UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1998
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____________to____________
Commission File Number: 1-4115
ZENITH ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-1996520
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1000 Milwaukee Avenue, Glenview, Illinois 60025
(Address of principal executive offices) (Zip Code)
(847) 391-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
As of April 30, 1998, there were 67,525,447 shares of Common Stock,
par value $1 per share, outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ZENITH ELECTRONICS CORPORATION
------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-----------------------------------------------------------
In Millions, Except Per Share Amounts
Three Months Ended
----------------------
March 28, March 29,
1998 1997
---------- ----------
Net sales $ 220.7 $ 259.1
---------- ----------
Costs, expenses and other:
Cost of products sold 213.5 246.5
Selling, general and
administrative 33.3 28.1
Engineering and research 10.8 10.8
Other operating expense
(income), net (Note 2) (7.2) (7.1)
---------- ----------
Operating income (loss) (29.7) (19.2)
Gain (loss) on asset sales, net (0.2) -
Interest expense (8.2) (6.3)
Interest income 0.3 0.3
---------- ----------
Income (loss) before income taxes (37.8) (25.2)
Income taxes (credit) - -
---------- ----------
Net Income (loss) $ (37.8) $ (25.2)
========== ==========
Net income (loss) per share of
common stock (Note 3) $ (0.55) $ (0.38)
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
ZENITH ELECTRONICS CORPORATION
------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
-------------------------------------------------
In Millions
March 28, December 31, March 29,
1998 1997 1997
-------- ------------ --------
ASSETS
- ------
Current assets:
Cash $ 23.2 $ - $ -
Receivables, net of allowance for
doubtful accounts of $--, $--
and $5.7, respectively 16.0 21.7 186.6
Inventories (Note 5) 127.1 165.5 229.6
Transferor cerfificates 103.4 99.7 -
Other 23.4 26.3 9.5
-------- ------------ --------
Total current assets 293.1 313.2 425.7
Property, plant and equipment, net 164.4 171.1 298.9
Other 42.2 43.4 10.1
-------- ------------ --------
Total assets $ 499.7 $ 527.7 $ 734.7
======== ============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short-term debt (Note 6) $ 102.0 $ 72.0 $ 34.4
Current portion of long-term
debt (Note 6) 14.8 15.3 15.7
Accounts payable (Note 7) 220.6 237.2 243.6
Income taxes payable 0.7 0.7 1.1
Accrued expenses 144.6 141.7 150.1
-------- ------------ --------
Total current liabilities 482.7 466.9 444.9
Long-term liabilities 16.8 17.0 -
Long-term debt (Note 6) 127.0 132.8 152.7
Stockholders' equity:
Preferred stock - - -
Common stock 67.1 67.1 66.5
Additional paid-in capital 507.3 507.3 459.8
Retained earnings (deficit) (699.5) (661.7) (387.5)
Treasury stock (1.7) (1.7) (1.7)
-------- ------------ --------
Total stockholders' equity (126.8) (89.0) 137.1
-------- ------------ --------
Total liabilities and
stockholders' equity $ 499.7 $ 527.7 $ 734.7
======== ============ ========
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
ZENITH ELECTRONICS CORPORATION
------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------
In Millions
Increase (Decrease) in Cash
Three Months Ended
---------------------------
March 28, March 29,
1998 1997
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (37.8) $ (25.2)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operations:
Depreciation 9.9 10.1
Loss on asset sales, net 0.2 -
Changes in assets and liabilities:
Current accounts 18.9 58.6
Other assets 1.2 1.8
Other liabilities (0.2) -
----------- -----------
Net cash provided (used) by operating activities (7.8) 45.3
----------- -----------
Cash flows from investing activities:
Capital additions (2.7) (30.7)
Proceeds from asset sales 10.0 -
----------- -----------
Net cash provided (used) by investing activities 7.3 (30.7)
----------- -----------
Cash flows from financing activities:
Short-term borrowings, net 30.0 (12.6)
Proceeds from issuance of common stock, net - 0.1
Principal payments on long-term debt (6.3) (2.1)
----------- -----------
Net cash provided (used) by financing activities 23.7 (14.6)
----------- -----------
Increase in cash 23.2 -
Cash at beginning of period - -
----------- -----------
Cash at end of period $ 23.2 $ -
=========== ===========
Increase (decrease) in cash attributable to
changes in current accounts:
Receivables, net $ 5.7 $ 21.7
Transferor certificates (13.9) -
Income taxes, net - (0.2)
Inventories 38.4 26.1
Other assets 2.9 1.6
Accounts payable and accrued expenses (14.2) 9.4
----------- -----------
Net change in current accounts $ 18.9 $ 58.6
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 6.7 $ 4.3
Income taxes - -
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
Zenith Electronics Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note One - 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, 1997.
Note Two - Other operating expense (income)
Royalty income accrued in relation to tuning system patents was
$6.3 million and $6.7 million for the three months ended March 28, 1998
and March 29, 1997, respectively. These amounts are included in Other
Operating Expense (Income).
Note Three - Earnings per share
In accordance with Statement of Financial Accounting Standards
No. 128, "Earnings Per Share", the company computed earnings per share
by dividing net income (loss) by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings (loss) per
share, assuming conversion of the 6-1/4 percent convertible subordinated
debentures and outstanding stock options are not presented because the
effect of the assumed conversion is antidilutive. The weighted average
number of shares was 67.0 million and 66.5 million for the three months
ended March 28, 1998 and March 29, 1997, respectively.
Note Four - Change in accounting estimate
During the second quarter of 1997, the company changed its
accounting policy for most tooling expenditures. The old policy was to
charge most tooling expenditures to expense in the period acquired. The
new policy is to defer the tooling charges incurred subsequent to March
29, 1997, over a 20-month period in order to more appropriately match
the costs with their period of benefit. The accounting policy for picture
tube tooling remains the same, which is to amortize that tooling over a
four year period. This change was accounted for as a change in
accounting estimate effected by a change in accounting principle and as
such is accounted for on a prospective basis. The change increased
tooling costs by $.8 million and increased the loss per share by 1 cent for
the three months ended March 28, 1998.
Note Five - Inventories
Inventories consisted of the following (in millions):
March 28, December 31, March 29,
1998 1997 1997
---------- ------------ ----------
Raw materials and work-in-process $ 94.0 $ 96.9 $ 154.8
Finished goods 33.1 68.6 74.8
---------- ------------ ----------
Total inventories $ 127.1 $ 165.5 $ 229.6
========== ============ ==========
Note Six - Short-term debt and credit arrangements; Long-term debt
In 1997 the company obtained certain financing commitments.
One of the commitments is a three-year $110.0 million credit facility with
Citicorp composed of a $45.0 million term loan and a $65.0 million
revolving credit line. The term loan requires scheduled quarterly principal
payments of $2.3 million with a balloon payment of $20.3 million at
maturity in 2000. Under the revolving credit line, the maximum
commitment of funds available for borrowing is limited by a defined
borrowing base formula related to eligible inventory. The facility is
secured by the company's inventory, domestic fixed assets, stock of the
company's subsidiaries and patent royalties, along with the related
patents, licenses and other general intangibles. Interest on borrowings is
based on market rates.
The facility contains certain covenants that must be met in order
to remain in compliance with the facility, including financial covenants
that must be maintained as of the end of each fiscal quarter. The financial
covenants (as amended) include a minimum EBITDA amount, a current
ratio test, a funded debt / total capitalization ratio test, a tuning patent
royalties test and a LG Electronics Inc. ("LGE") payable test. As a result
of a waiver obtained from Citicorp in March 1998, only the tuning patent
royalties test and the LGE payable test were in effect as of March 31,
1998, and the company was in compliance with both of these covenants.
The long-term portion of the term loan has been classified in the
accompanying balance sheet based on the company's intention to seek
additional waivers or amendments for any future noncompliance prior to
the expiration of the existing waiver in June 1998. Those additional future
waivers requests are intended to extend to a period subsequent to March
1999. There are no assurances that such waivers or amendments will
be granted.
Between November 1997 and February 1998 the company
entered into a series of financing transactions designed to enhance the
company's liquidity and financial flexibility. The company obtained a
total of $110 million in unsecured and uncommitted credit facilities
through four lines of credit with Bank of America ($30 million), First
Chicago NBD ($30 million), Societe Generale ($20 million) and Credit
Agricole ($30 million). As of March 28, 1998, a total of $102.0 million
was outstanding under these credit lines.
In March 1998, the company entered into a secured credit facility
with LGE which provides for borrowings of up to $45 million. As of
March 28, 1998, no amounts were outstanding under the facility. See
Note Seven for further discussion.
In January 1998 the company redeemed its 8.5 percent Senior
Subordinated Convertible Debentures due January 2001. There was $0.5
million principal amount of such debentures outstanding and the
redemption price of such debentures was 104 percent of such principal
amount plus accrued interest through the redemption date. The loss on
extinguishment of this debt was not material.
Note Seven - Related party
In November 1995, a change in control of the company occurred,
in which LGE purchased shares of the company pursuant to a combined
tender offer and purchase of newly issued shares of common stock from
the company. As of March, 28, 1998, LGE owned 36,569,000 shares of
common stock of the company which represents 55 percent of the
outstanding common stock. Because LGE owns a majority of the issued
and outstanding common stock, it effectively controls 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 in control of the company.
LGE 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, telecommunication products and
components, and magnetic media. The following represent the most
significant transactions between the company and LGE during the three
months ended March 28, 1998 and March 29, 1997.
Product purchases: In the ordinary course of business, the
company purchases VCRs, TV-VCR combinations and components from
LGE and its affiliates. The company purchased $7.8 million and $11.1
million of these items during the three months ended March 28, 1998 and
March 29, 1997, respectively. Sales of products purchased from LGE
and its affiliates contributed $20.1 million and $25.3 million to sales
during the three months ended March 28, 1998 and March 29, 1997,
respectively.
Product and other sales: The company sells TVs, picture tubes,
yokes and other manufactured subassemblies to LGE and its affiliates.
Sales by the company to LGE and its affiliates were $11.0 million
and $6.5 million during the three months ended March 28, 1998
and March 29, 1997, respectively.
Other Items: In March 1998, the company entered into a secured
credit facility with LGE which provides for borrowings of up to $45.0
million. The term of the facility is one year from the date of the first
borrowing, subject to LGE's right to demand repayment at anytime, after
June 30, 1998. Repayment is due in full at the end of the term. The
facility is secured by liens on certain of the company's assets and is
subject to certain terms and conditions.
Accounts payable included $134.0 million and $122.3 million
to LGE and its affiliates as of March 28, 1998 and March 29, 1997,
respectively. In April 1997, the company and LGE entered into an
arrangement whereby the company's accounts payables arising in the
ordinary course of business to LGE would be extended for certain periods
of time. Prior to April 1997, the company's accounts payables arising in
the ordinary course of business to LGE were extended for certain periods
of time, but no formal arrangement was in place. The amount of extended
payables was $133.7 million and $111.6 million as of March 28, 1998
and March 29, 1997, respectively. The company is charged interest on
the extended period at negotiated rates. The amount of receivables from
LGE and its affiliates was not material as of March 28, 1998 and March
29, 1997.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The company reported a first-quarter 1998 net loss of $37.8
million, or 55 cents per share, compared with a net loss of $25.2 million,
or 38 cents per share, in the first quarter of 1997. Total first-quarter sales
were $220.7 million in 1998 compared with $259.1 million in 1997.
Consumer electronics sales declined in the 1998 quarter compared with
the same period last year, driven largely by continued soft demand for
direct-view color TV sets. The sales decline also reflects planned sales
reductions in lower-margin TV products and VCRs.
Sales of Network Systems products increased in the 1998 quarter
compared with a year ago due to shipments of digital set-top boxes and
cable modems, which more than offset lower analog set-top box sales.
Selling, general and administrative expenses were $33.3 million in
the first quarter of 1998, compared with $28.1 million in the previous
year. A major driver of the increase related to outside consulting and
legal fees incurred to support the development of the company's
operational and financial restructuring plan.
Results for the first quarter of 1998 include $6.3 million of
accrued royalty revenues from tuning system licenses. These revenues
were $6.7 million in the first quarter of 1997.
Interest expense was $8.2 million in the first quarter of 1998,
compared with $6.3 million in the previous year. The change resulted
from higher funding requirements for company operations. To assist in
funding these requirements, the company entered into various financing
transactions.
Liquidity and Capital Resources
During the three months ended March 28, 1998, $7.8 million of
cash was used by operating activities principally to fund $27.7 million of
net losses from operations, as adjusted for depreciation and a loss on asset
sales. This was partially offset by a $18.9 million change in current
accounts which was principally composed of a $38.4 million decrease in
inventories offset by a $14.2 million decrease in accounts payable and
accrued expenses.
During the three months ended March 28, 1998, $7.3 million of
cash was provided by investing activities. This was composed of $10.0
million of cash received from the sale of receivables under the three-year
trade receivables securitization, offset by $2.7 million of cash used for
capital additions. The capital additions of $2.7 million during the first
three months of 1998 were significantly lower than the $30.7 million spent
during the same period in 1997. The decrease was the result of spending
in 1997 related to projects primarily in the color picture tube area, which
included new automated production processes and the addition of new
production lines for computer display tubes. The company is planning a
significant reduction in capital investment projects during 1998.
During the three months ended March 28, 1998, $23.7 million of
cash was provided by financing activities. This was composed of $30.0
million of borrowings under one of the company's new short-term
unsecured credit agreements, offset by cash used to pay the current
portion ($5.8 million) of the company's 6-1/4 percent convertible
subordinated debentures due 2011 and cash used to redeem the company's
8.5 percent Senior Subordinated Convertible Debentures due January
2001 ($0.5 million).
As of March 28, 1998, the company had $377.5 million of
interest-bearing obligations which consisted of: (i) $133.7 million of
extended-term payables with LGE, (ii) $103.5 million of 6-1/4 percent
convertible subordinated debentures due 2011 (the current portion of
which is $5.8 million), (iii) $102.0 million currently payable under
various unsecured and uncommitted credit facilities and (iv) a $38.3
million term loan with Citicorp (the current portion of which is $9.0
million).
In March 1998, the company entered into a secured credit facility
with LGE which provides for borrowings of up to $45 million. The term
of the facility is one year from the date of the first borrowing, subject to
LGE's right to demand repayment at anytime after June 30, 1998.
Repayment is due in full at the end of the term. The facility is secured by
liens on certain of the company's assets and is subject to certain terms and
conditions.
In February 1998 the company obtained a new $30 million
unsecured and uncommitted credit facility through a line of credit with
Credit Agricole. In total, between November 1997 and February 1998,
the company obtained a total of $110 million in unsecured and
uncommitted credit facilities through four lines of credit with Bank of
America ($30 million), First Chicago NBD ($30 million) and Societe
Generale ($20 million) in addition to the Credit Agricole facility. The
credit lines are guaranteed by LGE for which LGE will receive a fee in an
amount up to 2 percent of the face amount of the loan, in the form of cash
or the company's equity and subject to the approval of the Finance
Committee of the company's Board of Directors and in the case of equity,
the approval of the company's shareholders. The company granted liens
in favor of LGE on the capital stock of the company's domestic
subsidiaries, on the company's intellectual property (other than tuning
patents, tuning patent royalties and related license agreements) and certain
other company assets to secure the guaranties of LGE for borrowings under
these credit lines.
The company disclosed in its 1997 Annual Report on Form 10-K (the "1997
10-K") that it is developing a broad operational and financial restructuring
plan. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Outlook" in the 1997 10-K.
Following the filing of the 1997 10-K, the New York Stock Exchange
("NYSE") contacted the company regarding the continuing listing status
of its common stock. There can be no assurance that the company's
common stock will continue to be listed and traded on the NYSE. The
company's management is discussing with NYSE representatives the
status of the listing.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
Certain statements in this Quarterly Report on Form 10-Q, such as those
regarding the company's strategies, plans, objectives and expectations are
forward-looking statements that involve known and unknown risks, uncertainties
and other factors which may cause the actual results of the company or of its
efforts to execute a business and financial restructuring to be materially
different from any future results expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general
economic and business conditions, both in the United States and other
countries in which the company sells its products and from which the company
obtains supplies; the effect of competition in the markets served by the
company; required approvals of the Republic of Korea for additional
financing, if any, that LGE may desire to extend to the company; the
availability and terms of financing from LGE or other financing sources to
fund the company's operating losses, restructuring charges and the other
costs and expenses of its new business plan; and the willingness of existing
creditors to continue to forbear from enforcing available rights and remedies
and to grant additional waivers of potential defaults and to agree to the
terms of any proposed financial restructuring. Given these uncertainties,
stockholders and debtholders are cautioned not to place undue reliance on
any forward-looking statement contained or referred to herein. The company
disclaims any obligation to update such factors or forward-looking statements
or to publicly announce the result of any revisions to any of the forward-
looking statements contained or referred to herein or to reflect future
events or developments. In particular, the company has not undertaken in
this report to update the statements set forth under "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Outlook" in
the 1997 10-K.
Readiness for the Year 2000
The company is currently evaluating its computer-based systems,
facilities and products to determine whether they are "Year 2000 Ready."
The company is employing a combination of internal resources and
outside consultants to coordinate and implement it's Year 2000 Readiness
initiatives. The company has established a company-wide Year 2000
Task Force, led by the company's technology group, with representation
from major business segments, to evaluate and address Year 2000 issues.
