<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE CHERRY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2977756
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
------------------------
3600 SUNSET AVENUE
WAUKEGAN, ILLINOIS 60087
(708) 662-9200
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
DAN A. KING
TREASURER, SECRETARY AND CORPORATE CONTROLLER
3600 SUNSET AVENUE
WAUKEGAN, ILLINOIS 60087
(708) 662-9200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
<TABLE>
<S> <C>
William J. Quinlan, Jr., Esq. William R. Kunkel, Esq.
McDermott, Will & Emery Skadden, Arps, Slate,
227 West Monroe Street Meagher & Flom
Chicago, Illinois 60606-5096 333 W. Wacker Drive
(312) 372-2000 Chicago, Illinois 60606
(312) 407-0700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) FEE (3)
<S> <C> <C> <C> <C>
Class A Common Stock, par value $1.00
per share.......................... 2,875,000 shares $15.25 $43,843,750 $15,119
</TABLE>
(1) Includes 375,000 shares issuable upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Calculated pursuant to Rule 457 based upon an estimate of the maximum
offering price.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE CHERRY CORPORATION
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM IN FORM S-2 LOCATION IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................. Forepart of the Registration Statement and Outside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside Back Cover Pages; Available
Information; Incorporation by Reference
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................... Prospectus Summary; Investment Considerations
4. Use of Proceeds................................... Use of Proceeds
5. Determination of Offering Price................... Investment Considerations--Limited Trading History and
Market for Class A Common Stock
6. Dilution.......................................... *
7. Selling Security Holders.......................... *
8. Plan of Distribution.............................. Inside and Outside Front Cover Pages; Underwriting
9. Description of Securities to be Registered........ Description of Capital Stock
10. Interests of Named Experts and Counsel............ Legal Matters
11. Information with Respect to the Registrant........ Prospectus Summary; Reclassification; Price Range of
Common Stock; Dividend Policy; Capitalization;
Selected Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Principal
Stockholders; Description of Capital Stock;
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference....................................... Incorporation by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... *
<FN>
- ------------------------
*Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION DATED JULY 12, 1994
PROSPECTUS
, 1994
2,500,000 SHARES
THE CHERRY CORPORATION
[LOGO]
CLASS A COMMON STOCK
All of the shares of Class A Common Stock, par value $1.00 per share ("Class
A Common Stock"), of The Cherry Corporation ("Cherry" or the "Company") offered
hereby (the "Offering") are being sold by the Company. The Company's authorized
Common Stock consists of Class A Common Stock and Class B Common Stock, par
value $1.00 per share ("Class B Common Stock"). The voting power of the Company
is vested in the Class B Common Stock, and the Class A Common Stock has no
voting rights, except as required by Delaware law. The Class A Common Stock and
the Class B Common Stock generally have the same economic rights. See "Price
Range of Common Stock," "Dividend Policy" and "Description of Capital Stock."
The Class A Common Stock is quoted on the Nasdaq National Market under the
symbol "CHERA." On July , 1994 the last sale price of the Class A Common Stock,
as reported by Nasdaq, was $ per share. See "Price Range of Common Stock" and
"Dividend Policy."
------------------------
SEE "INVESTMENT CONSIDERATIONS" FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS (1) COMPANY (2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................... $ $ $
Total (3)..................... $ $ $
- -------------------------------------------------------------------------------
</TABLE>
(1) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $400,000.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
375,000 ADDITIONAL SHARES OF CLASS A COMMON STOCK SOLELY TO COVER
OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL
PRICE TO THE PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO
THE COMPANY WILL BE $ , $ AND $ , RESPECTIVELY. SEE
"UNDERWRITING."
The Class A Common Stock is offered by the Underwriters when, as and if
issued to and accepted by them, and subject to various conditions, including the
right to reject any order in whole or in part. It is expected that delivery of
the Class A Common Stock will be made to the Underwriters in New York, New York
on or about , 1994.
DONALDSON, LUFKIN & JENRETTE CLEARY GULL REILAND & MCDEVITT INC.
SECURITIES CORPORATION
<PAGE>
[GRAPHICS OMITTED; SEE GRAPHICS APPENDIX AT END OF THIS DOCUMENT.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT SHARES OF
CLASS A COMMON STOCK OR MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE CLASS A COMMON STOCK AND/OR THE CLASS B COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS
IN THE CLASS A COMMON STOCK AND/ OR THE CLASS B COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, THE TERM "COMPANY" MEANS
THE CHERRY CORPORATION ("CHERRY") AND, UNLESS THE CONTEXT OTHERWISE INDICATES,
ITS WHOLLY-OWNED SUBSIDIARIES. UNLESS THE CONTEXT OTHERWISE INDICATES, ALL
REFERENCES TO YEARS SHALL MEAN FISCAL YEARS OF THE COMPANY ENDING ON THE LAST
DAY OF FEBRUARY. UNLESS OTHERWISE INDICATED, ALL SHARE AMOUNTS AND FINANCIAL
INFORMATION PRESENTED IN THIS PROSPECTUS HAVE BEEN ADJUSTED TO REFLECT THE
RECLASSIFICATION OF THE COMPANY'S COMMON STOCK OUTSTANDING PRIOR TO JULY 12,
1994 (THE "PRIOR COMMON STOCK") INTO CLASS B COMMON STOCK, THE AUTHORIZATION OF
THE CLASS A COMMON STOCK AND THE ISSUANCE OF A DIVIDEND ON JULY 14, 1994 OF ONE
SHARE OF CLASS A COMMON STOCK FOR EACH OUTSTANDING SHARE OF PRIOR COMMON STOCK
(THE "STOCK DIVIDEND"). SEE "RECLASSIFICATION" AND "DESCRIPTION OF CAPITAL
STOCK." THE STOCK DIVIDEND HAD THE SAME EFFECT ON THE TOTAL NUMBER OF SHARES OF
PRIOR COMMON STOCK OUTSTANDING AS A TWO-FOR-ONE STOCK SPLIT. THE CLASS A COMMON
STOCK AND CLASS B COMMON STOCK ARE SOMETIMES REFERRED TO COLLECTIVELY IN THIS
PROSPECTUS AS THE "COMMON STOCK." UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED.
THE COMPANY
The Company designs, manufactures and sells over 3,000 types of proprietary
and custom electrical and electronic components used by a broad range of OEM
customers and distributors in the automotive, computer, and consumer and
commercial markets. Within each of these three markets, the Company divides its
operations into three product segments: electromechanical devices, electronic
assemblies and displays, and semiconductor devices. The Company's products are
sold globally and are manufactured at the Company's state-of-the-art
manufacturing facilities in the United States, Germany and England and in Japan
through its joint venture. In addition, the Company's products are assembled in
Hong Kong, the Czech Republic, China, Malaysia, the Philippines, South Korea and
Mexico. The Company has increased its revenue from $228.6 million in 1992 to
$275.3 million in 1994, representing a 9.7% compound annual growth rate. During
this same time period, the Company's operating profit has grown from $6.6
million to $17.8 million, which represents a 63.4% compound annual growth rate
and an improvement in its operating profit margins from 2.9% to 6.5%.
AUTOMOTIVE MARKET. The Company is a leader in the development of switch
assemblies and semiconductors for the automotive industry. In addition, the
Company supplies a variety of electronic control modules to this market.
Cherry's switch assemblies are used principally in power windows, door locks and
mirrors. The Company's semiconductor devices are integrated circuits used
principally in engine and ignition controls, instrumentation and ABS systems.
Its electronic control modules are used as controls for sunroofs, convertible
tops and memory seats. The Company sells its switch assemblies, semiconductors
and electronic control modules to virtually all of the leading automobile
manufacturers in North America, Western Europe and, to an increasing extent,
Japan, including Ford, General Motors, Volkswagen, Chrysler, BMW, Toyota and
Nissan. From 1992 to 1994, Cherry has increased its sales to the automotive
market from $65.5 million to $104.0 million, representing a 26.0% compound
annual growth rate. Sales to the automotive market represented 37.8% of the
Company's total sales in 1994.
COMPUTER MARKET. The Company is the leading non-captive producer of
standard, specialty and custom keyboards in Western Europe and sold over two
million keyboard units worldwide in 1994. The Company also manufactures
semiconductors and switches for this market. Cherry's keyboards are used with
personal computers, data entry terminals and word processors and in
point-of-sale retail, airline and hotel applications. Since 1992, the Company
has successfully maintained its sales of standard keyboards while increasing its
emphasis on developing proprietary specialty keyboards incorporating bar code,
magnetic card and smart card readers, which generally have higher gross profit
margins. The Company's semiconductors consist of integrated circuits used in
hard disk drives, tape back-up systems and power supplies. In addition, its
switches are used to link peripherals, such as disk drives and printers, within
computer networks. The Company's sales to the computer market were approximately
$99.3 million in 1992 and 1994. Sales to the computer market represented 36.1%
of the Company's total sales in 1994.
3
<PAGE>
CONSUMER AND COMMERCIAL MARKET. The Company is a leading producer of
snap-action switches for the consumer and commercial market with an
approximately 15% market share in North America and Western Europe. Cherry also
sells its electronic assemblies and semiconductors to this market. Switches are
used in office equipment, such as photocopiers and mailing machines, and in home
appliances, such as washing machines and dishwashers. Electronic assemblies are
used with digital displays to produce operator panels for business machines and
for amusement products, including pinball games. Semiconductor devices are
integrated circuits used in power conversion applications for a variety of
products, including cellular telephones. From 1992 to 1994, the Company
increased its sales to the consumer and commercial market from $63.8 million to
$71.9 million, representing a 6.2% compound annual growth rate. Sales to the
consumer and commercial market represented 26.1% of the Company's total sales in
1994.
STRATEGY
The Company believes that its success in increasing sales and profitability
has resulted from its multifaceted business strategy which includes the
following key elements:
NEW PRODUCT DEVELOPMENT. Cherry's new product development program is
focused on capitalizing on the Company's leading presence and long-standing
reputation in the automotive, computer, and consumer and commercial markets. The
Company believes that its new product development program has significantly
enhanced sales and profitability and has been successful primarily because of
the Company's ability to: (i) apply its state-of-the-art design and
manufacturing capabilities to produce new products at a low cost, (ii) customize
its existing products to meet the specialized requirements of its customers, and
(iii) combine its expertise in designing and manufacturing electromechanical
devices, semiconductors, and electronic assemblies and displays to develop new
products which incorporate elements from all three of these product categories.
LOW COST PRODUCTION FACILITIES. The Company strives to operate its
manufacturing and assembly facilities as efficiently as possible by: (i)
continuing to invest in its capital expenditure program to maintain and improve
its facilities, (ii) custom designing and building proprietary automated
assembly equipment, (iii) developing new and more efficient production
technologies, and (iv) where appropriate, utilizing production facilities in low
cost labor countries. As part of its efforts, the Company has invested $52.3
million in capital expenditures during the last three years, the majority of
which was used to improve manufacturing operations. As a result, the Company has
improved its gross margins from 26.5% to 29.1% from 1992 to 1994 even though it
maintained or decreased the average selling prices of a majority of its products
during this same time period.
DEDICATION TO CUSTOMER SERVICE. The Company benefits from a strong
reputation for providing quality products and responsive service to its
customers. The Company works closely with customers to customize its products to
meet their changing product requirements. In recognition of its quality products
and value added service, Cherry has received numerous awards from its customers
in the United States and Western Europe. For the last two years, the Company was
named Supplier of the Year by General Motors for its switch products.
EXPANSION INTO NEW GEOGRAPHIC MARKETS. The Company believes that its
continued geographic expansion will add to its revenue and earnings growth. The
Company's strategy is to capitalize on increasing demand for end use products,
such as home appliances, computers, automobiles and office equipment, that
require switches, electronic assemblies and semiconductors in markets outside
the United States and Western Europe. As part of this expansion, since 1992, the
Company has opened new manufacturing and sales operations in Australia and the
Czech Republic and in Japan and India through its joint ventures.
Cherry was incorporated in Illinois in 1953 and was reincorporated in
Delaware in 1978. The Company's principal executive offices are located at 3600
Sunset Avenue, Waukegan, Illinois 60087 and its telephone number is (708)
662-9200.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock Offered................. 2,500,000 shares (2,875,000 shares if the
Underwriters' over-allotment option is
exercised in full).
Common Stock to be Outstanding after the
Offering (1)
Class A Common Stock....................... 7,165,765 Shares
Class B Common Stock....................... 4,665,765 Shares
Total Common Stock to be outstanding
after the Offering..................... 11,831,530 Shares
Voting Rights................................ Holders of Class A Common Stock have no
voting rights, except as required by Delaware
law. Holders of Class B Common Stock have
one vote per share. See "Description of
Capital Stock."
Protection Provisions........................ Several provisions in Cherry's Restated
Certificate of Incorporation (as defined
below) are intended to reduce the economic
reasons for trading the Class B Common
Stock at a premium compared to the Class A
Common Stock. See "Description of Capital
Stock--Class A Protection" and "Description
of Capital Stock--Limited Convertibility."
Use of Proceeds.............................. To repay debt and for general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market Symbols:
Class A Common Stock....................... "CHERA"
Class B Common Stock....................... "CHERB"
<FN>
- ------------------------
(1) Based upon 4,665,765 shares of Prior Common Stock outstanding as of May 31,
1994, after giving effect to the Reclassification, and excluding 73,277
shares of Prior Common Stock issuable upon exercise of stock options
outstanding as of such date, and approximately 124,630 shares of Prior
Common Stock available for issuance under the Company's Employee Stock
Purchase Plan, as amended. See Note H of Notes to Consolidated Financial
Statements.
</TABLE>
5
<PAGE>
SUMMARY OF CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
MAY 31,
FISCAL YEAR ENDED LAST DAY OF FEBRUARY, (UNAUDITED)
-------------------------------------------------------------- -----------------------
1990 1991 (1) 1992 1993 1994 1993 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $ 208,441 $ 245,887 $ 228,631 $ 266,231 $ 275,269 $ 69,631 $ 79,647
Cost of sales................... 155,323 177,873 167,981 189,710 195,090 49,528 54,744
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin.................... 53,118 68,014 60,650 76,521 80,179 20,103 24,903
Operating expenses.............. 53,153 65,986 54,002 59,840 62,419 15,867 18,077
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) from
operations.................... (35) 2,028 6,648 16,681 17,760 4,236 6,826
Interest expense................ (3,759) (6,007) (5,919) (5,383) (3,919) (1,031) (875)
Other income, net............... 732 1,300 2,226 636 1,342 310 418
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income
taxes, extraordinary tax
credit and cumulative effect
of change in accounting
principle..................... (3,062) (2,679) 2,955 11,934 15,183 3,515 6,369
Income tax provision
(benefit)..................... (277) 3,039 (819) 4,216 5,692 1,280 2,452
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
extraordinary tax credit and
cumulative effect of change in
accounting principle.......... (2,785) (5,718) 3,774 7,718 9,491 2,235 3,917
Extraordinary tax credit........ -- -- 891 2,539 -- -- --
Cumulative effect of change in
accounting principle (2)...... -- -- -- -- 1,542 1,542 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)............. $ (2,785) $ (5,718) $ 4,665 $ 10,257 $ 11,033 $ 3,777 $ 3,917
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) per share (3):
Earnings (loss) before
extraordinary tax credit and
cumulative effect of change
in accounting principle..... $ (0.31) $ (0.63) $ 0.41 $ 0.84 $ 1.02 $ 0.24 $ 0.42
Extraordinary tax credit...... -- -- 0.10 0.28 -- -- --
Cumulative effect of change in
accounting principle (2).... -- -- -- -- 0.17 0.17 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) per
share....................... $ (0.31) $ (0.63) $ 0.51 $ 1.12 $ 1.19 $ 0.41 $ 0.42
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Average shares outstanding
(3)........................... 9,099,424 9,106,442 9,113,490 9,184,228 9,299,848 9,289,204 9,325,752
OTHER DATA:
Capital expenditures, net....... $ 28,229 $ 17,057 $ 8,247 $ 19,023 $ 23,357 $ 4,063 $ 8,046
Depreciation and amortization... 15,892 17,325 16,729 18,023 16,720 4,373 4,553
</TABLE>
<TABLE>
<CAPTION>
MAY 31, 1994
-------------------------
ACTUAL AS ADJUSTED(4)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................................... $ 36,149
Total assets......................................................................... 205,519
Long-term debt....................................................................... 39,551
Total debt........................................................................... 56,211
Stockholders' investment............................................................. 98,593
Debt to capital ratio................................................................ 36.3%
<FN>
- ------------------------
(1) Operating expenses include a $5,600 provision for restructuring costs.
(2) Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109").
See Note B of Notes to Consolidated Financial Statements.
(3) Adjusted to reflect the Reclassification. See "Reclassification."
(4) Adjusted to reflect the Reclassification and the completion of the
Offering, after deducting the estimated underwriting discount and offering
expenses payable by the Company and the application of the estimated net
proceeds therefrom. See "Reclassification," "Use of Proceeds" and
"Capitalization."
</TABLE>
6
<PAGE>
INVESTMENT CONSIDERATIONS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS BEFORE
PURCHASING THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY.
LIMITED TRADING HISTORY AND MARKET FOR CLASS A COMMON STOCK
The Class A Common Stock was first quoted on the Nasdaq National Market on
July 15, 1994. Prior to that date there was no public market for the Class A
Common Stock. The public offering price for the Class A Common Stock offered
hereby has been determined by negotiations between the Underwriters and the
Company in light of recent sale prices of the Class A Common Stock reported on
the Nasdaq National Market. There can be no assurance that an active public
market for the Class A Common Stock will develop or be sustained after the
Offering or that the public offering price corresponds to the price at which the
Class A Common Stock will trade in the public market subsequent to the Offering.
While the Company's Prior Common Stock was traded in the over-the-counter
market and quoted on the Nasdaq National Market for many years, the average
volume of such trading in the twelve months ended May 31, 1994 was only 9,928
shares per day. Accordingly, the prices at which such trades have been made may
not reflect the prices that would have prevailed had there been a more active
market. Furthermore, while several provisions in the Company's Restated
Certificate of Incorporation are intended to reduce the economic reasons for
trading the Company's voting stock at a premium compared to the Class A Common
Stock, there can be no assurance that the trading price for the Class A Common
Stock will approximate either the price of the Class B Common Stock or the
historical prices of the Prior Common Stock as adjusted for the
Reclassification. See "Price Range of Common Stock."
CONTROLLING STOCKHOLDERS; IMPEDIMENTS TO CHANGE OF CONTROL
Voting control of the Company is vested in the holders of Class B Common
Stock. The Cherry Family (as defined below) beneficially owns, and after
consummation of the Offering will continue to own, approximately 60% of the
Class B Common Stock. In addition, one member of the Cherry Family serves on the
Company's Board of Directors and as an employee of the Company and another
member of the Cherry Family serves as the Chairman of the Board of Directors and
as President of the Company. As long as the Cherry Family holds a majority of
the Class B Common Stock, it will be able to elect or remove all of the
Company's Board of Directors and, except as otherwise required by Delaware law
or the Restated Certificate of Incorporation, will be able to determine the
outcome of substantially any matter submitted for stockholder consideration.
Moreover, control by the Cherry Family may have the effect of discouraging
certain types of transactions involving an actual or potential change of control
of the Company, including transactions in which the holders of Class A Common
Stock might otherwise receive a premium for their shares over then-current
market prices. See "Principal Stockholders" and "Description of Capital Stock."
CYCLICALITY OF DEMAND FOR COMPANY PRODUCTS
Many of the Company's products are sold to industries that are cyclical and
dependent upon economic conditions, consumer confidence or other matters beyond
the Company's control. In particular, the automotive industry, which is
sensitive to such factors, is currently the Company's largest market and
comprised approximately 38%, 33% and 29% of the Company's total sales in 1994,
1993 and 1992, respectively. The Company believes that increased market
penetration and increased electrical content per vehicle will offset a decline
in automotive sales to some extent, but a significant reduction in automotive
production in North America or Western Europe or the loss of a significant
portion of its business from either of its major customers (Ford or General
Motors) could have an adverse effect on the Company's business. Demand in the
Company's computer, and consumer and commercial markets is also directly related
to general economic conditions. Accordingly, a downturn in U.S. or foreign
economies could have a negative impact on the Company's results of operations.
Although the Company's international sales declined for the last two years due
to the recession in Western Europe, the Company has remained profitable in
Western Europe during this period. See "Business."
7
<PAGE>
COMPETITION
The Company does business in highly competitive markets. Competitors include
a large number of independent domestic and foreign suppliers. Certain
competitors in each of the Company's markets have substantially greater
manufacturing, sales, research and financial resources than the Company. The
Company believes that the principal competitive factors in its markets are
price, product quality and reliability and the ability to meet customer delivery
requirements and to custom design products to customer specifications. See
"Business--Competition."
FOREIGN CURRENCY TRANSLATION
The Company realized approximately 43%, 51% and 54% of its net sales in
1994, 1993 and 1992, respectively, from operations outside the United States. As
a result, fluctuations in currency exchange rates can significantly affect the
Company's sales, profitability and financial position. While changes in foreign
currency exchange rates resulted in a 6% increase in international sales in
1993, such changes accounted for approximately 6% and 4% decreases in
international sales in 1994 and 1992, respectively. Although the Company cannot
predict the extent to which currency fluctuations may or will affect the
Company's business and financial position, there is a risk that such
fluctuations will have an adverse impact upon the Company's sales and profits
from locations outside the United States. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RECLASSIFICATION
On July 12, 1994, the Company filed with the Delaware Secretary of State an
Amended and Restated Certificate of Incorporation (the "Restated Certificate of
Incorporation"), which (i) increased the number of authorized shares of common
stock of the Company from 10,000,000 to 30,000,000, consisting of 20,000,000
shares of Class A Common Stock and 10,000,000 shares of Class B Common Stock,
(ii) reclassified the Prior Common Stock as Class B Common Stock, (iii)
authorized a new class of non-voting stock designated as Class A Common Stock,
and (iv) established the rights, powers and limitations of the Class A Common
Stock and the Class B Common Stock. On July 14, 1994, the Company issued the
Stock Dividend. The Stock Dividend had the same effect on the total number of
shares of Common Stock outstanding as a two-for-one stock split. The ex-dividend
date for the Stock Dividend was July 15, 1994, which was also the date on which
the Class A Common Stock and Class B Common Stock began to trade separately.
(The reclassification of the Prior Common Stock and the issuance of the Stock
Dividend are referred to herein collectively as the "Reclassification.")
The Class B Common Stock has essentially the same rights, powers and
limitations as that of the Prior Common Stock. The Class A Common Stock is
non-voting, except as required by Delaware law and the Restated Certificate of
Incorporation. The Class A Common Stock has certain features, including a "Class
A Protection" feature and limited convertibility provisions, which are intended
to minimize the economic reasons for trading the Class B Common Stock at a
premium compared to the Class A Common Stock. The other terms of the Class A
Common Stock and Class B Common Stock, including rights with respect to stock
splits, consideration payable in a merger or consolidation and distributions
upon liquidation, are substantially the same. See "Price Range of Common Stock,"
"Dividend Policy" and "Description of Capital Stock."
The Class A Common Stock was first quoted on the Nasdaq National Market on
July 15, 1994. There can be no assurance that the trading price of the Class A
Common Stock will approximate either the price of the Class B Common Stock or
the historical prices of the Prior Common Stock, as adjusted to reflect the
Reclassification. See "Investment Considerations," "Price Range of Common Stock"
and "Dividend Policy."
8
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Class A
Common Stock are estimated to be $ million ($ million if the Underwriters'
over-allotment option is exercised in full). The Company intends to use (i)
approximately $ million of the net proceeds of the Offering to repay amounts
outstanding under its existing domestic revolving line of credit and (ii)
approximately $ million to pay off short-term debt owed to foreign banks for
construction, mortgage and equipment loans. The Company expects to use the
remaining net proceeds, if any, for general corporate purposes, including the
continued expansion of the Company's East Greenwich, Rhode Island facility and
the purchase of equipment.
