SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sections 240.14a-11(c) or
Section 240.14a-12
The Cherry Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per Unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
4) Proposed maximum aggregate value of transaction:
* Set forth the amount on which the filing fee is calculated and state how
it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
THE CHERRY CORPORATION
3600 SUNSET AVENUE
WAUKEGAN, ILLINOIS 60087
847-662-9200
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 17, 1999
------------------
To the Stockholders of
The Cherry Corporation
Notice is hereby given that the annual meeting of stockholders of THE
CHERRY CORPORATION, a Delaware corporation, will be held at Midlane Country
Club, 4555 West Yorkhouse Road, Wadsworth, Illinois, on Thursday, June 17, 1999,
at 4:00 p.m. local time, for the following purposes:
1. To elect eight directors of the Company to hold office for the
ensuring year.
2. To consider and act upon a proposal to amend Article Fourth of
the Company's Restated Certificate of Incorporation, as
amended (the "Amendment"), to eliminate the Company's two
classes of common stock by (i) authorizing a new class of
voting common stock, consisting of 30,000,000 authorized
shares ("New Common Stock"), and (ii) reclassifying each
issued share of Class A Common Stock and each issued share of
Class B Common Stock of the Company into one share of New
Common Stock (the "Reclassification").
3. To consider and act upon a proposal to approve an amendment to
The Cherry Corporation 1995 Stock Incentive Plan increasing
the number of shares of Class A Common Stock (or, if the
Reclassification is completed, the New Common Stock) available
for grant thereunder by 900,000 shares.
4. To consider and transact such other business as may properly
come before the meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 23,
1999, as the record date for determination of the holders of shares of the
Company's outstanding Class A Common Stock and Class B Common Stock entitled to
notice of and to vote at the annual meeting of stockholders. Each holder of
Class B Common Stock is entitled to one vote per share on all matters to be
voted on at the Annual Meeting, and each holder of Class A Common Stock is
entitled to one vote per share on the Reclassification with the Class A Common
Stock and the Class B Common Stock voting as separate classes. Mr. Cherry, the
Chairman of the Board, President and controlling stockholder, who currently
beneficially owns 44.2% and 66.0% of the Class A Common Stock and Class B Common
Stock, respectively, has indicated that he will vote for the Amendment and the
amendment to The Cherry Corporation 1995 Stock Incentive Plan.
There are two proxies - blue for Class A Common Stock and white for
Class B Common Stock. If you hold shares of both classes of stock, both proxy
cards should be dated, signed and returned in the enclosed envelope.
By Order of the Board of Directors
Dan A. King
Secretary
May 20, 1999
PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY CARD(S) IN THE ENVELOPE PROVIDED
WHICH REQUIRES NO POSTAGE FOR MAILING IN THE UNITED STATES. A PROMPT RESPONSE IS
HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED.
<PAGE>
THE CHERRY CORPORATION
3600 SUNSET AVENUE
WAUKEGAN, ILLINOIS 60087
847-662-9200
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 17, 1999
------------------
VOTING INFORMATION
This Proxy Statement is being mailed to stockholders of The Cherry
Corporation (the "Company") on or about May 20, 1999 and is furnished in
connection with the Board of Directors' solicitation of proxies for the annual
meeting of stockholders to be held on June 17, 1998, for the purposes of
considering and acting upon the matters specified in the Notice of Annual
Meeting of Stockholders accompanying this Proxy Statement. If the form of proxy
which accompanies this Proxy Statement is executed and returned, it may be
revoked by the person giving it at any time prior to the voting thereof by
written notice to the Secretary, by delivery of a later dated proxy or by
requesting to vote in person at the meeting. Without extra compensation, certain
directors, officers and employees of the Company may make additional
solicitations in person or by telephone or facsimile. Expenses incurred in the
solicitation of proxies, including postage, printing and handling, and actual
expenses incurred by brokerage houses, custodians, nominees and fiduciaries in
forwarding documents to beneficial owners, will be paid by the Company.
The Company has two classes of common stock. They are Class A Common
Stock, par value $1.00 per share ("Class A Common Stock"), and Class B Common
Stock, par value $1.00 per share ("Class B Common Stock"). The holders of Class
B Common Stock are entitled to one vote per share upon each matter submitted to
the vote of stockholders at this annual meeting. The holders of Class A Common
Stock are entitled to one vote per share only for the Amendment to the Company's
Restated Certificate of Incorporation and will have no other voting rights at
this annual meeting. The holders of Class A Common Stock and Class B Common
Stock will vote as separate classes for the Amendment.
For purposes of the meeting, a quorum means a majority of the
outstanding shares of Class B Common Stock and a majority of the outstanding
shares of Class A Common Stock. As of the close of business on April 23, 1999,
the record date for stockholders entitled to vote at the annual meeting, there
were outstanding 5,937,268 shares of Class A Common Stock and 4,193,549 shares
of Class B Common Stock. In determining whether a quorum exists at the meeting,
all shares represented in person or by proxy will be counted. A holder of Class
B Common Stock may, with respect to the election of directors, (i) vote for the
election of all named director nominees, (ii) withhold authority to vote for all
named director nominees or (iii) vote for the election of all named director
nominees other than any nominee with respect to whom the stockholder withholds
authority to vote by so indicating in the appropriate space in the proxy. With
respect to the other two proposals, a stockholder may (i) vote for the
proposals, (ii) vote against the proposals, or (iii) abstain from voting.
Proxies properly executed and received by the Company prior to the meeting and
not revoked will be voted as directed therein on all matters presented at the
meeting. In the absence of a specific direction from the stockholder, proxies
will be voted for the election of all named director nominees, each to hold
office until the next annual meeting of stockholders or until his successor is
duly elected and qualified.
Proxies relating to "street name" shares that are voted by brokers on
some but not all of the matters will be treated as shares present for purposes
of determining the presence of a quorum on all matters, but will be treated as
shares entitled to vote only as indicated below ("broker non-votes"). The
affirmative vote of the holders of a majority of the shares present in person or
by proxy at the meeting and entitled to vote is required in the election of
directors. Withholding authority to vote for a director nominee will in effect
<PAGE>
count as a vote against the director nominee. Broker non-votes will have no
effect in the election of directors. The affirmative vote of the holders of a
majority of the outstanding shares of each of the Class A Common Stock and Class
B Common Stock, voting as separate classes, is required for approval of the
Amendment to the Company's Restated Certificate of Incorporation. Abstentions
and broker non-votes in connection with this proposal will count as votes
against this proposal. The affirmative vote of the holders of a majority of the
shares of Class B Common Stock represented and entitled to vote at the meeting
is required for approval of the amendment to The Cherry Corporation 1995 Stock
Incentive Plan. Abstentions will count as a vote against the proposal, but
broker non-votes will have no effect.
The Board of Directors knows of no other matter which may come up for
action at the meeting. However, if any other matter properly comes before the
meeting, the persons named in the proxy form enclosed will vote in accordance
with their judgment upon such matter.
Stockholders wishing to include proposals in the Company's proxy
statement and form of proxy for the year 2000 annual meeting must submit such
proposals so that they are received by the Secretary of the Company at its
Waukegan address by no later than January 20, 1999. Stockholders wishing to
present proposals at the annual meeting (but not include them in the proxy
statement) are required to notify the Secretary of the Company in writing at the
Waukegan address by no later than April 5, 2000.
The Annual Report to stockholders for the fiscal year ended February
28, 1999, accompanies this Proxy Statement. Additional copies of the Annual
Report may be obtained by writing to the Secretary of the Company.
<PAGE>
STOCK OWNERSHIP INFORMATION
The table below sets forth certain information as of April 23, 1999,
with respect to each person known by the Company to be the beneficial owner of
more than five percent of the outstanding shares of each of the Class A Common
Stock and Class B Common Stock, and the beneficial ownership of both classes of
stock of each director, each executive officer shown in the Summary Compensation
Table and all executive officers and directors as a group. Except as set forth
below, the address for such person or group is the Company's Waukegan office.
