ZENITH ELECTRONICS CORP, DEF 14A, 1995-10-06

ZENITH ELECTRONICS CORP
DEF 14A, 1995-10-06
HOUSEHOLD AUDIO & VIDEO EQUIPMENT

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

ZENITH ELECTRONICS CORPORATION
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

* Set forth the amount on which the filing fee is calculated and state how it
was determined.

[X] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

<PAGE>

LOGO
ZENITH ELECTRONICS CORPORATION [_] 1000 MILWAUKEE AVENUE [_] GLENVIEW,
ILLINOIS 60025-2493

ALBIN (AL) F. MOSCHNER
PRESIDENT AND
CHIEF EXECUTIVE
OFFICER

IMPORTANT SPECIAL STOCKHOLDERS' MEETING
NOVEMBER 7, 1995

October 6, 1995

DEAR FELLOW ZENITH STOCKHOLDER:

Your Board of Directors and management cordially invite you to attend a
special meeting of stockholders of Zenith Electronics Corporation scheduled for
Tuesday, November 7, 1995, at 9:00 a.m. at the offices of Sidley & Austin, One
First National Plaza, 55th Floor, Chicago, Illinois. We look forward to
greeting personally those stockholders able to attend.

ZENITH AND LG ELECTRONICS TO JOIN FORCES

At this important meeting, stockholders will be asked to vote on a proposal
to approve the terms of Zenith's Stock Purchase Agreement (the "Agreement")
with LG Electronics Inc. (LGE) and related transactions that will strengthen
your company's relationship with LGE and complement Zenith's plan to achieve
financial success and long-term global growth. Pursuant to the Agreement, LGE
has commenced a tender offer to purchase 18.619 million shares of common stock
at $10 per share from Zenith stockholders.

Pending successful completion of the tender offer, LGE has agreed to acquire
16.5 million newly issued shares of Zenith common stock, also at $10 per share.
Completion of the transaction (which is subject to various terms and
conditions, including Zenith stockholder approval and government approvals) as
set forth in the accompanying proxy statement, will result in LGE acquiring
approximately 57.7 percent of Zenith's outstanding common stock for a total
price of $351 million.

SYNERGIES TO STRENGTHEN ZENITH'S COMPETITIVENESS

This important 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 invest in new initiatives and strengthen
our competitive position in North America and around the world. Significantly,
Zenith intends to use the $165 million of LGE's invested capital to modernize
and expand capacity at our color picture tube plant in Melrose Park, Illinois,
and to support our growing Network Systems business.

WE BELIEVE THE RELATIONSHIP ALSO 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. TOGETHER, LGE AND ZENITH WILL EMBARK ON A STRATEGY TO BECOME THE
LARGEST CONSUMER ELECTRONICS MANUFACTURER AND MARKETER IN NORTH AMERICA, AND A
POWERFUL WORLDWIDE COMPETITOR.

The investment by LGE builds on a 20-year relationship between our two
companies which began in the mid-1970s with LGE (then known as GoldStar Co.
Ltd.) producing radios for Zenith. Since then, Zenith has produced picture
tubes and other components for LGE and LGE has supplied VCRs and combination
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 alliance should
augment those prospects through combined distribution and increased advertising
and promotion capacity for the Zenith brand. In short, we believe the
transaction will significantly strengthen Zenith's ability to compete.
<PAGE>

BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"

AFTER CAREFUL REVIEW, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY RECOMMENDED
THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE PROPOSED TRANSACTION. THE
BOARD ALSO HAS UNANIMOUSLY RECOMMENDED THAT ZENITH STOCKHOLDERS TENDER THEIR
SHARES OF STOCK PURSUANT TO LGE'S TENDER OFFER.

In reaching its decision, your Board has considered, among other things, the
opinion dated July 17, 1995 of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, internationally recognized investment bankers, to the effect
that, as of such date, the proposed cash consideration to be received by Zenith
and its stockholders pursuant to the terms of the Stock Purchase Agreement,
taken as a whole, is fair to Zenith and such stockholders from a financial
point of view.

After the transaction, Zenith will continue to operate separately--with
shares continuing to trade on the New York Stock Exchange. As a result, Zenith
stockholders will continue to participate in the long-term growth prospects for
your company. We believe these prospects will be enhanced by the added
financial and strategic resources LGE brings to Zenith.

I will continue to lead Zenith's management team following completion of the
transaction. However, the company fully expects to benefit from a collaborative
effort with LGE management, an effort that has already begun and that allows us
to draw upon their substantial manufacturing and overseas marketing expertise.

YOUR VOTE IS IMPORTANT

Your vote is important, regardless of the number of shares you own. You are
urged to promptly sign, date and mail your enclosed proxy in the postage-paid
envelope provided for your convenience.

If you have any questions or need assistance voting, please call D. F. King &
Co., Inc., which is assisting us, toll free at (800) 855-8511.

On behalf of your Board of Directors.

Sincerely,

LOGO
<PAGE>

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THIS MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND
MAIL (IN THE ENCLOSED ENVELOPE) THE ENCLOSED PROXY CARD. THE IMMEDIATE RETURN
OF YOUR PROXY WILL BE APPRECIATED.

ZENITH ELECTRONICS CORPORATION

1000 MILWAUKEE AVENUE
GLENVIEW, ILLINOIS 60025

NOTICE OF SPECIAL MEETING

To the Stockholders of Zenith Electronics Corporation:

A special meeting of stockholders (the "Special Meeting") of Zenith
Electronics Corporation, a Delaware corporation (the "Company"), will be held
at the offices of Sidley & Austin, One First National Plaza, 55th floor,
Chicago, Illinois, on Tuesday, November 7, 1995 at 9:00 a.m., local time, to
consider and vote upon a proposal to approve the Company's Stock Purchase
Agreement with LG Electronics Inc., a corporation organized under the laws of
the Republic of Korea (the "Purchaser"), and the transactions contemplated
thereby, including the Purchaser's tender offer to purchase from the Company's
stockholders up to 18,619,000 shares of common stock, par value $1.00 per
share, of the Company, including the associated common stock purchase rights
(collectively, the "Common Stock"), at a purchase price of $10.00 per share and
the issuance and sale by the Company to the Purchaser of 16,500,000 shares of
Common Stock at a purchase price of $10.00 per share.

The record date for stockholders entitled to notice of and to vote at the
Special Meeting is October 3, 1995, at the close of business. The transfer
books of the Company will not be closed.

It is desirable that as many stockholders as possible be represented at the
meeting, in person or by proxy. Whether or not you expect to attend the meeting
in person, please complete, sign, date and mail (in the enclosed postage paid
envelope) the enclosed proxy card, which is being solicited by the Board of
Directors of the Company.

Zenith Electronics Corporation

Richard F. Vitkus
Senior Vice President--General
Counsel
and Secretary
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction............................................................. 1
Summary.................................................................. 2
Voting Rights and Proxy Information...................................... 7
Background of the Proposed Transaction................................... 8
General................................................................ 8
Opinion of the Company's Financial Advisor............................. 13
Recommendation of the Company's Board of Directors; Reasons for the
Proposed Transaction.................................................. 16
Stockholder Approval................................................... 17
The Proposed Transaction................................................. 18
General................................................................ 18
Capitalization......................................................... 18
Use of Proceeds of the Sale of the Issue Shares........................ 19
The Stock Purchase Agreement........................................... 19
Amended Bylaws......................................................... 27
Amendment to Rights Agreement.......................................... 27
Certain Effects of the Proposed Transaction............................ 28
Certain Federal Income Tax Consequences................................ 29
Litigation Relating to the Proposed Transaction........................ 30
Interests of Certain Persons............................................. 31
Termination and Change of Control Agreements........................... 31
Benefits to Resigning Directors........................................ 32
The Purchaser's Designated Directors................................... 33
Security Ownership of Certain Beneficial Owners and Management........... 34
Security Ownership of Certain Beneficial Owners........................ 34
Security Ownership of Management....................................... 35
Selected Consolidated Financial Data..................................... 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Analysis of Operations--First Half 1995 and 1994....................... 37
Analysis of Operations--1994, 1993 and 1992............................ 38
Liquidity and Capital Resources........................................ 40
Outlook................................................................ 42
Market Prices of Common Stock; Dividends................................. 44
Price Range of the Common Stock........................................ 44
Dividends.............................................................. 44
Independent Accountants.................................................. 44
Other Business........................................................... 45
Available Information.................................................... 45
Incorporation of Certain Documents by Reference.......................... 45
Index to Financial Statements of Zenith Electronics Corporation.......... F-1
Appendices
Appendix I--Stock Purchase Agreement (with Exhibit)
Appendix II--Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Appendix III--Information Statement Pursuant to Section 14(f) of the
Securities Exchange Act of 1934, as amended, and Rule 14f-1
</TABLE>

-i-
<PAGE>

ZENITH ELECTRONICS CORPORATION

1000 MILWAUKEE AVENUE
GLENVIEW, ILLINOIS 60025

----------------

PROXY STATEMENT

----------------

SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 7, 1995

INTRODUCTION

This Proxy Statement is being furnished to holders of shares of common stock,
$1.00 par value, including the associated common stock purchase rights (the
"Rights") (collectively, the "Common Stock"), of Zenith Electronics
Corporation, a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at a
Special Meeting of Stockholders (the "Special Meeting") to be held at the
offices of Sidley & Austin, One First National Plaza, 55th floor, Chicago,
Illinois, on Tuesday, November 7, 1995, at 9:00 a.m., local time, and at any
adjournments thereof. This Proxy Statement, the accompanying Notice of Special
Meeting of Stockholders and the enclosed form of proxy are first being mailed
to stockholders on or about October 7, 1995.

At the Special Meeting, stockholders will be asked to consider and vote upon
a proposal to approve the Stock Purchase Agreement, dated as of July 17, 1995
(the "Stock Purchase Agreement"), between the Company and LG Electronics Inc.,
a corporation organized under the laws of the Republic of Korea (the
"Purchaser"), and the transactions contemplated thereby, including the
Purchaser's tender offer (the "Offer") to purchase from the Company's
stockholders up to 18,619,000 shares of Common Stock (the "Offer Shares") at a
purchase price of $10.00 per share (the "Offer Price"), and the issuance and
sale by the Company to the Purchaser of 16,500,000 shares of Common Stock (the
"Issue Shares") at a purchase price of $10.00 per share (the "Issue Price")
(collectively, the "Proposed Transaction"). The Stock Purchase Agreement is
attached to this Proxy Statement as Appendix I.

The consummation of the Proposed Transaction is conditioned upon the
fulfillment or waiver (where possible) of certain conditions set forth in the
Stock Purchase Agreement. The consummation of the purchase of the Offer Shares
is conditioned upon the consummation of the issuance and sale of the Issue
Shares and the consummation of the issuance and sale of the Issue Shares is
conditioned upon the purchase of the Offer Shares. See "THE PROPOSED
TRANSACTION--The Stock Purchase Agreement--Conditions." Pursuant to the Stock
Purchase Agreement, the Purchaser has agreed to extend the Offer if, on the
expiration date thereof, any of the conditions to the Offer have not been
satisfied or waived, until such time as all such conditions are satisfied or
waived (unless the Stock Purchase Agreement has been terminated). If the Offer
is extended, the closing date for the issuance and sale of the Issue Shares
would also be extended until consummation of the Offer. On September 15, 1995,
the Purchaser announced that it had extended the Offer until 12:00 midnight,
New York City time, on Thursday, October 19, 1995. The Purchaser has informed
the Company that it will extend the Offer shortly to 12:00 midnight, New York
City Time, on Tuesday, November 7, 1995.
<PAGE>

SUMMARY

The following is a summary of certain information contained in this Proxy
Statement. The summary is not intended to be complete and is qualified in its
entirety by reference to the more detailed information set forth elsewhere in
this Proxy Statement. Stockholders are urged to read this Proxy Statement in
its entirety (including the Appendices and the documents incorporated herein by
reference).

GENERAL INFORMATION

ZENITH ELECTRONICS Zenith Electronics Corporation, a Delaware
CORPORATION.............. corporation (the "Company"), is engaged in the
business of designing, developing and manufacturing
and marketing video products (including color
television sets and other consumer products). The
mailing address of its principal executive offices
is 1000 Milwaukee Avenue, Glenview, Illinois 60025,
and its telephone number is (708) 391-7000. See
"THE PROPOSED TRANSACTION--General."

STOCK PURCHASE AGREEMENT.. On July 17, 1995, the Company and LG Electronics
Inc., a corporation organized under the laws of the
Republic of Korea ("Purchaser"), signed a Stock
Purchase Agreement, a copy of which is attached
hereto as Appendix I (the "Stock Purchase
Agreement"), providing for the Purchaser (i) to
purchase from the Company's stockholders up to
18,619,000 shares of common stock, par value $1.00
per share, of the Company, including the associated
common stock purchase rights (collectively, the
"Common Stock"), at a purchase price of $10.00 per
share pursuant to a tender offer and (ii) to
purchase from the Company 16,500,000 shares of
Common Stock at a purchase price of $10.00 per
share (collectively, the "Proposed Transaction").
The Purchaser has indicated to the Company that
pursuant to the Stock Purchase Agreement it will
assign the right to purchase 80% of the Offer
Shares (as defined below) and 80% of the Issue
Shares (as defined below) to a majority owned
subsidiary of the Purchaser. See "THE PROPOSED
TRANSACTION--The Stock Purchase Agreement."

DATE, TIME AND PLACE OF
THE SPECIAL MEETING......
The Special Meeting of Stockholders of the Company
is to be held on Tuesday, November 7, 1995, at the
offices of Sidley & Austin, One First National
Plaza, 55th floor, Chicago, Illinois, at 9:00 a.m.,
local time (the "Special Meeting").

PURPOSES OF THE SPECIAL The purpose of the Special Meeting is to consider
MEETING.................. and vote upon a proposal to approve the Proposed
Transaction.

RECORD DATE............... Only holders of record of shares of Common Stock at
the close of business on October 3, 1995 (the
"Record Date"), are entitled to notice of and to
vote at the Special Meeting. On that date
46,922,442 shares of Common Stock were outstanding.

VOTE REQUIRED............. The rules and regulations of the New York Stock
Exchange, Inc. require the approval of the issuance
and sale of the Issue Shares by holders of at least
a majority of the shares of Common Stock present
and entitled to vote at the Special Meeting. The
approval of the Proposed Transaction by the holders
of at least a majority of the

2
<PAGE>

shares of Common Stock present and entitled to vote
at the Special Meeting is a condition to the
consummation of the Offer (as defined below) and
the closing of the issuance and sale of the Issue
Shares pursuant to the Stock Purchase Agreement.
See "THE PROPOSED TRANSACTION--Stockholder
Approval." A TENDER OF SHARES OF COMMON STOCK
PURSUANT TO THE OFFER DOES NOT CONSTITUTE A VOTE,
OR THE APPOINTMENT OF A PROXY, IN CONNECTION WITH
THE PROPOSED TRANSACTION. IN ORDER TO VOTE FOR THE
PROPOSED TRANSACTION, A TENDERING STOCKHOLDER IS
REQUIRED TO SUBMIT A PROXY OR VOTE IN PERSON AT THE
SPECIAL MEETING.

THE PROPOSED TRANSACTION

THE OFFER; PURCHASE OF
THE OFFER SHARES.........
On July 21, 1995, pursuant to the terms of the
Stock Purchase Agreement, the Purchaser commenced a
tender offer (the "Offer") to purchase from the
Company's stockholders up to 18,619,000 shares of
Common Stock (the "Offer Shares") at a price of
$10.00 per share. Purchase by the Purchaser of the
Offer Shares is conditioned upon the simultaneous
purchase by the Purchaser of the Issue Shares.
Stockholders are urged to review the Purchaser's
Offer to Purchase dated July 21, 1995 and any
supplements thereto to determine how to tender
shares of Common Stock pursuant to the Offer and to
determine their rights to withdraw shares of Common
Stock previously tendered pursuant to the Offer.
See "THE PROPOSED TRANSACTION--The Stock Purchase
Agreement--The Offer."

THE SALE OF THE ISSUE The Stock Purchase Agreement provides for the
SHARES................... issuance and sale by the Company to the Purchaser
of 16,500,000 shares of Common Stock (the "Issue
Shares") at a purchase price of $10.00 per share.
The purchase and sale of the Issue Shares is
conditioned upon the simultaneous purchase by the
Purchaser of the Offer Shares. See "THE PROPOSED
TRANSACTION--The Stock Purchase Agreement--Sale and
Purchase of Issue Shares" and "THE PROPOSED
TRANSACTION--The Stock Purchase Agreement--
Conditions."

PURCHASER'S OWNERSHIP OF
COMMON STOCK UPON
CONSUMMATION OF THE
PROPOSED TRANSACTION.....
Upon purchase by the Purchaser of the Offer Shares
and the Issue Shares and based on the number of
shares of Common Stock outstanding on the Record
Date, increased to give effect to the issuance of
the Issue Shares, including the 1,450,000 shares of
Common Stock already owned by the Purchaser, and
assuming no other shares of Common Stock are
issued, the Purchaser will own 57.7% of the shares
of the Company's outstanding Common Stock.

COMPANY'S BOARD OF
DIRECTORS FOLLOWING
CONSUMMATION OF THE
PROPOSED TRANSACTION.....
Following consummation of the Proposed Transaction,
the Board of Directors of the Company will be
composed of ten directors, of which six will be
designees of the Purchaser, one will be Albin F.
Moschner,

3
<PAGE>

the Company's President and Chief Executive
Officer, and three of such directors will 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 and who are, if they
are willing to serve, members of the Board of
Directors of the Company immediately prior to the
consummation of such transactions. It is
anticipated that Peter S. Willmott, Andrew McNally
IV and T. Kimball Brooker, along with Albin F.
Moschner, will continue as directors of the Company
and that the other current directors of the Company
will resign. See "INTERESTS OF CERTAIN PERSONS--
Purchaser's Designated Directors" and Appendix III.

USE OF PROCEEDS OF THE
SALE OF THE ISSUE
SHARES...................
The Company intends to use a substantial portion of
the net proceeds of the sale of the Issue Shares to
expand and modernize its color picture tube plant
in Melrose Park, Illinois, and to support the
growth of its Network Systems business. See "THE
PROPOSED TRANSACTION--Use of Proceeds of the Sale
of the Issue Shares."

RECOMMENDATION OF THE
COMPANY'S BOARD OF
DIRECTORS................ The Company's Board of Directors has 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 (as defined in the
Stock Purchase Agreement) 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 and vote FOR
the approval of the Proposed Transaction. The Board
of Directors' recommendation is based upon a number
of factors discussed in this Proxy Statement. See
"BACKGROUND OF THE PROPOSED TRANSACTION--
Recommendation of the Company's Board of Directors;
Reasons for the Proposed Transaction."

OPINION OF THE COMPANY'S
FINANCIAL ADVISOR........
On July 17, 1995, Merrill Lynch, Pierce, Fenner &
Smith Incorporated rendered an opinion to the Board
of Directors of the Company to the effect that, as
of such date, the proposed consideration to be
received by the Company and the stockholders in the
Proposed Transaction, taken as a whole, is fair to
the Company and such stockholders from a financial
point of view. See "BACKGROUND OF THE PROPOSED
TRANSACTION--Opinion of Company's Financial
Advisor." A copy of such opinion is contained in
Appendix II to this Proxy Statement, which opinion
sets forth the assumptions made, the matters
considered and the limits of the review undertaken
in rendering such opinion.

4
<PAGE>

INTERESTS OF CERTAIN
PERSONS IN THE PROPOSED
TRANSACTION..............
In considering the Proposed Transaction,
stockholders of the Company should be aware that
certain directors and officers of the Company, and
the persons designated by the Purchaser to serve as
directors of the Company, may be deemed to have
interests in the Proposed Transaction that are in
addition to the interests of the stockholders of
the Company generally. See "INTERESTS OF CERTAIN
PERSONS."

CLOSING DATE OF THE
PROPOSED TRANSACTION.....
If the Stock Purchase Agreement is approved by the
requisite vote of stockholders of the Company and
the other conditions to the Proposed Transaction
are satisfied or waived (where permissible), it is
expected that the Proposed Transaction will be
consummated promptly after the Special Meeting. See
"THE PROPOSED TRANSACTION--Stock Purchase
Agreement--Conditions."

CERTAIN FEDERAL INCOME
TAX CONSEQUENCES.........
The consummation of the Proposed Transaction will
create an "ownership change" of the Company for
federal income tax purposes thereby resulting in
limits being imposed on the Company's use of its
net operating loss (NOL) carryovers and tax credit
carryovers. As a result, the Company's ability to
utilize such carryovers will be materially reduced
by the Proposed Transaction. The effect of this
reduction will depend upon the level of taxable
income earned by the Company during the carryover
periods. The receipt of cash by stockholders of the
Company for shares of Common Stock purchased
pursuant to the Offer will be a taxable transaction
for federal income tax purposes, resulting in gain
or loss depending on the tax basis of such
stockholders in the shares of Common Stock being
sold pursuant to the Offer. See "THE PROPOSED
TRANSACTION--Certain Federal Income Tax
Consequences."

CONDITIONS OF THE
PROPOSED TRANSACTION;
TERMINATION; TERMINATION
FEE......................
The consummation of the Proposed Transaction is
conditioned upon the fulfillment or waiver (where
permissible) of certain conditions set forth in the
Stock Purchase Agreement. The consummation of the
purchase of the Offer Shares is conditioned upon
the consummation of the issuance and sale of the
Issue Shares and the consummation of the issuance
and sale of the Issue Shares is conditioned upon
the consummation of the purchase of the Offer
Shares. See "THE PROPOSED TRANSACTION--The Stock
Purchase Agreement--Conditions." The Stock Purchase
Agreement may be terminated (i) by mutual written
agreement of the Purchaser and the Company, (ii) by
either the Purchaser or the Company if the Proposed
Transaction has not been consummated on or before
March 31, 1996 and (iii) in certain other
situations. The termination of the Stock Purchase
Agreement under certain circumstances will obligate
the Company to pay to the Purchaser a termination
fee. See "THE PROPOSED TRANSACTION--Stock Purchase
Agreement--Termination."

5
<PAGE>

SUMMARY FINANCIAL INFORMATION

The following is a summary of certain consolidated financial information of
the Company. This summary has been derived in part from, and should be read in
conjunction with, the consolidated financial statements of the Company and the
related notes thereto. Results of interim periods are not necessarily
indicative of results to be expected for the year. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "INDEX TO FINANCIAL STATEMENTS OF ZENITH
ELECTRONICS CORPORATION."

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
---------------------------------- ------------------------------------------------
JULY 1, 1995(2) JULY 2, 1994(3)(4) 1994(5) 1993(6) 1992(7) 1991 1990
--------------- ------------------ -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA:
Net sales............... $546.7 $596.1 $1,469.0 $1,228.2 $1,243.5 $1,321.6 $1,409.9
------ ------ -------- -------- -------- -------- --------
Cost of products sold... 525.1 546.4 1,350.2 1,163.9 1,179.3 1,208.4 1,295.9
Selling, general and
administrative......... 51.3 49.8 117.1 92.5 94.0 101.2 106.5
Engineering and
research............... 23.5 22.8 45.4 47.8 55.4 54.1 55.9
Other operating expense
(income), net.......... (10.4) (8.1) (33.6) (25.2) (24.3) .5 (2.0)
Restructuring and other
charges................ 18.0 -- -- 31.0 48.1 -- --
------ ------ -------- -------- -------- -------- --------
Operating income (loss). (60.8) (14.8) (10.1) (81.8) (109.0) (42.6) (46.4)
Gain on asset sales, and
other, net............. -- 1.4 11.0 -- -- -- 1.1
Interest expense........ (9.4) (7.1) (15.9) (15.5) (13.7) (12.4) (12.6)
Interest income......... .4 .2 .5 .3 .9 3.6 4.6
------ ------ -------- -------- -------- -------- --------
Income (loss) before
income taxes........... (69.8) (20.3) (14.5) (97.0) (121.8) (51.4) (53.3)
Income taxes (credit)... (.2) -- (.3) -- (15.9) .2 .9
------ ------ -------- -------- -------- -------- --------
Income (loss) from
continuing operations.. (69.6) (20.3) (14.2) (97.0) (105.9) (51.6) (54.2)
Income (loss) from
discontinued
operations(1).......... -- -- -- -- -- -- (11.0)
------ ------ -------- -------- -------- -------- --------
Net income (loss)....... $(69.6) $(20.3) $ (14.2) $ (97.0) $ (105.9) $ (51.6) $ (65.2)
====== ====== ======== ======== ======== ======== ========
Per Share Data:
Income (loss) from
continuing operations.. $(1.50) $ (.51) $ (.34) $ (3.01) $ (3.59) $ (1.79) $ (2.02)
Income (loss) from
discontinued
operations(1).......... -- -- -- -- -- -- (.41)
------ ------ -------- -------- -------- -------- --------
Net income (loss) per
share.................. $(1.50) $ (.51) $ (.34) $ (3.01) $ (3.59) $ (1.79) $ (2.43)
====== ====== ======== ======== ======== ======== ========
BALANCE SHEET DATA (END
OF PERIOD):
Total assets............ $655.5 $664.9 $ 653.6 $ 559.4 $ 578.6 $ 686.9 $ 722.7
====== ====== ======== ======== ======== ======== ========
Other Data (Continuing
Operations):
Depreciation............ $ 16.5 $ 14.9 $ 28.8 $ 35.4 $ 37.7 $ 37.9 $ 38.8
Capital additions, net.. 30.2 13.2 31.4 25.7 25.7 23.9 30.8
Cash.................... -- -- 8.9 20.8 5.8 36.3 56.3
Working capital......... 186.6 212.4 227.6 158.6 170.6 254.3 283.8
Short-term debt......... 50.4 49.4 -- 34.5 10.1 -- --
Long-term debt.......... 215.5 182.0 182.0 170.0 149.5 149.5 151.1
Stockholders' equity.... 168.4 198.6 228.3 152.4 210.1 308.8 345.9
</TABLE>
- --------
(1) On December 28, 1989, the Company sold its computer products business to
Groupe Bull and received a closing-date payment of $496.4 million in cash.
The 1990 results reflect an $11.0 million adjustment to the previously
recorded gain on such sale based upon the receipt of an additional, final
post-closing payment of $15.0 million.
(2) Includes $18.0 million of restructuring and other charges and $9.2 million
of tuning system royalty income.
(3) Certain prior amounts have been reclassified to conform with the
presentation currently used.
(4) Includes $9.9 million of tuning system royalty income.
(5) Includes $27.9 million of tuning system royalty income.
(6) Includes $31.0 million of restructuring and other charges and $25.7 million
of tuning system royalty income.
(7) Includes $48.1 million of restructuring and other charges, $26.0 million of
tuning system royalty income and $15.9 million of income tax credits.

6
<PAGE>

VOTING RIGHTS AND PROXY INFORMATION

Proxies in the accompanying form are solicited on behalf of and at the
direction of the Company's Board of Directors, which fixed the close of
business on October 3, 1995 as the record date (the "Record Date") for the
determination of holders of outstanding shares of Common Stock entitled to
notice of and to vote at the Special Meeting or any adjournment(s) thereof. On
the Record Date, there were 46,922,442 shares of Common Stock issued and
outstanding, which were held of record on such date by 15,793 holders. Each
stockholder is entitled to one vote, exercisable in person or by proxy, for
each share of Common Stock held of record on the Record Date. The affirmative
vote of the holders of a majority of the shares of Common Stock present and
entitled to vote at the Special Meeting is required for approval of the
Proposed Transaction. The presence, either in person or by proxy, of the
holders of at least a majority of the outstanding shares of Common Stock
entitled to vote is necessary to constitute a quorum at the Special Meeting.

All shares of Common Stock represented by properly executed proxies will be
voted at the Special Meeting in accordance with the direction indicated on the
proxies unless such proxies have previously been revoked. A stockholder
entitled to vote at the Special Meeting may (i) vote "FOR" the approval of the
Proposed Transaction, (ii) vote "AGAINST" the approval of the Proposed
Transaction, or (iii) "ABSTAIN" from voting on the approval of the Proposed
Transaction. If no direction is indicated, the shares will be voted FOR
approval of the Proposed Transaction. THE BOARD UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE PROPOSED TRANSACTION. See "BACKGROUND OF THE PROPOSED
TRANSACTION--Recommendation of the Company's Board of Directors; Reasons for
the Proposed Transaction." If any other matters are properly presented at the
Special Meeting for action, the persons named in the proxies and acting
thereunder will have discretion to vote on such matters in accordance with
their best judgment.

A proxy submitted by a stockholder may indicate that all or a portion of the
shares represented by such proxy are not being voted by such stockholder with
respect to the Proposed Transaction. This could occur because a broker is not
permitted to vote shares held in street name with respect to the Proposed
Transaction in the absence of instructions from the beneficial owner of the
shares. The shares subject to any such proxy which are not being voted with
respect to the Proposed Transaction (the "Non-Voted Shares") will not be
considered present and entitled to vote on such matter, although such shares
will count for purposes of determining presence of a quorum. Shares voted to
abstain from voting on the approval of the Proposed Transaction will not be
considered Non-Voted Shares and will be considered present and entitled to vote
on the Proposed Transaction. A vote to abstain from voting on the Proposed
Transaction will have the legal effect of a vote against the Proposed
Transaction, while Non-Voted Shares will not affect the determination of
whether the Proposed Transaction is approved.

A stockholder executing and returning a proxy has the power to revoke it at
any time before it is voted. A stockholder who wishes to revoke a proxy can do
so by executing a later-dated proxy relating to the same shares and delivering
it to the Secretary of the Company prior to the vote at the Special Meeting, by
giving written notice of revocation to the Secretary prior to the vote at the
Special Meeting or by appearing in person at the Special Meeting and voting in
person the shares to which the proxy relates. Any written notice revoking a
proxy should be sent to the Company, 1000 Milwaukee Avenue, Glenview, Illinois
60025, Attention: Richard F. Vitkus, Senior Vice President--General Counsel and
Secretary.

The holders of shares of Common Stock tendered in the Offer will retain
voting rights with respect to such shares until such shares are accepted for
payment by the Purchaser. The Purchaser will accept shares of Common Stock
tendered pursuant to the Offer for payment only upon the purchase of the Offer
Shares. Approval of the Proposed Transaction is a condition to the consummation
of the purchase of the Offer Shares. A TENDER OF SHARES OF COMMON STOCK
PURSUANT TO THE OFFER DOES NOT CONSTITUTE A VOTE, OR THE APPOINTMENT OF A
PROXY, IN CONNECTION WITH THE PROPOSED TRANSACTION. IN ORDER TO VOTE FOR THE
PROPOSED TRANSACTION, A TENDERING STOCKHOLDER IS REQUIRED TO SUBMIT A PROXY OR
VOTE IN PERSON AT

7
<PAGE>

THE SPECIAL MEETING. Upon the purchase of the Offer Shares, designees of the
Purchaser will, with respect to such Offer Shares, be empowered to exercise all
voting and other rights of the stockholders who tendered such Offer Shares as
they in their sole discretion may deem proper in respect to any annual, special
or adjourned meeting of the Company's stockholders that occurs after the
Special Meeting or any adjournments thereof.

In addition to the use of the mail, proxies may be solicited via personal
interview, telephone, telegraph or other electronic means by the directors,
officers and regular employees of the Company. Such persons will receive no
additional compensation for such services. Arrangements will also be made with
certain brokerage firms and certain other custodians, nominees and fiduciaries
for the forwarding of solicitation materials to the beneficial owners of shares
of Common Stock held of record by such persons, and such brokers, custodians,
nominees and fiduciaries will be reimbursed by the Company for reasonable out-
of-pocket expenses incurred by them in connection therewith. In addition, the
Company has engaged D. F. King & Co., Inc. ("D. F. King") to provide advisory
services, assist in soliciting proxies and to provide materials to custodians,
nominees and fiduciaries and has agreed to indemnify D. F. King against certain
liabilities, including liabilities under the federal securities laws. For such
services, the Company will pay D. F. King $30,000, plus out-of-pocket costs and
expenses.

BACKGROUND OF THE PROPOSED TRANSACTION

GENERAL

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 Network
Systems 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. 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 offering to contribute $100 million in cash
and $35 million in promissory notes in return for a 49.0% equity interest in
the joint venture. 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

8
<PAGE>

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.

During the week of April 2, 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 12, 1995, representatives of the Company, including Messrs.
Pearlman, Moschner and Brooker, held an introductory meeting with the chief
executive officer and other representatives of the Other Consumer Products
Entity. At this meeting, the representatives of the Other Consumer Products
Entity and the representatives of the Company discussed the need for the Other
Consumer Products Entity to review certain information and documents relating
to the Company before the Other Consumer Products Entity would be able to
decide if it wanted to submit a proposal and the need for an agreement to
govern the terms of such review. No proposal for a transaction between the
Company and the Other Consumer Products Entity was made at the April 12, 1995
meeting.

As of 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.

On May 8, 1995, the Company received a proposal from the Other Consumer
Products Entity which provided for a two-step transaction. The first step was
to consist of the purchase by a publicly traded subsidiary of the Other
Consumer Products Entity (the "Consumer Products Subsidiary") of 9,300,000
newly issued shares of Common Stock in exchange for newly issued shares of
common stock of the Consumer Products Subsidiary (the market value of the
9,300,000 shares of Common Stock and the shares of common stock of the Consumer
Products Subsidiary each being approximately $70,000,000). The second step of
the

9
<PAGE>

proposed transaction was to consist of (i) the purchase of 20,000,000 newly
issued shares of Common Stock by the Consumer Products Subsidiary at the
current market price for $150,000,000 in cash, (ii) the purchase of 13,300,000
newly issued shares of Common Stock (valued at the market price per share) by
the Consumer Products Subsidiary in exchange for newly issued shares of common
stock of the Consumer Products Subsidiary (valued at the market price per
share), and (iii) the execution of certain "strategic alliance agreements"
between the Company and the Consumer Products Subsidiary. In addition, the May
8, 1995 proposal provided that the Consumer Products Subsidiary could purchase
additional shares of Common Stock in the market until it owned at least 51% of
the outstanding shares of Common Stock on a fully diluted basis and that, if
the Other Consumer Products Entity subsequently proposed a merger or similar
transaction involving the Company, such transaction would require approval of
the independent directors of the Company.

Between May 8, 1995 and May 24, 1995, senior management and advisors of the
Company had numerous meetings and phone conversations with representatives of
the Other Consumer Products Entity concerning possible synergies between the
Consumer Products Subsidiary and the Company, the structure of the proposed
transaction between the Consumer Products Subsidiary and the Company, and the
premium above the market price per share of the Common Stock to be paid by the
Consumer Products Subsidiary. On May 24, 1995, senior management of the Company
met with a representative of the Other Consumer Products Entity. At such
meeting, the representative of the Other Consumer Products Entity proposed a
revised two-step transaction structured along the same lines as had been
discussed among senior management of the Company and representatives of the
Other Consumer Products Entity. The first step was to consist of the purchase
of 9,300,000 shares of newly issued Common Stock by the Consumer Products
Subsidiary for $7.50 per share in cash and the execution of certain operational
agreements. The second step was to consist of (i) the purchase of 8,900,000
newly issued shares of Common Stock by the Consumer Products Subsidiary for
$8.25 per share in cash, (ii) the purchase of 38,000,000 newly issued shares of
Common Stock (valued at $8.25 per share) by the Consumer Products Subsidiary in
exchange for newly issued shares of common stock of the Consumer Products
Subsidiary having an equivalent value (based on the market price per share),
(iii) an option, exercisable by either the Company or the Consumer Products
Subsidiary upon certain conditions, providing for the exchange of the
38,000,000 shares of Common Stock to be purchased by the Consumer Products
Subsidiary pursuant to clause (ii) above for the shares of common stock of the
Consumer Products Subsidiary to be issued to the Company as consideration
pursuant to such clause (ii), (iv) the issuance of warrants to purchase shares
of Common Stock to the Consumer Products Subsidiary at a price to be determined
by the parties, and (v) the lack of any limitation on additional acquisitions
of shares of Common Stock by the Consumer Products Subsidiary. The Company
responded to the May 24, 1995 proposal with a proposal with the same structure
but providing for a price per share of Common Stock of $10.25 for the first
step of the transaction and a value per share of Common Stock of $11.75 for
each of the second steps of the transaction.

Between May 24, 1995 and June 15, 1995, senior management of the Company and
representatives of the Other Consumer Products Entity had several telephone
conversations relating to their respective proposals. On June 15, 1995, the
Company sent the Other Consumer Products Entity a letter proposing a revised
transaction again consisting of two steps. In the first step there would be (i)
the purchase by the Consumer Products Subsidiary of 9,300,000 newly issued
shares of Common Stock at a purchase price of $9.00 per share in cash, and (ii)
the execution of certain operational agreements between the Company and the
Consumer Products Subsidiary. The second step would involve (i) the purchase by
the Consumer Products Subsidiary of 10,600,000 newly issued shares of Common
Stock at a purchase price of $11.00 per share in cash, (ii) the purchase by the
Consumer Products Subsidiary of 36,300,000 newly issued shares of Common Stock
(valued at $11.00 per share) in exchange for newly issued shares of common
stock of the Consumer Products Subsidiary (valued at the market price per
share), (iii) an option, exercisable by either the Company or the Consumer
Products Subsidiary upon certain conditions, providing for the exchange of the
36,300,000 shares of Common Stock to be purchased by the Consumer Products
Subsidiary pursuant to clause (ii) above for the shares of capital stock of the
Consumer Products Subsidiary to be provided as

10
<PAGE>

consideration pursuant to such clause (ii), (iv) the issuance of warrants to
purchase shares of Common Stock to the Consumer Products Subsidiary at a price
to be agreed upon by the parties, and (v) the lack of any limitation on
additional acquisitions of shares of Common Stock by the Consumer Products
Subsidiary. The Company's June 15, 1995 proposal was not responded to by, and
no further proposals were received from the Other Consumer Products Entity.

None of the proposals received from the Other Consumer Products Entity
involved payment to the Company's stockholders, and each such proposal was at a
per share value less than the Offer Price (such per share value being
determined by blending the per share value of the first step of each proposed
transaction with the per share value to be received in the multiple second step
transactions pursuant to each such proposal).

On May 16, 1995, after the expiration of the two-week exclusivity period
afforded to the Other Consumer Products Entity, Mr. Moschner 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.
The two "financial buyers" contacted were recommended by Merrill Lynch as being
the most promising of the limited number of "financial buyers" likely to have
an interest in the Company. Both of the "financial buyers" contacted by Merrill
Lynch executed confidentiality agreements containing "standstill" provisions
precluding such entities from, among other things, acquiring, or agreeing,
offering, seeking or proposing to acquire, directly or indirectly, shares of
Common Stock without the Company's consent.

