UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1994 Commission File Number 1-4115
Zenith Electronics Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-1996520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 Milwaukee Avenue, Glenview, Illinois 60025-2493
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (708) 391-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------------- -----------------------------------------
Common Stock, $1 par value, New York Stock Exchange
and associated purchase rights Chicago Stock Exchange
Basel, Geneva and Zurich, Switzerland
Stock Exchange
6 1/4 % Convertible Subordinated New York Stock Exchange
Debentures, due 2011
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form
10-K. __X__
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No_____
The aggregate market value of the registrant's Common Stock held by
non-affiliates based on the New York Stock Exchange closing price on
February 17, 1995, was $425,720,381.
As of February 17, 1995, there were 45,675,973 shares of Common Stock, par
value $1 per share outstanding.
Documents Incorporated by Reference
Portions of the Registrant's definitive Proxy Statement are incorporated by
reference into Part III of this report.
ZENITH ELECTRONICS CORPORATION
FORM 10-K
INDEX
Page
Number
------
PART I
Item 1. BUSINESS 3
Item 2. PROPERTIES 5
Item 3. LEGAL PROCEEDINGS 6
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS 8
Item 6. SELECTED FINANCIAL DATA 8
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 15
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 15
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 16
Item 11. EXECUTIVE COMPENSATION 17
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 17
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 18
SIGNATURES 24
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS 26
PART I
ITEM 1. BUSINESS
The company was founded in 1918 and has been a leader in consumer
electronics, first in radio and later in monochrome and color television and
other video products. The company's operations involve a dominant
industry segment, the design, development, and manufacture of video
products (including color television sets and other consumer products) along
with parts and accessories for such products. These products along with
purchased video cassette recorders are sold principally to major retail
dealers and independent and wholly-owned regional wholesale distributors
in the United States, Canada and other foreign countries. The company intends
to changeover to an entirely direct-to-retail distribution organization during
1995. The company also sells directly to buying groups and private label
customers in the lodging, health care and rent-to-own industries.
The company's video products also include color picture tubes that are
produced for and sold to other manufacturers and Network Systems
products such as cable and telecommunication set-top devices, interactive
television and data communication products which are sold primarily to
cable television operators and other commercial users of these products.
The company has sold or downsized its non-core business activities. The
company sold its monochrome video monitor business in 1993 and its
power supply business in April 1994. Its activities in color video monitors
sold to computer manufacturers have been scaled back in 1994 and will
cease in the near future; its activities in high-security electronic equipment
have been discontinued.
The company has reported substantial losses from its continuing
operations for each of the last ten years. These results reflect the cumulative
effect of frequent and significant color TV price reductions during the
1980s and, in the early 1990s, also reflected recessionary conditions in the
United States. In addition, the company has invested significant amounts in
engineering and research in recent years, which amounts have been
expensed as incurred.
Raw Materials
Many materials, such as copper, plastic, steel, wood, glass, aluminum and
zinc, are essential to the business. Adequate sources of supply exist for
these materials, although picture tube glass shortages did occur in 1993 (due
to a continuing industry glass shortage). During 1994 the company's picture
tube production was not limited by this continuing industry glass shortage.
Patents
The company is licensed under a number of patents which are of
importance to its business, and holds numerous patents that expire at
various times through 2011. The company has patents and patent
applications for numerous high-definition television (HDTV) related
inventions. To the extent these inventions are incorporated into the HDTV
standard to be adopted by the Federal Communications Commission, the
company expects to receive royalties from these patents. In addition,
royalties have been and may be received from these patents for non-HDTV
applications as well. In addition, major manufacturers of televisions and
video cassette recorders agreed during 1992 to take licenses under some of
the company's U.S. tuning system patents (the licenses expire in 2003).
While in the aggregate its patents and licenses are valuable, the business
of the company is not materially dependent on them. Based on 1994 U.S.
industry unit sales levels and technology, more than $25 million in annual
royalty income is expected through the licensing period.
Seasonal Variations in Business
Sales of the company's consumer electronics products are generally at a
higher level during the second half of the year. Sales of consumer
electronics products typically increase in the fall, as the summer vacation
season ends and people spend more time indoors with the new fall
programming on television and during the Christmas holiday season.
During 1994, 1993 and 1992, 59 percent, 54 percent and 56 percent,
respectively, of the company's net sales were recorded in the second half
of the year and approximately 30 percent of the company's net sales were
recorded in the fourth quarter of each of the three years ended
December 31, 1994.
Competitive Conditions
Competitive factors in North America include price, performance, quality,
variety of products and features offered, marketing and sales capabilities,
manufacturing costs, and service and support. The company believes it
competes well with respect to each of these factors.
The company's major product areas, including the color television market,
are highly competitive. The company's major competitors are foreign-
owned global giants, generally with greater worldwide television volume and
overall resources. In efforts to increase market share or achieve higher
production volumes, the company's competitors have aggressively lowered
their selling prices in the past several years. During 1994, the company
continued to pursue efforts to reduce unfair competition from television
imports.
Research and Development
During 1994 expenditures for company-sponsored engineering and
research relating to new products and services and to improvements of
existing products and services amounted to $45.4 million. Amounts
expended in 1993 and 1992 were $47.8 million and $55.4 million,
respectively.
Environmental Issues
Compliance with Federal, State and local environmental protection
provisions is not expected to have a material effect on capital expenditures,
earnings or the competitive position of the company. Further information
regarding environmental compliance is set forth under Item 3 of this report.
Number of Employees
At the end of December 1994, the company employed approximately
22,500 people, of whom approximately 16,200 are hourly workers covered
by collective bargaining agreements. Approximately 4,700 of the company's
employees are located in the Chicago, Illinois area, of whom approximately
3,100 are represented by unions. Approximately 16,800 of the company's
employees are located in Mexico, of whom approximately 12,800 are
represented by unions. Mexican labor contracts expire every two years and
wages are renegotiated annually or more frequently under rapid devaluation
or high inflation periods. The company believes that its relations with its
employees are good.
Financial Information about Foreign and Domestic Operations and Export Sales
The North American Free Trade Agreement ("NAFTA"), which took
effect on January 1, 1994, significantly reduced duty costs in 1994. The
NAFTA also improved the company's ability to compete against Asian
imports in North America and increased sales of the company's color
television receivers in Mexico and Canada and color picture tube production
in the U.S. Since the passage of the NAFTA, the company has added
approximately 300 U.S. jobs that are directly related to increased demand
for U.S. picture tubes.
Information regarding foreign operations is included in "Note Five -
Geographic Segment Data" on page 33 of this report. Export sales are less
than 10% of consolidated net sales.
The company's product lines are dependent on the continuing operations
of the company's manufacturing and assembly facilities located in Mexico.
ITEM 2. PROPERTIES
The company utilizes a total of approximately 6.0 million square feet for
manufacturing, warehousing, engineering and research, administration and
distribution, as described below.
Square Feet
Location Nature of Operation (in millions)
- ----------------------------------------------------------------------------
Domestic:
- ---------------------
Chicago, Illinois Six locations - production of 2.4
(including suburban color picture tubes, parts and
locations) service; engineering and research,
marketing and administration
activities; and assembly of
electronic components (.8 million
square feet is leased by the
company)
McAllen, El Paso, Fort Six locations - warehouses .7
Worth and Brownsville, (.6 million square feet is
Texas; Douglas, Arizona leased by the company)
Various Eight locations - domestic distribution .1
(.1 million square feet is
leased by the company)
Foreign:
- ---------------------
Mexico Fifteen manufacturing and warehouse 2.6 (1)
locations - production of plastic
and wooden cabinets for color
television, sub-assembly production
of television chassis, tuners and
other components and final assembly of
color television, and Network Systems
products; and assembly of power supplies
Canada Three locations - distribution of
Consumer Electronics products .2
Taiwan One location - purchasing office -
------
Total 6.0
======
(1) The company owns, and has offered for sale or lease, 230,000 square
feet of manufacturing and warehousing space in Chihuahua, Mexico.
Currently this space is not being utilized by the company and as such is not
included in the above table.
The company's facilities are suitable and adequate to meet current and
anticipated requirements. None of the real property owned by the company
is mortgaged
ITEM 3. LEGAL PROCEEDINGS
The company is involved in various legal actions, environmental matters,
and other proceedings relating to a wide range of matters that are incidental
to the conduct of its business. The company believes, after reviewing such
matters with the company,s counsel, that any liability which may ultimately
be incurred with respect to these matters is not expected to have a material
effect on either the company's consolidated financial position or results of
operations.
On April 27, 1993, the U.S. Environmental Protection Agency ("EPA")
sent written notices to all potentially responsible parties, advising the
parties of the EPA's proposed plan of remediation at the American Chemical
Services site near Griffith, Indiana. The EPA notified the parties that they
would be expected to make a good faith offer to perform the remedial
action and thereafter to negotiate and enter into a consent decree with the
agency. The EPA estimates that the cost of remedial action could range
from $38 to $64 million, depending upon the type of remedy actually
needed to effect the cleanup. The company is alleged to have contributed
less than one-tenth of one percent of the hazardous waste identified at the
site. The company and other de minimus waste generators entered into a de
minimus settlement with the EPA in July 1994. In January 1995, the
company paid $114,000 as its share of the settlement.
In October 1989, the EPA filed a civil action against certain generator
and owner/operator defendants under the Comprehensive Environmental Response,
Compensation and Liabilities Act seeking reimbursement for the EPA's
response costs in connection with an environmental cleanup at a site
known as Moyer Landfill located at Collegeville, Pennsylvania. One of the
original defendants to the EPA case brought a third party action for
contribution against a number of third party defendants, including Ford
Electronics and Refrigeration Corporation ("FERCO"). FERCO sought
$600,000 in contribution from the company on the ground that FERCO is
being held liable in part because it hauled certain waste from the company's
former Lansdale, Pennsylvania picture tube plant. The company recently
entered into an agreement with FERCO and agreed to contribute $300,000
toward a settlement with the federal government and the Commonwealth of
Pennsylvania, subject to negotiation of an acceptable consent decree.
Numerous lawsuits against major computer and peripheral equipment
manufacturers are pending in the U.S. District Court, Eastern District of
New York, the U.S. District Court of New Jersey and the New York State
courts, as well as other federal courts. These lawsuits seek several billion
dollars in damages from various defendants for repetitive stress injuries
claimed to have been caused by the use of word processor equipment. The
company has been named as a defendant in twenty-seven of these cases
which relate to keyboards allegedly manufactured by the company for its
former subsidiary, Zenith Data Systems Corporation. Plaintiffs in the
company's cases seek to recover $31 million actual and $321 million
punitive damages from the company. The company believes it has
meritorious defenses to the cases.
In April, 1993, a group of 47 plaintiffs, individually and on behalf of
certain minors and decedents, filed suit in the District Court of Cameron
County, Texas against approximately 130 defendants, including the
company's subsidiaries, Zenith Electronics Corporation of Texas and
Electro Partes de Matamoros, S.A. de C.V. alleging that plaintiffs suffered
injuries or death as a result of defendants' negligence, negligent design for
and implemented practices of managing, handling, storage, transportation,
utilization and disposal of toxic compounds. Plaintiffs seek judgment for
actual and punitive damages against defendants, jointly and severally, in an
unspecified amount. The company's two subsidiaries filed answers denying
the material allegations of the complaint. The parties are presently in
discovery and the trial is currently scheduled for August 14, 1995.
In December, 1994, the company notified its 15 remaining independent
wholesale distributors of color television and other consumer electronics
products of its intent to change to "one-step" (direct-to-retail) distribution
on a nationwide basis during the first half of 1995. The company offered
to extend its 1994 agreement with each distributor for a negotiated period
up to six months ending June 30, 1995. These independent distributors
currently distribute the company's products in certain areas of the U.S.
Through the early 1970s, independent distributors located throughout the
U.S. handled most of the company's consumer electronics business.
Currently, however, following industry trends, the majority of the
company's sales are made directly to retail customers. In February, 1995,
one of the independent distributors, Electrical Distributing, Inc. ("EDI"),
based in Portland, Oregon, filed suit in the Oregon state court challenging
the company's right to cease its relationship with EDI and alleging that
certain company practices during the course of the relationship have
damaged EDI. The EDI lawsuit seeks injunctive relief, actual damages of
$8 million, and punitive damages of $20 million. The company believes it
has the right to change its method of distribution and has met all of its legal
obligations to EDI. Accordingly, the company intends to defend itself
vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of 1994, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The New York Stock Exchange is the principal United States market in
which the company's common stock is traded. The number of stockholders
of record was 16,544 as of February 17, 1995. No dividends were paid to
stockholders during the two years ended December 31, 1994.
The high and low price range for the company's common stock by quarter
for the past two years is included in the Unaudited Quarterly Financial
Information on page 40 of this report.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
In millions, except
per share amounts 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of operations:
Net sales $ 1,469.0 $ 1,228.2 $ 1,243.5 $1,321.6 $1,409.9
Pre-tax income (loss)
from continuing operations (14.5) (97.0) (121.8) (51.4) (53.3)
Income (loss) from
continuing operations $ (14.2) $ (97.0) $ (105.9) $ (51.6) $ (54.2)
Income (loss) from
discontinued operations - - - - (11.0)
--------------------------------------------------------
Net income (loss) $ (14.2) $ (97.0) $ (105.9) $ (51.6) $ (65.2)
========================================================
Financial position:
Total assets $ 653.6 $ 559.4 $ 578.6 $ 686.9 $ 722.7
Long-term debt 182.0 170.0 149.5 149.5 151.1
Stockholders' equity 228.3 152.4 210.1 308.8 345.9
Per share of common stock
(primary and fully diluted):
Income (loss) from
continuing operations $ ( .34) $ (3.01) $ (3.59) $ (1.79) $ (2.02)
Income (loss) from
discontinued operations - - - - (.41)
--------------------------------------------------------
Net income (loss) $ ( .34) $ (3.01) $ (3.59) $ (1.79) $ (2.43)
========================================================
Book value per share $ 5.00 $ 4.25 $ 6.94 $ 10.60 $ 12.49
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Analysis of Operations
<TABLE>
<CAPTION>
Year-to-Year Changes
In millions Year-Ended December 31 Better/(Worse)
- ------------------------------------------------------------------------------------
1994 1993
1994 1993 1992 vs. 1993 vs. 1992
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating income (loss) before
restructuring and other charges $ (10) $ (51) $ (61) $ 41 $ 10
Restructuring and other charges - (31) (48) 31 17
-----------------------------------------------
Operating income (loss) (10) (82) (109) 72 27
Gain on asset sales, net 11 - - 11 -
Interest expense, net (15) (15) (13) - (2)
-----------------------------------------------
Income (loss) before income taxes (14) (97) (122) 83 25
Income taxes (credit) - - (16) - (16)
-----------------------------------------------
Net income (loss) $ (14) $ (97) $ (106) $ 83 $ 9
===============================================
</TABLE>
Operating Results -- 1994 vs. 1993
The operating loss before restructuring and other charges was $10 million in
1994 and $51 million in 1993.
Consolidated sales in 1994 were $1,469 million, up 20 percent from
$1,228 million in 1993. The significant increase was principally due to
higher unit volume in the core business, Consumer Electronics and Network
Systems, which was partially offset by lower sales in the non-core product
areas and lower Consumer Electronics product pricing.
As in previous years, substantial cost reductions were realized company-
wide. These savings, about $40 million in 1994, resulted from continued
process and design improvements, improved efficiencies, re-engineering
and continued consolidations. In addition, the implementation of the North
American Free Trade Agreement ("NAFTA") reduced the company's duty
costs by $19 million. These cost reductions were offset by $46 million of
consumer product price reductions that were implemented throughout the
year, and $22 million of inflationary cost increases.
Even with the continued industry-wide picture tube glass shortage,
industry color TV unit sales to dealers increased by 10 percent in 1994
(following two successive years of 11 percent increases) to a record 27.4
million units. The company's unit sales increase was significantly higher
than the industry growth rate, which resulted in an improved market share
for the company. The company's increase was especially strong in key
industry-growth categories, such as projection TV, large-screen table
models and combination TV-VCR products. Industry sales of video cassette
recorders to dealers increased 6 percent in 1994 and, again, the company's
volume increased even more.
In 1994, picture tube production was up 21 percent facilitated by the late
1993 conversion of a monitor tube production line to television tube
production. Unit sales of picture tubes to other TV manufacturers were up
12 percent as demand remained strong due to the industry growth and the
NAFTA advantage associated with using North American picture tubes.
The remaining production increase supported the company's own television
set production. The company's picture tube production was not limited by the
continuing industry glass shortage.
Dollar sales increased about 40 percent in the company's Network
Systems product line, which included the design and manufacture of set-top
boxes and other products primarily for cable TV operators. The results in
1994 reflect the effort to refocus this core product line through a
reorganization and new product offerings as well as an improved industry
environment. At year-end 1994, the company recorded a $4 million reserve
related to the replacement of defective integrated circuits in some cable
decoders.
Sales of other products decreased by $59 million in 1994 as the company
continued to phase-out or sell its non-core businesses. Corporate operating
results improved as these businesses were scaled back and eliminated.
During the year, production of both monochrome and color monitors
ceased. The magnetics business was sold in April 1994, although the
company will continue to manufacture power supplies for the purchaser of
the business until April 1995.
The company realized a gain of $11 million on 1994 asset sales, including
more than 3 million square feet of excess plant and office space, 98 acres of
vacant land, and assets related to the magnetics business.
Engineering and research expenses were $45 million in 1994, compared
with $48 million in 1993, with reductions principally in non-core product
areas. Selling, general and administrative expenses increased to $117 million
in 1994 from $93 million in 1993, primarily due to increased advertising
costs in the United States and Mexico in support of the higher sales volume.
Other operating income (net) increased to $34 million in 1994 from $25
million in 1993, principally as a result of increased royalty income
(primarily for tuning system license agreements due to the growth in the
domestic industry) and foreign exchange gains caused by the Mexican peso
devaluation.
Operating Results -- 1993 vs. 1992
The operating loss before restructuring and other charges was $51 million in
1993 and $61 million in 1992.
Consolidated sales in 1993 were $1,228 million, down 1 percent from
$1,244 million in 1992. The decline was principally due to lower sales in
the non-core product areas and lower consumer product pricing, largely
offset by higher unit volume in the consumer product line.
The effect on operating results of unit volume increases in consumer
products was offset by volume declines in the non-core product areas.
Substantial cost reductions in all product areas of about $75 million resulted
from process and design improvements, consolidation of operations in
Mexico, headcount reductions and other operating changes. These cost
reductions were offset by $42 million in consumer products price reductions
that had been implemented throughout 1992 and early 1993, and $20
million of inflationary cost increases, primarily labor costs in Mexico.
Despite the adverse impact of an industry glass shortage, industry color
TV unit sales to dealers rose 11 percent in 1993 (following an 11 percent
increase in 1992) to set a new record. The company's unit sales increase
outpaced the industry growth, leading to an increase in market share. While
industry unit sales to dealers of video cassette recorder decks remained
about equal to 1992, the company's volume increased.
Unit sales of color picture tubes to other TV manufacturers decreased in
1993 because the company used more of its capacity to support increased
sales of the company's color TVs and because of an industry glass shortage,
which also adversely impacted the company's color TV sales. Additional
picture tube capacity became available in late 1993 when the dedicated flat
tension mask tube production line was converted to be able to produce both
television and monitor picture tubes.
Operating results were improved by the full year effect of certain
manufacturing operations that were consolidated in Mexico during 1992, as
well as continued efforts to reduce headcounts and product costs.
Sales of Network Systems products declined in 1993 as a new product for
a major contract manufacturing customer was delayed. However, due to
major cost savings associated with headcount reductions and consolidations
of manufacturing operations, operating results improved compared to 1992.
