Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction — Form S-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-4/A Amendment No. 5 to Form S-4 316 1.91M
2: EX-2.(A) Form of Pre-Packaged Plan of Reorganization 26 148K
3: EX-4.(E) Form of Indenture With Respect to New Debentures 56 277K
4: EX-5.(A) Opinion of Kirkland & Ellis 4 25K
5: EX-8.(A) Tax Matters Opinion of Kirkland & Ellis 2 11K
6: EX-10.(AH) Amended & Restated Restructuring Agreement 45 164K
7: EX-23.(A) Consent of Independent Public Accountants 1 8K
13: EX-99.(AA) Form of Ballot for Class 6 5 20K
14: EX-99.(AB) Form of Master Ballot 6 30K
15: EX-99.(AJ) Zenith Capital Structure Analysis 14 37K
16: EX-99.(AK) Property Summary & Value Estimates 12/1998 15 36K
17: EX-99.(AL) Mexican Portfolio Disposition Investig. & Proposal 25 63K
18: EX-99.(AM) Zenith Facility Plant #31 Evaluation, 12/1998 10 22K
19: EX-99.(AN) McAllen, Texas Plant #15 Evaluation 6 15K
20: EX-99.(AO) Franklin Park, Il Evaluation 6 17K
8: EX-99.(B) Valuation Report, Dated July 22, 1998 21 110K
9: EX-99.(F) Valuation Report, Dated November 16, 1998 14 78K
10: EX-99.(J) Form of Letter to Security Holders 4 20K
11: EX-99.(Y) Form of Ballot for Class 2 5 20K
12: EX-99.(Z) Form of Ballot for Class 5 5 25K
EX-99.(F) — Valuation Report, Dated November 16, 1998
Exhibit Table of Contents
ANNEX C--REPORTS OF PETER J. SOLOMON COMPANY LIMITED
PROJECT ELECTRO
SPECIAL COMMITTEE PRESENTATION
November 16, 1998
PETER J. SOLOMON COMPANY
C-1
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
-------------------------------------------------------------------------------
This presentation has been prepared by Peter J. Solomon Company Limited
("PJSC") from materials and information supplied (whether orally or in writing)
by Zenith Electronics Corporation ("Zenith" or the "Company").
This presentation includes certain statements, estimates and projections
provided by the Company with respect to the historical and anticipated future
performance of the Company and certain potential strategic alternatives. Such
statements, estimates and projections contain or are based on significant
assumptions and subjective judgments made by Company management ("Management").
These assumptions and judgments may or may not be correct, and there can be no
assurance that any projected results are attainable or will be realized. PJSC
has not attempted to verify any such statements, estimates and projections, and
as such, PJSC makes no representation or warranty as to, and assumes no
responsibility for, their accuracy or completeness or for the effect which any
such inaccuracy or incompleteness may have on the results or judgments contained
in this presentation.
Except where otherwise indicated, this analysis speaks as of the date hereof.
Under no circumstances should the delivery of this document imply that the
analysis would be the same if made as of any other date.
THIS REPORT HAS BEEN ISSUED FOR THE BENEFIT OF THE SPECIAL COMMITTEE OF THE
COMPANY. IT IS NOT INTENDED TO BE USED, AND SHOULD NOT BE RELIED UPON, BY ANY
OTHER PERSON.
THIS REPORT IS CONFIDENTIAL AND SHOULD NOT, WITHOUT PRIOR WRITTEN CONSENT OF
PJSC, BE COPIED OR MADE AVAILABLE TO ANY PERSON OTHER THAN THE DIRECTORS OF
THE COMPANY.
PJSC SHALL NOT HAVE LIABILITY, WHETHER DIRECT OR INDIRECT, IN CONTRACT OR TORT
OR OTHERWISE, TO ANY PERSON IN CONNECTION WITH THIS PRESENTATION.
C-2
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
--------------------------------------------------------------------------------
TABLE OF CONTENTS
TAB
---
I. Going Concern Valuation..............................................
II. Business Plan Comparison.............................................
III. One-Time Adjustments.................................................
IV. Domestic VSB Value Adjustments.......................................
V. S-4 Plan Analysis....................................................
VI. Liquidation Analysis.................................................
C-3
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
-------------------------------------------------------------------------------
I. GOING CONCERN ANALYSIS
GOING CONCERN IMPLIED EQUITY VALUATION UNDER S-4 PROPOSAL (11-12-98 BUSINESS
PLAN)
-------------------------------------------------------------------------------
(Dollars in Millions)
SUMMARY GOING CONCERN VALUATIONS
JULY 22 NOVEMBER 16
PRESENTATION PRESENTATION
VALUATION AT VALUATION AT
1/1/99 (A) 1/1/99 (B)
------------ ------------
Enterprise Value (c)............................. $125.0 $125.0
VSB Technology Value............................. 180.0(d) 130.6(e)(i)
====== ======
Total Value.................................... $305.0 $255.6
REORGANIZED ELECTRO DEBT PER LG PROPOSAL
Working Capital Facility......................... $ 84.5(f) $ 68.2(g)(ii)
Indo Suez........................................ 0.0 30.0
Restructured LG Notes (h)........................ 148.7 118.8
Subordinated Debentures (h)...................... 40.0 40.0
LGE New Credit Support........................... 0.0 0.0
------ ------
Total.......................................... $273.2 $257.0
====== ======
Implied Equity of Reorganized Electro............ $ 31.8 $ (1.4)
-------------------------------------------------------------------------------
(a) Per Electro Business Plan, dated June 26, 1998. Reflected in Electro Board
Presentation dated July 22, 1998.
