<PAGE>
CONFIDENTIAL
--------------------------------------------------------------------------------
CHERRY CORPORATION
PRESENTATION TO THE SPECIAL COMMITTEE
OF THE BOARD OF DIRECTORS
June 1, 2000
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------
1. BACKGROUND
2. SUMMARY OF VALUATION ANALYSES
A. DISCOUNTED CASH FLOW ANALYSES
B. COMPARABLE COMPANY ANALYSES
C. COMPARABLE ACQUISITIONS ANALYSES
D. BREAK-UP ANALYSIS
E. LEVERAGED BUYOUT ANALYSES
F. PREMIUMS ANALYSIS
3. APPENDICES
A. LETTERS FROM SHAREHOLDERS
B. RECENT ARTICLES IN MAJOR PUBLICATIONS
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
-----------------------------------
BACKGROUND
-----------------------------------
--------------------------------------------------------------------------------
- 1 -
<PAGE>
IMPLIED VALUATION OF THE CHERRY GROUP ORIGINAL PROPOSAL ($MM, EXCEPT PER SHARE)
--------------------------------------------------------------------------------
* On April 24, 2000, the Cherry Group proposed to acquire all of the
outstanding shares of Cherry it did not own for $18.75 per share
* The Cherry Group currently owns approximately 54% of the outstanding shares
of Cherry
* The Cherry Group's bid of $18.75 per share implies the following premiums
and multiples:
<TABLE>
<CAPTION>
----------------------------------------------------------
IMPLIED MARKET CAPITALIZATION
----------------------------------------------------------
<S> <C>
OFFER PRICE $18.75
Total Shares Outstanding (MM) 10.04
Plus: Option Value 4.40
-----
EQUITY MARKET VALUE $192.7
Plus: Net Debt (1) (93.0)
------
ADJUSTED MARKET VALUE $99.7
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
SHARE PRICE PREMIUM COMPARISON
-------------------------------------------------------------------------------------------------------
52-WEEK
----------------------
1-DAY 1-WEEK 4-WEEK HIGH LOW
------------ ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
SHARE PRICE PRIOR TO 4/24/00 (2) $13.00 $12.63 $15.50 $26.00 $9.75
PREMIUM IMPLIED BY THE $18.75 OFFER 44.2% 48.5% 21.0% (27.9%) 92.3%
Median Premiums Paid (3) 23.5% 24.7% 27.7% NA NA
IMPLIED CHERRY PURCHASE PRICE $16.06 $15.74 $19.80 NA NA
-------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
CHERRY ACQUISITION MULTIPLES IMPLIED BY $18.75 PER SHARE PRICE
---------------------------------------------------------------------------------------
AMOUNTS
------------------------------------------------------------------
SALES EBITDA EBIT NI BV
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PRO FORMA FY 00 $360.7 $35.9 $11.1 $5.8 $174.2
---------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------
CHERRY ACQUISITION MULTIPLES IMPLIED BY $18.75 PER SHARE PRICE
-------------------------------------------------------------
ADJUSTED MARKET VALUE EQUITY MARKET VALUE
AS A MULTIPLE OF AS A MULTIPLE OF
-------------------------------------- ----------------------
SALES EBITDA EBIT NI BV
------------ ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
0.3x 2.8x 9.0x NM 1.1x
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
COMPARABLE COMPANIES MULTIPLES (BASED ON MEDIAN)
---------------------------------------------------------------------------------------------------------------------------------
ADJUSTED MARKET VALUE
AS A MULTIPLE OF
---------------------------------------------------
SALES EBITDA EBIT FCF P/E
------------ ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
AUTOMOTIVE ELECTRONICS COMPARABLE COMPANIES LTM MULTIPLES 0.9x 7.7x 12.6x 14.2x 22.3x
COMPUTER PERIPHERALS COMPARABLE COMPANIES LTM MULTIPLES 1.4x 10.8x 10.1x 12.8x 11.4x
SWITCHES & CONTROLS COMPARABLE COMPANIES LTM MULTIPLES 0.5x 8.2x 9.6x 7.6x 14.2x
AUTOMOTIVE ELECTRONICS COMPARABLE ACQUISITIONS LTM MULTIPLES 0.9x 7.3x 10.7x NA 17.8x
COMPUTER PERIPHERALS COMPARABLE ACQUISITIONS LTM MULTIPLES 1.6x 7.5x 13.2x NA 20.7x
SWITCHES & CONTROLS COMPARABLE ACQUISITIONS LTM MULTIPLES NA NA NA NA NA
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------
(1) Reflects net debt pro forma as of 3/31/00 and proceeds received in the sale
of CSC
(2) The Cherry Group announced their proposal on 4/24/00
(3) Reflects the median premiums paid since 1/1/96 for close-outs of minority
stakes of acquirors with at least 50% ownership prior to bid
-2-
<PAGE>
OVERVIEW OF PROCESS TO DATE
--------------------------------------------------------------------------------
- ON APRIL 24TH, 2000, A PETER CHERRY AND HIS AFFILIATES (THE "CHERRY GROUP")
PROPOSED TO ACQUIRE THE OUTSTANDING SHARES OF THE CHERRY CORPORATION
("CHERRY") NOT ALREADY OWNED BY THE CHERRY GROUP FOR $18.75 PER SHARE IN
CASH (SUCH PROPOSAL, THE "PROPOSAL")
- The $18.75 proposal represents an approximately 44% premium to the
April 20th closing price of Cherry's common stock
- The Cherry Group owns approximately 54.5% of the common shares of
Cherry
- The Cherry Group would finance the share purchase with Company's cash
on hand
- In a press release dated April 24, 2000, Peter Cherry indicated he was
not interested in selling his shares of Cherry
- ON APRIL 27TH, 2000, WASSERSTEIN PERELLA & CO. ("WP&CO.") MADE A
PRESENTATION TO REPRESENTATIVES OF THE SPECIAL COMMITTEE AND SIDLEY &
AUSTIN, LEGAL ADVISORS TO THE SPECIAL COMMITTEE
- ON MAY 1ST, WP&CO. WAS RETAINED BY THE SPECIAL COMMITTEE TO ADVISE IT WITH
RESPECT TO THE PROPoSAL
- WP&Co. received a package of various documents from advisors to the
Cherry Group, including internal budgets prepared in February 2000 and
revised in April
- Upon receipt of this package, WP&Co. commenced its due diligence
- ON MAY 10TH, WP&CO. MET WITH PETER CHERRY AND FINANCIAL ADVISORS FROM BANC
OF AMERICA SECURITIES ("BOFA") TO DISCUSS CHERRY'S OPERATIONS, BUSINESS
PLAN AND FUTURE PROSPECTS
- During this meeting, Peter Cherry repeatedly emphasized he was not a
seller of his shares of Cherry
- CONFERENCE CALLS WERE HELD ON MAY 11TH, MAY 12TH, MAY 13TH AND MAY 15TH
WITH CHERRY AND BOFA TO CONTINUE THE DUE DILIGENCE PROCESS
- ON MAY 18TH, THE SPECIAL COMMITTEE, WP&CO. AND SIDLEY & AUSTIN MET TO
DISCUSS THE PROPOSAL
--------------------------------------------------------------------------------
- 3 -
<PAGE>
OVERVIEW OF PROCESS TO DATE (CONT'D)
--------------------------------------------------------------------------------
- ON MAY 19TH, THE CHAIRMAN AND CEO OF ANOTHER COMPANY ("COMPANY A") SPOKE
WITH WP&CO. AND EXPRESSED INTEREST IN CHERRY
- ON MAY 22ND, WP&CO. RECEIVED A LETTER FROM COMPANY A STATING INTEREST IN
ACQUIRING CHERRY AT $26.00 PER SHARE. THIS INDICATION WAS SUBJECT TO
VARIOUS CONDITIONS INCLUDING A DUE DILIGENCE REVIEW, THE UNANIMOUS
RECOMMENDATION OF THE CHERRY BOARD AND THE ACCEPTANCE OF THE TENDER OFFER
BY ALL SHAREHOLDERS
- WP&Co. had a conference call with the Special Committee and Sidley
Austin that night to discuss the letter
- WP&Co. advised Company A that the Special Committee would respond to
the offer as soon as possible
- WP&Co. also informed BofA of the letter
- ON MAY 23RD, CHERRY ANNOUNCED THAT IT HAD RECEIVED A PROPOSAL FROM ANOTHER
COMPANY FOR THE ACQUISITION OF CHERRY FOR $26.00 PER SHARE IN CASH
- ON MAY 24TH, WP&CO. RECEIVED ANOTHER LETTER FROM COMPANY A STATING ITS
DISAPPOINTMENT IN NOT BEING ABLE TO RECEIVE ANY RESPONSE TO ITS INDICATION
OF INTEREST
- WP&Co. contacted Company A and reiterated that Mr. Cherry owned nearly
55% of the stock and was advised that he was not a seller
- ON MAY 24TH, WP&CO. ALSO RECEIVED A CALL FROM AN INVESTMENT BANK
REPRESENTING ANOTHER COMPANY ("COMPANY B"). THE INVESTMENT BANK EXPRESSED
INTEREST IN CHERRY ON BEHALF OF COMPANY B
- In a subsequent call with Company B, the CEO of Company B advised
WP&Co. that it was adopting a "wait and see" attitude with the Cherry
situation and that it did not have a point of view regarding value for
Cherry
- ON MAY 25TH, A THIRD COMPANY ("COMPANY C") CALLED WP&CO. AND EXPRESSED
INTEREST IN CHERRY
- Company C indicated that they had not formed a view regarding price
but characterized the $26.00 per share offer by Company A as
compelling
--------------------------------------------------------------------------------
- 4 -
<PAGE>
OVERVIEW OF PROCESS TO DATE (CONT'D)
--------------------------------------------------------------------------------
- ON MAY 25TH, WP&CO. HAD A CONFERENCE CALL WITH BOFA AND MANAGEMENT OF
CHERRY TO DISCUSS THE DIFFERENCES BETWEEN WP&CO. AND BOFA'S OPERATING
PROJECTIONS
- ON MAY 26TH, A FINANCIAL BUYER ("FINANCIAL BUYER") CALLED WP&CO. AND
EXPRESSED INTEREST IN CHERRY
- Financial Buyer indicated they did not have a point of view regarding
value for Cherry, but were a process initiated, they would be
interested in participating
- ON MAY 30TH, WP&CO. RECEIVED A LETTER FROM COMPANY A STATING THAT IT
WITHDREW ITS OFFER TO PROCEED WITH AN ACQUISITION OF CHERRY DUE TO A LACK
OF RESPONSE REGARDING COMPANY A'S INTEREST
- The Special Committee, through its Chairman, responded to Company A in
a letter dated May 30, 2000 stating that the Special Committee
appreciated the offer and intended to respond to it as soon as
practicable and that Company A should not presume any lack of interest
on the part of the Special Committee
- ACTING AS A REPRESENTATIVE OF THE SPECIAL COMMITTEE, ON MAY 30TH, WP&CO.
CONTACTED PETER CHERRY'S ADVISORS TO PROPOSE THAT PETER CHERRY INCREASE HIS
OFFER FOR THE MINORITY STAKE TO $26.00 PER SHARE AND CONCURRENTLY AGREE TO
SELL HIS SHARES OF CHERRY TO ANY REASONABLE BUYER AT A PRICE ABOVE $26.00
- ON THE EVENING OF MAY 30TH, PETER CHERRY'S ADVISORS CONTACTED WP&CO. TO
INDICATE THAT WHILE MR. CHERRY HAD NOT MADE A DECISION REGARDING HIS
PROPOSAL, HE WAS PREPARED TO DISCUSS AN OFFER TO ACQUIRE THE REMAINING
SHARES OF CHERRY FOR $24.00 PER SHARE
--------------------------------------------------------------------------------
- 5 -
<PAGE>
CHERRY FINANCIAL SUMMARY ($MM, EXCEPT PER SHARE)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
PRO FORMA FYE 2/28 ESTIMATE (1)
FY 12/31 2/28/97 2/28/98 2/28/99 2/28/00 2/28/01 2/28/02
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES $339.8 $340.8 $359.9 $360.7 $348.2 $378.5
Less: Cost of Sales 254.1 252.1 261.7 268.7 257.4 280.6
------ ------ ------ ------ ------ ------
Gross Margin 85.7 88.7 98.2 92.0 90.7 97.9
Less: S, G & A Expense 70.4 71.5 77.4 82.4 75.0 81.5
Less: Other Exp. (Inc.) (2.8) (1.2) (1.0) (1.5) (0.9) (1.1)
----- ----- ----- ----- ----- -----
EBIT (2) 18.1 18.4 21.8 11.1 16.6 17.5
Less: Interest Exp. 1.2 0.7 0.8 2.9 (2.3) (2.3)
---- ---- ---- ---- ----- -----
EBT 16.9 17.7 21.0 8.2 18.9 19.9
Less: Income Tax Exp. 6.2 6.8 7.1 2.4 7.2 8.0
---- ---- ---- ---- ---- ----
NET INCOME $10.7 $10.9 $13.9 $5.8 $11.7 $11.9
-------------------------------------------------------------------------------------------
EBIT $18.1 $18.4 $21.8 $11.1 $16.6 $17.5
Plus: Dep. & Amort. 20.6 21.0 23.7 24.8 25.3 26.6
----- ----- ----- ----- ----- -----
EBITDA 38.7 39.5 45.4 35.9 41.9 44.2
Less: Capital Exp. 31.3 27.1 32.4 30.7 43.1 28.5
----- ----- ----- ----- ----- -----
FREE CASH FLOW $7.4 $12.4 $13.0 $5.2 ($1.2) $15.7
-------------------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
MARGINS & GROWTH
<TABLE>
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES GROWTH -- 0.3% 5.6% 0.2% (3.5%) 8.7%
GROSS MARGIN 25.2% 26.0% 27.3% 25.5% 26.1% 25.9%
SG&A 20.7% 21.0% 21.5% 22.8% 21.5% 21.5%
EBITDA 11.4% 11.6% 12.6% 10.0% 12.0% 11.7%
EBIT 5.3% 5.4% 6.0% 3.1% 4.8% 4.6%
NET INCOME 3.2% 3.2% 3.9% 1.6% 3.4% 3.1%
CAPITAL EXPENDITURES 9.2% 7.9% 9.0% 8.5% 12.4% 7.5%
FREE CASH FLOW 2.2% 3.6% 3.6% 1.4% NM 4.1%
-------------------------------------------------------------------------------------------
</TABLE>
------------------------------------------------------------------------
MARKET CAPITALIZATION
<TABLE>
------------------------------------------------------------------------
<S> <C> <C> <C>
SHARE PRICE (5/31/00) $20.00
52-WEEK HIGH/LOW: $26.00 / $9.75
Shares Outstanding (MM) 10.04
Options Outstanding (MM) 0.87
Weighted Average Strike Price $13.70
FULLY DILUTED EQUITY MARKET VALUE $206.3
Plus: Debt (net of cash) as of $74.6
3/31/00
Less: Cash & Equivalents 0.0
Less: Proceeds from Sale of CSC 236.6
Plus: Income Taxes Payable on Sale 69.0
of CSC
Net Debt (3) (93.0)
------
ADJUSTED MARKET VALUE $113.3
------------------------------------------------------------------------
</TABLE>
------------------------------------------------------------------------
MARKET TRADING MULTIPLES
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Adjusted Market Value as Market Value as
a multiple of: a multiple of:
Sales EBITDA EBIT FCF Net Inc. Book Val.
----- ------ ---- --- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
LTM 0.3X 3.2X 10.2X 21.7X 35.5X 1.2X
FY 01 0.3X 2.7X 6.8X NM 17.6X 1.1X
FY 02 0.3X 2.6X 6.5X 7.2X 17.4X 1.0X
------------------------------------------------------------------------
</TABLE>
------------------------------------------------------------------------
LTM CAPITALIZATION AND CREDIT RATIOS
<TABLE>
<CAPTION>
------------------------------------------------------------------------
DEBT COVERAGE
EBITDA/Int. EBIT/Int. FCF/Int. Debt/EBITDA
----------- --------- -------- -----------
<S> <C> <C> <C>
12.4x 3.8x 1.8x 2.1x
------------------------------------------------------------------------
<CAPTION>
CAPITALIZATION
BOOK RATIOS MARKET RATIOS
D/E D/(D+E) D/E D/(D+E)
--- ------- --- -------
<S> <C> <C> <C>
42.8% 30.0% 36.2% 26.6%
------------------------------------------------------------------------
</TABLE>
------------------
SOURCES: 1997 DATA BASED ON PUBLIC FILINGS; 1998-2002 DATA ARE BASED ON FEBRUARY
BUDGET (ADJUSTED FOR EXCHANGE RATE CHANGE IN 2001-2002) ALL NUMBERS ARE PRO
FORMA FOR SALE OF CHERRY'S SEMICONDUCTOR BUSINESS ("CSC")
(1) Forecast based on Budget/Improved Margins Case and adjusted for the change
in the Dollar/Euro exchange rate
(2) 2001E and 2002E EBITs have been adjusted for a $2.2 million and $2.3 million
correction in the automotive division, respectively
(3) As of 3/31/00 and pro forma for after-tax proceeds from sale of CSC; book
value of debt assumed to approximate market value of debt
--------------------------------------------------------------------------------
-6-
<PAGE>
MULTIPLE SENSITIVITY TABLE ($MM, EXCEPT PER SHARE)
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
PRICE PER SHARE $ 18.75 $ 23.00 $ 24.00 $ 25.00 $ 26.00 $ 27.00 $ 28.00
PREMIUM (1) 44% 77% 85% 92% 100% 108% 115%
FULLY DILUTED SHARES (2) 10.3 10.4 10.4 10.4 10.5 10.5 10.5
------- ------- ------- ------- ------- ------- -------
EQUITY PURCHASE PRICE $ 192.7 $ 239.1 $ 250.0 $ 260.9 $ 271.8 $ 282.7 $ 293.6
PLUS: NET DEBT AS OF 3/31/00 (3) (93.0) (93.0) (93.0) (93.0) (93.0) (93.0) (93.0)
------- ------- ------- ------- ------- ------- -------
TOTAL PURCHASE PRICE $ 99.7 $ 146.1 $ 157.0 $ 167.9 $ 178.8 $ 189.7 $ 200.7
<S> <C> <C>
PRICE PER SHARE $ 29.00 $ 30.00
PREMIUM (1) 123% 131%
FULLY DILUTED SHARES (2) 10.5 10.5
------- -------
EQUITY PURCHASE PRICE $ 304.5 $ 315.5
PLUS: NET DEBT AS OF 3/31/00 (3) (93.0) (93.0)
------- -------
TOTAL PURCHASE PRICE $ 211.6 $ 222.5
</TABLE>
<TABLE>
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SALES 2000 PF $ 360.7 0.3 x 0.4 x 0.4 x 0.5 x 0.5 x 0.5 x 0.6 x
2001E PF 348.2 0.3 x 0.4 x 0.5 x 0.5 x 0.5 x 0.5 x 0.6 x
EBITDA 2000 PF $ 35.9 2.8 x 4.1 x 4.4 x 4.7 x 5.0 x 5.3 x 5.6 x
2001E PF 41.9 2.4 x 3.5 x 3.7 x 4.0 x 4.3 x 4.5 x 4.8 x
EBIT 2000 PF $ 11.1 9.0 x 13.1 x 14.1 x 15.1 x 16.1 x 17.1 x 18.0 x
2001E PF 16.6 6.0 x 8.8 x 9.4 x 10.1 x 10.8 x 11.4 x 12.1 x
FCF 2000 PF $ 5.2 19.1 x 28.0 x 30.1 x 32.2 x 34.3 x 36.4 x 38.5 x
2001E PF (1.2) NM NM NM NM NM NM NM
<S> <C> <C> <C>
SALES 2000 PF 0.6 x 0.6 x
2001E PF 0.6 x 0.6 x
EBITDA 2000 PF 5.9 x 6.2 x
2001E PF 5.1 x 5.3 x
EBIT 2000 PF 19.0 x 20.0 x
2001E PF 12.7 x 13.4 x
FCF 2000 PF 40.5 x 42.6 x
2001E PF NM NM
</TABLE>
---------------------------
(1) Premium to closing price of $13.000 on 04/20/00, 1 day prior to bid by the
Cherry Group
(2) Includes 0.871 million options outstanding with a $13.70 weighted average
exercise price
(3) Reflects net debt as of 3/31/00 pro forma for sale of CSC
--------------------------------------------------------------------------------
-7-
<PAGE>
INDEXED STOCK PRICE PERFORMANCE LAST TWO YEARS
--------------------------------------------------------------------------------
- CHERRY'S STOCK HAS GENERALLY UNDERPERFORMED COMPARABLE AUTOMOTIVE
ELECTRONICS AND COMPUTER PERIPHERALS STOCKS
[GRAPH]
(1) Auto Electronics Composite includes BEI Technologies, Littelfuse, Methode
Electronics, OEA Inc. and Stoneridge
(2) Computer Peripherals Composite includes Astronics, Cybex Computer
Products, Key Tronic Corp., Printronix, and SMC Corp.
--------------------------------------------------------------------------------
- 8 -
<PAGE>
CHERRY DISTRIBUTION OF VOLUME LAST TWO YEARS
--------------------------------------------------------------------------------
- 89% OF TRADING VOLUME HAS BEEN AT OR BELOW THE CHERRY GROUP'S $18.75 PER
SHARE BID OVER THE LAST TWO YEARS (CLASS A PRE-6/21/99)(1)
[GRAPH]
-------------------
(1) Source: Factset
--------------------------------------------------------------------------------
- 9 -
<PAGE>
CHERRY ANNOTATED STOCK PRICE LAST TWO YEARS
--------------------------------------------------------------------------------
[GRAPH]
--------------------------------------------------------------------------------
- 10 -
<PAGE>
SIGNIFICANT TRANSACTION/VALUATION ISSUES
--------------------------------------------------------------------------------
- CHERRY DOES NOT APPEAR TO OFFER THE PROMISE OF SIGNIFICANT VALUE
ENHANCEMENT AS A PUBLIC COMPANY
- THE COMPANY'S STOCK HAS SUFFERED IN PART DUE TO THE FOLLOWING:
- Overhang due to the Cherry family's ownership stake
- Weakening in automotive equities
- Small public float
- Low trading volume
- No current equity coverage
- Inability of equity funds to buy stock
- Mini-conglomerate discount
- Unarticulated investment strategy for proceeds generated from sale of
CSC
- Poor history of achieving objectives, particularly with regard to weak
U.S. automotive results for FY 2000
- Failure of prior attempts to improve stock price (sale of
semiconductor business, Dutch auction and share repurchases)
--------------------------------------------------------------------------------
- 11 -
<PAGE>
SIGNIFICANT TRANSACTION/VALUATION ISSUES (CONT'D)
--------------------------------------------------------------------------------
- AS AN ALTERNATIVE TO THE CHERRY GROUP'S OFFER, CHERRY MAY NOT BE A STRONG
ACQUISITION TARGET
- No strategic automotive or computer peripherals company "must own"
Cherry
- Financial buyers would not be able to execute a transaction without
the Cherry family's support
- The equity market and investor community is questioning some of the
multiples paid for recent automotive component acquisitions
- Financial buyers would have great difficulty financing a bid without
dramatic cuts in capital expenditure
- THE UNIVERSE OF COMPARABLE TRANSACTIONS AND COMPARABLE COMPANIES IS VERY
LIMITED
- Comparable Acquisitions:
- Significant number of automotive electronic transactions, but
virtually none with public data relevant to Cherry's operations
and size
- Computer peripheral transactions reviewed by WP&Co. incorporated
a wide variety of products at different price and margin points
- There are no appropriate switches & controls transactions for
WP&Co. to study
- Comparable Public Companies
- There are limited number of automotive electronic companies, but
all have a significantly more profitable margin structure
- Computer peripheral companies encompassed a variety of products.
