Case sunbeam oster co

Harvard Business School 9-291-052 Rev. July 14, 1993

Paul J. Reiferson prepared this case under the supervision of Professor Steven R. Fenster as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Copyright © 1991 by the President and Fellows of Harvard College. To order copies, call (617) 495-6117 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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Sunbeam-Oster Company, Inc.

In January 1990, Paul Kazarian and Michael Lederman, General Partners of Japonica Partners, a New York investment firm, sat in their offices analyzing the disclosure statement and joint stock plan of reorganization filed by Sunbeam Oster's management in the U.S. Bankruptcy Court for the Western District of Pennsylvania.1 Since June 1989, Japonica had been actively following almost every facet of the Sunbeam Oster restructuring. Kazarian maintained that there existed a "value gap" between Sunbeam Oster's potential cash flow and proposed distributions to creditors. With Sunbeam Oster's tenth disclosure statement in hand, Kazarian began again to analyze the company's operations to understand how much cash the company could generate. His analysis always showed "hidden" value: management's forecast was conservative; foreign subsidiaries were undervalued; accounting treatments were distorting; risks were overstated.

Kazarian and Lederman believed that they could pay more for Sunbeam Oster than the value of the distributions to creditors and stockholders provided in management's plan, and they could prudently finance the purchase with a mix of debt and equity they would raise from outside sources. Furthermore, now that Sunbeam Oster's Board of Directors declined to meet with Japonica, they could not help but think what approaches could be used to gain control of a company in Chapter 11.

Evolution of the Company

Sunbeam Oster manufactured and marketed high quality consumer products, including barbecue grills, electric blankets, outdoor furniture and small household appliances. Sunbeam Oster's products by division are shown in Exhibit 1. Many of its products were sold under the "Sunbeam" and "Oster" brand names. The company was incorporated in Pennsylvania in 1929 and maintained its executive offices in Pittsburgh, Pennsylvania. Its operations were primarily in North America, with limited operations in Latin America.2

1 During and prior to the Chapter 11 proceedings, the company's name was Allegheny International, Inc. It was changed to Sunbeam-Oster Company, Inc. following the completion of the Chapter 11 proceeding. We will refer to the company as Sunbeam-Oster Company, Inc. or, in the case generally as Sunbeam Oster. Sunbeam Oster is the parent company for the group. Reference is sometimes made to the Sunbeam Co., which is a wholly owned subsidiary of Sunbeam Oster. The Sunbeam Co. includes the Oster/Sunbeam Appliance Division which is an operating company producing products under the Sunbeam and Oster brand name. 2 This section and later sections rely extensively on the Debtors' Disclosure Statement and Joint Stock Plan of Reorganization, dated December 29, 1989, as amended as well as descriptions and analyses of the debtors' operations filed with the U.S. Bankruptcy Court.

This document is authorized for use only in Creating Value Through Corporate Restructuring (AD) by Professors Becker and Gilson at HBS from December 2012 to May 2013.

291-052 Sunbeam-Oster Company, Inc.

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In the 1970's, Sunbeam Oster embarked on a strategy to diversify away from its cyclical, labor-intensive specialty steel and metal products business. This diversification program resulted in Sunbeam Oster's acquisition of a number of consumer products companies, including Sunbeam. At the same time, Sunbeam Oster sold its specialty steel and metal products businesses.

By the early 1980's, Sunbeam Oster had developed into a multinational conglomerate with annual sales of $3 billion. Numerous subsidiaries engaged in a wide variety of largely unrelated businesses, ranging from manufacturing small consumer appliances, razor blades and exercise equipment to manufacturing welding equipment, commercial freezers and semiconductor diffusion furnaces. Sunbeam Oster also had real estate development and finance companies and investments in oil and gas exploration. Eventually, Sunbeam Oster determined that it could not successfully manage such a diverse portfolio of businesses on a world-wide basis. Further, the profitability of certain of Sunbeam Oster's businesses was not as high as initially expected. As a result, Sunbeam Oster's businesses were not generating enough cash to service its heavy debt burden and preferred stock dividend requirements. Sunbeam Oster began to incur increasing net losses, totalling $109.1 million in 1985, $164.0 million in 1986 and $285.4 million in the nine-month 1987 fiscal year.

Sunbeam Oster had many operational inefficiencies, which it believed were due to the number of disparate businesses it owned, high overhead and high level of preferred dividends. Consequently, it began to pursue the sale of various of its businesses to reduce its debt burden and focus on a smaller number of businesses. Between 1982 and 1986, Sunbeam Oster carried out a number of divestitures. The funds obtained, however, were not used for reducing debt. The cash was used to pay interest expense and preferred and common dividends. Sunbeam Oster attempted to retire this expensive preferred stock through purchases largely financed by bank borrowing and, in 1984, through an exchange offer of debentures for redeemable preferred stock.

As part of a restructuring, Sunbeam Oster decided to focus on certain "core" businesses centered around consumer products and divest various other businesses. In addition, Sunbeam Oster requested that Mellon Bank investigate creating a committed multi-bank revolver facility to replace uncommitted, separate lines of credit. In April 1986, while experiencing increasing losses and the impending maturity of its short-term credit lines, Sunbeam Oster entered into a revolving credit agreement with a consortium of banks, which replaced Sunbeam Oster's prior domestic bank credit agreements. As security for the loans, Sunbeam Oster pledged to the banks, among other things, the capital stock of certain subsidiaries which represented substantially all of the holding company's assets.

In August 1986, Sunbeam Oster's Chairman and Chief Executive Officer resigned, and Oliver Travers was appointed to replace him. Over the next several months, nearly all of Sunbeam Oster's officers and many of its directors resigned. New management accelerated the implementation of the Board's previously endorsed plan to focus Sunbeam Oster on its North American consumer products business, to sell its non-consumer products businesses and assets, and to reduce its debt burden to a level which could be supported by the remaining businesses.

Bankruptcy Filing

Commencing in late 1986, new management tried to find a buyer for Sunbeam Oster. In March through May of 1987, an affiliate of First Boston offered to acquire the preferred and common stock of Sunbeam Oster for $500 million, valuing Sunbeam Oster's net assets at approximately $1.1 billion. Sufficient shares of Sunbeam Oster's preferred and preference stock, however, were not tendered by their holders and the transaction was never completed. Subsequent attempts to sell Sunbeam Oster were unsuccessful.

As the company's operations worsened toward the end of 1987 and into early 1988, Sunbeam Oster's management tried to convince the banks and other key lenders to accept a financial


Sunbeam-Oster Company, Inc. 291-052

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restructuring. These negotiations were unsuccessful. At the same time, Sunbeam Oster's cash position became increasingly strained. By January 1988, Sunbeam Oster could no longer obtain cash from its principal subsidiary, Sunbeam Co., because certain loan agreements of Sunbeam Co. effectively prevented it from dividending or transferring additional cash to Sunbeam Oster. In addition, Sunbeam Co. and Sunbeam Oster's other operating subsidiaries, particularly Almet/Lawnlite and Sunbeam Leisure, faced a severe need for additional working capital to see them through the next several months of their annual business cycle. Finally, Sunbeam Oster was experiencing difficulty in negotiating a new bank loan agreement and thereby obtaining additional bank financing. It was avoiding default under the new credit agreement only through waivers of covenants which it could not otherwise meet and by obtaining week to week and sometimes day to day extensions and waivers from the banks. Management concluded that filing for reorganization was necessary to protect Sunbeam Oster's businesses from deterioration, to enable them to obtain adequate working capital and to permit them to complete the restructuring of their businesses. On February 20, 1988, Sunbeam Oster and its subsidiaries filed under Chapter 11.