(b) Per Electro Business Plan, dated November 12, 1998.
(c) Business plan adjusted to exclude projected VSB royalties. Enterprise value
at 1/1/99 is based on a discounted cash flow analysis utilizing a terminal
value derived by applying a multiple to LTM sales and values Tuner Patent
cash flows separately. Sales multiple based on the low-end of an
illustrative comparable company sales multiple range (see Electro Discounted
Cash Flow Analysis).
(d) VSB valuation assumes a $2.50 PC royalty fee, 25.0% discount rate applied to
Domestic royalty fee cash flows through 2011 and availability of Company
NOLs to shelter VSB and operating cash flow. Excludes any potential value
for International VSB royalties. Includes present value of Sony settlement
per Electro management.
(e) VSB valuation assumes a $5.00 PC royalty fee, 25.0% discount rate applied to
Domestic royalty fee cash flows, a 40.0% discount rate applied to
International (Adopted) royalty fee cash flows and a 55.0% discount rate
applied to International (Likely to Adopt) royalty fee cash flows through
2011 and availability of Company NOLs to shelter VSB and operating cash
flow. Includes present value of Sony settlement per Electro management.
(f) Revolver balance based on average revolver balance for Q-3 1998 ($110.5MM),
Q-4 1998 ($54.6MM), Q-1 1999 ($91.2MM) and Q-2 1999 ($81.7MM).
(g) Revolver balance based on average revolver balance for Q-1 1999 ($34.2MM),
Q-2 1999 ($63.6MM), Q-3 1999 ($84.2MM) and Q-4 1999 ($90.8MM).
(h) Does not reflect accruals of unpaid interest, if any. Assumes par value.
Market value may be lower.
-------------------------------------------------------------------------------
Comments:
(i) Reflects adjustments in projected Domestic PC market and addition of
International VSB revenues.
(ii) Reflects debt balance reduction due to improvement in working capital.
C-4
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
I. GOING CONCERN ANALYSIS
ELECTRO DISCOUNTED CASH FLOW ANALYSIS (VALUE AT JANUARY 1, 1999)
-------------------------------------------------------------------------------
(Dollars in Millions)
EBIT EXCLUDES VSB AND TUNER PATENT INCOME AND COSTS & EXPENSES (A)
PROJECTED FISCAL YEAR ENDED DECEMBER
31, NORMALIZED
------------------------------------------- TERMINAL
1999 2000 2001 2002 2003 CASH FLOW
------ ------ ------ ------ -------- ----------
Net Revenue............. $876.1 $889.3 $935.1 $987.6 $1,018.3
--% Growth............. (9.3%) 1.5% 5.2% 5.6% 3.1%
Gross Margin %.......... 8.4% 9.2% 10.4% 10.8% 11.3%
EBITDA.................. (30.1) (16.1) 1.7 13.2 23.6
--% of Revenues........ (3.4%) (1.8%) 0.2% 1.3% 2.3%
EBIT.................... (36.2) (19.3) (1.9) 9.3 19.4
--% of Sales........... (4.1%) (2.2%) (0.2%) 1% 2%
AMT..................... 0.0 0.0 0.0 0.2 0.4
------ ------ ------ ------ --------
Tax-Adjusted EBIT....... (36.2) (19.3) (1.9) 9.1 19.0 $19.0
Depreciation and
Amortization........... 6.1 3.2 3.6 3.9 4.2 4.2
Capital Expenditures.... (4.9) (4.5) (4.5) (4.5) (4.5) (4.5)
Change in Working
Capital................ 10.7 17.0 (13.1) (3.3) (5.7) (5.7)
Proceeds from Asset
Sales.................. 47.9 0.0 0.0 0.0 0.0 0.0
Restructuring Costs..... (55.5) (2.4) 0.0 0.0 0.0 0.0
------ ------ ------ ------ -------- -----
Free Cash Flow.......... ($31.9) ($6.0) ($15.9) $ 5.2 $ 13.0 $13.0
====== ====== ====== ====== ======== =====
Growth in Free Cash
Flow................ NM NM NM NM 150%
[Enlarge/Download Table]
ILLUSTRATIVE SALES
MULTIPLE (B) 12.5% 15.0% 17.5%
Discount Rate........... 12.0% 14.0% 16.0% 12.0% 14.0% 16.0% 12.0% 14.0% 16.0%
--------------------------------------------------------------------
Present Value of Free
Cash Flow.............. ($33.9) ($33.5) ($33.1) ($33.9) ($33.5) ($33.1) ($33.9) ($33.5) ($33.1)
Present Value of
Terminal Value......... 72.2 66.1 60.6 86.7 79.3 72.7 101.1 92.6 84.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Terminal Value &
Free Cash Flow Value... $ 38.3 $ 32.6 $ 27.5 $ 52.8 $ 45.8 $ 39.7 $ 67.2 $ 59.1 $ 51.8
Discount Rate........... 18.0% 20.0% 22.0% 18.0% 20.0% 22.0% 18.0% 20.0% 22.0%
--------------------------------------------------------------------
Present Value of Tuner
Patent (c)............. $ 70.5 $ 67.7 $ 65.0 $ 70.5 $ 67.7 $ 65.0 $ 70.5 $ 67.7 $ 65.0
Total Enterprise Value.. $108.9 $100.3 $ 92.6 $123.3 $113.5 $104.7 $137.8 $126.8 $116.8
Projected Fiscal Year Ended
December 31,
--------------------------------- NET PRESENT VALUE
1999 2000 2001 2002 2003 OF TUNER PATENT @
----- ----- ----- ----- ----- -----------------
Tuner Patent Cash Flows
(a).................... $25.0 $25.0 $25.0 $25.0 $14.0 18.0% 20.0% 22.0%
----- ----- -----
Tuner Patent Costs and
Expenses (d)........... (0.2) (0.2) (0.2) (0.2) (0.2) $70.5 $67.7 $65.0
Assumed Reduction (e)... 0.0 0.0 0.0 (3.0) (1.5)
----- ----- ----- ----- -----
TUNER PATENT CASH FLOWS
(INCL. REDUCTIONS)
(C).................... $24.8 $24.8 $24.8 $21.8 $12.3
-------------------------------------------------------------------------------
Source: Electro 1998-2003 Business Plan dated November 12, 1998.
