_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14 (D) (4) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
________________
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 Numbers of Class of Securities)
________________
ALBIN F. MOSCHNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ZENITH ELECTRONICS CORPORATION
1000 MILWAUKEE AVENUE
GLENVIEW, ILLINOIS 60025
(708) 391-7383
(Name, address and telephone number of person authorized to receive notice
and communications on behalf of the person(s) filing statement)
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) 391-8064 (312) 853-7473
________________________________________________________________
This Amendment No. 2 amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9, dated July 21, 1995 and amended as of July 26,
1995 (the "Schedule 14D-9"), filed by Zenith Electronics Corporation, a
Delaware corporation, (the "Company"), relating 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, dated July 21, 1995 (the "Schedule 14D-1"), to purchase
up to 18,619,000 shares of the outstanding common stock, $1.00 par value,
of the Company, including the associated common stock purchase rights issued
pursuant to the company's rights agreement, at $10.00 per share, net to
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").
Unless otherwise defined, all terms used in this Amendment have the respective
meanings attributed to them in the Schedule 14D-9.
ITEM 8. ADDITIONAL INFORMATION
On July 21, 1995, the Company was served with a Class Action Complaint
filed in the Court of Chancery of the State of Delaware in and for New
Castle County against the Company, the members of the board of directors
of the Company and the Purchaser (Horwits v. Beckner, et al., C.A. No. 14424).
On July 27, 1995, the plaintiff filed an amended complaint (the "Amended
Complaint"). The Amended Complaint alleges that the Company's directors
breached their fiduciary duties and failed to exercise loyalty, good faith,
due care and complete disclosure toward the Company and the stockholders of
the Company in connection with (i) the Company's 1995 annual meeting and (ii)
the subsequent proposal by the Purchaser to acquire a controlling interest
in the Company pursuant to the Offer and the purchase of the Issue Shares
(collectively, the "Transaction").
The Amended Complaint alleges that the Company's proxy statement for its
1995 annual meeting failed to disclose (i) discussions regarding a possible
change of control transaction, (ii) the Company's retention of Merrill Lynch,
(iii) the halting of a proposed public equity offering in April, 1995 and
(iv) the amendment of agreements providing "change in control" benefits to
certain Zenith executives. In addition, the Amended Complaint alleges that in
executing the Stock Purchase Agreement and recommending that stockholders
approve the Transaction the Company's directors failed to adequately explore
the availability of alternatives to maximize stockholder value or otherwise
conduct a process to obtain the highest value reasonably available to
stockholders in a sale of control. The Amended Complaint alleges that the
Company's Schedule 14D-9 fails to disclose (i) material facts relating to
Merrill Lynch's fairness opinion, (ii) the factual basis or rationale for the
Company's management and financial advisors' views as to the unlikelihood of
a superior transaction, (iii) the factual basis for the Company's board of
directors' conclusion that alternative financing of a similar magnitude was not
reasonably available and (iv) the basis for the Company's board of directors'
apparent rejection of the Purchaser's June 27, 1995 joint venture proposal in
favor of a sale of control. The Amended Complaint alleges that the Schedule
14D-1 and the Schedule 14D-9 fail to disclose (i) a schedule of "change of
control" payments required to be made, stock options which vest and restricted
shares of Common Stock which vest in connection with the Transaction, (ii) the
structure, terms or timing of any proposals from the Purchaser prior to the two
alternative proposals presented by the Purchaser on June 27, 1995, (iii) the
terms and structure of the joint venture proposal made by the Purchaser on June
27, 1995, (iv) the structure, terms or timing of the proposed transaction or
counter-proposal of the Other Consumer Products Entity or whether the
counter-proposal was affirmatively rejected by the Other Consumer Products
Entity and (v) the specific dates of certain developments regarding the Other
Consumer Products Entity. The Amended Complaint further alleges that the
Purchaser aided and abetted the Company's directors alleged breach of their
fiduciary duties. The Amended Complaint seeks (i) a declaration that the
action may be maintained as a class action, (ii) a declaration that the
Transaction is unfair, unjust and inequitable, (iii) invalidation of the
stockholder vote, including the election of directors, at the Company's 1995
annual meeting, (iv) invalidation of the Stock Purchase Agreement, (v) an
order compelling the Company's directors to conduct a proper process to
explore the availability of alternatives to maximize stockholder value and to
disseminate completely all material information relating to the Transaction,
(vi) to enjoin further steps necessary to accomplish or implement the proposed
Transaction, (vii) to compensate the plaintiff and members of the class for all
losses and damages allegedly suffered and to be suffered by them and (viii) to
award plaintiff costs, including reasonable attorneys', accountants' and
experts' fees. The Company and the Purchaser believe that the Amended
Complaint is without merit and intend to vigorously defend against the
alleged claims.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit No.