The Year 2000 Task Force's responsibilities include, without limitation,
(i) conducting an evaluation of the company's computer-based systems,
facilities and products (and those of the dealers, vendors and other third-
parties with which the company does business) to determine their Year
2000 Readiness, (ii) coordinating the replacement and/or upgrade of non-
compliant systems as necessary, (iii) promoting the company-wide
awareness of Year 2000 issues through education and training, and (iv)
developing, and overseeing the implementation of all of the company's
other Year 2000 Readiness initiatives. While the company is working to
achieve Year 2000 Readiness, it makes no assurance that it will
successfully achieve all of its goals.
In 1997, the company spent approximately $2 million in connection with its
Year 2000 transition and has budgeted an additional $2 million for 1998.
Most of the costs incurred in addressing Year 2000 issues are expected to be
expensed as incurred, in compliance with generally accepted accounting
principles. The company continues to evaluate the estimated costs
associated with its Year 2000 Readiness efforts. While the Year 2000
transition efforts will involve additional costs, at this time, the company
has not yet determined the full cost of the modifications necessary to
address all Year 2000 issues.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the three months ended March 28, 1998, no reportable
events or material developments occurred regarding the legal proceedings
of the company that would need to be reported.
Item 2. Changes in Securities
(b) The company's three year credit facility prohibits dividend
payments on the company's common stock and preferred stock, if issued,
and prohibits the redemption or repurchase of capital stock.
Item 6. Exhibits and Reports on Form 8-K
(4) Third Amendment and Waiver, effective as of March 31, 1998, to Credit
Agreement dated as of March 31, 1997, among Zenith Electronics
Corporation, Citibank N.A., Citicorp North America, Inc. and the other
lenders named therein
(4a) Note Agreement dated as of March 31, 1998, between Zenith
Electronics Corporation and LG Electronics Inc.
(10) Employment Agreement, dated January 12, 1998, between
Jeffrey P. Gannon and Zenith Electronics Corporation
(10a) Stock Option Agreement, Dated January 12, 1998, between
Jeffrey P. Gannon and Zenith Electronics Corporation
(10b) Restricted Stock Award Agreement, Dated January 12, 1998,
between Jeffrey P. Gannon and Zenith Electronics Corporation
(27) Financial Data Schedule for the three months ended March 28, 1998
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZENITH ELECTRONICS CORPORATION
(Registrant)
Date: May 12, 1998
By: /s/ Jeffrey P. Gannon
-----------------------
Jeffrey P. Gannon
President and
Chief Executive Officer
THIRD AMENDMENT AND WAIVER TO CREDIT AGREEMENT
This Third Amendment and Waiver to Credit Agreement(this "Amendment")
effective as of the 31st day of March, 1998, among ZENITH ELECTRONICS
CORPORATION, a Delaware corporation (the "Borrower"), the financial
institutions listed on the signature pages hereof as Lenders (the "Lenders"),
CITIBANK, N.A., as issuing bank (the "Issuing Bank") and CITICORP
NORTH AMERICA, INC., as agent (the "Agent"),
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Issuing Bank and the Agent are
parties to that certain Credit Agreement dated as of March 31, 1997 (as
amended, restated supplemented or otherwise modified from time to time, the
"Credit Agreement"); and
WHEREAS, pursuant to Sections 7.8,7.9 and 7.13 of the Credit Agreement, the
Borrower is required to meet certain financial tests as of the fiscal quarter
ending March 31, 1998, and the Borrower has informed the Agent, the Issuing
Bank and the Lenders that it will fail to satisfy the requirements of Sections
7.8, 7.9 and 7.13 for such fiscal quarter ending March 31, 1998(the "March
Covenant Defaults"); and
WHEREAS, pursuant to Section 6.5(c) of the Credit Agreement, the Borrower
is required to deliver to the Agent and the Lenders the annual budget for the
Borrower's and the Borrower's Subsidiaries prior to December 31st of each
year, and the Borrower failed to deliver such 1998 annual budget to the Agent
and the Lenders by December 31, 1997 (the "Budget Default"); and
WHEREAS, pursuant to Section 7.17 of the Credit Agreement, the Borrower is
required to meet all minimum funding requirements of ERISA and the Code,
and the Borrower inadvertently failed to make certain required payments to the
Zenith Hourly Profit Sharing Retirement Plan for certain employees in the State
of Missouri in October 1996 (the "ERISA Default"); and
WHEREAS, the Borrower has requested that the Agent, the Issuing Bank, and
the Lenders waive the March Covenant Defaults, the Budget Default and the
ERISA Default; and
WHEREAS, the Borrower has requested that certain terms of the Credit
Agreement be amended, and the Agent, the Issuing Bank and the Lenders have
agreed to the requested amendments on the terms and conditions set forth
herein; and
NOW THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration paid by each party to the other, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1 Amendment to Article 1. Article 1 of the Credit Agreement,
Definitions, is hereby amended by:
(a) deleting the definition of "Additional Unsecured Debt" set forth
therein in the entirety and substituting the following in its place:
Additional Unsecured Debt' shall mean the unsecured Funded Debt consisting
of revolving credit lines made available to be borrowed by the Borrower after
the Agreement Date, which are provided to the Borrower by one or more
lenders, in an aggregate principal amount not exceeding $160 million, and on
terms and conditions substantially similar to those set forth on Schedule A
attached hereto, and evidenced by documentation in form and substance,
acceptable to the Agent in its sole discretion."
(b) deleting paragraph (j) of the definition of "Permitted Liens" and
replacing such paragraph (j) with the following:
(j) Liens in favor of LGE on the Capital Stock of the Borrower's domestic
Subsidiaries and on the Intellectual Property (other than the Tuning Patents,
Tuning Patent Royalties and License Agreements), real estate and Equipment
located in the United States of the Borrower and its Material Subsidiaries
securing the LGE Debt and any guaranty of LGE of the Additional Unsecured Debt;
provided such Liens are at all times fully subordinated to the prior Liens
of the Agent (for its benefit and the benefit of the Lenders) on such assets
pursuant to a subordination agreement (the "Subordination Agreement") in
form and substance satisfactory to the Agent in its sole discretion."
(c) adding the following definition of "LGE Debt" thereto:
"'LGE Debt' shall mean the Funded Debt consisting of a credit line made
available to be advanced to the Borrower by LGE in an aggregate principal
amount not exceeding $45 million, and on terms and conditions, and evidenced
by documentation in form and substance, acceptable to the Agent in its sole
discretion."
2 Amendment to Section 2.6. Section 2.6(c) of the Credit Agreement,
Other Mandatory Repayments, is hereby amended by deleting subparagraph (i)
in the entirety and substituting the following in its place:
"(i) In the event that after the Agreement Date, the Borrower shall issue
any Capital Stock (other than in connection with the exercise of employee or
LGE stock options), shall sell any of its assets (other than sales of Inventory
in the ordinary course of its business or pursuant to the Receivables
Securitization) or shall incur any Funded Debt (other than the Obligations, the
LGE Debt and the Additional Unsecured Debt), one hundred percent (100%) of
the Net Cash Proceeds received by the Borrower from such issuance, sale or
incurrence shall be paid on the date of receipt of the proceeds thereof by the
Borrower to the Lenders as a mandatory payment of the Revolving Loans and
the Term Loan, on a pro-rata basis. The payment of the Term Loan due
hereunder shall be applied to reduce the Term Loan quarterly principal
installments set forth in Section 2.6(b) in the inverse order of maturity. The
Revolving Loan Commitment shall be permanently reduced by the amount of
the payment of the Revolving Loans due hereunder, whether or not such
payment is made. Nothing in this Section shall authorize the Borrower to issue
any Capital Stock, sell any assets or incur any Funded Debt except as expressly
permitted by this Agreement."
3 Amendment to Section 6.6. Section 6.6 of the Credit Agreement,
Notice of Litigation and Other Matters, is hereby amended by deleting
paragraph (c) thereof in its entirety and substituting the following in its
place:
"(c) Within (i) one (1) Business Day of the demand by any lender of any
Additional Unsecured Debt or by LGE in connection with the LGE Debt for the
repayment of all or any portion of the principal thereof, the Borrower shall
notify the Agent and the Lenders of the occurrence thereof, and (ii) three (3)
Business Days' of the occurrence of any default (whether or not the Borrower
has received notice thereof from any other Person) on Indebtedness of the
Borrower or any Subsidiary of the Borrower which singly, or in the aggregate
exceed $1,000,000, the Borrower shall notify the Agent and the Lenders of the
occurrence thereof;"
4 Amendment to Section 7.1. Section 7.1 of the Credit Agreement,
Indebtedness, is hereby amended by deleting paragraph (g) thereof in the
entirety and substituting the following in its place:
"(g) (i) the LGE Debt and the Additional Unsecured Debt, and (ii) other
unsecured Indebtedness incurred by the Borrower not to exceed $2,000,000 in
the aggregate outstanding from time to time."
5 Amendment to Section 7.16. Section 7.16 of the Credit Agreement,
Amendment and Waiver, is hereby deleted in its entirety and the following
substituted in its place:
"Section 7.16 Amendment and Waiver tc \l2 ""Section 7.16
Amendment and Waiver . The Borrower shall not, without the prior
written consent of the Majority Lenders, enter into any amendment of, or agree
to or accept any waiver which would adversely affect the rights of the Agent,
the Lenders and the Issuing Banks under this Agreement or any other Loan
Document, of (a) its certificate of incorporation and by-laws, (b) the
Subordinated Debentures, (c) the Securitization Documents, or (d) any
document evidencing Additional Unsecured Debt or LGE Debt."
6. Amendment to Section 8.1. Section 8.1 of
the Credit Agreement, Events of Default, is hereby amended by deleting
paragraphs (r) and (s) thereof in their entirety and replacing such paragraphs,
respectively, with the following:
"(r)(i) Any lender of any Additional Unsecured Debt shall accelerate such
Additional Unsecured Debt or otherwise demand the repayment of all or part of
the outstanding principal balance thereof (whether from the Borrower, LGE or
any other obligor thereon) and such Additional Unsecured Debt is not
refinanced or otherwise replaced with Funded Debt having substantially similar
terms, and evidenced by documentation in form and substance acceptable to the
Agent, within three (3) Business Days, or (ii) LGE shall accelerate or
otherwise demand repayment of all or part of the outstanding principal
balance of the LGE Debt, or (iii) LGE shall demand reimbursement of all or
part of any payment made by LGE pursuant to its guaranty of the Additional
Unsecured Debt;
(s) (i) The Borrower shall not have the ability to borrow Additional Unsecured
Debt in an aggregate principal amount of at least $160,000,000 by June 30,
1998, or (ii) the Borrower shall not have the ability to borrow the LGE
Debt in an aggregate principal amount of up to $45,000,000 by April 30, 1998,
or (iii) the Borrower shall not have used a portion of the proceeds of the
Additional Unsecured Debt(x) to redeem and satisfy in full the Series 2000
Debentures by December 31, 1997, and (y) to redeem or repurchase and satisfy
in full the Series 2001 Debentures by January 31, 1998;"
7. Amendment to Exhibits. Exhibit C to the
Credit Agreement, Borrowing Base Certificate, is hereby replaced in the
entirety with Exhibit C attached hereto.
8 Waiver.
The Agent, the Issuing Bank and the Lenders hereby:
(a) waive the March Covenant Defaults and their rights and remedies under the
Credit Agreement arising as a result of the March Covenant Defaults; provided,
however, as of the effective date of this Waiver and at all times thereafter,
the obligation of the Lenders to make any Advance under the Revolving Loan
Commitment (excluding Advances the proceeds of which are to reimburse the
Swing Bank for Swing Loans or an Issuing Bank for amounts drawn under a
Letter of Credit) and the obligation of any Issuing Bank to issue any Letter of
Credit under the Letter of Credit Commitment shall each be subject to the
delivery to the Agent of a Borrowing Base Certificate which demonstrates to
the satisfaction of the Agent that, after giving effect to the making of such
Advance or the issuance of such Letter of Credit, the Borrower will have
Availability of not less than $10,000,000;
(b) waive the Budget Default and their rights and remedies under the Credit
Agreement arising as a result of the Budget Default, provided, that the
Borrower comply with the provisions of Section 6.5(c) of the Credit Agreement
for the 1998 annual budget by March 31, 1998;
(c) waive the ERISA Default and their rights and remedies under the Credit
Agreement arising as a result of the ERISA Default, provided, that the amount
required to be paid by the Borrower as a result of the ERISA Default shall not
exceed the aggregate amount of $60,000, and that such payment be made by the
Borrower to the Zenith Hourly Profit Sharing Retirement Plan by March 31,
1998; and
(d) waive for all periods prior to June 30, 1998, any Event of Default which
arises solely as a result of the representation and warranty of the Borrower
pursuant to Section 4.1(t) of the Credit Agreement being incorrect or
misleading when made or deemed to have been made by the Borrower
thereunder;
provided, however, the above-referenced waivers shall not waive any other
requirement or hinder, restrict or otherwise modify the rights and remedies of
the Agent, the Issuing Bank and the Lenders following the occurrence of any
other Default or Event of Default under the Credit Agreement.
9 Amendment to Securitization Documents. The Agent, the Issuing
Bank and the Lenders hereby consent, pursuant to Section 7.16 of the Credit
Agreement, to the execution and delivery by the Borrower of an amendment to
the Securitization Documents which, among other things, limits the Series
1997-1 Invested Amount (as defined in the Securitization Documents) to
$50,000,000, and is otherwise acceptable to the Agent.
10 Acceptance of Accountants' Opinion. The Agent, the Issuing Bank
and the Lenders hereby agree that the opinion of the Borrower's accountants
accompanying the Borrower's annual financial statements which shall be
delivered pursuant to Section 6.2 of the Credit Agreement may be subject to the
qualification set forth on Exhibit A attached hereto.
11. No Other Amendment or Waiver.
Except for the amendments and waivers (including the Availability
requirement set forth in Section 8(a) above) expressly set forth above, the
text of the Credit Agreement and all other Loan Documents shall remain
unchanged and in full force and effect. The Borrower acknowledges and
expressly agrees that the Lenders reserve the right to, and do in fact, require
strict compliance with all terms and provisions of the Credit Agreement and the
other Loan Documents.
12. Representations and Warranties. The
Borrower hereby represents and warrants in favor of the Agent, the Issuing
Bank, and each Lender, as follows:
(a) the Borrower has the corporate power and authority (i) to enter into
this Amendment, and (ii) to do all acts and things as are required or
contemplated hereunder to be done, observed and performed by it;
(b) this Amendment has been duly authorized, validly executed and delivered
by one or more authorized signatories of the Borrower, and constitutes
the legal, valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms;
(c) the execution and delivery of this Amendment and performance by the
Borrower under the Credit Agreement, as amended hereby, do not and will not
require the consent or approval of any regulatory authority or governmental
authority or agency having jurisdiction over the Borrower which has not
already been obtained, nor contravene or conflict with the charter documents of
the Borrower, or the provisions of any statute, judgment, order, indenture,
instrument, agreement or undertaking, to which the Borrower is a party or by
which any of its properties are or may become bound; and
(d) as of the date hereof, and after giving effect to this Amendment (i) no
Default or Event of Default exists under the Credit Agreement or is caused by
this Amendment, and (ii) each representation and warranty set forth in Article
4 of the Credit Agreement is true and correct, except (x) to the extent
previously fulfilled in accordance with the terms of the Credit Agreement, as
amended hereby, (y) to the extent specifically relating to the Agreement Date,
and (z) for the representation and warranty set forth in Section 4.1(t) of the
Credit Agreement.
13. Amendment Fees. In consideration for the
prompt review, approval and execution of this Amendment by the Lenders, and
other good and valuable consideration, the Borrower hereby agrees to pay: (a)
to each Lender approving this Amendment and whose executed signature page
to this Amendment is received by the Agent by 5:00 p.m.(eastern standard
time) on Friday, March 27, 1998, an amendment fee in the amount of one-fifth
of one percent (0.20%) of such Lender's pro-rata share of the Commitments,
and (b) to each Lender approving this Amendment and whose executed
signature page to this Amendment is received by the Agent by 5:00
p.m.(eastern standard time) on Tuesday, March 31, 1998, an amendment fee in
the amount of one-tenth of one percent (0.10%) of such Lender's pro-rata share
of the Commitments. Such amendment fees shall be fully earned and due and
payable upon the effectiveness of this Amendment and shall be non-refundable
when paid.
14. Loan Document. This Amendment shall be
deemed to be a Loan Document for all purposes.
15. Expenses. The Borrower agrees to pay all
reasonable expenses of the Agent incurred in connection with this Amendment,
including, without limitation, all fees and expenses of counsel to the Agent.
16. Counterparts. This Amendment may be
executed in multiple counterparts, each of which shall be deemed to be an
original and all of which, taken together, shall constitute one and the same
agreement. Delivery of an executed counterpart of this Amendment by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart hereof.
17. Governing Law. This Amendment shall be
deemed to be made pursuant to the laws of the State of New York with respect
to agreements made and to be performed wholly in the State of New York, and
shall be construed, interpreted, performed and enforced in accordance
therewith.
18. Definitions. All capitalized terms not
otherwise defined herein shall have the meanings set forth in the Credit
Agreement.
19. Effectiveness. This Amendment shall be effective
as of the date first set forth above upon the Agent's receipt of (a) a
counterpart hereof duly executed by the Borrower and the Majority Lenders,
and (b) such other documents executed by the Borrower as the Agent may
reasonably require.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or caused
it to be executed by their duly authorized officers, effective as of the day
and year first written above.