(a) Cash flow analysis excludes VSB and Tuner Patent income and certain
R&D/engineering costs associated with these technology patents. VSB related
costs include Licensing, Advanced Product Development, Transmission
Technology, Broadcast Technology, Technology Adoption, Digital Business
Development, Legal and R&D and Engineering. Electro EBIT includes
approximately $2.0MM a year in royalties related to the use of the Zenith
trademark and name deemed to be recurring, $1.5MM in international royalty
income for Mexican and Canadian LG products and income from ELO Touch and
other Accessories.
(b) Illustrative LTM sales multiple range is based on the lowest comparable
company discounted at 50.0%-66.6%.
(c) Assumes Tuner Patent expires June 30, 2003 and a successful defense of
patent in current litigation.
(d) Per Electro management.
(e) Assumed reduction Per Electro Management. Reflects settlement with Sony.
-------------------------------------------------------------------------------
C-5
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
-------------------------------------------------------------------------------
I. GOING CONCERN ANALYSIS
VSB VALUATION ASSUMING USE OF NOLS
(DOLLARS IN MILLIONS)
VALUE AT JANUARY 1, 1999
[Enlarge/Download Table]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
DOMESTIC
Aggregate
Royalty Income.. 0.0 0.0 0.0 2.2 6.1 14.3 26.6 35.5 43.8 57.8 78.6 102.9 119.2 147.5 176.8 181.6
VSB Associated
Costs(a)........ 0.0 0.0 0.0 (8.0) (8.0) (8.0) (8.0) (8.0) (5.6) (3.9) (2.7) (2.7) (2.7) (2.7) (2.7) (2.7)
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
Net Royalty
Income.......... 0.0 0.0 0.0 (5.8) (1.9) 6.3 18.6 27.5 38.2 53.9 75.9 100.2 116.5 144.8 174.1 178.9
Unsheltered
Earnings........ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 82.2 117.8 147.1 178.9
AMT Due(b)...... 0.0 0.0 0.0 0.0 0.0 0.1 0.4 0.5 0.8 1.1 1.5 2.0 20.5 35.3 55.9 68.0
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
NET VSB ROYALTY
INCOME.......... 0.0 0.0 0.0 (5.8) (1.9) 6.1 18.2 26.9 37.5 52.8 74.4 98.2 95.9 109.5 118.2 110.9
INTERNATIONAL ADOPTED
Aggregate
Royalty Income.. 0.0 0.0 0.0 0.5 2.3 7.3 17.0 31.9 35.9 40.6 46.2 52.4 59.7 83.0 92.5 100.5
VSB Associated
Costs(a)........ 0.0 0.0 0.0 (0.8) (2.1) (2.1) (2.1) (2.1) (1.5) (1.0) (0.7) (0.7) (0.7) (0.7) (0.7) (0.7)
Withholding(c)
11.0%........... 0.0 0.0 0.0 0.0 (0.0) (0.6) (1.6) (3.3) (3.8) (4.4) (5.0) (5.7) (6.5) (9.0) (10.1) (11.0)
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
Net Royalty
Income.......... 0.0 0.0 0.0 (0.3) 0.2 4.6 13.3 26.5 30.7 35.2 40.4 46.0 52.5 73.2 81.6 88.8
Unsheltered
Earnings........ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 52.5 73.2 81.6 88.8
AMT Due(b)...... 0.0 0.0 0.0 0.0 0.0 0.1 0.3 0.5 0.6 0.7 0.8 0.9 13.1 22.0 31.0 33.7
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
NET VSB ROYALTY
INCOME.......... 0.0 0.0 0.0 (0.3) 0.2 4.5 13.0 26.0 30.0 34.5 39.6 45.1 39.3 51.3 50.6 55.0
INTERNATIONAL LIKELY TO ADOPT
Aggregate
Royalty Income.. 0.0 0.0 0.0 0.0 0.0 2.9 7.7 33.1 40.0 48.6 59.2 72.4 88.8 120.0 148.2 183.7
VSB Associated
Costs(a)........ 0.0 0.0 0.0 (1.2) (3.2) (3.2) (3.2) (3.2) (2.2) (1.6) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1)
Withholding(c)
11.0%........... 0.0 0.0 0.0 0.0 0.0 0.0 (0.5) (3.3) (4.2) (5.2) (6.4) (7.8) (9.6) (13.1) (16.2) (20.1)
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
Net Royalty
Income.......... 0.0 0.0 0.0 (1.2) (3.2) (0.3) 4.0 26.6 33.6 41.8 51.7 63.4 78.0 105.8 130.9 162.5
Unsheltered
Earnings........ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 78.0 105.8 130.9 162.5
AMT Due(b)...... 0.0 0.0 0.0 0.0 0.0 (0.0) 0.1 0.5 0.7 0.8 1.0 1.3 19.5 31.7 49.7 61.7
--- --- --- ---- ----- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- ------
NET VSB ROYALTY
INCOME.......... 0.0 0.0 0.0 (1.2) (3.2) (0.3) 3.9 26.1 33.0 41.0 50.7 62.2 58.5 74.0 81.2 100.7
-------------------------------------------------------------------------------
(a) Per Electro Management. Costs include Licensing, Advanced Product
Development, Transmission Technology, Broadcast Technology, Technology
Adoption, Digital Business Development, Legal and R&D and Engineering and
Capital Expenditures. VSB costs are assumed to decrease by 30% in 2004, 2005
and 2006 and remain constant thereafter. In 1999 approximately 80.0% of the
costs of VSB are allocated to Domestic VSB and 20.0% of the costs of VSB are
allocated to International VSB. In years beyond 1999, 60.0% of the costs of
VSB are allocated to Domestic VSB and 40.0% are allocated to International
VSB. In all years, 40.0% of the International VSB costs are allocated to
International Adopted countries and 60.0% are allocated to International
Likely to Adopt countries.