Sales of other products decreased in 1993 as the company downsized its
non-core magnetics and monitor product areas. However, the cost
structures of these areas were improved so that operating results in 1993
were somewhat better than 1992. During the year, the monochrome
monitor business was sold (production ended in early 1994) and the
company reached an agreement to sell the power supply business in early
1994.
Engineering and research expenses were $48 million in 1993, compared
to $55 million in 1992, with reductions principally in non-core product
areas. Selling, general, and administrative expenses declined slightly to $93
million in 1993 from $94 million. These improvements were primarily the
result of headcount reductions initiated in late 1992.
Other operating income (net) increased to $25 million in 1993 from $24
million in 1992, as a result of increased royalty income from new licensing
activities. Royalty income arising from licensing of the company's patented
tuning-system technology to other color TV and VCR manufacturers was
about $26 million in both 1993 and 1992 and is included in other operating
income (net).
Interest expense (net) of $15 million in 1993 was higher than 1992's $13
million as a result of increased average borrowings.
The income tax credit in 1992 consisted principally of the reversal of
previously accrued tax reserves no longer required in connection with
earnings of a foreign subsidiary, and net operating loss carryback
applications.
Restructuring and Other Charges
During the fourth quarter of 1993, the company recorded a charge of $31
million primarily to restructure certain product areas and re-engineer its core
Consumer Electronics and Network Systems business. The restructuring
affected computer monitors and magnetics, product areas that were phased-
out or sold in 1994. Major elements of this charge were the non-cash
writedown of fixed assets and inventory ($23 million) as well as re-
engineering and severance costs ($6 million) that were substantially paid
during 1994. As expected, the restructuring actions reduced 1994
compensation expense by approximately $10 million and reduced depreciation
expense by approximately $4 million. No material changes have occurred or are
anticipated in these programs or in the estimated costs or benefits of the
programs.
The 1992 results also included restructuring and other charges of $48
million. Included in the actions were manufacturing consolidations and
related employment reductions in Mexico; consolidation of company-owned
distribution; and salaried employment reductions throughout the company.
In addition to valuation reserves for inventories and manufacturing
equipment ($22 million) and severance and relocation costs ($18 million)
which were substantially paid in 1993 and 1994, the special charges also
provided for trade-receivable write-offs ($6 million).
Liquidity and Capital Resources
Following is a three-year summary of cash provided and used:
Cash Provided (Used)
-----------------------------------------------
Three-Year Year Ended December 31
In millions Total 1994 1993 1992
- -----------------------------------------------------------------------------
Cash at beginning of period $ 36 $ 21 $ 6 $ 36
Operating Activities (86) (42) (28) (16)
Investing Activities (83) (32) (26) (25)
Financing Activities 142 62 69 11
--------------------------------------------
Cash at end of period $ 9 $ 9 $ 21 $ 6
============================================
Liquidity
Cash decreased by $27 million during the three-year period of 1992-1994.
The decrease consisted of $86 million of cash used by operating activities
and $83 million used to purchase fixed assets, net of proceeds from asset
sales. These uses of cash were offset by $142 million of cash provided from
financing activities which included sales of the company's common stock
and the issuance of long-term debt offset by cash used for the redemption
of the company's 12-1/8% notes due January 1995, in early 1994.
Operating activities: In 1994, $42 million of cash was used by operating
activities principally to fund a $52 million change in current accounts offset
by $4 million in net income from operations as adjusted for depreciation
and gains on the sales of assets. The change in current accounts was
composed primarily of a $46 million increase in receivables (due to higher
sales) and a $43 million increase in inventories, (due mainly to increased
levels of color television production in support of higher sales), partially
offset by a $40 million increase in accounts payable and accrued expenses.
In addition, the company reduced cash used by operating activities by
issuing common stock to the profit-sharing retirement plans to fulfill the
1994 obligation to salaried employees and a portion of the hourly
employees. This issuance increased stockholders' equity by $6 million.
In 1993, $28 million of cash was used by operating activities principally
to fund $45 million of net losses from operations as adjusted for
depreciation and fixed asset write downs as a part of restructuring and
other charges. A decrease in current accounts provided $3 million of cash
and was composed of a $15 million decrease in receivables offset by an $8
million increase in inventories and a $4 million decrease in accounts payable
and accrued expenses. The decrease in receivables was due to lower sales.
Also, the company reduced cash used by operating activities by issuing
common stock to the profit-sharing retirement plans to fulfill both the 1992
obligation to salaried employees and the 1993 obligation to salaried
employees and a portion of the hourly employees. These issuances
increased stockholders' equity by $15 million.
In 1992, $16 million of cash was used by operating activities principally to
fund $64 million of net losses from operations as adjusted for depreciation,
fixed asset write downs as a part of a restructuring and a loss on the
disposition of properties. This was offset by cash provided from a $41
million decrease in current accounts composed of a $39 million decrease in
inventories and a $21 million decrease in receivables, offset by a $15
million decrease in net income taxes payable and a $4 million decrease in
accounts payable and accrued expenses. The company reduced cash used
by operating activities by issuing common stock to the profit-sharing
retirement plan to fulfill the 1991 obligation to salaried employees,
increasing stockholders' equity by $6 million.
Investing activities: In 1994, investing activities used $32 million of
cash which consisted of capital additions of $59 million offset by $27
million of proceeds from asset sales. Capital additions in 1994 were
significantly higher than in 1993 due mainly to investments in a new plastic
injection molding operation, modernizing a wood cabinet mill room and re-
engineering activities related to the core Consumer Electronics business. In
1993, investing activities used $26 million of cash for capital additions. In
1992, $25 million of cash was used which consisted of capital additions of
$32 million offset by $7 million of proceeds from a 1991 property sale.
Financing activities: In 1994, financing activities provided $62 million of
cash which included $84 million provided from sales of the company's
common stock (including stock option exercises) and $12 million from the
sale of 8.5% senior subordinated convertible debentures due 2001. This
was offset by $35 million of cash used to redeem the company's outstanding
12-1/8% notes due January 1995 at a redemption price equal to par value
(plus accrued interest). In 1993, financing activities provided $69 million of
cash which included $55 million provided from the sale of 8.5% senior
subordinated convertible debentures and $24 million provided from sales of
the company's common stock (including stock option exercises). This was
offset by $10 million of cash used to repay borrowings under the
company's working capital Credit Agreement with a lending group led by
General Electric Capital Corporation (the "Credit Agreement"). In 1992,
financing activities provided $11 million of cash which included $10 million
provided from borrowings under the company's revolving credit and
security agreement and $1 million provided from the exercise of stock
options.
Capital Resources
As of December 31, 1994, total interest-bearing obligations of the company
consisted of $182 million of long-term debt and $19 million of extended-
term payables with a foreign supplier. The company's long-term debt is
composed of $115 million of 6 1/4% convertible subordinated debentures
due 2011 that require annual sinking fund payments of $6 million beginning
in 1997, $55 million aggregate principal amount of 8.5% senior
subordinated convertible debentures due 2000 that were issued and sold
during 1993 in a private placement and $12 million aggregate principal
amount of 8.5% senior subordinated convertible debentures due 2001 that
were issued and sold during 1994 in a private placement.
In May 1993, the company entered into its current Credit Agreement.
The maximum commitment of funds available for borrowing under the
Credit Agreement is $90 million, but is limited by a defined borrowing base
formula related to eligible accounts and inventory (each as defined in the
Credit Agreement). The Credit Agreement terminates on June 30, 1996
(unless extended by agreement of the lenders), at which time all outstanding
indebtedness thereunder would have to be refinanced. There can be no
assurance that the Credit Agreement will be extended or refinanced. The
Credit Agreement contains restrictive financial covenants that must be
maintained as of the end of each fiscal quarter, including a liabilities to net
worth ratio and a minimum net worth amount. In addition, the Credit
Agreement restricts the amount of capital expenditures by the company in
each fiscal year. As of December 31, 1994, no borrowings were
outstanding under the Credit Agreement in keeping with the seasonal nature
of the company's working capital needs.
A Registration Statement was filed with the Securities and Exchange
Commission in December 1994 covering 6.5 million shares of common
stock and became effective in February 1995. The shares of common stock
may be sold by the company in an at-the-market equity offering(s) or on a
negotiated or competitive bid basis through underwriters or dealers or
directly to other purchasers or through agents.
Although the company believes that its Credit Agreement, together with
extended-term payables expected to be available from a foreign supplier and
its continuing efforts to obtain other financing sources, including sales of
common stock as discussed above, will be adequate to meet its seasonal
working capital, capital expenditure and other requirements in 1995, there
can be no assurance that the company will not experience liquidity problems
in the future because of adverse market conditions or other unfavorable
events. In such event, the company would be required to seek other sources
of liquidity, if available. In addition, the company is reviewing possible
capital investment projects over the next three years (which may require an
amendment to the Credit Agreement) and options for additional financing
that would be required to support these projects. If undertaken, the projects
are expected to reduce the costs and increase production capacity primarily
in the company's picture tube operations. There can be no assurance that
these projects will be undertaken (or that such Credit Agreement
amendment will be obtained, if requested).
Outlook
The company's major product areas, including the color television market,
are highly competitive. The company's major competitors are foreign-
owned global giants, generally with greater worldwide television volume and
overall resources. In efforts to increase market share or achieve higher
production volumes, the company's competitors have aggressively lowered
their selling prices in the past several years. Price competition continued in
1994 and early 1995, and the company selectively reduced color television
prices to maintain its historical competitive price position. There can be no
assurance that such competition will not continue to adversely affect the
company's performance or that the company will be able to maintain its
market share in the face of such competition.
The North American Free Trade Agreement, which took effect on
January 1, 1994, significantly reduced duty costs in 1994. This improved
the company's ability to compete against Asian imports in North America
and increased sales of the company's color television receivers in Mexico
and Canada and color picture tube production in the U.S. However, in
December 1994 the Mexican peso devalued by almost 50 percent. The company
expects that this devaluation will negatively impact the company's sales
in Mexico, but that any negative impact from the reduced sales will be
more than offset by the effect on peso denominated expenses in its Mexican
subsidiaries.
In light of the company's losses from continuing operations, competitive
environment and inflationary cost pressures (including purchased material
as well as labor costs in Mexico where labor contracts expire every two
years and wages are renegotiated annually or more frequently under rapid
devaluation or high inflation periods), the company has undertaken major
cost reduction programs each year. In 1994, the company reduced costs by
about $40 million from continued process and design improvements,
improved efficiencies, re-engineering and continued consolidations. The
company continues to seek additional cost reduction opportunities for 1995
and beyond, although there can be no assurance that any such cost
reductions will be achieved. As a part of these cost reduction efforts, the
company plans significant headcount reductions in the first half of 1995
which will result in costs associated with severance liabilities. Also, as in
1994 and 1993, the company may experience an adverse impact as
shortages of certain components may continue in 1995.
The goals of the company's business strategy are to improve profitability,
to introduce new products, to develop new products (such as digital cable
products incorporating the company-developed transmission technology
selected in February 1994 by the HDTV Grand Alliance and the FCC
Advisory Committee review panel), and to re-engineer operations including
the change over to an entirely direct-to-retail distribution organization. This
strategy is expected to continue to involve significant expenditures by the
company in 1995 and beyond.
The company expects that a number of unusual factors will have an
adverse effect on first-quarter 1995 results:
* Start-up problems in January and early February at the company's new
finished-goods warehouse in Ft. Worth, Texas, caused shipments to be
missed. Those problems have now been resolved.
* TV shipments by the industry and the company to the Mexican market
were almost completely curtailed after the peso devaluation. The
company believes that Mexican dealers are selling off their pre-
devaluation inventory. With dealer costs up by 40-50 percent in
pesos, the company expects the Mexican market to recover slowly.
* The company anticipates significant cost reduction benefits in 1995 as a
result of the peso devaluation. However, the devaluation impact is expected
to be limited in the first quarter as manufacturing costs flow through
inventory before being reflected in operating results.
* The company's year-end finished goods inventory was higher than
target. This, coupled with reduced shipments from the first two factors
above, caused the company to cut first-quarter television set production
by about 17 percent to bring inventories into line. This will result in a
first-quarter production rate lower than that expected for the rest of the
year, with attendant higher per-unit overhead costs.
* The first-quarter is expected to include severance costs related to
significant headcount reductions in Mexico planned for the first half of
the year, as well as start-up costs and duplicate overheads to support the
changeover to an entirely direct-to-retail distribution organization.
These unusual factors, along with an $11 million effect from price
reductions implemented in 1994 and in early 1995, are expected to result in
first-quarter 1995 operating results that will be significantly below the 1994
first-quarter results.
There can be no assurance that the company will achieve the goals of its
business strategy, including efforts to improve financial results later in 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in Item 14 of
Part IV (page 18) of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors is incorporated herein by reference from
the sections entitled "Election of Directors", "Nominees for Election as
Directors" and "Board of Directors, Committees and Directors'
Compensation" from the company's definitive Proxy Statement, copies of
which will be electronically transmitted to the Commission via EDGAR.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Office Held Age
- ---------------------------------------------------------------------------
Kell B. Benson Senior Vice President-Finance and Chief 47
Financial Officer since August 1994, Vice
President-Finance and Chief Financial Officer
1989 - 1994, Vice President-Controller 1989
Michael J. Kaplan Vice President-Human Resources since 1993, 55
Vice President-Human Resources and Public
Affairs 1988 - 1993
Gerald M. McCarthy Executive Vice President, Sales and Marketing 53
and member of the Office of the Chairman since
1993, Senior Vice President, Sales and Marketing,
and member of the Office of the President 1991 -
1993. President, Zenith Sales Company Division
since 1983
Albin F. Moschner President and Chief Operating Officer and member 42
of the Office of the Chairman since 1993, Senior
Vice President, Operations and member of the
Office of the President 1991 - 1993
Jerry K. Pearlman Chairman and Chief Executive Officer since 1993, 55
Chairman, President and Chief Executive Officer
1983 - 1993
Philip S. Thompson Senior Vice President-Operations since August 45
1994
Richard F. Vitkus Senior Vice President-General Counsel since 55
August 1994
On February 23, 1995, it was announced that Jerry K. Pearlman, Chairman and
Chief Executive Officer, plans to retire at the end of 1995 and that the
company's Board of Directors plans to elect Albin F. Moschner, current
President and Chief Operating Officer, as Chief Executive Officer after the
company's April 25, 1995, annual meeting.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the sections entitled "Summary
Compensation Table", "Employment Agreements", "Termination and
Change of Control Agreements", "Option/SAR Grants in 1994",
"Aggregated Option/SAR Exercises in 1994 and Year-End Option/SAR
Values" and "Pension Plan Table" from the company's definitive Proxy
Statement, copies of which will be electronically transmitted to
the Commission via EDGAR.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference from the sections entitled "Security Ownership
of Certain Beneficial Owners" and "Security Ownership of Management"
from the company's definitive Proxy Statement, copies of which will be
electronically transmitted to the Commission via EDGAR.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No material transactions occurred during 1994.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. The following Consolidated Financial Statements of Zenith
Electronics Corporation, the Report of Independent Public Accountants,
and the Unaudited Quarterly Financial Data are included in this report on
pages 27 through 40:
Statements of Consolidated Operations and Retained Earnings -
Years ended December 31, 1994, 1993 and 1992
Consolidated Balance Sheets - December 31, 1994 and 1993
Statements of Consolidated Cash Flows -
Years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Unaudited Quarterly Financial Information
(a) 2. The following consolidated financial statement schedule for Zenith
Electronics Corporation are included in this report on page 42:
Schedule VIII - Valuation and Qualifying Accounts
The Report of Independent Public Accountants on Financial Statement
Schedules is included in this report on page 41.
All other schedules for which provision is made in Regulation S-X of
the Securities and Exchange Commission, are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
3. Exhibits:
(3a) Restated Certificate of Incorporation of the company, as amended
(incorporated by reference to Exhibit 3(a) to the company's Annual
Report on Form 10-K for the year ended December 31, 1992)
(3b) Certificate of Amendment to Restated Certificate of Incorporation
of the company dated May 4, 1993 (incorporated by reference to
Exhibit 4(l) of the company's Quarterly Report on Form 10-Q for
the quarter ended April 3, 1993)
(3c) By-Laws of the company, as amended (incorporated by reference to
Exhibit 3 to the company's Current Report on Form 8-K, dated January
31, 1994)
(4a) Indenture dated as of April 1, 1986 between Zenith Electronics
Corporation and The First National Bank of Boston as Trustee with
respect to the 6-1/4% Convertible Subordinated Debentures due 2011
(incorporated by reference to Exhibit 1 of the company's Quarterly
Report on Form 10-Q for the quarter ended March 30, 1991)
(4b) Debenture Purchase Agreement dated as of November 19, 1993
with the institutional investors named therein (incorporated by
reference to Exhibit 4(a) of the company's Current Report on Form
8-K dated November 19, 1993)
(4c) Amendment No. 1 dated November 24, 1993 to the Debenture
Purchase Agreement dated as of November 19, 1993 with the
institutional investor named therein (incorporated by reference
to Exhibit 4(a) of the company's Current Report on Form 8-K dated
November 24, 1993)
(4d) Amendment No. 2 dated as of January 11, 1994 to the Debenture
Purchase Agreement dated as of November 19, 1993 (incorporated by
reference to Exhibit 4(c) of the company's Current Report on Form
8-K dated January 11, 1994)
(4e) Debenture Purchase Agreement dated as of January 11, 1994 with
the institutional investor named therein (incorporated by reference
to Exhibit 4(a) of the company's Current Report on Form 8-K dated
January 11, 1994)
(4f) Credit Agreement, dated as of May 21, 1993, with General Electric
Capital Corporation, as agent and lender, and the other lenders named
therein (incorporated by reference to Exhibit 4 of the company's
Current Report on Form 8-K dated May 21, 1993)
(4g) Amendment No. 1 dated November 8, 1993 to the Credit
Agreement dated May 21, 1993, with General Electric Capital
Corporation, as agent and lender, and the other lenders named therein
(incorporated by reference to Exhibit 4(b) of the company's Current
Report on Form 8-K dated November 19, 1993)
(4h) Amendment No. 3 dated January 7, 1994 to the Credit Agreement
dated May 21, 1993, with General Electric Capital Corporation, as
agent and lender, The Bank of New York Commercial Corporation,
as lender, and Congress Financial Corporation, as lender
(incorporated by reference to Exhibit 4(b) of the company's Current
Report on Form 8-K dated January 11, 1994)
(4i) Fourth Amendment dated January 28, 1994 to the Credit
Agreement dated May 21, 1993, with General Electric Capital
Corporation, as agent and lender, The Bank of New York Commercial
Corporation, as lender, and Congress Financial Corporation, as
lender (incorporated by reference to Exhibit 4 of the company's
Current Report on Form 8-K dated January 31, 1994)
(4j) Fifth Amendment dated April 21, 1994 to Credit Agreement dated
May 21, 1993, with General Electric Capital Corporation, as agent
and lender, The Bank of New York Commercial Corporation, as lender,
and Congress Financial Corporation, as lender (incorporated by
reference to Exhibit 4 of the Company's Current Report on Form 8-K
dated April 21, 1994)
(4k) Stockholder Rights Agreement, dated as of October 3, 1986
(incorporated by reference to Exhibit 4c of the company's Quarterly
Report on Form 10-Q for the quarter ended September 28, 1991)
(4l) Amendment, dated April 26, 1988, to Stockholder Rights
Agreement (incorporated by reference to Exhibit 4(d) of the
company's Quarterly Report on Form 10-Q for the quarter ended
April 3, 1993)
(4m) Amended and Restated Summary of Rights to Purchase
Common Stock (incorporated by reference to Exhibit 4(e) of the
company's Quarterly Report on Form 10-Q for the quarter ended July
3, 1993)
(4n) Amendment, dated July 7, 1988, to Stockholder Rights Agreement
(incorporated by reference to Exhibit 4(f) of the company's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1993)
(4o) Agreement, dated May 23, 1991, among Zenith Electronics
Corporation, The First National Bank of Boston and Harris Trust
and Savings Bank (incorporated by reference to Exhibit 1 of Form 8
dated May 30, 1991)
(4p) Amendment, dated May 24, 1991, to Stockholder Rights
Agreement (incorporated by reference to Exhibit 2 of Form 8 dated
May 30, 1991)
(4q) Agreement, dated as of February 1, 1993, among Zenith Electronics
Corporation, The Bank of New York and Harris Trust and Savings
Bank (incorporated by reference to Exhibit 1 of Form 8 dated March
25, 1993)
*(10a) 1987 Zenith Stock Incentive Plan (as amended subject to
shareholder approval on April 28, 1992) (incorporated by reference to
Exhibit A of the company's definitive Proxy Statement dated March
13, 1992)
*(10b) Form of Amended and Restated Employment Agreement with Jerry
K. Pearlman, Gerald M. McCarthy, Albin F. Moschner, Kell B.
Benson, John Borst, Jr. and Michael J. Kaplan (incorporated by
reference to Exhibit 2 of the company's Report on Form 10-K for
the year ended December 31, 1990)
*(10c) Restricted Stock Agreement, dated December 3, 1986, of Jerry K.
