<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CTS CORPORATION
905 West Boulevard North
Elkhart, Indiana 46514
(219) 293-7511
(Name, address and telephone number of registrant)
<TABLE>
<S> <C> <C>
INDIANA 3670 35-0225010
(State of incorporation) (SIC Code) (IRS Employer
Id. No.)
</TABLE>
JOSEPH P. WALKER
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
CTS CORPORATION
905 WEST BOULEVARD NORTH
ELKHART, INDIANA 46514
(219) 293-7511
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
ROBERT A. PROFUSEK, ESQ. JEANNINE M. DAVIS, ESQ. ALAN C. MYERS, ESQ.
JONES, DAY, REAVIS & VICE PRESIDENT AND GENERAL SKADDEN, ARPS, SLATE, MEAGHER
POGUE COUNSEL & FLOM LLP
599 LEXINGTON AVENUE CTS CORPORATION 919 THIRD AVENUE
NEW YORK, NEW YORK 10022 905 WEST BOULEVARD NORTH NEW YORK, NEW YORK 10022
(212) 326-3800 ELKHART, INDIANA 46514 (212) 735-3780
(219) 293-7511
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1)(3) PER SHARE(1)(2) PRICE(1)(2) FEE(2)
<S> <C> <C> <C> <C>
2,314,025
Common Stock, without par value...... shares $ N.A. $183,895,567 $36,779
</TABLE>
(1) The number of shares of Common Stock ("CTS Shares") of CTS Corporation
("CTS") to be registered has been determined based on the estimated maximum
number of CTS Shares to be issued upon conversion of shares of Common Stock
("DCA Shares") of Dynamics Corporation of America ("DCA") in the proposed
merger of DCA and a subsidiary of CTS (the "Merger").
(2) Estimated pursuant to Rule 457(f) based on the market value of DCA Shares
($69.9375, which is the average of the high and low sale prices of DCA
Shares as reported on the New York Stock Exchange, Inc. Composite Tape on
August 27, 1997) and the conversion ratio of 0.88 CTS Shares for each DCA
Share in the Merger, multiplied by 2,314,025 (the estimated maximum number
of CTS Shares to be issued in connection with the Merger).
(3) Pursuant to Rule 457(b) $44,292 of the registration fee was paid on June 5,
1997 in connection with the filing of preliminary joint proxy material.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CTS CORPORATION
[LOGO]
905 WEST BOULEVARD NORTH
ELKHART, INDIANA 46514
SEPTEMBER 2, 1997
Dear Shareholder:
You are invited to a special meeting of shareholders at 9:00 a.m., local
time, on October 16, 1997, at CTS' corporate headquarters located at 905 West
Boulevard North, Elkhart, Indiana.
At the meeting, CTS shareholders will be asked to approve the issuance of
CTS common stock in the previously announced merger with Dynamics Corporation of
America ("DCA") and related amendments to CTS' articles of incorporation which
would, among other things, increase CTS' authorized capitalization to provide
sufficient authorized capitalization for the merger and the previously announced
stock split in the form of a dividend to CTS shareholders of record on October
24, 1997 (subject to completion of the merger). In the merger, each DCA common
share not owned by CTS will, at the election of DCA shareholders, be converted
into either $58.00 in cash or 0.88 CTS common shares. The cash consideration
will be prorated to the extent that the total number of DCA common shares for
which cash elections are made exceeds 49.9% of DCA's common shares less the DCA
common shares owned by CTS prior to the merger. At the date of the printing of
this Joint Proxy Statement/Prospectus, holders of approximately 18.2% of the
outstanding DCA common shares would be eligible to receive cash in the Merger.
At the meeting, CTS shareholders will also be asked to consider and vote on
certain employee stock options granted in connection with the merger.
CTS owns 31.7% of the DCA shares, substantially all of which CTS acquired in
a tender offer made in accordance with the CTS-DCA merger agreement. Following
the tender offer, four CTS designees became members of DCA's 13-member Board of
Directors. DCA has owned CTS shares for more than ten years and currently owns
43.9% of the outstanding CTS shares and 30.3% of the voting power of CTS shares.
During such ten-year period, two DCA officers have been members of CTS'
five-member Board of Directors. The CTS shares owned by DCA will be voted in
favor of each of the matters to be considered at the shareholders meeting and
described herein. Accordingly, CTS shareholder approval of each such matter will
be assured if holders of 28.4% of the CTS shares not owned by DCA likewise so
vote.
Approval of the merger by DCA shareholders requires a two-thirds vote. CTS
has agreed to vote the DCA shares it owns in favor of such approval, as has WHX
Corporation ("WHX"), which holds approximately 13.5% of DCA's outstanding
shares. In addition, DCA directors and officers intend to vote their 7.1% of
DCA's outstanding shares in favor of such approval. Accordingly, DCA shareholder
approval of the merger will be assured if holders of 30.2% of the DCA shares not
owned by CTS, DCA's directors and officers and WHX likewise so vote.
The entire CTS Board of Directors, as well as the members of the CTS Board
who are not officers of DCA (the "Unaffiliated CTS Directors") voting
separately, approved the CTS-DCA merger agreement and the transactions
contemplated thereby, following a determination by the Unaffiliated CTS
Directors, and also by the entire CTS Board, that such transactions were fair to
and in the best interests of CTS and its shareholders (other than DCA). The CTS
Board unanimously recommends that CTS shareholders vote "FOR" the approval of
the issuance of CTS shares in the CTS-DCA merger and the related amendments to
CTS' charter, as well as the grant of options described in the accompanying
joint proxy statement/prospectus.
The merger marks the beginning of an exciting new chapter in CTS' 100-year
history. CTS has substantially improved its results of operations over the past
three years through its commitment to quality, cost control and product
innovation. The merger will create a company expected to have a market
capitalization of over $425 million (based on recent stock market prices). In
addition, the merger, when combined with a stock split in the form of a 1:1
stock dividend expected to be effected shortly after the merger, is expected to
increase substantially the liquidity in the market for CTS shares and decrease
the concentration of ownership of CTS shares.
Additional information relating to the merger, the merger agreement and the
option grants to be considered at the shareholders meeting is set forth in the
accompanying material. Please review this material carefully.
It is important that your CTS shares be represented at the shareholders
meeting, regardless of the number of shares you hold. Whether or not you plan to
attend the meeting, please sign, date and return your proxy card in the enclosed
postage-paid envelope as soon as possible. If you later decide to attend the
meeting and vote in person, or if you wish to revoke your proxy for any reason
prior to the vote at the meeting, you may do so and your proxy will have no
further effect. If you attend the meeting, you may vote in person even though
you previously mailed your proxy.
Very truly yours,
/s/ Joseph P. Walker
Joseph P. Walker
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
CTS CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 16, 1997
To the Shareholders of CTS Corporation:
A special meeting of shareholders of CTS Corporation (the "CTS Shareholders
Meeting") will be held at 9:00 a.m., local time, on October 16, 1997 at CTS'
corporate headquarters located at 905 West Boulevard North, Elkhart, Indiana,
for the following purposes:
1. To consider and to vote on a proposal to approve the (i) issuance of CTS
Common Stock ("CTS Shares") pursuant to the Amended and Restated
Agreement and Plan of Merger, dated as of July 17, 1997 (the "Merger
Agreement"), among CTS, CTS First Acquisition Corp., a wholly owned
subsidiary of CTS ("Sub"), and Dynamics Corporation of America ("DCA")
pursuant to which, among other things, DCA will merge (the "Merger") with
and into Sub and (ii) adoption of certain amendments to CTS' articles of
incorporation described in the accompanying Joint Proxy
Statement/Prospectus (the "Charter Amendments"), including an increase in
CTS' authorized capitalization necessary to effect the Merger. In the
Merger, subject to certain exceptions, each share of DCA Common Stock
("DCA Shares") outstanding immediately prior to the effective time of the
Merger (the "Effective Time") (other than DCA Shares owned by CTS) will
be converted into the right to receive, at the holder's election, either
$58.00 in cash (subject to proration) or 0.88 (the "Exchange Ratio")
fully paid and non-assessable CTS Shares. CTS has declared a stock split
in the form of a 1:1 stock dividend (the "Stock Split") to shareholders
of record on October 24, 1997, subject to certain conditions including
the completion of the Merger and the approval of the Charter Amendments.
2. To consider and to vote on a proposal to approve, subject to the
completion of the Merger, the grant of employee stock options (the
"Options") to certain executive officers of CTS and DCA.
3. To transact such other business as may properly come before the CTS
Shareholders Meeting including any motion to adjourn to a later date to
permit further solicitation of proxies if necessary.
Information regarding the matters to be acted upon at the CTS Shareholders
Meeting is contained in the Joint Proxy Statement/Prospectus accompanying this
notice. A copy of the Merger Agreement is attached as Annex A thereto. The Joint
Proxy Statement/Prospectus and the Annexes thereto form a part of this Notice.
The close of business on September 5, 1997 is the record date (the "CTS
Record Date") for determining the holders of CTS Shares entitled to receive
notice of, and to vote at, the CTS Shareholders Meeting and any adjournments or
postponements thereof.
The approval of the foregoing proposals requires the affirmative vote of a
majority of the votes cast by holders of record of CTS Shares present in person
or represented by proxy and entitled to vote at the CTS Shareholders Meeting,
provided that, in the case of the Merger proposal, the total votes cast (whether
for or against) represents at least a majority of the CTS Shares entitled to
vote.
By order of the CTS Board of Directors,
/s/ Jeannine M. Davis
SECRETARY
Elkhart, Indiana
September 2, 1997
<PAGE>
DYNAMICS CORPORATION OF AMERICA
475 STEAMBOAT ROAD
GREENWICH, CONNECTICUT 06830
SEPTEMBER 2, 1997
Dear Shareholder:
You are invited to DCA's 1997 annual meeting of shareholders at 10:30 a.m.
local time, on October 16, 1997, at the Greenwich Library, West Putnam Avenue at
Deerfield Drive, Greenwich, Connecticut. At the meeting, DCA shareholders will
be asked to approve the previously announced merger with CTS Corporation ("CTS")
and to elect directors and ratify the appointment of independent auditors. In
the merger, DCA shareholders (other than CTS) will have the option of receiving
either $58.00 in cash (subject to proration) or 0.88 CTS common shares for each
DCA share. The DCA-CTS merger agreement also contemplates that, subject to CTS
shareholder approval of the issuance of CTS Shares in the merger and related
amendments to CTS' charter to increase its authorized capitalization, CTS will
effect a stock split in the form of a 1:1 stock dividend to shareholders of
record on October 24, 1997.
DCA has owned CTS shares for more than ten years and currently owns 43.9% of
the issued and outstanding CTS shares and 30.3% of the voting power of CTS
shares. During such ten-year period, two DCA officers have been members of CTS'
five-member Board of Directors. CTS owns 31.7% of the DCA shares, substantially
all of which CTS acquired in a tender offer made in accordance with the merger
agreement. Following the tender offer, four CTS designees became members of
DCA's 13-member Board of Directors. The DCA shares owned by CTS will be voted in
favor of each of the matters to be considered at the shareholders meeting.
Approval of the merger by DCA shareholders requires a two-thirds vote. CTS
has agreed to vote the DCA shares it owns in favor of such approval, as has WHX
Corporation ("WHX"), which holds approximately 13.5% of DCA's outstanding
shares. In addition, DCA directors and officers intend to vote their 7.1% of
DCA's outstanding shares in favor of such approval. Accordingly, DCA shareholder
approval of the merger will be assured if holders of 30.2% of the DCA shares not
owned by CTS, DCA's directors and officers and WHX likewise so vote.
The DCA Board has unanimously approved the DCA-CTS merger agreement and the
transactions contemplated thereby, and determined that such transactions are
fair to, and are in the best interests of, DCA and its shareholders. The DCA
Board (with CTS' designees abstaining) unanimously recommends that the
shareholders of DCA vote "FOR" adoption of the DCA-CTS merger agreement, the
election of DCA directors and the ratification of the appointment of independent
auditors.
The Cash Consideration may be different from the trading price for DCA
Shares on the NYSE from time to time prior to the Effective Time of the Merger.
On August 29, 1997, the last trading day prior to the date of the Joint Proxy
Statement/Prospectus, the closing sales price for DCA Shares as reported on the
NYSE was $71.00 per share. The amount of Cash Consideration is fixed at $58.00
per DCA Share, regardless of changes in the market prices for DCA Shares. DCA
shareholders are urged to obtain current market quotations for DCA Shares.
The merger presents an opportunity for DCA's shareholders to participate in
the future growth of both CTS and DCA. DCA has had a major equity stake in CTS
for over a decade, and DCA's shareholders are now in a position to benefit
directly from CTS' profitability and growth.
Additional information relating to the merger, the merger agreement, the
election of directors and the ratification of the appointment of independent
auditors to be considered at the DCA shareholders meeting is set forth in the
accompanying Joint Proxy Statement/Prospectus. Please review this material
carefully. For a discussion of the procedures to be followed in order to recieve
the $58.00 per share in cash, including the deadline for making such election,
see "Other Terms of the Merger and the Merger Agreement--Procedures for Cash
Election" in the accompanying Joint Proxy Statement/Prospectus.
It is important that your DCA shares be represented at the DCA shareholders
meeting, regardless of the number of shares you hold. Whether or not you plan to
attend the meeting, please sign, date and return your proxy card in the enclosed
postage paid envelope as soon as possible. If you later decide to attend the
meeting and vote in person, or if you wish to revoke your proxy for any reason
prior to the vote at the meeting, you may do so and your proxy will have no
further effect. If you attend the meeting, you may vote in person, if you wish,
even though you previously mailed your proxy.
Very truly yours,
/s/ Andrew Lozyniak
Andrew Lozyniak
CHAIRMAN OF THE BOARD
AND PRESIDENT
<PAGE>
DYNAMICS CORPORATION OF AMERICA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 16, 1997
To the Shareholders of Dynamics Corporation of America:
The 1997 annual meeting of Dynamics Corporation of America (the "DCA
Shareholders Meeting") will be held at 10:30 a.m., local time, on October 16,
1997 at the Greenwich Library, West Putnam Avenue at Deerfield Drive, Greenwich,
Connecticut, for the following purposes:
1. To consider and vote upon a proposal to adopt the Amended and Restated
Agreement and Plan of Merger, dated as of July 17, 1997 (the "Merger
Agreement"), among DCA, CTS Corporation ("CTS") and CTS First Acquisition
Corp., a wholly owned subsidiary of CTS ("Sub"), pursuant to which, among
other things, DCA will merge (the "Merger") with and into Sub. In the
Merger, subject to certain exceptions, each share of DCA Common Stock
("DCA Shares") issued and outstanding immediately prior to the effective
time of the Merger (the "Effective Time") will be converted into the
right to receive, at the holder's election, either $58.00 in cash
(subject to proration) or 0.88 (the "Exchange Ratio") fully paid and
non-assessable shares of CTS Common Stock ("CTS Shares"). In connection
with the Merger, CTS declared a stock split in the form of a 1:1 stock
dividend (the "Stock Split") to shareholders of record on October 24,
1997, subject to certain conditions, including the completion of the
Merger. DCA shareholders are entitled to dissenters' rights in the Merger
under New York law as described in the Joint Proxy Statement/Prospectus
accompanying this notice.
2. To consider and vote on the election of directors to the DCA Board of
Directors, four in the class of directors whose term expires at the 2000
annual meeting of DCA shareholders, one in the class of directors whose
term expires at the 1998 annual meeting of DCA shareholders and one in
the class of directors whose term expires at the 1999 annual meeting of
DCA shareholders.
3. To consider and vote on the ratification of the appointment of Ernst &
Young LLP ("Ernst & Young"), as DCA's independent auditors for 1997.
4. To transact such other business as may properly come before the DCA
Shareholders Meeting, including any motion to adjourn to a later date to
permit further solicitation of proxies if necessary.
Information regarding the matters to be acted upon at the DCA Shareholders
Meeting is contained in the Joint Proxy Statement/Prospectus accompanying this
notice. A copy of the Merger Agreement is attached as Annex A thereto. The Joint
Proxy Statement/Prospectus and the Annexes thereto form a part of this Notice.
The close of business on September 5, 1997 is the record date ("DCA Record
Date") for determining the holders of DCA Shares entitled to receive notice of,
and to vote at, the DCA Shareholders Meeting and any adjournments or
postponements thereof.
The adoption of the Merger Agreement requires the affirmative vote of at
least two-thirds of the DCA Shares outstanding as of the DCA Record Date and the
approval of the remaining proposals requires the affirmative vote of the holders
of record of a majority of the DCA Shares present in person or by proxy and
entitled to vote at the DCA Shareholders Meeting.
DCA originally scheduled its 1997 annual shareholders meeting for May 2,
1997 and sent to shareholders proxy materials relating thereto. That meeting was
postponed to October 16, 1997 in order to permit DCA shareholders to consider
the Merger and other matters described in the accompanying Joint Proxy
Statement/ Prospectus, which supersedes the prior proxy materials in their
entirety.
By order of the Board of Directors,
/s/ Henry V. Kensing
Henry V. Kensing
SECRETARY
Greenwich, Connecticut
September 2, 1997
<PAGE>
PRELIMINARY JOINT PROXY STATEMENT OF
CTS CORPORATION
AND
DYNAMICS CORPORATION OF AMERICA
SPECIAL AND ANNUAL MEETINGS, RESPECTIVELY, OF SHAREHOLDERS
TO BE HELD ON OCTOBER 16, 1997
------------------------
PROSPECTUS OF
CTS CORPORATION
------------------------
This Joint Proxy Statement/Prospectus is being furnished to all holders
("CTS Shareholders") of Common Stock of CTS Corporation ("CTS") and to all
holders ("DCA Shareholders") of Common Stock of Dynamics Corporation of America
("DCA") in connection with the solicitation of proxies by the respective Boards
of Directors of CTS and DCA for use at the respective special and annual
shareholders meetings (including any adjournments or postponements thereof,
respectively, the "CTS Shareholders Meeting," the "DCA Shareholders Meeting"
and, together, the "Shareholders Meetings") to be held on October 16, 1997.
At the CTS Shareholders Meeting, CTS Shareholders will be asked to consider
and vote on (i) the issuance of CTS Shares in the Merger and related CTS charter
amendments referred to below and (ii) the grant of stock options (the "Options")
to certain executive officers of CTS and DCA. CTS cannot complete the Merger
unless certain amendments (the "CTS Charter Amendments") to CTS' articles of
incorporation described in "The Merger -- The CTS Charter Amendments" are
approved, and the CTS Charter Amendments will not become effective unless the
issuance of CTS Shares in the Merger is approved by CTS Shareholders.
Accordingly, the approval of the issuance of the CTS Shares in the Merger and
the Charter Amendments are being presented at the CTS Shareholders Meeting as a
single proposal (the "CTS Merger Proposal"). Adoption of each of the foregoing
proposals requires approval by a majority of the votes cast by holders of record
of the outstanding shares of CTS common stock ("CTS Shares") present in person
or represented by proxy and entitled to vote at the CTS Shareholders Meeting. In
the case of the CTS Merger Proposal, the total votes cast (whether for or
against) must represent a majority of the CTS Shares outstanding and entitled to
vote on the Record Date. DCA has owned CTS Shares for more than ten years and
currently owns 43.9% of the CTS Shares and 30.3% of the CTS Shares having voting
rights. DCA has agreed to vote all such voting CTS Shares in favor of each of
the matters expected to be considered at the CTS Shareholder Meeting.
Accordingly, CTS Shareholder approval of each of those matters will be assured
if holders of 28.4% of the CTS Shares not owned by DCA likewise so vote.
At the DCA Shareholders Meeting, DCA Shareholders will be asked to consider
and vote on (i) the adoption of the Merger Agreement, (ii) the election of six
directors to DCA's Board of Directors (the "DCA Board") in the classes of
directors whose terms expire at the 2000, 1998 and 1999 annual meetings of DCA
Shareholders, and (iii) the ratification of the appointment of Ernst & Young LLP
("Ernst & Young") as DCA's independent auditors for 1997. The adoption of the
Merger Agreement by DCA requires the affirmative vote of two-thirds of the
shares of DCA Common Stock ("DCA Shares") outstanding on the DCA Record Date.
CTS has agreed to vote all DCA Shares beneficially owned by it, including DCA
Shares purchased in the offer described below, in favor of adoption of the
Merger Agreement. In addition, WHX Corporation ("WHX") has agreed to vote the
13.5% of the DCA Shares it beneficially owns, and DCA directors and officers
owning approximately 7.1% of the DCA Shares intend to vote, in favor of adoption
of the Merger Agreement. Accordingly, the Merger will be approved if holders of
30.2% of the DCA Shares not owned by CTS, WHX and the DCA officers and directors
likewise so vote. The approval of the other matters to be considered at the DCA
Shareholders Meeting requires the affirmative vote of a majority of the DCA
Shares present in person or by proxy at the DCA Shareholders Meeting.
A copy of the Merger Agreement is attached hereto as Annex A. The Merger is
the second and final step in the acquisition of DCA by CTS pursuant to the terms
of the Merger Agreement. The first step was a tender offer (the "Offer") by Sub
to purchase up to 49.9% of the DCA Shares at $56.25 net per DCA Share in cash.
CTS purchased 1,164,339 DCA Shares, or 30.3% of the outstanding DCA Shares
pursuant to the Offer, and acquired an additional 1.4% of the DCA Shares in
open-market purchases effected after the termination of the Offer. Following the
Offer and in accordance with the Merger Agreement, four CTS designees became
members of the 13-member DCA Board. Since prior to the Merger Agreement, two DCA
officers have been members of CTS' five-member Board of Directors.
THE ACQUISITION OF CTS SHARES PURSUANT TO THE MERGER IS SUBJECT TO VARIOUS
RISKS. SEE "RISK FACTORS" ON PAGE 18.
(CONTINUED ON NEXT PAGE)
------------------------
THE CTS SHARES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is September 2, 1997.
<PAGE>
(CONTINUED FROM COVER PAGE)
The entire CTS Board, as well as the members of the CTS Board who are not
DCA employees (the "Unaffiliated CTS Directors") voting separately, approved the
Merger Agreement and the transactions contemplated thereby, including the Offer,
following a determination by the Unaffiliated CTS Directors, and also by the
entire CTS Board, that such transactions were fair to and in the best interests
of CTS and its shareholders (other than DCA). The CTS Board unanimously
recommends that CTS Shareholders vote "FOR" the approval of the issuance of CTS
Shares in the CTS Merger Proposal and the grant of Options.
The DCA Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby, and determined that such transactions are
fair to, and are in the best interests of, DCA and its shareholders. The DCA
Board (with CTS' designees abstaining) unanimously recommends that DCA
Shareholders vote "FOR" adoption of the Merger Agreement, the election of DCA
directors and the ratification of the appointment of independent auditors.
Certain members of the respective managements and boards of DCA and CTS
(including Joseph P. Walker, the Chairman and Chief Executive Officer of CTS
(who also became a member of the DCA Board following the Offer), Andrew
Lozyniak, the Chairman and Chief Executive Officer of DCA and a member of the
CTS Board and Patrick Dorme, the Chief Financial Officer of DCA and a member of
the CTS Board) have interests in the transactions contemplated by the Merger
Agreement that are in addition to their interests as DCA Shareholders generally,
including, in the case of Messrs. Walker and Lozyniak, options to purchase CTS
Shares at $62.50 per share effective upon consummation of the Merger and, in the
case of Messrs. Lozyniak and Dorme, employment agreements effective upon
consummation of the Merger. See "The Merger--Interests of Certain Persons in the
Merger." The DCA Board and the CTS Board were aware of these interests and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby. In considering the recommendations of the DCA
Board and the CTS Board in respect of the Merger Agreement and the transactions
contemplated thereby, the DCA Shareholders or CTS Shareholders, as the case may
be, should be aware of these interests which may present actual or potential
conflicts of interest.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of CTS
filed as part of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the registration of CTS Shares issuable to DCA Shareholders in the Merger. This
Joint Proxy Statement/Prospectus relates to 2,314,025 CTS Shares.
The CTS Shares and the DCA Shares are listed for trading on the New York
Stock Exchange (the "NYSE"). Application has been made to the NYSE to list the
CTS Shares to be issued in the Merger on the NYSE. On August 29, 1997, the last
trading day prior to the date of this Joint Proxy Statement/Prospectus, the
closing sale price per CTS Share as reported in the NYSE Composite Transactions
Report was $81.00 and the closing sale price per DCA Share as so reported was
$71.00. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR CTS
SHARES AND DCA SHARES.
------------------------
DCA Shareholders have the right to dissent from the Merger and obtain the
appraised fair value of their DCA Shares. Any DCA Shareholder who desires to
exercise such rights must strictly comply with the procedures therefor. See
Annex D and "Other Terms of the Merger and the Merger Agreement -- Dissenters'
Rights."
------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of CTS and DCA on or about September 4,
1997.
ii
<PAGE>
NO PERSON HAS BEEN AUTHORIZED BY CTS OR DCA TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CTS OR DCA.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY,
IN ANY JURISDICTION IN WHICH IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CTS OR
DCA SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
CTS and DCA are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports, proxy statements and other information with
the Commission. CTS has filed with the Commission the Registration Statement
under the Securities Act with respect to the CTS Shares to be issued to holders
of DCA Shares in the Merger. The Registration Statement and the exhibits
thereto, as well as the reports, proxy statements and other information filed by
CTS and DCA with the Commission, may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Suite 1300, Seven World Trade Center, New York, New York 10048, and
at The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material also can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Such reports, proxy and
information statements and other information may be found on the Commission's
Web site address, http://www.sec.gov. In addition, the CTS Shares and the DCA
Shares are listed on the NYSE, and material filed by CTS and DCA may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
This Joint Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits thereto, a portion of which
has been omitted in accordance with the rules and regulations of the Commission.
Reference is made to the Registration Statement and the exhibits thereto for
further information.
Statements contained in this Joint Proxy Statement/Prospectus, or in any
document incorporated in this Joint Proxy Statement/Prospectus by reference,
referring to or summarizing the material terms of any contract or other document
referred to herein or therein are qualified by reference to the copy of such
contract or other document filed as an Annex or exhibit to the Registration
Statement or such other document incorporated herein by reference.
All information in this Joint Proxy Statement/Prospectus relating to CTS and
its affiliates has been supplied by CTS and all information contained in this
Joint Proxy Statement/Prospectus relating to DCA and its affiliates has been
supplied by DCA.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO THE INFORMATION INCORPORATED HEREIN) ARE
AVAILABLE,
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WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF CAPITAL STOCK
OF CTS OR DCA, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO CTS, TO CTS
CORPORATION, 905 WEST BOULEVARD NORTH, ELKHART, INDIANA 46514 (TELEPHONE NUMBER
(219) 293-7511), ATTENTION: SECRETARY OR, IN THE CASE OF DOCUMENTS RELATING TO
DCA, TO DYNAMICS CORPORATION OF AMERICA, 475 STEAMBOAT ROAD, GREENWICH,
CONNECTICUT 06830 (TELEPHONE NUMBER (203) 869-3211), ATTENTION: SECRETARY. IN
ORDER TO ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE APPLICABLE SHAREHOLDERS
MEETING, REQUESTS SHOULD BE RECEIVED BY SEPTEMBER 26, 1997.
The following documents filed with the Commission by DCA (File No. 1-7252)
pursuant to the Exchange Act are incorporated by reference in this Joint Proxy
Statement/Prospectus: Form 8-A, dated January 30, 1986, as amended; Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 (the "DCA
10-K"); Quarterly Report on Form 10-Q for the quarters ended March 31, 1997 and
June 30, 1997 (the latter, the "DCA 10-Q") and Current Reports on Form 8-K,
dated May 9, 1997 and May 12, 1997.
All documents and reports filed by either CTS or DCA pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of its respective Shareholders
Meeting will be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein will be deemed to be modified or
superseded for purposes of this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded will not
be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
CERTAIN FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus (including the documents incorporated
by reference herein) contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) and
information relating to CTS and DCA that are based on the beliefs of the
managements of CTS or DCA, as applicable, as well as assumptions made by and
information currently available to the managements of CTS or DCA, as applicable.
When used in this Joint Proxy Statement/ Prospectus, the words "anticipate,"
"believe," "estimate," "expect," "project," "imply," "intend" and similar
expressions, as they relate to CTS, DCA, Sub or the managements of any of them,
identify forward-looking statements. Such statements reflect the current views
of CTS or DCA, as applicable, with respect to future events and are subject to
certain risks, uncertainties and assumptions relating to the operations and
results of operations of CTS, DCA or Sub following the Merger, including as a
result of competitive factors and pricing pressures, shifts in market demand and
general economic conditions, assumed cost savings and other synergistic benefits
of the Merger and other factors. See "Risk Factors." Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein as anticipated, believed, estimated, expected, projected, implied or
intended.
iv
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TABLE OF CONTENTS
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AVAILABLE INFORMATION......................... iii
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE................................... iii
CERTAIN FORWARD-LOOKING STATEMENTS............ iv
SUMMARY....................................... 1
RISK FACTORS.................................. 18
THE SHAREHOLDERS MEETINGS..................... 20
Date, Time and Place........................ 20
Matters to be Considered at the Shareholders
Meetings.................................. 20
Quorum...................................... 21
Votes Required.............................. 21
Revocability of Proxies..................... 23
Solicitation of Proxies..................... 23
THE MERGER.................................... 24
General..................................... 24
The Offer................................... 24
Structure of the Merger..................... 24
Merger Consideration........................ 24
Effective Time.............................. 25
Background of the Merger.................... 25
Reasons for the Merger; Recommendations of
the Boards of Directors................... 31
Opinions of Financial Advisors.............. 33
Certain Federal Income Tax Consequences..... 45
Anticipated Accounting Treatment............ 47
Interests of Certain Persons in the
Merger.................................... 47
The CTS Charter Amendments.................. 52
Amendments to CTS Bylaws.................... 53
SHAREHOLDERS AGREEMENT........................ 54
OTHER TERMS OF THE MERGER AND THE MERGER
AGREEMENT................................... 55
Procedures for Cash Election................ 55
Proration................................... 56
Conversion of Shares; Procedures for
Exchange of Certificates; Fractional
Shares.................................... 56
Conditions to the Consummation of the
Merger.................................... 57
Termination................................. 58
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Inducement Fee and Termination Fees......... 58
No-Shop Covenant............................ 59
Conduct of Business Pending Merger.......... 59
Amendment and Waiver........................ 60
Expenses.................................... 61
Dividend Coordination....................... 61
Required Regulatory Approvals............... 61
Amendments to Rights Agreement.............. 61
Dissenters' Rights.......................... 61
PRO FORMA FINANCIAL DATA...................... 64
DESCRIPTION OF CTS CAPITAL STOCK.............. 70
CTS Shares.................................. 70
CTS Preferred Shares........................ 70
DESCRIPTION OF DCA CAPITAL STOCK.............. 71
DCA Shares.................................. 71
DCA Preferred Shares........................ 71
COMPARISON OF SHAREHOLDER RIGHTS.............. 72
Statutory Provisions........................ 72
Charter Provisions.......................... 73
Rights Plans................................ 74
GRANT OF CERTAIN OPTIONS...................... 76
ELECTION OF DCA DIRECTORS..................... 77
RATIFICATION OF APPOINTMENT OF DCA'S
INDEPENDENT AUDITORS........................ 80
OTHER INFORMATION REGARDING CTS............... 81
1996 Form 10-K/A............................ 81
Credit Facilities........................... 81
Securities Beneficially Owned by Principal
Shareholders and Management............... 81
OTHER INFORMATION REGARDING DCA............... 85
Security Ownership of Certain
Beneficial Owners.......................... 85
Compliance with Section 16(a) of the
Exchange Act............................... 85
DCA Executive Compensation.................. 86
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EXPERTS....................................... 93
LEGAL MATTERS................................. 93
SHAREHOLDER PROPOSALS......................... 93
ANNEX A-AMENDED AND RESTATED AGREEMENT AND
PLAN OF MERGER.............................. A-1
ANNEX B-OPINION OF WASSERSTEIN PERELLA & CO.,
INC......................................... B-1
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ANNEX C-OPINION OF J.P. MORGAN SECURITIES
INC......................................... C-1
ANNEX D-SECTIONS 910 AND 623 OF THE NYBCL..... D-1
ANNEX E-ADDITIONAL INFORMATION REGARDING
CTS......................................... E-1
CTS 1996 Annual Report on Form 10 K/A..... E-1
CTS Quarterly Report on Form 10-Q for the
Quarter ended June 29, 1997............... E-25
CTS Quarterly Report on Form 10-Q for the
Quarter ended March 30, 1997.............. E-38
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. REFERENCE IS
MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. SHAREHOLDERS ARE URGED TO READ THIS
JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY.
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THE COMPANIES
CTS........................... CTS, an Indiana corporation, designs, manufactures and sells
a broad line of electronic components principally serving
original equipment manufacturers in the automotive,
computer, communications, instrument and controls, defense
and aerospace industries. CTS' products are engineered and
manufactured at 16 facilities worldwide and include
automotive control devices, interconnect products, frequency
control devices, resistor networks and hybrid microcircuits.
CTS' principal executive offices are located at 905 West
Boulevard North, Elkhart, Indiana 46514 and its telephone
number is (219) 293-7511. Sub, a New York corporation, is a
wholly owned subsidiary of CTS formed solely for purposes of
the Offer and the Merger.
DCA........................... DCA, a New York corporation, is a diversified manufacturer
of commercial and industrial products founded in 1924. DCA's
eight plants are located in California, Connecticut, Ohio
and Pennsylvania. Its six business units manufacture
electronic components, mobile vans and transportable
shelters for specialized electronic and medical diagnostic
equipment, portable electric housewares and commercial
appliances, air distribution equipment, specialized
air-conditioning equipment and generator sets. DCA's
principal executive offices are located at 475 Steamboat
Road, Greenwich, Connecticut 06830-7197 and its telephone
number is (203) 869-3211.
The Combined Company.......... Following the Merger, CTS is expected to have a total market
capitalization of over $425 million (based on the closing
sales price for CTS Shares on the last trading day
immediately preceding the date of this Joint Proxy
Statement/Prospectus and giving pro forma effect to the
Merger). It is anticipated that DCA's frequency control and
heat dissipating businesses will be integrated into
complementary CTS operations, that DCA's management will
oversee the management of Sub's continuing operations and
that the Merger will result in significant costs savings
(estimated at $2.0 million, after tax, annually).
It is also anticipated that, following the Merger, the CTS
Board will consist of the five current members thereof, two
of whom are currently officers of DCA, one of whom is CTS'
Chairman, President and Chief Executive Officer, and two of
whom are independent directors within the meaning of NYSE
guidelines. As promptly as practicable following the
effectiveness of the Merger (the "Effective Time"), CTS
expects to expand the CTS Board by adding at least two
additional directors who qualify as independent directors
under NYSE guidelines.
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THE SHAREHOLDERS MEETINGS
Date, Time and Place.......... The CTS Shareholders Meeting will be held at CTS' corporate
headquarters located at 905 West Boulevard North, Elkhart,
Indiana, at 9:00 a.m., local time, on October 16, 1997.
The DCA Shareholders Meeting will be held at the Greenwich
Library, West Putnam Avenue at Deerfield Drive, Greenwich,
Connecticut at 10:30 a.m., local time, on October 16, 1997.
Matters to be Considered at
the Shareholders Meetings... At the CTS Shareholders Meeting, CTS Shareholders are being
asked to consider and vote upon (i) the CTS Merger Proposal
and (ii) subject to the consummation of the Merger, the
grant of Options to certain executive officers of CTS and
DCA.
At the DCA Shareholders Meeting, DCA Shareholders are being
asked to consider and vote upon a proposal to adopt the
Merger Agreement, the election of directors and the
ratification of the appointment of DCA's independent
auditors for 1997. Sub's board of directors will continue to
be the directors of Sub as the surviving corporation in the
Merger. It is anticipated that CTS' independent accountants
will also be the independent accountants for Sub as the
surviving corporation in the Merger.
Record Date; Shares Entitled
to Vote..................... Only holders of record of CTS Shares and DCA Shares at the
close of business on September 5, 1997 (the "CTS Record
Date" and the "DCA Record Date", respectively) are entitled
to receive notice of and to vote at the CTS Shareholders
Meeting and the DCA Shareholders Meeting, respectively. As
of the CTS Record Date, there were 5,249,589 CTS Shares
outstanding, of which 4,229,589 are entitled to vote at the
CTS Shareholders Meeting; as of the DCA Record Date, there
were 3,837,600 DCA Shares outstanding (3,480 of which were
non-voting).
Quorum........................ The required quorum for the transaction of business at both
the CTS Shareholders Meeting and the DCA Shareholders
Meeting is a majority of the CTS Shares or DCA Shares, as
the case may be, outstanding on the applicable record date
represented in person or by proxy and entitled to be voted
at the applicable Shareholders Meeting. Abstentions and
broker non-votes each will be included in determining the
number of shares present for purposes of determining the
presence of a quorum.
Votes Required................ The approval of the CTS Merger Proposal and the grant of
Options to certain executive officers of CTS and DCA require
the affirmative vote of a majority of votes cast by holders
of record of CTS Shares present in person or represented by
proxy and entitled to vote at the CTS Shareholders Meeting
provided that, in the case of the CTS Merger Proposal, the
total votes cast (whether for or against) represents at
least a majority of the CTS Shares outstanding on the CTS
Record Date and entitled to vote (the "CTS Plurality Vote").
The adoption of the Merger Agreement by DCA Shareholders
requires an affirmative vote of at least two-thirds of the
DCA Shares outstanding as of the DCA Record Date (a "DCA
Two-Thirds
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Vote"); the election of DCA directors and ratification of
the appointment of DCA's independent auditors requires the
affirmative vote of the holders of record of a majority of
the DCA Shares present in person or represented by proxy and
entitled to vote at the DCA Shareholders Meeting (a "DCA
Plurality Vote").
Holders of CTS Shares or DCA Shares entitled to vote, as the
case may be, as of the applicable record date are entitled
to one vote per share on each matter to be voted on at the
applicable Shareholders Meeting. As of the CTS Record Date,
DCA beneficially owned 2,303,100 CTS Shares, which represent
43.9% of the issued and outstanding CTS Shares (the
"DCA-Owned CTS Shares"). Of the 2,303,100 DCA-Owned CTS
shares, 1,283,100 shares have voting rights (the "DCA-Owned
Voting CTS Shares"), which voting shares represent 30.3% of
the CTS Shares having the right to vote at the CTS
Shareholders Meeting. (The remaining DCA-Owned CTS Shares
are non-voting because voting rights with respect to them
were not approved, as required by Indiana law, after they
were acquired in 1986.) CTS and Sub owned 1,215,264 DCA
Shares, or 31.7% of the DCA Shares outstanding on the DCA
Record Date, substantially all of which DCA Shares Sub
acquired in the Offer. WHX owned 516,440 DCA Shares, or
13.5% of the DCA Shares outstanding as of the Record Date,
and officers and directors of DCA owned 7.1% of such DCA
Shares as of such date. DCA agreed in the Merger Agreement
to vote the DCA-Owned Voting CTS Shares in favor of the
Merger and the grant of Options to certain executive
officers of CTS and DCA. CTS and WHX have agreed, and DCA's
officers and directors intend, to vote all DCA Shares owned
by them in favor of the Merger. Accordingly, assuming that
all shares are so voted, shareholder approval of the CTS
Merger Proposal and the adoption of the Merger Agreement,
respectively, will be assured if such actions are approved
by holders of 28.4% of the CTS Shares not owned by DCA and
entitled to vote and 30.2% of the DCA Shares not owned by
CTS, WHX and DCA's directors and officers.
Shareholders Agreement........ On July 17, 1997, WHX and a wholly owned subsidiary of WHX
(collectively "WHX"), entered into a Shareholders Agreement
with CTS and Sub (the "Shareholders Agreement"), wherein WHX
(i) agreed to vote all of the DCA Shares beneficially owned
by them (currently 516,440 DCA Shares, or 13.5% of the
outstanding DCA Shares) in favor of the Merger and against
any opposing transactions, (ii) agreed to vote against any
actions inconsistent with the Merger, (iii) granted Sub an
irrevocable proxy so to vote such DCA Shares, and (iv)
agreed not to sell or otherwise transfer such DCA Shares.
The Shareholders Agreement and WHX's obligations thereunder
will terminate on the earliest to occur of (a) the Effective
Time, (b) the termination of the Merger Agreement, or (c)
October 31, 1997.
THE MERGER
The Offer..................... The Merger is the second and final step in the acquisition
of DCA by CTS pursuant to the Merger Agreement. The first
step was the Offer, pursuant to which Sub purchased
1,164,339 DCA Shares, or 30.3% of
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the outstanding DCA Shares (together with the associated DCA
Share purchase rights described below), for $56.25 net per
DCA Share in cash. The Offer was completed on June 16, 1997.
The Merger.................... Subject to the terms and conditions of the Merger Agreement
and in accordance with the New York Business Corporation Law
(the "NYBCL"), at the Effective Time, DCA will merge with
and into Sub, with Sub continuing as the surviving
corporation in the Merger. In addition, as of the Effective
Time, the CTS Charter will be amended to (i) increase the
authorized capital of CTS from 8.0 million CTS Shares to
75.0 million CTS Shares and 25.0 million preferred shares
(the terms of which will be as established from time to time
by the CTS Board in connection with the issuance thereof),
(ii) increase the maximum size of the CTS Board to 15, with
the exact size to be determined by the CTS Board, (iii)
expand CTS director and officer indemnification to the
extent allowed by law and to provide procedures for the
resolution of disputes over compliance with the applicable
standard of care, and (iv) effect certain immaterial
conforming or technical amendments.
Conversion of Shares.......... As of the Effective Time, by virtue of the Merger and
without any action on the part of any holder of DCA Shares,
each DCA Share issued and outstanding immediately prior to
the Effective Time (other than DCA Shares owned by DCA or
CTS, or any wholly owned subsidiary of DCA or CTS, or DCA
Shares as to which dissenters' rights have been exercised)
will be converted into the right to receive, at the holder's
election (the "Cash Election Option"), either $58.00 in cash
(the "Cash Consideration") or 0.88 fully paid and
nonassessable CTS Shares (except that cash will be paid in
lieu of fractional shares). The Cash Consideration will be
prorated to the extent that the total number of DCA Shares
for which cash elections are made exceeds 49.9% of the
outstanding DCA Shares less the DCA Shares beneficially
owned by CTS prior to the Merger. At the date of the
printing of this Joint Proxy Statement/Prospectus, holders
of approximately 18.2% of the outstanding DCA common shares
would be eligible to receive cash in the Merger. In
connection with the Merger, CTS declared a Stock Split in
the form of a 1:1 stock dividend to shareholders of record
on October 24, 1997 (subject to the completion of the
Merger). The Stock Split will not become effective if CTS
Shareholders do not approve the CTS Merger Proposal and the
record date therefor will be postponed if the Effective Time
has not occurred prior to October 24, 1997.
Cash Election Procedure....... In order for a holder of DCA Shares to receive the Cash
Consideration, a properly completed Form of Election/Letter
of Transmittal accompanied by certificates representing DCA
Shares or notice of guaranteed delivery must be received by
State Street Bank and Trust Company (the "Exchange Agent")
prior to 5:00 p.m. New York City time on October 15, 1997.
See "Other Terms of the Merger and the Merger
Agreement--Procedures for Cash Election." Holders of DCA
Shares who do not properly and timely elect to receive the
Cash Consideration will have their DCA Shares converted in
the Merger into the right to receive the Stock
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Consideration. A Form of Election/Letter of Transmittal will
be mailed to holders of DCA Shares as of the DCA Record Date
as soon as practicable after the date of this Joint Proxy
Statement/ Prospectus.
The Cash Consideration may be different from the trading
price for DCA Shares on the NYSE from time to time prior to
the Effective Time of the Merger. On August 29, 1997, the
last trading day prior to the date of the Joint Proxy
Statement/Prospectus, the closing sales price for DCA Shares
as reported on the NYSE was $71.00 per share. The amount of
Cash Consideration is fixed at $58.00 per DCA Share,
regardless of changes in the market prices for DCA Shares.
DCA shareholders are urged to obtain current market
quotations for DCA Shares. See "--Comparative Stock Prices"
Proration of Cash
Consideration............... In the event that the aggregate number of DCA Shares
electing to receive the Cash Consideration ("Electing
Shares") exceeds 49.9% of the DCA Shares less the DCA Shares
owned by CTS and Sub (the "Maximum Cash Shares"), Electing
Shares will receive Cash Consideration prorated by
multiplying each holder's Electing Shares by the Maximum
Cash Shares and dividing the product by the total number of
Electing Shares. All Electing Shares not converted into the
Cash Consideration will be converted in the Merger into the
Stock Consideration. See "Other Terms of the Merger and the
Merger Agreement--Proration."
Recommendation of the CTS
Board....................... The CTS Board, including the Unaffiliated CTS Directors
voting separately, unanimously determined that the issuance
of CTS Shares in the Merger, the CTS Charter Amendments and
the grant of the Options are fair to and in the best
interests of CTS and CTS Shareholders (other than DCA), and
has approved such proposals and recommends that CTS
Shareholders vote "FOR" approval of such proposals. In
making that determination, the CTS Board, and the
Unaffiliated CTS Directors, considered the following
material factors: (i) the business, financial position,
results of operations and prospects of CTS and DCA, and
potential synergies resulting from the Combination (as
defined below) (estimated at $2.0 million, after tax,
annually); (ii) the strategic fit between DCA's frequency
control and heat dissipating businesses and CTS' existing
operations, and the prospects for DCA's other operations;
(iii) the expectation that the Combination would be
accretive to CTS' net earnings in 1997 (excluding one-time
transaction-related costs or charges) and thereafter; (iv)
historical market prices for DCA Shares and CTS Shares; (v)
the potential impact of the Combination on market prices for
CTS Shares as a result of the decrease in concentration of
the ownership thereof and increase in the liquidity of the
market for CTS Shares, as well as the factors described
above; (vi) the commitment of Andrew Lozyniak, the Chairman
of the Board and Chief Executive Officer of DCA, Patrick J.
Dorme, the Vice President-Finance and Chief Financial
Officer of DCA, and Henry V. Kensing, the Vice President,
General Counsel and Secretary of DCA, to continue with DCA
following the Merger under the terms of certain employment
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contracts to be effective as of the Effective Time (which
replace their existing employment/change-in-control
severance agreements with DCA); (vii) presentations by J.P.
Morgan Securities Inc. ("J.P. Morgan"), CTS' financial
advisor in connection with the Offer and the Merger
(together, the "Combination"); and (viii) the impact of the
Combination on the non-shareholder constituencies of CTS
(including the employees, suppliers and customers of CTS and
communities in which offices or other facilities of CTS are
located), which were believed to be generally favorable. In
authorizing the addition of the Cash Election Option to the
Merger Agreement on July 17, 1997, the CTS Board considered
the foregoing, as well as (i) the results of the Offer, (ii)
recent trading prices for CTS Shares and DCA Shares, (iii)
WHX's indication that it would be prepared to support the
Merger if the Cash Election Option were included therein,
and (iv) the terms of the Shareholders Agreement. For a
discussion of the interests that certain members of CTS
management and the CTS Board may have in the transactions
contemplated by the Merger Agreement, see "The
Merger--Interests of Certain Persons in the Merger."
Recommendation of the DCA
Board....................... Prior to the commencement of the Offer, the DCA Board
carefully reviewed and unanimously determined that the
original Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, were fair to
and in the best interests of DCA and DCA Shareholders, and
approved the original Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger.
The DCA Board (CTS' designees thereto abstaining) has also
determined that the Merger Agreement, as amended to add the
Cash Election Option, and the transactions contemplated
thereby, including the Merger, are fair to and in the best
interests of DCA and DCA Shareholders, and approved the
amended Merger Agreement and the transactions contemplated
thereby, including the Merger. The DCA Board (CTS' designees
thereto abstaining) recommends that DCA Shareholders vote
"FOR" adoption of the Merger Agreement. In approving the
Merger Agreement and the amended Merger Agreement and the
transactions contemplated thereby, the DCA Board considered
the following material factors: (i) the business, results of
operations, financial condition and prospects of DCA and CTS
and presentations by DCA management and Wasserstein Perella
& Co., Inc. ("WP&Co."), DCA's financial advisor; (ii) the
presentations of WP&Co. at the May 9, and July 17, 1997
meetings of the DCA Board and the opinions of WP&Co. to the
effect that, based upon and subject to the matters reviewed
with the DCA Board, (a) as of May 9, 1997, the consideration
to be received by DCA Shareholders in the Offer and the
Merger, taken together, pursuant to the Merger Agreement,
and (b) as of July 17, 1997, the consideration to be
received by DCA Shareholders in the Merger pursuant to the
Merger Agreement is fair to DCA Shareholders from a
financial point of view; (iii) that the transactions
contemplated by the Merger Agreement include (a) a cash
tender offer and Cash Election Option
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
for up to 49.9% of the outstanding DCA Shares, thereby
enabling those DCA Shareholders who wish to receive cash for
some or (depending on the number of DCA Shares tendered) all
of their DCA Shares to do so, and (b) a stock-for-stock
merger that would be a tax-free reorganization, thereby
allowing DCA Shareholders who wish to participate in the
future growth of the combined companies on a tax-free basis
to do so; (iv) that because the Exchange Ratio is fixed, the
value of the Merger Consideration will increase or decrease
with increases or decreases, respectively, in the price of
CTS Shares; (v) the terms and conditions of the Merger
Agreement, including the provisions permitting DCA, prior to
the expiration of the Offer (the "Offer Expiration Date"),
to furnish information to and to negotiate with third
parties and to terminate the Merger Agreement upon the
payment of a $3.0 million fee (in addition to the $2.0
million fee paid at signing), which provisions applied
equally to DCA and CTS (other than that CTS would be
required to pay a $5.0 million fee and did not pay a fee at
signing), and the belief of the DCA Board that the
provisions of the Merger Agreement would not deter a more
attractive offer for DCA; (vi) historical market prices and
trading information for the DCA Shares and the CTS Shares;
(vii) the DCA Board's familiarity with the operations and
management of CTS due to DCA's significant equity ownership
interest in CTS for over a decade; (viii) the strategic fit
between the operations of DCA and those of CTS, including
(a) the ability of the two companies to combine
complementary product lines, reduce costs and create
significant synergies and (b) the financial strength and
flexibility, strong balance sheet and opportunities for
growth of the combined company; (ix) the ability of DCA
Shareholders to participate in the potential benefits of the
combined company through ownership of approximately 36% of
the CTS Shares following the Merger (assuming the purchase
of 49.9% of the DCA Shares in the Offer and Cash Election
Feature); and (x) that, following the Merger, (a) the CTS
Board would continue to include two members from DCA's
management, (b) Mr. Lozyniak would be a member of CTS'
Office of the Chairman with Mr. Walker, (c) through CTS'
1998 annual shareholder's meeting, any new members of the
CTS Board elected by the CTS Board would have to be
unanimously elected or nominated therefor by a committee of
the CTS Board consisting of, among others, Mr. Lozyniak or
Mr. Dorme, and (d) Messrs. Lozyniak, Kensing and Dorme would
continue to be involved with the management of DCA. In
authorizing the addition of the Cash Election Option to the
Merger Agreement on July 17, 1997, the DCA Board considered
the foregoing, as well as (i) the results of the Offer, (ii)
recent trading prices for CTS Shares and DCA Shares, (iii)
WHX's indication that it would be prepared to support the
Merger if the Cash Election Option were included therein,
and (iv) the terms of the Shareholders Agreement. For a
discussion of the interests that certain members of DCA
management and the DCA Board may have in the transactions
contemplated by the Merger Agreement, see "The Merger--
Interests of Certain Persons in the Merger."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
The DCA Board makes no recommendation as to whether DCA
Shareholders should elect to receive cash or CTS Shares in
the Merger. In that respect, DCA Shareholders should note
that, based on the closing price for a CTS Share on the last
trading day before the date of this Joint Proxy
Statement/Prospectus, the value of the Stock Consideration
would be $71.28 per DCA Share, but that stock prices are
inherently volatile and there can be no assurance as to the
future value of the Stock Consideration.
Opinions of Financial
Advisors.................... WP&Co. has rendered its written opinion to the DCA Board
that, as of July 17, 1997, the consideration to be received
by DCA Shareholders pursuant to the Merger Agreement is fair
to the DCA Shareholders from a financial point of view. A
copy of the full text of the written opinion of WP&Co.,
which sets forth a description of the assumptions made,
matters considered and limitations on the review undertaken,
is attached as Annex B to this Joint Proxy Statement/
Prospectus, is incorporated herein by reference and should
be read carefully and in its entirety. DCA has agreed to pay
certain fees to WP&Co. for its services in connection with
the Merger, substantially all of which are contingent upon
consummation of the Merger.
On July 17, 1997, J.P. Morgan advised the CTS Board that, as
of such date, the consideration paid or to be paid by CTS in
the Offer and the Merger is fair, from a financial point of
view, to CTS. A copy of J.P. Morgan's written opinion, which
sets forth the assumptions and qualifications made, matters
considered and limitations on the review by J.P. Morgan in
rendering its opinion, is attached as Annex C to this Joint
Proxy Statement/Prospectus and should be carefully read and
in its entirety. CTS has agreed to pay certain fees to J.P.
Morgan for its services in connection with the Merger, a
substantial portion of which are contingent upon
consummation of the Merger.
Conditions of the Merger...... The consummation of the Merger is subject to the
satisfaction or waiver of a number of conditions, including
the adoption of the Merger Agreement by the requisite votes
or consent of the DCA Shareholders, the approval of the CTS
Merger Proposal by CTS Shareholders and other customary
conditions.
Certain Federal Income Tax
Consequences................ CTS and DCA expect that the Merger and the Offer, as a
single integrated transaction, will qualify as a
reorganization under Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). In that event, no
gain or loss will be recognized by DCA, CTS, Sub or any DCA
Shareholder in the Merger or the Offer, except in the event
that cash is or was received in the Offer, upon the exercise
of Dissenters' Rights, pursuant to the Cash Election Option
or in lieu of any fractional CTS Shares in the Merger.
Interests of Certain Persons
in the Merger............... Certain directors and executive officers of each of CTS and
DCA have interests in the Merger that are different from, or
in addition to, the interests of shareholders of CTS or DCA,
as applicable, generally. Such interests relate to or arise
from, among other things, the terms of the Merger Agreement
providing for (i) employment agreements for Joseph P.
Walker, Chairman, Chief Executive Officer
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
and President of CTS (and a member of the DCA Board since
June 20, 1997), Andrew Lozyniak, Chairman and President of
DCA (and a member of the CTS Board), Patrick J. Dorme, Vice
President - Finance and Chief Financial Officer of DCA (and
a member of the CTS Board), and Henry V. Kensing, Vice
President, General Counsel and Secretary of DCA, (ii) the
award, subject to CTS Shareholder approval and completion of
the Merger, of Options to Mr. Walker, Mr. Lozyniak, Stanley
J. Aris, Vice President-- Finance and Chief Financial
Officer of CTS, and Jeannine M. Davis, Vice President,
General Counsel and Secretary of CTS, and (iii) the
indemnification of existing directors and officers of CTS
and DCA. The employment agreements of Messrs. Lozyniak,
Dorme and Kensing are effective only upon completion of the
Merger and provide for increased salary and increased
severance benefits. Mr. Walker's employment agreement
replaced his existing employment agreement, which expired by
its terms on June 24, 1997, and provides for increased
salary and benefits and, in certain circumstances, severance
benefits upon a change in control of CTS or DCA (with a
gross-up for any excise tax applicable to such benefits).
The annual salaries and minimum bonus amounts of Messrs.
Walker, Lozyniak, Dorme and Kensing under their new
employment agreements are (1996 total cash compensation
indicated parenthetically); $500,004 ($342,167), $450,000
($351,489), $169,944 ($161,749), and $204,468 ($192,568),
respectively. See "The Merger -- Interests of Certain
Persons in the Merger" for a description of other terms of
these agreeements. The DCA Board and the CTS Board were
aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the
transactions contemplated thereby. In considering the
recommendations of the DCA Board and the CTS Board in
respect of the Merger Agreement and the transactions
contemplated thereby, the DCA Shareholders or CTS
Shareholders, as the case may be, should be aware of these
interests which may present actual or potential conflicts of
interest.
Termination of the Merger
Agreement; Inducement Fee
and Termination Fees........ Subject to certain limitations, the Merger Agreement is
subject to termination at the option of either CTS or DCA if
the Merger is not consummated on or before October 31, 1997
and prior to such time upon the occurrence of certain
events. The Merger Agreement may also be terminated by the
mutual written consent of CTS and DCA. As an inducement to
CTS and Sub to enter into the Merger Agreement and perform
their respective obligations thereunder, on May 9, 1997, DCA
paid $2.0 million to CTS. Under certain circumstances, CTS
or DCA, as the case may be, may be required to pay to the
other a fee in the amount of $5.0 million or $3.0 million,
respectively, upon the termination of the Merger Agreement.
Dissenters' Rights............ If the Merger is consummated, DCA Shareholders who follow
the procedures in Section 623 of the NYBCL will be entitled
to dissent from the Merger and receive payment of the "fair
value" of their DCA Shares as determined in accordance with
Section 910 of the
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
NYBCL (such rights, "Dissenters' Rights"). However, any DCA
Shareholder who decides to pursue Dissenters' Rights must
vote against adoption of the Merger Agreement and otherwise
strictly comply with the provisions specified in Section 623
of the NYBCL. A copy of Section 623 (together with a copy of
Section 910 of the NYBCL) is attached as Annex D to this
Joint Proxy Statement/ Prospectus and should be read in its
entirety. CTS Shareholders do not have dissenters' rights in
connection with the matters to be considered at the CTS
Shareholders Meeting.
DIVIDEND POLICIES
DCA........................... In 1984, DCA established a regular semi-annual dividend rate
of $0.10 per DCA Share. The Merger Agreement provides that
DCA may continue to pay regular semi-annual dividends until
the Effective Time, and on July 30, 1997, DCA declared a
dividend of $0.10 per DCA Share payable on September 3,
1997, to holders of record on August 8, 1997.
CTS........................... In 1996, CTS increased its quarterly dividend rate from
$0.15 to $0.18 per CTS Share. The Merger Agreement permits
CTS to continue to pay regular quarterly dividends and
requires CTS and DCA to coordinate their actions to assure
that DCA Shareholders do not receive more than one dividend
for any quarter. On August 13, 1997, CTS declared a dividend
of $0.18 per CTS Share payable on October 15, 1997, to
holders of record on September 15, 1997. The payment of
dividends on CTS Shares is a matter for the discretion of
the CTS Board and is subject to customary restrictions
thereon. Following the Stock Split it is expected that the
CTS Board will adjust the regular quarterly dividend
accordingly.
</TABLE>
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF CTS
Set forth below is a summary of certain consolidated financial information
with respect to CTS and its subsidiaries for the six months ended June 29, 1997
and June 30, 1996 and for its fiscal years ended December 31, 1996, 1995, 1994,
1993 and 1992 excerpted from financial statements presented in the CTS 10-Q, the
CTS 10-K and other documents filed by CTS with the Commission and included in
this Joint Proxy Statement/Prospectus as Annex E. More comprehensive financial
information is included in such reports (including management's discussion and
analysis of results of operations and financial position) and other documents
filed by CTS with the Commission, and the financial information set forth below
is qualified in its entirety by reference to such reports and other documents,
and all the financial information and related notes contained therein. CTS'
Quarterly Reports on Form 10-Q for the quarters ended March 30, 1997 and June
29, 1997 (the latter, the "CTS 10-Q") and Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, as amended (the "CTS 10-K"), are attached
hereto as Annex E.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------- YEAR ENDED DECEMBER 31,
JUNE 29, JUNE 30, ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Net sales................... $ 198,751 $ 164,006 $ 321,297 $ 300,157 $ 268,707 $ 236,979 $ 227,391
Earnings before taxes....... 24,463 15,483 33,602 27,684 21,487 10,260 3,821
Net earnings................ 15,412 9,754 21,170 17,164 13,967 1,956 1,901
PER CTS SHARE INFORMATION:
Net earnings applicable to
CTS Shares................ $ 2.92 $ 1.86 $ 4.03 $ 3.30 $ 2.70 $ 0.38 $ 0.37
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AT JUNE 29,
1997 1996 1995 1994 1993 1992
--------------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total current assets............... $ 143,473 $ 138,201 $ 126,113 $ 110,667 $ 97,266 $ 87,376
Net property, plant and
equipment........................ 59,028 56,103 50,696 50,777 47,842 48,529
Total assets....................... 329,852 249,372 227,127 206,826 185,064 170,773
Total liabilities.................. 150,526 83,140 80,874 74,971 65,861 51,401
Total shareholders' equity......... 179,326 166,232 146,253 131,855 119,203 119,372
</TABLE>
CTS PROJECTIONS
In the course of discussions giving rise to the Merger Agreement,
representatives of CTS furnished representatives of DCA certain business and
financial information that was not publicly available, including CTS' current
business plan prepared prior to the initiation of discussions relating to the
Merger Agreement (the "CTS Business Plan"). The CTS Business Plan included
certain projections for the years 1997 through 2000 prepared solely for CTS'
internal purposes. None of such projected financial information provided by CTS
to DCA was prepared for publication or with a view to complying with the
published guidelines of the Commission regarding projections or with the AICPA
Guide for Prospective Financial Statements, and such information is being
included in this Joint Proxy Statement/Prospectus solely because it was
furnished to DCA in connection with the discussions giving rise to the Merger
Agreement. CTS' independent accountants, Price Waterhouse LLP ("Price
Waterhouse"), have neither examined nor compiled the prospective financial
information set forth below and, accordingly, do not express an opinion or any
other form of assurance with respect thereto. The reports of Price Waterhouse
incorporated by
11
<PAGE>
reference in this Joint Proxy Statement/Prospectus relate to the historical
financial information of CTS and do not extend to the prospective financial
information and should not be read to do so.
THE PROJECTED FINANCIAL INFORMATION SET FORTH BELOW NECESSARILY REFLECTS
NUMEROUS ASSUMPTIONS WITH RESPECT TO GENERAL BUSINESS AND ECONOMIC CONDITIONS
AND OTHER MATTERS, MANY OF WHICH ARE INHERENTLY UNCERTAIN OR BEYOND CTS'
CONTROL, AND DOES NOT TAKE INTO ACCOUNT ANY CHANGES IN CTS' OPERATIONS OR
CAPITAL STRUCTURE WHICH WILL RESULT FROM THE OFFER AND THE MERGER. IT IS NOT
POSSIBLE TO PREDICT WHETHER THE ASSUMPTIONS MADE IN PREPARING THE PROJECTED
FINANCIAL INFORMATION WILL BE VALID AND ACTUAL RESULTS MAY PROVE TO BE
MATERIALLY HIGHER OR LOWER THAN THOSE CONTAINED IN THE PROJECTIONS. THE
INCLUSION OF THIS INFORMATION SHOULD NOT BE REGARDED AS AN INDICATION THAT CTS,
DCA OR ANYONE ELSE WHO RECEIVED THIS INFORMATION CONSIDERED IT A RELIABLE
PREDICTOR OF FUTURE EVENTS, AND THIS INFORMATION SHOULD NOT BE RELIED ON AS
SUCH.
The material components of the projections included in the CTS Business Plan
are as follows:
<TABLE>
<CAPTION>
ESTIMATES FOR THE YEAR ENDING
DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1997 1998 1999 2000
--------- --------- --------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.............................................. $ 351.2 $ 402.0 $ 452.1 $ 527.4
Cost of goods sold..................................... 262.1 298.0 335.3 389.4
Earnings before interest and taxes..................... 37.7 52.9 62.5 80.5
Net earnings........................................... 22.9 32.4 38.5 50.3
</TABLE>
The principal assumptions underlying the foregoing projections are as
follows: (i) net sales are projected to increase at a compounded annual rate of
approximately 15% over the period 1997 to 2000, based primarily on assumed
increased sales of existing and new automotive, interconnect and microelectronic
products; (ii) gross margin percentages are assumed to improve in 1998 and
remain constant through 1999 and 2000, as CTS implements continued cost control
efficiency and productivity improvements; (iii) sales per CTS employee are
assumed to grow from $91,000 in 1997 to $122,000 in 2000; (iv) earnings before
interest and taxes are assumed to grow from 10.7% of net sales in 1997 to 15.3%
in 2000, primarily based upon the above-referenced sales increases and cost and
expense controls; (v) operating expenses are assumed to be 15% of net sales in
1997 and are assumed to fall to 11% in 2000; (vi) interest expense is assumed to
be essentially constant and then to drop significantly in 2000, due to a balloon
payment on a term loan due at the end of 1999; and (vii) the tax rate is assumed
to be CTS' current effective rate of 37%. As indicated above, the foregoing
projections were prepared for CTS' internal purposes prior to the initiation of
discussions relating to the Merger Agreement, do not reflect or give effect to
the Offer or the Merger and transactions related thereto (including the
financing for the Offer) and, accordingly, are not necessarily indicative of the
results of operations of CTS following the Offer or the Merger.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF DCA
Set forth below is a summary of certain consolidated financial information
with respect to DCA and its subsidiaries for the six months ended June 30, 1997
and 1996 and its fiscal years ended December 31, 1996, 1995, 1994, 1993 and
1992, excerpted from financial statements presented in the DCA 10-Q, the DCA
10-K and other documents filed by DCA with the Commission. More comprehensive
financial information is included in such reports (including management's
discussion and analysis of results of operations and financial condition) and
other documents filed by DCA with the Commission, and the financial information
summary set forth below is qualified in its entirety by reference to such
reports and other documents, and all the financial information and related notes
contained therein. The DCA 10-K, the DCA 10-Q and such other documents may be
examined and copies may be obtained from the offices of the Commission or the
NYSE. See "Available Information" and "Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------- YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales................................ $ 66,228 61,190 $ 129,206 $ 114,164 $ 107,700 $ 106,577 $ 124,898
Income (loss) from continuing operations
before equity investment in CTS........ (1,856)* (669) 76 1,364 5,106 168 2,886
Income (loss) from equity investment in
CTS.................................... 5,890 6,034 10,280 4,411 3,618 1,619 (442)
Income from continuing operations........ 4,034 5,365 10,356 5,775 8,724 1,787 2,444
PER DCA SHARE INFORMATION:
Income (loss) from continuing operations
before equity investments in CTS....... $ (.48) $ (0.18) $ 0.02 $ 0.35 $ 1.32 $ 0.04 $ 0.74
Income from continuing operations........ 1.05 1.40 2.71 1.50 2.25 0.45 0.62
Net income............................... 1.05* 1.47 2.78 1.75 2.25 0.24 0.54
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, ----------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total current assets.................... $ 55,248 $ 49,350 $ 50,793 $ 49,612 $ 51,195 $ 54,962
Equity investment in CTS................ 89,570 84,046 77,180 69,291 57,037 57,795
Total assets............................ 153,659 140,736 134,301 124,177 115,364 120,288
Total liabilities....................... 34,887 25,698 28,827 24,452 22,550 27,572
Total shareholders' equity.............. 118,772 115,038 105,474 99,725 92,814 92,716
</TABLE>
- ------------------------
* Includes takeover defense and transaction costs of $4,168, or $1.09 per
share, net of tax benefits.
DCA PROJECTIONS
Representatives of DCA furnished to representatives of CTS certain business
and financial information that was not publicly available, including certain
financial projections of DCA's businesses for the years 1997 through 1999 (the
"DCA Projections"). The DCA Projections were prepared solely for DCA's internal
purposes. None of the projected financial information included therein was
prepared for publication or with a view to complying with the published
guidelines of the Commission regarding projections or with the AICPA Guide for
Prospective Financial Statements, and such information is set forth herein
solely because the DCA Projections were furnished to CTS in connection with the
Offer and the Merger. DCA's independent auditors, Ernst & Young, have neither
examined nor compiled the prospective financial information set forth below and,
accordingly, do not express an opinion or any other form of assurance with
respect thereto. The reports of Ernst & Young incorporated by reference in this
Joint Proxy
13
<PAGE>
Statement/Prospectus relate to the historical financial information of DCA, do
not extend to the prospective financial information and should not be read to do
so.
THE PROJECTED FINANCIAL INFORMATION SET FORTH BELOW NECESSARILY REFLECTS
NUMEROUS ASSUMPTIONS WITH RESPECT TO GENERAL BUSINESS AND ECONOMIC CONDITIONS
AND OTHER MATTERS, MANY OF WHICH ARE INHERENTLY UNCERTAIN OR BEYOND DCA'S OR
CTS' CONTROL, AND DOES NOT TAKE INTO ACCOUNT ANY CHANGES IN DCA'S OPERATIONS OR
CAPITAL STRUCTURE WHICH MAY RESULT FROM THE OFFER AND THE MERGER. IT IS NOT
POSSIBLE TO PREDICT WHETHER THE ASSUMPTIONS MADE IN PREPARING SUCH PROJECTED
FINANCIAL INFORMATION WILL BE VALID AND ACTUAL RESULTS MAY PROVE TO BE
MATERIALLY HIGHER OR LOWER THAN THOSE CONTAINED IN THE PROJECTIONS SET FORTH
BELOW. NO SPECIFIC ASSUMPTIONS RELATING TO SUCH PROJECTIONS WERE FURNISHED BY
DCA TO CTS, ALTHOUGH CERTAIN INFORMATION GENERALLY PERTINENT THERETO WAS
FURNISHED BY DCA TO CTS IN ITS DUE DILIGENCE REVIEW. THE INCLUSION OF THIS
INFORMATION SHOULD NOT BE REGARDED AS AN INDICATION THAT DCA, CTS OR ANYONE ELSE
WHO RECEIVED THIS INFORMATION CONSIDERED IT A RELIABLE PREDICTOR OF FUTURE
EVENTS, AND THIS INFORMATION SHOULD NOT BE RELIED ON AS SUCH.
Set forth below are the DCA Projections presented on a consolidated basis:
<TABLE>
<CAPTION>
ESTIMATES FOR THE
YEAR ENDING DECEMBER 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
(AMOUNTS IN MILLIONS)
Net sales........................................................ $ 156.7 $ 171.7 $ 175.9
Cost of goods sold............................................... 122.6 131.9 129.7
Earnings before interest, taxes and equity earnings from CTS..... 8.7 12.3 17.0
Net earnings before equity earnings from CTS..................... 5.5 7.8 10.7
</TABLE>
Set forth below are the DCA Projections for the year ending December 31,
1997 and 1998, as consolidated and modified by CTS and its representatives:
<TABLE>
<CAPTION>
ESTIMATES FOR THE
YEAR ENDING DECEMBER
31,
--------------------
1997 1998
--------- ---------
<S> <C> <C> <C>
Net sales........................................................ $ 148.6 $ 170.9
Cost of goods sold............................................... 115.4 132.7
Earnings before interest, taxes and equity earnings from CTS..... 6.0 6.9
Net earnings before equity earnings from CTS..................... 4.3 5.0
</TABLE>
SELECTED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data of CTS for the six months
ended June 29, 1997 and the year ended December 31, 1996 present unaudited pro
forma operating results for CTS as if the Combination, including the
reacquisition by CTS of the DCA-Owned CTS Shares effected thereby, had occurred
as of the beginning of each such period and the financial condition of CTS as if
the Combination had occurred as of June 29, 1997. For purposes of the following
pro forma financial data, the total purchase price paid by CTS in the
Combination (the "Purchase Price") is estimated to be $241.5 million, consisting
of the sum of (i) $68.5 million in cash for the purchase of 1,215,164 DCA Shares
(assuming that no DCA Shareholders elect the Cash Election Option), (ii) $159.0
million in CTS Shares (2,622,336 DCA Shares, multiplied by the Exchange Ratio,
with the product thereof multiplied by $68.91, the average closing sales price
for CTS Shares during the period from three days before to three days after May
30, 1997, the last trading day prior to the date of the increase in the Offer
price to $56.25 (the "Seven-Day Average Price")), and (iii) $14.0 million of
transaction costs. The Purchase Price has been allocated in the following pro
forma financial data to the estimated fair value of the net tangible operating
assets and inventory ("Net DCA Operating Assets") and related goodwill of DCA
and the DCA-Owned CTS Shares as follows: (i) Net DCA Operating Assets: $32.7
million, (ii)goodwill: $12.1 million, and (iii) DCA-Owned CTS Shares: $196.7
million (a premium of approximately 24% to the Seven-Day Average Price).
14
<PAGE>
Following the Effective Time, CTS will be required to allocate finally the
Purchase Price to the fair value of DCA's assets and liabilities; such
allocation will vary from the allocations in the following pro forma financial
data based on various factors, including appraisals of the operating assets and
liabilities of DCA, the identification and valuation of intangible assets and
the final determination of the amount of goodwill. In addition, following the
Effective Time, CTS will finally determine the purchase price for purposes of
accounting for the Combination. The purchase price as finally determined will
vary from the amounts assumed in the following pro forma financial data based on
the actual transaction costs.
For a discussion of the specific adjustments reflected in the following pro
forma financial data, see "Pro Forma Financial Data" elsewhere in this Joint
Proxy Statement/Prospectus. The following pro forma financial data is presented
for informational purposes only and is not necessarily indicative of CTS'
operating results or financial position that would have occurred had the
Combination and other transactions described herein been consummated at the
dates indicated, nor is it necessarily indicative of the future operating
results or financial position of CTS following the Combination. The unaudited
pro forma condensed consolidated financial data should be read in conjunction
with the consolidated financial statements of each of CTS and DCA and the
related notes thereto contained in the DCA 10-K and the DCA 10-Q, each of which
are incorporated herein by reference and may be obtained in the manner described
in "Available Information" and in the CTS 10-Q and the CTS 10-K, which are
attached hereto as Annex E. See "Pro Forma Financial Data" and "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 29, 1997 DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE DATA)
PRO FORMA INCOME STATEMENT DATA:
Net sales............................................ $ 265.0 $ 450.5
Earnings before taxes................................ 22.4 29.8
Net earnings......................................... 13.7 18.8
PRO FORMA CTS SHARE DATA:
Net earnings applicable to CTS Shares................ $ 2.59 $ 3.57
Net earnings applicable to CTS Shares assuming Stock
Split.............................................. 1.30 1.78
</TABLE>
<TABLE>
<CAPTION>
AT
JUNE 29, 1997
-------------------
<S> <C> <C>
(IN MILLIONS)
PRO FORMA BALANCE SHEET DATA
Total current assets................................. $ 200.7
Net property, plant and equipment.................... 65.6
Total assets......................................... 339.5
Total liabilities.................................... 195.0
Total shareholders' equity........................... 144.5
</TABLE>
15
<PAGE>
COMPARATIVE STOCK PRICES
CTS Shares and DCA Shares are listed on the NYSE under the symbols "CTS" and
"DYA," respectively. The following table sets forth the high and low sale prices
per CTS Share and DCA Share as reported in the NYSE Composite Transactions
Report and certain other information for the periods indicated.
<TABLE>
<CAPTION>
CTS SHARES DCA SHARES
------------------------- -------------------------
CASH CASH
CALENDAR QUARTER HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- -------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter..... $32 $27 3/8 $.15 $26 3/4 $19 1/2 $.10
Second Quarter.... 33 1/2 29 1/4 .15 24 3/4 22 1/4 -0-
Third Quarter..... 34 1/2 29 15/16 .15 24 5/8 22 1/2 .10
Fourth Quarter.... 37 3/4 29 5/8 .15 25 7/8 21 5/8 -0-
1996
First Quarter..... 38 5/8 36 .15 24 7/8 22 1/8 .10
Second Quarter.... 47 37 3/8 .15 27 7/8 23 1/4 -0-
Third Quarter..... 47 40 1/2 .18 29 1/8 25 .10
Fourth Quarter.... 43 38 1/8 .18 29 1/4 27 7/8 -0-
1997
First Quarter..... 51 40 3/4 .18 38 1/4 26 3/8 .10
Second Quarter.... 70 1/4 51 3/8 .18 62 1/4 37 3/4 -0-
Third Quarter
(through August
29, 1997)......... 86 68 9/16 .18 75 61 .10
</TABLE>
On May 9, 1997, the last full trading day before the public announcement of
the Combination, the reported closing prices of CTS Shares and DCA Shares, as
reported in the NYSE Composite Transactions Report, were $61 3/4 per share and
$44 3/8 per share, respectively. The pro forma equivalent value of DCA Shares on
May 9, 1997 was $54.34 per share. The pro forma equivalent value of DCA Shares
on any date equals the closing sale price of CTS Common Stock on such date, as
reported on the NYSE Composite Transactions Report, multiplied by the Exchange
Ratio. On August 29, 1997, the last trading day before the date of this Joint
Proxy Statement/Prospectus, the closing prices of CTS Shares and DCA Shares, as
reported in the NYSE Composite Transactions Report, were $81.00 per share and
$71.00 per share (pro forma equivalent value per DCA Share of $71.28 per share),
respectively.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE CTS
SHARES AND DCA SHARES. No assurance can be given as to the market price of CTS
Shares or DCA Shares as of or following the Effective Time; the market value of
the CTS Shares that holders of DCA Shares receive in the Merger or that CTS
Shareholders hold following the Merger may vary significantly from the prices
shown above.
The Exchange Ratio and the amount of the Cash Consideration per DCA Share
are fixed and neither CTS nor DCA has the right to terminate the Merger
Agreement based on changes in the market price of either party's stock. See
"Risk Factors."
16
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical, pro forma and pro forma
equivalent per share financial information for the six months ended June 29,
1997 and for the year ended December 31, 1996 relating to CTS Shares and DCA
Shares. The information presented herein should be read in conjunction with the
pro forma financial information, including the notes thereto, appearing
elsewhere in this Joint Proxy Statement/Prospectus and the historical
consolidated financial statements of CTS and DCA, including the notes thereto.
See "Available Information," "Incorporation of Certain Documents by Reference,"
"Pro Forma Financial Data" and Annex E.
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR
SIX MONTHS ENDED THE YEAR ENDED
JUNE 29, 1997(1) DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
CTS SHARES(2):
Net earnings:
Historical........................................................ $ 2.92 $ 4.03
Pro forma......................................................... 2.59 3.57
Cash dividends per CTS Share:
Historical........................................................ 0.36 0.69
Pro forma......................................................... 0.36 0.69
Book value per CTS Share at period end:
Historical........................................................ 34.29 31.82
Pro forma......................................................... 27.61 24.42
DCA SHARES(3):
Net income:
Historical before equity earnings from CTS........................ (.48) 0.02
Historical........................................................ 1.05 2.78
Pro forma equivalent.............................................. 2.28 3.14
Cash dividends per DCA Share:
Historical........................................................ 0.10 0.20
Pro forma equivalent.............................................. 0.32 0.61
Book value per DCA Share at period end:
Historical........................................................ 30.94 30.19
Pro forma equivalent.............................................. 24.30 21.49
</TABLE>
- ------------------------
(1) DCA's first half ends on June 30 each year.
(2) The pro forma data has been calculated assuming that the Combination
occurred as of the beginning of each period presented using an 0.88 Exchange
Ratio of CTS Shares for DCA Shares and the methodologies and assumptions
described in "Pro Forma Financial Data" and does not give effect to the
Stock Split.
(3) Pro forma equivalent data in respect of the DCA Shares has been calculated
by multiplying the CTS pro forma amounts by the 0.88 Exchange Ratio.
17
<PAGE>
RISK FACTORS
The risk factors discussed below should be considered (i) by DCA
Shareholders, in evaluating whether to vote for the adoption of the Merger
Agreement and whether to elect to receive cash or CTS Shares, and (ii) by CTS
Shareholders, in evaluating whether to vote for the CTS Merger Proposal.
RISKS OF ACHIEVEMENT OF SYNERGIES AND INTEGRATION OF OPERATIONS
Management of CTS believes that it will be able to achieve at least $2.0
million in after-tax cost savings and other synergistic benefits as a result of
combining CTS and DCA in the Merger. However, there can be no assurance that
such benefits will be realized. Regardless of the level of savings actually
realized, the level of savings in 1997 would be affected by transaction costs,
presently expected to aggregate approximately $14.0 million for CTS and DCA. The
consolidation of functions, the integration of operations, systems, marketing
methods and procedures and the relocation of staff present significant
management challenges. There can be no assurance that such actions will be
accomplished successfully or as rapidly as currently expected, or that CTS will
not experience the loss of important personnel.
RISK OF FIXED EXCHANGE RATIO AND FIXED CASH CONSIDERATION
The Exchange Ratio is expressed in the Merger Agreement as a fixed ratio and
the $58.00 per DCA Share amount of the Cash Consideration available to DCA
Shareholders under the Cash Election Option is also a fixed sum. Accordingly,
neither the Exchange Ratio nor the amount of Cash Consideration per DCA Share
will be adjusted in the event of any increase or decrease in the price of either
CTS Shares or DCA Shares. The price of either CTS Shares or DCA Shares at the
Effective Time may vary significantly from their prices at the date of this
Joint Proxy Statement/Prospectus and at the dates of their respective
Shareholders Meetings. Such variations may be the result of changes in the
business, operations or prospects of CTS or DCA, market assessments of the
likelihood that the Merger will be consummated and the timing thereof,
regulatory considerations, general market and economic conditions and other
factors. Because the Effective Time may occur at a date later than the
respective Shareholders Meetings, there can be no assurance that the price of
either CTS Shares or DCA Shares on the date of their respective Shareholders
Meetings will be indicative of their prices at the Effective Time. Accordingly,
the market value of CTS Shares that holders of DCA Shares will receive in the
Merger and the amount of the Cash Consideration per DCA Share may vary
significantly from the market values of CTS Shares and DCA Shares as of the date
of this Joint Proxy Statement/Prospectus. The Effective Time will occur as soon
as practicable following the respective Shareholders Meetings and the
satisfaction or waiver of the conditions set forth in the Merger Agreement.
Shareholders of CTS and DCA are urged to obtain current market quotations for
CTS Shares and DCA Shares.
RISK OF RELIANCE ON MAJOR CUSTOMERS
CTS' 15 largest customers represented about 62%, 61% and 62% of CTS' net
sales in 1996, 1995 and 1994, respectively. Sales to General Motors Corporation
("GM") represented more than 10% of CTS' net sales in each of the last three
years (ranging from 15% to 18% of net sales over such period). The loss of, or
reduction in, orders from GM could have a material adverse effect on CTS.
RISK OF INTERNATIONAL OPERATIONS
Approximately 40% of CTS' net sales in 1996 to unaffiliated customers, after
eliminations, were attributable to non-U.S. operations and approximately 33% of
total CTS assets, after eliminations, were non-U.S. A substantial portion of
these assets cannot readily be expatriated to the U.S. CTS' non-U.S. business is
subject to the business risks inherent in non-U.S. operations, including the
risks of expropriation, currency controls and changes in currency exchange rates
and government regulations.
18
<PAGE>
RISK OF SUBSTANTIAL LEVERAGE
CTS financed a substantial portion of the Offer by borrowings under a new
credit facility. See "Other Information Regarding CTS -- Credit Facilities." On
a pro forma basis giving effect to the Combination and assuming that no DCA
Shareholders elect to receive the Cash Consideration, CTS' total long-term debt,
including the current portion thereof, would be $70.8 million, its total
shareholders equity would be $144.5 million and its pro forma fixed charges
coverage ratio (earnings before interest, taxes, depreciation and amortization
as compared to interest on long-term debt, capital lease expense and the portion
of rental expense deemed attributable to interest ("Coverage Ratio")) was 12.9x
and 9.1x for the six and 12 months ending June 29, 1997 and December 31, 1996,
respectively. See "Pro Forma Financial Data." CTS' total pro forma long-term
debt would increase by $40.7 million if the maximum amount of Cash Consideration
was paid under the Cash Election Option, its total shareholders' equity would
decrease by a like amount and its coverage ratio would be 8.7x and 6.2x,
respectively, for the six and 12 months ended June 29, 1997 and December 31,
1996. Neither CTS nor DCA has historically had substantial long-term debt. CTS'
long-term debt resulting from the Offer and the Cash Election Option, if any,
will affect CTS' future results of operations in that, among other things,
substantially all of such indebtedness bears interest at variable rates. In
addition, the covenants applicable to CTS under the terms of such indebtedness
may restrict CTS' flexibility. See "Other Information Regarding CTS -- Credit
Facilities."
Based upon the current level of operations and anticipated cost savings, CTS
believes that, after the Merger, its cash flow from operations, together with
borrowings under the New Credit Facility and its other sources of liquidity,
will be adequate to meet its anticipated requirements for working capital,
capital expenditures, interest payments, dividends and scheduled principal
payments over the next several years. There can be no assurance, however, that
CTS' business will continue to generate cash flow at or above current levels or
that anticipated cost savings can be fully achieved. If CTS is unable to
generate sufficient cash flow from operations in the future to service its debt
and make necessary capital expenditures, or if its future earnings growth is
insufficient to amortize required principal payments out of internally generated
funds, CTS may be required to restrict or terminate the payment of dividends to
stockholders, refinance all or a portion of its existing debt, sell assets or
obtain additional financing. There can be no assurance that any such refinancing
or asset sales would be possible or that any additional financing could be
obtained.
ANTITAKEOVER MATTERS
CTS is an Indiana corporation and various provisions of Indiana law could
have the effect of impeding or restricting a takeover bid or other
change-in-control event affecting CTS. See "Comparison of Shareholder Rights."
In addition, the additional authorized capital stock that would be available to
CTS if the CTS Charter Amendments are approved could have antitakeover effects.
See "The Merger -- The CTS Charter Amendments."
19
<PAGE>
THE SHAREHOLDERS MEETINGS
DATE, TIME AND PLACE
CTS. The CTS Shareholders Meeting will be held at CTS' corporate
headquarters, 905 West Boulevard North, Elkhart, Indiana, at 9:00 a.m., local
time, on October 16, 1997.
DCA. The DCA Shareholders Meeting will be held at the Greenwich Library,
West Putnam Avenue at Deerfield Drive, Greenwich, Connecticut, at 10:30 a.m.
local time on October 16, 1997. DCA originally scheduled its 1997 annual
shareholders meeting for May 2, 1997 and sent to DCA Shareholders proxy
materials relating thereto. That meeting was postponed to October 16, 1997 in
order to permit DCA Shareholders to consider the Merger and other matters
described in this Joint Proxy Statement/Prospectus, which supersedes the prior
proxy materials in their entirety.
MATTERS TO BE CONSIDERED AT THE SHAREHOLDERS MEETINGS
CTS. At the CTS Shareholders Meeting, the CTS Shareholders are being asked
to consider and to vote on the CTS Merger Proposal. CTS cannot complete the
Merger unless the Charter Amendments are approved, and the Charter Amendments
will not become effective unless the Effective Time occurs. Accordingly, the
approval of the issuance of the CTS Shares in the Merger and the Charter
Amendments are being presented at the CTS Shareholders Meeting as a single
proposal. In addition, at the CTS Shareholders Meeting, the CTS Shareholders are
being asked to consider and to vote on a proposal to approve the grant of
Options to certain executive officers of CTS and DCA. The proposals are
presented to CTS Shareholders as separate proposals and the CTS Merger Proposal
is not contingent on the outcome of CTS Shareholder votes thereon. THE CTS BOARD
HAS CAREFULLY REVIEWED AND UNANIMOUSLY DETERMINED THAT THE ISSUANCE OF THE CTS
SHARES IN THE MERGER, THE CTS CHARTER AMENDMENTS AND THE GRANT OF THE OPTIONS AS
DESCRIBED HEREIN ARE FAIR TO AND IN THE BEST INTERESTS OF CTS AND THE CTS
SHAREHOLDERS AND HAS APPROVED SUCH PROPOSALS AND RECOMMENDS THAT THE CTS
SHAREHOLDERS VOTE "FOR" APPROVAL OF SUCH PROPOSALS. FOR A DISCUSSION OF THE
INTERESTS THAT CERTAIN MEMBERS OF CTS MANAGEMENT AND THE CTS BOARD MAY HAVE IN
THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, SEE "THE
MERGER--INTERESTS OF CERTAIN PERSONS IN THE MERGER."
