-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WGebJXTFLwxcLLhbH5TOpRyv49sqCZHIf/m1FW70A+6UMM9KFlTaopTZ+NWT8irt 7EiVqwObJkpksdZ9gyp36A== 0000109265-95-000007.txt : 19950302 0000109265-95-000007.hdr.sgml : 19950302 ACCESSION NUMBER: 0000109265-95-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950228 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZENITH ELECTRONICS CORP CENTRAL INDEX KEY: 0000109265 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 361996520 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04115 FILM NUMBER: 95515812 BUSINESS ADDRESS: STREET 1: 1000 MILWAUKEE AVE CITY: GLENVIEW STATE: IL ZIP: 60025 BUSINESS PHONE: 7083917000 MAIL ADDRESS: STREET 1: 1000 MILWAUKEE AVENUE CITY: GLENVIEW STATE: IL ZIP: 60025 FORMER COMPANY: FORMER CONFORMED NAME: ZENITH RADIO CORP DATE OF NAME CHANGE: 19840508 10-K 1 FORM 10-K FOR THE YEAR ENDED 12/31/94 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1994 Commission File Number 1-4115 Zenith Electronics Corporation (Exact name of registrant as specified in its charter) Delaware 36-1996520 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1000 Milwaukee Avenue, Glenview, Illinois 60025-2493 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (708) 391-7000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------------- ----------------------------------------- Common Stock, $1 par value, New York Stock Exchange and associated purchase rights Chicago Stock Exchange Basel, Geneva and Zurich, Switzerland Stock Exchange 6 1/4 % Convertible Subordinated New York Stock Exchange Debentures, due 2011 Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. __X__ Indicate by check mark whether the registrant (1) has filed all reports required to be filed of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No_____ The aggregate market value of the registrant's Common Stock held by non-affiliates based on the New York Stock Exchange closing price on February 17, 1995, was $425,720,381. As of February 17, 1995, there were 45,675,973 shares of Common Stock, par value $1 per share outstanding. Documents Incorporated by Reference Portions of the Registrant's definitive Proxy Statement are incorporated by reference into Part III of this report. ZENITH ELECTRONICS CORPORATION FORM 10-K INDEX Page Number ------ PART I Item 1. BUSINESS 3 Item 2. PROPERTIES 5 Item 3. LEGAL PROCEEDINGS 6 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 8 Item 6. SELECTED FINANCIAL DATA 8 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 15 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 15 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 16 Item 11. EXECUTIVE COMPENSATION 17 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 17 Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 18 SIGNATURES 24 INDEX TO FINANCIAL STATEMENTS AND EXHIBITS 26 PART I ITEM 1. BUSINESS The company was founded in 1918 and has been a leader in consumer electronics, first in radio and later in monochrome and color television and other video products. The company's operations involve a dominant industry segment, the design, development, and manufacture of video products (including color television sets and other consumer products) along with parts and accessories for such products. These products along with purchased video cassette recorders are sold principally to major retail dealers and independent and wholly-owned regional wholesale distributors in the United States, Canada and other foreign countries. The company intends to changeover to an entirely direct-to-retail distribution organization during 1995. The company also sells directly to buying groups and private label customers in the lodging, health care and rent-to-own industries. The company's video products also include color picture tubes that are produced for and sold to other manufacturers and Network Systems products such as cable and telecommunication set-top devices, interactive television and data communication products which are sold primarily to cable television operators and other commercial users of these products. The company has sold or downsized its non-core business activities. The company sold its monochrome video monitor business in 1993 and its power supply business in April 1994. Its activities in color video monitors sold to computer manufacturers have been scaled back in 1994 and will cease in the near future; its activities in high-security electronic equipment have been discontinued. The company has reported substantial losses from its continuing operations for each of the last ten years. These results reflect the cumulative effect of frequent and significant color TV price reductions during the 1980s and, in the early 1990s, also reflected recessionary conditions in the United States. In addition, the company has invested significant amounts in engineering and research in recent years, which amounts have been expensed as incurred. Raw Materials Many materials, such as copper, plastic, steel, wood, glass, aluminum and zinc, are essential to the business. Adequate sources of supply exist for these materials, although picture tube glass shortages did occur in 1993 (due to a continuing industry glass shortage). During 1994 the company's picture tube production was not limited by this continuing industry glass shortage. Patents The company is licensed under a number of patents which are of importance to its business, and holds numerous patents that expire at various times through 2011. The company has patents and patent applications for numerous high-definition television (HDTV) related inventions. To the extent these inventions are incorporated into the HDTV standard to be adopted by the Federal Communications Commission, the company expects to receive royalties from these patents. In addition, royalties have been and may be received from these patents for non-HDTV applications as well. In addition, major manufacturers of televisions and video cassette recorders agreed during 1992 to take licenses under some of the company's U.S. tuning system patents (the licenses expire in 2003). While in the aggregate its patents and licenses are valuable, the business of the company is not materially dependent on them. Based on 1994 U.S. industry unit sales levels and technology, more than $25 million in annual royalty income is expected through the licensing period. Seasonal Variations in Business Sales of the company's consumer electronics products are generally at a higher level during the second half of the year. Sales of consumer electronics products typically increase in the fall, as the summer vacation season ends and people spend more time indoors with the new fall programming on television and during the Christmas holiday season. During 1994, 1993 and 1992, 59 percent, 54 percent and 56 percent, respectively, of the company's net sales were recorded in the second half of the year and approximately 30 percent of the company's net sales were recorded in the fourth quarter of each of the three years ended December 31, 1994. Competitive Conditions Competitive factors in North America include price, performance, quality, variety of products and features offered, marketing and sales capabilities, manufacturing costs, and service and support. The company believes it competes well with respect to each of these factors. The company's major product areas, including the color television market, are highly competitive. The company's major competitors are foreign- owned global giants, generally with greater worldwide television volume and overall resources. In efforts to increase market share or achieve higher production volumes, the company's competitors have aggressively lowered their selling prices in the past several years. During 1994, the company continued to pursue efforts to reduce unfair competition from television imports. Research and Development During 1994 expenditures for company-sponsored engineering and research relating to new products and services and to improvements of existing products and services amounted to $45.4 million. Amounts expended in 1993 and 1992 were $47.8 million and $55.4 million, respectively. Environmental Issues Compliance with Federal, State and local environmental protection provisions is not expected to have a material effect on capital expenditures, earnings or the competitive position of the company. Further information regarding environmental compliance is set forth under Item 3 of this report. Number of Employees At the end of December 1994, the company employed approximately 22,500 people, of whom approximately 16,200 are hourly workers covered by collective bargaining agreements. Approximately 4,700 of the company's employees are located in the Chicago, Illinois area, of whom approximately 3,100 are represented by unions. Approximately 16,800 of the company's employees are located in Mexico, of whom approximately 12,800 are represented by unions. Mexican labor contracts expire every two years and wages are renegotiated annually or more frequently under rapid devaluation or high inflation periods. The company believes that its relations with its employees are good. Financial Information about Foreign and Domestic Operations and Export Sales The North American Free Trade Agreement ("NAFTA"), which took effect on January 1, 1994, significantly reduced duty costs in 1994. The NAFTA also improved the company's ability to compete against Asian imports in North America and increased sales of the company's color television receivers in Mexico and Canada and color picture tube production in the U.S. Since the passage of the NAFTA, the company has added approximately 300 U.S. jobs that are directly related to increased demand for U.S. picture tubes. Information regarding foreign operations is included in "Note Five - Geographic Segment Data" on page 33 of this report. Export sales are less than 10% of consolidated net sales. The company's product lines are dependent on the continuing operations of the company's manufacturing and assembly facilities located in Mexico. ITEM 2. PROPERTIES The company utilizes a total of approximately 6.0 million square feet for manufacturing, warehousing, engineering and research, administration and distribution, as described below. Square Feet Location Nature of Operation (in millions) - ---------------------------------------------------------------------------- Domestic: - --------------------- Chicago, Illinois Six locations - production of 2.4 (including suburban color picture tubes, parts and locations) service; engineering and research, marketing and administration activities; and assembly of electronic components (.8 million square feet is leased by the company) McAllen, El Paso, Fort Six locations - warehouses .7 Worth and Brownsville, (.6 million square feet is Texas; Douglas, Arizona leased by the company) Various Eight locations - domestic distribution .1 (.1 million square feet is leased by the company) Foreign: - --------------------- Mexico Fifteen manufacturing and warehouse 2.6 (1) locations - production of plastic and wooden cabinets for color television, sub-assembly production of television chassis, tuners and other components and final assembly of color television, and Network Systems products; and assembly of power supplies Canada Three locations - distribution of Consumer Electronics products .2 Taiwan One location - purchasing office - ------ Total 6.0 ====== (1) The company owns, and has offered for sale or lease, 230,000 square feet of manufacturing and warehousing space in Chihuahua, Mexico. Currently this space is not being utilized by the company and as such is not included in the above table. The company's facilities are suitable and adequate to meet current and anticipated requirements. None of the real property owned by the company is mortgaged ITEM 3. LEGAL PROCEEDINGS The company is involved in various legal actions, environmental matters, and other proceedings relating to a wide range of matters that are incidental to the conduct of its business. The company believes, after reviewing such matters with the company,s counsel, that any liability which may ultimately be incurred with respect to these matters is not expected to have a material effect on either the company's consolidated financial position or results of operations. On April 27, 1993, the U.S. Environmental Protection Agency ("EPA") sent written notices to all potentially responsible parties, advising the parties of the EPA's proposed plan of remediation at the American Chemical Services site near Griffith, Indiana. The EPA notified the parties that they would be expected to make a good faith offer to perform the remedial action and thereafter to negotiate and enter into a consent decree with the agency. The EPA estimates that the cost of remedial action could range from $38 to $64 million, depending upon the type of remedy actually needed to effect the cleanup. The company is alleged to have contributed less than one-tenth of one percent of the hazardous waste identified at the site. The company and other de minimus waste generators entered into a de minimus settlement with the EPA in July 1994. In January 1995, the company paid $114,000 as its share of the settlement. In October 1989, the EPA filed a civil action against certain generator and owner/operator defendants under the Comprehensive Environmental Response, Compensation and Liabilities Act seeking reimbursement for the EPA's response costs in connection with an environmental cleanup at a site known as Moyer Landfill located at Collegeville, Pennsylvania. One of the original defendants to the EPA case brought a third party action for contribution against a number of third party defendants, including Ford Electronics and Refrigeration Corporation ("FERCO"). FERCO sought $600,000 in contribution from the company on the ground that FERCO is being held liable in part because it hauled certain waste from the company's former Lansdale, Pennsylvania picture tube plant. The company recently entered into an agreement with FERCO and agreed to contribute $300,000 toward a settlement with the federal government and the Commonwealth of Pennsylvania, subject to negotiation of an acceptable consent decree. Numerous lawsuits against major computer and peripheral equipment manufacturers are pending in the U.S. District Court, Eastern District of New York, the U.S. District Court of New Jersey and the New York State courts, as well as other federal courts. These lawsuits seek several billion dollars in damages from various defendants for repetitive stress injuries claimed to have been caused by the use of word processor equipment. The company has been named as a defendant in twenty-seven of these cases which relate to keyboards allegedly manufactured by the company for its former subsidiary, Zenith Data Systems Corporation. Plaintiffs in the company's cases seek to recover $31 million actual and $321 million punitive damages from the company. The company believes it has meritorious defenses to the cases. In April, 1993, a group of 47 plaintiffs, individually and on behalf of certain minors and decedents, filed suit in the District Court of Cameron County, Texas against approximately 130 defendants, including the company's subsidiaries, Zenith Electronics Corporation of Texas and Electro Partes de Matamoros, S.A. de C.V. alleging that plaintiffs suffered injuries or death as a result of defendants' negligence, negligent design for and implemented practices of managing, handling, storage, transportation, utilization and disposal of toxic compounds. Plaintiffs seek judgment for actual and punitive damages against defendants, jointly and severally, in an unspecified amount. The company's two subsidiaries filed answers denying the material allegations of the complaint. The parties are presently in discovery and the trial is currently scheduled for August 14, 1995. In December, 1994, the company notified its 15 remaining independent wholesale distributors of color television and other consumer electronics products of its intent to change to "one-step" (direct-to-retail) distribution on a nationwide basis during the first half of 1995. The company offered to extend its 1994 agreement with each distributor for a negotiated period up to six months ending June 30, 1995. These independent distributors currently distribute the company's products in certain areas of the U.S. Through the early 1970s, independent distributors located throughout the U.S. handled most of the company's consumer electronics business. Currently, however, following industry trends, the majority of the company's sales are made directly to retail customers. In February, 1995, one of the independent distributors, Electrical Distributing, Inc. ("EDI"), based in Portland, Oregon, filed suit in the Oregon state court challenging the company's right to cease its relationship with EDI and alleging that certain company practices during the course of the relationship have damaged EDI. The EDI lawsuit seeks injunctive relief, actual damages of $8 million, and punitive damages of $20 million. The company believes it has the right to change its method of distribution and has met all of its legal obligations to EDI. Accordingly, the company intends to defend itself vigorously. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of 1994, through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The New York Stock Exchange is the principal United States market in which the company's common stock is traded. The number of stockholders of record was 16,544 as of February 17, 1995. No dividends were paid to stockholders during the two years ended December 31, 1994. The high and low price range for the company's common stock by quarter for the past two years is included in the Unaudited Quarterly Financial Information on page 40 of this report. ITEM 6. SELECTED FINANCIAL DATA Five-Year Summary of Selected Financial Data
In millions, except per share amounts 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------ Results of operations: Net sales $ 1,469.0 $ 1,228.2 $ 1,243.5 $1,321.6 $1,409.9 Pre-tax income (loss) from continuing operations (14.5) (97.0) (121.8) (51.4) (53.3) Income (loss) from continuing operations $ (14.2) $ (97.0) $ (105.9) $ (51.6) $ (54.2) Income (loss) from discontinued operations - - - - (11.0) -------------------------------------------------------- Net income (loss) $ (14.2) $ (97.0) $ (105.9) $ (51.6) $ (65.2) ======================================================== Financial position: Total assets $ 653.6 $ 559.4 $ 578.6 $ 686.9 $ 722.7 Long-term debt 182.0 170.0 149.5 149.5 151.1 Stockholders' equity 228.3 152.4 210.1 308.8 345.9 Per share of common stock (primary and fully diluted): Income (loss) from continuing operations $ ( .34) $ (3.01) $ (3.59) $ (1.79) $ (2.02) Income (loss) from discontinued operations - - - - (.41) -------------------------------------------------------- Net income (loss) $ ( .34) $ (3.01) $ (3.59) $ (1.79) $ (2.43) ======================================================== Book value per share $ 5.00 $ 4.25 $ 6.94 $ 10.60 $ 12.49
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Analysis of Operations
Year-to-Year Changes In millions Year-Ended December 31 Better/(Worse) - ------------------------------------------------------------------------------------ 1994 1993 1994 1993 1992 vs. 1993 vs. 1992 - ------------------------------------------------------------------------------------ Operating income (loss) before restructuring and other charges $ (10) $ (51) $ (61) $ 41 $ 10 Restructuring and other charges - (31) (48) 31 17 ----------------------------------------------- Operating income (loss) (10) (82) (109) 72 27 Gain on asset sales, net 11 - - 11 - Interest expense, net (15) (15) (13) - (2) ----------------------------------------------- Income (loss) before income taxes (14) (97) (122) 83 25 Income taxes (credit) - - (16) - (16) ----------------------------------------------- Net income (loss) $ (14) $ (97) $ (106) $ 83 $ 9 ===============================================
Operating Results -- 1994 vs. 1993 The operating loss before restructuring and other charges was $10 million in 1994 and $51 million in 1993. Consolidated sales in 1994 were $1,469 million, up 20 percent from $1,228 million in 1993. The significant increase was principally due to higher unit volume in the core business, Consumer Electronics and Network Systems, which was partially offset by lower sales in the non-core product areas and lower Consumer Electronics product pricing. As in previous years, substantial cost reductions were realized company- wide. These savings, about $40 million in 1994, resulted from continued process and design improvements, improved efficiencies, re-engineering and continued consolidations. In addition, the implementation of the North American Free Trade Agreement ("NAFTA") reduced the company's duty costs by $19 million. These cost reductions were offset by $46 million of consumer product price reductions that were implemented throughout the year, and $22 million of inflationary cost increases. Even with the continued industry-wide picture tube glass shortage, industry color TV unit sales to dealers increased by 10 percent in 1994 (following two successive years of 11 percent increases) to a record 27.4 million units. The company's unit sales increase was significantly higher than the industry growth rate, which resulted in an improved market share for the company. The company's increase was especially strong in key industry-growth categories, such as projection TV, large-screen table models and combination TV-VCR products. Industry sales of video cassette recorders to dealers increased 6 percent in 1994 and, again, the company's volume increased even more. In 1994, picture tube production was up 21 percent facilitated by the late 1993 conversion of a monitor tube production line to television tube production. Unit sales of picture tubes to other TV manufacturers were up 12 percent as demand remained strong due to the industry growth and the NAFTA advantage associated with using North American picture tubes. The remaining production increase supported the company's own television set production. The company's picture tube production was not limited by the continuing industry glass shortage. Dollar sales increased about 40 percent in the company's Network Systems product line, which included the design and manufacture of set-top boxes and other products primarily for cable TV operators. The results in 1994 reflect the effort to refocus this core product line through a reorganization and new product offerings as well as an improved industry environment. At year-end 1994, the company recorded a $4 million reserve related to the replacement of defective integrated circuits in some cable decoders. Sales of other products decreased by $59 million in 1994 as the company continued to phase-out or sell its non-core businesses. Corporate operating results improved as these businesses were scaled back and eliminated. During the year, production of both monochrome and color monitors ceased. The magnetics business was sold in April 1994, although the company will continue to manufacture power supplies for the purchaser of the business until April 1995. The company realized a gain of $11 million on 1994 asset sales, including more than 3 million square feet of excess plant and office space, 98 acres of vacant land, and assets related to the magnetics business. Engineering and research expenses were $45 million in 1994, compared with $48 million in 1993, with reductions principally in non-core product areas. Selling, general and administrative expenses increased to $117 million in 1994 from $93 million in 1993, primarily due to increased advertising costs in the United States and Mexico in support of the higher sales volume. Other operating income (net) increased to $34 million in 1994 from $25 million in 1993, principally as a result of increased royalty income (primarily for tuning system license agreements due to the growth in the domestic industry) and foreign exchange gains caused by the Mexican peso devaluation. Operating Results -- 1993 vs. 1992 The operating loss before restructuring and other charges