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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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ZENITH ELECTRONICS CORPORATION
(NAME OF SUBJECT COMPANY)
ZENITH ELECTRONICS CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ASSOCIATED RIGHTS)
(TITLE OF CLASS OF SECURITIES)
989349105
(CUSIP NUMBER OF CLASS OF SECURITIES)
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ALBIN F. MOSCHNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ZENITH ELECTRONICS CORPORATION
1000 MILWAUKEE AVENUE
GLENVIEW, ILLINOIS 60025
(708) 391-7000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH COPIES TO:
RICHARD F. VITKUS THOMAS A. COLE
ZENITH ELECTRONICS CORPORATION SIDLEY & AUSTIN
1000 MILWAUKEE AVENUE ONE FIRST NATIONAL PLAZA
GLENVIEW, ILLINOIS 60025 CHICAGO, ILLINOIS 60603
(708) 391-7000 (312) 853-7000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Zenith Electronics Corporation, a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 1000 Milwaukee Avenue, Glenview, Illinois 60025. The title of
the class of equity securities to which this statement relates is the common
stock, par value $1.00 per share, of the Company, including the associated
common stock purchase rights (the "Rights") issued pursuant to the Company's
rights agreement (collectively, the "Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer by LG Electronics Inc., a
corporation organized under the laws of the Republic of Korea (the
"Purchaser"), disclosed in a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1"), dated July 21, 1995, to purchase up to 18,619,000 shares of
Common Stock (the "Offer Shares") at $10.00 per share (the "Offer Price"), net
to the seller in cash, upon the terms and subject to the conditions set forth
in the Offer to Purchase, dated July 21, 1995 (the "Offer to Purchase"), and
the related Letter of Transmittal (which, together with the Offer to Purchase
and any amendments or supplements thereto, collectively constitute the
"Offer"). According to the Schedule 14D-1, the address of the principal
executive offices of the Purchaser is 20 Yoido-dong, Youngdungpo-gu, Seoul 150-
721, Korea.
The Offer is being made by the Purchaser pursuant to a Stock Purchase
Agreement, dated as of July 17, 1995 (the "Stock Purchase Agreement"), between
the Purchaser and the Company. Certain terms and conditions of the Stock
Purchase Agreement are described below in Item 3. A copy of the Stock Purchase
Agreement is filed as an exhibit to this statement and is incorporated herein
by reference. A copy of the press release issued by the Company on July 17,
1995 is filed as an exhibit to this statement and is incorporated herein by
reference.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above, which information is incorporated
herein by reference.
(b) (1) Certain information with respect to certain contracts, agreements,
arrangements and understandings between the Company and certain of its
executive officers, directors and affiliates is set forth in the Company's
Notice of Annual Meeting and Proxy Statement dated March 24, 1995 under the
sections entitled "Board of Directors, Committees and Directors' Compensation,"
"Security Ownership of Certain Beneficial Owners," "Security Ownership of
Management," "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" and is
incorporated herein by reference. Such sections are filed as an exhibit to this
statement.
In addition, consummation of the transactions contemplated by the Stock
Purchase Agreement and related documents will have certain effects under
certain compensation and incentive plans and arrangements in which officers and
directors of the Company are participants, as summarized below.
On April 4, 1995, the Company amended certain agreements it has with its
executive officers, providing for severance benefits upon a change in control
of the Company. The agreement with Albin F. Moschner, the President and Chief
Executive Officer of the Company, was amended to provide for an acceleration of
vesting of options and restricted stock upon a change of control, without
regard to whether a termination of employment has occurred. For other long-term
incentive programs, the amendment provided for a payment upon a change of
control (without regard to a termination of employment), equal to the value of
any Company shares subject to such award and the amount of any cash long-term
incentive award to which the executive would have been entitled, determined as
if the employee remained employed for the entire measuring period and all
target levels were achieved. Finally, the amendment provides for payment of an
amount sufficient to put Mr. Moschner in the same
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after-tax position as if no excise taxes imposed by Section 4999 of the
Internal Revenue Code had been imposed on any payments which are contingent on
a change of control and which equal or exceed three times such officer's
average taxable compensation for the prior five years, or his period of
employment. The amendment of the agreement with Gerald M. McCarthy, Executive
Vice President, Sales and Marketing of the Company, contains the same
provisions, except that there is no additional amount payable in the event he
is subject to the excise tax imposed by Section 4999 of the Code. The amendment
to the agreements with all other executive officers contains the provisions
described above, except that the maximum amount payable is limited to $1.00
less than the maximum amount that could be paid without subjecting the
executive to the excise tax under Section 4999.
(b) (2)
(i) THE STOCK PURCHASE AGREEMENT.
The following summary of terms of the Stock Purchase Agreement does not
purport to be complete and is qualified in its entirety by reference to the
text of the Stock Purchase Agreement, a copy of which is filed as an exhibit
hereto and is incorporated herein by reference.
Sale and Purchase of Issue Shares. Upon the terms and subject to satisfaction
or waiver of the conditions described below under "Conditions" and the further
condition that the Purchaser shall have accepted for purchase pursuant to the
Offer not less than 18,619,000 shares of Common Stock, the Company has agreed
to issue and sell to the Purchaser, and the Purchaser has agreed to purchase
from the Company, 16,500,000 shares of Common Stock to be issued by the Company
for $10.00 cash per share (the "Issue Shares").
The Offer. Pursuant to the terms of the Stock Purchase Agreement, the
Purchaser was required to commence the Offer no later than five business days
after the public announcement that the Purchaser and the Company entered into
the Stock Purchase Agreement. The obligations of the Purchaser to accept for
payment, and pay for, any shares of Common Stock tendered pursuant to the Offer
are subject (the following being referred to as the "Offer Conditions") to the
purchase by the Purchaser of the Issue Shares, to be consummated simultaneously
with the purchase of the Offer Shares, and to the conditions that (i) the Stock
Purchase Agreement shall not have been terminated, (ii) there shall be validly
tendered in accordance with the terms of the Offer prior to the Expiration Date
and not withdrawn at least 18,619,000 shares of Common Stock (the term
"Expiration Date" shall mean 12:00 midnight, New York City time, on Tuesday,
September 19, 1995, unless and until the Purchaser, in its sole descretion (but
subject to the terms of the Stock Purchase Agreement), shall from time to time
have extended the period of time for which the Offer is open, in which event
the term "Expiration Date" shall mean the latest time and date at which the
Offer, as so extended by the Purchaser, shall expire), and (iii) to the
satisfaction or waiver of the following conditions:
(a) Stockholder Approval. The Company's stockholders shall have approved
the transactions contemplated by the Stock Purchase Agreement, including
the issuance and sale to the Purchaser of the Issue Shares and the purchase
by the Purchaser of the Offer Shares as contemplated by the Stock Purchase
Agreement, which transactions shall be described in a proxy statement and
related proxy materials, and submitted to a vote of the Company's
stockholders (the "Stockholder Proposals").
(b) No Prohibition. No statute, rule, regulation, judgment, order,
decree, ruling, injunction, or other action shall have been entered,
promulgated or enforced by any governmental, quasi-governmental, judicial,
self-regulatory or regulatory agency or entity or subdivision thereof with
jurisdiction over the Company or the Purchaser or any of their subsidiaries
or any of the transactions contemplated by the Stock Purchase Agreement
("Governmental Authorities") that purports, seeks, or threatens to (i)
prohibit, restrain, enjoin, or restrict in a material manner, the purchase
and sale of any Offer Shares as contemplated by the Stock Purchase
Agreement or (ii)
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impose material adverse terms or conditions (not set forth in the Stock
Purchase Agreement) upon the purchase and sale of any Offer Shares as
contemplated by the Stock Purchase Agreement.
(c) Regulatory Compliance. All material filings with all Governmental
Authorities required to be made in connection with the purchase and sale of
the Offer Shares as contemplated by the Stock Purchase Agreement shall have
been made, all waiting periods thereunder shall have expired or terminated
and all material orders, permits, waivers, authorizations, exemptions, and
approvals of such entities required to be in effect on the date of the
closing of the transactions contemplated by the Stock Purchase Agreement
(the "Closing") in connection with the purchase and sale of the Offer
Shares as contemplated by the Stock Purchase Agreement shall have been
issued, and all such orders, permits, waivers, authorizations, exemptions
or approvals shall be in full force and effect on the date of the Closing;
provided, however, that no provision of the Stock Purchase Agreement shall
be construed as requiring any party to accept, in connection with obtaining
any requisite approval, clearance or assurance of non-opposition, avoiding
any challenge, or negotiating any settlement, any condition that would (i)
materially change or restrict the manner in which the Company or the
Purchaser conducts or proposes to conduct its businesses, or (ii) impose
material terms or conditions (not set forth in the Stock Purchase
Agreement) upon the purchase and sale of any Offer Shares as contemplated
by the Stock Purchase Agreement.
(d) Exon-Florio. The Purchaser and the Company shall have delivered to
the Committee on Foreign Investment in the United States ("CFIUS")
appropriate notification and report forms pursuant to Section 721 of the
Defense Production Act of 1950, as amended (the "Exon-Florio Amendment"),
and (i) more than thirty days shall have passed from the calendar day
following acceptance by CFIUS of such notice without advice from CFIUS of
the commencement of an investigation of the transactions contemplated by
the Stock Purchase Agreement, (ii) the Purchaser and the Company shall have
been advised by CFIUS that CFIUS has determined not to undertake an
investigation of the transactions contemplated by the Stock Purchase
Agreement, or (iii) if CFIUS commences an investigation of the transactions
contemplated by the Stock Purchase Agreement, such investigation shall have
been resolved to the mutual satisfaction of the Purchaser and the Company.
(e) Directors. Provision shall have been made to the satisfaction of
Purchaser that, immediately following the Closing, the Board of Directors
of the Company will be composed of ten directors and six of such directors
shall be designees of the Purchaser, one of such directors shall be the
Company's President and Chief Executive Officer immediately prior to the
Closing and three of such directors shall be persons who are not (apart
from such directorship) affiliates, officers, employees, agents, principals
or partners of the Purchaser or the Company or any subsidiary of either of
them who are, if they are willing to serve, members of the Board of
Directors of the Company immediately prior to the Closing.
(f) Performance. The Company shall have performed in all material
respects its obligations under the Stock Purchase Agreement to the date of
the Closing.
(g) Amended Bylaws. The Company shall have amended its Bylaws in the
manner contemplated by the Stock Purchase Agreement (as amended, the
"Amended Bylaws") immediately prior to the Closing and such amendments
shall have been duly authorized, approved and effected.
(h) Amendment of Rights Agreement. The Rights Agreement shall have been
amended by the Company to specifically exclude the Purchaser and its
affiliates from the definition of "Acquiring Person" (as defined in the
Rights Agreement) and to otherwise avoid any adverse consequence to
Purchaser or the Company, including, without limitation, the occurrence of
a "Distribution Date" (as defined in the Rights Agreement) as a consequence
of the transactions contemplated by the Stock Purchase Agreement, the
Company Letter (as defined below), the Tender Offer Statement on Schedule
14D-1 and related Offer to Purchase, form of letter of transmittal and
summary advertisement to be used in connection with the Offer (the "Offer
Documents"), the
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Solicitation/Recommendation Statement on Schedule 14D-9 pertaining to the
Offer and the Amended Bylaws (collectively, together with any amendments
thereof, and all supplements, annexes and exhibits thereto, the
"Transaction Documents").