DCA. At the DCA Shareholders Meeting, the DCA Shareholders are being asked
to consider and vote upon proposals to adopt the Merger Agreement, to approve
the election of six directors to the DCA Board (four in the class of directors
whose term expires in 2000, one in the class of directors whose term expires in
1998 and one in the class of directors whose term expires in 1999) and the
ratification of the appointment of Ernst & Young as DCA's independent auditors
for 1997. PRIOR TO THE COMMENCEMENT OF THE OFFER, THE DCA BOARD CAREFULLY
REVIEWED AND UNANIMOUSLY DETERMINED THAT THE ORIGINAL MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE ORIGINAL MERGER, WERE FAIR TO
AND IN THE BEST INTERESTS OF DCA AND THE DCA SHAREHOLDERS, AND APPROVED THE
MERGER AGREEMENT. THE DCA BOARD (WITH CTS' DESIGNEES THERETO ABSTAINING) HAS
ALSO DETERMINED THAT THE AMENDED MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER, ARE FAIR TO AND IN THE BEST
INTERESTS OF DCA AND DCA SHAREHOLDERS, AND APPROVED THE AMENDED MERGER
AGREEMENT. ACCORDINGLY, THE DCA BOARD (WITH CTS' DESIGNEES THERETO ABSTAINING)
RECOMMENDS THAT THE DCA SHAREHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT
(BUT MAKES NO RECOMMENDATION AS TO WHETHER DCA SHAREHOLDERS SHOULD ELECT TO
RECEIVE CASH OR CTS SHARES IN THE MERGER) AND "FOR" THE ELECTION OF THE
DIRECTORS NOMINATED BY THE DCA BOARD AND THE RATIFICATION OF THE APPOINTMENT OF
THE INDEPENDENT AUDITORS AS DESCRIBED HEREIN.
Sub's board of directors will continue to be the board of directors of Sub
as the surviving corporation in the Merger, except that it is expected that,
following the Effective Time, such board will include representatives of DCA.
See "The Merger -- Interests of Certain Persons in the Merger - Board
Representation." It is also anticipated that CTS' independent accountants will
also be the independent accountants for Sub as the surviving corporation in the
Merger. For a discussion of the interests that
20
<PAGE>
certain members of DCA management and the DCA Board may have in the transactions
contemplated by the Merger Agreement, see "The Merger--Interests of Certain
Persons in the Merger."
QUORUM
CTS. A majority of the CTS Shares issued and outstanding and entitled to
vote on the CTS Record Date must be represented in person or by proxy at the CTS
Shareholders Meeting in order for a quorum to be present for purposes of voting
on the adoption of the proposals described above to be considered at the CTS
Shareholders Meeting. In the event that a quorum is not present at the CTS
Shareholders Meeting, it is expected that the meeting will be adjourned or
postponed to solicit additional proxies. CTS Shareholders of record on the CTS
Record Date are each entitled to one vote per share on each matter to be voted
on at the CTS Shareholders Meeting (except for 1,020,000 of the DCA-Owned CTS
Shares, which are not entitled to vote). As of the CTS Record Date, DCA
beneficially owned 2,303,100 CTS Shares, which represents 43.9% of the issued
and outstanding CTS Shares and 30.3% of the CTS Shares having voting rights. DCA
agreed in the Merger Agreement to cause all DCA-Owned CTS Shares to be present
for purposes of aiding in assuring a quorum at the CTS Shareholders Meeting.
However, only the DCA-Owned Voting CTS Shares will be counted for purposes of
determining the presence of a quorum. A quorum will be present at the CTS
Shareholders Meeting if holders of only 15.9% of the outstanding CTS Shares not
owned by DCA are present in person or represented by proxy at the CTS
Shareholders Meeting. Abstentions and broker non-votes each will be included in
determining the number of shares present for purposes of determining the
presence of a quorum.
DCA. Holders of a majority of the DCA Shares issued and outstanding and
entitled to vote on the DCA Record Date must be present in person or represented
by proxy at the DCA Shareholders Meeting in order for a quorum to be present for
purposes of voting on the adoption of the Merger Agreement and the other matters
expected to be considered at the DCA Shareholders Meeting. In the event that a
quorum is not present at the DCA Shareholders Meeting, it is expected that such
meeting will be adjourned or postponed to solicit additional proxies. DCA
Shareholders of record on the DCA Record Date are each entitled to one vote per
share on each matter to be considered at the DCA Shareholders Meeting (except
for 3,480 DCA Shares which are non-voting). As of the date hereof, CTS
beneficially owns 1,215,264 DCA Shares. CTS and Sub agreed in the Merger
Agreement and WHX (which beneficially owns 516,440 DCA Shares) agreed in the
Shareholders Agreement to cause all DCA Shares beneficially owned by them to be
present for purposes of aiding in assuring a quorum at the DCA Shareholders
Meeting. In addition, DCA officers and directors owning 274,295 DCA Shares are
expected to be present in person or represented by proxy at the DCA Shareholders
Meeting. Accordingly, a quorum is expected to be present at the DCA Shareholders
Meeting.
VOTES REQUIRED
CTS. The Merger Proposal must be approved by a CTS Plurality Vote. If the
CTS Shareholders do not so vote, the CTS Charter Amendment will not be adopted
and the Merger will not be consummated. CTS Shareholder approval of the grant of
the Options requires a CTS Plurality Vote.
Only CTS Shareholders of record at the close of business on the CTS Record
Date are entitled to receive notice of and to vote at the CTS Shareholders
Meeting. On the CTS Record Date, 5,249,589 CTS Shares were issued and
outstanding and held by approximately 927 CTS Shareholders of record; 4,229,589
of such CTS Shares are entitled to be voted at the CTS Shareholders Meeting.
At the CTS Record Date, DCA owned 2,303,100 shares (1,020,000 of which are
non-voting). It is expected that all of the voting CTS Shares beneficially owned
by DCA will be voted for the approval of the CTS Merger Proposal and the grant
of the Options.
DCA. Under the NYBCL, the adoption of the Merger Agreement requires a DCA
Two-Thirds Vote. The approval of the election of the director nominees to the
DCA Board and the ratification of Ernst &
21
<PAGE>
Young as DCA's independent auditors for 1997 requires a DCA Plurality Vote.
Sub's board of directors will continue to be the directors of Sub as the
surviving corporation in the Merger and it is anticipated that CTS' independent
accountants will be the independent accountants for Sub as the surviving
corporation in the Merger.
Only DCA Shareholders of record at the close of business on the DCA Record
Date are entitled to notice of and to vote at the DCA Shareholders Meeting. As
of the DCA Record Date, 3,837,600 DCA Shares were issued and outstanding and
held by approximately 2,835 DCA Shareholders of record.
As of the DCA Record Date, CTS beneficially owned 1,215,264 DCA Shares. DCA
Shares beneficially owned by CTS and Sub will be voted for the adoption of the
Merger Agreement and it is expected that such DCA Shares will be voted for the
approval of the election of the director nominees to the DCA Board and the
ratification of the appointment of Ernst & Young as DCA's independent auditors
for 1997. In addition, pursuant to the Shareholders Agreement, WHX has agreed to
vote the 13.5% of the DCA Shares it beneficially owns and DCA directors and
officers intend to vote the approximately 7.1% of the DCA Shares they
beneficially own in favor of adoption of the Merger Agreement. See "Shareholders
Agreement."
VOTING OF PROXIES
Shares represented by all properly executed proxies received in time for the
Shareholders Meetings will be voted at such Shareholders Meetings in the manner
specified by the holders thereof. With respect to proxies to vote CTS Shares,
properly executed proxies that do not contain voting instructions will be voted
for the approval of (i) the CTS Merger Proposal, and (ii) the grant of Options.
With respect to proxies to vote DCA Shares, properly executed proxies that do
not contain voting instructions will be voted in favor of adoption of the Merger
Agreement, the election of the directors nominated by the DCA Board and the
ratification of the appointment of the independent auditors.
CTS Shares or DCA Shares represented at the applicable Shareholders Meeting
but not voting, including CTS Shares or DCA Shares, as the case may be, for
which proxies have been received, but with respect to which holders of shares
have abstained on any matter, will be treated as present at the applicable
Shareholders Meeting for purposes of determining the presence or absence of a
quorum for the transaction of all business.
For voting purposes at the Shareholders Meetings, only shares affirmatively
voted in favor of a proposal (including properly executed proxies not containing
voting instructions) will be counted as favorable votes for such proposal. With
respect to the proposal to adopt the Merger Agreement, the failure of DCA
Shareholders to submit a proxy (or to vote in person) or the abstention from
voting will have the same effect as a vote against such proposal. In addition,
under the applicable rules of the NYSE, brokers who hold shares in street name
for customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote such customers' shares with respect to the proposal to
adopt the Merger Agreement in the absence of specific instructions from such
customers ("broker nonvotes"). Accordingly, with respect to the proposal to
adopt the Merger Agreement, broker nonvotes will also have the same effect as
votes against such proposal.
The persons named as proxies by a CTS or DCA Shareholder may, as the case
may be, propose and vote for one or more adjournments or postponements of the
applicable Shareholders Meeting, including adjournments to permit further
solicitations of proxies in favor of any proposal. However, no proxy that is
voted against the proposal to adopt the Merger Agreement will be voted in favor
of any such adjournment or postponement.
22
<PAGE>
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed CTS or DCA form of proxy does not
preclude a shareholder from voting in person. A shareholder may revoke a proxy
at any time prior to its exercise by filing with the Secretary of CTS (in the
case of a CTS Shareholder) or the Secretary of DCA (in the case of a DCA
Shareholder) a duly executed revocation of proxy, by submitting a duly executed
proxy bearing a later date or by appearing at the applicable Shareholders
Meeting and voting in person at such Shareholders Meeting. Attendance at the
applicable Shareholders Meeting will not, in and of itself, constitute
revocation of a proxy.
SOLICITATION OF PROXIES
Each of CTS and DCA will bear the cost of the solicitation of proxies from
its own shareholders, except that CTS and DCA will share equally the cost of
printing this Joint Proxy Statement/Prospectus and the applicable fees
associated with the filing of this Joint Proxy Statement/Prospectus with the
Commission. In addition to solicitation by mail, the directors, officers and
employees of CTS and DCA and their respective subsidiaries may solicit proxies
from shareholders of such company by telephone or telegram or in person.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of stock held of record by such persons, and CTS and DCA will
reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection therewith.
MacKenzie Partners and Morrow & Co. will assist in the solicitation of
proxies by CTS and DCA, respectively. Such firms will receive customary fees for
their services.
DCA SHAREHOLDERS SHOULD NOT SEND THEIR DCA SHARE CERTIFICATES IN WITH THEIR
PROXY CARDS. DCA SHAREHOLDERS ELECTING TO RECEIVE THE CASH CONSIDERATION WILL BE
REQUIRED TO SEND THEIR DCA SHARE CERTIFICATES OR A NOTICE OF GUARANTEED DELIVERY
WITH THE FORM OF ELECTION/LETTER OF TRANSMITTAL, WHICH WILL BE MAILED TO DCA
SHAREHOLDERS AS SOON AS PRACTICABLE AFTER THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. SEE "THE MERGER--PROCEDURES FOR CASH ELECTION."
23
<PAGE>
THE MERGER
GENERAL
This section of the Joint Proxy Statement/Prospectus contains certain
information relevant to the proposed Merger and the Merger Agreement. Certain
technical terms of the Merger Agreement are described in "Other Terms of the
Merger and the Merger Agreement." While all material terms of the Merger and the
Merger Agreement are described herein, the description of the Merger and the
Merger Agreement contained in this Joint Proxy Statement/Prospectus does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the Merger Agreement, a copy of which is attached hereto as
Annex A and which is incorporated herein by reference. DCA Shareholders and CTS
Shareholders are urged to read the Merger Agreement carefully and in its
entirety.
THE OFFER
The Merger Agreement contemplated the commencement of the Offer and
prescribed the conditions to the consummation of the Offer. Pursuant to the
Offer, Sub purchased 1,164,339 DCA Shares, or 30.3% of the outstanding DCA
Shares (together with the associated DCA share purchase rights), at the price of
$56.25 net per DCA Share in cash. The Offer was completed on June 16, 1997.
STRUCTURE OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the NYBCL, DCA will merge with and into Sub at the Effective
Time. Sub will be the surviving corporation in the Merger and will be a wholly
owned subsidiary of CTS. In addition, at the Effective Time, the CTS Charter
will be amended to, among other things, (i) increase the authorized capital of
CTS from 8.0 million CTS Shares to 75.0 million CTS Shares and 25.0 million
preferred shares (the terms of which will be established from time to time by
the CTS Board in connection with the issuance thereof), (ii) increase the
maximum and minimum size of the CTS Board to 15 and three, respectively, with
the exact size to be determined by the CTS Board, and (iii) expand the required
director and officer indemnification to the extent allowed by law and to provide
procedures for the resolution of disputes over compliance with applicable
standards of care.
MERGER CONSIDERATION
As of the Effective Time, by virtue of the Merger and without any action on
the part of any DCA Shareholder, each DCA Share issued and outstanding prior to
the Effective Time (other than DCA Shares owned by DCA, CTS or any of their
wholly owned subsidiaries or DCA Shares as to which Dissenters' Rights have been
exercised), will be converted into the right to receive, at the holder's
election, $58.00 in cash or 0.88 fully paid and nonassessable CTS Shares (the
"Stock Consideration" and, together with the Cash Consideration, the "Merger
Consideration")(except that cash will be paid in lieu of fractional shares as
described under "Other Terms of the Merger and the Merger Agreement --
Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares"). The Cash Consideration will be prorated to the extent that the total
number of DCA Shares for which cash elections are made exceeds 49.9% of the
outstanding DCA Shares less the DCA Shares owned by CTS immediately prior to the
Effective Time. At the date of the printing of this Joint Proxy
Statement/Prospectus, holders of approximately 18.2% of the outstanding DCA
common shares would be eligible to receive cash in the Merger. As of the
Effective Time, all DCA Shares will no longer be outstanding, will automatically
be cancelled and retired and will cease to exist, and each holder of a
certificate formerly representing any DCA Shares (a "DCA Share Certificate")
will cease to have any rights in respect thereto except the right to receive the
Merger Consideration and any cash in lieu of fractional shares and, if
applicable, Dissenters' Rights. Any DCA Shares owned immediately prior to the
Effective Time by DCA, CTS or any of their wholly owned subsidiaries will be
cancelled. In connection with, and subject to completion of, the Merger, CTS
declared a Stock Split in the form of a 1:1 stock dividend payable to CTS
Shareholders of record on October 24, 1997. The record date therefor will be
postponed if the Effective Time has not occurred prior to October
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24, 1997. See "Other Terms of the Merger and the Merger Agreement -- Conversion
of Shares; Procedures for Exchange of Certificates; Fractional Shares."
EFFECTIVE TIME
The Effective Time will be the time of the filing of a Certificate of Merger
with the Secretary of State of the State of New York or such later time as is
agreed upon by CTS and DCA and specified in such Certificate of Merger. The
filing of the Certificate of Merger will occur as soon as practicable on or
after the Closing Date. The Closing Date will be no later than the second
business day after satisfaction or waiver of the conditions to the consummation
of the Merger unless another date is agreed to in writing by DCA and CTS. See
"Other Terms of the Merger and the Merger Agreement -- Conditions to the
Consummation of the Merger."
BACKGROUND OF THE MERGER
On March 27, 1997, WHX sent a letter to DCA proposing to acquire DCA in a
merger in which all of the outstanding DCA Shares would be converted into the
right to receive $40 per share in cash (the "WHX Merger Proposal"). In its March
27, 1997 letter, WHX stated it had no interest in increasing the equity stake
which DCA holds in CTS, or in changing the nature of the current relationship
between DCA and CTS. WHX also stated that it would be prepared to increase its
offer to DCA if additional information demonstrated that a higher price was
warranted, and asked DCA to respond by the close of business on the next day
(which was Good Friday). Later that day, Mr. Lozyniak advised WHX that he would
not be able to review the WHX Merger Proposal with the DCA Board until the
following week and would communicate further with WHX promptly thereafter.
On March 31, 1997, WHX announced an offer to purchase up to 649,000 DCA
Shares, subject to downward adjustment, at a price of $40 per share in cash (the
"Initial WHX Tender Offer"). WHX also filed preliminary proxy materials with the
Commission on March 31, 1997 relating to the solicitation of proxies by WHX for
use at the DCA Shareholders Meeting to (i) elect four WHX nominees to the DCA
Board, (ii) adopt changes to DCA's By-laws to (a) permit holders of at least
9.9% of the outstanding DCA Shares to call a special meeting of shareholders and
(b) permit the removal of directors at any time with or without cause, and (iii)
repeal any By-law changes adopted by the DCA Board after March 14, 1997 and
prior to the adoption of such resolution.
To obtain advice and assistance in considering the WHX Merger Proposal and
the Initial WHX Tender Offer or an alternative business combination, DCA engaged
WP&Co. as its financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP
("Skadden Arps") as its outside counsel.
On April 5, 1997, Joseph P. Walker, on behalf of CTS, and Andrew Lozyniak,
on behalf of DCA, met to discuss a possible business transaction. Mr. Walker
indicated a price range of $45.00 per DCA Share, payable in CTS Shares and cash,
for such a transaction. Mr. Lozyniak indicated in this meeting that he would be
willing to instruct DCA's advisors to pursue further discussions of a possible
transaction, but did not respond to Mr. Walker's price indication.
To obtain advice and assistance in considering possible strategic benefits
that could result from a business combination and the issues that would be
required to be considered if such a transaction were to be pursued, CTS engaged
J.P. Morgan as CTS' financial advisor pursuant to an engagement letter dated
April 9, 1997, Sommer & Barnard as counsel in respect to matters of Indiana law
and possible litigation and Jones, Day, Reavis & Pogue ("Jones Day") as
transactional counsel. From April 16, 1997 through April 25, 1997,
representatives of J.P. Morgan met on various occasions with certain members of
senior management of DCA and representatives of WP&Co. to discuss certain
aspects of the business, operations and prospects of DCA. In connection
therewith, representatives of DCA furnished J.P. Morgan certain DCA projections.
On April 9, 1997, WHX amended the Initial WHX Tender Offer (as amended, the
"Second WHX Tender Offer"), among other things, to increase the tender offer
price and WHX Merger Proposal price to
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$45 per DCA Share. In an effort to move forward from the discussions conducted
at the April 5, 1997 meeting, representatives of CTS delivered to
representatives of DCA a draft merger agreement on April 9, 1997. In response,
representatives of DCA informed representatives of CTS that, while DCA was not
prepared at that time to commence negotiations of the detailed terms of a
business combination transaction, the proposed draft merger agreement was
unacceptable, particularly provisions therein requiring DCA to grant to CTS an
option on the CTS Shares beneficially owned by DCA, a ten-year standstill that
would operate regardless of whether the transaction closed and a fiduciary-out
provision that was limited to superior acquisition proposals meeting specified
criteria.
On April 9 and April 11, 1997, the DCA Board met to discuss the Second WHX
Tender Offer and possible actions to be taken by DCA. At the April 11, 1997
meeting, the DCA Board unanimously rejected the Second WHX Tender Offer as
inadequate and not in the best interests of the DCA Shareholders and unanimously
recommended that DCA Shareholders reject the Second WHX Tender Offer and not
tender their shares pursuant thereto. In reaching its determination to reject
the Second WHX Tender Offer, the DCA Board considered a number of factors,
including the opinion of WP&Co. to the effect that, based upon and subject to
the matters reviewed with the DCA Board, the $45 per share cash consideration
offered to holders of DCA Shares pursuant to the Second WHX Tender Offer was
inadequate from a financial point of view to such holders. DCA did not respond
to CTS' $45 price indication, as communicated to Mr. Lozyniak by Mr. Walker at
their April 5, 1997 meeting, but unanimously determined to reject the Second WHX
Tender Offer because DCA was required by the federal securities laws to disclose
a position to DCA Shareholders with respect to the Second WHX Tender Offer but
was not under a similar obligation with respect to CTS' preliminary price
indication.
At the April 11, 1997 meeting, the DCA Board also determined to explore
alternative transactions to maximize DCA Shareholder value, including a possible
business combination with CTS. DCA's management and advisors believed that value
could best be maximized by exploring third party alternatives prior to holding
discussions with WHX in order to strengthen DCA's bargaining position with WHX.
As a result of discussions between CTS and DCA, CTS thereafter made a proposal,
which included both cash and CTS stock, that was much more attractive than the
WHX offer and, in connection with its proposal, CTS required that DCA negotiate
exclusively with CTS. Therefore, the DCA Board did not communicate with WHX due
to (i) the fact that there could be no assurance that DCA and WHX could agree as
to the final terms of a merger agreement, (ii) WP&Co.'s opinion as to the
fairness of the consideration provided for in the Merger Agreement, and (iii)
the DCA Board's belief that the break-up fee and other features of the Merger
Agreement would not deter a more attractive offer from WHX or any other third
party to acquire DCA.
At the April 11, 1997 meeting, the DCA Board also (i) postponed the DCA
Shareholders Meeting to August 1, 1997, (ii) added two directors to the DCA
Board (resulting in the DCA Board being divided into three, rather than two,
classes), (iii) amended DCA's By-laws to (a) eliminate the DCA Shareholders'
ability to remove directors without cause, (b) raise to two-thirds the
percentage of DCA Shares needed to call a special meeting of shareholders, (c)
add advance notice provisions for DCA Shareholders to nominate persons for
election to the DCA Board or to propose business at annual or special DCA
Shareholders' meetings, and (d) remove an inconsistent, and ineffective,
provision purporting to allow the holders of a majority of the DCA Shares to
amend DCA's By-laws (DCA's Restated Certificate of Incorporation, as amended
(the "DCA Charter"), which controls over the By-laws, provides for an 80% vote
to amend DCA's By-laws), and (iv) approved certain employee benefits matters. As
a result of these actions, it will take at least two annual meetings to replace
a majority of the DCA Board. As discussed below, WHX has challenged the validity
of certain of these actions in litigation.
At an April 11, 1997 meeting, the CTS Board considered, on a preliminary
basis, alternatives that may be available to it in the circumstances (Messrs.
Lozyniak and Dorme having excused themselves from such discussion), including
the matters discussed in the meeting between Messrs. Walker and Lozyniak at
their April 5, 1997 meeting.
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On April 14, 1997, DCA commenced litigation against WHX in Federal District
Court in Connecticut (the "Connecticut Court") alleging, among other things,
violations of the federal securities laws. On April 17, 1997, WHX filed a
counterclaim in the action pending in the Connecticut Court seeking a
declaratory judgment that Article XV of the DCA Charter is invalid and
unenforceable. Article XV provides, in general, that 80% of the outstanding
voting stock of DCA is required to approve a merger of DCA with another person
if the other person is the "beneficial owner" of 5% or more of the outstanding
voting stock of DCA unless the DCA Board approves such a merger before the
acquisition of such ownership. The NYBCL only requires a two-thirds approval by
shareholders.
Subsequently, WHX amended its counterclaim, among other things, to challenge
certain actions taken by the DCA Board at its April 11, 1997 meeting. In
particular, WHX alleged that (i) increasing the number of directors from seven
to nine and the number of classes of directors from two to three, which also had
the effect of lengthening the term of certain directors, violated the DCA
Charter and/or the NYBCL or was otherwise illegal because it impeded shareholder
voting rights and entrenched management, (ii) failure to redeem the DCA Rights
Plan to make it inapplicable to the WHX Tender Offer violated the DCA Board's
fiduciary duties under New York law and (iii) postponement of the DCA
Shareholders Meeting to August 1, 1997, violated the NYBCL.
On April 14, 1997, DCA and CTS signed a confidentiality agreement providing
that, subject to the terms of the agreement, each company would keep
confidential certain non-public information furnished by the other. Starting
April 16, 1997, representatives of DCA, including representatives of WP&Co. and
financial and operational executives of DCA, commenced discussions with
representatives of CTS, including representatives of J.P. Morgan, concerning the
operations of DCA and areas of potential synergy between DCA and CTS.
On April 16, 1997, Mr. Walker, Mr. Lozyniak and representatives of J.P.
Morgan, WP&Co., Jones Day and Skadden Arps met to discuss a potential business
combination transaction. The specific price proposed by CTS to be paid therein
was not discussed at that meeting. On April 17, 1997, representatives of CTS
informed representatives of DCA that the price proposed to be paid by CTS was at
$50.00 per DCA Share, consisting of approximately 50% cash and approximately 50%
CTS Shares. This proposal of CTS was rejected by representatives of DCA in a
conference call with representatives of CTS later that day.
The CTS Board met on April 24, 1997. At this meeting, the CTS Board
determined that it would be appropriate to establish a directorate committee
comprised of the two CTS directors who were not employed by either CTS or DCA to
facilitate discussions of a possible business combination transaction between
CTS and DCA (the "CTS Board Committee"). On April 25, 1997, the originally
scheduled day of the CTS Shareholders Meeting, representatives of DCA and of
other CTS Shareholders discussed the possible adjournment of the CTS
Shareholders Meeting. Following discussions between representatives of CTS and
DCA, the CTS Shareholders Meeting was adjourned to June 16, 1997.
On April 29, 1997, the Connecticut Court entered a preliminary injunction
against WHX in connection with the Initial WHX Tender Offer. The Connecticut
Court ordered WHX to make further and complete disclosures on certain issues and
to extend its tender offer for an additional 20 days.
On April 30, 1997, WHX amended the Second WHX Tender Offer to provide that
WHX is offering to purchase any and all outstanding DCA Shares and to condition
its tender offer on the inapplicability of the DCA Rights Plan and Section 912
of the NYBCL, which prohibits certain transactions, including mergers, between a
New York corporation, such as DCA, and a shareholder that beneficially owns 20%
or more of the outstanding voting stock of such corporation for a period of five
years after the acquisition of such ownership, unless the acquisition of such
ownership is approved in advance by the board of directors of the company (as so
amended, the "Third WHX Tender Offer"). The Third WHX Tender Offer was scheduled
to expire on May 27, 1997.
During April 29-30, 1997, the CTS Board Committee received presentations
from WP&Co. and J.P. Morgan as to such firms' views regarding DCA and CTS and
the possible terms of a business combination transaction involving the two
companies. In addition, the CTS Board Committee conducted discussions
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with representatives of CTS and DCA with respect to other matters relevant to a
possible business combination transaction.
On April 30, 1997, DCA executed a confidentiality agreement with a
substantial multinational entity that has existing relationships with CTS and
has from time to time indicated a desire to pursue a substantial equity
investment, business combination or other transaction with CTS (the "Third
Party"). The confidentiality agreement contained an 18 month standstill
provision that prohibited the Third Party from, among other things, making any
proposal to acquire securities or assets of DCA. Thereafter, representatives of
DCA met with representatives of the Third Party and provided the Third Party
with certain information concerning DCA. Representatives of CTS had engaged in
preliminary discussions with representatives of the Third Party on April 29,
1997.
On May 1, 1997, representatives of J.P. Morgan met with representatives of
WP&Co. and informally discussed a possible $55.00 per DCA Share offer for DCA,
with approximately 50% of the consideration in cash and 50% in CTS Shares. A
meeting of the CTS Board was held on May 2, 1997, at which the status of efforts
regarding the possible business combination with DCA was reviewed with the CTS
Board (Messrs. Lozyniak and Dorme having excused themselves from such
discussion). It was the consensus of the Unaffiliated CTS Directors that the
parties should continue to pursue a possible business combination transaction
with DCA. Commencing on May 5, 1997, representatives of DCA and CTS engaged in
substantially continuous negotiations of the terms for such a transaction,
including definitive documentation.
The DCA Board met on May 7, 1997 to discuss the status of negotiations and
the terms of a possible transaction with CTS. The DCA Board also adopted an
amendment to the DCA Rights Plan to prevent the Rights from separating from the
DCA Shares as a result of WHX amending its offer to purchase any and all DCA
Shares.
On May 7, 1997, a meeting of the CTS Board was held at which the possible
business combination with DCA was reviewed with the assistance of J.P. Morgan,
Sommer & Barnard and Jones Day. The presentations to and discussions by the CTS
Board (Messrs. Lozyniak and Dorme having excused themselves therefrom) were
wide-ranging and detailed, and included, among other things, (i) a presentation
by Sommer & Barnard regarding the duties of directors in considering a possible
business combination, (ii) a review by senior management of the discussions
conducted to date with representatives of DCA, (iii) a detailed review by Jones
Day of the draft merger documentation and the status of discussions thereon
between the parties, (iv) a review by senior management as to how a combination
could be implemented, including the expected composition of the board of
directors and senior management of the combined company, and (v) a presentation
by J.P. Morgan of its preliminary views of the possible transaction. The CTS
Board also received presentations regarding the terms of the DCA Employment
Contracts and the CEO Employment Contract (as such terms are defined in
"--Interests of Certain Persons in the Merger").
The CTS Board also met in the morning of May 9, 1997. At that meeting, the
CTS Board as an entirety, and the Unaffiliated CTS Directors separately,
approved the Combination.
Later in the morning of May 9, 1997, DCA received a letter from the Third
Party proposing to acquire DCA at $54 per share in cash, subject to a number of
conditions, including satisfactory completion of financial, legal, tax and
environmental due diligence (which was not a condition in the Combination),
exclusive negotiation between DCA and the Third Party regarding the acquisition
of DCA (which would have required the cessation of negotiations between DCA and
CTS) and a $10 million break-up fee (the "Third Party Proposal"). The Third
Party did not indicate whether the $54 per share price was negotiable. The Third
Party also sent a letter to CTS that same morning indicating an intention to
pursue the possible acquisition of DCA and a desire to work with CTS' management
in connection therewith.
Representatives of CTS contacted representatives of DCA in the morning of
May 9, 1997 to report that CTS had approved the Merger Agreement earlier that
morning, that CTS had received the above-
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described letter from the Third Party, that CTS believed that the Merger
Agreement had been substantially negotiated and could be signed later that day,
that CTS had invested substantial time and effort negotiating with DCA and that
CTS did not wish to invest further time and effort discussing a transaction with
DCA if DCA were not willing to sign a Merger Agreement on the terms which had
been discussed. Accordingly, representatives of CTS informed representatives of
DCA that CTS would terminate further discussions of a business combination if
the Combination were not approved by DCA and the Merger Agreement were not
signed that day. Representatives of CTS also said that CTS would not increase
the consideration it was proposing in the Combination. In light of the Third
Party Proposal, representatives of DCA proposed that CTS reduce the break-up fee
contemplated by the draft merger documents which the parties had been
discussing. CTS agreed in these discussions to reduce the fee to $2 million upon
signing and $4 million under certain circumstances.
Later that day, the DCA Board met to continue the discussions begun on May
7, 1997 regarding a possible business combination transaction with CTS. At the
meeting, the DCA Board considered the Third Party Proposal, the Third WHX Tender
Offer and CTS' proposal. The DCA Board received a presentation by
representatives of WP&Co. relating to financial considerations with respect to
the transactions contemplated by the Merger Agreement with CTS. Representatives
of WP&Co. delivered the May 9 WP&Co. fairness opinion. See "-- Opinions of
Financial Advisors -- WP&Co. Opinion."
During the deliberations of the DCA Board on May 9, 1997, representatives of
the Third Party sent a second letter to DCA that removed the due diligence
condition in its first letter and clarified that its proposal was not subject to
the consent of or approval by CTS. Representatives of DCA held further
discussions with representatives of CTS regarding the break-up fee proposed by
CTS, as a result of which CTS agreed to reduce the fee to $2.0 million upon the
signing of the Merger Agreement and $3.0 million under certain circumstances.
See "Other Terms of the Merger and the Merger Agreement -- Inducement Fee and
Termination Fees."
The DCA Board unanimously determined not to communicate with the Third Party
regarding the Third Party Proposal in light of (i) the fact that, while there
could be no assurance that DCA and the Third Party could agree as to the final
terms of a merger agreement, DCA and CTS had substantially negotiated the terms
of the Merger Agreement, (ii) CTS' statement that if the Merger Agreement were
not approved that day it would terminate further discussions of a business
combination transaction, (iii) WP&Co.'s opinion as to the fairness of the
consideration provided for in the Merger Agreement (and the fact that
representatives of WP&Co. were aware of the Third Party Proposal when they
delivered such opinion), and (iv) DCA Board's belief that the break-up fee and
other features of the Merger Agreement would not deter a more attractive offer
to acquire DCA.
After discussion and further analysis, at its May 9, 1997 meeting, the DCA
Board unanimously determined to approve the Offer and the Merger. In addition,
the DCA Board unanimously recommended that (i) DCA Shareholders who wish to
receive cash for their DCA Shares accept the Offer and tender their DCA Shares
pursuant thereto and (ii) DCA Shareholders vote in favor of approval and
adoption of the Merger Agreement and the Merger. At the May 9, 1997 meeting, the
DCA Board also reaffirmed its determination that the Third WHX Tender Offer was
inadequate and not in the best interests of DCA and its shareholders and
reaffirmed its recommendation to the DCA Shareholders that they reject the Third
WHX Tender Offer and not tender their DCA Shares pursuant thereto. Finally, the
DCA Board also adopted an amendment to the DCA Rights Plan to make it
inapplicable to the Offer, the Merger and the other transactions contemplated by
the Merger Agreement.
CTS and DCA signed the Merger Agreement on the evening of May 9, 1997 and
publicly announced the transaction on May 11, 1997.
WHX sent a notice, dated May 8, 1997, to DCA, in compliance with DCA's
advance-notice By-law provisions adopted on April 11, 1997 (i) nominating six
persons for election to the DCA Board at DCA Shareholders Meeting and (ii)
proposing that a non-binding shareholder resolution be presented to DCA
Shareholders at the DCA Shareholders Meeting recommending that the DCA Board
take all actions
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necessary, including removing any anti-takeover devices of DCA, to effect the
Third WHX Tender Offer or to effect a transaction with a third party for cash
consideration in excess of $45 per DCA Share. On May 9, 1997, WHX filed revised
preliminary proxy materials with the Commission relating to the solicitation of
proxies by WHX for use at the DCA Shareholders Meeting regarding these matters.
To DCA's knowledge, WHX did not commence its proxy solicitation and such
solicitation would be inconsistent with its obligations under the Shareholders
Agreement. See "Shareholders Agreement."
On May 14, 1997, a representative of WHX stated that WHX was reviewing its
options with respect to DCA. On May 20, 1997, WHX extended the expiration date
of the Third WHX Tender Offer to May 27, 1997 and stated that, as of the close
of business on May 20, 1997, approximately 850,000 DCA Shares had been tendered
pursuant to the Third WHX Tender Offer.
On May 16, 1997, Sub commenced the Offer.
On May 27, 1997, WHX increased its tender offer price in the Third WHX
Tender Offer to $56.00 per share, net to the seller in cash, and extended the
expiration date thereof to June 13, 1997 (as so amended, the "Fourth WHX Tender
Offer"). On May 28, 1997, CTS and Sub delivered to DCA a letter stating that CTS
and Sub believed that the current terms of the Merger Agreement, including the
Offer at the $55.00 Cash Price, were clearly superior to the Fourth WHX Tender
Offer and requesting that, pursuant to the terms of the Merger Agreement, the
DCA Board reconfirm its approval and recommendation of the Offer, the Merger and
the Merger Agreement within five business days.
On May 29, 1997, WHX filed a counter-claim against DCA in the Connecticut
Court, seeking a preliminary injunction (i) barring DCA from relying on the DCA
Rights Plan plan to impede WHX from purchasing DCA Shares from DCA Shareholders
in the Fourth WHX Tender Offer and (ii) directing DCA to take appropriate steps
to eliminate the impediments to such offer under Section 912(b) of the NYBCL.
On June 2, 1997, representatives of CTS and DCA met. In that meeting,
representatives of CTS reiterated their belief that prior to the June 2, 1997
amendment to the Offer, the terms of the Offer and the Merger were superior to
the terms of the Fourth WHX Tender Offer in that, among other things, the
blended price to be paid to DCA Shareholders pursuant to the Offer and the
Merger, based on the closing sales price for CTS Shares on May 30, 1997 and
assuming the purchase by Sub of 49.9% of the outstanding DCA Shares pursuant to
the Offer, was $57.87, compared to $56.00 per DCA Share offered in the Fourth
WHX Tender Offer. However, in seeking to assure the success of the Offer,
representatives of CTS informed representatives of DCA that CTS was willing
either (i) to increase the Offer price to $56.25 and retain the Exchange Ratio
in the Merger at 0.88 CTS Shares for each DCA Share not purchased pursuant to
the Offer (such proposal, the "$56.25/0.88 CTS Proposal") or (ii) increase the
Offer price to $60.00 per DCA Share, in cash, decrease the Exchange Ratio in the
Merger to 0.82 CTS Shares for each DCA Share not purchased pursuant to the Offer
and effect certain changes in the Merger Agreement, including (a) eliminating
the condition to the Offer that 25% of the DCA Shares be tendered but amending
the Merger Agreement to provide that, unless Sub purchased 49.9% of the DCA
Shares pursuant to the Offer for cash, the Merger consideration would include
(in Sub's discretion) up to such amount of cash as Sub would have paid had 49.9%
of the Shares been validly tendered and not withdrawn, (b) permitting CTS to
adopt a shareholder rights plan under which the rights could become exercisable
at any time (rather than, as presently provided in the Merger Agreement, only
after termination of the Merger Agreement), but would not become so exercisable
prior to the termination of the Merger Agreement based on changes in ownership
of the DCA Shares, and (c) providing for the parties to cooperate to postpone or
adjourn CTS' 1997 annual meeting of DCA shareholders to July 31, 1997 (such
proposal, the "$60.00/0.82 CTS Proposal").
The DCA Board met on June 2, 1997 and took no action with respect to either
the $56.25/0.88 CTS Proposal or the $60.00/0.82 CTS Proposal. CTS publicly
announced the $56.25 Offer price on June 2, 1997.
On June 16, 1997, the Offer was completed. Pursuant to the Offer, CTS
purchased 1,164,339 DCA Shares, or 30.3% of the then-outstanding DCA Shares.
Thereafter, CTS purchased 50,825 DCA Shares in
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open-market purchase transactions, bringing CTS' beneficial ownership of DCA
Shares to 31.7% of the DCA Shares outstanding on the DCA Record Date.
On June 16, 1997, WHX announced the expiration of its cash tender offer and
its acceptance for payment of 406,579 DCA Shares, bringing its ownership of DCA
Shares to 516,440, or 13.5% of the DCA Shares outstanding on the DCA Record
Date.
From time to time beginning in late June 1997, representatives of CTS, WHX
and DCA had informal exploratory discussions relating to the proposed Merger and
the respective stock ownership interests of CTS and WHX in DCA. In those
discussions, representatives of WHX indicated that WHX was considering a number
of possible alternatives, including making an additional offer to acquire DCA
and otherwise opposing the proposed Merger. Representatives of WHX also
indicated that WHX was not prepared to consider a transaction in which all DCA
Shareholders did not have an opportunity to participate, but that WHX might be
prepared to support the Merger if the Merger Agreement were amended or other
action was taken so that all DCA Shareholders were offered a liquidity option
for a portion of their DCA Shares. Following discussions between representatives
of CTS and DCA, on the one hand, and CTS and WHX, on the other hand, CTS and DCA
agreed to amend the Merger Agreement to provide for the Cash Election Option and
CTS and WHX agreed to the Shareholders Agreement.
At its July 17, 1997 meeting, the DCA Board considered the factors referred
to in "--Reasons for the Merger; Recommendations of the Boards of Directors" and
received a presentation by representatives of WP&Co. relating to the financial
considerations with respect to the transactions contemplated by the amended
Merger Agreement with CTS. Representatives of WP&Co. delivered the WP&Co.
fairness opinion with respect to the consideration to be received by DCA
Shareholders pursuant to the amended Merger Agreement. For a discussion of all
material factors presented to and considered by the DCA Board, see "--Reasons
for the Merger; Recommendations of the Boards of Directors" and "--Opinions of
Financial Advisors."
THE DCA BOARD MAKES NO RECOMMENDATION AS TO WHETHER DCA SHAREHOLDERS SHOULD
ELECT TO RECEIVE CASH OR CTS SHARES IN THE MERGER. SEE "--REASONS FOR THE
MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS."
At the CTS Board meeting on July 17, 1997, the CTS Board considered the
factors referred to in "-- Reasons for the Merger; Recommendations of the Boards
of Directors," as well as a presentation from J.P. Morgan with respect to the
fairness to CTS of the transactions contemplated by the Merger Agreement,
including as amended to provide for the Cash Election Option, from a financial
point of view. For a discussion of all material factors presented to and
considered by the CTS Board, see "--Reasons for the Merger; Recommendations of
the Boards of Directors" and "--Opinions of Financial Advisors."
Following the approvals by the DCA Board and the CTS Board, the amended
Merger Agreement and the Shareholders Agreement were executed on July 17, 1997
and publicly announced later that day.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
CTS. Prior to the commencement of the Offer, the CTS Board, including the
Unaffiliated CTS Directors voting separately, unanimously approved the Merger
Agreement and the transactions contemplated thereby, including the Offer, the
issuance of CTS Shares in the Merger, the CTS Charter Amendments and the grant
of the Options, following a determination by the Unaffiliated CTS Directors, and
thereafter by the entire CTS Board, that such transactions were fair to and in
the best interests of CTS and CTS Shareholders (other than DCA). In making such
determination, the CTS Board, and the Unaffiliated CTS Directors, considered the
following material factors: (i) the business, financial position, results of
operations and prospects of CTS and DCA, and potential synergies resulting from
the Combination (with cost savings estimated at not less than $2.0 million,
after tax, annually); (ii) the strategic fit between DCA's frequency control and
heat dissipating businesses and CTS' existing operations, and the prospects for
DCA's other operations; (iii) the expectation that the Combination would be
accretive to CTS' net earnings in 1997 (excluding one-time transaction-related
costs or charges) and thereafter; (iv) historical market prices for DCA Shares
and CTS Shares; (v) the potential impact of the Combination on
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market prices for CTS Shares as a result of the decrease in concentration of the
ownership thereof and increase in the liquidity of the market for CTS Shares as
well as the factors described above; (vi) the commitment of Messrs. Lozyniak,
Dorme and Kensing to continue with DCA following the Combination under the terms
of the DCA Employment Contracts to be effective as of the Effective Time (which
replace their existing employment/change-in-control severance agreements with
DCA); (vii) presentations by J.P. Morgan relating to the proposed Combination;
and (viii) the impact of the Combination on the non-shareholder constituencies
of CTS (including the employees, suppliers and customers of CTS and communities
in which offices or other facilities of CTS are located), which were believed to
be generally favorable. In authorizing the addition of the Cash Election Option
to the Merger Agreement on July 17, 1997, the CTS Board considered the
foregoing, as well as (i) the results of the Offer, (ii) recent trading prices
for CTS Shares and DCA Shares, (iii) WHX's indication that it would be prepared
to support the Merger if the Cash Election Option were included therein, and
(iv) the terms of the Shareholders Agreement. The foregoing discussion of the
factors considered and given weight by the CTS Board is not intended to be
exhaustive but includes all material factors considered by the CTS Board. In
view of the variety of factors considered in connection with its evaluation of
the Combination, the CTS Board did not find it practicable to and did not
attempt to rank or assign relative weights to the foregoing factors. In
addition, individual members of the CTS Board may have given different weight to
different factors.
For a discussion of the interests that certain members of CTS management and
the CTS Board may have in the transactions contemplated by the Merger Agreement,
see "--Interests of Certain Persons in the Merger."
DCA.
Prior to the commencement of the Offer, the DCA Board carefully reviewed and
unanimously determined that the original Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are fair to and in the
best interests of DCA and DCA Shareholders, and approved the original Merger
Agreement and the transactions contemplated thereby. The DCA Board (CTS'
designees thereto abstaining) has also determined that the Merger Agreement as
amended to add the Cash Election Option on July 17, 1997, and the transactions
contemplated thereby, including the Merger, are fair to and in the best
interests of DCA and DCA Shareholders, and approved the amended Merger Agreement
and the transactions contemplated thereby, including the Merger. The DCA Board
(CTS' designees thereto abstaining) recommends that DCA Shareholders vote "FOR"
adoption of the Merger Agreement. In approving the original Merger Agreement,
the amended Merger Agreement and the transactions contemplated thereby, the DCA
Board considered the following material factors: (i) the business, results of
operations, financial condition and prospects of DCA and CTS and presentations
by management of DCA and WP&Co.; (ii) the presentations of WP&Co. at the May 9,
and July 17, 1997 DCA Board meetings and the opinions of WP&Co. to the effect
that, based upon and subject to the matters reviewed with the DCA Board, (a) as
of May 9, 1997, the consideration to be received by DCA Shareholders in the
Offer and the Merger, taken together, pursuant to the Merger Agreement, and (b)
as of July 17, 1997, the consideration to be received by DCA Shareholders in the
Merger pursuant to the Merger Agreement is fair to DCA Shareholders from a
financial point of view (such opinion is based on various assumptions and
subject to various limitations, as discussed in the opinion (see "-- Opinions of
Financial Advisors -- WP&Co. Opinion")); (iii) that the transactions
contemplated by the Merger Agreement include (a) the Offer and the Cash Election
Option, thereby enabling those DCA Shareholders who wish to receive cash for
some or (depending on the number of DCA Shares tendered) all of their DCA Shares
to do so and (b) a stock-for-stock merger that would be a tax-free
reorganization, thereby allowing those DCA Shareholders who wish to participate
in the future growth of the combined companies on a tax-free basis to do so;
(iv) that because the Exchange Ratio is fixed, the value of the Merger
Consideration will increase or decrease with increases or decreases,
respectively, in the price of CTS Shares (See "Risk Factors--Risk of Fixed
Exchange Ratio"); (v) the terms and conditions of the Merger Agreement and that
the Merger Agreement permitted DCA, under certain circumstances and prior to the
Offer Expiration Date, to furnish information to and to negotiate with third
parties and to terminate the
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Merger Agreement upon the payment of a $3.0 million fee (in addition to the $2.0
million fee paid at signing), that such provisions apply equally to DCA and CTS
(other than that CTS would be required to pay a $5.0 million fee and did not pay
a fee at signing) and the belief of the DCA Board that the provisions of the
Merger Agreement would not deter a more attractive offer for DCA; (vi)
historical market prices and trading information for the DCA Shares and the CTS
Shares; (vii) the DCA Board's familiarity with the operations and management of
CTS due to DCA's significant equity ownership interest in CTS for over a decade;
(viii) the strategic fit between the operations of DCA and those of CTS,
including (a) the ability of the two companies to combine complementary product
lines, reduce costs and create significant synergies and (b) the financial
strength and flexibility, strong balance sheet and opportunities for growth of
the combined company; (ix) the ability of DCA Shareholders to participate in the
potential benefits of the combined company through ownership of approximately
36% of the CTS Shares following the Merger; and (x) that, following the Merger,
(a) the CTS Board would continue to include two members from DCA's management,
(b) Mr. Lozyniak would be a member of CTS' Office of the Chairman with Mr.
Walker, (c) through CTS' 1998 annual shareholders meeting, any new members of
the CTS Board elected by the CTS Board would have to be unanimously elected or
nominated therefor by a committee of the CTS Board consisting of, among others,
Mr. Lozyniak or Patrick J. Dorme, DCA's Chief Financial Officer, and (d) Messrs.
Lozyniak, Kensing and Dorme would continue to be involved with the management of
Sub. Having considered all the foregoing, the DCA Board concluded that the Offer
and the Merger, taken together, was fair to and in the best interests of DCA and
DCA Shareholders.
In authorizing the addition of the Cash Election Option to the Merger
Agreement on July 17, 1997, the DCA Board considered the foregoing, as well as
(i) the results of the Offer, (ii) recent trading prices for CTS Shares and DCA
Shares, (iii) WHX's indication that it would be prepared to support the Merger
if the Cash Election Option were included therein, and (iv) the terms of the
Shareholders Agreement. For a discussion of the interests that certain members
of DCA management and the DCA Board have in the transactions contemplated by the
Merger Agreement, see "--Interests of Certain Persons in the Merger."
The DCA Board makes no recommendation as to whether shareholders should
elect to receive cash or CTS Shares in the Merger. In that respect, shareholders
should note that based on the closing price for a CTS Share on the last trading
day before the date of this Joint Proxy Statement/Prospectus, the value of the
Stock Consideration would be $71.28 per DCA Share, but that stock prices are
inherently volatile and there can be no assurance as to the future value of the
Stock Consideration.
The foregoing discussion of the information and factors considered by the
DCA Board is not intended to be exhaustive but includes all material factors
considered by the DCA Board. The DCA Board did not assign relative weights to
the foregoing factors or determine that any factor was of particular importance,
and individual directors may have given differing weights to different factors.
Rather, the DCA Board viewed its position and recommendation as being based on
the totality of the information presented to and considered by it.
There can be no assurance that the expected benefits of the CTS Merger will
be realized.
OPINIONS OF FINANCIAL ADVISORS.
WP&CO. OPINION.
WP&Co. delivered its oral opinion to the DCA Board on May 9, 1997
(subsequently confirmed in writing) that, as of the date of such opinion, and
based on the procedures followed, assumptions made, matters considered and
limitations on the review undertaken, as set forth in the opinion, the
consideration to be received in the Offer and the Merger, taken together, was
fair to the DCA Shareholders from a financial point of view.
At the July 17, 1997 meeting of the DCA Board, WP&Co. delivered its oral
opinion to the DCA Board (subsequently confirmed in writing) that, as of the
date of such opinion, and based on the procedures followed, assumptions made,
matters considered and limitations on the review undertaken, as
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set forth in the opinion, the consideration to be received in the Merger was
fair to DCA Shareholders from a financial point of view.
A copy of the opinion of WP&Co., dated July 17, 1997, is attached hereto as
Annex B, and incorporated by reference. DCA Shareholders are urged to read the
WP&Co. opinion in its entirety for information with respect to the procedures
followed, assumptions made, matters considered and limits of the review
undertaken by WP&Co. in rendering its opinion. References to the WP&Co. opinion
and the summary of the WP&Co. opinion herein are qualified by reference to the
full text of the WP&Co. opinion, which is incorporated herein by reference. The
WP&Co. opinion is directed only to the fairness, from a financial point of view,
to DCA Shareholders of the consideration to be received in the Merger, pursuant
to the Merger Agreement, and WP&Co. did not express any views on any other terms
of the transactions contemplated by the Merger Agreement or on the fairness from
a financial point of view to shareholders of one form of consideration that DCA
Shareholders may elect to receive pursuant to the Merger in comparison to the
other. WP&Co.'s opinion does not address DCA's underlying business decision to
effect the transactions contemplated by the Merger Agreement or constitute a
recommendation to any DCA Shareholder with respect to whether such holder should
elect to receive cash or CTS Common Stock pursuant to the Merger or as to how
such DCA Shareholder should vote with respect to the Merger.
In connection with rendering its opinion, WP&Co. reviewed the Merger
Agreement. WP&Co. also reviewed and analyzed certain publicly available business
and financial information relating to DCA and CTS for recent years and interim
periods to the date of such opinion, as well as certain internal financial and
operating information, including financial forecasts, analyses and projections
prepared by or on behalf of DCA and CTS and provided to WP&Co. for purposes of
its analysis, and WP&Co. met with representatives of the senior managements of
DCA and CTS to review and discuss such information and, among other matters,
DCA's and CTS' respective businesses, operations, assets, financial condition
and future prospects.
WP&Co. reviewed and considered certain financial and stock market data
relating to DCA and CTS, and compared that data with similar data for certain
other companies, the securities of which are publicly traded, that WP&Co.
believed may be relevant or comparable in certain respects to DCA and CTS or one
or more of their respective businesses or assets, and WP&Co. reviewed and
considered the financial terms of certain recent acquisitions and business
combination transactions which WP&Co. believed to be reasonably comparable to
the transactions contemplated by the Merger Agreement or otherwise relevant to
its inquiry. WP&Co. also performed such other studies, analyses, and
investigations and reviewed such other information as WP&Co. considered
appropriate for purposes of its opinion.
WP&Co. noted that, in its review and analysis and in formulating its
opinion, WP&Co. assumed and relied upon the accuracy and completeness of all the
financial and other information provided to or discussed with it or publicly
available, and did not assume any responsibility for independent verification of
any of such information. WP&Co. also relied upon the reasonableness and accuracy
of the financial projections, forecasts and analyses provided to WP&Co. and
assumed, with DCA's consent, that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of DCA's and CTS' management, and WP&Co.
expressed no opinion with respect to such projections, forecasts and analyses or
the assumptions upon which they were based. In addition, WP&Co. did not review
any of the books and records of DCA or CTS, or assume any responsibility for
conducting a physical inspection of the properties or facilities of DCA or CTS,
or for making or obtaining an independent valuation or appraisal of the assets
or liabilities of DCA or CTS, and no such independent valuation or appraisal was
provided to WP&Co. WP&Co. noted that it assumed that the transactions described
in the Merger Agreement will be consummated on the terms set forth therein,
without material waiver or modification. WP&Co. also assumed that the Merger
will qualify as a tax-free reorganization under the Code. WP&Co. noted that its
opinion was necessarily based on economic and market conditions and other
circumstances as they existed and could be evaluated by WP&Co. as of the date of
such opinion. In rendering its opinion, WP&Co. noted that it was not expressing
any opinion as to
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the price at which the DCA Shares or CTS Shares will actually trade at any time,
or the market value of the consideration that DCA Shareholders will receive upon
consummation of the Merger.
WP&Co. noted that in the context of its engagement by DCA, at the direction
of DCA, WP&Co. did not solicit alternative offers for DCA or its assets,
although WP&Co. did (with DCA's permission) engage in preliminary discussions
with the Third Party. On May 9, 1997, the Third Party made the Third Party
Proposal. No other limitations were imposed by DCA on the scope of WP&Co.'s
investigation.
Set forth below is a summary of the material financial analyses used by
WP&Co. in connection with providing its opinion to the DCA Board as contained in
the presentation by WP&Co. to the DCA Board on July 17, 1997 (the "WP&Co.
Presentation").
WP&CO. VALUATION ANALYSIS
WP&Co. prepared a summary pre-tax valuation reference range for each of
DCA's divisions, and, by aggregating such valuation ranges with valuations for
DCA's other assets, calculated an implied reference range of valuations for DCA
as a whole. The divisions are IERC, Reeves-Hoffman, Waring, Ellis & Watts,
Fermont, Anemostat-West and Anemostat-Scranton. WP&Co. arrived at its summary
valuations of the divisions by considering, among other things, as applicable,
(i) discounted cash flow analysis, (ii) comparable company analysis, (iii)
comparable acquisition analysis, and (iv) book value. DCA's other assets are
cash and approximately 2.3 million CTS Shares.
DISCOUNTED CASH FLOW ANALYSIS. WP&Co. performed a discounted cash flow
analysis on each division for the years ended December 31, 1997 through 2001.
WP&Co., using forecasts prepared by management of DCA for the years 1997 through
1999 and extrapolated to 2001 in consultation with management, discounted the
unlevered free cash flow of each division (unlevered net income plus
depreciation and amortization, less capital expenditures and changes in working
capital) over the forecast period using a range of risk-adjusted discount rates
(representing a range of risk-adjusted costs of capital for companies with
similar and/or broader business portfolios than the applicable division).
Discount rate ranges ranged from 8.0% to 11.0% (in the case of Fermont) to 13%
to 16% (in the case of Reeves-Hoffman). The sum of the present values of such
cash flows was then added to the present value of the applicable division's
terminal value in 2001. The terminal value was calculated by multiplying the
EBITDA for calendar year 2001 by multiples ranging from 4.0x to 5.5x (in the
case of Fermont) to 8.5x to 10.0x (in the case of IERC and Reeves-Hoffman).
Based on this analysis, WP&Co. calculated a pre-tax valuation reference range of
$50 million to $60 million for IERC, $25 million to $30 million for
Reeves-Hoffman, $10 million to $15 million for Waring, $8 million to $10 million
for Ellis & Watts, $6 million to $7 million for Fermont, $8 million to $10
million for Anemostat-West and $5 million to $10 million for Anemostat-Scranton.
With respect to the discounted cash flow analysis, WP&Co. noted that the
selection of an appropriate discount rate and an appropriate multiple for
determining terminal value is an inherently subjective process. The selection of
an appropriate discount rate is affected by such factors as the applicable
division's cost of capital and the uncertainties associated with achieving the
projections provided by management of DCA. The selection of an appropriate
terminal multiple involves a judgment concerning appropriate multiples of EBITDA
prevailing in the market at the time such selection is made and such multiples
may not be obtainable in the future. WP&Co. also noted that discounted cash flow
analysis is a widely used valuation methodology, but that it relies on numerous
assumptions regarding the future performance of a company and the future
economic environment, including earnings growth rates, unlevered free cash
flows, terminal values and discount rates, all of which are inherently uncertain
because they are predicated on future events and circumstances.
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COMPARABLE COMPANY ANALYSIS. WP&Co. reviewed certain financial information
relating to IERC, Reeves-Hoffman, Waring and Anemostat West and compared it to
corresponding publicly available financial information, ratios and public market
multiples for certain publicly-traded corporations. Such financial information
was used to calculate multiples, including Equity Value (as defined below) to
net income, Equity Value to after-tax cash flow, Equity Value to book value,
Enterprise Value (as defined below) to revenues, Enterprise Value to EBITDA and
Enterprise Value to EBIT. WP&Co. noted that Ellis & Watts, Fermont and
Anemostat-Scranton were not deemed susceptible to comparable company analysis.
WP&Co.'s comparable company analysis for the other divisions was prepared both
with and without giving effect to any change-of-control premium that may arise
in connection with a transaction such as the Combination. For the purpose of
giving effect to a change-of-control premium, WP&Co. included a control premium
of 30% of imputed Equity Value.
As used in the WP&Co. analysis: (i) "Enterprise Value" means the sum of the
Equity Value of the transaction or the company, as the case may be, plus the
book value of net debt (short and long term debt less cash and short term
investments), non-convertible preferred stock and minority interest and (ii)
"Equity Value" and "Market Value" mean the fully-diluted equity value of the
transaction or the company, as the case may be.
Comparable companies for IERC included Aavid Thermal Technologies, Alpha
Technologies Group, Inc., Zero Corp., AVX Corporation and Vishay
Intertechnology, Inc. and implied a pre-tax valuation reference range of $35
million to $45 million assuming no control premium and $46 million to $59
million assuming a control premium. Comparable companies for Reeves-Hoffman
included AVX Corporation, Kemet Corporation, International Rectifier
Corporation, Vishay Intertechnology, Inc. and Thomas & Betts Corporation and
implied a pre-tax valuation reference range of $20 million to $25 million
assuming no control premium and $26 million to $33 million assuming a control
premium. Comparable companies for Waring included Specialty Equipment Companies,
Inc., Premark International, Inc., The Rival Company and Toastmaster, Inc. and
implied a pre-tax valuation reference range of $5 million to $7 million assuming
no control premium and $7 million to $9 million assuming a control premium.
Comparable companies for Anemostat-West included Butler Manufacturing Company,
Nortek, Inc., ABT Building Products Corporation, Armstrong World Industries,
Inc. and United Dominion Industries, Ltd. and implied a pre-tax valuation
reference range of $10 million to $12 million assuming no control premium and
$13 million to $15 million assuming a control premium.
The comparable corporations were chosen because they are publicly traded
companies with operations that, for purposes of this analysis, may be considered
to be similar to the operations of a division of DCA. WP&Co. observed that
comparable company analysis is subject to certain limitations, including: no
individual company has a business mix that precisely mirrors that of any
division of DCA and the analysis has limited applicability to a loss-making
business. Accordingly, an analysis of the results of WP&Co.'s analysis
necessarily involves certain considerations and judgments concerning differences
in the financial and operating characteristics of each division which could
affect the implied public trading value of the companies to which it is being
compared.
COMPARABLE ACQUISITIONS ANALYSIS. WP&Co. reviewed and analyzed certain
financial information based on selected mergers and acquisitions in industries
considered comparable to IERC, Reeves-Hoffman, Waring and Anemostat-West. WP&Co.
noted that Ellis & Watts, Fermont and Anemostat-Scranton were not deemed
susceptible to comparable acquisitions analysis. WP&Co. considered (i) the
multiples of Enterprise Value to sales, Enterprise Value to EBITDA and
Enterprise Value to EBIT and (ii) the multiples of Market Value (as defined
above) to net income and Market Value to book value. Based on an analysis of the
transactions, the means and medians of the foregoing multiples were applied to
the applicable division's corresponding 1996 information to calculate implied
value ranges.
Comparable acquisitions (listed by acquiror/acquiree) for IERC and
Reeves-Hoffman included Technitrol/Pulse Engineering, Vishay Intertechnology,
Inc./Vitramon, Kemet/Vishay Intertechnology, Inc. (proposed), DII Group/Orbit
Semiconductor and Crane Co./Interpoint and implied a pre-tax valuation
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reference range of $25 million to $27 million for IERC and $8 million to $10
million for Reeves-Hoffman. Comparable acquisitions for Anemostat-West included
Investcorp/Falcon Building Products, Rugby Group PLC/Pioneer Plastics and Atlas
Copco Group/Milwaukee Electric Tools Corp. and implied a pre-tax valuation
reference range of $8 million to $10 million. Comparable acquisitions for Waring
included Berisford International/Welbilt, Health o Meter/Mr. Coffee and
Honeywell/Duracraft; however, because Waring had negative EDITDA, negative EBIT
and a net loss for 1996, WP&Co. concluded that the multiples exhibited in these
transactions did not provide meaningful valuation information for Waring.
WP&Co. observed that comparable acquisitions analysis is subject to certain
limitations, including: the analysis does not incorporate the time of the
transactions, no single transaction is precisely comparable in business
characteristics and market conditions, there is a scarcity of public disclosure
on terms of comparable transactions and the financial performance of acquirees
and the analysis has limited applicability to loss-making businesses.
Accordingly, an analysis of the results of the foregoing necessarily involves
certain considerations and judgments concerning differences in the financial and
operating characteristics of the divisions and certain other characteristics
that could affect the derived value of the transactions to which the divisions
are being compared.
WP&Co. analyzed the pre-tax valuation reference ranges implied by its
discounted cash flow analysis, comparable companies analysis and comparable
acquisitions analysis as well as the book values of the divisions to obtain an
implied valuation reference range for each division. The pre-tax valuation
reference ranges were $30 million to $50 million for IERC, $10 million to $30
million for Reeves-Hoffman, $5 million to $10 million for Waring, $5 million to
$10 million for Ellis & Watts, $5 million to $7 million for Fermont, $5 million
to $10 million for Anemostat-West and up to $5 million for Anemostat-Scranton.
The foregoing analysis implied a total pre-tax valuation reference range for all
of the divisions of $60 million to $122 million. WP&Co. then added the value of
DCA's other assets, which consist of cash and CTS Shares. For purposes of this
calculation, WP&Co. used the July 16, 1997 closing price of CTS Shares of $71.69
per share. These analyses resulted in a range of values per share of the DCA
Shares of $58 to $74.
WP&CO. STOCK PRICE AND EXCHANGE RATIO ANALYSES
WP&Co. reviewed the monthly closing prices of the DCA Shares and CTS Shares
over the period from July 1, 1994 through June 30, 1997. During this period, the
DCA Shares increased from a closing price of $17.00 per share on July 1, 1994 to
a closing price of $62.25 per share on June 30, 1997. During the same period,
CTS Shares increased from a closing price of $28.25 per share to a closing price
of $68.938 per share.
In addition, WP&Co. analyzed the ratios of closing prices of DCA Shares to
closing prices of CTS Shares as reported on the NYSE during various periods,
compared to the exchange ratio of 0.88 CTS Shares per DCA Share in the Merger.
WP&Co. observed that from March 28, 1994 through March 27, 1997, the mean of the
ratios of closing stock prices of the DCA Shares to CTS Shares was 0.67x with a
standard deviation of 0.06x and a high ratio of 0.88x. WP&Co. also observed that
the mean of the ratios of closing stock prices of DCA Shares to CTS Shares for
various periods ending March 27, 1997 were (1) 0.64x over the prior month; (2)
0.64x over the prior three months; (3) 0.67x over the prior six months; and (4)
0.64x over the prior year.
WP&CO. SELECTED PUBLIC ACQUISITION PREMIA ANALYSIS
WP&Co. reviewed mergers and acquisition transactions with values ranging
from $50 million to $500 million to derive a range of premia paid over the
public trading prices per share one day, one week and four weeks prior to the
announcement of such transactions. However, WP&Co. noted that the reasons for,
and circumstances surrounding, each of the transactions analyzed were diverse
and the characteristics of the companies involved were not particularly
comparable to those of DCA and CTS and that premia fluctuate based on perceived
growth, synergies, strategic value and the type of consideration utilized in the
transaction.
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The analyses indicated that the medians of premia paid in the transactions
over the public per share trading prices one day, one week and four weeks prior
to the announcement of such transactions were 24.8%, 29.8% and 34.2%,
respectively, and that the means of premia paid in the transactions over the
public per share trading prices one day, one week and four weeks prior to the
announcement of such transactions were 30.2%, 34.2% and 40.4%, respectively.
Assuming all of the DCA Shares not already owned by CTS are exchanged for CTS
Shares pursuant to the Merger, the proposed premia of an assumed value of $63.10
(representing a CTS Share price of $71.69 per share (the closing price on July
16, 1997)) over the closing price per share of the DCA Shares on March 27, 1997
and the average trading price of the DCA Shares during the 10, 30 and 90 days
prior to the announcement of the Initial WHX Tender Offer were 90%, 90%, 100%
and 114%, respectively. Assuming 18.2% of DCA Shares elect to receive Cash
Consideration and the remaining 50.1% of DCA Shares not already owned by CTS are
exchanged for CTS Shares pursuant to the Merger, the proposed premia of an
assumed value of $61.70 (representing the blended value of the Merger utilizing
a CTS Share price of $71.69 per share (the closing price on July 16, 1997)) over
the closing price per share of the DCA Shares on March 27, 1997 and the average
trading price of the DCA Shares during the 10, 30, and 90 days prior to the
announcement of the Initial WHX Tender Offer were 86%, 86%, 95% and 109%,
respectively.
WP&CO. PRO FORMA MERGER ANALYSIS
WP&Co. analyzed the pro forma impact of the Combination on holders of CTS
Shares based on estimates of fully diluted earnings per share ("EPS") and fully
diluted after-tax cash flow from operations per share (defined as net income
plus depreciation and amortization and herein referred to as "CFPS") for DCA and
CTS prepared by their respective managements for 1997 and 1998. The pro forma
analysis was based on certain assumptions set forth in the WP&Co. Presentation,
including the assumptions that the Combination had been consummated on January
1, 1997, that the price of CTS Shares at consummation of the Merger was $71.69
per share, that no goodwill was recorded in connection with the Combination and
an interest rate of 9% on acquisition debt.
WP&Co. first analyzed the Combination assuming that 31.7% of the outstanding
DCA Shares were purchased for cash (at an average cash price of $56.38 per
share) and 68.3% of such shares were acquired in exchange for CTS Shares
pursuant to the Combination. This analysis showed that, without giving effect to
the estimated impact of potential cost savings, the Combination would result in
increases in fully diluted EPS and CFPS of CTS Shares of approximately 5.6% and
12.1%, respectively, in 1997 and 11.5% and 13.9%, respectively, in 1998, in each
case as compared to CTS on a stand-alone basis. After giving effect to $2
million of annual pre-tax corporate and operating cost savings as preliminarily
estimated by the DCA and CTS managements, the Combination would result in
increases in fully diluted EPS and CFPS of CTS Shares of approximately 11.3% and
15.5%, respectively, in 1997 and 15.8% and 16.7%, respectively, in 1998, in each
case as compared to CTS on a stand-alone basis.
WP&Co. also analyzed the pro forma impact of the Combination on certain
interest coverage ratios and debt ratios assuming that 31.7% of the outstanding
DCA Shares were acquired for cash (at an average cash price of $56.38 per share)
and the remaining shares were acquired in exchange for CTS Shares pursuant to
the Combination. These analyses showed that CTS' EBITDA to interest coverage
ratio would be 7.7x and 10.8x, respectively, in 1997 and 1998 assuming no cost
savings and 8.0x and 11.3x, respectively, assuming $2 million of annual cost
savings. CTS' EBIT to interest coverage ratio would be 5.4x and 8.1x,
respectively, in 1997 and 1998 assuming no cost savings and 5.7x and 8.6x,
respectively, assuming $2 million of annual cost savings. CTS' net debt as a
percentage of total capitalization would be 28.0% and 21.9%, respectively, at
the outset of 1997 and 1998 assuming no cost savings and 28.0% and 21.1%,
respectively, assuming $2 million of annual cost savings.
WP&Co. also analyzed the Combination assuming that 49.9% of the outstanding
DCA Shares were purchased for cash (at an average cash price of $56.97 per
share) and 50.1% of such Shares were acquired in exchange for CTS Shares
pursuant to the Combination. This analysis showed that, without giving effect
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to the estimated impact of potential cost savings, the Combination would result
in increases in fully diluted EPS and CFPS of CTS Shares of approximately 7.9%
and 19.9%, respectively, in 1997 and 17.5% and 23.3%, respectively, in 1998, in
each case as compared to CTS on a stand-alone basis. After giving effect to $2
million of annual pre-tax corporate and operating cost savings as preliminarily
estimated by the DCA and CTS managements, the Combination would result in
increases in fully diluted EPS and CFPS of CTS Shares of approximately 14.3% and
23.8%, respectively, in 1997 and 22.4% and 26.4%, respectively, in 1998, in each
case as compared to CTS on a stand-alone basis.
WP&Co. also analyzed the pro forma impact of the Combination on certain
interest coverage ratios and debt ratios assuming that 49.9% of the outstanding
DCA Shares were acquired for cash (at an average cash price of $56.97 per share)
and the remaining shares were acquired in exchange for CTS Shares pursuant to
the Combination. These analyses showed that CTS' EBITDA to interest coverage
ratio would be 5.3x and 7.2x, respectively, in 1997 and 1998 assuming no cost
savings and 5.5x and 7.5x, respectively, assuming $2 million of annual cost
savings. CTS' EBIT to interest coverage ratio would be 3.7x and 5.4x,
respectively, in 1997 and 1998 assuming no cost savings and 3.9x and 5.7x,
respectively, assuming $2 million of annual cost savings. CTS' net debt as a
percentage of total capitalization would be 52.4% and 45.4%, respectively, at
the outset of 1997 and 1998 assuming no cost savings and 52.4% and 44.7%,
respectively, assuming $2 million of annual cost savings.
WP&CO. ANALYSIS OF CTS
WP&Co. compared the trading price of CTS Shares to certain financial
information, ratios and public market multiples for certain publicly traded
companies. Such financial information was used to calculate multiples, including
Equity Value to net income, Equity Value to after-tax cash flow, Equity Value to
book value, Enterprise Value to revenues, Enterprise Value to EBITDA and
Enterprise Value to EBIT utilizing both CTS projections and VALUE LINE estimates
for CTS. Comparable companies for CTS included AVX Corporation, Vishay
Intertechnology, Inc., AMP Incorporated, Berg Electronics Corporation and Kemet
Corporation. WP&Co. observed that (i) the trading price of CTS Shares of $49.75
per share on March 27, 1997 (the last trading day prior to the announcement of
the Initial WHX Tender Offer) indicated discounts from the comparable company
multiples ranging from 46% to 67% utilizing CTS projections and 53% to 67%
utilizing VALUE LINE estimates and (ii) the trading price of CTS Shares of
$71.69 per share on July 16, 1997 indicated discounts from the comparable
company multiples ranging from 22% to 51% utilizing CTS projections and 31% to
51% utilizing VALUE LINE estimates.
The comparable companies were chosen because they are publicly traded
companies with operations that, for purposes of analysis, may be considered to
be similar to CTS. No company considered in WP&Co.'s analysis is identical to
CTS. Accordingly, an analysis of the results of WP&Co.'s analysis necessarily
involves certain considerations and judgments concerning differences in the
financial and operating characteristics of CTS which could affect the multiples
of the companies to which it is being compared.
------------------------
The foregoing summary of the material analyses included in the WP&Co.
Presentation does not purport to be a complete description of the WP&Co.
Presentation or the analyses performed by WP&Co. The preparation of financial
analyses and fairness opinions is a complex process and is not necessarily
susceptible to partial analysis or summary description. WP&Co. believes that its
analyses (and the summary set forth above) must be considered as a whole, and
that selecting portions of such analyses and of the factors considered by
WP&Co., without considering all of such analyses and factors, could create an
incomplete view of the processes underlying the analyses conducted by WP&Co. and
its opinion. WP&Co. made no attempt to assign specific weights to particular
analyses. Any estimates contained in WP&Co.'s analyses are not necessarily
indicative of actual value, which may be significantly more or less favorable
than as set forth therein. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may actually
be sold.
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WP&Co. was retained to act as DCA's financial advisor in connection with the
WHX Tender Offer and related matters based on WP&Co.'s qualifications,
expertise, reputation and experience with respect to transactions similar to
those contemplated by the Merger Agreement. WP&Co., as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. In the ordinary course of business, WP&Co. and its affiliates
may actively trade the debt and equity securities of DCA and CTS and their
respective affiliates for their own accounts and for the accounts of their
customers and, accordingly, may at any time hold a long or short position in
such securities.
WP&Co. was retained, pursuant to the terms of a letter agreement, dated as
of April 4, 1997 (the "Letter Agreement"), to provide financial advisory
services with regard to DCA's review of the WHX Tender Offer, any acquisition of
or similar business combination involving DCA or a significant portion of DCA's
assets or any alternative transaction (each, an "Alternative Business
Combination"). WP&Co. also agreed to provide, in accordance with its customary
practice, an opinion to the DCA Board with respect to the adequacy or fairness,
from a financial point of view, of the consideration to be paid or received, as
the case may be, in any Alternative Business Combination. DCA paid WP&Co. a fee
of $150,000 in cash on the date the Letter Agreement was executed, which fee is
to be credited against any other fees earned by WP&Co. pursuant to the Letter
Agreement. DCA has also agreed to pay WP&Co. a fee, in connection with any
Alternative Business Combination, equal to 0.875% of the aggregate value of such
Alternative Business Combination, as determined in accordance with the Letter
Agreement, or a fee of $750,000 if, after the passage of one year from the date
of the Letter Agreement, no Alternative Business Combination shall have been
consummated. DCA has also agreed to reimburse WP&Co. for its reasonable out-of-
pocket expenses, including the fees, disbursements and other costs of counsel
and of other consultants and advisors retained by WP&Co. in connection with its
activities contemplated by the Letter Agreement, and to indemnify WP&Co. for
certain liabilities arising out of actions taken under the Letter Agreement.
J.P. MORGAN OPINION.
Pursuant to an engagement letter dated April 9, 1997, CTS retained J.P.
Morgan as its financial advisor. On July 17, 1997, J.P. Morgan delivered its
opinion to the CTS Board that, as of the date of such opinion, and based on the
procedures followed, assumptions made, matters considered and limitations on the
review undertaken, the consideration paid or to be paid by CTS in the Offer and
the Merger was fair, from a financial point of view, to CTS. A written copy of
the opinion of J.P. Morgan, dated as of July 17, 1997 (the "J.P. Morgan
Opinion"), is attached hereto as Annex C, and incorporated by reference. CTS
Shareholders are urged to, and should, read the J.P. Morgan Opinion in its
entirety for information with respect to the procedures followed, assumptions
made, matters considered and limitations of the review undertaken by J.P. Morgan
in rendering the J.P. Morgan Opinion. References to the J.P. Morgan Opinion and
the summary of the J.P. Morgan Opinion herein are qualified by reference to the
full text of the J.P. Morgan Opinion. The J.P. Morgan Opinion is addressed to
the CTS Board, is directed only to the consideration to be paid in the
Combination and does not constitute a recommendation to any CTS Shareholder as
to how any CTS Shareholder should vote or otherwise act with respect to the
Merger.
In connection with rendering the J.P. Morgan Opinion, J.P. Morgan reviewed,
among other things, the Merger Agreement and certain related documents; certain
publicly available information concerning the businesses of CTS and DCA and of
certain other companies engaged in businesses deemed comparable to those of CTS
and DCA, and the reported trading prices for certain other companies' securities
deemed comparable; publicly available terms of certain transactions involving
companies deemed comparable to CTS and DCA; current and historical trading
prices of the common stock of CTS and DCA; the audited financial statements of
CTS and DCA for the fiscal year ended December 31, 1996, and certain unaudited
financial statements of CTS and DCA for the period ended March 30, 1997, in the
case of CTS, and March 31, 1997, in the case of DCA; certain agreements with
respect to outstanding indebtedness or obligations of CTS and DCA; and certain
internal financial analyses and forecasts concerning CTS and DCA prepared
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by the management of CTS and DCA, respectively. J.P. Morgan also held
discussions with certain members of the managements of CTS and DCA with respect
to certain aspects of the Combination, and the past and current business
operations of CTS and DCA, the financial condition and future prospects and
operations of CTS and DCA, the effects of the Combination on the financial
condition and future prospects of CTS and DCA and certain other matters J.P.
Morgan believed necessary or appropriate to its inquiry. In addition, J.P.
Morgan visited certain facilities of CTS and DCA, and reviewed such other
financial studies and analyses and considered such other information as it
deemed appropriate for the purposes of the J.P. Morgan Opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or was
furnished to it by CTS and DCA or otherwise reviewed by or discussed with J.P.
Morgan, and J.P. Morgan has not assumed any responsibility or liability
therefor. J.P. Morgan has not conducted any valuation or appraisal of any assets
or liabilities, nor have any such valuations or appraisals been provided to J.P.
Morgan. In relying on financial analyses and forecasts provided to J.P. Morgan,
including the views of CTS and DCA concerning the business, operational and
strategic benefits of the Combination, J.P. Morgan assumed that they were
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by the managements of CTS and DCA as to the expected
future results of operations and financial condition of CTS and DCA to which
such analyses or forecasts relate. J.P. Morgan assumed that the businesses of
DCA would be valued on a going concern basis, which could be greater than the
realizable value of such businesses in a sale process, and that the items
disclosed in DCA's disclosure schedule to the Merger Agreement do not and will
not individually or in the aggregate have a materially adverse affect on the
business, financial condition, results of operations or prospects of CTS or DCA.
J.P. Morgan also assumed that approximately $109 million of the total
consideration paid by CTS will be paid in cash pursuant to the Offer,
open-market purchases effected prior to the Cash Election Option and the Cash
Election Option or, alternatively, that, to the extent that less than 49.9% of
DCA's shares are so acquired, within a reasonable period of time after the
consummation of the Merger, CTS will effect repurchases of its outstanding
common shares at prices not materially in excess of prevailing market prices
during the period immediately preceding the Merger Agreement, through
open-market purchases or other capital market transactions, which will result in
CTS having a substantially equivalent capital structure as had 49.9% of DCA's
shares been purchased for cash pursuant to the Offer or the Merger. J.P. Morgan
further assumed that the Combination will have the tax consequences contemplated
by the recitals to the Merger Agreement, and in discussions with, and materials
furnished to J.P. Morgan by, representatives of CTS, and that the other
transactions contemplated by the Merger Agreement will be consummated as
described in the Merger Agreement.
The projections furnished to J.P. Morgan for DCA by WP&Co. were prepared by
the management of DCA. DCA normally does not publicly disclose internal
management projections of the type provided to J.P. Morgan in connection with
J.P. Morgan's analysis of the Combination, and such projections were not
prepared for publication or with a view toward public disclosure. These
projections were based on numerous variables and assumptions that are inherently
uncertain and may be beyond the control of management, including, without
limitation, factors related to general economic and competitive conditions and
prevailing interest rates. Accordingly, actual results could vary materially
from those set forth in such projections.
The J.P. Morgan Opinion is based on economic, market and other conditions as
in effect on, and the information made available to J.P. Morgan as of, the date
of such opinion. Subsequent developments may affect the J.P. Morgan Opinion, and
J.P. Morgan does not have any obligation to update, revise, or reaffirm such
opinion. J.P. Morgan expressed no opinion as to the after-tax value of any of
the businesses of DCA that may be achievable in a sale process. J.P. Morgan also
expressed no opinion as to the price at which CTS Shares will trade at any
future time.
J.P. MORGAN VALUATION ANALYSES. In accordance with customary investment
banking practice, J.P. Morgan employed generally accepted valuation methods in
reaching its opinion. Set forth below is a
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summary of certain financial analyses used by J.P. Morgan in connection with
providing its opinion. No limitations were imposed by CTS on the scope of J.P.
Morgan's investigation.
J.P. Morgan valued DCA Shares based upon a segmented analysis of DCA's
assets: (i) the DCA-Owned CTS Shares; (ii) DCA's International Electronic
Research Corporation, Reeves-Hoffman Division and Waring Products Division
business units (the "IRW Businesses"); and (iii) DCA's Ellis and Watts Division,
Fermont Division and Anemostat Products Division business units (the "EFA
Businesses").
MARKET TRADING PRICES. J.P. Morgan used publicly available current and
historical trading prices of the common stock of CTS and DCA to examine the
implied values of the DCA-Owned CTS Shares and the IRW Business and the EFA
Business. J.P. Morgan valued the DCA-Owned CTS Shares on a pre-tax and an
after-tax basis (assuming a tax basis for the DCA-Owned CTS Shares of
approximately $33.00 per CTS Share) to which a 20% block trade discount was
applied, reflecting J.P. Morgan's view as to the potential pricing in comparable
block trades. In addition, J.P. Morgan examined historical premia in substantial
share repurchase transactions.
PUBLIC TRADING MULTIPLES. Using publicly available information, J.P. Morgan
compared selected financial data of CTS with similar data for selected publicly
traded companies engaged in businesses which J.P. Morgan in consultation with
CTS believed to be analogous to CTS and DCA. The companies used in this analysis
by J.P. Morgan were Aavid Thermal Technologies Inc., Amphenol Corporation, AVX
Corporation, The Cherry Corporation, C.P. Clare Corporation, Exar Corporation,
Methode Electronics Inc., Molex Inc. and Vishay Intertechnology Inc. These
companies were used, among other reasons, because of the comparable nature of
their business segments and the markets they serve. For each comparable company,
publicly available financial performance through the most recently reported
12-month period ended on or prior to April 30, as available for each, was
measured. J.P. Morgan applied a value range for each multiple, specifically:
Firm Value (as defined below) to revenue, Firm Value to earnings before
interest, taxes, depreciation and amortization ("EBITDA"), Firm Value to
operating profit, Equity Value (as defined below) to net income and Equity Value
to book value. These multiples were then applied to CTS' revenue, EBITDA and
operating profit. These multiples were also applied to the IRW Businesses'
revenue, EBITDA and operating profit.
As used in the J.P. Morgan analyses: (i) "Firm Value" means the sum of the
Equity Value of the transaction or the company, as the case may be, plus the
book value of net debt (short and long term debt and less cash and short term
investments), non-convertible preferred stock and minority interest, and (ii)
"Equity Value" means the fully diluted equity value of the transaction or the
company, as the case may be.
SELECTED TRANSACTION ANALYSIS. Using publicly available information, J.P.
Morgan examined selected transactions with respect to the electronic component
industry sector. Specifically, J.P. Morgan reviewed the following transactions:
(i) Hadco's 1997 acquisition of Zycon, (ii) Tyco International's 1996
acquisition of ElectroStar, (iii) Thomas & Betts' 1996 acquisition of Augat,
(iv) Johnson Matthey's 1995 acquisition of Advance Circuits, (v) General
Signal's 1995 acquisition of Best Power Technology, (vi) AEG's 1994 acquisition
of ElectroCom Automation, (vii) Read-Rite's 1994 acquisition of Sunward
Technologies, (viii) Crane's 1994 acquisition of Eldec, (ix) Berg Electronic's
1993 acquisition of AT&T Microelectronics, (x) Jason's 1993 acquisition of
Koller Industries, and (xi) Amphenol's 1992 acquisition of LPL Technologies.
J.P. Morgan applied a range of multiples derived from such analysis to the IRW
Businesses' revenue, EBITDA and earnings before interest and taxes ("EBIT").
J.P. Morgan concluded that such comparable transaction analysis was not
appropriate for purposes of valuing the EFA Businesses due to the substantial
losses incurred by the EFA Businesses historically.
DISCOUNTED CASH FLOW ANALYSIS. J.P. Morgan conducted a discounted cash flow
analysis for the purpose of determining the Firm Value of the IRW Businesses.
J.P. Morgan calculated the unlevered free cash flows that the IRW Businesses
expected to generate during fiscal years 1997 through 2001 based upon financial
projections prepared by the management of DCA through the years ended December
31, 2001 (the "DCA Management Case") and upon DCA management projections
adjusted by J.P. Morgan to
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reflect more moderate growth in revenues and lower operating margins during the
five-year period (the "DCA Alternative Case"). J.P. Morgan also calculated a
range of terminal values for the IRW Businesses at the end of the five-year
period ending December 31, 2001 by applying a terminal multiple of 6x to 7x to
the EBITDA of the IRW Businesses during the final year of the five-year period
for both the DCA Management Case and the DCA Alternative Case. The unlevered
free cash flows and the range of terminal values were then discounted to present
values using a range of discount rates from 10% to 11%, which were chosen by
J.P. Morgan based upon an analysis of the weighted average cost of capital of
the IRW Businesses and selected publicly traded companies engaged in businesses
judged to be analogous to the IRW Businesses. J.P. Morgan formulated, in
conjunction with CTS management, a range of after-tax annual synergies, in the
range of $2-3 million, which were capitalized at a price/earnings multiple of
15x, based upon the comparable company analysis described above.
J.P. Morgan also conducted a discounted cash flow analysis of CTS for the
purpose of determining the implied equity value of the DCA-Owned CTS Shares.
J.P. Morgan calculated the unlevered free cash flows that CTS expected to
generate during fiscal years 1997 through 2001 based upon financial projections
prepared by the management of CTS through the years ended December 31, 2000 and
extrapolated for 2001 (the "CTS Management Case") and upon management
projections adjusted by J.P. Morgan to reflect CTS' first quarter financial
performance and more moderate growth in revenues and lower operating margins
during the five-year period (the "CTS Alternative Case"). J.P. Morgan applied a
terminal EBITDA multiple of 6x to 7x and a range of discount rates from 10% to
11% to the unlevered free cash flows of CTS and adjusted the resulting Firm
Value to reflect $21.9 million in net cash (net of debt and environmental
liabilities).
DCA-OWNED CTS SHARES. The range of equity values for the DCA-Owned CTS
Shares implied by the analyses described above was approximately $33.50 to
$35.35 per DCA Share on a stand-alone basis (i.e., without synergies). The range
of possible values for CTS Shares in the presentation made by J.P. Morgan to the
CTS Board was $70.00 to $90.00 per CTS Share based upon the assumptions set
forth in such analysis and the considerations J.P. Morgan discussed with the CTS
Board. J.P. Morgan expressed no opinion as to the price at which the CTS Shares
will trade.
IRW BUSINESSES. The pre-tax Firm Values (before adjustments for excess cash
and total debt balances) for the IRW Businesses implied by the analyses
described above were in the range of $33 million to $42 million, exclusive of
the value of synergies described above, or approximately $8.65 to $11.00 per DCA
Share.
EFA BUSINESSES. J.P. Morgan evaluated the EFA Businesses based upon an
adjusted asset liquidation basis. A range of book value multiples were applied
to the identifiable current and fixed assets (net of identifiable liabilities)
for each of the EFA Businesses. In aggregate, the pre-tax Firm Values (before
adjustments for excess cash and total debt balances) of the EFA Businesses were
in the range of $8 million to $16 million, or approximately $2.10 to $4.20 per
DCA Share.
DCA COMMON STOCK. The range of values for the DCA-Owned CTS Shares, IRW
Businesses and EFA Businesses were aggregated and then adjusted for DCA's
December 31, 1996 year-end excess cash and total debt balances, corporate
liabilities and estimated environmental and other liabilities. These analyses
indicated a range of equity values of approximately $49.20 to $59.45 per DCA
Share, inclusive of synergies.
PRO FORMA MERGER ANALYSIS. J.P. Morgan prepared pro forma analyses of the
financial impact of the Merger. Using earnings estimated for CTS and DCA in the
CTS Alternative Case and the DCA Alternative Case for the 1998 fiscal year, J.P.