was $51 million in 1993 and $61 million in 1992. Consolidated sales in 1993 were $1,228 million, down 1 percent from $1,244 million in 1992. The decline was principally due to lower sales in the non-core product areas and lower consumer product pricing, largely offset by higher unit volume in the consumer product line. The effect on operating results of unit volume increases in consumer products was offset by volume declines in the non-core product areas. Substantial cost reductions in all product areas of about $75 million resulted from process and design improvements, consolidation of operations in Mexico, headcount reductions and other operating changes. These cost reductions were offset by $42 million in consumer products price reductions that had been implemented throughout 1992 and early 1993, and $20 million of inflationary cost increases, primarily labor costs in Mexico. Despite the adverse impact of an industry glass shortage, industry color TV unit sales to dealers rose 11 percent in 1993 (following an 11 percent increase in 1992) to set a new record. The company's unit sales increase outpaced the industry growth, leading to an increase in market share. While industry unit sales to dealers of video cassette recorder decks remained about equal to 1992, the company's volume increased. Unit sales of color picture tubes to other TV manufacturers decreased in 1993 because the company used more of its capacity to support increased sales of the company's color TVs and because of an industry glass shortage, which also adversely impacted the company's color TV sales. Additional picture tube capacity became available in late 1993 when the dedicated flat tension mask tube production line was converted to be able to produce both television and monitor picture tubes. Operating results were improved by the full year effect of certain manufacturing operations that were consolidated in Mexico during 1992, as well as continued efforts to reduce headcounts and product costs. Sales of Network Systems products declined in 1993 as a new product for a major contract manufacturing customer was delayed. However, due to major cost savings associated with headcount reductions and consolidations of manufacturing operations, operating results improved compared to 1992. Sales of other products decreased in 1993 as the company downsized its non-core magnetics and monitor product areas. However, the cost structures of these areas were improved so that operating results in 1993 were somewhat better than 1992. During the year, the monochrome monitor business was sold (production ended in early 1994) and the company reached an agreement to sell the power supply business in early 1994. Engineering and research expenses were $48 million in 1993, compared to $55 million in 1992, with reductions principally in non-core product areas. Selling, general, and administrative expenses declined slightly to $93 million in 1993 from $94 million. These improvements were primarily the result of headcount reductions initiated in late 1992. Other operating income (net) increased to $25 million in 1993 from $24 million in 1992, as a result of increased royalty income from new licensing activities. Royalty income arising from licensing of the company's patented tuning-system technology to other color TV and VCR manufacturers was about $26 million in both 1993 and 1992 and is included in other operating income (net). Interest expense (net) of $15 million in 1993 was higher than 1992's $13 million as a result of increased average borrowings. The income tax credit in 1992 consisted principally of the reversal of previously accrued tax reserves no longer required in connection with earnings of a foreign subsidiary, and net operating loss carryback applications. Restructuring and Other Charges During the fourth quarter of 1993, the company recorded a charge of $31 million primarily to restructure certain product areas and re-engineer its core Consumer Electronics and Network Systems business. The restructuring affected computer monitors and magnetics, product areas that were phased- out or sold in 1994. Major elements of this charge were the non-cash writedown of fixed assets and inventory ($23 million) as well as re- engineering and severance costs ($6 million) that were substantially paid during 1994. As expected, the restructuring actions reduced 1994 compensation expense by approximately $10 million and reduced depreciation expense by approximately $4 million. No material changes have occurred or are anticipated in these programs or in the estimated costs or benefits of the programs. The 1992 results also included restructuring and other charges of $48 million. Included in the actions were manufacturing consolidations and related employment reductions in Mexico; consolidation of company-owned distribution; and salaried employment reductions throughout the company. In addition to valuation reserves for inventories and manufacturing equipment ($22 million) and severance and relocation costs ($18 million) which were substantially paid in 1993 and 1994, the special charges also provided for trade-receivable write-offs ($6 million). Liquidity and Capital Resources Following is a three-year summary of cash provided and used: Cash Provided (Used) ----------------------------------------------- Three-Year Year Ended December 31 In millions Total 1994 1993 1992 - ----------------------------------------------------------------------------- Cash at beginning of period $ 36 $ 21 $ 6 $ 36 Operating Activities (86) (42) (28) (16) Investing Activities (83) (32) (26) (25) Financing Activities 142 62 69 11 -------------------------------------------- Cash at end of period $ 9 $ 9 $ 21 $ 6 ============================================ Liquidity Cash decreased by $27 million during the three-year period of 1992-1994. The decrease consisted of $86 million of cash used by operating activities and $83 million used to purchase fixed assets, net of proceeds from asset sales. These uses of cash were offset by $142 million of cash provided from financing activities which included sales of the company's common stock and the issuance of long-term debt offset by cash used for the redemption of the company's 12-1/8% notes due January 1995, in early 1994. Operating activities: In 1994, $42 million of cash was used by operating activities principally to fund a $52 million change in current accounts offset by $4 million in net income from operations as adjusted for depreciation and gains on the sales of assets. The change in current accounts was composed primarily of a $46 million increase in receivables (due to higher sales) and a $43 million increase in inventories, (due mainly to increased levels of color television production in support of higher sales), partially offset by a $40 million increase in accounts payable and accrued expenses. In addition, the company reduced cash used by operating activities by issuing common stock to the profit-sharing retirement plans to fulfill the 1994 obligation to salaried employees and a portion of the hourly employees. This issuance increased stockholders' equity by $6 million. In 1993, $28 million of cash was used by operating activities principally to fund $45 million of net losses from operations as adjusted for depreciation and fixed asset write downs as a part of restructuring and other charges. A decrease in current accounts provided $3 million of cash and was composed of a $15 million decrease in receivables offset by an $8 million increase in inventories and a $4 million decrease in accounts payable and accrued expenses. The decrease in receivables was due to lower sales. Also, the company reduced cash used by operating activities by issuing common stock to the profit-sharing retirement plans to fulfill both the 1992 obligation to salaried employees and the 1993 obligation to salaried employees and a portion of the hourly employees. These issuances increased stockholders' equity by $15 million. In 1992, $16 million of cash was used by operating activities principally to fund $64 million of net losses from operations as adjusted for depreciation, fixed asset write downs as a part of a restructuring and a loss on the disposition of properties. This was offset by cash provided from a $41 million decrease in current accounts composed of a $39 million decrease in inventories and a $21 million decrease in receivables, offset by a $15 million decrease in net income taxes payable and a $4 million decrease in accounts payable and accrued expenses. The company reduced cash used by operating activities by issuing common stock to the profit-sharing retirement plan to fulfill the 1991 obligation to salaried employees, increasing stockholders' equity by $6 million. Investing activities: In 1994, investing activities used $32 million of cash which consisted of capital additions of $59 million offset by $27 million of proceeds from asset sales. Capital additions in 1994 were significantly higher than in 1993 due mainly to investments in a new plastic injection molding operation, modernizing a wood cabinet mill room and re- engineering activities related to the core Consumer Electronics business. In 1993, investing activities used $26 million of cash for capital additions. In 1992, $25 million of cash was used which consisted of capital additions of $32 million offset by $7 million of proceeds from a 1991 property sale. Financing activities: In 1994, financing activities provided $62 million of cash which included $84 million provided from sales of the company's common stock (including stock option exercises) and $12 million from the sale of 8.5% senior subordinated convertible debentures due 2001. This was offset by $35 million of cash used to redeem the company's outstanding 12-1/8% notes due January 1995 at a redemption price equal to par value (plus accrued interest). In 1993, financing activities provided $69 million of cash which included $55 million provided from the sale of 8.5% senior subordinated convertible debentures and $24 million provided from sales of the company's common stock (including stock option exercises). This was offset by $10 million of cash used to repay borrowings under the company's working capital Credit Agreement with a lending group led by General Electric Capital Corporation (the "Credit Agreement"). In 1992, financing activities provided $11 million of cash which included $10 million provided from borrowings under the company's revolving credit and security agreement and $1 million provided from the exercise of stock options. Capital Resources As of December 31, 1994, total interest-bearing obligations of the company consisted of $182 million of long-term debt and $19 million of extended- term payables with a foreign supplier. The company's long-term debt is composed of $115 million of 6 1/4% convertible subordinated debentures due 2011 that require annual sinking fund payments of $6 million beginning in 1997, $55 million aggregate principal amount of 8.5% senior subordinated convertible debentures due 2000 that were issued and sold during 1993 in a private placement and $12 million aggregate principal amount of 8.5% senior subordinated convertible debentures due 2001 that were issued and sold during 1994 in a private placement. In May 1993, the company entered into its current Credit Agreement. The maximum commitment of funds available for borrowing under the Credit Agreement is $90 million, but is limited by a defined borrowing base formula related to eligible accounts and inventory (each as defined in the Credit Agreement). The Credit Agreement terminates on June 30, 1996 (unless extended by agreement of the lenders), at which time all outstanding indebtedness thereunder would have to be refinanced. There can be no assurance that the Credit Agreement will be extended or refinanced. The Credit Agreement contains restrictive financial covenants that must be maintained as of the end of each fiscal quarter, including a liabilities to net worth ratio and a minimum net worth amount. In addition, the Credit Agreement restricts the amount of capital expenditures by the company in each fiscal year. As of December 31, 1994, no borrowings were outstanding under the Credit Agreement in keeping with the seasonal nature of the company's working capital needs. A Registration Statement was filed with the Securities and Exchange Commission in December 1994 covering 6.5 million shares of common stock and became effective in February 1995. The shares of common stock may be sold by the company in an at-the-market equity offering(s) or on a negotiated or competitive bid basis through underwriters or dealers or directly to other purchasers or through agents. Although the company believes that its Credit Agreement, together with extended-term payables expected to be available from a foreign supplier and its continuing efforts to obtain other financing sources, including sales of common stock as discussed above, will be adequate to meet its seasonal working capital, capital expenditure and other requirements in 1995, there can be no assurance that the company will not experience liquidity problems in the future because of adverse market conditions or other unfavorable events. In such event, the company would be required to seek other sources of liquidity, if available. In addition, the company is reviewing possible capital investment projects over the next three years (which may require an amendment to the Credit Agreement) and options for additional financing that would be required to support these projects. If undertaken, the projects are expected to reduce the costs and increase production capacity primarily in the company's picture tube operations. There can be no assurance that these projects will be undertaken (or that such Credit Agreement amendment will be obtained, if requested). Outlook The company's major product areas, including the color television market, are highly competitive. The company's major competitors are foreign- owned global giants, generally with greater worldwide television volume and overall resources. In efforts to increase market share or achieve higher production volumes, the company's competitors have aggressively lowered their selling prices in the past several years. Price competition continued in 1994 and early 1995, and the company selectively reduced color television prices to maintain its historical competitive price position. There can be no assurance that such competition will not continue to adversely affect the company's performance or that the company will be able to maintain its market share in the face of such competition. The North American Free Trade Agreement, which took effect on January 1, 1994, significantly reduced duty costs in 1994. This improved the company's ability to compete against Asian imports in North America and increased sales of the company's color television receivers in Mexico and Canada and color picture tube production in the U.S. However, in December 1994 the Mexican peso devalued by almost 50 percent. The company expects that this devaluation will negatively impact the company's sales in Mexico, but that any negative impact from the reduced sales will be more than offset by the effect on peso denominated expenses in its Mexican subsidiaries. In light of the company's losses from continuing operations, competitive environment and inflationary cost pressures (including purchased material as well as labor costs in Mexico where labor contracts expire every two years and wages are renegotiated annually or more frequently under rapid devaluation or high inflation periods), the company has undertaken major cost reduction programs each year. In 1994, the company reduced costs by about $40 million from continued process and design improvements, improved efficiencies, re-engineering and continued consolidations. The company continues to seek additional cost reduction opportunities for 1995 and beyond, although there can be no assurance that any such cost reductions will be achieved. As a part of these cost reduction efforts, the company plans significant headcount reductions in the first half of 1995 which will result in costs associated with severance liabilities. Also, as in 1994 and 1993, the company may experience an adverse impact as shortages of certain components may continue in 1995. The goals of the company's business strategy are to improve profitability, to introduce new products, to develop new products (such as digital cable products incorporating the company-developed transmission technology selected in February 1994 by the HDTV Grand Alliance and the FCC Advisory Committee review panel), and to re-engineer operations including the change over to an entirely direct-to-retail distribution organization. This strategy is expected to continue to involve significant expenditures by the company in 1995 and beyond. The company expects that a number of unusual factors will have an adverse effect on first-quarter 1995 results: * Start-up problems in January and early February at the company's new finished-goods warehouse in Ft. Worth, Texas, caused shipments to be missed. Those problems have now been resolved. * TV shipments by the industry and the company to the Mexican market were almost completely curtailed after the peso devaluation. The company believes that Mexican dealers are selling off their pre- devaluation inventory. With dealer costs up by 40-50 percent in pesos, the company expects the Mexican market to recover slowly. * The company anticipates significant cost reduction benefits in 1995 as a result of the peso devaluation. However, the devaluation impact is expected to be limited in the first quarter as manufacturing costs flow through inventory before being reflected in operating results. * The company's year-end finished goods inventory was higher than target. This, coupled with reduced shipments from the first two factors above, caused the company to cut first-quarter television set production by about 17 percent to bring inventories into line. This will result in a first-quarter production rate lower than that expected for the rest of the year, with attendant higher per-unit overhead costs. * The first-quarter is expected to include severance costs related to significant headcount reductions in Mexico planned for the first half of the year, as well as start-up costs and duplicate overheads to support the changeover to an entirely direct-to-retail distribution organization. These unusual factors, along with an $11 million effect from price reductions implemented in 1994 and in early 1995, are expected to result in first-quarter 1995 operating results that will be significantly below the 1994 first-quarter results. There can be no assurance that the company will achieve the goals of its business strategy, including efforts to improve financial results later in 1995. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial information required by Item 8 is contained in Item 14 of Part IV (page 18) of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning directors is incorporated herein by reference from the sections entitled "Election of Directors", "Nominees for Election as Directors" and "Board of Directors, Committees and Directors' Compensation" from the company's definitive Proxy Statement, copies of which will be electronically transmitted to the Commission via EDGAR. EXECUTIVE OFFICERS OF THE REGISTRANT Name Office Held Age - --------------------------------------------------------------------------- Kell B. Benson Senior Vice President-Finance and Chief 47 Financial Officer since August 1994, Vice President-Finance and Chief Financial Officer 1989 - 1994, Vice President-Controller 1989 Michael J. Kaplan Vice President-Human Resources since 1993, 55 Vice President-Human Resources and Public Affairs 1988 - 1993 Gerald M. McCarthy Executive Vice President, Sales and Marketing 53 and member of the Office of the Chairman since 1993, Senior Vice President, Sales and Marketing, and member of the Office of the President 1991 - 1993. President, Zenith Sales Company Division since 1983 Albin F. Moschner President and Chief Operating Officer and member 42 of the Office of the Chairman since 1993, Senior Vice President, Operations and member of the Office of the President 1991 - 1993 Jerry K. Pearlman Chairman and Chief Executive Officer since 1993, 55 Chairman, President and Chief Executive Officer 1983 - 1993 Philip S. Thompson Senior Vice President-Operations since August 45 1994 Richard F. Vitkus Senior Vice President-General Counsel since 55 August 1994 On February 23, 1995, it was announced that Jerry K. Pearlman, Chairman and Chief Executive Officer, plans to retire at the end of 1995 and that the company's Board of Directors plans to elect Albin F. Moschner, current President and Chief Operating Officer, as Chief Executive Officer after the company's April 25, 1995, annual meeting. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the sections entitled "Summary Compensation Table", "Employment Agreements", "Termination and Change of Control Agreements", "Option/SAR Grants in 1994", "Aggregated Option/SAR Exercises in 1994 and Year-End Option/SAR Values" and "Pension Plan Table" from the company's definitive Proxy Statement, copies of which will be electronically transmitted to the Commission via EDGAR. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the sections entitled "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" from the company's definitive Proxy Statement, copies of which will be electronically transmitted to the Commission via EDGAR. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No material transactions occurred during 1994. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. The following Consolidated Financial Statements of Zenith Electronics Corporation, the Report of Independent Public Accountants, and the Unaudited Quarterly Financial Data are included in this report on pages 27 through 40: Statements of Consolidated Operations and Retained Earnings - Years ended December 31, 1994, 1993 and 1992 Consolidated Balance Sheets - December 31, 1994 and 1993 Statements of Consolidated Cash Flows - Years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements Report of Independent Public Accountants Unaudited Quarterly Financial Information (a) 2. The following consolidated financial statement schedule for Zenith Electronics Corporation are included in this report on page 42: Schedule VIII - Valuation and Qualifying Accounts The Report of Independent Public Accountants on Financial Statement Schedules is included in this report on page 41. All other schedules for which provision is made in Regulation S-X of the Securities and Exchange Commission, are not required under the related instructions or are inapplicable and, therefore, have been omitted. 