SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE CHERRY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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[LOGO]
THE CHERRY CORPORATION
3600 SUNSET AVENUE
WAUKEGAN, ILLINOIS 60087
847-662-9200
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 17, 1999
-----------------
To the Stockholders of
The Cherry Corporation
Notice is hereby given that the annual meeting of stockholders of THE
CHERRY CORPORATION, a Delaware corporation, will be held at Midlane Country
Club, 4555 West Yorkhouse Road, Wadsworth, Illinois, on Thursday, June 17,
1999, at 4:00 p.m. local time, for the following purposes:
1. To elect eight directors of the Company to hold office for the ensuring
year.
2. To consider and act upon a proposal to amend Article Fourth of the
Company's Restated Certificate of Incorporation, as amended (the
"Amendment"), to eliminate the Company's two classes of common stock by
(i) authorizing a new class of voting common stock, consisting of
30,000,000 authorized shares ("New Common Stock"), and (ii)
reclassifying each issued share of Class A Common Stock and each issued
share of Class B Common Stock of the Company into one share of New
Common Stock (the "Reclassification").
3. To consider and act upon a proposal to approve an amendment to The
Cherry Corporation 1995 Stock Incentive Plan increasing the number of
shares of Class A Common Stock (or, if the Reclassification is
completed, the New Common Stock) available for grant thereunder by
900,000 shares.
4. To consider and transact such other business as may properly come
before the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 23, 1999,
as the record date for determination of the holders of shares of the Company's
outstanding Class A Common Stock and Class B Common Stock entitled to notice
of and to vote at the annual meeting of stockholders. Each holder of Class B
Common Stock is entitled to one vote per share on all matters to be voted on
at the Annual Meeting, and each holder of Class A Common Stock is entitled to
one vote per share on the Reclassification with the Class A Common Stock and
the Class B Common Stock voting as separate classes. Peter B. Cherry, the
Chairman of the Board, President and controlling stockholder, who currently
beneficially owns 44.1% and 66.0% of the Class A Common Stock and Class B
Common Stock, respectively, has indicated that he will vote for the Amendment
and the amendment to The Cherry Corporation 1995 Stock Incentive Plan.
There are two proxies -- blue for Class A Common Stock and white for Class
B Common Stock. If you hold shares of both classes of stock, both proxy cards
should be dated, signed and returned in the enclosed envelope.
By Order of the Board of Directors
[SIG]
DAN A. KING
SECRETARY
May 20, 1999
PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY CARD(S) IN THE ENVELOPE PROVIDED
WHICH REQUIRES NO POSTAGE FOR MAILING IN THE UNITED STATES. A PROMPT RESPONSE
IS HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED.
THE CHERRY CORPORATION
3600 SUNSET AVENUE
WAUKEGAN, ILLINOIS 60087
847-662-9200
-------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 17, 1999
-----------------
VOTING INFORMATION
This Proxy Statement is being mailed to stockholders of The Cherry
Corporation (the "Company") on or about May 20, 1999 and is furnished in
connection with the Board of Directors' solicitation of proxies for the annual
meeting of stockholders to be held on June 17, 1999, for the purposes of
considering and acting upon the matters specified in the Notice of Annual
Meeting of Stockholders accompanying this Proxy Statement. If the form of proxy
which accompanies this Proxy Statement is executed and returned, it may be
revoked by the person giving it at any time prior to the voting thereof by
written notice to the Secretary, by delivery of a later dated proxy or by
requesting to vote in person at the meeting. Without extra compensation, certain
directors, officers and employees of the Company may make additional
solicitations in person or by telephone or facsimile. Expenses incurred in the
solicitation of proxies, including postage, printing and handling, and actual
expenses incurred by brokerage houses, custodians, nominees and fiduciaries in
forwarding documents to beneficial owners, will be paid by the Company.
The Company has two classes of common stock. They are Class A Common Stock,
par value $1.00 per share ("Class A Common Stock"), and Class B Common Stock,
par value $1.00 per share ("Class B Common Stock"). The holders of Class B
Common Stock are entitled to one vote per share upon each matter submitted to
the vote of stockholders at this annual meeting. The holders of Class A Common
Stock are entitled to one vote per share only for the Amendment to the Company's
Restated Certificate of Incorporation and will have no other voting rights at
this annual meeting. The holders of Class A Common Stock and Class B Common
Stock will vote as separate classes for the Amendment.
For purposes of the meeting, a quorum means a majority of the outstanding
shares of Class B Common Stock and a majority of the outstanding shares of Class
A Common Stock. As of the close of business on April 23, 1999, the record date
for stockholders entitled to vote at the annual meeting, there were outstanding
5,984,329 shares of Class A Common Stock and 4,193,549 shares of Class B Common
Stock. In determining whether a quorum exists at the meeting, all shares
represented in person or by proxy will be counted. A holder of Class B Common
Stock may, with respect to the election of directors, (i) vote for the election
of all named director nominees, (ii) withhold authority to vote for all named
director nominees or (iii) vote for the election of all named director nominees
other than any nominee with respect to whom the stockholder withholds authority
to vote by so indicating in the appropriate space in the proxy. With respect to
the other two proposals, a stockholder may (i) vote for the proposals, (ii) vote
against the proposals, or (iii) abstain from voting. Proxies properly executed
and received by the Company prior to the meeting and not revoked will be voted
as directed therein on all matters presented at the meeting. In the absence of a
specific direction from the stockholder, proxies will be voted for the election
of all named director nominees, each to hold office until the next annual
meeting of stockholders or until his successor is duly elected and qualified.
Proxies relating to "street name" shares that are voted by brokers on some
but not all of the matters will be treated as shares present for purposes of
determining the presence of a quorum on all matters, but will be treated as
shares entitled to vote only as indicated below ("broker non-votes"). The
affirmative vote of the holders of a majority of the shares present in person or
by proxy at the meeting and entitled to vote is required in the election of
directors. Withholding authority to vote for a director nominee will in effect
count as a vote against the director nominee. Broker non-votes will have no
effect in the election of directors. The affirmative vote of the holders of a
majority of the outstanding shares of each of the Class A Common Stock
and Class B Common Stock, voting as separate classes, is required for approval
of the Amendment to the Company's Restated Certificate of Incorporation.
Abstentions and broker non-votes in connection with this proposal will count as
votes against this proposal. The affirmative vote of the holders of a majority
of the shares of Class B Common Stock represented and entitled to vote at the
meeting is required for approval of the amendment to The Cherry Corporation 1995
Stock Incentive Plan. Abstentions will count as a vote against the proposal, but
broker non-votes will have no effect.
The Board of Directors knows of no other matter which may come up for action
at the meeting. However, if any other matter properly comes before the meeting,
the persons named in the proxy form enclosed will vote in accordance with their
judgment upon such matter.
Stockholders wishing to include proposals in the Company's proxy statement
and form of proxy for the annual meeting in the year 2000 must submit such
proposals so that they are received by the Secretary of the Company at its
Waukegan address by no later than January 20, 2000. Stockholders wishing to
present proposals at the annual meeting (but not include them in the proxy
statement) are required to notify the Secretary of the Company in writing at the
Waukegan address by no later than April 5, 2000.
The Annual Report to stockholders for the fiscal year ended February 28,
1999, accompanies this Proxy Statement. Additional copies of the Annual Report
may be obtained by writing to the Secretary of the Company.
2
STOCK OWNERSHIP INFORMATION
The table below sets forth certain information as of April 23, 1999, with
respect to each person known by the Company to be the beneficial owner of more
than five percent of the outstanding shares of each of the Class A Common Stock
and Class B Common Stock, and the beneficial ownership of both classes of stock
of each director, each executive officer shown in the Summary Compensation Table
and all executive officers and directors as a group. Except as set forth below,
the address for such person or group is the Company's Waukegan office.