Pearlman (incorporated by reference to Exhibit 10c of the company's
Annual Report on Form 10-K for the year ended December 31, 1991)
*(10d) Amendment, dated May 27, 1987, to Restricted Stock Agreement
of Jerry K. Pearlman (incorporated by reference to Exhibit 10d
of the company's Report on Form 10-K for the year ended December 31,
1992)
*(10e) Amendment, dated March 28, 1988, to Restricted Stock Agreement
of Jerry K. Pearlman (incorporated by reference to Exhibit 10(e)
of the company's Annual Report on Form 10-K for the year ended
December 31, 1993)
*(10f) Amendments, dated October 1, 1990, and January 23, 1991, to
Restricted Stock Agreement of Jerry K. Pearlman (incorporated by
reference to Exhibit 3 of the company's Report on Form 10-K for
the year ended December 31, 1990)
*(10g) Restricted Stock Agreement, dated March 31, 1987, with Gerald M.
McCarthy, and Amendments thereto dated December 2, 1987, March 28,
1988, August 22, 1988, and January 23, 1991 (incorporated by
reference to Exhibit 10b of the company's Quarterly Report on Form 10-Q
for the quarter ended June 29, 1991)
*(10h) Forms of Amendments, dated as of July 24, 1991, to Restricted
Stock Agreement dated December 3, 1986, with Jerry K. Pearlman
and to Restricted Stock Agreement dated March 31, 1987, with Gerald M.
McCarthy (incorporated by reference to Exhibit 10c of the company's
Quarterly Report on Form 10-Q for the Quarter ended June 29, 1991)
*(10i) Form of Amendment, dated as of July 26, 1994, to Restricted Stock
Agreements with Jerry K. Pearlman and Gerald M. McCarthy
*(10j) Supplemental Agreement, dated September 12, 1986, with Jerry K.
Pearlman (incorporated by reference to Exhibit 10m of the company's
Report on Form 10-K for the year ended December 31, 1991)
*(10k) Amendment to Supplemental Agreement with Jerry K. Pearlman
(incorporated by reference to Exhibit 10j of the company's Report
on Form 10-K for the year ended December 31, 1992)
*(10l) Form of Amendment, dated as of May 19, 1989, to Supplemental
Agreement with Jerry K. Pearlman, (incorporated by reference to
Exhibit 6 of the company's Report on Form 10-K for the year ended
December 31, 1989)
*(10m) Form of Amendment, dated as of July 24, 1991, to Supplemental
Agreement with Jerry K. Pearlman (incorporated by reference to
Exhibit 10a of the company's Quarterly Report on Form 10-Q for the
Quarter ended June 29, 1991)
*(10n) Amendment to Addendum to Supplemental Letter Agreement,
dated as of December 8, 1993, with Jerry K. Pearlman (incorporated
by reference to Exhibit 10(la) of the company's Annual Report on
Form 10-K for the year ended December 31, 1993)
*(10o) Form of Supplemental Agreement with Gerald M. McCarthy, Albin
F. Moschner, Kell B. Benson, John Borst, Jr. and Michael J. Kaplan
(incorporated by reference to Exhibit 10q of the company's Report on
Form 10-K for the year ended December 31, 1991)
*(10p) Letter Agreement, dated October 21, 1991, with Albin F. Moschner
(incorporated by reference to Exhibit 10u of the company's Report on
Form 10-K for the year ended December 31, 1991)
*(10q) Form of Indemnification Agreement with Officers and Directors
(incorporated by reference to Exhibit 8 of the company's Report
on Form 10-K for the year ended December 31, 1989)
*(10r) Form of Directors Stock Units Compensation Agreement with
Harry G. Beckner (2,000 units) (incorporated by reference to Exhibit
10r of the company's Report on Form 10-K for the year ended
December 31, 1992)
*(10s) Form of Directors 1989 Stock Units Compensation Agreement with
Harry G. Beckner and T. Kimball Brooker (1000 units each)
(incorporated by reference to Exhibit 9 of the company's Report
on Form 10-K for the year ended December 31, 1989)
*(10t) Form of Directors 1990 Stock Units Compensation Agreement with
Harry G. Beckner, T. Kimball Brooker, David H. Cohen, Charles
Marshall, Andrew McNally IV and Peter S. Willmott (1000 units each)
(incorporated by reference to Exhibit 6 of the company's Report on
Form 10-K for the year ended December 31, 1990)
*(10u) Form of Directors 1991 Stock Units Compensation Agreement with
Harry G. Beckner, T. Kimball Brooker, David H. Cohen, Charles
Marshall, Andrew McNally IV and Peter S. Willmott (1,000 units each)
(incorporated by reference to Exhibit 10d of the company's Quarterly
Report on Form 10-Q for the Quarter ended June 29, 1991)
*(10v) Form of Amendment, dated as of July 24, 1991, to Directors Stock
Units Compensation Agreements for 1987, 1988, 1990 and 1991
(incorporated by reference to Exhibit 10e of the company's Quarterly
Report on Form 10-Q for the Quarter ended June 29, 1991)
*(10w) Directors Retirement Plan and form of Agreement (incorporated by
reference to Exhibit 10 of the company's Report on Form 10-K for
the year ended December 31, 1989)
*(10x) Form of Amendment, dated as of July 24, 1991, to Directors
Retirement Plan and form of Agreement (incorporated by reference to
Exhibit 10f of the company's quarterly Report on Form 10-Q for the
Quarter ended June 29, 1991)
*(10y) Restricted Stock Award Agreement, dated as of July 26, 1994, with
Jerry K. Pearlman
*(10z) Restricted Stock Award Agreement, dated as of July 26, 1994, with
Albin F. Moschner
*(10aa) Restricted Stock Award Agreement, dated as of July 26, 1994, with
Gerald M. McCarthy
*(10ab) Supplemental Executive Retirement Income Plan effective as of
January 1, 1994
*(10ac) Supplemental Salaried Profit Sharing Retirement Plan effective as
of January 1, 1994
(10ad) Investment Agreement, dated as of February 25, 1991, with
GoldStar Co., Ltd. (incorporated by reference to Exhibit 1 of the
company's Current Report on Form 8-K, dated February 25, 1991)
(10ae) Registration Rights Agreement, dated as of February 25, 1991, with
GoldStar Co., Ltd. (incorporated by reference to Exhibit 2 of the
company's Current Report on Form 8-K, dated February 25, 1991)
(10af) Investment Agreement dated as of March 25, 1993 between Zenith
Electronics Corporation and Fletcher Capital Markets, Inc.
(incorporated by reference to Exhibit 1 of the company's Current
Report on Form 8-K dated March 26, 1993)
(10ag) Investment Agreement dated as of July 29, 1993 between Zenith
Electronics Corporation and Fletcher Capital Markets, Inc.
(incorporated reference to Exhibit 5(a) of the company's Current
Report on Form 8-K dated July 29, 1993)
(21) Subsidiaries of the company
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule for the year ended December 31, 1994
* Represents a management contract, compensation plan or arrangement.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended December 31, 1994.
(c) and (d) Exhibits and Financial Statement Schedules
Certain exhibits and financial statement schedules required by this portion
of Item 14 are filed as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ZENITH ELECTRONICS CORPORATION
(Registrant)
By: /s/ Jerry K. Pearlman
---------------------------------
Jerry K. Pearlman
Chairman and Chief Executive Officer
Date: February 27, 1995
--------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- -------------------------------------------------------------------------------
/s/ Harry G Beckner Director February 27, 1995
- ------------------------- -----------------
Harry G. Beckner
/s/ T. Kimball Brooker Director February 27, 1995
- ------------------------- -----------------
T. Kimball Brooker
/s/ David H. Cohen Director February 27, 1995
- ------------------------- -----------------
David H. Cohen
/s/ Ilene S. Gordon Director February 27, 1995
- ------------------------- -----------------
Ilene S. Gordon
/s/ Charles Marshall Director February 27, 1995
- ------------------------- -----------------
Charles Marshall
/s/ Gerald M. McCarthy Director, Executive Vice February 27, 1995
- ------------------------- President - Sales and -----------------
Gerald M. McCarthy Marketing, and President -
Zenith Sales Company
/s/ Andrew McNally IV Director February 27, 1995
- ------------------------- -----------------
Andrew McNally IV
/s/ Albin F. Moschner Director, President and Chief February 27, 1995
- ------------------------- Operating Officer -----------------
Albin F. Moschner
/s/ Jerry K. Pearlman Director, Chairman and Chief February 27, 1995
- ------------------------- Executive Officer -----------------
Jerry K. Pearlman (Principal Executive Officer)
/s/ Peter S. Willmott Director February 27, 1995
- ------------------------- -----------------
Peter S. Willmott
/s/ Kell B. Benson Senior Vice President - February 27, 1995
- ------------------------- and Chief Financial Officer -----------------
Kell B. Benson (Principal Financial Officer)
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS
Page
Number
------
Consolidated Financial Statements 27
Notes to Consolidated Financial Statements 30
Report of Independent Public Accountants 39
Unaudited Quarterly Financial Data 40
Report of Independent Public Accountants on Financial Statement Schedule 41
Financial Statement Schedule:
Schedule VIII - Valuation and Qualifying Accounts 42
Exhibits:
(10i) Form of Amendment, dated as of July 26, 1994, to Restricted
Stock Agreements with Jerry K. Pearlman and Gerald M. McCarthy 43
(10y) Restricted Stock Award Agreement, dated as of July 26, 1994,
with Jerry K. Pearlman 45
(10z) Restricted Stock Award Agreement, dated as of July 26, 1994,
with Albin F. Moschner 53
(10aa) Restricted Stock Award Agreement, dated as of July 26, 1994,
with Gerald M. McCarthy 61
(10ab) Supplemental Executive Retirement Income Plan effective as of
as of January 1, 1994 69
(10ac) Supplemental Salaried Profit Sharing Retirement Plan effective
as of January 1, 1994 80
(21) Subsidiaries of the company 89
(23) Consent of Independent Public Accountants 90
(27) Financial Data Schedule for the year ended December 31, 1994 91
CONSOLIDATED FINANCIAL STATEMENTS
Statements of Consolidated Operations and Retained Earnings
In millions, except per share amounts
Year Ended December 31
--------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
Revenues
Net sales $1,469.0 $1,228.2 $1,243.5
--------------------------------
Costs, Expenses and Other
Cost of products sold 1,350.2 1,163.9 1,179.3
Selling, general and administrative 117.1 92.5 94.0
Engineering and research 45.4 47.8 55.4
Other operating expense (income), net
(Notes 1 and 6) (33.6) (25.2) (24.3)
Restructuring and other charges (Note 3) - 31.0 48.1
--------------------------------
Income
Operating income (loss) (10.1) (81.8) (109.0)
Gain on asset sales, net (Note 8) 11.0 - -
Interest expense (15.9) (15.5) (13.7)
Interest income .5 .3 .9
--------------------------------
Income (loss) before income taxes (14.5) (97.0) (121.8)
Income taxes (credit) (Note 4) (.3) - (15.9)
--------------------------------
Net income (loss) $ (14.2) $ (97.0) $ (105.9)
================================
Per Share
Income (loss) per common share (Note 1) $ ( .34) $ (3.01) $ (3.59)
================================
Retained Earnings
Balance at beginning of year $ (88.1) $ 8.9 $ 114.8
Net income (loss) (14.2) (97.0) (105.9)
--------------------------------
Retained earnings (deficit) at end of year $ (102.3) $ (88.1) $ 8.9
================================
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Consolidated Balance Sheets
In millions
December 31
------------------
1994 1993
Assets
Current Assets
Cash (Note 1) $ 8.9 $ 20.8
Receivables, net of allowance for doubtful
accounts of $3.1 and $2.5, respectively 206.9 162.5
Inventories (Note 7) 245.2 206.2
Other 9.9 6.1
------------------
Total current assets 470.9 395.6
Noncurrent Assets
Property, plant and equipment, net (Note 8) 168.1 153.9
Other (Note 1) 14.6 9.9
------------------
Total assets $653.6 $559.4
==================
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt (Note 10) $ - $ 34.5
Accounts payable (Note 9) 114.1 81.8
Compensation and retirement benefits (Note 13) 24.8 25.9
Product warranties 35.6 24.2
Co-op advertising and merchandising programs 27.3 21.7
Income taxes payable 1.2 1.1
Other accrued expenses 40.3 47.8
------------------
Total current liabilities 243.3 237.0
Noncurrent Liabilities
Long-term debt (Note 10) 182.0 170.0
Stockholders' Equity
Preferred stock, $1 par value; 8,000,000
shares authorized; none outstanding - -
Common stock, $1 par value; 100,000,000
shares authorized; 45,698,372 and 35,909,617
shares issued 45.7 35.9
Additional paid-in capital 285.4 205.1
Retained earnings (deficit) (102.3) (88.1)
Cost of 21,000 common shares in treasury (.5) (.5)
-------------------
Total stockholders' equity (Note 11) 228.3 152.4
-------------------
Total liabilities and stockholders' equity $653.6 $559.4
===================
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Statements of Consolidated Cash Flows
In millions
Increase (Decrease) in Cash
Year Ended December 31
-----------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
Cash Flows from Operating Activities
Income (loss) from operations $(14.2) $(97.0) $(105.9)
Adjustments to reconcile income (loss)
to net cash used by operations:
Depreciation 28.8 35.4 37.7
Write-down of fixed assets as a part of
restructuring (Note 3) - 16.2 3.7
Employee retirement plan contribution in stock 6.0 14.6 6.2
Gain on asset sales, net (11.0) - -
Other (.2) .2 1.1
Changes in assets and liabilities:
Current accounts (52.1) 3.4 40.7
Other assets .6 (1.0) .6
---------------------------
Net cash used by operating activities (42.1) (28.2) (15.9)
---------------------------
Cash Flows from Investing Activities
Capital additions (58.9) (26.1) (32.6)
Proceeds from asset sales 27.5 .4 6.9
---------------------------
Net cash used by investing activities (31.4) (25.7) (25.7)
---------------------------
Cash Flows from Financing Activities
Short-term borrowings, net - (10.1) 10.1
Proceeds from issuance of long-term debt 12.0 55.0 -
Proceeds from issuance of common stock, net 84.1 24.0 1.0
Principal payments on long-term debt (34.5) - -
---------------------------
Net cash provided by financing activities 61.6 68.9 11.1
---------------------------
Cash
Increase (decrease) in cash (11.9) 15.0 (30.5)
Cash at beginning of year 20.8 5.8 36.3
---------------------------
Cash at end of year $ 8.9 $ 20.8 $ 5.8
===========================
Changes in Current Assets and Liabilities
Increase (decrease) in cash attributable to changes in:
Receivables, net $ (45.5) $ 15.2 $ 20.6
Income taxes, net (.2) .8 (14.5)
Inventories (42.7) (8.3) 38.6
Other assets (3.8) .1 .1
Accounts payable and accrued expenses 40.1 (4.4) (4.1)
----------------------------
Net change in current accounts $ (52.1) $ 3.4 $ 40.7
============================
Supplemental Disclosure
Supplemental disclosure of cash flow information-
Cash paid (refunded) during the period for:
Interest $ 17.6 $ 15.0 $ 13.5
Income taxes (.1) (1.2) (1.5)
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
Notes to Consolidated Financial Statements
- ------------------------------------------
Note One - Significant Accounting Policies:
Principles of consolidation: The consolidated financial statements include the
accounts of Zenith Electronics Corporation and all domestic and foreign
subsidiaries (the company). All significant intercompany balances and
transactions have been eliminated.
Statements of consolidated cash flows: The company considers time deposits,
certificates of deposit and all highly liquid investments purchased with an
original maturity of three months or less to be cash.
Inventories: Inventories are stated at the lower of cost or market. Costs are
determined for all inventories except picture tube inventories using the first-
in, first-out (FIFO) method. Picture tube inventories are valued using the
last-in, first-out (LIFO) method.
Properties and depreciation: Additions of plant and equipment with lives of
eight years or more are depreciated by the straight-line method over their
useful lives. Accelerated methods are used for depreciation of virtually all
other plant and equipment items, including high technology equipment that may
be subject to rapid economic obsolescence.
Property held for disposal is stated at the lower of cost or estimated net
realizable value. As of December 31, 1994 and 1993, $4.6 million and $5.9
million, respectively, of property held for disposal was included in Other
Noncurrent Assets and included certain facilities and land no longer used in
the company's operations.
Most tooling expenditures are charged to expense in the year acquired, except
for picture tube tooling which is amortized over four years. Certain production
fixtures are capitalized as machinery and equipment.
Rental expenses under operating leases were $13.6 million, $9.0 million and
$8.8 million in 1994, 1993 and 1992, respectively. Commitments for lease
payments in future years are not material.
The company capitalizes interest on major capital projects. Such interest has
not been material.
Engineering, research, product warranty and other costs: Engineering and
research costs are expensed as incurred. Estimated costs for product warranties
are provided at the time of sale based on experience factors. The costs of
co-op advertising and merchandising programs are also provided at the time of
sale.
Foreign currency: The company uses the U.S. dollar as the functional currency
for all foreign subsidiaries. Foreign exchange gains and losses are included in
Other operating expense (income) and netted to a $3.6 million gain in 1994.
These amounts were not material in 1993 and 1992.
Earnings per share: Primary earnings per share are based upon the weighted
average number of shares outstanding and common stock equivalents, if dilutive.
Fully diluted earnings per share, assuming conversion of the 6 1/4% convertible
subordinated debentures and the 8.5% convertible senior subordinated
debentures, are not presented because the effect of the assumed conversion is
antidilutive. The number of shares used in the computation were 42.0 million,
32.3 million and 29.5 million in 1994, 1993 and 1992, respectively.
Note Two - Financial Results and Liquidity:
The company has incurred losses from operations of $14.2 million, $97.0 million
and $105.9 million in 1994, 1993 and 1992, respectively. For many years the
company's major competitors, many with greater resources, have aggressively
lowered their selling prices in an attempt to increase market share. Although
the company has benefited from cost reduction programs, these lower color
television prices together with inflationary cost increases have more than
offset such cost reduction benefits.
The company's Credit Agreement (see Note Nine) expires on June 30, 1996.
The maximum commitment for funds available for borrowing under the Credit
Agreement is $90 million, but is limited by a defined borrowing base formula
related to eligible accounts receivable and inventory. Although the company
believes that its Credit Agreement, together with extended-term payables
expected to be available from a foreign supplier and its continuing efforts to
obtain other financing sources, will be adequate to meet its seasonal working
capital, capital expenditure and other requirements in 1995, there can be no
assurances that the company will not experience liquidity problems in the
future because of adverse market conditions or other unfavorable events.
