Zenith Seeks Modem Investors

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Zenith Electronics Corp. said last week that it is looking
for investors to help sustain its digital-set-top and cable-modem business, even as the
company announced a restructuring plan that would convert it into a subsidiary of its main
shareholder.

Zenith -- which warned weeks ago that it may be forced to
seek bankruptcy-law protection from creditors -- said it would file a
"prepackaged" Chapter 11 reorganization plan in bankruptcy court if the
Securities and Exchange Commission approves the restructuring plan. A prepackaged Chapter
11 plan has the blessing of key creditors. Under the plan, Zenith shareholders'
equity would be wiped out, but creditors and employees would continue to be paid.

LG Electronics Inc., the South Korean firm that owns 55
percent of Zenith's equity, would convert $200 million in Zenith obligations into
equity, making Zenith a LGE subsidiary, and it would take Zenith's manufacturing
assets in Mexico and secured notes for another $210 million in claims.

LGE also agreed to lend Glenview, Ill.-based Zenith $60
million, and it will work with Zenith to borrow more.

Bondholders with Zenith 6.25 percent notes will get $40
million in new debentures, maturing in 2010. Zenith's debt would be cut by $250
million.

The plan also requires South Korean regulatory approval.

Zenith may find it tougher than ever to remain in the
digital-set-top and modem businesses, one analyst said.

"It's going to be a tough business for them to
hang onto," Goldman Sachs & Co. analyst Abraham Bleiberg said.

Cable-modem sales are increasingly competitive, and the
sector will be dominated by standards-based products, limiting whatever edge Zenith had by
being an early entrant, Bleiberg said. "And the set-top business is a tough business
to penetrate when you're out of it," he added.

Zenith said in January that it was shutting down its
15-year-old analog-set-top-converter line. Its key U.S. customer for digital set-tops is
the Americast telco consortium: BellSouth Corp. is using Zenith digital boxes in its
wireless cable operation in New Orleans.

Chicago-based overbuilder 21st Century Cable TV Inc., which
is using Zenith modems in the cable network that it is building in that city, said its
network is designed to be able to use other modems, if necessary.

But Jay Carlson, 21st Century's chief technical officer, said the modems are
performing so well that he's confident that some vendor, if not Zenith, will continue
to supply them.

"The technology will survive the turmoil," he
said.

21st Century chose Zenith modems over others from Com21
Inc. and Motorola Inc. because the Zenith design was more cost-effective for its network
architecture, he said.

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