CLASS A -- NONVOTING CLASS B -- VOTING
---------------------------------- ----------------------------------
NUMBER OF SHARES PERCENT OF NUMBER OF SHARES PERCENT OF
BENEFICIALLY RESPECTIVE BENEFICIALLY RESPECTIVE
NAME OWNED CLASS OWNED CLASS
- -------------------------------------------------- --------------------- ---------- --------------------- ----------
Peter B. Cherry................................... 2,701,287(a)(b)(c) 44.1% 2,766,985(a)(b)(c) 66.0%
Heartland Advisors................................ 957,000 15.6% -- --
Franklin Advisors, Inc............................ 408,900 6.7% 271,000 6.5%
Granahan Investment Management.................... 404,700 6.6% -- --
Robert B. McDermott............................... 28,358(c) * 32,200 *
Alfred S. Budnick................................. 44,558(c) * 16,188 *
Klaus D. Lauterbach............................... 27,939(c) * 9,939 *
Dan A. King....................................... 25,534(c) * 9,247 *
Robert G. Terwall................................. 18,723(c) * 3,450 *
Thomas L. Martin, Jr.............................. 5,558(c) * 2,200 *
Charles W. Denny.................................. 4,358(c) * -- --
Peter A. Guglielmi................................ 3,358(c) * 5,000 *
W. Ed Tyler....................................... 3,517(c) * -- --
Henry J. West..................................... 3,517(c) * 500 *
All executive officers and directors as group (12
persons)........................................ 2,870,039(c) 46.9% 2,845,709 67.9%
- ---------
* Less than 1%
(a) The table includes 353,727 shares of Class A and 397,727 shares of Class B
Common Stock held by trusts for the benefit of Catherine C. Rousey, of which
Peter B. Cherry and Virginia B. Cherry (his mother) are trustees with the
power to vote the Common Stock and to make dispositions. Mrs. Cherry and Mr.
Cherry disclaim beneficial ownership. The table also includes 9,182 shares
of Class A Common Stock held in a charitable foundation by Mr. Cherry and
his wife.
(b) The table includes 47,911 shares of Class A and 47,911 shares of Class B
Common Stock held by Mr. Cherry's wife as trustee for their children, as to
which shares Mr. Cherry disclaims beneficial ownership.
(c) The total number of shares of Class A Common Stock of the Company for
officers and directors includes shares held under options exercisable within
60 days as follows: Peter B. Cherry, 38,666; Alfred S. Budnick, 28,332; Dan
A. King, 14,999; Klaus D. Lauterbach, 18,000; Robert G. Terwall, 13,499;
Robert B. McDermott, 3,358; Thomas L. Martin, Jr., 3,358; Charles W. Denny,
3,358; Peter A. Guglielmi, 3,358; W. Ed Tyler, 3,517; Henry J. West 3,517,
and all executive officers and directors as a group, 137,294.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that certain
of the Company's directors, officers and stockholders file with the Securities
and Exchange Commission and Nasdaq an initial statement of beneficial ownership
and certain statements of changes in beneficial ownership of Common Stock of the
Company. Based solely on its review of such forms received by the Company and
written representation from the directors and officers that no other reports
were required, the Company is unaware of any instances of noncompliance, or late
compliance, with such filings during the fiscal year ended February 28, 1999.
3
ELECTION OF DIRECTORS
At the annual meeting of stockholders, eight directors, constituting the
entire Board of Directors of the Company, are to be elected to hold office until
the next annual meeting of stockholders or until their successors are duly
elected and qualified. Unless otherwise indicated on the proxy form, it is
intended that the proxies will be voted for the nominees listed below. It is
expected that these nominees will serve, but, if for any unforeseen cause any
such nominee should decline or be unable to serve, the proxies will be voted to
fill any vacancy so arising in accordance with the discretionary authority of
the persons named in the proxies unless otherwise indicated on the proxy form.
NOMINEES
The following information concerning the nominees has been furnished by the
nominees:
FIRST
PRINCIPAL OCCUPATION YEAR
DURING LAST FIVE YEARS ELECTED
NAME AGE AND OTHER DIRECTORSHIPS DIRECTOR
- --------------------------- ----------- -------------------------------------------------------------------- ---------
Peter B. Cherry............ 51 Chairman of the Board and President. 1977
Alfred S. Budnick.......... 61 Vice President of the Company and President of Cherry Semiconductor 1977
Corporation.
Thomas L. Martin, Jr. ..... 77 President Emeritus of Illinois Institute of Technology. 1979
Robert B. McDermott........ 71 Consultant, formerly a partner, law firm of McDermott, Will & Emery. 1982
Mr. McDermott is also a director of Maynard Oil Company
Peter A. Guglielmi......... 56 Director, since 1993, Executive Vice President, Chief Financial 1993
Officer, since 1990, and Treasurer, since 1988, Tellabs Inc. (Voice
and data communications equipment manufacturer), President, Tellabs
International, Inc. 1993-1997. Mr. Guglielmi is also a director of
Internet Communications Corp. and Uniphase Corporation.
Charles W. Denny........... 63 Chairman, since 1997, Chief Executive Officer and President, 1993
1992-1998, Schneider Electric-North American Division (formerly
Groupe Schneider-North America), President and Chief Operating
Officer, 1992-1997, Square D Company (electrical distribution and
industrial control products manufacturer). Mr. Denny is also a
director of Woodhead Industries, Inc.
W. Ed Tyler................ 46 Director, President and Chief Executive Officer since April 1998, 1995
Moore Corporation Limited (print and digital communication products
and services), formerly Executive Vice President, 1995-1998, and
Sector President, Information Management Sector since 1996, Sector
President, Networked Services Sector, 1994-1996, R. R. Donnelley &
Sons Co. (printing and printing related services).
Henry J. West.............. 56 Group Vice President, since 1992, The Marmon Group (international 1995
association of manufacturing and service businesses).
4
COMPENSATION
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the executive officers named
below.
SUMMARY COMPENSATION TABLE (1)
LONG-TERM
COMPENSATION
-------------
NUMBER OF
SHARES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
--------------------------------- STOCK OPTIONS COMPENSATION (2)
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (#) ($)
- --------------------------------------------- --------- ---------- ---------- ------------- -------------------
Peter B. Cherry 1999 $ 432,735 $ 151,725 20,000 5,600
Chairman of the Board 1998 413,778 44,449 12,000 7,713
And President 1997 381,894 61,414 12,000 5,250
Alfred S. Budnick 1999 275,000 17,531 17,000 3,259
Vice President of the Company 1998 265,000 136,044 8,500 6,426
And President of a Subsidiary 1997 245,375 107,500 8,500 5,250
Klaus D. Lauterbach 1999 317,853 120,327 6,000 --
Vice President of the Company 1998 293,082 82,189 6,000 --
And General Manager of a Subsidiary 1997 340,000 68,709 6,000 --
Dan A. King 1999 214,126 42,840 5,000 5,600
VP of Finance & Administration, 1998 205,451 44,090 5,000 7,713
Treasurer and Secretary 1997 174,518 42,936 5,000 5,250
Robert G. Terwall 1999 183,789 9,180 5,000 5,600
Vice President of the Company 1998 182,188 15,481 5,000 7,448
And General Manager of a Division 1997 159,840 18,802 5,000 5,196
- ---------
(1) Table excludes perquisites, as amounts received do not exceed the lesser of
$50,000 or 10% of any of the named officer's salary and bonus.
(2) Represents Company contributions under 401(k) and profit sharing plans.
5
The table below sets forth certain information with respect to stock options
granted during fiscal 1999 under the Company's 1995 Stock Incentive Plan to the
executive officers named in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL
INDIVIDUAL GRANTS (1) REALIZABLE VALUE AT
--------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SHARES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM (2)
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION ----------------------
GRANTED (#) IN FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
------------- ---------------- ----------- ----------- ---------- ----------
Peter B. Cherry.................. 20,000 7.4% $ 16.50 3/02/2008 $ 207,570 $ 526,020
Alfred S. Budnick................ 17,000 6.3% 16.50 3/02/2008 176,435 447,117
Klaus D. Lauterbach.............. 6,000 2.2% 16.50 3/02/2008 62,271 157,806
Dan A. King...................... 5,000 1.8% 16.50 3/02/2008 51,893 131,505
Robert G. Terwall................ 5,000 1.8% 16.50 3/02/2008 51,893 131,505
- ---------
(1) All options reported are for Class A Common Stock granted on March 2, 1998,
and become exercisable in cumulative annual installments of 1/3 of the
shares covered on each of the first, second and third anniversaries of the
grant date.
(2) The amounts set forth represent the value that would be received by the
Named Executive Officer upon exercise of the option on the date before the
expiration date of the option based upon assumed annual growth rates in the
market value of the Company's common stock of 5% and 10%, rates prescribed
by applicable Securities and Exchange Commission rates. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Company's common stock and other factors such as the general condition
of the stock markets and the timing of the exercise of the options.