The one "pure" keyboard business has mainly a U.S. focus and
sales base
- There were no appropriate switches & controls companies since
most switch and control operations are part of large
multinationals, i.e. AlliedSignal, Matsushita, ITW, etc.
--------------------------------------------------------------------------------
- 12 -
<PAGE>
SIGNIFICANT TRANSACTION/VALUATION ISSUES (CONT'D)
--------------------------------------------------------------------------------
- THE COMPANY HAS TAKEN THE FOLLOWING ACTIONS, NONE OF WHICH HAS RESULTED IN
A MEANINGFUL LONG-TERM IMPROVEMENT IN ITS STOCK PRICE:
- Dutch Auction, December 1998: Company purchased 2.3mm shares,
approximately 18.1% of the then outstanding shares, at a price of
$15.50 per share
- Stock's average closing price for January 1999 was $14.24
- Open Market Repurchases, from March 1999 to October 1999: Company
purchased 154,000 shares, approximately 1.5% of the then outstanding
shares, at a price of $12.68 per share
- Stock's average closing price for November 1999 was $11.54
- Announce "review of strategic alternatives" for Cherry Semiconductor
on January 27, 2000
- Stock's average closing price for February 2000 was $18.86
- Announce sale of Cherry Semiconductor on March 9, 2000
- Stock's average closing price for April 2000 was $14.93
- THERE IS NO STRONG REASON FOR THE STOCK TO TRADE UP SIGNIFICANTLY IF A
TRANSACTION WITH THE CHERRY GROUP IS NOT CONSUMMATED. IN FACT, THE STOCK IS
MORE LIKELY TO SIGNIFICANTLY TRADE DOWN AND, GIVEN THE FACTORS LISTED
ABOVE, MAY STAY DEPRESSED FOR SOME TIME
--------------------------------------------------------------------------------
- 13 -
<PAGE>
DUE DILIGENCE ISSUES
--------------------------------------------------------------------------------
- WP&CO. HAS REVIEWED CHERRY FINANCIALS
- The 2001-2003 Company Budget - This is the budget that the Board has
reviewed. It has been adjusted only for the change in the Dollar/Euro
exchange rate and $2.2 million, $2.3 million and $2.5 million EBIT
corrections in the automotive division in 2001-2003, respectively, due
to an error in the original budget
- WP&CO. HAS CREATED THREE SCENARIOS BASED ON THE 2001-2003 COMPANY BUDGET
- Budget/Improved Margins Case: 2001-2003 operating data are based on
the Company Budget; WP&Co. assumes improved margins in 2004-2006 due
to economies of scale generated by fixed costs absorbed by increased
sales volumes and from historically high levels of capital investment
- Budget/Flat Margins Case: 2001-2003 operating data are based on the
Company Budget; WP&Co. assumes EBIT and EBITDA margins stay flat at
2003 levels for 2004-2006
- Budget/Recession Case: 2001 operating data are based on the Company
Budget; WP&Co. assumes the Company will go through a recession
starting in 2002 and slowly recover in 2003-2006. The table below
illustrates the sales growth assumptions used in the Budget/Recession
Case on a segment basis compared against the assumptions which are
reflected in the Budget/Improved Margin Case:
<TABLE>
<CAPTION>
ANNUAL SALES GROWTH
-------------------------------
FY 2002 FY 2003
-------------- --------------
<S> <C> <C>
AUTOMOTIVE
Budget/Improved Margins Case (6.8%) 13.5%
Budget/Recession Case (11.0%) (3.0%)
CHERRY ELECTRICAL PRODUCTS
Budget/Improved Margins Case 15.4% 12.6%
Budget/Recession Case 3.0% 4.0%
CHERRY GmbH (EUROPE)
Budget/Improved Margins Case 12.6% 19.9%
Budget/Recession Case (3.6%) 0.0%
</TABLE>
--------------------------------------------------------------------------------
- 14 -
<PAGE>
DUE DILIGENCE ISSUES (CONT'D)
--------------------------------------------------------------------------------
REVIEW OF 2001-2003 COMPANY BUDGET
- THE 2001-2003 COMPANY BUDGET ALSO SHOWS THE FOLLOWING EBIT MARGINS AND
PERCENTAGES OF TOTAL (1)
<TABLE>
<CAPTION>
1997 1998 1999 2000
------------------ ------------------ ------------------- -------------------
% of % of % of % of
Margin Total Margin Total Margin Total Margin Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Auto 4.1% 30.5% 3.1% 22.1% 4.2% 26.9% 0.7% NM
Keyboards 7.5% 42.3% 11.5% 55.4% 16.5% 68.7% 15.7% NM
Switches 5.5% 27.2% 4.8% 22.5% 1.1% 4.4% (3.4%) NM
Total 5.6% 100.0% 6.0% 100.0% 6.9% 100.0% 3.8% 100.0%
<CAPTION>
2001 2002 2003
------------------- ------------------- -------------------
% of % of % of
Margin Total Margin Total Margin Total
Auto (0.1%) NM (0.5%) NM 3.8% 19.7%
Keyboards 16.5% NM 15.5% NM 16.6% 61.6%
Switches 3.1% NM 3.8% NM 5.3% 18.6%
Total 5.7% 100.0% 5.6% 100.0% 8.1% 100.0%
</TABLE>
- It is unusual to see any automotive business with such low margins and
for such an extended period given the current auto cycle
- The margins for Switches & Controls appear low, while the Keyboard
margins appear high
- Cherry Gmbh: Represents roughly half of sales
- Cherry Electric: Represents a quarter of the sales
- Cherry Automotive: Represents a quarter of the sales and generates
materials losses in all the years (2001-2003) on the Company Budget
- THE COMPANY HAS SPENT FROM 7.9% TO 9.8% OF SALES, OR $27MM TO $32MM PER
YEAR, IN CAPITAL EXPENDITURES DURING THE PERIOD 1996 TO 2000
- Based on the Company Budget, the Company is projected to spend $43mm /
12% in 2001, $29mm / 8% in 2002, $30mm / 7% in 2003 on capital
expenditures and still generate unattractive margins
-----------------------------
(1) Note: Only Sales and EBIT data was provided by business segment for the
Company Budget; excludes all corporate expenses
--------------------------------------------------------------------------------
- 15 -
<PAGE>
ASSUMPTIONS ($MM)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
BUDGET/IMPROVED MARGINS CASE
------------------------------------------------------------------------------------------------------------------------------------
2001P 2002P 2003P 2004P (1)
----- ----- ----- ---------
<S> <C> <C> <C> <C>
SALES $348.2 $378.5 $440.5 $463.9
SALES GROWTH (2) (3.5%) 8.7% 16.4% 5.0%
EBIT $16.6 $17.5 $31.6 $37.6
EBIT Margin 4.8% 4.6% 7.2% 8.1%
EBITDA $41.9 $44.2 $61.5 $69.0
EBITDA MARGIN 12.0% 11.7% 14.0% 14.9%
Capital Expenditures $43.1 $28.5 $30.4 $31.4
Capital Expenditures (% of Sales) 12.4% 7.5% 6.9% 6.8%
Depreciation and Amortization $25.3 $26.6 $29.9 $31.4
Depreciation and Amortization (% of Sales) 7.3% 7.0% 6.8% 6.8%
<CAPTION>
2005P (1) 2006P (1)
--------- ---------
<S> <C> <C>
SALES $488.5 $514.4
SALES GROWTH (2) 5.0% 5.0%
EBIT $43.9 $50.6
EBIT Margin 9.0% 9.8%
EBITDA $76.9 $85.2
EBITDA MARGIN 15.7% 16.6%
Capital Expenditures $33.0 $34.6
Capital Expenditures (% of Sales) 6.7% 6.7%
Depreciation and Amortization $33.0 $34.6
Depreciation and Amortization (% of Sales) 6.7% 6.7%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
BUDGET/FLAT MARGINS CASE
------------------------------------------------------------------------------------------------------------------------------------
2001P 2002P 2003P 2004P (1)
----- ----- ----- ---------
<S> <C> <C> <C> <C>
SALES $348.2 $378.5 $440.5 $462.5
SALES GROWTH (3.5%) 8.7% 16.4% 5.0%
EBIT $16.6 $17.5 $31.6 $33.3
EBIT Margin 4.8% 4.6% 7.2% 7.2%
EBITDA $41.9 $44.2 $61.5 $64.6
EBITDA MARGIN 12.0% 11.7% 14.0% 14.0%
Capital Expenditures $43.1 $28.5 $30.4 $31.3
Capital Expenditures (% of Sales) 12.4% 7.5% 6.9% 6.8%
Depreciation and Amortization $25.3 $26.6 $29.9 $31.3
Depreciation and Amortization (% of Sales) 7.3% 7.0% 6.8% 6.8%
<CAPTION>
2005P (1) 2006P (1)
--------- ---------
<S> <C> <C>
SALES $485.6 $509.7
SALES GROWTH 5.0% 5.0%
EBIT $35.1 $36.9
EBIT Margin 7.2% 7.2%
EBITDA $67.8 $71.2
EBITDA MARGIN 14.0% 14.0%
Capital Expenditures $32.8 $34.3
Capital Expenditures (% of Sales) 6.7% 6.7%
Depreciation and Amortization $32.8 $34.3
Depreciation and Amortization (% of Sales) 6.7% 6.7%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
BUDGET/RECESSION CASE
------------------------------------------------------------------------------------------------------------------------------------
2001P 2002P (1) 2003P (1) 2004P (1)
----- --------- --------- ---------
SALES $348.2 $332.6 $329.2 $345.8
SALES GROWTH (3.5%) (4.5%) (1.0%) 5.0%
EBIT $16.6 $1.5 $11.2 $15.0
EBIT Margin 4.8% 0.4% 3.4% 4.3%
EBITDA $41.9 $23.1 $31.4 $34.9
EBITDA MARGIN 12.0% 7.0% 9.6% 10.1%
Capital Expenditures $43.1 $24.8 $22.7 $21.4
Capital Expenditures (% of Sales) 12.4% 7.5% 6.9% 6.2%
Depreciation and Amortization $25.3 $21.6 $20.3 $19.9
Depreciation and Amortization (% of Sales) 7.3% 6.5% 6.2% 5.7%
<CAPTION>
2005P (1) 2006P (1)
--------- ---------
<S> <C> <C>
SALES $363.1 $381.3
SALES GROWTH 5.0% 5.0%
EBIT $19.1 $23.4
EBIT Margin 5.3% 6.1%
EBITDA $38.7 $43.9
EBITDA MARGIN 10.7% 11.5%
Capital Expenditures $19.6 $20.5
Capital Expenditures (% of Sales) 5.4% 5.4%
Depreciation and Amortization $19.6 $20.5
Depreciation and Amortization (% of Sales) 5.4% 5.4%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
---------------------
(1) WP&Co. assumptions
(2) Excludes intercompany sales eliminations
-16-
<PAGE>
RECONCILIATION BETWEEN WP&CO.'S BUDGET CASE AND BOFA'S BUDGET CASE ($MM)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
KEY BUDGET/IMPROVED MARGINS CASE ASSUMPTIONS
-----------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDING 2/28
---------------------------------------------------------------------------------
2001P 2002P 2003P 2004P 2005P 2006P
----------- ---------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
WP&Co. Sales $348.2 $378.5 $440.5 $463.9 $488.5 $514.4
BofA Sales 359.2 378.5 440.5 467.0 495.0 524.7
----- ----- ----- ----- ----- -----
Difference (11.0) 0.0 0.0 (3.1) (6.5) (10.3)
</TABLE>
REASON FOR THE DIFFERENCE:
- BOFA 2001 SALES INCLUDED ONE-MONTH CSC SALES OF $11.0MM
- BOFA ASSUMED A 6.0% SALES GROWTH RATE IN 2004-2006 VERSUS WP&CO'S 5.3%
SALES GROWTH RATE (INCLUDING INTERCOMPANY SALES)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WP&Co. COGS $257.4 $280.6 $321.8 $336.7 $352.2 $368.5
BofA COGS 259.4 272.7 313.2 335.5 355.7 377.0
----- ----- ----- ----- ----- -----
Difference (2.0) 7.9 8.6 1.2 (3.5) (8.5)
</TABLE>
REASON FOR THE DIFFERENCE:
- FOR 2001-2003, BOFA ASSUMED THE DIFFERENCES IN ALL COSTS (BOTH COGS AND
OPERATING EXPENSES) DUE TO THE CHANGE IN DOLLAR/EURO EXCHANGE RATE WERE ALL
IN COGS; WP&CO. ADJUSTED ONLY COGS OF EUROPEAN OPERATIONS FOR THE CHANGE IN
DOLLAR/EURO EXCHANGE RATE
- Additionally, BofA's assumptions don't reflect corrections to the
Budget/Improved Margins case, as directed by management, which reduce
EBIT and EBITDA; these corrections are reflected in WP&Co.'s
assumptions
- BOFA ASSUMED A 72.8% COGS MARGIN IN 2004-2006 (71.1% IN 2003) VERSUS
WP&CO.'S COGS MARGINS OF 72.6%, 72.1% AND 71.7% IN 2004-2006, RESPECTIVELY
(73.1% IN 2003)
- Improvements in WP&Co.'s GOGS margins were due to certain fixed
overhead costs. Management claimed that fixed overhead costs had to
increase in order for sales to grow
--------------------------------------------------------------------------------
- 17 -
<PAGE>
RECONCILIATION BETWEEN WP&CO.'S BUDGET CASE AND BOFA'S BUDGET CASE ($MM)
(CONT'D)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
KEY BUDGET/IMPROVED MARGINS CASE ASSUMPTIONS
------------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDING 2/28
-----------------------------------------------------------------------------------
2001P 2002P 2003P 2004P 2005P 2006P
------------ ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
WP&Co. Operating Expenses(1) $74.1 $80.4 $87.1 $89.7 $92.4 $95.2
BofA Operating Expense 79.4 86.0 93.2 98.8 104.7 111.0
---- ---- ---- ---- ----- -----
Difference (5.3) (5.6) (6.1) (9.1) (12.3) (15.8)
</TABLE>
REASON FOR THE DIFFERENCE:
- FOR 2001-2003, BOFA ASSUMED THE OPERATING EXPENSES WERE THE SAME AS IN THE
ORIGINAL BUDGET BEFORE THE CHANGE IN DOLLAR/EURO EXCHANGE RATE; WP&CO.
ADJUSTED OPERATING EXPENSES OF EUROPEAN OPERATIONS FOR THE CHANGE IN
DOLLAR/EURO EXCHANGE RATE
- BOFA ASSUMED A 21.2% OPERATING EXPENSES MARGIN IN 2004-2006 (21.2% IN 2003)
VERSUS WP&CO.'S OPERATING EXPENSES MARGINS OF 19.3%, 18.9% AND 18.5% IN
2004-2006, RESPECTIVELY (19.6% IN 2003)
- Improvements in WP&Co.'s operating expenses margins were because most
operating costs were considered fixed, adjusted only for inflation
rate (approximately 3% increase). Management claimed operating
expenses should grow at least 4-4.5% since wage increases alone would
require an approximate 3.0% increase
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WP&Co. EBIT $16.6 $17.5 $31.6 $37.6 $43.9 $50.6
BofA EBIT 20.4 19.8 34.1 32.7 34.6 36.7
---- ---- ---- ---- ---- ----
Difference (3.8) (2.3) (2.5) 4.9 9.3 13.9
</TABLE>
REASON FOR THE DIFFERENCE:
- BOFA 2001 EBIT INCLUDED ONE-MONTH CSC EBIT OF $1.6 MILLION AND WAS NOT
ADJUSTED FOR EBIT CORRECTIONS IN THE AUTOMOTIVE DIVISION OF A $2.2MM,
$2.3MM AND $2.5MM IN FY 2001, FY 2003, AND FY 2004, RESPECTIVELY, RESULTING
FROM AN ERROR IN THE ORIGINAL BUDGET
- BOFA ASSUMED A 7.0% EBIT MARGIN IN 2004-2006 (7.7% IN 2003) COMPARED WITH
WP&CO.'S EBIT MARGINS OF 8.1%, 9.0% AND 9.8% IN 2004-2006, RESPECTIVELY
(7.2% IN 2003)
--------------------------
(1) Includes other income
--------------------------------------------------------------------------------
- 18 -
<PAGE>
RECONCILIATION BETWEEN WP&CO.'S BUDGET CASE AND BOFA'S BUDGET CASE ($MM)
(CONT'D)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
KEY BUDGET/IMPROVED MARGINS CASE ASSUMPTIONS
------------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDING 2/28
-----------------------------------------------------------------------------------
2001P 2002P 2003P 2004P 2005P 2006P
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
WP&Co. D&A $25.3 $26.6 $29.9 $31.4 $33.0 $34.6
BofA D&A 27.0 28.5 32.1 34.7 36.8 39.0
---- ---- ---- ---- ---- ----
Difference (1.7) (1.9) (2.2) (3.3) (3.8) (4.4)
</TABLE>
REASON FOR THE DIFFERENCE:
- FOR 2001-2003, BOFA'S ASSUMPTIONS ARE NOT ADJUSTED FOR THE CHANGE IN
DOLLAR/EURO EXCHANGE RATE WHILE WP&CO.'S ASSUMPTIONS REFLECT THE UPDATED
EXCHANGE RATE, AS DIRECTED BY MANAGEMENT
- BOFA ASSUMED A 7.4% D&A MARGIN IN 2004-2006 (7.3% IN 2003) VERSUS WP&CO.'S
D&A MARGINS OF 6.8%, 6.7% AND 6.7% IN 2004-2006, RESPECTIVELY (6.8% IN
2003)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WP&Co. EBITDA $41.9 $44.2 $61.5 $69.0 $76.9 $85.2
BofA EBITDA 47.4 48.3 66.2 67.4 71.4 75.7
---- ---- ---- ---- ---- ----
Difference (5.5) (4.1) (4.7) 1.6 5.5 9.5
WP&Co CapEx $43.1 $28.5 $30.4 $31.4 $33.0 $34.6
BofA CapEx 46.7 30.6 32.7 34.7 36.8 39.0
---- ---- ---- ---- ---- ----
Difference (3.6) (2.1) (2.3) (3.3) (3.8) (4.4)
</TABLE>
REASON FOR THE DIFFERENCE:
- FOR 2001-2003, BOFA DID NOT ADJUST FOR THE CHANGE IN DOLLAR/EURO EXCHANGE
RATE WHILE WP&CO. DID
- BOFA ASSUMED A 7.4% CAPEX MARGIN IN 2004-2006 (7.4% IN 2003) VERSUS
WP&CO.'S CAPEX MARGINS OF 6.8%, 6.7% AND 6.7% IN 2004-2006, RESPECTIVELY
(6.9% IN 2003)
- Management believes that CapEx margins should be in the range of
7-7.5%
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WP&Co FCF(1) ($1.2) $15.7 $31.1 $37.6 $43.9 $50.6
BofA FCF(1) 0.7 17.7 33.5 32.7 34.6 36.7
--- ---- ---- ---- ---- ----
Difference (1.9) (2.0) (2.4) 4.9 9.3 13.9
</TABLE>
----------------------------------
(1) Calculated as EBITDA - CapEx
--------------------------------------------------------------------------------
- 19 -
<PAGE>
BUDGET VS. ACTUAL FOR 1998 AND 1999
----------------------------------------------------------------------------
- HISTORICALLY, THE COMPANY HAS NOT BEEN ABLE TO MEET ITS BUDGETS
<TABLE>
<CAPTION>
FISCAL YEAR 1998 FISCAL YEAR 1999
------------------------------------------------------------------------ -------------------------------
FY96-FY98 DIFF. FY97-FY99 DIFF. FY98-FY00 DIFF. FY97-FY99 DIFF. FY98-FY00
BUDGET FROM BUDGET FROM BUDGET FROM BUDGET FROM BUDGET
($ IN THOUSANDS) ESTIMATE BUDGET ESTIMATE BUDGET ESTIMATE BUDGET ACTUAL (1) ESTIMATE BUDGET ESTIMATE
---------- -------- ---------- ---------- ---------- -------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $375,871 (9.3%) $390,290 (12.7%) $358,500 (4.9%) $340,838 $438,121 (17.9%) $404,463
Gross Margin 105,555 (15.9%) 106,138 (16.4%) 96,165 (7.7%) 88,747 118,590 (17.1%) 110,386
Margin (as % of Sales) 28.1% 27.2% 26.8% 26.0% 27.1% 27.3%
Operating Expenses 77,880 (8.2%) 77,643 (7.9%) 75,464 (5.2%) 71,507 83,685 (7.5%) 81,549
Margin (as % of Sales) 20.7% 19.9% 21.0% 21.0% 19.1% 20.2%
EBIT 29,810 (38.2%) 29,503 (37.5%) 21,151 (12.8%) 18,435 35,556 (38.6%) 29,177
Margin (as % of Sales) 7.9% 7.6% 5.9% 5.4% 8.1% 7.2%
Capital Expenditures 31,140 (13.0%) 30,841 (12.2%) 32,213 (15.9%) 27,089 31,222 3.8% 31,960
Margin (as % of Sales) 8.3% 7.9% 9.0% 7.9% 7.1% 7.9%
Free Cash Flow 20,135 (60.8%) 20,247 (61.0%) 15,098 (47.8%) 7,887 24,366 (67.6%) 15,962
Margin (as % of Sales) 5.4% 5.2% 4.2% 2.3% 5.6% 3.9%
Depreciation 21,348
Margin (as % of Sales) 6.3%
Depreciation (as % of Cap. Ex.) 78.8%
<CAPTION>
FISCAL YEAR 1999
---------------------------------------------
DIFF. FY99-FY01 DIFF.
FROM BUDGET FROM
BUDGET ESTIMATE BUDGET ACTUAL (1)
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net Sales (11.0%) $357,710 0.6% $359,881
Gross Margin (11.0%) 96,299 2.0% 98,260
Margin (as % of Sales) 26.9% 27.3%
Operating Expenses (5.1%) 76,000 1.9% 77,409
Margin (as % of Sales) 21.2% 21.5%
EBIT (25.2%) 19,820 10.2% 21,833
Margin (as % of Sales) 5.5% 6.1%
Capital Expenditures 1.4% 30,077 7.8% 32,408
Margin (as % of Sales) 8.4% 9.0%
Free Cash Flow (50.6%) 10,985 (28.2%) 7,886
Margin (as % of Sales) 3.1% 2.2%
Depreciation 24,556 (3.7%) 23,655
Margin (as % of Sales) 6.9% 6.6%
Depreciation (as % of Cap. Ex.) 81.6% 73.0%
</TABLE>
--------------------------
(1) Based on preliminary annual report
- 20 -
<PAGE>
BUDGET VS. ACTUAL FOR 2000
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR 2000
--------------------------------------------------------------------------
FY98-FY00 DIFF. FY99-FY01 DIFF. FY00-FY02 DIFF.