3. Exhibits: (3a) Restated Certificate of Incorporation of the company, as amended (incorporated by reference to Exhibit 3(a) to the company's Annual Report on Form 10-K for the year ended December 31, 1992) (3b) Certificate of Amendment to Restated Certificate of Incorporation of the company dated May 4, 1993 (incorporated by reference to Exhibit 4(l) of the company's Quarterly Report on Form 10-Q for the quarter ended April 3, 1993) (3c) By-Laws of the company, as amended (incorporated by reference to Exhibit 3 to the company's Current Report on Form 8-K, dated January 31, 1994) (4a) Indenture dated as of April 1, 1986 between Zenith Electronics Corporation and The First National Bank of Boston as Trustee with respect to the 6-1/4% Convertible Subordinated Debentures due 2011 (incorporated by reference to Exhibit 1 of the company's Quarterly Report on Form 10-Q for the quarter ended March 30, 1991) (4b) Debenture Purchase Agreement dated as of November 19, 1993 with the institutional investors named therein (incorporated by reference to Exhibit 4(a) of the company's Current Report on Form 8-K dated November 19, 1993) (4c) Amendment No. 1 dated November 24, 1993 to the Debenture Purchase Agreement dated as of November 19, 1993 with the institutional investor named therein (incorporated by reference to Exhibit 4(a) of the company's Current Report on Form 8-K dated November 24, 1993) (4d) Amendment No. 2 dated as of January 11, 1994 to the Debenture Purchase Agreement dated as of November 19, 1993 (incorporated by reference to Exhibit 4(c) of the company's Current Report on Form 8-K dated January 11, 1994) (4e) Debenture Purchase Agreement dated as of January 11, 1994 with the institutional investor named therein (incorporated by reference to Exhibit 4(a) of the company's Current Report on Form 8-K dated January 11, 1994) (4f) Credit Agreement, dated as of May 21, 1993, with General Electric Capital Corporation, as agent and lender, and the other lenders named therein (incorporated by reference to Exhibit 4 of the company's Current Report on Form 8-K dated May 21, 1993) (4g) Amendment No. 1 dated November 8, 1993 to the Credit Agreement dated May 21, 1993, with General Electric Capital Corporation, as agent and lender, and the other lenders named therein (incorporated by reference to Exhibit 4(b) of the company's Current Report on Form 8-K dated November 19, 1993) (4h) Amendment No. 3 dated January 7, 1994 to the Credit Agreement dated May 21, 1993, with General Electric Capital Corporation, as agent and lender, The Bank of New York Commercial Corporation, as lender, and Congress Financial Corporation, as lender (incorporated by reference to Exhibit 4(b) of the company's Current Report on Form 8-K dated January 11, 1994) (4i) Fourth Amendment dated January 28, 1994 to the Credit Agreement dated May 21, 1993, with General Electric Capital Corporation, as agent and lender, The Bank of New York Commercial Corporation, as lender, and Congress Financial Corporation, as lender (incorporated by reference to Exhibit 4 of the company's Current Report on Form 8-K dated January 31, 1994) (4j) Fifth Amendment dated April 21, 1994 to Credit Agreement dated May 21, 1993, with General Electric Capital Corporation, as agent and lender, The Bank of New York Commercial Corporation, as lender, and Congress Financial Corporation, as lender (incorporated by reference to Exhibit 4 of the Company's Current Report on Form 8-K dated April 21, 1994) (4k) Stockholder Rights Agreement, dated as of October 3, 1986 (incorporated by reference to Exhibit 4c of the company's Quarterly Report on Form 10-Q for the quarter ended September 28, 1991) (4l) Amendment, dated April 26, 1988, to Stockholder Rights Agreement (incorporated by reference to Exhibit 4(d) of the company's Quarterly Report on Form 10-Q for the quarter ended April 3, 1993) (4m) Amended and Restated Summary of Rights to Purchase Common Stock (incorporated by reference to Exhibit 4(e) of the company's Quarterly Report on Form 10-Q for the quarter ended July 3, 1993) (4n) Amendment, dated July 7, 1988, to Stockholder Rights Agreement (incorporated by reference to Exhibit 4(f) of the company's Quarterly Report on Form 10-Q for the quarter ended July 3, 1993) (4o) Agreement, dated May 23, 1991, among Zenith Electronics Corporation, The First National Bank of Boston and Harris Trust and Savings Bank (incorporated by reference to Exhibit 1 of Form 8 dated May 30, 1991) (4p) Amendment, dated May 24, 1991, to Stockholder Rights Agreement (incorporated by reference to Exhibit 2 of Form 8 dated May 30, 1991) (4q) Agreement, dated as of February 1, 1993, among Zenith Electronics Corporation, The Bank of New York and Harris Trust and Savings Bank (incorporated by reference to Exhibit 1 of Form 8 dated March 25, 1993) *(10a) 1987 Zenith Stock Incentive Plan (as amended subject to shareholder approval on April 28, 1992) (incorporated by reference to Exhibit A of the company's definitive Proxy Statement dated March 13, 1992) *(10b) Form of Amended and Restated Employment Agreement with Jerry K. Pearlman, Gerald M. McCarthy, Albin F. Moschner, Kell B. Benson, John Borst, Jr. and Michael J. Kaplan (incorporated by reference to Exhibit 2 of the company's Report on Form 10-K for the year ended December 31, 1990) *(10c) Restricted Stock Agreement, dated December 3, 1986, of Jerry K. Pearlman (incorporated by reference to Exhibit 10c of the company's Annual Report on Form 10-K for the year ended December 31, 1991) *(10d) Amendment, dated May 27, 1987, to Restricted Stock Agreement of Jerry K. Pearlman (incorporated by reference to Exhibit 10d of the company's Report on Form 10-K for the year ended December 31, 1992) *(10e) Amendment, dated March 28, 1988, to Restricted Stock Agreement of Jerry K. Pearlman (incorporated by reference to Exhibit 10(e) of the company's Annual Report on Form 10-K for the year ended December 31, 1993) *(10f) Amendments, dated October 1, 1990, and January 23, 1991, to Restricted Stock Agreement of Jerry K. Pearlman (incorporated by reference to Exhibit 3 of the company's Report on Form 10-K for the year ended December 31, 1990) *(10g) Restricted Stock Agreement, dated March 31, 1987, with Gerald M. McCarthy, and Amendments thereto dated December 2, 1987, March 28, 1988, August 22, 1988, and January 23, 1991 (incorporated by reference to Exhibit 10b of the company's Quarterly Report on Form 10-Q for the quarter ended June 29, 1991) *(10h) Forms of Amendments, dated as of July 24, 1991, to Restricted Stock Agreement dated December 3, 1986, with Jerry K. Pearlman and to Restricted Stock Agreement dated March 31, 1987, with Gerald M. McCarthy (incorporated by reference to Exhibit 10c of the company's Quarterly Report on Form 10-Q for the Quarter ended June 29, 1991) *(10i) Form of Amendment, dated as of July 26, 1994, to Restricted Stock Agreements with Jerry K. Pearlman and Gerald M. McCarthy *(10j) Supplemental Agreement, dated September 12, 1986, with Jerry K. Pearlman (incorporated by reference to Exhibit 10m of the company's Report on Form 10-K for the year ended December 31, 1991) *(10k) Amendment to Supplemental Agreement with Jerry K. Pearlman (incorporated by reference to Exhibit 10j of the company's Report on Form 10-K for the year ended December 31, 1992) *(10l) Form of Amendment, dated as of May 19, 1989, to Supplemental Agreement with Jerry K. Pearlman, (incorporated by reference to Exhibit 6 of the company's Report on Form 10-K for the year ended December 31, 1989) *(10m) Form of Amendment, dated as of July 24, 1991, to Supplemental Agreement with Jerry K. Pearlman (incorporated by reference to Exhibit 10a of the company's Quarterly Report on Form 10-Q for the Quarter ended June 29, 1991) *(10n) Amendment to Addendum to Supplemental Letter Agreement, dated as of December 8, 1993, with Jerry K. Pearlman (incorporated by reference to Exhibit 10(la) of the company's Annual Report on Form 10-K for the year ended December 31, 1993) *(10o) Form of Supplemental Agreement with Gerald M. McCarthy, Albin F. Moschner, Kell B. Benson, John Borst, Jr. and Michael J. Kaplan (incorporated by reference to Exhibit 10q of the company's Report on Form 10-K for the year ended December 31, 1991) *(10p) Letter Agreement, dated October 21, 1991, with Albin F. Moschner (incorporated by reference to Exhibit 10u of the company's Report on Form 10-K for the year ended December 31, 1991) *(10q) Form of Indemnification Agreement with Officers and Directors (incorporated by reference to Exhibit 8 of the company's Report on Form 10-K for the year ended December 31, 1989) *(10r) Form of Directors Stock Units Compensation Agreement with Harry G. Beckner (2,000 units) (incorporated by reference to Exhibit 10r of the company's Report on Form 10-K for the year ended December 31, 1992) *(10s) Form of Directors 1989 Stock Units Compensation Agreement with Harry G. Beckner and T. Kimball Brooker (1000 units each) (incorporated by reference to Exhibit 9 of the company's Report on Form 10-K for the year ended December 31, 1989) *(10t) Form of Directors 1990 Stock Units Compensation Agreement with Harry G. Beckner, T. Kimball Brooker, David H. Cohen, Charles Marshall, Andrew McNally IV and Peter S. Willmott (1000 units each) (incorporated by reference to Exhibit 6 of the company's Report on Form 10-K for the year ended December 31, 1990) *(10u) Form of Directors 1991 Stock Units Compensation Agreement with Harry G. Beckner, T. Kimball Brooker, David H. Cohen, Charles Marshall, Andrew McNally IV and Peter S. Willmott (1,000 units each) (incorporated by reference to Exhibit 10d of the company's Quarterly Report on Form 10-Q for the Quarter ended June 29, 1991) *(10v) Form of Amendment, dated as of July 24, 1991, to Directors Stock Units Compensation Agreements for 1987, 1988, 1990 and 1991 (incorporated by reference to Exhibit 10e of the company's Quarterly Report on Form 10-Q for the Quarter ended June 29, 1991) *(10w) Directors Retirement Plan and form of Agreement (incorporated by reference to Exhibit 10 of the company's Report on Form 10-K for the year ended December 31, 1989) *(10x) Form of Amendment, dated as of July 24, 1991, to Directors Retirement Plan and form of Agreement (incorporated by reference to Exhibit 10f of the company's quarterly Report on Form 10-Q for the Quarter ended June 29, 1991) *(10y) Restricted Stock Award Agreement, dated as of July 26, 1994, with Jerry K. Pearlman *(10z) Restricted Stock Award Agreement, dated as of July 26, 1994, with Albin F. Moschner *(10aa) Restricted Stock Award Agreement, dated as of July 26, 1994, with Gerald M. McCarthy *(10ab) Supplemental Executive Retirement Income Plan effective as of January 1, 1994 *(10ac) Supplemental Salaried Profit Sharing Retirement Plan effective as of January 1, 1994 (10ad) Investment Agreement, dated as of February 25, 1991, with GoldStar Co., Ltd. (incorporated by reference to Exhibit 1 of the company's Current Report on Form 8-K, dated February 25, 1991) (10ae) Registration Rights Agreement, dated as of February 25, 1991, with GoldStar Co., Ltd. (incorporated by reference to Exhibit 2 of the company's Current Report on Form 8-K, dated February 25, 1991) (10af) Investment Agreement dated as of March 25, 1993 between Zenith Electronics Corporation and Fletcher Capital Markets, Inc. (incorporated by reference to Exhibit 1 of the company's Current Report on Form 8-K dated March 26, 1993) (10ag) Investment Agreement dated as of July 29, 1993 between Zenith Electronics Corporation and Fletcher Capital Markets, Inc. (incorporated reference to Exhibit 5(a) of the company's Current Report on Form 8-K dated July 29, 1993) (21) Subsidiaries of the company (23) Consent of Independent Public Accountants (27) Financial Data Schedule for the year ended December 31, 1994 * Represents a management contract, compensation plan or arrangement. (b) Reports on Form 8-K No report on Form 8-K was filed during the quarter ended December 31, 1994. (c) and (d) Exhibits and Financial Statement Schedules Certain exhibits and financial statement schedules required by this portion of Item 14 are filed as a separate section of this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ZENITH ELECTRONICS CORPORATION (Registrant) By: /s/ Jerry K. Pearlman --------------------------------- Jerry K. Pearlman Chairman and Chief Executive Officer Date: February 27, 1995 -------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signatures Title Date - ------------------------------------------------------------------------------- /s/ Harry G Beckner Director February 27, 1995 - ------------------------- ----------------- Harry G. Beckner /s/ T. Kimball Brooker Director February 27, 1995 - ------------------------- ----------------- T. Kimball Brooker /s/ David H. Cohen Director February 27, 1995 - ------------------------- ----------------- David H. Cohen /s/ Ilene S. Gordon Director February 27, 1995 - ------------------------- ----------------- Ilene S. Gordon /s/ Charles Marshall Director February 27, 1995 - ------------------------- ----------------- Charles Marshall /s/ Gerald M. McCarthy Director, Executive Vice February 27, 1995 - ------------------------- President - Sales and ----------------- Gerald M. McCarthy Marketing, and President - Zenith Sales Company /s/ Andrew McNally IV Director February 27, 1995 - ------------------------- ----------------- Andrew McNally IV /s/ Albin F. Moschner Director, President and Chief February 27, 1995 - ------------------------- Operating Officer ----------------- Albin F. Moschner /s/ Jerry K. Pearlman Director, Chairman and Chief February 27, 1995 - ------------------------- Executive Officer ----------------- Jerry K. Pearlman (Principal Executive Officer) /s/ Peter S. Willmott Director February 27, 1995 - ------------------------- ----------------- Peter S. Willmott /s/ Kell B. Benson Senior Vice President - February 27, 1995 - ------------------------- and Chief Financial Officer ----------------- Kell B. Benson (Principal Financial Officer) INDEX TO FINANCIAL STATEMENTS AND EXHIBITS Page Number ------ Consolidated Financial Statements 27 Notes to Consolidated Financial Statements 30 Report of Independent Public Accountants 39 Unaudited Quarterly Financial Data 40 Report of Independent Public Accountants on Financial Statement Schedule 41 Financial Statement Schedule: Schedule VIII - Valuation and Qualifying Accounts 42 Exhibits: (10i) Form of Amendment, dated as of July 26, 1994, to Restricted Stock Agreements with Jerry K. Pearlman and Gerald M. McCarthy 43 (10y) Restricted Stock Award Agreement, dated as of July 26, 1994, with Jerry K. Pearlman 45 (10z) Restricted Stock Award Agreement, dated as of July 26, 1994, with Albin F. Moschner 53 (10aa) Restricted Stock Award Agreement, dated as of July 26, 1994, with Gerald M. McCarthy 61 (10ab) Supplemental Executive Retirement Income Plan effective as of as of January 1, 1994 69 (10ac) Supplemental Salaried Profit Sharing Retirement Plan effective as of January 1, 1994 80 (21) Subsidiaries of the company 89 (23) Consent of Independent Public Accountants 90 (27) Financial Data Schedule for the year ended December 31, 1994 91 CONSOLIDATED FINANCIAL STATEMENTS Statements of Consolidated Operations and Retained Earnings In millions, except per share amounts Year Ended December 31 -------------------------------- 1994 1993 1992 - ------------------------------------------------------------------------------- Revenues Net sales $1,469.0 $1,228.2 $1,243.5 -------------------------------- Costs, Expenses and Other Cost of products sold 1,350.2 1,163.9 1,179.3 Selling, general and administrative 117.1 92.5 94.0 Engineering and research 45.4 47.8 55.4 Other operating expense (income), net (Notes 1 and 6) (33.6) (25.2) (24.3) Restructuring and other charges (Note 3) - 31.0 48.1 -------------------------------- Income Operating income (loss) (10.1) (81.8) (109.0) Gain on asset sales, net (Note 8) 11.0 - - Interest expense (15.9) (15.5) (13.7) Interest income .5 .3 .9 -------------------------------- Income (loss) before income taxes (14.5) (97.0) (121.8) Income taxes (credit) (Note 4) (.3) - (15.9) -------------------------------- Net income (loss) $ (14.2) $ (97.0) $ (105.9) ================================ Per Share Income (loss) per common share (Note 1) $ ( .34) $ (3.01) $ (3.59) ================================ Retained Earnings Balance at beginning of year $ (88.1) $ 8.9 $ 114.8 Net income (loss) (14.2) (97.0) (105.9) -------------------------------- Retained earnings (deficit) at end of year $ (102.3) $ (88.1) $ 8.9 ================================ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Consolidated Balance Sheets In millions December 31 ------------------ 1994 1993 Assets Current Assets Cash (Note 1) $ 8.9 $ 20.8 Receivables, net of allowance for doubtful accounts of $3.1 and $2.5, respectively 206.9 162.5 Inventories (Note 7) 245.2 206.2 Other 9.9 6.1 ------------------ Total current assets 470.9 395.6 Noncurrent Assets Property, plant and equipment, net (Note 8) 168.1 153.9 Other (Note 1) 14.6 9.9 ------------------ Total assets $653.6 $559.4 ================== Liabilities and Stockholders' Equity Current Liabilities Current portion of long-term debt (Note 10) $ - $ 34.5 Accounts payable (Note 9) 114.1 81.8 Compensation and retirement benefits (Note 13) 24.8 25.9 Product warranties 35.6 24.2 Co-op advertising and merchandising programs 27.3 21.7 Income taxes payable 1.2 1.1 Other accrued expenses 40.3 47.8 ------------------ Total current liabilities 243.3 237.0 Noncurrent Liabilities Long-term debt (Note 10) 182.0 170.0 Stockholders' Equity Preferred stock, $1 par value; 8,000,000 shares authorized; none outstanding - - Common stock, $1 par value; 100,000,000 shares authorized; 45,698,372 and 35,909,617 shares issued 45.7 35.9 Additional paid-in capital 285.4 205.1 Retained earnings (deficit) (102.3) (88.1) Cost of 21,000 common shares in treasury (.5) (.5) ------------------- Total stockholders' equity (Note 11) 228.3 152.4 ------------------- Total liabilities and stockholders' equity $653.6 $559.4 =================== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Statements of Consolidated Cash Flows In millions Increase (Decrease) in Cash Year Ended December 31 ----------------------------- 1994 1993 1992 - ------------------------------------------------------------------------------- Cash Flows from Operating Activities Income (loss) from operations $(14.2) $(97.0) $(105.9) Adjustments to reconcile income (loss) to net cash used by operations: Depreciation 28.8 35.4 37.7 Write-down of fixed assets as a part of restructuring (Note 3) - 16.2 3.7 Employee retirement plan contribution in stock 6.0 14.6 6.2 Gain on asset sales, net (11.0) - - Other (.2) .2 1.1 Changes in assets and liabilities: Current accounts (52.1) 3.4 40.7 Other assets .6 (1.0) .6 --------------------------- Net cash used by operating activities (42.1) (28.2) (15.9) --------------------------- Cash Flows from Investing Activities Capital additions (58.9) (26.1) (32.6) Proceeds from asset sales 27.5 .4 6.9 --------------------------- Net cash used by investing activities (31.4) (25.7) (25.7) --------------------------- Cash Flows from Financing Activities Short-term borrowings, net - (10.1) 10.1 Proceeds from issuance of long-term debt 12.0 55.0 - Proceeds from issuance of common stock, net 84.1 24.0 1.0 Principal payments on long-term debt (34.5) - - --------------------------- Net cash provided by financing activities 61.6 68.9 11.1 --------------------------- Cash Increase (decrease) in cash (11.9) 15.0 (30.5) Cash at beginning of year 20.8 5.8 36.3 --------------------------- Cash at end of year $ 8.9 $ 20.8 $ 5.8 =========================== Changes in Current Assets and Liabilities Increase (decrease) in cash attributable to changes in: Receivables, net $ (45.5) $ 15.2 $ 20.6 Income taxes, net (.2) .8 (14.5) Inventories (42.7) (8.3) 38.6 Other assets (3.8) .1 .1 Accounts payable and accrued expenses 40.1 (4.4) (4.1) ---------------------------- Net change in current accounts $ (52.1) $ 3.4 $ 40.7 ============================ Supplemental Disclosure Supplemental disclosure of cash flow information- Cash paid (refunded) during the period for: Interest $ 17.6 $ 15.0 $ 13.5 Income taxes (.1) (1.2) (1.5) The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. Notes to Consolidated Financial Statements - ------------------------------------------ Note One - Significant Accounting Policies: Principles of consolidation: The consolidated financial statements include the accounts of Zenith Electronics Corporation and all domestic and foreign subsidiaries (the company). All significant intercompany balances and transactions have been eliminated. Statements of consolidated cash flows: The company considers time deposits, certificates of deposit and all highly liquid investments purchased with an original maturity of three months or less to be cash. Inventories: Inventories are stated at the lower of cost or market. Costs are determined for all inventories except picture tube inventories using the first- in, first-out (FIFO) method. Picture tube inventories are valued using the last-in, first-out (LIFO) method. Properties and depreciation: Additions of plant and equipment with lives of eight years or more are depreciated by the straight-line method over their useful lives. Accelerated methods are used for depreciation of virtually all other plant and equipment items, including high technology equipment that may be subject to rapid economic obsolescence. Property held for disposal is stated at the lower of cost or estimated net realizable value. As of December 31, 1994 and 1993, $4.6 million and $5.9 million, respectively, of property held for disposal was included in Other Noncurrent Assets and included certain facilities and land no longer used in the company's operations. Most tooling expenditures are charged to expense in the year acquired, except for picture tube tooling which is amortized over four years. Certain production fixtures are capitalized as machinery and equipment. Rental expenses under operating leases were $13.6 million, $9.0 million and $8.8 million in 1994, 1993 and 1992, respectively. Commitments for lease payments in future years are not material. The company capitalizes interest on major capital projects. Such interest has not been material. Engineering, research, product warranty and other costs: Engineering and research costs are expensed as incurred. Estimated costs for product warranties are provided at the time of sale based on experience factors. The costs of co-op advertising and merchandising programs are also provided at the time of sale. Foreign currency: The company uses the U.S. dollar as the functional currency for all foreign subsidiaries. Foreign exchange gains and losses are included in Other operating expense (income) and netted to a $3.6 million gain in 1994. These amounts were not material in 1993 and 1992. Earnings per share: Primary earnings per share are based upon the weighted average number of shares outstanding and common stock equivalents, if dilutive. Fully diluted earnings per share, assuming conversion of the 6 1/4% convertible subordinated debentures and the 8.5% convertible senior subordinated debentures, are not presented because the effect of the assumed conversion is antidilutive. The number of shares used in the computation were 42.0 million, 32.3 million and 29.5 million in 1994, 1993 and 1992, respectively. Note Two - Financial Results and Liquidity: The company has incurred losses from operations of $14.2 million, $97.0 million and $105.9 million in 1994, 1993 and 1992, respectively. For many years the company's major competitors, many with greater resources, have aggressively lowered their selling prices in an attempt to increase market share. Although the company has benefited from cost reduction programs, these lower color television prices together with inflationary cost increases have more than offset such cost reduction benefits. The company's Credit Agreement (see Note Nine) expires on June 30, 1996. The maximum commitment for funds available for borrowing under the Credit Agreement is $90 million, but is limited by a defined borrowing base formula related to eligible accounts receivable and inventory. Although the company believes that its Credit Agreement, together with extended-term payables expected to be available from a foreign supplier and its continuing efforts to obtain other financing sources, will be adequate to meet its seasonal working capital, capital expenditure and other requirements in 1995, there can be no assurances that the company will not experience liquidity problems in the future because of adverse market conditions or other unfavorable events. In addition, the company is reviewing possible significant capital investment projects over the next three years (which may require an amendment to the Credit Agreement) and options for additional financing that would be required to support these projects. If undertaken, the projects are expected to reduce the costs and increase production capacity primarily in the company's picture tube operations. Note Three - Restructuring and Other Charges: During the fourth quarter of 1993, the company recorded a charge of $31.0 million primarily to restructure certain product areas and re-engineer its core Consumer Electronics and Network Systems business. The restructuring affected computer monitors and magnetics, product areas that were phased-out or sold in 1994. The fourth-quarter charge was primarily for non-cash fixed asset