6
The following table sets forth certain information with respect to options
in Class A Common Stock held by the executive officers named in the Summary
Compensation Table.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SHARES VALUE OF UNEXERCISABLE
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR AT
SHARES VALUE END FISCAL YEAR END ($)
ACQUIRED ON REALIZED($) (#) EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) (1) UNEXERCISABLE UNEXERCISABLE (1)
- ------------------------- ------------- ----------- ------------------------ ----------------------
Peter B. Cherry.......... 0 -- 24,000/32,000 $37,000/$18,500
Alfred S. Budnick........ 0 -- 16,999/25,501 $26,205/$13,107
Klaus D. Lauterbach...... 0 -- 12,000/12,000 $18,500/$9,250
Dan A. King.............. 0 -- 9,999/10,001 $15,415/$7,710
Robert G. Terwall........ 0 -- 8,499/10,001 $15,415/$7,710
- ---------
(1) Value is calculated based on the difference between the option exercise
price and the closing market price of the Class A Common Stock on the date
of exercise or end of fiscal year multiplied by the applicable number of
shares.
7
BOARD OF DIRECTORS
The Board of Directors held five meetings in fiscal 1999. All directors were
present for at least 75% of the meetings for which they were in office.
Non-employee directors are paid an annual fee of $15,000, plus $1,500 for each
meeting they attend. Employee directors receive no compensation as such.
Non-employee directors in office on adjournment of the Company's annual
meeting also receive a nonqualified stock option to purchase the number of whole
shares of Class A Common Stock equal to the amount of the director's annual fee
divided by the fair market value of a share of Class A Common Stock on the date
of the annual meeting.
The Board of Directors has an Audit Committee and a Compensation Committee,
each composed of all of the non-employee directors. The Committee Chairman
receives $1,500 and the other members receive $500 for each meeting held. The
Audit Committee held two meetings and the Compensation Committee held two
meetings in fiscal 1999. The Board has no Nominating Committee.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL AGREEMENTS
Pursuant to an agreement dated May 26, 1992 between Cherry Semiconductor
Corporation ("CSC") and Mr. Budnick, CSC has agreed to compensate Mr. Budnick if
he is terminated within 5 years subsequent to a change in control of CSC. The
agreement provides for a payment of between one to three times Mr. Budnick's
annual salary depending upon the amount of time which has lapsed subsequent to
the change in control. In general, a change of control occurs if CSC is sold.
LOAN TO EXECUTIVE OFFICER
Dale F. Reichhart is a Vice President of the Company and General Manager of
Cherry Automotive Division who began employment on September 8, 1997. Pursuant
to an agreement dated October 2, 1997 the Company agreed to provide a
"bridge-loan" for Mr. Reichhart to purchase a home in Illinois while he arranges
to sell his home in Michigan. Funds in the amount of $240,000 were disbursed on
October 17, 1997. The loan is repayable in full, with interested at the prime
rate, upon the sale or disposition of Mr. Reichhart's Michigan home or October
24, 1998, whichever occurs first. Mr. Reichhart repaid this loan in full, with
interest, on July 30, 1998.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for the
Company's executive compensation policies. It annually determines the
compensation to be paid to the executive officers of the Company. The Committee
is composed of outside directors.
OVERVIEW AND PHILOSOPHY
The executive compensation program is intended to provide overall levels of
compensation for the executive officers which are competitive for the industries
and geographic areas within which they operate, the individual's experience, and
contribution to the success of the Company. Consultants are retained to advise
the Committee as to the competitiveness of the amounts and forms of compensation
provided by the Company. The Committee believes that its task of determining
fair and competitive compensation is ultimately judgmental.
The program is composed of base salary, annual incentive compensation,
equity based incentives, and other benefits generally available to all
employees. As of February 28, 1999, incentive stock options on 720,947 shares of
the Company's stock were outstanding and 271,178 incentive stock options were
granted during the fiscal year then ended.
8
BASE SALARY
The base salary for each executive is intended primarily to be competitive
with companies in the industries and geographic areas in which the Company
competes. In making annual adjustments to base salary, the Committee also
considers the individual's performance over a period of time as well as any
other information which may be available as to the value of the particular
individual's past and prospective future services to the Company. This
information includes comments and performance evaluations by the Company's Chief
Executive Officer. The Committee considers all such data; it does not prescribe
the relative weight to be given to any particular component.
ANNUAL INCENTIVE COMPENSATION
Annual incentive compensation is ordinarily determined by a formula which
considers the attainment during the year of target performance objectives
(measured by return on investment) by the Company or its component parts. In
some cases, attainment of individual goals may be considered.
LONG-TERM INCENTIVES
In general, the Committee believes that equity based compensation should
form a part of an executive's total compensation package. Incentive stock
options are granted to executives because they directly relate the executive's
earnings to the stock price appreciation realized by the Company's stockholders
over the option period. Stock options also provide executives the opportunity to
acquire an ownership interest in the Company. The number of shares covered by
each executive's option was determined by factors similar to those considered in
establishing base salary.
OTHER
Other benefits are generally those available to all other employees in the
Company, or a subsidiary, as appropriate. Together with perquisites, these
benefits did not exceed 10% of any executive's combined salary and bonus in
fiscal 1999.
COMPENSATION FOR THE PRESIDENT (CHIEF EXECUTIVE OFFICER)
The Committee applies the same standards in establishing the compensation of
the Company's Chief Executive Officer as are used for other executives. However,
there are procedural differences. The Chief Executive Officer does not
participate in setting the amount and nature of his compensation.
The Committee does not expect that Section 162(m) of the Internal Revenue
Code will limit the deductibility of compensation expected to be paid by the
Company in the foreseeable future.
Robert B. McDermott, Chairman,
Charles W. Denny,
W. Ed Tyler
9
PERFORMANCE GRAPH
The following performance graph compares the yearly percentage change in the
Company's cumulative total stockholder return on its Common Stock with the
cumulative total return of the Russell 3000 and the Russell 3000 Electrical
Equipment Industry indices for the period of five years commencing March 1, 1994
and ending February 28, 1999.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
RUSSELL 3000
THE CHERRY ELECTRICAL
CORPORATION RUSSELL 3000 EQUIPMENT INDUSTRY
1994(1) $100.0 $100.0 $100.0
1995 $123.8 $106.0 $112.1
1996 $74.2 $142.3 $138.8
1997 $110.9 $175.4 $151.9
1998 $132.4 $235.6 $222.6
1999 $111.3 $270.9 $180.1
1994(1) 1995 1996 1997 1998 1999
----------- --------- --------- --------- --------- ---------
The Cherry Corporation 100.0 123.760 74.222 110.949 132.397 111.333
Russell 3000 100.0 105.957 142.304 175.392 235.646 270.863
Russell 3000 Electrical Equipment Industry 100.0 112.083 138.818 151.900 222.615 180.073
- ---------
(1) On March 1, 1994, the only publicly-traded equity security of the Company
was Common Stock ("Prior Common Stock"). Effective July 12, 1994, the Prior
Common Stock was reclassified into Class B Common Stock and effective July
14, 1994, a 100% stock dividend of Class A Common Stock was paid to the
holders of the Prior Common Stock. For periods in which more than one class
of common stock was outstanding, performance data is based upon a weighted
average of the return of each class.
(2) The Company has selected the Russell 3000 Electrical Equipment Industry for
comparison of total stockholder return. The Company believes that the
indices for this industry provide a comparison as prescribed by the
Securities and Exchange Commission requirements. The indices for this
industry are only computed quarterly on a calendar year basis and therefore
the indices shown above are as of March 31 of the respective years. Although
the Company's total return is based upon its fiscal year ending the last day
of February, it believes that any difference that may result is not
material.
(3) The stock price performance shown on the graph above is not necessarily
indicative of future price performance.
10
PROPOSAL TO APPROVE THE AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
TO EFFECT THE RECLASSIFICATION
DESCRIPTION OF THE AMENDMENT
At the annual meeting the stockholders of the Company are also being asked
to consider and act upon a proposal to approve an amendment in the form attached
as Exhibit A (the "Amendment") to Article Fourth of the Company's Restated
Certificate of Incorporation, as amended, to eliminate the Company's two class
of common stock by (i) authorizing a new class of voting common stock,
consisting of 30,000,000 authorized shares, and (i) reclassifying each issued
share of Class A Common Stock and Class B Common Stock of the Company into one
share of New Common Stock (the "Reclassification").
If the Amendment is adopted by the stockholders, the Board intends to
prepare and promptly file the Amendment with the Secretary of State of Delaware.
The Amendment will be effective immediately upon acceptance of filing by the
Secretary of State of Delaware (the "Effective Date"). Although the Board
presently intends to file the Amendment with the Secretary of State of Delaware
if it is approved by stockholders, the stockholder resolution will reserve to
the Board the right to defer or abandon the Amendment and not file such
Amendment even if the Amendment is approved by the stockholders.