BORROWER: ZENITH ELECTRONICS CORPORATION
By:
Name:
Its:
AGENT: CITICORP NORTH AMERICA, INC.
By:
Name:
Its:
ISSUING BANK: CITIBANK, N.A.
By:
Name:
Its:
LENDERS: CITICORP USA, INC.
By:
Name:
Its:
CONGRESS FINANCIAL CORPORATION
By:
Name:
Its:
BANK BOSTON, N.A., f/k/a The First National Bank of Boston
By:
Name:
Its:
HELLER FINANCIAL, INC.
By:
Name:
Its:
BNY FINANCIAL CORPORATION
By:
Name:
Its:
SANWA BUSINESS CREDIT CORPORATION
By:
Name:
Its:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:
Name:
Its:
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:
Name:
Its:
EXECUTION COPY
NOTE AGREEMENT
US$45,000,000 March 31, 1998
FOR VALUE RECEIVED, ZENITH ELECTRONICS
CORPORATION (the "Borrower") promises to pay to the order of LG
ELECTRONICS INC. (the "Lender") having its principal offices at 20 Yoido-
Dong, Youngdungpo-Ku, Seoul, Korea, the aggregate unpaid principal balance
of each advance (an "Advance" and collectively the "Advances") made by the
Lender hereunder on or before June 30, 1998. The aggregate principal amount
of the Advances shall not exceed FORTY FIVE MILLION UNITED STATES
DOLLARS (US$45,000,000) and, unless accelerated earlier pursuant to the
provisions of this Note Agreement, shall be payable in full on the first
anniversary of the initial Advance; provided that the Lender may, upon ten (10)
business days prior notice, demand the repayment of the Note Agreement at any
time after June 30, 1998.
All terms which are capitalized and used herein (which are not
otherwise specifically defined herein) shall have the same meaning herein as
ascribed in that certain Reimbursement Security Agreement dated December
22, 1997, between the Borrower and the Lender, as amended (the
"Reimbursement Security Agreement").
The Lender has agreed to make Advances to the Borrower, subject to
the terms and conditions of this Note Agreement and the applicable laws and
regulations of Korea, including the Foreign Exchange Management
Regulations of Korea. The Lender hereby warrants that to the best of the
Lender's knowledge, the terms of this Note Agreement are in compliance with
the Foreign Exchange Management Regulations of Korea. It is thereby agreed
that:
(a) the Lender will not make the initial Advance unless at the time of
such initial Advance the Lender shall have received, in form and substance
satisfactory to it:
(i) This Note Agreement;
(ii) An executed amendment to the Mortgage (as hereinafter
defined), in a recordable form (the "Mortgage Amendment");
(iii) Executed amendments to the Reimbursement Security
Agreement and to the other Security Documents (together
with the Mortgage Amendment, hereinafter collectively
called, the "Security Document Amendments"), together with
any UCC financing statements, as required by the Lender;
(iv) An executed Patent Security Agreement (as hereinafter
defined), together with evidence satisfactory to the Lender
that the liens granted pursuant to the Patent Security
Agreement will be second priority perfected liens on the
collateral described therein;
(v) A certificate as to the resolution of the Board of Directors of
the Borrower, authorizing the execution, delivery and
performance of this Note Agreement, the Patent Security
Agreement, the Security Document Amendments and all
other agreements and documents to be executed pursuant
hereto and authorizing the person(s) who signed, or will sign
this Note Agreement, the Patent Security Agreement, the
Security Document Amendments and all other documents to
be executed pursuant hereto on the Borrower's behalf to do so,
and any power of attorney executed in connection therewith;
(vi) An opinion of counsel to the Borrower; and
(vii) Such other documents as the Lender may reasonably request.
(b) The Lender will not make any Advance unless at the time of
such Advance;
(i) The Borrower shall have provided the Lender with a request
for an Advance, substantially in the form of Exhibit A hereto,
at least five (5) business days prior to such Advance;
(ii) The representations and warranties contained herein shall be
true and correct, and no Event of Default (as hereinafter
defined) or event or condition that, with giving of notice or
passage of time, or both, could become an Event of Default (a
"Default") shall have occurred or be continuing;
(iii) The Borrower shall have certified to the Lender that in the
best business judgment of the Borrower, the amount of each
Advance (A) is necessary for the working capital needs of the
Borrower for a period of not more than 21 days from the date
of an Advance (the "Advance Date"), and (B) will permit the
Borrower to maintain an available balance of not less than
US$15,000,000, nor more than US$25,000,000 ("Availability
Range") from all sources, including but not limited to
invested cash, amounts generated from operations or amounts
available to the Borrower under other credit facilities for the
14 day period immediately following the Advance Date; and
(iv) The Borrower shall have certified that the proceeds of such
Advance shall be used for working capital purposes and that
at the time of, and after giving effect to, such Advance no
Default or Event of Default exists and is continuing.
Each Advance shall be in a principal amount of no less than
$5,000,000 and in an integral multiple of $1,000,000 in excess thereof, unless
the Lender and the Borrower shall agree otherwise. The Lender and the
Borrower shall review and may revise the Availability Range on or prior to
April 30, 1998, based on the practicality of the range and advance procedures.
The unpaid principal of each Advance shall bear interest at the rate of
interest equal to 6.5% per annum above the Interbank Rate (as hereinafter
defined).
For purposes of this Note Agreement:
"Interbank Rate" for an Advance shall mean
(a) on or before June 30, 1998, the interest rate which is determined by
the Lender in its sole discretion to be the arithmetic mean of the rates per
annum (rounded upwards, if necessary, to the nearest 1/16%) quoted on the
Screen 3750 (or such other screen as may display London interbank offered rates
of major banks for U.S. dollar deposits) on the Telerate System (or if such
quote is unavailable on the relevant date, the rate quoted by a reference
bank in London selected by the Lender) for the three month period at
approximately 11:00 a.m. (London time) on the date which is two (2) business
days prior to the date of such Advance; and
(b) on or after July 1, 1998, the interest rate which is determined on
the first business day of each calendar quarter commencing on July 1, 1998 by
the Lender in its sole discretion to be the arithmetic mean of the rates per
annum (rounded upwards, if necessary, to the nearest 1/16%) quoted on the
Screen 3750 at approximately 11:00 a.m. (London time) on such business day
(or such other screen as may display London interbank offered rates of major
banks for U.S. dollar deposits) on the Telerate System (or if such quote is
unavailable on the relevant date, the rate quoted by a reference bank in London
selected by the Lender) for a three month period, such rate calculated as of
the first business day of any calendar quarter to be in effect for purposes of
interest accrual from the first calendar day of such quarter through the last
calendar day of such quarter.
"Interest Payment Date" shall mean the last day of each calendar
quarter commencing on June 30, 1998.
In the event the Borrower fails to make payment of all or any portion
of the Advance when due or any other payment due hereunder, the unpaid
amount shall bear interest from such date until full payment thereof at the
rate that is 8.5% per annum above the Interbank Rate.
Accrued interest shall be paid quarterly in arrears on each Interest
Payment Date, and shall be calculated on the basis of the actual number of days
elapsed and a year of 360 days. If any such payment of interest falls due on a
day when the banks are not open in Chicago and Seoul, Korea, payment shall
be made on the next business day in Chicago and Seoul, Korea. After maturity,
interest shall be payable upon demand.
The Lender's records relating to Advances shall be rebuttably
presumptive evidence of the outstanding principal and interest on the
Advances, and, in the event of inconsistency, shall prevail over any records of
the Borrower and any written confirmations of Advances given by the
Borrower.
Payments of both principal and interest hereon are to be made in
immediately available funds in lawful money of the United States of America
not later than 1:00 p.m. Chicago time on the day in question to the account of
the Lender (account no. YCD001) with the Commercial Bank of Korea, Yoido
Chungang Branch, at Seoul, Korea or at such other place and/or to such other
account as the Lender may notify the Borrower.
This Note Agreement may be prepaid in whole or in part without
premium or penalty. All prepayments shall first be applied to interest on the
principal being prepaid to the date of prepayment. Any prepayments may not
be reborrowed.
Payment of this Note Agreement is secured by subordinated security
interests granted pursuant to (i) the Reimbursement Security Agreement, as
amended, whereby the Borrower granted the Lender a security interest in
certain machinery, equipment and other collateral, (ii) a certain
Reimbursement Stock Pledge Agreement dated November 3, 1997, between the
Borrower and the Lender, as amended, whereby the Borrower pledged certain
stock to the Lender, (iii) a certain Reimbursement Trademark Collateral
Security Agreement dated November 3, 1997, as amended, between the Borrower
and the Lender, whereby the Borrower granted the Lender a security interest
in certain trademarks, (iv) a certain Reimbursement Subsidiary Security
Agreement dated November 3, 1997, as amended, among certain Subsidiaries
of the Borrower and the Lender, as amended, whereby the Subsidiaries granted
security interests in certain of their trademarks, patents, machinery,
equipment and other collateral, (v) a certain Reimbursement Mortgage and Deed
of Trust dated January 27, 1998, as amended, (the "Mortgage") whereby the
Borrower and its Subsidiary granted security interests in certain real estates
and (vi) a certain Patent Security Agreement of even date herewith, between the
Borrower and the Lender (the "Patent Security Agreement") whereby the Borrower
is granting the Lender a security interest in HDTV patents.
From the date of this Note Agreement and thereafter until this Note
Agreement and all other liabilities of the Borrower hereunder are paid in full,
the Borrower agrees that, unless the Lender shall otherwise expressly consent,
the Borrower shall comply with the covenants set forth in that certain Credit
Agreement, dated as of March 31, 1997, with Citicorp North America, Inc., as
Agent, and the other lenders parties thereto (the "Credit Agreement"), as in
effect on the date hereof without giving effect hereafter to changes in said
Credit Agreement not consented to in writing by the Lender for purposes of this
Note Agreement and the Borrower agrees with the Lender that the covenants
set forth in the Credit Agreement and, to the extent that they apply to such
covenants, the definitions and other definitional provisions set forth in the
Credit Agreement, together with all other sections of the Credit Agreement to
which reference is made, are incorporated in this Note Agreement by reference
as though specifically set forth herein, and they shall remain in full force
and effect with respect to this Note Agreement and the obligation of the
Borrower to comply with the same shall continue notwithstanding the
termination of the Credit Agreement. Without limiting the generality of the
foregoing, the Borrower shall deliver to the Lender all the notices, reports,
certificates and other documents required to be delivered to the Agent under
the Credit Agreement on the same day when the Agent shall receive them.
The Borrower hereby represents and warrants to the Lender as of each
Advance Date that:
(a) The Borrower and all of its Subsidiaries are corporations
duly organized, validly existing and in good standing under
the laws of the states of their respective incorporation, and
they are duly qualified and in good standing as foreign
corporations authorized to do business in each state where,
because of the nature of their respective activities or
properties, such qualification is required.
(b) The Borrower is duly authorized to execute and deliver this
Note Agreement, the Patent Security Agreement and the
Security Document Amendments to which it is a party and is
and will continue to be duly authorized to perform its
obligations under this Note Agreement, the Patent Security
Agreement and the Security Document Amendments to which
it is a party in accordance with such documents' respective
terms and to make borrowings pursuant to the terms of this
Note Agreement.
(c) The execution and delivery of this Note Agreement, the
Patent Security Agreement and the Security Document
Amendments to which the Borrower is a party and the
performance by the Borrower of its obligations under this
Note Agreement, the Patent Security Agreement and the
Security Document Amendments to which it is a party do not
and will not conflict with any provision of law or of the
Borrower's charter or by-laws or of any agreement binding
upon the Borrower.
(d) This Note Agreement, the Patent Security Agreement and the
Security Document Amendments to which the Borrower is a
party, when duly executed and delivered by the Borrower will
be legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with the
terms thereof, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors' rights or
by general principles of equity.
If one or more of the following (each an "Event of Default") shall
occur and be continuing:
(i) If the Borrower fails to pay any payment of this Note
Agreement when due and payable;
(ii) If a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver or liquidator or
trustee or assignee in bankruptcy or insolvency of the
Borrower or any Subsidiary or a substantial part of the
property of the Borrower or any Subsidiary, or for the
winding up or liquidation of their affairs, shall have been
entered, and such decree or order shall have remained in
force and undischarged and unstayed for a period of 60 days;
or if any substantial part of the property of the Borrower or
any Subsidiary shall be sequestered or attached and shall not
be returned to the possession of such party or released from
such attachment within 30 days thereafter;
(iii) If a decree or order by a court having jurisdiction in the
premises shall have been entered adjudging the Borrower or
any Subsidiary a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, readjustment,
arrangement, composition or similar relief of the Borrower or
any Subsidiary under the federal bankruptcy laws, or any
similar applicable federal or state law; or if the Borrower or
any Subsidiary is adjudicated a voluntary bankrupt, or the
Borrower or any Subsidiary shall consent to the filing of a
bankruptcy proceeding, or the Borrower or any Subsidiary
shall file a petition or answer or consent seeking
reorganization, readjustment, arrangement, composition or
similar relief under federal bankruptcy laws, or any other
similar applicable federal or state law, or the Borrower or any
Subsidiary shall consent to the filing of any such petition, or
the Borrower or any Subsidiary shall consent to the
appointment of a receiver or liquidator or trustee or assignee
in bankruptcy or insolvency of the Borrower or any
Subsidiary or of a substantial part of either of their property,
or shall make an assignment for the benefit of creditors, or
shall admit in writing either inability to pay its debts
generally as they become due, except as described in its
filings with the Securities and Exchange Commission, or if
corporate action, except as approved by the Board of
Directors of the Borrower, shall be taken by the Borrower or
any Subsidiary in furtherance of any of the aforesaid
purposes;
(iv) If the Borrower shall default in the performance or
observance of any of the covenants, conditions or agreements
contained in this Note Agreement, the Credit Agreement, the
Reimbursement Agreement, the Mortgage or any
Reimbursement Security Document and such default or
defaults shall continue unremedied for a period of 30 days
after the Borrower knew or should have known of the
occurrence of such default or defaults;
then, and in each such case with the exception of an Event of Default described
in clauses (ii) and (iii) above, the Lender, at its election and without notice
to the Borrower and at any time and from time to time, may (i) terminate its
commitment to make Advances hereunder or (ii) declare this Note Agreement
immediately due and payable, and thereupon the same shall become
immediately due and payable. Upon the occurrence of an Event of Default
described in clauses (ii) and (iii) above, the principal, interest and other
obligations hereunder shall thereupon and concurrently therewith become due
and payable, and the commitment of the Lender to make Advances hereunder
shall forthwith terminate, all without any action by the Lender and without
presentment, demand, protest, or other notice of any kind, all of which are
expressly waived, anything herein to the contrary notwithstanding.
Notwithstanding the foregoing and irrespective of the occurrence or
continuance of any of these events, the Lender in its sole discretion may, upon
ten (10) business days prior notice, demand immediate payment in full of this
Note Agreement at any time after June 30, 1998. For purposes of applying
clause (iv) above, any waiver, amendment or other modification of the Credit
Agreement shall not be effective unless and until approved by the Lender
hereunder.
The Borrower agrees to pay or reimburse the Lender and any other
holder hereof for all costs and expenses of preparing, seeking advice in regard
to, enforcing, and preserving its rights under, this Note Agreement or any
document or instrument executed in connection herewith (whether in or out of
court, in original or appellate proceedings or in bankruptcy). The Borrower,
for itself and on behalf of any guarantor or indorser, irrevocably waives
presentment, protest, demand and notice of any kind in connection herewith.
The Borrower covenants and agrees that any and all payments to be made by the
Borrower hereunder shall be made free and clear of and without deduction for
any present or future taxes, levies, imposts, duties, fees, deductions, charges
or withholdings of any nature now or hereafter imposed, levied, collected,
withheld or assessed by any taxation authority in the Republic of Korea,
the United States of America or any other country (or any international
taxing authority), or political subdivision or taxing authority or
agency of any country, (all such taxes, deductions, withholding or other
amounts hereinafter referred to as "Taxes"). If the Borrower shall be required
by law to make any such deduction or withholding from any payment
hereunder, (i) the sum payable shall be increased as may be necessary so that
after making all required deductions or withholdings (including deductions or
withholdings applicable to additional Taxes payable hereunder) the Lender
receives an amount equal to the sum it would have received had no such
deductions or withholdings been made, (ii) the Borrower shall make such
deductions or withholdings and (iii) the Borrower shall pay the full amount
deducted or withheld to the relevant taxation authority or other authority in
accordance with applicable law.
In the event that the Lender becomes entitled to receive payments
under this Note Agreement without deduction or withholding of any United
States federal income taxes, the Lender shall notify the Borrower of such event
and the Lender shall deliver to the Borrower two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224, certifying in either
case that the Lender is entitled to receive payments under this Note Agreement
without deduction or withholding of any United States federal income taxes.
In addition, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder (hereinafter referred to as
"Other Taxes").
The Borrower will indemnify and hold harmless the Lender for the full
amount of the Taxes or Other Taxes (including without limitation any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable hereunder paid by
the Lender) or any liability (including penalties, interest and expenses) or
claim arising therefrom or with respect thereto. This indemnification shall
be made within thirty (30) days from the date the Lender makes written demand
therefore.