Business of the Company

Sunbeam Oster had leading market share positions in gas grills, electric blankets, aluminum lawn furniture, and electric blenders and stand mixers, among other product lines. Market share information is shown in Exhibit 2. Most of Sunbeam Oster's sales and profits were accounted for by its four major operating units: Sunbeam Leisure Products, Northern Electric, Almet/Lawnlite and Oster/Sunbeam Appliance Division. Other units, which together accounted for less than 25% of Sunbeam Oster's sales, were the Oster Professional Products, Springfield Instrument and Hanson Scale divisions of Sunbeam and International, comprised of Sunbeam Canada, Solaray, Sunbeam Intercontinental (SIL), Sunbeam Mexicana, Oster de Venezuela, Sunbeam del Peru and certain European subsidiaries.

Effect of Bankruptcy on Company

In December 1987, as Sunbeam Oster prepared for bankruptcy, Oliver Travers and Sam Iapalucci, then Vice President and Treasurer, began concentrating their attention on building a public relations strategy to keep trade credit available and retain customers. The central feature of this strategy was to separate in the minds of trade creditors, Sunbeam Co., where most of the trade credit was held, and the holding company, Sunbeam Oster, where most of the debt was incurred. Trade creditors were told that Sunbeam Co. was basically healthy and that financial problems were largely limited to Sunbeam Oster. When the company filed for bankruptcy on February 20, 1988, management quickly articulated a plan that would provide trade creditors with a 100% cash recovery. The strategy worked; although some vendors remained worried throughout the proceedings, few requested cash payment or shortened credit terms.

Management was optimistic about its prospects in bankruptcy, announcing that it was on a "fast track" and would emerge by the end of 1988. Instead, within months of filing under Chapter 11, management lost several Board seats to the New York investor group of Spear, Leeds & Kellogg, which owned a large amount of preferred stock. New directors complicated efforts to agree on a plan of reorganization or sale. An $812 million offer for Sunbeam Oster's net assets by Donaldson, Lufkin & Jenrette in December 1988 was rejected after a series of misunderstandings between Board members and Donaldson, Lufkin & Jenrette. Other offers followed with the prospect of large cash distributions to creditors. Partially as a result, creditors had unusually high expectations, far in excess of the company's ability to pay.

Meanwhile, Almet/Lawnlite lost almost all of its management team to a competitor and Sunbeam lost its marketing vice president. Employee morale seemed beyond management's control.



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With five years of continued headcount reduction at the headquarters facility, employees found the uncertainty of their future intolerable.

Competitors like Black & Decker took advantage of management's preoccupation by increasing their advertising. As a result, Sunbeam Oster lost market share. "For three years," wrote Business Week, "Sunbeam hasn't had a big winner such as its well-designed minifood processor, Oskar, introduced in 1985, or its automatic shutoff iron, launched a year earlier. Last year, Sunbeam Oster was counting on a similar smash with its Venture I oven, a fast-cooking countertop convection oven to be marketed as an alternative to microwaves. But the project flopped because of the oven's slow heat-up period, and Sunbeam Oster took about a $5 million write-off."3 Some retailers were reluctant to promote Sunbeam products or provide prominent shelf space until the uncertainty surrounding the company's ownership and operating plan was resolved. K-Mart Corporation, for example, cut its purchases of Sunbeam appliances by approximately 15% from 1987 to 1989. Management knew they had to act quickly to stem the decline.

Plans of Reorganization in Chapter 11

Completing a recapitalization plan, referred to as a "plan of reorganization," is the objective of every Chapter 11 proceeding. When the court grants a company protection from creditors under Chapter 11, creditors are prevented from filing lawsuits, foreclosing on assets, or setting off cash from the company's bank accounts; only fully secured creditors are allowed to accrue or collect interest payments; and the court may cancel the company's burdensome contracts and leases and give assets to new lenders as collateral. This protection ultimately serves the interests of all stakeholders by preventing any individual creditor from pursuing its narrow self-interest at the expense of the company's overall value. Unless liquidation is the highest value alternative, creditors are forced to make concessions on debt terms which will allow the company to create a new capital structure which can be supported by cash flow. The company, for its part, sometimes divests certain businesses or redefines its business and reorganizes around a new "core."

A committee of creditors holding unsecured claims is appointed and additional committees of creditors or stockholders may be appointed to assure adequate representation. Each of these committees ordinarily consists of the seven largest creditors or stockholders and is represented by lawyers, investment bankers and others at the debtor's expense. Even though management is often kept in place as a debtor-in-possession of the business, the principal strategic decisions must be approved by these committees and their advisors, often compounding the company's problems.

The concessions sought from creditors and the organizational structure of the reorganized company are voted on by all participants in the plan of reorganization. For a period of 120 days, or longer if extended, the debtor has the exclusive right to propose a reorganization plan. Typically, the period of exclusivity is extended if management appears to be making progress. The plan provides for the cancellation of all pre-bankruptcy claims and the distribution of cash or new securities to pre-bankruptcy creditors and stockholders. In theory, a capital structure consistent with the company's operations is created and the company is given the opportunity to concentrate on operating problems and to grow.

The recapitalization is complicated by the divergent views different participants are likely to hold about the share of total value they will receive, the form in which they will receive it, and the reorganized company's businesses and capital structure. The final plan is usually the result of lengthy negotiations between the debtor and official creditor and equity security holder committees, as well as with other major participants. Although the contours of the plan negotiation are dictated by the

3 Business Week, June 26, 1990.



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interests and relative power of each participant in the Chapter 11 process, the process is political as well as economic and places a premium on the negotiating skills of the participants.

A plan of reorganization is deemed to be accepted by a class of creditors if creditors' holding at least two-thirds in amount and more than one-half in number vote to accept the plan. If each class of claims and interests who makes concessions on terms, called "impaired" classes, votes to accept the plan, it is normally approved by the court.

Sometimes, such a consensual plan cannot be achieved, and the Bankruptcy Code provides that the court may confirm the plan if at least one impaired class approves the plan. The court must also find that the plan provides an adequate capital structure and that each class will receive as much value under the plan as under a liquidation. If these tests of feasibility and equity are met, the court is allowed to "cram-down," or confirm, the plan without the acceptance of each class.

An investor seeking control of a company in Chapter 11 has two principal alternatives. The investor might propose his or her own plan of reorganization and seek to have it approved by the creditors. Alternatively, if the debtor's plan proposes the issuance of securities, the investor might bid for these securities with cash. This is referred to as "funding the debtor's plan of reorganization." In several cases, creditors blocked confirmation of the debtor's plan by controlling at least one-third of an impaired class of claims, thereby making two-thirds acceptance impossible. This is, however, a potentially dangerous strategy because the court may designate, or "disqualify," the vote of any entity whose vote to accept or reject a plan is not in good faith. Although the definition of bad faith is unclear, it has been noted that an investor cannot use a blocking position to threaten delay unless greater consideration is paid or to seek "greenmail" or any consideration different from other members of its class.4

It is possible for an investor to exercise control over the debtor through the targeted purchase of claims of certain classes of creditors. Normally, creditors and not stockholders have the right to receive the majority of the post-reorganization equity. Therefore, an acquiror could purchase claims which would allow it to control the voting stock of the reorganized company. This may be a risky approach, however, because the value of such claims may decline quickly if there are further delays or if the proceeding converts to a liquidation of the debtor.

