed by the Bankruptcy Court, and
therefore made binding on holders, if it is accepted by the holders of two-
thirds in amount and more than one-half in number of debt claims in each
impaired debt class voting on the Prepackaged Plan. To have the Ballots of your
Beneficial Holders count, you must complete and return this Master Ballot.
You should deliver the Ballot and other documents relating to the
Prepackaged Plan, including the Disclosure Statement (collectively, the
"Solicitation Materials"), to each Beneficial Holder of Class 6 Claims and take
----------------------
any action required to enable each such Beneficial Holder to vote the Class 6
Claims held by such Beneficial Holder. With regard to any Ballots returned to
you, to have the vote of your Beneficial Holder count, you must not later than
5:00 p.m. New York City Time on ___________, 1998, subject to extension in the
sole discretion of the Company (the "Expiration Date"),(a) retain such Ballots
---------------
in your files and transfer the requested information from each such Ballot onto
the attached Master Ballot, (b) execute the Master Ballot, and (c) deliver such
Master Ballot to Georgeson & Company Inc. ________________________________ (the
"Solicitation Agent"), Attention: ____________________. Please keep any records
------------------
of the Ballots received from Beneficial Holders until ____________, 1999 (or
such other date as is set by subsequent Bankruptcy Court order). You may be
ordered to produce the Ballots to the Company or Bankruptcy Court.
The Master Ballot is not a letter of transmittal and may not be used for
any purpose other than to vote to accept or reject the Prepackaged Plan, and to
determine the alleged amount of a Beneficial Holder's Claim. Accordingly,
Holders of Class 6 Claims should not surrender instruments or certificates
representing or evidencing their Class 6 Claims, and neither the Company nor the
Solicitation Agent will accept delivery of such instruments or certificates
surrendered together with a Ballot. The remittance of your instruments or other
evidence of your claims for exchange pursuant to the Prepackaged Plan may only
be made by you, and will only be accepted if instruments or certificates
representing your Class 6 Claims (in proper form for transfer) are delivered
together with a letter of transmittal that will be furnished to you as provided
under the Prepackaged Plan or as notified following confirmation of the
Prepackaged Plan by the Bankruptcy Court.
To properly complete the Master Ballot take the following steps:
(a) provide appropriate information for each of the items on the
Master Ballot (Please note that Item 3 requests information for each
individual Beneficial Holder for whom you hold Class 6 Claims in your name.
To identify such Beneficial Holders, please use the customer name and
account number assigned by you to each such Beneficial Holder);
(b) identify the vote to accept or reject the Prepackaged Plan in Item
2 for the Class 6 Claims held by you as the registered holder on behalf of
the Beneficial Holders;
(c) sign and date your Master Ballot;
(d) if you are completing this Master Ballot on behalf of another
entity, state your title with such entity;
(e) provide your name and mailing address if different from the
preprinted address on the Master Ballot or if no preprinted address appears
on the Master Ballot; and
(f) deliver the Master Ballot to the Solicitation Agent.
. If you are both the registered holder and Beneficial Holder of any of the
Class 6 Claims and you wish to vote such Class 6 Claims, you may return
either a Ballot or a Master Ballot.
THE METHOD OF DELIVERY OF A MASTER BALLOT TO THE SOLICITATION AGENT IS AT
THE ELECTION AND RISK OF EACH ENTITY. Except as otherwise provided herein, such
delivery will be deemed made only when the original executed Master Ballot is
actually received by the Solicitation Agent. Instead of effecting delivery by
mail, it is recommended, though not required, that such entities use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. DELIVERY OF A MASTER
-4-
<PAGE>
BALLOT BY FACSIMILE, E-MAIL OR ANY OTHER ELECTRONIC MEANS WILL NOT BE ACCEPTED.
NO MASTER BALLOT SHOULD BE SENT TO THE COMPANY, ANY INDENTURE TRUSTEE, OR THE
COMPANY'S FINANCIAL OR LEGAL ADVISORS.
NO FEES OR COMMISSIONS OR OTHER REMUNERATION WILL BE PAYABLE TO ANY BROKER,
DEALER OR OTHER PERSON FOR SOLICITING BALLOTS ACCEPTING THE PREPACKAGED PLAN.
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT
OR THE VOTING PROCEDURES,
PLEASE CALL THE SOLICITATION AGENT AT 212-440-9800. (FOR BANKS AND BROKERS).
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY
OTHER PERSON THE AGENT OF THE COMPANY OR THE SOLICITATION AGENT, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF
ANY OF THEM WITH RESPECT TO THE PREPACKAGED PLAN, EXCEPT FOR THE STATEMENTS
CONTAINED IN THE DOCUMENTS ENCLOSED HEREWITH.
-5-
<PAGE>
GartnerConsulting Exhibit 99i
Final Report Prepared for:
Zenith Electronics Corporation
International VSB Market Forecast
GartnerConsulting
[DIAGRAM APPEARS HERE]
Technology Marketplace
Marketing Audit
Market Assessment
Marketing Strategy
New Product Planning
Marketing Implementation
Competitive Analysis
Image Assessment & Tracking
Customer Satisfaction Surveys
Channel Recruiting & Qualification
Industry Due Diligence
Joint Venture & Partnering
Engagement #18024680
August 19, 1998
[LOGO OF GARTNERGROUP]
251 River Oaks Parkway, San Jose, CA 95134-1913--+1-408-468-8000
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
- --------------------------------------------------------------------------------
Table of Contents
METHODOLOGY, ASSUMPTIONS AND QUALITATIVE ASSESSMENTS...........................1
Report Methodology and Scope...................................................1
Growth Beyond the Year 2003....................................................1
Discussion of Assessment of Undecided Countries................................2
VSB Adopting Countries.........................................................3
Canada........................................................................3
Mexico........................................................................3
South Korea...................................................................4
Taiwan........................................................................4
Likely VSB Adopting Countries..................................................4
China.........................................................................4
India, Indonesia, Thailand, Vietnam...........................................5
Likely COFDM Adopting Countries................................................5
Brazil, Argentina, Chile and Other South American Countries...................6
Eastern and Central European Countries........................................6
Middle East and Africa Countries..............................................6
COFDM Adopting Countries.......................................................6
Applications...................................................................7
Forecasts......................................................................9
- --------------------------------------------------------------------------------
Entire contents (C) 1998 Gartner Group, Inc.
[LOGO OF GARTNERGROUP] Use external to Zenith Electronics Corporation
restricted by terms of contract.
August 19, 1998--Page i
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
- --------------------------------------------------------------------------------
Section 1
Methodology, Assumptions and Qualitative Assessments
----------------------------
Report Methodology and Scope
This forecast was built using Dataquest forecasts and estimates of worldwide
production of consumer electronics goods. Dataquest's current consumer
electronics production forecast extends to the year 2002. This has been extended
to 2003 for this engagement. However, Dataquest does not forecast beyond this
point because the uncertainty in the forecast more than five years out
overwhelms the value of the forecast. Consequently, this report does not include
quantitative forecast data beyond 2003. A qualitative assessment of the market
growth in the years beyond 2003 is provided below.
The Dataquest consumer electronics production forecast was used in conjunction
with several other data sources in order to develop a model to forecast the
market for VSB unit shipments. These sources consist of individual market
estimates performed by regional Dataquest analysts, country-by-country analyses
of broadcast and communications systems from GartnerGroup subsidiary Northern
Business Information, and country-by-country market estimates and forecasts from
the Japan Electronic Industries Association. The market forecast for VSB unit
shipments is incorporated into this report in Section 2.
In this report, Dataquest has made predictions on which modulation format will
be adopted by some countries that have not yet decided or have not announced
whether they will use VSB or an alternative modulation technology. Dataquest
made these predictions based on several information sources. These sources
include the opinions and observations of Zenith personnel, opinions and
observations of Dataquest regional and worldwide analysts, and published reports
from the press and industry associations. The final judgment on the likely
decision made by undecided countries was made by the primary analyst engaged in
this project. Because of the complex considerations that are involved in
determining a national digital terrestrial broadcasting system, a high degree of
uncertainty exists when predicting the choice made by these countries. Dataquest
believes it has made the best, most accurate possible predictions based on the
data that is currently available.