BUDGET FROM BUDGET FROM BUDGET FROM
($ IN THOUSANDS) ESTIMATE BUDGET ESTIMATE BUDGET ESTIMATE BUDGET ACTUAL (1)
--------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $440,277 (18.1%) $379,165 (4.9%) $393,905 (8.4%) $360,727
Gross Margin 122,433 (24.9%) 105,163 (12.5%) 106,901 (13.9%) 92,002
Margin (as % of Sales) 27.8% 27.7% 27.1% 25.5%
Operating Expenses 87,435 (5.7%) 76,399 7.9% 83,578 (1.4%) 82,439
Margin (as % of Sales) 19.9% 20.1% 21.2% 22.9%
EBIT 35,160 (68.4%) 27,272 (59.3%) 24,454 (54.6%) 11,105
Margin (as % of Sales) 8.0% 7.2% 6.2% 3.1%
Capital Expenditures 33,997 (9.8%) 26,969 13.7% 31,372 (2.3%) 30,656
Margin (as % of Sales) 7.7% 7.1% 8.0% 8.5%
Free Cash Flow 25,018 (51.5%) 22,264 (45.5%) 17,379 (30.1%) 12,142
Margin (as % of Sales) 5.7% 5.9% 4.4% 3.4%
Depreciation 24,605 0.3% 27,565 (10.5%) 24,683
Margin (as % of Sales) 6.5% 7.0% 6.8%
Depreciation (as % of Cap. Ex.) 91.2% 87.9% 80.5%
</TABLE>
--------------------------
(1) Based on preliminary annual report
- 21 -
<PAGE>
--------------------------------------------------------------------------------
---------------------------------------------------------
SUMMARY OF VALUATION
ANALYSES
---------------------------------------------------------
--------------------------------------------------------------------------------
- 22 -
<PAGE>
CHERRY VALUATION CONSIDERATIONS
--------------------------------------------------------------------------------
- CHERRY HAS A NUMBER OF CHARACTERISTICS THAT ARE ATTRACTIVE TO INVESTORS
- Cherry is diversified along product, customer and geographic markets
- Automotive-related sales account for less than 50% of total sales
(excluding CSC)
* The sale of CSC reduced Cherry's automotive exposure from
approximately 60% of total sales to approximately 46% for
fiscal year 2000 ended on 2/28/00
- Foreign sales account for over 50% of Cherry's total sales and
provide investors with a cushion against U.S. cyclicality,
particularly in the automotive sector
* Germany, Cherry's largest non-U.S. market, accounts for
approximately 85% of total foreign sales and 44% of total
sales overall
* Cherry's foreign sales generated significantly higher
margins in FY 2000 which offset the decline in its U.S.
margins resulting from price reductions realized by the U.S.
automotive OEMs and Tier 1 suppliers
* Cherry has an established European manufacturing and
marketing network which can be further leveraged
- Long-term, strong customers relationships with OEMs supported by
highly regarded industry name and product line
- A break-up valuation analysis suggests Cherry may be attractive to a
financial buyer with existing investments in related businesses
--------------------------------------------------------------------------------
- 23 -
<PAGE>
CHERRY VALUATION CONSIDERATIONS (CONT'D)
--------------------------------------------------------------------------------
- HOWEVER, CHERRY'S STOCK HAS BEEN NEGATIVELY IMPACTED BY A NUMBER OF
FACTORS:
- Operational difficulties in Cherry's North American automotive
division and recent launch delays in the Company's new custom
electronic control panel
- Lack of critical mass as an automotive supplier which is necessary to
support R&D expenditures and maintain competitiveness against larger
automotive suppliers such as Delphi, Visteon, Bosch, etc.
- Customer concentrations with General Motors and Ford
- The auto parts group has been out of favor with Wall Street since late
Spring 1999:
- Investors are concerned that OEM customers are shifting the
capital burden to their suppliers as they are required to invest
more in design, testing, engineering and tooling
* There is general concern that auto parts companies will
therefore experience further erosion of returns on capital
invested
- There is also concern that given the recent strength in vehicle sales
that demand may be saturated and as interest rates rise the auto cycle
will trend down
- There are clearly auto suppliers being penalized due to troubles
amongst some of their peers; "guilt by association" (specific company
problems - i.e. Federal-Mogul, Dana, etc.)
- Recent concerns that the development of B2B e-commerce procurement
could "squeeze" auto margins
- Products generally perceived as vulnerable to OEM pricing pressures
- Difficult to compete on a price basis against Asian manufacturers,
particularly in the computer keyboard and switches and controls units
- Computer keyboards volumes partially dictated by need for consumers to
continually upgrade systems and equipment
--------------------------------------------------------------------------------
- 24 -
<PAGE>
CHERRY VALUATION CONSIDERATIONS (CONT'D)
--------------------------------------------------------------------------------
- Negative impact of "conglomerate discount" associated with small
capitalization companies which operate disparate business lines
- Buyers of the automotive segment would have little interest in
placing a premium on the computer keyboard business
- Buyers of the computer keyboard business would have little
interest in placing a premium on the automotive segment
- Limited liquidity
- Small public float makes the stock unattractive to many investors
- Daily trading volume in the public float has averaged less than
0.5%
- The universe of potential institutional investors is limited
given Cherry's small market capitalization
- No research coverage to disseminate and validate management's
strategic plan
--------------------------------------------------------------------------------
- 25 -
<PAGE>
CHERRY PRELIMINARY SUMMARY VALUATION ($MM, EXCEPT PER SHARE)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ENTERPRISE EQUITY SHARE
VALUE VALUE PRICE
METHODS AND ASSUMPTIONS RANGE (1) RANGE (2) RANGE
---------------------------------- -------------------------- -------------------------- -------------------
<S> <C> <C> <C>
DISCOUNTED CASH FLOW ANALYSIS
BUDGET/IMPROVED MARGINS CASE $178.8 - $277.0 $271.8 - $370.0 $26.00 - $35.00
BUDGET/FLAT MARGINS CASE $124.3 - $222.5 $217.2 - $315.5 $21.00 - $30.00
BUDGET/RECESSION CASE $69.7 - $146.1 $162.7 - $239.1 $16.00 - $23.00
COMPARABLE COMPANIES
TRADING ANALYSIS (3) $211.6 - $288.0 $304.5 - $380.9 $29.00 - $36.00
COMPARABLE ACQUISITIONS
ANALYSIS (3) $222.5 - $288.0 $315.5 - $380.9 $30.00 - $36.00
BREAK-UP ANALYSIS (4) $211.6 - $288.0 $304.5 - $380.9 $29.00 - $36.00
PREMIUMS ANALYSIS $69.7 - $113.3 $162.7 - $206.3 $16.00 - $20.00
ALL-TIME TRADING RANGE ($0.1) - $178.8 $92.9 - $271.8 $9.25 - $26.00
52-WEEK TRADING RANGE $4.9 - $178.8 $97.9 - $271.8 $9.75 - $26.00
CURRENT TRADING VALUATION $113.3 $206.3 $20.00
<CAPTION>
ENTERPRISE VALUE
AS A MULTIPLE OF FY 01
--------------------------------------------------------
SALES EBITDA EBIT
---------------- ---------------- ------------------
<S> <C> <C> <C>
DISCOUNTED CASH FLOW ANALYSIS
BUDGET/IMPROVED MARGINS CASE 0.5x - 0.8x 4.3x - 6.6x 10.8x - 16.7x
BUDGET/FLAT MARGINS CASE 0.4x - 0.6x 3.0x - 5.3x 7.5x - 13.4x
BUDGET/RECESSION CASE 0.2x - 0.4x 1.7x - 3.5x 4.2x - 8.8x
COMPARABLE COMPANIES
TRADING ANALYSIS (3) 0.6x - 0.8x 5.1x - 6.9x 12.7x - 17.3x
COMPARABLE ACQUISITIONS
ANALYSIS (3) 0.0x - 0.8x 5.3x - 6.9x 13.4x - 17.3x
BREAK-UP ANALYSIS (4) 0.6x - 0.8x 5.1x - 6.9x 12.7x - 17.3x
PREMIUMS ANALYSIS 0.2x - 0.3x 1.7x - 2.7x 4.2x - 6.8x
ALL-TIME TRADING RANGE NM - 0.5x NM - 4.3x NM - 10.8x
52-WEEK TRADING RANGE 0.0x - 0.5x 0.1x - 4.3x 0.3x - 10.8x
CURRENT TRADING VALUATION 0.3x 2.7x 6.8x
</TABLE>
-------------------------------------
(1) Includes pro forma net debt as of 3/31/00 of ($93.0) million which reflects
after-tax proceeds from sale of CSC; book value of debt assumed to
approximate market value of debt
(2) Assumes all options outstanding are exercisable if they are in the money.
Includes 0.871 million options outstanding with a $13.70 weighted average
exercise price
(3) Analyses reflect aggregate of preliminary implied valuations for Cherry's
Automotive Switches & Modules, Computer Keyboards and Switches & Controls
businesses only based on comparable company and comparable transaction
multiples applied on LTM results; analysis does not reflect any value
associated with overhead and corporate expenses and eliminations
(4) Break-up analysis assumes sale of two least profitable segments and sale of
remaining business as a "corporate tax free" transaction
-26-
<PAGE>
--------------------------------------------------------------------------------
------------------------------------------------
DISCOUNTED CASH FLOW
ANALYSES
------------------------------------------------
--------------------------------------------------------------------------------
- 27 -
<PAGE>
CONSOLIDATED DCF SENSITIVITY ANALYSIS ($MM, EXCEPT PER SHARE)
BUDGET/IMPROVED MARGINS CASE
--------------------------------------------------------------------------------
EBITDA TERMINAL MULTIPLE 1.097 EURO/US$ EXCHANGE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
TERMINAL VALUE MULTIPLE: FY 2006 EBITDA
DISCOUNT
RATE 4.0X 5.0X 6.0X 7.0X
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$44.6 $44.6 $44.6 $44.6
182.2 227.7 273.3 318.8
------ ------ ------ ------
$226.8 $272.4 $317.9 $363.4
$319.8 $365.3 $410.9 $456.4
$30.40 $34.57 $38.74 $42.92
11.0% 3.0% 4.5% 5.5% 6.3%
0.6x 0.8x 0.9x 1.0x
6.3x 7.6x 8.9x 10.1x
0.7x 0.8x 0.9x 1.0x
5.4x 6.5x 7.6x 8.7x
--------------------------------------------------------------------------------------------------------
$42.7 $42.7 $42.7 $42.7
172.6 215.8 259.0 302.1
------ ------ ------ ------
$215.3 $258.5 $301.6 $344.8
$308.3 $351.5 $394.6 $437.8
$29.34 $33.30 $37.25 $41.21
12.0% 3.9% 5.4% 6.5% 7.2%
0.6x 0.7x 0.8x 1.0x
6.0x 7.2x 8.4x 9.6x
0.6x 0.7x 0.9x 1.0x
5.1x 6.2x 7.2x 8.2x
--------------------------------------------------------------------------------------------------------
$40.8 $40.8 $40.8 $40.8
163.7 204.6 245.5 286.4
------ ------ ------ ------
$204.5 $245.4 $286.3 $327.3
$297.5 $338.4 $379.3 $420.2
$28.35 $32.10 $35.85 $39.60
13.0% 4.8% 6.4% 7.4% 8.2%
0.6x 0.7x 0.8x 0.9x
5.7x 6.8x 8.0x 9.1x
0.6x 0.7x 0.8x 0.9x
4.9x 5.9x 6.8x 7.8x
--------------------------------------------------------------------------------------------------------------------
</TABLE>
----------------------------------
YEAR 2006P EBITDA $85.2
NET DEBT (1) ($93.0)
SHARES OUT. (MM) 10.0
----------------------------------
Present Value of Free Cash Flows
Present Value of Terminal Value
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED PERPETUITY GROWTH RATE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Terminal Value
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED PERPETUITY GROWTH RATE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Terminal Value
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED PERPETUITY GROWTH RATE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
---------------------------
NOTE: VALUATION BASED ON 3/1/00 TO 2/28/06 HORIZON
(1) Reflects pro forma net debt as of 3/31/00 provided by management less
after-tax cash proceeds from sale of CSC
(2) Reflects 0.87 million options outstanding at a weighted average strike price
of $13.70
- 28 -
<PAGE>
CONSOLIDATED DCF SENSITIVITY ANALYSIS ($MM, EXCEPT PER SHARE)
BUDGET/IMPROVED MARGINS CASE
--------------------------------------------------------------------------------
PERPETUITY GROWTH RATE 1.097 EURO/US$ EXCHANGE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
PERPETUITY GROWTH RATE: FY 2006 UNLEVERED FREE CASH FLOW
DISCOUNT
RATE 1.0% 2.0% 3.0% 4.0%
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$44.6 $44.6 $44.6 $44.6
143.3 160.7 182.6 210.7
------ ------ ------ ------
$187.9 $205.4 $227.2 $255.3
$280.8 $298.3 $320.2 $348.3
$26.83 $28.43 $30.43 $33.01
11.0% 3.1x 3.5x 4.0x 4.6x
0.5x 0.6x 0.6x 0.7x
5.2x 5.7x 6.3x 7.1x
0.5x 0.6x 0.7x 0.7x
4.5x 4.9x 5.4x 6.1x
--------------------------------------------------------------------------------------------------------
$42.7 $42.7 $42.7 $42.7
123.4 137.1 153.8 174.7
------ ------ ------ ------
$166.1 $179.8 $196.5 $217.4
$259.1 $272.7 $289.5 $310.4
$24.83 $26.08 $27.62 $29.53
12.0% 2.9x 3.2x 3.6x 4.0x
0.5x 0.5x 0.5x 0.6x
4.6x 5.0x 5.5x 6.1x
0.5x 0.5x 0.6x 0.6x
4.0x 4.3x 4.7x 5.2x
--------------------------------------------------------------------------------------------------------
$40.8 $40.8 $40.8 $40.8
107.2 118.2 131.2 147.2
------ ------ ------ ------
$148.1 $159.0 $172.1 $188.1
$241.1 $252.0 $265.0 $281.0
$23.18 $24.18 $25.38 $26.85
13.0% 2.6x 2.9x 3.2x 3.6x
0.4x 0.4x 0.5x 0.5x
4.1x 4.4x 4.8x 5.2x
0.4x 0.5x 0.5x 0.5x
3.5x 3.8x 4.1x 4.5x
--------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------------------------
YEAR 2006P FCF $26.5
NET DEBT (1) ($93.0)
SHARES OUT. (MM) 10.0
-----------------------------------
Present Value of Free Cash Flows
Present Value of Perpetuity
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED EBITDA TERMINAL MULTIPLE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Perpetuity
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED EBITDA TERMINAL MULTIPLE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Perpetuity
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED EBITDA TERMINAL MULTIPLE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
---------------------------
NOTE: VALUATION BASED ON 3/1/00 TO 2/28/06 HORIZON
(1) Reflects pro forma net debt as of 3/31/00 provided by management less
after-tax cash proceeds from sale of CSC
(2) Reflects 0.87 million options outstanding at a weighted average strike price
of $13.70
- 29 -
<PAGE>
CONSOLIDATED DCF SENSITIVITY ANALYSIS ($MM, EXCEPT PER SHARE)
BUDGET/FLAT MARGINS CASE
--------------------------------------------------------------------------------
EBITDA TERMINAL MULTIPLE 1.097 EURO/US$ EXCHANGE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
TERMINAL VALUE MULTIPLE: FY 2006 EBITDA
DISCOUNT
RATE 4.0X 5.0X 6.0X 7.0X
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$35.8 $35.8 $35.8 $35.8
152.3 190.4 228.5 266.6
------ ------ ------ ------
$188.1 $226.2 $264.3 $302.4
$281.1 $319.2 $357.3 $395.4
$26.85 $30.34 $33.83 $37.32
11.0% 4.2% 5.5% 6.4% 7.0%
0.5x 0.6x 0.7x 0.8x
5.2x 6.3x 7.4x 8.4x
0.5x 0.6x 0.8x 0.9x
4.5x 5.4x 6.3x 7.2x
--------------------------------------------------------------------------------------------------------
$34.2 $34.2 $34.2 $34.2
144.4 180.4 216.5 252.6
------ ------ ------ ------
$178.6 $214.7 $250.8 $286.9
$271.6 $307.7 $343.8 $379.9
$25.98 $29.29 $32.59 $35.90
12.0% 5.1% 6.4% 7.3% 8.0%
0.5x 0.6x 0.7x 0.8x
5.0x 6.0x 7.0x 8.0x
0.5x 0.6x 0.7x 0.8x
4.3x 5.1x 6.0x 6.8x
--------------------------------------------------------------------------------------------------------
$32.8 $32.8 $32.8 $32.8
136.9 171.1 205.3 239.5
------ ------ ------ ------
$169.6 $203.9 $238.1 $272.3
$262.6 $296.8 $331.1 $365.3
$25.16 $28.29 $31.43 $34.56
13.0% 6.1% 7.4% 8.3% 8.9%
0.5x 0.6x 0.7x 0.8x
4.7x 5.7x 6.6x 7.6x
0.5x 0.6x 0.7x 0.8x
4.0x 4.9x 5.7x 6.5x
--------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------------------------
YEAR 2006P EBITDA $71.2
NET DEBT (1) ($93.0)
SHARES OUT. (MM) 10.0
-----------------------------------
Present Value of Free Cash Flows
Present Value of Terminal Value
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED PERPETUITY GROWTH RATE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Terminal Value
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED PERPETUITY GROWTH RATE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Terminal Value
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED PERPETUITY GROWTH RATE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
---------------------------
NOTE: VALUATION BASED ON 3/1/00 TO 2/28/06 HORIZON
(1) Reflects pro forma net debt as of 3/31/00 provided by management less
after-tax cash proceeds from sale of CSC
(2) Reflects 0.87 million options outstanding at a weighted average strike price
of $13.70
- 30 -
<PAGE>
CONSOLIDATED DCF SENSITIVITY ANALYSIS ($MM, EXCEPT PER SHARE)
BUDGET/FLAT MARGINS CASE
--------------------------------------------------------------------------------
PERPETUITY GROWTH RATE 1.097 EURO/US$ EXCHANGE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
PERPETUITY GROWTH RATE: FY 2006 UNLEVERED FREE CASH FLOW
DISCOUNT
RATE 1.0% 2.0% 3.0% 4.0%
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$35.8 $35.8 $35.8 $35.8
100.5 112.7 128.1 147.8
------ ------ ------ ------
$136.2 $148.5 $163.9 $183.6
$229.2 $241.5 $256.8 $276.5
$22.10 $23.22 $24.63 $26.43
11.0% 2.6x 3.0x 3.4x 3.9x
0.4x 0.4x 0.5x 0.5x
3.8x 4.1x 4.6x 5.1x
0.4x 0.4x 0.5x 0.5x
3.3x 3.5x 3.9x 4.4x
--------------------------------------------------------------------------------------------------------
$34.2 $34.2 $34.2 $34.2
86.6 96.1 107.9 122.5
----- ----- ------ ------
$120.8 $130.4 $142.1 $156.8
$213.8 $223.4 $235.1 $249.8
$20.68 $21.56 $22.64 $23.98
12.0% 2.4x 2.7x 3.0x 3.4x
0.3x 0.4x 0.4x 0.4x
3.4x 3.6x 4.0x 4.4x
0.3x 0.4x 0.4x 0.5x
2.9x 3.1x 3.4x 3.7x
--------------------------------------------------------------------------------------------------------
$32.8 $32.8 $32.8 $32.8
75.2 82.9 92.0 103.3
----- ----- ----- ------
$108.0 $115.7 $124.8 $136.1
$201.0 $208.6 $217.8 $229.0
$19.51 $20.21 $21.05 $22.08
13.0% 2.2x 2.4x 2.7x 3.0x
0.3x 0.3x 0.3x 0.4x
3.0x 3.2x 3.5x 3.8x
0.3x 0.3x 0.4x 0.4x
2.6x 2.8x 3.0x 3.2x
--------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------------------------
YEAR 2006P FCF $18.6
NET DEBT (1) ($93.0)
SHARES OUT. (MM) 10.0
-----------------------------------
Present Value of Free Cash Flows
Present Value of Perpetuity
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED EBITDA TERMINAL MULTIPLE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Perpetuity
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED EBITDA TERMINAL MULTIPLE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Perpetuity
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED EBITDA TERMINAL MULTIPLE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
---------------------------
NOTE: VALUATION BASED ON 3/1/00 TO 2/28/06 HORIZON
(1) Reflects pro forma net debt as of 3/31/00 provided by management less
after-tax cash proceeds from sale of CSC
(2) Reflects 0.87 million options outstanding at a weighted average strike price
of $13.70
- 31 -
<PAGE>
CONSOLIDATED DCF SENSITIVITY ANALYSIS ($MM, EXCEPT PER SHARE)
BUDGET/RECESSION CASE
--------------------------------------------------------------------------------
EBITDA TERMINAL MULTIPLE 1.097 EURO/US$ EXCHANGE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
TERMINAL VALUE MULTIPLE: FY 2006 EBITDA
DISCOUNT
RATE 4.0X 5.0X 6.0X 7.0X
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$12.4 $12.4 $12.4 $12.4
93.8 117.3 140.7 164.2
----- ------ ------ ------
$106.3 $129.7 $153.2 $176.6
$199.2 $222.7 $246.1 $269.6
$19.35 $21.50 $23.65 $25.80
11.0% 4.2% 5.5% 6.4% 7.0%
0.3x 0.4x 0.4x 0.5x
3.0x 3.6x 4.3x 4.9x
0.3x 0.4x 0.4x 0.5x
2.5x 3.1x 3.7x 4.2x
--------------------------------------------------------------------------------------------------------
$11.7 $11.7 $11.7 $11.7
88.9 111.1 133.4 155.6
----- ------ ------ ------
$100.6 $122.9 $145.1 $167.3
$193.6 $215.9 $238.1 $260.3
$18.84 $20.87 $22.91 $24.95
12.0% 5.1% 6.4% 7.3% 8.0%
0.3x 0.3x 0.4x 0.5x
2.8x 3.4x 4.0x 4.7x
0.3x 0.4x 0.4x 0.5x
2.4x 2.9x 3.5x 4.0x
--------------------------------------------------------------------------------------------------------
$11.1 $11.1 $11.1 $11.1
84.3 105.4 126.4 147.5
----- ------ ------ ------
$95.4 $116.4 $137.5 $158.6
$188.4 $209.4 $230.5 $251.6
$18.35 $20.28 $22.21 $24.15
13.0% 6.1% 7.4% 8.3% 8.9%
0.3x 0.3x 0.4x 0.4x
2.7x 3.2x 3.8x 4.4x
0.3x 0.3x 0.4x 0.5x
2.3x 2.8x 3.3x 3.8x
--------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------------------------
YEAR 2006P EBITDA $43.9
NET DEBT (1) ($93.0)
SHARES OUT. (MM) 10.0
-----------------------------------
Present Value of Free Cash Flows
Present Value of Terminal Value
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED PERPETUITY GROWTH RATE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Terminal Value
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED PERPETUITY GROWTH RATE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Terminal Value
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED PERPETUITY GROWTH RATE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
---------------------------
NOTE: VALUATION BASED ON 3/1/00 TO 2/28/06 HORIZON
(1) Reflects pro forma net debt as of 3/31/00 provided by management less
after-tax cash proceeds from sale of CSC
(2) Reflects 0.87 million options outstanding at a weighted average strike
price of $13.70
- 32 -
<PAGE>
CONSOLIDATED DCF SENSITIVITY ANALYSIS ($MM, EXCEPT PER SHARE)
BUDGET/RECESSION CASE
--------------------------------------------------------------------------------
PERPETUITY GROWTH RATE 1.097 EURO/US$ EXCHANGE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
PERPETUITY GROWTH RATE: FY 2006 UNLEVERED FREE CASH FLOW
DISCOUNT
RATE 1.0% 2.0% 3.0% 4.0%
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$12.4 $12.4 $12.4 $12.4
61.8 69.4 78.8 90.9
----- ----- ----- -----
$74.2 $81.8 $91.2 $103.4
$167.2 $174.8 $184.2 $196.3
$16.42 $17.11 $17.97 $19.08
11.0% 2.6x 3.0x 3.4x 3.9x
0.2x 0.2x 0.3x 0.3x
2.1x 2.3x 2.5x 2.9x
0.2x 0.2x 0.3x 0.3x
1.8x 2.0x 2.2x 2.5x
--------------------------------------------------------------------------------------------------------
$11.7 $11.7 $11.7 $11.7
53.2 59.1 66.4 75.4
----- ----- ----- -----
$65.0 $70.9 $78.1 $87.1
$158.0 $163.9 $171.1 $180.1
$15.57 $16.11 $16.77 $17.60
12.0% 2.4x 2.7x 3.0x 3.4x
0.2x 0.2x 0.2x 0.2x
1.8x 2.0x 2.2x 2.4x
0.2x 0.2x 0.2x 0.3x
1.6x 1.7x 1.9x 2.1x
--------------------------------------------------------------------------------------------------------
$11.1 $11.1 $11.1 $11.1
46.3 51.0 56.6 63.5
----- ----- ----- -----
$57.4 $62.1 $67.7 $74.6
$150.3 $155.0 $160.7 $167.6
$14.87 $15.30 $15.82 $16.45
13.0% 2.2x 2.4x 2.7x 3.0x
0.2x 0.2x 0.2x 0.2x
1.6x 1.7x 1.9x 2.1x
0.2x 0.2x 0.2x 0.2x
1.4x 1.5x 1.6x 1.8x
--------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------------------------
YEAR 2006P FCF $11.4
NET DEBT (1) ($93.0)
SHARES OUT. (MM) 10.0
-----------------------------------
Present Value of Free Cash Flows
Present Value of Perpetuity
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED EBITDA TERMINAL MULTIPLE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Perpetuity
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED EBITDA TERMINAL MULTIPLE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
Present Value of Free Cash Flows
Present Value of Perpetuity
NET ENTERPRISE VALUE
NET EQUITY VALUE
PER SHARE (2)
IMPLIED EBITDA TERMINAL MULTIPLE
Multiple of FY 2000 Sales
Multiple of FY 2000 EBITDA
Multiple of FY 2001P Sales
Multiple of FY 2001P EBITDA
---------------------------
NOTE: VALUATION BASED ON 3/1/00 TO 2/28/06 HORIZON
(1) Reflects pro forma net debt as of 3/31/00 provided by management less
after-tax cash proceeds from sale of CSC
(2) Reflects 0.87 million options outstanding at a weighted average strike price
of $13.70
- 33 -
<PAGE>
WACC MODEL - AUTOMOTIVE ELECTRONICS COMPANIES ($MM)
--------------------------------------------------------------------------------
UNLEVERED BETAS (1)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
ADJUSTED MARKET
CURRENT MARKET VALUE OF DEBT/
LEVERED VALUE EQUITY EQUITY UNLEVERED
COMPANY TICKER BETA (2) ($MM) ($MM) RATIO BETA (3)
------- ------ --------------- -------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stoneridge SRI 0.81 477.0 134.9 257.8% 0.32
BEI Technologies BEIQ 0.68 163.5 137.2 26.8% 0.58
Littelfuse LFUS 0.74 785.8 711.2 11.0% 0.69
-----------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGES 0.74 475.4 327.7 98.5% 0.53
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-------------------------
(1) Assumes book value of debt approximates market value
(2) Source: BARRA U.S. equity model
(3) Unlevered Beta = {Levered Beta + ((Debt Beta) * (Debt/Equity) * (1-Tax
Rate))} / { 1 + (Debt * (1 - tax rate) / Equity) } The Debt Beta is
assumed for each comparable company based on its capital structure
- 34 -
<PAGE>
WACC MODEL - AUTOMOTIVE ELECTRONICS COMPANIES ($MM) (CONT'D)
--------------------------------------------------------------------------------
WEIGHTED AVERAGE COST-OF-CAPITAL (1)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL STRUCTURE COST OF EQUITY COST OF DEBT
---------------------------- ---------------------------------- -------------------------------- WTD. AVG.