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 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

11
<PAGE>

being the establishment of a joint venture to own the Melrose Park color
picture tube plant in which the Purchaser agreed to pay the Company an
aggregate of $150 million for its 49.9% ownership interest in the joint
venture, of which $100 million would be contributed directly to the joint
venture and the balance paid directly to the Company. In addition, under the
joint venture proposal, the Purchaser would require a right of first refusal if
the Company sought to license its name. Following 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. In giving this authorization, the Board of Directors recognized
that the joint venture proposal did not provide stockholders of the Company
with the opportunity to obtain cash from the Purchaser for a portion of their
shares and that entering into a joint venture with respect to the Melrose Park
color picture tube plant could discourage potential purchasers of the Company
from seeking control of the Company or otherwise adversely affect a potential
purchaser's valuation of the Company. The Board of Directors also considered
Merrill Lynch's preliminary analysis and comparison of the two alternative
proposals. The Board of Directors was advised that a number of material terms
and conditions of the joint venture proposal had not been resolved and that the
value attributed to the joint venture proposal by Merrill Lynch would vary
depending on resolution of those issues. The Company then 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.

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, including synergies
relating to management of North American sales and marketing, consolidation of
North American warehousing, order processing and distribution, globalization of
the Company's brand name, globalization of the Company's Network Systems
business, consolidation of North American manufacturing and sourcing of
products, reduction of material costs, mutually beneficial commercial
transactions between the Company and the Purchaser, product development and
technology sharing, 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 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, including, without
limitation, the conditions to the consummation of the purchase of the Offer
Shares and the issuance and sale of the Issue Shares and the exceptions to the
representations and warranties and covenants of the Company contained in the
Stock Purchase Agreement, 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 under "--Recommendation of the Company's Board of
Directors; Reasons for the Proposed Transaction," Merrill Lynch delivered its
written opinion to the Board as described below under "--Opinion of the
Company's Financial Advisor," and the Board unanimously approved the terms of
the Offer and the Purchaser's investment as described above. On the same day,
following such Board approval, the Company and the Purchaser entered into the

12
<PAGE>

Stock Purchase Agreement and publicly announced their agreement. The Board was
aware that Merrill Lynch became entitled to certain of the fees in connection
with its engagement by the Company upon the consummation of such transactions.
See "BACKGROUND OF THE PROPOSED TRANSACTION--Opinion of the Company's Financial
Advisor."

OPINION OF THE COMPANY'S FINANCIAL ADVISOR

On July 17, 1995, Merrill Lynch delivered its written opinion to the Board to
the effect that, as of such date, the proposed consideration to be received by
the Company and the stockholders in the Proposed Transaction, taken as a whole,
is fair to the Company and such stockholders from a financial point of view.
Because the purchase of the Offer Shares and the issuance and sale of the Issue
Shares are each conditioned on the consummation of the other, Merrill Lynch was
requested by the Board to opine only as to the fairness, from a financial point
of view, of the Proposed Transaction considered as a whole, and not as to each
individual component of the Proposed Transaction. A copy of the Merrill Lynch
opinion is attached hereto as Appendix II and incorporated herein by reference.
THE STOCKHOLDERS ARE URGED TO READ CAREFULLY IN ITS ENTIRETY THE OPINION OF
MERRILL LYNCH, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS OF THE REVIEW UNDERTAKEN. THE SUMMARY OF THE MERRILL LYNCH OPINION SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.

Merrill Lynch's opinion to the Board addresses only the fairness from a
financial point of view of the consideration to be received by the Company and
such stockholders pursuant to the Stock Purchase Agreement, taken as a whole,
and does not constitute a recommendation to any stockholder of the Company as
to how such stockholder should vote or as to whether such stockholder should
tender shares pursuant to the Offer.

In arriving at its opinion, Merrill Lynch, among other things: (i) 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; (ii) reviewed certain of the Company's estimated unaudited
financial information for the quarterly period ending June 30, 1995; (iii)
reviewed certain information, including financial forecasts, relating to the
business, earnings, cash flow, assets and prospects of the Company, furnished
to Merrill Lynch by the Company; (iv) conducted discussions with members of
senior management of the Company concerning its businesses and prospects; (v)
reviewed the historical market prices and trading activity for the Common
Stock; (vi) compared the proposed financial terms of the transactions
contemplated by the Stock Purchase Agreement with the financial terms of
certain other transactions which Merrill Lynch deemed to be relevant (See "--
Acquisition Premium Analysis" below); (vii) reviewed the Stock Purchase
Agreement; and (viii) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
Merrill Lynch deemed appropriate, including Merrill Lynch's assessment of
general economic, market, monetary and other conditions existing on the date
the fairness opinion was delivered to the Board.

In preparing its opinion, Merrill Lynch assumed and relied upon the accuracy
and completeness of all information that was available to Merrill Lynch from
public sources and that was supplied or otherwise made available to it by the
Company, and Merrill Lynch has 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, Merrill
Lynch assumed that they were reasonably prepared and reflected the best
currently available estimates and judgment of the Company's management as to
the expected future financial performance of the Company.

13
<PAGE>

The Merrill Lynch opinion does not present a discussion of the relative
merits of the Proposed Transaction as compared to any other business plan or
opportunity that might be presented to the Company, or the effect of any other
arrangement in which the Company might engage.

In connection with Merrill Lynch providing financial advice to the Company
regarding the matters set forth in the opinion, Merrill Lynch, at the Company's
request, assisted the Company in its response to an indication of interest from
a party other than the Purchaser. Merrill Lynch was not otherwise authorized by
the Company or the Board to solicit, nor did Merrill Lynch solicit, except for
the "financial buyers" referred to under "BACKGROUND OF THE PROPOSED
TRANSACTION--General", third-party indications of interest for any acquisition
of all or any part of the Company.

Merrill Lynch's opinion is necessarily based upon economic, market, monetary
and other conditions as they exist on, and the information available to Merrill
Lynch as of, the date of its opinion.

The following is a summary of certain analyses performed by Merrill Lynch in
connection with its opinion dated July 17, 1995, which it discussed with the
Company's Board. In connection with such opinion, Merrill Lynch performed
certain procedures, including each of the financial analyses described below,
and reviewed with the Company's management the assumptions upon which such
analyses were based and other factors, including the current financial results
of and future prospects for the Company. Merrill Lynch did not assign relative
weights to any of its analyses in preparing its opinion.

Discounted Cash Flow Analysis. Merrill Lynch calculated ranges of equity
value for the Company on a stand-alone basis based upon the value, discounted
to the present, of estimates of projected financial performance over a six-year
period from 1995 to 2000 and the Company's fiscal year 2000 terminal value
based upon a range of perpetuity growth rates. In conducting its analysis,
Merrill Lynch utilized financial projections provided by Company management as
the bases for the Management Cases described below (the "Management Cases") and
financial projections derived by Merrill Lynch by modifying one of the
Management Cases (the "Merrill Lynch Case"). Each of the Management Cases was
based upon financial projections provided by Company management using certain
assumptions, including the availability of net operating loss tax benefits. The
most optimistic Management Case was prepared by Company management based upon
the assumption that $140 million of new equity at $8.00 per share would be
infused into the Company in 1995 ("Management Case 1"), while the second and
third Management Cases were based upon projections prepared by Company
management reflecting the assumptions that $90 million of new equity at $8.00
per share ("Management Case 2") and no new equity ("Management Case 3"),
respectively, would be infused into the Company in 1995. The Merrill Lynch
Case, while assuming the infusion of $140 million of new equity in 1995 (as in
Management Case 1), represents a more conservative forecast than Management
Case 1, and reflects, among other things, the assumptions that (i) sales growth
between 1996 and 1999 would be 50% of the sales growth projected in Management
Case 1, (ii) fixed costs would be held flat in absolute dollars at projected
1995 levels, and (iii) the contribution margin percentage would be equal to
levels projected by Company management for 1995 to 1999. The Merrill Lynch Case
assumed no adjustment to the Management Case 1 projections for 1995 since those
projections had recently been updated by Company management. Merrill Lynch
applied discount rates ranging from 12% to 20%, focusing on a range of 14% to
18%, and perpetuity growth rates ranging from 1% to 3%. Based upon this
analysis, Merrill Lynch calculated implied per share equity values for the
Company on a fully diluted basis ranging from $7.25 to $12.25 utilizing
Management Case 1, $5.75 to $8.00 utilizing Management Case 2, $2.00 to $4.50
utilizing Management Case 3, and from $4.50 to $8.00 utilizing the Merrill
Lynch Case.

Acquisition Premium Analysis. Merrill Lynch also reviewed and analyzed
certain publicly available information regarding the premiums paid over market
price one day, one week and one month prior to public announcement in
approximately 200 selected acquisition transactions since 1987 involving
companies engaged in the computer, electronics and telecommunications equipment
industries. Merrill Lynch calculated an implied per share purchase price of
between $9.90 and $10.75 based upon such review and analysis and

14
<PAGE>

the $8.50 per share closing price of the Company's Common Stock on July 14,
1995 (the last trading day prior to announcement of the Proposed Transaction)
and $7.71 30-day average closing price of such stock as of such date.

Discounted Share Price Analysis. Merrill Lynch also calculated ranges of
equity value for the Company on a stand-alone basis based upon the value,
discounted to the present, of Merrill Lynch's estimates of projected stock
prices of the Company for the five-year period from 1996 to 2000. In conducting
its analysis, Merrill Lynch utilized financial projections for the Company used
in Management Case 1 and the Merrill Lynch Case and multiplied the earnings per
share derived from such projections, calculated on a fully taxable basis, by
the Dow Jones median price to earnings multiple for the past 20 years (12.3x).
Merrill Lynch applied discount rates ranging from 12% to 20%, focusing on a
range of 14% to 18%. Based upon this analysis, Merrill Lynch calculated implied
per share equity values for the Company on a fully diluted basis ranging from
$6.50 to $12.00 utilizing Management Case 1, and from $4.00 to $6.00 utilizing
the Merrill Lynch Case.

The summary set forth above does not purport to be a complete description of
the analyses conducted by Merrill Lynch. Merrill Lynch believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all factors and
analyses, could create an incomplete view of the process underlying its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In
performing its analyses, Merrill Lynch made numerous macroeconomic, operating
and financial assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of the Company. Any estimates contained in the analyses performed
by Merrill Lynch are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of a
company do not purport to be appraisals or to reflect the prices at which a
company may actually be sold. Because such estimates are inherently subject to
uncertainty, none of the Company, Merrill Lynch or any other person assumes
responsibility for their accuracy.

Merrill Lynch is an internationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements. The Company selected Merrill Lynch as its financial advisor
because it is an internationally recognized investment banking firm and has
substantial experience in transactions similar to the Proposed Transaction.
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 fairness opinion described above. The Company
has also agreed to pay Merrill Lynch upon closing of the Proposed Transaction a
fee equal to 1% of the aggregate consideration paid to the Company and the
stockholders in connection therewith (less the $250,000 fee described above).
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 agreement. If such indemnification is
not available, the Company has 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.

Merrill Lynch has, in the past, provided financing services to an affiliate
of the Purchaser on unrelated matters and has received fees for the rendering
of such services. In the ordinary course of its business, Merrill Lynch and its
affiliates may actively trade in the securities of the Company for its own 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.

15
<PAGE>

RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS; REASONS FOR THE PROPOSED
TRANSACTION

The Board has reviewed and considered the terms and conditions of the
Proposed Transaction. 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 (as defined below)
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 and vote FOR the approval of the Proposed Transaction. In determining to
make its recommendation, 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 Transaction, 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;

(viii) The views of management (based, in part, on management's knowledge
of the industry and the Company's competitors) and the views of the
Company's financial advisor (based, in part, on their contacts with the
Other Consumer Products Entity and with the two "financial buyers"
discussed above under "BACKGROUND OF THE PROPOSED TRANSACTION--General") 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, as defined below) 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;

16
<PAGE>

(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.

STOCKHOLDER APPROVAL

Approval of the issuance and sale of the Issue Shares by the holders of at
least a majority of the shares of Common Stock present and entitled to vote at
the Special Meeting is required by the rules of the New York Stock Exchange,
Inc. (the "NYSE"), on which the Common Stock is listed. In addition, the
approval of the Proposed Transaction by the holders of at least a majority of
the shares of Common Stock present and entitled to vote at the Special Meeting
is a condition to consummation of the Offer and the closing of the issuance and
sale of the Issue Shares (the "Closing") pursuant to the Stock Purchase
Agreement. See "THE PROPOSED TRANSACTION--The Stock Purchase Agreement."

17
<PAGE>

THE PROPOSED TRANSACTION

GENERAL

The Company was founded in 1918 and has been a leader in consumer
electronics, first in radio and later in monochrome and color television and
other video products. The Company's operations involve a dominant industry
segment, the design, development, and manufacture and marketing of video
products (including color television sets and other consumer products) along
with parts and accessories for such products. These products, along with
purchased video cassette recorders, are sold principally to retail dealers in
the United States and Canada and to retail dealers and wholesale distributors
in other foreign countries. The Company also sells directly to buying groups,
private label customers and customers in the lodging, health care and rent-to-
own industries. The Company's video products also include color picture tubes
that are produced for and sold to other manufacturers and Network Systems
products, such as cable and telecommunication set-top devices, interactive
television and data communication products which are sold primarily to cable
television operators and other commercial users of these products. The mailing
address of the Company's principal executive offices is 1000 Milwaukee Avenue,
Glenview, Illinois 60025, and its telephone number is (708) 391-7000.

The Purchaser is a corporation organized under the laws of the Republic of
Korea with its principal offices located at LG Twin Towers, 20 Yoido-dong,
Youngdungpo-gu, Seoul, 150-721, Korea. The Purchaser is a leading international
brand-name manufacturer of five main groups of products: televisions; audio and
video equipment; home appliances; computers and office automation equipment;
and other products, including video displays, telecommunications products and
components, and magnetic media.

CAPITALIZATION

The following table sets forth the consolidated short-term debt and
capitalization of the Company as of July 1, 1995, as adjusted to give effect to
the sale and issuance of the Issue Shares, but does not reflect any assumed use
of the net proceeds therefrom. See "THE PROPOSED TRANSACTION--Use of Proceeds
of the Sale of the Issue Shares." This table should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto.
<TABLE>
<CAPTION>
AS OF JULY 1, 1995
-----------------------
AS REPORTED AS ADJUSTED
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Short-term debt:
Credit Agreement..................................... $ 43.9 $ --
Current portion of Term Loan......................... 6.5 6.5
------ ------
Total short-term debt.............................. $ 50.4 $ 6.5
====== ======
Long-term debt:
6 1/4% Convertible Subordinated Debentures due 2011.. $115.0 $115.0
8.5% Senior Subordinated Convertible Debentures due
2000................................................ 55.0 55.0
8.5% Senior Subordinated Convertible Debentures due
2001................................................ 12.0 12.0
Term Loan............................................ 33.5 33.5
------ ------
Total long-term debt............................... 215.5 215.5
------ ------
Stockholders' equity:
Preferred stock, $1 par value; 8,000,000 shares
authorized; none outstanding........................ -- --
Common stock, $1 par value; 150,000,000 shares
authorized; 47,001,673 shares issued(1) and
63,501,673 shares as adjusted....................... 47.0 63.5
Additional paid-in capital........................... 295.0 438.5
Retained earnings (deficit).......................... (171.9) (171.9)
Cost of 105,181 common shares in treasury............ (1.7) (1.7)
------ ------
Total stockholders' equity......................... 168.4 328.4
------ ------
Total long-term debt and stockholders' equity...... $383.9 $543.9
====== ======
</TABLE>

18
<PAGE>

- --------
(1) Shares of Common Stock issued and outstanding as of July 1, 1995, do not
include (i) in the aggregate 10,515,246 shares reserved for conversion of
the 8.5% Senior Subordinated Debentures due 2000, the 8.5% Senior
Subordinated Debentures due 2001, and the 6 1/4% Convertible Subordinated
Debentures due 2011, (ii) approximately 2,878,000 shares reserved for sale
to directors, officers and key employees of the Company under approved
stock option plans and (iii) approximately 23,450,000 shares reserved for
issuance under the Company's Stockholder Rights Plan. See "THE PROPOSED
TRANSACTION--Amendment to Rights Agreement."

USE OF PROCEEDS OF THE SALE OF THE ISSUE SHARES

The net proceeds to be received by the Company from the sale of the Issue
Shares are estimated to be $160 million (after deducting the expenses of the
Company of the Proposed Transaction). The proceeds are intended to be used to
expand and modernize the Company's Melrose Park, Illinois color picture tube
plant by adding a fifth color picture tube production line, capable of handling
larger, wide-screen tubes, and by increasing automation on existing production
lines. In addition, the proceeds will be used to provide financing for the
expansion of the Company's Network Systems business. Pending such use, it is
anticipated that net proceeds will be used to repay borrowings under the
Company's Credit Agreement with a lending group led by General Electric Capital
Corporation (the "Credit Agreement"). The Company's borrowings under the Credit
Agreement fluctuate depending on the Company's capital needs. As of September
29, 1995, the Company had an aggregate of $45.5 million in outstanding
borrowings under the Credit Agreement. Net proceeds not used to repay
borrowings under the Credit Agreement may be used to reduce (or eliminate)
other debt or temporarily invested in short-term marketable securities.

THE STOCK PURCHASE AGREEMENT

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 at a price of
$10.00 per share. The Purchaser has indicated to the Company that pursuant to
the Stock Purchase Agreement it will assign the right to purchase 80% of the
Issue Shares to a majority owned subsidiary of the Purchaser.

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 Offer was commenced on July 21, 1995 pursuant
to an Offer to Purchase dated July 21, 1995. Stockholders are urged to review
the Offer to Purchase and any supplements thereto to determine how to tender
shares of Common Stock pursuant to the Offer and to determine their rights to
withdraw shares of Common Stock previously tendered pursuant to the Offer. 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 Thursday, October 19, 1995, unless and until
the Purchaser, in its sole discretion (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 (the Purchaser has informed the Company that it will
extend the Expiration Date shortly to 12:00 midnight, New York City time, on
Tuesday, November 7, 1995)), and (iii) to the satisfaction or waiver of the
following conditions:

(a) Stockholder Approval. The Company's stockholders shall have approved
the Proposed Transactions, which transactions shall be described in a proxy
statement and related proxy materials, and submitted to a vote of the
Company's stockholders.

19
<PAGE>

(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) 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 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. The required material filings with
Governmental Authorities include filings by the Company and the Purchaser
with the Federal Trade Commission and the United States Department of
Justice required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), filings by the Purchaser with the Bank of
Korea and other instrumentalities of the Republic of Korea and the filings
described in (d) below. The Purchaser and the Company made the requisite
filings under the HSR Act and have received notice that the required
waiting period under the HSR Act expired on September 1, 1995. The
Purchaser has informed the Company that the required filings to be made
with the Bank of Korea and other instrumentalities of the Republic of Korea
have been made and that the Purchaser is awaiting final approval of the
Proposed Transaction by such entities.

(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.
The required filings pursuant to the Exon-Florio Amendment were delivered
by the Purchaser and the Company and accepted by CFIUS on September 7,
1995. On September 29, 1995, the Purchaser received a written request from
CFIUS for additional information relating to the Company's high definition
television technology. Notwithstanding this request, this condition to the
Offer will be satisfied if CFIUS has not advised the Purchaser and the
Company prior to October 10, 1995 of the commencement of such an
investigation.

(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 Albin
F. Moschner, the Company's President and Chief Executive Officer, and three
of such directors shall be persons who are not (apart from such
directorship) affiliates, officers, employees, agents, principals or
partners of the

20
<PAGE>

Purchaser or the Company or any subsidiary of either of them and who are,
if they are willing to serve, members of the Board of Directors of the
Company immediately prior to the Closing. It is anticipated that Peter S.
Willmott, Andrew McNally IV and T. Kimball Brooker, along with Albin F.
Moschner, will continue as directors of the Company and that the other
current directors of the Company will resign. See "INTERESTS OF CERTAIN
PERSONS--Purchaser's Designated Directors" and Appendix III.

(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 form
attached to the Stock Purchase Agreement as Exhibit A (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 Company's rights agreement with
The Bank of New York, as successor rights agent (the "Rights Agreement"),
shall have been amended by the Company (the "Amendment to Rights
Agreement") 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
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

21
<PAGE>

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 of consideration payable in the
Offer, decrease the maximum number of shares of Common Stock 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 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. The Purchaser has indicated to the Company that
pursuant to the Stock Purchase Agreement it will assign the right to purchase
80% of the Offer Shares to a majority owned subsidiary of the Purchaser.

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 Securities and Exchange
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

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<PAGE>

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 this 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 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 immediately to 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

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<PAGE>

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 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 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 Proposed Transaction, (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 Proposed Transaction 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

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<PAGE>

Exon-Florio Amendment and satisfactory resolution thereof. The Purchaser and
the Company have received notice that the waiting period under the HSR Act with
respect to the Proposed Transaction expired on September 1, 1995. The Purchaser
has informed the Company that the required filings to be made with the Bank of
Korea and other instrumentalities of the Republic of Korea have been made and
that the Purchaser is awaiting final approval of the Proposed Transaction by
such entities. The required filings pursuant to the Exon-Florio Amendment were
delivered by the Purchaser and the Company and accepted by CFIUS on September
7, 1995. On September 29, 1995, the Purchaser received a written request from
CFIUS for additional information relating to the Company's high definition
television technology. Notwithstanding this request, this condition to the sale
of the Issue Shares will be satisfied if CFIUS has not advised the Purchaser
and the Company prior to October 10, 1995 of the commencement of such an
investigation.

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 ten 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, (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

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<PAGE>

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 (2% of the aggregate proceeds to be
received by the Company and stockholders of the Company who tender shares of
Common Stock in the Offer upon consummation of the Proposed Transaction) (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.

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 Proposed
Transaction, 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

26
<PAGE>

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 Proposed Transaction (provided that the Company
immediately pays to the Purchaser the Termination Fee if the stockholders did
not approve the Proposed Transaction 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.

AMENDED BYLAWS

The following description of the Amended Bylaws does not purport to be
complete and is qualified in its entirety by reference to the text of the
Amended Bylaws. The Amended Bylaws are included as Exhibit A to the Stock
Purchase Agreement, which is included as Appendix I hereto. Stockholders are
urged to read the Amended Bylaws in their entirety.

The proposed Amended Bylaws amend the Company's current Bylaws by making the
following changes: (i) simplifying the provisions relating to the ability of
stockholders to act by written consent without a meeting; (ii) adding a
provision allowing stockholders owning at least a majority of the outstanding
capital stock of the Company to call a special meeting of stockholders; (iii)
eliminating provisions requiring certain procedures to be followed for the
nomination of directors; and (iv) adding a provision requiring written notice
of each regular meeting of directors at least five days prior to such meeting.

The adoption of the Amended Bylaws is a condition to the consummation of the
Offer and the Closing of the issuance and sale of the Issue Shares. See "THE
PROPOSED TRANSACTION--The Stock Purchase Agreement--The Offer" and "THE
PROPOSED TRANSACTION--The Stock Purchase Agreement--Conditions." The Amended
Bylaws will not become effective until the Closing.

AMENDMENT TO RIGHTS AGREEMENT

Pursuant to the Company's Rights Agreement, adopted in 1986 and subsequently
amended, the Company distributed one Right for each outstanding share of Common
Stock and will issue a Right with each share of Common Stock that subsequently
becomes outstanding (including the Issue Shares) unless the Board of Directors
provides otherwise at the time of issuance of each such share. Each Right
entitles the holder thereof, until October 14, 1996 (or, if earlier, the
redemption of the Rights), to purchase one-half of one share of Common Stock at
an exercise price of $37.50, subject to certain antidilution adjustments. The
Rights are represented by the Common Stock certificates and will not be
exercisable, or transferable apart from the Common Stock, until the earlier of
(i) the tenth day after the date (the "Stock Acquisition Date") of a public
announcement that a person or group of associated or affiliated persons (an
"Acquiring Person") has acquired beneficial ownership of 25% or more of the
Common Stock or (ii) the tenth day after the date of the commencement by any
person or group of, or first public announcement of the intent of any person or
group to commence, a tender or exchange offer, the consummation of which would
result in such person or group having beneficial ownership of 25% or more of
the Common Stock (the earlier of such days being referred to herein as the
"Distribution Date"). The Rights will not at any time have any voting rights.

In the event that any person becomes an Acquiring Person (i.e. beneficial
owner of 25% or more of the Common Stock), proper provision shall be made so
that each holder of a Right will thereafter have the right

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<PAGE>

to receive upon such exercise, that number of shares of Common Stock having a
market value of two times the exercise price of the Right. This provision is
generally referred to as the "flip-in" provision. Thus, a holder of a Right
could purchase shares of Common Stock having a market value of $75.00 upon
payment of $37.50. Notwithstanding the foregoing, following the occurrence of
such event, all Rights that are or (under certain circumstances) were
beneficially owned by an Acquiring Person will be null and void.

In the event that on or after the Stock Acquisition Date (i) the Company is
acquired in a merger or other business combination transaction or (ii) 50% or
more of its assets or earning power are sold (in one transaction or a series of
transactions), proper provision shall be made so that each holder of a Right
(other than an Acquiring Person) shall thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction would have a market value of two times the exercise price of
the Right. This provision is generally referred to as the "flip-over"
provision.

Pursuant to the Stock Purchase Agreement, the Company executed the Amendment
to Rights Agreement to effectively exclude the Purchaser and its affiliates
from being an Acquiring Person and to provide that the Purchaser's or its
affiliate's commencement of, or announced intent to commence, a tender or
exchange offer will not cause a Distribution Date to occur, until the
termination of the Stock Purchase Agreement in accordance with its terms
without the purchase by the Purchaser of any shares of Common Stock pursuant
thereto.

Accordingly, if the Proposed Transaction is approved, the Rights will not be
triggered by the Purchaser's purchase of the Offer Shares, the Issue Shares or
any additional shares of Common Stock. The Company does not currently
anticipate entering into a merger or other business combination transaction
with another entity.

CERTAIN EFFECTS OF THE PROPOSED TRANSACTION

Upon the consummation of the Proposed Transaction, the Purchaser will own
57.7% of all issued and outstanding shares of Common Stock (based on the number
of outstanding shares of Common Stock on the Record Date, increased to give
effect to the issuance of the Issue Shares, and including the 1,450,000 shares
of Common Stock already owned by the Purchaser, and assuming that no other
shares of Common Stock are issued). Assuming the exercise of all outstanding
stock options and the conversion of all outstanding convertible debt
instruments of the Company reasonably expected to be exercised or converted in
the foreseeable future, the Purchaser would own approximately 50.2% of all
issued and outstanding shares of Common Stock (based on the number of shares of
Common Stock outstanding on the Record Date, increased to give effect to the
issuance of the Issue Shares and the exercise and conversion of such stock
options and convertible debt instruments). Because the Purchaser will own a
majority of all issued and outstanding shares of Common Stock after
consummation of the Proposed Transaction, it will effectively control the
outcome of any matter requiring action by a majority of the Company's
stockholders, including the election of a majority of the Company's directors
and any future change of control of the Company.

The Company's Common Stock is currently registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and listed on the NYSE
and the Chicago Stock Exchange and will continue to be so registered and listed
upon consummation of the Proposed Transaction. The purchase of the Offer Shares
by the Purchaser will reduce the number of shares of Common Stock that might
otherwise trade publicly; however, a significant percentage of the Company's
Common Stock will continue to be held by persons other than the Purchaser.
According to the NYSE's published guidelines, the NYSE would consider delisting
the Common Stock if, among other things, the number of holders of at least 100
shares of Common Stock should fall below 1,200, the number of publicly held
shares of Common Stock (exclusive of holdings of officers and directors of the
Company and their immediate families and other concentrated holdings of 10% or
more) should fall below 600,000, or the aggregate market value of the publicly
held shares of Common Stock should fall below $5,000,000.

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<PAGE>

The shares of Common Stock are presently "margin securities" under the
regulations of the Federal Reserve Board, which has the effect, among other
things, of allowing brokers to extend credit on the collateral of such shares.
Depending upon factors similar to those described above regarding listing and
market quotations, the shares of Common Stock might no longer constitute
"margin securities" for the purposes of the Federal Reserve Board's margin
regulations, in which event the shares of Common Stock would be ineligible as
collateral for margin loans made by brokers.

The shares of Common Stock are currently registered under the Exchange Act.
Such registration may be terminated by the Company upon application to the
Commission if the outstanding shares of Common Stock are listed on a national
securities exchange and if there are fewer than 300 holders of record of shares
of Common Stock. Termination of registration of the shares of Common Stock
under the Exchange Act would reduce the information required to be furnished by
the Company to its stockholders and to the Commission and would make certain
provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b) and the requirement of furnishing a proxy statement
in connection with stockholders' meetings pursuant to Section 14(a) and the
related requirement of furnishing an annual report to stockholders, no longer
applicable with respect to the shares of Common Stock. Furthermore, the ability
of "affiliates" of the Company and persons holding "restricted securities" of
the Company to dispose of such securities pursuant to Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), may be impaired or
eliminated. If registration of the shares of Common Stock under the Exchange
Act were terminated, the shares of Common Stock would no longer be eligible for
continued inclusion on the Federal Reserve Board's list of "margin securities".
Even if the registration of the Shares under the Exchange Act is terminated,
the Exchange Act requirement that the Company file periodic reports would
remain applicable as long as its currently outstanding listed debt securities
continue to be so listed on the NYSE and registered under the Exchange Act.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

Effect of the Proposed Transaction on Net Operating Loss Carryovers and Tax
Credit Carryovers. As of July 1, 1995, the Company had, for federal income tax
purposes, net operating loss (NOL) carryovers aggregating $456.1 million, which
expire in the years 2004 through 2010 if not used to offset taxable income of
the Company, and tax credit carryovers of $6.2 million, which expire in the
years 1995 through 2002 if not used to offset the Company's tax liability. The
consummation of the Proposed Transaction will create an "ownership change" of
the Company for federal income tax purposes, with the effect that the Company's
annual usage of its NOL carryovers will be limited to the product of (i) a tax-
exempt rate of return announced monthly by the Internal Revenue Service (for
example, 5.88% for ownership changes occurring in the month of August 1995) and
(ii) the equity value of the Company immediately before the ownership change,
as determined under applicable tax regulations. This limitation, appropriately
modified, will also apply to the Company's utilization of most of its tax
credit carryovers. As a result, the Company's ability to utilize such
carryovers will be materially reduced by the Proposed Transaction. The effect
of this reduction will depend upon the level of taxable income earned by the
Company during the carryover periods.

Consequences of the Proposed Transaction to Stockholders of the Company. The
receipt by stockholders of the Company of cash for shares of Common Stock
purchased by the Purchaser pursuant to the Offer will be a taxable transaction
for federal income tax purposes (and may also be a taxable transaction under
applicable state, local, foreign and other tax laws). Accordingly, a
stockholder will recognize gain or loss for federal income tax purposes equal
to the difference between the amount of cash received and such stockholder's
tax basis in the shares of Common Stock being sold pursuant to the Offer. Such
gain or loss will be capital gain or loss if such shares of Common Stock were
held as a capital asset and any such gain or loss will be long term if, as of
the date of sale, such shares of Common Stock were held for more than one year.

IN VIEW OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, STOCKHOLDERS ARE URGED
TO CONSULT THEIR OWN ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE PROPOSED TRANSACTION.

29
<PAGE>

LITIGATION RELATING TO THE PROPOSED TRANSACTION

On July 18, 1995, a purported stockholder class action suit was 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 (as so amended, the "Complaint"). The
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
Proposed Transaction.

The 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 of
the Company's executives. In addition, the Complaint alleges that, in executing
the Stock Purchase Agreement and recommending that the stockholders approve the
Proposed 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 Complaint alleges that the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, dated July 21, 1995
(the "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 Complaint alleges that the Purchaser's Tender
Offer Statement on Schedule 14D-1 dated July 21, 1995 (the "Schedule 14D-1")
and the Schedule 14D-9 also fail to disclose (i) a schedule of "change of
control" payments required to be made, stock options which vest and shares of
restricted 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 Complaint further alleges that the Purchaser aided and
abetted the Company's directors' alleged breach of their fiduciary duties. The
Complaint seeks (i) a declaration that the action may be maintained as a class
action, (ii) a declaration that the Proposed 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 Proposed 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.

On or about August 2, 1995, defendants agreed to proceed to provide plaintiff
with discovery on an expedited basis which would permit plaintiff, if
necessary, to seek preliminary injunctive relief prior to the Special Meeting
from the Delaware Court of Chancery in connection with plaintiff's claims.

30
<PAGE>

complete disclosure of all material information, (vi) enjoining the Board of
Directors to conduct a proper process to explore the availability of
alternatives to maximize Company shareholder value.

Commencing in August 1995 and continuing into September 1995, plaintiff's
counsel conducted a review of tens-of-thousands of pages of documents from the
Company, the Purchaser and certain third parties.

Following meetings, discussions and negotiations among counsel for the
Company and the Board of Directors and counsel for the plaintiff, on October 6,
1995, the Company, the Purchaser, the members of the Board of Directors, and
the plaintiff entered a Memorandum of Understanding setting forth the terms of
an agreement in principle to settle and terminate the litigation (the "Proposed
Settlement"). Under the Proposed Settlement, the Company agreed to include
certain additional information in this Proxy Statement that was not contained
in the offer documents or the preliminary copies of this Proxy Statement which
the Company filed with the Securities and Exchange Commission. In exchange for
the Company's agreement to include these additional disclosures, the plaintiff
agreed not to take any action to enjoin or take other legal action to prevent
the stockholder vote on or consummation of the Proposed Transaction; to release
any and all claims against the defendants, including all state and federal
claims arising out of the events described in the Complaint; and to dismiss,
with prejudice, the Complaint to effect termination of this litigation.

The Proposed Settlement is expressly conditioned on (a) the parties'
execution of a definitive Stipulation of Settlement; (b) the plaintiff's
completion of certain discovery designed to confirm that the settlement is fair
and reasonable and in the best interests of the Company's stockholders; (c) the
court's certification of a class of the Company's stockholders during the
period from March 23, 1995 through the date of the Special Meeting who do not
exclude themselves from the class, for purposes of settlement only; (d) the
court's preliminary and final approval of the settlement; and (e) the entry of
a final judgment dismissing the litigation. The Company also has the right, in
its sole discretion, to terminate the settlement if putative class members who
collectively hold more than a specified total number of shares elect to opt out
of the class.

The Company, the members of the Board of Directors, and the Purchaser denied,
and continue to deny, that they committed any violations of law or breaches of
duty as alleged in the Complaint, but entered the Memorandum of Understanding
and contemplate entering into the Stipulation of Settlement solely because the
Proposed Settlement would eliminate the burden and expense of further
litigation and would facilitate the consummation of the Proposed Transaction.
In agreeing to disclose additional information, the Company does not admit the
materiality of that information or that the materials previously filed with the
Securities and Exchange Commission were in any way deficient. In connection
with the Proposed Settlement, it is anticipated that counsel for the plaintiff
will apply to the court for an aggregate award of attorneys' fees and expenses
in an amount not to exceed $300,000. As a condition of settlement, the Company
has agreed to pay plaintiff's counsel the amount awarded by the court. Before
the Proposed Settlement is finally approved by the court, notice of the
proposed terms and conditions of the settlement will be mailed to all members
of any class certified by the court, who will be afforded an opportunity to opt
out of and object to the settlement.

INTERESTS OF CERTAIN PERSONS

Certain directors and officers of the Company may be deemed to have interests
(summarized below) in the Proposed Transaction that are in addition to their
interests, if any, as holders of Common Stock and the interests of the
stockholders of the Company generally. The Board of Directors was aware of
these interests and considered them, among other factors, in approving the
Proposed Transaction and making its recommendation to the Company's
stockholders.

TERMINATION AND CHANGE OF CONTROL AGREEMENTS

Agreements between the Company and its executive officers, which were amended
as of April 4, 1995, provide for severance pay and benefits in the event of
termination of employment within two years after a change in control of the
Company. Consummation of the Proposed Transaction will constitute a change in
control for purposes of these agreements. 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.

31
<PAGE>

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. In
addition, the agreements provide for acceleration of vesting of options and
restricted stock upon a change in control, without regard to whether
termination of employment has occurred. For other long-term incentive programs,
the agreements provide for payment upon a change in 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 executive remained
employed for the entire measuring period and all target levels were achieved.
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 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 agreement of Albin F. Moschner, President and Chief Executive Officer of
the Company, provides for payment of an amount sufficient to put him in the
same after-tax position as if no excise taxes imposed by Section 4999 of the
Internal Revenue Code ("Section 4999") had been imposed on any payments which
are contingent on a change in control and which equal or exceed three times Mr.
Moschner's average taxable compensation for the prior five years or his period
of employment. The agreements of the other executive officers (except for
Gerald M. McCarthy, Executive Vice President, Sales and Marketing of the
Company) provide 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. Mr. McCarthy's agreement does not provide for
any limitation or any payment in the event he is subject to excise taxes
imposed by Section 4999. The Company is obligated under the agreements to
reimburse the employee for legal fees and expenses incurred in successfully
enforcing the agreement.

Pursuant to agreements between the Company and its executive officers, the
Company will pay such executive officers severance payments upon termination
within two years following the consummation of the Proposed Transaction.
Assuming that consummation of the Proposed Transaction occurs on November 8,
1995 and the executive officer in question is immediately terminated, the
Company will owe $4,215,321 to Mr. Moschner, $1,256,320 to Mr. McCarthy,
$523,653 to Kell B. Benson, $436,380 to Michael J. Kaplan, $799,061 to Philip
S. Thompson and $558,101 to Richard F. Vitkus pursuant to such agreements.

Acceleration of Stock Options Held by Executive Officers. Pursuant to the
terms of stock option agreements evidencing the grant of options to executive
officers under the Company's 1987 Stock Incentive Plan, such options will
accelerate and become exercisable upon the consummation of the Proposed
Transaction.