In addition, the company is reviewing possible significant capital investment
projects over the next three years (which may require an amendment to the
Credit Agreement) and options for additional financing that would be required
to support these projects. If undertaken, the projects are expected to reduce
the costs and increase production capacity primarily in the company's picture
tube operations.
Note Three - Restructuring and Other Charges:
During the fourth quarter of 1993, the company recorded a charge of $31.0
million primarily to restructure certain product areas and re-engineer its core
Consumer Electronics and Network Systems business. The restructuring
affected computer monitors and magnetics, product areas that were phased-out or
sold in 1994. The fourth-quarter charge was primarily for non-cash fixed asset
and inventory write-downs, as well as severance costs, and was designed to
reduce fixed costs and operating expenses.
During 1992, the company recorded $48.1 million of restructuring and other
charges. These included provisions for severance, inventory valuation and other
restructuring costs, along with write-offs of trade receivables. Designed to
reduce fixed costs and operating expenses, the restructuring actions included
manufacturing consolidations and related employment reductions in Mexico,
consolidation of company-owned distribution and other activities, and salaried
employment reductions throughout the company.
Note Four - Income Taxes:
In the fourth quarter of 1992, the company elected early adoption of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." The adoption had no effect on the financial statements of the company
because the related net deferred tax assets were offset by a valuation
allowance. The valuation allowance was established since the realization of
these assets cannot be reasonably assured, given the company's recurring losses.
The components of income taxes (credit) were:
Year Ended December 31
----------------------------
In millions 1994 1993 1992
- -----------------------------------------------------------------------
Currently payable (refundable):
Federal $ (.5) $ (.1) $ (5.9)
State .2 .1 .1
Foreign - - (.1)
Currently deferred - - (10.0)
------------------------------
Total income taxes (credit) $ (.3) $ - $ (15.9)
==============================
The $15.9 million income tax credit in 1992, resulted from the reversal of
$10.0 million of previously accrued tax reserves no longer required in
connection with earnings of a foreign subsidiary and $5.9 million of net
operating loss carryback applications which resulted in cash refunds.
The statutory federal income tax rate and the effective tax rate are compared
below:
Year Ended December 31
------------------------------
1994 1993 1992
- ------------------------------------------------------------------------
Statutory federal income tax rate (35.0)% (35.0)% (34.0)%
State income taxes, net .7 .1 .1
Foreign tax effects 21.9 .5 2.0
Tax benefits not recognized
subject to future realization 13.4 34.5 31.9
Net operating loss carryback (3.2) (.1) (4.9)
Reversal of previously
accrued reserve - - (8.2)
-------------------------------
Effective tax rate (2.2)% - % (13.1)%
===============================
Deferred tax assets (liabilities) are comprised of the following:
Year Ended December 31
------------------------
In millions 1994 1993
- -----------------------------------------------------------------
Loss carryforwards $154.7 $145.3
Inventory valuation 21.1 16.5
Product warranty 15.2 13.0
Co-op advertising 1.5 4.0
Merchandising 6.8 6.7
Other 17.5 25.7
-------------------------
Deferred tax assets 216.8 211.2
-------------------------
Depreciation (13.9) (12.6)
Employee benefits (.6) (.6)
Other (18.4) (18.8)
-------------------------
Deferred tax liabilities (32.9) (32.0)
-------------------------
Valuation allowance (183.9) (179.2)
-------------------------
Net deferred tax assets $ - $ -
=========================
As of December 31, 1994, the company had $388.5 million of net operating
loss carryforwards (NOLs) available for financial statement purposes. For
federal income tax purposes, the company had net operating loss carryforwards
of $389.3 million (which expire from 2004 through 2009) and unused tax credits
of $5.6 million (which expire from 1995 through 2002).
The company expects these NOLs and tax credits to be available in the future
to reduce the Federal income tax liability of the company. However, should
there occur a 50% "ownership change" of the company as defined under Section
382 of the Internal Revenue Code of 1986, the company's ability to utilize
the NOLs and available tax credits would be materially and adversely affected.
A Registration Statement was filed with the Securities and Exchange Commission
in December 1994 covering 6.5 million shares of common stock which became
effective in February 1995 (the Offering). The Offering is not expected to
give rise to an ownership change of the company. The company has knowledge
of increases in the ownership of the company's common stock by 5% stockholders
aggregating approximately 35% in the three years ended December 31, 1994 (on
a pro forma basis, giving effect to the Offering, but without regard to
acquisitions of shares of common stock in the Offering by persons who might
thereby become separate 5% stockholders). However, acquisitions of significant
interests in the company's common stock have occurred in the past, and future
stock transactions, which may not be within the control of the company, may
result in an ownership change when aggregated with the Offering and these other
past common stock transactions.
Note Five - Geographic Segment Data:
The company's operations involve a dominant industry segment - the design,
development, manufacture and sale of video products, including color television
sets, video cassette recorders and other consumer electronics products, color
picture tubes, cable TV products, computer monitors and parts and accessories
for these products.
Financial information, summarized by geographic area, is as follows:
Year Ended December 31
----------------------------
In millions 1994 1993 1992
- --------------------------------------------------------------------
Net sales to unaffiliated customers:
Domestic companies $1,365.2 $1,158.8 $1,183.7
Foreign companies 103.8 69.4 59.8
--------------------------------
Total net sales $1,469.0 $1,228.2 $1,243.5
================================
Income (loss) before income taxes:
Domestic companies $ (8.4) $ (97.6) $ (116.9)
Foreign companies (6.1) .6 (4.9)
--------------------------------
Total income (loss) before
income taxes $ (14.5) $ (97.0) $ (121.8)
================================
Identifiable assets:
Domestic companies $ 503.2 $ 448.6 $ 467.3
Foreign companies 150.4 110.8 111.3
--------------------------------
Total identifiable assets $ 653.6 $ 559.4 $ 578.6
================================
Foreign operations consist of manufacturing and sales subsidiaries in
Mexico, a distribution subsidiary in Canada and a purchasing office in Taiwan.
Sales to affiliates are principally accounted for at amounts based on local
costs of production plus a reasonable return.
Note Six - Other Operating Expense (Income):
Major manufacturers of televisions and video cassette recorders agreed during
1992 to take licenses under some of the company's U.S. tuning system patents
(the licenses expire in 2003). Royalty income related to the tuning system
patents (after deducting legal expenses) was $27.9 million, $25.7 million and
$26.0 million in 1994, 1993 and 1992, respectively, and is included in Other
operating expense (income). The $26.0 million in 1992 included $5.3 million of
past royalties.
Note Seven - Inventories:
Inventories consisted of the following:
December 31
--------------------
In millions 1994 1993
- ----------------------------------------------------------------
Raw materials and work-in-process $156.2 $137.2
Finished goods 97.8 78.1
--------------------
254.0 215.3
Excess of FIFO cost over LIFO cost (8.8) (9.1)
--------------------
Total inventories $245.2 $206.2
====================
As of December 31, 1994 and 1993, inventories of $25.0 million and
$24.1 million, respectively, were valued using the LIFO method.
Note Eight - Property, Plant and Equipment:
Property, plant and equipment consisted of the following:
December 31
-----------------------
In millions 1994 1993
- ----------------------------------------------------------------
Land $ 3.9 $ 7.4
Buildings 126.6 151.0
Machinery and equipment 584.5 549.9
-----------------------
715.0 708.3
Less accumulated depreciation (546.9) (554.4)
-----------------------
Total property, plant and equipment, net $168.1 $153.9
=======================
During 1994 the company recorded $11.0 million of net gain on asset sales.
Included in this amount is a $5.4 million gain on the sale of a warehouse in
Northlake, Illinois, and a $3.6 million gain on the sale of vacant land
adjacent to its Glenview, Illinois, headquarters. The company also sold a
facility in Lenexa, Kansas, its power supply business, a facility in Chicago,
Illinois, and a facility in Springfield, Missouri.
Note Nine - Short-term Debt and Credit Arrangements:
The company entered into a Credit Agreement dated as of May 21, 1993, with a
lending group led by General Electric Capital Corporation, for working capital
purposes. Borrowings under the Credit Agreement are secured by accounts
receivable, inventory, general intangibles, trademarks and the tuning system
patent license agreements of the company and certain of its domestic
subsidiaries. The Credit Agreement is scheduled to expire on June 30, 1996. The
maximum commitment of funds available for borrowing under the Credit
Agreement is $90 million, but is limited by a defined borrowing base formula
related to eligible receivables and eligible inventory. Net proceeds arising
from material asset transactions will result in a partial reduction in the
maximum commitment of the lenders thereunder. Interest on borrowings is based
on market rates with a commitment fee of 1/2 % per annum payable monthly on
the unused balance of the facility. As of December 31, 1994, no borrowings
were outstanding under the Credit Agreement.
The Credit Agreement contains restrictive financial covenants that must be
maintained as of the end of each fiscal quarter, including a liabilities to net
worth ratio and a minimum net worth amount. The ratio of liabilities to net
worth and minimum net worth amount varies from quarter to quarter. As of
December 31, 1994, the ratio of liabilities to net worth was required to be not
greater than 3.50 to 1.0 and was actually 1.86 to 1.0, and net worth was
required to be equal to or greater than $158.0 million and was actually $228.3
million. At the end of each fiscal quarter through March 30, 1996, the
liabilities to net worth ratio is required to be maintained at various levels
ranging from a high of 4.40 to 1.0 to a low of 3.50 to 1.0, and minimum net
worth is required to be maintained at amounts ranging from a high of $166.0
million to a low of $143.0 million. The Credit Agreement restricts the amount
of capital expenditures by the company in each fiscal year. For the fiscal
years 1994 and 1995, the company is permitted to make capital expenditures
(as defined in the Credit Agreement) of up to $68.0 million and $38.0 million,
respectively. In the event the company plans to undertake capital investment
projects in 1995 which would exceed the permitted expenditures, the company
would need to seek an amendment to the Credit Agreement. There can be no
assurance that the lenders under the Credit Agreement will approve such an
amendment, if requested by the company.
In addition, there are restrictions regarding investments, acquisitions,
guaranties, transactions with affiliates, sales of assets, mergers and
additional borrowings, along with limitations on liens. The Credit Agreement
prohibits dividend payments on the company's common stock, restricts dividend
payments on any of its preferred stock, if issued, and prohibits the
redemption or repurchase of stock.
Borrowings and interest rates on short-term debt were:
Year Ended December 31
---------------------------
In millions 1994 1993 1992
- -------------------------------------------------------------------
Maximum month-end borrowings $60.4 $66.4 $40.1
Average daily borrowings 26.3 35.0 23.1
Weighted average interest rate 9.1% 8.1% 7.5%
Contracts with certain foreign suppliers permit the company to elect
interest-bearing extended-payment terms. As of December 31, 1994 and 1993,
$19.1 million and $8.5 million, respectively, of these obligations were
outstanding and included in Accounts payable.
Note Ten - Long-term Debt:
The components of long-term debt were:
December 31
--------------------
In millions 1994 1993
- ----------------------------------------------------------
12 1/8% notes due 1995 $ - $ 34.5
6 1/4% convertible subordinated
debentures due 2011 115.0 115.0
8.5% senior subordinated
convertible debentures due 2000 55.0 55.0
8.5% senior subordinated
convertible debentures due 2001 12.0 -
--------------------
182.0 204.5
Less current portion - 34.5
--------------------
Total long-term debt $182.0 $170.0
====================
In January 1994, the company redeemed its outstanding 12 1/8% notes due
1995 at a redemption price equal to par value, totaling $34.5 million, plus
accrued interest.
The 6 1/4% convertible subordinated debentures are unsecured general
obligations, subordinate in right of payment to certain other debt obligations,
and are convertible into common stock at $31.25 per share. Terms of the
debenture agreement include annual sinking-fund payments of $5.8 million
beginning in 1997. The debentures are redeemable at the option of the company,
in whole or in part, at specified redemption prices at par or above.
In November 1993 and January 1994, the company sold to certain institutional
investors $55 million and $12 million, respectively, of 8.5% senior
subordinated convertible debentures due 2000 and 2001, respectively. The
debentures are unsecured general obligations, subordinate in right of payment
to certain other debt obligations, and are convertible into shares of common
stock at an initial conversion price of $9.76 per share and $10.00 per
share, respectively. The debentures are redeemable at the option of the
company, in whole or in part, at any time on or after November 19, 1997 and
January 18, 1998, respectively, at specified redemption prices at par or above.
The fair value of long-term debt is $167.5 million as of December 31, 1994,
as compared to the carrying amount of $182.0 million. The fair value of the
6 1/4% convertible subordinated debentures is based on the quoted market price
from the New York Stock Exchange. The fair value of the 8.5% convertible senior
subordinated debentures is based on the quoted price obtained from third party
financial institutions. Currently, the company's Credit Agreement would not
allow the company to extinguish the long-term debt through purchase and
thereby realize the gain.
Note Eleven - Stockholders' Equity:
Changes in stockholders' equity accounts are shown below:
Additional
Common Paid-in Treasury
In millions Stock Capital Shares
- -----------------------------------------------------------------------------
Balance, December 31, 1991 $29.2 $165.3 $(.5)
Stock issued for benefit plans 1.0 5.2 -
Stock issued for stock options .1 .7 -
Other - .2 -
--------------------------------------
Balance, December 31, 1992 30.3 171.4 (.5)
Sales of common stock 3.4 19.8 -
Stock issued for benefit plans 2.0 12.6 -
Stock issued for stock options .1 .6 -
Other .1 .7 -
--------------------------------------
Balance, December 31, 1993 35.9 205.1 (.5)
Sales of common stock 8.6 71.2 -
Stock issued for benefit plans .6 5.4 -
Stock issued for stock options .5 3.6 -
Other .1 .1 -
--------------------------------------
Balance, December 31, 1994 $45.7 $285.4 $(.5)
======================================
During 1994 and 1993 the company sold 8.6 million shares and 3.4 million
shares, respectively, of authorized but unissued shares of common stock to
investors under registration statements that had been filed with the Securities
and Exchange Commission. A Registration Statement was filed with the Securities
and Exchange Commission in December 1994 covering 6.5 million shares of
common stock which became effective in February 1995. The shares of common
stock may be sold by the company in an at-the-market equity offering(s) or on a
negotiated or competitive bid basis through underwriters or dealers or directly
to other purchasers or through agents.
Pursuant to a Rights Agreement (as amended), a "right" entitling the holder
thereof to purchase under certain conditions, one-half of one share of common
stock at an exercise price of $37.50, subject to adjustment, was distributed
with respect to each outstanding share of common stock in 1986, and with respect
to each additional share of common stock that has become outstanding since
then.
The rights will become exercisable upon the earlier to occur of (i) the 10th
day after a public announcement that a third party has become the beneficial
owner of 25% or more of the outstanding common stock (an "acquiring person")
or (ii) the 10th day after the commencement of, or the announcement of an
intention to commence, an offer the consummation of which would result in
a third party beneficially owning 25% or more of the common stock.
In the event any person becomes an acquiring person, each holder of a right
(other than the acquiring person) will thereafter have the right to receive
upon exercise that number of shares of common stock having a market value of
two times the exercise price of the right. The rights, which have no voting
rights, expire in 1996. The rights may be redeemed at the option of the company
at any time prior to such time as any person becomes an acquiring person.
Under certain conditions and following a stockholder vote, the rights shall be
redeemed by the company. In either case, the redemption price will be $.05
per right, subject to adjustment.
The Rights Agreement also provides that under certain circumstances at any
time after any person has become an acquiring person, the Board of Directors
may exchange the rights (other than rights owned by such person) in whole or in
part, for common stock at an exchange ratio of one-half of a share of common
stock per right, subject to adjustment.
At the company's Annual Meeting of Stockholders in May 1993, the
stockholders approved the authorization of 8 million shares of preferred stock
of which none are issued or outstanding as of December 31, 1994. The Board of
Directors of the company is authorized to issue the preferred stock from time
to time in one or more series and to determine all relevant terms of each such
series, including but not limited to the following (i) whether and upon what
terms, the shares of such series would be redeemable; (ii) whether a sinking
fund would be provided for the redemption of the shares of such series and,
if so, the terms thereof; and (iii) the preference, if any, to which shares of
such series would be entitled in the event of voluntary or involuntary
liquidation of the company.
Note Twelve - Stock Options and Awards:
The 1987 Stock Incentive Plan authorizes the granting of incentive and non-
qualified stock options, restricted stock awards and stock appreciation rights
to key management personnel. The purchase price of shares under option is the
market price of the shares on the date of grant. Options expire 10 years from
the date granted.
Transactions in 1994 and 1993 are summarized below:
1994 1993
- ------------------------------------------------------------------
Options outstanding at January 1 1,981,005 1,854,430
Options granted 615,250 433,550
Options exercised (529,132) (95,675)
Options canceled or expired (45,674) (211,300)
------------------------------
Options outstanding at December 31 2,021,449 1,981,005
==============================
Options exercisable at December 31 1,238,049 1,388,005
Shares available for grant at
December 31 900,156 695,431
Option prices per share:
Outstanding at January 1 6 3/8 - 9 3/4 6 3/8 - 13 3/4
Granted 8 3/4 - 13 6 3/4 - 7 1/4
Exercised 6 3/8 - 9 3/4 6 3/8 - 8 3/8
Canceled or expired 6 7/8 - 9 3/4 6 7/8 - 13 3/4
Outstanding at December 31 6 3/8 - 13 6 3/8 - 9 3/4
The company had 189,108 and 63,837 restricted stock awards issued and
outstanding as of December 31, 1994 and 1993, respectively. The market value
of the restricted shares is deferred in the additional paid-in capital account
and amortized over the years the restrictions lapse. Total compensation
expense in 1994 and 1993, related to these awards, was not material.
Note Thirteen - Retirement Plans and Employee Benefits:
Virtually all employees in the United States and Canada are eligible to
participate in noncontributory profit-sharing retirement plans after completing
one full year of service. The plans provide for a minimum annual contribution
of 6% of employees' eligible compensation. Contributions above the minimum
could be required based upon profits in excess of a specified return on net
worth. Profit-sharing contributions were $9.7 million, $9.7 million and $11.1
million in 1994, 1993 and 1992, respectively. The 1994, 1993 and 1992
contributions were partially funded through the issuance of approximately
547,000, 1,021,000 and 982,000 shares, respectively, of the company's common
stock.
Employees in Mexico are covered by government-mandated plans, the costs of
which are accrued by the company.
In the fourth quarter of 1993, the company elected early adoption of SFAS
No.112, "Employers' Accounting for Postemployment Benefits." This statement
requires that the company follow an accrual method of accounting for the
benefits payable to employees when they leave the company other than by reason
of retirement. Since most of these benefits were already accounted for by the
company by the accrual method, adoption of SFAS No. 112 did not have a
material effect on the financial statements of the company, nor is it expected
to have a material effect on future results of operations.
Presently, the company does not offer any postretirement benefits; as a
result, the 1992 adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits other than Pensions" did not have any effect on the
financial statements of the company.
Note Fourteen - Contingencies:
In 1994, the company notified its 15 independent distributors of its intent to
change to direct-to-retail distribution on a nationwide basis during the first
half of 1995. In February 1995, one of the independent distributors filed suit
challenging the company's right to discontinue the distributorship relationship
and alleging that it has been damaged by certain of the company's practices.
The lawsuit seeks injunctive relief, actual damages of $8 million, and punitive
damages of $20 million.
The company is involved in various other legal actions, environmental
matters, patent claims, and other proceedings relating to a wide range of
matters that are incidental to the conduct of its business. In addition, the
company remains liable for certain retained obligations of a discontinued
business, principally income and other taxes prior to the closing of the sale.