Sunbeam Oster in 1989: Management's Plan

Under management's plan, James Milligan would replace Oliver Travers as Chairman and Chief Executive Officer of reorganized Sunbeam Oster. Milligan had significant experience in restructuring and revitalizing consumer products companies and might have been uniquely qualified, analysts reported, to turn Sunbeam Oster around. From 1981 until 1984, he served as President and Chief Executive Officer of Questor Corporation, reorienting it into a successful $500 million consumer products company marketing Spalding brand sporting goods and Evenflow brand juvenile products.

Milligan and Kazarian shared a view of the small appliance industry and Sunbeam Oster's position in the industry. Comparative industry data is shown in Exhibit 3. Both believed that an industry shakeout was underway, driven by declining profitability and reflected in the industry's recent consolidation. Furthermore, both Milligan and Kazarian believed that Sunbeam Oster could position itself to be a long-term survivor, capitalizing on the strength of its Oster and Sunbeam brand names. Brand awareness of Oster and Sunbeam relative to competitors' brands is shown in Exhibit 4. Management's business plan was based on the related objectives of reducing the company

4 Chaim J. Fortgang and Thomas Moers Mayer, "Trading Claims and Taking Control of Corporations in Chapter 11," Cardozo Law Review (October 1990): 1–115.



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to its profitable product lines and cutting costs. The historical financial statements and financial projections accompanying management's plan are set forth in Exhibits 5 through 8.

At Oster/Sunbeam Appliance, management planned to focus the company's products more effectively, redefine their position in their markets and capitalize on their strengths. To achieve this, Milligan believed, management had to "recognize and fully exploit [the] distinction between Oster and Sunbeam." Under Milligan, reorganized Sunbeam Oster would be named Oster/Sunbeam Company, the order reflecting Milligan's emphasis on the quality of the Oster(r) brand and his concern with the Sunbeam(r) brand's deterioration. Oster was to be marketed to high end consumers, where it would compete with German manufacturers Braun, Krups and Rowenta on its strong name and trade position with department stores and major retailers. To remedy its unclear brand focus, Oster's marketing strategy would be to adopt a consistent consumer advertising message for the unique Oster quality and product features throughout all sales, trade, print, packaging, radio and television media. Sunbeam would be marketed to the moderate-price consumer, given its greater reliance on high volume mass merchandisers and catalog showrooms for distribution, although there would be some overlap with Oster's market.

This distinction between Sunbeam and Oster based on distribution channels influenced the treatment of costs. To differentiate Sunbeam and Oster products, Milligan thought it necessary to separate their administrative staffs, thus raising administrative expenses. He saw an opportunity, however, to reduce selling expense to a variable cost at Sunbeam by switching Sunbeam from a direct sales force to a representative sales force. Milligan was reluctant to switch Oster because he was concerned about the effect of a representative sales force on Oster's department store brand identification.

Milligan believed he could adopt a licensing strategy with the Sunbeam name as he did successfully at Questor with the Spalding brand. Conclusive market research was to be conducted to determine the product categories where the Sunbeam name conveyed a consumer advantage. Sunbeam's brand name would also be used on other Sunbeam Oster products, such as Almet/Lawnlite aluminum lawn furniture. Management estimated that licensing revenues of $7 million per year could be achieved in three to five years and as much as $10 million thereafter. These revenues, however, were not included in the projections because management thought that the basic businesses and the quality of the products had to be fixed before the brand names could be licensed effectively.

In the International division, Milligan's plan called for growth through export sales and licensing and joint venture opportunities where appropriate. Assets might be leveraged to repatriate more funds to the U.S., where they could be used to service debt. At maximum levels, management forecast annual cash flows of $1.0 – $1.5 million from Mexico, $2.0 – $2.5 million from Venezuela, and $0.5 – $1.0 million from Peru.

Management accounted for earnings in these foreign subsidiaries only to the extent dividends were remitted to the U.S. Because of certain remittability restrictions, management's forecast assumed no dividends or asset disposition proceeds from Sunbeam Peru. Royalties and dividends from Oster Venezuela and Sunbeam Mexico were incorporated on a conservative basis at $2.4 million in 1991 and $2.7 million in 1992. These amounts were identified separately in management's forecast income from operations (See Exhibit 8).

One of the most important assumptions in management's plan was that working capital could be dramatically reduced. To achieve this, first, Milligan and Iapalucci began to prune unprofitable product lines and reduce, for example, the number of models of blenders offered. Second, management planned to institute programs to eliminate slow-moving inventories. Third, management planned to institute a just-in-time inventory control system to build inventory closer to departure for sales in seasonal businesses, particularly Sunbeam Leisure and Almet/Lawnlite.



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Fourth, management planned to make a concerted effort to get better terms on payables from vendors by emphasizing the inherent "partnership" relationship, while shortening customer credit terms, particularly at Oster Sunbeam Appliance Co. Management, estimating they could reduce investment in working capital by approximately $117 million over three years, began accelerating working capital reduction.

Management was determined to advance a plan which creditors would support. Claims against Almet/Lawnlite and Sunbeam Co., by virtue of their superior cash flow, would be paid in full in cash. The difficult part of the transaction was determining how much could be given to creditors of the holding company, Sunbeam Oster. Typically, in a distressed situation, debt held at a healthy subsidiary has greater value than debt held at the holding company. Subsidiary debt has a direct claim on the assets of the subsidiary while holding company debt has a direct claim on the common stock of the subsidiary. In addition, subsidiary creditors often have the right to restrict cash flow from the subsidiary to the holding company.

Under management's plan, Sunbeam Oster holding company claims would largely be given stock in the reorganized company since they could not be given cash. In almost any scenario, the Sunbeam Oster senior secured bank debt holders would need over 50% of the reorganized company's stock to satisfy their claim. The banks, therefore, would control the reorganized company. Management tried to provide cash to the banks and even signed a commitment letter with Wells Fargo Bank which would have provided financing for a $186 million cash distribution, representing 100% of the bank claims. When this commitment was withdrawn, management tried to finance a cash distribution with a high yield bond offering, which also failed. Management then decided to proceed with the current plan, referred to as the "stock plan," which would provide stock to all Sunbeam Oster creditors, and cash, if any, to the extent available.

Exhibits 10 and 11 detail the allocation of cash and securities of reorganized Sunbeam Oster to pre-bankruptcy creditors and stockholders and recoveries under management's plan. Management believed that, in the absence of sufficient financing and a consensus which included Sunbeam Oster creditors, this was the best they had to offer. The investment banking firm of Smith Barney indicated, based in part on the analyses presented in Exhibits 12 and 13, that the Debtors' distributable value was $690.1 million; the common stock and warrants were valued between $325 million and $385 million. Yet, Sunbeam Oster creditors were disappointed by management's inability to find financing for a cash distribution. Obviously, creditors who received cash did not have to worry about the post-reorganization value of their distribution. Creditors of Almet/Lawnlite and Sunbeam Co. would receive all cash; creditors of Sunbeam Oster, Chemetron, and certain other subsidiaries would receive a combination of cash and stock.