DEBT/ DEBT/ RELEVERED COST OF BEFORE AFTER COST OF
CAPITAL EQUITY BETA (2) EQUITY TAX TAX CAPITAL
------------ ----------- ------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
0% 0% 0.53 12.47% 7.50% 4.54% 12.5%
10% 11% 0.56 12.80% 7.60% 4.60% 12.0%
20% 25% 0.60 13.20% 7.70% 4.66% 11.5%
30% 43% 0.64 13.68% 7.80% 4.72% 11.0%
40% 67% 0.70 14.32% 7.90% 4.78% 10.5%
50% 100% 0.78 15.18% 8.00% 4.84% 10.0%
60% 150% 0.89 16.44% 8.10% 4.90% 9.5%
70% 233% 1.08 18.51% 8.20% 4.96% 9.0%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ASSUMPTIONS
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Marginal Tax Rate 40% Risk Free Rate (3) 6.62% Market Risk Premium (4) 11.00%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------
(1) Based on the Weighted Average Cost of Capital and Capital Asset Pricing
Models and WP & Co. calculations
(2) Relevered Beta = Unlevered Beta + {(Unlevered Beta - Debt Beta) *
(Debt/Equity Ratio) * (1 - Tax Rate)}
(3) 5 year U.S. Treasury as of 5/10/2000
(4) Market risk premium is calculated as the arithmetic difference between the
intermediate-term rate of return on common stocks from 1926-1993 and
intermediate-term treasury coupon note returns, calculated annually, plus
the micro-capitalization equity size premium.
- 35 -
<PAGE>
WACC MODEL - COMPUTER PERIPHERALS COMPANIES ($MM)
--------------------------------------------------------------------------------
UNLEVERED BETAS (1)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
ADJUSTED MARKET
CURRENT MARKET VALUE OF DEBT/
LEVERED VALUE EQUITY EQUITY UNLEVERED
COMPANY TICKER BETA (2) ($MM) ($MM) RATIO BETA (3)
------- ------ --------------- -------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Astronics Corp. ATRO 0.44 72.4 55.3 31.8% 0.37
Key Tronic Corp. KTCC 0.62 45.4 24.1 97.5% 0.39
Interlink Electronics LINK 1.26 218.8 223.1 1.1% 1.25
Cybex Computer Products CBXC 0.83 410.0 398.0 4.0% 0.81
Printronix PTNX 0.45 92.1 92.7 11.5% 0.42
------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGES 0.72 167.8 158.6 29.2% 0.65
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-------------------------
(1) Assumes book value of debt approximates market value
(2) Source: BARRA U.S. equity model
(3) Unlevered Beta = {Levered Beta + ((Debt Beta) * (Debt/Equity) * (1-Tax
Rate))} / { 1 + (Debt * (1 - tax rate) / Equity) } The Debt Beta is
assumed for each comparable company based on its capital structure
- 36 -
<PAGE>
WACC MODEL - COMPUTER PERIPHERALS COMPANIES ($MM) (CONT'D)
--------------------------------------------------------------------------------
WEIGHTED AVERAGE COST-OF-CAPITAL (1)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL STRUCTURE COST OF EQUITY COST OF DEBT
---------------------------- ---------------------------------- -------------------------------- WTD. AVG.
DEBT/ DEBT/ RELEVERED COST OF BEFORE AFTER COST OF
CAPITAL EQUITY BETA (2) EQUITY TAX TAX CAPITAL
------------ ----------- ------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
0% 0% 0.65 13.76% 7.50% 4.54% 13.8%
10% 11% 0.69 14.17% 7.60% 4.60% 13.2%
20% 25% 0.73 14.67% 7.70% 4.66% 12.7%
30% 43% 0.79 15.30% 7.80% 4.72% 12.1%
40% 67% 0.86 16.12% 7.90% 4.78% 11.6%
50% 100% 0.97 17.24% 8.00% 4.84% 11.0%
60% 150% 1.12 18.89% 8.10% 4.90% 10.5%
70% 233% 1.36 21.60% 8.20% 4.96% 10.0%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ASSUMPTIONS
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Marginal Tax Rate 40% Risk Free Rate (3) 6.62% Market Risk Premium (4) 11.00%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------
(1) Based on the Weighted Average Cost of Capital and Capital Asset Pricing
Models and WP & Co. calculations
(2) Relevered Beta = Unlevered Beta + {(Unlevered Beta - Debt Beta) *
(Debt/Equity Ratio) * (1 - Tax Rate)}
(3) 5 year U.S. Treasury as of 5/10/2000
(4) Market risk premium is calculated as the arithmetic difference between the
intermediate-term rate of return on common stocks from 1926-1993 and
intermediate-term treasury coupon note returns, calculated annually, plus
the micro-capitalization equity size premium.
- 37 -
<PAGE>
WACC MODEL - SWITCH COMPANIES ($MM)
--------------------------------------------------------------------------------
UNLEVERED BETAS (1)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
ADJUSTED MARKET
CURRENT MARKET VALUE OF DEBT/
LEVERED VALUE EQUITY EQUITY UNLEVERED
COMPANY TICKER BETA (2) ($MM) ($MM) RATIO BETA (3)
------- ------ --------------- -------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ault Inc. AULT 0.74 31.2 25.8 27.4% 0.64
C. P. Clare Corp. CPCL 0.65 31.1 64.2 0.5% 0.65
Corrpro Companies Inc. CO 0.65 91.2 28.3 230.9% 0.32
Powell Industries Inc POWL 0.37 89.6 88.9 9.2% 0.35
------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGES 0.60 60.8 51.8 67.0% 0.49
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-------------------------
(1) Assumes book value of debt approximates market value
(2) Raw Unadjusted Beta calculated weekly over the three years ending
9/30/99; Source: Factset
(3) Unlevered Beta = {Levered Beta + ((Debt Beta) * (Debt/Equity) * (1-Tax
Rate))} / { 1 + (Debt * (1 - tax rate) / Equity) } The Debt Beta is
assumed for each comparable company based on its capital structure
- 38 -
<PAGE>
WACC MODEL - SWITCH COMPANIES ($MM) (CONT'D)
--------------------------------------------------------------------------------
WEIGHTED AVERAGE COST-OF-CAPITAL (1)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL STRUCTURE COST OF EQUITY COST OF DEBT
---------------------------- ---------------------------------- -------------------------------- WTD. AVG.
DEBT/ DEBT/ RELEVERED COST OF BEFORE AFTER COST OF
CAPITAL EQUITY BETA (2) EQUITY TAX TAX CAPITAL
------------ ----------- ------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
0% 0% 0.49 12.02% 7.50% 4.54% 12.0%
10% 11% 0.52 12.31% 7.60% 4.60% 11.5%
20% 25% 0.55 12.67% 7.70% 4.66% 11.1%
30% 43% 0.59 13.11% 7.80% 4.72% 10.6%
40% 67% 0.64 13.68% 7.90% 4.78% 10.1%
50% 100% 0.71 14.45% 8.00% 4.84% 9.6%
60% 150% 0.81 15.57% 8.10% 4.90% 9.2%
70% 233% 0.98 17.41% 8.20% 4.96% 8.7%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ASSUMPTIONS
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Marginal Tax Rate 40% Risk Free Rate (3) 6.62% Market Risk Premium (4) 11.00%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------
(1) Based on the Weighted Average Cost of Capital and Capital Asset Pricing
Models and WP & Co. calculations
(2) Relevered Beta = Unlevered Beta + {(Unlevered Beta - Debt Beta) *
(Debt/Equity Ratio) * (1 - Tax Rate)}
(3) 5 year U.S. Treasury as of 5/10/2000
(4) Market risk premium is calculated as the arithmetic difference between the
intermediate-term rate of return on common stocks from 1926-1993 and
intermediate-term treasury coupon note returns, calculated annually, plus
the micro-capitalization equity size premium.
- 39 -
<PAGE>
--------------------------------------------------------------------------------
---------------------------------------------------
COMPARABLE COMPANIES
ANALYSES
---------------------------------------------------
--------------------------------------------------------------------------------
- 40 -
<PAGE>
VALUATION ANALYSIS - COMPARABLE COMPANY TRADING ANALYSIS ($MM, EXCEPT PER SHARE)
--------------------------------------------------------------------------------
- BASED ON PRELIMINARY ANALYSIS OF COMPARABLE PUBLIC TRADING MULTIPLES, CHERRY'S
AUTOMOTIVE SWITCHES & MODULES, COMPUTER KEYBOARDS AND SWITCHES & CONTROLS
BUSINESSES REFLECT COMBINED ENTERPRISE VALUE OF BETWEEN $220 AND $290
- THESE IMPLIED VALUATIONS REFLECT SIGNIFICANT ADDITIONAL VALUE BEYOND WHAT IS
REPRESENTED IN EITHER CURRENT TRADING VALUATIONS OR BY THE CHERRY GROUP'S
PROPOSAL
<TABLE>
<CAPTION>
ENTERPRISE VALUE MULTIPLES
---------------------------------------------------------
SALES EBITDA EBIT
---------------- ------------------- -----------------
AUTOMOTIVE ELECTRONICS
Comparable Companies LTM Multiples 0.9x 7.7x 12.6x
Cherry Automotive Switches & Modules LTM Results $166.6 $12.4 $1.2
Implied Enterprise Value $150.0 $95.5 $15.2
COMPUTER PERIPHERALS
Comparable Companies LTM Multiples 1.4x 10.8x 10.1x
Cherry Computer Keyboards LTM Results $100.2 $22.8 $15.8
Implied Enterprise Value $135.7 $247.0 $159.2
SWITCHES & CONTROLS
Comparable Companies LTM Multiples 0.5x 8.2x 9.6x
Cherry Switches & Controls LTM Results $93.9 $3.2 ($3.2)
Implied Enterprise Value $43.3 $26.2 NM
<CAPTION>
<S> <C> <C>
AUTOMOTIVE ELECTRONICS
Comparable Companies LTM Multiples
Cherry Automotive Switches & Modules LTM Results
Implied Enterprise Value
ENTERPRISE VALUE RANGE $60.0 - $100.0
COMPUTER PERIPHERALS
Comparable Companies LTM Multiples
Cherry Computer Keyboards LTM Results
Implied Enterprise Value
ENTERPRISE VALUE RANGE $140.0 - $160.0
SWITCHES & CONTROLS
Comparable Companies LTM Multiples
Cherry Switches & Controls LTM Results
Implied Enterprise Value
ENTERPRISE VALUE RANGE $20.0 - $30.0
COMBINED ENTERPRISE VALUE RANGES $220.0 - $290.0
IMPLIED EQUITY VALUE RANGES $313.0 - $383.0
IMPLIED SHARE PRICE $29.77 - $36.19
</TABLE>
--------------------------------------------------------------------------------
-41-
<PAGE>
LTM COMPARABLE AUTOMOTIVE ELECTRONICS COMPANIES ANALYSIS ($MM)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE ADJUSTED MARKET VALUE
ADJUSTED AS A MULTIPLE OF LTM AS A MULTIPLE OF LTM
MARKET MARKET ------------------------------------ --------------------------------------
COMPANY VALUE VALUE NET INCOME BOOK VALUE SALES EBITDA
--------------- ---------------- ----------------- ----------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
STONERIDGE $134.9 $477.0 3.1 x 0.6 x 0.7 x 3.8 x
BEI TECHNOLOGIES 137.2 163.5 22.3 x 2.8 x 0.9 x 7.7 x
LITTELFUSE 711.2 785.8 23.4 x 4.8 x 2.4 x 9.9 x
------------------------------------------------------------------------------------------------------------------------------------
OVERALL MEAN $327.7 $475.4 16.3 X 2.7 X 1.3 X 7.1 X
OVERALL MEDIAN $137.2 $477.0 22.3 X 2.8 X 0.9 X 7.7 X
------------------------------------------------------------------------------------------------------------------------------------
CHERRY AUTOMOTIVE LTM RESULTS $166.6 $12.4
IMPLIED ENTERPRISE VALUE BASED ON MEDIANS $150.0 $95.5
<CAPTION>
ADJUSTED MARKET VALUE
AS A MULTIPLE OF LTM
--------------
EBIT
--------------
<S> <C>
STONERIDGE 4.9 x
BEI TECHNOLOGIES 12.6 x
LITTELFUSE 14.9 x
------------------------------------------------------
OVERALL MEAN 10.8 X
OVERALL MEDIAN 12.6 X
------------------------------------------------------
CHERRY AUTOMOTIVE LTM RESULTS $1.2
IMPLIED ENTERPRISE VALUE BASED ON MEDIANS $15.2
</TABLE>
--------------------------------------------------------------------------------
- 42 -
<PAGE>
NFY COMPARABLE AUTOMOTIVE ELECTRONICS COMPANIES ANALYSIS ($MM)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE ADJUSTED MARKET VALUE
ADJUSTED AS A MULTIPLE OF LTM AS A MULTIPLE OF NFY
MARKET MARKET ------------------------------------ --------------------------------
COMPANY VALUE VALUE NET INCOME BOOK VALUE SALES EBITDA
--------------- ---------------- ----------------- ----------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
STONERIDGE $134.9 $477.0 2.8 x 0.5 x 0.7 x 3.6 x
BEI TECHNOLOGIES 137.2 163.5 18.3 x 2.6 x 0.9 x 6.9 x
LITTELFUSE 711.2 785.8 20.0 x 4.1 x 2.1 x 8.8 x
-------------------------------------------------------------------------------------------------------------------------------
OVERALL MEAN $327.7 $475.4 13.7 X 2.4 X 1.2 X 6.4 X
OVERALL MEDIAN $137.2 $477.0 18.3 X 2.6 X 0.9 X 6.9 X
-------------------------------------------------------------------------------------------------------------------------------
CHERRY AUTOMOTIVE NFY RESULTS - BUDGET CASE (1) $158.5 $11.4
IMPLIED ENTERPRISE VALUE BASED ON MEDIANS $134.8 $78.4
<CAPTION>
ADJUSTED MARKET VALUE
AS A MULTIPLE OF NFY
--------------
EBIT
--------------
<S> <C>
STONERIDGE 4.6 x
BEI TECHNOLOGIES 10.9 x
LITTELFUSE 12.5 x
-----------------------------------------------------------------
OVERALL MEAN 9.3 X
OVERALL MEDIAN 10.9 X
-----------------------------------------------------------------
CHERRY AUTOMOTIVE NFY RESULTS - BUDGET CASE (1) ($0.1)
IMPLIED ENTERPRISE VALUE BASED ON MEDIANS NM
</TABLE>
--------------------------------------------------------------------------------
- 43 -
<PAGE>
LTM COMPARABLE COMPUTER PERIPHERALS COMPANIES ANALYSIS ($MM)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE ADJUSTED MARKET VALUE
ADJUSTED AS A MULTIPLE OF LTM AS A MULTIPLE OF LTM
MARKET MARKET ------------------------------------ --------------------------------
COMPANY VALUE VALUE NET INCOME BOOK VALUE SALES EBITDA
--------------- ---------------- ----------------- ----------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
ASTRONICS CORP. $55.3 $72.4 11.4 x 1.9 x 1.4 x 6.6 x
KEY TRONIC CORP. 24.1 45.4 NM 0.5 x 0.3 x 17.3 x
INTERLINK ELECTRONICS 223.1 218.8 NM 11.6 x 10.8 x NM
CYBEX COMPUTER PRODUCTS 398.0 410.0 22.2 x 5.1 x 3.7 x 15.0 x
PRINTRONIX 92.7 92.1 8.2 x 1.4 x 0.5 x 4.0 x
-----------------------------------------------------------------------------------------------------------------------------------
OVERALL MEAN $158.6 $167.8 13.9 X 4.1 X 3.3 X 10.7 X
OVERALL MEDIAN $92.7 $92.1 11.4 X 1.9 X 1.4 X 10.8 X
-----------------------------------------------------------------------------------------------------------------------------------
CHERRY COMPUTER KEYBOARDS LTM RESULTS $100.2 $22.8
IMPLIED ENTERPRISE VALUE BASED ON MEDIANS $135.7 $247.0
<CAPTION>
ADJUSTED MARKET VALUE
AS A MULTIPLE OF LTM
--------------
EBIT
--------------
<S> <C>
ASTRONICS CORP. 10.1 x
KEY TRONIC CORP. NM
INTERLINK ELECTRONICS NM
CYBEX COMPUTER PRODUCTS 16.1 x
PRINTRONIX 6.0 x
-----------------------------------------------------------
OVERALL MEAN 10.7 X
OVERALL MEDIAN 10.1 X
-----------------------------------------------------------
CHERRY COMPUTER KEYBOARDS LTM RESULTS $15.8
IMPLIED ENTERPRISE VALUE BASED ON MEDIANS $159.2
</TABLE>
--------------------------------------------------------------------------------
- 44 -
<PAGE>
LTM COMPARABLE SWITCHES AND CONTROLS COMPANIES ANALYSIS ($MM)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE ADJUSTED MARKET VALUE
ADJUSTED AS A MULTIPLE OF LTM AS A MULTIPLE OF LTM
MARKET MARKET ------------------------------------ --------------------------------
COMPANY VALUE VALUE NET INCOME BOOK VALUE SALES EBITDA
--------------- ---------------- ----------------- ----------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
AULT INC. $25.8 $31.2 17.4 x 1.0 x 0.5 x 9.9 x
C. P. CLARE CORP. 64.2 31.1 NM 0.7 x 0.3 x 13.2 x
CORRPRO COMPANIES INC. 28.3 91.2 4.4 x 0.5 x 0.5 x 4.3 x
POWELL INDUSTRIES INC 88.9 89.6 14.2 x 1.0 x 0.4 x 6.5 x
------------------------------------------------------------------------------------------------------------------------------------
OVERALL MEAN $51.8 $60.8 12.0 X 0.8 X 0.4 X 8.5 X
OVERALL MEDIAN $46.3 $60.4 14.2 X 0.8 X 0.5 X 8.2 X
------------------------------------------------------------------------------------------------------------------------------------
CHERRY SWITCHES AND CONTROLS LTM RESULTS $93.9 $3.2
IMPLIED ENTERPRISE VALUE BASED ON MEDIANS $43.3 $26.2
<CAPTION>
ADJUSTED MARKET VALUE
AS A MULTIPLE OF LTM
--------------
EBIT
--------------
<S> <C>
AULT INC. 14.1 x
C. P. CLARE CORP. NM
CORRPRO COMPANIES INC. 5.7 x
POWELL INDUSTRIES INC 9.6 x
----------------------------------------------------------
OVERALL MEAN 9.8 X
OVERALL MEDIAN 9.6 X
----------------------------------------------------------
CHERRY SWITCHES AND CONTROLS LTM RESULTS ($3.2)
IMPLIED ENTERPRISE VALUE BASED ON MEDIANS NM
</TABLE>
--------------------------------------------------------------------------------
- 45 -
<PAGE>
--------------------------------------------------------------------------------
---------------------------------------------
COMPARABLE ACQUISITIONS
ANALYSES
---------------------------------------------
--------------------------------------------------------------------------------
- 46 -
<PAGE>
VALUATION ANALYSIS - COMPARABLE ACQUISITIONS ANALYSIS ($MM, EXCEPT PER SHARE)
--------------------------------------------------------------------------------
- BASED ON PRELIMINARY ANALYSIS OF COMPARABLE ACQUISITIONS MULTIPLES, CHERRY'S
AUTOMOTIVE SWITCHES & MODULES, COMPUTER KEYBOARDS AND SWITCHES & CONTROLS
BUSINESSES REFLECT COMBINED ENTERPRISE VALUE OF BETWEEN $230 AND $305 MILLION
- THESE IMPLIED VALUATIONS REFLECT SIGNIFICANT ADDITIONAL VALUE BEYOND WHAT IS
REPRESENTED IN EITHER CURRENT TRADING VALUATIONS OR BY THE CHERRY GROUP'S
PROPOSAL
<TABLE>
<CAPTION>
ENTERPRISE VALUE MULTIPLES
---------------------------------------------------------
SALES EBITDA EBIT
---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
AUTOMOTIVE ELECTRONICS
Comparable Transactions LTM Multiples 0.9x 7.3x 10.7x
Cherry Automotive Switches & Modules LTM Results $166.6 $12.4 $1.2
Implied Enterprise Value $149.9 $91.0 $12.9
ENTERPRISE VALUE RANGE $60.0 - $100.0
COMPUTER PERIPHERALS
Comparable Transactions LTM Multiples 1.6x 7.5x 13.2x
Cherry Computer Keyboards LTM Results $100.2 $22.8 $15.8
Implied Enterprise Value $157.5 $170.2 $207.3
ENTERPRISE VALUE RANGE $150.0 - $175.0
SWITCHES & CONTROLS
Comparable Transactions LTM Multiples NA NA NA
Cherry Switches & Controls LTM Results $93.9 $3.2 ($3.2)
Implied Enterprise Value (1) NA NA NA
ENTERPRISE VALUE RANGE $20.0 - $30.0
COMBINED ENTERPRISE VALUE RANGES $230.0 - $305.0
IMPLIED EQUITY VALUE RANGES $323.0 - $398.0
IMPLIED SHARE PRICE $30.69 - $37.56
</TABLE>
-------------------------
(1) Based on implied value ranges derived from comparable company trading
analysis
--------------------------------------------------------------------------------
-47-
<PAGE>
COMPARABLE AUTOMOTIVE TRANSACTIONS ($MM) (1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED
DATE ACQUIROR NAME/ TARGET BUSINESS PURCHASE
ANN. TARGET NAME DESCRIPTION PRICE
---------------------- ------------------------------------- ------------------------------------------ ----------------------
<S> <C> <C> <C>
pending BC PARTNERS/ Manufacture power and fluid transfer $2,059.7
MARK IV systems for automotive industry
5/2/00 AUTOLIV/ Manufactures propellant-actuated $301.8
OEA, INC. safety devices
2/14/00 TOWER AUTOMOTIVE/ Manufacturer of structural components $110.0
DR MELEGHY GMBH & CO. and assemblies
1/6/00 CHASE EQUITY, UBS/ Manufactures automobile parts $446.0
MANDO MACHINERY
12/24/99 TRELLEBORG AG/ Manufactures anti-vibration systems $249.5
INVENSYS PLC (AVS BUSINESS) for automobiles
11/23/99 DELPHI AUTOMOTIVE SYSTEMS/ Manufactures diesel fuel injection $871.0
TRW (LUCAS DIESEL SYSTEMS) systems
8/3/99 BORG WARNER/ Manufactures engine cooling fans for $310.0
EATON CORP. - FLUID POWER automobiles and light to heavy trucks
6/28/99 DURA AUTOMOTIVE SYSTEMS, INC./ Manufactures jacks and tire carriers for $22.5
METALLIFACTURE LTD. the European auto industry
6/18/99 LITTLEJOHN & CO. LLC/ Manufacturer of protective liners for $101.2
DURAKON INDUSTRIES pickup trucks and cargo vans
5/18/99 AMSTED INDUSTRIES/ Manufacturer of components and $784.8
VARLEN CORP. sub-assembly for vehicles
4/28/99 TI GROUP PLC / Manufactures fuel storage and delivery $630.0
WALBRO CORP. systems for the automotive market
4/14/99 EAGLE-PICHER INDUSTRIES/ Manufactures engine, chassis, and $72.0
CARPENTER INDUSTRIES suspension parts for the auto industry
<CAPTION>
PURCHASE PRICE
AS A MULTIPLE OF:
ADJUSTED PURCHASE PRICE ----------------------------------------------
EQUITY AS A MULTIPLE OF:
PURCHASE -------------------------------------------------- NET BOOK
PRICE SALES EBITDA EBIT INCOME VALUE
-------------- ------------ ------------ ----------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
pending $1,172.3 1.0x 7.4x 11.0x 13.7x 2.5x
5/2/00 $206.2 1.2x 14.2x NM NM 1.4x
2/14/00 $110.0 NA NA NA NA NA
1/6/00 $446.0 NA NA NA NA NA
12/24/99 $249.5 0.5x NA 8.0x NA NA
11/23/99 $871.0 0.8x 7.0x NA NA NA
8/3/99 $310.0 1.6x NA NA NA NA
6/28/99 $22.5 0.9x NA NA NA 2.7x
6/18/99 $101.2 0.5x 5.1x 7.9x 12.2x 0.5x
5/18/99 $714.9 1.4x 11.6x 16.2x 34.7x 2.8x
4/28/99 $242.0 0.9x 8.5x 16.8x 46.6x 3.1x
4/14/99 $41.0 0.6x 4.2x 6.5x 7.5x 2.3x
</TABLE>
----------------------
(1) Source: SDC, news reports and company financials. All multiples are based
upon LTM data when available.