<TABLE>
Class A - Nonvoting Class B - Voting
-------------------------------------- -------------------------------------
-------------------- -- -------------- -------------------- -- -------------
Number of Shares Percent of Number of Shares Percent of
Beneficially Respective Beneficially Respective
Name Owned Class Owned Class
- --------------------------------------- -------------------- -------------- -------------------- -------------
- --------------------------------------- -------------------- -------------- -------------------- -------------
<S> <C> <C> <C> <C>
Peter B. Cherry 2,706,287(a)(b)(c) 44.2 % 2,766,985(a)(b)(c) 66.0%
Robert B. McDermott 23,358(c) * 32,200 *
Alfred S. Budnick 44,558(c) * 16,188 *
Klaus D. Lauterbach 27,939(c) * 9,939 *
Dan A. King 25,534(c) * 9,247 *
Robert G. Terwall 18,723(c) * 3,450 *
Thomas L. Martin, Jr. 5,558(c) * 2,200 *
Charles W. Denny 4,358(c) * -- --
Peter A. Guglielmi 3,358(c) * 5,000 *
W. Ed Tyler 3,517(c) * -- --
Henry J. West 3,517(c) * 500 *
All executive officers and directors
as group (12 persons) 2,875,039(c) 46.9% 2,845,709 67.9%
- ---------------
*Less than 1%
(a) The table includes 343,359 shares of Class A and 382,359 shares of
Class B Common Stock held by trusts for the benefit of Catherine C.
Rousey, of which Peter B. Cherry and Virginia B. Cherry (his mother)
are trustees with the power to vote the Common Stock and to make
dispositions. Mrs. Cherry and Mr. Cherry disclaim beneficial ownership.
The table also includes 9,182 shares of Class A Common Stock held in a
charitable foundation by Mr. Cherry and his wife.
(b) The table includes 47,911 shares of Class A and 47,911 shares of Class
B Common Stock held by Mr. Cherry's wife as trustee for their children,
as to which shares Mr. Cherry disclaims beneficial ownership.
(c) The total number of shares of Class A Common Stock of the Company for
officers and directors includes shares held under options exercisable
within 60 days as follows: Peter B. Cherry, 38,666; Alfred S. Budnick,
28,332; Dan A. King, 14,999; Klaus D. Lauterbach, 18,000; Robert G.
Terwall, 13,499; Robert B. McDermott, 3,358; Thomas L. Martin, Jr.,
5,558; Charles W. Denny, 4,358; Peter A. Guglielmi, 3,358; W. Ed Tyler,
3,517; Henry J. West 3,517, and all executive officers and directors as
a group, 137,294.
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that
certain of the Company's directors, officers and stockholders file with the
Securities and Exchange Commission and Nasdaq an initial statement of beneficial
ownership and certain statements of changes in beneficial ownership of Common
Stock of the Company. Based solely on its review of such forms received by the
Company and written representation from the directors and officers that no other
reports were required, the Company is unaware of any instances of noncompliance,
or late compliance, with such filings during the fiscal year ended February 28,
1999.
<PAGE>
ELECTION OF DIRECTORS
At the annual meeting of stockholders, eight directors, constituting
the entire Board of Directors of the Company, are to be elected to hold office
until the next annual meeting of stockholders or until their successors are duly
elected and qualified. Unless otherwise indicated on the proxy form, it is
intended that the proxies will be voted for the nominees listed below. It is
expected that these nominees will serve, but, if for any unforeseen cause any
such nominee should decline or be unable to serve, the proxies will be voted to
fill any vacancy so arising in accordance with the discretionary authority of
the persons named in the proxies unless otherwise indicated on the proxy form.
NOMINEES
The following information concerning the nominees has been furnished by
the nominees:
<TABLE>
PRINCIPAL OCCUPATION FIRST YEAR
DURING LAST FIVE YEARS ELECTED
NAME AGE AND OTHER DIRECTORSHIPS DIRECTOR
<S> <C> <C> <C>
Peter B. Cherry 51 Chairman of the Board and President. 1977
Alfred S. Budnick 61 Vice President of the Company and President of Cherry Semiconductor 1977
Corporation.
Thomas L. Martin 77 President of Emeritus of Illinois Institute of Technology. 1979
Robert B. McDermott 71 Consultant, formerly a partner, law firm of McDermott, Will & 1982
Emery; Mr. McDermott is also a director of Maynard Oil Company.
Peter A. Guglielmi 56 Director, since 1993, Executive Vice President, Chief Financial 1993
Officer, since 1990, and Treasurer, since 1988, Tellabs Inc. (Voice
and data communications equipment manufacturer), President, Tellabs
International, Inc. 1993-1997. Mr. Guglielmi is also a director of
Internet Communications Corp. and Uniphase Corporation.
Charles W. Denny 63 Chairman, since 1997, Chief Executive Officer and President, since 1993
1992, Groupe Schneider-North America, President and Chief Operating
Officer, 1992-1997, Square D Company (electrical distribution and
industrial control products manufacturer). Mr. Denny is also a
director of Woodhead Industries, Inc.
W. Ed Tyler 46 Director, President and Chief Executive Officer since April 1998, 1995
Moore Corporation Limited (print and digital communication products
and services), formerly Executive Vice President, 1995-1998, and
Sector President, Information Management Sector since 1996, Sector
President, Networked Services Sector, 1994-1996, President,
Documentation Services, 1990-1994, R. R. Donnelley & Sons Co.
(printing and printing related services).
Henry J. West 56 Group Vice President, since 1992, The Marmon Group (international 1995
association of manufacturing and service businesses).
</TABLE>
<PAGE>
COMPENSATION
The following table sets forth the cash and noncash compensation for
each of the last three fiscal years awarded to or earned by the executive
officers named below.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------------- ----------------
Number of
Shares
Underlying
Stock All other
Options Compensation
Name and Principal Position Year Salary ($) Bonus ($) (#) (1) ($)
- ------------------------------------ ------- ------------ ------------- ------------- -----------------
------- ------------ ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Peter B. Cherry 1999 $432,735 $150,535 20,000 16,784
Chairman of the Board 1998 413,778 44,449 12,000 7,713
and President 1997 381,894 61,414 12,000 5,250
Alfred S. Budnick 1999 275,000 17,394 17,000 15,143
Vice President of the Company 1998 265,000 136,044 8,500 6,426
and President of a Subsidiary 1997 245,375 107,500 8,500 5,250
Klaus D. Lauterbach 1999 317,853 119,598 6,000 11,094
Vice President of the Company 1998 293,082 82,189 6,000 --
and General Manager of a Subsidiary 1997 340,000 68,709 6,000 --
Dan A. King 1999 214,126 42,504 5,000 12,968
V.P. of Finance & Administration, 1998 205,451 44,090 5,000 7,713
Secretary and Treasurer 1997 174,518 42,936 5,000 5,250
Robert G. Terwall 1999 183,789 36,270 5,000 14,174
Vice President and General 1998 182,188 15,481 5,000 7,448
Manager of a Division 1997 159,840 18,802 5,000 5,196
- ---------
(1) Represents Company contributions under 401(k) and profit sharing plans.
</TABLE>
<PAGE>
The table below sets forth certain information with respect to stock
options granted under the Company's 1995 Stock Incentive Plan during fiscal 1999
to the executive officers named in the Summary Compensation Table.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Price Appreciation
Individual Grants (1) for Option Term (2)
----------------------
------------------------------------------------------------------------ --
Number of % of Total
Shares Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Granted # in Fiscal Year ($/Share) Date 5%($) 10%($)
----------------- ------------------ --------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Peter B. Cherry 20,000 7.4% $16.50 3/02/2008 $207,570 $526,020
Alfred S. Budnick 17,000 6.3% 16.50 3/02/2008 176,435 447,117
Klaus D. Lauterbach 6,000 2.2% 16.50 3/02/2008 62,221 157,806
Dan A. King 5,000 1.8% 16.50 3/02/2008 51,893 131,505
Robert G. Terwall 5,000 1.8% 16.50 3/02/2008 51,893 131,505
(1) All options reported are for Class A Common Stock granted on March 2,
1998, and become exercisable in cumulative annual installments of 1/3
of the shares covered on each of the first, second and third
anniversaries of the grant date.
(2) The amounts set forth represent the value that would be received by the
Named Executive Officer upon exercise of the option on the date before
the expiration date of the option based upon assumed annual growth
rates in the market value of the Company's common stock of 5% and 10%,
rates prescribed by applicable Securities and Exchange Commission
rates. Actual gains, if any, on stock option exercises are dependent on
the future performance of the Company's common stock and other factors
such as the general condition of the stock markets and the timing of
the exercise of the options.
</TABLE>
<PAGE>
The following table sets forth certain information with respect to
options exercised by the executive officers named in the Summary Compensation
Table.
<TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<CAPTION>
Number of Shares Value of Unexercisable
Underlying Unexercised In-the-Money Options at
Shares Options at Fiscal Year End Fiscal Year End ($)
Acquired on Value (#) Exercisable/ Exercisable/
Name Exercise (#) Realized($) (1) Unexercisable Unexercisable (1)
---- ------------ --------------- ------------- -----------------
<S> <C> <C> <C> <C>
Peter B. Cherry
Class A 0 - 24,000/32,000 $39,000/$94,500
Class B 0 - 0/0 $0/$0
Alfred S. Budnick
Class A 0 - 16,999/25,501 $27,622/$66,941
Class B 0 - 0/0 $0/$0
Klaus D. Lauterbach
Class A 0 - 12,000/12,000 $19,500/$47,250
Class B 0 - 0/0 $0/$0
Dan A. King
Class A 0 - 9,999/10,001 $16,245/$39,380
Class B 0 - 0/0 $0/$0
Robert G. Terwall
Class A 0 - 8,499/10,001 $14,995/$38,755
Class B 0 - 0/0 $0/$0
- -----------------
(1) Value is calculated based on the difference between the option exercise
price and the closing market price of the Common Stock on the date of
exercise or end of fiscal year multiplied by the applicable number of
shares.
</TABLE>
BOARD OF DIRECTORS
The Board of Directors held five meetings in fiscal 1999. All directors
were present for at least 75% of the meetings for which they were in office.
Non-employee directors are paid an annual fee of $15,000, plus $1,500 for each
meeting they attend. Employee directors receive no compensation as such.
Non-employee directors in office on adjournment of the Company's annual
meeting also receive a nonqualified stock option to purchase the number of whole
shares of Class A Common Stock equal to the amount of the director's annual fee
divided by the fair market value of a share of Class A Common Stock on the date
of the annual meeting.
The Board of Directors has an Audit Committee and a Compensation
Committee, each composed of all of the non-employee directors. The Committee
Chairman receives $1,500 and the other members receive $500 for each meeting
held. The Audit Committee held two meetings and the Compensation Committee held
two meetings in fiscal 1999. The Board has no Nominating Committee.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL AGREEMENTS
Pursuant to an agreement dated May 26, 1992 between cherry
Semiconductor Corporation ("CSC") and Mr. Budnick, CSC has agreed to compensate
Mr. Budnick fi he is terminated within 5 years subsequent to a change in control
of CSC. The agreement provides for a payment of between one to three times Mr.
<PAGE>
Budnick's annual salary depending upon the amount of time which has lapsed
subsequent to the change in control. In general, a change of control occurs if
CSC is sold.
LOAN TO EXECUTIVE OFFICER
Dale F. Reichhart is a Vice President of the Company and General
Manager of Cherry Automotive Division who began employment on September 8, 1997.
Pursuant to an agreement dated October 2, 1997 the Company agreed to provide a
"bridge-loan" for Mr. Reichhart to purchase a home in Illinois while he arranges
to sell his home in Michigan. Funds in the amount of $240,000 were disbursed on
October 17, 1997. The loan is repayable in full, with interested at the prime
rate, upon the sale or disposition of Mr. Reichhart's Michigan home or October
24, 1998, whichever occurs first, Mr. Reichhart repaid this loan in full with
interest on July 30, 1998.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
the Company's executive compensation policies. It annually determines the
compensation to be paid to the executive officers of the Company. The Committee
is composed of outside directors.
OVERVIEW AND PHILOSOPHY
The executive compensation program is intended to provide overall levels of
compensation for the executive officers which are competitive for the industries
and geographic areas within which they operate, the individual's experience, and
contribution to the success of the Company. Consultants are retained to advise
the Committee as to the competitiveness of the amounts and forms of compensation
provided by the Company. The Committee believes that its task of determining
fair and competitive compensation is ultimately judgmental.
The program is composed of base salary, annual incentive compensation,
equity based incentives, and other benefits generally available to all
employees. As of January 25, 1999, incentive stock options on 715,016 shares of
the Company's stock were outstanding and 262,914 incentive stock options were
granted during the fiscal year then ended.
BASE SALARY
The base salary for each executive is intended primarily to be
competitive with companies in the industries and geographic areas in which the
Company competes. In making annual adjustments to base salary, the Committee
also considers the individual's performance over a period of time as well as any
other information which may be available as to the value of the particular
individual's past and prospective future services to the Company. This
information includes comments and performance evaluations by the Company's Chief
Executive Officer. The Committee considers all such data; it does not prescribe
the relative weight to be given to any particular component.
ANNUAL INCENTIVE COMPENSATION
Annual incentive compensation is ordinarily determined by a formula
which considers the attainment during the year of target performance objectives
(measured by return on investment) by the Company or its component parts. In
some cases, attainment of individual goals may be considered.
LONG-TERM INCENTIVES
In general, the Committee believes that equity based compensation
should form a part of an executive's total compensation package. Incentive stock
options are granted to executives because they directly relate the executive's
earnings to the stock price appreciation realized by the Company's stockholders
over the option period. Stock options also provide executives the opportunity to
acquire an ownership interest in the Company. The number of shares covered by
each executive's option was determined by factors similar to those considered in
establishing base salary.
<PAGE>
OTHER
Other benefits are generally those available to all other employees in
the Company, or a subsidiary, as appropriate. Together with perquisites, these
benefits did not exceed 10% of any executive's combined salary and bonus in
fiscal 1999.
COMPENSATION FOR THE PRESIDENT (CHIEF EXECUTIVE OFFICER)
The Committee applies the same standards in establishing the
compensation of the Company's Chief Executive Officer as are used for other
executives. However, there are procedural differences. The Chief Executive
Officer does not participate in setting the amount and nature of his
compensation.
The Committee does not expect that Section 162(m) of the Internal
Revenue Code will limit the deductibility of compensation expected to be paid by
the Company in the foreseeable future.
Robert B. McDermott, Chairman
Charles W. Denny
W. Ed Tyler
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the yearly percentage change
in the Company's cumulative total stockholder return on its Common Stock with
the cumulative total return of the Russell 3000 and the Russell 3000 Electrical
Equipment Industry indices for the period of five years commencing March 1, 1994
and ending February 28, 1999.
<TABLE>
1994(1) 1995 1996 1997 1998 1999
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Cherry Corporation 100.0 123.760 74.222 10.949 132.397 111.333
Russell 3000 100.0 105.975 142.304 175.392 235.646 270.863
Russell 3000 Electrical Equipment Industry 100.0
- ---------------
(1) On March 1, 1994, the only publicly-traded equity security of the
Company was Common Stock ("Prior Common Stock"). Effective July 12,
1994, the Prior Common Stock was reclassified into Class B Common Stock
and effective July 14, 1994, a 100% stock dividend of Class A Common
Stock was paid to the holders of the Prior Common Stock. For periods in
which more than one class of common stock was outstanding, performance
data is based upon a weighted average of the return of each class.
(2) The Company has selected the Russell 3000 Electrical Equipment Industry
for comparison of total stockholder return. The Company believes that
the indices for this industry provide a comparison as prescribed by the
Securities and Exchange Commission requirements. The indices for this
industry are only computed quarterly on a calendar year basis and
therefore the indices shown above are as of March 31 of the respective
years. Although the Company's total return is based upon its fiscal
year ending the last day of February, it believes that any difference
that may result is not material.
(3) The stock price performance shown on the graph above is not necessarily
indicative of future price performance.
</TABLE>
<PAGE>
PROPOSAL TO APPROVE THE AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT THE RECLASSIFICATION
DESCRIPTION OF THE AMENDMENT
At the annual meeting the stockholders of the Company are also being
asked to consider and act upon a proposal to approve an amendment in the form
attached as Exhibit A (the "Amendment") to Article Fourth of the Company's
Restated Certificate of Incorporation, as amended, to eliminate the Company's
two class of common stock by (i) authorizing a new class of voting common stock,
consisting of 30,000,000 authorized shares, and (i) reclassifying each issued
share of Class A Common Stock and Class B Common Stock of the Company into one
share of New Common Stock (the "Reclassification").
If the Amendment is adopted by the stockholders, the Board intends to
prepare and promptly file the Amendment with the Secretary of State of Delaware.
The Amendment will be effective immediately upon acceptance of filing by the
Secretary of State of Delaware (the "Effective Date"). Although the Board
presently intends to file the Amendment with the Secretary of State of Delaware
if it is approved by stockholders, the stockholder resolution will reserve to
the Board the right to defer or abandon the Amendment and not file such
Amendment even if the Amendment is approved by the stockholders.
If the Board elects to file the Amendment, then, upon effectiveness of
the Amendment, each issued share of Class A Common Stock and each issued share
of Class B Common Stock (collectively, the "Existing Common Stock") will
automatically be converted into, and the certificate therefor will be deemed to
represent, one share of New Common Stock.