The following table sets forth for each executive officer the number of stock
options subject to acceleration (assuming that the Proposed Transaction occurs
on or before March 31, 1996) and the weighted average per share exercise price
of such stock options:

<TABLE>
<CAPTION>
NUMBER OF
UNVESTED WEIGHTED
STOCK OPTIONS AVERAGE
SUBJECT TO PER SHARE
NAME ACCELERATION(1) EXERCISE PRICE
---- --------------- --------------
<S> <C> <C>
Albin F. Moschner.......................... 102,500 $7.43
Gerald M. McCarthy......................... 38,500 7.68
Kell B. Benson............................. 26,000 7.70
Michael J. Kaplan.......................... 21,500 7.59
Philip S. Thompson......................... 40,000 8.20
Richard F. Vitkus.......................... 26,500 7.62
</TABLE>
- --------
(1) Options to purchase 328,000 shares at $7.125 per share were granted to
officers of the Company on April 11, 1995, including 90,000 options to Mr.
Moschner; 30,000 options to Mr. McCarthy; 20,000 options to Mr. Benson;
17,500 options to Mr. Kaplan; 25,000 shares to Mr. Thompson; and 22,500
shares to Mr. Vitkus.

32
<PAGE>

Vesting of Restricted Stock. Pursuant to the terms of agreements between the
Company and Mr. Moschner and Mr. McCarthy, respectively, upon consummation of
the Proposed Transaction, 56,757 shares of restricted Common Stock issued to
Mr. Moschner and 32,432 shares of restricted Common Stock issued to Mr.
McCarthy will become vested.

BENEFITS TO RESIGNING DIRECTORS

Assuming that the consummation of the Proposed Transaction occurs after
November 1, 1995 and prior to December 5, 1995, Harry G. Beckner, David H.
Cohen, Ilene S. Gordon and Charles Marshall, who will resign as directors of
the Company upon consummation of the Proposed Transaction pursuant to the Stock
Purchase Agreement, will each be entitled to (i) the cash retainer of $4,500
that they would have received had they remained directors until the next annual
meeting of stockholders of the Company, and (ii) the value of the 1,000 shares
of Common Stock that they would have received had they remained directors until
December 5, 1995 (computed using the average closing price of the Common Stock
on the NYSE for the 20 trading days preceding the resignation date). In
addition, upon their resignation as directors of the Company, Messrs. Beckner,
Cohen and Marshall will become entitled to a lump sum distribution payable 30
days after their resignation date in an amount equal to the excess of the
"market value" of the phantom stock appreciation units issued to such persons
pursuant to the Company's Non-Employee Directors Stock Plan on the distribution
date over the value on the date of grant of such units. "Market Value" is
defined for this purpose as the average closing price of the Common Stock as
quoted on the NYSE over the 20 trading days preceding the distribution date.
Mr. Beckner presently has 1,000 units which were granted at $20.00 per unit,
2,000 units which were granted at $14.125 per unit, 1,000 units which were
granted at $8.375 per unit and 1,000 units which were granted at $6.875 per
unit. Mr. Cohen presently has 1,000 units which were granted at $9.00 per unit
and 1,000 units which were granted at $6.875 per unit. Mr. Marshall presently
has 1,000 units which were granted at $9.00 per unit.

Upon their resignation as directors pursuant to the Stock Purchase Agreement,
Messrs, Beckner and Marshall will be entitled to a lump sum payment (payable
within 30 days of such resignation) equal to the present value of the projected
benefit to be received by such directors pursuant to the Company's Directors
Retirement Plan. For Mr. Beckner such payment will be approximately $118,000
and for Mr. Marshall such payment will be approximately $49,000.

PURCHASER'S DESIGNATED DIRECTORS

As the holder of a majority of the Company's outstanding shares of Common
Stock, the Purchaser will have the ability to elect all of the Company's
directors. Pursuant to the Stock Purchase Agreement, immediately following the
Closing the Board of Directors of the Company will be comprised of ten
directors, six of whom will be designees of the Purchaser, one of whom will be
Albin F. Moschner, the President and Chief Executive Officer of the Company,
and three of whom will be persons who are, if they are willing to serve,
members of the Board of Directors of the Company immediately prior to the
Closing. See "THE PROPOSED TRANSACTION--The Stock Purchase Agreement." It is
anticipated that Peter S. Willmott, Andrew McNally IV and T. Kimball Brooker,
along with Albin F. Moschner, will continue as directors of the Company and
that the other current directors of the Company will resign.

Set forth below are the names, ages, principal occupations, five year
employment histories and public directorships, if any, of the Purchaser's
designees as directors of the Company. Additional information relating to the
Purchaser's designees and the Company's directors is contained in Appendix III.

33
<PAGE>

<TABLE>
<CAPTION>
NAME AGE BACKGROUND INFORMATION
---- --- ----------------------
<C> <C> <S>
Cha Hong (John) Koo 48 President of LG Electronics Inc. since 1995;
Executive Vice President from 1991 to 1994; Senior
Managing Director from 1988 to 1991. It is
anticipated that Mr. Koo will serve as Chairman of
the Executive Committee of the Board of Directors
of the Company.
Yong Nam 47 Senior Officer of LG Electronics Inc. since 1993;
Officer from 1989 to 1993.
Nam K. Woo 46 President LG Electronics Inc., North American
Operations and LG Electronics U.S.A. since January
1995; Managing Director of LG Electronics Inc.
since 1994; President of LG Electronics Inc.,
European Operations from 1989 to January 1995.
Ki-song Cho 45 Managing Director, Corporate Planning &
Coordination, LG Electronics Inc. since March 1995;
Executive Director, Strategic Planning Division, LG
Electronics Inc. from 1992 to 1995; Employed by the
Strategic Planning Division, LG Electronics Inc.
from 1989 to 1992.
Eugene B. Connolly 63 Chairman and Chief Executive Officer of USG
Corporation and employed in varying capacities with
USG Corporation and its affiliates since 1958;
Member of the Boards of Directors of USG
Corporation, CGS Inc., U.S. Can Corporation, the
Pepper Companies, Inc. and LaSalle National Bank;
Advisory Board member of Good Shepherd Hospital,
Kellogg Graduate School of Management, Northwestern
University and Indiana University School of
Business.
</TABLE>

To the extent that any such director designees are affiliated or associated
with the Purchaser, such persons may thereby be deemed to have interests in the
Proposed Transaction that are in addition to the interests of the Company's
stockholders generally. When the Purchaser designees become directors they may
also be entitled, subject to certain restrictions (particularly in the case of
designees who may be deemed to be affiliates of the Purchaser), to receive
normal compensation and benefits customarily given by the Company to non-
employee members of the Board.

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following lists the beneficial ownership of the Common Stock, of all
persons who are known by the Company, as of July 31, 1995, to beneficially own
more than five percent of the outstanding shares of the Common Stock:

<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS(1)
------------------- ----------------------- -----------
<S> <C> <C>
The Crabbe Huson
Company................ 3,525,000(2) 7.5%
121 S.W. Morrison
Portland, Oregon 97204
Reliance Financial
Services Corporation... 3,688,524(3) 7.3%
55 East 52nd Street
New York, New York 10055
The Zenith Profit
Sharing Trust.......... 2,801,350(4) 6.0%
The Bank of New York,
Trustee
101 Barclay Street
New York, New York 10286
</TABLE>

34
<PAGE>

- --------
(1) Percentages based on shares of Common Stock issued and outstanding on July
31, 1995.
(2) The Company has been informed that as of July 31, 1995 The Crabbe Huson
Company had sole voting and dispositive power with respect to all 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 $36 million 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 that converts any Debentures.
(4) The Company has been informed by The Bank of New York that as of July 31,
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 1.4% of the Common Stock. No director or nominee for election as a director
or executive officer owns in excess of 1% of the Common Stock. Included in the
following table is the number of shares of the Common Stock beneficially owned
by each director of the Company, the President and Chief Executive Officer of
the Company and each of the four most highly compensated other executive
officers and the directors and all executive officers of the Company as a group
as of July 31, 1995.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
-------------------------
OBTAINABLE
THROUGH
STOCK
NAME OF OPTION
BENEFICIAL OWNER OWNED(1) EXERCISE(2)
- ---------------- -------- -----------
<S> <C> <C>
Harry G.
Beckner........ 4,300 8,000
T. Kimball
Brooker........ 9,000 8,000
David H. Cohen.. 4,500 8,000
Ilene S. Gordon. 2,000 4,000
Charles
Marshall....... 9,000 8,000
Gerald M.
McCarthy....... 36,544(3)(4) 79,500
Andrew McNally
IV............. 6,000 8,000
Albin F.
Moschner....... 60,644(3)(4) 52,500
</TABLE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
-----------------------
OBTAINABLE
THROUGH
STOCK
NAME OF BENEFICIAL OPTION
OWNER OWNED(1) EXERCISE(2)
- ------------------ -------- -----------
<S> <C> <C>
Jerry K. Pearlman. 26,479(4) 205,000
Peter S. Willmott. 24,000 8,000
Kell B. Benson.... 4,801(4) 26,000
Michael J. Kaplan. 8,244(4) 43,500
Directors and All
Executive
Officers as a
Group (14 persons). 198,512(4) 477,500
</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 July 31, 1995, were subject to
outstanding stock options exercisable within 60 days.
(3) Includes shares of restricted stock issued as described above.
(4) Includes shares of Common Stock held in the Zenith Profit Sharing Trust as
of March 31, 1995, the last date reported.

35
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following consolidated results of operations data relating to the years
ended December 31, 1994, December 31, 1993 and December 31, 1992 and for the
six months ended July 1, 1995 and July 2, 1994 and the following consolidated
balance sheet data at December 31, 1994 and December 31, 1993, and at July 1,
1995 and July 2, 1994 are derived from and should be read in conjunction with
the consolidated financial statements, including the notes thereto, included
herein. The consolidated results of operations data relating to the years ended
December 31, 1991 and December 31, 1990 and the consolidated balance sheet data
at December 31, 1992, December 31, 1991 and December 31, 1990 are derived from
the Company's previously audited financial statements.

36
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ANALYSIS OF OPERATIONS--FIRST HALF 1995 AND 1994

The Company incurred a loss of $69.6 million, or $1.50 per share, for the
first half of 1995, as compared with a net loss of $20.3 million, or 51 cents
per share, for the first half of 1994. First half net sales declined about 8
percent to $546.7 million in 1995 from $596.1 million in 1994. Results for the
first half of 1995 included $18 million in special charges for severance and
other non-recurring items.

First half results were affected by lower color television shipments to
customers in the United States and Mexico and by a $21 million reduction in
aggregate selling price as compared with the same period a year ago. The first
half was also affected by the expensing of significant deferred overhead costs
caused by a substantially lower inventory increase in 1995, and inflationary
cost increases for materials. Major cost reductions from re-engineering
programs, reduced cycle times and improved efficiencies helped offset some of
the negative factors in the first half.

In the second quarter of 1995 the Company recorded a charge of $18 million
primarily to restructure its core Consumer Electronics and Network Systems
business. The charge is primarily composed of provisions made in anticipation
of cash expenditures that are expected to be paid out primarily over the next
twelve months. The major elements of the restructuring related to (i) severance
expenses ($9.6 million) associated with employment reductions, primarily in the
Company's United States salaried workforce and (ii) costs associated with
realigned distribution activities ($2.7 million) as the Company changed to
direct-to-retail distribution on a nationwide basis. The remaining charges
related to other non-recurring items, including certain environmental, legal
and other regulatory matters, along with trade receivable write-offs (primarily
for accounts in Mexico as a result of the peso devaluation). The reductions in
the salaried workforce, together with other initiatives, are expected to reduce
annual costs by about $20 million.

The Company's Consumer Electronics revenues declined in the first half,
reflecting the lower selling prices and reduced industry color TV sales to
dealers compared to the first half of 1994. The Company's United States color
TV shipments were slowed by higher than normal year end 1994 retail inventories
and by start-up problems early in the first quarter associated with a new
finished-goods warehouse (problems that have since been resolved). In Mexico,
the Company's and industry TV sales to dealers were reduced in the first half
due to the devaluation of the peso. The value of the peso appears to have
stabilized, but management expects a slow recovery for the Mexican color TV
market. For the full year 1995, the Company expects to benefit from lower costs
on those expenditures that are made in pesos, such as wages and salaries,
utilities, supplies and materials. These savings are expected to more than
offset the effect of reduced sales in Mexico. Sales of Network Systems
products--set-top boxes and data modems sold primarily to the cable television
industry--were up about 22 percent compared with the first half of 1994,
reflecting the continuing strength of the industry and the Company's high-
performance analog set-top units.

Sales for non-core businesses dropped to $4 million from $11 million as
production of power supplies was being phased out and production of computer
monitors ceased in 1994.

Selling, general and administrative expenses were $51.3 million in the first
half of 1995 as compared to $49.8 million in the previous year. The increase
was largely due to non-recurring charges recorded for the retirement of an
executive, along with higher staffing related to expanded Network Systems sales
efforts.

Results for the first half of 1995 include $9.2 million of accrued royalty
revenues from tuning system licenses. These revenues were $9.9 million in the
first half of 1994.

37
<PAGE>

ANALYSIS OF OPERATIONS--1994, 1993 AND 1992:

<TABLE>
<CAPTION>
YEAR-TO-YEAR
YEAR ENDED CHANGES
DECEMBER 31, BETTER/(WORSE)
----------------- -----------------
1994 1993
1994 1993 1992 VS. 1993 VS. 1992
---- ---- ----- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating income (loss) before
restructuring and other charges.......... $(10) $(51) $ (61) $41 $10
Restructuring and other charges........... - (31) (48) 31 17
---- ---- ----- --- ---
Operating income (loss)................... (10) (82) (109) 72 27
Gain on asset sales, net.................. 11 - - 11 -
Interest expense, net..................... (15) (15) (13) - (2)
---- ---- ----- --- ---
Income (loss) before income taxes......... (14) (97) (122) 83 25
Income taxes (credit)..................... - - (16) - (16)
---- ---- ----- --- ---
Net income (loss)......................... $(14) $(97) $(106) $83 $ 9
==== ==== ===== === ===
</TABLE>

Operating Results--1994 vs. 1993

The operating loss before restructuring and other charges was $10 million in
1994 and $51 million in 1993.

Consolidated sales in 1994 were $1,469 million, up 20 percent from $1,228
million in 1993. The significant increase was principally due to higher unit
volume in the core business, Consumer Electronics and Network Systems, which
was partially offset by lower sales in the non-core product areas and lower
Consumer Electronics product pricing.

As in previous years, substantial cost reductions were realized Company-wide.
These savings, about $40 million in 1994, resulted from continued process and
design improvements, improved efficiencies, re-engineering and continued
consolidations. In addition, the implementation of the North American Free
Trade Agreement ("NAFTA") reduced the Company's duty costs by $19 million.
These cost reductions were offset by $46 million of consumer product price
reductions that were implemented throughout the year, and $22 million of
inflationary cost increases.

Even with the continued industry-wide picture tube glass shortage, industry
color TV unit sales to dealers increased by 10 percent in 1994 (following two
successive years of 11 percent increases) to a record 27.4 million units. The
Company's unit sales increase was significantly higher than the industry growth
rate, which resulted in an improved market share for the Company. The Company's
increase was especially strong in key industry-growth categories, such as
projection TV, large-screen table models and combination TV-VCR products.
Industry sales of video cassette recorders to dealers increased 6 percent in
1994 and, again, the Company's volume increased even more.

In 1994, picture tube production was up 21 percent facilitated by the late
1993 conversion of a monitor tube production line to television tube
production. Unit sales of picture tubes to other TV manufacturers were up 12
percent as demand remained strong due to the industry growth and the NAFTA
advantage associated with using North American picture tubes. The remaining
production increase supported the Company's own television set production. The
Company's picture tube production was not limited by the continuing industry
glass shortage.

Dollar sales increased about 40 percent in the Company's Network Systems
product line, which included the design and manufacture of set-top boxes and
other products primarily for cable TV operators. The results in 1994 reflect
the effort to refocus this core product line through a reorganization and new
product offerings

38
<PAGE>

as well as an improved industry environment. At year-end 1994, the Company
recorded a $4 million reserve related to the replacement of defective
integrated circuits in some cable decoders.

Sales of other products decreased by $59 million in 1994 as the Company
continued to phase-out or sell its non-core businesses. Corporate operating
results improved as these businesses were scaled back and eliminated. During
the year, production of both monochrome and color monitors ceased. The
magnetics business was sold in April 1994, although the Company will continue
to manufacture power supplies for the purchaser of the business until April
1995.

The Company realized a gain of $11 million on 1994 asset sales, including
more than 3 million square feet of excess plant and office space, 98 acres of
vacant land, and assets related to the magnetics business.

Engineering and research expenses were $45 million in 1994, compared with $48
million in 1993, with reductions principally in non-core product areas.
Selling, general and administrative expenses increased to $117 million in 1994
from $93 million in 1993, primarily due to increased advertising costs in the
United States and Mexico in support of the higher sales volume.

Other operating income (net) increased to $34 million in 1994 from $25
million in 1993, principally as a result of increased royalty income (primarily
for tuning system license agreements due to the growth in the domestic
industry) and foreign exchange gains caused by the Mexican peso devaluation.

Operating Results--1993 vs. 1992

The operating loss before restructuring and other charges was $51 million in
1993 and $61 million in 1992.

Consolidated sales in 1993 were $1,228 million, down 1 percent from $1,244
million in 1992. The decline was principally due to lower sales in the non-core
product areas and lower consumer product pricing, largely offset by higher unit
volume in the consumer product line.

The effect on operating results of unit volume increases in consumer products
was offset by volume declines in the non-core product areas. Substantial cost
reductions in all product areas of about $75 million resulted from process and
design improvements, consolidation of operations in Mexico, headcount
reductions and other operating changes. These cost reductions were offset by
$42 million in consumer products price reductions that had been implemented
throughout 1992 and early 1993, and $20 million of inflationary cost increases,
primarily labor costs in Mexico.

Despite the adverse impact of an industry glass shortage, industry color TV
unit sales to dealers rose 11 percent in 1993 (following an 11 percent increase
in 1992) to set a new record. The Company's unit sales increase outpaced the
industry growth, leading to an increase in market share. While industry unit
sales to dealers of video cassette recorder decks remained about equal to 1992,
the Company's volume increased.

Unit sales of color picture tubes to other TV manufacturers decreased in 1993
because the Company used more of its capacity to support increased sales of the
Company's color TVs and because of an industry glass shortage, which also
adversely impacted the Company's color TV sales. Additional picture tube
capacity became available in late 1993 when the dedicated flat tension mask
tube production line was converted to be able to produce both television and
monitor picture tubes.

Operating results were improved by the full year effect of certain
manufacturing operations that were consolidated in Mexico during 1992, as well
as continued efforts to reduce headcounts and product costs.

Sales of Network Systems products declined in 1993 as a new product for a
major contract manufacturing customer was delayed. However, due to major cost
savings associated with headcount reductions and consolidations of
manufacturing operations, operating results improved compared to 1992.

39
<PAGE>

Sales of other products decreased in 1993 as the Company downsized its non-
core magnetics and monitor product areas. However, the cost structures of these
areas were improved so that operating results in 1993 were somewhat better than
1992. During the year, the monochrome monitor business was sold (production
ended in early 1994) and the Company reached an agreement to sell the power
supply business in early 1994.

Engineering and research expenses were $48 million in 1993, compared to $55
million in 1992, with reductions principally in non-core product areas.
Selling, general, and administrative expenses declined slightly to $93 million
in 1993 from $94 million. These improvements were primarily the result of
headcount reductions initiated in late 1992.

Other operating income (net) increased to $25 million in 1993 from $24
million in 1992, as a result of increased royalty income from new licensing
activities. Royalty income arising from licensing of the Company's patented
tuning-system technology to other color TV and VCR manufacturers was about $26
million in both 1993 and 1992 and is included in other operating income (net).

Interest expense (net) of $15 million in 1993 was higher than 1992's $13
million as a result of increased average borrowings.

The income tax credit in 1992 consisted principally of the reversal of
previously accrued tax reserves no longer required in connection with earnings
of a foreign subsidiary, and net operating loss carryback applications.

Restructuring and Other Charges

During the fourth quarter of 1993, the Company recorded a charge of $31
million primarily to restructure certain product areas and re-engineer its core
Consumer Electronics and Network Systems business. The restructuring affected
computer monitors and magnetics, product areas that were phased-out or sold in
1994. Major elements of this charge were the non-cash writedown of fixed assets
and inventory ($23 million) as well as re-engineering and severance costs ($6
million) that were substantially paid during 1994. As expected, the
restructuring actions reduced 1994 compensation expense by approximately $10
million and reduced depreciation expense by approximately $4 million. No
material changes have occurred or are anticipated in these programs or in the
estimated costs or benefits of the programs.

The 1992 results also included restructuring and other charges of $48
million. Included in the actions were manufacturing consolidations and related
employment reductions in Mexico; consolidation of Company-owned distribution;
and salaried employment reductions throughout the Company. In addition to
valuation reserves for inventories and manufacturing equipment ($22 million)
and severance and relocation costs ($18 million) which were substantially paid
in 1993 and 1994, the special charges also provided for trade-receivable write-
offs ($6 million).

LIQUIDITY AND CAPITAL RESOURCES

Following is a summary of cash provided and used:

<TABLE>
<CAPTION>
CASH PROVIDED (USED)
-----------------------------------------
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED ---------------- THREE YEAR
JULY 1, 1995 1994 1993 1992 TOTAL
------------ ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Cash at beginning of period........ $ 9 $ 21 $ 6 $ 36 $ 63
Operating Activities............... (73) (42) (28) (16) (86)
Investing Activities............... (30) (32) (26) (25) (83)
Financing Activities............... 94 62 69 11 142
---- ---- ---- ---- ----
Cash at end of period.............. $ - $ 9 $ 21 $ 6 $ 36
==== ==== ==== ==== ====
</TABLE>

40
<PAGE>

Liquidity

Cash decreased $9 million during the six months ended July 1, 1995. Uses of
cash consisted of $73 million used by operating activities and $30 million used
to purchase fixed assets. These uses of cash were offset by $94 million of cash
provided from financing activities which included $44 million of borrowings
under the Credit Agreement, $40 million of cash from the Term Loan and $10
million from sales of Common Stock.

Cash decreased by $27 million during the three-year period of 1992-1994. The
decrease consisted of $86 million of cash used by operating activities and $83
million used to purchase fixed assets, net of proceeds from asset sales. These
uses of cash were offset by $142 million of cash provided from financing
activities which included sales of Common Stock and the issuance of long-term
debt offset by cash used for the redemption of the Company's 12 1/8% Notes due
January 1995, in early 1994.

Operating activities: During the six months ended July 1, 1995, $73 million
of cash used by operating activities funded a $53 million net loss from
operations as adjusted for depreciation and an $18 million change in current
accounts. The change in current accounts was composed primarily of a $40
million increase in inventories (mainly to support higher projected shipment
schedules in the second half of the year) and a $21 million decrease in
accounts payable and accrued expenses partially offset by a $41 million
decrease in receivables.

In 1994, $42 million of cash was used by operating activities principally to
fund a $52 million change in current accounts offset by $4 million in net
income from operations as adjusted for depreciation and gains on the sales of
assets. The change in current accounts was composed primarily of a $46 million
increase in receivables (due to higher sales) and a $43 million increase in
inventories, (due mainly to increased levels of color television production in
support of higher sales), partially offset by a $40 million increase in
accounts payable and accrued expenses. In addition, the company reduced cash
used by operating activities by issuing Common Stock to the profit-sharing
retirement plans to fulfill the 1994 obligation to salaried employees and a
portion of the hourly employees. This issuance increased stockholders' equity
by $6 million.

In 1993, $28 million of cash was used by operating activities principally to
fund $45 million of net losses from operations as adjusted for depreciation and
fixed asset write downs as a part of restructuring and other charges. A
decrease in current accounts provided $3 million of cash and was composed of a
$15 million decrease in receivables offset by an $8 million increase in
inventories and a $4 million decrease in accounts payable and accrued expenses.
The decrease in receivables was due to lower sales. Also, the Company reduced
cash used by operating activities by issuing Common Stock to the profit-sharing
retirement plans to fulfill both the 1992 obligation to salaried employees and
the 1993 obligation to salaried employees and a portion of the hourly
employees. These issuances increased stockholders' equity by $15 million.

In 1992, $16 million of cash was used by operating activities principally to
fund $64 million of net losses from operations as adjusted for depreciation,
fixed asset write downs as a part of a restructuring and a loss on the
disposition of properties. This was offset by cash provided from a $41 million
decrease in current accounts composed of a $39 million decrease in inventories
and a $21 million decrease in receivables, offset by a $15 million decrease in
net income taxes payable and a $4 million decrease in accounts payable and
accrued expenses. The Company reduced cash used by operating activities by
issuing Common Stock to the profit-sharing retirement plan to fulfill the 1991
obligation to salaried employees, increasing stockholders' equity by $6
million.

Investing activities: During the six months ended July 1, 1995, investing
activities used $30 million of cash for capital additions, compared to $28
million for the first six months of 1994. Capital additions for the full year
1995 are expected to be about $70 million, including a portion due to planned
capital investment projects in the Company's picture tube operations in Melrose
Park, Illinois. In 1994, investing activities used $32 million of cash which
consisted of capital additions of $59 million offset by $27 million of proceeds
from

41
<PAGE>

asset sales. Capital additions in 1994 were significantly higher than in 1993
due mainly to investments in a new plastic injection molding operation,
modernizing a wood cabinet mill room and re-engineering activities related to
the core Consumer Electronics business. In 1993, investing activities used $26
million of cash for capital additions. In 1992, $25 million of cash was used
which consisted of capital additions of $32 million offset by $7 million of
proceeds from a 1991 property sale.

Financing activities: During the six months ended July 1, 1995, financing
activities provided $94 million of cash which included $44 million of
borrowings under the Credit Agreement, $40 million of cash from the Company's
Term Loan with a lending group led by General Electric Capital Corporation (the
"Term Loan") and $10 million of sales of the Company's Common Stock. In 1994,
financing activities provided $62 million of cash which included $84 million
provided from sales of the Company's Common Stock (including stock option
exercises) and $12 million from the sale of 8.5% Senior Subordinated
Convertible Debentures due 2001. This was offset by $35 million of cash used to
redeem the company's outstanding 12 1/8% Notes due January 1995 at a redemption
price equal to par value (plus accrued interest). In 1993, financing activities
provided $69 million of cash which included $55 million provided from the sale
of 8.5% Senior Subordinated Convertible Debentures and $24 million provided
from sales of the Company's Common Stock (including stock option exercises).
This was offset by $10 million of cash used to repay borrowings under the
Company's working capital Credit Agreement with a lending group led by General
Electric Capital Corporation. In 1992, financing activities provided $11
million of cash which included $10 million provided from borrowings under the
Company's revolving credit and security agreement and $1 million provided from
the exercise of stock options. See Note 8 of "Notes to Condensed Consolidated
Financial Statements (Unaudited)" for further discussion of the Credit
Agreement and Term Loan.

Capital Resources

As of July 1, 1995, total interest-bearing obligations of the Company
consisted of $216 million of long-term debt, $44 million of borrowings under
the Credit Agreement, the current portion ($6 million) of the Term Loan and $8
million of extended-term payables with a foreign supplier. The Company's long-
term debt is composed of $115 million of 6 1/4% Convertible Subordinated
Debentures due 2001 that require annual sinking fund payments of $6 million
beginning in 1997, $55 million aggregate principal amount of 8.5% Senior
Subordinated Convertible Debentures due 2000, $12.0 million aggregate principal
amount of 8.5% Senior Subordinated Convertible Debentures due 2001 and the
long-term portion of the Term Loan ($34 million). The Term Loan requires
scheduled quarterly principal payments over the life of the loan with a balloon
payment of $18 million due on June 30, 1998 (the termination date of the loan).

The Company's Credit Agreement and Term Loan contain identical financial
covenants that must be maintained as of the end of each fiscal quarter,
including a liabilities to net worth ratio and a minimum net worth amount. In
addition, the Credit Agreement and the Term Loan restrict the amount of capital
expenditures by the Company in each fiscal year. See Note 8 of "Notes to
Condensed Consolidated Financial Statements (Unaudited)" for further discussion
on the financial covenants.

OUTLOOK

The Company's major product areas, including the color television market, are
highly competitive. The Company's major competitors are foreign-owned global
giants, generally with greater worldwide television volume and overall
resources. In efforts to increase market share or achieve higher production
volumes, the Company's competitors have aggressively lowered their selling
prices in the past several years. Price competition continued in 1994 and into
the first half of 1995, and the Company selectively reduced color television
prices to maintain its historical competitive price position. There can be no
assurance that such competition will not continue to adversely affect the
Company's performance or that the Company will be able to maintain its market
share in the face of such competition.

NAFTA, which took effect on January 1, 1994, significantly reduced duty costs
in 1994. This improved the Company's ability to compete against Asian imports
in North America and increased sales of the

42
<PAGE>

Company's color television receivers in Mexico and Canada and color picture
tube production in the United States. However, in December 1994 the Mexican
peso devalued by almost 50 percent. The Company expects that this devaluation
will negatively impact the Company's sales in Mexico, but that any negative
impact from the reduced sales will be more than offset by the effect on peso
denominated expenses in its Mexican subsidiaries.

In light of the Company's losses from continuing operations, competitive
environment and inflationary cost pressures (including purchased material as
well as labor costs in Mexico where labor contracts expire every two years and
wages are renegotiated annually or more frequently under rapid devaluation or
high inflation periods), the Company has undertaken major cost reduction
programs each year. In 1994, the Company reduced costs by about $40 million
from continued process and design improvements, improved efficiencies, re-
engineering and continued consolidations. The Company continues to seek
additional cost reduction opportunities for 1995 and beyond, although there can
be no assurance that any such cost reductions will be achieved. Also, as in
1994 and 1993, the Company may experience an adverse impact as shortages of
certain components may continue in 1995.

The goals of the Company's business strategy are to improve profitability, to
introduce new products, to develop new products (such as digital cable products
incorporating the Company-developed transmission technology selected in
February 1994 by the HDTV Grand Alliance and the FCC Advisory Committee review
panel), and to re-engineer operations including the change over to an entirely
direct-to-retail distribution organization. This strategy is expected to
continue to involve significant expenditures by the Company in 1995 and beyond.
There can be no assurance that the Company will achieve the goals of its
business strategy, including efforts to improve financial results later in
1995.

On July 17, 1995, it was announced that the Purchaser and the Company signed
a definitive agreement under which the Purchaser plans to acquire a controlling
interest in the Company. Pursuant to the Stock Purchase Agreement, the
Purchaser will purchase, for $10 per share, 16.5 million newly issued shares of
the Company's Common Stock and 18.619 million shares from the Company's
shareholders in a tender offer. The Purchaser currently owns 1.45 million
shares of the Company's Common Stock, and upon successful completion of the
Proposed Transaction, the Purchaser will own approximately 57.7 percent of the
outstanding Common Stock of the Company. The Proposed Transaction is subject to
the completion of a successful tender offer, the approval by the Company's
stockholders of the issuance and sale of the new shares, certain governmental
and regulatory approvals and the satisfaction of customary closing conditions.
The estimated net proceeds of $160 million to be received from the proposed
sale of the 16.5 million shares would be used to support the $150 million
expansion and modernization of the Company's picture tube operations in Melrose
Park, Illinois, and to support the Company's growing Network System business.

The Company believes that the proceeds from the Proposed Transaction, its
Credit Agreement, the Term Loan and extended-term payables expected to be
available from a foreign supplier will be adequate to meet its seasonal working
capital, capital expenditure and other requirements in 1995, including any
amounts which may become due to executive officers or directors of the Company
following consummation of the Proposed Transaction, as described under
"INTERESTS OF CERTAIN PERSONS", and to support planned capital investment
projects in the Company's picture tube operations in 1996 and beyond. In the
event the Proposed Transaction is not consummated, there can be no assurance
that the Company will not experience liquidity problems in the future because
of adverse market conditions or other unfavorable events which would require
the Company to seek other sources of liquidity, if available. In addition, the
expansion and modernization of the Company's picture tube operations would be
dependent on obtaining alternate sources of financing.

43
<PAGE>

MARKET PRICES OF COMMON STOCK; DIVIDENDS

PRICE RANGE OF THE COMMON STOCK

The Common Stock is principally traded on the NYSE. The following table sets
forth, for the periods indicated, the high and low sales prices of the Common
Stock with respect to the years ended December 31, 1993 and December 31, 1994,
and with respect to periods after December 31, 1994.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Year Ended December 31, 1993:
First Quarter.............................................. $ 8 3/8 $ 5 7/8
Second Quarter............................................. 10 1/2 6 1/2
Third Quarter.............................................. 8 3/8 6 1/4
Fourth Quarter............................................. 8 1/8 6 1/4
Year Ended December 31, 1994:
First Quarter.............................................. $13 1/2 $ 7
Second Quarter............................................. 10 1/2 8 1/4
Third Quarter.............................................. 12 1/8 8 5/8
Fourth Quarter............................................. 14 1/8 10 5/8
Year Ended December 31, 1995:
First Quarter.............................................. $12 1/8 $ 7 1/2
Second Quarter............................................. 8 1/2 6 7/8
Third Quarter.............................................. 9 1/4 7 1/4
Fourth Quarter (through October 5, 1995)................... 8 3/4 8 1/2
</TABLE>

On July 14, 1995, the last full trading pay prior to the date of the
announcement of the execution of the Stock Purchase Agreement and the
Purchaser's intention to commence the Offer, the last sales price of the Common
Stock on the NYSE was $8 1/2 per share of Common Stock. On October 5, 1995, the
last full trading day prior to the printing of this Proxy Statement, such last
sales price was 8 5/8 per share. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT
MARKET QUOTATION FOR THE COMMON STOCK.

DIVIDENDS

The Company has not paid any cash dividends since 1982.

INDEPENDENT ACCOUNTANTS

The Consolidated Financial Statements of Zenith Electronics Corporation for
the three years ended December 31, 1994 included in this Proxy Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and have been so included upon
the authority of said firm as experts in accounting and auditing.
Representatives of Arthur Andersen LLP will be present at the Special Meeting
to respond to appropriate questions of stockholders and to make a statement if
they desire.

44
<PAGE>

OTHER BUSINESS

No business may be brought before the Special Meeting other than the Proposal
and procedural matters that may arise in connection therewith. Proposals of
stockholders intended to be presented at the Company's next Annual Meeting of
Stockholders should be received by the Secretary on or before November 19, 1995
for inclusion in the Proxy Statement for the 1996 Annual Meeting of
Stockholders. The notice must contain a brief description of the business
proposed to be brought before the meeting and the reasons for conducting the
business at the meeting. In addition, the notice must present certain
information concerning the stockholder making the proposal, who must be a
stockholder of record at the time of giving the notice and be entitled to vote
at the meeting.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements, and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60611-2511, and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement and prior to the Special Meeting shall be deemed to be incorporated
by reference is, and made a part of, this Proxy Statement from the date of
filing of such documents. Any statement contained in a document all or any
portion of which is deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein or in any other subsequently filed
document that also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement.

The Company will provide without charge to each person to whom a copy of this
Proxy Statement is delivered, on the written or oral request of such persons by
first-class mail or other equally prompt means within one business day of
receipt of such request, a copy of any and all of the documents referred to
above which have been or may be incorporated by reference in the Proxy
Statement. Such written or oral request should be directed to Zenith
Electronics Corporation, 1000 Milwaukee Avenue, Glenview, Illinois 60025,
Attention: Investor Relations Department (708) 391-7713.

Richard F. Vitkus
Senior Vice President--General
Counsel and
Secretary

45
<PAGE>

INDEX TO FINANCIAL STATEMENTS OF
ZENITH ELECTRONICS CORPORATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statements of Consolidated Operations and Retained Earnings for the Years
Ended December 31, 1994, 1993, and 1992.................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993.............. F-3
Statements of Consolidated Cash Flows for the Years Ended December 31,
1994, 1993 and 1992...................................................... F-4
Notes to Consolidated Financial Statements................................ F-5
Report of Independent Public Accountants.................................. F-14
Unaudited Quarterly Financial Information................................. F-15
Condensed Consolidated Statements of Income (Unaudited) for the six months
ended July 1, 1995 and July 2, 1994...................................... F-16
Condensed Consolidated Balance Sheets (Unaudited) as of July 1, 1995,
December 31, 1994 and July 2, 1994....................................... F-17
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six
months ended July 1, 1995 and July 2, 1994............................... F-18
Notes to Condensed Consolidated Financial Statements (Unaudited).......... F-19
</TABLE>

F-1
<PAGE>

ZENITH ELECTRONICS CORPORATION

STATEMENTS OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993 1992
-------- -------- --------
(IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues
Net sales...................................... $1,469.0 $1,228.2 $1,243.5
-------- -------- --------
Costs, Expenses and Other
Cost of products sold.......................... 1,350.2 1,163.9 1,179.3
Selling, general and administrative............ 117.1 92.5 94.0
Engineering and research....................... 45.4 47.8 55.4
Other operating expense (income), net (Notes 1
and 6)........................................ (33.6) (25.2) (24.3)
Restructuring and other charges (Note 3)....... -- 31.0 48.1
-------- -------- --------
Income
Operating income (loss)........................ (10.1) (81.8) (109.0)
Gain on asset sales, net (Note 8).............. 11.0 -- --
Interest expense............................... (15.9) (15.5) (13.7)
Interest income................................ .5 .3 .9
-------- -------- --------
Income (loss) before income taxes................ (14.5) (97.0) (121.8)
Income taxes (credit) (Note 4)................... (.3) -- (15.9)
-------- -------- --------
Net income (loss)............................ $ (14.2) $ (97.0) $ (105.9)
======== ======== ========
Per Share
Income (loss) per common share (Note 1)........ $ ( .34) $ (3.01) $ (3.59)
======== ======== ========
Retained Earnings
Balance at beginning of year................... $ (88.1) $ 8.9 $ 114.8
Net income (loss).............................. (14.2) (97.0) (105.9)
-------- -------- --------
Retained earnings (deficit) at end of year....... $ (102.3) $ (88.1) $ 8.9
======== ======== ========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.