For Asia, Dataquest believes it captured 94 to 95 percent of all shipments of
television sets during the forecast period. Moreover, Dataquest believes that it
has captured at least 90 percent of all digital television shipments in that
region during the forecast period.
Growth Beyond the Year 2003
Dataquest expects continued strong double-digit growth on a percentage basis in
sales of consumer electronics products with VSB demodulation capability in the
five-year period beyond 2003. In most countries, the digital terrestrial
broadcasting market will still be in a state of
- --------------------------------------------------------------------------------
Entire contents (C) 1998 Gartner Group, Inc.
[LOGO OF GARTNERGROUP] Use external to Zenith Electronics Corporation
restricted by terms of contract.
August 19, 1998--Page 1
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
- --------------------------------------------------------------------------------
development by 2003. Most consumers within the country still will not have
purchased equipment capable of receiving digital terrestrial signals by 2003.
Thus, the market will still have plenty of room for expansion in the coming
years. In addition, many of the countries that will adopt digital broadcasting
over the next few years are likely to undergo rapid economic development. The
expanding economies of those countries will fuel a growing market for consumer
electronics equipment, including VSB-capable products. Because of this,
Dataquest believes that the strongest periods of growth for the worldwide VSB
demodulation market will take place after 2003.
The products that will generate the largest volumes for VSB technology in the
five-year time period after 2003 will be digital television sets, digital
terrestrial set top boxes and digital satellite receivers. Other applications
that will generate large volumes will be digital cable boxes, DVD players and
personal computers.
Outside of the United States, the key country that will drive growth of VSB
technology in the period beyond 2003 will be China. China's rapidly developing
economy combined with its burgeoning consumer electronics market will continue
to generate demand for VSB-enabled products. China could emerge as the largest
or second largest market (after the United States) for VSB technology in the
five-year period after 2003. Other key countries for VSB growth include Mexico,
which currently is experiencing healthy economic growth and increased levels of
consumer spending, a trend that is likely to continue in the future. Mexico is
likely to be the world's third largest market for VSB technology (after the
United States and China) in the years following 2003.
Discussion of Assessment of Undecided Countries
As discussed above, the final judgment on the likely decision made by individual
undecided countries was made by the primary analyst engaged in this project. The
primary analyst took a number of factors into consideration, including:
. Existing broadcast standard in place in a given country (PAL/NTSC/SECAM)
. Existing channel bandwidth used in a given country's broadcast system (6, 7,
8 MHz)
. Existing refresh rate used in a given country's broadcast system (50 or
60 Hz)
. Source and availability of content in a given country (language or subject of
programming)
. Cultural ties of a given country
. Economy and per capita income of a given country
. TV, VCR, cable, satellite penetration levels of a given country
For example, in Brazil the presence of infrastructure that supports PAL, 6MHz
channel bandwidth, and 60Hz refresh rates and cultural considerations are
expected to outweigh the influence of North America. In Argentina, a key
difference from Brazil is the Spanish language content availability from Mexico
(VSB) and 50Hz refresh rates. However, these are not
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expected to sway Argentina in favor of VSB, with the overriding factor being the
influence of Brazil's decision to adopt COFDM.
VSB Adopting Countries
This section covers the countries that already have announced that they will
adopt VSB as their standard digital terrestrial modulation format, or that are
virtually assured of doing so in the future.
For these countries, sales are expected to begin slowly and ramp up as broadcast
coverage increases and digital television set prices begin to decline. Digital
terrestrial set top box sales are expected to trail sales of digital terrestrial
televisions through 2003, but will begin to increase as more programming is
available in a digital format.
Canada
Dataquest is estimating Canada will begin some digital terrestrial broadcasts in
1999. In Canada, digital terrestrial television growth rates relative to overall
television sales will be similar to other ATSC adopting countries.
VSB in digital satellite set top boxes will be very popular due to wide
acceptance of satellite television among Canadian consumers. Canada is expected
to be the second largest market for equipment with VSB demodulation capability
through 2003 (after the U.S.) This is due to Canada's relatively early adoption
of the technology, combined with the high penetration of televisions, the strong
influence of American technology and American programming and the nation's high
per capita income.
Patent protection levels in Canada are considered high.
Mexico
Dataquest is estimating Mexico will begin some digital terrestrial broadcasts in
1999. In Mexico, digital terrestrial television growth rates relative to overall
television sales will be similar to other ATSC adopting countries. Mexico is
expected to have the third largest market for equipment with VSB demodulation
through 2003. This is due to of Mexico's relatively early adoption of the
technology and relatively strong expected growth.
Key applications for Mexico will be digital television sets and digital
terrestrial set top boxes. The next largest application for VSB technology in
Mexico will be cable set top boxes, due to the high penetration of cable in the
country relative to satellite and other delivery media.
Patent protection levels in Mexico are considered high.
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South Korea
Dataquest is estimating South Korea will begin some digital terrestrial
broadcasts in 2001. In South Korea, digital terrestrial television growth rates
relative to overall television sales will be will be lower than other countries
due to economic uncertainty in the region. The highest volume applications for
South Korea will be digital television sets and digital terrestrial set top
boxes. Satellite boxes with VSB will be popular in South Korea due to the
relatively high penetration of satellite service in the country.
Patent protection levels in South Korea are considered to be high. Korean
companies are accustomed to paying royalty and license fees.
Taiwan
Dataquest is estimating Taiwan will begin some digital terrestrial broadcasts in
2001. In Taiwan, digital terrestrial television growth rates relative to overall
television sales will be similar to other ATSC adopting countries. The highest
volume applications for Taiwan will be digital television sets and digital
terrestrial set top boxes.
Patent protection in Taiwan may not be as rigorously enforced as in the other
VSB adopting countries. However, patent protection levels are likely to be
higher than for the China market.
Likely VSB Adopting Countries
This section covers countries that Dataquest considers likely to adopt VSB as
their standard digital terrestrial modulation format. These countries have not
made a public announcement of their intentions and the issue of choosing a
modulation standard is still in contention. Dataquest is making its judgment
that these countries are likely to adopt VSB based on a variety of primary and
secondary sources combined with regional and worldwide analysts' assessments.
China
Dataquest believes that is China is more likely to adopt the ATSC standard and
VSB modulation technology than it is to adopt DVB and COFDM. China is likely to
adopt the standard in order to position itself for export of digital televisions
to the United States and other major ATSC countries. There is a possibility that
more than one standard may coexist within China for at least a limited period of
time. China also may choose to adopt a modified form of the ATSC standard, as it
has done with other technologies. However, Dataquest has no reason to believe
that China would modify the modulation format for ATSC DTV.
Dataquest is estimating China will begin some digital terrestrial broadcasts in
2001. In China, digital terrestrial television growth rates relative to overall
television sales will be similar to other ATSC adopting countries through 2003.
Sales will begin slowly and ramp up as broadcast coverage increases and digital
television set prices begin to decline. Digital terrestrial set top box sales
will trail sales of digital terrestrial televisions, but will begin to increase
as more programming becomes available in a digital format.
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In the China forecast, Dataquest has included a forecast for China Video Disk
(CVD). CVD is a special standard developed for the Chinese market by the Chinese
government in cooperation with a group of foreign and domestic companies. This
is a technology that is similar to DVD, but is less expensive. This is expected
to replace video disk players rather than DVD. Dataquest forecasts that VSB
technology will appear in CVD players, albeit at a lower rate (less than five
percent over the forecast period) than it will in DVD players worldwide because
CVD is not a recordable medium.
China is expected to be the fourth largest market for equipment with VSB
demodulation through 2003. However, beyond 2003, China stands a strong chance of
become in the world's largest or second largest market for VSB equipment. This
is due to a fast growing television market, combined with rapid economic
expansion.