(b) Per guidance from Arthur Andersen, the Valuation assumes the Company pays an
AMT in the years after 2000. In the years in which the Company has available
NOLs, it pays an effective AMT of 2.0%. In the years in which there is no
available NOL, the Valuation assumes the Company pays an AMT adjusted,
effective tax rate of 25.0% in 2008, 30.0% in 2009 and 38.0% thereafter. The
Valuation assumes no foreign tax credits, but treats assumed foreign
witholding as a deduction.
(c) The witholding tax rate is equal to the weighted average of the countries'
treaty defined witholding rate. For those countries where there is no treaty
defined rate, the country's internal witholding rate was used.
Assumed witholding rates per Arthur Andersen.
C-6
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
-------------------------------------------------------------------------------
I. GOING CONCERN ANALYSIS
-------------------------
VSB VALUATION ASSUMING USE OF NOLS
(DOLLARS IN MILLIONS)
[Enlarge/Download Table]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Calculation of
Remaining
NOLs(a)
---------------
Pre-LG NOLs
(Year-End)(b).. $481.0 $481.0 $481.0 $473.8 $431.4 $344.1 $241.6 $ 211.0 $ 184.0 $ 157.0 $130.0 $103.0
Utilizable
Beginning...... 27.0 54.0 81.0 108.0 135.0 162.0 181.8 166.4 106.1 30.6 27.0 27.0 27.0 27.0
Pre-LG NOLs
Utilized....... 0.0 0.0 0.0 0.0 0.0 (7.2) (42.3) (87.3) (102.5) (30.6) (27.0) (27.0) (27.0) (27.0)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Utilizable End. 27.0 54.0 81.0 108.0 135.0 154.8 139.4 79.1 3.6 0.0 0.0 0.0 0.0 0.0
Post LG NOL
(beginning).... $354.6 $373.0 $407.3 $431.3 $431.3 $431.3 $431.3 $ 431.3 $ 330.9 $ 189.9 $ 7.3 $ 0.0
Post LG NOL
Utilized....... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (100.4) (141.0) (182.6) (7.3) 0.0
NOL Generated.. 18.4 34.3 24.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Post LG NOL
(ending)....... $373.0 $407.3 $431.3 $431.3 $431.3 $431.3 $431.3 $ 330.9 $ 189.9 $ 7.3 $ 0.0 $ 0.0
2010 2011
------ ----
Calculation of
Remaining
NOLs(a)
-----------------
Pre-LG NOLs
(Year-End)(b)... $76.0 $0.0
Utilizable
Beginning....... 27.0 0.0
Pre-LG NOLs
Utilized........ (27.0) 0.0
------ ----
Utilizable End.. 0.0 0.0
Post LG NOL
(beginning)..... $ 0.0 $0.0
Post LG NOL
Utilized........ 0.0 0.0
NOL Generated... 0.0 0.0
------ ----
Post LG NOL
(ending)........ $ 0.0 $0.0
[Download Table]
1998 Net Income........... ($283.4)
Cancellation of Debt
Income(c)................. 265.0
-------
1998 NOL.................. ($ 18.4)
1998 Net Income...........
[Download Table]
NET INCOME ADJUSTED FOR 1998 1999 2000 2001 2002 2003
VSB ------- ------ ------ ------ ------ ------
Business Plan EBIT........ ($105.1) ($16.7) $ 4.1 $ 29.7 $ 53.2 $ 61.2
Domestic VSB Income (net
of costs)................. 0.0 (5.8) (1.9) 6.3 18.6 27.5
------- ------ ------ ------ ------ ------
Business Plan EBIT (Excl.
VSB)...................... (105.1) (10.9) 6.0 23.4 34.6 33.7
EBIT Differential......... 0.0 5.8 1.9 (6.3) (18.6) (27.5)
------- ------ ------ ------ ------ ------
Incremental Debt.......... 0.0 (5.8) (7.7) (1.5) 17.1 44.6
Incremental Interest
Expense @ 9.5%............ 0.0 (0.3) (0.6) (0.4) 0.7 2.9
Business Plan Net
Income.................... ($283.4) ($33.1) ($21.6) $ 2.5 $ 25.8 $ 37.1
------- ------ ------ ------ ------ ------
New Net Income (Excl.