The Company's domestic revolving line of credit matures on March 31, 1997
and bears interest at a rate per annum equal to the prime rate or, depending on
the Company's financial performance, LIBOR plus .75% to 1.25% (5.5% as of May
31, 1994). The Company's foreign debt bears interest at rates ranging from 4% to
9% per annum and matures in periodic installments through 2012. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
PRICE RANGE OF COMMON STOCK
The Company's Class A Common Stock and Class B Common Stock are quoted on
the Nasdaq National Market under the symbols "CHERA" and "CHERB," respectively.
The Class A Common Stock was first quoted on the Nasdaq National Market on July
15, 1994. Prior to that date, there had been no public market for the Class A
Common Stock. See "Investment Considerations."
The Prior Common Stock was traded on the Nasdaq National Market through July
14, 1994 under the symbol "CHER." The following table sets forth, for the
periods indicated, (i) the actual high and low sales prices per share of the
Prior Common Stock as reported by Nasdaq without giving effect to the
Reclassification, (ii) the actual high and low sales prices per share of the
Prior Common Stock divided by two to reflect the Reclassification (which had the
same effect on the total number of shares of Prior Common Stock outstanding as a
two-for-one stock split) based on the assumption that the Reclassification would
have resulted in a proportionate reduction in historical sales prices, and (iii)
the actual high and low sales prices per share of the Class A Common Stock and
the Class B Common Stock as reported by Nasdaq:
<TABLE>
<CAPTION>
PRIOR COMMON STOCK
------------------------------------------
ACTUAL ADJUSTED
STOCK PRICE STOCK PRICE
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fiscal year ended last day of February 1993
First quarter............................................................ $ 16.00 $ 9.00 $ 8.00 $ 4.50
Second quarter........................................................... 18.00 14.00 9.00 7.00
Third quarter............................................................ 25.50 14.00 12.75 7.00
Fourth quarter........................................................... 31.13 24.50 15.57 12.25
Fiscal year ended last day of February 1994
First quarter............................................................ $ 34.00 $ 18.25 $ 17.00 $ 9.13
Second quarter........................................................... 21.75 14.50 10.88 7.25
Third quarter............................................................ 22.25 13.63 11.13 6.82
Fourth quarter........................................................... 26.50 20.25 13.25 10.13
Fiscal year ended last day of February 1995
First quarter............................................................ $ 31.00 $ 24.25 $ 15.50 $ 12.13
Second quarter (through July 14, 1994)...................................
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fiscal year ended last day of February 1995
Second quarter (July 15, 1994 through July , 1994).....................
</TABLE>
On July , 1994 the last sales prices of the Class A Common Stock and the
Class B Common Stock, as quoted on the Nasdaq National Market, were $ and
$ , respectively. As of July , 1994 there were approximately 2,100
holders of record of each of the Class A Common Stock and Class B Common Stock.
9
<PAGE>
DIVIDEND POLICY
The Company has not paid any cash dividends since 1991 and currently has no
plans to pay any cash dividends on its Common Stock. Payment of any future
dividends will depend on the future earnings and capital requirements of the
Company and other factors the Board of Directors considers appropriate. Holders
of the Class A Common Stock are entitled to cash dividends per share at least
equal to those payable to the holders of the Class B Common Stock. Although the
Board of Directors has the authority to pay larger cash dividends on the Class A
Common Stock than on the Class B Common Stock, the Board presently intends that,
if any dividends are paid, both classes will be paid on an equal per share
basis. See "Description of Capital Stock."
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of May 31, 1994 after giving effect to the Reclassification and as adjusted to
give effect to the application of the net proceeds from the Offering, after
deducting the estimated underwriting discount and offering expenses payable by
the Company.
<TABLE>
<CAPTION>
MAY 31, 1994
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and equivalents..................................................................... $ 5,093 $
---------- -----------
---------- -----------
Short-term debt.......................................................................... $ 2,899 $
Current maturities of long-term debt..................................................... 13,761
Long-term debt........................................................................... 39,551
----------
Total debt........................................................................... 56,211
Stockholders' investment:
Class A Common Stock, par value $1.00 per share; 20,000,000 shares authorized;
4,665,765 actual and 7,165,765 as adjusted shares issued and outstanding (1)......... 4,666 7,166
Class B Common Stock, par value $1.00 per share; 10,000,000 shares authorized;
4,665,765 actual and as adjusted shares issued and outstanding (1)................... 4,666 4,666
Additional paid-in capital............................................................. 10,242
Retained earnings...................................................................... 72,293 72,293
Cumulative translation adjustments..................................................... 6,726 6,726
---------- -----------
Total stockholders' investment....................................................... 98,593
---------- -----------
Total capitalization..................................................................... $ 154,804 $
---------- -----------
---------- -----------
<FN>
- ------------------------
(1) Based upon 4,665,765 shares of Prior Common Stock outstanding as of May 31,
1994, after giving effect to the Reclassification, and excluding 73,277
shares of Prior Common Stock issuable upon exercise of stock options
outstanding as of such date, and approximately 124,630 shares of Prior
Common Stock available for issuance under the Company's Employee Stock
Purchase Plan, as amended. See Note H of Notes to Consolidated Financial
Statements.
</TABLE>
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial information for
the Company's five most recent fiscal years and for the interim periods ended
May 31, 1993 and May 31, 1994. The historical financial information for each of
the fiscal years specified below has been derived from the Company's
consolidated financial statements for such periods included herein which have
been audited by Arthur Andersen & Co., independent public accountants. In the
opinion of the Company, the information for the interim periods ended May 31,
1993 and May 31, 1994, which is derived from unaudited financial statements,
reflects all adjustments (consisting only of normal recurring adjustments except
as noted) necessary for a fair presentation of the financial position of the
Company at such dates and the results of operations for such periods. Results
for the interim periods are not necessarily indicative of the results for the
entire year.
The selected consolidated financial data should be read in conjunction with
the Consolidated Financial Statements of the Company and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere herein.
<TABLE>
<CAPTION>
QUARTER ENDED
MAY 31,
FISCAL YEAR ENDED LAST DAY OF FEBRUARY, (UNAUDITED)
-------------------------------------------------------------- -----------------------
1990 1991 (1) 1992 1993 1994 1993 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................ $ 208,441 $ 245,887 $ 228,631 $ 266,231 $ 275,269 $ 69,631 $ 79,647
Cost of sales.................... 155,323 177,873 167,981 189,710 195,090 49,528 54,744
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin..................... 53,118 68,014 60,650 76,521 80,179 20,103 24,903
Operating expenses............... 53,153 65,986 54,002 59,840 62,419 15,867 18,077
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) from
operations..................... (35) 2,028 6,648 16,681 17,760 4,236 6,826
Interest expense................. (3,759) (6,007) (5,919) (5,383) (3,919) (1,031) (875)
Other income, net................ 732 1,300 2,226 636 1,342 310 418
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income
taxes, extraordinary tax credit
and cumulative effect of change
in accounting principle........ (3,062) (2,679) 2,955 11,934 15,183 3,515 6,369
Income tax provision (benefit)... (277) 3,039 (819) 4,216 5,692 1,280 2,452
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
extraordinary tax credit and
cumulative effect of change in
accounting principle........... (2,785) (5,718) 3,774 7,718 9,491 2,235 3,917
Extraordinary tax credit......... -- -- 891 2,539 -- -- --
Cumulative effect of change in
accounting principle (2)....... -- -- -- -- 1,542 1,542 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss).............. $ (2,785) $ (5,718) $ 4,665 $ 10,257 $ 11,033 $ 3,777 $ 3,917
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) per share (3):
Earnings (loss) before
extraordinary tax credit and
cumulative effect of change
in accounting principle...... $ (0.31) $ (0.63) $ 0.41 $ 0.84 $ 1.02 $ 0.24 $ 0.42
Extraordinary tax credit....... -- -- 0.10 0.28 -- -- --
Cumulative effect of change in
accounting principle (2)..... -- -- -- -- 0.17 0.17 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) per
share........................ $ (0.31) $ (0.63) $ 0.51 $ 1.12 $ 1.19 $ 0.41 $ 0.42
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Average shares outstanding (3)... 9,099,424 9,106,442 9,113,490 9,184,228 9,299,848 9,289,204 9,325,752
OTHER DATA:
Capital expenditures, net........ $ 28,229 $ 17,057 $ 8,247 $ 19,023 $ 23,357 $ 4,063 $ 8,046
Depreciation and amortization.... 15,892 17,325 16,729 18,023 16,720 4,373 4,553
Dividends per share (3).......... 0.06 0.03 -- -- -- -- --
BALANCE SHEET DATA:
Working capital.................. $ 21,220 $ 28,027 $ 33,893 $ 43,791 $ 39,395 $ 45,901 $ 36,149
Total assets..................... 181,850 193,130 181,580 183,219 193,548 189,942 205,519
Long-term debt................... 48,006 60,857 49,808 50,817 42,970 50,777 39,551
Total debt....................... 74,281 81,508 70,180 58,248 53,632 59,775 56,211
Stockholders' investment......... 70,593 68,190 71,049 82,014 93,476 87,764 98,593
Debt to capital ratio............ 51.3% 54.4% 49.7% 41.5% 36.5% 40.5% 36.3%
<FN>
- ------------------------------
(1) Operating expenses include a $5,600 provision for restructuring costs.
(2) Effective March 1, 1993, the Company adopted SFAS 109. See Note B of Notes
to Consolidated Financial Statements.
(3) Adjusted to reflect the Reclassification. See "Reclassification."
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and the Consolidated Financial Statements of the
Company and the Notes thereto and other financial information included elsewhere
in this Prospectus.
FIRST QUARTER FISCAL 1995 COMPARED TO FIRST QUARTER FISCAL 1994
First quarter sales of $79.6 million exceeded last year's first quarter
sales by 14% and the previous quarterly sales record by 9%. First quarter net
earnings of $3.9 million or $.42 per share, also a record, exceeded last year's
first quarter comparable earnings, before the effects of an accounting change,
of $2.2 million or $.24 per share by 75% and last year's first quarter net
earnings of $3.8 million or $.41 per share by 4%. The first quarter of last year
included a $1.5 million or $.17 per share increase to net earnings for the
cumulative effect of the change to the SFAS 109 method of accounting for income
taxes.
Domestic sales increased 22% over last year's first quarter, paced by sales
to the automotive industry. European operations continued the improvement which
began late last year with a 5% sales increase over last year's first quarter in
dollars and a 10% increase over last year in the applicable local currency.
Consolidated gross margins increased from 28.9% to 31.3% of sales. Domestic
gross margins increased from 32.2% to 34.5% of sales. Foreign gross margins
increased from 24.8% to 26.6% of sales. These improvements are the result of
increased volume, cost reduction programs and improved production efficiencies.
The Company's semiconductor operation went to a continuous seven day work week
in the second half of last year. Cost reductions have been successfully
implemented, especially in the Company's keyboard product line.
Consolidated operating expenses increased 14% which is in line with the
Company's increase in sales. Domestic and foreign operating expenses increased
20% and 5%, respectively, which is also in line with the applicable sales
increases. Any anticipated economies of scale from the increase in sales were
partially offset by the need to staff for increasing business.
Consolidated operating profit, as a result of the above factors, improved
from 6.1% to 8.6% of sales. Domestic operating profit improved from 8.0% to
10.7% of sales while foreign operating profit increased from 3.7% to 5.5% of
sales.
Consolidated interest expense decreased $156 thousand or 15% as the result
of reduced borrowings and improved financing rates.
Consolidated other income increased $108 thousand primarily because of
higher income from an unconsolidated affiliate.
The consolidated effective income tax rate increased from 36.5% to 38.5%. A
combination of higher state income taxes and increased foreign profitability
resulted in the increase to the effective rate.
In the first quarter of last year, the Company implemented SFAS 109. In
accordance with the provisions of SFAS 109, the Company recognized tax assets
principally related to the expected benefit of future tax deductions for
expenses previously recorded for financial reporting purposes. The resulting
$1.5 million benefit ($.17 per share) was recorded in the income statement and
is reported as a cumulative effect of a change in accounting principle.
A normal seasonal slowdown in sales is expected in the second quarter as the
result of automotive and appliance model changeovers and summer vacations. The
slowdown, however, is expected to be less pronounced than the prior year since
the prior year's second quarter was also affected by the height of the European
recession.
12
<PAGE>
Since a significant portion of the Company's sales and manufacturing are
overseas, foreign currency translation could have an impact on future sales,
earnings, and financial position of the Company as denominated in U.S. dollars.
The Company engages in an insignificant amount of hedging contracts with regard
to foreign currency transactions and therefore does not have a material
derivative exposure.
FISCAL 1994 COMPARED TO FISCAL 1993
In fiscal 1994, the Company established new sales and earnings records of
$275.3 million and $11 million, respectively. Earnings before extraordinary tax
credit and the cumulative effect of change in accounting principle were also a
new record of $9.5 million. This is the Company's second consecutive year of
record sales and earnings.
Consolidated current year net sales of $275.3 million increased 3.4% from
the prior year. Current year domestic sales increased 18% from the prior year,
while international sales decreased 11%. The current year domestic sales growth
is attributable to a stronger overall domestic market, especially in automotive,
and the Company's increased penetration into the domestic automotive market. On
the international front, approximately half of the 11% current year sales
decrease is attributable to foreign currency translation. The remaining foreign
sales decline is attributable to a slow European economy and price pressures in
the computer marketplace.
Fiscal 1994 sales performance from a business segment perspective is mixed.
Current year sales of the semiconductor devices segment increased 24% from the
prior year, also fueled by the Company's increased penetration into a stronger
domestic automotive market. Electromechanical segment current year sales
increased 6% from the prior year. A 43% sales increase of electromechanical
products to the automotive market in fiscal 1994 was offset by a 14% sales
decline of electromechanical products to the non-automotive markets served. This
non-automotive market decline is related to international operations: 18% of the
sales decline is related to foreign currency translation and 82% of the sales
decline is related to a slow European economy. Current year sales of the
electronic assemblies and displays segment declined 8% from the prior year.
Approximately half of this decline is related to foreign currency translation
since the majority of these products are manufactured and sold in Europe. The
other half of this segment's decline is related to the slow European economy and
the price pressures in the computer market as mentioned in the preceding
paragraph.
From a profit perspective, current year operating profit margins remained
virtually unchanged at 6.5% of sales. The current year $1.1 million increase in
operating profit is therefore the result of increased sales.
By examining the components making up operating profit (gross margin and
operating expenses), it is apparent that both components as a percent of sales
are virtually unchanged from the prior year. This steadiness is evident in both
domestic and international operations. On the international front, gross margin
and operating expenses as a percent of sales remained virtually unchanged
despite slow sales and price pressures. On the domestic front, the gross margin
and operating expenses as a percent of sales were maintained despite start-up
costs associated with increased production levels, higher engineering demands,
and changes in the market and product mix, as the Company moves more into the
automotive market.
Operating profit margins from a business segment perspective were also
virtually unchanged. Operating profit margins in the electronic assemblies and
displays segment declined to 2.2% versus 2.7% in the prior year. This decline is
the result of an 8% current year sales decline and severe price pressures.
The semiconductor devices segment continues to be the Company's leader in
sales growth, operating profit margins and return on investment. In the current
year, operating profit margins reached 12.6% of sales, compared to last year's
record 12.1% of sales. High factory utilization and productivity improvements
are largely responsible for these strong results. The semiconductor devices
segment continues to produce at close to capacity and is currently expanding its
capacity to meet future demands.
The 7.2% current year operating profit margins for the electromechanical
segment are virtually unchanged from the prior year. The electromechanical
segment maintained this profit margin in the face of
13
<PAGE>
dramatic changes in the markets this business segment serves as well as in
geographic sales. As previously mentioned, this business segment's current year
sales to the automotive market increased 43%, while non-automotive market sales
declined 14%.
Other income of $1.3 million in the current year increased $.7 million from
the prior year. This increase is primarily attributable to foreign currency
transaction gains. The Company has significant activity in different currencies.
Although the Company manages the currency risk associated with this activity,
some foreign currency transaction gains and losses can be expected.
Current year interest expense of $3.9 million is down $1.5 million, or
27.8%, from last year. This decrease is attributable to lower domestic and
foreign borrowing rates and reduced overall borrowing. Borrowing rates are lower
because of the overall environment and the Company's continually improving
performance.
The ordinary effective tax rate for fiscal 1994 is 37.5%, versus 35.3% for
fiscal 1993. The change in rate is primarily due to higher domestic state income
taxes.
In the first quarter of fiscal 1994, the Company adopted SFAS 109. In
accordance with the provisions of SFAS 109, the Company recognized tax assets
principally related to the expected benefit of future tax deductions for
expenses previously recorded for financial reporting purposes. The resulting
$1.5 million benefit was recorded in the income statement and is reported as a
cumulative effect of a change in accounting principle.
The extraordinary tax credit for fiscal 1994 and 1993 resulted from the
utilization of net operating loss carryforwards, primarily from domestic
operations, in accordance with the provisions of Accounting Principles Board
Opinion No. 11.
FISCAL 1993 COMPARED TO FISCAL 1992
Consolidated fiscal 1993 net sales increased approximately 16% from fiscal
1992 and set a new record of $266.2 million in net sales for the Company. The
sales increase by segment was 25% for the semiconductor devices segment, 16% for
the electromechanical devices segment and 14% for the electronic assemblies and
displays segment. By geographic areas the Company experienced a 25% increase in
domestic sales and a 9% sales increase in international sales. The significant
domestic sales increase is primarily attributable to increased sales to the
automotive market, although sales to all domestic markets showed improvement
over the prior year. The automotive market sales increase is the result of the
Company's increased market penetration and greater Company product content per
vehicle. The other market sales increases are due to improved markets and the
Company's increased market share. Foreign currency translation effects also
contributed approximately 60% of the 9% increase in international sales.
International sales continue to suffer from the recession in Europe. This is
especially true in the appliance and automotive markets. The computer market,
however, has shown improvement even in the face of this European recession.
Consolidated gross margins improved from the prior year by 2%. This increase
can be attributed to increased volume, continued cost control and improved
manufacturing execution. This margin improvement occurred in the face of price
pressure, especially on the computer keyboard front.
Consolidated operating expenses increased 11% while sales improved 16% from
fiscal 1992. The lower percentage increase in operating expenses reflects the
Company's economies of scale and continued efforts at more efficient means of
administration. This is evidenced by the fact that the administrative expense
increase was only 7%, while the engineering expense increase was 14% and the
sales expense increase was 13%. With the new business the Company had been
awarded in fiscal 1993, increases to sales and engineering were needed to meet
customers' expectations and to maintain the Company's momentum of new product
introductions. If the effects of changes from currency translation were
eliminated, the consolidated operating expense increase would have been 8% from
fiscal 1992 instead of 11%.
As a result of these factors, operating profit increased to 6.3% of sales
from the prior year's 2.9%. From a business segment standpoint, operating profit
improved in both amount and percent of sales. The semiconductor devices segment
achieved an operating profit of 12.1% of sales for fiscal 1993, compared to
14
<PAGE>
8.3% for fiscal 1992. The electronic assemblies and displays segment achieved an
operating profit of 2.7% of sales in fiscal 1993 as compared to a loss of 3.4%
in fiscal 1992. The electromechanical devices segment achieved an operating
profit of 7.4% in fiscal 1993 which approximated the prior year's 7.3%. The
significant improvement in the semiconductor devices segment operating profit is
attributable to increased volume and improved production efficiencies. The
improvement in the electronic assemblies and displays segment profitability is
due to increased volume, cost control and improved designs.
On a geographic basis, operating profit increased both domestically and
internationally in amount and as a percent of sales. On the domestic front, the
Company achieved an operating profit of $11.7 million or 9% of sales. This
represents a 110% increase from fiscal 1992. This increase is primarily
attributable to the significant domestic sales increase and continued emphasis
on cost control and improved efficiencies.
The international operating profit in fiscal 1993 was $6.8 million or 5% of
sales and represents a 275% increase from the prior year. This improvement was
accomplished on only a modest increase in sales and results from the continued
emphasis on cost reduction and cost control programs.
Consolidated other income, net of expense, decreased $1.6 million in fiscal
1993. This decrease resulted from discontinuance of the investment grant tax law
in Germany, the decrease in income from customer tooling, and the increase in
foreign currency exchange losses.
Consolidated interest expense decreased 9% in fiscal 1993 as a result of
declining international debt and reduced domestic interest rates.
The ordinary effective income tax rate for fiscal 1993 was 35.3%, versus an
ordinary tax benefit of 27.7% in fiscal 1992. In fiscal 1992, the Company
recognized a tax benefit when declaring a dividend from its German subsidiary as
a result of a reduction in the dividend withholding rates.
The extraordinary income tax benefit in fiscal 1993 and 1992 was primarily
the result of domestic net operating loss carryforward usage. The fiscal 1993
income tax benefit increase is the result of an improvement in domestic
profitability.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1994, the Company reduced its debt to capital ratio from 41.5% to
36.5%. This reduction was accomplished by a $3.3 million repayment of
consolidated debt and an $11 million increase in stockholders' investment from
current year earnings. The debt reduction resulted from improved profitability
and working capital management. From a geographic perspective, $1.3 million of
the net debt reduction for fiscal 1994 occurred domestically and $2 million
occurred internationally.
In the first quarter of fiscal 1995, the Company modestly improved its
financial condition further in spite of significant first quarter capital
expenditure increases. The consolidated debt to capital ratio declined to 36.3%
from 36.5% at February 28, 1994. First quarter capital expenditures were $8
million versus $4.1 million in the first quarter of last year.
Domestic operating activities were able to generate sufficient cash to fund
the higher capital needs created by the 18% domestic sales increase in fiscal
1994. Despite difficult operating conditions, the Company's foreign facilities
also continued to generate sufficient cash from operations to finance their
fiscal 1994 capital needs.
In the first quarter of fiscal 1995, domestic capital expenditures were $6.2
million while foreign capital expenditures were $1.8 million. The higher
domestic capital expenditures are consistent with the recent significant
domestic growth versus the slowly recovering European economy. Funds were needed
domestically for capacity increases and working capital; $5.2 million of the
funding came from increased borrowings under the domestic revolver and the
balance from operating activities. Foreign operating activities generated
sufficient funds to repay $3.8 million of foreign debt and also fund their
capital expenditures.
The Company's capital needs for the immediate future will be for working
capital and equipment to support growth, cost reductions and new products. In
addition, more facility space is needed domestically. Construction of 21,000
square feet of manufacturing and office space was completed at the Company's
15
<PAGE>
Waukegan, Illinois facility. Construction of 45,000 square feet of manufacturing
and office space has begun at the Company's East Greenwich, Rhode Island
facility. The Company intends to spend approximately $35 million on capital
expenditures in fiscal 1995 and to average a capital expenditure level of 10% of
sales over fiscal 1995, 1996 and 1997.
Domestically, the Company amended its committed revolving credit agreement
with its banks in the first quarter of fiscal 1995. The amendments were made to
increase borrowing capacity, improve interest rates and reduce collateral. The
domestic credit facility was increased from $35 million to $45 million. Upon the
completion of the Offering, the domestic credit facility will be reduced to $
million. Interest is at the prime rate or, depending upon the Company's
financial performance, LIBOR plus .75% to 1.25%. The Company also implemented
four separate interest rate cap agreements that protect the Company from
interest rate increases above 5.5% LIBOR on $15 million of floating rate debt
through November 1997 and above 6% LIBOR on $10 million of floating rate debt
through March 1998. Total domestic borrowings are limited to the amount
available under the committed domestic credit facility. With the domestic credit
facility and internally generated cash, the Company should have sufficient funds
to finance its domestic operations for the next several years. See "Use of
Proceeds."
Internationally, the Company's debt is primarily long-term, asset-based
financing at favorable interest rates. In the next few years, significant
amounts of this debt will be coming due. The Company will be evaluating the
merits of refinancing some of these principal repayments on a long-term basis.
At present, the $26 million of short-term, uncommitted foreign bank lines are
sufficient, together with internally generated cash, to meet these principal
repayments and finance the cash needs of the international operations.
FUTURE ACCOUNTING CHANGES
Statement of Financial Accounting Standards No. 112 "Employers' Accounting
for Postemployment Benefits," when adopted, is not expected to be material to
the Company's results.
