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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Commission File Number 1-4115
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Zenith Electronics Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-1996520
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1000 Milwaukee Avenue, Glenview, 60025-2493
Illinois (Zip code)
(Address of principal executive
offices)
Registrant's telephone number, including area code (847) 391-7000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
8.19 % Senior Debentures,due November
2009
Over-The-Counter Market
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
The registrant is a wholly-owned subsidiary of LG Electronics Inc., a
corporation organized under the laws of the Republic of Korea.
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PART I
ITEM 1. BUSINESS
The company was founded in 1918, incorporated in Illinois in 1923 and
reincorporated in Delaware in 1958. The company's current operations include
the design, development and marketing of video products, (including digital
and analog television sets, VCRs, DVD players and other consumer products)
along with parts and accessories for such products, all of which are sold
principally to retail dealers in the United States and to wholesale
distributors in the United States and foreign countries. The company also
sells these products directly to buying groups and private label customers as
well as customers in the lodging, health care and rent-to-own industries. The
company also sells digital set-top boxes, primarily to telecommunications
companies and other commercial users of these products in the United States
and abroad through its Network Systems Division.
In November 1995, LG Electronics Inc., a corporation organized under the
laws of the Republic of Korea ("LGE"), and an affiliate of LGE purchased a
majority of the shares of the company pursuant to a combined tender offer and
purchase of newly issued shares of common stock from 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 has incurred losses from operations in all but one of the years
since 1985. As a result, during the first quarter of fiscal 1998, management
developed and began implementing an operational restructuring to enhance the
long-term viability of the company. In May 1998, the company announced that,
in conjunction with its operational restructuring, it would pursue a financial
restructuring through a prepackaged plan of reorganization under Chapter 11 of
the U.S. Bankruptcy Code. Pursuant to the operational restructuring, the
company became a sales, marketing, distribution and technology company by
discontinuing substantially all of its manufacturing operations in 1998 and
1999, outsourcing substantially all products and components, selling certain
other assets such as plants, warehouses and equipment in 1998 and 1999 and
focusing on the development of its distribution channels, technologies, patent
rights, parts and service operations and accessories business.
On August 23, 1999, the company filed a voluntary petition for relief under
Chapter 11 of Title 11 of the U.S. Code in the U.S. Bankruptcy Court for the
District of Delaware. At the time of its filing, the company had already
solicited and received approval of its prepackaged plan of reorganization by
holders of the company's 6 1/4 percent subordinated debentures due 2011, LGE
and Citibank, as secured creditors.
On November 5, 1999, the U.S. Bankruptcy Court for the District of Delaware
entered an order confirming the company's prepackaged plan of reorganization.
On November 9, 1999, the company satisfied certain conditions precedent to the
plan's effectiveness, declared the prepackaged plan effective and emerged from
the bankruptcy proceeding.
On November 9, 1999, as a result of the company's prepackaged plan of
reorganization,
(i) LGE exchanged approximately $165.7 million of its claims for
restructured senior notes, interest on which is payable in kind under
certain circumstances,
(ii) the company's $103.5 million of 6 1/4 percent subordinated
debentures due 2011 and related accrued interest were exchanged for $50.0
million of new 8.19 percent senior debentures maturing in November 2009,
which when recorded at fair value of $39.1 million, resulted in the
recognition of an extraordinary gain of approximately $70.2 million,
(iii) the company entered into a three-year $150.0 million exit
financing facility with a bank group for which Citicorp North America was
the agent,
(iv) the company and LGE entered into a new $60.0 million credit
facility,
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(v) $39.5 million of the restructured senior notes referred to above
were settled by the transfer of the company's production facility located
in Reynosa, Mexico to an affiliate of LGE on January 1, 2000,
(vi) the company's old common stock and treasury stock were canceled,
thereby increasing old additional paid-in capital (no distribution was made
to any holders as a result of their shares)
(vii) the company's articles of incorporation and by-laws were amended,
and
(viii) LGE converted $200.0 million of the company's debt and extended-
term payables with LGE into 100 percent of the company's new common stock,
and as a result, the company became a wholly-owned subsidiary of LGE.
Certain holders of the company's old common stock have appealed the
confirmation seeking to overturn the confirmation of the plan of
reorganization. The company has filed a motion to dismiss the appeal. See
Legal Proceedings-Litigation.
Closing Manufacturing Operations and Disposition of Assets
The company ceased production in its Melrose Park, Illinois manufacturing
facility in March 1999, and is currently completing decommissioning of this
facility. In 1999, the company entered into two agreements with Philips
Electronics North American Corporation ("Philips"). One is for the sale of
certain manufacturing equipment located at the company's Melrose Park
facility, and the second is for the purchase by the company of color picture
tubes. Philips will provide credits against the picture tubes purchased over a
three-year period in exchange for (i) the manufacturing equipment and (ii) the
company's entering into the contract to purchase the picture tubes. The
expected credits range from $17.2 to $23.9 million depending upon the picture
tube volume required by the company and/or its contract manufacturers. In
1999, the company used credits available to the company based on product
purchases totaling $11.3 million. The company shall have no right to use the
credits after the expiration or termination of the purchase agreement. The
company intends to sell its Melrose Park facility after decommissioning.
In October 1998, the company sold its Glenview, Illinois headquarters
building to BRI/Glenview I for $23.3 million and in February 1999, sold its
Matamoros, Mexico electron gun operation as an ongoing business to a third
party for $4.4 million, less amounts held in escrow.
In April 1999, the company sold substantially all of the assets located at
its Cd. Juarez, Mexico facility to subsidiaries of Kimball International, Inc.
for approximately $23.8 million, less amounts held in escrow.
In July 1999, the company sold substantially all of its Chihuahua, Mexico
facility for approximately $8.2 million, less amounts held in escrow, plus a
$2.0 million escrow contingent upon the company's purchase of specified
quantities of set-top boxes over a fifteen-month period. The company also sold
its Franklin Park, Illinois warehouse in July 1999, for $3.1 million, less
amounts held in escrow.
In January 2000, pursuant to its operational restructuring and prepackaged
plan of reorganization, the company transferred Reynosa assets valued at $39.5
million to LGE.
Outsourcing Contracts
The company has finalized definitive supply agreements with vendors
relating to significant portions of its 2000 model year requirements. The
company is finalizing contracts covering some other product areas, including
console television sets, small and medium screen direct-view sets, TV/VCR
combination sets and large-screen projection television sets. The company
expects to purchase a majority of its 2000 model year requirements for HDTV
and digital television products, medium and large screen direct view
televisions and VCRs from LGE and LGE-related affiliates under purchase
orders. The company has agreed to purchase a substantial portion of its medium
and large screen direct-view television sets from the company's former
facilities in Reynosa, Mexico, which were transferred to an affiliate of LGE
under the terms of the prepackaged plan as of January 1, 2000.
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The company has entered into supply agreements with Thomson and Philips for
color picture tube requirements for the 2000 model year. Each of the color
picture tube supply agreements requires that the seller supply a specific
percentage of the company's requirements for medium screen color picture
tubes.
Raw Materials
Many materials, such as copper, plastic, steel, wood, glass, aluminum and
zinc, are essential to the manufacture of the products sold by the company.
The direct importance of the items to the business has decreased as the
company has completed its operational restructuring, pursuant to which it has
discontinued manufacturing operations and now outsources almost all product
manufacturing to third parties. The company believes its current suppliers
have adequate sources of supply 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 digital high-definition television ("HDTV") and
digital television related inventions. To the extent these inventions are
incorporated into the digital television broadcast standard adopted by the
Federal Communications Commission ("FCC"), the company expects to receive
royalties from these patents, although the company does not currently have
license agreements in place for this technology. In addition, royalties have
been and may be received from these patents for non-HDTV applications as well.
In 1999, more than one hundred U.S. television stations commenced digital
television broadcasting using the company's digital transmission system.
In February 2000, the FCC unanimously denied a petition filed by a group of
broadcasters, requesting that the FCC modify its rules to give broadcasters
the option to transmit digital television signals using a modulation method
different than the FCC-adopted modulation system developed by the company.
While some opposition to the current standard continues, the company believes
that its technology has support among manufacturers of television sets,
integrated circuitry and broadcast equipment as well as many broadcasters.
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 1999
U.S. industry unit sales levels and technology, more than $25.0 million
royalty income is expected for each of the years 1999-2002 and $14.0 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 and
ability to meet its creditor obligations. See Legal Proceedings--Litigation.
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 holiday shopping season. During each of the last three years,
approximately 55 percent of the company's net sales were recorded in the
second half of the year and approximately 30 percent 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 $115.0
million (14 percent) in 1999, $131.2 million (13 percent) in 1998, and $138.6
million (12 percent) in 1997. Sales to a second customer, Sears, Roebuck and
Company, accounted for $102.7 million (10 percent) in 1998 and $132.4 million
(11 percent) in 1997. No other customer accounted for 10 percent or more of
net sales in 1999, 1998 or 1997.
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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 believes it competes well with respect to each of these
factors. In 1999, fierce competitive market actions occurred in response to
the company's filing for bankruptcy protection.
The company's major product areas, particularly the color television
market, are highly competitive. 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 1999, expenditures for company-sponsored research and engineering
relating to new products and services and to improvements of existing products
and services were $29.8 million compared to $39.1 million in 1998 and $42.9
million in 1997.
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 under Item 3 of this report.
Employees
At December 31, 1999, the company employed approximately 3,950 people, of
whom approximately 2,150 were hourly workers covered by collective bargaining
agreements. At December 31, 1999, approximately 550 of the company's employees
were located in the Chicago, Illinois area, of whom 21 were represented by
unions. Approximately 3,145 of the company's employees were located in Mexico,
of whom approximately 2,130 were represented by unions. On January 1, 2000,
the company transferred its Reynosa, Mexico operations to an LGE affiliate,
thereby substantially reducing the number of its employees. At December 31,
1998, the company employed approximately 6,800 people, of whom approximately
4,025 were hourly workers covered by collective bargaining agreements. The
decrease in the number of employees as of December 31, 1999, is primarily the
result of the company continuing to implement its operational restructuring.
Mexican labor contracts expire every two years and wages are negotiated
annually or more frequently under rapid devaluation or high inflation periods.
The company believes that it has good relations with its employees.
Financial Information about Foreign and Domestic Operations and Export Sales
Information regarding foreign operations is included in Note Nine to the
company's consolidated financial statements. Export sales are less than 10
percent of consolidated net sales.
During 1999, the company's product lines were dependent on the operations
of the company's manufacturing and assembly facilities located in Mexico, and
the company will continue to be dependent upon those operations in 2000, even
though ownership has been transferred to an LGE affiliate.
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ITEM 2. PROPERTIES
As of December 31, 1999, the company utilized a total of approximately 3.0
million square feet for warehousing, engineering and research, administration
and distribution, as described below. As the company completes its operational
restructuring, the utilization of its properties will change accordingly.
<TABLE>
<CAPTION>
Square Feet
(in
Location Nature of Operations millions)
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<S> <C> <C>
Domestic:
Chicago, Illinois Four locations including headquarters/administrative 1.3
(including suburban and repair facilities and two decommissioned production
locations) plants (Approximately 0.4 million square feet is leased
by the company.)
Fort Worth, Pharr Seven locations--warehouses, office and repair and service 0.9
and Dallas, Texas; facilities, all of which are leased by the company (The Pharr,
Huntsville and Madison, Texas office was transferred to an LGE affiliate as of January
Alabama; Greeneville, 1, 2000, as part of operations related to the Reynosa, Mexico
Tennessee; Ontario, facility.)
California
Foreign:
Mexico One location with three manufacturing and warehouse 0.8
buildings (All facilities were transferred to an LGE
affiliate as of January 1, 2000, in accordance with the
company's prepackaged plan of reorganization)
Taiwan One purchasing office --
---
Total 3.0
===
</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. The lease on the
company's headquarters building expires on December 31, 2000. The company is
currently considering other locations to lease as the new location for its
corporate office.
ITEM 3. LEGAL PROCEEDINGS
Summarized below are significant legal matters to which the company is a
party. There is a range of possible outcomes for all legal matters in which
the company is involved. With the exception of the Funai matter discussed
below, the company does not believe any of the following matters if adversely
decided, are reasonably likely to have a material adverse effect on the
company. The company's belief is based on the amounts involved and the types
of litigation.
Litigation
In June 1998, Funai Electric Co., Ltd., a licensee of the company's tuner
patents, filed suit in the U.S. District Court in Los Angeles 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 also
sought 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 and has also denied plaintiff's motion for a preliminary
injunction. The case is currently in the discovery stage.
The company's prepackaged plan of reorganization was confirmed by the U.S.
Bankruptcy Court for the District of Delaware on November 5, 1999, subject to
certain conditions precedent to its effectiveness. The company satisfied all
of the conditions to confirmation, and the bankruptcy plan was declared
effective on
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November 9, 1999. Following confirmation, certain holders of the company's old
common stock filed an appeal of the confirmation order in the U.S. District
Court for the District of Delaware. The appeal seeks the reversal of the
bankruptcy court's confirmation of the company's prepackaged plan. The company
has filed a motion to dismiss that appeal as being moot.
Environmental Litigation
WVP Income III, LP has brought a legal action in the federal court for the
Northern District of California under the Resource Conservation and Recovery
Act ("RCRA"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("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 newly constructed
Menlo Park facility 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 and they are covering defense
costs.
The company has been named as one of several dozen defendants in two
unrelated suits filed in Texas concerning sites to which the company or its
subsidiaries are alleged to have shipped various materials and chemicals
linked to former television manufacturing plants in Mexico. The cases are
entitled Anglo Metals, Inc. d/b/a Anglo Metal and Iron v. TRW Automotive
Products, Inc. et al, filed in September 1999, in the U.S. District Court for
the Southern District of Texas, which is a civil action under CERCLA and
Vasquez d/b/a Farmers' Marketing Service et al v. Republic Waste Industries,
Inc. et al, a tort action, filed in the District Court for Hidalgo County,
Texas in December 1999. The cases are in the early stages of discovery.
Environmental Matters
The company and/or one of its subsidiaries are currently named either as
Potentially Responsible Parties ("PRPs") or third party defendants under
CERCLA, as an alleged generator of 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 sites, no
cost estimates are available nor has liability been imposed.
The total cost to perform the investigation on the Rocky Flats Industrial
Park Superfund Industrial Site 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 such excess costs. No allocation has been established for
future response costs. In addition, the liability for United States
Environmental Protection Agency ("US EPA") past costs and any remedial work
that may be required has not been determined.
The company has been advised that the cost of a preliminary investigation
of the Liquid Dynamics Site 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.
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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 at the Master Metals Superfund Site. 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 required remedial activities at the site.
The company has completed the closure of a hazardous waste boiler site used
at a former manufacturing plant located in Springfield, Missouri, and is
required to conduct long-term groundwater monitoring and post-closure care at
this facility.
Employment Cases
The company has a number of employment claims, charges or lawsuits alleging
various types of discrimination. There are twelve age discrimination or
retaliation lawsuits in Texas and one in Illinois arising out of
restructurings that took place in 1995 and 1996. The remaining matters are
charges filed with various federal courts, and state and federal agencies.
Product Liability
The company is the defendant in a number of product 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
has notified the appropriate authorities, has implemented a customer
notification and retrofit program, and believes it has adequate reserves to
cover the cost of this program.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The company is a wholly-owned subsidiary of LG Electronics Inc., a
corporation organized under the laws of the Republic of Korea.
As a result of the confirmation of the company's prepackaged plan of
reorganization in November 1999, (i) all previously issued $1 par value common
stock was canceled and no distribution was made to holders as a result of that
cancellation and (ii) 1,000 shares of new common stock were issued to LGE.
Also, as a result of the prepackaged bankruptcy plan confirmation, the
company's $103.5 million 6 1/4 percent convertible subordinated debentures due
2011 were exchanged for $50.0 million (at maturity) of 8.19 percent senior
debentures due 2009. As a result of such exchange, the 8.19 percent senior
debentures due 2009, were exempt from registration under the Securities Act of
1933 pursuant to Section 1145 of the United States Bankruptcy Code (Title 11,
USCS). The company's 8.19 percent senior debentures are not listed on any
exchange. The company believes that there has been trading in these securities
from time to time but has not been able to obtain regular market prices for
the 8.19 percent senior debentures.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997 1996 1995
------- ------- -------- -------- --------
In millions
<S> <C> <C> <C> <C> <C>
Results of operations:
Net sales.............. $ 833.9 $ 984.8 $1,173.1 $1,287.9 $1,273.9
Pre-tax income (loss).. (62.1)(2) (272.5)(3) (300.2) (177.8) (98.5)
Net income (loss)...... 6.1 (275.5) (299.4) (178.0) (90.8)
Financial position:
Total assets........... $ 279.0 $ 350.0 $ 527.7 $ 765.3 $ 700.7
Long-term debt......... 163.7 97.8 132.8 152.7 168.8
Stockholders' equity
(deficit)............. (158.4) (364.5) (89.0) 162.0 317.5
</TABLE>
- --------
(1) An operational restructuring of the company has been substantially
completed in 1999, in which the company is being transformed from a
manufacturer and distributor of consumer electronic products into a sales,
distribution and technology company, in part, through the disposition of
substantially all of its manufacturing operations.
(2) Excludes extraordinary gain of $70.2 relating to exchange of $103.5
million of the company's 6 1/4 percent subordinated debentures due 2011
and related accrued interest for $50.0 million of new 8.19 percent senior
debentures maturing in November 2009, recorded at fair value of $39.1
million as a result of the company's prepackaged plan of reorganization.
(3) Includes a $202.3 million asset impairment and restructuring charge
related to the company's operational restructuring plan. See Note Seven to
the Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
On August 23, 1999, the company filed its prepackaged plan of
reorganization in a voluntary petition for relief under Chapter 11 of Title 11
of the U.S. Code. From August 23, 1999 to November 9, 1999, the company
operated as a debtor-in-possession. On November 5, 1999, the U.S. Bankruptcy
Court for the District of
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Delaware entered an order confirming the company's prepackaged plan of
reorganization. On November 9, 1999, the company satisfied certain conditions
precedent to the effectiveness of the prepackaged plan, declared the
prepackaged plan effective and emerged from the bankruptcy proceeding.
The statements of consolidated operations summarize operating results for
the last three years. This section of Management's Discussion and Analysis
highlights the main factors affecting the changes in operating results during
the three-year period.
Revenues. Sales in 1999 were $833.9 million, down 15 percent from 1998
sales of $984.8 million. Sales in 1998 decreased sixteen percent as compared
to 1997 sales of $1,173.1 million.
The company's core business--the development and distribution of a broad
range of products for the delivery of video entertainment--is composed of two
major product segments--Consumer Electronics, which includes the design,
development and marketing of video products along with parts and accessories
for such products, and Network Systems, which designs, develops and markets
digital set top boxes, which are sold primarily to satellite systems
operators, telecommunications companies and other commercial users of these
products.
In Consumer Electronics, the color television market remains extremely
competitive. Price competition continued during 1999, 1998 and 1997, 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 declined $138.8 million (or 16 percent) in 1999
when compared to 1998. The reasons for this decrease are (i) fierce
competitive market actions in response to the company's filing for bankruptcy
protection; (ii) delays in new product introduction and/or availability; (iii)
a planned reduction in low margin sales business; (iv) decreased sales of the
company's projection television line; (v) a change in the method of recording
merchandising costs from selling, general and administrative expenses to
revenue reduction in 1999; and (vi) continuing decreases in the company's
high-margin service business due to the decreasing relative cost of
replacement v. repair. The company estimates that industry-wide color
television unit sales to dealers (including projection television) increased
by nine percent in 1999 to 28.9 million units.
Consumer Electronics sales declined $237.1 million (or 21 percent) in 1998
from 1997, driven largely by planned sales reductions in lower-margin color
television products and a change in distribution strategy whereby certain VCRs
were sold directly from the manufacturer (LGE) rather than through the
company's direct sales organization. The company receives a royalty for these
sales. The company estimates that industry-wide color television unit sales to
dealers (including projection television) increased by eight percent in 1998
to 26.4 million units (following a decrease of four percent in 1997 to 24.5
million units).
Sales of Network Systems products decreased $12.1 million in 1999 compared
with 1998. The decrease reflected lower sales due to the phase-out of analog
set-top boxes and cable modems since the third quarter of 1998. Sales of
Network Systems products increased $49.2 million (or 86 percent) in 1998
compared with 1997 due to shipments of digital set-top boxes, which were first
introduced in the second half of 1997.
Costs and Expenses. In light of the company's net losses from operations
and the competitive environment, the company has undertaken major cost
reduction programs in each of the last three years. These programs included
outsourcing of manufacturing, cost control and profit improvement initiatives;
design, logistics and distribution improvements and business consolidations.
The company continues to seek additional cost reduction opportunities.
The company's 1999 gross margin was $81.9 million compared to 1998 gross
margin of $79.3 million and $(7.4) million in 1997. The change in 1999
compared to 1998 was primarily the result of 1998 gross margin being
negatively impacted by approximately $15.0 million by the charges recorded to
cover a customer
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notification and retrofit program for the potential problems with certain
projection television sets manufactured by the company. This was partially
offset by (i) cooperative advertising allowances being included in net sales
during 1999, whereas in 1998 they were included in selling expenses as
discussed above, (ii) lower sales in the company's high-margin repair and
service business caused by a shift in the market place toward replacing lower
priced consumer electronic items instead of repairing them and (iii) delays in
product availability.
The significant improvement from 1997 to 1998 was primarily the result of
(i) significant 1997 excess and obsolete inventory charges (approximately
$44.0 million), (ii) decreased 1998 raw material costs, (iii) 1998 planned
reductions in lower-margin color television products, (iv) lower depreciation
expense in 1998 (due to the asset impairment charges the company recorded in
December 1997), (v) lower overall spending during 1998 for manufacturing
overhead items and (vi) 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.
These product and process problems created a large amount of rework inventory
that necessitated the significant charges for excess and obsolete inventory.
These factors were partially offset by the potential problems with certain
projection television sets in 1998 discussed above.
Selling, general and administrative expenses were $95.1 million (11.4
percent of revenues) in 1999, $126.6 million (12.9 percent of revenues) in
1998 and $178.3 million (15.2 percent of revenues) in 1997. Expenses for 1999
benefited from the change in the method of recording of co-op advertising
costs, as discussed above, and continuing efforts to reduce expenses and
downsize staffing. The 1997 results included bad debt charges (approximately
$25.0 million) of which $21.3 million was related to a dispute the company had
with a Brazilian customer. Expenses for 1998 also benefited from lower
merchandising and advertising costs and the company's continuing efforts to
downsize staffing.
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 $29.8 million in
1999, $39.1 million in 1998 and $42.9 million in 1997. These expenses as a
percentage of revenues were approximately 4 percent in each year during the
three years ended December 31, 1999.
Other Operating Expense (Income). Other operating expense (income) was
($37.9) million in 1999, ($43.0) million in 1998 and $42.4 million in 1997.
Included in these amounts is royalty income related to manufacturers of
television sets and VCRs who have taken licenses under some of the company's
U.S. tuner system patents. Royalty income from tuner system patents was
($30.6) million in 1999, ($35.1) million in 1998 and ($26.0) million in 1997.
In 1999 and 1998, other operating expense (income) also included ($1.7)
million and ($1.5) million, respectively, of royalty income related to the
licensing of the company's trademarks for direct ship VCR programs.
In 1997, other operating expense (income) was significantly impacted as the
company recorded $63.7 million in charges for asset impairments. As required
by Statement of Financial Accounting Standards (FAS) No. 121--Impairment of
Long-Lived Assets,--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
because 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. In 1998, impairment of long-lived assets was
related to the company's operational restructuring plan and, as a result, such
charges were included in restructuring expense as discussed below.
Also, in accordance with FAS 121, certain long-lived assets to be disposed
of 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 $10.0
million related to (i) assets that were sold or scrapped as a result of the
company's decision to phase
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out 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.
Liquidity. The company has incurred net losses before extraordinary item of
$64.1 million, $275.5 million and $299.4 million in 1999, 1998 and 1997
respectively. In addition, the company had a negative working capital position
of $52.0 million as of December 31, 1999. The company believes that, giving
effect to (a) the Citicorp three-year exit facility and the LGE credit support
discussed in Note Fifteen to the Consolidated Financial Statements and (b) the
company's cash flow from operations, that the established levels of liquidity
available to the company will be sufficient to permit the company to satisfy
its working capital, debt service, capital expenditure and other requirements
for fiscal year 2000. However, the Company's belief is based upon various
assumptions, including those underlying its conversion from a manufacturing
and distributing company to a sales, marketing and research and development
company which relies upon outsourced products. The company's access to
available funds from the Citicorp three-year exit facility and the LGE credit
support is conditioned upon continued compliance with certain financial
covenants in fiscal year 2000. The company is highly dependent upon the
continued financial support of LGE. In addition to its $60.0 million credit
support, LGE is committed to provide its best efforts to improve the company's
performance and to maintain the company's borrowings under the Citicorp credit
line.
Restructuring Charges. As part of its operational restructuring, the
company has closed and is disposing of its manufacturing facilities and is
outsourcing its product lines. The company has transformed itself from an
integrated manufacturer and distributor of consumer electronic products into a
sales, marketing and distribution and technology company.
During 1999, the company recorded $19.5 million of restructuring charges,
primarily related to costs associated with (i) work performed by outside
consulting and law firms to support the development of the operational and
financial restructuring plans and the prepackaged plan of reorganization
($11.1 million); (ii) severance and other employee costs ($5.5 million) and
plant closure costs ($2.9 million). In addition, for the period from the
filing of the prepackaged plan of reorganization on August 23, 1999 to
November 9, 1999, the company incurred $2.4 million of professional fees for
purposes discussed above, which was included in reorganization items. Deferred
debt issuance costs ($1.3 million) related to debt restructured pursuant to
the prepackaged plan of reorganization were also written off and included in
reorganization items. In addition to the asset write-off, cash payments in
1999 were $34.8 million, reducing accrued restructuring costs from $31.3
million at December 31, 1998 to $18.4 million at December 31, 1999.
During 1998, the company provided for impairment of assets and
restructuring costs related to its operational restructuring plan. The $202.3
million of restructuring charges recorded by the company in 1998 were composed
of (i) the non-cash loss on the termination of the company's leveraged lease
($68.8 million), (ii) bank and financing fees and the non-cash loss related to
the write-off of certain deferred finance charges ($36.6 million excluding the
accelerated amortization of the remaining $9.1 million deferred gain discussed
below), (iii) the non-cash impairment of property, plant and equipment ($47.2
million), (iv) severance and costs for staff reductions ($24.8 million), (v)
plant closure and business exit costs ($18.8 million), (vi) professional fees
($11.5 million), (vii) non-cash inventory write-downs ($3.2 million) and
(viii) other costs associated with the restructuring effort ($0.5 million). Of
the $202.3 million of restructuring charges, asset write-offs amounted to
$144.6 million, cash payments in 1998 were $26.4 million and restructuring
reserves at December 31, 1998, were $31.3 million.
The company incurred a $68.8 million loss in the third quarter on the
termination of the leveraged lease on equipment at Melrose Park, Illinois and
at Reynosa and Juarez, Mexico. The company's payment obligations under the
lease were fully guaranteed by LGE, which made a negotiated settlement payment
of $90.1 million in the third quarter of 1998 to the lessor. The appraised
value of the equipment was significantly less than the original investment
value, thus resulting in the loss of $68.8 million. This loss was calculated
as the difference between the $90.1 million liability to LGE for settlement of
the lease obligation and the $21.3 million appraised fair value of the
equipment.
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Of the $36.6 million write-off of deferred financing fees, $28.3 million of
the fees related to the leveraged lease. (The former amount does not include
the accelerated amortization of the remaining $9.1 million deferred gain
related to the 1997 sale of assets into the leveraged lease.) Also, $3.9
million was related to the receivable securitization and $1.6 million was
related to the credit facility with Citicorp that was amended in the third
quarter of 1998. Additionally, the company incurred $2.8 million in banking
and financing fees and expenses related to its efforts to secure interim and
debtor-in-possession financing commitments.
The impairment of property, plant, and equipment of $47.2 million related
primarily to the company's commitment in 1998 to dispose of its manufacturing
facilities. During the fourth quarter, the company identified and entered into
agreements with various suppliers to outsource its product lines, thus
enabling the company to commit to disposing of certain assets. As of December
31, 1998, the company had announced the closure of the Melrose Park, Illinois,
Juarez, Mexico and Matamoros, Mexico manufacturing facilities, and that those
assets were being held for disposal. Although the company continued to operate
its Chihuahua, Mexico facility, at that time, it was seeking a buyer for the
entire Network Systems business, which this facility supported. Thus, the
Chihuahua property, plant, and equipment was also considered held for
disposal.
Property held for disposal was nearly the same as of December 31, 1999 and
1998 as a decrease resulting from the sale of all, or substantially all,
assets at the company's Chihuahua, Juarez and Matamoros, Mexico facilities and
most equipment at its Melrose Park, Illinois plant was offset by including in
property held for disposal at December 31, 1999, the company's Reynosa, Mexico
facility, which was transferred to an affiliate of LGE at its fair value,
which approximates the company's current carrying value, in exchange for the
cancellation of certain of the company's obligations to LGE in January 2000.
Impairment losses were calculated based on the excess of the carrying
amount of assets over the assets' fair values. The fair values used in
determining impairment losses were based upon management's estimates of
expected sales proceeds and third-party appraisals and valuations, including
management and third party estimates of potential environmental liabilities.
The fair value estimates considered whether the assets were expected to be
sold as going-concern operations or under orderly liquidation. Previously, the
fair value estimates for these assets reflected the company's continued use of
the assets. The change in fair value estimates due to the company's commitment
to dispose of certain assets resulted in the additional impairment charge
incurred during the fourth quarter of 1998.
The impairment charges discussed above are based upon management and third
party estimates of the recoverability of long-lived assets and the fair value
of related assets.
It was anticipated that the implementation of the company's operational
restructuring plan would result in the termination, at a cost of $22.9
million, of approximately 4,200 employees by December 31, 1999, primarily at
the company's manufacturing facilities. During 1998, the Company terminated
approximately 2,500 of these employees. These terminations resulted in
expenditures of $7.5 million in 1998, with $15.4 million remaining to be paid
in 1999. During 1999, the company reduced the number of employees by
approximately an additional 2,850, incurring severance and other employee
costs of $14.9 million and an additional provision of $5.5 million was
recorded. Additionally, during 1998, the company incurred expenditures of $1.9
million to retain key management employees throughout the operational
restructuring process.
Included in the 1998 total $18.8 million of plant closure and business exit
costs were $5.8 million of plant costs at the Melrose Park, Illinois facility
incurred to maintain the property subsequent to the cessation of manufacturing
activities. In addition, plant closure and business exit charges also
reflected $2.1 million of legal costs, $2.1 million of duty payments related
to plant equipment in Mexico that the company was selling or disposing of and
a $1.5 million charge for the early termination of various leases. An
additional charge of $2.9 million was incurred for bonus payments given to
Melrose Park employees to stabilize employment and maintain production after
the announcement of the plant closure. Plant closure and business exit costs
also included a $2.9 million charge related to management salaries and labor
costs associated with the closure of the facilities and $1.5 million of other
exit/plant closure costs. The company incurred cash outlays of $3.8 million in
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1998 for plant closure and business exit costs, and the company expected to
incur additional costs of $16.0 million in 1999 and 2000, of which $15.0
million was accrued as of December 31, 1998. During 1999, $11.2 million was
expended on plant closure and business exit costs and an additional provision
of $2.9 million was recorded.
The $11.5 million charge for professional fees in 1998 reflected work
performed by outside professionals to support the development of the company's
operational and financial restructuring plans and its prepackaged bankruptcy
proceeding.
Additional restructuring charges of approximately $2.6 million are expected
to be incurred in 2000 for professional fees relating to disposal of remaining
assets, the appeal of the prepackaged plan of confirmation and post-sale
matters for assets already sold.
The benefits from the above actions made pursuant to the company's
operational restructuring plan had a significant effect on the company's 1999
financial results. The successful implementation of the operational
restructuring resulted in the company becoming less complex. The company
expects that there will be additional cost reductions during 2000 in
depreciation, corporate payroll, plant operations and working capital costs
stemming from divesting of its manufacturing operations. These cost savings
are expected to be partially offset by purchase costs as the company will rely
on third-party vendors to manufacture substantially all of its products. The
amount of 2000 savings are dependent on the success of the company's
operational restructuring plan as well as its ability to achieve its financial
performance objectives going-forward.
The company did not incur any restructuring costs during 1997.
Gain (Loss) on Asset Sales. In 1998, the company recorded a $16.0 million
gain related to the sale of its headquarters building in Glenview, Illinois.
In 1999 and 1997, the gain (loss) on asset sales was not material.
Interest Expense. Interest expense was $39.3 million in 1999, $44.3 million
in 1998 and $25.5 million in 1997. The decrease in 1999 when compared to 1998
was a result of the suspension of contractual interest on the 6 1/4 percent
subordinated debentures and unsecured and partially secured debt with LGE as a
result of the Chapter 11 filing from the date of the prepackaged plan and, in
accordance with SOP 90-7, suspension of interest expense accruals ($5.6
million). In addition, lower interest accruals on extended-term payables to
LGE due to a lower average balance in 1999 prior to the August 23, 1999 filing
with the Bankruptcy Court ($3.4 million) was offset by increased interest
related to the leveraged lease cancellation which was accrued for ten months
in 1999 and five months in 1998 ($4.4 million).
The change in 1998 from 1997 resulted from higher funding requirements (at
generally higher interest rates) for company operations and the company's need
to accrue interest to LGE on the $90.1 million the company owed LGE for LGE's
payment under the guarantee of the company's obligation under the sale-
leaseback agreement.
Income Taxes. Due to the company's continuing losses, provisions made for
U. S. federal and state income taxes during the last three years have not been
material. Foreign income tax expense in 1999 and 1998 was $2.0 million and
$3.0 million, respectively.
Net Income. As a result of the factors described above, the company's net
losses, excluding restructuring, reorganization and asset impairment charges
and a $70.2 million extraordinary gain in 1999, were $40.9 million in 1999,
$73.2 million in 1998 and $235.7 million in 1997. Including restructuring,
reorganization and asset impairment charges and the extraordinary gain in
1999, net income was $6.1 million in 1999 and net losses were $275.5 million
in 1998 and $299.4 million in 1997.
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Cash Flows
The statements of consolidated cash flows reflect the changes in cash for
the last three years by classifying transactions into three major categories--
Operating, Investing and Financing activities.
Operating Activities. During 1999, $64.8 million of cash was used by
operating activities as a result of $48.7 million of net loss from operations
(excluding extraordinary gain and depreciation) and $11.4 million of cash used
by the change in current accounts. The latter was principally composed of a
$19.9 increase in other current assets and a $21.1 million decrease in
accounts payable and accrued expenses, partially offset by a $23.2 million
decrease in receivables, net. The increase in other current assets resulted
from funds placed in escrow accounts from proceeds received in connection with
the sale of certain of the company's manufacturing plants and assets. The
decrease in accounts payable and accrued expenses was primarily related to a
$9.7 million decrease in accrued co-op advertising and merchandising programs
and a $12.9 million decrease in accrued restructuring costs. Significantly
lower sales in the fourth quarter of 1999 resulted in the decrease in
receivables, net.
During 1998, $152.0 million of cash was used by operating activities
principally to fund $99.7 million of net loss from operations (excluding non-
cash restructuring and asset impairment charges and depreciation). In
addition, $47.4 million of cash was used to fund the change in current
accounts, which was principally composed of a $113.8 million increase in
receivables (net of a $42.0 million allowance for doubtful accounts), and a
$27.3 million decrease in accounts payable and accrued expenses, which were
offset by a $79.7 million decrease in inventories. The increase in receivables
and the allowance for doubtful accounts was mainly due to the receivable
securitization agreement with Citibank being terminated during the third
quarter of 1998. As a result, receivables were no longer sold and transferor
certificates (which represented the company's retained interest in the pool of
receivables that were sold) have been canceled. The decrease in inventories
and accounts payable and accrued expenses resulted from the company decreasing
manufacturing activities as part of its restructuring plan. Cash used by
operating activities also included $16.6 million attributable to gain on asset
sales, net, primarily as a result of the gain realized on the sale of the
company's headquarters.
In 1997, operating activities provided $85.8 million of cash, including
$110.7 million of cash provided because of the reclassification of cash used
in connection with the establishment of a receivable securitization program
from operating activities to investing activities. Were the effects of this
reclassification excluded, operating activities would have resulted in a net
use of $24.9 million of cash.
Net loss from operations (excluding depreciation and charges for asset
impairment) was $197.7 million. This use of cash was offset by $260.1 million
in cash provided from changes in current accounts, $11.2 million in other
asset and liability changes, and $12.2 million from losses on asset sales and
other non-cash items.
The $260.1 million change in current accounts included a $186.6 million
decrease in receivables and a $90.2 million decrease in inventories. The
decrease in receivables was mainly due to the receivable securitization
agreement with Citicorp being put in place during 1997, which accounted for
transactions under this agreement as a sale of receivables. The cash used in
the securitization facility is reported in investing activities as an increase
in transferor certificates.
The net effect of the decrease in receivables and the increase in
transferor certificates was a decrease of $75.9 million which was primarily
related to the lower sales levels, particularly in the fourth quarter of 1997,
and the $21.3 million bad debt charge related to a dispute the company had
with a Brazilian customer. 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
common stock to the retirement savings plans to fulfill the 1996 obligation to
salaried employees. This issuance increased stockholders' equity by $4.9
million.
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Investing Activities. During 1999, $45.1 million of cash was provided by
investing activities. This was composed of $49.2 million of cash received from
the sale of certain property, partially offset by $4.1 million of cash used
for capital additions.
During 1998, $118.7 million of cash was provided by investing activities.
This was primarily attributable to the $110.7 million decrease in transferor
certificates due to the termination of the Citibank receivables facility.
Additionally, $30.0 million of cash was received from the sale of receivables
prior to the termination of the receivable securitization agreement with
Citibank and $23.3 million was received from the sale of the company's
headquarters building, offset by $8.4 million used for capital additions and
$41.0 million used to pay off the investor certificates upon the termination
of the receivable securitization agreement with Citibank. The capital
additions during 1998 were significantly lower than the 1997 amount of $82.5
million, which was 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.
In 1997, investing activities used $89.5 million of cash, which consisted
of $187.7 million of proceeds from asset sales, which were more than offset by
the initial $110.7 million securitization of receivables with Citibank,
capital additions of $82.5 million discussed above and the distribution of
$84.0 million of investor certificates. The proceeds from asset sales were
primarily composed of $95.0 million of cash received from the sale of
receivables (sold via the receivable securitization with Citibank) and $86.6
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.
Financing Activities. During 1999, $19.7 million of cash was provided by
financing activities. This was composed of $41.0 million of borrowings under
the three-year Citicorp exit facility offset by a $17.8 million repayment of
revolving credit borrowings under the amended Citibank credit facility and
$1.8 million paid to LGE from proceeds from the sale of equipment previously
included in the sale-leaseback transaction. In addition, $1.7 million of
principal payments were made on the LGE new restructured senior note on the
disposition of certain assets.
During 1998, $33.3 million of cash was provided by financing activities.
This was composed of $77.8 million of borrowings under the company's various
short-term facilities, offset by cash used to pay the $5.8 million current
portion of the 6 1/4 percent Convertible Subordinated Debentures due 2011,
$38.2 million used to pay off the term loan negotiated in 1997 and $0.5
million used to redeem the company's 8.5 percent senior subordinated
convertible debentures due January 2001.
In 1997, financing activities provided $3.7 million of cash, which included
$45.0 million provided as a result of borrowings under the company's new term
loan, $25.0 million of increased borrowings under the company's short-term
debt agreements and $1.1 million provided from sales of the company's common
stock to employees of the company via the exercise of previously issued stock
options. This was offset by $30.9 million of cash used to pay off the old term
loan, $23.8 million of cash used to redeem the 8.5 percent Senior Subordinated
Convertible Debentures due November 2000, $6.9 million of cash used to pay
maturities of the new term loan and $5.8 million of cash used to pay
maturities of the 6 1/4 percent Convertible Subordinated Debentures due 2011.
Financial Condition
As of December 31, 1999, the company had $215.6 million of interest-bearing
obligations which consisted of (i) $41.0 million borrowed from Citicorp under
the three-year $150.0 million exit facility, (ii) $50.0 million of 8.19
percent senior debentures due 2009 ($39.1 million at fair value) and (iii)
$124.6 million outstanding under the LGE new restructured senior note.
On November 9, 1999, the company entered into a senior bank credit
agreement with Citicorp North America, Inc. that provides for a three-year
$150.0 million exit facility subject to borrowing base restrictions.
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The new facility is secured by substantially all of the company's assets and
is subject to other terms and conditions. Borrowings bear interest based on
specified margins in a range of 1.5 percent to 3.0 percent above LIBOR or the
prime rate depending on the company's compliance with certain financial
covenants. On November 9, 1999, on the company's exit from bankruptcy
proceedings, Citicorp terminated the debtor-in-possession financing facility,
which it had provided. The new senior bank facility 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 and
engage in transactions with affiliates.
The company's $103.5 million of 6 1/4 percent convertible subordinated
debentures due 2011 and related accrued interest were exchanged in the
restructuring for $50.0 million of new 8.19 percent senior debentures maturing
in November 2009, which were recorded at fair value of $39.1 million,
resulting in the recognition of an extraordinary gain of approximately $70.2
million. The $10.9 million discount, representing the difference between the
amount due at maturity and the fair value, will be amortized over the life of
the debentures using the effective interest rate method. The new debentures
can be redeemed at par in whole or in part at any time and rank equally with
all senior debt of the company.
As part of the company's prepackaged plan of reorganization, LGE received
the $126.2 million LGE new restructured senior note as settlement of certain
LGE claims. This note provides for interest to be accrued at LIBOR plus 6.5
percent per annum, with interest added to the principle amount of the note if
certain financial ratios are not met. The note, which matures on November 1,
2009, is secured by a first lien on all assets leased to the company and its
subsidiaries pursuant to the leveraged leases and transferred to the company
pursuant to the restructuring agreement. The note is guaranteed by each of the
company's subsidiaries and is subject to other terms and conditions.
Between November 1997 and February 1998, the company obtained a total of
$110.0 million in unsecured and uncommitted credit facilities through four
lines of credit with various lenders. The credit lines were guaranteed by LGE,
and during the second and third quarter of 1998, LGE made payments under
demands against guarantees on $72.0 million of the facilities; during the
second quarter of 1999, LGE made payment under demands against a guarantee on
$30.0 million. The company's obligation to LGE for these payments was settled
as part of the company's prepackaged plan of reorganization.
In March 1998, the company entered into a secured credit facility with LGE
which provided for borrowings of up to $45.0 million. The interest rate was
LIBOR plus 6.5 percent per annum. The first such borrowing occurred in May
1998, and as of December 31, 1998, $30.0 million was outstanding under this
facility, such amount being settled as part of the prepackaged plan of
reorganization.
During the third quarter of 1998, the company's trade receivable
securitization agreement, which was entered into in April 1997, was
terminated. 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) have been canceled.
In April 1997, the company entered into an $86.6 million 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 were fully guaranteed by LGE and
in July 1998, LGE made a negotiated settlement payment of $90.1 million under
its guarantee of the company's obligation.
The company was obligated for the repayment of this settlement amount to
LGE. As a result, the company's December 31, 1998 financial statements reflect
a $90.1 million short-term debt with LGE, a $21.3 million receivable from LGE
and a loss on termination of the lease of $68.8 million. The $21.3 million
receivable from LGE represented the appraised fair value of the manufacturing
equipment receivable from LGE.
The company's December 31, 1999 financial statements do not reflect a
receivable from LGE for the manufacturing equipment discussed above. This
amount has been reduced as the company purchased equipment
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prior to selling the equipment to third parties and as of December 31, 1999,
$3.8 million was reclassified to machinery and equipment and $8.0 million was
reclassified to property held for disposal, pending transfer to LGE. As
equipment previously included in the sale-leaseback was sold, the proceeds of
such sales reduced the company's debt to LGE for such payment to $88.3
million, which was settled as part of the prepackaged plan of reorganization.
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. The
company was charged interest for the extended period at rates reflecting then-
current market conditions in Korea. The extended-term payables were settled as
part of the prepackaged plan of reorganization.
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 3,965,000 common shares of the company at an exercise price of $0.01
per share. These options were exercisable over a 12-1/2 year period with
793,000 options vesting in each of the first three years. In 1998, the balance
of 2,219,000 of LGE's stock options was canceled. The accounting for these
stock options was based upon their fair value with that fair value being
amortized straight-line to interest expense over the term of the associated
commitments. The quoted market price of the stock at the time of issuance was
$10.00 per share, which was used as the fair value of the options. The
portions of the deferred financing charges applicable to the sale-leaseback
transaction and the receivable securitization were written off in the third
quarter of 1998 as part of the restructuring charge discussed above. The
vested stock options were canceled as part of the prepackaged plan of
reorganization.
The company believes that, giving effect to the Citicorp three-year exit
facility, together with its LGE credit support and the company's cash
generated by operations, the estimated levels of liquidity available to the
company will be sufficient to permit the company to satisfy its working
capital, debt service, capital expenditure and other requirements. However,
such belief is based on various assumptions, including those underlying its
conversion from a manufacturing and distributing company to a sales, marketing
and research and development company which relies on outsourced products. The
company is highly dependent upon the continued financial support of LGE. In
addition to its $60.0 million credit support, LGE is committed to provide its
best efforts to improve the company's performance and to maintain the
company's borrowings under the Citicorp credit line.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
Certain statements in this Annual Report on Form 10-K, such as those
regarding the company's strategies, plans, objectives and expectations are
forward-looking statements that involve known and unknown risks, uncertainties
and other factors which may cause the actual results of the company or its
efforts to successfully implement the operational restructuring and achieve
the business plan projections and financial results of the company to be
materially different from any future results expressed or implied by such
forward-looking statements. Such factors 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; LGE's ability to obtain required approvals of the Republic of Korea
for additional financing, if any, that LGE may desire to extend to the
company; restructuring charges and the other costs and expenses of its new
business plan. Given these uncertainties, debtholders are cautioned not to
place undue reliance on any forward-looking statements contained herein. The
company disclaims any obligation to update such factors or forward-looking
statements or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein or to reflect future events or
developments.
Readiness for the Year 2000
The company has successfully implemented all of its year 2000 Readiness
initiatives. The company's computer-based systems, facilities, material non-
information technology systems and all currently manufactured
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<PAGE>
products are Year 2000 Ready. Included within the company's Year 2000
Readiness initiatives were plans to ensure the company's financial, sales and
distribution application software ("FS&D Applications") were Year 2000 Ready.
The FS&D Applications include the primary software employed in the company's
general ledger, accounts payable and disbursement, accounts receivable and
collection, purchasing, billing, inventory management and sales activities. As
a part of the company's Year 2000 readiness initiatives, the company
implemented new FS&D Applications which were Year 2000 Ready. The total cost
of implementing the new FS&D Applications was approximately $6.9 million, of
which $3.4 million was incurred in fiscal 1999.
The company's suppliers and vendors have been able to provide the company
with Year 2000 Ready components and products.
Prior to 1998, the company spent in the aggregate approximately $1.8
million on software and hardware upgrades and replacements and approximately
$0.2 million on other costs (i.e., labor, consulting fees and other expenses)
in connection with Year 2000 Readiness. The company spent a total of $2.5
million in 1998 (approximately $0.8 million for software and hardware upgrades
and approximately $1.7 million for other costs) for this project. The company
spent $4.2 million in 1999 (approximately $0.6 million for software and
hardware upgrades and approximately $3.6 million for outside consulting
assistance and other costs) with respect to Year 2000 Readiness. This amount
includes the cost of implementing the new FS&D Applications. Most of the costs
incurred by the company in addressing Year 2000 Readiness were expensed as
incurred, in compliance with generally accepted accounting principles.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of the company due to
adverse changes in financial rates. The company is exposed to market risk in
the area of interest rates. This exposure is directly related to its senior
secured notes and working capital facilities with Citibank and LGE. The
company does not currently maintain any interest rate hedging arrangements.
The company is continuously evaluating this risk and will implement interest
rate hedging arrangements when deemed appropriate.
Because the company purchases substantially all products in US dollars,
prices are not directly impacted by the value of the dollar in relation to
other foreign currencies, including the Japanese yen and Korean won.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in Item 14 of
Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age at December 31, 1999, and
business experience of each of the current directors of the company and the
year in which each director first was elected to the Board of the company. 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
terms of office of all directors expire at the Annual Meeting 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.
Current Directors of the Company
<TABLE>
<CAPTION>
Director
Name Age Since Background Information
---- --- -------- ----------------------
<C> <C> <C> <S>
Cha Hong (John) Koo.. 53 1995 Chairman of the Board of Zenith
Electronics Corporation November 1999 to
present; Vice Chairman November 1996 to
November 1999; Vice Chairman and Chief
Executive Officer of LG Electronics Inc.
since December 1998; 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.
Seung Pyeong Koo..... 57 1997 President of LG Electronics Inc.
responsible for Digital Display Company
since 1998; previous positions with LG
Electronics Inc.: Executive Vice
President from 1996 to 1998; a Director
from 1996 to 1998; President of Display
Division since 1992; Senior Managing
Director from 1995 to 1996; Managing
Director from 1991 to 1995; Vice
President of TV Display Division 1990 to
1992.
Nam Woo.............. 50 1995 Senior Executive Vice President, LG
Electronics Inc. and President Digital
Media Company since January 2000;
previous positions with LG Electronics
Inc.: Executive Vice President August
1998 to January 2000; Senior Managing
Director and President of North American
Operations January 1998 to January 2000;
Executive Vice President of Zenith
Electronics Corporation from October
1997 to January 1998; Director from 1997
to 1998; Senior Managing Director,
Corporate Planning and Coordination,
from November 1996 to October 1997;
President of LG Electronics USA Inc. &
North American Operations from February
1995 to November 1996; President of
European Operations from 1990 to 1995;
Managing Director from 1994 to 1996;
Executive Director from 1990 to 1994.
Did not serve as a Director of the
company during 1996.
</TABLE>
Mr. Cha Hong (John) Koo and Mr. Seung Pyeong Koo are not related.
As the holder of all of the company's outstanding shares of common stock,
LGE can elect all of the company's directors. Messrs. C.H. Koo, S.P. Koo, and
Woo are employees of LGE or its affiliates. Mr. C.H. Koo 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.
LGE has been in the past and is expected to continue to be a significant
customer and supplier of the Company. See "Certain Relationships and Selected
Transactions." Directors of the company who are also employees of LGE or its
affiliates receive no remuneration for serving on the Board or on any
Committees.
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
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<PAGE>
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.
Following the confirmation of the company's plan of reorganization, the
Board of Directors assumed direct oversight of executive compensation plans
for officers and key employees and approval of policies setting compensation,
incentive and employment contracts on a company-wide basis. The current Board
of Directors has no committees to which it has delegated authority to act on
its behalf. Prior to the confirmation of the company's prepackaged plan of
reorganization, the Board of Directors had an Organization and Compensation
Committee, which established compensation for key executives and officers and
had oversight of company policies concerning salaries, raises and incentives.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, business experience and age at
December 31, 1999, of each of the current executive officers of the company.
<TABLE>
<CAPTION>
Name Office Held Age
---- ----------- ---
<C> <S> <C>
Ian G. Woods....... President and Chief Executive Officer since November 42
1999. Senior management positions with LG
Electronics Inc. from 1997 to January 2000. Chief
Financial Officer, Matrix Telecommunications
Limited, Australia, 1994 to 1997.
Richard F. Vitkus.. Senior Vice President, General Counsel since 1994; 60
Secretary since 1995. Previously Senior Vice
President, General Counsel, and Director of
Corporate Development at Vanstar Corporation
(formerly ComputerLand Corporation) from 1991 to
1994. Mr. Vitkus retired from the company on
December 31, 1999, but continues to serve as a
consultant pursuant to an agreement.
Edward J. McNulty.. Senior Vice President and Chief Financial Officer 59
since June 1998. Previously Chief Financial Officer
of General Binding Corporation from 1984 to 1998.
Mr. McNulty has announced his resignation from the
company, to be effective in early 2000.
Richard M. Lewis... Senior Vice President, Technology and Research since 44
January 1999. Prior positions at Zenith Electronics
Corporation: Vice President, Picture Tube Operations
1998-1999; Vice President, Corporate Development
1998; Director -Quality 1997-1998. Previously held a
variety of senior engineering, operations and
project planning positions in an eighteen-year
career with Teradyne Inc.
Kathryn M. Wolfe... Senior Vice President, Product Management, Program 41
Management and Marketing, Zenith Electronics
Corporation, 1998 to present. Prior positions at
Zenith Electronics Corporation: Vice President,
Business Reengineering, 1997; General Manager and
Division Vice President, Cable Modems, 1996;
Division Vice President, Network Systems Division,
1995; Director, Domestic and International
Marketing, Data Communications, 1994.
Hyon Ick Jo........ Chief Financial Officer designate, January 2000. 51
Senior executive with LG Electronics Inc. 1975 to
2000, most recent positions: 1998-2000, Vice
President, Changwon Home Appliance Division,
responsible for planning, quality assurance,
information technology and overseas operations;
1996-1997, Managing Director, Newcastle, England TV
and microwave oven manufacturing facilities; 1990-
1996, Managing Director, German TV and VCR
manufacturing operations.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Name Office Held Age
---- ----------- ---
<C> <S> <C>
Beverly A. Wyckoff.. Vice President and General Counsel designate, 43
January 2000. Senior Counsel, Zenith Electronics
Corporation 1997 to 2000. Previously contract
attorney and consultant, Aerial Communications,
Inc. 1996 to 1997; Vice President, Sanwa Bank
Limited, Chicago Branch, 1986 to 1995.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth, for the years
indicated, the cash compensation and certain other components of compensation
of the company's Chief Executive Officer, the other four executive officers of
the company at December 31, 1999, and the former Chief Executive Officer of
the company, Jeffrey P. Gannon, who left the company in November 1999. Those
listed in the table are hereinafter referred to as the "Named Executive
Officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Other Restricted Securities
Annual Stock Underlying All
Name & Principal Salary Comp. Awards Options/SARs Other
Position Year ($) Bonus ($) ($)(1) ($) (#)(&) Comp
- ---------------- ---- ------- --------- ------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ian G. Woods(3) ........ 1999 0 0 0 0 0 0
President and Chief 1998 0 0 0 0 0 0
Executive Officer 1997 0 0 0 0 0 0
Edward J. McNulty(4) ... 1999 280,952 531,542 0 0 0 0
Senior Vice President 1998 150,024 148,211 0 0 0 0
and Chief Financial 1997 0 0 0 0 0 0
Officer
Richard F. Vitkus(5) ... 1999 282,396 71,917 0 0 0 9,600(8)
Senior Vice President, 1998 275,018 271,889 0 0 0 9,600(8)
General Counsel and 1997 229,999 23,000 0 0 25,000(2) 9,600(8)
Secretary
Richard M. Lewis ....... 1999 195,001 154,770 0 0 0 0
Senior Vice President, 1998 134,180 80,859 0 0 0 0
Technology and Research 1997 87,904 0 0 0 0 0
Kathryn M. Wolfe ....... 1999 233,663 125,682 0 0 0 0
Senior Vice President, 1998 194,168 218,625 0 0 0 0
Product Management, 1997 130,834 18,750 0 0 0 0
Program Management and
Marketing
Jeffrey P. Gannon(6) ... 1999 548,077 5,006,900 0 0 0 437,420
Former President and 1998 572,727 880,273 0 2,780,000(2) 300,000(2) 83,946
Chief Executive Officer 1997 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 common stock on the date of grant.
(3) Mr. Woods was elected President and Chief Executive Officer in late
November 1999. Mr. Woods did not
receive compensation from the company in 1999, but continued to be employed
and compensated by LGE.
22
<PAGE>
(4) Mr. McNulty joined the company in June 1998. Bonus reflects the second
half of a one-time payment of $100,000 as a hiring bonus. Mr. McNulty has
announced his intention to leave the company in early 2000. Bonus also
includes $403,400 as pro rata payment under the long-term incentive plan.
(5) Mr. Vitkus retired from the company as of December 31, 1999. Under the
terms of his employment contract and separation agreement with the
company, Mr. Vitkus received $647,250 in severance benefits.
(6) Mr. Gannon joined the company as President and CEO in January 1998, and
resigned in November 1999. The amount shown under All Other Compensation
in 1998 reflects a one-time relocation expense allowance of $50,000 and
$33,946 of imputed income for company paid life insurance premiums. In
1999, the amount shown under All Other Compensation reflects payments for
accrued but unused vacation pay as of the date of resignation of $105,000,
$259,182 as a "make whole" retirement benefit under Mr. Gannon's
employment agreement, $46,000 for club membership and $27,238 of imputed
income for company paid life insurance premiums. As a result of the terms
of his employment agreement and following his resignation, Mr. Gannon will
be paid additional amounts in 2000 totaling $698,077 in salary, $1,125,000
in guaranteed bonuses. Bonus includes $4,275,900 as a pro rata payment
under the long-term incentive plan.
(7) As a result of the confirmation of the company's prepackaged plan of
reorganization in November 1999, all common stock of the company,
including all options and grants relating thereto, were canceled and no
distribution was made as a result of that cancellation. Accordingly, the
value of all grants and options is now zero.
(8) The amount reflects the annual contribution to the company's defined
contribution plan for Mr. Vitkus.
In connection with the restructuring, in early 1998, the company developed
a retention program for fourteen key executives and senior managers, not
including the Chief Executive Officer. Under this executive retention program,
the company was obligated to pay participants up to an aggregate of $1.2
million in retention bonuses. Mr. Vitkus, Ms. Wolfe and Mr. Lewis received
retention bonuses under the executive retention program. Such program was
developed based on benchmarked, publicly available studies of similar
programs. Additionally, in July 1998, the company established short-term and
long-term incentive programs for two tiers of fifteen key executives and
senior managers, not including the Chief Executive Officer. Those incentive
programs were based on achieving certain performance goals in connection with
the restructuring. The short- and long-term incentive bonuses have been
divided into two tiers, with eight key executives in tier one and two key
executives and senior managers in tier two as of December 31, 1999. The
company's former Chief Executive Officer's incentive programs and bonuses were
established under his employment contract. See "Employment Agreements."
Payments under the short-term incentive program for 1998, paid in 1999,
ranged from 34 to 83 percent of base salary for tier 1 executives and were 34
percent of base salary for tier 2 executives. Payments under tier 1 and tier 2
short-term incentive programs for 1998 were $968,689 and $376,415,
respectively, and were paid by March 31, 1999, including payments of $180,135,
$98,211, $147,375 and $45,855 to Mr. Vitkus, Mr. McNulty, Ms. Wolfe and Mr.
Lewis, respectively.
Payments under the short-term incentive program for 1999, paid in 2000,
ranged from 27 percent of base salary for tier 1 executives to 16 percent of
base salary for tier 2 executives. Payments under tier 1 and tier 2 short-term
programs were $352,300 and $70,103, respectively, and were paid March 30,
2000, including payments to Mr. McNulty, Mr. Lewis, and Ms. Wolfe, of $78,142,
$54,800, and $65,719 respectively.
The long-term incentive program for tier 1 executives is targeted at 225
percent of base salary, with a maximum payment of 300 percent of base salary,
and for tier 2 level executives, the long-term incentive program is targeted
at 100 percent of base salary, with a maximum payment of 150 percent of base
salary. As of December 31, 1999, the company was obligated to make payments to
the current two tiers of key executives and senior managers aggregating up to
$4.8 million under the long-term incentive program, including up to $0.7
million payable to Ms. Wolfe and $0.5 million payable to Mr. Lewis. All long-
term incentive bonus payments are payable on March 31, 2001. No long-term
incentive program payment will be due to Mr. Vitkus due to his election to
terminate his employment contract as of December 31, 1999. Mr. McNulty will
receive a pro rata payment of $403,400 due to his pending separation in 2000.
23
<PAGE>
In 1998 and 1999, the company also established retention bonus and stay
bonus programs covering approximately 175 other key managers and employees,
with these plans paying up to 33.3 percent of the base salaries of those
employees. Those stay and retention programs had an aggregate cost of
approximately $3.6 million to the company.
Employment Agreements
Mr. Woods was an employee of LG Electronics Inc. as of December 31, 1999,
and at all relevant times prior to that date, and as such, did not receive a
salary or other compensation from the company.
Mr. Jeffrey P. Gannon joined the company as President and Chief Executive
Officer in January 1998, and resigned in November 1999. Mr. Gannon had entered
into a three-year employment agreement with the company which would have
expired on January 18, 2001. Mr. Gannon's contract was amended as part of
plans relating to the restructuring. The employment agreement provided 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 $6.0 million if target performance is
achieved or up to $12.0 million if the maximum stated performance values are
achieved; and (e) participation in various insurance and benefit plans of the
company. The restricted stock and stock option grants provided under
Mr. Gannon's original employment agreements were eliminated in an amendment to
his employment agreement.
Upon termination of Mr. Gannon's employment and as set forth in a
separation agreement with the company, he was entitled to receive (a) a lump
sum cash payment equal to his base compensation and guaranteed bonuses for the
remainder of the employment term of $1,823,077; (b) continuation of certain
benefits for a one-year period following his termination; and (c) a pro rata
payment under his long-term incentive plan of $4,275,900.
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 percent of the Key
Executives' salary, the first paid on or about January 1, 1999, and the second
paid 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 termination of
employment by the company without cause, a Key Executive was 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 percent of the
Key Executive's base compensation. Mr. Vitkus'
24
<PAGE>
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. Mr. Vitkus has elected to terminate his contract as of December 31,
1999.
Option/SAR Grants, Exercises and Values
No Named Executive Officer was granted stock options or stock appreciation
rights (SARs) in 1999.
Aggregated Option/SAR Exercises in 1999 and Year-end Option/SAR Values
The company's common stock, on which options and SARs had previously been
granted, was canceled and no distribution was made as a result of that
cancellation pursuant to the court order confirming the company's prepackaged
plan of reorganization.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1999, LGE owned 100 percent of the common stock of the
company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The company and LGE engaged in the following significant transactions in
1999.
Product purchases: In the ordinary course of business, the company
purchases VCRs, television-VCR combinations and components from LGE and its
affiliates. The company purchased $52.7 million of these items in 1999. The
purchase prices were the result of negotiations between the parties and were
consistent with third party bids.
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 licensing 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 financial difficulties. During 1999, the company
accrued approximately $1.7 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 accrued approximately $0.5 million in 1999.
Equipment purchases: No machinery and equipment was purchased from LGE in
1999, although $11.8 million of equipment rights pertaining to the sale-
leaseback transaction discussed below were reclassified to property, plant and
equipment in 1999, of which $3.8 million is included in machinery and
equipment and $8.0 million is included in property held for disposal.
Product and other sales: The company sold televisions, 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 1999
by the company to LGE and its affiliates were $33.2 million.
In December 1996, the company entered into a distributor agreement with an
LGE subsidiary whereby LGE 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 products in Mexico. During 1999,
the company's sales to the LGE Canadian and Mexican subsidiaries were $15.8
million and $17.4 million, respectively. These amounts are included in the
sales figure discussed above.
25
<PAGE>
Technical agreements: Under a technical cooperation agreement entered into
by the company and LGE in 1990, the company agreed to pay LGE 33 percent of
the royalties received by the company from the use in Korea of certain HDTV
technologies and one percent of the royalties received from such technologies
from all other countries. As of December 31, 1999, the company had not
received any such royalties, and accordingly no payments have been made to LGE
pursuant to such agreement.
In September 1997, the company and LGE entered into a 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
was to receive a percentage of applicable royalties the company anticipated
receiving until such time as LGE received the $4.5 million. 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. This
$4.5 million obligation was settled as part of the prepackaged plan of
reorganization.
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 received $0.3 million in 1998
in up-front payments and additional royalty payments per unit sold by the LGE
affiliate based on Zenith's designs. No additional amount was accrued for
these royalty payments in 1999. This agreement does not include a license on
the VSB patent.
Service Assistance: In 1999, employees of LGE provided certain services to
the company that were covered under various agreements. The costs of these
services was $0.2 million in 1999.
In late December 1997, the company entered into an agreement with an LGE
affiliate pursuant to which certain software development, design and support
services are provided. Projects under the agreement include the company's Year
2000 Readiness support. Payments to the affiliate were $1.3 million in 1999.
Financial Assistance: 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 payable
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-term payables was $135.6 million as of December 31, 1998. The company
was charged interest for the extended period at rates reflecting then-current
market conditions in Korea. The extended-term payables were settled as part of
the prepackaged plan of reorganization.
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 were fully guaranteed by LGE. During 1998,
as a part of the operational restructuring, the company determined it would be
idling a substantial portion of the equipment subject to the leaseback,
thereupon causing an event of default under the lease. Following negotiations
with the lessor and its lenders, in July 1998, LGE made a settlement payment
of $90.1 million under its guarantee of the company's obligation, and as a
result, LGE controlled the lessor and indirectly owned the equipment subject
to the leverage leases.
The company was obligated for the repayment of this settlement amount to
LGE. As a result, the company's December 31, 1998 financial statements reflect
a $90.1 million short-term debt with LGE, a $21.3 million receivable from LGE
and a loss on termination of the lease of $68.8 million. The $21.3 million
receivable from LGE represented the appraised fair value of the manufacturing
equipment receivable from LGE.
The company's December 31, 1999 financial statements do not reflect a
receivable from LGE for the manufacturing equipment discussed above. This
amount has been reduced as the company purchased equipment
26
<PAGE>
prior to its selling the equipment to third parties. As equipment previously
included in the sale-leaseback was sold, the proceeds of such sales reduced
the company's debt to LGE for such payment to $88.3 million, which was settled
as part of the prepackaged plan of reorganization.
Between November 1997 and February 1998, the company obtained a total of
$110.0 million in unsecured and uncommitted credit facilities through four
lines of credit with various lenders. The credit lines were guaranteed by LGE,
and during the second and third quarter of 1998, LGE made payments under
demands against guarantees on $72.0 million of the facilities; during the
second quarter of 1999, LGE made payment under demands against a guarantee on
$30.0 million. The accrued interest rate to LGE was the Reference Rate
announced by Bank of America plus 2 percent per annum. The company's
obligation to LGE for these payments was settled as part of the company's
prepackaged plan of reorganization.
In March 1998, the company entered into a secured credit facility with LGE
which provided for borrowings of up to $45.0 million. The interest rate was
LIBOR plus 6.5 percent per annum. The first such borrowing occurred in May
1998, and as of December 31, 1998, $30.0 was outstanding under this facility,
such amount being settled as part of the plan of reorganization.
The LGE new restructured senior note discussed below is in addition to the
$60.0 million post-restructuring credit support provided by LGE to the company
pursuant to the terms of the restructuring agreement between the parties. The
LGE $60.0 million facility contains covenants which mirror those in the
Citicorp three-year facility. The LGE $60.0 million facility provides for
interest on borrowings at LIBOR plus 6.5 percent per annum. This facility is
secured by a first lien on the company's VSB technology. As of December 31,
1999, this facility had not been utilized.
As part of the company's prepackaged plan of reorganization, LGE received
the LGE new restructured senior note as settlement of certain LGE claims. This
note provides for interest to be accrued at LIBOR plus 6.5 percent per annum,
with interest added to the principle amount of the note if certain financial
ratios are not met. The note, which matures on November 1, 2009, is secured by
a first lien on all assets leased to the company and its subsidiaries pursuant
to the leveraged leases and transferred to the company pursuant to the
restructuring agreement. The note is guaranteed by each of the company's
subsidiaries and is subject to other terms and conditions. As of December 31,
1999, the balance of the note outstanding was $124.6 million.
As of December 31, 1999, accounts payable included $41.1 million to LGE and
its affiliates. The December 31, 1999 balance includes $39.5 million payable
to LGE related to the transfer of the company's Reynosa, Mexico manufacturing
subsidiaries and related operations and assets, which were transferred to an
affiliate of LGE on January 1, 2000. The amount of receivables from LGE and
its affiliates was $12.4 million as of December 31, 1999.
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 3,965,000 common shares of the company at an exercise price of $0.01
per share, exercisable over time. In 1998, 2,219,000 of LGE's stock options
were canceled, and in 1999, 1,746,000 vested options were canceled as part of
the prepackaged plan of reorganization.
Other Items: The company currently leases space from an LGE subsidiary in
Huntsville, Alabama, for its Parts and Service group and in Ontario,
California, for a warehouse. The company leased space from an LGE subsidiary
in San Jose, California, for its Network Systems group in 1998 and 1997. Lease
payments, at market rates, for these facilities were approximately $0.7
million for 1999.
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.
Mr. Woods, the president and CEO of the company from November 1999, is an
employee of LGE and receives his compensation from LGE. Such compensation
totaled approximately $57,700 from November 1999 to December 31, 1999.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The following Consolidated Financial Statements of Zenith
Electronics Corporation, the Report of Independent Public Accountants, and the
Unaudited Quarterly Financial Data are included in this report:
Statements of Consolidated Operations and Retained Earnings --
Years ended December 31, 1999, 1998 and 1997
Consolidated Balance Sheets--December 31, 1999 and 1998
Statements of Consolidated Cash Flows --
Years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Unaudited Quarterly Financial Information
(a) 2. The following consolidated financial statement schedule for Zenith
Electronics Corporation is included in this report:
Schedule II--Valuation and Qualifying Accounts
The Report of Independent Public Accountants on Financial Statement
Schedule is included in this report.
All other schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
3. Exhibits:
(2a) Form of Prepackaged Plan of Reorganization of Zenith Electronics
Corporation Under Chapter 11 of the Bankruptcy Code (incorporated by
reference to Exhibit 2a to the company's Registration Statement on Form
S-4, file no. 333-61057)
(3a) Amended and Restated Certificate of Incorporation of the company dated
as of November 9, 1999
(3b) Amended and Restated By-laws of the company as adopted November 9, 1999
(4a) Credit Agreement among Zenith Electronics Corporation, as Borrower, the
Lenders Signatory Hereto, Citibank, N.A. as Issuing Bank and Citicorp
North America, Inc. as Agent for the Issuing Bank and the Lenders,
dated as of November 9, 1999
(4b) Floating Rate Senior Secured Note Due November 1, 2009 in the amount of
$126,236,578.33 and dated as of November 9, 1999, issued by Zenith
Electronics Corporation in favor of LG Electronics Inc.
(4c) $60,000,000 Credit Agreement between Zenith Electronics Corporation, as
Borrower, and LG Electronics Inc., as Lender dated as of November 9,
1999
(4d) Indenture dated as of November 9, 1999 for 8.19% Senior Debentures Due
2009, Zenith Electronics Corporation as Issuer, Bank One Trust Company,
NA as Trustee
*(10a) Form of Indemnification Agreement with Officers and Directors
(incorporated by reference to Exhibit 8 to the company's Annual Report
on Form 10-K for the year ended December 31, 1989)
*(10b) Directors Retirement Plan and form of Agreement (incorporated by
reference to Exhibit 10 to the company's Annual Report on Form 10-K for
the year ended December 31, 1989)
*(10c) Form of Amendment, dated as of July 24, 1991, to Directors Retirement
Plan and form of Agreement (incorporated by reference to Exhibit 10f to
the company's Quarterly Report on Form 10-Q for the period ended June
29, 1991)
28
<PAGE>
*(10d) 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)
*(10e) 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)
*(10f) 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)
(10g) 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)
*(10h) 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)
*(10i) 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)
(10j) Restructuring Agreement dated August 7, 1998, between Zenith
Electronics Corporation and LG Electronics, Inc. (incorporated by
reference to Exhibit 10ah to the company's Registration Statement on
Form S-4, file no. 333-61057)
*(10k) Amended and Restated Employment Agreement, dated October 2, 1998,
between Zenith Electronics Corporation and Richard F. Vitkus
(incorporated by reference to Exhibit 10ai to the company's
Registration Statement on Form S-4, file no. 333-61057)
*(10l) Amendment dated August 7, 1998, to Employment Agreement between Zenith
Electronics Corporation and Jeffrey P. Gannon (incorporated by
reference to Exhibit 10aj to the company's Registration Statement on
Form S-4, file no. 333-61057)
(10m) First Amendment to the Amended and Restated Restructuring Agreement
between Zenith Electronics Corporation and LG Electronics Inc., dated
as of September 15, 1999
(10n) Amended and Restated Stock and Asset Purchase Agreement between Zenith
Electronics Corporation and LG Electronics Alabama, Inc. dated as of
November 9, 1999
(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
period ended June 28, 1997)
(21) Subsidiaries of the company
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule for the Year ended December 31, 1999
- --------
*Represents a management contract, compensation plan or arrangement.
(b) Reports on Form 8-K
On November 23, 1999, the company filed a Form 8-K reporting under Item 5
reporting its exit from the bankruptcy proceeding and the resignation of
Jeffrey P. Gannon as president and chief executive officer and his succession
in these positions by Ian G. Woods.
(c) and (d) Exhibits and Financial Statement Schedules
Certain exhibits and financial statement schedules required by this portion
of Item 14 are filed as a separate section of this report.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Zenith Electronics Corporation
(Registrant)
/s/ Ian G. Woods
By: _________________________________
Ian G. Woods
President and Chief Executive
Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ian G. Woods President and Chief March 30, 2000
______________________________________ Executive Officer
Ian G. Woods (Principal Executive
Officer)
/s/ Edward J. McNulty Chief Financial Officer March 30, 2000
______________________________________ (Principal Financial
Edward J. McNulty Officer)
/s/ Lawrence D. Panozzo Director of Corporate March 30, 2000
______________________________________ Accounting and Planning
Lawrence D. Panozzo (Principal Accounting
Officer)
/s/ Cha Hong Koo Chairman of the Board March 30, 2000
______________________________________
Cha Hong (John) Koo
/s/ Seung Pyeong Koo Director March 30, 2000
______________________________________
Seung Pyeong Koo
/s/ Nam Woo Director March 30, 2000
______________________________________
Nam Woo
</TABLE>
30
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C>
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Unaudited Quarterly Financial Data
Report of Independent Public Accountants on Financial Statement Schedule
Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts
Exhibits:
(21)Subsidiaries of the company
(23)Consent of Independent Public Accountants
(27)Financial Data Schedule for the Year ended December 31, 1999
</TABLE>
31
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
ZENITH ELECTRONICS CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS (DEFICIT)
In millions
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Net sales.......................................... $ 833.9 $ 984.8 $1,173.1
------- ------- --------
Costs, Expenses and Other:
Cost of products sold............................ 752.0 905.5 1,180.5
Selling, general and administrative.............. 95.1 126.6 178.3
Engineering and research......................... 29.8 39.1 42.9
Other operating expense (income), net (Notes One,
Four and Ten)................................... (37.9) (43.0) 42.4
Restructuring charges (Note Seven)............... 19.5 202.3 --
------- ------- --------
Operating loss..................................... (24.6) (245.7) (271.0)
Gain (loss) on asset sales, net.................... 4.1 16.6 (4.6)
Interest expense (contractual interest for 1999 was
($9.7)) (Note Two)................................ (8.3) (14.6) (11.9)
Interest expense--related party (contractual
interest for 1999 was ($35.2)) (Notes Two and
Six).............................................. (31.0) (29.7) (13.6)
Interest income.................................... 1.4 0.9 0.9
------- ------- --------
Loss before reorganization items, income taxes and
extraordinary item................................ (58.4) (272.5) (300.2)
Reorganization Items (Note Seven):
Professional fees................................ (2.4) -- --
Write off deferred debt issuance costs........... (1.3) -- --
------- ------- --------
Loss before income taxes and extraordinary item.... (62.1) (272.5) (300.2)
Income taxes (credit) (Note Eight)................. 2.0 3.0 (0.8)
------- ------- --------
Loss before extraordinary item..................... (64.1) (275.5) (299.4)
Extraordinary gain (Note Two)...................... 70.2 -- --
------- ------- --------
Net income (loss).................................. $ 6.1 $(275.5) $ (299.4)
======= ======= ========
Retained Earnings (Deficit)
Balance at beginning of year..................... $(937.2) $(661.7) $ (362.3)
Net income (loss)................................ 6.1 (275.5) (299.4)
------- ------- --------
Retained earnings (deficit) at end of year....... $(931.1) $(937.2) $ (661.7)
======= ======= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
32
<PAGE>
ZENITH ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
In millions, except share and per share data
<TABLE>
<CAPTION>
December 31
----------------
1999 1998
------- -------
<S> <C> <C>
Assets
Current Assets
Cash....................................................... $ -- $ --
Receivables, net of allowance for doubtful accounts of
$23.5 and $42.0, respectively............................. 99.9 127.0
Receivable from related party (Note Six)................... 12.4 8.5
Inventories (Note Eleven).................................. 78.7 84.2
Other...................................................... 30.7 10.8
------- -------
Total current assets..................................... 221.7 230.5
Property, plant and equipment, net (Note Thirteen)........... 7.8 50.2
Property held for disposal (Notes One and Seven)............. 43.1 43.0
Receivable from related party (Note Fourteen)................ -- 21.3
Other non-current assets..................................... 6.4 5.0
------- -------
Total assets............................................. $ 279.0 $ 350.0
======= =======
Liabilities and Stockholders' Equity
Current Liabilities
Short-term debt (Note Fifteen)............................. $ 41.0 $ 47.8
Short-term debt with related party (Note Six).............. -- 192.1
Current portion of long-term debt (Note Sixteen)........... -- 5.8
Accounts payable........................................... 56.8 48.1
Accounts payable with related party (Note Six)............. 41.1 136.1
Compensation and retirement benefits (Note Seventeen)...... 26.2 35.7
Product warranties......................................... 18.3 17.8
Co-op advertising and merchandising programs............... 14.0 23.7
Restructuring costs (Note Seven)........................... 18.4 31.3
Income taxes payable....................................... 5.1 4.2
Other accrued expenses..................................... 52.8 59.3
------- -------
Total current liabilities................................ 273.7 601.9
Long-term liabilities........................................ -- 3.6
Long-term liabilities with related party (Note Six).......... -- 11.2
Long-term debt (Note Sixteen)................................ 39.1 97.8
Long-term debt with related party (Note Sixteen)............. 124.6 --
Stockholders' Equity
Preferred stock, none authorized in 1999; $1 par value;
8,000,000 shares authorized; none outstanding in 1998..... -- --
Common stock, $.01 par value; 1,000 shares authorized and
outstanding in 1999; $1 par value; 150,000,000 shares
authorized; 67,630,628 shares issued in 1998.............. -- 67.6
Old additional paid-in capital............................. 572.7 506.8
New additional paid-in capital............................. 200.0 --
Retained earnings (deficit)................................ (931.1) (937.2)
Cost of 105,181 common shares in treasury in 1998.......... -- (1.7)
------- -------
Total stockholders' equity (Note Twelve)................. (158.4) (364.5)
------- -------
Total liabilities and stockholders' equity............. $ 279.0 $ 350.0
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
33
<PAGE>
ZENITH ELECTRONICS CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
In millions
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
Year Ended December 31
------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss), including reorganization
items........................................ $ 6.1 $ (275.5) $ (299.4)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operations:
Depreciation................................. 15.4 31.2 38.0
Non-cash restructuring charges/ charge for
asset impairment............................ -- 144.6 63.7
Employee retirement plan contribution made in
stock....................................... -- -- 4.9
(Gain) loss on asset sales, net.............. (4.1) (16.6) 4.6
Charge for donated services.................. -- -- 2.2
Other........................................ (5.3) 1.5 0.5
Extraordinary gain on debt retirement........ (70.2) -- --
Changes in assets and liabilities:
Current accounts............................. (11.4) (47.4) 260.1
Other assets................................. 8.1 3.3 3.6
Other liabilities............................ (3.4) 6.9 7.6
-------- --------- ---------
Net cash provided (used) by operating
activities................................... (64.8) (152.0) 85.8
-------- --------- ---------
Cash Flows from Investing Activities
Capital additions............................ (4.1) (8.1) (69.5)
Capital additions purchased from related
party....................................... -- (0.3) (13.0)
Proceeds from asset sales.................... 49.2 57.4 187.7
Transferor certificates decrease (increase).. -- 110.7 (110.7)
Distribution of investor certificates........ -- (41.0) (84.0)
-------- --------- ---------
Net cash provided (used) by investing
activities................................... 45.1 118.7 (89.5)
-------- --------- ---------
Cash Flows from Financing Activities
Short-term borrowings, net................... 21.4 77.8 25.0
Proceeds from issuance of long-term debt..... -- -- 45.0
Proceeds from issuance of common stock, net.. -- -- 1.1
Principal payments on long-term debt......... (1.7) (44.5) (67.4)
-------- --------- ---------
Net cash provided by financing activities..... 19.7 33.3 3.7
-------- --------- ---------
Cash
Increase (decrease) in cash.................. -- -- --
Cash at beginning of year.................... -- -- --
-------- --------- ---------
Cash at end of year.......................... $ -- $ -- $ --
======== ========= =========
Increase (decrease) in cash attributable to
changes in current accounts:
Receivables, net............................. $ 23.2 $ (113.8) $ 186.6
Income taxes................................. 0.9 3.5 (0.6)
Inventories.................................. 5.5 79.7 90.2
Other current assets......................... (19.9) 10.5 (9.7)
Accounts payable and accrued expenses........ (21.1) (27.3) (6.4)
-------- --------- ---------
Net change in current accounts................ $ (11.4) $ (47.4) $ 260.1
======== ========= =========
Supplemental disclosure of cash flow
information-
Cash paid (refunded) during the year for:
Interest..................................... $ 45.1 $ 38.1 $ 24.8
Income taxes................................. -- (0.8) (9.3)
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
Exchange of 6 1/4% subordinated debentures
due 2011 for 8.19% senior notes due 2009.... 103.5 -- --
Exchange of short-term debt and extended-term
payables, both with related party, for
stockholders' equity........................ 200.0 -- --
Exchange of short-term debt and long-term
liabilities for restructured senior notes,
all with related party...................... 126.2 -- --
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
34
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note One--Significant Accounting Policies: Nature of operations: The
company's core business--the development and distribution of a broad range of
products for the delivery of video entertainment--is composed of two major
product segments: Consumer Electronics, which includes the design, development
and marketing of video products (including color television sets and other
consumer products) along with parts and accessories for such products and
purchased VCRs, all of which are sold principally to retail dealers in the
United States and to retail dealers and wholesale distributors in the United
States and foreign countries; and Network Systems, which designs, develops and
markets digital set top boxes, which are sold primarily to satellite systems
operators, telecommunications companies and other commercial users of these
products.
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. Machinery and equipment, with lives of eight years or more, are
depreciated using the straight-line method over their useful lives, which
range from 8 to 12 years. Prior to 1999, accelerated methods were used for
depreciation of all other machinery and equipment items; however, beginning in
1999, the straight-line method is also used for these items, which have useful
lives ranging from 4 to 5 years. Buildings are depreciated using 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 estimated cost to sell, and is not depreciated. This property
includes certain facilities and land no longer used in the company's
operations and property and equipment to be transferred to an affiliate. See
Notes Seven and Thirteen for additional information on property held for
disposal.
Rental expenses under operating leases were $13.3 million, $19.9 million,
and $20.7 million in 1999, 1998 and 1997, respectively.
Future minimum lease payments required under operating leases are $6.6
million in 2000, $2.0 million in 2001, $1.8 million in 2002, $1.5 million in
2003 and $0.8 million in 2004 and beyond.
The company capitalizes interest on major capital projects. The company
capitalized no interest in 1999 and 1998 and $4.1 million of interest in 1997.
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 1999,
1998 and 1997.
35
<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
carrying value 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 Notes Four and
Seven for additional information.
Comprehensive Income: The company adopted Statement of Financial Accounting
Standards ("FAS") No. 130--Reporting Comprehensive Income--effective in 1998.
This statement requires that certain items recorded directly in stockholders'
equity be classified as comprehensive income. Comprehensive income and its
components may be presented in a separate statement, or may be included in the
statement of stockholders' equity or the statement of income. The company has
no items which will be classified as comprehensive income; thus the adoption
of the FAS had no impact on the presentation of the company's financial
statements.
Derivative Instruments and Hedging Activities: The Financial Accounting
Standards Board issued FAS No. 133--Accounting for Derivative Instruments and
Hedging Activities--in June 1998. This statement establishes accounting and
reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the consolidated statement of financial position and measure
those instruments at fair value. This statement, as amended by FAS No. 137, is
effective for all quarters of all fiscal years beginning after June 15, 2000.
The adoption of this statement will not have a significant impact on the
consolidated financial statements of the company.
Note Two--Plan of Reorganization: On August 23, 1999, the company filed a
voluntary petition for relief under Chapter 11 of Title 11 of the U.S. Code in
the U.S. Bankruptcy Court for the District of Delaware. At the time of its
filing, the company had already solicited and received approval of its
prepackaged plan of reorganization by holders of the company's 6 1/4 percent
subordinated debentures due 2011, LGE Electronics Inc. ("LGE") and Citibank,
as secured creditors.
On November 5, 1999, the U.S. Bankruptcy Court for the District of Delaware
entered an order confirming the company's prepackaged plan of reorganization.
On November 9, 1999, the company satisfied certain conditions precedent to the
plan's effectiveness, declared the prepackaged plan effective and emerged from
the bankruptcy proceeding.
On November 9, 1999, as a result of the company's prepackaged plan of
reorganization,
(i) LGE exchanged approximately $165.7 million of its claims for
restructured senior notes, interest on which is payable in kind under
certain circumstances,
(ii) the company's $103.5 million of 6 1/4 percent subordinated
debentures due 2011 and related accrued interest were exchanged for $50.0
million of new 8.19 percent senior debentures maturing in November 2009,
which when recorded at fair value of $39.1 million, resulted in the
recognition of an extraordinary gain of approximately $70.2 million,
(iii) the company entered into a three-year $150.0 million exit
financing facility with a bank group for which Citicorp North America was
the agent,
(iv) the company and LGE entered into a new $60.0 million credit
facility,
(v) $39.5 million of the restructured senior notes referred to above
were settled by the transfer of the company's production facility located
in Reynosa, Mexico to an affiliate of LGE on January 1, 2000,
36
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(vi) the company's old common stock and treasury stock were canceled,
thereby increasing old additional paid-in capital (no distribution was made
to any holders as a result of their shares)
(vii) the company's articles of incorporation and by-laws were amended,
and
(viii) LGE converted $200.0 million of the company's debt and extended-
term payables with LGE into 100 percent of the company's new common stock,
and as a result, the company became a wholly-owned subsidiary of LGE.
The impact of the above transactions on the company's financial statements
is as follows (in millions):
<TABLE>
<S> <C> <C>
Entry to record settlement of debt:
Short-term debt with LGE....................................... $220.3
Current maturities of convertible debentures................... 11.5
Extended-term payables with LGE................................ 117.5
Accrued interest............................................... 22.3
Other accrued expense.......................................... 0.5
Convertible debentures......................................... 92.0
Long-term liabilities with LGE................................. 10.9
Accounts payable with LGE.................................... $ 39.5
New senior debentures ($50.0 due at maturity)................ 39.1
Restructured senior note with LGE............................ 126.2
New additional paid-in capital............................... 200.0
Extraordinary gain........................................... 70.2
Entry to record cancellation of Old common stock:
Old common stock ($1 par value)................................ $ 67.6
Old additional paid-in capital............................... $ 65.9
Treasury stock............................................... 1.7
</TABLE>
During 1996, the company signed a multi-year agreement with the Americast
programming venture ("Americast") to provide digital set-top boxes to that
consortium of telecommunications companies. In late 1998, the agreement was
renegotiated, and among other things, called for Americast to escrow $7.5
million that would revert to the company after its successful emergence from
bankruptcy. As the company's plan of reorganization was confirmed by the U.S.
Bankruptcy Court for the District of Delaware on November 5, 1999, the company
anticipates collecting the escrow and recording it as other income in 2000.
See Note Twenty for subsequent event.
Interest expense was $39.3 million for 1999; contractual interest was $44.9
million for 1999. The $5.6 million difference reflects the suspension of
contractual interest on the 6 1/4 percent subordinated debentures and
unsecured and partially secured debt with LGE as a result of the Chapter 11
filing from the date of the prepackaged plan and, in accordance with SOP 90-7,
suspension of interest expense accruals.
Note Three--Liquidity and Financial Condition: The Company has incurred net
losses before extraordinary item of $64.1 million, $275.5 million and $299.4
million in 1999, 1998 and 1997, respectively. In addition, the company had a
negative working capital position of $52.0 million as of December 31, 1999.
The company believes that, giving effect to (i) the Citicorp three-year exit
facility and the LGE credit support discussed in Note Fifteen and (ii) the
company's cash flow from operations, that the established levels of liquidity
available to the company will be sufficient to permit the company to satisfy
its working capital, debt service, capital expenditure and other requirements.
However, such belief is based upon various assumptions, including those
underlying its conversion from a manufacturing and distributing company to a
sales, marketing and
37
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
research and development company which relies upon outsourced products. The
company's access to available funds from the Citicorp three-year exit facility
and the LGE credit support is conditioned upon continued compliance with
certain financial covenants in fiscal year 2000. In addition to its $60.0
million credit support, LGE is committed to provide its best efforts to
improve the company's performance and to maintain the company's borrowings
under the Citicorp credit line.
Note Four--Impairment of Long-lived Assets: In 1999, there was no
impairment of long-lived assets. In 1998, impairment of long-lived assets was
related to the company's operational restructuring plan and, as a result, such
charges were included in restructuring expense. See Note Seven for further
discussion.
During the fourth quarter of 1997, an impairment was recognized for the
Consumer Electronics business because 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 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"/20" tube production; unrecoverable new capital costs
significantly in excess of plans ($118.0 million v. $81.0 million) for partial
plant automation and new CDT production capability; the inability to produce
the new CDTs either technologically or economically; sudden adverse market
developments in 15"-CDT demand and 15"/17"-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 television assembly; the relocation
of certain parts/service operations to Huntsville, Alabama; and the planned
vacating of certain buildings on site. These factors during 1997, coupled with
historic and projected operating cash flow losses and the need for continuing
maintenance capital 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 (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).
The impairment charges discussed above are based upon management and third
party estimates of the recoverability of long-lived assets and the fair value
of the related assets.
Note Five--Accounting Change: 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 affected by a change in
accounting principle and was accounted for on a prospective basis. The change
decreased tooling expense by $8.9 million in 1997.
38
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note Six--Related Party: In November 1995, LGE and an affiliate of LGE
purchased a majority of the shares of the company pursuant to a combined
tender offer and purchase of newly issued shares of common stock from the
company. As a result of the approval of the prepackaged plan of reorganization
in November 1999, LGE owned 100 percent of the common stock of the company as
of December 31,1999.
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 1999, 1998 and 1997.
Product purchases: In the ordinary course of business, the company
purchases VCRs, television-VCR combinations and components from LGE and its
affiliates. The company purchased $52.7 million, $50.7 million and $93.3
million of these items in 1999, 1998 and 1997, respectively. The purchase
prices were the result of negotiations between the parties and were consistent
with third party bids.
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 licensing rates charged by the company to unrelated parties.
During 1999 and 1998, the company accrued approximately $1.7 million and $1.5
million, respectively, 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 accrued approximately $0.5 million in 1999, $0.3 million in 1998
and less than $60,000 in 1997.
Equipment purchases: The company purchased approximately $0.3 million and
$13.0 million of production machinery and equipment from LGE during 1998 and
1997, respectively. The machinery and equipment in 1997 related primarily to
new production lines in the company's picture tube plant for the manufacture
of computer display tubes. No machinery and equipment was purchased from LGE
in 1999, although $11.8 million of equipment rights pertaining to the sale-
leaseback transaction discussed below were reclassified to property, plant and
equipment in 1999, of which $3.8 million is included in machinery and
equipment and $8.0 million is included in property held for disposal.
Product and other sales: The company sold televisions, 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
1999, 1998 and 1997 by the company to LGE and its affiliates were $33.2
million, $53.6 million and $55.1 million, respectively.
In December 1996, the company entered into a distributor agreement with an
LGE subsidiary whereby LGE 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 products in Mexico. During 1999,
1998 and 1997, the company's sales to the LGE Canadian subsidiary were $15.8
million, $27.3 million and $25.5 million, respectively. During 1999, 1998 and
1997, the company's sales to the LGE Mexican subsidiary were $17.4 million,
$19.6 million and $16.8 million, respectively. These amounts are included in
the sales figures discussed above.