As soon as practicable after the Effective Date, Harris Trust and
Savings Bank, the Company's transfer agent, will issue certificates representing
the New Common Stock and will mail a letter of transmittal (the "Transmittal
Letter") to each record holder of Existing Common Stock. Certificates
representing the New Common Stock will be issued to the record holders of
Existing Common Stock who deliver properly executed Transmittal Letters
accompanied by their certificates representing shares of Existing Common Stock.
Under the provisions of the Amendment, each issued share of Existing
Common Stock would be reclassified as one share of New Common Stock and would
have the rights, powers and limitations of the New Common Stock set forth below.
In particular, all of the holders of New Common Stock will be entitled to vote
on all matters of the Company that require stockholder approval. The
Reclassification will change the voting power of each stockholder of the
Company. The voting power of each holder of Class B Common Stock, including
Peter B. Cherry, the Chairman of the Board, President and controlling
stockholder of the Company, will be diluted as a result of the Reclassification.
Mr. Cherry currently beneficially owns 2,706,287 shares of Class A Common Stock
and 2,766,985 shares of Class B Common Stock, which represent 44.2% and 66.0% of
the outstanding Class A Common Stock and Class B Common Stock, respectively.
After the Effective Date, Mr. Cherry will own 5,473,272 shares of New Common
Stock, or 53.0% of the outstanding New Common Stock which percentage also
represents Mr. Cherry's voting power of the Company.
The Amendment has been unanimously approved by the Company's Board of
Directors. Each of the directors voted to approve the Amendment. Mr. Cherry has
indicated that he will vote for the Amendment. The Board believes that the
Amendment is in the best interests of the Company and its stockholders and
recommends that you vote "FOR" the adoption of the Amendment. See "Advantages
and Disadvantages of the Reclassification; Board Recommendation."
BACKGROUND OF THE DUAL CLASS CAPITAL STRUCTURE OF THE COMPANY
The Company adopted its dual class capital structure in July 1994. At
that time, members of Peter Cherry's family (the "Cherry Family") controlled
approximately 60% of the voting power of the Company. The dual class stock
structure was implemented to preserve the Cherry Family's voting power while
enhancing the financial flexibility of the Company and to increase the Cherry
Family's liquidity while maintaining their influences in the Company. The
purposes of the dual class capital structure was to enable the Company to issue
<PAGE>
Class A Common Stock or securities convertible into Class A Common Stock for
financing, acquisitions and compensation purposes without adversely affecting
the voting percentage of any stockholder, including members of the Cherry
Family. In connection with implementing its dual class capital structure, the
Company conducted a public offering of 2.9 million shares of Class A Common
Stock and adopted the 1995 Stock Incentive Plan under which 715,016 options to
purchase Class A Common Stock have been granted as of January 25, 1999.
ADVANTAGES AND POSSIBLE DISADVANTAGES OF THE RECLASSIFICATION; BOARD
RECOMMENDATION
Advantages. The Board has determined that the benefits of the
elimination of the dual class capital structure far outweigh any disadvantages
that might result from the Reclassification, and recommends that the
stockholders approve the Amendment.
The elimination of the Company's dual class capital structure will
provide each class of Existing Common Stock with more liquidity. Both the Class
A Common Stock and the Class B Common Stock are thinly traded, with the average
daily trading volume for fiscal 1999 being 9,286 shares for the Class A Common
Stock and 1,696 shares for the Class B Common Stock. The Company believes that
its low trading volume makes it difficult for stockholders to sell their
Existing Common Stock and recognize the value of their holdings in the Company.
The Reclassification will effectively combine the two classes for trading
purposes and therefor increase the market float that each class of Existing
Common Stock currently experiences, which may decrease the difficulty that
stockholders experience in trading their Existing Common Stock.
In addition, the elimination of the Company's dual class capital
structure will simplify the Company's capital structure, which may provide
greater flexibility and efficiency in raising capital and issuing additional
stock if, when and to the extent desired by the Company. The single class
capital structure will reduce the administrative costs associated with the dual
classes of common stock and will simplify the Company's voting procedures. The
Reclassification also conforms the Company's capital structure with that of most
other publicly held corporations. Among publicly held companies, there has been
a trend away from dual class capital structures, consistent with policies of the
major exchanges and Nasdaq in favor of one-share, one-vote common stock
capitalization.
The Board decided to use a one-for-one conversion ration in the
Reclassification because the Class A Common Stock and Class B Common Stock
generally trade at the same prices.
Disadvantages. The Reclassification may also have disadvantages for the
holders of shares of Class A Common Stock and Class B Common Stock. With respect
to the holders of shares of Class B Common Stock, the Reclassification will
reduce their voting power as group because the holders of Class A Common Stock
will obtain shares of New Common Stock which will entitle such holders to one
vote per share. In addition, the conversion of a share of Class B Common Stock
into one share of New Common Stock is the same conversion ratio as that
applicable to a share of Class A Common Stock, despite the fact that the voting
power of the holders of shares of Class B Common Stock will be reduced while the
voting power of the holders of shares of Class A Common Stock will increase. In
fiscal 1998, the average closing price for the Class A Common Stock was 1.5%
lower than the Class B Common stock average closing price. In fiscal 1997 and
fiscal 1999 the Class A Common Stock average closing price was 1.5% and 1.2%
higher, respectively, than the Class B Common Stock average closing price.
Consequently, the one-for-one conversion ratio will cause the holders of shares
of Class A Common Stock to receive a small discount from the fiscal 1999 value
of the Class A Common Stock in exchange for their receipt of voting rights in
the Company.
The Reclassification will eliminate the anti-takeover protection that
the dual class capital structure provides to the Company. Nevertheless, the
Board believes that the Company's other anti-takeover protections, such as its
requirement that at least two-thirds of its stockholders approve certain
extraordinary transactions, will provide appropriate protection for the Company
and all of its stockholders. See "--Voting."
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain of the federal income tax
consequences of the Reclassification. This discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
<PAGE>
United States Department of the Treasury Regulations promulgated thereunder and
rulings and court decisions as of the date hereof, all of which are subject to
change, possibly retroactively.
The discussion is included for general information purposes only. No
rulings from the Internal Revenue Service with respect to the tax consequences
of the Reclassification to the Corporation's stockholders or to the Corporation
will be sought.
The reclassification and conversion by the Corporation of the Class A
Common Stock and Class B Common Stock as and into New Common Stock will be
treated as a tax-free exchange under Section 1036 of the Code and as a tax-free
recapitalization under Section 368(a)(1)(E) of the Code. As a result of such
treatment, the following tax consequences will apply:
(i) No gain or loss will be recognized for federal income tax
purposes by the Corporation's stockholders upon the reclassification
and conversion of their shares of Class A Common Stock and Class B
Common Stock as and into New Common Stock.
(ii) The basis for the shares reclassified as and converted
into shares of New Common Stock will be the same as the aggregate basis
of the Class A Common Stock and Class B Common Stock held by a
stockholder before the Reclassification became effective.
(iii) The holding period of the shares reclassified as and
converted into shares of New Common Stock will include the periods
during which the Class A Common Stock and Class B Common Stock were
held by a stockholder before the Reclassification became effective,
provided such shares were held by such stockholder as a capital asset
at the time the Reclassification became effective.
(iv) No gain or loss will be recognized for federal income tax
purposes by the Corporation upon the reclassification and conversion of
shares of Class A Common Stock and Class B Common Stock as and into
shares of New Common Stock.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE RECLASSIFICATION MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, EACH HOLDER OF THE
CORPORATION'S CLASS A COMMON STOCK AND CLASS B COMMON STOCK IS URGED TO CONSULT
SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
SUCH HOLDER OF THE RECLASSIFICATION (INCLUDING THE APPLICATION AND EFFECT OF
FOREIGN, STATE AND LOCAL INCOME AND OTHER TAX LAWS).
DESCRIPTION OF THE NEW COMMON STOCK AND COMPARISON TO EXISTING COMMON STOCK
As indicated above, the Amendment will reclassify the Existing Common
Stock into New Common Stock. The rights, powers and limitations of the Class A
Common Stock and the Class B Common Stock are set forth in full in the Article
Fourth of the Company's existing Restated Certificate of Incorporation. The full
text of Article Fourth as proposed to be amended is set forth as Exhibit A to
this Proxy Statement and incorporated herein by reference. The following summary
should be read in conjunction with such Exhibit A.
VOTING
Existing Common Stock. Under the Company's Restated Certificate of
Incorporation as now in effect, each share of Class B Common Stock entitles the
holder to one vote per share on all matters, and holders of Class B Common Stock
are entitled to vote for the election of all directors and on all other matters
submitted to the stockholders of the Company (subject to the Class A Protection
provision described below). The Company's Restated Certificate of Incorporation
does not permit cumulative voting. The Class A Common Stock has no voting
rights, except as required by the Restated Certificate of Incorporation and the
Delaware General Corporation Law.