- -----------
Exhibit 8 Gwynne L. Horwits, SEP IRA, Plaintiff v. Harry G. Beckner,
et al, Defendants, Amended Class Action Complaint filed in
the Court of Chancery of the State of Delaware in and for
New Castle County as Civil Action No. 14424.
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.
Dated: August 4, 1995
ZENITH ELECTRONICS CORPORATION
By: /s/ Albin F. Moschner
---------------------------
Albin F. Moschner
President and Chief Executive Officer
EXHIBIT 8
---------
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- -----------------------------------X
GWYNNE L. HORWITS, SEP IRA, :
:
Plaintiff, :
:
v. : Civil Action No. 14424
:
HARRY G. BECKNER, T. KIMBALL :
BROOKER, DAVID H. COHEN, ILENE S. :
GORDON, CHARLES MARSHALL, GERALD :
M. MCCARTHY, ANDREW MCNALLY, IV, :
ALBIN F. MOSCHNER, PETER S. :
WILLMOTT, JERRY K. PEARLMAN, :
ZENITH ELECTRONICS CORPORATION, :
and LG ELECTRONICS INC., :
:
Defendants. :
- -----------------------------------X
AMENDED CLASS ACTION COMPLAINT
------------------------------
Plaintiff, by its attorneys, alleges upon information and
belief, except with respect to its ownership of common stock of Zenith
Electronics Corporation ("Zenith") as follows:
PARTIES
-------
1. Plaintiff is the owner of shares of defendant Zenith.
2. Zenith Electronics Corp. is a Delaware corporation
with executive offices at 1000 Milwaukee Avenue, Glenview, Illinois
60025-2400. Zenith designs, manufactures and distributes computer and
consumer electronic products. As of June 30, 1995, Zenith had
approximately 46,896,492 shares of common stock outstanding. On July
24, 1995, Zenith disseminated its Schedule 14D-9
Solicitation/Recommendation Statement Pursuant to Section 14(D)(4) of
the Securities Exchange Act of 1934 (the "Schedule 14D-9"), in
connection with the Transaction (defined below).
3. Defendant Harry G. Beckner is a Director of Zenith.
4. Defendant T. Kimball Brooker is a Director of Zenith.
Brooker is Chairman of the Executive Committee of the Zenith Board.
5. Defendant David H. Cohen is a Director of Zenith.
6. Defendant Ilene S. Gordon is a Director of Zenith.
7. Defendant Charles Marshall is a Director of Zenith.
8. Defendant Gerald M. McCarthy is Executive Vice
President and a Director of Zenith. McCarthy is Executive Vice
President, Sales and Marketing, and member of the office of the
Chairman. McCarthy is also President of Zenith Sales Company, a
division of Zenith.
9. Defendant Andrew McNally, IV is a Director of Zenith.
10. Defendant Albin F. Moschner is President and Chief
Executive Officer of Zenith, and a Director of Zenith.
11. Defendant Peter S. Willmott is a Director of Zenith.
12. Jerry K. Pearlman is Chairman and former Chief
Executive Officer of Zenith, and is a present Director and consultant of
Zenith.
13. The foregoing Directors of Zenith (collectively the
"Director Defendants"), owe fiduciary duties to Zenith and its public
shareholders.
14. LG Electronics Inc. is a unit of South Korea's LG
Group., with executive offices located at LG Twin Towers 20, Yoido-dong,
Youngdungpo-gu, Seoul, Korea 150-721. LG Electronics Inc. and LG Group
are referred to herein collectively as "LG". LG presently owns or
controls approximately 1.45 million Zenith shares. On July 21, 1995, LG
effected the filing with the Securities and Exchange Commission of a
Schedule 14D-1 Tender Offer Statement Pursuant To Section 14(D)(1) of
the Securities Exchange Act of 1934 and Schedule 13D Under the
Securities Exchange Act of 1934, and Offer To Purchase For Cash Up To
18,619,000 Shares of Common Stock (including the associated rights) of
Zenith Electronics Corporation at $10.00 Net Per Share By LG Electronics
Inc. (collectively the "Schedule 14D-1"), in connection with the
Transaction (defined below). LG has knowingly and substantially
participated in, and is benefitting by, breaches of fiduciary duties
alleged herein, and therefore is liable as a aider and abettor thereof.
15. In connection with the Transaction (defined below) and
pursuant to the Stock Purchase Agreement dated as of July 17, 1995 By
and Between Zenith Electronics Corporation and LG Electronics Inc. (the
"Agreement"), LG Electronics Inc. agreed, among other things, that the
Agreement shall be governed by, construed under and enforced in
accordance with, the laws of the State of Delaware without regard to its
conflict-of-laws principles, and (1) that any legal action or proceeding
arising out of or in connection with the Agreement or the transactions
contemplated thereby shall be brought exclusively in the Courts of the
State of Delaware or the Federal Courts of the United States of America
sitting in Delaware, (2) that LG Electronics Inc. irrevocably submits to
the jurisdiction of each such Court, and (3) that any summons, pleading,
judgment, memorandum of law, or other paper relevant to any such action
or proceeding shall be sufficiently served if delivered to the recipient
thereof by certified or registered mail (with return receipt) at 20
Yoido-dong, Youngdungpo-gu, Seoul, 150-721 Korea, Attention: Chief
Executive Officer, with a copy to Mayer Brown & Platt, 190 South LaSalle
Street, Chicago, Illinois, 60603, Attention: Robert A. Helman, Esq.