If the Board elects to file the Amendment, then, upon effectiveness of the
Amendment, each issued share of Class A Common Stock and each issued share of
Class B Common Stock (collectively, the "Existing Common Stock") will
automatically be converted into, and the certificate therefor will be deemed to
represent, one share of New Common Stock.
As soon as practicable after the Effective Date, Harris Trust and Savings
Bank, the Company's transfer agent, will issue certificates representing the New
Common Stock and will mail a letter of transmittal (the "Transmittal Letter") to
each record holder of Existing Common Stock. Certificates representing the New
Common Stock will be issued to the record holders of Existing Common Stock who
deliver properly executed Transmittal Letters accompanied by their certificates
representing shares of Existing Common Stock.
Under the provisions of the Amendment, each issued share of Existing Common
Stock would be reclassified as one share of New Common Stock and would have the
rights, powers and limitations of the New Common Stock set forth below. In
particular, all of the holders of New Common Stock will be entitled to vote on
all matters of the Company that require stockholder approval. The
Reclassification will change the voting power of each stockholder of the
Company. The voting power of each holder of Class B Common Stock, including
Peter B. Cherry, the Chairman of the Board, President and controlling
stockholder of the Company, will be diluted as a result of the Reclassification.
Mr. Cherry currently beneficially owns 2,701,287 shares of Class A Common Stock
and 2,766,985 shares of Class B Common Stock, which represent 44.1% and 66.0% of
the outstanding Class A Common Stock and Class B Common Stock, respectively.
After the Effective Date, Mr. Cherry will own 5,468,272 shares of New Common
Stock, or 53.0% of the outstanding New Common Stock which percentage also
represents Mr. Cherry's voting power of the Company.
The Amendment has been unanimously approved by the Company's Board of
Directors. Each of the directors voted to approve the Amendment. Mr. Cherry has
indicated that he will vote for the Amendment. The Board believes that the
Amendment is in the best interests of the Company and its stockholders and
recommends that you vote "FOR" the adoption of the Amendment. See "Advantages
and Disadvantages of the Reclassification; Board Recommendation."
BACKGROUND OF THE DUAL CLASS CAPITAL STRUCTURE OF THE COMPANY
The Company adopted its dual class capital structure in July 1994. At that
time, members of Peter Cherry's family (the "Cherry Family") controlled
approximately 60% of the voting power of the Company. The dual class stock
structure was implemented to preserve the Cherry Family's voting power while
enhancing the financial flexibility of the Company and to increase the Cherry
Family's liquidity while maintaining their influences in the Company. The
purposes of the dual class capital structure was to enable
11
the Company to issue Class A Common Stock or securities convertible into Class A
Common Stock for financing, acquisitions and compensation purposes without
adversely affecting the voting percentage of any stockholder, including members
of the Cherry Family. In connection with implementing its dual class capital
structure, the Company conducted a public offering of 2.9 million shares of
Class A Common Stock and adopted the 1995 Stock Incentive Plan under which
828,061 options to purchase Class A Common Stock have been granted as of
February 28, 1999.
ADVANTAGES AND POSSIBLE DISADVANTAGES OF THE RECLASSIFICATION; BOARD
RECOMMENDATION
ADVANTAGES. The Board has determined that the benefits of the elimination
of the dual class capital structure far outweigh any disadvantages that might
result from the Reclassification, and recommends that the stockholders approve
the Amendment.
The elimination of the Company's dual class capital structure will provide
each class of Existing Common Stock with more liquidity. Both the Class A Common
Stock and the Class B Common Stock are thinly traded, with the average daily
trading volume for fiscal 1999 being 9,286 shares for the Class A Common Stock
and 1,696 shares for the Class B Common Stock. The Company believes that its low
trading volume makes it difficult for stockholders to sell their Existing Common
Stock and recognize the value of their holdings in the Company. The
Reclassification will effectively combine the two classes for trading purposes
and therefor increase the market float that each class of Existing Common Stock
currently experiences, which may decrease the difficulty that stockholders
experience in trading their Existing Common Stock.
In addition, the elimination of the Company's dual class capital structure
will simplify the Company's capital structure, which may provide greater
flexibility and efficiency in raising capital and issuing additional stock if,
when and to the extent desired by the Company. The single class capital
structure will reduce the administrative costs associated with the dual classes
of common stock and will simplify the Company's voting procedures. The
Reclassification also conforms the Company's capital structure with that of most
other publicly held corporations. Among publicly held companies, there has been
a trend away from dual class capital structures, consistent with policies of the
major exchanges and Nasdaq in favor of one-share, one-vote common stock
capitalization.
The Board decided to use a one-for-one conversion ration in the
Reclassification because the Class A Common Stock and Class B Common Stock
generally trade at the same prices.
DISADVANTAGES. The Reclassification may also have disadvantages for the
holders of shares of Class A Common Stock and Class B Common Stock. With respect
to the holders of shares of Class B Common Stock, the Reclassification will
reduce their voting power as a group because the holders of Class A Common Stock
will obtain shares of New Common Stock which will entitle such holders to one
vote per share. In addition, the conversion of a share of Class B Common Stock
into one share of New Common Stock is the same conversion ratio as that
applicable to a share of Class A Common Stock, despite the fact that the voting
power of the holders of shares of Class B Common Stock will be reduced while the
voting power of the holders of shares of Class A Common Stock will increase. In
fiscal 1998, the average closing price for the Class A Common Stock was 1.5%
lower than the Class B Common stock average closing price. In fiscal 1997 and
fiscal 1999 the Class A Common Stock average closing price was 1.5% and 1.2%
higher, respectively, than the Class B Common Stock average closing price.
Consequently, the one-for-one conversion ratio will cause the holders of shares
of Class A Common Stock to receive a small discount from the fiscal 1999 value
of the Class A Common Stock in exchange for their receipt of voting rights in
the Company.
The Reclassification will eliminate the anti-takeover protection that the
dual class capital structure provides to the Company. Nevertheless, the Board
believes that the Company's other anti-takeover protections, such as its
requirement that at least two-thirds of its stockholders approve certain
extraordinary transactions, will provide appropriate protection for the Company
and all of its stockholders. See "--Voting."
12
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain of the federal income tax
consequences of the Reclassification. This discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
United States Department of the Treasury Regulations promulgated thereunder and
rulings and court decisions as of the date hereof, all of which are subject to
change, possibly retroactively.
The discussion is included for general information purposes only. No rulings
from the Internal Revenue Service with respect to the tax consequences of the
Reclassification to the Company or its stockholders will be sought.
The reclassification and conversion by the Company of the Class A Common
Stock and Class B Common Stock as and into New Common Stock will be treated as a
tax-free exchange under Section 1036 of the Code and as a tax-free
recapitalization under Section 368(a)(1)(E) of the Code. As a result of such
treatment, the following tax consequences will apply:
(i) No gain or loss will be recognized for federal income tax purposes
by the Company's stockholders upon the reclassification and conversion of
their shares of Class A Common Stock and Class B Common Stock as and into
New Common Stock.
(ii) The basis for the shares reclassified as and converted into shares
of New Common Stock will be the same as the aggregate basis of the Class A
Common Stock and Class B Common Stock held by a stockholder before the
Reclassification became effective.
(iii) The holding period of the shares reclassified as and converted
into shares of New Common Stock will include the periods during which the
Class A Common Stock and Class B Common Stock were held by a stockholder
before the Reclassification became effective, provided such shares were held
by such stockholder as a capital asset at the time the Reclassification
became effective.
(iv) No gain or loss will be recognized for federal income tax purposes
by the Company upon the reclassification and conversion of shares of Class A
Common Stock and Class B Common Stock as and into shares of New Common
Stock.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE RECLASSIFICATION MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, EACH HOLDER OF THE COMPANY'S
CLASS A COMMON STOCK AND CLASS B COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S
OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF
THE RECLASSIFICATION (INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND
LOCAL INCOME AND OTHER TAX LAWS).
DESCRIPTION OF THE NEW COMMON STOCK AND COMPARISON TO EXISTING COMMON STOCK
As indicated above, the Amendment will reclassify the Existing Common Stock
into New Common Stock. The rights, powers and limitations of the Class A Common
Stock and the Class B Common Stock are set forth in full in the Article Fourth
of the Company's existing Restated Certificate of Incorporation. The full text
of Article Fourth as proposed to be amended is set forth as Exhibit A to this
Proxy Statement and incorporated herein by reference. The following summary
should be read in conjunction with such Exhibit A.