<PAGE>
New Common Stock. Each share of New Common Stock will have one vote per
share on all matters, and holders of New Common Stock will be entitled to vote
for the election of all directors and on all other matters submitted to the
stockholders of the Company. Like the voting rights of the holders of Class B
Common Stock, the affirmative vote of the holders of a majority of the
outstanding shares of New Common Stock will be required to approve all matters
requiring stockholder approval; provided that the affirmative vote of two-thirds
of the New Common Stock will required to approve any merger or consolidation of
the Company with or into any other corporation or a sale of substantially all of
its assets or to approve the dissolution of the Company. There will be no
provision in the Company's Restated Certificate of Incorporation permitting
cumulative voting.
DIVIDENDS AND OTHER DISTRIBUTIONS
Existing Common Stock. Each share of Class A Common Stock and Class B
Common Stock are equal in respect to dividends and other distribution, except
that (i) a dividend or distribution in cash or property on a share of Class A
Common Stock may be greater than any dividend or distribution in cash or
property on a share of Class B Common Stock, and (ii) dividends or other
distributions payable on the Common Stock in shares of capital stock shall be
made to all holders of Common Stock and may be made (a) in shares of Class A
Common Stock to the holders of Class B Common Stock and to the holders of Class
A Common Stock, (b) in shares of Class B Common Stock to the holders of Class B
Common Stock and in shares of Class A Common Stock to the holders of Class A
Common Stock, or (c) in any other authorize class or series of capital stock to
the holders of both classes of Common Stock. In no event may either Class A
Common Stock or Class B Common Stock be split, subdivided or combined unless the
other is proportionately split, subdivided or combined.
New Common Stock. Each share of New Common Stock will be equal with
respect to all dividends and other distributions of the Company. The Company has
not paid any dividends on its Existing Common Stock since the issuance of the
Class A Common Stock, and the Company does not expect to pay any dividends in
the foreseeable future.
CLASS A PROTECTION PROVISION
The Amendment will eliminate the Class A Protection provision of the
Company's existing Restated Certificate of Incorporation which prevents a person
who has exceeded the specified ownership threshold from gaining control of the
Company by acquiring additional shares of Class B Common Stock without buying
shares of Class A Common Stock.
LIMITED CONVERTIBILITY
Existing Common Stock. Except as described below, neither the Class A
Common Stock nor the Class B Common Stock is convertible into another class of
Common Stock or any other security of the Company. The Class A Common Stock may
be converted into Class B Common Stock on a share-for-share basis by a
resolution of the Board of Directors if, as a result of the existence of the
Class A Common Stock, either class of Existing Common Stock is excluded from
quotation on the Nasdaq National Market (or any national securities exchange on
which the Common Stock is then listed). In addition, if at any time the number
of outstanding shares of Class B Common Stock, as reflected on the stock
transfer books of the Company, falls below 10% of the aggregate number of
outstanding shares of Class A Common Stock and Class B Common Stock, then all
the outstanding shares of Class A Common Stock shall be automatically converted
into shares of Class B Common Stock, on a share-for-share basis.
New Common Stock. The New Common Stock will not be convertible into
another class of capital stock or any other security of the Company.
PREEMPTIVE RIGHTS
The Existing Common Stock does not and the New Common Stock will not
carry any preemptive rights enabling a holder to subscribe for or receive shares
of any class of stock of the Company or any other securities convertible into
shares of any class of stock of the Company.
<PAGE>
TRANSFER AGENT AND REGISTRAR
As with the Existing Common Stock, the transfer agent and the registrar
of the Company's New Common Stock will be Harris Trust and Savings Bank.
CERTAIN EFFECTS OF THE PROPOSAL
Effects on Relative Ownership Interest and Voting Power. Because the
Amendment provides that each whole share of Existing Common Stock will be
reclassified and changed into one share of New Common Stock the relative
ownership interest of each holder of Existing Common Stock will be the same
immediately after effectiveness of the Amendment as it was immediately prior
thereto. However, the relative voting power of each holder of Class B Common
Stock will decrease and the voting power of each holder of Class A Common Stock
will increase. Consequently, assuming that Mr. Cherry retains the shares of
Class B Common Stock beneficially owned by him, the Amendment will decrease Mr.
Cherry's present voting position in the Company.
As of the date of this Proxy Statement, Mr. Cherry has sole or shared
voting or dispositive power over an aggregate of approximately 2,706,287 and
2,766,985 shares of Class A Common Stock and Class B Common Stock, respectively,
or approximately 44.2% and 66.0% of the outstanding Class A Common Stock and
Class B Common Stock, respectively. After the Effective Date, Mr. Cherry will
own 5,473,272 shares of New Common Stock, or 53.0% of the outstanding New Common
Stock which percentage also represents Mr. Cherry's voting power of the Company
after the Reclassification.
Effect on Market Price. The market price of shares of New Common Stock
after the Effective Date will depend, as before the adoption of the Amendment,
on many factors, including, among others, the future performance of the Company,
general market conditions and conditions relating to companies or industries
similar to that of the Company. Accordingly, the Company cannot predict the
prices at which the New Common Stock will trade following the adoption of the
Amendment, just as the Company could not predict the price at which the Existing
Common Stock would trade absent the amendment. On May __, 1999, the closing
prices of the Class A Common Stock and Class B Common Stock were $_____ and
$_____ per share, respectively, as reported on the Nasdaq National Market.
Impact on the Company's Nasdaq Listing. As with the Existing Common
Stock the shares of New Common Stock will be quoted on the Nasdaq National
Market. The new Nasdaq symbol will be "CHER."
Impact on the Company's Operations and Capitalization. The Company
expects that the Reclassification will have no impact on operations. In
addition, the Reclassification involves no increase in the total number of
shares of common stock authorized in the Company's Restated Certificate of
Amendment. Immediately prior to the effectiveness of the Amendment,
approximately 4,193,549 million shares of Class A Common Stock and 5,987,268
million shares of Class B Common Stock were issued and outstanding. After the
Effective Date, 10,180,817 million shares of New Common Stock will be issued and
outstanding. The interest of each stockholder in the total equity of the Company
will remain unchanged as a result of the Reclassification.
Securities Act of 1933. Because the Existing Common Stock will be
reclassified as New Common Stock with essentially the same rights, powers and
limitations, the Reclassification is not an "offer," "offer to sell," "offer for
sale" or "sale" of a security within the meaning of Section 2(3) of the
Securities Act of 1933, as amended (the "Securities Act") and will not involve
the substitution of one security for another under Rule 145 thereunder.
Consequently, the Company is not required to register and has not registered the
New Common Stock under the Securities Act.
Because the Amendment will not constitute a "sale" of either Class A
Common Stock or Class B Common Stock under the Securities Act, stockholders will
not be deemed to have purchased such shares separately from the Existing Common
Stock under the Securities Act and Rule 144 thereunder. Shares of Existing
Common Stock held immediately upon effectiveness of the Amendment, other than
any such shares held by "affiliates" of the Company within the meaning of the
Securities Act, may be offered for sale and sold in the same manner as the
<PAGE>
Existing Common Stock without registration under the Securities Act. Affiliates
of the Company, will continue to be subject to the restrictions specified in
Rule 144 under the Securities Act.
Effect on Compensation Plans. The only compensation plans that will be
affected by the Amendment and the Reclassification are The Cherry Corporation
1995 Stock Incentive Plan and the Company's Employee Stock Purchase Plan.
Outstanding options under the Stock Incentive Plan will be adjusted
appropriately to reflect the Reclassification. All purchases made under the
Employee Stock Purchase Plan after the Effective Date will be for shares of New
Common Stock.
EXPENSES
The cost of proceeding with the Amendment (such as transfer agent's
fees, printing, engraving and mailing costs, legal fees, investment banking
fees, solicitation fees, and NASD fees) will be charged against the Company's
pre-tax earnings. The approximate cost of proceeding with the Amendment is
estimated to be ______________, inclusive of fees of _____________ legal
advisors.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a majority of the outstanding
Shares of Class A Common Stock and Class B Common Stock, voting as separate
classes is required for approval of the Amendment. Abstentions and broker
non-votes will count as votes against the proposal. The Company has been advised
by Mr. Cherry, who beneficially owns approximately 44.2% of the outstanding
Class A Common Stock and 66.0% of the outstanding Class B Common Stock entitled
to vote at the meeting, that he intends to vote in favor of approval of the
Amendment. As noted above, the Board of Directors recommends that the
shareholders vote "FOR" the Amendment.