The company believes, after reviewing such matters and consulting with the
company's counsel, that any liability which may ultimately be incurred with
respect to all of the above matters is not expected to have a material effect
on either the company's consolidated financial position or results of
operations.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Zenith Electronics Corporation:
We have audited the accompanying consolidated balance sheets of Zenith
Electronics Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related statements of consolidated
operations and retained earnings and cash flows for each of the three years
in the period ended December 31, 1994. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Zenith
Electronics Corporation and subsidiaries as of December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
--------------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 14, 1995
UNAUDITED QUARTERLY FINANCIAL INFORMATION
In millions, except per share amounts
<TABLE>
<CAPTION>
1994 Quarters Ended 1993 Quarters Ended
-------------------------------- ----------------------------------
Dec. 31 Oct. 1 July 2 April 2 Dec. 31(1) Oct. 2 July 3 April 3
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $453.5 $419.4 $299.0 $297.1 $361.2 $301.8 $274.7 $290.5
Gross margin 32.0 37.1 28.9 20.8 26.1 17.2 9.0 12.0
Net income (loss) (3.3) 9.4 (8.4) (11.9) (36.0) (14.5) (24.7) (21.8)
Per share of common stock (primary and fully diluted):
Net income (loss) $ (.07) $ .21 $ (.20) $ (.32) $(1.04) $ (.44) $ (.79) $ (.72)
New York Stock Exchange market price per share:
High 14 1/8 12 1/8 10 1/2 13 1/2 8 1/8 8 3/8 10 1/2 8 3/8
Low 10 5/8 8 5/8 8 1/4 7 6 1/4 6 1/4 6 1/2 5 7/8
End of quarter 11 5/8 11 3/8 8 5/8 9 3/4 7 6 1/2 7 7/8 7
<FN>
(1) Includes $31.0 million of restructuring and other charges (see Note 3 of
Notes to Consolidated Financial Statements).
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Stockholders of Zenith Electronics Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Zenith Electronics
Corporation's annual report to stockholders included in this Form 10-K, and
have issued our report thereon dated February 14, 1995. Our audit was
made for the purpose of forming an opinion on those statements taken as a
whole. The following schedule is the responsibility of the Company's
management and is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
-------------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 14, 1995
FINANCIAL STATEMENT SCHEDULE
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
(Amounts in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------
Additions
----------------------
Balance at Charged Balance at
Reserves and allowances beginning to costs Charged to end of
deducted from asset accounts of period & expenses other accts. Deductions period
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended December 31, 1994 $ 2.5 $ 1.4 $ - $ .8 (1) $ 3.1
===================================================================
Year Ended December 31, 1993 $ 2.7 $ 1.8 $ - $ 2.0 (1) $ 2.5
===================================================================
Year Ended December 31, 1992 $ 2.6 $ 5.7 $ - $ 5.6 (1) $ 2.7
===================================================================
Valuation allowance for deferred tax assets: (2)
Year Ended December 31, 1994 $179.2 $ 4.7 $ - $ - $183.9
===================================================================
Year Ended December 31, 1993 $134.5 $ 44.7 $ - $ - $179.2
===================================================================
Year Ended December 31, 1992 $ 88.6 $ 45.9 $ - $ - $134.5
===================================================================
<FN>
(1) Uncollectible accounts written off, net of recoveries.
(2) This account reflects the adoption of SFAS No. 109, "Accounting for
Income Taxes.", which was adopted in 1992.
</TABLE>
EXHIBIT (10i)
AMENDMENT TO
RESTRICTED STOCK AGREEMENT
AGREEMENT made and entered into as of the 26th day of July,
1994 between Zenith Electronics Corporation, a Delaware corporation
(the "Company") _________________________ ("Executive").
WHEREAS, _____________________, the Company entered into a
Restricted Stock Agreement with Executive which was subsequently
amended on __________________________________________________; and
WHEREAS, the Company and Executive now desire to amend the
Restricted Stock Agreement in certain respects;
NOW, THEREFORE, the parties agree as follows:
1. Sections 2 and Section 5(a) are amended by substituting
"age 65" for "age 62" wherever "age 62" appears.
2. Section 5(b) is amended by placing a period after the phrase
"continue to bear the legend prescribed by Section 3" in the first sentence
and deleting the balance of that sentence and the immediately following
sentence.
3. Section 5(c) is redesignated Section 5(d) and is further amended by
deleting the following phrase: "or 7,"
4. Section 5 is amended by inserting the following new paragraph after
Section 5(b):
"(c) If the Executive shall notify the Secretary of the Company, in
writing, no later than the last business day of the calendar year immediately
preceding the calendar year in which the Executive attains the age of 65
that the Executive elects to receive on his sixty-fifth (65th) birthday one
hundred percent (100%) of the Restricted Shares free of all restrictions,
then all of the Restricted Shares shall become freely transferable by the
Executive on the Executive's sixty-fifth (65th) birthday."
5. Section 6 is deleted in its entirety.
6. Section 7 is redesignated Section 6, and is further amended by
deleting the designation of the letter (a) and deleting section (b) in its
entirety.
7. Section 8 and 9 are redesignated Section 7 and Section 8 respectively.
IN WITNESS WHEREOF the parties have executed this Amendment to
Restricted Stock Agreement this _____ day of _____________________,
1995.
ZENITH ELECTRONICS CORPORATION
By:______________________________
_______________________________
Executive
EXHIBIT (10y)
Zenith Electronics Corporation
1987 Zenith Stock Incentive Plan
Restricted Stock Award Agreement
THIS AGREEMENT, effective July 26, 1994, between Zenith Electronics
Corporation, a Delaware corporation (the "Company"), and Jerry K.
Pearlman (the "Participant"), is made pursuant to the provisions of the 1987
Zenith Stock Incentive Plan (the "Plan"). The capitalized terms appearing
in this Agreement shall have the definitions ascribed to them in the Plan
unless specifically defined herein or in Attachment A to this Agreement. In
the event there is any inconsistency between the terms of this Agreement
and the terms of the Plan, the terms of the Plan shall completely supersede
and replace the terms of this Agreement. In consideration of the premises
set forth below, including the grant made herein, the parties hereto agree as
follows:
1. This Agreement sets forth the terms and provisions of the grant to
Participant of Forty Three Thousand Five Hundred Eighty One (43,581)
shares of Company stock, subject to restrictions (the "Restricted Stock").
Except as specifically provided otherwise herein, the shares of Restricted
Stock shall be governed by the terms of the Plan.
2. Employment by the Company. This Restricted Stock is awarded on
the condition that the Participant satisfy the employment conditions set
forth herein.
However, neither such conditions nor the award of this Restricted Stock
shall impose upon the Company any obligation to retain the Participant in
its employ for any given period of time or upon any specific terms of
employment nor interfere in anyway with the Company's right to
terminate his employment at any time.
3. Restrictions.
(a) Each certificate (or uncertificated account with the Company's
transfer agent) representing shares of Restricted Stock hereunder shall bear
(or be subject to) the following legend or restriction:
"The shares of common stock represented by this certificate are subject
to forfeiture under certain circumstances and may not be sold, assigned,
transferred, pledged, or otherwise alienated by the registered holder except
as permitted by the terms of the 1987 Zenith Stock Incentive Plan and a
Restricted Stock Award Agreement dated July 26, 1994 between Zenith
Electronics Corporation and Jerry K. Pearlman. A copy of the Plan and
such Restricted Stock Award Agreement is on file with the Secretary of
Zenith Electronics Corporation."
(b) Any Restricted Stock shall not be transferable by the Participant,
whether voluntarily or involuntarily, by operation of law or otherwise, so
long as it is subject to the restrictions of this paragraph.
4. Removal of Restrictions.
(a) Except as otherwise provided in Section 4(b) of this Agreement, Two
Thousand Nine Hundred Five (2,905) shares of Restricted Stock governed
by this Agreement shall become freely transferable by the Participant on
each of the first through the fourteenth anniversaries of the Participant's
sixty-fifth (65th) birthday and Two Thousand Nine Hundred Eleven (2,911)
shares of Restricted Stock governed by the Agreement shall become freely
transferable by the Participant on the fifteenth anniversary of the
Participant's sixty-fifth (65th) birthday.
(b) If the Participant shall notify the Secretary of the company, in
writing, no later than the last business day of the calendar year immediately
preceding the calendar year in which the Participant's sixty fifth (65th)
birthday shall occur, that the Participant elects to receive on his sixty-fifth
(65th) birthday one hundred percent (100%) of the shares of Stock
governed by this Agreement free of all restrictions, then all of the shares of
Restricted Stock governed by this Agreement shall become freely
transferable by the Participant on the Participant's sixty-fifth (65th)
birthday.
(c) When the shares are released from the restrictions and become fully
transferable by the Participant in accordance with the terms of this
Agreement, the Participant shall be entitled to receive a certificate or
certificates representing such shares without the legend or restriction
required by Section 3 herein.
5. Consulting Duties. Beginning on the later to occur of: (i) the
Participant's sixty-fifth (65th) birthday; or (ii) the Participant's
termination of employment following his sixty-fifth (65th) birthday (other
than by reason of death), and continuing until the Participant's eighty-first
(81st) birthday, the Participant agrees that he will, whenever reasonably
requested by the Company, render assistance to the Company in the form of
furnishing information to and cooperating with the Company in any matter
relating to the business of the Company for not more than one (1) day
during any calendar month, provided that inability of the Participant to
render such assistance to the Company due to the Participant's physical or
mental disability shall excuse the Participant of the obligation to render
such assistance and shall not be deemed a breach of this Agreement and
provided, further, that the refusal of the Participant to render such
assistance beyond a twenty (20) mile radius of the Company's present
offices in Glenview, Illinois shall not be deemed a breach of this
Agreement.
The Participant further agrees that during the twenty-four (24) calendar
months beginning with the calendar month during which the Participant's
termination of employment occurs, he will not, without the express written
consent of the Company, engage in or render services of any kind in any
capacity for any business that is competitive with the business of the
Company or any entity controlled by the Company, and that he will not
render assistance of any kind to or supply information to any such
competitive business.
In the event the Participant does not satisfy the consulting duties
described in this Section 5, or if he violates the noncompetition covenant,
all unvested shares of Restricted Stock shall immediately be forfeited to the
Company.
6. Voting Rights and Dividends. The Participant may exercise full
voting rights and is entitled to receive all dividends and other distributions
paid with respect to the shares of Restricted Stock while they are held in
the name of Participant. If any such dividends or distributions are paid in
shares of Common Stock of the Company, the shares shall be subject to
the same restrictions on transferability as the shares of Restricted Stock
with respect to which they were paid.
7. Termination By Reason of Death or Disability. In the event the
Participant's employment is terminated by reason of death or Disability
prior to the Participant's 65th birthday and prior to the time when all shares
of Restricted Stock governed by this Agreement are all vested, then all
shares of Restricted Stock subject to this Agreement shall immediately vest
and as soon as administratively practicable, the stock certificates
representing such shares of Restricted Stock without the restrictions or
legend required by Section 3 herein, shall be delivered by the Company to
the Participant or the Participant's beneficiary or estate, as the case may be.
8. Termination of Employment Prior to Age 65 for Other Reasons.
Except as otherwise provided in Section 9 herein, in the event the
Participant's employment is terminated for reasons other than those
described in Section 7 prior to the Participant's sixty-fifth (65th) birthday,
all shares of Restricted Stock subject to this Agreement shall immediately
be forfeited to the Company by the Participant.
9. Change in Control. In the event of a Qualifying Termination which
occurs within the two (2) year period following a Change in Control, the
restrictions imposed pursuant to Section 3 herein on shares of Restricted
Stock subject to this Agreement shall lapse, and within ten (10) business
days after the occurrence of the Qualifying Termination, the stock
certificates representing the shares of Restricted Stock, without the
restrictions or legend required by Section 3 herein thereon, shall be
delivered by the Company to the Participant.
10. Adjustments for Changes in Capitalization. Appropriate adjustment
shall be made by the Committee in the number of shares of Restricted
Stock governed subject to this Agreement to give effect to any stock splits,
stock dividends, and any other relevant changes in capitalization occurring
after the effective date of this Agreement.
11. Administration. This Agreement and the rights of the Participant
hereunder are subject to all the terms and conditions of the Plan, as the
same may be amended from time to time, as well as to such rules and
regulations as the Committee may adopt for administration of the Plan. It is
expressly understood that the Committee is authorized to administer,
construe, and make all determinations necessary or appropriate to the
administration of the Plan and this Agreement, all of which shall be binding
upon the Participant.
12. Miscellaneous.
(a) The Company shall have the authority to deduct or withhold, or
require the Participant to remit to the Company, an amount sufficient to
satisfy Federal, state, and local taxes (including the Participant's FICA
obligation) required by law to be withheld with respect to any provision of
this Agreement.
(b) This Agreement shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
(c) This Agreement shall be governed by, and construed in accordance
with the laws of the State of Illinois (other than those relating to conflicts
of law) to the extent not preempted by Federal law.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed this 17th day of January, 1995.
ZENITH ELECTRONICS CORPORATION
/s/ Jerry K. Pearlman By:/s/ Michael J Kaplan
- --------------------------------- _____________________________
Jerry K. Pearlman
Attest:/s/ David S. Levin
______________________________
ATTACHMENT A
1. Change in Control.
For purposes of this Agreement, "change in control of the Company"
shall take place when either of the following events will have occurred:
(a) A third person, including a "group" as defined in Section l3(d)(3)
of the Securities Exchange Act of l934, acquires shares of capital stock of
the Company having twenty-five percent (25%) or more of the total
number of votes that may be cast for the election of directors of the
Company; or
(b) As a result of any tender or exchange offer, merger or other
business combination, sale of assets or contested election, or any
combination of the foregoing transactions (a "transaction") the persons
who were directors of the Company before the transaction shall during any
two consecutive years thereafter cease to constitute a majority of the Board
of Directors of the Company.
2. Qualifying Termination.
If a change or changes in control of the Company occurs, and within
twenty-four (24) months from the date of any such change in control the
Participant's employment is terminated, unless such termination is:
A. Because of the Participant's death, Retirement or Disability;
B. By the Company for Cause; or
C. By the Participant other than for Good Reason.
(1) Disability; Retirement.
(a) Termination by the Company of employment based on
"Disability" shall mean termination because of the Participant's absence
from his duties with the Company on a full-time basis for one hundred
eighty (180) consecutive business days, as a result of incapacity due to
injury or physical or mental illness.
(b) Termination by the Company or the Participant of
employment based on "Retirement" shall, for the purposes of this
Agreement, mean retirement at age seventy (70) or voluntary earlier
retirement with the written consent of the Participant.
(2) Cause.
Termination by the Company of employment for "Cause" shall
mean termination upon:
(a) The willful and continued failure by the Participant to
substantially perform his duties with the Company (other than any such
failure resulting from his incapacity due to injury or physical or mental
illness) after a demand for substantial performance is delivered to the
Participant by the Company which specifically identifies the manner in
which the Company believes that the Participant has not substantially
performed his duties; or
(b) The willful engaging by the Participant in misconduct
demonstrably injurious to the Company monetarily or otherwise.
For purposes of this subparagraph (2), no act, or failure to
act on the Participant's part, shall be considered "willful" unless done, or
omitted to be done, by the Participant not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Participant shall not be
deemed to have been terminated for Cause unless and until there shall have
been delivered to the Participant a copy of a written Notice of Termination
from the Company, after reasonable notice to the Participant and an
opportunity for the Participant, together with his counsel, to be heard
before the Board of Directors, finding that in the good faith opinion of the
Board of Directors Cause existed and specifying the particulars thereof in
detail.
(3) Good Reason.
Termination by the Participant of employment for "Good
Reason" shall mean termination based on any of the following which
occurs within twenty-four (24) months from the date of a change in
control:
(a) Without the Participant's express written consent, the
assignment to the Participant of any duties materially inconsistent with the
Participant's positions, duties, responsibilities and status with the Company
immediately prior to a change in control, or a change (other than a bona
fide promotion) in the Participant's title or office from that in effect
immediately prior to a change in control, or any removal of the Participant
from or any failure to re-elect the Participant to any of such positions,
except in connection with the termination of his employment for Cause,
Disability or Retirement or by death or by the Participant other than for
Good Reason;
(b) A reduction by the Company in the Participant's salary
as in effect on the date hereof or as the same may be increased from time to
time, unless such reduction results from a blanket reduction of general
applicability to exempt salaried personnel; or the failure by the Company
to increase such base salary for the year in which a change of control
occurs and each year thereafter by an amount which at least equals, on a
percentage basis, the mean average percentage increase in base salary for
all officers of the Company during the two full calendar years immediately
preceding a change in control of the Company unless such failure is of
general applicability to exempt salaried personnel;
(c) A failure by the Company to continue the Company's bonus
incentive plans (the "Incentive Plans") as the same may be modified from
time to time but substantially in the form in effect immediately prior to the
change in control or a failure by the Company to continue the Participant
as a participant in the Incentive Plans on at least the basis of his
participation immediately prior to the change in control or to pay the
Participant any installment of a previous award under the Incentive Plans;
(d) Without the Participant's
express written consent, the Company requiring the Participant to
be based anywhere other than within fifty (50) miles of his present
office location, except for required travel on Company business to
an extent substantially consistent with the Participant's business
travel obligations immediately prior to such change in control;
(e) The failure by the Company to continue in effect any
benefit or compensation plan, stock ownership, stock purchase or stock option
plan, pension plan, life insurance plan, health and accident plan or long-
term disability plan in which the Participant is participating at the time of a
change in control of the Company (or plans providing the Participant with
substantially similar benefits) or the taking of any action by the Company
which would materially adversely affect participation by the Participant in
or materially reduce the Participant's benefits under any of such plans or
deprive the Participant of any material fringe benefit enjoyed by the
Participant at the time of the change in control;
(f) Any purported termination of the Participant's employment
which is not effective pursuant to a Notice of Termination satisfying the
requirements of subparagraph (4) below (and, if applicable, subparagraph
(2) above).
Notwithstanding the foregoing, the Participant agrees that in
the event a third person begins a tender or exchange offer, circulates a proxy
statement to shareholders or takes steps to effect a change in control of the
Company, as defined in Section 1 hereof, the Participant will not thereafter
voluntarily leave the employ of the Company until the third person has
abandoned or terminated such efforts to effect a change in control; or if
such efforts are successful, for ninety (90) days after a change in control of
the Company shall have occurred.
(4) Notice of Termination.
Any termination by the Company pursuant to subparagraphs (l)
or (2) above or by the Participant pursuant to subparagraph (3) above shall
be communicated by written "Notice of Termination" to the other party
hereto. For purposes of the Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in the
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Participant's
employment under the provision so indicated.
(5) Date of Termination.
"Date of Termination" shall mean:
(a) If the Participant's employment is terminated by reason of
his death or Retirement, the date of death or retirement;
(b) If the Participant's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided
that the Participant shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period);
(c) If the Participant's employment is terminated by the
Company for Cause pursuant to subparagraph (2) above, the date specified
in the Notice of Termination;
(d) If the Participant's employment is terminated by the
Participant for Good Reason, the date specified in the Notice of
Termination; and
(e) If the Participant's employment is terminated for any
other reason, the date on which a Notice of Termination is given.
Notwithstanding the foregoing, if within thirty (30) days
after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties or
by a binding and final arbitration award or by a final judgment, order or
decree of a court of competent jurisdiction entered upon such arbitration
award (the time for appeal from such judgment, order or decree having
expired and no appeal having been perfected).
EXHIBIT (10z)
Zenith Electronics Corporation
1987 Zenith Stock Incentive Plan
Restricted Stock Award Agreement
THIS AGREEMENT, effective July 26, 1994, between Zenith Electronics
Corporation, a Delaware corporation (the "Company"), and Albin F.