Morgan compared the EPS of CTS Shares, on a standalone basis, to the EPS of the
common stock of the combined companies on a pro forma basis. These comparisons
were based on the following assumptions and did not assume any synergies or cost
savings: (i) the Exchange Ratio of 0.88, (ii) per share equity consideration of
$55.00 per DCA Share, and (iii) the issuance of 1.692 million CTS Shares and the
cancellation of the DCA-Owned CTS Shares (net shares
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cancelled of 0.611 million) in the Merger. The analyses indicated that CTS'
Shareholders would own approximately 64% of the outstanding common equity (based
on the treasury stock method) of the combined companies after the Merger. The
analyses indicated that the proposed transaction would be accretive to the CTS
Shareholders on an EPS basis for the 1998 fiscal year utilizing the DCA and CTS
Alternative Cases.
In examining the Exchange Ratio, J.P. Morgan compared the $55.00 proposed
cash offer price per DCA Share to the average historical trading price of the
common stock of CTS for the 20 days, 15 days, 10 days and 5 days ended May 5,
1997. Such comparison indicated that for such periods the average market price
of a common share of DCA was equal to 0.91, 0.90, 0.89 and 0.88, respectively,
of a common share of CTS.
CONTRIBUTION ANAYLSIS. J.P. Morgan reviewed certain historical and
estimated future operating and financial information (including, among other
things, net sales, EBITDA, operating cash flow, EBIT and operating assets) for
CTS and DCA for the historical period 1992-1996 and estimates for 1997-1998
(based upon the CTS Alternative Case and the DCA Alternative Case). J.P. Morgan
analyzed the relative contributions of CTS and DCA to the combined entity based
upon these time periods. These analyses indicated that, based upon the average
contribution for the period 1992-1996, CTS would contribute approximately 70% to
net sales, 86% to EBITDA, 78% to operating cash flow, 79% to EBIT and 78% to
operating assets. Based upon the average contribution for the estimated period
1997-1998, CTS would contribute approximately 73% to net sales, 92% to EBITDA,
89% to operating cash flow, 92% to EBIT and 82% to operating assets.
------------------------
The material terms of the J.P. Morgan Opinion are set forth above; the
foregoing summary also describes all material analyses performed by J.P. Morgan
and presented to the CTS Board. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. J.P. Morgan believes that the summary set forth above and
its analyses must be considered as a whole and that selecting portions thereof,
without considering all of its analyses, could create an incomplete view of the
processes underlying its analyses and opinion. J.P. Morgan based its analyses on
assumptions that it deemed reasonable, including assumptions concerning general
business and economic conditions and industry-specific factors. The other
principal assumptions upon which J.P. Morgan based its analyses are set forth
above under the description of each such analysis. J.P. Morgan's analyses are
not necessarily indicative of actual values or actual future results that might
be achieved, which values may be higher or lower than those indicated. Moreover,
J.P. Morgan's analyses are not and do not purport to be appraisals or otherwise
reflective of the prices at which businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its affiliates
are continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. J.P. Morgan was selected to advise CTS with respect to the
Combination and deliver an opinion to the CTS Board with respect to the
Combination on the basis of such experience.
For services rendered in connection with the Combination, CTS has agreed to
pay J.P. Morgan a fee of $1,500,000, $400,000 of which is contingent upon the
occurrence of the Effective Time. In addition, CTS has agreed to reimburse J.P.
Morgan for its reasonable expenses incurred in connection with its services,
including the fees and disbursements of counsel, and will indemnify J.P. Morgan
against certain liabilities, including liabilities arising under the federal
securities laws. In the ordinary course of their businesses, affiliates of J.P.
Morgan may actively trade the debt and equity securities of CTS or DCA for their
own accounts or for the accounts of customers and, accordingly, they may at any
time hold long or short positions in such securities.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal federal income tax consequences
of the Offer and the Merger. This discussion is based upon the Code, the
applicable Treasury Regulations promulgated thereunder, judicial authorities,
administrative rulings and other applicable authorities, all as in effect as of
the date hereof. Legislative, judicial or administrative authorities are subject
to change, possibly on a retroactive basis, at any time and any such change
therein could alter or modify the statements and conclusions set forth below. In
addition, the recently enacted Taxpayer Relief Act of 1997 could affect the
federal income tax consequences of the Offer and the Merger in that, among other
things, it reduces the rate of federal income tax imposed on capital gains of
individual taxpayers for capital assets held more than eighteen months. It is
assumed for purposes of this discussion that the DCA Shares are held and will
continue to be held as "capital assets" within the meaning of Section 1221 of
the Code (i.e., in general, property held for investment). This discussion does
not address all aspects of federal income taxation that may be relevant to a
particular DCA Shareholder in light of such shareholder's particular investment
circumstances, or those DCA Shareholders subject to special treatment under the
federal income tax laws (for example, life insurance companies, tax-exempt
organizations, foreign corporations and nonresident alien individuals) or to DCA
Shareholders who acquired their DCA Shares through the exercise of employee
stock options or other compensation arrangements. In addition, the discussion
does not address any aspect of foreign, state, local or estate and gift taxation
that may be applicable to a DCA Shareholder. No ruling has been or will be
sought from the Internal Revenue Service (the "IRS") regarding the federal
income tax consequences of the Offer and the Merger, and thus no assurance can
be given that the IRS will agree with the consequences described below.
CONSEQUENCES OF PARTICIPATION IN THE MERGER. It is the opinion of Jones
Day, counsel to CTS, that, based upon certain assumptions and representations
(including the assumption that DCA Shareholders will maintain a significant
continuing ownership interest in DCA through ownership of CTS Shares after the
Merger), the Merger will qualify as a reorganization under Section 368(a) of the
Code and that CTS, Sub and DCA will be parties to the reorganization within the
meaning of Section 368(b) of the Code. Assuming the Merger so qualifies, in
general, (i) no gain or loss will be recognized by DCA, CTS or Sub pursuant to
the Offer and/or the Merger, (ii) no gain or loss will be recognized by a DCA
Shareholder who does not participate in the Offer and receives solely stock
pursuant to the Merger, except to the extent that cash is received in lieu of a
fractional CTS Share, as discussed below, and (iii) a DCA Shareholder who
receives a combination of cash and CTS Shares for such shareholder's DCA Shares
pursuant to the Offer and/or the Merger will not recognize loss but will
recognize gain, if any, to the extent of the lesser of (a) the cash received in
the Offer and/or the Merger and (b) the excess of the sum of the fair market
value of the CTS Shares received pursuant to the Merger (including, for this
purpose, fractional shares), and the amount of cash received pursuant to the
Offer and/or the Merger, over the DCA Shareholder's adjusted tax basis in its
DCA Shares tendered in the Offer or exchanged pursuant to the Merger. For
purposes of clause (iii), gain or loss must be calculated separately for each
identifiable block of shares surrendered pursuant to the Merger, and a loss
realized on one block of DCA Shares may not be used to offset a gain realized on
another block of DCA Shares. A DCA Shareholder's recognized gain will be capital
gain (and long-term capital gain if, at the Effective Time, the shares were held
for more than one year), unless the receipt of cash by the DCA Shareholder has
the effect of the distribution of a dividend as provided in Section 356(a)(2) of
the Code. The receipt of cash by a DCA Shareholder will not be considered to
have the effect of a distribution of a dividend if such shareholder's
disposition of the DCA Shares pursuant to the Offer and Merger effects a
"meaningful reduction" in the DCA Shareholder's stock interest or is
"substantially disproportionate" with respect to the shareholder, within the
meaning of Section 302(b) of the Code. For purposes of making this
determination, a DCA Shareholder will be treated as constructively owning CTS
Shares directly or indirectly owned by certain related parties under Section 318
of the Code. As these rules are complex, each DCA Shareholder should consult its
tax advisor to determine whether such constructive ownership rules apply and the
effect of such application. The IRS has ruled that any
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reduction in interest of a minority stockholder owning a small number of shares
in a publicly and widely held corporation who exercises no control over
corporate affairs may constitute a "meaningful reduction."
The qualification of the Merger as a reorganization under Section 368(a) of
the Code will be subject to certain facts and conditions, including that there
be "continuity of interest" by DCA Shareholders in the CTS Shares. In connection
with the Offer, as previously stated, CTS and DCA have received an opinion from
Jones Day to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that CTS, Sub and DCA will each be a party to such reorganization within the
meaning of Section 368(b) of the Code. Because such opinion was rendered as a
condition to consummation of the Offer and not as of the Effective Time of the
Merger, no assurance can be given that the facts and conditions necessary for
the Merger to qualify as a reorganization under Section 368(a) of the Code
(which facts and conditions were assumed or represented by the parties for
purposes of such opinion) will be satisfied. If these facts and conditions are
not satisfied, the Merger would be a taxable transaction for federal income tax
purposes. In that case, DCA Shareholders would recognize gain or loss on their
exchange of DCA Shares for CTS Shares (or for CTS Shares and cash, as the case
may be), and DCA would be treated as if it sold all its assets to Sub in a
taxable sale for federal income tax purposes.
Each of DCA and CTS will use all reasonable efforts to cause the Merger to
qualify as a reorganization within the meaning of Section 368(a) of the Code.
TAX BASIS AND HOLDING PERIOD OF CTS SHARES RECEIVED IN THE MERGER. Assuming
that the Merger qualifies as a reorganization under Section 368(a) of the Code,
the aggregate tax basis of the CTS Shares received by a DCA Shareholder in the
Merger (including fractional shares deemed received) will be the same as the
aggregate tax basis of the DCA Shares converted in the Merger, increased by the
amount of any gain recognized by the DCA Shareholder (including any portion
treated as dividend income, as described above), and decreased by the amount of
cash received by the DCA Shareholder pursuant to the Offer and/or the Merger.
The holding period of such CTS Shares will include the holding period of the DCA
Shares converted in the Merger, provided such shares are held as a capital asset
at the Effective Time. If a DCA Shareholder has different tax bases or holding
periods in respect of its shares, it should consult its tax advisor prior to the
Merger with regard to identifying the bases or holding periods of the particular
CTS Shares received in the Merger, as several methods of determination may be
available.
CASH RECEIVED IN LIEU OF A FRACTIONAL SHARE OF CTS COMMON STOCK. Cash
received by a DCA Shareholder in lieu of a fractional share of CTS Common Stock
will be treated as received in exchange for such CTS Shares and, generally, gain
or loss will be recognized, measured by the difference between the amount of
cash received and the portion of the basis of the DCA Shares exchanged that is
allocable to such fractional CTS Share. In general, such gain or loss will
constitute capital gain or loss, and will be long-term capital gain or loss if
the holding period for such DCA Shares was greater than one year at the
Effective Time.
CONSEQUENCES OF EXERCISE OF DISSENTERS' RIGHTS OR OTHER RECEIPT OF SOLELY
CASH. The exercise of dissenters' rights in connection with the Merger (see
"Other Terms of the Merger and the Merger Agreement -- Dissenters' Rights") or
the receipt of solely cash for a shareholder's DCA Shares pursuant to the Offer
and/or the Merger is a taxable transaction for federal income tax purposes. In
general, a DCA Shareholder who dissents to the Merger or receives solely cash
pursuant to the Offer and/or the Merger will recognize gain or loss for federal
income tax purposes in an amount equal to the difference between the amount
received and the adjusted tax basis in the DCA Shares sold. Gain or loss must be
determined specifically for each identifiable block of shares (I.E., DCA Shares
acquired at the same cost in a single transaction). Assuming, as noted above,
that the DCA Shares constitute "capital assets" in the hands of a selling DCA
Shareholder, such gain or loss will be capital gain or loss and will be
long-term gain or loss if, on the date of sale, the shares were held for more
than a year. The foregoing also assumes that a DCA Shareholder who dissents to
the Merger or receives solely cash pursuant to the Offer and/or the Merger
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will not own or acquire any CTS Shares or options with respect to DCA Shares or
CTS Shares, and will not be treated as constructively owning any CTS Shares
after the Merger by attribution from a related party under Section 318 of the
Code, as described above. Each DCA Shareholder should consult its tax advisor to
determine whether such constructive ownership rules apply and the effect of any
such application.
BACKUP TAX WITHHOLDING. Under the Code, a DCA Shareholder may be subject,
under certain circumstances, to "backup withholding" at a 31% rate with respect
to payments made in connection with the Offer or the Merger. Backup withholding
generally applies if the DCA Shareholder (i) fails to furnish his or her social
security number or other taxpayer identification number ("TIN"), (ii) furnishes
an incorrect TIN, (iii) fails properly to report interest or dividends to the
IRS, or (iv) under certain circumstances, fails to provide a certified statement
to the IRS, signed under penalties of perjury, that the TIN provided is his or
her correct number and that he or she is not subject to backup withholding.
Backup withholding is not an additional tax but merely an advance payment, which
may be refunded to the extent it results in an overpayment of tax. Certain
persons generally are exempt from backup withholding, including corporations and
financial institutions. Certain penalties apply for failure to furnish correct
information and for failure to include the reportable payments in income. Each
DCA Shareholder should consult with his or her tax advisor as to the
qualifications for exemption from withholding and the procedure for obtaining
such exemption.
------------------------
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION PURPOSES ONLY. DCA SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE OFFER AND THE MERGER TO THEM IN VIEW OF THEIR OWN PARTICULAR CIRCUMSTANCES.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for under the purchase method of
accounting and as a purchase and reacquisition of DCA-Owned CTS Shares. See "Pro
Forma Financial Data."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the respective managements and boards of DCA and CTS have
interests in the transactions contemplated by the Merger Agreement that are in
addition to their interests as DCA Shareholders generally. The DCA Board and the
CTS Board were aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby. In considering the recommendations of the DCA Board and the CTS Board
in respect of the Merger Agreement and the transactions contemplated thereby,
the DCA Shareholders or CTS Shareholders, as the case may be, should be aware of
these interests which may present actual or potential conflicts of interest.
DIRECTORS AND OFFICERS. Andrew Lozyniak, the Chairman of the Board and
President of DCA, and a director of DCA, is a director of CTS. Patrick J. Dorme,
Vice President-Finance and Chief Financial Officer and director of DCA, is also
a director of CTS. On May 9, 1997, in connection with the execution of the
Merger Agreement, CTS, DCA and each of Mr. Lozyniak, Mr. Dorme and Henry V.
Kensing, Vice President, General Counsel and Secretary of DCA, entered into
employment contracts to be effective at the Effective Time (collectively, the
"DCA Employment Contracts"). See "-- DCA Employment Contracts" below for a
description of the terms of the DCA Employment Contracts.
It is expected that Messrs. Lozyniak and Dorme will continue as members of
the CTS Board following the Effective Time. The failure to nominate either of
them for election as a member of the CTS Board following the Effective Time
constitutes grounds for termination by them of, and gives rise to the right to
receive severance benefits under, the DCA Employment Contracts. The failure to
nominate either of Messrs. Lozyniak or Dorme for election to the CTS Board also
constitutes grounds for Mr. Kensing to receive such benefits. It is anticipated
that, as of the Effective Time, the CTS Board will initially be CTS'
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current five-member board, which includes Joseph P. Walker, Chairman, President
and Chief Executive Officer of CTS, Messrs. Lozyniak and Dorme and the two
present independent directors of CTS. It is also contemplated that, as promptly
as practicable following the Effective Time, the CTS Board will be increased by
at least two additional directors who qualify as independent directors under
NYSE guidelines. See "-- Board Representation" for a description of certain
procedures set forth in the Merger Agreement relating to the election of
additional members of the CTS Board by the other members thereof. Mr. Lozyniak
will also join CTS' Office of the Chairman with Mr. Walker and will focus on
strategic issues while continuing to oversee the management of DCA's continuing
operations.
In addition, in connection with its approval of the DCA Employment
Contracts, CTS approved, subject to the completion of the Merger and the
approval by the CTS Shareholders, the award of an Option (the "Lozyniak Option")
to Mr. Lozyniak to purchase 100,000 CTS Shares at $62.50 per share. The Lozyniak
Option has a ten-year term from the Effective Time and vests as to 20% of the
CTS Shares covered thereby on each of the first five annual anniversaries
thereof, subject to immediate vesting if the average closing price for CTS
Shares equals or exceeds $70.00 over a 20-trading-day period and upon certain
terminations of Mr. Lozyniak's employment. The CTS Board also approved Option
awards (having substantially similar terms, and subject to the same conditions,
as the Option granted to Mr. Lozyniak) to Joseph P. Walker, in respect of
200,000 CTS Shares, and certain other executive officers of CTS and DCA in
respect of 100,000 CTS Shares. In addition, the CTS Board approved CTS' entry
into the employment agreement described below with Mr. Walker to replace his
existing employment agreement (which was to expire by its terms on June 24,
1997).
SECURITY OWNERSHIP. As of the date hereof, CTS beneficially owns 1,215,264
DCA Shares.
RELATED-PARTY TRANSACTIONS. CTS paid DCA the following amounts for the
purchase of products from DCA in each of 1994, 1995 and 1996: $233,000, $143,000
and $157,000, respectively. CTS believes that such purchases were on
substantially comparable terms to those that would have been available in arms'
length transactions involving unrelated persons. Each of Messrs. Lozyniak and
Dorme has received directors' fees from CTS. Mr. Dorme was paid the following
amounts: 1994: $23,500; 1995: $27,500; 1996: $28,000; and 1997 (through the date
hereof): $11,833. Mr. Lozyniak was paid the following amounts: 1994: $24,000;
1995: $28,000; 1996: $28,500; and 1997 (through the date thereof): $12,000. Such
directors' fees will no longer be payable to Messrs. Lozyniak and Dorme after
the Effective Time under the CTS Board's current director compensation policies.
DCA EMPLOYMENT CONTRACTS. In connection with the execution of the Merger
Agreement, DCA and CTS entered into the DCA Employment Contracts effective as of
the Effective Time (the "Effective Date"), with Messrs. Lozyniak, Kensing and
Dorme, pursuant to which each executive (an "Executive") will be employed by DCA
for a period of five years following the Effective Date (the "Term") in the same
position as he currently holds. As of the Effective Date, the DCA Employment
Contracts will supersede the Amended DCA Employment Agreements to which the
Executives are currently parties with DCA. The terms and provisions of the DCA
Employment Contracts are substantially similar to those of the Amended DCA
Employment Agreements.
The DCA Employment Contracts provide for (i) level monthly payments for
Messrs. Lozyniak, Kensing and Dorme of $37,500, $17,039 and $14,162,
respectively, with salary increases for Mr. Lozyniak comparable to those
provided from time to time for the Chief Executive Officer of CTS ("Base
Salary"); (ii) split-dollar life insurance coverage, supplemental retirement
benefits and, for the ten-year period following retirement, post-retirement
medical coverage, each as provided to the Executives under the Amended DCA
Employment Agreements; (iii) eligibility to participate in annual and long-term
(including stock-based) incentive programs, on the same level as similarly
situated employees of CTS; and (iv) participation in other benefit programs and
policies at the level provided as of the date of the DCA Employment Contracts.
Mr. Lozyniak's DCA Employment Contract also provides for the Lozyniak Option.
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The DCA Employment Contracts provide that if an Executive's employment is
terminated by the Executive for Good Reason, as defined in the DCA Employment
Contracts, or by DCA for any reason other than Cause, as defined in the DCA
Employment Contracts, or Disability, as defined in the DCA Employment Contracts,
the Executive will be entitled to the following payments and benefits: (i) a
cash lump sum equal to 3 1/3 times the sum of his annual Base Salary and his
highest aggregate stock and cash bonuses earned for any of the five years prior
to the Effective Date or (ii) if the Executive so elects, the continuation of
his Base Salary over the remainder of the Term plus an annual bonus for each
year of the remainder of the Term equal to his highest annual aggregate stock
and cash bonuses earned for any of the five years prior to the date of
termination.
The DCA Employment Contracts provide that if an Executive's termination of
employment is by reason of death or Disability, he or his estate will be
entitled to the continuation of Base Salary over the remainder of the Term plus
an annual bonus for each year of the remainder of the Term equal to his highest
annual aggregate cash and stock bonuses earned for any of the five years prior
to the date of termination. At the end of the Term, if termination is by reason
of death, the Executive's surviving spouse will receive for ten additional years
(or her earlier death) an annual amount equal to $50,000 ($60,000 in the case of
Mr. Lozyniak). At the end of the Term, if termination is by reason of
Disability, the Executive will receive an annual amount equal to 40% of his base
salary until age 65.
The DCA Employment Contracts also provide that if an Executive's employment
is terminated for any reason other than by DCA for Cause or by the Executive
without Good Reason: (i) an amount sufficient to pay ten years of premiums with
respect to the split-dollar insurance policy on the Executive's life will be
transferred to the split-dollar life insurance carrier and CTS and DCA will
release all their rights under such policy; (ii) the Executive will be
immediately eligible for post-retirement supplemental retirement and medical
benefits; and (iii) life and disability insurance benefits, at the level
provided as of the date of the agreements, will be continued for the remainder
of the Term. The Executives will also be entitled to reasonable attorney's fees
in the event of any disputes, as well as a gross-up for any excise tax imposed
upon any payments or benefits.
Finally, the DCA Employment Contracts provide that, during the Term, Messrs.
Lozyniak and Dorme will be nominated to the CTS Board and that Messrs. Lozyniak,
Dorme and Kensing will be nominated to the DCA Board.
PRE-MERGER DCA EMPLOYMENT AGREEMENTS. On April 11, 1997, the DCA Board
approved amendments to the employment agreements (the "Amended DCA Employment
Agreements") previously entered into with Messrs. Lozyniak, Dorme and Kensing to
(i) provide for a new definition of a change in control of DCA ("Change in
Control"), pursuant to which a Change in Control is, in general, deemed to occur
if (a) any person, with specified exceptions, becomes the beneficial owner of at
least 25% of DCA's voting securities, (b) a change in the majority of the
membership of the DCA Board occurs without approval of two-thirds of the
directors who either were directors on the date of the amendments, or whose
election was previously so approved, (c) there is consummated a merger or
consolidation of DCA or a subsidiary thereof with another company in which DCA
Shareholders do not continue to hold at least 60% of the voting securities of
the surviving entity (excepting certain recapitalizations of DCA), or (d) there
occurs a liquidation of DCA or a sale or other disposition of all or
substantially all of DCA's assets, and (ii) clarify that the payment by DCA of
any excise tax imposed under section 280G of the Code would itself be made on an
after-tax basis and would include all "change-in-control" payments, whether made
pursuant to the Amended DCA Employment Agreements or otherwise.
On April 11, 1997, the DCA Board approved an amendment to the grantor trust
established by DCA (the "Trust Agreement Amendment") that provides for the
segregation of assets to pay liabilities under certain of DCA's employee benefit
arrangements to permit the segregation of additional assets to pay any future
severance liabilities under the Amended DCA Employment Agreements, which are
described above. The grantor trust agreement was also amended to adopt the
definition of Change in Control
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described above under "Pre-Merger DCA Employment Agreements" and to provide
certain other changes.
On April 11, 1997, the DCA Board authorized DCA to enter into severance
agreements (the "DCA Severance Agreements") with two groups of DCA employees:
Group I (the "Group I DCA Severance Agreements"), consisting of seven employees
(other than Messrs. Lozyniak, Dorme and Kensing) and Group II (the "Group II DCA
Severance Agreements"), consisting of 30 employees. The DCA Severance Agreements
provide for the payment of certain severance and other benefits to covered
employees who are terminated within two years following a change in control of
DCA (as defined above under "Pre-Merger DCA Employment Agreements"). If,
following a change in control of DCA, the employee is terminated by DCA other
than for cause (as defined in the DCA Severance Agreements), or if the employee
terminates employment for Good Reason (as defined in the DCA Severance
Agreements) (each a "Qualifying Termination"), then DCA will pay to the employee
in one lump sum, as severance pay, an amount equal to, in the case of the Group
I DCA Severance Agreements, three times, and in the case of the Group II DCA
Severance Agreements, one times, salary (based upon annual base salary at the
date of termination) and bonus payments (based upon the highest bonus paid in
respect of DCA's prior three full fiscal years) and will continue the employee's
welfare benefits for a period of, in the case of the Group I DCA Severance
Agreements, three years, and in the case of the Group II DCA Severance
Agreements, one year. In no case, however, may the employee receive any payment
or benefit in connection with a Change in Control in excess of 2.99 times his
"base amount" (as that term is defined in section 280G of the Code).
On April 11, 1997, the DCA Board adopted a severance policy pursuant to
which six employees at DCA's corporate headquarters would be eligible, in the
event of a Qualifying Termination, to receive, in the case of covered employees
with at least five years of service with DCA or its subsidiaries, one year's,
and in the case of the remaining covered employees, six months', salary (based
upon annual base salary at the date of termination) and highest bonus paid in
respect of DCA's prior three full fiscal years, payable in one lump sum.
DCA maintains the 1980 Restricted Stock and Cash Bonus Plan, as amended (the
"DCA Restricted Stock Plan"), which provides for the award or sale of shares of
so-called restricted stock and, upon the lapse of restrictions thereon, the
payment of a cash bonus. The DCA Restricted Stock Plan provides that all
restrictions on outstanding awards will lapse in the event of a Change in
Control. On April 11, 1997, the DCA Board made awards of restricted shares under
the DCA Restricted Stock Plan to certain of DCA's employees and adopted an
amendment to the DCA Restricted Stock Plan to adopt the definition of Change in
Control described above.
OTHER DCA COMPENSATION MATTERS. As of May 9, 1997, Mr. Kensing exercised
his authority under DCA's Stock Retirement Plan for nonemployee DCA Directors to
accelerate, from January 1, 1998 to immediately prior to the Effective Time, the
date on which the transfer of DCA Shares will be made under such plan. In
addition, it is anticipated that the Compensation Committee of the DCA Board
will review and consider the award of cash bonuses under DCA's annual cash
incentive plan, payable immediately prior to the Effective Time, based on
performance during the portion of 1997 preceding the Effective Time in an
aggregate amount not to exceed the accrual for annual cash incentive payments
reflected on the books of DCA on the date of the awards.
Pursuant to the Merger Agreement, with respect to each CTS "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), including plans or policies providing severance
benefits and vacation entitlement ("CTS Plans"), if the Effective Time occurs,
service with DCA will be treated as service with CTS for purposes of determining
eligibility to participate, vesting and entitlement to benefits (other than the
accrual of benefits under any defined benefit pension plan) unless, and to the
extent that, the recognition of such service would result in a duplication of
benefits. Such service also will apply for purposes of satisfying any waiting
periods, evidence
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of insurability requirements or the application of any preexisting condition
limitations under any CTS Plan. Employees of DCA will be given credit under any
CTS Plan in which they are eligible to participate for amounts paid under a
corresponding DCA benefit plan during the same period for purposes of applying
deductibles, copayments and out-of-pocket maximums as though such amounts had
been paid in accordance with the terms and conditions of the CTS Plans.
Following the Effective Time, CTS will cause the combined company to honor
in accordance with their terms all employment, severance and other compensation
agreements and arrangements of DCA, including but not limited to severance
benefit plans, the existence or terms of which do not involve any material
breach of any representation, warranty or covenant of DCA under the Merger
Agreement.
CTS CEO EMPLOYMENT CONTRACT. On May 9, 1997, the CTS Board approved CTS'
entry into an employment agreement with Mr. Walker (the "CEO Employment
Contract") to replace his existing employment agreement with CTS, which expired
by its terms on June 24, 1997. Mr. Walker's salary under the CEO Employment
Contract is $500,000 per year, subject to review by the CTS Board for increases,
but not decreases, each year. During the term of the CEO Employment Contract, if
Mr. Walker's employment is terminated as a result of his death or disability,
for good reason (as defined) or by CTS without Cause (as defined), Mr. Walker
will receive severance benefits equal to his base salary for the remainder of
the term, plus an annual bonus for each year remaining in the term equal to the
largest cash and stock bonus that he received during the five fiscal years
preceding the date of termination. In addition, if Mr. Walker's employment is
terminated by Mr. Walker for good reason or by CTS without Cause, Mr. Walker may
instead receive a lump sum equal to 3 1/3 times his base salary and the largest
cash and stock bonus that he received during the five fiscal years preceding the
date of CEO Employment Contract. Any payments to Mr. Walker upon a change in
control (as defined) are increased to compensate Mr. Walker for any excise tax
payable to him pursuant to Section 280G of the Code. The payments and benefits
to Mr. Walker under his employment agreement are reduced automatically by any
corresponding payments or benefits under his severance agreement (described
below).
CHANGE-IN-CONTROL AGREEMENTS. CTS entered into severance agreements, dated
April 11, 1997, with each of its nine executive officers and seven other key
employees of CTS. The agreements have a rolling three-year term which is
automatically extended each January 1 thereafter unless notice is given
otherwise. The severance agreements become operative only upon a change in
control of CTS (as defined). Severance benefits are provided if, upon a change
in control, CTS terminates a covered executive's employment without cause or the
executive terminates his employment for good reason (each as defined). Severance
compensation under the agreements includes a multiple (two or three, depending
upon level of job responsibility) of base salary, a multiple (two or three,
depending upon level of job responsibility) of the average annual incentive
compensation awarded to the executive during the three fiscal years preceding
the fiscal year in which the change in control occurred, the continued
participation for a number of months following termination in welfare benefits
plans and other similar benefit programs, a lump sum payment equal to the
increase in actuarial value of the benefits under CTS' qualified and
supplemental retirement plans that the executive would have received had he or
she remained employed, outplacement services, and, in lieu of perquisites
provided immediately prior to the change in control, the payment of the lesser
of $50,000 or 10% of the total base salary and incentive compensation. In
addition, if any payments made to the executive are subject to the excise tax
under Section 280G of the Code, CTS will make an additional payment in an amount
to put the executive in the same after-tax position as if no excise tax had been
imposed; provided that if certain thresholds are not met, payments will be
reduced so that no excise tax applies.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. The Merger Agreement
provides that all rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time existing in favor
of the current or former directors or officers of DCA or its subsidiaries as
provided in their respective certificates of incorporation or by-laws (or
comparable organizational documents) will
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be assumed by CTS and CTS will be directly responsible for such indemnification,
without further action, as of the Effective Time and will continue in full force
and effect in accordance with their respective terms. In addition, from and
after the Effective Time, directors and officers of DCA who become or remain
directors or officers of CTS or Sub will be entitled to the same indemnity
rights and protections (including those provided by directors' and officers'
liability insurance) as are afforded to other directors and officers of CTS.
For a period of six years after the Effective Time, CTS will, and will cause
Sub to, maintain policies of directors' and officers' liability insurance
applicable to former directors and officers of DCA equivalent in all material
respects to those maintained by or on behalf of DCA and its subsidiaries on the
date of the Merger Agreement (and having at least the same coverage and
containing terms and conditions which are no less advantageous to the persons
currently covered by such policies as insureds) with respect to matters existing
or occurring at or prior to the Effective Time; provided, however, that if the
aggregate annual premiums for such insurance at any time during such period
exceed 200% of the per annum rate of premium currently paid by DCA and its
subsidiaries for such insurance on the date of the Merger Agreement, then CTS
will cause Sub to, and Sub will, provide the maximum coverage that will then be
available at an annual premium equal to 200% of such rate.
BOARD REPRESENTATION. In accordance with the Merger Agreement, following
the Offer Expiration Date, DCA increased the size of the DCA Board to 13 and
elected four designees of CTS, all of whom are CTS employees. Prior to the
Effective Time, any amendment or termination of the Merger Agreement by DCA,
extension by DCA for the performance or waiver of the obligations or other acts
of CTS or Sub or waiver of DCA's rights thereunder requires the concurrence of a
majority of the directors of DCA then in office who were directors on the date
of the Merger Agreement and who voted to approve the Merger Agreement.
As promptly as practicable following the Effective Time, CTS expects to
expand the CTS Board and add at least two additional directors who qualify as
independent directors under NYSE guidelines. The Merger Agreement provides that
from the Effective Time until the date immediately following the date of CTS'
1998 annual shareholder meeting or any adjournment or postponement thereof, any
additional directors elected by the CTS Board must be elected or nominated
therefor by the unanimous vote of a committee of the CTS Board comprised of two
Unaffiliated CTS Directors and one member who is not an Unaffiliated CTS
Director (the "Board Committee"). Pursuant to the Merger Agreement, the Board
Committee will initially be composed of Mr. Walker, Mr. Lozyniak and Gerald H.
Frieling, Jr. It is expected that, following the Effective Time, the Board of
Directors of Sub will include Messrs. Lozyniak, Dorme, Kensing and not fewer
than four employees of CTS, including its Chairman and Chief Executive Officer.
THE CTS CHARTER AMENDMENTS
The CTS Board approved the Charter Amendments in connection with the
approval of the Merger Agreement. The CTS Charter Amendments will be effective
as of the Effective Time, but will not be effective if the issuance of CTS
Shares in the Merger is not approved by CTS Shareholders. The Charter
Amendments, (i) increase the authorized capital of CTS from 8.0 million CTS
Shares to 75.0 million CTS Shares and authorize 25.0 million shares of preferred
stock (the "CTS Preferred Shares") (the terms of which will be established by
the CTS Board in connection with the authorization of the issuance thereof) (the
"Capitalization Amendment"), (ii) increase the maximum and minimum size of the
CTS Board to 15 and three, respectively, with the exact size to be determined by
the CTS Board (the "Board Size Amendment"), (iii) expand the required director
and officer indemnification to the extent allowable by the IBCL and to provide
procedures for the resolution of disputes over compliance with the applicable
standard of care (the "Indemnity Amendment"), and (iv) effect certain immaterial
conforming or technical changes. The CTS Charter, as so amended, is attached to
the Merger Agreement, a copy of which is attached hereto as Annex A. Unless the
Capitalization Amendment is approved, CTS will not have
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sufficient authorized and unissued CTS Shares to effect the Merger (or the Stock
Split). In addition, the CTS Board and DCA Board believe it is desirable to
increase CTS' authorized capitalization so that there will be sufficient shares
available for issuance after the Merger for purposes that the CTS Board may
hereafter determine to be in the best interests of CTS and its shareholders.
Such purposes could include the offer of shares for cash, acquisitions, employee
benefit programs and other general corporate purposes. In many situations,
prompt action may be required which would not permit seeking shareholder
approval to authorize additional shares for the specific transaction on a timely
basis. The CTS Board and DCA Board believe the CTS Board should have the
flexibility to act promptly in the best interests of CTS Shareholders. The terms
of any future issuance of CTS Shares or CTS Preferred Shares will be dependent
largely on market and financial conditions and other factors existing at the
time of issuance.
CTS currently has no plans, understandings, agreements or arrangements
concerning the issuance of additional CTS Shares or CTS Preferred Shares, except
for the shares to be issued in the Merger, the Stock Split and shares reserved
or to be reserved for issuance by CTS as described herein. If any plans,
understandings, arrangements or agreements are made concerning the issuance of
any such shares, holders of the then outstanding shares of CTS' capital stock
may or may not be given the opportunity to vote thereon, depending upon the
nature of any such transaction, the law applicable thereto, the policy of the
NYSE and the judgment of CTS' Board regarding the submission thereof to CTS'
shareholders. The current rules of the NYSE, however, would require shareholder
approval if the number of CTS Shares to be issued would equal or exceed 20% of
the number of such shares of CTS Shares outstanding immediately prior to such
issuance.
It is not presently contemplated that such additional CTS capital stock
would be issued for the purpose of making the acquisition by an unwanted suitor
of a controlling interest in CTS more difficult, time-consuming or costly.
However, it should be noted that shares of CTS capital stock could be issued for
that purpose and to that effect, and the CTS Board reserves its right (if
consistent with its fiduciary responsibilities) to issue CTS capital stock for
such purposes.
As promptly as practicable following the Effective Time, CTS intends to
increase the size of the CTS Board and add thereto at least two members thereof
who qualify as independent directors under NYSE guidelines. The Board Size
Amendment and the Indemnity Amendment are intended to facilitate the
accomplishment of that objective.
AMENDMENTS TO CTS BYLAWS
If the Merger is effective, CTS' Bylaws will be amended so that, in general,
the CTS Board may take action by majority vote rather than, as is currently
generally the case, two-thirds vote of the CTS Board.
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SHAREHOLDERS AGREEMENT
The following is a summary of the material terms of the Shareholders
Agreement and is qualified in its entirety by reference to the complete text of
the Shareholders Agreement, a copy of which has been filed as an exhibit to the
Registration Statement and incorporated herein by reference.
The Shareholders Agreement provides that during the period commencing on the
date thereof and continuing until the earlier to occur of (i) the Effective Time
or (ii) termination of the Merger Agreement but in no event later than October
31, 1997 (the "Restriction Period"), at any meeting (whether annual or special
and whether or not an adjourned or postponed meeting) of the holders of DCA
Shares, however called, WHX will appear at the meeting or otherwise cause the
DCA Shares or other DCA voting securities (or securities exchangeable for any of
such securities) then beneficially owned by them ("DCA Securities") to be
counted as present thereat for purposes of establishing a quorum and vote or, in
connection with any written consent of the holders of DCA Shares, consent (or
cause to be voted or consented) the DCA Securities (A) in favor of the
transactions contemplated by the Merger Agreement and the Shareholders Agreement
and any actions required in furtherance thereof; (B) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of DCA under the
Merger Agreement or WHX under the Shareholders Agreement; and (C) except as
otherwise agreed to in writing in advance by Parent in its sole discretion,
against the following actions (other than the Merger and the other transactions
expressly contemplated by the Merger Agreement): (1) any Takeover Proposal or
Acquisition Agreement with respect to DCA and (2)(u) any change in a majority of
the persons who constitute the DCA Board; (v) any material change in the present
capitalization of DCA, including without limitation any proposal to sell a
substantial equity interest in DCA or any of its subsidiaries; (w) any amendment
of DCA's Certificate of Incorporation or By-laws; (x) any other change in DCA's
corporate structure or business; or (y) any other action which, in the case of
each of the matters referred to in clauses (2)(u), (v), (w) or (x), is intended,
or could reasonably be expected, to impede, interfere with, delay, postpone or
materially adversely affect the Merger and the transactions contemplated by the
Shareholders Agreement and the Merger Agreement.
In the Shareholders Agreement WHX irrevocably appointed Sub as its proxy and
attorney in fact, with full power of substitution and resubstitution, to the
full extent of WHX's rights with respect to the DCA Securities to vote or cause
to be voted all DCA Securities as provided in the above paragraph.
The Shareholders Agreement provides that, during the Restriction Period, WHX
will not, directly or indirectly, (a) offer for sale, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the DCA Securities or any interest therein; (b)
grant any proxies or powers of attorney, deposit the DCA Securities into a
voting trust or enter into a voting agreement with respect to the DCA
Securities; or (c) take any action that would make any representation or
warranty of WHX contained in the Shareholders Agreement untrue or incorrect or
would result in a breach by WHX of its obligations under the Shareholders
Agreement.
The Shareholders Agreement may be terminated by WHX by written notice to
CTS, or by CTS by written notice to WHX, (a) upon announcement that the Merger
Agreement has been amended to (i) reduce the $58.00 price per DCA Share payable
under the Cash Election Option or the Exchange Ratio, (ii) reduce the amount of
cash available for holders of DCA Shares who elect to receive cash by changing
the percentage used to calculate the Maximum Cash Shares to a percentage lower
than 49.9%, or (iii) require DCA Shareholders to receive cash for all or any
portion of their DCA Shares (other than in respect of fractional shares) or (b)
if the Effective Time has not occurred, at any time on or after October 31,
1997.
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OTHER TERMS OF THE MERGER AND THE MERGER AGREEMENT
PROCEDURES FOR CASH ELECTION
A Form of Election/Letter of Transmittal containing instructions with
respect to the surrender of certificates representing the DCA Shares ("DCA Share
Certificates") will be mailed to holders of DCA Shares as of the DCA Record Date
as soon as practicable after the date of this Joint Proxy Statement/ Prospectus.
At any time thereafter, any holder of DCA Shares may request a Form of
Election/Letter of Transmittal by written or telephone request to State Street
Bank and Trust Company (the "Exchange Agent") c/o Corporate Reorganization
Department, P.O. Box 9061, Boston, Massachusetts 02205-9061, telephone 1 (800)
426-5523. Requests should be made by September 26, 1997 in order to ensure
timely receipt.
Subject to the proration procedures described below, each record holder of
DCA Shares (other than Dissenting Shares and shares owned by CTS or DCA or any
of their wholly owned subsidiaries immediately prior to the Effective Time,
which shares will be cancelled) outstanding immediately prior to the Effective
Time will be entitled to receive the Cash Consideration of $58.00 per DCA Share
if a properly completed Form of Election/Letter of Transmittal and DCA Share
Certificates or guarantee of delivery thereof are received by State Street Bank
and Trust Company (the "Exchange Agent") prior to 5:00 p.m. New York City time
on October 15, 1997 (the "Election Deadline"). Such DCA Shares as to which an
election to receive Cash Consideration on a properly completed and timely
received Form of Election and not revoked are hereinafter referred to as
"Electing Shares."
All DCA Shares outstanding immediately prior to the Effective Time, other
than Electing Shares but including DCA Shares as to which a demand for appraisal
has been withdrawn or not properly completed, will be converted into the right
to receive the Stock Consideration ("Non-Electing Shares"). In order to receive
the Stock Consideration, holders of Non-Electing Shares must complete a Form of
Election/Letter of Transmittal and submit DCA Share Certificates or guarantee of
delivery in accordance with the instructions in the Form of Election/Letter of
Transmittal.
COMPLETING THE FORM OF ELECTION. To make a proper election to receive cash,
a holder of DCA Shares must have delivered to the Exchange Agent at the address
specified above prior to the Election Deadline the following:
(i) a Form of Election properly completed in accordance with the
instructions thereon and signed by the record holder of the DCA Shares as to
which such election is being made; and
(ii) either (a) the DCA Share Certificates for such shares or (b) an
appropriate guarantee of delivery of DCA Share Certificates for such shares.
Holders of record of DCA Shares who hold such shares as nominees, trustees
or in other such representative capacities may submit multiple Forms of
Election.
A form of the guarantee of delivery will accompany the Form of Election,
and, unless DCA Share Certificates are submitted with the Form of Election, a
guarantee of delivery must be properly executed by a firm which is a member of
any registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or a bank, broker, dealer, credit union,
savings association or other entity that is a member in good standing of the
Securities Transfer Agent's Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program,
and DCA Share Certificates covered by such guarantee must in fact be received by
the Exchange Agent by the time specified in such guarantee for a valid Form of
Election to have been deemed submitted.
WITHDRAWAL AND CHANGE OF ELECTIONS. Any DCA shareholder may revoke his or
her election by submitting to the Exchange Agent written notice and a properly
completed and signed and revised Form of Election, by withdrawing his or her DCA
Share Certificates, or by withdrawing the guarantee of delivery of such
certificates previously deposited with the Exchange Agent, provided that the
Exchange Agent receives
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all necessary materials prior to the Election Deadline. Upon any such
revocation, unless a duly completed Form of Election is thereafter submitted,
such shares will be Non-Electing Shares.
All elections will be revoked automatically if the Exchange Agent is
notified in writing by CTS or DCA that the Merger Agreement has been terminated.
DISCRETIONARY AUTHORITY. CTS will determine in its sole and absolute
discretion whether Forms of Election have been properly completed, signed and
submitted or revoked. The determinations of CTS in such matters will be
conclusive and binding.
IN MAKING AN ELECTION FOR CASH CONSIDERATION OR STOCK CONSIDERATION, DCA
SHAREHOLDERS ARE URGED TO CONSIDER THE POSSIBLE IMPACT OF THE FLUCTUATING MARKET
VALUE OF CTS SHARES ON THE VALUE OF TOTAL CONSIDERATION RECEIVED IN THE MERGER.
UNDER THE MERGER AGREEMENT, THE STOCK CONSIDERATION PER SHARE OF DCA SHARES WILL
BE FIXED AT 0.88 CTS SHARES FOR EACH DCA SHARE. SEE "RISK FACTORS." THIS WILL
RESULT IN THE STOCK CONSIDERATION HAVING A VALUE OF $71.28 PER SHARE OF DCA
SHARES BASED UPON THE PRICE OF CTS SHARES ON AUGUST 29, 1997.
DCA SHAREHOLDERS WHO PERFECT AN ELECTION MAY NOT RECEIVE THE ELECTED CASH
CONSIDERATION IN FULL DUE TO PRORATION LIMITATIONS IN THE MERGER AGREEMENT. DCA
SHAREHOLDERS ARE ALSO URGED TO CONSIDER THE DIFFERING FEDERAL INCOME TAX
CONSEQUENCES IN MAKING THE ELECTION, AS DISCUSSED ABOVE.
THE DCA SHARES OF A HOLDER WHO FAILS TO PROPERLY COMPLETE AND RETURN THE
FORM OF ELECTION, TOGETHER WITH DCA SHARE CERTIFICATES OR AN APPROPRIATE
GUARANTEE OF DELIVERY OF CERTIFICATES FOR SUCH DCA SHARES, TO THE EXCHANGE AGENT
BY THE ELECTION DEADLINE, OR WHO FAILS TO COMPLY WITH THE ELECTION PROCEDURES
DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS AND THE FORM OF ELECTION, WILL
BE DEEMED BY CTS, IN ITS SOLE AND ABSOLUTE DISCRETION, TO BE CONVERTED INTO THE
STOCK CONSIDERATION.
PRORATION
Electing Shares will not be entitled to, and CTS will not be obligated to
pay, the Cash Consideration in respect of the number of DCA Shares outstanding
at the Effective Time that exceeds (i) 49.9% of the number of DCA Shares
outstanding at the Effective Time (including DCA Shares owned by Sub) minus (ii)
the number of DCA Shares owned by CTS, Sub and any of their respective
subsidiaries as of the Effective Time. At the date of the printing of this Joint
Proxy Statement/Prospectus, holders of approximately 18.2% of the outstanding
DCA common shares would be eligible to elect cash in the Merger. The maximum
number of DCA Shares so entitled to the Cash Consideration is hereinafter
referred to as the "Maximum Cash Shares."
In the event that the aggregate number of Electing Shares exceeds the
Maximum Cash Shares, all Electing Shares will be converted into the right to
receive Merger Consideration in the following manner:
(i) The number of Electing Shares covered by each Form of Election to be
converted into the Cash Consideration shall be determined by multiplying the
number of Electing Shares covered by such Form of Election by a fraction,
the numerator of which is the Maximum Cash Shares and the denominator of
which is the total number of Electing Shares, rounded down to the nearest
whole number.
(ii) All Electing Shares not converted into the Cash Consideration in
accordance with the above paragraph shall be converted into the Stock
Consideration.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
After the Effective Time, each DCA Share Certificate will represent only the
right to receive the Cash Consideration (subject to proration and assuming a
valid election to receive cash), the CTS Shares into which such DCA Shares were
converted in the Merger and the right to receive cash in lieu of fractional
shares as described below. Holders of DCA Share Certificates will not be paid
dividends or distributions
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on the CTS Shares into which such DCA Shares have been converted with a record
date after the Effective Time, and will not be paid cash in lieu of fractional
CTS Shares, until such DCA Shares Certificates are surrendered to the Exchange
Agent for exchange. When such DCA Share Certificates are surrendered, any unpaid
dividends and any cash in lieu of fractional CTS Shares payable as described
below will be paid without interest.
In the event of a transfer of ownership of the DCA Shares which is not
registered in the transfer records of DCA, a certificate representing the proper
number of CTS Shares may be issued to a person other than the person in whose
name the certificate so surrendered is registered if such certificate is
properly endorsed or otherwise in proper form for transfer and the person
requesting such issuance pays any transfer or other taxes required by reason of
the issuance of CTS Shares to a person other than the registered holder of such
certificate or establish to the satisfaction of CTS that such tax has been paid
or is not applicable.
All CTS Shares issued upon conversion of the DCA Shares (including any cash
paid in lieu of any fractional CTS Shares) will be deemed to have been issued in
full satisfaction of all rights pertaining to such DCA Shares.
No fractional CTS Shares will be issued to any DCA Shareholder upon
surrender of certificates previously representing the DCA Shares. For each
fractional share that would otherwise be issued, CTS will make available to such
DCA Shareholder an amount in cash determined in the manner set out in the next
two succeeding paragraphs.
As promptly as practicable following the Effective Time, the Exchange Agent
will determine the excess of (i) the number of whole CTS Shares delivered to the
Exchange Agent by CTS pursuant to the Merger Agreement over (ii) the aggregate
number of whole CTS Shares to be distributed to DCA Shareholders pursuant to the
Merger (such excess being herein called the "Excess Shares"). The Exchange Agent
will sell the Excess Shares at then-prevailing prices on the NYSE and will hold
the net proceeds of such sale or sales in trust for such DCA Shareholders
entitled thereto (the "Common Share Trust"). Promptly following such sale or
sales, the Exchange Agent will determine the portion of the Common Share Trust
to which each DCA Shareholder is entitled, if any, by multiplying the amount of
the aggregate net proceeds comprising the Common Share Trust by a fraction, the
numerator of which is the amount of the fractional share interest to which such
DCA Shareholder is entitled (after taking into account all DCA Shares held at
the Effective Time by such DCA Shareholder) and the denominator of which is the
aggregate amount of fractional share interests to which all DCA Shareholders are
entitled.
Notwithstanding the preceding paragraph, CTS may elect at its option,
exercised prior to the Effective Time, in lieu of the issuance and sale of
Excess Shares and the making of the payments hereinabove contemplated, to pay
each DCA Shareholder an amount in cash equal to the product obtained by
multiplying (i) the fractional share interest to which such DCA Shareholder
(after taking into account all DCA Shares held at the Effective Time by such DCA
Shareholder) would otherwise be entitled by (ii) the average closing price for a
share of CTS Common Stock as reported in the NYSE Composite Transactions Report
(as reported in the Wall Street Journal, or, if not reported thereby, any other
authoritative source) (the "Average Closing Price") for the ten trading days
prior to the Closing Date.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to the satisfaction
or waiver on or prior to the Closing Date of various conditions which include,
in addition to other customary closing conditions, the following: (i) each of
the requisite shareholder approvals of each of CTS and DCA shall have been
obtained; (ii) no judgment, order, decree, statute, law, ordinance, rule,
regulation, temporary restraining order, injunction or other order enacted,
entered, promulgated, enforced or issued by any court or other governmental
entity or other legal restraint or prohibition preventing the consummation of
the Merger shall be in effect (each, a "Restraint"); and (iii) the Joint Proxy
Statement/Prospectus shall not be the
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subject of any stop order or proceeding seeking a stop order. CTS' obligation to
effect the Merger is also subject to the satisfaction or waiver on or prior to
the Closing Date of the conditions that DCA shall have performed in all material
respects all obligations to be performed by it on or before the earlier of (i)
such time as CTS controls the DCA Board pursuant to the Merger Agreement and
(ii) the Closing Date. DCA's obligation to effect the Merger is also subject to
the satisfaction or waiver on or prior to the Closing Date of the conditions
that Sub and CTS shall have performed in all material respects all obligations
to be performed by them.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after shareholder approval, (i) by mutual written
consent of CTS and DCA; (ii) by either CTS or DCA (a) if the Merger has not been
consummated by October 31, 1997; provided, however, that the right to terminate
the Merger Agreement pursuant to this clause will not be available to any party
whose failure to perform any of its obligations under the Merger Agreement
results in the failure of the Merger to be consummated by such time, (b) if the
DCA Shareholder Approval has not been obtained, (c) if CTS Shareholder Approval
has not been obtained, or (d) if any governmental entity has issued a Restraint
or taken any other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Offer, the Merger or any of the other
transactions contemplated by the Merger Agreement and such Restraint or other
action has become final and nonappealable; (iii) by CTS, if the DCA Board or any
committee thereof has (a) withdrawn or modified in a manner adverse to CTS its
approval or recommendation of the Merger or the Merger Agreement or failed to
reconfirm its approval or recommendation within five business days after a
written request to do so, (b) approved or recommended, or proposed publicly to
approve or recommend, any Takeover Proposal with respect to DCA, (c) caused DCA
to enter into an Acquisition Agreement with respect to such a Takeover Proposal,
or (d) resolved to take any of the foregoing actions; and (iv) by DCA, if the
CTS Board or any committee thereof has (a) withdrawn or modified in a manner
adverse to DCA its approval or recommendation of the Merger or the Merger
Agreement or failed to reconfirm its approval or recommendation within five
business days after a written request to do so, (b) approved or recommended, or
proposed publicly to approve or recommend, any Takeover Proposal with respect to
CTS, (c) caused CTS to enter into an Acquisition Agreement with respect to such
a Takeover Proposal, or (d) resolved to take any of the foregoing actions.
INDUCEMENT FEE AND TERMINATION FEES
As an inducement to CTS and Sub to enter into the Merger Agreement and
perform their respective obligations thereunder, on May 9, 1997, DCA paid $2.0
million to CTS (the "Inducement Fee"). The Inducement Fee is not subject to
refund or return for any reason whatever and may not be used as an offset
against or otherwise applied to any obligation of DCA, including without
limitation the obligation to pay a termination fee. In addition, the Merger
Agreement provides that DCA will pay CTS a $3.0 million fee in the event that
(i) a Takeover Proposal with respect to DCA (other than WHX Corporation's $45.00
cash tender offer) is made known to DCA or any of its subsidiaries or has been
made directly to DCA Shareholders generally or any person or entity publicly
announces an intention (whether or not conditional) to make such a Takeover
Proposal and thereafter the Merger Agreement is terminated by DCA or CTS because
either the Merger has not been consummated by October 31, 1997 or DCA
Shareholders have not approved the Merger at the DCA Shareholders Meeting, or
(ii) the Merger Agreement is terminated by CTS because the DCA Board or any
committee thereof has (1) withdrawn or modified in a manner adverse to CTS its
approval or recommendation of the Offer, the Merger or the Merger Agreement or
failed to reconfirm its approval within the prescribed time, (2) approved or
recommended, or proposed publicly to do so, any Takeover Proposal with respect
to DCA, (3) caused DCA to enter into an agreement relating to a Takeover
Proposal (an "Acquisition Agreement"), or (4) resolved to take any of the
foregoing actions.
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The Merger Agreement provides that CTS will pay DCA a $5.0 million fee in
the event that (i) a Takeover Proposal with respect to CTS is made known to CTS
or any of its subsidiaries or has been made directly to shareholders generally
or any person or entity publicly announces an intention (whether or not
conditional) to make such a Takeover Proposal and thereafter the Merger
Agreement is terminated by CTS or DCA because either the Merger has not been
consummated by October 31, 1997 or CTS Shareholder Approval has not been
obtained at the CTS Shareholders Meeting called for such purpose or (ii) the
Merger Agreement is terminated by DCA because the CTS Board or any committee
thereof has (1) withdrawn or modified in a manner adverse to DCA its approval or
recommendation of the Offer, the Merger or the Merger Agreement or failed to
reconfirm its approval within the prescribed time, (2) approved or recommended,
or proposed publicly to do so, any Takeover Proposal with respect to CTS, (3)
caused CTS to enter into an Acquisition Agreement, or (4) resolved to take any
of the foregoing actions.
NO-SHOP COVENANT
Pursuant to the Merger Agreement, DCA and CTS will not, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed to facilitate, any inquiries or
the making of any Takeover Proposal or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal; provided, however, that if, at any
time prior to, with respect to DCA, the Offer completion date (which has
occurred) and, with respect to CTS, the Effective Time, the DCA Board (with
respect to DCA) or the Unaffiliated CTS Directors (with respect to CTS)
determine in good faith, after consultation with advisors, that the failure to
do so would create a reasonable possibility of a breach of their fiduciary
duties to their shareholders under applicable law, such party may, in response
to a Takeover Proposal which was not solicited by it or which did not otherwise
result from a breach of the covenant described herein, furnish information with
respect to it and its subsidiaries to any person pursuant to a customary
confidentiality agreement and participate in negotiations regarding such
Takeover Proposal. Except as expressly permitted by the Merger Agreement,
neither the DCA Board nor the CTS Board, nor any committee thereof, will (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to the other party, the approval or recommendation by such board of
directors or such committee of the Merger or the Merger Agreement, (ii) approve
or recommend, or propose publicly to approve or recommend, any Takeover
Proposal, or (iii) cause such party to enter into any Acquisition Agreement.
A "Takeover Proposal" is defined, with respect to either DCA or CTS, to be
any inquiry, proposal or offer from any person or entity relating to any direct
or indirect acquisition or purchase of 20% or more of such party's and its
subsidiaries' assets or 20% or more of any class of equity securities of such
party or any of its subsidiaries, any tender offer or exchange offer that if
consummated would result in any person owning 20% or more of any class of equity
securities of such party or any of its subsidiaries or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving such party or any of its subsidiaries other
than the transactions contemplated by the Merger Agreement.
CONDUCT OF BUSINESS PENDING MERGER
Pursuant to the Merger Agreement, CTS and DCA have each agreed to carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the execution of the Merger
Agreement and, to the extent consistent therewith, use all reasonable efforts to
preserve intact their current business organizations, keep available the
services of their current officers and other key employees and preserve their
relationships with those persons and entities having business dealings with them
to the end that their goodwill and ongoing businesses will be unimpaired at the
Effective Time. In addition, CTS and DCA have each agreed that during the period
from May 9, 1997 to the Effective Time, among other things and subject to
certain exceptions, neither it nor any of its subsidiaries may: (i) declare, set
aside or pay any dividends on, or make any other distributions in respect
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of, any capital stock, other than certain dividends and distributions by a
subsidiary and other than the regular quarterly or semi-annual dividends, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase, redeem or otherwise acquire any
shares of its capital stock or its significant subsidiaries' capital stock or
any rights, warrants or options to acquire any such securities; provided,
however, CTS may (A) effect the Stock Split and (B) under certain conditions,
declare a dividend of rights in connection with the adoption of a rights plan
(the "CTS Rights"); (ii) issue, deliver, sell, pledge or otherwise encumber any
shares of capital stock, any other voting securities or any securities
convertible into or any rights, warrants or options to acquire any such shares,
other than pursuant to existing employee stock options, the issuance of CTS
Rights and the Stock Split; (iii) amend its certificate or articles, as
applicable, of incorporation, by-laws or other comparable organizational
documents; or (iv) make any material change to accounting methods, principles or
practices, except as may be required by generally accepted accounting
principles.
DCA has further agreed, among other things and subject to certain
exceptions, that neither it nor any of its subsidiaries will: (i) acquire by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business entity or other business
organization; (ii) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any properties or assets, other than
(A) in the ordinary course of business or (B) sales of assets that individually
or in the aggregate do not exceed $1 million; (iii) incur any indebtedness for
borrowed money or guarantee any such indebtedness of another person, issue or
sell any debt securities or warrants or other rights to acquire any debt
securities of DCA or any of its subsidiaries, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with past
practice; (iv) make any loans, advances or capital contributions to, or
investments in, any other person, other than to subsidiaries or to officers and
to employees for travel, business or relocation expenses in the ordinary course
of business; (v) make or agree to make any new capital expenditure other than as
set forth in existing operating budgets; (vi) except as required by law or
contemplated by the Merger Agreement, enter into, adopt or amend in any material
respect or terminate any employee benefit plan or any other agreement, plan or
policy involving DCA or any of its subsidiaries and one or more of their
directors, officers or employees, or materially change any actuarial or other
assumption used to calculate funding obligations with respect to any DCA pension
plans, or change the manner in which contributions to any DCA pension plans are
made or the basis on which such contributions are determined; (vii) increase the
compensation of any director, executive officer or other key employee of DCA or
pay any benefit or amount not required by a plan or arrangement as in effect on
the date of the Merger Agreement to any such person; (viii) enter into any
contract or agreement, written or oral, with any affiliate, associate or
relative of CTS, or make any payment to or for the benefit of, directly or
indirectly, any of the foregoing; or (ix) make any amendment to, or waive or
enter into or give any binding interpretation of, any term of a certain
agreement with certain DCA Shareholders.
AMENDMENT AND WAIVER
Subject to applicable laws (i) the Merger Agreement may be amended by an
instrument in writing signed on behalf of each party at any time (except that,
after the Merger Agreement has been approved and adopted by the shareholders of
either CTS or DCA, no amendment may be entered into which requires further
approval by such shareholders unless such further approval is obtained) and (ii)
at any time prior to the Effective Time, the parties may, by written instrument
signed on behalf of each party, (a) extend the time for performance of the
obligations of the other party to the Merger Agreement, (b) waive inaccuracies
in representations and warranties contained in the Merger Agreement or in any
document delivered pursuant thereto, and (c) waive (subject to the parenthetical
in clause (i)) compliance with any agreements or conditions for their respective
benefit contained in the Merger Agreement.
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EXPENSES
Except as described above in "-- Inducement Fee and Termination Fees," all
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated by the Merger Agreement will be paid by the party
incurring the cost or expense, except that DCA and CTS will each pay one half of
the cost of (i) filing, printing and mailing the Joint Proxy Statement
(including Commission filing fees) and (ii) the filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act").
DIVIDEND COORDINATION
Each of CTS and DCA expects to continue to declare until the Effective Time
their respective regularly scheduled dividends. The Merger Agreement requires
each of CTS and DCA to coordinate with the other the payment of dividends, and
the designation of record and payment dates, relating to CTS Shares and DCA
Shares with the intent that DCA Shareholders will not receive two dividends, or
fail to receive one dividend, for any single calendar quarter, in the case of
CTS, and semiannually, in the case of DCA, as a result of the Merger.
REQUIRED REGULATORY APPROVALS
The HSR Act and the rules and regulations promulgated thereunder provide
that certain transactions (including the Merger) may not be consummated until
certain information has been submitted to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission (the "FTC") and specified HSR Act waiting period requirements have
been satisfied. On May 22, 1997, CTS and DCA filed all appropriate notification
and report forms with the Antitrust Division and the FTC with respect to the
Merger, as required by the HSR Act, and on June 21, 1997 the waiting period
under the HSR Act expired. The expiration of the HSR Act waiting period does not
preclude the Antitrust Division or the FTC from challenging the Merger on
antitrust grounds. Neither CTS nor DCA believes that the Merger will violate
federal antitrust laws.
AMENDMENTS TO RIGHTS AGREEMENT
DCA has amended the DCA Rights Agreement (as defined in "Comparison of
Shareholder Rights -- Rights Plans) to provide that (i) the DCA Rights issued
thereunder will expire immediately prior to the Effective Time, (ii) neither CTS
nor any of its affiliates or associates will be deemed an acquiring person, and
(iii) neither a Distribution Date nor a Stock Acquisition Date (as such terms
are defined in the DCA Rights Agreement) will occur by reason of the execution
of the Merger Agreement, the announcement or completion of the Offer, the
consummation of the Merger or the consummation of the other transactions
contemplated by the Merger Agreement. See "Comparison of Shareholder Rights --
Rights Plans."
DISSENTERS' RIGHTS
GENERAL. If the Merger is consummated, DCA Shareholders will be entitled to
Dissenters' Rights under the NYBCL. DCA Shareholders who follow the procedures
for Dissenters' Rights under the NYBCL will be entitled to have their DCA Shares
appraised by a New York court and to receive payment of the "fair value" of such
shares as determined by such court. The following summary of the material
provisions of Section 623 is not intended to be a complete statement of such
provisions. The relevant provisions of the NYBCL are attached as Annex D to this
Joint Proxy Statement/Prospectus. DCA Shareholders are urged to read such
provisions carefully.
PREREQUISITES FOR EXERCISE OF DISSENTERS' RIGHTS. DCA Shareholders electing
to exercise Dissenters' Rights must (i) file with DCA before the DCA
Shareholders Meeting, or at such meeting but before the vote, a written
objection (an "Objection") to the Merger, including (a) a notice of such
holder's election to dissent, (b) such holder's name and residence address, (c)
the number and class of the DCA Shares as to
61
<PAGE>
which such holder dissents, and (d) a demand for payment of the fair value of
such DCA Shares if the Merger is consummated and (ii) not vote in favor of
adoption of the Merger Agreement. DCA Shareholders to whom DCA did not give
notice of the DCA Shareholders Meeting (each a "Non-Informed Shareholder") are
not required to provide an Objection to assert their Dissenters' Rights, but
such Non-Informed Shareholders must not vote in favor of the adoption of the
Merger Agreement in order to assert such rights.
Within ten days after the date on which the Merger Agreement is adopted by
the requisite vote of DCA Shareholders, DCA will give written notice of the
adoption of the Merger Agreement by registered mail to each DCA Shareholder who
has properly filed an Objection or who was a Non-Informed Shareholder and who
did not vote in favor of the adoption of the Merger Agreement.
Within 20 days after the giving of notice to a Non-Informed DCA Shareholder,
any Non-Informed DCA Shareholder who voted against adoption of the Merger
Agreement and who elects to exercise Dissenters' Rights must file with DCA a
written notice (with an Objection, a "Written Objection") of such election
stating (i) such Non-Informed Shareholder's name and residence address, (ii) the
number and class of the DCA Shares as to which such Non-Informed Shareholder
dissents, and (iii) a demand for payment of the fair value.
Only a record holder of DCA Shares is entitled to assert Dissenters' Rights
for DCA Shares registered in such holder's name. The Written Objection should be
executed by or for such holder of record, fully and correctly, as such holder's
name appears on the DCA Share Certificate for such shares. A DCA Shareholder may
not dissent as to less than all of such holder's shares, as to which such holder
has a right to dissent. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the DCA Shares of such owner.
As of the Effective Time, a dissenting DCA Shareholder will cease to have
any of the rights of a DCA Shareholder, except the right to be paid the fair
value of such shareholder's DCA Shares and any other rights under the NYBCL. A
Written Objection may be withdrawn by such holder at any time prior to such
holder's acceptance in writing of an offer made by DCA or Sub (as the surviving
corporation in the Merger), as the case may be, but in no case later than 60
days from the date of consummation of the Merger, except that if DCA or Sub
fails to make a timely offer, the time for withdrawing a notice of election will
be extended until 60 days from the date an offer is made. Upon the expiration of
such time, withdrawal of a notice of election requires the written consent of
DCA or Sub.
At the time of filing the Written Objection to the Merger, or within one
month thereafter, objecting holders of DCA Shares must submit their DCA Stock
Certificates to DCA, 475 Steamboat Road, Greenwich, Connecticut, 06830,
Attention: Corporate Secretary, or to DCA's transfer agent, the First National
Bank of Boston, 100 Federal Street, Boston, Massachusettes 02110, Attention:
Shareholder Services Division. DCA or the transfer agent, as the case may be,
will note conspicuously on each such certificate that notice of election to
dissent has been filed and will return the DCA Stock Certificates to the DCA
Shareholder or other person who submitted them on such holder's behalf. Any DCA
Shareholder who fails to submit DCA Stock Certificates for such notation will,
at the option of DCA, exercised by written notice to such holder within 45 days
from the date of filing of such notice of election to dissent, lose such
holder's Dissenters' Rights, unless a court, for good cause shown, otherwise
directs.
DETERMINATION OF FAIR VALUE. Within 15 days after expiration of the period
within which any DCA Shareholder may file a Written Objection, or within 15 days
after the Effective Time, whichever is later (but in no event later than 90 days
after the adoption of the Merger Agreement by DCA Shareholders), Sub (as the
surviving corporation in the Merger) or DCA, as the case may be, must make a
written offer by registered mail to each DCA Shareholder who has filed a Written
Objection to pay for such holder's shares at a specified price which Sub or DCA,
as the case may be, considers to be their fair value. Such offer must be
accompanied by a statement setting forth the aggregate number of DCA Shares with
respect to which Written Objections have been received and the aggregate number
of such holders of DCA Shares. If the
62
<PAGE>
Merger has been consummated, such offer must also be accompanied by (i) advance
payment to each such DCA Shareholder who has submitted DCA Share Certificates of
an amount equal to 80% of the amount of such offer or (ii) as to each DCA
Shareholder who has not yet so submitted DCA Stock Certificates, a statement
that an advance payment equal to 80% of the amount of such offer will be made by
Sub promptly upon submission of such certificates. If the Merger has not been
consummated at the time DCA makes an offer, such advance payment or statement as
to advance payment must be sent to each DCA Shareholder forthwith upon
consummation of the Merger. Every advance payment or statement as to advance
payment must include advice to DCA Shareholders to the effect that acceptance of
such payment does not constitute a waiver of any Dissenters' Rights. Such offer
must be made at the same price per DCA Share to all dissenting holders of DCA
Shares of the same class or series. If within 30 days after the making of such
offer, DCA or Sub, as the case may be, and any DCA Shareholders agree upon the
price to be paid for such holder's shares, payment therefor must be made within
60 days after the making of such offer or the Effective Time, whichever is
later, upon the surrender of the DCA Share Certificates representing such DCA
Shares.
If any dissenting DCA Shareholder and DCA or Sub, as the case may be, cannot
agree on the value of the shares within certain time periods prescribed by the
NYBCL, or if DCA or Sub, as the case may be, does not make a timely offer for
such shares, DCA or Sub, as the case may be, or in the absence of timely action
by DCA or Sub, as the case may be, a dissenting DCA Shareholder may institute
appraisal proceedings in the Supreme Court of the State of New York to determine
the fair value of such holder's shares. All such dissenting DCA Shareholders,
except those who have come to an agreement with DCA or Sub, as the case may be,
must be made parties to such judicial action. The fair value so determined could
be more or less than the Merger Consideration. Any judicial determination of the
fair value could be based upon considerations other than or in addition to the
market value of the shares including, among other things, asset values, earning
capacity and interest.
Each party in the appraisal proceeding is required to bear such party's own
costs and expenses, including counsel and expert fees. The court may, however,
in its discretion, assess any of the costs, fees and expenses incurred by DCA or
Sub, as the case may be, against dissenting DCA Shareholders who are parties to
the proceeding if the court finds that their refusal to accept DCA's or Sub's,
as the case may be, offer of payment was arbitrary, vexatious or otherwise not
in good faith. Similarly, the costs, fees and expenses incurred by a DCA
Shareholder may be assessed by the court, in its discretion, against DCA or Sub,
as the case may be, if the fair value of the DCA Shares as determined by the
court materially exceeds the amount which DCA or Sub, as the case may be,
offered to pay or under certain other circumstances, including a failure by DCA
or Sub, as the case may be, to follow the provisions of Section 623 of the
NYBCL.
If a DCA Shareholder who exercises Dissenters' Rights under Section 623 of
the NYBCL effectively withdraws notice of election to dissent or loses the right
to dissent, the DCA Shares owned by such DCA Shareholder will be converted into
a right to receive the Merger Consideration in accordance with the terms of the
Merger Agreement. Failure by any DCA Shareholder strictly to comply with the
provisions of Section 623 of the NYBCL for perfecting dissenter's rights may
result in the loss of such rights.
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<PAGE>
PRO FORMA FINANCIAL DATA
The following Unaudited Condensed Consolidated Pro Forma Statements of
Operations of CTS for the six months ended June 29, 1997 and the year ended
December 31, 1996 present unaudited pro forma operating results for CTS as if
the Combination, including the reacquisition of DCA-Owned CTS Shares effected
thereby, had occurred as of the beginning of each such period. The following
Unaudited Condensed Consolidated Pro Forma Balance Sheet of CTS presents the
unaudited pro forma financial condition of CTS as if the Combination had
occurred as of June 29, 1997.
For purposes of the following pro forma financial data, the Purchase Price
paid by CTS in the Combination is estimated to be $241.5 million, consisting of
the sum of (i) $68.5 million in cash for the purchase of 1,215,164 DCA Shares
pursuant to the Offer and in the open market (assuming that no DCA Shareholders
elect the Cash Election Option), (ii) $150.0 million in CTS Shares (2,622,336
DCA Shares, multiplied by the Exchange Ratio, with the product thereof
multiplied by $68.91, the Seven-Day Average Price for CTS Shares during the
period from three days before to three days after May 30, 1997, the last trading
day prior to the date the increased Offer price of $56.25 was made known to DCA
Shareholders), and (iii) $14.0 million of transaction costs. The Purchase Price
has been allocated in the following pro forma financial data to the estimated
fair value of the Net DCA Operating Assets and related goodwill and DCA-Owned
CTS Shares as follows: (i) Net DCA Operating Assets: $32.7 million, (ii)
goodwill: $12.1 million, and (iii) DCA-Owned CTS Shares: $196.7 million (a
premium of approximately 24% to the Seven-Day Average Price). See Note (1)
below.
Following the Effective Time, CTS will be required to allocate finally the
Purchase Price to the fair value of DCA's assets and liabilities; such
allocation will vary from the allocations in the following pro forma financial
data based on various factors, including appraisals of the operating assets and
liabilities of DCA, identification and valuation of intangible assets and final
determination of the amount of goodwill. In addition, following the Effective
Time, CTS will finally determine the purchase price for purposes of accounting
for the Combination. The purchase price as finally determined will vary from the
amounts assumed in the following pro forma financial data based on the actual
transaction costs.
CTS has entered into a credit agreement providing for Credit Facilities for
up to $125.0 million of borrowings to fund the purchase of DCA Shares pursuant
to the Offer and the Cash Election Option and the payment of transaction costs
and expenses, and for general corporate purposes. See "Other Information
Regarding CTS -- Credit Facilities." While CTS expects annual after-tax cost
savings of $2.0 million resulting from the Combination, such estimated savings
have not been reflected in the pro forma financial data because their
realization is not assured. See "Risk Factors -- Risks of Achievement of
Synergies and Integration of Operations."
The following pro forma financial data is presented for informational
purposes only and is not necessarily indicative of CTS' operating results or
financial position that would have occurred had the Combination and other
transactions described herein been consummated at the dates indicated, nor is it
necessarily indicative of the future operating results or financial position of
CTS following the Combination. The unaudited pro forma condensed consolidated
financial data should be read in conjunction with the consolidated financial
statements of each of CTS and DCA and the related notes thereto contained in the
DCA 10-K and the DCA 10-Q and the CTS 10-K and the CTS 10-Q attached hereto as
Annex E. See "Additional Information" and "Incorporation of Certain Documents by
Reference."
64
<PAGE>
CTS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AT JUNE 29, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------
<S> <C> <C> <C> <C> <C>
CTS DCA DEBITS CREDITS PRO FORMA
---------- ---------- ---------- ---------- -----------
Assets
Total Current Assets........................ $ 143,473 $ 55,248 $ 2,000(1) $ $ 200,721
Property, plant & equipment--net.............. 59,028 6,532 65,560
Goodwill...................................... 3,717 3,717
Prepaid pension expense....................... 53,570 53,570
Investment in DCA............................. 68,509 68,509(1) 0
Equity investment in CTS...................... 89,570 89,570(1) 0
Other assets.................................. 1,555 2,309 12,100(1) 15,964
---------- ---------- ---------- ---------- -----------
Total Assets................................ $ 329,852 $ 153,659 $ 14,100 $ 158,079 $ 339,532
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
Liabilities and Shareholders' Equity
Current Liabilities
Current maturities of long-term
obligations............................... $ 3,923 $ 2,054 $ 5,977
Accounts payable............................ 26,351 6,584 32,935
Accrued liabilities......................... 40,287 19,044 $ 1,500(2) $ 14,000(1) 68,931
2,900(3)
---------- ---------- ---------- -----------
Total Current Liabilities................... 70,561 27,682 4,400 14,000 107,843
Long-term obligations......................... 59,506 5,364 64,870
Deferred income taxes......................... 16,146 644 16,790
Other liabilities............................. 4,313 1,197 5,510
---------- ---------- ---------- ---------- -----------
Total Liabilities........................... 150,526 34,887 4,400 14,000 195,013
Shareholders' Equity
Common stock................................ 33,564 384 384(1) 159,021(1) 192,585
Additional paid-in capital.................. 12,851 12,851(1) 7,250(3) 7,250
Retained earnings........................... 157,642 106,962 106,962(1) 153,292
4,350(3)
Other....................................... 812 (1,425) 1,425(1) 812
---------- ---------- ---------- ---------- -----------
192,018 118,772 124,547 167,696 353,939
Less cost of common stock held in
treasury.................................. (12,692) 196,728(1) (209,420)
---------- ---------- ---------- ---------- -----------
Total shareholders' equity.................. 179,326 118,772 321,275 167,696 144,519
---------- ---------- ---------- ---------- -----------
Total Liabilities and Shareholders'
Equity.................................... $ 329,852 $ 153,659 $ 325,675 $ 181,696 $ 339,532
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
</TABLE>
See accompanying Notes to Pro Forma Financial Data.
65
<PAGE>
CTS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 29, 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
--------------------
<S> <C> <C> <C> <C> <C>
CTS DCA DEBITS CREDITS PRO FORMA
---------- --------- --------- --------- -----------
Net sales.......................................... $ 198,751 $ 66,228 $ 264,979
Cost of goods sold................................. 144,623 48,881 193,504
Selling, general and administrative expenses....... 23,866 12,488 151(8) 36,505
Research and development expenses.................. 6,049 527 6,576
---------- --------- --------- --------- -----------
Operating income............................... 24,213 4,332 151 0 28,394
Other income (expense)--net........................ 250 (6,243) $ 1,541(4) 2,000(2) (5,997)
463(5)
---------- --------- --------- --------- -----------
Earnings before income tax..................... 24,463 (1,911) 2,155 2,000 22,397
Income taxes....................................... 9,051 (55) 500(2) $ 802(6) 8,694
Income from equity investment in CTS (net of income
tax charge)...................................... -- 5,890 5,890(7) 0
---------- --------- --------- --------- -----------
Net earnings................................... $ 15,412 $ 4,034 $ 8,545 $ 2,802 $ 13,703
---------- --------- --------- --------- -----------
---------- --------- --------- --------- -----------
Net earnings per share......................... $ 2.92 $ 1.05 $ 2.59
---------- --------- -----------
---------- --------- -----------
Average common and common equivalent shares
outstanding.................................. 5,282 3,830 5,287
---------- --------- -----------
---------- --------- -----------
Net earnings per share assuming the Stock
Split........................................ $ 1.30
-----------
-----------
</TABLE>
See accompanying Notes to Pro Forma Financial Data.
66
<PAGE>
CTS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
--------------------
<S> <C> <C> <C> <C> <C>
CTS DCA DEBITS CREDITS PRO FORMA
---------- ---------- --------- --------- -----------
Net sales......................................... $ 321,297 $ 129,206 $ 450,503
Cost of goods sold................................ 233,801 102,810 336,611
Selling, general and administrative expenses...... 43,333 24,729 302(8) 68,364
Research and development expenses................. 10,743 1,435 12,178
---------- ---------- --------- --------- -----------
Operating income.............................. 33,420 232 302 0 33,350
Other income (expense)--net....................... 182 314 $ 3,081(4) (3,510)
925(5)
---------- ---------- --------- --------- -----------
Earnings before income tax.................... 33,602 546 4,308 0 29,840
Income taxes...................................... 12,432 219 $ 1,602(6) 11,049
Income from equity investment in CTS (net of
income tax benefit)............................. -- 10,280 10,280(7) 0
---------- ---------- --------- --------- -----------
Net earnings.................................. $ 21,170 $ 10,607 $ 14,588 $ 1,602 $ 18,791
---------- ---------- --------- --------- -----------
---------- ---------- --------- --------- -----------
Net earnings per share........................ $ 4.03 $ 2.78 $ 3.57
---------- ---------- -----------
---------- ---------- -----------
Average common and common equivalent shares
outstanding................................. 5,259 3,820 5,264
---------- ---------- -----------
---------- ---------- -----------
Net earnings per share assuming the Stock
Split....................................... $ 1.78
-----------
-----------
</TABLE>
See accompanying Notes to Pro Forma Financial Data.
67
<PAGE>
NOTES TO PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
(1) Adjustments record the effects of the Combination and reacquisition of
DCA-Owned CTS Shares and the elimination of the historical shareholders
equity of DCA, DCA's 43.9% equity investment in CTS and the CTS 31.7%
investment in DCA.
<TABLE>
<S> <C> <C>
- - Acquisition cost of all the outstanding DCA Shares:
Purchase of DCA Shares in the Offer and in the open market:
Cash............................................................ 18,509
Debt (Term Loan)................................................ 50,000
CTS Shares issued (2,307,656 CTS Shares x $68.91 per CTS
Share)...................................................... 159,021
---------
227,530
---------
Transaction costs............................................... 14,000
---------
Total pro forma Purchase Price.................................. $ 241,530
---------
---------
- - Allocated to:
Inventory....................................................... $ 2,000
Net DCA Operating Assets........................................ 30,702
DCA-Owned CTS Shares............................................ 196,728
Goodwill........................................................ 12,100
---------
$ 241,530
---------
---------
</TABLE>
The total pro forma Purchase Price of $241,530 is subject to generally
accepted accounting principles ("GAAP") purchase accounting and is currently
allocated to the DCA-Owned CTS Shares and the Net DCA Operating Assets as
follows:
The DCA-Owned CTS Shares are recorded at fair value as determined by CTS
based primarily upon an independent study performed by CTS' financial advisor,
J.P. Morgan, and reflects the cost of acquiring such CTS Shares.
Except for inventory, the tangible Net DCA Operating Assets have been
assigned a fair value which approximates historic cost values, based upon
preliminary valuation information.
The balance of the pro forma Purchase Price has been allocated to goodwill.
Value has been estimated and preliminarily assigned to DCA intangible assets
(goodwill), consisting of tradenames and the potential synergies of DCA
operating units with product lines similar to some of the CTS businesses. These
estimated intangible assets are being amortized over 40 years on a straight-line
basis. The final amount recorded for any goodwill will be subject to GAAP
purchase accounting upon consummation of the Merger and may be affected by
certain factors including determination of actual transaction costs.
(2) Adjustment records the elimination of the $2,000 inducement fee paid to CTS
by DCA, and recorded as an expense by DCA (the after-tax effect of which is
$1,500).
(3) Adjustment records the non-recurring, non-cash compensation charge resulting
from the 400,000 share Option Grants described in "Grant of Certain
Options." The $4,350 adjustment is calculated as the difference between (i)
the product of (a) 400,000 and (b) the difference between the assumed market
price for CTS Shares at the date of CTS Shareholder approval of the Option
Grants (assuming the closing share price of CTS Shares on August 12, 1997 of
$80.625 for this purpose) and the exercise price of $62.50 per CTS Share and
(ii) the $2,900 tax benefit (40% of $7,250). The amount of the adjustment
(net of applicable income taxes) will change by $240 for every $1.00 change
between the actual market price for CTS Shares at the date of such CTS
Shareholder approval and the assumed market price of $80.625.
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<PAGE>
(4) Adjustment records the additional interest expense associated with the
$50,000 term loan borrowings incurred in connection with the Combination at
an assumed 6.2% effective annual interest rate. The impact of a 0.125%
change in the effective annual interest rate would impact expense by
approximately $100. See "Other Information Regarding CTS -- Credit
Facilities."
(5) Adjustment records the assumed reduction in interest income earned (at a 5%
per annum rate) on the $18,509 of CTS cash used to finance a portion of DCA
Shares in the Offer.
(6) Adjustment records the aggregate tax effect of applying the assumed income
tax rate of 40% to the adjustments described in Notes (4) and (5).
(7) Adjustment records the elimination of DCA's equity earnings from its 43.9%
equity ownership in CTS.
(8) The adjustment records the amortization of goodwill over 40 years on a
straight-line basis.
PRO FORMA FINANCIAL DATA ASSUMING THE CASH ELECTION OPTION IS FULLY SUBSCRIBED
If the Cash Election Option were fully subscribed the total Purchase Price
paid by CTS and its allocation would be as follows:
<TABLE>
<S> <C>
- -Acquisition cost of all the outstanding DCA Shares:
Purchase of DCA Shares in the Offer and in the open market:
Cash...................................................... $ 18,509
Debt (Term Loan).......................................... 50,000
Purchase of DCA Shares in the Merger:
Debt (Revolving Credit)................................... 40,620
CTS shares issued (1,692,453 CTS Shares x $68.91 per CTS
Share).................................................... 116,627
-----------
225,756
Transaction costs........................................... 14,000
-----------
Total pro forma Purchase Price............................ $ 239,756
-----------
-----------
- -Allocated to:
Inventory..................................................... $ 2,000
Net DCA Operating Assets...................................... 30,702
DCA-Owned CTS Shares.......................................... 196,728
Goodwill...................................................... 10,326
-----------
$ 239,756
-----------
-----------
</TABLE>
Assuming payment of Cash Consideration in the Merger in respect of 49.9% of the
DCA Shares less the number of DCA Shares beneficially owned by CTS, CTS' pro
forma earnings would be $12,974 (or $2.78 per share) and $16,332 (or $3.51 per
share) for the six months ended June 29, 1997 and year ended December 31, 1996,
respectively, and at June 29, 1997 long-term obligations would be $111,467 and
shareholders' equity would be $102,125.
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<PAGE>
DESCRIPTION OF CTS CAPITAL STOCK
The following is a summary description of the material terms of CTS capital
stock and is subject in all respects to the applicable provisions of the Indiana
Business Corporation Law (the "IBCL") and the CTS Articles of Incorporation (the
"CTS Charter"). The CTS Charter, as it will be amended by the CTS Charter
Amendments, is attached to the Merger Agreement as Annex B thereto. A copy of
the Merger Agreement (including Annex B) is attached hereto as Annex A hereto
and incorporated herein by reference to the Registration Statement of which this
Joint Proxy Statement/Prospectus forms a part.
As of the Effective Time, the CTS Charter will be amended to, among other
things, increase the number of authorized CTS Shares from 8.0 million to 75.0
million and authorize 25.0 million CTS Preferred Shares. See "The Merger -- The
CTS Charter Amendments."
CTS SHARES
GENERAL. As of the CTS Record Date, CTS had outstanding 5,249,589 CTS
Shares. As of the CTS Record Date, 561,775 CTS Shares were reserved for issuance
upon exercise of outstanding stock options under various employee or
non-employee director incentive, compensation and stock purchase plans, and
400,000 CTS Shares will be reserved for issuance pursuant to the Options upon
shareholder approval thereto. Following the Merger, Sub will own the DCA-Owned
CTS Shares. Such DCA-Owned CTS Shares will not, however, be deemed outstanding
for voting or other purposes.
DIVIDEND RIGHTS. CTS Shareholders are entitled to receive dividends when,
as and if declared by the CTS Board, out of funds legally available therefor,
subject, however, to the rights relating to any CTS Preferred Shares. See
"Summary -- Dividend Policies."
VOTING RIGHTS. Subject to the rights of the holders of any series of CTS
preferred shares, if any, all voting rights are vested in the holders of CTS
Shares, with each CTS Share being entitled to one vote on each matter presented
for a vote, including the election of directors. Because holders of CTS Shares
do not have cumulative voting rights, the holders of a plurality of the CTS
Shares represented at a meeting can elect all the directors standing for
election at such meeting. The DCA-Owned CTS Shares include 1,020,000 shares
which are non-voting pursuant to Chapter 42 of the IBCL, which requires
shareholder approval of the grant of voting rights to shares acquired in a
control share acquisition. See "Comparison of Shareholder Rights -- Statutory
Provisions."
RIGHTS UPON LIQUIDATION. In the event of the liquidation, dissolution or
winding up of CTS, whether voluntary or involuntary, CTS Shareholders will be
entitled to share ratably in assets available for distribution to holders of CTS
Shareholders.
MISCELLANEOUS. CTS Shares are not liable for further calls or assessments
by CTS, and the holders of CTS Shares are not liable for any liabilities of CTS.
The CTS Shares do not have preemptive, subscription, conversion or redemption
rights or sinking fund provisions. State Street Bank currently acts as
co-Transfer Agent and Registrar for the CTS Shares.
CTS PREFERRED SHARES
As of the Effective Time, pursuant to the CTS Charter Amendments, the CTS
Board will have the authority to issue CTS Preferred Shares in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including the dividend rights, dividend rate, conversion rights, voting rights,
terms of redemption (including sinking fund provisions), redemption price or
prices, liquidation preferences and the number of shares constituting any series
or the designations of such series, without any further vote or action by the
shareholders. There are no issued and outstanding CTS Preferred Shares.
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<PAGE>
DESCRIPTION OF DCA CAPITAL STOCK
The following is a summary of the material terms of the DCA capital stock
and is subject in all respects to the applicable provisions of the NYBCL, the
DCA Charter and the terms of the DCA Rights Agreement (as defined below under
"Comparison of Shareholder Rights -- Rights Plans").
DCA SHARES
GENERAL. As of the DCA Record Date, DCA had outstanding 3,837,600 DCA
Shares. As of the DCA Record Date, there were no DCA Shares reserved for
issuance upon exercise of outstanding stock options under various employee or
non-employee director incentive, compensation and stock purchase plans.
DIVIDEND RIGHTS. DCA Shareholders are entitled to receive dividends when,
as and if declared by the DCA Board, out of funds legally available therefor,
subject, however, to the rights relating to any outstanding DCA Preferred
Shares. See "Summary -- Dividend Policies."