VSB)...................... (283.4) (27.0) (19.0) (3.3) 6.4 6.7
[Download Table]
1998 1999 2000 2001 2002 2003
CALCULATION OF NOL ------- ------ ------ ------ ------ ------
New Net Income (Excl.
VSB)...................... (283.4) (27.0) (19.0) (3.3) 6.4 6.7
Net VSB royalty before
AMT
(Int'l and Domestic)...... 0.0 (7.3) (5.0) 10.6 35.9 80.6
------- ------ ------ ------ ------ ------
Total Net Income.......... (283.4) (34.3) (24.0) 7.2 42.3 87.3
NOL
(Generated)/Utilized...... -- (34.3) (24.0) 7.2 42.3 87.3
TOTAL
PRESENT NET PRESENT VALUE OF
VALUE DOMESTIC VSB TECHNOLOGY @
OF -------------------------------
VSB 25.0% 30.0% 35.0% 40.0%
TECHNOLOGY ------- ------- ------- -------
$130.6(d) $94.0 $67.2 $48.9 $36.1
NET PRESENT VALUE OF
INT'L (ADOPTED) VSB TECHNOLOGY @
--------------------------------
35.0% 40.0% 45.0% 50.0%
------- ------- ------- -------
$33.6 $26.1 $20.6 $16.5
NET PRESENT VALUE OF
INT'L (LIKELY TO ADOPT) VSB
TECHNOLOGY @
-------------------------------
45% 50% 55% 60%
------- ------- ------- -------
$18.3 $13.8 $10.5 $8.1
-------------------------------------------------------------------------------
(a) Assumes that after 2003 NOLs are used exclusively to shelter VSB income.
(b) Source: Electro 1997 10-K. Utilizable at a maximum rate of $27MM per year up
until 2010.
(c) Based on Arthur Andersen analysis and an assumed implied equity value of
reorganized Electro.
(d) Assumes a 25.0% discount rate for Domestic VSB royalty fee income cash flow,
a 40.0% discount rate for International (Adopted) VSB royalty fee income
cash flows and a 55.0% discount rate for International (Likely to Adopt) VSB
royalty fee income cash flows.
C-7
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
--------------------------------------------------------------------------------
II. BUSINESS PLAN COMPARISON
(DOLLARS IN MILLIONS)
[Download Table]
FY ENDED DECEMBER 31,
BUSINESS BUDGET PROJECTED
PLAN ----------------------------------------------------
DATE 1998 1999 2000 2001 2002 2003
INCOME STATEMENT ITEMS
SALES................... 11/12 $ 965.6 $876.1 $889.3 $935.1 $ 987.6 $1,018.3
6/26 989.7 916.0 917.8 961.9 1,013.9 1,039.9
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 24.1) ($39.9) ($28.5) ($26.8) ($ 26.3) ($ 21.6)
======= ====== ====== ====== ======== ========
GROSS MARGIN............ 11/12 $ 72.2 $ 74.0 $ 81.7 $ 97.4 $ 106.9 $ 115.3
6/26 60.6 57.2 77.6 92.3 101.6 108.4
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 11.6 $ 16.8 $ 4.1 $ 5.1 $ 5.3 $ 6.9
======= ====== ====== ====== ======== ========
SELLING................. 11/12 $ 78.0 $ 59.0 $ 65.9 $ 69.0 $ 72.5 $ 73.7
6/26 72.5 63.0 65.3 68.7 72.6 75.1
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 5.5 ($ 4.0) $ 0.6 $ 0.3 ($ 0.1) ($ 1.4)
======= ====== ====== ====== ======== ========
G&A..................... 11/12 $ 51.4 $ 46.9 $ 30.1 $ 26.5 $ 22.5 $ 20.8
6/26 45.2 34.4 26.3 24.8 25.4 25.9
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 6.2 $ 12.5 $ 3.8 $ 1.7 ($ 2.9) ($ 5.1)
======= ====== ====== ====== ======== ========
R&D..................... 11/12 $ 45.9 $ 11.2 $ 8.7 $ 8.1 $ 7.5 $ 7.0
6/26 38.4 7.6 4.3 4.4 4.4 4.6
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 7.5 $ 3.6 $ 4.4 $ 3.7 $ 3.1 $ 2.4
======= ====== ====== ====== ======== ========
OPERATING INCOME........ 11/12 ($103.1) ($43.1) ($23.0) ($ 6.2) $ 4.4 $ 13.8
6/26 (95.5) (47.8) (18.3) (5.6) (0.8) 2.8
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 7.6) $ 4.7 ($ 4.7) ($ 0.6) $ 5.2 11.0
======= ====== ====== ====== ======== ========
ROYALTY INCOME.......... 11/12 $ 0.0 $ 4.7 $ 5.2 $ 5.8 $ 6.4 $ 7.2
6/26 2.0 2.0 2.0 2.0 2.0 1.9
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 2.0) $ 2.7 $ 3.2 $ 3.8 $ 4.4 $ 5.3
======= ====== ====== ====== ======== ========
OTHER EXPENSE (Income)
(a).................... 11/12 ($ 3.5) ($ 2.3) $ 1.5 $ 1.5 $ 1.5 $ 1.5
6/26 9.5 7.0 7.0 7.0 7.0 7.0
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ ($ 13.0) ($ 9.3) ($ 5.5) ($ 5.5) ($ 5.5) ($ 5.5)
======= ====== ====== ====== ======== ========
EBIT.................... 11/12 ($ 99.6) ($36.2) ($19.3) ($ 1.9) $ 9.3 $ 19.4
6/26 (103.0) (52.8) (23.3) (10.6) (5.8) (2.3)
------- ------ ------ ------ -------- --------
Difference (11/12 vs.