(i) Closing Deliveries. The Company shall have delivered, or shall be
delivering concurrently with the Closing, the documents and instruments
required to be delivered by the Company pursuant to the Stock Purchase
Agreement.
(j) Representations and Warranties True. Except as otherwise contemplated
by the Stock Purchase Agreement and except for the representations and
warranties of the Company with respect to capital stock set forth in the
Stock Purchase Agreement which shall be accurate in all respects as of the
date when made and at and as of the Closing as though newly made at and as
of that time, the representations and warranties of the Company contained
in the Stock Purchase Agreement which are qualified as to materiality shall
be true and correct and which are not so qualified shall be true and
correct in all material respects, in each case, as of the date when made
and at and as of the Closing as though newly made at and as of that time,
except that the Company's financial statements shall continue to be true
only as of the respective dates covered thereby.
(k) Certificate. The Company shall have delivered to the Purchaser a
certificate dated as of the Closing and signed by the Chief Financial
Officer and the General Counsel of the Company certifying as to (i) the
accuracy, as of the date when made and at and as of the Closing as though
newly made at and as of that time, of the representations and warranties of
the Company set forth in the Stock Purchase Agreement with respect to
capital stock and the representations and warranties contained in the Stock
Purchase Agreement that are qualified as to materiality, (ii) the accuracy,
as of the date when made and at and as of the Closing as though newly made
at and as of that time, in all material respects of the representations and
warranties of the Company contained in the Stock Purchase Agreement that
are not so qualified, provided that the Company's representations and
warranties contained in the Stock Purchase Agreement as to the Company's
financial statements shall continue to be true only as of the respective
dates covered thereby and (iii) the performance of the obligations required
by the Company to be performed under the Stock Purchase Agreement as of the
Closing.
(l) Credit Agreements. The Company shall have secured amendments to or
waivers under, in each case, in form and substance reasonably satisfactory
to the Purchaser, its material credit agreements and arrangements such that
none of the transactions contemplated by the Stock Purchase Agreement or
the other Transaction Documents, will constitute a breach or default of or
an event that, with notice or lapse of time or both would be a breach or
default, under such credit agreements or arrangements.
(m) Items in Company Letter. The Purchaser shall be satisfied that
certain claims and matters described in the letter, dated as of the date of
the Stock Purchase Agreement, from the Company to the Purchaser (the
"Company Letter"), individually, collectively with each other or
collectively with any breaches of representations and warranties and/or
other facts and circumstances which have not been disclosed as of the date
of the Stock Purchase Agreement have not resulted in, and would not
reasonably be expected to result in, a "Material Adverse Effect." "Material
Adverse Effect" means a material adverse effect, or the occurrence or
existence of facts or circumstances reasonably expected to result in a
material adverse effect, on the business, assets, results of operations,
properties, financial or operating condition or prospects of the Company
and its subsidiaries taken as a whole, or the ability of the Company (and,
to the extent applicable, its subsidiaries) to perform its (or their)
obligations under the Stock Purchase Agreement or consummate the
transactions contemplated thereby. For purposes of this definition a
consolidated net loss by the Company and its subsidiaries for the quarter
ended June 30, 1995 of $45.3 million or less shall not be deemed to have a
Material Adverse Effect.
The Purchaser may increase the Offer Price and may make any other changes in
the terms and conditions of the Offer, provided that the Purchaser may not
decrease the Offer Price, change the form
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of consideration payable in the Offer, decrease the maximum number of Shares
sought pursuant to the Offer, add to or modify the Offer Conditions, or
otherwise amend the Offer in any manner adverse to the Company's stockholders.
The Stock Purchase Agreement requires that the Offer expire at midnight, New
York City time, on the date that is sixty days from the date the Offer is first
published or sent to stockholders. The Purchaser must extend the Offer (i) if
at the scheduled expiration date of the Offer any of the Offer Conditions has
not been satisfied or waived, until such time as such Offer Conditions are
satisfied or waived and (ii) for any period required by any rule, regulation,
interpretation or position of the Securities and Exchange Commission or the
staff thereof (the "Commission") applicable to the Offer; provided, however,
that the Purchaser may terminate the Offer if the Stock Purchase Agreement is
terminated.
Provided that the Stock Purchase Agreement has not been terminated and that
all Offer Conditions have been satisfied or waived by the Purchaser, the
Purchaser is required to accept for payment and purchase, in accordance with
the terms of the Offer, shares of Common Stock validly tendered and not
withdrawn pursuant to the Offer (up to the amount sought pursuant to the Offer
or such greater amount as the Purchaser, in its sole discretion, shall
determine) at the Closing.
Representations and Warranties. The Stock Purchase Agreement contains
customary representations and warranties of the Company relating, with respect
to the Company and its subsidiaries, to, among other things, (a) organization,
standing and similar corporate matters; (b) the authorization, execution,
delivery, performance and enforceability of the Stock Purchase Agreement and
related matters; (c) capital structure; (d) government authorization; (e) the
compliance with all licenses and permits necessary to conduct its businesses
and the non-contravention of the Stock Purchase Agreement and related
transactions with any judgment, decree, order, law, statute, rule or
regulation; (f) the compliance of the Company and its subsidiaries and the non-
contravention of the Stock Purchase Agreement and related transactions with the
Company's and its subsidiaries' certificates of incorporation and bylaws or any
material agreements, mortgages, indentures, debentures, trusts, leases,
licenses, or other instruments or obligations to or by which it or any of its
properties is subject or bound; (g) the compliance as to form of the documents
filed by the Company and its subsidiaries with the Commission and the accuracy
of information contained therein and the absence of undisclosed liabilities;
(h) the absence of any event, occurrence, development, breach or default which
individually or collectively has had or would be expected to result in a
Material Adverse Effect; (i) the absence of pending or threatened litigation
which could reasonably be expected to have a Material Adverse Effect; (j) the
filing of tax returns and payment of taxes; (k) registration rights and the
exemption from registration and prospectus delivery requirements; (l) adequate
insurance protection and compliance with such policies and bonds; (m) the
absence of certain transactions between the Company or its subsidiaries and any
of either's directors, officers or their immediate families; (n) benefit plans
and other matters relating to the Employee Retirement Income Security Act of
1974, as amended; (o) possession of all necessary rights and licenses in all
intellectual property; (p) the absence of Environmental Claims and compliance
with all Environmental Laws (as such terms are defined in the Stock Purchase
Agreement); (q) broker's fees and expenses; and (r) the accuracy of the Company
Letter.
The Stock Purchase Agreement contains customary representations and
warranties of the Purchaser relating to (a) organization, standing and similar
corporate matters; (b) the authorization, execution, delivery, performance and
enforceability of the Stock Purchase Agreement; (c) the non-contravention of
the Stock Purchase Agreement and related transactions with any charter
provision, bylaw, material contract, order, law or regulation to which the
Purchaser is a party or by which it is bound or obligated; (d) government
authorization; (e) investment intent and sophistication of the Purchaser; (f)
the accuracy of information supplied by the Purchaser in connection with the
Offer and the proxy statement; and (g) broker's fees and expenses.
Conduct of Business of the Company. The Stock Purchase Agreement provides
that until the Closing, the business and operations of the Company and each of
its subsidiaries shall be conducted
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in the ordinary course of business consistent with past practice, and the
Company and its subsidiaries will each use its best efforts to preserve intact
its business organization, to keep available the services of its officers and
employees and to maintain existing relationships with licensors, licensees,
suppliers, contractors, distributors, customers and others having business
relationships with it.
Accordingly, except as otherwise expressly approved by the Purchaser in
writing, neither the Company nor any of its subsidiaries may, prior to the
Closing, engage or agree to engage in an enumerated list of transactions
generally characterized as being outside the ordinary course of business.
Transactions requiring the Purchaser's prior approval include, without
limitation (but subject to certain exceptions stated in the Stock Purchase
Agreement), actions by the Company or its subsidiaries to (i) authorize for
issuance, issue, sell, deliver or agree or commit to issue, sell or deliver any
voting stock or any other securities or equity equivalents (including, without
limitation, any stock options or stock appreciation rights) or amend any of the
terms of any such securities or agreements outstanding as of the date of the
Stock Purchase Agreement; (ii) split, combine or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of the securities of the Company or its subsidiaries, or redeem or
otherwise acquire any of its securities or any securities of its subsidiaries
not owned directly or indirectly by the Company; (iii) incur or assume any debt
or issue any debt securities, become liable or responsible for the obligations
of any other person, make any loans or investments in any other person, pledge
or otherwise encumber shares of capital stock of the Company or any of its
subsidiaries, or mortgage or pledge any of its material assets or create any
lien thereupon; (iv) enter into, adopt, or amend or terminate any compensation,
severance, termination, or benefits arrangement, or pay any benefit not
required by any plan or arrangement; (v) acquire (by merger, consolidation, or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof or any equity interest therein, or acquire,
sell, lease or dispose of any assets of the Company and its subsidiaries; (vi)
enter, or permit any of its subsidiaries to enter, into any joint venture,
partnership or exclusive licensing agreement; (vii) authorize any new capital
expenditure or expenditures; and (viii) amend or propose to amend its
certificate of incorporation or bylaws or alter the corporate structure or
ownership of any subsidiary.
Other Potential Bidders. The Stock Purchase Agreement requires the Company
and its affiliates and their respective officers, directors, employees,
representatives and agents to immediately cease any existing discussions or
negotiations with any third party regarding (i) the acquisition of more than
20% of the total assets of the Company or any of its subsidiaries, (ii) the
acquisition of 20% or more of the Shares, all of the Company's voting stock or
the equity securities of any subsidiary of the Company, or (iii) the merger or
other combination of the Company or any of its subsidiaries (each a "Third
Party Acquisition"). The Company shall not, unless and until the Stock Purchase
Agreement is terminated in accordance with its terms, as described below,
directly or indirectly, (i) initiate, solicit or encourage any discussions
regarding a Third Party Acquisition, or (ii) hold any such discussions or enter
into any agreement concerning any Third Party Acquisition; provided that if the
Company's Board of Directors determines in good faith, after consultation with
and based upon written advice of outside legal counsel, that a failure to do so
would be contrary to its fiduciary obligations, the Company may (A) in response
to a request therefor, furnish information with respect to the Company to any
person pursuant to a customary confidentiality agreement and discuss such
information with such person and (B) upon receipt by the Company of a proposal
with respect to a Third Party Acquisition, following delivery to the Purchaser
of the Notice of Superior Proposal (described below), participate in
negotiations regarding such proposal. The Company's Board of Directors shall
not (i) approve or recommend any Third Party Acquisition or (ii) approve or
authorize the Company's entering into any agreement with respect to any
agreement with respect to any such Third Party Acquisition, provided that if
the Company's Board receives a bona fide proposal for a Third Party Acquisition
that the Board determines in its good faith reasonable judgment (based on the
advice of a financial advisor of nationally recognized reputation) provides a
greater aggregate value to the Company and/or the Company's stockholders than
the
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transactions contemplated by the Stock Purchase Agreement (a "Superior
Proposal"), the Board may, to the extent required under its fiduciary duties,
approve or recommend any such Superior Proposal, approve or authorize the
Company's entering into an agreement with respect to such Superior Proposal,
approve the solicitation of additional takeover or other investment proposals
or terminate the Stock Purchase Agreement, in each case at any time after the
fifth business day following notice to the Purchaser (a "Notice of Superior
Proposal") advising the Purchaser that the board has received a Superior
Proposal and specifying the structure and material terms of such Superior
Proposal, and provided that the Superior Proposal continues to be a Superior
Proposal in light of any improved transaction proposed by the Purchaser prior
to the expiration of such five-business-day period.