CLASS ACTION ALLEGATIONS
------------------------
16. Plaintiff brings this action on its own behalf and as
a class action on behalf of all shareholders of defendant Zenith (except
defendants herein and any person, firm, trust, corporation or other
entity related to or affiliated with any of the defendants) or their
successors in interest, who have been or will be adversely affected by
the conduct of defendants alleged herein.
17. This action is properly maintainable as a class action
for the following reasons:
(a) The class of shareholders for whose benefit this
action is brought is so numerous that joinder of all class members is
impracticable. As of June 30, 1995, there were over 46 million shares
of defendant Zenith common stock outstanding owned by shareholders
scattered throughout the United States.
(b) There are questions of law and fact which are
common to members of the Class and which predominate over any questions
affecting any individual members. The common questions include, inter
alia, the following:
i. Whether one or more of the defendants has
engaged in a plan and scheme to entrench and/or enrich themselves at the
expense of defendant Zenith's public stockholders in the sale of control
of Zenith;
ii. Whether the Director Defendants have engaged in
a proper process to ensure maximization of shareholder value;
iii. Whether the Director Defendants have breached
fiduciary duties owed by them to plaintiff and members of the Class,
and/or have aided and abetted in such breaches, by virtue of their
participation and/or acquiescence and by their other conduct complained
of herein;
iv. Whether the Director Defendants have wrongfully
failed adequately to seek a purchaser of Zenith at the highest available
price and, instead, have agreed to allow control of the valuable assets
of defendant Zenith to be acquired by LG at an unfair and inadequate
price and without paying an appropriate premium to Zenith's public
shareholders;
v. Whether the structure of LG's acquisition of
control of Zenith is wrongfully coercive and/or will wrongfully impede
maximization of Zenith shareholder value;
vi. Whether defendants have disseminated materially
deficient statements to Zenith's public shareholders;
vii. Whether the Director Defendants were validly
elected at the April 25, 1995 Annual Meeting;
viii. Whether plaintiff and the other members of the
Class will be irreparably damaged by the conduct and transactions
complained of herein; and
ix. Whether defendants have breached or aided and
abetted the breaches of the fiduciary and other common law duties owed
by them to plaintiff and the other members of the Class.
18. Plaintiff is committed to prosecuting this action and
has retained competent counsel experienced in litigation of this nature.
The claims of plaintiff are typical of the claims of the other members
of the Class and plaintiff has the same interest as the other members of
the Class. Accordingly, plaintiff is an adequate representative of the
Class and will fairly and adequately protect the interests of the Class.
19. Defendants have acted or refused to act on grounds
generally applicable to the Class, thereby making appropriate injunctive
relief with respect to the Class as a whole.
20. The prosecution of separate actions by individual
members of the Class could create a risk of inconsistent or varying
adjudications with respect to individual members of the Class which
would establish incompatible standards of conduct for defendants or
adjudications with respect to individual members of the Class which
would as a practical matter be dispositive of the interests of the other
members not parties to the adjudications.
21. Plaintiff anticipates that there will not be any
difficulty in the management of this litigation.
22. For the reasons stated herein, a class action is
superior to other available methods for the fair and efficient
adjudication of this action.
SUBSTANTIVE ALLEGATIONS
-----------------------
23. Discussions between Zenith and LG apparently commenced
in June 1994 with respect to a possible joint venture involving Zenith's
color picture tube plant in Melrose Park, Illinois. Zenith purportedly
was seeking $150 million to expand and modernize the plant.
24. On November 15, 1994, Zenith and LG executed a mutual
non-disclosure agreement regarding the exchange of confidential
information. The stated purpose of the non-disclosure agreement was to
pursue "consideration of a possible investment by [LG] or an affiliate
in certain assets of Zenith or in a form of debt, or equity in Zenith."
Numerous discussions concerning a possible joint venture between LG and
Zenith purportedly occurred over the ensuing several months, and in late
March 1995, LG purportedly submitted a proposal to Zenith for a joint
venture.
25. In January 1995, Merrill, Lynch, Pierce, Fenner &
Smith, Inc. ("Merrill Lynch") purportedly began assisting Zenith in
exploring possible alternatives focusing on raising equity capital for
the Melrose Park expansion and modernization program. Merrill Lynch has
previously rendered services to LG Group.