Included in the financial statements are $12.4 million and $8.5 million of
related party receivables from LGE and its affiliates as of December 31, 1999
and 1998, respectively. The balances represent $2.2 million and $2.7 million
of receivables related to license and warranty fees from direct shipment of
VCRs as of December 31,
39
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1999 and 1998, respectively. The remaining balances of $10.2 million and $5.8
million relate primarily to sales, in the ordinary course of business, of
televisions, picture tubes, yokes and other manufactured subassemblies during
1999 and 1998, respectively.
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
television tuners. LGE's payments in 1999, 1998 and 1997 to the company under
these agreements and licenses were $0.4 million, $0.4 million and $0.6
million, respectively.
An affiliate of LGE has 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 received $0.3 million in 1998
in up-front payments and additional royalty payments per unit sold by the LGE
affiliate based on Zenith's design. No additional amount was accrued for these
royalty payments in 1999. This agreement does not include a license on the VSB
patent.
In September 1997, the company and LGE entered into a 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
was to receive a percentage of applicable royalties the company anticipated
receiving until such time as LGE had received the $4.5 million. This
obligation was included in long-term liabilities to related party in 1998 and
was settled as part of the prepackaged plan of reorganization.
Service Assistance: In 1999 and 1998, employees of LGE provided certain
services to the company that were covered under various agreements. The cost
of these services was $0.2 million and $1.5 million in 1999 and 1998,
respectively.
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 (the actual costs of payroll, travel and living expenses) and the
accounting treatment was to recognize the value of these expenses in the
company's income statement and in additional paid-in capital.
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.
In late December 1997, the company entered into an agreement with an LGE
affiliate pursuant to which certain software development, design and support
services are provided. Projects under the agreement include the company's Year
2000 Readiness support. Payments to the affiliate were $1.3 million, $1.1
million and $0.1 million in 1999,1998 and 1997, respectively.
40
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest Expense: A summary of the interest expense (in millions) and
associated effective weighted average annual rates for related party
transactions is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Interest Interest Interest
Expense Expense Expense
-------- -------- --------
<S> <C> <C> <C>
Extended accounts payable with LGE................ $10.1 $15.1 $ 9.6
Amortization of stock options..................... 0.8 5.1 4.0
Leveraged lease claims............................ 6.0 4.0 --
Reimbursement claims.............................. 8.2 3.3 --
Secured credit facility........................... 3.6 2.2 --
LGE new restructured senior note.................. 2.3 -- --
----- ----- -----
Total related party interest expense............ $31.0 $29.7 $13.6
===== ===== =====
<CAPTION>
1999 1998 1997
Interest Interest Interest
Rate Rate Rate
-------- -------- --------
<S> <C> <C> <C>
Extended accounts payable with LGE................ 7.6% 13.4% 7.9%
Leveraged lease claims............................ 9.3% 12.3% N/A
Reimbursement claims.............................. 10.3% 10.5% N/A
Secured credit facility........................... 12.2% 12.2% N/A
LGE new restructured senior note.................. 12.1% N/A N/A
</TABLE>
Total accounts payable with related party included $41.1 million and $136.1
million to LGE and its affiliates as of December 31, 1999 and 1998,
respectively. The December 31, 1999 balance includes $39.5 million payable to
LGE related to the transfer of the company's Reynosa, Mexico manufacturing
subsidiaries and related operations and assets, which were transferred to an
affiliate of LGE on January 1, 2000. 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
payable 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-term payables was $135.6 million as of December 31, 1998. The company
was charged interest for the extended period at rates reflecting then-current
market conditions in Korea. The extended-term payables were settled in cash
and the remainder as part of the prepackaged plan of reorganization.
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 3,965,000 common shares of the company at an exercise price of $0.01
per share. These options were exercisable over a 12- 1/2 year period with
793,000 options vesting in each of the first three years. In 1998, the balance
of 2,219,000 of LGE's stock options was canceled. The accounting for these
stock options was based upon their fair value with that fair value being
amortized straight-line to interest expense over the term of the associated
commitments. The quoted market price of the stock at the time of issuance was
$10.00 per share, which was used as the fair value of the options. The
portions of the deferred financing charges applicable to the sale-leaseback
transaction and the receivable securitization were written off in the third
quarter of 1998 as part of the restructuring charge discussed in Note Seven.
The vested stock options were canceled as part of the prepackaged plan of
reorganization.
See Notes Fourteen, Fifteen and Sixteen for discussion of the leveraged
lease claims, the Reimbursement claims, the Secured Credit Facility and the
LGE New Restructured Senior Note.
Other Items: The company currently leases space from LGE subsidiaries in
Huntsville, Alabama, for its Parts and Service group and in Ontario,
California, for a warehouse. The company leased space from an LGE
41
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
subsidiary in San Jose, California, for its Network Systems group in 1998 and
1997. Lease payments, at market rates, for these facilities were approximately
$0.7 million in 1999, $0.6 million in 1998 and $0.3 million in 1997.
Note Seven--Restructuring and Other Charges: The company's current business
plan requires that it close and dispose of all, or substantially all, of its
manufacturing facilities and outsource all, or substantially all, product
lines. The company intends to transform itself from an integrated manufacturer
and distributor of consumer electronic products into a sales, distribution,
marketing and technology company.
During 1999, the company recorded $19.5 million of restructuring charges,
primarily related to costs associated with (i) work performed by outside
consulting and law firms to support the development of the operational and
financial restructuring plans and the prepackaged plan of reorganization ($11.1
million); (ii) severance and other employee costs ($5.5 million) and plant
closure costs ($2.9 million). In addition, for the period from the filing of
the prepackaged plan of reorganization on August 23, 1999 to November 9, 1999,
the company incurred $2.4 million of professional fees for purposes discussed
above, which was included in reorganization items. Deferred debt issuance costs
($1.3 million) related to debt restructured pursuant to the prepackaged plan of
reorganization were also written off and included in reorganization items.
A summary of the restructuring and reorganization charges recorded in 1999
is as follows (in millions):
<TABLE>
<CAPTION>
Cash
Restructuring Payments Restructuring
Reserve at 1999 and Asset Reserve at
Dec. 31, 1998 Charges Write-off Dec. 31, 1999
------------- ------- --------- -------------
<S> <C> <C> <C> <C>
Severance and other employee
costs........................... $15.4 $ 5.5 $(14.9) $ 6.0
Plant closure and business exit
costs........................... 15.0 2.9 (11.2) 6.7
Professional fees................ 0.6 14.8 (10.0) 5.4
Other............................ 0.3 -- -- 0.3
----- ----- ------ -----
Total restructuring and
reorganization................ $31.3 $23.2 $(36.1) $18.4
===== ===== ====== =====
</TABLE>
The $18.4 million reserve appears, at this time, to be adequate to cover the
remaining costs of the restructuring activity identified at December 31, 1999.
In addition, as of December 31, 1999 and 1998, the company had reserves for
asset impairment of $86.1 million and $103.7 million, respectively, which were
provided for in 1997 and 1998 and are included in fixed assets.
During 1998, the company provided for impairment of assets and restructuring
costs related to its operational restructuring plan. A summary of the
restructuring charges recorded in 1998 is as follows (in millions):
<TABLE>
<CAPTION>
Restructuring Restructuring
Charges at Asset Cash Reserve at
Inception Write-off Payment Dec. 31 1998
------------- --------- ------- -------------
<S> <C> <C> <C> <C>
Loss on termination of
leveraged lease............... $ 68.8 $ (68.8) $ -- $ --
Deferred financing charge/bank
fee write-off................. 36.6 (34.5) (2.1) --
Accelerated amortization of
deferred gain................. (9.1) 9.1 -- --
Impairment of property, plant
and equipment................. 47.2 (47.2) -- --
Severance and other employee
costs......................... 24.8 -- (9.4) 15.4
Plant closure and business exit
costs......................... 18.8 -- (3.8) 15.0
Professional fees.............. 11.5 -- (10.9) 0.6
Inventory write-downs.......... 3.2 (3.2) -- --
Other.......................... 0.5 -- (0.2) 0.3
------ ------- ------ -----
Total restructuring.......... $202.3 $(144.6) $(26.4) $31.3
====== ======= ====== =====
</TABLE>
42
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As described in Note Fourteen, the company incurred a $68.8 million loss in
the third quarter on the termination of the leveraged lease on equipment at
Melrose Park, Illinois and at Reynosa and Juarez, Mexico. The company's
payment obligations under the lease were fully guaranteed by LGE, which made a
negotiated settlement payment of $90.1 million in the third quarter to the
lessor. The appraised value of the equipment was significantly less than the
original investment value, thus resulting in the loss of $68.8 million. This
loss was calculated as the difference between the $90.1 million liability to
LGE for settlement of the lease obligation and the $21.3 million then-current
value of the equipment.
Of the $36.6 million expense for banking and deferred financing fees, $28.3
million of the fees related to the leveraged lease. (The former amount does
not include the accelerated amortization of the remaining $9.1 million
deferred gain related to the 1997 sale of assets into the leveraged lease.)
Also, $3.9 million was related to the receivable securitization as discussed
in Note Nineteen and $1.6 million was related to the credit facility with
Citicorp that was amended in the third quarter of 1998. Additionally, the
company incurred $2.8 million in banking and financing fees and expenses
related to its continuing efforts to secure financing commitments.
The impairment of property, plant, and equipment of $47.2 million related
primarily to the company's commitment in 1998 to dispose of its manufacturing
facilities. During the fourth quarter, the company identified and entered into
agreements with various suppliers to outsource its product lines, thus
enabling the company to commit to disposing of certain assets. As of December
31, 1998, the company had announced the closure of the Melrose Park, Illinois,
Juarez, Mexico and Matamoros, Mexico manufacturing facilities, and that those
assets were being held for disposal. Although the company continued to operate
its Chihuahua, Mexico facility, at that time, it was seeking a buyer for the
entire Network Systems business, which this facility supported. Thus, the
Chihuahua property, plant, and equipment was also considered held for
disposal. See Note Nine for the results of operations for the Networks Systems
business.
Property held for disposal was nearly the same as of December 31, 1999 and
1998 as a decrease resulting from the sale of all, or substantially all,
assets at the company's Chihuahua, Juarez and Matamoros, Mexico facilities and
most equipment at its Melrose Park, Illinois plant was offset by including in
property held for disposal at December 31, 1999, the company's Reynosa, Mexico
facility, which will be transferred to an affiliate of LGE at its fair value,
which approximates the company's current carrying value, in exchange for the
cancellation of certain of the company's obligations to LGE in January 2000.
Impairment losses were calculated based on the excess of the carrying
amount of assets over the assets' fair values. The fair values used in
determining impairment losses were based upon management's estimates of
expected sales proceeds and third-party appraisals and valuations, including
management and third party estimates of potential environmental liabilities.
The fair value estimates considered whether the assets were expected to be
sold as going-concern operations or under orderly liquidation. Previously, the
fair value estimates for these assets reflected the company's continued use of
the assets. The change in fair value estimates due to the company's commitment
to dispose of certain assets resulted in the additional impairment charge
incurred during the fourth quarter of 1998.
It was anticipated that the implementation of the company's operational
restructuring plan would result in the termination, at a cost of $22.9
million, of approximately 4,200 employees by December 31, 1999, primarily at
the company's manufacturing facilities. During 1998, the Company terminated
approximately 2,500 of these employees. These terminations resulted in
expenditures of $7.5 million in 1998, with $15.4 million remaining to be paid
in 1999. During 1999, the company reduced the number of employees by
approximately an additional 2,850, incurring severance and other employee
costs of $14.9 million and an additional provision of $5.5 million was
recorded. Additionally, during 1998, the company incurred expenditures of $1.9
million to retain key management employees throughout the operational
restructuring process.
43
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Included in the 1998 total $18.8 million of plant closure and business exit
costs were $5.8 million of plant costs at the Melrose Park, Illinois facility
incurred to maintain the property subsequent to the cessation of manufacturing
activities. In addition, plant closure and business exit charges also
reflected $2.1 million of legal costs, $2.1 million of duty payments related
to plant equipment in Mexico that the company was selling or disposing of and
a $1.5 million charge for the early termination of various leases. An
additional charge of $2.9 million was incurred for payments given to Melrose
Park employees to stabilize employment and maintain production after the
announcement of the plant closure. Plant closure and business exit costs also
included a $2.9 million charge related to management salaries and labor costs
associated with the closure of facilities and $1.5 million of other exit/plant
closure funds. The company incurred cash outlays of $3.8 million in 1998 for
plant closure and business exit costs, and the company expected to incur
additional cash outlays of $16.0 million in 1999 and 2000, of which $15.0
million was accrued as of December 31, 1998. During 1999, $11.2 million was
expended on plant closure and business exit costs and an additional provision
of $2.9 million was recorded.
The $11.5 million charge for professional fees in 1998 reflected work
performed by outside professionals to support the development of the company's
operational and financial restructuring plans and its prepackaged bankruptcy
proceeding.
The company did not incur any restructuring costs during 1997.
Note Eight--Income Taxes: The components of income taxes (credit) were as
follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Currently payable (refundable):
Federal.................................. $ -- $ -- $ 0.1
State, local and foreign................. 2.0 3.0 (0.9)
------- ------- -------
Total income taxes (credit)............ $ 2.0 $ 3.0 $ (0.8)
======= ======= =======
The statutory federal income tax rate and the effective tax rate are
compared below:
<CAPTION>
Year Ended December 31
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate.......... 35.0 % 35.0 % 35.0 %
Foreign tax effects........................ (3.2) (1.1) (2.2)
Tax benefits not recognized subject to
future realization........................ (35.0) (35.0) (32.8)
------- ------- -------
Effective tax rate....................... (3.2)% (1.1)% -- %
======= ======= =======
</TABLE>
44
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets (liabilities) are comprised of the following (in
millions):
<TABLE>
<CAPTION>
Year Ended
December 31
----------------
1999 1998
------- -------
<S> <C> <C>
Loss carry-forwards...................................... $ 354.3 $ 398.8
Inventory valuation...................................... 8.5 15.6
Property, plant and equipment valuation reserve.......... 34.6 48.4
Product warranty......................................... 9.0 8.7
Merchandising............................................ 5.8 7.1
Bad debt reserves........................................ 9.9 18.5
Disallowed interest...................................... 11.8 19.8
Other.................................................... 35.4 42.9
------- -------
Deferred tax assets.................................... 469.3 559.8
------- -------
Depreciation............................................. 9.8 9.5
Other--State, Local and Foreign.......................... -- 4.2
------- -------
Deferred tax liabilities............................... 9.8 13.7
------- -------
Valuation allowance...................................... (459.5) (546.1)
------- -------
Net deferred tax assets................................ $ -- $ --
======= =======
</TABLE>
The valuation allowance was established because the realization of these
assets cannot be reasonably assured, given the company's recurring losses.
As of December 31, 1999, the company had $837.5 million of total net
operating loss carry-forwards (NOLs) available for federal income tax purposes
(which expire from 2004 through 2019) and unused tax credits of $2.7 million
(which expire beginning in 2001).
As discussed in Note Two, on November 5, 1999, the U.S. Bankruptcy Court
for the District of Delaware entered an order confirming the company's
prepackaged plan of reorganization. On November 9, 1999, the company satisfied
certain conditions precedent to the plan's effectiveness, declared the
prepackaged plan effective and emerged from the bankruptcy proceeding. For
federal income tax purposes, the company realized $213.0 million of
cancellation of debt income. As a result, the company is required to eliminate
its current tax operating loss, and a portion of its net operating loss
carryovers. The net operating losses described above are those that remain
after such reduction.
The bankruptcy reorganization also caused an "ownership change" for federal
income tax purposes under Section 382 of the Internal Revenue Code. This
provision typically restricts the annual utilization of pre-change net
operating losses by a formula, based on the value of the company on the change
date, multiplied by the long-term tax-exempt rate, as published by the
Internal Revenue Service, for the month in which the change occurs. In the
case of an ownership change occurring in bankruptcy, special rules are
provided under IRC Section 382(l)(5). Under this provision, the limitation
described above does not apply if a former shareholder and certain creditors
own more than fifty percent of the stock of the reorganized company. The
company believes that the conditions of IRS Section 382(l)(5) are satisfied,
such that limitation, except as described below, will not be imposed upon the
net operating losses generated before the date of the bankruptcy.
The company also experienced an "ownership change" when LGE purchased its
initial investment in November 1995. As such, $420.0 million of the company's
pre-November 1995 net operating losses are subject
45
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to an annual limitation of $27.0 million per year under the general Section
382 rules. 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 on the generation of sufficient
taxable income in the future and certain other factors.
Note Nine--Segment and Geographic Data: The company adopted FAS 131--
Disclosures about Segments of an Enterprise and Related Information--as of
December 31, 1998. This statement established new disclosure requirements
related to operating and geographic segments.
Financial information, summarized by segment, is as follows (in millions):
<TABLE>
<CAPTION>
Consumer Network Corporate
Electronics Systems and Other Consolidated
----------- ------- --------- ------------
1999
- ----
<S> <C> <C> <C> <C>
Net sales......................... $ 739.9 $ 94.0 $ -- $ 833.9
Restructuring and reorganization
charges.......................... 2.0 2.6 18.6 23.2
Depreciation...................... 8.8 3.1 3.5 15.4
Income (loss) before income taxes
and extraordinary item........... 3.1 (1.2) (64.0) (62.1)
Capital additions................. 1.8 -- 2.3 4.1
<CAPTION>
1998
- ----
<S> <C> <C> <C> <C>
Net sales......................... $ 878.7 $106.1 $ -- $ 984.8
Restructuring charges............. 170.2 7.9 24.2 202.3
Depreciation...................... 27.3 3.6 0.3 31.2
(Loss) before income taxes........ (200.0) (5.2) (67.3) (272.5)
Capital additions................. 4.7 2.7 1.0 8.4
<CAPTION>
1997
- ----
<S> <C> <C> <C> <C>
Net sales......................... $1,115.8 $ 56.9 $ 0.4 $1,173.1
Asset impairment charges.......... 63.7 -- -- 63.7
Depreciation...................... 36.4 4.0 (2.4) 38.0
(Loss) before income taxes........ (215.4) (14.9) (69.9) (300.2)
Capital additions................. 70.2 10.2 2.1 82.5
</TABLE>
Total assets for 1999 and 1998 are not presented as it is impracticable to
do so as the necessary information is not available and the cost to develop it
would be excessive. It should be noted that in the information presented,
certain costs such as interest and administrative costs are not allocated to
the Consumer Electronics or Network Systems segments. These unallocated costs
are reported above in the Corporate and Other column.
46
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial information, summarized by geographic area, is as follows (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997
------ ------ --------
<S> <C> <C> <C>
Net sales (1):
Domestic companies.................................... $785.2 $965.1 $1,144.9
Foreign companies..................................... 48.7 19.7 28.2
------ ------ --------
Total net sales..................................... $833.9 $984.8 $1,173.1
====== ====== ========
Long-lived assets:
Domestic companies.................................... $ 3.9 $ 21.5 $ 99.9
Foreign companies..................................... 53.4 98.0 114.6
------ ------ --------
Total long-lived assets............................. $ 57.3 $119.5 $ 214.5
====== ====== ========
</TABLE>
- --------
(1) Net sales are attributed to countries based on location of customer.
Foreign operations consist of manufacturing and sales subsidiaries in
Mexico 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 $115.0
million (14 percent) in 1999, $131.2 million (13 percent) in 1998, and $138.6
million (12 percent) in 1997. Sales to a second customer, Sears, Roebuck and
Company, accounted for $102.7 million (10 percent) in 1998 and $132.4 million
(11 percent) in 1997. No other customer accounted for 10 percent or more of
net sales in 1999, 1998 or 1997.
Note Ten--Other Operating Expense (Income): Major manufacturers of
televisions and VCRs agreed during 1992 to take licenses under some of the
company's U.S. tuner system patents (the licenses expire in 2003). Also in
1998, due to a change in distribution strategy, certain VCRs are sold directly
by the manufacturer (LGE) rather than through the company's direct sales
organization; the company receives a royalty for these sales.
Other operating expense (income) consisted of the following (in millions):
<TABLE>
<CAPTION>
Year Ended December
31
----------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Royalty income--tuner system patents.............. $(30.6) $(35.1) $(26.0)
Royalty income--VCR direct ship................... (1.7) (1.5) --
Royalty income--other............................. (4.0) (1.9) (2.4)
Bank fees......................................... 1.9 3.7 6.2
Asset impairment charge........................... -- -- 63.7
Other............................................. (3.5) (8.2) 0.9
------ ------ ------
Total other operating expense (income).......... $(37.9) $(43.0) $ 42.4
====== ====== ======
</TABLE>
Note Eleven--Inventories: Inventories consisted of the following (in
millions):
<TABLE>
<CAPTION>
December 31
-----------
1999 1998
----- -----
<S> <C> <C>
Raw materials and work-in-process............................. $26.0 $47.1
Finished goods................................................ 52.7 37.1
----- -----
Total inventories........................................... $78.7 $84.2
===== =====
</TABLE>
47
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note Twelve--Stockholders' Equity: Changes in stockholders' equity accounts
are shown below (in millions):
<TABLE>
<CAPTION>
Additional
Common Paid-in Treasury
Stock Capital Shares
------- ---------- --------
<S> <C> <C> <C>
Balance, December 31, 1996................... $ 66.6 $ 459.4 $ (1.7)
Stock issued for benefit plans............. 0.5 4.4 --
Stock issued for stock options............. 0.1 1.0 --
Paid in capital--LGE guarantee............. -- 39.7 --
Paid in capital--LGE services.............. -- 2.2 --
Other...................................... (0.1) 0.6 --
------- ------- ------
Balance, December 31, 1997................... 67.1 507.3 (1.7)
Restricted stock issued.................... 0.5 (0.5) --
------- ------- ------
Balance, December 31, 1998................... 67.6 506.8 (1.7)
Cancellation of Old common stock........... (67.6) 65.9 1.7
Issuance of New common stock............... -- 200.0 --
------- ------- ------
Balance, December 31, 1999................... $ -- $ 772.7 $ --
======= ======= ======
</TABLE>
During 1997, the company entered into certain transactions with LGE that
affected additional paid-in capital. These transactions dealt with the
granting of stock options and donated services. See Note Six for further
discussion of these items.
As discussed in Note Two, under the terms of the prepackaged plan, all of
the shares of $1 par value common stock, including shares held by LGE, were
canceled and the holders thereof received no distribution and retained no
property on account of such equity interests. Also, as part of the prepackaged
plan, LGE was issued 1,000 shares of $.01 par value common stock in exchange
for $200.0 million of debt and extended-term payables.
Note Thirteen--Property, Plant and Equipment: Property, plant and equipment
consisted of the following (in millions):
<TABLE>
<CAPTION>
December 31
----------------
1999 1998
------- -------
<S> <C> <C>
Land..................................................... $ 0.4 $ 2.1
Buildings................................................ 81.6 122.5
Machinery and equipment.................................. 476.7 645.9
------- -------
558.7 770.5
Less accumulated depreciation............................ (421.7) (573.6)
Less valuation reserve................................... (86.1) (103.7)
------- -------
Total property, plant and equipment, net............... $ 50.9 $ 93.2
======= =======
</TABLE>
In 1998, the company recorded a $16.0 million gain related to the sale of
its headquarters building in Glenview, Illinois.
At December 31, 1999 and 1998, the company reclassified $43.1 million and
$43.0 million, respectively, of property held for disposal out of property,
plant and equipment into non-current assets. See Note Seven for further
discussion of the property held for disposal.
48
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note Fourteen--Sale-Leaseback Transaction: 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 result of the sale was a $10.2
million gain for the company, which was deferred and was being amortized over
the 12 1/2-year lease term.
The related lease was being accounted for as an operating lease. The rental
expense under this lease in 1998 and 1997 was $5.9 million (for seven months)
and $8.1 million (for nine months), respectively.
As discussed above, the company's payment obligations were fully guaranteed
by LGE. During 1998, as a part of the operational restructuring, the company
determined it would be idling a substantial portion of the equipment subject
to the leaseback, thereupon causing an event of default under the lease.
Following negotiations with the lessor and its lenders, in July 1998, LGE made
a settlement payment of $90.1 million under its guarantee of the company's
obligation.
The company was obligated for the repayment of this settlement amount to
LGE. As a result, the company's December 31, 1998 financial statements reflect
a $90.1 million short-term debt with LGE, a $21.3 million receivable from LGE
and a loss on termination of the lease of $68.8 million. The $21.3 million
receivable from LGE represented the appraised fair value of the manufacturing
equipment receivable from LGE. The appraised value of the equipment was
significantly less than the original investment value, as reflected by the
restructuring loss recognized in the third quarter of 1998. The reasons for
the loss of value were related both to the products produced and to global
economic changes. In addition, the 1998 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, partially offset by
a non-cash restructuring gain of $9.1 million which represented the
accelerated amortization of the deferred gain on the 1997 sale of the assets
into the lease as discussed above.
The company's December 31, 1999 financial statements do not reflect a
receivable from LGE for the manufacturing equipment discussed above. This
amount has been reduced as the company purchased equipment prior to its
selling the equipment to third parties and as of December 31,1999, $3.8
million was reclassified to machinery and equipment and $8.0 million was
reclassified to property held for disposal, pending transfer to LGE as
discussed above. As equipment previously included in the sale-leaseback was
sold, the proceeds of such sales reduced the company's debt to LGE for such
payment to $88.3 million, which was settled as part of the prepackaged plan of
reorganization.
Note Fifteen--Short-term Debt and Credit Arrangements: Between November
1997 and February 1998, the company obtained a total of $110.0 million in
unsecured and uncommitted credit facilities through four lines of credit with
various lenders. The credit lines were guaranteed by LGE, and during the
second and third quarter of 1998, LGE made payments under demands against
guarantees on $72.0 million of the facilities; during the second quarter of
1999, LGE made payment under demands against a guarantee on $30.0 million. The
company's obligation to LGE for these payments was settled as part of the
company's prepackaged plan of reorganization.
In March 1998, the company entered into a secured credit facility with LGE
which provided for borrowings of up to $45.0 million. The interest rate was
LIBOR plus 6.5 percent per annum. The first such borrowing occurred in May
1998, and as of December 31, 1998, $30.0 was outstanding under this facility,
such amount being settled as part of the prepackaged plan of reorganization.
On November 9, 1999, the company entered into a senior bank credit
agreement with Citicorp North America, Inc. that provides for a three-year
$150.0 million exit facility subject to borrowing base restrictions. The new
facility is secured by substantially all of the company's assets and is
subject to other terms and
49
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
conditions. Borrowings bear interest based on specified margins in a range of
1.5 percent to 3.0 percent above LIBOR or the prime rate depending on the
company's compliance with certain financial covenants. On November 9, 1999, on
the company's exit from bankruptcy proceedings, Citicorp terminated the
debtor-in-possession financing facility, which it had provided. The new senior
bank facility 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 and engage in transactions with
affiliates.
The new Citicorp three-year exit facility and the LGE new restructured
senior note discussed in Note Sixteen are in addition to the $60.0 million
post-restructuring credit support to be provided by LGE to the company
pursuant to the terms of the restructuring agreement between the parties. As
of December 31, 1999, this LGE $60.0 million facility had not been utilized.
The LGE $60.0 million facility contains covenants which mirror those in the
Citicorp three-year facility. The LGE $60.0 million facility provides for
interest on borrowings at LIBOR plus 6.5 percent per annum. The LGE $60.0
million facility is secured by a first lien on the company's VSB technology.
Borrowings and interest rates on short-term debt were (in millions):
<TABLE>
<CAPTION>
Year Ended December
31
---------------------
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Maximum month-end borrowings........................ $310.9 $299.9 $72.0
Average daily borrowings............................ 220.4 182.5 26.4
Weighted average interest rate per annum............ 10.0% 8.5% 9.1%
</TABLE>
Note Sixteen--Long-term Debt: The components of long-term debt were as
follows (in millions):
<TABLE>
<CAPTION>
December 31
-------------
1999 1998
------ ------
<S> <C> <C>
6 1/4 percent convertible subordinated debentures due
2011...................................................... $ -- $103.6
8.19 percent senior debentures due 2009 ($50.0 due at
maturity)................................................. 39.1 --
LGE New Restructured Senior Note due 2009.................. 124.6 --
------ ------
163.7 103.6
Less current portion....................................... -- 5.8
------ ------
Total long-term debt..................................... $163.7 $ 97.8
====== ======
</TABLE>
The 6 1/4 percent convertible subordinated debentures due 2011 were
exchanged for $50.0 million of new 8.19 percent senior debentures due 2009,
which were recorded at fair value of $39.1 million as discussed in Note Two.
The $10.9 million discount will be amortized over the life of the debentures
using the effective interest rate method. The new debentures can be redeemed
at par in whole or in part at any time and rank equally with all senior debt
of the company.
As part of the company's prepackaged plan of reorganization, LGE received
the LGE new restructured senior note as settlement of certain LGE claims. This
note provides for interest to be accrued at LIBOR plus 6.5 percent per annum,
with interest added to the principle amount of the note if certain financial
ratios are not met. The note, which matures on November 1, 2009, is secured by
a first lien on all assets leased to the company and its subsidiaries pursuant
to the leveraged leases and transferred to the company pursuant to the
restructuring agreement. The note is guaranteed by each of the company's
subsidiaries and is subject to other terms and conditions.
50
<PAGE>
ZENITH ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
The fair value of the 8.19 percent senior debentures is equal to the
recorded value of $39.1 million as of December 31, 1999.
Note Seventeen--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 three
and six percent of employees' eligible compensation, based partially on
employees' contributions 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 $3.8 million, $6.9 million and $7.8 million in
1999, 1998 and 1997, respectively. The company's 1997 contribution to the
retirement plans was made during 1998.
Employees in Mexico are covered by government-mandated plans, the costs of
which are accrued by the company.
Note Eighteen--Contingencies: There is a range of possible outcomes for all
legal matters in which the company is involved. With the exception of the
matter discussed below, the company does not believe any of the other legal
matters if adversely decided, are reasonably likely to have a material adverse
effect on the company. The company's belief is based on the amounts involved
and the types of 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 also sought 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 and
has also denied plaintiff's motion for a preliminary injunction. The case was
filed in the U.S. District Court in Los Angeles and is currently in the
discovery stage.
Note Nineteen--Trade Receivable Securitization Agreement: During the third
quarter of 1998, the company's trade receivable securitization agreement,
which was entered into in April 1997, was terminated. As a result, (i)
receivables are no longer sold and transferor certificates (which represented
the company's retained interest in the pool of receivables that were sold)
have been canceled 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 Twenty--Subsequent Events: On January 1, 2000, pursuant to the
company's approved prepackaged plan of reorganization, the company's Reynosa,
Mexico manufacturing subsidiary and related operations and assets were
transferred to an LGE affiliate. The company's obligations to LGE had been
reduced by approximately $39.5 million in November 1999 as part of this
transfer.
In March 2000, $3.0 million was released from the $7.5 million Americast
escrow following negotiations with Americast.
51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder 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, 1999 and 1998, and the related statements of consolidated
operations and retained earnings (deficit) and cash flows for each of the
three years in the period ended December 31, 1999. 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
As explained in Note Five to the financial statements, the Company changed
its methods of accounting for tooling costs in 1997.
/s/ Arthur Andersen LLP
_________________________
Arthur Andersen LLP
Chicago, Illinois
February 18, 2000
(except with respect to the matters
discussed in Notes 3 and 20, as to which
the date is March 28, 2000)
52
<PAGE>
UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1999 Quarters Ended 1998 Quarters Ended
-------------------------------------- -------------------------------------------
Dec. 31,(1) Oct. 2, July 3, April 3, Dec. 31,(2) Sept. 26,(3) June 27, March 28,
----------- ------- ------- -------- ----------- ------------ -------- ---------
In millions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $238.1 $228.0 $217.2 $150.6 $309.7 $ 230.4 $224.0 $220.7
Gross margin............ 19.9 24.4 21.7 15.9 25.8 27.1 19.2 7.2
Net income (loss)....... 65.1 (13.0) (20.9) (25.1) (87.7) (119.0) (31.0) (37.8)
</TABLE>
- --------
(1) Includes $70.2 million extraordinary gain.
(2) Includes $94.5 million of restructuring charges.
(3) Includes $100.4 million of restructuring charges.
53
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Stockholder of Zenith Electronics Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Zenith Electronics
Corporation's annual report to stockholders included in this Form 10-K, and
have issued our report thereon dated February18, 2000 (except with respect to
the matters discussed in Notes 3 and 20 as to which the date is March 28,
2000). Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The financial statement schedule listed in Item
14(a)2 is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
______________________________
Arthur Andersen LLP
Chicago, Illinois
February 18, 2000
54
<PAGE>
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(In millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- ------------------- ---------- ----------
Additions
-------------------
Reserves and allowances Balance at Charged to Charged Balance at
deducted from asset beginning costs and to other end of
accounts of period expenses accounts Deductions period
----------------------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year Ended December
31, 1999............. $ 42.0 $ 0.7 $ -- $ 19.2(2) $ 23.5
====== ====== ===== ====== ======
Year Ended December
31, 1998............. $ -- $ 9.5 $33.9(1) $ 1.4(2) $ 42.0
====== ====== ===== ====== ======
Year Ended December
31, 1997............. $ 6.2 $ -- $ -- $ 6.2(3) $ --
====== ====== ===== ====== ======
Valuation allowance for
deferred tax assets:
Year Ended December
31, 1999............. $546.1 $ -- $ -- $ 86.6(4) $459.5
====== ====== ===== ====== ======
Year Ended December
31, 1998............. $462.8 $ 83.3 $ -- $ -- $546.1
====== ====== ===== ====== ======
Year Ended December
31, 1997............. $310.5 $152.3 $ -- $ -- $462.8
====== ====== ===== ====== ======
Reserve for
restructuring costs:
Year Ended December
31, 1999............. $ 31.3 $ 23.2 $ -- $ 36.1(5) $ 18.4
====== ====== ===== ====== ======
Year Ended December
31, 1998............. $ -- $202.3 $ -- $171.0(6) $ 31.3
====== ====== ===== ====== ======
Year Ended December
31, 1997............. $ 9.3 $ -- $ -- $ 9.3(7) $ --
====== ====== ===== ====== ======
</TABLE>
- --------
(1) Amount required upon cancellation of receivable securitization agreement.
(2) Uncollectable accounts written off, net of recoveries.
(3) Amount sold under accounts receivable securitization agreement.
(4) Related to reduction in deferred tax assets, net during 1999.
(5) Includes $1.3 million asset write-off and $34.8 million cash payment.
(6) Includes $144.6 million asset write-off and $26.4 million cash payment.
(7) Includes $7.9 million cash payment, $0.3 million asset write-off and $1.1
million reserve release.
55
<PAGE>
EXHIBIT 3(a)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ZENITH ELECTRONICS CORPORATION
Zenith Electronics Corporation, a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is Zenith Electronics Corporation.
The Corporation was originally incorporated under the name ZRC Corporation, and
the original Certificate of Incorporation of the Corporation was filed with the
Secretary of the State of the State of Delaware on January 9, 1958. The name of
the Corporation was subsequently changed to Zenith Radio Corporation on March
31, 1958 and thereafter the name was changed again to Zenith Electronics
Corporation on April 24, 1984. On August 23, 1999, the Corporation filed a
voluntary petition for relief under chapter 11 of Title 11 of the United States
Code with the United States Bankruptcy Court for the District of Delaware, and
on November 5, 1999, an order confirming the plan of reorganization of the
Corporation was signed and entered by that court.
2. Pursuant to Sections 242 and 303 of the General Corporation Law
of the State of Delaware, this Amended and Restated Certificate of Incorporation
restates and amends the provisions of the Certificate of Incorporation of this
Corporation.
3. The text of the Amended and Restated Certificate of Incorporation
as heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
ARTICLE ONE
The name of the Corporation is Zenith Electronics Corporation.
ARTICLE TWO
The Corporation's registered office in the State of Delaware is 1209
Orange Street in the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
<PAGE>
ARTICLE THREE
The nature of the business of the Corporation and its purpose is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOUR
The total number of shares of stock which the Corporation shall have
authority to issue is 1,000 shares of Common Stock, par value $.01 per share. In
accordance with 11 U.S.C. (S)1123(a)(6), the issuance of non-voting equity
securities is prohibited.
ARTICLE FIVE
The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for the
purpose of creating, defining, limiting and regulating the powers of the
Corporation and its directors and stockholders:
(a) The number of directors of the Corporation shall be fixed and may
be altered from time to time in the manner provided in the By-Laws, and
vacancies in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of directors may be
filled, and directors may be removed, as provided in the By-Laws.
(b) The election of directors may be conducted in any manner approved
by the stockholders at the time when the election is held and need not be
by written ballot.
(c) All corporate powers and authority of the Corporation (except as
at the time otherwise provided by law, by this Certificate of Incorporation
or by the By-Laws) shall be vested in and exercised by the Board of
Directors.
(d) The Board of Directors shall have the power without the assent or
vote of the stockholders to adopt, amend, alter or repeal the By-Laws of
the
2
<PAGE>
Corporation, except to the extent that the By-Laws or this Certificate of
Incorporation otherwise provide.
(e) No person who is or was at any time a director of the Corporation
shall be personally liable to the Corporation or its stockholders for
monetary damages for breach of his or her fiduciary duty as a director,
provided that nothing contained in this Article shall 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 the law, (iii) under Section 174 of the General Corporation
---
Law of the State of Delaware or (iv) for any transaction from which the
--
director derived an improper personal benefit.
ARTICLE SIX
The Corporation reserves the right to amend or repeal any provision
contained in this Amended and Restated Certificate of Incorporation in the
manner now or hereafter prescribed by the laws of the State of Delaware, and all
rights herein conferred upon stockholders or directors are granted subject to
this reservation.
4. This Amended and Restated Certificate of Incorporation was adopted in
accordance with the provisions of Sections 242 and 303 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed under the seal of the Corporation this _____ day
of ___________, 1999.
ZENITH ELECTRONICS CORPORATION
____________________________________
Title:
Attest:
________________________________
Secretary
3
<PAGE>
EXHIBIT 3 (b)
================================================================================
ZENITH ELECTRONICS CORPORATION
AMENDED AND RESTATED
BY-LAWS
-------
As Adopted on November 9, 1999
================================================================================
<PAGE>
ZENITH ELECTRONICS CORPORATION
AMENDED & RESTATED
BY-LAWS
-------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
ARTICLE I
STOCKHOLDERS .......................................................... 1
Section 1.01. Annual Meetings ......................................... 1
Section 1.02. Special Meetings ........................................ 1
Section 1.03. Notice of Meetings; Waiver .............................. 1
Section 1.04. Quorum .................................................. 2
Section 1.05. Voting .................................................. 2
Section 1.06. Voting by Ballot ........................................ 2
Section 1.07. Adjournment ............................................. 2
Section 1.08. Proxies ................................................. 2
Section 1.09. Organization; Procedure ................................. 3
Section 1.10. Consent of Stockholders in Lieu of Meeting .............. 3
ARTICLE II
BOARD OF DIRECTORS .................................................... 3
Section 2.01. General Powers .......................................... 3
Section 2.02. Number and Term of Office ............................... 3
Section 2.03. Election of Directors ................................... 4
Section 2.04. Annual and Regular Meetings ............................. 4
Section 2.05. Special Meetings; Notice ................................ 4
Section 2.06. Quorum; Voting .......................................... 4
Section 2.07. Adjournment ............................................. 4
Section 2.08. Action Without a Meeting ................................ 5
Section 2.09. Regulations; Manner of Acting ........................... 5
Section 2.10. Action by Telephonic Communications ..................... 5
Section 2.11. Resignations ............................................ 5
Section 2.12. Removal of Directors .................................... 5
Section 2.13. Vacancies and Newly Created Directorships ............... 5
Section 2.14. Reliance on Accounts and Reports, etc. .................. 5
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES .............................. 6
Section 3.01. How Constituted ......................................... 6
Section 3.02. Powers .................................................. 6
</TABLE>
i
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<TABLE>
<S> <C>
Section 3.03. Proceedings ............................................. 7
Section 3.04. Quorum and Manner of Acting ............................. 7
Section 3.05. Action by Telephonic Communications ..................... 7
Section 3.06. Absent or Disqualified Members .......................... 7
Section 3.07. Resignations ............................................ 7
Section 3.08. Removal ................................................. 7
Section 3.09. Vacancies ............................................... 7
ARTICLE IV
OFFICERS .............................................................. 7
Section 4.01. Titles and Duties; Number ............................... 7
Section 4.02. Election ................................................ 8
Section 4.03. Salaries ................................................ 8
Section 4.04. Removal and Resignation; Vacancies ...................... 8
Section 4.05. Subordinate Officers .................................... 8
Section 4.06. Security ................................................ 8
ARTICLE V
CAPITAL STOCK ......................................................... 8
Section 5.01. Certificates of Stock, Uncertificated Shares ............ 8
Section 5.02. Signatures; Facsimile ................................... 8
Section 5.03. Lost, Stolen or Destroyed Certificates .................. 8
Section 5.04. Transfer of Stock ....................................... 9
Section 5.05. Record Date ............................................. 9
Section 5.06. Registered Stockholders ................................. 10
Section 5.07. Transfer Agent and Registrar ............................ 10
ARTICLE VI
INDEMNIFICATION ....................................................... 10
Section 6.01. Nature of Indemnity ..................................... 10
Section 6.02. Successful Defense ...................................... 11
Section 6.03. Determination That Indemnification Is Proper ............ 11
Section 6.04. Advance Payment of Expenses ............................. 11
Section 6.05. Procedure for Indemnification of Directors and Officers . 12
Section 6.06. Survival; Preservation of Other Rights .................. 12
Section 6.07. Insurance ............................................... 12
Section 6.08. Severability ............................................ 13
ARTICLE VII
OFFICES ............................................................... 13
Section 7.01. Registered Office ....................................... 13
Section 7.02. Other Offices ........................................... 13
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VIII
GENERAL PROVISIONS .................................................... 13
Section 8.01. Dividends ............................................... 13
Section 8.02. Reserves ................................................ 14
Section 8.03. Execution of Instruments ................................ 14
Section 8.04. Corporate Indebtedness .................................. 14
Section 8.05. Deposits ................................................ 14
Section 8.06. Checks .................................................. 14
Section 8.07. Sale, Transfer, etc. of Securities ...................... 14
Section 8.08. Voting as Stockholder ................................... 14
Section 8.09. Fiscal Year ............................................. 15
Section 8.10. Seal .................................................... 15
Section 8.11. Books and Records; Inspection ........................... 15
ARTICLE IX
AMENDMENT OF BY-LAWS .................................................. 15
Section 9.01. Amendment ............................................... 15
ARTICLE X
CONSTRUCTION .......................................................... 15
Section 10.01. Construction ........................................... 15
</TABLE>
iii
<PAGE>
ZENITH ELECTRONICS CORPORATION
AMENDED AND RESTATED
BY-LAWS
-------
As adopted on November 9, 1999
ARTICLE I
---------
STOCKHOLDERS
------------
Section 1.01. Annual Meetings. Subject to Section 1.10 of these By-
---------------
Laws, the annual meeting of the stockholders of the Corporation for the election
of directors and for the transaction of such other business as properly may come
before such meeting shall be held at such place, either within or without the
State of Delaware, and at [____] local time on the [______] (or, if such day is
a legal holiday, then on the next succeeding business day), or at such other
date and hour, as may be fixed from time to time by resolution of the Board of
Directors and set forth in the notice or waiver of notice of the meeting.
Section 1.02. Special Meetings. Special meetings of the stockholders
----------------
may be called at any time by the president (or, in the event of his or her
absence or disability, by any vice president), or by the Board of Directors. A
special meeting shall be called by the president (or, in the event of his or her
absence or disability, by any vice president), or by the secretary, immediately
upon receipt of a written request therefor by stockholders holding in the
aggregate not less than a majority of the outstanding shares of the Corporation
at the time entitled to vote at any meeting of the stockholders. If such
officers or the Board of Directors shall fail to call such meeting within twenty
days after receipt of such request, any stockholder executing such request may
call such meeting. Such special meetings of the stockholders shall be held at
such places, within or without the State of Delaware, as shall be specified in
the respective notices or waivers of notice thereof.
Section 1.03. Notice of Meetings; Waiver. The secretary or any
--------------------------
assistant secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less than ten nor more than sixty days prior to the meeting, to
each stockholder of record entitled to vote at such meeting. If such notice is
mailed, it shall be deemed to have been given to a stockholder when deposited in
the United States mail, postage prepaid, directed to the stockholder at his or
her address as it appears on the record of stockholders of the Corporation, or,
if he or she shall have filed with the secretary of the Corporation a written
request that notices to him or her be mailed to some other address, then
directed to him or her at such other address. Such further notice shall be given
as may be required by law.
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of stockholders
shall constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
<PAGE>
Section 1.04. Quorum. Except as otherwise required by law or by the
------
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting.
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws,
------
a record date has been fixed, every holder of record of shares entitled to vote
at a meeting of stockholders shall be entitled to one vote for each share
outstanding in his or her name on the books of the Corporation at the close of
business on such record date. If no record date has been fixed, then every
holder of record of shares entitled to vote at a meeting of stockholders shall
be entitled to one vote for each share of stock standing in his or her name on
the books of the Corporation at the close of business on the day next preceding
the day on which notice of the meeting is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. Except as otherwise required by law or by the Certificate of Incorporation
or by these By-Laws, the vote of a majority of the shares represented in person
or by proxy at any meeting at which a quorum is present shall be sufficient for
the transaction of any business at such meeting.
Section 1.06. Voting by Ballot. No vote of the stockholders need be
----------------
taken by written ballot unless otherwise required by law. Any vote which need
not be taken by ballot may be conducted in any manner approved by the meeting.
Section 1.07. Adjournment. If a quorum is not present at any meeting
-----------
of the stockholders, the stockholders present in person or by proxy shall have
the power to adjourn any such meeting from time to time until a quorum is
present. Notice of any adjourned meeting of the stockholders of the Corporation
need not be given if the place, date and hour thereof are announced at the
meeting at which the adjournment is taken, provided, however, that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 5.05 of these
By-Laws, a notice of the adjourned meeting, conforming to the requirements of
Section 1.03 of these By-Laws, shall be given to each stockholder of record
entitled to vote at such meeting. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted on the
original date of the meeting.
Section 1.08. Proxies. Any stockholder entitled to vote at any
-------
meeting of the stockholders or to express consent to or dissent from corporate
action in writing without a meeting may authorize another person or persons to
vote at any such meeting and express such consent or dissent for him or her by
proxy. A stockholder may authorize a valid proxy by executing a written
instrument signed by such stockholder, or by causing his or her signature to be
affixed to such writing by any reasonable means including, but not limited to,
by facsimile signature, or by transmitting or authorizing the transmission of a
telegram, cablegram or other means of electronic transmission to the person
designated as the holder of the proxy, a proxy solicitation firm or a like
authorized agent. No such proxy shall be voted or acted upon after the
expiration of three years from the date of such proxy, unless such proxy
provides for a longer period. Every proxy shall be revocable at the pleasure of
the stockholder executing it, except in those cases where applicable law
provides that a proxy shall be irrevocable. A stockholder may revoke any proxy
which is not irrevocable by attending the meeting and voting in person or by
filing an instrument in writing revoking the proxy or by filing another duly
executed proxy bearing a later date with the secretary. Proxies by telegram,
cablegram or other electronic transmission must either set forth or be submitted
with information from which it can be determined that the telegram, cablegram or
other electronic transmission was authorized by the stockholder. Any copy,
facsimile telecommunication or other reliable reproduction of a writing or
2
<PAGE>
transmission created pursuant to this section may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
Section 1.09. Organization; Procedure. At every meeting of
-----------------------
stockholders the presiding officer shall be the president or, in the event of
his or her absence or disability, a presiding officer chosen by a majority of
the stockholders present in person or by proxy. The secretary, or in the event
of his or her absence or disability, the assistant secretary, if any, or if
there be no assistant secretary, in the absence of the secretary, an appointee
of the presiding officer, shall act as secretary of the meeting. The order of
business and all other matters of procedure at every meeting of stockholders may
be determined by such presiding officer.
Section 1.10. Consent of Stockholders in Lieu of Meeting. To the
------------------------------------------
fullest extent permitted by law, whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken for or in connection with any
corporate action, such action may be taken without a meeting, without prior
notice and without a vote of stockholders, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted (but not less than the minimum number of
votes otherwise prescribed by law) and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by law to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
Section 2.01. General Powers. Except as may otherwise be provided by
--------------
law, by the Certificate of Incorporation or by these By-Laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation.
Section 2.02. Number and Term of Office. The number of Directors
-------------------------
constituting the entire Board of Directors shall be three, which number may be
modified from time to time by resolution of the Board of Directors, but in no
event shall the number of Directors be less than one. Each Director (whenever
elected) shall hold office until his
3
<PAGE>
or her successor has been duly elected and qualified, or until his or her
earlier death, resignation or removal.
Section 2.03. Election of Directors. Except as otherwise provided in
---------------------
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the stockholders. If the annual meeting for the election of
Directors is not held on the date designated therefor, the Directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
stockholders for the election of Directors, provided a quorum is present, the
Directors shall be elected by a plurality of the votes validly cast in such
election.
Section 2.04. Annual and Regular Meetings. The annual meeting of the
---------------------------
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time to
time may by resolution provide for the holding of regular meetings and fix the
place (which may be within or without the State of Delaware) and the date and
hour of such meetings. Notice of regular meetings need not be given, provided,
however, that if the Board of Directors shall fix or change the time or place of
any regular meeting, notice of such action shall be mailed promptly, or sent by
telegram, radio or cable, to each Director who shall not have been present at
the meeting at which such action was taken, addressed to him or her at his or
her usual place of business, or shall be delivered to him or her personally.
Notice of such action need not be given to any Director who attends the first
regular meeting after such action is taken without protesting the lack of notice
to him or her, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting.
Section 2.05. Special Meetings; Notice. Special meetings of the
------------------------
Board of Directors shall be held whenever called by any Director at such place
(within or without the State of Delaware), date and hour as may be specified in
the respective notices or waivers of notice of such meetings. Special meetings
of the Board of Directors may be called on twenty-four hours' notice, if notice
is given to each Director personally or by telephone or telegram, or on five
days' notice, if notice is mailed to each Director, addressed to him or her at
his or her usual place of business. Notice of any special meeting need not be
given to any Director who attends such meeting without protesting the lack of
notice to him or her, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting, and any business may be transacted thereat.
Section 2.06. Quorum; Voting. At all meetings of the Board of
--------------
Directors, the presence of a majority of the total authorized number of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 2.07. Adjournment. A majority of the Directors present,
-----------
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting are not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.05 of these By-Laws shall be given to each Director.
4
<PAGE>
Section 2.08. Action Without a Meeting. Any action required or
------------------------
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors.
Section 2.09. Regulations; Manner of Acting. To the extent
-----------------------------
consistent with applicable law, the Certificate of Incorporation and these By-
Laws, the Board of Directors may adopt such rules and regulations for the
conduct of meetings of the Board of Directors and for the management of the
property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the
-----------------------------------
Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting.
Section 2.11. Resignations. Any Director may resign at any time by
------------
delivering a written notice of resignation, signed by such Director, to the
president or the secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 2.12. Removal of Directors. Any Director may be removed at
--------------------
any time, either for or without cause, upon the affirmative vote of the holders
of a majority of the outstanding shares of stock of the Corporation entitled to
vote for the election of such Director. Any vacancy in the Board of Directors
caused by any such removal may be filled at such meeting by the stockholders
entitled to vote for the election of the Director so removed. If such
stockholders do not fill such vacancy at such meeting (or in the written
instrument effecting such removal, if such removal was effected by consent
without a meeting), such vacancy may be filled in the manner provided in Section
2.13 of these By-Laws.
Section 2.13. Vacancies and Newly Created Directorships. If any
-----------------------------------------
vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal or otherwise, or if the authorized number of Directors
shall be increased, the Directors then in office shall continue to act, and such
vacancies and newly created directorships may be filled by a majority of the
Directors then in office, although less than a quorum. A Director elected to
fill a vacancy or a newly created directorship shall hold office until his or
her successor has been elected and qualified or until his or her earlier death,
resignation or removal. Any such vacancy or newly created directorship may also
be filled at any time by vote of the stockholders.
Section 2.14. Reliance on Accounts and Reports, etc. A Director, or
-------------------------------------
a member of any Committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or Committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
5
<PAGE>
ARTICLE III
-----------
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
----------------------------------------
Section 3.01. How Constituted. The Board of Directors may designate
---------------
one or more Committees, including an Executive Committee, each such Committee to
consist of such number of Directors as from time to time may be fixed by the
Board of Directors. The Board of Directors may designate one or more Directors
as alternate members of any such Committee, who may replace any absent or
disqualified member or members at any meeting of such Committee. Thereafter,
members (and alternate members, if any) of each such Committee may be designated
at the annual meeting of the Board of Directors. Any such Committee may be
abolished or re-designated from time to time by the Board of Directors. Each
member (and each alternate member) of any such Committee (whether designated at
an annual meeting of the Board of Directors or to fill a vacancy or otherwise)
shall hold office until his or her successor shall have been designated or until
he or she shall cease to be a Director, or until his or her earlier death,
resignation or removal.
Section 3.02. Powers. During the intervals between the meetings of
------
the Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation, including the power to declare dividends and to authorize the
issuance of stock. Each such other Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors.
Neither the Executive Committee nor any such other Committee shall have the
power or authority:
(a) to amend the Certificate of Incorporation (except that a
Committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of
Directors as provided in Section 151(a) of the General Corporation Law of
the State of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize
the increase or decrease of the shares of any series);
(b) to adopt an agreement of merger or consolidation;
(c) to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets;
(d) to recommend to the stockholders a dissolution of the Corporation
or a revocation of a dissolution; or
(e) to amend the By-Laws of the Corporation.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it.
6
<PAGE>
Section 3.03. Proceedings. Each such Committee may fix its own rules
-----------
of procedure and may meet at such place (within or without the State of
Delaware), at such time and upon such notice, if any, as it shall determine from
time to time. Each such Committee shall keep minutes of its proceedings and
shall report such proceedings to the Board of Directors at the meeting of the
Board of Directors next following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be
---------------------------
otherwise provided in the resolution creating such Committee, at all meetings of
any Committee the presence of members (or alternate members) constituting a
majority of the total authorized membership of such Committee shall constitute a
quorum for the transaction of business. The act of the majority of the members
present at any meeting at which a quorum is present shall be the act of such
Committee. Any action required or permitted to be taken at any meeting of any
such Committee may be taken without a meeting, if all members of such Committee
shall consent to such action in writing and such writing or writings are filed
with the minutes of the proceedings of the Committee. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.
Section 3.05. Action by Telephonic Communications. Members of any
-----------------------------------
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
Section 3.06. Absent or Disqualified Members. In the absence or
------------------------------
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 3.07. Resignations. Any member (and any alternate member) of
------------
any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the chairman or the president. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
Section 3.08. Removal. Any member (and any alternate member) of any
-------
Committee may be removed from his or her position as a member (or alternate
member, as the case may be) of such Committee at any time, either for or without
cause, by resolution adopted by a majority of the whole Board of Directors.
Section 3.09. Vacancies. If any vacancy shall occur in any
---------
Committee, by reason of disqualification, death, resignation, removal or
otherwise, the remaining members (and any alternate members) shall continue to
act, and any such vacancy may be filled by the Board of Directors.
ARTICLE IV
----------
OFFICERS
--------
Section 4.01. Titles and Duties; Number. The officers of the
-------------------------
Corporation shall be chosen by the Board of Directors and shall have such titles
and duties as shall be
7
<PAGE>
determined by the Board of Directors. Any number of offices may be held by the
same person. No officer need be a Director of the Corporation.
Section 4.02. Election. Unless otherwise determined by the Board of
--------
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Each officer shall hold office until his or her successor has been
elected and qualified, or until his or her earlier death, resignation or
removal.
Section 4.03. Salaries. The salaries of all officers and agents of
--------
the Corporation shall be fixed by the Board of Directors.
Section 4.04. Removal and Resignation; Vacancies. Any officer may be
----------------------------------
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the president. Unless otherwise
specified therein, such resignation shall take effect upon delivery. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise, shall be filled by the Board of Directors.
Section 4.05. Subordinate Officers. The Board of Directors from time
--------------------
to time may delegate to any officer or agent the power to appoint subordinate
officers or agents and to prescribe their respective rights, terms of office,
authorities and duties. Any such officer or agent may remove any such
subordinate officer or agent appointed by him or her, for or without cause.
Section 4.06. Security. The Board of Directors may require any
--------
officer, agent or employee of the Corporation to provide security for the
faithful performance of his or her duties, in such amount and of such character
as may be determined from time to time by the Board of Directors.
ARTICLE V
---------
CAPITAL STOCK
-------------
Section 5.01. Certificates of Stock, Uncertificated Shares. The
--------------------------------------------
shares of the Corporation shall be represented by certificates, provided that
the Board of Directors may provide by resolution or resolutions that some or all
of any or all classes or series of the stock of the Corporation shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until each certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock in the Corporation represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name, of the Corporation by any officer so
authorized by the Board of Directors, representing the number of shares
registered in certificate form. Such certificate shall be in such form as the
Board of Directors may determine, to the extent consistent with applicable law,
the Certificate of Incorporation and these By-Laws.
Section 5.02. Signatures; Facsimile. All of such signatures on the
---------------------
certificate referred to in Section 5.01 of these By-Laws may be a facsimile,
engraved or printed, to the extent permitted by law. In case any officer,
transfer agent or registrar who
8
<PAGE>
has signed, or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 5.04. Transfer of Stock. Upon surrender to the Corporation
-----------------
or the transfer agent of the Corporation of a certificate for shares, duly
endorsed or accompanied by appropriate evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books. Within a reasonable time after the transfer of uncertificated
stock, the Corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on
certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the General
Corporation Law of the State of Delaware. Subject to the provisions of the
Certificate of Incorporation and these By-Laws, the Board of Directors may
prescribe such additional rules and regulations as it may deem appropriate
relating to the issue, transfer and registration of shares of the Corporation.
Section 5.05. Record Date. In order to determine the stockholders
-----------
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date on which the resolution fixing the
record date is adopted by the Board of Directors, and which shall not be more
than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting, provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate
9
<PAGE>
action in writing without a meeting shall be at the close of business on the day
on which the Board of Directors adopts the resolution taking such prior action.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 5.06. Registered Stockholders. Prior to due surrender of a
-----------------------
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so ex-pressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
Section 5.07. Transfer Agent and Registrar. The Board of Directors
----------------------------
may appoint one or more transfer agents and one or more registrars, and may
require all certificates representing shares to bear the signature of any such
transfer agents or registrars.
ARTICLE VI
----------
INDEMNIFICATION
---------------
Section 6.01. Nature of Indemnity. The Corporation shall indemnify
-------------------
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he or she is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding had no reasonable cause to believe his or her
conduct was unlawful; except that in the case of an action or suit by or in the
right of the Corporation to procure a judg-
10
<PAGE>
ment in its favor (1) such indemnification shall be limited to expenses
(including attorneys' fees) actually and reasonably incurred by such person in
the defense or settlement of such action or suit, and (2) no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper. Notwithstanding the
foregoing, but subject to Section 6.05 of these By-Laws, the Corporation shall
not be obligated to indemnify a director or officer of the Corporation in
respect of an action suit or proceeding (or part thereof) instituted by such
director or officer, unless such action, suit or proceeding (or part thereof)
has been authorized by the Board of Directors.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---- ----------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 6.02. Successful Defense. To the extent that a present or
------------------
former director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 6.01 of these By-Laws or in defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
Section 6.03. Determination That Indemnification Is Proper. Any
--------------------------------------------
indemnification of a present or former director or officer of the Corporation
under Section 6.01 of these By-Laws (unless ordered by a court) shall be made by
the Corporation only upon a determination that indemnification of such person is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in Section 6.01 of these By-Laws. Any indemnification of a
present or former employee or agent of the Corporation under Section 6.01 of
these By-Laws (unless ordered by a court) may be made by the Corporation upon a
determination that indemnification of the employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 6.01 of these By-Laws. Any such determination shall be made,
with respect to a person who is a director or officer at the time of such
determination (1) by a majority vote of the Directors who are not parties to
-
such action, suit or proceeding, even though less than a quorum, or (2) by a
-
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
-
directors so direct, by independent legal counsel in a written opinion, or (4)
-
by the stockholders.
Section 6.04. Advance Payment of Expenses. Expenses (including
---------------------------
attorneys' fees) incurred by a present director or officer in defending any
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Corporation as
authorized in this Article. Such expenses (including attorneys' fees) incurred
by former directors and officers or other employees and agents may be so paid
upon such terms and conditions, if any, as the Corporation deems appropriate.
The Corporation, or in respect
11
<PAGE>
of a present director or officer the Board of Directors, may authorize the
Corporation's counsel to represent such present or former director, officer,
employee or agent in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
Section 6.05. Procedure for Indemnification of Directors and
----------------------------------------------
Officers. Any indemnification of a director, officer, employee or agent of the
- --------
Corporation under Sections 6.01 and 6.02 of these By-Laws, or advance of costs,
charges and expenses to such person under Section 6.04 of these By-Laws, shall
be made promptly, and in any event within thirty days, upon the written request
of such person. If a determination by the Corporation that such person is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If the
Corporation denies a written request for indemnity or advancement of expenses,
in whole or in part, or if payment in full pursuant to such request is not made
within thirty days, the right to indemnification or advances as granted by this
Article shall be enforceable by such person in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in any such action shall also be indemnified by the Corporation. It shall
be a defense to any such action (other than an action brought to enforce a claim
for the advance of costs, charges and expenses under Section 6.04 of these By-
Laws where the required undertaking, if any, has been received by or tendered to
the Corporation) that the claimant has not met the standard of conduct set forth
in Section 6.01 of these By-Laws, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors or any committee thereof, its independent legal counsel, and
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
Section 6.01 of these By-Laws, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors or any
committee thereof, its independent legal counsel, and 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.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
--------------------------------------
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was or has agreed to become a
director or
12
<PAGE>
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her or on his or her behalf in any such capacity, or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability under the
provisions of this Article, provided that such insurance is available on
--------
acceptable terms, which determination shall be made by a vote of a majority of
the entire Board of Directors.
Section 6.08. Severability. If this Article or any portion hereof
------------
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VII
-----------
OFFICES
-------
Section 7.01. Registered Office. The registered office of the
-----------------
Corporation in the State of Delaware shall be located at 1209 Orange Street in
the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
-------------
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII
------------
GENERAL PROVISIONS
------------------
Section 8.01. Dividends. Subject to any applicable provisions of law
---------
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's Capital Stock.
A member of the Board of Directors, or a member of any Committee
designated by the Board of Directors shall be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or Committees of the Board of Directors, or by any other person as to
matters the Director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends might
properly be declared and paid.
13
<PAGE>
Section 8.02. Reserves. There may be set aside out of any funds of
--------
the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may similarly modify or abolish any such
reserve.
Section 8.03. Execution of Instruments. Any officer so authorized by
------------------------
the Board of Directors may enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation. Any officer so
authorized by the Board of Directors may authorize any other officer or agent to
enter into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation. Any such authorization may be general or limited to
specific contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
----------------------
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or any officer so
authorized by the Board of Directors. Such authorization may be general or
confined to specific instances. Loans so authorized may be effected at any time
for the Corporation from any bank, trust company or other institution, or from
any firm, corporation or individual. All bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board of Directors or any
officer so authorized by the Board of Directors shall authorize. When so
authorized by the Board of Directors or any such officer, any part of or all the
properties, including contract rights, assets, business or good will of the
Corporation, whether then owned or thereafter acquired, may be mortgaged,
pledged, hypothecated or conveyed or assigned in trust as security for the
payment of such bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation, and of the interest thereon, by instruments
executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be
--------
deposited from time to time in such banks, trust companies or other depositaries
as may be determined by the Board of Directors or by such officers or agents as
may be authorized by the Board of Directors to make such determination.
Section 8.06. Checks. All checks or demands for money and notes of
------
the Corporation shall be signed by such officer or officers or such agent or
agents of the Corporation, and in such manner, as the Board of Directors or any
officer so authorized by the Board of Directors from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
----------------------------------
authorized by the Board of Directors, any officer designated by the Board of
Directors may sell, transfer, endorse, and assign any shares of stock, bonds or
other securities owned by or held in the name of the Corporation, and may make,
execute and deliver in the name of the Corporation, under its corporate seal,
any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
Section 8.08. Voting as Stockholder. Any officer so authorized by
---------------------
resolution of the Board of Directors shall have full power and authority on
behalf of the Corporation to attend any meeting of stockholders of any
corporation in which the Corporation may hold stock, and to act, vote (or
execute proxies to vote) and exercise in person or by proxy all other rights,
powers and privileges incident to the ownership of such stock. Such officers
acting on behalf of the Corporation shall have full power and
14
<PAGE>
authority to execute any instrument expressing consent to or dissent from any
action of any such corporation without a meeting. The Board of Directors may by
resolution from time to time confer such power and authority upon any other
person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
-----------
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be circular in
----
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
-----------------------------
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
ARTICLE IX
----------
AMENDMENT OF BY-LAWS
--------------------
Section 9.01. Amendment. Subject to the provisions of the
---------
Certificate of Incorporation, these By-Laws may be amended, altered or repealed
(a) by resolution adopted by a majority of the Board of Directors at
any special or regular meeting of the Board if, in the case of such special
meeting only, notice of such amendment, alteration or repeal is contained
in the notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the stockholders if, in the
case of such special meeting only, notice of such amendment, alteration or
repeal is contained in the notice or waiver of notice of such meeting.
ARTICLE X
---------
CONSTRUCTION
------------
Section 10.01. Construction. In the event of any conflict between
------------
the provisions of these By-Laws as in effect from time to time and the
provisions of the Certificate of Incorporation of the Corporation as in effect
from time to time, the provisions of such Certificate of Incorporation shall be
controlling.
15
<PAGE>
EXHIBIT 4(a)
CREDIT AGREEMENT
among
ZENITH ELECTRONICS CORPORATION, as Borrower,
THE LENDERS SIGNATORY HERETO,
CITIBANK, N.A. as Issuing Bank
and
CITICORP NORTH AMERICA, INC., as Agent for the
Issuing Bank and the Lenders
November 9, 1999
<PAGE>
CREDIT AGREEMENT
among
ZENITH ELECTRONICS CORPORATION, as Borrower,
THE LENDERS SIGNATORY HERETO,
CITIBANK, N.A. as Issuing Bank
and
CITICORP NORTH AMERICA, INC., as Agent
for the Issuing Bank and the Lenders
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS 1
ARTICLE 2 THE LOANS AND THE LETTERS OF CREDIT 26
Section 2.1 Extension of Credit 26
Section 2.2 Manner of Borrowing and Disbursement of Loans. 27
Section 2.3 Interest 31
Section 2.4 Fees 33
Section 2.5 Prepayment/Reduction of Commitment 34
Section 2.6 Repayment 35
Section 2.7 Notes; Loan Accounts 36
Section 2.8 Manner of Payment 36
Section 2.9 Reimbursement 38
Section 2.10 Pro Rata Treatment 38
Section 2.11 Application of Payments 39
Section 2.12 Use of Proceeds 40
Section 2.13 All Obligations to Constitute One Obligation 40
Section 2.14 Maximum Rate of Interest 40
Section 2.15 Letters of Credit 41
ARTICLE 3 CONDITIONS PRECEDENT 45
Section 3.1 Conditions Precedent to Initial Advance 45
Section 3.2 Conditions Precedent to Each Advance and Letter of Credit 49
ARTICLE 4 REPRESENTATIONS AND WARRANTIES 50
Section 4.1 General Representations and Warranties 50
Section 4.2 Representations and Warranties Relating to Eligible 58
Accounts
Section 4.3 Representations and Warranties Relating to Inventory 59
Section 4.4 Survival of Representations and Warranties, etc 59
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 5 GENERAL COVENANTS 59
Section 5.1 Preservation of Existence and Similar Matters. 59
Section 5.2 Compliance with Applicable Law 60
Section 5.3 Maintenance of Properties 60
Section 5.4 Accounting Methods and Financial Records 60
Section 5.5 Insurance 60
Section 5.6 Payment of Taxes and Claims 61
Section 5.7 Visits and Inspections 61
Section 5.8 Conduct of Business 61
Section 5.9 ERISA 61
Section 5.10 Lien Perfection 62
Section 5.11 Location of Collateral; Consignment of Inventory 62
Section 5.12 Protection of Collateral 62
Section 5.13 Assignments and Records of Accounts 63
Section 5.14 Administration of Accounts 63
Section 5.15 The Blocked Account 64
Section 5.16 Further Assurances 65
Section 5.17 Broker's Claims 65
Section 5.18 Indemnity 66
Section 5.19 Environmental Matters 66
Section 5.20 Warehouse Arrangement 66
Section 5.21 Post Closing Deliveries 67
Section 5.22 Closing of Chapter 11 Case 67
Section 5.23 LGE Exit Facility 67
ARTICLE 6 INFORMATION COVENANTS 67
Section 6.1 Monthly Financial Statements 67
Section 6.2 Annual Financial Statements and Information;
Certificate of No Default 67
Section 6.3 Performance Certificates 68
Section 6.4 Access to Accountants 68
Section 6.5 Additional Reports 68
Section 6.6 Notice of Litigation and Other Matters 69
ARTICLE 7 NEGATIVE COVENANTS 71
Section 7.1 Indebtedness 71
Section 7.2 Guaranties 72
Section 7.3 Liens 72
Section 7.4 Restricted Payments and Purchases; Issuance of Capital 73
Stock
Section 7.5 Investments 73
Section 7.6 Affiliate Transactions 73
Section 7.7 Liquidation; Change in Ownership, Name, or Year;
Acquisition of Assets; Etc Disposition or 74
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 7.8 Minimum EBITDA 75
Section 7.9 Interest Coverage Ratio 75
Section 7.10 Capital Expenditures 76
Section 7.11 Tuning Patent Royalties 76
Section 7.12 Sales and Leasebacks 76
Section 7.13 Amendment and Waiver 76
Section 7.14 ERISA Liability 76
Section 7.15 Prepayments 77
Section 7.16 Negative Pledge 77
ARTICLE 8 DEFAULT 77
Section 8.1 Events of Default 77
Section 8.2 Remedies 81
ARTICLE 9 THE AGENT 82
Section 9.1 Appointment and Authorization 82
Section 9.2 Interest Holders 82
Section 9.3 Consultation with Counsel 82
Section 9.4 Documents 82
Section 9.5 Agent and Affiliates 83
Section 9.6 Responsibility of the Agent 83
Section 9.7 Action by Agent 83
Section 9.8 Notice of Default or Event of Default 83
Section 9.9 Responsibility Disclaimed 84
Section 9.10 Indemnification 84
Section 9.11 Credit Decision 85
Section 9.12 Successor Agent 85
Section 9.13 Agent May File Proofs of Claim 85
Section 9.14 Collateral 86
Section 9.15 Release of Collateral 86
ARTICLE 10 MISCELLANEOUS 86
Section 10.1 Notices 86
Section 10.2 Expenses 88
Section 10.3 Waivers 89
Section 10.4 Set-Off 89
Section 10.5 Assignment 90
Section 10.6 Counterparts 92
Section 10.7 Governing Law 92
Section 10.8 Severability 92
Section 10.9 Headings 92
Section 10.10 Source of Funds 92
Section 10.11 Entire Agreement 92
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 10.12 Amendments and Waivers 92
Section 10.13 Other Relationships 93
Section 10.14 Pronouns 93
Section 10.15 Disclosure 93
Section 10.16 Replacement of Lender 93
Section 10.17 Successors and Assigns 94
Section 10.18 Confirmation Order. 94
Section 10.19 Time is of the Essence. 94
ARTICLE 11 YIELD PROTECTION 94
Section 11.1 Eurodollar Basis Determination 94
Section 11.2 Illegality 95
Section 11.3 Increased Costs 95
Section 11.4 Effect On Other Advances 96
Section 11.5 Capital Adequacy 97
ARTICLE 12 JURISDICTION, VENUE AND WAIVER OF JURY TRIAL 97
Section 12.1 Jurisdiction and Service of Process 97
Section 12.2 Consent to Venue 98
Section 12.3 Waiver of Jury Trial 98
</TABLE>
<PAGE>
EXHIBITS
--------
Exhibit A - Form of Assignment and Assumption Agreement
Exhibit B - Form of Blocked Account Letter
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Note
Exhibit E - Form of Request for Advance
Exhibit F - Form of Request for Issuance of Letter of Credit
Exhibit G - Form of Security Agreement
Exhibit H - Form of Subsidiary Guaranty
Exhibit I - Form of Subsidiary Security Agreement
Exhibit J - Form of Loan Certificate
Exhibit K - Form of Performance Certificate
SCHEDULES
---------
Schedule C-1 - Commitment Ratios
Schedule O-1 - Other Assets
Schedule R-1 - Reynosa Assets
Schedule S-1 - Salomon Assets
Schedule 2.15 - Existing Letters of Credit
Schedule 4.1(c)-1 - Subsidiaries
Schedule 4.1(c)-2 - Partnerships/Joint Ventures
Schedule 4.1(d) - Outstanding Capital Stock Ownership
Schedule 4.1(g) - Existing Permitted Liens
Schedule 4.1(h) - Material Contracts; Collective Bargaining
Schedule 4.1(l) - Investments/Guaranties as of the Agreement Date
Schedule 4.1(m) - Liabilities; Litigation
Schedule 4.1(o) - Intellectual Property
Schedule 4.1(t) - Insurance
Schedule 4.1(u) - Brokers
Schedule 4.1(v)-1 - Leased Real Property
Schedule 4.1(v)-2 - Owned Real Property
Schedule 4.1(w) - Environmental Matters
Schedule 4.1(a)(a) - Year 2000
Schedule 4.2 - Accounts
Schedule 5.11 - Location of Collateral
Schedule 5.15(d) - Bank Accounts
Schedule 7.6 - Affiliate Transactions
Schedule 7.7 - Assets To Be Sold
<PAGE>
This Credit Agreement dated as of November 9, 1999 (as amended,
supplemented or modified from time to time, the "Agreement") is entered into
among Zenith Electronics Corporation, a Delaware corporation (the "Borrower"),
the institutions from time to time a party hereto as Lenders, Citibank, N.A., as
Issuing Bank, and Citicorp North America, Inc., a Delaware corporation, as Agent
for the Lenders and the Issuing Bank (the "Agent") and is based upon the
following facts:
W I T N E S S E T H:
- - - - - - - - - -
A. The Borrower is a reorganized debtor in the Chapter 11 Case.
B. The Borrower is a party to that certain Senior Secured Super Priority
Debtor-in-Possession Credit Agreement dated as of August 24, 1999,
among the Borrower, Citicorp North America, Inc., as agent, and the
various lenders and issuing banks party thereto (the "Debtor-in-
Possession Credit Agreement"), pursuant to which Lenders and the
Issuing Banks provided the Borrower with financing for the Chapter 11
Case.
C. The Borrower has filed the Reorganization Plan, which was confirmed
pursuant to the Confirmation Order, and has requested that the Agent,
the Lenders and the Issuing Banks provide the Borrower with financing
for the implementation of the Reorganization Plan and other general
corporate purposes.
D. The Agent, the Lenders and the Issuing Banks ar willing to extend such
financing to the Borrower in accordance with and on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Borrower, the Agent, the Lenders and the Issuing Bank
agree as follows:
ARTICLE 1
DEFINITIONS
-----------
For the purposes of this Agreement:
"Account Debtor" shall mean any Person who is obligated under an Account.
--------------
"Accounts" shall mean all accounts, contract rights, chattel paper,
--------
instruments, drafts, acceptances and documents of the Borrower or any of the
Borrower's Subsidiaries arising from the sale or lease of goods or the provision
of services or the license of Intellectual Property by the
<PAGE>
Borrower or any of the Borrower's Subsidiaries, whether secured or unsecured,
and whether now existing or hereafter created or arising, and "Account" shall
mean any one of the foregoing; provided, however, until the payment of all
obligations under the LGE Exit Facility, "Accounts" shall not be deemed to
include any proceeds of the HDTV Patents, the HDTV License Agreements, the
Reynosa Assets, the Salomon Assets or the Credits.
"Advance" or "Advances" shall mean amounts of the Loans advanced by the
------- --------
Lenders to the Borrower pursuant to Section 2.2 hereof on the occasion of any
borrowing.
"Affiliate" shall mean any Person directly or indirectly controlling,
---------
controlled by, or under common control with the Borrower, and any Person who is
a director or officer of the Borrower. For purposes of this definition,
"control", when used with respect to any Person, includes, without limitation,
the direct or indirect beneficial ownership of ten percent (10%) or more of the
outstanding voting securities or voting equity of such Person or the power to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Agent" shall mean Citicorp North America, Inc., a Delaware corporation,
-----
acting as Agent for the Lenders and the Issuing Banks, and any successor agent
appointed pursuant to Section 9.12.
"Agent's Office" shall mean the office of the Agent located at 399 Park
--------------
Avenue, 6th Floor, Zone 4, New York, NY 10043, or such other office as may be
designated pursuant to the provisions of Section 10.1 of this Agreement.
"Aggregate Credit Obligations" shall mean, as of any particular time, the
----------------------------
sum of (a) the aggregate principal amount of all Revolving Loans then
outstanding, plus (b) the aggregate amount of all Letter of Credit Obligations
then outstanding, plus (c) the aggregate principal amount of all Swing Loans
then outstanding.
"Agreement" shall mean this Agreement, as amended, restated, supplemented
---------
or modified from time to time.
"Agreement Date" shall mean the date as of which this Agreement is dated.
--------------
"Applicable Law" shall mean, in respect of any Person, all provisions of
--------------
constitutions, statutes, rules, regulations, and orders of governmental bodies
or regulatory agencies applicable to such Person, and all final orders and
decrees of all courts and arbitrators in proceedings or actions to which the
Person in question is a party or by which it is bound.
"Assignment and Assumption Agreement" shall mean that certain form of
-----------------------------------
Assignment and Assumption Agreement attached hereto as Exhibit A, pursuant to
---------
which each Lender may, as further provided in Section 10.5 hereof, sell or
participate a portion of its Loans or Commitment.
2
<PAGE>
"Authorized Signatory" shall mean such senior personnel of any Person as
--------------------
may be duly authorized and designated in writing by such Person to execute
documents, agreements, and instruments on behalf of such Person.
"Availability" shall mean, as of any particular time, (a) the lesser of (i)
------------
the Commitment, and (ii) the Borrowing Base, minus (b) the Aggregate Credit
Obligations.
"Available Commitment" shall mean, as of any particular time, (a) the
--------------------
amount of the Commitment minus (b) the Aggregate Credit Obligations then
-----
outstanding.
"Available Letter of Credit Amount" shall mean, as of any particular time,
---------------------------------
an amount equal to the lesser of (a) $45,000,000, and (b) the Available
Commitment.
"Bankruptcy Code" shall mean the United States Bankruptcy Code (11 U.S.C.
---------------
Section 101 et seq.), as now or hereafter amended, and any successor statute.
------
"Base Rate" shall mean, at any time, a fluctuating and floating rate per
---------
annum equal to the higher of:
(a) the highest rate of interest announced publicly by
Citibank in New York, New York from time to time, as Citibank's base rate;
and
(b) the sum (adjusted to the nearest one-quarter of one
percent (0.25%) or, if there is no nearest one-quarter of one percent
(0.25%), to the next higher one-quarter of one percent (0.25%) of (i) one-
half of one percent (0.50%) per annum plus (ii) the rate per annum obtained
by dividing (A) the latest three-week moving average of secondary market
morning offering rates in the United States for three-month certificates of
deposit of major United States money market banks, such three-week moving
average (adjusted to the basis of a year of 360 days) being determined
weekly on each Monday (or, if such day is not a Business Day, on the next
succeeding Business Day) for the three-week period ending on the previous
Friday (or, if such day is not a Business Day, on the next preceding
Business Day) by Citibank on the basis of such rates reported by
certificate of deposit dealers to, and published by, the Federal Reserve
Bank of New York, or, if such publication shall be suspended or terminated,
on the basis of quotations for such rates received by Citibank from three
(3) New York certificate of deposit dealers of recognized standing selected
by Citibank, by (B) a percentage equal to one hundred percent (100%) minus
the average of the daily percentages specified during such three-week
period by the Federal Reserve Board (or any successor) for determining the
maximum reserve requirement (including, but not limited to, any emergency,
supplemental or other marginal reserve requirement) for Citibank in respect
of liabilities which consist of or which include (among other liabilities)
three-month nonpersonal U.S. Dollar time deposits in the United States Plus
(iii) the average during such three-week period of the daily net annual
assessment rates estimated by Citibank for determining the
3
<PAGE>
then current annual assessment payable by Citibank to the Federal Deposit
Insurance Corporation (or any successor) for insuring deposits of Citibank
in the United States; and
(c) for any day one-half of one percent (1/2%) per annum
above the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of
New York, or if such rate is not so published for any day which is a
Business Day, the average of the quotation for such day on such
transactions received by Citibank from three Federal funds brokers of
recognized standing selected by it;
but in no event higher than the maximum rate permitted by Applicable Law. Each
change in the Base Rate shall take effect simultaneously with the corresponding
change in the applicable rate described in clause (a), (b) or (c).
"Base Rate Advance" shall mean an Advance which the Borrower requests to be
-----------------
made as a Base Rate Advance or which is reborrowed as a Base Rate Advance, in
accordance with the provisions of Section 2.2 hereof, and shall include any
Swing Loans made to the Borrower.
"Blocked Account" shall have the meaning set forth in Section 5.15 hereof.
---------------
"Blocked Account Letter" shall mean any letter agreement executed by a
----------------------
Blocked Account depository bank and the Agent and acknowledged and agreed to by
the Borrower, in the form of Exhibit B hereto, as such letter agreements may be
---------
amended, supplemented or otherwise modified from time to time.
"Borrower" shall mean Zenith Electronics Corporation, a Delaware
--------
corporation.
"Borrowing Base" shall mean, at any particular time, the sum of:
--------------
(c) up to 80% of the Eligible Accounts; plus
----
(b) up to 50% of the aggregate undrawn fac amount of Eligible Letters
of Credit; plus
----
(c) up to 60% of the Value of Eligible VCR Inventory; plus
----
(d) up to 60% of the Value of Eligible TV and Other Inventory; plus
----
(e) from the Agreement Date through December 31, 1999, up to 35% of
the Value of Eligible Picture Tube Inventory; plus
----
4
<PAGE>
(f) (i) the lesser of (x) 65% of the value of the Tuning Patents, and
(y) $29,500,000 (provided, however, commencing March 31, 2000,
and on the last day of each calendar quarter thereafter, such
$29,500,000 advance amount shall be reduced by $2,800,000), minus
-----
(ii) the Funai Reserve; plus
----
(g) an amount of up to $5,000,000 in connection with the Other
Assets; provided, however, (i) the Agent reserves the right to
reduce such advance amount against any Other Asset if, in its
reasonable determination, there is a material reduction in the
value of such Other Asset, (ii) such advance amount shall be
permanently reduced in connection with the sale of any Other
Asset by the amount set forth next to such Other Asset on
Schedule O-1 attached hereto (or, in connection with the sale of
------------
individual pieces of Equipment, by an amount attributable to the
value of such Equipment, as determined by the Agent in its
reasonable discretion), and (iii) commencing March 31, 2000, and
on the last day of each calendar quarter thereafter, such advance
amount against any Other Asset not previously sold by the
Borrower shall be permanently reduced by 1/10th of the amount set
forth next to such Other Asset on Schedule O-1 attached hereto;
------------
minus
-----
(h) the amount of reserves which the Agent shall have established, in
its reasonable discretion, for such purposes as the Agent shall
have deemed necessary, including, without limitation, reserves
for (i) price adjustments and damages; (ii) obsolescence of
Inventory; (iii) special order goods and deferred shipment sales;
(iv) accrued but unpaid ad valorem and personal property tax
liability; and (v) market value declines.
"Borrowing Base Certificate" shall mean a certificate of an Authorized
--------------------------
Signatory of the Borrower substantially in the form of Exhibit C attached
---------
hereto.
"Borrowing Base Deficiency" shall mean any condition wherein (a) the
-------------------------
Aggregate Credit Obligations exceeds (b) the Borrowing Base as set forth on the
most recent Borrowing Base Certificate delivered to the Agent and the Lenders or
as otherwise determined by the Agent.
"Business Day" shall mean any day excluding Saturday, Sunday and any day
------------
which is a legal holiday under the laws of the State of Illinois or the State of
New York or is a day on which banking institutions located in either of such
states are closed; provided, however, that when used with reference to a
-------- -------
Eurodollar Advance (including the making, continuing, prepaying or repaying of
any Eurodollar Advance), the term "Business Day" shall also exclude any day in
which banks are not open for dealings in deposits of United States dollars on
the London interbank market.
5
<PAGE>
"Capital Expenditures" shall mean, for any period, on a consolidated basis
--------------------
for the Borrower and the Borrower's Subsidiaries, the aggregate of all
expenditures made by the Borrower or any of the Borrower's Subsidiaries during
such period that, in conformity with GAAP, are required to be included in or
reflected on the consolidated balance sheet as a capital asset of the Borrower
or any of the Borrower's Subsidiaries, including Capitalized Lease Obligations.
"Capital Stock" shall mean, as applied to any Person, any capital stock of
-------------
such Person, regardless of class or designation, and all warrants, options,
purchase rights, conversion or exchange rights, voting rights, calls or claims
of any character with respect thereto.
"Capitalized Lease Obligation" shall mean that portion of any obligation of
----------------------------
a Person as lessee under a lease which at the time would be required to be
capitalized on the balance sheet of such lessee in accordance with GAAP.
"Chapter 11 Case" shall mean the bankruptcy case of the Borrower filed on
---------------
August 23, 1999, by the Borrower in the Court as Chapter 11 Case No. 99-2911
(MFW).
"Change of Control" shall mean any change in the ownership of the
-----------------
Borrower's Capital Stock that results in less than ninety percent (90%) of the
Borrower's outstanding Voting Stock being owned beneficially by the LGE Group.
"Citibank" shall mean Citibank, N.A., a national banking association.
--------
"Clearing Account" shall mean Account No. 4072-6121 (or such other account
----------------
number established by the Agent for purposes of Section 5.15 hereof) maintained
by the Agent at Citibank, N.A. pursuant to Section 5.15 of this Agreement, and
over which the Agent has the sole and exclusive access and control for
withdrawal purposes pursuant to Section 5.15 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" shall mean all property pledged as collateral security for the
----------
Obligations pursuant to the Security Documents or otherwise, and all other
property of the Borrower or any Material Subsidiary that is now or hereafter in
the possession or control of the Agent, the Issuing Banks or any Lender or on
which the Agent, the Issuing Banks or any Lender has been granted a Lien.
"Collateral Access Agreement" shall mean, with respect to any leased
---------------------------
premises of the Borrower, an agreement executed by the landlord, warehouseman or
bailee thereof and delivered to the Agent, pursuant to which such landlord,
warehouseman or bailee waives any Lien rights it may hold in regard to the
Borrower's property, grants access by the Agent to such leased premises, permits
the use of such leased premises by the Agent and grants to the Agent other
6
<PAGE>
rights consistent therewith to permit the Agent to exercise any and all rights
with respect to any of the Collateral, in form and substance reasonably
acceptable to the Agent.
"Commercial Letter of Credit" shall mean a documentary letter of credit
---------------------------
issued in respect of the purchase of goods or services by the Borrower in the
ordinary course of its business.
"Commitment" shall mean the several obligations of the Lenders to make
----------
Advances of Revolving Loans to the Borrower on or after the Agreement Date, in
accordance with their respective Commitment Ratios and pursuant to the terms
hereof, the maximum aggregate amount of which shall be $150,000,000 as reduced
from time to time pursuant to Section 2.5 hereof.
"Commitment Ratios" shall mean the percentage in which the Lenders are
-----------------
severally bound to make Advances of Revolving Loans to the Borrower and to
participate in Letters of Credit under the Commitment, which, as of the
Agreement Date, are set forth (together with the principal amounts thereof) on
Schedule C-1 attached hereto; provided, however, with respect to any Lender, the
- ------------
obligations of such Lender to make Revolving Loans and to participate in Letters
of Credit pursuant to the terms and conditions of this Agreement shall not
exceed the principal amount set forth opposite such Lender's name on Schedule
--------
C-1 hereto, as modified from time to time pursuant to the terms of this
- ---
Agreement or to give effect to any applicable Assignment and Assumption
Agreement.
"Confirmation Order" shall mean the Order of the Court entered in the
------------------
Chapter 11 Case on November 5, 1999, after a final hearing under Bankruptcy Rule
3020, confirming the Reorganization Plan and related disclosure statement,
reasonably satisfactory in form and substance to the Agent.
"Court" shall mean the United States Bankruptcy Court for the District of
-----
Delaware.
"Credits" shall mean all credits pursuant to that certain Letter Agreement
-------
dated November 2, 1998 between the Borrower and Philips Electronics North
America Corporation.
"Customer Disputes" shall mean all instances in which a customer of the
-----------------
Borrower has affirmatively asserted grounds for nonpayment of an Account,
including, without limitation, any rejection of goods by an Account Debtor, any
repossession of goods by the Borrower, any return of goods to the Borrower by
any Account Debtor, or any claim by an Account Debtor of non- conformity of
goods, total or partial failure of delivery, set off, counterclaim, or breach of
warranty or any other claim which is inconsistent with the Borrower's warranties
in regard to the Accounts set forth in Section 4.2 of this Agreement.
"Date of Issue" shall mean the date on which an Issuing Bank issues a
-------------
Letter of Credit pursuant to Section 2.15 hereof.
7
<PAGE>
"Debtor-in-Possession Credit Agreement" shall have the meaning set forth in
-------------------------------------
the recitals hereto.
"Default" shall mean any Event of Default, and any of the events specified
-------
in Section 8.1 hereof regardless of whether there shall have occurred any
passage of time or giving of notice (or both) that would be necessary in order
to constitute such event an Event of Default.
"Default Rate" shall mean a simple per annum interest rate equal to, (a)
------------
with respect to outstanding principal, the sum of (i) the applicable Interest
Rate Basis, plus (ii) the highest applicable Interest Rate Margin for such
Interest Rate Basis plus (iii) two percent (2%), and (b) with respect to all
----
other Obligations, the sum of (i) the Base Rate, plus (ii) the highest
----
applicable Interest Rate Margin with respect to Base Rate Advances, plus (iii)
two percent (2%).
"Dividends" shall mean, any direct or indirect distribution, dividend, or
---------
payment to any Person on account of any Capital Stock of the Borrower or any of
the Borrower's Subsidiaries.
"EBITDA" shall mean, with respect to the Borrower on a consolidated basis
------
for any period, the Net Income for such period plus (a) without duplication and
to the extent reflected as charges in the statement of Net Income for such
period, the sum of (i) federal, state or local income tax expense with respect
to operations for such period, (ii) Interest Expense, (iii) depreciation and
amortization expense, and (iv) gains from the sale or disposal of property
(other than Inventory) and gains from the early extinguishment of debt, and
minus (b) without duplication, all losses from the sale or disposal of property
(other than Inventory).
"Effective Date" shall have the meaning set forth in the Reorganization
--------------
Plan.