F-2
<PAGE>

ZENITH ELECTRONICS CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
---------------
1994 1993
------- ------
IN MILLIONS
ASSETS
------
<S> <C> <C>
Current Assets
Cash (Note 1)............................................... $ 8.9 $ 20.8
Receivables, net of allowance for doubtful accounts of $3.1
and $2.5, respectively..................................... 206.9 162.5
Inventories (Note 7)........................................ 245.2 206.2
Other....................................................... 9.9 6.1
------- ------
Total current assets...................................... 470.9 395.6
Noncurrent Assets
Property, plant and equipment, net (Note 8)................. 168.1 153.9
Other (Note 1).............................................. 14.6 9.9
------- ------
Total assets.............................................. $ 653.6 $559.4
======= ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities
Current portion of long-term debt (Note 10)................. $ -- $ 34.5
Accounts payable (Note 9)................................... 114.1 81.8
Compensation and retirement benefits (Note 13).............. 24.8 25.9
Product warranties.......................................... 35.6 24.2
Co-op advertising and merchandising programs................ 27.3 21.7
Income taxes payable........................................ 1.2 1.1
Other accrued expenses...................................... 40.3 47.8
------- ------
Total current liabilities................................. 243.3 237.0
Noncurrent Liabilities
Long-term debt (Note 10).................................... 182.0 170.0
Stockholders' Equity
Preferred stock, $1 par value; 8,000,000 shares authorized;
none outstanding........................................... -- --
Common stock, $1 par value; 100,000,000 shares authorized;
45,698,372 and 35,909,617 shares issued.................... 45.7 35.9
Additional paid-in capital.................................. 285.4 205.1
Retained earnings (deficit)................................. (102.3) (88.1)
Cost of 21,000 common shares in treasury.................... (.5) (.5)
------- ------
Total stockholders' equity (Note 11)...................... 228.3 152.4
------- ------
Total liabilities and stockholders' equity................ $ 653.6 $559.4
======= ======
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.

F-3
<PAGE>

ZENITH ELECTRONICS CORPORATION

STATEMENTS OF CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>
INCREASE (DECREASE)
IN CASH
YEAR ENDED DECEMBER
31
-----------------------
1994 1993 1992
------ ------ -------
IN MILLIONS
<S> <C> <C> <C>
Cash Flows from Operating Activities
Income (loss) from operations....................... $(14.2) $(97.0) $(105.9)
Adjustments to reconcile income (loss) to net cash
used by operations:
Depreciation...................................... 28.8 35.4 37.7
Write-down of fixed assets as a part of
restructuring (Note 3)........................... -- 16.2 3.7
Employee retirement plan contribution in stock.... 6.0 14.6 6.2
Gain on asset sales, net.......................... (11.0) -- --
Other............................................. (.2) .2 1.1
Changes in assets and liabilities:
Current accounts................................ (52.1) 3.4 40.7
Other assets.................................... .6 (1.0) .6
------ ------ -------
Net cash used by operating activities......... (42.1) (28.2) (15.9)
------ ------ -------
Cash Flows from Investing Activities
Capital additions................................... (58.9) (26.1) (32.6)
Proceeds from asset sales........................... 27.5 .4 6.9
------ ------ -------
Net cash used by investing activities............... (31.4) (25.7) (25.7)
------ ------ -------
Cash Flows from Financing Activities
Short-term borrowings, net.......................... -- (10.1) 10.1
Proceeds from issuance of long-term debt............ 12.0 55.0 --
Proceeds from issuance of common stock, net......... 84.1 24.0 1.0
Principal payments on long-term debt................ (34.5) -- --
------ ------ -------
Net cash provided by financing activities........... 61.6 68.9 11.1
------ ------ -------
Cash
Increase (decrease) in cash......................... (11.9) 15.0 (30.5)
Cash at beginning of year........................... 20.8 5.8 36.3
------ ------ -------
Cash at end of year................................. $ 8.9 $ 20.8 $ 5.8
====== ====== =======
Changes in Current Assets and Liabilities
Increase (decrease) in cash attributable to changes
in:
Receivables, net.................................. $(45.5) $ 15.2 $ 20.6
Income taxes, net................................. (.2) .8 (14.5)
Inventories....................................... (42.7) (8.3) 38.6
Other assets...................................... (3.8) .1 .1
Accounts payable and accrued expenses............. 40.1 (4.4) (4.1)
------ ------ -------
Net change in current accounts................ $(52.1) $ 3.4 $ 40.7
====== ====== =======
Supplemental Disclosure
Supplemental disclosure of cash flow information--
Cash paid (refunded) during the period for:
Interest.......................................... $ 17.6 $ 15.0 $ 13.5
Income taxes...................................... (.1) (1.2) (1.5)
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.

F-4
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ONE--SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation: The consolidated financial statements include
the accounts of Zenith Electronics Corporation and all domestic and foreign
subsidiaries (the Company). All significant intercompany balances and
transactions have been eliminated.

Statements of consolidated cash flows: The Company considers time deposits,
certificates of deposit and all highly liquid investments purchased with an
original maturity of three months or less to be cash.

Inventories: Inventories are stated at the lower of cost or market. Costs are
determined for all inventories except picture tube inventories using the first-
in, first-out (FIFO) method. Picture tube inventories are valued using the
last-in, first-out (LIFO) method.

Properties and depreciation: Additions of plant and equipment with lives of
eight years or more are depreciated by the straight-line method over their
useful lives. Accelerated methods are used for depreciation of virtually all
other plant and equipment items, including high technology equipment that may
be subject to rapid economic obsolescence.

Property held for disposal is stated at the lower of cost or estimated net
realizable value. As of December 31, 1994 and 1993, $4.6 million and $5.9
million, respectively, of property held for disposal was included in Other
Noncurrent Assets and included certain facilities and land no longer used in
the Company's operations.

Most tooling expenditures are charged to expense in the year acquired, except
for picture tube tooling which is amortized over four years. Certain production
fixtures are capitalized as machinery and equipment.

Rental expenses under operating leases were $13.6 million, $9.0 million and
$8.8 million in 1994, 1993 and 1992, respectively. Commitments for lease
payments in future years are not material.

The Company capitalizes interest on major capital projects. Such interest has
not been material.

Engineering, research, product warranty and other costs: Engineering and
research costs are expensed as incurred. Estimated costs for product warranties
are provided at the time of sale based on experience factors. The costs of co-
op advertising and merchandising programs are also provided at the time of
sale.

Foreign currency: The Company uses the U.S. dollar as the functional currency
for all foreign subsidiaries. Foreign exchange gains and losses are included in
Other operating expense (income) and netted to a $3.6 million gain in 1994.
These amounts were not material in 1993 and 1992.

Earnings per share: Primary earnings per share are based upon the weighted
average number of shares outstanding and common stock equivalents, if dilutive.
Fully diluted earnings per share, assuming conversion of the 6 1/4% convertible
subordinated debentures and the 8.5% convertible senior subordinated
debentures, are not presented because the effect of the assumed conversion is
antidilutive. The number of shares used in the computation were 42.0 million,
32.3 million and 29.5 million in 1994, 1993 and 1992, respectively.

NOTE TWO--FINANCIAL RESULTS AND LIQUIDITY:

The Company has incurred losses from operations of $14.2 million, $97.0
million and $105.9 million in 1994, 1993 and 1992, respectively. For many years
the Company's major competitors, many with greater resources, have aggressively
lowered their selling prices in an attempt to increase market share. Although
the Company has benefited from cost reduction programs, these lower color
television prices together with inflationary cost increases have more than
offset such cost reduction benefits.

F-5
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company's Credit Agreement (see Note Nine) expires on June 30, 1996. The
maximum commitment for funds available for borrowing under the Credit Agreement
is $90 million, but is limited by a defined borrowing base formula related to
eligible accounts receivable and inventory. Although the Company believes that
its Credit Agreement, together with extended-term payables expected to be
available from a foreign supplier and its continuing efforts to obtain other
financing sources, will be adequate to meet its seasonal working capital,
capital expenditure and other requirements in 1995, there can be no assurances
that the Company will not experience liquidity problems in the future because
of adverse market conditions or other unfavorable events.

In addition, the Company is reviewing possible significant capital investment
projects over the next three years (which may require an amendment to the
Credit Agreement) and options for additional financing that would be required
to support these projects. If undertaken, the projects are expected to reduce
the costs and increase production capacity primarily in the Company's picture
tube operations.

NOTE THREE--RESTRUCTURING AND OTHER CHARGES:

During the fourth quarter of 1993, the Company recorded a charge of $31.0
million primarily to restructure certain product areas and re-engineer its core
Consumer Electronics and Network Systems business. The restructuring affected
computer monitors and magnetics, product areas that were phased-out or sold in
1994. The fourth-quarter charge was primarily for non-cash fixed asset and
inventory write-downs, as well as severance costs, and was designed to reduce
fixed costs and operating expenses.

During 1992, the Company recorded $48.1 million of restructuring and other
charges. These included provisions for severance, inventory valuation and other
restructuring costs, along with write-offs of trade receivables. Designed to
reduce fixed costs and operating expenses, the restructuring actions included
manufacturing consolidations and related employment reductions in Mexico,
consolidation of Company-owned distribution and other activities, and salaried
employment reductions throughout the Company.

NOTE FOUR--INCOME TAXES:

In the fourth quarter of 1992, the Company elected early adoption of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." The adoption had no effect on the financial statements of the
Company because the related net deferred tax assets were offset by a valuation
allowance. The valuation allowance was established since the realization of
these assets cannot be reasonably assured, given the Company's recurring
losses.

The components of income taxes (credit) were:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1993 1992
---- ---- ------
(IN MILLIONS)
<S> <C> <C> <C>
Currently payable (refundable):
Federal............................................ $(.5) $(.1) $ (5.9)
State.............................................. .2 .1 .1
Foreign............................................ -- -- (.1)
Currently deferred................................... -- -- (10.0)
---- ---- ------
Total income taxes (credit)...................... $(.3) $-- $(15.9)
==== ==== ======
</TABLE>

The $15.9 million income tax credit in 1992, resulted from the reversal of
$10.0 million of previously accrued tax reserves no longer required in
connection with earnings of a foreign subsidiary and $5.9 million of net
operating loss carryback applications which resulted in cash refunds.

F-6
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The statutory federal income tax rate and the effective tax rate are compared
below:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate................ (35.0)% (35.0)% (34.0)%
State income taxes, net.......................... .7 .1 .1
Foreign tax effects.............................. 21.9 .5 2.0
Tax benefits not recognized subject to future
realization..................................... 13.4 34.5 31.9
Net operating loss carryback..................... (3.2) (.1) (4.9)
Reversal of previously accrued reserve........... -- -- (8.2)
----- ----- -----
Effective tax rate............................... (2.2)% -- % (13.1)%
===== ===== =====
</TABLE>

Deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
Loss carryforwards........................................ $154.7 $145.3
Inventory valuation....................................... 21.1 16.5
Product warranty.......................................... 15.2 13.0
Co-op advertising......................................... 1.5 4.0
Merchandising............................................. 6.8 6.7
Other..................................................... 17.5 25.7
------ ------
Deferred tax assets....................................... 216.8 211.2
------ ------
Depreciation.............................................. (13.9) (12.6)
Employee benefits......................................... (.6) (.6)
Other..................................................... (18.4) (18.8)
------ ------
Deferred tax liabilities.................................. (32.9) (32.0)
------ ------
Valuation allowance....................................... (183.9) (179.2)
------ ------
Net deferred tax assets................................... $ -- $ --
====== ======
</TABLE>

As of December 31, 1994, the Company had $388.5 million of net operating loss
carryforwards (NOLs) available for financial statement purposes. For federal
income tax purposes, the Company had net operating loss carryforwards of $389.3
million (which expire from 2004 through 2009) and unused tax credits of $5.6
million (which expire from 1995 through 2002).

The Company expects these NOLs and tax credits to be available in the future
to reduce the Federal income tax liability of the Company. However, should
there occur a 50% "ownership change" of the Company as defined under Section
382 of the Internal Revenue Code of 1986, the Company's ability to utilize the
NOLs and available tax credits would be materially and adversely affected.

A Registration Statement was filed with the Securities and Exchange
Commission in December 1994 covering 6.5 million shares of common stock which
became effective in February 1995 (the Offering). The Offering is not expected
to give rise to an ownership change of the Company. The Company has knowledge
of increases in the ownership of the Company's common stock by 5% stockholders
aggregating approximately 35% in the three years ended December 31, 1994 (on a
pro forma basis, giving effect to the Offering, but without regard to
acquisitions of shares of common stock in the Offering by persons who might
thereby become separate 5% stockholders). However, acquisitions of significant
interests in the Company's common stock have occurred in the past, and future
stock transactions, which may not be within the control of the

F-7
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company, may result in an ownership change when aggregated with the Offering
and these other past common stock transactions.

NOTE FIVE--GEOGRAPHIC SEGMENT DATA:

The Company's operations involve a dominant industry segment--the design,
development, manufacture and sale of video products, including color television
sets, video cassette recorders and other consumer electronics products, color
picture tubes, cable TV products, computer monitors and parts and accessories
for these products.

Financial information, summarized by geographic area, is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1994 1993 1992
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Domestic companies....................... $1,365.2 $1,158.8 $1,183.7
Foreign companies........................ 103.8 69.4 59.8
-------- -------- --------
Total net sales........................ $1,469.0 $1,228.2 $1,243.5
======== ======== ========
Income (loss) before income taxes:
Domestic companies....................... $ (8.4) $ (97.6) $ (116.9)
Foreign companies........................ (6.1) .6 (4.9)
-------- -------- --------
Total income (loss) before income
taxes................................. $ (14.5) $ (97.0) $ (121.8)
======== ======== ========
Identifiable assets:
Domestic companies....................... $ 503.2 $ 448.6 $ 467.3
Foreign companies........................ 150.4 110.8 111.3
-------- -------- --------
Total identifiable assets.............. $ 653.6 $ 559.4 $ 578.6
======== ======== ========
</TABLE>

Foreign operations consist of manufacturing and sales subsidiaries in Mexico,
a distribution subsidiary in Canada and a purchasing office in Taiwan. Sales to
affiliates are principally accounted for at amounts based on local costs of
production plus a reasonable return.

NOTE SIX--OTHER OPERATING EXPENSE (INCOME):

Major manufacturers of televisions and video cassette recorders agreed during
1992 to take licenses under some of the Company's U.S. tuning system patents
(the licenses expire in 2003). Royalty income related to the tuning system
patents (after deducting legal expenses) was $27.9 million, $25.7 million and
$26.0 million in 1994, 1993 and 1992, respectively, and is included in Other
operating expense (income). The $26.0 million in 1992 included $5.3 million of
past royalties.

NOTE SEVEN--INVENTORIES:

Inventories consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
Raw materials and work-in-process......................... $156.2 $137.2
Finished goods............................................ 97.8 78.1
------ ------
254.0 215.3
Excess of FIFO cost over LIFO cost........................ (8.8) (9.1)
------ ------
Total inventories..................................... $245.2 $206.2
====== ======
</TABLE>

F-8
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1994 and 1993, inventories of $25.0 million and $24.1
million, respectively, were valued using the LIFO method.

NOTE EIGHT--PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
Land...................................................... $ 3.9 $ 7.4
Buildings................................................. 126.6 151.0
Machinery and equipment................................... 584.5 549.9
------ ------
715.0 708.3
Less accumulated depreciation............................. (546.9) (554.4)
------ ------
Total property, plant and equipment, net.............. $168.1 $153.9
====== ======
</TABLE>

During 1994 the Company recorded $11.0 million of net gain on asset sales.
Included in this amount is a $5.4 million gain on the sale of a warehouse in
Northlake, Illinois, and a $3.6 million gain on the sale of vacant land
adjacent to its Glenview, Illinois, headquarters. The Company also sold a
facility in Lenexa, Kansas, its power supply business, a facility in Chicago,
Illinois, and a facility in Springfield, Missouri.

NOTE NINE--SHORT-TERM DEBT AND CREDIT ARRANGEMENTS:

The Company entered into a Credit Agreement dated as of May 21, 1993, with a
lending group led by General Electric Capital Corporation, for working capital
purposes. Borrowings under the Credit Agreement are secured by accounts
receivable, inventory, general intangibles, trademarks and the tuning system
patent license agreements of the Company and certain of its domestic
subsidiaries. The Credit Agreement is scheduled to expire on June 30, 1996. The
maximum commitment of funds available for borrowing under the Credit Agreement
is $90 million, but is limited by a defined borrowing base formula related to
eligible receivables and eligible inventory. Net proceeds arising from material
asset transactions will result in a partial reduction in the maximum commitment
of the lenders thereunder. Interest on borrowings is based on market rates with
a commitment fee of 1/2% per annum payable monthly on the unused balance of the
facility. As of December 31, 1994, no borrowings were outstanding under the
Credit Agreement.

The Credit Agreement contains restrictive financial covenants that must be
maintained as of the end of each fiscal quarter, including a liabilities to net
worth ratio and a minimum net worth amount. The ratio of liabilities to net
worth and minimum net worth amount varies from quarter to quarter. As of
December 31, 1994, the ratio of liabilities to net worth was required to be not
greater than 3.50 to 1.0 and was actually 1.86 to 1.0, and net worth was
required to be equal to or greater than $158.0 million and was actually $228.3
million. At the end of each fiscal quarter through March 30, 1996, the
liabilities to net worth ratio is required to be maintained at various levels
ranging from a high of 4.40 to 1.0 to a low of 3.50 to 1.0, and minimum net
worth is required to be maintained at amounts ranging from a high of $166.0
million to a low of $143.0 million. The Credit Agreement restricts the amount
of capital expenditures by the Company in each fiscal year. For the fiscal
years 1994 and 1995, the Company is permitted to make capital expenditures (as
defined in the Credit Agreement) of up to $68.0 million and $38.0 million,
respectively. In the event the Company plans to undertake capital investment
projects in 1995 which would exceed the permitted expenditures, the Company
would need to seek an amendment to the Credit Agreement. There can be no
assurance that the lenders under the Credit Agreement will approve such an
amendment, if requested by the Company.

F-9
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In addition, there are restrictions regarding investments, acquisitions,
guaranties, transactions with affiliates, sales of assets, mergers and
additional borrowings, along with limitations on liens. The Credit Agreement
prohibits dividend payments on the Company's common stock, restricts dividend
payments on any of its preferred stock, if issued, and prohibits the redemption
or repurchase of stock.

Borrowings and interest rates on short-term debt were:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1993 1992
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Maximum month-end borrowings......................... $60.4 $66.4 $40.1
Average daily borrowings............................. 26.3 35.0 23.1
Weighted average interest rate....................... 9.1% 8.1% 7.5%
</TABLE>

Contracts with certain foreign suppliers permit the Company to elect
interest-bearing extended-payment terms. As of December 31, 1994 and 1993,
$19.1 million and $8.5 million, respectively, of these obligations were
outstanding and included in Accounts payable.

NOTE TEN--LONG-TERM DEBT:

The components of long-term debt were:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1993
------ ------
(IN MILLIONS)
<S> <C> <C>
12 1/8% notes due 1995...................................... $ -- $ 34.5
6 1/4% convertible subordinated debentures due 2011......... 115.0 115.0
8.5% senior subordinated convertible debentures due 2000.... 55.0 55.0
8.5% senior subordinated convertible debentures due 2001.... 12.0 --
------ ------
182.0 204.5
Less current portion........................................ -- 34.5
------ ------
Total long-term debt.................................... $182.0 $170.0
====== ======
</TABLE>

In January 1994, the Company redeemed its outstanding 12 1/8% notes due 1995
at a redemption price equal to par value, totaling $34.5 million, plus accrued
interest.

The 6 1/4% convertible subordinated debentures are unsecured general
obligations, subordinate in right of payment to certain other debt obligations,
and are convertible into common stock at $31.25 per share. Terms of the
debenture agreement include annual sinking-fund payments of $5.8 million
beginning in 1997. The debentures are redeemable at the option of the Company,
in whole or in part, at specified redemption prices at par or above.

In November 1993 and January 1994, the Company sold to certain institutional
investors $55 million and $12 million, respectively, of 8.5% senior
subordinated convertible debentures due 2000 and 2001, respectively. The
debentures are unsecured general obligations, subordinate in right of payment
to certain other debt obligations, and are convertible into shares of common
stock at an initial conversion price of $9.76 per share and $10.00 per share,
respectively. The debentures are redeemable at the option of the Company, in
whole or in part, at any time on or after November 19, 1997 and January 18,
1998, respectively, at specified redemption prices at par or above.

F-10
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The fair value of long-term debt is $167.5 million as of December 31, 1994,
as compared to the carrying amount of $182.0 million. The fair value of the 6
1/4% convertible subordinated debentures is based on the quoted market price
from the New York Stock Exchange. The fair value of the 8.5% convertible senior
subordinated debentures is based on the quoted price obtained from third party
financial institutions. Currently, the Company's Credit Agreement would not
allow the Company to extinguish the long-term debt through purchase and thereby
realize the gain.

NOTE ELEVEN--STOCKHOLDERS' EQUITY:

Changes in stockholders' equity accounts are shown below:

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TREASURY
STOCK CAPITAL SHARES
------ ---------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Balance, December 31, 1991..................... $29.2 $165.3 $(.5)
Stock issued for benefit plans............... 1.0 5.2 --
Stock issued for stock options............... .1 .7 --
Other........................................ -- .2 --
----- ------ ----
Balance, December 31, 1992..................... 30.3 171.4 (.5)
Sales of common stock........................ 3.4 19.8 --
Stock issued for benefit plans............... 2.0 12.6 --
Stock issued for stock options............... .1 .6 --
Other........................................ .1 .7 --
----- ------ ----
Balance, December 31, 1993..................... 35.9 205.1 (.5)
Sales of common stock........................ 8.6 71.2 --
Stock issued for benefit plans............... .6 5.4 --
Stock issued for stock options............... .5 3.6 --
Other........................................ .1 .1 --
----- ------ ----
Balance, December 31, 1994..................... $45.7 $285.4 $(.5)
===== ====== ====
</TABLE>

During 1994 and 1993 the Company sold 8.6 million shares and 3.4 million
shares, respectively, of authorized but unissued shares of common stock to
investors under registration statements that had been filed with the Securities
and Exchange Commission. A Registration Statement was filed with the Securities
and Exchange Commission in December 1994 covering 6.5 million shares of common
stock which became effective in February 1995. The shares of common stock may
be sold by the Company in an at-the-market equity offering(s) or on a
negotiated or competitive bid basis through underwriters or dealers or directly
to other purchasers or through agents.

Pursuant to a Rights Agreement (as amended), a "right" entitling the holder
thereof to purchase under certain conditions, one-half of one share of common
stock at an exercise price of $37.50, subject to adjustment, was distributed
with respect to each outstanding share of common stock in 1986, and with
respect to each additional share of common stock that has become outstanding
since then.

The rights will become exercisable upon the earlier to occur of (i) the 10th
day after a public announcement that a third party has become the beneficial
owner of 25% or more of the outstanding common stock (an "acquiring person") or
(ii) the 10th day after the commencement of, or the announcement of an
intention to commence, an offer the consummation of which would result in a
third party beneficially owning 25% or more of the common stock.

F-11
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the event any person becomes an acquiring person, each holder of a right
(other than the acquiring person) will thereafter have the right to receive
upon exercise that number of shares of common stock having a market value of
two times the exercise price of the right. The rights, which have no voting
rights, expire in 1996. The rights may be redeemed at the option of the Company
at any time prior to such time as any person becomes an acquiring person. Under
certain conditions and following a stockholder vote, the rights shall be
redeemed by the Company. In either case, the redemption price will be $.05 per
right, subject to adjustment.

The Rights Agreement also provides that under certain circumstances at any
time after any person has become an acquiring person, the Board of Directors
may exchange the rights (other than rights owned by such person) in whole or in
part, for common stock at an exchange ratio of one-half of a share of common
stock per right, subject to adjustment.

At the Company's Annual Meeting of Stockholders in May 1993, the stockholders
approved the authorization of 8 million shares of preferred stock of which none
are issued or outstanding as of December 31, 1994. The Board of Directors of
the Company is authorized to issue the preferred stock from time to time in one
or more series and to determine all relevant terms of each such series,
including but not limited to the following (i) whether and upon what terms, the
shares of such series would be redeemable; (ii) whether a sinking fund would be
provided for the redemption of the shares of such series and, if so, the terms
thereof; and (iii) the preference, if any, to which shares of such series would
be entitled in the event of voluntary or involuntary liquidation of the
Company.

NOTE TWELVE--STOCK OPTIONS AND AWARDS:

The 1987 Stock Incentive Plan authorizes the granting of incentive and non-
qualified stock options, restricted stock awards and stock appreciation rights
to key management personnel. The purchase price of shares under option is the
market price of the shares on the date of grant. Options expire 10 years from
the date granted.

Transactions in 1994 and 1993 are summarized below:

<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Options outstanding at January 1.............. 1,981,005 1,854,430
Options granted............................... 615,250 433,550
Options exercised............................. (529,132) (95,675)
Options canceled or expired................... (45,674) (211,300)
------------ ------------
Options outstanding at December 31............ 2,021,449 1,981,005
============ ============
Options exercisable at December 31............ 1,238,049 1,388,005
Shares available for grant at December 31..... 900,156 695,431
Option prices per share:
Outstanding at January 1.................... 6 3/8- 9 3/4 6 3/8-13 3/4
Granted..................................... 8 3/4-13 6 3/4- 7 1/4
Exercised................................... 6 3/8- 9 3/4 6 3/8- 8 3/8
Canceled or expired......................... 6 7/8- 9 3/4 6 7/8-13 3/4
Outstanding at December 31.................. 6 3/8-13 6 3/8- 9 3/4
</TABLE>

The Company had 189,108 and 63,837 restricted stock awards issued and
outstanding as of December 31, 1994 and 1993, respectively. The market value of
the restricted shares is deferred in the additional paid-in capital account and
amortized over the years the restrictions lapse. Total compensation expense in
1994 and 1993, related to these awards, was not material.

F-12
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
NOTE THIRTEEN--RETIREMENT PLANS AND EMPLOYEE BENEFITS:

Virtually all employees in the United States and Canada are eligible to
participate in noncontributory profit-sharing retirement plans after completing
one full year of service. The plans provide for a minimum annual contribution
of 6% of employees' eligible compensation. Contributions above the minimum
could be required based upon profits in excess of a specified return on net
worth. Profit-sharing contributions were $9.7 million, $9.7 million and $11.1
million in 1994, 1993 and 1992, respectively. The 1994, 1993 and 1992
contributions were partially funded through the issuance of approximately
547,000, 1,021,000 and 982,000 shares, respectively, of the Company's common
stock.

Employees in Mexico are covered by government-mandated plans, the costs of
which are accrued by the Company.

In the fourth quarter of 1993, the Company elected early adoption of SFAS No.
112, "Employers' Accounting for Postemployment Benefits." This statement
requires that the Company follow an accrual method of accounting for the
benefits payable to employees when they leave the Company other than by reason
of retirement. Since most of these benefits were already accounted for by the
Company by the accrual method, adoption of SFAS No. 112 did not have a material
effect on the financial statements of the Company, nor is it expected to have a
material effect on future results of operations.

Presently, the Company does not offer any postretirement benefits; as a
result, the 1992 adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits other than Pensions" did not have any effect on the
financial statements of the Company.

NOTE FOURTEEN--CONTINGENCIES:

In 1994, the Company notified its 15 independent distributors of its intent
to change to direct-to-retail distribution on a nationwide basis during the
first half of 1995. In February 1995, one of the independent distributors filed
suit challenging the Company's right to discontinue the distributorship
relationship and alleging that it has been damaged by certain of the Company's
practices. The lawsuit seeks injunctive relief, actual damages of $8 million,
and punitive damages of $20 million.

The Company is involved in various other legal actions, environmental
matters, patent claims, and other proceedings relating to a wide range of
matters that are incidental to the conduct of its business. In addition, the
Company remains liable for certain retained obligations of a discontinued
business, principally income and other taxes prior to the closing of the sale.
The Company believes, after reviewing such matters and consulting with the
Company's counsel, that any liability which may ultimately be incurred with
respect to all of the above matters is not expected to have a material effect
on either the Company's consolidated financial position or results of
operations.

F-13
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Zenith Electronics Corporation:

We have audited the accompanying consolidated balance sheets of Zenith
Electronics Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related statements of consolidated
operations and retained earnings and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Zenith
Electronics Corporation and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.

Arthur Andersen LLP

/s/ Arthur Andersen LLP
-------------------------------------

Chicago, Illinois,
February 14, 1995

F-14
<PAGE>

ZENITH ELECTRONICS CORPORATION

UNAUDITED QUARTERLY FINANCIAL INFORMATION
IN MILLIONS, EXCEPT PER SHARE AMOUNTS

<TABLE>
<CAPTION>
1994 QUARTERS ENDED 1993 QUARTERS ENDED
----------------------------- ---------------------------------
DEC. APRIL APRIL
31 OCT. 1 JULY 2 2 DEC. 31(1) OCT. 2 JULY 3 3
------ ------ ------ ------ ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $453.5 $419.4 $299.0 $297.1 $361.2 $301.8 $274.7 $290.5
Gross margin............ 32.0 37.1 28.9 20.8 26.1 17.2 9.0 12.0
Net income (loss)....... (3.3) 9.4 (8.4) (11.9) (36.0) (14.5) (24.7) (21.8)

Per share of common stock (primary and fully diluted):

Net income (loss)....... $ (.07) $ .21 $ (.20) $ (.32) $(1.04) $ (.44) $ (.79) $ (.72)

New York Stock Exchange market price per share:

High.................... 14 1/8 12 1/8 10 1/2 13 1/2 8 1/8 8 3/8 10 1/2 8 3/8
Low..................... 10 5/8 8 5/8 8 1/4 7 6 1/4 6 1/4 6 1/2 5 7/8
End of quarter.......... 11 5/8 11 3/8 8 5/8 9 3/4 7 6 1/2 7 7/8 7
</TABLE>
- --------
(1) Includes $31.0 million of restructuring and other charges (see Note 3 of
Notes to Consolidated Financial Statements).

F-15
<PAGE>

ZENITH ELECTRONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
IN MILLIONS, EXCEPT PER SHARE AMOUNTS

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
--------------
JULY JULY
1, 2,
1995 1994
------ ------
<S> <C> <C>
Net sales...................................................... $546.7 $596.1
------ ------
Costs, expenses and other:
Cost of products sold........................................ 525.1 546.4
Selling, general and administrative.......................... 51.3 49.8
Engineering and research..................................... 23.5 22.8
Other operating expense (income), net (Note 4)............... (10.4) (8.1)
Restructuring and other charges (Note 3)..................... 18.0 -
------ ------
Operating income (loss)........................................ (60.8) (14.8)
Gain on asset sales, net....................................... - 1.4
Interest expense............................................... (9.4) (7.1)
Interest income................................................ 0.4 0.2
------ ------
Income (loss) before income taxes.............................. (69.8) (20.3)
Income taxes (credit) (Note 5)................................. (0.2) -
------ ------
Net income (loss).............................................. $(69.6) $(20.3)
====== ======
Net income (loss) per share of common stock (Note 6)........... $(1.50) $(0.51)
====== ======
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.

F-16
<PAGE>

ZENITH ELECTRONICS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
IN MILLIONS

<TABLE>
<CAPTION>
JULY 1, DECEMBER 31, JULY 2,
ASSETS 1995 1994 1994
------ ------- ------------ -------
<S> <C> <C> <C>
Current assets:
Cash............................................ $ -- $ 8.9 $ --
Receivables, net of allowance for doubtful
accounts of $3.2, $3.1 and $2.8, respectively.. 165.0 206.9 183.4
Inventories (Note 7)............................ 284.8 245.2 303.9
Other........................................... 8.4 9.9 9.4
------ ------ ------
Total current assets.......................... 458.2 470.9 496.7
Property, plant and equipment, net................ 181.8 168.1 153.1
Other............................................. 15.5 14.6 15.1
------ ------ ------
Total Assets.................................. $655.5 $653.6 $664.9
====== ====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Short-term debt (Note 8)........................ $ 43.9 $ -- $ 49.4
Current portion of long-term debt (Note 8)...... 6.5 -- --
Accounts payable................................ 90.6 114.1 115.9
Income taxes payable............................ 0.5 1.2 1.8
Accrued expenses................................ 130.1 128.0 117.2
------ ------ ------
Total current liabilities..................... 271.6 243.3 284.3
Long-term debt (Note 8)........................... 215.5 182.0 182.0
Stockholders' equity:
Preferred stock................................. -- -- --
Common stock (Note 9)........................... 47.0 45.7 43.0
Additional paid-in capital...................... 295.0 285.4 264.5
Retained earnings (deficit)..................... (171.9) (102.3) (108.4)
Treasury stock.................................. (1.7) (0.5) (0.5)
------ ------ ------
Total stockholders' equity.................... 168.4 228.3 198.6
------ ------ ------
Total liabilities and stockholders' equity.... $655.5 $653.6 $664.9
====== ====== ======
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.

F-17
<PAGE>

ZENITH ELECTRONICS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
IN MILLIONS

<TABLE>
<CAPTION>
INCREASE
(DECREASE)
IN CASH
SIX MONTHS
ENDED
--------------
JULY JULY
1, 2,
1995 1994
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................. $(69.6) $(20.3)
Adjustments to reconcile net income (loss) to net cash used by
operations:
Depreciation................................................. 16.5 14.9
Other........................................................ (0.4) --
Gain on asset sales, net..................................... -- (1.4)
Changes in assets and liabilities:
Current accounts........................................... (18.3) (94.1)
Other assets............................................... (0.9) (0.1)
------ ------
Net cash used by operating activities......................... (72.7) (101.0)
------ ------
Cash flows from investing activities:
Capital additions............................................. (30.2) (28.0)
Proceeds from asset sales..................................... -- 14.8
------ ------
Net cash used by investing activities......................... (30.2) (13.2)
------ ------
Cash flows from financing activities:
Short-term borrowings, net.................................... 43.9 49.4
Proceeds from issuance of long-term debt...................... 40.0 12.0
Proceeds from issuance of common stock, net................... 10.1 66.5
Principal payments on long-term debt.......................... -- (34.5)
------ ------
Net cash provided by financing activities..................... 94.0 93.4
------ ------
Decrease in cash............................................... (8.9) (20.8)
Cash at beginning of period.................................... 8.9 20.8
------ ------
Cash at end of period.......................................... $ -- $ --
====== ======
Increase (decrease) in cash attributable to changes in current
accounts:
Receivables, net.............................................. $ 40.7 $(21.7)
Income taxes, net............................................. 0.5 0.8
Inventories................................................... (39.6) (101.2)
Other assets.................................................. 1.5 (3.3)
Accounts payable and accrued expenses......................... (21.4) 31.3
------ ------
Net change in current accounts............................. $(18.3) $(94.1)
====== ======
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest..................................................... $ 8.8 $ 8.6
Income taxes................................................. (1.0) (0.1)
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.

F-18
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
("financial statements") have been prepared in accordance with generally
accepted accounting principles and pursuant to the rules and regulations of the
Securities and Exchange Commission. The accuracy of the amounts in the
financial statements is in some respects dependent upon facts that will exist,
and procedures that will be performed by the Company, later in the year. In the
opinion of management, all adjustments necessary for a fair presentation of the
financial statements have been included and are of a normal, recurring nature.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's Form 10-K for the year ended December
31, 1994.

NOTE 2--SUBSEQUENT EVENT

On July 17, 1995, it was announced that LG Electronics Inc. (LGE), formerly
GoldStar Co. Ltd., and the Company signed a definitive agreement under which
LGE plans to acquire a controlling interest in the Company. Pursuant to the
agreement, LGE will purchase, for $10 per share, 16.5 million newly issued
shares of the Company's common stock and 18.619 million shares from the
Company's shareholders in a tender offer. LGE currently owns approximately 1.45
million shares of the Company's common stock, and upon successful completion of
this transaction, LGE will own approximately 57.7 percent of the outstanding
common stock of the Company. The transaction is subject to the completion of a
successful tender offer, the approval by the Company's shareholders of the
issuance and sale of the new shares, certain governmental and regulatory
approvals and the satisfaction of customary closing conditions.

NOTE 3--RESTRUCTURING AND OTHER CHARGES

During the second quarter of 1995, the Company recorded a charge of $18.0
million primarily to restructure its core Consumer Electronics and Network
Systems business. The major elements of the restructuring related to (i)
severance expenses ($9.6 million) associated with employment reductions,
primarily in the Company's United States salaried workforce and (ii) cost
associated with realigned distribution activities ($2.7 million) as the Company
changed to direct-to-retail distribution on a nationwide basis. The remaining
charges related to other non-recurring items, including certain environmental,
legal and other regulatory matters, along with trade receivable write-offs
(primarily for accounts in Mexico as a result of the peso devaluation).

NOTE 4--OTHER OPERATING EXPENSE (INCOME)

Royalty income accrued in relation to tuning system patents (after deducting
legal expenses) was $9.2 million for the six months ended July 1, 1995, and
$9.9 million for the six months ended July 2, 1994. These amounts are included
in Other Operating Expense (Income).

NOTE 5--INCOME TAXES

As of July 1, 1995, the Company had $456.3 million of net operating loss
carryovers (NOLs) available for financial statement purposes. For federal
income tax purposes, the Company had NOLs of $456.1 million (which expire from
2004 through 2010) and unused tax credits of $6.2 million (which expire from
1995 through 2002). The consummation of the LGE agreement (as described above
in Note 2) will create an "ownership change" of the Company for federal income
tax purposes, with the effect that the Company's annual usage of its NOLs will
be limited to the product of (i) a tax-exempt rate of return announced monthly
by the Internal Revenue Service (for example, 5.88% for ownership changes
occurring in the month of August 1995) and (ii) the equity value of the Company
immediately before the ownership change as determined under applicable tax
regulations. This limitation, appropriately modified, will also apply to the
Company's utilization of most of its tax credit carryovers. As a result, the
Company's ability to utilize such carryovers will be materially reduced by the
proposed LGE transaction. The effect of this reduction will depend upon the
level of taxable income earned by the Company during the carryover periods.

F-19
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)

NOTE 6--EARNINGS PER SHARE

Primary earnings per share are based upon the weighted average number of
shares outstanding and common stock equivalents, if dilutive. Fully diluted
earnings per share, assuming conversion of the 6 1/4% convertible subordinated
debentures and the 8.5% convertible senior subordinated debentures, are not
presented because the effect of the assumed conversion is antidilutive. The
weighted average number of shares was 46.4 million for the six months ended
July 1, 1995 and 39.6 million for the six months ended July 2, 1994.

NOTE 7--INVENTORIES

Inventories consisted of the following (in millions):

<TABLE>
<CAPTION>
JULY JULY
1, DECEMBER 31, 2,
1995 1994 1994
------ ------------ ------
<S> <C> <C> <C>
Raw materials and work-in-process............... $185.8 $156.2 $183.0
Finished goods.................................. 107.8 97.8 130.0
------ ------ ------
293.6 254.0 313.0
Excess of FIFO cost over LIFO cost.............. (8.8) (8.8) (9.1)
------ ------ ------
Total....................................... $284.8 $245.2 $303.9
====== ====== ======
</TABLE>

As of July 1, 1995, December 31, 1994 and July 2, 1994, $49.9 million, $25.0
million and $36.0 million, respectively, of inventories were valued using the
LIFO method.