16
<PAGE>
BUSINESS
The Company designs, manufactures and sells over 3,000 types of proprietary
and custom electrical and electronic components used by a broad range of
original equipment manufacturers ("OEMs") and distributors in the automotive,
computer, and consumer and commercial markets. Within each of these three
markets, the Company divides its operations into three product segments:
electromechanical devices, electronic assemblies and displays, and semiconductor
devices. The Company's products are sold globally and are manufactured at the
Company's state-of-the-art manufacturing facilities in the United States,
Germany and England and in Japan through its joint venture, Hirose Cherry
Precision Co. Ltd. In addition, the Company's products are assembled in Hong
Kong, the Czech Republic, China, Malaysia, the Philippines, South Korea and
Mexico. The Company has increased its revenue from $228.6 million in 1992 to
$275.3 million in 1994, representing a 9.7% compound annual growth rate. During
this same time period, the Company's operating profit has grown from $6.6
million to $17.8 million, which represents a 63.4% compound annual growth rate
and an improvement in its operating profit margins from 2.9% to 6.5%.
MARKETS
The Company sells its products to three markets: automotive, computer, and
consumer and commercial. The following table sets forth the Company's sales and
operating profit (loss) by market for each of the last three years:
<TABLE>
<CAPTION>
1992 1993 1994
--------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Automotive Market
Sales.............................................................. $ 65,468 $ 86,866 $ 104,018
Operating Profit................................................... 4,698 7,870 10,633
Computer Market
Sales.............................................................. 99,351 110,455 99,346
Operating Profit (Loss)............................................ (789) 5,807 4,541
Consumer and Commercial Market
Sales.............................................................. 63,812 68,910 71,905
Operating Profit................................................... 2,739 3,004 2,586
</TABLE>
PRODUCTS SOLD TO MARKETS
Within each of its three markets, the Company divides its operations into
three product segments: electromechanical devices, electronic assemblies and
displays, and semiconductor devices. The Company's electromechanical devices
segment manufactures a variety of snap-action, selector and automobile special
use switches for use by OEMs. Cherry's electronic assemblies and displays
segment produces keyboards, keyboard switches, gas discharge displays and
systems, and electronic controls. The Company's semiconductor devices segment
manufactures integrated circuits. The following table sets forth some of the
applications that use Cherry products.
<TABLE>
<CAPTION>
MARKETS SERVED
-------------------------------------------------------------------------------------
CONSUMER AND
PRODUCT SEGMENTS AUTOMOTIVE MARKET COMPUTER MARKET COMMERCIAL MARKET
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Electromechanical Devices Central door locks Computer peripheral devices Appliances (washing
Power windows and mirrors (printers) machines, dishwashers)
Office equipment
(photocopiers, printers)
Control and measurement
devices
Electronic Assemblies and Sunroof, convertible top Personal computers Office equipment (mailing
Displays and memory seat Terminals machines)
controllers Specialty applications Amusement products (pinball
games)
Semiconductor Devices Engine and ignition Hard disk drives Power conversion
controls Tape backup applications (cellular
Instrumentation Power conversion telephones)
ABS systems applications
</TABLE>
17
<PAGE>
AUTOMOTIVE MARKET. The Company is a leader in the development of switch
assemblies and semiconductors for the automotive industry. In addition, the
Company supplies a variety of electronic control modules to this market.
Cherry's switch assemblies are used principally in power windows, door locks and
mirrors. The Company's semiconductor devices are integrated circuits used
principally in engine and ignition controls, instrumentation and ABS systems.
Its electronic control modules are used as controls for sunroofs, convertible
tops and memory seats. The Company sells its switch assemblies, semiconductors
and electronic control modules to virtually all of the leading automobile
manufacturers in North America, Western Europe and, to an increasing extent,
Japan, including Ford, General Motors, Volkswagen, Chrysler, BMW, Toyota and
Nissan. From 1992 to 1994, Cherry has increased its sales to the automotive
market from $65.5 million to $104.0 million, representing a 26.0% compound
annual growth rate. Sales to the automotive market represented 37.8% of the
Company's total sales in 1994.
Demand for Cherry products has continued to grow as automakers increase
electronic content and their use of power options in automobiles. Cherry
believes that it is well positioned to increase its market share in the growing
electronic and option market due to its strong relationships with its automotive
customers. From 1992 to 1994, the Company's automotive sales per vehicle
produced in North America and Western Europe have increased 54%, from $2.63 to
$4.04. The numerous awards that the Company has received in the last several
years from its automotive customers reflect their satisfaction with Cherry's
quality, delivery and service. The Company believes that it will be able to
capitalize on its relationships with its customers to capture a portion of their
growing product requirements.
In addition to expanding its domestic market share through its customer
relationships with OEMs, the Company has expanded its presence in the automotive
markets in Europe and Japan. In an effort to improve its market share with
Japanese automakers, Cherry works closely with Japanese facilities in the United
States and Europe and has established its own sales and engineering office in
Japan.
Cherry's electromechanical devices segment, which accounted for 54% of the
Company's 1994 automotive sales, manufactures a variety of special use switches
for the automotive market. Cherry switches are used in 12 applications for the
automobile, including power window, central door lock and mirror controls.
Domestically, the majority of the Company's switches are incorporated into
armrest assemblies that are designed to meet customer specifications using a
proprietary switch as the base module.
The Company's semiconductor devices segment, which accounted for 36% of the
Company's 1994 automotive sales, has expanded its market presence as automobile
designs increasingly employ electronic monitoring and control applications
throughout the vehicle. Cherry's semiconductors are used in advanced car
applications, such as engine controls, ignition systems, instrumentation and ABS
systems. The Company believes that automotive features under development by OEMs
such as traction control, active suspension control, electronic traffic control
and mapping, and the multiplexing of functions in the vehicle, are examples of
potential applications for Cherry's semiconductor products.
The Company's electronic assemblies and displays segment, which accounted
for 10% of the Company's 1994 automotive sales, produces electronic control
modules that are used as power sunroof, power memory seat and convertible top
controls. Sales of Cherry's electronic control modules have increased as
automobile customers require a greater number of electrical products that have
multiple applications and yet are the same size and price as standard single
application modules. Due to its focus on developing products that integrate
electronic control modules with semiconductor and switch products, Cherry
believes that it is well positioned to further capitalize on this growing demand
for multiple application electrical products.
COMPUTER MARKET. The Company is the leading non-captive producer of
standard, specialty and custom keyboards in Western Europe and sold over two
million keyboard units worldwide in 1994. The Company also manufacturers
semiconductors and switches for this market. Cherry's keyboards are used with
personal computers, data entry terminals and word processors and in
point-of-sale retail, airline and hotel applications. Since 1992, the Company
has successfully maintained its sales of standard keyboards while increasing its
emphasis on developing proprietary specialty keyboards incorporating bar code,
magnetic card and smart card readers which generally have higher gross profit
margins. The Company's semiconductors consist of integrated circuits used in
hard disk drives, tape back-up systems and power supplies. In addition, its
switches
18
<PAGE>
are used to link peripherals, such as disk drives and printers, within computer
networks. The Company's sales to the computer market were approximately $99.3
million in 1992 and 1994. Sales to the computer market represented 36.1% of the
Company's sales in 1994.
The Company's electronic assemblies and displays segment, which accounted
for 83% of the Company's 1994 sales to the computer market, produces standard,
specialty and custom keyboards and key switches. The Company sells standard
keyboards but also designs and produces custom keyboards to OEM customer
specifications. Cherry also manufactures and sells keyboard switches and keycaps
separately to customers who assemble them for use in their end products. In
recent years, Cherry has expanded its line of proprietary specialty keyboards to
better serve markets that require integrated magnetic card readers, bar code
readers or smart card readers. Although Cherry's keyboard unit sales increased
10% in 1994 from the previous year, the Company's total 1994 sales to the
computer market declined 10% in that same time period due to a shift towards
lower-priced keyboards and a reduction in average keyboard selling prices. The
Company has responded to these trends by introducing new products to the market
and by reducing manufacturing costs to offset price reductions.
Semiconductor devices accounted for approximately 12% of Cherry's sales to
the computer market in 1994. Cherry semiconductors are currently used in hard
disk drives, tape backup storage systems and power supplies.
Electromechanical devices accounted for approximately 5% of Cherry's sales
to the computer market in 1994. Sales of Cherry's computer-related switches have
risen as customers have increasingly linked computer networks to peripherals
such as tape and disk drives and printers.
CONSUMER AND COMMERCIAL MARKET. The Company is a leading producer of
snap-action switches for the consumer and commercial market with an
approximately 15% market share in North America and Western Europe. Cherry also
sells its electronic assemblies and semiconductors to this market. Switches are
used in office equipment, such as photocopiers and mailing machines, and in home
appliances, such as washing machines and dishwashers. Electronic assemblies are
used with digital displays to produce operator panels for business machines and
for amusement products, including pinball games. Semiconductor devices are
integrated circuits used in power conversion applications for a variety of
products, including cellular telephones. From 1992 to 1994, the Company
increased its sales to the consumer and commercial market from $63.8 million to
$71.9 million, representing a 6.2% compound annual growth rate. Sales to the
consumer and commercial market represented 26.1% of the Company's total sales in
1994.
The Company believes that the consumer and commercial market is the most
stable market served by Cherry. Cherry's sales to this market have shown gradual
growth with minor cyclical fluctuations.
Cherry's electromechanical devices segment, which accounted for 80% of the
Company's 1994 sales to the consumer and commercial market, manufactures a
variety of snap-action and selector switches. Cherry generally customizes its
standard snap-action switches for its customers for use in appliances, office
and business equipment, vending machines and industrial controls. Common
applications for Cherry snap-action switches include the sensing of the
out-of-paper condition of a photocopier and the interruption of the spin cycle
of a washing machine. Selector switches are found in various commercial and
industrial control applications and are used to set and control conditions
affecting equipment such as temperature, position and pressure. Cherry has
established its leadership in switches domestically and in Western Europe with
its advanced engineering and customization capabilities. In addition, Cherry
believes that growth opportunities exist in the international switch market in
areas such as Eastern Europe, India, China, Australia, Mexico and Central and
South America due to increased demand for electrical appliances and equipment in
these geographic areas.
19
<PAGE>
The Company's electronic assemblies and displays segment accounted for 11%
of the Company's 1994 sales to the consumer and commercial market. Products
manufactured by this segment are used as readouts and/or controls for business
machines, pinball machines, fitness equipment and industrial instrumentation.
Cherry believes that demand for its electronic assemblies and displays will grow
as consumer and commercial product manufacturers require increasingly
sophisticated control applications that they cannot develop or produce
themselves.
Products manufactured by the Company's semiconductor devices segment
accounted for 9% of the Company's 1994 sales to the consumer and commercial
market. Due to the Company's experience with power conversion technology, Cherry
has recently begun manufacturing semiconductor devices for use in cellular
telephones.
PERCENTAGE OF PRODUCT SEGMENT SALES BY MARKET. The following table sets
forth the Company's percentage of market sales from each product segment for
each of the last three years:
<TABLE>
<CAPTION>
MARKETS SERVED
------------------------------------------------------------
CONSUMER
AUTOMOTIVE COMPUTER AND COMMERCIAL
------------------ ------------------ ------------------
PRODUCT SEGMENTS 1992 1993 1994 1992 1993 1994 1992 1993 1994
- ---------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Electromechanical Devices............... 59% 58% 54% 5% 5% 5% 81% 80% 80%
Electronic Assemblies and Displays...... 5% 7% 10% 87% 86% 83% 11% 13% 11%
Semiconductor Devices................... 36% 35% 36% 8% 9% 12% 8% 7% 9%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total................................. 100% 100% 100% 100% 100% 100% 100% 100% 100%
---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
STRATEGY
The Company believes that its success in increasing sales and profitability
has resulted from its multifaceted business strategy which includes the
following key elements:
NEW PRODUCT DEVELOPMENT. Cherry's new product development program is
focused on capitalizing on the Company's leading presence and long-standing
reputation in the automotive, computer, and consumer and commercial markets. The
Company believes that its new product development program has significantly
enhanced sales and profitability and has been successful primarily because of
the Company's ability to: (i) apply its state-of-the-art design and
manufacturing capabilities to produce new products at a low cost, (ii) customize
its existing products to meet the specialized requirements of its customers, and
(iii) combine its expertise in designing and manufacturing electromechanical
devices, semiconductors, and electronic assemblies and displays to develop new
products which incorporate elements from all three of these product categories.
LOW COST PRODUCTION FACILITIES. The Company strives to operate its
manufacturing and assembly facilities as efficiently as possible by: (i)
continuing to invest in its capital expenditure program to maintain and improve
its facilities, (ii) custom designing and building proprietary automated
assembly equipment, (iii) developing new and more efficient production
technologies, and (iv) where appropriate, utilizing production facilities in low
cost labor countries. As part of its efforts, the Company has invested $52.3
million in capital expenditures during the last three years, the majority of
which was used to improve manufacturing operations. As a result, the Company has
improved its gross margins from 26.5% to 29.1% from 1992 to 1994 even though it
maintained or decreased the average selling prices of a majority of its products
during this same time period.
DEDICATION TO CUSTOMER SERVICE. The Company benefits from a strong
reputation for providing quality products and responsive service to its
customers. The Company works closely with customers to customize its products to
meet their changing product requirements. In recognition of its quality products
and value added service, Cherry has received numerous awards from its customers
in the United States and Western Europe. For the last two years, the Company was
named Supplier of the Year by General Motors for its switch products.
EXPANSION INTO NEW GEOGRAPHIC MARKETS. The Company believes that its
continued geographic expansion will add to its revenue and earnings growth. The
Company's strategy is to capitalize on increasing demand for end use products,
such as home appliances, computers, automobiles and office equipment, that
20
<PAGE>
require switches, electronic assemblies and semiconductors in markets outside
the United States and Western Europe. As part of this expansion, since 1992, the
Company has opened new manufacturing and sales operations in Australia and the
Czech Republic and in Japan and India through its joint ventures.
FOREIGN OPERATIONS AND SALES
The Company's international operations and sales are an important part of
the Company's business and its future growth. The Company's sales to customers
outside the United States represented approximately 43% of the total net sales
and approximately 26% of the earnings of the Company in 1994.
Sales to the computer market, primarily sales of keyboards and keyboard
switches, represented approximately 62% of the Company's sales to international
customers in 1994. Sales to the automotive market and the consumer and
commercial market represented approximately 15% and 23%, respectively, of the
Company's sales outside of the United States in 1994. Cherry believes it can
increase its international sales by increasing its presence in the automotive
and consumer and commercial markets of Eastern Europe, Japan, India and
Australia.
The Company currently has sales or manufacturing operations in nine
countries and manufactures through contract assembly agreements in five other
countries. Cherry's international operations are conducted primarily through
wholly owned subsidiaries in Western Europe and through sales offices in Hong
Kong, Japan and Australia. The Company recently has established a manufacturing
facility in the Czech Republic and has entered into a sales and manufacturing
joint venture in India. The Company has also increased its sales effort in
Mexico, Eastern Europe and Central and South America.
COMPETITION
The Company does business in highly competitive markets. The Company
believes that it is the second or third largest manufacturer of snap-action
switches and automotive special use switches. In addition, the Company believes
it has a significant market position in the other two markets it serves.
Competitors include a large number of independent domestic and foreign
suppliers. Certain competitors in each of the Company's markets have
substantially greater manufacturing, sales, research and financial resources
than the Company. The Company believes that the principal competitive factors in
its markets are price, product quality and reliability, and the ability to meet
customer delivery requirements and to custom design products to customer
specifications.
CUSTOMERS AND DISTRIBUTION
Virtually all of the Company's sales are made to OEMs and independent
distributors. No single customer accounted for more than 10% of the Company's
net sales for 1994. In 1994, the Company's five largest customers accounted for
approximately 30% of 1994 sales.
The Company's semiconductor devices segment has two major customers which
collectively accounted for 33% of the segment's total sales in 1994. The four
major customers of the Company's electromechanical devices segment accounted for
30% of the segment's sales in 1994. The Company's electronic assemblies and
displays segment had three major customers which together accounted for 27% of
the segment's sales in 1994.
The Company's domestic sales are handled through independent sales
representatives and distributors or by the Company's sales representatives. All
domestic sales are supported by Company customer service personnel. The
independent sales representatives also sell products for other companies,
although generally not products which compete with Cherry products.
Throughout Europe and the Far East, the Company's products are sold by sales
representatives and through independent distributors. The Company's German
subsidiary supervises sales to the European market. In Japan, sales are directed
by the Company's joint venture, Hirose Cherry Precision Co., Ltd., and occur
through distributors. In India, sales will be directed by Cherry's new joint
venture, TVS Cherry Pvt. Ltd. The Company's products are sold throughout the Far
East (excluding Japan) by Cherasia Limited, which is located in Hong Kong. In
Australia, Cherry products are sold through Cherry Australia Pty. Ltd. The
Company's automotive sales and engineering center in Japan coordinates selling
activities to Japanese automotive manufacturers.
Current backlog figures of the Company are considered to be firm; however,
the Company does not manufacture pursuant to long-term contracts, and therefore
purchase orders are generally cancellable,
21
<PAGE>
subject to payment by the customer for charges incurred up to the date of
cancellation. Total backlog at the end of 1994 was $81.7 million as compared to
$71.1 million at the end of 1993. These backlog amounts should not be considered
indicative of sales for the periods indicated.
PATENTS
The Company has numerous United States and foreign patents and patent
applications. As the Company develops products, it normally seeks patent
protection. Although patents are important to the Company, the Company is not
dependent on any single patent or group of related patents. The Company also
owns various trademarks, trade names and proprietary information, some of which
are considered material assets.
PRODUCT DEVELOPMENT
During 1994, the Company spent approximately $10.4 million on product
development. The Company spent approximately $9.1 million and $8.1 million on
product development in 1993 and 1992, respectively. The percentage of
development expenses reimbursed by customers was not significant in any of the
periods discussed.
EMPLOYEES
As of February 28, 1994, the Company employed approximately 3,300 persons.
The Company is not a party to any collective bargaining agreements and the
Company considers its employee relations to be good.
ENVIRONMENTAL PROTECTION
The Company believes that its manufacturing operations and properties are in
material compliance with existing federal, state and local provisions enacted or
adopted to regulate the discharge of materials into the environment, or
otherwise protect the environment. Such compliance has been achieved without
material effect on Cherry's earnings or competitive position.
RAW MATERIALS AND ENERGY
In general, raw materials used by the Company are available from several
sources. The Company has not experienced significant shortages of raw materials
and, to date, sales have not been adversely affected by either materials or
energy shortages.
FACILITIES
The following table sets forth a summary of the principal land and buildings
owned or leased by the Company and the location and square footage of building
area.
<TABLE>
<CAPTION>
BUILDING
SITE
LOCATION SQUARE FEET LEASED OR OWNED
- ------------------------------------------------------------- ------------ ------------------------------------
<S> <C> <C>
Waukegan, Illinois 345,000 Owned
East Greenwich, Rhode Island 101,000 Owned
El Paso, Texas 62,000 Capital lease, (payable through
December 1995)
Bayreuth, Federal Republic of Germany 18,000 Owned
13,000 Leased (expires December 1997)
Auerbach, Federal Republic of Germany 352,000 Owned
5,000 Leased (expires December 2000)
Ostrov, Czech Republic 20,000 Leased (expires December 1995)
Paris, France 13,600 Leased (expires February 1996)
Harpenden, England 28,000 Owned
North Point, Hong Kong 5,000 Leased (expires April 1996)
</TABLE>
The Company's properties in Illinois, Germany, England and Rhode Island are
used for a combination of administration, production and warehousing activities.
Cherry's properties in France and Hong Kong are used for sales and warehousing
activities. The Company's property in the Czech Republic is used for assembly
operations. The Company is currently expanding its East Greenwich, Rhode Island
facility. The Company's property in El Paso, Texas is an idle building that the
Company is seeking to sell or lease.
22
<PAGE>
MANAGEMENT
The directors and executive officers of Cherry, their ages and positions
with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- -------------------------------------------------- --- ----------------------------------------
<S> <C> <C>
Peter B. Cherry................................... 47 Chairman of the Board and President
(chief executive officer) of Cherry
Walter L. Cherry.................................. 77 Director and a Development Engineer of
Cherry
Alfred S. Budnick................................. 56 Vice President and Director of Cherry
and President of Cherry Semiconductor
Corporation
Grant T. Hollett, Jr.............................. 51 Vice President of Cherry and President
of Cherry Electrical Products Division
Klaus D. Lauterbach............................... 51 Vice President of Cherry and General
Manager of Cherry Mikroschalter GmbH
Dan A. King....................................... 44 Treasurer, Secretary and Corporate
Controller of Cherry
Thomas L. Martin (1)(2)........................... 72 Director
Robert B. McDermott (1)(2)........................ 66 Director
Peter A. Guglielmi (1)(2)......................... 51 Director
Charles W. Denny (1).............................. 57 Director
<FN>
- ------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
</TABLE>
Walter L. Cherry and Peter B. Cherry are father and son. There are no other
family relationships among the directors and executive officers.
Peter B. Cherry has served as Chairman of the Board of Cherry since 1992, as
President of Cherry since 1982 and as chief executive officer of Cherry since
1986. Prior to 1986, Mr. Peter Cherry held the position of chief operating
officer of Cherry. Mr. Peter Cherry has been a director of Cherry since 1977.
Walter L. Cherry founded Cherry in 1953. Mr. Walter Cherry served as
Chairman of the Board of Directors and as Chief Executive Officer of Cherry from
its incorporation until 1992 and 1986, respectively. Mr. Walter Cherry currently
serves as a development engineer and as a director of Cherry.
Alfred S. Budnick has served as Vice President of Cherry and as President of
Cherry Semiconductor Corporation since 1977. Mr. Budnick has been a director of
Cherry since 1977.
Grant T. Hollett, Jr. has served as Vice President of Cherry since 1992 and
as President of Cherry Electrical Products Division since 1990. Prior to 1990,
Mr. Hollett served as Executive Vice President of Cherry Electrical Products
Division.
Klaus D. Lauterbach has served as Vice President of Cherry since 1992 and as
General Manager of Cherry Mikroschalter GmbH since 1990. Prior to 1990, Mr.
Lauterbach served as Deputy General Manager and Director of Sales and Marketing
of Cherry Mikroschalter GmbH.
Dan A. King has served as Treasurer and Corporate Controller of Cherry since
1990 and as Secretary of Cherry since 1993. Prior to 1990, Mr. King served as
Corporate Controller of Cherry.
Thomas L. Martin holds the position of President Emeritus of the Illinois
Institute of Technology. Mr. Martin was a director of Kemper Family of Funds
until December 1993. Mr. Martin has been a director of Cherry since 1979.
Robert B. McDermott is a director of Maynard Oil Company and of counsel at
the law firm McDermott, Will & Emery. Mr. McDermott has been a director of
Cherry since 1982.
Peter A. Guglielmi has served as a director of Tellabs, Inc. and as
President of Tellabs International, Inc., a voice and data communications
equipment manufacturer, since 1993. Mr. Guglielmi has served as Chief Financial
Officer of Tellabs, Inc. since 1988. Mr. Guglielmi has been a director of Cherry
since 1993.
Charles W. Denny has served as President and Chief Executive Officer of
Schneider North America and as President and Chief Operating Officer of Square D
Company, an electrical distribution and industrial control products
manufacturer, since 1992. Prior to 1992, Mr Denny served as Executive Vice
President of Square D Company. Mr. Denny serves as a director of Woodhead
Industries, Inc. Mr. Denny has been a director of Cherry since 1993.