Patent law is new to China. The ability to enforce patents and copyrights is
limited in a country of its size and with its weak legal system.
India, Indonesia, Thailand, Vietnam
Dataquest believes that India, Indonesia, Thailand, Vietnam will follow the
trend in the region, which likely will be ATSC. China (including Hong Kong) and
Singapore have a major influence on the technology direction taken by other
countries in that region. Dataquest believes these countries will adopt ATSC.
These countries produce significant quantities of digital electronics products
and will wish to serve the growing market for ATSC compatible equipment in North
America and China. By adopting the ATSC standard, these countries will encourage
a domestic market for compliant equipment to develop, which can be leveraged
into export of products. In these countries, digital terrestrial television
growth rates relative to overall television sales will be similar to other ATSC
adopting countries, albeit the market will begin at a later year than some
earlier adopters.
Likely COFDM Adopting Countries
This section covers countries that Dataquest considers likely to adopt COFDM as
their standard digital terrestrial modulation format rather than VSB. These
countries have not made a public announcement of their intentions and the issue
of choosing a modulation standard is still in contention. Dataquest is making
its judgment that these countries are likely to adopt COFDM based on a variety
of primary and secondary sources combined with regional and worldwide analysts'
assessments. Another factor considered is the respective countries alliances
with the European Union's 15 member states, all of whom have selected DVB and
COFDM. Those member states include Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain,
Sweden, and the United Kingdom.
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Brazil, Argentina, Chile and Other South American Countries
Dataquest believes South American countries are more likely to adopt DVB-T and
COFDM than they are to adopt ATSC and VSB. However, Dataquest does not consider
it to be absolutely certain that these countries will adopt DVB over ATSC.
Dataquest believes these countries are more likely to adopt COFDM for several
reasons, including:
. Brazil has greater affinity to Europe than North America, linguistically,
culturally and technologically. Thus, it is less subject to influence from
the NAFTA countries than it is from European countries.
. Portugal, among other European countries, is supporting DVB.
. Brazil already uses a PAL system that is similar in many regards to the
broadcast systems in Europe.
. The country has a well-developed television system and a large installed base
of TVs. Because of this, Brazil probably will adopt a system that it
perceives will be compatible with its installed base.
All of these factors make it making it more likely that it will adopt a system
that it believes is compatible with its existing broadcast system and receivers.
Dataquest believes the other major South American countries, Argentina and
Chile, will follow suit and adopt DVB-T. The remaining countries also are likely
to adopt the standard.
Eastern and Central European Countries
Dataquest believes that undecided Eastern and Central European countries are
virtually assured of adopting the DVB standard and COFDM technology for digital
terrestrial broadcast. Most of these countries are seeking a greater degree of
integration into the European community and are adopting European technology
standards in pursuit of this goal.
Middle East and Africa Countries
Dataquest believes that undecided Middle East and Africa countries are virtually
assured of adopting the DVB standard and COFDM technology for digital
terrestrial broadcast. These regions are influenced heavily by European
technology. European firms are major exporters of electronics goods and
electronic-related services to these regions.
COFDM Adopting Countries
The countries that have adopted COFDM as part of the DVB standard were excluded
from the market forecast. These include the European countries (the EU and
Scandinavia), Australia and New Zealand. In addition, it appears likely that
Japan will incorporate the COFDM technology into its own version of a DTV
standard.
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Applications
This report provides estimates and forecast of VSB usage in numerous types of
consumer electronics products. The products are as follows:
. Television sets. VSB demodulation will be used for the reception of digital
terrestrial signals. The model assumes that the number of digital televisions
sold in a given country in a year will be a percentage relative to overall
television sales in that country in the same year. This percentage is the
same for all countries adopting ATSC technology and will grow at a consistent
rate, starting the year digital broadcasts begin. The percentage rate of
digital television sales compared to all television sales will be less than
one percent during the first year of digital broadcasting, growing to nearly
14 percent in the third year of broadcasting and growing to 39 percent in the
fourth year of broadcasting.
. Television set top boxes (Digital Terrestrial Set Top Boxes). VSB
demodulation will be used for the reception of digital terrestrial signals.
Greater variation will be seen in growth rates for the digital terrestrial
set top boxes worldwide than for televisions. Estimates for sales growth were
made on the basis of judgment of regional analysts. These analysts are making
their judgments on the basis of numerous factors, ranging from cultural, to
technological to economic.
. Satellite Set Top Boxes. VSB demodulation will be used for the reception of
digital terrestrial signals. This will be a secondary demodulation system in
addition to the primary satellite demodulation system used in these boxes,
which is not a form of VSB. Different countries will experience different
rates of growth for VSB-enabled satellite set top boxes. Estimates for sales
growth were made on the basis of judgment of regional analysts. These
analysts are making their judgments on the basis of numerous factors, ranging
from cultural, to technological to economic.
. Cable Set Top Boxes. VSB demodulation will be used for the reception of
digital terrestrial signals. This will be a secondary demodulation system in
addition to the primary cable demodulation system used in these boxes, which
is not a form of VSB. Different countries will experience different rates of
growth for VSB-enabled cable set top boxes. Estimates for sales growth were
made on the basis of judgment of regional analysts. These analysts are making
their judgments on the basis of numerous factors, ranging from cultural, to
technological to economic.
. LMDS/MMDS Set Top Boxes. VSB demodulation will be used for the reception of
digital terrestrial signals. This will be a secondary demodulation system in
addition to the primary LMDS/MMDS demodulation system used in these boxes,
which is not a form of VSB. Different countries will experience different
rates of growth for VSB-enabled LMDS/MMDS set top boxes. Estimates for sales
growth were made on the basis of judgment of regional analysts. These
analysts are making their judgments on the basis of numerous factors, ranging
from cultural, to technological to economic. Many regional analysts did not
anticipate any significant market for such products emerging during the
forecast period.
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. VCRs. VSB demodulation will be used for the reception of digital terrestrial
signals. This can be the primary demodulation system used in a VCR. It can
also be a secondary demodulation system in addition to the primary analog
terrestrial demodulation system used in these VCRs, which is not a form of
VSB. VSB demodulation will be used only in digital VHS VCRs, a product that
Dataquest does not believe will experience wide acceptance over the next
several years. Thus, sales of VSB-capable VCRs will represent not more than
one percent of total VCR sales in any country during the forecast period.
. DVD players. VSB demodulation will be used for the reception of digital
terrestrial signals. This can be the primary demodulation system used in a
DVD player. It can also be a secondary demodulation system in addition to the
primary analog terrestrial demodulation system used in these DVD players,
which is not a form of VSB. Different countries will experience different
rates of growth for VSB-enabled DVD players. Estimates for sales growth were
made on the basis of judgment of regional analysts. These analysts are making
their judgments on the basis of numerous factors, ranging from cultural, to
technological to economic.
. PCs (with tuner). VSB demodulation will be used for the reception of digital
terrestrial signals. Different countries will experience different rates of
growth for VSB-enabled PCs. Estimates for sales growth were made on the basis
of judgment of regional analysts. These analysts are making their judgments
on the basis of numerous factors, ranging from cultural, to technological to
economic.
. PC add-in cards. VSB demodulation will be used for the reception of digital
terrestrial signals. Different countries will experience different rates of
growth for VSB-enabled PC add-in cards. Estimates for sales growth were made
on the basis of judgment of regional analysts. These analysts are making
their judgments on the basis of numerous factors, ranging from cultural, to
technological to economic.