26. On February 15, 1995, Zenith announced its results for
1994, stating that it had narrowed its four year loss by $83 million in
1994 compared to 1993. Then-Chairman and Chief Executive Officer
Pearlman stated "[w]e made significant progress on our road to recovery
in 1994 as we focused on our core Consumer Electronics and Network
Systems business," and that "[w]hile the pricing environment continues
to be difficult, Zenith is emerging as a much stronger competitor."
27. On February 23, 1995, Zenith announced that following
the April 25, 1995 Annual Meeting of Zenith shareholders, Moschner would
become President and Chief Executive Officer and Pearlman would retire
and remain as Chairman until December 31, 1995.
Zenith Solicits Proxies To Elect
Directors And Authorize Additional Shares
-----------------------------------------
28. On March 23, 1995, Zenith filed a Schedule 14A in
connection with its Annual Meeting of stockholders scheduled for April
25, 1995 (the "March Proxy Statement"). The March Proxy Statement was
disseminated to Zenith shareholders, and solicited votes in favor of,
among other things, (1) election of the Director Defendants, and (2)
authorization to amend Zenith's Certificate of Incorporation to increase
the amount of authorized shares of capital stock from 100,000,000 to
150,000,000.
29. In connection with seeking the election of directors,
the March Proxy Statement, among other things, described certain
benefits to Zenith Officers and Directors accruing upon a "change in
control" of Zenith. The March Proxy Statement provided that in the
event of a change in control of Zenith, Directors entitled to retirement
benefits under Zenith's Directors' Retirement Plan are entitled to
receive a lump sum payment of the discounted present value of the
benefits, and that Directors who are not employees are entitled to
payment of 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.
30. The March Proxy Statement also described change in
control agreements with certain Zenith Executive Officers. According to
the March Proxy Statement, the agreements provide for severance pay,
which includes salary and bonus, and benefits if the Officer is
terminated within two years of a change in control. According to the
March Proxy Statement, upon termination within two years after a change
in control, 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 in 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 Zenith'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,
according to the March Proxy Statement, required Zenith to maintain
certain insurance benefits for a period of two years and benefits
relating to "excess parachute payments" for which the employee may be
liable under the federal income tax code. According to the March Proxy
Statement, as of December 31, 1994, Pearlman would be entitled to
receive $2,839,000, Moschner would be entitled to receive $1,613,750,
McCarthy would be entitled to receive $1,206,000, Kell Benson, Senior
Vice President-Finance and Chief Financial Officer, would be entitled to
receive $814,000, John Borst, Jr., General Counsel, would be entitled to
receive $790,187, and Michael J. Kaplan, Vice President Human Resources,
would be entitled to receive $728,875.
31. In connection with seeking shareholder authorization
to increase Zenith's authorized shares, the March Proxy Statement
stated, among other things, that: (1) the Board believed the
authorization of additional shares would enable Zenith to continue the
permanent equity financing necessary to improve Zenith's capital
structure and sustain current capital investment programs and future
growth; (2) in March 1995, Zenith commenced sales of common stock under
a shelf registration covering up to 6.5 million shares of authorized but
unissued shares of which 346,100 had been sold through March 10, 1995;
(3) Zenith was considering conducting one or more additional offerings
of common stock, or of debt or preferred stock convertible into common
stock during 1995 depending on a number of factors including market
conditions and alternative financing; (4) Zenith would continue to issue
shares of common stock under its employee benefit plans; (5) the
authorization of additional shares would also permit Zenith to be in a
position to take advantage of other opportunities for which issuance of
Zenith stock might be appropriate although no such other opportunities
were currently under consideration; and (6) the availability for
issuance of additional shares of common stock could enable the Board of
Directors to render more difficult and discourage an attempt to obtain
control of Zenith such as in a public or private sale, merger or similar
transaction, but that Zenith was not aware of any pending or threatened
efforts to obtain control of the Company.
32. The March Proxy Statement did not disclose any
discussions or agreements with, or proposals from, LG.
33. Further, following dissemination of the March Proxy
Statement, according to the Schedule 14D-9, on April 4, 1995, fully
three weeks prior to the Annual Meeting, agreements providing "change in
control" benefits to certain Zenith executives, including Moschner and
McCarthy, were amended, among other things, to pay "change in control"
benefits whether or not the executives are terminated following a
"change in control." The agreements with Moschner and McCarthy were
amended to provide for an acceleration of vesting of options and
restricted stock upon a change of control without regard to a
termination of employment. 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 Zenith
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 are achieved. The amendment also provides
certain tax benefits to Moschner. Moreover, Zenith's Form 10-Q for the
quarterly period ended April 1, 1995, filed May 15, 1995, indicates that
the agreements with Benson and Kaplan may also have been amended. The
March Proxy Statement was not supplemented to disclose the foregoing
amendments to Zenith shareholders prior to the April 25, 1995 Annual
Meeting.