Director and Officer Liability. The Stock Purchase Agreement provides that
from and after the Closing, the Purchaser shall cause the Company to indemnify
and hold harmless each person who is, or has been at any time prior to the date
of the Stock Purchase Agreement or who becomes prior to the Closing, an officer
or director of the Company or is or was serving at the request of the Company
as a director or officer of any affiliate of the Company, an employee benefit
plan, or a related trust, in respect of acts or omissions occurring prior to
the Closing (the "Indemnified Parties") (including but not limited to the
transactions contemplated by the Stock Purchase Agreement), to the extent
provided under the Company's Certificate of Incorporation, Bylaws and indemnity
agreements between the Company and any of its officers in effect, and, with
respect to the Company's Certificate of Incorporation and Bylaws, shall not
permit the amendment of such provisions in any manner adverse to the
Indemnified Parties for three years after the date of the Stock Purchase
Agreement. For six years after the Closing, the Purchaser shall cause the
Company to maintain its current or substantially equivalent policies of
officers' and directors' liability insurance covering each of the Persons
currently covered by its current policy, or who becomes covered by such policy
prior to the Closing; provided that the Company shall not be obligated to pay
premiums in excess of 150% of the premium to be paid by the Company for such
insurance in the fiscal year ending December 31, 1995, but provided further
that the Company must provide such coverage as may be obtained for 150% of the
premium for such insurance in the fiscal year ending December 31, 1995.
Conditions. The obligations of the Purchaser and of the Company respecting
the sale and purchase of the Issue Shares are conditioned upon (i) the
Company's stockholders having approved the Stockholder Proposals, (ii) no
Governmental Authority having taken action to restrict, in a material manner,
the purchase of the Issue Shares or to impose material adverse terms or
conditions thereon, (iii) all material filings with all Governmental
Authorities required in connection with the Stock Acquisition having been made,
all waiting periods thereunder having expired or been terminated and all
material orders, permits, waivers, authorizations, exemptions or approvals
having been obtained and remaining in effect, and (iv) the Purchaser and the
Company shall have delivered to CFIUS appropriate notification and report forms
pursuant to the Exon-Florio Amendment and satisfactory resolution thereof.
The obligation of the Purchaser to purchase the Issue Shares is further
conditioned upon (i) provision having been made to the satisfaction of
Purchaser that the Company's Board of Directors will be composed of 10 persons
immediately following the Closing, six of whom are to be designees of
Purchaser, one of whom is to be the Company's President and Chief Executive
Officer immediately prior to the Closing and three of whom shall be, if they
are willing to serve, members of the Board of Directors immediately prior to
the Closing who are not otherwise affiliated with the Company or the Purchaser
or any subsidiary of either of them, (ii) the Company having performed in all
material respects its obligations under the Stock Purchase Agreement, (iii) the
Amended Bylaws having been duly authorized, approved and effected, (iv) the
Rights Agreement having been amended by the Company to specifically exclude the
Purchaser and its affiliates from the definition of "Acquiring Person" (as
defined in the Rights Agreement) and to otherwise avoid any adverse
consequences to Purchaser or the Company, including, without limitation, the
occurrence of a "Distribution Date" (as defined in the Rights Agreement) as a
consequence of the transactions contemplated by the Transaction Documents,
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(v) there having been validly tendered and not withdrawn pursuant to the Offer
not less than 18,619,000 Shares, (vi) the Company having delivered, prior to or
concurrently with the Closing, the documents and instruments required to be
delivered by the Company, (vii) except as otherwise contemplated by the Stock
Purchase Agreement and except for the representations and warranties of the
Company set forth in the Stock Purchase Agreement which shall be accurate in
all respects as of the date when made and at and as of the Closing, the
representations and warranties of the Company contained in the Stock Purchase
Agreement which are qualified as to materiality being true and correct and
which are not so qualified being true and correct in all material respects, in
each case, as of the date when made and at and as of the Closing, except that
the Company's financial statements shall continue to be true only as of the
respective dates covered thereby; (viii) the Company having delivered to the
Purchaser a certificate dated as of the Closing and signed by the Chief
Financial Officer and the General Counsel of the Company certifying as to the
accuracy of certain of the representations and warranties of the Company set
forth in the Stock Purchase Agreement and the performance of the obligations
required by the Company to be performed under the Stock Purchase Agreement as
of the Closing; (ix) the Company having secured amendments to or waivers under,
in each case, in form and substance reasonably satisfactory to the Purchaser,
its material credit agreements and arrangements such that none of the
transactions contemplated by the Stock Purchase Agreement or the other
Transaction Documents, will constitute a breach or default of or an event that,
with notice or lapse of time or both would be a breach or default under, such
credit agreements or arrangements; and (x) the Purchaser being satisfied that
certain claims and matters described in the Company Letter, individually,
collectively with each other or collectively with any breaches of
representations and warranties and/or other facts and circumstances which have
not been disclosed as of the date of the Stock Purchase Agreement have not
resulted in, and would not reasonably be expected to result in, a Material
Adverse Effect.
The obligation of the Company to issue and sell the Issue Shares to the
Purchaser is further conditioned upon (i) the Purchaser having performed in all
material respects its obligations under the Stock Purchase Agreement, (ii)
except as otherwise contemplated by the Stock Purchase Agreement, the
representations and warranties of the Purchaser set forth in the Stock Purchase
Agreement which are qualified as to materiality being true and correct and
which are not so qualified, being true in all material respects, as of the date
when made and at and as of the Closing as though newly made at and as of that
time, (iii) the Purchaser having delivered, or be delivering concurrently with
the Closing, the documents and instruments required to be delivered by the
Purchaser pursuant to the Stock Purchase Agreement, (iv) the Purchaser having
delivered a certificate dated as of the Closing and signed by a duly authorized
officer of the Purchaser certifying as to the accuracy in all material respects
of the representations and warranties of the Purchaser and the performance of
the obligations of the Purchaser under the Stock Purchase Agreement and (v) the
Purchaser having accepted for purchase pursuant to the Offer not less than
18,619,000 Shares.
Termination. The Stock Purchase Agreement provides that the Company may
terminate the Stock Purchase Agreement if (i) there has not been a material
uncured breach by the Company of any representation, warranty, covenant or
agreement and there has been a material breach by the Purchaser of any
representation, warranty, covenant or agreement that has not been cured within
ten days' notice of such breach and the Company's intention to terminate, (ii)
upon payment to the Purchaser of $7,023,800 (the "Termination Fee") and either
(a) five business days have elapsed following the Purchaser's receipt of a
Notice of Superior Proposal and the Superior Proposal continues to be a
Superior Proposal in light of any improved transaction proposed by the
Purchaser prior to the expiration of the five-business-day period following
receipt by the Purchaser of such notice, or (b) the Board of Directors of the
Company has withdrawn, modified or changed in an adverse manner its approval or
recommendations of the Offer or other transactions contemplated by the Stock
Purchase Agreement or recommended another offer, or has adopted any resolutions
to effect any of the foregoing to the extent that the Board determines in good
faith, after consultation with and based upon written advice of outside legal
counsel, that a failure to do so would be contrary to its fiduciary
obligations.
8
<PAGE>
The Purchaser may terminate the Stock Purchase Agreement if there has not
been a material uncured breach by the Purchaser of any representation,
warranty, covenant or agreement and there has been a material breach by the
Company of any representation, warranty, covenant or agreement that has not
been cured within ten days' of receipt of written notice of such breach and the
Purchaser's intention to terminate. In addition, the Purchaser may terminate
any or all of its obligations under this Agreement if (a) the Board of
Directors of the Company has withdrawn, modified or changed in a manner adverse
to the Purchaser, its approval or recommendation of the Offer or other
transactions contemplated by the Stock Purchase Agreement or recommended
another offer, or has adopted any resolutions to effect any of the foregoing,
(b) a Third Party Acquisition has occurred or any definitive agreement or
agreement in principle has been executed with respect to a Third Party
Acquisition, (c) the Company does not conduct a stockholders' meeting and take
all reasonable action to obtain stockholder approval of the Stockholder
Proposals, because the Board has determined in good faith, after consultation
with and based upon written advice of outside legal counsel, that taking such
action consistent with the Certificate of Incorporation, Bylaws and applicable
law as may be required would be contrary to its fiduciary obligations, or (d)
the Company does not use all reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things reasonably necessary,
proper or advisable under applicable laws and regulations to cause satisfaction
of the conditions to, and to consummate and make effective, the transactions
contemplated by this Agreement and the other Transaction Documents, because the
Board has determined in good faith, after consultation with and based upon
written advice of outside legal counsel, that taking such action would be
contrary to its fiduciary obligations. The Company shall pay to the Purchaser
the Termination Fee if the Purchaser terminates pursuant to clauses (a), (b),
(c) or (d) of the preceding sentence.
Additionally, either the Purchaser or the Company may terminate the Stock
Purchase Agreement (i) to the extent that performance thereof if prohibited,
enjoined, or otherwise materially restrained by any final, non-appealable
judgment, ruling, order or decree of any Governmental Authority, provided that
the party seeking to terminate its obligations shall have used its best efforts
to remove such prohibition, injunction, or restraint, (ii) if the purchase by
the Purchaser of the Issue Shares and the Offer Shares shall not have been
completed by March 31, 1996 and the failure of such purchase to have been
completed on or before such date did not result from the failure by the party
seeking termination to fulfill in all material respects any undertaking or
commitment that is required to be fulfilled by such party prior to such time,
(iii) if the Company's stockholders do not approve the Stockholder Proposals
(provided that the Company immediately pays to the Purchaser the Termination
Fee if the stockholders did not approve the proposals because of a Superior
Proposal) or (iv) by mutual written consent of the Purchaser and the Company.