"Eligible Accounts" shall mean, at any particular date, the Accounts of the
-----------------
Borrower arising from the sale or lease of goods or the provision of services
(other than the license of Intellectual Property) in the ordinary course of
business (net of Warranty/Advertising Reserves):
(a) which are not unpaid for more than sixty (60) days from the
original due date shown on the invoice for the same, and (ii) which are not
unpaid for more than one hundred fifty (150) days from the date on which the
Borrower first transmitted such invoice to the Account Debtor thereunder;
(b) as to which the applicable Account Debtor has been sent an
invoice within ten (10) days after such Accounts have been entered on the
financial records of the Borrower;
(c) which are not owed by an Account Debtor with respect to whom more
than fifty percent (50%) of the Accounts of such Account Debtor are more than
sixty (60) days past due;
8
<PAGE>
(d) which are not owed by an Account Debtor who is an Affiliate or an
employee of the Borrower;
(e) which are not owed by an Account Debtor who has disputed its
liability with respect to such Accounts (to the extent of such disputed amount);
(f) which arise at the time that title to the goods is transferred to
the Account Debtor (FOB warehouse);
(g) which are not subject to any other Customer Disputes;
(h) which are not owed by an Account Debtor which is a federal, state
or local governmental entity or agency, unless all required procedures for the
effective collateral assignment of the Account under the Assignment of Claims
Act of 1940 shall have been complied with, to the satisfaction of the Agent;
(i) which are not owed by an Account Debtor located outside the
United States of America, unless the Account is supported by a letter of credit
which is issued or confirmed by a United States bank or other financial
institution the publicly traded unsecured long term indebtedness of which is
rated "A2" or better by Moody's Investor's Service, Inc. or "A" or better by
Standard & Poor's or by a bank or other financial institution which is otherwise
acceptable to the Agent in the Agent's reasonable discretion or insured by the
Federal Deposit Credit Insurance Association;
(j) which are not owed by an Account Debtor: (i) which has commenced
a voluntary case under the federal bankruptcy laws, as now constituted or
hereafter amended; (ii) which has made an assignment for the benefit of
creditors; (iii) as to which a decree or order for relief has been entered by a
court having jurisdiction in the premises in an involuntary case under the
federal bankruptcy laws, as now constituted or hereafter amended; (iv) as to
which any other petition or other application for relief under the federal
bankruptcy laws has been filed; (v) which has failed, suspended business, ceased
to be solvent; or (vi) which has consented to or suffered the appointment of a
receiver, trustee, liquidator or custodian for it or for all or a significant
portion of its assets or affairs;
(k) which are not owed by any Account Debtor which is located in the
State of New Jersey, the State of West Virginia, or the State of Minnesota,
unless the Borrower has qualified as a foreign corporation authorized to
transact business in such state or has filed all required reports, including,
without limitation, a "notice of business activities report," with the
appropriate officials in the respective State for the then current year or is
otherwise exempt from such filings pursuant to applicable state law;
9
<PAGE>
(l) which are not owed by an Account Debtor which, in the Agent's
reasonable credit judgment, does not have a satisfactory credit standing in
relation to the amount of credit extended to such Account Debtor;
(m) which are bona fide, valid and enforceable obligations of the
Account Debtor thereunder;
(n) as to which the Borrower has performed all of its obligations
then required to have been performed, including, without limitation, the
delivery of merchandise or rendition of services applicable to such Account;
(o) which are not owed by an Account Debtor with whom the Borrower
has an agreement or understanding for any deduction from the Account, except for
discounts or allowances which are made in the ordinary course of business for
prompt payment and which discounts or allowances are reflected in the
calculation of the face value of each invoice related to such Account and except
for cooperating advertising allowances which are included in the
Warranty/Advertising Reserves;
(p) which are not evidenced by any promissory note, chattel paper or
instrument, except such notes, chattel paper or instruments which shall have
been delivered by the Borrower to the Agent;
(q) which are subject to a valid and continuing first priority Lien
in favor of the Agent and the Lenders pursuant to the Loan Documents as to which
all action necessary or desirable to perfect such security interest shall have
been taken, and to which the Borrower has good and marketable title, free and
clear of any Liens (other than Liens in favor of the Agent and the Lenders);
(r) to the extent any such Account owing by (i) Sears or Circuit
City, together with all other Accounts owing by such Person, does not exceed in
the aggregate twenty percent(20%) of all Accounts of the Borrower, and (ii) any
other Account Debtor, together with all other Accounts owing by such Account
Debtor, does not exceed in the aggregate ten percent (10%) of all Accounts of
the Borrower; and
(s) each Account otherwise satisfying the requirements of
subparagraphs (a) through (r) above will be reduced by any contra account
balances for amounts then due to the applicable Account Debtor from the
Borrower.
"Eligible Inventory" shall mean Eligible TV and Other Inventory, Eligible
------------------
VCR Inventory, and , from the Agreement Date through December 31, 1999, Eligible
Picture Tube Inventory.
10
<PAGE>
"Eligible Letter of Credit" shall mean a documentary letter of credit
-------------------------
issued by an Issuing Bank on behalf of the Borrower from time to time in
accordance with Section 2.15 hereof to support the purchase by the Borrower of
first quality finished goods Inventory in the ordinary course of business and
that provides that all draws thereunder must require (a) presentation of
customary documentation (including, as applicable, commercial invoices, packing
lists, certificates of origin, airway bills, customs clearing documents, bills
of exchange, bills of lading, dock warrants, dock receipts, warehouse receipts
or other documents of title) in form and substance reasonably satisfactory to
the Issuing Bank, and (b) passage of title to such Inventory to the Borrower.
Any such letter of credit shall cease to be an "Eligible Letter of Credit" at
such time as the Inventory purchased thereunder becomes Eligible Inventory.
"Eligible Picture Tube Inventory" shall mean, as of any particular time,
-------------------------------
the portion of the Inventory of the Borrower which constitutes color television
picture tubes and which: (a) was manufactured or purchased by the Borrower; (b)
in the opinion of the Agent, is not obsolete, slow-moving, unmerchantable, and
is readily salable in its current form; (c) is new and does not constitute any
finished goods that were returned to the Borrower due to defect or damage; (d)
fulfills each and every one of the Inventory Eligibility Requirements; and (e)
is not Eligible VCR Inventory or Eligible TV and Other Inventory.
"Eligible TV and Other Inventory" shall mean, as of any particular time,
-------------------------------
the portion of the Inventory which constitutes finished goods and which: (a) is
a television or any other Inventory (except a video cassette recorder)
manufactured or purchased by the Borrower; (b) in the opinion of the Agent, is
not obsolete, slow-moving, unmerchantable, and is readily salable in its current
form; (c) is new and does not constitute any finished goods that were returned
to the Borrower due to defect or damage; (d) fulfills each and every one of the
Inventory Eligibility Requirements; and (e) is not Eligible Picture Tube
Inventory or Eligible VCR Inventory.
"Eligible VCR Inventory" shall mean, as of any particular time, the portion
----------------------
of the Inventory which constitutes finished goods and which: (a) is a video
cassette recorder manufactured or purchased by the Borrower; (b) in the opinion
of the Agent, is not obsolete, slow-moving, unmerchantable, and is readily
salable in its current form; (c) is new and does not constitute any finished
goods that were returned to the Borrower due to defect or damage; (d) fulfills
each and every one of the Inventory Eligibility Requirements; and (e) is not
Eligible Picture Tube Inventory or Eligible TV and Other Inventory.
"Environmental Laws" shall mean any and all applicable federal, state,
------------------
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority regulating,
relating to or imposing liability or standards of conduct concerning
environmental protection matters, including without limitation, Hazardous
Materials, as now or may at any time during the term hereof be in effect.
"Equipment" shall mean all machinery, apparatus, equipment, fittings,
furniture, fixtures, motor vehicles and other tangible personal property (other
than Inventory) of every kind and
11
<PAGE>
description used in the Borrower's operations or owned by the Borrower or in
which the Borrower has an interest, whether now owned or hereafter acquired by
the Borrower and wherever located, and all parts, accessories and special tools
and all increases and accessions thereto and substitutions and replacements
therefor.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
in effect on the Agreement Date and as such Act may be amended thereafter from
time to time.
"ERISA Affiliate" shall mean any "affiliate" of the Borrower within the
---------------
meaning of Section 414 of the Code.
"Eurodollar Advance" shall mean an Advance which the Borrower requests to
------------------
be made as a Eurodollar Advance or which is reborrowed as a Eurodollar Advance,
in accordance with the provisions of Section 2.2 hereof.
"Eurodollar Advance Period" shall mean, for each Eurodollar Advance, each
-------------------------
one, two, three or six month period, or, if available to each of the Lenders,
each nine or twelve month period, as selected by the Borrower pursuant to
Section 2.2 hereof, during which the applicable Eurodollar Rate shall remain
unchanged. Notwithstanding the foregoing, however: (i) any applicable Eurodollar
Advance Period which would otherwise end on a day which is not a Business Day
shall be extended to the next succeeding Business Day, unless such Business Day
falls in another calendar month, in which case such Eurodollar Advance Period
shall end on the next preceding Business Day; (ii) any applicable Eurodollar
Advance Period which begins on a day for which there is no numerically
corresponding day in the calendar month during which such Eurodollar Advance
Period is to end shall (subject to clause (i) above) end on the last day of such
calendar month; and (iii) no Eurodollar Advance Period shall extend beyond the
Maturity Date or such earlier date as would interfere with the repayment
obligations of the Borrower under Section 2.6 hereof. Interest shall be due and
payable with respect to any Advance as provided in Section 2.3 hereof.
"Eurodollar Basis" shall mean a simple per annum interest rate equal to the
----------------
quotient of (i) the Eurodollar Rate divided by (ii) one minus the Eurodollar
Reserve Percentage, stated as a decimal. The Eurodollar Basis shall be rounded
upward to the nearest one sixteenth of one percent (1/16%) and, once determined,
shall remain unchanged during the applicable Eurodollar Advance Period, except
for changes to reflect adjustments in the Eurodollar Reserve Percentage.
"Eurodollar Rate" shall mean, for any Eurodollar Advance Period, the
---------------
average (rounded upward to the nearest one sixteenth of one percent (1/16%)) of
the interest rates per annum at which deposits in United States dollars for such
Eurodollar Advance Period are offered by the principal office of Citibank in
London, England to prime banks in the London interbank market at approximately
11:00 a.m. (New York time) two (2) Business Days before the first day of such
Eurodollar Advance Period, in an amount approximately equal to the principal
amount of, and
12
<PAGE>
for a length of time approximately equal to the Eurodollar Advance Period for,
the Eurodollar Advance sought by the Borrower.
"Eurodollar Reserve Percentage" shall mean the percentage which is in
-----------------------------
effect from time to time under Regulation D of the Board of Governors of the
Federal Reserve System, as such regulation may be amended from time to time, as
the maximum reserve requirement applicable with respect to Eurocurrency
Liabilities (as that term is defined in Regulation D), whether or not any Lender
has any Eurocurrency Liabilities subject to such reserve requirement at that
time. The Eurodollar Basis for any Eurodollar Advance shall be adjusted as of
the effective date of any change in the Eurodollar Reserve Percentage.
"Event of Default" shall mean any of the events specified in Section 8.1
----------------
hereof, provided that any requirement for notice or lapse of time, or both, has
been satisfied.
"Excess Cash" shall mean, at any time of determination, 100% of Net Income
-----------
for the immediately preceding fiscal year.
"Final DIP Order" shall mean the order of the Court entered in the Chapter
---------------
11 Case after a final hearing under Bankruptcy Rule 4001(c)(2) or such other
procedures as approved by the Court and acceptable to the Agent, reasonably
satisfactory in form and substance to the Agent, and from which no appeal has
been timely filed, or if timely filed, such appeal has been dismissed (unless
the Majority Lenders waive such requirement), together with all extensions,
modifications and amendments thereto, which, among other matters but not by way
of limitation, authorizes Borrower to obtain credit, incur Indebtedness, and
grant Liens under the Debtor-in- Possession Credit Agreement and provides for
the super priority of the Agent and the Lenders' claims under the Debtor-in-
Possession Credit Agreement, all as set forth in such order.
"Foreign Exchange Agreement" shall mean a foreign currency exchange hedging
--------------------------
product agreement providing foreign currency exchange protection.
"Funai Litigation" shall mean Case No. Cv 98-4809-ER, pending in the United
----------------
States District Court, Central District of California, styled as Funai Electric
--------------
Co., Ltd. Vs. Zenith Electronics Corporation, or any successor case or
- --------------------------------------------
conversion thereof and shall include any appeal thereof.
"Funai Reserve" shall mean a reserve to be established during any period in
-------------
which (a) the plaintiff in the Funai Litigation has failed or refused to pay to
the Borrower royalties for the use of the Borrower's Tuning Patents in such
amounts and at such times as is required by the applicable License Agreements or
(b) any order, settlement or consent decree is in effect which allows the
plaintiff in the Funai Litigation to deposit into escrow all royalties which are
the subject of such litigation or reduces the amount of such royalties that are
payable by such plaintiff to the Borrower; which reserve would initially be in
the amount of $4,500,000 and
13
<PAGE>
would be subject to increase by the Agent if, in its reasonable judgment, it
determines that any event described in the foregoing clauses (a) or (b) will
exist for an extended period of time.
"Funded Debt" shall mean, with respect to any Person, all Indebtedness for
-----------
borrowed money of such Person that by its terms or by the terms of any
instrument or agreement relating thereto matures more than one year from, or is
renewable or extendable at the option of the debtor to a date more than one year
from, the date of creation thereof (including any option of the debtor under a
revolving credit or similar arrangement obligating the lender or lenders to
extend credit over a period of one year or more), including any current
maturities of such Indebtedness.
"GAAP" shall mean, as in effect from time to time, United States generally
----
accepted accounting principles consistently applied.
"Governmental Authority" shall mean any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
government.
"Guaranty" or "guaranteed," as applied to an obligation (each a "primary
-------- ----------
obligation"), shall mean and include (a) any guaranty, direct or indirect, in
any manner, of any part or all of such primary obligation, and (b) any
agreement, direct or indirect, contingent or otherwise, the practical effect of
which is to assure in any way the payment or performance (or payment of damages
in the event of non-performance) of any part or all of such primary obligation,
including, without limiting the foregoing, any reimbursement obligations as to
amounts drawn down by beneficiaries of outstanding letters of credit, and any
obligation of any Person, whether or not contingent, (i) to purchase any such
primary obligation or any property or asset constituting direct or indirect
security therefor, (ii) to advance or supply funds (1) for the purchase or
payment of such primary obligation or (2) to maintain working capital, equity
capital or the net worth, cash flow, solvency or other balance sheet or income
statement condition of any other Person, (iii) to purchase property, assets,
securities or services primarily for the purpose of assuring the owner or holder
of any primary obligation of the ability of the primary obligor with respect to
such primary obligation to make payment thereof or (iv) otherwise to assure or
hold harmless the owner or holder of such primary obligation against loss in
respect thereof.
"Hazardous Materials" shall mean any hazardous materials, hazardous wastes,
-------------------
hazardous constituents, hazardous or toxic substances, petroleum products
(including crude oil or any fraction thereof), friable asbestos containing
materials defined or regulated as such in or under any Environmental Law.
"HDTV License Agreements" shall mean all agreements, whether now or
-----------------------
hereafter in existence, between the Borrower, as licensor, and any other Person,
as licensee, pursuant to which the Borrower grants to such Person any license or
other right in connection with any HDTV Patent.
14
<PAGE>
"HDTV Patents" shall mean all of the Borrower's United States patents and
------------
patent applications relating to its digital vestigial side band technology or
relating to and used in connection with the high definition television
technology or digital television technology of the Borrower, together with all
applications, reissues, divisions, continuations, continuations-in-part,
revisions, extensions, renewals and reexaminations relating thereto.
"Immaterial Subsidiary" shall mean any domestic or foreign Subsidiary of
---------------------
the Borrower, now existing or hereafter created, which owns assets (including
stock but excluding intercompany receivables) having an aggregate book value not
exceeding $750,000, and which is not material to the conduct of the Borrower's
business operations.
"Indebtedness" shall mean, with respect to the Borrower and the Borrower's
------------
Subsidiaries, (a) any obligation for borrowed money; (b) any obligation
evidenced by bonds, debentures, notes or other similar instruments; (c) any
obligation to pay the deferred purchase price of property or for services (other
than in the ordinary course of business); (d) any Capitalized Lease Obligation;
(e) any obligation or liability of others secured by a Lien on property owned by
the Borrower or such Subsidiary, whether or not such obligation or liability is
assumed; (f) any obligation under any Interest Hedge Agreement or Foreign
Exchange Agreement; (g) any Guaranty (except items of shareholders' equity or
Capital Stock or surplus or general contingency or deferred tax reserves); and
(h) any letter of credit issued for the account of the Borrower or such
Subsidiary.
"Intellectual Property" shall mean, with respect to any Person,
---------------------
collectively, such Person's Patent Property and Trademark Property.
"Intellectual Property Security Agreements" shall mean, collectively, that
-----------------------------------------
(a) certain Patent Collateral Assignment and Security Agreement dated as of even
date herewith between the Borrower and the Agent, and (b) certain Trademark
Collateral Security Agreement dated as of even date herewith between the
Borrower and the Agent, and shall include any supplement to any of the
foregoing.
"Interest Coverage Ratio" shall mean for any period, the ratio of (a)
-----------------------
EBITDA for such period, to (b) the cash Interest Expense for such period.
"Interest Expense" shall mean, for any period, interest expense of the
-----------------
Borrower and the Borrower's Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"Interest Hedge Agreements" shall mean the obligations of any Person
-------------------------
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
15
<PAGE>
"Interest Rate Basis" shall mean the Base Rate or the Eurodollar Basis, as
-------------------
appropriate.
"Interest Rate Margin" shall have the meaning set forth in Section
2.3(a)(iii) hereof.
"Inventory" shall mean all goods, merchandise and other personal property
---------
owned and held for sale, and all raw materials, work or goods in process,
materials and supplies of every nature which contribute to the finished products
of the Borrower and any of the Borrower's Subsidiaries in the ordinary course of
its business, whether now owned or hereafter acquired by the Borrower and any of
the Borrower's Subsidiaries.
"Inventory Eligibility Requirements" shall mean that the Inventory:
----------------------------------
(a) is owned solely by the Borrower;
(b) conforms to all of the warranties and representations regarding the
same which are set forth in this Agreement or any of the other Loan Documents;
(c) is located in the continental United States either (i) on real
property owned by the Borrower, or (ii) on leased premises in regard to which a
Collateral Access Agreement is in effect;
(d) is not subject to any claim of reclamation, or Lien, adverse claim,
interest or right of any other Person;
(e) consists of finished goods purchased or manufactured by the Borrower
in the ordinary course of its business and does not consist of Inventory in
transit, work in process or raw materials;
(f) has not been consigned to or by any Person;
(g) is in good condition and meets all standards imposed by any Person
having regulatory authority over such goods, its use and/or sale, is not
obsolete, and is currently saleable in the normal course of the Borrower's
business;
(h) does not include any Inventory scheduled for return to vendors,
excess Inventory, slow-moving or obsolete Inventory, clearance Inventory,
damaged goods, display items, packaging materials, labels, name plates or
similar supplies, cash discounts, sample Inventory or shrinkage;
(i) is not located at any vendor/trade show;
(j) is not in the possession of LGE;
16
<PAGE>
(k) has not been removed from regular stock for quality rework or
other corporate engineering matters;
(l) is personal property in which the Borrower has granted a valid and
continuing first Lien in favor of the Agent and the Lenders pursuant to the
Security Documents, and as to which all action necessary to perfect such
security interest shall have been taken; and
(m) is not covered, in whole or in part, by any security agreement,
financing statement, equivalent security or Lien instrument or continuation
statement which is on file or of record in any public office, except such as may
have been filed in favor of the Agent and the Lenders pursuant to the Security
Documents.
"Issuing Banks" shall mean Citibank, N.A., and any other Person who
-------------
hereafter may be designated as an Issuing Bank pursuant to an Assignment and
Assumption Agreement or otherwise; and "Issuing Bank" shall mean any one of the
foregoing.
"L/C Fee Margin" shall have the meaning set forth in Section 2.4(b) hereof.
--------------
"Lenders" shall mean those lenders whose names are set forth on the
-------
signature pages hereof under the heading "Lenders" and any assignees of the
Lenders who hereafter become parties hereto pursuant to and in accordance with
Section 10.5 hereof; and "Lender" shall mean any one of the foregoing Lenders.
------
plaintiff to the Borrower; which reserve would initially be in the amount of
$4,500,000 and
"Letter of Credit Commitment" shall mean the several obligations of the
---------------------------
Issuing Banks to issue Letters of Credit in an aggregate face amount from time
to time not to exceed $45,000,000.
"Letter of Credit Obligations" shall mean, at any time, the sum of (a) an
----------------------------
amount equal to the aggregate undrawn and unexpired amount (including the amount
to which any such Letter of Credit can be reinstated pursuant to the terms
hereof) of the then outstanding Letters of Credit and (b) an amount equal to the
aggregate drawn, but unreimbursed drawings of any Letters of Credit.
"Letter of Credit Reserve Account" shall mean any account maintained by the
--------------------------------
Agent for the benefit of any Issuing Bank, the proceeds of which shall be
applied as provided in Section 8.2(e) hereof.
"Letters of Credit" shall mean either Standby Letters of Credit or
-----------------
Commercial Letters of Credit issued by Issuing Banks on behalf of the Borrower
from time to time in accordance with Section 2.15 hereof.
"LGE" shall mean LG Electronics Inc., a corporation organized under the
---
laws of the Republic of Korea.
17
<PAGE>
"LGE Exit Facility" shall mean a credit line made available to be advanced
-----------------
to the Borrower by LGE as of the date hereof in an aggregate principal amount of
not less than $60,000,000 (subject to adjustment) and of not more than
$80,000,000, on terms and conditions acceptable to the Agent, and evidenced by
documentation, and subject to the Subordination Agreement, in each case in form
and substance reasonably acceptable to the Agent, and shall include any
refinancing of such credit line provided such refinancing (a) does not result in
an increase in the rate of interest or fees, or the aggregate principal amount,
of the Indebtedness so refinanced, (b) does not result in a shortening of the
scheduled payments of principal or interest due thereunder, (c) is subject to
the Subordination Agreement, and (d) is otherwise on terms and conditions, and
evidenced by documentation, in form and substance reasonably acceptable to the
Agent.
"LGE Group" shall mean LGE and any other Person that, directly or
---------
indirectly, is controlled by LGE. For purposes of this definition, "controlled"
with respect to LGE means the possession, direct or indirect, of the power
either (a) to vote more than 50% of the Voting Stock of such Person or (b) to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or otherwise.
"License Agreements" shall mean all agreements, whether now or hereafter in
------------------
existence, between the Borrower, as licensor, and any other Person, as licensee,
pursuant to which the Borrower grants to such Person any license or other right
in connection with any Tuning Patent.
"Lien" shall mean, with respect to any property, any mortgage, lien,
----
pledge, negative pledge agreement, assignment, charge, security interest, title
retention agreement, levy, execution, seizure, attachment, garnishment, or other
encumbrance of any kind in respect of such property, whether or not choate,
vested, or perfected.
"Loan Account" shall have the meaning set forth in Section 2.7 hereof.
------------
"Loan Documents" shall mean this Agreement, the Notes, the Security
--------------
Documents, the Blocked Account Letters, the Set-Off Waiver Letter, all
reimbursement agreements relating to Letters of Credit issued hereunder, all
Collateral Access Agreements, all Requests for Advance, all Requests for
Issuance of Letters of Credit, all Borrowing Base Certificates, Interest Hedge
Agreements and Foreign Exchange Agreements between the Borrower, on the one
hand, and the Agent (or an affiliate of the Agent) or one or more of the Lenders
(or an affiliate of a Lender), on the other hand, and all other documents,
instruments, certificates, and agreements executed or delivered in connection
with or contemplated by this Agreement, including, without limitation, any
security agreements or guaranty agreements from the Borrower's Subsidiaries to
the Agent, the Lenders and the Issuing Banks.
18
<PAGE>
"Loans" shall mean, collectively, the amounts advanced by the Lenders to
-----
the Borrower under the Commitment, not to exceed the amount of the Commitment,
and evidenced by the Notes, and shall include the Revolving Loans and the Swing
Loans.
"Majority Lenders" shall mean Lenders (whose voting rights hereunder have
----------------
not been restricted pursuant to Section 2.2(e) hereof) the total of whose
Commitment Ratios exceeds fifty percent (50%) of the Commitment Ratios of all
Lenders entitled to vote hereunder.
"Material Subsidiaries" shall mean Zenith Texas, Zenith Video Tech
---------------------
Corporation- Florida, a Delaware corporation, Zenith Video Tech Corporation, a
Delaware corporation, and any other domestic Subsidiary of the Borrower, now or
hereafter created, which owns assets (including stock but excluding intercompany
receivables) having an aggregate book value in excess of $750,000; and "Material
Subsidiary" shall include any one of the foregoing, provided, however, Zenith
Electronics Corporation of Arizona shall not be deemed to be a "Material
Subsidiary" unless it owns assets (including stock but excluding intercompany
receivables) having an aggregate book value in excess of $1,500,000.
"Materially Adverse Effect" shall mean any materially adverse effect (a)
-------------------------
upon the business, assets, liabilities, condition (financial or otherwise), or
results of operations of the Borrower, or (b) upon the ability of the Borrower
to perform under this Agreement or any other Loan Document by the Borrower, or
(c) upon the rights, benefits or interests of the Agent, the Lenders or the
Issuing Banks in or to this Agreement, any other Loan Document or the
Collateral, in each case, resulting from any act, omission, situation, status,
event, or undertaking, either singly or taken together.
"Maturity Date" shall mean the earliest of (i) November 1, 2002, (ii) the
-------------
date the Agent elects pursuant to Section 8.2 to terminate the Commitment, and
(iii) the date of prepayment in full by the Borrower of the Obligations in
accordance with Section 2.5.
"Mexican Subsidiaries" shall mean Productos Magneticos de Chihuahua, S.A.
--------------------
de C.V. and Zenith Reynosa, and "Mexican Subsidiary" shall mean any one of the
foregoing.
"Mortgage" shall mean that certain Mortgage, Assignment of Leases and Rents
--------
and Security Agreement dated as of even date herewith, by and among the Borrower
and the Agent, to be recorded in Cook County, Illinois.
"Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3)
------------------
of ERISA.
"Necessary Authorizations" shall mean all material authorizations,
------------------------
consents, permits, approvals, licenses, and exemptions from, and all filings and
registrations with, and all reports to, any Governmental Authority whether
federal, state, local, and all agencies thereof, which are required for the
conduct of the businesses and the ownership (or lease) of the properties and
assets of the Borrower.
19
<PAGE>
"Net Cash Proceeds" shall mean, with respect to any sale, lease, transfer
-----------------
or other disposition of assets (other than the license of any Intellectual
Property in the ordinary course of business) by any Person or any issuance by
any Person of any Capital Stock or the incurrence by any Person of any Funded
Debt (other than the Obligations), the aggregate amount of cash received by such
Person for such assets or Capital Stock (together with any amount received
evidenced by a promissory note or other instrument or held in escrow), or as a
result of such Funded Debt, net of (a) reasonable and customary transaction
costs properly attributable to such transaction and payable by such Person in
connection with such sale, lease, transfer or other disposition of assets or the
issuance of any Capital Stock or the incurrence of any Funded Debt, including
without limitation, sales commissions and underwriting discounts, and (b) until
cash is actually received by such Person on account of such note or other
instrument or any amount held in escrow, any portion of such amount held in
escrow or evidenced by a buyer promissory note or other instrument. Upon receipt
by such Person of cash on account of amounts referred to in clause (b) above,
such amounts shall then be deemed to be "Net Cash Proceeds".
"Net Income" shall mean, for any period, the consolidated net income (or
----------
deficit) of the Borrower and the Borrower's Subsidiaries for such period,
determined in accordance with GAAP.
"New Debentures" shall mean those certain 8.19% unsecured Debentures issued
--------------
on the Agreement Date by the Borrower, due November 1, 2009, in an aggregate
principal amount not exceeding $50,000,000, and governed by the certain
Indenture dated as of November 9, 1999, between the Borrower and Bank One Trust
Company, N.A., as trustee.
"Notes" shall mean those certain revolving promissory notes of even date in
-----
the aggregate principal amount of $150,000,000, issued by the Borrower to each
of the Lenders and substantially in the form of Exhibit D attached hereto, and
---------
any extensions, renewals or amendments to, or replacements of, the foregoing.
"Obligations" shall mean (a) all payment and performance obligations of the
-----------
Borrower to the Lenders, the Issuing Banks, and the Agent under this Agreement
and the other Loan Documents (including all Letter of Credit Obligations and
including any interest, fees and expenses that, but for the provisions of the
Bankruptcy Code, would have accrued), as they may be amended from time to time,
or as a result of making the Loans or issuing the Letters of Credit, (b) any
obligation to pay an amount equal to the amount of any and all damages which the
Issuing Banks, the Lenders and the Agent, or any of them, may suffer by reason
of a breach by the Borrower of any obligation, covenant, or undertaking with
respect to this Agreement or any other Loan Document, and (c) any obligations of
the Borrower to the Agent (or an affiliate of the Agent) or any Lender (or an
affiliate of a Lender) under any Interest Hedge Agreement or Foreign Exchange
Agreement permitted hereunder.
20
<PAGE>
"Other Assets" shall mean, collectively, the Equipment and real property
------------
owned by the Borrower, located in the United States, subject to the first
priority perfected security interest and lien of the Agent, and listed on
Schedule O-1 hereto; and each individually, an "Other Asset".
- ------------
"Patent Property" shall mean, with respect to any Person:
---------------
(i) all of such Person's patents (including, with respect to the
Borrower, the Tuning Patents and HDTV Patents), patent applications
(including, without limitation, all patents and patent applications in
preparation for filing) and patent disclosures throughout the world,
including without limitation, with respect to the Borrower, each patent and
patent application referred to in Part A-1 of Schedule 4.1(o);
-------- ---------------
(ii) all reissues, divisions, continuations, continuations-in-part,
revisions, extensions, renewals and reexaminations of any of the items
described in clause (a) of this definition; and
----------
(iii) all patent licenses of such Person(whether as licensee or
licensor), including, with respect to the Borrower, each patent license
referred to in Part A-2 of Schedule 4.1(o).
"Payment Date" shall mean the last day of each Eurodollar Advance Period
------------
for a Eurodollar Advance.
"Permitted Liens" shall mean the following encumbrances and claims: (a)
---------------
Liens for taxes, assessments, judgments or other governmental charges or levies,
either not yet due and payable or to the extent that nonpayment thereof is
permitted by the terms of this Agreement; (b) deposits to secure the performance
of bids, trade contracts, tenders, sales, leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business; (c) Liens of carriers,
warehousemen, mechanics, laborers, suppliers, workers and materialmen incurred
in the ordinary course of business for sums not yet due or being diligently
contested in good faith, if such reserve or appropriate provision, if any, as
shall be required by GAAP shall have been made therefor; (d) Liens incurred in
the ordinary course of business in connection with worker's compensation and
unemployment insurance or other types of social security benefits; (e)
easements, rights-of-way, restrictions, and other similar encumbrances on the
use of real property which do not interfere with the ordinary conduct of the
business of such Person; (f) any attachment or judgment Liens securing the
payment of money to the extent such attachment or judgment Lien does not
constitute an Event of Default under Section 8.1(k); (g) the Liens on (i) the
Capital Stock of the Borrower's domestic Subsidiaries, the Intellectual Property
(other than the Tuning Patents and the HDTV Patents and related license
agreements) of the Borrower, the Intellectual Property of the Material
Subsidiaries, and the real estate and Equipment located in the United States of
the Borrower and its Material Subsidiaries (together with the books and records
relating thereto and the proceeds thereof) securing the LGE Exit Facility,
provided such Liens are at all times fully subordinated to
21
<PAGE>
the Liens of the Agent on such assets pursuant to the Subordination Agreement,
(ii) the HDTV Patents and the HDTV License Agreements (together with the books
and records relating thereto and the proceeds thereof) securing the LGE Exit
Facility, and (iii) the Salomon Assets and the Credits (together with the books
and records relating thereto and the proceeds thereof) securing the Restructured
PIK Note; (h) purchase money security interests provided that such Lien attaches
only to the asset so purchased by the Borrower and secures only Indebtedness
incurred by the Borrower in order to purchase such asset, but only to the extent
permitted by Section 7.1(c)(i) hereof; (i) notice filings in connection with
Capitalized Lease Obligations permitted by Section 7.10 hereof; (j) Liens in
favor of the Agent under the Loan Documents; (k) Liens in favor of the lessor of
any showroom or sales office of the Borrower where only minimal sample Inventory
and office furniture is located, and Liens in favor of any other lessor which
are subject to a Collateral Access Agreement in form and substance acceptable to
the Agent; and (l) such other Liens as from time to time may be approved in
writing by the Agent and the Majority Lenders; provided that the Liens permitted
by clauses (c) and (d) above shall not materially impair the business or
operations of the Borrower and the Indebtedness secured by such Liens shall not
exceed $1,000,000 in the aggregate.
"Person" shall mean an individual, corporation, partnership, trust, joint
------
stock company, limited liability company, unincorporated organization, or a
government or any agency or political subdivision thereof.
"Plan" shall mean an employee benefit plan within the meaning of Section
----
3(3) of ERISA or any other plan maintained for employees of any Person or any
Affiliate of such Person.
"Pledge Agreement" shall mean that certain Pledge Agreement dated as of
----------------
even date herewith executed by the Borrower in favor of the Agent, pursuant to
which the Borrower pledged to the Agent, for its benefit and for the benefit of
the Issuing Banks and the Lenders, all of the Borrower's right, title and
interest in and to the Capital Stock of its domestic Subsidiaries, and including
any supplement thereto executed in accordance with Section 7.7(g) hereof, as the
same may be amended, supplemented or modified from time to time.
"Property" shall mean any real property or personal property, plant,
--------
building, facility, structure, underground storage tank or unit, equipment,
Inventory or other asset owned, leased or operated by the Borrower or any of the
Borrower's Subsidiaries (including, without limitation, any surface water
thereon or adjacent thereto, and soil and groundwater thereunder).
"Reimbursement Obligations" shall mean the payment obligations of the
-------------------------
Borrower under Section 2.15(d) hereof.
"Reorganization Plan" shall mean the Plan of Reorganization dated August
-------------------
24, 1999, and filed by the Borrower in the Chapter 11 Case, together with any
amendments or modifications thereto consented to by the Lenders.
22
<PAGE>
"Replacement Event" shall have the meaning ascribed thereto in Section
-----------------
10.16 hereof.
"Reportable Event" shall have the meaning set forth in Section 4043(c) of
----------------
ERISA and the regulations thereunder, but shall not include any event which is
not subject to the thirty (30) day notice requirement of such regulations other
than 29 Code of Federal Regulations Sections 2615.11, 2615.12 and 2615.19.
"Request for Advance" shall mean any certificate signed by an Authorized
-------------------
Signatory requesting an Advance hereunder which will increase the aggregate
amount of the Loans outstanding, which certificate shall be denominated a
"Request for Advance," and shall be in substantially the form of Exhibit E
attached hereto. Each Request for Advance shall, among other things, specify the
date of the Advance, which shall be a Business Day, the amount of the Advance,
and the type of Advance.
"Request for Issuance of Letter of Credit" shall mean any certificate
----------------------------------------
signed by an Authorized Signatory requesting that an Issuing Bank issue a Letter
of Credit hereunder, which certificate shall be in substantially the form of
Exhibit F attached hereto, and shall, among other things, specify (a) that the
- ---------
requested Letter of Credit is either a Commercial Letter of Credit or a Standby
Letter of Credit, (b) the stated amount of the Letter of Credit (which shall be
in United States Dollars), (c) the effective date (which shall be a Business
Day) for the issuance of such Letter of Credit, (d) the date on which such
Letter of Credit is to expire (which shall be a Business Day and which shall be
subject to Section 2.15(a) hereof), (e) the Person for whose benefit such Letter
of Credit is to be issued, (f) other relevant terms of such Letter of Credit,
and (g) the Available Letter of Credit Amount as of the scheduled date of
issuance of such Letter of Credit.
"Restricted Payment" shall mean (a) Dividends and (b) any payment of any
------------------
management, consulting or similar fees payable by the Borrower or any of the
Borrower's Subsidiaries to any Affiliate.
"Restricted Purchase" shall mean any payment on account of the
-------------------
purchase, redemption, or other acquisition or retirement of any shares of
Capital Stock of the Borrower or any Subsidiary of the Borrower.
"Restructured PIK Note" shall mean, collectively, those certain floating
rate senior secured notes dated as of the Agreement Date in the aggregate
original principal amount of $165,717,674.73 (prior to the principal reductions
required by Sections 3.1(j) and 7.7(b) hereof), due November 1, 2009, and issued
by the Borrower to the order of LGE pursuant to the Reorganization Plan and
shall include any refinancing of such notes provided such refinancing (a) does
not result in an increase in the rate of interest or fees, or the aggregate
principal amount, of the Indebtedness so refinanced, (b) does not result in a
shortening of the scheduled payments of principal or interest due thereunder,
and (c) is otherwise on terms and conditions, and evidenced by documentation, in
form and substance reasonably acceptable to the Agent.
23
<PAGE>
"Restructuring Agreement" shall mean that certain Amended and Restated
-----------------------
Restructuring Agreement dated June 14, 1999, between the Borrower and LGE.
"Revolving Loans" shall mean, collectively, the amounts advanced from time
---------------
to time by the Lenders to the Borrower under the Commitment (other than Swing
Loans), not to exceed the amount of the Commitment, and evidenced by the Notes.
"Reynosa Assets" shall mean all right, title and interest of Zenith Reynosa
--------------
and Zenith Texas in and to (a) the land and buildings that comprise Zenith
Reynosa's production facilities #12, #13, and #27 in Reynosa, Mexico, (b) all of
the fixtures, equipment, personal property and other assets located therein and
identified on Schedule R-1 hereto, and (c) all agreements relating to access
------------
thereto.
"Reynosa Transfer" shall mean the transfer to occur on or before December
----------------
31, 1999, by the Borrower of the Capital Stock of Zenith Reynosa and by Zenith
Texas of the Reynosa Assets to LGE, whether directly or by the transfer of the
Capital Stock of Zenith Reynosa and the Reynosa Assets to a newly formed
Subsidiary and the transfer of the Capital Stock of such new Subsidiary to LGE,
all as contemplated by the Reorganization Plan.
"Salomon Asset" shall mean the Equipment listed on Schedule S-1 attached
------------- ------------
hereto which, prior to the Agreement Date, was owned indirectly by LGE and
leased to the Borrower pursuant to a certain sale/leaseback transaction.
"Security Agreement" shall mean that certain Security Agreement dated as of
------------------
even date herewith between the Borrower and the Agent, on its behalf and on
behalf of the Issuing Banks and the Lenders, in the form of Exhibit G attached
---------
hereto, as the same may be amended or modified from time to time hereafter.
"Security Documents" shall mean, collectively, the Security Agreement, the
------------------
Pledge Agreement, the Intellectual Property Security Agreements, the Subsidiary
Guaranty, the Subsidiary Security Agreement, the Mortgage, the Subordination
Agreement, all UCC-1 financing statements and any other document, instrument,
agreement or order granting Collateral for the Obligations, as the same may be
amended or modified from time to time.
"Set-Off Waiver Letter" shall mean that certain letter agreement dated as
---------------------
of even date herewith executed by LGE in favor of the Agent and pursuant to
which LGE waives all rights to set-off against amounts owed to the Borrower, in
form and substance satisfactory to the Agent.
"Settlement Date" shall have the meaning set forth in Section 2.2(f).
---------------
24
<PAGE>
"Standby Letter of Credit" shall mean a Letter of Credit issued to support
------------------------
obligations of the Borrower incurred in the ordinary course of its business, and
which is not a Commercial Letter of Credit.
"Subordination Agreement" shall mean, collectively, (a) that certain
-----------------------
Intercreditor and Subordination Agreement of even date herewith by and among the
Borrower, the Agent and LGE and (b) that certain Subordination Agreement of even
date herewith by and among the Agent, LGE, and the Material Subsidiaries.
"Subsidiary" shall mean, as applied to any Person, (a) any corporation of
----------
which fifty percent (50%) or more of the outstanding stock (other than
directors' qualifying shares) having ordinary voting power to elect a majority
of its board of directors, regardless of the existence at the time of a right of
the holders of any class or classes of securities of such corporation to
exercise such voting power by reason of the happening of any contingency, or any
partnership of which fifty percent (50%) or more of the outstanding partnership
interests is at the time owned by such Person, or by one or more Subsidiaries of
such Person, or by such Person and one or more Subsidiaries of such Person, and
(b) any other entity which is controlled or capable of being controlled by such
Person, or by one or more Subsidiaries of such Person, or by such Person and one
or more Subsidiaries of such Person.
"Subsidiary Guaranty" shall mean that certain Guaranty Agreement executed
-------------------
by each Material Subsidiary dated as of even date herewith, in the form of
Exhibit H attached hereto, and shall include any supplement to the Guaranty
- ---------
Agreement executed in accordance with Section 7.7(g) hereof, as the same may be
modified, amended or supplemented from time to time.
"Subsidiary Security Agreement" shall mean that certain Subsidiary Security
-----------------------------
Agreement executed by and among each Material Subsidiary and the Agent dated as
of even date herewith, in the form of Exhibit I attached hereto, and shall
---------
include any supplement thereto executed in accordance with Section 7.7(g)
hereof, as the same may be supplemented, modified or amended from time to time.
"Super-Majority Lenders" shall mean Lenders (whose voting rights hereunder
----------------------
have not been restricted pursuant to Section 2.2(e) hereof) the total of whose
Commitment Ratios equals or exceeds eighty percent (80%) of the Commitment
Ratios of all Lenders entitled to vote hereunder.
"Swing Bank" shall mean Citicorp USA, Inc., a Delaware corporation, or any
----------
other Lender who shall agree with the Agent to act as Swing Bank.
"Swing Loans" shall mean any Loans made to the Borrower by the Swing Bank
-----------
from time to time, in accordance with Section 2.2(f) hereof.
25
<PAGE>
"Trademark" shall have the meaning ascribed to that term in the definition
---------
of Trademark Property.
"Trademark Property" shall mean, with respect to any Person:
------------------
(A) all of such Person's trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles,
service marks, certification marks, collective marks, logos, trade dress
other source of business identifiers, prints and labels on which any of the
foregoing have appeared or appear, designs and general intangibles of a
like nature (all of the foregoing items in this clause (a) being
----------
collectively called a "Trademark"), now existing anywhere in the world or
---------
hereafter adopted or acquired, whether currently in use or not, whether or
not registered, all registrations and recordings thereof and all
applications in connection therewith, whether pending or in preparation for
filing, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any office or agency of the United
States of America or any State thereof or any foreign country, including,
with respect to the Borrower, those referred to in Part B-1 of Schedule
-------- --------
4.1(o);
------
(B) all reissues, extensions, renewals, translations, adaptations,
derivations and combinations of any of the items described in clause (a) of
----------
this definition;
(C) all Trademark licenses and other agreements providing such Person
with the right to use any of the types of items referred to in clauses (a)
-----------
and (b) of this definition, including, with respect to the Borrower, each
---
Trademark license referred to in Part B-2 of Schedule 4.1(o);
-------- ---------------
(D) all of the goodwill of the business connected with the use of,
and symbolized by the items described in, clauses (a) and (b) of this
----------- ---
definition;
(E) the right to sue third parties for past, present and future
infringements of any Trademark property described in clauses (a) or (b) of
----------- ---
this definition and, to the extent applicable in clause (c) of this
---
definition; and
(F) all proceeds of, and rights associated with, the foregoing,
including any claim by such Person against third parties for past, present
or future infringement or dilution of any Trademark, Trademark registration
or (to the extent applicable and if permitted by Applicable Law) Trademark
license, referred to in clause (c) of this definition, or for any injury to
----------
the goodwill associated with the use of any such Trademark or for breach or
enforcement of any Trademark license, and all rights corresponding thereto
throughout the world.
"Tuning Patent Royalties" shall mean all amounts paid in cash by any
-----------------------
licensee to the Borrower in connection with the license of any Tuning Patent
under any License Agreement.
26
<PAGE>
"Tuning Patents" shall mean, collectively, U.S. Patent No. 4,002,986, U.S.
--------------
Patent No. 4,317,227, U.S. Patent No. 4,516,170, and U.S. Patent No. 4,598,425,
together with all applications, reissues, divisions, continuations,
continuations-in-part, revisions, extensions, renewals and reexaminations
relating thereto; and "Tuning Patent" shall mean any of the foregoing.
"Uniform Customs" shall mean the Uniform Customs and Practice for
---------------
Documentary Credits, International Chamber of Commerce Publication No. 500, as
the same may be amended or revised from time to time.
"Value" shall mean, at any particular date: (a) the lower of the fair
-----
market value of the Eligible Inventory and its cost, valued in accordance with
the "First-In, First-Out" method of accounting, minus (b) an amount which is
-----
equal to the amount of reserves which, under FASB No. 48, "Revenue recognition
when the right of return exists," the Borrower shall be required to take in
regard to the amount identified in subparagraph (a) hereof.
"Voting Stock" shall mean the Capital Stock issued by a corporation, or
------------
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person, even if the right so
to vote has been suspended by the happening of such a contingency.
"Warranty/Advertising Reserves" shall mean the amount of reserves which the
-----------------------------
Agent shall have established, in its reasonable discretion, in connection with
the Borrower's warranty expenses and cooperative advertising.
"Wholly-Owned Subsidiary" shall mean any direct or indirect Subsidiary of a
-----------------------
Person where such Person's ownership of such Subsidiary is through ownership of
100% of all issued and outstanding Capital Stock (or other ownership interests,
but excluding any directors qualifying shares) and warrants, options or rights
to purchase Capital Stock (or other ownership interests) at all levels.
"Zenith Reynosa" shall mean Partes de Television de Reynosa, S.A. de C.V.,
--------------
a wholly-owned Subsidiary of the Borrower.
"Zenith Texas" shall mean Zenith Electronics Corporation of Texas, a Texas
------------
corporation, and a wholly-owned Subsidiary of the Borrower.
Each definition of a Loan Document in this Article 1 shall include such
instrument or agreement as modified, amended, or supplemented from time to time
with, if required, the prior written consent of the Majority Lenders, except as
provided in Section 10.12 hereof, and except where the context otherwise
requires, definitions imparting the singular shall include the plural and vice
versa. Except where otherwise specifically restricted, reference to a party to a
Loan
27
<PAGE>
Document includes that party and its successors and assigns. An Event of Default
shall "exist", "continue" or be "continuing" until such Event of Default has
been waived in writing in accordance with Section 10.12 hereof. All terms used
herein which are defined in Article 9 of the Uniform Commercial Code in effect
in the State of New York on the date hereof and which are not otherwise defined
herein shall have the same meanings herein as set forth therein. All accounting
terms used herein without definition shall be used as defined under GAAP. All
financial calculations hereunder shall, unless otherwise stated, be determined
for the Borrower on a consolidated basis with its Subsidiaries.
ARTICLE 2
THE LOANS AND THE LETTERS OF CREDIT
-----------------------------------
Section 2.1 Extension of Credit. Subject to the terms and conditions of,
-------------------
and in reliance upon the representations and warranties made in, this Agreement
and the other Loan Documents, the Lenders have extended and agree, severally in
accordance with their respective Commitment Ratios and not jointly, to extend
credit in an aggregate principal amount not to exceed ONE HUNDRED FIFTY MILLION
DOLLARS ($150,000,000) to the Borrower, as hereinafter provided.
(a) The Revolving Loans. The Lenders agree, severally in accordance with
-------------------
their respective Commitment Ratios relating to the Commitment and not jointly,
upon the terms and subject to the conditions of this Agreement, to lend and
relend to the Borrower, prior to the Maturity Date, amounts which in the
aggregate at any one time outstanding do not exceed the lesser of (i) the
Borrowing Base and (ii) the Commitment. Subject to the terms and conditions
hereof and prior to the Maturity Date, Advances under the Commitment may be
repaid and reborrowed from time to time on a revolving basis.
(b) The Letters of Credit. Subject to the terms and conditions hereof each
---------------------
Issuing Bank agrees, severally in accordance with their respective Letter of
Credit Commitments and not jointly, to issue Letters of Credit for the account
of the Borrower pursuant to Section 2.15 hereof in an aggregate outstanding face
amount (i) for all Issuing Banks, not to exceed the Letter of Credit Commitment
at any time, and (ii) for any individual Issuing Bank, not to exceed such
Issuing Bank's Letter of Credit Commitment.
(c) The Swing Loans. Subject to the terms and conditions hereof, the Swing
---------------
Bank, in its sole discretion, may from time to time after the Agreement Date but
prior to the Maturity Date, make Swing Loans to the Borrower in an aggregate
principal amount not to exceed at any time outstanding the least of (i) the
Swing Bank's pro rata share (in accordance with its Commitment Ratio) of the
Available Commitment, (ii) the excess of (x) the Swing Bank's pro rata share (in
accordance with its Commitment Ratio) of the Commitment over (y) the sum of the
aggregate outstanding principal amount of Swing Loans and Revolving Loans made
by it and the
28
<PAGE>
Swing Bank's pro rata share (in accordance with its Commitment Ratio) of the
outstanding Letter of Credit Obligations, and (iii) $11,000,000.
(d) Overadvances; Borrowing Base Deficiencies. If at any time the
-----------------------------------------
Aggregate Credit Obligations exceed the Borrowing Base, the Commitment or any
other applicable limitation set forth in this Agreement, such Aggregate Credit
Obligations shall nevertheless constitute Obligations that are secured by the
Collateral and are entitled to all benefits thereof. In no event, however, shall
the Borrower have the right whatsoever to (i) receive any Revolving Loan, (ii)
receive any Swing Loan, or (iii) request the issuance of any Letter of Credit
if, before or after giving effect thereto, there shall exist a Default or a
Borrowing Base Deficiency. In the event that (1) the Lenders, in their sole and
absolute discretion, shall make any Revolving Loans, or (2) any Issuing Bank
shall, in its sole and absolute discretion (subject to the terms and conditions
set forth in this Agreement), agree to the issuance of any Letter of Credit, or
(3) the Swing Bank, in its sole and absolute discretion (subject to the terms
and conditions set forth in this Agreement), shall make any Swing Loan, which in
any such case gives rise to a Borrowing Base Deficiency, the Borrower shall
make, on demand, a payment on the Obligations to be applied to the Revolving
Loans, the Swing Loans and the Letter of Credit Reserve Account, as appropriate,
in an aggregate principal amount equal to such Borrowing Base Deficiency.
Additionally, in no event shall the Borrower have the right to receive any
Advance in an amount which exceeds the Available Commitment.
Section 2.2 Manner of Borrowing and Disbursement of Loans.
---------------------------------------------
(a) Choice of Interest Rate, etc. Any Advance shall, at the option of the
----------------------------
Borrower, be made either as a Base Rate Advance or as a Eurodollar Advance
(except any initial Advance made on the Agreement Date or on the first two (2)
Business Days after the Agreement Date shall be made as a Base Rate Advance);
provided, however, that (i) if the Borrower fails to give the Agent written
notice specifying whether an Advance is to be repaid or reborrowed on a Payment
Date, such Advance shall be repaid and then reborrowed as a Base Rate Advance on
the Payment Date, and (ii) the Borrower may not select a Eurodollar Advance (A)
with respect to the Swing Loans, (B) with respect to an Advance, the proceeds of
which are to reimburse an Issuing Bank pursuant to Section 2.15 hereof, or (C)
if, at the time of such Advance, a Default or an Event of Default has occurred
and is continuing. Any notice given to the Agent in connection with a requested
Advance hereunder shall be given to the Agent prior to 11:00 a.m. (New York
time) in order for such Business Day to count toward the minimum number of
Business Days required. The Agent shall, upon reasonable request of the Borrower
from time to time, provide to the Borrower such information with regard to the
Eurodollar Basis as may be so requested.
(b) Base Rate Advances.
------------------
(i) Initial and Subsequent Advances. The Borrower shall give the
-------------------------------
Agent in the case of Base Rate Advances not later than 11:00 a.m. (New York
time) on the Business Day of a proposed Advance, irrevocable prior notice
by telephone or telecopy
29
<PAGE>
and shall confirm any such telephone notice with a written Request for
Advance; provided, however, that the failure by the Borrower to confirm any
-------- -------
notice by telephone or telecopy with a Request for Advance shall not
invalidate any notice so given.
(ii) Repayments and Reborrowings. The Borrower may repay or
---------------------------
prepay a Base Rate Advance and (a) at any time reborrow all or a portion of
the principal amount thereof as one or more Base Rate Advances, (b) upon at
least two (2) Business Days' irrevocable prior written notice to the Agent,
reborrow all or a portion of the principal thereof as one or more
Eurodollar Advances, or (c) not reborrow all or any portion of such Base
Rate Advance. Upon the date indicated by the Borrower, such Base Rate
Advance shall be so repaid and, as applicable, reborrowed.
(iii) Miscellaneous. Notwithstanding any other provision of
-------------
this Agreement which may be construed to the contrary, each Base Rate
Advance shall be in a principal amount of no less than $1,000,000 and in an
integral multiple of $100,000 in excess thereof; provided, however, each
Base Rate Advance that is a Swing Loan shall be in a principal amount of
not less than $100,000 unless a lower amount is permitted by the Swing Bank
in its sole discretion from time to time.
(c) Eurodollar Advances.
-------------------
(i) Initial and Subsequent Advances. The Borrower shall give the
-------------------------------
Agent in the case of Eurodollar Advances at least two (2) Business Days'
irrevocable prior notice by telephone or telecopy and shall immediately
confirm any such telephone notice with a written Request for Advance;
provided, however, that the failure by the Borrower to confirm any notice
-------- -------
by telephone or telecopy with a Request for Advance shall not invalidate
any notice so given. The Agent, whose determination shall be conclusive,
shall determine the available Eurodollar Bases as of the second (2nd)
Business Day prior to the date of the requested Advance and shall promptly
notify the Borrower of the same and the Borrower shall promptly confirm in
writing receipt of such notification. The Eurodollar Advance Period for
each Eurodollar Advance shall in all events be either one, two, three or
six months, or, if available to each of the Lenders, nine or twelve months.
Failure by the Borrower to confirm any telephonic notice in writing shall
not invalidate any notice so given. Upon receipt of such notice from the
Borrower, the Agent shall promptly notify each Lender by telephone or
telecopy of the contents thereof.
(ii) Repayments and Reborrowings. At least two (2) Business Days
---------------------------
prior to each Payment Date for a Eurodollar Advance, the Borrower shall
give the Agent written notice specifying whether all or a portion of any
Eurodollar Advance outstanding on the Payment Date (a) is to be repaid and
then reborrowed in whole or in part as a new Eurodollar Advance, in which
case such notice shall also specify the Eurodollar Advance Period which the
Borrower shall have selected for such new Eurodollar Advance, (b) is to be
repaid and then reborrowed in whole or in part as a Base Rate Advance, or
(c) is to be
30
<PAGE>
repaid and not reborrowed. Upon such Payment Date such Eurodollar Advance
will, subject to the provisions hereof, be so repaid and, as applicable,
reborrowed.
(iii) Miscellaneous. Notwithstanding any term or provision of this
-------------
Agreement which may be construed to the contrary, each Eurodollar Advance
shall be in a principal amount of no less than $5,000,000 and in an
integral multiple of $1,000,000 in excess thereof, and at no time shall the
aggregate number of all Eurodollar Advances then outstanding exceed six
(6).
(d) Notification of Lenders. Upon receipt of a (i) Request for Advance or
-----------------------
a telephone or telecopy request for Advance, (ii) notification from an Issuing
Bank that a draw has been made under any Letter of Credit, or (iii) notice from
the Borrower with respect to any outstanding Advance prior to the Payment Date
for such Advance, the Agent shall promptly notify each Lender by telephone or
telecopy of the contents thereof and the amount of each Lender's portion of any
such Advance. Each Lender shall, not later than 2:00 p.m. (New York time) on the
date specified for such Advance in such notice, make available to the Agent at
the Agent's office, or at such account as the Agent shall designate, the amount
of such Lender's portion of the Advance in immediately available funds.
(e) Disbursement. Prior to 3:00 p.m. (New York time) on the date of an
------------
Advance hereunder, the Agent shall, subject to the satisfaction of the
conditions set forth in Article 3 hereof, disburse the amounts made available to
the Agent by the Lenders in like funds by transferring the amounts so made
available by deposit into the Borrower's account maintained with Citibank or by
wire transfer pursuant to the Borrower's instructions. Unless the Agent shall
have received notice from a Lender prior to 12:30 p.m. (New York time) on the
date of any Advance that such Lender will not make available to the Agent such
Lender's ratable portion of such Advance, the Agent may assume that such Lender
has made or will make such portion available to the Agent on the date of such
Advance and the Agent may, in its sole discretion and in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent such Lender shall not have so made such ratable portion
available to the Agent, such Lender agrees to repay to the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, (x) for the first two Business Days, at the rate
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day by the
Federal Reserve Bank of New York, and (y) thereafter, at the Base Rate. If such
Lender shall repay to the Agent such corresponding amount, such amount so repaid
shall constitute such Lender's portion of the applicable Advance for purposes of
this Agreement and if both such Lender and the Borrower shall pay and repay such
corresponding amount, the Agent shall promptly relend to the Borrower such
corresponding amount. If such Lender does not repay such corresponding amount
immediately upon the Agent's demand therefor, the Agent shall notify the
Borrower and the Borrower shall immediately pay such corresponding amount to the
Agent. The failure of any Lender to fund its portion of any Advance shall not
relieve any other Lender of its obligation, if
31
<PAGE>
any, hereunder to fund its respective portion of the Advance on the date of such
borrowing, but no Lender shall be responsible for any such failure of any other
Lender. In the event that a Lender for any reason fails or refuses to fund its
portion of an Advance in violation of this Agreement, then, until such time as
such Lender has funded its portion of such Advance, or all other Lenders have
received payment in full (whether by repayment or prepayment) of the principal
and interest due in respect of such Advance, such non-funding Lender shall (i)
have no right to vote regarding any issue on which voting is required or
advisable under this Agreement or any other Loan Document, and (ii) shall not be
entitled to receive any payments of principal, interest or fees from the Agent
(or the other Lenders) in respect of its Loans.
(f) Special Provisions Pertaining to Swing Loans.
--------------------------------------------
(i) The Borrower shall give the Agent written notice in the form
of a Request for Advance, or notice by telephone or telecopy no later than
11:00 a.m. (New York time) on the date on which the Borrower wishes to
receive an Advance of any Swing Loan followed immediately by a Request for
Advance; provided, however, that the failure by the Borrower to confirm any
-------- -------
notice by telephone or telecopy with a Request for Advance shall not
invalidate any notice so given. If the Swing Bank, in its sole discretion,
elects to make the requested Swing Loan, the Advance shall be made on the
date specified in the notice or the Request for Advance and such notice or
Request for Advance shall specify (i) the amount of the requested Advance,
and (ii) instructions for the disbursement of the proceeds of the requested
Advance. The Swing Bank shall have no duty or obligation to make any Swing
Loans hereunder and the Swing Bank shall not make any Swing Loans unless,
on the date of the requested Advance thereof, the Borrower satisfies each
of the conditions precedent to an Advance set forth in Section 3.2 hereof.
In the event the Swing Bank in its sole and absolute discretion elects to
make any requested Swing Loan, the Swing Bank shall make the proceeds of
such Swing Loan available to the Borrower by deposit of U.S. dollars in
same day funds by wire transfer in accordance with the applicable notice or
Request for Advance.
(ii) The Agent shall notify each Lender no less frequently than
weekly, as determined by the Agent, of the principal amount of Swing Loans
outstanding as of 3:00 p.m. (New York City time) as of such date and each
Lender's pro rata share thereof. Each Lender shall before 2:00 p.m. (New
York City time) on the next Business Day (the "Settlement Date") make
available to the Agent, in immediate available funds, the amount of its pro
rata share of such principal amount of Swing Loans outstanding. Upon such
payment by a Lender, such Lender shall be deemed to have made a Revolving
Loan to the Borrower, notwithstanding any failure of the Borrower to
satisfy the conditions in Section 3.2. The Agent shall use such funds to
repay the principal amount of Swing Loans to the Swing Bank. All interest
due on the Swing Loans prior to the Settlement Date shall be payable to the
Swing Bank. Additionally, if at any time any Swing Loans are outstanding,
any of the events described in clauses (g) or (h) of Section 8.1 hereof
shall have occurred, then each Lender shall automatically upon the
occurrence of such
32
<PAGE>
event and without any action on the part of the Swing Bank, the Borrower,
the Agent or the Lenders be deemed to have purchased an undivided
participation in the principal and interest of all Swing Loans then
outstanding in an amount equal to such Lender's Commitment Ratio and each
Lender shall, notwithstanding such Event of Default, immediately pay to the
Agent for the account of the Swing Bank in immediately available funds, the
amount of such Lender's participation (and upon receipt thereof, the Swing
Bank shall deliver to such Lender a loan participation certificate dated
the date of receipt of such funds in such amount). The disbursement of
funds in connection with the settlement of Swing Loans hereunder shall be
subject to the terms and conditions of Section 2.2(e) hereof.
Section 2.3 Interest.
--------
(a) On Loans. Interest on the Loans, subject to Section 2.3(b) hereof,
--------
shall be payable as follows:
(i) On Base Rate Advances. Interest on each Base Rate Advance
---------------------
shall be computed for the actual number of days elapsed on the basis of a
hypothetical year of 360 days and shall be payable monthly in arrears on
the first day of each calendar month, commencing on December 1, 1999.
Interest on Base Rate Advances then outstanding shall also be due and
payable on the Maturity Date. Interest shall accrue and be payable on each
Base Rate Advance at the simple per annum interest rate equal to the sum of
(A) the Base Rate, and (B) the applicable Interest Rate Margin in effect
for Base Rate Advances from time to time as set forth in paragraph (iii)
below.
(ii) On Eurodollar Advances. Interest on each Eurodollar Advance
----------------------
shall be computed for the actual number of days elapsed on the basis of a
hypothetical 360-day year and shall be payable in arrears on (x) the
Payment Date for such Advance, and (y) if the Eurodollar Advance Period for
such Advance is greater than three (3) months, on each three-month
anniversary of such Advance. Interest on Eurodollar Advances then
outstanding shall also be due and payable on the Maturity Date. Interest
shall accrue and be payable on each Eurodollar Advance at a rate per annum
equal to the sum of (A) the Eurodollar Basis applicable to such Eurodollar
Advance, and (B) the applicable Interest Rate Margin in effect for
Eurodollar Advances from time to time as set forth in paragraph (iii)
below.
(iii) Interest Rate Margin. From the Agreement Date through and
--------------------
including July 30, 2000, the applicable Interest Rate Margin with respect
to Base Rate Advances shall be 2.00% per annum, and the applicable Interest
Rate Margin with respect to Eurodollar Advances shall be 3.00% per annum.
Thereafter, the applicable Interest Rate Margin shall be the interest rate
margin determined by the Agent based upon the Interest Coverage Ratio for
the four fiscal quarter period most recently ended, effective as of the
second Business Day after the financial statements and certificate referred
to in Sections
33
<PAGE>
6.1 and 6.3 hereof are delivered by the Borrower to the Agent and each
Lender for the fiscal quarter most recently ended, expressed as a per annum
rate of interest as follows:
Base Rate Eurodollar
Interest Coverage Advance Advance
------------------
Ratio Interest Interest
-----
Rate Margin Rate Margin
----------- -----------
Less than 1.8 to 1.0 2.00% 3.00%
1.8 to 1.0 or greater but 1.75% 2.75%
less than 2.2 to 1.0
2.2 to 1.0 or greater 1.50% 2.50%
In the event that the Borrower fails to timely provide the financial statements
and certificate referred to above in accordance with the terms of Sections 6.1
and 6.3 hereof, and without prejudice to any additional rights under Section 8.2
hereof, the applicable Interest Rate Margin shall be the highest Interest Rate
Margin set forth above for the respective Advance until the actual delivery of
such financial statements and certificate.
(b) Upon Default. Upon the occurrence of an Event of Default and at the
------------
election of the Majority Lenders, interest on the outstanding Obligations shall
accrue at the Default Rate from the date of such Event of Default. Interest
accruing at the Default Rate shall be payable on demand and in any event on the
Maturity Date and shall accrue until the earliest to occur of (i) waiver of the
applicable Event of Default in accordance with Section 10.12 hereof, (ii)
agreement by the Majority Lenders to rescind the charging of interest at the
Default Rate, or (iii) payment in full of the Obligations. The Lenders shall not
be required to (i) accelerate the maturity of the Loans, (ii) terminate the
Commitment, or (iii) exercise any other rights or remedies under the Loan
Documents in order to charge interest hereunder at the Default Rate.
(c) Computation of Interest. In computing interest on any Advance, the
-----------------------
date of making the Advance shall be included and the date of payment shall be
excluded; provided, however, that if an Advance is repaid on the date that it is
made, one (1) day's interest shall be due with respect to such Advance.
Section 2.4 Fees.
----
(a) Unused Line Fee. The Borrower shall pay to the Lenders, in accordance
---------------
with the Lenders' Commitment Ratios, an unused line fee on the Available
Commitment for each day from the Agreement Date through the Maturity Date at a
rate of one-half of one percent (.50%) per annum. Such unused line fee shall be
computed on the basis of a hypothetical year of 360 days for the actual number
of days elapsed, shall be payable monthly in arrears for each month on the first
day of the immediately succeeding calendar month, commencing on December 1,
1999,
34
<PAGE>
and if then unpaid, on the Maturity Date, and shall be fully earned when due and
non-refundable when paid.
(b) Letter of Credit Fees.
---------------------
(i) The Borrower shall pay to the Lenders, in accordance with
the Lenders' respective Commitment Ratios, a fee on the stated amount of
any outstanding Letters of Credit for each day from the Date of Issue
through the Maturity Date at a rate equal to the L/C Fee Margin. From the
Agreement Date through and including July 30, 2000, the L/C Line Fee Margin
shall be two and three-quarters percent (2.75%) per annum on the amount of
the Letter of Credit Obligations. Thereafter, the L/C Fee Margin shall be
the rate determined by the Agent based upon the Interest Coverage Ratio for
the four fiscal quarter period most recently ended, effective as of the
second Business Day after the financial statements and certificate referred
to in Sections 6.1 and 6.3 hereof are delivered by the Borrower to the
Agent and each Lender for the fiscal quarter most recently ended, expressed
as a per annum rate as follows:
Interest Coverage L/C
-----------------
Ratio Fee Margin
----- ----------
Less than 1.8 to 2.75%
1.0
1.8 to 1.0 or 2.50%
greater but less
than 2.2 to 1.0
2.2 to 1.0 or 2.25%
greater
In the event that the Borrower fails to timely provide the financial
statements and certificate referred to above in accordance with the terms
of Sections 6.1 and 6.3 hereof, and without prejudice to any additional
rights under Section 8.2 hereof, the L/C Fee Margin shall be the highest
L/C Fee Margin set forth until the actual delivery of such financial
statements and certificate. The Letter of Credit fee hereunder shall be
computed on the basis of a hypothetical year of 360 days for the actual
number of days elapsed, shall be payable monthly in arrears for each month
on the first day of the succeeding calendar month, commencing on December
1, 1999, and if then unpaid, on the Maturity Date, and shall be fully
earned when due and non-refundable when paid.
(ii) The Borrower shall also pay to each Issuing Bank, (A) a fee
on the stated amount of each Letter of Credit issued and outstanding by
such Issuing Bank for each day from the Date of Issue through the Maturity
Date at a rate of one-quarter of one percent (.25%) per annum, which fee
shall be computed on the basis of a hypothetical year of 360
35
<PAGE>
days for the actual number of days elapsed, shall be payable monthly in
arrears for each month on the first day of the next succeeding month,
commencing on December 1, 1999, and, if unpaid, on the Maturity Date, and
(B) a fee in the amount of $125.00 for issuing, amending and renewing any
Letter of Credit, which fee shall be due and payable on the date of each
issuance, amendment or renewal of any Letter of Credit. Each of the
foregoing fees shall be fully earned when due, and non-refundable when
paid.
(c) Collateral Management Fee. The Borrower shall pay to the Agent an
-------------------------
annual collateral management fee in the amount of $125,000, which collateral
management fee shall be due and payable in full on the Agreement Date and on
each one year anniversary of the Agreement Date, and shall be fully earned when
due and non-refundable when paid; provided, the unused portion (calculated on
the basis of a year of 360 days for the actual number of days elapsed) of the
collateral management fee paid pursuant to Section 2.4(d) of the Debtor-in-
Possession Credit Agreement shall be credited against the amount of the
collateral management fee due hereunder on the Agreement Date.
Section 2.5 Prepayment/Reduction of Commitment.
----------------------------------
(a) Prepayment. The principal amount of any Base Rate Advance may be
----------
prepaid in full or in part at any time upon written notice to the Agent not
later than 11:00 a.m. (New York time) on the Business Day of such prepayment,
without penalty; and the principal amount of any Eurodollar Advance may be
prepaid prior to the applicable Payment Date, upon two (2) Business Days' prior
written notice to the Agent, provided that the Borrower shall reimburse the
Lenders and the Agent, on the earlier of demand or the Maturity Date, for any
loss or out-of-pocket expense incurred by the Lenders or the Agent in connection
with such prepayment, as set forth in Section 2.9 hereof. Each notice of
prepayment shall be irrevocable. Upon receipt of any notice of prepayment, the
Agent shall promptly notify each Lender of the contents thereof by telephone or
telecopy and of such Lender's portion of the prepayment. Notwithstanding the
foregoing, the Borrower shall not make any prepayment of the Revolving Loans
unless and until the balance of the Swing Loans then outstanding is zero. Other
than with respect to the Swing Loans and amounts required to be applied to the
Loans pursuant to Sections 2.6 and 5.15 hereof, prepayments of principal
hereunder (a) with respect to Base Rate Advances, shall be in minimum amounts of
$1,000,000 and integral multiples of $100,000 in excess thereof, and (b) with
respect to Eurodollar Rate Advances shall be in minimum amounts of $5,000,000
and integral multiples of $1,000,000 in excess thereof.
(b) Reduction of Commitment. The Borrower shall have the right, at any
-----------------------
time and from time to time after the Agreement Date and prior to the Maturity
Date, upon at least three (3) Business Days' prior written notice to the Agent,
without premium or penalty, to cancel or reduce permanently all or a portion of
the Commitment on a pro rata basis among the Lenders in accordance with the
Commitment Ratios, provided that any such partial reduction shall be made in an
amount not less than $5,000,000 and in integral multiples of $1,000,000 in
excess thereof. As of the date of cancellation or reduction set forth in such
notice, the Commitment shall be
36
<PAGE>
permanently reduced to the amount stated in the Borrower's notice for all
purposes herein, and the Borrower shall pay to the Agent for the account of the
Lenders the amount necessary to reduce the principal amount of the Loans then
outstanding to not more than the amount of the Commitment as so reduced,
together with accrued interest on the amount so prepaid and the unused line fee
set forth in Section 2.4(a) accrued through the date of the reduction with
respect to the amount reduced, and shall reimburse the Agent and the Lenders for
any loss or out-of-pocket expense incurred by any of them in connection with
such payment as set forth in Section 2.9.
Section 2.6 Repayment.
---------
(a) Maturity Date. The principal balance of all Loans then
-------------
outstanding shall be due and payable in full on the Maturity Date, and as may
be required below.
(b) Borrowing Base Deficiencies. In the event that at any time and
---------------------------
for any reason there shall exist a Borrowing Base Deficiency, the Borrower shall
immediately pay to the Agent an amount equal to the Borrowing Base Deficiency or
such excess outstanding Advances, which payments shall constitute mandatory
payments of the Loans hereunder.
(c) Other Mandatory Repayments. Except in connection with and on the
--------------------------
Effective Date of the confirmed Reorganization Plan, if at any time after the
Agreement Date the Borrower or any of its Subsidiaries shall issue any Capital
Stock (other than in connection with the exercise of employee stock options or
the issuance of Capital Stock by a Subsidiary of the Borrower to the Borrower or
any other Subsidiary of the Borrower), shall sell, lease, transfer or otherwise
dispose of any of its assets (other than the license of any Intellectual
Property in the ordinary course of business, sales of Inventory in the ordinary
course of its business, sales of the Salomon Assets, the Credits, the HDTV
Patents, or the HDTV License Agreements or the transfer of the Reynosa Assets in
connection with the Reynosa Transfer), or shall incur any Funded Debt (other
than the Obligations and, unless otherwise required by Section 5.23 hereof,
other than the LGE Exit Facility), one hundred percent (100%) of the Net Cash
Proceeds received by the Borrower or such Subsidiary from such issuance, sale or
incurrence shall be paid on the date of receipt of the proceeds thereof by the
Borrower or such Subsidiary to the Lenders as a mandatory payment of the
Revolving Loans. The Commitment shall not be reduced by the amount of the
payment of the Revolving Loans due hereunder; provided, however, upon the sale
of any of the Other Assets, the advance amount in connection with the Other
Assets set forth in clause (g) of the Borrowing Base shall be permanently
reduced by the amount attributable to such Other Asset as set forth on Schedule
--------
O-1 hereto. Upon the sale, lease, transfer or other disposition of any HDTV
- ---
Patents or HDTV License Agreements (other than in connection with the license of
any HDTV Patents in the ordinary course of business), one hundred percent (100%)
of the Net Cash Proceeds received by the Borrower from such sale shall be paid
on the date of receipt of such proceeds by the Borrower to repay indebtedness
and permanently reduce the commitment under the LGE Exit Facility. Upon the
sale, lease, transfer or other disposition of any Salomon Assets or any Credits,
one hundred percent (100%) of the Net Cash Proceeds received by the Borrower
from such sale
37
<PAGE>
shall be paid on the date of receipt of such proceeds by the Borrower to repay
indebtedness under the Restructured PIK Note. Nothing in this Section shall
authorize the Borrower or any Subsidiary to issue any Capital Stock, sell any
assets or incur any Funded Debt except as expressly permitted by this Agreement.
Section 2.7 Notes; Loan Accounts.
--------------------
(a) Notes. The Loans shall be repayable in accordance with the terms
-----
and provisions set forth herein, and shall be evidenced by the Notes. One each
of the Notes shall be payable to the order of each Lender in accordance with the
respective Commitment Ratio of such Lender. The Notes shall be issued by the
Borrower to the Lenders and shall be duly executed and delivered by Authorized
Signatories.
(b) Loan Account. The Agent may open and maintain on its books in
------------
the name of the Borrower a loan account with respect to the Loans and interest
thereon (the "Loan Account"). The Agent shall debit such Loan Account for the
principal amount of each Advance made by it on behalf of the Lenders, accrued
interest thereon, and all other amounts which shall become due from the Borrower
pursuant to this Agreement and shall credit the Loan Account for each payment
which the Borrower shall make in respect to the Obligations. The records of the
Agent with respect to such Loan Account shall be conclusive evidence of the
Loans and accrued interest thereon, absent manifest error.
Section 2.8 Manner of Payment.
-----------------
(a) When Payments Due.
-----------------
(i) Each payment (including any prepayment) by the Borrower
on account of the principal of or interest on the Loans, fees, and any
other amount owed to the Lenders or the Agent under this Agreement, the
Notes, or the other Loan Documents shall be made not later than 12:00
noon (New York time) on the date specified for payment under this
Agreement or any other Loan Document to the Agent at the Agent's
Office, for the account of the Lenders or the Agent, as the case may
be, in lawful money of the United States of America in immediately
available funds. Any payment received by the Agent after 12:00 noon
(New York time) shall be deemed received on the next Business Day. In
the case of a payment for the account of a Lender, the Agent will
promptly thereafter distribute the amount so received in like funds to
such Lender. If the Agent shall not have received any payment from the
Borrower as and when due, the Agent will promptly notify the Lenders
accordingly.
(ii) If any payment under this Agreement or any of the Notes
shall be specified to be made upon a day which is not a Business Day,
it shall be made on the next succeeding day which is a Business Day,
and such extension of time shall in such case be included in computing
interest and fees, if any, in connection with such payment.
38
<PAGE>
(b) No Deduction.
------------
(i) The Borrower agrees to pay principal, interest, fees, and
all other amounts due hereunder or under the Notes without set-off or
counterclaim or any deduction whatsoever. If the Borrower shall
hereafter be required by law to deduct any taxes from or in respect of
any sum payable hereunder or under any Note to any Lender, any Issuing
Bank or the Agent, (A) the sum payable shall be increased as may be
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section
2.8(b)), such Lender, Issuing Bank or the Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (B) the Borrower shall make such deductions and
(C) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with Applicable
Law.
(ii) Each Lender agrees to deliver to the Borrower and the
Agent from time to time, a true and correct certificate executed in
duplicate by a duly authorized officer of such Lender before or
promptly upon the occurrence of any event requiring a change in the
most recent certificate previously delivered by it to the Borrower and
the Agent pursuant to this Section 2.8(b). The execution and delivery
hereof by a Lender shall be deemed to be a certification that such
Lender falls within subsection (A) below, and no further certificates
need to be delivered by such Lender until the occurrence of one of the
events set forth in the preceding sentence. Each certificate required
to be delivered pursuant to this Section 2.8(b) shall certify as to one
of the following:
(A) that such Lender shall continue to receive payments
hereunder without deduction or withholding of United States
federal income tax;
(B) that such Lender cannot continue to receive payments
hereunder without deduction or withholding of United States
federal income tax as specified therein but does not require
additional payments because it is entitled to recover the full
amount of any such deduction or withholding from a source
other than the Borrower or from a tax credit or exemption; or
(C) that such Lender is no longer capable of receiving
payments hereunder without deduction or withholding of United
States federal income tax as specified therein by reason of a
change in law (including the Code or applicable tax treaty)
after the later of the Agreement Date or the date on which a
Lender became a Lender pursuant to Section 10.5 hereof and
that it is not capable of recovering the full amount of the
same from a source other than the Borrower or from a tax
credit or exemption.
39
<PAGE>
(c) Inadequate Payments. If on the date on which any amount shall be
-------------------
due and payable by the Borrower in regard to the Obligations, the amount
received by the Agent from the Borrower or withdrawn by the Agent from the
Clearing Account pursuant to Section 5.15(c) hereof shall not be adequate to pay
the amount which shall be so due and payable, then the Agent shall be
authorized, but shall not be obligated, to make a Base Rate Advance on behalf of
the Lenders to the Borrower by crediting the amount of such Base Rate Advance to
the Loan Account hereof pursuant to the provisions of Section 2.7(b) hereof,
whereupon the Agent shall debit the Loan Account hereof in a like amount in
payment of the part of the Obligations which shall then be due and payable. No
further authorization, direction or approval by the Borrower shall be required
to be given by the Borrower for the Agent to take the action described in this
Section 2.8(c).
Section 2.9 Reimbursement. Whenever any Lender shall sustain or incur
-------------
any losses or out-of-pocket expenses in connection with (i) failure by the
Borrower to borrow or reborrow any Eurodollar Advance, or reborrow any Advance
as a Eurodollar Advance, in each case, after having given notice of its
intention to borrow in accordance with Section 2.2 hereof (whether by reason of
the election of the Borrower not to proceed or the non-fulfillment of any of the
conditions set forth in Article 3), or (ii) prepayment of any Eurodollar Advance
in whole or in part, the Borrower agrees to pay to such Lender, upon the earlier
of such Lender's demand or the Maturity Date, an amount sufficient to compensate
such Lender for all such losses and-out-of- pocket expenses. Such Lender's good
faith determination of the amount of such losses and out- of-pocket expenses,
absent manifest error, shall be binding and conclusive. Losses subject to
reimbursement hereunder shall include, without limiting the generality of the
foregoing, expenses incurred by any Lender or any participant of such Lender
permitted hereunder in connection with the re-employment of funds prepaid,
repaid, not borrowed, or paid, as the case may be, and any lost profit of such
Lender or any participant of such Lender over the remainder of the Eurodollar
Advance Period for such prepaid Advance.
Section 2.10 Pro Rata Treatment.
------------------
(a) Advances. Each Advance with respect to the Revolving Loans from
--------
the Lenders under this Agreement shall be made pro rata on the basis of their
respective Commitment Ratios.
40
<PAGE>
(b) Payments. Each payment and prepayment of the principal of the
--------
Revolving Loans and each payment of interest on the Revolving Loans received
from the Borrower shall be made by the Agent to the Lenders pro rata on the
basis of their respective unpaid principal amounts outstanding immediately prior
to such payment or prepayment (except in cases when a Lender's right to receive
payments is restricted pursuant to Section 2.2(e) hereof). If any Lender shall
obtain any payment (whether involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Revolving Loans in excess of its
ratable share of the Loans under its Commitment Ratio (or in violation of any
restriction set forth in Section 2.2(e) hereof), such Lender shall forthwith
purchase from the other Lenders such participation in the Loans made by them as
shall be necessary to cause such purchasing Lender to share the excess payment
ratably with each of them; provided, however, that if all or any portion of such
-------- -------
excess payment is thereafter recovered from such purchasing Lender, such
purchase from each Lender shall be rescinded and such Lender shall repay to the
purchasing Lender the purchase price to the extent of such recovery without
interest thereon unless the Lender obligated to repay such amount is required to
pay interest. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.10(b) may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
Section 2.11 Application of Payments.
-----------------------
(a) Payments Prior to Acceleration. Prior to the acceleration of the
------------------------------
Obligations under Section 8.2 hereof, and other than with respect to payments
required to be made pursuant to Section 2.6(c) hereof (which shall be applied as
set forth in Section 2.6(c) hereof), if some but less than all amounts due from
the Borrower are received by the Agent, the Agent shall distribute such amounts
in the following order of priority: FIRST, to the payment of interest then due
-----
and payable on the Swing Loans and the Revolving Loans; SECOND, to the payment
------
of principal then due and payable on the Swing Loans, THIRD, to the payment of
-----
principal then due and payable on the Revolving Loans; FOURTH, to the payment of
------
any fees then due and payable to the Agent hereunder or under any other Loan
Document; FIFTH, to the payment of any fees then due and payable to the Lenders
-----
and the Issuing Banks hereunder or under any other Loan Documents; SIXTH, to the
-----
extent of any Letter of Credit Obligations then outstanding, to the Letter of
Credit Reserve Account; SEVENTH, to the payment of all other Obligations not
-------
otherwise referred to in this Section 2.11(a) then due and payable hereunder or
under the other Loan Documents; and EIGHTH, to the costs and expenses (including
------
attorneys' fees and expenses), if any, incurred by the Agent in the collection
of such amounts under this Agreement or any of the other Loan Documents.
(b) Payments Subsequent to Acceleration. Subsequent to the
-----------------------------------
acceleration of the Obligations under Section 8.2 hereof, payments and
prepayments with respect to the Obligations made to the Agent, the Lenders, the
Issuing Banks or otherwise received by the Agent, any Lender, any Issuing Bank
(from realization on Collateral or otherwise) shall be distributed in the
41
<PAGE>
following order of priority (subject, as applicable, to Section 2.10 hereof):
FIRST, to the reasonable costs and expenses (including reasonable attorneys'
- -----
fees and expenses), if any, incurred by the Agent, any Lender, any Issuing Bank
in the collection of such amounts under this Agreement or of the Loan Documents,
including, without limitation, any costs incurred in connection with the sale or
disposition of any Collateral; SECOND, to the payment of interest then due and
------
payable on the Swing Loans; THIRD, to the payment of the principal of any Swing
-----
Loans then outstanding; FOURTH, to any fees then due and payable to the Agent
------
under this Agreement or any other Loan Document; FIFTH, to any fees then due and
-----
payable to the Lenders and the Issuing Banks under this Agreement or any other
Loan Document; SIXTH, to the payment of interest then due and payable on the
-----
Revolving Loans; SEVENTH, to the payment of principal of the Revolving Loans
-------
then outstanding; EIGHTH, to the extent of any Letter of Credit Obligations then
------
outstanding, to the Letter of Credit Reserve Account; NINTH, to the payment of
-----
any obligation under any Interest Hedge Agreement and any Foreign Exchange
Agreement between the Borrower, on the one hand, and the Agent (or an affiliate
of the Agent) or one or more Lenders (or an affiliate of a Lender), on the other
hand; TENTH, to any other Obligations not otherwise referred to in this Section
-----
2.11(b); and ELEVENTH, upon satisfaction in full of all Obligations to the
--------
Borrower or as otherwise required by the Subordination Agreement or law.
Section 2.12 Use of Proceeds. The proceeds of the Loan shall be
---------------
used by the Borrower as follows:
(a) Initial Advance. The proceeds of the initial Advance of Revolving
---------------
Loans hereunder shall be used (i) on the Agreement Date to repay in full the
Obligations (as defined in the Debtor-in-Possession Credit Agreement) under the
Debtor-in-Possession Credit Agreement and to fund transaction costs, (ii) to
finance the Reorganization Plan, and (iii) for other general corporate purposes.
(b) Subsequent Advances. The balance of the proceeds of the Loans
-------------------
shall be used (i) to the extent permitted by Section 7.10 hereof, to make
Capital Expenditures, and (ii) for the Borrower's general operating capital
needs and other general corporate purposes to the extent not inconsistent
with the provisions of this Agreement.
Section 2.13 All Obligations to Constitute One Obligation. All
--------------------------------------------
Obligations shall constitute one general obligation of the Borrower and shall be
secured by the Agent's security interest (on behalf of the Lenders and the
Issuing Banks) and Lien upon all of the Collateral, and by all other security
interests and Liens heretofore, now or at any time hereafter granted by the
Borrower to the Agent and the Lenders, to the extent provided in the Security
Documents under which such Lien arises.
Section 2.14 Maximum Rate of Interest. In no contingency or event
------------------------
whatsoever shall the aggregate of all amounts deemed interest on the Loans and
charged or collected pursuant to the terms of this Agreement or pursuant to the
Notes exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable
42
<PAGE>
thereto. In the event that such a court determines that the Lenders have charged
or received interest hereunder in excess of the highest applicable rate, the
rate in effect hereunder shall automatically be reduced to the maximum rate
permitted by Applicable Law and the Lenders shall promptly refund to the
Borrower any interest received by them in excess of the maximum lawful rate or,
if so requested by the Borrower, shall apply such excess to the principal
balance of the Obligations. It is the intent hereof that the Borrower not pay or
contract to pay, and that the Lenders not receive or contract to receive,
directly or indirectly in any manner whatsoever, interest in excess of that
which may be paid by the Borrower under Applicable Law.
Section 2.15 Letters of Credit.
-----------------
(a) Subject to the terms and conditions hereof, each Issuing Bank, on
behalf of the Lenders, and in reliance on the agreements of the Lenders set
forth in subsection (c) below, hereby agrees to issue one or more Letters of
Credit up to an aggregate face amount equal to such Issuing Bank's pro rata
share of the Letter of Credit Commitment; provided, however, that the Issuing
Banks shall not issue any Letter of Credit unless the conditions precedent to
the issuance thereof set forth in Section 3.2 hereof have been satisfied, and
shall not issue any Letter of Credit if any Default then exists or would be
caused thereby or if, after giving effect to such issuance, the Available
Commitment would be less than zero or there would exist a Borrowing Base
Deficiency; and provided further, however, that at no time shall the total
Letter of Credit Obligations outstanding hereunder exceed the Letter of Credit
Commitment. Each Letter of Credit shall (1) be denominated in U.S. dollars, and
(2) expire no later than the earlier to occur of (A) the Maturity Date, and (B)
360 days after its date of issuance (but may contain provisions for automatic
renewal provided that no Default or Event of Default exists on the renewal date
or would be caused by such renewal). Each Letter of Credit shall be subject to
the Uniform Customs and, to the extent not inconsistent therewith, the laws of
the State of New York. The Issuing Banks shall not at any time be obligated to
issue, or cause to be issued, any Letter of Credit if such issuance would
conflict with, or cause such Issuing Bank to exceed any limits imposed by, any
Applicable Law.
(b) The Borrower may from time to time request that an Issuing Bank
issue a Letter of Credit. The Borrower shall execute and deliver to the Agent
and applicable Issuing Bank a Request for Issuance of Letter of Credit for each
Letter of Credit to be issued by such Issuing Bank, not later than 12:00 noon
(New York time) on the fifth (5th) Business Day preceding the date on which the
requested Letter of Credit is to be issued, or such shorter notice as may be
acceptable to the Issuing Bank and the Agent. Upon receipt of any such Request
for Issuance of Letter of Credit, subject to satisfaction of all conditions
precedent thereto as set forth in Section 3.2 hereof, the Issuing Bank shall
process such Request for Issuance of Letter of Credit and the certificates,
documents and other papers and information delivered to it in connection
therewith in accordance with its customary procedures and shall promptly issue
the Letter of Credit requested thereby. The Issuing Bank shall furnish a copy of
such Letter of Credit to the Borrower and the Agent following the issuance
thereof. The Borrower shall pay or reimburse the
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Issuing Bank for normal and customary costs and expenses incurred by such
Issuing Bank in issuing, effecting payment under, amending or otherwise
administering the Letters of Credit.
(c) Immediately upon the issuance by an Issuing Bank of a Letter of
Credit and in accordance with the terms and conditions of this Agreement, such
Issuing Bank shall be deemed to have sold and transferred to each Lender, and
each Lender shall be deemed irrevocably and unconditionally to have purchased
and received from such Issuing Bank, without recourse or warranty, an undivided
interest and participation, to the extent of such Lender's Commitment Ratio, in
such Letter of Credit and the obligations of the Borrower with respect thereto
(including, without limitation, all Letter of Credit Obligations with respect
thereto). At such time as the Agent shall be notified by the Issuing Bank that
the beneficiary under any Letter of Credit has drawn on the same, the Agent
shall promptly notify the Borrower and each Lender, by telephone or telecopy, of
the amount of the draw and, in the case of each Lender, such Lender's portion of
such draw amount as calculated in accordance with its Commitment Ratio.
(d) The Borrower hereby agrees to immediately reimburse an Issuing
Bank for amounts paid by such Issuing Bank in respect of draws under a Letter of
Credit. In order to facilitate such repayment, the Borrower hereby irrevocably
requests the Lenders, and the Lenders hereby severally agree, on the terms and
conditions of this Agreement (other than as provided in Article 2 hereof with
respect to the amounts of, the timing of requests for, and the repayment of
Advances hereunder and in Article 3 hereof with respect to conditions precedent
to Advances hereunder), with respect to any drawing under a Letter of Credit, to
make a Base Rate Advance on each day on which a draw is made under any Letter of
Credit and in the amount of such draw, and to pay the proceeds of such Advance
directly to the Issuing Bank to reimburse the Issuing Bank for the amount paid
by it upon such draw. Each Lender shall pay its share of such Base Rate Advance
by paying its portion of such Advance to the Agent in accordance with Section
2.2(e) hereof and its Commitment Ratio, without reduction for any set-off or
counterclaim of any nature whatsoever and regardless of whether any Default or
Event of Default then exists or would be caused thereby. The disbursement of
funds in connection with a draw under a Letter of Credit pursuant to this
Section hereunder shall be subject to the terms and conditions of Section 2.2(e)
hereof. The obligation of each Lender to make payments to the Agent, for the
account of the Issuing Bank, in accordance with this Section 2.15 shall be
absolute and unconditional and no Lender shall be relieved of its obligations to
make such payments by reason of noncompliance by any other Person with the terms
of the Letter of Credit or for any other reason (other than the gross negligence
of the Issuing Bank in paying such Letter of Credit, as determined by a final
non-appealable judgment of a court of competent jurisdiction). The Agent shall
promptly remit to the Issuing Bank the amounts so received from the other
Lenders. Any overdue amounts payable by the Lenders to the Issuing Bank in
respect of a draw under any Letter of Credit shall bear interest, payable on
demand, (x) for the first two Business Days, at the rate on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day by the Federal Reserve Bank of
New York, and (y) thereafter, at the Base Rate.
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(e) The Borrower agrees that each Advance by the Lenders to reimburse
the Issuing Bank for draws under any Letter of Credit, shall, for all purposes
hereunder, be deemed to be a Base Rate Advance under the Commitment and shall be
payable and bear interest in accordance with all other Base Rate Advances.
(f) Borrower agrees that any action taken or omitted to be taken by
an Issuing Bank in connection with any Letter of Credit, except for such actions
or omissions as shall constitute gross negligence or willful misconduct on the
part of such Issuing Bank as determined by a final non-appealable judgment of a
court of competent jurisdiction, shall be binding on the Borrower as between the
Borrower and the Issuing Bank, and shall not result in any liability of the
Issuing Bank to the Borrower. The obligation of the Borrower to reimburse an
Issuing Bank for a drawing under any Letter of Credit or the Lenders for
Advances made by them to Issuing Banks on account of draws made under the
Letters of Credit 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 limitation, the following
circumstances:
(i) Any lack of validity or enforceability of any Loan
Document;
(ii) Any amendment or waiver of or consent to any departure
from any or all of the Loan Documents;
(iii) Any improper use which may be made of any Letter of
Credit or any improper acts or omissions of any beneficiary or
transferee of any Letter of Credit in connection therewith;
(iv) The existence of any claim, set-off, defense or any right
which the Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or Persons for whom any such
beneficiary or any such transferee may be acting), any Lender or any
other Person, whether in connection with any Letter of Credit, any
transaction contemplated by any Letter of Credit, this Agreement, or
any other Loan Document, or any unrelated transaction;
(v) Any statement or any other documents presented under any
Letter of Credit proving to be insufficient, forged, fraudulent or
invalid in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(vi) The insolvency of any Person issuing any documents in
connection with any Letter of Credit;
(vii) Any breach of any agreement between the Borrower and any
beneficiary or transferee of any Letter of Credit;
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<PAGE>
(viii) Any irregularity in the transaction with respect to which
any Letter of Credit is issued, including any fraud by the beneficiary
or any transferee of such Letter of Credit;
(ix) Any errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph,
wireless or otherwise, whether or not they are in code;
(x) Any act, error, neglect or default, omission, insolvency
or failure of business of any of the correspondents of the Issuing
Bank;
(xi) Any other circumstances arising from causes beyond the
control of the Issuing Bank;
(xii) Payment by the Issuing Bank under any Letter of Credit
against presentation of a sight draft or a certificate which does not
comply with the terms of such Letter of Credit, provided that such
payment shall not have constituted gross negligence or willful
misconduct of the Issuing Bank as determined by a final non-appealable
judgment of a court of competent jurisdiction; and
(xiii) Any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.