VOTING
EXISTING COMMON STOCK. Under the Company's Restated Certificate of
Incorporation as now in effect, each share of Class B Common Stock entitles the
holder to one vote per share on all matters, and holders of Class B Common Stock
are entitled to vote for the election of all directors and on all other matters
submitted to the stockholders of the Company (subject to the Class A Protection
provision described below). The Company's Restated Certificate of Incorporation
does not permit cumulative voting. The Class A Common Stock has no voting
rights, except as required by the Restated Certificate of Incorporation and the
Delaware General Corporation Law.
13
NEW COMMON STOCK. Each share of New Common Stock will have one vote per
share on all matters, and holders of New Common Stock will be entitled to vote
for the election of all directors and on all other matters submitted to the
stockholders of the Company. Like the voting rights of the holders of Class B
Common Stock, the affirmative vote of the holders of a majority of the
outstanding shares of New Common Stock will be required to approve all matters
requiring stockholder approval; provided that the affirmative vote of two-thirds
of the New Common Stock will required to approve any merger or consolidation of
the Company with or into any other corporation or a sale of substantially all of
its assets or to approve the dissolution of the Company. There will be no
provision in the Company's Restated Certificate of Incorporation permitting
cumulative voting.
DIVIDENDS AND OTHER DISTRIBUTIONS
EXISTING COMMON STOCK. Each share of Class A Common Stock and Class B
Common Stock are equal in respect to dividends and other distribution, except
that (i) a dividend or distribution in cash or property on a share of Class A
Common Stock may be greater than any dividend or distribution in cash or
property on a share of Class B Common Stock, and (ii) dividends or other
distributions payable on the Common Stock in shares of capital stock shall be
made to all holders of Common Stock and may be made (a) in shares of Class A
Common Stock to the holders of Class B Common Stock and to the holders of Class
A Common Stock, (b) in shares of Class B Common Stock to the holders of Class B
Common Stock and in shares of Class A Common Stock to the holders of Class A
Common Stock, or (c) in any other authorize class or series of capital stock to
the holders of both classes of Common Stock. In no event may either Class A
Common Stock or Class B Common Stock be split, subdivided or combined unless the
other is proportionately split, subdivided or combined.
NEW COMMON STOCK. Each share of New Common Stock will be equal with respect
to all dividends and other distributions of the Company. The Company has not
paid any dividends on its Existing Common Stock since the issuance of the Class
A Common Stock, and the Company does not expect to pay any dividends in the
foreseeable future.
CLASS A PROTECTION PROVISION
The Amendment will eliminate the Class A Protection provision of the
Company's existing Restated Certificate of Incorporation which prevents a person
who has exceeded the specified ownership threshold from gaining control of the
Company by acquiring additional shares of Class B Common Stock without buying
shares of Class A Common Stock.
LIMITED CONVERTIBILITY
EXISTING COMMON STOCK. Except as described below, neither the Class A
Common Stock nor the Class B Common Stock is convertible into another class of
Common Stock or any other security of the Company. The Class A Common Stock may
be converted into Class B Common Stock on a share-for-share basis by a
resolution of the Board of Directors if, as a result of the existence of the
Class A Common Stock, either class of Existing Common Stock is excluded from
quotation on the Nasdaq National Market (or any national securities exchange on
which the Common Stock is then listed). In addition, if at any time the number
of outstanding shares of Class B Common Stock, as reflected on the stock
transfer books of the Company, falls below 10% of the aggregate number of
outstanding shares of Class A Common Stock and Class B Common Stock, then all
the outstanding shares of Class A Common Stock shall be automatically converted
into shares of Class B Common Stock, on a share-for-share basis.
NEW COMMON STOCK. The New Common Stock will not be convertible into another
class of capital stock or any other security of the Company.
14
PREEMPTIVE RIGHTS
The Existing Common Stock does not and the New Common Stock will not carry
any preemptive rights enabling a holder to subscribe for or receive shares of
any class of stock of the Company or any other securities convertible into
shares of any class of stock of the Company.
TRANSFER AGENT AND REGISTRAR
As with the Existing Common Stock, the transfer agent and the registrar of
the Company's New Common Stock will be Harris Trust and Savings Bank.
CERTAIN EFFECTS OF THE PROPOSAL
EFFECTS ON RELATIVE OWNERSHIP INTEREST AND VOTING POWER. Because the
Amendment provides that each whole share of Existing Common Stock will be
reclassified and changed into one share of New Common Stock the relative
ownership interest of each holder of Existing Common Stock will be the same
immediately after effectiveness of the Amendment as it was immediately prior
thereto. However, the relative voting power of each holder of Class B Common
Stock will decrease and the voting power of each holder of Class A Common Stock
will increase. Consequently, assuming that Mr. Cherry retains the shares of
Class B Common Stock beneficially owned by him, the Amendment will decrease Mr.
Cherry's overall voting position in the Company.
As of the date of this Proxy Statement, Mr. Cherry has sole or shared voting
or dispositive power over an aggregate of approximately 2,701,287 and 2,766,985
shares of Class A Common Stock and Class B Common Stock, respectively, or
approximately 44.1% and 66.0% of the outstanding Class A Common Stock and Class
B Common Stock, respectively. After the Effective Date, Mr. Cherry will own
5,468,272 shares of New Common Stock, or 53.0% of the outstanding New Common
Stock which percentage also represents Mr. Cherry's voting power of the Company
after the Reclassification.
EFFECT ON MARKET PRICE. The market price of shares of New Common Stock
after the Effective Date will depend, as before the adoption of the Amendment,
on many factors, including, among others, the future performance of the Company,
general market conditions and conditions relating to companies or industries
similar to that of the Company. Accordingly, the Company cannot predict the
prices at which the New Common Stock will trade following the adoption of the
Amendment, just as the Company could not predict the price at which the Existing
Common Stock would trade absent the amendment. On May 4, 1999, the closing
prices of the Class A Common Stock and Class B Common Stock were $13.125 and
$13.50 per share, respectively, as reported on the Nasdaq National Market.
IMPACT ON THE COMPANY'S NASDAQ LISTING. As with the Existing Common Stock
the shares of New Common Stock will be quoted on the Nasdaq National Market. The
new Nasdaq symbol will be "CHER."
IMPACT ON THE COMPANY'S OPERATIONS AND CAPITALIZATION. The Company expects
that the Reclassification will have no impact on operations. In addition, the
Reclassification involves no increase in the total number of shares of common
stock authorized in the Company's Restated Certificate of Amendment. Immediately
prior to the effectiveness of the Amendment, approximately 5,984,329 million
shares of Class A Common Stock and 4,193,549 million shares of Class B Common
Stock were issued and outstanding. After the Effective Date, 10,177,878 million
shares of New Common Stock will be issued and outstanding. The interest of each
stockholder in the total equity of the Company will remain unchanged as a result
of the Reclassification.
SECURITIES ACT OF 1933. Because the Existing Common Stock will be
reclassified as New Common Stock with essentially the same rights, powers and
limitations, the Reclassification is not an "offer," "offer to sell," "offer for
sale" or "sale" of a security within the meaning of Section 2(3) of the
Securities Act of 1933, as amended (the "Securities Act") and will not involve
the substitution of one security for another under Rule 145 thereunder.
Consequently, the Company is not required to register and has not registered the
New Common Stock under the Securities Act.
15
Because the Amendment will not constitute a "sale" of either Class A Common
Stock or Class B Common Stock under the Securities Act, stockholders will not be
deemed to have purchased such shares separately from the Existing Common Stock
under the Securities Act and Rule 144 thereunder. Shares of Existing Common
Stock held immediately upon effectiveness of the Amendment, other than any such
shares held by "affiliates" of the Company within the meaning of the Securities
Act, may be offered for sale and sold in the same manner as the Existing Common
Stock without registration under the Securities Act. Affiliates of the Company,
will continue to be subject to the restrictions specified in Rule 144 under the
Securities Act.
EFFECT ON COMPENSATION PLANS. The only compensation plans that will be
affected by the Amendment and the Reclassification are The Cherry Corporation
1995 Stock Incentive Plan, the 1995 Nonemployee Director Stock Option Plan and
the Company's Employee Stock Purchase Plan. Outstanding options under the Stock
Incentive Plan will be adjusted appropriately to reflect the Reclassification.
All purchases made under the Employee Stock Purchase Plan after the Effective
Date will be for shares of New Common Stock.