23
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of May 31, 1994 as
adjusted to reflect the Reclassification and the completion of the Offering,
with respect to (i) the beneficial owners of five percent or more of each class
of Common Stock and (ii) the beneficial holdings of each class of Common Stock
held by all executive officers and directors as a group:
<TABLE>
<CAPTION>
PRIOR TO THE OFFERING AFTER THE OFFERING
--------------------- ---------------------
NUMBER OF NUMBER OF
TITLE OF SHARES PERCENT SHARES PERCENT
CLASS OF BENEFICIALLY OF BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNERS COMMON STOCK OWNED CLASS OWNED CLASS
- -------------------------------------------------- ------------ ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Walter L. Cherry and
Virginia B. (Mrs. Walter L.) Cherry (1)(2)(4)... Class A 1,626,915 34.9% 1,626,915 22.7%
Class B 1,626,915 34.9% 1,626,915 34.9%
Peter B. Cherry (2)(3)(4)......................... Class A 1,398,702 30.0% 1,398,702 19.5%
Class B 1,398,702 30.0% 1,398,702 30.0%
FMR Company
82 Devonshire Street, Boston, MA 02109.......... Class A 639,600 13.7% 639,600 8.9%
Class B 639,600 13.7% 639,600 13.7%
All Executive Officers and Directors as a
Group (10 persons) (4).......................... Class A 2,834,750 60.5% 2,834,750 39.6%
Class B 2,834,750 60.5% 2,834,750 60.5%
<FN>
- ------------------------
(1) Mr. and Mrs. Cherry disclaim ownership of the shares held in each other's
name.
(2) The table includes 255,727 shares of each class of Common Stock held by the
Catherine C. Moore Trust for the benefit of Catherine C. Moore, of which
Virginia B. Cherry and Peter B. Cherry (her son) are trustees with the
power to vote the Common Stock and to make dispositions. Virginia and Peter
Cherry disclaim beneficial ownership.
(3) The table includes 47,911 shares of each class of Common Stock held by Mr.
Cherry's wife as trustee for their children, as to which shares Mr. Cherry
disclaims beneficial ownership. The table includes 22,500 shares of each
class of Common Stock held by Act & Co., the nominee of Harris Trust and
Savings Bank, in an irrevocable trust for the benefit of the children of
Mr. and Mrs. Walter L. Cherry. The children have the power to vote and
dispose of such stock. The table also includes 712,000 shares of each class
of Common Stock held by trusts for the benefit of Walter L. Cherry and
Virginia B. Cherry, of which Peter B. Cherry (their son) is trustee with
the power to vote the Common Stock and to make dispositions.
(4) The total number of shares of each class of Common Stock of the Company for
officers and directors includes shares held under options exercisable
within 60 days as follows: Walter L. Cherry, 2,000; Peter B. Cherry, 2,000;
Alfred S. Budnick, 8,666; Grant T. Hollett, Jr., 4,334; Dan A. King, 3,001
and Klaus D. Lauterbach, 1,317.
</TABLE>
As of May 31, 1994, members of the Cherry Family owned approximately 2.8
million shares of each class of Common Stock as adjusted to give effect to the
Reclassification, or approximately 60% of the Common Stock outstanding prior to
the Offering. Upon completion of the Offering, the Cherry Family will still have
sole or shared voting power with respect to approximately 60% of the Class B
Common Stock, and consequently will continue to effectively control the election
of the Company's Board of Directors and any other vote of the holders of the
Class B Common Stock that does not require supermajority approval. Members of
the Cherry Family will be able to sell shares of Class A Common Stock in the
future without adversely affecting their voting percentage. See "Investment
Considerations" and "Description of Capital Stock." The term "Cherry Family" as
used in this Prospectus shall mean Walter L. Cherry, Virginia B. Cherry and
Peter B. Cherry and related trusts.
24
<PAGE>
The Company and its directors, certain officers, and the Cherry Family have
agreed, subject to certain exceptions, that for a period of 180 days from the
date of this Prospectus, they will not offer, sell, contract to sell, grant any
option to purchase or otherwise transfer or dispose of shares of any equity
security of the Company or securities convertible into or evidencing the right
to acquire such equity security, without the prior written consent of the
Representatives (as defined below) of the Underwriters (as defined below). See
"Underwriting."
DESCRIPTION OF CAPITAL STOCK
The following summary description is subject to the detailed provisions of
the Company's Restated Certificate of Incorporation and Amended and Restated
By-laws and does not purport to be complete and is qualified in its entirety by
reference thereto.
The authorized capital stock of the Company consists of 20,000,000 shares of
Class A Common Stock, par value $1.00 per share, and 10,000,000 shares of Class
B Common Stock, par value $1.00 per share. See "Capitalization" for information
on the number of shares of Common Stock outstanding prior to and after the
completion of the Offering.
VOTING
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.
Under the Company's Restated Certificate of Incorporation and the Delaware
General Corporation Law, only the affirmative vote of the holders of a majority
of the outstanding shares of Class B Common Stock entitled to vote is required
to amend the Restated Certificate of Incorporation (except as described in the
following paragraph) or to authorize additional shares of either Class A Common
Stock or Class B Common Stock; and the affirmative vote of the holders of
two-thirds of the Class B Common Stock is required to approve any merger or
consolidation of the Company with or into any other corporation or a sale of
substantially all its assets or to approve the dissolution of the Company. The
holders of Class B Common Stock elect the entire Board of Directors. In
addition, as permitted under the Delaware General Corporation Law, the Restated
Certificate of Incorporation provides that the number of authorized shares of
the Common Stock of either class may be increased or decreased, but not below
the number of shares then outstanding, by the affirmative vote of the holders of
a majority of the Class B Common Stock.
Under the Restated Certificate of Incorporation and the Delaware General
Corporation Law, holders of Class A Common Stock are entitled to vote as a class
on proposals to change the par value of the Class A Common Stock or to alter or
change the powers, preferences or special rights of the shares of Class A Common
Stock, including the Class A Protection provision described below, so as to
affect the holders adversely.
DIVIDENDS AND OTHER DISTRIBUTIONS
The holders of Common Stock are entitled to receive dividends when, if and
as declared by the Board of Directors of the Company out of funds legally
available therefor. Each share of Class A Common Stock and Class B Common Stock
is equal with respect to dividends and other distributions in cash, stock or
property (including distributions in connection with any reclassification and
upon liquidation, dissolution or winding up of the Company), 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
25
<PAGE>
the holders of Class A Common Stock, or (c) in any other authorized 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. Although the Board of Directors has the authority to pay dividends and
make distributions on the Class A Common Stock in amounts greater than on the
Class B Common Stock, the Board presently intends that if any dividends are
paid, both classes will be paid on an equal per share basis.
MERGERS AND CONSOLIDATIONS
Each holder of Class A Common Stock is entitled to receive the same per
share consideration as the per share consideration, if any, received by any
holder of the Class B Common Stock in a merger or consolidation of the Company.
CLASS A PROTECTION
The Class A Protection provision 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. Anyone who acquires more than 10% of the outstanding shares of
Class B Common Stock after July 12, 1994 ("Effective Date") will not be allowed
to vote those shares of Class B Common Stock acquired in excess of the 10% level
unless such person purchases, at an Equitable Price (as defined below), a
percentage of the outstanding shares of Class A Common Stock which is at least
equal to the percentage of the shares of outstanding Class B Common Stock that
the person acquired above the 10% threshold. For example, if a person acquires
15% of the outstanding shares of Class B Common Stock after the Effective Date
but acquires no shares of Class A Common Stock, then that person would be unable
to vote the 5% of the outstanding shares of Class B Common Stock acquired
because such shares are in excess of the 10% threshold. The inability of the
person to vote the excess shares of Class B Common Stock will continue until
such time as a sufficient number of shares of Class A Common Stock have been
acquired by the person at an Equitable Price so that the requirements of the
Class A Protection provision have been satisfied.
An Equitable Price ("Equitable Price") shall be deemed to be paid for the
shares of Class A Common Stock only when they have been acquired at a price at
least equal to the greater of (i) the highest per share price paid by the
acquiring person, in cash or in non-cash consideration, for any shares of Class
B Common Stock acquired within the 60-day periods preceding and following the
acquisition of the shares of Class A Common Stock or (ii) the highest closing
market sale price of a share of Class B Common Stock during the 30-day period
preceding the acquisition of the shares of Class A Common Stock. The value of
any non-cash consideration will be determined by the Board of Directors of the
Company acting in good faith. The highest closing market sale price of a share
of Class B Common Stock will be the highest closing sale price quoted on the
Nasdaq National Market or such securities exchange then constituting the
principal trading market for either class of the Common Stock. In the event that
no quotations are available, the highest closing market sale price will be the
fair market value of a share of Class B Common Stock during the 30-day period as
determined by the Board of Directors of the Company acting in good faith.
Under the Class A Protection provision, an acquisition of shares of Class B
Common Stock is deemed to include any shares that a person acquires for valuable
consideration, directly or indirectly, in one transaction or a series of
transactions, or with respect to which that person acts or agrees to act in
concert with any other person. Unless there are affirmative attributes of
concerted action, however, "acting or agreeing to act in concert with any other
person" will not include actions taken or agreed to be taken by persons acting
in their official capacities as directors or officers of the Company or actions
by persons merely because they are related by blood or marriage. Also, an
acquisition of shares of Class B Common Stock will not be deemed to include
acquisitions by bequest or inheritance, by operation of law upon the death of
any individual, or by any other transfer without valuable consideration,
including a gift that is made in good faith and not for purposes of
circumventing the Class A Protection provision.
The Class A Protection provision does not apply to any increase in a
holder's percentage ownership of Class B Common Stock resulting solely from a
change in the total number of shares of Class B Common Stock outstanding as the
result of a repurchase of shares of Class B Common Stock by the Company since
the
26
<PAGE>
last date on which that holder acquired shares of Class B Common Stock.
Furthermore, the provision does not prevent the voting of shares of Class B
Common Stock which could otherwise be voted merely because the owner disposes of
Class A Common Stock. The Class A Protection provision also provides that to the
extent that the voting power of any Class B Common Stock cannot be exercised
pursuant to the Class A Protection provision, that Class B Common Stock will not
be included in the determination of the voting power of the Company for any
purposes under the Restated Certificate of Incorporation or under the Delaware
General Corporation Law.
LIMITED CONVERTIBILITY
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 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 immediately upon the occurrence of such event. For
purposes of the immediately preceding sentence, any shares of Class A Common
Stock or Class B Common Stock repurchased by the Company shall no longer be
deemed "outstanding" from and after the date of repurchase.
PREEMPTIVE RIGHTS
The Common Stock does 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.
TRANSFERABILITY; TRADING MARKET
Both classes of Common Stock are freely transferable and are quoted on the
Nasdaq National Market.
TRANSFER AGENT AND REGISTRAR
The transfer agent and the registrar of the Company's Common Stock is Harris
Trust and Savings Bank.
27
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
for whom Donaldson, Lufkin & Jenrette Securities Corporation and Cleary Gull
Reiland & McDevitt Inc. are acting as representatives (the "Representatives"),
have severally agreed to purchase an aggregate of 2,500,000 shares of Class A
Common Stock. The number of shares of Class A Common Stock that each Underwriter
has agreed to purchase is set forth opposite its name below:
<TABLE>
<S> <C>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
Donaldson, Lufkin & Jenrette Securities Corporation..............................
Cleary Gull Reiland & McDevitt Inc...............................................
----------
Total.................................................................... 2,500,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to certain conditions and that the Underwriters must purchase all of the
Class A Common Stock (other than the shares covered by the over-allotment option
described below) if any are purchased.
The Representatives have advised the Company that the Underwriters propose
to offer the Class A Common Stock to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per share of Class A Common
Stock. The Underwriters may allow, and such dealers may reallow, a discount of,
not in excess of $ per share, on sales to other dealers. After the Offering,
the Price to the Public, concessions and discounts to dealers may be changed by
the Representatives.
The Company has granted to the Underwriters an option, exercisable at any
time within 30 days after the date of this Prospectus, to purchase from the
Company up to 375,000 additional shares of Class A Common Stock at the public
offering price less Underwriting Discounts and Commissions. The Underwriters may
exercise the option solely for the purpose of covering over-allotments, if any,
made in connection with the sale of the Class A Common Stock offered hereby. To
the extent that the Underwriters exercise such option, each Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of Class A Common Stock proportionate to such Underwriter's initial
commitment.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), and to contribute to payments the Underwriters may be
requested to make in respect of those liabilities where indemnification is
unavailable.
The Company and its directors, certain officers, and the Cherry Family have
agreed that for a period of 180 days from the date of this Prospectus, they will
not offer, sell, contract to sell, grant any option to purchase or otherwise
transfer or dispose of shares of any equity security of the Company or
securities convertible into or evidencing the right to acquire such equity
security, without the prior written consent of the Representatives, except for
the granting of stock options and the issuance of shares pursuant to employee
stock option and stock purchase plans and bona fide gifts of shares by
directors, officers or members of the Cherry Family to family members or to
charities.
Pursuant to regulations promulgated by the Commission, market makers in the
Class A Common Stock who are Underwriters, prospective underwriters or members
of the selling group ("passive market makers") may, subject to certain
limitations, make bids for or purchases of Class A Common Stock and/or Class B
Common Stock until the earlier of the time of commencement (the "Commencement
Date") of the Offering or the time at which a stabilizing bid for such shares is
made. In general, on and after the date two days prior
28
<PAGE>
to the Commencement Date (i) such market maker's net daily purchases of Class A
Common Stock may not exceed 30% of the average daily trading volume (the "ADTV")
in such stock for the two full consecutive calendar months immediately preceding
the filing date of the Registration Statement of which this Prospectus forms a
part; (2) such market maker may not effect transactions in or display bids for,
the Class A Common Stock at a price that exceeds the highest bid for the Class A
Common Stock by persons who are not passive market makers; and (3) bids made by
passive market makers must be identified as such. The ADTV for the Class A
Common Stock and Class B Common Stock was approximately and
shares respectively.
The Class A Common Stock is quoted on the Nasdaq National Market under the
symbol "CHERA."
LEGAL MATTERS
The validity of the issuance of the Class A Common Stock offered hereby and
certain other legal matters will be passed upon for the Company by McDermott,
Will & Emery, Chicago, Illinois. Certain legal matters related to this Offering
will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher &
Flom, Chicago, Illinois. Robert B. McDermott, a director of the Company and of
counsel at McDermott, Will & Emery, owns 17,000 shares of Class A Common Stock
and 17,000 shares of Class B Common Stock.
EXPERTS
The consolidated financial statements and schedules of the Company, included
in this Prospectus and elsewhere in the Registration Statement, to the extent
and for the periods indicated in their reports, have been audited by Arthur
Andersen & Co., independent public accountants, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to said reports, which include an explanatory paragraph with
respect to the change in the method of accounting for income taxes effective
March 1, 1993 as discussed in Note B to the Notes to Consolidated Financial
Statements.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (the "Registration
Statement," which term shall encompass all amendments, exhibits, annexes and
schedules thereto), pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the shares being offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, and to which reference is hereby
made. Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission under the Exchange Act. The Registration Statement, as well as
such reports, proxy statements and other information filed by the Company with
the Commission, may be inspected at the public reference facilities maintained
by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and should also be available for inspection and copying
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company's Common Stock is quoted on the Nasdaq National Market. The
Company's periodic reports and proxy statements filed under the Exchange Act as
well as other information concerning the Company can be inspected at The Nasdaq
Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
29
<PAGE>
INCORPORATION BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-8955) are incorporated in this Prospectus by reference and hereby made a part
hereof: (i) the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1994, as amended by Form 10-K/A-1 thereto dated June 15, 1994, (ii)
the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1994,
and (iii) the Company's Current Reports on Form 8-K dated May 18, 1994 and July
6, 1994.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by reference (without
exhibits to such documents other than exhibits specifically incorporated by
reference into such documents). Requests should be directed to The Cherry
Corporation, Attention: Dan A. King, Treasurer, Secretary and Corporate
Controller, 3600 Sunset Avenue, Waukegan, Illinois 60087 (telephone: (708)
662-9200).
30
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Statements of Earnings for the years ended the last day of February 1992, 1993 and 1994....... F-3
Consolidated Balance Sheets as of the last day of February 1993 and 1994................................... F-4
Consolidated Statements of Cash Flows for the years ended the last day of February 1992, 1993 and 1994..... F-5
Consolidated Statements of Stockholders' Investment for the years ended the last day of February 1992, 1993
and 1994................................................................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
Condensed Consolidated Statement of Earnings for the three months ended May 31, 1993
and 1994................................................................................................. F-18
Condensed Consolidated Balance Sheets as of February 28, 1994 and May 31, 1994............................. F-19
Condensed Consolidated Statements of Cash Flows for the three months ended May 31, 1993 and 1994........... F-20
Notes to Condensed Consolidated Financial Statements....................................................... F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of The Cherry Corporation:
We have audited the accompanying consolidated balance sheets of The Cherry
Corporation (a Delaware corporation) and subsidiaries as of the last day of
February, 1994 and 1993, and the related consolidated statements of earnings,
cash flows and stockholders' investment for each of the three years ended the
last day of February, 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 financial statements referred to above present fairly,
in all material respects, the financial position of The Cherry Corporation and
subsidiaries as of the last day of February, 1994 and 1993, and the results of
their operations and cash flows for each of the three years ended the last day
of February, 1994, in conformity with generally accepted accounting principles.
As discussed in Note B to the consolidated financial statements, effective
March 1, 1993, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
May 3, 1994
(Except with respect to the matter discussed in
Note J as to which the date is July 12, 1994)
F-2
<PAGE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED LAST DAY OF FEBRUARY
----------------------------------
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
SALES AND COSTS:
Net sales................................................................ $ 228,631 $ 266,231 $ 275,269
Cost of products sold.................................................... 167,981 189,710 195,090
---------- ---------- ----------
Gross margin............................................................. 60,650 76,521 80,179
---------- ---------- ----------
EXPENSES:
Research and engineering................................................. 12,380 14,162 15,230
Distribution............................................................. 19,145 21,664 22,843
Administration........................................................... 22,477 24,014 24,346
---------- ---------- ----------
Operating expenses....................................................... 54,002 59,840 62,419
---------- ---------- ----------
EARNINGS:
Earnings from operations................................................. 6,648 16,681 17,760
Interest expense......................................................... (5,919) (5,383) (3,919)
Other income, net........................................................ 2,226 636 1,342
---------- ---------- ----------
Earnings before income taxes, extraordinary tax credit and cumulative
effect of change in accounting principle............................... 2,955 11,934 15,183
Income tax provision (benefit)--Note B................................... (819) 4,216 5,692
---------- ---------- ----------
Earnings before extraordinary tax credit and cumulative effect of change
in accounting principle................................................ 3,774 7,718 9,491
Extraordinary tax credit--Note B......................................... 891 2,539 --
Cumulative effect of change in method of accounting for income
taxes--Note B.......................................................... -- -- 1,542
---------- ---------- ----------
Net earnings............................................................. $ 4,665 $ 10,257 $ 11,033
---------- ---------- ----------
---------- ---------- ----------
EARNINGS PER SHARE--NOTE J:
Before extraordinary tax credit and cumulative effect of change in
accounting principle................................................... $ .41 $ .84 $ 1.02
Extraordinary tax credit................................................. .10 .28 --
Cumulative effect of change in accounting principle...................... -- -- .17
---------- ---------- ----------
Net earnings............................................................. $ .51 $ 1.12 $ 1.19
---------- ---------- ----------
---------- ---------- ----------
AVERAGE SHARES OUTSTANDING--NOTE J......................................... 9,113,490 9,184,228 9,299,848
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
THE CHERRY CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE LAST DAY OF
FEBRUARY
----------------------
1993 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................................................................... $ 1,331 $ 2,697
Receivables, less allowances of $2,339 and $2,330, respectively......................... 42,821 45,016
Inventories--Note D..................................................................... 32,091 34,481
Income taxes, net....................................................................... 1,800 1,154
Prepaid expenses........................................................................ 2,509 931
---------- ----------
Total current assets................................................................ 80,552 84,279
Land, buildings & equipment at cost:
Land.................................................................................... 1,647 1,639
Buildings and improvements.............................................................. 71,603 71,770
Machinery and equipment................................................................. 141,980 154,564
Construction in progress................................................................ 3,498 7,974
---------- ----------
218,728 235,947
Less: accumulated depreciation............................................................ 125,363 138,271
---------- ----------
Total land, buildings & equipment, net.............................................. 93,365 97,676
Other assets:
Investment in affiliate and other, net--Note A.......................................... 9,302 11,593
---------- ----------
Total assets........................................................................ $ 183,219 $ 193,548
---------- ----------
---------- ----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<S> <C> <C>
Current liabilities:
Short-term debt--Note E................................................................. $ 1,479 $ 5,736
Accounts payable........................................................................ 13,644 14,243
Payroll related accruals................................................................ 7,904 8,452
Other accruals.......................................................................... 7,782 11,527
Current maturities of long-term debt--Note E............................................ 5,952 4,926
---------- ----------
Total current liabilities........................................................... 36,761 44,884
Long-term debt--Note E.................................................................. 50,817 42,970
Deferred income taxes, net and deferred credits......................................... 13,627 12,218
Stockholders' investment:
Common stock ($1 par value)
Authorized 10,000,000 shares; issued and outstanding 4,644,452 in 1993 and 4,661,099 in
1994.................................................................................. 4,644 4,661
Additional paid-in capital.............................................................. 9,979 10,200
Retained earnings....................................................................... 62,009 73,042
Cumulative translation adjustments...................................................... 5,382 5,573
---------- ----------
Total stockholders' investment...................................................... 82,014 93,476
---------- ----------
Total liabilities and stockholders' investment............................................ $ 183,219 $ 193,548
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THE
LAST DAY OF FEBRUARY
---------------------------------
1992 1993 1994
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................................. $ 4,665 $ 10,257 $ 11,033
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization.............................................. 16,729 18,023 16,720
Cumulative effective of change in accounting principle..................... -- -- (1,542)
Loss on sale of land, buildings, equipment and intangibles................. 358 198 4
Income from unconsolidated affiliate....................................... (532) (510) (643)
Changes in assets and liabilities:
(Increase) decrease in receivables....................................... 4,167 (9,821) (2,880)
(Increase) in inventories................................................ (671) (1,193) (2,989)
(Decrease) increase in accounts payable.................................. (1,691) 4,532 784
(Increase) decrease in income taxes, net................................. (8,416) 5,687 654
Increase in deferred income taxes........................................ 3,942 654 1,335
(Increase) decrease in other working capital, excluding cash and
short-term borrowings.................................................. (611) (956) 5,871
--------- ---------- ----------
Total adjustments........................................................ 13,275 16,614 17,314
--------- ---------- ----------
Net cash provided by operating activities.................................. 17,940 26,871 28,347
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of land, buildings and equipment.......................... 471 239 28
Expenditures for land, buildings and equipment............................... (9,429) (19,456) (23,390)
Other........................................................................ (415) 656 (445)
--------- ---------- ----------
Net cash used by investing activities...................................... (9,373) (18,561) (23,807)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings................................. (210) (10,537) 4,447
Increase in domestic revolver and uncommitted credit facilities.............. 807 3,149 3,651
Principal payments on long-term debt......................................... (7,819) (10,269) (11,383)
Proceeds from long-term debt................................................. -- 5,485 --
Equity and other transactions................................................ 10 605 238
--------- ---------- ----------
Net cash used by financing activities...................................... (7,212) (11,567) (3,047)
--------- ---------- ----------
Effect of exchange rate changes on cash flows.................................. (94) 42 (127)
--------- ---------- ----------
Net increase (decrease) in cash and equivalents................................ 1,261 (3,215) 1,366
Cash and equivalents, at beginning of year..................................... 3,285 4,546 1,331
--------- ---------- ----------
Cash and equivalents, at end of year........................................... $ 4,546 $ 1,331 $ 2,697
--------- ---------- ----------
--------- ---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount of capitalized).................................... $ 6,027 $ 5,288 $ 4,041
Income taxes (net of refunds).............................................. $ 2,775 $ (4,663) $ 3,703
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
THE CHERRY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THE
LAST DAY OF FEBRUARY
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
COMMON STOCK ($1 PAR VALUE):
Outstanding at beginning of year............................................... $ 4,555 $ 4,567 $ 4,644
Sale of common stock........................................................... 12 77 17
--------- --------- ---------
Outstanding at end of year..................................................... $ 4,567 $ 4,644 $ 4,661
--------- --------- ---------
ADDITIONAL PAID-IN CAPITAL:
Balance of beginning of year................................................... $ 9,399 $ 9,452 $ 9,979
Sale of common stock........................................................... 53 527 221
--------- --------- ---------
Balance at end of year......................................................... $ 9,452 $ 9,979 $ 10,200
--------- --------- ---------
RETAINED EARNINGS:
Balance at beginning of year................................................... $ 47,087 $ 51,752 $ 62,009
Net earnings................................................................... 4,665 10,257 11,033
--------- --------- ---------
Balance at end of year......................................................... $ 51,752 $ 62,009 $ 73,042
--------- --------- ---------
CUMULATIVE TRANSLATION ADJUSTMENTS:
Balance at beginning of year................................................... $ 7,149 $ 5,278 $ 5,382
Translation adjustments during year............................................ (1,871) 104 191
--------- --------- ---------
Balance at end of year......................................................... $ 5,278 $ 5,382 $ 5,573
--------- --------- ---------
TOTAL STOCKHOLDERS' INVESTMENT................................................... $ 71,049 $ 82,014 $ 93,476
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Investments in 50% owned affiliates are
accounted for on the equity method. All significant intercompany accounts and
transactions have been eliminated in consolidation.