Transaction Expenses. The Stock Purchase Agreement provides that, except for
any Termination Fee, each of the parties shall pay its own expenses incurred in
connection with the negotiation and preparation of the Stock Purchase Agreement
and the other Transaction Documents, the performance of its covenants
thereunder, and the effectuation of the transactions contemplated thereby,
including, without limitation, all fees and disbursements of its respective
legal counsel, advisors and accountants. Each of the parties shall indemnify
and hold harmless the other against any claim for fees or commissions of
brokers, finders, agents or bankers retained or purportedly retained by the
indemnitor party in connection with the transactions contemplated by the Stock
Purchase Agreement and the other Transaction Documents.
(ii) MUTUAL NON-DISCLOSURE AGREEMENT
The following summary of terms of the Mutual Non-Disclosure Agreement (as
defined herein) does not purport to be complete and is qualified in its
entirety by reference to the text of the Mutual Non-Disclosure Agreement, a
copy of which is filed as an exhibit hereto and is incorporated herein by
reference.
9
<PAGE>
The parties entered into a mutual non-disclosure agreement on November 25,
1994 (the "Mutual Non-Disclosure Agreement") relating to the consideration of a
possible investment by Purchaser or an affiliate in certain assets of the
Company or in the form of debt or equity in the Company (the "transaction").
The Mutual Non-Disclosure Agreement provides that the Purchaser and the Company
will each disclose to one another certain confidential information to be used
solely for the transaction and that each will protect such confidential
information from unauthorized use and disclosure. The Mutual Non-Disclosure
Agreement further provides, among other things, that (i) the disclosure of
confidential information shall only be to responsible employees with a bona
fide need to know, (ii) each party shall not disclose such confidential
information to third parties, including consultants, without the prior written
permission of the disclosing party, (iii) each party may disclose such
confidential information to the extent required by law, provided the receiving
party uses reasonable efforts to give the disclosing party reasonable notice of
such required disclosure, (iv) each party will promptly return all tangible
items containing or consisting of the disclosing party's confidential
information upon the disclosing party's written request, (v) each party will
have the right to an immediate injunction enjoining any breach of the Mutual
Non-Disclosure Agreement, as well as the right to pursue any and all other
rights and remedies available at law or in equity and (vi) it will remain in
effect for three years from the date of the last disclosure of confidential
information.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Board of Directors.
At a meeting held on July 17, 1995, the Board unanimously (i) determined that
the Stock Purchase Agreement and the transactions contemplated thereby are fair
to, and in the best interests of, the holders of Common Stock, and the Company,
respectively, (ii) approved and adopted the Stock Purchase Agreement, the other
Transaction Documents and the transactions contemplated thereby, and (iii)
recommended that the stockholders of the Company accept the Offer and tender
their shares pursuant to the Offer. Accordingly, the Board unanimously
recommends that the stockholders of the Company tender their shares of Common
Stock pursuant to the Offer. A copy of the Company's letter dated July 21, 1995
to stockholders is filed as an exhibit hereto and is incorporated herein by
reference.
(b) Background; Reasons for the Recommendations.
The Company's primary business has been the consumer electronics business in
the United States. This business in the United States has been marked by
intense competition, with the Company's major competitors being significantly
larger foreign owned companies, 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. Despite the Company's
significant cost reduction measures, the Company's achievement of record unit
sales in 1994, recent growth in the Company's market share in the United
States, significant sales growth in Latin America and its growing cable
products business, the Company has incurred losses in all but one of the years
since 1985.
As part of its strategy to return to profitability, the Company developed a
plan in 1994 to expand and modernize its Melrose Park, Illinois color picture
tube plant by adding a fifth color picture tube production line, capable of
handling larger, wider-screen tubes, and by increasing automation on existing
production lines. In seeking the $150 million funding necessary for this
program, the Company initiated discussions in June 1994 with the Purchaser with
respect to a possible joint venture involving the Melrose Park plant. At a
meeting on November 15, 1994 among Jerry K. Pearlman, Chairman of the Company
(and at the time its chief executive officer), certain other officers of the
Company, and Mr. Cha Hong (John) Koo, President of the Purchaser, and certain
other officers of the Purchaser, the Company suggested that, as an alternative,
the Purchaser consider an equity investment in the Company. However, the
Purchaser indicated that at that time it was interested only in the joint
venture.
10
<PAGE>
The Company and the Purchaser executed a Mutual Non-Disclosure Agreement dated
as of November 25, 1994. Numerous discussions concerning the possible joint
venture were held between the Purchaser and the Company over the next several
months. In late March 1995, the Purchaser submitted a proposal to the Company
for the joint venture, and the parties subsequently discussed a number of
revised proposals, with the last proposal being submitted to the Company at the
June 27, 1995 meeting of the Company's Board of Directors described below.
The Company's selection of the Purchaser as a possible joint venture partner
grew out of a long-standing business relationship with the Purchaser, as well
as the Company's high regard for the Purchaser's manufacturing and automation
expertise. This relationship began in the mid-1970's when the Purchaser
produced radios for the Company. Since then the Company has purchased
electronic components from the Purchaser and in recent years the Company has
produced color picture tubes and other components for the Purchaser, and the
Purchaser has produced VCRs and TV-VCR combination products for the Company. In
1991, the Purchaser purchased 1,450,000 shares of newly issued shares of the
Company's Common Stock. At that time, the Company and the Purchaser also
entered into a number of additional technology agreements, providing for, among
other things, expanded cooperative engineering efforts on products, including
high definition television.
In January 1995, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") began assisting the Company in exploring possible strategic
alternatives, especially focusing on alternatives for raising equity capital to
fund the Melrose Park expansion and modernization program.
On February 23, 1995, the Company announced that, effective on April 24, 1995
(the date of its annual meeting of stockholders), Mr. Albin F. Moschner would
become President and Chief Executive Officer and Mr. Pearlman would retire,
remaining as Chairman until December 31, 1995.
In March and early April, 1995, the Company began the process for a public
equity offering, but this process ended in mid-April in light of the Company's
first quarter results and its expectations for the year.
In April 1995, the Chairman of the Executive Committee of the Board of the
Company, Mr. T. Kimball Brooker, was contacted by representatives of a non-
United States entity involved in the consumer electronics business (the "Other
Consumer Products Entity") which had an interest in a possible change of
control transaction involving the Company.
On April 24, 1995, the Company retained Merrill Lynch in connection with
either (i) a possible offering by the Company of equity or equity-linked
securities, (ii) a possible investment by the Purchaser in one of the Company's
operating facilities or businesses or in the Company or (iii) another
alternative strategic transaction involving the sale of an interest in, or all
of, the Company's stock or assets.
On April 28, 1995, the Company entered into a confidentiality agreement with
the Other Consumer Products Entity and subsequently provided such entity with
confidential information concerning the Company. The confidentiality agreement
provided for a two-week period ending May 15, 1995 during which the Company
agreed that it would not sell, or enter into discussions with any third party
regarding the sale of, stock of the Company. The confidentiality agreement
permitted the Company to continue discussions with the Purchaser with respect
to a possible equity investment by the Purchaser in the Company's picture tube
operations. The confidentiality agreement also contained "standstill"
provisions which precluded such entity for a period of 18 months from, among
other things, acquiring shares of Common Stock of the Company without the
Company's consent, provided that such provisions would terminate if the Company
entered into negotiations with a third party for the issue and sale of 25% or
more of the Company's stock.
In May and June 1995, the Company and its financial and legal advisors had
numerous meetings and telephone calls with representatives of the Other
Consumer Products Entity at which various matters concerning the Company, the
possible synergies of a combination with the Other Consumer
11
<PAGE>
Products Entity and the structure and terms of a possible transaction were
discussed. The Other Consumer Products Entity proposed a transaction which was
rejected by the Company, which countered seeking a higher price. Neither the
proposed transaction nor the counterproposal involved payment to the Company's
stockholders, and the proposal was at a per share value less than the Offer
Price. The counterproposal was not accepted.
On May 16, 1995, after the expiration of the two-week exclusivity period
afforded to the Other Consumer Products Entity, Mr. Albin F. Moschner,
President and Chief Executive Officer of the Company, spoke with Mr. Koo and
advised him that the Company had been approached on an unsolicited basis by
another entity (not identified to Mr. Koo) about a possible transaction that
would involve a change of control of the Company and that because of the
Company's long relationship with the Purchaser, Mr. Moschner wanted to inform
Mr. Koo of that fact.
On May 20 and May 22, 1995, certain executives of the Company met with
certain executives of the Purchaser and representatives of its financial
advisor, Salomon Brothers Inc. The Purchaser indicated that it would consider
making a proposal to the Company concerning a possible investment in the
Company, as well as proceeding with the joint venture.
On May 23, 1995, the Executive Committee of the Company's Board met with
Company executives, Merrill Lynch and the Company's legal advisors to review
the status of negotiations with the Other Consumer Products Entity and the
discussions with the Purchaser. The Executive Committee authorized discussions
to continue with both parties and authorized Merrill Lynch to contact two
"financial buyers" to ascertain their interest in a private equity investment.
On May 31, June 1 and June 2, 1995, the Purchaser and its legal and financial
advisors met with various Company executives to discuss due diligence matters.
Following these meetings, the Company was advised that the Purchaser would need
several weeks before it could get back to the Company with any proposal. The
Company advised the Purchaser of its desire to have a proposal before the
Company's regularly scheduled board meeting on June 27, 1995.
On June 20 and June 21, 1995, Mr. Moschner met with representatives of the
two financial buyers contacted by Merrill Lynch in early June. The
representatives of one of the entities indicated little interest in a
transaction at that time. The representatives of the other entity indicated
that they were unfamiliar with the consumer electronics industry and would
require a lengthy review of the industry and the Company before they could
decide whether they had any interest in a transaction involving the Company.
On June 22, 1995, legal and financial advisors for both the Company and the
Purchaser met to discuss the manner in which the Purchaser's proposal would be
presented to the Company.
On June 27, 1995, Mr. Pyong Won (Peter) Suh, Executive Vice President and
Chief Technology Officer of the Purchaser, two other officers of the Purchaser,
and representatives of Salomon Brothers Inc and of the Purchaser's legal
advisors appeared at a regular meeting of the Company's Board of Directors. Mr.
Suh presented two alternative proposals--the first proposal being a tender
offer by the Purchaser to the Company's stockholders for 17,863,000 shares of
Common Stock at $10.00 per share in cash, the purchase of 7,882,000 shares of
Common Stock from the Company at $7.875 per share in cash and the purchase of
10,118,000 shares of Common Stock from the Company at $10.00 per share in cash;
the second proposal being the establishment of a joint venture to own the
Melrose Park picture tube plant. Following this presentation and a discussion
with Merrill Lynch and the Company's legal advisors, the Board of Directors
authorized the Company's officers to commence negotiations with the Purchaser
concerning the first proposal. The Company notified the Other Consumer Products
Entity that its obligations under the standstill provisions contained in the
April 28, 1995 confidentiality agreement were terminated as a result of
negotiations and offered to provide updated financial information to the extent
such entity continued to have an interest in pursuing discussions. No such
information has been requested.