Japonica's Plan

Kazarian founded Japonica in 1987 after leaving the investment banking firm of Goldman Sachs, where he was a Vice President. Lederman joined Japonica in 1988, also leaving Goldman Sachs, where he was a Vice President and a founding member of the firm's workout practice. Japonica's involvement in Sunbeam Oster began on June 8, 1989, only two days after they ended their unsuccessful leveraged buyout bid for CNW, the Chicago and North Western Railroad. CNW's purchase by the Blackstone Group resulted in a gain of approximately $30 million on Japonica's stock. Nevertheless, Japonica lacked the capital to acquire Sunbeam Oster and relied on third party equity sources, including Mutual Shares Fund and Steinhardt Partners, who participated with them in the CNW transaction and were known for their savvy in distressed situations.

Kazarian, Lederman and Japonica's associates had worked long hours since June 8 analyzing nearly every facet of the business and building models which forecast Sunbeam Oster's operations by product line. Consolidated projections are set forth in Exhibit 9. Japonica was handicapped, they believed, by management's unwillingness to provide sensitive, non-public information. However,



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Wilbur Ross, financial advisor to the Committee of Unsecured Creditors, gave them management's business plan and detailed projections. Two members of the Board of Directors elected by Spear Leeds & Kellogg, now representing the Committee of Equity Security Holders, kept them informed. These parties apparently believed that Japonica's involvement in the proceedings would maximize the value of the estate.

Kazarian and Lederman retained the accounting firm of Arthur Andersen to analyze their model. Japonica also retained the law firm of Fried, Frank, Harris, Shriver & Jacobson; Samuel Montagu, an investment boutique, helped value certain Sunbeam Oster divisions; William M. Mercer Incorporated, an employee benefits consulting firm, valued Sunbeam Oster's pension liabilities. In the end, almost one-hundred people were engaged in analyzing and valuing the company, their analyses filling numerous volumes. Most advisors participated with only the promise of future remuneration if Japonica were successful.

Kazarian himself pursued every avenue for information and advice. He contacted the company's distributors to learn more about the products. He called friends who were knowledgeable about consumer goods to determine where the company might reduce costs. He was in constant contact with the company, trying to obtain their latest property, plant and equipment appraisal report and any information they could provide which would enable him to scrutinize the company's variance information and cost allocations.

Kazarian's value gap had several components. First, Kazarian believed that management's forecasts were conservative, particularly with regard to selling, general and administrative expenses. (See Exhibits 8 and 9). He strongly disagreed with Milligan's plan to keep Oster Housewares and Sunbeam Appliances separate and to exploit differences in the brands. Because Kazarian saw more commonality than difference in distribution channels, he believed substantial cost savings could be realized by combining the administrative functions of Oster and Sunbeam. In addition, by switching Oster to a representative sales force, as Milligan contemplated for Sunbeam, selling expense could be reduced to a variable cost. In contrast to Milligan, Kazarian favored naming the reorganized company Sunbeam Oster, Inc., with Sunbeam first to stress its prominence.

Second, Kazarian believed that management undervalued the Latin American operations. Based on Japonica's analysis, these operations could remit approximately $7.0 million per year to the U.S., all of which would be recognized as earnings before interest and taxes. This difference was due to both greater expectations of performance and Japonica's understanding of restrictions on remittability. Japonica included these foreign earnings in its forecast income from operations (See Exhibit 9).

Third, Kazarian believed that Sunbeam Oster's accounting methods distorted the true profitability of certain divisions, particularly Oster/Sunbeam Appliance. (See Exhibit 5). Kazarian was convinced that the value of Oster/Sunbeam Appliance was well in excess of the value assumed in the debtors' disclosure statement. According to Japonica's analysis, Oster absorbed substantial administrative and overhead costs from a prior consolidation of certain Sunbeam administrative operations which negatively, and Japonica thought unfairly, affected its profitability. Furthermore, some of the company's employees told Japonica privately that capital expenditures were sometimes recognized as maintenance and repair to avoid requesting approval from headquarters; Sunbeam Oster's ratio of maintenance to capital expenditures was several times that of any competitor.

Fourth, Kazarian believed that management overstated risk factors such as (i) disputed claims, (ii) non-operating expenses, and (iii) electromagnetic field (EMF) publicity.5

5 There were consumer concerns that the low voltage electromagnetic fields (EMF's) associated with electric blankets presented health hazards.



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(i) Under management's plan, holders of disputed and contingent claims of Sunbeam Co. and Almet/Lawnlite would receive cash if their claims were allowed, and holders of disputed and contingent claims of Sunbeam Oster, Chemetron and other subsidiaries of Sunbeam Oster would receive common stock if their claims were allowed. The issuance of shares would have a dilutive effect on ownership, and the amount management estimated would serve to ward off any potential acquiror. The aggregate value of claims filed in the bankruptcy initially amounted to $4.5 billion, compared with management's estimate of $722 million. During the bankruptcy process, the excess claims were steadily reduced to approximately $128 million. Of this amount, approximately $13 million related to liabilities which would be paid in cash if allowed and the remaining $115 million would be paid in stock. Japonica and its advisors estimated that the real risk was only $50–60 million and that the final number could be as low as $5 million.

(ii) Non-operating expenses, known to the participants as "baggage," included underfunded pension liabilities, retiree health obligations, product liabilities of discontinued products and operations and certain environmental claims which are not dischargeable in Chapter 11. Management estimated that the net present value of these non-operating liabilities was approximately $92.0 million, which it planned to finance with the proceeds from the sale of non-core assets such as the stock of Titanium Metals Corporation and the Dover Hotel in Manhattan. Kazarian and Japonica's advisors estimated, however, that baggage liabilities were only one-fourth of management's estimate.

(iii) Kazarian also questioned the threat of EMF publicity. He had a friend measure the strength of the electromagnetic fields associated with Northern Electric's blankets and those of other manufacturers. The results showed Kazarian that Northern's products were safe while those of its competitors were not.

Fifth, there were what Kazarian called "nuggets of value": employees told Japonica of assets, including land and escrow accounts, not recorded on Sunbeam Oster's books; business insurance policies were presumably at unreasonably high levels; the cash surrender value of management's life insurance was estimated to be $15 million.

Finally, Japonica believed Sunbeam Oster will have a tax loss carryforward of $188 million as a reorganized entity with an approximate expiration date modestly beyond the year 2000.

If Japonica could prove the existence of a value gap, financing would be made available. Based in part on their success in CNW, and their preliminary discussions with equity investors, Kazarian and Lederman believed they could raise approximately $120 million of equity and possibly up to $200 million if needed. If such significant equity were made available, it would be easier to raise debt financing to acquire the company. In addition, the company forecast a substantial cash balance of $121.5 million at March 31, 1990, when cash was near its yearly low point.

The Decision

Kazarian and Lederman recognized that there were several issues to consider. If, based on Japonica's analysis, the company's ability to provide creditors with value really exceeded planned distributions, then there might be an opportunity to present an alternative plan. An alternative plan was now a possibility since the judge had terminated the exclusivity period. Management's decision to propose a "stock plan" had certainly disappointed certain creditors who expected cash rather than securities. But an alternative plan begged the question of how much value one had to provide creditors and how attractive one could make the equity. Annual projected returns of 25% to 35% would be required to attract equity investors in a distressed company. A new capital structure would have to be created which satisfied the demands of these investors and also provided the company with the flexibility it needed to turn around its businesses. Japonica's associates began to build financial models which would help determine the feasibility of different approaches.