INVESTMENT IN AFFILIATES
The investment in a 50% owned affiliate in Japan is accounted for on the
equity method. Retained earnings at February 28, 1994, includes $6,221 which
represents the Company's share of the undistributed earnings of this
unconsolidated affiliate. On February 15, 1994, the Company announced the
formation of a 50-50 joint venture in India. The investment, to be made in
fiscal 1995, will be accounted for on the equity method.
CASH AND EQUIVALENTS
Cash and equivalents consist of cash and highly liquid securities with
original maturities of three months or less. The carrying amount approximates
fair value.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method for approximately 37% and 34% of the
Company's inventories as of the last day of February 1994 and 1993,
respectively. For the remaining inventories, cost is determined by the first-in,
first-out (FIFO) method. Inventory costs include material, labor and
manufacturing overhead.
LAND, BUILDINGS & EQUIPMENT
Land, buildings and equipment are carried at cost or, in the case of
capitalized leases, at the lower of the present value of minimum lease payments
or the fair value of the leased property. For financial reporting purposes,
depreciation expense is provided on a straight-line basis, using estimated
useful lives of 5 to 50 years for buildings and improvements, and 3 to 12 years
for machinery and equipment. Accelerated methods have been used for tax purposes
when appropriate.
Expenditures for maintenance, repairs and renewals of minor items are
charged to expense as incurred. Major renewals and improvements are capitalized.
Upon disposition, the cost and related accumulated depreciation are removed from
the accounts and the resulting gain or loss is reflected in earnings for the
period.
INCOME TAXES
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes." Provision is made
for the income tax effects of all transactions in the consolidated statements of
earnings to the extent required.
The provision for income taxes includes federal, foreign, state and local
income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities.
The undistributed earnings of the United Kingdom subsidiary and Japanese
affiliate will continue to be invested indefinitely. Federal income taxes on
distribution of these earnings, if any, would not be significant.
CURRENCY TRANSLATION
Foreign entity financial statements are translated to U.S. dollars in
accordance with SFAS No. 52 "Foreign Currency Translation." Assets and
liabilities of foreign operations are translated into U.S. dollars
F-7
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
at year-end rates of exchange. Profit and loss items are translated at the
average exchange rates prevailing during the year. Resulting translation
adjustments are reported separately in Stockholders' Investment, net of
interperiod tax allocations.
The Company selectively enters into forward contracts in its management of
foreign currency transaction exposures. Gains or losses on forward contracts
designated to hedge a foreign currency transaction are included in the
measurement of income. At February 28, 1994, the Company had no forward
contracts outstanding.
EARNINGS PER SHARE
Earnings per share is computed based on the average number of shares of
common stock outstanding during each year. Stock options are not dilutive and
therefore were excluded from the computation of earnings per share. See Note J.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentation.
NOTE B: INCOME TAXES
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes," which
requires the use of the liability method of accounting for deferred income
taxes. As of March 1, 1993, the cumulative effect of the change was a deferred
tax benefit of $1,542, or $.17 per share, related primarily to recognition of
the benefit of net operating loss carryforwards. The results presented for 1993
and 1992 are prepared under Accounting Principles Board Opinion No. 11, using
the deferred method.
<TABLE>
<CAPTION>
YEAR ENDED THE
LAST DAY OF FEBRUARY
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Earnings before income taxes, extraordinary tax credit and cumulative effect of
accounting change:
United States..................................................................... $ 2,309 $ 7,613 $ 10,683
Foreign........................................................................... 646 4,321 4,500
</TABLE>
<TABLE>
<CAPTION>
DEFERRED DEFERRED LIABILITY
METHOD METHOD METHOD
--------- ----------- -----------
YEAR ENDED THE
LAST DAY OF FEBRUARY
-----------------------------------
1992 1993 1994
--------- ----------- -----------
<S> <C> <C> <C>
Provisions for income taxes:
Current:
Federal and state.............................................................. $ 298 $ 1,151 $ 3,648
Foreign........................................................................ (5,866) 851 1,219
--------- ----------- -----------
Current provision (benefit).................................................... (5,568) 2,002 4,867
--------- ----------- -----------
Deferred:
Federal and state.............................................................. -- (794) 536
Foreign........................................................................ 3,858 469 289
--------- ----------- -----------
Deferred provision (benefit)................................................... 3,858 (325) 825
--------- ----------- -----------
Utilization of operating loss carryforwards...................................... 891 2,539 --
--------- ----------- -----------
Total income tax provision (benefit)............................................. $ (819) $ 4,216 $ 5,692
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
F-8
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
<TABLE>
<CAPTION>
DEFERRED DEFERRED LIABILITY
METHOD METHOD METHOD
----------- ----------- -----------
YEAR ENDED THE
LAST DAY OF FEBRUARY
-------------------------------------
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Provisions for deferred income taxes:
Tax over book depreciation....................................................... $ 282 $ 149 $ 599
Product line consolidation....................................................... 433 (253) (240)
Reversal of previously recorded benefit on undistributed earnings................ 3,211 -- --
Foreign tax on undistributed earnings............................................ 131 (18) (35)
Inventory reserves............................................................... (87) (157) (147)
Utilization of tax credits....................................................... 269 340 1,051
Intercompany profit in inventory................................................. 332 (110) 109
Reinstatement of deferred taxes.................................................. 6 341 --
Warranty reserves................................................................ (222) (16) (14)
Valuation reserves............................................................... -- -- (301)
Other items, net................................................................. (497) (601) (197)
----------- ----- -----------
Deferred provision (benefit)..................................................... $ 3,858 $ (325) $ 825
----------- ----- -----------
----------- ----- -----------
</TABLE>
Reconciliations of the differences between income taxes computed at federal
statutory tax rates and the consolidated provisions of income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED THE
LAST DAY OF FEBRUARY
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Income taxes computed at federal statutory tax rates................................ $ 1,005 $ 4,058 $ 5,162
Equity in earnings of unconsolidated affiliate...................................... (181) (173) (217)
Foreign tax differentials........................................................... (187) 296 194
Withholding tax rate reduction coincident with repatriation of foreign earnings..... (1,799) -- --
Current taxation of unremitted foreign earnings, net of foreign tax credit.......... -- (340) (170)
State tax provisions, net of federal benefits....................................... 127 381 663
Other, net.......................................................................... 216 (6) 60
--------- --------- ---------
Consolidated provision (benefit).................................................... $ (819) $ 4,216 $ 5,692
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax provision (benefit) for the years ended the last day of
February 1993 and 1992 represent the charge (benefit) for income taxes that
would have been required had the Company not been able to utilize operating loss
carryforwards. The tax benefits of $2,539 and $891 for 1993 and 1992,
respectively, resulting from utilizing loss carryforwards, are presented as
extraordinary items.
At February 28, 1994, the Company had pre-merger U.S. NOL carryforwards of
$2,142 which expire in 1999 and 2000. The Company also has foreign tax credit
carryforwards of $1,250 which expire in the years 1995 to 1998, and are
available to reduce future taxes.
In fiscal 1993, the Company's German subsidiary declared a stock dividend of
$19,760 which resulted in a tax benefit from refundable taxes of $6,372 from the
German government partially offset by withholding taxes of $1,087. In fiscal
1992, the Company realized a book benefit of $1,976 as a result of the reduction
in the Treaty withholding tax rate. Also in 1992, the Company realized a German
tax benefit of $1,208 from net operating loss carrybacks to 1991.
F-9
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
The net current and noncurrent components of deferred income taxes
recognized in the balance sheet at February 28, 1994 follows:
<TABLE>
<CAPTION>
1994
---------
<S> <C>
Net noncurrent liabilities..................................................... $ 12,591
Net current assets............................................................. 5,477
---------
Net liability.................................................................. $ 7,114
---------
---------
</TABLE>
The amounts above include a valuation allowance of $2,253 relating primarily
to noncurrent tax assets for net operating loss and foreign tax credit
carryforwards due to the uncertainty of realizing the benefit of the
carryforwards. The net change in the valuation allowance for deferred tax assets
was a decrease of $324 which relates primarily to benefits arising from the use
of foreign tax credit carryforwards.
The tax effects of the significant temporary differences which comprise the
deferred tax liabilities and assets at February 28, 1994, follows:
<TABLE>
<CAPTION>
1994
---------
<S> <C>
Liabilities:
Depreciation................................................................. $ 7,272
Foreign currency translation................................................. 2,942
Other........................................................................ 2,377
---------
Gross deferred tax liabilities............................................... 12,591
---------
Assets:
Reserves..................................................................... 1,936
Undistributed earnings of foreign subsidiaries............................... 1,349
Nondeductible accruals....................................................... 785
Pre-merger U.S. NOL carryforward............................................. 728
Foreign tax credit carryforward.............................................. 1,250
Other........................................................................ 1,682
Valuation allowance for deferred tax assets.................................. (2,253)
---------
Net deferred tax assets...................................................... 5,477
---------
Net deferred tax liability................................................... $ 7,114
---------
---------
</TABLE>
F-10
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
NOTE C: SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED THE
LAST DAY OF FEBRUARY
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Costs and expenses
Depreciation and amortization.................................................. $ 16,729 $ 18,023 $ 16,720
Research and development....................................................... 8,083 9,102 10,424
Advertising.................................................................... 2,537 2,966 3,075
Maintenance and repairs........................................................ 2,422 2,791 2,937
Rentals........................................................................ 3,400 2,087 1,782
Taxes other than payroll and income taxes...................................... 949 902 834
- ------------------------------------------------------------------------------------------------------------------
Other income (expense)
Earnings of affiliate.......................................................... $ 532 $ 510 $ 643
Interest income and net royalties.............................................. 164 160 99
Foreign exchange............................................................... 243 (457) 46
Other, net..................................................................... 1,287 423 554
--------- --------- ---------
Total other income, net...................................................... $ 2,226 $ 636 $ 1,342
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE D: INVENTORIES
<TABLE>
<CAPTION>
THE LAST
DAY OF FEBRUARY
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Inventories
Raw materials............................................................................. $ 3,036 $ 3,270
Component parts........................................................................... 7,251 7,627
Work-in-process........................................................................... 10,570 12,114
Finished goods............................................................................ 11,234 11,470
--------- ---------
Total inventories........................................................................... $ 32,091 $ 34,481
--------- ---------
--------- ---------
Excess of replacement cost over the stated value of LIFO inventories...................... $ 4,568 $ 4,270
</TABLE>
NOTE E: DEBT
<TABLE>
<CAPTION>
THE LAST
DAY OF FEBRUARY
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Short-term debt:
(With foreign banks)
Bank loans outstanding.................................................................. $ 1,479 $ 5,736
Weighted average interest rate.......................................................... 11% 6.6%
During the Year
Maximum month-end borrowings............................................................ $ 11,847 $ 6,566
Average month-end borrowings............................................................ 7,445 4,546
Weighted average interest rate.......................................................... 11.2% 7.6%
</TABLE>
F-11
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
<TABLE>
<CAPTION>
THE LAST DAY OF
FEBRUARY
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Long-term debt:
Foreign obligations:
Construction, mortgage and equipment loans (at 4% to 9.05%, secured by real estate in the
amount of $30,262 in the Federal Republic of Germany) due in periodic installments
through 2012............................................................................ $ 28,895 $ 22,403
Capital lease obligations payable in installments through fiscal 1997 with a weighted
average interest rate of 12%............................................................ 3,772 2,641
Domestic obligations:
Notes payable (at an interest rate of 10%) secured by domestic accounts receivable,
inventory, equipment and real estate (paid off on March 16, 1993)....................... 4,500 --
Borrowings under revolving credit agreement with interest at LIBOR plus 1.50% or prime
rate, secured by domestic accounts receivable, inventory, equipment and real estate
(with interest at 5.75% at February 28, 1994)........................................... 18,149 1,800
Borrowings under uncommitted, unsecured credit facilities with interest at LIBOR plus .75%
(weighted average interest of 4.06% at February 28, 1994)............................... -- 20,000
Capital lease obligations payable in installments through 1996 with a weighted average
interest rate of 7.1% at February 28, 1994.............................................. 1,453 1,052
--------- ---------
56,769 47,896
Less current maturities 5,952 4,926
--------- ---------
Long-term debt.............................................................................. $ 50,817 $ 42,970
--------- ---------
--------- ---------
</TABLE>
The following payments, exclusive of capitalized lease payments, are
required during the next five fiscal years: 1995 - $3,694; 1996 - $11,151; 1997
- -$24,387; 1998 - $1,424; 1999 - $1,424.
Terms of the German long-term debt agreements contain certain provisions
restricting payment of dividends to the parent. Included in retained earnings
are $29,022 of undistributed earnings of the German subsidiaries.
Subsequent to year end, the Company amended its domestic credit facility and
increased the borrowing limit from $35 million to $45 million. The facility is
secured by domestic accounts receivable and inventory; however, borrowings are
not dependent upon the level of collateral. The interest rate on this amended
agreement is the prime rate or, depending upon the Company's financial
performance, LIBOR plus .75% to 1.25%. The commitment fee is also dependent upon
the Company's financial performance and ranges from 1/5 of 1% to 3/10 of 1% on
the unused portion. The facility has an initial maturity of March 31, 1997, but
may be extended for an additional year on both the first and second anniversary
dates upon mutual agreement of the Company and the banks.
The covenants for this amended credit facility pertain to consolidated and
domestic net worth levels, consolidated and domestic debt to capital ratios,
domestic cash flow coverage and domestic cash flow to debt levels, among others.
Additionally, this facility limits the Company's domestic borrowings to $45
million. The Company was in compliance with all covenants under all credit
agreements at February 28, 1994.
During the current fiscal year, the Company entered into three uncommitted,
unsecured credit facilities totaling $35 million. These facilities are utilized
when the borrowing rates available under them are below those available under
the committed facility. Borrowings under these facilities, which by their terms
are due within one year, have been classified as long-term. These obligations
are supported by unused commitments under the domestic credit facility, and it
is the Company's intent to maintain them as long-term.
F-12
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
The Company is party to four separate interest rate cap agreements. Under
two agreements, the Company is protected against interest rate increases above
5.5% LIBOR on $15 million of floating rate debt through November 1997. Under the
other agreements, the Company is protected against interest rate increases above
6.0% LIBOR on $10 million of floating rate debt through March 1998. The
aggregate cost of these four agreements was $600.
As of February 28, 1994, the Company had unused lines of credit available
for working capital of approximately $13.2 million for U.S. operations and $19.2
million for foreign operations.
The fair value of the Company's long-term debt, excluding capital leases, at
February 28, 1994, was estimated to be $43.8 million. This estimate is based on
the current rates available to the Company for debt of the same remaining
maturities, using the discounted cash flow method.
NOTE F: LEASES
The Company leases land, automobiles, machinery and equipment under
noncancellable operating leases which expire over the next twenty-six years.
Renewal and escalation clauses are not significant.
During fiscal 1993, the Company's German subsidiary entered into a capital
lease agreement for substantially all of its computer equipment valued at
$5,337.
Land, buildings and equipment include capitalized leases of $7,419 and
$7,662 less accumulated amortization of $3,244 and $2,289 as of the last day of
February 1994 and 1993, respectively.
Future minimum lease payments under capitalized and long-term noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1995.................................................................. $ 1,560 $ 1,448
1996.................................................................. 1,784 1,156
1997.................................................................. 920 500
1998.................................................................. -- 303
1999.................................................................. -- 161
Thereafter............................................................ -- 436
----------- -----------
Total minimum lease payments.......................................... $ 4,264 $ 4,004
-----------
-----------
Less amount representing interest..................................... 571
-----------
Total obligations under capitalized leases............................ $ 3,693
-----------
-----------
</TABLE>
NOTE G: CONTINGENCIES
The Company is named in various suits and claims which arise in the normal
course of business. Where appropriate, the Company engages legal counsel and
disputes these claims. The Company believes that it has meritorious defenses,
and, although the ultimate outcomes cannot be determined at the present time, it
believes the final disposition of these matters will not materially affect the
Company's financial position or results of operations. The Company has no
material off-balance-sheet financial risks.
F-13
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
NOTE H: EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
The Company's existing incentive stock option plan was established in June
1982 by stockholder approval and reserved 225,000 shares for distribution. Under
United States tax law, this plan's capability to grant new incentive stock
options has expired. As a result, this plan may grant only non-qualified stock
options after June 1992. Prior to the expiration of the incentive option
granting capability, 28,700 options were granted at $15.00 in fiscal 1993. As of
February 28, 1994, 65,613 shares are available for grant.
The following table summarizes the transactions pursuant to the Company's
stock option plan for the three-year period ended February 28, 1994:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICES
----------- ------------------
<S> <C> <C>
Options outstanding at February 28, 1991................................. 141,000 $8.25 to $18.25
Granted................................................................ 63,000 7.50
Cancelled.............................................................. (2,000) 8.75
Expired................................................................ (72,575) 12.375
-----------
Options outstanding at February 29, 1992................................. 129,425 7.50 to 18.25
Granted................................................................ 28,700 15.00
Cancelled.............................................................. (3,000) 8.25 to 18.25
Expired................................................................ (4,775) 14.75
Exercised.............................................................. (58,823) 7.50 to 18.25
-----------
Options outstanding at February 28, 1993................................. 91,527 7.50 to 18.25
Cancelled.............................................................. (4,367) 7.50 to 8.75
Expired................................................................ (250) 18.25
Exercised.............................................................. (8,967) 7.50 to 15.00
-----------
Options outstanding at February 28, 1994................................. 77,943 7.50 to 15.00
-----------
-----------
Exercisable at February 28, 1994......................................... 43,978 $7.50 to $15.00
</TABLE>
Share and per share amounts have not been restated to reflect the
Reclassification. See Note J.
EMPLOYEE STOCK PURCHASE PLAN
Full-time domestic employees as of December 1 of the preceding calendar year
are eligible to contribute 10% of their calendar year base pay up to a maximum
of five thousand dollars towards the purchase of the Company's common stock. The
purchase price is equal to the lower of 95% of the beginning or end-of-
calendar-year quoted Nasdaq price. Under the plan, 7,680, 18,718 and 12,027
shares were issued at $19.95, $5.46 and $5.46 per share during fiscal 1994, 1993
and 1992, respectively. At February 28, 1994, 124,630 shares are available for
issuance under the plan. No restatement of the shares reserved under the
employee stock purchase plan is required with respect to the Reclassification.
BONUS, PROFIT SHARING AND RETIREMENT PLANS
The Company and its operating entities have various bonus, profit sharing
and retirement plans. The Company's bonus plans cover qualified management
employees. The payouts of these bonus plans are based on attainment of operating
results and other key performance goals. The established Company profit sharing
plans cover substantially all employees for an operating entity. Domestically,
the profit sharing plan is qualified under Section 401(k) of the Internal
Revenue Code. It allows for employee contributions and employer contributions.
For foreign operations, the profit sharing plans provide for the payment of a
defined percent of wages. Certain key foreign employees are eligible for a
one-time lump sum payment on retirement or involuntary termination, the amounts
of which are accrued over the employee's estimated service. During fiscal 1994,
1993 and 1992, the expenses for these plans were $3,654, $2,717 and $1,712,
respectively.
F-14
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
FUTURE ACCOUNTING CHANGES
Statement of Financial Accounting Standards (SFAS) No. 112 "Employers'
Accounting for Postemployment Benefits," when adopted is not expected to be
material.
NOTE I: SEGMENT INFORMATION
BUSINESS SEGMENT INFORMATION
The Company manufactures and distributes a wide range of industrial
component parts.
Identifiable assets report only the assets used in the operation of that
business segment. All other assets are shown separately as corporate assets.
Corporate assets include cash, other current and noncurrent assets and the
Company's investment in the unconsolidated affiliate.
THE PRINCIPAL SEGMENTS ARE:
ELECTROMECHANICAL DEVICES:
Snap-action, selector and automobile special use switches principally for
use in automobiles, home appliances, office and industrial equipment, and
vending machines.
ELECTRONIC ASSEMBLIES AND DISPLAYS:
Keyboards, keyboard switches, gas discharge displays and automotive
electronics for use in a variety of products, including data entry
terminals, automobiles, industrial and commercial control devices, business
machines and amusement products.
SEMICONDUCTOR DEVICES:
Principally linear integrated circuits for use in automotive, computer and
industrial control equipment.
<TABLE>
<CAPTION>
ELECTRO- ELECTRONIC SEMI-
MECHANICAL ASSEMBLIES CONDUCTOR CORPORATE
FISCAL YEAR DEVICES & DISPLAYS DEVICES AND OTHER CONSOLIDATED
- --------------------------------------------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1994
Net sales...................................... $ 118,057 $ 101,461 $ 55,751 $ 275,269
Earnings from operations....................... 8,550 2,190 7,020 17,760
Identifiable assets............................ 71,527 68,537 36,661 $ 16,823 193,548
Depreciation and amortization.................. 7,065 6,595 2,997 63 16,720
Additions to land, buildings and equipment,
net.......................................... 11,243 5,087 7,026 23,356
1993
Net sales...................................... $ 111,130 $ 110,178 $ 44,923 $ 266,231
Earnings from operations....................... 8,279 2,951 5,451 16,681
Identifiable assets............................ 70,433 69,514 29,474 $ 13,798 183,219
Depreciation and amortization.................. 7,488 7,731 2,741 63 18,023
Additions to land, buildings and equipment,
net.......................................... 7,583 7,545 4,149 (254) 19,023
1992
Net sales...................................... $ 96,108 $ 96,502 $ 36,021 $ 228,631
Earnings (loss) from operations................ 6,971 (3,307) 2,984 6,648
Identifiable assets............................ 61,599 71,825 25,765 $ 22,391 181,580
Depreciation and amortization.................. 6,815 7,071 2,843 16,729
Additions to land, buildings and equipment,
net.......................................... 3,858 3,628 761 8,247
</TABLE>
F-15
<PAGE>
THE CHERRY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
GEOGRAPHIC AREA INFORMATION
Intercompany sales between geographic areas are made at prices approximating
market and are eliminated from total net sales. No single customer accounts for
more than 10% of net sales. The Company's international operations are conducted
principally in Western Europe through wholly owned subsidiaries and in Hong Kong
and Australia through sales offices.
<TABLE>
<CAPTION>
UNITED ELIMINATIONS
FISCAL YEAR STATES INTERNATIONAL & CORPORATE CONSOLIDATED
- --------------------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1994
Net sales............................................ $ 155,647 $ 119,622 $ 275,269
Transfers between areas.............................. 1,714 17,534 $ (19,248)
Total net sales...................................... 157,361 137,156 (19,248) 275,269
Earnings (loss) from operations...................... 15,130 4,571 (1,941) 17,760
Identifiable assets.................................. 84,388 92,337 16,823 193,548
1993
Net sales............................................ $ 131,477 $ 134,754 $ 266,231
Transfers between areas.............................. 1,803 17,215 $ (19,018)
Total net sales...................................... 133,280 151,969 (19,018) 266,231
Earnings (loss) from operations...................... 11,725 6,800 (1,844) 16,681
Identifiable assets.................................. 70,320 99,101 13,798 183,219
1992
Net sales............................................ $ 105,380 $ 123,251 $ 228,631
Transfers between areas.............................. 2,120 13,634 $ (15,754)
Total net sales...................................... 107,500 136,885 (15,754) 228,631
Earnings (loss) from operations...................... 5,581 1,812 (745) 6,648
Identifiable assets.................................. 56,727 102,462 22,391 181,580
</TABLE>
Net assets, including intercompany balances, of foreign subsidiaries and
affiliate at year-end were $56,007 (1994), $54,081 (1993), and $52,479 (1992).
