Zilog talking to noteholders about restructuring

New York, Nov. 14 - Zilog, Inc. said it is holding discussions with an informal group of bondholders on restructuring its $280 million of 9.5% notes due 2005 and with the commercial lender that provides its working capital facility over the default on that facility.

The various discussions follow Zilog's failure to make the September 2001 interest payment on the notes.

Because of the default on the notes, Zilog said in a filing with the Securities and Exchange Commission, the holders can demand payment at any time.

The failure to make payment on the notes within the grace period, which expired Oct. 4, 2001, led to a default on the credit facility, Zilog added.

As a result, the lender is under no obligation to make further loans and has the option to require all outstanding amounts immediately payable. Zilog noted that so far this has not happened.

The facility is for up to $40 million made up of a $25 million four-year revolver expiring Dec. 30, 2002 and a $15 million five-year capital expenditure line expiring Dec. 30, 2003. Availability is limited by financial tests, even without the default. At Sept. 30, 2001, Zilog had drawn $12.8 million from the revolver and had $1.3 million of remaining availability.

Zilog also said in the SEC filing that it is continuing to look at operational and financial restructuring alternatives with the assistance of its investment banker, Lazard. Options being examined include raising new financing, restructuring its debt and asset sales. For operations, the company is addressing "cost management, cash and working capital management, and the timely release of new products."

The company noted: "The 2001 business climate continues to be extremely difficult."

In addition, Zilog said it has an agreement with Qualcore which gave it an option expiring on June 30, 2001 to acquire the remaining outstanding shares of Qualcore for cash or Zilog stock.

This option was not exercised, possibly requiring Zilog to pay up to $5.2 million plus accrued interest to acquire up to 1.8 million Qualcore shares.

Zilog said in the SEC filing it is continuing to examine whether the conditions for its obligation were satisfied and also talking to Qualcore management about deferring or restructuring the payment.

As of Sept. 30, Zilog said it had $26.7 million of cash.

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