and inventory write-downs, as well as severance costs, and was designed to reduce fixed costs and operating expenses. During 1992, the company recorded $48.1 million of restructuring and other charges. These included provisions for severance, inventory valuation and other restructuring costs, along with write-offs of trade receivables. Designed to reduce fixed costs and operating expenses, the restructuring actions included manufacturing consolidations and related employment reductions in Mexico, consolidation of company-owned distribution and other activities, and salaried employment reductions throughout the company. Note Four - Income Taxes: In the fourth quarter of 1992, the company elected early adoption of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The adoption had no effect on the financial statements of the company because the related net deferred tax assets were offset by a valuation allowance. The valuation allowance was established since the realization of these assets cannot be reasonably assured, given the company's recurring losses. The components of income taxes (credit) were: Year Ended December 31 ---------------------------- In millions 1994 1993 1992 - ----------------------------------------------------------------------- Currently payable (refundable): Federal $ (.5) $ (.1) $ (5.9) State .2 .1 .1 Foreign - - (.1) Currently deferred - - (10.0) ------------------------------ Total income taxes (credit) $ (.3) $ - $ (15.9) ============================== The $15.9 million income tax credit in 1992, resulted from the reversal of $10.0 million of previously accrued tax reserves no longer required in connection with earnings of a foreign subsidiary and $5.9 million of net operating loss carryback applications which resulted in cash refunds. The statutory federal income tax rate and the effective tax rate are compared below: Year Ended December 31 ------------------------------ 1994 1993 1992 - ------------------------------------------------------------------------ Statutory federal income tax rate (35.0)% (35.0)% (34.0)% State income taxes, net .7 .1 .1 Foreign tax effects 21.9 .5 2.0 Tax benefits not recognized subject to future realization 13.4 34.5 31.9 Net operating loss carryback (3.2) (.1) (4.9) Reversal of previously accrued reserve - - (8.2) ------------------------------- Effective tax rate (2.2)% - % (13.1)% =============================== Deferred tax assets (liabilities) are comprised of the following: Year Ended December 31 ------------------------ In millions 1994 1993 - ----------------------------------------------------------------- Loss carryforwards $154.7 $145.3 Inventory valuation 21.1 16.5 Product warranty 15.2 13.0 Co-op advertising 1.5 4.0 Merchandising 6.8 6.7 Other 17.5 25.7 ------------------------- Deferred tax assets 216.8 211.2 ------------------------- Depreciation (13.9) (12.6) Employee benefits (.6) (.6) Other (18.4) (18.8) ------------------------- Deferred tax liabilities (32.9) (32.0) ------------------------- Valuation allowance (183.9) (179.2) ------------------------- Net deferred tax assets $ - $ - ========================= As of December 31, 1994, the company had $388.5 million of net operating loss carryforwards (NOLs) available for financial statement purposes. For federal income tax purposes, the company had net operating loss carryforwards of $389.3 million (which expire from 2004 through 2009) and unused tax credits of $5.6 million (which expire from 1995 through 2002). The company expects these NOLs and tax credits to be available in the future to reduce the Federal income tax liability of the company. However, should there occur a 50% "ownership change" of the company as defined under Section 382 of the Internal Revenue Code of 1986, the company's ability to utilize the NOLs and available tax credits would be materially and adversely affected. A Registration Statement was filed with the Securities and Exchange Commission in December 1994 covering 6.5 million shares of common stock which became effective in February 1995 (the Offering). The Offering is not expected to give rise to an ownership change of the company. The company has knowledge of increases in the ownership of the company's common stock by 5% stockholders aggregating approximately 35% in the three years ended December 31, 1994 (on a pro forma basis, giving effect to the Offering, but without regard to acquisitions of shares of common stock in the Offering by persons who might thereby become separate 5% stockholders). However, acquisitions of significant interests in the company's common stock have occurred in the past, and future stock transactions, which may not be within the control of the company, may result in an ownership change when aggregated with the Offering and these other past common stock transactions. Note Five - Geographic Segment Data: The company's operations involve a dominant industry segment - the design, development, manufacture and sale of video products, including color television sets, video cassette recorders and other consumer electronics products, color picture tubes, cable TV products, computer monitors and parts and accessories for these products. Financial information, summarized by geographic area, is as follows: Year Ended December 31 ---------------------------- In millions 1994 1993 1992 - -------------------------------------------------------------------- Net sales to unaffiliated customers: Domestic companies $1,365.2 $1,158.8 $1,183.7 Foreign companies 103.8 69.4 59.8 -------------------------------- Total net sales $1,469.0 $1,228.2 $1,243.5 ================================ Income (loss) before income taxes: Domestic companies $ (8.4) $ (97.6) $ (116.9) Foreign companies (6.1) .6 (4.9) -------------------------------- Total income (loss) before income taxes $ (14.5) $ (97.0) $ (121.8) ================================ Identifiable assets: Domestic companies $ 503.2 $ 448.6 $ 467.3 Foreign companies 150.4 110.8 111.3 -------------------------------- Total identifiable assets $ 653.6 $ 559.4 $ 578.6 ================================ Foreign operations consist of manufacturing and sales subsidiaries in Mexico, a distribution subsidiary in Canada and a purchasing office in Taiwan. Sales to affiliates are principally accounted for at amounts based on local costs of production plus a reasonable return. Note Six - Other Operating Expense (Income): Major manufacturers of televisions and video cassette recorders agreed during 1992 to take licenses under some of the company's U.S. tuning system patents (the licenses expire in 2003). Royalty income related to the tuning system patents (after deducting legal expenses) was $27.9 million, $25.7 million and $26.0 million in 1994, 1993 and 1992, respectively, and is included in Other operating expense (income). The $26.0 million in 1992 included $5.3 million of past royalties. Note Seven - Inventories: Inventories consisted of the following: December 31 -------------------- In millions 1994 1993 - ---------------------------------------------------------------- Raw materials and work-in-process $156.2 $137.2 Finished goods 97.8 78.1 -------------------- 254.0 215.3 Excess of FIFO cost over LIFO cost (8.8) (9.1) -------------------- Total inventories $245.2 $206.2 ==================== As of December 31, 1994 and 1993, inventories of $25.0 million and $24.1 million, respectively, were valued using the LIFO method. Note Eight - Property, Plant and Equipment: Property, plant and equipment consisted of the following: December 31 ----------------------- In millions 1994 1993 - ---------------------------------------------------------------- Land $ 3.9 $ 7.4 Buildings 126.6 151.0 Machinery and equipment 584.5 549.9 ----------------------- 715.0 708.3 Less accumulated depreciation (546.9) (554.4) ----------------------- Total property, plant and equipment, net $168.1 $153.9 ======================= During 1994 the company recorded $11.0 million of net gain on asset sales. Included in this amount is a $5.4 million gain on the sale of a warehouse in Northlake, Illinois, and a $3.6 million gain on the sale of vacant land adjacent to its Glenview, Illinois, headquarters. The company also sold a facility in Lenexa, Kansas, its power supply business, a facility in Chicago, Illinois, and a facility in Springfield, Missouri. Note Nine - Short-term Debt and Credit Arrangements: The company entered into a Credit Agreement dated as of May 21, 1993, with a lending group led by General Electric Capital Corporation, for working capital purposes. Borrowings under the Credit Agreement are secured by accounts receivable, inventory, general intangibles, trademarks and the tuning system patent license agreements of the company and certain of its domestic subsidiaries. The Credit Agreement is scheduled to expire on June 30, 1996. The maximum commitment of funds available for borrowing under the Credit Agreement is $90 million, but is limited by a defined borrowing base formula related to eligible receivables and eligible inventory. Net proceeds arising from material asset transactions will result in a partial reduction in the maximum commitment of the lenders thereunder. Interest on borrowings is based on market rates with a commitment fee of 1/2 % per annum payable monthly on the unused balance of the facility. As of December 31, 1994, no borrowings were outstanding under the Credit Agreement. The Credit Agreement contains restrictive financial covenants that must be maintained as of the end of each fiscal quarter, including a liabilities to net worth ratio and a minimum net worth amount. The ratio of liabilities to net worth and minimum net worth amount varies from quarter to quarter. As of December 31, 1994, the ratio of liabilities to net worth was required to be not greater than 3.50 to 1.0 and was actually 1.86 to 1.0, and net worth was required to be equal to or greater than $158.0 million and was actually $228.3 million. At the end of each fiscal quarter through March 30, 1996, the liabilities to net worth ratio is required to be maintained at various levels ranging from a high of 4.40 to 1.0 to a low of 3.50 to 1.0, and minimum net worth is required to be maintained at amounts ranging from a high of $166.0 million to a low of $143.0 million. The Credit Agreement restricts the amount of capital expenditures by the company in each fiscal year. For the fiscal years 1994 and 1995, the company is permitted to make capital expenditures (as defined in the Credit Agreement) of up to $68.0 million and $38.0 million, respectively. In the event the company plans to undertake capital investment projects in 1995 which would exceed the permitted expenditures, the company would need to seek an amendment to the Credit Agreement. There can be no assurance that the lenders under the Credit Agreement will approve such an amendment, if requested by the company. In addition, there are restrictions regarding investments, acquisitions, guaranties, transactions with affiliates, sales of assets, mergers and additional borrowings, along with limitations on liens. The Credit Agreement prohibits dividend payments on the company's common stock, restricts dividend payments on any of its preferred stock, if issued, and prohibits the redemption or repurchase of stock. Borrowings and interest rates on short-term debt were: Year Ended December 31 --------------------------- In millions 1994 1993 1992 - ------------------------------------------------------------------- Maximum month-end borrowings $60.4 $66.4 $40.1 Average daily borrowings 26.3 35.0 23.1 Weighted average interest rate 9.1% 8.1% 7.5% Contracts with certain foreign suppliers permit the company to elect interest-bearing extended-payment terms. As of December 31, 1994 and 1993, $19.1 million and $8.5 million, respectively, of these obligations were outstanding and included in Accounts payable. Note Ten - Long-term Debt: The components of long-term debt were: December 31 -------------------- In millions 1994 1993 - ---------------------------------------------------------- 12 1/8% notes due 1995 $ - $ 34.5 6 1/4% convertible subordinated debentures due 2011 115.0 115.0 8.5% senior subordinated convertible debentures due 2000 55.0 55.0 8.5% senior subordinated convertible debentures due 2001 12.0 - -------------------- 182.0 204.5 Less current portion - 34.5 -------------------- Total long-term debt $182.0 $170.0 ==================== In January 1994, the company redeemed its outstanding 12 1/8% notes due 1995 at a redemption price equal to par value, totaling $34.5 million, plus accrued interest. The 6 1/4% convertible subordinated debentures are unsecured general obligations, subordinate in right of payment to certain other debt obligations, and are convertible into common stock at $31.25 per share. Terms of the debenture agreement include annual sinking-fund payments of $5.8 million beginning in 1997. The debentures are redeemable at the option of the company, in whole or in part, at specified redemption prices at par or above. In November 1993 and January 1994, the company sold to certain institutional investors $55 million and $12 million, respectively, of 8.5% senior subordinated convertible debentures due 2000 and 2001, respectively. The debentures are unsecured general obligations, subordinate in right of payment to certain other debt obligations, and are convertible into shares of common stock at an initial conversion price of $9.76 per share and $10.00 per share, respectively. The debentures are redeemable at the option of the company, in whole or in part, at any time on or after November 19, 1997 and January 18, 1998, respectively, at specified redemption prices at par or above. The fair value of long-term debt is $167.5 million as of December 31, 1994, as compared to the carrying amount of $182.0 million. The fair value of the 6 1/4% convertible subordinated debentures is based on the quoted market price from the New York Stock Exchange. The fair value of the 8.5% convertible senior subordinated debentures is based on the quoted price obtained from third party financial institutions. Currently, the company's Credit Agreement would not allow the company to extinguish the long-term debt through purchase and thereby realize the gain. Note Eleven - Stockholders' Equity: Changes in stockholders' equity accounts are shown below: Additional Common Paid-in Treasury In millions Stock Capital Shares - ----------------------------------------------------------------------------- Balance, December 31, 1991 $29.2 $165.3 $(.5) Stock issued for benefit plans 1.0 5.2 - Stock issued for stock options .1 .7 - Other - .2 - -------------------------------------- Balance, December 31, 1992 30.3 171.4 (.5) Sales of common stock 3.4 19.8 - Stock issued for benefit plans 2.0 12.6 - Stock issued for stock options .1 .6 - Other .1 .7 - -------------------------------------- Balance, December 31, 1993 35.9 205.1 (.5) Sales of common stock 8.6 71.2 - Stock issued for benefit plans .6 5.4 - Stock issued for stock options .5 3.6 - Other .1 .1 - -------------------------------------- Balance, December 31, 1994 $45.7 $285.4 $(.5) ====================================== During 1994 and 1993 the company sold 8.6 million shares and 3.4 million shares, respectively, of authorized but unissued shares of common stock to investors under registration statements that had been filed with the Securities and Exchange Commission. A Registration Statement was filed with the Securities and Exchange Commission in December 1994 covering 6.5 million shares of common stock which became effective in February 1995. The shares of common stock may be sold by the company in an at-the-market equity offering(s) or on a negotiated or competitive bid basis through underwriters or dealers or directly to other purchasers or through agents. Pursuant to a Rights Agreement (as amended), a "right" entitling the holder thereof to purchase under certain conditions, one-half of one share of common stock at an exercise price of $37.50, subject to adjustment, was distributed with respect to each outstanding share of common stock in 1986, and with respect to each additional share of common stock that has become outstanding since then. The rights will become exercisable upon the earlier to occur of (i) the 10th day after a public announcement that a third party has become the beneficial owner of 25% or more of the outstanding common stock (an "acquiring person") or (ii) the 10th day after the commencement of, or the announcement of an intention to commence, an offer the consummation of which would result in a third party beneficially owning 25% or more of the common stock. In the event any person becomes an acquiring person, each holder of a right (other than the acquiring person) will thereafter have the right to receive upon exercise that number of shares of common stock having a market value of two times the exercise price of the right. The rights, which have no voting rights, expire in 1996. The rights may be redeemed at the option of the company at any time prior to such time as any person becomes an acquiring person. Under certain conditions and following a stockholder vote, the rights shall be redeemed by the company. In either case, the redemption price will be $.05 per right, subject to adjustment. The Rights Agreement also provides that under certain circumstances at any time after any person has become an acquiring person, the Board of Directors may exchange the rights (other than rights owned by such person) in whole or in part, for common stock at an exchange ratio of one-half of a share of common stock per right, subject to adjustment. At the company's Annual Meeting of Stockholders in May 1993, the stockholders approved the authorization of 8 million shares of preferred stock of which none are issued or outstanding as of December 31, 1994. The Board of Directors of the company is authorized to issue the preferred stock from time to time in one or more series and to determine all relevant terms of each such series, including but not limited to the following (i) whether and upon what terms, the shares of such series would be redeemable; (ii) whether a sinking fund would be provided for the redemption of the shares of such series and, if so, the terms thereof; and (iii) the preference, if any, to which shares of such series would be entitled in the event of voluntary or involuntary liquidation of the company. Note Twelve - Stock Options and Awards: The 1987 Stock Incentive Plan authorizes the granting of incentive and non- qualified stock options, restricted stock awards and stock appreciation rights to key management personnel. The purchase price of shares under option is the market price of the shares on the date of grant. Options expire 10 years from the date granted. Transactions in 1994 and 1993 are summarized below: 1994 1993 - ------------------------------------------------------------------ Options outstanding at January 1 1,981,005 1,854,430 Options granted 615,250 433,550 Options exercised (529,132) (95,675) Options canceled or expired (45,674) (211,300) ------------------------------ Options outstanding at December 31 2,021,449 1,981,005 ============================== Options exercisable at December 31 1,238,049 1,388,005 Shares available for grant at December 31 900,156 695,431 Option prices per share: Outstanding at January 1 6 3/8 - 9 3/4 6 3/8 - 13 3/4 Granted 8 3/4 - 13 6 3/4 - 7 1/4 Exercised 6 3/8 - 9 3/4 6 3/8 - 8 3/8 Canceled or expired 6 7/8 - 9 3/4 6 7/8 - 13 3/4 Outstanding at December 31 6 3/8 - 13 6 3/8 - 9 3/4 The company had 189,108 and 63,837 restricted stock awards issued and outstanding as of December 31, 1994 and 1993, respectively. The market value of the restricted shares is deferred in the additional paid-in capital account and amortized over the years the restrictions lapse. Total compensation expense in 1994 and 1993, related to these awards, was not material. Note Thirteen - Retirement Plans and Employee Benefits: Virtually all employees in the United States and Canada are eligible to participate in noncontributory profit-sharing retirement plans after completing one full year of service. The plans provide for a minimum annual contribution of 6% of employees' eligible compensation. Contributions above the minimum could be required based upon profits in excess of a specified return on net worth. Profit-sharing contributions were $9.7 million, $9.7 million and $11.1 million in 1994, 1993 and 1992, respectively. The 1994, 1993 and 1992 contributions were partially funded through the issuance of approximately 547,000, 1,021,000 and 982,000 shares, respectively, of the company's common stock. Employees in Mexico are covered by government-mandated plans, the costs of which are accrued by the company. In the fourth quarter of 1993, the company elected early adoption of SFAS No.112, "Employers' Accounting for Postemployment Benefits." This statement requires that the company follow an accrual method of accounting for the benefits payable to employees when they leave the company other than by reason of retirement. Since most of these benefits were already accounted for by the company by the accrual method, adoption of SFAS No. 112 did not have a material effect on the financial statements of the company, nor is it expected to have a material effect on future results of operations. Presently, the company does not offer any postretirement benefits; as a result, the 1992 adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions" did not have any effect on the financial statements of the company. Note Fourteen - Contingencies: In 1994, the company notified its 15 independent distributors of its intent to change to direct-to-retail distribution on a nationwide basis during the first half of 1995. In February 1995, one of the independent distributors filed suit challenging the company's right to discontinue the distributorship relationship and alleging that it has been damaged by certain of the company's practices. The lawsuit seeks injunctive relief, actual damages of $8 million, and punitive damages of $20 million. The company is involved in various other legal actions, environmental matters, patent claims, and other proceedings relating to a wide range of matters that are incidental to the conduct of its business. In addition, the company remains liable for certain retained obligations of a discontinued business, principally income and other taxes prior to the closing of the sale. The company believes, after reviewing such matters and consulting with the company's counsel, that any liability which may ultimately be incurred with respect to all of the above matters is not expected to have a material effect on either the company's consolidated financial position or results of operations. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Zenith Electronics Corporation: We have audited the accompanying consolidated balance sheets of Zenith Electronics Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and the related statements of consolidated operations and retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Zenith Electronics Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP -------------------------- ARTHUR ANDERSEN LLP Chicago, Illinois, February 14, 1995 UNAUDITED QUARTERLY FINANCIAL INFORMATION In millions, except per share amounts
1994 Quarters Ended 1993 Quarters Ended -------------------------------- ---------------------------------- Dec. 31 Oct. 1 July 2 April 2 Dec. 31(1) Oct. 2 July 3 April 3 -------------------------------- ---------------------------------- Net sales $453.5 $419.4 $299.0 $297.1 $361.2 $301.8 $274.7 $290.5 Gross margin 32.0 37.1 28.9 20.8 26.1 17.2 9.0 12.0 Net income (loss) (3.3) 9.4 (8.4) (11.9) (36.0) (14.5) (24.7) (21.8) Per share of common stock (primary and fully diluted): Net income (loss) $ (.07) $ .21 $ (.20) $ (.32) $(1.04) $ (.44) $ (.79) $ (.72) New York Stock Exchange market price per share: High 14 1/8 12 1/8 10 1/2 13 1/2 8 1/8 8 3/8 10 1/2 8 3/8 Low 10 5/8 8 5/8 8 1/4 7 6 1/4 6 1/4 6 1/2 5 7/8 End of quarter 11 5/8 11 3/8 8 5/8 9 3/4 7 6 1/2 7 7/8 7 (1) Includes $31.0 million of restructuring and other charges (see Note 3 of Notes to Consolidated Financial Statements).