--------------------------------------------------------------------------------
-48-
<PAGE>
COMPARABLE AUTOMOTIVE TRANSACTIONS ($MM) (1) (CONT'D)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED EQUITY
DATE ACQUIROR NAME/ TARGET BUSINESS PURCHASE PURCHASE ----------
ANN. TARGET NAME DESCRIPTION PRICE PRICE SALES
---------------- ------------------------------- ------------------------------------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
3/16/99 LEAR CORP./ Manufactures electrical parts and $2,300.0 $2,300.0 0.8x
UNITED TECHNOLOGIES systems
AUTOMOTIVE
3/5/99 KLOECKNER-WERKE AG - PEGUFORM/ Manufactures an assortment of $456.0 $248.5 0.3x
VENTURE HOLDINGS TRUST automotive related parts
2/23/99 FIRST TECHNOLOGY PLC/ Manufacture relays and industrial $132.5 $142.4 1.7x
CONTROL DEVICES INC. controls
2/8/99 ARVIN INDUSTRIES/ Manufacturer of automotive oil, air, and $276.0 $269.7 0.8x
MARK IV - PUROLATOR UNIT fuel filters
2/1/99 EATON CORP./ Manufacturer of hydraulic pumps for the $1,971.5 $1,608.7 0.9x
AEROQUIP-VICKERS INC. automotive industry
1/19/99 DURA AUTOMOTIVE/ Manufacturer window and door systems to $101.2 $101.2 0.5x
EXCEL INDUSTRIES the automotive industry
1/26/99 TRW/ Manufactures vehicle braking systems $6,612.5 $5,727.1 1.3x
LUCASVARITY and diesel fuel injection systems/engines
12/18/98 BORG-WARNER AUTOMOTIVE/ Manufactures wire and cable products for the $730.0 $650.8 1.0x
KUHLMAN CORP. auto industry
12/7/98 MERITOR AUTOMOTIVE/ Manufacturer of motor vehicle parts and $135.0 $135.0 NA
VOLVO AB- HEAVY TRUCK rear axle
12/7/98 MERITOR AUTOMOTIVE/ Manufacturer of automobile parts for NA NA NA
EUCLID INDUSTRIES medium and heavy duty vehicles
12/7/98 STONERIDGE INC./ Manufacture motor vehicle parts and $379.0 $362.0 2.6x
HI-STAT MANUFACTURING CO. accessories
<CAPTION>
PURCHASE PRICE
AS A MULTIPLE OF:
ADJUSTED PURCHASE PRICE ------------------
AS A MULTIPLE OF:
------------------------- NET BOOK
EBITDA EBIT INCOME VALUE
----------- ------------ --------- -------
<S> <C> <C> <C> <C>
3/16/99 NA 13.6x NA NA
3/5/99 5.7x 16.9x 24.1x 2.8x
2/23/99 8.6x 10.6x 14.4x 3.4x
2/8/99 9.2x 16.9x 23.1x 1.0x
2/1/99 7.4x 10.6x 16.2x 2.8x
1/19/99 5.1x 7.9x 12.2x 0.5x
1/26/99 7.5x 9.3x 16.9x 2.4x
12/18/98 7.9x 10.8x 17.5x 7.9x
12/7/98 NA NA NA NA
12/7/98 NA NA NA NA
12/7/98 16.5x 22.5x 23.7x 8.8x
</TABLE>
-------------------------
(1) Source: SDC, news reports and company financials. All multiples are based
upon LTM data when available.
- 49 -
<PAGE>
COMPARABLE AUTOMOTIVE TRANSACTIONS ($MM) (1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED EQUITY
DATE ACQUIROR NAME/ TARGET BUSINESS PURCHASE PURCHASE
ANN. TARGET NAME DESCRIPTION PRICE PRICE
---------------- ----------------------------- ------------------------------------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
11/23/98 MERITOR AUTOMOTIVE/ Manufacturer of vehicle braking systems $390.0 $390.0
LUCASVARITY PLC - HEAVY
VEHICLE BRAKING SYSTEMS
11/20/98 HAYES LEMMERZ/ Manufacturer of suspension and powertrain $605.0 $437.0
CMI INTERNATIONAL parts
9/1/98 LEAR CORP/ Manufacturer of seat systems $250.0 $250.0
DELPHI SEATING for the auto industry
8/17/98 FEDERAL-MOGUL CORP/ Manufacturer of brakes, lights, wire & cable, $1,900.0 $1,900.0
COOPER INDUSTRIES - spark plugs, windshield wipers, steering,
AUTOMOTIVE suspension and driveline products
7/27/98 CONTINENTAL AG/ Manufacture of automotive brakes $1,930.0 $1,930.0
ITT INDUSTRIES - AUTO BRAKE and chassis systems
& CHASSIS
6/25/98 VALEO SA/ Manufacturer of windshield wiper, switches, $1,700.0 $1,700.0
ITT INDUSTRIES - AUTO sensors, air-management systems, and
ELECTRICAL BUSINESS fractional-horsepower electric motors
5/4/98 DANA CORP/ Manufacturer of automotive brake and $4,170.0 $3,600.0
ECHLIN INC engine systems sold in the aftermarket
1/12/98 FEDERAL-MOGUL/ Makes automotive gaskets $720.0 $720.0
FEL-PRO INC.
9/26/97 FEDERAL-MOGUL/ Manufacturer of automotive components $2,937.6 $2,470.5
T&N PLC
<CAPTION>
PURCHASE PRICE
AS A MULTIPLE OF:
ADJUSTED PURCHASE PRICE -------------------------------------------
AS A MULTIPLE OF:
----------------------------------------------------------------------- NET BOOK
SALES EBITDA EBIT INCOME VALUE
----------------------- ---------------------- --------------------- ----------------------- ------------------
<S> <C> <C> <C> <C> <C>
11/23/98 1.4x NA 9.8x NA NA
11/20/98 1.1x 9.0x 12.5x 21.2x 2.5x
9/1/98 0.4x NM NM NM NA
8/17/98 1.0x 6.7x 10.2x NA NA
7/27/98 NA NA NA NA NA
6/25/98 0.9x 7.0x NA NA NA
5/4/98 1.2x 12.5x 19.0x 35.0x 3.8x
1/12/98 1.4x 9.0x NA NA NA
9/26/97 1.0x 6.5x 10.1x NM NM
</TABLE>
-------------------------
(1) Source: SDC, news reports and company financials. All multiples are based
upon LTM data when available.
- 50 -
<PAGE>
COMPARABLE AUTOMOTIVE TRANSACTIONS ($MM) (1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED EQUITY
DATE ACQUIROR NAME/ TARGET BUSINESS PURCHASE PURCHASE
ANN. TARGET NAME DESCRIPTION PRICE PRICE
----------------- ------------------------------ ------------------------------------------------- ------------ ---------------
<S> <C> <C> <C> <C>
7/9/97 DANA CORP./ Manufactures axles, brakes, and other $287.0 $287.0
EATON CORP. - automobile parts
AXLE & BRAKE BUSINESS
7/9/97 EATON CORP./ Manufactures clutches and other $180.0 $180.0
DANA CORP. - automobile parts
WORLDWIDE CLUTCH BUSINESS
4/18/97 TOWER AUTOMOTIVE, INC./ Manufacturer of structural and suspension $650.0 $650.0
AUTOMOTIVE PRODUCTS CO. components for automotive, light truck and
(A.O. SMITH CORP.) heavy truck markets
9/5/96 MAGNA INTERNATIONAL INC./ Manufacturer of seating assemblies and $212.1 $132.6
DOUGLAS & LOMASON CO. mechanisms, soft tops, material handling
7/18/96 JOHNSON CONTROLS, INC./ Supplier of interior systems and components $1,200.0 $1,200.0
PRINCE HOLDING CORP. including overhead systems and consoles,
door panels, floor consoles, visors and armrests
6/17/96 LEAR CORPORATION/ Manufacturer of automotive carpeting and $384.0 $384.0
MASLAND luggage compartment trim
4/15/96 ROBERT BOSCH GMBH/ Manufacturer of automotive components for $21.4 $21.4
TRANSTURK (ALLIED SIGNAL) automotive braking systems
3/29/96 MOTOR WHEEL CORP./ Manufacturer of cast aluminum and fabricated $694.0 $562.4
HAYES WHEELS INTL. INC. steel wheels for passenger cars and light trucks
3/13/96 EATON CORP. / CAPCO Manufacturer of automobile parts NA NA
AUTOMOTIVE PRODUCTS CORP.
<CAPTION>
PURCHASE PRICE
AS A MULTIPLE OF:
ADJUSTED PURCHASE PRICE --------------------------------------------
AS A MULTIPLE OF:
----------------------------------------------------------------------- NET BOOK
SALES EBITDA EBIT INCOME VALUE
----------------------- ---------------------- --------------------- ----------------------- -------------------
<S> <C> <C> <C> <C> <C>
7/9/97 0.5x NA NA NA NA
7/9/97 1.0x NA NA NA NA
4/18/97 0.8x 6.2x 11.9x NA NA
9/5/96 NA NA NA NA NA
7/18/96 1.7x 8.0x 15.6x 26.1x 12.8x
6/17/96 0.9x 7.8x 9.3x NA NA
4/15/96 NA NA NA NA NA
3/29/96 1.1x 7.2x 10.9x 18.5x 2.3x
3/13/96 NA NA NA NA NA
</TABLE>
-------------------------
(1) Source: SDC, news reports and company financials. All multiples are based
upon LTM data when available.
- 51 -
<PAGE>
COMPARABLE AUTOMOTIVE TRANSACTIONS ($MM) (1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED EQUITY
DATE ACQUIROR NAME/ TARGET BUSINESS PURCHASE PURCHASE
ANN. TARGET NAME DESCRIPTION PRICE PRICE
---------------- ---------------------------------- ------------------------------------------------- ------------- ------------
<S> <C> <C> <C> <C>
3/11/96 ROBERT BOSCH GMBH/ Manufacturer of brakes for cars and light NA NA
HYDRAULIC BRAKE UNIT OF trucks
ALLIED SIGNAL INC. (PENDING)
3/6/96 MARK IV INDUSTRIES, INC./ Manufacturer of rubber and thermoplastic $75.0 $75.0
IMPERIAL EASTMAN DIVISION hoses and other industrial products
(PULLMAN CO.)
3/6/96 CAMBRIDGE INDUSTRIES, INC./ Manufacturer of composite materials for use $42.0 $42.0
GENCORP - REINFORCED in vehicle body panels and other automotive
PLASTICS DIVISION applications
2/12/96 DANA CORP./ THOMPSON Manufacturer of metal chassis and piston NA NA
RAMCO ARGENTINA ring automobile parts
2/5/96 COOPER INDUSTRIES INC./ Manufacturer of automotive lighting products NA NA
BLAZER INTERNATIONAL UNIT
(BLAZER GROUP)
1/17/96 TOWER AUTOMOTIVE INC./ Manufacturer of metal stampings and NA NA
TRYLON CORPORATION assemblies for cars, minivans and light trucks
(MASCOTECH, INC.)
1/12/96 TIMKEN CO./ Manufacturer of roller bearings $12.5 $12.5
FLT PREMA MILMET
- BEARINGS DIVISION (PENDING)
1/8/96 BTR INC./ Manufacturer of motor vehicle parts NA NA
GENCORP - VIBRATIONS
CONTROLS DIVISION
<CAPTION>
PURCHASE PRICE
AS A MULTIPLE OF:
ADJUSTED PURCHASE PRICE --------------------------------------------
AS A MULTIPLE OF:
----------------------------------------------------------------------- NET BOOK
SALES EBITDA EBIT INCOME VALUE
----------------------- ---------------------- --------------------- ----------------------- -------------------
<S> <C> <C> <C> <C> <C>
3/11/96 NA NA NA NA NA
3/6/96 0.6x NA NA NA NA
3/6/96 NA NA NA NA NA
2/12/96 NA NA NA NA NA
2/5/96 NA NA NA NA NA
1/17/96 NA NA NA NA NA
1/12/96 NA NA NA NA NA
1/8/96 NA NA NA NA NA
</TABLE>
-------------------------
(1) Source: SDC, news reports and company financials. All multiples are based
upon LTM data when available.
- 52 -
<PAGE>
COMPARABLE AUTOMOTIVE TRANSACTIONS ($MM) (1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED EQUITY
DATE ACQUIROR NAME/ TARGET BUSINESS PURCHASE PURCHASE
ANN. TARGET NAME DESCRIPTION PRICE PRICE
---------------- ---------------------------- -------------------------------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
12/5/95 MARK IV INDUSTRIES, INC./ Manufacturer of fuel systems components $23.7 $23.7
FITZSIMONS
MANUFACTURING CO.
11/1/95 DANA CORP./ Manufacturer of axles $115.3 $115.3
GKN AXLES, GKN COMAXLE
SPA (GKN PLC)
10/7/95 ECHLIN INC./ Manufacturer of motor vehicle parts NA NA
HANDY & HARMAN INC. and equipment
9/26/95 COLLINS & AIKMAN/ Manufacturer of component assemblies used $175.5 $143.5
LARIZZA INDUSTRIES in automobiles, light trucks and other
machinery
7/28/95 HARVARD INDUSTRIES/ Manufacturer of aluminum castings, primarily $212.0 $84.2
DOEHLER-JARVIS for use in the automotive industry
7/24/95 PLASTIC OMNIUM/ Supplier of interior trim to European OEMs $208.0 $208.0
REYDEL
7/17/95 LEAR SEATING CORP./ Manufacturer of interior trim systems for $847.2 $628.3
AUTOMOTIVE INDUSTRIES cars, mini vans and light trucks
HOLDING INC.
6/23/95 STANDARD MOTOR Manufacturer of filter dryers and accumulators $815.4 $587.4
PRODUCTS, INC./ for mobile air conditioning systems and
AUTOMOTIVE DRYERS INC. mobile air conditioning systems
6/23/95 JOHNSON CONTROLS/ Supplier of seating and interior components $250.0 $250.0
ROTH FRERES to European OEMS
<CAPTION>
PURCHASE PRICE
AS A MULTIPLE OF:
ADJUSTED PURCHASE PRICE -------------------------------------------
AS A MULTIPLE OF:
----------------------------------------------------------------------- NET BOOK
SALES EBITDA EBIT INCOME VALUE
----------------------- ---------------------- --------------------- ----------------------- ------------------
<S> <C> <C> <C> <C> <C>
12/5/95 0.4x NA NA NA NA
11/1/95 1.0x NA 12.1x NA NA
10/7/95 NA NA NA NA NA
9/26/95 0.9x 6.3x 7.6x 9.7x NA
7/28/95 0.8x 6.9x 18.3x NM NA
7/24/95 0.6x 4.6x 7.3x NA NA
7/17/95 1.5x 8.8x 12.2x 18.0x NA
6/23/95 NA NA NA NA NA
6/23/95 0.4x 5.3x 6.4x NA NA
</TABLE>
-------------------------
(1) Source: SDC, news reports and company financials. All multiples are based
upon LTM data when available.
- 53 -
<PAGE>
COMPARABLE AUTOMOTIVE TRANSACTIONS ($MM) (1) (CONT'D)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED EQUITY
DATE ACQUIROR NAME/ TARGET BUSINESS PURCHASE PURCHASE
ANN. TARGET NAME DESCRIPTION PRICE PRICE
---------------- ------------------------ ------------------------------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
6/15/95 JOHNSTOWN AMERICA Manufacturer of truck bodies and formed $249.2 $167.8
INDUSTRIES/ metal parts
TRUCK COMPONENTS
6/12/95 RIETER HOLDING AG/ Manufacturer of automobile parts, sound $180.0 $180.0
GLOBE INDUSTRIES, INC. deadening asphalt and roofing materials
6/2/95 TYCO INTERNATIONAL LTD/ Manufacturer of struts NA NA
UNISTRUT INTL. CORP.
5/10/95 CRS HOLDINGS CORP./ Manufacturer of motor vehicle parts NA NA
COMPONENTS and equipment
REMANUFACTURING
SPECIALISTS, INC.
5/4/95 DOUGLAS & LOMASON CO./ Manufacturer of automobile parts, especially $44.7 $44.0
BESTOP INC. soft-tops for four wheel drive vehicles
5/4/95 DOUGLAS & LOMASON CO./ Manufacturer of automobile parts, especially $44.7 $44.0
BESTOP INC. soft-tops for four wheel drive vehicles
4/24/95 MODINE MANUFACTURING CO./ Manufacturer and wholesaler of automotive NA NA
SIGNET SYSTEMS INC. heating and air-conditioning units
2/14/95 KOHLBERG KRAVIS Manufacturer of motor vehicle suspensions $105.0 $105.0
ROBERTS & CO./ and engineered systems components for trucks
NEWAY ANCHORLOK and trailers
INTERNATIONAL, INC.