An actual determination of inventory under the LIFO method can only be made
at the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on management's estimates of
expected year-end inventory levels and costs. Since these estimates are subject
to many factors beyond management's control, interim results are subject to the
final year-end LIFO inventory determination.

NOTE 8--SHORT-TERM DEBT AND CREDIT ARRANGEMENTS; LONG-TERM DEBT

During the second quarter of 1995 the Company entered into a First Amended
and Restated Credit Agreement dated as of May 10, 1995 (the "Credit Agreement")
among the Company, General Electric Capital Corporation, as agent for itself
and the other lenders named therein, replacing a similar credit agreement with
the same agent and group of lenders. The maximum commitment of funds available
for borrowing under the Credit Agreement is $110 million, increased from $90
million, based upon a borrowing base formula related to eligible accounts and
eligible inventory (each as defined in the Credit Agreement). On the same date,
the Company entered into a Term Loan Agreement (the "Term Loan") with the same
agent and group of lenders. The Term Loan is in the initial principal amount of
$40 million, requiring scheduled quarterly principal payments over the life of
the Term Loan and additional mandatory prepayment in certain events.

Both the Credit Agreement and Term Loan are scheduled to expire on June 30,
1998. Borrowings under the Credit Agreement, similar to the former credit
agreement, are secured by accounts receivable, inventory, general intangibles
and trademarks of the Company and certain of its domestic subsidiaries. The
borrowing under the Term Loan is secured by the tuning system patent license
agreements of the Company and a second security interest in the accounts
receivable, inventory, general intangibles and trademarks of the Company and
certain of its domestic subsidiaries. The Credit Agreement and the Term Loan
prohibit dividend payments on the Company's common stock and restrict dividend
payments on any of its preferred stock, if issued. In addition, both agreements
provide for identical restrictions regarding investments, acquisitions,
guaranties, transactions with affiliates, sales of assets, mergers and
additional borrowings, along with limitations on liens. Certain material asset
transactions are permitted under both agreements.

F-20
<PAGE>

ZENITH ELECTRONICS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)

The Credit Agreement and Term Loan also contain identical financial covenants
that must be maintained as of the end of each fiscal quarter, including a
liabilities to net worth ratio and a minimum net worth amount. The ratio of
liabilities to net worth and minimum net worth amount varies from quarter to
quarter. As of July 1, 1995, the ratio of liabilities to net worth was required
to be not greater than 4.40 to 1.0 and was actually 2.89 to 1.0, and net worth
was required to be equal to or greater than $143.0 million and was actually
$168.4 million. As of September 30, 1995 and December 31, 1995, the liabilities
to net worth ratio is required to be not greater than 4.40 to 1.0 and 3.50 to
1.0, respectively. As of March 30, 1996, and through the end of the agreement,
the liabilities to net worth ratio is required to be not greater than 4.00 to
1.0. As of September 30, 1995 and December 31, 1995, net worth is required to
be equal to or greater than $154.0 million and $166.0 million, respectively. As
of March 30, 1996 and through the end of the agreement, net worth is required
to be equal to or greater than $160.0 million.

The Credit Agreement also restricts the amount of capital expenditures by the
Company in each fiscal year. For the fiscal year 1995, 1996, 1997, and each
fiscal year thereafter the Company is permitted to make capital expenditures
(as defined in the Credit Agreement) of up to $80.0 million, $142.0 million,
$87.0 million and $60.0 million, respectively.

NOTE 9--STOCKHOLDERS' EQUITY

During the first six months of 1995, the Company sold 1.3 million shares of
authorized but unissued shares of common stock to investors under a shelf
registration statement registering 6.5 million shares of common stock. The
result of these stock sales was to increase equity by $10.1 million.

At the Company's Annual Meeting on April 25, 1995, the stockholder's of the
Company voted to amend the Company's Restated Certificate of Incorporation to
increase the authorized common stock of the Company from 100,000,000 shares to
150,000,000 shares.

NOTE 10--RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform with the
current period presentation.

F-21
<PAGE>

APPENDIX I

STOCK PURCHASE AGREEMENT

DATED AS OF JULY 17, 1995

BY AND BETWEEN

ZENITH ELECTRONICS CORPORATION

AND

LG ELECTRONICS INC.

<PAGE>

CONTENTS

<TABLE>
<C> <S> <C>
ARTICLE 1. Definitions ................................................... 1
1.1. Definitions ................................................... 1
ARTICLE 2. Sale and Purchase of Issue Shares ............................. 5
2.1. Sale and Purchase of the Shares ............................... 5
2.2. Closing and Deliveries ........................................ 5
2.2.1. Deliveries by the Purchaser ........................... 5
2.2.2. Deliveries by the Company ............................. 5
ARTICLE 3. The Offer ..................................................... 5
3.1. Commencement of the Offer ..................................... 5
3.2. Changes to the Offer .......................................... 6
3.3. Purchase ...................................................... 6
3.4. Schedule 14D-1 and other Offer Documents ...................... 6
3.5. Actions by the Company ........................................ 7
3.5.1. Approval and Recommendation of Offer .................. 7
3.5.2. Schedule 14D-9 ........................................ 7
3.5.3. Stockholder Information ............................... 8
ARTICLE 4. Representations and Warranties of the Company ................. 8
4.1. Organization and Standing; Charter and Bylaws ................. 8
4.2. Authority ..................................................... 9
4.3. Capital Stock ................................................. 9
4.4. Governmental Consents ......................................... 10
4.5. Compliance with Applicable Law ................................ 10
4.6. No Default .................................................... 10
4.7. Reports and Financial Statements .............................. 10
4.8. Absence of Changes ............................................ 11
4.9. Litigation .................................................... 11
4.10. Tax Matters ................................................... 11
4.11. Registration Rights ........................................... 12
4.12. Offering ...................................................... 12
4.13. Insurance ..................................................... 12
4.14. Certain Transactions .......................................... 12
4.15. Employees and ERISA ........................................... 12
4.16. Intellectual Property ......................................... 13
4.17. Environmental Laws and Regulations ............................ 14
4.18. Brokers ....................................................... 14
4.19. Company Letter ................................................ 14
ARTICLE 5. Representations and Warranties of the Purchaser ............... 14
5.1. Organization, Good Standing, and Qualification ................ 14
5.2. Authority ..................................................... 14
5.3. No Violation .................................................. 15
5.4. Governmental Consents ......................................... 15
</TABLE>

I-i
<PAGE>

<TABLE>
<C> <S> <C>
5.5. Securities Laws ............................................... 15
5.5.1. Investment Intent ..................................... 15
5.5.2. Sophistication ........................................ 15
5.6. Offer and Proxy Materials ..................................... 15
5.7. Brokers ....................................................... 16
ARTICLE 6. Covenants ..................................................... 16
6.1. Proxy Solicitation and Stockholder Approval ................... 16
6.1.1. Proxy Materials ....................................... 16
6.1.2. Stockholders' Meeting ................................. 16
6.2. Conduct of Business of the Company ............................ 17
6.3. Other Potential Bidders ....................................... 19
6.4. Access to Information; Confidentiality ........................ 19
6.4.1. Access ................................................ 19
6.4.2. Confidentiality ....................................... 20
6.5. Additional Agreements; Reasonable Efforts ..................... 20
6.6. HSR and Exon-Florio ........................................... 20
6.7. Public Announcements .......................................... 20
6.8. Amendment of Rights Agreement ................................. 20
6.9. Notification of Certain Matters ............................... 21
6.10. Disclosure .................................................... 21
6.11. Election of Directors ......................................... 21
6.11.1 . Directors ............................................ 21
6.11.2 . Compliance with Section 14(f) ........................ 21
6.12. Director and Officer Liability ................................ 21
6.13. Change in Control ............................................. 22
ARTICLE 7. Conditions to Purchase and Sale of Issue Shares ............... 22
7.1. Conditions to Obligations of the Purchaser and the Company .... 22
7.1.1. Stockholder Approval .................................. 22
7.1.2. No Prohibition ........................................ 22
7.1.3. Regulatory Compliance ................................. 22
7.1.4. Exon-Florio ........................................... 23
7.2. Conditions to Obligations of the Purchaser .................... 23
7.2.1. Directors ............................................. 23
7.2.2. Performance ........................................... 23
7.2.3. Amended Bylaws ........................................ 23
7.2.4. Amendment of Rights Agreement ......................... 23
7.2.5. Tender of Shares ...................................... 23
7.2.6. Closing Deliveries .................................... 23
7.2.7. Representations and Warranties True ................... 23
7.2.8. Certificate ........................................... 23
7.2.9. Credit Agreements ..................................... 24
7.2.10. Items in Company Letter ............................... 24
</TABLE>

I-ii
<PAGE>

<TABLE>
<C> <S> <C>
7.3. Conditions to Obligations of the Company ..................... 24
7.3.1. Performance .......................................... 24
7.3.2. Representations and Warranties True .................. 24
7.3.3. Closing Deliveries ................................... 24
7.3.4. Certificate .......................................... 24
7.3.5. Offer ................................................ 24
ARTICLE 8. Termination .................................................. 24
8.1. Termination by the Company ................................... 24
8.2. Termination by the Purchaser ................................. 25
8.3. Termination by the Purchaser or the Company .................. 25
8.4. Effect of Termination ........................................ 25
ARTICLE 9. Miscellaneous ................................................ 26
9.1. Survival of Representations and Warranties ................... 26
9.2. Governing Law; Consent to Jurisdiction ....................... 26
9.3. Expenses ..................................................... 26
9.4. Notices ...................................................... 26
9.5. Waiver ....................................................... 27
The Purchaser Subsidiaries; Successors, Assignment, and
9.6. Parties in Interest .......................................... 27
9.7. Entire Agreement ............................................. 27
9.8. Amendment .................................................... 27
9.9. Severability ................................................. 28
9.10. Cumulation of Remedies ....................................... 28
9.11. Fair Construction ............................................ 28
9.12. Headings; References ......................................... 28
9.13. Counterparts ................................................. 28
</TABLE>

EXHIBIT A--Amended Bylaws

ANNEX A--Conditions to Purchaser's Acceptance of Shares in the Offer

I-iii
<PAGE>

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (the "Agreement") is entered into as of July
17, 1995 by and between LG Electronics Inc., a corporation organized under the
laws of the Republic of Korea (the "Purchaser"), and Zenith Electronics
Corporation, a Delaware corporation (the "Company").

Whereas, the Purchaser desires, directly and/or through a direct or indirect
majority owned subsidiary, to purchase from the Company 16,500,000 newly issued
shares of the Company's Common Stock and to offer to purchase, directly or
indirectly, from existing stockholders of the Company 18,619,000 outstanding
shares of the Company's Common Stock, and the Company desires to sell certain
newly issued shares of its Common Stock to the Purchaser or its subsidiary; and

Whereas, upon the consummation of the transactions contemplated by this
Agreement, the Purchaser or its Affiliates intend to purchase an aggregate of
35,119,000 shares of the Company's Common Stock resulting in the Purchaser and
its Affiliates owning a majority of the outstanding shares of the Company's
Common Stock.

Now Therefore, in consideration of the foregoing and the representations,
warranties, and agreements set forth in this Agreement, the Purchaser and the
Company hereby agree as follows:

ARTICLE 1.

Definitions

1.1. Definitions. Capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings set forth below.

"Affiliate" of a party means any person or entity controlling, controlled by,
or under common control with such party. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person,
whether through the ownership of voting securities, by agreement or otherwise.

"Amended Bylaws" means the Bylaws of the Company in the form of Exhibit A
hereto, to be adopted by the Company prior to the Closing.

"Amendment to Rights Agreement" means the amendment to the Rights Agreement
effecting the changes to the Rights Agreement referred to in Section 6.8.

"Antitrust Division" has the meaning set forth in Section 6.6.

"Beneficially Owned" shall have the meaning provided in Rule 13d-3 under the
Exchange Act without giving effect to subsection (d)(1)(i) thereof.

"Board" means the Board of Directors of the Company.

"Business Day" means any day other than a Saturday, a Sunday, or a bank
holiday in the State of Illinois or in the Republic of Korea.

"CFIUS" means the Committee on Foreign Investment in the United States, as
established through Executive Order No. 11858 in connection with Exon-Florio.

"Closing" means the closing of the purchase and sale of the Issue Shares
pursuant to Section 2.1 and the time that the Purchaser accepts the Offer
Shares for purchase.

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"Commission" means the Securities and Exchange Commission.

"Common Stock" means the common stock of the Company, par value $1.00 per
share.

"Company Letter" means the letter, dated as of the date hereof, from the
Company to the Purchaser regarding certain matters related to this Agreement.

"Confidentiality Agreement" means that certain Mutual Non-Disclosure
Agreement between the Purchaser and the Company, dated November 25, 1994.

"Consent" has the meaning set forth in Section 4.4.

"Convertible Debentures" has the meaning set forth in Section 4.3.

"Employee Benefit Plan" means each "employee benefit plan" (as defined in
section 3(3) of ERISA) and each retirement or deferred compensation plan,
incentive compensation plan, stock plan, unemployment compensation plan,
vacation pay, severance pay, bonus or benefit arrangement, insurance or
hospitalization program or any other fringe benefit arrangements which does not
constitute an employee benefit plan, maintained by or contributed to by the
Company or any of its subsidiaries or with respect to which the Company or any
of its subsidiaries may have any liability.

"Environmental Claim" has the meaning set forth in Section 4.17.

"Environmental Laws" has the meaning set forth in Section 4.17.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exon-Florio" means Section 721 of the Exon-Florio Amendment to the Defense
Production Act of 1950.

"FTC" has the meaning set forth in Section 6.6.

"GAAP" means generally accepted accounting principles as in effect in the
United States of America (as such principles may change from time to time).

"Governmental Authority" means 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 this Agreement.

"Hazardous Material" means any substance: (i) the presence of which requires
investigation or remediation under any federal, state or local statute,
regulation, ordinance, order, action policy or common law; or (ii) which is
defined and regulated as a "hazardous waste," "hazardous substance," pollutant
or contaminant under any federal, state or local statute, regulation, rule or
ordinance or amendments thereto; or (iii) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise
hazardous and is regulated by any governmental authority, agency, department,
commission, board, agency or instrumentality of the United States, the state in
which such substance is located or any political subdivision thereof; or (iv)
the presence of which poses or threatens to pose a hazard to the health or
safety of persons or the environment on or about the property on which such
substance is located or adjacent properties. Hazardous Material shall include,
without limitation, petroleum, including crude oil and any fraction thereof,
asbestos and polychlorinated biphenyls (PCBs).

"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

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"Indemnified Party" has the meaning set forth in Section 6.12.

"Indemnity Agreements" has the meaning set forth in Section 6.12.

"Independent Director" means a director who is not (apart from such
directorship) an Affiliate, officer, employee, agent, principal or partner of
the Purchaser or the Company or any subsidiary of either of them.

"Instruments" has the meaning set forth in Section 4.6.

"Intellectual Property" has the meaning set forth in Section 4.16.

"Issue Price" means $10.00 per share of Common Stock.

"Issue Shares" means the 16,500,000 shares of Common Stock to be issued and
sold by the Company to the Purchaser at the Closing pursuant to Article 2.

"Knowledge", when used in reference to the Company, means the knowledge of
those officers of the Company identified in the Company Letter.

"Lien" means any mortgage, lien, security interest, pledge, lease or other
charge or encumbrance of any kind, including, without limitation, the lien or
retained security title of a purchase money creditor or conditional vendor, and
any easement, right of way or other encumbrance on title to real property, and
any agreement to give any of the foregoing.

"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 this Agreement or consummate the transactions contemplated hereby or by
the other Transaction Documents. 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.

"Notice of Superior Proposal" has the meaning set forth in Section 6.3.

"Offer" has the meaning set forth in Section 3.1.

"Offer Conditions" has the meaning set forth in Section 3.1.

"Offer Documents" has the meaning set forth in Section 3.4.

"Offer Price" means $10.00 per share of Common Stock.

"Offer Shares" means those shares of Common Stock, if any, purchased by the
Purchaser pursuant to the Offer.

"Permitted Liens" means (i) Liens (other than Liens imposed under ERISA or
any Environmental Law or in connection with any Environmental Claim) for taxes
or other assessments or charges of Governmental Authorities that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings, in each case, with respect to which adequate reserves or other
appropriate provisions are being maintained to the extent required by GAAP;
(ii) statutory Liens of landlords and mortgagees of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other Liens (other than
Liens imposed under ERISA or any Environmental Law or in connection with any
Environmental Claim) imposed by law and created in the ordinary course of
business for amounts not yet more than 30 days overdue or which are being
contested

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in good faith by appropriate proceedings, in each case, with respect to which
adequate reserves or other appropriate provisions are being maintained to the
extent required by GAAP; (iii) leases or subleases, easements, rights-of-way,
covenants, and consents which do not interfere materially with the ordinary
conduct of the business of the Company or any of its subsidiaries or detract
materially from the value of the property to which they attach or materially
impair the use thereof to the Company and its subsidiaries; and (iv) Liens
granted by the Company or any of its subsidiaries to lenders pursuant to credit
agreements in existence on the date hereof.

"Preferred Stock" has the meaning set forth in Section 4.3.

"Proxy Materials" has the meaning set forth in Section 6.1.

"Returns" has the meaning set forth in Section 4.10.

"Rights" has the meaning ascribed thereto in the Rights Agreement.

"Rights Agreement" means that certain Rights Agreement by and between the
Company and The Bank of New York, as successor Rights Agent, originally dated
as of October 3, 1986, as amended April 28, 1988, July 7, 1988, May 24, 1991
and February 1, 1993, and any extension thereof and any comparable or similar
successor or replacement agreement.

"Schedule 14D-1" has the meaning set forth in Section 3.4.

"Schedule 14D-9" has the meaning set forth in Section 3.5.2.

"SEC Reports" has the meaning set forth in Section 4.7.

"Securities Act" means the Securities Act of 1933, as amended.

"Shares" means issued and outstanding shares of Common Stock.

"Stockfolder Proposals" means the transactions contemplated hereby, including
the issuance and sale to the Purchaser of the Issue Shares and the purchase by
the Purchaser of the Offer Shares, which transactions shall be described in the
Proxy Materials and submitted to a vote of the Company's stockholders as set
forth in Section 6.1.

"Superior Proposals" has the meaning set forth in Section 6.3.

"Tax" has the meaning set forth in Section 4.10.

"Third Party" means any person (including a "person" as defined in Section
13(d)(3) of the Exchange Act) or entity other than, or group not including, the
Purchaser or any Affiliate of the Purchaser or the Company.

"Third Party Acquisition" means (i) the acquisition by a Third Party of more
than twenty percent of the total assets of the Company or any of its
subsidiaries, (ii) the acquisition by a Third Party of twenty percent or more
of (a) the Shares or (b) the Total Voting Power or (c) the equity securities of
any subsidiary of the Company, or (iii) any merger or other combination of the
Company or any of its subsidiaries with any Third Party.

"Total Voting Power" means, at any date, the total number of votes that may
be cast in the election of directors of the Company at any meeting of
stockholders of the Company held on such date assuming all shares of Voting
Stock were present and voted at such meeting, other than votes that may be cast
only by one class or series of stock (other than Common Stock) or upon the
happening of a contingency.

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"Transaction Documents" means this Agreement, the Company Letter, the Offer
Documents, the Schedule 14D-9 and the Amended Bylaws, amendments thereof, and
all annexes and exhibits hereto and thereto.

"Voting Stock" means Common Stock and all other securities of the Company, if
any, entitled to vote generally in the election of directors.

ARTICLE 2.

Sale and Purchase of Issue Shares

2.1. Sale and Purchase of the Shares. Upon the terms and subject to
satisfaction or waiver of all of the conditions set forth in Article 7, at the
Closing, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company, the Issue Shares in exchange for the Issue
Price. The Purchaser shall pay the Issue Price with respect to the Issue Shares
to the Company at the Closing by bank wire transfer of immediately available
funds to an account designated by the Company, or by such other means as is
acceptable to the Company and the Purchaser.

2.2. Closing and Deliveries. Subject to satisfaction or waiver of all of the
conditions set forth in Article 7, the Closing of the purchase and sale of the
Issue Shares shall take place on such date and at such time as may be
designated by the Purchaser within five Business Days after the last to occur
of satisfaction or waiver of the conditions set forth in Article 7. Such
Closing shall occur at the offices of Mayer, Brown & Platt, 190 South LaSalle
Street, Chicago, Illinois 60603, or at such other place and time as the
Purchaser and the Company agree in writing.

2.2.1. Deliveries by the Purchaser. At the Closing, the Purchaser shall
deliver to the Company the following:

(a) the Issue Price with respect to the Issue Shares; and

(b) such other documents and instruments, duly executed to the extent
required, as may be reasonably requested by the Company in order to
consummate the transactions contemplated hereby.

2.2.2. Deliveries by the Company. At the Closing, the Company shall deliver
to the Purchaser the following:

(a) a certificate, or certificates in such denominations as may be
requested by the Purchaser, evidencing the Issue Shares; and

(b) such other documents and instruments, duly executed to the extent
required, as may be reasonably requested by the Purchaser in order to
consummate the transactions contemplated hereby.

ARTICLE 3.

The Offer

3.1. Commencement of the Offer. Provided that nothing shall have occurred
that would result in a failure to satisfy any of the Offer Conditions, as
promptly as practicable, but in no event later than five Business Days, after
the public announcement of the entering into this Agreement by the parties, the
Purchaser shall commence within the meaning of Rule 14d-2 under the Exchange
Act a tender offer (the "OFFER") to purchase for the Offer Price up to
18,619,000 Shares. The obligations of the Purchaser to accept for payment, and
pay for, any Offer Shares tendered pursuant to the Offer shall be subject to
(the following being referred to as the "OFFER CONDITIONS") the purchase by
Purchaser of the Issue Shares, to be consummated simultaneously with the
purchase of the Offer Shares, and to the conditions that (i) this Agreement
shall not have been terminated, (ii) there shall be validly tendered in
accordance with the terms

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of the Offer prior to the expiration date of the Offer and not withdrawn at
least 18,619,000 Shares, and (iii) to the satisfaction or waiver of the other
conditions set forth in Annex A attached hereto.

3.2. Changes to the Offer. The Purchaser may increase the Offer Price and may
make any other changes in the terms and conditions of the Offer, provided that,
unless previously approved by the Company in writing, the Purchaser may not (i)
decrease the Offer Price, (ii) change the form of consideration payable in the
Offer, (iii) decrease the maximum number of Shares sought pursuant to the
Offer, (iv) add to or modify the Offer Conditions or (v) otherwise amend the
Offer in any manner adverse to the Company's stockholders. Subject to the terms
and conditions thereof, the Offer shall 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 holders of Shares. The Purchaser shall extend the Offer (A) if at the
scheduled expiration date of the Offer any of the Offer Conditions shall not
have been satisfied or waived, until such time as such Offer Conditions are
satisfied or waived and (B) for any period required by any rule, regulation,
interpretation or position of the Commission or the staff thereof applicable to
the Offer; provided, however, that Purchaser may terminate the Offer if this
Agreement is terminated.

3.3. Purchase. Provided that this Agreement shall not have been terminated in
accordance with Article 8 and provided that all Offer Conditions shall have
been satisfied or waived by the Purchaser in accordance with this Article 3,
the Purchaser shall accept for payment and purchase, in accordance with the
terms of the Offer, Shares validly tendered and not withdrawn pursuant to the
Offer (up to the amount sought pursuant to the Offer or such greater amount as
Purchaser, in its sole discretion, shall determine) at the Closing. The Offer
Conditions are for the sole benefit of the Purchaser and may be asserted by the
Purchaser regardless of the circumstances giving rise to any such condition or
may be waived by the Purchaser, in whole or in part at any time and from time
to time, in the Purchaser's sole discretion. The failure by the Purchaser at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time. Any determination (which
shall be made in good faith) by the Purchaser with respect to any of the
foregoing conditions (including without limitation the satisfaction of such
conditions) shall be final and binding on the parties. The Offer Price (to the
extent, if any, adjusted pursuant to the Offer) shall be paid net to the seller
in cash, less any required withholding of taxes, upon the terms and subject to
the conditions of the Offer. It is the intention of the Purchaser and the
Company that the purchase by the Purchaser of the Issue Shares be a condition
to the purchase by the Purchaser of the Offer Shares and that the purchase by
the Purchaser of the Offer Shares be a condition to the purchase by the
Purchaser of the Issue Shares.

3.4. Schedule 14D-1 and Other Offer Documents. On the date the Offer is
commenced, the Purchaser shall file with the Commission a Tender Offer
Statement on Schedule 14D-1 (together with all amendments and supplements
thereto, the "SCHEDULE 14D-1") with respect to the Offer. The Schedule 14D-1
shall contain as an exhibit or incorporate by reference the Offer to Purchase
(or portions thereof) and form of the related letter of transmittal and summary
advertisement to be used in connection with the Offer (the Schedule 14D-1 and
such other documents, together with any supplements thereto or amendments
thereof, being referred to herein collectively as the "OFFER DOCUMENTS"). The
Company shall provide to the Purchaser in writing all information regarding the
Company necessary for the preparation of the Offer Documents, which information
shall be accurate and shall not contain any material misstatement of fact or
omit to state any material fact necessary to make the statements included in
such information, in light of the circumstances under which they are made, not
misleading. The Company and its counsel shall be given a reasonable opportunity
to review and comment on the Offer Documents prior to the filing thereof with
the Commission and the distribution thereof to the Company's stockholders. The
Purchaser shall provide to the Company and its counsel any comments that the
Purchaser receives (directly or through its counsel) from the Commission or its
staff with respect to the Offer Documents promptly after receipt of such
comments. The Offer Documents shall comply in all material respects with the
provisions of applicable federal securities laws and shall not, on the date the
Offer Documents are filed with the Commission and on the date first published,
sent or given to the Company's stockholders, as the case may be, contain any
untrue statement of

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a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Purchaser with respect to information supplied by
the Company in writing specifically for inclusion in the Offer Documents. The
Purchaser and the Company shall each promptly correct any information provided
by it for use in the Offer Documents if and to the extent that it shall have
become false or misleading in any material respect, and the Purchaser shall
promptly amend and supplement the Offer Documents if and to the extent that
they shall have become false or misleading in any material respect and shall
promptly cause the Offer Documents as so amended and supplemented to be filed
with the Commission and to be disseminated to the Company's stockholders, in
each case as and to the extent required by applicable federal securities laws.

3.5. Actions by the Company.

3.5.1. Approval and Recommendation of Offer. The Company hereby consents to
the Offer and represents and warrants that the Board, at its meeting duly
called and held on July 17, 1995, unanimously has (i) determined that this
Agreement and the transactions contemplated hereby, including the Offer, are
fair to and in the best interests of the Company's stockholders, (ii) approved
this Agreement and the transactions contemplated hereby, including the Offer,
and such approval constitutes the Board's approval of the acquisition by the
Purchaser of the Offer Shares and the Issue Shares and subsequent acquisitions
of capital stock of the Company for purposes of Section 203(a)(1) of the
Delaware General Corporation Law, and (iii) resolved to recommend that the
stockholders of the Company accept the Offer, tender their Shares thereunder to
the Purchaser and, to the extent necessary or appropriate under applicable law
or regulations, approve and adopt the transactions contemplated by this
Agreement. The Company further represents and warrants that Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") has delivered to the
Board its written opinion dated July 17, 1995 to the effect that, as of the
date of such opinion, the proposed consideration to be received by the Company
and the holders of Shares is fair to the Company and such holders from a
financial point of view. The Company has been authorized by Merrill Lynch to
permit the inclusion of such fairness opinion in the Offer Documents and the
Schedule 14D-9 referred to below and the Proxy Materials referred to in Section
6.1.1. The Company hereby consents to the inclusion in the Offer Documents of
the recommendations of the Board described in this Section 3.5.1.

3.5.2. Schedule 14D-9. Simultaneously with the filing by the Purchaser of the
Schedule 14D-1, the Company shall file with the Commission a
Solicitation/Recommendation Statement on Schedule 14D-9 pertaining to the Offer
(together with any amendments or supplements thereto, the "SCHEDULE 14D-9")
containing the Board's recommendation described in Section 3.5.1. The Company
shall, promptly following the commencement of the Offer and, if practicable,
simultaneously with the mailing by Purchaser of the Offer Documents, mail the
Schedule 14D-9 to the Company's stockholders. The Purchaser and its counsel
shall be given a reasonable opportunity to review and comment on the Schedule
14D-9 prior to the filing thereof with the Commission and its dissemination to
the Company's stockholders. The Company shall provide to the Purchaser and its
counsel any comments that the Company receives (directly or through its
counsel) from the Commission or its staff with respect to the Schedule 14D-9
promptly after receipt of such comments. The Schedule 14D-9 shall comply in all
material respects with the provisions of applicable federal securities laws and
shall not, on the date filed with the Commission and on the date first
published, sent or given to the Company's stockholders, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
the Purchaser in writing specifically for inclusion in the Schedule 14D-9. The
Purchaser and the Company shall each promptly correct any information provided
by it for use in the Schedule 14D-9 if and to the extent that it shall have
become false or misleading in any material respect, and the Company shall
promptly amend and supplement the Schedule 14D-9 if and to the extent that it
shall have become false or misleading in any material respect and shall
promptly cause the Schedule 14D-9 as so amended and supplemented to be filed
with the Commission and disseminated to the Company's stockholders in each case
as and to the extent required by applicable federal securities laws.

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3.5.3. Stockholder Information. In connection with the Offer, the Company
shall promptly furnish the Purchaser with mailing labels, security position
listings and any available listing or computer files containing the names and
addresses of the record holders of the Shares as of a recent date and shall
furnish the Purchaser with such additional information and assistance
(including, without limitation, updated lists of stockholders, mailing labels
and lists of securities positions) as the Purchaser or its agents may
reasonably request for the purpose of communicating the Offer to the record and
beneficial holders of Shares. Subject to the requirements of applicable law,
and except for such steps as are necessary to disseminate the Offer Documents
and any other documents necessary to consummate the transactions contemplated
by this Agreement, the Purchaser shall, and shall cause its Affiliates,
associates, agents and advisors to, hold the information contained in any such
labels, listings and files confidential and use such information only in
connection with the Offer, and, if this Agreement shall be terminated, shall
deliver to the Company all copies of such information then in their possession
or control.

ARTICLE 4.

Representations and Warranties of the Company

The Company represents and warrants to the Purchaser as follows:

4.1. Organization and Standing; Charter and Bylaws. The Company is a
corporation duly incorporated, validly existing under and by virtue of the laws
of the State of Delaware and is in good standing under such laws, and each of
the Company's subsidiaries is a corporation or similar entity under foreign
laws duly organized, validly existing, and in good standing under the laws of
its jurisdiction of incorporation, except where the failure to be in good
standing, in the case of foreign subsidiaries, would not reasonably be expected
to have a Material Adverse Effect. All the capital stock of each of the
Company's subsidiaries is duly authorized, validly issued, fully paid and non-
assessable and is, directly or indirectly, owned by the Company (other than, in
the case of any foreign subsidiary, directors', officers' or other shares
required to be held by other persons under applicable law) free and clear of
all Liens other than Permitted Liens and except for transfer restrictions
imposed by federal or state securities laws or applicable foreign laws. There
are no outstanding rights to acquire any securities of any subsidiary of the
Company. The Company and each of its subsidiaries (i) are qualified, licensed
or domesticated as a foreign corporation in all jurisdictions where such
qualification, license or domestication is required to own and operate their
respective properties and conduct their respective businesses in the manner and
at the places presently conducted; (ii) hold all franchises, grants, licenses,
certificates, permits, consents and orders, all of which are valid and in full
force and effect, from all state, federal and other domestic and foreign
regulatory authorities necessary to own and operate their respective properties
and to conduct their respective businesses in the manner and at the places
presently conducted; and (iii) have full power and authority (corporate and
other) to own, lease and operate their respective properties and assets and to
carry on their respective businesses as presently conducted and as proposed to
be conducted, except where the failure to be so qualified, licensed or
domesticated, or to hold such franchises, grants, licenses, certificates
permits, consents and orders or to have such power and authority would not
reasonably be expected to have a Material Adverse Effect. The Company has made
available to the Purchaser copies of the Certificate of Incorporation, as
amended to date, and the Bylaws of the Company and each of its subsidiaries, as
currently in effect, all available minutes of meetings of the Board (including
committees thereof) and stockholders of the Company and the board of directors
of each of its subsidiaries, all written consents executed by the Board
(including committees thereof) and/or stockholders of the Company and the board
of directors of each of its subsidiaries, and the SEC Reports. The documents so
made available are true, correct and complete copies of the original documents,
contain all modifications, amendments, deletions and revocations through the
date of this Agreement and subsequent dates as of which this representation is
deemed to be made and are in full force and effect. The Company is not in
violation of any of the provisions of its Certificate of Incorporation or
Bylaws and no subsidiary of the Company is in violation of any of the
provisions of such subsidiary's equivalent organizational documents. The
Company has heretofore furnished to Purchaser a complete and correct list of
the subsidiaries of the Company, which

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list sets forth the amount of capital stock of or other equity interests in
such subsidiaries owned by the Company, directly or indirectly. No entity in
which the Company owns, directly or indirectly, less than a 50% equity interest
is, individually or when taken together with all other such entities, material
to the business of the Company and its subsidiaries, taken as a whole.

4.2. Authority. The Company has all requisite corporate power and authority
to execute, enter into and carry out the terms and conditions of this
Agreement, each of the other Transaction Documents to be executed and delivered
by the Company, and all other agreements and instruments contemplated hereby
and thereby, and to perform its obligations hereunder and thereunder. This
Agreement has been duly executed and delivered by the Company and is, and the
other Transaction Documents to be entered into by the Company at or prior to
the Closing will be, when executed and delivered by the Company (and assuming
this Agreement and such other Transaction Documents to be entered into by the
Purchaser constitute legal, valid, and binding obligations of the Purchaser),
legal, valid and binding obligations of the Company, enforceable in accordance
with their respective terms, except that the enforceability of this Agreement
and the other Transaction Documents that are contracts may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.

4.3. Capital Stock. The authorized, issued and outstanding capital stock of
the Company consists solely of 150,000,000 shares of Common Stock and 8,000,000
shares of preferred stock, par value $1.00 per share (the "PREFERRED STOCK"),
of which 46,896,492 shares of Common Stock and no shares of Preferred Stock
were issued and outstanding as of June 30, 1995. In addition, at such date not
more than 2,733,499 shares of Common Stock were reserved for issuance upon
exercise of options and warrants outstanding as of such date, 5,635,246 shares
of Common Stock were reserved for issuance upon conversion of the Company's
8.5% Senior Subordinated Convertible Debentures due 2000, 1,200,000 shares of
Common Stock were reserved for issuance upon conversion of the Company's 8.5%
Senior Subordinated Convertible Debentures due 2001 and 3,680,000 shares of
Common Stock were reserved for issuance upon conversion of the Company's 6 1/4%
Convertible Debentures Due 2011 (the Company's 8.5% Senior Subordinated
Convertible Debentures due 2000, 8.5% Senior Subordinated Convertible
Debentures due 2001 and 6 1/4% Convertible Debentures Due 2011 are collectively
referred to herein as the "CONVERTIBLE DEBENTURES"). Additional shares of
Common Stock are reserved for issuance pursuant to the Rights Agreement. Since
such date (i) no shares of Common Stock have been issued except for subsequent
issuances, if any, pursuant to the foregoing reservations, stock option
agreements or Employee Benefit Plans and (ii) the Company has not issued or
granted any option, warrant, convertible security or other right or agreement
which affords any person the right to purchase or otherwise acquire any shares
of the Common Stock or any other security of the Company other than options not
prohibited by this Agreement and granted in the ordinary course of business
under stock option and Employee Benefit Plans in existence on such date and
issuance of Rights pursuant to the Rights Agreement. Except pursuant to the
terms of the Convertible Debentures, the Company is not subject to any
obligation (contingent or otherwise) to purchase or otherwise acquire or retire
any of its securities. All of the issued and outstanding securities of the
Company have been duly authorized and validly issued, are fully paid and non-
assessable, and were issued in compliance with all applicable state and federal
laws regulating the offer, sale or issuance of securities (assuming, in the
case of issuances not effected pursuant to an effective registration statement
under the Securities Act, compliance with all such laws by the persons to whom
such securities were issued or sold and by any transferee of such persons). No
person or entity has any right of first refusal or any preemptive rights in
connection with the issuance of the Issue Shares, or with respect to any future
offer, sale or issuance of securities by the Company, other than rights of the
Purchaser hereunder. The Issue Shares to be purchased by the Purchaser have
been duly authorized and, when delivered pursuant to this Agreement, will be
duly and validly issued and outstanding, fully paid and non-assessable, and
free of any Liens or restrictions (unless created by the Purchaser or any of
its Affiliates), other than restrictions under applicable securities laws.

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<PAGE>

4.4. Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
Governmental Authority ("CONSENT") is required on the part of the Company or
any of its subsidiaries in connection with the transactions contemplated by
this Agreement and the other Transaction Documents, except (i) those required
under HSR and Exon-Florio, (ii) those required by federal and state securities
laws, (iii) filing reports with the U.S. Department of Commerce regarding
foreign direct investment in the United States and (iv) where failure to obtain
such Consent would not reasonably be expected to have a Material Adverse
Effect.

4.5. Compliance with Applicable Law. The Company and its subsidiaries have
and are in compliance with all licenses, permits, and other authorizations
necessary to conduct their respective businesses, except where failure to have
or comply with such licenses, permits and authorizations would not reasonably
be expected to have a Material Adverse Effect. Neither the Company nor any of
its subsidiaries is in default or violation (and no event has occurred which
with notice or the lapse of time or both would constitute a default or
violation) of any judgment, decree, order, law, statute, rule or regulation of
any Governmental Authority, except for such defaults or violations as would not
reasonably be expected to have a Material Adverse Effect. Subject to obtaining
the governmental consents referred to in Section 4.4, the execution, delivery,
and performance of this Agreement, the issuance and sale of the Issue Shares,
and the taking of the other actions contemplated by this Agreement and the
other Transaction Documents will not result in any default or violation of any
judgment, decree, order, law, statute, rule or regulation of any Governmental
Authority, except for such defaults or violations as would not reasonably be
expected to have a Material Adverse Effect either individually or in the
aggregate.