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Section 2
Forecasts
-----------------------------------------------------------------------
Table 1
VSB Unit Shipment Forecast by VSB Status and Application (Thousands of Units)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
VSB status Application 1998 1999 2000 2001 2002 2003
Adopted TV sets - 5.3 91.3 579.3 1,526.1 2,483.9
TV STBs - 2.4 41.1 260.7 686.8 1,403.9
Satellite STBs - 60.1 169.3 355.3 732.3 1,289.3
Cable STBs - - 71.7 204.0 377.4 626.2
LMDS/MMDS STBs - - 10.8 21.3 34.3 51.0
VCR - 23.8 24.2 30.7 30.4 285.3
DVD players - 9.1 30.7 108.3 330.8 764.6
PCs (with tuner) - 6.4 25.7 44.4 80.6 140.0
PC add-in cards (with - 15.3 77.4 111.9 165.8 176.9
tuner)
Total - 122.3 542.1 1,715.9 3,964.4 7,221.2
- ---------------------------------------------------------------------------------------------------------------------
Likely to
adopt VSB TV sets - - - 39.2 245.4 4,460.8
TV STBs - - - 17.6 110.4 692.4
Satellite STBs - - - 99.3 301.6 648.5
Cable STBs - - - 81.9 230.7 378.9
LMDS/MMDS STBs - - - - - -
VCR - - - 23.8 24.2 24.7
DVD players - - - 228.3 658.5 1,518.5
PCs (with tuner) - - - 45.8 84.8 157.9
PC add-in cards (with - - - 146.5 189.9 246.4
tuner)
Total - - - 682.4 1,845.6 8,128.1
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE>
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Addendum Report Prepared for:
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International VSB Market Forecast
GartnerConsulting
[DIAGRAM APPEARS HERE]
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Marketing Audit
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Section 1
Forecasts
-----------------------------------------------------------------------
Table 1
Total (Analog and Digital) Unit Shipment Forecast by VSB Status and Application
(Thousands of Units)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
VSB status Application 1998 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C> <C> <C>
Adopted TV sets 8,196 8,463 8,709 8,911 9,112 9,320
TV STBs - 2 41 261 687 1,404
Satellite STBs 732 859 1,133 1,410 1,784 2,271
Cable STBs 786 1,571 2,338 3,200 4,013 5,036
LMDS/MMDS STBs 140 189 286 314 351 401
VCR 3,225 3,171 3,123 3,066 3,043 3,033
DVD players 104 230 368 599 898 1,353
PCs (with tuner) 13 17 34 48 81 140
PC add-in cards (with 38 56 122 136 166 177
tuner)
Total 13,233 14,559 16,154 17,944 20,134 23,135
- ---------------------------------------------------------------------------------------------------------------------
Likely to
adopt VSB TV sets 23,671 25,099 26,913 28,890 30,678 32,607
TV STBs - - - 18 110 692
Satellite STBs 210 1,422 1,852 2,415 3,116 4,024
Cable STBs 717 995 1,396 1,961 2,724 3,789
LMDS/MMDS STBs - - - - - -
VCR 2,274 2,283 2,330 2,384 2,425 2,468
DVD players (inc CVD) 14 15 16 242 658 1,519
PCs (with tuner) 3 12 27 46 85 158
PC add-in cards (with - 26 86 146 190 246
tuner)
Total 26,890 29,852 32,619 36,102 39,987 45,504
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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Table 2
Digital Percentage of Total Unit Shipments Forecast by VSB Status and
Application
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
VSB status Application 1998 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C> <C> <C>
Adopted TV sets 0% 0.1% 1.0% 6.5% 16.7% 26.7%
TV STBs - 100% 100% 100% 100% 100%
Satellite STBs 0% 7.0% 14.9% 25.2% 41.0% 56.8%
Cable STBs 0% 0% 3.1% 6.4% 9.4% 12.4%
LMDS/MMDS STBs 0% 0% 3.8% 6.8% 9.8% 12.7%
VCR 0% 0.7% 0.8% 1.0% 1.0% 9.4%
DVD players 0% 4.0% 8.4% 18.1% 36.8% 56.5%
PCs (with tuner) 0% 38.3% 75.7% 93.0% 100% 100%
PC add-in cards (with 0% 27.1% 63.5% 82.4% 100% 100%
tuner)
Total 0% 0.8% 3.4% 9.6% 19.7% 31.2%
- --------------------------------------------------------------------------------------------------------------------------
Likely to
adopt VSB TV sets 0% 0% 0% 0.1% 0.8% 13.7%
TV STBs - - - 100% 100% 100%
Satellite STBs 0% 0% 0% 4.1% 9.7% 16.1%
Cable STBs 0% 0% 0% 4.2% 8.5% 10.0%
LMDS/MMDS STBs - - - - - -
VCR 0% 0% 0% 1.0% 1.0% 1.0%
DVD players (inc CVD) 0% 0% 0% 94.5% 100% 100%
PCs (with tuner) 0% 0% 0% 100% 100% 100%
PC add-in cards (with - 0% 0% 100% 100% 100%
tuner)
Total 0% 0% 0% 1.9% 4.6% 17.9%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
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- --------------------------------------------------------------------------------
Table 3
VSB Unit Shipment Forecast by VSB Status and Application (Thousands of Units)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
VSB status Application 1998 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C> <C> <C>
Adopted TV sets - 5.3 91.3 579.3 1,526.1 2,483.9
TV STBs - 2.4 41.1 260.7 686.8 1,403.9
Satellite STBs - 60.1 169.3 355.3 732.3 1,289.3
Cable STBs - - 71.7 204.0 377.4 626.2
LMDS/MMDS STBs - - 10.8 21.3 34.3 51.0
VCR - 23.8 24.2 30.7 30.4 285.3
DVD players - 9.1 30.7 108.3 330.8 764.6
PCs (with tuner) - 6.4 25.7 44.4 80.6 140.0
PC add-in cards (with - 15.3 77.4 111.9 165.8 176.9
tuner)
Total - 122.3 542.1 1,715.9 3,964.4 7,221.2
- ---------------------------------------------------------------------------------------------------------------------
Likely to
adopt VSB TV sets - - - 39.2 245.4 4,460.8
TV STBs - - - 17.6 110.4 692.4
Satellite STBs - - - 99.3 301.6 648.5
Cable STBs - - - 81.9 230.7 378.9
LMDS/MMDS STBs - - - - - -
VCR - - - 23.8 24.2 24.7
DVD players (inc CVD) - - - 228.3 658.5 1,518.5
PCs (with tuner) - - - 45.8 84.8 157.9
PC add-in cards (with - - - 146.5 189.9 246.4
tuner)
Total - - - 682.4 1,845.6 8,128.1
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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GartnerConsulting
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Section 1
Forecasts
-----------------------------------------------------------------------
Table 1a
Total (Analog and Digital) Unit Shipment Forecast by Country and Application For
Countries That Have Adopted VSB (Thousands of Units)
<TABLE>
<CAPTION>
=====================================================================================================================
Country Application 1998 1999 2000 2001 2002 2003
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Canada TV sets 2,020.0 2,102.0 2,165.0 2,209.0 2,275.9 2,344.7
TV STBs - 1.3 21.9 136.0 274.3 553.4
Satellite STBs 412.5 548.6 729.7 970.5 1,290.7 1,716.7
Cable STBs 252.5 646.0 986.1 1,389.5 1,790.4 2,306.9
LMDS/MMDS STBs 54.0 70.2 91.3 118.6 154.2 200.5
VCR 1,220.0 1,231.0 1,231.0 1,218.0 1,217.3 1,216.7
DVD players 35.7 98.1 163.6 275.6 419.9 639.9
PCs (with tuner) - 6.4 13.3 21.0 38.8 70.1
PC add-in cards (with - 15.3 43.7 47.9 61.9 66.8
tuner)
Total 3,994.7 4,718.9 5,445.5 6,386.0 7,523.5 9,115.6
=====================================================================================================================
Mexico TV sets 1,712.0 1,803.0 1,898.0 1,979.0 2,077.0 2,179.8
TV STBs - 1.1 19.2 121.8 250.4 514.5
Satellite STBs 66.0 52.5 117.0 123.0 145.5 172.1
Cable STBs 198.0 493.5 805.5 1,143.0 1,426.5 1,780.3
LMDS/MMDS STBs 75.8 106.2 178.2 173.4 168.3 163.4
VCR 1,105.0 1,144.0 1,185.0 1,216.0 1,255.4 1,296.1
DVD players 30.2 84.1 143.4 246.9 383.2 594.9
PCs (with tuner) - - 12.4 20.1 36.4 65.7
PC add-in cards (with - - 33.7 40.1 52.8 58.1
tuner)
Total 3,187.0 3,684.4 4,392.4 5,063.3 5,795.5 6,824.8
=====================================================================================================================
Korea TV sets 3,522.0 3,557.2 3,592.8 3,628.7 3,665.0 3,701.7
TV STBs - - - 2.2 124.8 253.0
Satellite STBs 183.0 201.3 221.4 243.6 267.9 294.7
Cable STBs 115.0 153.0 198.0 237.6 285.1 342.1
LMDS/MMDS STBs 10.0 13.0 16.9 22.0 28.6 37.1
VCR 755.0 641.8 545.5 463.7 394.1 335.0
DVD players 30.0 37.5 46.9 58.6 73.2 91.6
PCs (with tuner) 10.0 8.0 6.4 5.1 4.1 3.3
PC add-in cards (with 30.0 32.1 34.3 36.8 39.3 40.1
tuner)
Total 4,655.0 4,643.9 4,662.2 4,698.2 4,882.2 5,098.6
=====================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Entire contents (C) 1998 Gartner Group, Inc.