Within thirty (30) days after the date of any payment of Taxes the Borrower
will furnish to the Lender the original or a certified copy of a receipt
evidencing payment thereof.
This Note Agreement is made under and governed by the internal laws of the
State of Illinois and not, by application of choice of law principles, the
internal laws of another state or country and shall be deemed to have been
executed in the State of Illinois.
THE BORROWER AND THE LENDER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION
WITH, THIS NOTE AGREEMENT OR ANY OTHER RELATED
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE BORROWER OR THE LENDER. THE BORROWER
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION AND EACH
OTHER PROVISION OF THIS NOTE AGREEMENT.
This Note Agreement may be executed in multiple counterparts, each
of which shall be deemed to be an original and all of which, taken together,
shall constitute one and the same agreement. Delivery of an executed
counterpart of this Note Agreement by facsimile transmission shall be as
effective as delivery of a manually executed counterpart hereof.
[signature pages to follow]
IN WITNESS WHEREOF, the parties hereto have executed this Note
Agreement or caused it to be executed by their duly authorized officers,
effective as of the day and year first written above.
ZENITH ELECTRONICS CORPORATION
as Borrower
By:
Its:
LG ELECTRONICS INC.
as Lender
By:
Its:
STATE OF ILLINOIS )
) SS.
COUNTY OF )
I, __________________________________________, a
Notary Public in and for said County, in the State aforesaid, DO HEREBY
CERTIFY that _________________ , personally known to me to be the
_______________ of ZENITH ELECTRONICS CORPORATION, whose name
is subscribed to the foregoing instrument, appeared before me this day in
person and acknowledged that he signed and delivered said instrument as and
of said corporation, and caused the corporate seal of said corporation to be
affixed thereto, as his free and voluntary act, and as the free and voluntary
act and deed of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this __ day of _____________, 1998.
___________________________________
Notary Public
My Commission Expires:_____________
STATE OF ILLINOIS )
) SS.
COUNTY OF )
I, __________________________________________, a
Notary Public in and for said County, in the State aforesaid, DO HEREBY
CERTIFY that _________________ , personally known to me to be the
______________ of LG ELECTRONICS INC., whose name is subscribed to
the foregoing instrument, appeared before me this day in person and
acknowledged that he signed and delivered said instrument as and of said
corporation, and caused the corporate seal of said corporation to be affixed
thereto, as his free and voluntary act, and as the free and voluntary act and
deed of said corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this ___ day of _____________, 1998.
___________________________________
Notary Public
My Commission
Expires:_____________
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of January 12, 1998,
by and between Jeffrey P. Gannon (the "Executive") and Zenith Electronics
Corporation (the "Company");
WITNESSETH THAT:
WHEREAS, the parties desire to enter into this Agreement pertaining
to the employment of the Executive by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth below, it is hereby covenanted and agreed by the Executive
and the Company as follows:
1. Performance of Services. The Executive's employment with the
Company shall be subject to the following:
(a) Subject to the terms of this Agreement, the Company hereby agrees to
employ the Executive as its President and Chief Executive Officer during the
Agreement Term (as defined below), and the Executive hereby agrees to remain
in the employ of the Company during the Agreement Term.
(b) During the Agreement Term, while the Executive is employed by the Company,
the Executive shall devote his full time, energies and talents to serving as
its President and Chief Executive Officer. The Executive shall be elected to
the Board of Directors of the Company (the "Board") at the Company's annual
meeting to be held not later than May 30, 1998. Thereafter, he shall serve as
a member of the Board during the Agreement Term, while he is employed by the
Company. On and after the Effective Date (as described below), and prior to
such election, the Executive shall be invited to attend all meetings of the
Board.
(c) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the directions of the Board. The Executive's duties
may include providing services for both the Company and the Subsidiaries (as
defined below), as determined by the Board; provided, that the Executive shall
not, without his consent, be assigned tasks that would be inconsistent with
those of President and Chief Executive Officer. The Executive will have such
authority, power, responsibilities and duties as are inherent to his positions
and necessary to carry out his responsibilities and the duties required of
him hereunder.
(d) Notwithstanding the foregoing provisions of this paragraph 1, during the
Agreement Term, the Executive may devote reasonable time to activities other
than those required under this Agreement, including the supervision of his
personal investments, and activities involving professional, charitable,
educational, religious and similar types of organizations, speaking
engagements, membership on the boards of directors of other organizations,
and similar type activities, to the extent that such other activities do not,
in the judgement of the Board, materially inhibit or prohibit the performance
of the Executive's duties under this Agreement, or conflict in any material
way with the business of the Company or any Subsidiary; provided, however,
that the Executive shall not serve on the board of any business, or hold any
other position with any business without the consent of the Board.
(e) Subject to the provisions of this Agreement, the Executive shall not be
required to perform services under this Agreement during any period that he
is Disabled. The Executive shall be considered "Disabled" during any period
in which he has a physical or mental disability which renders him incapable,
after reasonable accommodation, of performing his duties under this Agreement.
In the event of a dispute as to whether the Executive is Disabled, the Company
may refer the same to a mutually acceptable licensed practicing physician, and
the Executive agrees to submit to such tests and examinations as such physician
shall deem appropriate. During the period in which the Executive is Disabled,
the Company may appoint a temporary replacement to assume the Executive's
responsibilities.
(f) The "Agreement Term" shall be the three-year period beginning on January
19, 1998 (the "Effective Date") and ending on the third anniversary thereof.
(g) For purposes of this Agreement, the term "Subsidiary" shall mean any
corporation, partnership, joint venture or other entity during any period in
which at least a fifty percent interest in such entity is owned, directly or
indirectly, by the Company (or a successor to the Company).
2. Compensation. Subject to the terms of this Agreement, during the
Agreement Term, while the Executive is employed by the Company, the
Company shall compensate him for his services as follows:
(a) One-Time Payment. To compensate the Executive for certain out-of-pocket
relocation expenses and other costs incurred by the Executive in connection
with the acceptance of employment under this Agreement, the Company shall
make a one-time payment of $50,000 to the Executive upon the execution of
this Agreement by the Company and the Executive.
(b) Salary. The Executive shall receive, in substantially equal monthly or
more frequent installments, in accordance with the Company's regular payroll
practices, an annual base salary at the rate of $600,000 per year (the
"Salary").
(c) Annual Performance Bonus. The Executive shall be entitled to performance
bonuses of $400,000 to $600,000 per annum, in accordance with the provisions
of Exhibit 1, which is attached to and forms a part of this Agreement. The
minimum performance bonus amount of $400,000 per annum shall be payable
in four equal installments at the end of each calendar quarter.
(d) Special Bonus. The Executive shall be paid a special bonus of $500,000
for the calendar years 1998, 1999, and 2000, payable in four equal installments
at the end of each calendar quarter.
(e) Stock Options. As provided in Exhibit 2, which is attached to and forms a
part of this Agreement, the Executive shall be entitled to receive an award
of options to purchase 300,000 shares of common stock of the Company
("Company Stock"). In addition, at the discretion of the Board, the Executive
will also be eligible to receive annual stock option grants as a participant
in any performance-based executive incentive program that may be adopted by
the Company.
(f) Long-Term Incentive Award. As provided in Exhibit 3, which is attached
to and forms a part of this Agreement, the Executive shall be eligible for
the Long-Term Incentive Award in accordance with the provisions of Exhibit 3.
(g) Long Term Disability Insurance. The Company shall obtain long term
disability income replacement coverage for the Executive, subject to such
terms as are mutually agreed upon by the Company and the Executive; provided,
however, that the Company shall endeavor to obtain coverage that provides that
all or a portion of the benefits will continue until the Executive attains age
62 (if the Executive continues to be disabled until that time); and further
provided that the amounts to be paid for such coverage by the Company
(including both amounts paid directly to the insurance provider and amounts
reimbursed to the Executive) may be equal to but not greater than $15,000
per annum. During any period while the Executive is Disabled and is otherwise
entitled to receive Salary and bonus payments under this Agreement (including
payment in lieu of Salary or bonus pursuant to paragraph 4(d)), any such
Salary and bonus payments (or such payments in lieu of Salary and bonus) to
the Executive shall be reduced by the amount of any benefits paid for the
same period of time under the disability income replacement coverage.
Life Insurance. The Company shall provide life insurance coverage subject to
the following:
(i) Prior to the Effective Date, the Executive's prior employer maintained a
whole life insurance policy covering the life of the Executive, and providing a
total death benefit of $323,097, with such benefits to be paid to the
beneficiary named by the Executive, except that the first $32,176.68 payable
under the policy is to be paid to the Executive's former employer (the
"employer portion"). Subject to the Company's right to receive the employer
portion in the event of a cash-out of the policy prior to the Executive's
death, the Executive shall be entitled to any cash value of the policy upon
the occurrence of such a cash-out. The Executive shall arrange to have the
right to receive such employer portion transferred from the Executive's prior
employer to the Company, and the Company agrees to pay the prior employer
$32,176.68 for such transfer. During the period of the Executive's employment
with the Company, the life insurance coverage under such policy shall be
continued, and for such period, beginning as of the Effective Date, the
Company shall reimburse the Executive for the premiums for such coverage.
(ii) The Company shall obtain additional whole life insurance coverage on the
Executive's life providing $676,903 in death benefits, under a policy that is
similar to the policy described in paragraph (i) next above, but subject to the
Executive's satisfactory completion of a physical examination and other aspects
of the application process. Death benefits under such coverage shall be
payable to the beneficiary named by the Executive. Subject to the Company's
right to receive the employer portion in the event of a cash-out of the
policy prior to the Executive's death, the Executive shall be entitled to any
cash value of the policy in the event of such a cash-out. During the period
of the Executive's employment with the Company, the Company shall pay the
premiums with respect to such policy; provided, however, that the death
benefits to be provided under such policy shall be reduced below $676,903 as
necessary so that the annual premiums and costs due from the Company under
this paragraph (ii) do not exceed $8,000.
(iii) The Company shall obtain term life insurance coverage on the Executive's
life providing $3 million in death benefits, but subject to the Executive's
satisfactory completion of a physical examination and other aspects of the
application process. Death benefits under such coverage shall be payable to
the beneficiary named by the Executive. During the period of the Executive's
employment with the Company, the Company shall pay the premiums with respect
to such policy; provided, however, that the death benefits to be provided
under such policy shall be reduced below $3 million as necessary so that the
annual premiums and costs due from the Company under this paragraph (iii)
do not exceed $5,000.
(i) Make-Whole Retirement Plan Benefit. The Executive shall be eligible for
a Make-Whole Retirement Plan Benefit determined in accordance with this
paragraph (i):
(i) It is understood and agreed by the parties that the Make-Whole Retirement
Plan Benefit is intended to replace deferred compensation benefits lost by the
Executive by reason of his leaving his prior employer, and the Executive agrees
to promptly provide documentation from his prior employer reflecting such
benefits.
(ii) As of the Effective Date, the Company shall establish a book account in
the name of the Executive, which shall reflect the Executive's Make-Whole
Retirement Plan Benefit, and which shall be credited with an opening balance,
as of the Effective Date, of $254,000.
(iii) Beginning as of the Effective Date, and continuing until the Executive's
Date of Termination, the account balance for the Make-Whole Retirement Plan
Benefit shall be subject to a reduction of $18,143 per annum.
(iv) Immediately prior to distribution with respect to such account balance for
the Make-Whole Retirement Plan Benefit (if any), such account balance shall be
credited with interest at the rate of 9.5% per annum for the period beginning
with the Effective Date and ending with the Date of Termination.
(v) Distribution with respect to the account balance for the Make-Whole
Retirement Plan Benefit shall be determined in accordance with paragraph 4.
(j) Benefit Plans. The Executive shall be entitled to participate in and
receive benefits under all retirement, welfare, and fringe benefit
plans of the Company to the same extent and on the same terms as
those benefits are provided by the Company from time to time to the
Company's other senior management employees. However, the Company
shall not be required to provide a benefit under this paragraph (j) if
such benefit would duplicate (or otherwise be of the same type as) a
benefit specifically required to be provided under another provision
of this Agreement. The Executive shall complete all forms and physical
examinations, and otherwise take all other similar actions to secure
coverage and benefits described in this paragraph 2, to the extent
determined to be necessary or appropriate by the Company.
(k) Vacation. The Executive shall be entitled each year to four weeks vacation,
during which time his compensation shall be paid in full. Vacations need not
be taken over consecutive periods nor shall they be limited to any specific
season of the year, but in scheduling vacations the Executive shall take into
consideration the needs and activities of the Company and the vacation
schedules of the Company's other executive personnel.
(l) Club Membership. The Company will reimburse the Executive for initiation
and regular membership fees and dues for one country club (with initiation fees
not to exceed $75,000, and annual regular membership fees to not exceed
$20,000), and such membership may permit use by members of the Executive's
family as well as by the Executive. The Company shall reimburse the
Executive for the amount of any charges actually and reasonably incurred at
such club in the conduct of the Company's business. If any such initiation
fees are returned to the Executive upon termination of membership or any other
reason, such fees shall be paid to the Company to the extent such return is
attributable to amounts paid by the Company. If the Executive wishes to
continue membership in the club after the Date of Termination, then, in lieu of
agreeing to pay such returned fees to the Company, he shall, within 30 days of
the Date of Termination, pay to the Company the amount of any such initiation
fee refunds which he is expected to receive in the future. The Company, at its
election, may, in lieu of paying the initiation and membership fees described
in the preceding sentence, acquire a corporate membership in a country club,
and assume responsibility for payment of initiation and membership fees, with
use of such membership to be made available to the Executive (and his family)
while he is employed by the Company.
(m) Indemnification. The Company shall maintain directors and officers
liability insurance in commercially reasonable amounts (as reasonably
determined by the Board), and the Executive shall be covered under such
insurance to the same extent as other senior management employees of the
Company. The Executive shall be eligible for indemnification by the Company
under the Company by-laws as currently in effect. The Company agrees that it
shall not take any action that would impair the Executive's rights to
indemnification under the Company by-laws, as currently in effect.
(n) Expense Reimbursement. The Executive is authorized to incur reasonable
expenses for entertainment, traveling, meals, lodging and similar items in
promoting the Company's business. The Company will reimburse the
Executive for all reasonable expenses so incurred. The Executive shall be
eligible for benefits under the Company's relocation expense program
applicable to senior executives of the Company; provided that the Executive
shall not be eligible for reimbursement of costs for transporting or storage of
household good, shall not be eligible for reimbursement of any travel costs to
the extent such travel occurs outside the continental United States, shall not
be eligible for reimbursement of costs or other payments with respect to the
Executive's prior home (or other residence(s)), and shall not be eligible for
the lump sum benefit under the program. However, the Executive shall be
eligible for the tax gross-up payment under the program with respect to the
reimbursement of the closing costs of his new home, and with respect to the
payment under paragraph 2(a) but only with respect to $10,000 of such
payment (which is the lump sum amount that would otherwise be payable under
the program).
(o) Car Allowance. The Company shall pay to the Executive $900 each month to
offset the cost of owning and maintaining an automobile for personal and
business use and shall in addition reimburse the Executive for the costs of
insurance, gasoline and routine maintenance for such automobile.
(p) Tax Preparation Services. The Company shall provide the Executive, at no
cost to the Executive (other than the taxes associated with any compensation
income attributable thereto), annual tax planning and tax return preparation
services provided by Arthur Andersen (or such other firm selected by the
Executive and reasonably acceptable to the Company, subject to the charges for
such firm being reasonable).
3. Termination. The Executive's employment with the Company during
the Agreement Term may be terminated by the Company or the Executive
without any breach of this Agreement only under the circumstances described
in paragraphs 3(a) through 3(f):
(a) Death. The Executive's employment hereunder will terminate upon his death.
(b) Disability. The Company may terminate the Executive's employment during
any period in which he is Permanently Disabled. The Executive shall be
considered "Permanently Disabled" during any period in which he is Disabled;
provided, however, that the Executive shall not be considered to be
"Permanently Disabled" until, for a period of 90 consecutive days, the
Executive, as a result of a physical or mental disability, is incapable, after
reasonable accommodation, of performing his duties under this Agreement on a
permanent, full-time basis. In the event of a dispute as to whether the
Executive is Permanently Disabled, the Company may refer the same to a
mutually acceptable licensed practicing physician, and the Executive agrees to
submit to such tests and examination as such physician shall deem appropriate.
(c) Cause. The Company may terminate the Executive's employment hereunder at
any time for Cause. For purposes of this Agreement, the term "Cause" shall
mean:
(i) the willful and continued failure by the Executive to substantially perform
his duties with the Company (other than any such failure resulting from the
Executive's being Disabled) within a reasonable period of time after a written
demand for substantial performance is delivered to the Executive by the Board,
which demand specifically identifies the manner in which the Board believes
that the Executive has not substantially performed his duties;
(ii) the willful engaging by the Executive in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise; or
(iii) the engaging by the Executive in egregious misconduct involving serious
moral turpitude to the extent that, in the reasonable judgment of the Company's
Board, the Executive's credibility and reputation no longer conform to the
standard of the Company's executives; provided, however, that Cause shall
exist under this paragraph (iii) only if the misconduct involves a violation of
applicable laws.
For purposes of this Agreement, no act, or failure to act, on the Executive's
part shall be deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was not contrary to the best interest of the Company.