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If Japonica decided that there was an opportunity, they would then have to choose between the various approaches available to acquire Sunbeam Oster. Now that management's exclusivity period had expired, Japonica could simply purchase a nominal amount of claims, propose a plan of its own and abide by the votes of impaired classes of claims and interests. Alternatively, Kazarian and Lederman considered the option of acquiring sufficient claims to influence the outcome of the proceedings. While this option would allow Japonica to capitalize on any unseen value in the claims, it was far less safe. Whatever their decision, it would have to be made quickly. The court had already conducted several days of hearings on the debtor's disclosure statement and it was likely, if separate confirmation schedules were set, that creditors would vote on the debtors' plan before they had a chance to consider Japonica's plan.



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Exhibit 1 Business Entities

Division Products

Management's 1991E Operating Profit ($ millions)

Sunbeam Leisure Products Propane barbecue grills, gas barbecue grills, charcoal barbecue grills, outdoor insect killer devices

$25.3

Northern Electric Electric blankets, conventional blankets, heated throws, heating pads, vaporizers, humidifiers, fans, heaters, ice bags, dental care products

15.0

Almet/Lawnlite Lawn and patio furniture, including tubular frame furniture, umbrellas, tables, replacement cushions, aluminum tubing

13.6

Oster Professional Products Electric clippers and blades sold under the Oster (human and pet) and Stewart (livestock) labels

5.8

Sunbeam Canada (International)

Food & beverage preparation appliances, propane barbecue grills, lawn mowers, irons, hair clippers

4.9

Solaray Electric blankets, heating pads, humidification products, heaters, personal care products, scales

1.7

Hanson Scale Bath scales, clinical scales, postal scales, household scales, diet scales, hanging scales, blood pressure monitoring devices, temperature monitoring devices, shower massagers

3.7

Springfield Instrument Weather stations, household thermometers, cooking thermometers, timers, clocks

3.7

Oster/Sunbeam Appliance Stand mixers, hand mixers, irons, toasters, ovens, food processors, Osterizer blenders, "Kitchen Center" appliances, food grinders, coffee makers, hot beverage makers, can openers, knives, hair dryers & curlers, heating pads, massagers

10.0

Sunbeam Intercontinental SIL (International)

Exports Oster blenders, "Kitchen Center" appliances, irons, hand mixers, rice cookers, pressure cookers

2.5

Sunbeam Mexicana (International)

Food & beverage preparation products, cooking products, clothing care products, fans, "BluMol" hacksaw blades

—

Oster de Venezuela (International)

Food & beverage preparation products, cooking appliances, clothing care products

—

Sunbeam del Peru (International)

Food & beverage preparation products, cooking appliances, small refrigerators, clothing care products, floor care products

—



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Exhibit 2 Product Market Share Data, 1989 ($ millions)

Brand Product Market Share Fiscal 1989 Revenues

U.S. Market Sunbeam Gas grills 42.2% $138.5 Aluminum lawn furniturea 48.4 120.5 Electric blankets and throws 47.9 64.8 Stand mixers 20.8 21.2 Heating pads 76.6 24.9 Ultrasonic humidifiers 16.2 18.0 Table top gas grills 55.2 9.5 Weather instruments 26.7 10.0 Clocks 6.0 15.2 Scales 25.9 19.9 $442.5

Oster Electric blenders 46.9 $47.8 Electric clippers 63.7 31.7 Kitchen centers 96.2 26.8 Other 61.2 $167.5

Total $610.0

Canadian Market Sunbeam Electric blankets and heating pads 95.5% $6.9 Kitchen centers and blenders 79.2 11.8 Barbecue grills 23.2 11.0 Stand mixers 58.7 3.7 $33.4 U.S. and Canada Revenues under Brand Names $643.4 Total U.S. and Canada Revenues $864.8

aAluminum lawn furniture marketed under the Sunbeam label as of fiscal 1990.



13

Exhibit 3 Comparative Industry Data, 1991 ($ millions)a

Sales Operating Marginb Depreciation

Net Profit

Black & Decker $5,300 14.5% $215 $105 Fedders Corp. 280 14.5 12 11 Maytag Corp. 3,500 11.5 100 31 National Presto 135 21.5 1 27 Toro Co. 825 8.0 12 140 Whirlpool Corp. 6,500 9.5 230 140

aData from Value Line bExcludes depreciation

Exhibit 4 Brand Awareness Survey (Consumer Appliances), 1983–88a

1988 1987 1986 1985 1984 1983

Company mentioned unaided:

Geb 77% 82% 88% 90% 85% 82% Black & Decker 45 41 24 11 6 - Sunbeam 30 34 37 39 39 38 Oster 14 17 16 15 14 14 Proctor-Silex 22 21 21 17 21 16 Sears 22 19 - - - - Hamilton Beach 20 24 23 26 22 20

Source: Opinion Research Corp. aNo survey was conducted in 1989. bGE no longer manufactures small appliances.



14

Exhibit 5 Oster/Sunbeam Appliance Division Data under Debtors' Plan ($ millions)a

Actual Forecast

1987 1988 1989 1990 1991 1992 1983

Oster Selected Income Statement Data

Trade sales $125.6 $139.6 $147.6 $159.0 $166.3 $177.0 $186.5 Gross profit 40.2 40.2 36.2 40.5 47.9 51.4 57.7

Selling 16.6 17.1 16.6 16.4 17.5 17.8 17.8 Marketing 9.3 7.1 8.9 9.5 10.0 10.6 11.2 Warehousing 2.6 2.5 2.9 3.2 3.3 3.5 3.7 Administration 3.4 4.3 4.1 4.7 5.0 5.3 5.6 Research and development 3.2 3.4 2.9 3.2 3.3 3.5 3.7

Total S,G&A 35.1 34.4 35.4 37.0 39.1 40.7 42.0

Operating profit $5.1 $5.8 $0.8 $3.5 $8.8 $10.7 $15.7

Gross margin 32.0% 28.8% 24.5% 25.5% 28.8% 29.0% 30.9% S,G&A/Sales 27.9 24.6 24.0 23.3 23.5 23.0 22.5 Operating margin 4.1 4.2 0.5 2.2 5.3 6.0 8.4

Selected Balance Sheet Data

Receivables $42.2 $42.2 $50.7 $51.6 $53.4 $56.1 $58.3 Inventory 31.0 35.4 34.4 34.9 35.7 37.0 38.0 P,P&E, net 12.3 13.1 17.3 15.0 14.6 14.2 13.7

Accounts payable 10.1 5.3 5.9 8.0 8.5 9.0 9.5 Accrued income taxes (0.2) 0.3 (2.5) (0.7) 1.7 2.5 4.3 Other accrued liabilities 14.7 8.5 7.7 8.8 9.0 9.2 9.5

Sunbeam Selected Income Statement Data

Trade sales $159.9 $146.8 $110.0 $90.0 $95.0 $101.7 $111.9 Gross profit 43.7 31.8 16.7 15.0 17.5 20.3 24.7

Selling 22.2 20.2 13.8 11.1 6.5 6.1 6.6 Marketing 10.7 9.1 6.9 3.8 3.8 3.8 4.0 Warehousing 2.9 2.9 2.2 1.8 1.7 1.8 2.0 Administration 10.4 4.6 3.2 3.0 2.9 3.1 3.4 Research and development 4.2 4.8 2.5 1.5 1.4 1.5 1.7