6/26)................ $ 3.4 $ 16.6 $ 4.0 $ 8.7 $ 15.1 21.7
======= ====== ====== ====== ======== ========
--------------------------------------------------------------------------------
(a) Other Expense in 1998 @ 6/26 excludes non-cash restructuring charge of
$35.2MM
Years 2000-2003 of 11/12 plan reflect bank financing fees. Per Electro
management.
C-8
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
--------------------------------------------------------------------------------
II. BUSINESS PLAN COMPARISON
(DOLLARS IN MILLIONS)
FY ENDED DECEMBER 31,
BUDGET PROJECTED
BUSINESS PLAN ------ ----------------------------
DATE 1998 1999 2000 2001 2002 2003
------------- ------ ---- ---- ---- ---- ----
CASH FLOW ITEMS
DEPRECIATION &
AMORTIZATION........... 11/12 $ 35.8 $ 6.1 $ 3.2 $ 3.6 $ 3.9 $ 4.2
6/26 35.7 9.1 2.8 3.3 3.7 4.0
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ $ 0.1 ($ 3.0) $ 0.4 $ 0.3 $ 0.2 0.2
======= ====== ====== ====== ====== =====
CAPITAL EXPENDITURES.... 11/12 ($ 99.8) ($ 4.9) ($ 4.5) ($ 4.5) ($ 4.5) ($4.5)
6/26 (13.2) (4.5) (4.5) (4.5) (4.5) (4.5)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 86.6) ($ 0.4) $ 0.0 $ 0.0 $ 0.0 0.0
======= ====== ====== ====== ====== =====
CHANGE IN NET WORKING
CAPITAL................ 11/12 ($ 4.3) $ 10.7 $ 17.0 ($13.1) ($ 3.3) ($5.7)
6/26 16.8 1.6 36.0 (2.0) (3.5) (0.5)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 21.1) $ 9.1 ($19.0) ($11.1) $ 0.2 (5.2)
======= ====== ====== ====== ====== =====
PROCEEDS FROM ASSET
SALES.................. 11/12 $ 70.3 $ 47.9 $ 0.0 $ 0.0 $ 0.0 $ 0.0
6/26 31.9 93.2 0.0 0.0 0.0 0.0
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ $ 38.4 ($45.3) $ 0.0 $ 0.0 $ 0.0 0.0
======= ====== ====== ====== ====== =====
RESTRUCTURING COSTS..... 11/12 ($ 38.7) ($55.5) ($ 2.4) $ 0.0 $ 0.0 $ 0.0
6/26 (29.0) (61.5) (9.1) (6.6) (4.2) (2.8)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 9.7) $ 6.0 $ 6.7 $ 6.6 $ 4.2 2.8
======= ====== ====== ====== ====== =====
TAXES................... 11/12 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.2 $ 0.4
6/26 0.0 0.0 0.0 0.0 0.0 0.0
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.2 $ 0.4
======= ====== ====== ====== ====== =====
FREE CASH FLOW (A)...... 11/12 ($136.3) ($31.9) ($ 6.0) ($15.9) $ 5.2 $13.0
6/26 (60.8) (14.9) 1.9 (20.4) (14.3) (6.1)
------- ------ ------ ------ ------ -----
Difference (11/12 vs.
6/26)................ ($ 75.5) ($17.0) ($ 7.9) $ 4.5 $ 19.5 $19.1
======= ====== ====== ====== ====== =====
--------------------------------------------------------------------------------
(a) Free cash flow defined as EBIT plus all cash flow items.
C-9
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
--------------------------------------------------------------------------------
III. ONE-TIME ADJUSTMENTS
VALUE ADJUSTMENT
----------------
REDUCTION IN NWS SALE PROCEEDS Projected sale proceeds have been reduced
from *** to ***. Sale is now being
recognized in 1998 as opposed to Q1 1999.
SALE OF GLENVIEW PROPERTY 6/26 Valuation assumed the sale of
Glenview in Q1 1999. Sale occurred in
October of 1998.
SALE OF MELROSE PARK EQUIPMENT 6/26 Valuation assumed the sale of Melrose
Park equipment in Q1 1999. Sale occurred
in Q4 1998.
VSB ADJUSTMENTS VSB Technology cash flows have been
revised to reflect (i) updated input from
Forrester Research in respect to Domestic
VSB Technology and (ii) cash flow from
international markets based upon report
from GartnerConsulting.
TAX ADJUSTMENTS Tax Treatment revised per discussions
with Arthur Andersen to reflect impact of
alternative minimum tax and foreign tax
payments.
TRADEMARK & DISTRIBUTION ADJUSTMENTS 6/26 Valuation assumed all warranty
expenses against finished goods. Current
Valuation assumes a reduction in Trademark
& Distribution on account of warranty
claims of $33.3MM discounted for 8
quarters.
LIQUIDATION PROCEEDS ADJUSTMENTS Valuation assumes distribution of net
liquidation proceeds will occur over the
course of 2 to 4 years. Accordingly, a 10%
discount rate was applied to aggregate net
proceeds for 3 years.