12
<PAGE>
Following the June 27 Board meeting, Mr. Moschner and Mr. Suh and their
respective financial advisors met to discuss the terms of the Purchaser's
proposal. On June 28, 1995, certain executives of the Company and of the
Purchaser met to discuss the synergies that could be expected to result from a
closer relationship between the Company and the Purchaser, and the Company
provided the Purchaser with updated financial information about the Company.
On July 11, 1995, the Purchaser delivered a revised proposal to the Company
wherein it proposed to make a tender offer to the Company's stockholders for
18,619,000 shares of Common Stock of the Company at $10.00 per share in cash
and to purchase 16,500,000 shares of Common Stock from the Company for $10.00
per share in cash.
On July 12, 1995, the Company's Board of Directors held a special meeting to
consider the revised proposal. Following a presentation by Merrill Lynch, the
Board authorized the Company's officers to commence the negotiation of a
definitive agreement with the Purchaser. During the next several days,
discussions were held on a range of legal issues and the terms and conditions
of the definitive agreement were negotiated subject to approval by the
Company's Board of Directors.
On July 17, 1995, a special meeting of the Board of Directors was held at
which the Board reviewed the definitive agreement in detail and also considered
the factors described below, Merrill Lynch delivered its written opinion to the
Board, and the Board unanimously approved the terms of the Purchaser's Offer
and investment as described above. On the same day, following such Board
approval, the Company and the Purchaser entered into the Stock Purchase
Agreement and publicly announced their agreement. A copy of the written opinion
of Merrill Lynch delivered to the Board, which sets forth certain assumptions
made, matters considered and limits of the review by Merrill Lynch in rendering
such opinion, is attached as an exhibit hereto. STOCKHOLDERS ARE URGED TO READ
THE OPINION CAREFULLY IN ITS ENTIRETY. The Board was aware that Merrill Lynch
became entitled to certain of the fees described in Item 5 in connection with
its engagement by the Company upon the consummation of such transactions.
In determining to make its recommendations, the Board considered a number of
factors, including:
(i) The oral and written presentations of Merrill Lynch and the written
opinion of Merrill Lynch to the effect that, from a financial point of
view, the proposed consideration to be received by the Company and its
stockholders in the proposed transactions, taken as a whole, is fair to the
Company and such stockholders;
(ii) The fact that the Company's stockholders will be entitled to receive
$10.00 per share in cash for at least a portion of their Common Stock,
while having the opportunity to retain an equity interest in a strengthened
Company;
(iii) The fact that the $10.00 per share to be paid pursuant to the Offer
and for the Issue Shares represents a significant premium over the recent
trading prices of the Common Stock;
(iv) The Board's familiarity with the financial condition, results of
operations, business, technology, prospects and strategic objectives of the
Company and the conditions of the consumer electronics industry;
(v) The high regard of management for the integrity and operating ability
of the Purchaser;
(vi) The fact that the additional financing from the Issue Shares will
permit the Company to complete its planned expansion and modernization
program for the Melrose Park picture tube plant, and the Board's belief
that such program is a necessary element to the Company's efforts to
achieve and sustain future profitability;
(vii) The fact that the Board concluded, based in part on the advice of
its financial advisors, that alternative financing of similar magnitude to
the Purchaser's proposal was not reasonably available at the current time;
13
<PAGE>
(viii) The views of management and the Company's financial advisors as to
the unlikelihood of a superior transaction, and the ability of the Company
to terminate the Stock Purchase Agreement (upon payment of the Termination
Fee) to accept a superior transaction if one were proposed;
(ix) The fact that the Board concluded that the transactions contemplated
by the Stock Purchase Agreement, which would substantially strengthen the
Company's financial position, allow for increased synergies that would
benefit the Company and provide an opportunity for the Company's
stockholders to receive a cash premium over recent market prices for some
of their shares, would provide greater benefits for the Company and its
stockholders than for the Company to remain independent;
(x) The operational and commercial benefits to the Company (and the
public minority holders) from being able to operate from a strengthened
financial position and from synergies expected to result from the
relationship with the Purchaser;
(xi) The fact that the Purchaser acknowledged that as majority
stockholder of the Company after the Purchaser acquires the Offer Shares
and the Issue Shares it will have fiduciary duties to the public minority
holders and that the Purchaser has agreed to elect three directors
unaffiliated with the Purchaser or the Company to the Company's Board of
Directors, tempered by the fact that if the Purchaser desires to acquire
the remainder of the outstanding equity of the Company, under current
Delaware law the Company's Board of Directors would not have any obligation
to seek offers from third parties; and
(xii) The recommendation of management (considered in light of the
matters described or referred to under Item 3 above).
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement dated as of April 24, 1995 between the Company
and Merrill Lynch, the Company has paid Merrill Lynch a fee of $250,000 upon
Merrill Lynch's rendering of its opinion described under Item 4 above. The
Company has also agreed to pay Merrill Lynch upon closing of the Offer and the
purchase of the Issue Shares a fee equal to 1% of the aggregate consideration
paid to the Company and the stockholders in connection therewith (less
$250,000). Assuming a purchase of all the Offer Shares and the Issue Shares at
a price of $10.00 per share, Merrill Lynch will receive fees aggregating
approximately $3,511,900. The Company also agreed to indemnify and hold
harmless Merrill Lynch and its affiliates and their respective directors,
officers, employees and controlling persons against certain liabilities,
including liabilities under the federal securities laws, arising out of or in
connection with its rendering of services under such letter. If such
indemnification is not available, the Company agreed to contribute to the
losses, claims, damages and liabilities involved in the proportion that the
relevant financial benefit to the Company and its stockholders bears to Merrill
Lynch's relevant financial benefit. The Company has also agreed to reimburse
Merrill Lynch for certain out-of-pocket expenses.
Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to security holders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Common Stock have been effected during the past 60
days by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge (i) no executive officer of the
Company currently intends to tender to the Purchaser any Common Stock over
which he has sole dispositive power, and (ii) each director and affiliate of
the Company currently intends to tender to the Purchaser all Common
14
<PAGE>
Stock over which he or she has sole dispositive power, except for the Common
Stock held by such person(s) which, if tendered, could cause such person(s) to
incur liability under the provisions of Section 16(b) of the Exchange Act, and
the Common Stock underlying stock options, if any, held by such persons, and
except for shares of Common Stock held by directors T. Kimball Brooker, Ilene
S. Gordon and Andrew McNally, IV, who currently intend to retain their shares,
and directors David H. Cohen and Charles Marshall, who have not yet decided.
The foregoing does not include any Common Stock over which, or with respect to
which, any such executive officer, director, affiliate or subsidiary acts in a
fiduciary or representative capacity or is subject to the instructions of a
third party with respect to such tender.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY
(a) Except as set forth in Item 3(b) above (the provisions of which are
hereby incorporated herein by reference), no negotiation is being undertaken or
is underway by the Company in response to the Offer which relates to or would
result in (1) an extraordinary transaction such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (2) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of the
Company; (3) a tender offer for or other acquisition of securities by or of the
Company; or (4) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in Item 3(b) above (the provisions of which are
hereby incorporated herein by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to
in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
15
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO.
---------
<C> <S>
Exhibit 1 Stock Purchase Agreement, dated as of July 17, 1995, by and between
Zenith Electronics Corporation and LG Electronics Inc.(1)
Exhibit 2 Amendment to Rights Agreement, dated as of July 17, 1995, by and
between Zenith Electronics Corporation and Bank of New York.(1)
Exhibit 3 Mutual Non-Disclosure Agreement, dated as of November 25, 1994 by
and between Zenith Electronics Corporation and Goldstar Co., Ltd.
Exhibit 4 Letter to Stockholders of Zenith Electronics Corporation, dated July
21, 1995.(2)
Exhibit 5 Press Release issued by Zenith Electronics Corporation on July 17,
1995.(1)
Exhibit 6 Sections of the Company's Notice of Annual Meeting and Proxy
Statement dated March 24, 1995 entitled "Board of Directors,
Committees and Directors' Compensation," "Security Ownership of
Certain Beneficial Owners," "Security Ownership of Management,"
"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."
Exhibit 7 Opinion of Merrill Lynch.(2)
</TABLE>
- --------
(1) Incorporated by reference to the exhibits filed with the Company's Current
Report on Form 8-K dated July 17, 1995.
(2) Included in copies mailed to stockholders.
16
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Zenith Electronics Corporation
/s/ Albin F. Moschner
By: _________________________________
Name: Albin F. Moschner
Title:President and Chief
Executive Officer
Dated: July 21, 1995
17
<PAGE>
MUTUAL NON-DISCLOSURE AGREEMENT
--------------------------------
THIS AGREEMENT is made as of the 25th day of November, 1994, between GOLDSTAR
CO., LTD. and ZENITH ELECTRONICS CORPORATION.
In order to pursue the mutual business purpose specified in Exhibit A (the
"Business Purpose"), the parties recognize that there is a need to disclose to
one another certain confidential information of each party to be used only for
the Business Purpose and to protect such confidential information from
unauthorized use and disclosure.
In consideration of the other party's disclosure of such information, each
party agrees as follows:
1. This Agreement will apply to all confidential and proprietary information
disclosed by one party to the other party, including information listed in
Exhibit A and other information which the disclosing party identifies in
writing as confidential before or within thirty (30) days after disclosure
to the receiving party ("Confidential Information").
2. Each party agrees (i) to hold the other party's Confidential Information
in strict confidence, (ii) not to disclose such Confidential Information to
any third parties, and (iii) not to use any Confidential Information for any
purpose except for the Business Purpose. Each party may disclose the other
party's Confidential Information to its responsible employees with a bona
fide need to know, but only to the extent necessary to carry out the
Business Purpose. Each party agrees to instruct all such employees not to
disclose such Confidential Information to third parties, including
consultants, without the prior written permission of the disclosing party.
3. Confidential Information will not include information which:
(i) is now, or hereafter becomes, through no act or failure to act on the
part of the receiving party, generally known or available to the public;
(ii) was acquired by the receiving party before receiving such information
from the disclosing party and without restriction as to use or disclosure;
(iii) is hereafter rightfully furnished to the receiving party by a third
party, without restriction as to use or disclosure;
(iv) is information which the receiving party can document was
independently developed by the receiving party;
(v) is required to be disclosed pursuant to law, provided the receiving
party uses reasonable efforts to give the disclosing party reasonable
notice of such required disclosure; or
(vi) is disclosed with the prior written consent of the disclosing party.
<PAGE>
4. Each party agrees not to remove any of the other party's Confidential
Information from the premises of the disclosing party without the disclosing
party's prior written approval.
5. Upon the disclosing party's request, the receiving party will promptly
return to the disclosing party all tangible items containing or consisting of
the disclosing party's Confidential Information and all copies thereof.
6. Each party recognizes and agrees that nothing contained in this
Agreement will be construed as granting any rights to the receiving party, by
license or otherwise, to any of the disclosing party's Confidential Information
except as specified in this Agreement.
