Zilog begins seeking approvals for prepackaged reorganization plan

New York, Jan. 30 - Zilog, Inc. said it has begun soliciting approvals for its proposed prepackaged plan of reorganization from holders of its notes and preferred stock.

The solicitation follows an agreement in principal with key holders of its senior secured notes holding 59% of the senior debt outstanding to support the San Jose, Calif. semiconductor company's recapitalization plan.

The informal noteholders group that has agreed to the restructuring is made up of Bond Street Capital, LLC; AIG Global Corp.; Capital Research and Management Co.; Stanfield Offshore Leveraged Assets, Ltd.; Stanfield CLO, Ltd.; Stanfield/RMF Transatlantic CDO, Ltd.; Brant Point CBO 1999-1, Ltd.; Brant Point II CBO 2000-1 Ltd.; Great Point CBO 1998-1 Ltd.; Great Point CLO 1999-1 Ltd.; Sankaty High Yield Asset Partners, LP; Sankaty High Yield Partners II, LP; and Sankaty High Yield Partners III, LP.

"We continue to make significant progress in returning Zilog to full financial health,"' said Jim Thorburn, chief executive officer, in a news release. "`We have a business that generates positive operating cash flow and, upon approval of this plan, we will substantially strengthen our balance sheet with the elimination of our senior notes.'"

The plan, to be achieved through a Chapter 11 filing, is designed to "significantly deleverage" Zilog's capital structure, reduce its debt service requirements and enhance its ability to grow, according to a filing with the Securities and Exchange Commission.

The company is currently owned by Texas Pacific Group, which, with affiliates and other investors, holds both Zilog's common stock and preferreds.

Implementation of the plan requires acceptances from holders of at least two-thirds by outstanding principal amount and a majority by number of holders of Zilog's senior notes and holders of at least two-thirds by outstanding principal amount of its series A cumulative preferred stock.

Under the reorganization plan, unsecured creditors, including trade creditors, will be paid in full in the ordinary course of business.

Existing debt and equity will be canceled and new securities will be distributed as follows:

--$280 million 9½% senior secured notes due 2006: holders will receive all the common stock of the reorganized company except for 14% reserve for management incentive plan; all the series A 9.5% preferred stock to be issued by ZiLOG-MOD III, Inc., currently a wholly owned subsidiary. A liquidation preference of $30 million and accrued but unpaid dividends of will be paid from net proceeds of the sale of Zilog's MOD III fabrication plant in Nampa, Ida.; 50% of MOD III's series B preferred stock entitling holders to a pro rata share of the amount - if any - by which the MOD III sale proceeds exceed the liquidation preference and accrued and unpaid dividends on the series A preferred stock (ZiLOG will hold the remaining 50% of the series B preferreds;

--250,000 shares of existing series A cumulative preferred stock $100 liquidation value: holders will receive a share of $150,000;

--existing common stock: holders will receive a share of $50,000;

--existing revolving credit facility from CIT with $12.8 million outstanding: will be paid in full.

The voting deadline for the plan is 5.00 p.m. ET on Feb. 26.

For exit financing, The CIT Group/Business Credit, Inc. has committed to a $15 million credit facility, according to the SEC filing. The revolver has a three year term and carries an interest rate of Libor plus 250 basis points or the base rate flat. In addition, there is a 50 basis points commitment fee, a 50 basis points closing fee and an annual 50 basis points fee on the unused portion.

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