----------------------------------------------------------------------------------------
OVERALL MEAN $739.7 $646.5
OVERALL MEDIAN $287.0 $250.0
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
CHERRY AUTOMOTIVE LTM RESULTS
IMPLIED ENTERPRISE VALUE
BASED ON MEDIANS
----------------------------------------------------------------------------------------
<CAPTION>
PURCHASE PRICE
AS A MULTIPLE OF:
ADJUSTED PURCHASE PRICE -------------------------------------------
AS A MULTIPLE OF:
DATE ----------------------------------------------------------------------- NET BOOK
ANN. SALES EBITDA EBIT INCOME VALUE
--------------- ----------------------- ---------------------- --------------------- ----------------------- ------------------
<S> <C> <C> <C> <C> <C>
6/15/95 0.7x 4.4x 5.6x 10.3x 7.2x
6/12/95 0.7x 7.0x 9.4x NA NA
6/2/95 NA NA NA NA NA
5/10/95 NA NA NA NA NA
5/4/95 NA NA NA NA NA
5/4/95 NA NA NA NA NA
4/24/95 NA NA NA NA NA
2/14/95 NA NA NA NA NA
-----------------------------------------------------------------------------------------------------------------------------
OVERALL MEAN 1.0X 7.8X 11.7X 20.1X 3.7X
OVERALL MEDIAN 0.9X 7.3X 10.7X 17.8X 2.7X
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
CHERRY AUTOMOTIVE
LTM RESULTS $166.6 $12.4 $1.2
IMPLIED ENTERPRISE
VALUE BASED ON
MEDIANS $149.9 $91.0 $12.9
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-------------------------
(1) Source: SDC, news reports and company financials. All multiples are based
upon LTM data when available.
- 54 -
<PAGE>
COMPARABLE COMPUTER PERIPHERALS TRANSACTIONS ($MM) (1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED
DATE ACQUIROR NAME/ TARGET BUSINESS PURCHASE
ANN. TARGET NAME DESCRIPTION PRICE
----------- ---------------------------------------------------------- ------------------------------------------ --------------
<S> <C> <C> <C>
1/19/00 CISCO SYSTEMS INC / COMPATIBLE SYSTEMS CORP Manufacture computer peripheral equipment $214.5
11/9/99 PSC INC / PERCON INC Manufacture computer peripherals $51.7
11/1/99 ADAPTEC INC / DISTRIBUTED PROCESSING Manufacture computer disk drives $237.0
9/22/99 XEROX CORP / TEKTRONIX INC-COLOR PRINTING Manufacture color inkjet printers $925.0
7/27/99 GUILLEMOT CORP / THRUSTMASTER INC-GAME Manufacture game controllers $15.0
5/14/99 INVESTOR GROUP / KENTEK INFORMATION SYSTEMS INC Manufacture mid-range printers $29.8
3/20/99 PIX TECH INC / MICRON TECH-DISPLAY DIV Manufacture computer display monitors $12.9
3/1/99 COMVERSE TECHNOLOGY INC / AMAREX TECHNOLOGY Manufacture software-based peripheral $16.6
12/3/98 XEROX CORP / VISIONEER INC Provide computer peripheral services $35.4
11/6/98 TEXAS INSTRUMENTS INC / ADAPTEC INC-DISK DRIVE Manufacture disk drives $17.0
10/22/98 SCM MICROSYSTEMS INC / SHUTTLE TECHNOLOGY GROUP Manufacture computer interface technology $33.0
8/18/98 SPICER-MITCHELL HOLDINGS LTD / TCM COMPUTERS(TEREXKO LTD) Manufacture computer peripherals $20.4
<CAPTION>
PURCHASE PRICE
AS A MULTIPLE OF:
ADJUSTED PURCHASE PRICE ------------------------------
EQUITY AS A MULTIPLE OF:
DATE PURCHASE ----------------------------------------------------------------------- NET BOOK
ANN. PRICE SALES EBITDA EBIT INCOME VALUE
------- ----------- ----------------------- ---------------------- --------------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1/19/00 $214.5 9.9x NA NA NA NA
11/9/99 $58.1 1.5x 8.1x 9.9x 13.9x 3.4x
11/1/99 $237.0 5.3x NA NA NA NA
9/22/99 $925.0 0.5x 6.8x 15.6x 30.8x 1.5x
7/27/99 $15.0 NA NA NA NA NA
5/14/99 $38.9 NA NA NA NA NA
3/20/99 $12.9 NA NA NA NA NA
3/1/99 $16.6 1.7x NA NA NA NA
12/3/98 $40.8 0.4x NM NM NM 4.4x
11/6/98 $17.0 NA NA NA NA NA
10/22/98 $33.0 2.1x 20.4x 21.9x 22.6x 20.5x
8/18/98 $20.4 NA NA NA NA NA
</TABLE>
-------------------------
(1) Source: SDC, news reports and company financials. All multiples are based
upon LTM data when available.
- 55 -
<PAGE>
COMPARABLE COMPUTER PERIPHERALS TRANSACTIONS ($MM) (1) (CONT'D)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE ACQUIROR NAME/ TARGET BUSINESS
ANN. TARGET NAME DESCRIPTION
----------------- ----------------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
7/16/98 IOMEGA CORP / NOMAI SA Manufacture computer cartridges
7/1/98 DIGI INTERNATIONAL INC / CENTRAL DATA CORP Manufacture and wholesale serial port devices
6/29/98 LSI LOGIC CORP / SYMBIOS INC Manufacture host adapter boards
6/24/98 CELL PATHWAYS / TSENG LABORATORIES INC Manufacture graphic displays
6/2/98 BETTER ONLINE SOLUTIONS LTD / PACIFIC INFORMATION SYSTEMS Manufacture computer peripherals
4/20/98 INVESTOR GROUP / CORNERSTONE IMAGING-DISPLAY Manufacture display peripherals
3/6/98 ASK AS / PROXIMA CORP Manufacture PC liquid crystal display products
11/17/97 PIXEL MAGIC INC / XEROGRAPHIC LASER IMAGES CORP Manufacture hardware and software products
---------------------------------------------------
OVERALL MEAN
OVERALL MEDIAN
---------------------------------------------------
---------------------------------------------------
CHERRY COMPUTER KEYBOARDS LTM RESULTS
IMPLIED ENTERPRISE VALUE BASED ON MEDIANS
---------------------------------------------------
<CAPTION>
PURCHASE PRICE
AS A MULTIPLE OF:
ADJUSTED PURCHASE PRICE ----------------------------
ADJUSTED EQUITY AS A MULTIPLE OF:
DATE PURCHASE PURCHASE ------------------------------------ NET BOOK
ANN. PRICE PRICE SALES EBITDA EBIT INCOME VALUE
------ ---------- ---------- ---------- ------------ ------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
7/16/98 $44.0 $44.0 1.8x NA NA NA NA
7/1/98 $18.0 $18.0 1.2x NA NA NA NA
6/29/98 $760.0 $760.0 1.2x 5.2x 10.8x 20.7x 2.5x
6/24/98 $151.2 $174.8 24.9x NM NM NM 6.2x
6/2/98 $12.4 $12.4 0.6x NA NA 12.4x NA
4/20/98 $10.7 $10.7 NA NA NA NA NA
3/6/98 $70.0 $79.8 0.5x NM NM NM 1.2x
11/17/97 $15.0 $15.0 9.8x NM NM NM NM
---------------------------------------------------------------------------------------------------
OVERALL MEAN $134.5 $137.2 4.4X 10.1X 14.5X 20.1X 5.7X
OVERALL MEDIAN $31.4 $35.9 1.6X 7.5X 13.2X 20.7X 3.4X
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
CHERRY COMPUTER KEYBOARDS LTM
RESULTS $100.2 $22.8 $15.8
IMPLIED ENTERPRISE VALUE BASED
ON MEDIANS $157.5 $170.2 $207.3
---------------------------------------------------------------------------------------------------
</TABLE>
-------------------------
(1) Source: SDC, news reports and company financials. All multiples are based
upon LTM data when available.
- 56 -
<PAGE>
COMPARABLE SWITCH TRANSACTIONS ($MM) (1)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADJUSTED
DATE ACQUIROR NAME/ TARGET BUSINESS PURCHASE
ANN. TARGET NAME DESCRIPTION PRICE
---------------- ----------------------------------------------- --------------------------------------------- -----------------
<S> <C> <C> <C>
5/2/00 SILVER LAKE PARTNERS / CABLETRON SYSTEMS INC Manufacture intelligent switches $225.0
6/30/99 SAIA BURGESS ELECTRONICS / BMI ELECTRONICS Manufacture automotive sensors and switches NA
2/4/99 GOOCH & HOUSEGO / CLEVELAND CRYSTALS Manufacture electro-optic Q-switches $6.5
1/19/99 ROCKWELL AUTOMATION / EJA ENGINEERING Manufacture control systems and switches $82.8
5/7/97 KEARNEY NATIONAL / DRYREED SWITCHES Manufacture magnetic switches NA
12/23/96 GUNTHER / TONGEREN MANUFACTURING Manufacture electronic switches NA
12/20/96 SIBER / ERNST DREEFS Manufacture switches and thermostats NA
9/3/96 CISCO SYSTEMS / GRANITE SYSTEMS Manufacture high speed switches $220.0
8/15/96 INVESTOR GROUP / EJA ENGINEERING Manufacture control systems and switches $48.1
8/14/96 FLEXTECH HOLDINGS / HIMAKE ELECTRONICS Manufacture precision electronic switches $0.7
3/4/96 US ROBOTICS / AMBER WAVE SYSTEMS Manufacture internet switches $40.0
----------------------------------------------------------------
OVERALL MEAN $89.0
OVERALL MEDIAN $48.1
----------------------------------------------------------------
----------------------------------------------------------------
CHERRY SWITCH & CONTROLS LTM RESULTS
IMPLIED ENTERPRISE
----------------------------------------------------------------
<CAPTION>
PURCHASE PRICE
AS A MULTIPLE OF:
ADJUSTED PURCHASE PRICE ----------------------------------------------
EQUITY AS A MULTIPLE OF:
DATE PURCHASE ----------------------------------------------------- NET BOOK
ANN. PRICE SALES EBITDA EBIT INCOME VALUE
------ ------------ ---------------- --------------- ----------------- ----------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
5/2/00 $225.0 NA NA NA NA NA
6/30/99 NA NA NA NA NA NA
2/4/99 $6.5 NA NA NA NA NA
1/19/99 $82.8 NA NA NA NA NA
5/7/97 NA NA NA NA NA NA
12/23/96 NA NA NA NA NA NA
12/20/96 NA NA NA NA NA NA
9/3/96 $220.0 NA NA NA NA NA
8/15/96 $48.1 NA NA NA NA NA
8/14/96 $0.7 NA NA NA NA NA
3/4/96 $40.0 NA NA NA NA NA
------------------------------------------------------------------------------------------------------------------------------------
OVERALL MEAN $89.0 NA NA NA NA NA
OVERALL MEDIAN $48.1 NA NA NA NA NA
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-----------------------------------------------------------------------------
CHERRY SWITCH & CONTROLS LTM
RESULTS $93.9 $3.2 ($3.2)
IMPLIED ENTERPRISE VALUE NA NA NA
-----------------------------------------------------------------------------
-------------------------
(1) Source: SDC, news reports and company financials. All multiples are based
upon LTM data when available.
--------------------------------------------------------------------------------
- 57 -
<PAGE>
--------------------------------------------------------------------------------
---------------------------------------
BREAK-UP ANALYSIS
---------------------------------------
--------------------------------------------------------------------------------
- 58 -
<PAGE>
BREAK-UP ANALYSIS ($MM, EXCEPT PER SHARE)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SALE OF BUSINESS SEGMENTS
----------------------------------------------------------------------
AUTOMOTIVE SWITCHES &
ELECTRONICS CONTROLS
------------------------------------ --------------------------------
<S> <C> <C> <C> <C>
SALE PROCEEDS (1) $60.0 - $100.0 $20.0 - $30.0
TAX BASIS (2) $90.6 $90.6 $56.8 $56.8
TAXABLE AMOUNT OF PROCEEDS NM $9.4 NM NM
TAXES PAID (3) - $3.8 - -
----------------------------------------------------------------------
NET CASH PROCEEDS $60.0 - $96.2 $20.0 - $30.0
----------------------------------------------------------------------
SALE OF REMAINING COMPANY TAX FREE
(COMPUTER PERIPHERALS)
----------------------------------------------------------------------
SALE PROCEEDS (1) $140.0 - $175.0
PLUS: CASH PROCEEDS FROM SALE OF BUSINESS SEGMENTS $80.0 - $126.2
LESS: NET DEBT ($93.0) - ($93.0)
----------------------------------------------------------------------
TOTAL CASH PROCEEDS $313.0 - $394.2
IMPLIED SHARE PRICE $29.77 - $37.22
----------------------------------------------------------------------
</TABLE>
------------------------------
(1) Based on values implied by comparable trading and acquisitions multiples
(2) Based on Identifiable Assets as presented in the Preliminary 2000 Annual
Report
(3) Based on 40% tax rate
--------------------------------------------------------------------------------
- 59 -
<PAGE>
--------------------------------------------------------------------------------
---------------------------------
LEVERAGED BUYOUT ANALYSES
---------------------------------
--------------------------------------------------------------------------------
- 60 -
<PAGE>
ASSUMPTIONS
44% SHARE PRICE PREMIUM PRE-BID, 54% MGMT. EQUITY ROLLED AND 0% NEW EQUITY
--------------------------------------------------------------------------------
BUDGET/IMPROVED MARGINS CASE ($MM, EXCEPT PER SHARE DATA)
<TABLE>
----------------------------------------------------------------------------------
USES OF FUNDS
----------------------------------------------------------------------------------
<S> <C>
Total Shares Outstanding (MM) 10.04
Stock Price (as of 04/20/00) $13.00
Premium 44.2%
------
Tender Purchase Price per Share $18.75
TOTAL SHARE PURCHASE PRICE $188.3
Plus: Value of Options 4.4
---
TOTAL EQUITY PURCHASE PRICE $192.7
Total Transaction Fees 10.0
Plus: Pro Forma Net Debt as of 3/31/00 (93.0)
------
TOTAL PURCHASE PRICE $109.7
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
CHERRY GROUP INITIAL INVESTMENT
----------------------------------------------------------------------------------
Total Shares Outstanding (MM) 10.04
% Owned by Cherry Group 54%
Cherry Group's Share of $93.0 Cash Distributed as Cash Dividend $50.6
Capital Gains Tax 28.0%
CHERRY GROUP'S NET PROCEEDS $36.4
Plus: Value of Cherry Group Rollover Equity 102.4
-----
CHERRY GROUP INITIAL INVESTMENT $138.8
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
SOURCES OF FUNDS
----------------------------------------------------------------------
2000
INT. RATE $MM %CAP EBITDA
----------------------------------------------
<S> <C> <C> <C> <C>
Bank Facility 9.5% $7.3 6.6% 0.20x
Subordinated Debt 12.0% 0.0 0.0% 0.00x
---- ---- -----
Total Debt $7.3 6.6% 0.20x
New Common Equity 0.0 0.0%
Rollover Common Equity 102.4 93.4%
------ -----
Total Common Equity 102.4 93.4%
------ -----
TOTAL SOURCES $109.7 100.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
TRANSACTION GOODWILL CALCULATION / OTHER
----------------------------------------------------------------------
Total Equity Purchase Price $192.7
Plus: Total Transaction Fees 10.0
Less: Estimated Net Worth as of 3/31/00 174.2
-----
Transaction Goodwill 0.0
Period of Amortization 20.0
Annual Transaction Goodwill Amortization (TGA) $0.0
Est. Public Company Expense (annual) 1.0
----------------------------------------------------------------------
</TABLE>
---------------------------
NOTE: ANALYSIS ASSUMES LBO TRANSACTION CLOSES ON 3/1/00
(1) Assumes 54% of management's equity is rolled
--------------------------------------------------------------------------------
- 61 -
<PAGE>
IRR SENSITIVITY ANALYSIS ($ PER SHARE)
54% MGMT. EQUITY ROLLED AND 0% NEW EQUITY
--------------------------------------------------------------------------------
BUDGET/IMPROVED MARGINS CASE
<TABLE>
<CAPTION>
IMPLIED IRR AT 4.0X EBITDA EXIT MULTIPLE
----------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2002 11.3% 6.2% 2.3% (1.5%) (5.1%) (8.6%) (12.1%) (15.4%) (18.7%)
EXIT 2003 21.6% 18.4% 15.9% 13.5% 11.1% 8.8% 6.5% 4.4% 2.2%
YEAR 2004 21.2% 18.9% 17.1% 15.4% 13.7% 12.0% 10.4% 8.8% 7.3%
2005 20.9% 19.1% 17.8% 16.5% 15.2% 13.9% 12.7% 11.4% 10.2%
2006 20.3% 18.9% 17.8% 16.8% 15.7% 14.7% 13.8% 12.8% 11.8%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 5.0X EBITDA EXIT MULTIPLE
----------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 25.1% 19.9% 16.0% 12.2% 8.6% 5.1% 1.7% (1.6%) (4.8%)
EXIT 2003 31.0% 27.8% 25.3% 23.0% 20.7% 18.4% 16.2% 14.1% 12.1%
YEAR 2004 27.7% 25.5% 23.8% 22.1% 20.4% 18.8% 17.3% 15.7% 14.3%
2005 25.7% 24.0% 22.7% 21.4% 20.2% 19.0% 17.8% 16.6% 15.5%
2006 24.1% 22.7% 21.7% 20.7% 19.7% 18.7% 17.7% 16.8% 15.9%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 6.0X EBITDA EXIT MULTIPLE
----------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 37.5% 32.2% 28.2% 24.4% 20.8% 17.2% 13.8% 10.5% 7.3%
EXIT 2003 39.2% 36.0% 33.6% 31.2% 28.9% 26.7% 24.5% 22.5% 20.4%
YEAR 2004 33.4% 31.2% 29.5% 27.8% 26.2% 24.6% 23.1% 21.6% 20.2%
2005 29.9% 28.2% 26.9% 25.7% 24.5% 23.3% 22.1% 21.0% 19.9%
2006 27.4% 26.0% 25.0% 24.0% 23.0% 22.1% 21.2% 20.3% 19.4%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 7.0X EBITDA EXIT MULTIPLE
----------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 48.8% 43.5% 39.4% 35.5% 31.8% 28.2% 24.8% 21.4% 18.2%
EXIT 2003 46.6% 43.3% 40.9% 38.5% 36.2% 34.0% 31.9% 29.8% 27.8%
YEAR 2004 38.4% 36.2% 34.5% 32.8% 31.2% 29.7% 28.2% 26.7% 25.3%
2005 33.6% 32.0% 30.7% 29.4% 28.2% 27.1% 25.9% 24.8% 23.7%
2006 30.3% 29.0% 27.9% 26.9% 26.0% 25.1% 24.1% 23.3% 22.4%
---------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
- 62 -
<PAGE>
IRR SENSITIVITY ANALYSIS ($ PER SHARE)
54% MGMT. EQUITY ROLLED AND 0% NEW EQUITY
--------------------------------------------------------------------------------
BUDGET/IMPROVED MARGINS CASE
<TABLE>
<CAPTION>
IMPLIED IRR AT 2.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2002 (58.1%) NM NM NM NM NM NM NM NM
EXIT 2003 (13.8%) (18.3%) (22.0%) (25.7%) (29.6%) (33.7%) (38.0%) (42.7%) (47.9%)
YEAR 2004 12.4% 9.9% 7.9% 5.9% 3.9% 1.9% (0.0%) (2.0%) (3.9%)
2005 17.6% 15.8% 14.3% 12.9% 11.5% 10.1% 8.8% 7.4% 6.0%
2006 17.1% 15.6% 14.5% 13.4% 12.3% 11.2% 10.1% 9.0% 8.0%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 3.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 (54.8%) (63.7%) NM NM NM NM NM NM NM
EXIT 2003 (10.4%) (14.8%) (18.3%) (21.9%) (25.6%) (29.4%) (33.3%) (37.6%) (42.1%)
YEAR 2004 15.4% 12.9% 11.0% 9.0% 7.1% 5.1% 3.2% 1.4% (0.5%)
2005 20.0% 18.2% 16.7% 15.4% 14.0% 12.6% 11.3% 9.9% 8.6%
2006 18.9% 17.5% 16.3% 15.2% 14.1% 13.1% 12.0% 11.0% 9.9%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 4.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 (50.9%) (59.4%) NM NM NM NM NM NM NM
EXIT 2003 (6.5%) (10.8%) (14.2%) (17.6%) (21.1%) (24.7%) (28.3%) (32.1%) (36.2%)
YEAR 2004 18.9% 16.4% 14.5% 12.6% 10.7% 8.8% 7.0% 5.1% 3.3%
2005 22.7% 20.9% 19.5% 18.1% 16.8% 15.4% 14.1% 12.8% 11.5%
2006 21.0% 19.6% 18.5% 17.4% 16.3% 15.3% 14.2% 13.2% 12.2%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 5.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 (46.4%) (54.4%) (61.4%) NM NM NM NM NM NM
EXIT 2003 (2.0%) (6.1%) (9.4%) (12.7%) (16.0%) (19.3%) (22.7%) (26.2%) (29.9%)
YEAR 2004 22.9% 20.5% 18.6% 16.7% 14.8% 13.0% 11.2% 9.4% 7.7%
2005 25.8% 24.1% 22.7% 21.3% 20.0% 18.7% 17.4% 16.1% 14.9%
2006 23.4% 22.0% 20.9% 19.9% 18.8% 17.8% 16.8% 15.8% 14.8%
---------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
- 63 -
<PAGE>
ASSUMPTIONS
44% SHARE PRICE PREMIUM PRE-BID, 54% MGMT. EQUITY ROLLED AND 0% NEW EQUITY
--------------------------------------------------------------------------------
BUDGET/FLAT MARGINS CASE ($MM, EXCEPT PER SHARE DATA)
<TABLE>
----------------------------------------------------------------------------------
USES OF FUNDS
----------------------------------------------------------------------------------
<S> <C>
Total Shares Outstanding (MM) 10.04
Stock Price (as of 04/20/00) $13.00
Premium 44.2%
-------
Tender Purchase Price per Share $18.75
TOTAL SHARE PURCHASE PRICE $188.3
Plus: Value of Options 4.4
---
TOTAL EQUITY PURCHASE PRICE $192.7
Total Transaction Fees 10.0
Plus: Pro Forma Net Debt as of 3/31/00 (93.0)
-----
TOTAL PURCHASE PRICE $109.7
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
CHERRY GROUP INITIAL INVESTMENT
----------------------------------------------------------------------------------
Total Shares Outstanding (MM) 10.04
% Owned by Cherry Group 54%
