-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CoNW1Iw3ZsFjGIXjjMMWSM4gcL2hPxKZ67f7McmBa1dOifnyj7Sh6wS5mazQDnXi zgRjqlJMLWZII8V78+xHSQ== 0000950131-00-002296.txt : 20000331 0000950131-00-002296.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950131-00-002296 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZENITH ELECTRONICS CORP CENTRAL INDEX KEY: 0000109265 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 361996520 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-04115 FILM NUMBER: 589111 BUSINESS ADDRESS: STREET 1: 1000 MILWAUKEE AVE CITY: GLENVIEW STATE: IL ZIP: 60025 BUSINESS PHONE: 8473917000 MAIL ADDRESS: STREET 1: 1000 MILWAUKEE AVENUE CITY: GLENVIEW STATE: IL ZIP: 60025 FORMER COMPANY: FORMER CONFORMED NAME: ZENITH RADIO CORP DATE OF NAME CHANGE: 19840508 10-K405 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------- 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 ---------------- 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 ---------------- 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 ---------------- 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. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 2 (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. 3 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. 4 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. 5 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.
Square Feet (in Location Nature of Operations millions) - -------- -------------------- ----------- 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 ===
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 6 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. 7 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. 8 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
1999(1) 1998(1) 1997 1996 1995 ------- ------- -------- -------- -------- In millions 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
- -------- (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 9 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 10 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 11 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. 12 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 13 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. 14 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. 15 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. 16 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 17 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 18 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. 19 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
Director Name Age Since Background Information ---- --- -------- ---------------------- 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.
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 20 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.
Name Office Held Age ---- ----------- --- 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.
21
Name Office Held Age ---- ----------- --- 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.
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
Other Restricted Securities Annual Stock Underlying All Name & Principal Salary Comp. Awards Options/SARs Other Position Year ($) Bonus ($) ($)(1) ($) (#)(&) Comp - ---------------- ---- ------- --------- ------ ---------- ------------ ------- 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
- -------- (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 (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 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 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 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 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 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 *(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 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.
Signature Title Date --------- ----- ---- /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
30 INDEX TO FINANCIAL STATEMENTS AND EXHIBITS 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
31 CONSOLIDATED FINANCIAL STATEMENTS ZENITH ELECTRONICS CORPORATION STATEMENTS OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS (DEFICIT) In millions
Year Ended December 31 -------------------------- 1999 1998 1997 ------- ------- -------- 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) ======= ======= ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 32 ZENITH ELECTRONICS CORPORATION CONSOLIDATED BALANCE SHEETS In millions, except share and per share data
December 31 ---------------- 1999 1998 ------- ------- 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 ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 33 ZENITH ELECTRONICS CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS In millions
Increase (Decrease) in Cash Year Ended December 31 ------------------------------ 1999 1998 1997 --------- --------- --------- 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 -- --
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 34 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 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 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): 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
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 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 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 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 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:
1999 1998 1997 Interest Interest Interest Expense Expense Expense -------- -------- -------- 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 ===== ===== ===== 1999 1998 1997 Interest Interest Interest Rate Rate Rate -------- -------- -------- 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
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 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):
Cash Restructuring Payments Restructuring Reserve at 1999 and Asset Reserve at Dec. 31, 1998 Charges Write-off Dec. 31, 1999 ------------- ------- --------- ------------- 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 ===== ===== ====== =====
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):
Restructuring Restructuring Charges at Asset Cash Reserve at Inception Write-off Payment Dec. 31 1998 ------------- --------- ------- ------------- 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 ====== ======= ====== =====
42 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 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):
Year Ended December 31 --------------------------- 1999 1998 1997 ------- ------- ------- 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: Year Ended December 31 --------------------------- 1999 1998 1997 ------- ------- ------- 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)% -- % ======= ======= =======
44 ZENITH ELECTRONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Deferred tax assets (liabilities) are comprised of the following (in millions):
Year Ended December 31 ---------------- 1999 1998 ------- ------- 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................................ $ -- $ -- ======= =======
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 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):
Consumer Network Corporate Electronics Systems and Other Consolidated ----------- ------- --------- ------------ 1999 - ---- 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 1998 - ---- 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 1997 - ---- 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
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 ZENITH ELECTRONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Financial information, summarized by geographic area, is as follows (in millions):
Year Ended December 31 ---------------------- 1999 1998 1997 ------ ------ -------- 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 ====== ====== ========
- -------- (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):
Year Ended December 31 ---------------------- 1999 1998 1997 ------ ------ ------ 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 ====== ====== ======
Note Eleven--Inventories: Inventories consisted of the following (in millions):
December 31 ----------- 1999 1998 ----- ----- Raw materials and work-in-process............................. $26.0 $47.1 Finished goods................................................ 52.7 37.1 ----- ----- Total inventories........................................... $78.7 $84.2 ===== =====
47 ZENITH ELECTRONICS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note Twelve--Stockholders' Equity: Changes in stockholders' equity accounts are shown below (in millions):
Additional Common Paid-in Treasury Stock Capital Shares ------- ---------- -------- 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 $ -- ======= ======= ======
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):
December 31 ---------------- 1999 1998 ------- ------- 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 ======= =======
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 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 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):
Year Ended December 31 --------------------- 1999 1998 1997 ------ ------ ----- 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%
Note Sixteen--Long-term Debt: The components of long-term debt were as follows (in millions):
December 31 ------------- 1999 1998 ------ ------ 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 ====== ======
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 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 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 UNAUDITED QUARTERLY FINANCIAL INFORMATION
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 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)
- -------- (1) Includes $70.2 million extraordinary gain. (2) Includes $94.5 million of restructuring charges. (3) Includes $100.4 million of restructuring charges. 53 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 FINANCIAL STATEMENT SCHEDULE SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (In millions)
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 ----------------------- ---------- ---------- -------- ---------- ---------- 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) $ -- ====== ====== ===== ====== ======
- -------- (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 EX-3.(A) 2 AMENDED & RESTATED CERTIFICATE OF INCORPORATION 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. 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 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 EX-3.(B) 3 AMENDED & RESTATED BY-LAWS EXHIBIT 3 (b) ================================================================================ ZENITH ELECTRONICS CORPORATION AMENDED AND RESTATED BY-LAWS ------- As Adopted on November 9, 1999 ================================================================================ ZENITH ELECTRONICS CORPORATION AMENDED & RESTATED BY-LAWS ------- TABLE OF CONTENTS
SECTION PAGE - ------- ---- 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
i 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
ii 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
iii 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. 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-4.(A) 4 CREDIT AGREEMENT WITH ZENITH / CITIBANK / CITICORP 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 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
Page ---- 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
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
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
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
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 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 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 "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 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 (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 "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 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 "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 (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 (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 "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 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 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 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 "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 "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 (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 "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 "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 "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 "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 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 "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 "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 "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 "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 "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 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 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 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 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 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 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 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 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 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 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 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 (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 (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 (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 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 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 43 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. 44 (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; 45 (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. 