THE BOARD OF DIRECTORS CONSIDERS THE AMENDMENT TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ALL OF ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS
A VOTE TO APPROVE THE AMENDMENT TO EFFECT THE RECLASSIFICATION.
<PAGE>
PROPOSAL TO INCREASE THE NUMBER OF SHARES OF CLASS A COMMON STOCK
RESERVED UNDER THE CHERRY CORPORATION
1995 STOCK INCENTIVE PLAN
BACKGROUND
The Board of Directors has amended the 1995 Stock Incentive Plan (the
"Plan"), subject to shareholder approval, to increase the number of shares of
Class A Common Stock reserved under the Plan by 900,000 shares. If the
Reclassification is completed, the New Common Stock will replace the Class A
Common Stock available under the Plan. The purpose of the Plan is to enable the
Corporation to offer officers and other key employees of the Corporation and its
subsidiaries performance-based incentives and other equity interests in the
Corporation, thereby attracting, retaining, and rewarding such employees and
strengthening the mutuality of interests between such employees and the
Corporation's shareholders. The proposed Amendment will permit the Corporation
to keep pace with changing developments in management compensation and make the
Corporation competitive with those companies that offer stock incentives to
attract and keep key employees.
SHARES AVAILABLE
The Plan originally reserved 900,000 shares of Class A Common Stock for
awards under the Plan. Approximately 276,501 shares were available for awards
under the Plan as of January 25, 1999. All of such shares may, but need not, be
issued pursuant to the exercise of incentive stock options. The maximum number
of shares that may be awarded to any participant in any year during the term of
the Plan is 90,000 shares. If there is a lapse, expiration, termination, or
cancellation of any option or right prior to the issuance of shares or the
payment of the equivalent thereunder, or if shares are issued and thereafter are
reacquired by the Corporation pursuant to rights reserved upon issuance thereof,
those shares may again be used for new awards under the Plan.
ADMINISTRATION
The Plan provides for administration by a committee (the "Committee") to be
comprised of either the Compensation Committee of the Board or another committee
designated by the Board. Among the Committee's powers are the authority to
interpret the Plan, establish rules and regulations for its operation, select
officers and other key employees of the Corporation and its subsidiaries to
receive awards, and determine the form, amount, and other terms and conditions
of awards. The Committee also has the power to modify or waive restrictions on
awards, to amend awards, and to grant extensions and accelerations of awards.
ELIGIBILITY OF PARTICIPATION
Officers and other key employees of the Corporation or any of its
subsidiaries are eligible to participate in the Plan. The selection of
participants from eligible employees is within the discretion of the Committee.
The estimated number of employees who are eligible to participate in the Plan is
200.
TYPES OF AWARDS
The Plan provides for the grant of any or all of the following types of
awards: (1) stock options, including incentive stock options and non-qualified
stock options; (2) stock appreciation rights; and (3) stock awards, including
restricted stock. Awards may be granted singly, in combination, or in tandem, as
determined by the Committee.
FEDERAL TAX TREATMENT
Under current law, the following are U.S. federal income tax
consequences generally arising with respect to awards under the Plan.
A participant who is granted an incentive stock option does not
recognize any taxable income at the time of the grant or at the time of
exercise. Similarly, the Corporation is not entitled to any deduction at the
time of grant or at the time of exercise. If the participant makes no
disposition of the shares acquired pursuant to an incentive stock option before
the later of two years from the date of grant and one year from the date of
exercise, any gain or loss realized on a subsequent disposition of the shares
will be treated as a long-term capital gain or loss. Under such circumstances,
the Corporation will not be entitled to any deduction for federal income tax
purposes.
A participant who is granted a non-qualified stock option will not have
taxable income at the time of grant, but will have taxable income at the time of
exercise equal to the difference between the exercise price of the shares and
<PAGE>
the market value of the shares on the date of exercise. The Corporation is
entitled to a tax deduction for the same amount.
The grant of an SAR will produce no U.S. federal tax consequences for
the participant of the Corporation. The exercise of an SAR results in taxable
income to the participant, equal to the difference between the exercise price of
the shares and the market price of the shares on the date of exercise, and a
corresponding tax deduction to the Corporation.
A participant who has been granted an award of restricted shares of
Common Stock will generally not realize taxable income at the time of the grant,
and the Corporation will not be entitled to a tax deduction at the time of the
grant. When the restrictions lapse or the performance goals are met, the
participant will recognize taxable income in an amount equal to the excess of
the fair market value of the shares at such time over the amount, if any, paid
for such shares. The Corporation will be entitled to a corresponding tax
deduction.
NEW BENEFITS TABLE
The awards to be granted to date under the Plan are set forth in the
table below. Stock awards granted under the Plan in 1998 are disclosed under the
heading "Executive Compensation" elsewhere in this Proxy Statement.
NAME AND POSITION NUMBER OF SHARES
Peter B. Cherry, Chairman of the Board and President 40,000
Alfred S. Budnick, Vice President of the Company and 6,800
General Manager of a Subsidiary
Dan A. King, Vice President of Finance Administration, 8,000
Secretary and Treasurer
Robert G. Terwall, Vice President and General Manager of 8,000
a Division
Klaus D. Lauterbach, Vice President of the Company and 6,000
General Manager of a Subsidiary
All executive officers as a group 76,800
All employees as a group 195,600
In February of 1999 Cherry Semiconductor Corporation, a wholly-owned
subsidiary of the Corporation, adopted a stock incentive plan for its officers
and key employees. Mr. Budnick was granted a stock option for _______ shares of
the Common stock of Cherry Semiconductor Corporation on _________, 1999.
OTHER INFORMATION
As of March __, 1999, the closing price per share of the Corporation's
Common Stock was $_______.
The affirmative vote of holders of a majority of the shares represented
and entitled to vote at the meeting is required for approval of the amendment to
the Plan. Abstentions will count as a vote against the proposal, but broker
non-votes will have no effect.
The Board of Directors recommends a vote FOR approval of the amendment
to The Cherry Corporation's 1995 Stock Incentive Plan.
<PAGE>
FINANCIAL INFORMATION
The Company has furnished its financial statements to stockholders in
its 1999 Annual Report, which accompanies this Proxy Statement. In addition, the
Company will promptly provide without charge to any stockholder, on the request
of such stockholder, an additional copy of the 1999 Annual Report and the
Secretary, The Cherry Corporation, 3600 Sunset Avenue, Waukegan, Illinois 60087,
or by telephone to (847) ____________.
ACCOUNTING INFORMATION
Selection of the independent auditors is made by the Board of Directors
upon consultation with the Audit Committee. The Company's Independent Public
Accountants for fiscal year ended February 28, 1999 were Arthur Andersen LLP.
The Board of Directors will vote upon the selection of auditors for the current
fiscal year at a future Board meeting. Arthur Andersen LLP is expected to have
representatives at the annual meeting of stockholders who will be available to
respond to appropriate questions at that time and have an opportunity to make a
statement if they desire to do so.
By Order of the Board of Directors
DAN A. KING
Secretary
May 20, 1999
<PAGE>
Exhibit A
PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE
CERTIFICATE OF INCORPORATION
OF THE CHERRY CORPORATION
RESOLVED, that ARTICLE FOURTH be amended and restated in its
entirety as follows:
FOURTH. The total number of shares of capital stock which the
corporation shall have authority to issue is thirty million (30,000,000) shares
which shall consist of 30,000,000 shares of Common Stock, $1.00 par value per
share.
Upon this Amendment becoming effective pursuant to the General
Corporation Law of the State of Delaware (the "Effective Time"), and
without any further action on the part of the Corporation or its
stockholders, each share of the Corporation's Class A Common Stock,
$1.00 par value, and each share of the Corporation's Class B Common
Stock, $1.00 par value, then issued (including shares held in the
treasury of the Corporation), shall be automatically reclassified,
changed and converted into one (1) fully paid and non-assessable share
of Common Stock $1.00 par value. Any stock certificate that,
immediately prior to the Effective Time, represents shares of Class A
Common Stock or shares of Class B Common Stock, will, from and after
the Effective Time, automatically and without the necessity of
presenting the same for exchange, represent that number of shares of
Common Stock equal to the number of shares of Class A Common Stock or
Class B Common Stock represented by such certificate prior to the
Effective Time. As soon as practicable after the Effective Time, the
Corporation's transfer agent shall mail a transmittal letter to each
record holder who would be entitled to receive a share of Common Stock.