NOTE J: SUBSEQUENT EVENT
On July 12, 1994, the Company filed with the Delaware Secretary of State an
amended and restated Certificate of Incorporation, which (i) increased the
number of authorized shares of common stock of the Company from 10,000,000 to
30,000,000, consisting of 20,000,000 shares of Class A Common Stock and
10,000,000 shares of Class B Common Stock, (ii) reclassified the Prior Common
Stock as Class B Common Stock, (iii) authorized a new class of non-voting stock
designated as Class A Common Stock, and (iv) established the rights, powers and
limitations of the Class A Common Stock and the Class B Common Stock. On June
16, 1994 the Board of Directors authorized a stock dividend of one share of
Class A Common Stock for each share of Prior Common Stock outstanding on July
11, 1994. Earnings per share and average shares outstanding have been restated
to reflect the Stock Dividend. The Stock Dividend had the same effect on the
total number of shares of Common Stock outstanding as a two-for-one stock split.
F-16
<PAGE>
QUARTERLY DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND AS OTHERWISE STATED)
(UNAUDITED)
<TABLE>
<CAPTION>
EARNINGS PER SHARE
--------------------------------
EARNINGS BEFORE BEFORE EXTRAORDINARY
EXTRAORDINARY TAX TAX CREDIT AND CUMU-
CREDIT AND LATIVE EFFECT OF
CUMULATIVE CHANGE
FISCAL NET GROSS EFFECT OF CHANGE IN NET IN ACCOUNTING
YEAR SALES MARGIN ACCOUNTING PRINCIPLE EARNINGS PRINCIPLE NET
- ------------------------- ---------- --------- -------------------- --------- --------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1994..................... $ 275,269 $ 80,179 $ 9,491 $ 11,033 $ 1.02 $ 1.19
---------- --------- ------- --------- ------ ---------
Quarters:
Fourth............... 70,879 22,589 3,738 3,738 .40 .40
Third................ 72,954 21,321 3,057 3,057 .33 .33
Second............... 61,805 16,166 461 461 .05 .05
First................ 69,631 20,103 2,235 3,777 .24 .41
1993..................... $ 266,231 $ 76,521 $ 7,718 $ 10,257 $ .84 $ 1.12
---------- --------- ------- --------- ------ ---------
Quarters:
Fourth............... 66,203 18,403 1,686 2,128 .18 .23
Third................ 69,206 19,523 2,014 2,684 .22 .29
Second............... 63,288 18,523 1,658 2,285 .18 .25
First................ 67,534 20,072 2,360 3,160 .26 .35
</TABLE>
F-17
<PAGE>
THE CHERRY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
--------------------------
1993 1994
------------ ------------
<S> <C> <C>
Net sales............................................................................. $ 69,631 $ 79,647
Cost of products sold................................................................. 49,528 54,744
------------ ------------
Gross margin........................................................................ 20,103 24,903
Engineering, distribution and administrative expenses................................. 15,867 18,077
------------ ------------
Operating income.................................................................... 4,236 6,826
Interest expense...................................................................... (1,031) (875)
Other income, net..................................................................... 310 418
------------ ------------
Earnings before income taxes and cumulative effect of change in accounting
principle........................................................................... 3,515 6,369
Income tax provision.................................................................. 1,280 2,452
------------ ------------
Earnings before cumulative effect of change in accounting principle................... 2,235 3,917
Cumulative effect of change in method of accounting for income taxes-- Note 3......... 1,542 --
------------ ------------
Net earnings.......................................................................... $ 3,777 $ 3,917
------------ ------------
------------ ------------
Earnings per share--Note 4:
Before cumulative effect of change in accounting principle.......................... $ .24 $ .42
Cumulative effect of change in accounting principle................................. .17 --
------------ ------------
Net earnings........................................................................ $ .41 $ .42
------------ ------------
------------ ------------
Average shares outstanding--Note 4.................................................... 9,289,204 9,325,752
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-18
<PAGE>
THE CHERRY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1994 1994
(NOTE 1) (UNAUDITED)
------------ -----------
<S> <C> <C>
ASSETS
Cash and equivalents................................................................... $ 2,697 $ 5,093
Receivables, net of allowances......................................................... 45,016 46,306
Inventories--Note 2.................................................................... 34,481 35,988
Income taxes, net...................................................................... 1,154 1,058
Prepaid expenses....................................................................... 931 1,762
------------ -----------
Total current assets............................................................. 84,279 90,207
Land, buildings and equipment, net..................................................... 97,676 103,318
Investment in affiliates and other, net................................................ 11,593 11,994
------------ -----------
Total assets..................................................................... $ 193,548 $ 205,519
------------ -----------
------------ -----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<S> <C> <C>
Short-term debt........................................................................ $ 5,736 $ 2,899
Accounts payable....................................................................... 14,243 15,292
Payroll related accruals............................................................... 8,452 10,332
Other accruals......................................................................... 11,527 11,774
Current maturities of long-term debt................................................... 4,926 13,761
------------ -----------
Total current liabilities........................................................ 44,884 54,058
Long-term debt......................................................................... 42,970 39,551
Deferred income taxes, net and deferred credits........................................ 12,218 13,317
Stockholders' investment--Note 4:
Common Stock, par value $1.00 per share; 10,000,000 shares authorized; 4,661,099
issued and outstanding............................................................. $ 4,661 $ --
Class A Common Stock, par value $1.00 per share; 20,000,000 shares authorized;
4,665,765 shares issued and outstanding, as adjusted............................... -- 4,666
Class B Common Stock, par value $1.00 per share; 10,000,000 shares authorized;
4,665,765 shares issued and outstanding, as adjusted............................... -- 4,666
Additional paid-in capital........................................................... 10,200 10,242
Retained earnings.................................................................... 73,042 72,293
Cumulative translation adjustment.................................................... 5,573 6,726
------------ -----------
Total stockholders' investment..................................................... $ 93,476 $ 98,593
------------ -----------
Total liabilities and stockholders' investment................................... $ 193,548 $ 205,519
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-19
<PAGE>
THE CHERRY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MAY 31,
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Net cash provided by operating activities.................................................. $ 5,843 $ 8,524
Cash flow from investing activities:
Expenditures for land, building and equipment............................................ (4,063) (8,046)
Other, net............................................................................... (40) (278)
--------- ---------
Net cash used by investing activities...................................................... (4,103) (8,324)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in short-term debt................................................... 1,531 (2,991)
Increase in domestic revolver and uncommitted credit facilities.......................... 1,051 5,200
Principal payments on long-term debt..................................................... (2,113) (823)
Equity and other transactions............................................................ 4 49
--------- ---------
Net cash provided (used) by financing activities........................................... 473 1,435
--------- ---------
Effect of exchange rate changes on cash flows.............................................. 102 761
--------- ---------
Net increase (decrease) in cash and equivalents............................................ 2,315 2,396
Cash and equivalents, at beginning of year................................................. 1,331 2,697
--------- ---------
Cash and equivalents, at end of period..................................................... $ 3,646 $ 5,093
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-20
<PAGE>
THE CHERRY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of May 31, 1994 and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three months ended May 31, 1993 and 1994, have
been prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
May 31, 1994, and for all periods presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the accompanying
annual financial statements and notes. The results of operations for the three
months ended May 31, 1994 are not necessarily indicative of the operating
results for a full year.
2. INVENTORIES
Inventory values were as follows:
<TABLE>
<CAPTION>
FEB. 28, MAY 31,
1994 1994
--------- ---------
<S> <C> <C>
Finished goods................................................ $ 11,470 $ 10,511
Work-in-process............................................... 12,114 13,148
Component parts............................................... 7,627 8,748
Raw materials................................................. 3,270 3,581
--------- ---------
$ 34,481 $ 35,988
--------- ---------
--------- ---------
</TABLE>
3. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES
Effective March 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109") Accounting for Income Taxes. Under
this statement, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are to be recognized
for temporary differences that will result in deductible amounts in future
years, if in the opinion of management, it is more likely than not that the
deferred tax assets will be realized.
The result of adopting SFAS No. 109 was a one time increase to net income of
$1,542 reported as the cumulative effect of a change in accounting principle in
the first quarter of fiscal 1994.
4. SUBSEQUENT EVENT
On July 12, 1994, the Company filed with the Delaware Secretary of State an
amended and restated Certificate of Incorporation, which (i) increased the
number of authorized shares of common stock of the Company from 10,000,000 to
30,000,000, consisting of 20,000,000 shares of Class A Common Stock and
10,000,000 shares of Class B Common Stock, (ii) reclassified the Prior Common
Stock as Class B Common Stock, (iii) authorized a new class of non-voting stock
designated as Class A Common Stock, and (iv) established the rights, powers and
limitations of the Class A Common Stock and the Class B Common Stock. On June
16, 1994 the Board of Directors authorized a stock dividend of one share of
Class A Common Stock for each share of Prior Common Stock outstanding on July
11, 1994. Earnings per share, average shares outstanding and stockholders'
investment (as of May 31, 1994) have been restated to reflect the Stock
Dividend. The Stock Dividend had the same effect on the total number of shares
of Common Stock outstanding as a two-for-one stock split.
F-21
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[GRAPHICS OMITTED; SEE GRAPHICS APPENDIX AT THE END OF THIS DOCUMENT.]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 3
Investment Considerations...................... 7
Reclassification............................... 8
Use of Proceeds................................ 9
Price Range of Common Stock.................... 9
Dividend Policy................................ 10
Capitalization................................. 10
Selected Consolidated Financial Data........... 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 12
Business....................................... 17
Management..................................... 23
Principal Stockholders......................... 24
Description of Capital Stock................... 25
Underwriting................................... 28
Legal Matters.................................. 29
Experts........................................ 29
Available Information.......................... 29
Incorporation by Reference..................... 30
Index to Consolidated Financial Statements..... F-1
</TABLE>
2,500,000 SHARES
[LOGO]
THE CHERRY CORPORATION
CLASS A COMMON STOCK
-------------------
P R O S P E C T U S
-------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CLEARY GULL REILAND &
MCDEVITT INC.
JULY , 1994
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate (except for the SEC Registration
Fee, NASD Filing Fee and the Nasdaq National Market Fee) of all expenses payable
by the Company in connection with the issuance and sale of the securities being
registered:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 15,119
Printing Costs.................................................... 100,000
Engraving Costs................................................... 10,000
Legal Fees and Expenses (not including Blue Sky).................. 140,000
Accounting Fees and Expenses...................................... 75,000
Blue Sky Fees and Expenses........................................ 15,000
NASD Filing Fee................................................... 4,884
Nasdaq National Market Listing Fee................................ 14,375
Transfer Agent and Registrar Fees and Expenses.................... 15,000
Miscellaneous..................................................... 10,622
---------
Total........................................................... $ 400,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation and the
Company's Amended and Restated By-Laws provide for indemnification of the
Company's directors, officers, employees and other agents to the fullest extent
not prohibited by the Delaware law.
Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director or
officer of the corporation, or his service, at the corporation's request, as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action, provided that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct, or (3) by the
stockholders. The General Corporation Law of the State of Delaware also provides
for mandatory indemnification of any director, officer, employee or agent
against Expenses to the extent such person has been successful in any proceeding
covered by the statute. In addition, the General Corporation Law of the State of
Delaware provides the general authorization of advancement of a director's or
officer's litigation expenses in lieu of requiring the authorization of such
advancement by the board of directors in specific cases, and that
indemnification and advancement of expenses provided by the statute shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement or otherwise.
The Company maintains liability insurance for the benefit of its directors
and officers.
II-1
<PAGE>
Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Company, its directors, certain of
its officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") against certain
liabilities.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1 -- Form of Underwriting Agreement.
3(a) -- Form of Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3(a) to
Form 8-K dated July 6, 1994 and incorporated herein by reference).
3(b) -- Amended and Restated By-Laws of the Company, as currently in effect (filed as Exhibit 3(b) to Form
8-K dated July 6, 1994 and incorporated herein by reference).
4(a) -- Second Amended and Restated Credit Agreement dated as of May 9, 1994 among The Cherry Corporation,
Continental Bank N.A., and Harris Trust and Savings Bank, as agent and Lender (filed as Exhibit
4(a) to Form 8-K dated May 18, 1994 and is incorporated herein by reference).
4(b) -- Other instruments defining the right of holders of other long-term debt of the Registrant are not
filed as exhibits because the debt authorized under any such instrument does not exceed 10% of
consolidated total assets as of the last day of February, 1994. Copies of debt instruments for
which the related debt is less than 10% of consolidated total assets will be furnished to the
Commission upon request.
5 -- Opinion of McDermott, Will & Emery, counsel for the Company.
10(a) -- Employee Stock Purchase Plan (filed as Exhibit 10(a) to Form 8-K dated July 6, 1994 and incorporated
herein by reference).
10(b) -- 1982 Stock Option Plan (filed as Exhibit 10(b) to Form 8-K dated July 6, 1994 and incorporated
herein by reference).
10(c) -- Release and final settlement agreement dated May 4, 1992 on agreement for purchase and sale of
assets dated May 31, 1991 (filed as Exhibit 10(c) to 1992 Form 10-K and incorporated herein by
reference).
10(d) -- Executive agreement dated May 26, 1992, between Cherry Semiconductor Corporation and Alfred S.
Budnick (filed as Exhibit 4(d) to Form 10-K for the fiscal year ended the last day of February,
1993 and incorporated herein by reference).
21 -- Table of Subsidiaries of Registrant (filed as Exhibit 21 to Form 10-K for the fiscal year ended the
last day of February, 1994 and incorporated herein by reference).
23(a) -- Consent of McDermott, Will & Emery (contained in Exhibit 5).
23(b) -- Consent of Arthur Andersen & Co., Independent Public Accountants.
24 -- Powers of Attorney (included on signature page).
</TABLE>
ITEM 17. UNDERTAKINGS
1. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
2. The undersigned registrant hereby undertakes that:
II-2
<PAGE>
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Waukegan, State of Illinois, on the 12th day of July,
1994.
THE CHERRY CORPORATION
By: /s/ PETER B. CHERRY
----------------------------------
Peter B. Cherry
CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each of the persons whose signature
appears below hereby authorizes Peter B. Cherry and Dan A. King, or either of
them, to execute in the name of each such person and to file any amendment to
this Registration Statement as the registrant deems appropriate and appoints
such persons and each of them as his attorney-in-fact to sign on his behalf
individually and in each capacity stated below and file all amendments and file
post-effective amendments to this Registration Statement.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
<C> <S> <C>
/s/ PETER B. CHERRY
------------------------------------------- Chairman of the Board, Chief Executive July 12, 1994
Peter B. Cherry Officer, President and Director
/s/ WALTER L. CHERRY
------------------------------------------- Director July 12, 1994
Walter L. Cherry
/s/ ALFRED S. BUDNICK
------------------------------------------- Vice President and Director July 12, 1994
Alfred S. Budnick
/s/ DAN A. KING
------------------------------------------- Treasurer, Secretary and Corporate July 12, 1994
Dan A. King Controller (Chief Financial Officer)
/s/ PETER A. GUGLIELMI
------------------------------------------- Director July 12, 1994
Peter A. Guglielmi
/s/ THOMAS L. MARTIN, JR.
------------------------------------------- Director July 12, 1994
Thomas L. Martin, Jr.
/s/ ROBERT B. MCDERMOTT
------------------------------------------- Director July 12, 1994
Robert B. McDermott
/s/ CHARLES W. DENNY
------------------------------------------- Director July 12, 1994
Charles W. Denny
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------
<S> <C> <C>
* 1 Form of Underwriting Agreement
3(a) Form of Amended and Restated Certificate of Incorporation of the Company (filed as
Exhibit 3(a) to Form 8-K dated July 6, 1994 and incorporated herein by reference)
3(b) Amended and Restated By-Laws of the Company, as currently in effect (filed as Exhibit
3(b) to Form 8-K dated July 6, 1994 and incorporated herein by reference)
4(a) Second Amended and Restated Credit Agreement dated as of May 9, 1994 among The Cherry
Corporation, Continental Bank N.A., and Harris Trust and Savings Bank, as agent and
Lender (filed as Exhibit 4(a) to Form 8-K dated May 18, 1994 and is incorporated herein
by reference)
4(b) Other instruments defining the right of holders of other long-term debt of the Registrant
are not filed as exhibits because the debt authorized under any such instrument does not
exceed 10% of consolidated total assets as of the last day of February, 1994. Copies of
debt instruments for which the related debt is less than 10% of consolidated total
assets will be furnished to the Commission upon request
* 5 Opinion of McDermott, Will & Emery, counsel for the Company
10(a) Employee Stock Purchase Plan (filed as Exhibit 10(a) to Form 8-K dated July 6, 1994 and
incorporated herein by reference)
10(b) 1982 Stock Option Plan (filed as Exhibit 10(b) to Form 8-K dated July 6, 1994 and
incorporated herein by reference)
10(c) Release and final settlement agreement dated May 4, 1992 on agreement for purchase and
sale of assets dated May 31, 1991 (filed as Exhibit 10(c) to 1992 Form 10-K and
incorporated herein by reference)
10(d) Executive agreement dated May 26, 1992, between Cherry Semiconductor Corporation and
Alfred S. Budnick (filed as Exhibit 4(d) to Form 10-K for the fiscal year ended the last
day of February, 1993 and incorporated herein by reference)
21 Table of Subsidiaries of Registrant (filed as Exhibit 21 to Form 10-K for the fiscal year
ended the last day of February, 1994 and incorporated herein by reference)
*23(a) Consent of McDermott, Will & Emery (contained in Exhibit 5)
*23(b) Consent of Arthur Andersen & Co., Independent Public Accountants
*24 Powers of Attorney (included on signature page)
<FN>
- ------------------------
*Filed herewith.
</TABLE>
<PAGE>
GRAPHICS APPENDIX
On page 2 of the printed Prospectus, the foldout from page 2 and the inside
back cover of the printed Prospectus fifteen graphics appear. In accordance with
Rule 304 of Regulation S-T they are described as follows:
1. Under the caption "AUTOMOTIVE MARKET" on page 2, there are four
pictures described as follows:
(a) Picture 1 shows two Cherry armrest assemblies, one in wood and
one in plastic over the caption: "Cherry armrest assemblies include switches and
electronics that control power windows, seats, locks and mirrors."
(b) Picture 2 shows two Cherry electronic control modules over the
caption: "Cherry electronic control modules are used to operate power
sunroofs."
(c) Picture 3 shows a transparent four-door sedan with 16 tags
indicating Cherry products used in the automobile over the caption: "Cherry's
switch assemblies, semiconductors and electronic control modules are used to
operate or control many modern car features."
The 16 tags are: Convertible Top; Seat Belts; Airbag; Speed Control;
Tachometer/Speedometer; HVAC Control; Power Window, Lock, Seat, Mirror Control;
Engine Computer; Electronic Ignition; Voltage Regulator; Memory Seat; Door Lock;
Anti-Lock Brakes; Trunk Lock; Rear Defogger; Sunroof.
(d) Picture 4 shows a Cherry semiconductor wafer over the caption:
"Cherry's semiconductor products are used in engine and ignition controls,
instrumentation and ABS systems."
2. Under the caption "COMPUTER MARKET" on the foldout from page 2, there
are four pictures described as follows:
(a) Picture 1 shows 11 Cherry semiconductor products over the
caption: "Cherry's semiconductors control spindle speed and head position in
hard disk drives."
(b) Picture 2 shows a value-added Cherry keyboard over the caption:
"Value-added keyboards with integrated magnetic card readers are used in retail
and hospitality applications."
(c) Picture 3 shows an airline terminal keyboard and monitor situated
on a desk with a partial image of the operator touching the keyboard and the
monitor shows an initial United Airlines screen. There is no caption.
(d) Picture 4 shows six pushwheel switches over the caption:
"Cherry's switches are used to link peripherals, such as disk drives and
printers, within computer networks."
<PAGE>
3. Under the caption "CONSUMER AND COMMERCIAL MARKET" on the foldout from
page 2, there are four pictures described as follows:
(a) Picture 1 shows a Xerox photocopier and accessories with a Cherry
manual in the foreground and a Cherry product box on the left side of the
picture. There is no caption.
(b) Picture 2 shows nine Cherry power conversion semiconductors over
the caption: "Many consumer devices rely on Cherry's sophisticated power
conversion semiconductors."
(c) Picture 3 shows six Cherry snap-action switches over the caption:
"Cherry snap-action switches are found in many home appliances and in office
equipment."
(d) Picture 4 shows two integrated control panels over the caption:
"Integrated control panels for large mail sorting postage machines are
manufactured by Cherry."
4. Under the caption "MANUFACTURING PROCESS TECHNOLOGIES" on the inside
back cover, there are three pictures described as follows:
(a) Picture 1 shows a Cherry "clean room" which is used to
manufacture semiconductor products over the caption: "New process capabilities
are vital to Cherry's ability to introduce new proprietary products."
(b) Picture 2 shows an automated assembly of keyboards over the
caption: "Automated assembly of keyboards is essential to achieve low cost and
also is important in assuring consistent high quality."
(c) Picture 3 shows an automated assembly of switches over the
caption: "Cherry's current process technologies are vital to meet customer
expectations for quality, cost, delivery and service. Flexible automation allows
the Company to produce 41 versions of power window and door lock switches on one
piece of equipment."
<PAGE>
EXHIBIT 1
2,500,000 Shares
THE CHERRY CORPORATION
Class A Common Stock
UNDERWRITING AGREEMENT
August , 1994
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
140 Broadway
New York, New York 10005
CLEARY GULL REILAND &
McDEVITT INC.
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53211
Ladies and Gentlemen:
The Cherry Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the several underwriters listed on Schedule A
hereto (the "Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and Cleary Gull Reiland & McDevitt Inc. ("Cleary Gull," and
together with DLJ, the "Representatives") have been duly authorized to act as
representatives, an aggregate of 2,500,000 shares (the "Firm Shares") of Class A
Common Stock, $1.00 par value per share, of the Company. The Company also
proposes to issue and sell to the several Underwriters an aggregate of not more
than 375,000 additional shares of Class A Common Stock, $1.00 par value per
share (the "Additional Shares"), as provided in Section 4 hereof, if requested
by the Underwriters. The Firm Shares and Additional Shares are herein
collectively referred to as the "Shares." The Class A Common Stock and the
Company's
<PAGE>
Class B Common Stock, $1.00 par value per share, to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"Common Stock."
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-2 (No. 33- ),
including a preliminary prospectus, subject to completion, relating to the
Shares. The registration statement, as amended at the time it becomes effective
or, if a post-effective amendment is filed with respect thereto, as amended by
such post-effective amendment at the time of its effectiveness, including in
each case financial statements and exhibits, and the information (if any)
contained in a prospectus subsequently filed with the Commission pursuant to
Rule 424(b) under the Act and deemed to be a part of the registration statement
at the time of its effectiveness pursuant to Rule 430A under the Act, is
hereinafter referred to as the "Registration Statement"; and the prospectus in
the form used to confirm sales of the Shares, whether or not filed with the
Commission pursuant to Rule 424(b) under the Act, and including all documents
incorporated or deemed to be incorporated by reference therein, is hereinafter
referred to as the "Prospectus." Any reference in this Agreement to the
registration statement, the Registration Statement, any preliminary prospectus
or the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-2 under the Act,
as of the date of the registration statement, the Registration Statement, any
preliminary prospectus or the Prospectus, as the case may be, and any reference
to any amendment or supplement to the registration statement, the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to refer
to and include any documents incorporated by reference therein as of the date of
the amendment or supplement to the registration statement, the Registration
Statement, any preliminary prospectus or the Prospectus. As used herein, the
term "Incorporated Documents" means the documents that at the time are
incorporated by reference in the registration statement, the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or
supplement thereto.
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell to the Underwriters,
and the Underwriters agree, severally and not jointly, to purchase from the
Company, the
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aggregate number of Firm Shares set forth opposite their names on Schedule A
hereto at the purchase price equal to $ per share (the "Purchase
Price").