34. Moreover, according to the Schedule 14D-9, sometime in
April 1995 defendant Brooker, Chairman of the Zenith Executive
Committee, was contacted by representatives by a non-United States
entity involved in the consumer electronics business (the "Other
Entity") which had an interest in a possible change of control
transaction involving Zenith, and on April 24, 1995, prior to the Annual
Meeting, Zenith retained Merrill Lynch in connection with either a
possible offering of equity or other securities, a possible investment
by LG in Zenith or one of Zenith's operating facilities or businesses or
another transaction involving a sale of an interest in, or all of,
Zenith stock or assets. The March Proxy Statement was not supplemented
to disclose to Zenith shareholders any contact relating to a possible
change of control transaction, the retention of Merrill Lynch or the
possible transactions to be considered by Merrill Lynch, prior to the
April 25, 1995 Annual Meeting.
35. In addition, also prior to the Annual Meeting,
according to the Schedule 14D-9, in March and early April 1995, Zenith
apparently began the process for a public equity offering which ended in
mid-April purportedly in light of Zenith's first quarter results and its
expectations for the year. On April 20, 1995, Zenith reported a net
loss for the first quarter of 1995 of $24.3 million, or 53 cents per share,
compared with a first quarter 1994 net loss of $11.9 million, or 32 cents per
share. Although the first quarter results were announced prior to the
April 25, 1995 Annual Meeting, the March Proxy Statement was not
supplemented to inform Zenith shareholders of the halted public
offering, prior to the Annual Meeting.
36. Zenith's Annual Meeting was held on April 25, 1995, at
which the Director Defendants were elected and the additional shares
were authorized. The Schedule 14D-9 and Schedule 14D-1 misleadingly
indicate that the Annual Meeting was held April 24, 1995. As discussed
above, the action taken by Zenith shareholders at the Annual Meeting on
April 25, 1995 was based upon materially deficient information.
37. On May 11, 1995, Zenith announced that it had entered
into two new credit agreements totalling $150 million with General
Electric Capital Corporation, Zenith's existing lending group. Moschner
was quoted as stating that the increased and extended credit lines
"reflect the leaders' confidence in Zenith's business plan," and that
"[i]n addition to providing increased working capital and financing
flexibility to run the business, they will help augment other financing
activities to support our planned expansion of picture tube production
capacity." It was also announced that Zenith's Board approved, subject
to funding, a multi-year $150 million plan to expand picture tube
production capacity at the Melrose Park plant.
38. According to the Schedule 14D-9, Zenith was precluded
by an April 28, 1995 agreement with the Other Entity from discussing any
sale of Zenith stock with any other party for a two week period ending
May 15, 1995. Moschner apparently advised LG on May 16, 1995 that
Zenith had been approached on an unsolicited basis by another entity
about a possible change in control transaction. LG purportedly
indicated shortly thereafter that it would consider making a proposal to
Zenith concerning a possible investment in Zenith as well as to proceed
with a joint venture.
39. The Zenith Board, however, did not fulfill its duty
adequately to explore the availability of alternatives to maximize
shareholder value and obtain the highest value reasonably available to
Zenith shareholders in a sale of control. According to the Schedule
14D-9, on May 23, 1995, the Executive Committee of the Zenith Board
authorized discussions only with LG and the Other Entity, and with two
"financial buyers" to ascertain their interest in a private equity
investment in Zenith. Merrill Lynch was not authorized to solicit other
third party indications of interest or an acquisition of all or any part
of Zenith. Nor, apparently, did the Zenith Board, Zenith management or
other Zenith advisors undertake any such solicitation.
40. Purportedly, discussions on unspecified dates during
May and June 1995 between Zenith and the Other Entity regarding a
combination, including the structure and terms of a possible
transaction, resulted in a proposal by the Other Entity of a transaction
which was rejected and answered by Zenith with a counter-proposal.
According to the Schedule 14D-9, the counter-proposal was "not
accepted."
41. Purported discussions with LG, including proposals and
revised proposals, apparently led to two alternative proposals by LG on
June 27, 1995. The first proposal involved a tender offer for
17,863,000 shares of Zenith stock at $10 per share in cash, the purchase
of 7,882,000 shares of stock from Zenith at $7.875 per share in cash and
the purchase of 10,118,000 shares of common stock from Zenith at $10 per
share in cash. The second proposal involved a joint venture to own the
Melrose Park plant. The Zenith Board of Directors, however, apparently
determined to sell control of Zenith. The Zenith Board of Directors
apparently authorized management to commence negotiations with LG
concerning only the first proposal, and Zenith notified the Other Entity
of the negotiations with LG and offered to provide updated information
to the Other Entity.
42. According to the Schedule 14D-9, no information was
requested by the Other Entity, and on July 11, 1995, LG delivered a
revised proposal to make a tender offer to Zenith's stockholders for
18,619,000 shares of common stock at $10 per share in cash and to
purchase 16.5 million common shares from the Company for $10 per share.