[LOGO OF GARTNERGROUP] Use external to Zenith Electronics Corporation
restricted by terms of contract.
September 17 , 1998--Page 2
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Taiwan TV sets 942.0 1,001.0 1,053.0 1,094.0 1,094.0 1,094.0
TV STBs - - - 0.7 37.3 83.0
Satellite STBs 70.0 56.6 64.9 73.4 80.0 87.1
Cable STBs 220.7 278.6 348.2 429.8 510.6 606.7
LMDS/MMDS STBs - - - - - -
VCR 145.0 154.0 162.0 168.0 176.5 185.3
DVD players 8.0 10.6 13.7 17.7 21.9 27.1
PCs (with tuner) 2.7 2.3 1.9 1.5 1.2 0.9
PC add-in cards (with 8.0 9.0 10.1 11.1 11.7 11.9
tuner)
Total 1,396.4 1,512.1 1,653.8 1,796.2 1,933.2 2,096.0
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Table 1b
Total (Analog and Digital) Unit Shipment Forecast by Country and Application For
Countries That Are Likely To Adopt VSB (Thousands of Units)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Country Application 1998 1999 2000 2001 2002 2003
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
China/HK TV sets 16,500.0 17,655.0 18,890.9 20,213.2 21,628.1 23,142.1
TV STBs - - - 12.3 77.9 491.4
Satellite STBs - 1,000.0 1,300.0 1,690.0 2,197.0 2,856.1
Cable STBs 500.0 700.0 980.0 1,372.0 1,920.8 2,689.1
LMDS/MMDS STBs - - - - - -
VCR 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0 1,500.0
DVD players (inc. CVD) 10.0 10.5 11.0 236.6 653.4 1,513.3
PCs (with tuner) 2.0 11.0 26.1 44.9 84.0 157.0
PC add-in cards (with - 26.4 85.5 102.5 133.9 174.9
tuner)
Total 18,512.0 20,903.0 22,793.5 24,946.5 27,553.8 31,023.5
=====================================================================================================================
India TV sets 2,299.0 2,593.0 2,895.0 3,199.0 3,571.4 3,987.2
TV STBs - - - 2.0 12.9 84.7
Satellite STBs - 146.9 199.2 267.5 362.8 492.1
Cable STBs 69.7 102.8 150.2 217.1 307.2 434.2
LMDS/MMDS STBs - - - - - -
VCR 145.0 154.0 162.0 168.0 176.5 185.3
DVD players 1.4 1.5 1.7 1.8 2.0 2.2
PCs (with tuner) 0.3 0.3 0.3 0.3 0.3 0.4
PC add-in cards (with - - - 16.2 22.1 30.1
tuner)
Total 2,515.3 2,998.5 3,408.4 3,871.9 4,455.1 5,216.1
=====================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Entire contents (C) 1998 Gartner Group, Inc.
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September 17, 1998--Page 3
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Indonesia TV sets 1,869.0 1,759.0 1,882.0 2,049.0 2,049.0 2,049.0
TV STBs - - - 1.3 7.4 43.5
Satellite STBs 70.0 99.6 129.5 171.3 208.1 252.9
Cable STBs 56.6 69.7 97.6 139.1 182.0 258.1
LMDS/MMDS STBs - - - - - -
VCR 218.0 212.0 233.0 261.0 277.1 290.5
DVD players 1.1 1.0 1.1 1.2 1.2 1.1
PCs (with tuner) 0.2 0.2 0.2 0.2 0.2 0.2
PC add-in cards (with - - - 10.4 12.7 15.5
tuner)
Total 2,215.0 2,141.6 2,343.4 2,633.4 2,737.7 2,910.8
=====================================================================================================================
Thailand TV sets 2,247.0 2,301.0 2,425.0 2,579.0 2,579.0 2,579.0
TV STBs - - - 1.6 9.3 54.8
Satellite STBs 70.0 130.3 166.9 215.6 262.0 318.3
Cable STBs 68.1 91.2 125.8 175.1 229.0 299.7
LMDS/MMDS STBs - - - - - -
VCR 355.0 355.0 366.0 380.0 388.7 397.6
DVD players 1.4 1.4 1.4 1.5 1.4 1.4
PCs (with tuner) 0.3 0.3 0.3 0.3 0.2 0.2
PC add-in cards (with - - - 13.1 16.0 19.5
tuner)
Total 2,741.7 2,879.2 3,085.4 3,366.1 3,485.7 3,670.5
=====================================================================================================================
Vietnam TV sets 756.0 791.0 820.0 850.0 850.0 850.0
TV STBs - - - 0.5 3.1 18.1
Satellite STBs 70.0 44.8 56.4 71.1 86.3 104.9
Cable STBs 22.9 31.4 42.5 57.7 85.5 107.5
LMDS/MMDS STBs - - - - - -
VCR 56.0 62.0 69.0 75.0 82.7 91.1
DVD players 0.5 0.5 0.5 0.5 0.5 0.5
PCs (with tuner) 0.1 0.1 0.1 0.1 0.1 0.1
PC add-in cards (with - - - 4.3 5.3 6.4
tuner)
Total 905.5 929.7 988.5 1,059.2 1,113.4 1,178.6
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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September 17, 1998--Page 4
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Table 2a
Digital Percentage of Total Unit Shipments Forecast by Country and Application
For Countries That Have Adopted VSB
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Country Application 1998 1999 2000 2001 2002 2003
Canada TV sets 0% 0.1% 2% 14% 27% 39%
TV STBs 100% 100% 100% 100% 100% 100%
Satellite STBs 0% 10% 20% 30% 45% 60%
Cable STBs 0% 0% 4% 7% 10% 13%
LMDS/MMDS STBs 0% 0% 4% 7% 10% 13%
VCR 0% 1% 1% 1% 1% 1%
DVD players 0% 5% 10% 20% 40% 60%
PCs (with tuner) 100% 100% 100% 100% 100% 100%
PC add-in cards (with 100% 100% 100% 100% 100% 100%
tuner)
==========================================================================================================================
Mexico TV sets 0% 0.1% 2% 14% 27% 39%
TV STBs 100% 100% 100% 100% 100% 100%
Satellite STBs 0% 10% 20% 30% 45% 60%
Cable STBs 0% 0% 4% 7% 10% 13%
LMDS/MMDS STBs 0% 0% 4% 7% 10% 13%
VCR 0% 1% 1% 1% 1% 1%
DVD players 0% 5% 10% 20% 40% 60%
PCs (with tuner) 100% 100% 100% 100% 100% 100%
PC add-in cards (with 100% 100% 100% 100% 100% 100%
tuner)
==========================================================================================================================
Korea TV sets 0% 0% 0% 0.1% 8% 15%
TV STBs 100% 100% 100% 100% 100% 100%
Satellite STBs 0% 0% 0% 10% 30% 50%
Cable STBs 0% 0% 0% 4% 7% 10%
LMDS/MMDS STBs 0% 0% 0% 4% 7% 10%
VCR 0% 0% 0% 1% 1% 50%
DVD players 0% 0% 0% 5% 10% 20%
PCs (with tuner) 0% 0% 0% 50% 100% 100%
PC add-in cards (with 0% 0% 0% 50% 100% 100%
tuner)
==========================================================================================================================
</TABLE>
Entire contents (C) 1998 Gartner Group, Inc.