VOTING RIGHTS. Subject to the rights, if any, of the holders of any series
of preferred stock of DCA, all voting rights are vested in the DCA Shareholders,
with each DCA Share being entitled to one vote on each matter presented for a
vote, including the election of directors, except for 3,569 DCA Shares which are
non-voting but are convertible into voting DCA Shares at any time. The DCA Board
is divided into three classes of directors with the term of one class expiring
at each annual meeting of shareholders. Because holders of DCA Shares do not
have cumulative voting rights, the holders of a plurality of the DCA Shares
represented at a meeting can elect all the directors standing for election at
such meeting.
RIGHTS UPON LIQUIDATION. In the event of the liquidation, dissolution or
winding up of DCA, whether voluntary or involuntary, DCA Shareholders will be
entitled to share ratably in assets available for distribution to DCA
Shareholders.
CHARTER PROVISIONS AFFECTING CHANGES IN CONTROL. For a description of
Article XV of the DCA Charter and its effect on certain prospective holders of
DCA Shares, see "Comparison of Shareholder Rights -- Charter Provisions."
DCA RIGHTS. For a description of the DCA Rights which are attached to each
outstanding share of DCA Shares, see "Comparison of Shareholder Rights -- Rights
Plans."
MISCELLANEOUS. DCA Shares are not liable for further calls or assessments
by DCA, and the holders of DCA Shares are not liable for any liabilities of DCA.
The DCA Shares do not have preemptive or other subscription rights, any
conversion rights or any redemption or sinking fund provisions. The First
National Bank of Boston currently acts as Transfer Agent and Registrar for the
DCA Shares.
DCA PREFERRED SHARES
The DCA Board has the authority to issue up to 894,000 shares of DCA
Preferred Stock (the "DCA Preferred Shares") in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, including the
dividend rights, dividend rate, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or the
designations of such series, without any further vote or action by the
shareholders. There are no issued and outstanding DCA Preferred Shares. See
"Comparison of Shareholder Rights -- Rights Plans" for a discussion of the DCA
Rights.
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<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
Pursuant to the terms of the Merger, at the Effective Time, DCA Shares will
be converted into the right to receive CTS Shares at the Exchange Ratio. CTS is
organized under the laws of Indiana and DCA is organized under the laws of New
York. Differences between the IBCL and the NYBCL as well as between the CTS
Charter and the CTS Bylaws, on the one hand, and the DCA Charter and the DCA
Bylaws, on the other hand, will result in changes in the rights of DCA
Shareholders when they become CTS Shareholders.
The following is a summary of material differences between the rights of CTS
Shareholders and the rights of DCA Shareholders.
STATUTORY PROVISIONS
INTERESTED SHAREHOLDER TRANSACTIONS. Chapter 43 of the IBCL prohibits
certain business combinations, including, in general, certain mergers, sales of
assets, recapitalizations and reverse stock splits (each, a "Business
Combination"), between certain Indiana corporations, including CTS, and an
interested shareholder (defined as the beneficial owner of 10% or more of the
voting power of the outstanding voting stock of such corporation) for five years
following the date on which the interested shareholder obtained 10% ownership
unless the Business Combination or the purchase of the shares by the interested
shareholder was approved in advance of that date by the board of directors of
such corporation. If such prior approval is not obtained, any one of several
requirements must be met before the Business Combination can be completed,
including disinterested shareholder approval or that the consideration received
by the disinterested shareholders in the Business Combination must be at least
equal to the higher of the highest price paid for shares by the interested
shareholder or the highest market value since the interested shareholder's share
acquisition date and must be in cash or the same form as the interested
shareholder has used to acquire the largest number of shares.
Section 912 of the NYBCL prohibits certain Business Combinations between
certain New York corporations, including DCA, and an "interested shareholder"
(defined as the beneficial owner of 20% or more of the voting power of the
outstanding voting stock of any such corporation) for five years following the
date on which the interested shareholder obtained 20% ownership unless the
Business Combination or the purchase of the shares was approved in advance of
that date by the board of directors of such corporation or the Business
Combination was approved by disinterested shareholders not more than five years
earlier. As under the IBCL, if such prior approval is not obtained, the Business
Combination cannot be completed until certain requirements are met (which
requirements are substantially similar to those contained in the IBCL).
CONTROL SHARE ACQUISITIONS. Chapter 42 of the IBCL provides that if an
acquiror makes a tender offer for, or otherwise acquires, shares giving such
acquiror more than 20%, 33 1/3%, or 50% of the outstanding voting securities of
any Indiana resident corporation having 100 or more shareholders such as CTS
(each, a "Control Share Acquisition"), and such Control Share Acquisition is
effected at a time that the corporation in question is subject to Chapter 42,
then until each class or series of shares entitled to vote separately on any
such Control Share Acquisition approves, by a majority shareholder vote
(excluding from such vote the shares held by officers of the corporation,
employees of the corporation who are directors thereof and the acquiror), the
right of the acquiror to vote the shares acquired in any such Control Share
Acquisition, the acquiror cannot vote such shares. As permitted by 23-1-42-5 of
the IBCL, CTS' Bylaws provide that Chapter 42 of the IBCL does not apply to
control share acquisitions made after March 3, 1987. The CTS' Bylaws, however,
may be amended at any time by the affirmative vote of two-thirds of the members
of the CTS Board (or, following the Effective Time, a majority of the CTS Board)
and the CTS Board reserves the right to amend the CTS Bylaws so that Chapter 42
of the IBCL would apply to control share acquisitions of CTS Shares (if
consistent with its fiduciary responsibilities). The NYBCL does not contain any
comparable provision regulating Control Share Acquisitions.
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<PAGE>
FIDUCIARY DUTIES OF DIRECTORS. Under the NYBCL, directors, when considering
corporate action, including action which may relate to a change in control, are
entitled to consider both the long-term and the short-term interests of the
corporation and its shareholders and the effects that any such actions may have
in the short-term or the long-term upon the corporation's prospects, current
employees, customers and creditors. The IBCL provides directors with somewhat
greater latitude and specifically authorizes directors, in considering whether
an action is for the best interest of a corporation, to consider the effects of
any such corporate action on shareholders, employees, suppliers and customers of
the corporation, communities in which offices or other facilities of the
corporation are located and any other factors the directors consider pertinent.
Under the NYBCL, directors may be held personally liable for breaches of their
duties as directors if such breaches constitute gross negligence. Under the
IBCL, directors may be held liable for breaches of their duties as directors if
their actions constitute willful misconduct or if they recklessly disregard such
duties.
DISSENTERS' RIGHTS. Both the IBCL and the NYBCL afford dissenters' rights
of appraisal upon certain mergers, consolidations, sales and other dispositions
of assets requiring shareholder approval and share exchanges. See "Other Terms
of the Merger and the Merger Agreement -- Dissenters' Rights." The IBCL,
however, does not grant dissenters' rights in respect of shares of any class of
stock such as the CTS Shares that is listed on a national securities exchange or
is designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. The NYBCL has no
exceptions to such rights comparable to those afforded by the IBCL.
INDEMNIFICATION. Both the NYBCL and the IBCL contain provisions setting
forth conditions under which a corporation may indemnify its directors and
officers. Both also permit corporations to adopt by-laws that provide for
additional indemnification of directors and officers. The NYBCL contains
specific restrictions on the kind of matters for which non-statutory
indemnification will be permitted; the IBCL does not contain any comparable
restrictions.
CHARTER PROVISIONS
INTERESTED SHAREHOLDER TRANSACTIONS. Article XV of the DCA Charter
provides, among other things, that the affirmative vote of not less than 80% of
the outstanding stock of DCA entitled to vote thereon (an "80% Vote") is
required to approve any of the following transactions with an acquiror who is a
beneficial owner (as such term is defined in the DCA Charter) of 5% or more of
the outstanding capital stock of DCA entitled to vote in the election of
directors: (i) any agreement for merger or consolidation of DCA or any
subsidiary with or into such an acquiror or the merger of any other such
acquiror into DCA or any subsidiary, (ii) any sale, lease, exchange, mortgage or
pledge to any such acquiror of all or substantially all of the property and
assets of DCA or any subsidiary, or any part of such assets having a fair market
value greater than 50% of the fair market value of the total assets of DCA or
any subsidiary, or any part of such assets having a fair market value greater
than 50% of the fair market value of the total assets of DCA or such subsidiary,
or (iii) the issuance or transfer by DCA or any subsidiary of any voting
security of DCA or any subsidiary having a fair market value of more than
$1,000,000 in exchange for payment for the securities or property and assets
(including cash) of any such acquiror. Notwithstanding the preceding sentence,
the 80% Vote is not required if DCA owns a majority of such acquiror's voting
stock or if, as was the case in respect of the Offer, the DCA Board approves the
transaction before such acquiror becomes a 5% or more beneficial owner of such
capital stock. Neither the CTS Charter nor the CTS Bylaws contains a similar
provision relating to transactions with acquirors that are significant
shareholders.
CLASSIFICATION OF DIRECTORS. Article V of the DCA Charter provides for the
classification of the DCA Board into two or three classes (depending on the
number of members of the DCA Board), with directors serving staggered two or
three-year terms, as the case may be. The CTS Charter does not provide for
classification of the CTS Board.
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<PAGE>
AMENDMENTS TO THE CHARTER AND BYLAWS. The CTS Charter does not contain any
provisions regarding amendment. Under the IBCL, amendments to the CTS Charter
must be approved by a CTS Plurality Vote. The CTS Bylaws provide that such
by-laws may be altered, amended or repealed, in whole or in part, or new Bylaws
may be adopted, by the affirmative vote of two-thirds of the members of the CTS
Board (or, following the Effective Time, a majority of the CTS Board).
Under the DCA Charter, any amendment or repeal of the DCA Bylaws, or any
alteration, amendment, change or repeal of Article V of the DCA Charter
establishing classification of the DCA Board, requires the affirmative vote of
the holders of at least 80% of the outstanding DCA Shares. The DCA Charter also
requires the affirmative vote of 80% of the DCA Shares for any change to, or
adoption of any provision inconsistent with, the provisions of the DCA Charter
regarding transactions with interested shareholders. Under the NYBCL, all other
amendments to the DCA Charter must be approved by the affirmative vote of
holders of a majority of the outstanding stock of DCA, unless a class vote is
required under the NYBCL.
The DCA Bylaws provide that, except as otherwise provided in the DCA
Charter, the DCA Bylaws may be altered, changed, amended or replaced by a
majority of the outstanding DCA Shares represented and entitled to vote thereon
or by a affirmative vote of a majority of the DCA Board.
RIGHTS PLANS
CTS has not adopted a rights plan as of the date of this Joint Proxy
Statement/Prospectus. However, depending upon the circumstances, CTS reserves
the right to adopt a rights plan in the future. The Merger Agreement permits CTS
to adopt a rights plan by action of a majority of the Unaffiliated CTS Directors
if the rights thereunder become exercisable only after the Effective Time, or,
if earlier, the termination of the Merger Agreement.
DCA has entered into a Rights Agreement, dated as of January 10, 1986, as
amended (the "DCA Rights Agreement"), with The First National Bank of Boston, as
Rights Agent. Pursuant to the DCA Rights Agreement, on January 30, 1986, the
Board declared a distribution of one Preferred Stock Purchase Right (a "DCA
Right") on each outstanding DCA Share. Each DCA Right entitles the holder to
purchase one one-hundredth of a share of Series A Cumulative Preferred Stock
(the "Preferred Stock") of DCA at an exercise price of $80.00, subject to
certain adjustments.
The DCA Rights will be represented by the certificates for DCA Shares and
will not be exercisable, or transferable apart from the DCA Shares, until (i) 10
days after the public announcement that a person or group of affiliated or
associated persons has acquired, or obtained the right to acquire, the
beneficial ownership of 20 percent or more of the DCA Shares in a transaction
not approved by the DCA Board prior to such transaction (an "Acquiring Person"),
or (ii) such date as the DCA Board shall determine following the first public
announcement of the commencement of, or the intent of any individual, firm,
corporation or other entity (other than DCA) to commence, a tender or exchange
offer for 25% or more of the outstanding DCA Shares. As soon as practicable
after such date (the "Distribution Date"), separate certificates evidencing the
DCA Rights will be mailed to holders of record of DCA Shares as of the close of
business on the Distribution Date and such separate certificates alone will
evidence the DCA Rights.
In the event that, after the Distribution Date, DCA is acquired in a merger
or other business combination transaction, provision will be made so that each
holder of DCA Rights will be entitled to purchase, upon the exercise thereof at
then current exercise price of the DCA Right, that number of shares of common
stock of the acquiring company which at the time of such transaction would have
a value equal to two times the exercise price of the DCA Right. In the event
that DCA is the surviving corporation in such merger and the DCA Shares are not
changed, each DCA Right would become exercisable for that number of shares of
Preferred Stock having a market value of two times the exercise price of the DCA
Right.
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<PAGE>
The DCA Rights are redeemable in whole, but not in part, at $0.05 per DCA
Right prior to a person or group of affiliated or associated persons acquiring
beneficial ownership of at least 20 percent of the DCA Shares. The DCA Rights
will expire on February 14, 2006 (unless the DCA Rights are earlier redeemed by
DCA).
The First National Bank of Boston, 100 Federal Street, Boston, Massachusetts
02110, Attention: Shareholders Services Division, is the Rights Agent.
The purchase price payable, and the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the DCA Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) upon the grant to holders of Preferred Stock of certain
rights or warrants to subscribe for shares of Preferred Stock or convertible
securities at less than the current market price of the Preferred Stock, or
(iii) upon the distribution to holders of Preferred Stock of evidence of
indebtedness or assets (excluding regular periodic cash dividends out of
earnings or retained earnings or dividends payable in Preferred Stock) or of
subscription rights or warrants (other than those referred to above). With
certain exceptions, no adjustment in the purchase price will be required until
cumulative adjustments require an adjustment of at least 1% in such purchase
price.
Until a DCA Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of DCA including without limitation the right to vote or
to receive dividends.
The Preferred Stock purchasable upon exercise of the DCA Rights will be
nonredeemable. Each share of Preferred Stock will be entitled to an aggregate
dividend of 100 times the dividend declared on the DCA Shares, but in no event
less than semiannual dividends of $240.00 per share. In the event of
liquidation, the holders of the Preferred Stock will receive a preferred
liquidation payment equal to the greater of $8,000 per share and 100 times the
payment made per DCA Share. Each share of Preferred Stock will have 100 votes,
voting together with the DCA Shares. In the event of any merger, consolidation
or other transaction in which DCA Shares are exchanged for or changed into other
stock or securities, cash or other property, each share of Preferred Stock will
be entitled to receive 100 times the amount received per DCA Share. The
foregoing rights of the Preferred Stock are protected against dilution in the
event additional DCA Shares are issued.
The DCA Rights Agreement has been amended to provide that the DCA Rights
will expire immediately prior to the Effective Time and that neither CTS nor any
of its affiliates or associates will be deemed an Acquiring Person and that
neither a Distribution Date nor a Stock Acquisition Date (as such term is
defined in DCA Rights Agreement) will occur by reason of the approval, execution
or delivery of the Merger Agreement, the announcement or completion of the
Offer, the consummation of the Merger or the consummation of the other
transactions contemplated by the Merger Agreement.
The foregoing is a summary of all material elements of the DCA Rights
Agreement and is qualified in its entirety by reference to DCA's Form 8-A, dated
January 30, 1986, the text of the DCA Rights Agreement as an exhibit thereto
filed with the Commission and subsequent amendments to the DCA Rights Agreement
as filed with the Commission. Copies of these documents may be obtained in the
manner set forth in "Available Information."
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<PAGE>
GRANT OF CERTAIN OPTIONS
On May 9, 1997, the CTS Board approved Option grants, effective as of the
Effective Time (the "Option Grants"), to certain executive officers of CTS and
DCA, subject to CTS Shareholder approval and the consummation of the Merger. The
general terms of the Options are as follows:
<TABLE>
<CAPTION>
OTHER TERMS APPLICABLE
TO ALL OPTIONS
-------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF
CTS SHARES
SUBJECT TO STOCK
OFFICER OPTIONS VESTING PRICE TERM
- ------------------------------------------ ----------- --------------------- --------------------- ---------
Joseph P. Walker,......................... 200,000 20% per year over $62.50 ($31.25 after 10 years
Chairman, President and Chief Executive 100,000 five years; vesting the Stock Split)
Officer of CTS 50,000 to accelerate if
Andrew Lozyniak,.......................... 50,000 market price for 20
Chairman and President of DCA trading days is at or
Jeannine M. Davis,........................ above $70.00 per
Vice President, General Counsel and share ($35.00 per
Secretary of CTS share if the Stock
Stanley J. Aris,.......................... Split is effected)
Vice President--Finance, Chief Financial and in certain
Officer of CTS change-in-control
events
</TABLE>
The closing sales price for CTS Shares on May 8, 1997, the last trading day
prior to the grant of the Options, was $61.00. The $70.00 Price Target was
reached on August 11, 1997. Accordingly, the Options will be fully vested if CTS
Shareholders approve the Option Grants.
If the Option Grants are approved by CTS Shareholders, CTS will recognize a
non-cash charge during the fiscal quarter in which the Effective Time occurs
equal to the market price for CTS Shares on the date of the CTS Shareholder
approval of the issuance of CTS Shares in the Merger over the $62.50 exercise
price under the Options multiplied by the total number of Options subject to the
Option Grant. Based on the closing sales price as reported on the NYSE for CTS
Shares on August 11, 1997, the total amount of that charge would be $4.4 million
(net of applicable income taxes).
PURPOSE
The executive officers and other key employees of CTS presently have minimal
equity based incentive arrangements. From time to time, prior to the
commencement of discussions that gave rise to the Merger Agreement, the CTS
Board considered the possible award of options or other equity-based incentive
rights to key employees of CTS. The principal purpose for the award of the
Options in connection with the Merger is to provide incentives to certain
executive officers who have the capacity for contributing in substantial measure
toward the growth and profitability of CTS, particularly in light of the
increase in the scope and diversity of CTS resulting from the Merger.
VOTE REQUIRED
The Options were granted outside of CTS' existing stock option plan.
Accordingly, the award of the Options is subject to approval by CTS
Shareholders. The approval of the Option Grants requires a CTS Plurality Vote.
Shareholder approval of Option Grants is not a condition to the consummation of
the Merger.
THE CTS BOARD RECOMMENDS THAT CTS SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
OPTION GRANTS.
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<PAGE>
ELECTION OF DCA DIRECTORS
At the DCA Shareholders Meeting, the four Class A directors, comprised of
two CTS designees and two current DCA directors, are to be elected to serve for
a term of three years and until the election and qualification of their
respective successors. In addition, one designee of CTS (George T. Newhart) is
to be elected to Class B to serve for a term of one year and one designee of CTS
(Stanley J. Aris) is to be elected to Class C to serve for a term of two years,
in each case until the election and qualification of their respective
successors.
In the event that any of such nominees is unable or unwilling to serve as a
director, an event DCA does not anticipate, the proxies hereby solicited will be
voted for the remaining nominees named below or for such substitute person or
persons as the DCA Board may select.
The following table sets forth the name, age, present principal occupation
or employment, five-year employment history and DCA Share ownership of (i) the
nominees for directors, each of whom is now a director of DCA, and (ii) DCA's
other directors, whose terms of office will continue after the DCA Shareholders
Meeting and will expire, in the case of the Class B directors, at the 1998
Annual Meeting of Shareholders, and, in the case of the Class C directors, at
the 1999 Annual Meeting of Shareholders. Each person is a citizen of the United
States and the business address of each such person is c/o Dynamics Corporation
of America, 475 Steamboat Road, Greenwich, Connecticut 06830-7197, except for
the designees of CTS, the business address of which is c/o CTS Corporation, 905
West Boulevard North, Elkhart, Indiana 46514.
<TABLE>
<CAPTION>
DCA SHARES
BENEFICIALLY PERCENT
OWNED AS OF OF YEAR FIRST
PRINCIPAL AUGUST 29, COMMON BECAME
NAME AND AGE OCCUPATION 1997(1) STOCK DIRECTOR
- ------------------------------------ ------------------------------------ ---------------- ----------- -----------
<S> <C> <C> <C> <C>
CLASS A
(term expires 2000)
Jeannine M. Davis--48............... Vice President, General Counsel and
Secretary of CTS 0 * 1997
Joseph P. Walker--58................ Director, Chairman of the Board,
President and Chief Executive
Officer and Chairman of the
Executive Committee of CTS 853(2) * 1997
Ronald Steiner--58.................. President of International
Electronic Research Corporation 12,858 * 1997
John Thompson--62................... Principal of IMCOR, a management
firm 0 * 1997
CLASS B
(term expires 1998)
Harold Cohan--72.................... Business Consultant 1,168 * 1986
Frank A. Gunther--89................ President, Highpoint Enterprises
Incorporated, radio and microwave
communications engineering 5,273(3) * 1966
Henry V. Kensing--64................ Vice President, General Counsel and
Secretary of DCA 21,669.246(4) * 1977
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DCA SHARES
BENEFICIALLY PERCENT
OWNED AS OF OF YEAR FIRST
PRINCIPAL AUGUST 29, COMMON BECAME
NAME AND AGE OCCUPATION 1997(1) STOCK DIRECTOR
- ------------------------------------ ------------------------------------ ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Andrew Lozyniak--66................. Chairman of the Board and President
of DCA 194,528.189(5) 5.1% 1970
George T. Newhart--54............... Corporate Controller of CTS 0 * 1997
CLASS C
(term expires 1999)
Patrick J. Dorme--61................ Vice President - Finance and Chief
Financial Officer of DCA 51,444.803(6) 1.3% 1985
Stanley J. Aris--56................. Vice President, Finance and Chief
Financial Officer of CTS. Prior to
his present capacity, Mr. Aris was
a business consultant 0 * 1997
Russell H. Knisel--63............... Business Consultant 906 * 1993
Saul Sperber--84.................... Financial Advisor 3,785 * 1974
</TABLE>
- ------------------------
* Less than 1%.
(1) In each case, beneficial ownership consists of sole voting and investment
power, except that 500 DCA Shares of Mr. Knisel are owned jointly with his
spouse. Beneficial ownership as of August 29, 1997 includes DCA Share Units
credited to the accounts of non-employee directors under the DCA Outside
Directors Plan described below. Except as referred to herein, no nominee or
director owns beneficially any security of DCA. In addition, Messrs. Dorme,
Kensing and Lozyniak, as members of the Pension Committee for the Retirement
Plan for Employees of DCA, have the right to instruct the Trustee to vote
50,000 DCA Shares, which DCA Shares are not included in the foregoing
tables.
(2) Mr. Walker's wife owns all of these DCA Shares. Mr. Walker disclaims
beneficial ownership of such DCA Shares.
(3) Mrs. Gunther owns 600 of these DCA Shares. Mr. Gunther disclaims beneficial
ownership of such DCA Shares.
(4) Mrs. Kensing owns 7,500 of these DCA Shares. Mr. Kensing disclaims
beneficial ownership of such DCA Shares.
(5) Mrs. Lozyniak owns 15,100 of these DCA Shares. Mr. Lozyniak disclaims
beneficial ownership of such DCA Shares.
(6) Mrs. Dorme owns 18,000 of these DCA Shares. Mr. Dorme disclaims beneficial
ownership of such DCA Shares.
------------------------
Pursuant to the Merger Agreement, if any of Ms. Davis or Messrs. Aris,
Newhart or Walker is not elected to the DCA Board at the DCA Shareholders
Meetings, DCA has agreed that the other members of the DCA Board will either
cause other persons designated by CTS to be elected to the DCA Board or will
take such other actions as may be required to give CTS proportionate
representation on the DCA Board, including by securing the resignations of other
DCA directors.
There is no family relationship between any director, executive officer or
person nominated or chosen by the DCA Board to become a director or executive
officer. Except for the provisions of the Merger
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<PAGE>
Agreement under which the CTS designees were elected to the DCA Board, there are
no arrangements or understandings between any director and any other person
pursuant to which the director was selected as a director.
The business experience of each of the nominees and directors during the
past five years is as listed above under principal occupation with the exception
of Mr. Knisel, Mr. Sperber, Mr. Thompson and Mr. Steiner.
Mr. Knisel's present occupation is and has been since January 1, 1994 as
listed above. Mr. Knisel retired as Vice Chairman of Shawmut Bank on December
31, 1993, a position he held for more than five years prior to his retirement.
Mr. Sperber's present occupation is and has been since February 9, 1993 as
listed above. From May 1, 1989 to February 9, 1993, Mr. Sperber was an
accountant with Salerno & Co., Certified Public Accountants.
Mr. Thompson's present occupation is and has been since April 1988, the
Chairman and Chief Executive Officer of IMCOR,Inc., a management consulting
firm.
Mr. Steiner's present occupation is and has been since 1992, the President
of International Electronic Research Corporation, a subsidiary of DCA ("IERC").
Prior to that, Mr. Steiner has served as Director of Operations, Vice President
of Operations and Executive Vice President of IERC since joining IERC in April
1985.
Messrs. Lozyniak, Dorme and Walker also serve as directors of CTS. Mr.
Lozyniak is also a director of Physicians Health Services, Inc., a corporation
engaged in the delivery of managed care health services. Mr. Walker is also a
director of NBD Bank, N.A.
DCA has a standing Audit Committee of the DCA Board (the "DCA Audit
Committee") which is comprised of Messrs. Cohan (Chairman), Gunther, Knisel and
Sperber, and which met twice during the year 1996. It performs the following
functions: recommends the engagement of the independent auditors, reviews the
scope and the results of the audit, reviews the recommendations and comments of
the independent auditors with respect to internal controls and the consideration
given or the corrective action taken by management, reviews internal accounting
procedures and controls with DCA's financial and accounting staff and reviews
non-audit services provided by the independent auditors.
DCA has a standing Compensation Committee of the DCA Board (the "DCA
Compensation Committee") which is comprised of Messrs. Knisel (Chairman), Cohan,
Gunther and Sperber and which met once during the year 1996. It considers and
acts upon all matters dealing with executive compensation, including executive
contracts, incentive compensation plans and the 1980 Restricted Stock and Cash
Bonus Plan (the "DCA Restricted Stock Plan").
DCA has no nominating or similar committee.
During 1996, the DCA Board held 12 meetings. Each director attended all of
the meetings of the DCA Board and committees on which he served, except that two
directors were each absent from one meeting of the DCA Board and a DCA Audit
Committee member was absent from one meeting of such committee.
VOTE REQUIRED
The approval of the election of the directors requires a DCA Plurality Vote.
THE DCA BOARD RECOMMENDS THAT DCA SHAREHOLDERS VOTE "FOR" ELECTION OF THE
DIRECTOR-NOMINEES TO THE DCA BOARD.
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RATIFICATION OF APPOINTMENT OF DCA'S INDEPENDENT AUDITORS
DCA is submitting for approval by the DCA Shareholders the DCA Board's
selection of Ernst & Young as independent auditors to examine the consolidated
financial statements of DCA for the fiscal year ending December 31, 1997. The
DCA Audit Committee concurs in this recommendation. The firm has served as DCA's
independent auditors since 1972. It is anticipated that CTS' independent
accountants will serve as the independent accountants for Sub as the surviving
corporation in the Merger.
If the DCA Shareholders do not approve the selection of Ernst & Young to
serve as its independent auditors, the directors will, under authority of the
DCA by-laws, appoint other auditors.
Representatives of Ernst & Young will be present at the DCA Shareholders
meeting. They will have the opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions from the DCA
Shareholders.
Ernst & Young's auditing-related fees for 1996 aggregated $265,000.
VOTE REQUIRED
The approval of the ratification of the appointment of Ernst & Young as
DCA's independent auditors for 1997 requires a DCA Plurality Vote.
THE DCA BOARD RECOMMENDS THAT DCA SHAREHOLDERS VOTE "FOR" THE RATIFICATION
OF ERNST & YOUNG AS DCA'S INDEPENDENT AUDITORS FOR 1997.
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OTHER INFORMATION REGARDING CTS
1996 FORM 10-K/A
See the CTS 10-K (including portions of the CTS 1996 Annual Report included
in Annex E as Exhibit 13 thereto), the CTS 10-Q and the CTS Quarterly Report on
10-Q for the quarter ended March 30, 1997 each of which is attached hereto as
Annex E for information as to CTS' businesses, properties, management and other
matters.
CREDIT FACILITIES
In connection with the Offer, CTS entered into a Credit Agreement among CTS,
NBD Bank, N.A., as Agent, and the institutions from time to time parties thereto
as lenders (the "Credit Agreement") providing for credit facilities (the "Credit
Facilities") of $125.0 million. The Credit Facilities consist of an unsecured
six-year amortizing term loan of $50.0 million and an unsecured six-year
revolving credit facility of $75.0 million. On June 16, 1997, CTS borrowed $50.0
million under the term loan portion of the Credit Facilities, which was used to
finance the purchase of DCA Shares in the Offer. CTS intends to borrow
additional funds under the Credit Facilities to finance the payment of the Cash
Consideration.
The initial pricing of the Credit Facilities is LIBOR plus 0.50% per annum
through March 31, 1998, with adjustments thereafter based on the ratio of CTS'
consolidated total indebtedness to consolidated EBITDA. A commitment fee of
0.175% per annum will accrue on the undrawn portion of the revolving credit
facility. As of August 29, 1997, the prevailing three-month LIBOR rate was 5.72%
and the effective annual interest rate (including debt issuance costs) was
6.83%.
The term loan will amortize on a quarterly basis in aggregate installments
of $0 in 1997, $3.0 million in 1998, $5.0 million in 1999, $10.0 million in
2000, $10.0 million in 2001, $10.0 million in 2002 and $12.0 million in 2003.
CTS will also be required to prepay the term loan with the net proceeds of asset
sales in excess of $10.0 million per annum, the net proceeds of certain debt
financings, 50% of the net proceeds of equity financings involving the sale of
CTS treasury stock in excess of $30.0 million and 50% of the net proceeds of all
other equity financings in excess of $5.0 million.
The Credit Agreement includes certain representations and warranties and
covenants customary for facilities of this type, including: (i) financial
maintenance tests consisting of a fixed charge coverage ratio, a leverage ratio
and a minimum tangible net worth test; (ii) preservation of corporate existence,
compliance with laws, maintenance of properties and insurance and compliance
with reporting requirements; and (iii) limitations (subject to certain baskets
and exceptions) on indebtedness, liens, mergers and acquisitions, sales of
assets and other fundamental changes, investments, guarantees, transactions with
affiliates, leases, cash dividends and stock repurchases and redemptions during
the continuance of any default under the Credit Facilities, and certain hedging
obligations. The Credit Agreement also includes customary events of default,
including payment defaults, breaches of representations and warranties, covenant
defaults, cross defaults to other indebtedness, bankruptcy events, defaults in
satisfaction of money judgments, certain events under ERISA and a change of
control of CTS (defined as (i) any person together with its affiliates becoming
the beneficial owner of 40% or more of the combined voting power of CTS' common
stock or (ii) during any period of 12 months persons constituting a majority of
the CTS Board at the beginning of such period (and persons whose election to the
CTS Board was approved by such persons) ceasing to constitute such a majority).
SECURITIES BENEFICIALLY OWNED BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table includes information with respect to all persons and
groups known to CTS to be beneficial owners of more than five percent of the CTS
Shares on August 29, 1997. The number of CTS Shares and the percent held by each
director is also stated.
81
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
ON PERCENT
BENEFICIAL OWNER AUGUST 29, 1997(1) OF CLASS
- -------------------------------------------------------------------------------- ---------------------- -----------
<S> <C> <C>
Dynamics Corporation of America................................................. 2,303,100(2) 43.9%
475 Steamboat Road
Greenwich, CT 06830
The Gabelli Group, Inc.......................................................... 946,400(3) 18.00
GAMCO Investors, Inc., and Gabelli Funds, Inc.
One Corporate Center
Rye, NY 10580-1434
Gerald H. Frieling, Jr.......................................................... 200,150(4) 3.81
Lawrence J. Ciancia............................................................. 199,650(4) 3.80
Patrick J. Dorme................................................................ 199,150(4,9) 3.79
Andrew Lozyniak................................................................. 199,150(4,9) 3.79
Joseph P. Walker................................................................ 26,712(5,9) *
Stanley J. Aris................................................................. 11,914(6,9) *
Donald R. Schroeder............................................................. 10,641(7) *
James N. Hufford................................................................ 4,815(8) *
13 Directors and officers as a group............................................ 290,710(4,10) 5.54
</TABLE>
- ------------------------
* Less than 1%.
(1) Information with respect to beneficial ownership is based upon information
furnished by each shareholder or contained in filings made with the
Commission. Except where otherwise indicated, the CTS Shareholders listed in
the table have sole voting and investment authority with respect to the CTS
Shares owned by them.
(2) Includes 1,020,000 CTS Shares for which voting authority was not granted by
a vote of the CTS Shareholders at the 1987 CTS shareholders meeting pursuant
to Chapter 42 of the IBCL. See "Comparison of Shareholder Rights --
Statutory Provisions."
(3) Includes 219,500 CTS Shares held by Gabelli Funds, Inc. ("GFI") and 726,900
CTS Shares held by GAMCO Investors, Inc., which were reported on a joint
Schedule 13D filed August 15, 1997, the most recent filing by such reporting
persons. According to the Schedule 13D, Mario J. Gabelli is deemed to have
beneficial ownership of the securities beneficially owned by each of the
foregoing persons and GFI is deemed to have beneficial ownership of the
securities beneficially owned by each of the foregoing persons other than
Mr. Gabelli. Each of the reporting persons and covered persons has the sole
power to vote or direct the vote and sole power to dispose or to direct the
disposition of the securities reported for it, either for its own benefit or
for the benefit of its investment clients or its partners, as the case may
be, except that GAMCO Investors, Inc. does not have authority to vote 23,500
of the reported CTS Shares, and except that GFI has sole dispositive and
voting power with respect to the 219,500 CTS Shares held by the funds, so
long as the aggregate voting interest of all joint filers does not exceed
25% of their total voting interest in the issuer and in that event, the
proxy voting committee of each of the funds shall respectively vote that
fund's CTS Shares, and except that, at any time, the proxy voting committee
of each such fund may take and exercise in its sole discretion the entire
voting power with respect to the CTS Shares held by such fund under special
circumstances such as regulatory considerations, and except that the power
of Mr. Gabelli and GFI is indirect with respect to securities beneficially
owned directly by other reporting persons.
(4) 199,150 of the CTS Shares shown as owned beneficially by each of Mr.
Ciancia, Mr. Dorme, Mr. Frieling, Mr. Lozyniak and 13 directors and officers
as a group are the same CTS Shares, which CTS Shares are held by The
Northern Trust Company as Trustee of the CTS Employee Benefit Plans Master
Trust. The CTS Compensation Committee of the CTS Board has voting and
investment
82
<PAGE>
authority over these CTS Shares. The present members of the CTS Compensation
Committee are Lawrence J. Ciancia, Patrick J. Dorme, Gerald H. Frieling, Jr.
and Andrew Lozyniak, who were appointed by the CTS Board.
(5) Includes 4,012 CTS Shares attributed to Joseph P. Walker's account in the
CTS Corporation Retirement Savings Plan (the "CTS Thrift Plan"), as shown as
of December 31, 1996, the most recent annual report of the Plan. The number
of CTS Shares attributed to Mr. Walker's account may not reflect CTS Shares
that have accrued to his account since the filing of the CTS Thrift Plan's
last annual report. Also includes 2,500 CTS Shares subject to options
exercisable on August 29, 1997, or which become exercisable within 60 days
thereafter.
(6) Includes 314 CTS Shares attributed to Stanley J. Aris' account in the CTS
Thrift Plan, as shown as of December 31, 1996, the most recent annual report
of the Thrift Plan. The number of CTS Shares attributed to Mr. Aris' account
may not reflect CTS Shares that have accrued to his account since the filing
of the Thrift Plan's last annual report. Also includes 4,600 CTS Shares
subject to options exercisable on August 29, 1997, or which become
exercisable within 60 days thereafter.
(7) Includes 6,341 CTS Shares attributed to Donald R. Schroeder's account in
the CTS Thrift Plan, as shown as of December 31, 1996, the most recent
annual report of the Plan. The number of CTS Shares attributed to Mr.
Schroeder's account may not reflect CTS Shares that have accrued to his
account since the filing of the CTS Thrift Plan's last annual report. Also
includes 2,300 CTS Shares subject to options exercisable on August 29, 1997,
or which become exercisable within 60 days thereafter.
(8) Includes 1,015 CTS Shares attributed to James N. Hufford's account in the
CTS Thrift Plan, as shown as of December 31, 1996, the most recent annual
report of the Plan. The number of CTS Shares attributed to Mr. Hufford's
account may not reflect CTS Shares that have accrued to his account since
the filing of the CTS Thrift Plan's last annual report. Also includes 2,400
CTS Shares subject to options exercisable on August 29, 1997, or which
become exercisable within 60 days thereafter. Also includes 400 CTS Shares
held in a trust for his spouse, of which he disclaims beneficial ownership.
(9) Messrs. Aris, Dorme, Lozyniak and Walker are directors of DCA.
(10) Includes 28,300 CTS Shares subject to options exercisable on August 29,
1997, or which become exercisable within 60 days thereafter.
83
<PAGE>
CTS SHARES PERFORMANCE CHART
The following graph compares the cumulative total shareholder return on CTS
Shares for the last five fiscal years with the cumulative total return on the S
& P 500 Index and an index of peer companies over the same period.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CTS Corp. 100 90 110 120 190
S&P High-Tech Index 100 105 130 150 220
S&P 500 100 110 120 120 190
</TABLE>
84
<PAGE>
OTHER INFORMATION REGARDING DCA
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of August 29, 1997, to the knowledge of DCA, the following table shows
the only entities which owned beneficially more than 5% of the DCA Shares issued
and outstanding on that date.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF PERCENT
OF BENEFICIAL OWNER DCA SHARES(1) OF CLASS
- -------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
CTS Corporation..................................................... 1,215,264 31.7%
GAMCO Investors, Inc................................................ 171,600 4.5
Gabelli Funds, Inc.................................................. 80,000 2.1
Gabelli Associates Limited.......................................... 3,700 0.1
One Corporate Center
Rye, NY 10580-1435
WHX Corporation..................................................... 516,440 13.5
Directors and officers as a group................................... 316,348 8.2
</TABLE>
- ------------------------
(1) Information with respect to beneficial ownership is based on information
furnished by the beneficial owners named above. Under the rules of the
Commission, beneficial ownership is determined by the possession of either
voting or investment power.
Each of the above Gabelli entities has the sole power to vote or direct the
vote and sole power to dispose or to direct the disposition of the securities
reported for it, either for its own benefit or for the benefit of its investment
clients or its partners, as the case may be, except that GAMCO Investors, Inc.
does not have authority to vote 23,000 of the reported DCA Shares and except
that Gabelli Funds, Inc. has sole disposition and voting power with respect to
the 80,000 DCA Shares held by such funds, so long as the aggregate voting
interest of all joint filers does not exceed 25% of the issuer's total voting
interest and, in that event, the proxy voting committee of each fund shall
respectively vote that fund's DCA Shares.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
To DCA's knowledge, based solely on its review of the copies of changes of
ownership of DCA Shares and other equity securities furnished to DCA and written
representations that no other reports were required to be filed during the year
1996 and to date, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% percent beneficial owners were complied
with, except that Messrs. Steiner and Thompson filed their Form 3's late after
they were elected directors of DCA and Messrs. Steiner and M. Gregory Bohnsack,
the Controller of DCA, filed their Form 4's late after they received restricted
stock grants.
85
<PAGE>
DCA EXECUTIVE COMPENSATION
The following table sets forth current and long-term compensation
information for each of the last three fiscal years of the DCA Chief Executive
Officer and each of the other executive officers whose salary and bonus for the
fiscal year 1996 exceeded the disclosure threshold established by the Commission
(the "DCA Named Executive Officers").
DCA SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION RESTRICTED
----------------------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION (5) YEAR SALARY($)(1) BONUS($)(2) AWARDS($)(3) COMPENSATION($)(4)
- --------------------------------- --------- ----------- ----------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Andrew Lozyniak, Chairman of the
Board
and President.................. 1996 351,489 -- -- 14,792
1995 341,802 -- -- 14,250
1994 333,316 -- 147,500 11,888
Henry V. Kensing, Vice President,
General Counsel, Secretary and
a Director..................... 1996 182,568 10,000 -- 5,831
1995 177,536 10,000 -- 5,651
1994 173,123 10,000 110,625 5,405
Patrick J. Dorme, Vice
President--Finance, Chief
Financial Officer and a
Director....................... 1996 151,749 10,000 -- 4,571
1995 147,566 10,000 -- 4,431
1994 143,898 10,000 110,625 4,248
</TABLE>
- ------------------------
(1) Includes salaries deferred under the DCA Savings and Investment Plan
pursuant to Section 401(k) of the Code (the "DCA 401K Plan").
(2) Includes bonuses paid to the executives shown in the table in the last three
years pursuant to DCA's incentive performance plan. The DCA Board has
determined to continue for 1997 a policy of awarding bonuses on the basis of
results on both an overall and divisional basis, and on individual
performance as described in "-- Report of the DCA Compensation Committee on
Executive Compensation" below.
(3) The number of restricted shares awarded in 1994 under the DCA Restricted
Stock Plan to the executives named were as follows: Mr. Lozyniak, 10,000;
Mr. Kensing, 7,500; Mr. Dorme, 7,500. The value of the restricted DCA Share
awards in 1994 was determined by multiplying the fair market value of the
DCA Shares on the date of grant by the number of DCA Shares awarded. As of
December 31, 1996, the number and value of aggregate restricted share award
holdings were as follows: 6,000 DCA Shares ($169,500) by Mr. Lozyniak; 4,500
DCA Shares ($127,125) by Mr. Kensing and 4,500 DCA Shares ($127,125) by Mr.
Dorme.
Restrictions lapse each year after the first year with respect to 20% of the
DCA Shares awarded in prior years under the DCA Restricted Stock Plan and
cash bonuses are paid to the holders thereof as
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<PAGE>
called for by the DCA Restricted Stock Plan. The aggregate amount of cash
compensation paid, in 1996, 1995, and 1994, for the executives named is as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Mr. Lozyniak....................... 1996 $ 99,000; 1995 $ 95,750; 1994 $ 26,500
Mr. Kensing........................ 1996 $ 62,250; 1995 $ 59,438; 1994 $ 13,250
Mr. Dorme.......................... 1996 $ 62,250; 1995 $ 59,438; 1994 $ 13,250
</TABLE>
Pursuant to the DCA Restricted Stock Plan, regular cash dividends are paid
to holders of restricted DCA Shares awarded under the DCA Restricted Stock
Plan.
The DCA Restricted Stock Plan has a change of control provision under which,
upon a change of control of DCA, all restrictions on DCA Shares awarded
under the DCA Restricted Stock Plan will lapse and cash bonuses will be paid
on those shares.
(4) Includes the amounts contributed under the DCA 401(k) Plan and the imputed
income value of the term life insurance portion of the coverage under
"split-dollar" life insurance policies.
(5) As of February 1, 1996, DCA entered into five-year employment agreements
with Andrew Lozyniak, Henry V. Kensing and Patrick J. Dorme. See "The Merger
-- Interests of Certain Persons in the Merger."
In addition, the executive officers received other non-cash compensation, not
otherwise described in this proxy statement, such as perquisites, but the
aggregate amount thereof did not exceed the lesser of $50,000 or 10% of the
total salary and bonus for each of the persons named in the Table.
DCA PENSION PLAN
The estimated annual benefits payable upon retirement at normal retirement
age and the years of credited service as of January 1, 1997 under DCA's
Retirement Plan for Employees (the "DCA Pension Plan") for the individuals named
in the DCA Summary Compensation Table above and for all the executive officers
of DCA as a group are as follows:
<TABLE>
<CAPTION>
ESTIMATED YEARS OF
ANNUAL CREDITED SERVICE
RETIREMENT AS OF
BENEFITS JANUARY 1, 1997
----------- -------------------
<S> <C> <C>
Andrew Lozyniak................................................. $ 119,970 35
Patrick J. Dorme................................................ $ 80,500 28
Henry V. Kensing................................................ $ 38,760 12
All executive officers as a group (consisting of 4 people)...... $ 295,255
</TABLE>
The latest available actuarial present value of normal retirement benefits
for all employees who are participants in the DCA Pension Plan is $18,003,643.
Under the DCA Pension Plan, the retirement benefit, payable at normal retirement
or current age, is equal to the sum of (A) and (B) below:
(i) Past Service Benefit--equal to .7% of 1975 earnings up to $7,800
plus 1.4% of the excess multiplied by credited service prior to December 31,
1975.
(ii) Future Service Benefit
(a) equal to 1% of annual earnings up to the Social Security Wage
Base plus 2% of the excess, for each year of credited service after
January 1, 1976 and prior to December 31, 1988;
(b) equal to 1.1% of annual earnings up to the Social Security Wage
Base plus 1.45% of the excess, for each year of credited service after
December 31, 1988; or
(c) equal to 1.45% of annual earnings up to the Social Security Wage
Base plus 1.80% of the excess (in lieu of the benefit under (ii) (b)
above) for up to ten years of credited service in
87
<PAGE>
excess of 25 years (but such higher benefit to be earned no earlier than
in the plan year ended December 31, 1989).
For purposes of the DCA Pension Plan, covered earnings for the DCA Chief
Executive Officer and the DCA Named Executive Officers are essentially
equivalent to the amount reported as salary in the annual compensation section
of the DCA Summary Compensation Table above.
The minimum annual benefit for Greenwich office employees who have completed
20 or more years of service is 50% of the three-year average salary, not
including bonuses, for the years immediately preceding a participant's actual
retirement date. The maximum annual retirement benefit for 1996 under the DCA
Pension Plan is $120,000 ($125,000 for 1997). The DCA Pension Plan has been
amended and restated to comply with changes in the Code. Such changes have
reduced retirement benefits earned by the executive officers of DCA for service
after January 1, 1989 and have also eliminated the minimum annual Greenwich
office benefit for such executive officers as of that date. In addition, the
estimated annual retirement benefits reflect the additional changes in the Code,
occasioned by the 1993 Tax Act, limiting to $150,000 ($160,000 for 1997) the
amount of compensation which may be taken into account in calculating benefits
under the DCA Pension Plan.
The DCA Employment Contracts (and the Amended DCA Employment Agreements)
provide for supplemental retirement benefits for Messrs. Lozyniak, Dorme and
Kensing to restore benefits generally available to employees in the Greenwich
office of DCA under the DCA Pension Plan and the DCA 401K Plan but which are not
available to them because of the above mentioned tax law changes and
limitations. Under the employment agreements, DCA will provide additional
retirement benefits, payable in an actuarially determined lump sum at
retirement, equal to the difference between the benefits the executives will
receive under the DCA Pension Plan and the benefits they would have received
thereunder but for the tax law changes and limitations. The estimated annual
benefits under the retirement benefit restoration provision of the employment
agreements, when added to the benefits under the DCA Pension Plan, and assuming
the executives were to retire at the end of the term of the agreements, produce
the following total annual estimated retirement benefits for the executives:
<TABLE>
<S> <C>
Andrew Lozyniak....................................... $ 225,000
Patrick J. Dorme...................................... $ 80,642
Henry V. Kensing...................................... $ 95,761
</TABLE>
DCA SAVINGS AND INVESTMENT PLAN
Effective January 1, 1985, DCA implemented the DCA 401K Plan for all
employees not covered by collective bargaining agreements. The DCA 401K Plan
allows eligible employees to defer up to 18% of their pay until retirement,
death, disability or the occurrence of certain other events. Under the DCA 401K
Plan, DCA makes basic matching contributions, in cash (in which the employee is
immediately fully vested), of $1.00 for every $1.00 of pay deferred up to 2% of
pay, and also may match, in cash or in DCA Shares, at DCA's option, all or part
of additional deferrals of pay up to 6% of pay, depending on DCA's current
results of operations and forecasted business conditions. Since inception of the
DCA 401K Plan through October 31, 1991, DCA decided in each plan year to match
50% of deferrals above 2% of pay up to 6% of pay in DCA Shares. Such additional
matching contributions vest if and when the employee completes five years of
service with DCA.
Under the Code, the amount of pay employees may defer under the DCA 401K
Plan must be limited to $9,500 in 1996 and $9,500 in 1997 for such plan to
retain its tax-qualified status. The tax laws have also imposed a limit of
$150,000 ($160,000 in 1997) on pay available for deferral and matching by DCA
under the DCA 401K Plan. The employment agreements with Messrs. Lozyniak, Dorme
and Kensing provide for payment to each of the executives at retirement of an
amount equal to 2% of the excess of his base salary
88
<PAGE>
over $150,000 ($160,000 in 1997) in each year of the term of the agreements,
together with interest at 8% on these amounts.
Under the DCA 401K Plan, all contributions of employees and all DCA matching
contributions which are made in cash are invested either in guaranteed
investment contracts issued by insurance companies or other financial
institutions and/or in mutual funds, in accordance with the choice of the
contributing employee.
DCA 1980 RESTRICTED STOCK AND CASH BONUS PLAN
All officers and directors who are employees of DCA are also eligible to
participate in the DCA
Restricted Stock Plan. The DCA Restricted Stock Plan, as approved by the DCA
Shareholders on May 1, 1981, and as amended by them on May 6, 1988 to replenish
the 148,567 DCA Shares granted from 1981 to 1988, provides for the award or sale
of so-called "restricted stock", which is governed by Section 83 of the Code, to
key executive personnel of DCA or any subsidiary. The total number of DCA Shares
which may be subject to the DCA Restricted Stock Plan may not exceed 400,000
(subject to adjustment in certain events as described below).
The DCA Restricted Stock Plan is administered by the DCA Compensation
Committee elected by the DCA Board, presently consisting of four directors of
DCA, each of whom is ineligible to participate in the DCA Restricted Stock Plan
and is a non-employee director as that term is defined in Rule 16b-3 under the
Exchange Act.
In accordance with the terms of the DCA Restricted Stock Plan, the DCA
Compensation Committee selects participants from among those officers and key
management executives who are full-time employees of DCA or any subsidiary.
Criteria for selection include: level of responsibility, performance, potential,
salary, bonuses, prior grants of stock options and similar considerations.
Having selected eligible participants, the DCA Compensation Committee will offer
such persons the right to acquire by award or purchase a certain number of DCA
Shares on such terms and at such price, if any, as it deems appropriate. DCA
Shares acquired by offerees pursuant to the DCA Restricted Stock Plan are
subject to the restriction that, during the period of five years after the date
of acquisition, the participant may not sell, transfer, or otherwise dispose of
such shares as to which the restrictions shall not have lapsed unless he or she
shall first have offered such shares to DCA for repurchase. The restrictions
lapse as to 20% of the DCA Shares acquired pursuant to the DCA Restricted Stock
Plan in each year following the acquisition of the DCA Shares after the first
year. In addition, within five years following the date DCA Shares were
acquired, upon termination of the participant's employment for any reason,
including the participant's death or disability, DCA is required to repurchase
and the participant is required to sell, at no cost to DCA if such DCA Shares
were awarded or at their original purchase price if such DCA Shares were
purchased, all DCA Shares as to which the restrictions shall not have lapsed. In
the event of a change in control of DCA, all restrictions upon the transfer of
such DCA Shares lapse.
As soon as practicable after the restrictions as to any DCA Shares have
lapsed, DCA pays a cash bonus to the participant equal to the fair market value
of such DCA Shares as of the date of such lapse if such DCA Shares were awarded
or equal to the excess of the fair market value thereof as of the date of such
lapse over the original purchase price of such DCA Shares if such DCA Shares
were purchased. The cash bonus is intended to defray the federal income tax
payable at the time restrictions on transfer lapse. DCA may pay up to five such
cash bonuses to any participant, but in no event may the aggregate of such cash
bonuses payable to any participant be greater than a sum equal to twice the fair
market value of such DCA Shares on the date they were originally acquired.
In the event of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares for other securities, the
DCA Restricted Stock Plan provides for appropriate adjustment by the DCA
Compensation Committee of the total number of DCA Shares which may be
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<PAGE>
offered for award or purchase under the DCA Restricted Stock Plan and in the
price, if any, paid for DCA Shares under such plan.
The DCA Restricted Stock Plan terminates upon the award or sale of all of
the DCA Shares available under the DCA Restricted Stock Plan. The DCA Board may
terminate or amend the DCA Restricted Stock Plan but may not, without approval
by a DCA Plurality Vote, increase the number of DCA Shares reserved for the DCA
Restricted Stock Plan.
There is no limit to the number of DCA Shares that may be granted to any
individual or to the officers and directors of DCA as a group. Each participant
will be required to give a representation in writing that he or she is acquiring
the DCA Shares under the DCA Restricted Stock Plan for his or her own account as
an investment and not with a view to, or for sale in connection with, any
distribution thereof. The approximate number of key employees which it is
estimated will participate in the DCA Restricted Stock Plan at any one time is
no more than 35.
No DCA Shares were awarded in 1996 under the DCA Restricted Stock Plan.
In 1996, restrictions lapsed with respect to 20% of the DCA Shares awarded
in prior years under the DCA Restricted Stock Plan and cash bonuses were paid to
the holders thereof as called for by the DCA Restricted Stock Plan.
REPORT OF THE DCA COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The DCA Compensation Committee, comprised of Messrs. Knisel (Chairman),
Cohan, Gunther and Sperber, submits this report on executive compensation to the
DCA Shareholders.
COMPENSATION PRINCIPLES AND PHILOSOPHY. The DCA Compensation Committee
believes it has implemented programs of executive compensation established to
achieve the following objectives:
1. Attract and retain key executives and managers;
2. Align the financial interests of those key executives and managers
with those of the DCA Shareholders; and
3. Reward individual performance commensurate with corporate
performance.
These objectives are achieved through a combination of compensation
arrangements including base salary, annual cash incentive compensation and
long-term incentive compensation through restricted stock and cash bonus awards,
in addition to medical, pension and other benefits available to employees in
general. The three principal components of DCA Executive Officer compensation at
DCA are base salary, the DCA Incentive Performance Plan and the DCA Restricted
Stock Plan.
The DCA Compensation Committee each year reviews the recommendations of the
DCA Chief Executive Officer as to the amount of his proposed base salary, cash
incentive and long term compensation, if any, and that for DCA's other executive
officers. Factors considered by the DCA Chief Executive Officer in making his
recommendations are typically subjective, such as his perception of the
individual's performance, any planned change in functional responsibility and
unusual contributions to DCA, as well as the objective criterion of DCA's
financial performance. Each of the members of the DCA Compensation Committee has
many years of experience in business, industry and financial and corporate
affairs and utilizes that experience and his knowledge of DCA's several lines of
business in considering the recommendations of the DCA Chief Executive Officer
and in making the final determinations on executive compensation.
BASE SALARY. The base salaries of the DCA Chief Executive Officer and the
DCA Named Executive Officers are as set forth above in the Summary Compensation
Table and in the outline of their employment agreements as discussed in "The
Merger -- Interests of Certain Persons in the Merger." With respect to the DCA
Chief Executive Officer's compensation, the DCA Compensation Committee has
consistently accepted his recommendation as to the amount of his proposed base
salary because, for at least the past ten years, he has only recommended an
increase comparable to the increase in the Consumer Price Index, which is the
minimum amount required by his employment contract and which, therefore, is not
based upon corporate performance.
90
<PAGE>
INCENTIVE PERFORMANCE PLAN. The DCA Board has a policy of awarding bonuses
on the basis of results on both an overall and divisional basis plus individual
performance (the "Incentive Performance Plan"). As indicated in the above DCA
Summary Compensation Table, no bonus was awarded to the DCA Chief Executive
Officer during the last three years under the Incentive Performance Plan. The
DCA Chief Financial Officer and the General Counsel of DCA were awarded bonuses
under such plan in 1994, 1995 and 1996. The principal criterion for a bonus
award under the Incentive Performance Plan is financial performance, although
the Incentive Performance Plan by its terms does not limit itself to that
criterion.
DCA RESTRICTED STOCK AND CASH BONUS PLAN. The DCA Restricted Stock Plan is
outlined in detail above. The DCA Restricted Stock Plan provides for equity
participation as a key part of DCA's executive compensation program for
motivating and rewarding executives and managers over the long term. Awards of
restricted DCA Shares have provided an important link between the executives and
the stockholders of DCA. The key employees selected for share awards under the
DCA Restricted Stock Plan in 1994 were those who have contributed to the success
of DCA and are expected to contribute materially to its success in the future.
The number of shares awarded in 1994 to the DCA Chief Executive Officer and the
DCA Named Executive Officers, their market value, vesting and related cash
bonuses paid are set forth in the above DCA Summary Compensation Table and
footnote (3) thereto. The awards to the DCA Chief Officer and the DCA Named
Executive Officers in 1994 were in recognition of their effective performance,
particularly in connection with the favorable settlement of a portion of DCA's
Fermont Division's claim against the U.S. Government for an equitable adjustment
under its 3KW generator set contract. There were no awards of restricted DCA
Shares to the DCA Chief Executive Officer and the DCA Named Executive Officers
under the DCA Restricted Stock Plan in 1995 and 1996.
DCA Respectfully submitted,
DCA COMPENSATION COMMITTEE
Russell H. Knisel, Harold Cohan,
Frank A. Gunther and Saul Sperber
DCA DIRECTOR COMPENSATION
Directors who are employees of DCA and are compensated as such receive no
additional compensation for their services as directors. Outside directors
receive an annual retainer of $10,000 plus $800 as a fee for attendance at each
meeting of the DCA Board. No fee is paid for services on any committee of the
DCA Board.
Effective January 1, 1993, DCA agreed to reimburse outside directors for
certain covered prescription drug charges incurred by the directors or their
spouses net of any reimbursement from any other group coverage and/or individual
coverage independently arranged by the director or his spouse. Under this
program, no more than $25,000 in reimbursement may be paid to any outside
director over the entire life of the program ($50,000 in case an outside
director's spouse also participates in the program). The program is subject to
amendment or termination at the discretion of DCA. During 1996, pursuant to the
program, the amount following each director's name was paid: Mr. Cohan $358; Mr.
Gunther $5,073; and Mr. Sperber $1,222.
On June 26, 1986, DCA adopted The Dynamics Corporation of America Stock
Retirement Plan For Outside Directors (the "DCA Outside Directors Plan"). Under
the DCA Outside Directors Plan, separate accounts are opened by DCA in the names
of each outside director. On January 1 of each year, starting in 1987, a
Deferred DCA Shares Account in the name of each such outside director is
credited with 100 DCA Share Units if said director was an outside director of
DCA on the last day of the immediately preceding calendar year or ceased to be a
director during such preceding calendar year by reason of his retirement,
disability or death. In addition, on January 1, 1987, DCA credited to the
Deferred DCA Shares Account of
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each such director 50 DCA Share Units for each complete calendar year of his
service to DCA as an outside director prior to January 1, 1986. Each Deferred
DCA Shares Account will also be credited with DCA Share Units when credits
equivalent to cash dividends on the DCA Shares in an account aggregate an amount
equal to the value of a DCA Share on a dividend payment date. All Deferred DCA
Share Units in a director's account will be distributed in DCA Shares as of
January 1st after the director leaves the DCA Board from treasury shares held by
DCA. Until such time DCA's obligation under the DCA Outside Directors Plan is an
unsecured promise to deliver DCA Shares. No DCA Share will be held in trust or
as a segregated fund because of the DCA Outside Directors Plan. In 1996, four
members of the DCA Board were eligible to participate in the DCA Outside
Directors Plan. DCA expensed an aggregate of $11,300 in respect of DCA Share
Units credited on January 1, 1997 to the accounts of the eligible directors as a
group for the year 1996 pursuant to the DCA Outside Directors Plan.
On May 9, 1997, the DCA Board adopted a resolution providing that, in
addition to the special meeting fees paid or to be paid to the outside directors
of DCA from April 1, 1997, through the consummation of the transactions
contemplated by the Merger Agreement or any other acquisition of DCA, the
outside directors be paid a fee of $25,000 upon the earlier to occur of (i) the
date any person acquires beneficial ownership of 20% or more of the DCA Shares
other than a person that currently beneficially owns 20% or more of the DCA
Shares, or (ii) September 30, 1997.
DCA SHARE PERFORMANCE CHART
The following graph compares the cumulative total stockholder return on the
DCA Shares for the last five fiscal years with the cumulative total return on
the Wilshire 5000 Equity Index and the S&P Hi-Tech Index over the same period.
FIVE-YEAR CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
DCA 100 135 150 205 250
S&P High-Tech Index 100 100 130 150 210
Wilshire 5000 Equity Index 100 110 120 120 170
</TABLE>
For the Year Ended December 31,
Assumes $100 invested on January 1, 1992
in DCA Shares,
Standard & Poor's Hi-Tech composite and
Wilshire 5000 Equity Index.
Assumes reinvestment of dividends.
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EXPERTS
The consolidated financial statements and schedule of CTS appearing in CTS'
Annual Report on Form 10-K/A for the year ended December 31, 1996 as filed with
the Commission and as attached hereto as Annex E have been audited by Price
Waterhouse, independent accountants, as set forth in their report thereon
included therein and incorporated by reference herein. Such consolidated
financial statements and schedule are included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements and schedules of DCA appearing in the
DCA Annual Report on Form 10-K for the year ended December 31, 1996, or
incorporated by reference in the DCA 10-K have been audited by Ernst & Young,
independent auditors, as set forth in their reports thereon, which are based in
part on the reports of Price Waterhouse, independent accountants included or
incorporated by reference therein and incorporated herein by reference. Such
consolidated financial statements and schedules are incorporated herein by
reference in reliance upon such reports given upon the authority of such firms
as experts in accounting and auditing.
Representatives of Price Waterhouse and Ernst & Young are expected to be
present at the CTS Shareholders Meeting and the DCA Shareholders Meeting,
respectively, will have the opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions.
LEGAL MATTERS
The validity of the CTS Shares being offered hereby will be passed upon for
CTS by Jeannine M. Davis, Esq., Vice President and General Counsel of CTS.
SHAREHOLDER PROPOSALS
Any CTS Shareholder who wishes to submit a proposal for presentation at CTS'
1998 annual meeting of shareholders must submit the proposal to CTS, 905 West
Boulevard North, Elkhart, Indiana 46514, Attention: Office of the Secretary, not
later than November 21, 1997, for inclusion, if appropriate, in CTS' proxy
statement and the form of proxy relating to the CTS annual meeting.
Any DCA Shareholder who wishes to submit a proposal for presentation to the
DCA's 1998 annual meeting of shareholders, if the Merger has not been
consummated prior to the date the meeting is to be held, must submit the
proposal to DCA, 475 Steamboat Road, Greenwich, Connecticut 06830, Attention:
Office of the Secretary, not later than November 30, 1997, for inclusion, if
appropriate, in DCA's proxy statement and the form of proxy relating to the DCA
annual meeting.
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ANNEX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of May 9, 1997
and amended and restated on July 17, 1997, among CTS Corporation, an Indiana
corporation ("Parent"), CTS First Acquisition Corp., a New York corporation and
a wholly owned subsidiary of Parent ("Sub"), and Dynamics Corporation of
America, a New York corporation (the "Company").
RECITALS
A. The Boards of Directors of Parent and the Company have determined that it
is in the best interests of the shareholders of their respective companies that
Parent and the Company combine their respective businesses on the terms and
subject to the conditions set forth herein (the "Combination");
B. As a first step in the Combination, the Company and Parent each desire
that Parent cause Sub to commence an offer to purchase up to 49.9% of the issued
and outstanding shares of Common Stock of the Company, together with the
associated Company Rights (the "Shares"), on the terms and subject to the
conditions set forth in this Agreement and the Offer Documents (the "Offer") and
the Board of Directors of the Company (the "Company Board") has unanimously
approved the Offer and has determined to recommend that the Company's
shareholders accept the Offer and tender their Shares pursuant thereto;
C. To complete the Combination, the respective Boards of Directors of the
Parent, Sub and the Company have approved the merger of the Company with and
into Sub, wherein each issued and outstanding Share not owned directly or
indirectly by Parent, Sub or the Company will be converted into the right to
receive the Merger Consideration, on the terms and subject to the conditions of
this Agreement (the "Merger");
D. The parties desire to make certain representations, warranties and
covenants in connection with the Merger and the Offer and also to prescribe
various conditions to the Merger and the Offer;
E. For federal income tax purposes, it is intended that the Merger will
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
F. Parent, Sub and two shareholders of the Company have entered into a
Shareholders Agreement, dated as of July 17, 1997 (the "Shareholders
Agreement"), pursuant to which, among other things, such shareholders have
agreed to vote the Shares Beneficially Owned by them in favor of the adoption of
the Merger Agreement.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained in this Agreement, the parties agree as follows:
I. THE OFFER
1.01. The Offer. (a) As promptly as practicable (but in any event not later
than five business days after the public announcement of the execution and
delivery of this Agreement), Parent will cause Sub to commence (within the
meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), the Offer whereby Sub will offer to purchase up to 49.9% of
the Shares at a price of $55 per Share, net to the seller in cash (as paid
pursuant to the Offer, the "Offer Consideration"). The obligation of Parent to
cause Sub to commence the Offer, to consummate the Offer and to accept for
payment and to pay for Shares validly tendered in the Offer and not withdrawn in
accordance therewith will be subject to, and only to, those conditions set forth
in Annex A hereto.
(b) Without the prior written consent of the Company, Sub will not, and
Parent will cause Sub not to, (i) decrease or change the form of the Offer
Consideration, (ii) change the conditions to the Offer or
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impose additional conditions to the Offer, (iii) increase the number of Shares
to be purchased pursuant to the Offer to more than 50.1% of the number of Shares
(calculated on a fully diluted basis), (iv) extend the expiration date of the
Offer (the "Expiration Date") except (A) as required by Law and (B) that, in the
event that any condition to the Offer is not satisfied or waived at the time
that the Expiration Date would otherwise occur, (1) Sub must extend the
Expiration Date for an aggregate of 20 additional business days (the "First
Extension Date") to the extent necessary to permit such condition to be
satisfied and (2) Sub may, in its sole discretion, extend the Expiration Date
for up to 20 additional business days after the First Extension Period, or (v)
amend any term of the Offer in any manner materially adverse to holders of
Shares (including without limitation to result in any extension which would be
inconsistent with the preceding provisions of this sentence), provided, however,
that (1) subject to applicable legal requirements, Parent may cause Sub to waive
any condition to the Offer, other than the Minimum Share Condition and the Tax
Opinion Condition (each as defined in Annex A), in Parent's sole discretion and
(2) the Offer may be extended in connection with an increase in the
consideration to be paid pursuant to the Offer so as to comply with applicable
rules and regulations of the Securities and Exchange Commission (the "SEC").
Assuming the prior satisfaction or waiver of the conditions of the Offer, Parent
will cause Sub to accept for payment, and pay for, in accordance with the terms
of the Offer, all Shares validly tendered and not withdrawn pursuant to the
Offer as soon as practicable after the Expiration Date or any extension thereof.
1.02. Offer Documents. (a) As soon as practicable on the date of
commencement of the Offer, Parent and Sub will file or cause to be filed with
the SEC a tender offer statement on Schedule 14D-1 (the "Schedule 14D-1") which
will contain an offer to purchase and related letter of transmittal and other
ancillary Offer documents and instruments pursuant to which the Offer will be
made (collectively with any supplements or amendments thereto, the "Offer
Documents") and which Parent and Sub represent, warrant and covenant will comply
in all material respects with the Exchange Act and other applicable Laws and
will contain (or will be amended in a timely manner so as to contain) all
information which is required to be included therein in accordance with the
Exchange Act and the rules and regulations thereunder and other applicable Laws;
provided, however, that (i) no agreement or representation hereby is made or
will be made by Parent or Sub with respect to information supplied by the
Company in writing expressly for inclusion in, or information derived from the
Company's public SEC filings which is incorporated by reference in, the Offer
Documents and (ii) no representation, warranty or covenant is made or will be
made herein by the Company with respect to information contained in the Offer
Documents other than information supplied by the Company in writing expressly
for inclusion in or information derived from the Company Filed SEC Documents
which is incorporated by reference in, the Offer Documents.
(b) Parent, Sub and the Company will each promptly correct any information
provided by them for use in the Offer Documents if and to the extent that it
becomes false or misleading in any material respect and Parent and Sub will
jointly and severally take all lawful action necessary to cause the Offer
Documents as so corrected to be filed promptly with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable Law. In conducting the Offer, Parent and Sub will comply in all
material respects with the provisions of the Exchange Act and other applicable
Laws. Parent and Sub will endeavor to afford the Company and its counsel a
reasonable opportunity to review and comment on the Offer Documents and any
amendments thereto prior to the filing thereof with the SEC.
1.03. Company Actions. The Company hereby consents to the Offer and
represents that (a) the Company Board (at a meeting duly called and held) has
(i) determined that this Agreement, the Offer and the Merger are fair to and in
the best interests of the Company and its shareholders, (ii) approved this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger, and such approval is sufficient to render Section 912 of the New York
Business Corporation Law (the "NYBCL") inapplicable to this Agreement and the
transactions contemplated hereby, including the Offer and the Merger, (iii)
amended the Company Rights Agreement as described in Section 4.01(n), and (iv)
resolved to recommend acceptance of the Offer by those Shareholders who wish to
receive cash for their Shares and adoption of this Agreement by the holders of
Shares and (b) WP&Co. has delivered to the Company
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Board the Fairness Opinion as described in Section 4.01(l). The Company hereby
consents to the inclusion in the Offer Documents of the recommendation referred
to in this Section 1.03; provided, however, that the Company Board may withdraw,
modify or change such recommendation to the extent, and only to the extent and
on the conditions, specified in Section 5.02. The Company will file with the SEC
simultaneously with the filing by Parent and Sub of the Schedule 14D-1, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, "Schedule 14D-9") containing such
recommendations of the Company Board in favor of the Offer and the Merger. The
Company represents, warrants and covenants that Schedule 14D-9 will comply in
all material respects with the Exchange Act and any other applicable Laws and
will contain (or will be amended in a timely manner so as to contain) all
information which is required to be included therein in accordance with the
Exchange Act and the rules and regulations thereunder and other applicable Laws.
The Company will include in the Schedule 14D-9 information furnished by Parent
in writing concerning Parent's Designees as required by Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder and will use its reasonable best efforts
to have the Schedule 14D-9 available for inclusion to the initial mailing (and
any subsequent mailing) of the Offer Documents to Shareholders. Each of the
Company and Parent will promptly correct any information provided by them for
use in Schedule 14D-9 if and to the extent that it becomes false or misleading
in any material respect and the Company will further take all lawful action
necessary to cause Schedule 14D-9 as so corrected to be filed promptly with the
SEC and disseminated to the holders of Shares, in each case as and to the extent
required by applicable Law. Parent and its counsel will be given a reasonable
opportunity to review the Schedule 14D-9 and any amendments thereto prior to the
filing thereof with the SEC. In connection with the Offer, the Company will
promptly furnish Parent with mailing labels, security position listings and all
available listings or computer files containing the names and addresses of the
record holders of Shares as of the latest practicable date and will furnish
Parent such information and assistance (including updated lists of shareholders,
mailing labels and lists of security positions) as Parent or its agents may
reasonably request in communicating the Offer to the record and beneficial
holders of Shares. Subject to the requirements of applicable Law, and except for
such actions as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer and the Merger, Parent and Sub will,
and will instruct each of their respective affiliates, associates, partners,
employees, agents and advisors to, hold in confidence the information contained
in such labels, lists and files, will use such information only in connection
with the Offer and the Merger, and, if this Agreement is terminated in
accordance with its terms, will deliver promptly to the Company (or destroy and
certify to the Company the destruction of) all copies of such information (and
any copies, compilations or extracts thereof or based thereon) then in their
possession or under their control.
1.04. Directors. (a) Promptly upon the purchase of Shares by Sub pursuant to
the Offer, and from time to time thereafter, (i) Parent will be entitled to
designate such number of directors ("Parent's Designees"), rounded up to the
next whole number as will give Parent, subject to compliance with Section 14(f)
of the Exchange Act, representation on the Company Board equal to the product of
(A) the number of directors on the Company Board (giving effect to any increase
in the number of directors pursuant to this Section 1.04) and (B) the percentage
that such number of Shares so purchased bears to the aggregate number of Shares
outstanding (such number being, the "Board Percentage"), provided, however, that
if the number of Shares purchased pursuant to the Offer equals or exceeds 49.9%
of the outstanding Shares, the Board Percentage will in all events be at least a
majority of the members of the Company Board, and (ii) the Company will, upon
request by Parent, promptly satisfy the Board Percentage by (A) increasing the
size of the Company Board or (B) using reasonable efforts to secure the
resignations of such number of directors as is necessary to enable Parent's
Designees to be elected to the Company Board and will use its best efforts to
cause Parent's Designees promptly to be so elected, subject in all instances to
compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder. At the request of Parent, the Company will take all lawful action
necessary to effect any such election. Parent will supply to the Company in
writing and be solely responsible for any information with respect to itself,
the Parent's Designees and Parent's officers, directors and affiliates required
by Section 14(f) of the Exchange and
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Rule 14f-1 promulgated thereunder to be included in the Schedule 14D-9.
Notwithstanding the foregoing, at all times prior to the Effective Time, the
Company Board will include at least two Continuing Directors.
(b) Notwithstanding any other provision hereof, of the articles of
incorporation or bylaws of the Company or of applicable Law to the contrary,
following the election or appointment of Parent's Designees pursuant to this
Section 1.04 and prior to the Effective Time, any amendment or termination of
this Agreement by the Company, extension by the Company for the performance or
waiver of the obligations or other acts of Parent or Sub hereunder or waiver by
the Company of the Company's rights hereunder will require the concurrence of a
majority of directors of the Company then in office who are directors on the
date hereof and who voted to approve this Agreement (such directors, the
"Continuing Directors").
(c) Notwithstanding any other provision hereof, of the articles of
incorporation or bylaws of Parent and Sub or of applicable Law to the contrary,
on or after the date hereof, any amendment or termination of this Agreement by
Parent or Sub, extension by Parent or Sub for the performance or waiver of the
obligations or other acts of the Company hereunder or waiver by Parent or Sub of
the rights of Parent or Sub hereunder will be taken by a majority of the members
of the Board of Directors of Parent (the "Parent Board") who are not employed by
the Company or any Subsidiary of the Company on the date hereof (such directors
being on the date hereof Messrs. Lawrence J. Ciancia, Gerald H. Frieling, Jr.,
and Joseph P. Walker) (the "Unaffiliated Directors") or any successor thereto
elected to the Parent Board with the prior approval of the Unaffiliated
Directors.
1.05. Offer Completion Date. If (a) the Minimum Share Condition is not
satisfied on the Expiration Date and (b) the Average Closing Price for the ten
trading days prior to the Expiration Date multiplied by the Exchange Ratio is at
least $55.00, Parent and Sub may elect, by written notice from Parent to the
Company not later than the first business day after the Expiration Date, to
proceed with the Merger, in which case the Company, Parent and Sub will be
obligated to effect the Merger subject only to the conditions specified in
Article VII other than the conditions set forth in Section 7.02(b) and 7.03(b).
As used herein, "Offer Completion Date" means the earlier to occur of (i) the
date on which Sub purchases Shares pursuant to the Offer and (ii) the Effective
Time.
II. THE MERGER
2.01. The Merger. On the terms and subject to the conditions set forth in
this Agreement, and in accordance with the NYBCL, the Company will be merged
with and into Sub at the Effective Time in the Merger. Following the Effective
Time, Sub will be the surviving corporation in the Merger (the "Surviving
Corporation") and will succeed to and assume all the rights and obligations of
the Company in accordance with the NYBCL.
2.02. Closing. The closing of the Merger (the "Closing") will take place at
10:00 a.m. on a date to be specified by the parties (the "Closing Date"), which
(subject to satisfaction or waiver of the conditions set forth in Article VII)
will be no later than the second business day after satisfaction or waiver of
the conditions set forth in Article VII, unless another time or date is agreed
to by the parties hereto. The Closing will be held at the offices of Jones, Day,
Reavis & Pogue, 599 Lexington Avenue, New York, New York unless another date,
time or place is agreed to in writing by the parties hereto.
2.03. Effective Time. Subject to the provisions of this Agreement, as soon
as practicable on or after the Closing Date, the parties will file a certificate
of merger or other appropriate documents (the "Certificate of Merger") executed
in accordance with the relevant provisions of the NYBCL and will make all other
filings or recordings required under the NYBCL in order to effect the Merger.
The Merger will become effective at such time as the Certificate of Merger for
the Merger has been duly filed with the New York Secretary of State or at such
subsequent date or time as Parent and the Company agree and specify in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
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2.04. Effects of the Merger. The Merger will have the effects set forth in
Section 906 of the NYBCL.
2.05. Certificate of Incorporation and By-laws. (a) The certificate of
incorporation of Sub will be the certificate of incorporation of the Surviving
Corporation, amended to change the name of the Surviving Corporation to "DCA
Incorporated", until thereafter changed or amended as provided therein or by
Law.
(b) The by-laws of Sub will be the by-laws of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable Law.
2.06. Boards, Committees and Officers. The Board of Directors, committees of
the Board of Directors, composition of such committees (including chairmen
thereof) and officers of Sub as of the Effective Time will serve as such as the
directors and officers of the Surviving Corporation until the earlier of the
resignation or removal of any such individual or until their respective
successors are duly elected and qualified, as the case may be.
III. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATION;
EXCHANGE OF CERTIFICATES
3.01. Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any Shares:
(a) Conversion of Sub Shares. At the Effective Time, each share of common
stock, without par value, of Sub issued and outstanding immediately prior to the
Effective Time will remain outstanding unaffected by the Merger, with the result
that the Surviving Corporation will be a wholly owned Subsidiary of Parent.
(b) Cancellation of Treasury Stock and Sub-Owned Stock. Each Share that is
owned by the Company or by any wholly owned Subsidiary of the Company or by
Parent or any wholly owned Subsidiary of Parent will automatically be cancelled
and retired and will cease to exist, and no consideration will be delivered in
exchange therefor.
(c) Electing Shares. Subject to Sections 3.01(f) and (g) hereof, each Share
outstanding immediately prior to the Effective Time with respect to which a Form
of Election to receive cash has been properly made and not revoked pursuant to
Section 3.01(e) (other than Shares to be cancelled in accordance with Section
3.01(b)) will, at the Effective Time, be converted into, and holders thereof
will be entitled to receive therefor, $58.00 in cash (the "Cash Election Price")
(such shares with respect to which an election to be converted into cash is duly
filed being hereinafter referred to as "Electing Shares").
(d) Non-Electing Shares. Each Share outstanding immediately prior to the
Effective Time (other than Electing Shares and Shares to be cancelled in
accordance with Section 3.01(b)) (each such share being hereinafter referred to
as "Non-Electing Shares") and any Electing Shares subject to proration pursuant
to Section 3.01(g) will, at the Effective Time, be converted into 0.88 (the
"Exchange Ratio") fully paid and non-assessable shares of Parent Common Stock,
(the "Stock Consideration" and, together with the Cash Election Price, the
"Merger Consideration") subject to adjustment as provided in Section 3.03.
(e) Form of Election.The Company will mail a form of election ("Form of
Election") to holders of record of Shares as of the Record Date of the Company
Shareholder Meeting. In addition, the Company will use its best efforts to make
the Form of Election and Joint Proxy Statement available to all persons who
become shareholders of Company during the period between such record date and
such meeting. Any election to receive the Cash Election Price contemplated by
Section 3.01(c) hereof shall have been properly made only if the Exchange Agent
shall have received at its designated office or offices, by 5:00 p.m. New York
City time, on the last business day preceding the date of the Company
Shareholder Meeting, a Form of Election properly completed and accompanied by
Certificates for the shares to which such Form of Election relates, duly
endorsed in blank or otherwise acceptable for transfer on the books of the
Company, (or an appropriate guarantee of delivery), as set forth in such Form of
Election. An election to receive cash may be revoked only by written notice
received by the Exchange Agent prior to 5:00 p.m.
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New York City time, on the last business day preceding the date of the Company
Shareholder Meeting. In addition, all elections to receive cash shall
automatically be revoked if the Exchange Agent is notified in writing by Parent
and Company that the Merger has been abandoned. If an election to receive cash
is so revoked, the Certificate(s) (or guarantee of delivery, as appropriate) for
the Shares to which such election to receive cash relates shall be promptly
returned to the person submitting the same to the Exchange Agent.
(f) Limitations on Cash Payments. Anything in this Article III to the
contrary notwithstanding, Electing Shares shall not be entitled to, and Parent
will not be obligated in implementation of Section 3.01(c) hereof to pay, the
Cash Election Price in respect of the number of Shares that exceeds (i) 49.9% of
the number of Shares outstanding at the Effective Time (including Shares owned
by Sub) minus (ii) the number of Shares owned by Parent, Sub and any of their
respective Subsidiaries as of the Effective Time. The maximum number of Shares
entitled to the Cash Election Price pursuant to this Section 3.01(f) is
hereinafter referred to as the "Maximum Cash Shares".
(g) Proration of Electing Shares. In the event that the aggregate number of
Electing Shares exceeds the Maximum Cash Shares, all Electing Shares will be
converted into the right to receive Merger Consideration in the following
manner:
(i) The number of Electing Shares covered by each Form of Election to be
converted into the Cash Election Price shall be determined by multiplying
the number of Electing Shares covered by such Form of Election by a
fraction, the numerator of which is the Maximum Cash Shares and the
denominator of which is the total number of Electing Shares, rounded down to
the nearest whole number.
(ii) All Electing Shares not converted into the Cash Election Price in
accordance with Section 3.01(g)(i) shall be converted into the Stock
Consideration.
(h) Cancellation of Shares. As of the Effective Time, all such Shares will
no longer be outstanding and will automatically be cancelled and retired and
will cease to exist and each holder of a certificate representing any such
Shares (a "Certificate") will cease to have any rights with respect thereto,
except the right to receive the Merger Consideration and any additional cash in
lieu of fractional shares of Parent Common Stock to be issued or paid in
consideration therefor upon surrender of such Certificate in accordance with
Section 3.02, without interest.
3.02. Exchange of Certificates. (a) Exchange Agent. As of the Effective
Time, Parent will enter into an agreement with such bank or trust company as may
be designated by Parent (the "Exchange Agent"), which will provide that Parent
will deposit with the Exchange Agent as of the Effective Time, for the benefit
of the holders of Shares, for exchange in accordance with this Article III,
through the Exchange Agent, certificates representing the shares of common
stock, without par value, of Parent ("Parent Common Stock") (such shares of
Parent Common Stock, together with any dividends or distributions with respect
thereto with a record date after the Effective Time, any Excess Shares and any
cash (including cash proceeds from the sale of the Excess Shares) payable
pursuant to Section 3.01(c) or in lieu of any fractional shares of Parent Common
Stock, being hereinafter referred to as the "Exchange Fund") issuable pursuant
to Section 3.01 in exchange for outstanding Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent will mail to each holder of record of a
Certificate which immediately prior to the Effective Time represented
outstanding Shares whose Shares were converted into the right to receive the
Merger Consideration pursuant to Section 3.01 (i) a letter of transmittal (which
will specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon delivery of the Certificates to the Exchange
Agent and will be in such form and have such other provisions as Parent may
specify consistent with this Agreement) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Exchange
Agent or
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to such other agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly executed, and such other documents as may reasonably
be required by the Exchange Agent, the holder of such Certificate will be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of Parent Common Stock and cash, if any, which such holder has
the right to receive pursuant to the provisions of this Article III, and the
Certificate so surrendered will forthwith be cancelled. In the event of a
transfer of ownership of Shares which are not registered in the transfer records
of the Company, a certificate representing the proper number of shares of Parent
Common Stock may be issued to a Person other than the Person in whose name the
Certificate so surrendered is registered if such Certificate is properly
endorsed or otherwise in proper form for transfer and the Person requesting such
issuance pays any transfer or other taxes required by reason of the issuance of
shares of Parent Common Stock to a Person other than the registered holder of
such Certificate or establishes to the satisfaction of Parent that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 3.02, each Certificate will be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration and cash, if any, which the holder thereof has the right to
receive in respect of such Certificate pursuant to the provisions of this
Article III. No interest will be paid or will accrue on any cash payable to
holders of Certificates pursuant to the provisions of this Article III.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby, no cash
payment in lieu of fractional shares will be paid pursuant to Section 3.02(e)
and all such dividends, other distributions and cash in lieu of fractional
shares of Parent Common Stock will be paid by Parent to the Exchange Agent and
will be included in the Exchange Fund, in each case in accordance with this
Article III. Subject to the effect of applicable escheat or similar Laws,
following surrender of any Certificate in accordance herewith there will be paid
to the holder of the certificate representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Parent Common Stock and, in the case of Certificates formerly representing
Shares, the amount of any cash payable in lieu of a fractional share of Parent
Common Stock to which such holder is entitled pursuant to Section 3.02(e) and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and with a payment date subsequent to such surrender payable with
respect to such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Shares. All shares of Parent Common Stock
issued upon the surrender for exchange of Certificates in accordance with the
terms of this Article III (including any cash paid pursuant to this Article III)
will be deemed to have been issued (and paid) in full satisfaction of all rights
pertaining to the Shares theretofore represented by such Certificates, and there
will be no further registration of transfers on the stock transfer books of the
Surviving Corporation of previously outstanding Shares. If, after the Effective
Time, Certificates are presented to Parent, the Surviving Corporation or the
Exchange Agent for any reason, they will be cancelled and exchanged as provided
in this Article III.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Parent Common Stock will be issued upon the surrender for
exchange of Certificates, no dividend or distribution of Parent will relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of Parent.
(ii) As promptly as practicable following the Effective Time, the Exchange
Agent will determine the excess of (A) the number of whole shares of Parent
Common Stock delivered to the Exchange Agent by Parent pursuant to Section
3.02(a) over (B) the aggregate number of whole shares of Parent Common Stock to
be distributed to holders of Shares pursuant to Section 3.02(b) (such excess
being herein called the "Excess Shares"). Following the Effective Time, the
Exchange Agent will sell the Excess Shares at
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then-prevailing prices on the New York Stock Exchange, Inc. (the "NYSE"), all in
the manner provided in Section 3.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will be executed
on the NYSE through one or more member firms of the NYSE and will be executed in
round lots to the extent practicable. The Exchange Agent will use reasonable
efforts to complete the sale of the Excess Shares as promptly following the
Effective Time as, in the Exchange Agent's sole judgment, is practicable
consistent with obtaining the best execution of such sales in light of
prevailing market conditions. Until the net proceeds of such sale or sales have
been distributed to the prior holders of Shares, the Exchange Agent will hold
such proceeds in trust for such holders entitled thereto (the "Common Shares
Trust"). The Surviving Corporation will pay out of the Common Shares Trust all
commissions, transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation of the Exchange Agent incurred in connection with
such sale of the Excess Shares. The Exchange Agent will determine the portion of
the Common Shares Trust to which each holder of Shares is entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interest to which such holder of Shares is entitled (after
taking into account all Shares held at the Effective Time by such holder) and
the denominator of which is the aggregate amount of fractional share interests
to which all holders of Shares are entitled.
(iv) Notwithstanding the provisions of Section 3.02(e)(ii) and (iii), Parent
may elect at its option, exercised prior to the Effective Time, in lieu of the
issuance and sale of Excess Shares and the making of the payments hereinabove
contemplated, to pay each holder of Shares an amount in cash equal to the
product obtained by multiplying (A) the fractional share interest to which such
holder (after taking into account all Shares held at the Effective Time by such
holder) would otherwise be entitled by (B) the average closing price for a share
of Parent Common Stock as reported on the NYSE Composite Combination Tape (as
reported in the Wall Street Journal, or, if not reported thereby, any other
authoritative source) ("Average Closing Price") for the ten trading days prior
to the Closing Date and, in such case, all references herein to the cash
proceeds of the sale of the Excess Shares and similar references will be deemed
to mean and refer to the payments calculated as set forth in this Section
3.02(e)(iv).