7. Each party acknowledges that all of the disclosing party's
Confidential Information is owned solely by the disclosing party (or its
licensers) and that the unauthorized disclosure or use of such Confidential
Information would cause irreparable harm and significant injury, the degree of
which may be difficult to ascertain. Accordingly, each party agrees that the
disclosing party will have the right to obtain an immediate injunction enjoining
any breach of this Agreement, as well as the right to pursue any and all other
rights and remedies available at law or in equity for such a breach.
8. This Agreement will be construed, interpreted, and applied in
accordance with the laws of the State of California (excluding its body of law
controlling conflicts of laws). Subject to terms and conditions regarding the
removal of Confidential Information as set forth under Section 4, this Agreement
and Exhibit A attached hereto are the complete and exclusive statement regarding
the subject matter of this Agreement and supersede all prior agreements,
understandings and communications, oral or written, between the parties
regarding the subject matter of this Agreement.
9. This Agreement will remain in effect for three (3) years from the date
of the last disclosure of Confidential Information, at which time it will
terminate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers or representatives.
GOLDSTAR CO., LTD. ZENITH ELECTRONICS CORPORATION
/s/ Ki Song Cho /s/ Kell B. Benson
- ------------------------------ -------------------------------
Name: KI SONG CHO Kell B. Benson
Title: EXECUTIVE DIRECTOR Senior Vice President-Finance
CORPORATE PLANNING and Chief Financial Officer
AND COORDINATION
GOLDSTAR CO., LTD.
<PAGE>
MUTUAL NON-DISCLOSURE AGREEMENT
-------------------------------
GOLDSTAR CO., LTD.
------------------
AND
---
ZENITH ELECTRONICS CORPORATION
------------------------------
Exhibit A
---------
The mutual business purpose of the Agreement is consideration of a possible
investment by GoldStar or an affiliate in certain assets of Zenith or in the
form of debt, or equity in Zenith.
As used herein, (a) "Information" means information regarding either company
or any of its subsidiaries or their respective assets or operations which is
furnished to you, directly or indirectly, by that company or its
representatives, (b) "Affiliate" means any individual, partnership, corporation
or other entity or enterprise (i) directly or indirectly controlling a party,
(ii) directly or indirectly controlled by a party, or (iii) under direct or
indirect common control with a party.
<PAGE>
[LOGO--ZENITH ELECTRONICS CORPORATION]
ZENITH ELECTRONICS CORPORATION [_] 1000 MILWAUKEE AVENUE [_] GLENVIEW,
ILLINOIS 60025-2493
ALBIN (AL) F. MOSCHNER
PRESIDENT AND
CHIEF EXECUTIVE
OFFICER
July 21, 1995
To Our Shareholders:
On July 17, 1995, the Board of Directors of Zenith Electronics Corporation
agreed, subject to shareholder approval, to a transaction which will result in
LG Electronics Inc. (LGE) acquiring controlling interest in the company for
$351 million. LGE, based in Seoul, Korea, is a leading international
manufacturer and distributor of a wide variety of consumer electronics,
including televisions, VCRs, multi-media and magnetic media products and home
audio products.
The definitive agreement between the companies calls for LGE to tender for
18.619 million shares of Zenith common stock for $10 per share commencing
today. Pending the successful completion of the tender offer, LGE has agreed to
acquire 16.5 million newly issued Zenith common shares, also at $10 per share.
Completion of the tender offer and issuance of the new shares require Zenith
shareholder approval. The transaction also must be approved by certain
governmental and regulatory agencies in the U.S. and Korea. LGE currently owns
1.45 million shares, so at the close of the new transactions, LGE will own
57.7% of Zenith or 36.569 million shares.
The transaction represents both a financial and strategic opportunity for
Zenith. The LGE investment supports the growth of the Zenith brand by providing
capital needed to strengthen our competitive position in North America and
around the world. The Company intends to use the $165 million of LGE's invested
capital to expand and modernize capacity at our color picture tube plant in
Melrose Park, Illinois, and to support our growing Network Systems business. In
addition, we believe the relationship creates potentially significant
technology, manufacturing, purchasing, marketing and distribution synergies
which we can leverage to enrich our product lines, reduce costs and gain access
to new markets.
The investment by LGE builds on a 20-year relationship between our two
companies which began with LGE producing radios for Zenith in the mid-1970s.
Since then, Zenith has produced picture tubes and other components for LGE and
LGE has supplied VCRs and TV-VCRs to Zenith. In recent years, the companies
have worked cooperatively on the development of HDTV-related products, an area
of technology advancement that promises significant growth in the years ahead.
The LGE-Zenith alliance should augment those prospects through combined
distribution potential and increased advertising and promotion capacity.
Zenith Electronics Corporation will continue to operate separately, and I will
continue to lead the management team. However, the Company fully expects to
benefit from a collaborative effort with LGE management--an effort which has
already begun and which allows us to draw upon their substantial manufacturing
and overseas marketing expertise.
After the transactions, Zenith will have approximately 63.5 million shares
outstanding. The shares not owned by LGE will continue to trade on the New York
Stock Exchange. As a result, Zenith shareholders will continue to participate
in the long term growth prospects for the company. We believe these prospects
will be enhanced by the added financial and strategic resources LGE offers
Zenith.
The Board of Directors of Zenith Electronics Corporation unanimously supports
the proposed transaction. The Board has reviewed the offer and believes it to
be fair and in the best interests of all Zenith shareholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT ALL
STOCKHOLDERS ACCEPT LGE'S OFFER AND TENDER THEIR SHARES
The recommendation of the Board, including a description of matters it
considered, is included in the accompanying Schedule 14D-9. LGE's tender will
begin on July 21, 1995 and will expire on September 19, 1995, unless extended.
Please review LGE's Offer to Purchase and the related Letter of Transmittal for
the procedure for tendering shares. I urge you to read them carefully.
Very truly yours,
[SIGNATURE OF ALBIN F. MOSCHNER]
<PAGE>
BOARD OF DIRECTORS, COMMITTEES AND DIRECTORS' COMPENSATION
To permit the Board of the Company to more efficiently discharge its duties,
the Company has four standing Board Committees: the Executive Committee; the
Audit Committee; the Organization and Compensation Committee; and the Nominating
Committee. The entire membership of each of these committees, including the
Chairman, consists of independent directors. Committee membership and functions
are set out below.
The Executive Committee, which currently consists of Messrs. Brooker
(Chairman), McNally and Willmott, met eight times in 1994. When the Board is
not in session, the Executive Committee has all of the
<PAGE>
authority of the Board except with respect to certain matters such as amendments
of the Restated Certificate of Incorporation or by-laws, mergers, dispositions
of substantially all of the assets of the Company, dissolution of the Company,
declaration of dividends or the election, compensation or removal of officers of
the Company or members of the Committee. In addition to the aforesaid authority,
the functions of the Executive Committee are to review and provide advice on
financial issues, review forecasts, budgets and financing plans, approve terms
and conditions of any debt, equity or other financing, review proposed agendas
for meetings of the Board and determine the form and scope of historical and
forward-looking financial data and the frequency with which such data is
supplied to the Board. The Executive Committee meets with management during the
period between regular board meetings.
The Audit Committee of the Board of Directors, which currently consists of
Messrs. McNally (Chairman), Beckner Marshall and Ms. Gordon, met three times in
1994. The Committee nominates the Company's independent auditors and reviews
the auditing engagement, the fees charged by the independent auditors and the
Company's internal auditing program.
The Organization and Compensation Committee, which currently consists of
Messrs. Willmott (Chairman), Cohen and Brooker, met three times in 1994. The
Committee establishes compensation policies, as well as salary ranges, salaries
and incentive awards for executives. In addition, the Committee approves
employment contracts and authorizes grants of stock and stock options under
Zenith stock incentive plans.
The Nominating Committee, which currently consists of Messrs. Cohen
(Chairman), Willmott and Ms. Gordon, met once in 1994. The duties of the
Nominating Committee are to review Board membership requirements, review
potential candidates and propose nominees for the Board. The Committee will
consider nominees recommended by stockholders if such recommendations are
submitted in writing, on a timely basis as provided in the Company's by-laws,
accompanied by a description of the proposed nominees' qualifications and other
relevant biographical information and an indication of the consent of the
proposed nominee.
The Company's Board of Directors met eight times during 1994. All of the
incumbent directors attended 100% of the meetings of the Board and of the
committees of which they were members except Mr. Beckner who attended fewer than
75% of the meetings due to illness.
Directors of the Company who are also employees receive no remuneration for
serving on the Board. Directors who are not employees are compensated at the
rate of $18,000 per year, payable in quarterly installments, plus 1,000 shares
of Company common stock per year to be issued annually on the first Tuesday of
December, plus an option to purchase 2,000 shares of Company common stock per
year to be issued annually on the day following the annual meeting of
stockholders at the market price on such date. The issuance of shares and
options are provided for in the Non-Employee Directors' Stock Plan approved by
stockholders in 1992. The Chairman of the Audit Committee and the Organization
and Compensation Committee each receives $2,000 annually for serving in those
capacities and the Chairman of the Executive Committee receives $25,000
annually. In addition, non-employee directors receive $1,000 for each Board
meeting and for each Committee meeting attended, plus reimbursement of expenses.
In 1987 the Company adopted a Contingent Compensation Plan for non-employee
directors which was replaced by the Non-Employee Directors' Stock Plan in 1992.
The number of phantom stock appreciation units granted to each named non-
employee director in previous years under the Contingent Compensation Plan (all
of which are vested) are as follows: Mr. Beckner, 5,000; Mr. Brooker, 3,000;
Messrs. Cohen, Marshall, McNally and Willmott, 2,000. The units are valued at
the closing price of the Company's common stock on the date of grant.
Participants are paid for each unit the amount by which the average price of a
share of the Company's common stock over the 20 trading days immediately
preceding the distribution date exceeds the grant price. Distributions may be,
at the election of the participant, in a lump sum, in five annual installments
or ten annual installments commencing on the distribution date. Participants
may elect a distribution date which is two years from the date of grant, or 30
days after the participant ceases to be a director, or a specified date not
earlier than the participant's 65th birthday. No amounts have been distributed
to current directors pursuant to the Contingent Compensation Plan.
Directors also participate in the Directors' Retirement Plan which provides
for an annual retirement benefit of $11,000, for directors who have served on
the Board for five years who retire after the age of 62. For
<PAGE>
purposes of the Directors' Retirement Plan, years of service on the Board do not
include periods during which the director is a salaried officer of the Company
or a subsidiary. The benefit is payable in equal quarterly installments during
the director's lifetime for a period equal to but not in excess of the number of
years of service on the Board. In the event of a change in control of the
Company, directors otherwise entitled to retirement benefits under the
Directors' Retirement Plan are entitled to receive, in a lump sum, the
discounted present value of those benefits.