On the basis of the representations and warranties contained in
this Agreement, and subject to its terms and conditions, the Company agrees to
issue and sell to the Underwriters up to 375,000 Additional Shares, and the
Underwriters shall have a right to purchase, severally and not jointly, from
time to time, up to an aggregate of 375,000 Additional Shares from the Company
at the Purchase Price. Additional Shares may be purchased as provided in
Section 4 hereof solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. If any Additional Shares are
to be purchased, each Underwriter, severally and not jointly, agrees to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) which bears the same
proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule A hereto bears to the total number of Firm Shares.
The Company shall, concurrently with the execution of this
Agreement, deliver an agreement executed by the Company, each of the directors
and corporate officers of the Company and Walter L. Cherry, Virginia B. Cherry,
Peter B. Cherry and related trusts (collectively, the "Cherry Family") ,
pursuant to which each such person will agree not to, directly or indirectly,
offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of, without the prior written consent of the Representatives, any shares
of Common Stock or any other equity security of the Company, or any securities
convertible into or exercisable or exchangeable for, or warrants, options or
rights to purchase or acquire, Common Stock or any other equity security of
the Company or enter into any agreement to do any of the foregoing, for a
period of 180 days after the date of the Prospectus, except pursuant to this
Agreement. Notwithstanding the foregoing, during such period (i) the Company
may issue shares of Common Stock upon the exercise of outstanding employee
stock options and may grant employee stock options and issue shares of Common
Stock pursuant to the Company's existing stock option and stock purchase plans
and (ii) the directors and officers of the Company and the Cherry Family shall
be permitted to transfer or otherwise dispose of shares of Common Stock
pursuant to bona fide gifts to any member or members of such transferor's
family or to charities, provided that, prior to any such transfers or
dispositions referred to in this clause (ii), each transferee delivers to the
Representatives a written agreement pursuant to which such transferee agrees to
be bound by the terms of such agreement as if a signatory thereto. The
Company agrees not to file a registration statement (other than on Form S-8
relating solely to employee stock option plans described in the Prospec-
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<PAGE>
tus) or prospectus relating to its Common Stock or other equity securities (or
any securities convertible into or exercisable or exchangeable for or warrants,
options or rights to purchase or acquire, Common Stock or other equity
securities of the Company) for a period of 180 days after the date of the
Prospectus without the prior written consent of the Representatives.
3. TERMS OF THE PUBLIC OFFERING. The Company is advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the effective date of the Registration
Statement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
4. DELIVERY AND PAYMENT. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 A.M., Chicago time, on the
fifth business day (such time and date being referred to as the "Closing Date")
following the date of the initial public offering of the Shares as advised by
you to the Company, at the offices of McDermott, Will & Emery at 227 West Monroe
Street, Chicago, Illinois 60606. The Closing Date and the location of delivery
of and the form of payment for the Firm Shares may be varied by agreement
between the Representatives and the Company.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the offices of
McDermott, Will & Emery at 227 West Monroe Street, Chicago, Illinois 60606, at
10:00 A.M., Chicago time, on such date (the "Option Closing Date"), which may be
the same as the Closing Date but shall in no event be earlier than the Closing
Date, as shall be specified in a written notice from the Representatives to the
Company to purchase a number, specified in said notice, of Additional Shares.
Such notice may be given at any time within 30 days after the date of this
Agreement, provided that the Option Closing Date shall not be earlier than two
business days nor later than ten business days after such notice. The Option
Closing Date and the location of delivery of and the form of payment for the
Additional Shares may be varied by agreement between the Representatives and the
Company.
Certificates representing the Shares shall be registered in such
names and issued in such denominations as the Underwriters shall request in
writing not later than two full business days prior to the Closing Date, or the
Option Closing Date, as the case may be, and shall be made available to the
Underwriters at the offices of DLJ (or at such other place as shall be
acceptable to the Underwriters) for inspection not later than 10:00 A.M.,
Chicago time, on the business day next preceding the Closing Date, or the Option
Closing Date, as
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<PAGE>
the case may be. Certificates in definitive form representing the Shares shall
be delivered to the Underwriters on the Closing Date, or the Option Closing
Date, as the case may be, with any transfer taxes payable upon initial issuance
thereof duly paid by the Company, for the Underwriters' respective accounts
against payment of the Purchase Price by certified or official bank check or
checks payable in New York Clearing House or similar next-day funds to the order
of the Company.
5. AGREEMENTS OF THE COMPANY. The Company agrees with each of
the Underwriters that:
(a) It will, if necessary, file an amendment to the Registration
Statement including, if necessary pursuant to Rule 430A under the Act, a
post-effective amendment to the Registration Statement, in each case as
soon as practicable after the execution and delivery of this Agreement,
and will use its best efforts to cause the Registration Statement or such
post-effective amendment to become effective at the earliest possible
time. The Company will comply fully and in a timely manner with the
applicable provisions of Rule 424 and Rule 430A under the Act.
(b) It will advise the Underwriters promptly and, if requested
by any of the Underwriters, confirm such advice in writing, (i) when the
Registration Statement has become effective, if and when the Prospectus is
sent for filing pursuant to Rule 424 under the Act and when any
post-effective amendment to the Registration Statement becomes effective,
(ii) of the receipt of any comments from the Commission or any state
securities commission or regulatory authority that relate to the
Registration Statement or requests by the Commission or any state
securities commission or regulatory authority for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement, or
of the suspension of qualification of the Shares for offering or sale in
any jurisdiction, or the initiation of any proceeding for such purpose by
the Commission or any state securities commission or other regulatory
authority, and (iv) of the happening of any event, during such period as
in your reasonable judgment you are required to deliver a Prospectus in
connection with sales of the Shares by you, which makes any statement of a
material fact made in the Registration Statement untrue or which requires
the making of any
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<PAGE>
additions to or changes in the Registration Statement (as amended or
supplemented from time to time) in order to make the statements therein
not misleading or that makes any statement of a material fact made in the
Prospectus (as amended or supplemented from time to time) untrue or which
requires the making of any additions to or changes in the Prospectus (as
amended or supplemented from time to time) in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company shall use its best efforts to prevent the
issuance of any stop order or order suspending the qualification or
exemption of the Shares under any state securities or Blue Sky laws, and,
if at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption of the Shares under any state securities or
Blue Sky laws, the Company shall use every reasonable effort to obtain the
withdrawal or lifting of such order at the earliest possible time.
(c) It will furnish to you without charge four (4) signed
copies (plus one (1) additional signed copy to your legal counsel) of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits filed therewith, and will furnish
to you such number of conformed copies of the Registration Statement as so
filed and of each amendment to it, without exhibits, as you may reasonably
request.
(d) It will not file any amendment or supplement to the
Registration Statement, whether before or after the time when it becomes
effective, or make any amendment or supplement to the Prospectus, of which
you shall not previously have been advised and provided a copy within two
(2) business days prior to the filing thereof (or such reasonable amount
of time as is necessitated by the exigency of such amendment or
supplement) or to which you shall reasonably object; and it will prepare
and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and will use its best efforts to cause
the same to become effective as promptly as possible.
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<PAGE>
(e) Promptly after the Registration Statement becomes effective,
and from time to time thereafter for such period as in your reasonable
judgment a prospectus is required to be delivered in connection with
sales of the Shares by you, it will furnish to each Underwriter and dealer
without charge as many copies of the Prospectus (and of any amendment or
supplement to the Prospectus) as such Underwriters and dealers may
reasonably request.
(f) If during such period as in your reasonable judgment you are
required to deliver a Prospectus in connection with sales of the Shares by
you any event shall occur as a result of which it becomes necessary to
amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing as of the date the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law, it
will promptly prepare and file with the Commission an appropriate
amendment or supplement to the Prospectus so that the statements in the
Prospectus, as so amended or supplemented, will not, in the light of the
circumstances existing as of the date the Prospectus is so delivered, be
misleading, and will comply with applicable law, and will furnish to each
Underwriter and dealer without charge such number of copies thereof as
such Underwriters and dealers may reasonably request.
(g) Prior to any public offering of the Shares, it will
cooperate with you and your counsel in connection with the registration or
qualification of the Shares for offer and sale by you under the state
securities or Blue Sky laws of such jurisdictions as you may request
(provided, that the Company shall not be obligated to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified or to take
any action that would subject it to general consent to service of process
in any jurisdiction in which it is not now so subject). The Company will
continue such qualification in effect so long as required by law for
distribution of the Shares.
(h) Prior to or concurrently with the filing by the Company of a
Quarterly Report on Form 10-Q relating to the first fiscal quarter ending
after the one-year anniversary of the "effective date" (as defined in Rule
158 under the Act) of the Registration Statement, it will mail and make
generally available to its security holders a consolidated earnings
statement covering a period of at
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<PAGE>
least twelve months beginning after such effective date (but in no event
commencing later than 90 days after such effective date) which shall
satisfy the provisions of Section 11(a) of the Act and Rule 158
thereunder, and it will advise you in writing when such statement has
been so made available.
(i) It will timely complete all required filings and otherwise
fully comply in a timely manner with all provisions of the Securities
Exchange Act of 1934, as amended, including the rules and regulations
thereunder (collectively, the "Exchange Act"), in connection with the
registration, if any, of the Shares thereunder.
(j) For a period of five years after the date hereof, it will
mail to you without charge a copy of each report or other publicly
available information required to be furnished to holders of the Shares by
law and a copy of such other publicly available information regarding the
Company as you may reasonably request at the same time as such reports or
other information are required to be furnished to such holders.
(k) Whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, it will pay and be
responsible for all costs, expenses, fees and taxes in connection with or
incident to (i) the printing, processing, filing, distribution and
delivery under the Act of the Registration Statement, each preliminary
prospectus, the Prospectus and all amendments or supplements thereto, (ii)
the printing, processing, execution, distribution and delivery of this
Agreement, any memoranda describing state securities or Blue Sky Laws and
all other agreements, memoranda, correspondence and other documents
printed, distributed and delivered in connection with the offering of the
Shares, (iii) the registration with the Commission and the issuance and
delivery of the Shares, (iv) the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of the
jurisdictions referred to in paragraph (g) above (including, in each case,
the reasonable fees and disbursements of counsel relating to such
registration or qualification and memoranda relating thereto and any
filing fees in connection therewith), (v) furnishing such copies of the
Registration Statement, Prospectus and preliminary prospectus, and all
amendments and supplements to any of them, as may be reasonably requested
by you, (vi) filing, registration and clearance with the National
Association of Securities Dealers, Inc. (the
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"NASD") in connection with the offering of the Shares (including any
filing fees in connection therewith and the fees and disbursements of
counsel relating thereto), (vii) the listing of the Shares, if any, on a
stock exchange or automated quotation system and (viii) the performance by
the Company of its other obligations under this Agreement, including
(without limitation) the cost of its personnel and other internal costs,
the cost of printing and engraving the certificates representing the
Shares, and all expenses and taxes incident to the sale and delivery of
the Shares to you.
(l) It will use the proceeds from the sale of the Shares in a
manner consistent in all material respects with that described in the
Prospectus under the caption "Use of Proceeds."
(m) So long as any of the Shares are outstanding, it will use
its best efforts to maintain the inclusion of the Shares for quotation on
the Nasdaq Stock Market or any national securities exchange on which the
Shares are then listed.
(n) It will use its best efforts to do and perform all things
required to be done and performed under this Agreement by it prior to or
after the Closing Date, or the Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
6. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to each of the Underwriters that:
(a) The Company and the transactions contemplated by this
Agreement meet the requirements for using Form S-2 under the Act. When
the Registration Statement becomes effective, including at the date of any
post-effective amendment, at the date of the Prospectus (if different) and
at the Closing Date and the Option Closing Date, if any, the Registration
Statement will comply in all material respects with the provisions of the
Act, and will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; the Prospectus and any
supplements or amendments thereto will not at the date of the Prospectus,
at the date of any such supplements or amendments and at the Closing Date,
and the Option Closing Date, if any, contain any untrue statement of a
material fact or omit to state any material fact
9
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necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not
apply to statements in or omissions from the Registration Statement or the
Prospectus (or any supplement or amendment to them) made in reliance upon
and in conformity with information relating to any Underwriter furnished
to the Company in writing by any Underwriter expressly for use therein.
The Company acknowledges for all purposes under this Agreement that the
statements set forth in the [ paragraph under the caption
"Underwriting" in the Prospectus (or any amendment or supplement)]
constitute the only written information furnished to the Company by any
Underwriter expressly for use in the Registration Statement or the
Prospectus (or any amendment or supplement to them) and that the
Underwriters shall not be deemed to have provided any information (and
therefore are not responsible for any statement or omission) pertaining to
any arrangement or agreement with respect to any party other than the
Underwriters.
(b) The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects with
the requirements of the Exchange Act and rules and regulations thereunder;
no such document when it was filed (or, if an amendment with respect to
any such document was filed, when such amendment was filed) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, complied when so
filed in all material respects with the Act.
(d) The Company and each of Cherry Semiconductor Corporation,
Cherry Electrical Products Ltd., Cherry Mikroshalter GmbH, Cherry SARL,
Cherry SRO, Cherasia Limited, Hirose Cherry Precision Company, Ltd.
("Hirose"), TVS Cherry Private Limited ("TVS," and together with Hirose,
the "Joint Ventures") and Cherry Australia Pty. Ltd. (collectively, the
"Subsidiaries") has been duly organized, is validly existing as a
corporation in
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good standing under the laws of its jurisdiction of organization and has
the requisite corporate power and authority to carry on its business as it
is currently being conducted, to own, lease and operate its properties
and, as applicable, to authorize the offering of the Shares, to execute,
deliver and perform this Agreement and to issue, sell and deliver the
Shares, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction where the
operation, ownership or leasing of property or the conduct of its business
requires such qualification, except where the failure to be so qualified
would not, singly or in the aggregate, have a material adverse effect on
the properties, business, results of operations, condition (financial or
otherwise), affairs or prospects of the Company and the Subsidiaries taken
as a whole (a "Material Adverse Effect").
(e) All of the issued and outstanding shares of capital stock
of, or other ownership interests in, each Subsidiary have been duly and
validly authorized and issued, and all of the shares of capital stock of,
or other ownership interests in, each Subsidiary, other than the Joint
Ventures, as to which such representation is only made with respect to 50%
of the shares of capital stock or other ownership interest, are owned,
directly or through Subsidiaries, by the Company. All such shares of
capital stock are fully paid and nonassessable, and are owned free and
clear of any security interest, mortgage, pledge, claim, lien or
encumbrance (each, a "Lien"). There are no outstanding subscriptions,
rights, warrants, options, calls, convertible securities, commitments of
sale or Liens related to or entitling any person to purchase or otherwise
to acquire any shares of the capital stock of, or other ownership interest
in, any Subsidiary.
(f) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization"; all the
shares of issued and outstanding capital stock have been duly authorized
and validly issued and are fully paid, nonassessable and not subject to
any preemptive or similar rights; the Shares that are being sold by the
Company hereunder have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued and fully paid and
nonassessable; the capital stock of the Company, including the Shares,
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conforms in all material respects to all statements relating thereto in
the Prospectus and the Registration Statement; and the issuance of the
Shares by the Company will not be subject to preemptive or other similar
rights.
(g) Neither the Company nor any of the Subsidiaries is (i) in
violation of its respective charter, bylaws or other similar governance
documents or (ii) in default in any material respect in the performance of
any bond, debenture, note or any other evidence of indebtedness or any
indenture, mortgage, deed of trust or other contract, lease or other
instrument to which the Company or any of the Subsidiaries is a party or
by which any of them is bound, or to which any of the property or assets
of the Company or any of the Subsidiaries is subject.
(h) This Agreement has been duly authorized and validly executed
and delivered by the Company and constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms (assuming the due execution and delivery hereof by you).
(i) The execution and delivery of this Agreement by the Company,
the issuance and sale of the Shares, the performance of this Agreement and
the consummation of the transactions contemplated by this Agreement will
not conflict with or result in a breach or violation of any of the
respective charters or bylaws of the Company or any of the Subsidiaries or
any of the terms or provisions of, or constitute a default or cause an
acceleration of any obligation under or result in the imposition or
creation of (or the obligation to create or impose) a Lien with respect
to, any bond, note, debenture or other evidence of indebtedness or any
indenture, mortgage, deed of trust or other agreement or instrument to
which the Company or any of the Subsidiaries is a party or by which it or
any of them is bound, or to which any properties of the Company or any of
the Subsidiaries is or may be subject, or contravene any order of any
court or governmental agency or body having jurisdiction over the Company
or any of the Subsidiaries or any of their properties, or violate or
conflict with any statute, rule or regulation or administrative or court
decree applicable to the Company or any of the Subsidiaries, or any of
their respective properties.
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(j) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, pending
against or affecting the Company or any of the Subsidiaries, or any of
their respective properties, which is required to be disclosed in the
Registration Statement or the Prospectus and which is not so disclosed, or
which might result, singly or in the aggregate, in a Material Adverse
Effect or which might materially and adversely affect the consummation of
this Agreement or the transactions contemplated hereby, and to the best of
the Company's knowledge, no such proceedings are contemplated or
threatened. No contract or document of a character required to be
described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement is not so described or filed.
(k) No action has been taken and no statute, rule or regulation
or order has been enacted, adopted or issued by any governmental agency or
body which prevents the issuance of the Shares, suspends the effectiveness
of the Registration Statement, prevents or suspends the use of any
preliminary prospectus or suspends the sale of the Shares in any
jurisdiction referred to in Section 5(g) hereof; no injunction,
restraining order or order of any nature by a Federal or state court of
competent jurisdiction has been issued with respect to the Company or any
of the Subsidiaries which would prevent or suspend the issuance or sale of
the Shares, the effectiveness of the Registration Statement, or the use of
any preliminary prospectus in any jurisdiction referred to in Section 5(g)
hereof; no action, suit or proceeding is pending against or, to the best
of the Company's knowledge, threatened against or affecting the Company or
any of the Subsidiaries before any court or arbitrator or any governmental
body, agency or official, domestic or foreign, which, if adversely
determined, would materially interfere with or adversely affect the
issuance of the Shares or in any manner draw into question the validity of
this Agreement or the Shares; and every request of the Commission or any
securities authority or agency of any jurisdiction for additional
information (to be included in the Registration Statement or the
Prospectus or otherwise) has been complied with in all material respects.
(l) In the ordinary course of its business, the Company has
reviewed the effect of Environmental Laws (as defined below) on the
business, operations and properties of the Company and its Subsidiaries
and identified and evaluated associated costs and liabil-
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ities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such reviews, the Company has reason to
conclude that such associated costs and liabilities would not, singly or
in the aggregate, result in a Material Adverse Effect. Neither the
Company nor any of the Subsidiaries has violated any presently existing
environmental, safety or similar law or regular applicable to its
business relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), lacks any
permits, licenses or other approvals required of them under applicable
Environmental Laws or is violating respect any terms and
conditions of any such permit, license or approval, nor has the Company or
any of the Subsidiaries violated any Federal, state or local law relating
to discrimination in the hiring, promotion or pay of employees nor any
applicable wage or hour laws, nor any provisions of the Employee
Retirement Income Security Act of 1974 or the rules and regulations
promulgated thereunder, nor has the Company or any of the Subsidiaries
engaged in any unfair labor practice, which in each case might result,
singly or in the aggregate, in a Material Adverse Effect. There is (i) no
significant unfair labor practice complaint pending against the Company or
any of the Subsidiaries or, to the best of the Company's knowledge,
threatened against any of them, before the National Labor Relations Board
or any state or local labor relations board, and no significant grievance
or significant arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against the Company or any
of the Subsidiaries or, to the best of the Company's knowledge, threatened
against any of them, (ii) no significant strike, labor dispute, slowdown
or stoppage pending against the Company or any of its Subsidiaries or, to
the best of the Company's knowledge, threatened against the Company or any
of the Subsidiaries and (iii) to the best of the Company's knowledge, no
union representation question existing with respect to the employees of
the Company or any of the Subsidiaries and, to the best of the Company's
knowledge, no union organizing activities are taking place, except (with
respect to any matter specified in clause (i), (ii) or (iii) above, singly
or in the aggregate) such as could not have a Material Adverse Effect.
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(m) Except as would not result, singly or in the aggregate, in a
Material Adverse Effect, the Company and each of the Subsidiaries has good
and marketable title, free and clear of all Liens (except Liens for taxes
not yet due and payable), to all property and assets reflected in the
Company's audited consolidated financial statements for the fiscal year
ended February 28, 1994.
(n) The firm of accountants that has certified or shall certify
the applicable consolidated financial statements and supporting schedules
of the Company filed or to be filed with the Commission as part of the
Registration Statement and the Prospectus are independent certified public
accountants with respect to the Company and the Subsidiaries, within the
meaning of the Act and the applicable published rules and regulations
thereunder. The consolidated historical financial statements, together
with related schedules and notes, set forth in the Prospectus and the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations with respect to the registration statement on Form
S-2. Such historical financial statements fairly present, in all material
respects, the consolidated financial position of the Company and its
consolidated Subsidiaries at the respective dates indicated and the
results of their operations and their cash flows for the respective
periods indicated, in conformity with generally accepted accounting
principles ("GAAP"). The other financial and statistical information and
data included in the Prospectus and in the Registration Statement are, in
all material respects, accurately presented and prepared on a basis
consistent with such financial statements and the books and records of the
Company.
(o) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and up to the
Closing Date, or Option Closing Date, as the case may be, except as set
forth in the Prospectus, neither the Company nor any of the Subsidiaries
has incurred any liabilities or obligations, direct or contingent, which
are material to the Company and the Subsidiaries taken as a whole, nor
entered into any transaction not in the ordinary course of business and
there has not been, singly or in the aggregate, any material adverse
change, or any development which may reasonably be expected to involve a
material adverse change, in the properties, business, results of
operations, condition (financial or otherwise), affairs or prospects of
the
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Company and the Subsidiaries taken as a whole (a "Material Adverse
Change").
(p) All tax returns required to be filed by the Company or any
of the Subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges due or claimed to be due from such entities have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided or those currently payable without penalty or interest.
(q) No authorization, approval or consent or order of, or filing
with, any court or governmental body or agency is necessary in connection
with the transactions contemplated by this Agreement, except such as may
be required by the NASD or have been obtained and made under the Act or
state securities or Blue Sky laws or regulations. Neither the Company nor
any of its affiliates is presently doing business with the government of
Cuba or with any person or affiliate located in Cuba.
(r) (i) Each of the Company and the Subsidiaries has all
certificates, consents, exemptions, orders, permits, licenses,
authorizations, or other approvals (each, an "Authorization") of and from,
and has made all declarations and filings with, all Federal, state, local
and other governmental authorities, all self-regulatory organizations and
all courts and other tribunals, necessary or required to own, lease,
license and use its properties and assets and to conduct its business in
the manner described in the Prospectus, except to the extent that the
failure to obtain or file would not, singly or in the aggregate, have a
Material Adverse Effect, (ii) all such Authorizations are valid and in
full force and effect and (iii) the Company and the Subsidiaries are in
compliance in all material respects with the terms and conditions of all
such Authorizations and with the rules and regulations of the regulatory
authorities and governing bodies having jurisdiction with respect thereto.
(s) Neither the Company nor any of the Subsidiaries is (a) an
"investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as amended, or
(b) a "holding company" or a "subsidiary company" of a holding company, or
an "affiliate" thereof within
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the meaning of the Public Utility Holding Company Act of 1935, as amended.
(t) No holder of any security of the Company has or will have
any right to require the registration of such security by virtue of any
transaction contemplated by this Agreement.
(u) The Company and the Subsidiaries possess the patents, patent
rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names (collectively, "Intellectual Property") presently
employed by them in connection with the businesses now operated by them,
and neither the Company nor any of the Subsidiaries has received any
notice of infringement of or conflict with asserted rights of others with
respect to the foregoing which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a Material
Adverse Change. The use of such Intellectual Property in connection with
the business and operations of the Company and the Subsidiaries does not,
to the Company's knowledge, infringe on the rights of any person.