(v) As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of Shares with respect to any fractional share
interests, the Exchange Agent will make available such amounts to such holders
of Shares subject to and in accordance with the terms of Section 3.02(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time will be delivered to Parent, upon demand, and any holders of
the Certificates who have not theretofore complied with this Article III will
thereafter look only to Parent for payment of their claim for Merger
Consideration, any cash in lieu of fractional shares of Parent Common Stock and
any dividends or distributions with respect to Parent Common Stock.
(g) No Liability. None of Parent, Sub, the Company or the Exchange Agent
will be liable to any Person in respect of any shares of Parent Common Stock (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar Law. If any Certificate has not been surrendered prior to one
year after the Effective Time (or immediately prior to such earlier date on
which any Merger Consideration, any cash payable to the holder of such
Certificate representing Shares pursuant to this Article III or any dividends or
distributions payable to the holder of such Certificate would otherwise escheat
to or become the property of any Governmental Entity), any such Merger
Consideration or cash, dividends or distributions in respect of such Certificate
will become the property of the Surviving Corporation, free and clear of all
claims or interest of any Person previously entitled thereto.
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(h) Investment of Exchange Fund. The Exchange Agent will invest any cash
included in the Exchange Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments will be paid to
Parent.
(i) Lost Certificates. If any Certificate is lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such Certificate
to be lost, stolen or destroyed and, if required by the Surviving Corporation,
the posting by such Person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the Merger Consideration and, if
applicable, any cash in lieu of fractional shares, and unpaid dividends and
distributions on shares of Parent Common Stock or deliverable in respect
thereof, pursuant to this Agreement.
(j) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, no Share, the holder of which has properly complied with the
provisions of Section 623 of the NYBCL as to appraisal rights (a "Dissenting
Share"), will be deemed to be converted into and to represent the right to
receive the Merger Consideration hereunder and the holders of Dissenting Shares,
if any, will be entitled to payment, solely from the Surviving Corporation, of
the appraised value of such Dissenting Shares to the extent permitted by and in
accordance with the provisions of Section 623 of the NYBCL; provided, however,
that (i) if any holder of Dissenting Shares, under the circumstances permitted
by the NYBCL, subsequently delivers a written withdrawal of his or her demand
for appraisal of such Dissenting Shares, (ii) if any such holder fails to
establish his or her entitlement to rights to payment as provided in such
Section 623, or (iii) if neither any holder of Dissenting Shares nor the
Surviving Corporation has instituted a proceeding to determine the rights of
holders of Dissenting Shares and to fix the fair value of Dissenting Shares in
any of the circumstances described in subparagraph (h) of Section 623 within the
time provided in such Section 623, such holder will forfeit such right to
payment for such Dissenting Shares pursuant to such Section 623 and, as of the
later of Effective Time or the occurrence of such event, such holder's
Certificate formerly representing shares of Company Common Stock will
automatically be converted into and represent only the right to receive the
Merger Consideration pursuant to Section 3.01 hereof, without any interest
thereon, upon surrender of the Certificate or Certificates formerly representing
such shares of Company Common Stock. The Company will give Parent (A) prompt
notice of any written demands for appraisal of any Dissenting Shares, attempted
withdrawals of such demands and any other instruments received by the Company
relating to shareholders' rights of appraisal, (B) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under the NYBCL, and (C) the right to approve any settlement of any
such demand in Parent's sole discretion.
(k) Exchange of Certificates for Cash. Without limiting the generality or
effect of any other provision hereof, the Exchange Agent will have discretion to
determine whether or not elections to receive cash have been properly made or
revoked pursuant to this Article III with respect to Shares and when elections
and revocations were received by it. If the Exchange Agent determines that any
election to receive cash was not properly made with respect to Shares, such
shares will be treated by the Exchange Agent as, and for all purposes of this
Agreement will be deemed to be, Non-Electing Shares at the Effective Time, and
such shares will be converted in the Merger into shares of Parent Common Stock
pursuant to Section 3.01(d). The Exchange Agent will also make computations as
to the allocation and proration contemplated by this Article III and any such
computation will be conclusive and binding on the holders of Electing Shares
pursuant to this Article III. The Exchange Agent may, with the mutual agreement
of Parent, make such equitable changes in the procedures set forth herein for
the implementation of the cash elections provided for in this Article III as it
determines to be necessary or desirable to effect fully such elections.
3.03. Stock Split. In connection with its approval of this Agreement, the
Board of Directors of Parent approved a stock split in the form of a dividend of
one Parent Common Share for each then outstanding Parent Common Share (the
"Stock Split"), to be effective, subject to certain conditions, immediately
after the Effective Time. If the Stock Split is so effective, without further
action, the Exchange Ratio will be adjusted so as to be 1.76 shares of Parent
Common Stock for each Share.
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IV. REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of the Company. Except as disclosed in
the Company Filed SEC Documents or as set forth on the Disclosure Schedule
delivered by the Company to Parent prior to the execution of this Agreement (the
"Company Disclosure Schedule"), the Company represents and warrants to Parent
and Sub as follows:
(a) Organization, Standing and Corporate Power. The Company and each of its
Significant Subsidiaries is a corporation or other legal entity duly organized,
validly existing and in good standing (with respect to jurisdictions which
recognize such concept) under the Laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted. The Company and
each of its Significant Subsidiaries is duly qualified or licensed to do
business and is in good standing (with respect to jurisdictions which recognize
such concept) in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions in which the failure to be so
qualified or licensed or to be in good standing individually or in the aggregate
could not be reasonably expected to have a material adverse effect on the
business, financial condition or results of operations of the Company and each
of its Subsidiaries, taken as a whole, or on the ability of the Company to
perform any of its obligations under this Agreement (any such effect, a "Company
MAE"). The Company has delivered to Parent prior to the execution of this
Agreement complete and correct copies of its certificate of incorporation and
by-laws and has made available to Parent the certificate of incorporation and
by-laws (or comparable organizational documents) of each of its Subsidiaries, in
each case as amended to date.
(b) Subsidiaries. Exhibit 21 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 includes all of the Subsidiaries of the
Company. All the outstanding shares of capital stock of, or other equity
interests in, each such Subsidiary have been validly issued and are fully paid
and nonassessable and are owned directly or indirectly by the Company, free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "Liens").
(c) Capital Structure. The authorized capital stock of the Company consists
of 10,600,000 Shares and 894,000 shares of preferred stock of the Company
("Company Preferred Shares"). At the close of business on the last business day
immediately preceding the date hereof (the "Measurement Date"), (i) 3,838,742
Shares were issued and outstanding, (ii) 3,336,419 Shares were held by the
Company in its treasury, (iii) 106,000 shares of Series A Participating
Preferred Stock, par value $1 per share (the "Participating Preferred"), were
reserved for issuance pursuant to the Company Rights Agreement, and (iv) other
than the Participating Preferred, no other Company Preferred Shares have been
designated or issued. Except as set forth above, at the close of business on the
Measurement Date, no shares of capital stock or other voting securities of the
Company or any Subsidiary were issued, reserved for issuance or outstanding. At
the close of business on the Measurement Date, there were no outstanding stock
options, stock appreciation rights or rights to receive Shares on a deferred
basis. All outstanding shares of capital stock of the Company are, and all
shares which may be issued will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights. As of
the close of business on the Measurement Date, there were no bonds, debentures,
notes, other indebtedness or securities of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company may vote. Except as set
forth above, as of the close of business on the Measurement Date, there were no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
of its Subsidiaries is a party or by which any of them is bound obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other voting
securities of the Company or of any of its Subsidiaries or obligating the
Company or any of its Subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking. As of the close of business on the Measurement
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Date, there were no outstanding contractual obligations of the Company or any of
its Subsidiaries to issue, repurchase, redeem, exchange or otherwise acquire any
shares of capital stock of the Company or any of its Subsidiaries. As of the
close of business on the Measurement Date, there were no outstanding contractual
obligations of the Company to vote or to dispose of any shares of the capital
stock of any of its Subsidiaries. The Company has delivered to Parent a complete
and correct copy of the Rights Agreement, dated as of January 10, 1986 (the
"Company Rights Agreement"), as amended and supplemented to the date hereof
relating to rights ("Company Rights") to purchase Participating Preferred.
(d) Authority; Noncontravention. The Company has all requisite corporate
power and authority to enter into this Agreement, and, subject to the Company
Shareholder Approval, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company, subject to Company
Shareholder Approval. This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, conflict
with, breach or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of the Company or any of its Significant Subsidiaries under, (i) the
certificate of incorporation or by-laws of the Company or the comparable
organizational documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the Company
or any of its Subsidiaries or their respective properties or assets, or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order or decree ("Order"), or statute, law,
ordinance, rule or regulation ("Law") applicable to the Company or any of its
Subsidiaries or their respective properties or assets, other than, in the case
of clauses (ii) and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate could not be
reasonably expected to have a Company MAE. No Order, consent, approval or
authorization of, or registration, declaration or filing with, any federal,
state, local or foreign government or any court, administrative or regulatory
agency or commission or other governmental authority, agency or instrumentality
(a "Governmental Entity") is required by or with respect to the Company or any
of its Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby except for (1) the filing of a premerger notification and
report form by the Company under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"); (2) the filing with the SEC of (A) a
proxy statement relating to the Company Shareholders Meeting (such proxy
statement, together with the proxy statement relating to the Parent Shareholders
Meeting, in each case as amended or supplemented from time to time, the "Joint
Proxy Statement"), (B) the Schedule 14D-9, and (C) such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby; (3) the filing of the Certificate of Merger
with the New York Secretary of State and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business and
such filings with Governmental Entities to satisfy the applicable requirements
of state securities or "blue sky" laws; (4) such other filings and consents as
may be required under any environmental, health or safety Law or regulation
pertaining to any notification, disclosure or required approval necessitated by
the Offer, the Merger or the transactions contemplated hereby; and (5) such
consents, approvals, Orders or authorizations the failure of which to be made or
obtained could not reasonably be expected, individually or in the aggregate, to
have a Company MAE.
(e) SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents with the SEC
since January 1, 1995 (the "Company SEC Documents"). As of their respective
dates, the Company SEC Documents complied in all material respects
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with the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and regulations of
the SEC promulgated thereunder applicable to such Company SEC Documents, and
none of the Company SEC Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
that information contained in any Company SEC Document has been revised or
superseded by a later Company Filed SEC Document, none of the Company SEC
Documents contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the Company
SEC Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal recurring year-end audit adjustments). Except (i) as reflected in such
financial statements or in the notes thereto, (ii) for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby, and
(iii) for liabilities and obligations incurred since March 31, 1997 in the
ordinary course of business consistent with past practice, neither the Company
nor any of its Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise), including liabilities
arising under any Laws relating to the protection of health, safety or the
environment ("Environmental Laws"), required by generally accepted accounting
principles to be reflected in a consolidated balance sheet of the Company and
its consolidated Subsidiaries and which, individually or in the aggregate, could
reasonably be expected to have a Company MAE.
(f) Information Supplied. None of the information supplied or to be supplied
by the Company specifically for inclusion or incorporation by reference in (i)
the Offer Documents, at the time such documents are first published, sent or
given to holders of Shares, and any time they are amended or supplemented, (ii)
the registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of Parent Common Stock in the Merger (the "Form
S-4"), at the time the Form S-4 is filed with the SEC or at the time it becomes
effective under the Securities Act, or (iii) the Joint Proxy Statement, at the
date it is first mailed to the Company's shareholders or at the time of the
Company Shareholders Meeting will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Joint Proxy Statement will comply
as to form in all material respects with the requirements of the Exchange Act
and the rules and regulations thereunder, including Rule 13e-3 (if applicable,
nothing herein being deemed to be an admission that Rule 13e-3 is so
applicable), except that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied by Parent or Sub specifically for inclusion or
incorporation by reference in the Joint Proxy Statement or contained in any
Parent Filed SEC Documents incorporated by reference in the Offer Documents, the
Form S-4 or the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except (i) as disclosed in the
Company SEC Documents filed and publicly available prior to the date of this
Agreement (as amended to the date of this Agreement, the "Company Filed SEC
Documents"), (ii) for the transactions provided for herein or permitted by
Section 5.01(a), and (iii) for liabilities incurred in connection with or as a
result of this Agreement, since March 31, 1997, the Company has conducted its
business only in the ordinary course, and there has not been (1) any Company
MAE, (2) any declaration, setting aside or payment of any dividend or other
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distribution (whether in cash, stock or property) with respect to any of the
Company stock, other than regular semiannual cash dividends at the rate in
effect for the first half of 1997 ("Regular Company Semiannual Dividends"), (3)
any split, combination or reclassification of any of the Company's capital stock
or any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of the Company's capital
stock, (4) any granting by the Company or any of its Subsidiaries to any
director, executive officer or other key employee of the Company of any increase
in compensation, other than as contemplated by Section 4.01(o), (5) any granting
by the Company or any of its Subsidiaries to any such director, executive
officer or key employee of any increase in severance or termination pay, except
as was required under any employment, severance or termination agreements in
effect as of the date of the most recent financial statements included in the
Company Filed SEC Documents or referred to in Section 4.01(o), (6) any entry by
the Company or any of its Subsidiaries into any employment, severance or
termination agreement with any such director, executive officer or key employee,
other than as contemplated by Section 4.01(o), or (7) except insofar as may be
required by a change in generally accepted accounting principles, any change in
accounting methods, principles or practices by the Company. For purposes of this
Agreement, "key employee" means any employee whose current salary and targeted
bonus exceeds $100,000 per annum. Section 4.01(g) of the Company Disclosure
Schedule contains a true and complete list of all agreements or plans providing
for termination or severance pay to any employee of the Company.
(h) Litigation. There are no suits, actions or proceedings pending or, to
the Knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries that individually or in the aggregate could reasonably be
expected to have a Company MAE, nor are there any Orders of any Governmental
Entity or arbitrator outstanding against the Company or any of its Subsidiaries
having, or which could reasonably be expected to have, individually or in the
aggregate, a Company MAE.
(i) Voting Requirements. The affirmative vote of the holders of two-thirds
of the voting power of all outstanding Shares, voting as a single class, at the
Company Shareholders Meeting (the "Company Shareholder Approval") to adopt this
Agreement is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve and adopt this Agreement and the
transactions contemplated hereby.
(j) State Takeover Statutes. The Company Board has approved this Agreement
and the consummation of the Merger and the other transactions contemplated by
hereby. Such approval constitutes approval of the Merger and the other
transactions contemplated hereby by the Company Board under the provisions of
Section 912 of the NYBCL and Article XV of the Company's Certificate of
Incorporation.
(k) Brokers. No broker, investment banker, financial advisor or other
Person, other than Wasserstein, Perella & Co., Inc. ("WP&Co."), the fees and
expenses of which will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. The Company has furnished to Parent true
and complete copies of all agreements under which any such fees or expenses are
payable and all indemnification and other agreements related to the engagement
of the Persons to whom such fees are payable.
(l) Opinion of Financial Advisor. The Company has received the opinion of
WP&Co. (the "Fairness Opinion") to the effect that, as of the date thereof, the
consideration in the form of shares of Parent Common Stock issuable in the
Merger and, in the event Shares are purchased in the Offer, the cash price of
such Shares, collectively, to be received by the Company's shareholders pursuant
to this Agreement is fair to the Company's shareholders from a financial point
of view, a signed copy of which opinion has been delivered to Parent.
(m) Ownership of Parent Common Stock. Except as set forth in the Company
Disclosure Schedule, neither the Company nor, to its Knowledge, any of its
Affiliates, (i) beneficially owns (as such term is defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, or (ii) is party to any agreement,
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arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of Parent.
(n) The Company Rights Agreement. The Company Rights Agreement has been
amended (the "Company Rights Plan Amendment") as set forth in the Company
Disclosure Schedule to, among other things, (i) render the Company Rights
Agreement inapplicable to the Offer, the Merger and the other transactions
contemplated hereby, including without limitation the Shareholders Agreement,
and (ii) ensure that (y) neither Parent nor any of its Subsidiaries nor any of
its permitted assignees or transferees is an Acquiring Person (as defined in the
Company Rights Agreement) pursuant to the Company Rights Agreement and (z) a
Stock Acquisition Date or Distribution Date (in each case as defined in the
Company Rights Agreement) does not occur by reason of the execution of this
Agreement, the commencement or completion of the Offer, the consummation of the
Merger or the other transactions contemplated hereby. Except as set forth in the
Company Disclosure Schedule, the Company Rights Agreement may not be further
amended by the Company without the prior consent of Parent in its sole
discretion.
(o) Employment Agreements. The Company, Parent and each of the three
executive officers of the Company identified in Section 6.05(a) of the Company
Disclosure Schedule (the "Executives") have entered into employment agreements
among the Company, Parent and the Executives (the "Company Employment
Agreements") in the form attached to the Company Disclosure Schedule. Without
limiting the generality or effect of any other provision hereof, none of the
Company Employment Agreements will be amended or modified, or any binding
interpretation thereof made, by the Company prior to the Effective Time without
the prior approval of the Parent Board.
4.02. Representations and Warranties of Parent and Sub. Except as disclosed
in the Parent Filed SEC Documents or as set forth on the Disclosure Schedule
delivered by Parent to the Company prior to the execution of this Agreement (the
"Parent Disclosure Schedule"), Parent and Sub jointly and severally represent
and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and each of
its Significant Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to jurisdictions
which recognize such concept) under the Laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted. The Parent and
each of its Significant Subsidiaries is duly qualified or licensed to do
business and is in good standing (with respect to jurisdictions which recognize
such concept) in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions in which the failure to be so
qualified or licensed or to be in good standing individually or in the aggregate
could not be reasonably expected to have a material adverse effect on the
business, financial condition or results of operations of Parent and each of its
Subsidiaries, taken as a whole, or on the ability of Parent and Sub to perform
their respective obligations under this Agreement (any such effect, a "Parent
MAE"). Parent has delivered to the Company prior to the execution of this
Agreement complete and correct copies of its articles of incorporation and
bylaws, in each case as amended to date and as proposed to be amended and
restated at the Parent Shareholders Meeting (as so amended and restated, the
"Amended Parent Constituent Documents") and has made available to the Company
the articles of incorporation and bylaws (or comparable organizational
documents) of each of its Subsidiaries, in each case as amended to date.
(b) Subsidiaries. Exhibit 21 to Parent's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 includes all of the Subsidiaries of Parent.
All the outstanding shares of capital stock of, or other equity interests in,
each such Subsidiary have been validly issued and are fully paid and
nonassessable and are owned directly or indirectly by Parent, free and clear of
all Liens.
(c) Capital Structure. The authorized capital stock of Parent consists of
8,000,000 shares of Parent Common Stock. The authorized capital stock of Sub
consists of 1,000 shares of common stock, without par
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value, 100 of which are issued and outstanding and are held beneficially and of
record by Parent. At the close of business on the Measurement Date, (i)
5,228,896 shares of Parent Common Stock were issued and outstanding, (ii)
578,135 shares of Parent Common Stock were held by Parent in its treasury, and
(iii) 589,575 shares of Parent Common Stock were reserved for issuance pursuant
to the 1986 Stock Option Plan, the 1996 Stock Option Plan, the 1988 Restricted
Stock and Cash Bonus Plan and the Stock Retirement Plan for Nonemployee
Directors (such plans, collectively, the "Parent Stock Plans"). Except as set
forth above, at the close of business on the Measurement Date, no shares of
capital stock or other voting securities of Parent were issued, reserved for
issuance or outstanding. At the close of business on the Measurement Date, there
were no outstanding stock options, stock appreciation rights or rights (other
than employee stock options or other rights ("Parent Employee Stock Options") to
purchase or receive Parent Common Stock granted under the Parent Stock Plans) to
receive shares of Parent Common Stock on a deferred basis granted under the
Parent Stock Plans or otherwise. The Parent Disclosure Schedule sets forth a
complete and correct list, as of the Measurement Date, of the number of shares
of Parent Common Stock subject to Parent Employee Stock Options. All outstanding
shares of capital stock of Parent are, and all shares which may be issued,
including shares to be issued pursuant to this Agreement, will be, when issued,
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. As of the close of business on the Measurement Date, there
were no bonds, debentures, notes or other indebtedness or securities of Parent
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which shareholders of Parent may
vote. Except as set forth above or as contemplated by Schedule 6.05(b), as of
the close of business on the Measurement Date, there were no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which Parent or any of its
Subsidiaries is a party or by which any of them is bound obligating Parent or
any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of Parent or of any of its Subsidiaries or obligating Parent or any of its
Subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking. Except
for agreements entered into with respect to the Parent Stock Plans, as of the
close of business on the Measurement Date, there were no outstanding contractual
obligations of Parent or any of its Subsidiaries to issue, repurchase, redeem or
otherwise acquire any shares of capital stock of Parent or any of its
Subsidiaries. As of the close of business on the Measurement Date, there were no
outstanding contractual obligations of Parent to vote or to dispose of any
shares of the capital stock of any of its Subsidiaries.
(d) Authority; Noncontravention. Parent and Sub have all requisite corporate
power and authority to enter into this Agreement and, subject to the Parent
Shareholder Approval, to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by Parent and Sub and
the consummation by Parent and Sub of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of Parent and Sub subject, in the case of the adoption of this Agreement
and the Amended Parent Constituent Documents, to Parent Shareholder Approval.
This Agreement has been duly executed and delivered by Parent and Sub and
constitutes valid and binding obligations of Parent and Sub, enforceable against
each of them in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated
thereby and compliance with the provisions thereof will not, conflict with,
breach, or result in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of Parent or any of its Significant Subsidiaries under, (i) the articles
of incorporation or bylaws of Parent or the comparable organizational documents
of any of its Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Parent or any of its Significant Subsidiaries
or their respective properties or assets, or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Order or
Law applicable to Parent or
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any of its Subsidiaries or their respective properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, breaches, violations,
defaults, rights, losses or Liens that individually or in the aggregate could
not be reasonably expected to have a Parent MAE. No consent, approval, Order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Parent and Sub
or the consummation by Parent and Sub of the transactions contemplated hereby,
except for (1) the filing of a premerger notification and report form by Parent
under the HSR Act; (2) the filing with the SEC of (A) the Joint Proxy Statement
relating to the Parent Shareholders Meeting, (B) the Schedule 14D-1, (C) the
Form S-4, and (D) such reports under the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated hereby; (3) the
filing of the Certificate of Merger with the New York Secretary of State and
appropriate documents with the relevant authorities of other states in which
Parent is qualified to do business and such filings with Governmental Entities
to satisfy the applicable requirements of state securities or "blue sky" laws;
(4) such filings with and approvals of the NYSE to permit the shares of Parent
Common Stock that are to be issued in the Merger to be listed for trading on the
NYSE; (5) such other filings and consents as may be required under any
Environmental Law pertaining to any notification, disclosure or required
approval necessitated by the Merger or the transactions contemplated by this
Agreement; and (6) such consents, approvals, Orders or authorizations the
failure of which to be made or obtained could not reasonably be expected,
individually or in the aggregate, to have a Parent MAE.
(e) SEC Documents; Undisclosed Liabilities. Parent has filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1995 (the "Parent SEC Documents"). As of their respective dates, the
Parent SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Except to the
extent that information contained in any Parent SEC Document has been revised or
superseded by a later Parent Filed SEC Document, none of the Parent SEC
Documents contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Parent included in the Parent SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of Parent and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except (i) as reflected in such financial
statements or in the notes thereto, (ii) as contemplated hereunder, (iii) for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby (including without limitation financing relating to the
transactions contemplated hereby), and (iv) for liabilities and obligations
incurred since March 31, 1997 in the ordinary course of business consistent with
past practice, neither Parent nor any of its Subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise),
including liabilities arising under any Environmental Laws, required by
generally accepted accounting principles to be reflected in a consolidated
balance sheet of Parent and its consolidated Subsidiaries and which,
individually or in the aggregate, could reasonably be expected to have a Parent
MAE.
(f) Information Supplied. None of the information supplied or to be supplied
by Parent specifically for inclusion or incorporation by reference in (i) the
Offer Documents, at the time the Offer Documents
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are first published, sent or given to holders of Company Common Stock, and any
time they are amended or supplemented, (ii) the Form S-4, at the time the Form
S-4 is filed with the SEC or at the time it becomes effective under the
Securities Act, or (iii) the Joint Proxy Statement, at the date it is first
mailed to Parent's shareholders or at the time of the Parent Shareholders
Meeting will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Offer Documents, the Joint Proxy Statement and the Form S-4
will comply as to form in all material respects with the requirements of the
Exchange Act and the Securities Act, respectively, and the rules and regulations
thereunder, including Rule 13e-3 under the Exchange Act, if applicable, except
that no representation or warranty is made by Parent or Sub with respect to
statements made or incorporated by reference therein based on information
supplied by the Company specifically for inclusion or incorporation by reference
in the Offer Documents, the Joint Proxy Statement or the Form S-4 or contained
in any Company Filed SEC Documents incorporated by reference in the Offer
Documents, the Joint Proxy Statement or the Form S-4.
(g) Absence of Certain Events. Except (i) as disclosed in the Parent SEC
Documents filed and publicly available prior to the date of this Agreement (as
amended to the date of this Agreement, the "Parent Filed SEC Documents"), (ii)
for the transactions provided for herein or permitted by Section 5.01(b), and
(iii) for liabilities incurred in connection with or as a result of this
Agreement, since March 31, 1997, Parent has conducted its business only in the
ordinary course, and there has not been (1) any Parent MAE, (2) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of Parent's capital stock, other than
regular quarterly cash dividends at the rate in effect for the first quarter of
1997 ("Regular Parent Quarterly Dividends"), (3) any split, combination or
reclassification of any of Parent's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of Parent's capital stock other than the Stock
Split, or (4) except insofar as may be required by a change in generally
accepted accounting principles, any change in accounting methods, principles or
practices by the Parent. Section 4.02(g) of the Parent Disclosure Schedule
contains a true and complete list of all agreements or plans providing for
termination or severance pay to any employee of Parent.
(h) Litigation. There are no suits, actions or proceedings pending or, to
the Knowledge of Parent, threatened against or affecting Parent or any of its
Subsidiaries that individually or in the aggregate could reasonably be expected
to have a Parent MAE, nor are there any Orders of any Governmental Entity or
arbitrator outstanding against Parent or any of its Subsidiaries having, or
which could reasonably be expected to have, individually or in the aggregate, a
Parent MAE.
(i) Voting Requirements. The consent actions executed by Parent as sole
shareholder of Sub on the date hereof (copies of which have been previously
furnished to the Company) and the affirmative vote of the holders of a majority
of the voting power of all outstanding shares of Parent Common Stock, voting as
a single class, at the Parent Shareholders Meeting (the "Parent Shareholder
Approval") to approve the Amended Charter Documents and the issuance of Parent
Common Stock in connection with the Merger are the only votes of the holders of
any class or series of Parent's or Sub's capital stock necessary to approve and
adopt this Agreement and the transactions contemplated hereby.
(j) Brokers. No broker, investment banker, financial advisor or other
Person, other than J.P. Morgan & Co., the fees and expenses of which will be
paid by Parent or, if the Merger occurs, the Surviving Corporation, is entitled
to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent. Parent has furnished to
the Company true and complete copies of all agreements under which any such fees
or expenses are payable and all indemnification and other agreements related to
the engagement of the Persons to whom such fees are payable.
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(k) Opinion of Financial Advisor. Parent has received the opinion of J.P.
Morgan & Co. (the "Fairness Opinion") to the effect that, as of the date hereof,
terms of this Agreement are fair to Parent from a financial point of view.
(l) Ownership of Company Common Stock. Except for Shares owned by Benefit
Plans maintained or contributed to by Parent to any of its Subsidiaries (the
"Parent Benefit Plans") or as set forth in the Parent Disclosure Schedule,
neither Parent nor, to its Knowledge, any of its Affiliates (excluding for
purposes hereof any director of Parent other than the Unaffiliated Directors),
(i) beneficially owns (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, or (ii) is party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of, in
each case, shares of capital stock of Company.
(m) Tax Matters. Parent has no plan or intention to (a) liquidate the
Surviving Corporation, (b) merge the Surviving Corporation with and into another
corporation, (c) sell or otherwise dispose of the stock of the Surviving
Corporation, (d) cause the Surviving Corporation to (i) violate the "continuity
of business" requirements of Treasury Regulation ss. 1.368-1(d) by selling or
otherwise disposing of assets of the Company acquired in the Merger, or (ii)
sell or dispose of any shares of capital stock of Parent owned by the Company,
or (e) take any action that would reasonably be expected to cause the Merger not
to qualify as a reorganization under Section 368(a) of the Code.
V. COVENANTS RELATING TO CONDUCT OF BUSINESS
5.01. Conduct of Business. (a) Conduct of Business by the Company. Except as
set forth in Section 5.01(a) of the Company Disclosure Schedule, during the
period from the date of this Agreement to the Effective Time, the Company will,
and will cause its Subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and in compliance in all material respects with all
applicable Laws and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, use reasonable
efforts to keep available the services of their current officers and other key
employees and preserve their relationships with those Persons having business
dealings with them to the end that their goodwill and ongoing businesses will be
unimpaired at the Effective Time. Except as set forth in Section 5.01(a) of the
Company Disclosure Schedule, without limiting the generality or effect of the
foregoing, during the period from the date of this Agreement to the Effective
Time, the Company will not, and will not permit any of its Subsidiaries to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned Subsidiary of the
Company to its parent, or by a Subsidiary that is partially owned by the
Company or any of its Subsidiaries, provided that the Company or any such
Subsidiary receives or is to receive its proportionate share thereof and
Regular Company Semiannual Dividends, (A) declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its
capital stock, (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (C) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or
any of its Subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(iii) amend its certificate of incorporation, by-laws or other comparable
organizational documents;
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(iv) acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business
or any corporation, limited liability company, partnership, joint venture,
association or other business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets, other than
(x) in the ordinary course of business consistent with past practice and (y)
sales of assets which do not individually or in the aggregate exceed $1.0
million;
(vi) (A) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its Subsidiaries, guarantee any debt securities of another Person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another Person or enter into any arrangement having
the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with past
practice, or (B) make any loans, advances or capital contributions to, or
investments in, any other Person, other than to the Company or any
Subsidiary of the Company or to officers and employees of the Company or any
of its Subsidiaries for travel, business or relocation expenses in the
ordinary course of business;
(vii) make or agree to make any capital expenditure or capital
expenditures other than capital expenditures set forth in the operating
budget of the Company previously furnished to Parent, the relevant portions
of which are set forth in Section 5.01(a)(vii) of the Company Disclosure
Schedule;
(viii) make any change to its accounting methods, principles or practices,
except as may be required by generally accepted accounting principles;
(ix) except as required by Law or contemplated hereby, enter into, adopt
or amend in any material respect or terminate any Company Benefit Plan or
any other agreement, plan or policy involving the Company or any of its
Subsidiaries and one or more of their directors, officers or employees
including without limitation the Company Employment Agreements, or
materially change any actuarial or other assumption used to calculate
funding obligations with respect to any Company pension plans, or change the
manner in which contributions to any Company pension plans are made or the
basis on which such contributions are determined;
(x) increase the compensation of any director, executive officer or
other key employee of the Company or pay any benefit or amount not required
by a plan or arrangement as in effect on the date of this Agreement to any
such Person;
(xi) enter into any contract or agreement, written or oral, with any
affiliate, associate or relative of Parent, or make any payment to or for
the benefit of, directly or indirectly, any of the foregoing;
(xii) make any amendment to, or waive or enter into or give any binding
interpretation of, any term of the Agreement, dated October 9, 1990, among
the Company and certain shareholders of the Company; or
(xiii) authorize, or commit or agree to take, any of the foregoing
actions.
(b) Conduct of Business by Parent. Except as set forth in Section 5.01(b) of
the Parent Disclosure Schedule, during the period from the date of this
Agreement to the Effective Time, the Parent will, and will cause its
Subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and in
compliance in all material respects with all applicable Laws and, to the extent
consistent therewith, use all reasonable efforts to preserve intact their
current business organizations, use reasonable efforts to keep available the
services of their current officers and other key employees and preserve their
relationships with those Persons having business dealings with them to the end
that their goodwill and ongoing businesses will be unimpaired at the
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Effective Time. Except as set forth in Section 5.01(b) of the Parent Disclosure
Schedule, without limiting the generality or effect of the foregoing, during the
period from the date of this Agreement to the Effective Time, Parent will not,
and will not permit any of its Subsidiaries to:
(i) other than (A)(1) dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned Subsidiary of Parent to
its parent, or by a Subsidiary that is partially owned by Parent or any of
its Subsidiaries, provided that Parent or any such Subsidiary receives or is
to receive its proportionate share thereof, and (2) Regular Parent Quarterly
Dividends, (B) the Stock Split, and (C) in connection with rights that are
authorized by action of a majority of the Unaffiliated Directors which, by
the terms thereof, become exercisable only after the Effective Time or, if
earlier, the termination of this Agreement ("Rights"), (1) declare, set
aside or pay any dividends on, or make any other distributions in respect
of, any of its capital stock, (2) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
or (3) purchase, redeem or otherwise acquire any shares of capital stock of
Parent or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) other than in connection with the Stock Split or Rights or the
issuance of Parent Common Stock upon the exercise of Parent Employee Stock
Options, issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(iii) amend its articles of incorporation, bylaws or other comparable
organizational documents;
(iv) make any change to its accounting methods, principles or practices,
except as may be required by generally accepted accounting principles; or
(v) authorize, or commit or agree to take, any of the foregoing actions.
(c) Other Actions. Except as required by Law, neither the Company, on the
one hand, nor Sub or Parent, on the other hand, will, and will not permit any of
their respective Subsidiaries to, voluntarily take any action that would, or
that could reasonably be expected to, result in (i) any of the representations
and warranties of such party set forth in this Agreement that are qualified as
to materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect, or (iii) any
of the conditions to the Merger set forth in Article VIII not being satisfied.
(d) Advice of Changes. The Company and Parent will promptly advise the other
party orally and in writing of (i) any representation or warranty made by it or,
in the case of Parent, Sub contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect, (ii) the failure by it or, in the case of
Parent, Sub to comply in any material respect with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement, or (iii) any change or event having, or which, insofar
as can reasonably be foreseen, could reasonably be expected to have, a material
adverse effect on such party or on the truth of their respective representations
and warranties or the ability of the conditions set forth in Article VIII to be
satisfied; provided, however, that no such notification will affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
(e) Coordination of Dividends. Each of Parent and the Company will
coordinate with the other regarding the declaration and payment of dividends in
respect of the Parent Common Stock and the Shares and the record dates and
payment dates relating thereto, it being the intention of Parent and the Company
that any holder of Shares will not receive two dividends, or fail to receive one
dividend, for any single calendar quarter with respect to its Shares and/or any
Parent Common Stock any such holder receives in exchange therefor pursuant to
the Merger.
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(f) As used herein, "Parent's 1997 Annual Meeting" shall mean Parent's 1997
annual meeting of shareholders.
5.02. No Solicitation by the Company. (a) The Company will not, nor will it
permit any of its Subsidiaries to, nor will it authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
Subsidiaries to, directly or indirectly through another Person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed to facilitate, any inquiries or the making of any proposal
which constitutes any Company Takeover Proposal or (ii) participate in any
discussions or negotiations regarding any Company Takeover Proposal; provided,
however, that if, at any time prior to the Offer Completion Date, the Company
Board determines in good faith, after consultation with its financial advisor
and outside counsel, that failure to do so would create a reasonable possibility
of a breach of its fiduciary duties to the Company's shareholders under
applicable Law, the Company may, in response to a Company Takeover Proposal
which was not solicited by it or which did not otherwise result from a breach of
this Section 5.02(a), (A) furnish information with respect to the Company and
each of its Subsidiaries to any Person pursuant to a customary confidentiality
agreement (as determined by the Company after consultation with its outside
counsel) and (B) participate in negotiations regarding such Company Takeover
Proposal. For purposes of this Agreement, "Company Takeover Proposal" means any
inquiry, proposal or offer from any Person relating to any direct or indirect
acquisition or purchase of 20% or more of the assets of the Company and its
Subsidiaries or 20% or more of any class of equity securities of the Company or
any of its Subsidiaries, any tender offer or exchange offer that if consummated
would result in any Person beneficially owning 20% or more of any class of
equity securities of the Company or any of its Subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company or any of its Subsidiaries, other
than the transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 5.02(b), neither the
Company Board nor any committee thereof may (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Parent or Sub, the
approval or recommendation by the Company Board or such committee of the Offer,
the Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any Company Takeover Proposal, or (iii) cause the Company
to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any Company Takeover Proposal
(each, a "Company Acquisition Agreement"). Notwithstanding the foregoing, in the
event that prior to the Offer Completion Date, the Company Board determines in
good faith, after the Company has received a Company Takeover Proposal and after
consultation with its financial adviser and outside counsel, that failure to do
so would create a reasonable possibility of a breach of its fiduciary duties to
the Company's shareholders under applicable Law, the Company Board may withdraw
or modify its approval or recommendation of the Offer, the Merger or this
Agreement, approve or recommend a Company Takeover Proposal or terminate this
Agreement pursuant to Section 8.01(i) but only if (A) prior to any such
approval, recommendation or termination, the Company shall, simultaneously with
giving such notice, pay the Company Termination Fee, and (B) prior to any such
termination which is to be effective within two business days of the date of the
Parent's 1997 Annual Meeting and any adjournment or rescheduling thereof, the
Company shall have given Parent at least two business days notice of the
effectiveness of such termination.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 5.02, the Company will (i) immediately advise Parent
orally and in writing of any request for information or of any Company Takeover
Proposal, the material terms and conditions of such request or Company Takeover
Proposal and the identity of the Person making such request or Company Takeover
Proposal and (ii) keep Parent reasonably informed of the status and details
(including amendments or proposed amendments) of any such request or Company
Takeover Proposal, provided, however, that the Company will not be required to
provide to Parent any information if and to the extent that the Company Board
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determines, following consultation with outside counsel, that so doing would
create a reasonable possibility of a breach of its fiduciary duties to the
Company's shareholders under applicable Law.
(d) Nothing contained in this Section 5.02 will prohibit the Company from
taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders if, in the good faith judgment of the Company Board,
after consultation with outside counsel, the failure so to disclose would be
inconsistent with its fiduciary duties to the Company's shareholders under
applicable Law; provided, however, that neither the Company nor the Company
Board nor any committee thereof may, except as expressly permitted by Section
5.02(b), withdraw or modify, or propose publicly to withdraw or modify, its
position with respect to the Offer, this Agreement or the Merger or approve or
recommend, or propose publicly to approve or recommend, a Company Takeover
Proposal.
5.03. No Solicitation by Parent. (a) Parent will not, nor will it permit any
of its Subsidiaries to, nor will it authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its Subsidiaries to,
directly or indirectly through another Person, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any proposal which
constitutes any Parent Takeover Proposal or (ii) participate in any discussions
or negotiations regarding any Parent Takeover Proposal; provided, however, that
if, at any time prior to the Effective Time, the Unaffiliated Directors
determine in good faith, after consultation with outside counsel, that failure
to do so would create a reasonable possibility of a breach of their fiduciary
duties to the Parent's shareholders under applicable Law, Parent may, in
response to a Parent Takeover Proposal which was not solicited by it or which
did not otherwise result from a breach of this Section 5.03(a), (A) furnish
information with respect to Parent and each of its Subsidiaries to any Person
pursuant to a customary confidentiality agreement (as determined by Parent after
consultation with its outside counsel) and (B) participate in negotiations
regarding such Parent Takeover Proposal. For purposes of this Agreement, "Parent
Takeover Proposal" means any inquiry, proposal or offer from any Person relating
to any direct or indirect acquisition or purchase of 20% or more of the assets
of Parent and its Subsidiaries or 20% or more of any class of equity securities
of Parent or any of its Subsidiaries, any tender offer or exchange offer that if
consummated would result in any Person beneficially owning 20% or more of any
class of equity securities of the Parent or any of its Subsidiaries, or any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Parent or any of its Subsidiaries,
other than the transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 5.03(b), neither the
Parent Board nor any committee thereof may (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to the Company, the approval
or recommendation by the Parent Board or such committee of the Merger or this
Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Parent Takeover Proposal, or (iii) cause Parent to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement related to any Parent Takeover Proposal (each, a "Parent Acquisition
Agreement"). Notwithstanding the foregoing, in the event that prior to the Offer
Completion Date, the Unaffiliated Directors determine in good faith, after
Parent has received a Parent Takeover Proposal and after consultation with its
financial adviser and outside counsel, that failure to do so would create a
reasonable possibility of a breach of their fiduciary duties to Parent's
shareholders under applicable Law, the Parent Board, by action of the
Unaffiliated Directors, may withdraw or modify its approval or recommendation of
the Merger or this Agreement, approve or recommend a Parent Takeover Proposal or
terminate this Agreement pursuant to Section 8.01(f) but only if, prior to any
such approval, recommendation or termination in respect of a Parent Takeover
Proposal, Parent shall have paid the Parent Termination Fee.
(c) In addition to the obligations of Parent set forth in paragraphs (a) and
(b) of this Section 5.03, Parent will (i) immediately advise the Company orally
and in writing of any request for information or of
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any Parent Takeover Proposal, the material terms and conditions of such request
or Parent Takeover Proposal and the identity of the Person making such request
or Parent Takeover Proposal and (ii) keep the Company reasonably informed of the
status and details (including amendments or proposed amendments) of any such
request or Parent Takeover Proposal, provided, however, that the Parent will not
be required to provide to the Company any information if and to the extent that
the Unaffiliated Directors determine, following consultation with outside
counsel, that so doing would create a reasonable possibility of a breach of
their fiduciary duties to the Parent's shareholders under applicable Law.
(d) Nothing contained in this Section 5.03 will prohibit Parent from taking
and disclosing to its shareholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to Parent's
shareholders if, in the good faith judgment of the Unaffiliated Directors, after
consultation with outside counsel, the failure so to disclose would be
inconsistent with their fiduciary duties to Parent's shareholders under
applicable Law; provided, however, that neither Parent nor the Parent Board nor
any committee thereof may, except as expressly permitted by Section 5.03(b),
withdraw or modify, or propose publicly to withdraw or modify, its position with
respect to this Agreement or the Merger or approve or recommend, or propose
publicly to approve or recommend, a Parent Takeover Proposal.
5.04. Proposed Parent Charter and Bylaws Amendments. Without further
approval or consent of the Company, Parent may take all such actions as are
necessary or appropriate to make amendments to its articles of incorporation or
bylaws having the terms and conditions described in Annex B (respectively, the
"Proposed Parent Charter Amendments" and the "Proposed Parent Bylaw
Amendments"), provided however, that such amendments shall not be effective
until the Effective Date. The Company will vote all shares of Parent Common
Stock beneficially owned by it or any of its Subsidiaries in favor of the
adoption of the Proposed Parent Charter Amendments.
VI. ADDITIONAL COVENANTS
6.01. Preparation of the Form S-4 and the Joint Proxy Statement;
Shareholders Meetings. (a) As soon as practicable following the date of this
Agreement, the Company, Parent and Sub will prepare and file with the SEC the
Joint Proxy Statement and Parent will prepare and file with the SEC the Form
S-4, in which the Joint Proxy Statement will be included as a prospectus. Each
of the Company and Parent will use all reasonable efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable after
such filing. The Company will use all reasonable efforts to cause the Joint
Proxy Statement to be mailed to the Company's shareholders, and Parent will use
all reasonable efforts to cause the Joint Proxy Statement to be mailed to
Parent's shareholders, in each case as promptly as practicable after the Form
S-4 is declared effective under the Securities Act. Parent will also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities Laws in connection
with the issuance of Parent Common Stock in the Merger and under the Company
Stock Plans and Parent Stock Plans and the Company will furnish all information
concerning the Company and the holders of Company Common Stock as may be
reasonably requested in connection with any such action.
(b) Subject to its rights to terminate this Agreement pursuant to the
applicable provisions of Section 8.01, the Company will as soon as practicable
following the date of this Agreement, duly call, give notice of, convene and
hold a meeting of its shareholders (the "Company Shareholders Meeting") for the
purpose of obtaining the Company Shareholder Approval and, through the Company
Board, subject to the provisions of Section 5.02(b), recommend to Shareholders
the approval and adoption of this Agreement, the Merger and the other
transactions contemplated hereby. Without limiting the generality or effect of
the foregoing but subject to its rights to terminate this Agreement as
aforesaid, the Company's obligations pursuant to the first sentence of this
Section 6.01(b) will not be affected by the commencement, public proposal,
public disclosure or communication to the Company of any Company Takeover
Proposal.
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(c) Subject to its rights to terminate this Agreement under the applicable
provision of Section 8.01, Parent will, as soon as practicable following the
date of this Agreement, duly call, give notice of, convene and hold a meeting of
its shareholders (the "Parent Shareholders Meeting") for the purpose of
obtaining the Parent Shareholder Approval and, through the Parent's Board of
Directors, subject to the provisions of Section 5.03(b), recommend that its
shareholders approve the issuance of Parent Common Stock pursuant to the Merger.
Without limiting the generality or effect of the foregoing but subject to its
rights to terminate this Agreement as aforesaid, Parent's obligations pursuant
to the first sentence of this Section 6.01(c) will not be affected by the
commencement, public proposal, public disclosure or communication to Parent of
any Parent Takeover Proposal. Notwithstanding any other provision hereof, (i)
subject to future action by the Unaffiliated Directors, the Proposed Parent
Charter Amendments will be considered at the Parent Shareholders Meeting, (ii)
the Company will vote or cause to be voted all Parent Common Stock having voting
rights in respect thereof in favor of adoption of the Proposed Parent Charter
Amendments, and (iii) neither the Offer or the Merger will be subject to a
condition that the Proposed Parent Charter Amendments be approved or become
effective, provided, however, that the authorization of an increase in
capitalization sufficient to permit the Merger Consideration to be paid will be
a condition to the Merger as herein provided.
(d) Parent and the Company will use reasonable efforts to hold the Parent
Shareholders Meeting and the Company Shareholders Meeting on the same date and
as soon as practicable after the date hereof.
6.02. Access to Information; Confidentiality. Each of the Company and Parent
will, and will cause each of its respective Subsidiaries to, afford to the other
party and to the officers, employees, accountants, counsel, financial advisors
and other representatives of such other party, reasonable access during normal
business hours during the period prior to the Effective Time to all their
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of the Company and Parent will, and will cause each of
its respective Subsidiaries to, furnish promptly to the other party (a) a copy
of each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
Laws and (b) all other information concerning its business, financial condition,
results of operations, properties and personnel as such other party may
reasonably request. Subject to the requirements of applicable Law, and except
for such actions as are necessary to disseminate the Offer Documents and any
other documents necessary to consummate the Offer and the Merger, the parties
will, and will instruct each of their respective Affiliates, associates,
partners, employees, agents and advisors to, hold in confidence all such
information as is confidential or proprietary, will use such information only in
connection with the Offer and the Merger and, if this Agreement is terminated in
accordance with its terms, will deliver promptly to the other (or destroy and
certify to the other the destruction of) all copies of such information (and any
copies, compilations or extracts thereof or based thereon) then in their
possession or under their control.
6.03. Reasonable Efforts. (a) Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties will use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including without limitation, (i) obtaining of all necessary actions
or nonactions, waivers, consents and approvals from Governmental Entities and
making of all necessary registrations and filings (including filings with
Governmental Entities) and taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) obtaining of all necessary consents, approvals or
waivers from third parties, (iii) defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any adverse Order entered by any court or other Governmental Entity vacated
or reversed, and (iv) execution and delivery of any additional instruments
necessary to consummate the transactions
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contemplated by, and to fully carry out the purposes of, this Agreement. Nothing
set forth in this Section 6.03(a) will limit or affect actions permitted to be
taken pursuant to Section 5.02 or 5.03.
(b) In connection with and without limiting the foregoing, the Company and
Parent will, and Parent will cause Sub to, (i) take all action necessary to
ensure that no state takeover statute or similar statute or regulation is or
becomes applicable to the Offer, the Merger or any of the other transactions
contemplated hereby, and (ii) if any state takeover statute or similar statute
or regulation becomes applicable thereto, take all action necessary to ensure
that the Offer and the Merger and such other transactions may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise to
minimize the effect of such statute or regulation thereon.
(c) Notwithstanding any other provision hereof, in no event will Parent be
required to agree to any divestiture, hold-separate or other requirement in
connection with this Agreement or any of the transactions contemplated thereby.
6.04. Employee Benefit Matters. (a) With respect to each Parent "employee
benefit plan," as defined in Section 3(3) of ERISA, including plans or policies
providing severance benefits and vacation entitlement ("Parent Plans"), if the
Effective Time occurs, service with the Company will be treated as service with
the Parent for purposes of determining eligibility to participate, vesting and
entitlement to benefits (other than the accrual of benefits under any defined
benefit pension plan); provided, however, that such service will not be
recognized to the extent that such recognition would result in a duplication of
benefits. Such service also will apply for purposes of satisfying any waiting
periods, evidence of insurability requirements or the application of any
preexisting condition limitations under any Parent Plan. Employees of the
Company will be given credit under any Parent Plan in which they are eligible to
participate for amounts paid under a corresponding Company benefit plan during
the same period for purposes of applying deductibles, copayments and
out-of-pocket maximums as though such amounts had been paid in accordance with
the terms and conditions of the Parent Plans.
(b) Following the Effective Time, Parent will cause the Surviving
Corporation to honor in accordance with their terms all employment, severance
and other compensation agreements and arrangements, including but not limited to
severance benefit plans, the existence or terms of which do not involve any
material breach of any representation, warranty or covenant of the Company
hereunder.
6.05. Certain Employee Matters; Parent Board Composition; Etc. (a) The
Company will take the actions specified in Section 6.05(a) of the Company
Disclosure Schedules.
(b) Parent will take the actions specified in Section 6.05(b) of the Parent
Disclosure Schedule.
6.06. Fees and Expenses. (a) Except as set forth in this Section 6.06, all
fees and expenses incurred in connection with the Offer, the Merger, this
Agreement and the transactions contemplated thereby will be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated,
except that each of Parent and the Company will bear and pay one-half of the
costs and expenses incurred in connection with (i) the filing, printing and
mailing of the Joint Proxy Statement (including SEC filing fees) and (ii) the
filings of the premerger notification and report forms under the HSR Act
(including filing fees).
(b) In the event that (i) a Company Takeover Proposal (excluding for
purposes of this Section 6.06(b)(i) only the $45.00 per share cash tender offer
made by WHX Corporation prior to the date hereof (the "WHX $45.00 Bid")) is made
known to the Company or any of its Subsidiaries or has been made directly to
shareholders generally or any Person publicly announces an intention (whether or
not conditional) to make a Company Takeover Proposal (excluding the WHX $45.00
Bid) and thereafter this Agreement is terminated by either Parent or the Company
pursuant to Section 8.01(d)(i) or 8.01(d)(ii), or (ii) this Agreement is
terminated (x) by the Company pursuant to Section 8.01(i) or (y) by Parent
pursuant to Section 8.01(e), then the Company will promptly, but in no event
later than two days after the date of such termination, pay Parent a fee equal
to $3 million (the "Company Termination Fee"), payable by wire
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transfer of same-day funds. The Company acknowledges that the agreements
contained in this Section 6.06(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent and
Sub would not enter into this Agreement; accordingly, if the Company fails
promptly to pay the amount due pursuant to this Section 6.06(b), and, in order
to obtain such payment, Parent or Sub commences a suit which results in a
judgment against the Company for the fee set forth in this Section 6.06(b), the
Company will pay to Parent and Sub their costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Citibank N.A. in effect
on the date such payment was required to be made.
(c) In the event that (i) a Parent Takeover Proposal is made known to Parent
or any of its Subsidiaries or has been made directly to shareholders generally
or any Person publicly announces an intention (whether or not conditional) to
make a Parent Takeover Proposal and thereafter this Agreement is terminated by
either Parent or the Company pursuant to Section 8.01(d)(i) or 8.01(d)(iii), or
(ii) this Agreement is terminated (x) by Parent pursuant to Section 8.01(f) or
(y) by the Company pursuant to Section 8.01(g), then Parent shall promptly, but
in no event later than two days after the date of such termination, pay the
Company a fee equal to $5 million (the "Parent Termination Fee") payable by wire
transfer of same-day funds. Parent acknowledges that the agreements contained in
this Section 6.06(c) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, the Company would not enter
into this Agreement; accordingly, if Parent fails promptly to pay the amount due
pursuant to this Section 6.06(c), and, in order to obtain such payment, the
Company commences a suit which results in a judgment against Parent or Sub for
the fee set forth in this Section 6.06(c), Parent will pay to the Company its
costs and expenses (including attorneys' fees and expenses) in connection with
such suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made.
(d) Notwithstanding any other provision hereof, as an inducement to Parent
and Sub to enter into this Agreement and perform their respective obligations
hereunder, the Company has paid Parent a fee equal to $2 million (the
"Inducement Fee") simultaneously with the execution and delivery of this
Agreement by delivery of a check in such amount, which the Company hereby
irrevocably agrees to honor. The Inducement Fee is not subject to refund or
return for any reason whatever and may not be used as an offset against or
otherwise applied to any obligation of the Company, including without limitation
the obligation to pay the Company Termination Fee.
6.07. Public Announcements. Parent and the Company will consult with each
other before issuing, and provide each other the opportunity to review, comment
upon and concur with, any press release or other public statements with respect
to the transactions contemplated by this Agreement, and will not issue any such
press release or make any such public statement prior to such consultation,
except as either party may determine is required by applicable Law, court
process or by obligations pursuant to any listing agreement with any national
securities exchange. The parties agree that the initial press release to be
issued with respect to the transactions contemplated by this Agreement will be
in the form heretofore agreed to by the parties.
6.08. Affiliates. Prior to the Closing Date, the Company shall deliver to
Parent a letter identifying all Persons who are, at the time this Agreement is
submitted for adoption by to the shareholders of the Company, "affiliates" of
the Company for purposes of Rule 145 under the Securities Act. The Company will
use all reasonable efforts to cause each such Person to deliver to Parent on or
prior to the Closing Date a written agreement substantially in the form attached
as Schedule 6.09 hereto.
6.09. NYSE Listing. Parent will use reasonable efforts to cause the shares
of Parent Common Stock to be issued in the Merger and under the Company Stock
Plans to be approved for listing on the NYSE, subject to official notice of
issuance, prior to the Effective Time.
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6.10. Shareholder Litigation. Each of the Company and Parent will give the
other the reasonable opportunity to participate in the defense of any
shareholder litigation against the Company, Parent or Sub, as applicable, or
their respective directors relating to the transactions contemplated by this
Agreement.
6.11. Tax Treatment. Each of Parent and the Company will use reasonable
efforts to cause the Merger to qualify as a reorganization under the provisions
of Section 368 of the Code.
6.12. The Company Rights Agreement. The Company Board will take all further
action (in addition to that referred to in Section 4.01(n)) reasonably requested
in writing by Parent (including redeeming the Company Rights immediately prior
to the Effective Time or amending the Company Rights Agreement) in order to
render the Company Rights inapplicable to the Offer and the Merger and the other
transactions contemplated hereby, including without limitation, the Shareholders
Agreement, to the extent provided herein and in the Company Rights Plan
Amendment. Except as provided above with respect to the Offer, the Merger and
the other transactions contemplated hereby or as set forth in the Company
Disclosure Schedule, the Company Board will not (a) amend the Company Rights
Agreement or (b) take any action with respect to, or make any determination
under, the Company Rights Agreement, including a redemption of the Company
Rights or any action to facilitate a Company Takeover Proposal.
6.13. Voting of Common Stock. The Company and the Parent agree that, during
the period from the date hereof until the Effective Time or the termination of
this Agreement in accordance with its terms (the "Restricted Period"), (i) the
Company and the Parent will not, and will cause each of their respective
Subsidiaries not to, sell, transfer, or pledge any Securities of the other party
or any interest therein directly or indirectly therein beneficially owned
(within the meaning of Rule 13d-3 under the Exchange Act) (such ownership,
"Beneficially Owned") by it or any of its Subsidiaries to any person, other than
a wholly owned Subsidiary of the Company (with respect to sales of Parent
Securities by the Company) or the Parent (with respect to sales of Company
Securities by Parent), and (ii) at any meeting (whether annual or special and
whether or not an adjourned or postponed meeting) of the holders of the other
party's Securities, however called, including without limitation Parent's 1997
Annual Meeting, or in connection with any written consent of the holders of the
other party's Securities (collectively, a "Meeting"), the Company (with respect
to any Parent Meeting) or Parent (with respect to any Company Meeting) will
appear at the meeting or otherwise cause the Securities of the other party
Beneficially Owned by the Company or Parent, as the case may be, to be counted
as present thereat for purposes of establishing a quorum and vote or consent (or
cause to be voted or consented) the Securities (A) in favor of the adoption of
this Agreement, the Proposed Parent Charter Amendments (with respect to any
Parent Meeting) and the approval of other actions contemplated by this Agreement
and any actions required in furtherance hereof, (B) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of Parent or the
Company under this Agreement, and (C) except as otherwise agreed to in writing
in advance by the other party (in its sole discretion) or expressly contemplated
herein, against the following actions (other than the Merger and the
transactions contemplated by this Agreement): (1) except as provided in Section
1.04, any change in the composition of the board of directors of the issuer of
such Securities not approved by (x) a majority of the Company Board, in the case
of changes in the Company Board, or (y) the Unaffiliated Directors, in the case
of changes in the Parent Board, (2) except with respect to any changes
contemplated by this Agreement, any material change in the present
capitalization of the other party, including without limitation any proposal to
sell a substantial equity interest of the other party or any of their respective
Subsidiaries; (3) except with respect to any amendment included in the Joint
Proxy Statement or contemplated by this Agreement, any amendments of the other
party's articles of incorporation or bylaws; (4) except with respect to any
changes contemplated by this Agreement, any other change in the other party's
corporate structure or business; or (5) any other action which, in the case of
each of the matters referred to in clauses (1), (2), (3) or (4), is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone or
materially adversely affect the Merger and the transactions contemplated by this
Agreement. Without limiting the generality or effect of the foregoing, (x)
during the period from the date
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hereof to the Offer Completion Date plus two calendar days (unless the second
calendar day is not a business day, in which case the period will include the
business day following the second calendar day) (the "Open Period"), at the
request of Parent, the Company will take all actions necessary, including
without limitation voting of Securities of Parent in furtherance of, the
adjournment or postponement of the Parent's 1997 Annual Meeting to such date
within the Open Period as may be so requested by Parent and (y) the parties will
in all events take all such actions as may be required to adjourn Parent's 1997
Annual Meeting to June 24, 1997. The Company and Parent may not enter into any
agreement or understanding with any person the effect of which would be
inconsistent with or violative of any provision contained in this Section 6.13.
For purposes of this Section 6.13, "Securities" mean (I) the shares of Parent
Common Stock or the Company Common Stock Beneficially Owned by the other party
as of the relevant date, including, without duplicative counting of the same
shares of Parent Common Stock or the Company Common Stock, shares of Parent
Common Stock or the Company Common Stock Beneficially Owned by all other persons
with whom Parent or the Company would constitute a "group" within the meaning of
Section 13(d) of the Exchange Act, and (II) any shares of Parent Common Stock,
Company Common Stock or other securities of the Parent or the Company acquired
by the other party in any capacity after the date hereof and prior to the
Effective Time, whether upon the exercise of options, warrants or rights, the
conversion or exchange of convertible or exchangeable securities or by means of
purchase, dividend, distribution, split-up, recapitalization, combination,
exchange of shares or the like, transfer or as a successor in interest in any
capacity or otherwise.
6.14. Indemnification, Exculpation and Insurance. (a) All rights to
indemnification and exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time existing in favor of the current or former
directors or officers of the Company or each of its Subsidiaries as provided in
their respective certificates of incorporation or by-laws (or comparable
organizational documents) will be assumed by Parent and Parent will be directly
responsible for such indemnification, without further action, as of the
Effective Time and will continue in full force and effect in accordance with
their respective terms. In addition, from and after the Effective Time,
directors and officers of the Company who become or remain directors or officers
of Parent or Sub will be entitled to the same indemnity rights and protections
(including those provided by directors' and officers' liability insurance) as
are afforded to other directors and officers of Parent. Notwithstanding any
other provision hereof, the provisions of this Section 6.14 (i) are intended to
be for the benefit of, and will be enforceable by, each indemnified party, his
or her heirs and his or her representatives and (ii) are in addition to, and not
in substitution for, any other rights to indemnification or contribution that
any such person may have by contract or otherwise.
(b) Parent will, and will cause the Surviving Corporation to, maintain in
effect for not less than six years after the Effective Time policies of
directors' and officers' liability insurance equivalent in all material respects
to those maintained by or on behalf of the Company and its Subsidiaries on the
date hereof (and having at least the same coverage and containing terms and
conditions which are no less advantageous to the persons currently covered by
such policies as insured) with respect to matters existing or occurring at or
prior to the Effective Time; provided, however, that if the aggregate annual
premiums for such insurance at any time during such period exceed 200% of the
per annum rate of premium currently paid by the Company and its Subsidiaries for
such insurance on the date of this Agreement, then Parent will cause the
Surviving Corporation to, and the Surviving Corporation will, provide the
maximum coverage that shall then be available at an annual premium equal to 200%
of such rate.
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6.15. Parent Board. If the Effective Time occurs, from the date thereof
until the date immediately following the date of the Parent's 1998 annual
shareholders meeting or any adjournment or postponement thereof, the Parent
Board will not elect any additional member thereof who is not a member of the
Parent Board as of the Effective Time unless such person has been elected or
nominated therefor by the unanimous vote of a committee of the Parent Board
comprised of two Unaffiliated Directors and one member thereof who is not an
Unaffiliated Director (or any successors thereto approved by vote of not less
than two thirds of the members of the Parent Board, provided that, if Andrew
Lozyniak is unable to serve as a member of the committee, Patrick J. Dorme will
be his successor if Mr. Dorme is at that time a member of the Parent Board). The
initial members of such committee will be Gerald H. Frieling, Jr., Andrew
Lozyniak and Joseph P. Walker.
VII. CONDITIONS PRECEDENT
7.01. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions (except to the extent otherwise provided in Section 1.05):
(a) Shareholder Approvals. Each of the Company Shareholder Approval and
the Parent Shareholder Approval shall have been obtained;
(b) No Injunctions or Restraints. No Order or Law enacted, entered,
promulgated, enforced or issued by any court of competent jurisdiction or
other Governmental Entity or other legal restraint or prohibition
(collectively, "Restraints") preventing the consummation of the Merger shall
be in effect; and
(c) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
7.02. Conditions to Obligations of Parent and Sub. The obligation of Parent
and Sub to effect the Merger is further subject to satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement on or before the earlier of (i) such time as
Parent's Designees constitute at least a majority of the Company Board
pursuant to Section 1.04 of this Agreement and (ii) the Closing Date; and
Parent shall have received a certificate signed on behalf of the Company by
the chief executive officer and the chief financial officer of the Company
to such effect; and
(b) Completion of the Offer. Sub shall have accepted for payment and
paid for Shares pursuant to the Offer; provided, however, that Parent may
not invoke this condition if Sub shall have failed to purchase Shares so
tendered and not withdrawn in violation of the terms of this Agreement.
7.03. Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is further subject to satisfaction or waiver on or prior to
the Closing Date of the following conditions:
(a) Performance of Obligations of Parent and Sub. Parent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
the chief executive officer and the chief financial officer of Parent to
such effect; and
(b) Completion of the Offer. Sub shall have accepted for payment and
paid for at least 25% of the outstanding Shares pursuant to the Offer.
7.04. Tax Opinions. In the event that Parent and Sub elect to proceed with
the Merger under the circumstances described in Section 1.05, the respective
obligation of each of Parent, Sub and the Company
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to effect the Merger will be subject to the satisfaction or waiver on or prior
to the Closing Date of the condition that either Jones, Day, Reavis & Pogue or
Skadden, Arps, Meagher, Slate and Flom LLP shall have delivered to Parent and
the Company an opinion, dated as of the Closing Date, to the effect that, based
upon certain representations, assumptions and conditions, the Merger will be
treated for Federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and that Parent, Sub and the Company will each be
a party to such reorganization within the meaning of Section 368(b) of the Code.
7.05. Frustration of Closing Conditions. Neither Parent nor the Company may
rely on the failure of any condition set forth in Section 7.01, 7.02, 7.03 or
7.04, as the case may be, to be satisfied if such failure was caused by such
party's failure to use reasonable efforts to commence or complete the Offer or
consummate the Merger and the other transactions contemplated by this Agreement,
as required by and subject to Section 6.03.
VIII. TERMINATION, AMENDMENT AND WAIVER
8.01. Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after Company Shareholder Approval or Parent
Shareholder Approval:
(a) by mutual written consent of Parent and the Company;
(b) by the Company if Parent shall have failed to commence the Offer
within five business days following the date of the initial public
announcement of the Offer;
(c) by Parent, subject to Section 1.05, if the Offer shall have expired
or have been withdrawn or terminated in accordance with the terms thereof
without any Shares being purchased by Parent thereunder by reason of the
failure of any condition set forth in Annex A to be satisfied;
(d) by either Parent or the Company:
(i) if the Merger has not been consummated by October 31, 1997;
provided, however, that the right to terminate this Agreement pursuant to
this Section 8.01(d)(i) will not be available to any party whose failure
to perform any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time;
(ii) if the Company Shareholder Approval shall not have been
obtained at a Company Shareholders Meeting duly convened therefor or at
any adjournment or postponement thereof;
(iii) if the Parent Shareholder Approval shall not have been obtained
at a Parent Shareholders Meeting duly convened therefor or at any
adjournment or postponement thereof; or
(iv) if any Governmental Entity shall have issued a Restraint or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Offer, the Merger or any of the other
transactions contemplated by this Agreement and such Restraint or other
action shall have become final and nonappealable;
(e) by Parent, if the Company Board or any committee thereof shall have (i)
withdrawn or modified in a manner adverse to Parent its approval or
recommendation of the Offer, the Merger or this Agreement or failed to reconfirm
its approval or recommendation within five business days after a written request
to do so, (ii) approved or recommended, or proposed publicly to approve or
recommend, any Company Takeover Proposal, (iii) caused the Company to enter into
a Company Acquisition Agreement, or (iv) resolved to take any of the foregoing
actions;
(f) by Parent in accordance with Section 5.03(b) at any time prior to the
Offer Completion Date; provided that it has complied with all provisions
thereof, including the notice provisions therein, and that it complies with
applicable requirements of Section 6.06;
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(g) by the Company, if the Parent Board or any committee thereof shall have
(i) withdrawn or modified in a manner adverse to the Company its approval or
recommendation of the Offer, the Merger or this Agreement or failed to reconfirm
its approval or recommendation within five business days after a written request
to do so, (ii) approved or recommended, or proposed publicly to approve or
recommend, any Parent Takeover Proposal, (iii) caused Parent to enter into a
Parent Acquisition Agreement, or (iv) resolved to take any of the foregoing
actions;
(h) by the Company at or prior to the Offer Completion Date, if Parent or
Sub shall have breached or failed to perform in any material respect any of its
representations, warranties or covenants required to be performed by them under
this Agreement at or prior to the Offer Completion Date, which breach or failure
to perform cannot be or has not been cured within 30 days after the giving of
written notice to Parent and Sub of such breach (provided that the Company is
not then in material breach of any representation, warranty, covenant or other
agreement contained in this Agreement that cannot or has not been cured within
30 days after giving notice to the Company of such breach); and
(i) by the Company in accordance with Section 5.02(b) at any time prior to
the Offer Completion Date; provided that it has complied with all provisions
thereof, including the notice provisions therein, and that it complies with
applicable requirements of Section 6.06.
8.02. Effect of Termination. In the event of termination of this Agreement
by either the Company or Parent as provided in Section 8.01, this Agreement,
other than the provisions of Section 4.01(k), Section 4.02(j), Section 6.02,
Section 6.06, this Section 8.02 and Article IX, will forthwith become void and
have no effect, without any liability or obligation on the part of Sub, Parent
or the Company, except to the extent that such termination results from the
willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
8.03. Amendment. Subject to Section 1.04, this Agreement may be amended by
the parties at any time before or after the Company Shareholder Approval or the
Parent Shareholder Approval; provided, however, that after any such approval,
there may not be made any amendment that by Law requires further approval by the
shareholders of the Company or Parent without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
8.04. Extension; Waiver. At any time prior to the Effective Time, a party
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations and
warranties of the other parties contained in this Agreements or in any document
delivered pursuant to this Agreement, or (c) subject to the proviso of Section
8.03, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver will be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise will not
constitute a waiver of such rights.
8.05. Procedure for Termination, Amendment, Extension or Waiver. Subject to
Section 1.04(b) and 1.04(c), a termination of this Agreement pursuant to Section
8.01, an amendment of this Agreement pursuant to Section 8.03 or an extension or
waiver pursuant to Section 8.04 will, in order to be effective, require, in the
case of Parent or the Company, action by its Board of Directors or, with respect
to any amendment to this Agreement, the duly authorized committee of its Board
of Directors.
IX. GENERAL PROVISIONS
9.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement will survive the Effective Time. This Section 9.01
will not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
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9.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement will be in writing and will be deemed given
if delivered personally, telecopied (which is confirmed) or sent by overnight
courier (providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as specified by like notice):
(a) if to Parent or to Sub, to
CTS Corporation
905 West Boulevard North
Elkhart, Indiana 46514
Fax No.: (219) 293-8394
Attention: Jeannine M. Davis, Esq.
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue, 30th Floor
New York, New York 10022
Fax No.: (212) 755-7306
Attention: Robert A. Profusek, Esq.
(b) if to the Company, to
Dynamics Corporation of America
475 Steamboat Road
Greenwich, Connecticut 06830-7197
Fax No.: (203) 869-3211
Attention: Mr. Andrew Lozyniak
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax No.: (212) 735-2019
Attention: Morris J. Kramer, Esq.
9.03. Certain Definitions. For purposes of this Agreement:
(a) An "Affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first Person;
(b) a "Subsidiary" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors
or other governing body (or, if there are no such voting interests, 50% or
more of the equity interests of which) is owned directly or indirectly by
such first Person. A "Significant Subsidiary" means any subsidiary of the
Company or Parent, as the case may be, that would constitute a "significant
subsidiary" of such party within the meaning of Rule 1-02 of Regulation S-X
of the SEC and, in the case of Parent, includes Sub;
(c) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(d) "Knowledge" of any Person which is not an individual means the
knowledge of any of such Person's executive officers after reasonable
inquiry.
9.04. Interpretation. When a reference is made in this Agreement to an
Article, Section, Annex or Exhibit, such reference will be to an Article or
Section of, or an Annex or Exhibit to, this Agreement unless
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otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they will be deemed to be
followed by the words "without limitation". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement will refer
to this Agreement as a whole and not to any particular provision of this
Agreement. All terms used herein with initial capital letters have the meanings
ascribed to them herein and all terms defined in this Agreement will have such
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a Person are also to its permitted successors and
assigns.
9.05. Counterparts. This Agreement may be executed in one or more
counterparts, a ll of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.06. Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein), and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement and (b) except for the
provisions of Article III and Section 6.04 are not intended to confer upon any
Person other than the parties any rights or remedies.
9.07. Governing Law. This Agreement will be governed by, and construed in
accordance with, the Laws of the State of New York, regardless of the Laws that
might otherwise govern under applicable principles of conflict of Laws thereof.
9.08. Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement may be assigned, in whole or in part, by
operation of Law or otherwise by either of the parties hereto without the prior
written consent of the other party. Any assignment in violation of the preceding
sentence will be void. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
9.09. Enforcement. The parties agree that irreparable damage would occur and
that the parties would not have any adequate remedy at law in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties will be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any federal court located in the State of New York or in New York
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of New York or any New York state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than a
federal court sitting in the State of New York or a New York state court.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
CTS CORPORATION
By:
-----------------------------------------
Name: Joseph P. Walker
Title: Chairman of the Board,
President and Chief
Executive Officer
CTS FIRST ACQUISITION CORP.
By:
-----------------------------------------
Name: Joseph P. Walker
Title: President
DYNAMICS CORPORATION OF AMERICA
By:
-----------------------------------------
Name: Andrew Lozyniak
Title: Chairman of the Board
and President
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<PAGE>
ANNEX A (TO THE MERGER AGREEMENT)
CONDITIONS TO COMPLETION OF THE OFFER
Notwithstanding any other provision of the Offer, Sub will not be required
to accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to Sub's
obligation to pay for or return tendered Shares promptly after expiration or
termination of the Offer), to pay for any Shares, and may postpone the
acceptance for payment or, subject to the restrictions referred to above,
payment for any Shares tendered, and, subject to the terms of the Agreement, may
amend or terminate the Offer (whether or not any Shares have theretofore been
purchased or paid for pursuant to the Offer) unless the following conditions
have been satisfied: (a) there have been validly tendered and not withdrawn
prior to the Expiration Date a number of Shares which constitutes at least 25%
of the Shares outstanding on the date of purchase (the "Minimum Share
Condition"); (b) any applicable waiting periods under the HSR Act shall have
expired or been terminated prior to the expiration of the Offer; (c) either
Jones, Day, Reavis & Pogue or Skadden, Arps, Meagher, Slate and Flom LLP shall
have delivered to Parent and the Company an opinion, dated as of the date of
purchase, to the effect that, based upon such representations, assumptions and
conditions as the firm delivering such opinion deems necessary or appropriate,
the Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that Parent, Sub and the
Company will each be a party to such reorganization within the meaning of
Section 368(b) of the Code and (d) if at any time on or after the date of the
Merger Agreement and before acceptance for payment of, or payment for, such
Shares, none of the following events shall have occurred and be continuing:
(i) any United States or foreign governmental entity or authority or any
United States or foreign court of competent jurisdiction in the United
States or any foreign country shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order which is in effect and which (a) restricts,
prevents or prohibits consummation of the transactions contemplated by any
of this Agreement, including the Offer or the Merger, (b) prohibits, limits
or otherwise adversely affects the ownership or operation by Parent or any
of its Subsidiaries of all or any portion of the business or assets of the
Company and its Subsidiaries or compels the Company, Parent or any of their
Subsidiaries to dispose of or hold separate all or any portion of the
business or assets of the Company and its Subsidiaries, or (c) imposes
limitations on the ability of Parent, Sub or any other subsidiary of Parent
to exercise effectively full rights of ownership of any Shares, including
without limitation the right to vote any Shares acquired by Sub pursuant to
the Offer or otherwise on all matters properly presented to the Company's
shareholders, including without limitation the approval and adoption of the
Agreement and the transactions contemplated thereby;
(ii) there shall be instituted or pending any action or proceeding
before any United States or foreign court or governmental entity or
authority by any United States or foreign governmental entity or authority
seeking any order, decree or injunction having any effect set forth in (i)
above;
(iii) the representations and warranties of the Company contained in the
Merger Agreement (without giving effect to the materiality, material adverse
effect or knowledge limitations contained therein) shall not be true and
correct as of the expiration date of the Offer (as the same may be extended
from time to time) as though made anew on and as of such date (except for
representations and warranties made as of a specified date, which shall not
be true and correct as of the specified date), except for any breach or
breaches which, in the aggregate, could not be reasonably expected to have a
material adverse effect on the business, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole, or on the
ability of the Company to perform any of its obligations under this
Agreement;
(iv) the Company shall not have performed or complied in all material
respects with its covenants under any of this Agreement to which it is a
party and such failure continues until the later
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of (i) 15 calendar days after actual receipt by it of written notice from
Parent setting forth in detail the nature of such failure or (ii) the
expiration date of the Offer;
(v) there shall have occurred any material adverse change, or any
development that is reasonably likely to result in a material adverse
change, in the business, financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole;
(vi) the Merger Agreement shall have been terminated in accordance with
its terms;
(vii) the Company Board shall have withdrawn or materially modified or
changed (including by amendment of Schedule 14D-9) in a manner adverse to
Sub or Parent its recommendation of the Offer, the Merger or any of this
Agreement;
(viii) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the NYSE, (ii) a decline
of at least 20% in either the Dow Jones Average of Industrial Stocks or the
Standard & Poor's 500 Index from the date of the Agreement, or (iii) the
declaration of a banking moratorium or any limitation or suspension of
payments in respect of the extension of credit by banks or other lending
institutions in the United States; or
(ix) it shall have been publicly disclosed or Parent shall have
otherwise learned that (a) any person or "group" (as defined in Section
13(d)(3) of the Exchange Act), other than Parent or its affiliates or any
group of which any of them is a member or any affiliate controlled by it or
which is referred to in clause (b) below, shall have acquired beneficial
ownership (determined pursuant to Rule 13d-3 promulgated under the Exchange
Act) of more than 20% of the outstanding Shares, (b) any such person or
group which has filed a Schedule 13D prior to the date of the Merger
Agreement disclosing beneficial ownership of 20% or more of the outstanding
Shares shall have acquired beneficial ownership of 25% or more of the
outstanding Shares, or (c) any person or group shall have entered into a
definitive agreement or agreement in principle with the Company with respect
to a merger, consolidation or other business combination with the Company.
The foregoing conditions are for the sole benefit of Sub and its affiliates
and may be asserted by Sub, or Parent on behalf of Sub, regardless of the
circumstances (including without limitation any action or inaction by the Sub or
any of its affiliates other than a material breach by the Sub or Parent of the
Agreement) giving rise to any such condition or may be waived by the Sub, in
whole or in part, from time to time in its sole discretion, except as otherwise
provided in the Agreement. The failure by the Sub at any time to exercise any of
the foregoing rights will not be deemed a waiver of any such right and each such
right will be deemed an ongoing right and may be asserted at any time and from
time to time. Any good faith determination by the Sub concerning any of the
events described herein will be final and binding.
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<PAGE>
ANNEX B (TO THE MERGER AGREEMENT)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CTS CORPORATION
ARTICLE I.
NAME
The name of the corporation is CTS Corporation (the "Corporation").
ARTICLE II.
PURPOSES
The purpose for which the Corporation is formed is to engage in any lawful
business or activity for which corporations may be organized under the Indiana
Business Corporation Law, as amended (the "IBCL").
ARTICLE III.
TERM OF EXISTENCE
The period during which the Corporation shall continue is perpetually.
ARTICLE IV.
PRINCIPAL OFFICE AND RESIDENT AGENT
The post-office address of the principal office of the Corporation is 905
West Blvd. North, Elkhart, Indiana; and the name and post-office address of its
Resident Agent in charge of such office is Jeannine M. Davis, 3819 Augusta Lane,
Elkhart, Indiana.
ARTICLE V.
AMOUNT OF CAPITAL STOCK
The Corporation is authorized to issue two classes of capital stock,
designated Common Stock and Preferred Stock. The total number of shares of
capital stock that the Corporation is authorized to issue is 100,000,000 shares,
consisting of 75,000,000 shares of Common Stock, without par value, and
25,000,000 shares of Preferred Stock, without par value.
ARTICLE VI.
TERMS OF CAPITAL STOCK
(a) Preferred Stock. The Preferred Stock may be issued in one or more
series. The Board of Directors of the Corporation is authorized to fix the
designations, powers, preferences, rights, qualifications, limitations or
restrictions of each such series by the adoption and filing in accordance with
the Indiana Business Corporation Law, before the issuance of any Preferred
Shares of such series, of an amendment or amendments to these Articles of
Incorporation determining the terms of such series (an "Article IV Amendment").
The authority of the Board of Directors with respect to each such series will
include, without limiting the generality of the foregoing, the determination of
any or all of the following:
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(i) the number of shares of any series and the designation to
distinguish the shares of such series from the shares of all other series;
(ii) the voting powers, if any, and whether such voting powers are full
or limited in such series;
(iii) the redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
(iv) whether dividends, if any, will be cumulative or noncumulative, the
dividend rate of such series and the dates and preferences of dividends on
such series;
(v) the rights of such series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the Corporation;
(vi) the provisions, if any, pursuant to which the shares of such series
are convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes of
stock, or any other security, of the Corporation or any other corporation or
other entity and the rates or other determinants of conversion or exchange
applicable thereto;
(vii) the right, if any, to subscribe for or to purchase any securities
of the Corporation or any other corporation or other entity;
(viii) the provisions, if any, of a sinking fund for such series; and
(vix) any other relative, participating, optional or other special
powers, preferences or rights and qualifications, limitations or
restrictions thereof;
all as may be determined from time to time by the Board of Directors and stated
or expressed in the Article IV Amendment for such shares of Preferred Stock
(collectively, a "Preferred Stock Designation").
(b) Preemptive Rights. Except as may be specified in a Preferred Stock
Designation, no holder of any share or shares of any class of stock of the
Corporation shall have any preemptive right to subscribe for any shares of stock
of any class of the Corporation now or hereafter authorized or for any
securities, warrants or options convertible into or carrying any rights to
purchase any shares of stock of any class of the Corporation now or hereafter
authorized, provided, however, that no provision of these Articles of
Incorporation shall be deemed to deny to the Board of Directors the right, in
its discretion, to grant to the holders of shares of any class of stock at the
time outstanding the right to purchase or subscribe for shares of stock of any
class or any other securities of the Corporation now or hereafter authorized, at
such prices and upon such other terms and conditions as the Board of Directors,
in its discretion, may fix.
ARTICLE VII.
VOTING RIGHTS OF CAPITAL STOCK
Subject to the rights, if any, of the holders of any series of Preferred
Stock to vote under circumstances specified in a Preferred Stock designation,
the holders of the Common Stock, without par value, shall be entitled to vote at
all meetings of the shareholders and shall be entitled to cast one vote for each
share of stock held by them respectively and standing in their respective names
on the books of the Corporation.
ARTICLE VIII.
DATA RESPECTING DIRECTORS
Section 1. Number. Subject to the rights, if any, of the holders of any
series of Preferred Stock to elect additional directors of the Board of
Directors under circumstances specified in a Preferred Stock Designation, the
number of the directors of the Corporation will not be less than three nor more
than fifteen and will be fixed from time to time in the manner provided in the
Bylaws of the Corporation.
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Section 2. Qualifications. Directors need not be shareholders of the
Corporation. A majority of the Directors at any time shall be citizens of the
United States.
ARTICLE IX.
PROVISIONS FOR REGULATION OF BUSINESS AND CONDUCT OF AFFAIRS OF CORPORATION
(a) Issuance of Shares. The Board of Directors is hereby authorized to
direct the issuance by the Corporation of shares of Common Stock and Preferred
Stock at such times, in such amounts, to such persons, for such consideration
and upon such terms and conditions as it may, from time to time, determine,
subject only to the restrictions, limitations, conditions and requirements
imposed by the Indiana Business Corporation Law, other applicable laws and these
Articles of Incorporation.
(b) The Corporation shall have power to carry on and conduct its said
business, or any part thereof, and to have one or more officers in the State of
Indiana, and in the various other states, territories, colonies and dependencies
of the United States, in the District of Columbia, and in all or any foreign
countries;
(c) The Corporation reserves the right to take advantage of the provisions
of any amendment to The Indiana Business Corporation Law, or of any new law
applicable or relating to corporations formed, organized under, or which have
accepted the provisions of, the law now in force, which may hereafter be
enacted, and all rights granted to, and conferred on, the shareholders of the
Corporation, are granted and conferred, subject to this reservation;
(d) Annual or special meetings of the shareholders of the Corporation may be
held at the place, either within or without the State of Indiana, which may be
stated in the notice of said meeting;
(e) These Amended and Restated Articles of Incorporation shall amend and
supersede and take the place of all heretofore existing Articles of
Incorporation or Articles of Acceptance (and amendments thereto) of the
Corporation.
ARTICLE X.
LIABILITY
To the fullest extent permitted by applicable law as then in effect, no
director or officer shall be personally liable to the Corporation or any of its
shareholders for damages for breach of fiduciary duty as a director or officer,
except for liability (a) for breach of duty if such breach constitutes wilful
misconduct or recklessness or (b) for the payment of distributions to
shareholders in violation of Section 23-1-28-3 of the Indiana Business
Corporation Law. Any amendment or repeal of, or adoption of any provision
inconsistent with, this Article X will not adversely affect any right or
protection existing hereunder, or arising out of facts occurring, prior to such
amendment, repeal or adoption and no such amendment, repeal or adoption will
affect the legality, validity or enforceability of any contract entered into or
right granted prior to the effective date of such amendment, repeal or adoption.
ARTICLE XI.
INDEMNIFICATION
Each person who was or is involved in any manner (including without
limitation as a party or a witness), or is threatened to be made so involved, in
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, by
reason of the fact that such person is or was a director or officer of the
Corporation, or who is or was serving at the request of the Board of Directors
as a director, officer, partner, trustee, employee or agent of another
corporation or a partnership, joint venture, trust, employee benefit plan or
other entity, whether for profit or not for profit, whether or not the basis of
such proceeding is alleged action in an official
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capacity while serving as a director, officer, employee or agent, will be
indemnified by the Corporation to the fullest extent to which it is empowered to
do so by the Indiana Business Corporation Law, or any other applicable laws, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the Corporation
to provide prior to such amendment) against all expense, liability and loss
(including attorneys' fees and expenses, judgments, settlements, penalties,
fines, and excise taxes assessed with respect to employee benefit plans)
actually and reasonably incurred or suffered by such person in connection
therewith. The right of indemnification provided in this Article XI (a) will not
be exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled, including without limitation pursuant to any contract
approved by a majority of the Board of Directors (whether or not the directors
approving such contract are or are to be parties to such contract or similar
contracts), and (b) will be applicable to matters otherwise within its scope
(with each reference in the first sentence of this Article XI to "the
Corporation" being deemed for purposes of this sentence to include any domestic
or foreign predecessor entity of the Corporation in a merger or other
transaction in which the predecessor's existence ceased upon consummation of the
transaction) whether or not such matters arose or arise before or after the
adoption of this Article XI. Without limiting the generality or the effect of
the foregoing, the Corporation may adopt Bylaws, or enter into one or more
agreements with any person, which provide for indemnification greater or
different than that provided in this Article XI or the Indiana Business
Corporation Law. Any amendment or repeal of, or adoption of any provision
inconsistent with, this Article XI will not adversely affect any right or
protection existing hereunder, or arising out of facts occurring, prior to such
amendment, repeal or adoption and no such amendment, repeal or adoption will
affect the legality, validity or enforceability of any contract entered into or
right granted prior to the effective date of such amendment, repeal or adoption.
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CTS CORPORATION
BY LAWS
(AS AMENDED AND IN EFFECT ON , 1997)
ARTICLE I.
OFFICERS
The officers of CTS Corporation (the "Corporation") shall be a President,
one or more Vice Presidents, a Secretary, a Treasurer and a Controller. The
Board of Directors may also elect one or more Assistant Secretaries, Assistant
Treasurers and Assistant Controllers, and such other officers as may be
determined, from time to time, by the Board of Directors.
The President shall be a director of the Corporation. Any offices, other
than those of President and Secretary, may be held by the same person.
The officers of the Corporation shall be elected by the Board of Directors
at the annual meeting of the Board of Directors for the term of one year and
until their successors have been elected and qualified. Any vacancy occurring
among the above offices may be filled for the remainder of the term by the Board
of Directors at any regular or special meeting, and officers so elected shall
hold office until the next annual meeting of the Board of Directors and until
their successors have been elected and qualified.
ARTICLE II.
BOARD OF DIRECTORS ORGANIZATION
Section 1. The Board of Directors shall elect, from the members of the Board
of Directors who are not officers of the Corporation, an Audit Committee
consisting of not less than three members. The members of the Audit Committee
shall be elected at each annual meeting of the Board of Directors to serve,
while qualified, at the pleasure of the Board of Directors, or if longer, for
one year and until their successors have been elected and qualified.
The Audit Committee shall be responsible directly to the Board of Directors
and, in addition to such authority and duties specifically delegated by the
Board of Directors, shall have the authority to review the conduct and the
report of the independent financial audit of the Corporation and shall report to
the Board of Directors the findings, conclusions and recommendations of the
Audit Committee regarding the conduct and report of the independent financial
audit.
Unless the Board of Directors designates a Chairman, a majority of the
members of the Audit Committee may designate one member of the Audit Committee
as Chairman of the Audit Committee to preside at all meetings of the Audit
Committee.
Section 2. The Board of Directors shall elect from members of the Board of
Directors, who are not officers of the Corporation, a Compensation Committee
consisting of not less than three members. The members of the Compensation
Committee shall be elected at each annual meeting of the Board of Directors to
serve, while qualified, at the pleasure of the Board of Directors, or if longer,
for one year and until their successors have been elected and qualified.