(g) If any change in Applicable Law, any change in the interpretation
or administration thereof, or any change in compliance with Applicable Law by
the Issuing Bank as a result of any request or directive of any Governmental
Authority, central bank or comparable agency (whether or not having the force of
law) after the Agreement Date shall (i) impose, modify or deem applicable any
reserve (including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit, capital adequacy, assessment or
other requirements or conditions against letters of credit issued by the Issuing
Bank or (ii) impose on the Issuing Bank any other condition regarding this
Agreement or any Letter of Credit or any participation therein, and the result
of any of the foregoing in the determination of the Issuing Bank is to increase
the cost to the Issuing Bank of issuing or maintaining any Letter of Credit or
purchasing or maintaining any participation therein, then, on the earlier of the
Maturity Date or a date not more than five (5) days after demand by the Issuing
Bank, the Borrower agrees to pay to the Issuing Bank, from time to time as
specified by the Issuing Bank, such additional amount or amounts as the Issuing
Bank reasonably determines will compensate it for such increased costs, from the
date such change or action is effective, together with interest on each such
amount from the Maturity Date or the date demanded, as applicable, until payment
in full thereof at the Base Rate. A certificate as to such increased cost
incurred by the Issuing Bank as a result of any event referred to in this
paragraph submitted by the Issuing Bank to the Borrower shall be conclusive,
absent manifest error, as to the amount thereof.
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(h) The Borrower will indemnify and hold harmless the Agent, each
Issuing Bank and each other Lender and each of their respective employees,
representatives, officers and directors from and against any and all claims,
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including
reasonable attorneys' fees) which may be imposed on, incurred by or asserted
against the Agent, such Issuing Bank or any such other Lender in any way
relating to or arising out of the issuance of a Letter of Credit, except that
the Borrower shall not be liable to the Agent, any Issuing Bank or any such
Lender for any portion of such claims, liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
resulting from the gross negligence or willful misconduct of the Agent, such
Issuing Bank or such Lender, as the case may be, as determined by a final non-
appealable judgment of a court of competent jurisdiction. This Section 2.15(h)
shall survive termination of this Agreement.
(i) Each Lender shall be responsible (to the extent the Issuing Bank
is not reimbursed by the Borrower) for its pro rata share (based on such
Lender's Commitment Ratio) of any and all reasonable out-of-pocket costs,
expenses (including reasonable legal fees) and disbursements which may be
incurred or made by the Issuing Bank in connection with the collection of any
amounts due under, the administration of, or the presentation or enforcement of
any rights conferred by any Letter of Credit, the Borrower's or any guarantor's
obligations to reimburse draws thereunder or otherwise. In the event the
Borrower shall fail to pay such expenses of the Issuing Bank within fifteen (15)
days of demand for payment by the Issuing Bank, each Lender shall thereupon pay
to the Issuing Bank its pro rata share (based on such Lender's Commitment Ratio)
of such expenses within ten (10) days from the date of the Issuing Bank's notice
to the Lenders of the Borrower's failure to pay; provided, however, that if the
Borrower shall thereafter pay such expenses, the Issuing Bank will repay to each
Lender the amounts received from such Lender hereunder.
(j) Schedule 2.15 hereto contains a list of the outstanding letters
-------------
of credit issued prior to the Agreement Date under the Debtor-in-Possession
Credit Agreement for the account of the Borrower. Subject to the satisfaction of
the conditions precedent contained in Section 3.1 on the Agreement Date (i) such
letters of credit, to the extent still outstanding, shall automatically and
without further action of the parties thereto be converted into Letters of
Credit issued pursuant to this Section 2.15 and subject to the provisions
hereof, (ii) the face amount of such letters of credit shall be included in the
calculation of Letter of Credit Obligations, and (iii) all liabilities of the
Borrower with respect to such letters of credit shall constitute Obligations.
ARTICLE 3
CONDITIONS PRECEDENT
--------------------
Section 3.1 Conditions Precedent to Initial Advance. The
---------------------------------------
obligations of the Lenders to undertake the Commitment and to make the initial
Advance hereunder, and the obligation of
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<PAGE>
the Issuing Banks to issue the initial Letter of Credit hereunder, are subject
to the prior fulfillment of each of the following conditions:
(a) The Agent or the Lenders, as appropriate, shall have received
each of the following, in form and substance satisfactory to the Agent and the
Lenders:
(i) This duly executed Agreement;
(ii) A duly executed Note to the order of each Lender in the
amount of such Lender's pro rata share of the Commitment;
(iii) The Security Agreement, Pledge Agreement (together with
the original stock certificates of the Capital Stock pledged
thereunder and related stock powers), Intellectual Property Security
Agreements, Mortgage, Subordination Agreement, Subsidiary Guaranty,
and Subsidiary Security Agreement, duly executed by the parties
thereto;
(iv) Original Uniform Commercial Code financing statements
signed by the Borrower and each Material Subsidiary, respectively, as
debtor, and naming the Agent as secured party to be filed in all
appropriate jurisdictions, in such form as shall be satisfactory to
the Agent;
(v) The Set-Off Waiver Letter, duly executed by LGE;
(vi) The opinion of (A) Kirkland & Ellis, as corporate counsel
to the Borrower and the Material Subsidiaries, regarding the Borrower,
the Material Subsidiaries and the Loan Documents, (B) Richard F.
Vitkus, as general counsel to the Borrower and the Material
Subsidiaries, regarding the Borrower, the Material Subsidiaries and
the Loan Documents, and (C) bankruptcy counsel to the Borrower,
regarding the Final Order and the Confirmation Order, in each case
addressed to each Lender, the Issuing Bank and the Agent, dated the
Agreement Date;
(vii) The duly executed Request for Advance for the initial
Advance of the Loans;
(viii) A duly executed Borrowing Base Certificate dated as of
the Agreement Date;
(ix) A loan certificate signed by an Authorized Signatory of
the Borrower in substantially the form of Exhibit J attached hereto,
---------
including a certificate of incumbency with respect to each Authorized
Signatory of the Borrower, together with appropriate attachments which
shall include, without limitation, the following: (A) a copy of the
Certificate of Incorporation of the Borrower certified to be true,
complete and correct by
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the Secretary of State for the State of Delaware, (B) a true, complete
and correct copy of the By-Laws of the Borrower, (C) a true, complete
and correct copy of the resolutions of the Borrower authorizing the
borrowing hereunder and the execution, delivery and performance by the
Borrower of the Loan Documents, and (D) certificates of good standing
from each jurisdiction in which the Borrower is required to be
registered to do business;
(x) A loan certificate from each Material Subsidiary signed
by an Authorized Signatory of such Material Subsidiary in
substantially the form of Exhibit J attached hereto, including a
---------
certificate of incumbency with respect to each Authorized Signatory of
such Material Subsidiary, together with appropriate attachments which
shall include, without limitation, the following: (A) a copy of the
Certificate of Incorporation of such Material Subsidiary certified to
be true, complete and correct by the Secretary of State for the
jurisdiction of its incorporation, (B) a true, complete and correct
copy of the By-Laws of such Material Subsidiary, (C) a true, complete
and correct copy of the resolutions of such Material Subsidiary
authorizing the execution, delivery and performance of each Loan
Document to which it is a party, and (D) certificates of good standing
from each jurisdiction in which such Material Subsidiary is qualified
to do business;
(xi) A duly executed General Release, releasing the Agent, the
Issuing Bank and the Lenders from all claims, liability and causes of
action arising in connection with the Debtor-in-Possession Credit
Agreement prior to the Agreement Date;
(xii) A Collateral Access Agreement with respect to each
leased premises of the Borrower listed on Schedule 5.11 hereto (except
-------------
to the extent delivery of such Collateral Access Agreement is
permitted to be made after the Agreement Date pursuant to Section 5.21
hereof);
(xiii) Audited financial statements for the Borrower for its
1998 fiscal year, unaudited financial statements for the Borrower for
the month ending August 31, 1999, and the Borrower's pro-forma
financial statements, business plan and projections for the twelve
month period following the Agreement Date on a quarterly basis;
(xiv) Copies of certificates of insurance and the related
insurance policies covering the assets of the Borrower and otherwise
meeting the requirements of Section 5.5 hereof;
(xv) Copies of any pay-off letters, termination statements,
canceled mortgages and the like required by the Agent in connection
with the removal of any Liens (other than Permitted Liens) against the
assets of the Borrower or any Material Subsidiary;
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(xvi) Evidence satisfactory to the Agent that the Liens granted
pursuant to the Security Documents will be first priority perfected
Liens on the Collateral (subject only to Permitted Liens);
(xvii) Payment of all reasonable fees and expenses payable to
the Agent, the affiliates of the Agent and the Lenders in connection
with the execution and delivery of this Agreement, including, without
limitation, reasonable fees and expenses of counsel to the Agent; and
(xviii) Such other documents and evidence as the Agent may
reasonably request, certified by an appropriate governmental official
or an Authorized Signatory if so requested.
(b) The Agent shall be satisfied with the Borrower's cash management
system and shall have received duly executed Blocked Account Letters as required
by Section 5.15, all as reasonably acceptable to the Agent;
(c) There shall have been no change in the business, assets,
management, operations, financial condition or prospects of the Borrower since
August 31, 1999, which change, in the judgment of the Agent, will have a
Materially Adverse Effect;
(d) The Agent shall have received evidence that the Tuning Patents
and the License Agreements are in full force and effect and not the subject of
any pending or threatened litigation (other than the Funai Litigation to the
extent there has been no judgment, order or other decision entered in the Funai
Litigation which is materially adverse to the Borrower, and to the extent there
is no reasonable likelihood of the entry of such order, judgment or decision in
the reasonable determination of the Agent) and the satisfactory completion of
its due diligence regarding all other Collateral;
(e) The Agent shall have received evidence that the Court has entered
the Final DIP Order and that all of the obligations of the Borrower under the
Debtor-in-Possession Credit Agreement will be paid in full from the proceeds of
the initial Advance;
(f) The Agent shall have received evidence that (i) the Court has
entered the Confirmation Order, (ii) at least ten (10) days shall have elapsed
since such entry of the Confirmation Order on the docket of the Court, with no
appeal of the Confirmation Order having been timely filed, or if timely filed,
with such appeal having been dismissed (unless the Majority Lenders agree to
waive any of such requirements), and (iii) all other conditions to the
confirmation and effectiveness of the Reorganization Plan shall have been
satisfied;
(g) The Agent shall have received (i) evidence that all documentation
evidencing the LGE Exit Facility has been executed and that the LGE Exit
Facility has closed, and (ii) a certificate of an authorized signatory of LGE
certifying that LGE has received the approval of the
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Korean Ministry of Finance and all other applicable governmental entities to
provide such credit facility, in each case in form and substance reasonably
acceptable to the Agent;
(h) The Agent shall have received evidence that the Restructured PIK
Note and the New Debentures have been issued and all documents relating to the
Restructured PIK Note and the New Debentures shall be in form and substance
reasonably acceptable to the Agent;
(i) The Agent shall have received evidence that LGE owns at least
ninety percent (90%) of the outstanding Capital Stock of the Borrower;
(j) The Agent shall have received evidence that (a) LGE has
transferred to the Borrower all of LGE's right, title and interest in all of the
Salomon Assets and the Credits, and (b) the principal amount of the Restructured
PIK Note has been reduced by $5,733,870.83 for those Salomon Assets which are
thereafter transferred by the Borrower back to LGE (as indicated on Schedule S-
1);
(k) The Agent shall have received the Borrower's plan to become "Year
2000" compliant as required by this Agreement, in form and substance reasonably
acceptable to the Agent;
(l) The Agent shall have received evidence reasonably satisfactory to
it that all Necessary Authorizations are in full force and effect and are not
subject to any pending or threatened reversal or cancellation, and the Agent and
the Lenders shall have received a certificate of an Authorized Signatory so
stating; and
(n) All of the representations and warranties of the Borrower and its
Subsidiaries under this Agreement and the other Loan Documents shall be true and
correct, both before and after giving effect to the application of the proceeds
of the initial Advance.
Section 3.2 Conditions Precedent to Each Advance and Letter of
--------------------------------------------------
Credit. The obligation of the Lenders to make each Advance, including the
- ------
initial Advance (but excluding Advances, the proceeds of which are to reimburse
(i) the Swing Bank for Swing Loans or (ii) an Issuing Bank for amounts drawn
under a Letter of Credit), and the obligation of the Issuing Banks to issue each
Letter of Credit (including the initial Letter of Credit), remains subject to
the fulfillment of each of the following conditions immediately prior to or
contemporaneously with the making of such Advance or the issuance of such Letter
of Credit:
(a) All of the representations and warranties of the Borrower under
this Agreement, which, pursuant to Section 4.4 hereof, are made at and as of the
time of the making of such Advance or the issuance of such Letter of Credit,
shall be true and correct in all material respects at such time, both before and
after giving effect to the application of the proceeds of the Advance or the
issuance of such Letter of Credit, and the Agent shall have received a
certificate (which may be a Request for Advance or a Request for Issuance of
Letter of Credit, as applicable) to that
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effect signed by an Authorized Signatory of the Borrower and dated the date such
Advance is to be made or such Letter of Credit is to be issued;
(b) The incumbency of the Authorized Signatories shall be as stated
in the certificate of incumbency contained in the certificate of the Borrower
delivered pursuant to Section 3.1(a) or as subsequently modified and reflected
in a certificate of incumbency delivered to the Agent and the Lenders;
(c) The most recent Borrowing Base Certificate which shall have been
delivered to the Agent pursuant to Section 6.5(a) hereof shall demonstrate that,
after giving effect to the making of such Advance or issuance of such Letter of
Credit, no Borrowing Base Deficiency shall exist;
(d) There shall not exist on the date of making such Advance or
issuance of such Letter of Credit and after giving effect thereto, a Default or
an Event of Default hereunder; and
(e) The Agent and the Lenders shall have received all such other
certificates, reports, statements, opinions of counsel, or other documents as
the Agent or Lenders may reasonably request and all other conditions to the
making of such Advance which are set forth in this Agreement shall have been
fulfilled.
The Borrower hereby agrees that the delivery of any Request for Advance or
Request for Issuance of a Letter of Credit hereunder shall be deemed to be the
certification of the Authorized Signatory thereof that there does not exist, on
the date of the making of the Advance or issuance of Letter of Credit, and after
giving effect thereto, a Default or an Event of Default hereunder.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 General Representations and Warranties. In order to
--------------------------------------
induce the Agent, the Lenders and the Issuing Banks to enter into this Agreement
and to extend the Loans and issue the Letters of Credit to the Borrower, the
Borrower hereby agrees, represents, and warrants that:
(a) Organization; Power; Qualification. Each of the Borrower and
----------------------------------
the Borrower's Subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of their respective states of incorporation,
has the corporate power and authority to own or lease and operate its properties
and to carry on its business as now being and hereafter proposed to be
conducted, and is duly qualified and is in good standing as a foreign
corporation, and authorized to do business, in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification or authorization.
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(b) Authorization; Enforceability. The Borrower and each of the
-----------------------------
Borrower's Material Subsidiaries has the power and has taken all necessary
corporate action to authorize it to execute, deliver, and perform this Agreement
and each of the other Loan Documents to which it is a party in accordance with
the terms thereof and to consummate the transactions contemplated hereby and
thereby. This Agreement and each of the other Loan Documents to which the
Borrower is a party has been duly executed and delivered by the Borrower, and
is, and each of the other Loan Documents to which the Borrower is a party is, a
legal, valid and binding obligation of the Borrower, enforceable in accordance
with its terms.
(c) Partnerships; Joint Ventures; Subsidiaries. Neither Borrower nor
------------------------------------------
any of its Subsidiaries is a partner or joint venturer in any partnership or
joint venture other than (i) the Borrower's Subsidiaries listed on Schedule
-------
4.1(c)-1 and (ii) the partnerships and joint ventures listed on Schedule 4.1(c)-
- -------- ----------------
2. As of the Agreement Date, Schedule 4.1(c)-2 sets forth, for each partnership
- - -----------------
or joint venture that is not a Subsidiary of Borrower, a complete and accurate
statement of (a) the percentage ownership of each such partnership or joint
venture by Borrower or any of its Subsidiaries, (b) the state or other
jurisdiction of formation or incorporation, as appropriate, of each such
partnership or joint venture, (c) each state in which each such partnership or
joint venture is qualified to do business on the date of this Agreement and (d)
all of each such partnership's or joint venture's trade names, trade styles or
doing business forms on the date of this Agreement. As of the Agreement Date,
all of the Subsidiaries of the Borrower are set forth on Schedule 4.1(c)-1
-----------------
attached hereto.
(d) Capital Stock and Related Matters. The authorized Capital
---------------------------------
Stock of Borrower consists of one thousand (1,000) shares of common stock, $0.01
par value per share, of which one thousand (1000) shares were issued and
outstanding as of the Agreement Date, and are fully paid and non-assessable. As
of the Agreement Date, all holders of such Capital Stock, together with a
description of such Capital Stock held by such Person, are listed on Schedule
--------
4.1 (d). Except as described on Schedule 4.1(d) attached hereto, as of the
- ------- --------------
Agreement Date the Borrower has outstanding no stock or securities convertible
into or exchangeable for any shares of its Capital Stock, nor are there any
preemptive or similar rights to subscribe for or to purchase, or any other
rights to subscribe for or to purchase, or any options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments, or claims of any character relating to, any Capital Stock or
any stock or securities convertible into or exchangeable for any Capital Stock.
The Borrower is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its Capital Stock or to
register any shares of its Capital Stock, and there are no agreements
restricting the transfer of any shares of the Borrower's Capital Stock.
(e) Compliance with laws, etc., of Agreement, Other Loan Documents,
--------------------------------------------------------------
and Contemplated Transactions. The execution, delivery, and performance of this
- -----------------------------
Agreement and each of the other Loan Documents in accordance with the terms
thereof and the consummation of the transactions contemplated hereby and thereby
do not and will not (i) violate any Applicable Law, (ii) conflict with, result
in a breach of, or constitute a default under the certificate of
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incorporation or by-laws of the Borrower or any Material Subsidiary or under any
indenture, agreement, or other instrument to which the Borrower or any Material
Subsidiary is a party or by which the Borrower or any Material Subsidiary or any
of their respective properties may be bound, or (iii) result in or require the
creation or imposition of any Lien upon or with respect to any property now
owned or hereafter acquired by the Borrower or any Material Subsidiary except
Permitted Liens.
(f) Necessary Authorizations. The Borrower and each Material
------------------------
Subsidiary have obtained all Necessary Authorizations, and all such Necessary
Authorizations are in full force and effect. None of said Necessary
Authorizations is the subject of any pending or, to the best of the Borrower's
knowledge, threatened attack or revocation, by the grantor of the Necessary
Authorization. Neither the Borrower nor any Material Subsidiary is required to
obtain any additional Necessary Authorizations in connection with the execution,
delivery, and performance, in accordance with the terms of this Agreement or any
other Loan Document, and the borrowing hereunder.
(g) Title to Properties. The Borrower and each of the Borrower's
------------------
Subsidiaries has good, marketable, and legal title to, or a valid leasehold
interest in, all of its properties and assets (including, without limitation,
the Accounts), and none of such properties or assets is subject to any Liens
(other than Permitted Liens). All Permitted Liens in existence as of the
Effective Date of the Reorganization Plan and which have been recorded or filed
against any assets of the Borrower or any Material Subsidiary are listed on
Schedule 4.1(g).
- ---------------
(h) Material Contracts; Labor Matters. Schedule 4.1(h) contains a
--------------------------------- ---------------
complete list, as of the date of this Agreement, of each contract or agreement
to which Borrower or any Material Subsidiary is a party which is material to its
respective business, financial condition, operations, prospects or property and,
upon the request of the Agent or any Lender, the Borrower will provide the Agent
or such Lender, as applicable, with a copy of any such contract or agreement.
Except as disclosed on Schedule 4.1(h): (a) no labor contract to which Borrower
---------------
or any Material Subsidiary is a party or is otherwise subject is scheduled to
expire prior to the Maturity Date; (b) neither Borrower nor any Material
Subsidiary has, within the two-year period preceding the date of this Agreement,
taken any action which would have constituted or resulted in a "plant closing"
or "mass layoff" within the meaning of the Federal Worker Adjustment and
Retraining Notification Act of 1988 or any similar applicable federal, state or
local law, and Borrower has no reasonable expectation that any such action is or
will be required at any time prior to the Maturity Date; and (c) on the
Agreement Date (i) neither Borrower nor any Material Subsidiary is a party to
any labor dispute (other than any immaterial disputes with Borrower's or such
Material Subsidiary's employees as individuals and not affecting Borrower's or
such Material Subsidiary's relations with any labor group or its workforce as a
whole) and (ii) there are no pending or, to the Borrower's knowledge, threatened
strikes or walkouts relating to any labor contracts to which Borrower or any
Material Subsidiary is a party or is otherwise subject. Except as set forth on
Schedule 4.1(h) attached hereto, none of the employees of the Borrower or any
- --------------
54
<PAGE>
Material Subsidiary is a party to any collective bargaining agreement with the
Borrower or any Material Subsidiary.
(i) Taxes. All federal, state, and other tax returns of the Borrower and
-----
each of the Borrower's Subsidiaries required by law to be filed have been duly
filed, and all federal, state, and other taxes, assessments, and other
governmental charges or levies upon the Borrower and each of the Borrower's
Subsidiaries and any of their respective properties, income, profits, and
assets, which are due and payable, have been paid, except to the extent the
Borrower or any of the Borrower's Subsidiaries, as applicable, are currently
contesting the payment of any of the foregoing in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of the Borrower or the Borrower's Subsidiaries, as the
case may be. The charges, accruals, and reserves on the books of the Borrower
and each of the Borrower's Subsidiaries in respect of taxes are, in the
reasonable judgement of the Borrower, adequate. Neither the Borrower nor any of
the Borrower's Subsidiaries are being audited, or have knowledge of any pending
audit, by the Internal Revenue Service or any other taxing authority.
(j) Financial Statements. The Borrower has furnished, or caused to be
--------------------
furnished, to the Lenders financial statements for the Borrower and the
Borrower's Subsidiaries on a consolidated basis which are complete and correct
in all material respects and present fairly in accordance with GAAP the
financial position of the Borrower and the Borrower's Subsidiaries on a
consolidated basis as at December 31, 1998, and the results of operations for
the periods then ended. Except as disclosed in such financial statements,
neither the Borrower nor any of the Borrower's Subsidiaries has any material
liabilities, contingent or otherwise, and there are no material unrealized or
anticipated losses of the Borrower or any of the Borrower's Subsidiaries which
have not heretofore been disclosed in writing to the Lenders.
(k) No Adverse Change. Since August 31, 1999, there has occurred no event
-----------------
(except as previously disclosed to the Agent and the Lenders in writing
(including in information delivered to the Agent and the Lenders pursuant to
Section 6.5(c)), which could reasonably be expected to have a Materially
Adverse Effect.
(l) Investments and Guaranties. As of the Agreement Date, the Borrower
--------------------------
does not own the Capital Stock, partnership interests or other securities of or
equity interests in, or have outstanding loans or advances to, or guaranties of
the obligations of, any Person, except as reflected in the financial statements
referred to in Section 4.1(j) above or disclosed on Schedule 4.1(l).
---------------
(m) Liabilities, Litigation, etc. Neither the Borrower nor any of the
----------------------------
Borrower's Subsidiaries has any material (individually or in the aggregate)
liabilities, direct or contingent, except for the Obligations, liabilities
incurred in the normal course of business and liabilities disclosed or referred
to in the financial statements referred to in Section 4.1(j) above, in the
Reorganization Plan or on Schedule 4.1(m). As of the Agreement Date, except as
---------------
described on
55
<PAGE>
Schedules 4.1(m) and 4.1(w) attached hereto, there is no litigation, legal or
- ---------------- ------
administrative proceeding, investigation, or other action of any nature pending
or, to the knowledge of the Borrower, threatened against or affecting the
Borrower or any of the Borrower's Subsidiaries or any of their respective
properties which could reasonably be expected to result in any judgment against
or liability of the Borrower or such Subsidiary in excess of $100,000. None of
such litigation disclosed on Schedules 4.1(m) and 4.1(w), individually or
---------------- ------
collectively, could reasonably be expected to have a Materially Adverse Effect.
The Borrower knows of no unusual or unduly burdensome restriction, restraint, or
hazard relative to the business or properties of the Borrower or any of the
Borrower's Subsidiaries that is not customary for or generally applicable to
similarly situated businesses in the same industry as the Borrower and the
Borrower's Subsidiaries.
(n) ERISA. The Borrower and each ERISA Affiliate and each of their
-----
respective Plans are in substantial compliance with ERISA and the Code and
neither the Borrower nor any of its ERISA Affiliates incurred any accumulated
funding deficiency with respect to any such Plan within the meaning of ERISA or
the Code. The Borrower and each of its ERISA Affiliates have complied with all
material requirements of ERISA Sections 601 through 608 and Code Section 4980B.
Neither the Borrower nor, to the best of the Borrower's knowledge, any of its
ERISA Affiliates has made any promises of retirement or other benefits to
employees, except as set forth in the Plans. Neither the Borrower nor any of the
Borrower's Subsidiaries has incurred any material liability to the Pension
Benefit Guaranty Corporation in connection with any such Plan. The assets of
each such Plan which is subject to Title IV of ERISA are sufficient to provide
the benefits under such Plan, the payment of which the Pension Benefit Guaranty
Corporation would guarantee if such Plan were terminated, and such assets are
also sufficient to provide all other "benefit liabilities" (as defined in ERISA
Section 4001(a)(16)) due under the plan upon termination. No Reportable Event
has occurred and is continuing with respect to any such Plan. No such Plan or
trust created thereunder, or party in interest (as defined in Section 3(14) of
ERISA, or any fiduciary (as defined in Section 3(21) of ERISA), has engaged in a
"prohibited transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) which would subject such Plan or any other Plan of the
Borrower or any of its ERISA Affiliates, any trust created thereunder, or any
such party in interest or fiduciary, or any party dealing with any such Plan or
any such trust to any material penalty or tax on "prohibited transactions"
imposed by Section 502 of ERISA or Section 4975 of the Code. Neither the
Borrower nor any of its ERISA Affiliates is a participant in or is obligated to
make any payment to a Multiemployer Plan.
(o) Intellectual Property; Licenses. Borrower possesses adequate
-------------------------------
Intellectual Property to continue to conduct its business as heretofore
conducted by it, and all registered Intellectual Property existing on the date
hereof, (together with in the case of patents and Trademarks, the date of
issuance thereof), is listed on Schedule 4.1(o). With respect to Intellectual
---------------
Property of the Borrower unless such Intellectual Property has become obsolete
or is no longer used or useful in the conduct of the business of the Borrower:
56
<PAGE>
(i) it is valid and enforceable, is subsisting, and has not been
adjudged invalid or unenforceable, in whole or in part;
(ii) Borrower has made all necessary filings and recordations to
protect its interest therein, including, without limitation, recordations
of all of its interest in its Patent Property and Trademark Property in the
United States Patent and Trademark Office and, to the extent necessary for
the conduct of Borrower's business, in corresponding offices throughout the
world;
(iii) Except as set forth on Schedule 4.1(o), Borrower is the
---------------
exclusive owner of the entire and unencumbered right, title and interest in
and to such Intellectual Property owned by it and no claim has been made
that the use of any of its owned Intellectual Property does or may violate
the asserted rights of any third party; and
(iv) Borrower has performed, and Borrower will continue to perform,
all acts, and Borrower has paid and will continue to pay, all required fees
and taxes, to maintain each and every item of such Intellectual Property in
full force and effect throughout the world, as applicable.
Borrower owns directly or is entitled to use, by license or otherwise, all
patents, Trademarks, copyrights, mask works, licenses, technology, know-how,
processes and rights with respect to any of the foregoing used in, necessary for
or of importance to the conduct of Borrower's business.
(p) Compliance with Law; Absence of Default. Each of the Borrower and the
---------------------------------------
Borrower's Subsidiaries is in material compliance with all Applicable Laws and
with all of the provisions of its certificate of incorporation and by-laws, and
no event has occurred or has failed to occur which has not been remedied or
waived, the occurrence or non-occurrence of which constitutes (x) a Default or
(y) a default by the Borrower or any of the Borrower's Subsidiaries under any
indenture, agreement, or other instrument, or any judgment, decree, or order to
which the Borrower or any of the Borrower's Subsidiaries is a party or by which
the Borrower or any of the Borrower's Subsidiaries or any of their respective
properties may be bound
(q) Casualties; Taking of Properties, etc. Since August 31, 1999,
-------------------------------------
neither the business nor the properties of the Borrower or any of the Borrower's
Subsidiaries has been materially and adversely affected as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike or other
labor disturbance, embargo, requisition or taking of property or cancellation of
contracts, permits or concessions by any domestic or foreign government or any
agency thereof, riot, activities of armed forces, or acts of God or of any
public enemy.
(r) Accuracy and Completeness of Information. All information, reports,
----------------------------------------
and other papers and data relating to the Borrower or any of the Borrower's
Subsidiaries furnished to the Agent and the Lenders were, at the time the same
were so furnished, (i) to the extent prepared by
57
<PAGE>
third parties, to the best of Borrower's knowledge, and (ii) to the extent
prepared by the Borrower, complete and correct in all material respects in light
of all such information, reports and other papers and data taken as a whole at
such time. No fact is currently known to the Borrower which has, or could
reasonably be expected to have, a Materially Adverse Effect. With respect to
projections, estimates and forecasts given to the Lenders, such projections,
estimates and forecasts are based on the Borrower's good faith assessment of the
future of the business at the time made.
(s) Compliance with Regulations T, U, and X. Neither the Borrower nor any
---------------------------------------
of the Borrower's Subsidiaries is engaged principally or as one of its important
activities in the business of extending credit for the purpose of purchasing or
carrying, and neither the Borrower nor any of the Borrower's Subsidiaries owns
or presently intends to acquire, any "margin security" or "margin stock" as
defined in Regulations T, U, and X (12 C.F.R. Parts 221 and 224) of the Board of
Governors of the Federal Reserve System (herein called "margin stock"). None of
the proceeds of the Loans will be used, directly or indirectly, for the purpose
of purchasing or carrying any margin stock or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase or carry
margin stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of said Regulations T, U, and X. Neither the
Borrower nor any bank acting on its behalf has taken or will take any action
which might cause this Agreement or the Notes to violate Regulation T, U, or X
or any other regulation of the Board of Governors of the Federal Reserve System
or to violate the Securities Exchange Act of 1934, in each case as now in effect
or as the same may hereafter be in effect. If so requested by the Agent, the
Borrower will furnish the Agent with (i) a statement or statements in conformity
with the requirements of Federal Reserve Form U-1 referred to in Regulation U of
said Board of Governors and (ii) other documents evidencing its compliance with
the margin regulations, including without limitation an opinion of counsel in
form and substance satisfactory to the Agent. Neither the making of the Loans
nor the use of proceeds thereof will violate, or be inconsistent with, the
provisions of Regulation T, U, or X of said Board of Governors.
(t) Insurance. The Borrower and each of its Subsidiaries have insurance
---------
meeting the requirements of Section 5.5 hereof, and such insurance policies are
in full force and effect. As of the Agreement Date, all insurance maintained by
the Borrower is listed on Schedule 4.1(t) hereto.
---------------
(u) Broker's or Finder's Commissions. Except as disclosed on
--------------------------------
Schedule 4.1(u) and for fees payable under the Loan Documents, no broker's or
- ---------------
finder's fee or commission will be payable with respect to the issuance of the
Notes, and no other similar fees or commissions will be payable by the Borrower
for any other services rendered to the Borrower ancillary to the transactions
contemplated herein.
(v) Real Property. All real property leased by the Borrower or any
-------------
Material Subsidiary as of the Agreement Date, and the name of the lessor of such
real property, is set forth in Schedule 4.1(v)-1. The leases of Borrower or such
-----------------
Material Subsidiary are valid, enforceable and in full force and effect, and
have not been materially modified or amended, except as
58
<PAGE>
otherwise set forth in Schedule 4.1(v)-1. The Borrower or such Material
-----------------
Subsidiary is the sole holder of the lessee's interests under such leases, and
has the right to pledge and assign the same except as qualified in
Schedule 4.1(v)-1. Neither Borrower nor such Material Subsidiary has made any
- -----------------
pledge or assignment of any of it rights under such leases except as set forth
in Schedule 4.1(v)-1 and, there is no default or condition which, with the
-----------------
passage of time or the giving of notice, or both, would constitute a material
default on the part of any party under such leases. All real property owned by
the Borrower or any Material Subsidiary as of the Agreement Date is set forth in
Schedule 4.1(v)-2. As of the Agreement Date, the Borrower or such Material
- -----------------
Subsidiary does not own or lease any real property other than as set forth on
Schedule 4.1(v). The Borrower and each Material Subsidiary owns good and
- ---------------
marketable fee simple title to all of its owned real property, and none of its
respective owned real property is subject to any Liens, except Permitted Liens.
Neither the Borrower nor such Material Subsidiary owns or holds, or is obligated
under or a party to, any option, right of first refusal or any other contractual
right to purchase, acquire, sell, assign or dispose of any real property owned
or leased by it.
(w) Environmental Matters. Except as is described on Schedule 4.1(w)
--------------------- ---------------
attached hereto:
(i) To the best of the Borrower's knowledge, after reasonably
diligent inquiry, the Property does not contain, in, on or under,
including, without limitation, the soil and groundwater thereunder, any
Hazardous Materials in violation of Environmental Laws or in amounts that
could give rise to liability under Environmental Laws.
(ii) The Borrower and each of the Borrower's Subsidiaries is in
material compliance with all applicable Environmental Laws, and there is no
contamination or violation of any Environmental Law which could materially
interfere with the continued operation of any of the Properties or
materially impair the financial condition of the Borrower and the
Borrower's Subsidiaries on a consolidated basis.
(iii) Neither the Borrower nor any of the Borrower's Subsidiaries has
received from any Governmental Authority any complaint, or notice of
violation, alleged violation, investigation or advisory action or notice of
potential liability regarding matters of environmental protection or permit
compliance under applicable Environmental Laws with regard to the
Properties, nor is the Borrower aware that any such notice is pending.
(iv) Hazardous Materials have not been generated, treated, stored,
disposed of, at, on or under any of the Property in material violation of
any Environmental Laws or in a manner that could give rise to material
liability under Environmental Laws nor have any Hazardous Materials been
transported or disposed of from any of the Properties to any other location
in material violation of any Environmental Laws or in a manner that could
give rise to material liability under Environmental Laws.
59
<PAGE>
(v) Neither the Borrower nor any of its Subsidiaries is a party to
any governmental administrative actions or judicial proceedings pending
under any Environmental Law with respect to any of the Properties, nor are
there any consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to any of the
Properties.
(vi) To the best of the Borrower's knowledge, after reasonably
diligent inquiry, there has been no release or threat of release of
Hazardous Materials into the environment at or from any of the Properties,
or arising from or relating to the operations of the Borrower, in material
violation of Environmental Laws or in amounts that could give rise to
material liability under Environmental Laws.
(x) OSHA. All of the Borrower's and the Borrower Subsidiaries' operations
----
are conducted in all material respects in compliance with all applicable rules
and regulations promulgated by the Occupational Safety and Health Administration
of the United States Department of Labor.
(y) Name of Borrower. The Borrower and the Material Subsidiaries have not
----------------
changed their respective names within the preceding six (6) months from the
Agreement Date, nor has the Borrower or any Material Subsidiary transacted
business under any other name or trade name.
(z) Investment Company Act. Neither the Borrower nor any of the Borrower's
----------------------
Subsidiaries is required to register under the provisions of the Investment
Company Act of 1940, as amended, and neither the entering into or performance by
the Borrower of this Agreement nor the issuance of the Notes violates any
provision of such Act or requires any consent, approval, or authorization of, or
registration with, any governmental or public body or authority pursuant to any
of the provisions of such Act.
(aa) Year 2000 Compliance. As of the Agreement Date, any reprogramming
--------------------
required to permit the proper functioning in and following the year 2000 of the
computer systems listed on Schedule 4.1(a)(a) hereto of the Borrower and its
------------------
Subsidiaries and the testing of all such systems, as so reprogrammed, will be
substantially completed in all material respects. Any reprogramming required to
permit the proper functioning in and following the year 2000, of all other
computer systems of the Borrower and its Subsidiaries and any other equipment
containing embedded microchips (including systems and equipment supplied by
others) and the testing of all such systems and equipment, as so reprogrammed,
will be substantially completed in all material respects by December 15, 1999.
The cost to the Borrower and its Subsidiaries of such reprogramming and testing,
and of the reasonably foreseeable consequences of year 2000 to the Borrower and
its Subsidiaries (including, without limitation, reprogramming errors) will not
result in a Default or a Materially Adverse Effect.
60
<PAGE>
(bb) Solvency. As of the Agreement Date and after giving effect to the
--------
transactions contemplated by the Reorganization Plan and the Loan Documents (i)
the property of the Borrower, at a fair valuation, will exceed its debt; (ii)
the capital of the Borrower will not be unreasonably small to conduct its
business; (iii) the Borrower will not have incurred debts, or have intended to
incur debts, beyond its ability to pay such debts as they mature; and (iv) the
present fair salable value of the assets of the Borrower will be materially
greater than the amount that will be required to pay its probable liabilities
(including debts) as they become absolute and matured. For purposes of this
Section, "debt" means any liability on a claim, and "claim" means (i) the right
to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, undisputed, legal,
equitable, secured or unsecured, or (ii) the right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, undisputed, secured or unsecured.
Section 4.2 Representations and Warranties Relating to Eligible Accounts.
------------------------------------------------------------
With respect to all Eligible Accounts, the Borrower hereby warrants and
represents to the Agent, the Lenders and the Issuing Bank that:
(a) They are genuine and in all respects what they purport to be,
and they are not evidenced by judgments;
(b) They arise out of completed, bona fide sales and deliveries of
goods or rendition of services by the Borrower in the ordinary course of
its business and in accordance with the terms and conditions of all
purchase orders, contracts or other documents relating thereto and forming
a part of the contract between Borrower and the Account Debtors;
(c) They are for liquidated amounts maturing as stated in the
duplicate invoice covering such sale or rendition of services, copies of
which have been furnished or are available to the Agent;
(d) Except as set forth on Schedule 4.2, the Borrower has made no
------------
agreement with any Account Debtor thereunder for any deduction therefrom,
except discounts or allowances which are granted by the Borrower in the
ordinary course of its business for prompt payment and which are reflected
in the calculation of the net amount of each respective invoice related
thereto;
(e) Except as set forth on Schedule 4.2, there are no facts,
------------
events or occurrences of which the Borrower has knowledge which in any way
impair the validity or enforceability thereof or which will reduce the
amount payable thereunder from the face amount of the invoice and
statements delivered to the Agent with respect thereto;
(f) Except as set forth on Schedule 4.2, to the best of Borrower's
------------
knowledge, the Account Debtors thereunder (i) had the capacity to contract
at the time any contract or
61
<PAGE>
other document giving rise to the Accounts were executed and (ii) such
Account Debtors are solvent; and
(g) Except as set forth on Schedule 4.2, the Borrower has no
------------
knowledge of any fact or circumstance which would impair the validity or
collectibility of the Accounts, and to the best of Borrower's knowledge
there are no proceedings or actions which are threatened or pending against
any Account Debtor thereunder which might result in any material adverse
change in such Account Debtor's financial condition or the collectibility
of such Account.
Section 4.3 Representations and Warranties Relating to Inventory. Except
----------------------------------------------------
as specifically disclosed to and acknowledged by the Agent in writing, with
respect to all Eligible Inventory, the Agent may rely upon all statements,
warranties, or representations made in any Borrowing Base Certificate in
determining the classification of such Inventory and in determining which items
of Inventory listed in such Borrowing Base Certificate meet the Inventory
Eligibility Requirements.
Section 4.4 Survival of Representations and Warranties, etc. All
-----------------------------------------------
representations and warranties made under this Agreement shall be deemed to be
made, and shall be true and correct in all material respects, at and as of the
Agreement Date and the date of each Advance or issuance of a Letter of Credit
hereunder, except to the extent previously fulfilled in accordance with the
terms hereof and to the extent subsequently inapplicable. All representations
and warranties made under this Agreement shall survive, and not be waived by,
the execution hereof by the Lenders, the Issuing Banks, and the Agent, any
investigation or inquiry by any Lender, or the Agent or the making of any
Advance or the issuance of any Letter of Credit under this Agreement.
ARTICLE 5
GENERAL COVENANTS
So long as any of the Obligations are outstanding and unpaid or the
Borrower shall have the right to borrow, or have Letters of Credit issued,
hereunder (whether or not the conditions to borrowing have been or can be
fulfilled), and unless the Majority Lenders shall otherwise consent in writing:
Section 5.1 Preservation of Existence and Similar Matters. The Borrower
---------------------------------------------
will, and will cause each of the Borrower's Subsidiaries (other than the
Immaterial Subsidiaries and except in connection with a merger permitted by
Section 7.7(e) provided the Agent receives thirty (30) day's prior written
notice of any such merger) to (i) preserve and maintain their respective
existence, rights, franchises, licenses, and privileges in their respective
jurisdiction of incorporation including, without limitation, all Necessary
Authorizations material to its business, and (ii) qualify and remain qualified
and authorized to do business in each jurisdiction in which
62
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the character of their respective properties or the nature of their respective
business requires such qualification or authorization.
Section 5.2 Compliance with Applicable Law. The Borrower will comply,
------------------------------
and will cause each of the Borrower's Subsidiaries to comply, in all material
respects with the requirements of all Applicable Law.
Section 5.3 Maintenance of Properties. Except for the sale or disposal
-------------------------
of assets permitted by Section 7.7(b), the Borrower will maintain and will cause
each of the Borrower's Subsidiaries to maintain or cause to be maintained in the
ordinary course of business in good repair, working order, and condition, normal
wear and tear, removal from service for routine maintenance and repair and
disposal of obsolete Equipment excepted, all properties used or useful in their
respective businesses (whether owned or held under lease), and from time to time
make or cause to be made all needed and appropriate repairs, renewals,
replacements, additions, betterments, and improvements thereto.
Section 5.4 Accounting Methods and Financial Records. The Borrower will
----------------------------------------
maintain and will cause each of the Borrower's Subsidiaries to maintain a modern
system of accounting that enables the Borrower and its Subsidiaries to produce
financial statements in accordance with GAAP, and will keep and will cause each
of the Borrower's Subsidiaries to keep adequate records and books of account in
which complete entries will be made in accordance with such accounting
principles consistently applied and reflecting all transactions required to be
reflected by such accounting principles.
Section 5.5 Insurance. The Borrower will maintain and will cause each
---------
of the Borrower's Subsidiaries to maintain insurance including, but not limited
to, public liability, product and manufacturer's liability, business
interruption and fidelity coverage insurance, in such amounts and against such
risks as would be customary for companies in the same industry and of comparable
size as the Borrower from responsible companies having and maintaining an A.M.
Best rating of "A minus" or better and being in a size category of VI or larger
or otherwise acceptable to the Agent. In addition to the foregoing, the Borrower
further agrees to maintain and pay for insurance upon all goods constituting
Collateral wherever located, in storage or in transit in vehicles, including
goods evidenced by documents, covering casualty, hazard, public liability and
such other risks and in such amounts as would be customary for companies in the
same industry and of comparable size as the Borrower, from responsible companies
having and maintaining an A.M. Best rating of "A minus" or better and being in a
size category of VI or larger or otherwise acceptable to the Agent to insure the
Lenders' interest in such Collateral. All such property insurance policies shall
name the Agent as loss payee and all liability insurance policies shall name the
Agent as additional insured. Borrower shall deliver the original certificates of
insurance evidencing that the required insurance is in force together with
satisfactory lender's loss payable and additional insured, as applicable,
endorsements. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than thirty (30) days' prior written
notice to the Agent in the event of cancellation or
63
<PAGE>
modification of the policy for any reason whatsoever and a clause that the
interest of the Agent shall not be impaired or invalidated by any act or neglect
of the Borrower or owner of the Collateral nor by the occupation of the premises
for purposes more hazardous than are permitted by said policy. If the Borrower
fails to provide and pay for such insurance, the Agent may, at the Borrower's
expense, procure the same, but shall not be required to do so. The Borrower
agrees to deliver to the Agent, promptly as rendered, true copies of all reports
made in any reporting forms to insurance companies.
Section 5.6 Payment of Taxes and Claims. The Borrower will pay and
---------------------------
discharge, and will cause each of the Borrower's Subsidiaries to pay and
discharge, all taxes, assessments, and governmental charges or levies imposed
upon them or upon their respective incomes or profits or upon any properties
belonging to them prior to the date on which penalties attach thereto, and all
lawful claims for labor, materials and supplies which have become due and
payable and which by law have or may become a Lien upon any of their respective
Property; except that, no such tax, assessment, charge, levy, or claim need be
paid which is being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on the
appropriate books, but only so long as such tax, assessment, charge, levy, or
claim does not become a Lien or charge other than a Permitted Lien and no
foreclosure, distraint, sale, or similar proceedings shall have been commenced
and remain unstayed for a period thirty (30) days after such commencement. The
Borrower shall timely file and will cause each of the Borrower's Subsidiaries
timely to file all information returns required by federal, state, or local tax
authorities.
Section 5.7 Visits and Inspections. The Borrower will permit and will
----------------------
cause each of the Borrower's Subsidiaries to permit representatives of the
Agent, the Issuing Banks and each Lender to (a) visit and inspect the properties
of the Borrower and each of the Borrower's Subsidiaries during normal business
hours, (b) inspect and make extracts from and copies of its books and records,
and (c) discuss with its respective principal officers its businesses, assets,
liabilities, financial positions, results of operations, and business prospects
relating to the Borrower; provided, however, if no Default then exists
hereunder, the Agent, any Issuing Bank or any Lender shall give the Borrower
reasonable prior notice of such visit or inspection.
Section 5.8 Conduct of Business. The Borrower shall continue, and shall
-------------------
cause each Material Subsidiary to continue, to engage in business of the same
general type as now respectively conducted by it.
Section 5.9 ERISA. The Borrower shall at all times make, or cause to be
-----
made, prompt payment of contributions required to meet the minimum funding
standards set forth in ERISA with respect to its and its ERISA Affiliates'
Plans; furnish to the Agent, promptly upon the Agent's request therefor, copies
of any annual report required to be filed pursuant to ERISA in connection with
each such Plan of it and its ERISA Affiliates; notify the Agent as soon as
practicable of any Reportable Event and of any additional act or condition
arising in connection with any such Plan which the Borrower believes might
constitute grounds for the termination
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thereof by the Pension Benefit Guaranty Corporation or for the appointment by
the appropriate United States District Court of a trustee to administer such
Plan; and furnish to the Agent, promptly upon the Agent's request therefor, such
additional information concerning any such Plan as may be reasonably requested
by the Agent.
Section 5.10 Lien Perfection. The Borrower agrees to, and will cause
---------------
each Material Subsidiary to, execute all Uniform Commercial Code financing
statements, and amendments and continuation statements thereto, provided for by
Applicable Law together with any and all other instruments, assignments or
documents and shall take such other action as may be required to perfect or
continue the perfection of the Agent's (on behalf of the Lenders and the Issuing
Banks) security interest in the Collateral. The Borrower hereby authorizes the
Agent to execute and file any such financing statement on the Borrower's behalf
to the extent permitted by Applicable Law.
Section 5.11 Location of Collateral; Consignment of Inventory.
------------------------------------------------
(a) All Collateral, other than Inventory in transit, will at all times be
kept by the Borrower at one or more of the business locations set forth in
Schedule 5.11 and shall not, without the prior written approval of the Agent,
- -------------
be moved therefrom except, prior to an Event of Default (i) sales of Inventory
in the ordinary course of business; (ii) sales or other dispositions of assets
permitted pursuant to Section 7.7 hereof; and (iii) the storage of Inventory at
locations within the continental United States other than those specified on
Schedule 5.11 hereto if (A) the Borrower gives the Agent written notice of the
- -------------
new storage location outside of (x) the state, or (y) if the Uniform Commercial
Code as in effect in such state has a county filing requirement, the county, in
which it is currently stored at least thirty (30) days prior to storing
Inventory at such location, (B) the Lenders' security interest in such Inventory
is and continues to be a duly perfected, first priority Lien thereon, (C)
neither the Borrower's nor the Agent's right of entry upon the premises where
such Inventory is stored or its right to remove the Inventory therefrom, is in
any way restricted, (D) the Agent is in receipt of an effective Collateral
Access Agreement for such location, and (E) all negotiable documents and
receipts in respect of any Collateral maintained at such premises are promptly
delivered to the Agent;
(b) No Inventory will be consigned to any Person without the Agent's
prior written consent, and, if such consent is given, the Borrower shall, prior
to the delivery of any Inventory on consignment, (i) provide the Agent with all
consignment agreements to be used in connection with such consignment, all of
which shall be acceptable to the Agent, (ii) prepare, execute and file
appropriate financing statements with respect to any consigned Inventory,
showing the Agent as assignee, (iii) conduct a search of all filings made
against the consignee in all jurisdictions in which any consigned Inventory is
to be located and deliver to the Agent copies of the results of all such
searches and (iv) notify, in writing, all the creditors of the consignee which
are or may be holders of Liens in the Inventory to be consigned that the
Borrower expects to deliver certain Inventory to the consignee, all of which
Inventory shall be described in such notice by item or type.
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Section 5.12 Protection of Collateral. All insurance expenses and
------------------------
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral (including, without limitation, all rent payable by
the Borrower to any landlord of any premises where any of the Collateral may be
located), and any and all excise, property, sales, and use taxes imposed by any
state, federal, or local authority on any of the Collateral or in respect of the
sale thereof, shall be borne and paid by the Borrower. If the Borrower fails to
promptly pay any portion thereof when due, the Lenders may, at their option, but
shall not be required to, make a Base Rate Advance for such purpose and pay the
same directly to the appropriate Person. The Borrower agrees to reimburse the
Lenders promptly therefor with interest accruing thereon daily at the Default
Rate provided in this Agreement. All sums so paid or incurred by the Lenders for
any of the foregoing and all reasonable costs and expenses (including attorneys'
fees, legal expenses, and court costs) which the Lenders may incur in enforcing
or protecting the Lien on or rights and interest in the Collateral or any of its
rights or remedies under this or any other agreement between the parties hereto
or in respect of any of the transactions to be had hereunder until paid by the
Borrower to the Lenders with interest at the Default Rate, shall be considered
Obligations owing by the Borrower to the Lenders hereunder. Such Obligations
shall be secured by all Collateral and by any and all other collateral,
security, assets, reserves, or funds of the Borrower in or coming into the hands
or inuring to the benefit of the Lenders. Neither the Agent nor the Lenders
shall be liable or responsible in any way for the safekeeping of any of the
Collateral or for any loss or damage thereto (except for reasonable care in the
custody thereof while any Collateral is in the Lenders' actual possession) or
for any diminution in the value thereof, or for any act or default of any
warehouseman, carrier, forwarding agency, or other person whomsoever, but the
same shall be at the Borrower's sole risk.
Section 5.13 Assignments and Records of Accounts. Upon the occurrence
-----------------------------------
of an Event of Default and if so requested by the Agent, the Borrower shall
execute and deliver to the Agent formal written assignments of all of the
Accounts weekly, which shall include all Accounts that have been created since
the date of the last assignment, together with copies of invoices or invoice
registers related thereto. The Borrower shall keep accurate and complete records
of the Accounts and all payments and collections thereon.
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Section 5.14 Administration of Accounts.
--------------------------
(a) The Agent retains the right after the occurrence and during the
continuation of an Event of Default to notify the Account Debtors that the
Accounts have been assigned to the Agent and to collect the Accounts directly in
its own name and to charge the collection costs and expenses, including
reasonable attorneys' fees, to the Borrower. The Agent has no duty to protect,
insure, collect or realize upon the Accounts or preserve rights in them. The
Borrower irrevocably makes, constitutes and appoints the Agent as the Borrower's
true and lawful attorney and agent-in-fact to endorse the Borrower's name on any
checks, notes, drafts or other payments relating to, the Accounts which come
into the Agent's possession or under the Agent's control as a result of its
taking any of the foregoing actions. Additionally, the Agent shall have the
right to collect all Accounts directly from the Account Debtors and, upon the
occurrence and during the continuation of an Event of Default, settle or adjust
all disputes and claims directly with the Account Debtor and to compromise the
amount or extend the time for payment of the Accounts upon such terms and
conditions as the Agent may deem advisable, and to charge the deficiencies,
reasonable costs and expenses thereof, including reasonable attorney's fees, to
the Borrower.
(b) If an Account includes a charge for any tax payable to any
governmental taxing authority, the Lenders are authorized, in their sole
discretion, to pay the amount thereof to the proper taxing authority for the
account of the Borrower and to make a Base Rate Advance to the Borrower to pay
therefor. The Borrower shall notify the Agent if any Account includes any tax
due to any governmental taxing authority and, in the absence of such notice, the
Agent shall have the right to retain the full proceeds of the Account and shall
not be liable for any taxes to any governmental taxing authority that may be due
by the Borrower by reason of the sale and delivery creating the Account.
(c) Whether or not a Default or an Event of Default has occurred, any of
the Agent's officers, employees or agents shall have the right, at any time or
times hereafter, in the name of the Lenders, or any designee of the Lenders or
the Borrower, to verify the validity, amount or other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. The Borrower shall
cooperate fully with the Agent and the Lenders in an effort to facilitate and
promptly conclude any such verification process.
Section 5.15 The Blocked Account.
-------------------
(a) The Borrower shall establish and maintain one or more special
lockboxes or blocked accounts (each, a "Blocked Account") owned by the Borrower
with such bank(s) as may be selected by the Borrower and approved by the Agent
and which shall provide that all proceeds of the Collateral (other than proceeds
of the HDTV Patents and the HDTV License Agreements) which shall be received in
such Blocked Account shall be remitted in immediately available funds to the
Clearing Account. Each such Blocked Account bank shall agree to the Agent's
standard Blocked Account Letter or such variation thereof as shall be mutually
satisfactory to the Agent and such bank. All amounts which shall be deposited
into any Blocked Account shall
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immediately be under the sole dominion and exclusive control of the Agent, on
behalf of the Issuing Banks and Lenders, and the Borrower shall have no right to
withdraw such amounts, and all of the Blocked Account Letters shall so provide.
(b) The Borrower shall cause all proceeds of Collateral (other than
proceeds of the HDTV Patents, the HDTV License Agreements, the Salomon Assets
and the Credits) to be promptly deposited directly into a Blocked Account or the
Clearing Account. Additionally, the Borrower shall cause all Tuning Patent
Royalties and other payments to be made to the Borrower under any License
Agreement to be promptly deposited by the obligor thereof directly into the
Blocked Account (and the Borrower has issued such payment instructions to all
licensees under such License Agreements in effect as of the Agreement Date and
will issue such payment instructions to all licensees under any License
Agreement entered into after the Agreement Date). In the event that the Borrower
shall at any time receive any remittances of any of the foregoing directly, the
Borrower shall hold the same as trustee for the Agent, shall segregate such
remittances from its other assets, and shall promptly deposit the same into the
Clearing Account. All cash, cash equivalents, checks, notes, drafts or similar
items of payment received by the Borrower otherwise than as provided elsewhere
in this Section 5.15(b) shall be deposited into the Clearing Account, the
Blocked Account or an account which pursuant to Section 5.15(d) hereof is
subject to a Blocked Account Letter.
(c) On the Business Day on which any amount is deposited into the
Clearing Account in immediately available funds the Agent shall withdraw such
amount from the Clearing Account, deposit the same in the Loan Account, and
apply the same against the Obligations in the manner provided for in Section
2.11 hereof; provided, however, and notwithstanding the foregoing, that unless
an Event of Default then exists, no money on deposit in the Clearing Account
shall be applied against any Eurodollar Advance if such application would
constitute a prepayment of such Eurodollar Advance prior to its Payment Date,
and such funds shall be retained in the Clearing Account (and will be invested
by the Agent in overnight deposits for the Borrower's account) until the earlier
of (i) such Payment Date, (ii) the next Business Day on which additional
Obligations arise, or (iii) the occurrence of an Event of Default, at which time
such amount shall be applied to such Eurodollar Advance or such Obligations (in
accordance with the provisions of Section 2.11 hereof), as the case may be;
provided further, however, that unless an Event of Default then exists, if at
any time there are no Revolving Loans outstanding, any funds on deposit in the
Clearing Account at such time shall be delivered to the Borrower upon the
Borrower's request.
(d) The Borrower shall not open any other deposit account unless the
depository bank for such account shall have entered into an agreement with the
Agent substantially in the form of the Blocked Account Letters. As of the
Agreement Date, all bank accounts of the Borrower are listed on
Schedule 5.15(d).
- ----------------
Section 5.16 Further Assurances. The Borrower will promptly cure, or
------------------
cause to be cured, defects in the creation and issuance of any of the Notes and
the execution and delivery of
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the Loan Documents (including this Agreement), resulting from any act or failure
to act by the Borrower or any of the Borrower's Subsidiaries or any employee or
officer thereof. The Borrower at its expense will promptly execute and deliver
to the Agent and the Lenders, or cause to be executed and delivered to the Agent
and the Lenders, all such other and further documents, agreements, and
instruments in compliance with or accomplishment of the covenants and agreements
of the Borrower in the Loan Documents, including this Agreement, or to correct
any errors in the Loan Documents, or to perfect and maintain the validity,
priority and effectiveness of the Security Documents and the Liens intended to
be created thereby, or to obtain any consents, all as may be necessary or
appropriate in connection therewith and as may be reasonably requested.
Section 5.17 Broker's Claims. The Borrower hereby indemnifies and
---------------
agrees to hold the Agent and each of the Lenders harmless from and against any
and all losses, liabilities, damages, costs and expenses which may be suffered
or incurred by the Agent and each of the Lenders in respect of any claim, suit,
action or cause of action now or hereafter asserted by a broker or any Person
acting in a similar capacity arising from or in connection with the execution
and delivery of this Agreement or any other Loan Document or the consummation of
the transactions contemplated herein or therein.
Section 5.18 Indemnity. The Borrower will indemnify and hold harmless
---------
the Agent, the Issuing Banks and each of the Lenders and each of their
respective employees, representatives, officers and directors from and against
any and all claims, liabilities, investigations, losses, damages, actions, and
demands by any party against the Agent, the Lenders, or any of them resulting
from any breach or alleged breach by the Borrower of any representation or
warranty made hereunder, or otherwise arising out of the Commitment or the
making, administration or enforcement of the Loan Documents and the Loans;
unless, with respect to any of the above, the Agent, the Lenders, or any of them
are finally judicially determined to have acted or failed to act with gross
negligence or wilful misconduct. This Section 5.18 shall survive termination of
this Agreement.
Section 5.19 Environmental Matters. The conduct of each of the
---------------------
Borrower's and its Subsidiary's business operations will not materially violate
any Environmental Laws, and the Borrower will not use or permit any other party
to use any Hazardous Materials at any of its places of business except such
materials as are incidental to the Borrower's or such Subsidiary's normal course
of business, maintenance and repairs, and then only in material compliance with
all applicable Environmental Laws. The Borrower shall apply for and/or timely
renew all permits required for the business operations at its places of
business. The Borrower shall promptly notify the Agent in writing of (i) any and
all enforcement, cleanup, remedial, removal, or other governmental or regulatory
actions instituted, completed or threatened in writing pursuant to any
applicable Environmental Law; and (ii) all claims made or threatened by any
third party against the Borrower or any Subsidiary of the Borrower relating to
damages, contribution, cost recover compensation, loss or injury resulting from
any Hazardous Materials which, in either case, could reasonably be expected to
result in liability under Environmental
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Laws in excess of $400,000. The Borrower shall promptly notify the Agent of any
remedial action taken by the Borrower or any Subsidiary of the Borrower pursuant
to Environmental Laws with respect to the Borrower's or such Subsidiary's
business operations.
Section 5.20 Warehouse Arrangement. The Borrower shall at all times make
---------------------
any payments due and owing to GATX Logistics, Inc. pursuant to any warehousing
agreement at the time such payments are due (subject to applicable grace periods
contained therein), and shall otherwise comply with all material provisions of
any such warehousing agreement. The Borrower acknowledges that the Agent shall
establish a reserve against the Borrowing Base in an amount equal to the greater
of (a) $900,000, and (b)(i) the monthly average during the previous three (3)
month period of all fees or other compensation payable to GATX Logistics, Inc.
by the Borrower, multiplied by (ii) three. At the time the financial statements
are furnished pursuant to Section 6.1, for so long as the provisions of this
Section 5.20 remain in effect, the Borrower will include in the certificate to
be delivered pursuant to Section 6.3 information with respect to the amount of
all such fees and other compensation paid by the Borrower to GATX Logistics Inc.
for each of the three (3) previous calendar months. The provisions of this
Section 5.20 shall be of no further effectiveness upon the earliest to occur of
(a) receipt by the Agent of a Lien waiver agreement executed by GATX Logistics,
Inc. in form and substance reasonably acceptable to the Agent, (b) receipt of an
opinion in form and substance reasonably acceptable to the Agent opining that
under Applicable Law or the applicable agreements GATX Logistics, Inc. has no
Lien, and (c) the termination of all of the Borrower's warehousing agreements
with GATX Logistics, Inc.
Section 5.21 Post Closing Deliveries. The Borrower shall deliver to the
-----------------------
Agent (a) within forty-five (45) days after the Agreement Date, a Phase II
environmental audit report, in form and substance satisfactory to the Agent, for
each parcel of real property owned by the Borrower encumbered by the Mortgage;
(b) within ten (10) days after the Agreement Date, copies of employment
contracts for key management level employees of the Borrower; (c) within thirty
(30) days after the Agreement Date, a Collateral Access Agreement for the
Borrower's leased real property at N. Austin Road in Chicago, Illinois (unless
the Borrower has removed all of its assets from such location and terminated
such lease by such time); and (d) within ten (10) days after the Agreement Date,
the Borrower's amended and restated certificate of incorporation certified to be
true, complete and correct by the Secretary of State for the State of Delaware
and a copy of the amended and restated bylaws of the Borrower certified to be
true, correct and complete by an Authorized Signatory of the Borrower.
Section 5.22 Closing of Chapter 11 Case. In a timely fashion, the Borrower
--------------------------
shall file a motion to have the Court enter a final decree concluding the
Chapter 11 Case, and the Borrower shall diligently prosecute such motion.
Section 5.23 LGE Exit Facility. To the extent available under the LGE Exit
-----------------
Facility, the Borrower shall obtain advances under the LGE Exit Facility, if at
any time the average, for each Business Day for the preceding two week period,
Availability hereunder is less than $5,000,000.
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Additionally, the Borrower shall borrow the full amount of the commitment under
the LGE Exit Facility three (3) Business Days prior to June 15, 2000 or such
later date on which the approval of the LGE Exit Facility by the Korean Ministry
of Finance or any other applicable governmental entity is scheduled to expire or
terminate, and shall use the Net Cash Proceeds received from such borrowing to
make a mandatory prepayment of the Loans in accordance with Section 2.6(c)
hereof.
ARTICLE 6
INFORMATION COVENANTS
---------------------
So long as any of the Obligations are outstanding and unpaid or the
Borrower has a right to borrow, or have Letters of Credit issued, hereunder
(whether or not the conditions to borrowing have been or can be fulfilled) and
unless the Majority Lenders shall otherwise consent in writing, the Borrower
will furnish or cause to be furnished to each Lender and to the Agent at their
respective offices:
Section 6.1 Monthly Financial Statements. Within forty-five (45) days
----------------------------
after each fiscal month end that is also a fiscal quarter end and within thirty
(30) days after each other fiscal month end, in each year of the Borrower, the
balance sheet of the Borrower as at the end of such fiscal month, and the
related statement of income and related statement of cash flows of the Borrower
for such fiscal month and for the elapsed portion of the year ended with the
last day of such fiscal month, all of which shall be on a consolidated basis
with the Borrower's Subsidiaries and certified by the Authorized Signatory of
the Borrower, in his or her opinion, to present fairly, in accordance with GAAP,
the financial position of the Borrower, as at the end of such period and the
results of operations for such period, and for the elapsed portion of the year
ended with the last day of such period, subject only to normal quarter-end and
year-end adjustments.
Section 6.2 Annual Financial Statements and Information; Certificate of
-----------------------------------------------------------
No Default. Within ninety (90) days after the end of each year of the Borrower,
- ----------
the audited balance sheets of the Borrower as at the end of such year, all of
which shall be on a consolidated or consolidating basis with the Borrower's
Subsidiaries, and the related audited statements of income and retained earnings
and related audited statements of cash flows for such year, which financial
statements shall set forth in comparative form such figures as at the end of and
for the previous year, and shall be accompanied by an opinion of independent
certified public accountants of recognized standing satisfactory to the Majority
Lenders, which opinion shall state that such financial statements present
fairly, in all material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and have been
prepared in accordance with GAAP, and that the examination of such accountants
in connection with such financial statements has been made in accordance with
generally accepted accounting standards, and that such audit provides a
reasonable basis for such opinion in the circumstances, together with a
statement of the chief financial officer of the Borrower certifying that no
Default or Event of Default, including, without limitation, any Default under
Sections 7.8 through 7.11 hereof,
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was detected during the examination of the Borrower, and that such accountants
have authorized the Borrower to deliver such financial statements and opinion
thereon to the Agent and the Lenders pursuant to this Agreement.
Section 6.3 Performance Certificates. At the time the financial statements
------------------------
are furnished pursuant to Section 6.1 for the months of March, June, September
and December and Section 6.2 hereof, a certificate of an Authorized Signatory of
the Borrower in the form of Exhibit K attached hereto:
---------
(a) Setting forth as at the end of such quarter or year, as the case may
be, all domestic Subsidiaries of the Borrower (other than the Material
Subsidiaries) and the total book value of assets owned by each such Subsidiary
and setting forth the arithmetical calculations needed to establish the L/C Fee
Margin, the Interest Rate Margin and compliance with the financial covenants set
forth in Sections 7.8 through 7.11 hereof; and
(b) Stating that, to the best of his or her knowledge, no Default or Event
of Default has occurred as at the end of such quarter or year, as the case may
be, or, if a Default or an Event of Default has occurred, disclosing each such
Default or Event of Default and its nature, when it occurred, whether it is
continuing, and the steps being taken by the Borrower with respect to such
Default or Event of Default.
Section 6.4 Access to Accountants. The Borrower hereby authorizes the
---------------------
Agent to communicate directly with the Borrower's independent public accountants
and authorizes these accountants to disclose to the Agent any and all financial
statements and other supporting financial data, including matters relating to
the annual audit and copies of any arrangement letter with respect to its
business, financial condition and other affairs. On or before the Agreement
Date, the Borrower shall deliver to its independent public accountants a letter
authorizing and instructing them to comply with the provisions of this
Section 6.4.
Section 6.5 Additional Reports.
------------------
(a) By Tuesday of each week, the Borrower shall deliver to the Agent and
to any Lender requesting the same, a Borrowing Base Certificate as of the
immediately preceding Saturday which shall be in such form as shall be
satisfactory to the Agent, (i)setting forth the amount of Inventory owned by the
Borrower, and specifically setting forth the amount of Eligible Picture Tube
Inventory, Eligible VCR Inventory and Eligible TV and Other Inventory, (ii)
containing a categorical breakdown of all Accounts, and (iii) listing any new
HDTV Patent obtained by the Borrower and disclosing any material impairment in
the value of any Other Asset. Within fifteen (15) days after the end of each
month, the Borrower shall deliver to the Agent and to the Lenders, in form
acceptable to the Agent, a detailed aged trial balance of all Accounts existing
as of the last day of the preceding month, specifying the names, addresses, face
value, dates of invoices and due dates for each Account Debtor obligated on an
Account so listed and all other information necessary to calculate Eligible
Accounts as of such last day of the
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preceding month, and, upon the Agent's request therefor, copies of proof of
delivery and copies of all documents, including, without limitation, repayment
histories and present status reports relating to the Accounts so scheduled and
such other matters and information relating to the status of then existing
Accounts as the Agent shall reasonably request. If at any time or times any
Account Debtor returns any Inventory to the Borrower, the shipment of which
generated an Account on which such Account Debtor is obligated in excess of
$2,000,000, the Borrower shall notify the Agent of same immediately, specifying
the reason for such return and the location and condition of the returned
Inventory;
(b) Promptly upon receipt thereof, the Borrower shall deliver to the Agent
and the Lenders copies of all final reports, if any, submitted to the Borrower
by its independent public accountants in connection with any annual or interim
audit of the Borrower or any of the Borrower's Subsidiaries, including, without
limitation, any final management report prepared in connection with any annual
audit;
(c) Promptly after the sending thereof, the Borrower shall deliver to the
Agent and the Lenders copies of all financial statements, reports and other
information which the Borrower or any of the Borrower's Subsidiaries sends to
any holder of its Indebtedness (other than to the Borrower or any LGE Group
member) or its securities (other than to the Borrower or any LGE Group member)
or which the Borrower or any of the Borrower's Subsidiaries files with the
Securities and Exchange Commission or any national securities exchange;
(d) The Borrower shall deliver to the Agent on behalf of the Lenders
promptly after the same become available copies of the semi-annual unaudited and
annual audited balance sheet of LGE as at the end of each such period,
respectively, and the related statements of income and cash flows of LGE for
such period, all on a consolidated and consolidating basis with LGE's
Subsidiaries;
(e) Prior to December 31 of each year, the Borrower shall deliver to the
Agent and the Lenders the annual budget for the Borrower and any of the
Borrower's Subsidiaries, including forecasts of the income statement, the
balance sheet and a cash flow statement for the immediately succeeding year on a
month by month basis, provided the Borrower shall not be required to deliver
such information until January 31, 2000 in connection with the fiscal year 2000;
(f) Promptly when available, the Borrower shall deliver to the Agent on
behalf of the Lenders a copy of each monthly statement prepared by the
applicable depositary bank with respect to each of Borrower's depositary
accounts;
(g) Promptly upon receipt thereof, the Borrower shall deliver to the Agent
copies of all notices delivered to the Borrower by any lender under the LGE Exit
Facility or any holder of the Restructured PIK Note in connection with any such
Indebtedness; and
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(h) From time to time and promptly upon each request the Borrower shall
deliver to the Agent on behalf of the Lenders such data, certificates, reports,
statements, opinions of counsel, documents, or further information regarding the
business, assets, liabilities, financial position, projections, results of
operations, or business prospects of the Borrower or any of the Borrower's
Subsidiaries as the Agent may reasonably request.
Section 6.6 Notice of Litigation and Other Matters.
--------------------------------------
(a) Within five (5) Business Days of the Borrower's obtaining knowledge of
the institution of, or written threat of, any action, suit, governmental
investigation or arbitration proceeding against the Borrower or any of the
Borrower's Subsidiaries or any Property, which action, suit, governmental
investigation or arbitration proceeding exposes, in the Borrower's reasonable
judgment, the Borrower or any of the Borrower's Subsidiaries to liability in an
aggregate amount in excess of $400,000 (provided, however, that if the claim is
covered by insurance and the insurer has acknowledged coverage and assumed the
defense of such suit, the payment or value must be $400,000 in excess of the
insurance coverage), the Borrower shall notify the Agent, and the Lenders of the
occurrence thereof, and the Borrower shall provide such additional information
with respect to such matters as the Agent or the Lenders may reasonably request
(including the information required by Section 6.6(k);
(b) The Borrower shall notify the Agent and the Lenders within five (5)
Business Days of the Borrower becoming aware of (i) any labor dispute which may
result in claims or losses from operations greater than $400,000 in the
aggregate not covered by insurance to which the Borrower or any of the
Borrower's Subsidiaries may become a party, including, without limitation, any
strikes, lockouts or other disputes relating to their respective plants and
other facilities and (ii) any liability greater than $400,000 in the aggregate
not covered by insurance and incurred with respect to any closing of any plant
or other facility of the Borrower or any of the Borrower's Subsidiaries;
(c) Within (i) one (1) Business Day of the demand by any lender in
connection with the LGE Exit Facility or any holder of the Restructured PIK Note
for the repayment of all or any portion of the principal thereof, the Borrower
shall notify the Agent and the Lenders of the occurrence thereof, and (ii) three
(3) Business Days' of the occurrence of any default (whether or not the Borrower
has received notice thereof from any other Person) on Indebtedness of the
Borrower or any Subsidiary of the Borrower which singly, or in the aggregate
exceed $1,000,000, the Borrower shall notify the Agent and the Lenders of the
occurrence thereof;
(d) Within fifteen (15) days of the occurrence of any default on any
Indebtedness of any Person owed to the Borrower, which singly or in the
aggregate exceeds $2,000,000, the Borrower shall notify the Agent and the
Lenders of the occurrence thereof;
(e) Promptly upon the Borrower's receipt of notice or the pendency of
any proceeding for the condemnation or other taking of any real property of the
Borrower or any of the
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Borrower's Subsidiaries, the Borrower shall notify the Agent and the Lenders of
the occurrence thereof;
(f) Promptly upon the Borrower's receipt of notice of any material
adverse change with respect to the business, assets, liabilities, financial
position, or results of operations of the Borrower or any of the Borrower's
Subsidiaries, other than changes in the ordinary course of business which have
not had and are not likely to have a Materially Adverse Effect, the Borrower
shall notify the Agent and the Lenders of the occurrence thereof;
(g) Promptly following any (i) Default under any Loan Document, or any
default by the Borrower under any New Debenture, the Restructured PIK Note or
the LGE Exit Facility or (ii) default under any other agreement (other than
those referenced in clause (i) of this Section 6.6(g) above) to which the
Borrower or any of the Borrower's Subsidiaries is a party or by which any of
their respective properties is bound which could reasonably be expected to have
a Materially Adverse Effect, then the Borrower shall notify the Agent and the
Lenders of the occurrence thereof giving in each case the details thereof and
specifying the action proposed to be taken with respect thereto;
(h) Promptly following the occurrence of any event subsequent to the
Agreement Date which, if such event had occurred prior to the Agreement Date,
would have constituted an exception to the representation and warranty in
Section 4.1(w) of this Agreement, the Borrower shall notify the Agent and the
Lenders of the occurrence thereof;
(i) Promptly following any material amendment or change to the budget
submitted to the Agent and the Lenders pursuant to Section 6.5(e) hereof, the
Borrower shall notify the Agent and the Lenders of the occurrence thereof;
(j) Promptly following the occurrence of any Reportable Event or a
"prohibited transaction" (as such term is defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any Plan of the Borrower or any of its
ERISA Affiliates or the institution or threatened institution by the Pension
Benefit Guaranty Corporation of proceedings under ERISA to terminate or to
partially terminate any such Plan or the commencement or threatened commencement
of any litigation regarding any such Plan or naming it or the trustee of any
such Plan with respect to such Plan (other than claims for benefits in the
ordinary course of business), the Borrower shall notify the Agent and the
Lenders of the occurrence thereof; and
(k) Promptly following the filing or service of any material pleadings, or
the entry of any order, judgment or other ruling in the Funai Litigation, the
Borrower shall provide copies of such pleadings, order, judgment or other ruling
to the Agent and the Lenders (except to the extent such documents are filed
under seal, protected by court order or otherwise required to be maintained as
confidential by the court).
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NEGATIVE COVENANTS
------------------
So long as any of the Obligations are outstanding and unpaid or the
Borrower has a right to borrow, or have Letters of Credit issued, hereunder
(whether or not the conditions to borrowing have been or can be fulfilled) and
unless the Majority Lenders shall otherwise give their prior consent in writing:
Section 7.1 Indebtedness. The Borrower will not create, assume, incur, or
------------
otherwise become or remain obligated in respect of, or permit to be outstanding,
and will not permit any of the Borrower's Subsidiaries to create, assume, incur,
or otherwise become obligated in respect of, or permit to be outstanding, any
Indebtedness except:
(a) Indebtedness under this Agreement and the other Loan Documents;
(b) Trade or accounts payable and/or similar obligations, and accrued
expenses, incurred in the ordinary course of business, other than for borrowed
money;
(c) (i) Indebtedness secured by Permitted Liens described in clause (h) of
the definition of Permitted Liens set forth in Article 1 hereof not to exceed
the aggregate principal amount of $1,000,000 at any time, and (ii) Capital Lease
Obligations to the extent permitted by Section 7.10 hereof;
(d) Guaranties permitted by Section 7.2;
(e) Indebtedness under the New Debentures, the Restructured PIK Note and
the LGE Exit Facility;
(f) Accrued interest on the Borrower's Indebtedness to LGE incurred prior
to the commencement of the Chapter 11 Case, which interest is classified as a
"Class 4 - General Unsecured Claim" under the Reorganization Plan, in an
aggregate amount not exceeding $12,127,618.07; and
(g) Other unsecured Indebtedness incurred by the Borrower not to exceed
$2,000,000 in the aggregate outstanding from time to time.
Section 7.2 Guaranties. The Borrower will not at any time guarantee or
----------
enter into or assume any Guaranty, or be obligated with respect to, or permit to
be outstanding, any Guaranty and will not permit any of the Borrower's
Subsidiaries at any time to guarantee or enter into or assume any Guaranty, or
be obligated with respect to, or permit to be outstanding, any Guaranty, in each
case other than (a) obligations under repurchase agreements of the Borrower
entered into in connection with the sale of products in the ordinary course of
business of the Borrower, (b) obligations under agreements to indemnify persons
or entities which have issued bid or performance bonds or letters of credit in
the ordinary course of business of the Borrower securing
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performance by the Borrower of activities permissible hereunder, (c) obligations
under agreements of the Borrower entered into in connection with the acquisition
of services, supplies, and equipment in the ordinary course of business of the
Borrower, (d) guaranties by the Borrower of Indebtedness of any Material
Subsidiary permitted to be incurred by such Material Subsidiary under clauses
(b) or (c) of Section 7.1 hereof, (e) guaranties by the Material Subsidiaries of
the Indebtedness of the Borrower under the LGE Exit Facility and the
Restructured PIK Note, (f) endorsements of instruments in the ordinary course of
business, and (g) other obligations of any Affiliate, which do not exceed
$1,000,000 in the aggregate outstanding at any time.
Section 7.3 Liens. The Borrower will not create, assume, incur, or
-----
permit to exist or to be created, assumed, or permitted to exist, directly or
indirectly, and will not permit any of the Borrower's Subsidiaries to create,
assume, incur, or permit to exist or to be created, assumed, or permitted to
exist, directly or indirectly, any Lien on any of its property, real or
personal, now owned or hereafter acquired, except for Permitted Liens.
Section 7.4 Restricted Payments and Purchases; Issuance of Capital
------------------------------------------------------
Stock. The Borrower shall not directly or indirectly declare or make, and shall
- -----
not permit any of the Borrower's Subsidiaries to directly or indirectly declare
or make, any Restricted Payment or Restricted Purchase, or set aside any funds
for any such purpose; provided, however, the Borrower's Subsidiaries may
directly or indirectly make Restricted Payments to the Borrower. Except in the
case of an exchange and conversion of certain claims of LGE arising prior to the
commencement of the Chapter 11 Case for Capital Stock on the Effective Date of
the Reorganization Plan, the Borrower shall not, and shall not permit any of its
Subsidiaries to, issue any Capital Stock.
Section 7.5 Investments. The Borrower will not make and will not permit
-----------
any of its Subsidiaries to make any loan or advance to, or otherwise acquire for
consideration evidences of Indebtedness, Capital Stock, partnership interests or
other securities of or equity interests in any third party, except that (a) the
Borrower may purchase or otherwise acquire and own and may permit any of its
Subsidiaries to purchase or otherwise acquire and own, (i) marketable, direct
obligations of the United States of America and its agencies maturing within
three hundred sixty- five (365) days of the date of purchase, (ii) commercial
paper issued by corporations, each of which shall (A) have a consolidated net
worth of at least $250,000,000, and (B) conduct substantially all of its
business in the United States of America, which commercial paper will mature
within one hundred eighty (180) days from the date of the original issue thereof
and is rated "P-1" or better by Moody's Investors Service, Inc., or "A-1+" or
better by Standard & Poor's Corporation, (iii) certificates of deposit maturing
within three hundred sixty-five (365) days of the date of purchase and issued by
a United States national or state bank having deposits totaling more than
$250,000,000, and whose short-term debt is rated "P-1" or better by Moody's
Investors Service, Inc. or "A-1+" or better by Standard & Poor's Corporation,
and (iv) up to $100,000 per institution and up to $1,000,000 in the aggregate in
(A) short-term obligations issued by any local commercial bank or trust company
located in those areas where the Borrower conducts its business, whose deposits
are insured by the Federal Deposit Insurance Corporation,
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or (B) commercial bank-insured money market funds, or any combination of
investments described in clauses (A) and (B); (b) the Borrower may hold the
Investments in existence on the Agreement Date and described on Schedule 4.1(l);
--------------
(c) so long as no Default or Event of Default shall have occurred and be
continuing, the Borrower may convert any of its Accounts that are in excess of
ninety (90) days past due into notes or equity interests from the applicable
Account Debtor so long as the Agent is granted a first priority security
interest in such equity or note which Lien is perfected contemporaneously with
the conversion of such Account to equity or notes, (d) the Borrower may hold the
Capital Stock of its Subsidiaries in existence on the Agreement Date or formed
in accordance with Section 7.7(g), and (e) the Borrower may make loans or
advances to any Material Subsidiary and any Material Subsidiary may make loans
or advances to any other Material Subsidiary.
Section 7.6 Affiliate Transactions. The Borrower shall not, and shall
----------------------
not permit its Subsidiaries to, enter into or be a party to any agreement or
transaction with any Affiliate except (a) the Borrower and its Material
Subsidiaries may purchase Inventory from any Mexican Subsidiary in the ordinary
course of business and in a manner consistent with past business practices;
provided, that the amount advanced to any Mexican Subsidiary for such Inventory
production, together with the cash on hand or on deposit held by such Mexican
Subsidiary, shall not exceed the cash needs of such Mexican Subsidiary for
working capital during the period of seven consecutive days following any date
of determination, (b) as listed on Schedule 7.6 hereto, or (c) in the ordinary
------------
course of and pursuant to the reasonable requirements of the Borrower's or such
Subsidiaries business and upon fair and reasonable terms that are no less
favorable to the Borrower or to such Subsidiary than it would obtain in a
comparable arms length transaction with a Person not an Affiliate of Borrower,
and, if such a business relationship existed prior to the Agreement Date, on
terms consistent with the business relationship of Borrower or such Subsidiary
and such Affiliate prior to the Agreement Date; provided that any contracts,
purchase orders, or other transactions between the Borrower or any Material
Subsidiary, on one hand, and any Affiliate, on the other hand, that provide for
payments in excess of $3,000,000 in a single contract, purchase order or
transaction or a series of related contracts, purchase orders or transactions
shall be summarized in a quarterly report prepared by the Borrower certified by
an Authorized Signatory of the Borrower and delivered to the Agent within
forty-five (45) days following the last day of each fiscal quarter. Nothing
contained in this Agreement shall prohibit increases in compensation and
benefits for officers and employees of the Borrower or any of the Borrower's
Subsidiaries which are customary in the industry or consistent with the past
business practice of the Borrower or any of the Borrower's Subsidiaries, or
payment of customary directors' fees and indemnities.
Section 7.7 Liquidation; Change in Ownership, Name, or Year; Disposition or
---------------------------------------------------------------
Acquisition of Assets; Etc. The Borrower shall not, and shall not permit any of
- --------------------------
the Borrower's Subsidiaries to, at any time:
(a) Liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up its business; provided, however, that Telson,
S.A. de C.V. and any Immaterial Subsidiary may, dissolve or liquidate;
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(b) Sell, lease, abandon, transfer or otherwise dispose of, in a single
transaction or a series of related transactions, any assets, property or
business, except for (i) the sale of Inventory in the ordinary course of
business at the fair market value thereof and for cash or cash equivalents; (ii)
physical assets used, consumed or otherwise disposed of in the ordinary course
of business; (iii) (A) transfers of assets on the Effective Date of the
Reorganization Plan as provided thereunder, (B) to the extent not occurring on
the Effective Date, the Reynosa Transfer, provided the principal amount of the
Restructured PIK Note is reduced by $33,747,225.57 (as such amount may be
adjusted in accordance with Section 1.3 of that certain stock purchase agreement
between the Borrower and LGE) upon such transfer, and (C) the sale (for cash,
cash equivalents and/or short-term promissory notes) of the Salomon Assets and
the Credits for the fair market value or cash equivalent value, as applicable,
thereof, provided the Net Cash Proceeds received by the Borrower in connection
with such sale shall be paid promptly after receipt thereof by the Borrower to
repay the Restructured PIK Note; and (iv) so long as no Event of Default then
exists, (A) the sale or disposal of assets with a sale value not greater than
$1,000,000 in the aggregate for all such assets that may be sold during any year
if the Net Cash Proceeds from such sale are applied to the Loans as required by
Section 2.6(c), and (B) the sale (for cash, cash equivalents and/or short-term
promissory notes) of the assets listed on Schedule 7.7 hereto, provided (x) the
------------
Borrower delivers to the Agent a copy of the closing statement for such sale
promptly after the consummation thereof, (y) Net Cash Proceeds received by the
Borrower in connection with such sale shall be paid on the date of receipt
thereof by the Borrower to the Lenders as a mandatory repayment of the Revolving
Loans (but such payment shall not reduce the Commitment), and (z) if such asset
was an Other Asset, the advance amount in connection with the Other Assets set
forth in clause (g) of the Borrowing Base is permanently reduced by the amount
attributable to such Other Asset as set forth on Schedule O-1 hereto;
------------
(c) Become a partner or joint venturer with any third party;
(d) Acquire (i) all or any substantial part of the assets, property or
business of, or (ii) any assets that constitute a division or operating unit of
the business of, any other Person;
(e) Merge or consolidate with any other Person, except that any Subsidiary
of the Borrower may be merged into or consolidated with another Wholly-Owned
Subsidiary of the Borrower; provided that if any Material Subsidiary is a party
to such merger or consolidation, the surviving entity is a Material Subsidiary;
(f) Change its corporate name without giving the Agent thirty (30) days
prior written notice of its intention to do so and complying with all reasonable
requirements of the Lenders in regard thereto;
(g) Create any Subsidiary, except for (i) the creation of a Subsidiary
solely to be transferred to LGE in connection with the Reynosa Transfer, and
(ii) the creation of a Wholly- Owned Subsidiary of the Borrower provided; that
(A) such Subsidiary is organized under the
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laws of a jurisdiction within the United States of America, (B) (x) if such
Subsidiary is or becomes a Material Subsidiary, such Subsidiary executes at the
time of its creation (or within thirty (30) days after it becomes a Material
Subsidiary) a Supplement to the Subsidiary Guaranty in favor of the Agent, the
Issuing Banks and the Lenders in the form of Exhibit H attached hereto and a
---------
Supplement to the Subsidiary Security Agreement in favor of the Agent, the
Issuing Banks and the Lenders in the form of Exhibit I attached hereto, (y) if
---------
such Subsidiary is a domestic Subsidiary, the Borrower executes an amendment to
the Pledge Agreement for purposes of pledging the stock of such Subsidiary to
the Agent pursuant to the terms of the Pledge Agreement, and (z) if such
Subsidiary is a domestic Subsidiary, or is or becomes a Material Subsidiary, the
Borrower and such Subsidiary take all steps required and execute all necessary
documents (including UCC-1 financing statements) to perfect the security
interest of the Agent in the Capital Stock of such domestic Subsidiary and the
assets of such Material Subsidiary, and (C) no Default exists immediately prior
to or after the creation of such Subsidiary; or
(h) Change its year-end for accounting purposes from the calendar year
ending December 31.
Section 7.8 Minimum EBITDA. The Borrower shall not permit for the fiscal
--------------
quarter ended (a) December 31, 1999, EBITDA for the immediately preceding three
(3) month period to be less than ($10,000,000), (b) March 31, 2000, EBITDA for
the immediately preceding six (6) month period to be less than ($13,000,000),
(c) June 30, 2000, EBITDA for the immediately preceding nine (9) month period to
be less than ($15,000,000), and (d) September 30, 2000, and each fiscal quarter
end thereafter, EBITDA for the immediately preceding twelve (12) month period to
be less than the amount herein below specified for such period:
Quarter End Amount
----------- ------
September 30, 2000 ($14,000,000)
December 31, 2000 ($ 3,000,000)
March 31, 2001 $ -0-
June 30, 2001 $ 5,000,000
September 30, 2001 $11,000,000
December 31, 2001 $25,000,000
March 31, 2002 $28,000,000
June 30, 2002 $33,000,000
September 30, 2002 $37,000,000
Section 7.9 Interest Coverage Ratio. The Borrower shall not permit for
-----------------------
the fiscal quarter ended (a) December 31, 2000, the Interest Coverage Ratio for
the immediately preceding six (6) month period to be less than 0.25 to1.0, (b)
March 31, 2001, the Interest Coverage Ratio for the immediately preceding nine
(9) month period to be less than 0.20 to 1.0, and (c) June 30, 2001, and each
fiscal quarter end thereafter, the Interest Coverage Ratio for the immediately
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preceding twelve (12) month period to be less than the amount herein below
specified for such period:
Quarter End Ratio
----------- -----
June 30, 2001 0.35 to 1.0
September 30, 2001 0.75 to 1.0
December 31, 2001 1.65 to 1.0
March 31, 2002 1.60 to 1.0
June 30, 2002 1.50 to 1.0
September 30, 2002 1.40 to 1.0
Section 7.10 Capital Expenditures. The Borrower shall not make or incur
--------------------
in the aggregate any Capital Expenditures (including Capital Lease Obligations),
during any fiscal year, in excess of the amount herein below specified for such
year:
Year Permitted Amount
---- ----------------
1999 $12,000,000
2000 $ 5,000,000
2001 $ 5,000,000
2002 $ 5,000,000
; provided, however, (a) the Borrower may make additional Capital Expenditures
during any fiscal year in an aggregate amount equal to the lesser of (i) the
unused permitted amount for the immediately preceding fiscal year, and (ii)
$2,000,000; and (b) the Borrower may make additional Capital Expenditures during
fiscal year 2000 in an aggregate amount equal to $4,000,000 for the Borrower's
relocation expenses.
Section 7.11 Tuning Patent Royalties. As of the fiscal quarter ended
-----------------------
September 30, 1999, and each fiscal quarter end thereafter, the aggregate amount
of Tuning Patent Royalties received by the Borrower during the immediately
preceding twelve (12) month period shall not be less than $18,000,000.
Section 7.12 Sales and Leasebacks. The Borrower will not enter into and
--------------------
will not permit any of the Borrower's Subsidiaries to enter into any arrangement
after the Agreement Date, directly or indirectly, with any third party whereby
the Borrower or such Subsidiary shall sell or transfer any property, real or
personal, whether now owned or hereafter acquired, and whereby the Borrower or
such Subsidiary shall then or thereafter rent or lease as lessee such property
or any part thereof or other property which the Borrower or such Subsidiary
intends to use for substantially the same purpose or purposes as the property
sold or transferred.
Section 7.13 Amendment and Waiver. The Borrower shall not, and shall not
--------------------
allow any Material Subsidiary to, without the prior written consent of the
Majority Lenders, enter into any amendment of, or agree to or accept any waiver
which would adversely affect the rights of the
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Agent, the Lenders and the Issuing Banks under this Agreement or any other Loan
Document, of (a) its certificate of incorporation (other than the amendment to
the Borrower's certificate of incorporation filed on or immediately prior to the
Agreement Date) and by-laws, (b) the New Debentures, or (c) any document
evidencing, securing or guaranteeing the LGE Exit Facility or the Restructured
PIK Note.
Section 7.14 ERISA Liability. The Borrower and each of the Borrower's
---------------
Subsidiaries shall not fail to meet all of the applicable minimum funding
requirements of ERISA and the Code, without regard to any waivers thereof, and,
to the extent that the assets of any of its Plans would be less than an amount
sufficient to provide all accrued benefits payable under such Plans, shall make
the maximum deductible contributions allowable under the Code. Neither the
Borrower nor any of the Borrower's Subsidiaries shall (a) become a participant
in any Multiemployer Plan after the Agreement Date, or (b) withdraw from any
Multiemployer Plan if such withdrawal would result in material liability to the
Borrower or any Subsidiary.