Zenith Agrees To Sell Control
To LG Without An Adequate
Process To Maximize Shareholder Value
-------------------------------------
43. On July 17, 1995, Zenith announced that LG agreed to
acquire a 57.7% controlling stake in Zenith for $10 per share, or
approximately $350 million (the "Transaction"). On July 17, 1995,
Zenith and LG entered into the Agreement (defined above) which
contemplates a tender offer for 18.619 million shares of Zenith stock at
$10 per share (the "Tender Offer"), and an acquisition from Zenith 16.5
million newly issued Zenith common shares for $10.00 per share (the
"Share Issuance"). The Transaction, including the purchase of shares
pursuant to the Tender Offer and Share Issuance, is subject to a
majority vote of Zenith shareholders for which Zenith will disseminate a
Proxy Statement.
44. The Agreement required Zenith immediately to cease any
existing discussions or negotiations with third parties regarding an
acquisition, and not to initiate, solicit or encourage discussions with
third parties regarding an acquisition unless based upon the written
advice of outside legal counsel the failure to do so would be contrary
to the Board's fiduciary obligations. Zenith also agreed to amend its
Rights Agreement to specifically exempt LG and its affiliates, and to
pay a Termination Fee of $7,230,800. the Agreement also provides that
immediately upon the acquisition of control the Zenith Board shall
consist of six designees of LG, Moschner and three purportedly
independent directors from Zenith's Board.
45. The Agreement also acknowledges that the Transaction
will trigger certain "change of control" benefits under agreements with
to Zenith Officers and Directors, and that the benefits are identified
in a July 17, 1995 letter from Zenith to LG (the "Company Letter"). The
Company Letter, although not disclosed, apparently includes a schedule
of benefit payments required to be made and stock options and restricted
shares which will vest. LG agreed to perform each of the obligations
pursuant to such agreement.
46. During 1995, Zenith stock has traded as high as $12.00
per share. On July 14, 1995, the last trading day prior to announcement
of the Transaction, Zenith stock closed at $8-1/2 per share. Thus, the
$10 per share price represents less than an 18 percent premium over the
pre-announcement market price. Moreover, because the only premium above
market to be paid to the public shareholders will be in the Tender Offer
for only 18.619 million of the over 46 million Zenith shares
outstanding, Zenith public shareholders will receive only a portion of
the already inadequate premium in the sale of control of Zenith. Yet,
by virtue of change in control benefits, Zenith Officers and Directors
apparently will receive, among other things, benefits based upon the
full, not prorated, $10 per share Tender Offer price.
47. Under the structure of the Transaction, the only
opportunity for Zenith shareholders to obtain any premium on the sale of
control will be by tendering into the Tender Offer. Moreover, the
Tender Offer is conditioned on the shareholder vote. Thus, Zenith
shareholders are coerced into tendering into the Tender offer and voting
in favor of the Tender Offer and Share Issuance in order to obtain any
premium and attempt to mitigate the extent of their future position as
minority shareholders of an LG-controlled entity.
48. The Transaction also unfairly favors Zenith Officers
and Director, particularly Moschner and McCarthy, at the expense of
Zenith's public shareholders. The Agreement guarantees the payment of
change in control of benefits to Zenith Officers and Directors. It thus
appears not only that Zenith Officers and Directors will receive
substantial benefits as a result of the change in control, but also that
options and shares subject to the change in control provisions for
Zenith Officers and Directors will be valued at the full $10 per share
Tender offer price while Zenith's public shareholders will receive only
a prorated portion of the already inadequate premium.
49. On July 21, 1995, Zenith announced a second quarter
net loss of $45.3 million or 97 cents per share, compared with a net loss of
$8.4 million or 20 cents per share in the second quarter of 1994. However,
second quarter 1995 results included $18 million in special charges for
severance and other non-recurring items.
Defendants Commence A
Materially Deficient Tender Offer
---------------------------------
50. On July 24, 1995, LG commenced the Tender Offer and
disseminated the Schedule 14D-1. Zenith also disseminated its Schedule
14D-9. The Tender Offer will expire unless extended at 12:00 midnight
September 19, 1995. As discussed more particularly below, the Schedule
14D-9 and Schedule 14D-1 were materially deficient.
51. The Schedule 14D-9 states that in determining to make
its recommendations, the Board considered the written and oral
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. However, the Schedule 14D-9 fails to provide material
facts relating to the Merrill Lynch presentations and opinions,
including the range of values for Zenith, discounted cash flow analysis,
comparable traded companies analysis or comparable acquisitions
analysis. The omitted information is material to shareholders'
assessments of the Transaction and available alternatives.
52. The Schedule 14D-9 states that in determining to make
its recommendations the Board considered the views of management and the
Company's financial advisors as to the unlikelihood of a superior
transaction. However, the Schedule 14D-9 fails to provide the factual
basis or rationale for the views as to the unlikelihood of a superior
transaction. The omitted information is material to shareholders'
assessments of the Transaction and available alternatives.