EXPENSES
The cost of proceeding with the Amendment (such as transfer agent's fees,
printing, engraving and mailing costs, legal fees, investment banking fees,
solicitation fees, and NASD fees) will be charged against the Company's pre-tax
earnings. The approximate cost of proceeding with the Amendment is estimated to
be $40,000.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the outstanding Shares
of Class A Common Stock and Class B Common Stock, voting as separate classes is
required for approval of the Amendment. Abstentions and broker non-votes will
count as votes against the proposal. The Company has been advised by Mr. Cherry,
who beneficially owns approximately 44.1% of the outstanding Class A Common
Stock and 66.0% of the outstanding Class B Common Stock entitled to vote at the
meeting, that he intends to vote in favor of approval of the Amendment. As noted
above, the Board of Directors recommends that the shareholders vote "FOR" the
Amendment.
THE BOARD OF DIRECTORS CONSIDERS THE AMENDMENT TO BE IN THE BEST INTERESTS
OF THE COMPANY AND ALL OF ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE TO
APPROVE THE AMENDMENT TO EFFECT THE RECLASSIFICATION.
16
PROPOSAL TO INCREASE THE NUMBER OF SHARES OF CLASS A COMMON STOCK
RESERVED UNDER THE CHERRY CORPORATION'S
1995 STOCK INCENTIVE PLAN
BACKGROUND
The Board of Directors has amended the 1995 Stock Incentive Plan (the
"Plan"), subject to shareholder approval, to increase the number of shares of
Class A Common Stock reserved under the Plan by 900,000 shares. If the
Reclassification is completed, the New Common Stock will replace the Class A
Common Stock available under the Plan. The purpose of the Plan is to enable the
Company to offer officers and other key employees of the Company and its
subsidiaries performance-based incentives and other equity interests in the
Company, thereby attracting, retaining, and rewarding such employees and
strengthening the mutuality of interests between such employees and the
Company's shareholders. The proposed Amendment will permit the Company to keep
pace with changing developments in management compensation and make the Company
competitive with those companies that offer stock incentives to attract and keep
key employees.
SHARES AVAILABLE
The Plan originally reserved 900,000 shares of Class A Common Stock for
awards under the Plan. Approximately 276,501 shares were available for awards
under the Plan as of January 25, 1999. All of such shares may, but need not, be
issued pursuant to the exercise of incentive stock options. The maximum number
of shares that may be awarded to any participant in any year during the term of
the Plan is 90,000 shares. If there is a lapse, expiration, termination, or
cancellation of any option or right prior to the issuance of shares or the
payment of the equivalent thereunder, or if shares are issued and thereafter are
reacquired by the Company pursuant to rights reserved upon issuance thereof,
those shares may again be used for new awards under the Plan.
ADMINISTRATION
The Plan provides for administration by a committee (the "Committee") to be
comprised of either the Compensation Committee of the Board or another committee
designated by the Board. Among the Committee's powers are the authority to
interpret the Plan, establish rules and regulations for its operation, select
officers and other key employees of the Company and its subsidiaries to receive
awards, and determine the form, amount, and other terms and conditions of
awards. The Committee also has the power to modify or waive restrictions on
awards, to amend awards, and to grant extensions and accelerations of awards.
ELIGIBILITY OF PARTICIPATION
Officers and other key employees of the Company or any of its subsidiaries
are eligible to participate in the Plan. The selection of participants from
eligible employees is within the discretion of the Committee. The estimated
number of employees who are eligible to participate in the Plan is 236.
TYPES OF AWARDS
The Plan provides for the grant of any or all of the following types of
awards: (1) stock options, including incentive stock options and non-qualified
stock options; (2) stock appreciation rights; and (3) stock awards, including
restricted stock. Awards may be granted singly, in combination, or in tandem, as
determined by the Committee.
FEDERAL TAX TREATMENT
Under current law, the following are U.S. federal income tax consequences
generally arising with respect to awards under the Plan.
A participant who is granted an incentive stock option does not recognize
any taxable income at the time of the grant or at the time of exercise.
Similarly, the Company is not entitled to any deduction at the time of grant or
at the time of exercise. If the participant makes no disposition of the shares
acquired
17
pursuant to an incentive stock option before the later of two years from the
date of grant and one year from the date of exercise, any gain or loss realized
on a subsequent disposition of the shares will be treated as a long-term capital
gain or loss. Under such circumstances, the Company will not be entitled to any
deduction for federal income tax purposes.
A participant who is granted a non-qualified stock option will not have
taxable income at the time of grant, but will have taxable income at the time of
exercise equal to the difference between the exercise price of the shares and
the market value of the shares on the date of exercise. The Company is entitled
to a tax deduction for the same amount.
The grant of an SAR will produce no U.S. federal tax consequences for the
participant of the Company. The exercise of an SAR results in taxable income to
the participant, equal to the difference between the exercise price of the
shares and the market price of the shares on the date of exercise, and a
corresponding tax deduction to the Company.
A participant who has been granted an award of restricted shares of Common
Stock will generally not realize taxable income at the time of the grant, and
the Company will not be entitled to a tax deduction at the time of the grant.
When the restrictions lapse or the performance goals are met, the participant
will recognize taxable income in an amount equal to the excess of the fair
market value of the shares at such time over the amount, if any, paid for such
shares. The Company will be entitled to a corresponding tax deduction.
NEW BENEFITS TABLE
The awards granted after February 28, 1999 under the Plan are set forth in
the table below. Stock awards granted under the Plan in 1998 are disclosed under
the heading "Compensation" elsewhere in this Proxy Statement.
NAME AND POSITION NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
Peter B. Cherry, Chairman of the Board and President........................................... 40,000
Alfred S. Budnick, Vice President of the Company and General Manager of a Subsidiary........... 6,800
Dan A. King, Vice President of Finance and Administration, Treasurer and Secretary............. 8,000
Robert G. Terwall, Vice President and General Manager of a Division............................ 8,000
Klaus D. Lauterbach, Vice President of the Company and General Manager of a Subsidiary......... 6,000
All executive officers as a group.............................................................. 76,800
All employees as a group....................................................................... 190,800
In February of 1999 Cherry Semiconductor Corporation, a wholly-owned
subsidiary of the Company, adopted a stock incentive plan for its officers and
key employees. Mr. Budnick was granted a stock option for 20,550 shares of the
Common stock of Cherry Semiconductor Corporation on March 1, 1999.
OTHER INFORMATION
As of March 24, 1999, the closing price per share of the Company's Class A
and Class B Common Stock was $13.375 and $14.063, respectively.
The affirmative vote of holders of a majority of the shares represented and
entitled to vote at the meeting is required for approval of the amendment to the
Plan. Abstentions will count as a vote against the proposal, but broker
non-votes will have no effect.
The Board of Directors recommends a vote FOR approval of the amendment to
The Cherry Corporation's 1995 Stock Incentive Plan.
18
FINANCIAL INFORMATION
The Company has furnished its financial statements to stockholders in its
1999 Annual Report, which accompanies this Proxy Statement. In addition, the
Company will promptly provide without charge to any stockholder, on the request
of such stockholder, an additional copy of the 1999 Annual Report and the
Company's most recent Form 10-K. Written request for such copies should be
addressed to the Secretary, The Cherry Corporation, 3600 Sunset Avenue,
Waukegan, Illinois 60087, or by facsimile to (847) 360-3508.
ACCOUNTING INFORMATION
Selection of the independent auditors is made by the Board of Directors upon
consultation with the Audit Committee. The Company's Independent Public
Accountants for fiscal year ended February 28, 1999 were Arthur Andersen LLP.
The Board of Directors will vote upon the selection of auditors for the current
fiscal year at a future Board meeting. Arthur Andersen LLP is expected to have
representatives at the annual meeting of stockholders who will be available to
respond to appropriate questions at that time and have an opportunity to make a
statement if they desire to do so.
By Order of the Board of Directors
[SIG]
DAN A. KING
SECRETARY
May 20, 1999
19
EXHIBIT A
PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE RESTATED
CERTIFICATE OF INCORPORATION
OF THE CHERRY CORPORATION
RESOLVED, that ARTICLE FOURTH be amended and restated in its entirety as
follows:
FOURTH. The total number of shares of capital stock which the Corporation
shall have authority to issue is thirty million (30,000,000) shares of Common
Stock, $1.00 par value per share.