Section 7.15 Prepayments. The Borrower shall not prepay, redeem,
-----------
defease or purchase in any manner, or deposit or set aside funds for the purpose
of any of the foregoing, make any payment in respect of principal of, or make
any payment in respect of interest on, (a) the Restructured PIK Note; provided
the Borrower may make payments of interest required in accordance with the terms
of the Restructured PIK Note and may make payments of principal with the Net
Cash Proceeds received by the Borrower from sales of Salomon Assets and Credits;
(b) the LGE Exit Facility; provided the Borrower may make payments of principal
with the Net Cash Proceeds received by the Borrower from sales of HDTV Patents
and HDTV License Agreements, and so long as no Event of Default then exists, the
Borrower may make payments of interest due under the LGE Exit Facility; and (c)
any other Funded Debt (including the New Debentures but other than the
Obligations), except the Borrower may make regularly scheduled payments of
principal or interest required in accordance with the terms of the instruments
governing any other Funded Debt permitted hereunder (whether with respect to
principal, interest, or otherwise) if such payments would not violate any
subordination provisions governing such Funded Debt. Additionally, the Borrower
may repay principal under the Restructured PIK Note and the LGE Exit Facility in
an aggregate amount equal to the Excess Cash for any year; provided (i) no
Default or Event of Default exists either before or after giving effect to any
such payment, (ii) the Agent and the Lenders have received the information
required to be delivered pursuant to Sections 6.2 and 6.3 hereof for the
immediately preceding fiscal year, and (iii) the Agent has received satisfactory
evidence that the Availability hereunder immediately prior to such payment, and
projected Availability for each day during a twenty (20) Business Day period
following such payment, shall not be less than $25,000,000. The Borrower shall
not allow any interest to be due or accrued on the Indebtedness permitted by
Section 7.1(f) hereof, and shall not make any payment of such Indebtedness
unless (x) no Default or Event of Default exists either before or after giving
effect to any such payment, and (y) the Agent has received satisfactory evidence
that the Availability hereunder immediately prior to such payment, and projected
Availability for each day during a twenty (20) Business Day period following
such payment, shall not be less than $5,000,000.
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Section 7.16 Negative Pledge. The Borrower shall not, directly or
---------------
indirectly, enter into any agreement (other than the Loan Documents and the
documents relating to the Restructured PIK Note, the LGE Exit Facility and the
New Debentures) with any Person that prohibits or restricts or limits the
ability of the Borrower to create, incur, pledge, or suffer to exist any Lien
upon any assets of the Borrower.
ARTICLE 8
DEFAULT
Section 8.1 Events of Default. Each of the following shall constitute
-----------------
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule, or regulation of any
governmental or non-governmental body:
(a) Any representation or warranty made under this Agreement or any other
Loan Document or in any writing furnished in connection with the transactions
contemplated hereby shall prove incorrect or misleading in any material respect
when made or deemed to have been made pursuant to Section 4.4 hereof;
(b) The Borrower shall default in the payment of any principal or interest
under the Notes, or any of them, or any reimbursement obligations with respect
to any Letter of Credit, or any fees payable hereunder or under the other Loan
Documents;
(c) The Borrower or any Affiliate shall default in the performance or
observance of any agreement or covenant contained in Sections 5.5, 5.7, 5.9,
5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.18, 5.20, 5.21, 5.22 or 5.23, or in
Article 6 or Article 7 hereof or in any Security Document;
(d) The Borrower shall default in the performance or observance of (i)
Section 5.19 hereof, and such default shall not be cured to the Majority
Lenders' satisfaction within a period of ten (10) days from the date that the
Borrower knew or should have known of the occurrence of such default, or (ii)
any other agreement or covenant contained in this Agreement not specifically
referred to elsewhere in this Section 8.1, and such default shall not be cured
to the Majority Lenders' satisfaction within a period of thirty (30) days from
the date that the Borrower knew or should have known of the occurrence of such
default;
(e) There shall occur any default by the Borrower or any Affiliate in the
performance or observance of any agreement or covenant contained in any of the
other Loan Documents (other than this Agreement or the Security Documents or as
otherwise provided in this Section 8.1) which shall not be cured to the Majority
Lenders' satisfaction within the applicable cure period, if any, provided for in
such Loan Document, or, if there is no applicable cure period set forth in
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such Loan Document, within a period of thirty (30) days from the date that the
Borrower knew or should have known of the occurrence of such default;
(f) There shall occur any Change of Control of the Borrower;
(g) There shall be entered a decree or order for relief in respect of
the Borrower or any of the Borrower's Subsidiaries under the Bankruptcy Code, or
any other applicable federal or state bankruptcy law or other similar law, or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator,
or similar official of the Borrower or any of the Borrower's Subsidiaries, or of
any substantial part of their respective properties, or ordering the winding-up
or liquidation of the affairs of the Borrower or any of the Borrower's
Subsidiaries, or an involuntary petition shall be filed against the Borrower or
any of the Borrower's Subsidiaries, and a temporary stay entered, and (i) such
petition and stay shall not be diligently contested, or (ii) any such petition
and stay shall continue undismissed for a period of sixty (60) consecutive days;
(h) Any of the Borrower or any of the Borrower's Subsidiaries shall
file a petition, answer, or consent seeking relief under the Bankruptcy Code, or
any other applicable federal or state bankruptcy law or other similar law, or
the Borrower or any of the Borrower's Subsidiaries shall consent to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator, or other similar official of the Borrower or
any of the Borrower's Subsidiaries, or of any substantial part of their
respective properties, or the Borrower or any of the Borrower's Subsidiaries
shall fail generally to pay their respective debts as they become due, or the
Borrower or any of the Borrower's Subsidiaries shall take any action in
furtherance of any such action;
(i) There shall be entered a decree or order for relief in respect of
LGE (or any other direct or indirect holding company between the Borrower and
LGE holding five percent (5%) or more of the Capital Stock of the Borrower or of
any class thereof) under the Bankruptcy Code, or any other applicable federal or
state bankruptcy law or other similar law (including without limitation the laws
of Korea), or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator, or similar official of LGE (or any other direct or indirect
holding company between the Borrower and LGE holding five percent (5%) or more
of the Capital Stock of the Borrower or of any class thereof), or of any
substantial part of their respective properties, or ordering the winding-up or
liquidation of the affairs of LGE (or any other direct or indirect holding
company between the Borrower and LGE holding five percent (5%) or more of the
Capital Stock of the Borrower or of any class thereof), or an involuntary
petition shall be filed against LGE (or any other direct or indirect holding
company between the Borrower and LGE holding five percent (5%) or more of the
Capital Stock of the Borrower or of any class thereof), and a temporary stay
entered, and (i) such petition and stay shall not be diligently contested, or
(ii) any such petition and stay shall continue undismissed for a period of sixty
(60) consecutive days;
(j) LGE (or any other direct or indirect holding company between the
Borrower and LGE holding five percent (5%) or more of the Capital Stock of the
Borrower or of any class
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thereof) shall file a petition, answer, or consent seeking relief under the
Bankruptcy Code, or any other applicable federal or state bankruptcy law or
other similar law (including, without limitation, the laws of Korea), or LGE (or
any other direct or indirect holding company between the Borrower and LGE
holding five percent (5%) or more of the Capital Stock of the Borrower or of any
class thereof) shall consent to the institution of proceedings thereunder or to
the filing of any such petition or to the appointment or taking of possession of
a receiver, liquidator, assignee, trustee, custodian, sequestrator, or other
similar official of LGE (or any other direct or indirect holding company between
the Borrower and LGE holding five percent (5%) or more of the Capital Stock of
the Borrower or of any class thereof), or of any substantial part of their
respective properties, or LGE (or any other direct or indirect holding company
between the Borrower and LGE holding five percent (5%) or more of the Capital
Stock of the Borrower or of any class thereof) shall fail generally to pay their
respective debts as they become due, or LGE (or any other direct or indirect
holding company between the Borrower and LGE holding five percent (5%) or more
of the Capital Stock of the Borrower or of any class thereof) shall take any
action in furtherance of any such action;
(k) A final judgment or judgments (other than a money judgment fully
covered by insurance as to which the insurance company has acknowledged
coverage) shall be entered by any court against any of the Borrower or any of
the Borrower's Subsidiaries for the payment of money which in the aggregate
exceeds $1,000,000, or a warrant of attachment or execution or similar process
shall be issued or levied against property of any of the Borrower or any of the
Borrower's Subsidiaries pursuant to a final judgment which, together with all
other such property of the Borrower and the Borrower's Subsidiaries subject to
other such process, exceeds in value $1,000,000 in the aggregate, and if, within
sixty (60) days after the entry, issue, or levy thereof, such judgment, warrant,
or process shall not have been paid or discharged or stayed pending appeal, or
if, after the expiration of any such stay, such judgment, warrant, or process
shall not have been paid or discharged;
(l) There shall be at any time any "accumulated funding deficiency," as
defined in ERISA or in Section 412 of the Code, with respect to any Plan
maintained by any of the Borrower and its ERISA Affiliates, or to which the
Borrower or any of its ERISA Affiliates has any liabilities, or any trust
created thereunder; or a trustee shall be appointed by a United States District
Court to administer any such Plan; or the Pension Benefit Guaranty Corporation
shall institute proceedings to terminate any such Plan; or any of the Borrower
and its ERISA Affiliates shall incur any liability to the Pension Benefit
Guaranty Corporation in connection with the termination of any such Plan; or any
Plan or trust created under any Plan of any of the Borrower and its ERISA
Affiliates shall engage in a non-exempt "prohibited transaction" (as such term
is defined in Section 406 of ERISA or Section 4975 of the Code) which would
subject any such Plan, any trust created thereunder, any trustee or
administrator thereof, or any party dealing with any such Plan or trust to any
material tax or penalty on "prohibited transactions" imposed by Section 502 of
ERISA or Section 4975 of the Code or the Borrower or any of its ERISA Affiliates
shall enter into or become obligated after the Agreement Date to contribute to a
Multiemployer Plan;
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(m) (i) Any lender or holder, as applicable, shall accelerate repayment of
any obligation under the LGE Exit Facility or the Restructured PIK Note or
commence any action or proceeding to collect any amount due thereunder or
exercise or enforce any right or remedy against any collateral securing the LGE
Exit Facility or the Restructured PIK Note, or the LGE Exit Facility shall
otherwise be terminated; or (ii) there shall occur any default (after the
expiration of any applicable cure period) under any indenture, agreement, or
instrument evidencing Indebtedness (other than the LGE Exit Facility and the
Restructured PIK Note) of the Borrower or any of the Borrower's Subsidiaries in
an aggregate principal amount exceeding $2,000,000, including, without
limitation, the New Debentures;
(n) All or any portion of any Security Document shall at any time and for
any reason be declared to be null and void, or a proceeding shall be commenced
by the Borrower or any of its Affiliates, or by any governmental authority
having jurisdiction over the Borrower or any of its Affiliates, seeking to
establish the invalidity or unenforceability thereof (exclusive of questions of
interpretation of any provision thereof), or the Borrower or any of its
Affiliates shall deny that it has any liability or obligation for the payment of
principal or interest purported to be created under any Loan Document;
(o) There shall occur any event or occurrence which, singly or when
aggregated with other events or occurrences, has a Materially Adverse Effect;
(p) Any Tuning Patent, any License Agreement relating thereto or any of
the Borrower's right, title or interest in and to such Tuning Patent or License
Agreement, shall become invalid or shall be terminated or shall otherwise no
longer be enforceable by or for the benefit of the Borrower; or
(q) LGE shall contest the validity or enforceability of the Subordination
Agreement.
Section 8.2 Remedies. If an Event of Default shall have occurred and
--------
shall be continuing, in addition to the rights and remedies set forth elsewhere
in this Agreement and the Loan Documents:
(a) With the exception of an Event of Default specified in Section 8.1(g)
or (h), the Agent, at the direction of the Majority Lenders, shall (i) terminate
the Commitments and the Letter of Credit Commitment, (ii) declare the principal
of and interest on the Loans and the Notes and all other Obligations to be
forthwith due and payable without presentment, demand, protest, or notice of any
kind, all of which are hereby expressly waived, anything in this Agreement or in
the Notes to the contrary notwithstanding, or both, and/or (iii) exercise all
rights and remedies allowed under the Loan Documents.
(b) Upon the occurrence and continuance of an Event of Default specified
in Sections 8.1(g) or (h), such principal, interest, and other Obligations shall
thereupon and concurrently
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therewith become due and payable, and the Commitments and the Letter of Credit
Commitment, shall forthwith terminate, all without any action by the Agent or
the Lenders or the Majority Lenders or the holders of the Notes and without
presentment, demand, protest, or other notice of any kind, all of which are
expressly waived, anything in this Agreement or in the Notes to the contrary
notwithstanding.
(c) The Agent, with the concurrence of the Majority Lenders, may exercise
all of the post-default rights granted to it and to them under the Loan
Documents or under Applicable Law.
(d) The Agent, for the benefit of itself, the Issuing Banks and the
Lenders, shall have the right to the appointment of a receiver for the Property
of the Borrower and the Borrower hereby consents to such right and such
appointment and hereby waives any objection the Borrower may have thereto or the
right to have a bond or other security posted by the Agent, the Issuing Banks or
the Lenders in connection therewith.
(e) In regard to all Letters of Credit with respect to which presentment
for honor shall not have occurred at the time of any acceleration of the
Obligations pursuant to the provisions of this Section 8.2, the Borrower shall
promptly upon demand by the Agent deposit in a Letter of Credit Reserve Account
opened by the Agent for the benefit of the Issuing Bank an amount equal to 105%
of the aggregate then undrawn and unexpired amount of such Letter of Credit
Obligations. Amounts held in such Letter of Credit Reserve Account shall be
applied by the Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after such Letters of Credit shall have
expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrower hereunder and under the Notes in the manner set
forth in Section 2.11 hereof. Pending the application of such deposit to the
payment of the Reimbursement Obligations, the Agent shall, to the extent
reasonably practicable, invest such deposit in an interest bearing open account
or similar available savings deposit account and all interest accrued thereon
shall be held with such deposit as additional security for the Reimbursement
Obligations. After all such Letters of Credit shall have expired or been fully
drawn upon, all Reimbursement Obligations shall have been satisfied, and all
other Obligations shall have been paid in full, the balance, if any, in such
Letter of Credit Reserve Account shall be returned to the Borrower or any other
Person as the Court may direct. Except as expressly provided hereinabove,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived by the Borrower.
(f) The rights and remedies of the Agent, the Issuing Banks and the
Lenders hereunder shall be cumulative, and not exclusive.
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ARTICLE 9
THE AGENT
---------
Section 9.1 Appointment and Authorization. Each Lender hereby irrevocably
-----------------------------
appoints and authorizes, and hereby agrees that it will require any transferee
of any of its interest in its Loans and in its Notes irrevocably to appoint and
authorize, the Agent to take such actions as its agent on its behalf and to
exercise such powers hereunder as are delegated by the terms hereof, together
with such powers as are reasonably incidental thereto. Neither the Agent nor any
of its directors, officers, employees, or agents shall be liable for any action
taken or omitted to be taken by it hereunder or in connection herewith, except
for its own gross negligence or willful misconduct as determined by a final non-
appealable order of a court of competent jurisdiction.
Section 9.2 Interest Holders. The Agent may treat each Lender, or the
----------------
Person designated in the last notice filed with the Agent under this Section
9.2, as the holder of all of the interests of such Lender in its Loans and in
its Notes until written notice of transfer, signed by such Lender (or the Person
designated in the last notice filed with the Agent) and by the Person designated
in such written notice of transfer, in form and substance satisfactory to the
Agent, shall have been filed with the Agent.
Section 9.3 Consultation with Counsel. The Agent may consult with legal
-------------------------
counsel selected by it and shall not be liable to any Lender or any Issuing Bank
for any action taken or suffered by it in good faith in reliance on the advice
of such counsel.
Section 9.4 Documents. The Agent shall not be under any duty to examine,
---------
inquire into, or pass upon the validity, effectiveness, or genuineness of this
Agreement, any Note, or any instrument, document, or communication furnished
pursuant hereto or in connection herewith, and the Agent shall be entitled to
assume that they are valid, effective, and genuine, have been signed or sent by
the proper parties, and are what they purport to be.
Section 9.5 Agent and Affiliates. With respect to the Commitment and Loans,
--------------------
the Lender which is affiliated with the Agent shall have the same rights and
powers hereunder as any other Lender, and the Agent and its other affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with the Borrower or any Affiliates of, or Persons doing business with,
the Borrower, as if it were not affiliated with the Agent and without any
obligation to account therefor. The Lender and the Issuing Banks acknowledge
that the Agent and its affiliates have other lending and investment
relationships with the Borrower and its Affiliates, and in the future may enter
into additional such relationships.
Section 9.6 Responsibility of the Agent. The duties and obligations of
---------------------------
the Agent under this Agreement are only those expressly set forth in this
Agreement. The Agent shall be entitled to assume that no Default or Event of
Default has occurred and is continuing unless it has actual knowledge, or has
been notified by the Borrower, of such fact, or has been notified by a Lender
that such Lender considers that a Default or an Event of Default has occurred
and is continuing, and such Lender shall specify in detail the nature thereof in
writing. The Agent shall provide each Lender with copies of such documents
received from the Borrower as such Lender may reasonably request.
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Section 9.7 Action by Agent.
---------------
(a) The Agent shall be entitled to use its discretion with respect to
exercising or refraining from exercising any rights which may be vested in it
by, and with respect to taking or refraining from taking any action or actions
which it may be able to take under or in respect of, this Agreement, unless the
Agent shall have been instructed by the Majority Lenders to exercise or refrain
from exercising such rights or to take or refrain from taking such action,
provided that the Agent shall not exercise any rights under Section 8.2(a) of
this Agreement without the approval of the Majority Lenders. The Agent shall
incur no liability under or in respect of this Agreement with respect to
anything which it may do or refrain from doing in the reasonable exercise of its
judgment or which may seem to it to be necessary or desirable in the
circumstances.
(b) The Agent shall not be liable to the Lenders or to any Lender in
acting or refraining from acting under this Agreement in accordance with the
instructions of the Majority Lenders, and any action taken or failure to act
pursuant to such instructions shall be binding on all Lenders.
Section 9.8 Notice of Default or Event of Default. In the event that
-------------------------------------
the Agent or any Lender shall acquire actual knowledge, or shall have been
notified in writing, of any Default or Event of Default, the Agent or such
Lender shall promptly notify the Lenders and the Agent, and the Agent shall take
such action and assert such rights under this Agreement as the Majority Lenders
shall request in writing, and the Agent shall not be subject to any liability to
the Lenders by reason of its acting pursuant to any such request. If the
Majority Lenders shall fail to request the Agent to take action or to assert
rights under this Agreement in respect of any Default or Event of Default within
ten (10) days after their receipt of the notice of any Default or Event of
Default from the Agent, or shall request inconsistent action with respect to
such Default or Event of Default, the Lenders agree that the Agent may, but
shall not be required to, take such action and assert such rights (other than
rights under Article 8 hereof) as it deems in its discretion to be advisable for
the protection of the Lenders, except that, if the Majority Lenders have
instructed the Agent not to take such action or assert such right, in no event
shall the Agent act contrary to such instructions.
Section 9.9 Responsibility Disclaimed. The Agent shall not be under any
-------------------------
liability or responsibility whatsoever as Agent:
(a) To the Borrower or any other Person or entity as a consequence of any
failure or delay in performance by or any breach by, any Lender or Lenders of
any of its or their obligations under this Agreement;
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(b) To any Lender or Lenders, as a consequence of any failure or delay
in performance by, or any breach by, the Borrower or any other obligor of any of
its obligations under this Agreement or the Notes or any other Loan Document; or
(c) To any Lender or Lenders for any statements, representations, or
warranties in this Agreement, or any other document contemplated by this
Agreement or any information provided pursuant to this Agreement, any other Loan
Document, or any other document contemplated by this Agreement, or for the
validity, effectiveness, enforceability, or sufficiency of this Agreement, the
Notes, any other Loan Document, or any other document contemplated by this
Agreement.
Section 9.10 Indemnification. The Lenders agree to indemnify the Agent
---------------
(to the extent not reimbursed by the Borrower) pro rata in accordance with their
Commitment Ratios from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, investigations, costs, expenses
(including fees and expenses of experts, agents, consultants, and counsel), or
disbursements of any kind or nature (whether or not the Agent is a party to any
such action, suit or investigation) whatsoever which may be imposed on, incurred
by, or asserted against the Agent in any way relating to or arising out of this
Agreement, any other Loan Document, or any other document contemplated by this
Agreement or any action taken or omitted by the Agent under this Agreement, any
other Loan Document, or any other document contemplated by this Agreement,
except that no Lender shall be liable to the Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements resulting from the gross negligence or willful
misconduct of the Agent as determined by a final non-appealable order of a court
of competent jurisdiction. The provisions of this Section 9.10 shall survive the
termination of this Agreement.
Section 9.11 Credit Decision. Each Lender represents and warrants to each
---------------
other and to the Agent that:
(a) In making its decision to enter into this Agreement and to make its
Advances it has independently taken whatever steps it considers necessary to
evaluate the financial condition and affairs of the Borrower and that it has
made an independent credit judgment, and that it has not relied upon information
provided by the Agent; and
(b) So long as any portion of the Loans remains outstanding, it will
continue to make its own independent evaluation of the financial condition and
affairs of the Borrower.
Section 9.12 Successor Agent. Subject to the appointment and acceptance
---------------
of a successor Agent as provided below, the Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Majority Lenders shall have the right to appoint a successor
Agent (with the consent of the Borrower if no Event of Default then exists,
which consent shall not be unreasonably withheld). If no successor Agent shall
have been so appointed by the Majority Lenders, and shall have accepted such
appointment within thirty (30) days after the retiring Agent's giving of notice
of resignation, then the retiring
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Agent may (with the consent of the Borrower if no Event of Default then exists,
which consent shall not be unreasonably withheld), on behalf of the Lenders,
appoint a successor Agent which shall be any Lender or a commercial bank
organized under the laws of the United States of America or any political
subdivision thereof which has combined capital and reserves in excess of
$250,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges, duties, and obligations of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article 9.12 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent.
Section 9.13 Agent May File Proofs of Claim. The Agent may file such
------------------------------
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Agent (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Agent, its agents,
financial advisors and counsel), the Lenders and the Issuing Banks allowed in
any judicial proceedings relative to the Borrower or any Material Subsidiary, or
any of their respective creditors or property, and shall be entitled and
empowered to collect, receive and distribute any monies, securities or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceedings is hereby authorized by each Lender and Issuing Bank to
make such payments to the Agent and, in the event that the Agent shall consent
to the making of such payments directly to the Lenders and the Issuing Banks, to
pay to the Agent any amount due to the Agent for the reasonable compensation,
expenses, disbursements and advances of the Agent, its agents, financial
advisors and counsel, and any other amounts due the Agent under Section 10.2
hereof. Nothing contained in the Loan Agreement or the Loan Documents shall be
deemed to authorize the Agent to authorize or consent to or accept or adopt on
behalf of any Lender or any Issuing Bank any plan of reorganization,
arrangement, adjustment or composition affecting the Notes, the Letters of
Credit or the rights of any holder thereof, or to authorize the Agent to vote in
respect of the claim of any Lender of any Issuing Bank in any such proceeding.
Section 9.14 Collateral. The Agent is hereby authorized to hold all
----------
Collateral pledged pursuant to any Loan Document and to act on behalf of the
Lenders and the Issuing Banks, in its own capacity and through other agents
appointed by it, under the Security Documents; provided, that the Agent shall
not agree to the release of any Collateral except in accordance with the terms
hereof.
Section 9.15 Release of Collateral.
---------------------
(a) Each Lender and each Issuing Bank hereby directs the Agent to, in
accordance with the terms of this Agreement, and the Agent agrees to, release or
subordinate any Lien held by the Agent for the benefit of the Lenders and the
Issuing Banks:
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(i) against all of the Collateral, upon final and indefeasible
payment in full of the Obligations and termination of this Agreement; or
(ii) against any part of the Collateral sold or disposed of by the
Borrower if such sale or disposition is permitted by Sections 7.7 hereof as
certified to the Agent by the Borrower in a certificate of an Authorized
Signatory or is otherwise consented to by the requisite Lenders for such
release as set forth in Section 10.12 hereof.
(b) Each Lender and each Issuing Bank hereby directs the Agent to, and the
Agent hereby agrees to, execute and deliver or file such termination and partial
release statements and do such other things as are reasonably necessary to
release Liens to be released pursuant to this Section 9.15 promptly upon the
effectiveness of any such release. Upon request by the Agent at any time, the
Lenders and the Issuing Banks will confirm in writing the Agent's authority to
release particular types or items of Collateral pursuant to this Section 9.15.
ARTICLE 10
MISCELLANEOUS
Section 10.1 Notices.
-------
(a) All notices and other communications under this Agreement shall be in
writing and shall be deemed to have been given five (5) days after deposit in
the mail, designated as certified mail, return receipt requested, post-prepaid,
or one (1) day after being entrusted to a reputable commercial overnight
delivery service, or when delivered to the telegraph office or sent out by telex
or telecopy addressed to the party to which such notice is directed at its
address determined as provided in this Section 10.1. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(i) If to the Borrower, to it at:
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, Illinois 60025
Attn: Treasurer
Telecopy No.: (847) 391-8876
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with copies to (which copies shall only be required
to be sent in connection with a notice under Article 8 hereof):
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, Illinois 60025
Attn: General Counsel
Telecopy No.: (847) 391-8584
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: James H.M. Sprayregen, Esq.
Telecopy No.: (312) 861-2200
(ii) If to the Agent, to it at:
Citicorp North America, Inc.
399 Park Avenue
6th Floor Zone 4
New York, New York 10043
Attn: Mr. Thomas M. Halsch
Telecopy No.: (212) 793-1290
with a copy to:
Paul, Hastings, Janofsky & Walker
600 Peachtree Street, N.E.
Suite 2400
Atlanta, Georgia 30308
Attn: Jesse H. Austin, III, Esq.
Telecopy No.: (404) 815-2424
(iii) If to the Lenders, to them at the
addresses set forth on the signature pages
hereof.
(iv) If to the Issuing Banks, at the
addresses set forth on the signature pages
hereof.
Copies shall be provided to persons other than parties hereto only in the case
of notices under Article 8 hereof.
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(b) Any party hereto may change the address to which notices shall be
directed under this Section 10.1 by giving ten (10) days' written notice of such
change to the other parties.
Section 10.2 Expenses. The Borrower agrees to promptly pay:
--------
(a) All reasonable out-of-pocket expenses of the Agent in connection with
the preparation, negotiation, execution, and delivery of this Agreement and the
other Loan Documents, the transactions contemplated hereunder and thereunder,
and the making of the initial Advance hereunder, including, but not limited to,
the reasonable fees and disbursements of counsel for the Agent;
(b) All reasonable out-of-pocket expenses of the Agent in connection with
the administration of the transactions contemplated in this Agreement or the
other Loan Documents, and the preparation, negotiation, execution, and delivery
of any waiver, amendment, or consent by the Lenders relating to this Agreement
or the other Loan Documents, including, but not limited to, all reasonable out-
of-pocket expenses of the Agent in connection with its quarterly field audits,
and the reasonable fees and disbursements of counsel for the Agent;
(c) All reasonable out-of-pocket costs and expenses of the Agent, the
Issuing Banks and any Lender in connection with any restructuring, refinancing,
or "work out" of the transactions contemplated by this Agreement, and of
obtaining performance under this Agreement or the other Loan Documents, and all
out-of-pocket costs and expenses of collection if default is made in the payment
of the Notes, which in each case shall include fees and out-of- pocket expenses
of counsel for the Agent, the Issuing Banks and any Lender, and the fees and
out-of-pocket expenses of any experts, agents, or consultants of the Agent; and
(d) All stamp, documentary or intangible taxes, excise or property taxes,
similar assessments, general or special, and other like charges levied on, or
assessed, placed or made against any of the Collateral, the Notes or the
Obligations.
Section 10.3 Waivers. The rights and remedies of the Agent and the Lenders
-------
under this Agreement and the other Loan Documents shall be cumulative and not
exclusive of any rights or remedies which they would otherwise have. No failure
or delay by the Agent, the Issuing Banks, the Majority Lenders or the Lenders in
exercising any right shall operate as a waiver of such right. The Agent and the
Lenders expressly reserve the right to require strict compliance with the terms
of this Agreement in connection with any funding of a request for an Advance. In
the event the Lenders decide to fund a request for an Advance at a time when the
Borrower is not in strict compliance with the terms of this Agreement, such
decision by the Lenders shall not be deemed to constitute an undertaking by the
Lenders to fund any further requests for Advances or preclude the Lenders from
exercising any rights available to the Lenders under the Loan Documents or at
law or equity. Any waiver or indulgence granted by the Lenders or by the
Majority Lenders shall not constitute a modification of this Agreement, except
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expressly provided in such waiver or indulgence, or constitute a course of
dealing by the Lenders at variance with the terms of the Agreement such as to
require further notice by the Lenders of the Lenders' intent to require strict
adherence to the terms of the Agreement in the future. Any such actions shall
not in any way affect the ability of the Lenders, in their discretion, to
exercise any rights available to them under this Agreement or under any other
agreement, whether or not the Lenders are party, relating to the Borrower.
Section 10.4 Set-Off. In addition to any rights now or hereafter granted
-------
under Applicable Law and not by way of limitation of any such rights, except to
the extent limited by Applicable Law, upon the occurrence of a Default or an
Event of Default and during the continuation thereof, the Lenders and any
subsequent holder or holders of the Notes are hereby authorized by the Borrower
at any time or from time to time, without notice to the Borrower or to any other
Person, any such notice being hereby expressly waived, to set-off and to
appropriate and apply any and all deposits (general or special, time or demand,
including, but not limited to, Indebtedness evidenced by certificates of
deposit, in each case whether matured or unmatured) and any other Indebtedness
at any time held or owing by the Lenders or such holder to or for the credit or
the account of the Borrower, against and on account of the obligations and
liabilities of the Borrower, to the Lenders or such holder under this Agreement,
the Notes, and any other Loan Document, including, but not limited to, all
claims of any nature or description arising out of or connected with this
Agreement, the Notes, or any other Loan Document, irrespective of whether or not
(a) the Lenders or the holder of the Notes shall have made any demand hereunder
or (b) the Lenders shall have declared the principal of and interest on the
Loans and Notes and other amounts due hereunder to be due and payable as
permitted by Section 8.2 and although said obligations and liabilities, or any
of them, shall be contingent or unmatured. Any sums obtained by any Lender or by
any subsequent holder of the Notes shall be subject to the application of
payments provisions of Article 2 hereof. Upon direction by the Agent, with the
consent of the Majority Lenders, each Lender holding deposits of the Borrower
shall exercise its set-off rights as so directed.
Section 10.5 Assignment.
----------
(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder, under the Notes or under any other Loan Document without
the prior written consent of each Lender.
(b) Each of the Lenders may at any time enter into assignment agreements
or participations with one or more other banks or other Persons pursuant to
which each Lender may assign or participate its interest under this Agreement
and the other Loan Documents, including, its interest in any particular Advance
or portion thereof, provided, that (1) all assignments (other than assignments
described in clause (2) herein and in Section 10.12(b) hereof) shall be in
minimum principal amounts of the lesser of (X) $5,000,000, and (Y) the amount of
---------
such Lender's Commitment (in a single assignment only), (2) each Lender may sell
assignments or participations of up to one hundred percent (100%) of its
interest hereunder to (A) one or more
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Affiliates of such Lender, or (B) any Federal Reserve Bank as collateral
security pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any Operating Circular issued by such Federal Reserve Bank
(no assignment under this clause (B) shall relieve such Lender from its
obligations hereunder), and (3) all assignments (other than assignments
described in clause (2) herein and in Section 10.12(b) hereof) and
participations hereunder shall be subject to the following additional terms and
conditions:
(i) No assignment (except assignments permitted in
Section 10.5(b)(2) hereof) shall be sold without the prior consent of the
Agent and, if no Event of Default then exists, the Borrower, which consents
shall not be unreasonably withheld;
(ii) Any Person purchasing a participation or an assignment of the
Loans from any Lender shall be required to represent and warrant that its
purchase shall not constitute a "prohibited transaction" (as defined in
Section 4.1(n) hereof);
(iii) The Borrower, the Lender, and the Agent agree that assignments
permitted hereunder (including the assignment of any Advance or portion
thereof) may be made with all voting rights, and shall be made pursuant to
an Assignment and Assumption Agreement. An administrative fee of $3,500
shall be payable to the Agent by the assigning Lender at the time of any
assignment hereunder;
(iv) No participation agreement shall confer any rights under this
Agreement or any other Loan Document to any purchaser thereof, or relieve
any issuing Lender from any of its obligations under this Agreement, and
all actions hereunder shall be conducted as if no such participation had
been granted; provided, however, that any participation agreement may
confer on the participant the right to approve or disapprove decreases in
the rate of interest or fees to the Lenders, increases in the advance rates
set forth in the definition of "Borrowing Base" herein, increases in the
principal amount of such participant's pro rata share of the Commitment and
extensions of the Maturity Date, or the date for any scheduled payment of
principal, interest or fees on, the Loans;
(v) Each Lender agrees to provide the Agent and the Borrower with
prompt written notice of any issuance of participation or assignments of
its interests hereunder;
(vi) No assignment, participation or other transfer of any rights
hereunder or under the Notes shall be effected that would result in any
interest requiring registration under the Securities Act of 1933, as
amended, or qualification under any state securities law;
(vii) No such assignment may be made to any bank or other financial
institution (x) with respect to which a receiver or conservator (including,
without limitation, the Federal Deposit Insurance Corporation, the
Resolution Trust Company or the Office of Thrift Supervision) has been
appointed or (y) that is not "adequately capitalized" (as such
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<PAGE>
term is defined in Section 131(b)(1)(B) of the Federal Deposit Insurance
Corporation Improvement Act as in effect on the Agreement Date); and
(viii) If applicable, each Lender shall, and shall cause each of its
assignees to provide to the Agent on or prior to the Agreement Date or
effective date of any assignment, as the case may be, an appropriate
Internal Revenue Service form as required by Applicable Law supporting such
Lender's position that no withholding by the Borrower or the Agent for U.S.
income tax payable by such Lender in respect of amounts received by it
hereunder is required. For purposes of this Agreement, an appropriate
Internal Revenue Service form shall mean Form 1001 (Ownership Exemption or
Reduced Rate Certificate of the U.S. Department of Treasury), or Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States), or any successor or
related forms adopted by the relevant U.S. taxing authorities.
(c) Except as specifically set forth in Section 10.5(b) hereof, nothing in
this Agreement or the Notes, expressed or implied, is intended to or shall
confer on any Person other than the respective parties hereto and thereto and
their successors and assignees permitted hereunder and thereunder any benefit or
any legal or equitable right, remedy or other claim under this Agreement or the
Notes.
(d) Anything in this Agreement to the contrary notwithstanding, in the
case of any participation, all amounts payable by the Borrower under the Loan
Documents shall be calculated and made in the manner and to the parties hereto
as if no such participation had been sold.
Section 10.6 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Section 10.7 Governing Law. This Agreement and the Loan Documents shall be
-------------
construed in accordance with and governed by the laws of the State of New York,
except to the extent otherwise provided in the Loan Documents.
Section 10.8 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof in that jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 10.9 Headings. Headings used in this Agreement are for convenience
--------
only and shall not be used in connection with the interpretation of any
provision hereof.
Section 10.10 Source of Funds. Notwithstanding the use by the Lenders of
----------------
the Base Rate and the Eurodollar Rate as reference rates for the determination
of interest on the Loans, the
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Lenders shall be under no obligation to obtain funds from any particular source
in order to charge interest to the Borrower at interest rates tied to such
reference rates.
Section 10.11 Entire Agreement. Except as otherwise expressly provided
----------------
herein, this Agreement and the other documents described or contemplated herein
embody the entire Agreement and understanding among the parties hereto and
thereto and supersede all prior agreements (including the commitment letters
which have previously been delivered), understandings, and conversations
relating to the subject matter hereof and thereof and may not be modified,
altered or amended except by an agreement in writing in accordance with Section
10.12 hereof; provided, however, that expenses incurred prior to the date hereof
and during the effective term of the Debtor-in-Possession Credit Agreement shall
be reimbursable to the Agent in accordance with the terms thereof. The Borrower
represents and warrants to the Agent and each of the Lenders that it has read
the provisions of this Section 10.11 and discussed the provisions of this
Section 10.11 and the rest of the Loan Agreement with counsel for the Borrower,
and the Borrower acknowledges and agrees that the Agent and each of the Lenders
are expressly relying upon such representations and warranties of the Borrower
(as well as the other representations and warranties of the Borrower set forth
in Section 4.1 hereof) in entering into this Agreement.
Section 10.12 Amendments and Waivers.
----------------------
(a) Neither this Agreement nor any term hereof may be amended orally, nor
may any provision hereof be waived orally but only by an instrument in writing
signed by the Majority Lenders and, in the case of an amendment, also by the
Borrower, except that the consent of the Super-Majority Lenders shall be
required for any increase of the advance rates set forth in the definition of
"Borrowing Base" herein, and the consent of each of the Lenders shall be
required for (i) any increase in the amount of the Commitment, (ii) any sale or
release of any material Collateral except as permitted hereunder or any release
of any guarantor of the Obligations, (iii) any extensions of the Maturity Date,
the scheduled date of payment of interest or fees, or any reduction of principal
(without a corresponding payment with respect thereto), or reduction in the rate
of interest or fees due to the Lenders hereunder, and (iv) any amendment of this
Section 10.12 or of the definition of "Majority Lenders" or "Super-Majority
Lenders", and, in the case of an amendment with respect to any of the foregoing,
the consent of the Borrower.
(b) Each Lender grants to the Agent the right to purchase all (but not
less than all) of such Lender's Commitment, Letter of Credit Commitment, the
Loans and Letter of Credit Obligations owing to it and the Notes held by it and
all of its rights and obligations hereunder and under the other Loan Documents
at a price equal to the aggregate amount of outstanding Loans and Letter of
Credit Obligations owed to such Lender (together with all accrued and unpaid
interest and fees owed to such Lender), which right may be exercised by the
Agent if such Lender refuses to execute any amendment, waiver or consent which
requires the written consent of all of the Lenders and to which the Majority
Lenders, the Agent and the Borrower have agreed. Each Lender agrees that if the
Agent exercises its option hereunder, it shall promptly execute
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and deliver an Assignment and Assumption Agreement and other agreements and
documentation necessary to effectuate such assignment. The Agent may assign its
purchase rights hereunder to any assignee if such assignment complies with the
requirements of Section 10.5(b)(i), (ii), (vi), (vii) and (viii).
Section 10.13 Other Relationships. No relationship created hereunder or
-------------------
under any other Loan Document shall in any way affect the ability of the Agent,
each Issuing Bank and each Lender to enter into or maintain business
relationships with the Borrower, or any of its Affiliates, beyond the
relationships specifically contemplated by this Agreement and the other Loan
Documents.
Section 10.14 Pronouns. The pronouns used herein shall include, when
--------
appropriate, either gender and both singular and plural, and the grammatical
construction of sentences shall conform thereto.
Section 10.15 Disclosure. Subject to Section 10.16 hereof, the Borrower
----------
agrees that the Agent shall have the right to issue press releases regarding the
making of the Loans to the Borrower pursuant to the terms of this Agreement.
Section 10.16 Replacement of Lender. In the event that a Replacement
---------------------
Event occurs and is continuing with respect to any Lender, the Borrower may
designate another financial institution (such financial institution being herein
called a "Replacement Lender") acceptable to the Agent, and which is not the
Borrower or an Affiliate of the Borrower, to assume such Lender's Commitment
hereunder, to purchase the Loans and participations of such Lender and such
Lender's rights hereunder and (if such Lender is an Issuing Bank) to issue
Letters of Credit in substitution for all outstanding Letters of Credit issued
by such Lender, without recourse to or representation or warranty by, or expense
to, such Lender for a purchase price equal to the outstanding principal amount
of the Loans payable to such Lender plus any accrued but unpaid interest on such
Loans and accrued but unpaid commitment fees and letter of credit fees owing to
such Lender, and upon such assumption, purchase and substitution, and subject to
the execution and delivery to the Agent by the Replacement Lender of
documentation satisfactory to the Agent (pursuant to which such Replacement
Lender shall assume the obligations of such original Lender under this
Agreement), the Replacement Lender shall succeed to the rights and obligations
of such Lender hereunder and such Lender shall no longer be a party hereto or
have any rights hereunder provided that the obligations of the Borrower to
indemnify such Lender with respect to any event occurring or obligations arising
before such replacement shall survive such replacement. "Replacement Event"
means, with respect to any Lender, the commencement of or the talking of
possession by, a receiver, custodian, conservator, trustee or liquidator of such
Lender, or the declaration by the appropriate regulatory authority that such
Lender is insolvent.
Section 10.17 Successors and Assigns. This Agreement, the other Loan
----------------------
Documents, and all security interests or Liens created hereby or pursuant to any
other Loan Documents shall be binding upon Borrower and its successors and
assigns. This Agreement and the other Loan
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Documents shall be binding upon, and inure to the benefit of, the Agent, each
Lender and Issuing Bank, and their respective successors, assigns, transferees
and endorsees in compliance with the terms of this Agreement.
Section 10.18 Confirmation Order. If at any time after the Agreement Date
------------------
the Confirmation Order is modified, overturned on appeal or otherwise revoked or
rescinded, then, at the election of the Agent and the Majority Lender, the
Debtor-in-Possession Credit Agreement and the other Loan Documents (as defined
in the Debtor-in-Possession Credit Agreement), all rights, remedies and
obligations of the Agent, the Lenders, the Issuing Banks, the Borrower, and the
Material Subsidiaries thereunder, and all rights of the Agent and the Lenders
set forth in the Final DIP Order, shall be automatically revived and reinstated
as if this Agreement and the other Loan Documents had never been executed, and
the Borrower shall take all actions necessary, if any, to effectuate such
reinstatement.
Section 10.19 Time is of the Essence. Time is of the essence of this
----------------------
Agreement and each of the other Loan Documents.
ARTICLE 11
YIELD PROTECTION
----------------
Section 11.1 Eurodollar Basis Determination. Notwithstanding anything
------------------------------
contained herein which may be construed to the contrary, if with respect to any
proposed Eurodollar Rate Advance for any Eurodollar Advance Period, the Agent
determines that deposits in dollars (in the applicable amount) are not being
offered to the Agent in the relevant market for such Eurodollar Advance Period,
the Agent shall forthwith give notice thereof to the Borrower and the Lenders,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such situation no longer exist, the obligations of the Lenders to make
such types of Eurodollar Rate Advances shall be suspended.
Section 11.2 Illegality. If any applicable law, rule, or regulation, or
----------
any change therein, or any interpretation or change in interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender with any request or directive (whether or not having
the force of law) of any such authority, central bank, or comparable agency,
shall make it unlawful or impossible for any Lender to make, maintain, or fund
its Eurodollar Rate Advances, such Lender shall so notify the Agent, and the
Agent shall forthwith give notice thereof to the other Lenders and the Borrower.
Before giving any notice to the Agent pursuant to this Section 11.2, such Lender
shall designate a different lending office if such designation will avoid the
need for giving such notice and will not, in the judgment of such Lender, be
otherwise disadvantageous to such Lender. Upon receipt of such notice,
notwithstanding anything contained in Article 2 hereof, the Borrower shall repay
in full the then outstanding principal amount of each affected Eurodollar Rate
Advance of such Lender, together with accrued interest thereon, either (a) on
the last day of
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the then current Eurodollar Advance Period applicable to such Eurodollar Rate
Advance if such Lender may lawfully continue to maintain and fund such
Eurodollar Rate Advance to such day or (b) immediately if such Lender may not
lawfully continue to fund and maintain such Eurodollar Rate Advance to such day.
Concurrently with repaying each affected Eurodollar Rate Advance of such Lender,
notwithstanding anything contained in Article 2 hereof, the Borrower shall
borrow a Base Rate Advance (or the other type of Eurodollar Rate Advance, if
available) from such Lender, and such Lender shall make such Advance in an
amount such that the outstanding principal amount of the Note held by such
Lender shall equal the outstanding principal amount of such Note immediately
prior to such repayment.
Section 11.3 Increased Costs.
---------------
(a) If after the Agreement Date any applicable law, rule, or regulation,
or any change therein, or any interpretation or change in interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof or
compliance by any Lender with any request or directive (whether or not having
the any such authority, central bank, or comparable agency:
(i) Shall subject any Lender to any tax, duty, or other charge with
respect to its obligation to make Eurodollar Rate Advances, or its
Eurodollar Rate Advances, or shall change the basis of taxation of payments
to any Lender of the principal of or interest on its Eurodollar Rate
Advances or in respect of any other amounts due under this Agreement in
respect of its Eurodollar Rate Advances or its obligation to make
Eurodollar Rate Advances (except for changes in the rate of tax on the
overall net income of such Lender imposed by the jurisdiction in which such
Lender's principal executive office is located); or
(ii) Shall impose, modify, or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System, but excluding any included in an applicable Eurodollar
Reserve Percentage), special deposit, capital adequacy, assessment, or
other requirement or condition against assets of, deposits with or for the
account of, or commitments or credit extended by any Lender, or shall
impose on any Lender or the eurodollar interbank borrowing market any other
condition affecting its obligation to make such Eurodollar Rate Advances or
its Eurodollar Rate Advances; and the result of any of the foregoing is to
increase the cost to such Lender of making or maintaining any such
Eurodollar Rate Advances, or to reduce the amount of any sum received or
receivable by the Lender under this Agreement or under its Notes with
respect thereto, and such increase is not given effect in the determination
of the Eurodollar Rate then,
on the earlier of demand by such Lender or the Maturity Date, the Borrower
agrees to pay to such Lender such additional amount or amounts as will
compensate such Lender for such increased costs. Each Lender will promptly
notify the Borrower and the Agent of any event of which it has
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knowledge, occurring after the date hereof, which will entitle such Lender to
compensation pursuant to this Section 11.3 and will designate a different
lending office if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the sole judgment of such Lender, be
otherwise disadvantageous to such Lender.
(b) A certificate of any Lender claiming compensation under this
Section 11.3 and setting forth the additional amount or amounts to be paid to it
hereunder and calculations therefor shall be conclusive in the absence of
manifest error. In determining such amount, such Lender may use any reasonable
averaging and attribution methods. If any Lender demands compensation under this
Section 11.3, the Borrower may at any time, upon at least five (5) Business
Days' prior notice to such Lender, prepay in full the then outstanding affected
Eurodollar Rate Advances of such Lender, together with accrued interest thereon
to the date of prepayment, along with any reimbursement required under Section
2.9 hereof. Concurrently with prepaying such Eurodollar Rate Advances the
Borrower shall borrow a Base Rate Advance, or a Eurodollar Rate Advance not so
affected, from such Lender, and such Lender shall make such Advance in an amount
such that the outstanding principal amount of the Notes held by such Lender
shall equal the outstanding principal amount of such Notes immediately prior to
such prepayment.
Section 11.4 Effect On Other Advances. If notice has been given pursuant
------------------------
to Section 11.1, 11.2 or 11.3 suspending the obligation of any Lender to make
any type of Eurodollar Rate Advance, or requiring Eurodollar Rate Advances of
any Lender to be repaid or prepaid, then, unless and until such Lender notifies
the Borrower that the circumstances giving rise to such repayment no longer
apply, all Advances which would otherwise be made by such Lender as to the type
of Eurodollar Rate Advances affected shall, at the option of the Borrower, be
made instead as Base Rate Advances.
Section 11.5 Capital Adequacy. If after the date hereof, any Lender or
----------------
Issuing Bank (or any affiliate of the foregoing) shall have reasonably
determined that the adoption of any applicable law, governmental rule,
regulation or order regarding the capital adequacy of banks or bank holding
companies, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Lender or Issuing Bank (or any affiliate of the foregoing) with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such governmental authority, central bank or comparable agency,
has or would have the effect of reducing the rate of return on such Lender's or
Issuing Bank's (or any affiliate of the foregoing) capital as a consequence of
such Lender's or Issuing Bank's Commitment or Obligations hereunder to a level
below that which it could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or Issuing Bank's (or any
affiliate of the foregoing) policies with respect to capital adequacy
immediately before such adoption, change or compliance and assuming that such
Lender's or Issuing Bank's (or any affiliate of the foregoing) capital was fully
utilized prior to such adoption, change or compliance), then, upon demand by
such Lender or Issuing Bank, the
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Borrower shall immediately pay to such Lender or Issuing Bank such additional
amounts as shall be sufficient to compensate such Lender or Issuing Bank for any
such reduction actually suffered; provided, however, that there shall be no
duplication of amounts paid to a Lender pursuant to this sentence and Section
11.3 hereof. A certificate of such Lender or Issuing Bank setting forth the
amount to be paid to such Lender or Issuing Bank by the Borrower as a result of
any event referred to in this paragraph shall, absent manifest error, be
conclusive.
ARTICLE 12
JURISDICTION, VENUE AND WAIVER OF JURY TRIAL
Section 12.1 Jurisdiction and Service of Process. For purposes of any
-----------------------------------
legal action or proceeding brought by the Agent or the Lenders with respect to
this Agreement or any other Loan Document, the Borrower hereby irrevocably
submits to the personal jurisdiction of the federal and state courts sitting in
the State of New York and hereby irrevocably designates and appoints, as its
authorized agent for service of process in the State of New York, CT Corporation
System, whose address is 111 8th Avenue, New York, New York 10011, or such other
Person as the Borrower shall designate hereafter by written notice given to the
Agent. The consent to jurisdiction herein shall not be exclusive. The Agent, the
Lenders and the Issuing Banks shall for all purposes automatically, and without
any act on their part, be entitled to treat such designee of the Borrower as the
authorized agent to receive for and on behalf of the Borrower service of writs,
or summons or other legal process in the State of New York, which service shall
be deemed effective personal service on the Borrower served when delivered,
whether or not such agent gives notice to the Borrower; and delivery of such
service to its authorized agent shall be deemed to be made when personally
delivered or four (4) Business Days after mailing by registered or certified
mail addressed to such authorized agent. The Borrower further irrevocably
consents to service of process in any such action or proceeding by the mailing
of copies thereof by registered or certified mail to the Borrower at the address
set forth above, such service to become effective four (4) Business Days after
such mailing. In the event that, for any reason, such agent or his or her
successors shall no longer serve as agent of the Borrower to receive service of
process in the State of New York, the Borrower shall serve and advise the Agent
thereof so that at all times the Borrower will maintain an agent to receive
service of process in the State of New York on behalf of the Borrower with
respect to this Agreement and all other Loan Documents. In the event that, for
any reason, service of legal process cannot be made in the manner described
above, such service may be made in such manner as permitted by law .
Section 12.2 Consent to Venue. The Borrower hereby irrevocably waives any
----------------
objection it would make now or hereafter for the laying of venue of any suit,
action, or proceeding arising out of or relating to this Agreement or any other
Loan Document brought in the federal courts of the United States of America
sitting in New York, New York and hereby irrevocably waives any claim that any
such suit, action, or proceeding has been brought in an inconvenient forum.
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Section 12.3 Waiver of Jury Trial. THE BORROWER AND EACH OF THE AGENT,
--------------------
THE LENDERS AND THE ISSUING BANKS TO THE EXTENT PERMITTED BY APPLICABLE LAW
WAIVE, AND OTHERWISE AGREE NOT TO REQUEST, A TRIAL BY JURY IN ANY COURT AND IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM OF ANY TYPE IN WHICH THE BORROWER, ANY OF
THE LENDERS, THE ISSUING BANKS, THE AGENT, OR ANY OF THEIR RESPECTIVE SUCCESSORS
OR ASSIGNS IS A PARTY, AS TO ALL MATTERS AND THINGS ARISING DIRECTLY OR
INDIRECTLY OUT OF THIS AGREEMENT, ANY OF THE NOTES OR THE OTHER LOAN DOCUMENTS
AND THE RELATIONS AMONG THE PARTIES LISTED IN THIS ARTICLE 12.
[remainder of page intentionally left blank]
104
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers, all as of the day and
year first above written.
BORROWER: ZENITH ELECTRONICS CORPORATION
By: ______________________________________
Name:
Its:
(SEAL)
AGENT: CITICORP NORTH AMERICA, INC.
By: ______________________________________
Name: Thomas M. Halsch
Its: Vice President
ISSUING BANK: CITIBANK, N.A.
By: ______________________________________
Name: Thomas M. Halsch
Its: Vice President
Address: 399 Park Avenue, 6th Floor
Zone 4
New York, New York 10043
LENDERS: CITICORP USA, INC.
By: ______________________________________
Name: Thomas M. Halsch
Its: Vice President
Address: 399 Park Avenue, 6th Floor
Zone 4
New York, New York 10043
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
ZENITH EXIT CREDIT AGREEMENT
<PAGE>
HELLER FINANCIAL, INC.
By: _____________________________________
Name: Al Forzano
Its: Vice President
Address: 150 E. 42/nd/ Street, 7th Floor
New York, New York 10017
GMAC COMMERCIAL CREDIT LLC
By: _____________________________________
Name:
Its:
Address: 1290 Avenue of the Americas
New York, New York 10104
FLEET BUSINESS CREDIT CORPORATION
By: _____________________________________
Name: Victor A. Alarcon
Its: Vice President
Address: 500 Glenpointe Centre West,
4th Floor
Teaneck, New Jersey 07666
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: _____________________________________
Name: Michael S. Burns
Its: Senior Vice President
Address: 555 Theodore Fremd Avenue
Rye, New York 10580
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
ZENITH EXIT CREDIT AGREEMENT
<PAGE>
FOOTHILL CAPITAL CORPORATION
By: _____________________________________________
Name: Michael P. Baranowski
Its: Vice President
Address: 11111 Santa Monica Blvd., Suite 1500
Los Angeles, CA 90025-3333
LASALLE BANK NATIONAL ASSOCIATION
By: _____________________________________________
Name: Joe Fudacz
Its: Senior Vice President
Address: 135 South
LaSalle Street, Suite 425
Chicago, IL 60603
AMSOUTH BANK
By: _____________________________________________
Name: Kathleen Curlinger
Its: Attorney-in-Fact
Address: c/o AmSouth
Capital Corporation
350 Park Avenue, 20th Floor
New York, NY 10022
NATIONAL CITY COMMERCIAL FINANCE, INC.
By: _____________________________________________
Name: Elizabeth M. Lynch
Its: Senior Vice President
Address: 1965 E. Sixth St. Suite 400
Cleveland, OH 44114
ZENITH EXIT CREDIT AGREEMENT
<PAGE>
EXHIBIT 4(b)
ZENITH ELECTRONICS CORPORATION
FLOATING RATE SENIOR SECURED NOTE
DUE NOVEMBER 1, 2009
New York, New York
U.S.$126,236,578.33 November 9, 1999
ZENITH ELECTRONICS CORPORATION, a Delaware corporation (the
"Company"), for value received, hereby promises to pay to LG ELECTRONICS INC., a
-------
corporation organized under the laws of the Republic of Korea, or registered
assigns, the principal amount of $126,236,578.33 on November 1, 2009 (the
"Maturity Date"), with interest (computed on the basis of a 360-day year and the
-------------
actual days elapsed) on the unpaid balance of such principal amount at the rate
of 6.5% plus the Interbank Rate (as defined below) per annum from the date
hereof, payable quarterly in arrears on each Interest Payment Date (as defined
below), until such unpaid balance shall become due and payable (whether at
maturity or at a date fixed for prepayment or by declaration or otherwise), and
with interest on any overdue principal (including any overdue prepayment of
principal) and (to the extent permitted by applicable law) on any overdue
interest, at the rate of 8.5% plus the Interbank Rate (as defined below) per
annum, until paid, payable quarterly in arrears on each Interest Payment Date
(as defined below) or, at the option of the Holder (as defined below), on
demand. Capitalized terms used in this Floating Rate Note shall have the
respective meanings assigned thereto in Section 10.1 hereof.
ARTICLE I
PAYMENTS
1.1 Payments in Dollars. Except as provided in Section 3.1 hereof,
-------------------
all payments of principal and interest on this Floating Rate Note shall be made
in immediately available funds in lawful money of the United States of America.
1.2 Place of Payment. Payments of principal and interest becoming due
----------------
shall be made not later than 1:00 p.m. Chicago time on the relevant day to the
account of the Holder (account no. YCD 001) with the Hanvit Bank, Twin Towers
Branch Yoido, Seoul, Korea or at such other place and/or to such other account
as the Holder may notify the Company.
1.3 Payments Due on Non-Business Days. Anything in this Floating Rate
---------------------------------
Note to the contrary notwithstanding, any payment of principal of or interest on
this Floating
<PAGE>
Rate Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day.
ARTICLE II
TAXES
2.1 Payments Free and Clear of Withholding. The Company covenants and
--------------------------------------
agrees that any and all payments to be made by the Company hereunder shall be
made free and clear of and without any deduction or withholding for any present
or future taxes, levies, imposts, duties, fees, deductions, charges or
withholdings of any nature now or hereafter imposed, levied, collected, withheld
or assessed by any taxation authority in the Republic of Korea or any other
country (other than the United States of America), or any political subdivision
or taxing authority or agency therein or thereof (all such taxes, deductions,
withholding or other amounts hereinafter referred to as "Taxes") or any Other
-----
Taxes (as defined below). If the Company shall be required by law to make any
such deduction or withholding from any payment hereunder:
(a) the sum payable shall be increased as may be necessary so
that after making all required deductions or withholdings (including
deductions or withholdings applicable to additional Taxes or Other Taxes
(as defined below) payable hereunder) the Holder receives an amount equal
to the sum it would have received had no such deductions or withholdings
been made;
(b) the Company shall make such deductions or withholdings; and
(c) the Company shall pay the full amount deducted or withheld to the
relevant taxation authority or other authority in accordance with
applicable law.
2.2 Other Taxes. In addition, the Company agrees to pay any present or
-----------
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies imposed, levied or assessed by any taxation authority of any
country (including, without limitation, the United States of America) or any
political subdivision or taxing authority or agency therein or thereof which
arise from any payment made hereunder (hereinafter referred to as "Other
-----
Taxes").
- -----
2.3 Tax Indemnity. The Company will indemnify and hold harmless the Holder
-------------
for the full amount of the Taxes or Other Taxes (including without limitation
any Taxes or Other Taxes imposed by any jurisdiction on amounts payable
hereunder paid by the Holder); or any liability (including penalties, interest
and expenses) or claim arising
2
<PAGE>
therefrom or with respect thereto. All payments for indemnification claims shall
be made within 30 days from the date the Holder makes written demand therefor.
2.4 Evidence of Payment of Taxes. Within 30 days after the date of
----------------------------
any payment of Taxes the Company will furnish to the Holder the original or a
certified copy of a receipt evidencing payment thereof.
2.5 U.S. Tax Payments. The Company covenants and agrees as follows:
-----------------
(a) if the Company shall be required by law to make any
deduction or withholding for any present or future taxes (other than Other
Taxes), levies, imposts, duties, fees, deductions, charges or withholdings of
any nature now or hereafter imposed, levied, collected, withheld or assessed by
any taxation authority in the United States of America, or any political
subdivision or taxing authority or agency therein or thereof (all such taxes,
deductions, withholdings or other amounts hereinafter referred to as "U.S.
----
Taxes") from any payment under this Floating Rate Note, the Company shall make
- -----
the deductions and withholdings described above in this clause (a) and shall pay
the full amount deducted or withheld to the relevant taxation authority or other
authority of the United States of America on time and in accordance with
applicable law; and
(b) within thirty (30) days after the date of any payment of
U.S. Taxes, the Borrower shall furnish to the Holder the original or a certified
copy of a document evidencing payment thereof if a form acceptable to the
relevant taxation authority in the Republic of Korea.
2.6 Notification of Entitlement. If the Holder is entitled to receive
---------------------------
payments under this Floating Rate Note exempt from any United States withholding
taxes or subject to such withholding taxes at a reduced rate, the Holder shall
notify the Company of such event and the Holder shall deliver to the Company two
duly completed copies of the applicable United States Internal Revenue Service
Form W-8BEN or W-8ECI, certifying in either case that the Holder is entitled to
receive payments under this Floating Rate Note exempt from any United States
withholding taxes or subject to such withholding taxes at a reduced rate.
ARTICLE III
DEFERRED PAYMENT OF INTEREST
3.1 Deferred Payment of Interest. If, on the relevant Interest
----------------------------
Payment Date, the Interest Charge Coverage Ratio is equal to or less than 1.5 to
1, interest on this Floating Rate Note due on such Interest Payment Date shall
not be paid in cash. The amount of such interest payment shall be deferred to
the Maturity Date and shall accrue
3
<PAGE>
interest thereon which shall be payable on the Interest Payment Dates. The
Holder may enter the amount of such deferred interest on the table attached to
the Floating Rate Note.
ARTICLE IV
PREPAYMENT OF NOTES
4.1 Optional Prepayments. The Company may, at its option, upon notice
--------------------
as provided below, prepay at any time all, or from time to time any part of, the
Floating Rate Notes, at 100% of the principal amount so prepaid. The Company
will give the Holder written notice of each optional prepayment under this
Section 4.1 not less than 5 days and not more than 30 days prior to the date
fixed for such prepayment. Each such notice shall specify such date, the
aggregate principal amount of the Floating Rate Notes to be prepaid, the
principal amount of the Floating Rate Note held by Holder to be prepaid, and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid.
4.2 Mandatory Prepayment. (a) Asset Disposition. If the Company
-------------------- -----------------
sells, disposes or otherwise transfers any or all of the Specified Assets, then
within two Business Days of the receipt of the proceeds of such asset
disposition, the Company shall prepay principal of the Floating Rate Notes in an
amount equal to the net proceeds of such asset disposition, together with
interest accrued thereon. Promptly upon entering into a definitive agreement to
dispose of any or all of the Specified Assets, the Company will give the Holder
written notice of (i) the Specified Assets to be sold, (ii) the anticipated
- --
amount of the proceeds of such disposition and (iii) the date or anticipated
---
date, as the case may be, of such disposition. Upon the date of such asset
disposition, the Company will give the Holder notice of (i) the Specified Assets
-
sold, (ii) the amount of the proceeds of such asset disposition, (iii) the date
-- ---
of such asset disposition, (iv) the aggregate principal amount of the Floating
--
Rate Notes to be prepaid, (v) the principal amount of this Floating Rate Note to
-
be prepaid, together with interest thereon and (vi) the date of such prepayment.
--
(b) Excess Cash. To the extent permitted pursuant to the Credit
-----------
Agreement (without giving effect to changes in such Credit Agreement not
consented to in writing by the Holder), on the earlier of the date which is ten
days after (i) the date on which the Company's annual audited financial
-
statements for the immediately preceding fiscal year of the Company are
delivered pursuant to Section 6.1 hereof or (ii) the date on which such annual
--
audited financial statements were required to be delivered pursuant to Section
6.1 hereof, the Company shall prepay principal of the Floating Rate Notes in an
amount equal to 100%, of aggregate Excess Cash Flow of the Company and its
Subsidiaries for the immediately preceding fiscal year of the Company, together
with interest thereto to the
4
<PAGE>
date of payment. Each such prepayment shall be accompanied by a certificate
signed by the Company's chief financial officer certifying the manner in which
Excess Cash Flow and the resulting prepayment were calculated.
4.3 Allocation of Partial Prepayments. In the case of each partial
---------------------------------
prepayment of the Floating Rate Notes, the principal amount of the Floating Rate
Notes to be prepaid shall be allocated among all of the Floating Rate Notes at
the time outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof not theretofore called for prepayment.
4.4 Maturity; Surrender, etc. In the case of each prepayment of this
------------------------
Floating Rate Note, the principal amount of this Floating Rate Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such
date. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest, as
aforesaid, interest on such principal amount shall cease to accrue. This
Floating Rate Note when paid or prepaid in full shall be surrendered to the
Company and cancelled and shall not be reissued, and no Floating Rate Note shall
be issued in lieu of any prepaid principal amount of any Floating Rate Note.
ARTICLE V
GUARANTEE AND SECURITY
5.1 Subsidiary Guarantee. On the date hereof, each Material
--------------------
Subsidiary shall execute and deliver the Guarantee. Any domestic Material
Subsidiary acquired or formed after the date hereof, and any domestic Subsidiary
that becomes a Material Subsidiary shall become a party to the Guarantee by
executing a Supplemental Agreement in the form attached to the Guarantee.
5.2 Security Agreement. On the date hereof, the Company shall execute
------------------
and deliver to the Holder the Security Agreement.
ARTICLE VI
BUSINESS AND FINANCIAL COVENANTS
6.1 Covenants Under $60M Credit Agreement. The Company covenants that
-------------------------------------
it shall comply with all covenants set forth in the $60M Credit Agreement as in
effect on the date hereof (without giving effect hereafter to changes in the
such $60M Credit Agreement not consented to in writing by the Required Holders
for the purposes of this
5
<PAGE>
Floating Rate Note) and the Company covenants with the Holder that such
covenants and, to the extent that they apply to such covenants, the definitions
and other definitional provisions set forth in such $60M Credit Agreement,
together with all other sections of such $60M Credit Agreement to which
reference is made, are incorporated in this Floating Rate Note by reference as
though specifically set forth herein, and they shall remain in full force and
effect with respect to this Floating Rate Note and the obligation of the Company
to comply with the same shall continue notwithstanding the termination of such
$60M Credit Agreement. Without limiting the generality of the foregoing, the
Company shall deliver to the Holder all the notices, reports, certificates and
other documents required to be delivered to the agent under such $60M Credit
Agreement all on the terms set forth in such $60M Credit Agreement.
6.2 Limitations on Dispositions of Specified Assets. Without the
-----------------------------------------------
prior written consent of the Required Holders, the Company will not sell,
assign, transfer, exchange or otherwise dispose of, or grant any option with
respect to, the Specified Assets, or attempt, offer or contract to do so.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 Due Incorporation. The Company is a corporation duly organized,
-----------------
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or in
good standing would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the Company. The Company has the
corporate power and authority to own or hold under lease the properties it pur-
ports to own or hold under lease, to transact the business it transacts and
proposes to transact, to execute and deliver this Floating Rate Note and to
perform the provisions hereof.
7.2 Enforceability, etc. This Floating Rate Note has been duly
-------------------
authorized by all necessary corporate action on the part of the Company, and
this Floating Rate Note constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by (i) applicable bankruptcy, insolvency,
-
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
--
whether such enforceability is considered in a proceeding in equity or at law).
6
<PAGE>
7.3 Compliance with Laws, Other Instruments, etc. The execution,
--------------------------------------------
delivery and performance by the Company of this Floating Rate Note will not (i)
-
contravene, result in any breach of, or constitute a default under, or result in
the creation of any Lien in respect of any property of the Company or any
Material Subsidiary under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, material lease, corporate charter or by-laws, or
any other material agreement or instrument to which the Company or any Material
Subsidiary is bound or by which the Company or any Material Subsidiary or any of
their respective properties may be bound or affected, (ii) conflict with or
--
result in a breach of any of the terms, conditions or provisions of any order,
judgment, decree, or ruling of any court, arbitrator or Governmental Authority
applicable to the Company or any Material Subsidiary or (iii) violate any
---
provision of any statute or other rule or regulation of any Governmental
Authority applicable to the Company or any Material Subsidiary.
7.4 Governmental Authorizations, etc. No consent, approval or
--------------------------------
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company of this Floating Rate Note.
7.5 Private Offering by the Company. Neither the Company nor anyone
-------------------------------
acting on its behalf has offered the Floating Rate Notes or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, any Person other
than the Holder, who has been offered the Floating Rate Notes at a private sale
for investment. Neither the Company nor anyone acting on its behalf has taken,
or will take, any action that would subject the issuance or sale of this
Floating Rate Notes to the registration requirements of Section 5 of the
Securities Act of 1933, as amended.
ARTICLE VIII
EVENTS OF DEFAULT
8.1 Events of Default; Acceleration. An "Event of Default" shall
------------------------------- ----------------
exist if any of the following conditions or events shall occur and be
continuing:
(a) the Company defaults in the payment of any principal of the
Floating Rate Notes when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or
otherwise; or
7
<PAGE>
(b) the Company defaults in the payment of any interest payable
in cash on the Floating Rate Notes for more than 5 Business Days after
the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance with
any term contained in the Floating Rate Notes (other than those
referred to in paragraphs (a) and (b) above) and such default shall
not have been remedied within 30 days after written notice thereof
shall have been received by the Company from any holder of a Floating
Rate Note; or
(d) any representation or warranty made in writing by or on
behalf of the Company or by an officer of the Company in the Floating
Rate Notes or in any writing furnished in connection with the
transactions contemplated hereby shall prove to have been false or
incorrect in any material respect on the date as of which made; or
(e) (i) The agent or the required lenders shall accelerate
-
repayment of any obligation under the Credit Agreement or commence any
action or proceeding to collect any amount due thereunder or exercise
or enforce any right or remedy against any collateral securing the
Credit Agreement or the Credit Agreement shall otherwise be
terminated; (ii) there shall occur any default (after the expiration
--
of any applicable cure period) under any indenture, agreement or
instrument evidencing Indebtedness (other than the Credit Agreement or
the Floating Rate Notes) of the Company or any of the Company's
Subsidiaries in an aggregate principal amount exceeding $5,000,000; or
(f) the Company or any Material Subsidiary (i) is generally not
-
paying, or admits in writing its inability to pay, its debts as they
become due, (ii) files, or consents by answer or otherwise to the
--
filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an
---
assignment for the benefit of its creditors, (iv) consents to the
--
appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, (v) is adjudicated as insolvent or to be
-
liquidated, or (vi) takes corporate action for the purpose of any of
--
the foregoing; or
(g) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of
its Material Subsidiaries, a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting
8
<PAGE>
an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation
or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding-up or liquidation
of the Company or any of its Material Subsidiaries, or any such
petition shall be filed against the Company or any of its Material
Subsidiaries and such petition shall not be dismissed within 60 days;
or
(h) a final judgment (other than a money judgment fully covered
by insurance as to which the insurance company has acknowledged
coverage) shall be entered after the date hereof by any court against
any of the Company or any of the Company's Subsidiaries for the
payment of money which exceeds $1,000,000, or a warrant of attachment
or execution or similar process shall be issued or levied after the
date hereof against property of any of the Company or any of the
Company's Subsidiaries pursuant to a final judgment which, together
with all other such property of the Company and the Company's
Subsidiaries subject to other such process, exceeds in value
$1,000,000 in the aggregate, and if, within sixty (60) days after the
entry, issue, or levy thereof, such judgment, warrant, or process
shall not have been paid or discharged or stayed pending appeal, or
if, after the expiration of any such stay, such judgment, warrant, or
process shall not have been paid or discharged; or
(i) the Security Agreement shall cease to be effective to grant a
lien on the Specified Assets to the holders of the Floating Rate Notes
or the Security Agreement or Guarantee is invalid or otherwise ceases
to be in full force and effect; or
(j) at any time after 30 days after November 9, 1999, the Lien of
the Security Agreement shall cease to be perfected to the fullest
extent that such perfection can be achieved under applicable law; or
(k) the Company or any Material Subsidiary defaults in the
performance of or compliance with any term contained in the Security
Agreement or the Guarantee (other than that referred to in paragraph
(j)) and such default shall not have been remedied within 30 days
after written notice thereof shall have been received by the Company
from any holder of a Floating Rate Note.
9
<PAGE>
ARTICLE IX
REMEDIES
9.1 Acceleration. (a) If an Event of Default with respect to the
------------
Company described in paragraph (f) or (g) of Section 8.1 (other than an Event
of Default described in clause (i) of paragraph (f) or described in clause (vi)
of paragraph (f) by virtue of the fact that such clause encompasses clause (i)
of paragraph (f)) has occurred, all the Floating Rate Notes then outstanding
shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 25% in principal amount of the
Floating Rate Notes at the time outstanding may at any time at its or their
option, by notice or notices to the Company, declare all the Floating Rate Notes
then outstanding to be immediately due and payable.
Upon any Floating Rate Notes becoming due and payable under this
Section 9.1, whether automatically or by declaration, such Floating Rate Notes
will forthwith mature and the entire unpaid principal amount of such Floating
Rate Notes, plus all accrued and unpaid interest thereon, shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived.
9.2 Remedies on Default, etc. In case any one or more Events of
------------------------
Default shall occur and be continuing, the Holder may proceed to protect and
enforce its rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained in
this Floating Rate Note, the Guarantee or the Security Agreement, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or by law or otherwise. In case of a
default in the payment of any principal or interest on this Floating Rate Note,
the Company will pay to the Holder such further amount as shall be sufficient to
cover the cost and expenses of collection, including, without limitation,
reasonable attorneys' fees, expenses and disbursements. No course of dealing and
no delay on the part of the Holder of this Floating Rate Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
the Holder's rights, powers or remedies. No right, power or remedy conferred by
this Floating Rate Note upon any Holder shall be exclusive of any other right,
power or remedy referred to herein or now or hereafter available at law, in
equity, by statute or otherwise.
9.3 Rescission. At any time after any Floating Rate Notes have been
----------
declared due and payable pursuant to clause (a), (b), (c), (d), (e), (h), (i),
(j) or (k) of Section 8.1, the holders of not less than 50% in principal amount
of the Floating Rate Notes then
10
<PAGE>
outstanding, by written notice to the Company, may rescind and annul any such
declaration and its consequences if (a) the Company has paid all overdue
interest on the Floating Rate Notes and all principal of any Floating Rate Notes
that are due and payable and are unpaid other than by reason of such
declaration, and all interest on such overdue principal, and (to the extent
permitted by applicable law) any overdue interest in respect of the Floating
Rate Notes, at the applicable rate, (b) all Events of Default and Potential
Events of Default, other than non-payment of amounts that have become due solely
by reason of such declaration, have been cured or have been waived pursuant to
Section 12.3, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the other Floating Rate Notes. No
rescission and annulment under this Section 9.3 will extend to or affect any
subsequent Event of Default or Potential Event of Default or impair any right
consequent thereon.
ARTICLE X
DEFINITIONS
10.1 Definitions. As used herein the following terms have the
-----------
following respective meanings:
Business Day: any day except a Saturday, a Sunday or other day on
------------
which commercial banks in Chicago or Seoul, Korea are required or authorized by
law to be closed.
Capital Expenditures: means, for any period, on a consolidated
--------------------
basis for the Company and the Company's Subsidiaries, the aggregate of all
expenditures made by the Company or any of the Company's Subsidiaries during
such period that, in conformity with GAAP, are required to be included in or
reflected on the consolidated balance sheet as a capital asset of the Company or
any of the Company's Subsidiaries, including Capitalized Lease Obligations.
Capitalized Lease Obligation: means that portion of any
----------------------------
obligation of a Person as lessee under a lease which at the time would be
required to be capitalized on the balance sheet of such lessee in accordance
with GAAP.
Cash Interest Expense: for any period, the amount of interest
---------------------
expense of the Company and its consolidated Subsidiaries paid in cash during
such period.
Credit Agreement: the Credit Agreement, dated as of November 9,
----------------
1999, by and among Citicorp North America, Inc., as Agent, the other lenders
parties thereto,
11
<PAGE>
Citibank, N.A., as issuing bank, and the Company, as amended, modified or
supplemented from time to time.
EBITDA: means, for any period, the sum of:
------
(i) the net income (or net loss) of the Company and its
consolidated Subsidiaries (determined in accordance with GAAP) for such
period, without giving effect to any GAAP extraordinary gains or losses and
without deduction for Restructuring and Reorganization Charges (as such
term is defined in the Restructuring Agreement); plus (or minus)
(ii) to the extent that any of the items referred to in any of
clauses (A) though (D) below were deducted (or added) in calculating such
net income:
(A) interest expense for such period;
(B) federal, state or local income tax expense with respect
to operations for such period;
(C) the amount of all depreciation and amortization and
other non-cash charges for such period; and
(D) non-cash gains or losses from the sale or disposal of
property (other than inventory).
Event of Default: has the meaning set forth in Section 8.1.
----------------
Excess Cash Flow: means with respect to any fiscal year of the
----------------
Company, an amount equal to the sum of:
(i) the Company's consolidated EBITDA, plus
----
(ii) all other cash inflows not otherwise included in net income
(as determined in accordance with GAAP) (other than revolving credit
advances pursuant to the Credit Agreement or the $60M Credit Agreement
and equity contributions to the capital of the Subsidiaries) plus
----
(iii) extraordinary cash gains of the Company and its
consolidated Subsidiaries, minus
-----
12
<PAGE>
(iii) cash payments for Capital Expenditures in such period not
funded by the incurrence of Indebtedness or through equity
contributions to the capital of the Company and cash payments made by
the Company and its consolidated Subsidiaries during such period with
respect to any Capitalized Lease Obligations, minus
-----
(iv) income tax liabilities for such fiscal year of the Company
and its consolidated Subsidiaries, minus
-----
(v) cash interest paid and principal paid on Indebtedness of
the Company and its consolidated Subsidiaries (including repayments of
principal on the revolving credit facility under the Credit Agreement
and the $60M Credit Agreement only to the extent of any permanent
reduction of commitments thereunder), but excluding payments of
principal and interest of Indebtedness funded through equity
contributions to the capital of the Company, minus
-----
(vii) extraordinary cash losses of the Company and its
consolidated Subsidiaries,
all for the respective fiscal year. The amount of Excess Cash Flow so determined
shall be adjusted as necessary to avoid a double addition or double subtraction
on account of a single item or transaction.
Floating Rate Note(s): means the Floating Rate Senior Secured Notes
---------------------
due November 1, 2009 issued by the Company in the aggregate principal amount of
U.S.$165,717,674.73, and all notes issued in substitution therefore.
GAAP: generally accepted accounting principles in the United States of
----
America as in effect from time to time.
Governmental Authority: any nation or government, any state or other
----------------------
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
Guarantee: the Guarantee entered into by each Material Subsidiary
---------
pursuant to which such Subsidiary guarantees the outstanding principal of and
interest on the Floating Rate Notes and the other obligations of the Company
under the Floating Rate Notes, the Security Agreement and any other security
agreement delivered pursuant to Section 11.2 of any Floating Rate Note.
13
<PAGE>
Guaranty or guaranteed, as applied to an obligation (each a "primary
-------- ----------
obligation"), shall mean and include:
(a) any guaranty, direct or indirect, in any manner, of any part or
all of such primary obligation; and
(b) any agreement, direct or indirect, contingent or otherwise, the
practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of any
part or all of such primary obligation, including, without limiting the
foregoing, (i) any reimbursement obligations as to amounts drawn down by
-
beneficiaries of outstanding letters of credit, and (ii) any obligation of
--
any Person, whether or not contingent:
(w) to purchase any such primary obligation or any property
or asset constituting direct or indirect security therefor;
(x) to advance or supply funds (1) for the purchase or
-
payment of such primary obligation or (2) to maintain working capital,
-
equity capital or the net worth, cash flow, solvency or other balance
sheet or income statement condition of any other Person;
(y) to purchase property, assets, securities or services
primarily for the purpose of assuring the owner or holder of any
primary obligation of the ability of the primary obligor with respect
to such primary obligation to make payment thereof; or
(z) otherwise to assure or hold harmless the owner or holder
of such primary obligation against loss in respect thereof.
Holder: means LG Electronics Inc. or, if this Floating Rate Note is
------
transferred, the Person in whose name this Floating Rate Note is at the time
registered on the register kept by the Company as provided in Section 11.1.
Indebtedness: as applied to any Person:
------------
(a) any obligation for borrowed money;
(b) any obligation evidenced by bonds, debentures, notes or other
similar instruments;
14
<PAGE>
(c) any obligation to pay the deferred purchase price of property or
for services (other than in the ordinary course of business);
(d) any Capitalized Lease Obligation;
(e) any obligation or liability of others secured by a Lien on
property owned by such Person, whether or not such obligation or liability
is assumed;
(f) any obligation under any Interest Hedge Agreement or Foreign
Exchange Agreement (as such terms are defined in the $60M Credit
Agreement);
(g) any Guaranty (except items of shareholders' equity or capital
stock or surplus or general contingency or deferred tax reserves); and
(h) any letter of credit issued for the account of such Person.
Interbank Rate:
--------------
(i) for interest accruing on or before February 1, 2000, the
interest rate which is determined by the Holder in its sole discretion
to be the arithmetic mean of the rates per annum (rounded upwards, if
necessary, to the nearest 1/16%) quoted on the Screen 3750 (or such
other screen as may display London interbank offered rates of major
banks for U.S. dollar deposits) on the Telerate System (or if such
quote is unavailable on the relevant date, the rate quoted by a
reference bank in London selected by the Holder) for a three month
period at approximately 11:00 a.m. (London time) on the date which is
two Business Days prior to the date hereof; and
(ii) for interest accruing on or after February 2, 2000, the
interest rate which is determined on the first Business Day of each
three month period from February 2, 2000 (each such consecutive period
a "Quarter") by the Holder in its sole discretion to be the arithmetic
-------
mean of the rates per annum (rounded upwards, if necessary, to the
nearest 1/16%) quoted on the Screen 3750 at approximately 11:00 a.m.
(London time) on such Business Day (or such other screen as may
display London interbank offered rates of major banks for U.S. dollar
deposits) on the Telerate System (or if such quote is unavailable on
the relevant date, the rate quoted by a reference bank in London
selected by the Lender) for a three month period, such rate calculated
as of the first Business Day of each Quarter to be in effect for
purposes of interest accrual from the first calendar day of such
Quarter through the last calendar day of such Quarter.
15
<PAGE>
Interest Charge Coverage Ratio: with respect to any Interest Payment
------------------------------
Date, the ratio of EBITDA to Cash Interest Expense for the immediately preceding
four fiscal quarter period.
Interest Payment Date: each February 1, May 1, August 1 and November 1
---------------------
occurring after November 1, 1999.
Lien: as to any Person, any mortgage, lien, pledge, adverse claim,
----
charge, security interest or other encumbrance in or on, or any interest or
title of any vendor, lessor, lender or other secured party to or of such Person
under any conditional sale or other title retention agreement or capital lease
with respect to, any property or asset owned or held by such Person, or the
signing or filing of a financing statement which names such Person as debtor, or
the signing of any security agreement authorizing any other party as the secured
party thereunder to file any financing statement.
Material Subsidiaries: means each of:
---------------------
(i) Zenith Electronics Corporation of Texas, a Texas
corporation;
(ii) Zenith Video Tech Corporation-Florida, a Delaware
corporation;
(iii) Zenith Video Tech Corporation, a Delaware corporation; and
(iv) any other domestic Subsidiary of the Company, now or
hereafter created, which owns assets (including stock but
excluding intercompany receivables) having an aggregate book
value in excess of $750,000, provided, however, Zenith
-------- -------
Electronics Corporation of Arizona shall not be deemed to be
a "Material Subsidiary" unless it owns assets (including
stock but excluding intercompany receivables) having an
aggregate book value in excess of $1,500,000.
Person: a corporation, an association, a partnership, an
------
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
Potential Event of Default: any condition or event which, with notice
--------------------------
or lapse of time or both, would become an Event of Default.
Required Holders: holders of at least 66-2/3% of the outstanding
----------------
principal amount of the Floating Rate Notes.
16
<PAGE>
Restructuring Agreement: means the Amended and Restated Restructuring
-----------------------
Agreement, dated as of June 14, 1999, between the Borrower and LGE, as amended
by the First Amendment to the Amended and Restated Restructuring Agreement,
dated as of September 15, 1999.
Security Agreement: the Security Agreement, dated as of November 9,
------------------
1999, between the Company and LG Electronics Inc., as amended, modified or
supplemented from time to time, delivered in connection with the Floating Rate
Notes.
$60M Credit Agreement: means the $60,000,000 Credit Agreement, dated
---------------------
as of November 9, 1999, between the Company and LGE, as amended, modified or
supplemented from time to time.
Specified Assets: the assets specified as collateral under the
----------------
Security Agreement.
Subsidiary: shall mean, as applied to any Person, (a) any corporation
---------- -
of which fifty percent (50%) or more of the outstanding stock (other than
directors' qualifying shares) having ordinary voting power to elect a majority
of its board of directors, regardless of the existence at the time of a right of
the holders of any class or classes of securities of such corporation to
exercise such voting power by reason of the happening of any contingency, or any
partnership of which fifty percent (50%) or more of the outstanding partnership
interests is at the time owned by such Person, or by one or more Subsidiaries of
such Person, or by such Person and one or more Subsidiaries of such Person, and
(b) any other entity which is controlled or capable of being controlled by such
-
Person, or by one or more Subsidiaries of such Person, or by such Person and one
or more Subsidiaries of such Person. References herein to Subsidiary, shall be a
reference to a Subsidiary of the Company unless the context requires otherwise.
ARTICLE XI
REGISTRATION AND TRANSFER
11.1 Note Register; Ownership of Floating Rate Notes. The Company will keep
-----------------------------------------------
at its principal office a register in which the Company will provide for the
registration of the Floating Rate Notes and the registration of transfers of the
Floating Rate Notes. The Company may treat the Person in whose name this
Floating Rate Note is registered on such register as the owner thereof for all
purposes, whether or not this Floating Rate Note shall be overdue and the
Company shall not be affected by any notice to the contrary.
This Floating Rate Note is a registered Floating Rate Note and is
transferable only upon surrender of this Floating Rate Note for registration or
transfer, duly
17
<PAGE>
endorsed, or accompanied by a written instrument of transfer duly executed by
the Holder hereof or his attorney duly authorized in writing.
11.2 Transfer and Exchange of Floating Rate Notes. Upon surrender of this
--------------------------------------------
Floating Rate Note for registration of transfer or for exchange to the Company
at its principal office, the Company at its expense will execute and deliver in
exchange therefor a new Floating Rate Note or Floating Rate Notes, each in the
form of this Floating Rate Note, as requested by the Holder or transferee, in an
aggregate principal amount equal to the unpaid principal amount of such
surrendered Floating Rate Note, dated so that there will be no loss of interest
on such surrendered Floating Rate Note and otherwise of like tenor. Upon any
transfer of this Floating Rate Note, the Company shall execute and deliver to
such new Holder a security agreement substantially in the form of the Security
Agreement.
ARTICLE XII
MISCELLANEOUS
12.1 Expenses. The Company will pay all costs and expenses (including
--------
reasonable attorneys' fees of a special counsel and, if reasonably required,
local or other counsel) incurred by the Holder in connection with this Floating
Rate Note and transactions in connection herewith and in connection with any
amendments, waivers or consents under or in respect of this Floating Rate Note
and the related agreements (whether or not such amendment, waiver or consent
becomes effective), including, without limitation: (a) the costs and expenses
-
incurred in enforcing or defending (or determining whether or how to enforce or
defend) any rights under this Floating Rate Note or the related agreements or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Floating Rate Note or the related
agreements, or by reason of being a holder of this Floating Rate Note, and (b)
-
the costs and expenses, including financial advisors' fees, incurred in
connection with the insolvency or bankruptcy of the Company or any Material
Subsidiary or in connection with any work-out or restructuring of the
transactions contemplated hereby and by the related agreements. The Company will
pay, and will save the Holder harmless from, all claims in respect of any fees,
costs or expenses if any, of brokers and finders (other than those retained by
the Holder).
12.2 Waiver of Presentment. The Company, for itself and on behalf of any
---------------------
guarantor or endorser, irrevocably waives presentment, protest, demand and
notice of any kind (except as specifically required hereunder) in connection
with this Floating Rate Note.
18
<PAGE>
12.3 Amendments and Waivers. The Floating Rate Notes may be amended, and
----------------------
the observance of any term of the Floating Rate Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Required Holders, except that no such amendment or waiver may,
without the written consent of the holder of each Floating Rate Note at the time
outstanding affected thereby, (a) subject to the provisions of Section 9
-
relating to acceleration or rescission, change the amount or time of any
prepayment or payment of principal of, or reduce the rate or change the time of
payment or method of computation of interest the Floating Rate Notes or change
the currency in which the Floating Rate Notes are payable, (b) change the
-
percentage of the principal amount of the Floating Rate Notes the holders of
which are required to consent to any such amendment or waiver, or (c) amend any
-
of Articles 1, 3, 4 or 9 or Section 8.1(a) and (b) or 12.3.
12.4 Notices. All notices and other communications made in connection with
-------
this Agreement shall be in writing and shall be deemed to have been duly given
if (a) mailed by first-class, registered or certified mail, return receipt
-
requested, postage pre-paid, (b) transmitted by hand delivery, (c) sent by next-
- -
day or overnight mail or delivery, (d) transmitted by facsimile or (e) sent by
- -
telecopy or telegram, addressed as follows:
(I) if to the Holder:
LG Electronics Inc.
LG Twin Towers
20, Yoido-dong
Youngdungpo-gu
Seoul, Korea 150-721
Telecopy: 011-82-2-3777-5303
Telephone: 011-82-2-3777-3073
Attention: Finance Team
and to:
LG Electronics Inc.
6133 North River Road
Rosemont, IL 60018
Telecopy: 847-692-3576
Telephone: 847-692-4630
Attention: Nam K. Woo
19
<PAGE>
with copies to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telecopy: (212) 909-6836
Telephone: (212) 909-6586
Attention: Steven R. Gross, Esq.
(ii) if to the Company:
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, IL 60025-2493
Telecopy: (847) 391-8584
Telephone: (847) 391-8064
Attention: Richard F. Vitkus, General Counsel
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Telecopy: (312) 861-2200
Telephone: (312) 861-2200
Attention: James H.M. Sprayregen
or, in each case, at such other address as may be specified in writing to the
other party hereto.
20
<PAGE>
12.5 Governing Law. This Floating Rate Note is made and delivered in New
-------------
York, New York, and shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of New York,
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
IN WITNESS WHEREOF, the Company has executed this Floating Rate Note
on the date stated above.
ZENITH ELECTRONICS CORPORATION
By _________________________
Name:
Title:
21
<PAGE>
Deferred Interest Table
-----------------------
- --------------------------------------------------------------------------------
Interest Payment Date Amount of Deferred Interest
--------------------- ---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
22
<PAGE>
EXHIBIT 4(c)
$60,000,000
CREDIT AGREEMENT
between
ZENITH ELECTRONICS CORPORATION,
as Borrower,
and
LG ELECTRONICS INC,
as Lender
November 9, 1999
<PAGE>
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS .................................................... 2
ARTICLE 2 THE LOANS ...................................................... 2
Section 2.1 Extension of Credit and Other Provisions ....................... 2
Section 2.2 Manner of Borrowing and Disbursement of Loans .................. 3
Section 2.3 Interest ....................................................... 3
Section 2.4 Optional Prepayment ............................................ 4
Section 2.5 Repayment; Mandatory Prepayments and Reduction of Commitment ... 4
Section 2.6 Manner of Payment .............................................. 6
Section 2.7 Taxes .......................................................... 6
Section 2.8 Application of Payments ........................................ 8
ARTICLE 3 CONDITIONS PRECEDENT ........................................... 9
Section 3.1 Conditions Precedent to Initial Advance ........................ 9
Section 3.2 Conditions Precedent to Each Advance ........................... 10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES ................................. 11
Section 4.1 General Representations and Warranties ......................... 11
Section 4.2 Survival of Representations and Warranties, etc. ............... 15
ARTICLE 5 GENERAL COVENANTS .............................................. 15
Section 5.1 Preservation of Existence and Similar Matters .................. 15
Section 5.2 Insurance ...................................................... 15
Section 5.3 Lien Perfection ................................................ 16
Section 5.4 Location of Collateral ......................................... 16
Section 5.5 Protection of Collateral ....................................... 16
Section 5.6 Further Assurances ............................................. 17
Section 5.7 Broker's Claims ................................................ 17
Section 5.8 Indemnity ...................................................... 17
Section 5.9 Covenants Under Citicorp Credit Agreement ...................... 17
Section 5.10 Subsidiary Guaranty; Subsidiary Security Agreement and Pledge
Agreement ...................................................... 18
Section 5.11 Payment of Taxes and Claims .................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 6 INFORMATION COVENANTS .......................................... 19
Section 6.1 Financial Statements and Information ........................... 19
Section 6.2 Performance Certificates ....................................... 19
Section 6.3 Access to Accountants .......................................... 20
Section 6.4 Additional Reports ............................................. 20
Section 6.5 Notice of Other Matters ........................................ 20
ARTICLE 7 NEGATIVE COVENANTS ............................................. 20
Section 7.1 Restricted Subordinated Payments ............................... 21
Section 7.2 Minimum EBITDA ................................................. 21
ARTICLE 8 DEFAULT ........................................................ 22
Section 8.1 Events of Default .............................................. 22
Section 8.2 Remedies ....................................................... 24
ARTICLE 9 MISCELLANEOUS .................................................. 24
Section 9.1 Notices ........................................................ 24
Section 9.2 Expenses ....................................................... 26
Section 9.3 Waivers ........................................................ 27
Section 9.4 Assignment ..................................................... 27
Section 9.5 Counterparts ................................................... 28
Section 9.6 Governing Law .................................................. 28
Section 9.7 Severability ................................................... 28
Section 9.8 Headings ....................................................... 28
Section 9.9 Entire Agreement ............................................... 28
Section 9.10 Amendments and Waivers ......................................... 28
Section 9.11 Other Relationships ............................................ 28
Section 9.12 Successors and Assigns ......................................... 28
Section 9.13 Subordination Agreement ........................................ 29
Section 9.14 Waiver of Jury Trial ........................................... 29
</TABLE>
ii
<PAGE>
ANNEXES AND EXHIBITS
--------------------
Annex A - Definitions
Exhibit A - Form of Note
Exhibit B - Form of Pledge Agreement
Exhibit C - Form of Security Agreement
Exhibit D - Form of Subsidiary Guaranty
Exhibit E - Form of Subsidiary Security Agreement
SCHEDULES
---------
Schedule A - HDTV Patents
Schedule P-1 - Existing Liens
Schedule 4.1(g) - Intellectual Property
Schedule 4.1(k) - Insurance
Schedule 4.1(l)-1 - Leased Real Property
Schedule 4.1(l)-2 - Owned Real Property
Schedule 5.4 - Location of Collateral
iii
<PAGE>
This Credit Agreement, dated as of November 9, 1999 (as amended,
supplemented or modified from time to time, the "Agreement") is entered into
---------
between Zenith Electronics Corporation, a Delaware corporation (the "Borrower"),
--------
and LG Electronics Inc., a corporation organized under the laws of the Republic
of Korea ("LGE").