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Stockholders of Zenith Electronics Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Zenith Electronics Corporation's annual report to stockholders included in this Form 10-K, and have issued our report thereon dated February 14, 1995. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The following schedule is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP ------------------------- ARTHUR ANDERSEN LLP Chicago, Illinois, February 14, 1995 FINANCIAL STATEMENT SCHEDULE SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS (Amounts in millions)
Column A Column B Column C Column D Column E - ----------------------------------------------------------------------------------------------------- Additions ---------------------- Balance at Charged Balance at Reserves and allowances beginning to costs Charged to end of deducted from asset accounts of period & expenses other accts. Deductions period - ----------------------------------------------------------------------------------------------------- Allowance for doubtful accounts: Year Ended December 31, 1994 $ 2.5 $ 1.4 $ - $ .8 (1) $ 3.1 =================================================================== Year Ended December 31, 1993 $ 2.7 $ 1.8 $ - $ 2.0 (1) $ 2.5 =================================================================== Year Ended December 31, 1992 $ 2.6 $ 5.7 $ - $ 5.6 (1) $ 2.7 =================================================================== Valuation allowance for deferred tax assets: (2) Year Ended December 31, 1994 $179.2 $ 4.7 $ - $ - $183.9 =================================================================== Year Ended December 31, 1993 $134.5 $ 44.7 $ - $ - $179.2 =================================================================== Year Ended December 31, 1992 $ 88.6 $ 45.9 $ - $ - $134.5 =================================================================== (1) Uncollectible accounts written off, net of recoveries. (2) This account reflects the adoption of SFAS No. 109, "Accounting for Income Taxes.", which was adopted in 1992.
EX-10 2 EXHIBIT (10I) TO 1994 FORM 10-K EXHIBIT (10i) AMENDMENT TO RESTRICTED STOCK AGREEMENT AGREEMENT made and entered into as of the 26th day of July, 1994 between Zenith Electronics Corporation, a Delaware corporation (the "Company") _________________________ ("Executive"). WHEREAS, _____________________, the Company entered into a Restricted Stock Agreement with Executive which was subsequently amended on __________________________________________________; and WHEREAS, the Company and Executive now desire to amend the Restricted Stock Agreement in certain respects; NOW, THEREFORE, the parties agree as follows: 1. Sections 2 and Section 5(a) are amended by substituting "age 65" for "age 62" wherever "age 62" appears. 2. Section 5(b) is amended by placing a period after the phrase "continue to bear the legend prescribed by Section 3" in the first sentence and deleting the balance of that sentence and the immediately following sentence. 3. Section 5(c) is redesignated Section 5(d) and is further amended by deleting the following phrase: "or 7," 4. Section 5 is amended by inserting the following new paragraph after Section 5(b): "(c) If the Executive shall notify the Secretary of the Company, in writing, no later than the last business day of the calendar year immediately preceding the calendar year in which the Executive attains the age of 65 that the Executive elects to receive on his sixty-fifth (65th) birthday one hundred percent (100%) of the Restricted Shares free of all restrictions, then all of the Restricted Shares shall become freely transferable by the Executive on the Executive's sixty-fifth (65th) birthday." 5. Section 6 is deleted in its entirety. 6. Section 7 is redesignated Section 6, and is further amended by deleting the designation of the letter (a) and deleting section (b) in its entirety. 7. Section 8 and 9 are redesignated Section 7 and Section 8 respectively. IN WITNESS WHEREOF the parties have executed this Amendment to Restricted Stock Agreement this _____ day of _____________________, 1995. ZENITH ELECTRONICS CORPORATION By:______________________________ _______________________________ Executive EX-10 3 EXHIBIT (10Y) TO 1994 FORM 10-K EXHIBIT (10y) Zenith Electronics Corporation 1987 Zenith Stock Incentive Plan Restricted Stock Award Agreement THIS AGREEMENT, effective July 26, 1994, between Zenith Electronics Corporation, a Delaware corporation (the "Company"), and Jerry K. Pearlman (the "Participant"), is made pursuant to the provisions of the 1987 Zenith Stock Incentive Plan (the "Plan"). The capitalized terms appearing in this Agreement shall have the definitions ascribed to them in the Plan unless specifically defined herein or in Attachment A to this Agreement. In the event there is any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall completely supersede and replace the terms of this Agreement. In consideration of the premises set forth below, including the grant made herein, the parties hereto agree as follows: 1. This Agreement sets forth the terms and provisions of the grant to Participant of Forty Three Thousand Five Hundred Eighty One (43,581) shares of Company stock, subject to restrictions (the "Restricted Stock"). Except as specifically provided otherwise herein, the shares of Restricted Stock shall be governed by the terms of the Plan. 2. Employment by the Company. This Restricted Stock is awarded on the condition that the Participant satisfy the employment conditions set forth herein. However, neither such conditions nor the award of this Restricted Stock shall impose upon the Company any obligation to retain the Participant in its employ for any given period of time or upon any specific terms of employment nor interfere in anyway with the Company's right to terminate his employment at any time. 3. Restrictions. (a) Each certificate (or uncertificated account with the Company's transfer agent) representing shares of Restricted Stock hereunder shall bear (or be subject to) the following legend or restriction: "The shares of common stock represented by this certificate are subject to forfeiture under certain circumstances and may not be sold, assigned, transferred, pledged, or otherwise alienated by the registered holder except as permitted by the terms of the 1987 Zenith Stock Incentive Plan and a Restricted Stock Award Agreement dated July 26, 1994 between Zenith Electronics Corporation and Jerry K. Pearlman. A copy of the Plan and such Restricted Stock Award Agreement is on file with the Secretary of Zenith Electronics Corporation." (b) Any Restricted Stock shall not be transferable by the Participant, whether voluntarily or involuntarily, by operation of law or otherwise, so long as it is subject to the restrictions of this paragraph. 4. Removal of Restrictions. (a) Except as otherwise provided in Section 4(b) of this Agreement, Two Thousand Nine Hundred Five (2,905) shares of Restricted Stock governed by this Agreement shall become freely transferable by the Participant on each of the first through the fourteenth anniversaries of the Participant's sixty-fifth (65th) birthday and Two Thousand Nine Hundred Eleven (2,911) shares of Restricted Stock governed by the Agreement shall become freely transferable by the Participant on the fifteenth anniversary of the Participant's sixty-fifth (65th) birthday. (b) If the Participant shall notify the Secretary of the company, in writing, no later than the last business day of the calendar year immediately preceding the calendar year in which the Participant's sixty fifth (65th) birthday shall occur, that the Participant elects to receive on his sixty-fifth (65th) birthday one hundred percent (100%) of the shares of Stock governed by this Agreement free of all restrictions, then all of the shares of Restricted Stock governed by this Agreement shall become freely transferable by the Participant on the Participant's sixty-fifth (65th) birthday. (c) When the shares are released from the restrictions and become fully transferable by the Participant in accordance with the terms of this Agreement, the Participant shall be entitled to receive a certificate or certificates representing such shares without the legend or restriction required by Section 3 herein. 5. Consulting Duties. Beginning on the later to occur of: (i) the Participant's sixty-fifth (65th) birthday; or (ii) the Participant's termination of employment following his sixty-fifth (65th) birthday (other than by reason of death), and continuing until the Participant's eighty-first (81st) birthday, the Participant agrees that he will, whenever reasonably requested by the Company, render assistance to the Company in the form of furnishing information to and cooperating with the Company in any matter relating to the business of the Company for not more than one (1) day during any calendar month, provided that inability of the Participant to render such assistance to the Company due to the Participant's physical or mental disability shall excuse the Participant of the obligation to render such assistance and shall not be deemed a breach of this Agreement and provided, further, that the refusal of the Participant to render such assistance beyond a twenty (20) mile radius of the Company's present offices in Glenview, Illinois shall not be deemed a breach of this Agreement. The Participant further agrees that during the twenty-four (24) calendar months beginning with the calendar month during which the Participant's termination of employment occurs, he will not, without the express written consent of the Company, engage in or render services of any kind in any capacity for any business that is competitive with the business of the Company or any entity controlled by the Company, and that he will not render assistance of any kind to or supply information to any such competitive business. In the event the Participant does not satisfy the consulting duties described in this Section 5, or if he violates the noncompetition covenant, all unvested shares of Restricted Stock shall immediately be forfeited to the Company. 6. Voting Rights and Dividends. The Participant may exercise full voting rights and is entitled to receive all dividends and other distributions paid with respect to the shares of Restricted Stock while they are held in the name of Participant. If any such dividends or distributions are paid in shares of Common Stock of the Company, the shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid. 7. Termination By Reason of Death or Disability. In the event the Participant's employment is terminated by reason of death or Disability prior to the Participant's 65th birthday and prior to the time when all shares of Restricted Stock governed by this Agreement are all vested, then all shares of Restricted Stock subject to this Agreement shall immediately vest and as soon as administratively practicable, the stock certificates representing such shares of Restricted Stock without the restrictions or legend required by Section 3 herein, shall be delivered by the Company to the Participant or the Participant's beneficiary or estate, as the case may be. 8. Termination of Employment Prior to Age 65 for Other Reasons. Except as otherwise provided in Section 9 herein, in the event the Participant's employment is terminated for reasons other than those described in Section 7 prior to the Participant's sixty-fifth (65th) birthday, all shares of Restricted Stock subject to this Agreement shall immediately be forfeited to the Company by the Participant. 9. Change in Control. In the event of a Qualifying Termination which occurs within the two (2) year period following a Change in Control, the restrictions imposed pursuant to Section 3 herein on shares of Restricted Stock subject to this Agreement shall lapse, and within ten (10) business days after the occurrence of the Qualifying Termination, the stock certificates representing the shares of Restricted Stock, without the restrictions or legend required by Section 3 herein thereon, shall be delivered by the Company to the Participant. 10. Adjustments for Changes in Capitalization. Appropriate adjustment shall be made by the Committee in the number of shares of Restricted Stock governed subject to this Agreement to give effect to any stock splits, stock dividends, and any other relevant changes in capitalization occurring after the effective date of this Agreement. 11. Administration. This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant. 12. Miscellaneous. (a) The Company shall have the authority to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any provision of this Agreement. (b) This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. (c) This Agreement shall be governed by, and construed in accordance with the laws of the State of Illinois (other than those relating to conflicts of law) to the extent not preempted by Federal law. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed this 17th day of January, 1995. ZENITH ELECTRONICS CORPORATION /s/ Jerry K. Pearlman By:/s/ Michael J Kaplan - --------------------------------- _____________________________ Jerry K. Pearlman Attest:/s/ David S. Levin ______________________________ ATTACHMENT A 1. Change in Control. For purposes of this Agreement, "change in control of the Company" shall take place when either of the following events will have occurred: (a) A third person, including a "group" as defined in Section l3(d)(3) of the Securities Exchange Act of l934, acquires shares of capital stock of the Company having twenty-five percent (25%) or more of the total number of votes that may be cast for the election of directors of the Company; or (b) As a result of any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "transaction") the persons who were directors of the Company before the transaction shall during any two consecutive years thereafter cease to constitute a majority of the Board of Directors of the Company. 2. Qualifying Termination. If a change or changes in control of the Company occurs, and within twenty-four (24) months from the date of any such change in control the Participant's employment is terminated, unless such termination is: A. Because of the Participant's death, Retirement or Disability; B. By the Company for Cause; or C. By the Participant other than for Good Reason. (1) Disability; Retirement. (a) Termination by the Company of employment based on "Disability" shall mean termination because of the Participant's absence from his duties with the Company on a full-time basis for one hundred eighty (180) consecutive business days, as a result of incapacity due to injury or physical or mental illness. (b) Termination by the Company or the Participant of employment based on "Retirement" shall, for the purposes of this Agreement, mean retirement at age seventy (70) or voluntary earlier retirement with the written consent of the Participant. (2) Cause. Termination by the Company of employment for "Cause" shall mean termination upon: (a) The willful and continued failure by the Participant to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to injury or physical or mental illness) after a demand for substantial performance is delivered to the Participant by the Company which specifically identifies the manner in which the Company believes that the Participant has not substantially performed his duties; or (b) The willful engaging by the Participant in misconduct demonstrably injurious to the Company monetarily or otherwise. For purposes of this subparagraph (2), no act, or failure to act on the Participant's part, shall be considered "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Participant a copy of a written Notice of Termination from the Company, after reasonable notice to the Participant and an opportunity for the Participant, together with his counsel, to be heard before the Board of Directors, finding that in the good faith opinion of the Board of Directors Cause existed and specifying the particulars thereof in detail. (3) Good Reason. Termination by the Participant of employment for "Good Reason" shall mean termination based on any of the following which occurs within twenty-four (24) months from the date of a change in control: (a) Without the Participant's express written consent, the assignment to the Participant of any duties materially inconsistent with the Participant's positions, duties, responsibilities and status with the Company immediately prior to a change in control, or a change (other than a bona fide promotion) in the Participant's title or office from that in effect immediately prior to a change in control, or any removal of the Participant from or any failure to re-elect the Participant to any of such positions, except in connection with the termination of his employment for Cause, Disability or Retirement or by death or by the Participant other than for Good Reason; (b) A reduction by the Company in the Participant's salary as in effect on the date hereof or as the same may be increased from time to time, unless such reduction results from a blanket reduction of general applicability to exempt salaried personnel; or the failure by the Company to increase such base salary for the year in which a change of control occurs and each year thereafter by an amount which at least equals, on a percentage basis, the mean average percentage increase in base salary for all officers of the Company during the two full calendar years immediately preceding a change in control of the Company unless such failure is of general applicability to exempt salaried personnel; (c) A failure by the Company to continue the Company's bonus incentive plans (the "Incentive Plans") as the same may be modified from time to time but substantially in the form in effect immediately prior to the change in control or a failure by the Company to continue the Participant as a participant in the Incentive Plans on at least the basis of his participation immediately prior to the change in control or to pay the Participant any installment of a previous award under the Incentive Plans; (d) Without the Participant's express written consent, the Company requiring the Participant to be based anywhere other than within fifty (50) miles of his present office location, except for required travel on Company business to an extent substantially consistent with the Participant's business travel obligations immediately prior to such change in control; (e) The failure by the Company to continue in effect any benefit or compensation plan, stock ownership, stock purchase or stock option plan, pension plan, life insurance plan, health and accident plan or long- term disability plan in which the Participant is participating at the time of a change in control of the Company (or plans providing the Participant with substantially similar benefits) or the taking of any action by the Company which would materially adversely affect participation by the Participant in or materially reduce the Participant's benefits under any of such plans or deprive the Participant of any material fringe benefit enjoyed by the Participant at the time of the change in control; (f) Any purported termination of the Participant's employment which is not effective pursuant to a Notice of Termination satisfying the requirements of subparagraph (4) below (and, if applicable, subparagraph (2) above). Notwithstanding the foregoing, the Participant agrees that in the event a third person begins a tender or exchange offer, circulates a proxy statement to shareholders or takes steps to effect a change in control of the Company, as defined in Section 1 hereof, the Participant will not thereafter voluntarily leave the employ of the Company until the third person has abandoned or terminated such efforts to effect a change in control; or if such efforts are successful, for ninety (90) days after a change in control of the Company shall have occurred. (4) Notice of Termination. Any termination by the Company pursuant to subparagraphs (l) or (2) above or by the Participant pursuant to subparagraph (3) above shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of the Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in the Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant's employment under the provision so indicated. (5) Date of Termination. "Date of Termination" shall mean: (a) If the Participant's employment is terminated by reason of his death or Retirement, the date of death or retirement; (b) If the Participant's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Participant shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period); (c) If the Participant's employment is terminated by the Company for Cause pursuant to subparagraph (2) above, the date specified in the Notice of Termination; (d) If the Participant's employment is terminated by the Participant for Good Reason, the date specified in the Notice of Termination; and (e) If the Participant's employment is terminated for any other reason, the date on which a Notice of Termination is given. Notwithstanding the foregoing, if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties or by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction entered upon such arbitration award (the time for appeal from such judgment, order or decree having expired and no appeal having been perfected). EX-10 4 EXHIBIT (10Z) TO 1994 FORM 10-K EXHIBIT (10z) Zenith Electronics Corporation 1987 Zenith Stock Incentive Plan Restricted Stock Award Agreement THIS AGREEMENT, effective July 26, 1994, between Zenith Electronics Corporation, a Delaware corporation (the "Company"), and Albin F. Moschner (the "Participant"), is made pursuant to the provisions of the 1987 Zenith Stock Incentive Plan (the "Plan"). The capitalized terms appearing in this Agreement shall have the definitions ascribed to them in the Plan unless specifically defined herein or in Attachment A to this Agreement. In the event there is any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall completely supersede and replace the terms of this Agreement. In consideration of the premises set forth below, including the grant made herein, the parties hereto agree as follows: 1. This Agreement sets forth the terms and provisions of the grant to Participant of Fifty Six Thousand Seven Hundred Fifty Seven (56,757) shares of Company stock, subject to restrictions (the "Restricted Stock"). Except as specifically provided otherwise herein, the shares of Restricted Stock shall be governed by the terms of the Plan. 2. Employment by the Company. This Restricted Stock is awarded on the condition that the Participant satisfy the employment conditions set forth herein. However, neither such conditions nor the award of this Restricted Stock shall impose upon the Company any obligation to retain the Participant in its employ for any given period of time or upon any specific terms of employment nor interfere in anyway with the Company's right to terminate his employment at any time. 3. Restrictions. (a) Each certificate (or uncertificated account with the Company's transfer agent) representing shares of Restricted Stock hereunder shall bear (or be subject to) the following legend or restriction: "The shares of common stock represented by this certificate are subject to forfeiture under certain circumstances and may not be sold, assigned, transferred, pledged, or otherwise alienated by the registered holder except as permitted by the terms of the 1987 Zenith Stock Incentive Plan and a Restricted Stock Award Agreement dated July 26, 1994 between Zenith Electronics Corporation and Albin F. Restricted Stock Award Agreement is on file with the Secretary of Zenith Electronics Corporation." (b) Any Restricted Stock shall not be transferable by the Participant, whether voluntarily or involuntarily, by operation of law or otherwise, so long as it is subject to the restrictions of this paragraph. 