The Compensation Committee shall be responsible directly to the Board of
Directors and, in addition to such authority and duties specifically delegated
by the Board of Directors, shall have authority to review, and make
recommendations to the Board of Directors regarding the compensation, including
fringe benefits and stock options, for the officers of the Corporation.
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Unless the Board of Directors designates a Chairman, a majority of the
members of the Compensation Committee may designate one member of the
Compensation Committee as Chairman of the Compensation Committee to preside at
all meetings of the Compensation Committee.
Section 3. The Board of Directors shall designate from members of the Board
of Directors, a Chairman of the Board, who shall preside at meetings of
shareholders and of the Board of Directors unless the Chairman shall designate
an officer or other director of the Corporation to do so. The Chairman of the
Board shall have such additional authority as granted by the Board of Directors
and shall perform such other duties as are assigned from time to time by the
Board of Directors.
ARTICLE III.
CORPORATE OFFICERS
Section 1. The President shall exercise specific authority and supervision
over, and shall be responsible for the direction of, the business and affairs of
the Corporation, subject to the direction of the Board of Directors. In
addition, the President may be designated the Chief Executive Officer and, if
so, shall have the additional authority and duties and responsibilities
specified in these Bylaws. The President shall also perform such other duties as
may be assigned from time to time, by the Board of Directors. The President
shall perform all the duties of the Chairman of the Board in the absence or
during any disability of the Chairman.
Section 2. The Board of Directors shall designate the Chairman of the Board
or the President as the Chief Executive Officer of the Corporation. In addition
to other duties as an officer, the Chief Executive Officer shall exercise
general authority and supervision over, and shall be responsible for, management
of the business and affairs of the Corporation, subject to the direction of the
Board of Directors.
The Chief Executive Officer shall determine the organization of the officers
of the Corporation, shall designate to whom such officers shall report and be
responsible, and subject to the direction of the Board of Directors shall
determine their respective duties and responsibilities.
Section 3. Each Vice President shall perform such duties as may be assigned
from time to time by the President and shall report to and be responsible to
such officer as the President shall designate. Each Vice President shall also
have such additional authority and shall perform such other duties assigned from
time to time, by the Board of Directors.
The Board of Directors may designate a word or words to be placed before or
after the title of Vice President to indicate organizational or functional
authority or duty.
Section 4. The Secretary shall attend all meetings of the shareholders and
Board of Directors and all committees, and shall keep minutes of each meeting.
The Secretary shall give proper notice of all meetings of shareholders,
directors and committees, required in these Bylaws. The Secretary shall maintain
proper records of ownership and transfer of the stock of the Corporation. The
Secretary shall have the custody of, and affix, the seal of the Corporation and
perform such other duties as may be assigned from time to time by the Board of
Directors.
Section 5. The Vice President Finance/Chief Financial Officer, shall be
responsible for the financial affairs of the Corporation, shall submit to the
annual meeting of shareholders a statement of the financial condition of the
Corporation, and whenever required by the Board of Directors, shall give account
of all transactions and of the financial condition of the Corporation. The
Treasurer shall report to the Vice President Finance/Chief Financial Officer.
The Treasurer shall establish and maintain appropriate banking relations and
arrangements on behalf of the Corporation. The Treasurer shall receive and have
custody of, and shall disburse, all moneys of the Corporation, and in the name
of the Corporation, shall deposit all moneys in, and disburse all moneys from,
such bank, or banks, as the Board of Directors shall designate, from time to
time, as the depositories of the Corporation. The Treasurer shall perform such
other duties
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and render such services for, and on behalf of, the Corporation as may be
assigned from time to time by the Vice President Finance, Chief Financial
Officer.
Section 6. The Controller shall be the accounting officer of the Corporation
and shall formulate accounting procedures to record expenses, losses, gains,
assets and liabilities of the Corporation, to report and interpret results of
operations of the Corporation and to assure protection of the assets of the
Corporation. The Controller shall prepare and submit to the Board of Directors
and the Chief Executive Officer such periodic balance sheets, profit and loss
statements and other financial statements as may be required to keep such
persons currently informed of the operations and the financial condition of the
Corporation. The Controller shall perform such other duties assigned from time
to time by the Chief Executive Officer.
Section 7. The Assistant Secretary or Secretaries, Assistant Treasurer or
Treasurer or Treasurers, and the Assistant Controller or Controllers shall
perform the duties of the Secretary, of the Treasurer, and of the Controller,
respectively, in the absence of those officers and shall have such further
authority and perform such other duties as may be assigned.
ARTICLE IV.
DUTIES OF OFFICERS DELEGATED
In the absence or disability of any officer of the Corporation, the Board of
Directors may delegate the powers and duties of any such officer to any other
officer or director of the Corporation for such period of time as said Board of
Directors may determine.
ARTICLE V.
BONDS
The Board of Directors or the Chief Executive Officer may require any
officer, agent, or employee of the Corporation to furnish the Corporation a bond
for the faithful performance of duties and for the accounting of all moneys,
securities, records, or other property of the Corporation coming into the hands
of such agent or employee.
ARTICLE VI.
MEETINGS OF SHAREHOLDERS
Section 1. Meetings of the shareholders of the Corporation shall be held at
the place, either within or without the State of Indiana, stated in the notice
of said meeting.
Section 2. The annual meeting of shareholders of the Corporation shall be
held on the last Friday in April of each year or at such other time established
for such meeting by 80% of the directors.
Section 3. A complete list of the shareholders entitled to vote at any
shareholders' meeting, arranged in alphabetical order and containing the address
and number of shares of stock so held by each shareholder who is entitled to
vote at said meeting, shall be prepared by the Secretary and shall be subject to
the inspection by any shareholder at the time and place of an annual meeting and
at the principal office of the Corporation for five (5) days prior thereto.
Section 4. At all shareholders' meetings a quorum shall consist of a
majority of all of the shares of stock outstanding and entitled by the Articles
of Incorporation to vote on the business to be transacted at said meeting, but a
meeting composed of less than a quorum may adjourn the meeting from day to day
thereafter or until some future time.
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Section 5. At the annual meeting of the shareholders, there shall be
elected, by plurality vote, a Board of Directors, who shall hold office until
the next annual meeting of shareholders and until their successors have been
elected and qualified.
Section 6. At all shareholders' meetings, each shareholder shall be entitled
to one (1) vote in person or by proxy for each share of common stock registered
in the shareholder's name on the books of the Corporation as of the record date
which shall be as fixed by the Board of Directors and entitled, by the Articles
of Incorporation, to vote on the business to be transacted at said meeting.
Section 7. The shareholders may be represented at any meeting thereof by
their duly appointed Attorney-in-Fact provided the proxy so appointing said
Attorney-in-Fact shall be filed with the Secretary prior to the meeting.
Section 8. Special meetings of the shareholders of the Corporation may be
called by the Chairman of the Board, by the President, by the Board of
Directors, or by the shareholders holding not less than one-fourth of all of the
shares of stock outstanding and entitled, by the Articles of Incorporation, to
vote on the business to be transacted at said special meeting whenever in the
opinion of such person or body such meeting is necessary.
Whenever a special meeting of the shareholders shall be called by the
shareholders, the call shall be delivered to the Secretary who shall issue the
notice of said special meeting which is required to be given.
Section 9. Written notice of each meeting of the shareholders shall be given
by the Secretary to each shareholder of record at least ten (10) days prior to
the time fixed for the holding of such meeting; said notice shall state the
place, day and hour and the purpose for which said meeting is called, and said
notice shall be addressed to the last known place of residence of each
shareholder as shown by the stock books of the Corporation. The ten (10) days
shall be computed from the date upon which said notice is deposited in the
mails.
Section 10. Notice of any shareholders' meeting may be waived in writing by
any shareholder if the waiver sets forth in reasonable detail the purpose or
purposes for which the meeting is called and the time and place thereof.
Section 11. No shares of stock shall be voted at any annual or special
meeting of shareholders upon which any installment is due and unpaid, which are
owned by the Corporation.
ARTICLE VII.
DIRECTORS
Section 1. The property and business affairs of the Corporation shall be
managed under the direction of the Board of Directors. Directors shall be
elected by a plurality vote at the annual meeting or a special meeting of the
shareholders and shall hold office for a term of one year or until their
successors are elected and qualified. In case of the failure to hold the annual
meeting on the date fixed herein for the same to be held, the directors shall
hold over until the next annual meeting, unless prior to said meeting a special
meeting of the shareholders for the purpose of electing directors has been held.
Subject to the rights, if any, of any series of Preferred Stock to elect
additional directors under circumstances specified in the Articles of
Incorporation and to the minimum and maximum number of authorized directors
provided in the Articles of Incorporation, the authorized number of directors
will be as determined from time to time by the Board of Directors. If no
determination of the number of directors has been made by the Board of
Directors, the number of directors shall be [seven].
Section 2. Any vacancy occurring in the Board of Directors caused by
resignation, death or other incapacity, shall be filled by majority vote of the
remaining members of the Board until the next annual meeting of shareholders;
provided, however, that if the vote of the remaining members of the Board of
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Directors shall result in a tie, such vacancy shall be filled by the
shareholders at the next annual meeting of the shareholders or at a special
meeting of the shareholders called for that purpose.
Section 3. Any vacancy occurring in the Board of Directors, caused by an
increase in the number of directors, shall be filled by a majority vote of the
members of the Board until the next annual meeting of shareholders; provided,
however, that if the vote of the members of the Board of Directors shall result
in a tie, such vacancy shall be filled by the shareholders at the next annual
meeting of the shareholders or at a special meeting of the shareholders called
for that purpose.
Section 4. A person shall not be nominated, stand for election or be elected
as a director of the Corporation who (I) at the time of his election shall be
seventy (70) years of age or older, (ii) has retired from employment by the
Corporation and is sixty-five (65) years of age or older or (iii) has retired
from active business and professional vocations.
ARTICLE VIII.
MEETINGS OF DIRECTORS
Section 1. Following the annual meeting of shareholders, the annual meeting
of the Board of Directors shall be held without notice, each and every year
hereafter, at the time and place determined by the directors.
Section 2. Regular meetings of the Board of Directors shall be held without
notice at 9:00 A.M. on the last Friday of February, June, August, October and
December at the offices of the Corporation, unless another time and place is
designated.
Section 3. Special meetings of the Board of Directors may be called by the
Chairman of the Board, by the President, or by three (3) members of the Board of
Directors on three (3) days' notice by mail, or an twenty-four (24) hours'
notice by telegraph, telephone, facsimile or other similar medium of
communication to each director, which notice shall be addressed to the last
known place of business or residence of each director, and said meetings may be
held either at the office of the Corporation or at such other place as may be
designated in the notice of said meeting.
Whenever a special meeting of the Board of Directors shall be called, in
accordance with the provision of this section, by members of the Board of
Directors, the call shall be in writing, signed by said directors and delivered
to the secretary who shall thereupon issue the notice calling said meeting.
Section 4. Not less than one-half at the whole Board of Directors, shall
constitute a quorum for the transaction of any business except the filling of
vacancies, but a smaller number may adjourn, from time to time, until a future
date or until a quorum is secured.
For the purpose only of filling a vacancy or vacancies in the Board of
Directors, a quorum shall consist of a majority of the whole Board of Directors,
less the vacancy or vacancies therein.
The act of a majority at the directors present at a duly called, at which a
quorum is present shall be the act of the Board of Directors.
ARTICLE IX.
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
The members of the Board of Directors and members of committees of the
Corporation, who are not salaried employees of the Corporation, shall receive
such compensation for their services to be rendered as members of the Board of
Directors, or of committees, as may, from time to time, be fixed by the Board of
Directors and the compensation so fixed shall continue to be payable until the
Board of Directors shall have thereafter fixed a different compensation, which
it may do at any annual, regular or special meeting.
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ARTICLE X.
CERTIFICATES OF STOCK
Section 1. Certificates of stock shall be issued to those legally entitled
thereto, as may be shown by the books of the Corporation, and shall be signed by
the President and attested by the Secretary.
Section 2. The Corporation may appoint one or more transfer agents and/or
registrars to issue, countersign, register, and transfer certificates
representing its capital stock and signatures of the Corporation's officers and
of the transfer agents on stock certificates may be facsimiles. Upon surrender
to the Corporation or the transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession, assignment
or authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction on its books.
Section 3. The holder of any stock of the Corporation shall immediately
notify the Corporation of any loss, theft, destruction or mutilation of the
certificate for any such stock. A new certificate or certificates shall be
issued upon the surrender of the mutilated certificate or, in case of loss,
theft, or destruction, upon (I) delivery of an affidavit or affirmation, and
(ii) delivery of a bond in such sum and in such form and with such surety or
sureties as the Board of Directors (by general or specific resolutions) or the
President may approve, indemnifying the Corporation against any claim with
respect to the certificate or certificates alleged to have been lost, stolen or
destroyed. However, the Board may, in its discretion, refuse to issue new
certificate or certificates, save upon the order of some Court having
jurisdiction in such matters.
ARTICLE XI.
TRANSFER OF STOCK
Section 1. The stock transfer books of the Corporation may from time to time
be closed by order of the Board of Directors for any lawful purpose and for such
period consistent with law, but not exceeding thirty (30) days at any one time,
as the Board of Directors may deem advisable. In lieu of closing the stock
transfer books as aforesaid, the Board of Directors may, in its discretion, fix
in advance a date not exceeding fifty (50) days or less than ten (10) days next
preceding the date of any meeting of shareholders or the date for the payment of
any dividend or the date for the allotment of rights or the date when any change
or conversion or exchange of capital stock shall go into effect, as the record
date for the determination of the shareholders entitled to notice of and to vote
at any such meeting or entitled to receive any such dividend or to any such
allotment of rights or to exercise the rights of any such change, conversion or
exchange of capital stock; and, in such case, only such shareholders as shall be
shareholders of record at the close of business on the date so fixed shall be
entitled to notice of and to vote at such meeting or to receive such payment of
dividend or to receive such allotment of rights or to exercise such rights as
the case may be, notwithstanding any transfer of stock on the books of the
Corporation after such record date fixed as aforesaid. In the event the Board of
Directors fails to fix in advance the record date for the determination of the
shareholders entitled to notice of and to vote at any meeting, no share of stock
transferred on the books of the corporation within ten (10) days next preceding
the date of a meeting shall be voted at such meeting.
Section 2. The Corporation shall be entitled to treat the holder of record
of any share or shares of stock as the legal owner thereof and accordingly shall
not be bound to recognize any equitable claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, save as expressly provided in the laws of the State of
Indiana.
Section 3. The assignment of any certificate of stock shall constitute an
assignment to the assignee of the shares so assigned and of all dividends on the
shares assigned which are declared payable as of a record date subsequent to the
date the assignment is recorded on the stock record books of the Corporation.
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ARTICLE XII.
FISCAL YEAR
The fiscal year of the Corporation shall correspond to the calendar year.
ARTICLE XIII.
CHECKS FOR MONEY
All checks, drafts or other orders for the payment of funds of the
Corporation shall be signed by either the Chairman of the Board, the President,
or the Treasurer, or by such other individual or individuals as may hereafter,
from time to time, be designated by the Board of Directors. No check, draft or
other order for the payment of funds of the Corporation shall be signed in
blank, either as to the amount of the check, draft or other order, or as to the
name of the payee.
ARTICLE XIV.
DIVIDENDS
The Board of Directors may declare and pay dividends out of the unreserved
and unrestricted earned surplus of the Corporation. Dividends may be declared at
any annual, regular or special meeting of the Board of Directors. Dividends may
be paid in cash, in property or in the shares of the capital stock of the
Corporation, as provided by the Articles of Incorporation and the laws of the
State of Indiana.
ARTICLE XV.
NOTICES
Section 1. A notice required to be given under the provisions of these
Bylaws to any shareholder, director, officer and member of any committee shall
not be construed to mean personal notice but may be given in writing by
depositing the same in a post office or letter box in a postpaid sealed wrapper
addressed to such shareholder, director, officer and member of any committee at
such address as appears upon the books of the Corporation, and such notice shall
be deemed to be given at the time when the same shall be thus mailed.
Section 2. Any shareholder, director, officer and member of any committee
may waive, in writing, any notice required to be given by these Bylaws, either
before or after the time said notice should have been issued.
ARTICLE XVI.
COMPENSATION OF OFFICERS
The officers of the Corporation shall receive such compensation for their
services as may, from time to time, be fixed by the Board of Directors, and the
compensation so fixed shall continue to be payable until the Board of Directors
shall have fixed a different compensation, which it may do at any annual,
regular, or special meeting.
ARTICLE XVII.
CORPORATE SEAL
The seal of the Corporation shall be a plain circular disk having engraved
thereon, near the outer edge thereof, at least the words, "CTS Corporation" and
in the center thereof the word, "Seal".
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ARTICLE XVIII.
INDEMNIFICATION
Section 1. General. Without limiting the generality or effect of Article XI
of the Articles of Incorporation, the Corporation shall, to the fullest extent
to which it is empowered to do so by the Indiana Business Corporation Law
(hereinafter the "IBCL"), or any other applicable laws, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide prior
to such amendment), indemnify and hold harmless any person who was or is
involved in any manner (including without limitation as a party or a witness),
or is threatened to be made so involved, in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (hereinafter a "proceeding"), by
reason of the fact that such person is or was a director or officer of the
Corporation, or who is or was serving at the request of the Board of Directors
as a director, officer, partner or trustee of another corporation or a
partnership, joint venture, trust, employee benefit plan or other entity,
whether for profit or not for profit, (any such person hereinafter an
"indemnitee"), whether or not the basis of such proceeding is alleged action in
an official capacity while serving as a director, or officer, against all
expense, liability and loss (including attorneys' fees and expenses, judgments,
settlements, penalties, fines, and excise taxes assessed with respect to
employee benefit plans) actually and reasonably incurred or suffered by such
person in connection therewith; provided, however, that, except as provided in
Section 3 of this Article XVIII with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
Section 2. Right to Advancement of Expenses. The right to indemnification
conferred in Article XVIII shall include the right to be paid by the Corporation
the expenses (including, without limitation, attorneys' fees and expenses)
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the IBCL
so requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this Section 2 or otherwise.
The rights to indemnification and to the advancement of expenses conferred
in Article XVIII shall be contract rights and such rights shall continue as to
an indemnitee who has ceased to be a director or officer and shall inure to the
benefit of the indemnitee's heirs, executors and administrators. For purposes of
Article XVIII, references to "the Corporation" shall include any domestic or
foreign predecessor entity of the Corporation in a merger or other transaction
in which the predecessor's existence ceased upon consummation of the
transaction.
Section 3. Right of Indemnitee to Bring Suit. If a claim under Section 1 or
Section 2 of this Article XVIII is not paid in full by the Corporation within 60
calendar days after a written claim has been received by the Corporation, except
in the case of a claim for an advancement of expenses, in which case the
applicable period shall be 20 calendar days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification
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hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) any suit brought
by the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the IBCL. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel or
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the IBCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or shareholders) that the indemnitee has
not met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article XVIII or otherwise shall be on the
Corporation.
Section 4. Non-Exclusivity of Rights. The rights to indemnification and to
the advancement of expenses conferred in this Article XVIII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Articles of Incorporation, Bylaws,
agreement, vote of shareholders or disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the IBCL.
Section 6. Vested Right to Indemnification. The right of any individual to
indemnification under this Article XVIII shall vest at the time of occurrence or
performance of any event, act or omission giving rise to any Proceeding and once
vested, shall not later be impaired as a result of any amendment, repeal,
alteration or other modification of any or all of these Bylaws. Notwithstanding
the foregoing, the indemnification afforded under this Article XVIII shall be
applicable to all alleged prior acts or omissions of any individual seeking
indemnification hereunder, regardless of the fact that such alleged acts or
omissions may have occurred prior to the adoption of these Bylaws, and to the
extent such prior acts or omissions cannot be deemed to be covered by these
Bylaws, the right of any individual to indemnification shall be governed by the
indemnification provisions in effect at the time of such prior acts or
omissions.
Section 7. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of this corporation, or to any individual who is or was
serving at the request of the Board of Directors as an employee or agent of
another corporation or a partnership, joint venture, trust, employee benefit
plan or other entity, whether for profit or not for profit, to the fullest
extent of the provisions of these Bylaws with respect to the indemnification and
advancement of expenses of directors and officers of this corporation.
Section 8. Business Expense. Any payments made to any indemnified party
under these Bylaws or under any other right to indemnification shall be deemed
to be an ordinary and necessary business expense of the Corporation, and payment
thereof shall not subject any person responsible for the payment, or the Board,
to any action for corporate waste or to any similar action.
Section 9. Severability. If any provision or provisions of Article XVIII is
or are held to be invalid, illegal, or unenforceable for any reason whatsoever:
(i) the validity, legality, and enforceability of the remaining provisions of
such Article (including without limitation all portions of any paragraph of such
Article containing any such provision held to be invalid, illegal, or
unenforceable, that are not themselves invalid, illegal, or unenforceable) will
not in any way be affected or impaired thereby and (ii) to the fullest
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extent possible, the provisions of such Article (including without limitation
all portions of any paragraph of such Article containing any such provision held
to be invalid, illegal, or unenforceable, that are not themselves invalid,
illegal, or unenforceable) will be construed so as to give effect to the intent
manifested by the provision held invalid, illegal, or illegal, or unenforceable.
ARTICLE XIX.
AMENDMENTS
Section 1. These Bylaws may be amended, altered, repealed, or added to at
any annual or regular meeting of the directors, or at any special meeting
thereof.
Section 2. No amendment, alteration or addition to these Bylaws shall become
effective unless the same is adopted by the affirmative vote of a majority of
the members of the Board of Directors.
ARTICLE XX.
CONTROL SHARE ACQUISITIONS
As provided for in Section 5 thereof, Chapter 42 of the Indiana Business
Corporation Law, relating to control share acquisitions, shall not apply to
control share acquisitions of shares of the corporation made after March 3,
1987.
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ANNEX B
[LOGO]
July 17, 1997
Board of Directors
Dynamics Corporation of America
475 Steamboat Road
Greenwich, Connecticut 06830-7197
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of the Common Stock, par value $0.10 per
share (the "Shares"), of Dynamics Corporation of America (the "Company") of the
consideration to be received by such holders pursuant to the terms of the
Agreement and Plan of Merger, dated as of May 9, 1997 as amended and restated as
of July 17, 1997 (the "Merger Agreement"), among the Company, CTS Corporation
("CTS") and a wholly owned subsidiary of CTS ("Sub"). The Merger Agreement
provides for, among other things, a merger of the Company with and into Sub (the
"Merger"), pursuant to which each outstanding Share not owned directly or
indirectly by CTS, Sub or the Company will be converted into 0.88 shares of
common stock, without par value, of CTS ("CTS Common Stock") or, at the
shareholder's election cash equal to $58 per Share subject to the limitation
that the maximum number of Shares that may be exchanged for cash is 49.9% of the
outstanding Shares less the number of Shares owned by the Company, CTS and their
respective affiliates.
In connection with rendering our opinion, we have reviewed the Merger
Agreement. We have also reviewed and analyzed certain publicly available
business and financial information relating to the Company and CTS for recent
years and interim periods to date, as well as certain internal financial and
operation information, including financial forecasts, analyses and projections
prepared by or on behalf of the Company and CTS and provided to us for purposes
of our analysis, and we have met with the managements of the Company and CTS to
review and discuss such information and, among other matters, the Company's and
CTS' respective businesses, operations, assets, financial condition and future
prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company and CTS, and we have compared that data with similar
data for certain other companies, the securities of which are publicly traded,
that we believe may be relevant or comparable in certain respects to the Company
and CTS or one or more of their respective businesses or assets, and we have
reviewed and considered the financial terms of certain recent acquisitions and
business combination transactions which we believe to be reasonably comparable
to the Merger or otherwise relevant to our inquiry. We have also performed such
other studies, analyses, and investigations and reviewed such other information
as we considered appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also relied upon the reasonableness and accuracy of the
financial projections, forecasts and analyses provided to us and we have
assumed, with your consent, that such projections,
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forecasts and analyses were reasonably prepared in good faith and on bases
reflecting the best currently available judgments and estimates of the Company's
and CTS' management, and we express no opinion with respect to such projections,
forecasts and analyses or the assumptions upon which they are based. In
addition, we have not reviewed any of the books and records of the Company or
CTS, or assumed any responsibility for conducting a physical inspection of the
properties or facilities of the Company or CTS, or for making or obtaining an
independent valuation or appraisal of the assets or liabilities of the Company
or CTS, and no such independent valuation or appraisal was provided to us. We
have assumed that the transactions described in the Merger Agreement will be
consummated on the terms set forth therein, without material waiver or
modification. We have also assumed that the Merger will qualify as a tax-free
reorganization under the Internal Revenue Code. Our opinion is necessarily based
on economic and market conditions and other circumstances as they exist and can
be evaluated by us as of the date hereof. In rendering this opinion, we are not
expressing any opinion as to the price at which the Shares or the shares of CTS
Common Stock will actually trade at any time, or the market value of the
consideration that the Company's shareholders will receive upon consummation of
the Merger.
It should be noted that in the context of our current engagement by the
Company, at the direction of the Company, we have not solicited alternative
offers for the Company or its assets, although we have (with the Company's
permission) engaged in preliminary discussions with one company (other than CTS
and WHX Corporation ("WHX")). On May 9, 1997, such company delivered a written
proposal to the Company to acquire all of the outstanding Shares for $54 per
Share in cash, subject to certain conditions, including the negotiation of a
mutually satisfactory merger agreement.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a major portion of which is
contingent upon the consummation of the Merger.
Our opinion addresses only the fairness from a financial point of view to
the shareholders of the Company of the consideration to be received by such
shareholders pursuant to the Merger, and we do not express any views on any
other terms of the Merger. Such opinion does not, however, address the fairness
from a financial point of view to shareholders of one form of the consideration
that shareholders may elect to receive pursuant to the Merger in comparison to
the other. In addition, our opinion does not address the Company's underlying
business decision to effect the transactions contemplated by the Merger
Agreement.
It is understood that this letter is for the benefit and use of the Board of
Directors of the Company in its consideration of the Merger, and except for
inclusion in its entirety in any proxy statement of the Company relating to the
Merger, may not be quoted, used or reproduced for any other purpose without our
prior written consent. This opinion does not constitute a recommendation to any
shareholder with respect to whether such holder should elect to receive cash or
CTS Common Stock pursuant to the Merger or as to how such holder should vote
with respect to the Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that as of the date hereof
the consideration to be received by the shareholders of the Company pursuant to
the Merger Agreement is fair to the shareholders of the Company from a financial
point of view.
Very truly yours,
[LOGO]
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[LOGO]
[LOGO]
ANNEX C
July 17, 1997
The Board of Directors
CTS Corporation
905 West Boulevard North
Elkhart, Indiana 46514
Attention: Joseph P. Walker
Chairman, President and Chief Executive Officer
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to CTS Corporation (the "Company") of the consideration paid or proposed
to be paid by the Company in connection with (i) the acquisition of 30.3% of the
outstanding common stock of Dynamics Corporation of America (the "Seller")
pursuant to the tender offer, as amended (the "Offer"), for up to 49.9% of the
outstanding common stock of Seller ("Seller Common Stock") at a price of $56.25
per share in cash and (ii) the proposed merger (the "Merger") of CTS First
Acquisition Corp. ("Sub"), a wholly owned subsidiary of the Company, with Seller
whereby each outstanding share of Seller Common Stock not owned by the Company
will be exchanged for, at the election of the holder, 0.88 shares of common
stock of the Company ("Company Common Stock") or $58.00 per share in cash (the
purchase of any such shares for cash, the "Cash Election"), all pursuant to the
terms and subject to the conditions and limitations as set forth in the Amended
and Restated Agreement and Plan of Merger, dated as of May 9, 1997 and amended
and restated on July 17, 1997 (the "Agreement"), among the Company, Sub and the
Seller.
In arriving at our opinion, we have reviewed (i) the Agreement and certain
related documents; (ii) certain publicly available information concerning the
businesses of the Company and the Seller and of certain other companies engaged
in businesses comparable to those of the Company and the Seller, and the
reported trading prices for certain other companies' securities deemed
comparable; (iii) publicly available terms of certain transactions involving
companies comparable to the Company and the Seller; (iv) current and historical
trading prices of the Company Common Stock and the Seller Common Stock; (v) the
audited financial statements of the Company and the Seller for the fiscal year
ended December 31, 1996, and certain unaudited financial statements of the
Company and the Seller for the period ended March 30, 1997, in the case of the
Company, and March 31, 1997, in the case of Seller; (vi) certain agreements with
respect to outstanding indebtedness or obligations of the Company and the
Seller; (vii) certain internal financial analyses and forecasts concerning the
Company and the Seller prepared by management of each of the Company and the
Seller; and (viii) such other information that we deemed relevant.
In addition, we have held discussions with certain senior members of the
management of the Company and the Seller with respect to certain aspects of the
Offer and the Merger, and the past and current business operations of the
Company and the Seller, the financial condition and future prospects and
operations of the Company and the Seller, the effects of the Offer and the
Merger on the financial condition and future prospects of the Company and the
Seller, and certain other matters we believed necessary or appropriate to our
inquiry. We have visited certain facilities of the Company and the Seller, and
reviewed such other financial studies and analyses and considered such other
information as we deemed appropriate for the purposes of this opinion.
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[LOGO]
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and the Seller or otherwise
reviewed by or discussed with us, and we have not assumed any responsibility or
liability therefor. We have not conducted any valuation or appraisal of any
assets or liabilities, nor have any such valuations or appraisals been provided
to us. In relying on financial analyses and forecasts provided to us, including
the views of the Company and the Seller concerning the business, operational and
strategic benefits of the Offer and the Merger, we have assumed that they have
been reasonably prepared based on assumptions reflecting the best currently
available estimates and judgments by management as to the expected future
results of operations and financial condition of the Company and the Seller to
which such analyses or forecasts relate. We have assumed that the businesses of
the Seller would be valued on a going concern basis, which could be greater than
the realizable value of such businesses in a sale process, and that the items
disclosed in the Seller's Disclosure Schedule do not and will not individually
or in the aggregate have a materially adverse affect on the business, financial
condition, results of operations or prospects of the Company or the Seller. We
have also assumed that approximately $109 million of the total consideration
paid by the Company will be paid in cash pursuant to the Offer, open-market
purchases effected prior to the Cash Election and the Cash Election or,
alternatively, that, to the extent that less than 49.9% of Seller's shares are
so acquired, within a reasonable period of time after the consummation of the
Merger, the Company will effect repurchases of its outstanding common shares at
prices not materially in excess of prevailing market prices during the period
immediately preceding the Agreement, through open-market purchases or other
capital market transactions, which will result in the Company having a
substantially equivalent capital structure as had 49.9% of Seller's shares been
purchased for cash pursuant to the Offer or the Merger. Further, we assumed that
the Offer and the Merger will have the tax consequences contemplated by the
recitals to the Agreement, and in discussions with, and materials furnished to
us by, representatives of the Company, and that the other transactions
contemplated by the Agreement will be consummated as described in the Agreement.
We have relied as to all legal matters relevant to rendering our opinion upon
the advice of counsel to the Company.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We are expressing no opinion herein as to the after-tax value of any of the
businesses of the Seller that may be achievable in a sale process. We are
expressing no opinion herein as to the price at which the Company's stock will
trade at any future time.
We have acted as financial advisor to the Company with respect to the proposed
Offer and Merger and will receive a fee from the Company for our services. We
will also receive an additional fee if the Merger is consummated. In the
ordinary course of their businesses, our affiliates may actively trade the debt
and equity securities of the Company or the Seller for their own account or for
the accounts of customers and, accordingly, they may at any time hold long or
short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration paid or to be paid by the Company in the Offer and
Merger is fair, from a financial point of view, to the Company.
This letter is provided to the Board of Directors of the Company in connection
with and for the purposes of its evaluation of the Offer and the Merger. This
opinion does not constitute a recommendation to any stockholder of the Company
as to how any stockholder should vote with respect to the Merger or whether any
stockholder should have tendered pursuant to the Offer. This opinion may not be
disclosed, referred to, or communicated (in whole or in part) to any third party
for any purpose whatsoever except with our
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prior written consent in each instance. This opinion may be reproduced in full
in any proxy or information statement mailed to stockholders of the Company but
may not otherwise be disclosed publicly in any manner without our prior written
approval.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By:
[LOGO]
------------------------------
Name: Nicholas B. Paumgarten
Title: Managing Director
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ANNEX D
SECTION 910. RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER OR
CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ASSETS, OR SHARE
EXCHANGE
(a) A shareholder of a domestic corporation shall, subject to and by
complying with section 623 (Procedure to enforce shareholder's right to receive
payment for shares), have the right to receive payment of the fair value of his
shares and the other rights and benefits provided by such section, in the
following cases:
(1) Any shareholder entitled to vote who does not assent to the taking of an
action specified in subparagraphs (A), (B) and (C).
(A) Any plan of merger or consolidation to which the corporation is a party;
except that the right to receive payment of the fair value of his shares shall
not be available:
(i) To a shareholder of the parent corporation in a merger authorized by
section 905 (Merger of parent and subsidiary corporations), or paragraph (c) of
section 907 (Merger or consolidation of domestic and foreign corporations); and
(ii) To a shareholder of the surviving corporation in a merger authorized by
this article, other than a merger specified in subparagraph (i), unless such
merger effects one or more of the changes specified in subparagraph (b)(6) of
section 806 (Provisions as to certain proceedings) in the rights of the shares
held by such shareholder.
(B) Any sale, lease, exchange or other disposition of all or substantially
all of the assets of a corporation which requires shareholder approval under
section 909 (Sale, lease, exchange or other disposition of assets) other than a
transaction wholly for cash where the shareholders' approval thereof is
conditioned upon the dissolution of the corporation and the distribution of
substantially all its net assets to the shareholders in accordance with their
respective interests within one year after the date of such transaction.
(C) Any share exchange authorized by section 913 in which the corporation is
participating as a subject corporation; except that the right to receive payment
of the fair value of his shares shall not be available to a shareholder whose
shares have not been acquired in the exchange.
(2) Any shareholder of the subsidiary corporation in a merger authorized by
section 905 or paragraph (c) of section 907, or in a share exchange authorized
by paragraph (g) of section 913, who files with the corporation a written notice
of election to dissent as provided in paragraph (c) of section 623.
SECTION 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR
SHARES
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or
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consented in writing to the proposed action and who thereby is deemed to have
elected not to enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of the transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a
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written offer by registered mail to each shareholder who has filed such notice
of election to pay for his shares at a specified price which the corporation
considers to be their fair value. Such offer shall be accompanied by a statement
setting forth the aggregate number of shares with respect to which notices of
election to dissent have been received and the aggregate number of holders of
such shares. If the corporate action has been consummated, such offer shall also
be accompanied by (1) advance payment to each such shareholder who has submitted
the certificates representing his shares to the corporation, as provided in
paragraph (f), of an amount equal to eighty percent of the amount of such offer,
or (2) as to each shareholder who has not yet submitted his certificates a
statement that advance payment to him of an amount equal to eighty percent of
the amount of such offer will be made by the corporation promptly upon
submission of his certificates. If the corporate action has not been consummated
at the time of the making of the offer, such advance payment or statement as to
advance payment shall be sent to each shareholder entitled thereto forthwith
upon consummation of the corporate action. Every advance payment or statement as
to advance payment shall include advice to the shareholder to the effect that
acceptance of such payment does not constitute a waiver of any dissenters'
rights. If the corporate action has not been consummated upon the expiration of
the ninety day period after the shareholders' authorization date, the offer may
be conditioned upon the consummation of such action. Such offer shall be made at
the same price per share to all dissenting shareholders of the same class, or if
divided into series, of the same series and shall be accompanied by a balance
sheet of the corporation whose shares the dissenting shareholder holds as of the
latest available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not less
than a twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign corporation without an office in this state, such proceeding shall
be brought in the county where the office of the domestic corporation, whose
shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such
D-3
<PAGE>
proceeding, which shall have the effect of an action quasi in rem against
their shares. The corporation shall serve a copy of the petition in such
proceeding upon each dissenting shareholder who is a resident of this state
in the manner provided by law for the service of a summons, and upon each
nonresident dissenting shareholder either by registered mail and
publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the shares,
which, for the purposes of this section, shall be the fair value as of the
close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature
of the transaction giving rise to the shareholder's right to receive payment
for shares and its effects on the corporation and its shareholders, the
concepts and methods then customary in the relevant securities and financial
markets for determining fair value of shares of a corporation engaging in a
similar transaction under comparable circumstances and all other relevant
factors. The court shall determine the fair value of the shares without a
jury and without referral to an appraiser or referee. Upon application by
the corporation or by any shareholder who is a party to the proceeding, the
court may, in its discretion, permit pretrial disclosure, including, but not
limited to, disclosure of any expert's reports relating to the fair value of
the shares whether or not intended for use at the trial in the proceeding
and notwithstanding subdivision (d) of section 3101 of the civil practice
law and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest
which the corporation would have had to pay to borrow money during the
pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the
court finds that their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good faith. The court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by any or all of the dissenting shareholders who are parties to the
proceeding against the corporation if the court finds any of the following:
(A) that the fair value of the shares as determined materially exceeds the
amount which the corporation offered to pay; (B) that no offer or required
advance payment was made by the corporation; (C) that the corporation failed
to institute the special proceeding within the period specified therefor; or
(D) that the action of the corporation in complying with its obligations as
provided in this section was arbitrary, vexatious or otherwise not in good
faith. In making any determination as provided in clause (A), the court may
consider the dollar amount or the percentage, or both, by which the fair
value of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificate for any such shares represented
by certificates.
D-4
<PAGE>
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it
is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders,
and if it is not liquidated, retain his right to be paid for his shares,
which right the corporation shall be obliged to satisfy when the
restrictions of this paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this paragraph.
If the dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in the
manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
D-5
<PAGE>
ANNEX E
ANY STATEMENT CONTAINED IN THE CTS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED MARCH 30, 1997 OR THE CTS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED JUNE 29, 1997 WILL BE DEEMED TO BE MODIFIED OR SUPERSEDED FOR PURPOSES OF
THIS JOINT PROXY STATEMENT/PROSPECTUS TO THE EXTENT THAT A STATEMENT CONTAINED
IN THE LATER OF SUCH REPORTS MODIFIES OR SUPERSEDES SUCH STATEMENT.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-K/A
Annual Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For fiscal year ended December 31, 1996
------------------------
CTS CORPORATION
905 West Boulevard North
Elkhart, Indiana 46514
(219) 293-7511
Web site address: http://www.ctscorp.com
------------------------
<TABLE>
<S> <C> <C>
Incorporated in Indiana Commission File No. 1-4639 IRS No. 35-0225010
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Common Stock, without par value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
------------------------
Indicate by check mark whether the registrant has: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
There were 5,226,496 shares of Common Stock, without par value, outstanding on
March 7, 1997.
The aggregate market value of the voting stock held by non-affiliates of CTS
Corporation was approximately $132.5 million on March 7, 1997.
PORTIONS OF CTS' 1996 ANNUAL REPORT ARE ATTACHED TO THIS ANNEX E AS EXHIBIT 13.
EXCEPT FOR EXHIBITS 13 AND 23 (WHICH ARE INCLUDED IN THIS FORM 10-K/A), EXHIBITS
TO THIS FORM 10-K/A THAT ARE "FILED HEREWITH" ARE FILED AS EXHIBITS TO THE
REGISTRATION STATEMENT ON FORM S-4 FILED BY THE COMPANY WITH THE COMMISSION ON
SEPTEMBER 2, 1997.
E-1
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the CTS Corporation 1996 Annual Report for the fiscal year ended
December 31, 1996, incorporated by reference in Part I and Part II.
(2) Certain portions of the CTS Corporation Form 10-K for the 1987 fiscal year
ended January 3, 1988, incorporated by reference in Part IV.
(3) Certain portions of Registration Statement No. 33-27749, effective March 23,
1989, incorporated by reference in Part IV.
(4) Certain portions of the 1989 Proxy Statement for annual meeting of
shareholders held April 28, 1989, incorporated by reference in Part IV.
(5) Certain portions of the CTS Corporation Form 10-K for the 1989 fiscal year
ended December 31, 1989, incorporated by reference in Part IV.
(6) Certain portions of the CTS Corporation Form 10-K for the 1991 fiscal year
ended December 31, 1991, incorporated by reference in Part IV.
(7) Certain portions of the CTS Corporation Form 10-K for the 1992 fiscal year
ended December 31, 1992, incorporated by reference in Part IV.
(8) Certain portions of the CTS Corporation Form 10-K for the 1994 fiscal year
ended December 31, 1994, incorporated by reference in Part IV.
E-2
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION AND GENERAL DEVELOPMENT OF BUSINESS
The registrant, CTS Corporation (CTS or Company), is an Indiana corporation
incorporated in 1929 as a successor to a company started in 1896. CTS' principal
executive offices are located at 905 West Boulevard North, Elkhart, Indiana,
46514, telephone number (219) 293-7511.
CTS designs, manufactures and sells electronic components. The engineering
and manufacturing of CTS products is performed at 16 facilities worldwide. CTS
products are sold through sales engineers, sales representatives, agents and
distributors.
In March 1987, a settlement was announced between CTS and Dynamics
Corporation of America (DCA), terminating the sale process of the Company and
resolving all disputes between CTS and DCA. Subsequently, the United States
Supreme Court held that the Control Share Acquisition Chapter of the Indiana
Business Corporation Law was constitutional. As a result of the Court's
decision, the issue of voting rights of 1,020,000 shares of CTS common stock
acquired by DCA in 1986 was submitted to a vote of CTS shareholders at the 1987
annual meeting. The affirmative vote of the majority of all shares eligible to
vote was necessary to grant voting rights. DCA was not eligible to vote on the
issue. The shareholders voted not to grant voting rights to DCA on these shares.
The Court's decision did not have an impact on the voting rights in additional
shares of CTS common stock previously or subsequently acquired by DCA. In May
1988, the settlement agreement expired pursuant to its terms. At the end of
1996, DCA owned 2,303,100 shares (44.1%) of CTS common stock, including the
1,020,000 shares which were not granted voting authority.
In January 1990, the Company formally announced the closing of its Switch
Division located in Paso Robles, California. The Paso Robles manufacturing
operations were relocated to the Company's facilities in Taiwan and Bentonville,
Arkansas. During 1992, the Company completed the sale of the Paso Robles
manufacturing plant and most of the associated real estate for $1.9 million. A
pretax gain of $0.9 million was realized from the sale. The manufacturing
operations for certain variable resistor and selector switch products, which
formerly were performed in Elkhart, Indiana, were also transferred to
Bentonville in 1990, to take advantage of any efficiencies to be gained in
consolidating such operations in Bentonville. The buildings located in Elkhart
which housed the plastics molding and element production were vacated, with
these manufacturing operations being consolidated into the main Elkhart plant.
CTS announced in July 1990 that its facility near Glasgow, Scotland, would
be expanded in order to manufacture and sell additional electronic component
products in Europe. The total capital investment has been approximately $13
million as of December 31, 1996. Automotive throttle position sensors and
precision and clock oscillators were added to the product lines already
manufactured in Scotland. The decision to expand the Scottish facility was based
on several factors, including the excellent business climate and skills base in
Scotland and the anticipated full participation of the United Kingdom in the
European Economic Community. The expansion of the Scotland facility represents a
major effort by CTS to serve the large and rapidly growing European market on a
direct basis.
In November 1991, construction was completed on a 53,000 square foot
manufacturing facility in Bangkok, Thailand. During 1992, the Company idled
operations at this facility. During 1994, a three-year lease was finalized with
an international computer peripheral manufacturer for this property. In early
1997, this lease was extended to March 31, 1999. The annual rental amount is
approximately U.S. $355,000.
Also during 1991, the Company significantly reduced the operating activities
at its Brownsville, Texas, facility and plans to sell this property. A portion
of the Brownsville facility is currently under a leasing arrangement which
expires in 1999, at an annual rental amount of approximately $60,000.
E-3
<PAGE>
The manufacturing space owned by CTS in Hong Kong, which consisted of two
floors in a multi-story building, was sold in March 1991. One floor was leased
back by CTS for the continuation of its manufacturing operations in Hong Kong.
During 1992, the Company terminated this lease and discontinued its
manufacturing operations in Hong Kong. However, the Company maintains a sales
office in Hong Kong.
During 1994, the Company purchased the assets of AT&T Microelectronics'
light emitting diode based optic data link products business. The transaction
also included sales contracts, backlog, intellectual property, trademarks, and
the design and manufacturing technology. These products are manufactured in the
Microelectronics West Lafayette, Indiana, facility.
The manufacturing space owned by CTS in Singapore consists of four floors in
a multi-story building. The current manufacturing requirements require three of
the four floors, leaving one level available for lease. During 1995, a lease for
an initial term of two years with a two-year renewal option was finalized with
an international semiconductor manufacturer for one floor of the Singapore
facility. The annual rental amount is approximately U.S. $800,000.
During 1996, the Company sold property in New Hope, Minnesota, for $550,000
in cash and a promissory note. The Company recognized a pretax gain of $35,000.
FINANCIAL INFORMATION ON INDUSTRY SEGMENTS
All of the Company's products are considered one industry segment. Sales to
unaffiliated customers, operating earnings and identifiable assets, by
geographic area, are contained in "Note G--Business Segment and Non-U.S.
Operations," page 16, of the CTS Corporation 1996 Annual Report, and is
incorporated herein by reference.
PRINCIPAL BUSINESS AND PRODUCTS OF CTS
CTS is primarily in the business of developing, manufacturing and selling a
broad line of electronic components principally serving the electronic needs of
original equipment manufacturers (OEMs).
The Company sells classes of similar products consisting of the following:
<TABLE>
<S> <C>
Automotive control devices Insulated metal circuits
Fiber-optic transceivers Interconnect products
Flex cable assemblies Loudspeakers
Frequency control devices Resistor networks
Hybrid microcircuits Switches
Industrial electronics Variable resistors
</TABLE>
Most products within these product classes are manufactured by CTS from
purchased raw materials or subassemblies. Some products sold by CTS are
purchased and resold under the Company's name.
During the past three years, six classes of similar product lines accounted
for 10% or more of consolidated revenue during one or more years, as follows:
<TABLE>
<CAPTION>
PERCENT OF CONSOLIDATED REVENUE
-------------------------------------------
CLASS OF SIMILAR PRODUCTS 1996 1995 1994
- ---------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Automotive control devices.......................... 30 29 30
Interconnect products............................... 20 14 17
Frequency control devices........................... 13 16 15
Resistor networks................................... 12 12 11
Hybrid microcircuits................................ 5 8 10
Other............................................... 20 21 17
--- --- ---
Total............................................... 100% 100% 100%
</TABLE>
E-4
<PAGE>
MARKETS
CTS estimates that its products have been sold in the following electronics
OEM and distribution markets and in the following percentages during the
preceding three fiscal years:
<TABLE>
<CAPTION>
PERCENT OF CONSOLIDATED REVENUE
-------------------------------------------
MARKETS 1996 1995 1994
- ---------------------------------------------------- ------------- --------------- -----------
<S> <C> <C> <C>
Automotive.......................................... 34 36 38
Computer Equipment.................................. 21 19 17
Communications Equipment............................ 20 18 17
Instruments and Controls............................ 11 10 9
Defense and Aerospace............................... 7 8 11
Distribution........................................ 6 6 5
Consumer Electronics................................ 1 3 3
--- --- ---
Total............................................... 100% 100% 100%
</TABLE>
Products for the automotive market include throttle position sensors,
exhaust gas recirculation sensors, other automotive application sensors,
resistor networks, variable resistors, and loudspeakers for automotive
entertainment systems.
Products for the computer equipment market include flex cable assemblies,
backpanels, resistor networks, switches, frequency control devices, fiber-optic
transceivers and insulated metal circuits. Products for this market are
principally used in computers and computer peripheral equipment.
In the communications equipment market, CTS products include backpanels,
frequency control devices, hybrid microcircuits, fiber-optic transceivers,
switches, resistor networks and insulated metal circuits. Products for this
market are principally used in telephone equipment and in telephone switching
systems.
Products for the instruments and controls market include resistor networks,
hybrid microcircuits, variable resistors and switches. Principal end uses are
medical electronic devices and electronic testing, measuring and servicing
instruments.
CTS products for the defense and aerospace market, usually procured through
government contractors or subcontractors, are electronic connectors, hybrid
microcircuits, frequency control devices, programmable key storage devices and
backpanels.
In the distribution market, CTS' primary products include switches, resistor
networks and frequency control devices. In this market, standard CTS products
are sold for a wide variety of applications.
Products for the consumer electronics market, primarily variable resistors
and switches, are principally used in home entertainment equipment and
appliances.
MARKETING AND DISTRIBUTION
Sales of CTS electronic components to original equipment manufacturers are
principally by CTS sales engineers and manufacturers' representatives. CTS
maintains sales offices in Elkhart, Indiana; Detroit, Michigan; and in the
United Kingdom, Hong Kong, Taiwan and Japan. Various regions of the United
States are serviced by sales engineers working out of their homes. The sale of
electronic components is relatively integrated such that most of the product
lines of CTS are sold through the same field sales force. Approximately 40% of
net sales in 1996 were attributable to coverage by CTS sales engineers.
Generally, CTS sales engineers service the Company's largest customers with
application specific products. CTS sales engineers work closely with major
customers in determining customer requirements and in designing CTS products to
be provided to such customers.
E-5
<PAGE>
CTS uses the services of independent sales representatives and distributors
in the United States and other countries for customers not serviced by CTS sales
engineers. Sales representatives receive commissions from CTS. During 1996,
about 54% of net sales were attributable to coverage by sales representatives.
Independent distributors purchase products from CTS for resale to customers. In
1996, independent distributors accounted for about 6% of net sales.
RAW MATERIALS
Generally, CTS' major raw materials are steel, copper, brass, certain
precious metals, resistive and conductive inks, passive components and
semiconductors, used in several CTS products; ceramic materials used
particularly in resistor networks and hybrid microcircuits; synthetic quartz
used in frequency control devices; and laminate material used in printed circuit
boards. These raw materials are purchased from several vendors, and except for
certain semiconductors, CTS does not believe that it is dependent on one or on a
very few vendors. In 1996, all of these materials were available in adequate
quantities to meet CTS' production demands.
The Company does not presently anticipate any raw material shortages which
would significantly affect production. However, the lead times between the
placement of orders for certain raw materials and actual delivery to CTS may
vary significantly, and the Company may from time to time be required to order
raw materials in quantities and at prices less than optimal to compensate for
the variability of lead times for delivery.
Precious metals prices have a significant effect on the manufacturing cost
and selling prices of many CTS products, particularly some switches,
interconnect products, resistor networks and hybrid microcircuits. CTS has
continuing programs to reduce the precious metals content of several products,
when consistent with customer specifications.
WORKING CAPITAL
CTS does not usually buy inventories or manufacture products without actual
or reasonably anticipated customer orders, except for some standard,
off-the-shelf distributor products. The Company is not generally required to
carry significant amounts of inventories to meet rapid delivery requirements
because most customer orders are for custom products. CTS has entered into
"just-in-time" arrangements with certain major customers in order to meet
customers' just-in-time delivery needs.
CTS carries raw materials, including certain semiconductors, and certain
work-in-process and finished goods inventories which are unique to a particular
customer or to a small number of customers, and in the event of reductions in or
cancellations of orders, some inventories are not useable or cannot be returned
to vendors for credit. CTS generally imposes charges for the reduction or
cancellation of orders by customers, and these charges are usually sufficient to
cover the financial exposure of CTS to inventories which are unique to a
customer. CTS does not customarily grant special return privileges or payment
privileges to customers, although CTS' distributor program permits certain
returns. CTS' working capital requirements are generally cyclical but not
seasonal.
Working capital requirements are generally dependent on the overall business
level. During 1996, working capital increased significantly to $86.8 million,
primarily because cash increased and notes payable were paid off. During 1996,
cash increased primarily as a result of the higher level of earnings. Cash
represents a significant part of the Company's working capital. Cash of various
non-U.S. subsidiaries was held in U.S.-denominated cash equivalents at December
31, 1996. The cash, other than approximately $4.8 million, is generally
available to the parent Company. During 1996, the other changes in working
capital were primarily a result of the higher business activity level.
E-6
<PAGE>
PATENTS, TRADEMARKS AND LICENSES
CTS maintains a program of obtaining and protecting U.S. and non-U.S.
patents and trademarks. CTS believes that the success of its business is not
materially dependent on the existence or duration of any patent, group of
patents or trademarks.
CTS licenses the manufacture of several electronic products to companies in
the United States and non-U.S. countries. In 1996, license and royalty income
was less than 1% of net sales. CTS believes that the success of its business is
not materially dependent upon any licensing arrangement where CTS is either the
licensor or licensee.
MAJOR CUSTOMERS
CTS' 15 largest customers represented about 62%, 61% and 62% of net sales in
1996, 1995 and 1994, respectively. Sales to General Motors Corporation ("GM")
represented more than 10% of CTS' net sales in each of the last three years
(ranging from 15% to 18% of net sales over such period). The loss of, or
reduction in, orders from GM could have a material adverse effect on CTS.
BACKLOG OF ORDERS
Backlog of orders does not necessarily provide an accurate indication of
present or future business levels for CTS. For many electronic components, the
period between receipt of orders and delivery is relatively short. For large
orders from major customers that may constitute backlog over an extended period
of time, production scheduling and delivery are subject to change or
cancellation by the customers on relatively short notice. At the end of 1996,
the Company's backlog of orders was $85.5 million, compared with $85.3 million
at the end of 1995.
The backlog of orders at the end of 1996 will generally be filled during the
1997 fiscal year.
GOVERNMENT CONTRACTS
CTS believes that about 7% of its net sales are associated with purchases by
the U.S. Government or non-U.S. governments, principally for defense and
aerospace applications. Because most CTS products procured through government
contractors and subcontractors are for military end uses, the level of defense
and aerospace market sales by CTS is dependent upon government budgeting and
funding of programs utilizing electronic systems.
Almost all CTS sales involving government purchases are to primary
government contractors or subcontractors. CTS is usually subject to contract
provisions permitting termination of the contract, usually with penalties
payable by the government; maintenance of specified accounting procedures;
limitations on and renegotiations of profits; priority production scheduling;
and possible penalties or fines against CTS for late delivery or substandard
quality. Such contract provisions have not previously resulted in material
uncertainties or disruptions for CTS.
COMPETITION
CTS competes with many domestic and non-U.S. manufacturers principally on
the basis of product features, price, technology, quality, reliability, delivery
and service. Most product lines of CTS encounter significant competition. The
number of significant competitors varies from product line to product line. No
single competitor competes with CTS in every product line, but many competitors
are larger and more diversified than CTS. Some competitors are divisions or
affiliates of customers. CTS is subject to competitive risks inherent to the
electronics industry such as shorter product life cycles and technical
obsolescence.
E-7
<PAGE>
Some customers have reduced or plan to reduce the number of suppliers while
increasing the volume of purchases from independent suppliers. Most customers
are demanding higher quality, reliability and delivery standards from CTS as
well as competitors. These trends may create opportunities for CTS while also
increasing the risk of loss of business to competitors.
The Company believes that it competes most successfully in custom products
manufactured to meet specific applications of major original equipment
manufacturers.
CTS believes that it has some advantages over certain competitors because of
its ability to apply a broad range of technologies and materials capabilities to
develop products for the special requirements of customers. CTS also believes
that it has an advantage over some competitors in its capability to sell a broad
range of products manufactured to relatively consistent standards of quality and
delivery. CTS believes that the relative breadth of its product lines and
relative consistency in quality and delivery across product lines is an
advantage to CTS in selling products to customers.
CTS believes that it is one of the largest manufacturers of automotive
throttle position sensors.
FINANCIAL INFORMATION ABOUT NON-U.S. AND DOMESTIC
OPERATIONS AND EXPORT SALES
Information about revenue from sales to unaffiliated customers, operating
earnings and identifiable assets, by geographic area, is contained in "Note
G--Business Segment and Non-U.S. Operations," page 16, of the CTS Corporation
1996 Annual Report, and is incorporated herein by reference.
In 1996, approximately 40% of net sales to unaffiliated customers, after
eliminations, were attributable to non-U.S. operations. This represents an
increase from 35% of net sales attributable to non-U.S. operations in 1995.
About 33% of total CTS assets, after eliminations, are non-U.S. Except for cash
and equivalents, a substantial portion of these assets cannot readily be
liquidated. CTS believes that the business risks attendant to its present
non-U.S. operations, though substantial, are normal risks for non-U.S.
businesses, including expropriation, currency controls and changes in currency
exchange rates and government regulations.
RESEARCH AND DEVELOPMENT ACTIVITIES
In 1996, 1995 and 1994, CTS expended $10.7, $8.0 and $6.2 million,
respectively, for research and development. Most CTS research and development
activities relate to new product and process developments or the improvement of
product materials. Many such research and development activities are for the
benefit of one or a limited number of customers or potential customers.
During 1996, the Company did not enter into any new, significant product
lines, but continued to introduce additional versions of existing products in
response to present and future customer requirements.
ENVIRONMENTAL PROTECTION LAWS
In complying with federal, state and local environmental protection laws,
CTS has modified certain manufacturing processes and expects to continue to make
additional modifications. Such modifications that have been performed have not
materially affected the capital expenditures, earnings or competitive position
of CTS.
Certain processes in the manufacture of the Company's current and past
products create hazardous waste by-products as currently defined by federal and
state laws and regulations. The Company has been notified by the U.S.
Environmental Protection Agency, state environmental agencies and, in some
cases, generator groups, that it is or may be a Potentially Responsible Party
(PRP) regarding hazardous waste remediation at several non-CTS sites. The
factual circumstances of each site are different; the Company
E-8
<PAGE>
has determined that its role as a PRP with respect to these sites, even in the
aggregate, will not have a material adverse effect on the Company's business or
financial condition, based on the following: 1) the Company's status as a DE
MINIMIS party; 2) the large number of other PRPs identified; 3) the
identification and participation of many larger PRPs who are financially viable;
4) defenses concerning the nature and limited quantities of materials sent by
the Company to certain of the sites; and 5) the Company's experience to-date in
relation to the determination of its allocable share. In addition to these
non-CTS sites, the Company has an ongoing practice of providing reserves for
probable remediation activities at certain of its manufacturing locations and
for claims and proceedings against the Company with respect to other
environmental matters. In the opinion of management, based upon presently
available information, either adequate provision for probable costs has been
made, or the ultimate costs resulting will not materially affect the
consolidated financial position or results of operations of the Company.
There are claims against the Company with respect to environmental matters
which the Company contests. In the opinion of management, based upon presently
available information, either adequate provision for potential costs has been
made, or the costs which ultimately might result will not materially affect the
consolidated financial position or results of operations of the Company.
EMPLOYEES
CTS employed an average of 3,815 persons during 1996. About 39% of these
persons were employed outside the United States at the end of 1996.
Approximately 390 employees in the United States were covered by collective
bargaining agreements as of December 31, 1996. One of the two collective
bargaining agreements covering these employees will expire in 1999. The other
agreement will expire in 2000.
ITEM 2. PROPERTIES
CTS operations or facilities are at the following locations. The owned
properties are not subject to material liens or encumbrances.
<TABLE>
<CAPTION>
LOCATION EXPIRES
- ----------------------------------------------------------------------- ------------------
<S> <C> <C> <C>
Elkhart, IN............................................................ 521,813 Owned --
Berne, IN.............................................................. 248,726 Owned --
Singapore.............................................................. 158,926 Owned* --
Kaohsiung, Taiwan...................................................... 132,887 Owned* --
Streetsville, Ontario, Canada.......................................... 111,740 Owned --
West Lafayette, IN..................................................... 105,983 Owned --
Sandwich, IL........................................................... 94,173 Owned --
Brownsville, TX........................................................ 84,679 Owned --
Bentonville, AR........................................................ 72,000 Owned --
Glasgow, Scotland...................................................... 75,000 Owned --
New Hope, MN (Science Center Dr.)...................................... 55,000 Leased December 1998
Bangkok, Thailand...................................................... 53,000 Owned --
Matamoros, Mexico...................................................... 50,590 Owned* --
Baldwin, WI............................................................ 39,050 Owned --
Cokato, MN............................................................. 36,000 Owned --
Burlington, WI......................................................... 5,000 Leased April 1997
----------
TOTAL.................................................................. 1,844,567
</TABLE>
- ------------------------
* Buildings are located on land leased under renewable leases.
The Company is currently seeking to sell some, or all, of the Brownsville,
Texas, manufacturing building. A portion of the Brownsville facility is
currently under a leasing arrangement which expires in 1999. The annual rental
income is approximately $60,000. Also, a portion of the New Hope, Minnesota,
E-9
<PAGE>
facility is currently under a sublease arrangement, which expires in 1998. The
annual rental income is approximately $90,000.
In 1994, the Company entered into a three-year lease of the Bangkok,
Thailand, property. In early 1997, this lease was extended to March 31, 1999.
The annual rental amount is approximately U.S. $355,000.
During 1995, a lease for an initial term of two years with a two-year
renewal option was finalized with an international semiconductor manufacturer
for one floor of the Singapore facility. The annual rental amount is
approximately U.S. $800,000.
The Company regularly assesses the adequacy of its manufacturing facilities
for manufacturing capacity, available labor and location to the markets and
major customers for the Company's products. CTS also reviews the operating costs
of its facilities and may from time to time relocate facilities or certain
manufacturing activities in order to achieve operating cost reductions and
improved asset utilization and cash flow.
ITEM 3. LEGAL PROCEEDINGS
Contested claims involving various matters, including environmental claims
brought by government agencies, are being litigated by CTS, both in legal and
administrative forums. In the opinion of management, based upon currently
available information, adequate provision for potential costs has been made, or
the costs which might ultimately result from such litigation or administrative
proceedings will not materially affect the consolidated financial position of
the Company or the results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1996, no issue was submitted to a vote of CTS
shareholders.
E-10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The principal market for CTS common stock is the New York Stock Exchange.
Information relative to the high and low trading prices for CTS Common Stock for
each quarter of the past two years and the frequency and amount of dividends
declared during the previous two years can be located in "Shareholder
Information," page 2, of the CTS Corporation 1996 Annual Report, incorporated
herein by reference. On March 7, 1997, there were approximately 977 holders of
record of CTS common stock.
The Company intends to continue a policy of considering dividends on a
quarterly basis. The declaration of a dividend and the amount of any such
dividend is subject to earnings, anticipated working capital, capital
expenditure and other investment requirements, the financial condition of CTS
and such other factors as the Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
A summary of selected financial data for CTS, for each of the previous five
fiscal years, is contained in the "Five-Year Summary," page 3, of the CTS
Corporation 1996 Annual Report, incorporated herein by reference.
Certain divestitures and closures of businesses and certain accounting
changes affect the comparability of information contained in the "Five-Year
Summary."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information about liquidity, capital resources and results of operations,
for the three previous fiscal years, is contained in "Management's Discussion
and Analysis of Financial Condition and Results of Operations (1994-1996),"
pages 20-23, of the CTS Corporation 1996 Annual Report, incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements, meeting the requirements of Regulation
S-X, and the Report of Independent Accountants, are contained in pages 4-19 of
the CTS Corporation 1996 Annual Report, incorporated herein by reference.
Quarterly per share financial data is provided in "Shareholder Information,"
under the subheadings, "Quarterly Results of Operations" and "Per Share Data,"
on page 2 of the CTS Corporation 1996 Annual Report, and is incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements.
E-11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
YEAR FIRST
DIRECTORS ELECTED DIRECTOR
- ------------------------------------------------------------------------------------------------- -----------------
<S> <C>
GERALD H. FRIELING, JR. 1982
Vice Chairman of the Board of Tokheim Corporation (a manufacturer of petroleum dispensing
equipment, systems and control devices); President of Frieling and Associates (a consulting
firm); Chairman of the Audit Committee and Member of the Executive and Compensation
Committees of CTS Corporation. During the past five years, Mr. Frieling, age 66, served as
Chairman of the Board and Chief Executive Officer of Tokheim Corporation, and in his present
capacity at Frieling and Associates.
ANDREW LOZYNIAK 1987
Chairman of the Board and President of Dynamics Corporation of America (a manufacturer of
electrical appliances and electronic devices, fabricated metal products and equipment, and
power and controlled environmental systems); Chairman of the Compensation Committee and
Member of the Executive and Audit Committees of CTS Corporation. During the past five years,
Mr. Lozyniak, age 65, has served in his present capacities at Dynamics Corporation of
America. Mr. Lozyniak serves as a director of Dynamics Corporation of America and Physicians
Health Services, Inc.
JOSEPH P. WALKER 1987
Chairman of the Board, President and Chief Executive Officer of CTS Corporation; Chairman of
the Executive Committee of CTS Corporation. During the past five years, Mr. Walker, age 58,
has served in his present capacities at CTS. Mr. Walker is a director of NBD Bank, N.A.
LAWRENCE J. CIANCIA 1990
Vice President, Growth and Development, of Uponor U.S., Inc. (a supplier of PVC pipe products,
specialty chemicals and PVC compounds); Member of the Audit and Compensation Committees of
CTS Corporation. During the past five years, Mr. Ciancia, age 54, has served as President,
Chief Executive Officer and Chief Operating Officer of Uponor ETI Company, formerly Concorde
Industries, Inc.
PATRICK J. DORME 1993
Vice President and Chief Financial Officer of Dynamics Corporation of America (a manufacturer
of electrical appliances and electronic devices, fabricated metal products and equipment, and
power and controlled environmental systems); Member of the Audit and Compensation Committees
of CTS Corporation. During the past five years, Mr. Dorme, age 61, has served in his present
capacities at Dynamics Corporation of America. Mr. Dorme serves as a director of Dynamics
Corporation of America.
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and Executive Officers, and persons who own more than
ten percent of a registered class of the Corporation's equity securities, to
file with the Securities and Exchange Commission and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity
E-12
<PAGE>
securities of the Corporation. Executive Officers, directors and greater than
ten percent shareholders are required by SEC regulation to furnish the
Corporation with copies of all Section 16(a) forms they file.
To the Corporation's knowledge, based solely on its review of the copies of
such reports furnished to the Corporation and written representations that no
other reports were required during the year ended December 31, 1996, all Section
16(a) filing requirements applicable to its Executive Officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE OFFICERS
The individuals listed were elected as executive officers of CTS at the
annual meeting of the Board of Directors on April 26, 1996, and are expected to
serve as executive officers until the next annual meeting of the Board of
Directors, scheduled on April 25, 1997, at which time the election of officers
will be considered again by the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Joseph P. Walker..................................... 58 Director, Chairman, President and Chief Executive
Officer
Philip T. Christ..................................... 65 Group Vice President
Stanley J. Aris...................................... 56 Vice President Finance and Chief Financial Officer
Jeannine M. Davis.................................... 48 Vice President, Secretary and General Counsel
James L. Cummins..................................... 41 Vice President Human Resources
James N. Hufford..................................... 57 Vice President Research, Development and Engineering
Donald R. Schroeder.................................. 48 Vice President Sales and Marketing
George T. Newhart.................................... 54 Corporate Controller
Gary N. Hoipkemier................................... 42 Treasurer
</TABLE>
Joseph P. Walker has served as Chairman of the Board, President and Chief
Executive Officer of CTS since 1988. Mr. Walker is a Director of NBD Bank, N.A.
Philip T. Christ has served as Group Vice President since 1990.
Stanley J. Aris has served as Vice President Finance and Chief Financial
Officer since 1992. Prior to joining CTS, Mr. Aris worked for two years as a
business consultant.
Jeannine M. Davis has served as Vice President, Secretary and General
Counsel since 1988.
James L. Cummins was elected Vice President Human Resources on February 25,
1994. Prior to this appointment, he served as Director, Human Resources, CTS
Corporation from 1991-1994.
James N. Hufford was elected Vice President Research, Development and
Engineering on February 17, 1995. During the four years prior to this
appointment, Mr. Hufford served as Manager and then Director of Corporate
Research, Development and Engineering for the Corporation.
Donald R. Schroeder was elected Vice President Sales and Marketing on
February 17, 1995. During the six years prior to this appointment, Mr. Schroeder
served as Business Development Manager for innovative and new technology for the
CTS Microelectronics business unit in West Lafayette, Indiana.
George T. Newhart has served as Corporate Controller since 1989.
Gary N. Hoipkemier has served as Treasurer since 1989.
E-13
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth annual and long-term compensation information
for each of the last three fiscal years of the Chief Executive Officer and the
four highest compensated Executive Officers whose salary and bonus for fiscal
year 1996 exceeded $100,000. Information which is not required to be disclosed
in the table is identified by the letters "N/R."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------------------- STOCK UNDERLYING ALL OTHER
SALARY BONUS(1) OTHER(2) AWARD(S)(3) OPTIONS COMPENSATION(4)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) ($) ($)
- ---------------------------------------- --------- --------- --------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph P. Walker(5,6)................... 1996 342,167 205,300 N/R 0 0 6,007
Chairman of the Board, President and 1995 327,411 196,400 N/R 0 10,000 11,270
Chief Executive Officer 1994 311,878 147,200 N/R 231,250 0 8,496
Philip T. Christ(6)..................... 1996 203,903 122,400 N/R 0 0 11,363
Group Vice President 1995 178,775 107,300 N/R 231,000 8,000 7,677
1994 168,301 90,200 N/R 0 5,000 7,326
Stanley J. Aris(6)...................... 1996 174,309 104,600 N/R 0 0 3,375
Vice President Finance and Chief 1995 168,078 100,800 N/R 37,375 8,500 5,994
Financial Officer 1994 160,105 75,600 N/R 57,813 3,000 4,991
Donald R. Schroeder(6).................. 1996 126,692 76,000 N/R 0 0 4,464
Vice President, Sales and Marketing 1995 119,481 71,700 N/R 0 5,500 39,428
1994 N/R N/R N/R N/R N/R N/R
James N. Hufford(6)..................... 1996 122,464 73,500 N/R 0 0 3,978
Vice President Research Development and 1995 115,126 69,100 N/R 37,375 5,750 4,520
Engineering 1994 N/R N/R N/R N/R N/R N/R
</TABLE>
- ------------------------
(1) Includes bonuses paid pursuant to the CTS Corporation Management Incentive
Plan, as described in the Report of the Compensation Committee below.
(2) he value of other personal benefits received from the Corporation by the
named Executive Officers is below the reporting threshold for perquisites.
(3) At the end of fiscal year 1996, Joseph P. Walker held 6,000 restricted
shares, issued pursuant to the CTS Corporation 1988 Restricted Stock and
Cash Bonus Plan, on which the transfer restrictions had not lapsed, the
market value of which at December 31, 1996 was $256,500. At the time that
such restrictions lapse, a cash bonus is paid in an amount equal to the
market value of the shares on the date the restriction lapses. For Joseph P.
Walker, the cash payments made pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan for the three identified years were:
1996-- $75,000; 1995 -$62,000; and 1994--$49,250.
At the end of fiscal year 1996, Philip T. Christ held 6,000 restricted
shares, issued pursuant to the CTS Corporation 1988 Restricted Stock and
Cash Bonus Plan, on which the transfer restrictions had not lapsed, the
market value of which on December 31, 1996 was $256,500. For Philip T.
Christ, the cash payments made pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan for the three identified years were:
1996--$69,375; 1995--$24,200; and 1994--$19,150.
E-14
<PAGE>
At the end of fiscal year 1996, Stanley J. Aris held 2,300 restricted shares,
issued pursuant to the CTS Corporation 1988 Restricted Stock and Cash Bonus
Plan, on which the transfer restrictions had not lapsed, the market value of
which on December 31, 1996 was $98,325. For Stanley J. Aris, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock and Cash
Bonus Plan for the three identified years were: 1996--$26,925;
1995--$15,500; and 1994--$0.
At the end of fiscal year 1996, Donald R. Schroeder held 600 restricted
shares, issued pursuant to the CTS Corporation 1988 Restricted Stock and
Cash Bonus Plan, on which the transfer restrictions had not lapsed, the
market value of which on December 31, 1996 was $25,650. For Donald R.
Schroeder, the cash payments made pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan for the three identified years were:
1996--$8,175; 1995--$7,425 and 1994--N/R.
At the end of fiscal year 1996, James N. Hufford held 800 restricted shares,
issued pursuant to the CTS Corporation 1988 Restricted Stock and Cash Bonus
Plan, on which the transfer restrictions had not lapsed, the market value of
which on December 31, 1996 was $34,200. For James N. Hufford, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock and Cash
Bonus Plan for the three identified years were: 1996--$8,175; 1995--$0 and
1994--N/R.
The restrictions on 20% of the shares awarded under this Plan lapse at the
end of each of the five years following acquisition of the shares. Regular
dividends are paid to holders of restricted stock awarded under this Plan.
This Plan includes a change of control provision which provides that, upon a
change of control of the Corporation, as defined in the Plan, all
restrictions on shares awarded under the Plan will lapse and cash bonuses
will be paid relative to those shares.
(4) Includes (i) the Corporation's matching contributions to the CTS Corporation
Retirement Savings Plan on behalf of the named Executive Officers as
follows: for Joseph P. Walker, 1996 - $3,375; 1995-- $3,465; and
1994--$3,465; for Philip T. Christ, 1996--$3,375; 1995--$3,465; and
1994--$3,465; for Stanley J. Aris, 1996--$3,375; 1995--$3,465; and 1994
-$3,465; for Donald R. Schroeder, 1996-- $3,375; 1995--$2,592; and
1994--N/R; and for James N. Hufford, 1996--$3,375; 1995 -$3,135; and
1994--N/R; and (ii) the premiums paid by the Corporation on the term life
insurance policies with face values greater than $50,000 provided to each of
the named Executive Officers as follows: for Joseph P. Walker, 1996--$0;
1995 -$5,310; and 1994--$5,031; for Philip T. Christ, 1996--$7,988;
1995--$4,212; and 1994--$3,861; for Stanley J. Aris, 1996 -$0; 1995--$2,529;
and 1994--$1,526; for Donald R. Schroeder, 1996--$1,089; 1995--$929; and
1994--N/R; and for James N. Hufford, 1996-- $603; 1995--$1,386; and
1994--N/R.
For Joseph P. Walker, also includes the imputed income value of the term life
insurance portion of the coverage under a "split dollar" life insurance
policy as follows: for 1996 -$2,632; for 1995--$2,495; and for 1994--$0.
For Donald R. Schroeder, also includes for 1995 employee relocation expenses
paid by the Corporation.
(5) Joseph P. Walker has executed an employment agreement with the Corporation,
which provides that for a period of three years, beginning June 24, 1994,
Mr. Walker will be employed by the Corporation as Chairman of the Board,
President and Chief Executive Officer, at an initial annual salary of
$319,725. Termination of Mr. Walker's employment agreement by the
Corporation, for reasons other than cause as defined in the agreement,
entitles Mr. Walker to receive his then current annual salary for the number
of months remaining under his agreement, the same to be paid in equal
monthly payments.
(6) The Corporation has entered into Indemnification Agreements with each of the
named Executive Officers and all other Executive Officers of the Corporation
which provide that the Corporation agrees to indemnify the officer, to the
fullest extent allowed by the bylaws of the Corporation and the Indiana
Business Corporation Law, in the event that he/she was or is made a party or
threatened to be
E-15
<PAGE>
made a party to any action, suit or proceeding by reason of the fact that
he/she is an officer of the Corporation. The indemnification agreements
provide indemnification for acts occurring prior to the execution of the
agreements.
STOCK OPTIONS
No options for CTS Corporation Common Stock were awarded to the named
Executive Officers in 1996.
OPTION EXERCISES IN 1996
AND FISCAL YEAR END 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISES REALIZED UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------------- ------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Joseph P. Walker............................. -0- -0- 2,500/7,500 $ 13,438/$40,313
Philip T. Christ............................. -0- -0- 6,100/8,900 $ 92,988/$87,263
Stanley J. Aris.............................. -0- -0- 5,300/8,200 $ 76,063/$70,875
Donald R. Schroeder.......................... -0- -0- 2,000/4,500 $ 18,325/$29,238
James N. Hufford............................. -0- -0- 2,100/4,650 $ 18,863/$30,044
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors, comprised of Lawrence
J. Ciancia, Patrick J. Dorme, Gerald H. Frieling, Jr., and Andrew Lozyniak,
submits this report of Executive Compensation to the Corporation's shareholders.
COMPENSATION PRINCIPLES AND PHILOSOPHY
The Compensation Committee of the Board of Directors has implemented
executive compensation policies and programs designed to achieve the following
objectives:
Attract and retain key executives and managers
Align the financial interests of key executives and managers with those of
the shareholders of the Corporation
Reward individual performance
Reward Corporate performance
These objectives are achieved through a combination of annual and longer
term compensation arrangements including base salary, annual cash incentive
compensation, and long-term incentive compensation through stock options and
restricted stock awards, in addition to medical, pension and other benefits
available to employees in general.
The four principal components of the Executive Officer Compensation package
at CTS Corporation are: base salary, the CTS Corporation Management Incentive
Plan, the CTS Corporation Stock Option Plans and the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan.
E-16
<PAGE>
BASE SALARY
The base salary of the Executive Officers of CTS Corporation is determined
in the same manner as the salaries of all exempt salaried employees of the
Corporation. A job classification system is utilized to determine appropriate
salary ranges for each Executive Officer position, based on qualifications, job
responsibilities and market factors. The goal of CTS Corporation's job
classification system is that Executive Officers, and employees in general, are
paid a salary which is commensurate with their qualifications, duties and
responsibilities and which is competitive in the market place. The Corporation
retained Towers Perrin to assess the current salaries and job classifications of
the Executive Officers compared with market data for similar positions at
similar companies and to provide periodic updates upon request.
The report from Towers Perrin indicated that the salaries of the
Corporation's Executive Officers are generally below competitive median
salaries. When the financial performance of the Corporation permits, salary
adjustments above the Corporation's salary budget for all exempt salaried
employees are considered for those in the lower portion of their salary range,
if individual performance warrants such consideration.
During each of the past three years, the named Executive Officers have been
granted salary increases in the same range established for all exempt salaried
employees of the Corporation, except that on occasion, certain officer salaries
were increased at higher rates in response to competitive salary information
provided by Towers Perrin.
CTS CORPORATION MANAGEMENT INCENTIVE PLAN
All Executive Officers of the Corporation are participants in the CTS
Corporation Management Incentive Plan, which provides cash compensation
incentives, based on the financial performance of the Corporation. For 1996,
financial performance was measured on the basis of achieving target levels of
return on assets (ROA). When Plan financial objectives are met at the 100%
level, each of the named Executive Officers is eligible for a bonus in an amount
equal to 40% of his/her base salary for the subject year. Maximum incentive
payments under this Plan range from 10% to 60% of the annual salary of the Plan
participants.
For 1996, the Corporation achieved 150% of its ROA target under the 1996 CTS
Corporation Management Incentive Plan. Accordingly, the named Executive Officers
received formula bonuses under the Plan equal to 60% of their base salaries.
For 1995, the Corporation achieved 150% of its ROA target under the 1995 CTS
Corporation Management Incentive Plan. Accordingly, the named Executive Officers
received formula bonuses under the Plan equal to 60% of their base salaries.
This Plan also authorizes the Compensation Committee to grant discretionary
bonuses when the Committee deems it appropriate to do so. No significant
discretionary bonuses have been paid to the named Executive Officers during any
of the three years for which compensation is disclosed.
CTS CORPORATION 1996 STOCK OPTION PLAN
The Compensation Committee administers the CTS Corporation 1996 Stock Option
Plan and predecessor stock option plans and determines to whom options will be
granted, the dates of such option grants, the number of shares subject to
option, the option price, option periods and option terms. No options were
granted to Executive Officers of the Corporation during 1996 under these Plans.
CTS CORPORATION 1988 RESTRICTED STOCK AND CASH BONUS PLAN
The CTS Corporation 1988 Restricted Stock and Cash Bonus Plan was adopted by
the shareholders in 1989 for the purpose of providing incentives to selected key
employees who contribute or are expected to
E-17
<PAGE>
contribute materially to the success of the Corporation, and to closely align
the financial interests of these key employees with those of the Corporation's
shareholders. The participants are selected and their level of participation
determined by the Compensation Committee.
Shares acquired by participants pursuant to the Plan are subject to
restriction that, during the period of five years after the date of acquisition,
the participant may not sell, transfer or otherwise dispose of such shares as to
which the restrictions shall not have lapsed. The restrictions lapse as to 20%
of the shares acquired pursuant to the Plan at the end of each year following
the acquisition of the shares. When the restrictions lapse, a cash bonus is paid
to the participant equal to the fair market value of such shares as of the date
of such lapse. In no event may the cash bonuses payable to any participant be
greater than twice the fair market value of such shares on the date they were
originally acquired.
Dividends are paid to participants in this Plan on all shares awarded to
them under the Plan. The Plan also provides for appropriate adjustment to the
number of shares awarded in the event of a stock dividend, stock split,
recapitalization, merger, combination or exchange of shares for other
securities.
No awards under the Plan were made to the named Executive Officers in 1996.
The number of shares previously awarded to the named Executive Officers, their
market value, vesting schedules, and bonuses paid relative thereto, are set
forth in the Summary Compensation Table above and the footnotes thereto.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits to
$1,000,000 per person the amount that the Corporation may deduct for
compensation paid to any of its most highly compensated officers in any year
after 1993. The levels of compensation paid to the Corporation's Executive
Officers do not exceed this limit. The Compensation Committee currently intends
for all compensation paid to its Executive Officers to be tax deductible to the
Company pursuant to Section 162(m).
Respectfully Submitted,
CTS CORPORATION COMPENSATION
COMMITTEE
Lawrence J. Ciancia, Patrick J. Dorme,
Gerald H. Frieling, Jr. and Andrew
Lozyniak
DIRECTOR COMPENSATION
Each member of the Board of Directors, who is not an employee or an officer
of the Corporation, is paid an annual retainer of $13,000 per year for service
on the Board of Directors, a meeting fee of $1,000 for each meeting of the Board
of Directors attended in person, and $500 for each meeting of the Board of
Directors attended by telephone. In addition, each member of the Executive
Committee and each member of the Compensation Committee is entitled to receive
an annual retainer of $500, and each member of the Audit Committee is entitled
to receive an annual retainer of $1,000, together with a meeting fee of $1,000
for attending each meeting of a committee of which he is a member, except that
he is entitled to receive $500 per meeting for a second or subsequent meeting
held on the same day and for any such meetings attended by telephone.
On April 27, 1990 the Corporation adopted the CTS Corporation Stock
Retirement Plan for Nonemployee Directors of the Corporation (the "Plan"). Under
the Plan, separate accounts are opened by the Corporation in the names of
nonemployee directors. On January 1 of each year, starting in 1991, a deferred
stock account in the name of each nonemployee director is credited with 100
Common Stock Units if said director was a nonemployee director of the
Corporation on the last day of the immediately preceding calendar year or ceased
to be a director during such preceding calendar year by reason of his
E-18
<PAGE>
retirement, disability or death. In addition, on May 1, 1990, the Corporation
credited to the deferred stock account of each such director 50 Common Stock
Units for each complete calendar year of his service to the Corporation as a
nonemployee director prior to May 1, 1990. Each deferred stock account will also
be credited with Common Stock Units when credits equivalent to cash dividends on
the shares in an account aggregate an amount equal to the value of a share of
Common Stock on a dividend payment date. All deferred Common Stock Units in a
director's account will be distributed in Common Stock as of the January 1st
after the director leaves the Board of Directors. Until such time, the
Corporation's obligation under the Plan is an unsecured promise to deliver
shares of Common Stock. No Common Stock will be held in trust or as a segregated
fund because of the adoption of the Plan. Four members of the Board of Directors
are currently eligible to participate in the Plan. The Corporation expensed
$17,100 in 1996 in respect of Common Stock Units credited to the accounts of the
eligible directors as a group pursuant to the Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table includes information with respect to all persons and
groups known to the Corporation to be beneficial owners of more than five
percent of the Common Stock of the Corporation on March 7, 1997. The number of
shares and the percent of class held by each director and director-nominee is
also stated. Additionally, the number of shares and the percent of class held by
each executive officer of the Corporation included in the Summary Compensation
Table set forth under the caption "Executive Compensation" below is included,
together with the total number of shares and percent of class held by all
directors and officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP ON
BENEFICIAL OWNER MARCH 7, 1997 (1) PERCENT OF CLASS
- ---------------------------------------------------------------------- ------------------------ ----------------
<S> <C> <C>
Dynamics Corporation of America....................................... 2,303,100(2) 44.07
475 Steamboat Road
Greenwich, CT 06830
The Gabelli Group, Inc................................................ 1,212,100(3) 23.19
GAMCO Investors, Inc.,
and Gabelli Funds, Inc.
655 Third Avenue
New York, NY 10017
Gerald H. Frieling, Jr................................................ 200,150(4) 3.83
Lawrence J. Ciancia................................................... 199,650(4) 3.82
Patrick J. Dorme...................................................... 199,150(4, 10) 3.81
Andrew Lozyniak....................................................... 199,150(4, 10) 3.81
Joseph P. Walker...................................................... 26,712(5) *
Philip T. Christ...................................................... 19,285(6) *
Stanley J. Aris....................................................... 11,114(7) *
Donald R. Schroeder................................................... 10,341(8) *
James N. Hufford...................................................... 4,515(9) *
13 Directors and Officers as a group.................................. 295,316(4, 11) 5.65
</TABLE>
E-19
<PAGE>
- ------------------------
* Less than 1%.
(1) Information with respect to beneficial ownership is based upon information
furnished by each shareholder or contained in filings made with the
Securities and Exchange Commission. Except where otherwise indicated, the
shareholders listed in the table have sole voting and investment authority
with respect to the shares owned by them.
(2) Includes 1,020,000 shares for which voting authority was not granted by a
vote of the independent shareholders of the Corporation at the 1987 Annual
Meeting of Shareholders, pursuant to the Control Share Acquisition Chapter
of the Indiana Business Corporation Law.
(3) Includes 215,500 shares held by Gabelli Funds, Inc., and 996,600 shares held
by GAMCO Investors, Inc., which were reported on a joint Schedule 13D filed
March 6, 1996, the most recent filing by such Reporting Persons. According
to the Schedule 13D, each of the Reporting Persons and Covered Persons has
the sole power to vote or direct the vote and sole power to dispose or to
direct the disposition of the Securities reported for it, either for its own
benefit or for the benefit of its investment clients or its partners, as the
case may be, except that GAMCO Investors, Inc. does not have authority to
vote 173,000 of the reported shares, and except that Gabelli Funds, Inc. has
sole dispositive and voting power with respect to the 215,500 reported
shares held by the Funds, so long as the aggregate voting interest of all
joint filers does not exceed 25% of the issuer's total voting interest and,
in that event, the respective Proxy Voting Committee of each fund (other
than The Gabelli Growth Fund) will vote the shares held by that Fund; except
that, at any time, the Proxy Voting Committee of each such Fund may take and
exercise in its sole discretion the entire voting power with respect to the
shares held by such Fund under special circumstances such as regulatory
considerations; and that the power of Mr. Gabelli and Gabelli Funds, Inc. is
indirect with respect to securities beneficially owned directly by other
Reporting Persons.
(4) 199,150 of the shares shown as owned beneficially by each of Mr. Ciancia,
Mr. Dorme, Mr. Frieling, Mr. Lozyniak and 13 directors and officers as a
group are the same shares, which shares are held by The Northern Trust
Company as Trustee of the CTS Corporation Employee Benefit Plans Master
Trust (the "Trust"). The Compensation Committee of the Board of Directors
has voting and investment authority over said shares. The present members of
the Compensation Committee are Lawrence J. Ciancia, Patrick J. Dorme, Gerald
H. Frieling, Jr., and Andrew Lozyniak, who were appointed by the Board of
Directors of CTS Corporation.
(5) Includes 4,012 shares attributed to Joseph P. Walker's account in the CTS
Corporation Retirement Savings Plan, as shown as of December 31, 1996, the
most recent annual report of the Plan. The number of shares attributed to
Mr. Walker's account may not reflect shares that have accrued to his account
since the filing of the Plan's last annual report. Also includes 2,500
shares subject to options exercisable on March 7, 1997, or which become
exercisable within 60 days thereafter.