C-10
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
--------------------------------------------------------------------------------
IV. DOMESTIC VSB VALUE ADJUSTMENTS (A)
TVS Percent digital has been reduced for 1999-2005 due to
higher than expected retail pricing and slower price
reduction assumptions. Percent digital figures for 2006-
2011 have been increased due to an anticipated erosion in
the price disparity between analog and digital
televisions.
PCS The decrease in the percent using VSB for PCs reflects
the rapid transition to the low-end market in PCs and
the assumption that the low-end PC will not have VSB
capability. Earlier more aggressive assumptions were
predicated on the market power of the Wintel duopoly.
The Wintel duopoly's ability to dictate to the market
has not been demonstrated by recent market events.
Notwithstanding the foregoing, there will still be a
small market dominated by enthusiasts. Accordingly, the
royalty rate assumed for PCs is $5.00.
ADD-IN CARDS Assumed market share is based on 200,000 add-in cards
being sold for analog televisions in the past year.
Valuation assumes a $5.00 royalty rate for add-in cards.
VIDEO RECORDERS/DVD-R The reduction in percent digital in the
early years of VSB adoption reflects new market data
which indicates that the majority of products sold in
this group during that time period will be VCRs with
lower VSB/digital penetration rates than will be
experienced by the DVD-R product.
DVD-P The increase in the DVD-P market size in the early
years reflects updated market data. The decrease in the
market size in the later years reflects the new
assumption that the price disparity between DVD-R and
DVD-P will sufficiently erode to encourage a market shift
to DVD-R.
ATSC CONVERTERS The decrease in total VSB demodulation in years 2009-
2011 reflects updated market data indicating a projected
reduction in the number of analog televisions in use.
(a) All adjustments to Domestic VSB Valuation per Forrester Research, Inc.
C-11
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
--------------------------------------------------------------------------------
V. S-4 PROPOSAL ANALYSIS
ANALYSIS OF S-4 PROPOSAL (BASED ON 11-12-98 BUSINESS PLAN)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
ESTIMATED
CLAIM
AMOUNT
12/31/98 PROPOSED TREATMENT UNDER S-4 PROPOSAL $ RECOVERY % RECOVERY
--------- ------------------------------------- ---------- ----------
CITIBANK SECURED DEBT
(A).................... $ 68.2 $125.0 $68.2 100.0%
LG CLAIMS AND INTERESTS
SECURED
--------
Secured Guarantee of
Demand Notes.......... 72.0
Secured Guarantee of
Leveraged Lease (b)... 33.7
Direct Loans........... 45.0
------
Subtotal............. $150.7 Exchanged for (i) $118.8 in restructured Secured 100.0%
SENIOR UNSECURED Notes (c), (ii) 100.0% of the equity of $159.2 (d)
LG Extended Payable.... 140.0 reorganized Zenith, (iii) ownership of Senior Unsecured 6.1%
GENERAL UNSECURED Reynosa plant ($32.4MM credit against claims),
Leveraged Lease (iv) $8.0 in leverage lease equipment retained by
Deficiency Claim...... 56.4 LG and (v) general release. General Unsecured 0.0%
Service Fees........... 10.5
Guarantee Fees......... 1.6
------
Subtotal............. 68.5
------
Total LG Claims........ $359.2
--------
GENERAL UNSECURED
CLAIMS
--------
General Unsecured
(Trade)............... 55.8 Unimpaired....................................... $55.8 100.0%
General Unsecured
(Accruals)............ 122.4 $122.4 100.0%
--------
Indo Suez.............. 30.0 Modified Terms................................... $30.0 100.0%
6 1/4 Subordinated
Convertible $40.0 million new 6 1/4% subordinated
Debentures (f)........ 105.1 debentures due 2010............................. $40.0(e) 38.1%
Common Equity.......... NA Cancelled........................................
--------------------------------------------------------------------------------
(a) S-4 Proposal assumes $125.0 million working capital facility.
(b) Represents the amount paid by LGE to purchase claims, not legal contract
amount. Claim amount at appraised value of equipment, per Electro
management. Excludes impact, if any, of sale of certain Melrose Park
equipment to Philips.
(c) Assumes treatment of Indo Suez obligations consistent with other guaranteed
demand obligations. Trading value may be lower.
(d) Excludes value of release, if any. Assumes an equity value of $0.0 million
at 12/31/98.
(e) Assumes face value. Trading value may be lower.
(f) Principal amount plus assumed accrued interest at 12/31/98.
C-12
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
-------------------------------------------------------------------------------
VI. LIQUIDATION ANALYSIS
-------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
ESTIMATED ESTIMATED
VALUE AT ESTIMATED ASSET RECOVERY
1/99 (A) % RECOVERY FROM LIQUIDATION
--------- ---------- ----------------
ASSETS
MARKETABLE ASSETS
VSB Technology (tax-affected) (b)....... $ 39.4
Trademark & Distribution (c)............ 12.1
Tuner Patent (d)........................ 38.0
Other Intangibles (e)................... 0.7
Flat Tension Mask (e)................... 2.1
CURRENT ASSETS
Cash.................................... $ 0.0 100.0% 0.0
Accounts Receivable (f)................. 158.3 65.0% 102.9
Inventories (g).........................