Moschner (the "Participant"), is made pursuant to the provisions of the
1987 Zenith Stock Incentive Plan (the "Plan"). The capitalized terms
appearing in this Agreement shall have the definitions ascribed to them in
the Plan unless specifically defined herein or in Attachment A to this
Agreement. In the event there is any inconsistency between the terms of
this Agreement and the terms of the Plan, the terms of the Plan shall
completely supersede and replace the terms of this Agreement. In
consideration of the premises set forth below, including the grant made
herein, the parties hereto agree as follows:
1. This Agreement sets forth the terms and provisions of the grant to
Participant of Fifty Six Thousand Seven Hundred Fifty Seven (56,757)
shares of Company stock, subject to restrictions (the "Restricted Stock").
Except as specifically provided otherwise herein, the shares of Restricted
Stock shall be governed by the terms of the Plan.
2. Employment by the Company. This Restricted Stock is awarded on
the condition that the Participant satisfy the employment conditions set
forth herein.
However, neither such conditions nor the award of this Restricted Stock
shall impose upon the Company any obligation to retain the Participant in
its employ for any given period of time or upon any specific terms of
employment nor interfere in anyway with the Company's right to
terminate his employment at any time.
3. Restrictions.
(a) Each certificate (or uncertificated account with the Company's
transfer agent) representing shares of Restricted Stock hereunder shall bear
(or be subject to) the following legend or restriction:
"The shares of common stock represented by this certificate are
subject to forfeiture under certain circumstances and may not be sold,
assigned, transferred, pledged, or otherwise alienated by the registered
holder except as permitted by the terms of the 1987 Zenith Stock Incentive
Plan and a Restricted Stock Award Agreement dated July 26, 1994 between
Zenith Electronics Corporation and Albin F. Restricted Stock Award
Agreement is on file with the Secretary of Zenith Electronics Corporation."
(b) Any Restricted Stock shall not be transferable by the Participant,
whether voluntarily or involuntarily, by operation of law or otherwise, so
long as it is subject to the restrictions of this paragraph.
4. Removal of Restrictions.
(a) Except as otherwise provided in Section 4(b) of this Agreement,
Three Thousand Seven Hundred Eighty Three (3,783) shares of Restricted
Stock governed by this Agreement shall become freely transferable by the
Participant on each of the first through the fourteenth anniversaries of the
Participant's sixty-fifth (65th) birthday and Three Thousand Seven
Hundred Ninety Five (3,795) shares of Restricted Stock governed by the
Agreement shall become freely transferable by the Participant on the
fifteenth anniversary of the Participant's sixty-fifth (65th) birthday.
(b) If the Participant shall notify the Secretary of the company, in
writing, no later than the last business day of the calendar year immediately
preceding the calendar year in which the Participant's sixty fifth (65th)
birthday shall occur, that the Participant elects to receive on his sixty-fifth
(65th) birthday one hundred percent (100%) of the shares of Stock
governed by this Agreement free of all restrictions, then all of the shares of
Restricted Stock governed by this Agreement shall become freely
transferable by the Participant on the Participant's sixty-fifth (65th)
birthday.
(c) When the shares are released from the restrictions and become fully
transferable by the Participant in accordance with the terms of this
Agreement, the Participant shall be entitled to receive a certificate or
certificates representing such shares without the legend or restriction
required by Section 3 herein.
5. Consulting Duties. Beginning on the later to occur of: (i) the
Participant's sixty-fifth (65th) birthday; or (ii) the Participant's
termination of employment following his sixty-fifth (65th) birthday (other
than by reason of death), and continuing until the Participant's eighty-first
(81st) birthday, the Participant agrees that he will, whenever reasonable
requested by the Company, render assistance to the Company in the form of
furnishing information to and cooperating with the Company in any matter
relating to the business of the Company for not more than one (1) day
during any calendar month, provided that inability of the Participant to
render such assistance to the Company due to the Participant's physical or
mental disability shall excuse the Participant of the obligation to render
such assistance and shall not be deemed a breach of this Agreement and
provided, further, that the refusal of the Participant to render such
assistance beyond a twenty (20) mile radius of the Company's present
offices in Glenview, Illinois shall not be deemed a breach of this
Agreement.
The Participant further agrees that during the twenty-four (24) calendar
months beginning with the calendar month during which the Participant's
termination of employment occurs, he will not, without the express written
consent of the Company, engage in or render services of any kind in any
capacity for any business that is competitive with the business of the
Company or any entity controlled by the Company, and that he will not
render assistance of any kind to or supply information to any such
competitive business.
In the event the Participant does not satisfy the consulting duties
described in this Section 5, or if he violates the noncompetition covenant,
all unvested shares of Restricted Stock shall immediately be forfeited to the
Company.
6. Voting Rights and Dividends. The Participant may exercise full
voting rights and is entitled to receive all dividends and other distributions
paid with respect to the shares of Restricted Stock while they are held in
the name of Participant. If any such dividends or distributions are paid in
shares of Common Stock of the Company, the shares shall be subject to
the same restrictions on transferability as the shares of Restricted Stock
with respect to which they were paid.
7. Termination By Reason of Death or Disability. In the event the
Participant's employment is terminated by reason of death or Disability
prior to the Participant's 65th birthday and prior to the time when all shares
of Restricted Stock governed by this Agreement are all vested, then all
shares of Restricted Stock subject to this Agreement shall immediately vest
and as soon as administratively practicable, the stock certificates
representing such shares of Restricted Stock without the restrictions or
legend required by Section 3 herein, shall be delivered by the Company to
the Participant or the Participant's beneficiary or estate, as the case may be.
8. Termination of Employment Prior to Age 65 for Other Reasons.
Except as otherwise provided in Section 9 herein, in the event the
Participant's employment is terminated for reasons other than those
described in Section 7 prior to the Participant's sixty-fifth (65th) birthday,
all shares of Restricted Stock subject to this Agreement shall immediately
be forfeited to the Company by the Participant.
9. Change in Control. In the event of a Qualifying Termination which
occurs within the two (2) year period following a Change in Control, the
restrictions imposed pursuant to Section 3 herein on shares of Restricted
Stock subject to this Agreement shall lapse, and within ten (10) business
days after the occurrence of the Qualifying Termination, the stock
certificates representing the shares of Restricted Stock, without the
restrictions or legend required by Section 3 herein thereon, shall be
delivered by the Company to the Participant.
10. Adjustments for Changes in Capitalization. Appropriate adjustment
shall be made by the Committee in the number of shares of Restricted
Stock governed subject to this Agreement to give effect to any stock splits,
stock dividends, and any other relevant changes in capitalization occurring
after the effective date of this Agreement.
11. Administration. This Agreement and the rights of the Participant
hereunder are subject to all the terms and conditions of the Plan, as the
same may be amended from time to time, as well as to such rules and
regulations as the Committee may adopt for administration of the Plan. It is
expressly understood that the Committee is authorized to administer,
construe, and make all determinations necessary or appropriate to the
administration of the Plan and this Agreement, all of which shall be binding
upon the Participant.
12. Miscellaneous.
(a) The Company shall have the authority to deduct or withhold, or
require the Participant to remit to the Company, an amount sufficient to
satisfy Federal, state, and local taxes (including the Participant's FICA
obligation) required by law to be withheld with respect to any provision of
this Agreement.
(b) This Agreement shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
(c) This Agreement shall be governed by, and construed in accordance
with the laws of the State of Illinois (other than those relating to conflicts
of law) to the extent not preempted by Federal law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed this 7th day of February, 1995
ZENITH ELECTRONICS CORPORATION
/s/ Albin F. Moschner
- -------------------------- By:/s/ Michael J. Kaplan
Albin F. Moschner _____________________________
Attest:/s/ David S. Levin
_____________________________
ATTACHMENT A
1. Change in Control.
For purposes of this Agreement, "change in control of the Company"
shall take place when either of the following events will have occurred:
(a) A third person, including a "group" as defined in Section l3(d)(3)
of the Securities Exchange Act of l934, acquires shares of capital stock of
the Company having twenty-five percent (25%) or more of the total
number of votes that may be cast for the election of directors of the
Company; or
(b) As a result of any tender or exchange offer, merger or other
business combination, sale of assets or contested election, or any
combination of the foregoing transactions (a "transaction") the persons
who were directors of the Company before the transaction shall during any
two consecutive years thereafter cease to constitute a majority of the Board
of Directors of the Company.
2. Qualifying Termination.
If a change or changes in control of the Company occurs, and within
twenty-four (24) months from the date of any such change in control the
Participant's employment is terminated, unless such termination is:
A. Because of the Participant's death, Retirement or Disability;
B. By the Company for Cause; or
C. By the Participant other than for Good Reason.
(1) Disability; Retirement.
(a) Termination by the Company of employment based on
"Disability" shall mean termination because of the Participant's absence
from his duties with the Company on a full-time basis for one hundred
eighty (180) consecutive business days, as a result of incapacity due to
injury or physical or mental illness.
(b) Termination by the Company or the Participant of
employment based on "Retirement" shall, for the purposes of this
Agreement, mean retirement at age seventy (70) or voluntary earlier
retirement with the written consent of the Participant.
(2) Cause.
Termination by the Company of employment for "Cause" shall
mean termination upon:
(a) The willful and continued failure by the Participant to
substantially perform his duties with the Company (other than any such
failure resulting from his incapacity due to injury or physical or mental
illness) after a demand for substantial performance is delivered to the
Participant by the Company which specifically identifies the manner in
which the Company believes that the Participant has not substantially
performed his duties; or
(b) The willful engaging by the Participant in misconduct
demonstrably injurious to the Company monetarily or otherwise.
For purposes of this subparagraph (2), no act, or failure to
act on the Participant's part, shall be considered "willful" unless done, or
omitted to be done, by the Participant not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Participant shall not be
deemed to have been terminated for Cause unless and until there shall have
been delivered to the Participant a copy of a written Notice of Termination
from the Company, after reasonable notice to the Participant and an
opportunity for the Participant, together with his counsel, to be heard
before the Board of Directors, finding that in the good faith opinion of the
Board of Directors Cause existed and specifying the particulars thereof in
detail.
(3) Good Reason.
Termination by the Participant of employment for "Good
Reason" shall mean termination based on any of the following which
occurs within twenty-four (24) months from the date of a change in
control:
(a) Without the Participant's express written consent, the
assignment to the Participant of any duties materially inconsistent with the
Participant's positions, duties, responsibilities and status with the Company
immediately prior to a change in control, or a change (other than a bona
fide promotion) in the Participant's title or office from that in effect
immediately prior to a change in control, or any removal of the Participant
from or any failure to re-elect the Participant to any of such positions,
except in connection with the termination of his employment for Cause,
Disability or Retirement or by death or by the Participant other than for
Good Reason;
(b) A reduction by the Company in the Participant's salary
as in effect on the date hereof or as the same may be increased from time to
time, unless such reduction results from a blanket reduction of general
applicability to exempt salaried personnel; or the failure by the Company
to increase such base salary for the year in which a change of control
occurs and each year thereafter by an amount which at least equals, on a
percentage basis, the mean average percentage increase in base salary for
all officers of the Company during the two full calendar years immediately
preceding a change in control of the Company unless such failure is of
general applicability to exempt salaried personnel;
(c) A failure by the Company to continue the Company's bonus
incentive plans (the "Incentive Plans") as the same may be modified from
time to time but substantially in the form in effect immediately prior to the
change in control or a failure by the Company to continue the Participant
as a participant in the Incentive Plans on at least the basis of his
participation immediately prior to the change in control or to pay the
Participant any installment of a previous award under the Incentive Plans;
(d) Without the Participant's express written consent, the
Company requiring the Participant to be based anywhere other than within
fifty (50) miles of his present office location, except for required travel on
Company business to an extent substantially consistent with the
Participant's business travel obligations immediately prior to such change
in control;
(e) The failure by the Company to continue in effect any
benefit or compensation plan, stock ownership, stock purchase or stock option
plan, pension plan, life insurance plan, health and accident plan or long-
term disability plan in which the Participant is participating at the time of a
change in control of the Company (or plans providing the Participant with
substantially similar benefits) or the taking of any action by the Company
which would materially adversely affect participation by the Participant in
or materially reduce the Participant's benefits under any of such plans or
deprive the Participant of any material fringe benefit enjoyed by the
Participant at the time of the change in control;
(f) Any purported termination of the Participant's employment
which is not effective pursuant to a Notice of Termination satisfying the
requirements of subparagraph (4) below (and, if applicable, subparagraph
(2) above).
Notwithstanding the foregoing, the Participant agrees that in
the event a third person begins a tender or exchange offer, circulates a proxy
statement to shareholders or takes steps to effect a change in control of the
Company, as defined in Section 1 hereof, the Participant will not thereafter
voluntarily leave the employ of the Company until the third person has
abandoned or terminated such efforts to effect a change in control; or if
such efforts are successful, for ninety (90) days after a change in control of
the Company shall have occurred.
(4) Notice of Termination.
Any termination by the Company pursuant to subparagraphs (l)
or (2) above or by the Participant pursuant to subparagraph (3) above shall
be communicated by written "Notice of Termination" to the other party
hereto. For purposes of the Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in the
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Participant's
employment under the provision so indicated.
(5) Date of Termination.
"Date of Termination" shall mean:
(a) If the Participant's employment is terminated by reason
of his death or Retirement, the date of death or retirement;
(b) If the Participant's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided
that the Participant shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period);
(c) If the Participant's employment is terminated by the
Company for Cause pursuant to subparagraph (2) above, the date specified
in the Notice of Termination;
(d) If the Participant's employment is terminated by the
Participant for Good Reason, the date specified in the Notice of
Termination; and
(e) If the Participant's employment is terminated for any
other reason, the date on which a Notice of Termination is given.
Notwithstanding the foregoing, if within thirty (30) days
after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties or
by a binding and final arbitration award or by a final judgment, order or
decree of a court of competent jurisdiction entered upon such arbitration
award (the time for appeal from such judgment, order or decree having
expired and no appeal having been perfected).
EXHIBIT (10aa)
Zenith Electronics Corporation
1987 Zenith Stock Incentive Plan
Restricted Stock Award Agreement
THIS AGREEMENT, effective July 26, 1994, between Zenith Electronics
Corporation, a Delaware corporation (the "Company"), and Gerald M.
McCarthy (the "Participant"), is made pursuant to the provisions of the
1987 Zenith Stock Incentive Plan (the "Plan"). The capitalized terms
appearing in this Agreement shall have the definitions ascribed to them in
the Plan unless specifically defined herein or in Attachment A to this
Agreement. In the event there is any inconsistency between the terms of
this Agreement and the terms of the Plan, the terms of the Plan shall
completely supersede and replace the terms of this Agreement. In
consideration of the premises set forth below, including the grant made
herein, the parties hereto agree as follows:
1. This Agreement sets forth the terms and provisions of the grant to
Participant of Twenty Two Thousand Four Hundred Thirty Two (22,432)
shares of Company stock, subject to restrictions (the "Restricted Stock").
Except as specifically provided otherwise herein, the shares of Restricted
Stock shall be governed by the terms of the Plan.
2. Employment by the Company. This Restricted Stock is awarded on
the condition that the Participant satisfy the employment conditions set
forth herein.
However, neither such conditions nor the award of this Restricted Stock
shall impose upon the Company any obligation to retain the Participant in
its employ for any given period of time or upon any specific terms of
employment nor interfere in anyway with the Company's right to
terminate his employment at any time.
3. Restrictions.
(a) Each certificate (or uncertificated account with the Company's
transfer agent) representing shares of Restricted Stock hereunder shall bear
(or be subject to) the following legend or restriction:
"The shares of common stock represented by this certificate are
subject to forfeiture under certain circumstances and may not be sold,
assigned, transferred, pledged, or otherwise alienated by the registered
holder except as permitted by the terms of the 1987 Zenith Stock Incentive
Plan and a Restricted Stock Award Agreement dated July 26, 1994 between
Zenith Electronics Corporation and Gerald M. McCarthy. A copy of the
Plan and such Restricted Stock Award Agreement is on file with the
Secretary of Zenith Electronics Corporation."
(b) Any Restricted Stock shall not be transferable by the Participant,
whether voluntarily or involuntarily, by operation of law or otherwise, so
long as it is subject to the restrictions of this paragraph.
4. Removal of Restrictions.
(a) Except as otherwise provided in Section 4(b) of this Agreement, One
Thousand Four Hundred Ninety Five (1,495) shares of Restricted Stock
governed by this Agreement shall become freely transferable by the
Participant on each of the first through the fourteenth anniversaries of the
Participant's sixty-fifth (65th) birthday and One Thousand Five Hundred
Two (1,502) shares of Restricted Stock governed by the Agreement shall
become freely transferable by the Participant on the fifteenth anniversary
of the Participant's sixty-fifth (65th) birthday.
(b) If the Participant shall notify the Secretary of the day of the
calendar year immediately preceding the calendar year in which the
Participant's sixty fifth (65th) birthday shall occur, that the Participant
elects to receive on his sixty-fifth (65th) birthday one hundred percent
(100%) of the shares of Stock governed by this Agreement free of all
restrictions, then all of the shares of Restricted Stock governed by this
Agreement shall become freely transferable by the Participant on the
Participant's sixty-fifth (65th) birthday.
(c) When the shares are released from the restrictions and become fully
transferable by the Participant in accordance with the terms of this
Agreement, the Participant shall be entitled to receive a certificate or
certificates representing such shares without the legend or restriction
required by Section 3 herein.
5. Consulting Duties. Beginning on the later to occur of: (i) the
Participant's sixty-fifth (65th) birthday; or (ii) the Participant's
termination of employment following his sixty-fifth (65th) birthday (other
than by reason of death), and continuing until the Participant's eighty-first
(81st) birthday, the Participant agrees that he will, whenever reasonably
requested by the Company, render assistance to the Company in the form of
furnishing information to and cooperating with the Company in any matter
relating to the business of the Company for not more than one (1) day
during any calendar month, provided that inability of the Participant to
render such assistance to the Company due to the Participant's physical or
mental disability shall excuse the Participant of the obligation to render
such assistance and shall not be deemed a breach of this Agreement and
provided, further, that the refusal of the Participant to render such
assistance beyond a twenty (20) mile radius of the Company's present
offices in Glenview, Illinois shall not be deemed a breach of this
Agreement.
The Participant further agrees that during the twenty-four (24) calendar
months beginning with the calendar month during which the Participant's
termination of employment occurs, he will not, without the express written
consent of the Company, engage in or render services of any kind in any
capacity for any business that is competitive with the business of the
Company or any entity controlled by the Company, and that he will not
render assistance of any kind to or supply information to any such
competitive business.
In the event the Participant does not satisfy the consulting duties
described in this Section 5, or if he violates the noncompetition covenant,
all unvested shares of Restricted Stock shall immediately be forfeited to the
Company.
6. Voting Rights and Dividends. The Participant may exercise full
voting rights and is entitled to receive all dividends and other distributions
paid with respect to the shares of Restricted Stock while they are held in
the name of Participant. If any such dividends or distributions are paid in
shares of Common Stock of the Company, the shares shall be subject to
the same restrictions on transferability as the shares of Restricted Stock
with respect to which they were paid.
7. Termination By Reason of Death or Disability. In the event the
Participant's employment is terminated by reason of death or Disability
prior to the Participant's 65th birthday and prior to the time when all shares
of Restricted Stock governed by this Agreement are all vested, then all
shares of Restricted Stock subject to this Agreement shall immediately vest
and as soon as administratively practicable, the stock certificates
representing such shares of Restricted Stock without the restrictions or
legend required by Section 3 herein, shall be delivered by the Company to
the Participant or the Participant's beneficiary or estate, as the case may be.