---
W I T N E S S E T H:
- - - - - - - - - -
Whereas, Borrower is a party to a certain Credit Agreement, dated as
of November 9, 1999, as amended, modified or supplemented from time to time,
with Citicorp North America, Inc., as agent, and the various lenders and issuing
banks party thereto (the "Citicorp Credit Agreement").
-------------------------
WHEREAS, the obligations of the Borrower under the Citicorp Credit
Agreement is secured by a lien on and security interest in, substantially all
property of the Borrower, whether now owned or hereafter acquired, as more fully
set forth in the Citicorp Credit Agreement and the related Citicorp Loan
Documents.
WHEREAS, the Borrower has requested LGE to advance loans from time to
time in an aggregate amount not exceeding $60,000,000, and LGE has agreed to
make loans to the Borrower in an aggregate amount not exceeding $60,000,000.
WHEREAS, it is a condition to such borrowing that the Borrower secure
its obligations under the Loan Documents to LGE by a lien on and security
interest in, certain of the property of the Borrower, whether now owned or
hereafter acquired.
WHEREAS, it is a condition to such borrowing that the Borrower's
Material Subsidiaries guarantee the Borrower's obligations under the Loan
Documents to LGE, and secure such obligations by a lien on and security interest
in, certain of their respective property, whether now owned or hereafter
acquired.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, Borrower and LGE agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
-----------
Capitalized terms used without definition shall have the respective
meanings specified in Annex A hereto.
Each definition of a Loan Document in Annex A shall include such instrument
or agreement as modified, amended, or supplemented from time to time with, if
required, the prior written consent of LGE, and except where the context
otherwise requires, definitions imparting the singular shall include the plural
and vice versa. Except where otherwise specifically restricted, reference to a
party to a Loan Document includes that party and its successors and assigns.
An Event of Default shall "exist", "continue" or be "continuing" until
such Event of Default has been waived in writing in accordance with Section 9.10
hereof. The pronouns used herein shall include, when appropriate, either gender
and both singular and plural, and the grammatical construction of sentences
shall conform thereto.
All terms used herein which are defined in Article 9 of the Uniform
Commercial Code in effect in the State of New York on the date hereof and which
are not otherwise defined herein shall have the same meanings herein as set
forth therein. All accounting terms used herein without definition shall be used
as defined under GAAP. All financial calculations hereunder shall, unless
otherwise stated, be determined for the Borrower on a consolidated basis with
its Subsidiaries.
ARTICLE 2
THE LOANS
---------
Section 2.1 Extension of Credit and Other Provisions.
----------------------------------------
(a) Extension of Credit. Subject to the terms and conditions of and the
-------------------
applicable laws and regulations of Korea, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, LGE has agreed to extend credit in an aggregate principal amount not
to exceed SIXTY MILLION DOLLARS ($60,000,000) to the Borrower, as hereinafter
provided.
(b) The Loans. LGE agrees upon the terms and subject to the conditions of
---------
this Agreement, to lend to the Borrower, prior to the Commitment Termination
Date (or such later date as may be agreed to by LGE in its sole discretion), an
aggregate amount up to the
2
<PAGE>
Commitment. Subject to the terms and conditions hereof, Advances under the
Commitment may be repaid, but not reborrowed.
(c) Note. The Loans shall be repayable in accordance with the terms and
----
provisions set forth herein, and shall be evidenced by the Note. The Note shall
be issued by the Borrower to LGE in the aggregate amount of the Commitment and
shall be duly executed and delivered by Authorized Signatories.
(d) Account. LGE may maintain a record of the amount of each Advance and
-------
the accrued interest thereon. The records of LGE with respect to such Advances
and interest shall be conclusive evidence of the Loans and accrued interest
thereon, absent manifest error.
(e) Use of Proceeds. The proceeds of the Loans shall be used by the
---------------
Borrower for general corporate and working capital purposes and for capital
expenditures.
Section 2.2 Manner of Borrowing and Disbursement of Loans.
---------------------------------------------
(a) Manner of Borrowing. The Borrower shall request an Advance hereunder in
-------------------
writing by 12:00 noon (Chicago time) at least ten Business Days prior to the
requested funding date in an amount not exceeding the Available Commitment. Each
Advance shall be in a principal amount of no less that $5,000,000 and in an
integral multiple of $1,000,000 in excess thereof.
(b) Disbursement. Prior to 3:00 p.m. (Chicago time) on the date of an
------------
Advance hereunder, LGE shall, subject to the satisfaction of the conditions set
forth in Article 3 hereof, disburse the amounts of the requested Advance in
Dollars by transferring the amounts so made available by deposit into the
Borrower's account maintained with Bank One, ABA #: 071000013, A/C #: 55-44625,
Reference: Zenith Electronics Corporation Loan, or by wire transfer pursuant to
the Borrower's instructions.
Section 2.3 Interest.
--------
(a) On Loans. Subject to Section 2.3(b) hereof, interest on each Advance
--------
shall be computed for the actual number of days elapsed on the basis of a
hypothetical year of 360 days and shall be payable in arrears on the first day
of each March, June, September and December after the Agreement Date. Interest
on Advances then outstanding shall also be due and payable on the Termination
Date. Interest shall accrue and be payable on each Advance at the simple per
annum interest rate equal to the sum of (i) the LIBOR Rate and (ii) the Interest
Rate Margin.
(b) Upon Default. Upon the occurrence of an Event of Default and at the
------------
election of LGE, interest on the outstanding Obligations shall accrue at the
Default Rate from the date of
3
<PAGE>
such Event of Default. Interest accruing at the Default Rate shall be payable on
demand and in any event on the Termination Date and shall accrue until the
earliest to occur of (i) waiver of the applicable Event of Default, (ii)
- --
agreement by LGE to rescind the charging of interest at the Default Rate, or
(iii) payment in full of the Obligations. LGE shall not be required to (i)
---
accelerate the maturity of the Loans, (ii) terminate the Commitment, or (iii)
-- ---
exercise any other rights or remedies under the Loan Documents in order to
charge interest hereunder at the Default Rate.
(c) Computation of Interest. In computing interest on any Advance, the date
-----------------------
of making the Advance shall be included and the date of payment shall be
excluded; provided, however, that if an Advance is repaid on the date that it is
-------- -------
made, one (1) day's interest shall be due with respect to such Advance.
(d) Maximum Rate of Interest. In no contingency or event whatsoever shall
------------------------
the aggregate of all amounts deemed interest on the Loans and charged or
collected pursuant to the terms of this Agreement or pursuant to the Note exceed
the highest rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable thereto. In the
event that such a court determines that LGE has charged or received interest
hereunder in excess of the highest applicable rate, the rate in effect hereunder
shall automatically be reduced to the maximum rate permitted by Applicable Law
and LGE shall promptly refund to the Borrower any interest received by it in
excess of the maximum lawful rate or, if so requested by the Borrower, shall
apply such excess to the principal balance of the Obligations. It is the intent
hereof that the Borrower not pay or contract to pay, and that LGE not receive or
contract to receive, directly or indirectly in any manner whatsoever, interest
in excess of that which may be paid by the Borrower under Applicable Law.
Section 2.4 Optional Prepayment.
-------------------
(a) Optional Prepayment. The principal amount of any Advance may be prepaid
-------------------
in full or in part at any time upon written notice to LGE not later than 11:00
a.m. (Chicago time) at least two Business Days prior to the date of such
prepayment, without penalty.
Section 2.5 Repayment; Mandatory Prepayments and Reduction of
-------------------------------------------------
Commitment.
----------
(a) Termination Date. The principal balance of all Loans then outstanding
----------------
shall be due and payable in full on the Termination Date and as may be required
below.
(b) Mandatory Prepayments.
---------------------
4
<PAGE>
(i) Asset Disposition. If, (A) after the date of this Agreement, the
----------------- -
Borrower sells, disposes or otherwise transfers any or all of the Specified
Assets (other than a license of HDTV Patents in the ordinary course of
business of the Borrower) or (B) after the date the Obligations (as defined
-
in the Citicorp Credit Agreement) due and owing are paid in full and the
obligation of the banks thereunder to lend is terminated, the Borrower or
any of its Subsidiaries sells, disposes or otherwise transfers any or all
of its assets (other than the PIK Specified Assets), then within two
Business Days of the receipt of the proceeds of such asset disposition, the
Borrower shall prepay principal of the Loans in an amount equal to the net
proceeds of such asset disposition, together with interest accrued thereon.
Promptly upon entering into a definitive agreement to dispose of any or all
of the Specified Assets or any other assets (other than the PIK Specified
Assets), the Borrower will give LGE written notice of (i) the Specified
-
Assets or the other assets to be sold, (ii) the anticipated amount of the
--
proceeds of such disposition and (ii) the date or anticipated date, as the
--
case may be, of such disposition. Upon the date of such asset disposition,
the Borrower will give LGE notice of (i) the Specified Assets or the other
-
assets sold (other than the PIK Specified Assets), (ii) the amount of the
--
proceeds of such asset disposition, (iii) the date of such asset
---
disposition, (iv) the aggregate amount of the Loans to be prepaid, (v) the
--
aggregate amount of interest to be paid, and (vi) the date of such
--
prepayment.
(ii) Excess Cash. To the extent permitted pursuant to the Citicorp
-----------
Credit Agreement (without giving effect hereafter to changes in such
Citicorp Credit Agreement not consented to in writing by LGE for the
purposes of this Agreement), on the earlier of the date which is ten days
after (i) the date on which the Borrower's annual audited financial
-
statements for the immediately preceding fiscal year of the Borrower are
delivered pursuant to Section 6.1 hereof or (ii) the date on which such
--
annual audited financial statements were required to be delivered pursuant
to Section 6.1 hereof, the Borrower shall prepay the aggregate amount of
the Loans in an amount equal to 100% of aggregate Excess Cash Residual of
the Borrower and its Subsidiaries for the immediately preceding fiscal year
of the Borrower, together with interest thereto to the date of payment.
Each such prepayment shall be accompanied by a certificate signed by the
Borrower's chief financial officer certifying the manner in which Excess
Cash Residual and the resulting prepayment were calculated.
Nothing in this Section shall authorize the Borrower to sell any assets except
as expressly permitted by this Agreement.
(c) Reduction of Commitment. The Commitment shall be reduced by the
-----------------------
aggregate amount of all net proceeds of any sale, transfer or other disposition
of Specified Assets that are not used to prepay the Loans.
5
<PAGE>
Section 2.6 Manner of Payment.
-----------------
(a) When Payments Due.
-----------------
(i) Each payment (including any prepayment) by the Borrower on
account of the principal of or interest on the Loans, fees, and any other
amount owed to LGE under this Agreement, the Note, or the other Loan
Documents shall be made not later than 3:00 p.m. (Chicago time) on the date
specified for payment under this Agreement or any other Loan Document to
LGE at the account of LGE (account no. YCD 001) with the Hanvit Bank, Twin
Towers Branch Yoido, Seoul, Korea or at such other place and/or to such
other account as LGE may notify the Borrower, in Dollars in immediately
available funds.
(ii) If any payment under this Agreement or the Note shall be
specified to be made upon a day which is not a Business Day, it shall be
made on the next succeeding day which is a Business Day, and such extension
of time shall in such case be included in computing interest and fees, if
any, in connection with such payment.
Section 2.7 Taxes.
-----
(a) No Deduction.
------------
(i) Payments Free and Clear of Withholding. The Borrower covenants
--------------------------------------
and agrees that any and all payments to be made by the Borrower hereunder,
and under the Note and the other Loan Documents shall be made free and
clear of and without any deduction or withholding for any present or future
taxes, levies, imposts, duties, fees, deductions, charges or withholdings
of any nature now or hereafter imposed, levied, collected, withheld or
assessed by any taxation authority in the Republic of Korea or any other
country (other than the United States of America), or any political
subdivision or taxing authority or agency therein or thereof (all such
taxes, deductions, withholding or other amounts hereinafter referred to as
"Taxes") or any Other Taxes (as defined below). If the Borrower shall be
-----
required by law to make any such deduction or withholding from any payment
hereunder:
(x) the sum payable shall be increased as may be necessary so that
after making all required deductions or withholdings (including
deductions or withholdings applicable to additional Taxes or Other
Taxes (as defined below) payable hereunder) LGE receives an amount
equal to the sum it would have received had no such deductions or
withholdings been made;
(y) the Borrower shall make such deductions or withholdings; and
6
<PAGE>
(z) the Borrower shall pay the full amount deducted or withheld to the
relevant taxation authority or other authority in accordance with
applicable law.
(b) Other Taxes. In addition, the Borrower agrees to pay any present or
-----------
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies imposed, levied or assessed by any taxation authority of any
country (including, without limitation, the United States of America) or any
political subdivision or taxing authority or agency therein or thereof which
arise from any payment made hereunder (hereinafter referred to as "Other
-----
Taxes").
- -----
(c) Tax Indemnity. The Borrower will indemnify and hold harmless LGE for
-------------
the full amount of the Taxes or Other Taxes (including without limitation any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable hereunder
paid by LGE), or any liability (including penalties, interest and expenses) or
claim arising therefrom or with respect thereto. All payments for
indemnification claims shall be made within 30 days from the date LGE makes
written demand therefor.
(d) Evidence of Payment of Taxes. Within 30 days after the date of any
----------------------------
payment of Taxes the Borrower will furnish to LGE the original or a certified
copy of a receipt evidencing payment thereof.
(e) U.S. Tax Payments. The Borrower covenants and agrees as follows:
-----------------
(i) if the Borrower shall be required by law to make any deduction or
withholding for any present or future taxes (other than Other Taxes), levies,
imposts, duties, fees, deductions, charges or withholdings of any nature now or
hereafter imposed, levied, collected, withheld or assessed by any taxation
authority in the United States of America, or any political subdivision or
taxing authority or agency therein or thereof (all such taxes, deductions,
withholdings or other amounts hereinafter referred to as "U.S. Taxes") from any
----------
payment hereunder or under the Note or other Loan Documents, the Borrower shall
make the deductions and withholdings described above in this clause (i) and
shall pay the full amount deducted or withheld to the relevant taxation
authority or other authority of the United States of America on time and in
accordance with applicable law; and
(ii) within thirty (30) days after the date of any payment of U.S.
Taxes, the Borrower shall furnish to LGE the original or a certified copy of a
document evidencing payment thereof if a form acceptable to the relevant
taxation authority in the Republic of Korea.
7
<PAGE>
(f) Notification of Entitlement. If LGE is entitled to receive payments
---------------------------
hereunder or under the Note or other Loan Documents exempt from any United
States withholding taxes or subject to such withholding taxes at a reduced rate,
LGE shall notify the Borrower of such event and LGE shall deliver to the
Borrower two duly completed copies of the applicable United States Internal
Revenue Service Form W-8BEN or W-8ECI, certifying in either case that LGE is
entitled to receive payments hereunder and under the Note and other Loan
Documents exempt from any United States withholding taxes or subject to such
withholding taxes at a reduced rate.
Section 2.8 Application of Payments.
-----------------------
(a) Payments Prior to Acceleration. Prior to the acceleration of the
------------------------------
Obligations under Section 8.2 hereof, if some but less than all amounts due from
the Borrower are received by LGE, LGE shall distribute such amounts in the
following order of priority:
FIRST, to the payment of all interest due and owing on the Loans
-----
SECOND, to the payment of principal then due and payable on the Loans;
------
THIRD, to the payment of any fees then due and payable to LGE
-----
hereunder or under any other Loan Document;
FOURTH, to the payment of all other Obligations not otherwise referred
------
to in this Section 2.8(a) then due and payable hereunder or under the other
Loan Documents; and
FIFTH, to the costs and expenses (including attorneys' fees and
-----
expenses), if any, incurred by LGE in the collection of such amounts under
this Agreement or any of the other Loan Documents.
(b) Payments Subsequent to Acceleration. Subsequent to the acceleration of
-----------------------------------
the Obligations under Section 8.2 hereof, payments and prepayments with respect
to the Obligations made to LGE or otherwise received by LGE (from realization on
Collateral or otherwise) shall be distributed in the following order of
priority:
FIRST, to the reasonable costs and expenses (including reasonable
-----
attorneys' fees and expenses), if any, incurred by the LGE in the
collection of such amounts under this Agreement or of the Loan Documents,
including, without limitation, any costs incurred in connection with the
sale or disposition of any Collateral;
SECOND, to any fees then due and payable to LGE under this Agreement
------
or any other Loan Document;
8
<PAGE>
THIRD, to the payment of interest then due and payable on the Loans;
-----
FOURTH, to the payment of principal of the Loans then outstanding;
------
FIFTH, to any other Obligations not otherwise referred to in this
-----
Section 2.8(b); and
SIXTH, upon satisfaction in full of all Obligations, to the Borrower
-----
or to any other Person legally entitled thereto.
ARTICLE 3
CONDITIONS PRECEDENT
--------------------
Section 3.1 Conditions Precedent to Initial Advance. The obligations of
---------------------------------------
LGE to undertake the Commitment and to make the initial Advance hereunder are
subject to the prior fulfillment of each of the following conditions:
(a) LGE shall have received each of the following, in form and substance
satisfactory to LGE:
(i) This duly executed Agreement;
(ii) A duly executed Note to the order of LGE in the amount of the
Commitment;
(iii) The Security Agreement, Pledge Agreement, Intellectual Property
Security Agreements, Mortgage, Subsidiary Guaranty, and Subsidiary Security
Agreement, duly executed by the parties thereto;
(iv) A Secretary's Certificate from the Borrower and each of its
Material Subsidiaries party to a Loan Document, attaching hereto: (A) a
-
certificate of incumbency with respect to the respective officers of the
Borrower or such Subsidiary, as the case may be, (B) a true, complete and
-
correct copy of the By-Laws of the Borrower or such Subsidiary, as the case
may be, and (C) a true, complete and correct copy of the resolutions of the
-
Borrower or such Subsidiary, as the case may be, authorizing the borrowing
hereunder and the execution, delivery and performance if the Loan
Documents.
9
<PAGE>
(v) A copy of the Certificate of Incorporation of the Borrower and
each of its Material Subsidiaries that are party to a Loan Document
certified by the Secretary of State of the its state of incorporation.
(vi) Certificates of good standing from each jurisdiction in which
the Borrower is required to be registered to do business.
(vii) Evidence of the perfection and priority of the Liens granted by
the Borrower and its Material Subsidiaries party to a Loan Documents; and
(viii) Such other documents and evidence as LGE may reasonably
request, certified by an appropriate governmental official or an Authorized
Signatory if so requested;
(b) All of the representations and warranties of the Borrower and its
Subsidiaries in this Agreement and the other Loan Documents shall be true and
correct in all material respects, both before and after giving effect to the
application of the proceeds of the initial Advance; and
(c) All of the conditions to the closing under the Restructuring Agreement
shall have been satisfied or waived with the consent of the LGE.
Section 3.2 Conditions Precedent to Each Advance. The obligation of LGE
------------------------------------
to make each Advance, including the initial Advance, remains subject to the
fulfillment of each of the following conditions immediately prior to or
contemporaneously with the making of such Advance:
(a) All of the representations and warranties of the Borrower under this
Agreement, which, pursuant to Section 4.2 hereof, are made at and as of the time
of the making of such Advance, shall be true and correct in all material
respects at such time, both before and after giving effect to the application of
the proceeds of the Advance;
(b) The amount of the Advance requested shall not exceed the amount of the
Available Commitment;
(c) The Borrower shall have satisfied the conditions to borrowing set
forth in Section 3.2 of the Citicorp Credit Agreement (other than Section
3.2(c)), or if such conditions are not met, the banks under the Citicorp Credit
Agreement are continuing to permit the Borrower to borrow revolving loans under
such facility and are continuing to issue letters of credit thereunder; and
10
<PAGE>
(d) (i) There shall not exist on the date of making such Advance and after
giving effect thereto, a Default or an Event of Default specified in Section
8.1(a), (b), (d), (e), (f), (j) or (k), and (ii) the Borrower shall be in
compliance with the Section 7.2.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 General Representations and Warranties. In order to induce
--------------------------------------
LGE to enter into this Agreement and to extend the Loans to the Borrower, the
Borrower hereby agrees, represents, and warrants that:
(a) Organization; Power; Qualification. Each of the Borrower and the
----------------------------------
Borrower's Subsidiaries is a corporation duly organized, validly existing, and
in good standing under the laws of their respective states of incorporation, has
the corporate power and authority to own or lease and operate its properties and
to carry on its business as now being and hereafter proposed to be conducted,
and is duly qualified and is in good standing as a foreign corporation, and
authorized to do business, in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization.
(b) Authorization; Enforceability. The Borrower and each of the Borrower's
-----------------------------
Material Subsidiaries has the power and has taken all necessary corporate action
to authorize it to execute, deliver, and perform this Agreement and each of the
other Loan Documents to which it is a party in accordance with the terms thereof
and to consummate the transactions contemplated hereby and thereby. This
Agreement and each of the other Loan Documents to which the Borrower is a party
has been duly executed and delivered by the Borrower, and is, and each of the
other Loan Documents to which the Borrower is a party is, a legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms.
(c) Compliance with laws, etc., of Agreement, Other Loan Documents, and
-------------------------------------------------------------------
Contemplated Transactions. The execution, delivery, and performance of this
- -------------------------
Agreement and each of the other Loan Documents in accordance with the terms
thereof and the consummation of the transactions contemplated hereby and thereby
do not and will not (i) violate any Applicable Law, (ii) conflict with, result
- --
in a breach of, or constitute a default under the certificate of incorporation
or by-laws of the Borrower or any Material Subsidiary or under any indenture,
agreement, or other instrument to which the Borrower or any Material Subsidiary
is a party or by which the Borrower or any Material Subsidiary or any of their
respective properties may be bound, or (iii) result in or require the creation
---
or imposition of any Lien upon or with respect to
11
<PAGE>
any property now owned or hereafter acquired by the Borrower or any Material
Subsidiary except Permitted Liens.
(d) Necessary Authorizations. The Borrower and each Material Subsidiary
------------------------
have obtained all Necessary Authorizations, and all such Necessary
Authorizations are in full force and effect. None of said Necessary
Authorizations is the subject of any pending or, to the best of the Borrower's
knowledge, threatened attack or revocation, by the grantor of the Necessary
Authorization. Neither the Borrower nor any Material Subsidiary is required to
obtain any additional Necessary Authorizations in connection with the execution,
delivery, and performance, in accordance with the terms of this Agreement or any
other Loan Document, and the borrowing hereunder.
(e) Title to Properties. The Borrower and each of the Borrower's
-------------------
Subsidiaries has good, marketable, and legal title to, or a valid leasehold
interest in, all of its properties and assets, and none of such properties or
assets is subject to any Liens (other than Permitted Liens).
(f) No Adverse Change. Since August 31, 1999, there has occurred no event
-----------------
(except as previously disclosed to LGE in writing) which could reasonably be
expected to have a Materially Adverse Effect.
(g) Intellectual Property; Licenses. Borrower possesses adequate
-------------------------------
Intellectual Property to continue to conduct its business as heretofore
conducted by it, and all registered Intellectual Property existing on the date
hereof, (together with in the case of patents and Trademarks, the date of
issuance thereof), is listed on Schedule 4.1(g). With respect to Intellectual
---------------
Property of the Borrower unless such Intellectual Property has become obsolete
or is no longer used or useful in the conduct of the business of the Borrower:
(i) it is valid and enforceable, is subsisting, and has not been
adjudged invalid or unenforceable, in whole or in part;
(ii) Borrower has made all necessary filings and recordations to
protect its interest therein, including, without limitation, recordations
of all of its interest in its Patent Property and Trademark Property in the
United States Patent and Trademark Office and, to the extent necessary for
the conduct of Borrower's business, in corresponding offices throughout the
world;
(iii) Except as set forth on Schedule 4.1(g), Borrower is the
---------------
exclusive owner of the entire and unencumbered right, title and interest in
and to such Intellectual Property owned by it and no claim has been made
that the use of any of its owned Intellectual Property does or may violate
the asserted rights of any third party; and
12
<PAGE>
(iv) Borrower has performed, and Borrower will continue to
perform, all acts, and Borrower has paid and will continue to pay, all
required fees and taxes, to maintain each and every item of such
Intellectual Property in full force and effect throughout the world, as
applicable.
Borrower owns directly or is entitled to use, by license or otherwise, all
patents, Trademarks, copyrights, mask works, licenses, technology, know-how,
processes and rights with respect to any of the foregoing used in, necessary for
or of importance to the conduct of Borrower's business.
(h) Compliance with Law; Absence of Default. Each of the Borrower and the
---------------------------------------
Borrower's Subsidiaries is in material compliance with all Applicable Laws and
with all of the provisions of its certificate of incorporation and by-laws, and
no event has occurred or has failed to occur which has not been remedied or
waived, the occurrence or non-occurrence of which constitutes (i) a Default or
-
(ii) a default by the Borrower or any of the Borrower's Subsidiaries under any
--
indenture, agreement, or other instrument, or any judgment, decree, or order to
which the Borrower or any of the Borrower's Subsidiaries is a party or by which
the Borrower or any of the Borrower's Subsidiaries or any of their respective
properties may be bound
(i) Accuracy and Completeness of Information. All information, reports,
----------------------------------------
and other papers and data relating to the Borrower or any of the Borrower's
Subsidiaries furnished to LGE were, at the time the same were so furnished, (i)
-
to the extent prepared by third parties, to the best of Borrower's knowledge,
and (ii) to the extent prepared by the Borrower, complete and correct in all
--
material respects in light of all such information, reports and other papers and
data taken as a whole at such time. No fact is currently known to the Borrower
which has, or could reasonably be expected to have, a Materially Adverse Effect.
With respect to projections, estimates and forecasts given to LGE, such
projections, estimates and forecasts are based on the Borrower's good faith
assessment of the future of the business at the time made.
(j) Compliance with Regulations T, U, and X. Neither the Borrower nor any
---------------------------------------
of the Borrower's Subsidiaries is engaged principally or as one of its important
activities in the business of extending credit for the purpose of purchasing or
carrying, and neither the Borrower nor any of the Borrower's Subsidiaries owns
or presently intends to acquire, any "margin security" or "margin stock" as
defined in Regulations T, U, and X (12 C.F.R. Parts 221 and 224) of the Board of
Governors of the Federal Reserve System (herein called "margin stock"). None of
the proceeds of the Loans will be used, directly or indirectly, for the purpose
of purchasing or carrying any margin stock or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase or carry
margin stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of said Regulations T, U, and X. Neither the
Borrower nor any bank acting on its behalf has taken or will take any action
which
13
<PAGE>
might cause this Agreement or the Note to violate Regulation T, U, or X or any
other regulation of the Board of Governors of the Federal Reserve System or to
violate the Securities Exchange Act of 1934, in each case as now in effect or as
the same may hereafter be in effect. If so requested by LGE, the Borrower will
furnish LGE with (i) a statement or statements in conformity with the
-
requirements of Federal Reserve Form U-1 or other applicable form referred to in
Regulation U of said Board of Governors and (ii) other documents evidencing its
--
compliance with the margin regulations, including without limitation an opinion
of counsel in form and substance satisfactory to LGE. Neither the making of the
Loans nor the use of proceeds thereof will violate, or be inconsistent with, the
provisions of Regulation T, U, or X of said Board of Governors.
(k) Insurance. The Borrower and each of its Subsidiaries have insurance
---------
meeting the requirements of Section 5.2 hereof, and such insurance policies are
in full force and effect. As of the Agreement Date, all insurance maintained by
the Borrower is listed on Schedule 4.1(k) hereto.
---------------
(l) Real Property. All real property leased by the Borrower or any
-------------
Material Subsidiary as of the date hereof, and the name of the lessor of such
real property, is set forth in Schedule 4.1(l)-1. The leases of Borrower or such
-----------------
Material Subsidiary are valid, enforceable and in full force and effect, and
have not been materially modified or amended, except as otherwise set forth in
Schedule 4.1(l)-1. The Borrower or such Material Subsidiary is the sole holder
- -----------------
of the lessee's interests under such leases, and has the right to pledge and
assign the same except as qualified in Schedule 4.1(l)-1. Neither Borrower nor
-----------------
such Material Subsidiary has made any pledge or assignment of any of it rights
under such leases except as set forth in Schedule 4.1(l)-1 and, there is no
-----------------
default or condition which, with the passage of time or the giving of notice, or
both, would constitute a material default on the part of any party under such
leases. All real property owned by the Borrower or any Material Subsidiary as of
the Agreement Date is set forth in Schedule 4.1(l)-2. As of the Agreement Date,
-----------------
the Borrower or such Material Subsidiary does not own or lease any real property
other than as set forth on Schedule 4.1(l). The Borrower and each Material
---------------
Subsidiary owns good and marketable fee simple title to all of its owned real
property, and none of its respective owned real property is subject to any
Liens, except Permitted Liens. Neither the Borrower nor such Material Subsidiary
owns or holds, or is obligated under or a party to, any option, right of first
refusal or any other contractual right to purchase, acquire, sell, assign or
dispose of any real property owned or leased by it.
(m) Investment Company Act. Neither the Borrower nor any of the Borrower's
----------------------
Subsidiaries is required to register under the provisions of the Investment
Company Act of 1940, as amended, and neither the entering into or performance by
the Borrower of this Agreement nor the issuance of the Note violates any
provision of such Act or requires any consent, approval, or authorization of, or
registration with, any governmental or public body or authority pursuant to any
of the provisions of such Act.
14
<PAGE>
Section 4.2 Survival of Representations and Warranties, etc. All
-----------------------------------------------
representations and warranties made under this Agreement shall be deemed to be
made, and shall be true and correct in all material respects, at and as of the
Agreement Date and the date of each Advance hereunder, except to the extent
previously fulfilled in accordance with the terms hereof and to the extent
subsequently inapplicable. All representations and warranties made under this
Agreement shall survive, and not be waived by, the execution hereof by LGE, any
investigation or inquiry by LGE or the making of any Advance under this
Agreement.
ARTICLE 5
GENERAL COVENANTS
-----------------
So long as the Commitment remains in effect and thereafter until payment in
full of all of the Obligations then due and owing:
Section 5.1 Preservation of Existence and Similar Matters. The Borrower
---------------------------------------------
will, and will cause each of the Borrower's Subsidiaries (other than the
Immaterial Subsidiaries) to:
(i) preserve and maintain their respective existence, rights,
franchises, licenses, and privileges in their respective jurisdiction of
incorporation including, without limitation, all Necessary Authorizations
material to its business; and
(ii) qualify and remain qualified and authorized to do business in
each jurisdiction in which the character of their respective properties or
the nature of their respective business requires such qualification or
authorization,
provided, upon at least thirty (30) day's prior written notice to LGE, any
- --------
Subsidiary of the Borrower may be merged into or consolidated with another
Wholly-Owned Subsidiary of the Borrower, provided, that if any Material
--------
Subsidiary is a party to such merger or consolidation, the surviving entity is a
Material Subsidiary.
Section 5.2 Insurance. The Borrower will maintain and will cause each of
---------
the Borrower's Subsidiaries to maintain insurance including, but not limited to,
public liability, product and manufacturer's liability, business interruption
and fidelity coverage insurance, in such amounts and against such risks as would
be customary for companies in the same industry and of comparable size as the
Borrower from responsible companies having and maintaining an A.M. Best rating
of "A minus" or better and being in a size category of VI or larger or otherwise
acceptable to LGE. In addition to the foregoing, the Borrower further agrees to
maintain and pay for insurance upon all goods constituting Collateral wherever
located, in storage or in transit in
15
<PAGE>
vehicles, including goods evidenced by documents, covering casualty, hazard,
public liability and such other risks and in such amounts as would be customary
for companies in the same industry and of comparable size as the Borrower, from
responsible companies having and maintaining an A.M. Best rating of "A minus" or
better and being in a size category of VI or larger or otherwise acceptable to
LGE to insure LGE' interest in such Collateral.
Section 5.3 Lien Perfection. The Borrower agrees to, and will cause each
---------------
Material Subsidiary to, execute all Uniform Commercial Code financing
statements, and amendments and continuation statements thereto, provided for by
Applicable Law, together with any and all other instruments, assignments or
documents and shall take such other action as may be required to perfect or
continue the perfection of LGE's security interest in the Collateral. The
Borrower hereby authorizes LGE to execute and file any such financing statement
or other instrument or documents on the Borrower's behalf to the extent
permitted by Applicable Law.
Section 5.4 Location of Collateral.
----------------------
(a) All Collateral will at all times be kept by the Borrower at one or
more of the business locations set forth in Schedule 5.4 and shall not, without
------------
the prior written approval of LGE, be moved therefrom except, prior to an Event
of Default sales or other dispositions of assets permitted pursuant to Section
5.9 hereof.
Section 5.5 Protection of Collateral. All insurance expenses and
------------------------
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral (including, without limitation, all rent payable by
the Borrower to any landlord of any premises where any of the Collateral may be
located), and any and all excise, property, sales, and use taxes imposed by any
state, federal, or local authority on any of the Collateral or in respect of the
sale thereof, shall be borne and paid by the Borrower. If the Borrower fails to
promptly pay any portion thereof when due, LGE may, at its option, but shall not
be required to, make an Advance for such purpose and pay the same directly to
the appropriate Person. The Borrower agrees to reimburse LGE promptly therefor
with interest accruing thereon daily at the Default Rate provided in this
Agreement. All sums so paid or incurred by LGE for any of the foregoing and all
reasonable costs and expenses (including attorneys' fees, legal expenses, and
court costs) which LGE may incur in enforcing or protecting the Lien on or its
rights and interest in the Collateral or any of its rights or remedies under
this or any other agreement between the parties hereto or in respect of any of
the transactions to be had hereunder until paid by the Borrower to LGE with
interest at the Default Rate, shall be considered Obligations owing by the
Borrower to LGE hereunder. Such Obligations shall be secured by all Collateral
and by any and all other collateral, security, assets, reserves, or funds of the
Borrower in or coming into the hands or inuring to the benefit of LGE. LGE shall
not be liable or responsible in any way for the safekeeping of any of the
Collateral or for any loss or damage thereto (except for reasonable care in the
custody thereof
16
<PAGE>
while any Collateral is in LGE's actual possession) or for any diminution in the
value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other Person whomsoever, but the same shall be at the
Borrower's sole risk.
Section 5.6 Further Assurances. The Borrower will promptly cure, or
------------------
cause to be cured, defects in the creation and issuance of the Note and the
execution and delivery of the Loan Documents (including this Agreement),
resulting from any act or failure to act by the Borrower or any of the
Borrower's Subsidiaries or any employee or officer thereof. The Borrower at its
expense will promptly execute and deliver to LGE, or cause to be executed and
delivered to LGE, all such other and further documents, agreements, and
instruments in compliance with or accomplishment of the covenants and agreements
of the Borrower in the Loan Documents, including this Agreement, or to correct
any errors in the Loan Documents, or to perfect and maintain the validity,
priority and effectiveness of the Security Documents and the Liens intended to
be created thereby, or to obtain any consents, all as may be necessary or
appropriate in connection therewith as may be reasonably requested.
Section 5.7 Broker's Claims. The Borrower hereby indemnifies and agrees
---------------
to hold LGE harmless from and against any and all losses, liabilities, damages,
costs and expenses which may be suffered or incurred by LGE in respect of any
claim, suit, action or cause of action now or hereafter asserted by a broker or
any Person acting in a similar capacity (other than those engaged by LGE)
arising from or in connection with the execution and delivery of this Agreement
or any other Loan Document or the consummation of the transactions contemplated
herein or therein.
Section 5.8 Indemnity. The Borrower will indemnify and hold harmless LGE
---------
and each of its employees, representatives, officers and directors from and
against any and all claims, liabilities, investigations, losses, damages,
actions, and demands by any party against LGE, resulting from any breach or
alleged breach by the Borrower of any representation or warranty made hereunder,
or otherwise arising out of the Commitment or the making, administration or
enforcement of the Loan Documents and the Loans; unless, with respect to any of
the above, LGE is finally judicially determined to have acted or failed to act
with gross negligence or wilful misconduct. This Section 5.8 shall survive
termination of this Agreement.
Section 5.9 Covenants Under Citicorp Credit Agreement. The Borrower
-----------------------------------------
covenants that it shall comply with all covenants set forth in Section 7.1, 7.2,
7.3, 7.7, 7.12 and 7.14 of the Citicorp Credit Agreement as in effect on the
date hereof (without giving effect hereafter to changes in the such Citicorp
Credit Agreement not consented to in writing by LGE for the purposes of this
Agreement) and the Borrower covenants with LGE that such covenants and, to the
extent that they apply to such covenants, the definitions and other definitional
provisions set forth in such Citicorp Credit Agreement, together with all other
sections of such Citicorp Credit Agreement to which reference is made, are
incorporated in this Agreement by reference as though
17
<PAGE>
specifically set forth herein, and they shall remain in full force and effect
with respect to this Agreement and the obligation of the Borrower to comply with
the same shall continue notwithstanding the termination of such Citicorp Credit
Agreement.
Section 5.10 Subsidiary Guaranty; Subsidiary Security Agreement and
------------------------------------------------------
Pledge Agreement. The Borrower shall have each Subsidiary that is or becomes a
- ----------------
Material Subsidiary that is a domestic Subsidiary, execute at the time of its
creation (or within thirty (30) days after it becomes a Material Subsidiary) a
Supplement to the Subsidiary Guaranty in favor of LGE in the form attached to
such Subsidiary Guaranty and a Supplement to the Subsidiary Security Agreement
in favor of LGE in the form attached to such Subsidiary Security Agreement, and
take all steps required and execute all necessary documents (including UCC-1
financing statements) to perfect the security interest of LGE pursuant to the
Subsidiary Security Agreement; and
If after the date hereof, the Borrower creates, directly or
indirectly, a Subsidiary that is a domestic Subsidiary, the Borrower shall
execute an amendment to the Pledge Agreement for purposes of pledging the stock
of such Subsidiary to LGE pursuant to the terms of the Pledge Agreement, and the
Borrower shall and shall cause such Subsidiary to take all steps required and
execute all necessary documents (including UCC-1 financing statements) to
perfect the security interest of LGE in the Capital Stock of such Subsidiary
pursuant to the Pledge Agreement.
Section 5.11 Payment of Taxes and Claims. The Borrower will pay and
---------------------------
discharge, and will cause each of the Borrower's Subsidiaries to pay and
discharge, all taxes, assessments, and governmental charges or levies imposed
upon them or upon their respective incomes or profits or upon any properties
belonging to them prior to the date on which penalties attach thereto, and all
lawful claims for labor, materials and supplies which have become due and
payable and which by law have or may become a Lien upon any of their respective
Property; except that, no such tax, assessment, charge, levy or claim need be
paid which is being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on the
appropriate books, but only so long as such tax, assessment, charge, levy or
claim does not become a Lien or charge other than a Permitted Lien and no
foreclosure, distraint, sale or similar proceeding shall have been commenced and
remain unstayed for a period 30 days after such commencement. The Borrower shall
timely file and will cause each of the Borrower's Subsidiaries timely to file
all information returns required by federal, state or local tax authorities.
18
<PAGE>
ARTICLE 6
INFORMATION COVENANTS
---------------------
So long as the Commitment remains in effect and thereafter until payment in
full of all of the Obligations then due and owing, the Borrower will furnish or
cause to be furnished to LGE:
Section 6.1 Financial Statements and Information. (a) Monthly Financial
------------------------------------ -----------------
Statements. Within forty-five (45) days after each fiscal month end that is also
- ----------
a fiscal quarter end and within thirty (30) days after each other each fiscal
month end in each fiscal year of the Borrower, the balance sheet of the Borrower
as at the end of such fiscal month, and the related statement of income and
related statement of cash flows of the Borrower for such fiscal month and for
the elapsed portion of the year ended with the last day of such fiscal month,
all of which shall be on a consolidated basis with the Borrower's Subsidiaries
and certified by the Authorized Signatory of the Borrower, in his or her
opinion, to present fairly, in accordance with GAAP, the financial position of
the Borrower, as at the end of such period and the results of operations for
such period, and for the elapsed portion of the year ended with the last day of
such period, subject only to normal quarter-end and year-end adjustments.
(b) Annual Statements. Within 90 days after the end of each fiscal
-----------------
year of the Borrower, the audited consolidated balance sheet of the Borrower and
its Subsidiaries, as at the end of such year all of which shall be on a
consolidated or consolidating basis with the Borrower's Subsidiaries, and the
related audited statements of income and retained earnings and related audited
statements of cash flows for such year, which financial statements shall set
forth in comparative form such figures for the previous fiscal year, and shall
be accompanied by an opinion thereon of independent certified public accountants
of recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances, together with
a statement of the chief financial officer of the Borrower certifying that no
Default or Event of Default, was detected during the examination of the
Borrower, and that such accountants have authorized the Borrower to deliver such
financial statements and opinion thereon to LGE pursuant to this Agreement.
Section 6.2 Performance Certificates. At the time the financial
------------------------
statements are furnished pursuant to Section 6.1(a) for the months of March,
June, September and December and Section 6.1(b), a certificate of the Chief
Financial Officer of the Borrower stating that, to the best of his or her
knowledge, no Default or Event of Default has occurred as at the end of such
quarter or year,
19
<PAGE>
as the case may be, or, if a Default or an Event of Default has occurred,
disclosing each such Default or Event of Default and its nature, when it
occurred, whether it is continuing, and the steps being taken by the Borrower
with respect to such Default or Event of Default.
Section 6.3 Access to Accountants. The Borrower hereby authorizes LGE to
---------------------
communicate directly with the Borrower's independent public accountants and
authorizes these accountants to disclose to LGE any and all financial statements
and other supporting financial data, including matters relating to the annual
audit and copies of any arrangement letter with respect to its business,
financial condition and other affairs. On or before the date hereof, the
Borrower shall deliver to its independent public accountants a letter
authorizing and instructing them to comply with the provisions of this Section
6.3.
Section 6.4 Additional Reports. From time to time and promptly upon each
------------------
request the Borrower shall deliver to LGE such data, certificates, reports,
statements, opinions of counsel, documents, or further information regarding the
business, assets, liabilities, financial position, projections, results of
operations, or business prospects of the Borrower or any of the Borrower's
Subsidiaries as LGE may reasonably request.
Section 6.5 Notice of Other Matters.
-----------------------
(a) Within fifteen (15) days of the occurrence of any default on any
Indebtedness of any Person owed to the Borrower, which singly or in the
aggregate exceeds $2,000,000, the Borrower shall notify LGE of the occurrence
thereof; and
(b) Promptly following any (i) Default under any Loan Document, or (ii)
- --
default under any other agreement to which the Borrower or any of the Borrower's
Subsidiaries is a party or by which any of their respective properties is bound
which could reasonably be expected to have a Materially Adverse Effect, then the
Borrower shall notify LGE of the occurrence thereof giving in each case the
details thereof and specifying the action proposed to be taken with respect
thereto.
ARTICLE 7
NEGATIVE COVENANTS
------------------
So long as the Commitment remains in effect and thereafter until payment in
full of all of the Obligations then due and owing:
20
<PAGE>
Section 7.1 Restricted Subordinated Payments. The Borrower shall not and
--------------------------------
shall not permit any of its Subsidiaries to, at any time, directly or
indirectly, make, or incur any liability to make, any Restricted Subordinated
Payment unless immediately after giving effect to such action no Default or
Event of Default shall exist.
Section 7.2 Minimum EBITDA. The Borrower shall not permit for the fiscal
--------------
quarter ended:
(a) December 31, 1999, EBITDA for the immediately preceding
three (3) month period to be less than ($20,000,000);
(b) March 31, 2000, EBITDA for the immediately preceding six
(6) month period to be less than ($27,000,000);
(c) June 30, 2000, EBITDA for the immediately preceding nine
(9) month period to be less than ($32,000,000); and
(d) September 30, 2000, and each fiscal quarter end
thereafter, EBITDA for the immediately preceding twelve (12) month
period to be less than the amount herein below specified for such
period:
Month End Amount
--------- ------
September 30, 2000 $(34,000,000)
December 31, 2000 $(23,000,000)
March 31, 2001 $(20,000,000)
June 30, 2001 $(15,000,000)
September 30, 2001 $( 9,000,000)
December 31, 2001 $ 5,000,000
March 31, 2002 $ 8,000,000
June 30, 2002 $ 13,000,000
September 30, 2002 $ 17,000,000
21
<PAGE>
ARTICLE 8
DEFAULT
-------
Section 8.1 Events of Default. The occurrence of any one or more of the
-----------------
following events, regardless of the reason therefor, shall constitute an
immediate and automatic "Event of Default" hereunder:
(a) the Borrower shall default in the payment of any principal
of or premium, if any, on any Loan when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Borrower shall default in the payment of any interest on
any Loan for more than five Business Days after the same becomes due and
payable; or
(c) The Borrower or any Subsidiary shall default in the
performance or observance of any agreement or covenant contained herein or in
any other Loan Documents (other than those referred to in paragraphs (a) and (b)
of this Section) and such default is not remedied within 30 days after the
Borrower receiving written notice of such default from LGE; or
(d) (i) The agent or the required lender(s) shall accelerate
-
repayment of any obligation under the Citicorp Credit Agreement or commence any
action or proceeding to collect any amount due thereunder or exercise or enforce
any right or remedy against any collateral securing the Citicorp Credit
Agreement, or the Citicorp Credit Agreement shall otherwise be terminated; (ii)
--
there shall occur any default (after the expiration or any applicable cure
period) under any indenture, agreement or instrument evidencing Indebtedness
(other than the Citicorp Credit Agreement) of the Borrower or any of the
Borrower's Subsidiaries in an aggregate principal amount exceeding $5,000,000;
or
(e) The Borrower or any Material Subsidiary (i) is generally not
-
paying, or admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of, a
--
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
---
an assignment for the benefit of its creditors, (iv) consents to the appointment
--
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
-
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
--
the purpose of any of the foregoing; or
22
<PAGE>
(f) A court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Borrower or any of its
Material Subsidiaries, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for
relief or reorganization or any other petition in bankruptcy or for liquidation
or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Borrower or any of
its Material Subsidiaries, or any such petition shall be filed against the
Borrower or any of its Material Subsidiaries and such petition shall not be
dismissed within 60 days; or
(g) All or any portion of any Security Document shall at any
time and for any reason be declared to be null and void, or a proceeding shall
be commenced by the Borrower or any of its Subsidiaries, or by any governmental
authority having jurisdiction over the Borrower or any of its Subsidiaries,
seeking to establish the invalidity or unenforceability thereof (exclusive of
questions of interpretation of any provision thereof), or the Borrower or any of
its Subsidiaries shall deny that it has any liability or obligation for the
payment of principal or interest purported to be created under any Loan
Document; or
(h) Any representation or warranty made in writing by or on
behalf of the Borrower or any Material Subsidiary or by any officer of the
Borrower or any Material Subsidiary in this Agreement or any other Loan Document
or in any writing furnished in connection with the transactions contemplated
hereby proves to have been false or incorrect in any material respect on the
date as of which made or deemed made; or
(i) A final judgment (other than a money judgment fully covered
by insurance as to which the insurance company has acknowledged coverage) shall
be entered after the date hereof by any court against any of the Borrower or any
of the Borrower's Subsidiaries for the payment of money which exceeds
$1,000,000, or a warrant of attachment or execution or similar process shall be
issued or levied after the date hereof against property of any of the Borrower
or any of the Borrower's Subsidiaries pursuant to a final judgment which,
together with all other such property of the Borrower and the Borrower's
Subsidiaries subject to other such process, exceeds in value $1,000,000 in the
aggregate, and if, within sixty (60) days after the entry, issue, or levy
thereof, such judgment, warrant, or process shall not have been paid or
discharged or stayed pending appeal, or if, after the expiration of any such
stay, such judgment, warrant, or process shall not have been paid or discharged;
or
(j) There shall occur any event or occurrence which, singly or
when aggregated with other events or occurrences, has a Materially Adverse
Effect; or
23
<PAGE>
(k) Any material HDTV Patent, any material HDTV License
Agreement or any of the Borrower's right, title or interest in and to such HDTV
Patent or HDTV License Agreement, shall become invalid or shall be terminated or
shall otherwise no longer be enforceable by or for the benefit of the Borrower.
Section 8.2 Remedies. (a) If an Event of Default with respect to
--------
the Borrower described in clause (e) or (f) of Section 8.1 (other than an Event
of Default described in subclause (i) of clause (e) or described in subclause
(vi) of clause (e) by virtue of the fact that such clause encompasses subclause
(i) of paragraph (e)) has occurred, (i) the Commitment shall terminate, (ii) the
- --
principal of and interest on the Loans and the Note and all other Obligations
shall be due and payable without presentment, demand, protest, or notice of any
kind, all of which are hereby expressly waived, anything in this Agreement or in
the Note to the contrary notwithstanding, or both, and/or (iii) LGE may exercise
---
all rights and remedies allowed under the Loan Documents and applicable laws of
the United States and any state thereof, including but not limited to the
Uniform Commercial Code.
(b) If any other Event of Default shall have occurred and shall
be continuing, in addition to the rights and remedies set forth elsewhere in
this Agreement and the Loan Documents, the holder(s) of at least 25% of the
Loans outstanding under this Agreement (or if no Loans are outstanding, the
holders of at least 25% of the Commitment) may (i) terminate the Commitments,
-
(ii) declare the principal of and interest on the Loans and the Note and all
--
other Obligations to be forthwith due and payable without presentment, demand,
protest, or notice of any kind, all of which are hereby expressly waived,
anything in this Agreement or in the Note to the contrary notwithstanding, or
both, and/or (iii) exercise all rights and remedies allowed under the Loan
---
Documents and applicable laws of the United States and any state thereof,
including but not limited to the Uniform Commercial Code.
(c) The rights and remedies of LGE hereunder shall be
cumulative, and not exclusive.
ARTICLE 9
MISCELLANEOUS
-------------
Section 9.1 Notices.
-------
(a) All notices and other communications under this Agreement
shall be in writing and shall be deemed to have been given five (5) days after
deposit in the mail, designated as certified mail, return receipt requested,
post-prepaid, or one (1) day after being entrusted to a reputable commercial
overnight delivery service, or when delivered to the telegraph office or sent
out by
24
<PAGE>
telex or telecopy addressed to the party to which such notice is directed at its
address determined as provided in this Section 9.1. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(i) If to the Borrower, to it at:
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, Illinois 60025
Attn: Treasurer
Telecopy No.: (847) 391-8876
with copies to (which copies shall only be required to be
sent in connection with a notice under Article 8 hereof):
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, Illinois 60025
Attn: General Counsel
Telecopy No.: (847) 391-8584
and
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: James H.M. Sprayregen, Esq.
Telecopy No.: (312) 861-2200
25
<PAGE>
(ii) If to LGE, to it at:
LG Electronics Inc.
LG Twin Towers
20, Yoido-dong
Youngdungpo-gu
Seoul, Korea 150-721
Telecopy No.: 011-82-2-3777-5303
Telephone No.: 011-82-2-3777-3073
Attention: Finance Team
and to:
LG Electronics Inc.
6133 North River Road
Rosemont, IL 60018
Telecopy No.: 847-692-3576
Telephone No.: 847-692-4630
Attention: Nam K. Woo
with a copy to (which copy shall only be required to be sent
in connection with a notice under Article 8 hereof):
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attn: Richard F. Hahn, Esq.
Telecopy No.: (212) 909-6836
(b) Any party hereto may change the address to which notices shall
be directed under this Section 9.1 by giving ten (10) days' written notice of
such change to the other parties.
Section 9.2 Expenses. The Borrower agrees to promptly pay:
--------
(a) All reasonable out-of-pocket expenses of LGE in connection with
the administration of the transactions contemplated in this Agreement or the
other Loan Documents, and the preparation, negotiation, execution, and delivery
of any waiver, amendment, or consent by LGE relating to this Agreement or the
other Loan Documents, including, but not limited to, the reasonable fees and
disbursements of counsel for LGE;
26
<PAGE>
(b) All reasonable out-of-pocket costs and expenses of LGE in
connection with any restructuring, refinancing, or "work out" of the
transactions contemplated by this Agreement, and of obtaining performance under
this Agreement or the other Loan Documents, and all out-of-pocket costs and
expenses of collection if default is made in the payment of the Loans, which in
each case shall include fees and out-of-pocket expenses of counsel for LGE, and
the fees and out-of-pocket expenses of any experts, agents, or consultants of
LGE; and
(c) All stamp, documentary or intangible taxes, excise or property
taxes, similar assessments, general or special, and other like charges levied
on, or assessed, placed or made against any of the Collateral, the Notes or the
Obligations.
Section 9.3 Waivers. The rights and remedies of LGE under this
-------
Agreement and the other Loan Documents shall be cumulative and not exclusive of
any rights or remedies which they would otherwise have. No failure or delay by
LGE in exercising any right shall operate as a waiver of such right. LGE
expressly reserves the right to require strict compliance with the terms of this
Agreement in connection with any funding of a request for an Advance. In the
event LGE decides to fund a request for an Advance at a time when the Borrower
is not in strict compliance with the terms of this Agreement, such decision by
LGE shall not be deemed to constitute an undertaking by LGE to fund any further
requests for Advances or preclude LGE from exercising any rights available to
LGE under the Loan Documents or at law or equity. Any waiver or indulgence
granted by LGE shall not constitute a modification of this Agreement, except to
the extent expressly provided in such waiver or indulgence, or constitute a
course of dealing by LGE at variance with the terms of the Agreement such as to
require further notice by LGE of LGE's intent to require strict adherence to the
terms of the Agreement in the future. Any such actions shall not in any way
affect the ability of LGE, in its discretion, to exercise any rights available
to it under this Agreement or under any other agreement, whether or not LGE is
party, relating to the Borrower.
Section 9.4 Assignment.
----------
(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder, under the Note or under any other Loan Document without
the prior written consent of LGE.
(b) LGE may not assign or transfer any of its rights or obligations
hereunder, under the Note or under any other Loan Document without the prior
written consent of Borrower, provided that LGE may assign or transfer any of its
rights or obligations hereunder, under the Note or under any other Loan Document
to any of its Affiliates.
(c) Except as specifically set forth in Section 9.4(b) hereof,
nothing in this Agreement or the Note, expressed or implied, is intended to or
shall confer on any Person other than the
27
<PAGE>
respective parties hereto and thereto and their successors and assignees
permitted hereunder and thereunder any benefit or any legal or equitable right,
remedy or other claim under this Agreement or the Note.
Section 9.5 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original, but all
such separate counterparts shall together constitute but one and the same
instrument.
Section 9.6 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the State of New York.
Section 9.7 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof in that jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 9.8 Headings. Headings used in this Agreement are for
--------
convenience only and shall not be used in connection with the interpretation of
any provision hereof.
Section 9.9 Entire Agreement. Except as otherwise expressly
----------------
provided herein, this Agreement and the other documents described or
contemplated herein embody the entire Agreement and understanding among the
parties hereto and thereto and supersede all prior agreements (including the
commitment letter which has previously been delivered), understandings, and
conversations relating to the subject matter hereof and thereof and may not be
modified, altered or amended except by an agreement in writing in accordance
with Section 9.10 hereof.
Section 9.10 Amendments and Waivers. Neither this Agreement nor any
----------------------
term hereof may be amended orally, nor may any provision hereof be waived orally
but only by an instrument in writing signed by LGE, any assignee of LGE's
interest hereunder and, in the case of an amendment, also by the Borrower,
Section 9.11 Other Relationships. No relationship created hereunder
-------------------
or under any other Loan Document shall in any way affect the ability of LGE to
enter into or maintain business relationships with the Borrower, or any of its
Affiliates, beyond the relationships specifically contemplated by this Agreement
and the other Loan Documents.
Section 9.12 Successors and Assigns. This Agreement, the other Loan
----------------------
Documents, and all security interests or Liens created hereby or pursuant to any
other Loan Documents shall be binding upon Borrower. This Agreement and the
other Loan Documents shall be binding upon,
28
<PAGE>
and inure to the benefit of, LGE and its successors, assigns, transferees and
endorsees in compliance with the terms of this Agreement.
Section 9.13 Subordination Agreement. Certain rights of LGE
-----------------------
hereunder may be subject to the prior rights of the lenders under the Citicorp
Credit Agreement as more fully set forth in that certain Subordination
Agreement, of even date herewith, among LGE, the Borrower and Citicorp North
America, Inc., as agent.
Section 9.14 Waiver of Jury Trial. THE BORROWER AND LGE TO THE
--------------------
EXTENT PERMITTED BY APPLICABLE LAW WAIVE, AND OTHERWISE AGREE NOT TO REQUEST, A
TRIAL BY JURY IN ANY COURT AND IN ANY ACTION, PROCEEDING OR COUNTERCLAIM OF ANY
TYPE IN WHICH THE BORROWER, LGE, OR ANY OF LGE'S SUCCESSORS OR ASSIGNS IS A
PARTY, AS TO ALL MATTERS AND THINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENTS.
[remainder of page intentionally left blank]
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, all as of the day and year first
above written.
ZENITH ELECTRONICS CORPORATION
By ________________________
Name:
Title:
LG ELECTRONICS INC.
By ________________________
Name:
Title:
<PAGE>
Annex A
-------
DEFINITIONS
-----------
For the purposes of this Agreement:
"Advance" or "Advances" shall mean amounts of the Loans advanced by LGE to
------- --------
the Borrower pursuant to Section 2.2 hereof on the occasion of any borrowing.
"Affiliate" shall mean any Person directly or indirectly controlling,
---------
controlled by, or under common control with the Borrower, and any Person who is
a director or officer of the Borrower. For purposes of this definition,
"control", when used with respect to any Person, includes, without limitation,
the direct or indirect beneficial ownership of ten percent (10%) or more of the
outstanding voting securities or voting equity of such Person or the power to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Aggregate Amount of All Advances" shall mean, as of any particular time,
--------------------------------
the aggregate principal amount of all Advances made hereunder.
"Agreement" shall have the meaning specified in the Introduction hereto.
---------
"Agreement Date" shall mean the date as of which this Agreement is dated.
--------------
"Applicable Law" shall mean, in respect of any Person, all provisions of
--------------
constitutions, statutes, rules, regulations, and orders of governmental bodies
or regulatory agencies applicable to such Person, and all final orders and
decrees of all courts and arbitrators in proceedings or actions to which the
Person in question is a party or by which it is bound.
"Authorized Signatory" shall mean such senior personnel of the Borrower as
--------------------
may be duly authorized and designated in writing by the Borrower to execute
documents, agreements, and instruments on behalf of the Borrower.
"Available Commitment" shall mean, as of any particular time, (a) the
--------------------
amount of the Commitment minus (b) the Aggregate Amount of All Advances.
-----
"Bankruptcy Code" shall mean the United States Bankruptcy Code (11 U.S.C.
---------------
Section 101 et seq.), as now or hereafter amended, and any successor statute.
-------
"Borrower" shall have the meaning specified in the Introductory paragraph
--------
hereto.
<PAGE>
"Business Day" shall mean any day excluding Saturday, Sunday and any day
------------
which is a legal holiday under the laws of the State of Illinois or the Republic
of Korea or is a day on which banking institutions located in either of such
jurisdictions are closed.
"Capital Expenditures" shall mean, for any period, on a consolidated basis
--------------------
for the Borrower and the Borrower's Subsidiaries, the aggregate of all
expenditures made by the Borrower or any of the Borrower's Subsidiaries during
such period that, in conformity with GAAP, are required to be included in or
reflected on the consolidated balance sheet as a capital asset of the Borrower
or any of the Borrower's Subsidiaries, including Capitalized Lease Obligations.
"Capital Stock" shall mean, as applied to any Person, any capital stock of
-------------
such Person, regardless of class or designation, and all warrants, options,
purchase rights, conversion or exchange rights, voting rights, calls or claims
of any character with respect thereto.
"Capitalized Lease Obligation" shall mean that portion of any obligation of
----------------------------
a Person as lessee under a lease which at the time would be required to be
capitalized on the balance sheet of such lessee in accordance with GAAP.
"Citicorp Credit Agreement" shall have the meaning set forth in the
-------------------------
recitals hereto.
"Citicorp Loan Documents" shall mean the Citicorp Credit Agreement and all
-----------------------
other documents, instruments, certificates, and agreements executed or delivered
in connection with or contemplated by such Citicorp Credit Agreement.
"Collateral" shall mean all Property and interests in Property now owned or
----------
hereafter acquired by the Borrower or any other Person upon which a Lien is
granted under any of the Loan Documents.
"Commitment" shall mean the obligation of LGE to make Advances of Loans to
----------
the Borrower on or after the Agreement Date pursuant to the terms hereof, the
maximum aggregate amount of which shall be $60,000,000 as reduced from time to
time pursuant to Section 2.5 hereof.
"Commitment Termination Date" shall mean the earliest of:
---------------------------
(i) June 15, 2000, or such later date as specified by LGE in its
sole discretion;
(ii) the date that LGE elects pursuant to Section 8.2 to
terminate Borrower's right to receive Loans; and
(iii) the date of prepayment in full by Borrower of the
Obligations in accordance with the provisions of Section 2.4 or 2.5.
2
<PAGE>
"Consolidated EBITDA" means, for any period, the sum of:
-------------------
(i) the net income (or net loss) of the Borrower and its
consolidated Subsidiaries (determined in accordance with GAAP) for such
period, without giving effect to any GAAP extraordinary gains or losses and
without deduction for Restructuring and Reorganization Charges (as such
term is defined in the Restructuring Agreement); plus (or minus)
(ii) to the extent that any of the items referred to in any of
clauses (A) though (D) below were deducted (or added) in calculating such
net income:
(A) interest expense for such period;
(B) federal, state or local income tax expense with respect
to operations for such period;
(C) the amount of all depreciation and amortization and
other non-cash charges for such period; and
(D) non-cash gains or losses from the sale or disposal of
property (other than inventory).
"Default" shall mean any Event of Default, and any of the events specified
-------
in Section 8.1 hereof regardless of whether there shall have occurred any
passage of time or giving of notice (or both) that would be necessary in order
to constitute such event an Event of Default.
"Default Rate" shall mean a simple per annum interest rate equal to the sum
------------
of (i) the LIBOR Rate, plus (ii) the Interest Rate Margin plus (iii) two percent
- ---- -- ---- ---
(2%).
"Dollars" shall mean legal tender of the United States of America.
-------
"EBITDA" shall mean, with respect to the Borrower on a consolidated basis
------
for any period, the Net Income for such period plus (a) without duplication and
-
to the extent reflected as charges in the statement of Net Income for such
period, the sum of (i) federal, state or local income tax expense with respect
-
to operations for such period, (ii) Interest Expense, (iii) depreciation and
-- ---
amortization expense, and (iv) gains from the sale or disposal of property
--
(other than Inventory) and gains from the early extinguishment of debt, and
minus (b) without duplication, all losses from the sale or disposal of property
-
(other than Inventory).
"Event of Default" shall mean any of the events specified in Section 8.1
----------------
hereof, provided that any requirement for notice or lapse of time, or both, has
been satisfied.
3
<PAGE>
"Excess Cash" shall mean with respect to any fiscal year of the Borrower,
-----------
an amount equal to the sum of:
(i) the Borrower's Consolidated EBITDA, plus
----
(ii) all other cash inflows not otherwise included in net income
(as determined in accordance with GAAP) (other than revolving credit
advances pursuant to the Citicorp Credit Agreement or this Agreement and
equity contributions to the capital of the Subsidiaries of the Borrower)
plus
----
(iii) extraordinary cash gains of the Borrower and its
consolidated Subsidiaries, minus
-----
(iv) cash payments for Capital Expenditures in such period not
funded by the incurrence of Indebtedness or through equity contributions to
the capital of the Borrower and its consolidated Subsidiaries and, without
duplication, cash payments made by the Borrower and its Subsidiaries during
such period with respect to any Capitalized Lease Obligations, minus
-----
(v) income tax liabilities for such fiscal year of the Borrower
and its consolidated Subsidiaries, minus
-----
(vi) cash interest paid and principal paid on Indebtedness of the
Borrower and its consolidated Subsidiaries (including repayments of
principal on the revolving credit facility under the Citicorp Credit
Agreement and this Agreement only to the extent of any permanent reduction
of commitments thereunder), but excluding payments of principal and
interest of Indebtedness funded through equity contributions to the capital
of the Borrower, minus
-----
(vii) extraordinary cash losses of the Borrower and its
consolidated Subsidiaries,
all for the respective fiscal year. The amount of Excess Cash so determined
shall be adjusted as necessary to avoid a double addition or double subtraction
on account of a single item or transaction.
"Excess Cash Residual" shall mean with respect to any fiscal year of the
--------------------
Borrower, an amount equal to Excess Cash less the amount of the mandatory
prepayment of the Floating Rate Note from such Excess Cash specified in such
Floating Rate Note.
"Foreign Exchange Agreement" shall mean a foreign currency hedging product
--------------------------
agreement providing foreign currency exchange protection.
4
<PAGE>
"Floating Rate Note" shall mean the Floating Rate Notes issued by the
------------------
Borrower to LGE pursuant to the Restructuring Agreement in the aggregate
principal amount of $165,717,674.73, (together with any other notes issued in
substitution therefore).
"GAAP" shall mean, as in effect from time to time, United States generally
----
accepted accounting principles consistently applied.
"Governmental Authority" shall mean any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
government.
"Guaranty" or "guaranteed," as applied to an obligation (each a "primary
-------- -----------
obligation"), shall mean and include:
(a) any guaranty, direct or indirect, in any manner, of any part or
all of such primary obligation; and
(b) any agreement, direct or indirect, contingent or otherwise, the
practical effect of which is to assure in any way the payment or performance (or
payment of damages in the event of non-performance) of any part or all of such
primary obligation, including, without limiting the foregoing, (i) any
-
reimbursement obligations as to amounts drawn down by beneficiaries of
outstanding letters of credit, and (ii) any obligation of any Person, whether or
--
not contingent:
(w) to purchase any such primary obligation or any property
or asset constituting direct or indirect security therefor;
(x) to advance or supply funds (1) for the purchase or
-
payment of such primary obligation or (2) to maintain working capital,
-
equity capital or the net worth, cash flow, solvency or other balance
sheet or income statement condition of any other Person;
(y) to purchase property, assets, securities or services
primarily for the purpose of assuring the owner or holder of any
primary obligation of the ability of the primary obligor with respect
to such primary obligation to make payment thereof; or
(x) otherwise to assure or hold harmless the owner or holder
of such primary obligation against loss in respect thereof.
"HDTV License Agreements" shall mean all agreements, whether now or
-----------------------
hereafter in existence, between the Borrower, as licensor, and any other Person,
as licensee, pursuant to
5
<PAGE>
which the Borrower grants to such Person any license or other right in
connection with any HDTV Patent.
"HDTV Patents" shall mean all of the Borrower's United States patents and
------------
patent applications for digital vestigial side bank technology or relating to
and used in connection with the high definition television technology of the
Borrower or digital television technology of the Borrower, including, without
limitation, those listed on Schedule A hereto, together with all applications,
reissues, divisions, continuations, continuations-in-part, revisions,
extensions, renewals and reexaminations relating thereto.
"Immaterial Subsidiary" shall mean any domestic or foreign Subsidiary of
---------------------
the Borrower, now existing or hereafter created, which owns assets (including
stock but excluding intercompany receivables) having an aggregate book value not
exceeding $750,000, and which is not material to the conduct of the Borrower's
business operations.
"Indebtedness" shall mean, with respect to the Borrower and the Borrower's
------------
Subsidiaries:
(a) any obligation for borrowed money;
(b) any obligation evidenced by bonds, debentures, notes or other
similar instruments;
(c) any obligation to pay the deferred purchase price of property or
for services (other than in the ordinary course of business);
(d) any Capitalized Lease Obligation;
(e) any obligation or liability of others secured by a Lien on
property owned by the Borrower or such Subsidiary, whether or not such
obligation or liability is assumed;
(f) any obligation under any Interest Hedge Agreement or Foreign
Exchange Agreement;
(g) any Guaranty (except items of shareholders' equity or Capital
Stock or surplus or general contingency or deferred tax reserves); and
(h) any letter of credit issued for the account of the Borrower or
such Subsidiary.
"Intellectual Property" shall mean, with respect to any Person,
---------------------
collectively, such Person's Patent Property and Trademark Property.
"Intellectual Property Security Agreements" shall mean, collectively, that
-----------------------------------------
(a) certain Patent Collateral Assignment and Security Agreement dated as of even
date herewith between the
6
<PAGE>
Borrower and LGE, and (b) certain Trademark Collateral Security Agreement dated
as of even date herewith between the Borrower and LGE, and shall include any
supplement to any of the foregoing.
"Interest Expense" shall mean, for any period, interest expense of the
----------------
Borrower and the Borrower's Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"Interest Hedge Agreements" shall mean the obligations of any Person
-------------------------
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Interest Rate Margin" shall mean six and one-half percent (6.5%).
--------------------
"Inventory" shall mean all goods, merchandise and other personal property
---------
owned and held for sale, and all raw materials, work or goods in process,
materials and supplies of every nature which contribute to the finished products
of the Borrower and any of the Borrower's Subsidiaries in the ordinary course of
its business, whether now owned or hereafter acquired by the Borrower and any of
the Borrower's Subsidiaries.
"LIBOR Rate" shall mean
----------
(i) for interest accruing on or before December 1, 1999, the
interest rate which is determined by LGE in its sole discretion to be the
arithmetic mean of the rates per annum (rounded upwards, if necessary, to
the nearest 1/16%) quoted on the Screen 3750 (or such other screen as may
display London interbank offered rates of major banks for U.S. dollar
deposits) on the Telerate System (or if such quote is unavailable on the
relevant date, the rate quoted by a reference bank in London selected by
LGE) for a three month period at approximately 11:00 a.m. (London time) on
the date which is two Business Days prior to the date hereof; and
(ii) for interest accruing on or after December 2, 1999 the
interest rate which is determined on the first Business Day of each three
month period from December 2, 1999 (each such consecutive period a
"Quarter") by LGE in its sole discretion to be the arithmetic mean of the
-------
rates per annum (rounded upwards, if necessary, to the nearest 1/16%)
quoted on the Screen 3750 at approximately 11:00 a.m. (London time) on such
Business Day (or such other screen as may display London interbank offered
rates of major banks for U.S. dollar deposits) on the Telerate System (or
if such quote is unavailable on the relevant date, the rate quoted by a
reference bank in London selected by LGE) for a three month period, such
rate calculated as of the first Business Day of each
7
<PAGE>
Quarter to be in effect for purposes of interest accrual from the first
calendar day of such Quarter through the last calendar day of such Quarter.
"Lien" shall mean, with respect to any property, any mortgage, lien,
----
pledge, negative pledge agreement, assignment, charge, security interest, title
retention agreement, levy, execution, seizure, attachment, garnishment, or other
encumbrance of any kind in respect of such property, whether or not choate,
vested, or perfected.
"Loan Documents" shall mean this Agreement, the Note, the Security
--------------
Documents, and all other documents, instruments, certificates, and agreements
executed or delivered in connection with or contemplated by this Agreement,
including, without limitation, any security agreements or guaranty agreements
from the Borrower's Material Subsidiaries to LGE.
"Loans" shall mean, collectively, the amounts advanced by LGE to the
-----
Borrower under the Commitment, not to exceed the amount of the Commitment, and
evidenced by the Note.
"Material Subsidiaries" shall mean each of:
---------------------
(i) Zenith Electronics Corporation of Texas, a Texas
corporation;
(ii) Zenith Video Tech Corporation-Florida, a Delaware
corporation;
(iii) Zenith Video Tech Corporation, a Delaware corporation; and
(iv) any other domestic Subsidiary of the Borrower, now or
hereafter created, which owns assets (including stock but
excluding intercompany receivables) having an aggregate book
value in excess of $750,000, provided, however, Zenith
-------- -------
Electronics Corporation of Arizona shall not be deemed to be
a "Material Subsidiary" unless it owns assets (including
stock but excluding intercompany receivables) having an
aggregate book value in excess of $1,500,000.
"Materially Adverse Effect" shall mean any materially adverse effect (a)
------------------------- -
upon the business, assets, liabilities, condition (financial or otherwise), or
results of operations of the Borrower, or (b) upon the ability of the Borrower
-
to perform under this Agreement or any other Loan Document by the Borrower, or
(c) upon the rights, benefits or interests of LGE in or to this Agreement, any
-
other Loan Document or the Collateral, in each case, resulting from any act,
omission, situation, status, event, or undertaking, either singly or taken
together.
"Maturity Date" shall mean December 1, 2002.
-------------
8
<PAGE>
"Mortgage" shall mean that certain Mortgage, Assignment of Leases and Rents
--------
and Security Agreement, dated as of even date herewith, by and among the
Borrower and LGE, to be recorded in Cook County, Illinois.
"Necessary Authorizations" shall mean all material authorizations,
------------------------
consents, permits, approvals, licenses, and exemptions from, and all filings and
registrations with, and all reports to, any Governmental Authority whether
federal, state, local, and all agencies thereof, which are required for the
conduct of the businesses and the ownership (or lease) of the properties and
assets of the Borrower.
"Net Income" shall mean, for any period, the consolidated net income (or
----------
deficit) of the Borrower and the Borrower's Subsidiaries for such period,
determined in accordance with GAAP.
"Note" shall mean that certain promissory note of even date in the
----
principal amount of $60,000,000, issued by the Borrower to LGE and substantially
in the form of Exhibit A attached hereto, and any extensions, renewals or
---------
amendments to, or replacements of, the foregoing.
"Obligations" shall mean (a) all payment and performance obligations of the
----------- -
Borrower to LGE under this Agreement and the other Loan Documents, as they may
be amended from time to time, or as a result of making the Loans (including,
without limitation, interest and expenses that, but for the provisions of the
Bankruptcy Code, would have accrued) and (b) any obligation to pay an amount
-
equal to the amount of any and all damages which LGE may suffer by reason of a
breach by the Borrower of any obligation, covenant, or undertaking with respect
to this Agreement or any other Loan Document.
"Patent Property" shall mean, with respect to any Person:
---------------
(i) all of such Person's patents (including, with respect to the
Borrower, the HDTV Patents), patent applications (including, without
limitation, all patents and patent applications in preparation for filing)
and patent disclosures throughout the world, including without limitation,
with respect to the Borrower, each patent and patent application referred
to in Part A-1 of Schedule 4.1(g);
-------- ---------------
(ii) all reissues, divisions, continuations, continuations-in-
part, revisions, extensions, renewals and reexaminations of any of the
items described in clause (a) of this definition; and
----------
(iii) all patent licenses of such Person (whether as licensee or
licensor), including, with respect to the Borrower, each patent license
referred to in Part A-2 of Schedule 4.1(g).
-------- ---------------
9
<PAGE>
"Permitted Liens" shall mean the following encumbrances and claims:
---------------
(a) Liens for taxes, assessments, judgments or other governmental
charges or levies, either not yet due and payable or to the extent that
nonpayment thereof is permitted by the terms of this Agreement;
(b) deposits to secure the performance of bids, trade contracts,
tenders, sales, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(c) Liens of carriers, warehousemen, mechanics, laborers, suppliers,
workers and materialmen incurred in the ordinary course of business for
sums not yet due or being diligently contested in good faith, if such
reserve or appropriate provision, if any, as shall be required by GAAP
shall have been made therefor;
(d) Liens incurred in the ordinary course of business in connection
with worker's compensation and unemployment insurance or other types of
social security benefits;
(e) easements, rights-of-way, restrictions, and other similar
encumbrances on the use of real property which do not interfere with the
ordinary conduct of the business of such Person;
(f) any attachment or judgment Liens securing the payment of money to
the extent such attachment or judgment Lien does not constitute an Event of
Default under Section 8.1(i);
(g) Liens securing the obligations of the Borrower under the Citicorp
Credit Agreement and Liens on the PIK Specified Assets securing the
obligations of the Borrower under the Floating Rate Note;
(h) purchase money security interests provided that such Lien attaches
only to the asset so purchased by the Borrower and secures only
Indebtedness incurred by the Borrower in order to purchase such asset, but
only to the extent permitted by Section 7.1(c)(i) of the Citicorp Credit
Agreement;
(i) notice filings in connection with Capitalized Lease Obligations
permitted by Section 7.10 of the Citicorp Credit Agreement;
(j) Liens in favor of LGE under the Loan Documents;
(k) landlord liens; and
(l) such other Liens as from time to time may be approved in writing
by LGE;
10
<PAGE>
provided that the Liens permitted by clauses (c) and (d) above shall not
- --------
materially impair the business or operations of the Borrower and the
Indebtedness secured by such Liens shall not exceed $1,000,000 in the aggregate.
"Person" shall mean an individual, corporation, partnership, trust, joint
------
stock company, limited liability company, unincorporated organization, or a
government or any agency or political subdivision thereof.
"PIK Specified Assets" shall mean any of the Specified Assets (as such term
--------------------
is defined in the Floating Rate Note).
"Pledge Agreement" shall mean that certain Pledge Agreement, dated as of
----------------
even date herewith, executed by the Borrower in favor of LGE, substantially in
the form of Exhibit B hereto, pursuant to which the Borrower pledged to LGE, for
its benefit, all of the Borrower's right, title and interest in and to the
Capital Stock of its domestic Subsidiaries, and including any supplement thereto
executed in accordance with Section 5.10 hereof, as the same may be amended,
supplemented or modified from time to time.
"Property" shall mean any real property or personal property, plant,
--------
building, facility, structure, underground storage tank or unit, equipment,
Inventory or other asset owned, leased or operated by the Borrower or any of the
Borrower's Subsidiaries (including, without limitation, any surface water
thereon or adjacent thereto, and soil and groundwater thereunder).
"Restricted Subordinated Payment" shall mean any payment, repayment,
-------------------------------
redemption, retirement, repurchase or other acquisition, direct or indirect, by
the Borrower or any of its Subsidiaries of, on account of, or in respect of, the
principal of any Subordinated Debt (or any instalment thereof) prior to the
regularly scheduled maturity date thereof (as in effect on the date such
Subordinated Debt was originally incurred).
"Restructuring Agreement" shall mean the Amended and Restated Restructuring
-----------------------
Agreement, dated as of June 14, 1999, between the Borrower and LGE, as amended
by the First Amendment to the Amended and Restated Restructuring Agreement,
dated as of September 15, 1999.
"Security Agreement" shall mean that certain Security Agreement, dated as
------------------
of even date herewith, between the Borrower and LGE, substantially in the form
of Exhibit C attached hereto, as the same may be amended or modified from time
---------
to time hereafter.
"Security Documents" shall mean, collectively, the Security Agreement, the
------------------
Pledge Agreement, the Intellectual Property Security Agreements, the Subsidiary
Guaranty, the Subsidiary Security Agreement, the Mortgage, all UCC-1 financing
statements and any other document, instrument, agreement or order granting
Collateral for the Obligations, as the same may be amended or modified from time
to time.
11
<PAGE>
"Specified Assets" shall mean the HDTV Patents, all HDTV License Agreements
----------------
and the proceeds thereof.
"Subordinated Debt" means any Indebtedness that is in any manner
-----------------
subordinated in right of payment in any respect to the Obligations.
"Subsidiary" shall mean, as applied to any Person, (a) any corporation of
---------- -
which fifty percent (50%) or more of the outstanding stock (other than
directors' qualifying shares) having ordinary voting power to elect a majority
of its board of directors, regardless of the existence at the time of a right of
the holders of any class or classes of securities of such corporation to
exercise such voting power by reason of the happening of any contingency, or any
partnership of which fifty percent (50%) or more of the outstanding partnership
interests is at the time owned by such Person, or by one or more Subsidiaries of
such Person, or by such Person and one or more Subsidiaries of such Person, and
(b) any other entity which is controlled or capable of being controlled by such
-
Person, or by one or more Subsidiaries of such Person, or by such Person and one
or more Subsidiaries of such Person.
"Subsidiary Guaranty" shall mean that certain Guaranty Agreement executed
-------------------
by each Material Subsidiary, dated as of even date herewith, in the form of
Exhibit D attached hereto, and shall include any supplement to the Guaranty
- ---------
Agreement executed in accordance with Section 5.10 hereof, as the same may be
modified, amended or supplemented from time to time.
"Subsidiary Security Agreement" shall mean that certain Subsidiary Security
-----------------------------
Agreement executed by and among each Material Subsidiary and LGE, dated as of
even date herewith, substantially in the form of Exhibit E attached hereto, and
---------
shall include any supplement thereto executed in accordance with Section 5.10
hereof, as the same may be supplemented, modified or amended from time to time.
"Termination Date" shall mean the earliest of:
----------------
(i) the Maturity Date;
(ii) the date that LGE elects pursuant to Section 8.2 to
terminate Borrower's right to receive Loans; and
(iii) the date of prepayment in full by Borrower of the
Obligations in accordance with the provisions of Section 2.4 and 2.5.
"Trademark" shall have the meaning ascribed to that term in the definition
---------
of Trademark Property.
"Trademark Property" shall mean, with respect to any Person:
------------------
12
<PAGE>
(a) all of such Person's trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks,
certification marks, collective marks, logos, trade dress other source of
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of a like nature (all of the
foregoing items in this clause (a) being collectively called a "Trademark"), now
---------- ---------
existing anywhere in the world or hereafter adopted or acquired, whether
currently in use or not, whether or not registered, all registrations and
recordings thereof and all applications in connection therewith, whether pending
or in preparation for filing, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any office
or agency of the United States of America or any State thereof or any foreign
country, including, with respect to the Borrower, those referred to in Part B-1
--------
of Schedule 4.1(o);
---------------
(b) all reissues, extensions, renewals, translations, adaptations,
derivations and combinations of any of the items described in clause (a) of this
----------
definition;
(c) all Trademark licenses and other agreements providing such Person with
the right to use any of the types of items referred to in clauses (a) and (b) of
----------- ---
this definition, including, with respect to the Borrower, each Trademark license
referred to in Part B-2 of Schedule 4.1(g);
-------- ---------------
(d) all of the goodwill of the business connected with the use of, and
symbolized by the items described in, clauses (a) and (b) of this definition;
----------- ---
(e) the right to sue third parties for past, present and future
infringements of any Trademark property described in clauses (a) or (b) of this
----------- ---
definition and, to the extent applicable in clause (c) of this definition; and
----------
(f) all proceeds of, and rights associated with, the foregoing, including
any claim by such Person against third parties for past, present or future
infringement or dilution of any Trademark, Trademark registration or (to the
extent applicable and if permitted by Applicable Law) Trademark license,
referred to in clause (c) of this definition, or for any injury to the goodwill
----------
associated with the use of any such Trademark or for breach or enforcement of
any Trademark license, and all rights corresponding thereto throughout the
world.
"Wholly-Owned Subsidiary" shall mean any direct or indirect Subsidiary of a
-----------------------
Person where such Person's ownership of such Subsidiary is through ownership of
100% of all issued and outstanding Capital Stock (or other ownership interests,
but excluding any directors qualifying shares) and warrants, options or rights
to purchase Capital Stock (or other ownership interests) at all levels.
13
<PAGE>
Exhibit A
Form of Promissory Note
Zenith Electronics Corporation
$60,000,000 [Date]
FOR VALUE RECEIVED, the undersigned, Zenith Electronics Corporation, a
corporation organized and existing under the laws of the State of Delaware (the
Borrower"), hereby promises to pay to the order of LG Electronics Inc.
(hereinafter, together with its successors and assigns (the "Lender"), in
immediately available funds, the principal sum of SIXTY MILLION DOLLARS, or, if
less, so much thereof as may from time to time to be outstanding as Loans by the
Lender to the Borrower hereunder, on December 1, 2002, with interest at the
rates from time to time applicable as set forth in the $60,000,000 Credit
Agreement (referred to below) on the unpaid balance thereof, from the date
hereof, payable quarterly, on the 1st day of March, June, September and December
in each year, commencing with the December 1 next succeeding the date hereof,
until the principal hereof shall have become due and payable, and, to the extent
permitted by law, on any overdue payment (including any overdue prepayment) of
principal or any overdue payment of interest, payable quarterly as aforesaid
(or, at the option of the Lender, on demand), at the Default Rate.
In no event shall the amount of interest due or payable hereunder
exceed the maximum rate of interest allowed under Applicable Law, and in the
event any such payment is inadvertently made by the Borrower or inadvertently
received by the Lender, then such excess sum shall be credited as a payment of
principal, unless the Borrower shall notify the Lender in writing that it elects
to have such excess sum returned forthwith. It is the express intent hereof that
the Borrower not pay and the Lender not receive, directly or indirectly, in any
manner whatsoever, interest in excess of that which may legally be paid by the
Borrower under Applicable Law. Payments of principal of and interest on this
Note are to be made in lawful money of the United States of America at the place
set forth in the $60,000,000 Credit Agreement (referred to below).
This Note is issued pursuant to the $60,000,000 Credit Agreement,
dated as of November [__], 1999, between the Borrower and the Lender, as
amended, modified or supplemented from time to time (the "$60,000,000 Credit
Agreement"), and is entitled to the benefits thereof. All capitalized terms used
herein without definition have the respective meanings ascribed thereto in the
$60,000,000 Credit Agreement.
<PAGE>
The Company will make required prepayments of principal on the dates
and in the amounts specified in the $60,000,000 Credit Agreement. This Note is
also subject to optional prepayment, in whole or from time to time in part, at
the times and on the terms specified in the $60,000,000 Credit Agreement.
If an Event of Default, as defined in the $60,000,000 Credit
Agreement, occurs and is continuing, the principal of this Note may be declared
or otherwise become due and payable in the manner and with the effect provided
in the $60,000,000 Credit Agreement.
All parties now or hereafter liable with respect to the Note, whether
the Borrower, any guarantor, endorser or any other Person, hereby waive
presentment for payment, demand, notice of non-payment or dishonor, protest,
notice of protest and notice of any other kind whatsoever.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of New York
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
ZENITH ELECTRONICS CORPORATION
By ___________________________
Name:
Title:
2
<PAGE>
EXHIBIT 4(d)
================================================================================
ZENITH ELECTRONICS CORPORATION
AND
BANK ONE TRUST COMPANY, NA
Trustee
_____________________________
_____________________________
INDENTURE
Dated as of November 9, 1999
================================================================================
8.19% Senior Debentures Due 2009
<PAGE>
TABLE OF CONTENTS*
-----------------
<TABLE>
<S> <C>
ARTICLE ONE DEFINITIONS.......................................................................................... 5
Section 1.01. Definitions........................................................................... 5
ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES............................... 8
Section 2.01. Designation, Amount and Issue of Debentures........................................... 8
Section 2.02. Form of Debentures.................................................................... 8
Section 2.03. Date and Denomination of Debentures................................................... 8
Section 2.04. Execution of Debentures............................................................... 9
Section 2.05. Exchange and Registration of Transfer of Debentures................................... 9
Section 2.06. Mutilated, Destroyed, Lost or Stolen Debentures....................................... 10
Section 2.07. Temporary Debentures.................................................................. 11
Section 2.08. Cancellation of Debentures Paid, etc.................................................. 11
ARTICLE THREE REDEMPTION OF DEBENTURES........................................................................... 11
Section 3.01. Redemption Prices..................................................................... 11
Section 3.02. Notice of Redemption; Selection of Debentures......................................... 12
Section 3.03. Payment of Debentures Called for Redemption........................................... 12
ARTICLE FOUR PARTICULAR COVENANTS OF THE COMPANY................................................................. 13
Section 4.01. Payment of Principal, Premium and Interest............................................ 13
Section 4.02. Offices for Notices and Payments, etc................................................. 13
Section 4.03. Appointments to Fill Vacancies in Trustee's Office.................................... 13
Section 4.04. Provision as to Paying Agent.......................................................... 13
Section 4.05. Most Favored Lender Provision......................................................... 14
ARTICLE FIVE DEBENTUREHOLDERS LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE................................... 15
Section 5.01. Debentureholders Lists................................................................ 15
Section 5.02. Preservation and Disclosure of Lists.................................................. 16
Section 5.03. Reports by the Company................................................................ 17
Section 5.04. Reports by the Trustee................................................................ 17
ARTICLE SIX REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT..................................... 19
Section 6.01. Events of Default..................................................................... 19
Section 6.02. Payment of Debentures on Default; Suit Therefor....................................... 21
Section 6.03. Application of Monies Collected by Trustee............................................ 22
Section 6.04. Proceedings by Debentureholders....................................................... 23
</TABLE>
______________________________
* This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-i-
<PAGE>
<TABLE>
<S> <C>
Section 6.05. Proceedings by Trustee................................................................ 23
Section 6.06. Remedies Cumulative and Continuing.................................................... 23
Section 6.07. Direction of Proceedings and Waiver of Defaults by Majority of Debentureholders....... 24
Section 6.08. Notice of Defaults.................................................................... 24
Section 6.09. Undertaking to Pay Costs.............................................................. 24
ARTICLE SEVEN CONCERNING THE TRUSTEE............................................................................. 25
Section 7.01. Duties and Responsibilities of Trustee................................................ 25
Section 7.02. Reliance on Documents, Opinions, etc.................................................. 26
Section 7.03. No Responsibility for Recitals, etc................................................... 27
Section 7.04. Trustee, Paying Agents or Registrar May Own Debentures................................ 27
Section 7.05. Monies to be Held in Trust............................................................ 27
Section 7.06. Compensation and Expenses of Trustee.................................................. 27
Section 7.07. Officers' Certificate as Evidence..................................................... 27
Section 7.08. Conflicting Interest of Trustee....................................................... 28
Section 7.09. Eligibility of Trustee................................................................ 32
Section 7.10. Resignation or Removal of Trustee..................................................... 33
Section 7.11. Acceptance by Successor Trustee....................................................... 34
Section 7.12. Succession by Merger, etc............................................................. 34
Section 7.13. Limitation on Rights of Trustee as a Creditor......................................... 35
ARTICLE EIGHT CONCERNING THE DEBENTUREHOLDERS.................................................................... 38
Section 8.01. Action by Debentureholders............................................................ 38
Section 8.02. Proof of Execution by Debentureholders................................................ 39
Section 8.03. Who Are Deemed Absolute Owners........................................................ 39
Section 8.04. Company-Owned Debentures Disregarded.................................................. 39
Section 8.05. Revocation of Consents; Future Holders Bound.......................................... 39
ARTICLE NINE DEBENTUREHOLDERS' MEETINGS.......................................................................... 40
Section 9.01. Purposes of Meetings.................................................................. 40
Section 9.02. Call of Meetings by Trustee........................................................... 40
Section 9.03. Call of Meetings by Company or Debentureholders....................................... 41
Section 9.04. Qualifications for Voting............................................................. 41
Section 9.05. Regulations........................................................................... 41
Section 9.06. Voting................................................................................ 41
Section 9.07. No Delay of Rights by Meeting......................................................... 42
ARTICLE TEN SUPPLEMENTAL INDENTURES.............................................................................. 42
Section 10.01. Supplemental Indentures without Consent of Debentureholders........................... 42
Section 10.02. Supplemental Indentures with Consent of Debentureholders.............................. 43
Section 10.03. Compliance with Trust Indenture Act; Effect of Supplemental Indentures................ 44
Section 10.04. Notation on Debentures................................................................ 44
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 10.05. Evidence of Compliance of Supplemental Indenture to be
Furnished Trustee..................................................................... 44
ARTICLE ELEVEN CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE................................................. 44
Section 11.01. Company May Consolidate, etc., on Certain Terms....................................... 44
Section 11.02. Successor Corporation to be Substituted............................................... 45
Section 11.03. Opinion of Counsel to be Given Trustee................................................ 45
ARTICLE TWELVE SATISFACTION AND DISCHARGE OF INDENTURE........................................................... 46
Section 12.01. Discharge of Indenture................................................................ 46
Section 12.02. Deposited Monies to be Held in Trust by Trustee....................................... 46
Section 12.03. Paying Agent to Repay Monies Held..................................................... 46
Section 12.04. Return of Unclaimed Monies............................................................ 46
ARTICLE THIRTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS ................................ 47
Section 13.01. Indenture and Debentures Solely Corporate Obligations................................. 47
ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS........................................................................ 47
Section 14.01. Provisions Binding on Company's Successors............................................ 47
Section 14.02. Official Acts by Successor Corporation................................................ 47
Section 14.03. Addresses for Notices, etc............................................................ 47
Section 14.04. Governing Law......................................................................... 47
Section 14.05. Evidence of Compliance with Conditions Precedent...................................... 48
Section 14.06. Legal Holidays........................................................................ 48
Section 14.07. Trust Indenture Act to Control........................................................ 48
Section 14.08. No Security Interest Created.......................................................... 48
Section 14.09. Benefits of Indenture................................................................. 48
Section 14.10. Table of Contents, Headings, etc...................................................... 48
Section 14.11. Execution in Counterparts............................................................. 49
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
Signatures............................................................... 50
Acknowledgments.......................................................... 51
</TABLE>
-v-
<PAGE>
TIE-SHEET
---------
of provisions of Trust Indenture Act of 1939 with Indenture dated as of
November 9, 1999, between Zenith Electronics Corporation and Bank One Trust
Company, NA, Trustee:
<TABLE>
<CAPTION>
Section of Act Section of Indenture
-------------- --------------------
<S> <C>
310(a)(1) and (2).......................................................... 7.09
310(a)(3) and (4).......................................................... Not applicable
310(b)..................................................................... 7.08 and 7.10(b)
310(c)..................................................................... Not applicable
311(a) and (b)............................................................. 7.13
311(c)..................................................................... Not applicable
312(a)..................................................................... 5.01 and 5.02(a)
312(b) and (c)............................................................. 5.02(b) and (c)
313(a)..................................................................... 5.04(a)
313(b)(1).................................................................. Not applicable
313(b)(2).................................................................. 5.04(b)
313(c)..................................................................... 5.04(c)
313(d)..................................................................... 5.04(d)
314(a)..................................................................... 5.03
314(b)..................................................................... Not applicable
314(c)(1) and (2).......................................................... 14.05
314(c)(3).................................................................. Not applicable
314(d)..................................................................... Not applicable
314(e)..................................................................... 14.05
314(f)..................................................................... Not applicable
315(a), (c) and (d)........................................................ 7.01
315(b)..................................................................... 6.08
315(e)..................................................................... 6.09
316(a)(1).................................................................. 6.01 and 6.07
316(a)(2).................................................................. Omitted
316(a) last sentence....................................................... 8.04
316(b)..................................................................... 6.04
317(a)..................................................................... 6.02
317(b)..................................................................... 4.04(a)
318(a)..................................................................... 14.07
</TABLE>
____________________________
This tie-sheet is not part of the Indenture as executed.