(v) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
(w) The Company and each of the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's general
or specific authorizations; (2) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability; (3) access to assets is permitted only in
accordance with management's general or specific authorization; and (4)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) An amendment and restatement of the Company's charter,
substantially in the form included in the Proxy Statement dated June 20,
1994 (the "Proxy Statement"), was filed with the Dela-
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ware Secretary of State on July 12, 1994 and is effective in accordance
with the General Corporation Law of the State of Delaware. Any and all
other action of the Company's board of directors or stockholders required
in connection with or necessitated by the implementation of the
Reclassification (as defined in the Prospectus) has been completed in
accordance with applicable law and the Company's charter and bylaws and
remains in full force and effect. The Reclassification, as described in
the Prospectus and the Proxy Statement, has been completed.
(y) The Company has not (i) taken, directly or indirectly, any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares or (ii) since the initial filing of the
Registration Statement (A) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of the Shares or (B) paid or agreed
to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.
(aa) The Company and each Subsidiary maintain insurance covering
their properties, operations, personnel and businesses. Such insurance
insures against such losses and risks as are adequate in accordance with
customary industry practice to protect the Company and its Subsidiaries
and their businesses. Neither the Company nor any Subsidiary has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other expenditures will have to be made in order to
continue such insurance. All such insurance is outstanding and duly in
force on the date hereof and will be outstanding and duly in force on the
Closing Date and any Option Closing Date.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless (i) each
of the Underwriters and (ii) each person, if any, who controls (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) any of
the Underwriters (any of the persons referred to in this clause (ii) being
hereinafter referred to as a "controlling person"), and (iii) the
respective officers, directors, partners, employees, representatives and
agents of any of the Underwriters or any controlling person (any person
referred to in
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clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Person") to the fullest extent lawful, from and against any
and all losses, claims, damages, liabilities, judgments, actions and
expenses (including without limitation and as incurred, reimbursement of
all reasonable costs of investigating, preparing, pursuing or defending
any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Indemnified Person)
directly or indirectly caused by, related to, based upon, arising out of
or in connection with any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement (or any amendment
thereto), including the information deemed to be a part of the
Registration Statement pursuant to Rule 430A(b) promulgated under the Act,
if applicable, or the Prospectus (including any amendment or supplement
thereto) or any preliminary prospectus, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus,
in light of the circumstances under which they were made) not misleading,
except insofar as such losses, claims, damages, liabilities or expenses
are caused by an untrue statement or omission or alleged untrue statement
or omission that is made in reliance upon and in conformity with
information relating to any of the Underwriters furnished in writing to
the Company by any of the Underwriters expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus (or
any amendment or supplement thereto) or any preliminary prospectus;
PROVIDED, HOWEVER, that the foregoing indemnity shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages, liabilities or expenses purchased Shares, or any
controlling person of such Underwriter, if a copy of the Prospectus
(including any amendment or supplement thereto) was not sent or given by
or on behalf of such Underwriter to such person at or prior to the written
confirmation of the sale of the Shares to such person, and if the
Prospectus (including any amendment or supplement thereto) would have
cured the defect giving rise to such losses, claims, damages, liabilities
or expenses, unless such failure to deliver a copy of the Prospectus was a
result of the failure of the Company to provide a sufficient number of
copies of such Prospectus in a timely manner. The Company shall notify
you promptly of the institution, threat or assertion of any claim,
proceeding (including any governmental investigation) or litigation
19
<PAGE>
in connection with the matters addressed by this Agreement which involves
the Company or an Indemnified Person.
(b) In case any action or proceeding (including any governmental
investigation) shall be brought or asserted against any of the Indemnified
Persons with respect to which indemnity may be sought against the Company,
such Underwriter (or the Underwriter controlled by such controlling
person) shall promptly notify the Company in writing (provided, that the
failure to give such notice shall not relieve the Company of its
obligations pursuant to this Agreement). Such Indemnified Person shall
have the right to employ its own counsel in any such action and the fees
and expenses of such counsel shall be paid, as incurred, by the Company
(regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to Indemnification hereunder). The Company shall
not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) at any time for such
Indemnified Persons, which firm shall be designated by the Underwriters.
The Company shall be liable for any settlement of any such action or
proceeding effected with the Company's prior written consent, which
consent will not be unreasonably withheld, and the Company agrees to
indemnify and hold harmless any Indemnified Person from and against any
loss, claim, damage, liability or expense by reason of any settlement of
any action effected with the written consent of the Company.
Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested the Company to reimburse the Indemnified
Person for fees and expenses of counsel as contemplated by the second
sentence of this paragraph, the Company agrees that it shall be liable for
any settlement of any proceeding effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by the
Company of the aforesaid request and (ii) the Company shall not have
reimbursed the Indemnified Person in accordance with such request prior to
the date of such settlement. The Company shall not, without the prior
written consent of each Indemnified Person, settle or compromise or
consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, claim, litigation or proceeding in respect
of which indemnification or
20
<PAGE>
contribution may be sought hereunder (whether or not any Indemnified
Person is a party thereto), unless such settlement, compromise, consent or
termination includes an unconditional release of each Indemnified Person
from all liability arising out of such action, claim, litigation or
proceeding.
(c) Each of the Underwriters agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers
who sign the Registration Statement, any person controlling (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the
Company, and the officers, directors, partners and employees of each such
person, to the same extent as the foregoing indemnity from the Company to
each of the Indemnified Persons, but only with respect to claims and
actions based on information relating to such Underwriter furnished in
writing by such Underwriter expressly for use in the Prospectus.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and expenses (i) in
such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party on the one hand and the indemnified
party on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of
the indemnifying parties and the indemnified party, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, on the one hand, and any of the Underwriters, on the other hand,
shall be deemed to be in the same proportion as the total proceeds from
the offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company to the total underwriting
discounts and commissions received by such Underwriter, in each case as
set forth in the table on the cover page of the Prospectus. The relative
fault of the Company and the Underwriters shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to state a material
21
<PAGE>
fact related to information supplied by the Company or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
indemnity and contribution obligations of the Company set forth herein
shall be in addition to any liability or obligation the Company may
otherwise have to any Indemnified Person.
The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities
or expenses referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any legal
or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, none of the Underwriters
(and its related Indemnified Persons) shall be required to contribute, in
the aggregate, any amount in excess of the amount by which the total
underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7(d) are several in proportion to the respective
number of Shares purchased by each of the Underwriters hereunder and not
joint.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company
contained in this Agreement shall be true and correct on the Closing Date
with the same force and effect as if made on and as of the Closing Date.
The Company shall have performed or complied with all of its obligations
and agreements herein contained and re-
22
<PAGE>
quired to be performed or complied with by it at or prior to the Closing
Date.
(b) (i) The Registration Statement shall have become effective
(or, if a post-effective amendment is required to be filed pursuant to
Rule 430A promulgated under the Act, such post-effective amendment shall
have become effective) not later than 10:00 A.M., Chicago time, on the
date of this Agreement or at such later date and time as you may approve
in writing, (ii) at the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission and every request for additional
information on the part of the Commission shall have been complied with in
all material respects, and (iii) no stop order suspending the sale of the
Shares in any jurisdiction referred to in Section 5(g) shall have been
issued and no proceeding for that purpose shall have been commenced or
shall be pending or threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the
issuance of the Shares; and no injunction, restraining order or order of
any nature by a Federal or state court of competent jurisdiction shall
have been issued as of the Closing Date which would prevent the issuance
of the Shares.
(d) (i) Since the date hereof or since the dates as of which
information is given in the Registration Statement and the Prospectus,
there shall not have been any Material Adverse Change, (ii) since the date
of the latest balance sheet included in the Registration Statement and the
Prospectus, there shall not have been any material change in the capital
stock or long-term debt, or material increase in short-term debt, of the
Company or any of the Subsidiaries and (iii) the Company and the
Subsidiaries shall have no liability or obligation, direct or contingent,
that is material to the Company and the Subsidiaries taken as a whole and
is required to be disclosed on a balance sheet in accordance with GAAP and
is not disclosed on the latest balance sheet included in the Registration
Statement and the Prospectus.
23
<PAGE>
(e) You shall have received a certificate of the Company, dated
the Closing Date, executed on behalf of the Company, by the President or
any Vice President and a principal financial or accounting officer of the
Company confirming, as of the Closing Date, the matters set forth in
paragraphs (a), (b), (c) and (d) of this Section 8.
(f) On the Closing Date, you shall have received:
(1) an opinion (satisfactory to you and your counsel),
dated the Closing Date, of McDermott, Will & Emery, counsel for
the Company, to the effect that:
(i) each of the Company and Cherry Semiconductor
Corporation, and Cherry Mikroshalter GmbH, (collectively, the
"Significant Subsidiaries") is a duly organized and validly
existing corporation in good standing under the laws of its
jurisdiction of incorporation, has the requisite corporate power
and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement
and the Prospectus, and is duly qualified as a foreign
corporation and in good standing in each jurisdiction where the
ownership, leasing or operation of property or the conduct of
its business requires such qualification, except where the
failure to be so qualified would not have, singly or in the
aggregate, a Material Adverse Effect;
(ii) the Company has full power and authority to
execute, deliver and perform this Agreement and to authorize,
issue and sell the Shares as contemplated by this Agreement;
(iii) this Agreement has been duly authorized,
executed and delivered by the Company and is a valid and binding
agreement of the Company, enforceable in accordance with its
terms (except as rights to indemnity hereunder may be limited by
public policy considerations as expressed in the Act and as
construed by courts of competent jurisdiction and except as
enforceability may be limited
24
<PAGE>
by bankruptcy, insolvency, reorganization, moratorium and other
laws affecting creditors' rights generally and general principles
of equity);
(iv) all the outstanding shares of capital stock
of the Company have been duly authorized and validly issued and
are fully paid, non-assessable and not subject to any preemptive
or similar rights;
(v) the Shares have been duly authorized, and
when issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will have been validly
issued and will be fully paid and non-assessable, and the
issuance of such Shares is not subject to any preemptive or
similar rights;
(vi) the authorized capital stock of the Company
(including the Shares) conforms in all material respects to the
descriptions thereof contained in the Prospectus; the statements
in the Prospectus under the caption "Description of Capital
Stock" are accurate in all material respects;
(vii) all of the issued and outstanding shares of
capital stock of each Significant Subsidiary have been duly
authorized and validly issued, are fully paid and nonassessable
and not subject to preemptive or similar rights, and [other than
the Joint Ventures, only 50% of the capital stock of which is
owned directly or indirectly, by the Company] are owned, directly
or through Subsidiaries, by the Company, free and clear of any
perfected security interests or, to the best of such counsel's
knowledge after due inquiry, any other security interests, Liens,
encumbrances or claims;
(viii) to the best of such counsel's knowledge
after due inquiry, there are no outstanding subscriptions,
rights, warrants, options, calls, convertible securities,
commitments of sale or Liens related to or entitling any person
to purchase or otherwise to acquire any shares of the capital
stock of, or other ownership interest in, any Significant
Subsidiary;
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<PAGE>
(ix) to the best of such counsel's knowledge
after due inquiry, no holder of any security of the Company has
any right to require registration of Shares or any other security
of the Company;
(x) neither the Company nor any Significant
Subsidiary is (a) an "investment company" or a company
"controlled" by an investment company within the meaning of the
Investment Company Act of 1940, as amended, or (b) a "holding
company" or a "subsidiary company" of a holding company, or an
"affiliate" thereof within the meaning of the Public Utility
Holding Company Act of 1935, as amended;
(xi) the descriptions in the Registration
Statement and the Prospectus of United States Federal, state and
local statutes and of contracts and other documents are accurate
in all material respects and fairly present the information
required to be shown; and such counsel does not know of any
current, pending or threatened legal or governmental proceedings
required to be described in the Registration Statement or the
Prospectus which are not described as required or of any
contracts or documents of a character required to be described in
the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement which are not described
and filed as required; it being understood that such counsel need
express no opinion as to the financial statements, notes or
schedules or other financial data included therein;
(xii) the Registration Statement has become
effective under the Act; any required filing of the Prospectus,
and any supplements thereto, pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule
424(b); and to the best of such counsel's knowledge after due
inquiry, no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and no
proceedings therefor have been instituted or are pending or
contemplated under the Act;
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<PAGE>
(xiii) no authorization, approval, consent or
order of, or filing with, any court or governmental body or
agency is required for the consummation by the Company of the
transactions contemplated by this Agreement, except such as have
been obtained and made under the Act, state securities or Blue
Sky laws or regulations or such as may be required by the NASD;
the execution and delivery of this Agreement, the issuance and
sale of the Shares, the performance of this Agreement and the
consummation of the transactions contemplated by this Agreement
will not result in a breach or violation of any of the respective
charters or bylaws of the Company or any Significant Subsidiary
or the terms or provisions of, or constitute a default under, any
statute, rule or regulation or to the best of such counsel's
knowledge after due inquiry, any agreement or instrument to which
the Company or any Significant Subsidiary is a party or by which
any of them is bound, or to which the properties of the Company
or any Significant Subsidiary is subject, or to the best of such
counsel's knowledge after due inquiry, any order of any court or
governmental agency or body having jurisdiction over the Company
or any Significant Subsidiary or any of their properties;
(xiv) An amendment and restatement of the
Company's charter, substantially in the form included in the
Proxy Statement, was filed with the Delaware Secretary of State
on July 12, 1994 and is effective in accordance with the General
Corporation Law of the State of Delaware. Any and all other
action of the Company's board of directors or stockholders
required in connection with or necessitated by the implementation
of the Reclassification (as defined in the Prospectus) has been
completed in accordance with applicable law and the Company's
charter and bylaws and remains in full force and effect. The
Reclassification, as described in the Prospectus and the Proxy
Statement, has been completed.
(xv) to the best of such counsel's knowledge
after due inquiry, neither the Company nor any of its
Subsidiaries has violated any Environmental Laws which might
result in a Material Adverse Effect; and
27
<PAGE>
(xvi) at the time it became effective and on the
Closing Date, the Registration Statement (except for financial
statements, the notes thereto and related schedules and other
financial data included therein, as to which no opinion need be
expressed) complied as to form in all material respects with the
Act.
In rendering the opinions set forth in paragraphs ,
McDermott, Will & Emery may rely on the opinion of Baker & McKenzie (a copy of
which shall be attached) as to certain matters relating to the Company's foreign
Significant Subsidiaries.
McDermott, Will & Emery shall additionally state in its opinion
that such counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, your representatives and your counsel in connection
with the preparation of the Registration Statement and Prospectus and has
considered the matters required to be stated therein and the statements
contained therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements (except as indicated
above); and such counsel advises you that, on the basis of the foregoing, no
facts came to such counsel's attention that caused such counsel to believe that
the Registration Statement (as amended or supplemented, if applicable), at the
time such Registration Statement or any post-effective amendment became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading (other than information omitted therefrom in
reliance on Rule 430A under the Act), or the Prospectus (as amended or
supplemented), as of its date and the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(g) You shall have received an opinion, dated the Closing Date,
of Skadden, Arps, Slate, Meagher & Flom ("Skadden Arps"), counsel for the
Underwriters, in form and substance reasonably satisfactory to you.
(h) You shall have received letters on and as of the date hereof
as well as on and as of the Closing Date (in the latter case constituting
an affirmation of the statements set forth in the former), in form and
substance satisfactory to you, from Arthur
28
<PAGE>
Anderson & Co., independent public accountants, with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(i) Skadden Arps shall have been furnished with such documents
and opinions, in addition to those set forth above, as they may reasonably
require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 8 and in order to evidence the
accuracy, completeness or satisfaction in all material respects of any of
the representations, warranties or conditions herein contained.
(j) The opinion of McDermott, Will & Emery described in
paragraph (f) above, shall be rendered to you at the request of the
Company and shall so state therein.
(k) Prior to the Closing Date, the Company shall have furnished
to you such further information, certificates and documents as you may
reasonably request.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to satisfaction on and as of the Option
Closing Date of the conditions set forth in paragraphs (a) through (k) above
except that the opinions called for in paragraphs (f) and (g) and the letters
referred to in (h) shall be revised to reflect the sale of the Additional
Shares.
9. DEFAULTS. If on the Closing Date, or on the Option Closing
Date, as the case may be, any of the Underwriters shall fail or refuse to
purchase the Firm Shares or the Additional Shares, as the case may be, which
they have agreed to purchase hereunder on such date, and the aggregate number of
the Firm Shares or the Additional Shares, as the case may be, that such
defaulting Underwriters agreed but failed or refused to purchase does not exceed
10% of the total number of Shares that all of the Underwriters are obligated to
purchase on such date, each non-defaulting Underwriter shall be obligated,
severally, in the proportion which the number of Firm Shares set forth opposite
its name on Schedule A hereto bears to the total number of Firm Shares which all
the non-defaulting Underwriters have agreed to purchase, or in such other
proportion as you may specify, to purchase the Firm Shares or Additional Shares,
as the case may be, that such defaulting Underwriters agreed but failed or
refused to purchase on such date; PROVIDED that in no event shall the number
of Firm Shares or Additional Shares, as the case may be, that any Underwriter
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 9 by an amount in excess
29
<PAGE>
of one-ninth of such number of Firm Shares or Additional Shares, as the case may
be, without the written consent of such Underwriter. If, on the Closing Date,
or the Option Closing Date, as the case may be, any of the Underwriters shall
fail or refuse to purchase the Firm Shares or Additional Shares, as the case may
be, and the total number of Firm Shares or Additional Shares, as the case may
be, with respect to which such default occurs exceeds 10% of the total number of
Shares to be purchased on such date by all Underwriters, and arrangements
satisfactory to you and the Company for the purchase of such Shares are not made
within 48 hours after such default, this Agreement shall terminate without
liability on the part of the non-defaulting Underwriters or the Company, except
as otherwise provided in Section 10. In any such case that does not result in
termination of this Agreement, the Underwriters or the Company may postpone the
Closing Date, or the Option Closing Date, as the case may be, for not longer
than seven (7) days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve a
defaulting Underwriter from liability in respect of any default by any such
Underwriter under this Agreement.
10. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the later of (i) the execution and delivery of this
Agreement by the parties hereto, (ii) the effectiveness of the Registration
Statement and (iii) if a post-effective amendment is required to be filed
pursuant to Rule 430A under the Act, the effectiveness of such post-effective
amendment.
This Agreement may be terminated at any time on or prior to the
Closing Date, or the Option Closing Date, as the case may be, by you by notice
to the Company if any of the following has occurred: (i) subsequent to the date
the Registration Statement is declared effective or the date of this Agreement,
any Material Adverse Change which, in the judgment of any Underwriter,
materially impairs the investment quality of the Shares or makes it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, (ii) any outbreak or escalation of hostilities or other
national or international calamity or crisis or material adverse change in the
financial markets of the United States or elsewhere, or any other substantial
national or international calamity or emergency if the effect of such outbreak,
escalation, calamity, crisis or emergency would, in the judgment of any
Underwriter, make it impracticable or inadvisable to market the Shares or to
enforce contracts for the sale of the Shares, (iii) any suspension or limitation
of trading generally in securities on the New York Stock Exchange, the American
Stock Exchange or in the over-the-counter markets or any setting of minimum
prices for trading on such exchange or markets, (iv) any declaration of a
general banking moratorium by either Federal or New York
30
<PAGE>
authorities, (v) the taking of any action by any Federal, state or local
government or agency in respect of its monetary or fiscal affairs that in your
judgment has a material adverse effect on the financial markets in the United
States, and would, in your judgment, make it impracticable or inadvisable to
market the Shares or to enforce contracts for the sale of the Shares, (vi) the
enactment, publication, decree, or other promulgation of any Federal or state
statute, regulation, rule or order of any court or other governmental authority
that, in your judgment, materially and adversely affects or will materially and
adversely affect the business or operations of the Company or any Subsidiary, or
(vii) any securities of the Company or any of the Subsidiaries shall have been
downgraded or placed on any "watch list" for possible downgrading by any
nationally recognized statistical rating organization, provided, that in the
case of such "watch list" placement, termination shall be permitted only if such
placement would, in the judgment of any Underwriter, make it impracticable or
inadvisable to market the Shares or to enforce contracts for the sale of the
Shares or materially impair the investment quality of the Shares.
The indemnities and contribution provisions and the other
agreements, representations and warranties of the Company, its officers and
directors and of the Underwriters set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Shares, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of any of the
Underwriters or by or on behalf of the Company, the officers or directors of the
Company or any controlling person of the Company, (ii) acceptance of the Shares
and payment for them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters
pursuant to clauses (i) or (vii) of the second paragraph of this Section 10 or
because of the failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, the Company agrees
to reimburse you for all out-of-pocket expenses (including the reasonable fees
and disbursements of counsel) incurred by you. Notwithstanding any termination
of this Agreement, the Company shall be liable for all expenses which it has
agreed to pay pursuant to Section 5(k) hereof.
11. NOTICES. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, to it at 3600
Sunset Avenue, Waukegan, Illinois 60087, Attention: President, with a copy to
McDermott, Will & Emery at 227 West Monroe Street, Chicago, Illinois 60606,
Attention: William J. Quinlan, Jr. and (b) if to any Underwriter, to Donaldson,
Lufkin & Jenrette Securities Corporation, 140 Broadway, New York, New York
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<PAGE>
10005, Attention: Syndicate Department, with a copy to Skadden, Arps, Slate,
Meagher & Flom at 333 West Wacker Drive, Suite 2100, Chicago, Illinois 60606,
Attention: William R. Kunkel, or in any case to such other address as the person
to be notified may have requested in writing.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS
APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK.
13. SUCCESSORS. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns the officers and directors and other persons referred to in Section 7,
and no other person will have any right or obligation hereunder. The terms
"successors and assigns" shall not include a purchaser of any of the Shares
from any of the Underwriters merely because of such purchase.
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<PAGE>
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument. Please confirm that the
foregoing correctly sets forth the agreement among the Company and you.
Very truly yours,
THE CHERRY CORPORATION
By:
--------------------------------------
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CLEARY GULL REILAND &
McDEVITT INC.
As Representatives of the
several Underwriters named on Schedule A hereto.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
-------------------------------------------
Name:
Title:
By: CLEARY GULL REILAND &
McDEVITT INC.
By:
-------------------------------------------
Name:
Title:
33
<PAGE>
SCHEDULE A
Number of
Firm Shares
To Be Purchased
---------------
Donaldson, Lufkin & Jenrette
Securities Corporation............................
Cleary Gull Reiland & McDevitt Inc. ................
- ---------------------- ......................
- ---------------------- ......................
---------
Total....................................... 2,500,000
---------
---------
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Exhibit 5
McDERMOTT, WILL & EMERY
July 12, 1994
The Cherry Corporation
3600 Sunset Avenue
Waukegan, IL 60087
Re: REGISTRATION STATEMENT ON FORM S-2
Ladies and Gentlemen:
You have requested our opinion in connection with the above-referenced
registration statement on Form S-2 (the "Registration Statement"), under which
The Cherry Corporation (the "Company") intends to issue and sell in a public
offering 2.5 million shares of Class A Common Stock, par value $1.00 per share,
of the Company, plus up to an additional 375,000 shares of Class A Common Stock
granted to the underwriters by the Company to cover over-allotments (the
"Shares").
In arriving at the opinion expressed below, we have examined the
Registration Statement and such other documents as we have deemed necessary to
enable us to express the opinion hereinafter set forth. In addition, we have
examined and relied, to the extent we deem proper, on certificates of officers
of the Company as to factual matters, and on the originals or copies certified
or otherwise identified to our satisfaction, of all such corporate records of
the Company and such other instruments and certificates of public officials and
other persons as we have deemed appropriate. In our examination, we have
assumed the authenticity of all documents submitted to us as originals, the
conformity to the original documents of all documents submitted to us as copies,
the genuineness of all signatures on documents reviewed by us and the legal
capacity of natural persons.
Based upon and subject to the foregoing, we are of the opinion that
the Shares have been duly authorized and, when issued in accordance with the
terms and conditions set forth in the Registration Statement, will be validly
issued, fully paid and non-assessable.
We hereby consent to the references to our firm under the caption
"Legal Matters" in the Registration Statement and to the use of this opinion as
an exhibit to the Registration Statement. In giving this consent, we do not
hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McDERMOTT, WILL & EMERY
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated May 3, 1994, except with respect to Note J which is dated July 12, 1994,
(and to all references to our Firm) included in or made a part of this
registration statement.
Chicago, Illinois /s/ Arthur Andersen & Co.
July 12, 1994