Finished Goods........................ 43.1 75.0% 32.3
Less: Warranty (i)...................... (0.4)
------
Net Finished Goods.................... 31.9
Work in Process....................... 10.5 5.0% 0.5
Raw Materials......................... 24.4 20.0% 4.9
FIXED ASSETS
Real Estate (h).........................
Domestic.............................. 4.4
Mexican (j)........................... 0.0
Furniture, Fixture and Equipment (h)....
Domestic (k).......................... 13.4
Mexican (j)........................... 18.9
------
Gross Asset Recovery................ $269.3
======
-------------------------------------------------------------------------------
Note: Excludes "Other Assets" which represents the book gain on sale of
certain assets.
(a) All estimated values subject to substantial due diligence and review.
(b) Represents present value discounted to 1/1/99. Assumes 38.0% tax rate. Value
assumes a 35.0% discount rate for Domestic VSB, a 50% discount rate for
International (Adopted) VSB and zero value for International (Likely to
Adopt VSB) and royalty rates lower than the Company base case. Reflects
decrease in income related to Sony and cross licenses.
(c) Assumes liquidation will result in a 50.0% decrease in market share to 5.0%,
a 2.0% market share contraction, a 25 million domestic television market, a
$300/television unit price, and a discount rate equal to the historical
weighted average cost of capital of the comparable company's and the
majority shareholder's internal cost of capital of 12.0% and an incremental
tax rate of 38.0% also includes a reduction of $33.3 million in warranty
expenses discounted over 8 quarters at 12.0%.
(d) Tuner Patent cash flows are net of cost and expenses associated with them
and assume settlement with Sony. Cash flows are tax affected at 38.0% and
are discounted at 25.0%.
(e) Per Company senior patent counsel. Other intangibles relates primarily to
touch-screen technology. Represents 50.0% of management's estimate of fair
market value.
(f) Excludes receivables on account of sale of equipment to Philips.
(g) Estimated value at 1/1/99 net of reserves per Electro management.
(h) Estimated value at 1/1/99 per Electro management.
(i) Per Electro management. Payment assumed to be necessary to achieve
liquidation value. Includes future warranty claims associated with net
finished goods in inventory.
(j) Mexican real estate and furniture, fixture and equipment have been reduced
by $38.8MM in Mexican claims per Electro management. Real estate has been
reduced first.
(k) Does not reflect pending sale of certain equipment from Melrose Park to
Philips. Accordingly, actual recoveries may be lower.
C-13
| EX-99.(F) | Last Page of 14 | TOC | 1st | Previous | Next | ↓Bottom | Just 14th |
|---|
PETER J. SOLOMON COMPANY
PROJECT ELECTRO
-------------------------------------------------------------------------------
VI. LIQUIDATION ANALYSIS
-------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
GROSS ASSET RECOVERY............................... $269.3
LESS: LIQUIDATION EXPENSES, & ADMINISTRATIVE AND
PRIORITY TAX CLAIMS
Administrative Costs
--------------------
Professional Fees(a)............................. $ 24.0
Corporate Overhead(b)............................ 24.8
Trustee Fees(c).................................. 4.7
Brokerage Fees(d)................................ 10.1
Wind Down Costs(e)............................... 5.6
WARN Act(b)...................................... 21.0
Environmental(b)................................. 23.8
------
Subtotal....................................... 113.9
------
AGGREGATE NET PROCEEDS............................. $155.3
LIQUIDATION PROCEEDS AVAILABLE FOR DISTRBUTION(F).. $116.7
CLAIM % RECOVERY
------ ----------
SECURED DEBT
Citibank......................................... $ 26.9(g) $ 26.9 100.0%
Proceeds available for secured creditors after
Citibank.......................................... $ 89.8
LG Guarantee of Demand Notes..................... 102.0 57.0 55.9%
LG Guarantee of Leveraged Lease.................. 13.6(h) 7.6 55.9%
LG Direct Loans.................................. 45.0 25.2 55.9%
------ ------
Total Secured Debt................................. $187.5 $116.7
====== ======
Liquidation Proceeds Available for Priority Claims and
Unsecured Creditors and Equity........................... $ 0.0
-------------------------------------------------------------------------------
(a) Assumes 4 year liquidation. Assumes fees of $2.0MM each month the first 6
months, $1.5MM for each of the next 6 months, $1.2MM for the entire second
year, $1.2MM for the entire third year, and $.6MM for the fourth and final
year.
(b) Per Electro management.
(c) Assumed as 3.0% of net liquidation proceeds.
(d) Brokerage fees assume 6.0% of gross asset recovery excluding Accounts
Receivables and Inventory. Includes $38.8MM on account of Mexican Real
Estate and Furniture, Fixture and Equipment sold to offset Mexican priority
claims.
(e) Real estate taxes plus on-site security and wind down teams at each location
during an average twelve month disposition period.
(f) Assumes distribution of net proceeds of asset sales will occur over the
course of 2 to 4 years. Accordingly, a 10.0% discount rate was applied for
three years.
(g) Revolver balance based on the 12/31/98 balance plus Q4 cash restructuring
costs including Melrose Park idle costs ($6.3MM), engineering severance
($2.5MM) and Q4 professional fees ($5.1MM).
(h) Secured claim reflecting LG's guarantee of the leveraged lease equals the
value of the leveraged lease equipment in a liquidation per Greenwich
Industrial. Any deficiency claim is treated as unsecured.
C-14
Dates Referenced Herein and Documents Incorporated by Reference
↑Top
Filing Submission 0000950131-99-003906 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Sun., Apr. 28, 11:01:18.1pm ET 