Upon this Amendment becoming effective pursuant to the General Corporation
Law of the State of Delaware (the "Effective Time"), and without any further
action on the part of the Corporation or its stockholders, each share of the
Corporation's Class A Common Stock, $1.00 par value, and each share of the
Corporation's Class B Common Stock, $1.00 par value, then issued (including
shares held in the treasury of the Corporation), shall be automatically
reclassified, changed and converted into one (1) fully paid and non-assessable
share of Common Stock, $1.00 par value. Any stock certificate that, immediately
prior to the Effective Time, represents shares of Class A Common Stock or shares
of Class B Common Stock, will, from and after the Effective Time, automatically
and without the necessity of presenting the same for exchange, represent that
number of shares of Common Stock equal to the number of shares of Class A Common
Stock or Class B Common Stock represented by such certificate prior to the
Effective Time. As soon as practicable after the Effective Time, the
Corporation's transfer agent shall mail a transmittal letter to each record
holder who would be entitled to receive a share of Common Stock.
The designations and powers, preferences and rights, and the qualifications,
limitations on restrictions thereof, of the Common Stock shall be as follows:
(a) GENERAL. All authorized shares of Common Stock shall be available
for issuance and may be issued in accordance with the provisions of this
Amendment, as from time to time amended, and applicable statutes.
(b) IDENTICAL RIGHTS. All shares of Common Stock will be identical and
will entitle the holders thereof to the same rights and privileges.
(c) VOTING RIGHTS. Except as otherwise provided by applicable statutes
or this Amendment, each holder of Common Stock shall have one vote in
respect of each share of stock held by him of record on the books of the
Corporation on all matters voted upon by the stockholders.
(d) DIVIDENDS. Subject to all of the rights of any stock authorized
after the Effective Date ranking senior to the Common Stock as to dividends,
dividends may be paid upon the Common Stock as and when declared by the
Board of Directors out of funds and other assets legally available for the
payment of dividends.
(e) LIQUIDATION. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, and after
the holders of stock authorized after the Effective Date ranking senior to
the Common Stock as to assets shall have been paid in full the amounts to
which such holders shall be entitled, or an amount sufficient to pay the
aggregate amount to which such holders shall be entitled shall have been set
aside for the benefit of the holders of such stock, the remaining net assets
of the Corporation shall be distributed pro rata to the holders of the
Common Stock.
(f) NO PRE-EMPTIVE RIGHTS. No stockholder of this Corporation shall by
reason of his holding shares of Common Stock have any pre-emptive or
preferential right to purchase or subscribe to any shares of any class of
this Corporation, now or hereafter to be authorized, or any notes,
debentures, bonds, or other securities convertible into or carrying options
or warrants to purchase shares of any class, now or hereafter to be
authorized, whether or not the issuance of any such shares, or such notes,
debentures, bonds or other securities, would adversely affect the dividend
or voting rights of such stockholder, other than such rights, if any, as the
Board of Directors, in its discretion from time to time may grant and at
such price as the Board of Directors in its discretion may fix; and the
Board of
20
Directors may issue shares of any class of this Corporation, or any notes,
debentures, bonds, or other securities convertible into or carrying options
or warrants to purchase shares of any class, without offering any such
shares of any class, either in whole or in part, to the existing
stockholders of any class.
(g) ISSUANCES AND REPURCHASES OF COMMON STOCK.
(1) The Board of Directors shall have the power to issue and sell all or
any part of any class of stock herein or hereafter authorized to such
persons, firms, associations or corporations, and for such consideration as
the Board of Directors shall from time to time, in its discretion,
determine, whether or not greater consideration could be received upon the
issue or sale of the same number of shares of another class, and as
otherwise permitted by law.
(2) The Board of Directors shall have the power to purchase any class of
stock herein or hereafter authorized from such persons, firms, associations
or corporations, and for such consideration as the Board of Directors shall
from time to time, in its discretion, determine, whether or not less
consideration could be paid upon the purchase of the same number of shares
of another class, and as otherwise permitted by law.
The amendment to ARTICLE FOURTH was duly adopted by the stockholders of the
Corporation at an annual meeting held on June 17, 1999 in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
21
PROXY FOR USE BY CLASS A STOCKHOLDERS ONLY PROXY
THE CHERRY CORPORATION
3600 SUNSET AVENUE, WAUKEGAN, ILLINOIS 60087
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Peter B. Cherry and Dan A. King, or either
of them, as proxies, with full power of substitution, to represent and to
vote, as designated below, all of the undersigned's Class A Common Stock in
The Cherry Corporation at the annual meeting of stockholders of The Cherry
Corporation to be held on Thursday June 17, 1999, and at any adjournment
thereof, with the same authority as if the undersigned were personally
present.
THE UNDERSIGNED HEREBY REVOKES ANY PROXY HERETOFORE GIVEN AND ACKNOWLEDGES
RECEIPT OF THE NOTICE AND PROXY STATEMENT FOR THE ANNUAL MEETING.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1.
(Please date and sign on reverse side.)
- ------------------------------------------------------------------------------
[Map]
FOR USE BY CLASS A STOCKHOLDERS ONLY
THE CHERRY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / /
1. Amendment to Article Fourth of the Company's Restated Certificate of
Incorporation to eliminate the Company's two classes of common stock by
(i) authorizing a new class of voting common stock and (ii) reclassifying
each issued share of Class A Common Stock and each issued share of Class B
Common Stock into one share of New Common Stock.
For Against Abstain
/ / / / / /
2. In his discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting.
(IF THE STOCK IS REGISTERED IN THE NAME OF MORE THAN ONE PERSON, THE PROXY
SHOULD BE SIGNED BY ALL NAMED HOLDERS. IF SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, CORPORATE OFFICIAL, ETC., PLEASE GIVE FULL
TITLE AS SUCH.)
_________________________ (Signature)
DATED: ________________________, 1999
_________________________ (Signature)
- ------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
DIRECTIONS TO MIDLANE COUNTRY CLUB
4555 WEST YORKHOUSE ROAD, WADSWORTH, ILLINOIS (847) 360-0550
FROM DOWNTOWN CHICAGO
- - TAKE THE KENNEDY EXPRESSWAY OFF OGDEN OR ONTARIO APPROXIMATELY 6 MILES
TO THE EDENS EXPRESSWAY.
- - STAY IN RIGHT LANES AND TAKE THE EDENS EXPRESSWAY 94 WEST APPROXIMATELY
13 MILES TO DUNDEE ROAD.
- - 4 MILES NORTH OF DUNDEE ROAD THE EDENS EXPRESSWAY ENDS AND U.S.
41 BEGINS. TAKE U.S. 41 NORTH TO WAUKEGAN APPROXIMATELY 18 MILES TO
DELANY ROAD. TURN RIGHT. A MCDONALDS RESTAURANT IS ON THE NORTHEAST
CORNER AS A LANDMARK.
- - PROCEED NORTH TO THE SIXTH STOPLIGHT, WHICH IS YORKHOUSE ROAD. TURN
LEFT ON YORKHOUSE ROAD AND PROCEED WEST FOR APPROXIMATELY 1/2 MILE.
TURN LEFT INTO THE ENTRANCE TO MIDLANE COUNTRY CLUB.
FROM O'HARE AIRPORT
- - EXITING O'HARE AIRPORT, LOOK FOR "TRI-STATE TOLLWAY NORTH/WISCONSIN
294".
- - FIRST TOLL BOOTH (40 CENTS) APPROXIMATELY A MILE NORTH ON 294.
- - CONTINUE TO THE NEXT TOLL BOOTH (50 CENTS) ABOUT 12 MILES NORTH ON
THE 294 TRI-STATE TOLLWAY. U.S. 94 WILL JOIN THE 294 TRI-STATE
TOLLWAY JUST BEFORE THIS TOLL PLAZA.
- - AFTER PAYING THE TOLL, CONTINUE NORTH ON U.S. 94 FOR 12 MILES TO
ILLINOIS 120 EAST (BELVIDERE ROAD).
- - TAKE ILLINOIS 120 EAST (BELVIDERE ROAD EXIT TO THE RIGHT OFF U.S. 94)
ONE MILE TO U.S. 41 (CHICAGO/MILWAUKEE).
- - THE ACCESS TO U.S. 41 LOOPS TO THE RIGHT OFF ILLINOIS 120 (BELVIDERE
ROAD).
- - DRIVE THREE MILES NORTH ON U.S. 41 TO THE FIRST STOPLIGHT, DELANY
ROAD. TURN RIGHT. A MCDONALDS RESTAURANT IS ON THE NORTHEAST CORNER
AS A LANDMARK.