Total S,G&A 50.4 41.6 28.6 21.2 16.3 16.3 17.7

Operating profit ($6.7) ($9.8) ($11.9) ($6.2) $1.2 $4.0 $7.0

Sales from food processors (largely Oskar) 40.9 27.5 16.3 16.2 17.2 8.2 20.1

Gross profit from food processors 19.1 6.9 2.9 2.8 5.0 6.5 8.4

Gross margin 27.3% 21.7% 15.2% 16.7% 18.4% 20.0% 22.1% S,G&A/Sales 31.5 28.3 26.0 23.6 17.2 16.0 15.8 Operating margin -4.2 -6.7 -10.8 -6.9 1.3 3.9 6.3

Selected Balance Sheet Data

Receivables $55.2 $44.6 $35.2 $32.5 $28.6 $28.8 $29.0 Inventory 38.8 24.3 25.9 20.6 18.9 19.8 20.2 P,P&E/net 13.6 12.0 7.0 4.3 3.3 2.9 2.7

Accounts payable 6.3 6.7 3.5 3.0 3.5 4.0 4.5 Accrued income taxes (3.7) (5.9) (7.0) (4.2) (1.1) 0.3 1.4 Other accrued liabilities 16.4 11.4 9.7 7.5 6.5 6.4 6.4

aThis table represents a detailed break-out for the heading "Oster/Sunbeam Appliance" set forth under Exhibit 1.



15

Exhibit 6 Consolidated Financial Statements, 1985–89 ($ millions)

Income Statement 1985 1986 1987 (9 Mos.) 1988 1989

Net sales $1,035.2 $ 999.6 $ 650.8a $ 967.8 $ 937.6 Costs of goods sold 742.8 710.9 520.6 734.6 747.1 Depreciation and amortization 29.7 25.6 17.5 21.0 20.1

Gross profit 262.7 263.1 112.7 212.2 170.4

S,G&A 249.3 258.1 156.7 187.7 187.5 Operating earnings (loss) 13.4 5.0 (44.0)b 24.5 (17.1)

Other (income) expense, net (0.2) 54.7 10.9 (2.4) (4.7) Interest expense 106.5 102.2 56.6 44.5 36.5

Income (loss) from cont. oper. before income taxes

(92.9) (151.9) (111.5) (17.7) (49.0)

Income taxes 8.1 (0.8) 6.1 7.4 5.9 Income (loss) from cont. oper. (101.0) (151.1) (117.7)c (25.1) (54.9)

Income (loss) from disc. oper. (8.1) (12.9) (167.8) — — Net income (loss) ($109.1) ($164.0) ($285.4) ($25.1) ($54.9)

Primary E.P.S.: Continuing operations ($12.32) ($16.78) ($12.93) ($5.10) ($7.80) Discontinued operations (0.76) (1.19) (15.46) — — Net income (loss) ($13.08) ($17.97) ($28.39) ($5.10) ($7.80)

aSales for the fiscal year were $860.8 million. bOperating loss for the fiscal year was $56.7 million. cLoss from continuing operations for the fiscal year was $212.0 million.

Balance Sheet 1988 1989

Net assets Cash $104.1 $135.0 Receivables 217.4 232.2 Inventories 187.3 201.2 Other current assets 18.4 15.6 Net assets of discontinued operations 38.4 5.2 Accounts payable 43.6 62.0 Accrued liabilities 74.7 110.1

Net working capital 343.2 282.1

Long-term receivables and other 43.7 33.8 P,P&E, net 96.1 94.3 Goodwill 85.2 82.6 Other noncurrent assets 2.5 9.5 Net assets of discontinued operations 43.8 49.5

Net assets $718.5 $686.8

Capitalization Short-term borrowings $ 2.1 $ 5.6 Long-term debt 11.0 10.0 Other long-term obligations 32.4 41.6 Prepetition obligations 721.0 731.8 Preferred stock 233.9 233.9 Common equity (281.8) (336.0)

Capitalization $718.5 $686.8


Sunbeam-Oster Company, Inc. 291-052 -16-

Exhibit 7 Projected Balance Sheet under Debtors' Plan, 1990–1993 ($ millions)

March 31

Before Post

September 30

Consummation Financing Reorg. Consummation 1990 1991 1992 1993

Net Assets Cash $136.5 $136.3a ($257.8)b $ 15.0 $ 20.0 $ 26.5 $ 87.7 $173.0 Receivables 243.9 243.9 188.8 185.3 186.8 188.5 Inventories 180.3 180.3 150.5 146.7 146.8 147.6 Other current assets 10.5 10.5 10.5 10.4 10.2 10.0 Notes payable & CP, LTD 1.5 11.6a 13.1 15.4 16.9 3.1 3.6 Accounts payable 62.5 62.5 52.8 60.0 67.0 74.5 Accrued liabilities 52.2 _____ _______ 52.2 51.0 50.0 51.0 52.2

Net working capital 318.5 (11.6) 306.9 230.6 215.5 222.7 215.8

P, P&E, net 82.9 60.0g 142.9 138.0 131.7 125.2 118.8 Investments in uncons. subs. 17.1 17.1 14.6 12.7 12.7 12.7 Non-core assets/liabilities 65.7 (63.5)d 2.2 1.0 (0.6) (1.9) (3.2) Goodwill, net 81.4 (81.4)g — — — — — Reorg. values above asset value 59.9 g 59.9 59.2 50.3 35.0 26.1 Other noncurrent assets 8.9 5.3a _____ 14.2 13.3 12.0 10.9 9.6

Net assets $711.0 $130.0 ($282.8) $558.2 $476.7 $448.1 $492.3 $552.8

Capitalization Bank term debt — 130.0a $130.0 $ 52.0 — — — Reinstated debt — 19.9c 19.9 17.6 4.2 4.3 3.1 Other long-term debt 0.4 14.6d 15.0 10.0 7.4 4.9 2.5 Other long-term liabilities 21.8 31.5e 53.3 43.6 33.5 28.0 27.6 Prepetition liabilities (776.7) (776.7)f — — — — — Common equity (87.8) ______ 427.8h 340.0 353.5 403.0 455.1 519.6

Capitalization $711.0 $130.0 ($282.8) $558.2 $476.7 $448.1 $492.3 $552.8

aIt is anticipated that the acquisition of new long-term secured bank debt of approximately $130.0 million and borrowings under a new working capital facility of approximately $13.1 million will provide cash proceeds of approximately $136.3 million, after payment of an estimated $5.3 million of related expenses and $1.5 million of outstanding borrowings. bRepresents the estimated amount of cash which will be distributed to creditors. cRepresents the amount (at present values) of prepetition debt and capitalized leases to be reinstated. dRepresents tax notes of $14.6 million to be issued to various taxing authorities. eRepresents accrual for planned restructuring of operations as contemplated by management under James D. Milligan. fRepresents the decrease in prepetition liabilities to reflect consideration to classes of allowed claims. gRepresents adjustments to (i) record property, plant and equipment at estimated fair market value, (ii) eliminate goodwill, and (iii) recognize reorganization value in excess of amounts allocable to identifiable assets. hRepresents the effects of cancellation of the outstanding shares of Sunbeam Oster preferred, preference and common stock; adjustments to record obligations at their present values; and other offsetting adjustments.