4. Removal of Restrictions. (a) Except as otherwise provided in Section 4(b) of this Agreement, Three Thousand Seven Hundred Eighty Three (3,783) shares of Restricted Stock governed by this Agreement shall become freely transferable by the Participant on each of the first through the fourteenth anniversaries of the Participant's sixty-fifth (65th) birthday and Three Thousand Seven Hundred Ninety Five (3,795) shares of Restricted Stock governed by the Agreement shall become freely transferable by the Participant on the fifteenth anniversary of the Participant's sixty-fifth (65th) birthday. (b) If the Participant shall notify the Secretary of the company, in writing, no later than the last business day of the calendar year immediately preceding the calendar year in which the Participant's sixty fifth (65th) birthday shall occur, that the Participant elects to receive on his sixty-fifth (65th) birthday one hundred percent (100%) of the shares of Stock governed by this Agreement free of all restrictions, then all of the shares of Restricted Stock governed by this Agreement shall become freely transferable by the Participant on the Participant's sixty-fifth (65th) birthday. (c) When the shares are released from the restrictions and become fully transferable by the Participant in accordance with the terms of this Agreement, the Participant shall be entitled to receive a certificate or certificates representing such shares without the legend or restriction required by Section 3 herein. 5. Consulting Duties. Beginning on the later to occur of: (i) the Participant's sixty-fifth (65th) birthday; or (ii) the Participant's termination of employment following his sixty-fifth (65th) birthday (other than by reason of death), and continuing until the Participant's eighty-first (81st) birthday, the Participant agrees that he will, whenever reasonable requested by the Company, render assistance to the Company in the form of furnishing information to and cooperating with the Company in any matter relating to the business of the Company for not more than one (1) day during any calendar month, provided that inability of the Participant to render such assistance to the Company due to the Participant's physical or mental disability shall excuse the Participant of the obligation to render such assistance and shall not be deemed a breach of this Agreement and provided, further, that the refusal of the Participant to render such assistance beyond a twenty (20) mile radius of the Company's present offices in Glenview, Illinois shall not be deemed a breach of this Agreement. The Participant further agrees that during the twenty-four (24) calendar months beginning with the calendar month during which the Participant's termination of employment occurs, he will not, without the express written consent of the Company, engage in or render services of any kind in any capacity for any business that is competitive with the business of the Company or any entity controlled by the Company, and that he will not render assistance of any kind to or supply information to any such competitive business. In the event the Participant does not satisfy the consulting duties described in this Section 5, or if he violates the noncompetition covenant, all unvested shares of Restricted Stock shall immediately be forfeited to the Company. 6. Voting Rights and Dividends. The Participant may exercise full voting rights and is entitled to receive all dividends and other distributions paid with respect to the shares of Restricted Stock while they are held in the name of Participant. If any such dividends or distributions are paid in shares of Common Stock of the Company, the shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid. 7. Termination By Reason of Death or Disability. In the event the Participant's employment is terminated by reason of death or Disability prior to the Participant's 65th birthday and prior to the time when all shares of Restricted Stock governed by this Agreement are all vested, then all shares of Restricted Stock subject to this Agreement shall immediately vest and as soon as administratively practicable, the stock certificates representing such shares of Restricted Stock without the restrictions or legend required by Section 3 herein, shall be delivered by the Company to the Participant or the Participant's beneficiary or estate, as the case may be. 8. Termination of Employment Prior to Age 65 for Other Reasons. Except as otherwise provided in Section 9 herein, in the event the Participant's employment is terminated for reasons other than those described in Section 7 prior to the Participant's sixty-fifth (65th) birthday, all shares of Restricted Stock subject to this Agreement shall immediately be forfeited to the Company by the Participant. 9. Change in Control. In the event of a Qualifying Termination which occurs within the two (2) year period following a Change in Control, the restrictions imposed pursuant to Section 3 herein on shares of Restricted Stock subject to this Agreement shall lapse, and within ten (10) business days after the occurrence of the Qualifying Termination, the stock certificates representing the shares of Restricted Stock, without the restrictions or legend required by Section 3 herein thereon, shall be delivered by the Company to the Participant. 10. Adjustments for Changes in Capitalization. Appropriate adjustment shall be made by the Committee in the number of shares of Restricted Stock governed subject to this Agreement to give effect to any stock splits, stock dividends, and any other relevant changes in capitalization occurring after the effective date of this Agreement. 11. Administration. This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant. 12. Miscellaneous. (a) The Company shall have the authority to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any provision of this Agreement. (b) This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. (c) This Agreement shall be governed by, and construed in accordance with the laws of the State of Illinois (other than those relating to conflicts of law) to the extent not preempted by Federal law. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed this 7th day of February, 1995 ZENITH ELECTRONICS CORPORATION /s/ Albin F. Moschner - -------------------------- By:/s/ Michael J. Kaplan Albin F. Moschner _____________________________ Attest:/s/ David S. Levin _____________________________ ATTACHMENT A 1. Change in Control. For purposes of this Agreement, "change in control of the Company" shall take place when either of the following events will have occurred: (a) A third person, including a "group" as defined in Section l3(d)(3) of the Securities Exchange Act of l934, acquires shares of capital stock of the Company having twenty-five percent (25%) or more of the total number of votes that may be cast for the election of directors of the Company; or (b) As a result of any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "transaction") the persons who were directors of the Company before the transaction shall during any two consecutive years thereafter cease to constitute a majority of the Board of Directors of the Company. 2. Qualifying Termination. If a change or changes in control of the Company occurs, and within twenty-four (24) months from the date of any such change in control the Participant's employment is terminated, unless such termination is: A. Because of the Participant's death, Retirement or Disability; B. By the Company for Cause; or C. By the Participant other than for Good Reason. (1) Disability; Retirement. (a) Termination by the Company of employment based on "Disability" shall mean termination because of the Participant's absence from his duties with the Company on a full-time basis for one hundred eighty (180) consecutive business days, as a result of incapacity due to injury or physical or mental illness. (b) Termination by the Company or the Participant of employment based on "Retirement" shall, for the purposes of this Agreement, mean retirement at age seventy (70) or voluntary earlier retirement with the written consent of the Participant. (2) Cause. Termination by the Company of employment for "Cause" shall mean termination upon: (a) The willful and continued failure by the Participant to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to injury or physical or mental illness) after a demand for substantial performance is delivered to the Participant by the Company which specifically identifies the manner in which the Company believes that the Participant has not substantially performed his duties; or (b) The willful engaging by the Participant in misconduct demonstrably injurious to the Company monetarily or otherwise. For purposes of this subparagraph (2), no act, or failure to act on the Participant's part, shall be considered "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Participant a copy of a written Notice of Termination from the Company, after reasonable notice to the Participant and an opportunity for the Participant, together with his counsel, to be heard before the Board of Directors, finding that in the good faith opinion of the Board of Directors Cause existed and specifying the particulars thereof in detail. (3) Good Reason. Termination by the Participant of employment for "Good Reason" shall mean termination based on any of the following which occurs within twenty-four (24) months from the date of a change in control: (a) Without the Participant's express written consent, the assignment to the Participant of any duties materially inconsistent with the Participant's positions, duties, responsibilities and status with the Company immediately prior to a change in control, or a change (other than a bona fide promotion) in the Participant's title or office from that in effect immediately prior to a change in control, or any removal of the Participant from or any failure to re-elect the Participant to any of such positions, except in connection with the termination of his employment for Cause, Disability or Retirement or by death or by the Participant other than for Good Reason; (b) A reduction by the Company in the Participant's salary as in effect on the date hereof or as the same may be increased from time to time, unless such reduction results from a blanket reduction of general applicability to exempt salaried personnel; or the failure by the Company to increase such base salary for the year in which a change of control occurs and each year thereafter by an amount which at least equals, on a percentage basis, the mean average percentage increase in base salary for all officers of the Company during the two full calendar years immediately preceding a change in control of the Company unless such failure is of general applicability to exempt salaried personnel; (c) A failure by the Company to continue the Company's bonus incentive plans (the "Incentive Plans") as the same may be modified from time to time but substantially in the form in effect immediately prior to the change in control or a failure by the Company to continue the Participant as a participant in the Incentive Plans on at least the basis of his participation immediately prior to the change in control or to pay the Participant any installment of a previous award under the Incentive Plans; (d) Without the Participant's express written consent, the Company requiring the Participant to be based anywhere other than within fifty (50) miles of his present office location, except for required travel on Company business to an extent substantially consistent with the Participant's business travel obligations immediately prior to such change in control; (e) The failure by the Company to continue in effect any benefit or compensation plan, stock ownership, stock purchase or stock option plan, pension plan, life insurance plan, health and accident plan or long- term disability plan in which the Participant is participating at the time of a change in control of the Company (or plans providing the Participant with substantially similar benefits) or the taking of any action by the Company which would materially adversely affect participation by the Participant in or materially reduce the Participant's benefits under any of such plans or deprive the Participant of any material fringe benefit enjoyed by the Participant at the time of the change in control; (f) Any purported termination of the Participant's employment which is not effective pursuant to a Notice of Termination satisfying the requirements of subparagraph (4) below (and, if applicable, subparagraph (2) above). Notwithstanding the foregoing, the Participant agrees that in the event a third person begins a tender or exchange offer, circulates a proxy statement to shareholders or takes steps to effect a change in control of the Company, as defined in Section 1 hereof, the Participant will not thereafter voluntarily leave the employ of the Company until the third person has abandoned or terminated such efforts to effect a change in control; or if such efforts are successful, for ninety (90) days after a change in control of the Company shall have occurred. (4) Notice of Termination. Any termination by the Company pursuant to subparagraphs (l) or (2) above or by the Participant pursuant to subparagraph (3) above shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of the Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in the Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant's employment under the provision so indicated. (5) Date of Termination. "Date of Termination" shall mean: (a) If the Participant's employment is terminated by reason of his death or Retirement, the date of death or retirement; (b) If the Participant's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Participant shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period); (c) If the Participant's employment is terminated by the Company for Cause pursuant to subparagraph (2) above, the date specified in the Notice of Termination; (d) If the Participant's employment is terminated by the Participant for Good Reason, the date specified in the Notice of Termination; and (e) If the Participant's employment is terminated for any other reason, the date on which a Notice of Termination is given. Notwithstanding the foregoing, if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties or by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction entered upon such arbitration award (the time for appeal from such judgment, order or decree having expired and no appeal having been perfected). EX-10 5 EXHIBIT (10AA) TO 1994 FORM 10-K EXHIBIT (10aa) Zenith Electronics Corporation 1987 Zenith Stock Incentive Plan Restricted Stock Award Agreement THIS AGREEMENT, effective July 26, 1994, between Zenith Electronics Corporation, a Delaware corporation (the "Company"), and Gerald M. McCarthy (the "Participant"), is made pursuant to the provisions of the 1987 Zenith Stock Incentive Plan (the "Plan"). The capitalized terms appearing in this Agreement shall have the definitions ascribed to them in the Plan unless specifically defined herein or in Attachment A to this Agreement. In the event there is any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall completely supersede and replace the terms of this Agreement. In consideration of the premises set forth below, including the grant made herein, the parties hereto agree as follows: 1. This Agreement sets forth the terms and provisions of the grant to Participant of Twenty Two Thousand Four Hundred Thirty Two (22,432) shares of Company stock, subject to restrictions (the "Restricted Stock"). Except as specifically provided otherwise herein, the shares of Restricted Stock shall be governed by the terms of the Plan. 2. Employment by the Company. This Restricted Stock is awarded on the condition that the Participant satisfy the employment conditions set forth herein. However, neither such conditions nor the award of this Restricted Stock shall impose upon the Company any obligation to retain the Participant in its employ for any given period of time or upon any specific terms of employment nor interfere in anyway with the Company's right to terminate his employment at any time. 3. Restrictions. (a) Each certificate (or uncertificated account with the Company's transfer agent) representing shares of Restricted Stock hereunder shall bear (or be subject to) the following legend or restriction: "The shares of common stock represented by this certificate are subject to forfeiture under certain circumstances and may not be sold, assigned, transferred, pledged, or otherwise alienated by the registered holder except as permitted by the terms of the 1987 Zenith Stock Incentive Plan and a Restricted Stock Award Agreement dated July 26, 1994 between Zenith Electronics Corporation and Gerald M. McCarthy. A copy of the Plan and such Restricted Stock Award Agreement is on file with the Secretary of Zenith Electronics Corporation." (b) Any Restricted Stock shall not be transferable by the Participant, whether voluntarily or involuntarily, by operation of law or otherwise, so long as it is subject to the restrictions of this paragraph. 4. Removal of Restrictions. (a) Except as otherwise provided in Section 4(b) of this Agreement, One Thousand Four Hundred Ninety Five (1,495) shares of Restricted Stock governed by this Agreement shall become freely transferable by the Participant on each of the first through the fourteenth anniversaries of the Participant's sixty-fifth (65th) birthday and One Thousand Five Hundred Two (1,502) shares of Restricted Stock governed by the Agreement shall become freely transferable by the Participant on the fifteenth anniversary of the Participant's sixty-fifth (65th) birthday. (b) If the Participant shall notify the Secretary of the day of the calendar year immediately preceding the calendar year in which the Participant's sixty fifth (65th) birthday shall occur, that the Participant elects to receive on his sixty-fifth (65th) birthday one hundred percent (100%) of the shares of Stock governed by this Agreement free of all restrictions, then all of the shares of Restricted Stock governed by this Agreement shall become freely transferable by the Participant on the Participant's sixty-fifth (65th) birthday. (c) When the shares are released from the restrictions and become fully transferable by the Participant in accordance with the terms of this Agreement, the Participant shall be entitled to receive a certificate or certificates representing such shares without the legend or restriction required by Section 3 herein. 5. Consulting Duties. Beginning on the later to occur of: (i) the Participant's sixty-fifth (65th) birthday; or (ii) the Participant's termination of employment following his sixty-fifth (65th) birthday (other than by reason of death), and continuing until the Participant's eighty-first (81st) birthday, the Participant agrees that he will, whenever reasonably requested by the Company, render assistance to the Company in the form of furnishing information to and cooperating with the Company in any matter relating to the business of the Company for not more than one (1) day during any calendar month, provided that inability of the Participant to render such assistance to the Company due to the Participant's physical or mental disability shall excuse the Participant of the obligation to render such assistance and shall not be deemed a breach of this Agreement and provided, further, that the refusal of the Participant to render such assistance beyond a twenty (20) mile radius of the Company's present offices in Glenview, Illinois shall not be deemed a breach of this Agreement. The Participant further agrees that during the twenty-four (24) calendar months beginning with the calendar month during which the Participant's termination of employment occurs, he will not, without the express written consent of the Company, engage in or render services of any kind in any capacity for any business that is competitive with the business of the Company or any entity controlled by the Company, and that he will not render assistance of any kind to or supply information to any such competitive business. In the event the Participant does not satisfy the consulting duties described in this Section 5, or if he violates the noncompetition covenant, all unvested shares of Restricted Stock shall immediately be forfeited to the Company. 6. Voting Rights and Dividends. The Participant may exercise full voting rights and is entitled to receive all dividends and other distributions paid with respect to the shares of Restricted Stock while they are held in the name of Participant. If any such dividends or distributions are paid in shares of Common Stock of the Company, the shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock with respect to which they were paid. 7. Termination By Reason of Death or Disability. In the event the Participant's employment is terminated by reason of death or Disability prior to the Participant's 65th birthday and prior to the time when all shares of Restricted Stock governed by this Agreement are all vested, then all shares of Restricted Stock subject to this Agreement shall immediately vest and as soon as administratively practicable, the stock certificates representing such shares of Restricted Stock without the restrictions or legend required by Section 3 herein, shall be delivered by the Company to the Participant or the Participant's beneficiary or estate, as the case may be. 8. Termination of Employment Prior to Age 65 for Other Reasons. Except as otherwise provided in Section 9 herein, in the event the Participant's employment is terminated for reasons other than those described in Section 7 prior to the Participant's sixty-fifth (65th) birthday, all shares of Restricted Stock subject to this Agreement shall immediately be forfeited to the Company by the Participant. 