8. Termination of Employment Prior to Age 65 for Other Reasons.
Except as otherwise provided in Section 9 herein, in the event the
Participant's employment is terminated for reasons other than those
described in Section 7 prior to the Participant's sixty-fifth (65th) birthday,
all shares of Restricted Stock subject to this Agreement shall immediately
be forfeited to the Company by the Participant.
9. Change in Control. In the event of a Qualifying Termination which
occurs within the two (2) year period following a Change in Control, the
restrictions imposed pursuant to Section 3 herein on shares of Restricted
Stock subject to this Agreement shall lapse, and within ten (10) business
days after the occurrence of the Qualifying Termination, the stock
certificates representing the shares of Restricted Stock, without the
restrictions or legend required by Section 3 herein thereon, shall be
delivered by the Company to the Participant.
10. Adjustments for Changes in Capitalization. Appropriate adjustment
shall be made by the Committee in the number of shares of Restricted
Stock governed subject to this Agreement to give effect to any stock splits,
stock dividends, and any other relevant changes in capitalization occurring
after the effective date of this Agreement.
11. Administration. This Agreement and the rights of the Participant
hereunder are subject to all the terms and conditions of the Plan, as the
same may be amended from time to time, as well as to such rules and
regulations as the Committee may adopt for administration of the Plan. It is
expressly understood that the Committee is authorized to administer,
construe, and make all determinations necessary or appropriate to the
administration of the Plan and this Agreement, all of which shall be binding
upon the Participant.
12. Miscellaneous.
(a) The Company shall have the authority to deduct or withhold, or
require the Participant to remit to the Company, an amount sufficient to
satisfy Federal, state, and local taxes (including the Participant's FICA
obligation) required by law to be withheld with respect to any provision of
this Agreement.
(b) This Agreement shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
(c) This Agreement shall be governed by, and construed in accordance
with the laws of the State of Illinois (other than those relating to conflicts
of law) to the extent not preempted by Federal law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed this 14 th day of February, 1995.
ZENITH ELECTRONICS CORPORATION
/s/ Gerald M. McCarthy By: /s/ Michael J. Kaplan
- ---------------------------- _____________________________
Gerald M. McCarthy
Attest:/s/ David S. Levin
_____________________________
ATTACHMENT A
1. Change in Control.
For purposes of this Agreement, "change in control of the Company"
shall take place when either of the following events will have occurred:
(a) A third person, including a "group" as defined in Section l3(d)(3)
of the Securities Exchange Act of l934, acquires shares of capital stock of
the Company having twenty-five percent (25%) or more of the total
number of votes that may be cast for the election of directors of the
Company; or
(b) As a result of any tender or exchange offer, merger or other
business combination, sale of assets or contested election, or any
combination of the foregoing transactions (a "transaction") the persons
who were directors of the Company before the transaction shall during any
two consecutive years thereafter cease to constitute a majority of the Board
of Directors of the Company.
2. Qualifying Termination.
If a change or changes in control of the Company occurs, and within
twenty-four (24) months from the date of any such change in control the
Participant's employment is terminated, unless such termination is:
A. Because of the Participant's death, Retirement or Disability;
B. By the Company for Cause; or
C. By the Participant other than for Good Reason.
(1) Disability; Retirement.
(a) Termination by the Company of employment based on
"Disability" shall mean termination because of the Participant's absence
from his duties with the Company on a full-time basis for one hundred
eighty (180) consecutive business days, as a result of incapacity due to
injury or physical or mental illness.
(b) Termination by the Company or the Participant of
employment based on "Retirement" shall, for the purposes of this
Agreement, mean retirement at age seventy (70) or voluntary earlier
retirement with the written consent of the Participant.
(2) Cause.
Termination by the Company of employment for "Cause" shall
mean termination upon:
(a) The willful and continued failure by the Participant to
substantially perform his duties with the Company (other than any such
failure resulting from his incapacity due to injury or physical or mental
illness) after a demand for substantial performance is delivered to the
Participant by the Company which specifically identifies the manner in
which the Company believes that the Participant has not substantially
performed his duties; or
(b) The willful engaging by the Participant in misconduct
demonstrably injurious to the Company monetarily or otherwise.
For purposes of this subparagraph (2), no act, or failure to
act on the Participant's part, shall be considered "willful" unless done, or
omitted to be done, by the Participant not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Participant shall not be
deemed to have been terminated for Cause unless and until there shall have
been delivered to the Participant a copy of a written Notice of Termination
from the Company, after reasonable notice to the Participant and an
opportunity for the Participant, together with his counsel, to be heard
before the Board of Directors, finding that in the good faith opinion of the
Board of Directors Cause existed and specifying the particulars thereof in
detail.
(3) Good Reason.
Termination by the Participant of employment for "Good
Reason" shall mean termination based on any of the following which
occurs within twenty-four (24) months from the date of a change in
control:
(a) Without the Participant's express written consent, the
assignment to the Participant of any duties materially inconsistent with the
Participant's positions, duties, responsibilities and status with the Company
immediately prior to a change in control, or a change (other than a bona
fide promotion) in the Participant's title or office from that in effect
immediately prior to a change in control, or any removal of the Participant
from or any failure to re-elect the Participant to any of such positions,
except in connection with the termination of his employment for Cause,
Disability or Retirement or by death or by the Participant other than for
Good Reason;
(b) A reduction by the Company in the Participant's salary
as in effect on the date hereof or as the same may be increased from time to
time, unless such reduction results from a blanket reduction of general
applicability to exempt salaried personnel; or the failure by the Company
to increase such base salary for the year in which a change of control
occurs and each year thereafter by an amount which at least equals, on a
percentage basis, the mean average percentage increase in base salary for
all officers of the Company during the two full calendar years immediately
preceding a change in control of the Company unless such failure is of
general applicability to exempt salaried personnel;
(c) A failure by the Company to continue the Company's bonus
incentive plans (the "Incentive Plans") as the same may be modified from
time to time but substantially in the form in effect immediately prior to the
change in control or a failure by the Company to continue the Participant
as a participant in the Incentive Plans on at least the basis of his
participation immediately prior to the change in control or to pay the
Participant any installment of a previous award under the Incentive Plans;
(d) Without the Participant's express written consent, the
Company requiring the Participant to be based anywhere other than within
fifty (50) miles of his present office location, except for required travel on
Company business to an extent substantially consistent with the
Participant's business travel obligations immediately prior to such change
in control;
(e) The failure by the Company to continue in effect any
benefit or compensation plan, stock ownership, stock purchase or stock option
plan, pension plan, life insurance plan, health and accident plan or long-
term disability plan in which the Participant is participating at the time of a
change in control of the Company (or plans providing the Participant with
substantially similar benefits) or the taking of any action by the Company
which would materially adversely affect participation by the Participant in
or materially reduce the Participant's benefits under any of such plans or
deprive the Participant of any material fringe benefit enjoyed by the
Participant at the time of the change in control;
(f) Any purported termination of the Participant's employment
which is not effective pursuant to a Notice of Termination satisfying the
requirements of subparagraph (4) below (and, if applicable, subparagraph
(2) above).
Notwithstanding the foregoing, the Participant agrees that in
the event a third person begins a tender or exchange offer, circulates a proxy
statement to shareholders or takes steps to effect a change in control of the
Company, as defined in Section 1 hereof, the Participant will not thereafter
voluntarily leave the employ of the Company until the third person has
abandoned or terminated such efforts to effect a change in control; or if
such efforts are successful, for ninety (90) days after a change in control of
the Company shall have occurred.
(4) Notice of Termination.
Any termination by the Company pursuant to subparagraphs (l)
or (2) above or by the Participant pursuant to subparagraph (3) above shall
be communicated by written "Notice of Termination" to the other party
hereto. For purposes of the Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in the
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Participant's
employment under the provision so indicated.
(5) Date of Termination.
"Date of Termination" shall mean:
(a) If the Participant's employment is terminated by reason of
his death or Retirement, the date of death or retirement;
(b) If the Participant's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given (provided
that the Participant shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period);
(c) If the Participant's employment is terminated by the
Company for Cause pursuant to subparagraph (2) above, the date specified
in the Notice of Termination;
(d) If the Participant's employment is terminated by the
Participant for Good Reason, the date specified in the Notice of
Termination; and
(e) If the Participant's employment is terminated for any
other reason, the date on which a Notice of Termination is given.
Notwithstanding the foregoing, if within thirty (30) days after
any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties or
by a binding and final arbitration award or by a final judgment, order or
decree of a court of competent jurisdiction entered upon such arbitration
award (the time for appeal from such judgment, order or decree having
expired and no appeal having been perfected).
EXHIBIT (10ab)
SUPPLEMENTAL EXECUTIVE
RETIREMENT INCOME PLAN
ZENITH ELECTRONICS CORPORATION
Contents
Page
Article 1. Establishment 1
Article 2. Definitions 1
Article 3. Administration 3
Article 4. Eligibility and Participation 4
Article 5. Retirement 4
Article 6. Amount, Form, and Payment of Supplemental
Benefit 5
Article 7. Rights of Participants 6
Article 8. Withholding of Taxes 7
Article 9. Amendment and Termination 7
Article 10. Beneficiaries 8
Article 11. Miscellaneous 8
Zenith Electronics Corporation
Supplemental Executive Retirement Income Plan
Article 1. Establishment Zenith Electronics Corporation, a Delaware
corporation (the "Company") hereby establishes on July 26, 1994 (the Plan
Date), effective as of January 1, 1994, the Zenith Electronics Corporation
Supplemental Executive Retirement Income Plan (the "Plan") for the purpose
of providing supplemental retirement benefits for one or more selected
Employees. The Plan is intended to be an unfunded deferred compensation
plan maintained primarily for a select group of management or highly
compensated employees and shall be construed and administered in
accordance with such intention.
Article 2. Definitions
2.1 Actuarially Equivalent. "Actuarially Equivalent" or "Actuarial
Equivalent" shall mean the equivalence in present value between two or
more forms and/or times of payment based upon a determination by an
actuary chosen by the Committee, using sound actuarial assumptions at
the time of such determination.
2.2 Board. "Board" shall mean the Board of Directors of the
Company.
2.3 Cause. "Cause" shall mean a violation of law which adversely
affects the economic interests of the Company, as determined at the sole
discretion of the Committee.
2.4 Committee. "Committee" shall mean the Organization and
Compensation Committee of the Board, or such designate or successor
committee as shall be appointed by the Board, pursuant to the terms of
Article 3 herein.
2.5 Company. "Company" shall mean Zenith Electronics
Corporation.
2.6 Credited Service. "Credited Service" shall mean a Participant's
years of credited service or benefit service as defined in the Profit Sharing
Plan. Credited Service shall continue to accrue during any period of
Disability of a Participant.
2.7 Early Retirement. "Early Retirement" shall mean any termination
of a Participant's employment during the time period constituting Early
Retirement Age, other than an involuntary termination for Cause:
2.8 Early Retirement Age. "Early Retirement Age" means the time
period beginning on a Participant's fifty-fifth (55th) birthday and ending
immediately prior to the attainment of age sixty-five (65); provided,
however, that a Participant shall not be deemed to have attained Early
Retirement Age unless he or she has completed ten (10) years of Credited
Service.
2.9 Earnings. "Earnings" shall be determined on a calendar-year basis,
and shall mean a Participant's total annual base salary, without taking into
account any reductions pursuant to voluntary deferrals of base salary by
the Participant; plus any cash annual incentive compensation awards; but
excluding any long-term incentive awards. For purposes of determining
Earnings for any particular calendar year, Earnings for the year shall consist
of total base salary for that year and annual incentive compensation awards
earned in such year, regardless of when paid.
2.10 Employee. "Employee" shall mean a full-time, salaried employee
of the Company.
2.11 Employment. "Employment" shall mean the period or periods
during which an individual is an Employee of the Company.
2.12 Final Average Earnings. "Final Average Earnings" shall mean the
average of a Participant's Earnings during his or her final five (5) years of
Employment.
2.13 Normal Retirement Age. "Normal Retirement Age" shall mean
any time following a Participant's attainment of age sixty-five (65);
provided, however, that a Participant shall not be deemed to have attained
Normal Retirement Age unless her or she has completed ten (10) years of
Credited Service.
2.14 Other Retirement Income. "Other Retirement Income" shall
mean the sum of the income payable to a Participant as set forth below:
(a) The Participant's Profit Sharing Plan Offset; and
(b) The Participant's Supplemental Plan Offset; and
(c) The Participant's Restricted Stock Offset; and
(d) The Participant's Primary Social Security Benefit Offset.
2.15 Primary Social Security Benefit Offset. "Primary Social Security
Benefit Offset" shall mean the single sum Actuarial Equivalent at
Retirement of the monthly benefit amount payable under the provisions of
Title II of the Social Security Act in effect at the time of his or her
termination of employment. Such amounts shall be determined by the
Committee or its designate.
2.16 Profit Sharing Plan. "Profit Sharing Plan" shall mean the Zenith
Salaried Profit Sharing Retirement Plan and all amendments thereto.
2.17 Profit Sharing Plan Offset. "Profit Sharing Plan Offset" shall
mean the lump-sum payment which could be made to a Participant under
the Profit Sharing Plan at Retirement (or termination of employment),
excluding amounts payable from the Employee Savings Program or the Rollover
Account, regardless of the amount actually paid or the form in which such
benefits actually are payable to the Participant under the Profit Sharing
Plan. Such amount shall be determined by the Committee or its designate.
2.18 Restricted Stock Offset. "Restricted Stock Offset" shall mean an
amount equal to the aggregate fair market value of all shares of restricted
stock held by a Participant as of the Plan Date. In addition, in the
event that shares of restricted stock are granted to a Participant subsequent
to the Plan Date, and if such shares are specifically designated by the
Committee to serve as offsets to the benefits provided under this Plan, the
aggregate grant date fair market value of such shares of restricted stock
shall be deemed to be included within the Restricted Stock Offset.
However, in the event any or all of such shares of restricted stock described
in this Section 2.18 are or have been forfeited by a Participant on or before
Retirement, the value attributable to such forfeited shares shall not be
deemed to be included within the definition of the term "Restricted Stock
Offset."
2.19 Retirement. "Retirement" and "Retire" shall mean a qualifying
termination of a Participant's employment with the Company on one of the
Retirement dates specified in Section 5.1 herein.
2.20 Supplemental Plan. "Supplemental Plan" means the Zenith
Electronics Corporation Supplemental Salaried Profit Sharing Retirement
Plan and all amendments thereto.
2.21 Supplemental Plan Offset. "Supplemental Plan Offset" shall
mean the lump-sum payment which could be made to a Participant under
the Supplemental Plan upon Retirement (or termination of employment),
regardless of the amount actually paid or the form in which such benefits
actually are payable to the Participant under the Supplemental Plan. Such
amount shall be determined by the Committee or its designate.
Article 3. Administration
3.1 Authority of the Committee. The Plan shall be administered by
the Committee. Subject to the provisions herein, the Committee shall have
full power to select Employees for participation in the Plan; to determine
the terms and conditions of each Employee's participation in the Plan; to
construe and interpret the Plan and any agreement or instrument entered
into under the Plan; to establish, amend, or waive rules and regulations for
the Plan's administration; to amend (subject to the provisions of Article 9
herein) the terms and conditions of the Plan and any agreement entered
into under the Plan; and to make any other determinations which may be
necessary or advisable for the administration of the Plan.
The Committee may delegate any of the following of its authorities granted
under the Plan to any officer or employee of the Company:
(a) The authority to construe and interpret the Plan
and any agreement or instrument entered into under the
Plan;
(b) The authority to establish, amend, or waive rules and regulations
for the Plan's administration;
(c) The authority to amend the terms and conditions of the Plan to the
extent such amendments are necessary in order to comply with applicable
tax law or other form of law.
3.2 Decisions Binding. All determinations and decisions made by the
Committee and/or its designate pursuant to the provisions of the Plan, and
all related orders or resolutions of the Committee and/or its designate shall
be final, conclusive, and binding on all persons, including the Company, its
stockholders, Employees, Participants, and their estates and beneficiaries.
Article 4. Eligibility and Participation
Persons eligible to participate in the Plan include key executives of the
Company, as selected by the Committee, at its sole discretion. It is the
intent of the Company to extend eligibility only to those executives who
comprise a select group of management or highly compensated
Employees.
Article 5. Retirement
5.1 Eligibility for Benefits. Subject to the terms of this Plan, a
Participant shall be eligible to Retire and receive a benefit under this Plan
upon a qualifying termination of employment at any time during the
periods constituting Normal Retirement Age or Early Retirement Age.
5.2 Forfeiture.
a) Less than 10 Years of Credited Service. Regardless of a
Participant's age upon a termination of his or her employment, the
Participant shall forfeit his or her right to any and all benefits set forth in
this Plan unless, at the time of such termination, the Participant has
completed at least ten (10) years of Credited Service.
b) Prior to Age 55. In the event that a Participant's employment
terminates prior to age fifty-five (55) for any reason, then such Participant
shall forfeit his or her right to receive any and all benefits set forth in
this Plan.
c) Termination For Cause Prior to Age 65. In the event that a
Participant's employment terminates for Cause prior to age sixty-five (65),
such Participant shall forfeit his or her right to receive any and all benefits
under this Plan.
d) Following Age 65. Subject to the terms of the Plan, including, but
not limited to, the ten- (10-) year minimum Credited Service requirement, a
Participant's right to receive the benefits set forth in this Plan shall be
nonforfeitable following such Participant's attainment of age sixty-five (65).
Article 6. Amount, Form, and Payment of Supplemental Benefit
6.1 Normal Retirement Benefit. Subject to the terms of the Plan, the
Normal Retirement Benefit shall be the lump sum payable (regardless of
the form in which such benefit actually is paid) in connection with
Retirement at Normal Retirement Age, and will equal the amount specified
in (a) less (b) below:
a) The lump-sum Actuarial Equivalent at Normal Retirement Age of a
straight-life annuity where each annual payment equals fifty percent (50%)
of the Participant's Final Average Earnings; multiplied by a fraction, the
numerator of which is the Participant's total number of years of Credited
Service (up to a maximum of twenty-five (25) years), and the denominator
of which is twenty-five (25); less
b) The Participant's Other Retirement Income.
This amount will be payable in a lump sum or other payment schedule
having the same Actuarial Equivalent value as such lump sum, as specified
in Section 6.4. All calculations hereunder shall be made by the Committee
or its designate.
6.2 Early Retirement Benefit. Subject to the terms of this Plan, the
Early Retirement Benefit shall be the lump sum payable (regardless of the
form in which such benefit actually is paid) in connection with Retirement
at Early Retirement Age, and shall equal (a) less (b) below:
a) The amount specified in Section 6.1(a) herein, reduced by one-
fourth of one percent for each full calendar month by which the
Participant's date of termination of employment precedes his or her sixty-
fifth (65th) birthday (provided that such reduction shall apply only for a
maximum of thirty-six (36) months), and by five-twelfths of one percent
for each full calendar month by which the Participant's date of termination
of employment precedes his or her sixty-second (62nd) birthday; less
b) The Participant's Other Retirement Income
6.3 Commencement of Benefits. Benefits payable in accordance with
Section 6.1 or 6.2 herein shall commence on the first day of the month
following the effective date of the Participant's employment termination,
and shall continue to be paid as set forth in Section 6.4 herein.
6.4 Form of Benefit. Each Participant shall make an irrevocable
election designating the form of payment he or she desires with respect to
his or her benefits hereunder. Such election shall be effective only in the
event it is delivered to the Company within a calendar year which precedes
the calendar year in which the Participant Retires. In the event such
election is not made in a calendar year prior to the calendar year in which
the Participant Retires, the Participant's benefit shall be paid as set forth
in Section 6.4(b) herein. The aggregate payments under each of the payment
alternatives shall represent approximately the same Actuarial Equivalent
value, determined at the sole discretion of the Committee. The following
payment alternatives are available:
(a) Lump Sum. A cash lump-sum payment, as set forth in Section 6.1
or 6.2 herein, as applicable. In the event this payment alternative is
selected, the Company shall make the cash lump-sum payment to the Participant
within thirty (30) days following the date on which the benefits become
due and payable.