(d) Constructive Discharge. If (i) the Company commits a material breach of the
Agreement; (ii) the Executive provides written notice to the Company of the
occurrence of such material breach, which specifically identifies the manner in
which the Executive believes that the breach has occurred; (iii) the Company
fails to correct such breach within a reasonable time (not to exceed 15
business days) after such notice is given; and (iv) the Executive resigns
within the 60-calendar-day period following the Executive's discovery of such
breach, then, for purposes of this paragraph 3(d), the Executive shall be
considered to have been dismissed by the Company without Cause. For purposes
of this paragraph 3(d), a "material breach" of the Agreement shall include
(without limitation), in the absence of the Executive's express written
consent, the occurrence of either of the following circumstances:
(A) The assignment to the Executive of any duties materially inconsistent with
the Executive's position as President and Chief Executive Officer, or the
removal from the Executive of the authority for any material responsibilities
normally attendant to the office of the President and Chief Executive Officer.
(B) The failure of the Executive to be elected as a member of the Board in
accordance with the provisions of paragraph 1(b).
(e) Termination by Executive. The Executive may terminate his employment
hereunder at any time for any reason by giving the Company prior written
Notice of Termination (as defined in paragraph 3(g)), which Notice of
Termination shall be effective not less than 60 calendar days after it is
given to the Company, provided that nothing in this Agreement shall require the
Executive to specify a reason for any such termination. However, to the extent
that the procedures specified in paragraph 3(d) are required, the procedures of
this paragraph 3(e) may not be used in lieu of the procedures required under
paragraph 3(d).
(f) Termination by Company. The Company may terminate the Executive's
employment hereunder at any time for any reason, by giving the Executive
prior written Notice of Termination, which Notice of Termination shall be
effective immediately, or such later time as is specified in such notice. The
Company shall not be required to specify a reason for the termination under
this paragraph 3(f), provided that termination of the Executive's employment by
the Company shall be deemed to have occurred under this paragraph 3(f) only
if it is not for reasons described in paragraph 3(b), 3(c), 3(d) or 3(e).
(g) Notice of Termination. Any termination of the Executive's employment by the
Company or the Executive (other than a termination pursuant to paragraph
3(a)) must be communicated by a written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" means
a dated notice which indicates the specific termination provision in this
Agreement relied on and which sets forth in reasonable detail the facts and
circumstances, if any, claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
(h) Date of Termination. "Date of Termination" means the last day the
Executive is employed by the Company, provided that the Executive's
employment is terminated in accordance with the foregoing provisions of this
paragraph 3.
(i) Effect of Termination. If, on the Date of Termination, the Executive is
a member of Board of Directors of the Company or any of the Subsidiaries, or
holds any other position with the Company and the Subsidiaries (other than the
position described in paragraph 1(a)), the Executive shall resign from all such
positions as of the Date of Termination.
4. Rights Upon Termination. The Executive's right to payment and benefits
under this Agreement for periods after his Date of Termination shall be
determined in accordance with the following provisions of this paragraph 4:
(a) General. If the Executive's Date of Termination occurs during the
Agreement Term for any reason, the Company shall pay to the Executive:
(i) The Executive's Salary for the period ending on the Date of Termination.
(ii) Payment for unused vacation days, which amounts shall be paid in
accordance with the Company's regular payroll practices.
(iii) If the Date of Termination occurs after the end of a calendar quarter and
prior to the payment of the performance bonus or special bonus (as described
in paragraphs 2(c) and 2(d)) for the quarter, the Executive shall be paid such
bonus amount at the regularly scheduled time.
(iv) Any other payments or benefits due to be provided to the Executive
pursuant to any employee compensation or benefit plans or arrangements
(as the terms of those compensation or benefit plans or arrangements
may be modified by paragraph 2 of this Agreement), to the extent such
payments and benefits are earned as of the Date of Termination. Except as
may otherwise be expressly provided to the contrary in this Agreement,
nothing in this Agreement shall be construed as requiring the Executive to
be treated as employed by the Company for purposes of any employee benefit
plan or arrangement following the date of the Executive's Date of Termination.
(v) Distribution of the Long-Term Incentive Award shall be determined in
accordance with the provisions of Exhibit 3.
(b) Resignation and Termination for Cause. If the Executive's Date of
Termination occurs during the Agreement Term under circumstances described in
paragraph 3(c) (relating to the Executive's termination for Cause) or paragraph
3(e) (relating to the Executive's resignation), then, in addition to the
amounts payable in accordance with paragraph 4(a):
(i) Within 15 days after the Executive's Date of Termination, he shall be
entitled to a payment equal to the balance credited to the Make-Whole
Retirement Plan Benefit as of the Date of Termination.
(ii) The Executive shall be entitled to the minimum quarterly performance bonus
amount (as described in paragraph 2(c)) and the quarterly special bonus
amount (as described in paragraph 2(d)) for the quarter in which the Date of
Termination occurs, subject to a pro-rata reduction to reflect the portion of
the quarter following the Date of Termination. No performance bonus or special
bonus payments shall be made for quarters commencing after the Date of
Termination.
Any unexercised stock options granted to the Executive shall be forfeited.
(c) Death. If the Executive's Date of Termination occurs during the Agreement
Term because of the Executive's death, then, in addition to the amounts payable
in accordance with paragraph 4(a):
(i) The Executive's estate shall be entitled to the minimum quarterly
performance bonus amount (as described in paragraph 2(c)) and the quarterly
special bonus amount (as described in paragraph 2(d)) for the quarter in which
the Date of Termination occurs, subject to a pro-rata reduction to reflect the
portion of the quarter following the Date of Termination. No performance bonus
or special bonus payments shall be made for quarters commencing after the
Date of Termination.
(ii) Any unexercised stock options granted to the Executive prior to the
Executive's death (regardless of whether they are exercisable prior to the Date
of Termination) shall be exercisable by the Executive's estate for the period
expiring on the expiration date provided under the terms of the stock option
agreements, determined without regard to the Executive's termination of
employment.
(iii) Within 15 days after the Executive's Date of Termination, the Executive's
estate shall be entitled to a payment equal to the balance credited to the Make-
Whole Retirement Plan Benefit as of the Date of Termination.
(iv) To the extent provided in paragraph 3-3 of Exhibit 3, the Executive's
estate shall be entitled to a cash award, and vesting in the shares of
Restricted Stock.
By writing filed with the Company in accordance with the procedures
established by it, the Executive may designate one or more beneficiaries to
receive the benefits which would otherwise be provided to the Executive's
estate under paragraph (a) next above, and under this paragraph (c).
(d) Disability. If the Executive's Date of Termination occurs during the
Agreement Term under circumstances described in paragraph 3(b) (relating to
the Executive's being Permanently Disabled), then, in addition to the amounts
payable in accordance with paragraph 4(a):
(i) The Executive shall receive from the Company for a period of six months
from the Date of Termination (provided the Executive continues to be
Permanently Disabled during such period) the Salary amount described in
paragraph 2(b) and the minimum guaranteed bonus amounts described in
paragraphs 2(c) and 2(d), in monthly or more frequent installments in
accordance with the Company's regular payroll practices. The determination of
the bonuses payable for the calendar quarter in which the six-month
anniversary of the Date of Termination occurs shall be subject to a pro-rata
reduction to reflect the portion of the quarter following such anniversary. No
performance bonus or special bonus payments shall be made for quarters
commencing after the six-month anniversary.
(ii) Any unexercised stock options granted to the Executive prior to the Date
of Termination (regardless of whether they are exercisable prior to the Date of
Termination) shall be exercisable by the Executive for the period expiring on
the expiration date provided under the terms of the stock option agreements,
determined without regard to the Executive's termination of employment.
(iii) Within 15 days after the Executive's Date of Termination, the Executive
shall be entitled to a payment equal to the balance credited to the Make-Whole
Retirement Plan Benefit as of the Date of Termination.
(iv) To the extent provided in paragraph 3-3 of Exhibit 3, the Executive shall
be entitled to a cash award, and vesting in the shares of Restricted Stock.
(e) Discharge without Cause. If the Executive's Date of Termination occurs
during the Agreement Term under circumstances described in paragraph 3(d)
(relating to constructive discharge), paragraph 3(f) (relating to termination
by the Company without Cause), or failure of the parties to renew this
Agreement prior to the expiration of the Agreement Term, then, in addition to
the amounts payable in accordance with paragraph 4(a):
(i) The Executive shall receive from the Company, within 60 days following the
Date of Termination, a lump sum cash payment equal to the sum of:
(A) the Salary amount described in paragraph 2(b); and
(B) the minimum guaranteed bonus amounts described in paragraphs 2(c) and
2(d);
for the period ending on the later of the one-year anniversary of the
Executive's Date of Termination or the three-year anniversary of the Effective
Date. If the amount payable under the preceding sentence is to end on the
one-year anniversary of the Date of Termination, then the determination of the
bonuses payable for the calendar quarter in which the one-year anniversary of
the Date of Termination occurs shall be subject to a pro-rata reduction to
reflect the portion of the quarter following such anniversary.
(ii) For the period ending on the one-year anniversary of the Date of
Termination, (A) the Executive shall receive the life insurance and
disability insurance coverage provided by the Company for the
Executive immediately prior to the Date of Termination, and (B)
the Company shall reimburse the Executive for the Executive's
cost of medical continuation coverage (including dental coverage)
in accordance with the provisions of section 4980B of the Internal
Revenue Code and section 601 of the Employee Retirement Income Security
Act (sometimes referred to as "COBRA coverage"); provided, however, that the
Executive shall be required to continue payment for such coverage at the rate
in effect for other executives of the Company who are then actively employed,
except that in no event will the required amount of premiums due from the
Executive under this paragraph (ii) exceed the amount of premiums due from
the Executive for such coverage prior to the Date of Termination
(iii) Any unexercised stock options granted to the Executive prior to the Date
of Termination (regardless of whether they are exercisable prior to the Date of
Termination) shall be exercisable by the Executive for a period expiring on the
earlier of the second anniversary of the Date of Termination or the expiration
date provided under the terms of the stock option agreements.
(iv) Within 15 days after the Executive's Date of Termination, the Executive
shall be entitled to a payment equal to the balance credited to the Make-Whole
Retirement Plan Benefit as of the Date of Termination.
(f) Other Severance Benefits. Except as may be otherwise specifically provided
by an amendment of this paragraph (f) adopted in accordance with paragraph 12,
payments under this paragraph 4 shall be in lieu of any benefits that may be
otherwise payable to or on behalf of the Executive pursuant to the terms of any
severance pay arrangement of the Company or any Subsidiary or any other,
similar arrangement of the Company or any Subsidiary providing benefits upon
involuntary termination of employment.
5. Duties on Termination. Subject to the terms and conditions of this
Agreement, during the period beginning on the date of delivery of a Notice of
Termination, and ending on the Date of Termination, the Executive shall
continue to perform his duties as set forth in this Agreement, and shall also
perform such services for the Company as are necessary and appropriate for a
smooth transition to the Executive's successor. Notwithstanding the foregoing
provisions of this paragraph 5, the Company may suspend the Executive from
performing his duties under this Agreement following the delivery of a Notice
of Termination providing for the Executive's resignation, or delivery by the
Company of a Notice of Termination providing for the Executive's termination
of employment for any reason; provided, however, that during the period of
suspension (which shall end on the Date of Termination), the Executive shall
continue to be treated as employed by the Company for other purposes, and his
rights to compensation or benefits shall not be reduced by reason of the
suspension.
6. Mitigation and Set-Off. The Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement
by seeking other employment or otherwise. The Company shall not be entitled
to set off against the amounts payable to the Executive under this Agreement
any amounts owed to the Company by the Executive, any amounts earned by
the Executive in other employment after termination of his employment with
the Company, or any amounts which might have been earned by the Executive
in other employment had he sought such other employment.
7. Protective Covenants.
(a) (i) The Executive acknowledges that in the course of his employment with
the Company pursuant to this Agreement he will become familiar with trade
secrets and customer lists of, and other confidential information concerning,
the Company and the Subsidiaries and that his services will be of special,
unique and extraordinary value to the Company.
(ii) The Executive agrees that during the period of his employment with the
Company, and for a period of two years after his Date of Termination for any
reason (the "Noncompetition Period"), he shall not in any manner, directly or
indirectly, through any person, firm or corporation, alone or as a member of a
partnership or as an officer, director, stockholder, investor or employee of or
consultant to any other corporation or enterprise or otherwise, engage or be
engaged, or assist any other person, firm, corporation or enterprise in
engaging or being engaged, in any business being conducted by the Company or
any of the Subsidiaries as of the Date of Termination in any geographic area
in which the Company is then conducting such business.
(iii) The Executive further agrees that during the Noncompetition Period he
shall not, in any manner, directly or indirectly induce or attempt to induce
any employee of the Company or any of the Subsidiaries to terminate or abandon
his or her employment for any purpose whatsoever.
(iv) Nothing in this paragraph (a) shall prohibit the Executive from being (A)
a stockholder in a mutual fund or a diversified investment company or (B) a
passive owner of not more than two percent of the outstanding stock of any
class of a corporation any equity securities of which are publicly traded, so
long as the Executive has no active participation in the business of such
corporation.
(v) If, at any time of enforcement of this paragraph (a), a court holds that
the restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
(b) The Executive shall not, at any time during the period he is employed by
the Company or thereafter, make use of or disclose, directly or indirectly, any
trade secret or other confidential or secret information of the Company or of
the Subsidiaries or other technical, business, proprietary or financial
information of the Company or of the Subsidiaries not available to the public
generally or to the competitors of the Company or of the Subsidiaries
("Confidential Information"), except to the extent that such Confidential
Information (A) become a matter of public record or is published in a
newspaper, magazine or other periodical available to the general public,
other than as a result of any act or omission of the Executive, or (B) is
required to be disclosed by any law, regulation or order of any court or
regulatory commission, department or agency. Promptly following the Date
of Termination, the Executive shall surrender to the Company all records,
memoranda, notes, plans, reports, computer tapes and software and other
documents and data relating to any Confidential Information or the business
of the Company or of the Subsidiaries which he may then possess or have under
his control (together with all copies thereof); provided, however, that the
Executive may retain copies of such documents as are necessary for the
preparation of his federal or state income tax returns.
(c) The Executive agrees that, while he is employed by the Company, and after
his Date of Termination, he shall not make any false, defamatory or disparaging
statements about the Company, the Subsidiaries, or the officers or directors of
the Company or the Subsidiaries that are reasonably likely to cause material
damage to the Company, the Subsidiaries, or the officers or directors of the
Company or the Subsidiaries. While the Executive is employed by the
Company, and after his Date of Termination, the Company agrees, on behalf of
itself and the Subsidiaries, that neither the officers nor the directors of the
Company or the Subsidiaries shall make any false, defamatory or disparaging
statements about the Executive that are reasonably likely to cause material
damage to the Executive.
(d) The parties hereto agree that the Company would be damaged irreparably in
the event of any provision of paragraphs (a), (b) or (c), next above, were not
performed by the Executive in accordance with their respective terms or were
otherwise breached and that money damages would be an inadequate remedy
for any such nonperformance or breach. Therefore, the Company or its
successors or assigns shall be entitled, in addition to any other rights and
remedies existing in their favor, to an injunction or injunctions to prevent
any breach or threatened breach of any such provisions and to enforce such
provisions specifically (without posting a bond or other security). The
parties hereto agree that the Executive would be damaged irreparably in the
event of any provision of paragraph (c), next above, were not performed by
the Company in accordance with its terms or were otherwise breached and that
money damages would be an inadequate remedy for any such nonperformance
or breach. Therefore, the Executive shall be entitled, in addition to any
other rights and remedies existing in his favor, to an injunction or
injunctions to prevent any breach or threatened breach of any such provisions
and to enforce such provisions specifically (without posting a bond or other
security).
8. Assistance with Claims. The Executive agrees that, for the period
beginning the Effective Date, and continuing for a reasonable period after the
Executive's termination of employment with the Company, the Executive will
assist the Company in defense of any claims that may be made against the
Company, and will assist the Company in the prosecution of any claims that
may be made by the Company, to the extent that such claims may relate to
services performed by the Executive for the Company. The Executive agrees to
promptly inform the Company if he becomes aware of any lawsuits involving
such claims that may be filed against the Company. The Company agrees to
provide legal counsel to the Executive in connection with such assistance (to
the extent legally permitted), and to reimburse the Executive for all of the
Executive's reasonable out-of-pocket expenses associated with such assistance,
including travel expenses. For periods after the Executive's employment with
the Company terminates, the Company agrees to provide reasonable
compensation to the Executive for such assistance. The Executive also agrees
to promptly inform the Company if he is asked to assist in any investigation of
the Company (or its actions) that may relate to services performed by the
Executive for the Company, regardless of whether a lawsuit has then been filed
against the Company with respect to such investigation.
9. Liquidation.
(a) If, prior to the last day of the Agreement Term, both (I) the Company (or
the successor to the Company) enters into a plan for the wind-down or
liquidation of all or substantially all of the businesses and assets of the
Company (or the successor to the Company) and all of the Subsidiaries (the
"Company Businesses"), and (II) during such wind-down or liquidation, the
aggregate value of the gross assets of the Company and all of the Subsidiaries
(disregarding any liabilities) is less than $300 million, then, during such
period when the value of such assets is less than $300 million, the Executive
may file a written notice with the Company indicating the date of the
Executive's resignation, which shall be not earlier than 60 days following
the date such notice is filed, and such resignation shall be treated as a
constructive discharge described in paragraph 3(d).