[LOGO OF GARTNER GROUP] Use external to Zenith Electronics Corporation
restricted by terms of contract.
September 17, 1998--Page 5
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
<TABLE>
<CAPTION>
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Taiwan TV sets 0% 0% 0% 0.1% 8% 15%
TV STBs 100% 100% 100% 100% 100% 100%
Satellite STBs 0% 0% 0% 4% 7% 10%
Cable STBs 0% 0% 0% 4% 7% 10%
LMDS/MMDS STBs 0% 0% 0% 4% 42% 80%
VCR 0% 0% 0% 1% 1% 50%
DVD players 0% 0% 0% 5% 10% 20%
PCs (with tuner) 0% 0% 0% 50% 100% 100%
PC add-in cards (with 0% 0% 0% 50% 100% 100%
tuner)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Table 2b
Digital Percentage of Total Unit Shipments Forecast by Country and Application
For Countries That Are Likely To Adopt VSB
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Country Application 1998 1999 2000 2001 2002 2003
China/HK TV sets 0% 0% 0% 0.1% 1% 14%
TV STBs 0% 0% 0% 100% 100% 100%
Satellite STBs 0% 0% 0% 4% 7% 10%
Cable STBs 0% 0% 0% 4% 8% 9%
LMDS/MMDS STBs 0% 0% 0% 0% 0% 0%
VCR 0% 0% 0% 1% 1% 1%
DVD players (inc. CVD) 0% 0% 0% 96% 100% 100%
PCs (with tuner) 0% 0% 0% 100% 100% 100%
PC add-in cards (with 0% 0% 0% 100% 100% 100%
tuner)
==============================================================================================================
India TV sets 0% 0% 0% 0.1% 1% 14%
TV STBs 0% 0% 0% 100% 100% 100%
Satellite STBs 0% 0% 0% 5% 30% 60%
Cable STBs 0% 0% 0% 4% 8% 9%
LMDS/MMDS STBs 0% 0% 0% 4% 7% 10%
VCR 0% 0% 0% 1% 1% 1%
DVD players 0% 0% 0% 20% 100% 100%
PCs (with tuner) 0% 0% 0% 100% 100% 100%
PC add-in cards (with 0% 0% 0% 100% 100% 100%
tuner)
==============================================================================================================
</TABLE>
Entire contents (C) 1998 Gartner Group, Inc.
[GARTNER LOGO] Use external to Zenith Electronics Corporation
restricted by terms of contract.
September 17, 1998--Page 6
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
<TABLE>
<CAPTION>
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Indonesia TV sets 0% 0% 0% 0.1% 1% 14%
TV STBs 0% 0% 0% 100% 100% 100%
Satellite STBs 0% 0% 0% 4% 7% 10%
Cable STBs 0% 0% 0% 4% 8% 9%
LMDS/MMDS STBs 0% 0% 0% 0% 0% 0%
VCR 0% 0% 0% 1% 1% 1%
DVD players 0% 0% 0% 20% 100% 100%
PCs (with tuner) 0% 0% 0% 100% 100% 100%
PC add-in cards (with 0% 0% 0% 100% 100% 100%
tuner)
==============================================================================================================
Thailand TV sets 0% 0% 0% 0.1% 1% 14%
TV STBs 0% 0% 0% 100% 100% 100%
Satellite STBs 0% 0% 0% 4% 7% 10%
Cable STBs 0% 0% 0% 4% 8% 9%
LMDS/MMDS STBs 0% 0% 0% 0% 0% 0%
VCR 0% 0% 0% 1% 1% 1%
DVD players 0% 0% 0% 20% 100% 100%
PCs (with tuner) 0% 0% 0% 100% 100% 100%
PC add-in cards (with 0% 0% 0% 100% 100% 100%
tuner)
==============================================================================================================
Vietnam TV sets 0% 0% 0% 0.1% 1% 14%
TV STBs 0% 0% 0% 100% 100% 100%
Satellite STBs 0% 0% 0% 4% 7% 10%
Cable STBs 0% 0% 0% 10% 24% 44%
LMDS/MMDS STBs 0% 0% 0% 0% 0% 0%
VCR 0% 0% 0% 1% 1% 1%
DVD players 0% 0% 0% 20% 100% 100%
PCs (with tuner) 0% 0% 0% 100% 100% 100%
PC add-in cards (with 0% 0% 0% 100% 100% 100%
tuner)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Entire contents (C) 1998 Gartner Group, Inc.
[GARTNER LOGO] Use external to Zenith Electronics Corporation
restricted by terms of contract.
September 17, 1998--Page 7
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
Table 3a
VSB Unit Shipment Forecast by Country and Application For Countries That Have
Adopted VSB (Thousands of Units)
<TABLE>
<CAPTION>
Country Application 1998 1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Canada TV sets - 2.9 48.6 302.2 609.6 914.4
TV STBs - 1.3 21.9 136.0 274.3 553.4
Satellite STBs - 54.9 145.9 291.1 580.8 1,030.0
Cable STBs - - 39.4 97.3 179.0 299.9
LMDS/MMDS STBs - - 3.7 8.3 15.4 26.1
VCR - 12.3 12.3 12.2 12.2 12.2
DVD players - 4.9 16.4 55.1 168.0 383.9
PCs (with tuner) - 6.4 13.3 21.0 38.8 70.1
PC add-in cards (with - 15.3 43.7 47.9 61.9 66.8
tuner)
Total - 97.9 345.2 971.0 1,940.1 3,356.8
==============================================================================================================
Mexico TV sets - 2.4 42.6 270.7 556.4 850.1
TV STBs - 1.1 19.2 121.8 250.4 514.5
Satellite STBs - 5.3 23.4 36.9 65.5 103.3
Cable STBs - - 32.2 80.0 142.7 231.4
LMDS/MMDS STBs - - 7.1 12.1 16.8 21.2
VCR - 11.4 11.9 12.2 12.6 13.0
DVD players - 4.2 14.3 49.4 153.3 356.9
PCs (with tuner) - - 12.4 20.1 36.4 65.7
PC add-in cards (with - - 33.7 40.1 52.8 58.1
tuner)
Total - 24.4 196.9 643.4 1,286.8 2,214.2
==============================================================================================================
Korea TV sets - - - 4.9 277.4 555.2
TV STBs - - - 2.2 124.8 253.0
Satellite STBs - - - 24.4 80.4 147.4
Cable STBs - - - 9.5 20.0 34.2
LMDS/MMDS STBs - - - 0.9 2.0 3.7
VCR - - - 4.6 3.9 167.5
DVD players - - - 2.9 7.3 18.3
PCs (with tuner) - - - 2.6 4.1 3.3
PC add-in cards (with - - - 18.4 39.3 40.1
tuner)
Total - - - 70.4 559.2 1,222.7
==============================================================================================================
</TABLE>
Entire contents (C) 1998 Gartner Group, Inc.
[GARTNER LOGO] Use external to Zenith Electronics Corporation
restricted by terms of contract.