(6) Includes 1,685 shares attributed to Philip T. Christ's account in the CTS
Corporation Retirement Savings Plan, as shown as of December 31, 1996, the
most recent annual report of the Plan. The number of shares attributed to
Mr. Christ's account may not reflect shares that have accrued to his account
since the filing of the Plan's last annual report. Also includes 6,600
shares subject to options exercisable on March 7, 1997, or which become
exercisable within 60 days thereafter.
(7) Includes 314 shares attributed to Stanley J. Aris' account in the CTS
Corporation Retirement Savings Plan, as shown as of December 31, 1996, the
most recent annual report of the Plan. The number of shares attributed to
Mr. Aris' account may not reflect shares that have accrued to his account
since the filing of the Plan's last annual report. Also includes 5,800
shares subject to options exercisable on March 7, 1997, or which become
exercisable within 60 days thereafter.
E-20
<PAGE>
(8) Includes 6,341 shares attributed to Donald R. Schroeder's account in the CTS
Corporation Retirement Savings Plan, as shown as of December 31, 1996, the
most recent annual report of the Plan. The number of shares attributed to
Mr. Schroeder's account may not reflect shares that have accrued to his
account since the filing of the Plan's last annual report. Also includes
2,000 shares subject to options exercisable on March 7, 1997, or which
become exercisable within 60 days thereafter.
(9) Includes 1,015 shares attributed to James N. Hufford's account in the CTS
Corporation Retirement Savings Plan, as shown as of December 31, 1996, the
most recent annual report of the Plan. The number of shares attributed to
Mr. Hufford's account may not reflect shares that have accrued to his
account since the filing of the Plan's last annual report. Also includes
2,100 shares subject to options exercisable on March 7, 1997, or which
become exercisable within 60 days thereafter. Also includes 400 shares held
in a trust for his spouse, of which he disclaims beneficial ownership.
(10) Messrs. Dorme and Lozyniak are directors of Dynamics Corporation of
America.
(11) Includes 29,400 shares subject to options exercisable on March 7, 1997, or
which become exercisable within 60 days thereafter.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dynamics Corporation of America (DCA) owned 2,303,100 (44.1%) of the
Company's outstanding common stock as of December 31, 1996. CTS purchased
products from DCA totaling $157,000 in 1996, $143,000 in 1995 and $233,000 in
1994, principally consisting of certain component parts used by CTS in the
manufacture of frequency control devices. CTS had no sales to DCA in 1996, and
minimal sales in 1995 and 1994.
E-21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of CTS Corporation and
subsidiaries included in the annual report of the registrant to its shareholders
for the year ended December 31, 1996, are incorporated by reference in Item 8:
Consolidated balance sheets--December 31, 1996, and December 31, 1995
Consolidated statements of earnings--Years ended December 31, 1996,
December 31, 1995, and December 31, 1994
Consolidated statements of shareholders' equity--Years ended December 31,
1996, December 31, 1995, and December 31, 1994
Consolidated statements of cash flows--Years ended December 31, 1996,
December 31, 1995, and December 31, 1994
Notes to Consolidated Financial Statements
The following consolidated financial statement schedules of CTS Corporation
and subsidiaries, are included in item 14(d):
Schedule II--Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have
been omitted because they are inapplicable, not required or the
information is included in the consolidated financial statements or notes
thereto.
(a)(3) EXHIBITS
<TABLE>
<C> <S>
(3)(a) Articles of Incorporation, as amended April 16, 1973, previously filed as
exhibit (3)(a) to the Company's Form 10-K for 1987, and incorporated herein by
reference.
(3)(b) Bylaws, as amended and effective June 25, 1992, filed herewith.
(10)(a) Employment agreement dated June 24, 1994, between CTS and Joseph P. Walker,
filed herewith.
(10)(b) Prototype indemnification agreement, with Lawrence J. Ciancia, Patrick J. Dorme,
Gerald H. Frieling, Jr., Andrew Lozyniak, Joseph P. Walker, Philip T. Christ,
Jeannine M. Davis, George T. Newhart and Gary N. Hoipkemier, filed as exhibit
(10)(b) to the Company's Form 10-K for 1991, and incorporated herein by
reference.
(10)(c) CTS Corporation 1982 Stock Option Plan, as amended February 24, 1989, previously
filed as exhibit to the Company's Form 10-K for 1989, and incorporated herein by
reference.
(10)(d) CTS Corporation 1986 Stock Option Plan, approved by the shareholders at the
reconvened annual meeting on May 30, 1986. The CTS Corporation 1986 Stock Option
Plan is contained in Exhibit 4 to Registration Statement No. 33-27749, effective
March 23, 1989, and is incorporated herein by reference.
</TABLE>
E-22
<PAGE>
<TABLE>
<C> <S>
(10)(e) CTS Corporation 1988 Restricted Stock and Cash Bonus Plan, as adopted by the CTS
Board of Directors on December 16, 1988, and approved by shareholders at the
1989 annual meeting of shareholders on April 28, 1989. The CTS Corporation 1988
Restricted Stock and Cash Bonus Plan is contained in Appendix A, pages 11-15, of
the 1989 Proxy Statement for the annual meeting of shareholders held April 28,
1989, under the caption "CTS Corporation 1988 Restricted Stock and Cash Bonus
Plan," previously filed with the Securities and Exchange Commission, and is
incorporated herein by reference.
(10)(f) CTS Corporation 1996 Stock Option Plan, approved by the shareholders at the
annual meeting on April 26, 1996. The CTS Corporation 1996 Stock Option Plan is
contained in Exhibit 4 to Registration Statement No. 333-5730, effective October
3, 1996, and is incorporated herein by reference.
(10)(g) Prototype indemnification agreement, with Stanley J. Aris, James L. Cummins,
James N. Hufford and Donald R. Schroeder, filed herewith.
(13) CTS Corporation 1996 Annual Report, filed herewith.
(21) Subsidiaries of CTS Corporation, filed herewith.
(23) Consent of Price Waterhouse to incorporation by reference of this Annual Report
on Form 10-K for the fiscal year 1996 to Registration Statement 33-27749 on Form
S-8 and Registration Statement 333-5730, filed herewith.
</TABLE>
INDEMNIFICATION UNDERTAKING
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 33-27749 (filed March 23, 1989)and 333-5730 (filed October 3, 1996):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provision, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
E-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
Dated: August 13, 1997 By: /s/ STANLEY J. ARIS
-----------------------------------------
Stanley J. Aris,
Vice President Finance
and Chief Financial Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Dated: August 13, 1997 By: /s/ LAWRENCE J. CIANCIA
-------------------------------------------
Lawrence J. Ciancia,
Director
Dated: August 13, 1997 By: /s/ PATRICK J. DORME
-------------------------------------------
Patrick J. Dorme
Director
Dated: August 13, 1997 By: /s/ GERALD H. FRIELING, JR.
-------------------------------------------
Gerald H. Frieling, Jr.,
Director
Dated: August 13, 1997 By: /s/ ANDREW LOZYNIAK
-------------------------------------------
Andrew Lozyniak,
Director
Dated: August 13, 1997 By: /s/ JOSEPH P. WALKER
-------------------------------------------
Joseph P. Walker,
Director
Dated: August 13, 1997 By: /s/ GEORGE T. NEWHART
-------------------------------------------
George T. Newhart,
Corporate Controller and principal
accounting officer
Dated: August 13, 1997 By: /s/ JEANNINE M. DAVIS
-------------------------------------------
Jeannine M. Davis,
Vice President, Secretary and General
Counsel
</TABLE>
E-24
<PAGE>
PRICE WATERHOUSE LLP
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of CTS Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 27, 1997, appearing on page 19 of the CTS Corporation 1996 Annual
Report (incorporated by reference in this Annual Report on Form 10-K/A) also
included an audit of the Financial Statement Schedule listed in item 14(a) of
this Form 10-K/A. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Chicago, Illinois
January 27, 1997
S-1
<PAGE>
CTS CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
CLASSIFICATION PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) OF PERIOD
- ------------------------------------------- --------------- ------------- --------------- --------------- -----------------
Year ended December 31, 1996:
Allowance for doubtful receivables....... $ 774 $ 239 $ 0 $ 391 $ 622
Year ended December 31, 1995: Allowance for
doubtful receivables..................... $ 869 $ 1 $ 0 $ 96 $ 774
Year ended December 31, 1994: Allowance for
doubtful receivables..................... $ 709 $ 277 $ 0 $ 117 $ 869
</TABLE>
- ------------------------
(1) Uncollectible accounts written off.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
(3)(a) Articles of Incorporation, as amended April 16, 1973, previously filed as exhibit
(3)(a) to the Company's Form 10-K for 1987, and incorporated herein by reference.
(3)(b) Bylaws, as amended and effective June 25, 1992, filed herewith.
(10)(a) Employment agreement dated June 24, 1994, between CTS and Joseph P. Walker, filed
herewith.
(10)(b) Prototype indemnification agreement, with Lawrence J. Ciancia, Patrick J. Dorme,
Gerald H. Frieling, Jr., Andrew Lozyniak, Joseph P. Walker, Philip T. Christ,
Jeannine M. Davis, George T. Newhart and Gary N. Hoipkemier, filed as exhibit
(10)(b) to the Company's Form 10-K for 1991, and incorporated herein by reference.
(10)(c) CTS Corporation 1982 Stock Option Plan, as amended February 24, 1989, previously
filed as exhibit (10)(d) to the Company's Form 10-K for 1989, and incorporated
herein by reference.
(10)(d) CTS Corporation 1986 Stock Option Plan, approved by the shareholders at the
reconvened annual meeting on May 30, 1986. The CTS Corporation 1986 Stock Option
Plan is contained in Exhibit 4 to Registration Statement No. 33-27749, effective
March 23, 1989, and is incorporated herein by reference.
(10)(e) CTS Corporation 1988 Restricted Stock and Cash Bonus Plan, as adopted by the CTS
Board of Directors on December 16, 1988, and approved by shareholders at the 1989
annual meeting of shareholders on April 28, 1989. The CTS Corporation 1988
Restricted Stock and Cash Bonus Plan is contained in Appendix A, pages 11-15, of
the 1989 Proxy Statement for the annual meeting of shareholders held April 28,
1989, under the caption "CTS Corporation 1988 Restricted Stock and Cash Bonus
Plan," previously filed with the Securities and Exchange Commission, and is
incorporated herein by reference.
(10)(f) CTS Corporation 1996 Stock Option Plan, approved by the shareholders at the annual
meeting on April 26, 1996. The CTS Corporation 1996 Stock Option Plan is contained
in Exhibit 4 to Registration Statement No. 333-5730, effective October 3, 1996, and
is incorporated herein by reference.
(10)(g) Prototype indemnification agreement, with Stanley J. Aris, James L. Cummins, James
N. Hufford and Donald R. Schroeder, filed herewith.
(13) CTS Corporation 1996 Annual Report, filed herewith.
(21) Subsidiaries of CTS Corporation, filed herewith.
(23) Consent of Price Waterhouse to incorporation by reference of this Annual Report on
Form 10-K for the fiscal year 1996 to Registration Statement 33-27749 on Form S-8
and Registration Statement 333-5730.
</TABLE>
<PAGE>
EXHIBIT 13
CTS CORPORATION
1996 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(IN THOUSANDS EXCEPT PER SHARE
DATA)
----------------------------------
<S> <C> <C> <C>
FOR THE YEAR 1996 1995 1994
- ----------------------------------------------------------------------------- ---------- ---------- ----------
Net sales.................................................................... $321,297 $300,157 $268,707
Net earnings................................................................. 21,170 17,164 13,967
Average common and common equivalent shares outstanding...................... 5,259 5,201 5,170
Per share data:
Net earnings............................................................... $4.03 $3.30 $2.70
Dividends declared......................................................... .69 .60 .45
Capital expenditures......................................................... 17,210 11,181 13,401
At Year-End
Working capital.............................................................. $86,810 $75,151 $65,875
Notes payable................................................................ 6,685 7,436
Long-term obligations (including current maturities)......................... 13,647 15,925 15,899
Shareholders' equity......................................................... 166,232 146,253 131,855
Equity per outstanding share................................................. 31.82 28.03 25.46
</TABLE>
1
<PAGE>
CTS CORPORATION
SHAREHOLDER INFORMATION
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NET GROSS OPERATING NET
SALES EARNINGS EARNINGS EARNINGS
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
1996
1st quarter......................................................... $ 80,186 $ 19,799 $ 6,587 $ 4,414
2nd quarter......................................................... 83,820 21,874 8,218 5,340
3rd quarter......................................................... 76,457 20,726 7,847 5,060
4th quarter......................................................... 80,834 25,097 10,768 6,356
---------- --------- ----------- ---------
$ 321,297 $ 87,496 $ 33,420 $ 21,170
1995
1st quarter......................................................... $ 75,978 $ 17,273 $ 4,877 $ 3,256
2nd quarter......................................................... 76,413 19,148 7,023 4,642
3rd quarter......................................................... 73,890 18,345 6,416 4,218
4th quarter......................................................... 73,876 20,038 9,172 5,048
---------- --------- ----------- ---------
$ 300,157 $ 74,804 $ 27,488 $ 17,164
</TABLE>
PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
DIVIDENDS NET
HIGH(A) LOW(A) DECLARED EARNINGS
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
1996
1st quarter............................................................. $ 38.63 $ 36.00 $ .15 $ .83
2nd quarter............................................................. 47.00 37.38 .18 1.03
3rd quarter............................................................. 47.00 40.50 .18 .96
4th quarter............................................................. 43.00 38.13 .18 1.21
$ .69 $ 4.03
1995
1st quarter............................................................. $ 32.00 $ 27.38 $ .15 $ .63
2nd quarter............................................................. 33.50 29.25 .15 .89
3rd quarter............................................................. 34.50 29.94 .15 .81
4th quarter............................................................. 37.75 29.63 .15 .97
--------- --------- ----- -----
$ .60 $ 3.30
</TABLE>
- ------------------------
(a) The market price range of CTS Corporation common stock on the New York Stock
Exchange for each of the quarters during the last two years.
2
<PAGE>
CTS CORPORATION
FIVE-YEAR SUMMARY
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
% OF % OF % OF
1996 SALES 1995 SALES 1994 SALES 1993
--------- ----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Net Sales............................ $ 321,297 100.0 $ 300,157 100.0 $ 268,707 100.0 $ 236,979
Cost of goods sold................. 233,801 72.8 225,353 75.1 205,640 76.5 183,927
Selling general and administrative
expenses......................... 43,333 13.5 39,312 13.1 36,175 13.5 36,323
Research and development
expenses......................... 10,743 3.3 8,004 2.7 6,208 2.3 5,708
(Gain) on sale of property and
other related provisions.........
Operating earnings................. 33,420 10.4 27,488 9.1 20,684 7.7 11,021
Other Income (expenses)-net.......... 182 0.1 196 0.1 803 0.3 (761)
Earnings before income taxes and
cumulative effect of changes in
accounting principles............ 33,602 10.5 27,684 9.2 21,487 8.0 10,260
Income taxes......................... 12,432 3.9 10,520 3.5 7,520 2.8 3,690
Net earnings--before accounting
changes.......................... 21,170 6.6 17,164 5.7 13,967 5.2 6,570
Cumulative effect on prior years of
accounting changes (a)............. (4,614)
Net earnings..................... 21,170 6.6 17,164 5.7 13,967 5.2 1,956
Retained earnings-beginning of
year............................... 126,546 112,506 100,868 100,973
Dividends declared................... (3,604) (3,124) (2,329) (2,061)
Retained earnings-end of year........ $ 144,112 $ 126,546 $ 112,506 $ 100,868
Average common and common equivalent
of shares outstanding.............. 5,259,284 5,200,818 5,170,406 5,152,556
Net earnings per share:
Before accounting changes.......... $ 4.03 $ 3.30 $ 2.70 $ 1.27
Cumulative effect on prior years of
accounting changes(a)............ (0.89)
Net earnings....................... $ 4.03 $ 3.30 $ 2.70 $ 0.38
Cash dividends per share............. $ 0.69 $ 0.60 $ 0.45 $ 0.40
Capital expenditures................. 17,210 11,181 13,401 11,696
Depreciation and amortization........ 12,491 11,683 11,236 12,143
Financial Position at Year-End
Current assets....................... $ 138,201 $ 126,113 $ 110,667 $ 97,266
Current liabilities.................. 51,391 50,962 44,792 49,888
Current ratio........................ 2.7 to 1 2.5 to 1 2.5 to 1 1.9 to 1
Working capital...................... $ 86,810 $ 75,151 $ 65,875 $ 47,378
Inventories.......................... 38,761 38,885 41,456 36,059
Property, plant and equipment-net.... 56,103 50,696 50,777 47,842
Total assets......................... 249,372 227,127 206,826 185,064
Short-term notes payable............. 6,685 7,436 12,822
Long-term obligations................ 11,220 13,714 15,595 4,995
Shareholders' equity................. 166,232 146,253 131,855 119,203
Common shares outstanding............ 5,224,956 5,217,329 5,178,604 5,153,424
Equity (book value) per share........ $ 31.82 $ 28.03 $ 25.46 $ 23.13
Other data
Stock price range (dollars per share $ 47.00- $ 37.75- $ 31.00- $ 22.38-
to the nearest 1/8)................ $ 36.00 $ 27.38 $ 19.50 $ 17.00
Average number of employees.......... 3,815 4,007 4,056 3,975
Number of shareholders at year-end... 986 1,062 1,136 1,198
<CAPTION>
% OF % OF
SALES 1992 SALES
----- --------- -----
<S> <C> <C> <C>
Summary of Operations
Net Sales............................ 100.0 $ 277,391 100.0
Cost of goods sold................. 77.6 180,198 79.2
Selling general and administrative
expenses......................... 15.3 37,855 16.6
Research and development
expenses......................... 2.4 6,092 2.7
(Gain) on sale of property and
other related provisions......... (852) (0.3)
Operating earnings................. 4.7 4,098 1.8
Other Income (expenses)-net.......... (0.4) (277) (0.1)
Earnings before income taxes and
cumulative effect of changes in
accounting principles............ 4.3 3,821 1.7
Income taxes......................... 1.6 1,920 0.9
Net earnings--before accounting
changes.......................... 2.7 1,901 0.8
Cumulative effect on prior years of
accounting changes (a)............. (1.9)
Net earnings..................... 0.8 1,901 0.8
Retained earnings-beginning of
year............................... 102,482
Dividends declared................... (3,410)
Retained earnings-end of year........ $ 100,973
Average common and common equivalent
of shares outstanding.............. 5,141,936
Net earnings per share:
Before accounting changes.......... $ 0.37
Cumulative effect on prior years of
accounting changes(a)............
Net earnings....................... $ 0.37
Cash dividends per share............. $ 0.6625
Capital expenditures................. 8,831
Depreciation and amortization........ 11,665
Financial Position at Year-End
Current assets....................... $ 87,376
Current liabilities.................. 37,262
Current ratio........................ 2.3 to 1
Working capital...................... $ 50,114
Inventories.......................... 37,222
Property, plant and equipment-net.... 48,529
Total assets......................... 170,773
Short-term notes payable............. 5,827
Long-term obligations................ 10,826
Shareholders' equity................. 119,372
Common shares outstanding............ 5,150,824
Equity (book value) per share........ $ 23.18
Other data
Stock price range (dollars per share $ 24.50-
to the nearest 1/8)................ $ 17.13
Average number of employees.......... 4,335
Number of shareholders at year-end... 1,278
</TABLE>
- ------------------------
(a) The Company adopted FASB 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and FASB 109, "Accounting for Income Taxes,"
as of January 1, 1993.
3
<PAGE>
CTS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
<S> <C> <C> <C>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1996 1995 1994
------------ ------------ ------------
Net Sales............................................................... $ 321,297 $ 300,157 $ 268,707
Costs and expenses:
Cost of goods sold.................................................... 233,801 225,353 205,640
Selling, general and administrative expenses.......................... 43,333 39,312 36,175
Research and development expenses..................................... 10,743 8,004 6,208
Operating earnings................................................ 33,420 27,488 20,684
Other (expenses) income
Interest expense...................................................... (1,449) (1,790) (714)
Interest income....................................................... 1,881 1,421 657
Other................................................................. (250) 565 860
Total other income (expenses)..................................... 182 196 803
Earnings before income taxes...................................... 33,602 27,684 21,487
Income taxes--Note F.................................................... 12,432 10,520 7,520
Net earnings...................................................... $ 21,170 $ 17,164 $ 13,967
Net earnings per share............................................ $ 4.03 $ 3.30 $ 2.70
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
CTS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON RETAINED TRANSLATION DEFERRED TREASURY
STOCK EARNINGS ADJUSTMENT COMPENSATION STOCK TOTAL
--------- ---------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993.............. $ 34,222 $ 100,868 $ (1,049) $ (92) $ (14,746) $ 119,203
Net earnings............................... 13,967 13,967
Cash dividends of $.45 per share........... (2,329) (2,329)
Nonemployee Directors' stock retirement
plan..................................... (4) 3 12 11
Cumulative translation adjustment.......... 695 695
Issued 15,500 shares on restricted stock
and cash bonus........................... 51 (358) 307
Issued 8,650 shares on exercise of stock
options.................................. (72) 248 176
Stock compensation......................... 1 12 13
Deferred compensation recognized........... 119 119
--------- ---------- ----------- ----- ---------- ----------
Balances at December 31, 1994.............. 34,198 112,506 (354) (328) (14,167) 131,855
Net earnings............................... 17,164 17,164
Cash dividends of $.60 per share........... (3,124) (3,124)
Nonemployee Directors' stock retirement
plan..................................... 15 15
Cumulative translation adjustment.......... (291) (291)
Issued 18,500 shares on restricted stock
and cash bonus........................... 76 (632) 556
Issued 17,325 shares on exercise of stock
options.................................. (163) 522 359
Acquired compensation...................... 7 (7)
Stock compensation......................... 3 93 96
Deferred compensation recognized........... 17 162 179
--------- ---------- ----------- ----- ---------- ----------
Balances at December 31, 1995.............. 34,138 126,546 (645) (783) (13,003) 146,253
Net earnings............................... 21,170 21,170
Cash dividends of $.69 per share........... (3,604) (3,604)
Nonemployee Directors' stock retirement
plan..................................... 17 17
Cumulative translation adjustment.......... 2,018 2,018
Issued 1,500 shares on restricted stock and
cash bonus............................... 23 (70) 47
Issued 6,300 shares on exercise of stock
options.................................. (51) 197 146
Acquired 73 shares traded on
options--net............................. 3 (3)
Stock compensation......................... 27 100 127
Deferred compensation recognized........... 236 236
Acquired 3,200 shares for treasury stock... (131) (131)
--------- ---------- ----------- ----- ---------- ----------
Balances at December 31, 1996.............. $ 34,140 $ 144,112 $ 1,373 $ (600) $ (12,793) $ 166,232
--------- ---------- ----------- ----- ---------- ----------
--------- ---------- ----------- ----- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
5
<PAGE>
CTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents................................................................ $ 44,957 $ 37,271
Accountants receivable, less allowances (1996--$622; 1995--$774).................... 43,984 41,737
Inventories
Finished goods.................................................................... 8,504 7,445
Work-in-process................................................................... 17,138 14,789
Raw materials..................................................................... 13,119 16,651
------------ ------------
Total inventories............................................................... 38,761 38,885
Other current assets................................................................ 3,787 2,544
Deferred income taxes--Note F....................................................... 6,712 5,676
------------ ------------
Total current assets............................................................ 138,201 126,113
Property, Plant and Equipment
Buildings and land.................................................................. 42,800 42,547
Machinery and equipment............................................................. 146,589 139,594
------------ ------------
Total property, plant and equipment............................................. 189,389 182,141
Less accumulated depreciation....................................................... 133,286 131,445
------------ ------------
Net property, plant and equipment............................................... 56,103 50,696
Other Assets
Goodwill, less accumulated amortization (1996--$8,361; 1995--$7,687)................ 4,039 4,603
Prepaid pension expense--Note E..................................................... 50,152 44,739
Other............................................................................... 877 976
------------ ------------
Total other assets.............................................................. 55,068 50,318
------------ ------------
Total Assets.......................................................................... $ 249,372 $ 227,127
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable--Note B............................................................... $ 6,685
Current maturities of long-term obligations--Note C................................. $ 2,427 2,211
Accounts payable.................................................................... 17,146 15,605
Accrued salaries, wages and vacation................................................ 6,836 6,695
Accrued taxes other than income..................................................... 2,070 1,740
Income taxes payable................................................................ 5,946 3,991
Other accrued liabilities--Note H................................................... 16,966 14,035
------------ ------------
Total current liabilities....................................................... 51,391 50,962
Long-term Obligations--Note C......................................................... 11,220 13,714
Deferred Income Taxes--Note F......................................................... 16,146 11,909
Postretirement Benefits--Note E....................................................... 4,383 4,289
Contingencies--Note H
Shareholders' Equity
Common stock-authorized 8,000,000 shares without par value; issued 5,807,031........ 33,540 33,355
Retained earnings................................................................... 144,112 126,546
Cumulative translation adjustment................................................... 1,373 (645)
------------ ------------
179,025 159,256
Less cost of common stock held in treasury (1996--582,075 shares; 1995--589,702
shares).......................................................................... 12,793 13,003
------------ ------------
Total shareholders' equity...................................................... 166,232 146,253
------------ ------------
Total Liabilities and Shareholders' Equity............................................ $ 249,372 $ 227,127
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
CTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
<S> <C> <C> <C>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1996 1995 1994
------------ ------------ ------------
Cash flows from operating activities:
Net earnings.......................................................... $ 21,170 $ 17,164 $ 13,967
Adjustment to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization......................................... 12,491 11,683 11,236
Deferred income taxes................................................. 3,201 3,239 2,519
Other................................................................. (160) (52) (421)
Charges in assets and liabilities:
Accounts receivable................................................. (2,247) (6,708) (4,402)
Inventories......................................................... 124 2,571 (3,297)
Prepaid pension asset............................................... (5,413) (5,331) (6,563)
Accounts payable and accrued liabilities............................ 4,943 4,280 (38)
Income taxes payable................................................ 1,955 1,703 882
Other............................................................... (961) (1,688) (1,328)
------------ ------------ ------------
Total adjustments................................................... 13,933 9,697 (1,412)
------------ ------------ ------------
Net cash provided by operating activities......................... 35,103 26,861 12,555
Cash flows from financing activities:
Proceeds from sale of property, plant and equipment................. 822 236 411
Capital expenditures................................................ (17,210) (11,181) (10,000)
Payment for purchase of business acquisitions....................... (5,501)
------------ ------------ ------------
Net cash used in investing activities............................. (16,388) (10,945) (15,090)
Cash flows from financing activities:
Proceeds from issuance of long-term obligations..................... 15,000
Payments of long-term obligations................................... (2,208) (286) (4,479)
Decrease in notes payable........................................... (6,685) (751) (6,050)
Proceeds from stock options exercised............................... 146 359 176
Dividends paid...................................................... (3,446) (3,118) (2,067)
Purchases of treasury stock......................................... (131)
------------ ------------ ------------
Net cash (used in) provided by financing activities............... (12,324) (3,796) 2,580
Effect of exchange rate changes on cash................................. 1,295 229 1,343
------------ ------------ ------------
Net increase in cash.................................................... 7,686 12,349 1,388
Cash and equivalents at beginning of year............................... 37,271 24,922 23,534
------------ ------------ ------------
Cash and equivalents at end of year..................................... $ 44,957 $ 37,271 $ 24,922
------------ ------------ ------------
Supplemental cash flow information
Cash paid during the year for:
Interest.......................................................... $ 1,467 $ 1,791 $ 658
Income taxes--net................................................. 7,276 5,590 4,009
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated.
INVENTORIES Inventories are stated at the lower of cost or market. Cost is
principally determined using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at
cost. Depreciation is computed over the estimated useful lives of the assets
principally on the straight-line method. Useful lives for buildings and
improvements range from 10 to 45 years, and machinery and equipment from 3 to 8
years.
GOODWILL The excess of cost over the fair value of net assets of businesses
acquired is amortized on the straight-line method over the periods expected to
be benefited.
RETIREMENT PLANS The Company has various defined benefit and defined
contribution retirement plans covering a majority of its employees. The
Company's policy is to annually fund the defined benefit pension plans at or
above the minimum required under the Employee Retirement Income Security Act of
1974 (ERISA).
RESEARCH AND DEVELOPMENT Research and development costs consist of
expenditures incurred during the course of planned search and investigation
aimed at discovery of new knowledge which will be useful in developing new
products or processes, or significantly enhancing existing products or
production processes, and the implementation of such through design, testing of
product alternatives or construction of prototypes. The Company expenses all
research and development costs as incurred.
INCOME TAXES The Company provides deferred income taxes for transactions
reported in different periods for financial reporting and income tax return
purposes pursuant to the requirements of Financial Accounting Standards Board
(FASB) Statement No. 109, "Accounting for Income Taxes." The underlying
differences relate primarily to depreciation differences, pension income,
postemployment benefits, certain nondeductible accruals and inventory reserves.
TRANSLATION OF FOREIGN CURRENCIES The financial statements of all of the
Company's non-U.S. subsidiaries, except the United Kingdom subsidiary, are
remeasured into U.S. dollars using the U.S. dollar as the functional currency
with all remeasurement adjustments included in the determination of net
earnings. The assets and liabilities of the Company's United Kingdom subsidiary
are translated into U.S. dollars principally at the current exchange rate at
period end, with resulting translation adjustments made directly to the
"Cumulative translation adjustment" component of shareholders' equity.
Statements of earnings accounts are translated at the average rates during the
period.
FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily
of cash, cash equivalents, trade receivables and payables, and obligations under
notes payable and long-term debt. In accordance with the requirements of FASB
Statement No. 107, "Disclosures about Fair Value of Financial Instruments," the
Company is providing the following fair value estimates and information
regarding valuation methodologies. The carrying value for cash and cash
equivalents, and trade receivables and payables approximates fair value based on
the short-term maturities of these instruments. The carrying value for all
long-term debt outstanding at December 31, 1996, and 1995 approximates fair
value where fair value is based on market prices for the same or similar debt
and maturities.
8
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company occasionally uses forward exchange currency contracts to
minimize the impact of foreign currency fluctuations on the Company's costs and
expenses. At December 31, 1996, the Company's forward foreign exchange currency
contracts were not material. These contracts are accounted for as hedges and
have minimal credit risk because the counterparties are well-established
financial institutions.
CASH EQUIVALENTS The Company considers all highly liquid investments with a
maturity of three months or less from the purchase date to be cash equivalents.
CONCENTRATION OF CREDIT RISK The Company sells its products to customers
primarily in the automotive, computer equipment, communications equipment and
instruments and controls industries, primarily in North America, Europe and the
Pacific Rim. The Company performs ongoing credit evaluations of its customers to
minimize credit risk. The Company generally does not require collateral.
STOCK-BASED COMPENSATION FASB Statement No. 123, "Accounting for
Stock-Based Compensation" encourages, but does not require, companies to record
compensation cost for stock-based compensation at fair value. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and its related Interpretation. See
Note D for the required pro forma net income and earnings per share disclosures
required by FASB Statement No. 123.
EARNINGS PER SHARE Earnings per common share are based on the weighted
average number of common and common equivalent shares outstanding.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE B--SHORT-TERM BORROWINGS
The Company has no outstanding short-term borrowings at December 31, 1996.
At December 31, 1995, short-term borrowings consisted of demand notes payable to
various banks, with an average interest rate of 6.6%. The Company has unsecured
lines of credit arrangements which totaled $15,855,000 at December 31, 1996.
These arrangements are generally subject to annual renewal and renegotiation,
and may be withdrawn at the banks' option.
Average daily short-term borrowings over the year, including borrowings
denominated in non-U.S. currencies, during 1996, 1995 and 1994 were $2,308,000,
$6,781,000 and $11,776,000, respectively. The weighted average interest rates,
computed by relating interest expense to average daily short-term borrowings,
were 6.1% in 1996, 6.5% in 1995 and 5.5% in 1994.
The maximum amount of short-term borrowings at the end of any month during
1996, 1995 and 1994 was $8,055,000, $8,440,000 and $12,977,000, respectively.
The short-term borrowings outstanding at December 31, 1994, were $7,436,000.
9
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--LONG-TERM OBLIGATIONS
Long-term obligations were comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1996 1995
--------- --------------
<S> <C> <C>
Long-term debt:
Term loan at 8.4%, due in annual installments through 1999........................... $ 13,000 $ 15,000
Other................................................................................ 647 608
--------- -------
13,647 15,608
Less current maturities.............................................................. 2,427 2,211
--------- -------
Total long-term debt............................................................... 11,220 13,397
Other.................................................................................. 317
--------- -------
Total long-term obligations........................................................ 11,220 13,714
</TABLE>
The Company has a $13,000,000 term loan with four banks, of which $2,000,000
expires in 1997, $2,000,000 expires in 1998 and $9,000,000 expires in 1999.
The Company has unsecured revolving credit agreements totaling $45,000,000
with four banks, which expire in 2001. Interest rates on these borrowings
fluctuate based upon market rates. The Company pays a commitment fee that varies
based on performance under certain financial covenants applicable to the
revolving credit agreements. Currently, that fee is .15 percent per annum. The
credit agreements and term loan require, among other things, that the Company
maintain certain tangible net worth, interest coverage requirements and a
specified total liabilities to tangible net worth ratio.
Annual maturities of long-term obligations during the three years subsequent
to 1997 are as follows: 1998--$2,220,000; 1999--$9,000,000; 2000--$0.
NOTE D--STOCK PLANS
At December 31, 1996, the Company has four stock-based compensation plans,
which are described below. The Company applies Accounting Principles Board
Opinion No. 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its fixed stock option
plans while compensation expense has been recognized for its compensatory plans.
Had compensation cost for the Company's two fixed stock-based compensation plans
been determined based on the fair value based method, as defined in FASB
Statement No. 123, the Company's net earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
--------------------
<S> <C> <C> <C>
1996 1995
--------- ---------
As reported $ 21,170 $ 17,164
Net earnings................................................................ Pro forma $ 20,936 $ 17,141
As reported $ 4.03 $ 3.30
Net earnings per share...................................................... Pro forma $ 3.99 $ 3.30
</TABLE>
The effects of applying FASB Statement No. 123 in the above pro forma
disclosures are not indicative of future amounts as they do not include the
effects of awards granted prior to 1995, some of which would have had income
statement effects in 1995 and 1996 due to the five-year vesting period
associated with the fixed stock option awards.
10
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's two fixed stock option plans, approved by the shareholders,
provide for grants of incentive stock options or nonqualified stock options to
officers and key employees. Under the 1986 Stock Option Plan which expired in
1995, the Company could grant options to its officers and key employees for up
to 300,000 shares of common stock. Of the 300,000 shares, approximately 100,000
shares were granted. Under the 1996 Stock Option Plan, the Company may grant
options to its officers and key employees for up to 200,000 shares of common
stock.
Under the 1996 Stock Option Plan, options are granted at the fair market
value on the grant date and are exercisable generally in cumulative annual
installments over a maximum ten-year period, commencing at least one year from
the date of grant. Upon the exercise of stock options, payment may be made using
cash, shares of the Company's common stock or any combination thereof. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995: dividend yield of 1.63%; expected
volatility of 19.93%, risk-free interest rate of 5.62%; and expected life of 4.3
years. There were no grants in 1996.
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1996, 1995 and 1994, and changes during the years ending on those
dates, is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE (000) PRICE
--------- ----------- ---------- ----------- --------- -----------
Outstanding at beginning of year............... 152,925 $ 31.82 86,000 $ 23.15 44,650 $ 20.13
Granted........................................ 94,050 36.89 57,000 24.75
Exercised...................................... (6,300) 23.56 (17,325) 21.05 (8,650) 20.44
Expired or canceled............................ (9,100) 33.47 (9,800) 23.39 (7,000) 20.30
--------- ----------- ---------- ----------- --------- -----------
Outstanding at end of year..................... 137,525 $ 32.09 152,925 $ 31.82 86,000 $ 23.15
--------- ----------- ---------- ----------- --------- -----------
Options exercisable at year-end................ 51,425 19,225 22,150
Weighted-average fair value of options granted
during the year.............................. $ 8.26
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------
WEIGHTED-AVERAGE OPTIONS EXERCISABLE
NUMBER REMAINING --------------------------------------
RANGE OF EXERCISE OUTSTANDING AT CONTRACTUAL LIFE WEIGHTED-AVERAGE NUMBER EXERCISABLE WEIGHTED AVERAGE
PRICES 12/31/96 (YEARS) EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ------------------ --------------- ------------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
$19.125 - 24.750... 53,475 2.37 $ 24.07 29,925 $ 23.81
$31.250 - 37.375... 84,050 3.94 $ 37.19 21,500 $ 37.18
</TABLE>
Under the 1986 Stock Option Plan, options to purchase a total of 55,975
shares were outstanding as of December 31, 1996. At December 31, 1996, 30,625 of
these shares were exercisable.
During 1996, the shareholders of the Company approved the 1996 Stock Option
Plan, under which a maximum of 200,000 shares of common stock were reserved for
issuance to certain officers and key employees. Under the 1996 Stock Option
Plan, options to purchase a total of 81,550 shares were outstanding as of
December 31, 1996. At December 31, 1996, 20,800 of these shares were
exercisable.
11
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has a discretionary Restricted Stock and Cash Bonus Plan (Plan)
which reserves 400,000 shares of the Company's common stock for sale, at market
price or below, or award to key employees. Shares sold or awarded are subject to
restrictions against transfer and repurchase rights of the Company. In general,
restrictions lapse at the rate of 20% per year beginning one year from the award
or sale. In addition, the Plan provides for a cash bonus to the participant
equal to the fair market value of the shares on the dates restrictions lapse, in
the case of an award, or the excess of the fair market value over the original
purchase price if the shares were purchased. The total bonus paid to any
participant during the restricted period is limited to twice the fair market
value of the shares on the date of award or sale.
Under the Plan, during 1996, 1,500 shares were awarded leaving 343,900
shares available for award or sale at December 31, 1996. Under the Plan, in 1995
and 1994, 18,500 and 15,500 shares were awarded, respectively. In addition to
the shares issued and the amortization of deferred compensation included in the
Consolidated Statements of Shareholders' Equity, the Company accrued $408,000,
$306,000, and $212,000 for additional compensation payable under the provisions
of the Plan in 1996, 1995 and 1994, respectively.
The Company has a Stock Retirement Plan for Nonemployee Directors. This
retirement plan provides for a portion of the total compensation payable to
Nonemployee Directors to be deferred and paid in Company stock. Under this plan,
the amount of the actual dollar compensation was $17,100, $15,100 and $11,100 in
1996, 1995 and 1994, respectively.
NOTE E--EMPLOYEE RETIREMENT PLANS
DEFINED BENEFIT PLANS
The Company has a number of noncontributory defined benefit pension plans
(Plans) covering approximately 46% of its employees. Plans covering salaried
employees provide pension benefits that are based on the employees' compensation
prior to retirement. Plans covering hourly employees generally provide benefits
of stated amounts for each year of service.
Net pension income for the Plans in 1996, 1995 and 1994 includes the
following components:
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------
<S> <C> <C> <C>
1996 1995 1995
---------- ---------- ----------
Service cost-benefits earned during the year.................................. $ 2,787 $ 2,216 $ 2,374
Interest cost on projected benefit obligation................................. 5,430 5,330 4,769
Actual (return) loss on plan assets........................................... (20,982) (23,252) 2,565
Net amortization and deferral................................................. 7,352 10,375 (16,271)
---------- ---------- ----------
Net pension income............................................................ $ (5,413) $ (5,331) $ (6,563)
---------- ---------- ----------
</TABLE>
12
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table details the funded status of the Plans at December 31,
1996, and December 31, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------
<S> <C> <C>
1996 1995
-------------- ----------
Actuarial present value of benefit obligations:
Vested benefits..................................................................... $ 68,570 $ 66,736
Nonvested benefits.................................................................. 2,598 2,960
-------------- ----------
Accumulated benefit obligation...................................................... $ 71,168 $ 69,696
-------------- ----------
Plan assets at fair value............................................................. $ 151,841 $ 134,595
Projected benefit obligation.......................................................... 78,046 77,138
-------------- ----------
Plan assets in excess of the projected benefit obligation............................. 73,795 57,457
Unrecognized prior year service cost.................................................. 397 154
Unrecognized net (gain) loss.......................................................... (15,146) (1,935)
Unrecognized net asset................................................................ (8,894) (10,937)
-------------- ----------
Prepaid pension expense............................................................... $ 50,152 $ 44,739
-------------- ----------
</TABLE>
Assumptions used in determining net pension income and the funded status of
U.S. defined benefit pension plans were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Discount rates (funded status)................................................... 7.75% 7.25% 8.25%
Rates of increase in compensation levels (salaried plan only).................... 5%-7% 5%-7% 5%-7%
Expected long-term rate of return on assets...................................... 9.75% 9.00% 9.00%
</TABLE>
Net pension income is determined using assumptions as of the beginning of
each year. Funded status is determined using assumptions as of the end of each
year. Effective with the December 31, 1996, measurement date, the discount rate
was increased to 7.75% to reflect current market conditions. This change had no
impact on 1996 pension income, but will increase 1997 pension income by
$562,000. Effective with the December 31, 1995, measurement date, the discount
rate was reduced to 7.25% to reflect market conditions. This change had no
impact on 1995 pension income, but reduced 1996 pension income by $310,000.
Effective with the December 31, 1994, measurement date, the discount rate,
expected long-term rate of return on assets and mortality assumptions were
revised to reflect current market and demographic conditions. As a result of
these changes, the December 31, 1994, projected benefit obligation decreased by
$2.4 million. These changes had no effect on 1994 pension income, but reduced
1995 pension income by $1.2 million.
The majority of U.S. defined benefit pension plan assets are invested in
common stock, including approximately $8.5 million in CTS common stock. The
balance is invested in corporate bonds, U.S. government backed mortgage
securities and bonds, asset backed securities, a private equity fund, non-U.S.
corporate bonds and convertible issues.
Because the domestic plans are fully funded, the Company made no
contributions during 1996, 1995 or 1994. Benefits paid by all Plans during 1996,
1995 and 1994 were $4,240,000, $4,085,000 and $4,175,000, respectively.
13
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pension coverage for employees of certain non-U.S. subsidiaries is provided
through separate plans. Contributions of $167,000, $237,000 and $172,000 were
made to the non-U.S. Plans in 1996, 1995 and 1994, respectively.
DEFINED CONTRIBUTION PLANS
The Company sponsors a 401(k) Plan and several other defined contribution
plans which cover some of its non-U.S. employees and its domestic hourly
employees not covered by a defined benefit pension plan. Contributions and costs
are generally determined as a percentage of the covered employee's annual
salary. Amounts expensed for the 401(k) Plan and the other plans totaled
$2,382,000 in 1996, $2,294,000 in 1995 and $2,506,000 in 1994.
POSTRETIREMENT LIFE INSURANCE PLANS
In addition to providing pension benefits, the Company provides certain life
insurance programs for retired employees. Substantially all of the Company's
domestic employees are eligible for life insurance benefits.
Summary information on the Company's plans as of December 31, 1996, and
December 31, 1995, is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Accumulated postretirement benefit obligation:
Active employees........................................................................... $ (1,298) $ (1,282)
Retirees and dependents.................................................................... (2,698) (2,912)
--------- ---------
(3,996) (4,194)
Unrecognized net gain...................................................................... (574) (345)
--------- ---------
Postretirement benefit obligation.......................................................... $ (4,570) $ (4,539)
--------- ---------
</TABLE>
The components of net periodic postretirement benefit expense for 1996, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Service cost-benefits earned during the year............................................ $ 34 $ 28 $ 43
Interest cost on accumulated benefit obligation......................................... 295 330 511
Net amortization and deferral........................................................... (1,008)
--------- --------- ---------
Net expense (income).................................................................... $ 329 $ (650) $ 554
--------- --------- ---------
</TABLE>
The accumulated postretirement benefit obligation was determined using
relevant actuarial assumptions and the terms of the Company's life insurance
plans. For measurement purposes, a 7.75%, 7.25% and 8.25% annual discount rate
was used to determine the remaining life obligation for 1996, 1995 and 1994,
respectively.
The Company funds life insurance benefits through term life insurance
policies. The Company plans to continue funding premiums on a pay-as-you-go
basis.
14
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--INCOME TAXES
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Domestic......................................................................... $ 16,381 $ 17,563 $ 15,391
Non-U.S.......................................................................... 17,221 10,121 6,096
--------- --------- ---------
Total........................................................................ $ 33,602 $ 27,684 $ 21,487
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Current:
Federal......................................................................... $ 3,105 $ 1,935 $ 1,998
State........................................................................... 1,012 963 604
Non-U.S......................................................................... 5,114 4,383 2,367
--------- --------- ---------
Total current................................................................. 9,231 7,281 4,969
--------- --------- ---------
Deferred:
Federal......................................................................... 2,761 2,534 1,268
State........................................................................... 313 578 400
Non-U.S......................................................................... 127 127 883
--------- --------- ---------
Total deferred................................................................ 3,201 3,239 2,551
--------- --------- ---------
Total provision for income taxes.............................................. $ 12,432 $ 10,520 $ 7,520
--------- --------- ---------
--------- --------- ---------
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
at December 31, 1996, and 1995, are:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------
<S> <C> <C>
1996 1995
--------- ---------
Depreciation................................................................................. $ 1,460 $ 1,063
Pensions..................................................................................... 17,683 15,767
Other........................................................................................ 3,185 2,282
--------- ---------
Gross deferred tax liabilities............................................................... 22,328 19,112
--------- ---------
Postemployment benefits...................................................................... 1,622 1,611
Inventory reserves........................................................................... 2,721 2,613
Loss carryforwards........................................................................... 5,778 5,847
Credit carryforwards......................................................................... 4,355 5,537
Nondeductible accruals....................................................................... 4,365 3,200
Other........................................................................................ 818 710
--------- ---------
Gross deferred tax assets.................................................................... 19,659 19,518
--------- ---------
Net deferred tax (liabilities) assets........................................................ (2,669) 406
Deferred tax asset valuation allowance....................................................... (6,765) (6,639)
--------- ---------
Total........................................................................................ $ (9,434) $ (6,233)
--------- ---------
--------- ---------
</TABLE>
15
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1996, the valuation allowance was increased as a result of an
increase in unutilized net operating loss carryforwards in some taxing
jurisdictions, and decreased by the utilization of net operating losses and
scheduled tax credits in other jurisdictions. The net increase in the valuation
allowance was $126,000.
A reconciliation from the statutory federal income tax to the Company's
effective income tax follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Taxes at the U.S. statutory rate.................................................. $ 11,761 $ 9,689 $ 7,306
State income taxes, net of federal income tax benefit............................. 861 1,002 663
Non-U.S. income taxed at rates different than the U.S. statutory rate............. (728) 1,159 1,639
Utilization of net operating loss carryforwards and benefit of scheduled tax
credits......................................................................... (279) (2,024) (2,544)
Foreign distributions, net of foreign tax credits................................. 297 372
Other............................................................................. 520 322 456
--------- --------- ---------
Provision for income taxes........................................................ $ 12,432 $ 10,520 $ 7,520
</TABLE>
Undistributed earnings of certain non-U.S. subsidiaries amount to
$52,892,000 at December 31, 1996. These earnings are intended to be permanently
invested and, accordingly, no provision has been made for non-U.S. withholding
taxes. In the event all undistributed earnings were remitted, approximately
$4,795,000 of withholding tax would be imposed, which would be substantially
offset by foreign tax credits.
The Company has U.S. tax basis business tax credits and foreign tax credits
of approximately $1,624,000 at December 31, 1996. The U.S. business credit
carryforwards expire between the years 2001 and 2010. In addition, the Company
has various non-U.S. tax basis net operating losses and business credit
carryforwards of $20,937,000 and $70,000, respectively. The non-U.S. net
operating losses have an unlimited carryforward period. The non-U.S. credit
carryforwards expire in 1997. In addition, the Company has alternative minimum
tax credit carryforwards of approximately $2,661,000, which have no expiration
dates.
NOTE G--BUSINESS SEGMENT AND NON-U.S. OPERATIONS
The Company's operations comprise one business segment, the manufacturing of
electronic components. Electronic components include production and sale of
automotive control devices, fiber-optic transceivers, flex cable assemblies,
frequency control devices, hybrid microcircuits, industrial electronics,
insulated metal circuits, interconnect products, loudspeakers, resistor
networks, switches and variable resistors.
CTS' 15 largest customers represented about 62%, 61% and 62% of net sales in
1996, 1995 and 1994, respectively. Sales to General Motors Corportation ("GM")
represented more than 10% of CTS' net sales in each of the last three years
(ranging from 15% to 18% of net sales over such period). The loss of, or
reduction in, orders from GM could have a material adverse effect on CTS.
The non-U.S. operations or facilities are located in Canada, Hong Kong,
Japan, Mexico, Singapore, Taiwan, Thailand and the United Kingdom. Net sales to
unaffiliated customers from the United Kingdom equaled 24%, 17% and 16% of the
consolidated total for 1996, 1995 and 1994, respectively. Net sales to
unaffiliated customers from Other non-U.S. operations in the aggregate equaled
16%, 19% and 18% of the consolidated total for each of the years 1996, 1995 and
1994, respectively.
Net sales by geographic area include both sales to unaffiliated customers
and transfers between geographic areas. Such transfers are accounted for
primarily on the basis of a uniform intercompany pricing policy. Operating
earnings are total net sales less operating expenses. In computing operating
earnings, none of the following items have been added or deducted: general
corporate expenses, interest income, interest expense, other income and expenses
and income taxes. Identifiable assets by geographic area are those assets that
are used in the Company's operations in each such area. The Corporate Office
assets are principally cash and equivalents and the prepaid pension asset.
16
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summarized financial information concerning the geographic areas of
operation for 1996, 1995 and 1994 is shown in the following table. The caption
"Eliminations" includes intercompany sales and other transactions which are
eliminated or adjusted in arriving at consolidated data.
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------
GEOGRAPHIC AREA 1996 1995 1994
- ----------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
United States:
Sales to unaffiliated customers.......................................... $ 193,474 $ 194,016 $ 178,032
Transfers to non-U.S. area............................................... 8,181 5,439 4,179
---------- ---------- ----------
United Kingdom: 201,655 199,455 182,211
Sales to unaffiliated customers.......................................... 76,204 49,571 42,779
Transfers to other areas................................................. 730 732 514
---------- ---------- ----------
Other non-U.S.: 76,934 50,303 43,293
Sales to unaffiliated customers.......................................... 51,619 56,570 47,896
Transfers to other areas................................................. 7,400 6,092 7,692
---------- ---------- ----------
59,019 62,662 55,588
Eliminations............................................................... (16,311) (12,263) (12,385)
---------- ---------- ----------
Total net sales........................................................ $ 321,297 $ 300,157 $ 268,707
Operating Earnings
United States.............................................................. $ 23,226 $ 22,204 $ 18,109
United Kingdom............................................................. 10,192 6,483 4,569
Other non-U.S.............................................................. 9,141 6,345 3,708
---------- ---------- ----------
42,559 35,032 26,386
Eliminations............................................................... (72) 140 1
---------- ---------- ----------
42,487 35,172 26,387
General corporate expenses................................................. 9,067 7,684 5,703
---------- ---------- ----------
Operating earnings......................................................... 33,420 27,488 20,684
Other income--net.......................................................... 182 196 803
---------- ---------- ----------
Earnings before income taxes............................................. $ 33,602 $ 27,684 $ 21,487
---------- ---------- ----------
---------- ---------- ----------
Assets Apportioned by Area
United States.............................................................. $ 88,189 $ 87,862 $ 86,605
United Kingdom............................................................. 36,037 24,718 23,419
Other non-U.S.............................................................. 47,689 49,848 43,272
---------- ---------- ----------
171,915 162,428 153,296
Eliminations................................................................. (4,672) (3,783) (3,305)
---------- ---------- ----------
167,243 158,645 149,991
Corporate assets............................................................. 82,129 68,482 56,835
---------- ---------- ----------
Total assets........................................................... $ 249,372 $ 227,127 $ 206,826
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
17
<PAGE>
CTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H -- CONTINGENCIES
Certain processes in the manufacture of the Company's current and past
products create hazardous waste by-products as currently defined by federal and
state laws and regulations. The Company has been notified by the U.S.
Environmental Protection Agency, state environmental agencies and, in some
cases, generator groups, that it is or may be a Potentially Responsible Party
(PRP) regarding hazardous waste remediation at several non-CTS sites. The
factual circumstances of each site are different; the Company has determined
that its role as a PRP with respect to these sites, even in the aggregate, will
not have a material adverse effect on the Company's business or financial
condition, based on the following: 1) the Company's status as a DE MINIMIS
party; 2) the large number of other PRPs identified; 3) the identification and
participation of many larger PRPs who are financially viable; 4) defenses
concerning the nature and limited quantities of materials sent by the Company to
certain of the sites; and/or 5) the Company's experience to-date in relation to
the determination of its allocable share. In addition to these non-CTS sites,
the Company has an ongoing practice of providing reserves for probable
remediation activities at certain of its manufacturing locations and for claims
and proceedings against the Company with respect to other environmental matters.
Accrued environmental costs as of December 31, 1996, totaled $4.8 million,
compared with $4.5 million at December 31, 1995. In the opinion of management,
based upon presently available information, either adequate provision for
probable costs has been made, or the ultimate costs resulting will not
materially affect the consolidated financial position or results of operations
of the Company.
Certain claims are pending against the Company with respect to matters
arising out of the ordinary conduct of its business. In the opinion of
management, based upon presently available information, either adequate
provision for anticipated costs has been made by insurance, accruals or
otherwise, or the ultimate anticipated costs resulting will not materially
affect the Company's consolidated financial position or results of operations.
NOTE I--RELATED PARTY TRANSACTIONS
Dynamics Corporation of America (DCA) owned 2,303,100 shares (44.1%) of the
Company's outstanding common stock at December 31, 1996. Of these shares,
1,020,000 were not granted voting authority by CTS shareholders in 1987. In
addition to stock ownership, as of December 31, 1996, two representatives of DCA
serve on the Company's Board of Directors. The normal business transactions
between the Company and DCA are insignificant.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
To the Shareholders and
Board of Directors of CTS Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of CTS
Corporation and its subsidiaries at December 31, 1996, and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/S/PRICE WATERHOUSE LLP
South Bend, Indiana
January 27, 1997
19
<PAGE>
CTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (1994--1996)
LIQUIDITY AND CAPITAL RESOURCES
The table below highlights significant comparisons and ratios related to
liquidity and capital resources of CTS Corporation (CTS or Company) for each of
the last three years.
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- -----------------
Net cash provided by (used in):
Operating activities.................................. $ 35,103 $ 26,861 $ 12,555
Investing activities.................................. (16,388) (10,945) (15,090)
Financing activities.................................. (12,324) (3,796) 2,580
Cash and equivalents.................................... $ 44,957 $ 37,271 $ 24,922
Accounts receivable, net................................ 43,984 41,737 35,029
Inventories, net........................................ 38,761 38,885 41,456
Current assets.......................................... 138,201 126,113 110,667
Notes payable........................................... 6,685 7,436
Accounts payable........................................ 17,146 15,605 12,768
Accrued liabilities..................................... 31,818 26,461 24,284
Current liabilities..................................... 51,391 50,962 44,792
Working capital......................................... 86,810 75,151 65,875
Current ratio........................................... 2.69 2.47 2.47
Interest-bearing debt................................... $ 13,428 $ 22,267 $ 23,318
Net tangible worth...................................... 162,193 141,650 126,634
Ratio of interest-bearing debt to net tangible worth.... .08 .16 .18
</TABLE>
During 1996, $35.1 million of positive cash flow was generated from
operating activities. This amount, which exceeded 1995 by 31%, or $8.2 million,
was primarily a result of the higher level of earnings and improved management
of working capital, particularly accounts receivable.
The 1995 cash flow from operating activities of $26.9 million improved by
$14.3 million from 1994, primarily as a result of higher net earnings and
reduction in inventories, partially offset by an increase in accounts
receivable.
During 1994, cash flow of $12.6 million was positive from operating
activities, primarily as a result of the significant improvement in operating
earnings when compared to 1993. However, offsetting the favorable impact of the
higher earnings was the higher working capital requirements to support the
increased sales levels, which reduced operating cash flow by $5.0 million from
1993.
Cash expenditures for investing activities totaled $16.4 million in 1996,
exceeding the prior year's amount by $5.4 million, or 50%. The major change in
financing activities was cash payments of $8.9 million for short and long-term
debt. As of year-end, the Company had no short-term debt.
Spending of cash for investing activities in 1995 was $10.9 million and
comparable to 1994 after the impact of the 1994 expenditures for the light
emitting diode (LED)-based fiber-optic data link (ODL-Registered Trademark-)
product line of $3.4 million. In terms of financing activities, the impact of
the notes payable reduction during 1995 was $5.3 million from the increased cash
flow.
Investing requirements increased during 1994, primarily due to the $13.4
million of capital expenditures, including $3.4 million for the acquisition of
ODL fixed assets. Additionally, financing activities
20
<PAGE>
increased during 1994 and were generated by the higher sales levels and the
acquisition of the ODL product line for which $2.1 million of additional
expenditures were made for inventory.
A significant noncash component and a decreasing component of operating
earnings during the 1994 to 1996 period was pension income of $5.4 million, $5.3
million and $6.6 million in 1996, 1995 and 1994, respectively. The 1996 pension
income amount was approximately the same as 1995, but decreased from 1994 as a
result of actuarial changes. As a result of the Company's overfunded pension
position, no overall cash contributions are anticipated to be required in the
immediate future to meet the Company's pension obligations.
The major investment activity during the last three years has been capital
expenditures, which totaled $17.2 million in 1996, $11.2 million in 1995 and
$13.4 million in 1994. The major capital expenditures in 1996 were for new
products and product line enhancements. Also during 1996, as in 1995, capacity
increases were required in our automotive and European interconnect product
lines. The Company expects to increase its capital expenditures in 1997 over
1996 levels. These capital expenditures will be primarily for new products and
cost reduction programs, as well as selected manufacturing equipment capacity
expansion.
The most recent major long-term financing activity outside the CTS revolving
credit agreements occurred during 1994, when the Company negotiated a five-year,
$15.0 million long-term loan which expires in 1999. As of December 31, 1996,
$13.0 million remains outstanding on this loan.
Dividends paid were $3.4 million in 1996, $3.1 million in 1995 and $2.1
million in 1994. During 1996, as a result of continuing improved earnings
performance and positive cash flow, the Company increased its quarterly dividend
to $.18 per share, effective with the August payment. In December 1994, the
Board of Directors, principally as a result of the Company's improving
performance and cash position, increased the quarterly dividend to $.15 per
share, effective with the February 1995 payment.
At the end of each of the last three years, cash of various non-U.S.
subsidiaries was invested in U.S.-denominated cash equivalents. Such cash is
generally available to the parent Company and the Company's intention is not to
repatriate non-U.S. earnings. If all non-U.S. earnings were repatriated,
approximately $4.8 million of withholding taxes would accrue, but would be
substantially offset by foreign tax credits.
In 1996, CTS renegotiated its long-term revolving credit agreement and at
the end of 1996, CTS had $45.0 million of borrowing capacity available under
long-term revolving credit agreements with four banks. These revolving
agreements, which expire in 2001, are the Company's primary credit vehicles and,
together with cash from operations, should adequately fund the Company's
anticipated cash needs.
21
<PAGE>
RESULTS OF OPERATIONS
The following table highlights significant information with regard to the
Company's twelve months results of operations during the past three fiscal
years.
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------------
<S> <C> <C> <C>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1996 1995 1994
------------ ------------ ------------
Net sales............................................................... $ 321,297 $ 300,157 $ 268,707
Gross earnings.......................................................... 87,496 74,804 63,067
Gross earnings as a percent of sales.................................... 27.2% 24.9% 23.5%
Selling, general and administrative expenses............................ $ 43,333 $ 39,312 $ 36,175
Selling, general and administrative expenses as a percent of sales...... 13.5% 13.1% 13.5%
Research and development expenses....................................... $ 10,743 $ 8,004 $ 6,208
Research and development expenses as a percent of sales................. 3.3% 2.7% 2.3%
Operating earnings...................................................... $ 33,420 $ 27,488 $ 20,684
Operating earnings as a percent of sales................................ 10.4% 9.1% 7.7%
Interest (income) expense, net.......................................... $ (432) $ 369 $ 57
Earnings before income taxes............................................ 33,602 27,684 21,487
Income taxes............................................................ 12,432 10,520 7,520
Income tax rate......................................................... 37.0% 38.0% 35.0%
</TABLE>
Net sales for 1996 increased by $21.1 million, or 7.0% over 1995,
principally due to the increased demand in the domestic and European automotive,
computer equipment and communications equipment markets.
The 1995 net sales increased $31.5 million, or 11.7% over 1994, primarily
due to broad increases in demand for electronic component products into our
automotive, computer equipment and communications equipment markets.
From 1993 to 1994, total sales increased by 13.4%, primarily as a result of
substantial increases in our automotive and European interconnect product lines.
During the three-year period 1994-1996, the percentage of overall sales to
the automotive market decreased from 38% to 34%. During this same period, our
sales into the computer equipment market increased from 19% to 24%, as a percent
of total sales. Sales into other markets have generally remained constant.
The Company's 15 largest customers represented 62% of net sales in 1996, 61%
in 1995 and 62% in 1994. One customer, a major manufacturer of automobiles,
comprised 15% of net sales in 1996 as compared to 18% in 1995 and 1994.
Because most of CTS' revenues are derived from the sale of custom products,
the relative contribution to revenues of changes in unit volume cannot be
meaningfully determined. The Company's products are usually priced with
reference to expected or required profit margins, customer expectations and
market competition. Pricing for most of the Company's electronic component
products frequently decreases over time and also fluctuates in accordance with
total industry utilization of manufacturing capacity.
In 1996, 1995 and 1994, improvements in gross earnings were realized over
each of the preceding years in absolute terms and as a percent of sales,
principally due to higher sales volume, production efficiencies and higher
absorption of fixed manufacturing overhead expenses.
Selling, general and administrative expenses as a percent of sales have
remained constant over the last three years, ranging from 13.1% to 13.5%. In
1996, as in previous years, the Company continued to control these expenses
while increasing sales. Also during 1994, the Company successfully resolved
approximately
22
<PAGE>
$1 million of outstanding legal and customer claims, the provision for most of
which had been established in 1993.
During 1996, research and development expenses increased by $2.7 million, or
34% over 1995, as the Company continued investment efforts in new product
development and product improvements, particularly in automotive, frequency
control and hybrid microcircuit products. Research and development expenses
increased by $1.8 million, or 29%, in 1995 over 1994, with much of the
additional effort devoted to the "hall effect" non-contacting sensor development
for our automotive products, as well as other new product development programs
in the automotive and the resistor network product areas.
The net of interest expense and interest income is reflective of the levels
of debt during the 1994-1996 period. The lower amount of expense in 1994 relates
to the timing of the $15.0 million loan secured in late 1994, while the 1996
income amount is a result of lower levels of short-term debt compared to 1995.
During 1996 and 1995, the primary reasons for the substantial operating
earnings improvement include the higher overall sales and related productivity
in our automotive, resistor network and interconnect products, and the reduction
of losses from our frequency control products. These improvements substantially
offset losses from our defense and aerospace products, caused primarily by the
declining market conditions. In 1994, the level of operating earnings was a
result of the higher automotive and interconnect product sales, and improved
performance within our resistor network and electromechanical products, which
more than offset losses from our frequency control and hybrid microcircuit
products during that year.
The 1996 effective tax rate of 37% approximated the 1995 tax rate of 38%.
The Company has net operating loss carryforwards of approximately $21 million in
certain non-U.S. subsidiaries, and has established a 100% valuation reserve on
these amounts based upon historical pretax losses.
With respect to the recently issued FASB Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and FASB Statement No. 123, "Accounting for Stock-Based Compensation," the
Company has realized no impact on financial position or results of operations
upon adoption in 1996.
In terms of environmental issues, the Company has been notified by the U.S.
Environmental Protection Agency, as well as state agencies and generator groups,
that it is or may be a Potentially Responsible Party regarding hazardous waste
remediation at non-CTS sites. Additionally, the Company provides reserves for
probable remediation activities at certain of its manufacturing locations. These
issues are discussed in Note H--Contingencies.
23
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-27749 and No. 333-5730) of CTS Corporation of our
report dated January 27, 1997, appearing on page 19 of the CTS Corporation 1996
Annual Report which is incorporated in this Annual Report on Form 10-K/A. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page S-1 of this Form 10-K/A.
PRICE WATERHOUSE LLP
Chicago, Illinois
August 13, 1997
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 1997
------------------------
CTS CORPORATION
905 WEST BOULEVARD NORTH
ELKHART, INDIANA 46514
(219)293-7511
<TABLE>
<S> <C> <C>
INDIANA 1-4639 35-0225010
(State of Incorporation) (Commission File No.) (IRS Employer
Identification
No.)
</TABLE>
The Company (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities and Exchange Act of 1934 during the period that the
Company was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
The number of shares of the Company's Common Stock outstanding at August 8,
1997, was 5,248,063.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBITS TO THIS QUARTERLY REPORT ON FORM 10-Q THAT ARE "FILED HEREWITH" ARE
FILED AS EXHIBITS TO THE REGISTRATION STATEMENT ON FORM S-4 FILED BY THE COMPANY
WITH THE COMMISSION ON SEPTEMBER 2, 1997.
E-25
<PAGE>
CTS CORPORATION FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings--For the Three Months and Six Months ended June
29, 1997, and June 30, 1996................................................................... E-27
Condensed Consolidated Balance Sheets--As of June 29, 1997, and December 31, 1996............... E-28
Condensed Consolidated Statements of Cash Flows--For the Six Months Ended June 29, 1997, and
June 30, 1996................................................................................. E-29
Notes to Condensed Consolidated Financial Statements............................................ E-30 - E-31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... E-32 - E-35
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................................... E-36
Item 6. Exhibits and Reports on Form 8-K........................................................ E-36 - E-37
SIGNATURES........................................................................................ E-37
</TABLE>
E-26
<PAGE>
PART I.--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
<S> <C> <C> <C> <C>
JUNE 29, JULY 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net sales................................................ $ 107,482 $ 83,820 $ 198,751 $ 164,006
Costs and expenses:
Cost of goods sold..................................... 78,645 61,946 144,623 122,333
Selling, general and administrative expenses........... 12,042 11,028 23,866 21,980
Research and development expenses...................... 3,075 2,628 6,049 4,888
------------ ------------ ------------ ------------
Operating earnings................................... 13,720 8,218 24,213 14,805
------------ ------------ ------------ ------------
Other expenses (income):
Interest expense....................................... 410 351 673 787
Other.................................................. (115) (610) (923) (1,465)
------------ ------------ ------------ ------------
Total other expense (income)............................. 295 (259) (250) (678)
------------ ------------ ------------ ------------
Earnings before income taxes............................. 13,425 8,477 24,463 15,483
Income taxes............................................. 4,967 3,137 9,051 5,729
------------ ------------ ------------ ------------
Net earnings......................................... $ 8,458 $ 5,340 $ 15,412 $ 9,754
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net earnings per share................................... $ 1.60 $ 1.03 $ 2.92 $ 1.86
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Cash dividends declared per share........................ $ .18 $ .18 $ .36 $ .33
Average common and common equivalent shares
outstanding............................................ 5,290,345 5,257,468 5,282,201 5,254,122
</TABLE>
See notes to condensed consolidated financial statements.
E-27
<PAGE>
PART I.--FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 31,
1997 1996*
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current Assets
Cash................................................................................ $ 30,656 $ 44,957
Accounts receivable, less allowances (1997--$692; 1996--$622)....................... 67,555 43,984
Inventories--Note B................................................................. 33,687 38,761
Other current assets................................................................ 4,863 3,787
Deferred income taxes............................................................... 6,712 6,712
----------- ------------
Total current assets.............................................................. 143,473 138,201
Property, Plant and Equipment, less accumulated depreciation
(1997--$135,223; 1996--$133,286).................................................... 59,028 56,103
Other Assets
Investment in DCA--Note C........................................................... 68,509
Goodwill, less accumulated amortization (1997--$8,700; 1996--$8,361)................ 3,717 4,039
Prepaid pension..................................................................... 53,570 50,152
Other............................................................................... 1,555 877
----------- ------------
Total other assets................................................................ 127,351 55,068
----------- ------------
$ 329,852 $ 249,372
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations......................................... 3,923 2,427
Accounts payable.................................................................... 26,351 17,146
Accrued liabilities................................................................. 40,287 31,818
----------- ------------
Total current liabilities......................................................... 70,561 51,391
Long-term Obligations--Note D......................................................... 59,506 11,220
Deferred Income Taxes................................................................. 16,146 16,146
Postretirement Benefits............................................................... 4,313 4,383
Shareholders' Equity:
Common stock-authorized 8,000,000 shares without par value; issued 5,807,031
shares............................................................................ 33,564 33,540
Retained earnings................................................................... 157,642 144,112
Cumulative translation adjustment................................................... 812 1,373
----------- ------------
192,018 179,025
Less cost of common stock held in treasury:
1997--576,843 shares; 1996--582,075 shares........................................ 12,692 12,793
----------- ------------
Total shareholders' equity........................................................ 179,326 166,232
----------- ------------
$ 329,852 $ 249,372
----------- ------------
----------- ------------
</TABLE>
- ------------------------
* The balance sheet at December 31, 1996, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
E-28
<PAGE>
PART I.--FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
<S> <C> <C>
JUNE 29, JUNE 30,
1997 1996
---------- ---------
Cash flows from operating activities:
Net earnings............................................................................. $ 15,412 $ 9,754
Depreciation and amortization (Increase) decrease in:.................................. 7,635 6,492
Accounts receivable.................................................................. (23,571) (7,734)
Inventories.......................................................................... 5,074 1,252
Other current assets................................................................. (1,076) (1,175)
Prepaid pension asset................................................................ (3,418) (2,643)
Other................................................................................ 349 (21)
Increase in:
Accounts payable and accrued liabilities............................................... 17,674 6,639
---------- ---------
Total adjustments...................................................................... 2,667 2,810
---------- ---------
Net cash provided by operating activities................................................ 18,079 12,564
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment...................................... 134 213
Capital expenditures..................................................................... (10,553) (9,298)
Investment in DCA--Note C................................................................ (68,509)
---------- ---------
Net cash used in investing activities.................................................. (78,928) (9,085)
Cash flows from financing activities:
Term loan borrowings--Note D............................................................. 50,000
Credit agreement arrangement fee......................................................... (937)
Payments of long-term obligations........................................................ (214) (197)
Decrease in notes payable................................................................ (6,657)
Dividend payments........................................................................ (1,881) (1,565)
Other.................................................................................... (31) 246
---------- ---------
Net cash provided by (used in) financing activities.................................... 46,937 (8,173)
Effect of exchange rate changes on cash.................................................... (389) 170
---------- ---------
Net decrease in cash....................................................................... (14,301) (4,524)
Cash at beginning of year.................................................................. 44,957 37,271
---------- ---------
Cash at end of period...................................................................... $ 30,656 $ 32,747
---------- ---------
---------- ---------
Supplemental cash flow information
Cash paid during the period for:
Interest............................................................................... $ 558 $ 799
Income Taxes--Net...................................................................... $ 4,201 $ 2,664
</TABLE>
See notes to condensed consolidated financial statements.
E-29
<PAGE>
PART I.--FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
JUNE 29, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements have
been prepared by CTS Corporation ("CTS" or "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission (the
"SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. The
consolidated interim financial statements should be read in conjunction with the
financial statements, notes thereto and other information included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
The accompanying unaudited consolidated interim financial statements
reflect, in the opinion of management, all adjustments (consisting of normal
recurring items) necessary for a fair presentation, in all material respects, of
the financial position and results of operations for the periods presented. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire year.
NOTE B--INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Finished goods....................................................... $ 6,836 $ 8,504
Work-in-process...................................................... 14,108 17,138
Raw material......................................................... 12,743 13,119
--------- ------------
$ 33,687 $ 38,761
--------- ------------
--------- ------------
</TABLE>
NOTE C--PROPOSED MERGER
The Company, on May 9, 1997, entered into an Agreement and Plan of Merger
with Dynamics Corporation of America ("DCA") providing for the acquisition of
DCA by the Company pursuant to a merger of DCA and a subsidiary of the Company
(the "Merger") in accordance with the Merger agreement. In the Merger, each DCA
common share not owned by CTS will, at the election of the shareholders, be
converted into either $58.00 in cash (the "Cash Election") or 0.88 CTS common
shares. The Cash Election is limited to 49.9% of DCA's common shares less the
DCA common shares owned by CTS prior to the Merger. This Merger is subject to
the approval of the shareholders of DCA and of the Company, and other customary
conditions.
The Company, on June 13, 1997, pursuant to a tender offer, purchased 30.3%
of the outstanding DCA common shares for $65,439. Subsequently, the Company
purchased additional shares of DCA common stock for $3,070.
E-30
<PAGE>
PART I.--FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
JUNE 29, 1997
NOTE C--PROPOSED MERGER (CONTINUED)
The Company expects to complete the Merger during the third quarter of 1997.
The investment in DCA is being stated at cost until completion of the Merger.
Following the effective time of the Merger, the total purchase price (including
acquisition costs) will be determined and CTS will be required to allocate the
purchase price to the fair value of DCA's assets, including 2,303,100 CTS common
shares presently owned by DCA, and liabilities. Such allocation will be based on
various factors, including appraisals of the operating assets and liabilities of
DCA, the identification and valuation of intangible assets (which CTS presently
believes are not material) and the finally determined purchase price for
purposes of accounting for the Merger. Depending upon the circumstances, CTS may
be required to charge the difference between the purchase price and the value of
the CTS common shares reacquired as a result of the Merger to net earnings
currently to reflect the amount of such difference, net of changes in the other
components of the purchase price allocation described above. Any such charge
will, however, be a non-cash item which CTS does not believe will have any
material adverse effect on its prospective financial position or results of
operations.
On May 9, 1997, 450,000 shares of stock options were granted to certain key
Company officers at $62.50 per share, subject to shareholder approval and the
consummation of the Merger. Based on recent CTS stock prices, these options will
immediately vest upon shareholder approval and consummation of the Merger
resulting in a one-time, non-cash charge against net earnings. Assuming a price
of $85.00 per share, at the consummation of the Merger, the charge against net
earnings will be $6,075 (net of income tax benefit of $4,050).
NOTE D--LONG-TERM OBLIGATIONS
The Company, on June 16, 1997, entered into a Credit Agreement with a group
of banks which provides financing of up to $125,000. This six-year, unsecured
credit facility consists of a $50,000 term loan commitment and a $75,000
revolving credit facility. On June 16, 1997, the Company borrowed $50,000 under
the term loan commitment to purchase DCA common stock (See Note C--Proposed
Merger).
The borrowing rate through March 31, 1998, is LIBOR plus 0.50% with
adjustments thereafter. At June 29, 1997, the rate on the term loan was 6.03%.
The Company paid an arrangement fee of $937 for this credit facility. There is a
commitment fee on the unused portion of the revolving credit facility of 0.175%
per annum. The term loan matures on a quarterly basis. These maturities, on an
annual basis, are $3,000 in 1998, $5,000 in 1999, $10,000 in 2000, 2001, and
2002, respectively, and $12,000 in 2003.
The Credit Agreement contains customary limitations and restrictive
financial covenants. The covenants include financial maintenance tests
consisting of a leverage ratio, a minimum tangible net worth test and a fixed
charge coverage ratio which is the most restrictive of these covenants. The term
loan has prepayment provisions if certain events occur.
The Company terminated the previously existing $45,000 unsecured revolving
credit agreement.
E-31
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION: COMPARISON OF JUNE 29, 1997, TO
DECEMBER 31, 1996
CTS Corporation ("CTS" or the "Company"), on May 9, 1997, entered into an
Agreement and Plan of Merger with Dynamics Corporation of America ("DCA")
providing for the acquisition of DCA by the Company pursuant to a merger of DCA
and a subsidiary of the Company (the "Merger") in accordance with the Merger
agreement. In the Merger, each DCA common share not owned by CTS will, at the
election of the shareholders, be converted into either $58.00 in cash (the Cash
Election") or 0.88 CTS common shares. The Cash Election is limited to 49.9% of
DCA's common shares less the DCA common shares owned by CTS prior to the Merger.
This Merger is subject to the approval of the shareholders of DCA and of the
Company, and other customary conditions.
The Company, on June 13, 1997, pursuant to a tender offer, purchased 30.3%
of the outstanding DCA common shares for $65,439. Subsequently, the Company
purchased additional shares of DCA common stock for $3,070.
DCA owns 44.0% of the outstanding CTS common stock. DCA operates in six business
units manufacturing electronic components, mobile vans and transportable
shelters for specialized electronic and medical diagnostic equipment, portable
electric housewares and commercial appliances, air distribution equipment,
specialized air-conditioning equipment and generator sets. Following the merger,
it is anticipated that DCA's frequency control and heat dissipating businesses
will be integrated into complementary CTS operations. The Company intends to
seek to improve the results of operations of DCA's other business units. It also
intends to evaluate and review DCA's operations and the potential opportunities
for synergies with the Company's operations, and to consider what, if any,
changes would be desirable in light of the results of such evaluations and
reviews. After such review, it is possible that the Company will seek to dispose
of certain businesses or assets of DCA.
Following the effective time of the Merger, the total purchase price
(including acquisition costs) will be determined and CTS will be required to
allocate the purchase price to the fair value of DCA's assets, including
2,303,100 CTS common shares presently owned by DCA, and liabilities. Such
allocation will be based on various factors, including appraisals of the
operating assets and liabilities of DCA, the identification and valuation of
intangible assets (which CTS presently believes are not material) and the
finally determined purchase price for purposes of accounting for the Merger.
Depending upon the circumstances, CTS may be required to charge the difference
between the purchase price and the value of the CTS common shares reacquired as
a result of the Merger to net earnings currently to reflect the amount of such
difference, net of changes in the other components of the purchase price
allocation described above. Any such charge will, however, be a non-cash item
which CTS does not believe will have any material adverse effect on its
prospective financial position or results of operations.
E-32
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Material Changes in Financial Condition: Comparison of June 29, 1997, to
December 31, 1996 (Continued)
On May 9,1997, 450,000 shares of stock options were granted to certain key
Company officers at $62.50 per share, subject to shareholder approval and the
consummation of the Merger. Based on recent CTS stock prices, these options will
immediately vest upon shareholder approval and consummation of the Merger
resulting in a one-time, non-cash charge against net earnings. Assuming a price
of $85.00 per share, at the consummation of the Merger, the charge against net
earnings will be $6,075 (net of income tax benefit of $4,050).
To finance this acquisition, the Company entered into a credit agreement
with a group of banks which provides financing of up to $125,000. The Company,
on June 16, 1997, borrowed $50,000 on a six-year term loan. This credit facility
is available for general business purposes.
The following table highlights significant changes in balance sheet items
and ratios and other information related to liquidity and capital resources:
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 31, INCREASE
1997 1996 (DECREASE)
---------- ------------ -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Cash....................................................................... $ 30,656 $ 44,957 (14,301)
Accounts receivable, net................................................... 67,555 43,984 23,571
Inventories, net........................................................... 33,687 38,761 (5,074)
Current assets............................................................. 143,473 138,201 5,272
Accounts payable........................................................... 26,351 17,146 9,205
Current liabilities........................................................ 70,561 51,391 19,170
Working capital............................................................ 72,912 86,810 (13,898)
Current ratio.............................................................. 2.03 2.69 (.66)
Long-term obligations...................................................... 63,429 13,647 49,782
Tangible net worth......................................................... 175,609 162,193 13,416
Ratio of long-term obligations to tangible net worth....................... .36 .08 .28
</TABLE>
Working capital and the current ratio decreased primarily due to a $14.3
million decrease in cash, as the Company utilized some of its excess cash
combined with its $50,000 term loan to purchase DCA common stock. Within the
working capital accounts, accounts receivable increased $23.6 million resulting
from increased sales. This was partially offset by a decrease in inventories of
$5.1 million and increases in accounts payable of $9.2 million and accrued
liabilities of $8.5 million. These changes are primarily due to the increase in
sales and production levels. Current maturities of long-term obligations
increased $1.5 million, representing the two initial installment payments on the
$50.0 million term loan.
Capital expenditures were $10.6 million during the first six months of 1997,
compared with $9.3 million for the same period a year earlier. These capital
expenditures were primarily for increased manufacturing capacity, new products
and manufacturing improvement programs.
The Merger, when combined with a stock split in the form of a 1:1 stock
dividend expected to be effected in connection therewith, is expected
substantially to increase the liquidity in the market for CTS shares and to
decrease the concentration of ownership of CTS shares.
The Company believes that cash on hand, cash from operations and other
capital resources available to the Company, including borrowings under the
Credit Agreement, will be sufficient to fund the Company's capital requirements.
The Company may, depending upon conditions in the capital markets and other
factors, consider other capital transactions further to increase the Company's
financial flexibility, to reduce its overall cost of capital or for other
purposes.
Debt increased due to the $50.0 million term loan borrowing.
E-33
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS: COMPARISON OF SECOND QUARTER 1997 TO
SECOND QUARTER 1996
The following table highlights changes in significant components of the
consolidated statements of earnings for the three-month periods ending June 29,
1997, and June 30, 1996:
<TABLE>
<CAPTION>
JUNE 29, JUNE 30, INCREASE
1997 1996 (DECREASE)
---------- --------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales...................................................................... $ 107,482 $ 83,820 $ 23,662
Gross earnings................................................................. 28,837 21,874 6,963
Gross earnings as a percent of sales........................................... 26 .83% 26.10% .73%
Selling, general and administrative expenses................................... 12,042 11,028 1,014
Selling, general and administrative expenses as a percent of sales............. 11 .20% 13.16% (1.96%)
Research and development expenses.............................................. 3,075 2,628 447
Operating earnings............................................................. 13,720 8,218 5,502
Operating earnings as a percent of sales....................................... 12.76% 9.80% 2.96%
Interest expense............................................................... 410 351 59
Earnings before income taxes................................................... 13,425 8,477 4,948
Income taxes................................................................... 4,967 3,137 1,830
Net earnings................................................................... 8,458 5,340 3,118
Income tax rate................................................................ 37.00% 37.00% --
</TABLE>
Net sales increased by $23.7 million, or 28.2% compared to the second
quarter of 1996. The improvement in sales reflects increasing demand for
electronic components, particularly the automotive, microelectronics and
commercial interconnect products serving the automotive, computer equipment and
communications equipment markets in North America and Europe.
Gross earnings improved primarily due to the sales and production volume
increases, as well as to continuing efforts to control manufacturing expenses.
Selling, general and administrative expenses increased $1.0 million, but
decreased as a percentage of sales. The increased expenses are primarily due to
increased variable expenses associated with the higher level of sales.
Research and development expenses increased by $0.4 million, primarily due
to the continuation of new product development programs, particularly for
automotive products.
MATERIAL CHANGES IN RESULTS OF OPERATIONS: COMPARISON OF FIRST HALF OF 1997 TO
FIRST HALF OF 1996
The following table highlights changes in significant components of the
consolidated statements of earnings for the six-month periods ending June 29,
1997, and June 30, 1996:
<TABLE>
<CAPTION>
JUNE 29, JUNE 30, INCREASE
1997 1996 (DECREASE)
---------- ---------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales.................................................................... $ 198,751 $ 164,006 $ 34,745
Gross earnings............................................................... 54,128 41,673 12,455
Gross earnings as a percent of sales......................................... 27.23% 25.41% 1.82%
Selling, general and administrative expenses................................. 23,866 21,980 1,886
Selling, general and administrative expenses as a percent of sales........... 12.01% 13.40% (1.39%)
Research and development expenses............................................ 6,049 4,888 1,161
Operating earnings........................................................... 24,213 14,805 9,408
Operating earnings as a percent of sales..................................... 12.18% 9.03% 3.15%
Interest expense............................................................. 673 787 (114)
Earnings before income taxes................................................. 24,463 15,483 8,980
Income taxes................................................................. 9,051 5,729 3,322
Net earnings................................................................. 15,412 9,754 5,658
Income tax rate.............................................................. 37.00% 37.00% --
</TABLE>
E-34
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MATERIAL CHANGES IN RESULTS OF OPERATIONS: COMPARISON OF FIRST HALF OF 1997 TO
FIRST HALF OF 1996 (CONTINUED)
For the first half of 1997, net sales increased $34.7 million, a 21.2%
increase compared to the first half of 1996. Consistent with the second quarter
of 1997, improvement was realized as a result of the continuing higher demand
for automotive, microelectronic and commercial interconnect products serving the
automotive, computer equipment and communications equipment markets.
Gross earnings have improved over the first half of 1996, primarily as a
result of the higher sales volume. Sales and production volume increases have
favorably affected operating efficiencies.
Selling, general and administrative expenses have increased $1.9 million,
but decreased as a percent of sales. The increased expenses are primarily due to
higher variable expenses associated with the higher level of sales.
Research and development expenses have increased by $1.2 million, or 23.8%,
during the first half of 1997, primarily due to the new product development
programs, particularly for automotive products.
E-35
<PAGE>
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of CTS Corporation was convened on April
25, 1997, and concluded on June 24, 1997.
Each of the five director-nominees identified below was re-elected to a
one-year term as director of the Corporation with the following votes reported
of the 3,794,041 eligible to vote and represented at the meeting:
<TABLE>
<CAPTION>
VOTES
VOTES CAST
DIRECTOR-NOMINEE CAST FOR AGAINST ABSTENTIONS
- ----------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Lawrence J. Ciancia........................................ 3,769,678 5,178 19,185
Patrick J. Dorme........................................... 3,766,822 8,034 19,185
Gerald H. Frieling, Jr..................................... 3,767,938 6,918 19,185
Andrew Lozyniak............................................ 3,766,696 8,160 19,185
Joseph P. Walker........................................... 3,769,529 5,327 19,185
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
a. Exhibits
(3)(a) Articles of Incorporation, as amended April 16, 1973, (incorporated by
reference to Exhibit (3)(a) to the Company's Annual Report on Form 10-K for
1987).
(3)(b) Bylaws, effective December 31, 1992, (incorporated by reference to Exhibit
(3)(b) to the Company's Annual Report on Form 10-K/A for 1992, filed April 8,
1997).
(10)(a) Employment Agreement, dated as of May 9, 1997, between the Company and Joseph
P. Walker (incorporated by reference to Exhibit (c)(2) to the Schedule 14D-1
filed by the Company on May 16, 1997).
(10)(b) Prototype indemnification agreement, with Lawrence J. Ciancia, Patrick J.
Dorme, Gerald H. Frieling, Jr., Andrew Lozyniak, Joseph P. Walker, Philip T.
Christ, Jeannine M. Davis, George T. Newhart and Gary N. Hoipkemier,
incorporated by reference to Exhibit (10)(b) to the Company's Annual Report on
Form 10-K for 1991).
(10)(c) CTS Corporation 1982 Stock Option Plan, as amended February 24, 1989,
(incorporated by reference to Exhibit (10)(d) to the Company's Annual Report
on Form 10-K for 1989).
(10)(d) CTS Corporation 1986 Stock Option Plan, approved by the shareholders on May
30, 1986, as amended and restated on May 9, 1997, filed herewith.
(10)(e) CTS Corporation 1988 Restricted Stock and Cash Bonus Plan approved by the
shareholders on April 28, 1989, as amended and restated on May 9, 1997, filed
herewith.
(10)(f) CTS Corporation 1996 Stock Option Plan, approved by the shareholders on April
26, 1996, as amended and restated on May 9, 1997, filed herewith.
</TABLE>
E-36
<PAGE>
<TABLE>
<S> <C> <C>
(10)(g) Prototype indemnification agreement, with Stanley J. Aris, James L. Cummins,
James N. Hufford and Donald R. Schroeder (incorporated by reference to Exhibit
(10)(g) to the Company's Annual Report on Form 10-K for 1995).
(10)(h) Amended and Restated Agreement and Plan of Merger, dated as of May 9, 1997,
and amended and restated on July 17, 1997, among the Company, CTS First
Acquisition Corp., a wholly owned subsidiary of the Company ("Sub"), and DCA
(incorporated by reference to Exhibit (c)(6) to Amendment No. 3 to the
Schedule 13D filed by the Company in respect of DCA on July 18, 1997, (the
"Schedule 13-D").