(b) If (i) the Company (or the successor to the Company) and/or the
Subsidiaries dispose of a substantial portion (but less than substantially all)
of the Company Businesses, (ii) the Company (or the successor to the Company)
and the Subsidiaries continue to operate a portion of the Company Businesses
on a going concern basis, and (iii) the aggregate value of the gross assets of
the Company (or its successor) and the Subsidiaries (disregarding any
liabilities) is less than $300 million, then the Company and the Executive
agree to negotiate in good faith as to whether changes to the Agreement are
appropriate.
(c) Determination of the successor to the Company shall be made in accordance
with paragraph 16.
10. Change in Control.
(a) In the event of a Change in Control of the Company prior to the last day
of the Agreement Term, the following shall apply:
(i) The Executive shall be entitled to vest in the shares of Restricted Stock,
with the number of shares being vested to be calculated in accordance with
paragraph 3-3(b) of Exhibit 3 of this Agreement, subject to the pro rata
reduction set forth in paragraph 3-3, and determined as though the date of the
Change in Control was the Executive's Date of Termination in accordance with
paragraph 3(f) (relating to termination by the Company without Cause).
(ii) The foregoing provisions of this paragraph (a) shall not affect the
determination of the Executive's benefits in accordance with the provisions of
Exhibit 3 upon his actual Date of Termination or upon his continuing in
employment through December 31, 2000 (whichever is applicable), except that,
after the determination of the amount of shares to be awarded under Exhibit 3
with respect to the Executive's actual Date of Termination or upon his
continuing in employment through December 31, 2000 (whichever is
applicable), the number of shares of Restricted Stock in which he would
otherwise be entitled to vest shall be reduced by the number of shares
previously vested in accordance with the paragraph (i) next above.
(iii) The determination of the vesting of the shares of Restricted Stock
under this paragraph (a) shall be made as soon as practicable after the end
of the Company's fiscal year in which the Change in Control occurs.
(b) In the event of a Change in Control of the Company prior to the last day
of the Agreement Term, all options to purchase shares of Company Stock then
held by the Executive shall become exercisable by the Executive, and shall
remain exercisable during the remainder of their term (as determined in
accordance with the provisions of the applicable stock option agreements).
(c) For purposes of this paragraph 10, a "Change in Control" shall be deemed
to have occurred on the earlier of:
(i) the first date after the Effective Date upon which any Person (excluding
the LG Affiliates) has ownership of capital stock of the Company having voting
power of the Company that is equal to or greater than the voting power of the
Company of the capital stock of the Company then owned by the LG Affiliates;
or
(ii) the first date after the Effective Date upon which the LG Affiliates
cease to have ownership of capital stock of the Company having at least 40% of
the voting power of the Company.
For purposes of paragraphs (i) and (ii) next above, if all or substantially all
of the Company Businesses are acquired by a purchaser, then, pursuant to
paragraph 16, such purchaser shall be substituted for the Company. For
purposes of this paragraph 10, the term "LG Affiliate" means LG Electronics,
Inc. and LG Semicon Co., Ltd., as well as any business or entity that is
affiliated (as that term is understood under the laws of South Korea as of the
December 1, 1997) or under common control with LG Electronics, Inc. and/or
LG Semicon Co., Ltd. For purposes of this paragraph 10 and paragraph 16, the
term "Person," when capitalized, shall mean any person (including an entity),
and shall also include two or more persons acting as a partnership, limited
partnership, syndicate, or other group for the purpose or with the effect of
changing or influencing the control of the Company. The provisions of the
preceding sentence shall be interpreted based on the interpretations of the
comparable provisions of Sections 13 and 14 of the Securities Exchange Act of
1934 and the rules thereunder.
11. Nonalienation. The interests of the Executive under this Agreement
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of
the Executive or the Executive's beneficiary.
12. Amendment. This Agreement may be amended or canceled only by
mutual agreement of the Executive and a duly authorized representative of the
Company in writing without the consent of any other person; provided,
however that the rights and obligations of LG Electronics Alabama, Inc. may
not be affected without the written consent of its duly authorized
representative. So long as the Executive lives, no person, other than the
parties hereto, shall have any rights under or interest in this Agreement or
the subject matter hereof.
13. Applicable Law. The provisions of this Agreement shall be construed
in accordance with the laws of the State of Illinois, without regard to
the conflict of law provisions of any state. All disputes shall be litigated
in Chicago, Illinois.
14. Severability. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
15. Waiver of Breach. No waiver by any party hereto of a breach of any
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party of any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action
by reason of such breach will not deprive such party of the right to take
action at any time while such breach continues.
16. Successors.
(a) This Agreement shall be binding upon, and inure to the benefit of, the
Company and its successors and assigns and upon any Person acquiring,
whether by merger, consolidation, purchase of assets or otherwise, all or
substantially all of the Company Businesses (determined immediately prior to
the date of the merger, consolidation, purchase, or other transaction), and the
successor shall thereafter be substituted for the Company under this Agreement.
(b) If, by reason of a transaction (or series of related transactions),
substantially all of the Company Businesses (determined immediately prior to
transaction) are owned by more than one entity, but such entities are
controlled by a single Person, and the Executive is elected President,
Chief Executive Officer, and a member of the Board of Directors of each such
entity, then such entities shall collectively be treated as the successor
to the Company, until such time as a single Person ceases to control
all such entities.
17. Notices. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid, or
sent by facsimile or prepaid overnight courier to the parties at the
addresses set forth below (or such other addresses as shall be specified by
the parties by like notice). Such notices, demands, claims and other
communications shall be deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified or registered U.S. mail, five days after deposit
in the U.S. mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
provided, however, that in no event shall any such communications be deemed
to be given later than the date they are actually received. Communications
that are to be delivered by the U.S. mail or by overnight service are to be
delivered to the addresses set forth below:
to the Company:
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, IL 60025
or to the Executive:
Jeffrey P. Gannon
Zenith Electronics Corporation
1000 Milwaukee Avenue
Glenview, IL 60025
All notices to the Company shall be directed to the attention of Chairman of
the Board of Directors of the Company, with a copy to the General Counsel of
the Company. Each party, by written notice furnished to the other party, may
modify the applicable delivery address, except that notice of change of address
shall be effective only upon receipt.
18. Acknowledgment by Executive. The Executive represents to the
Company that he is knowledgeable and sophisticated as to business matters,
including the subject matter of this Agreement, that he has read this Agreement
and that he understands its terms. The Executive acknowledges that, prior to
assenting to terms the terms of this Agreement, he has been given a reasonable
time to review it, to consult with counsel of his choice, and to negotiate at
arm's-length with the Company as to the contents. The Executive and the
Company agree that the language used in this Agreement is the language
chosen by the parties to express their mutual intent, and that no rule of
strict construction is to be applied against any party hereto.
19. Costs of Enforcement. The following provisions of this paragraph 19 shall
apply if it becomes necessary or desirable for the Executive to retain legal
counsel or incur other costs and expenses in connection with either enforcing
any and all of his rights under this Agreement or defending against any
allegations of breach of this Agreement by the Company:
(a) The Executive shall be entitled to recover from the Company reasonable
attorneys' fees, costs and expenses incurred by him in connection with such
enforcement or defense.
(b) Payments required under this paragraph 19 shall be made by the Company to
the Executive (or directly to the Executive's attorney) promptly following
submission to the Company of appropriate documentation evidencing the
incurrence of such attorneys' fees, costs, and expenses.
(c) The Executive shall be entitled to select his legal counsel; provided,
however, that such right of selection shall not affect the requirement that
any costs and expenses reimbursable under this paragraph 19 be reasonable.
(d) The Executive's rights to payments under this paragraph 19 shall not be
affected by the final outcome of any dispute with the Company; provided,
however, that to the extent that the court shall determine that under the
circumstances recovery by the Executive of all or a part of any such fees and
costs and expenses would be unjust, the Executive shall not be entitled to such
recovery; and to the extent that such amount have been recovered by the
Executive previously, the Executive shall repay such amounts to the Company.
20. Survival of Agreement. Except as otherwise expressly provided in this
Agreement, the rights and obligations of the parties to this Agreement shall
survive the termination of the Executive's employment with the Company.
21. Guaranty. Not later than the Effective Date, the Company and LG
Electronics Alabama, Inc. shall have properly executed the Guaranty in the
form set forth in Exhibit 4, which is attached to and forms a part of this
Agreement, and which provides for a guaranty of the payment of cash that may
otherwise be due in accordance with Exhibit 3, and payment of amounts as
described in paragraph 22(b).
22. Letter of Credit.
(a) Not later than the Effective Date, the Company shall have obtained and
delivered to the Executive, at the Company's sole cost and expense, a Letter of
Credit issued by a national bank organized under the laws of the United States
of America having assets of not less than $1 billion. The Letter of Credit
shall permit multiple draws by the Executive, shall permit draws up to
$4,754,000 in the aggregate, and shall provide for draws with respect
to any amount described in paragraphs 2(b), 2(c), 2(d) and 2(i) (relating to
salary, annual performance bonus, special bonus, and make-whole retirement
plan benefit, respectively), and including any amounts payable under
paragraphs 4(a)(i), 4(a)(ii), 4(a)(iii), 4(b)(i), 4(b)(ii), 4(c)(i), 4(c)(iii),
4(d)(i), 4(d)(iii), 4(e)(i), and 4(e)(iv), to the extent such amounts are not
otherwise paid to (or received by) the Executive or his beneficiary
within 30 days of the date they are due in accordance with the
Agreement. The Letter of Credit shall otherwise be in a form reasonably
acceptable to the Executive.
(b) During any period prior to December 31, 2001 in which the Letter of Credit
(or a replacement letter of credit conforming to the provisions of paragraph
(a) next above) is not in effect with respect to all amounts described in
paragraph (a) next above that are then due, or may become due thereafter and
prior to December 31, 2001 (the "Unpaid Amounts"), then the Guaranty described
in paragraph 21 shall be extended to cover such Unpaid Amounts.
(c) During any period prior to December 31, 2001 in which the Letter of Credit
(or a replacement letter of credit conforming to the provisions of paragraph
(a) next above) is not in effect with respect to all Unpaid Amounts, the
Company shall maintain a Replacement Trust, as described in this paragraph (c).
The Replacement Trust shall be in the form of a trust or escrow arrangement,
and shall be maintained by a bank or trust company not affiliated with the
Company. The Replacement Trust shall hold liquid assets having a value that
is not less than the then Unpaid Amounts, shall provide for payment of the
Unpaid Amounts to the extent such amounts are not otherwise paid to (or
received by) the Executive or his beneficiary within 30 days such amounts are
due in accordance with the Agreement. The assets of the Replacement Trust
may only be drawn against to satisfy Unpaid Amounts, and shall not be subject
to any other claims; provided, however, that amounts held in the Replacement
Trust may revert to the Company at any time to the extent the value of the
assets in the Replacement Trust exceed the Unpaid Amounts, or to the extent
that the obligation to pay the Unpaid Amounts is guaranteed by a letter of
credit that satisfies paragraph (a) next above.
23. Entire Agreement. Except as otherwise provided herein, this
Agreement (including the Exhibits attached hereto) constitutes the entire
agreement between the parties concerning the subject matter hereof and
supersedes all prior and contemporaneous agreements, if any, between the
parties relating to the subject matter hereof.
IN WITNESS THEREOF, the Executive has hereunto set his hand,
and the Company has caused these presents to be executed in its name and on
its behalf, and its corporate seal to be hereunto affixed, all as of the day
and year first above written.
Executive
Zenith Electronics Corporation
By
Its
ATTEST:
(Seal)
EXHIBIT 1
ANNUAL PERFORMANCE BONUSES
1-1 Target Bonus. The Executive shall be entitled to payment of a
minimum guaranteed annual performance bonus of $400,000. The minimum
annual performance bonus amount of $400,000 may be increased, up to a
maximum of $600,000 for any year, for achieving or exceeding specific target
performance objectives. The target performance objectives, and the percentage
of the bonus amount payable for achieving certain levels of the targeted
objectives for each calendar year performance period shall be established prior
to the beginning of such year by the Organization and Compensation
Committee of the Board after consultation with the Executive, provided,
however, that the target performance objectives for the 1998 calendar year
performance period will be established by February 28, 1998.
1-2 Payment of Annual Performance Bonus in Excess of Minimum
Guaranteed Amount. For any calendar year performance period, the annual
performance bonus earned in excess of the minimum guaranteed bonus amount
will be paid in cash as soon as practicable after the end of the year, but
in no event later than March 31 of the following year.
EXHIBIT 2
STOCK OPTION AWARD
2-1 As of the later of the date of execution of this Agreement by the
Company and the date of execution of this Agreement by the Executive, the
Executive shall be granted options to purchase 300,000 shares of the Company
Stock. The option exercise price per share of Company Stock shall equal the
fair market value of a share of Company Stock on the date the option is
granted. The options awarded under this Exhibit 2 shall be non-qualified stock
options.
2-2 The options granted under this Exhibit 2 shall first become exercisable
with respect to one-third of the shares covered thereby on the first
anniversary of the Effective Date, if the Executive is then employed by the
Company, and shall become exercisable with respect to an additional one-third
of the shares covered thereby on each of the second and third anniversaries of
the Effective Date, if the Executive is then employed by the Company.
2-3 If the Executive continues to be employed by the Company through
the last day of the Agreement Term, all unexercised options awarded under this
Exhibit 2 then held by the Executive shall be exercisable by the Executive (or
his executor or assigns) for two years after the Executive's Date of
Termination (but not more than 10 years after the Effective Date).
2-4 The Company shall use a procedure to grant the options under this
Exhibit 2 so that, to the extent that the grant is a "purchase" for purposes of
Section 16(b) of the Securities Exchange Act of 1934, the grant will be exempt
from Section 16(b) by reason of SEC Rule 16b-3 (or other SEC rules).
2-5 The options granted under this Exhibit 2 shall be granted under
and subject to the terms and conditions of the Zenith Electronics Corporation
Long-Term Equity Compensation Plan. Except as otherwise provided in the
Agreement (including this Exhibit 2), the options granted under this Exhibit 2
shall be subject to the same provisions as the provisions covering the options
granted under the Zenith Electronics Corporation Long-Term Equity
Compensation Plan (the "Regular Options"); provided that this Agreement
shall be the overriding agreement, and in the event of a difference between the
terms of this Agreement and the terms of the Regular Options, the terms of this
Agreement shall prevail.
EXHIBIT 3
LONG-TERM INCENTIVE AWARD
3-1 Restricted Stock. As of the Effective Date, the Executive shall be
granted 500,000 shares of Company Stock subject to the terms of this Exhibit 3
("Restricted Stock").
(a) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered until the Executive is vested in the shares
in accordance with this Exhibit 3.
(b) At the time the Executive becomes vested in any shares of Restricted Stock,
he shall thereafter own the shares free of all restrictions otherwise imposed
by this Agreement. Except as otherwise provided in this Exhibit 3, the
Executive shall forfeit any shares of Restricted Stock in which he is not
vested at the end of the Agreement Term or, if earlier, as of his Date of
Termination.
(c) The Executive shall not be paid any dividends with respect to the
Restricted Stock until the Executive has become vested in the shares. At the
time of vesting, the Executive shall receive a cash payment equal to the
aggregate dividends (without interest) that the Executive would have received
if he had owned all of the shares in which he vested for the period beginning
on the Effective Date, and ending on the date of vesting. No dividends shall
be paid to the Executive with respect to any shares of Restricted Stock that
are forfeited by the Executive.
(d) The certificate issued in respect of shares of Restricted Stock granted
under this Agreement shall be registered in the name of the Executive and shall
be deposited in a bank designated by the Board. The Executive agrees to
endorse a stock power in blank for the Restricted Stock.
(e) The Restricted Stock award shall be subject to the same provisions as those
covering restricted stock grants made under the Zenith Corporation Long-Term
Equity Compensation Plan (the "Regular Restricted Stock Grants"); provided
that this Agreement shall be the overriding agreement, and in the event of a
difference between the terms of this Agreement and the terms of the Regular
Restricted Stock Grants, the terms of this Agreement shall prevail.
3-2 General. If the Executive continues in the employ of the Company
from the Effective Date through December 31, 2000, he will be entitled to the
cash award described in paragraph (a) and the vesting described in paragraph
(b) next below.
(a) A cash payment of $3 million if target levels of performance under the
Performance Targets are achieved, and $6 million if maximum performance
levels under the Performance Targets are achieved, subject to paragraph 3-6 of
this Exhibit 3.
(b) The Restricted Stock shall vest in accordance with the terms of the
Performance Targets.
Distribution in accordance with paragraph (a) next above, and determination of
the vesting in accordance with paragraph (b) next above, shall be made not
later than March 30, 2001.
3-3 Termination without Cause. If the Executive does not continue in
the employ of the Company from the Effective Date through December 31,
2000, and his Date of Termination occurs under circumstances described in
paragraph 3(b) (relating to the Executive's being Permanently Disabled), under
circumstances described in paragraph 3(d) (relating to constructive discharge),
under circumstances described in paragraph 3(f) (relating to termination by the
Company without Cause), or because of the Executive's death, he will be
entitled to the cash award described in paragraph (a) and the vesting described
in paragraph (b) next below, subject to the pro rata reduction set forth
following paragraph (b):
(a) A cash payment of $3 million if target levels of performance under the
Performance Targets are achieved, and $6 million if maximum performance
levels under the Performance Targets are achieved, subject to paragraph 3-6 of
this Exhibit 3.