The designations and powers, preferences and rights, and the
qualifications, limitations on restrictions thereof, of the Common
Stock shall be as follows:
(a) General. All authorized shares of Common Stock shall be
available for issuance and may be issued in accordance with the
provisions of this Amended and Restated Certificate of Incorporation,
as from time to time amended, and applicable statutes.
(b) Identical Rights. All shares of common stock will be
identical and will entitle the holders thereof to the same rights and
privileges.
(c) Voting Rights. Except as otherwise provided by applicable
statutes or this Amended and Restated Certificate of Incorporation,
each holder of Common Stock shall have one vote in respect of each
share of stock held by him of record on the books of the Corporation on
all matters voted upon by the stockholders.
(d) Dividends. Subject to all of the rights of any stock
authorized after the Effective Date ranking senior to the Common Stock
as to dividends, dividends may be paid upon the Common Stock as and
when declared by the Board of Directors out of funds and other assets
legally available for the payment of dividends.
(e) Liquidation. In the event of any liquidation, dissolution
or winding up of the corporation, whether voluntary or involuntary, and
after the holders of stock authorized after the Effective Date ranking
senior to the Common Stock as to assets shall have been paid in full
the amounts to which such holders shall be entitled, or an amount
sufficient to pay the aggregate amount to which such holders shall be
entitled shall have been set aside for the benefit of the holders of
such stock, the remaining net assets of the corporation shall be
distributed pro rata to the holders of the Common Stock.
<PAGE>
(f) No Pre-emptive Rights. No stockholder of this corporation
shall by reason of his holding shares of Common Stock have any
pre-emptive or preferential right to purchase or subscribe to any
shares of any class of this corporation, now or hereafter to be
authorized, or any notes, debentures, bonds, or other securities
convertible into or carrying options or warrants to purchase shares of
any class, now or hereafter to be authorized, whether or not the
issuance of any such shares, or such notes, debentures, bonds or other
securities, would adversely affect the dividend or voting rights of
such stockholder, other than such rights, if any, as the Board of
Directors, in its discretion from time to time may grant and at such
price as the Board of Directors in its discretion may fix; and the
Board of Directors may issue shares of any class of this corporation,
or any notes, debentures, bonds, or other securities convertible into
or carrying options or warrants to purchase shares of any class,
without offering any such shares of any class, either in whole or in
part, to the existing stockholders of any class.
(g) Issuances and Repurchases of Common Stock. (1) The Board
of Directors shall have the power to issue and sell all or any part of
any class of stock herein or hereafter authorized to such persons,
firms, associations or corporations, and for such consideration as the
Board of Directors shall from time to time, in its discretion,
determine, whether or not greater consideration could be received upon
the issue or sale of the same number of shares of another class, and as
otherwise permitted by law.
(2) The Board of Directors shall have the power to purchase
any class of stock herein or hereafter authorized from such persons,
firms, associations or corporations, and for such consideration as the
Board of Directors shall from time to time, in its discretion,
determine, whether or not less consideration could be paid upon the
purchase of the same number of shares of another class, and as
otherwise permitted by law.
<PAGE>
PROXY PROXY
FOR USE BY CLASS B STOCKHOLDERS ONLY
THE CHERRY CORPORATION
3600 SUNSET AVENUE, WAUKEGAN, ILLINOIS 60087
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Peter B. Cherry and Dan A. King, or either of
them, as proxies, with full power of substitution, to represent and to vote, as
designated below, all of the undersigned's Class B Common Stock in The Cherry
Corporation at the annual meeting of stockholders of The Cherry Corporation to
be held on Thursday June 17, 1999, and at any adjournment thereof, with the same
authority as if the undersigned were personally present. THE UNDERSIGNED HEREBY
REVOKES ANY PROXY HERETOFORE GIVEN AND ACKNOWLEDGES RECEIPT OF THE NOTICE AND
PROXY STATEMENT FOR THE ANNUAL MEETING. THIS PROXY WHEN PROPERLY EXECUTED WILL
BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
(Please date and sign on reverse side.)
1. Election of Directors
Peter By Cherry, Alfred S. Budnick, FOR WITHHELD FOR ALL
Thomas L. Martin, Jr., Robert B. McDermott, ALL ALL EXCEPT
Peter A. Guglielmi, Charles W. Denny,
W. Ed Tyler, Henry J. West /__/ /__/ /__/
---------------------
Nominee Exception(s)
2. Amendment to Article Fourth of the Company's FOR AGAINST ABSTAIN
Restated Certificate of Incorporation to
eliminate the Company's two classes of /__/ /__/ /__/
common stock by (i) authorizing a new class
of voting common stock and (ii) reclassifying
each issued share of Class A Common Stock
and each issued share of Class B Common
Stock into one share of New Common Stock.
3. Amendment to The Cherry Corporation 1995 FOR AGAINST ABSTAIN
Stock Incentive Plan increasing the number
of common stock available for grant thereunder /__/ /__/ /__/
by __________ shares.
4. In his discretion the, the Proxy is
authorized to vote upon such other
business as may properly come before
the meeting.
(If the stock is registered in the name of
more than one person, the proxy should be
signed by all named holders. If signing as
attorney, executor, administrator, trustee,
guardian, corporate official, etc., please
give full title as such.)
--------------------------------(Signature)
DATED: , 1999
--------------------------------(Signature)
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
PROXY PROXY
FOR USE BY CLASS A STOCKHOLDERS ONLY
THE CHERRY CORPORATION
3600 SUNSET AVENUE, WAUKEGAN, ILLINOIS 60087
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Peter B. Cherry and Dan A. King, or either of
them, as proxies, with full power of substitution, to represent and to vote, as
designated below, all of the undersigned's Class A Common Stock in The Cherry
Corporation at the annual meeting of stockholders of The Cherry Corporation to
be held on Thursday June 17, 1999, and at any adjournment thereof, with the same
authority as if the undersigned were personally present. THE UNDERSIGNED HEREBY
REVOKES ANY PROXY HERETOFORE GIVEN AND ACKNOWLEDGES RECEIPT OF THE NOTICE AND
PROXY STATEMENT FOR THE ANNUAL MEETING. THIS PROXY WHEN PROPERLY EXECUTED WILL
BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
(Please date and sign on reverse ide.)
1. Amendment to Article Fourth of the Company's FOR AGAINST ABSTAIN
Restated Certificate of Incorporation to eliminate
the Company's two classes of common stock by /__/ /__/ /__/
(i) authorizing a new class of voting common stock
and (ii) reclassifying each issued share of Class A
Common Stock and each issued share of Class B
Common Stock into one share of New Common Stock.
2. In his discretion the, the Proxy is authorized
to vote upon such other business as may properly
come before the meeting.
(If the stock is registered in the name of
more than one person, the proxy should be
signed by all named holders. If signing as
attorney, executor, administrator, trustee,
guardian, corporate official, etc., please
give full title as such.)
--------------------------------(Signature)
DATED: , 1999
--------------------------------(Signature)
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
Appendix
--------
Explanatory Note: The Cherry Corporation 1995 Stock Incentive Plan, as amended,
is filed herewith prusuant to Item 10 of Schedule 14A and is not part of the
proxy statement.
THE CHERRY CORPORATION
1995 STOCK INCENTIVE PLAN
(as amended)
1. PURPOSE. The Cherry Corporation, a Delaware corporation (the
"Company"), hereby adopts the 1995 Stock Incentive Plan (the "Plan"). The
purpose of the Plan is to enable the Company to offer officers and other key
employees of the Company and its subsidiaries performance-based incentives and
other equity interests in the Company, thereby attracting, retaining and
rewarding such employees and strengthening the mutuality of interest between the
employees and the Company's stockholders.
2. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") which shall be the Compensation Committee of the Board of Directors
or another committee consisting of not less than two directors of the Company
appointed by the Board of Directors, none of whom shall be eligible to
participate in the Plan and all of whom shall qualify as disinterested persons
within the meaning of Securities and Exchange Commission Rule 16b-3 or any
successor regulation. The Committee may delegate to the Chief Executive Officer
of the Company the administration of benefits granted to non-officer
participants.
3. ELIGIBILITY. Benefits under the Plan shall be granted only to officers
and other key employees of the Company and its subsidiaries selected initially
and from time-to-time thereafter by the Committee on the basis of the special
importance of their services in the management, development and operations of
the Company and its subsidiaries. For these purposes, any corporation,
partnership or other entity in which the Company has a significant financial
interest may qualify as a subsidiary.
4. BENEFITS. The benefits awarded under the Plan shall consist of (a)
stock options, (b) stock appreciation rights, and (c) stock awards.