46 (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 47 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 48 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; 49 (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 50 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 51 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. 52 (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 53 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 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 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 (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 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 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 (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 (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 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 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 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 64 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. 65 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. 66 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 67 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 68 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 69 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. 70 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, 71 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 72 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 73 (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 74 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). 75 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 76 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, 77 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; 78 (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 79 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 80 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 81 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. 82 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 83 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 84 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; 85 (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 86 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. 87 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. 88 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; 89 (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 90 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: 91 (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 92 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. 93 (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 94 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 95 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 96 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 97 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 98 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 99 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 100 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 101 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 102 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. 103 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 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 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 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 EX-4.(B) 5 FLOATING RATE SENIOR SECURED NOTE 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 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 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 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 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 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 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 (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 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 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 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 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 (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 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 (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 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 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 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 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 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 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 Deferred Interest Table ----------------------- - -------------------------------------------------------------------------------- Interest Payment Date Amount of Deferred Interest --------------------- --------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 22 EX-4.(C) 6 LG ELECTRONICS CREDIT AGREEMENT EXHIBIT 4(c) $60,000,000 CREDIT AGREEMENT between ZENITH ELECTRONICS CORPORATION, as Borrower, and LG ELECTRONICS INC, as Lender November 9, 1999 Index
Page ---- 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
i 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
ii 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 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: 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 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 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 (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 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 (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 (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 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 (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 (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 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 (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 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 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 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 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 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 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 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 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 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 (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 (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 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 (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 (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 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 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 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: 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. "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 "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 "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 "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 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 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 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 "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 "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 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 "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 (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 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. 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 EX-4.(D) 7 INDENTURE 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 TABLE OF CONTENTS* ----------------- 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
______________________________ * This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -i- 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
-ii- 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
-iii- Signatures............................................................... 50 Acknowledgments.......................................................... 51
-v- 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:
Section of Act Section of Indenture -------------- -------------------- 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
____________________________ This tie-sheet is not part of the Indenture as executed. -vi- 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 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 [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 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 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 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 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 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 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. --------------------------------------------------- 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. 9 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 10 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 11 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. 12 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 13 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. 14 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. 15 (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 16 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; 17 (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 18 (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; 19 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. 20 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 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 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 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 (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 (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. 26 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 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; 28 (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 29 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. 30 (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 31 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 32 (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 33 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 -------- ------- 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: 34 (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 35 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; 36 (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. 37 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 38 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 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 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 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 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 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 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 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 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 Bank One Trust Company, NA hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. * * * * 48 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: _____________________ 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 EX-10.(M) 8 AMENDED & RESTATED RESTRUCTURING AGREEMENT 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": ----- (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 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 EX-10.(N) 9 STOCK & ASSET PURCHASE AGREEMENT 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 ================================================================================ TABLE OF CONTENTS
Page ---- 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
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Page ---- 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
ii 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 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 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 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 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 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 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 (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 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 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 (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 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 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 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 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 (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 (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 (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 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 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 (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 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 (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 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 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 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 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 (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 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 (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 (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 (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 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 (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 (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 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 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 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 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 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 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 (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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-27 10 FINANCIAL DATA SCHEDULE
5 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. 1,000,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 0 0 123 23 79 222 559 508 279 274 0 0 0 0 (158) 279 834 834 752 752 106 1 39 (62) 2 (64) 0 70 0 6 0 0
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