(b) The Restricted Stock shall vest in accordance with the terms of the
Performance Targets.
The determination of the amount of the cash distribution in accordance with
paragraph (a) next above, and the determination of vesting in Restricted Stock
in accordance with paragraph (b) next above, shall be based on actual
performance from January 1, 1998 through the last day of the fiscal year of the
Company in which the Date of Termination occurs. The distribution otherwise
due in accordance with the foregoing provisions of this paragraph 3-3 shall be
subject to a pro-rata reduction to reflect the portion of the period from
January 1, 1998 through December 31, 2000 following the Date of Termination.
Distribution in accordance with paragraph (a) next above, and the
determination of the vesting in accordance with paragraph (b) next above, shall
be made not later than the March 30 following the end of the Company's fiscal
year in which the Executive's Date of Termination occurs. Notwithstanding
the foregoing provisions of this paragraph 3-3, if the Executive's Date of
Termination occurs under circumstances described in paragraph 3(b) (relating
to the Executive's being Permanently Disabled), or because of the Executive's
death, he (or his estate) shall be fully vested in all shares of Restricted
Stock as of the Date of Termination (without any pro rata reduction to
reflect the period after the Date of Termination).
3-4 Other Termination. If the Executive's Date of Termination occurs
during the Agreement Term under circumstances described in paragraph 3(c)
(relating to the Executive's termination for Cause) or paragraph 3(e) (relating
to the Executive's resignation), then, subject to paragraph 10 (relating to
Change in Control), no Restricted Stock shall be vested, and no amounts shall
be paid under this Exhibit 3.
3-5 Performance Targets. The determination of the Performance
Targets shall be subject to the following:
(a) On or before February 27, 1998, and subject to the following provisions of
this paragraph 3-5, the Executive and the Board shall negotiate and agree upon
the Performance Targets.
(b) 30% of the Performance Targets shall be based on earnings before tax, 30%
of the Performance Targets shall be based on cash flow from on-going
operations, 20% of the Performance Targets shall be based on cash flow realized
from realizing non-core assets, and 20% of the Performance Targets shall be
based on achievement of business development objectives such as market position
in core products and channels and technology-based business development. The
Performance Targets shall also specify the rate of vesting in Restricted Stock,
and the rate at which cash distributions are to be earned in accordance with
this Exhibit 3.
(c) If the Executive and the Board fail to agree upon the Performance Targets
by February 27, 1998, then:
(i) Not later than March 6, 1998, the Executive and the Board shall each submit
to the other a written statement of proposed Performance Targets and a
statement in support of such Performance Targets.
(ii) An arbitrator shall be appointed, acceptable to both parties.
(iii) The statements described in paragraph (i) next above shall be submitted
to the arbitrator selected in accordance with paragraph (ii) next above. The
arbitrator shall choose between the two proposals, based on the provisions of
this Exhibit 3, and on such other information as to the operation of the
Company and its Subsidiaries that the arbitrator requests from the Company.
Except as otherwise agreed upon by the parties, the arbitrator shall have no
authority to modify the proposals, or to specify a resolution other than the
resolution set forth in the proposal selected. The decision of the arbitrator
shall be rendered not later than March 20, 1998 (or such later date as the
arbitrator reasonably requires), and will be final.
(iv) After February 27, 1998, but prior to the date the arbitrator renders
his decision, the Executive and the Board may, by mutual consent, agree on
Performance Targets, and, in that circumstance, the arbitrator shall not render
a decision under this paragraph (c).
3-6 Offset.
(a) If the Executive continues in the employ of the Company from the Effective
Date through December 31, 2000, then the amount of cash that would
otherwise be distributable in accordance with paragraph 3-2(a) shall be reduced
(but not below zero) by the amount of the Stock Option Gain, determined as of
December 31, 2000.
(b) If the Executive is otherwise entitled to a cash distribution in accordance
with paragraph 3-3(a), then the amount of cash that would otherwise be
distributable in accordance with paragraph 3-3(a), and after the pro rata
reduction under paragraph 3-3 for the period following the Date of Termination,
shall be further reduced (but not below zero) by the amount of the Stock
Option Gain, determined as of the last day of the Company's fiscal year in
which the Date of Termination occurs.
(c) The "Stock Option Gain" as of any date shall be a dollar amount equal to
300,000 times (X - Y), where X equals the closing price for one share of
Company Stock on that date, and Y equals the per share exercise price for the
Company Stock subject to the option grant under Exhibit 2.
EXHIBIT 4
GUARANTY
In order to induce Jeffrey P. Gannon ("Employee") to enter into the
Employment Agreement with Zenith Electronics Corporation ("Zenith"),
dated as of January 12, 1998, in the form attached hereto as Exhibit A
(the "Agreement"). LG Electronics Alabama, Inc., an Alabama corporation
("LG"), hereby:
(A) irrevocably guarantees to Employee that if
(i) Zenith becomes obligated pursuant to the Agreement to make any payment
of cash described in (x) paragraphs 2(b), 2(c), 2(d) or 2 (i) of the
Agreement (relating to salary, annual performance bonus or make-whole
retirement plan benefit) at a time prior to December 31, 2001 when the
letter of credit provided for in paragraph 21 of the Agreement is not in
effect, including any such payments due Executive in accordance with
paragraph 4 of the Agreement, and/or (y) Exhibit 3 to the Agreement (each
an " Obligation"), and
(ii) Zenith shall fail to make full payment of such Obligation on or before
the thirtieth day following the date on which such payment was due
pursuant to the terms of the Agreement.
on the thirtieth day following the receipt of written notice from Employee
that the conditions set forth in subclauses (i) and (ii) above have been met,
LG will pay to Employee an amount equal to the difference between the
amount of any such Obligation and any amounts actually paid by Zenith to
Employee in respect of any such Obligation on or before such day; and
(B) irrevocably submits to the jurisdiction of the federal and state courts
in Chicago, Illinois, with respect to any litigation relating to this
Guaranty, and waives, and sgrees not to assert, by way of motion, as a
defense, or otherwise, in any such litigation, any argument that it is not
personally subject to the jurisdiction of the above-named courts or, to
the extent permitted by applicable law, any claim that such litigation is
brought in an inconvenient forum or that the venue of such litigation is
improper or that this Guaranty may not be enforced in or by such courts,
agrees to commence actions and assert claims for relief only in such courts,
and consents to service of process by the mailing of copies thereof to LG
by certified mail, such service to be effective ten days after mailing.
In consideration of the Guaranty given hereby, Zenith agrees that it shall
be obligated to reimburse LG for the amount of any payment made hereunder
within five business days of the date on which LG makes such payment. If
Zenith fails to reimburse LG the full amount due under the preceding
sentence within the time period set forth therein, the balance due to LG
shall be paid with interest at the rate of 10% per annum, compounded
annually, from the date of payment by LG to the date of repayment by Zenith
toLG. However, Zenith's failure to reimburse LG shall not affect LG's
obligations under this Guaranty.
The liability of LG under this Guaranty will continue to be effective or
will be reinstated, as the case may be, with respect to any amount paid
to Employee by Zenith which is thereafter required to be returned or
restored to Zenith or to any trustee, receiver or other representative
for Zenith upon or by reason of the bankruptcy, insolvency, reorganization
or dissolution of Zenith, all as though such payments had never been made.
The liability of LG under this Guaranty will not be impaired, modified,
released or limited in any manner by the disallowance of or reduction in
Employee's right to payment of any Obligation by reason of the institution
by or against Zenith of any bankruptcy, reorganization, insolvency or
similar proceeding.
This Guaranty shall be rendered void and without effect if any provision
of the Agreement is amended, modified or waived in any material respect
without the prior written consent of LG. As a condition to this Guaranty,
each of Zenith and Employee shall be required to deliver a copy of any
notice given by such party pursuant to the Agreement to LG, at the same
time such notice is given by such party thereunder. All notices and other
communications to or with LG in respect of this Guaranty shall only be
effective if in writing and delivered in person or sent by registered or
certified first class mail, postage prepaid, return receipt requested,
to LG and Debevoise & Plimpton at the addresses listed below (or at such
other address as LG shall hereafter designate in accordance with the notice
procedures set forth in the Agreement):
LG Electronics Alabama, Inc.
201 James Record Rd.
Huntsville, Alabama 35824
Attn: K. J. Kim
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attn: Steven R. Gross, Esq.
All such notices and other communications shall be deemed effective on
the date of delivery.
This guaranty constitutes the entire agreement with respect to the subject
matter described herein, and all promises, representations, understandings,
arrangements and prior agreements relating to such subject matter (including
those made to Employee by any other person or entity) are merged herein and
superseded hereby. This Guaranty shall insure to the benefit of Employee's
heirs, executors, administrators and legal representatives.
This Guaranty will be binding upon LG's sucessors and assigns and upon any
person or entity acquiring, whether by merger, consolidation, purchase of
assets or otherwise, all or substantially all of LG's assets and
businesses.
This Guaranty shall be governed by the laws of the State of Illinois,
without giving effect to the conflict of laws provisions thereof. this
Guaranty may not be amended or otherwise modified without the written
consent of LG and Employee, and, to the extent such amendment or
modification would increase the scopr of Zenith's obligations hereunder,
of Zenith. No waiver of any provision hereof shall be effective unless
in a written instrument signed by the party granting such waiver.
LG ELECTRONICS ALABAMA, INC.
By:
Name:
Title:
ZENITH ELECTRONICS CORPORATION
By:
Name:
Title:
January , 1998
Acknowledged, accepted and agreed
as of the above date:
- ---------------------------
ZENITH ELECTRONICS CORPORATION
STOCK OPTION AGREEMENT
THIS AGREEMENT, entered into as of January 12, 1998 (the
"Agreement Date"), by and between Jeffrey P. Gannon (the "Optionee"), and
Zenith Electronics Corporation, a Delaware corporation (the "Company");
WITNESSETH THAT:
WHEREAS, pursuant to the terms of Exhibit 2 of the employment
agreement between the Executive and the Company dated January 12, 1998
(the "Employment Agreement"), the Company is to grant options to purchase
300,000 shares of its Common Stock, $1.00 par value ("Stock") to the
Executive, and the rights provided by this Agreement are in settlement of that
obligation;
NOW, THEREFORE, IT IS AGREED, by and between the Company
and the Executive, as follows:
Award.
1.1. Grant of Option. The Company hereby grants to the Optionee as
of January 12, 1998 (the "Option Date"), pursuant to the provisions of the
Zenith Electronics Corporation Long-Term Equity Compensation Plan (the
"Plan"), a non-qualified option to purchase from the Company (the "Option")
300,000 shares of Stock, at the price of $5.5625 per share upon and subject to
the terms and conditions set forth below. References to employment by the
Company shall also mean employment by a subsidiary of the Company.
Capitalized terms not defined herein shall have the meanings specified in the
Plan.
1.1. Option Subject to Acceptance of Agreement. The Option shall be
subject to the Optionee accepting this Agreement by executing it in the space
provided below and returning such original execution copy to the Company.
Time and Manner of Exercise of Option.
2.1. Maximum Term of Option. In no event may the Option be
exercised, in whole or in part, after January 11, 2008 (the "Expiration Date").
2.2. Exercise of Option. The Option shall be exercisable in
accordance with those provisions of the Employment Agreement that relate to
the stock option granted pursuant to Exhibit 2 of the Employment Agreement.
However, notwithstanding the exercise periods set forth in the Employment
Agreement, in the event the Company is involved in a business combination
which is intended to be treated as a pooling of interests for financial
accounting purposes (a "Pooling Transaction") pursuant to which the Optionee
receives a substitute option to purchase securities of any entity, including
an entity directly or indirectly acquiring the Company:
(i) if the acquisition of the substitute option by the Optionee may
be treated as a purchase for purposes of Section 16(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and the Optionee's employment
with the Company is terminated for any reason other than Cause (as defined in
paragraph 3(c) of the Employment Agreement) during the nine-month period
beginning three months prior to the consummation of such business
combination, then the Option (or option in substitution thereof) shall be
exercisable to the extent set forth above in this Agreement until and including
the later to occur of (i) the date determined in accordance with the Employment
Agreement and (ii) the date which is seven months after the consummation of
such business combination, but in no case later than the Expiration Date; or
(ii) if the Optionee is restricted from disposing of a security (or
security underlying a security) issued in connection with the Pooling
Transaction and the purpose of such restriction is to ensure that the Pooling
Transaction is accounted for as a pooling of interests (the "Pooling
Restriction") and the Optionee's employment with the Company is terminated
for any reason other than Cause (as defined in paragraph 3(c) of the
Employment Agreement) during the nine-month period beginning three
months prior to the consummation of such business combination, then the
Option (or option in substitution thereof) shall be exercisable to the extent
set forth above in this Agreement until and including the later to occur of
(i) the date determined in accordance with the Employment Agreement and (ii)
the date which is one month after the date of expiration of the Pooling
Restriction, but in no case later than the Expiration Date.
2.3. Method of Exercise. Subject to the limitations set forth in
this Agreement, the Option may be exercised by the Optionee (1) by giving
written notice to the Treasurer of the Company specifying the number of whole
shares of Stock to be purchased and accompanied by payment therefor in full
(or arrangement made for such payment to the Company's satisfaction) either
(i) in cash, (ii) by delivery of previously owned whole shares of Stock (which
the Optionee has held for at least six months prior to the delivery of such
shares or which the Optionee has good title, free and clear of all liens and
encumbrances) having a Fair Market Value, determined as of the date of
exercise, equal to the aggregate purchase price payable pursuant to the Option
by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the
Company to whom the Optionee has submitted an irrevocable notice of exercise
or (iv) a combination of (i) and (ii), and (2) by executing such documents as
the Company may reasonably request. In the case of an Optionee who is subject
to Section 16 of the Exchange Act, the Company may require that the method of
making such payment be in compliance with Section 16 and the rules and
regulations thereunder. Any fraction of a share of Stock which would be
required to pay such purchase price shall be disregarded and the remaining
amount due shall be paid in cash by the Optionee. No certificate representing
a share of Stock shall be delivered until the full purchase price therefor has
been paid.
2.4. Cancellation of Agreement. In the event that rights to purchase
all or a portion of the shares of Stock subject to the Option expire or
are exercised, canceled or forfeited, the Optionee shall, upon the Company's
request, promptly return this Agreement to the Company for full or partial
cancellation, as the case may be. Such cancellation shall be effective
regardless of whether the Optionee returns this Agreement. If the Optionee
continues to have rights to purchase shares of Stock hereunder, the Company
shall, within 10 days of the Optionee's delivery of this Agreement to the
Company, either (i) mark this Agreement to indicate the extent to which the
Option has expired or been exercised, canceled or forfeited or (ii) issue to
the Optionee a substitute option agreement applicable to such rights, which
agreement shall otherwise be substantially similar to this Agreement in form
and substance.
3. Additional Terms and Conditions of Option.
3.1. Nontransferability of Option. The Option may not be
transferred by the Optionee other than by will or the laws of descent and
distribution. Except to the extent permitted by the foregoing sentence, during
the Optionee's lifetime the Option is exercisable only by the Optionee or the
Optionee's Legal Representative. Except to the extent permitted by the
foregoing, the Option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by operation of
law or otherwise) or be subject to execution, attachment or similar process.
Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of the Option, the Option and all rights hereunder shall
immediately become null and void.
3.2. Investment Representation. The Optionee hereby represents
and covenants that (a) any share of Stock purchased upon exercise of the
Option will be purchased for investment and not with a view to the distribution
thereof within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), unless such purchase has been registered under the
Securities Act and any applicable state securities laws; (b) any subsequent
sale of any such shares shall be made either pursuant to an effective
registration statement under the Securities Act and any applicable state
securities laws, or pursuant to an exemption from registration under the
Securities Act and such state securities law; and (c) if requested by the
Company, the Optionee shall submit a written statement, in form satisfactory
to the Company, to the effect that such representation (x) is true and
correct as of the date of purchase of any shares hereunder or (y) is true and
correct as of the date of any sale of any such shares, as applicable. As
a further condition precedent to any exercise of the Option, the
Optionee shall comply with all regulations and requirements of any
regulatory authority having control of or supervision over the issuance or
delivery of the shares and, in connection therewith, shall execute any
documents which the Board or the Committee shall in its sole discretion deem
necessary or advisable.
3.3. Withholding Taxes. (a) As a condition precedent to the
delivery of Stock upon exercise of the Option, the Optionee shall, upon request
by the Company, pay to the Company in addition to the purchase of the shares,
such amount as the Company may be required, under all applicable federal,
state, local or other laws or regulations, to withhold and pay over as income
or other withholding taxes (the "Required Tax Payments") with respect to such
exercise of the Option. If the Optionee shall fail to advance the Required Tax
Payments after request by the Company, the Company may, in its discretion,
deduct any Required Tax Payments from any amount then or thereafter payable
by the Company to the Optionee.