-vi-
<PAGE>
THIS INDENTURE, dated as of November 9, 1999 between ZENITH ELECTRONICS
CORPORATION, a Delaware corporation (hereinafter sometimes called the
"Company"), and Bank One Trust Company, NA a national banking association
organized and existing under the laws of the United States (hereinafter
sometimes called the "Trustee"),
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly authorized
the issue of its 8.19% Senior Debentures Due 2009 (hereinafter sometimes called
the "Debentures"), in an aggregate principal amount not to exceed $50,000,000
and, to provide the terms and conditions upon which the Debentures are to be
authenticated, issued and delivered, the Company has duly authorized the
execution of this Indenture; and
WHEREAS, the Debentures, the certificate of authentication to be borne by
the Debentures is to be substantially in the following forms:
[FORM OF FACE OF DEBENTURE]
No. $
ZENITH ELECTRONICS CORPORATION
8.19% SENIOR DEBENTURE DUE 2009
ZENITH ELECTRONICS CORPORATION, a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company"), for value
received, hereby promises to pay to ________________________, or registered
assigns, the principal sum of _______________________________________________
Dollars on November 1, 2009, at the office or agency of the Company maintained
for that purpose in the City of Chicago or the Borough of Manhattan, The City of
New York, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, and to pay interest, semi-annually on May 1 and November 1 of each year,
commencing May 1, 2000, on said principal sum at said office or agency, in like
coin or currency, at the rate per annum specified in the title of this
Debenture, from the May 1 or the November 1, as the case may be, next preceding
the date of this Debenture to which interest has been paid or duly provided for,
unless the date hereof is a date to which interest has been paid or duly
provided for, in which case from the date of this Debenture, or unless no
interest has been paid or duly provided for on the Debentures, in which case
from November 9, 1999 until payment of said principal sum has been made or duly
provided for. Notwithstanding the foregoing, if the date hereof is after any
April 15 or October 15, as the case may be, and before the following May 1 or
November 1, this Debenture shall bear interest from such May 1 or November 1;
provided, however, that if the Company shall default in the payment of interest
- --------- -------
due on such May 1 or November 1, then this Debenture shall bear interest from
the next preceding May 1 or November 1 to which interest has been paid or duly
provided for or, if no interest has been paid or duly provided for on the
Debentures, from November 9, 1999. The interest so payable on any May 1 or
November 1 will, subject to certain exceptions provided in the Indenture
referred to on the reverse hereof, be paid to the person in whose name this
Debenture is registered
<PAGE>
at the close of business on the April 15 or October 15 next preceding such May 1
or November 1 and may, at the option of the Company, be paid by check mailed to
the registered address of such person.
Reference is made to the further provisions of this Debenture set forth on
the reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
This Debenture shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be construed in accordance with
and governed by the laws of said State.
This Debenture shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been signed by the
Trustee under the Indenture referred to on the reverse hereof.
IN WITNESS WHEREOF, Zenith Electronics Corporation has caused this
instrument to be duly executed under its corporate seal.
Dated: November 9, 1999
ZENITH ELECTRONICS CORPORATION
[SEAL]
By________________________________________
Attest:
___________________________________
2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Debentures described in the within-mentioned Indenture.
Bank One Trust Company, NA
As Trustee
By_______________________________________
Authorized Signature
[FORM OF REVERSE OF DEBENTURE]
ZENITH ELECTRONICS CORPORATION
8.19% SENIOR DEBENTURE DUE 2009
This Debenture is one of a duly authorized issue of Debentures of the
Company, designated as its 8.19% Senior Debentures Due 2009 (herein called the
"Debentures"), limited (except as otherwise provided in the Indenture mentioned
below) to the aggregate principal amount of $50,000,000, all issued or to be
issued under and pursuant to an indenture dated as of November 9, 1999 (herein
called the "Indenture"), duly executed and delivered by the Company to Bank One
Trust Company, NA, Trustee (herein called the "Trustee"), to which Indenture and
all indentures supplemental thereto reference is hereby made for a description
of the rights, limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Company and the holders of the Debentures.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal hereof may be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than 662/3% in aggregate principal
amount of the Debentures at the time outstanding, evidenced as in the Indenture
provided, to execute supplemental indentures adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of any supplemental indenture or modifying in any manner the rights of the
holders of the Debentures; provided, however, that no such supplemental
-------- -------
indenture shall (i) extend the fixed maturity of any Debenture, or reduce the
rate or extend the time of payment of interest thereon, or reduce the principal
amount thereof or any premium thereon, or make the principal thereof or any
premium or interest thereon payable in any coin or currency other than that
hereinbefore provided, without the consent of the holder of each Debenture so
affected, or (ii) reduce the aforesaid percentage of Debentures, the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of all Debentures then outstanding. It is also provided
in the Indenture that, prior to any declaration accelerating the maturity of the
Debentures, the holders of a majority in aggregate principal amount of the
Debentures at the time outstanding may on behalf of the holders of all of the
Debentures waive any past default or Event of Default under the Indenture and
its
3
<PAGE>
consequences except a default in the payment of interest or any premium on or
the principal of any of the Debentures. Any such consent or waiver by the holder
of this Debenture (unless revoked as provided in the Debenture) shall be
conclusive and binding upon such holder and upon all future holders and owners
of this Debenture and any Debentures which may be issued in exchange or
substitution herefor, irrespective of whether or not any notation thereof is
made upon this Debenture or such other Debentures.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Debenture at the place, at the respective times, at the rate and in the
coin or currency herein prescribed.
The Debentures are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Company in the City of Chicago or the Borough of Manhattan, The
City of New York, and in the manner and subject to the limitations provided in
the Indenture, but without payment of any service charge, Debentures may be
exchanged for a like aggregate principal amount of Debentures of other
authorized denominations.
The Debentures may be redeemed at the option of the Company as a whole, or
from time to time in part, on any date prior to maturity, upon mailing a notice
of such redemption not less than twenty nor more than sixty days prior to the
date fixed for redemption to the holders of Debentures at their last registered
addresses, all as provided in the Indenture, at a redemption price equal to 100%
of the principal amount, together with accrued interest to the date fixed for
redemption; provided that if the date fixed for redemption is a May 1 or
November 1, then the interest payable on such date shall be paid to the holder
of record on the next preceding April 15 or October 15.
Upon due presentment for registration of transfer of this Debenture at the
office or agency of the Company in the City of Chicago or the Borough of
Manhattan, The City of New York, a new Debenture or Debentures of authorized
denominations for an equal aggregate principal amount will be issued to the
transferee in exchange herefor, subject to the limitations provided in the
Indenture, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company, the Trustee, any paying agent and any Debenture registrar may
deem and treat the registered holder hereof as the absolute owner of this
Debenture (whether or not this Debenture shall be overdue and notwithstanding
any notation of ownership or other writing hereon made by anyone other than the
Company or any Debenture registrar), for the purpose of receiving payment
hereof, or on account hereof and for all other purposes, and neither the Company
nor the Trustee nor any paying agent nor any Debenture registrar shall be
affected by any notice to the contrary. All payments made to or upon the order
of such registered holder shall, to the extent of the sum or sums paid, satisfy
and discharge liability for monies payable on this Debenture.
No recourse for the payment of the principal of or any premium or interest
on this Debenture, or for any claim based hereon or otherwise in respect hereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in the Indenture or any indenture supplemental thereto or in any
Debenture, or because of the creation of any indebtedness represented thereby,
shall
4
<PAGE>
be had against any incorporator, stockholder, officer or director, as such,
past, present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by virtue
of any constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
AND WHEREAS, all acts and things necessary to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee, as in
this Indenture provided, and issued, the valid, binding and legal obligations of
the Company, and to constitute these presents a valid agreement according to its
terms, have been done and performed, and the execution of this Indenture and the
issue hereunder of the Debentures have in all respects been duly authorized;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Debentures
are, and are to be, authenticated, issued and delivered, and in consideration of
the premises, of the purchase and acceptance of the Debentures by the holders
thereof and of the sum of one dollar duly paid to it by the Trustee at the
execution of these presents, the receipt whereof is hereby acknowledged, the
Company covenants and agrees with the Trustee for the equal and proportionate
benefit of the respective holders from time to time of the Debentures, as
follows:
ARTICLE ONE
DEFINITIONS
Section 1.1. Definitions. The terms defined in this Section 1.01 (except
-----------
as herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section 1.01. All other
terms used in this Indenture which are defined in the Trust Indenture Act of
1939 or which are by reference therein defined in the Securities Act of 1933, as
amended (except as herein otherwise expressly provided or unless the context
otherwise requires) shall have the meanings assigned to such terms in said Trust
Indenture Act and in said Securities Act as in force at the date of the
execution of this Indenture.
Board of Directors: The term "Board of Directors" shall mean the Board of
-------------------
Directors of the Company or the Executive Committee of such Board.
Company: The term "Company" shall mean Zenith Electronics Corporation, a
-------
Delaware corporation and subject to the provisions of Article Eleven shall
include its successors and assigns.
Debenture or Debentures; Outstanding: The terms "Debenture" or "Debentures"
------------------------------------
shall mean any Debenture or Debentures, as the case may be, authenticated and
delivered under this Indenture.
5
<PAGE>
The term "outstanding", when used with reference to Debentures, shall,
subject to the provisions of section 8.04, mean, as of any particular time, all
Debentures authenticated and delivered by the Trustee under this Indenture,
except
(a) Debentures theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(b) Debentures, or portions thereof, for the payment or redemption of
which monies in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Company) or shall have been set
aside and segregated in trust by the Company (if the Company shall act as its
own paying agent), provided that if such Debentures are to be redeemed prior to
the maturity thereof, notice of such redemption shall have been given as in
Article Three provided, or provision satisfactory to the Trustee shall have been
made for giving such notice; and
(c) Debentures in lieu of or in substitution for which other Debentures
shall have been authenticated and delivered pursuant to the terms of Section
2.06, unless proof satisfactory to the Trustee is presented that any such
Debentures are held by bona fide holders in due course.
Debentureholder: The terms "Debentureholder", "holder of Debentures", or
---------------
other similar terms, shall mean any person in whose name at the time a
particular Debenture is registered on the books of the Company kept for that
purpose in accordance with the terms hereof.
Event of Default: The term "Event of Default" shall mean any event
----------------
specified in Section 6.01, continued for the period of time, if any, and after
the giving of the notice, if any, therein designated.
Indenture: The term "Indenture" shall mean this instrument as originally
---------
executed or, if amended or supplemented as herein provided, as so amended or
supplemented.
Leveraged Lease Assets: The term "Leveraged Lease Assets" means those
----------------------
assets subject to 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 Company, as Lessee, as supplemented by that certain
Lease Supplement dated April 2, 1997 by and between Fleet Bank, as Lessor, and
the Company, as Lessee, and 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, and any proceeds received in respect thereof.
LGE New Restructured Senior Note: The term "LGE New Restructured Senior
--------------------------------
Note" shall mean that certain note issued by the Company dated November 9, 1999
in favor of LG Electronics Inc.
6
<PAGE>
LGE New Restructured Senior Note Documents: The term "LGE New Restructured
------------------------------------------
Senior Note Documents" shall mean all notes, documents, agreements or
instruments related to the LGE New Restructured Senior Note.
Officers' Certificate: The term "Officers' Certificate", when used with
---------------------
respect to the Company, shall mean a certificate signed by the Chairman, the
President or any Vice President and by the Controller, any Assistant Controller,
the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary
of the Company. Each such certificate shall include the statements provided for
in Section 14.05 if and to the extent required by the provisions of such
Section.
Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion
------------------
in writing signed by legal counsel, who may be an employee of or counsel to the
Company, acceptable to the Trustee. Each such opinion shall include the
statements provided for in Section 14.05 if and to the extent required by the
provisions of such Section.
Person: The term "Person" shall mean a corporation, an association, a
------
partnership, an organization, an individual, a government or a political
subdivision thereof or a governmental agency.
Principal Office of the Trustee: The term "principal office of the
-------------------------------
Trustee", or other similar term shall mean the principal office of the Trustee
at which at any particular time its corporate trust business shall be
administered which at the date hereof is located at One North State Street,
Ninth Floor, Chicago, Illinois, 60602.
Responsible Officer: The term "Responsible Officer", when used with respect
-------------------
to the Trustee, shall mean any officer in the Corporate Trust Division of the
Trustee, or any other officer or assistant officer of the Trustee customarily
performing functions similar to those performed by the persons who at the time
shall be such officers, respectively, or to whom any corporate trust matter is
referred because of his knowledge of and familiarity with the particular
subject.
Subsidiary: The term "Subsidiary" shall mean any corporation of which
----------
at least a majority of the outstanding stock having voting power under ordinary
circumstances to elect a majority of the board of directors of said corporation
shall at the time be owned by the Company or by the Company and one or more
Subsidiaries or by one or more Subsidiaries.
Trustee: The term "Trustee" shall mean Bank One Trust Company, NA, and,
-------
subject to the provisions of Article Seven hereof, shall also include its
successors and assigns as Trustee hereunder.
Trust Indenture Act of 1939: The term "Trust Indenture Act of 1939"
---------------------------
shall mean the Trust Indenture Act of 1939 as it was in force at the date of
execution of this Indenture, except as provided in Section 10.03.
7
<PAGE>
ARTICLE TWO
ISSUE, DESCRIPTION, EXECUTION,
REGISTRATION AND EXCHANGE OF DEBENTURES
Section 1.2. Designation, Amount and Issue of Debentures. The Debentures
-------------------------------------------
shall be designated as 8.19% Senior Debentures Due 2009." Debentures not to
exceed the aggregate principal amount of $50,000,000 (except as provided in
Section 2.06) upon the execution of this Indenture, or from time to time
thereafter, may be executed by the Company and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate and deliver said
Debentures to or upon the written order of the Company, signed by its President
or any of its Vice Presidents and its Treasurer or any of its Assistant
Treasurers, without any further action by the Company hereunder.
Section 1.3. Form of Debentures. The Debentures and the Trustee's
------------------
certificate of authentication to be borne by the Debentures shall be
substantially in the form as in this Indenture above recited. Any of the
Debentures may have imprinted thereon such legends or endorsements as the
officers executing the same may approve (execution thereof to be conclusive
evidence of such approval) and as are not inconsistent with the provisions of
this Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Debentures may be listed, or to conform to usage.
Section 1.4. Date and Denomination of Debentures. The Debentures shall
-----------------------------------
be issuable in registered form without coupons in denominations of $1,000 and
any integral multiple of $1,000. Every Debenture shall be dated the date of its
authentication and, except as provided in this Section, shall bear interest,
payable semiannually on May 1 and November 1 of each year, commencing May 1,
2000, from the May 1 or November 1, as the case may be, next preceding the date
of such Debenture to which interest has been paid or duly provided for, unless
the date of such Debenture is the date to which interest has been paid or duly
provided for, in which case from the date of such Debenture, or unless no
interest has been paid or duly provided for on the Debentures, in which case
from November 9, 1999, until payment of the principal sum has been made or duly
provided for. Notwithstanding the foregoing, when there is no existing default
in the payment of interest on the Debentures, all Debentures authenticated by
the Trustee after the close of business on the record date (as hereinafter in
this Section defined) for any interest payment date (May 1 or November 1, as the
case may be) and prior to such interest payment date shall be dated the date of
authentication but shall bear interest from such interest payment date;
provided, however, that if and to the extent that the Company shall default in
- -------- -------
the interest due on such interest payment date, then any such Debenture shall
bear interest from the May 1 or November 1, as the case may be, next preceding
the date of such Debenture to which interest has been paid or duly provided for,
unless no interest has been paid or duly provided for on the Debentures, in
which case from November 9, 1999.
The person in whose name any Debenture is registered at the close of
business on any record date (as hereinafter defined) with respect to any
interest payment date shall be entitled to receive the interest payable on such
interest payment date notwithstanding the cancellation of such Debenture upon
any transfer or exchange subsequent to the record date and prior to such
interest payment date; provided, however, that if and to the extent the Company
-------- -------
shall default in the payment of the interest due on such interest payment date,
such defaulted interest shall be paid to the persons in whose names outstanding
Debentures are registered on a subsequent record date established by notice
given by mail by or on behalf of the Company to the holders of Debentures not
less than fifteen days
8
<PAGE>
preceding such subsequent record date. The term "record date" as used in this
Section with respect to any interest payment date shall mean the April 15 or
October 15, as the case may be, next preceding such interest payment date, or if
such day shall be a day on which banking institutions in the City of Chicago or
in The City of New York are authorized by law or executive order to close, the
next preceding day which shall not be a day on which such institutions are so
authorized to close.
Section 1.5. Execution of Debentures. The Debentures shall be signed in the
-----------------------
name and on behalf of the Company by the facsimile signature of its Chairman or
President or, in lieu thereof, of any of its Vice Presidents or its Treasurer
and attested by its Secretary or any Assistant Secretary, under its corporate
seal (which may be printed, engraved or otherwise reproduced thereon, by
facsimile or otherwise). For that purpose the Company may adopt and use the
facsimile signature of any person who has been or is or shall be such officer.
Only such Debentures as shall bear thereon a certificate of authentication
substantially in the form hereinbefore recited, executed by the Trustee, shall
be entitled to the benefits of this Indenture or be valid or obligatory for any
purpose. Such certificate by the Trustee upon any Debenture executed by the
Company shall be conclusive evidence that the Debenture so authenticated has
been duly authenticated and delivered hereunder and that the holder is entitled
to the benefits of this Indenture.
In case any officer of the Company who shall have signed any of the
Debentures shall cease to be such officer before the Debentures so signed shall
have been authenticated and delivered by the Trustee, or disposed of by the
Company, such Debentures nevertheless may be authenticated and delivered or
disposed of as though the person who signed such Debentures had not ceased to be
such officer of the Company; and any Debenture may be signed on behalf of the
Company by such persons as, at the actual date of the execution of such
Debenture, shall be the proper officers of the Company, although at the date of
the execution of this Indenture any such person was not such an officer.
Section 1.6. Exchange and Registration of Transfer of Debentures.
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Debentures may be exchanged for a like aggregate principal amount of Debentures
of other authorized denominations. Debentures to be exchanged shall be
surrendered at the office or agency to be maintained by the Company in the City
of Chicago or the Borough of Manhattan, The City of New York and the Company
shall execute and register and the Trustee shall authenticate and deliver in
exchange therefor the Debenture or Debentures which the Debentureholder making
the exchange shall be entitled to receive.
The Company shall keep, at said office or agency in the City of Chicago
and the City of New York, a register in which, subject to such reasonable
regulations as it may prescribe, the Company shall register Debentures and shall
register the transfer of Debentures as in this Article Two provided. Such
register shall be in written form or in any other form capable of being
converted into written form within a reasonable time. At all reasonable times
such register shall be open for inspection by the Trustee. Upon due presentment
for registration of transfer of any Debenture at such office or agency
maintained by the Company in the City of Chicago or the Borough of Manhattan,
The City of New York, the Company shall execute and register and the Trustee
shall authenticate and deliver in the name of the transferee or transferees a
new Debenture or Debentures for an equal aggregate principal amount.
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All Debentures presented for registration of transfer or for exchange,
redemption or payment shall (if so required by the Company or the Trustee) be
duly endorsed by, or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company and the Trustee duly executed by,
the holder or his attorney duly authorized in writing.
No service charge shall be made for any exchange or registration of
transfer of Debentures, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith.
The Company shall not be required to exchange or register a transfer of (a)
any Debentures for a period of 15 days next preceding any selection of
Debentures to be redeemed or (b) any Debentures selected, called or being called
for redemption.
Section 1.7. Mutilated, Destroyed, Lost or Stolen Debentures. In case
-----------------------------------------------
any temporary or definitive Debenture shall become mutilated or be destroyed,
lost or stolen, the Company in its discretion may execute, and upon its request
the Trustee shall authenticate and deliver, a new Debenture, bearing a number
not contemporaneously outstanding, in exchange and substitution for the
mutilated Debenture, or in lieu of and in substitution for the Debenture so
destroyed, lost or stolen. In every case the applicant for a substituted
Debenture shall furnish to the Company and to the Trustee such security or
indemnity as may be required by them to save each of them harmless, and, in
every case of destruction, loss or theft, the applicant shall also furnish to
the Company and to the Trustee evidence to their satisfaction of the
destruction, loss or theft of such Debenture and of the ownership thereof.
The Trustee may authenticate any such substituted Debenture and deliver the
same upon the written request or authorization of any officer of the Company.
Upon the issuance of any substituted Debenture, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith
and in addition a further sum not exceeding $2 for each Debenture so issued in
substitution. In case any Debenture which has matured or is about to mature
shall become mutilated or be destroyed, lost or stolen, the Company may, instead
of issuing a substitute Debenture, pay or authorize the payment of the same
(without surrender thereof except in the case of a mutilated Debenture) if the
applicant for such payment shall furnish to the Company and to the Trustee such
security or indemnity as may be required by them to save each of them harmless
and, in case of destruction, loss or theft, evidence satisfactory to the Company
and the Trustee of the destruction, loss or theft of such Debenture and of the
ownership thereof.
Every substituted Debenture issued pursuant to the provisions of this
Section 2.06 by virtue of the fact that any Debenture is destroyed, lost or
stolen shall constitute an additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Debenture shall be found at any
time, and shall be entitled to all the benefits of the Indenture equally and
proportionately with any and all other Debentures duly issued hereunder. All
Debentures shall be held and owned upon the express condition that the foregoing
provisions are exclusive with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Debentures and shall preclude, to the
extent permitted under applicable law, any and all other rights or remedies
notwithstanding any law or statute existing
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or hereafter enacted to the contrary with respect to the replacement or payment
or conversion of negotiable instruments or other securities without their
surrender.
Section 1.8. Temporary Debentures. Pending the preparation of definitive
--------------------
Debentures, the Company may execute and the Trustee shall authenticate and
deliver temporary Debentures (printed or lithographed). Temporary Debentures
shall be issuable in any authorized denomination, and substantially in the form
of the definitive Debentures but with such omissions, insertions and variations
as may be appropriate for temporary Debentures, all as may be determined by the
Company. Every such temporary Debenture shall be authenticated by the Trustee
upon the same conditions and in substantially the same manner, and with the same
effect, as the definitive Debentures. Without unreasonable delay the Company
will execute and deliver to the Trustee definitive Debentures and thereupon any
or all temporary Debentures may be surrendered in exchange therefor, at the
principal office of the Trustee in the City of Chicago or the office or agency
of the Company in the Borough of Manhattan, The City of New York, and the
Trustee shall authenticate and deliver in exchange for such temporary Debentures
an equal aggregate principal amount of definitive Debentures. Such exchange
shall be made by the Company at its own expense and without any charge therefor.
Until so exchanged, the temporary Debentures shall in all respects be entitled
to the same benefits under this Indenture as definitive Debentures authenticated
and delivered hereunder.
Section 1.9. Cancellation of Debentures Paid, etc. All Debentures
------------------------------------
surrendered for the purpose of payment, redemption, exchange or registration of
transfer, or in discharge shall, if surrendered to the Company or any paying
agent or any Debenture registrar, be surrendered to the Trustee and promptly
cancelled by it, or, if surrendered to the Trustee, shall be promptly cancelled
by it, and no Debentures shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Indenture. The Trustee shall destroy
cancelled Debentures and deliver a certificate of such destruction to the
Company. If the Company shall acquire any of the Debentures, however, such
acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Debentures unless and until the same are
surrendered to the Trustee for cancellation.
ARTICLE THREE
REDEMPTION OF DEBENTURES
Section 1.10. Redemption Prices. The Company may, at its option, redeem all
-----------------
or from time to time any part of the Debentures on any date prior to maturity,
upon notice as set forth in Section 3.02, at a redemption price equal to 100% of
the principal amount thereof, together with accrued interest to the date fixed
for redemption; provided that if the date fixed for redemption is May 1 or
--------
November 1, then the interest payable on such date shall be paid to the holder
of record on the next preceding April 15 or October 15.
Section 1.11. Notice of Redemption; Selection of Debentures. In case the
---------------------------------------------
Company shall desire to exercise the right to redeem all, or, as the case
may be, any part of the Debentures pursuant to Section 3.01, it shall fix a date
for redemption and it, or, at its request, the Trustee in the name of and at the
expense of the Company, shall mail or cause to be mailed a notice of such
redemption at
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least 20 and not more than 60 days prior to the date fixed for redemption to the
holders of Debentures so to be redeemed as a whole or in part at their last
addresses as the same appear on the registry books of the Company. Such mailing
shall be by first class mail. The notice if mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
holder received such notice. In any case, failure to give such notice by mail or
any defect in the notice to the holder of any Debenture designed for redemption
as a whole or in part shall not affect the validity of the proceedings for the
redemption of any other Debenture.
Each such notice of redemption shall specify the date fixed for redemption,
the place or places of payment, that payment will be made upon presentation and
surrender of such Debentures, that interest accrued to the date fixed for
redemption will be paid as specified in said notice, and that on and after said
date interest thereon or on the portions thereof to be redeemed will cease to
accrue. If fewer than all the Debentures are to be redeemed, the notice of
redemption shall identify the Debentures to be redeemed. In case any Debenture
is to be redeemed in part only, the notice of redemption shall state the portion
of the principal amount thereof to be redeemed and shall state that on and after
the date fixed for redemption, upon surrender of such Debenture, a new Debenture
or Debentures in principal amount equal to the unredeemed portion thereof will
be issued.
Prior to the redemption date specified in the notice of redemption given as
provided in this Section, the Company will deposit with the Trustee or with one
or more paying agents an amount of money sufficient to redeem on the redemption
date all the Debentures so called for redemption at the redemption price,
together with accrued interest to the date fixed for redemption. If fewer than
all the Debentures are to be redeemed, it will give the Trustee notice not less
than 45 days prior to the redemption date as to the aggregate principal amount
of Debentures to be redeemed.
If fewer than all the Debentures are to be redeemed or if any Debentures
are to be redeemed in part only, the Trustee shall select, in such manner as in
its sole discretion it shall deem appropriate and fair, the Debentures or
portions thereof to be redeemed. The Debentures (or portions thereof) so
selected shall be deemed duly selected for redemption for all purposes hereof.
Section 1.12. Payment of Debentures Called for Redemption. If notice of
-------------------------------------------
redemption has been given as above provided, the Debentures or portions of
Debentures with respect to which such notice has been given shall become due and
payable on the date and at the place or places stated in such notice at the
redemption price, together with interest accrued to the date fixed for
redemption, and on and after said date (unless the Company shall default in the
payment of such Debentures at the redemption price, together with interest
accrued to said date) interest on the Debentures or portions of Debentures so
called for redemption shall cease to accrue. On presentation and surrender of
such Debentures at a place of payment in said notice specified, the said
Debentures or the specified portions thereof shall be paid and redeemed by the
Company at the redemption price, together with interest accrued thereon to the
date fixed for redemption.
Upon presentation of any Debenture redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the holder thereof, at
the expense of the Company, a new Debenture or Debentures, of authorized
denominations, in principal amount equal to the unredeemed portion of the
Debentures so presented.
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ARTICLE FOUR
PARTICULAR COVENANTS OF THE COMPANY
Section 1.13. Payment of Principal, Premium and Interest. The Company
------------------------------------------
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any, and interest on each of the Debentures at
the places, at the respective times and in the manner provided herein and in the
Debentures.
Section 1.14. Offices for Notices and Payments, etc. So long as any of
-------------------------------------
the Debentures remain outstanding, the Company will maintain in the City of
Chicago and in the Borough of Manhattan, The City of New York, an office or
agency where the Debentures may be presented for payment, and an office or
agency where the Debentures may be presented for registration of transfer and
for exchange as in this Indenture provided and an office or agency where notices
and demands to or upon the Company in respect of the Debentures or of this
Indenture may be served. The Company will give to the Trustee written notice of
the location of each such office or agency and of any change of location
thereof. In case the Company shall fail to maintain any such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations and demands may be made and notices may be served at the
principal office of the Trustee in the City of Chicago and the office or agency
of the Trustee in the Borough of Manhattan, The City of New York, and the
Company hereby appoints the Trustee at the principal office of the Trustee in
the City of Chicago and the office or agency of the Trustee in the Borough of
Manhattan, The City of New York, its agent to receive all such presentations and
demands.
Section 1.15. Appointments to Fill Vacancies in Trustee's Office. The
--------------------------------------------------
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 7.10, a Trustee, so that there
shall at all times be a Trustee hereunder.
Section 1.16. Provision as to Paying Agent. (a) If the Company shall
----------------------------
appoint a paying agent other than the Trustee, it will cause such paying agent
to execute and deliver to the Trustee an instrument in which such agent shall
agree with the Trustee, subject to the provisions of this Section 4.04,
(1) that it will hold all sums held by it as such agent for the
payment of the principal of and premium, if any, or interest on the
Debentures (whether such sums have been paid to it by the Company or by any
other obligor on the Debentures) in trust for the benefit of the holders of
the Debentures; and
(2) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Debentures) to make any payment of
the principal of and premium, if any, or interest on the Debentures when
the same shall be due and payable.
(2) If the Company shall act as its own paying agent, it will, on or
before each due date of the principal of and premium, if any, or interest on the
Debentures, set aside, segregate and hold in trust for the benefit of the
holders of the Debentures a sum sufficient to pay such principal and
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premium, if any, or interest so becoming due and will notify the Trustee of any
failure to take such action and of any failure by the Company (or by any other
obligor under the Debentures) to make any payment of the principal of and
premium, if any, or interest on the Debentures when the same shall become due
and payable.
(3) Anything in this Section 4.04 to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by it, or any paying agent hereunder, as
required by this Section 4.04, such sums to be held by the Trustee upon the
trusts herein contained.
(4) Anything in this Section 4.04 to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 4.04 is subject to
Sections 12.03 and 12.04.
Section 1.17. Most Favored Lender Provision. (a) If the Company shall enter
-----------------------------
into an amendment of or waiver to, or other agreement or arrangement
supplemental to, the LGE New Restructured Senior Note Documents which shall
provide for any Additional Covenants or Additional Defaults, then such
Additional Covenants or Additional Defaults shall be deemed to have been
incorporated herein as if fully set forth herein with such changes as may be
necessary to make such Additional Covenants or Additional Defaults applicable to
this Indenture without any further requirement for notice or action on the part
of the Company or any holder of Debentures. For purposes of this paragraph (a),
(1) "Additional Covenant" means an affirmative or negative covenant
or similar restriction applicable to the Company or any of its Subsidiaries
which requires the maintenance of any particular financial condition or the
achievement of any particular financial performance or which prohibits or
limits actions which the Company or any such Subsidiary could otherwise
take (or permits any such action only upon satisfaction of specified
conditions) or requires the taking of any action which the Company or any
such Subsidiary would not otherwise be required to take.
(2) "Additional Default" means any provision which would permit LGE
to accelerate the maturity of, require the Company or any Subsidiary to buy
or indemnify LGE in respect of, or otherwise terminate the LGE New
Restructured Senior Note Documents prior to the original maturity or
expiration date of the indebtedness evidenced thereby.
(2) If the Company shall enter into an amendment of or waiver to, or other
agreement or arrangement supplemental to, the LGE New Restructured Senior Note
Documents which shall provide for any earlier time of repayment or prepayment of
any indebtedness owing in respect of the LGE New Restructured Senior Note than
that required as of the date hereof (taking into account any mandatory
prepayment provisions contained in the LGE New Restructured Senior Note
Documents as of the date hereof) (regardless of whether such repayment or
prepayment obligation arises from dispositions of assets, a mandatory sinking
fund or repayment schedule or otherwise), this Indenture shall be deemed to have
been amended to provide for repayment or prepayment of a proportional principal
amount of the Debentures at the new time of repayment or prepayment of the
indebtedness owing in respect of the LGE New Restructured Senior Note.
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The change to this Indenture deemed to have been effected pursuant to this
paragraph (b) shall not require any notice or action on the part of the Company
or any holder of Debentures.
(3) The Company shall not enter into an amendment to or waiver to, or
other agreement or arrangement supplemental to, the LGE New Restructured Senior
Note Documents which shall provide for a pledge or lien on any real or personal
property of the Company or any of its Subsidiaries (other than in respect of the
Leveraged Lease Assets). If, notwithstanding the foregoing, the Company shall
enter into such an amendment or waiver, it shall take such action as shall be
necessary or appropriate to grant an equal and ratable lien on such real or
personal property in favor of the Trustee for the benefit of the holders of the
Debentures, but such amendment or waiver shall nevertheless constitute a failure
on the part of the Company to observe and perform a covenant and agreement set
forth in this Indenture for purposes of Section 6.01(c).
(4) If the Company shall prepay the LGE New Restructured Senior Note in
whole or in part at its option at any time before a mandatory prepayment is due
in respect thereof under the terms of the LGE New Restructured Senior Note
Documents as of the date hereof, it shall simultaneously prepay a proportional
principal amount of the Debentures.
(5) If the Company shall make any cash payment in respect of interest
on the LGE New Restructured Senior Note at any time (except to the extent such
payment of interest is required to be made in cash under the terms of the LGE
New Restructured Senior Note Documents as of the date hereof), it shall make a
prepayment of the Debentures in the amount that would be required pursuant to
the foregoing paragraph (d) if such cash payment had been a prepayment of
principal of the LGE New Restructured Senior Note.
ARTICLE FIVE
DEBENTUREHOLDERS LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
Section 1.18. Debentureholders Lists. The Company covenants and agrees
----------------------
that it will furnish or cause to be furnished to the Trustee, semiannually, not
more than 15 days after each April 15 and October 15 in each year beginning with
April 15, 2000, and at such other times as the Trustee may request in writing,
within thirty days after receipt by the Company of any such request, a list in
such form as the Trustee may reasonably require of the names and addresses of
the holders of Debentures as of a date not more than fifteen days prior to the
time such information is furnished, except that no such list need be furnished
so long as the Trustee is acting as Debenture registrar.
Section 1.19. Preservation and Disclosure of Lists. (a) The Trustee shall
------------------------------------
preserve, in as current a form as is reasonably practicable, all information as
to the names and addresses of the holders of Debentures contained in the most
recent list furnished to it as provided in Section 5.01. The Trustee may destroy
any list furnished to it as provided in Section 5.01 upon receipt of a new list
so furnished.
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(1) In case three or more holders of Debentures (hereinafter referred to
as "applicants") apply in writing to the Trustee and furnish to the Trustee
reasonable proof that each such applicant has owned a Debenture for a period of
at least six months preceding the date of such application, and such application
states that the applicants desire to communicate with other holders of
Debentures with respect to their rights under this Indenture or under the
Debentures and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee shall,
within five business days after the receipt of such application, at its
election, either,
(1) afford such applicants access to the information preserved at the
time by the Trustee in accordance with the provisions of subsection (a) of
this Section 5.02, or
(2) inform such applicants as to the approximate number of holders of
Debentures whose names and addresses appear in the information preserved at
the time by the Trustee in accordance with the provisions of subsection (a)
of this Section 5.02, and as to the approximate cost of mailing to such
Debentureholders the form of proxy or other communication, if any,
specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Debentureholder whose name and address appear in the information
preserved at the time by the Trustee in accordance with the provisions of
subsection (a) of this Section 5.02 a copy of the form of proxy or other
communication which is specified in such request, with reasonable promptness
after a tender to the Trustee of the material to be mailed and of payment, or
provision for the payment, of the reasonable expenses of mailing, unless within
five days after such tender, the Trustee shall mail to such applicants and file
with the Securities and Exchange Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interests of the holders
of Debentures or would be in violation of applicable law. Such written statement
shall specify the basis of such opinion. If said Commission, after opportunity
for a hearing upon the objections specified in the written statement so filed,
shall enter an order refusing to sustain any of such objections or if, after the
entry of an order sustaining one or more of such objections, said Commission
shall find, after notice and opportunity for hearing, that all the objections so
sustained have been met and shall enter an order so declaring, the Trustee shall
mail copies of such material to all such Debentureholders with reasonable
promptness after the entry of such order and the renewal of such tender;
otherwise the Trustee shall be relieved of any obligation or duty to such
applicants respecting their application.
(2) Each and every holder of the Debentures, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee nor any paying agent nor the Debenture registrar shall be held
accountable by reason of the disclosure of any such information as to the names
and addresses of the holders of Debentures in accordance with the provisions of
subsection (b) of this Section 5.02, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under said
subsection (b).
Section 1.20. Reports by the Company. (a) The Company covenants and agrees
----------------------
to file with the Trustee, within fifteen days after the Company is required to
file the same with the Securities and
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Exchange Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as said Commission may from time to time by rules and regulations prescribe)
which the Company may be required to file with said Commission pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934; or, if the
Company is not required to file information, documents or reports pursuant to
either of such sections, then to file with the Trustee and said Commission, in
accordance with rules and regulations prescribed from time to time by said
Commission, such of the supplementary and periodic information, documents and
reports which may be required pursuant to section 13 of the Securities Exchange
Act of 1934 in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations.
(1) The Company covenants and agrees to file with the Trustee and the
Securities and Exchange Commission, in accordance with the rules and regulations
prescribed from time to time by said Commission, such additional information,
documents and reports with respect to compliance by the Company with the
conditions and covenants provided for in this Indenture as may be required from
time to time by such rules and regulations.
(2) The Company covenants and agrees to transmit by mail to all holders of
Debentures, as the names and addresses of such holders appear upon the registry
books of the Company, within thirty days after the filing thereof with the
Trustee, such summaries of any information, documents and reports required to be
filed by the Company pursuant to subsections (a) and (b) of this Section 5.03 as
may be required by rules and regulations prescribed from time to time by the
Securities and Exchange Commission.
Section 1.21. Reports by the Trustee. (a) On or before July 15, 2000, and
----------------------
on or before July 15 in every year thereafter, so long as any Debentures are
outstanding hereunder, the Trustee shall transmit to the Debentureholders, as
hereinafter in this Section 5.04 provided, a brief report dated as of the
preceding May 15 with respect to:
(1) its eligibility under Section 7.09, and its qualification under
Section 7.08, or in lieu thereof, if to the best of its knowledge it has
continued to be eligible and qualified under such Sections, a written
statement to such effect;
(2) the character and amount of advances (and if the Trustee elects
so to state, the circumstances surrounding the making thereof) made by the
Trustee (as such) which remain unpaid on the date of such report, and for
the reimbursement of which it claims or may claim a lien or charge, prior
to that of the Debentures, on any property or funds held or collected by it
as Trustee, except that the Trustee shall not be required (but may elect)
to state such advances if such advances so remaining unpaid aggregate not
more than one-half of one percent of the principal amount of the Debentures
outstanding on the date of such report;
(3) the amount, interest rate, and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the
Debentures) to the Trustee in its individual capacity, on the date of such
report, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in paragraphs (2), (3), (4) or
(6) of subsection (b) of Section 7.13;
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(4) the property and funds, if any, physically in the possession of
the Trustee, as such, on the date of such report;
(5) any additional issue of Debentures which the Trustee has not
previously reported; and
(6) any action taken by the Trustee in the performance of its duties
under this Indenture which it has not previously reported and which in its
opinion materially affects the Debentures, except action in respect of a
default, notice of which has been or is to be withheld by it in accordance
with the provisions of Section 6.08.
(2) The Trustee shall transmit to the Debentureholders, as hereinafter
provided, a brief report with respect to the character and amount of any
advances (and if the Trustee elects so to state, the circumstances surrounding
the making thereof) made by the Trustee (as such), since the date of the last
report transmitted pursuant to the provisions of subsection (a) of this Section
5.04 (or, if no such report has yet been so transmitted, since the date of
execution of this Indenture), for the reimbursement of which it claims or may
claim a lien or charge prior to that of the Debentures on property or funds held
or collected by it as Trustee, and which it has not previously reported pursuant
to this subsection, except that the Trustee shall not be required (but may
elect) to report such advances if such advances remaining unpaid at any time
aggregate ten percent or less of the principal amount of Debentures outstanding
at such time, such report to be transmitted within ninety days after such time.
(3) Reports pursuant to this Section 5.04 shall be transmitted by mail
to all holders of Debentures as the names and addresses of such holders appear
upon the registry books of the Company.
(4) A copy of each such report shall, at the time of such transmission
to Debentureholders, be filed by the Trustee with each stock exchange upon which
the Debentures are listed and also with the Securities and Exchange Commission.
The Company will notify the Trustee when and as the Debentures become listed on
any stock exchange.
ARTICLE SIX
REMEDIES OF THE TRUSTEE AND
DEBENTUREHOLDERS ON EVENT OF DEFAULT
Section 1.22. Events of Default. In case one or more of the following
-----------------
Events of Default shall have occurred and be continuing:
(1) default in the payment of any instalment of interest upon any of the
Debentures as and when the same shall become due and payable, and continuance of
such default for a period of thirty days; or
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(2) default in the payment of the principal of, or premium, if any, on any
of the Debentures as and when the same shall become due and payable either at
maturity or in connection with any redemption, by declaration or otherwise; or
(3) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company in the
Debentures or in this Indenture continued for a period of ninety days after the
date on which written notice of such failure, requiring the Company to remedy
the same, shall have been given to the Company by the Trustee, or to the Company
and the Trustee by the holders of at least twenty-five percent in aggregate
principal amount of the Debentures at the time outstanding; or
(4) an event of default, as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may be secured or
evidenced, any indebtedness of the Company or a Subsidiary (whether such
indebtedness now exists or shall hereafter be created or incurred) shall occur
and shall consist of default in the payment of such indebtedness at the maturity
thereof or shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and payable,
and such default in payment is not cured or such acceleration shall not be
rescinded or annulled within 10 days after written notice to the Company from
the Trustee or to the Company and to the Trustee from the holders of at least
10% in aggregate principal amount of the Debentures at the time outstanding;
provided that it shall not be an Event of Default if the principal amount of
- --------
indebtedness which is not paid at maturity or the maturity of which is
accelerated is less than $5,000,000; provided further that if, prior to a
-------- -------
declaration of acceleration of the maturity of the Debentures or the entry of
judgment in favor of the Trustee in a suit pursuant to Section 6.02, such
default shall be remedied or cured by the Company or waived by the holders of
such indebtedness, then the Event of Default hereunder by reason thereof shall
be deemed likewise to have been thereupon remedied, cured or waived without
further action upon the part of either the Trustee or any of the holders of the
Debentures, and provided further, that, subject to Sections 6.08 and 7.01, the
Trustee shall not be charged with knowledge of any such default unless written
notice of such default shall have been given to the Trustee by the Company, by a
holder or an agent of a holder of any such indebtedness, by the trustee then
acting under any indenture or other instrument under which such default shall
have occurred, or by the holders of at least five percent in aggregate principal
amount of the Debentures at the time outstanding; or
(5) if a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Company in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appoint a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Company or of substantially all of its
property or winding-up or liquidation of its affairs, and such decree or order
shall remain unstayed and in effect for a period of ninety consecutive days; or
(6) if the Company shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect or shall
consent to the entry of an order for relief in an involuntary case under any
such law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Company or of substantially all of its property, or shall make
any general assignment for the benefit of creditors;
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then and in each and every such case, unless the principal of all of the
Debentures shall have already become due and payable, either the Trustee or the
holders of not less than twenty-five percent in aggregate principal amount of
the Debentures then outstanding hereunder, by notice in writing to the Company
(and to the Trustee if given by Debentureholders), may declare the principal of
all the Debentures to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Debentures contained to the contrary
notwithstanding. This provision, however, is subject to the condition that if,
at any time after the principal of the Debentures shall have been so declared
due and payable, and before any judgment or decree for the payment of the monies
due shall have been obtained or entered as hereinafter provided, the Company
shall pay or shall deposit with the Trustee a sum sufficient to pay all matured
instalments of interest upon all of the Debentures and the principal of and
premium, if any, on any and all Debentures which shall have become due otherwise
than by acceleration (with interest on overdue instalments of interest (to the
extent that payment of such interest is enforceable under applicable law) and on
such principal and premium, if any, at the rate borne by the Debentures, to the
date of such payment or deposit) and the expenses of the Trustee, and any and
all defaults under this Indenture, other than the nonpayment of principal of and
accrued interest on Debentures which shall have become due by acceleration,
shall have been remedied -- then and in every such case the holders of a
majority in aggregate principal amount of the Debentures then outstanding, by
written notice to the Company and to the Trustee, may waive all defaults and
rescind and annul such declaration and its consequences; but no such waiver or
rescission and annulment shall extend to or shall affect any subsequent default,
or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned because
of such rescission or annulment or for any other reason or shall have been
determined adversely to the Trustee, then and in every such case the Company and
the Trustee shall be restored respectively to their several positions and rights
hereunder, and all rights, remedies and powers of the Company and the Trustee
shall continue as though no such proceeding had been taken.
Section 1.23. Payment of Debentures on Default; Suit Therefor. The Company
-----------------------------------------------
covenants that (a) in case default shall be made in the payment of any
instalment of interest upon any of the Debentures as and when the same shall
become due and payable, and such default shall have continued for a period of
thirty days, or (b) in case default shall be made in the payment of the
principal of and premium, if any, on any of the Debentures as and when the same
shall have become due and payable whether at maturity of the Debentures or in
connection with any redemption, by declaration or otherwise--then, upon demand
of the Trustee, the Company will pay to the Trustee, for the benefit of the
holders of the Debentures, the whole amount that then shall have become due and
payable on all such Debentures for principal and premium, if any, or interest,
or both, as the case may be, with interest upon the overdue principal and
premium, if any, and (to the extent that payment of such interest is enforceable
under applicable law) upon the overdue instalments of interest at the rate borne
by the Debentures; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including a reasonable
compensation to the Trustee, its agent, attorneys and counsel, and any expenses
or liabilities incurred by the Trustee hereunder other than through its
negligence or bad faith.
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In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the
Debentures and collect in the manner provided by law out of the property of the
Company or any other obligor on the Debentures wherever situated the monies
adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy or for the
reorganization of the Company or any other obligor on the Debentures under Title
11 of the United States Code or any other applicable law, or in case a receiver
or trustee shall have been appointed for the property of the Company or such
other obligor, or in the case of any other similar judicial proceedings relative
to the Company or other obligor upon the Debentures, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Debentures shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 6.02,
shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of principal
and interest owing and unpaid in respect of the Debentures, and, in case of any
judicial proceedings, to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee and
of the Debentureholders allowed in such judicial proceedings relative to the
Company or any other obligor on the Debentures, its or their creditors, or its
or their property, and to collect and receive any monies or other property
payable or deliverable on any such claims, and to distribute the same after the
deduction of its charges and expenses; and any receiver, assignee or trustee in
bankruptcy or reorganization is hereby authorized by each of the
Debentureholders to make such payments to the Trustee, and, in the event that
the Trustee shall consent to the making of such payments directly to the
Debentureholders, to pay to the Trustee any amount due it for compensation and
expenses, including counsel fees incurred by it up to the date of such
distribution. To the extent that such payment of reasonable compensation,
expenses and counsel fees out of the estate in any such proceedings shall be
denied for any reason, payment of the same shall be secured by a lien on, and
shall be paid out of, any and all distributions, dividends, monies, securities
and other property which the holders of the Debentures may be entitled to
receive in such proceedings, whether in liquidation or under any plan of
reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or adopt on behalf of any Debentureholder any plan of
reorganization or arrangement, affecting the Debentures or the rights of any
Debentureholder, or to authorize the Trustee to vote in respect of the claim of
any Debentureholder in any such proceeding.
All rights of action and of asserting claims under this Indenture, or under
any of the Debentures, may be enforced by the Trustee without the possession of
any of the Debentures, or the production thereof on any trial or other
proceeding relative thereto, and any such suit or proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall be for the ratable benefit of the holders of the
Debentures.
21
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Section 1.24. Application of Monies Collected by Trustee. Any monies
------------------------------------------
collected by the Trustee shall be applied in the order following, at the date or
dates fixed by the Trustee for the distribution of such monies, upon
presentation of the several Debentures, and stamping thereon the payment, if
only partially paid, and upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of collection
and reasonable compensation to the Trustee, its agents, attorneys
and counsel, and of all other expenses and liabilities incurred,
and all advances made, by the Trustee except as a result of its
negligence or bad faith;
SECOND: In case the principal of the outstanding Debentures
shall not have become due and be unpaid, to the payment of
interest on the Debentures in the order of the maturity of the
instalments of such interest, with interest (to the extent that
such interest has been collected by the Trustee) upon the overdue
instalments of interest at the rate borne by the Debentures, such
payments to be made ratably to the persons entitled thereto;
THIRD: In case the principal of the outstanding Debentures
shall have become due, by declaration or otherwise, to the
payment of the whole amount then owing and unpaid upon the
Debentures for principal and premium, if any, and interest, with
interest on the overdue principal and premium, if any, and (to
the extent that such interest has been collected by the Trustee)
upon overdue instalments of interest at the rate borne by the
Debentures; and in case such monies shall be insufficient to pay
in full the whole amounts so due and unpaid upon the Debentures,
then to the payment of such principal and premium, if any, and
interest without preference or priority of principal and premium,
if any, over interest, or of interest over principal and premium,
if any, or of any instalment of interest over any other
instalment of interest, or of any Debenture over any other
Debenture, ratably to the aggregate of such principal and
premium, if any, and accrued and unpaid interest.
Section 1.25. Proceedings by Debentureholders. No holder of any Debenture
--------------------------------
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless such holder previously
shall have given to the Trustee written notice of default and of the continuance
thereof, as hereinbefore provided, and unless also the holders of not less than
twenty-five percent in aggregate principal amount of the Debentures then
outstanding shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee for sixty days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding, it being understood and intended, and being expressly covenanted by
the taker and holder of every Debenture with every other taker and holder and
the Trustee, that no one or more holders of Debentures shall have any right in
any manner whatever by virtue of or by availing of any provision of this
Indenture to affect, disturb or prejudice the rights of any other holder of such
Debentures, or to obtain or seek to obtain priority over or preference to any
other such holder, or to
22
<PAGE>
enforce any right under this Indenture, except in the manner herein provided and
for the equal, ratable and common benefit of all holders of Debentures.
Notwithstanding any other provisions in this Indenture (including, without
limitation, the preceding paragraph of this Section 6.04), however, the right of
any holder of any Debenture to receive payment of the principal of and interest
on such Debenture, on or after the respective due dates expressed in such
Debenture, or to institute suit for the enforcement of any such payment on or
after such respective dates against the Company shall not be impaired or
affected without the consent of such holder.
Section 1.26. Proceedings by Trustee. In case of an Event of Default
----------------------
hereunder the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceedings in
bankruptcy or other wise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
Section 1.27. Remedies Cumulative and Continuing. All powers and remedies
----------------------------------
given by this Article Six to the Trustee or to the Debentureholders shall, to
the extent permitted by law, be deemed cumulative and not exclusive of any
thereof or of any other powers and remedies available to the Trustee or the
holders of the Debentures, by judicial proceedings or otherwise, to enforce the
performance or observance of the covenants and agreements contained in this
Indenture, and no delay or omission of the Trustee or of any holder of any of
the Debentures to exercise any right or power accruing upon any default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 6.04, every power and remedy
given by this Article Six or by law to the Trustee or to the Debentureholders
may be exercised from time to time, and as often as shall be deemed expedient,
by the Trustee or by the Debentureholders.
Section 1.28. Direction of Proceedings and Waiver of Defaults by
--------------------------------------------------
Majority of Debenture holders. The holders of a majority in aggregate principal
- -----------------------------
amount of the Debentures at the time outstanding determined in accordance with
Section 8.04 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; provided, however, that (subject to
-------- -------
the provisions of Section 7.01) the Trustee shall have the right to decline to
follow any such direction if the Trustee shall be advised by counsel that the
action or proceeding so directed may not lawfully be taken or if the Trustee in
good faith by its board of directors or trustees, executive committee, or a
trust committee of directors or trustees and/or Responsible Officers shall
determine that the action or proceedings so directed would involve the Trustee
in personal liability. Prior to any declaration accelerating the maturity of the
Debentures, the holders of a majority in aggregate principal amount of the
Debentures at the time outstanding may on behalf of the holders of all of the
Debentures waive any past default or Event of Default hereunder and its
consequences except a default in the payment of interest, or premium, if any,
on, or the principal of, the Debentures. Upon any such waiver the Company, the
Trustee and the holders of the Debentures shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other default
23
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or Event of Default or impair any right consequent thereon. Whenever any default
or Event of Default hereunder shall have been waived as permitted by this
Section 6.07, said default or Event of Default shall for all purposes of the
Debentures and this Indenture be deemed to have been cured and to be not
continuing.
Section 1.29. Notice of Defaults. The Trustee shall, within ninety days
------------------
after the occurrence of a default, mail to all Debentureholders, as the names
and addresses of such holders appear upon the registry books of the Company,
notice of all defaults known to any Responsible Officer of the Trustee, unless
such defaults shall have been cured before the giving of such notice (the term
"defaults" for the purpose of this Section 6.08 being hereby defined to be the
events specified in clauses (a), (b), (c), (d), (e) and (f) of Section 6.01, not
including periods of grace, if any, provided for therein); and provided that,
--------
except in the case of default in the payment of the principal of or premium, if
any, or interest on any of the Debentures, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee, or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Debentureholders.
Section 1.30. Undertaking to Pay Costs. All parties to this Indenture
------------------------
agree, and each holder of any Debenture by his acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken or omitted by it as Trustee, the filing
by any party litigant in such suit of an undertaking to pay the costs of such
suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; provided, that the provisions of this Section 6.09 shall
--------
not apply to any suit instituted by the Trustee, to any suit instituted by any
Debentureholder, or group of Debentureholders, holding in the aggregate more
than ten percent in principal amount of the Debentures outstanding, or to any
suit instituted by any Debentureholder for the enforcement of the payment of the
principal of or premium, if any, or interest on any Debenture on or after the
due date expressed in such Debenture.
ARTICLE SEVEN
CONCERNING THE TRUSTEE
Section 1.31. Duties and Responsibilities of Trustee. The Trustee, prior to
--------------------------------------
the occurrence of an Event of Default and after the curing of all Events of
Default which may have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture. In case an Event of
Default has occurred (which has not been cured or waived) the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and use
the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct, except that
24
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(1) prior to the occurrence of an Event of Default and after the curing or
waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture, and the Trustee shall
not be liable except for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but, in the case of any such certificates or opinions which
by any provisions hereof are specifically required to be furnished to the
Trustee, the Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Indenture;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Officers of the Trustee, unless it shall
be proved that the Trustee was negligent in ascertaining the pertinent facts;
and
(3) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
holders of not less than a majority in principal amount of the Debentures at the
time outstanding determined as provided in Section 8.04 relating to the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power upon the Trustee, under this
Indenture.
None of the provisions contained in this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur personal financial liability in
the performance of any of its duties or in the exercise of any of its rights or
powers, if there is reasonable ground for believing that the repayment of such
funds or adequate indemnity against risk or liability is not reasonably assured
to it.
Section 1.32. Reliance on Documents, Opinions, etc. Except as otherwise
------------------------------------
provided in Section 7.01,
(1) the Trustee may rely and shall be protected in acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties;
(2) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the Secretary or an Assistant Secretary of the Company;
25
<PAGE>
(3) The Trustee may consult with counsel and any advice or Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken or omitted by it hereunder in good faith and in accordance with
such advice or Opinion of Counsel;
(4) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Debentureholders, pursuant to the provisions of this
Indenture, unless such Debentureholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby;
(5) the Trustee shall not be liable for any action taken or omitted by
it in good faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Indenture;
(6) prior to the occurrence of an Event of Default hereunder and after
the curing or waiving of all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, approval, bond, debenture, coupon or other paper or document unless
requested in writing to do so by the holders of not less than a majority in
principal amount of the Debentures then outstanding; provided, however, that if
-------- -------
the payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expense or liability as a condition to so
proceeding; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed by it with due care
hereunder.
Section 1.33. No Responsibility for Recitals, etc. The recitals contained
-----------------------------------
herein and in the Debentures (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Debentures. The Trustee shall not be accountable for the use or application by
the Company of any Debentures or the proceeds of any Debentures authenticated
and delivered by the Trustee in conformity with the provisions of this
Indenture.
Section 1.34. Trustee, Paying Agents or Registrar May Own Debentures.
------------------------------------------------------
The Trustee or any paying agent or Debenture registrar, in its individual or any
other capacity, may become the owner or pledgee of Debentures with the same
rights it would have if it were not Trustee, paying agent or Debenture
registrar.
Section 1.35. Monies to be Held in Trust. Subject to the provisions of
--------------------------
Section 12.04, all monies received by the Trustee shall, until used or applied
as herein provided, be held in trust for the purposes for which they were
received.
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Section 1.36. Compensation and Expenses of Trustee. The Company covenants
------------------------------------
and agrees to pay to the Trustee from time to time, and the Trustee shall be
entitled to, reasonable compensation (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust), and the Company will pay or reimburse the Trustee upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this Indenture (including
the reasonable compensation and the expenses and disbursements of its counsel
and of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith. The
Company also covenants to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad faith
on the part of the Trustee and arising out of or in connection with the
acceptance or administration of this trust, including the costs and expenses of
defending itself against any claim of liability in the premises. The obligations
of the Company under this Section 7.06 to compensate the Trustee and to pay or
reimburse the Trustee for expenses, disbursements and advances shall constitute
additional indebtedness hereunder. Such additional indebtedness shall be secured
by a lien prior to that of the Debentures upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the benefit of
the holders of particular Debentures.
Section 1.37. Officers' Certificate as Evidence. Except as otherwise
---------------------------------
provided in Section 7.01, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or omitting any action hereunder, such
matter (unless other evidence in respect thereof be herein specifically
prescribed) may, in the absence of negligence or bad faith on the part of the
Trustee, be deemed to be conclusively proved and established by an Officers'
Certificate delivered to the Trustee, and such Certificate, in the absence of
negligence or bad faith on the part of the Trustee, shall be full warrant to the
Trustee for any action taken or omitted by it under the provisions of this
Indenture upon the faith thereof.
Section 1.38. Conflicting Interest of Trustee. (a) If the Trustee has or
--------------------------------
shall acquire any conflicting interest, as defined in this Section 7.08, it
shall, within ninety days after ascertaining that it has such conflicting
interest, either eliminate such conflicting interest or resign in the manner and
with the effect specified in Section 7.10.
(1) In the event that the Trustee shall fail to comply with the provisions
of subsection (a) of this Section 7.08, the Trustee shall, within ten days after
the expiration of such ninety-day period, transmit notice of such failure to all
holders of Debentures, as the names and addresses of such holders appear upon
the registry books of the Company.
(2) For the purpose of this Section 7.08, the Trustee shall be deemed to
have a conflicting interest if:
(1) the Trustee is trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the Company, are outstanding, unless such other indenture is
a collateral trust indenture under which the only collateral consists of
Debentures issued under this Indenture; provided that there shall
--------
27
<PAGE>
be excluded from the operation of this paragraph any other indenture or
indentures under which other securities, or certificates of interest or
participation in other securities of the Company, are outstanding if (i)
this Indenture and such other indenture or indentures are wholly unsecured
and such other indenture or indentures are hereafter qualified under the
Trust Indenture Act of 1939, unless the Securities and Exchange Commission
shall have found and declared by order pursuant to subsection (b) of
Section 305 or subsection (c) of Section 307 of the Trust Indenture Act of
1939 that differences exist between the provisions of this Indenture and
the provisions of such other indenture or indentures which are so likely to
involve a material conflict of interest as to make it necessary in the
public interest or for the protection of investors to disqualify the
Trustee from acting as such under this Indenture and such other indenture
or indentures, or (ii) the Company shall have sustained the burden of
proving, on application to the Securities and Exchange Commission and after
opportunity for hearing thereon, that the trusteeship under this Indenture
and such other indenture is not so likely to involve a material conflict of
interest as to make it necessary in the public interest or for the
protection of investors to disqualify the Trustee from acting as such under
one of such indentures;
(2) the Trustee or any of its directors or executive officers is an
obligor upon the Debentures issued under this Indenture or an underwriter
for the Company;
(3) the Trustee directly or indirectly controls or is directly or
indirectly controlled by or is under direct or indirect common control with
the Company or an underwriter for the Company;
(4) the Trustee or any of its directors or executive officers is a
director, officer, partner, employee, appointee, or representative of the
Company, or of an underwriter (other than the Trustee itself) for the
Company who is currently engaged in the business of underwriting, except
that (A) one individual may be a director and/or an executive officer of
the Trustee and a director and/or an executive officer of the Company, but
may not be at the same time an executive officer of both the Trustee and
the Company; (B) if and so long as the number of directors of the Trustee
in office is more than nine, one additional individual may be a director
and/or an executive officer of the Trustee and a director of the Company;
and (C) the Trustee may be designated by the Company or by an underwriter
for the Company to act in the capacity of transfer agent, registrar,
custodian, paying agent, fiscal agent, escrow agent, or depositary, or in
any other similar capacity, or, subject to the provisions of paragraph (1)
of this subsection (c), to act as trustee whether under an indenture or
otherwise;
(5) ten percent or more of the voting securities of the Trustee is
beneficially owned by the Company or by any director, partner, or executive
officer thereof, or twenty percent or more of such voting securities is
beneficially owned, collectively, by any two or more of such persons; or
ten percent or more of the voting securities of the Trustee is beneficially
owned either by an underwriter for the Company or by any director, partner,
or executive officer thereof, or is beneficially owned, collectively, by
any two or more such persons;
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(6) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default, (A) five percent or more of
the voting securities, or ten percent or more of any other class of
security, of the Company, not including the Debentures issued under this
Indenture and securities issued under any other indenture under which the
Trustee is also trustee, or (B) ten percent or more of any class of
security of an underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default, five percent or more of the
voting securities of any person who, to the knowledge of the Trustee, owns
ten percent or more of the voting securities of, or controls directly or
indirectly or is under direct or indirect common control with, the Company;
(8) the Trustee is the beneficial owner of, or holds as collateral
security for an obligation which is in default, ten percent or more of any
class of security of any person who, to the knowledge of the Trustee, owns
fifty percent or more of the voting securities of the Company; or
(9) the Trustee owns on May 15 in any calendar year, in the capacity
of executor, administrator, testamentary or inter vivos trustee, guardian,
committee or conservator, or in any other similar capacity, an aggregate of
twenty-five percent or more of the voting securities, or of any class of
security, of any person, the beneficial ownership of a specified percentage
of which would have constituted a conflicting interest under paragraph (6),
(7), or (8) of this subsection (c). As to any such securities of which the
Trustee acquired ownership through becoming executor, administrator or
testamentary trustee of an estate which included them, the provisions of
the preceding sentence shall not apply, for a period of two years from the
date of such acquisition, to the extent that such securities included in
such estate do not exceed twenty-five percent of such voting securities or
twenty-five percent of any such class of security. Promptly after May 15,
in each calendar year, the Trustee shall make a check of its holdings of
such securities in any of the above-mentioned capacities as of such May 15.
If the Company fails to make payment in full of principal of or interest on
any of the Debentures when and as the same become due and payable, and such
failure continues for thirty days thereafter, the Trustee shall make a
prompt check of its holdings of such securities in any of the above-
mentioned capacities as of the date of the expiration of such thirty-day
period and, after such date, notwithstanding the foregoing provisions of
this paragraph (9), all such securities so held by the Trustee, with sole
or joint control over such securities vested in it, shall, but only so long
as such failure shall continue, be considered as though beneficially owned
by the Trustee for the purposes of paragraphs (6), (7) and (8) of this
subsection (c).
The specifications of percentages in paragraphs (5) to (9), inclusive, of
this subsection (c) shall not be construed as indicating that the ownership of
such percentages of the securities of a person is or is not necessary or
sufficient to constitute direct or indirect control for the purposes of
paragraph (3) or (7) of this subsection (c). For the purposes of paragraphs (6),
(7), (8) and (9) of this subsection (c) only, (A) the terms "security" and
"securities" shall include only such securities as are generally known as
corporate securities, but shall not include any note or other evidence of
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indebtedness issued to evidence an obligation to repay monies lent to a person
by one or more banks, trust companies or banking firms, or any certificate of
interest or participation in any such note or evidence of indebtedness; (B) an
obligation shall be deemed to be in default when a default in payment of
principal shall have continued for thirty days or more and shall not have been
cured; and (C) the Trustee shall not be deemed to be the owner or holder of (i)
any security which it holds as collateral security (as trustee or otherwise) for
an obligation which is not in default as defined in clause (B) above, or (ii)
any security which it holds as collateral security under this Indenture,
irrespective of any default hereunder, or (iii) any security which it holds as
agent for collection, or as custodian, escrow agent, or depositary, or in any
similar representative capacity.
Except as provided in the next preceding paragraph hereof, the word
"security" or "securities" as used in this Indenture shall mean any note, stock,
treasury stock, bond, debenture, evidence of indebtedness, certificate of
interest or participation in any profit-sharing agreement, collateral trust
certificate, pre-organization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas or other mineral rights, or,
in general, any interest or instrument commonly known as a "security" or any
certificate of interest or participation in, temporary or interim certificate
for, receipt for, guarantee of, or warrant or right to subscribe to or purchase,
any of the foregoing.
(3) For the purposes of this Section 7.08:
(1) The term "underwriter" when used with reference to the Company
shall mean every person who, within three years prior to the time as of
which the determination is made, has purchased from the Company with a view
to, or has offered or sold for the Company in connection with, the
distribution of any security of the Company outstanding at such time, or
has participated or has had a direct or indirect participation in any such
undertaking, or has participated or has had a participation in the direct
or indirect underwriting of any such undertaking, but such term shall not
include a person whose interest was limited to a commission from an
underwriter or dealer not in excess of the usual and customary
distributors' or sellers' commission.
(2) The term "director" shall mean any director of a corporation or
any individual performing similar functions with respect to any
organization whether incorporated or unincorporated.
(3) The term "person" shall mean an individual, a corporation, a
partnership, an association, a joint-stock company, a trust, an
unincorporated organization, or a government or political subdivision
thereof. As used in this paragraph, the term "trust" shall include only a
trust where the interest or interests of the beneficiary or beneficiaries
are evidenced by a security.
(4) The term "voting security" shall mean any security presently
entitling the owner or holder thereof to vote in the direction or
management of the affairs of a person, or any security issued under or
pursuant to any trust, agreement or arrangement whereby a trustee or
trustees or agent or agents for the owner or holder of such security are
presently entitled to vote in the direction or management of the affairs of
a person.
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(5) The term "Company" shall mean any obligor upon the Debentures.
(6) The term "executive officer" shall mean the president, every vice
president, every trust officer, the cashier, the secretary, and the
treasurer of a corporation, and any individual customarily performing
similar functions with respect to any organization whether incorporated or
unincorporated, but shall not include the chairman of the board of
directors.
The percentages of voting securities and other securities specified in this
Section 7.08 shall be calculated in accordance with the following provisions:
(1) A specified percentage of the voting securities of the Trustee,
the Company or any other person referred to in this Section 7.08 (each of
whom is referred to as a "person" in this paragraph) means such amount of
the outstanding voting securities of such person as entitles the holder or
holders thereof to cast such specified percentage of the aggregate votes
which the holders of all the outstanding voting securities of such person
are entitled to cast in the direction or management of the affairs of such
person.
(2) A specified percentage of a class of securities of a person means
such percentage of the aggregate amount of securities of the class
outstanding.
(3) The term "amount", when used in regard to securities, means the
principal amount if relating to evidences of indebtedness, the number of
shares if relating to capital shares, and the number of units if relating
to any other kind of security.
(4) The term "outstanding" means issued and not held by or for the
account of the issuer. The following securities shall not be deemed
outstanding within the meaning of this definition:
(1) Securities of an issuer held in a sinking fund relating to
securities of the issuer of the same class;
(2) Securities of an issuer held in a sinking fund relating to
another class of securities of the issuer, if the obligation evidenced
by such other class of securities is not in default as to principal or
interest or otherwise;
(3) Securities pledged by the issuer thereof as security for an
obligation of the issuer not in default as to principal or interest or
otherwise;
(4) Securities held in escrow if placed in escrow by the issuer
thereof;
provided, however, that any voting securities of an issuer shall be
-------- -------
deemed outstanding if any person other than the issuer is entitled to
exercise the voting rights thereof;
(5) A security shall be deemed to be of the same class as another
security if both securities confer upon the holder or holders thereof
substantially the same rights and privileges; provided, however, that, in
the case of secured evidences of indebtedness, all of
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which are issued under a single indenture, differences in the interest
rates or maturity dates of various series thereof shall not be deemed
sufficient to constitute such series different classes; and provided,
further, that, in the case of unsecured evidences of indebtedness,
differences in the interest rates or maturity dates thereof shall not be
deemed sufficient to constitute them securities of different classes,
whether or not they are issued under a single indenture.
Section 1.39. Eligibility of Trustee. The Trustee hereunder shall at all
----------------------
times be a corporation organized and doing business under the laws of the United
States or any State or Territory thereof or of the District of Columbia
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least five million dollars, subject to supervision or
examination by Federal, State, Territorial, or District of Columbia authority
and having its principal office and place of business in the City of Chicago or
in The City of New York. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section 7.09,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 7.09, the Trustee shall resign
immediately in the manner and with the effect specified in Section 7.10.
Section 1.40. Resignation or Removal of Trustee. (a) The Trustee may at
---------------------------------
a time resign by giving written notice of such resignation to the Company and by
mailing notice thereof to the holders of Debentures at their addresses as they
shall appear on the registry books of the Company. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor trustee by written
instrument, in duplicate, executed by order of the Board of Directors, one copy
of which instrument shall be delivered to the resigning Trustee and one copy to
the successor trustee. If no successor trustee shall have been so appointed and
have accepted appointment within sixty days after the mailing of such notice of
resignation to the Debentureholders, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee, or
any Debentureholder who has been a bona fide holder of a Debenture or Debentures
for at least six months may, subject to the provisions of Section 6.09, on
behalf of himself and all others similarly situated, petition any such court for
the appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a successor
trustee.
(1) In case at any time any of the following shall occur--
(1) the Trustee shall fail to comply with the provisions of
subsection (a) of Section 7.08 after written request therefor by the
Company or by any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six months, or
(2) the Trustee shall cease to be eligible in accordance with the
provisions of Section 7.09 and shall fail to resign after written request
therefor by the Company or by any such Debentureholder, or
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(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to the
provisions of Section 6.09, any Debentureholder who has been a bona fide holder
of a Debenture or Debentures for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(2) The holders of a majority in aggregate principal amount of the
Debentures at the time outstanding may at any time remove the Trustee and
nominate a successor trustee which shall be deemed appointed as successor
trustee unless within ten days after such nomination the Company objects
thereto, in which case the Trustee so removed or any Debentureholder, upon the
terms and conditions and otherwise as in subdivision (a) of this Section 7.10
provided, may petition any court of competent jurisdiction for an appointment of
a successor trustee.
(3) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 7.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 7.11.
Section 1.41. Acceptance by Successor Trustee. Any successor trustee
-------------------------------
appointed as provided in Section 7.10 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of Section
7.06, execute and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon request of any
such successor trustee, the Company shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a lien upon all property or funds held or collected by such
trustee to secure any amounts then due it pursuant to the provisions of
Section 7.06.
No successor trustee shall accept appointment as provided in this Section
7.11 unless at the time of such acceptance such successor trustee shall be
qualified under the provisions of Section 7.08 and eligible under the provisions
of Section 7.09.
Upon acceptance of appointment by a successor trustee as provided in this
Section 7.11, the Company shall mail notice of the succession of such trustee
hereunder to the holders of Debentures
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at their addresses as they shall appear on the registry books of the Company. If
the Company fails to mail such notice within ten days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
Section 1.42. Succession by Merger, etc. Any corporation into which the
-------------------------
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the trust business of the Trustee, shall be the successor to the Trustee
hereunder, provided such corporation shall be qualified under the provisions of
Section 7.08 and eligible under the provisions of Section 7.09, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case at the time such successor to the Trustee shall succeed
to the trusts created by this Indenture any of the Debentures shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such
Debentures so authenticated; and in case at that time any of the Debentures
shall not have been authenticated, any successor to the Trustee may authenticate
such Debentures either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Debentures or in this Indenture provided
that the certificate of the Trustee shall have; provided, however, that the
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right to adopt the certificate of authentication of any predecessor Trustee or
authenticate Debentures in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
Section 1.43. Limitation on Rights of Trustee as a Creditor. (a) Subject to
---------------------------------------------
the provisions of subsection (b) of this Section 7.13, if the Trustee shall be
or shall become a creditor, directly or indirectly, secured or unsecured, of the
Company within four months prior to a default, as defined in subsection (c) of
this Section 7.13, or subsequent to such a default, then, unless and until such
default shall be cured, the Trustee, shall set apart and hold in a special
account for the benefit of the Trustee individually, the holders of the
Debentures and the holders of other indenture securities (as defined in
paragraph (2) of subsection (c) of this Section 7.13):
(1) an amount equal to any and all reductions in the amount due and
owing upon any claim as such creditor in respect of principal or interest,
effected after the beginning of such four-month period and valid as against
the Company and its other creditors, except any such reduction resulting
from the receipt or disposition of any property described in paragraph (2)
of this Subsection, or from the exercise of any right of set-off which the
Trustee could have exercised if a petition in bankruptcy had been filed by
or against the Company upon the date of such default; and
(2) all property received by the Trustee in respect of any claim as
such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such four-month
period, or an amount equal to the proceeds of any such property, if
disposed of, subject, however, to the rights, if any, of the Company and
------- -------
its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the
Trustee:
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(1) to retain for its own account (i) payments made on account of any
such claim by any person (other than the Company) who is liable thereon,
and (ii) the proceeds of the bona fide sale of any such claim by the
Trustee to a third person, and (iii) distributions made in cash, securities
or other property in respect of claims filed against the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to
Title 11 of the United States Code or applicable State law;
(2) to realize, for its own account, upon any property held by it as
security for any such claim, if such property was so held prior to the
beginning of such four-month period;
(3) to realize, for its own account, but only to the extent of the
claim hereinafter mentioned, upon any property held by it as security for
any such claim, if such claim was created after the beginning of such four-
month period and such property was received as security therefor
simultaneously with the creation thereof, and if the Trustee shall sustain
the burden of proving that at the time such property was so received the
Trustee had no reasonable cause to believe that a default, as defined in
subsection (c) of this Section 7.13, would occur within four months; or
(4) to receive payment on any claim referred to in paragraph (B) or
(C), against the release of any property held as security of such claim as
provided in such paragraph (B) or (C), as the case may be, to the extent of
the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted after
the beginning of such four-month period for property held as security at the
time of such substitution shall, to the extent of the fair value of the property
released, have the same status as the property released, and, to the extent that
any claim referred to in any of such paragraphs is created in renewal of or in
substitution for or for the purpose of repaying or refunding any pre-existing
claim of the Trustee as such creditor, such claim shall have the same status as
such pre-existing claim.
If the Trustee shall be required to account, the funds and property held in
such special account and the proceeds thereof shall be apportioned between the
Trustee, the Debentureholders and the holders of other indenture securities in
such manner that the Trustee, the Debentureholders and the holders of other
indenture securities realize, as a result of payments from such special account
and payments of dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to Title 11 of the
United States Code or applicable State law, the same percentage of their
respective claims, figured before crediting to the claim of the Trustee anything
on account of the receipt by it from the Company of the funds and property in
such special account and before crediting to the respective claims of the
Trustee, the Debentureholders, and the holders of other indenture securities
dividends on claims filed against the Company in bankruptcy or receivership or
in proceedings for reorganization pursuant to Title 11 of the United States Code
or applicable State law, but after crediting thereon receipts on account of the
indebtedness represented by their respective claims from all sources other than
from such dividends and from the funds and property so held in such special
account. As used in this paragraph, with respect to any claim, the term
"dividends" shall include any distribution with respect to such claim, in
bankruptcy or receivership or in proceedings for reorganization pursuant to
Title 11 of the United States Code or applicable State law, whether such
distribution is made in cash, securities, or other
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<PAGE>
property, but shall not include any such distribution with respect to the
secured portion, if any, of such claim. The court in which such bankruptcy,
receivership, or proceeding for reorganization is pending shall have
jurisdiction (i) to apportion between the Trustee, the Debentureholders, and the
holders of other indenture securities, in accordance with the provisions of this
paragraph, the funds and property held in such special account and the proceeds
thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to
the provisions of this paragraph due consideration in determining the fairness
of the distributions to be made to the Trustee, the Debentureholders and the
holders of other indenture securities with respect to their respective claims,
in which event it shall not be necessary to liquidate or to appraise the value
of any securities or other property held in such special account or as security
for any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to apply
the provisions of this paragraph as a mathematical formula.
Any Trustee who has resigned or been removed after the beginning of such
four-month period shall be subject to the provisions of this subsection (a) as
though such resignation or removal had not occurred. If any Trustee has resigned
or been removed prior to the beginning of such four-month period, it shall be
subject to the provisions of this subsection (a) if and only if the following
conditions exist:
(3) the receipt of property or reduction of claim which would have
given rise to the obligation to account, if such Trustee had continued as
trustee, occurred after the beginning of such four month period; and
(4) such receipt of property or reduction of claim occurred within
four months after such resignation or removal.
(2) There shall be excluded from the operation of subsection (a) of this
Section 7.13 a creditor relationship arising from
(1) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year or
more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Indenture, for the purpose of preserving
any property which shall at any time be subject to the lien of this
Indenture or of discharging tax liens or other prior liens or encumbrances
thereon, if notice of such advance and of the circumstances surrounding the
making thereof is given to the Debentureholders at the time and in the
manner provided in Section 6.04 with respect to reports pursuant to
subsections (a) and (b) thereof, respectively;
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, payment agent, fiscal agent or depositary, or other similar
capacity;
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(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in subsection (c) of this
Section 7.13;
(5) the ownership of stock or of other securities of a corporation
organized under the provisions of Section 25(a) of the Federal Reserve Act,
as amended, which is directly or indirectly a creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall within the
classification of self-liquidating paper as defined in subsection (c) of
this Section 7.13.
(3) As used in this Section 7.13:
(1) The term "default" shall mean any failure to make payment in full
or the principal of or interest upon any of the Debentures or upon the
other indenture securities when and as such principal or interest becomes
due and payable;
(2) The term "other indenture securities" shall mean securities upon
which the Company is an obligor (as defined in the Trust Indenture Act of
1939) outstanding under any other indenture (A) under which the Trustee is
also trustee, (B) which contains provisions substantially similar to the
provisions of subsection (a) of this Section 7.13, and (C) under which a
default exists at the time of the apportionment of the funds and property
held in said special account;
(3) The term "cash transaction" shall mean any transaction in which
full payment for goods or securities sold is made within seven days after
delivery of the goods or securities in currency or in checks or other
orders drawn upon banks or bankers and payable upon demand;
(4) The term "self-liquidating paper" shall mean any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacture, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security; provided that the
security is received by the Trustee simultaneously with the creation of the
creditor relationship with the Company arising from the making, drawing,
negotiating or incurring of the draft, bill of exchange, acceptance or
obligation;
(5) The term "Company" shall mean any obligor upon the Debentures.
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ARTICLE EIGHT
CONCERNING THE DEBENTUREHOLDERS
Section 1.44. Action by Debentureholders. Whenever in this Indenture it
--------------------------
is provided that the holders of a specified percentage in aggregate principal
amount of the Debentures may take any action (including the making of any demand
or request, the giving of any notice, consent or waiver or the taking of any
other action) the fact that at the time of taking any such action the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by
Debentureholders in person or by agent or proxy appointed in writing, or (b) by
the record of the holders of Debentures voting in favor thereof at any meeting
of Debentureholders duly called and held in accordance with the provisions of
this Article Eight, or (c) by a combination of such instrument or instruments
and any such record of such a meeting of Debentureholders.
Section 1.45. Proof of Execution by Debentureholders. Subject to the
--------------------------------------
provisions of Sections 7.01, 7.02 and 9.05, proof of the execution of any
instrument by a Debentureholder or his agent or proxy shall be sufficient if
made in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee. The ownership of Debentures shall be proved by the register of such
Debentures or by a certificate of the Debenture registrar.
The record of any Debentureholders' meeting shall be proved in the manner
provided in Section 9.06.
Section 1.46. Who Are Deemed Absolute Owners. The Company, the Trustee,
------------------------------
any paying agent and any Debenture registrar may deem the person in whose name
such Debenture shall be registered upon the books of the Company to be, and may
treat him as, the absolute owner of such Debenture (whether or not such
Debenture shall be overdue and notwithstanding any notation of ownership or
other writing thereon) for the purpose of receiving payment of or on account of
the principal of and premium, if any, and interest on such Debenture and for all
other purposes; and neither the Company nor the Trustee nor any paying agent nor
any Debenture registrar shall be affected by any notice to the contrary. All
such payments so made to any holder for the time being, or upon his order shall
be valid, and, to the extent of the sum or sums so paid, effectual to satisfy
and discharge the liability for monies payable upon any such Debenture.
Section 1.47. Company-Owned Debentures Disregarded. In determining
------------------------------------
whether the holders of the requisite aggregate principal amount of Debentures
have concurred in any direction, consent, waiver or other action under this
Indenture, Debentures which are owned by or pledged to the Company or any other
obligor on the Debentures or by any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
other obligor on the Debentures shall be disregarded and deemed not to be
outstanding for the purpose of any such determination; provided that for the
--------
purposes of determining whether the Trustee shall be protected in relying on any
such direction, consent, waiver or other action only Debentures which the
Trustee knows are so owned shall be so disregarded. Debentures so owned which
have been pledged in good faith may be regarded as outstanding for the purposes
of this Section 8.04 if the pledgee shall establish to the satisfaction of the
Trustee the pledgee's right to vote such Debentures and that the pledgee is not
a person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company or any such other obligor. In the
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case of a dispute as to such right, any decision by the Trustee taken upon the
advice of counsel shall be full protection to the Trustee.
Section 1.48. Revocation of Consents; Future Holders Bound. At any time
--------------------------------------------
prior to (but not after) the evidencing to the Trustee, as provided in Section
8.01 of the taking of any action by the holders of the percentage in aggregate
principal amount of the Debentures specified in this Indenture in connection
with such action, any holder of a Debenture the serial number of which is shown
by the evidence to be included in the Debentures the holders of which have
consented to such action may, by filing written notice with the Trustee at its
principal office and upon proof of holding as provided in Section 8.02, revoke
such action so far as concerns such Debenture. Except as aforesaid any such
action taken by the holder of any Debenture shall be conclusive and binding upon
such holder and upon all future holders and owners of such Debenture,
irrespective of whether or not any notation in regard thereto is made upon such
Debenture or any Debenture issued in exchange or substitution therefor.
ARTICLE NINE
DEBENTUREHOLDERS' MEETINGS
Section 1.49. Purposes of Meetings. A meeting of Debentureholders may be
--------------------
called at any time and from time to time pursuant to the provisions of this
Article Nine for any of the following purposes:
(1) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any
default hereunder and its consequences, or to take any other action
authorized to be taken by Debentureholders pursuant to any of the
provisions of Article Six;
(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article Seven;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 10.02; or
(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of the
Debentures under any other provision of this Indenture or under applicable
law.
Section 1.50. Call of Meetings by Trustee. The Trustee may at any time call
---------------------------
a meeting of Debentureholders to take any action specified in Section 10.01, to
be held at such time and at such place in the City of Chicago or in the Borough
of Manhattan, The City of New York, as the Trustee shall determine. Notice of
every meeting of the Debentureholders, setting forth the time and the place of
such meeting and in general terms the action proposed to be taken at such
meeting, shall be mailed to holders of Debentures at their addresses as they
shall appear on the registry books of the
39
<PAGE>
Company. Such notice shall be mailed not less than twenty nor more than ninety
days prior to the date fixed for the meeting.
Any meeting of Debentureholders shall be valid without notice if the
holders of all Debentures then outstanding are present in person or by proxy or
if notice is waived before or after the meeting by the holders of all Debentures
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.
Section 1.51. Call of Meetings by Company or Debentureholders. In case at
-----------------------------------------------
any time the Company, pursuant to a resolution of its Board of Directors, or
the holders of at least ten percent in aggregate principal amount of the
Debentures then outstanding, shall have requested the Trustee to call a meeting
of Debentureholders, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting, and the Trustee shall not have
mailed the notice of such meeting within twenty days after receipt of such
request, then the Company or such Debentureholders may determine the time and
the place in said City of Chicago or Borough of Manhattan for such meeting and
may call such meeting to take any action authorized in Section 9.01, by mailing
notice thereof as provided in Section 9.02.
Section 1.52. Qualifications for Voting. To be entitled to vote at any
-------------------------
meeting of Debenture holders a person shall (a) be a holder of one or more
Debentures or (b) be a person appointed by an instrument in writing as proxy by
a holder of one or more Debentures. The only persons who shall be entitled to be
present or to speak at any meeting of Debentureholders shall be the persons
entitled to vote at such meeting and their counsel and any representatives of
the Trustee and its counsel and any representatives of the Company and its
counsel.
Section 1.53. Regulations. Notwithstanding any other provisions of this
-----------
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Debentureholders, in regard to proof of the holding
of Debentures and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Debentureholders as provided in Section 9.03, in which case the
Company or the Debentureholders calling the meeting, as the case may be, shall
in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by vote of the holders of a
majority in principal amount of the Debentures represented at the meeting and
entitled to vote at the meeting.
Subject to the provisions of Section 8.04, at any meeting each
Debentureholder or proxy shall be entitled to one vote for each $1,000 principal
amount of Debentures held or represented by him; provided however, that no vote
-------- -------
shall be cast or counted at any meeting in respect of any Debenture challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Debentures held by him or instruments in writing as aforesaid duly
designating him as the person to vote on behalf of other Debentureholders. Any
meeting of Debentureholders duly called pursuant to the provisions of
40
<PAGE>
Section 9.02 or 9.03 may be adjourned from time to time by a majority of those
present, whether or not constituting a quorum, and the meeting may be held as so
adjourned without further notice.
Section 1.54. Voting. The vote upon any resolution submitted to any
------
meeting of Debenture holders shall be by written ballots on which shall be
subscribed the signatures of the holders of Debentures or of their
representatives by proxy and the principal amount of the Debentures held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record in duplicate of the proceedings of each meeting of Debentureholders shall
be prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the
facts setting forth a copy of the notice of the meeting and showing that said
notice was mailed as provided in Section 9.02. The record shall show the
principal amount of the Debentures voting in favor of or against any resolution.
The record shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other to the Trustee to be preserved by the
Trustee.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 1.55. No Delay of Rights by Meeting. Nothing in this Article Nine
-----------------------------
contained shall be deemed or construed to authorize or permit, by reason of any
call of a meeting of Debentureholders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise of
any right or rights conferred upon or reserved to the Trustee or to the
Debentureholders under any of the provisions of this Indenture or of the
Debentures.
ARTICLE TEN
SUPPLEMENTAL INDENTURES
Section 1.56. Supplemental Indentures without Consent of Debentureholders.
-----------------------------------------------------------
The Company, when authorized by the resolutions of the Board of Directors, and
the Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes:
(1) to evidence the succession of another corporation to the Company,
or successive successions, and the assumption by the successor corporation of
the covenants, agreements and obligations of the Company pursuant to Article
Eleven hereof;
(2) to add to the covenants of the Company such further covenants,
restrictions or conditions as the Board of Directors and the Trustee shall
consider to be for the protection of the holders of Debentures, and to make the
occurrence, or the occurrence and continuance, of a default in any such
additional covenants, restrictions or conditions a default or an Event of
Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, however, that in
-------- -------
respect of any such additional covenant, restriction or condition
41
<PAGE>
such supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon such default or
may limit the remedies available to the Trustee upon such default;
(3) to provide for the issuance under this Indenture of Debentures in
coupon form (including Debentures registrable as to principal only) and to
provide for exchangeability of such Debentures with the Debentures issued
hereunder in fully registered form and to make all appropriate changes for such
purpose; or
(4) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions
arising under this Indenture which shall not adversely affect the interests of
the holders of the Debentures.
The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, to make any further appropriate agreements
and stipulations which may be therein contained and to accept the conveyance,
transfer and assignment of any property thereunder, but the Trustee shall not be
obligated to, but may in its discretion, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section
10.01 may be executed by the Company and the Trustee without the consent of the
holders of any of the Debentures at the time outstanding, notwithstanding any of
the provisions of Section 10.02.
Section 1.57. Supplemental Indentures with Consent of Debentureholders.
--------------------------------------------------------
With the consent (evidenced as provided in Section 8.01) of the holders of not
less than 662/3% in aggregate principal amount of the Debentures at the time
outstanding, the Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of any supplemental indenture or of modifying in any manner
the rights of the holders of the Debentures; provided, however, that no such
-------- -------
supplemental indenture shall (i) extend the fixed maturity of any Debentures, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof or premium, if any, thereon, or make the principal
thereof or interest or premium, if any, thereon payable in any coin or currency
other than that provided in the Debentures without the consent of the holder of
each Debenture so affected, or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Debentures
then outstanding.