4.6. No Default. Neither the Company nor any of its subsidiaries is in
default or violation (and no event has occurred which with notice or lapse of
time or both would constitute a default or violation) of its Certificate of
Incorporation or Bylaws or other governing document, or any material agreement,
mortgage, indenture, debenture, trust, lease, license, or other instrument or
obligation to or by which it or any of its properties is subject or bound (the
"INSTRUMENTS"), except for such defaults or violations as would not reasonably
be expected to have a Material Adverse Effect either individually or in the
aggregate. The Company has no knowledge of any default or breach (or event or
circumstance that with notice or lapse of time or both would constitute a
breach or default) by other parties to any Instrument, which default or breach
would reasonably be expected to have a Material Adverse Effect. Except as set
forth in the Company Letter and except pursuant to the terms of the Convertible
Debentures, the execution, delivery and performance of this Agreement, the
issuance and sale of the Issue Shares, and the taking of any other action
contemplated by this Agreement or the other Transaction Documents, will not (i)
result in any violation of or be in conflict with or constitute a breach or
default (with or without notice or lapse of time or both) under (a) the
Certificate of Incorporation or Bylaws of the Company or (b) any of the other
Instruments, breach of or default under which would reasonably be expected to
have a Material Adverse Effect, (ii) result in or constitute an event entitling
any party to an Instrument to effect an acceleration of the maturity of any
material indebtedness of the Company or any of its subsidiaries or an increase
in the rate of interest presently in effect with respect to such indebtedness,
or (iii) result in the creation of any Lien upon any of the material properties
or assets of the Company or any of its subsidiaries, subject, in the case of
clauses (i)(b) and (ii), to the Company's receipt of the amendments or waivers
referred to in Sections 7.2.6 and 7.2.10. prior to the Closing.

4.7. Reports and Financial Statements. The Company has filed all required
forms, reports and documents with the SEC since January 1, 1992 (collectively,
the "SEC REPORTS"), each of which when filed complied in all material respects
with all applicable requirements of the Securities Act and the Exchange Act. As
of their respective dates, none of the SEC Reports, including, without
limitation, any financial statements or schedules included or incorporated by
reference therein, contained when filed, any untrue statement of a material
fact, or omitted when filed, to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which made, not misleading. The
audited consolidated financial statements and unaudited consolidated interim
financial statements of the Company included in the SEC Reports fairly

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present, in conformity with generally accepted accounting principles applied on
a consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended. The Company has
heretofore made available to the Purchaser complete and correct copies of each
of the SEC Reports. Except as reflected or reserved against in the audited
consolidated balance sheet of the Company and its subsidiaries at December 31,
1994, the Company and its subsidiaries have no liabilities of any nature
(whether accrued, absolute, contingent or otherwise), except for liabilities
incurred in the ordinary course of business since December 31, 1994 and
liabilities which would not, individually or in the aggregate, have a Material
Adverse Effect.

4.8. Absence of Changes. Except as and to the extent specifically disclosed
in the SEC Reports filed prior to the date of this Agreement or as set forth in
the Company Letter, since December 31, 1994, (i) none of the actions, events or
circumstances listed in Section 6.2 has been taken or occurred or exists; (ii)
there has not been one or more events, occurrences or developments of a state
of circumstances or facts which individually or collectively has had or
reasonably would be expected to result in a Material Adverse Effect; and (iii)
there has not been one or more breaches or defaults or events that have
resulted or with notice or lapse of time or both would result in any breach or
default under any material contract of the Company or any of its subsidiaries,
except for any such breach or default or, if more than one, any such breaches
or defaults that individually or collectively would not reasonably be expected
to have a Material Adverse Effect.

4.9. Litigation. Except as specifically disclosed in the SEC Reports filed
prior to the date of this Agreement or as set forth in the Company Letter,
there are no actions, suits, claims, proceedings or investigations (or, to the
knowledge of the Company, any basis for any person to assert any claim likely
to result in liability or any other adverse determination) pending against, or
to the knowledge of the Company, threatened against or affecting, the Company
or any of its subsidiaries or any of their respective properties before any
Governmental Authority which (i) individually or in the aggregate would
reasonably be expected to have a Material Adverse Effect; (ii) in any manner
challenges or seeks to prevent, enjoin, alter or delay the Offer or any of the
other transactions contemplated hereby; or (iii) alleges criminal action or
inaction. As of the date hereof, neither the Company nor any of its
subsidiaries nor any of their respective properties is subject to any order,
writ, judgment, injunction, decree, determination or award having, or which
would reasonably be expected to have, a Material Adverse Effect or which would
prevent or delay the consummation of the transactions contemplated hereby.

4.10. Tax Matters. Except as set forth in the SEC Reports filed prior to the
date of this Agreement or as set forth in the Company Letter, (a) the Company
and its subsidiaries have filed, been included in or sent, all material
returns, declarations and reports and information returns and statements
required to be filed or sent by or relating to any of them relating to any
Taxes (as defined below) with respect to any material income, properties or
operations of the Company or any of its subsidiaries (collectively, "RETURNS");
(b) as of the time of filing, the Returns correctly reflected in all material
respects the income, business, assets, operations, activities and status of the
Company and its subsidiaries and any other information required to be shown
therein; (c) the Company and its subsidiaries have timely paid or made
provision for all material Taxes that have been shown as due and payable on the
Returns that have been filed; (d) the Company and its subsidiaries have made or
will make provision for all material Taxes payable for any periods that end
before the Closing for which no Returns have yet been filed and for any periods
that begin before the Closing and end after the Closing to the extent such
Taxes are attributable to the portion of any such period ending at the Closing;
(e) the charges, accruals and reserves for taxes reflected on the books of the
Company and its subsidiaries are adequate to cover the liabilities for Taxes
accruing or payable by the Company and its subsidiaries in respect of periods
prior to the date hereof; (f) neither the Company nor any of its subsidiaries
is delinquent in the payment of any material Taxes or has requested any
extension of time within which to file or send any material Return, which
Return has not since been filed or sent (except Returns with respect to which
the time within which to file (whether or not extended) has not expired as of
the date hereof); (g) no material deficiency for any Taxes has been proposed,
asserted or assessed in writing against the Company or any of its

I-11
<PAGE>

subsidiaries (or any member of any affiliated or combined group of which the
Company or any of its subsidiaries is or has been a member for which either the
Company or any of its subsidiaries could be liable) other than those Taxes
being contested in good faith by appropriate proceedings; (h) neither the
Company nor any of its subsidiaries has granted any extension of the limitation
period applicable to any material Tax claims other than those Taxes being
contested in good faith by appropriate proceedings; (i) neither the Company nor
any of its subsidiaries is subject to liability for Taxes of any person (other
than the Company or its subsidiaries), including, without limitation, liability
arising from the application of U.S. Treasury Regulation section 1.1502-6 or
any analogous provision of state, local or foreign law; and (j) neither the
Company nor any of its subsidiaries is or has been a party to any material tax
sharing agreement with any corporation which is not currently a member of the
affiliated group of which the Company is currently a member.

"TAX" means with respect to any person (i) any net income, gross income,
gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, value-added or windfall profit tax, custom duty or other
tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest and any penalty, addition to tax or
additional amount imposed by any taxing authority (domestic or foreign) on such
person and (ii) any liability of the Company or any subsidiary for the payment
of any amount of the type described in clause (i) as a result of being a member
of an affiliated or combined group.

4.11. Registration Rights. The Company is not a party to any agreement or
commitment which obligates the Company to register under the Securities Act any
of its presently outstanding securities or any of its securities which may
hereafter be issued.

4.12. Offering. Subject to the accuracy of the Purchaser's representations in
Section 5.5, the offer, issuance and sale of the Issue Shares will constitute
transactions exempt from the registration and prospectus delivery requirements
of the Securities Act, and the Company has obtained (or is exempt from the
requirement to obtain) all qualifications, permits, and other consents required
by all applicable United States state securities or blue sky laws and
regulations governing the offer, sale or issuance of the Issue Shares.

4.13. Insurance. The Company and its subsidiaries maintain (i) adequate
insurance on all assets and activities of a type customarily insured by
companies similarly situated, covering property damage and loss of income by
fire or other casualty, and (ii) adequate insurance protection against all
liabilities (including products liability), claims and risks against which it
is customary for companies similarly situated as the Company and its
subsidiaries to insure. The Company and its subsidiaries have complied in all
material respects with all of their insurance policies and bonds.

4.14. Certain Transactions. Except as specifically set forth in the SEC
Reports filed prior to the date of this Agreement, (i) neither the Company nor
any of its subsidiaries is indebted directly or indirectly to any of its
officers or directors, or to members of their respective immediate families,
other than for payment of salary for services rendered and reasonable expenses;
and none of said officers or directors or any members of their immediate
families, are indebted to the Company or any of its subsidiaries, and (ii) no
transaction or series of similar transactions in which the amount involved
exceeds $60,000 has been effected between the Company or any of its
subsidiaries and any director or officer of the Company or any of its
subsidiaries or any members of their respective immediate families, other than
amendments to arrangements with officers of the Company in substantially the
forms and amounts provided to the Purchaser by the Company in writing prior to
the date hereof.

4.15. Employees and ERISA. The SEC Reports filed prior to the date of this
Agreement and the Company Letter describe in all material respects all plans
and arrangements pursuant to which the Company or any of its subsidiaries is
obligated to make any payment or confer any benefit upon any officer, director,
employee or agent of the Company as a result of or in connection with any of
the transactions contemplated

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<PAGE>

by this Agreement or any of the other Transaction Documents or any transaction
or transactions resulting in a change of control of, or investment by a Third
Party in, or combination by a Third Party with, the Company or any of its
subsidiaries. To the Company's knowledge, no officer, director, executive or
key employee of the Company or any of its subsidiaries or any group of
employees of the Company or any of its subsidiaries has any plans to terminate
his, her or its employment with the Company or any of its subsidiaries (other
than as previously disclosed to the Purchaser in writing). The Company and each
of its subsidiaries has complied with all laws relating to the employment of
labor, including provisions thereof relating to wages, hours, equal
opportunity, and collective bargaining except where the failure so to comply
would not reasonably be expected to have a Material Adverse Effect. No labor
dispute with employees of the Company or any of its subsidiaries exists or, to
the knowledge of the Company, is threatened, except as would not reasonably be
expected to have a Material Adverse Effect. Each Employee Benefit Plan conforms
in all material respects to, and its administration is in conformity in all
material respects with, all applicable laws; no material liability under ERISA
or the Internal Revenue Code of 1986, as amended, has been or is expected to be
incurred by the Company or any of its subsidiaries with respect to any Employee
Benefit Plan except regular periodic contributions to such plans; full payment
has been made of all amounts that the Company and its subsidiaries are required
to have paid as contributions to each Employee Benefit Plan; and there is not
in the aggregate any accumulated funding deficiency with respect to any
Employee Benefit Plan. To the Company's knowledge, the current value of accrued
benefits of each such plan does not exceed the current value of such plan's
assets; none of the Employee Benefit Plans is subject to Title IV of ERISA;
except as set forth in the Company Letter, none of the Employee Benefit Plans
is a multiemployer plan (as defined in section 3(37) of ERISA); the Company has
made available to the Purchaser a true and correct copy of each of the Employee
Benefit Plans and all contracts relating thereto, or to the funding thereof;
there have been no amendments to any Employee Benefit Plan which is an employee
pension benefit plan (within the meaning of section 3(2) of ERISA) which are
not the subject of a favorable determination letter issued with respect thereto
by the Internal Revenue Service; and actuarially adequate accruals for all
obligations under the Employee Benefit Plans are reflected in the financial
statements of the Company.

4.16. Intellectual Property. The Company and each of its subsidiaries own or
possess, or has all necessary rights and licenses in, all patents, patent
rights, licenses, inventions (whether or not patentable or reduced to
practice), copyrights (whether registered or unregistered), know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), registered and unregistered
trademarks, service marks and trade names and other intellectual property
rights (collectively, "INTELLECTUAL PROPERTY") necessary to conduct its
business as conducted and proposed to be conducted to the extent that the
failure of the Company and its subsidiaries to own or have such rights and
licenses in such Intellectual Property would reasonably be expected to have a
Material Adverse Effect. Except as disclosed in the SEC Reports filed prior to
the date of this Agreement or as set forth in the Company Letter, neither the
Company nor any of its subsidiaries has received any unresolved notice of, or
is aware of any fact or circumstance that would give any Third Party a right to
assert, infringement or misappropriation of, or conflict with, asserted rights
of others or invalidity or unenforceability of any Intellectual Property owned
by the Company or any of its subsidiaries with respect to any of the foregoing
which, singly or in the aggregate, would reasonably be expected to have a
Material Adverse Effect. The use of such Intellectual Property to conduct the
business and operations of the Company and its subsidiaries as conducted or
proposed to be conducted does not infringe on the rights of any person in any
case where such infringement would reasonably be expected to have a Material
Adverse Effect. Except as set forth in the Company Letter, to the knowledge of
the Company, no person is challenging, infringing on or otherwise violating any
right of the Company or any of its subsidiaries with respect to any
Intellectual Property owned by and/or licensed to the Company and its
subsidiaries. Except as set forth in the Company Letter, neither the execution
of this Agreement nor the consummation of the transactions contemplated hereby
or by the other Transaction Documents will result in a loss or limitation in
(i) the rights and licenses of the Company or any of its subsidiaries to use or
enjoy the benefit of any Intellectual Property employed by them in connection
with their business as conducted or proposed to be conducted or (ii) the amount
of any royalties or other benefits received by the Company from Intellectual
Property owned by it.

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<PAGE>

4.17. Environmental Laws and Regulations. Except as specifically set forth in
the SEC Reports filed prior to the date of this Agreement or as set forth in
the Company Letter, (i) the Company and each of its subsidiaries is in
compliance with all applicable laws and regulations of any Governmental
Authority relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively, "ENVIRONMENTAL LAWS"),
which compliance includes, but is not limited to, the possession by the Company
and its subsidiaries of all permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof except for non-compliance that individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect;
(ii) neither the Company nor any of its subsidiaries has received written
notice of, or, to the knowledge of the Company, is the subject of, any action,
cause of action, claim, investigation, demand or notice by any person or entity
alleging liability under or non-compliance with or requesting information
regarding compliance with any Environmental Law (an "ENVIRONMENTAL CLAIM")
threatened against the Company or any of its subsidiaries or, to the knowledge
of the Company, against any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries has or may have
retained or assumed either contractually or by operation of law, except for
such Environmental Claims as, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect; (iii) to the
knowledge of the Company, there are no circumstances that would reasonably be
expected to prevent or interfere with such material compliance in the future;
(iv) there are no Hazardous Materials presently constructed, deposited, stored,
or otherwise located on, under, in or about any property which has been owned,
occupied or otherwise operated by the Company, the investigation and
remediation of which would reasonably be expected to have Material Adverse
Effect; and (v) no Hazardous Materials have been sent offsite by or on behalf
of the Company from any property owned, occupied or otherwise operated by the
Company, except to the extent that any investigation and remediation of such
Hazardous Materials would not reasonably be expected to have a Material Adverse
Effect.

4.18. Brokers. No finder, broker, agent, financial advisor or other
intermediary other than Merrill Lynch has acted on behalf of the Company in
connection with any of the transactions contemplated by this Agreement or any
of the other Transaction Documents, or is entitled to any payment in connection
herewith or therewith. The fee to which Merrill Lynch is entitled as a result
of its activities on behalf of the Company in connection with any of the
transactions contemplated hereby and by the other Transaction Documents shall
not exceed one percent of the aggregate purchase price of the Issue Shares and
the Offer Shares plus reimbursement of expenses (including attorneys' fees and
expenses) not to exceed $100,000, exclusive of indemnification rights customary
in transactions of the type contemplated by this Agreement and the other
Transaction Documents.

4.19. Company Letter. The Company Letter is accurate in all material
respects.

ARTICLE 5.

Representations and Warranties of the Purchaser

The Purchaser represents and warrants to the Company as follows:

5.1. Organization, Good Standing, and Qualification. The Purchaser is a
corporation duly incorporated, validly existing, and in good standing under the
laws of the Republic of Korea and has all necessary power and authority under
applicable law to own its property and to conduct its business as now owned and
conducted.

5.2. Authority. The Purchaser has all requisite corporate power and authority
to execute, enter into and carry out the terms and conditions of this
Agreement, each of the other Transaction Documents to be executed and delivered
by the Purchaser, and all other agreements and instruments contemplated hereby
and thereby, and to perform its obligations hereunder and thereunder. This
Agreement has been duly executed and delivered by the Purchaser and is (and
assuming this Agreement constitutes a legal, valid, and binding

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<PAGE>

obligation of the Company) a legal, valid and binding obligation of the
Purchaser, enforceable in accordance with its terms, except that the
enforceability of this Agreement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.

5.3. No Violation. Neither the execution or delivery of this Agreement nor
the consummation of the transactions contemplated hereby or by the other
Transaction Documents, will conflict with or result in the material breach of
any term or provision of, or constitute a default under, any charter provision,
bylaw, material contract, order, law or regulation to which the Purchaser is a
party or by which the Purchaser or any of its material assets or properties is
in any way bound or obligated.

5.4. Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
Governmental Authority is required on the part of the Purchaser in connection
with the transactions contemplated by this Agreement and the other Transaction
Documents to which the Purchaser is or is expected to be party, except (i)
those required under HSR and Exon-Florio, (ii) those required by federal and
state securities laws, (iii) approval by all necessary government officials and
agencies of the Republic of Korea, (iv) filing reports with the U.S. Department
of Commerce regarding foreign direct investment in the United States, and (v)
where failure to obtain such Consents would not have a material adverse effect
on the business, assets, results of operations, properties or financial or
operating condition of the Purchaser and its subsidiaries taken as a whole, or
the ability of the Purchaser (and, to the extent applicable, its subsidiaries)
to perform its (or their) obligations under this Agreement or consummate the
transactions contemplated hereby or by the other Transaction Documents. As of
the date of this Agreement, the Purchaser has no reason to believe that it will
not obtain approval by all necessary government officials and agencies of the
Republic of Korea.

5.5. Securities Laws.

5.5.1. Investment Intent. The Issue Shares are being acquired by the
Purchaser solely for its own account, for investment purposes only, and with no
present intention of distributing, selling or otherwise disposing of such
shares. The Purchaser understands that the Issue Shares will not have been
registered under the Securities Act and that any disposition thereof by the
Purchaser must be registered under the Securities Act or exempt from such
registration.

5.5.2. Sophistication. The Purchaser is able to bear the economic risk of an
investment in the Issue Shares pursuant to this Agreement and can afford to
sustain a total loss on such investment, and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the proposed investment and therefore has the capacity to protect
its own interests in connection with the purchase of the Issue Shares.

5.6. Offer and Proxy Materials. The Offer Documents to be filed with the
Commission and distributed to the Company's stockholders pursuant to Section
3.4 (i) will comply in all material respects with all applicable federal
securities laws, and (ii) will not, on the date first so filed and distributed,
contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact or omit to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the meeting referred to in Section 6.1.2 which has become false or
misleading (except that no representation is made by the Purchaser with respect
to information supplied by the Company in writing for inclusion in the Offer
Documents), and thereafter the Purchaser will supplement or correct the Offer
Documents if and to the extent that they shall be false or misleading in any
material respect, subject to correction by the Company of any information
provided by the Company for use in the Offer Documents to the extent it shall
be false or misleading in any material respect. None of the information

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<PAGE>

relating to the Purchaser supplied in writing by the Purchaser for inclusion in
the Schedule 14D-9 or the Proxy Materials will, at the time they are first
filed with the Commission or distributed to the Company's stockholders, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
thereafter the Purchaser will correct such information if and to the extent it
may be false or misleading in any material respect.

5.7. Brokers. No finder, broker, agent, financial advisor, or other
intermediary other than Salomon Brothers Inc has acted on behalf of the
Purchaser in connection with any of the transactions contemplated by this
Agreement or any of the other Transaction Documents, or is entitled to any
payment in connection herewith or therewith.

ARTICLE 6.

Covenants

6.1. Proxy Solicitation and Stockholder Approval.

6.1.1. Proxy Materials. As promptly as practicable and in no event later than
thirty days after the execution and delivery of this Agreement, the Company
shall prepare and file with the Commission pursuant to the Exchange Act and the
rules promulgated thereunder preliminary proxy materials related to the
solicitation of proxies from the Company's stockholders to approve the
Stockholder Proposals, and thereafter shall use its best efforts to respond to
any comments of the Commission with respect thereto and to distribute a proxy
statement and related proxy materials with respect thereto (the "PROXY
MATERIALS") to the Company's stockholders as soon as practicable after the date
hereof but in any event not later than October 15, 1995. The Purchaser shall
provide to the Company in writing all information regarding the Purchaser
necessary for the preparation of the Proxy Materials, which information shall
not contain any statement which, at the time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the meeting referred to in Section 6.1.2 which has become false or
misleading. The Purchaser and its counsel shall be given an opportunity to
review the Proxy Materials prior to the filing thereof with the Commission and
distribution thereof to the Company's stockholders. The Company shall provide
to the Purchaser and its counsel any comments that the Company receives
(directly or through its counsel) from the Commission or its staff with respect
to the Proxy Materials promptly after receipt of such comments. The Proxy
Materials (i) shall comply in all material respects with applicable federal
securities laws, and (ii) when first filed in final form with the Commission
and distributed to the Company's stockholders and on the date of the special
meeting of stockholders shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
the Purchaser for inclusion in the Proxy Materials. The Company shall
thereafter supplement or correct the Proxy Materials if and to the extent that
they shall have become false or misleading in any material respect, subject to
correction by the Purchaser of any information provided by it for use in the
Proxy Materials to the extent it shall be false or misleading in any material
respect. The Proxy Materials shall include the Board's recommendation that the
Company's stockholders grant proxies to approve the Stockholder Proposals;
provided, however, that such recommendation may be withdrawn, modified or
amended if and to the extent 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.

6.1.2. Stockholders' Meeting. As promptly as practicable, the Company shall
schedule and set a record date for a special meeting of its stockholders to
occur not later than December 1, 1995 at which the

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<PAGE>

Stockholder Proposals will be submitted to a vote of the Company's
stockholders. The Company shall conduct such stockholders' meeting and shall
take all reasonable actions thereat and in connection therewith, consistent
with its Certificate of Incorporation and Bylaws and applicable law, as may be
required to obtain stockholder approval of the Stockholder Proposals,
including, without limitation, causing all proxies received from the Company
stockholders to vote on the Stockholder Proposals to be voted in accordance
with the instructions set forth therein. The Stockholder Proposals shall be
deemed approved if they receive a majority of votes cast, in person or by
proxy, at the stockholders' meeting; provided that, the total votes cast at the
meeting shall represent over fifty percent in interest of all securities
entitled to vote at the meeting. Notwithstanding the foregoing, the Company may
decline to take any action required by this Section 6.1.2 if and to the extent
the Board determines 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.

6.2. Conduct of Business of the Company. Except as contemplated by this
Agreement or agreed to in writing by Purchaser, during the period from the date
hereof until the Closing, the businesses and operations of the Company and each
of its subsidiaries shall be conducted 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. Without limiting
the generality of the foregoing, and except as otherwise expressly approved by
the Purchaser in writing, neither the Company nor any of its subsidiaries
shall, prior to the Closing:

(a) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any Voting Stock or any other securities or equity equivalents
(including, without limitation, any stock options or stock appreciation
rights), except as required by agreements as in effect as of the date
hereof or by the Convertible Debentures and except for grants made under
existing Employee Benefit Plans consistent in amounts and terms with past
practice to (i) employees other than officers and directors, and (ii)
persons who become officers or directors of the Company after the date of
this Agreement, or amend any of the terms of any such securities or
agreements outstanding as of the date hereof (except for amendments to
arrangements with officers and directors of the Company in substantially
the forms and amounts provided to the Purchaser by the Company in writing
prior to the date hereof);

(b) 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 its
capital stock, or redeem or otherwise acquire any of its securities (other
than as required in accordance with their terms as in effect on the date
hereof) or any securities of its subsidiaries not owned directly or
indirectly by the Company;

(c) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person except in the ordinary course of
business and in amounts not material to the Company and its subsidiaries
taken as a whole, and except for obligations of subsidiaries of the Company
that are wholly owned by the Company or that are foreign subsidiaries
wholly owned by the Company except for directors', officers', or other
shares required to be held by other persons under applicable law, (iii)
make any loans, advances or capital contributions to, or investments in,
any other person (other than customary advances to officers and employees
(other than outside directors of the Company) in connection with travel on
Company business and loans to subsidiaries of the Company that are wholly
owned by the Company or that are foreign subsidiaries wholly owned by the
Company except for directors', officers', or other shares required to be
held by other persons under applicable law, in each case in the ordinary
course of business and in amounts not material to the Company and its
subsidiaries taken as a whole), (iv) pledge or otherwise encumber shares of
capital stock of the Company

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<PAGE>

or any of its subsidiaries, or (v) mortgage or pledge any of its material
assets, tangible or intangible, or create any Lien thereupon other than
Permitted Liens;

(d) except as may be required by law or as contemplated by this
Agreement, enter into, adopt, or amend or terminate any bonus, profit
sharing, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock equivalent,
stock purchase agreement, pension, retirement, deferred compensation,
employment, severance or other Employee Benefit Plan; or enter into or
amend any employment or severance agreement with, increase in any manner
the salary, wages, bonus, commission, or other compensation or benefits of
any director or officer of the Company or any of its subsidiaries except
that the Company may enter into employment, severance, or other employee
benefit agreements in the ordinary course of business and consistent with
the past practice with officers hired after the date hereof; or increase in
any manner the salary, wages, bonus, commission, or other compensation or
benefits of any employee or agent (other than directors and officers) of
the Company or any of its subsidiaries, except for increases in the
ordinary course of business and consistent with past practice or amendments
to arrangements with officers and directors of the Company in substantially
the forms and amounts provided to the Purchaser by the Company in writing
prior to the date hereof; or pay any benefit not required by any plan and
arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock appreciation rights or performance
units);

(e) acquire, sell, lease or dispose of any assets (including, without
limitation, patents, trademarks, copyrights, trade secrets, or other
intangible assets) outside the ordinary course of business consistent with
past practice or any assets that in the aggregate are material to the
Company and its subsidiaries taken as a whole, or take any action that
would materially and adversely affect the Intellectual Property rights of
the Company;

(f) except as may be required by GAAP or as a result of a change in law,
change any of the accounting principles, tax accounting methods or tax
elections used by it or revalue in any material respect any of its assets,
including, without limitation, writing down the value of inventory or
writing-off notes or accounts receivable other than in the ordinary course
of business;

(g) (i) 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 (ii) authorize any new
capital expenditure or expenditures;

(h) amend or propose to amend its Certificate of Incorporation or Bylaws
(other than as contemplated hereby) or alter through merger, liquidation,
reorganization restructuring or in any other fashion the corporate
structure or ownership of any subsidiary;

(i) enter into any agreement providing for acceleration or payment or
performance or other consequence as a result of a change of control of the
Company or its subsidiaries;

(j) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business consistent with past practice or in accordance with their terms,
of liabilities reflected or reserved against in the consolidated financial
statements (or the notes thereto) of the Company and its consolidated
subsidiaries or incurred in the ordinary course of business consistent with
past practice;

(k) enter, or permit any of its subsidiaries to enter, into any joint
venture, partnership or exclusive licensing agreement with any Third Party
that (i) involves an explicit or projected commitment of cash and/or other
resources of the Company and/or of its subsidiaries or forecasted payments
to or from the Company and/or its subsidiaries during the duration of such
agreement or relationship in excess of $1 million in the aggregate, and
(ii) restricts or impairs in any material respect the ability or right of
the Company or any of its subsidiaries to compete in any line of business
or product which is material to the business of the Company and its
subsidiaries, taken as a whole.

(l) take, or agree in writing or otherwise to take, any of the actions
described in Sections 6.2(a) through 6.2(k).

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<PAGE>

6.3. Other Potential Bidders. The Company and its Affiliates and their
respective officers, directors, employees, representatives and agents shall
immediately cease any existing discussions or negotiations with any parties
conducted heretofore with respect to any Third Party Acquisition. The Company
agrees that it will not, unless and until this Agreement is terminated in
accordance with its terms, directly or indirectly:

(1) initiate, solicit or encourage any discussions with any Third Party
regarding any Third Party Acquisition, or

(2) hold any such discussions with Third Parties (whether or not such
discussions have heretofore been held with such Third Party) or enter into
any agreement with any party other than the Purchaser concerning any Third
Party Acquisition;

provided, however, that if and to the extent 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, 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.

Subject to the following sentence, the Board 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 such Third Party
Acquisition. Notwithstanding the foregoing, in the event the Board receives a
Superior Proposal (as defined below), the Board may (subject to the following
sentences and compliance with Section 8.1 and 8.2), if and to the extent 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, 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 this 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. The Company may take any of the foregoing actions pursuant
to the preceding sentence only if a proposal for a Third Party Acquisition that
was a Superior Proposal at the time of delivery of a Notice of 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 specified in the preceding sentence. For purposes of this
Agreement, a "SUPERIOR PROPOSAL" means any 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) to provide greater aggregate value to the Company and/or the
Company's stockholders than the transactions contemplated by this Agreement (or
otherwise proposed by the Purchaser as contemplated above). Nothing contained
herein shall prohibit the Company from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) under the Exchange Act
prior to the fourth Business Day following the Purchaser's receipt of a Notice
of Superior Proposal, provided that the Company does not approve or recommend a
proposal until after the fifth Business Day following a Notice of Superior
Proposal.

6.4. Access to Information; Confidentiality.

6.4.1. Access. Between the date hereof and the Closing, the Company shall
give the Purchaser and its authorized representatives access to all employees,
plants, offices, warehouses and other facilities and to all books and records
of the Company and its subsidiaries, shall permit the Purchaser to make such
inspections as the Purchaser may reasonably require and shall cause the
Company's officers and those of its subsidiaries to furnish the Purchaser with
such financial and operating data and other information with respect to the
business and properties of the Company and any of its subsidiaries as the
Purchaser may from time to time reasonably request.

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<PAGE>

6.4.2. Confidentiality. Any Confidential Information (as defined in the
Confidentiality Agreement) disclosed by the Purchaser or the Company to the
other pursuant hereto or in connection with the transactions contemplated by
this Agreement or the other Transaction Documents shall be subject to and
handled by the Purchaser and the Company in accordance with the Confidentiality
Agreement; provided, however, that notwithstanding the Confidentiality
Agreement, (i) the Confidential Information may be used for purposes of
effecting the transactions contemplated by this Agreement and the other
Transaction Documents as well as for evaluation thereof, (ii) return and
destruction of Confidential Information pursuant to the Confidentiality
Agreement shall be subject to the needs of the parties to use such Confidential
Information in connection with the transactions and activities contemplated by
this Agreement and the other Transaction Documents and to the right of each
party to its work product, and (iii) the Confidentiality Agreement shall not
vitiate or alter any representation, warranty, or covenant set forth herein or
in any other Transaction Document.

6.5. Additional Agreements; Reasonable Efforts. Subject to the terms and
conditions herein provided, each of the parties hereto shall as promptly as
practicable 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 (including as set forth in Article 7) to, and to consummate
and make effective, the transactions contemplated by this Agreement and the
other Transaction Documents. Without limiting the generality of the foregoing,
Purchaser and the Company shall cooperate with one another (i) in the
preparation and filing of the Offer Documents, the Schedule 14D-9, the Proxy
Statement and any required filings under the HSR Act and the other laws
referred to in Sections 4.4 and 5.4; (ii) in determining whether action by or
in respect of, or filing with, any governmental body, agency, official or
authority (either domestic or foreign) is required, proper or advisable or any
actions, consents, waivers or approvals are required to be obtained from
parties to any contracts, in connection with the transactions contemplated by
this Agreement; and (iii) in seeking timely to obtain any such actions,
consents and waivers and to make any such filings. In case at any time after
the date hereof any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party
hereto shall take all such necessary action. Notwithstanding the foregoing, the
Company may decline to take any action required by this Section 6.5 if and to
the extent the Board determines 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.

6.6. HSR and Exon-Florio. As soon as practicable after the date hereof, the
Purchaser and the Company shall jointly prepare and file with the United States
Federal Trade Commission (the "FTC"), the Antitrust Division of the United
States Department of Justice ("Antitrust Division") and CFIUS notification and
report forms, as applicable, with respect to the sales and purchases
contemplated by this Agreement pursuant to HSR and Exon-Florio and the
regulations promulgated thereunder. Such notification and report forms shall
materially comply as to form with all requirements applicable thereto, and all
of the data and information supplied by the parties and reported in such forms
shall be true, correct and complete in all material respects. The Purchaser and
the Company shall comply promptly with a request for additional information and
documents from the FTC, Antitrust Division or CFIUS, and shall cooperate in any
review or investigation by the FTC, Antitrust Division, or CFIUS of the
transactions contemplated by this Agreement in a joint effort to have any such
review or investigation resolved without adverse effect upon the transactions
contemplated hereby.

6.7. Public Announcements. Neither the Purchaser nor the Company shall,
directly or indirectly, issue any press release with respect to the
transactions contemplated by this Agreement without consulting with the other
except as may be required by applicable law or by obligations pursuant to any
listing agreement with the New York Stock Exchange (or any other securities
exchange upon which the Company's securities are traded).

6.8. Amendment of Rights Agreement. The Company and its directors shall take
(or shall have taken) all necessary action to amend, prior to the tenth day
following the date of this Agreement, the Rights

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Agreement to (i) specifically exclude the Purchaser and its Affiliates from the
definition of "Acquiring Person" (as defined in the Rights Agreement) and (ii)
otherwise avoid the occurrence of any adverse consequence to the Purchaser or
the Company, including, without limitation, the occurrence of a Distribution
Date (as defined in the Rights Agreement) pursuant to the Rights Agreement, as
a consequence of the transactions contemplated hereby and by the other
Transaction Documents.

6.9. Notification of Certain Matters. The Company shall give prompt notice to
the Purchaser, and the Purchaser shall give prompt notice to the Company, of
any material breach, or the occurrence or nonoccurrence of any event that with
notice or lapse of time or both would be a material breach, of any
representation or warranty or covenant, condition or agreement contained in
this Agreement, provided, however, that the delivery of any notice pursuant to
this Section 6.9 shall not cure such breach or limit or otherwise affect the
remedies available hereunder to the party receiving such notice. For purposes
of this Section 6.9, "prompt notice" shall mean notice delivered within two
Business Days after the Company obtains knowledge of the breach, occurrence, or
nonoccurrence precipitating such notice.

6.10. Disclosure. The Company shall deliver to the Purchaser promptly (but in
any event within two Business Days) after transmission thereof, copies of any
general written communication from the Company or any of its subsidiaries to
its stockholders generally, or the financial community at large, and any
reports and amendments thereto filed by the Company or any of its subsidiaries
with the New York Stock Exchange, any other securities exchange, or the
Commission.

6.11. Election of Directors.

6.11.1. Directors. Immediately following the Closing, the Board shall consist
of ten directors. Six of such directors shall be designees of 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
Independent Directors who are, if they are willing to serve, members of the
Board immediately prior to the Closing. The parties shall use their best
efforts to obtain the resignations of certain existing directors, and to
provide for the appointment of Purchaser's designees, in order to effectuate
the immediately preceding sentence.

6.11.2. Compliance with Section 14(f). The provisions of this Section 6.11
shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. The Company shall promptly take all actions required
pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations
under this Section 6.11 and shall include in the Schedule 14D-9 such
information with respect to the Company and its officers and directors as is
required under Section 14(f) and Rule 14f-1. Purchaser will supply to the
Company in writing and be solely responsible for any information with respect
to either of them and their nominees, officers, directors and affiliates
required by Section 14(f) and Rule 14f-1.

6.12. Director and Officer Liability. (a) From and after the Closing,
Purchaser shall (as long as it controls the Company) cause the Company to
indemnify and hold harmless each person who is, or has been at any time prior
to the date hereof 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 an Affiliate of the Company, an Employee Benefit Plan or 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 this Agreement) to the extent provided under the Company's
Certificate of Incorporation, Bylaws and Indemnity Agreements between the
Company and any of its officers ("Indemnity Agreements") in effect on the date
hereof 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 a period of three years from and after the date
hereof; provided, however, that such indemnification shall be subject to any
limitation imposed from time to time under applicable law. For six years after
the Closing, Purchaser shall (as long as it controls the Company) cause the
Company to maintain current policies of officers' and directors' liability
insurance maintained by the Company (provided that the Company may substitute
therefor policies of at least the same coverage containing terms and conditions
substantially equivalent) with respect to the acts or omissions

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<PAGE>

occurring prior to the Closing, including but not limited to the transactions
contemplated by this Agreement, covering each Person currently covered by the
Company's officers' and directors' liability insurance policy, or who becomes
covered by such policy prior to the Closing; provided that in satisfying its
obligation under this Section, 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, which amount has been
disclosed to Purchaser, but provided further that the Company shall
nevertheless be obligated to provide such coverage as may be obtained for 150%
of the premium to be paid by the Company for such insurance in the fiscal year
ending December 31, 1995.

(b) Except as otherwise set forth in the Indemnity Agreements, any
determination to be made as to whether any Indemnified Party has met any
standard of conduct imposed by law shall be made by legal counsel reasonably
acceptable to such Indemnified Party and Purchaser, retained at the Company's
expense.

(c) This Section 6.12 is intended to benefit the Indemnified Parties, their
heirs, executors and personal representatives and shall be binding on
successors and assigns of Purchaser.

(d) In the event any Indemnified Party is or becomes involved in any capacity
in any action, proceeding or investigation for which he or she has a claim for
indemnification against the Company under its Certificate of Incorporation or
Bylaws or under an Indemnity Agreement, including without limitation, the
transactions contemplated by this Agreement, Purchaser shall (as long as it
controls the Company) cause the Company to pay as incurred such Indemnified
Party's legal and other expenses actually and reasonably incurred in connection
therewith upon receipt of an undertaking by or on behalf of such Indemnified
Party to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Company.

6.13. Change in Control. The Purchaser hereby acknowledges that the
transactions contemplated by this Agreement and the other Transaction Documents
will trigger certain "change of control" provisions contained in agreements
identified in the Company Letter (including therewith a schedule of (i)
payments required to be made thereunder, (ii) stock options which vest and
(iii) restricted shares which vest) between the Company and certain of its
officers and agrees that, after the Closing, the Company shall perform each of
its obligations pursuant to such agreements.

ARTICLE 7.

Conditions to Purchase and Sale of Issue Shares

7.1. Conditions to Obligations of the Purchaser and the Company. The
obligations of the Purchaser to purchase the Issue Shares from the Company, and
of the Company to issue and sell the Issue Shares to the Purchaser, are subject
to satisfaction or waiver of the following conditions at the Closing:

7.1.1. Stockholder Approval. The Company's stockholders shall have approved
the Stockholder Proposals.

7.1.2. No Prohibition. No statute, rule, regulation, judgment, order, decree,
ruling, injunction, or other action shall have been entered, promulgated or
enforced by any Governmental Authority that purports, seeks, or threatens to
(i) prohibit, restrain, enjoin, or restrict in a material manner, the purchase
and sale of any Issue Shares as contemplated by this Agreement, or (ii) impose
material adverse terms or conditions (not set forth herein) upon the purchase
and sale of any Issue Shares as contemplated by this Agreement.