(b) The Optionee may elect to satisfy his or her obligation to
advance the Required Tax Payments by any of the following means: (i) a cash
payment to the Company, (ii) delivery to the Company of previously owned
whole shares of Stock (which the Optionee has held for at least six months
prior to the delivery of such shares or which the Optionee purchased on the
open market and in each case for which the Optionee has good title, free and
clear of all liens and encumbrances) having a Fair Market Value, determined as
of the date the obligation to withhold or pay taxes first arises in connection
with the Option (the "Tax Date"), equal to the Required Tax Payments, (iii)
authorizing the Company to withhold whole shares of Stock which would
otherwise be delivered upon exercise of the Option having an aggregate Fair
Market Value determined as of the Tax Date equal to the Required Tax
Payments, (iv) a cash payment by a broker-dealer acceptable to the Company to
whom the Optionee has submitted an irrevocable notice of exercise or (v) any
combination of (i), (ii) and (iii); provided, however, that in the case of an
Optionee who is subject to Section 16 of the Exchange Act, the Company may
require that the method of satisfying any such obligation be in compliance with
Section 16 and the rules and regulations thereunder. Shares of Stock to be
delivered may not have a Fair Market Value in excess of the minimum amount
of the Required Tax Payments. Any fraction of a share of Stock which would
be required to satisfy any such obligation shall be disregarded and the
remaining amount due shall be paid in cash by the Optionee. No certificate
representing a share of Stock shall be delivered until the Required Tax
Payments have been satisfied in full.
3.4. Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Option and the
purchase price per security shall be appropriately adjusted by the Committee
without an increase in the aggregate purchase price. If any adjustment would
result in a fractional security being subject to the Option, the Company shall
pay the Optionee, in connection with the first exercise of the Option occurring
after such adjustment, an amount in cash determined by multiplying (i) the
fraction of such security (rounded to the nearest hundredth) by (ii) the
excess, if any, of (A) the Fair Market Value on the exercise date over (B)
the exercise price of the Option. The decision of the Committee regarding
any such adjustment shall be final, binding and conclusive.
3.5. Change in Control. To the extent provided in the
Employment Agreement, the Option shall become exercisable upon the date, if
any, of a Change in Control (as defined in the Employment Agreement).
3.6. Compliance with Applicable Law. The Option is subject to
the condition that if the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the
purchase or delivery of shares hereunder, the Option may not be exercised, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company agrees to use reasonable efforts to
effect or obtain any such listing, registration, qualification, consent or
approval.
3.7. Delivery of Certificates. Upon the exercise of the Option, in
whole or in part, the Company shall deliver or cause to be delivered one or
more certificates representing the number of shares purchased against full
payment therefor. The Company shall pay all original issue or transfer taxes
and all fees and expenses incident to such delivery, except as otherwise
provided in Section 3.3.
3.8. Option Confers No Rights as Stockholder. The Optionee
shall not be entitled to any privileges of ownership with respect to shares of
Stock subject to the Option unless and until purchased and delivered upon the
exercise of the Option, in whole or in part, and the Optionee becomes a
stockholder of record with respect to such delivered shares; and the Optionee
shall not be considered a stockholder of the Company with respect to any such
shares not so purchased and delivered.
3.9. Option Confers No Rights to Continued Employment. In no event
shall the granting of the Option or its acceptance by the Optionee give or
be deemed to give the Optionee any right to continued employment by the
Company or any subsidiary or affiliate of the Company.
3.10. Decisions of Board or Committee. The Board of Directors or the
Committee shall have the right to resolve all questions which may arise in
connection with the Option or its exercise. Any interpretation, determination
or other action made or taken by the Board of Directors or the Committee
regarding the Plan or this Agreement shall be final, binding and conclusive.
3.11. Company to Reserve Shares. The Company shall at all times prior to
the expiration or termination of the Option reserve and keep available,
either in its treasury or out of its authorized but unissued shares of Stock,
the full number of shares subject to the Option from time to time.
3.12. Agreement Subject to the Plan. This Agreement is subject to the
provisions of the Plan and shall be interpreted in accordance therewith. The
Optionee hereby acknowledges receipt of a copy of the Plan.
4. Miscellaneous Provisions.
4.1. Designation as Nonqualified Stock Option. The Option is
hereby designated as not constituting an "incentive stock option" within
meaning of section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"); this Agreement shall be interpreted and treated consistently with such
designation.
4.2 Meaning of Certain Terms. (a) As used herein, employment
by the Company shall include employment by a corporation which is a
"subsidiary corporation" of the Company, as such term is defined in section 424
of the Code. References in this Agreement to sections of the Code shall be
deemed to refer to any successor section of the Code or any successor internal
revenue law.
(b) As used herein, the term "Legal Representative" shall include
an executor, administrator, legal representative, guardian or similar person.
(c) As used herein, the term "Fair Market Value" shall mean the
closing transaction price of a share of Common Stock as reported in The Wall
Street Journal as New York Stock Exchange Composite Transactions for the date
as of which such value is being determined or, if there shall be no reported
transaction on such date, on the next preceding date for which a transaction
was reported; provided that if Fair Market Value for any date cannot be
determined as above provided, Fair Market Value shall be determined by the
Committee by whatever means or method as the Committee, in the good faith
exercise of its discretion, shall at such time deem appropriate.
4.3. Successors. This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Company and any person or
persons who shall, upon the death of the Optionee, acquire any rights
hereunder in accordance with this Agreement or the Plan.
4.4. Notices. All notices, requests or other communications
provided for in this Agreement shall be made, if to the Company, to Zenith
Electronics Corporation, 1000 Milwaukee Avenue, Glenview, Illinois 60025-
2493, Attention: Human Resources, and if to the Optionee, to the Optionee's
last known address set forth in the records of the Company, or such other
address as shall be provided to the Company in writing by the Optionee. All
notices, requests or other communications provided for in this Agreement shall
be made in writing either (a) by personal delivery to the party entitled
thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the
United States mails to the last known address of the party entitled thereto
or (d) by express courier service. The notice, request or other communication
shall be deemed to be received upon personal delivery, upon confirmation
of receipt of facsimile transmission or upon receipt by the party entitled
thereto if by United States mail or express courier service; provided, however,
that if a notice, request or other communication sent to the Company is not
received during regular business hours, it shall be deemed to be received
on the next succeeding business day of the Company.
4.5 Governing Law. This Agreement, the Option and all
determinations made and actions taken pursuant hereto and thereto, to the
extent not governed by the laws of the United States, shall be governed by the
laws of the State of Illinois and construed in accordance therewith without
giving effect to principles of conflicts of laws.
4.6 Counterparts. This Agreement may be executed in two
counterparts each of which shall be deemed an original and both of which
together shall constitute one and the same instrument.
ZENITH ELECTRONICS CORPORATION
By:
_________________________________
Accepted this 19th day of
_______________, 1998.
_________________________
Jeffrey P. Gannon
ZENITH ELECTRONICS CORPORATION
RESTRICTED STOCK AWARD AGREEMENT
THIS AGREEMENT, entered into as of January 12, 1998 (the "Agreement
Date"), by and between Jeffrey P. Gannon (the "Holder"), and Zenith
Electronics Corporation, a Delaware corporation (the "Company");
WITNESSETH THAT:
WHEREAS, pursuant to the terms of Exhibit 3 of the employment
agreement between the Executive and the Company dated January 12, 1998
(the "Employment Agreement"), the Company is to grant 500,000 shares of
Restricted Stock to the Executive, and the rights provided by this Agreement
are in settlement of that obligation;
NOW, THEREFORE, IT IS AGREED, by and between the Company
and the Executive, as follows:
Award.
1.1. Grant of Stock. The Company hereby grants to the Holder as of
January 12, 1998 (the "Grant Date"), pursuant to the provisions of the Zenith
Electronics Corporation Long-Term Equity Compensation Plan (the "Plan"), a
restricted stock award (the "Award") of 500,000 shares of the Company's
common stock, $1.00 par value ("Stock"), upon and subject to the restrictions,
terms and conditions set forth below, and subject to the provisions of the
Employment Agreement. Capitalized terms not defined herein shall have the
meanings specified in the Plan.
1.2. Award Subject to Acceptance of Agreement. The Award shall be
subject to the Holder accepting this Agreement by executing it in the space
provided below and returning it to the Company and executing and returning
one or more irrevocable stock powers to facilitate the transfer to the Company
(or its assignee or nominee) of all or a portion of the shares subject to the
Award, if shares are forfeited pursuant to Section 4 or if required under
applicable laws or regulations. As of the Grant Date, the Company shall cause
to be issued in the Holder's name a stock certificate or certificates
representing the total number of shares of Stock subject to the Award.
Rights as a Stockholder. The Holder shall have the right to vote the
shares of Stock subject to the Award. The Holder shall not be paid any
dividends or other distribution (including, without limitation, any stock
dividends or any shares pursuant to a stock split) with respect to the Award
until the Holder has become vested in the shares. At the time of vesting, the
Holder shall receive a cash payment equal to the aggregate cash dividends
(without interest) and other distribution(s) (without interest) that the Holder
would have received if he had owned all of the shares in which he vested for
the period beginning on the Grant Date and ending on the date of vesting. The
Holder shall, if requested by the Company, execute and return one or more
irrevocable stock powers with respect to such distributions for the period
prior to vesting. No dividends or other distributions shall be paid to the
Holder with respect to any shares of the Award that are forfeited by the Holder.
Custody and Delivery of Certificates Representing Shares. The Company
shall deposit the certificate or certificates representing the shares of
Stock subject to the Award in a bank designated by the Company until such
Award shall have vested, in whole or in part, pursuant to Section 4 and the
company shall as soon thereafter as practicable, subject to Section 6.3,
deliver the certificate or certificates for the vested shares to the Holder
and destroy the stock power or powers relating to the vested shares. If such
stock power or powers also relate to unvested shares, the Company may require,
as a condition precedent to delivery of any certificate pursuant to this
Section 3, the execution and delivery to the Company of one or more stock
powers relating to such unvested shares.
Restriction Period and Vesting. The Award shall vest in
accordance with the provisions of the Employment Agreement relating to the
Restricted Stock. The period beginning on the Grant Date and ending on the
date of vesting or forfeiture (whichever is applicable) of the Restricted
Stock is referred to as the "Restriction Period."
Cancellation of Agreement. In the event that the Holder shall
forfeit all or a portion of the shares of Stock subject to the Award, the
Holder shall, upon the Company's request, promptly return this Agreement to the
Company for full or partial cancellation, as the case may be. Such
cancellation shall be effective regardless of whether the Holder returns
this Agreement.
Additional Terms and Conditions of Award.
6.1. Nontransferability of Award. During the Restriction Period, the shares
of Stock subject to the Award and not then vested may not be transferred by
the Holder other than by will or the laws of descent and distribution.
Except to the extent permitted by the foregoing, during the Restriction
Period, the shares of Stock subject to the Award and not then vested
may not be sold, transferred, assigned, pledged, hypothecated, encumbered or
otherwise disposed of (whether by operation of law or otherwise) or be subject
to execution, attachment or similar process. Upon any attempt to so sell,
transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such
shares, the Award shall immediately become null and void.
6.2. Investment Representation. The Holder hereby represents and covenants
that (a) any share of Stock acquired upon the vesting of the Award will be
acquired for investment and not with a view to the distribution thereof within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"),
unless such acquisition has been registered under the Securities Act
and any applicable state securities law; (b) any subsequent sale of
any such shares shall be made either pursuant to an effective registration
statement under the Securities Act and any applicable state securities laws, or
pursuant to an exemption from registration under the Securities Act and such
state securities laws; and (c) if requested by the Company, the Holder shall
submit a written statement, in form satisfactory to the Company, to the effect
that such representation (x) is true and correct as of the date of acquisition
of any shares hereunder or (y) is true and correct as of the date of any sale
of any such shares, as applicable. As a further condition precedent to the
delivery to the Holder of any shares subject to the Award, the Holder shall
comply with all regulations and requirements of any regulatory authority
having control of or supervision over the issuance of the shares and, in
connection therewith, shall execute any documents which the Board or any
committee authorized by the Board shall in its sole discretion deem necessary
or advisable.
6.3. Withholding Taxes. (a) As a condition precedent to the
delivery to the Holder of any shares of Stock subject to the Award, the Holder
shall, upon request by the Company, pay to the Company such amount as the
Company may be required, under all applicable federal, state, local or other
laws or regulations, to withhold and pay over as income or other withholding
taxes (the "Required Tax Payments") with respect to the Award. If the Holder
shall fail to advance the Required Tax Payments after request by the Company,
the Company may, in its discretion, deduct any Required Tax Payments from
any amount then or thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance the
Required Tax Payments by any of the following means: (i) a cash payment to
the Company, (ii) delivery to the Company of previously owned whole shares
of Stock having a Fair Market Value, determined as of the date the obligation
to withhold or pay taxes first arises in connection with the Award
(the "Tax Date"), equal to the Required Tax Payments, (iii) authorizing the
Company to withhold from the shares of Stock otherwise to be delivered to the
Holder pursuant to the Award, a number of whole shares of Stock having a Fair
Market Value, determined as of the Tax Date, equal to the Required Tax
Payments, (iv) a cash payment by a broker-dealer acceptable to the Company
through whom the Holder has sold the shares with respect to which the Required
Tax Payments have arisen or (v) any combination of (i), (ii) and (iii).
Any fraction of a share of Stock which would be required to satisfy such an
obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
6.4. Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Award shall be
appropriately adjusted by the Committee. If any adjustment would result in a
fractional security being subject to the Award, the Company shall pay the
Holder in connection with the vesting, if any, of such fractional security, an
amount in cash determined by multiplying (i) such fraction (rounded to the
nearest hundredth) by (ii) the Fair Market Value on the vesting date. The
decision of the Committee regarding any such adjustment shall be final,
binding and conclusive.
6.5. Change in Control. To the extent provided in the Employment Agreement,
the Award shall vest upon the date, if any, of a Change in Control (as defined
in the Employment Agreement).
6.6. Compliance with Applicable Law. The Award is subject to
the condition that if the listing, registration or qualification of the shares
subject to the Award upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the vesting
or delivery of shares hereunder, the shares of Stock subject to the Award may
not be delivered, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained,
free of any conditions not acceptable to the Company. The Company agrees to
use reasonable efforts to effect or obtain any such listing, registration,
qualification, consent or approval.
6.7. Delivery of Certificates. Subject to Section 6.3, upon the vesting of
the Award, in whole or in part, the Company shall deliver or cause to be
delivered one or more certificates representing the number of vested shares.
The Company shall pay all original issue or transfer taxes and all fees and
expenses incident to such delivery, except as otherwise provided in Section 6.3.
6.8. Award Confers No Rights to Continued Employment. In no event
shall the granting of the Award or its acceptance by the Holder give or be
deemed to give the Holder any right to continued employment by the Company
or any subsidiary or affiliate of the Company.
6.9. Decisions of Board or Committee. The Board of Directors or the
Committee shall have the right to resolve all questions which may arise in
connection with the Award. Any interpretation, determination or other action
made or taken by the Board of Directors or the Committee regarding the Plan
or this Agreement shall be final, binding and conclusive.
6.10. Agreement Subject to the Plan. This Agreement is subject to the
provisions of the Plan and shall be interpreted in accordance therewith. The
Holder hereby acknowledges receipt of a copy of the Plan.
Miscellaneous Provisions.
7.1. Meaning of Certain Terms.
(a) As used herein, the term "vest" shall mean no longer subject
to forfeiture and all rights hereunder shall be deemed to be vested.
(b) As used herein, employment by the Company shall include
employment by a corporation which is a "subsidiary corporation" of the
Company, as such term is defined in section 424 of the Internal Revenue Code
of 1986, as amended (the "Code"). References in this Agreement to sections of
the Code shall be deemed to refer to any successor section of the Code or any
successor internal revenue law.
(c) As used herein, the term "Fair Market Value" shall mean the closing
transaction price of a share of Common Stock as reported in The Wall Street
Journal as New York Stock Exchange Composite Transactions for the date as of
which such value is being determined or, if there shall be no reported
transaction on such date, on the next preceding date for which a transaction
was reported; provided that if Fair Market Value for any date cannot be
determined as above provided, Fair Market Value shall be determined by the
Committee by whatever means or method as the Committee, in the good faith
exercise of its discretion, shall at such time deem appropriate.
7.2. Successors. This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Company and any person or
persons who shall, upon the death of the Holder, acquire any rights hereunder
in accordance with this Agreement or the Plan.
7.3. Notices. All notices, requests or other communications
provided for in this Agreement shall be made, if to the Company, to Zenith
Electronics Corporation, 1000 Milwaukee Avenue, Glenview, Illinois 60025-
2493, Attention: Treasurer, and if to the Holder, to the Holder's last known
address set forth in the records of the Company, or such other address as shall
be provided to the Company in writing by the Holder. All notices, requests or
other communications provided for in this Agreement shall be made in writing
either (a) by personal delivery to the party entitled thereto, (b) by facsimile
with confirmation of receipt, (c) by mailing in the United States mails to the
last known address of the party entitled thereto or (d) by express courier
service. The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of facsimile
transmission, or upon receipt by the party entitled thereto if by United
States mail or express courier service; provided, however, that if a notice,
request or other communication is not received during regular business hours,
it shall be deemed to be received on the next succeeding business day of the
Company.
7.4 Governing Law. This Agreement, the Award and all
determinations made and actions taken pursuant hereto and thereto, to the
extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Illinois and construed in accordance
therewith without giving effect to principles of conflicts of laws principles.
7.5 Counterparts. This Agreement may be executed in two
counterparts each of which shall be deemed an original and both of which
together shall constitute one and the same instrument.
ZENITH ELECTRONICS CORPORATION
By:
_________________________________
Accepted this 19th day of
January, 1998.
_________________________
Holder: Jeffrey P. Gannon
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