Upon the request of the Company, accompanied by a copy of the resolutions
of the Board of Directors certified by its Secretary or Assistant Secretary
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Debentureholders as
aforesaid, the Trustee shall join with the Company in the execution of such
42
<PAGE>
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
It shall not be necessary for the consent of the Debentureholders under
this Section 10.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Section 1.58. Compliance with Trust Indenture Act; Effect of Supplemental
-----------------------------------------------------------
Indentures. Any supplemental indenture executed pursuant to the provisions of
- ----------
this Article Ten shall comply with the Trust Indenture Act of 1939, as then in
effect. Upon the execution of any supplemental indenture pursuant to the
provisions of this Article Ten, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitation of rights, obligations, duties and immunities under this Indenture of
the Trustee, the Company and the holders of Debentures shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
Section 1.59. Notation on Debentures. Debentures authenticated and
----------------------
delivered after the execution of any supplemental indenture pursuant to the
provisions of this Article Ten may bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company or the Trustee shall so determine, new Debentures so modified as to
conform, in the opinion of the Trustee and the Board of Directors, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared and executed by the Company, authenticated by the Trustee and
delivered in exchange for the Debentures then outstanding, upon surrender of
such Debentures then outstanding.
Section 1.60. Evidence of Compliance of Supplemental Indenture to be
------------------------------------------------------
Furnished Trustee. The Trustee, subject to the provisions of Sections 7.01 and
- -----------------
7.02, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article Ten.
ARTICLE ELEVEN
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 1.61. Company May Consolidate, etc., on Certain Terms. Subject
-----------------------------------------------
to the provisions of Section 11.02, nothing contained in this Indenture or in
any of the Debentures shall prevent any consolidation or merger of the Company
with or into any other corporation or corporations (whether or not affiliated
with the Company), or successive consolidations or mergers in which the Company
or its successor or successors shall be a party or parties, or shall prevent any
sale, conveyance or lease (or successive sales, conveyances or leases) of all or
substantially all of the property of the Company, to any other corporation
(whether or not affiliated with the Company) authorized to acquire and operate
the same; provided, however, and the Company hereby covenants and agrees,
-------- -------
43
<PAGE>
that upon any such consolidation, merger, sale, conveyance or lease, other than
any such sale, conveyance or lease by the Company to a Subsidiary, the due and
punctual payment of the principal of and premium, if any, and interest on all of
the Debentures, according to their tenor, and the due and punctual performance
and observance of all of the covenants and conditions of this Indenture to be
performed by the Company, shall be expressly assumed, by supplemental indenture
satisfactory in form to the Trustee, executed and delivered to the Trustee by
the corporation (if other than the Company) formed by such consolidation, or
into which the Company shall have been merged, or by the corporation which shall
have acquired or leased such property.
Section 1.62. Successor Corporation to be Substituted. In case of any
---------------------------------------
such consolidation, merger, sale, conveyance or lease and upon the assumption by
the successor corporation, by supplemental indenture, executed and delivered to
the Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Debentures and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of Zenith Electronics Corporation any or all of the
Debentures issuable hereunder which theretofore shall not have been signed by
the Company and delivered to the Trustee; and, upon the order of such successor
corporation instead of the Company and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Debentures which previously shall have been signed and
delivered by the officers of the Company to the Trustee for authentication, and
any Debentures which such successor corporation thereafter shall cause to be
signed and delivered to the Trustee for that purpose. All the Debentures so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Debentures theretofore or thereafter issued in accordance with
the terms of this Indenture as though all of such Debentures had been issued at
the date of the execution hereof. In the event of any such sale, conveyance or
lease (other than any such sale, conveyance or lease by the Company to a
Subsidiary), the person named as the "Company" in the first paragraph of this
Indenture or any successor which shall thereafter have become such in the manner
prescribed in this Article Eleven may be dissolved, wound up and liquidated at
any time thereafter and such person shall be released from its liabilities as
obligor and maker of the Debentures and from its obligations under this
Indenture.
In case of any such consolidation, merger, sale, conveyance or lease such
changes in phraseology and form (but not in substance) may be made in the
Debentures thereafter to be issued as may be appropriate.
Section 1.63. Opinion of Counsel to be Given Trustee. The Trustee,
--------------------------------------
subject to Sections 7.01 and 7.02, may receive an Officers' Certificate and an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale, conveyance or lease and any such assumption complies with the provisions
of this Article Eleven.
44
<PAGE>
ARTICLE TWELVE
SATISFACTION AND DISCHARGE OF INDENTURE
Section 1.64. Discharge of Indenture. When (a) the Company shall deliver to
----------------------
the Trustee for cancellation all Debentures theretofore authenticated (other
than any Debentures which shall have been destroyed, lost or stolen and in lieu
of or in substitution for which other Debentures shall have been authenticated
and delivered) and not theretofore cancelled, or (b) all the Debentures not
theretofore cancelled or delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit with the Trustee, in trust, funds sufficient to pay at
maturity or upon redemption all of the Debentures (other than any Debentures
which shall have been mutilated, destroyed, lost or stolen and in lieu of or in
substitution for which other Debentures shall have been authenticated and
delivered) not theretofore cancelled or delivered to the Trustee for
cancellation, including principal and premium, if any, and interest due or to
become due to such date of maturity or redemption date, as the case may be, and
if in either case the Company shall also pay or cause to be paid all other sums
payable hereunder by the Company, then this Indenture shall cease to be of
further effect, and the Trustee, on demand of the Company accompanied by an
Officers' Certificate and an Opinion of Counsel as required by Section 14.05 and
at the cost and expense of the Company, shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture, the Company,
however, hereby agreeing to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred by the Trustee in connection with
this Indenture or the Debentures.
Section 1.65. Deposited Monies to be Held in Trust by Trustee. Subject to
-----------------------------------------------
Section 12.04, all monies deposited with the Trustee pursuant to Section 12.01
shall be held in trust and applied by it to the payment, either directly or
through any paying agent (including the Company if acting as its own paying
agent), to the holders of the particular Debentures for the payment or
redemption of which such monies have been deposited with the Trustee, of all
sums due and to become due thereon for principal and interest and premium, if
any.
Section 1.66. Paying Agent to Repay Monies Held. Upon the satisfaction
---------------------------------
and discharge of this Indenture all monies then held by any paying agent of the
Debentures (other than the Trustee) shall, upon demand of the Company, be repaid
to it or paid to the Trustee, and thereupon such paying agent shall be released
from all further liability with respect to such monies.
Section 1.67. Return of Unclaimed Monies. Any monies deposited with or
--------------------------
paid to the Trustee for payment of the principal of, premium, if any, or
interest on Debentures and not applied but remaining unclaimed by the holders of
Debentures for six years after the date upon which the principal of, premium, if
any, or interest on such Debentures, as the case may be, shall have become due
and payable, shall be repaid to the Company by the Trustee on demand and all
liability of the Trustee shall thereupon cease; and the holder of any of the
Debentures shall thereafter look only to the Company for any payment which such
holder may be entitled to collect.
45
<PAGE>
ARTICLE THIRTEEN
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 1.68. Indenture and Debentures Solely Corporate Obligations. No
-----------------------------------------------------
recourse for the payment of the principal of or premium, if any, or interest on
any Debenture, or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in this Indenture or in any supplemental indenture, or in any Debenture,
or because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by virtue
of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the
Debentures.
ARTICLE FOURTEEN
MISCELLANEOUS PROVISIONS
Section 1.69. Provisions Binding on Company's Successors. All the
------------------------------------------
covenants, stipulations, promises and agreements in this Indenture contained by
the Company shall bind its successors and assigns whether so expressed or not.
Section 1.70. Official Acts by Successor Corporation. Any act or
--------------------------------------
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
Section 1.71. Addresses for Notices, etc. Any notice or demand which by any
--------------------------
provision of this Indenture is required or permitted to be given or served by
the Trustee or by the holders of Debentures on the Company may be given or
served by being deposited postage prepaid by registered or certified mail in a
post office letter box addressed (until another address is filed by the Company
with the Trustee) to Zenith Electronics Corporation, Attention: Secretary, 1000
Milwaukee Avenue, Glenview, Illinois 60025. Any notice, direction, request or
demand by any Debentureholder to or upon the Trustee shall be deemed to have
been sufficiently given or made, for all purposes, if given or made in writing
at the principal corporate trust office of the Trustee, Attention: Corporate
Trust Administration.
Section 1.72. Governing Law. This Indenture and each Debenture shall be
-------------
deemed to be a contract made under the laws of the State of New York, and for
all purposes shall be construed in accordance with the laws of the State of New
York.
Section 1.73. Evidence of Compliance with Conditions Precedent. Upon any
------------------------------------------------
application or demand by the Company to the Trustee to take any action under
any of the provisions of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied
46
<PAGE>
with and an Opinion of Counsel stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided for
in this Indenture shall include (1) a statement that the person making such
certificate or opinion has read such covenant or condition; (2) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinion contained in such certificate or opinion are
based; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 1.74. Legal Holidays. In any case where the date of maturity of
--------------
interest on or principal of the Debentures or the date fixed for redemption of
any Debenture will be in the City of Chicago or The City of New York, New York,
a legal holiday or a day on which banking institutions are authorized by law or
executive order to close, then payment of such interest on or principal of the
Debentures need not be made on such date but may be made on the next succeeding
day not in such city a legal holiday or a day on which banking institutions are
authorized by law or executive order to close with the same force and effect as
if made on the date of maturity or the date fixed for redemption and no interest
shall accrue for the period from and after such date.
Section 1.75. Trust Indenture Act to Control. If and to the extent that
------------------------------
any provision of this Indenture limits, qualifies or conflicts with another
provision included in this Indenture which is required to be included in this
Indenture by any of Sections 310 to 317, inclusive, of the Trust Indenture Act
of 1939, such required provision shall control.
Section 1.76. No Security Interest Created. Nothing in this Indenture or in
the Debentures, express or implied, shall be construed to constitute a security
interest under the Uniform Commercial Code or similar legislation, as now or
hereafter enacted and in effect, in any jurisdiction where property of the
Company or its subsidiaries is located.
Section 1.77. Benefits of Indenture. Nothing in this Indenture or in the
---------------------
Debentures, express or implied, shall give to any person, other than the parties
hereto, any paying agent, any Debenture registrar and their successors hereunder
and the holders of Debentures any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 1.78. Table of Contents, Headings, etc. The table of contents and
--------------------------------
the titles and headings of the articles and sections of this Indenture have been
inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
Section 1.79. Execution in Counterparts. This Indenture may be executed in
-------------------------
any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
47
<PAGE>
Bank One Trust Company, NA hereby accepts the trusts in this Indenture
declared and provided, upon the terms and conditions hereinabove set forth.
* * * *
48
<PAGE>
IN WITNESS WHEREOF, ZENITH ELECTRONICS CORPORATION has caused this
Indenture to be signed and acknowledged by its Chairman or its President or one
of its Vice Presidents, and its corporate seal to be affixed hereunto, and the
same to be attested by its Secretary or an Assistant Secretary, and Bank One
Trust Company, NA has caused this Indenture to be signed and acknowledged by one
of its Vice Presidents, and has caused its corporate seal to be affixed hereunto
and the same to be attested by one of its Trust Officers, as of the day and year
first written above.
ZENITH ELECTRONICS CORPORATION
[SEAL]
By: _______________________________
Title: Chairman, President and
Chief Executive Officer
Attest:
By: ____________________________
Title: Assistant Secretary
BANK ONE TRUST COMPANY, NA
[SEAL]
By: _______________________________
Title: ________________________
Attest:
By: ____________________________
Title: _____________________
<PAGE>
STATE OF ILLINOIS )
) SS.:
COUNTY OF C O O K )
On the ____ day of _____, 1999, before me personally came _______________,
to me known, who, being by me duly sworn did depose and say that he resides at
___________________ that he is ______________________________ of ZENITH
ELECTRONICS CORPORATION, one of the corporations described in and which executed
the above instrument; that he knows the corporate seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that it was so
affixed by the authority of the Board of Directors of said corporation; and that
he signed his name thereto by like authority.
__________________________
Notary Public
[NOTARIAL SEAL]
50
<PAGE>
Exhibit 10(m)
First Amendment
to
Amended and Restated Restructuring Agreement
between Zenith Electronics Corporation
and LG Electronics Inc.
First Amendment, dated as of September 15, 1999, to the Amended and
Restated Restructuring Agreement, dated as of June 14, 1999, between Zenith
Electronics Corporation (the "Company") and LG Electronics Inc. ("LGE").
Capitalized terms used herein without definition shall have the meaning set
forth in the Amended and Restated Restructuring Agreement (the "Restructuring
Agreement").
WHEREAS, the Company and LGE have decided to amend the Restructuring
Agreement in order to facilitate the consummation of the transactions to occur
on the Closing Date;
NOW, THEREFORE, in consideration of the premises herein set forth, the
parties agree as follows:
1. Section 2(a) of the Restructuring Agreement is hereby amended by:
(a) deleting the word "purchase" in the first sentence and
substituting in its place the word "acquire"; and
(b) adding the following language to the end of Section 2(a)
before the semicolon:
, provided, however, that the shares of New Common Stock so
issued shall first be allocated to pay the principal
component of all claims described in clauses (i) through (v),
and the remainder of such shares, if any, shall then be
allocated to pay accrued interests, if any, on such claims
2. Section 2(c) of the Restructuring Agreement is hereby amended by:
(a) adding the following language between the comma and the words
"(iii) an unsecured claim for all servicing fees":
-----
<PAGE>
(iii) $11,088,755.10 of the accrued but unpaid interest on
---
amounts owed by the Company to LGE under the Reimbursement
Agreement and the Financial Support Agreement,
and
(b) renumbering the remaining clauses in Section 2(c).
3. Section 2(g) of the Restructuring Agreement is hereby amended by
inserting the following language between the words "the Note Agreement" and the
comma immediately following such words:
(excluding any portion of such amount referred to in Section
2(c))
4. Section 6.6 of the Restructuring Agreement is hereby amended by
(a) deleting the word "Closing" in the second sentence of Section 6.6 and
substituting in its place the words "closing under the Reynosa Purchase
Agreement" and (b) deleting the words "the Closing Date" in the second sentence
of Section 6.6 and substituting in their place the words "such closing".
5. Section 11.1(b)(i) of the Restructuring Agreement is hereby
amended by deleting the words "September 15, 1999" and substituting in their
place the words "November 1, 1999".
6. The Company hereby ratifies and confirms the Restructuring
Agreement, as amended pursuant to this Amendment, and agrees and confirms that
the terms and conditions thereof, as amended pursuant to this Amendment, are and
shall remain in full force and effect.
7. This Amendment shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of Delaware without giving effect to the conflict of laws rules thereof.
8. All covenants and other agreements contained in this Amendment
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns whether so expressed or not.
9. This Amendment may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date first above written.
ZENITH ELECTRONICS CORPORATION
By ___________________________
Name:
Title:
LG ELECTRONICS INC.
By ___________________________
Name:
Title:
3
<PAGE>
Exhibit 10(n)
================================================================================
AMENDED AND RESTATED
STOCK AND ASSET PURCHASE AGREEMENT
between
ZENITH ELECTRONICS CORPORATION
and
LG ELECTRONICS ALABAMA, INC.
Dated as of November 9, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Sale and Purchase ........................................................... 2
1.1 Sale and Purchase of Shares .......................................... 2
1.4 Closing .............................................................. 3
1.6 Purchase Price Adjustment ............................................ 4
2. Representations and Warranties of the Seller ................................ 6
2.1 Authorization, etc ................................................... 6
2.2 Title to Shares, Capitalization, etc ................................. 6
2.4 No Conflicts, etc .................................................... 8
2.5 Corporate Status ..................................................... 8
2.6 Financial Statements ................................................. 9
2.7 Litigation ........................................................... 10
2.8 Compliance with Laws and Instruments; Consents ....................... 10
2.9 Brokers, Finders, etc. ............................................... 12
2.10 Disclosure ........................................................... 12
3. Representations and Warranties of the Buyer ................................. 12
3.1 Corporate Status; Authorization, etc ................................. 13
3.2 No Conflicts, etc .................................................... 13
3.3 Brokers, Finders, etc ................................................ 14
4. Covenants of the Seller ..................................................... 14
4.1 Conduct of Business .................................................. 14
4.2 Access and Information ............................................... 17
4.3 Governmental Filings ................................................. 18
4.4 Further Actions ...................................................... 19
4.5 Further Assurances ................................................... 20
4.6 Insurance ............................................................ 21
5. Covenants of the Buyer ...................................................... 22
5.1 Further Actions ....................................................... 22
6. Covenants of the Buyer and the Seller ....................................... 23
6.1 Taxes ................................................................. 23
6.2 Employees ............................................................. 24
7. Conditions Precedent ........................................................ 24
7.1 Conditions to Obligations of Each Party .............................. 24
7.1.1 No Injunction, etc ........................................... 24
7.1.2 Restructuring of Seller ...................................... 25
7.2 Conditions to Obligations of the Buyer ............................... 25
7.2.1 Representations, Performance ................................. 25
7.2.2 Delivery of Shares ........................................... 25
7.2.3 Delivery of Purchased Equipment .............................. 26
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.2.5 Audit of Specified Equipment .............................. 26
7.2.6 Delivery of Schedules ..................................... 26
7.2.7 Consents; Licenses ........................................ 30
7.2.8 Resignation of Directors .................................. 31
7.2.9 FIRPTA Certificate ........................................ 31
7.2.10 No Material Adverse Effect ................................ 31
7.2.11 Corporate and Other Proceedings ........................... 31
7.3 Conditions to Obligations of the Seller ........................... 32
7.3.1 Representations, Performance, etc ......................... 32
7.3.2 Corporate Proceedings ..................................... 32
8. Termination .............................................................. 32
8.1 Termination ...................................................... 32
8.2 Effect of Termination ............................................ 33
9. Indemnification .......................................................... 33
9.1 Indemnification by the Seller .................................... 33
9.2 Claims for Indemnification ....................................... 34
9.3 Payment Adjustments, etc ......................................... 34
9.4 Indemnification Procedures ....................................... 35
9.5 Tax Treatment of Indemnity Payments .............................. 37
10. Definitions .............................................................. 37
10.1 Terms Generally .................................................. 37
10.2 Certain Terms .................................................... 37
11. Miscellaneous ............................................................ 50
11.1 Expenses ......................................................... 50
11.2 Notices .......................................................... 51
11.3 Governing Law, etc ............................................... 52
11.4 Binding Effect ................................................... 54
11.5 Assignment ....................................................... 54
11.6 No Third Party Beneficiaries ..................................... 54
11.7 Amendment; Waivers, etc .......................................... 54
11.8 Entire Agreement ................................................. 55
11.9 Severability ..................................................... 56
11.10 Headings ......................................................... 56
11.11 Counterparts ..................................................... 56
</TABLE>
ii
<PAGE>
Page
----
SCHEDULES
Schedule 2.5(a) - Organization
Schedule 2.5(b) - Qualification
Schedule 2.8(a) - Exceptions to Compliance
Schedule 2.8(b) - Consents
Schedule 3.2 - Consents
Schedule 4.1 - Conduct of Business: Permitted Bonuses or Advances
Schedule 7.2.6(a) - Personal Property
Schedule 7.2.6(b) - Real Property
Schedule 7.2.6(c) - Intellectual Property
Schedule 7.2.6(d) - Contracts
Schedule 7.2.6(e) - Insurance
Schedule 7.2.6(f) - Environmental Matters
Schedule 7.2.6(g) - Employees; Labor Matters, etc.
Schedule 7.2.6(h) - Employee Benefit Plans; ERISA
Schedule 7.2.6(i) - Accounts Receivable
Schedule 7.2.6(j) - Products
Schedule 7.2.6(k) - Bank Accounts
Schedule 7.2.6(l) - Consents
iii
<PAGE>
AMENDED AND RESTATED
STOCK AND ASSET PURCHASE AGREEMENT
AMENDED AND RESTATED STOCK AND ASSET PURCHASE AGREEMENT ("Agreement"),
---------
dated as of November 9, 1999, among Zenith Electronics Corporation, a Delaware
corporation (the "Seller"), and LG Electronics Alabama, Inc., an Alabama
------
corporation (the "Buyer").
-----
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller wishes to sell substantially all of the
outstanding capital stock of Partes de Television de Reynosa, a Mexican sociedad
anonima de capital variable and a wholly-owned subsidiary of the Seller (the
"Company") to the Buyer, and the Buyer wishes to purchase such shares from the
Seller, on the terms and conditions and for the consideration described in this
Agreement (defined terms having the meanings indicated in Section 10);
WHEREAS, as of the Closing Date, the authorized capital stock of the
Company will consist of 72,000 shares of Series B-1 common stock, par value 1
Mexican currency per share, and 70,504,292 shares of Series B-2 common stock,
par value 1 Mexican currency per share;
WHEREAS, as of the Closing Date, the Seller will have title to 71,979
shares of Series B-1 common stock and 70,504,292 shares of Series B-2 common
stock of the Company (the "Zenith Shares"), Zenith Texas will have title to 20
shares of Series B-1 common stock of the Company (the "Zenith Texas Shares") and
Ms. Beverly Wyckoff will
<PAGE>
have title to one share of Series B-1 common stock of the Company (the "Wyckoff
Share");
WHEREAS, the Seller wishes to sell the Purchased Equipment to the
Buyer, and the Buyer wishes to purchase the Purchased Equipment, on the terms
and conditions and for the consideration described in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived herefrom, the parties hereto agree as follows:
1. Sale and Purchase.
-----------------
1.1 Sale and Purchase of Shares. Subject to the terms and conditions
---------------------------
of this Agreement, at the Closing (as defined in Section 1.4), the Seller will,
and will cause Ms. Beverly Wyckoff to, sell, and the Buyer will purchase,
respectively, the Zenith Shares and the Wyckoff Share (together, the "Purchased
Shares").
1.2 Sale and Purchase of Purchased Equipment. Subject to the terms and
----------------------------------------
conditions of this Agreement, at the Closing, the Seller will cause Zenith Texas
to sell, transfer, convey, assign and deliver to the Buyer, and the Buyer will
purchase and accept from Zenith Texas, all right, title and interest of Zenith
Texas in and to the Purchased Equipment.
1.3 Initial Purchase Amount. The Buyer will pay for the delivery of
-----------------------
the Purchased Shares and the Purchased Equipment in advance on the date hereof
by the cancellation of Notes, held by the Buyer, in an aggregate principal
amount equal to the sum of the Initial Purchase Amount plus $5,733,870.83
(representing the appraised value
2
<PAGE>
of the Reynosa Leveraged Lease Equipment less depreciation expense). The
calculation of the Initial Purchase Amount shall be described in reasonable
detail in a special purpose balance sheet of the Company (the "Initial Balance
---------------
Sheet") delivered on the date hereof and acceptable to both the Seller and the
- -----
Buyer. The Initial Balance Sheet shall be based on the unaudited balance sheet
of the Company as of August 31, 1999 prepared in accordance with Mexican GAAP
and the following principles which, in the event of conflict with Mexican GAAP,
shall control: (i) Specified Equipment owned by Zenith Texas shall be included
-
in the Initial Balance Sheet as though owned by the Company and valued at the
amount shown on the Greenwich Industrial Services, LLC appraisal, dated April 1,
1998, less depreciation expense from August 7, 1998 through August 31, 1999,
plus capital expenditures from August 7, 1998 through August 31, 1999 approved
by the Buyer, (ii) Specified Real Property consisting of the Trailer Parking
--
Area shall be valued at $550,000 and all other Specified Real Property shall be
valued at the amount shown on the Insignia/ESG, Inc. report, dated April 1998,
less depreciation expense from August 7, 1998 through August 31, 1999, plus
capital expenditures from August 7, 1998 through August 31, 1999 approved by the
Buyer and (iii) any line items reflecting inventory owned by the Company shall
---
be eliminated.
1.4 Closing. The closing of the sale and purchase of the Purchased
-------
Shares and the Purchased Equipment (the "Closing") shall take place at the
-------
offices of Kirkland & Ellis, 200 East Randolph Drive, Chicago, IL 60601, at
10:00 a.m., Chicago time, on or about December 31, 1999 (the "Closing Date"). At
the Closing, the Seller shall deliver, or cause to be delivered, to the Buyer:
(i) free and clear of any Liens, one or more certificates
-
3
<PAGE>
representing the Purchased Shares, duly endorsed or accompanied by stock powers
in favor of the Buyer, and accompanied by all requisite stock transfer stamps,
(ii) such appropriately executed bills of sale, assignments and other
--
instruments of transfer relating to the transfer of the Purchased Equipment,
free and clear of any Liens, from Zenith Texas to the Buyer, in form and
substance reasonably satisfactory to the Buyer and its counsel, (iii) such UCC
---
and other Lien searches and such duly executed UCC-3 termination statements and
other releases, in each case as the Buyer or its counsel shall reasonably
request for the Purchased Equipment and (iv) such other documents as the Buyer
--
or its counsel may reasonably request to demonstrate satisfaction of the
conditions and compliance with the covenants set forth in this Agreement.
1.5 Risk of Loss. Until the Closing, any loss of or damage to the
------------
Purchased Equipment from fire, casualty or any other occurrence not covered by
insurance payable to the Buyer shall be the sole responsibility of the Seller.
1.6 Purchase Price Adjustment. (a) Delivery of Closing Balance Sheet.
------------------------- ---------------------------------
As promptly as practicable, but no later than 90 days after the Closing Date,
the Seller will cause to be prepared and delivered to the Buyer a special
purpose balance sheet of the Company (including the notes thereto, the "Closing
-------
Balance Sheet"). The Closing Balance Sheet shall be based on an audited balance
- -------------
sheet of the Company as of December 31, 1999 prepared in accordance with Mexican
GAAP and the following principles which, in the event of conflict with Mexican
GAAP, shall control: (i) Specified Equipment owned by Zenith Texas shall be
-
included in the Closing Balance Sheet as though owned by the Company and valued
at the amount shown on the Greenwich Industrial Services, LLC
4
<PAGE>
appraisal, dated April 1, 1998, less depreciation expense from August 7, 1998
through December 31, 1999, plus capital expenditures from August 7, 1998 through
December 31, 1999 approved by the Buyer, (ii) Specified Real Property consisting
--
of the Trailer Parking Area shall be valued at $550,000 and all other Specified
Real Property shall be valued at the amount shown on the Insignia/ESG, Inc.
report, dated April 1998, less depreciation expense from August 7, 1998 through
December 31, 1999, plus capital expenditures from August 7, 1998 through
December 31, 1999 approved by the Buyer and (iii) any line items reflecting
---
inventory owned by the Company shall be eliminated. The Closing Balance
Sheet must be reasonably acceptable to the Buyer.
(b) Adjustment and Payment. The Initial Purchase Amount shall be (i)
---------------------- -
increased dollar for dollar by the amount by which the Net Book Value shown on
the Closing Balance Sheet exceeds the Net Book Value shown on the Initial
Balance Sheet or (ii) decreased dollar for dollar by the amount by which the Net
--
Book Value shown on the Closing Balance Sheet is less than the Net Book Value
shown on the Initial Balance Sheet; provided, however, that the Initial Purchase
-------- -------
Amount shall be adjusted pursuant to this Section 1.6(b) only if the amount of
such adjustment exceeds $100,000. Any adjustments to the Initial Purchase Amount
made pursuant to this Section 1.6(b) shall be paid by wire transfer in
immediately available funds to an account specified by the party to whom such
payment is owed within five business days after the delivery of the Closing
Balance Sheet.
(c) No Limitation. The Buyer's rights to indemnification pursuant to
-------------
Section 9 (and any limitations on such rights) shall not be deemed to limit,
supersede or
5
<PAGE>
otherwise affect the Buyer's rights to a full purchase amount adjustment
pursuant to this Section 1.6.
2. Representations and Warranties of the Seller. The Seller represents
--------------------------------------------
and warrants to the Buyer as follows, as of the date hereof and as of the
Closing Date:
2.1 Authorization, etc. The Seller has full corporate power and
------------------
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement, the performance of the Seller's obligations
hereunder, and the consummation of the transactions contemplated hereby, have
been duly authorized by all requisite corporate action of the Seller. The Seller
has duly executed and delivered this Agreement. This Agreement constitutes the
legal, valid and binding obligation of the Seller enforceable against the Seller
in accordance with its respective terms.
2.2 Title to Shares, Capitalization, etc. (a) Title. As of the Closing
------------------------------------ -----
Date, the Seller will own, beneficially and of record, the Zenith Shares, free
and clear of any Liens, Zenith Texas will own, beneficially and of record, the
Zenith Texas Shares, free and clear of any Liens, and Ms. Beverly Wyckoff will
own, beneficially and of record, the Wyckoff Share, free and clear of any Liens.
Upon the delivery of and payment for the Purchased Shares at the Closing as
provided for in this Agreement, the Buyer will acquire good and valid title to
all the Purchased Shares, free and clear of any Lien other than any Lien created
by the Buyer.
6
<PAGE>
(b) Authorized Capital Stock of the Company. As of the date hereof,
---------------------------------------
the authorized capital stock of the Company consists of 22,000 shares of Series
A common stock, par value 1,000 Mexican currency per share, 67,444,598 shares of
Series B common stock, par value 1,000 Mexican currency per share, and 3,059,694
shares of Series C common stock, par value 1,000 Mexican currency per share, all
of which shares are issued and outstanding. As of the Closing Date, the
authorized capital stock of the Company will consist of 72,000 shares of Series
B-1 common stock, par value 1 Mexican currency per share, and 70,504,292 shares
of Series B-2 common stock, par value 1 Mexican currency per share, all of which
shares will be issued and outstanding. All of the issued and outstanding shares
of the Company are as of the date hereof, and will be as of the Closing Date,
duly authorized and validly issued and fully paid and nonassessable.
(c) No Equity Rights. There are no preemptive or similar rights on the
----------------
part of any holders of any class of securities of the Company. Except for this
Agreement, no subscriptions, options, warrants, conversion or other rights,
agreements, commitments, arrangements or understandings of any kind obligating
any member of the Seller Group or any other Person, contingently or otherwise,
to issue or sell, or cause to be issued or sold, any shares of capital stock of
any class of the Company, or any securities convertible into or exchangeable for
any such shares, are outstanding, and no authorization therefor has been given.
There are no outstanding contractual or other rights or obligations to or of any
member of the Seller Group or any other Person to repurchase, redeem or
otherwise acquire any outstanding shares or other equity interests of the
Company.
7
<PAGE>
2.3 Purchased Equipment. Zenith Texas has good and marketable title to
-------------------
the Purchased Equipment, free and clear of all Liens other than any Liens
created by the Buyer.
2.4 No Conflicts, etc. To the best of the Seller's knowledge and
-----------------
belief, the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, do not and will not
conflict with, contravene, result in a violation or breach of or default under
(with or without the giving of notice or the lapse of time or both), create in
any other Person a right or claim of termination, amendment, or require
modification, acceleration or cancellation of, or result in the creation of any
Lien (or any obligation to create any Lien) upon any of the properties or assets
of the Seller or the Company (including, without limitation, the Purchased
Equipment) under, (a) any Law applicable to any member of the Seller Group or
-
any of their respective properties or assets, (b) any provision of any of the
-
Organizational Documents of any member of the Seller Group or (c) any Contract,
-
or any other agreement or instrument to which any member of the Seller Group is
a party or by which any of their respective properties or assets may be bound,
except, in the case of this clause (c), for violations and defaults that,
individually and in the aggregate, could not reasonably be expected to have or
result in a Material Adverse Effect or to impair materially the ability of the
Seller to perform its obligations hereunder.
2.5 Corporate Status. (a) Organization. Each of the Seller and the
---------------- ------------
Company is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of organization, which
jurisdiction is set forth on
8
<PAGE>
Schedule 2.5(a), and has full corporate power and authority to conduct its
business and to own or lease and to operate its properties as and in the places
where such business is conducted and such properties are owned, leased or
operated.
(b) Qualification. The Company is duly qualified or licensed to do
-------------
business and in good standing in each of the jurisdictions specified in Schedule
2.5(b), which includes each jurisdiction in which the nature of its business or
the properties owned or leased by it makes such qualification or licensing
necessary.
(c) Organizational Documents. The Seller has delivered to the Buyer
------------------------
complete and correct copies of the Organizational Documents of the Company, as
amended, modified or waived through and in effect on the date hereof. Each of
the Organizational Documents of the Company is in full force and effect. The
Company is not in violation of any of the provisions of its Organizational
Documents. The minute books of the Company, which have heretofore been made
available to the Buyer, correctly reflect in all material respects (i) all
-
corporate actions taken by the stockholders that the stockholders were required
by applicable Law to take, (ii) all corporate actions taken by the directors of
--
the Company that the board of directors of the Company was required by
applicable Law to take and (iii) all other corporate actions taken by the
---
stockholders and directors of the Company (including by any committee of the
board of directors of the Company).
2.6 Financial Statements. (a) The Seller has delivered to the Buyer
--------------------
complete and correct copies of the Financial Statements.
9
<PAGE>
(b) The Financial Statements are complete and correct in all respects,
have been derived from the accounting books and records of the Company, and have
been prepared in accordance with Mexican generally accepted accounting
principles, except as forth in the report of the Company's independent public
accountants, dated April 13, 1999, attached thereto ("Mexican GAAP"), applied on
------------
a consistent basis throughout the periods presented in the Financial Statements
subject, in the case of interim unaudited Financial Statements, only to normal
recurring year-end adjustments.
(c) The balance sheets included in the Financial Statements present
fairly the financial position of the Company as at the respective dates thereof,
and the statements of income, statements of stockholder's equity and statements
of cash flows included in such Financial Statements present fairly the results
of operations and cash flows of the Company for the respective periods
indicated.
2.7 Litigation. There is no Litigation pending or, to the knowledge of
----------
any member of the Seller Group, threatened by, against or affecting any member
of the Seller Group or any of its properties or assets, that, individually or in
the aggregate, could reasonably be expected to materially impair the ability of
the Seller to perform its obligations hereunder. There are no outstanding
orders, judgments, decrees or injunctions issued by any Governmental Authority
against the Company or in connection with the Purchased Equipment.
2.8 Compliance with Laws and Instruments; Consents. (a) Compliance.
---------------------------------------------- ----------
Except as set forth on Schedule 2.8(a), (i) the Company is not in conflict with
-
or in violation or breach of or default under (and there exists no event that,
with notice or
10
<PAGE>
passage of time or both, would constitute a conflict, violation, breach or
default with, of or under) (x) any Law applicable to it or any of its
-
properties, assets, operations or business, (y) any provision of its
-
Organizational Documents, or (z) any Contract, or any other agreement or
-
instrument to which it is party or by which it or any of its properties or
assets is bound or affected, except in the case of the foregoing clauses (x) and
(z) for any such conflicts, breaches, violations and defaults that, individually
or in the aggregate, could not reasonably be expected to have or result in a
Material Adverse Effect, or to materially impair the ability of the Seller to
perform its obligations hereunder, and (ii) no member of the senior management
--
of the Company has received any notice or has knowledge of any claim alleging
any such conflict, violation, breach or default.
(b) Consents. Except as specified in Schedule 2.8(b), no Governmental
--------
Approval or other Consent is required to be obtained or made by any member of
the Seller Group in connection with the execution and delivery of this
Agreement, except for Consents the failure of which to be made or obtained,
individually and in the aggregate, could not reasonably be expected to have or
result in a Material Adverse Effect, or to impair materially the ability of the
Seller to perform its obligations hereunder or the ability of the Buyer,
following the Closing, to continue to operate the Purchased Equipment or the
business of the Company.
(c) Governmental Filings. To the best of the Seller's knowledge and
--------------------
belief, each registration, report, statement, notice or other filing requested
or required to be filed by the Company with any Governmental Authority under any
applicable Law has been timely filed, and when filed complied and continues to
comply with applicable Law. As of
11
<PAGE>
their respective dates, none of such registrations, reports, statements, notices
or other filings contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.9 Brokers, Finders, etc. All negotiations relating to this
---------------------
Agreement and the transactions contemplated hereby have been carried on without
the participation of any Person acting on behalf of any member of the Seller
Group in such a manner as to, and the transactions contemplated hereby will not
otherwise, give rise to any valid claim against the Company or the Buyer for any
brokerage or finder's commission, fee or similar compensation, or for any bonus
payable to any officer, director, employee, agent or representative of or
consultant to the Company upon consummation of the transactions contemplated
hereby.
2.10 Disclosure. This Agreement and each certificate or other
----------
instrument or document furnished by or on behalf of any member of the Seller
Group to the Buyer or any agent or representative of the Buyer pursuant hereto
or in connection herewith, taken as a whole, do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated herein
or therein or necessary to make the statements contained herein or therein in
light of the circumstances under which they were made, not misleading.
3. Representations and Warranties of the Buyer. The Buyer represents
-------------------------------------------
and warrants to the Seller as follows, as of the date hereof and as of the
Closing Date:
12
<PAGE>
3.1 Corporate Status; Authorization, etc. The Buyer is a corporation
------------------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Alabama. The Buyer has full corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement, the performance of its obligations hereunder, and the
consummation of the transactions contemplated hereby, have been duly authorized
by all requisite corporate action of the Buyer. The Buyer has duly executed and
delivered this Agreement. This Agreement constitutes the legal, valid and
binding obligation of the Buyer, enforceable against the Buyer in accordance
with its respective terms.
3.2 No Conflicts, etc. The execution, delivery and performance by the
-----------------
Buyer of this Agreement, and the consummation of the transactions contemplated
hereby, do not and will not conflict with, contravene, result in a violation or
breach of or default under (with or without the giving of notice or the lapse of
time, or both), create in any other Person a right or claim of termination,
amendment, modification, acceleration or cancellation of, or result in or
require the creation of any Lien (or any obligation to create any Lien) on any
of the properties or assets of the Buyer under (a) any Law applicable to the
-
Buyer or any of its properties or assets, (b) any provision of any of the
-
Organizational Documents of the Buyer, or (c) any contract, agreement or other
-
instrument to which the Buyer is a party or by which its properties or assets
may be bound, except, in the case of clause (c), for violations and defaults
that, individually and in the aggregate, would not materially impair the ability
of the Buyer to perform its obligations hereunder. Except as
13
<PAGE>
specified in Schedule 3.2, no Governmental Approval or other Consent is required
to be obtained or made by the Buyer in connection with the execution and
delivery of this Agreement, or the consummation of the transactions contemplated
hereby, except for Consents the failure of which to be made or obtained,
individually and in the aggregate, would not materially impair the ability of
the Buyer to perform its obligations hereunder.
3.3 Brokers, Finders, etc. All negotiations relating to this Agreement
---------------------
and the transactions contemplated hereby have been carried on without the
participation of any Person acting on behalf of the Buyer or any of its
Affiliates in such manner as to, and the transactions contemplated hereby will
not otherwise, give rise to any valid claim against the Seller for any brokerage
or finder's commission, fee or similar compensation.
4. Covenants of the Seller.
-----------------------
4.1 Conduct of Business. On and after the date hereof to the Closing
-------------------
Date, except as expressly permitted or required by this Agreement or as
otherwise expressly consented to by the Buyer in writing, the Seller will, and
will cause the Company to:
(1) carry on its business in, and only in, the ordinary course of
business, in substantially the same manner as heretofore conducted, and use
all reasonable best efforts to preserve intact its present business
organization, keep available the services of its present officers and
significant employees, and preserve its relationships with customers,
suppliers and others having business dealings with it, to the end that its
goodwill and going business shall be in all material respects unimpaired
following the Closing;
14
<PAGE>
(2) not declare dividends on, or redeem or repurchase any shares
of, any class of its capital stock, increase any obligations of the Company
with respect to Indebtedness, repay any loans or other amounts outstanding
to the Seller or any of its Affiliates, make capital expenditures in excess
of $100,000 in any case or $1,000,000 in the aggregate, pay any bonuses or
advances against salaries except as set forth on Schedule 4.1, prepay any
accounts payable, delay payment of any trade payables other than in the
ordinary course of business, or make any other cash payments other than in
the ordinary course of business;
(3) maintain all of the tangible properties and assets owned,
leased, occupied, operated or used by it in good repair, working order and
operating condition subject only to ordinary wear and tear;
(4) not transfer, assign, mortgage, pledge, hypothecate, grant any
security interest in, or otherwise subject to any other Lien, any of its
assets;
(5) use all reasonable best efforts to keep in full force and
effect insurance comparable in amount and scope of coverage to insurance
now carried by it;
(6) pay accounts payable and other obligations, when they become
due and payable, in the ordinary course of business;
(7) perform in all material respects all of its obligations under
any Contracts, agreements or other instruments relating to or affecting the
Purchased Equipment, any of the properties and assets of the Company or the
business of the Company;
15
<PAGE>
(8) not enter into or assume any Contract (including, without
limitation, any Contract relating to the purchase of raw materials or other
supplies), or enter into or permit any amendment, supplement, waiver,
extension or other modification in respect thereof, except for such
Contracts and amendments, supplements, waivers, extensions and
modifications thereof that, individually and in the aggregate, are not
material to the Company or the Purchased Equipment and that are entered
into, assumed or permitted in the ordinary course of business and following
prior notice to and consent of the Buyer;
(9) maintain its books of account and records in the usual,
regular and ordinary manner consistent with past policies and practice;
(10) comply in all material respects with all Laws applicable to
it or any of its properties, assets or business;
(11) not compromise, settle, grant any waiver or release relating
to or otherwise adjust any Litigation, except in the ordinary course of
business, and following prior notice to and consultation with the Buyer;
(12) not cause or permit any amendment, supplement, waiver or
modification to or of any of its Organizational Documents;
(13) use all reasonable best efforts to maintain the Company's
good standing in its jurisdiction of organization and in the jurisdictions
in which it is qualified to do business as a foreign corporation and to
maintain all Governmental Approvals and other Consents necessary for the
conduct or operation of, or otherwise material to, the Purchased Equipment
or the business of the Company;
16
<PAGE>
(14) not merge or consolidate with, or agree to merge or
consolidate with, or purchase substantially all of the assets of, or
otherwise acquire, any business, business organization or division thereof,
or any other Person;
(15) not take any action or omit to take any action, which action
or omission would result in a breach of any of the representations and
warranties set forth in Section 2.9;
(16) promptly advise the Buyer in writing of any event,
occurrence, fact, condition, change, development or effect that,
individually or in the aggregate, could reasonably be expected to have or
result in a Material Adverse Effect or a breach of this Section 4.1;
(17) not agree or otherwise commit to take any of the actions
described in the foregoing paragraphs (1) through (14); and
(18) conduct all Tax affairs relating to the Company only in the
ordinary course of business, in substantially the same manner as heretofore
conducted and in good faith in substantially the same manner as such
affairs would have been conducted if this Agreement had not been entered
into.
4.2 Access and Information. (a) So long as this Agreement
----------------------
remains in effect, the Seller will (and will cause each other member of the
Seller Group, and each of the Representatives of or to any member of the Seller
Group, to) give the Buyer and its Representatives full access during reasonable
business hours to all of such Person's respective properties, assets, books,
contracts, commitments, reports and records relating to the Company and the
Purchased Equipment, and furnish to them all such documents,
17
<PAGE>
records and information with respect to the Purchased Equipment and the
properties, assets and business of the Company and copies of any work papers
relating thereto as the Buyer shall from time to time reasonably request. In
addition, the Seller will, and will cause each member of the Seller Group to,
permit the Buyer and its Representatives, reasonable access during reasonable
business hours to each member of the Seller Group, the Company's lenders,
customers and suppliers, other Persons with whom the Company does or has done
business, and other Representatives or other personnel of any member of the
Seller Group, as may be necessary or useful to the Buyer in its judgement in
connection with its review of the Purchased Equipment and the properties, assets
and business of the Company and the above-mentioned documents, records and
information. The Seller will, and will cause each member of the Seller Group to,
keep the Buyer generally informed as to all matters relating to the Purchased
Equipment or the business of the Company.
(b) The Seller will, and will cause each other member of the Seller
Group (other than the Company after the Closing) to, retain all books and
records relating to the Purchased Equipment and the Company in accordance with
the Seller's record retention policies as presently in effect. During the seven-
year period beginning on the Closing Date, the Seller shall not dispose of or
permit the disposal of any such books and records not required to be retained
under such policies without first giving 60 days' prior written notice to the
Buyer offering to surrender the same to the Buyer at the Buyer's expense.
4.3 Governmental Filings. From the date hereof to and including the
--------------------
Closing Date, the Seller will timely file, or cause to be timely filed, and
concurrently
18
<PAGE>
deliver to the Buyer, copies of each registration, report, statement, notice or
other filing requested or required to be filed by the Company with any
Governmental Authority under any applicable Law. All such registrations,
reports, statements, notices and other filings shall comply with applicable Law.
As of their respective dates, none of such registrations, reports, statements,
notices or other filings shall contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
4.4 Further Actions. (a) The Seller shall use all reasonable best
---------------
efforts to take or cause to be taken all actions, and to do or cause to be done
all other things, necessary, proper or advisable in order for the Seller to
fulfill and perform its obligations in respect of this Agreement, or otherwise
to consummate and make effective the transactions contemplated hereby.
(b) The Seller shall (and shall cause each other member of the Seller
Group to), as promptly as practicable, (i) make, or cause to be made, all
-
filings and submissions required under any Law applicable to any member of the
Seller Group, and give such reasonable undertakings as may be required in
connection therewith, and (ii) use all reasonable best efforts to obtain or
--
make, or cause to be obtained or made, all Governmental Approvals and Consents
necessary to be obtained or made by any member of the Seller Group, in each case
in connection with this Agreement, the sale and transfer of the Purchased Shares
pursuant hereto, or the consummation of the other transactions contemplated
hereby.
19
<PAGE>
(c) The Seller shall, and shall cause each other member of the Seller
Group to, coordinate and cooperate with the Buyer in exchanging such information
and supplying such reasonable assistance as may be reasonably requested by the
Buyer in connection with the filings and other actions contemplated by Sections
5.1.
(d) At all times prior to the Closing Date, the Seller shall promptly
notify the Buyer in writing of any fact, condition, event or occurrence that
could reasonably be expected to result in the failure of any of the conditions
contained in Sections 7.1 and 7.2 to be satisfied, promptly upon becoming aware
of the same.
(e) If any third party whose Consent is required to transfer the
benefit of any Contract or Governmental Approval to Buyer (the "Rights") does
------
not consent to such transfer, the Seller shall, at the request of the Buyer and
to the extent permitted by Law, enforce, use, carry out and comply with such
Right against such Person as agent of the Buyer, at the Buyer's cost and expense
and for the Buyer's exclusive benefit.
4.5 Further Assurances. Following the Closing Date, the Seller shall,
------------------
from time to time, execute and deliver such additional instruments, documents,
conveyances or assurances and take such other actions as shall be necessary, or
otherwise reasonably be requested by the Buyer, to confirm and assure the rights
and obligations provided for in this Agreement and render effective the
consummation of the transactions contemplated hereby, or otherwise to carry out
the intent and purposes of this Agreement (which include the transfer to the
Buyer of the ownership and intended related benefits of the Specified Equipment
and the Specified Real Property).
20
<PAGE>
4.6 Insurance. (a) In the event that, after the Closing, the Buyer or
---------
any of its Affiliates (including but not limited to the Company or any successor
thereto) shall suffer any loss, arising out of a third party claim or otherwise,
that the Buyer in good faith notifies the Seller would be covered by any
insurance policy maintained by or for the benefit of any member of the Seller
Group (an "Insured Claim"), the Seller shall, and shall cause each member of the
-------------
Seller Group to, present and diligently prosecute a claim for payment under such
policy in respect of such loss, and pay to the Buyer the proceeds of such claim
under such policy as reimbursement in respect of the amount of such loss,
subject to the provisions of this Section 4.6.
(b) The amount of proceeds of any such insurance claim to be paid over
to the Buyer shall be limited to the amount actually received by the Seller
Group from its insurers with respect to such claim (net of any self-insured
retention amount, deductible amount, or other amount that the Seller Group is
required to reimburse its insurers under its contractual agreements with them,
in each case with respect to such claim), minus the aggregate amount of all
reasonable out-of-pocket expenses incurred by the Seller Group in presenting and
prosecuting such claim (to the extent not paid or reimbursed by its insurers).
The Buyer shall reimburse the Seller, upon written demand by the Seller
(accompanied by evidence reasonably satisfactory to the Buyer), for such amount
as the Seller is required to pay and does pay by way of retrospective premium
adjustment in respect of such insurance policy on account of any payment by the
insurer thereunder in respect of such claim.
21
<PAGE>
(c) Nothing contained in this Section 4.6 shall require any member of
the Seller Group to keep in force and effect after the Closing any insurance
coverage in effect at the time of the Closing. The Seller will give the Buyer
(x) 30 days' prior written notice before any member of the Seller Group
-
terminates any insurance coverage in effect at the time of the Closing and
applicable to the Company and (y) prompt written notice in the event that any
-
member of the Seller Group receives notice from the insurer providing such
coverage that such coverage is being cancelled or is not being renewed.
5. Covenants of the Buyer.
----------------------
5.1 Further Actions. (a) The Buyer shall use all reasonable efforts to
---------------
take or cause to be taken all actions, and to do or cause to be done all other
things (including the provision of information in the Buyer's possession),
necessary, proper or advisable in order for the Buyer to fulfill and perform its
obligations in respect of this Agreement, or otherwise to consummate and make
effective the transactions contemplated hereby.
(b) The Buyer shall, as promptly as practicable, (i) make, or cause to
-
be made, all filings and submissions required under any Law applicable to the
Buyer, and give such reasonable undertakings as may be required in connection
therewith, and (ii) use all reasonable efforts to obtain or make, or cause to be
--
obtained or made, all Governmental Approvals and Consents necessary to be
obtained or made by the Buyer, in each case in connection with this Agreement,
the sale and transfer of the Purchased Shares pursuant hereto, or the
consummation of the other transactions contemplated hereby. The Buyer will
coordinate and cooperate with the Seller in exchanging such information and
22
<PAGE>
supplying such reasonable assistance as may be reasonably requested by the
Seller in connection with the filings and other actions contemplated by Section
4.4.
(c) At all times prior to the Closing Date, the Buyer shall promptly
notify the Seller in writing of any fact, condition, event or occurrence that
could reasonably be expected to result in the failure of any of the conditions
contained in Sections 7.1 and 7.3 to be satisfied, promptly upon becoming aware
of the same.
6. Covenants of the Buyer and the Seller.
-------------------------------------
6.1 Taxes. (a) Termination of Existing Tax Sharing Arrangements. As of
----- ------------------------------------------------
the Closing Date, all existing tax sharing agreements and arrangements (other
than any tax sharing agreement or arrangement provided herein) between the
Company, on the one side, and the Seller or any Non-Company Affiliate, on the
other side, shall be terminated, and no additional payments shall be made
thereunder. After the Closing, neither the Company, the Seller, nor the Non-
Company Affiliates shall have any further rights or liabilities under any such
agreements or arrangements for any taxable period (whether the current year, a
future year, or a past year).
(b) Seller's Responsibilities. The Seller shall be responsible for and
-------------------------
shall pay (i) to the extent not accrued on the Closing Balance Sheet, any
-
liability for any income, profit, sales, use, value added, transfer, excise,
custom duties or other similar taxes (including all interest and penalties
thereon and additions thereto) imposed on, asserted against or incurred by the
Company with respect to any taxable period (or a portion thereof) ending on or
prior to the Closing Date, and (ii) any liability for Taxes of the Seller or any
--
other entity which, prior to the Closing, is or has been affiliated with the
23
<PAGE>
Company. On or prior to the Closing Date, the Seller shall use its best efforts
to obtain a ruling from the appropriate Mexican taxing authority indicating that
no liability with respect to "Mexican excise taxes" for the period prior to the
Closing Date will be due and payable after the Closing Date.
6.2 Employees. On or before the Closing Date, the Seller and the Buyer
---------
shall agree upon (i) the treatment of any employees involved in the business of
-
the Company but employed by a member of the Seller Group (other than the
Company) and any associated liabilities and (ii) the manner, if any, in which
--
such agreement shall be reflected in the adjustment of the Initial Purchase
Amount pursuant to Section 1.6.
7. Conditions Precedent.
--------------------
7.1 Conditions to Obligations of Each Party. The obligations of the
---------------------------------------
Seller and the Buyer to consummate the transactions contemplated hereby shall be
subject to the fulfillment on or prior to the Closing Date of the following
conditions:
7.1.1 No Injunction, etc. Consummation of the transactions
------------------
contemplated hereby shall not have been restrained, enjoined or otherwise
prohibited or made illegal by any applicable Law, including any order,
injunction, decree or judgment of any court or other Governmental Authority; and
no such Law that would have such an effect shall have been promulgated, entered,
issued or determined by any court or other Governmental Authority to be
applicable to this Agreement. No action or proceeding shall be pending or
threatened by any Governmental Authority or other Person on the Closing Date
before any court or other Governmental Authority to restrain, enjoin or
otherwise prevent the consummation of the transactions contemplated hereby, or
to recover any material
24
<PAGE>
damages or obtain other material relief as a result of such transactions, or
that otherwise relates to the application of any such Law.
7.1.2 Restructuring of Seller. The transactions contemplated under the
-----------------------
Restructuring Agreement shall have been consummated.
7.2 Conditions to Obligations of the Buyer. The obligations of the
--------------------------------------
Buyer to consummate the transactions contemplated hereby shall be subject to the
fulfillment on or prior to the Closing Date of the following additional
conditions, which the Seller agrees to use reasonable efforts to cause to be
fulfilled:
7.2.1 Representations, Performance. (a) The representations and
----------------------------
warranties of the Seller contained in Section 2 (i) shall be true and correct in
-
all material respects at and as of the date hereof, and (ii) shall be repeated
--
and shall be true and correct in all material respects on and as of the Closing
Date with the same effect as though made on and as of the Closing Date.
(b) The Seller shall have in all material respects duly performed and
complied with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by the Seller prior to or on the
Closing Date.
(c) The Seller shall have delivered to the Buyer a certificate, dated
the Closing Date and signed by the Seller, to the effect set forth above in this
Section 7.2.1.
7.2.2 Delivery of Shares. At the Closing, the Seller shall have
------------------
delivered, and shall have caused Ms. Beverly Wyckoff to deliver, all of the
certificates for, respectively, the Zenith Shares and the Wyckoff Share as
provided in Section 1.4.
25
<PAGE>
7.2.3 Delivery of Purchased Equipment. At the Closing, the Seller
-------------------------------
shall have caused Zenith Texas to execute and deliver to the Buyer all bills of
sale, assignments and other instruments necessary to transfer to the Buyer good
and marketable title to the Purchased Equipment as provided in Section 1.4.
7.2.4 Delivery of Specified Real Property. The Company shall have good
-----------------------------------
and marketable title to the Specified Real Property, free and clear of any
Liens.
7.2.5 Audit of Specified Equipment. The Buyer shall have completed, to
----------------------------
its reasonable satisfaction, an audit of the Specified Equipment.
7.2.6 Delivery of Schedules. On or before the Closing Date, the Seller
---------------------
shall have delivered to the Buyer the following:
(a) Personal Property. (1) A complete and correct list of (i) all
----------------- -
tangible personal property owned by the Company, (ii) the Specified Equipment
--
and (iii) the Reynosa Leveraged Lease Equipment; including but not limited to
---
buildings, machinery, equipment and motor vehicles, setting forth the location
of such property; and (2) a complete and correct list of all tangible personal
property leased by the Company, including but not limited to buildings,
machinery, equipment and motor vehicles, setting forth the location of such
property.
(b) Real Property. (1) A complete and correct list of all Owned Real
-------------
Property (including the Specified Real Property) setting forth the address and
owner of each parcel of Owned Real Property and describing all improvements
thereon; (2) a complete and correct list of all Leases setting forth the
address, landlord and tenant for each Lease; and (3) correct and complete copies
of the Leases.
26
<PAGE>
(c) Intellectual Property. (1) A complete and correct list of all
---------------------
Intellectual Property that is owned by the Company; and (2) all written or oral
agreements or arrangements (i) pursuant to which the Company has licensed
-
Intellectual Property to, or the use of Intellectual Property is otherwise
permitted (through non-assertion, settlement or similar agreements or otherwise)
with respect to, any other Person (including any member of the Seller Group) or
(ii) pursuant to which the Company has had Intellectual Property licensed to it,
--
or has otherwise been permitted to use Intellectual Property (through non-
assertion, settlement or similar agreements or otherwise), in each case to the
extent material to the operation of the Purchased Equipment or the business of
the Company.
(d) Contracts. (1) A complete and correct list, as of the Closing
---------
Date, of all Contracts; (2) complete and correct copies of all written
Contracts; and (3) accurate descriptions of all material terms of all oral
Contracts.
(e) Insurance. A complete and correct list and summary description of
---------
all insurance policies maintained (at the Closing Date or at any time during the
two years immediately preceding the Closing Date) by or on behalf of the
Company.
(f) Environmental Matters. All information, including, without
---------------------
limitation, all studies, analyses and test results, in the possession, custody
or control of or otherwise known to any member of the Seller Group relating to
(i) the environmental conditions on, under or about the Real Property or other
properties or assets owned, leased, operated or used by the Company or any
predecessor in interest thereto at the present time or in the past and (ii) any
Hazardous Materials used, managed, handled, transported, treated,
27
<PAGE>
generated, stored or Released by any member of the Seller Group or any other
Person on, under, about or from any of the Real Property, or otherwise in
connection with the use or operation of any of the Purchased Equipment or any of
the properties and assets of the Company.
(g) Employees; Labor Matters, etc. (1) A complete and correct list of
-----------------------------
any collective bargaining agreement to which the Company is a party or by which
the Company is bound; (2) a complete and correct list of any labor unions or
other organizations representing, purporting to represent or attempting to
represent any employees employed by the Company; and (3) a complete and correct
list and summary description of all labor disputes subject, at the Closing Date,
to any grievance procedure, arbitration or litigation and all representation
petitions pending or threatened with respect to any employee of the Company.
(h) Employee Benefit Plans; ERISA. (1) A true and complete list of
-----------------------------
each Plan that identifies each of the Plans that is an "employee benefit plan"
subject to ERISA; and (2) with respect to each Plan, complete and correct copies
of each of the following documents (including all amendments to such documents):
(i) the Plan or a written description of any Plan not in
writing;
(ii) the two most recent annual reports and actuarial reports if
required under ERISA;
(iii) the most recent summary plan description with respect
thereto if required under ERISA or any comparable provision of foreign law;
28
<PAGE>
(iv) if the Plan or any obligations thereunder are funded
through a trust, insurance contract or any other funding vehicle, the
trust, insurance contract or other funding agreement and the two most
recent financial statements thereof;
(v) the most recent determination letter received from the
Internal Revenue Service with respect to each Plan intended to qualify
under section 401(a) of the Code or, in the case of any non-U.S. Plan, the
most recent determination letter or tax qualification approval with respect
to any such non-U.S. plan that is intended to be tax-qualified; and
(vi) communications that the Seller or any of its Subsidiaries
has received from or sent to the PBGC, the Department of Labor, the
Internal Revenue Service or any comparable agency of any foreign
governmental authority concerning any termination of, withdrawal from or
appointment of a trustee to administer any plan or the failure or alleged
failure to comply with any provision of ERISA, the Code or comparable law
of a foreign jurisdiction with respect to any Plan, including any existing
written description of any such oral communication.
(i) Accounts Receivable. (1) A complete and accurate aging of all
-------------------
accounts receivable of the Company as of the end of each monthly period since
October 31, 1999; and (2) a complete and accurate list of any account receivable
of the Company reflected on the Initial Balance Sheet and any account receivable
arising after the date of the Initial Balance Sheet and reflected on the books
of the Company that is uncollectible or subject to counterclaim or offset,
except to the extent reserved against thereon.
29
<PAGE>
(j) Products. Complete and correct copies of the standard terms and
--------
conditions of sale or lease for each of the products or services of the Company
(containing applicable guaranty, warranty and indemnity provisions).
(k) Bank Accounts. A complete and correct list setting forth the
-------------
names of each bank in which the Company has an account or safe deposit or lock
box, the account or box number, as the case may be, and the name of every person
authorized to draw thereon or having access thereto.
(l) Consents. A complete and correct list of all Governmental
--------
Approvals and other Consents necessary for, or otherwise material to, the
operation of the Purchased Equipment or the business of the Company.
7.2.7 Consents; Licenses. (a) All Governmental Approvals and Consents
------------------
required to be made or obtained by the Seller or the Buyer in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby shall have been made or obtained, except for
Consents (other than Governmental Approvals) the failure of which to be made or
obtained, individually and in the aggregate, could not reasonably be expected to
have or result in a Material Adverse Effect, or to materially impair the ability
of the Seller or the Buyer to perform their respective obligations hereunder or
the ability of the Buyer, following the Closing, to continue to operate the
Purchased Equipment or the business of the Company. Complete and correct copies
of all such Governmental Approvals and Consents shall have been delivered to the
Buyer.
30
<PAGE>
(b) The Company shall have received the licenses, in form and
substance satisfactory to the Buyer in its reasonable judgment, in respect of
Intellectual Property under licenses specified or required to be specified
pursuant to Section 7.2.6(c).
7.2.8 Resignation of Directors. All directors and officers of the
------------------------
Company whose resignations shall have been requested by the Buyer not less than
five days prior to the Closing Date shall have submitted their resignations or
been removed from office effective as of the Closing Date.
7.2.9 FIRPTA Certificate. The Seller shall have delivered to the
------------------
Buyer a certificate, as contemplated under and meeting the requirements of
section 1.1445-2(b)(2)(i) of the Treasury Regulations, to the effect that the
Seller is not a foreign person within the meaning of the Code and applicable
Treasury Regulations.
7.2.10 No Material Adverse Effect. No event, occurrence, fact,
--------------------------
condition, change, development or effect shall exist or have occurred or come to
exist or been threatened since December 31, 1998 that, individually or in the
aggregate, has had or resulted in, or could reasonably be expected to become or
result in, a Material Adverse Effect.
7.2.11 Corporate and Other Proceedings. All corporate, partnership and
-------------------------------
other proceedings of each member of the Seller Group in connection with the
transactions contemplated by this Agreement shall be satisfactory in form and
substance to the Buyer and its counsel in their reasonable judgement, and the
Buyer and its counsel shall have received all such documents and instruments, or
copies thereof, certified if requested, as may be reasonably requested.
31
<PAGE>
7.3 Conditions to Obligations of the Seller. The obligation of the
---------------------------------------
Seller to consummate the transactions contemplated hereby shall be subject to
the fulfillment, on or prior to the Closing Date, of the following additional
conditions, which the Buyer agrees to use reasonable efforts to cause to be
fulfilled:
7.3.1 Representations, Performance, etc. (a) The representations and
---------------------------------
warranties of the Buyer contained in Section 3 (i) shall be true and correct in
all material respects at and as of the date hereof and (ii) shall be repeated
and shall be true and correct in all material respects on and as of the Closing
Date with the same effect as though made at and as of such time.
(b) The Buyer shall have in all material respects duly performed and
complied with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by it prior to or on the Closing
Date.
(c) The Buyer shall have delivered to the Seller a certificate dated
the Closing Date and signed by the Buyer to the effect set forth above in this
Section 7.3.1.
7.3.2 Corporate Proceedings. All corporate proceedings of the Buyer in
---------------------
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Seller and their counsel in their
reasonable judgement, and the Seller and their counsel shall have received all
such documents and instruments, or copies thereof, certified if requested, as
may be reasonably requested.
8. Termination.
-----------
8.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
32
<PAGE>
(a) By the written agreement of the Buyer and the Seller; or
(b) By either the Buyer or the Seller by written notice to the other
party if the Restructuring Agreement shall have terminated.
8.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to the provisions of Section 8.1, this Agreement shall become
void and have no effect, without any liability to any Person in respect hereof
or of the transactions contemplated hereby on the part of any party hereto, or
any of its directors, officers, Representatives, stockholders or Affiliates,
except for any liability resulting from such party's breach of this Agreement.
9. Indemnification.
---------------
9.1 Indemnification by the Seller. The Seller covenants and agrees to
-----------------------------
defend, indemnify and hold harmless each of the Buyer, its Affiliates, the
Company and their respective officers, directors, employees, agents, advisers
and representatives (collectively, the "Buyer Indemnitees") from and against,
-----------------
and pay or reimburse the Buyer Indemnitees for, any and all claims, demands,
liabilities, obligations, losses, fines, costs, expenses, royalties, Litigation,
deficiencies or damages (whether absolute, accrued, conditional or otherwise and
whether or not resulting from third party claims), including interest and
penalties with respect thereto and out-of-pocket expenses and reasonable
attorneys', consultants' and accountants' fees and expenses incurred in the
investigation or defense of any of the same or in asserting, preserving or
enforcing any of their respective rights hereunder (collectively, "Losses"),
------
resulting from or arising out of:
33
<PAGE>
(1) any liability of the Company which existed at the Closing
Date but was not reflected in the Closing Balance Sheet to the extent such
Loss is incurred on or before December 31, 2000;
(2) the termination on or before December 31, 2000 of the
employment of any employee involved in the business of the Company that was
employed by a member of the Seller Group as of the Closing Date, up to an
amount not to exceed $6 million;
(3) all Environmental Conditions; or
(4) to the extent not covered by Section 9.1(1) above, any tax
liability described in Section 6.1(b).
9.2 Claims for Indemnification. All claims for indemnification
--------------------------
pursuant to this Section 9 shall be delivered as provided in Section 11.2.
9.3 Payment Adjustments, etc. (a) Any indemnity payment made by
-------------------------
the Seller to the Buyer Indemnitees pursuant to this Section 9 in respect of any
claim shall be net of an amount equal to (x) any insurance proceeds realized by
-
and paid to the Indemnified Party minus (y) any related costs and expenses,
-
including the aggregate cost of pursuing any related insurance claims plus any
correspondent increases in insurance premiums or other chargebacks. The
Indemnified Party shall use its reasonable efforts to make insurance claims
relating to any claim for which it is seeking indemnification pursuant to this
Section 9; provided, that the Indemnified Party shall not be obligated to make
--------
such an insurance claim if the Indemnified Party in its reasonable judgment
believes that the cost of pursuing such an insurance claim together with any
correspondent increase
34
<PAGE>
in insurance premiums or other chargebacks to the Indemnified Party or the
Company, as the case may be, would exceed the value of the claim for which the
Indemnified Party is seeking indemnification pursuant to this Section 9.
(b) The provisions of this Section 9 shall in no way limit,
supersede or otherwise affect the rights of any party under Section 1.6, and
nothing contained in Section 1.6 relating to an adjustment to the Initial
Purchase Amount shall limit, supersede or otherwise affect the rights of any
party under this Section 9; provided, that no party shall be entitled to be
--------
compensated more than once for the same Loss.
9.4 Indemnification Procedures. In the case of any claim asserted
--------------------------
by a third party against a party entitled to indemnification under this
Agreement (the "Indemnified Party"), notice shall be given by the Indemnified
-----------------
Party to the party required to provide indemnification (the "Indemnifying
------------
Party") promptly after such Indemnified Party has actual knowledge of any claim
- -----
as to which indemnity may be sought, and the Indemnified Party shall permit the
Indemnifying Party (at the expense of such Indemnifying Party) to assume the
defense of any claim or any litigation resulting therefrom, provided, that (i)
-
counsel for the Indemnifying Party who shall conduct the defense of such claim
or litigation shall be reasonably satisfactory to the Indemnified Party, and the
Indemnified Party may participate in such defense at such Indemnified Party's
expense, and (ii) the failure of any Indemnified Party to give notice as
--
provided herein shall not relieve the Indemnifying Party of its indemnification
obligation under this Agreement except to the extent that such failure results
in a lack of actual notice to the Indemnifying Party and such Indemnifying Party
is materially prejudiced as a result of such
35
<PAGE>
failure to give notice. Except with the prior written consent of the Indemnified
Party, no Indemnifying Party, in the defense of any such claim or litigation,
shall consent to entry of any judgment or enter into any settlement that
provides for injunctive or other nonmonetary relief affecting the Indemnified
Party or that does not include as an unconditional term thereof the giving by
each claimant or plaintiff to such Indemnified Party of a release from all
liability with respect to such claim or litigation. In the event that the
Indemnified Party shall in good faith determine that the conduct of the defense
of any claim subject to indemnification hereunder or any proposed settlement of
any such claim by the Indemnifying Party might be expected to affect adversely
the Indemnified Party's (or any of its Affiliate's) Tax liability or the ability
of the Company to conduct its business, or that the Indemnified Party may have
available to it one or more defenses or counterclaims that are inconsistent with
one or more of those that may be available to the Indemnifying Party in respect
of such claim or any litigation relating thereto, the Indemnified Party shall
have the right at all times to take over and assume control over the defense,
settlement, negotiations or litigation relating to any such claim at the sole
cost of the Indemnifying Party, provided, that if the Indemnified Party does so
--------
take over and assume control, the Indemnified Party shall not settle such claim
or litigation without the written consent of the Indemnifying Party, such
consent not to be unreasonably withheld. In the event that the Indemnifying
Party does not accept the defense of any matter as above provided, the
Indemnified Party shall have the full right to defend against any such claim or
demand, and shall be entitled to settle or agree to pay in full such claim or
demand. In any event, the Seller and the Buyer shall cooperate in the defense of
any claim
36
<PAGE>
or litigation subject to this Section 9 and the records of each shall be
available to the other with respect to such defense.
9.5 Tax Treatment of Indemnity Payments. Any payment made pursuant
-----------------------------------
to this Section 9 shall be treated for Tax purposes as an adjustment to the
Initial Purchase Amount, as adjusted, unless otherwise required by law.
10. Definitions.
-----------
10.1 Terms Generally. The words "hereby", "herein", "hereof",
---------------
"hereunder" and words of similar import refer to this Agreement as a whole
(including any Schedules hereto) and not merely to the specific section,
paragraph or clause in which such word appears. All references herein to
Articles, Sections and Schedules shall be deemed references to Articles and
Sections of, and Schedules to, this Agreement unless the context shall otherwise
require. The words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation." The definitions given for terms in
this Section 10 and elsewhere in this Agreement shall apply equally to both the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. Except as otherwise expressly provided herein, all references to
"dollars" or "$" shall be deemed references to the lawful money of the United
States of America.
10.2 Certain Terms. Whenever used in this Agreement (including in the
-------------
Schedules), the following terms shall have the respective meanings given to them
below or in the Sections indicated below:
37
<PAGE>
Affiliate: of a Person means a Person that directly or indirectly through
---------
one or more intermediaries, controls, is controlled by, or is under common
control with, the first Person, including but not limited to a Subsidiary of the
first Person, a Person of which the first Person is a Subsidiary, or another
Subsidiary of a Person of which the first Person is also a Subsidiary. "Control"
(including the terms "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the ownership
of voting securities, by contract or credit arrangement, as trustee or executor,
or otherwise.
Agreement: this Amended and Restated Stock and Asset Purchase Agreement,
---------
including the Schedules hereto.
Buyer: as defined in the introductory paragraph of this Agreement.
-----
CERCLA: the Comprehensive Environmental Response, Compensation and
------
Liability Act, as amended, 42 U.S.C. (S) 9601 et seq.
-- ---
Closing: as defined in Section 1.4.
-------
Closing Balance Sheet: as defined in Section 1.6.
---------------------
Closing Date: as defined in Section 1.4.
------------
Code: the Internal Revenue Code of 1986, as amended.
----
Company: as defined in the first recital to this Agreement.
-------
Consent: any consent, approval, authorization, waiver, permit, grant,
-------
franchise, concession, agreement, license, certificate, exemption, order,
registration, declaration, filing, report or notice of, with or to any Person.
38
<PAGE>
Contract: all loan agreements, indentures, letters of credit (including
--------
related letter of credit applications and reimbursement obligations), mortgages,
security agreements, pledge agreements, deeds of trust, bonds, notes,
guarantees, surety obligations, warranties, licenses, franchises, permits,
powers of attorney, purchase orders, leases, and other agreements, contracts,
instruments, obligations, offers, commitments, arrangements and understandings,
written or oral, to which the Company is a party or by which it or any of its
properties or assets may be bound or affected, in each case as amended,
supplemented, waived or otherwise modified, that are of the types listed in
clauses (a) through (o) below:
(a) leases, subleases, licenses, occupancy agreements, permits, franchises,
insurance policies, agreements, Governmental Approvals and other Contracts
concerning or relating to the Real Property;
(b) employment, consulting, severance, agency, bonus, compensation, or
other trusts, funds and other Contracts (other than the Plans) relating to or
for the benefit of current, future or former employees, officers, directors,
sales representatives, distributors, dealers, agents, independent contractors or
consultants (whether or not legally binding), including sales agency or
distributorship agreements or arrangements for the sale of any of the products
or services of the Company;
(c) loan agreements, indentures, letters of credit (including related
letter of credit applications and reimbursement obligations), mortgages,
security agreements, pledge agreements, deeds of trust, bonds, notes,
guarantees,
39
<PAGE>
instruments and other contracts relating to the borrowing of money or obtaining
of or extension of credit;
(d) licenses, licensing arrangements and other Contracts providing in
whole or in part for the use of, or limiting the use of, any Intellectual
Property;
(e) finder's Contracts;
(f) joint venture, partnership and similar Contracts involving a sharing of
profits or expenses;
(g) stock purchase agreements, asset purchase agreements and other
acquisition or divestiture agreements, including but not limited to any
agreements relating to the acquisition, lease or disposition of the Company, any
material assets or properties (including the Purchased Equipment) (other than
sales of inventory made in the ordinary course of business), any business, or
any capital stock of or other interest in any Person by the Seller or the
Company, within the last five years, or involving continuing indemnity or other
obligations;
(h) Contracts prohibiting or materially restricting the ability of the
Company to conduct the business of the Company, to use or operate any of its
assets, to engage in any business or operate in any geographical area or to
compete with any Person;
(i) orders and other Contracts for the purchase or sale of materials,
supplies, products or services, involving aggregate payments in excess of
$100,000 in each case or $1,000,000 in the aggregate;
40
<PAGE>
(j) orders and other Contracts with or for the direct or indirect benefit
of the Seller or any Affiliate of the Seller (other than the Company) (whether
or not legally binding);
(k) Contracts providing for future payments that are conditioned, in whole
or in part, on a change in control of the Company;
(l) powers of attorney, except routine powers of attorney relating to
representation before governmental agencies or given in connection with
qualification to conduct business in another jurisdiction;
(m) Contracts not entered into in the ordinary course of business;
(n) Contract or series of related Contracts with respect to which the
aggregate amount that could reasonably expected to be paid or received
thereunder in the future exceeds $100,000 per annum or an aggregate of
$1,000,000 under the term of the Contract; and
(o) Contracts that are or will be material to the Purchased Equipment or to
the business, operations, results of operations, condition (financial or
otherwise), assets or properties of the Company.
Environmental Conditions: all environmental conditions and areas of concern
------------------------
identified in the Report of Opinions of Environmental Cost dated February 25,
1999 prepared by Bradburne, Briller & Johnson, LLC, or the Report of Phase I
Environmental Site Assessments dated March 6, 1997 prepared by Law Engineering
and Environmental Services, Inc., including, without limitation, Remedial
Actions based on, arising out of or otherwise in respect of: (i) the
-
41
<PAGE>
ownership or operation of the Real Property or the Purchased Equipment or the
business of the Company; (ii) the environmental conditions existing on, under,
--
above, about or emanating from the Real Property; and (iii) expenditures
---
necessary to cause the Real Property or any aspect of the Purchased Equipment or
the business of the Company to be in compliance with any and all requirements of
Environmental Laws as of the Closing Date, including, without limitation, all
Consents issued under or pursuant to such Environmental Laws.
Environmental Laws: all Laws relating to the protection of the environment,
------------------
to human health and safety, or to natural resources, including, without
limitation, (a) CERCLA, the Resource Conservation and Recovery Act, and the
-
Occupational Safety and Health Act, (b) all other requirements pertaining to
-
reporting, licensing, permitting, investigation or remediation of emissions,
discharges, releases or threatened releases of Hazardous Materials into the air,
surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, sale, treatment, receipt, storage, disposal, transport or
handling of Hazardous Materials, and (c) all other requirements pertaining to
-
the protection of the health and safety of employees or the public.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
-----
Financial Statements: (a) the financial statements of the Company as at and
-------------------- -
for the years ended December 31, 1997 and 1998, together with reports on such
year-end statements by the Company's independent public accountants, including
42
<PAGE>
in each case a balance sheet, a statement of loss, a statement of changes in
stockholders' equity and a statement of cash flows, and accompanying notes and
(b) the unaudited balance sheet of the Company as of August 31, 1999.
-
Governmental Approval: any Consent of, with or to any Governmental
---------------------
Authority.
Governmental Authority: any nation or government, any state or other
----------------------
political subdivision thereof; any entity, authority or body exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any government
authority, agency, department, board, commission or instrumentality of the
United States, any State of the United States or any political subdivision
thereof; any court, tribunal or arbitrator; and any self-regulatory
organization.
Hazardous Materials: any substance that: (a) is or contains asbestos, urea
------------------- -
formaldehyde foam insulation, polychlorinated biphenyls, petroleum or petroleum-
derived substances or wastes, radon gas or related materials (b) requires
-
investigation, removal or remediation under any Environmental Law, or is
defined, listed or identified as a "hazardous waste" or "hazardous substance"
thereunder, or (c) is toxic, explosive, corrosive, flammable, infectious,
-
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated by
any Governmental Authority or Environmental Law.
Indebtedness: as applied to any Person, means, without duplication, (a) all
------------ -
indebtedness for borrowed money, (b) all obligations evidenced by a note, bond,
-
43
<PAGE>
debenture, letter of credit, draft or similar instrument, (c) that portion of
-
obligations with respect to capital leases that is properly classified as a
liability on a balance sheet in conformity with GAAP, (d) notes payable and
-
drafts accepted representing extensions of credit, (e) any obligation owed for
-
all or any part of the deferred purchase price of property or services, which
purchase price is due more than six months from the date of incurrence of the
obligation in respect thereof, and (f) all indebtedness and obligations of the
-
types described in the foregoing clauses (a) through (e) to the extent secured
by any Lien on any property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed by that Person
or is nonrecourse to the credit of that Person.
Initial Balance Sheet: as defined in Section 1.3.
---------------------
Initial Purchase Amount: $33,747,225.57, as set forth in the Initial
-----------------------
Balance Sheet delivered on the date hereof pursuant to Section 1.3.
Insured Claim: as defined in Section 4.6.
-------------
Intellectual Property: the United States and foreign trademarks, service
---------------------
marks, trade names, trade dress, copyrights, and similar rights, including
registrations and applications to register or renew the registration of any of
the foregoing, the United States and foreign letters patent and patent
applications, and inventions, processes, designs, formulae, trade secrets, know-
how, confidential information, computer software, data and documentation, and
all similar
44
<PAGE>
intellectual property rights, tangible embodiments of any of the foregoing (in
any medium including electronic media), and licenses of any of the foregoing.
IRS: the Internal Revenue Service.
---
LGE: LG Electronics Inc., a corporation organized under the laws of the
---
Republic of Korea, of which the Buyer is a wholly-owned subsidiary.
Law: all applicable provisions of all (a) constitutions, treaties,
--- -
statutes, laws (including the common law), codes, rules, regulations, ordinances
or orders of any Governmental Authority, (b) Governmental Approvals and (c)
- -
orders, decisions, injunctions, judgments, awards and decrees of or agreements
with any Governmental Authority.
Leased Real Property: all interests leased pursuant to the Leases.
--------------------
Leases: the real property leases, subleases, licenses and occupancy
------
agreements pursuant to which the Seller or the Company is the lessee, sublessee,
licensee, user or occupant of real property used in or held for use in
connection with, necessary for the conduct or operation of, or otherwise
material to, the Purchased Equipment or the business of the Company.
Lien: any mortgage, pledge, deed of trust, hypothecation, right of others,
----
claim, security interest, encumbrance, burden, title defect, title retention
agreement, lease, sublease, license, occupancy agreement, easement, covenant,
condition, encroachment, voting trust agreement, interest, option, right of
first offer, negotiation or refusal, proxy, lien, charge or other restrictions
or limitations
45
<PAGE>
of any nature whatsoever, including but not limited to such Liens as may
arise under any Contract.
Litigation: any action, cause of action, claim, demand, suit,
----------
proceeding, citation, summons, subpoena, inquiry or investigation of any
nature, civil, criminal, regulatory or otherwise, in law or in equity,
pending or threatened, by or before any court, tribunal, arbitrator or
other Governmental Authority.
Material Adverse Effect: any (a) event, occurrence, fact, condition,
-----------------------
change, development or effect that is or may be materially adverse to the
Purchased Equipment or to the business, operations, prospects, results of
operations, condition (financial or otherwise), properties (including
intangible properties), assets (including intangible assets) or liabilities
of the Company or (b) material impairment of the ability of the Seller to
perform its obligations hereunder.
Mexican GAAP: as defined in Section 2.6(b).
------------
Net Book Value: the book value (net of reserves) of all assets of the
--------------
Company less the book value of all liabilities of the Company which are
reflected in the Initial Balance Sheet or the Closing Balance Sheet, as
applicable.
Notes: the Floating Rate Senior Secured Notes due 2009, issued by the
-----
Seller to LGE pursuant to the Seller's Prepackaged Plan of Reorganization,
dated August 24, 1999.
ordinary course of business: the usual, regular and ordinary course of
---------------------------
business of the Company consistent with the past custom and practice
thereof.
46
<PAGE>
Organizational Documents: as to any Person, its certificate or
------------------------
articles of incorporation, by-laws and other organizational documents.
Owned Real Property: the real property owned by the Company, together
-------------------
with all structures, facilities, improvements, fixtures, systems, equipment
and items of property presently or hereafter located thereon or attached or
appurtenant thereto or owned by the Company and located on Leased Real
Property, and all easements, licenses, rights and appurtenances relating to
the foregoing.
PBGC: the Pension Benefit Guaranty Corporation.
----
Person: any natural person, firm, partnership, association,
------
corporation, company, trust, business trust, Governmental Authority or
other entity.
Plan: each "employee benefit plan," within the meaning of section 3(3)
----
of ERISA (whether or not subject to ERISA) and each bonus, deferred
compensation, incentive compensation, stock purchase, stock option or other
equity based, severance, termination, change in control, retention,
employment, hospitalization or other medical, life or insurance,
disability, other welfare, supplemental unemployment benefits, profit-
sharing, pension, or retirement plan, program, agreement or arrangement,
and each other employee compensation or benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to by any member of the
Seller Group or by any trade or business thereof, whether or not
incorporated, for the benefit of the Company or any employee, former
employee, director or former director of the Company or with
47
<PAGE>
respect to which the Company has or could reasonably be expected to have
any material liability (matured or unmatured, absolute or contingent).
Purchased Equipment: the Specified Equipment and the Reynosa Leveraged
-------------------
Lease Equipment.
Purchased Shares: as defined in Section 1.1.
----------------
Real Property: the Owned Real Property and the Leased Real Property.
-------------
Release: any releasing, disposing, discharging, injecting, spilling,
-------
leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping,
dispersal, leeching, migration, transporting, placing and the like,
including without limitation, the moving of any materials through, into or
upon, any land, soil, surface water, ground water or air, or otherwise
entering into the environment.
Remedial Action: all actions required under Environmental Law to (i)
--------------- -
clean up, remove, treat or in any other way remediate any Hazardous
Materials; (ii) prevent the release of Hazardous Materials so that they do
--
not migrate or en-danger or threaten to endanger public health or welfare
or the environment; or (iii) perform studies, investigations and care
---
related to any such Hazardous Materials.
Representatives: as to any Person, its accountants, counsel,
---------------
consultants (including actuarial, environmental and industry consultants),
officers, directors, employees, agents and other advisors and
representatives.
Restructuring Agreement: the Amended and Restated Restructuring
-----------------------
Agreement, dated June 14, 1999, between the Seller and LGE.
48
<PAGE>
Reynosa Leveraged Lease Equipment: the equipment identified on
---------------------------------
Schedule I to the Asset Sale and Purchase Agreement, dated the date hereof,
between The Zenith Electronics Equipment Owner Trust 1997-II, a non-
business trust organized under the laws of the State of Connecticut, and
Zenith Texas.
Rights: as defined in Section 4.4(e).
------
Seller: as defined in the introductory paragraph of this Agreement.
------
Seller Group: the Seller and its Subsidiaries, including (prior to the
------------
consummation of the Closing) the Company.
Specified Equipment: the equipment and other assets identified in
-------------------
Section 1(a) of the Disclosure Letter, dated August 7, 1998, from the
Seller to LGE, as amended and modified by the Disclosure Letter, dated as
of June 14, 1999, from the Seller to LGE, as further modified by written
agreement between the Seller and LGE.
Specified Real Property: (a) the land and buildings that comprise the
----------------------- -
Company's production facilities #12, #13 and #27 in Reynosa, Mexico and all
fixtures located thereon and (b) the Trailer Parking Area.
-
Subsidiaries: each corporation or other Person in which a Person owns
------------
or controls, directly or indirectly, capital stock or other equity
interests representing more than 50% of the outstanding voting stock or
other equity interests.
Tax: any federal, state, local or foreign income, alternative,
---
minimum, accumulated earnings, personal holding company, franchise, capital
stock, profits, windfall profits, gross receipts, sales, use, value added,
transfer, registration,
49
<PAGE>
stamp, premium, excise, customs duties, severance, environmental (including
taxes under section 59A of the Code), real property, personal property, ad
valorem, occupancy, license, occupation, employment, payroll, social
security, disability, unemployment, workers' compensation, withholding,
estimated or other similar tax, duty, fee, assessment or other governmental
charge or deficiencies thereof (including all interest and penalties
thereon and additions thereto).
Trailer Parking Area: the trailer parking area formerly associated
--------------------
with the Company's production facilities #12A, #13A and #27 in Reynosa,
Mexico and all fixtures located thereon.
Treasury Regulations: the regulations prescribed under the Code.
--------------------
Wyckoff Share: as defined in the third recital to this Agreement.
-------------
Zenith Shares: as defined in the third recital to this Agreement.
-------------
Zenith Texas: Zenith Electronics Corporation of Texas, a Texas
------------
corporation and a wholly-owned subsidiary of the Seller.
Zenith Texas Shares: as defined in the third recital to this
-------------------
Agreement.
11. Miscellaneous.
-------------
11.1 Expenses. Except as otherwise specifically provided for in this
--------
Agreement, the Seller, on the one hand, and the Buyer, on the other hand, shall
bear their respective expenses, costs and fees (including attorneys', auditors'
and financing commitment fees) in connection with the transactions contemplated
hereby, including the
50
<PAGE>
preparation, execution and delivery of this Agreement and compliance herewith,
whether or not the transactions contemplated hereby shall be consummated.
11.2 Notices. All notices, requests, demands, waivers and other
-------
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
-
personally, (b) mailed, certified or registered mail with postage prepaid, (c)
- -
sent by next-day or overnight mail or delivery or (d) sent by telecopy or
-
telegram, as follows:
(1) if to the Buyer,
LG Electronics Alabama, Inc.
201 James Record Road
Huntsville, Alabama 35824-0126
Telecopy: (256) 772-6129
Telephone: (256) 772-4500
Attention: Ki Jong Kim
and to:
LG Electronics Inc.
LG Twin Towers
20, Yoido-dong
Youngdungpo-gu
Seoul, Korea 150-721
Telepcopy: 011-82-2-3777-5303
Telephone: 011-82-2-3777-3049
Attention: Chief Financial Officer
and to:
LG Electronics Inc.
6133 North River Road
Rosemont, IL 60018
Telecopy: (847) 692-3576
Telephone: (847) 692-4630
Attention: Nam K. Woo
with a copy to:
51
<PAGE>
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telecopy: (212) 909-6836
Telephone: (212) 909-6000
Attention: Steven R. Gross
(2) if to the Seller,
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, Illinois 60025-2493
Telecopy: (847) 391-8584
Telephone: (847) 391-8064
Attention: Richard F. Vitkus, General Counsel
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Telecopy: (312) 861-2200
Telephone: (312) 861-2200
Attention: James H.M. Sprayregen
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
-
after such delivery, (x) if by certified or registered mail, on the seventh
-
business day after the mailing thereof, (y) if by next-day or overnight mail or
-
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
-
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
11.3 Governing Law, etc. THIS AGREEMENT SHALL BE GOVERNED IN ALL
------------------
RESPECTS, INCLUDING AS TO VALIDITY,
52
<PAGE>
INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS RULES THEREOF (OTHER THAN SECTION
5-1411 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). The Buyer and
the Seller hereby irrevocably submit to the jurisdiction of the courts of the
State of Illinois and the Federal courts of the United States of America located
in Chicago, Illinois solely in respect of the interpretation and enforcement of
the provisions of this Agreement and of the documents referred to in this
Agreement, and in respect of the transactions contemplated hereby and thereby.
Each of the Buyer and the Seller irrevocably agrees that all claims in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated hereby and thereby, or with respect to any such action or
proceeding, shall be heard and determined in such an Illinois State or Federal
court, and that such jurisdiction of such courts with respect thereto shall be
exclusive, except solely to the extent that all such courts shall lawfully
decline to exercise such jurisdiction. Each of the Buyer and the Seller hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such document or in
respect of any such transaction, that it is not subject to such jurisdiction.
Each of the Buyer and the Seller hereby waive, and agree not to assert, as a
defense in any action, suit or proceeding for the interpretation or enforcement
hereof or of any such document or in respect of any such transaction, that such
action, suit or proceeding may not be brought or is not maintainable in such
courts or that the venue thereof may not be appropriate or that this Agreement
or
53
<PAGE>
any such document may not be enforced in or by such courts. The Buyer and the
Seller hereby consent to and grant any such court jurisdiction over the person
of such parties and over the subject matter of any such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 11.2 or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
11.4 Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
11.5 Assignment. This Agreement shall not be assignable or otherwise
----------
transferable by any party hereto without the prior written consent of the other
party hereto, and any purported assignment or other transfer without such
consent shall be void and unenforceable; provided, that the Buyer may assign
--------
this Agreement to any Affiliate of the Buyer without the prior written consent
of the Seller.
11.6 No Third Party Beneficiaries. Nothing in this Agreement shall
----------------------------
confer any rights upon any person or entity other than the parties hereto and
their respective heirs, successors and permitted assigns.
11.7 Amendment; Waivers, etc. No amendment, modification or discharge
-----------------------
of this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no
54
<PAGE>
way impair the rights of the party granting such waiver in any other respect or
at any other time. Neither the waiver by any of the parties hereto of a breach
of or a default under any of the provisions of this Agreement, nor the failure
by any of the parties, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right or privilege hereunder,
shall be construed as a waiver of any other breach or default of a similar
nature, or as a waiver of any of such provisions, rights or privileges
hereunder. The rights and remedies herein provided are cumulative and none is
exclusive of any other, or of any rights or remedies that any party may
otherwise have at law or in equity. The rights and remedies of any party based
upon, arising out of or otherwise in respect of any inaccuracy or breach of any
representation, warranty, covenant or agreement or failure to fulfill any
condition shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement as to which there is no inaccuracy or breach.
The representations and warranties of the Seller shall not be affected or deemed
waived by reason of any investigation made by or on behalf of the Buyer
(including but not limited to by any of its advisors, consultants or
representatives) or by reason of the fact that the Buyer or any of such
advisors, consultants or representatives knew or should have known that any such
representation or warranty is or might be inaccurate.
11.8 Entire Agreement. This Agreement constitutes the entire agreement
----------------
and supersede all prior agreements and understandings (including, without
limitation, the
55
<PAGE>
Restructuring Agreement), both written and oral, between the parties with
respect to the subject matter hereof.
11.9 Severability. If any provision, including any phrase, sentence,
------------
clause, section or subsection, of this Agreement is invalid, inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering such provision in question invalid, inoperative or unenforceable in
any other case or circumstance, or of rendering any other provision herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
11.10 Headings. The headings contained in this Agreement are for
--------
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
11.11 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
56
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
ZENITH ELECTRONICS CORPORATION
By ____________________________________
Name:
Title:
LG ELECTRONICS ALABAMA, INC.
By ____________________________________
Name:
Title:
57
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<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 123
<ALLOWANCES> 23
<INVENTORY> 79
<CURRENT-ASSETS> 222
<PP&E> 559
<DEPRECIATION> 508
<TOTAL-ASSETS> 279
<CURRENT-LIABILITIES> 274
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (158)
<TOTAL-LIABILITY-AND-EQUITY> 279
<SALES> 834
<TOTAL-REVENUES> 834
<CGS> 752
<TOTAL-COSTS> 752
<OTHER-EXPENSES> 106
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> (62)
<INCOME-TAX> 2
<INCOME-CONTINUING> (64)
<DISCONTINUED> 0
<EXTRAORDINARY> 70
<CHANGES> 0
<NET-INCOME> 6
<EPS-BASIC> 0
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</TABLE>