Directors who are not employees also have change in control agreements with
the Company which provide that in the event of a change in control of the
Company, the directors will be paid a lump sum amount equal to the quarterly
installments of their annual fee from the date of the change in control to the
next scheduled annual meeting. "Change in control" for purposes of the
aforesaid agreements and the Directors' Retirement Plan is defined as the
acquisition by a third party of shares entitled to cast 25% or more of the votes
that may be cast for directors, or a tender offer or other transaction resulting
in the persons who were directors prior to the transaction ceasing to constitute
a majority of the Board.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following lists the beneficial ownership of the Company's common stock, of
all persons who are known by the Company, as of March 1, 1995, to beneficially
own more than five percent of the outstanding shares of the common stock of the
Company:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS/(1)/
------------------------------------ ----------------------- -------------
<S> <C> <C>
FMR Corp. .................................................. 4,180,655/(2)/ 9.2%
82 Devonshire Street
Boston, Massachusetts 02109
Reliance Financial Services Corporation .................... 3,688,524/(3)/ 7.5%
55 East 52nd Street
New York, New York 10055
The Zenith Profit Sharing Trust ............................ 3,056,426/(4)/ 6.7%
The Bank of New York, Trustee
101 Barclay Street
New York, New York 10286
</TABLE>
__________
/(1)/ Percentages based on shares issued and outstanding on March 1, 1995.
/(2)/ The Company has received from FMR Corp. (an affiliate of Fidelity
Management & Research Company) a Schedule 13G which states that as of
December 31, 1994 it had sole voting power with respect to 6,125 shares
and sole dispositive power with respect to all 4,180,655 shares.
/(3)/ The Company has been informed that Reliance Financial Services
Corporation, as of December 31, 1994, had sole voting and dispositive
power with respect to all shares based on the assumed conversion of 8.5%
Senior Subordinated Convertible Debentures due 2000 (the Debentures). The
percent of class is calculated assuming that Reliance Financial Services
Corporation is the only holder of the Debentures that converts such
Debentures.
/(4)/ The Company has been informed by The Bank of New York that as of March
1, 1995 it shares voting and investment power with respect to all shares
held as Trustee of The Zenith Profit Sharing Trust.
SECURITY OWNERSHIP OF MANAGEMENT
The directors and executive officers of the Company as a group beneficially
own 1.5% of the Company's common stock. No director or nominee for election as
a director or executive officer owns in excess of 1% of the Company's common
stock. Included in the following table is the number of shares of the Company's
common stock beneficially owned by each director of the Company and each nominee
for election as a
<PAGE>
director of the Company, each of the executive officers named in the Summary
Compensation Table below and the directors and all executive officers of the
Company as a group as of March 1, 1995.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
---------------------------------- ----------------------------------
OBTAINABLE OBTAINABLE
THROUGH STOCK THROUGH STOCK
OPTION OPTION
NAME OF BENEFICIAL OWNER OWNED/(1)/ EXERCISE/(2)/ NAME OF BENEFICIAL OWNER OWNED/(1)/ EXERCISE/(2)/
- ------------------------- ---------------- ---------------- ------------------------ -------------- ------------------
<S> <C> <C> <C> <C> <C>
Harry G. Beckner ........ 4,300 6,000 Albin F. Moschner ...... 59,810/(3)/ 52,500
T. Kimball Brooker ...... 9,000 6,000 Jerry K. Pearlman ...... 108,455/(3)/ 187,500
David H. Cohen .......... 4,500 6,000 Peter S. Willmott ...... 24,000 6,000
Ilene S. Gordon ......... 2,000 2,000 Kell B. Benson ......... 3,957 26,000
Charles Marshall ........ 9,000 6,000 John Borst, Jr. ........ 4,705 33,596
Gerald M. McCarthy ...... 38,734/(3)/ 79,500 Michael J. Kaplan ...... 6,863 43,500
Andrew McNally IV ....... 6,000 6,000 Directors and All
Executive Officers
as a Group
(14 persons) ........... 279,619 427,000
</TABLE>
- ----------
/(1)/ The persons named in the table have sole voting and investment power
with respect to all shares shown as beneficially owned by them except for
the restricted shares referred to in note 3.
/(2)/ Includes shares of common stock which, as of March 1, 1995, were
subject to outstanding stock options exercisable within 60 days.
/(3)/ Includes restricted shares issued as described in Employment Agreements
section below.
<PAGE>
EMPLOYMENT AGREEMENTS
In connection with Mr. Pearlman's retirement as Chief Executive Officer on
April 25, 1995, the Company and Mr. Pearlman have agreed to enter into a
consulting agreement pursuant to which Mr. Pearlman will perform consulting
services for the Company and agree not to compete with the company during the
period commencing on May 1, 1995, the day following his ceasing to be an
employee of the Company, and ending on March 31, 2004. Pursuant to this
agreement, Mr. Pearlman will continue as Chairman and a director of the Company
and will be available to the Company on a full-time basis until December 31,
1995. Thereafter, he will be available to the Company for up to 10 days during
any calendar quarter. Mr. Pearlman's noncompetition agreement will be on a
worldwide basis and extend to all consumer home entertainment electronic
hardware industries in which the Company currently competes. In the event that
the Company does not utilize Mr. Pearlman's consulting services for more than 10
days during any 12-month period after May 1, 1998, his noncompetition agreement
will terminate. As compensation for his consulting services, Mr. Pearlman will
receive $18,000 per month, less the cost of certain medical and dental insurance
premiums, during the term of the agreement and such payments would be
accelerated in the event of Mr. Pearlman's death prior to the expiration of the
agreement. An amount equal to the present value of the unpaid consulting
compensation will be deposited into a grantor trust in three installments on
January 2 and May 1, 1996 and on May 1, 1997 and the monthly payments of such
consulting compensation will be made to Mr. Pearlman as they become due. In
addition, Mr. Pearlman's stock options will be amended so that his unexercisable
options will become fully exercisable upon his retirement and the exercise
period of all of his unexercised options will be extended from two years to
three years following retirement, as permitted by the 1987 Zenith Stock
Incentive Plan. Mr. Pearlman's restricted stock will be forfeited upon his
retirement. The amount of approximately $4,600 per month payable to Mr.
Pearlman pursuant to the Company's Supplemental Executive Retirement Income Plan
over a 15-year period commencing May 1, 1995 will be increased so that he will
be paid during such period at the rate of $6,480 per month. Under the
agreement, Mr. Pearlman will be eligible to receive a pro rata share of his
incentive compensation for 1995, provided that the Company achieves its earnings
target for such year, and, in the discretion of the Board of Directors, he may
be awarded a special bonus in connection with projects in which he participates
during the consulting period in 1995. In addition, the Company automobile
currently used by Mr. Pearlman will be transferred to him on January 1, 1996 and
he will be provided certain life insurance coverage during the consulting
period.
Mr. Pearlman and Mr. McCarthy entered into employment agreements with the
Company in 1987 pursuant to which 37,500 shares of restricted stock were issued
to Mr. Pearlman and 10,000 shares of restricted stock were issued to Mr.
McCarthy. The 1987 employment agreements with Messrs. Pearlman and McCarthy
were amended in 1994 to conform to the provisions of the 1994 restricted stock
award agreements described below and to eliminate any obligation of the Company
to repurchase such shares or to pay the executive any difference between fair
market value of such shares and any agreed value which were provided in the 1987
agreements.
<PAGE>
In 1994 Messrs. Pearlman, Moschner and McCarthy entered into restricted stock
award agreements pursuant to which the following additional shares of restricted
stock were issued: Mr. Pearlman - 43,581, Mr. Moschner - 56,757, Mr. McCarthy -
22,432. The shares of restricted stock issued in 1994 are subject to forfeiture
in the event of termination of employment prior to age 65, other than by reason
of death, disability or termination of employment for good reason (change in
status, pay or benefits) after a change in control of the Company. Change in
control is defined under Termination and Change of Control Agreements below.
The restrictions will lapse as to one fifteenth of such shares per year over a
15 year post employment period. Upon death or disability or termination
following a change of control as previously defined or certain other
circumstances, 100% of the restricted shares would become free of any
restrictions. The agreements impose consulting duties on the executive during
the 15 year post employment period of no more than one day per month and a duty
to refrain from competitive activities for a two year period following
termination of employment.
All of the Named Executive Officers have employment agreements which provide,
during the period of employment and for a period of ten years thereafter, a
death benefit in the amount of one and one-half times the individual's salary.
At the end of each of the ten years following the cessation of employment, the
amount of death benefit decreases by ten percent of the original amount. The
agreements also provide supplemental long-term disability benefits in the amount
of two-thirds of the amount by which the individual's base salary exceeds the
maximum insured salary under the Company's long-term disability program. The
supplemental long-term disability benefits are currently limited to $52,000 per
year. All of the employment contracts also provide that the Company will pay to
the employee, pursuant to the contract, the amount by which the benefits payable
under the Company's retirement plan ("Zenith Salaried Profit Sharing Retirement
Plan") exceed the benefit limitations imposed by the Employee Retirement Income
Security Act or the Internal Revenue Code. This latter benefit is now
incorporated into the Zenith Electronics Corporation Supplemental Salaried
Profit Sharing Retirement Plan.
TERMINATION AND CHANGE OF CONTROL AGREEMENTS
The Company has recognized that corporate takeovers have a widespread
distracting effect on management personnel of many corporations. Accordingly,
in order to ensure the retention of key executive personnel and to alleviate the
distracting effects of any change in corporate control, the Company, in common
with many other corporations, has entered into agreements with selected key
members of management.
The agreements, which are outstanding with the Named Executive Officers,
provide for severance pay and benefits in the event of termination of employment
within two years after a change in control of the Company. The agreements
define a change in control as either the acquisition by a third party of 25% or
more of the voting power to elect directors or a change in majority of the Board
of Directors resulting from a tender or exchange offer, merger or other business
combination, sale of assets, contested election or any combination of such
causes. The agreements define severance pay as the highest monthly salary in
the three years preceding termination plus one-twelfth of the annual incentive
award which the employee would have received in the year of termination assuming
performance at the target award level.
Under the agreements, severance pay and benefits will not be paid if
employment is terminated because of death, retirement or disability, or by the
Company for cause, or by the employee other than for good reason. The
agreements provide for a lump sum payment equal to 36 months severance pay. The
agreements also provide that upon termination within 24 months after a change in
control of the Company, the employee will receive: (1) an amount equal to the
excess of the highest per share price paid pursuant to the tender or exchange
offer or other change of control over the closing price of the Company's shares
on the day such employee receives or issues a notice of termination times the
number of shares owned by the employee; and (2) upon the extinguishment of the
employee's stock option rights, an amount equal to the aggregate spread between
the exercise price of all the employee's options (whether or not exercisable)
and the higher of the closing price of the Company's shares on the date of the
employee's termination or the highest per share price paid pursuant to the
tender offer, exchange offer or other change in control. Other provisions of
the agreements require the Company to maintain for the benefit of the employee,
for a period of two years after his termination, all employee benefits including
group medical and dental, health and accident, long term
<PAGE>
disability and group life insurance as well as any executive insurance program
in which the employee was participating at the time of his termination. The
agreements also provide that if, by reason of the federal income tax provisions
imposing an excise tax on "excess parachute payments," the net after-tax
proceeds to be realized by the individual would be increased by reducing the
payments so that there were no excess parachute payments subject to the excise
tax, then the payments shall be reduced so as to maximize the net after-tax
proceeds to the individual. The Company is obligated under the agreements to
reimburse the employee for legal fees and expenses incurred in successfully
enforcing the agreement. If the Named Executive Officers had been terminated
following a change in control on December 31, 1994, they would be entitled to
receive the following amounts as severance pay and in consideration of stock
option rights: Mr. Pearlman -$2,839,000; Mr. Moschner - $1,613,750; Mr. McCarthy
- - $1,206,000; Mr. Benson -$814,000; Mr. Borst - $790,187, Mr. Kaplan - $728,875.