Cherry Group's Share of $93.0 Cash Distributed as Cash Dividend $50.6
Capital Gains Tax 28.0%
-------
CHERRY GROUP'S NET PROCEEDS $36.4
Plus: Value of Cherry Group Rollover Equity 102.4
-------
CHERRY GROUP INITIAL INVESTMENT $138.8
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
SOURCES OF FUNDS
----------------------------------------------------------------------
2000
INT. RATE $MM %CAP EBITDA
----------------------------------------------
<S> <C> <C> <C> <C>
Bank Facility 9.5% $7.3 6.6% 0.20x
Subordinated Debt 12.0% 0.0 0.0% 0.00x
---- ---- -----
Total Debt $7.3 6.6% 0.20x
New Common Equity 0.0 0.0%
Rollover Common Equity 102.4 93.4%
------ -----
Total Common Equity 102.4 93.4%
------ -----
TOTAL SOURCES $109.7 100.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
TRANSACTION GOODWILL CALCULATION / OTHER
----------------------------------------------------------------------
Total Equity Purchase Price $192.7
Plus: Total Transaction Fees 10.0
Less: Estimated Net Worth as of 3/31/00 174.2
------
Transaction Goodwill 0.0
Period of Amortization 20.0
Annual Transaction Goodwill Amortization (TGA) $0.0
Est. Public Company Expense (annual) 1.0
----------------------------------------------------------------------
</TABLE>
--------------------------
NOTE: ANALYSIS ASSUMES LBO TRANSACTION CLOSES ON 3/1/00
(1) Assumes 54% of management's equity is rolled
--------------------------------------------------------------------------------
- 64 -
<PAGE>
IRR SENSITIVITY ANALYSIS ($ PER SHARE)
54% MGMT. EQUITY ROLLED AND 0% NEW EQUITY
--------------------------------------------------------------------------------
BUDGET/FLAT MARGINS CASE
<TABLE>
<CAPTION>
IMPLIED IRR AT 4.0X EBITDA EXIT MULTIPLE
----------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2002 11.3% 6.2% 2.3% (1.5%) (5.1%) (8.6%) (12.1%) (15.4%) (18.7%)
EXIT 2003 21.6% 18.4% 15.9% 13.5% 11.1% 8.8% 6.5% 4.4% 2.2%
YEAR 2004 19.1% 16.8% 15.0% 13.3% 11.5% 9.9% 8.2% 6.6% 5.0%
2005 17.7% 16.0% 14.6% 13.2% 11.9% 10.6% 9.3% 8.0% 6.8%
2006 16.6% 15.1% 14.0% 12.9% 11.9% 10.8% 9.8% 8.8% 7.7%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 5.0X EBITDA EXIT MULTIPLE
----------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 25.1% 19.9% 16.0% 12.2% 8.6% 5.1% 1.7% (1.6%) (4.8%)
EXIT 2003 31.0% 27.8% 25.3% 23.0% 20.7% 18.4% 16.2% 14.1% 12.1%
YEAR 2004 25.6% 23.3% 21.6% 19.9% 18.2% 16.6% 15.0% 13.5% 12.0%
2005 22.5% 20.8% 19.4% 18.1% 16.9% 15.6% 14.4% 13.2% 12.0%
2006 20.3% 18.9% 17.8% 16.8% 15.8% 14.8% 13.8% 12.8% 11.8%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 6.0X EBITDA EXIT MULTIPLE
----------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 37.5% 32.2% 28.2% 24.4% 20.8% 17.2% 13.8% 10.5% 7.3%
EXIT 2003 39.2% 36.0% 33.6% 31.2% 28.9% 26.7% 24.5% 22.5% 20.4%
YEAR 2004 31.2% 28.9% 27.2% 25.5% 23.9% 22.3% 20.8% 19.3% 17.8%
2005 26.6% 24.9% 23.6% 22.3% 21.1% 19.9% 18.7% 17.5% 16.4%
2006 23.5% 22.2% 21.1% 20.1% 19.1% 18.1% 17.2% 16.2% 15.3%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 7.0X EBITDA EXIT MULTIPLE
----------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 48.8% 43.5% 39.4% 35.5% 31.8% 28.2% 24.8% 21.4% 18.2%
EXIT 2003 46.6% 43.3% 40.9% 38.5% 36.2% 34.0% 31.9% 29.8% 27.8%
YEAR 2004 36.1% 33.9% 32.2% 30.5% 28.9% 27.4% 25.8% 24.4% 22.9%
2005 30.3% 28.6% 27.3% 26.0% 24.8% 23.6% 22.5% 21.3% 20.2%
2006 26.4% 25.0% 24.0% 23.0% 22.0% 21.0% 20.1% 19.2% 18.3%
---------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
- 65 -
<PAGE>
IRR SENSITIVITY ANALYSIS ($ PER SHARE)
54% MGMT. EQUITY ROLLED AND 0% NEW EQUITY
--------------------------------------------------------------------------------
BUDGET/FLAT MARGINS CASE
<TABLE>
<CAPTION>
IMPLIED IRR AT 2.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2002 (58.1%) NM NM NM NM NM NM NM NM
EXIT 2003 (13.8%) (18.3%) (22.0%) (25.7%) (29.6%) (33.7%) (38.0%) (42.7%) (47.9%)
YEAR 2004 8.9% 6.2% 4.1% 2.0% (0.1%) (2.1%) (4.2%) (6.3%) (8.4%)
2005 12.7% 10.8% 9.3% 7.7% 6.2% 4.7% 3.2% 1.7% 0.2%
2006 11.0% 9.4% 8.2% 7.0% 5.7% 4.5% 3.3% 2.0% 0.8%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 3.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 (54.8%) (63.7%) NM NM NM NM NM NM NM
EXIT 2003 (10.4%) (14.8%) (18.3%) (21.9%) (25.6%) (29.4%) (33.3%) (37.6%) (42.1%)
YEAR 2004 11.8% 9.2% 7.1% 5.1% 3.1% 1.0% (1.0%) (3.0%) (5.0%)
2005 14.9% 13.0% 11.6% 10.1% 8.6% 7.1% 5.7% 4.2% 2.8%
2006 12.7% 11.1% 9.9% 8.7% 7.5% 6 .3% 5.1% 3.9% 2.7%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 4.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 (50.9%) (59.4%) NM NM NM NM NM NM NM
EXIT 2003 (6.5%) (10.8%) (14.2%) (17.6%) (21.1%) (24.7%) (28.3%) (32.1%) (36.2%)
YEAR 2004 15.1% 12.6% 10.6% 8.6% 6.6% 4.6% 2.7% 0.8% (1.1%)
2005 17.5% 15.6% 14.2% 12.7% 11.3% 9.9% 8.5% 7.0% 5.6%
2006 14.6% 13.1% 11.9% 10.7% 9.6% 8.4% 7.3% 6.1% 5.0%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 5.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 (46.4%) (54.4%) (61.4%) NM NM NM NM NM NM
EXIT 2003 (2.0%) (6.1%) (9.4%) (12.7%) (16.0%) (19.3%) (22.7%) (26.2%) (29.9%)
YEAR 2004 19.0% 16.5% 14.6% 12.6% 10.7% 8.8% 6.9% 5.0% 3.2%
2005 20.5% 18.7% 17.3% 15.8% 14.4% 13.1% 11.7% 10.3% 8.9%
2006 16.9% 15.4% 14.2% 13.1% 12.0% 10.9% 9.7% 8.6% 7.5%
---------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
- 66 -
<PAGE>
ASSUMPTIONS
44% SHARE PRICE PREMIUM PRE-BID, 54% MGMT. EQUITY ROLLED AND 0% NEW EQUITY
--------------------------------------------------------------------------------
BUDGET/RECESSION CASE ($MM, EXCEPT PER SHARE DATA)
<TABLE>
----------------------------------------------------------------------------------
USES OF FUNDS
----------------------------------------------------------------------------------
<S> <C>
Total Shares Outstanding (MM) 10.04
Stock Price (as of 04/20/00) $13.00
Premium 44.2%
-----
Tender Purchase Price per Share $18.75
TOTAL SHARE PURCHASE PRICE $188.3
Plus: Value of Options 4.4
---
TOTAL EQUITY PURCHASE PRICE $192.7
Total Transaction Fees 10.0
Plus: Pro Forma Net Debt as of 3/31/00 (93.0)
-----
TOTAL PURCHASE PRICE $109.7
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
CHERRY GROUP INITIAL INVESTMENT
----------------------------------------------------------------------------------
Total Shares Outstanding (MM) 10.04
% Owned by Cherry Group 54%
Cherry Group's Share of $93.0 Cash Distributed as Cash Dividend $50.6
-----
Capital Gains Tax 28.0%
-----
CHERRY GROUP'S NET PROCEEDS $36.4
Plus: Value of Cherry Group Rollover Equity 102.4
-----
CHERRY GROUP INITIAL INVESTMENT $138.8
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
SOURCES OF FUNDS
----------------------------------------------------------------------
2000
INT. RATE $MM %CAP EBITDA
----------------------------------------------
<S> <C> <C> <C> <C>
Bank Facility 9.5% $7.3 6.6% 0.20x
Subordinated Debt 12.0% 0.0 0.0% 0.00x
---- ---- -----
Total Debt $7.3 6.6% 0.20x
New Common Equity 0.0 0.0%
Rollover Common Equity 102.4 93.4%
------ -----
Total Common Equity 102.4 93.4%
------ -----
TOTAL SOURCES $109.7 100.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
TRANSACTION GOODWILL CALCULATION / OTHER
----------------------------------------------------------------------
Total Equity Purchase Price $192.7
Plus: Total Transaction Fees 10.0
Less: Estimated Net Worth as of 3/31/00 174.2
-----
Transaction Goodwill 0.0
Period of Amortization 20.0
Annual Transaction Goodwill Amortization (TGA) $0.0
Est. Public Company Expense (annual) 1.0
----------------------------------------------------------------------
</TABLE>
---------------------------
NOTE: ANALYSIS ASSUMES LBO TRANSACTION CLOSES ON 3/1/00
(1) Assumes 54% of management's equity is rolled
------------------------------------------------------------------------
- 67 -
<PAGE>
IRR SENSITIVITY ANALYSIS ($ PER SHARE)
54% MGMT. EQUITY ROLLED AND 0% NEW EQUITY
--------------------------------------------------------------------------------
BUDGET/RECESSION CASE
<TABLE>
<CAPTION>
IMPLIED IRR AT 4.0X EBITDA EXIT MULTIPLE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 (22.5%) (27.9%) (32.1%) (36.3%) (40.5%) (44.7%) (48.9%) (53.2%) (57.7%)
EXIT 2003 (4.7%) (8.3%) (11.2%) (14.1%) (17.0%) (19.8%) (22.7%) (25.7%) (28.6%)
YEAR 2004 0.1% (2.6%) (4.8%) (7.0%) (9.2%) (11.3%) (13.6%) (15.8%) (18.1%)
2005 3.6% 1.5% (0.2%) (1.9%) (3.6%) (5.2%) (6.9%) (8.7%) (10.4%)
2006 6.2% 4.5% 3.2% 1.8% 0.5% (0.8%) (2.2%) (3.5%) (4.9%)
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 5.0X EBITDA EXIT MULTIPLE
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 (12.0%) (17.2%) (21.2%) (25.2%) (29.1%) (32.9%) NM (40.5%) NM
EXIT 2003 3.2% (0.2%) (3.0%) (5.6%) (8.2%) (10.8%) (13.4%) (16.0%) (18.6%)
YEAR 2004 6.0% 3.4% 1.4% (0.6%) (2.5%) (4.5%) (6.4%) (8.4%) (10.3%)
2005 8.2% 6.2% 4.6% 3.1% 1.5% 0.0% (1.5%) (3.0%) (4.5%)
2006 9.9% 8.3% 7.0% 5.8% 4.6% 3.4% 2.2% 1.0% (0.2%)
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 6.0X EBITDA EXIT MULTIPLE
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 (2.6%) (7.7%) (11.7%) (15.5%) (19.3%) (22.9%) (26.5%) (30.1%) (33.6%)
EXIT 2003 10.1% 6.7% 4.1% 1.6% (0.9%) (3.4%) (5.8%) (8.2%) (10.5%)
YEAR 2004 11.1% 8.6% 6.7% 4.8% 3.0% 1.1% (0.7%) (2.5%) (4.2%)
2005 12.1% 10.2% 8.7% 7.2% 5.8% 4.4% 3.0% 1.6% 0.2%
2006 13.0% 11.5% 10.3% 9.1% 8.0% 6.8% 5.7% 4.6% 3.5%
---------------------------------------------------------------------------------------------------------
IMPLIED IRR AT 7.0X EBITDA EXIT MULTIPLE
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
2002 5.9% 0.8% (3.1%) (6.9%) (10.5%) (14.1%) (17.6%) (21.0%) (24.3%)
EXIT 2003 16.2% 12.9% 10.3% 7.9% 5.5% 3.1% 0.8% (1.5%) (3.7%)
YEAR 2004 15.5% 13.1% 11.3% 9.5% 7.7% 6.0% 4.2% 2.6% 0.9%
2005 15.5% 13.6% 12.2% 10.8% 9.4% 8.1% 6.7% 5.4% 4.1%
2006 15.7% 14.3% 13.1% 12.0% 10.9% 9.8% 8.8% 7.7% 6.7%
---------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
- 68 -
<PAGE>
IRR SENSITIVITY ANALYSIS ($ PER SHARE) 54% MGMT. EQUITY ROLLED AND 0% NEW EQUITY
--------------------------------------------------------------------------------
BUDGET/RECESSION CASE
<TABLE>
<CAPTION>
IMPLIED IRR AT 2.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2002 NM NM NM NM NM NM NM NM NM
EXIT 2003 (39.1%) (46.8%) (54.5%) NM NM NM NM NM NM
YEAR 2004 (21.3%) (26.2%) (30.5%) (35.5%) (41.5%) (49.4%) NM NM NM
2005 (2.3%) (4.9%) (7.0%) (9.3%) (11.5%) (13.9%) (16.4%) (19.0%) NM
2006 0.6% (1.4%) (3.1%) (4.9%) (6.7%) (8.5%) (10.5%) (12.5%) (14.7%)
---------------------------------------------------------------------------------------------------------
<CAPTION>
IMPLIED IRR AT 3.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2002 NM NM NM NM NM NM NM NM NM
EXIT 2003 (36.0%) (43.2%) (50.0%) (58.5%) NM NM NM NM NM
YEAR 2004 (18.8%) (23.4%) (27.5%) (31.9%) (37.1%) (43.4%) (52.3%) NM NM
2005 (0.1%) (2.6%) (4.7%) (6.8%) (9.0%) (11.2%) (13.5%) (15.8%) (18.4%)
2006 2.3% 0.3% (1.3%) (2.9%) (4.7%) (6.4%) (8.2%) (10.1%) (12.1%)
---------------------------------------------------------------------------------------------------------
<CAPTION>
IMPLIED IRR AT 4.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2002 NM NM NM NM NM NM NM NM NM
EXIT 2003 (32.5%) (39.2%) (45.3%) (52.4%) NM NM NM NM NM
YEAR 2004 (16.0%) (20.4%) (24.1%) (28.1%) (32.6%) (37.9%) (44.4%) (53.8%) NM
2005 2.3% (0.1%) (2.1%) (4.1%) (6.1%) (8.2%) (10.3%) (12.5%) (14.8%)
2006 4.2% 2.3% 0.8% (0.8%) (2.4%) (4.1%) (5.8%) (7.5%) (9.3%)
---------------------------------------------------------------------------------------------------------
<CAPTION>
IMPLIED IRR AT 5.0% PERPETUITY GROWTH RATE AND DISCOUNT RATE OF 12%
-------------------------------------------------------------------
PER SHARE PURCHASE PRICE $18.75 $20.00 $21.00 $22.00 $23.00 $24.00 $25.00 $26.00 $27.00
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2002 NM NM NM NM NM NM NM NM NM
EXIT 2003 (28.5%) (34.7%) (40.2%) (46.4%) (53.8%) NM NM NM NM
YEAR 2004 (12.8%) (16.9%) (20.3%) (24.0%) (28.0%) (32.4%) (37.5%) (43.9%) (52.9%)
2005 5.2% 2.8% 1.0% (0.9%) (2.9%) (4.8%) (6.8%) (8.8%) (10.8%)
2006 6.5% 4.7% 3.2% 1.7% 0.1% (1.4%) (3.0%) (4.6%) (6.3%)
---------------------------------------------------------------------------------------------------------
</TABLE>
- 69 -
<PAGE>
--------------------------------------------------------------------------------
------------------------------------------
PREMIUMS ANALYSIS
------------------------------------------
--------------------------------------------------------------------------------
- 70 -
<PAGE>
PREMIUMS ANALYSIS: MINORITY CLOSE-OUTS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% STOCK PREMIUM BEFORE
DATE EQUITY PURCHASE ANNOUNCEMENT DATE
ANNOUNCED TARGET ACQUIROR PRICE ($MM) 1 DAY 1 WEEK 4 WEEKS
--------- ----------------------------------- ------------------------------- --------------- ------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
03/21/00 Travelers Property Casualty Citigroup Inc. $2,423.0 23% 38% 34%
02/22/00 IXnet Inc. (IPC Information) Global Crossing Ltd. 2,694.0 18% 23% 26%
01/31/00 Thermo BioAnalysis (Thermo) Thermo Instrument Systems Inc. 592.4 51% 56% 53%
01/19/00 Trigen Energy Corp. Elyo (Suez Lyonnaise des Eaux) 296.2 38% 42% 32%
11/12/99 Howmet International Inc. Cordant Technologies Inc. 1,700.5 21% 19% 38%
10/21/99 Student Loan Corporation Citigroup Inc. 900.0 11% 12% 1%
04/01/99 Aqua Alliance Inc. Vivendi SA 562.8 29% 19% 102%
03/24/99 Knoll Inc. (Warburg, Pincus) Warburg, Pincus Ventures Inc. 1,154.2 84% 52% 46%
03/21/99 Spelling Entertainment Group Viacom Inc. (Nat'l Amusements) 927.1 8% 43% 54%
10/27/98 Citizens Corp. (Hanover Ins Co) Allmerica Financial Corp. 1,165.0 21% 17% 21%
10/22/98 BA Merchant Svcs. (BankAmerica) Bank of America National Trust 1,003.6 47% 56% 42%
07/17/98 West Teleservices Corp. Investor Group 981.6 26% 29% 23%
07/07/98 Life Technologies Inc. (Dexter) Dexter Corp. 924.1 25% 25% 19%
04/30/98 Mycogen Corp. (Dow AgroSciences) Dow AgroSciences (Dow Chemical) 1,067.3 42% 40% 52%
03/27/98 Int'l Specialty Products ISP Holdings Inc. 1,789.6 4% 2% 15%
03/17/98 BET Holdings Inc. Investor Group 717.2 54% 58% 58%
03/02/98 Coleman Co. Inc. Sunbeam Corp. 1,653.7 44% 59% 121%
01/22/98 BT Office Products Int'l Inc. Koninklijke KNP BT NV 460.2 33% 79% 79%
09/18/97 Guaranty National Corp. Orion Capital Corp. 554.2 11% 24% 28%
06/20/97 Wheelabrator Technologies Inc. Waste Management Inc. 2,671.5 27% 28% 31%
06/02/97 Acordia Inc. (Anthem Inc.) Anthem Inc. 540.0 13% 11% 26%
05/16/97 Riviera Holdings Corp. R&E Gaming Corp. 73.7 18% 17% 8%
05/14/97 Enron Global Power & Pipelines Enron Corp. 884.7 12% 14% 20%
05/05/97 Florida East Coast Industries Inc. St Joe Paper Co. 923.3 15% 17% 10%
02/25/97 Fina Inc. Petrofina SA 1,754.0 20% 19% 22%
02/20/97 NHP Inc. (Apartment Investment) Apartment Investment & Mgmt. Co. 254.6 28% 25% 17%
01/28/97 Calgene Inc. (Monsanto Co.) Monsanto Co. 485.7 62% 60% 60%
01/21/97 Mafco Consolidated Grp. (Mafco) Mafco Holdings Inc. 778.5 24% 24% 28%
01/13/97 Zurich Reinsurance Centre Zurich Versicherungs GmbH 942.5 17% 19% 12%
11/20/96 Marvel Enterprises Inc. Andrews Group Inc. 626.4 29% 26% 20%
08/26/96 Bankers Life Holding (Conseco) Conseco Inc. 1,236.8 15% 10% 12%
05/27/96 SyStemix Inc. (Novartis AG) Novartis AG 389.7 5% 70% 59%
-------------------------------------------------------------------------------------
MEDIAN 23.5% 24.7% 27.7%
IMPLIED SHARE PRICE (1) $16.06 $15.74 $19.80
-------------------------------------------------------------------------------------
</TABLE>
----------------------------------
Note: Universe reflects transaction sizes of between $100MM and $3 billion since
1996 for which the acquiror owned more than 50% of the target prior to the
transaction and closed out the remaining stake
(1) Implied share price based on Cherry closing price 1 day, 1 week and 4 weeks
prior to the Cherry Group's bid
--------------------------------------------------------------------------------
- 71 -
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------
APPENDICES
--------------------------------------------
--------------------------------------------------------------------------------
- 72 -
<PAGE>
--------------------------------------------------------------------------------
-------------------------------------
LETTERS FROM SHAREHOLDERS
-------------------------------------
--------------------------------------------------------------------------------
- 73 -
<PAGE>
[LOGO]
May 12, 2000
Mr. Robert B. McDermott
The Cherry Corporation
Director
3600 Sunset Avenue
Waukegan, IL 60087
Dear Mr. McDermott:
On May 2, 2000 we sent you a letter summarizing our investment in Cherry
Corporation and our belief that the $18.75 per share offer made by Mr. Peter
Cherry did not represent fair value. Yesterday, Mark IV Industries announced
they were in discussions with the British buyout firm, BC Partners. The Wall
Street Journal reported the buyout could be for $26 per share. Based on Mark
IV's reported February 2000 year end results, a $26 per share offer represents
an approximate 5.2x EBITDA multiple and a 8.3x enterprise value to EBITDA
multiple. Compare that to the Cherry proposal which we estimate at 2x EBITDA
and less than 4x enterprise value to EBITDA adjusted for cash. We believe the
Mark IV proposed transaction is compelling evidence that Mr. Cherry's offer to
take the company private at $18.75 is undervalued.
Accordingly, we reiterate the comments we made in our letter of May 2, 2000 and
remind you of your fiduciary responsibility to shareholders.
Sincerely,
/s/ Bill Nasgovitz
William J. Nasgovitz
President
cc: Mr. Peter B. Cherry
--------------------------------------------------------------------------------
- 74 -
<PAGE>
[LOGO]
May 2, 2000
Mr. Robert B. McDermott
The Cherry Corporation
Director
36OO Sunset Avenue
Waukegan, IL 60087
Dear Mr. McDermott:
Heartland Advisors, Inc. provides investment advisory services to Heartland
Group, Inc., a registered investment company, as well as private investment
advisory clients. Between Heartland Value Fund, a series of the Heartland Group,
and private investment advisory clients, Heartland Advisors may be deemed the
beneficial owner of 550,000 shares of Cherry Corporation stock. We have been
owners of Cherry Corporation stock since July 1995 and have observed the various
actions management has taken to enhance shareholder value including the Dutch
tender offer, adopting one class of common stock, and selling the semiconductor
operations. We applaud these actions and are dismayed with the market reaction
as, no doubt, you and the company management have been. Nevertheless, we believe
the offer by Mr. Cherry to acquire the outstanding stock not owned by he or the
affiliated trusts for $18.75 per share in cash does not represent reasonable
value for the company.