7.1.3. Regulatory Compliance. All material filings with all Governmental
Authorities required to be made in connection with the purchase and sale of the
Issue Shares as contemplated by this 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 in connection with
the purchase and sale of the Issue Shares as contemplated by this

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<PAGE>

Agreement shall have been issued, 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 this 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 herein) upon the purchase and sale
of any Issue Shares as contemplated by this Agreement.

7.1.4. Exon-Florio. The Purchaser and the Company shall have delivered to
CFIUS the voluntary notice described in Section 6.6, 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 this 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 this Agreement,
or (iii) if CFIUS commences an investigation of the transactions contemplated
hereby, such investigation shall have been resolved to the mutual satisfaction
of the Purchaser and the Company.

7.2. Conditions to Obligations of the Purchaser. In addition to the
conditions set forth in Section 7.1, the obligation of the Purchaser to
purchase from the Company any Issue Shares is subject to satisfaction or waiver
of the following conditions at the Closing of such purchase:

7.2.1. Directors. Provision shall have been made to the satisfaction of the
Purchaser that the Board will have the composition described in Section 6.11.1.

7.2.2. Performance. The Company shall have performed in all material respects
its obligations under this Agreement to the date of the Closing.

7.2.3. Amended Bylaws. The Amended Bylaws shall have been duly authorized,
approved and effected.

7.2.4. Amendment of Rights Agreement. The Amendment to Rights Agreement shall
have become effective as contemplated by Section 6.8.

7.2.5. Tender of Shares. There shall have been validly tendered and not
withdrawn pursuant to the Offer not less than 18,619,000 Shares.

7.2.6. 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 Section 2.2.2.

7.2.7. Representations and Warranties True. Except as otherwise contemplated
by this Agreement and except for the representations and warranties of the
Company set forth in Section 4.3 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
this Agreement which are qualified as to materiality (which shall include
Section 4.8) 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.

7.2.8. Certificate. The Company shall have delivered to the Purchaser a
certificate dated as of the Closing and signed by the Chief Financial Officer
and 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
Section 4.3 and the representations and warranties of the Company contained in
this Agreement which 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

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<PAGE>

time, in all material respects of the representations and warranties of the
Company contained in this Agreement which are not so qualified; provided that
the Company's representations and warranties contained in this 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 this Agreement as of the Closing.

7.2.9. 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 this 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.

7.2.10. Items in Company Letter. Purchaser shall be satisfied that the claims
and matters described in Item D of Schedule 4.16A to the Company Letter and
Items 1, 8, 9 and 10 of Schedule 4.17 to 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 this Agreement have not resulted in, and
would not reasonably be expected to result in, a Material Adverse Effect.

7.3. Conditions to Obligations of the Company. In addition to the conditions
set forth in Section 7.1, the obligation of the Company to issue and sell to
the Purchaser the Issue Shares is subject to satisfaction or waiver of the
following conditions at the Closing:

7.3.1. Performance. The Purchaser shall have performed in all material
respects its obligations under this Agreement to the date of the Closing.

7.3.2. Representations and Warranties True. Except as otherwise contemplated
by this Agreement, the representations and warranties of the Purchaser
contained in this 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.

7.3.3. Closing Deliveries. The Purchaser shall have delivered, or shall be
delivering concurrently with the Closing, the documents and instruments
required to be delivered by the Purchaser pursuant to Section 2.2.1.

7.3.4. Certificate. The Purchaser shall have delivered to the Company 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 set forth in this Agreement and
the performance of the obligations required by the Purchaser to be performed
under this Agreement as of the Closing.

7.3.5. Offer. The Purchaser shall have accepted for purchase pursuant to the
Offer not less than 18,619,000 Shares.

ARTICLE 8.

Termination

8.1. Termination by the Company. The Company may terminate this Agreement, to
the extent not performed, if:

(a) there shall not have been a material uncured breach by the Company of
any representation, warranty, covenant or agreement set forth herein and
there shall have been a material breach by the Purchaser of any
representation, warranty, covenant, or agreement set forth herein, which
breach shall

I-24
<PAGE>

not have been cured within ten days of the Purchaser's receipt of written
notice specifying Purchaser's breach and the Company's intention to
terminate this Agreement pursuant to this Section 8.1; or

(b) upon payment to the Purchaser of $7,023,800 (the "TERMINATION FEE")
by bank cashier's check or wire transfer to an account designated by the
Purchaser for this purpose and either (i) five Business Days shall have
elapsed following the Purchaser's receipt of a Notice of Superior Proposal
as defined in Section 6.3 and the Superior Proposal described in the Notice
of 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 the
Notice of Superior Proposal or (ii) the Board shall have withdrawn,
modified or changed in a manner adverse to the Purchaser its approval or
recommendation of the Offer or the other transactions contemplated by this
Agreement or shall have recommended another offer, or shall have adopted
any resolution to effect any of the foregoing, in any case, to the extent
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.

8.2. Termination by the Purchaser. The Purchaser may terminate this Agreement
to the extent not performed, if there shall not have been a material uncured
breach by the Purchaser of any representation, warranty, covenant, or agreement
set forth herein and there shall have been a material breach by the Company of
any representation, warranty, covenant or agreement set forth herein, which
breach shall not have been cured within ten days of the Company's receipt of
written notice specifying the Company's breach and the Purchaser's intention to
terminate this Agreement pursuant to this Section 8.2. In addition, the
Purchaser may terminate any or all of its obligations under this Agreement, to
the extent not performed, if (a) the Board shall have (i) withdrawn, (ii)
modified, or (iii) changed (including by amendment of the Schedule 14D-9) in a
manner adverse to the Purchaser, its approval or recommendation of the Offer or
the other transactions contemplated by this Agreement or shall have recommended
another offer, or shall have adopted any resolution to effect any of the
foregoing, (b) a Third Party Acquisition has occurred or any Third Person shall
have entered into a definitive agreement or an agreement in principle with the
Company with respect to a Third Party Acquisition, (c) the Company fails to
comply with Section 6.1.2. hereof because of the last sentence of Section
6.1.2. or (d) the Company fails to comply with Section 6.5 hereof because of
the last sentence of Section 6.5. The Company shall immediately pay Purchaser
the Termination Fee if Purchaser terminates this Agreement pursuant to clauses
(a), (b), (c) or (d) of the immediately preceding sentence.

8.3. Termination by the Purchaser or the Company. The Purchaser or the
Company may terminate this Agreement (i) to the extent that performance thereof
is 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 hereunder pursuant
to this Section 8.3(i) 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 of
this Agreement to fulfill in all material respects any undertaking or
commitment provided for herein that is required to be fulfilled by such party
prior to such time, (iii) if, at the special meeting of the Company's
stockholders contemplated by Section 6.1.2 hereof, the Company's stockholders
do not approve the Stockholder Proposals (provided that the Company shall
immediately pay to the Purchaser the Termination Fee if the approval of the
Company's stockholders of the Stockholder Proposals shall not have been
obtained by reason of a Superior Proposal) or (iv) by mutual written consent of
the Purchaser and the Company.

8.4. Effect of Termination. In the event of the termination of this
Agreement, neither the Purchaser nor the Company shall have any obligation to
perform hereunder from and after the date of such termination, except that
Sections 6.4.2 (Confidentiality), 6.7 (Public Announcements), 9.2 (Governing
Law), 9.3 (Expenses), and 9.4 (Notices) shall survive such termination and
remain in full force and effect notwithstanding such termination. No
termination hereof shall relieve the Purchaser or the Company from liability
for any breach of this Agreement.

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<PAGE>

ARTICLE 9.

Miscellaneous

9.1. Survival of Representations and Warranties. Regardless of any party's
investigations prior to the Closing, the representations and warranties
contained herein shall survive the Closing and shall terminate and expire on
the first anniversary of the date of the Closing, except for Section 4.17
(Environmental), which shall terminate and expire on the fourth anniversary of
the date of the Closing, unless on or before such first or fourth anniversary,
as the case may be, either party has notified the other party in writing of a
claim with respect to such representation or warranty in which case such
representation or warranty shall survive until termination or resolution of
such claim.

9.2. Governing Law; Consent to Jurisdiction. This 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. The Purchaser and
the Company agree that (i) any legal action or proceeding arising out of or in
connection with this Agreement or the transactions contemplated hereby 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, (ii) each
irrevocably submits to the jurisdiction of each such court, and (iii) 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 its
address set forth in Section 9.4. Nothing in the preceding sentence shall
affect the right of any party to proceed in any jurisdiction for the
enforcement or execution of any judgment, decree or order made by a court
specified in said sentence.

9.3. Expenses. Each of the parties shall pay its own expenses incurred in
connection with the negotiation and preparation of this Agreement and the other
Transaction Documents, the performance of its covenants herein and therein, and
the effectuation of the transactions contemplated hereby and thereby,
including, without limitation, all fees and disbursements of its respective
legal counsel, advisors, and accountants; provided, however, that nothing in
this Section 9.3 shall negate any obligation of the Company to pay the
Termination Fee. Each party to this Agreement 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 this Agreement or any other
Transaction Document.

9.4. Notices. In case of any event or circumstance giving rise to an
obligation of the Purchaser or the Company to provide notice hereunder, such
notice shall be delivered within the time specifically set forth herein or, if
no such time is specified, then as promptly as practicable after becoming aware
of such event or circumstance. Any notice required or permitted to be given
under this Agreement shall be written, and may be given by personal delivery,
by cable, telecopy, telex or telegram (with a confirmation copy mailed as
follows), by Federal Express, United Parcel Service, DHL, or other reputable
commercial delivery service, or by registered or certified mail, first-class
postage prepaid, return receipt requested. Notice shall be deemed given upon
actual receipt. Mailed notices shall be addressed as follows, but each party
may change address by written notice in accordance with this paragraph.

To the Company:Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, Illinois 60025
Attention: Chief Executive Officer

with copies to:Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, Illinois 60025
Attention: General Counsel

I-26
<PAGE>

Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole, Esq.

To the Purchaser:LG Electronics Inc.
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.

9.5. Waiver. Each party hereto may in its sole discretion (i) extend the time
for the performance of any of the obligations or other acts of the other party
hereunder, (ii) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document, certificate or writing
delivered pursuant hereto or (iii) waive compliance by the other party with any
of the agreements or conditions contained herein. No term or provision hereof
shall be deemed waived and no breach hereof excused unless such waiver or
consent shall be in writing and signed by the party claimed to have waived or
consented. No waiver hereunder shall apply or be construed to apply beyond its
expressly stated terms. No failure to exercise and no delay in exercising any
right, remedy, power or privilege hereunder shall operate as a waiver thereof,
and no single or partial exercise of any right, remedy, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, remedy, power or privilege. No failure to insist upon
strict performance of any term or provision of this Agreement, or to exercise
any right hereunder, shall be construed as a waiver or as a relinquishment of
such term, provision, or right.

9.6. The Purchaser Subsidiaries; Successors, Assignment, and Parties in
Interest. This Agreement and the rights hereunder may not be assigned by the
Purchaser or the Company without the prior written consent of the other party,
which may be given or withheld in the other party's discretion, except that the
Purchaser may (i) exercise any or all rights and/or fulfill any or all
obligations under this Agreement (including, without limitation, the purchase
of any Issue Shares and Offer Shares) in conjunction with or through one or
more direct or indirect majority owned subsidiaries of the Purchaser; and/or
(ii) assign this Agreement to an Affiliate or Affiliates of the Purchaser;
provided that the Purchaser (a) may not perform any obligations through a
subsidiary or assign this Agreement to an Affiliate prior to the Closing if
doing so would delay the Closing, and (b) shall remain liable for all of its
obligations under this Agreement not fully performed by its subsidiaries or
assignees. This Agreement shall be binding upon and inure solely to the benefit
of the Purchaser and the Company and their respective successors and permitted
assigns, and nothing in this Agreement (except for Section 6.12 or 6.13),
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of
this Agreement.

9.7. Entire Agreement. This Agreement, together with the Company Letter and
the other Transaction Documents and the Confidentiality Agreement, constitutes
the entire agreement between the Purchaser and the Company with respect to the
subject matter hereof and thereof and the transactions contemplated hereby and
thereby and supersedes all prior or contemporaneous, written or oral agreements
or understandings with respect thereto (including without limitation all term
sheets). The parties acknowledge that their agreements hereunder and thereunder
were not procured through representations or agreements not set forth herein or
therein.

9.8. Amendment. This Agreement may be amended only to the extent permissible
under applicable law and only by a written instrument executed and delivered by
a duly authorized officer of the Purchaser and a duly authorized officer of the
Company.

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<PAGE>

9.9. Severability. The provisions set forth in this Agreement and the other
Transaction Documents are severable. If any provision of this Agreement or any
other Transaction Document is held invalid or unenforceable in any
jurisdiction, the remainder of this Agreement and the other Transaction
Documents, and the application of such provision to other persons or
circumstances, shall not be affected thereby, and shall remain valid and
enforceable in such jurisdiction, and any such invalidity or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction. Notwithstanding the foregoing, the purchase by the
Purchaser of the Issue Shares shall be a condition to the purchase by the
Purchaser of the Offer Shares and the purchase by the Purchaser of the Offer
Shares shall be a condition to the purchase by the Purchaser of the Issue
Shares.

9.10. Cumulation of Remedies. All remedies available to any party for breach
or non-performance of this Agreement or any other Transaction Document are
cumulative and not exclusive of any rights, remedies, powers or privileges
provided by law, and may be exercised concurrently or separately, and the
exercise of any one remedy shall not be deemed an election of such remedy to
the exclusion of other remedies.

9.11. Fair Construction. This Agreement and the other Transaction Documents
shall be deemed the joint work product of the Purchaser and the Company without
regard to the identity of the draftsperson, and any rule of construction that a
document shall be interpreted or construed against the drafting party shall not
be applicable. The representations and warranties contained in this Agreement
shall not be qualified or reduced in scope by the knowledge of either party
that one or more of the representations or warranties of the other party are,
or may be, inaccurate.

9.12. Headings; References. Headings used in this Agreement and the other
Transaction Documents are inserted as a matter of convenience and for
reference, do not constitute a part of this Agreement or the other Transaction
Document, as the case may be, for any other purpose, and shall not affect the
interpretation or enforcement hereof or thereof. References herein or therein
to Sections, Exhibits and Annexes are, unless otherwise designated, references
to the specified Section, Exhibit or Annex hereof, as the case may be.

9.13. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

In Witness Whereof, the parties hereto have executed and delivered this
Agreement as of the date first above written.

Zenith Electronics Corporation LG Electronics Inc.

/s/ Albin F. Moschner /s/ Cha Hong (John) Koo
By: _________________________________ By: _________________________________
Name:Albin F. Moschner Name:Cha Hong (John) Koo
Title:President and Chief Title:President
Executive Officer

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<PAGE>

ANNEX A

CONDITIONS TO PURCHASER'S ACCEPTANCE OF SHARES IN THE OFFER

Notwithstanding any other provision of the Offer, the obligation of the
Purchaser to accept for payment, and pay for, any Offer Shares tendered
pursuant to the Offer shall be subject to the purchase by Purchaser of the
Issue Shares, to be consummated simultaneously with the purchase of the Offer
Shares, and to the conditions that (i) the 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 of the Offer and not withdrawn at
least 18,619,000 shares of Common Stock, and (iii) to the satisfaction or
waiver of the following conditions:

1. Stockholder Approval. The Company's stockholders shall have approved
the Stockholder Proposals.

2. No Prohibition. No statute, rule, regulation, judgment, order, decree,
ruling, injunction, or other action shall have been entered, promulgated or
enforced by any Governmental Authority 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 Agreement, or
(ii) impose material adverse terms or conditions (not set forth herein)
upon the purchase and sale of any Offer Shares as contemplated by the
Agreement.

3. 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 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 in connection with the purchase and sale of the Offer Shares as
contemplated by the Agreement shall have been issued, 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 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 herein) upon the purchase and sale of any Offer Shares as
contemplated by the Agreement.

4. Exon-Florio. The Purchaser and the Company shall have delivered to
CFIUS the voluntary notice described in Section 6.6, 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 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 Agreement, or (iii) if CFIUS commences an investigation
of the transactions contemplated hereby, such investigation shall have been
resolved to the mutual satisfaction of the Purchaser and the Company.

5. Directors. Provision shall have been made to the satisfaction of the
Purchaser that the Board will have the composition described in Section
6.11.1 of the Agreement.

6. Performance. The Company shall have performed in all material respects
its obligations under the Agreement to the date of the Closing.

7. Amended Bylaws. The Amended Bylaws shall have been duly authorized,
approved and effected.

8. Amendment of Rights Agreement. The Amendment to Rights Agreement shall
have become effective as contemplated by Section 6.8 of the Agreement.

9. 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 Section 2.2.2.

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<PAGE>

10. Representations and Warranties True. Except as otherwise contemplated
by the Agreement and except for the representations and warranties of the
Company set forth in Section 4.3 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 Agreement which are qualified as to materiality (which
shall include Section 4.8) 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.

11. Certificate. The Company shall have delivered to the Purchaser a
certificate dated as of the Closing and signed by the Chief Financial
Officer and 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 Section 4.3 and the representations and warranties
of the Company contained in the Agreement which 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 Agreement which are not so qualified; provided that the Company's
representations and warranties contained in the 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 Agreement as
of the Closing.

12. 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 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.

13. Items in Company Letter. Purchaser shall be satisfied that the claims
and matters described in Item D of Schedule 4.16A to the Company Letter and
Items 1, 8, 9 and 10 of Schedule 4.17 to 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 Agreement have not resulted
in, and would not reasonably be expected to result in, a Material Adverse
Effect.

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<PAGE>

EXHIBIT A

AMENDED AND RESTATED

BY-LAWS

ZENITH ELECTRONICS CORPORATION

----------------

EFFECTIVE AS OF _________ , 1995

----------------

ARTICLE I

OFFICES

Section 1. The registered office in the State of Delaware shall be in the
City of Wilmington, County of New Castle, State of Delaware.

Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. All meetings of the stockholders for the election of directors
shall be held at such place, either within or without the State of Delaware, as
may be fixed from time to time by the board of directors. Meetings of
stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.

Section 2. An annual meeting of stockholders shall be held for the purpose of
electing directors and transacting such other business as may properly be
brought before the meeting. The date of the annual meeting shall be determined
by the board of directors.

Section 3. Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote thereat
not less than twenty nor more than sixty days before the date of the meeting.
At an annual meeting of the stockholders, only such business shall be conducted
as shall have been brought before the meeting (a) by or at the direction of the
board of directors or (b) by any stockholder of the corporation who complies
with the notice procedures set forth in this Section 3. For business to be
properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the secretary of the
corporation. Except as otherwise provided in Regulation 14A under the
Securities Exchange Act of 1934, as amended, to be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not less than sixty days nor more than ninety days
prior to the meeting; provided, however, that in the event that less than
seventy-five days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must
be received not later than the close of business on the tenth day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made. A stockholder's notice to the secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (c) the number of
<PAGE>

shares of common stock of the corporation which are beneficially owned by the
stockholder and (d) any material interest of the stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 3. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
Section 3, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.

Section 4. The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten days before every meeting of stockholders
a complete list of the stockholders entitled to vote at said meeting, arranged
in alphabetical order, showing the address of and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city, town or village where the meeting
is to be held and which place shall be specified in the notice of the meeting,
or, if not specified, at the place where said meeting is to be held, and the
list shall be produced and kept at the time and place of the meeting during the
whole time thereof, and subject to the inspection of any stockholder who may be
present.

Section 5. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the certificate of incorporation,
may be called by the Chairman or president and shall be called by the secretary
at the direction of a majority of the board of directors or at the request in
writing of stockholders owning at least a majority of the entire capital stock
of the corporation issued and outstanding and entitled to vote.

Section 6. Written notice of a special meeting of stockholders, stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given to each stockholder entitled to vote thereat,
not less than ten nor more than sixty days before the date fixed for the
meeting.

Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.

Section 8. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be presented or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.

Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having power present in person or represented by
proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.

Section 10. Unless otherwise provided in the certificate of incorporation and
subject to statutory provisions relating to the fixing of record dates, each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such stockholder, but no proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period.

I-A-2
<PAGE>

Section 11. Any action required to be taken at a meeting of the stockholders,
or any other action which may be taken at a meeting of the stockholders, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by stockholders having not less than the minimum number
of votes that would be necessary to authorize or to take such action at a
meeting at which all shares entitled to vote thereon were present and voted.

ARTICLE III

DIRECTORS

Section 1. The board of directors shall consist of ten members, until this
Section 1 is amended by a resolution duly adopted by the board or the
stockholders, in either case in accordance with the terms of the Certificate of
Incorporation. The directors shall be elected at the annual meeting of the
stockholders as provided in Section 2 of Article II, except as provided in
Section 2 of this Article III, and each director elected shall hold office
until his successor is elected and qualified or until his earlier resignation
or removal. Directors need not be residents of the state of Delaware or
stockholders of this corporation.

Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, and the directors so
chosen shall hold office until their successors are duly elected and shall
qualify, unless sooner displaced.

Section 3. The business of the corporation shall be managed by or under the
direction of its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.

Section 4. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a Chairman from among the directors. The
Chairman shall act as Chairman of all meetings of stockholders and of the board
of directors. The Chairman shall from time to time report to the board of
directors all matters within his knowledge which the interest of the
corporation may require be brought to its notice.

If the Chairman of the Board is not elected or, if elected, is not present,
the President or, in the absence of the President, a Vice Chairman (who is also
a member of the board and, if more than one, in the order designated by the
board of directors or, in the absence of such designation, in the order of
their election), if any, or if no such Vice Chairman is present, a director
chosen by a majority of the directors present, shall act as chairman at
meetings of stockholders and of the board of directors.

Section 5. The board of directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.

Section 6. The first meeting of each newly elected board of directors shall
be held immediately following and at the place of the annual meeting of
stockholders and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event such meeting is not held at such time and place,
the meeting may be held at such other time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the board of
directors, or as shall be specified in a written waiver signed by all of the
directors.

Section 7. Regular meetings of the board of directors shall be held at such
time and at such place as shall from time to time be determined by resolution
of the board. Written notice of each regular meeting of directors stating the
place, date and time, shall be given to each director at least five (5) days
before such meeting.

I-A-3
<PAGE>

Section 8. Special meetings of the board and meetings of any committee of the
board may be called by the Chairman on one day notice to each director or
committee member, either by telephone, mail, facsimile or telegram; special
meetings of the board of directors shall be called by the Chairman or secretary
in like manner and on like notice on the written request of two directors.

Section 9. At all meetings of the board a majority shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the board
of directors, except as may be otherwise specifically provided by statute or by
the certificate of incorporation. If a quorum shall not be present at any
meeting of the board of directors the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.

Section 10. Any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing, or writings are filed with the minutes of
proceedings of the board or committee.

Section 11. Members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.

Section 12. The board of directors may, by resolution passed by a majority of
the whole board, designate one or more committees, each committee to consist of
two or more of the directors of the corporation, which, to the extent provided
in the resolution and to the extent permitted by Delaware Law, shall have and
may exercise the powers of the board of directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors.

Section 13. Each committee shall report to the board of directors on the
actions taken at its meetings, but need not keep regular minutes thereof unless
required to do so by the board of directors.

Section 14. There shall be an Executive Committee of the board of directors
of the corporation. The board of directors shall, at its first meeting after
the annual meeting of stockholders in each year, elect a Chairman and other
members of the Committee. The directors elected as members of the Executive
Committee shall serve as such for one year and until their respective
successors, willing to serve, shall have been elected. The Executive Committee
shall, when the board is not in session, have and may exercise all of the
authority of the board of directors in the management of the corporation;
provided, however, that the Executive Committee shall not have the authority of
the board of directors in reference to (1) amending the articles of
incorporation, (2) adopting a plan of merger or adopting a plan of
consolidation with another corporation or corporations, (3) recommending to the
stockholders the sale, lease, exchange, mortgage, pledge or other disposition
of all or substantially all of the property and assets of the corporation, (4)
recommending to the stockholders a voluntary dissolution of the corporation or
a revocation thereof, (5) amending, altering or repealing the by-laws of the
corporation, (6) electing or removing officers of the corporation or members of
the Executive Committee, (7) fixing the compensation of any member of the
Executive Committee, (8) declaring dividends, (9) authorizing the issuance of
stock, or (10) amending, altering or repealing any resolution of the board of
directors which by its terms provides that it shall not be amended, altered or
repealed by the Executive Committee; provided further, that in the event of the
death, disability or refusal to act of the chief executive officer or the
Chairman, the Executive Committee shall appoint a chief executive officer or a
Chairman who shall serve until the next meeting of the board of directors.
Vacancies in the regular membership of the Executive Committee shall be filled
by the board of directors.

Section 15. The board of directors shall have the authority to fix the
compensation of directors.

I-A-4
<PAGE>

ARTICLE IV

NOTICES

Section 1. Notices to stockholders shall be in writing and delivered
personally or mailed to the stockholders at their addresses appearing on the
books of the corporation. Notice by mail shall be deemed to be given at the
time when the same shall be mailed.

Section 2. Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.

ARTICLE V

OFFICERS

Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a chief executive officer, a president, a vice
president, a secretary and a treasurer. The board of directors may also choose
additional vice presidents, executive vice presidents, senior vice presidents,
assistant secretaries and assistant treasurers. Two or more offices may be held
by the same person.

Section 2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a chief executive officer, a president and
one or more vice presidents, a secretary and a treasurer, none of whom need be
a member of the board.

Section 3. The board of directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the board.

Section 4. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Except as otherwise provided in Section 14
of Article III, any vacancy occurring in any office of the corporation shall be
filled by the board of directors.

Section 5. The chief executive officer of the corporation shall have, under
the direction of the board of directors, general charge of the affairs of the
corporation. He shall see that all orders and resolutions of the board of
directors are carried into effect. He may execute all contracts and agreements
authorized by the board of directors and shall vote all shares of stock in
other corporations standing in the name of the corporation. He may sign bonds,
mortgages, certificates for shares of stock and all other contracts and
documents whether or not under the seal of the corporation except in cases
where the signing and execution thereof shall be expressly delegated by law, by
the board of signing and execution thereof shall be expressly delegated by law,
by the board of directors, or by these by-laws, to some other officer or agent
of the corporation. He shall from time to time report to the board of directors
all matters within his knowledge which the interest of the corporation may
require be brought to its notice. He shall have the general powers of
supervision and shall be the final arbiter in all differences between all
officers of the corporation and his decision as to any matter affecting the
corporation shall be final and binding as between officers of the corporation
subject only to the board of directors.

Section 6. The president shall have the direction and active management of
the business of the corporation under the general supervision of the chief
executive officer. He shall have concurrent power with the chief executive
officer to execute all contracts and agreements authorized by the board of
directors and shall have concurrent power with the chief executive officer to
vote all shares of stock in other corporations standing in the name of the
corporation. He may sign bonds, mortgages, certificates for shares of stock and

I-A-5
<PAGE>

all other contracts and documents whether or not under the seal of the
corporation except in cases where the signing and execution thereof shall be
expressly delegated by law, by the board of directors, or by these by-laws, to
some other officer or agent of the corporation.

Section 7. The executive vice presidents, senior vice presidents and vice
presidents shall perform such duties and have such powers as may be prescribed
by the board of directors.

Section 8. The secretary shall keep the minutes of all meetings of the board
of directors, the minutes of all meetings of the stockholders, the minutes of
all meetings of the committees, which from time to time may be appointed under
authority of these by-laws, in books provided by the corporation for such
purpose. He shall attend to the giving and serving of all notices of the
corporation whereby meetings of the board of directors, stockholders and
committees are assembled. He shall prepare all lists of stockholders and their
addresses required to be prepared by the provisions of any present or future
statute of the State of Delaware. He may sign, with the chief executive officer
or the president or a vice president, in the name of the corporation, when
authorized by the board of directors so to do, all contracts or other
instruments requiring the seal of the corporation and may affix the seal
thereto. He shall have concurrent power, acting alone or jointly, with the
chief executive officer, or the president to vote all shares of stock in other
corporations the majority of the voting stock of which is owned by the
corporation. He shall have charge of such books and such papers as the board of
directors may direct. He shall, in general, perform all of the duties which are
incident to the office of secretary of a corporation, subject at all times, to
the direction and control of the board of directors.

Section 9. The treasurer shall have custody of all funds and securities of
the corporation. When necessary or proper he shall endorse for collection
checks, drafts and other instruments for the payment of money and shall deposit
them to the credit of the corporation in an authorized bank or depository.
Whenever required by the board of directors, he shall render an account of his
transactions. He shall perform all acts incident to the position of treasurer,
subject to the control of the board of directors. He shall have such powers and
perform such duties as may be assigned to him by the board of directors. He
shall submit such reports and records to the board of directors as may be
requested by them.

ARTICLE VI

CERTIFICATES OF STOCK

Section 1. The shares of the corporation shall be represented by certificates
signed by the chief executive officer or the Chairman or the president or a
vice president and by the treasurer or an assistant treasurer or the secretary
or an assistant secretary and may be sealed with the seal, or a facsimile of
the seal of the corporation. In case the seal of the corporation is changed
after the certificate is sealed with the seal or a facsimile of the seal of the
corporation, but before it is issued, the certificate may be issued by the
corporation with the same effect as if the seal had not been changed. Any or
all signatures on the certificate may be a facsimile. In case any officer of
the corporation, transfer agent or registrar, or any officer or employee of the
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon such certificate ceases to be an officer of the corporation,
transfer agent or registrar before such certificate is issued, the certificate
may be issued by the corporation with the same effect as if the officer of the
corporation, transfer agent or registrar had not ceased to be such at the date
of its issue.

Section 2. The board of directors may by resolution adopt such procedures as
it deems appropriate for the issuance of certificates to replace certificates
which have been lost, stolen or destroyed.

Section 3. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.

I-A-6
<PAGE>

Section 4. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for
the adjourned meeting.

ARTICLE VII

GENERAL PROVISIONS

Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.

Section 2. The board of directors may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve.

Section 3. The chief executive officer shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.

Section 4. All checks or demands for money and notes of the corporation shall
be signed by such officer or officers or such other person or persons as the
board of directors may from time to time designate.

Section 5. The fiscal year of the corporation shall be fixed by resolution of
the board of directors.

Section 6. The corporate seal shall have inscribed thereon the name of the
corporation and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.

ARTICLE VIII

INDEMNIFICATION

Section 1. The Corporation shall indemnify any director, officer or employee
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding in accordance with, and to the fullest extent
authorized by, the General Corporation Law of the State of Delaware as it may
be in effect from time to time.

Section 2. The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of the heirs, executors and administrators of such a person.

I-A-7
<PAGE>

Section 3. The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not he would be entitled to indemnity against such liability under
the provisions of this article.

ARTICLE IX

AMENDMENTS

Section 1. These by-laws may be altered or repealed at any regular meeting of
the stockholders or of the board of directors or at any special meeting of the
stockholders or of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting.

I-A-8
<PAGE>

APPENDIX II

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

II-1
<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

II-2
<PAGE>

APPENDIX III

INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14F-1
IN CONNECTION WITH PROPOSED CHANGES IN
THE BOARD OF DIRECTORS OF
ZENITH ELECTRONICS CORPORATION

Zenith Electronics Corporation (the "Company") is furnishing this Information
Statement in connection with the designation by LG Electronics Inc. ("LG") of
persons to be elected or appointed to the Board of Directors of the Company
(the "Board of Directors") following the consummation of the Proposed
Transaction (as defined below).

This Information Statement is being mailed on or about October 7, 1995 as
part of the Company's Proxy Statement relating to the Special Meeting of
Stockholders of the Company to be held on November 7, 1995 (the "Proxy
Statement") to the holders of shares of common stock, $1.00 par value, of the
Company (the "Common Stock").

You are urged to read this Information Statement carefully. You are not,
however, required to take any action with respect to this Information
Statement. Capitalized terms used and not otherwise defined herein shall have
the meaning set forth in the Proxy Statement.

GENERAL. The Common Stock is the only class of voting stock of the Company
outstanding. As of October 3, 1995, there were 46,922,442 shares of Common
Stock outstanding and entitled to vote, each of which is entitled to one vote.
An additional 2,646,574 shares of Common Stock are issuable pursuant to
outstanding stock options, 1,930,324 of which are exercisable. No cumulative
voting rights exist under the Company's Restated Certificate of Incorporation.
For information regarding the ownership of Common Stock by holders of more than
five percent of the outstanding shares and by management of the Company, see
"Security Ownership of Certain Beneficial Owners and Management."

The Board of Directors is comprised of a single class of directors. Directors
are generally elected at the annual meeting of stockholders of the Company and
each director elected holds office until his or her successor is elected and
qualified. The Board of Directors is currently composed of ten members. There
are no family relationships among any directors or executive officers of the
Company.

THE STOCK PURCHASE AGREEMENT. Pursuant to the Stock Purchase Agreement, dated
as of July 17, 1995 (the "Stock Purchase Agreement"), between the Company and
LG, on July 21, 1995, the Purchaser commenced a tender offer (the "Offer") to
purchase 18,619,000 shares of Common Stock (the "Offer Shares") at a purchase
price of $10.00 per share and agreed to purchase 16,500,000 shares of Common
Stock (the "Issue Shares") at a purchase price of $10.00 per share
(collectively, the "Proposed Transaction"). The Offer is scheduled to expire at
12:00 midnight, New York City time, on October 19, 1995. The Purchaser has
informed the Company that it will extend the Offer shortly to 12:00 midnight,
New York City time, on November 7, 1995. LG has agreed to accept and pay for
18,619,000 shares of Common Stock validly tendered pursuant to the Offer as
soon as practicable after the expiration date of Offer, following the
satisfaction or waiver of the conditions to the Offer. The expiration date of
the Offer may be extended pursuant to the Offer to Purchase relating thereto.
The issuance of the Offer Shares is conditioned upon the consummation of the
issuance and sale of the Issue Shares and the issuance of the Offer Shares is
conditioned on the issuance and sale of the Issue Shares. The issuance of the
Offer Shares and the Issue Shares and the Stock Purchase Agreement are
described more completely in the Proxy Statement and the Stock Purchase
Agreement is included as Appendix I to the Proxy Statement. Those portions of
the Proxy Statement and Appendix I are incorporated by reference in this
Information Statement.

III-1
<PAGE>

Pursuant to the Stock Purchase Agreement, immediately following the closing
of the consummation of the Proposed Transaction (the "Closing"), all necessary
actions will be taken such that the Board of Directors will be composed of ten
directors and six of such directors shall be designees of LG, one of such
directors shall be Albin F. Moschner, the President and Chief Executive Officer
of the Company, and three of such directors shall be persons who are not (apart
from such directorship) affiliates, officers, employees, agents, principals or
partners of LG or the Company or any subsidiary of either of them and who are,
if they are willing to serve, members of the Board of Directors of the Company
immediately prior to the Closing.

The Company's obligation to appoint LG's designees to the Board of Directors
pursuant to the Stock Purchase Agreement is subject to Section 14(f) of the
Securities Exchange Act of 1934, as amended, and Rule 14f-1 promulgated
thereunder. The Company has agreed to promptly take all actions required
pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations
under the Stock Purchase Agreement.

LG'S DESIGNEES. The Company understands that LG has designated the persons
listed below to become directors of the Company upon the Closing. Upon assuming
office, LG's designees will constitute a majority of the Board of Directors.
This step is expected to be accomplished through resignations of six current
directors effective as of the Closing and action by the Board of Directors
appointing the six LG designees as directors effective as of the Closing so
that, immediately following the Closing, LG's designees will constitute six of
the ten available positions on the Board of Directors. It is anticipated that
Peter S. Willmott, Andrew McNally IV and T. Kimball Brooker, along with Albin
F. Moschner, will continue as directors of the Company until their successors
are elected and qualified and that the other current directors of the Company
will resign. LG has informed the Company that each of the designees listed
below has consented to act as a director, if so designated.

Set forth below are the names, ages, principal occupations, five year
employment histories and public directorships, if any, of LG's designees.

<TABLE>
<CAPTION>
NAME AGE BACKGROUND INFORMATION
---- --- ----------------------
<C> <C> <S>
Hun Jo Lee 63 Chairman and Chief Executive Officer of LG
Electronics Inc. since 1994; Vice-Chairman and
Chief Executive Officer from 1993 to 1994;
President and Chief Executive Officer from 1989 to
1993. It is anticipated that Mr. Lee will serve as
Chairman of the Board of Directors of the Company.
Cha Hong (John) Koo 48 President of LG Electronics Inc. since 1995;
Executive Vice President from 1991 to 1994; Senior
Managing Director from 1988 to 1991. It is
anticipated that Mr. Koo will serve as Chairman of
the Executive Committee of the Board of Directors
of the Company.
Yong Nam 47 Senior Officer of LG Electronics Inc. since 1993;
Officer from 1989 to 1993.
Nam K. Woo 46 President LG Electronics Inc., North American
Operations and LG Electronics U.S.A. since January
1995; Managing Director of LG Electronics Inc.
since 1994; President of LG Electronics Inc.,
European Operations from 1989 to January 1995.
Ki-song Cho 45 Managing Director, Corporate Planning &
Coordination, LG Electronics Inc. since March 1995;
Executive Director, Strategic Planning Division, LG
Electronics Inc. from 1992 to 1995; Employed by the
Strategic Planning Division, LG Electronics Inc.
from 1989 to 1992.
Eugene B. Connolly 63 Chairman and Chief Executive Officer of USG
Corporation and employed in varying capacities with
USG Corporation and its affiliates since 1958;
Member of the Boards of Directors of USG
Corporation, CGS Inc., U.S. Can Corporation, the
Pepper Companies, Inc. and LaSalle National Bank;
Advisory Board member of Good Shepherd Hospital,
Kellogg Graduate School of Management, Northwestern
University and Indiana University School of
Business.
</TABLE>

III-2
<PAGE>

To the best of LG's knowledge, none of LG's designees beneficially own any
equity securities, or rights to acquire any equity securities of the Company,
or has been involved in any transactions with the Company or any of its
directors, executive officers or affiliates which are required to be disclosed
pursuant to the rules of the Securities and Exchange Commission. USG
Corporation, of which Mr. Connolly is Chairman and Chief Executive Officer,
implemented a "prepackaged" plan of reorganization under federal bankruptcy
laws on May 6, 1993.