53. The Schedule 14D-9 states that on April 4, 1995,
Zenith amended certain "change in control" agreements it has with
certain executive officers, and, more particularly, that the agreements
with Moschner and McCarthy were amended to provide, among other things,
for acceleration of the vesting of benefits including options and
restricted stock upon a change of control whether or not the executives
are terminated. Also, the Form 10-Q filed by Zenith on May 15, 1995
indicates the agreements with Benson and Kaplan may also have been
amended. Further, the Company Letter apparently includes a schedule of
"change of control" payments required to be made, stock options which
vest and restricted shares which vest in connection with the
Transaction. However, the Schedule 14D-9 and Schedule 14D-1 fail to
disclose the contents of the Company Letter, state the benefits and
payments to be received under the amended agreements or the value to be
attributed to the options and restricted stock held by the executives.
The omitted information is material to shareholders' assessment of
conflicts of interest and whether Zenith Officers and Directors are
disproportionately benefitting by the sale of control of Zenith.
54. The Schedule 14D-9 and Schedule 14D-1 state that in
late March 1995 LG submitted a proposal to the Company for a joint
venture and the parties subsequently discussed a number of "revised
proposals" with the last proposal being submitted to Zenith at the June
27, 1995 Zenith Board meeting. However, the Schedule 14D-9 and Schedule
14D-1 fail to state the structure, terms or timing of any LG proposal or
revised proposal prior to the alternative proposals delivered at the
June 27, 1995 Board meeting. Further, neither the Schedule 14D-9 nor
the Schedule 14D-1 states the terms or structure of the joint venture
proposal made by LG on June 27, 1995. The omitted information is
material to shareholders' assessments of the Transaction and available
alternatives.
55. The Schedule 14D-9 and Schedule 14D-1 state that
Zenith and the Other Entity discussed the structure and terms of a
possible transaction, that the Other Entity proposed a transaction which
was rejected by Zenith, and that Zenith made a counter-proposal which
was "not accepted". The Schedule 14D-9 and Schedule 14D-1 further state
that neither the transaction proposed by the Other Entity nor the
counter-proposal involved payment to Zenith stockholders, and that the
proposal was at a per share value less than the Tender Offer price.
However, neither the Schedule 14D-9 nor the Schedule 14D-1 states the
structure, terms or timing of the proposed transaction or counter-
proposal or whether the counter-proposal was affirmatively rejected by
the Other Entity. The omitted information is material to shareholders'
assessments of the Transaction and available alternatives.
56. The Schedule 14D-9 and Schedule 14D-1 state that in
April 1995 defendant Brooker was contacted by representatives of the
Other Entity. However, the Schedule 14D-9 and Schedule 14D-1 fail to
state the date in April when defendant Brooker was contacted and the
substance of the communication. The date is material in view of the
statement that Merrill Lynch was retained on April 24, among other
things, to consider an alternative transaction including the sale of an
interest in or all of Zenith's stock of assets. The date also is
material to whether Zenith shareholders were provided with all available
material information in connection with the April 25, 1995 Annual
Meeting.
57. The Schedule 14D-9 and Schedule 14D-1 state that in
May and June 1995 Zenith and its advisors had discussions with the Other
Entity, and the Schedule 14D-9 and Schedule 14D-1 provide specific dates
in May and June 1995 of contacts between Zenith and LG. However, the
Schedule 14D-9 and Schedule 14D-1 fail to provide specific dates in May
and June on which Zenith and the Other Entity had discussions,
including, as discussed above, the date the Other Entity proposed a
transaction, the date Zenith rejected the proposal, and the date Zenith
made a counter-proposal. The omitted information is material to
shareholders' assessments of the Transaction and available alternatives.
58. The Schedule 14D-9 also stated that in making its
recommendations the Board considered the fact that the additional
financing from the Share Issuance will permit the Company to complete
its planned expansion and modernization program for the Melrose Park
plant and the Board's belief that such program is a necessary element to
Zenith's efforts to achieve and sustain future profitability, and the
fact that the Board concluded, based in part upon the advice of its
financial advisor, that alternative financing of similar magnitude to
LG's proposal was not reasonably available at the current time.
However, the Schedule 14D-9 fails to disclose the factual basis for the
Board's conclusion that alternative financing of a similar magnitude was
not reasonably available, particularly given Zenith's announcement on
May 11, 1995 of its extension of current credit agreements. Further,
the Schedule 14D-9 fails to explain the basis for the Board's apparent
rejection of the June 27, 1995 LG joint venture proposal in favor of a
sale of control, or the basis for the Board's apparent determination
that a sale of control was necessary to obtain the financing,
particularly given that at least LG apparently was willing to engage in
a joint venture as an alternative to a purchase of control. The omitted
information is material to shareholders' assessments of the Transaction
and available alternatives.
