Box-Maker Zenith Has Chapter 11 Plan

Zenith Electronics Corp., the Glenview, Ill.-based
consumer-electronics maker, filed a prepackaged Chapter 11 reorganization plan with the
U.S. Bankruptcy Court in Wilmington, Del., last week, essentially turning the company into
a wholly owned subsidiary of its largest shareholder.

As a result of the expected filing, Zenith will cancel its
publicly traded stock and issue new shares in the company. All of those shares will go to
Seoul, South Korea-based LG Electronics Inc. -- Zenith's largest shareholder -- in
return for forgiving about $200 million in debt. LG Electronics owned about 55 percent of
Zenith's outstanding stock.

Once a major player in the cable set-top-box arena, Zenith
has focused most of its attention in the cable market on digital-television and
high-definition-television initiatives. The company owns several patents for HDTV.

Zenith spokesman John Taylor said the reorganization is
part of a company effort to transform itself into a marketing and technology company from
a manufacturer.

Once the only U.S.-based manufacturer of televisions,
Zenith has been hammered by cheaper foreign competition.

The company did pare its losses in its second quarter ended
June 30 from $30.1 million in 1998 to $20.9 million in the most recent period. Zenith said
its second-quarter results reflected increased sales of higher-margin products, reduced
manufacturing costs and lower operating expenses.

Taylor said the reorganization would have no effect on
Zenith's digital set-top and HDTV business segments He added that the company sold
its digital set-top-manufacturing plant -- located in Chihuahua, Mexico -- earlier this
month to SMTC Manufacturing Corp., a Toronto-based contract electronics manufacturer.

Zenith's main customers in the digital set-top arena
are Americast -- the consortium that includes BellSouth Corp. -- for a wireless digital
box; and News Corp., which uses Zenith digital-satellite receivers for its Sky Latin
America, Sky New Zealand and Star TV satellite-television offerings.

"We're still making digital boxes," Taylor
said. "As part of the agreement [to sell the Chihuahua plant], Zenith has a long-term
support agreement with the new owners."

Zenith is also marketing a $6,000 digital receiver-decoder
box that is sold primarily to broadcasters and commercial establishments like sports bars,
Taylor said. And its 64-inch rear-projection HDTV set, which will retail for about $8,000,
is being sold through major retailers.

Taylor said the bankruptcy is one of the final steps in
Zenith's restructuring plan, which also included selling off or shutting down all of
its manufacturing plants except its television-assembly plant in Reynosa, Mexico, which
will be transferred to LG after the reorganization is completed.

Taylor added that the prepackaged Chapter 11 differs from a
conventional Chapter 11 filing in that the company's creditors have already approved
it. "The main benefit is that unlike a [conventional] Chapter 11, which can take
years to wrap up, this can be wrapped up in a matter of months," he said.

Holders of the company's $103.5 million in 6.25
percent convertible subordinated debentures will receive $50 million in new 8.19 percent
senior debentures maturing in November 2009.

Zenith also secured financing to help it through its
reorganization. In April, the company obtained a $150 million debtor-in-possession
financing facility from Citicorp North America Inc. to cover the period during the
prepackaged court proceeding, as well as a new three-year, $150 million credit facility to
cover the period following the completion of the restructuring.