(b) Fifteen-Year Certain. In the event this payment alternative is
selected, the Participant, shall receive equal monthly payments, each of
which equals one-one hundred eightieth (1/180th) of the Actuarial
Equivalent of the benefits set forth in this Article 6, as if they were payable
for the lifetime of the Participant pursuant to a straight-life annuity,
determined at the discretion of the Committee or its designate. Such
payments shall begin within thirty (30) days following the date on which
the benefits become due and payable, and shall continue for the entire
fifteen- (15-) year period. In the event this payment alternative is selected,
the Participant shall designate a beneficiary to whom remaining payments
will be made in the event of his or her death prior to the end of such
fifteen- (15-) year period.
Article 7. Rights of Participants
7.1 Contractual Obligation. The Plan shall create a contractual
obligation on the part of the Company to make the payments described
under the Plan. Such payments shall be made out of the general funds of
the Company.
7.2 Unsecured Interest. No Participant or party claiming an interest
under the Plan shall have any interest whatsoever in any specific asset of
the Company. To the extent that any party acquires a right to receive
payments under the Plan, such right shall be equivalent to that of an
unsecured general creditor of the Company.
The Company may establish one or more trusts, with such trustee as the
Committee or its designate may approve, for the purpose of providing for
the payment of benefits hereunder. Such trust or trusts may be irrevocable,
but the assets thereof shall be subject to the claims of the Company's
general creditors. To the extent any benefits payable under the Plan are
actually paid from any such trust, the Company shall have no further
obligation with respect thereto, but to the extent not so paid, such benefits
shall remain the obligation of, and shall be paid by, the Company.
7.3 Employment. Nothing in the Plan shall interfere with nor limit in
any way the right of the Company to terminate any Participant's
employment at any time, nor confer upon any Participant any right to
continue in the employ of the Company.
7.4 Participation. No Employee shall have the right to be selected as
a Participant.
Article 8. Withholding of Taxes
The Company shall have the authority to deduct or withhold, or require
Participants to remit to the Company an amount sufficient to satisfy
Federal, state, and local withholding tax requirements (including the
Participant's FICA obligation) required by law to be withheld with respect
to any provision of this Plan.
Article 9. Amendment and Termination
The Company hereby reserves the right to amend, modify, or terminate
the Plan at any time by action of the Committee. Except as described
below in this Article 9, no such amendment or termination shall in any
material manner adversely affect any Participant's rights to benefits payable
hereunder, without the consent of the Participant.
The Plan is intended to be an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management
or highly compensated employees" within the meaning of Sections 201,
301, and 401 of ERISA, and therefore to be exempt from the provisions of
Parts 2, 3, and 4 of Title I of ERISA. Accordingly, the Committee may
terminate the Plan and commence termination payout for all or certain
Participants, or remove certain Employees as Participants, if it is
determined by the United States Department of Labor or a court of
competent jurisdiction that the Plan constitutes an employee pension
benefit plan within the meaning of Section 3(2) of ERISA which is not so
exempt. If payout is commenced pursuant to the operation of this Article 9,
the payment of such amounts shall be made in the manner, and at the
times selected by the Committee; provided, however, that such payment
shall not be extended for a longer period of time than would have been the
case had the account balance payouts occurred as scheduled immediately
prior to such accelerated payout.
Article 10. Beneficiaries
Each Participant shall be entitled to designate one (1) or more
beneficiaries of the Participant under this Plan. All designations shall be
signed by the Participant, and shall be in such form as prescribed by the
Committee or its designate. Each designation shall be effective as of the
date received by the Company.
Participants may change their designations of beneficiary on such form
as prescribed by the Committee or its designate. The payment of amounts
payable under the Plan shall be in accordance with the last unrevoked
written designation of beneficiary that has been signed by the Participant
and delivered by the Participant to the Company prior to the Participant's
death.
In the event that all the beneficiaries named by a Participant pursuant to
this Article 10 predecease the Participant, the amounts that would have
been paid to the Participant or the Participant's beneficiaries under this Plan
shall be paid to the Participant's estate.
In the event a Participant does not designate a beneficiary, or for any
reason such designation is ineffective, in whole or in part, the amounts that
otherwise would have been paid to the Participant or the Participant's
beneficiaries under the Plan shall be paid to the Participant's estate.
Article 11. Miscellaneous
11.1 Notice. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail to the Corporate Secretary
of the Company. Notice to the Corporate Secretary of the Company, if
mailed, shall be addressed to the principal executive offices of the
Company. Notice mailed to a Participant shall be at such address as is
given in the records of the Company. Notices shall be deemed given as of
the date of delivery or, if delivery is made by mail, as of the date shown on
the postmark on the receipt for registration or certification.
11.2 Nontransferability. Except as provided in Article 10 herein,
Participants' rights to amounts payable under the Plan may not be sold,
transferred, assigned, or otherwise alienated or hypothecated, other than by
will or by the laws of descent and distribution. In no event shall the
Company make any payment under the Plan to any assignee or creditor of
a Participant.
11.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
11.4 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine;
the plural shall include the singular, and the singular shall include the
plural.
11.5 Costs of the Plan. All costs of implementing and administering the
Plan shall be borne by the Company.
11.6 Applicable Law. The Plan shall be governed by and construed in
accordance with the laws of the state of
Illinois.
11.7 Successors. All obligations of the Company under the Plan shall be
binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the business and/or
assets of the Company.
EXHIBIT (10ac)
SUPPLEMENTAL SALARIED PROFIT
SHARING RETIREMENT PLAN
ZENITH ELECTRONICS CORPORATION
Contents
Page
Article 1. Establishment and Purposes 1
Article 2. Definitions 1
Article 3. Administration 2
Article 4. Eligibility and Participation 3
Article 5. Profit Sharing Plan Restoration 3
Article 6. Rights of Participants 5
Article 7. Withholding of Taxes 6
Article 8. Amendment and Termination 6
Article 9. Miscellaneous 7
Supplemental Salaried Profit
Sharing Retirement Plan
Article 1. Establishment and Purposes
1.1 Establishment. Zenith Electronics Corporation, a Delaware
corporation (the "Company"), hereby establishes, effective as of January 1,
1994, a supplemental profit sharing plan for key employees as described
herein, which shall be known as the "Zenith Electronics Corporation
Supplemental Salaried Profit Sharing Retirement Plan" (the "Plan").
1.2 Purpose. The primary purpose of the Plan is to restore Company
contributions under the Profit Sharing Plan, which are limited by operation
of certain tax laws. By adopting the Plan, the Company desires to enhance
its ability to attract and retain employees of outstanding competence.
Article 2. Definitions
Whenever used herein, the following terms shall have the respective
meanings set forth below:
(a) "Change in Control" shall be deemed to exist when either of the
following events will have occurred:
(i) A third person, including a "group" as defined in Section 13(d)(3)
of the Securities Exchange Act of
1934, acquires shares of capital stock of the Company having twenty-five
percent (25%) or more of the total number
of votes that may be cast for the election of directors of the Company; or
(ii) As a result of any tender or exchange offer, merger, or other
business combination, sale of assets or contested election, or any
combination of the foregoing transactions, the persons who were directors
of the Company before the transaction shall during any two consecutive
years thereafter cease to constitute a majority of the Board of Directors of
the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Organization and Compensation Committee
of the Board, or any other committee appointed by the Company's Board
to administer the Plan.
(d) "Company" means Zenith Electronics Corporation, a Delaware
corporation, together with all Subsidiaries of the Company.
(e) "Compensation" shall have the meaning ascribed to such term in the
Profit Sharing Plan, as such term pertains to Company contributions under
such Plan.
(f) "Disability" shall have the meaning ascribed to such term in the
Profit Sharing Plan.
(g) "Effective Date" means the date the Plan becomes effective, as set
forth in Section 1.1 herein.
(h) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(i) "Participant" means an individual selected by the Committee for
participation in the Plan.
(j) "Profit Sharing Plan" means the Zenith Electronics Salaried Profit
Sharing Retirement Plan, and all amendments thereto.
(k) "Retirement" shall have the meaning ascribed to such term in the
Profit Sharing Plan.
(l) "Subsidiary" means any and all entities, the employees of which are
eligible to participate in the Profit Sharing Plan.
(m) "Year" means the fiscal year of the Company.
Article 3. Administration
3.1 Authority of the Committee. The Plan shall be administered by the
Committee. Subject to the provisions herein, the Committee shall have full
power to select employees for participation in the Plan; to determine the
terms and conditions of each employee's participation in the Plan; to
construe and interpret the Plan and any agreement or instrument entered
into under the Plan; to establish, amend, or waive rules and regulations for
the Plan's administration; to amend (subject to the provisions of Article 8
herein) the terms and conditions of the Plan and any agreement entered
into under the Plan; and to make any other determinations which may be
necessary or advisable for the administration of the Plan.
The Committee may delegate any of the following of its authorities
granted under the Plan to any officer or employee of the Company:
(a) The authority to construe and interpret the Plan and any agreement
or instrument entered into under the Plan;
(b) The authority to establish, amend, or waive rules and regulations for
the Plan's administration;
(c) The authority to amend the terms and conditions of the Plan to the
extent such amendments are necessary in order to comply with applicable
tax law or other form of law.
3.2 Decisions Binding. All determinations and decisions made by the
Committee and/or its designate pursuant to the provisions of the Plan, and
all related orders or resolutions of the Committee and/or its designate shall
be final, conclusive, and binding on all persons, including the Company, its
stockholders, employees, Participants, and their estates and beneficiaries.
Article 4. Eligibility and Participation
Persons eligible to participate in the Plan include key employees of the
Company, as selected by the Committee, at its sole discretion. It is the
intent of the Company to extend eligibility only to those employees who
comprise a select group of management or highly compensated employees.
In the event a Participant no longer meets the requirements for
participation in the Plan, such Participant shall become an inactive
Participant, retaining all the rights described under the Plan, except the
right to receive further Company contributions under Article 5 herein,
until such time that the Participant again becomes an active Participant.
Article 5. Profit Sharing Plan Restoration
5.1 Company Contributions. For each Year in which an employee is a
Participant, the Company will credit to each Participant's account in the
Plan an amount equal to (a) minus (b) where:
(a) Is the amount which would have been credited to the Participant's
retirement and optional accounts under the Profit Sharing Plan from
employer contributions and forfeitures for such Year had the amounts not
been limited by Sections 415 and 401(a)(17) of the Code; and
(b) Is the amount which actually is credited to the Participant's
retirement and optional accounts under the Profit Sharing Plan.
5.2 Vesting of Company Contributions. Each Participant shall vest in his
or her Company contributions described under Section 5.1 herein
according to the following schedule:
Number of Years of Cumulative
Employment Under Percentage of Vested
the Profit Sharing Plan Company Contributions
Less than 1 year 0%
1 year but less than 2 years 20%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or over 100%
5.3 Earnings on Company Contributions. Company contributions under
this Article 5 will be credited with the same rate(s) of earnings as is/are
Company contributions under the Profit Sharing Plan.
The Company shall not be required to direct that Company
contributions with respect to each Participant under this Plan actually be
invested in the same funds as Company contributions under the Profit
Sharing Plan. Rather, such accruals shall be maintained as bookkeeping
accounts, as if the investments corresponding to those made by each
Participant under the Profit Sharing Plan were actually made under this
Plan, at the same time, and in the same proportionate amounts as elected
under the Profit Sharing Plan.
The administration of such accruals under this Plan shall be the
responsibility of the Committee or its designate, and shall be conducted
according to such rules, procedures, and determinations as the Committee
(or the Committee's designate), at its sole discretion, deems appropriate.
Participants and their beneficiaries shall have no right to direct the actual
investment of any funds subject to this Plan.
5.4 Form and Timing of Benefit Payments. Benefit payments under this
Article 5 shall be payable in the same form, and at the same time, as the
corresponding tax-qualified contributions payable to the Participant under
the Profit Sharing Plan; provided, however, that the Committee shall have
the authority, at its sole discretion, to accelerate the payout of such benefit
payments upon: (i) the termination of a Participant's employment; or (ii)
upon a Change in Control.
5.5 Beneficiary. Each Participant shall be entitled to designate one (1)
or more beneficiaries of the Participant under this Plan. Such beneficiary may
or may not be the same as those named by the Participant under the Profit
Sharing Plan. All designations shall be signed by the Participant, and shall
be in such form as prescribed by the Committee or its designate. Each
designation shall be effective as of the date received by the Company.
Participants may change their designations of beneficiary on such form
as prescribed by the Committee or its designate. The payment of account
balances under the Plan shall be in accordance with the last unrevoked
written designation of beneficiary that has been signed by the Participant
and delivered by the Participant to the Company prior to the Participant's
death.
In the event that all the beneficiaries named by a Participant pursuant to
this Section 5.5 predecease the Participant, the amounts that would have
been paid to the Participant or the Participant's beneficiaries under this Plan
shall be paid to the Participant's estate.
In the event a Participant does not designate a beneficiary, or for any
reason such designation is ineffective, in whole or in part, the amounts that
otherwise would have been paid to the Participant or the Participant's
beneficiaries under the Plan shall be paid to the Participant's estate.
5.6 Contribution Accounts. The Company shall establish and maintain
separate individual bookkeeping accounts for Company contributions and
earnings accruals corresponding to such Company contributions made on
behalf of Participants pursuant to Section 5.1 herein. Such accounts shall
be administered according to such rules and procedures as the Committee
(or its designate), at is sole discretion, deems appropriate.
Article 6. Rights of Participants
6.1 Contractual Obligation. The Plan shall create a contractual obligation
on the part of the Company to make payments from the Participants'
accounts when due. Payment of account balances shall be made out of the
general funds of the Company.
6.2 Unsecured Interest. No Participant or party claiming an interest in
Company contributions under a Participant shall have any interest
whatsoever in any specific asset of the Company. To the extent that any
party acquires a right to receive payments under the Plan, such right shall
be equivalent to that of an unsecured general creditor of the Company.
The Company may establish one or more trusts, with such trustee as the
Committee or its designate may approve, for the purpose of providing for
the payment of Company contributions. Such trust or trusts may be
irrevocable, but the assets thereof shall be subject to the claims of the
Company's general creditors. To the extent any Company contributions
under the Plan are actually paid from any such trust, the Company shall
have no further obligation with respect thereto, but to the extent not so
paid, such Company contributions shall remain the obligation of, and shall
be paid by, the Company.
6.3 Employment. Nothing in the Plan shall interfere with nor limit in any
way the right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue in the
employ of the Company.
6.4 Participation. No employee shall have the right to be selected as a
Participant, or, having been so selected for any given Year, to be selected
again for any other Year.
Article 7. Withholding of Taxes
The Company shall have the right to require Participants to remit to the
Company an amount sufficient to satisfy Federal, state, and local
withholding tax requirements, or to deduct from all payments made
pursuant to the Plan amounts sufficient to satisfy withholding tax
requirements.
Article 8. Amendment and Termination
The Company hereby reserves the right to amend, modify, or terminate
the Plan at any time by action of the Committee. Except as described
below in this Article 8, no such amendment or termination shall in any
material manner adversely affect any Participant's rights to Company
contributions or earnings thereon, without the consent of the Participant.
The Plan is intended to be an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management
or highly compensated employees" within the meaning of Sections 201,
301, and 401 of ERISA, and therefore to be exempt from the provisions of
Parts 2, 3, and 4 of Title I of ERISA. Accordingly, the Committee may
terminate the Plan and commence termination payout for all or certain
Participants, or remove certain employees as Participants, if it is determined
by the United States Department of Labor or a court of competent
jurisdiction that the Plan constitutes an employee pension benefit plan
within the meaning of Section 3(2) of ERISA which is not so exempt. If
payout is commenced pursuant to the operation of this Article 8, the
payment of such amounts shall be made in the manner, and at the times
selected by the Committee; provided, however, that such payment shall
not be extended for a longer period of time than would have been the case
had the account balance payouts occurred as scheduled immediately prior
to such accelerated payout.
Article 9. Miscellaneous
9.1 Notice. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail to the Corporate Secretary
of the Company. Notice to the Corporate Secretary of the Company, if
mailed, shall be addressed to the principal executive offices of the
Company. Notice mailed to a Participant shall be at such address as is
given in the records of the Company. Notices shall be deemed given as of
the date of delivery or, if delivery is made by mail, as of the date shown on
the postmark on the receipt for registration or certification.
9.2 Nontransferability. Except as provided in Section 5.5 herein,
Participants' rights to Company contributions and earnings thereon under
the Plan may not be sold, transferred, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
In no event shall the Company make any payment under the Plan to any
assignee or creditor of a Participant.
9.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
9.4 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine;
the plural shall include the singular, and the singular shall include the
plural.
9.5 Costs of the Plan. All costs of implementing and administering the
Plan shall be borne by the Company.
9.6 Applicable Law. The Plan shall be governed by and construed in
accordance with the laws of the state of Illinois.
9.7 Successors. All obligations of the Company under the Plan shall be
binding on any successor to the Company, whether the existence
of such successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the business and/or
assets of the Company.
EXHIBIT (21)
ZENITH ELECTRONICS CORPORATION SUBSIDIARIES
State or Other
Jurisdiction of Incorporation
- -----------------------------------------------------------------------------
Cableproductos de Chihuahua, S.A. de C.V. Mexico
Electro Partes de Matamoros, S.A. de C.V. Mexico
Interocean Advertising Corporation New York
Interocean Advertising Corporation of California California
Interocean Advertising Corporation of Illinois Illinois
Productos Magneticos de Chihuahua, S.A. de C.V. Mexico
Partes de Television de Reynosa, S.A. de C.V. Mexico
Radio Componentes de Mexico, S.A. de C.V. Mexico
Telson, S.A. de C.V. Mexico
Zenco de Chihuahua, S.A. de C.V. Mexico
Zenith Distributing Corporation of Illinois Illinois
Zenith Distributing Corporation-Midstates Kansas
Zenith Distributing Corporation of New England Delaware
Zenith Distributing Corporation of New York New York
Zenith Distributing Corporation-Southeast Delaware
Zenith Distributing Corporation-West California
Zenith Distributing Corporation of Arizona Arizona
Zenith Electronics Corporation of Pennsylvania Pennsylvania
Zenith Electronics Corporation of Texas Texas
Zenith Electronics (Europe) Limited England
Zenith Electronics (Ireland) Limited Ireland
Zenith Electronics (Pacific) Ltd. Hong Kong
Zenith Electronics Universal Sales Corporation Delaware
Zenith/Inteq, Inc. Delaware
Zenith Microcircuits Corporation Delaware
Zenith Radio Canada Ltd/Zenith Radio Canada Ltee Canada
Zenith Taiwan Corporation Taiwan
Zenith Video Tech Corporation Delaware
Zenith Video Tech Corporation-Florida Delaware
Zentrans, Inc. Delaware
also
Zenith Foreign Sales Corporation Guam (Dormant)
* All subsidiaries are wholly-owned by Zenith Electronics Corporation except
for Radio Componentes de Mexico, S.A. de C.V. which is a wholly-owned
subsidiary of Cableproductos de Chihuahua S.A. de C.V.
EXHIBIT (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
of our reports dated February 14, 1995, included in this Form 10-K for the
year ended December 31, 1994, into (i) the Company's previously filed
Registration Statements on Form S-8, File Nos. 33-15643 and 33-11295 and
(ii) the Prospectus constituting part of the Registration Statement on
Form S-3 (No. 33-56889).
/s/ Arthur Andersen LLP
-------------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 27, 1995
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