59. Defendants, acting in concert, have violated fiduciary
duties owed to the public shareholders of Zenith and put certain of
defendants' own personal interests and the interests of defendant LG
ahead of the interests of the Zenith public shareholders.
60. The Director Defendants who approved the Transaction
apparently were elected at the April 25, 1995 Annual Meeting based upon
materially deficient information, as discussed above.
61. Further, the Director Defendants apparently failed to
(1) undertake an adequate evaluation of Zenith's worth as a potential
merger/acquisition candidate; (2) take adequate steps to enhance
Zenith's value and/or attractiveness as a merger/acquisition candidate;
(3) effectively expose Zenith to the marketplace in an effort to create
an active and open auction for Zenith or its assets; (4) evaluate
adequately Zenith's value for purposes of structuring and timing any
sale of control to maximize the premium to Zenith's public shareholders;
or (5) disclose completely all material facts to Zenith shareholders in
connection with the Tender Offer. Instead, defendants have agreed to a
sale of control of Zenith to LG pursuant to terms which will coerce
Zenith shareholders to tender into the Tender Offer, impede maximization
of shareholder value including the prospect of other potential bidders
to acquire Zenith or its assets, and prevent Zenith shareholders from
obtaining a fair premium for control of Zenith.
62. While the Director Defendants should continue to seek
out other possible purchasers of the assets of Zenith or its stock in a
manner designed to obtain the best transaction reasonably available for
Zenith's shareholders, or seek to enhance the value of Zenith for all
its current shareholders, they have instead resolved wrongfully to allow
LG to obtain control of the valuable assets of Zenith at an inadequate
price which disproportionately benefits LG.
63. These tactics pursued by the defendants are, and will
continue to be, wrongful, unfair and harmful to Zenith's public
shareholders. These maneuvers by the defendants will deny members of
the Class of an appropriate premium in the sale of control of Zenith and
the opportunity to share appropriately in the true value of Zenith's
assets, future earnings and businesses.
64. In contemplating, planning and/or effecting the
foregoing, defendants are not acting in good faith toward plaintiff and
the Class, and defendants have breached, and are breaching, fiduciary
duties to plaintiff and the Class.
65. Because the Director Defendants (and those acting in
concert with them) dominate and control the business and corporate
affairs of Zenith and because they are in possession of private
corporate information concerning Zenith's businesses and future
prospects, there exists an imbalance and disparity of knowledge and
economic power between the defendants and the public shareholders of
Zenith. Further, LG has apparently been given access to such
information regarding Zenith.
66. By reason of the foregoing acts, practices and course
of conduct, the Director Defendants have failed to exercise loyalty,
good faith, due care and complete disclosure toward Zenith and its
public shareholders.
67. As a result of the actions of the Defendants,
plaintiff and the Class have been and will be damaged in that they will
not receive the best value available for sale of control of Zenith given
the true value of its assets and business, and have been and will be
prevented from obtaining the highest value available for their shares of
Zenith common stock.
68. Unless enjoined by this Court, the Director Defendants
will continue to breach fiduciary duties owed to plaintiff and the
Class, all to the irreparable harm of the Class.
69. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demand judgment as follows:
A. Declaring that this action may be maintained as a class action;
B. Declaring that the proposed Transaction is unfair, unjust
and inequitable to plaintiff and the other members of the Class;
C. Invalidating the shareholder vote at the April 25, 1995
Annual Meeting, including the election of Directors and share
authorization, based upon the materially deficient information provided
to Zenith shareholders in connection therewith;
D. Invalidating the Agreement;
E. Enjoining preliminarily and permanently the defendants from
taking any steps necessary to accomplish or implement the proposed
Transaction that is not fair and equitable, and enjoining any improper
device, agreement or transaction which will impede maximization of
shareholder value;
F. Ordering the Director Defendants to conduct a proper process
to explore the availability of alternatives to maximize shareholder
value and to disseminate completely all material information relating to
the Transaction;
G. Requiring defendants to compensate plaintiff and the members
of the Class for all losses and damages suffered and to be suffered by
them as a result of the acts and transactions complained of herein,
together with prejudgment and post-judgment interest;
H. Awarding plaintiff the costs and disbursements of this
action, including reasonable attorneys', accountants', and experts'
fees; and
I. Granting such other and further relief as may be just and
proper.
Dated: July 27, 1995 CHIMICLES, JACOBSEN & TIKELLIS
/s/ Robert J. Kriner, Jr.
----------------------------
Pamela S. Tikellis
James C. Strum
Robert J. Kriner, Jr.
One Rodney Square
P.O. Box 1035
Wilmington, DE 19899
(302) 656-2500
Attorney for Plaintiff
OF COUNSEL:
WOLF HALDENSTEIN ADLER FREEMAN & HERZ, LLP
Jeffrey G. Smith, Esquire
270 Madison Avenue, 9th Floor
New York, New York 10016