It is our understanding that book value will approximate $27 after the sale of
the semiconductor operations. The offer of $18.75 is less than 70% of book
value. Of 26 auto parts suppliers we follow, only 4 trade at less than 70% of
book value at a time when this group is out of favor. We would also note the
company had capital expenditures in the retained companies of nearly $90mm for
the three years ended February 1999. Assuming the average of those three years
was spent in 2000, approximately $120mm was expended over the last four years.
Thus, we feel it is reasonable to assume the assets are current and functional.
Although it is difficult to estimate earnings of Cherry Corporation exclusive
of the semiconductor operations, we estimate the company could earn
approximately $0.80 - $0.90 per share not giving effect to the interest that
will be earned on $100 million in cash. As such, adjusting for the cash
balance of approximately $10 per share, the adjusted offer of $18.75
represents a price earnings ratio of approximately 10X earnings. We also
estimate EBITDA (earnings before interest, taxes and depreciation) at
approximately $46 million, exclusive of interest on the $100 million in cash.
This suggests that the company is being sold at 2X EBITDA ($190 million
purchase price less $100 million in cash divided by EBITDA). This, in our
view, is an extremely low multiple on a metric often used to value companies
in private equity transactions.
--------------------------------------------------------------------------------
- 75 -
<PAGE>
Mr. Robert B. McDermott
Page 2
In December 1998, the company completed a Dutch tender offer under which it
repurchased 1,687,500 Class A shares and 562,500 Class B shares at a price of
$15.50. At that time the book value per share was approximately $16.00. Applying
a similar ratio to todays book value would imply a price of approximately $26.
We would also note the stock recently (March 1, 2000) traded at $25 per share.
Mr. Cherry's offer is 75% of this value.
We believe there is ample basis to question the fairness of Mr. Cherry's offer
of $18.75 per share. We also believe the press announcement indicating that Mr.
Cherry "is not interested in selling their interest in the company to a third
party" is an attempt to discourage outside parties from bidding on the company
and potentially attaining a better return for shareholders. The committee has a
special fiduciary responsibility to shareholders to obtain reasonable value for
the company. We would suggest you review the circumstances of the recently
settled Kohler Company (of Kohler Wisconsin which produces plumbing fixtures and
small engines) dispute over the valuation of shares in a control situation.
There are parallels to the Cherry situation. We strongly urge you to retain a
reputable investment banking firm not to render a fairness opinion to justify
the offered price, but to assess the value of the company in a free market
environment. We do not repute to be experts in the valuation of firms, but do
believe, based on our experience, that the offer on the table does not represent
fair value.
We congratulate the Board and management for the proactive actions taken over
the past two years to enhance shareholder value, and as we are certain you are,
have been disappointed with the markets reaction. We believe Mr. Cherry's
decision to take the company private is an appropriate one in today's
environment. Valuing a company is not a precise process. However, in this
situation we believe shareholders deserve a higher price and that an independent
evaluation will support that belief. We would be pleased to discuss the above
with the committee should you so desire.
Sincerely,
/s/ Bill Nasgovitz
William J. Nasgovitz
President
cc: Mr. Peter B. Cherry
--------------------------------------------------------------------------------
- 76 -
<PAGE>
7 Fairway Drive
Andover, MA 01810
May 1, 2000
To Members of the Special Committee of the Cherry Corporation Board of
Directors:
Alfred S. Budnick
Charles W. Denny
Peter A. Guglielmi
Robert B. McDermott
Dr. Thomas L. Martin, Jr.
W. Ed Tyler
Henry J. West
I have been a significant individual shareholder of Cherry Corp. since 1993 and
am writing to Board members to communicate my displeasure with the proposed
management buyout price of $18.75. I applaud management's action to go private
given the lack of brokerage Street coverage, the illiquidity of the stock, and
the cash rich balance sheet. But I consider the proposed buyout price of $18.75
does not fairly value the company and is not consistent with prior action of the
Board.
Allow me to make four points.
First, in December 1998 the company executed a Dutch tender for 2.25 million
shares at $15.50 per share. The book value at the time was approximately $16.
This was a fair tender price as it reflected the company's book value. I
calculate the current book value at approximately $28, pro forma for the sale of
Cherry Semiconductor Division. Surely the Board cannot say that a price at 67%
of book value is fair to shareholders when the company's offer to shareholders
was 97% of book value only 16 months ago. Furthermore, I would add that the
discount from book value should be less and not more than it was in December
1998 because management has wisely taken steps to enhance the value of the
company by selling a cash hungry operation with an uncertain competitive
position and significantly improving the balance sheet in the process.
Second, according to management's last conference call, cash net of debt is $10
per share. Subtracting the cash per share from the $18.75 offer indicates that
management is proposing to buy all the fixed assets, receivables, and inventory
for $8.75 per share or approximately $88 million. According to the February 29,
2000 balance sheet pro forma for the sale of Cherry Semiconductor, net property,
affiliate investments, inventory and receivables together approximate $214
million. Since the inventories are fresh, the receivables are good, and the
plant is modernized (given capital spending of $128 million in the past three
years), surely the Board cannot say that a price of 41% of the depreciated
value of the firm's operating assets is a fair price to pay shareholders.
--------------------------------------------------------------------------------
- 77 -
<PAGE>
May 1, 2000
Page 2
Third, the stock has ranged in price from $13 to $26 over the past eight
weeks.
Using a formulaic determined premium based on the low price of the range no more
equals fair value than shareholders saying they deserve a premium based on the
high price of the recent range.
Fourth, again subtracting the $10 of cash per share prom the $18.75 leaves
$8.75, which is what management would be paying for the operating assets. On the
most recent conference call management stated that EBITDA from continuing
operations for the past year was $37 million. Since this reflects no interest
income from the $10 per share net cash, management's ex-cash buyout price is
only 2.4X EBITDA, an absurdly low offer.
Finally, I question whether Peter Cherry's statement that he will buy out the
minority shareholders but not sell his stock to another company might violate
the rights of the minority shareholders by discouraging any outside party from
bidding.
In conclusion, the Special Committee of the Board is charged with evaluating
whether $18.75 per share represents a fair offer from management. I have tried
to show that it doesn't and would encourage the Board to seek a higher offer
from management.
Yours truly,
/s/ George Vanderheiden
George A. Vanderheiden
cc: Peter Cherry
--------------------------------------------------------------------------------
- 78 -
<PAGE>
[LETTERHEAD]
April 20,2000
Cherry Corporation
3600 Sunset Avenue
Waukegan, IL 60087
Attn: Peter Cherry, President
Dear Peter,
On January 27th of this year I read with interest the news release that said the
"Board of Directors had decided to explore various strategic alternatives...",
in regards to Cherry Semiconductor Corporation. It went on to say that you were
"pursuing strategic alternatives that would maximize shareholder value," What
happened?
Years ago, when I became a representative for Cherry Semiconductor Corporation I
purchased a substantial amount of Cherry Corp. stock. After the announcement in
January I thought that finally the stock was going to move in a positive
direction. But here we sit with about $200 million dollars in the company
account and my stock is still at $13.00 a share.
This is not "maximizing shareholder value. Please explain what you are doing for
us.
Regards,
/s/ John Mckenzie
John Mckenzie
--------------------------------------------------------------------------------
- 79 -
<PAGE>
--------------------------------------------------------------------------------
------------------------------------------
RECENT ARTICLES FROM MAJOR
PUBLICATIONS
------------------------------------------
--------------------------------------------------------------------------------
- 80 -
<PAGE>
Cherry-Picking
BEWARE MAJORITY SHAREHOLDERS OFFERING BUYOUT BIDS
--------------------------------------------------------------------------------
FAIR PRICES?
--------------------------------------------------------------------------------
More companies are getting buyout offers from large equity holders. This has
prompted complaints from minority holders that the prices are inadequate. But
dominant shareholders generally hold the upper hand.
<TABLE>
<CAPTION>
ACQUIRER'S
ACQUIRER TARGET TICKER STAKE OUTCOME
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CITIGROUP Travelers Property TAP 86% Offers $41.95 a share, 11 times 2000
profits. Deal completed in April.
CITIGROUP Student Loan Corp. STU 80% Offers $45 a share. After shareholder
protest, withdraws offer, Student Loan
now at 38.
HARTFORD FIN'L Hartford Life HU 81.5% Initially offers $44 a share. Sweetens bid
to $50.50. Gets board okay.
CNA FINANCIAL CNA Surety SUR 63% Offers $13 a share in March. Withdrew
offer. Shares fell to 11 3/4.
PETER CHERRY Cherry CHER 54% Peter Cherry offers $18.75 a share to
minority holders. Unidentified bidder now
offering $26 a share for whole firm.
----------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
BY ANDREW BARY
--------------------------------------------------------------------------------
MINORITY INVESTORS IN an increasing number of depressed companies are
getting buyout bids from majority holders. While recent investors in these
stocks have reason to cheer, long-time shareholders often complain that the
offers are inadequate. The buyout offers invariably come after the stocks have
fallen sharply or languished at low levels. The dominant investor usually
trumpets the premium above the previously low stock price, while a comparison
with the stock's former peak is left unspoken.
In recent months, Citigroup, for example, completed a $2.2 billion deal
to take out minority holders in Travelers Property Casualty -- just weeks ahead
of the recent rally in insurance stocks. The financial giant attempted a similar
grab for Student Loan, but withdrew the offer when minority stockholders
objected. The accompanying charts and table show a group of companies that have
been subject to buyout offers from sizable holders.
The Citigroup situation shows the risks of being a junior partner to a
dominant shareholder. "You have to be aware that, if the parent organization is
going to buy you out, it probably won't give you as much money as an independent
buyer," says Tom Geggins, a portfolio manager with the John Hancock funds.
One little-known situation involves Cherry, an industrial company that
makes electrical switches and sensors, as well as keyboards. Cherry, whose stock
has moved little in recent years, got a buyout offer last month from its
chairman, Peter Cherry, who owns 54% of the 10 million outstanding shares.
Cherry offered $18.75 a share in cash to minority holders.
This bothered many investors because Cherry's book value is $17 a
share, and is set to go substantially higher with the company's sale of its
semiconductor business for $250 million, or an estimated $18 a share after
taxes. In effect, Cherry would have been able to buy the shares he doesn't own
with the proceeds from the sale and still have cash left over.
Last week, Cherry disclosed that it got a $26-a-share cash bid from an
undisclosed buyer, prompting its stock to jump two points to 20. But the shares
remain below the new takeover offer because of concern that Peter Cherry may
turn it down. He has stated that he isn't interested in selling to a third
party.
In the meantime, Cherry could be worth at least $30-$35 a share, given
that its non-semiconductor units generate $400 million in annual revenues, are
profitable, and are arguably undermanaged.
THE CITI NEVER SLEEPS
Citigroup's shrewd management, led by Chairman Sandy Weill, moved to
gain full control of Travelers Property Casualty just before investor interest
returned to that depressed sector. When Travelers Property traded for around 33
in March, Citigroup offered to pay $41.50 a share to minority holders who
control about 14% of the shares.
That price looked generous compared to 33, but only amounted to around
11 times Travelers' estimated profit for 2000 and was below the company's peak
of 46 in 1998. It should come as no surprise that the deal will be accretive for
Citigroup, which, at 58 1/2, trades for around 17 times estimated 2000 profits.
Citigroup eventually bumped up the offer to $41.95 before closing the deal in
April.
Citigroup's spiteful attitude toward minority holders of Student
Loan, a leading player in the student-loan market, has gotten little
attention outside the pages of BARRON'S (most notably an article in June
1997). Student Loan's stock, at 38, is no higher than where it stood in 1996
despite the company's rising profits, which hit $4.47 a share last year, up
from $3.20 three years earlier.
Citigroup's handling of Student Loan has angered many minority holders,
who argue that Citigroup has failed to maximize the company's profits by
overcharging Student Loan on various fees and by keeping too much capital in the
company. It also galls some minority holders that Student Loan is run as a
virtual ward of Citigroup. Student Loan's management actually gets options and
restricted stock in Citigroup, and its predecessor, Citicorp, not Student Loan.
This makes Student Loan one of the few public companies whose management
receives incentives in the stock of another firm. Its top executives and
officers own just 8,100 Student Loan shares, according to the company's proxy.
Last October, Citigroup offered to buy the 20% of stock in public hands
-- some four million shares -- at $45, an offer deemed $10-$15 a share too low
by many Student Loan holders. The stock then moved up to around 50 in
anticipation of a higher bid. Student Loan holders assumed that Citigroup would
bump up its offer because, after all, an additional $10 a share would mean just
$40 million to Citigroup, which is expected to earn over $10 billion this year.
But in February, Citigroup, without comment, walked away, sending Student Loan's
stock down to its current level.
The same fate befell holders of CNA Surety. CNA Financial, the
property and casualty insurer, offered minority investors $13 a share in
March. That was about $1 above CNA Surety's price at the time, but below its
52-week high of 15 1/2. CNA Surety moved up to 14 amid expectations of a
sweetened offer. But Friday, CNA Financial withdrew its offer, saying it was
unable to reach a deal with CNA Surety in an environment of "sharply" rising
insurance stocks. CNA Surety fell 2 3/8 Friday to 11 3/8, and now trades for
just eight times projected 2000 profits.
HARTFORD FINANCIAL SERVICES GROUP, the large property and casualty
insurer, recently sweetened its bid to buy out minority holders of Hartford Life
to $50.50 a share, up from the initial offer of $44 in April, and got approval
from Hartford Life's board. Hartford Financial is paying less than 13 times
projected 2000 profits for the fast-growing Hartford Life, which is a big player
in the annuity business. Wall Street believes the deal is good for Hartford
Financial, whose stock is up over 40%, to 60, since the initial offer was made
in late March.
Then there's American Real Estate Partners, featured last week in
BARRON'S. Minority holders in that cash-rich firm, controlled by financier Carl
Icahn, have been waiting in vain for him to buy them out at something close to
the company's book value of $20 a share, sharply above the current price of $9.
But the stubborn Icahn, who owns 85% of the company, told BARRON'S that he has
no intention now of taking it private, meaning investors may face a long wait.
[GRAPHIC]
TRAVELER'S PROP
[GRAPH]
STUDENT LOAN
[GRAPH]
HARTFORD LIFE
[GRAPH]
CNA SURETY
[GRAPH]
CHERRY
[GRAPH]
--------------------------------------------------------------------------------
-81-
<PAGE>
Investors try to squash Cherry's buyout Page 1 of 2
[LOGO]
BACK TO THE ISSUE
INVESTORS TRY TO SQUASH CHERRY'S BUYOUT
Suits claim manufacturer's takeover bid is the pits
May 1, 2000
BY JANET NEIMAN
Cherry Corp. faces shareholder ire and legal action as four suits filed in
Delaware Chancery Court last week seek to stop the proposed bid by Chairman
Peter Cherry and his family to take the company private.
Mr. Cherry and a group of family members, who together control 54% of the
Waukegan -based electronics firm's stock, last month offered to buy the rest of
the company for $18.75 per share in cash, or about $86.2 million.
But four class-action shareholder suits - filed against Mr. Cherry, the other
directors and the corporation - question the timing of the offer and contend
that Mr. Cherry has a "clear and material" conflict of interest between seeking
the lowest price to buy the company and trying to provide the highest value for
shareholders.
Mr. Cherry would not comment on the suits or questions raised about the timing
or structure of the offer. I think I know what our situation is," he said, "and
this seems right for us."
The offer, which came shortly after a major corporate restructuring, places an
artificial cap on the stock price, the suits allege.
The only real pertinent issue is that it's too cheap," says Scott Shepherd, a
Pennsylvania attorney who represents John McKenzie, an Indiana resident who owns
about 15,000 shares of Cherry. "The courts in Delaware look closely when you own
a majority (and propose a buyout). You have to pay a premium, and often a
substantial premium."
'INTERESTING SITUATION'
Mr. Cherry and his family group own almost 5.5 million of the 10 million
outstanding shares of Cherry, which makes electrical switches, sensors,
electronic keyboards and controls. Mr. Cherry has engaged BankAmerica Securities
as investment banker for the buyout.
No other company directors are involved in the buyout proposal. A special
committee of independent directors was appointed to consider the proposal. They
have hired Chicago law firm Sidley & Austin as legal counsel and are in the
process of hiring an independent financial adviser.
"It's an interesting situation," said Robert B. McDermott, a Cherry board member
and former partner of McDermott Will & Emery, which is outside counsel for
Cherry Corp.
The buyout offer came just weeks after the company closed the sale of its Rhode
Island -based Cherry Semiconductor Corp. unit for $250 million in cash.
BankAmerica Securities was also the corporate investment adviser on that deal,
Shareholders are disgruntled with Mr. Cherry's offer because they say $18.75 a
share would total roughly the amount of cash realized from the sale of the
semiconductor business after taxes.
Essentially, they argue, that would give Mr. Cherry the rest of the company for
nothing.
Indeed, the sale of the semiconductor unit may be the very crux of the suits.
With sales of approximately $130 million, Cherry Semiconductor was considered by
many the most valuable pail of the company, with income of about $6.4 million in
the fiscal year ended February 1999, up 30% over the previous year.
Cherry Corp. ended the most recent fiscal year with net earnings from continuing
operations - not including the semiconductor unit - down 58% from last year, to
$5.87 million, on sales that were flat at about $360.7 million.
--------------------------------------------------------------------------------
- 82 -
<PAGE>
Page 2 of 2
Now, stockholders are questioning not only the price Cherry accepted for the
unit, but the motivation for the sale.
"We're looking at it' said Paul Geller, a Florida attorney who filed one of the
four class action suits. "That's something that's important to our case."
Some observers speculate that Mr. Cherry is trying to put the stock into play.
But Mr. Cherry has said his group doesn't want to sell its interest to another
party. With the Cherry family group holding more than half the stock, a hostile
bid is unlikely, and Mr. Cherry said such a takeover threat was "not a
particular motivation.'
TRYING FOR MORE MONEY?
Even after the balance sheet was bolstered by the $250 million reaped in the
semiconductor business sale, Cherry's stock spiked only briefly from its
seven-year range in the low teens before falling back as stockholders responded
unenthusiastically to company plans to redeploy the proceeds in continuing
businesses.
Meanwhile, long-term debt has been pared to $4.7 million from $75 million a year
ago.
Considering the stock's price history -- $10 to $17 over the past seven years
-- $18,75 "doesn't took like a price you'd want to argue with," said Tony
Maramarco, manager of the Babson Shadow Stock Fund, a fund of computer -selected
micro-cap stocks that holds 19,200 shares of Cherry.
Like others, Mr. Maramarco believes the lawsuits may just be a way to eke out
more money for shareholders.
"Usually, if other shareholders squawk about it and threaten lawsuits and such
things, that typically is a way to get a few more dollars out of the offering
that's out there," Mr. Maramarco said. "Money talks."
--------------------------------------------------------------------------------
- 83 -
<PAGE>
ADDENDUM
--------------------------------------------------------------------------------
- THE FOLLOWING PAGE WAS PRESENTED AT THE FINAL MEETING OF THE SPECIAL
COMMITTEE HELD ON JUNE 4, 2000
--------------------------------------------------------------------------------
<PAGE>
IMPLIED VALUATION OF CHERRY GROUP PROPOSAL OF $26.40/SHARE
--------------------------------------------------------------------------------
($MM, EXCEPT PER SHARE DATA)
<TABLE>
<S><C>
---------------------------------------- -------------------------------------------------------------------------------------------
IMPLIED MARKET CAPITALIZATION SHARE PRICE PREMIUM COMPARISON
---------------------------------------- -------------------------------------------------------------------------------------------
52-WEEK
--------------------
OFFER PRICE $26.40 1-DAY 1-WEEK 4-WEEK HIGH LOW
---------- --------- --------- ---------- --------
Total Shares Outstanding (MM) 10.04
Plus: Option Value 11.07 SHARE PRICE PRIOR TO 4/24/00 (2) $13.00 $12.63 $15.50 $26.00 $9.75
------
EQUITY MARKET VALUE $276.2 PREMIUM IMPLIED BY THE $26.40 OFFER 103.1% 109.1% 70.3% 1.5% 170.8%
Plus: Net Debt (1) (93.0) Median Premiums Paid (3) 23.5% 24.7% 27.7% NA NA
------
ADJUSTED MARKET VALUE $183.2 IMPLIED CHERRY PURCHASE PRICE $16.06 $15.74 $19.80 NA NA
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
CHERRY ACQUISITION MULTIPLES IMPLIED BY $26.40 PER SHARE PRICE
------------------------------------------------------------------------------------------------------------------------------------
ADJUSTED MARKET VALUE EQUITY MARKET VALUE
AMOUNTS AS A MULTIPLE OF AS A MULTIPLE OF
----------------------------------------------------- ------------------------------- ----------------------
----------------------------------------------------- ------------------------------- ----------------------
SALES EBITDA EBIT NI BV SALES EBITDA EBIT NI BV
---------- ---------- --------- --------- ---------- --------- ---------- --------- ----------- ---------
---------- ---------- --------- --------- ---------- --------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA FY 00 $360.7 $35.9 $11.1 $5.8 $174.2 0.5x 5.1x 16.5x NM 1.6x
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
COMPARABLE COMPANIES MULTIPLES (BASED ON MEDIAN)
------------------------------------------------------------------------------------------------------------------------------------
ADJUSTED MARKET VALUE
AS A MULTIPLE OF
---------------------------------------------------
SALES EBITDA EBIT FCF P/E
------------ ------------ ----------- ------------ -------------
------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
AUTOMOTIVE ELECTRONICS COMPARABLE COMPANIES LTM MULTIPLES 0.9x 7.7x 12.6x 14.2x 22.3x
COMPUTER PERIPHERALS COMPARABLE COMPANIES LTM MULTIPLES 1.4x 10.8x 10.1x 12.8x 11.4x
SWITCHES & CONTROLS COMPARABLE COMPANIES LTM MULTIPLES 0.5x 8.2x 9.6x 7.6x 14.2x
AUTOMOTIVE ELECTRONICS COMPARABLE ACQUISITIONS LTM MULTIPLES 0.9x 7.3x 10.7x NA 17.8x
COMPUTER PERIPHERALS COMPARABLE ACQUISITIONS LTM MULTIPLES 1.6x 7.5x 13.2x NA 20.7x
SWITCHES & CONTROLS COMPARABLE ACQUISITIONS LTM MULTIPLES NA NA NA NA NA
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------------------------
(1) Reflects net debt pro forma as of 3/31/00 and proceeds received in the
sale of CSC; cash proceeds from sale reflect application of income taxes
in excess of 42% due to multiple (overlapping) state taxes payable per the
analysis performed by the Company's external accountants and management
guidance
(2) The Cherry Group announced their original proposal of $18.75 on 4/24/00
(3) Reflects the median premiums paid since 1/1/96 for close-outs of minority
stakes of acquirors with at least 50% ownership prior to bid
--------------------------------------------------------------------------------