9. Change in Control. In the event of a Qualifying Termination which occurs within the two (2) year period following a Change in Control, the restrictions imposed pursuant to Section 3 herein on shares of Restricted Stock subject to this Agreement shall lapse, and within ten (10) business days after the occurrence of the Qualifying Termination, the stock certificates representing the shares of Restricted Stock, without the restrictions or legend required by Section 3 herein thereon, shall be delivered by the Company to the Participant. 10. Adjustments for Changes in Capitalization. Appropriate adjustment shall be made by the Committee in the number of shares of Restricted Stock governed subject to this Agreement to give effect to any stock splits, stock dividends, and any other relevant changes in capitalization occurring after the effective date of this Agreement. 11. Administration. This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant. 12. Miscellaneous. (a) The Company shall have the authority to deduct or withhold, or require the Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the Participant's FICA obligation) required by law to be withheld with respect to any provision of this Agreement. (b) This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. (c) This Agreement shall be governed by, and construed in accordance with the laws of the State of Illinois (other than those relating to conflicts of law) to the extent not preempted by Federal law. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed this 14 th day of February, 1995. ZENITH ELECTRONICS CORPORATION /s/ Gerald M. McCarthy By: /s/ Michael J. Kaplan - ---------------------------- _____________________________ Gerald M. McCarthy Attest:/s/ David S. Levin _____________________________ ATTACHMENT A 1. Change in Control. For purposes of this Agreement, "change in control of the Company" shall take place when either of the following events will have occurred: (a) A third person, including a "group" as defined in Section l3(d)(3) of the Securities Exchange Act of l934, acquires shares of capital stock of the Company having twenty-five percent (25%) or more of the total number of votes that may be cast for the election of directors of the Company; or (b) As a result of any tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "transaction") the persons who were directors of the Company before the transaction shall during any two consecutive years thereafter cease to constitute a majority of the Board of Directors of the Company. 2. Qualifying Termination. If a change or changes in control of the Company occurs, and within twenty-four (24) months from the date of any such change in control the Participant's employment is terminated, unless such termination is: A. Because of the Participant's death, Retirement or Disability; B. By the Company for Cause; or C. By the Participant other than for Good Reason. (1) Disability; Retirement. (a) Termination by the Company of employment based on "Disability" shall mean termination because of the Participant's absence from his duties with the Company on a full-time basis for one hundred eighty (180) consecutive business days, as a result of incapacity due to injury or physical or mental illness. (b) Termination by the Company or the Participant of employment based on "Retirement" shall, for the purposes of this Agreement, mean retirement at age seventy (70) or voluntary earlier retirement with the written consent of the Participant. (2) Cause. Termination by the Company of employment for "Cause" shall mean termination upon: (a) The willful and continued failure by the Participant to substantially perform his duties with the Company (other than any such failure resulting from his incapacity due to injury or physical or mental illness) after a demand for substantial performance is delivered to the Participant by the Company which specifically identifies the manner in which the Company believes that the Participant has not substantially performed his duties; or (b) The willful engaging by the Participant in misconduct demonstrably injurious to the Company monetarily or otherwise. For purposes of this subparagraph (2), no act, or failure to act on the Participant's part, shall be considered "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Participant shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Participant a copy of a written Notice of Termination from the Company, after reasonable notice to the Participant and an opportunity for the Participant, together with his counsel, to be heard before the Board of Directors, finding that in the good faith opinion of the Board of Directors Cause existed and specifying the particulars thereof in detail. (3) Good Reason. Termination by the Participant of employment for "Good Reason" shall mean termination based on any of the following which occurs within twenty-four (24) months from the date of a change in control: (a) Without the Participant's express written consent, the assignment to the Participant of any duties materially inconsistent with the Participant's positions, duties, responsibilities and status with the Company immediately prior to a change in control, or a change (other than a bona fide promotion) in the Participant's title or office from that in effect immediately prior to a change in control, or any removal of the Participant from or any failure to re-elect the Participant to any of such positions, except in connection with the termination of his employment for Cause, Disability or Retirement or by death or by the Participant other than for Good Reason; (b) A reduction by the Company in the Participant's salary as in effect on the date hereof or as the same may be increased from time to time, unless such reduction results from a blanket reduction of general applicability to exempt salaried personnel; or the failure by the Company to increase such base salary for the year in which a change of control occurs and each year thereafter by an amount which at least equals, on a percentage basis, the mean average percentage increase in base salary for all officers of the Company during the two full calendar years immediately preceding a change in control of the Company unless such failure is of general applicability to exempt salaried personnel; (c) A failure by the Company to continue the Company's bonus incentive plans (the "Incentive Plans") as the same may be modified from time to time but substantially in the form in effect immediately prior to the change in control or a failure by the Company to continue the Participant as a participant in the Incentive Plans on at least the basis of his participation immediately prior to the change in control or to pay the Participant any installment of a previous award under the Incentive Plans; (d) Without the Participant's express written consent, the Company requiring the Participant to be based anywhere other than within fifty (50) miles of his present office location, except for required travel on Company business to an extent substantially consistent with the Participant's business travel obligations immediately prior to such change in control; (e) The failure by the Company to continue in effect any benefit or compensation plan, stock ownership, stock purchase or stock option plan, pension plan, life insurance plan, health and accident plan or long- term disability plan in which the Participant is participating at the time of a change in control of the Company (or plans providing the Participant with substantially similar benefits) or the taking of any action by the Company which would materially adversely affect participation by the Participant in or materially reduce the Participant's benefits under any of such plans or deprive the Participant of any material fringe benefit enjoyed by the Participant at the time of the change in control; (f) Any purported termination of the Participant's employment which is not effective pursuant to a Notice of Termination satisfying the requirements of subparagraph (4) below (and, if applicable, subparagraph (2) above). Notwithstanding the foregoing, the Participant agrees that in the event a third person begins a tender or exchange offer, circulates a proxy statement to shareholders or takes steps to effect a change in control of the Company, as defined in Section 1 hereof, the Participant will not thereafter voluntarily leave the employ of the Company until the third person has abandoned or terminated such efforts to effect a change in control; or if such efforts are successful, for ninety (90) days after a change in control of the Company shall have occurred. (4) Notice of Termination. Any termination by the Company pursuant to subparagraphs (l) or (2) above or by the Participant pursuant to subparagraph (3) above shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of the Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in the Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant's employment under the provision so indicated. (5) Date of Termination. "Date of Termination" shall mean: (a) If the Participant's employment is terminated by reason of his death or Retirement, the date of death or retirement; (b) If the Participant's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Participant shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period); (c) If the Participant's employment is terminated by the Company for Cause pursuant to subparagraph (2) above, the date specified in the Notice of Termination; (d) If the Participant's employment is terminated by the Participant for Good Reason, the date specified in the Notice of Termination; and (e) If the Participant's employment is terminated for any other reason, the date on which a Notice of Termination is given. Notwithstanding the foregoing, if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties or by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction entered upon such arbitration award (the time for appeal from such judgment, order or decree having expired and no appeal having been perfected). EX-10 6 EXHIBIT 10AB TO 1994 FORM 10-K EXHIBIT (10ab) SUPPLEMENTAL EXECUTIVE RETIREMENT INCOME PLAN ZENITH ELECTRONICS CORPORATION Contents Page Article 1. Establishment 1 Article 2. Definitions 1 Article 3. Administration 3 Article 4. Eligibility and Participation 4 Article 5. Retirement 4 Article 6. Amount, Form, and Payment of Supplemental Benefit 5 Article 7. Rights of Participants 6 Article 8. Withholding of Taxes 7 Article 9. Amendment and Termination 7 Article 10. Beneficiaries 8 Article 11. Miscellaneous 8 Zenith Electronics Corporation Supplemental Executive Retirement Income Plan Article 1. Establishment Zenith Electronics Corporation, a Delaware corporation (the "Company") hereby establishes on July 26, 1994 (the Plan Date), effective as of January 1, 1994, the Zenith Electronics Corporation Supplemental Executive Retirement Income Plan (the "Plan") for the purpose of providing supplemental retirement benefits for one or more selected Employees. The Plan is intended to be an unfunded deferred compensation plan maintained primarily for a select group of management or highly compensated employees and shall be construed and administered in accordance with such intention. Article 2. Definitions 2.1 Actuarially Equivalent. "Actuarially Equivalent" or "Actuarial Equivalent" shall mean the equivalence in present value between two or more forms and/or times of payment based upon a determination by an actuary chosen by the Committee, using sound actuarial assumptions at the time of such determination. 2.2 Board. "Board" shall mean the Board of Directors of the Company. 2.3 Cause. "Cause" shall mean a violation of law which adversely affects the economic interests of the Company, as determined at the sole discretion of the Committee. 2.4 Committee. "Committee" shall mean the Organization and Compensation Committee of the Board, or such designate or successor committee as shall be appointed by the Board, pursuant to the terms of Article 3 herein. 2.5 Company. "Company" shall mean Zenith Electronics Corporation. 2.6 Credited Service. "Credited Service" shall mean a Participant's years of credited service or benefit service as defined in the Profit Sharing Plan. Credited Service shall continue to accrue during any period of Disability of a Participant. 2.7 Early Retirement. "Early Retirement" shall mean any termination of a Participant's employment during the time period constituting Early Retirement Age, other than an involuntary termination for Cause: 2.8 Early Retirement Age. "Early Retirement Age" means the time period beginning on a Participant's fifty-fifth (55th) birthday and ending immediately prior to the attainment of age sixty-five (65); provided, however, that a Participant shall not be deemed to have attained Early Retirement Age unless he or she has completed ten (10) years of Credited Service. 2.9 Earnings. "Earnings" shall be determined on a calendar-year basis, and shall mean a Participant's total annual base salary, without taking into account any reductions pursuant to voluntary deferrals of base salary by the Participant; plus any cash annual incentive compensation awards; but excluding any long-term incentive awards. For purposes of determining Earnings for any particular calendar year, Earnings for the year shall consist of total base salary for that year and annual incentive compensation awards earned in such year, regardless of when paid. 2.10 Employee. "Employee" shall mean a full-time, salaried employee of the Company. 2.11 Employment. "Employment" shall mean the period or periods during which an individual is an Employee of the Company. 2.12 Final Average Earnings. "Final Average Earnings" shall mean the average of a Participant's Earnings during his or her final five (5) years of Employment. 2.13 Normal Retirement Age. "Normal Retirement Age" shall mean any time following a Participant's attainment of age sixty-five (65); provided, however, that a Participant shall not be deemed to have attained Normal Retirement Age unless her or she has completed ten (10) years of Credited Service. 2.14 Other Retirement Income. "Other Retirement Income" shall mean the sum of the income payable to a Participant as set forth below: (a) The Participant's Profit Sharing Plan Offset; and (b) The Participant's Supplemental Plan Offset; and (c) The Participant's Restricted Stock Offset; and (d) The Participant's Primary Social Security Benefit Offset. 2.15 Primary Social Security Benefit Offset. "Primary Social Security Benefit Offset" shall mean the single sum Actuarial Equivalent at Retirement of the monthly benefit amount payable under the provisions of Title II of the Social Security Act in effect at the time of his or her termination of employment. Such amounts shall be determined by the Committee or its designate. 2.16 Profit Sharing Plan. "Profit Sharing Plan" shall mean the Zenith Salaried Profit Sharing Retirement Plan and all amendments thereto. 2.17 Profit Sharing Plan Offset. "Profit Sharing Plan Offset" shall mean the lump-sum payment which could be made to a Participant under the Profit Sharing Plan at Retirement (or termination of employment), excluding amounts payable from the Employee Savings Program or the Rollover Account, regardless of the amount actually paid or the form in which such benefits actually are payable to the Participant under the Profit Sharing Plan. Such amount shall be determined by the Committee or its designate. 2.18 Restricted Stock Offset. "Restricted Stock Offset" shall mean an amount equal to the aggregate fair market value of all shares of restricted stock held by a Participant as of the Plan Date. In addition, in the event that shares of restricted stock are granted to a Participant subsequent to the Plan Date, and if such shares are specifically designated by the Committee to serve as offsets to the benefits provided under this Plan, the aggregate grant date fair market value of such shares of restricted stock shall be deemed to be included within the Restricted Stock Offset. However, in the event any or all of such shares of restricted stock described in this Section 2.18 are or have been forfeited by a Participant on or before Retirement, the value attributable to such forfeited shares shall not be deemed to be included within the definition of the term "Restricted Stock Offset." 2.19 Retirement. "Retirement" and "Retire" shall mean a qualifying termination of a Participant's employment with the Company on one of the Retirement dates specified in Section 5.1 herein. 2.20 Supplemental Plan. "Supplemental Plan" means the Zenith Electronics Corporation Supplemental Salaried Profit Sharing Retirement Plan and all amendments thereto. 2.21 Supplemental Plan Offset. "Supplemental Plan Offset" shall mean the lump-sum payment which could be made to a Participant under the Supplemental Plan upon Retirement (or termination of employment), regardless of the amount actually paid or the form in which such benefits actually are payable to the Participant under the Supplemental Plan. Such amount shall be determined by the Committee or its designate. Article 3. Administration 3.1 Authority of the Committee. The Plan shall be administered by the Committee. Subject to the provisions herein, the Committee shall have full power to select Employees for participation in the Plan; to determine the terms and conditions of each Employee's participation in the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; to amend (subject to the provisions of Article 9 herein) the terms and conditions of the Plan and any agreement entered into under the Plan; and to make any other determinations which may be necessary or advisable for the administration of the Plan. The Committee may delegate any of the following of its authorities granted under the Plan to any officer or employee of the Company: (a) The authority to construe and interpret the Plan and any agreement or instrument entered into under the Plan; (b) The authority to establish, amend, or waive rules and regulations for the Plan's administration; (c) The authority to amend the terms and conditions of the Plan to the extent such amendments are necessary in order to comply with applicable tax law or other form of law. 3.2 Decisions Binding. All determinations and decisions made by the Committee and/or its designate pursuant to the provisions of the Plan, and all related orders or resolutions of the Committee and/or its designate shall be final, conclusive, and binding on all persons, including the Company, its stockholders, Employees, Participants, and their estates and beneficiaries. Article 4. Eligibility and Participation Persons eligible to participate in the Plan include key executives of the Company, as selected by the Committee, at its sole discretion. It is the intent of the Company to extend eligibility only to those executives who comprise a select group of management or highly compensated Employees. Article 5. Retirement 5.1 Eligibility for Benefits. Subject to the terms of this Plan, a Participant shall be eligible to Retire and receive a benefit under this Plan upon a qualifying termination of employment at any time during the periods constituting Normal Retirement Age or Early Retirement Age. 5.2 Forfeiture. a) Less than 10 Years of Credited Service. Regardless of a Participant's age upon a termination of his or her employment, the Participant shall forfeit his or her right to any and all benefits set forth in this Plan unless, at the time of such termination, the Participant has completed at least ten (10) years of Credited Service. b) Prior to Age 55. In the event that a Participant's employment terminates prior to age fifty-five (55) for any reason, then such Participant shall forfeit his or her right to receive any and all benefits set forth in this Plan. c) Termination For Cause Prior to Age 65. In the event that a Participant's employment terminates for Cause prior to age sixty-five (65), such Participant shall forfeit his or her right to receive any and all benefits under this Plan. d) Following Age 65. Subject to the terms of the Plan, including, but not limited to, the ten- (10-) year minimum Credited Service requirement, a Participant's right to receive the benefits set forth in this Plan shall be nonforfeitable following such Participant's attainment of age sixty-five (65). Article 6. Amount, Form, and Payment of Supplemental Benefit 6.1 Normal Retirement Benefit. Subject to the terms of the Plan, the Normal Retirement Benefit shall be the lump sum payable (regardless of the form in which such benefit actually is paid) in connection with Retirement at Normal Retirement Age, and will equal the amount specified in (a) less (b) below: a) The lump-sum Actuarial Equivalent at Normal Retirement Age of a straight-life annuity where each annual payment equals fifty percent (50%) of the Participant's Final Average Earnings; multiplied by a fraction, the numerator of which is the Participant's total number of years of Credited Service (up to a maximum of twenty-five (25) years), and the denominator of which is twenty-five (25); less b) The Participant's Other Retirement Income. This amount will be payable in a lump sum or other payment schedule having the same Actuarial Equivalent value as such lump sum, as specified in Section 6.4. All calculations hereunder shall be made by the Committee or its designate. 6.2 Early Retirement Benefit. Subject to the terms of this Plan, the Early Retirement Benefit shall be the lump sum payable (regardless of the form in which such benefit actually is paid) in connection with Retirement at Early Retirement Age, and shall equal (a) less (b) below: a) The amount specified in Section 6.1(a) herein, reduced by one- fourth of one percent for each full calendar month by which the Participant's date of termination of employment precedes his or her sixty- fifth (65th) birthday (provided that such reduction shall apply only for a maximum of thirty-six (36) months), and by five-twelfths of one percent for each full calendar month by which the Participant's date of termination of employment precedes his or her sixty-second (62nd) birthday; less b) The Participant's Other Retirement Income 6.3 Commencement of Benefits. Benefits payable in accordance with Section 6.1 or 6.2 herein shall commence on the first day of the month following the effective date of the Participant's employment termination, and shall continue to be paid as set forth in Section 6.4 herein. 