September 17, 1998--Page 8
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
<TABLE>
<CAPTION>
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Taiwan TV sets - - - 1.5 82.8 164.1
TV STBs - - - 0.7 37.3 83.0
Satellite STBs - - - 2.9 5.6 8.7
Cable STBs - - - 17.2 35.7 60.7
LMDS/MMDS STBs - - - - - -
VCR - - - 1.7 1.8 92.7
DVD players - - - 0.9 2.2 5.4
PCs (with tuner) - - - 0.8 1.2 0.9
PC add-in cards (with - - - 5.5 11.7 11.9
tuner)
Total - - - 31.2 178.3 427.4
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Table 3b
VSB Unit Shipment Forecast by Country and Application For Countries That Are
Likely To Adopt VSB (Thousands of Units)
<TABLE>
<CAPTION>
Country Application 1998 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C> <C> <C>
China/HK TV sets - - - 27.4 173.0 3,165.9
TV STBs - - - 12.3 77.9 491.4
Satellite STBs - - - 67.6 153.8 285.6
Cable STBs - - - 54.9 153.7 242.0
LMDS/MMDS STBs - - - - - -
VCR - - - 15.0 15.0 15.0
DVD players (inc. CVD) - - - 227.3 653.4 1,513.3
PCs (with tuner) - - - 44.9 84.0 157.0
PC add-in cards (with - - - 102.5 133.9 174.9
tuner)
Total - - - 551.9 1,444.6 6,045.2
==============================================================================================================
India TV sets - - - 4.3 28.6 545.5
TV STBs - - - 2.0 12.9 84.7
Satellite STBs - - - 13.4 108.8 295.2
Cable STBs - - - 8.7 24.6 39.1
LMDS/MMDS STBs - - - - - -
VCR - - - 1.7 1.8 1.9
DVD players - - - 0.4 2.0 2.2
PCs (with tuner) - - - 0.3 0.3 0.4
PC add-in cards (with - - - 16.2 22.1 30.1
tuner)
Total - - - 46.9 201.1 999.0
==============================================================================================================
</TABLE>
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September 17, 1998--Page 9
<PAGE>
GartnerConsulting Zenith Electronics Corporation
International VSB Market Forecast
Engagement #18024680
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Indonesia TV sets - - - 2.8 16.4 280.3
TV STBs - - - 1.3 7.4 43.5
Satellite STBs - - - 6.9 14.6 25.3
Cable STBs - - - 5.6 14.6 23.2
LMDS/MMDS STBs - - - - - -
VCR - - - 2.6 2.8 2.9
DVD players - - - 0.2 1.2 1.1
PCs (with tuner) - - - 0.2 0.2 0.2
PC add-in cards (with - - - 10.4 12.7 15.5
tuner)
Total - - - 29.9 69.7 392.0
==============================================================================================================
Thailand TV sets - - - 3.5 20.6 352.8
TV STBs - - - 1.6 9.3 54.8
Satellite STBs - - - 8.6 18.3 31.8
Cable STBs - - - 7.0 18.3 27.0
LMDS/MMDS STBs - - - - - -
VCR - - - 3.8 3.9 4.0
DVD players - - - 0.3 1.4 1.4
PCs (with tuner) - - - 0.3 0.2 0.2
PC add-in cards (with - - - 13.1 16.0 19.5
tuner)
Total - - - 38.1 88.1 491.5
==============================================================================================================
Vietnam TV sets - - - 1.2 6.8 116.3
TV STBs - - - 0.5 3.1 18.1
Satellite STBs - - - 2.8 6.0 10.5
Cable STBs - - - 5.8 20.5 47.3
LMDS/MMDS STBs - - - - - -
VCR - - - 0.8 0.8 0.9
DVD players - - - 0.1 0.5 0.5
PCs (with tuner) - - - 0.1 0.1 0.1
PC add-in cards (with - - - 4.3 5.3 6.4
tuner)
Total - - - 15.5 43.1 200.0
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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[GARTNER LOGO] Use external to Zenith Electronics Corporation
restricted by terms of contract.
September 17, 1998--Page 10
<PAGE>
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www.gartner.com
fax GartnerConsulting
----------------- +1-408-468-8000 [PHONE LOGO]
+1-408-468-8526 [FAX LOGO]
To: Todd Snyder & Ravi Sachdev
From: Penny Smout
Subject: VSB updates
Date: October 20, 1998
Fax Number: 212-508-1633
Pages: 1
Message:
1. Response regarding remodulation is:
Dataquest expects 1394 to be the key technology for connecting digital
consumer electronics equipment rather than VSB remodulation. This is due to
the copy protection capability and the resultant support for 1394 by the
content providers. A CEMA subcommittee has produced a draft of 1394
specification and plans to release it by November 1. Moreover, products with
1394 connection are already appearing on the market or are being discussed
in product plans. No mention has been made of the use of VSB remodulation.
Hence Dataquest expects that, if VSB remodulation is employed at all, it
will account for an insignificant portion of the market.
2. Introductory paragraph to put the forecast in context (as discussed with
Tom):
The forecast included in this report is based on a multitude of variables
and unknowns, and as a result should be considered speculative and as
exhibiting a high level of uncertainty. Even with extensive and time
consuming research, the nature of these unknowns would remain unpenetrable.
There are two main components that contribute to the forecast uncertainty:
the uncertainty in the market size for digital demodulation applications and
the speculation over which countries will adopt the ATSC standard (that
includes VSB). The high level of uncertainty in these two components of the
forecast are a result of the compounding of the uncertainty in a variety of
key elements, including:
. Economic conditions
. Standards adoption processes and the interaction between de facto and
government decreed standards (for countries that have yet to adopt a
standard)
. Influence of infrastructural elements
. Lack of historical information for the market (since it is a new market)
. Market drivers and consumer adoption
. Influence of one country over another
. Source of content
. Cultural and business influences
. Technical considerations
. Broadcaster plans
. Consumer electronics equipment manufacturer plans
Let me know what you think.
Penny
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<PAGE>
GartnerConsulting
Third Addendum Report Prepared for:
Zenith Electronics Corporation
International VSB Market Forecast:
Argentina Estimate
GartnerConsulting
[DIAGRAM APPEARS HERE]
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Marketing Audit
Market Assessment
Marketing Strategy
New Product Planning
Marketing Implementation
Competitive Analysis
Image Assessment & Tracking
Customer Satisfaction Surveys
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Industry Due Diligence
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Engagement #18024680
November 9, 1998
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<PAGE>
[GartnerConsulting LOGO] Zenith Electronics Corporation
International VSB Market Forecast
Argentina Estimate
Engagement#18024680
Section 1
Forecast _____________________________________________________________________
Table 1
Total (Analog and Digital) Unit Shipment Forecast For Argentina by Application
(Thousands of Units)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
VSB status Application 1998 1999 2000 2001 2002 2003
Adopted TV sets 1,200.0 1,150.0 1,250.0 1,300.0 1,450.0 1,617.3
TV STBs - - 4.3 24.0 61.2 155.8
Satellite STBs 40.9 80.1 153.1 235.6 306.1 397.6
Cable STBs - 14.5 259.6 633.0 1,150.6 1,958.3
LMDS/MMDS STBs 61.5 119.0 141.0 150.5 262.4 357.4
VCR 310.0 340.0 360.0 380.0 400.0 421.1
DVD players 21.2 53.7 94.4 162.2 267.5 441.4
PCs (with tuner) - - 2.8 6.0 10.0 18.8
PC add-in cards (with - - 6.6 19.5 22.8 30.0
tuner)
Total 1,633.6 1,757.3 2,271.7 2,910.8 3,930.6 5,397.7
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Table 2
VSB Percentage of Total Unit Shipments Forecast For Argentina by Application
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
VSB status Application 1998 1999 2000 2001 2002 2003
Adopted TV sets 0.0% 0.0% 0.1% 2.2% 13.7% 26.8%
TV STBs 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Satellite STBs 0.0% 0.0% 10.0% 20.0% 30.0% 45.0%
Cable STBs 0.0% 0.0% 0.0% 4.0% 7.0% 10.0%
LMDS/MMDS STBs 0.0% 0.0% 0.0% 4.0% 7.0% 10.0%
VCR 0.0% 0.0% 1.0% 1.0% 1.0% 1.0%
DVD players 0.0% 0.0% 5.0% 10.0% 20.0% 40.0%
PCs (with tuner) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
PC add-in cards (with 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
tuner)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Entire contents (C) 1998 Gartner Group, Inc.