- - PROCEED NORTH TO THE SIXTH STOPLIGHT, WHICH IS YORKHOUSE ROAD. TURN
LEFT ON YORKHOUSE ROAD AND PROCEED WEST FOR APPROXIMATELY 1/2 MILE.
TURN LEFT INTO THE ENTRANCE TO MIDLANE COUNTRY CLUB.
FROM DOWNTOWN MILWAUKEE
- - TAKE INTERSTATE 43 SOUTH/U.S. 94 EAST TO CHICAGO.
- - AT THE 894 BYPASS INTERSTATE 43 GOES WEST TO BELOIT. STAY TO YOUR LEFT
AND TAKE U.S. 41 SOUTH/94 EAST TO CHICAGO.
- - JUST SOUTH OF ILLINOIS STATE LINE (APPROXIMATELY 34 MILES FROM 894
JUNCTION) U.S. 41 SOUTH AND U.S. 94 SPLIT. STAY TO YOUR LEFT AND
TAKE U.S. 41 SOUTH TO WAUKEGAN.
- - TAKE U.S. 41 SOUTH APPROXIMATELY 8 MILES TO DELANY ROAD (4TH OR 5TH
STOPLIGHT) AND TURN LEFT. A MCDONALDS RESTAURANT IS ON THE NORTHEAST
CORNER AS A LANDMARK.
- - PROCEED NORTH TO THE SIXTH STOPLIGHT, WHICH IS YORKHOUSE ROAD. TURN
LEFT ON YORKHOUSE ROAD AND PROCEED WEST FOR APPROXIMATELY 1/2 MILE.
TURN LEFT INTO THE ENTRANCE TO MIDLANE COUNTRY CLUB.
FOR USE BY CLASS B STOCKHOLDERS ONLY
PROXY THE CHERRY CORPORATION PROXY
3600 SUNSET AVENUE, WAUKEGAN, ILLINOIS 60087
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Peter B. Cherry and Dan A. King, or either
of them, as proxies, with full power of substitution, to represent and to
vote, as designated below, all of the undersigned's Class B Common Stock in
The Cherry Corporation at the annual meeting of stockholders of The Cherry
Corporation to be held on Thursday June 17, 1999, and at any adjournment
thereof, with the same authority as if the undersigned were personally
present.
THE UNDERSIGNED HEREBY REVOKES ANY PROXY HERETOFORE GIVEN AND ACKNOWLEDGES
RECEIPT OF THE NOTICE AND PROXY STATEMENT FOR THE ANNUAL MEETING.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3.
(Please date and sign on reverse side.)
- ------------------------------------------------------------------------------
[MAP]
FOR USE BY CLASS B STOCKHOLDERS ONLY
THE CHERRY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
WITHHELD FOR ALL
1. Election of Directors FOR ALL ALL EXCEPT
Peter B. Cherry, Alfred S. Budnick, / / / / / /
Thomas L. Martin, Jr., Robert B. McDermott,
Peter A. Guglielmi, Charles W. Denny, W. Ed
Tyler, Henry J. West
Nominee Exception(s)
------------------------------
FOR AGAINST ABSTAIN
2. Amendment to Article Fourth of the / / / / / /
Company's Restated Certificate of
Incorporation to eliminate the Company's
two classes of common stock by (i)
authorizing a new class of voting common
stock and (ii) reclassifying each issued
share of Class A Common Stock and each
issued share of Class B Common Stock into
one share of New Common Stock.
FOR AGAINST ABSTAIN
3. Amendment to The Cherry Corporation 1995 / / / / / /
Stock Incentive Plan increasing the number
of common stock available for grant
thereunder by 900,000 shares.
4. In his discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting. area reserved for
printing of name and address area reserved for printing of multiple
share plans
(IF THE STOCK IS REGISTERED IN THE NAME OF MORE THAN ONE PERSON, THE PROXY
SHOULD BE SIGNED BY ALL NAMED HOLDERS. IF SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, CORPORATE OFFICIAL, ETC., PLEASE GIVE FULL
TITLE AS SUCH.)
(Signature)
-------------------------------
DATED: , 1999
------------------------------
(Signature)
-------------------------------
- ------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
DIRECTIONS TO MIDLANE COUNTRY CLUB
4555 WEST YORKHOUSE ROAD, WADSWORTH, ILLINOIS (847) 360-0550
FROM DOWNTOWN CHICAGO
- - TAKE THE KENNEDY EXPRESSWAY OFF OGDEN OR ONTARIO APPROXIMATELY 6
MILES TO THE EDENS EXPRESSWAY.
- - STAY IN RIGHT LANES AND TAKE THE EDENS EXPRESSWAY 94 WEST
APPROXIMATELY 13 MILES TO DUNDEE ROAD.
- - 4 MILES NORTH OF DUNDEE ROAD THE EDENS EXPRESSWAY ENDS AND U.S. 41
BEGINS. TAKE U.S. 41 NORTH TO WAUKEGAN APPROXIMATELY 18 MILES TO
DELANY ROAD. TURN RIGHT. A MCDONALDS RESTAURANT IS ON THE NORTHEAST
CORNER AS A LANDMARK.
- - PROCEED NORTH TO THE SIXTH STOPLIGHT, WHICH IS YORKHOUSE ROAD.
TURN LEFT ON YORKHOUSE ROAD AND PROCEED WEST FOR APPROXIMATELY
1/2 MILE. TURN LEFT INTO THE ENTRANCE TO MIDLANE COUNTRY CLUB.
FROM O'HARE AIRPORT
- - EXITING O'HARE AIRPORT, LOOK FOR "TRI-STATE TOLLWAY NORTH/WISCONSIN
294".
- - FIRST TOLL BOOTH (40 CENTS) APPROXIMATELY A MILE NORTH ON 294.
- - CONTINUE TO THE NEXT TOLL BOOTH (50 CENTS) ABOUT 12 MILES NORTH
ON THE 294 TRI-STATE TOLLWAY. U.S. 94 WILL JOIN THE 294 TRI-STATE
TOLLWAY JUST BEFORE THIS TOLL PLAZA.
- - AFTER PAYING THE TOLL, CONTINUE NORTH ON U.S. 94 FOR 12 MILES TO
ILLINOIS 120 EAST (BELVIDERE ROAD).
- - TAKE ILLINOIS 120 EAST (BELVIDERE ROAD EXIT TO THE RIGHT OFF U.S.
94) ONE MILE TO U.S. 41 (CHICAGO/MILWAUKEE).
- - THE ACCESS TO U.S. 41 LOOPS TO THE RIGHT OFF ILLINOIS 120 (BELVIDERE
ROAD).
- - DRIVE THREE MILES NORTH ON U.S. 41 TO THE FIRST STOPLIGHT, DELANY
ROAD. TURN RIGHT. A MCDONALDS RESTAURANT IS ON THE NORTHEAST CORNER
AS A LANDMARK.
- - PROCEED NORTH TO THE SIXTH STOPLIGHT, WHICH IS YORKHOUSE ROAD. TURN
LEFT ON YORKHOUSE ROAD AND PROCEED WEST FOR APPROXIMATELY 1/2 MILE.
TURN LEFT INTO THE ENTRANCE TO MIDLANE COUNTRY CLUB.
FROM DOWNTOWN MILWAUKEE
- - TAKE INTERSTATE 43 SOUTH/U.S. 94 EAST TO CHICAGO.
- - AT THE 894 BYPASS INTERSTATE 43 GOES WEST TO BELOIT. STAY TO YOUR
LEFT AND TAKE U.S. 41 SOUTH/94 EAST TO CHICAGO.
- - JUST SOUTH OF ILLINOIS STATE LINE (APPROXIMATELY 34 MILES FROM
894 JUNCTION) U.S. 41 SOUTH AND U.S. 94 SPLIT. STAY TO YOUR LEFT
AND TAKE U.S. 41 SOUTH TO WAUKEGAN.
- - TAKE U.S. 41 SOUTH APPROXIMATELY 8 MILES TO DELANY ROAD (4TH OR
5TH STOPLIGHT) AND TURN LEFT. A MCDONALDS RESTAURANT IS ON THE
NORTHEAST CORNER AS A LANDMARK.
- - PROCEED NORTH TO THE SIXTH STOPLIGHT, WHICH IS YORKHOUSE ROAD. TURN
LEFT ON YORKHOUSE ROAD AND PROCEED WEST FOR APPROXIMATELY 1/2 MILE.
TURN LEFT INTO THE ENTRANCE TO MIDLANE COUNTRY CLUB.