OPTION/SAR GRANTS IN 1994
Shown below is information on grants of options to purchase common stock to
the Named Executive Officers made in 1994. No stock appreciation rights (SARs)
were granted to the Named Executive Officers during 1994.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL EXERCISE OR GRANT DATE
UNDERLYING OPTIONS/SARS OPTIONS/SARS GRANTED BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#)/(1)/ TO EMPLOYEES IN 1994 ($/SH)/(2)/ DATE VALUE ($)/(3)/
---- ----------------------- --------------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Jerry K. Pearlman ..... 35,000 5.7% $9.625 4/07/2004 $234,605
Albin F. Moschner ..... 25,000 4.1% 9.625 4/07/2004 167.575
Gerald M. McCarthy .... 17,000 2.8% 9.625 4/07/2004 113,951
Kell B. Benson ........ 12,000 2.0% 9.625 4/07/2004 80,436
John Borst, Jr. ....... 8,000 1.3% 9.625 4/07/2004/(4)/ 53,624
Michael J. Kaplan ..... 8,000 1.3% 9.625 4/07/2004 53,624
</TABLE>
- --------
/(1)/ All options granted and reported in this table have the following terms:
each option vests over a two-year period, with 50% of the shares becoming
exercisable at the beginning of the second year after the date of grant
and with the entire option becoming exercisable at the end of the second
year.
/(2)/ Exercise price is the fair market value of the common stock on the date
of grant.
/(3)/ Based on the Black-Scholes option pricing model adapted for use in
valuing executive stock options. In calculating the grant date present
values set forth in the table, a factor of 48% has been assigned to the
volatility of the common stock based on the rolling 60 day daily stock
market quotations for the two years preceding the date of grant, no
dividend yield on the common stock has been assumed, the risk-free rate
of return has been fixed at 6.86%, the rate for a ten year U.S. Treasury
Note on the date of grant and the exercise of the options has been
assumed to occur at the end of the actual option term of ten years. There
is no assurance that these assumptions will prove to be true in the
future. Consequently, the actual value, if any, an executive may realize
will depend on the common stock price on the date the option is
exercised, so that there is no assurance the value realized by an
executive will be at or near the value estimated by the Black-Scholes
model.
/(4)/ As of March 1, 1995, Mr. Borst's options will expire on February 2,
1997.
AGGREGATED OPTION/SAR EXERCISES IN 1994 AND YEAR-END OPTION/SAR VALUES
Shown below is information concerning the exercise in 1994 of options to
purchase Company common stock by the Named Executive Officers and the
unexercised options to purchase Company common stock held
<PAGE>
by the Named Executive Officers at December 31, 1994. No Named Executive
Officers exercised SARs in 1994 and no such Officer currently holds any SARs.
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY
ON VALUE OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
EXERCISE REALIZED YEAR-END(#) YEAR-END($)/(2)/
NAME (#) ($)/(1)/ EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- --------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jerry K. Pearlman ........... 30,000 $ 146,250 152,500/52,500 $467,188/$146,562
Albin F. Moschner ........... 20,000 107,500 32,500/32,500 113,438/82,812
Gerald M. McCarthy .......... 0 0 63,500/24,500 209,188/66,812
Kell B. Benson .............. 24,400 65,550 15,000/17,000 40,625/45,875
John Borst, Jr. ............. 0 0 33,596/12,000 102,687/33,500
Michael J. Kaplan ........... 0 0 35,500/12,000 120,875/33,500
</TABLE>
- ----------
/(1)/ The value realized equals the aggregate amount of the excess of the
closing price of the Company's common stock on the date of exercise over
the exercise price.
/(2)/ The value is calculated based on the aggregate amount of the excess of
$11.625 (the closing price of the Company's common stock on December 31,
1994) over the applicable exercise price.
PENSION PLAN TABLE
The following table reflects the annual benefits which would be received under
the Zenith Electronics Corporation Supplemental Executive Retirement Income Plan
(the "SERP") by a participant who retires at age 65 with at least ten years of
service.
<TABLE>
<CAPTION>
YEARS OF SERVICE
- ------------------------------ ---------------------------------------------------------
Final Average Pay 10 15 20 25 30 35
- ----------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$250,000 ............... $ 2,459 $18,967 $ 34,582 $ 49,191 $ 39,037 $ 27,608
300,000 ............... 5,787 25,597 44,335 61,866 49,680 35,966
350,000 ............... 9,114 32,227 54,087 74,540 60,324 44,323
400,000 ............... 12,442 38,856 63,840 87,214 70,967 52,681
450,000 ............... 15,770 45,486 73,593 99,889 81,611 61,039
500,000 ............... 19,098 52,115 83,345 112,563 92,254 69,397
550,000 ............... 22,426 58,745 93,098 125,238 102,897 77,754
600,000 ............... 25,754 65,374 102,850 137,912 113,541 86,112
650,000 ............... 29,081 72,004 112,603 150,586 124,184 94,469
700,000 ............... 32,409 78,634 122,353 163,261 134,828 102,827
750,000 ............... 35,737 85,263 132,108 175,935 145,471 111,185
800,000 ............... 39,065 91,893 141,860 188,609 156,115 119,543
850,000 ............... 42,393 98,522 151,613 201,284 166,758 127,900
</TABLE>
The SERP has been designed to provide the actuarial equivalent value of a
straight life annuity, where each annual payment equals 50 percent of the
participant's "final average pay" (where "final average pay" equals the average
of the participant's last five years of base salary plus annual bonus, as
reflected in the Summary Compensation Table). The "final average pay" of
Messrs. Pearlman, Moschner and McCarthy (currently the only participants in the
SERP) as of December 31, 1994 is $466,414, $268,945, and $190,483, respectively.
The amounts appearing in the table reflect the reduction in the SERP amount
attributable to the following SERP offsets: (1) benefits provided under the
Zenith Salaried Profit Sharing Retirement Plan; (2) benefits provided under the
Zenith Electronics Corporation Supplemental Salaried Profit Sharing Retirement
Plan; (3) the July 26, 1994 fair market value of restricted stock held by
participants as part of their retirement program; and (4) primary social
security benefits.
<PAGE>
The SERP benefits are reduced for all participants who, as of the date of
retirement, have less than 25 years of credited service (participants who have
less than ten years of credited service at retirement are not eligible to
receive any SERP benefits). As of December 31, 1994, Messrs. Pearlman,
Moschner, and McCarthy had 23, 3 and 29 years of credited service, respectively.
The SERP benefits also are reduced in the event a participant retires prior to
age 65 (a participant who retires prior to age 55 is not eligible to receive
SERP benefits).
<PAGE>
Investment
Banking Group
5500 Sears Tower
Chicago, Illinois
60606
312 906 6200
FAX 312 906 6262
[LOGO--MERRILL LYNCH]
July 17, 1995
Board of Directors
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, IL 60025
Members of the Board:
Zenith Electronics Corporation (the "Company") and LG Electronics, Inc. (the
"Acquiror" or "LGE") have entered into a Stock Purchase Agreement, as of July
17, 1995 (the "Agreement"), pursuant to which LGE has agreed to purchase 16.5
million newly issued shares of the Company's common stock, par value $1.00 per
share (the "Issue Shares"), at $10.00 per share in cash (the "Purchase") and to
make a tender offer (the "Offer") for 18.619 million shares of the Company's
common stock (the "Offer Shares"; together with the Issue Shares, the
"Shares"), at $10.00 per share, net to the seller in cash. The closings of the
Purchase and the Offer, both of which are subject to the approval of the
Company's stockholders, are to occur simultaneously. At completion of the
Purchase and Offer, LGE will own 57.7% of the outstanding common stock of the
Company. Pursuant to the terms of the Agreement, LGE will also have the right
to designate a majority of the members of the Company's Board of Directors.
You have asked us whether, in our opinion, the proposed cash consideration to
be received by the Company and the holders of the Offer Shares pursuant to the
terms of the Agreement, taken as a whole, is fair to the Company and such
stockholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1994 and the
Company's Form 10-Q and the related unaudited financial information for
the quarterly period ending April 1, 1995;
(2) Reviewed certain of the Company's estimated unaudited financial
information for the quarterly period ending June 30, 1995;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company, furnished to us by the Company;
(4) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the
Company's common stock;
(6) Compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other transactions
which we deemed to be relevant;
(7) Reviewed the Agreement; and
<PAGE>
[LOGO--MERRILL LYNCH]
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed appropriate, including our assessment of general economic,
market, monetary and other conditions as they exist on the date hereof.
In preparing our opinion, we have assumed and relied upon the accuracy and
completeness of all information that was available to us from public sources
and that was supplied or otherwise made available to us by the Company. We have
not assumed any responsibility for independent verification of such information
or any independent valuation or appraisal of any of the assets of the Company.
With respect to the financial forecasts and estimated unaudited financial
information furnished by the Company, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company.
In connection with the preparation of this opinion, while we assisted the
Company in its response to an indication of interest from a party other than
LGE, we have not been authorized to solicit, nor have we solicited, except for
limited exceptions, third-party indications of interest for the acquisition of
all or any part of the Company.
Our opinion set forth below is directed to the Board of Directors of the
Company and does not constitute a recommendation to any stockholder of the
Company with respect to the approval of the transactions contemplated by the
Agreement or as to whether they should tender their shares pursuant to the
Offer. This letter is for the information of the Board of Directors of the
Company only in connection with its consideration of the Agreement and is not
to be quoted or referred to, in whole or in part, in any proxy statement or
other document prepared in connection with the transactions contemplated by the
Agreement, nor shall this letter be used for any other purposes or publicly
disclosed, without our prior written consent; provided, however, the Company is
authorized to include this letter in its entirety in the Offer documents, the
Schedule 14D-9 and the proxy materials contemplated by the Agreement.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the transactions contemplated by the Agreement and will
receive a fee for our services, most of which is conditioned upon the
completion of the Purchase and Offer. In the ordinary course of our business,
we and our affiliates may actively trade the debt and equity securities of the
Company for our or their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have, in the past, provided financing services to an affiliate of the LG
Group and have received fees for the rendering of such services.
On the basis of, and subject to the foregoing, we are of the opinion that, as
of the date hereof, the proposed cash consideration to be received by the
Company and the holders of the Offer Shares pursuant to the terms of the
Agreement, taken as a whole, is fair to the Company and such stockholders from
a financial point of view.
Very truly yours,
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
[SIGNATURE OF DANIEL M. DICKINSON]
By _____________________________________
Director
Investment Banking Group
2