BOARD OF DIRECTORS. Listed below are the names, ages, principal occupations,
five year employment histories and public directorships, if any, of all
directors of the Company.

<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE BACKGROUND INFORMATION
---- --- -------------- ----------------------
<C> <C> <C> <S>
Harry G. Beckner 66 1973 Management Consultant since 1984. Also
Director of H.E. Butt Grocery
Company, Giant Food, Inc. and J.
Sainsbury's USA, Inc.
T. Kimball Brooker 56 1989 President, Barbara Oil Company
(investments and oil and gas
exploration) since 1989; Managing
Director, Chicago Office, Morgan
Stanley & Co. Incorporated, 1978-
1988. Also Director of Cutler Oil &
Gas Corporation, Arthur J. Gallagher
& Co. and Miami Corporation.
David H. Cohen 57 1990 Vice President for Arts and Science,
Columbia University since 1995;
Provost, Northwestern University from
1992 to 1995; Vice President for
Research and Dean of the Graduate
School, Northwestern University,
1986-1991.
Ilene S. Gordon 42 1994 Vice President of Operations, Tenneco
Inc. since 1994, Senior Vice
President-Total Quality
Management/Corporate Development,
1992-1994; Vice President and Area
General Manager, Containerboard
Products, 1990-1992; Vice President
and General Manager, Specialty
Business, 1988-1990, Packaging
Corporation of America, a Tenneco
company (manufacturer of packaging
materials).
Charles Marshall 66 1990 Retired; Vice Chairman of the Board,
AT&T Corp., 1985-1989. Also Director
of Ceridian Corporation, GATX
Corporation, Hartmarx Corporation,
Sonat, Inc. and Sunstrand
Corporation.
Gerald M. McCarthy 54 1992 Executive President, Sales and
Marketing and member of the Office of
the Chairman since 1993, Senior Vice
President, Sales and Marketing, and
member of the Office of the
President, 1991-1993, Zenith
Electronics Corporation; President,
Zenith Sales Company Division of
Zenith since 1983.
Andrew McNally IV 55 1990 Chairman and Chief Executive Officer
since 1993, President and Chief
Executive Officer, 1978-1993, Rand
McNally & Company (printing,
publishing and map making). Also
Director of Allendale Mutual
Insurance Company, Hubbell
Incorporated, The Latin American
Discovery Fund, Inc., Mercury Finance
Co. and Morgan Stanley Asia-Pacific
Fund.
</TABLE>

III-3
<PAGE>

<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE BACKGROUND INFORMATION
---- --- -------------- ----------------------
<C> <C> <C> <S>
Albin F. Moschner 42 1992 President and Chief Executive Officer
since April 1995; President and Chief
Operating Officer and member of the
Office of the Chairman 1993-1995,
Senior Vice President, Operations and
member of the Office of the President,
1991-1993, Zenith Electronics
Corporation; Chief Operating Officer,
Tricord Systems Inc. (computer
manufacturer), 1990-1991; Chief
Operating Officer, ETA Systems, Inc.
(computer manufacturer), 1988-1989.
Also Director of Pella Corporation and
Polaroid Corp.
Jerry K. Pearlman 56 1983 Chairman since April 1995; Chairman and
Chief Executive Officer from 1993 to
April 1995, Chairman, President and
Chief Executive Officer, 1983-1993,
Zenith Electronics Corporation. Also
Director of Central Asian-American
Enterprise Fund, First Chicago
Corporation and its subsidiary The
First National Bank of Chicago, and
Stone Container Corporation.
Peter S. Willmott 58 1990 Chairman of the Board, MacFrugal's
Bargains . Close-outs Inc. (retailing)
since 1990; Chairman and Chief
Executive Officer, Willmott Services,
Inc. (retailing, consulting and
investing) since 1989; Chairman,
President and Chief Executive Officer,
Carson Pirie Scott & Company (retail
and food service industries), 1983-
1989. Also Director of Browning-Ferris
Industries, Inc., Federal Express
Corporation, International Multifoods
Corporation, Maytag Corporation and
Morgan Keegan & Company, Inc.
</TABLE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets
forth information as of July 31, 1995 with respect to each person known by the
Company to be the beneficial owner of more than five percent of the Company's
outstanding shares of Common Stock.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(/1/)
------------------------------------ -------------------- -------------
<S> <C> <C>
The Crabbe Huson Company.............. 3,525,000(/2/) 7.5%
121 S.W. Morrison
Portland, Oregon 97204
Reliance Financial Services 3,688,524(/3/) 7.3%
Corporation...........................
55 East 52nd Street
New York, New York 10055
The Zenith Profit Sharing Trust....... 2,801,350(/4/) 6.0%
The Bank of New York, Trustee
101 Barclay Street
New York, New York 10286
</TABLE>
- --------
(/1/Percentages)based on shares of Common Stock issued and outstanding on July
31, 1995.
(/2/The)Company has been informed that as of July 31, 1995 The Crabbe Huson
Company had sole voting and dispositive power with respect to all shares.

III-4
<PAGE>

(/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 $36 million 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 that converts any Debentures.
(/4/The)Company has been informed by The Bank of New York that as of July 31,
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 1.4% of the Common Stock. No director or
nominee for election as a director or executive officer owns in excess of 1% of
the Common Stock. Included in the following table is the number of shares of
the Common Stock beneficially owned by each director of the Company, the
President and Chief Executive Officer of the Company and each of the four most
highly compensated other executive officers and the directors and all executive
officers of the Company as a group as of July 31, 1995.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------------------
OBTAINABLE
THROUGH STOCK
OPTION
NAME OF BENEFICIAL OWNER OWNED(/1/) EXERCISE(/2/)
------------------------ ---------- -------------
<S> <C> <C>
Harry G. Beckner........................ 4,300 8,000
T. Kimball Booker....................... 9,000 8,000
David H. Cohen.......................... 4,500 8,000
Ilene S. Gordon......................... 2,000 4,000
Charles Marshall........................ 9,000 8,000
Gerald M. McCarthy...................... 36,544(/3/)(/4/) 79,500
Andrew McNally IV....................... 6,000 8,000
Albin F. Moschner....................... 60,644(/3/)(/4/) 52,500
Jerry K. Pearlman....................... 26,479(/4/) 205,000
Peter S. Willmott....................... 24,000 8,000
Kell B. Benson.......................... 4,801(/4/) 26,000
Michael J. Kaplan....................... 8,244(/4/) 43,500
Directors and All Executive Officers as
a Group
(14 persons)........................... 198,512(/4/) 477,500
</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 July 31, 1995, were subject to
outstanding stock options exercisable within 60 days.
(/3/Includes)shares of restricted stock issued as described under "Vesting of
Restricted Stock."
(/4/Includes)shares of Common Stock held in the Zenith Profit Sharing Trust as
of March 31, 1995, the last date reported.

III-5
<PAGE>

EXECUTIVE OFFICERS. The following provides certain information regarding the
executive officers of the Company, who are appointed by the Board of Directors:

<TABLE>
<CAPTION>
NAME AGE OFFICE HELD
---- --- -----------
<C> <C> <S>
Kell B. Benson 47 Senior Vice President--Finance and
Chief Financial Officer since
August 1994; Vice President--
Finance and Chief Financial Officer
1989-1994; Vice President--
Controller 1989.
Michael J. Kaplan 56 Vice President--Human Resources
since 1993; Vice President--Human
Resources and Public Affairs
1988-1993.
Gerald M. McCarthy 54 Executive Vice President, Sales and
Marketing and member of the Office
of the Chairman since 1993; Senior
Vice President, Sales and
Marketing, and member of the Office
of the President 1991-1993;
President, Zenith Sales Company
Division since 1983.
Albin F. Moschner 42 President and Chief Executive
Officer since April 1995; President
and Chief Operating Officer and
member of the Office of the
Chairman 1993-1995; Senior Vice
President, Operations and member of
the Office of the President 1991-
1993.
Philip S. Thompson 46 Senior Vice President--Operations
since August 1994.
Richard F. Vitkus 56 Senior Vice President--General
Counsel and Secretary since July
1995; Senior Vice President--
General Counsel from August 1994 to
July 1995.
</TABLE>

BOARD OF DIRECTORS, COMMITTEES AND DIRECTORS' COMPENSATION. To permit the
Board of Directors to more efficiently discharge its duties, the Company has
four standing Board of Directors: 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 of
Directors is not in session, the Executive Committee has all of the authority
of the Board of Directors 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,

III-6
<PAGE>

budgets and financing plans, approve terms and conditions of any debt, equity
or other financing, review proposed agendas for meetings of the Board of
Directors 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
of Directors. The Executive Committee meets with management during the period
between regular Board of Directors meetings.

The Audit Committee of the Board of Directors, which currently consists of
Messrs. McNally (Chairman), Beckner and 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 the
Company's 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 of Directors membership requirements,
review potential candidates and propose nominees for the Board of Directors.
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 of Directors 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 of Directors. 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 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 of
Directors 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 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 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. Except for the $143.75 distributed to Mr.
McNally in exchange for 1,000 units and the $2,806.25 distributed to Mr.
Marshall in exchange for 1,000 units, no amounts have been distributed to
current directors pursuant to the Contingent Compensation Plan. See "Benefits
to Resigning Directors."

III-7
<PAGE>

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 of Directors for five years who retire after the age of 62. For
purposes of the Directors' Retirement Plan, years of service on the Board of
Directors 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 of Directors. 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. See
"Benefits to Resigning Directors."

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 of Directors. See "Benefits to Resigning
Directors."

BENEFITS TO RESIGNING DIRECTORS. Assuming that the consummation of the
Proposed Transaction occurs after November 1, 1995 and prior to December 5,
1995, Harry G. Beckner, David H. Cohen, Ilene S. Gordon and Charles Marshall,
who will resign as directors of the Company upon consummation of the Proposed
Transaction pursuant to the Stock Purchase Agreement, will each be entitled to
(i) the cash retainer of $4,500 that they would have received had they remained
directors until the next annual meeting of stockholders of the Company, and
(ii) the value of the 1,000 shares of Common Stock that they would have
received had they remained directors until December 5, 1995 (computed using the
average closing price of the Common Stock on the New York Stock Exchange for
the twenty trading days preceding the resignation date). In addition, upon
their resignation as directors of the Company, Messrs. Beckner, Cohen and
Marshall will become entitled to a lump sum distribution payable 30 days after
their resignation date in an amount equal to the excess of the "market value"
of the phantom stock appreciation units issued to such persons pursuant to the
Company's Non-Employee Directors Stock Plan on the distribution date over the
value on the date of grant of such units. "Market Value" is defined for this
purpose as the average closing price of the Common Stock as quoted on the NYSE
over the 20 trading days preceding the distribution date. Mr. Beckner presently
has 1,000 units which were granted at $20.00 per unit, 2,000 units which were
granted at $14.125 per unit, 1,000 units which were granted at $8.375 per unit
and 1,000 units which were granted at $6.875 per unit. Mr. Cohen presently has
1,000 units which were granted at $9.00 per unit and 1,000 units which were
granted at $6.875 per unit. Mr. Marshall presently has 1,000 units which were
granted at $9.00 per unit.

Upon their resignation as directors pursuant to the Stock Purchase Agreement,
Messrs. Beckner and Marshall will be entitled to a lump sum payment (payable
within 30 days of such resignation) equal to the present value of the projected
benefit to be received by such directors pursuant to the Company's Directors
Retirement Plan. For Mr. Beckner such payment will be approximately $118,000
and for Mr. Marshall such payment will be approximately $49,000.

III-8
<PAGE>

EXECUTIVE COMPENSATION AND OTHER INFORMATION. The following Summary
Compensation Table sets forth, for the periods indicated, the cash compensation
and certain other components of compensation of those persons who were, at
December 31, 1994, the chief executive officer of the Company and the other
four most highly compensated executive officers of the Company. The table also
includes a former executive officer of the Company, John Borst, Jr., whose
compensation would have placed him in the group of the four other most highly
compensated officers of the Company had he been an executive officer at
December 31, 1994. Those listed in the table are hereinafter referred to as the
"Named Executive Officers".

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------------------------- ------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING
NAM AND PRINCIPAL POSITIONSE YEAR SALARY($) BONUS($) COMPENSATION($)(/1/) AWARDS($)(/2/) OPTIONS/SARS(#)
--------------------- ---- --------- -------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jerry K.
Pearlman........ 1994 $458,333 $ 0 $ 0 $403,124 35,000
Chairman and
Chief 1993 450,000 0 0 0 35,000
Executive Officer 1992 450,000 0 0 0 35,000
Albin F.
Moschner........ 1994 276,667 0 0 525,002 25,000
President and
Chief 1993 231,667 0 0 0 15,000
Operating Officer 1992 202,500 96,000(/4/) 53,342(/5/) 0 15,000
Gerald M.
McCarthy........ 1994 212,000 0 0 207,496 17,000
Executive Vice
President-- 1993 191,333 0 0 0 15,000
Sales and 1992 178,333 0 0 0 15,000
Marketing and
President, Zenith
Sales Company
Kell B. Benson... 1994 157,833 0 0 0 12,000
Senior Vice
President-- 1993 154,485 0 0 0 10,000
Finance and Chief 1992 150,125 0 0 0 10,000
Financial Officer
John Borst, Jr... 1994 154,988 0 0 0 8,000
Former Vice
President-- 1993 156,000 0 0 0 8,000
General Counsel 1992 152,500 0 0 0 8,000
Michael J.
Kaplan.......... 1994 137,167 0 0 0 8,000
Vice President-- 1993 134,500 0 0 0 8,000
Human Resources 1992 130,708 0 0 0 8,000
<CAPTION>
ALL OTHER
NAM AND PRINCIPAL POSITIONSE COMPENSATION($)(/3/)
----------------------------- --------------------
<S> <C>
Jerry K.
Pearlman........ $27,500
Chairman and
Chief 27,000
Executive Officer 27,000
Albin F.
Moschner........ 16,600
President and
Chief 13,900
Operating Officer 2,650
Gerald M.
McCarthy........ 12,720
Executive Vice
President-- 11,480
Sales and 10,700
Marketing and
President, Zenith
Sales Company
Kell B. Benson... 9,470
Senior Vice
President-- 9,269
Finance and Chief 9,008
Financial Officer
John Borst, Jr... 9,299
Former Vice
President-- 9,360
General Counsel 9,150
Michael J.
Kaplan.......... 8,230
Vice President-- 8,070
Human Resources 7,842
</TABLE>
- --------
(/1/Except)as disclosed in note 5, Other Annual Compensation does not reflect
the value of perquisites and other personal benefits since such
compensation does not exceed minimum disclosure thresholds.
(/2/The)restricted stock value shown in the table is based on the closing price
of the Common Stock on the date of grant. As of December 31, 1994, Mr.
Pearlman held an aggregate 81,081 shares of restricted stock valued at
$942,567, Mr. Moschner held an aggregate 56,757 shares of restricted stock
valued at $659,800 and Mr. McCarthy held an aggregate 32,432 shares of
restricted stock valued at $377,022. All of the restricted stock held by
Mr. Pearlman, Mr. Moschner and Mr. McCarthy vest as described under
"Employment Agreements."
(/3/The)amounts included in this column reflect the annual contribution to the
Company's defined contribution plan for each Named Executive Officer and
for Messrs. Pearlman, Moschner, McCarthy, Benson and Borst, contractual
excess retirement benefits, as described in the Employment Agreements
section below, in the amount of $18,500, $7,600, $3,720, $470 and $299
respectively for the year 1994.
(/4/Pursuant)to a separate agreement with Mr. Moschner relating to his initial
employment, the bonus in the amount shown for 1992 was guaranteed.
(/5/Includes)certain perquisites and personal benefits of which $47,277 is
reimbursement of moving, housing and relocation costs incurred in
connection with acceptance of employment with the Company.

III-9
<PAGE>

EMPLOYMENT AGREEMENTS. In connection with Mr. Pearlman's retirement as Chief
Executive Officer on April 25, 1995, the Company and Mr. Pearlman entered into
a consulting agreement pursuant to which Mr. Pearlman will perform consulting
services for the Company and agreed 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 is on a worldwide
basis and extends 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
receives $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 were amended so that his unexercisable
options became fully exercisable upon his retirement and the exercise period of
all of his unexercised options was extended from two years to three years
following retirement, as permitted by the 1987 Zenith Stock Incentive Plan. Mr.
Pearlman's restricted stock was 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 has been increased so that he is paid during such period
at the rate of $6,480 per month. Under the agreement, Mr. Pearlman is 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.

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 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 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 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.

III-10
<PAGE>

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.

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>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(/1/) 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.

III-11
<PAGE>

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
Common Stock by the Named Executive Officers and the unexercised options to
purchase Common Stock held 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>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
SHARES OPTIONS/SARS AT
ACQUIRED FISCAL YEAR- VALUE OF UNEXERCISED IN-
ON VALUE END(#) THE-MONEY OPTIONS/SARS AT
EXERCISE REALIZED EXERCISABLE/UNEX- FISCAL YEAR-END($)(/2/)
NAME (#) ($)(/1/) ERCISABLE 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 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 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 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)

III-12
<PAGE>

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.

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).

TERMINATION AND CHANGE OF CONTROL AGREEMENTS. Agreements between the Company
and its executive officers, which were amended as of April 4, 1995, provide for
severance pay and benefits in the event of termination of employment within two
years after a change in control of the Company. Consummation of the Proposed
Transaction will constitute a change in control for purposes of these
agreements. 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. In
addition, the agreements provide for acceleration of vesting of options and
restricted stock upon a change in control, without regard to whether
termination of employment has occurred. For other long-term incentive programs,
the agreements provide for payment upon a change in control (without regard to
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 executive remained
employed for the entire measuring period and all target levels were achieved.
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 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 agreement of Albin F. Moschner, President and Chief Executive Officer of
the Company, provides for payment of an amount sufficient to put him in the
same after-tax position as if no excise taxes imposed by Section 4999 of the
Internal Revenue Code ("Section 4999") had been imposed on any payments which
are contingent on a change in control and which equal or exceed three times Mr.
Moschner's average taxable compensation for the prior five years or his period
of employment. The agreements of the other executive officers (except for
Gerald M. McCarthy, Executive Vice President, Sales and Marketing of the
Company) provide 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. Mr. McCarthy's agreement does not provide for
any limitation or any payment in the event he is subject to excise taxes
imposed by Section 4999. The Company is obligated under the agreements to
reimburse the employee for legal fees and expenses incurred in successfully
enforcing the agreement.

Pursuant to agreements between the Company and its executive officers, the
Company will pay such executive officers severance payments upon termination
within two years following the consummation of the Proposed Transaction.
Assuming that consummation of the Proposed Transaction occurs on November 8,
1995 and the executive officer in question is immediately terminated, the
Company will owe $4,287,298 to Mr. Moschner, $1,285,229 to Mr. McCarthy,
$523,653 to Kell B. Benson, $436,380 to Michael J. Kaplan, $799,061 to Philip
S. Thompson and $558,101 to Richard F. Vitkus pursuant to such agreements.

ACCELERATION OF STOCK OPTIONS HELD BY EXECUTIVE OFFICERS. Pursuant to the
terms of stock option agreements evidencing the grant of options to executive
officers under the Company's 1987 Stock Incentive Plan, such options will
accelerate and become exercisable upon the consummation of the Proposed
Transaction.

III-13
<PAGE>

<TABLE>
<CAPTION>
NUMBER OF UNVESTED WEIGHTED AVERAGE
STOCK OPTIONS PER SHARE
NAME SUBJECT TO ACCELERATION EXERCISE PRICE
---- ----------------------- ----------------
<S> <C> <C>
Albin F. Moschner................ 102,500 $7.43
Gerald M. McCarthy............... 38,500 7.68
Kell B. Benson................... 26,000 7.70
Michael J. Kaplan................ 21,500 7.59
Philip S. Thompson............... 40,000 8.20
Richard F. Vitkus................ 26,500 7.62
</TABLE>

VESTING OF RESTRICTED STOCK. Pursuant to the terms of agreements between the
Company and Mr. Moschner and Mr. McCarthy, respectively, upon consummation of
the Proposed Transaction, 56,757 shares of restricted Common Stock issued to
Mr. Moschner and 32,432 shares of restricted Common Stock issued to Mr.
McCarthy will become vested.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION. The following is the
report of the Organization and Compensation Committee on 1994 executive
compensation:

BASE SALARIES

Base salaries for Company executives represent compensation for the execution
of defined job accountabilities. Using market data from several nationally
recognized executive compensation surveys, base salaries and salary range
midpoints are annually compared to peer level positions in companies of similar
size in the electrical/electronics and consumer durables industries including
four of the six companies used in the peer group in the performance graph
below.

The executive officers' base salaries and salary range midpoints, including
those of the Chief Executive Officer, were targeted below the relevant median
salary of comparison group companies.

In July 1994, the Committee met to review the executive officers' salaries
for base salary increases. Due to a salary freeze, most executives did not
receive an increase in 1993, and salaries had fallen considerably below
targeted levels. Base salary increases are determined based on individual
performance and the economic conditions of the Company. The Committee approved
increases for all executive officers including an increase of $25,000,
effective September 1, 1994, for the Chief Executive Officer. Resulting
salaries remain below median salary levels of comparison group companies.

ANNUAL INCENTIVES

Annual incentives are the vehicle to recognize and reward accomplishments in
a given year. Using the same survey sources as consulted for base salaries,
annual incentive target awards are compared with peer level positions' awards
in companies of similar size and industry. Target payouts for Company
executives are defined as a percent of their salary range midpoint. The percent
of midpoint targets were set at median levels to the comparator group.

III-14
<PAGE>

The 1994 plan for the executive officers was based entirely on overall
corporate profit before taxes. The Organization and Compensation Committee
established threshold, target and maximum goals based on budgeted profit
objectives for the year. Payout opportunities ranged from 0% to 200% of target
opportunities. Actual incentive payouts are based on the performance level
attained and the executive's target incentive percent.

The annual incentive plan for the Chief Executive Officer was the same as
that for the other executive officers.

This fiscal year's financial performance failed to meet the corporate
financial threshold. Therefore, no bonus payments were made to any executives
under this plan.

LONG TERM INCENTIVES

The Zenith Stock Incentive Plan allows executives and key employees the
opportunity to participate in the long term growth and financial success of the
Company through earnings from stock options that are based entirely on common
stock performance, thus linking the interests of the Company's employees with
those of its stockholders. The Organization and Compensation Committee
administers and authorizes stock option grants under the plan. All stock
options are non-qualified options, granted at the market price on the date of
grant for a ten-year term. In 1991, the Committee reviewed data on the option
grant practices of other large companies derived from a nationally recognized
executive compensation survey which included some but not all of the companies
used in the peer group in the performance graph. Guidelines were implemented
calling for share awards designed to achieve long-term earnings of a targeted
multiple of 2 to 2.5 times base pay over a 5 year period based on future stock
price appreciation. In 1994, options were granted to Company's executive
officers based on the share award guidelines established in 1991, including
35,000 options for Mr. Pearlman.

Restricted stock was granted to the Messrs. Pearlman, Moschner and McCarthy
in 1994, which included 43,581 shares to Mr. Pearlman. Share awards were
determined in order to provide a targeted offset amount to the defined benefit
retirement plan described in the Pension Plan Table. Shares vest only upon
retirement at age 65. The Committee believes that including restricted stock in
the retirement benefit provides an alignment to the long term performance of
the Company which is not possible in pension plans which are not based on stock
price performance.

POLICY REGARDING--IRS CODE, SECTION 162(M)

The Company will retain its current mix of compensation elements for the
executive officers (base salary, short-term and long-term incentives) and
continue to utilize long term incentives (stock options). Under the transition
rules provided in the 1993 regulations, as amended, stock option plans that
meet the requirements under SEC Rule 16b-3 are deemed to meet the performance-
based compensation exception and need not be amended until 1997. Zenith's
current stock incentive plan which expires in 1997 meets the SEC Rule 16b-3
criteria. To ensure continued deductibility of future long-term grants, the
Company intends to submit a new plan for shareholder approval at that time.

This foregoing report was furnished by the members of the Organization and
Compensation Committee.

Peter S. Willmott, Chairman
T. Kimball Brooker
David H. Cohen

III-15
<PAGE>

PERFORMANCE GRAPH. Set forth below is a line graph comparing the Company's
cumulative total stockholder return on its Common Stock, for a five-year period
(December 31, 1989 to December 31, 1994) with the cumulative total return of
the Standard & Poor's 500 Stock Index (which includes the Company), and a peer
group of companies selected by the Company for purposes of the comparison. The
Company developed a group of peer issuers (whose stock is traded on the New
York Stock Exchange) due to lack of an appropriate published industry peer
group index. The peer group includes companies involved extensively in consumer
electronics (Matsushita Electric Industrial Co. Ltd.; Sony Corp.; Philips
Electronics N.V.; Emerson Radio Corp.) and consumer durables manufacturers
operating primarily in North America (Maytag Corp.; Fedders Corp.).

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN(1)

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 $100.00 $96.89 $126.42 $136.05 $149.76 $151.74
--------------------------------------------------------------------
Peer Group $100.00 $68.77 $69.82 $59.05 $88.62 $106.80
--------------------------------------------------------------------
Zenith $100.00 $51.96 $57.84 $46.08 $54.90 $91.18
</TABLE>
- --------
(1) Assumes that the value of the investment in the Common Stock and each index
was $100 on December 31, 1989 and that all dividends are reinvested.

LITIGATION. On July 18, 1995, a purported stockholder class action suit was
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 and LG
(Horwits v. Beckner, et al., C.A. No. 14424). On July 27, 1995, the plaintiff
filed an amended complaint (as so amended, the "Complaint"). The Complaint
alleges that the Company's directors

III-16
<PAGE>

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 LG to acquire a controlling interest in the Company
pursuant to the Proposed Transaction.

The 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, Pierce,
Fenner & Smith Incorporated ("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 of the Company's executives.
In addition, the Complaint alleges that, in executing the Stock Purchase
Agreement and recommending that the stockholders approve the Proposed
Transaction, the Company's directors failed to adequately explore the
availability of alternatives to maximize stockholder in a sale of control. The
Complaint alleges that the Company's Solicitation/Recommendation Statement on
Schedule 14D-9, dated July 21, 1995 (the "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 Board of Directors' conclusion that alternative financing of a similar
magnitude was not reasonably available and (iv) the basis for the Board of
Directors' apparent rejection of LG's June 27, 1995 joint venture proposal in
favor of a sale of control. The Complaint alleges that LG's Tender Offer
Statement on Schedule 14D-1 dated July 21, 1995 (the "Schedule 14D-1") and the
Schedule 14D-9 also fail to disclose (i) a schedule of "change of control"
payments required to be made, stock options which vest and shares of restricted
Common Stock which vest in connection with the transaction, (ii) the structure,
terms or timing of any proposals from LG prior to the two alternative proposals
presented by LG on June 27, 1995, (iii) the terms and structure of the joint
venture proposal made by LG 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 Complaint
further alleges that LG aided and abetted the Company's directors' alleged
breach of their fiduciary duties. The Complaint seeks (i) a declaration that
the action may be maintained as a class action, (ii) a declaration that the
Proposed 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 Proposed
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.

On August 17, 1995, plaintiff filed a motion for preliminary injunctive
relief seeking an order (i) invalidating the April 25, 1995 shareholder vote,
(ii) enjoining the Offer or any further action in connection with consummation
of the Stock Purchase Agreement, (iii) enjoining the Special Meeting, (iv)
invalidating the Stock Purchase Agreement, (v) enjoining the Company and the
Board of Directors to disseminate complete disclosure of all material
information, (vi) enjoining the Board of Directors to conduct a proper process
to explore the availability of alternatives to maximize Company shareholder
value.

Following meetings, discussions and negotiations among counsel for the
Company and the Board of Directors and counsel for the plaintiff, on October 6,
1995, the Company, LG, the members of the Board of

III-17
<PAGE>

Directors, and the plaintiff entered a Memorandum of Understanding setting
forth the terms of an agreement in principle to settle and terminate the
litigation (the "Proposed Settlement"). Under the Proposed Settlement, the
Company agreed to include certain additional information in the Proxy Statement
that was not contained in the offer documents or the preliminary copies of the
Proxy Statement which the Company filed with the Securities and Exchange
Commission. In exchange for the Company's agreement to include these additional
disclosures, the plaintiff agreed not to take any action to enjoin or take
other legal action to prevent the stockholder vote on or consummation of the
Proposed Transaction; to release any and all claims against the defendants,
including all state and federal claims arising out of the events described in
the Complaint, and to dismiss, with prejudice, the Complaint to effect
termination of this litigation.

The Company, the members of the Board of Directors, and LG denied, and
continue to deny, that they committed any violations of law or breaches of duty
as alleged in the Complaint, but entered the Memorandum of Understanding and
contemplate entering into the Stipulation of Settlement solely because the
Proposed Settlement would eliminate the burden and expense of further
litigation and would facilitate the consummation of the Proposed Transaction.
In agreeing to disclose additional information, the Company does not admit the
materiality of that information or that the materials previously filed with the
Securities and Exchange Commission were in any way deficient. In connection
with the Proposed Settlement, it is anticipated that counsel for the plaintiff
will apply to the court for an aggregate award of attorneys' fees and expenses
in an amount not to exceed $300,000. As a condition of settlement, the Company
has agreed to pay plaintiff's counsel the amount awarded by the court. Before
the Proposed Settlement is finally approved by the court, notice of the
proposed terms and conditions of the settlement will be mailed to all members
of any class certified by the court, who will be afforded an opportunity to opt
out of and object to the settlement.

III-18
<PAGE>

Your vote is important, regardless of the number of shares you own. Please
sign, date and promptly mail your enclosed proxy in the postage-paid envelope
provided for your convenience.

If your shares of stock are held in the name of a bank or brokerage firm,
only that firm can vote your shares on your behalf and only upon receiving your
specific instructions. Please return your proxy at once to ensure that your
vote will be counted. You may also contact the person responsible for your
account with your voting instructions.

If you have any questions or need assistance in voting your shares, please
contact D. F. King & Co., Inc., which is assisting your Company, at the toll-
free number set forth below.

D. F. KING & CO., INC.
77 WATER STREET, 20TH FLOOR
NEW YORK, NY 10005

TOLL FREE: 1-800-859-8511

<PAGE>

- -------------------------------------------------------------------------------
FORM OF PROXY

ZENITH ELECTRONICS CORPORATION NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
1000 Milwaukee Avenue TO BE HELD NOVEMBER 7, 1995
Glenview, IL 60025

Dear Stockholder:

A special meeting of stockholders of Zenith Electronics Corporation (the
"Company") will be held on November 7, 1995 at 9:00 a.m. at the offices of
Sidley & Austin, One First National Plaza, 55th floor, Chicago, Illinois, for
the following purposes:

1. To approve the Company's Stock Purchase Agreement with LG Electronics
Inc. (the "Purchaser") (and any amendments thereto) and the transactions
contemplated thereby, including the Purchaser's tender offer to purchase
from the Company's stockholders up to 18,619,000 shares of common stock
of the Company at a purchase price of $10.00 per share and the issuance
and sale by the Company to the Purchaser of 16,500,000 shares of common
stock of the Company at a purchase price of $10.00 per share.

Only holders of Common Stock of Zenith Electronics Corporation of record at
the close of business on October 3, 1995 will be entitled to vote at the
meeting or any adjournment thereof.

To be sure that your vote is counted, we urge you to complete and sign the
proxy card below, detach it from this letter and return it in the postage paid
envelope enclosed in this package. The giving of such proxy does not affect
your right to vote in person if you attend the meeting. The prompt return of
your signed proxy will aid the Company in reducing the expense of additional
proxy solicitation.

ON BEHALF OF YOUR BOARD OF DIRECTORS

RICHARD F. VITKUS
Senior Vice President--
General Counsel and Secretary

. DETACH PROXY CARD HERE .

- ---------------
| |
- ---------------

- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1

1. Approval of the Company's Stock Purchase Agreement with LG Electronics Inc.
(and any amendments thereto) and the transactions contemplated thereby.

FOR AGAINST ABSTAIN
- -------------------------------------------------------------------------------

Change of Address or
Comments Mark Here

Please sign exactly as
name appears hereon.
Persons signing in a
representative capacity
should indicate their
capacity. A proxy for
shares held in a joint
ownership should be
signed by each owner. If
a Corporation, please
sign in full corporate
name by President or
other authorized officer.

DATED: ___________ , 1995

--------------------------
Signature of Stockholder

Please sign, date and mail this proxy Votes MUST be indicated
in the enclosed postage-paid envelope (X) in Black or Blue Ink

<PAGE>

STOCKHOLDER PROXY
ZENITH ELECTRONICS CORPORATION
1000 MILWAUKEE AVENUE, GLENVIEW, IL 60025

The undersigned hereby appoints Michael J. Kaplan, Richard F. Vitkus and
Stephen K. Weber or any of them, as proxies with full power of substitution or
revocation, to represent and vote all the shares of common stock held of
record on October 3, 1995, by the undersigned, at the special meeting of
stockholders of Zenith Electronics Corporation to be held at the offices of
Sidley & Austin, One First National Plaza, 55th floor, Chicago, Illinois, on
November 7, 1995 at 9:00 A.M., or any adjournment thereof on the proposal to
approve the Company's Stock Purchase Agreement with LG Electronics Inc. (and
any amendments thereto) and the transactions contemplated thereby.

THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH SUCH INSTRUCTIONS AS MAY BE GIVEN
ON THE REVERSE SIDE OF THIS PROXY CARD. IT IS UNDERSTOOD, HOWEVER, THAT THE
PROXY WILL BE VOTED FOR THE APPROVAL OF THE COMPANY'S STOCK PURCHASE AGREEMENT
WITH LG ELECTRONICS INC. (AND ANY AMENDMENTS THERETO) AND THE TRANSACTIONS
CONTEMPLATED THEREBY UNLESS CONTRARY INSTRUCTIONS ARE SPECIFIED. THE SPACES
FOR YOUR VOTES AND SIGNATURE ARE SET FORTH ON THE REVERSE SIDE. PLEASE VOTE,
SIGN AND RETURN PROMPTLY. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS.

(Continued, and to be signed and dated, on the reverse side)

ZENITH ELECTRONICS CORPORATION
P.O. BOX 11528
NEW YORK, N.Y. 10203-0528
<PAGE>

ZENITH ELECTRONICS CORPORATION NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
1000 Milwaukee Avenue TO BE HELD NOVEMBER 7, 1995
Glenview, IL 60025

DEAR FELLOW ZENITH EMPLOYEE:

We are about to enter an exciting new chapter in Zenith's history. Our new
relationship with LG Electronics Inc. (LGE) will without a doubt make Zenith a
much stronger competitor and accelerate our progress toward long-term sustained
profitability.

The enclosed proxy statement for Zenith shareholders represents one of the
final steps in completing the deal announced in July. As a member of the Zenith
Profit-Sharing Retirement Plan with an investment in the Zenith Stock Fund
(ZSF), you can decide how the shares in the ZSF will be voted.

The Board of Directors recommends a vote "FOR" approval of the Stock
Purchase Agreement with LGE and the transactions contemplated thereby, including
LGE's tender offer to purchase from Zenith shareholders 18.619 million shares
of common stock, at a purchase price of $10 per share, and the issuance and
sale of 16.5 million shares of Zenith common stock to LGE, also at a purchase
price of $10 per share.

By signing and returning the attached proxy card in the accompanying
envelope, you can tell the plan's trustee, The Bank of New York, how to vote the
shares representing your portion of the ZSF. Only the Trustee will know how you
voted. If you don't complete and return the attached proxy card, the Trustee
will automatically vote your portion of the shares in the ZSF in the same
proportion as votes received from other retirement plan members.

Following completion of the proposed transaction we expect to be
well-positioned for growth, stability and profitability. Together, we plan to be
a dominant force in the worldwide market for consumer electronics and network
systems products. Your support and continued hard work are greatly appreciated
as always, and particularly now as we enter this new chapter in our history.

ON BEHALF OF YOUR BOARD OF DIRECTORS,

/s/ AL MOSCHNER
AL MOSCHNER
President and
Chief Executive Officer

. DETACH PROXY CARD HERE .

================================================================================
------
| |
------
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1

1. Approval of the Company's Stock Purchase Agreement with LG Electronics Inc.
(and any amendments thereto) and the transactions contemplated thereby.

FOR [X] AGAINST [X] ABSTAIN [X]

- --------------------------------------------------------------------------------

Change of Address or
Comments Mark Here [X]

Please sign exactly as name appears hereon.

DATED: ______________________________, 1995

___________________________________________
Signature of Stockholder

PLEASE SIGN, DATE AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [X]

- --------------------------------------------------------------------------------
<PAGE>

- --------------------------------------------------------------------------------

STOCKHOLDER PROXY
ZENITH ELECTRONICS CORPORATION
1000 Milwaukee Avenue, Glenview, IL 60025

The undersigned hereby directs The Bank of New York, as trustee of the
Zenith Profit-Sharing Retirement Trust (the "Trustee"), to represent and vote,
as designated on the reverse side hereof, either in person or by proxy
appointing Michael J. Kaplan, Richard F. Vitkus and Stephen K. Weber or any of
them, as proxies with full power of substitution or revocation, to represent and
vote all the shares of common stock held of record on October 3, 1995 in the
Zenith Stock Fund representing the undersigned's interest in such Fund, at the
special meeting of stockholders of Zenith Electronics Corporation to be held at
the offices of Sidley & Austin, 55th floor, One First National Plaza, Chicago,
Illinois, on November 7, 1995 at 9:00 A.M., or any adjournment thereof on the
proposal to approve the Company's Stock Purchase Agreement with LG Electronics
Inc. (and any amendments thereto) and the transactions contemplated thereby.

THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH SUCH INSTRUCTIONS AS MAY BE
GIVEN ON THE REVERSE SIDE OF THIS PROXY CARD. IT IS UNDERSTOOD, HOWEVER, THAT
THE PROXY WILL BE VOTED FOR THE APPROVAL OF THE COMPANY'S STOCK PURCHASE
AGREEMENT WITH LG ELECTRONICS INC. (AND ANY AMENDMENTS THERETO) AND THE
TRANSACTIONS CONTEMPLATED THEREBY, UNLESS CONTRARY INSTRUCTIONS ARE SPECIFIED.
THE SPACES FOR YOUR VOTE AND SIGNATURE ARE SET FORTH ON THE REVERSE SIDE. PLEASE
VOTE, SIGN AND RETURN PROMPTLY. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS.

ZENITH ELECTRONICS CORPORATION
P.O. BOX 11528
NEW YORK, N.Y. 10203-0528

(Continued, and to be signed and dated, on the reverse side)

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