Exhibit 8 Operating Earnings and Cash Flow Projections for Sunbeam Oster under Debtors' Plan, 1990–99 ($ millions)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Consolidated

Net sales $875.0 $929.8 $982.7 $1,038.9 $1,090.8 $1,145.4 $1,202.7 $1,262.8 $1,325.9 $1,392.2 Cost of goods sold 663.0 702.8 739.0 773.7 812.4 853.0 895.7 940.4 987.5 1,036.8 Depreciation and amortization 23.0 21.2 21.3 20.8 21.4 22.4 23.5 24.6 25.8 27.0

Gross profit $189.0 $205.8 $222.4 $ 244.4 $ 257.1 $ 270.0 $ 283.5 $ 297.8 $ 312.7 $ 328.4 S, G&A 137.4 135.3 140.6 147.4 154.8 162.5 170.6 179.2 188.1 197.5 Operating earnings $ 51.6 $ 70.5 $ 81.8 $ 97.0 $ 102.3 $ 107.5 $ 112.9 $ 118.6 $ 124.6 $ 130.9 Foreign dividends 2.2 2.4 2.7 3.2 3.4 3.5 3.7 3.9 4.1 4.3

Total EBIT $ 53.8 $ 72.9 $ 84.5 $ 100.2 $ 105.7 $ 111.0 $ 116.6 $ 122.5 $ 128.7 $ 135.2

Tax-effected EBIT 34.5 46.7 54.1 64.1 67.6 71.1 74.6 78.4 82.3 86.5 Depreciation and amortization 23.0 21.2 21.3 20.8 21.4 22.4 23.5 24.6 25.8 27.0 Capital expenditures (11.2) (13.5) (13.7) (19.4) (20.4) (21.4) (22.5) (23.6) (24.8) (26.0) Decrease (increase) in working capital 144.1a (31.9) 4.9 4.4 (13.6) (14.3) (15.0) (15.7) (16.5) (17.4) Cash flow available for capital paymentsb 190.3 22.5 66.6 69.9 55.0 57.7 60.6 63.6 66.8 70.1

Oster/Sunbeam Appliancec

Oster housewares $ 3.5 $ 8.8 $ 10.7 $ 15.7 $ 16.5 $ 17.3 $ 18.2 $ 19.1 $ 20.0 $ 21.0 Sunbeam appliances (6.2) 1.2 4.0 7.0 7.4 7.7 8.1 8.5 8.9 9.4

Total O/S appliance EBIT $ (2.7) $ 0.0 $ 14.7 $ 22.7 $ 23.9 $ 25.0 $ 26.3 $ 27.6 $ 28.9 $ 30.4

Tax-effected EBIT (1.7) 6.4 9.4 14.5 15.3 16.0 16.8 17.7 18.5 19.5 Depreciation and amortization 5.4 5.2 5.0 4.9 5.0 5.2 5.3 5.5 5.6 5.8 Capital expenditures 1.8 3.9 4.0 4.5 5.0 5.2 5.3 5.5 5.6 5.8 Change in working capital 7.6 3.3 (3.9) (2.4) (2.5) (2.6) (2.7) (2.9) (3.0) (3.2) Cash flow available for capital paymentsb 9.5 11.0 6.9 13.1 13.2 13.9 14.6 15.3 16.1 16.9

Source: Disclosure Statements and casewriter estimates aOf this amount, approximately $61 million was necessary to pay the promised cash to the creditors on consummation of the Plan, consistent with the debt levels in Exhibit 7. bCash flow available for capital payments = tax-effected operating income + depreciation and amortization - capital expenditures ± change in working capital. cRepresents projections for the Oster/Sunbeam Appliance Division. (See Exhibit 1.)



Exhibit 9 Operating Earnings and Cash Flow Projections for Sunbeam Oster under Japonica's Plan, 1990–99 ($ millions)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Consolidated

Net sales $864.8 $923.8 $968.6 $1,017.0 $1,067.9 $1,121.3 $1,177.3 $1,236.2 $1,298.0 $1,362.9 Cost of goods sold 663.2 698.7 722.9 759.0 797.0 836.8 878.7 922.6 968.8 1,017.2 Depreciation and amortization 16.8 17.6 18.5 27.0 28.2 29.4 30.7 32.0 33.4 34.9

Gross profit $184.8 $207.5 $227.2 $ 231.0 $ 242.7 $ 255.0 $ 268.0 $ 281.6 $ 295.8 $ 310.8 S,G&A 125.8 121.3 126.4 129.0 135.6 142.7 149.9 157.7 165.7 174.2 Operating earnings $ 59.0 $ 86.2 $100.8 $ 102.0 $ 107.1 $ 112.4 $ 118.0 $ 123.9 $ 130.1 $ 136.6 Foreign dividendsa 2.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total EBIT $ 61.2 $ 86.2 $100.8 $ 102.0 $ 107.1 $ 112.4 $ 118.0 $ 123.9 $ 130.1 $ 136.6

Tax-effected EBIT 39.2 55.2 64.5 65.3 68.5 71.9 75.5 79.3 83.3 87.4

Depreciation and amortization 16.8 17.6 18.5 27.0 28.2 29.4 30.7 32.0 33.4 34.9

Capital expenditures (11.2) (13.5) (13.7) (23.3) (24.5) (25.7) (27.0) (28.3) (29.7) (31.2)

Decrease (increase) in working capital 144.1b (30.1) 7.7 5.4 (13.3) (14.0) (14.7) (15.4) (16.2) (17.0)

Cash flow available for capital paymentsc 188.9 29.1 77.0 74.4 58.9 61.7 64.5 67.6 70.8 74.1

Source: Disclosure Statements and casewriter estimates aIncluded in operating earnings after 1990. bOf this amount, approximately $61 million was necessary to pay the promised cash to the creditors on consummation of the Plan, consistent with the debt levels in Exhibit 7. cCash flow available for capital payments = tax-effected operating earnings + depreciation and amortization - capital expenditures ± change in working capital.



19

Exhibit 10 Allocation of Consideration with Respect to Classes of Allowed Claims and Interests under Debtors' Plan ($ and shares thousands)

aThese classes will also receive warrants, valued at $1.53 per warrant, as follows: Sunbeam Oster Sub. Sinking Fund Debentures will receive 7,170 warrants with a value of $10,970; Sunbeam Oster Preference Stock will receive 2,229 warrants with a value of $3,410; Sunbeam Oster Preferred Stock will receive 2,757 warrants with a value of $4,218; and Sunbeam Oster Common Stock will receive 880 warrants with a value of $1,346. bCash distribution is in addition to the reinstatement, or restoration, of the claim. cIn the event of a voluntary liquidation, holders of $2.19 Preference Stock are entitled to receive a liquidation preference of $25.00 per share; holders of $11.25 Preferred Stock are entitled to receive $100.00 per share. dTotal uses of consideration, including expenses and reinstated claims, is $690,100. The debt claim or equity interest of each class is shown in the far left column. The consideration each class is to receive under the "stock plan"—whether cash, new common stock or warrant—is displayed in the columns to the right. The value of this consideration is calculated by ascribing full value to cash and a value of $7.00 per share of stock and $1.53 per warrant, corresponding to the high end of the valuation done by Smith Barney. The value of this distribution is then divided by the amount of the claim or interest to calculate the party's recovery rate. Holders of secured bank claims of Sunbeam Oster, for example, are owed $186.2 million. Under the plan, they will receive $5.0 million of cash and 28.5 million shares of stock, representing 54.57% of the company's ownership. If these shares are worth $7.00 per share, the stock is worth $199.2 million, and the total distribution of cash and securities is worth $204.2 million. This distribution represents 110% of the bank lender's claim against Sunbeam Oster.