[GARTNERGROUP LOGO] Use external to Zenith Electronics Corporation
restricted by terms of contract.
November 9, 1998--Page 2
<PAGE>
[GartnerConsulting LOGO] Zenith Electronics Corporation
International VSB Market Forecast
Argentina Estimate
Engagement#18024680
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Table 3
VSB Unit Shipment Forecast For Argentina by Application (Thousands of Units)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
VSB status Application 1998 1999 2000 2001 2002 2003
Adopted TV sets - - 1.7 29.2 198.4 433.2
TV STBs - - 4.3 24.0 61.2 155.8
Satellite STBs - - 15.3 47.1 91.8 178.9
Cable STBs - - - 25.3 80.5 195.8
LMDS/MMDS STBs - - - 6.0 18.4 35.7
VCR - - 3.6 3.8 4.0 4.2
DVD players - - 4.7 16.2 53.5 176.5
PCs (with tuner) - - 2.8 6.0 10.0 18.8
PC add-in cards (with - - 6.6 19.5 22.8 30.0
tuner)
Total - - 39.0 177.2 540.6 1,229.2
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Entire contents (C) 1998 Gartner Group, Inc.
[GARTNERGROUP LOGO] Use external to Zenith Electronics Corporation
restricted by terms of contract.
November 9, 1998--Page 3
<PAGE>
Exhibit 99j
[ZENITH LETTERHEAD]
_______, 1998
Dear Zenith Security Holder:
Enclosed are several documents related to the Company's planned financial
and operational restructuring. I realize that the enclosed documents are
lengthy. We urge you to read all the information carefully because our planned
restructuring will have significant effects on the Company as a whole, and more
importantly, on your investment in us. First, however, let me try to put the
Company's restructuring plan into perspective for you in a summary fashion.
BACKGROUND OF THE RESTRUCTURING
Historically, the Company's operations have included the design,
development, manufacturing and marketing of video products (including color
television sets and other consumer products) along with parts and accessories
for such products. Unfortunately, the Company has for many years experienced
and continues to experience, severe financial difficulties. It has incurred
losses in all but one of the years since 1985. The Company projects that fiscal
1998 cash flows will be insufficient to meet all of its working capital
requirements, scheduled cash debt service obligations and anticipated capital
expenses. These financial results generally reflect price reductions in color
television prices caused by strong competition and other unfavorable market
conditions, as well as high operating costs and performance difficulties.
In light of its persistent losses, the Company had implemented various
programs and initiatives designed to lower costs and increase profits. These
programs and initiatives were financed primarily by LG Electronics, Inc., which,
together with an affiliate, owns approximately 56.5% of the Company's common
stock. Despite these measures and the significant financial support provided
by LGE Electronics, the Company has been unable to generate sufficient revenues
to support its continued business operations in the absence of a significant
operational and financial restructuring.
THE RESTRUCTURING PLAN
In May 1998 the Company announced that it was developing a long-term
restructuring plan designed to enhance the long-term viability of the Company by
reducing production costs and concentrating on areas in which the Company
believes it can operate profitably. Pursuant to the restructuring, the Company
will become a sales, distribution and technology company, discontinue
substantially all of its manufacturing operations and outsource substantially
all components and products.
The Company has concluded that it cannot implement the restructuring with
its current capital structure. It has developed a financial restructuring plan
designed to reduce the Company's total outstanding debt and annual interest
payments. During 1998, the Company negotiated the terms of the restructuring
with LG Electronics. The result of those negotiations is the transaction
described in the enclosed documents. The Company is in discussions with a
committee representing holders of the Company's 6 1/4% Subordinated Debentures
due 2010. Essentially, the Company is offering holders of its subordinated debt
the opportunity to exchange their existing securities for new senior
subordinated debt securities in Zenith. Under the restructuring, holders of
Common Stock and options for Common
<PAGE>
Stock will not receive any distribution, because there is not enough value
remaining in the Company for a distribution to equityholders.
The Company believes that the restructuring, as described, is the best
alternative for achieving a capital structure for Zenith that is appropriate
based on current industry conditions and the Company's financial projections. A
Special Committee of the Company's Board of Directors which is composed of
directors who are not officers or directors of LG Electronics or current
officers of the Company has unanimously recommended the proposed restructuring
to the Board of Directors. The Board of Directors has recommended that the
holders of the subordinated debt and other impaired claims accept the
restructuring.
HOW TO VOTE ON THE RESTRUCTURING
As described in the enclosed documents, the Company is asking holders of
its subordinated debt to accept the restructuring.
To accept the restructuring, a holder of subordinated debt should:
(i) fill in the enclosed Ballot;
(ii) indicate acceptance of the restructuring by checking the box entitled
"Accepts the Prepackaged Plan";
(iii) sign the Ballot; and
(iv) return the Ballot to the Solicitation Agent by following the
directions in the enclosed disclosure statement.
If you hold subordinated debentures in "street name" through a brokerage
firm, bank, trust company or other sources, return the Ballot to the nominee as
promptly as possible so that the nominee may complete a Master Ballot that will
summarize your vote as well as others who hold subordinated debt through it.
If you are a holder of subordinated debt and wish to reject the
restructuring, follow the same instructions, but check the box entitled "Rejects
the Prepackaged Plan."
All holders of Common Stock of the Company are automatically deemed to
reject the restructuring and do not file a Ballot.
FINALIZING THE RESTRUCTURING
Once the voting period has ended, the Company will determine, based on the
results of the voting, whether it can finalize the restructuring. If a majority
of the numbers of holders of subordinated debt who vote accept the
restructuring, and they hold 66-2/3% of the dollar amount of subordinated debt
of the holders who voted, each subordinated debt holder will be deemed to have
accepted the restructuring.
If the Company has received enough votes in favor of the restructuring, the
Company will consummate its restructuring plan. IF THE COMPANY DOES NOT RECEIVE
ENOUGH VOTES TO ACCEPT THE RESTRUCTURING FROM HOLDERS OF THE SUBORDINATED DEBT,
THE COMPANY INTENDS TO SEEK THE APPROVAL OF THE BANKRUPTCY COURT TO CARRY OUT
THE RESTRUCTURING WITHOUT APPROVAL OF BONDHOLDERS. IF THE COURT GRANTS THE
COMPANY'S REQUEST, HOLDERS OF SUBORDINATED DEBT WILL RECEIVE NO DISTRIBUTION AND
RETAIN NO PROPERTY UNDER THE RESTRUCTURING.
<PAGE>
ALTERNATIVES TO RESTRUCTURING
If the Company does not receive the approval of its creditors to finalize
the restructuring and the Bankruptcy Court does not permit the Company to carry
out the restructuring without such approval, the Company will be forced to
consider some unattractive alternatives, including a liquidation of its assets
or development of an alternative restructuring plan. The Company believes that
the current restructuring will minimize the disruption to its business and
ultimately results in a larger distribution for its creditors than would occur
in its other alternatives.
IN CONCLUSION
Again, you are urged to read all the enclosed documents carefully and to
follow the instructions for participating in the restructuring before the
expiration date on _________________.
We believe the restructuring provides the best alternative for creating a
capital structure that is appropriate given the Company's operational
capabilities. We are nearing the end of a very lengthy process that is the most
likely of the alternatives to result in a stronger and well-positioned Company
with manageable debt obligations. As we work toward completing the
restructuring, we thank you for your continued support.
Sincerely,
JEFFREY P. GANNON
President and Chief Executive Officer