5. SHARES RESERVED. There is hereby reserved for issuance under the Plan
an aggregate of 900,000 shares of Class A Common Stock of the Company which may
be authorized but unissued or treasury shares plus any shares of Class A Common
Stock remaining under the Company's 1982 Stock Option Plan. All of such shares
may, but need not, be issued pursuant to the exercise of incentive stock
options. The maximum number of shares which may be awarded to any participant in
any fiscal year during the term of the Plan is 90,000 shares. No more than
180,000 shares may be issued as stock awards during the term of the Plan. If
there is a lapse, expiration, termination or cancellation of any option prior to
the issuance of shares thereunder or if shares are issued and thereafter are
reacquired by the Company pursuant to rights reserved upon issuance thereof,
those shares may again be used for new awards under the Plan.
6. STOCK OPTIONS. Stock options shall consist of options to purchase
shares of Class A Common Stock of the Company and shall be either incentive
stock options (within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or any successor legislation) or non-qualified stock options
as determined by the Committee. The option price shall be not less than 100% of
the fair market value of the shares on the date the option is granted and the
price may be paid by check or, in the discretion of the Committee, by the
delivery (or certification of ownership) of shares of Class A or Class B Common
Stock of the Company then owned by the participant. The Committee may also allow
exercise by any other means (including cashless exercise as permitted under
Federal Reserve Board's Regulation T) which the Committee determines to be
consistent with the Plan's purpose and applicable law.
Stock options shall be exercisable at such time or times and subject to such
terms and conditions as shall be determined by the Committee at grant; provided,
however, that no stock option shall be exercisable prior to six months after the
option grant date nor later than ten years after the grant date. In the event of
termination of employment, all stock options shall terminate at such times and
upon such conditions as the Committee shall, in its discretion, set forth in
such options at the date of grant. The aggregate fair market value (determined
as of the time the option is granted) of the shares of Class A Common Stock with
respect to which incentive stock options are exercisable for the first time by a
participant during any calendar year (under all option plans of the Company and
its subsidiaries) shall not exceed $100,000. The Committee may provide, either
at the time of grant or subsequently, that a stock option include the right to
acquire a
<PAGE>
replacement stock option upon exercise of the original stock option (in whole or
in part) prior to termination of employment of the participant and through
payment of the exercise price in shares of Class A or Class B Common Stock. The
terms and conditions of a replacement option shall be determined by the
Committee in its sole discretion.
7. STOCK APPRECIATION RIGHTS. Stock appreciation rights may be granted to
the holder of any stock option granted hereunder. In addition, stock
appreciation rights may be granted independently of and without relation to
options. Each stock appreciation right shall be subject to such terms and
conditions consistent with the Plan as the Committee shall impose from time to
time, including the following:
(a) A stock appreciation right may be granted with respect to a stock
option at the time of its grant or at any time thereafter up to six months
prior to its expiration.
(b) Each stock appreciation right will entitle the holder to elect to
receive the appreciation in the fair market value of the shares subject
thereto up to the date the right is exercised. In the case of a right issued
in relation to a stock option, such appreciation shall be measured from not
less than the option price and in the case of a right issued independently
of any stock option, such appreciation shall be measured from not less than
the fair market value of the Class A Common Stock on the date the right is
granted. Payment of such appreciation shall be made in cash or in Class A
Common Stock, or a combination thereof, as set forth in the award, but no
stock appreciation right shall entitle the holder to receive, upon exercise
thereof, more than the number of shares of Class A Common Stock (or cash of
equal value) with respect to which the right is granted.
(c) Each stock appreciation right will be exercisable at the times and
to the extent set forth therein, but no stock appreciation right may be
exercisable prior to six months after the grant date nor later than ten
years after the grant date. Exercise of a stock appreciation right shall
reduce the number of shares issuable under the Plan (and the related option,
if any) by the number of shares with respect to which the right is
exercised; provided, however, that the exercise of any stock appreciation
right granted independently of an option for cash only shall not reduce the
number of shares issuable under the Plan.
8. STOCK AWARDS. Stock awards will consist of Class A Common Stock
transferred to participants without other payment therefor as additional
compensation for their services to the Company or one of its subsidiaries. A
stock award shall be subject to such terms and conditions as the Committee
determines appropriate including, without limitation, restrictions on the sale
or other disposition of such shares, the right of the Company to reacquire such
shares upon termination of the participant's employment within specified periods
and conditions requiring that the shares be earned in whole or in part upon the
achievement of performance goals established by the Committee over a designated
period of time. The goals established by the Committee may include earnings per
share, total return on stockholder equity, or such other goals as may be
established by the Committee in its discretion.
9. NONTRANSFERABILITY. Stock options and other benefits granted under the
Plan shall not be transferable other than by will or the laws of descent and
distribution and each stock option and stock appreciation right shall be
exercisable during the participant's lifetime only by the participant or the
participant's guardian or legal representative. Notwithstanding the foregoing,
at the discretion of the Committee, an award of a benefit may permit the
transfer of the benefit by the participant solely to members of the
participant's immediate family or trusts or family partnerships for the benefit
of such persons subject to such terms and conditions as may be established by
the Committee.
10. OTHER PROVISIONS. The award of any benefit under the Plan may also be
subject to other provisions (whether or not applicable to the benefit awarded to
any other participant) as the Committee determines appropriate, including such
provisions as may be required to comply with federal or state securities laws
and stock exchange requirements and understandings or conditions as to the
participant's employment.
11. FAIR MARKET VALUE. The fair market value of the Company's Class A
Common Stock at any time shall be determined in such manner as the Committee may
deem equitable or as required by applicable law or regulation.
<PAGE>
12. ADJUSTMENT PROVISIONS.
(a) If the Company shall at any time change the number of issued shares
of Class A Common Stock without new consideration to the Company (such as by
stock dividend or stock split), the total number of shares reserved for
issuance under the Plan and the number of shares covered by each outstanding
benefit shall be adjusted so that the aggregate consideration payable to the
Company, if any, shall not be changed.
(b) Notwithstanding any other provision of the Plan, and without
affecting the number of shares reserved or available hereunder, the Board of
Directors may authorize the issuance or assumption of benefits in connection
with any merger, consolidation, acquisition of property or stock, or
reorganization upon such terms and conditions as it may deem appropriate.
(c) In the event of any merger, consolidation or reorganization of the
Company with any other corporation, there shall be substituted, on an
equitable basis as determined by the Committee, for each share of Class A
Common Stock then reserved for issuance under the Plan and for each share of
Class A Common Stock then subject to a benefit granted under the Plan, the
number and kind of shares of stock, other securities, cash or other property
to which holders of Class A Common Stock of the Company will be entitled
pursuant to the transaction.
13. TAXES. The Company shall be entitled to withhold the amount of any tax
attributable to any shares deliverable under the Plan after giving the person
entitled to receive the shares notice as far in advance as practicable and the
Company may defer making delivery as to any benefit if any such tax is payable
until indemnified to its satisfaction. The Committee may, in its discretion and
subject to rules which it may adopt, permit a participant to pay all or a
portion of the taxes arising in connection with any benefit under the Plan by
electing to have the Company withhold shares of Class A Common Stock from the
shares otherwise deliverable to the participant, having a fair market value
equal to the amount to be withheld.
14. TERM OF PROGRAM; AMENDMENT, MODIFICATION OR CANCELLATION OF
BENEFITS. The Plan shall continue in effect until terminated by the Board
pursuant to Section 15; provided, however, that no incentive stock option shall
be granted more than ten years after the date of the adoption of the Plan by the
Board. The terms and conditions applicable to any benefits granted hereunder may
at any time be amended or cancelled by mutual agreement between the Committee
and the participant or any other persons as may then have an interest therein
and may be unilaterally modified by the Committee whenever such modification is
deemed necessary to protect the Company or its stockholders.
15. AMENDMENT OR DISCONTINUATION OF PLAN. The Board of Directors may amend
the Plan at any time, provided that no such amendment shall be effective unless
approved within 12 months after the date of the adoption of such amendment by
the affirmative vote of a majority of the stockholders entitled to vote if such
stockholder approval is required for the Plan to continue to comply with the
requirements of Securities and Exchange Commission Rule 16b-3. The Board of
Directors may suspend the Plan or discontinue the Plan at any time; provided,
however, that no such action shall adversely affect any outstanding benefit.
16. STOCKHOLDER APPROVAL. The Plan was adopted by the Board of Directors
on May 2, 1995, subject to stockholder approval. The Plan and any benefits
granted thereunder shall be null and void if stockholder approval is not
obtained at the next annual meeting of stockholders.