6.4 Form of Benefit. Each Participant shall make an irrevocable election designating the form of payment he or she desires with respect to his or her benefits hereunder. Such election shall be effective only in the event it is delivered to the Company within a calendar year which precedes the calendar year in which the Participant Retires. In the event such election is not made in a calendar year prior to the calendar year in which the Participant Retires, the Participant's benefit shall be paid as set forth in Section 6.4(b) herein. The aggregate payments under each of the payment alternatives shall represent approximately the same Actuarial Equivalent value, determined at the sole discretion of the Committee. The following payment alternatives are available: (a) Lump Sum. A cash lump-sum payment, as set forth in Section 6.1 or 6.2 herein, as applicable. In the event this payment alternative is selected, the Company shall make the cash lump-sum payment to the Participant within thirty (30) days following the date on which the benefits become due and payable. (b) Fifteen-Year Certain. In the event this payment alternative is selected, the Participant, shall receive equal monthly payments, each of which equals one-one hundred eightieth (1/180th) of the Actuarial Equivalent of the benefits set forth in this Article 6, as if they were payable for the lifetime of the Participant pursuant to a straight-life annuity, determined at the discretion of the Committee or its designate. Such payments shall begin within thirty (30) days following the date on which the benefits become due and payable, and shall continue for the entire fifteen- (15-) year period. In the event this payment alternative is selected, the Participant shall designate a beneficiary to whom remaining payments will be made in the event of his or her death prior to the end of such fifteen- (15-) year period. Article 7. Rights of Participants 7.1 Contractual Obligation. The Plan shall create a contractual obligation on the part of the Company to make the payments described under the Plan. Such payments shall be made out of the general funds of the Company. 7.2 Unsecured Interest. No Participant or party claiming an interest under the Plan shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company. The Company may establish one or more trusts, with such trustee as the Committee or its designate may approve, for the purpose of providing for the payment of benefits hereunder. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company's general creditors. To the extent any benefits payable under the Plan are actually paid from any such trust, the Company shall have no further obligation with respect thereto, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by, the Company. 7.3 Employment. Nothing in the Plan shall interfere with nor limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. 7.4 Participation. No Employee shall have the right to be selected as a Participant. Article 8. Withholding of Taxes The Company shall have the authority to deduct or withhold, or require Participants to remit to the Company an amount sufficient to satisfy Federal, state, and local withholding tax requirements (including the Participant's FICA obligation) required by law to be withheld with respect to any provision of this Plan. Article 9. Amendment and Termination The Company hereby reserves the right to amend, modify, or terminate the Plan at any time by action of the Committee. Except as described below in this Article 9, no such amendment or termination shall in any material manner adversely affect any Participant's rights to benefits payable hereunder, without the consent of the Participant. The Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly compensated employees" within the meaning of Sections 201, 301, and 401 of ERISA, and therefore to be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. Accordingly, the Committee may terminate the Plan and commence termination payout for all or certain Participants, or remove certain Employees as Participants, if it is determined by the United States Department of Labor or a court of competent jurisdiction that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA which is not so exempt. If payout is commenced pursuant to the operation of this Article 9, the payment of such amounts shall be made in the manner, and at the times selected by the Committee; provided, however, that such payment shall not be extended for a longer period of time than would have been the case had the account balance payouts occurred as scheduled immediately prior to such accelerated payout. Article 10. Beneficiaries Each Participant shall be entitled to designate one (1) or more beneficiaries of the Participant under this Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee or its designate. Each designation shall be effective as of the date received by the Company. Participants may change their designations of beneficiary on such form as prescribed by the Committee or its designate. The payment of amounts payable under the Plan shall be in accordance with the last unrevoked written designation of beneficiary that has been signed by the Participant and delivered by the Participant to the Company prior to the Participant's death. In the event that all the beneficiaries named by a Participant pursuant to this Article 10 predecease the Participant, the amounts that would have been paid to the Participant or the Participant's beneficiaries under this Plan shall be paid to the Participant's estate. In the event a Participant does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the amounts that otherwise would have been paid to the Participant or the Participant's beneficiaries under the Plan shall be paid to the Participant's estate. Article 11. Miscellaneous 11.1 Notice. Any notice or filing required or permitted to be given to the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Corporate Secretary of the Company. Notice to the Corporate Secretary of the Company, if mailed, shall be addressed to the principal executive offices of the Company. Notice mailed to a Participant shall be at such address as is given in the records of the Company. Notices shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 11.2 Nontransferability. Except as provided in Article 10 herein, Participants' rights to amounts payable under the Plan may not be sold, transferred, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In no event shall the Company make any payment under the Plan to any assignee or creditor of a Participant. 11.3 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 11.4 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural. 11.5 Costs of the Plan. All costs of implementing and administering the Plan shall be borne by the Company. 11.6 Applicable Law. The Plan shall be governed by and construed in accordance with the laws of the state of Illinois. 11.7 Successors. All obligations of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. EX-10 7 EXHIBIT 10AC TO 1994 FORM 10-K EXHIBIT (10ac) SUPPLEMENTAL SALARIED PROFIT SHARING RETIREMENT PLAN ZENITH ELECTRONICS CORPORATION Contents Page Article 1. Establishment and Purposes 1 Article 2. Definitions 1 Article 3. Administration 2 Article 4. Eligibility and Participation 3 Article 5. Profit Sharing Plan Restoration 3 Article 6. Rights of Participants 5 Article 7. Withholding of Taxes 6 Article 8. Amendment and Termination 6 Article 9. Miscellaneous 7 Supplemental Salaried Profit Sharing Retirement Plan Article 1. Establishment and Purposes 1.1 Establishment. Zenith Electronics Corporation, a Delaware corporation (the "Company"), hereby establishes, effective as of January 1, 1994, a supplemental profit sharing plan for key employees as described herein, which shall be known as the "Zenith Electronics Corporation Supplemental Salaried Profit Sharing Retirement Plan" (the "Plan"). 1.2 Purpose. The primary purpose of the Plan is to restore Company contributions under the Profit Sharing Plan, which are limited by operation of certain tax laws. By adopting the Plan, the Company desires to enhance its ability to attract and retain employees of outstanding competence. Article 2. Definitions Whenever used herein, the following terms shall have the respective meanings set forth below: (a) "Change in Control" shall be deemed to exist when either of the following events will have occurred: (i) A third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, acquires shares of capital stock of the Company having twenty-five percent (25%) or more of the total number of votes that may be cast for the election of directors of the Company; or (ii) As a result of any tender or exchange offer, merger, or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Company before the transaction shall during any two consecutive years thereafter cease to constitute a majority of the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, as amended. (c) "Committee" means the Organization and Compensation Committee of the Board, or any other committee appointed by the Company's Board to administer the Plan. (d) "Company" means Zenith Electronics Corporation, a Delaware corporation, together with all Subsidiaries of the Company. (e) "Compensation" shall have the meaning ascribed to such term in the Profit Sharing Plan, as such term pertains to Company contributions under such Plan. (f) "Disability" shall have the meaning ascribed to such term in the Profit Sharing Plan. (g) "Effective Date" means the date the Plan becomes effective, as set forth in Section 1.1 herein. (h) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. (i) "Participant" means an individual selected by the Committee for participation in the Plan. (j) "Profit Sharing Plan" means the Zenith Electronics Salaried Profit Sharing Retirement Plan, and all amendments thereto. (k) "Retirement" shall have the meaning ascribed to such term in the Profit Sharing Plan. (l) "Subsidiary" means any and all entities, the employees of which are eligible to participate in the Profit Sharing Plan. (m) "Year" means the fiscal year of the Company. Article 3. Administration 3.1 Authority of the Committee. The Plan shall be administered by the Committee. Subject to the provisions herein, the Committee shall have full power to select employees for participation in the Plan; to determine the terms and conditions of each employee's participation in the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; to amend (subject to the provisions of Article 8 herein) the terms and conditions of the Plan and any agreement entered into under the Plan; and to make any other determinations which may be necessary or advisable for the administration of the Plan. The Committee may delegate any of the following of its authorities granted under the Plan to any officer or employee of the Company: (a) The authority to construe and interpret the Plan and any agreement or instrument entered into under the Plan; (b) The authority to establish, amend, or waive rules and regulations for the Plan's administration; (c) The authority to amend the terms and conditions of the Plan to the extent such amendments are necessary in order to comply with applicable tax law or other form of law. 3.2 Decisions Binding. All determinations and decisions made by the Committee and/or its designate pursuant to the provisions of the Plan, and all related orders or resolutions of the Committee and/or its designate shall be final, conclusive, and binding on all persons, including the Company, its stockholders, employees, Participants, and their estates and beneficiaries. Article 4. Eligibility and Participation Persons eligible to participate in the Plan include key employees of the Company, as selected by the Committee, at its sole discretion. It is the intent of the Company to extend eligibility only to those employees who comprise a select group of management or highly compensated employees. In the event a Participant no longer meets the requirements for participation in the Plan, such Participant shall become an inactive Participant, retaining all the rights described under the Plan, except the right to receive further Company contributions under Article 5 herein, until such time that the Participant again becomes an active Participant. Article 5. Profit Sharing Plan Restoration 5.1 Company Contributions. For each Year in which an employee is a Participant, the Company will credit to each Participant's account in the Plan an amount equal to (a) minus (b) where: (a) Is the amount which would have been credited to the Participant's retirement and optional accounts under the Profit Sharing Plan from employer contributions and forfeitures for such Year had the amounts not been limited by Sections 415 and 401(a)(17) of the Code; and (b) Is the amount which actually is credited to the Participant's retirement and optional accounts under the Profit Sharing Plan. 5.2 Vesting of Company Contributions. Each Participant shall vest in his or her Company contributions described under Section 5.1 herein according to the following schedule: Number of Years of Cumulative Employment Under Percentage of Vested the Profit Sharing Plan Company Contributions Less than 1 year 0% 1 year but less than 2 years 20% 2 years but less than 3 years 40% 3 years but less than 4 years 60% 4 years but less than 5 years 80% 5 years or over 100% 5.3 Earnings on Company Contributions. Company contributions under this Article 5 will be credited with the same rate(s) of earnings as is/are Company contributions under the Profit Sharing Plan. The Company shall not be required to direct that Company contributions with respect to each Participant under this Plan actually be invested in the same funds as Company contributions under the Profit Sharing Plan. Rather, such accruals shall be maintained as bookkeeping accounts, as if the investments corresponding to those made by each Participant under the Profit Sharing Plan were actually made under this Plan, at the same time, and in the same proportionate amounts as elected under the Profit Sharing Plan. The administration of such accruals under this Plan shall be the responsibility of the Committee or its designate, and shall be conducted according to such rules, procedures, and determinations as the Committee (or the Committee's designate), at its sole discretion, deems appropriate. Participants and their beneficiaries shall have no right to direct the actual investment of any funds subject to this Plan. 5.4 Form and Timing of Benefit Payments. Benefit payments under this Article 5 shall be payable in the same form, and at the same time, as the corresponding tax-qualified contributions payable to the Participant under the Profit Sharing Plan; provided, however, that the Committee shall have the authority, at its sole discretion, to accelerate the payout of such benefit payments upon: (i) the termination of a Participant's employment; or (ii) upon a Change in Control. 5.5 Beneficiary. Each Participant shall be entitled to designate one (1) or more beneficiaries of the Participant under this Plan. Such beneficiary may or may not be the same as those named by the Participant under the Profit Sharing Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee or its designate. Each designation shall be effective as of the date received by the Company. Participants may change their designations of beneficiary on such form as prescribed by the Committee or its designate. The payment of account balances under the Plan shall be in accordance with the last unrevoked written designation of beneficiary that has been signed by the Participant and delivered by the Participant to the Company prior to the Participant's death. In the event that all the beneficiaries named by a Participant pursuant to this Section 5.5 predecease the Participant, the amounts that would have been paid to the Participant or the Participant's beneficiaries under this Plan shall be paid to the Participant's estate. In the event a Participant does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the amounts that otherwise would have been paid to the Participant or the Participant's beneficiaries under the Plan shall be paid to the Participant's estate. 5.6 Contribution Accounts. The Company shall establish and maintain separate individual bookkeeping accounts for Company contributions and earnings accruals corresponding to such Company contributions made on behalf of Participants pursuant to Section 5.1 herein. Such accounts shall be administered according to such rules and procedures as the Committee (or its designate), at is sole discretion, deems appropriate. Article 6. Rights of Participants 6.1 Contractual Obligation. The Plan shall create a contractual obligation on the part of the Company to make payments from the Participants' accounts when due. Payment of account balances shall be made out of the general funds of the Company. 6.2 Unsecured Interest. No Participant or party claiming an interest in Company contributions under a Participant shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company. The Company may establish one or more trusts, with such trustee as the Committee or its designate may approve, for the purpose of providing for the payment of Company contributions. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company's general creditors. To the extent any Company contributions under the Plan are actually paid from any such trust, the Company shall have no further obligation with respect thereto, but to the extent not so paid, such Company contributions shall remain the obligation of, and shall be paid by, the Company. 6.3 Employment. Nothing in the Plan shall interfere with nor limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. 6.4 Participation. No employee shall have the right to be selected as a Participant, or, having been so selected for any given Year, to be selected again for any other Year. Article 7. Withholding of Taxes The Company shall have the right to require Participants to remit to the Company an amount sufficient to satisfy Federal, state, and local withholding tax requirements, or to deduct from all payments made pursuant to the Plan amounts sufficient to satisfy withholding tax requirements. Article 8. Amendment and Termination The Company hereby reserves the right to amend, modify, or terminate the Plan at any time by action of the Committee. Except as described below in this Article 8, no such amendment or termination shall in any material manner adversely affect any Participant's rights to Company contributions or earnings thereon, without the consent of the Participant. The Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly compensated employees" within the meaning of Sections 201, 301, and 401 of ERISA, and therefore to be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. Accordingly, the Committee may terminate the Plan and commence termination payout for all or certain Participants, or remove certain employees as Participants, if it is determined by the United States Department of Labor or a court of competent jurisdiction that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA which is not so exempt. If payout is commenced pursuant to the operation of this Article 8, the payment of such amounts shall be made in the manner, and at the times selected by the Committee; provided, however, that such payment shall not be extended for a longer period of time than would have been the case had the account balance payouts occurred as scheduled immediately prior to such accelerated payout. Article 9. Miscellaneous 9.1 Notice. Any notice or filing required or permitted to be given to the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Corporate Secretary of the Company. Notice to the Corporate Secretary of the Company, if mailed, shall be addressed to the principal executive offices of the Company. Notice mailed to a Participant shall be at such address as is given in the records of the Company. Notices shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 9.2 Nontransferability. Except as provided in Section 5.5 herein, Participants' rights to Company contributions and earnings thereon under the Plan may not be sold, transferred, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In no event shall the Company make any payment under the Plan to any assignee or creditor of a Participant. 9.3 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 9.4 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural. 9.5 Costs of the Plan. All costs of implementing and administering the Plan shall be borne by the Company. 9.6 Applicable Law. The Plan shall be governed by and construed in accordance with the laws of the state of Illinois. 9.7 Successors. All obligations of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. EX-21 8 EXHIBIT 21 TO 1994 FORM 10-K EXHIBIT (21) ZENITH ELECTRONICS CORPORATION SUBSIDIARIES State or Other Jurisdiction of Incorporation - ----------------------------------------------------------------------------- Cableproductos de Chihuahua, S.A. de C.V. Mexico Electro Partes de Matamoros, S.A. de C.V. Mexico Interocean Advertising Corporation New York Interocean Advertising Corporation of California California Interocean Advertising Corporation of Illinois Illinois Productos Magneticos de Chihuahua, S.A. de C.V. Mexico Partes de Television de Reynosa, S.A. de C.V. Mexico Radio Componentes de Mexico, S.A. de C.V. Mexico Telson, S.A. de C.V. Mexico Zenco de Chihuahua, S.A. de C.V. Mexico Zenith Distributing Corporation of Illinois Illinois Zenith Distributing Corporation-Midstates Kansas Zenith Distributing Corporation of New England Delaware Zenith Distributing Corporation of New York New York Zenith Distributing Corporation-Southeast Delaware Zenith Distributing Corporation-West California Zenith Distributing Corporation of Arizona Arizona Zenith Electronics Corporation of Pennsylvania Pennsylvania Zenith Electronics Corporation of Texas Texas Zenith Electronics (Europe) Limited England Zenith Electronics (Ireland) Limited Ireland Zenith Electronics (Pacific) Ltd. Hong Kong Zenith Electronics Universal Sales Corporation Delaware Zenith/Inteq, Inc. Delaware Zenith Microcircuits Corporation Delaware Zenith Radio Canada Ltd/Zenith Radio Canada Ltee Canada Zenith Taiwan Corporation Taiwan Zenith Video Tech Corporation Delaware Zenith Video Tech Corporation-Florida Delaware Zentrans, Inc. Delaware also Zenith Foreign Sales Corporation Guam (Dormant) * All subsidiaries are wholly-owned by Zenith Electronics Corporation except for Radio Componentes de Mexico, S.A. de C.V. which is a wholly-owned subsidiary of Cableproductos de Chihuahua S.A. de C.V. EX-23 9 EXHIBIT 23 TO 1994 FORM 10-K EXHIBIT (23) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports dated February 14, 1995, included in this Form 10-K for the year ended December 31, 1994, into (i) the Company's previously filed Registration Statements on Form S-8, File Nos. 33-15643 and 33-11295 and (ii) the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-56889). /s/ Arthur Andersen LLP ------------------------- ARTHUR ANDERSEN LLP Chicago, Illinois, February 27, 1995 EX-27 10 ARTICLE 5 FIN. DATA SCHEDULE FOR 1994 YEAR-END
5 1,000,000 12-MOS DEC-31-1994 DEC-31-1994 9 0 210 3 245 471 715 547 654 243 0 46 0 0 182 654 1,469 1,469 1,350 1,350 129 0 16 (15) 0 (15) 0 0 0 (14) (.34) (.34)
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