20

Exhibit 11 Recovery by Classes of Allowed Claims under Debtors' Plan and a Liquidation

Management Plana

Assumed Value of $7.00 per Share

$1.53 per Warrant

Assumed Value of $6.23 per Share

$0.00 per Warrant

(upper end of range)

(lower end of range)

Liquidationb

Class Cash

Portion Total Value

Cash Portion

Total Value

(upper end of range)

(lower end of range)

Administrative and Certain Claims Common to all Debtors:

Certain priority and admin. claims 100% 100% 100% 100% 100% 100% Priority taxes (federal and state) 100 100 100 100 100 100

Sunbeam Exercise Co., Sunbeam (USA), Sunbeam Industrial Products,

General unsecured claims 0 100 0 89 100 100

Almet/Lawnlite, Sunbeam Co. General unsecured claims 100 100 100 100 100 100 Reinstated claims 100 100 100 100 100 100 Institutional unsecured claims 121c 121c 121c 121c 100 100 Reimbursement claims 100 100 100 100 100 100

Sunbeam-Oster Company, Inc. Secured bank claims 3 110c 3 98 115 68 Senior unsecured claims 4 93 4 83 18 12 Sub. sinking fund debentures 0 50 0 36 0 0 Trade payables and other 0 61 0 54 7 6

Chemetron General unsecured claims 4 93 4 83 29 27

Chemetron Investments Secured claims 120c 120c 120c 120c 100 100 General unsecured claims 100 100 100 90 100 100

aFrom Debtors' Disclosure Statement and Joint Plan of Reorganization, dated December 29, 1989; upper end derived in case Exhibit 5. bFrom Debtors' Disclosure Statement and Joint Plan of Reorganization, dated December 29, 1989. cRecoveries in excess of 100% include recovery of postpetition interest.



21

Exhibit 12 Valuation by Smith Barney ($ millions)

Panel A: Sources and Uses of Consideration

Sources of Consideration Uses of Consideration Bank debt $143.1 Cash paid to creditors $263.8 Debt and capital leases reinstated 19.9 Retirement of notes payable 1.5 Tax notes 14.6 Debt and capital leases reinstated 19.9 New common stock 365.0 Tax notes issued 14.6 Cash on hand 127.5 New common stock distributed 365.0 Warrants 20.0 Warrants 20.0 Transaction costs 5.3 $690.1 $690.1

Panel B: Value per Share Calculated in Debtors' Disclosure Statement

Value

From To

Assumed EBIT $ 68 $ 76 Multiple 7.5x 7.5x Assumed enterprise value $510 $570

Less debt at consummationb $(185) $(185) Implied equity valuec $ 325 $ 385 Less estimated warrant value $ 0 $ 20 Implied value of new common stock $ 325 $ 365 Implied value per share of new common stock $6.23 $7.00

aThe range reflects Smith, Barney's judgments. The debtor's projections for 1991 assume an EBIT of $72.9 million (Exhibit 8). bSmith Barney has assumed the availability of $250 million of bank facilities at consummation of which $120 million is available for working capital. Debt at consummation included bank term debt, reinstated debt, notes payable to the Internal Revenue Service and average seasonal working capital drawings. cImplied equity value includes both the new common stock and the warrants.

Panel C: Liquidation Analysis

Value

From To

Proceeds from sale of operating businessesa $510,000 $550,000 Less: Discount factorb 102,000 55,000

$408,000 $495,000

aThe range of $510 to $550 million proceeds assumes the sale of Oster/Sunbeam Appliance, Northern Electric, Sunbeam Leisure, Almet/Lawnlite, Hanson Scale and Springfield Instruments. bA 10% to 20% discount factor was applied to account for potential adverse circumstances which could affect sales prices.



Exhibit 13A Common Stock Comparison of Appliance Manufacturers by Smith Barney

Multiples of Market Capitalizationa

Latest Twelve Months Latest Fiscal Year

P/E Ratio

Tangible Book Value Assets Sales

Net Income

Cash Flow From

Operations

Sales Net

Income

Cash Flow From

Operations LTM

1990E 1991E

Black & Decker Corp. NMFx 0.1x 0.2x NMFx 6.2x 0.3x 29.9x 5.6x NMF 11.8x 7.5x Maytag Corp. 3.1 1.1 0.6 13.6 8.3 0.6 13.6 8.3 13.3x 12.4 10.2 National Presto Inds. 1.5 0.6 2.4 10.7 10.3 2.4 10.7 10.3 10.8 10.5 10.0 Robeson Industries Corp. 2.3 0.2 NMF NMF NMF NMF NMF NMF NMF NA NA Whirlpool Corp. 1.8 0.5 0.3 10.2 4.7 0.3 10.2 4.7 10.2 10.0 8.6 Rival Manufacturing NMF 1.4 0.6 10.5 7.1 0.6 19.6 10.7 11.5 NA NA Selected averages 11.3 x 11.5 x 11.5 x

Multiples of Market Value of Net Assetsb

Latest Twelve Months Latest Fiscal Year

Sales EBITDA EBIT Assets Sales EBITDA EBIT

Black & Decker Corp. 1.3x 9.7x 14.4x 0.7x 1.5x 11.5x 17.1 x Maytag Corp. 0.8 7.3 9.4 1.1 0.8 7.3 9.4 National Presto Inds. 1.1 4.8 5.0 0.6 1.1 4.8 5.0 Robeson Industries Corp. 0.1 NMF NMF 0.2 0.1 NMF NMF Whirlpool Corp. 0.4 4.6 7.3 0.5 0.4 4.6 7.3 Rival Manufacturing 1.0 5.6 6.4 1.4 1.1 7.2 8.7 Selected averages 7.7 7.6 x

NMF = Not meaningful

aMarket capitalization, calculated as share price multiplied by most recent number of shares outstanding, divided by financial item. bNet asset value, calculated as market capitalization plus long-term debt less cash and marketable securities, divided by financial item. cThe beta of Sunbeam Oster's assets was thought to approximate 0.72. dThe 30-year U.S. Treasury bond rate was 8.26% and the 90-day U.S. Treasury Bill rate was 7.64%.



Exhibit 13B Analysis of Home Appliance Acquisitions by Smith Barney

Purchase Price as a Multiple

of Latest Twelve Months

Transaction Values

as a Multiple of Latest Twelve Months

Date Acquiror Target Purchase

Price Transactio

n Value Net

Income Cash Flow

Book Value

Revenue EBIT EBITDA Assets

2/02/89 STM Holdings, Inc. SSMC Inc. $ 240,584 $ 380,484 16.7x 9.4x 1.2x 0.6x 10.6x 8.1x 0.8x 10/23/88 Maytag Chicago Pacific 1,031,340 1,329,515 25.1 11.8 2.0 0.8 8.9 6.8 1.0 1/21/88 NACCO Industries Wearever-ProctorSilex 106,500 194,180 13.0 10.0 3.3 0.8 8.2 6.9 1.0 6/26/86 Black & Decker GE Housewares 300,000 308,500 34.9 12.1 1.8 0.7 8.5 6.7 1.1 1/13/86 Sunbeam Corp. Sunbeam Oster 547,113 901,101 11.5 7.3 1.4 0.6 7.3 6.1 0.9

12/19/84 First City Partners Scovill Inc. 528,300 654,057 14.4 9.3 2.2 0.8 7.4 5.8 1.3


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