(10)(I) Shareholders Agreement, dated as of July 17, 1997, among the Company, Sub, WHX
Corporation ("WHX") and SB Acquisition Corp., a subsidiary of WHX
(incorporated by reference to Exhibit (c)(7) to the Schedule 13-D).
(10)(j) Employment Agreement, dated as of May 9, 1997, between the Company and Andrew
Lozyniak (incorporated by reference to Exhibit 10.5 of DCA's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997, (the "DCA 10-Q").
(10)(k) Employment Agreement, dated as of May 9, 1997, between the Company and Patrick
J. Dorme (incorporated by reference to the DCA 10-Q).
(10)(l) Employment Agreement, dated as of May 9, 1996, between the Company and Henry
V. Kensing (incorporated by reference to the DCA 10-Q).
(10)(m) The Form of Severance Agreement, dated April 11, 1997, between the Company and
certain officers of the Company (incorporated by reference to Exhibit (a)(99)
of the Company's Quarterly Report on Form 10-Q for the quarter ended March 30,
1997) and amendment thereto, dated May 9, 1997, filed herewith.
(21) Subsidiaries as of June 29, 1997, filed herewith.
(27) Financial Data Schedule (filed only electronically with the SEC).
b. Reports on Forms 8-K
Press release of May 12, 1997, announcing CTS and Dynamics Corporation of America
agreement to merge; filed May 12, 1997.
Public notice that Annual Meeting of Shareholders of April 25, 1997, was adjourned until
June 16, 1997; filed April 25, 1997.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C> <C> <C>
CTS CORPORATION CTS CORPORATION
/s/ JEANNINE M. DAVIS /s/ STANLEY J. ARIS
------------------------------------ ------------------------------------
Jeannine M. Davis Stanley J. Aris
VICE PRESIDENT, SECRETARY VICE PRESIDENT FINANCE
AND GENERAL COUNSEL AND CHIEF FINANCIAL OFFICER
By: By:
</TABLE>
Dated: August 12, 1997
E-37
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended _______March 30, 1997_______
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
for the transition period from ____________ to ____________
<TABLE>
<S> <C>
For Quarter Ended Commission File Number
MARCH 30, 1997 1-4639
</TABLE>
CTS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
INDIANA 35-0225010
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or No.)
organization)
</TABLE>
<TABLE>
<CAPTION>
905 WEST BOULEVARD NORTH
ELKHART, IN 46514
<S> <C>
(Address of principal executive (Zip Code)
offices)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (219)293-7511
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES _X_ NO ___
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF APRIL 18, 1997: 5,228,396
EXHIBITS TO THIS QUARTERLY REPORT ON FORM 10-Q THAT ARE "FILED HEREWITH" ARE
FILED AS EXHIBITS TO THE REGISTRATION STATEMENT ON FORM S-4 FILED BY THE COMPANY
WITH THE COMMISSION ON SEPTEMBER 2, 1997.
E-38
<PAGE>
CTS CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings--For the Three Months Ended March 30, 1997, and March
31, 1996............................................................................................. E-40
Condensed Consolidated Balance Sheets--As of March 30, 1997, and December 31, 1996................... E-41
Condensed Consolidated Statements of Cash Flows--For the Three Months Ended March 30, 1997, and March
31, 1996............................................................................................. E-42
Notes to Condensed Consolidated Financial Statements................................................. E-43
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ E-44-45
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ E-46
Item 6. Exhibits and Reports on Form 8-K............................................................. E-46
SIGNATURES............................................................................................. E-47
</TABLE>
E-39
<PAGE>
PART I.--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
<S> <C> <C>
MARCH 30, MARCH 31,
1997 1996
------------ ------------
Net sales............................................................................. $ 91,269 $ 80,186
Costs and expenses:
Cost of goods sold.................................................................. 65,978 60,387
Selling, general and administrative expenses........................................ 11,824 10,952
Research and development expenses................................................... 2,974 2,260
------------ ------------
Operating earnings................................................................ 10,493 6,587
------------ ------------
Other expenses (income):
Interest expense.................................................................... 263 436
Other............................................................................... (808) (855)
------------ ------------
Total other expenses (income)......................................................... (545) (419)
------------ ------------
Earnings before income taxes.......................................................... 11,038 7,006
Income taxes.......................................................................... 4,084 2,592
------------ ------------
Net earnings...................................................................... $ 6,954 $ 4,414
------------ ------------
------------ ------------
Net earnings per share................................................................ $ 1.32 $ .83
------------ ------------
------------ ------------
Cash dividends declared per share..................................................... $ .18 $ .15
Average common and common equivalent shares outstanding............................... 5,267,396 5,294,933
</TABLE>
See notes to condensed consolidated financial statements.
E-40
<PAGE>
PART I.--FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 31,
1997 1996*
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current Assets
Cash................................................................................ $ 46,556 $ 44,957
Accounts receivable, less allowances (1997--$669; 1996--$622)....................... 54,654 43,984
Inventories--Note C................................................................. 37,197 38,761
Other current assets................................................................ 5,500 3,787
Deferred income taxes............................................................... 6,712 6,712
----------- ------------
Total current assets.............................................................. 150,619 138,201
Property, Plant and Equipment, less accumulated depreciation
(1997--$132,386; 1996--$133,286).................................................... 56,919 56,103
Other Assets
Goodwill, less accumulated amortization (1997--$8,531; 1996-$8,361)................. 3,861 4,039
Prepaid pension..................................................................... 51,826 50,152
Other............................................................................... 757 877
----------- ------------
Total other assets................................................................ 56,444 55,068
----------- ------------
$ 263,982 $ 249,372
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations......................................... $ 2,416 $ 2,427
Accounts payable.................................................................... 22,965 17,146
Accrued liabilities................................................................. 35,793 31,818
----------- ------------
Total current liabilities......................................................... 61,174 51,391
Long-term Obligations................................................................. 11,210 11,220
Deferred Income Taxes................................................................. 16,146 16,146
Postretirement Benefits............................................................... 4,315 4,383
Shareholders' Equity:
Common stock-authorized 8,000,000 shares without par value; issued 5,807,031
shares............................................................................ 33,401 33,540
Retained earnings................................................................... 150,125 144,112
Cumulative translation adjustment................................................... 349 1,373
----------- ------------
183,875 179,025
Less cost of common stock held in treasury: 1997--579,635 shares;
1996--582,075 shares.............................................................. 12,738 12,793
----------- ------------
Total shareholders' equity........................................................ 171,137 166,232
----------- ------------
$ 263,982 $ 249,372
----------- ------------
----------- ------------
</TABLE>
- ------------------------
* The balance sheet at December 31, 1996, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
E-41
<PAGE>
PART I.--FINANCIAL INFORMATION
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
<S> <C> <C>
MARCH 30, MARCH 31,
1997 1996
----------- -----------
Cash flows from operating activities:
Net earnings............................................................................. $ 6,954 $ 4,414
Depreciation and amortization.......................................................... 3,768 3,250
(Increase) decrease in:
Accounts receivable.................................................................. (10,670) (2,153)
Inventories.......................................................................... 1,564 784
Other current assets................................................................. (1,713) (1,114)
Prepaid pension asset................................................................ (1,674) (1,309)
Other................................................................................ 43 (105)
Increase in:
Accounts payable & accrued liabilities............................................... 9,794 4,624
----------- -----------
Total adjustments.................................................................... 1,112 3,977
----------- -----------
Net cash provided by operating activities.............................................. 8,066 8,391
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment...................................... 6 128
Capital expenditures..................................................................... (4,833) (4,247)
----------- -----------
Net cash used in investing activities.................................................. (4,827) (4,119)
Cash flows from financing activities:
Payments of long-term obligations........................................................ (1)
Increase in notes payable................................................................ 1,365
Dividend payments........................................................................ (940) (783)
Other.................................................................................... (150) 113
----------- -----------
Net cash (used in) provided by financing activities.................................... (1,090) 694
Effect of exchange rate changes on cash.................................................... (550) 66
----------- -----------
Net increase in cash....................................................................... 1,599 5,032
Cash at beginning of year.................................................................. 44,957 37,271
----------- -----------
Cash at end of period...................................................................... $ 46,556 $ 42,303
----------- -----------
----------- -----------
Supplemental cash flow information
Cash paid during the period for:
Interest............................................................................... $ 278 $ 429
Income Taxes--Net...................................................................... $ 852 $ 1,179
</TABLE>
See notes to condensed consolidated financial statements.
E-42
<PAGE>
PART I.--FINANCIAL INFORMATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 30, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying condensed interim consolidated financial data is unaudited;
however, in the opinion of management, the interim data includes all adjustments
considered necessary for a fair presentation of the results for the interim
period. Operating results for the three-month period ended March 30, 1997, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's 1996 Annual
Report on Form 10-K.
NOTE B--RECLASSIFICATIONS
Certain reclassifications have been made to prior periods to conform to the
classifications adopted in 1997.
NOTE C--INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------
<S> <C> <C>
MARCH 30, DECEMBER 31,
1997 1996
----------- ------------
Finished goods...................................................... $ 6,838 $ 8,504
Work-in-process..................................................... 16,374 17,138
Raw material........................................................ 13,985 13,119
----------- ------------
$ 37,197 $ 38,761
----------- ------------
----------- ------------
</TABLE>
NOTE D--LITIGATION AND CONTINGENCIES
Contested claims involving various matters, including environmental claims
brought by government agencies, are being litigated by CTS, both in legal and
administrative forums. In the opinion of management, based upon currently
available information, adequate provision for potential costs has been made, or
the costs which could ultimately result from such litigation or administrative
proceedings will not materially affect the consolidated financial position of
the Company or the results of operations.
E-43
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION: COMPARISON OF MARCH 30, 1997, TO
DECEMBER 31, 1996
The following table highlights significant changes in balance sheet captions
and ratios and other information related to liquidity and capital resources:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
-------------------------------------
<S> <C> <C> <C>
MARCH 30, DECEMBER 31, INCREASE
1997 1996 (DECREASE)
---------- ------------ -----------
Cash....................................................................... $ 46,556 $ 44,957 $ 1,599
Accounts receivable, net................................................... 54,654 43,984 10,670
Inventories, net........................................................... 37,197 38,761 (1,564)
Current assets............................................................. 150,619 138,201 12,418
Accounts payable........................................................... 22,965 17,146 5,819
Current liabilities........................................................ 61,174 51,391 9,783
Working capital............................................................ 89,445 86,810 2,635
Current ratio.............................................................. 2.46 2.69 (.23)
Interest bearing debt...................................................... 13,408 13,428 (20)
Net tangible worth......................................................... 167,276 162,193 5,083
Ratio of interest bearing debt to net tangible worth....................... .08 .08 --
</TABLE>
From December 31, 1996, to March 30, 1997, working capital of CTS
Corporation and its subsidiaries ("CTS" or "Company") increased $2.6 million.
The improved working capital position primarily reflects a general increase in
business activity which resulted in higher cash and accounts receivable
balances. These effects were offset by related, but lower, increases in accounts
payable and accrued liabilities. The current ratio decreased due to the relative
increase in current liabilities, primarily accounts payable.
Capital expenditures were $4.8 million during the first quarter, compared
with $4.2 million for the same period a year earlier. These capital expenditures
were primarily for increased manufacturing capacity, new products and
manufacturing improvement programs.
E-44
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MATERIAL CHANGES IN RESULTS OF OPERATIONS: COMPARISON OF FIRST QUARTER 1997 TO
FIRST QUARTER 1996
The following table highlights changes in significant components of the
consolidated statements of earnings for the three-month periods ending March 30,
1997, and March 31, 1996:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
-------------------------------------
<S> <C> <C> <C>
MARCH 30, MARCH 31, INCREASE
1997 1996 (DECREASE)
----------- ----------- -----------
Net sales..................................................................... $ 91,269 $ 80,186 $ 11,083
Gross earnings................................................................ 25,291 19,799 5,492
Gross earnings as a percent of sales.......................................... 27.71% 24.69% 3.02%
Selling, general and administrative expenses.................................. 11,824 10,952 872
Selling, general and administrative expenses as a percent of sales............ 12.96% 13.66% (0.70)%
Research and development expenses............................................. 2,974 2,260 714
Operating earnings............................................................ 10,493 6,587 3,906
Operating earnings as a percent of sales...................................... 11.50% 8.21% 3.29%
Interest expense.............................................................. 263 436 (173 )
Earnings before income taxes.................................................. 11,038 7,006 4,032
Income taxes.................................................................. 4,084 2,592 1,492
Income tax rate............................................................... 37.00% 37.00%
</TABLE>
Net sales increased by $11.1 million, or 13.8% from the first quarter of
1996. Sales increases occurred principally as a result of increased customer
demand for interconnect, automotive sensor, resistor networks and
microelectronics products in the North American and European markets.
Gross earnings improved primarily due to the sales and production volume
increases, as well as continuing efforts to control manufacturing expenses.
Selling, general and administrative expenses in dollars increased slightly
as a result of the increased business levels, but decreased as a percentage of
sales due to continued expense controls.
Research and development expenses increased 31.6% as the Company continued
investment efforts in new product development and improvements.
The increase in operating earnings is principally due to the higher sales
volume, higher absorption of manufacturing expenses and continued control of
operating expenses.
E-45
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CTS is involved in litigation and in other administrative proceedings with
government agencies regarding the protection of the environment, and other
matters, the results of which are not yet determinable. In the opinion of
management, based upon currently available information, adequate provision for
anticipated costs has been made, or the ultimate costs resulting from such
litigation or administrative proceedings will not materially affect the
consolidated financial position of the Company or the results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
(99) Additional exhibit--Severance Agreement--pages 1-19
Severance Agreement, dated April 11, 1997, between CTS Corporation and
Joseph P. Walker, Philip T. Christ, Stanley J. Aris, Jeannine M. Davis,
James L. Cummins, James N. Hufford, Donald R. Schroeder, George T.
Newhart, Gary N. Hoipkemier, Ian M. Archer, James K. C. Chen, R. Clayton
Crum, George A. Harding, Timothy L. Hartigan, William J. Kaska and John
D. Watson, filed herewith.
b. Forms 8-K
None
E-46
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
CTS CORPORATION CTS CORPORATION
<S> <C> <C>
/s/ JEANNINE M. DAVIS /s/ STANLEY J. ARIS
- ------------------------------------------- -------------------------------------------
Jeannine M. Davis Stanley J. Aris
VICE PRESIDENT, SECRETARY VICE PRESIDENT FINANCE
AND GENERAL COUNSEL AND CHIEF FINANCIAL OFFICER
</TABLE>
Dated: April 22, 1997
E-47
<PAGE>
APPENDIX A
PRELIMINARY COPY
PROXY
CTS CORPORATION
This
Proxy is Solicited on Behalf of the Board of Directors. The undersigned, 905
West Boulevard North
having
received the Notice of Special Meeting of Shareholders and the Proxy Elkhart,
Indiana 46514
Statement,
dated September 2, 1997, hereby appoints Joseph P. Walker and SPECIAL MEETING OF
SHAREHOLDERS
Andrew
Lozyniak as proxies, each with the power to appoint his substitute, and OCTOBER
16, 1997
hereby
authorizes them to represent and to vote, as designated below, all of the
shares
of Common Stock of CTS Corporation held of record by the undersigned on
September
5, 1997, at the Special Meeting of Shareholders to be held on
- ----------------------------------------------------------------------------
October
16, 1997 and at any adjournment thereof.
THE CTS BOARD OF DIRECTORS RECOMMENDS A VOTE (I) FOR APPROVAL OF THE ISSUANCE OF
CTS COMMON STOCK ("CTS SHARES") AND RELATED AMENDMENTS TO THE CTS ARTICLES OF
INCORPORATION, INCLUDING AN INCREASE IN CTS' AUTHORIZED CAPITALIZATION, PURSUANT
TO THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, DATED AS OF MAY 9,
1997 AND AMENDED AND RESTATED ON JULY 17, 1997 (THE "MERGER AGREEMENT"), AMONG
CTS, CTS FIRST ACQUISITION CORP., A WHOLLY OWNED SUBSIDIARY OF CTS, AND DYNAMICS
CORPORATION OF AMERICA ("DCA") AND (II) FOR APPROVAL OF THE GRANT OF EMPLOYEE
STOCK OPTIONS TO CERTAIN EXECUTIVE OFFICERS OF CTS AND DCA.
1. ISSUANCE OF COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND RELATED
AMENDMENTS TO THE CTS ARTICLES OF INCORPORATION
/ / FOR / / AGAINST / / ABSTAIN
2. EMPLOYEE STOCK OPTION GRANTS
/ / FOR / / AGAINST / / ABSTAIN
TRIANGLE
- --------------------------------------------------------------------------------
If not otherwise marked, this Proxy will be voted for the proposals set forth
herein.
<PAGE>
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting, or any adjournment thereof.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Signature____________________________________________________________
Signature____________________________________________________________
If Held Jointly
Dated________________________________________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
<PAGE>
APPENDIX B
PRELIMINARY COPY
PROXY
DYNAMICS CORPORATION OF AMERICA
475 Steamboat Road
This Proxy
is Solicited on Behalf of the Board of Directors. The undersigned,
having
received the Notice of Annual Meeting of Shareholders and the Proxy Greenwich,
Connecticut 06830
Statement,
dated September 2, 1997, hereby appoints A. Lozyniak and H.V.
Kensing as
proxies, each with the power to appoint his substitute, and ANNUAL MEETING OF
SHAREHOLDERS
hereby
authorizes them to represent and to vote, as designated below, all of OCTOBER
16, 1997
the shares
of Common Stock of DYNAMICS CORPORATION OF AMERICA
("DCA") held
of record by the undersigned on September 5, 1997, at the
Annual
Meeting of Shareholders to be held on October 16, 1997 and at any
- -----------------------------------------------------------------
adjournment
thereof.
THE DCA BOARD OF DIRECTORS RECOMMENDS A VOTE (I) FOR THE ADOPTION OF THE AMENDED
AND RESTATED AGREEMENT AND PLAN OF MERGER, DATED AS OF MAY 9, 1997 AND AMENDED
AND RESTATED ON JULY 17, 1997 (THE "MERGER AGREEMENT"), AMONG DCA, CTS
CORPORATION AND CTS FIRST ACQUISITION CORP., A WHOLLY OWNED SUBSIDIARY OF CTS;
(II) FOR THE ELECTION OF THE SIX NOMINEES FOR DIRECTOR NAMED BELOW; AND (III)
FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS DCA'S INDEPENDENT
AUDITORS FOR 1997.
1. ADOPTION OF THE MERGER AGREEMENT
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
/ / FOR ALL nominees listed below / / FOR SOME of the nominees listed
below (See INSTRUCTION)
<CAPTION>
/ / FOR ALL nominees listed below / / WITHHOLD AUTHORITY
<CAPTION>
to vote for all nominees
</TABLE>
Jeannine M. Davis, Joseph P. Walker; Ronald Steiner, John Thompson, George
Newhart, Stanley J. Aris
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE ON ANY INDIVIDUAL NOMINEE, WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED ABOVE EXCEPT:
- --------------------------------------------------------------------------------
If not otherwise marked, this Proxy will be voted for the proposals set forth
herein.
<PAGE>
3. RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG
/ / FOR / / AGAINST / / ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting, or any adjournment
thereof.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Signature _________________________________________________
Signature _________________________________________________
If Held Jointly
Dated ______________________________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following summary of the material provisions of CTS' By-laws relating to
indemnification of directors and officers, the CTS Charter, CTS' indemnification
agreements with officers and directors and the IBCL is not intended to be
exclusive and is respectively qualified in its entirety by such By-laws,
Charter, indemnification agreements and statute.
CTS' By-laws provide that CTS shall indemnify its officers and directors to
the fullest extent permitted by applicable law. Chapter 37 of the IBCL provides,
in general, that each director and officer of a corporation may be indemnified
against liabilities (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with the
defense or settlement of any threatened, pending or completed legal proceedings
in which he or she is involved by reason of the fact that he or she is or was a
director or officer, if he or she acted in good faith and in a manner that he or
she reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, if he or
she had no reasonable cause to believe that his or her conduct was unlawful. If
the legal proceeding, however, is by or in the right of the corporation, the
director or officer may not be indemnified in respect of any claim, issue or
matter as to which he or she has been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the company unless a court
determines otherwise.
The CTS Charter provides that the personal liability of the directors of CTS
will be eliminated to the fullest extent permitted by applicable law. The CTS
Bylaws provide that no director of CTS will be personally liable to the
corporation or its shareholders for monetary damages for any breach of his
fiduciary duty as a director; provided, however, that such provision does not
apply to any liability of a director (a) for breach of fiduciary duty if such
breach constitutes willful misconduct or recklessness or (b) for the payment of
distributions to shareholders in violation of Section 23-1-28-3 of the IBCL.
Pursuant to their respective indemnification agreements with CTS, Stanley J.
Aris, Lawrence J. Ciancia, James L. Cummins, Patrick J. Dorme, Gerald H.
Frieling, Jr., James N. Hufford, Andrew Lozyniak, Joseph P. Walker, Jeannine M.
Davis, George T. Newhart, Gary N. Hoipkemier and Donald R. Schroeder are
indemnified from all liabilities arising out of the activities reasonably taken
in the performance of their duties as officers and directors of CTS.
CTS also maintains insurance for officers and directors against certain
liabilities, including liabilities under the Securities Act. The effect of this
insurance is to indemnify any officer or director of CTS against expenses,
including, without limitation, attorneys' fees, judgments, fines and amounts
paid in settlement, incurred by an officer or director upon a determination that
such person acted in good faith. The premiums for such insurance are paid by
CTS.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of May 9, 1997 and amended and restated on
July 17, 1997, among CTS, Sub and DCA, included as Annex A to the Joint Proxy Statement/Prospectus.
2.2 Shareholders Agreement, dated as of July 17, 1997, among CTS, Sub, WHX Corporation and SB Acquisition
Corp., previously filed as Exhibit (c)(7) to Amendment No. 3 to CTS' Schedule 13D on July 18, 1997 and
incorporated herein by reference.
3.1 Articles of Incorporation, as amended April 16, 1993, previously filed as Exhibit (3)(a) to CTS' 1987
Annual Report on Form 10-K and incorporated herein by reference.
3.2 Bylaws, as amended and effective June 25, 1992, previously filed as Exhibit (3)(b) to CTS' Annual Report
on Form 10-K/A for 1996, filed herewith.
3.3 Amended and Restated Articles of Incorporation of CTS to be effective as of the Effective Time included
as Annex B to Annex A (the Merger Agreement) in the Joint Proxy Statement/ Prospectus.
3.4 Bylaws, as amended and restated and adopted to be effective as of the Effective Time, included as Annex
B to Annex A (the Merger Agreement) in the Joint Proxy Statement/Prospectus.
5.1 Opinion of Jeannine M. Davis, Esq., Vice President and General Counsel of CTS regarding the legality of
securities being issued.
8.1 Opinion of Jones, Day, Reavis & Pogue as to tax matters.
10.1 Employment Agreement, dated May 9, 1997, between CTS and Joseph P. Walker, filed herewith.
10.2 Prototype CTS indemnification agreement, with Stanley J. Aris, Lawrence J. Ciancia, James L. Cummins,
Patrick J. Dorme, Gerald H. Frieling, Jr., James N. Hufford, Andrew Lozyniak, Joseph P. Walker, Jeannine
M. Davis, George T. Newhart, Gary N. Hoipkemier and Donald R. Schroeder, previously filed as Exhibit
(10)(b) to CTS' Annual Report on Form 10-K for 1991 and incorporated herein by reference.
10.3 CTS Corporation 1982 Stock Option Plan, as amended February 24, 1989, previously filed as Exhibit
(10)(d) to CTS' Annual Report on Form 10-K for 1989 and incorporated herein by reference.
10.4 CTS Corporation 1986 Stock Option Plan, as amended and restated, filed herewith.
10.5 CTS Corporation 1988 Restricted Stock and Cash Bonus Plan, as amended and restated, filed herewith.
10.6 CTS Corporation 1996 Stock Option Plan, as amended and restated, filed herewith.
10.7 Prototype CTS indemnification agreement, with Stanley J. Aris, James L. Cummins, James N. Hufford and
Donald R. Schroeder, filed herewith.
10.8 Form of Severance Agreement, dated April 11, 1997, between CTS and certain officers of CTS and amendment
thereto, filed herewith.
10.9 Amendment to DCA 1980 Restricted Stock and Cash Bonus Plan, dated as of April 11, 1997, previously filed
as Exhibit 10.7 to the Quarterly Report on Form 10-Q of DCA, filed on May 15, 1997 (the "DCA 1st Quarter
1997 10-Q"), and incorporated herein by reference.
10.10 Amendment to Employment Agreement, dated as of April 11, 1997, by and between DCA and Andrew Lozyniak,
previously filed as Exhibit 10.1 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.11 Amendment to Employment Agreement, dated as of April 11, 1997, by and between DCA and Patrick J. Dorme,
previously filed as Exhibit 10.2 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
10.12 Amendment to Employment Agreement, dated as of April 11, 1997, by and between DCA and Henry V. Kensing,
previously filed as Exhibit 10.3 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
10.13 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation, DCA and Andrew Lozyniak,
previously filed as Exhibit 10.4 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
10.14 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation, DCA and Patrick J. Dorme,
previously filed as Exhibit 10.5 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
10.15 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation, DCA and Henry V. Kensing,
previously filed as Exhibit 10.6 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
21.1 CTS subsidiaries, filed herewith.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 8.1).
23.4 Consent of J.P. Morgan Securities Inc.
23.5 Consent of Wasserstein, Perella & Co., Inc.
99.1 Chairman's Letter to Shareholders of CTS.
99.2 Notice of Special Meeting of Shareholders of CTS.
99.3 Chairman's Letter to Shareholders of DCA.
99.4 Notice of Annual Meeting of Shareholders of DCA.
99.5 Form of Election/Letter of Transmittal.
99.6 Notice of Guaranteed Delivery.
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes: (1) To file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement. (2) That, for
the purpose of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof. (3)
To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering. (b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of
II-3
<PAGE>
1933, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form. (2) The registrant undertakes
that every prospectus (i) that is filed pursuant to paragraph (1) immediately
preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of
the Act and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof. (d)
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue. (e) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request. (f) The undersigned registrant
hereby undertakes to supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration statement
when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Elkhart, State of
Indiana, August 29, 1997.
<TABLE>
<S> <C> <C>
CTS CORPORATION
(REGISTRANT)
By: /s/ JOSEPH P. WALKER
-----------------------------------------
Joseph P. Walker
CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE
OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Joseph P.
Walker, Jeannine M. Davis and George T. Newhart, and each of them acting
individually, his-her true and lawful attorney-in-fact and agents, with full
power of substitution and resubstitution, for him-her and in his-her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them acting individually, full power and authority to do and
perform each and every act and thing necessary or advisable to be done in and
about the premises, as fully to all intents and purposes as he-she might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or their or his-her substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------- ------------------
<C> <S> <C>
/s/ JOSEPH P. WALKER Chairman, President, Chief Executive
------------------------------------------- Officer and Director (Principal August 29, 1997
Joseph P. Walker Executive Officer)
/s/ STANLEY J. ARIS Vice President--Finance and Chief
------------------------------------------- Financial Officer (Principal August 29, 1997
Stanley J. Aris Accounting Officer)
/s/ LAWRENCE J. CIANCIA
------------------------------------------- Director August 29, 1997
Lawrence J. Ciancia
/s/ PATRICK J. DORME
------------------------------------------- Director August 29, 1997
Patrick J. Dorme
/s/ GERALD H. FRIELING, JR.
------------------------------------------- Director August 29, 1997
Gerald H. Frieling, Jr.
/s/ ANDREW LOZYNIAK
------------------------------------------- Director August 29, 1997
Andrew Lozyniak
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of May 9, 1997 and amended and restated on
July 17, 1997, among CTS, Sub and DCA, included as Annex A to the Joint Proxy Statement/Prospectus.
2.2 Shareholders Agreement, dated as of July 17, 1997, among CTS, Sub, WHX Corporation and SB Acquisition
Corp., previously filed as Exhibit (c)(7) to Amendment No. 3 to CTS' Schedule 13D on July 18, 1997 and
incorporated herein by reference.
3.1 Articles of Incorporation, as amended April 16, 1993, previously filed as Exhibit (3)(a) to CTS' 1987
Annual Report on Form 10-K and incorporated herein by reference.
3.2 Bylaws, as amended and effective June 25, 1992, previously filed as Exhibit (3)(b) to CTS' Annual Report
on Form 10-K/A for 1996, filed herewith.
3.3 Amended and Restated Articles of Incorporation of CTS to be effective as of the Effective Time included
as Annex B to Annex A (the Merger Agreement) in the Joint Proxy Statement/ Prospectus.
3.4 Bylaws, as amended and restated and adopted to be effective as of the Effective Time, included as Annex
B to Annex A (the Merger Agreement) in the Joint Proxy Statement/Prospectus.
5.1 Opinion of Jeannine M. Davis, Esq., Vice President and General Counsel of CTS regarding the legality of
securities being issued.
8.1 Opinion of Jones, Day, Reavis & Pogue as to tax matters.
10.1 Employment Agreement, dated May 9, 1997, between CTS and Joseph P. Walker, filed herewith.
10.2 Prototype CTS indemnification agreement, with Stanley J. Aris, Lawrence J. Ciancia, James L. Cummins,
Patrick J. Dorme, Gerald H. Frieling, Jr., James N. Hufford, Andrew Lozyniak, Joseph P. Walker, Jeannine
M. Davis, George T. Newhart, Gary N. Hoipkemier and Donald R. Schroeder, previously filed as Exhibit
(10)(b) to CTS' Annual Report on Form 10-K for 1991 and incorporated herein by reference.
10.3 CTS Corporation 1982 Stock Option Plan, as amended February 24, 1989, previously filed as Exhibit
(10)(d) to CTS' Annual Report on Form 10-K for 1989 and incorporated herein by reference.
10.4 CTS Corporation 1986 Stock Option Plan, as amended and restated, filed herewith.
10.5 CTS Corporation 1988 Restricted Stock and Cash Bonus Plan, as amended and restated, filed herewith.
10.6 CTS Corporation 1996 Stock Option Plan, as amended and restated, filed herewith.
10.7 Prototype CTS indemnification agreement, with Stanley J. Aris, James L. Cummins, James N. Hufford and
Donald R. Schroeder, filed herewith.
10.8 Form of Severance Agreement, dated April 11, 1997, between CTS and certain officers of CTS, and
amendment thereto, filed herewith.
10.9 Amendment to DCA 1980 Restricted Stock and Cash Bonus Plan, dated as of April 11, 1997, previously filed
as Exhibit 10.7 to the Quarterly Report on Form 10-Q of DCA, filed on May 15, 1997 (the "DCA 1st Quarter
1997 10-Q"), and incorporated herein by reference.
10.10 Amendment to Employment Agreement, dated as of April 11, 1997, by and between DCA and Andrew Lozyniak,
previously filed as Exhibit 10.1 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.11 Amendment to Employment Agreement, dated as of April 11, 1997, by and between DCA and Patrick J. Dorme,
previously filed as Exhibit 10.2 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
10.12 Amendment to Employment Agreement, dated as of April 11, 1997, by and between DCA and Henry V. Kensing,
previously filed as Exhibit 10.3 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
10.13 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation, DCA and Andrew Lozyniak,
previously filed as Exhibit 10.4 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
10.14 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation, DCA and Patrick J. Dorme,
previously filed as Exhibit 10.5 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
10.15 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation, DCA and Henry V. Kensing,
previously filed as Exhibit 10.6 to the DCA 1st Quarter 1997 10-Q and incorporated herein by reference.
21.1 CTS subsidiaries, filed herewith.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 8.1).
23.4 Consent of J.P. Morgan Securities Inc.
23.5 Consent of Wasserstein, Perella & Co., Inc.
99.1 Chairman's Letter to Shareholders of CTS.
99.2 Notice of Special Meeting of Shareholders of CTS.
99.3 Chairman's Letter to Shareholders of DCA.
99.4 Notice of Annual Meeting of Shareholders of DCA.
99.5 Form of Election/Letter of Transmittal.
99.6 Notice of Guaranteed Delivery.
</TABLE>
<PAGE>
EXHIBIT 3.2
CTS CORPORATION
BYLAWS
(AS AMENDED JUNE 25, 1992)
ARTICLE I.
OFFICERS
The officers of this corporation shall be a President, one or more Vice
Presidents, a Secretary, a Treasurer and a Controller. The Board of Directors
may also elect one or more Assistant Secretaries, Assistant Treasurers and
Assistant Controllers, and such other officers as may be determined, from time
to time, by the Board of Directors.
The President shall be a director of this corporation. Any offices, other
than those of President and Secretary, may be held by the same person.
The officers of this corporation shall be elected by the Board of Directors
at the annual meeting of the Board of Directors for the term of one year and
until their successors have been elected and qualified. Any vacancy occurring
among the above offices may be filled for the remainder of the term by the Board
of Directors at any regular or special meeting, and officers so elected shall
hold office until the next annual meeting of the Board of Directors and until
their successors have been elected and qualified.
ARTICLE II.
BOARD OF DIRECTORS ORGANIZATION
SECTION 1. The Board of Directors shall elect, from the members of the
Board of Directors who are not officers of the corporation, an Audit Committee
consisting of not less than three members. The members of the Audit Committee
shall be elected at each annual meeting of the Board of Directors to serve,
while qualified, at the pleasure of the Board of Directors, or if longer, for
one year and until their successors have been elected and qualified.
The Audit Committee shall be responsible directly to the Board of Directors
and, in addition to such authority and duties specifically delegated by the
Board of Directors, shall have the authority to review the conduct and the
report of the independent financial audit of the corporation and shall report to
the Board of Directors the findings, conclusions and recommendations of the
Audit Committee regarding the conduct and report of the independent financial
audit.
Unless the Board of Directors designates a Chairman, a majority of the
members of the Audit Committee may designate one member of the Audit Committee
as Chairman of the Audit Committee to preside at all meetings of the Audit
Committee.
SECTION 2. The Board of Directors shall elect from members of the Board of
Directors, who are not officers of the corporation, a Compensation Committee
consisting of not less than three members. The members of the Compensation
Committee shall be elected at each annual meeting of the Board of Directors to
serve, while qualified, at the pleasure of the Board of Directors, or if longer,
for one year and until their successors have been elected and qualified.
1
<PAGE>
The Compensation Committee shall be responsible directly to the Board of
Directors and, in addition to such authority and duties specifically delegated
by the Board of Directors, shall have authority to review, and make
recommendations to the Board of Directors regarding, the compensation, including
fringe benefits and stock options, for the officers of this corporation.
Unless the Board of Directors designates a Chairman, a majority of the
members of the Compensation Committee may designate one member of the
Compensation Committee as Chairman of the Compensation Committee to preside at
all meetings of the Compensation Committee.
SECTION 3. The Board of Directors shall designate from members of the Board
of Directors, a Chairman of the Board, who shall preside at meetings of
stockholders and of the Board of Directors unless the Chairman shall designate
an officer or other director of the corporation to do so. The Chairman of the
Board shall have such additional authority as granted by the Board of Directors
and shall perform such other duties as are assigned from time to time by the
Board of Directors.
ARTICLE III.
CORPORATE OFFICERS
SECTION 1. The President shall exercise specific authority and supervision
over, and shall be responsible for the direction of, the business and affairs of
the corporation, subject to the direction of the Board of Directors. In
addition, the President may be designated the Chief Executive Officer and, if
so, shall have the additional authority and duties and responsibilities
specified in these bylaws. The President shall also perform such other duties as
may be assigned from time to time, by the Board of Directors. The President
shall perform all the duties of the Chairman of the Board in the absence or
during any disability of the Chairman.
SECTION 2. The Board of Directors shall designate the Chairman of the Board
or the President as the Chief Executive Officer of the corporation. In addition
to other duties as an officer, the Chief Executive Officer shall exercise
general authority and supervision over, and shall be responsible for, management
of the business and affairs of the corporation, subject to the direction of the
Board of Directors.
The Chief Executive Officer shall determine the organization of the officers
of the corporation, shall designate to whom such officers shall report and be
responsible, and subject to the direction of the Board of Directors shall
determine their respective duties and responsibilities.
SECTION 3. Each Vice President shall perform such duties as may be assigned
from time to time by the President and shall report to and be responsible to
such officer as the President shall designate. Each Vice President shall also
have such additional authority and shall perform such other duties assigned from
time to time, by the Board of Directors.
The Board of Directors may designate a word or words to be placed before or
after the title of Vice President to indicate organizational or functional
authority or duty.
SECTION 4. The Secretary shall attend all meetings of the stockholders and
Board of Directors and all committees, and shall keep minutes of each meeting.
The Secretary shall give proper notice of all meetings of stockholders,
directors and committees, required in these bylaws. The Secretary shall maintain
proper records of ownership and transfer of the stock of this corporation. The
Secretary shall have the custody of, and affix, the seal of the corporation and
perform such other duties as may be assigned from time to time by the Board of
Directors.
SECTION 5. The Vice President Finance/Chief Financial Officer, shall be
responsible for the financial affairs of the corporation, shall submit to the
annual meeting of stockholders a statement of the financial condition of the
corporation, and whenever required by the Board of Directors, shall give account
of all transactions and of the financial condition of the corporation. The
Treasurer shall report to the Vice
2
<PAGE>
President Finance/Chief Financial Officer. The Treasurer shall establish and
maintain appropriate banking relations and arrangements on behalf of the
corporation. The Treasurer shall receive and have custody of, and shall
disburse, all moneys of the corporation, and in the name of the corporation,
shall deposit all moneys in, and disburse all moneys from, such bank, or banks,
as the Board of Directors shall designate, from time to time, as the
depositories of the corporation. The Treasurer shall perform such other duties
and render such services for, and on behalf of, the corporation as may be
assigned from time to time by the Vice President Finance, Chief Financial
Officer.
SECTION 6. The Controller shall be the accounting officer of the
corporation and shall formulate accounting procedures to record expenses,
losses, gains, assets and liabilities of the corporation, to report and
interpret results of operations of the corporation and to assure protection of
the assets of the corporation. The Controller shall prepare and submit to the
Board of Directors and the Chief Executive Officer such periodic balance sheets,
profit and loss statements and other financial statements as may be required to
keep such persons currently informed of the operations and the financial
condition of this corporation. The Controller shall perform such other duties
assigned from time to time by the Chief Executive Officer.
SECTION 7. The Assistant Secretary or Secretaries, Assistant Treasurer or
Treasurer or Treasurers, and the Assistant Controller or Controllers shall
perform the duties of the Secretary, of the Treasurer, and of the Controller,
respectively, in the absence of those officers and shall have such further
authority and perform such other duties as may be assigned.
ARTICLE IV.
DUTIES OF OFFICERS DELEGATED
In the absence or disability of any officer of this corporation, the Board
of Directors may delegate the powers and duties of any such officer to any other
officer or director of this corporation for such period of time as said Board of
Directors may determine.
ARTICLE V.
BONDS
The Board of Directors or the Chief Executive Officer may require any
officer, agent, or employee of the corporation to furnish the corporation a bond
for the faithful performance of duties and for the accounting of all moneys,
securities, records, or other property of the corporation coming into the hands
of such agent or employee.
ARTICLE VI.
MEETINGS OF STOCKHOLDERS
SECTION 1. Meetings of the stockholders of this corporation shall be held
at the place, either within or without the State of Indiana, stated in the
notice of said meeting.
SECTION 2. The annual meeting of stockholders of the corporation shall be
held on the last Friday in April of each year or at such other time established
for such meeting by 80% of the directors.
SECTION 3. A complete list of the stockholders entitled to vote at any
stockholders' meeting, arranged in alphabetical order and containing the address
and number of shares of stock so held by each stockholder who is entitled to
vote at said meeting, shall be prepared by the Secretary and shall be subject to
the inspection by any stockholder at the time and place of an annual meeting and
at the principal office of the corporation for five (5) days prior thereto.
3
<PAGE>
SECTION 4. At all stockholders' meetings a quorum shall consist of a
majority of all of the shares of stock outstanding and entitled by the Articles
of Incorporation to vote on the business to be transacted at said meeting, but a
meeting composed of less than a quorum may adjourn the meeting from day to day
thereafter or until some future time.
SECTION 5. At the annual meeting of the stockholders, there shall be
elected, by plurality vote, a Board of Directors, consisting of five (5)
members, who shall hold office until the next annual meeting of stockholders and
until their successors have been elected and qualified.
SECTION 6. At all stockholders' meetings, each stockholder shall be
entitled to one (1) vote in person or by proxy for each share of common stock
registered in the stockholder's name on the books of the corporation as of the
record date which shall be as fixed by the Board of Directors and entitled, by
the Articles of Incorporation, to vote on the business to be transacted at said
meeting.
SECTION 7. The stockholders may be represented at any meeting thereof by
their duly appointed Attorney-in-Fact provided the proxy so appointing said
Attorney-in-Fact shall be filed with the Secretary prior to the meeting.
SECTION 8. Special meetings of the stockholders of this corporation may be
called by the Chairman of the Board, by the President, by the Board of
Directors, or by the stockholders holding not less than one-fourth of all of the
shares of stock outstanding and entitled, by the Articles of Incorporation, to
vote on the business to be transacted at said special meeting whenever in the
opinion of such person or body such meeting is necessary.
Whenever a special meeting of the stockholders shall be called by the
stockholders, the call shall be delivered to the Secretary who shall issue the
notice of said special meeting which is required to be given.
SECTION 9. Written notice of each meeting of the stockholders shall be
given by the Secretary to each stockholder of record at least ten (10) days
prior to the time fixed for the holding of such meeting; said notice shall state
the place, day and hour and the purpose for which said meeting is called, and
said notice shall be addressed to the last known place of residence of each
stockholder as shown by the stock books of this corporation. The ten (10) days
shall be computed from the date upon which said notice is deposited in the
mails.
SECTION 10. Notice of any stockholders' meeting may be waived in writing by
any stockholder if the waiver sets forth in reasonable detail the purpose or
purposes for which the meeting is called and the time and place thereof.
SECTION 11. No shares of stock shall be voted at any annual or special
meeting of stockholders upon which any installment is due and unpaid, which are
owned by this corporation or which have been transferred within ten (10) days
before the date fixed for said meeting.
ARTICLE VII.
DIRECTORS
SECTION 1. The property and business affairs of this corporation shall be
managed and controlled by a Board of Directors consisting of five (5) members,
who shall be elected at the annual or a special meeting of the stockholders and
shall hold office for a term of one year and until their successors are elected
and qualified. In case of the failure to hold the annual meeting on the date
fixed herein for the same to be held, the directors shall hold over until the
next annual meeting, unless prior to said meeting a special meeting of the
stockholders for the purpose of electing directors has been held.
SECTION 2. Any vacancy occurring in the Board of Directors caused by
resignation, death or other incapacity, shall be filled by majority vote of the
remaining members of the Board until the next annual
4
<PAGE>
meeting of stockholders; provided, however, that if the vote of the remaining
members of the Board of Directors shall result in a tie, such vacancy shall be
filled by the stockholders at the next annual meeting of the stockholders or at
a special meeting of the stockholders called for that purpose.
SECTION 3. Any vacancy occurring in the Board of Directors, caused by an
increase in the number of directors, shall be filled by a majority vote of the
members of the Board until the next annual meeting of stockholders; provided,
however, that if the vote of the members of the Board of Directors shall result
in a tie, such vacancy shall be filled by the stockholders at the next annual
meeting of the stockholders or at a special meeting of the stockholders called
for that purpose.
SECTION 4. A person shall not be nominated, stand for election or be
elected as a director of this corporation who (i) at the time of his election
shall be seventy (70) years of age or older, (ii) has retired from employment by
this corporation and is sixty-five (65) years of age or older or (iii) has
retired from active business and professional vocations; provided, however, that
Edward J. Mooney shall not be required to qualify under this provision to be
eligible to be nominated, stand for election or be elected as a director of this
corporation at any subsequent election.
ARTICLE VIII.
MEETINGS OF DIRECTORS
SECTION 1. Following the annual meeting of stockholders, the annual meeting
of the Board of Directors shall be held without notice, each and every year
hereafter, at the time and place determined by the directors.
SECTION 2. Regular meetings of the Board of Directors shall be held without
notice at 9:00 A.M. on the last Friday of February, June, August, October and
December at the offices of the corporation, unless another time and place is
designated.
SECTION 3. Special meetings of the Board of Directors may be called by the
Chairman of the Board, by the President, or by three (3) members of the Board of
Directors on three (3) days' notice by mail, or on twenty-four (24) hours'
notice by telegraph to each director, which notice shall be addressed to the
last known place of residence of each director, and said meetings may be held
either at the office of the corporation or at such other place as may be
designated in the notice of said meeting.
Whenever a special meeting of the Board of Directors shall be called, in
accordance with the provisions of this section, by members of the Board of
Directors, the call shall be in writing, signed by said directors and delivered
to the Secretary who shall thereupon issue the notice calling said meeting.
SECTION 4. Not less than one-half of the whole Board of Directors, shall
constitute a quorum for the transaction of any business except the filling of
vacancies, but a smaller number may adjourn, from time to time, until a future
date or until a quorum is secured.
For the purpose only of filling a vacancy or vacancies in the Board of
Directors, a quorum shall consist of a majority of the whole Board of Directors,
less the vacancy or vacancies therein.
The act of a majority of the directors present at a meeting, duly called, at
which a quorum is present shall be the act of the Board of Directors.
ARTICLE IX.
POWERS OF DIRECTORS
SECTION 1. The Board of Directors shall have, in addition to such powers as
are hereinafter expressly conferred upon it, all such powers as may be exercised
by the corporation, subject to the provisions of the
5
<PAGE>
statutes of the State of Indiana, the Articles of Incorporation and these bylaws
and subject to such further regulations as may, from time to time, be made by
the stockholders.
SECTION 2. The Board of Directors shall have express power:
(a) To purchase or otherwise acquire property, rights, or privileges for the
corporation, which the corporation has power to take, on such terms as
the Board may deem proper.
(b) To pay for the property, rights, or privileges acquired by this
corporation, in whole or in part, with money, stock, bonds, debentures or
other securities of this corporation or with other property owned by it.
(c) To create, make and issue mortgages, bonds, debentures, deeds of trust,
trust agreements and negotiable transferable instruments and securities,
secured by mortgages or otherwise, and to do every other act and thing
necessary to effectuate the same.
(d) To appoint agents, clerks, assistants, factors, servants and trustees
and to dismiss them at its discretion; to fix their duties and emoluments
and to change them from time to time; and to require security as it may
deem proper; but in the absence of action by the Board of Directors, the
employment and discharge of employees and the fixing of their
compensation shall be done by the officer of this corporation under whom
said employees work.
(e) To confer on any officer of the corporation the power of selecting,
discharging or suspending any of such employees.
(f) To determine by whom and in what manner the corporation's bills, notes
and receipts, acceptances, endorsements, checks, releases, contracts or
other documents shall be signed when said matter is not covered by these
Bylaws or any amendments thereto.
(g) To fix the compensation of officers, directors and members of committees
who are not salaried employees of this corporation.
(h) To fix and determine the price at which and the consideration for which
the shares of stock of this corporation may, from time to time, be
issued.
(i) To remove or suspend, with or without cause, any officer of the
corporation at any time.
ARTICLE X.
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
The members of the Board of Directors and members of committees of this
corporation, who are not salaried employees of this corporation, shall receive
such compensation for their services to be rendered as members of the Board of
Directors, or of committees as may, from time to time, be fixed by the Board of
Directors and the compensation so fixed shall continue to be payable until the
Board of Directors shall have thereafter fixed a different compensation, which
it may do at any annual, regular or special meeting.
ARTICLE XI.
CERTIFICATES OF STOCK
SECTION 1. Certificates of stock shall be issued to those legally entitled
thereto, as may be shown by the books of this corporation, and shall be signed
by the President and attested by the Secretary.
SECTION 2. The corporation may appoint one or more transfer agents and/or
registrars to issue, countersign, register, and transfer certificates
representing its capital stock and signatures of the corporation's officers and
of the transfer agents on stock certificates may be facsimiles. Upon surrender
to the
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corporation or the transfer agent of the corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction on its books.
SECTION 3. The holder of any stock of the corporation shall immediately
notify the corporation of any loss, theft, destruction or mutilation of the
certificate for any such stock. A new certificate or certificates shall be
issued upon the surrender of the mutilated certificate or, in case of loss,
theft, or destruction, upon (i) delivery of an affidavit or affirmation, and
(ii) delivery of a bond in such sum and in such form and with such surety or
sureties as the Board of Directors (by general or specific resolutions) or the
President may approve, indemnifying the corporation against any claim with
respect to the certificate or certificates alleged to have been lost, stolen or
destroyed. However, the Board may, in its discretion, refuse to issue new
certificate or certificates, save upon the order of some Court having
jurisdiction in such matters.
ARTICLE XII.
TRANSFER OF STOCK
SECTION 1. The stock transfer books of the corporation may from time to
time be closed by order of the Board of Directors for any lawful purpose and for
such period consistent with law, but not exceeding thirty (30) days at any one
time, as the Board of Directors may deem advisable. In lieu of closing the stock
transfer books as aforesaid, the Board of Directors may, in its discretion, fix
in advance a date not exceeding fifty (50) days or less than ten (10) days next
preceding the date of any meeting of stockholders or the date for the payment of
any dividend or the date for the allotment of rights or the date when any change
or conversion or exchange of capital stock shall go into effect, as the record
date for the determination of the stockholders entitled to notice of and to vote
at any such meeting or entitled to receive any such dividend or to any such
allotment of rights or to exercise the rights of any such change, conversion or
exchange of capital stock; and, in such case, only such stockholders as shall be
stockholders of record at the close of business on the date so fixed shall be
entitled to notice of and to vote at such meeting or to receive such payment of
dividend or to receive such allotment of rights or to exercise such rights as
the case may be, notwithstanding any transfer of stock on the books of the
corporation after such record date fixed as aforesaid. In the event the Board of
Directors fails to fix in advance the record date for the determination of the
stockholders entitled to notice of and to vote at any meeting, no share of stock
transferred on the books of the corporation within ten (10) days next preceding
the date of a meeting shall be voted at such meeting.
SECTION 2. The corporation shall be entitled to treat the holder of record
of any share or shares of stock as the legal owner thereof and accordingly shall
not be bound to recognize any equitable claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, save as expressly provided in the laws of the State of
Indiana.
SECTION 3. The assignment of any certificate of stock shall constitute an
assignment to the assignee of the shares so assigned and of all dividends on the
shares assigned which are declared payable as of a record date subsequent to the
date the assignment is recorded on the stock record books of the corporation.
ARTICLE XIII.
FISCAL YEAR
Effective January 1, 1990, the fiscal year of this corporation shall
correspond to the calendar year.
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ARTICLE XIV.
CHECKS FOR MONEY
All checks, drafts or other orders for the payment of funds of this
corporation shall be signed by either the Chairman of the Board, the President,
or the Treasurer, or by such other individual or individuals as may hereafter,
from time to time, be designated by the Board of Directors. No check, draft or
other order for the payment of funds of this corporation shall be signed in
blank, either as to the amount of the check, draft or other order, or as to the
name of the payee.
ARTICLE XV.
DIVIDENDS
The Board of Directors may declare and pay dividends out of the unreserved
and unrestricted earned surplus of this corporation. Dividends may be declared
at any annual, regular or special meeting of the Board of Directors. Dividends
may be paid in cash, in property or in the shares of the capital stock of this
corporation, as provided by the Articles of Incorporation and the laws of the
State of Indiana.
ARTICLE XVI.
NOTICES
SECTION 1. A notice required to be given under the provisions of these
bylaws to any stockholder, director, officer and member of any committee shall
not be construed to mean personal notice but may be given in writing by
depositing the same in a post office or letter box in a postpaid sealed wrapper
addressed to such stockholder, director, officer and member of any committee at
such address as appears upon the books of the corporation, and such notice shall
be deemed to be given at the time when the same shall be thus mailed.
SECTION 2. Any stockholder, director, officer and member of any committee
may waive, in writing, any notice required to be given by these bylaws, either
before or after the time said notice should have been issued.
ARTICLE XVII.
COMPENSATION OF OFFICERS
The officers of this corporation shall receive such compensation for their
services as may, from time to time, be fixed by the Board of Directors, and the
compensation so fixed shall continue to be payable until the Board of Directors
shall have fixed a different compensation, which it may do at any annual,
regular, or special meeting.
ARTICLE XVIII.
CORPORATE SEAL
The seal of this corporation shall be a plain circular disk having engraved
thereon, near the outer edge thereof, at least the words, "CTS Corporation" and
in the center thereof the word, "Seal".
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ARTICLE XIX.
INDEMNIFICATION
SECTION 1. GENERAL. The corporation shall, to the fullest extent to which
it is empowered to do so by the Indiana Business Corporation Law, or any other
applicable laws, as from time to time in effect, indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
who, while serving as such director, officer, employee or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
whether for profit or not, against expenses (including counsel fees), judgments,
settlements, penalties and fines (including excise taxes assessed with respect
to employee benefit plans) actually or reasonably incurred by him in accordance
with such action, suit or proceeding, if such person acted in good faith and in
a manner such person reasonably believed, in the case of conduct in such
person's official capacity, was in the best interest of the corporation, and in
all other cases, was not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, such person either had
reasonable cause to believe the conduct was lawful or no reasonable cause to
believe the conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not meet the prescribed standard of conduct.
SECTION 2. AUTHORIZATION OF INDEMNIFICATION. To the extent that a director,
officer, employee or agent of the corporation has been successful, on the merits
or otherwise, in the defense of any action, suit or proceeding referred to in
Section 1 of this Article, or in the defense of any claim, issue or matter
therein, the corporation shall indemnify such person against expenses (including
counsel fees) actually and reasonably incurred by such person in connection
therewith. Any other indemnification under Section 1 of this Article (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case, upon a determination that indemnification of the director,
officer, employee or agent is permissible in the circumstances because such
director, officer, employee or agent has met the applicable standard of conduct.
Such determination shall be made (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not at the time parties to
such action, suit or proceeding; or (2) if a quorum cannot be obtained under
subdivision (1), by majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to such
action, suit or proceeding; or (3) by special legal counsel: (A) selected by the
Board of Directors or its committee in the manner prescribed in subdivision (1)
or (2), or (B) if a quorum of the Board of Directors cannot be obtained under
subdivision (1) and a committee cannot be designated under subdivision (2),
selected by majority vote of the full Board of Directors (in which selection
directors who are parties may participate); or (4) by the shareholders, but
shares owned by or voted under the control of directors who are at the time
parties to such action, suit or proceeding may not be voted on the
determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (3)
to select counsel.
SECTION 3. GOOD FAITH DEFINED. For purposes of any determination under
Section 1 of this Article XIX, a person shall be deemed to have acted in good
faith and to have otherwise met the applicable standard of conduct set forth in
Section 1 if such person's action is based on information, opinions, reports, or
statements, including financial statements and other financial data, if prepared
or presented by (1) one or more officers or employees of the corporation or
another enterprise whom such
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person reasonably believes to be reliable and competent in the matters
presented; (2) legal counsel, public accountants, appraisers or other persons as
to matters he reasonably believes are within the person's professional or expert
competence; or (3) a committee of the Board of Directors of the corporation or
another enterprise of which the person is not a member if such person reasonably
believes the committee merits confidence. The term "another enterprise" as used
in this Section 3 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the corporation as a director, officer,
partner, trustee, employee or agent. The provisions of this Section 3 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standards of conduct set forth
in Section 1 of this Article XIX.
SECTION 4. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in connection
with any civil or criminal action, suit or proceeding may be paid for or
reimbursed by the corporation in advance of the final disposition of such
action, suit or proceeding, as authorized in the specific case in the same
manner described in Section 2 of this Article, upon receipt of a written
affirmation of the director, officer, employee or agent's good faith belief that
such person has met the standard of conduct described in Section 1 of this
Article and upon receipt of a written undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if it shall ultimately
be determined that such person did not meet the standard of conduct set forth in
this Article XIX, and a determination is made that the facts then known to those
making the determination would not preclude indemnification under this Article
XIX.
SECTION 5. PROVISIONS NOT EXCLUSIVE. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under the Articles of Incorporation, any
other bylaw, any resolution of the Board of Directors or shareholders, any other
authorization, whenever adopted, after notice, by a majority vote of all voting
shares then outstanding, or any contract, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 6. VESTED RIGHT TO INDEMNIFICATION. The right of any individual to
indemnification under this Article shall vest at the time of occurrence or
performance of any event, act or omission giving rise to any action, suit or
proceeding of the nature referred to in Section 1 of this Article and, once
vested, shall not later be impaired as a result of any amendment, repeal,
alteration or other modification of any or all of these bylaws. Notwithstanding
the foregoing, the indemnification afforded under this Article shall be
applicable to all alleged prior acts or omissions of any individual seeking
indemnification hereunder, regardless of the fact that such alleged acts or
omissions may have occurred prior to the adoption of this Article, and to the
extent such prior acts or omissions cannot be deemed to be covered by this
Article XIX, the right of any individual to indemnification shall be governed by
the indemnification provisions in effect at the time of such prior acts or
omissions.
SECTION 7. INSURANCE. The corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or who is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against any liability asserted against or incurred by the individual in that
capacity or arising from the individual's status as a director, officer,
employee or agent, whether or not the corporation would have power to indemnify
the individual against the same liability under this Article.
SECTION 8. ADDITIONAL DEFINITIONS. For purposes of this Article, references
to "the corporation" shall include any domestic or foreign predecessor entity of
the corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.
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For purposes of this Article, serving an employee benefit plan at the
request of the corporation shall include any service as a director, officer,
employee or agent of the corporation which imposes duties on, or involves
services by such director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries. A person who acted in
good faith and in a manner such person reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interest of
the corporation" referred to in this Article.
For purposes of this Article, "party" includes any individual who is or was
a plaintiff, defendant or respondent in any action, suit or proceeding, or who
is threatened to be made a named defendant or respondent in any action, suit or
proceeding.
For purposes of this Article, "official capacity," when used with respect to
a director, shall mean the office of director of the corporation; and when used
with respect to an individual other than a director, shall mean the office in
the corporation held by the officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the corporation. "Official
capacity" does not include service for any other foreign or domestic corporation
or any partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not.
SECTION 9. PAYMENTS A BUSINESS EXPENSE. Any payments made to any
indemnified party under these bylaws or under any other right to indemnification
shall be deemed to be an ordinary and necessary business expense of the
corporation, and payment thereof shall not subject any person responsible for
the payment, or the Board of Directors, to any action for corporate waste or to
any similar action.
ARTICLE XX.
AMENDMENTS
SECTION 1. These bylaws may be amended, altered, repealed, or added to at
any annual or regular meeting of the directors, or at any special meeting
thereof.
SECTION 2. No amendment, alteration or addition to these bylaws shall
become effective unless the same is adopted by the affirmative vote of
two-thirds (2/3) of the members of the Board of Directors of this corporation.
ARTICLE XXI.
CONTROL SHARE ACQUISITIONS
As provided for in Section 5 thereof, Chapter 42 of the Indiana Business
Corporation Law, shall not apply to control share acquisitions of shares of the
corporation made after March 3, 1987.
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EXHIBIT 5.1
CTS CORPORATION
905 WEST BOULEVARD NORTH
ELKHART, INDIANA 46514
September 2, 1997
CTS Corporation
905 West Boulevard North
Elkhart, Indiana 46514
Re: Shares of Common Stock, without par value, of CTS Corporation (the
"Company") Issued in Connection with the Merger of Dynamics Corporation
of America ("Dynamics") into CTS First Acquisition Corp. ("Sub")
-------------------------------------------------------------------------
Ladies and Gentlemen:
I am General Counsel, Secretary and a Vice President of the Company and have
acted as counsel to the Company in connection with an Amended and Restated
Agreement and Plan of Merger dated as of May 9, 1997 and amended and restated on
July 17, 1997 (the "Merger Agreement") between the Company, Sub and Dynamics,
pursuant to which Dynamics will be merged with and into Sub. In connection with
the Merger Agreement, the Company has filed with the Securities and Exchange
Commission, pursuant to the Securities Act of 1933 (the "Securities Act"), a
Registration Statement on Form S-4 (the "Registration Statement") relating to
shares of Common Stock, without par value, of the Company (the "Shares") to be
issued in connection with the Merger.
I have examined such documents, records, and matters of law as I have deemed
necessary for purposes of this opinion, and based thereupon I am of the opinion
that the Shares are duly authorized and, when issued and delivered pursuant to
the Merger Agreement as provided therein, will be validly issued, fully paid and
nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, I do not thereby admit that I am
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations promulgated thereunder.
<TABLE>
<S> <C>
Very truly yours,
/s/ JEANNINE M. DAVIS
---------------------------------
Jeannine M. Davis
VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
</TABLE>
<PAGE>
Exhibit 8.1
September 2, 1997
CTS Corporation
905 West Boulevard North
Elkhart, IN 46514
Re: Joint Proxy Statement/Prospectus of CTS
Corporation and Dynamics Corporation of America
Gentlemen:
We have acted as counsel to CTS Corporation (the "Company") in connection
with the Joint Proxy Statement/Prospectus on Form S-4, dated September 2, 1997
(the "Joint Proxy Statement/Prospectus") relating to the merger of Dynamics
Corporation of America ("DCA") with and into a subsidiary of the Company. Unless
otherwise indicated, any defined terms used herein have the same meaning as in
the Joint Proxy Statement/Prospectus. We are of the opinion that the section of
the Joint Proxy Statement/ Prospectus entitled "The Merger--Certain Federal
Income Tax Consequences" accurately summarizes the material federal income tax
consequences of the Merger to holders of DCA Common Stock. In connection with
the foregoing opinion, we have relied, without independent investigation, upon
the completeness and accuracy of the statements and representations of facts set
forth in the Merger Agreement and the Joint Proxy Statement/Prospectus, and
representations of the managements of the companies with respect to certain
additional facts.
We hereby consent to the filing with the Securities and Exchange Commission
of this opinion as an exhibit to the Joint Proxy Statement/Prospectus.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
Jones, Day, Reavis & Pogue
<PAGE>
EXHIBIT 10.1
EMPLOYMENT CONTRACT
This AGREEMENT entered into this 24th day of June, 1994, by and between CTS
Corporation, an Indiana corporation ("Company"), and JOSEPH P. WALKER, residing
at 56179 Dana Drive, Bristol, Indiana, 46507, ("Employee") to evidence
employment of the Employee by the Company under the following terms and
provisions:
1. EMPLOYMENT TERM. The Company agrees to employ Employee, and Employee
accepts employment as Chairman of the Board, President and Chief Executive
Officer of the Company for a term of three years commencing on June 24, 1994.
2. DUTIES. The Employee shall exert his best efforts and devote
substantially all of his time and attention to the affairs of the Company. The
Employee shall be in charge of the operation of the Company, and shall have full
authority and responsibility, subject to the direction, approval, and control of
the Board of Directors of the Company, for formulating policies and operating
the Company.
3. SALARY. For all services rendered by the Employee, the Company shall pay
the Employee, as regular compensation, a salary of three hundred nineteen
thousand seven hundred twenty-five dollars ($319,725) per year, payable in equal
monthly installments subject to applicable withholdings, commencing on July 1,
1994.
4. ADJUSTMENT OF SALARY. The Board of Directors of CTS may at any time or
from time to time change the regular compensation provided for in the preceding
paragraph or otherwise change the benefits receivable by the Employee under this
Employment Contract and the performance of Employee shall be reviewed annually
on or about the anniversary date of this contract for the purpose of considering
whether an adjustment should be made in Employee's regular compensation. In the
event that such regular compensation shall be increased, then, from and after
the date of such increase, such regular compensation shall be deemed to be the
amount as so increased.
5. VACATION. Employee shall be entitled to four (4) weeks vacation during
each year of the term of this Agreement or any extension thereof and, if unused,
Employee's vacation time may be accrued as provided in CTS Policy and Procedure
Personnel--16, Vacations for Exempt Salaried Employees.
6. GENERAL EMPLOYEE BENEFITS AND RESPONSIBILITIES. Except as provided in
paragraph 8(b) below, this Agreement is not intended to and shall not be deemed
to be in lieu of any rights, benefits and privileges to which Employee may be
entitled as an Employee of the Company, it being understood that the Employee
shall have the same rights and privileges as other salaried employees and other
executive officers of the Company, except to the extent that such rights or
privileges conflict with benefits provided to Employee under this Agreement. The
rights, benefits and privileges of salaried employees and executive officers
include, but are not limited to, the CTS Corporation Salaried Employees' Pension
Plan, the CTS Corporation 1988 Restricted Stock and Cash Bonus Plan, the CTS
Corporation Management Incentive Plan, the CTS Corporation Retirement Savings
Plan, the CTS Corporation 1986 Stock Option Plan, the Medical Expense Benefit
Plan, the Term Life Insurance and Accidental Death and Dismemberment Insurance,
the CTS Dental Plan, the CTS Long Term Disability Plan, the CTS Reimbursement of
Relocation Expense Policy, and the CTS Executive Officer Automobile Policy, and
Employee shall be entitled to participate in such plans and programs, to the
extent and upon the terms provided for each such plan or program. Employee shall
also be entitled to split dollar life insurance in amounts and on terms agreed
to between the Employee and the Compensation Committee of the Board of
Directors. Such insurance shall be in lieu of all except the first $50,000 of
the Term Life Insurance otherwise available to salaried employees and executive
officers. Employee further agrees to be bound by the Company's standard
agreement with its employees regarding Confidential Information and disclosure
and assignment of inventions.
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7. TERMINATION FOR CAUSE. Notwithstanding any other provisions of this
Agreement, the Company by action of its Board of Directors (the Employee not
voting) may at any time, without prior notice, discharge the Employee for either
of the following causes:
(a) Any illegal, dishonest, or malfeasant conduct which involves the
Company's funds or other assets; or
(b) The willful failure of Employee to carry out the provisions of this
Agreement.
Termination pursuant to this paragraph shall result in Employee's immediate
forfeiture of all rights and privileges under this Agreement, excluding accrued
salary, if any, which shall be immediately due and payable.
8. TERMINATION FOR ANY OTHER REASONS. Except as terminated pursuant to
paragraph 7, this Agreement may only be terminated prior to expiration under the
following terms and conditions:
(a) TERMINATION BY EMPLOYEE. The Employee may terminate this Agreement
by giving the Company ninety (90) days' written notice of his intent to
terminate his employment. If the Employee terminates his employment pursuant
to this Agreement excluding accrued salary, which shall be immediately due
and payable, the Employee's vested benefits (if any) in any employee benefit
plan, and his right to convert health and life insurance policies; provided,
however, that if the Employee terminates this Agreement because of a breach
of this agreement by the Company, then he shall be entitled to the rights
and benefits described under paragraph (b) below.
(b) TERMINATION BY THE COMPANY. The Company may terminate this Agreement
by giving the Employee ninety (90) days' written notice of his termination.
If the Company terminates the Employee's employment pursuant to this
subparagraph, the Company shall pay to the Employee, in full satisfaction of
the Company's obligations to Employee under this Agreement, a sum equal to
the product of his monthly salary at the time of termination, multiplied by
the number of months remaining under this Agreement, but in no event shall
Employee be paid less than 100% of his then annual salary, the same to be
paid to Employee in equal monthly installments over the remaining months of
this Agreement, plus a portion of the bonus payable under the CTS
Corporation Management Incentive Plan, for the year in which the Employee's
employment is terminated, the same to be paid at the same time and in the
same manner as other participants in the CTS Corporation Management
Incentive Plan. The bonus which would have been so payable to the Employee
for the full year shall then be multiplied by a fraction containing the
number of days in the year of termination which precede the termination date
in the numerator and the number 365 in the denominator to determine the
bonus payable to the Employee.
In addition to the salary and bonus to be paid to Employee upon
termination of this Agreement pursuant to this subparagraph, Employee shall
also be entitled to all termination benefits for which he would be eligible
as a salaried employee of the Company without regard to this Agreement,
including but not limited to the right to receive accrued vacation and elect
conversion privileges under the Company insurance plans, and shall also be
entitled to the rights on termination set forth in any other agreement with
the Company and in any options to purchase shares of the Company to which
Employee is a party at the time of termination.
9. DEATH OR DISABILITY OF EMPLOYEE. In the event of Employee's permanent and
total disability during the term of this Agreement, this Agreement shall
terminate at the end of the calendar month during which a determination is made
of his permanent and total disability. A conclusive determination of his
permanent and total disability shall occur when he is placed on Permanent
Inactive Disability Status under the CTS Corporation Salaried Employees' Pension
Plan. Employee shall be entitled to receive all disability benefits then
available under any of the Company's benefit plans. In the event of Employee's
death during the term of this Agreement, this Agreement shall terminate at the
end of the calendar month during which his death occurs. Employee's
beneficiaries and estate shall be entitled to receive all death benefits then
available to executive officers of the Company to the extent and upon the terms
provided for in any such benefit plans.
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10. ARBITRATION. The parties to this Agreement shall attempt to settle any
dispute arising under this Agreement by negotiation. If a satisfactory
settlement of any dispute is not reached within ten (10) days between the
parties, either party may demand arbitration by serving on the other party by
registered mail a written demand for arbitration. The written demand must
specify the nature of the dispute. The American Arbitration Association shall be
asked to submit an arbitration panel of seven (7) members from whom the
arbitrator shall be chosen. After the list has been furnished, the Employer
shall strike three (3) names from the list, and the Employee shall strike three
(3) names from the remaining four (4). The name remaining after the others have
been stricken shall be the arbitrator. The expense of the arbitrator and/or fee
of the American Arbitration Association shall be borne equally by both parties.
The function of the arbitrator shall be of a judicial rather than a
legislative nature. The arbitrator shall not have the authority to add to,
ignore, or modify any of the terms of this Agreement. The arbitrator shall not
decide issues that are not directly involved in the dispute submitted to him,
and no decision of the arbitrator shall require payment of compensation
different from or in addition to the compensation set forth in this Agreement.
The arbitrator shall have no authority to impose on either party hereto any
limitations or obligations not specifically provided in this Agreement.
The decision of the arbitrator shall be final and binding upon both parties.
11. WAIVER. Failure to insist upon strict compliance with any of the terms,
covenants, or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
12. SEVERABILITY. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
13. ENTIRE AGREEMENT. This Agreement is the entire agreement and
understanding of the Company and Employee. Oral changes will have no effect. It
may be altered only by a written agreement signed by the party against whom
enforcement of any waiver, change, extension or discharge is sought.
14. CONSTRUCTION OF AGREEMENT. This Agreement and all questions arising in
connection herewith shall be governed by the laws of the State of Indiana. This
Agreement shall be enforceable against the Company and its successors, agents
and assignees by Employee or his personal representatives or estate, and in
enforcing this Agreement, Employee, his personal representatives or estate shall
be entitled to receive reasonable attorneys' fees and court costs from the
Company if Employee is the prevailing party. Similarly, if the Company prevails
in any action brought by either party to enforce this Agreement, the Company
shall be entitled to receive reasonable attorneys' fees and court costs from the
Employee.
IN WITNESS WHEREOF, the parties have signed this Agreement this 24th day of
June, 1994.
<TABLE>
<S> <C> <C>
CTS CORPORATION
By: /s/ ANDREW LOZYNIAK
-----------------------------------------
Andrew Lozyniak
CHAIRMAN OF THE COMPENSATION COMMITTEE
</TABLE>
ATTEST:
/s/ JEANNINE M. DAVIS
- -------------------------
Jeannine M. Davis, Secretary
/s/ JOSEPH P. WALKER
------------------------------------------------------------------
Joseph P. Walker, Employee
3
<PAGE>
EXHIBIT 10.4
CTS CORPORATION 1986 STOCK OPTION PLAN
FIRST: Shares Reserved for Options
Three hundred thousand (300,000) shares of CTS Corporation Common Stock,
without par value, which may be either authorized and unissued shares or shares
held as treasury stock, are reserved for issuance upon exercise of options
granted under the Plan. The number and kind of shares reserved for issuance may
be adjusted as provided by ITEM FOURTEENTH. Shares subject to an unexercised
installment of any canceled, surrendered or expired installment or option may be
again subject to option under the Plan.
SECOND: Administration
The Plan shall be administered by the CTS Corporation Compensation
Committee appointed by the Board of Directors, hereinafter the "Committee."
Within the provisions of the Plan, the Committee shall have full power and
authority:
(a) to determine and designate the recipients of options, the dates
options are granted, the number of shares subject to option, option
prices, option periods and option terms, except as limited by ITEM
FOURTH, and
(b) to prescribe, amend and rescind rules and procedures for convenient
administration of the Plan.
Action by the Committee shall be authorized or ratified by a majority of
the Committee members and may be without notice or meeting, by a writing signed
by a majority of the Committee members.
In any dispute or disagreement as to the interpretation of the Plan, or any
rule or procedure of the Committee, or any question, right or obligation under
the Plan, the decision of the Board of Directors shall be final and binding upon
all persons.
THIRD: Eligibility
Key employees, including officers, of CTS shall be eligible to receive
options and shall receive options when, and if, designated by the Committee.
Directors who are not also employees or officers of CTS shall not be eligible to
receive options.
FOURTH: Option Grant
The Committee shall determine and designate (i) the recipients of options,
(ii) the dates options are granted, (iii) the number of shares subject to
option, (iv) the option prices, and (v) the option periods.
FIFTH: Option Price
The option price shall be not less than the fair market value of the shares
on the date the option is granted. Fair market value of the shares shall be the
reported closing price of the shares on the New York
<PAGE>
Stock Exchange on the date the option is granted, or, if not reported on such
date, on the next preceding date for which such a closing price is reported.
SIXTH: Option Ceiling
The aggregate fair market value (determined as of the time the option is
granted) of the shares of Common Stock for which any participant may be granted
incentive stock options which become first exercisable in any calendar year,
shall not exceed $100,000.
SEVENTH: Option Grant Period
The period during which an option may be granted, shall, in no case, extend
more than ten years after the Plan is adopted, or the date such Plan is approved
by the stockholders, whichever is earlier.
EIGHTH: Option Exercise Period
The period during which an option may be exercised shall, in no case,
extend more than ten years after the date the option is granted.
NINTH: Option Terms
The options shall be irrevocable and shall, on the date of grant, conform
in all respects with the Plan and may be nonqualified or may conform with
Section 422A of the Internal Revenue Code of 1986, as amended, hereinafter the
"Code," or with any law supplemental thereto or substituted therefor.
Inconsistencies between an option and the Plan shall be resolved according to
the terms of the Plan.
TENTH: Exercise of Option
The right to exercise an option shall accrue in such annual and cumulative
installments and at such times as designated by the Committee, commencing at
least one year from the date the option is granted. Unless otherwise designated
by the Committee (i) the number of installments shall be equal to the total
number of years of the option period minus one; (ii) each installment shall be
equal to the total number of shares under option divided by the number of
installments; and (iii) each installment cumulatively shall permit the exercise
of any previously unexercised installment.
ELEVENTH: Payment
Payment of the option price shall be made upon exercise of any installment
of an option, and the person exercising such option shall supply the Committee
such pertinent information as the Committee may deem necessary. Payment may be
made in cash or in previously acquired CTS Common Stock. Except as provided in
ITEM THIRTEENTH, no option may be exercised unless, from the date the option is
granted to the date of exercise, the option holder is an employee of CTS. An
option holder shall have no rights as a stockholder with respect to shares
subject to option until such shares are issued.
TWELFTH: Nontransferability of Option
<PAGE>
Options shall not be assignable or transferable by the option holder other
than by will or by the laws of descent and distribution.
THIRTEENTH: Effect of Termination of Employment or Change of Control
Upon the death of an option holder, all unexpired installments of his
options shall be accelerated and shall accrue as of the date of death, and his
estate or the person or persons to whom his rights under the option shall pass
by will or by the laws of descent and distribution may exercise the options, but
only within one year after his death or, if sooner, until the option period
expires.
Upon total and permanent disability of an option holder, within the meaning
of Section 105(d)(4) of the Code, all unexpired installments of his options
shall be accelerated and shall accrue as of the date of such disability, and he
may exercise the options but only within one year of the date of such disability
or, if sooner, until the option period expires.
Upon retirement of an option holder, all unexpired installments of his
options shall be accelerated and shall accrue as of the date of retirement, and
he may exercise the options, but only within three months after retirement or,
if sooner, until the option period expires.
Upon termination of employment of the option holder with CTS for any
reason, other than death, disability, or retirement, he may exercise his options
only to the extent he is entitled by the option terms on the date of
termination, but such exercise may be only within three months after termination
or, if sooner, until the option period expires.
Upon a Change of Control of CTS Corporation, as defined in Appendix A to
this Plan, all unexpired installments of the option holders' options shall
immediately become exercisable in full, and such options may be exercised within
the three months immediately following such date or, if sooner, until the option
period expires.
FOURTEENTH: Adjustment for Capital Change
The number, kind and price of shares subject to option and the number and
kind of securities or property reserved for issuance, and to be issued, upon
exercise of options shall be proportionately and appropriately adjusted by the
Committee to reflect the effects of stock splits, stock dividends and any other
change in the capital structure of CTS Corporation or to reflect any merger,
consolidation or exchange or sale of assets or shares of CTS Corporation.
FIFTEENTH: Amendment and Termination
The Board of Directors may modify or amend the Plan without stockholder
approval at any time for the purpose of conforming to changes in pertinent law
or government regulations or for any purpose permitted by law. In no event,
however, shall any such action of the Board of Directors (i) increase, except as
provided by ITEM FOURTEENTH, the number of shares of Common Stock which may be
issued hereunder, (ii) decrease the option price, provided by ITEM FIFTH, (iii)
change the class of eligible employees, provided by ITEM THIRD, (iv) change the
option ceiling, provided by ITEM SIXTH, or (v) impair any option granted
<PAGE>
prior to such action.
CTS CORPORATION
1986 STOCK OPTION PLAN
APPENDIX A
"Change in Control" means the occurrence of any of the following events:
1. the attainment by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of aggregate beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 25% or more
of the combined voting power of the then outstanding securities
(the "Voting Stock") of CTS Corporation (the "Company") entitled
to vote generally in the election of directors of the Company;
provided, however, that for purposes of this Section 1, the
following will not be deemed to result in a Change in Control:
(A) any acquisition directly from the Company that is approved by
the Incumbent Board (as defined below), (B) any acquisition by
the Company and any change in the percentage ownership of Voting
Stock of the Company that results from such acquisition, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary, (D) any
acquisition by any Person pursuant to a Business Combination (as
defined below) that complies with clauses (I), (II) and (III) of
Section 3, (E) the beneficial ownership by Dynamics Corporation
of America ("DCA") of Voting Stock of the Company equal to less
than 25% of the combined voting power of the then outstanding
Voting Stock of the Company ("Exempt DCA Percentage"), or (F) the
beneficial ownership by The Gabelli Group, Inc., GAMCO Investors,
Inc. and Gabelli Funds, Inc. (collectively, "Gabelli") of Voting
Stock of the Company not equal to or in excess of 25% of the
combined voting power of the then outstanding Voting Stock of the
Company ("Exempt Gabelli Percentage"); or
2. individuals who, as of the Amendment Date (see below) constitute
the Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the
Board of Directors of the Company; provided, however, that any
individual becoming a Director subsequent to the Amendment Date
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of
the Directors then comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director,
without objection to such nomination) will be deemed to have been
a member of the Incumbent Board, but excluding, for this pur-
<PAGE>
pose, any such individual becoming a Director as a result of an actual
or threatened election contest (within the meaning of Rule 14a-11
of the Exchange Act) with respect to the election or removal of
Directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board of
Directors of the Company (collectively, an "Election Contest");
or
3. consummation of (A) a reorganization, merger or consolidation,
(B) a sale or other disposition of all or substantially all of
the assets of the Company, or (C) a sale or other disposition of
all or substantially all of the assets ("Automotive Group
Assets") of the Company used in its Automotive Strategic Business
Unit (such reorganization, merger, consolidation or sale each, a
"Business Combination"), unless, in each case, immediately
following such Business Combination, (I) all or substantially all
of the individuals and entities who were the beneficial owners of
Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than
two-thirds of the then outstanding shares of common stock and the
combined voting power of the then outstanding Voting Stock of the
Company entitled to vote generally in the election of Directors
of the entity resulting from such Business Combination
(including, without limitation, an entity which as a result of
such transaction owns the Company, all or substantially all of
the Company's assets either directly or through one or more
subsidiaries or the Automotive Group Assets) in substantially the
same proportions relative to each other as their ownership,
immediately prior to such Business Combination, of the Voting
Stock of the Company, (II) no individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(other than the Company, such entity resulting from such Business
Combination, or any employee benefit plan (or related trust)
sponsored or maintained by the Company, any Subsidiary or such
entity resulting from such Business Combination or DCA or Gabelli
to the extent of the Exempt DCA Percentage or Exempt Gabelli
Percentage, respectively) beneficially owns, directly or
indirectly, 15% or more of the then outstanding shares of Voting
Stock of the entity resulting from such Business Combination, and
(III) at least two-thirds of the members of the Board of
Directors of the entity resulting from such Business Combination
were members of the Incumbent Board at the time of the execution
of the initial agreement or of the action of the Board of
Directors of the Company providing for such Business Combination;
or
4. approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company, except pursuant to a
Business Combination that complies with clauses (I), (II) and
(III) of Section 3; or
<PAGE>
5. if and so long as DCA beneficially owns 15% or more of the
combined voting power of the outstanding Voting Stock of the
Company, (A) the attainment by any Person of beneficial ownership
of 20% or more of the combined voting power of the then
outstanding Voting Stock of DCA ("DCA Voting Stock") (other than
as the result of an acquisition of DCA Voting Stock by (x) DCA
(and any change in the percentage ownership of DCA Voting Stock
that results from such acquisition), (y) any employee benefit
plan (or related trust) sponsored or maintained by DCA or any
subsidiary of DCA, or (z) the Company or any Subsidiary that is
approved by the Incumbent Board), or (B) individuals who, as of
the Amendment Date constitute the Board of Directors of DCA (the
"Incumbent DCA Board") cease for any reason to constitute at
least a majority of the Board of Directors of DCA; provided,
however, that any individual becoming a Director subsequent to
the Amendment Date whose election, or nomination for election by
DCA's shareholders, was approved by a vote of at least two-thirds
of the Directors of DCA then comprising the Incumbent DCA Board
(either by a specific vote or by approval of the proxy statement
of DCA in which such person is named as a nominee for director,
without objection to such nomination) will be deemed to have been
a member of the Incumbent DCA Board of Directors, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened Election
Contest; or
6. the occurrence of a "Board Shift". For this purpose, (I) a
"Board Shift" will be deemed to have occurred if 50% or more of
the members of the Board of the Company, or of any entity
resulting from a Business Combination, are persons who (A) are
employees of any beneficial owner of 20% or more of the Voting
Stock (a "20+% Holder") or (B) were nominated for election, or
voted for, by any such 20+% Holder unless such nomination or vote
was approved by a majority of the Unrelated Directors and (ii)
"Unrelated Directors" means Gerald H. Frieling, Jr., Lawrence J.
Ciancia and Joseph P. Walker or any successors thereto nominated
with the approval of such of the foregoing (or their successors
nominated as aforesaid) as may remain members of the Board of the
Company, or of any entity resulting from a Business Combination,
at the time of such nomination.
For purposes of Annex A, the "Amendment Date" is the effective date of the
amendment that includes this Annex A as a part of the Plan.
<PAGE>
EXHIBIT 10.5
CTS CORPORATION
1988 RESTRICTED STOCK AND CASH BONUS PLAN
1. Purpose
The purpose of the 1988 Restricted Stock and Cash Bonus Plan (the "Plan")
is to induce outstanding employees to remain in the employ of CTS Corporation
(the "Company") and its present and future subsidiary corporations (each of
which is hereinafter referred to as a "Subsidiary") and to attract new key
employees, and to encourage such employees to secure or increase their stock
ownership in the Company. The Board of Directors of the Company (the "Board")
believes that the award or sale of shares of the common stock (the "Common
Stock"), without par value, of the Company under the Plan will promote
continuity of management and increased incentive and personal interest in the
welfare of the Company by those who are or may become primarily responsible for
shaping and carrying out the long range plans of the Company and securing its
continued growth and financial success.
2. Effective Date
The Plan became effective on December 16, 1988, by resolution of the Board,
subject to ratification of the Plan by the vote of the holders of a majority of
the shares of the Common Stock present in person or by proxy at the 1989 Annual
Meeting of the Shareholders of the Company.
3. Stock Subject to the Plan
400,000 shares of the Common Stock of the Company ("Shares") are hereby
reserved for award or sale under the Plan, which Shares may be either
treasury shares or authorized but unissued shares. If Shares awarded or sold
under the Plan shall be repurchased by the Company in accordance with the
provisions of the Plan, such Shares shall again be available for the purposes
of the Plan.
4. Administration
The Plan shall be administered by the Compensation Committee of the Board
of Directors (the "Committee"), as described in Section 5 hereof. Subject to
the express provisions of the Plan, the Committee shall have complete authority,
in its discretion, to determine the individuals (the "Participants") to whom,
and the price, if any, at which, and the terms on which, Shares shall be awarded
or sold under the Plan and the number of shares to be awarded or sold to each
Participant. Subject to the express provisions of the Plan, the Committee shall
also have complete authority to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, and to make all the determinations
necessary or advisable for the administration of the Plan. The Committee's
determination on matters referred to in this Section 4 shall be conclusive.
<PAGE>
5. Committee
The Committee shall consist of all of the members of the Compensation
Committee of the Board of Directors, all of whom shall be nonemployee directors
of the Company. As of any given date, no person shall be eligible to serve on
the Committee who, on such date is, or who, at any time within the period of one
year ending on such date has been, eligible for selection as a person to whom
stock may be awarded or sold under the provisions of the Plan or any similar
plan or as a person to whom options or stock appreciation rights may be granted
under any option or stock appreciation plan maintained by the Company. The
President of the Company (who shall be eligible to be awarded or to purchase
Shares under the Plan) shall also be a member of the Committee, ex officio. The
Committee shall be appointed annually by the Board, which may at any time and
from time to time remove any members of the Committee, with or without cause,
appoint additional members to the Committee and fill vacancies, however caused,
in the Committee. A majority of the members of the Committee shall constitute a
quorum. All determinations of the Committee shall be made by a majority of its
members present in person at a meeting fully called and held. Any action which
could have been taken at a meeting may also be taken without the necessity of a
meeting by a written instrument signed by all of the members of the Committee
prior to or after such action shall be taken. The Company shall indemnify each
member of the Committee to the full extent provided under the Indiana Business
Corporation Law.
6. Eligibility
Shares may be awarded or sold under the Plan only to key employees of the
Company or a Subsidiary who are full-time employees. A director of the Company
or a Subsidiary who is not a full-time employee of the Company or a Subsidiary
will not be eligible to be awarded or to purchase Shares under the Plan. In
designating Participants and in determining the number of Shares to be awarded
or sold to any Participant, and, if sold, the price to be paid for any Shares,
the Committee shall take into account the Participant's level of responsibility,
dependability, performance, potential, compensation and such other
considerations as the Committee deems appropriate.
7. Awards or Purchase
After the Committee determines that it will award or offer a Participant
the right to purchase Shares under the Plan, it shall so inform the Participant
in writing, stating the number of Shares and the terms on which the Participant
shall be entitled to receive said award or to purchase said Shares, and, if
sold, the price to be paid for any Shares, and that the Participant has fifteen
(15) days from the date of the writing to accept the terms set forth therein in
the manner set forth. (The date of such acceptance shall constitute the
"Closing Date".) The Committee may, in the exercise of its discretion, extend
the period for acceptance. The communication may incorporate by reference the
terms, conditions, restrictions and other provisions set forth in the Plan, and
the Committee shall have the power to add thereto any additional terms and
conditions not inconsistent with the Plan which the Committee may approve. The
Committee shall make no award or sale of Shares or offer of same to a
Participant unless immediately prior to doing so (i) it shall, after reasonable
inquiry, have reasonable grounds
<PAGE>
to believe the Participant has sufficient knowledge and experience in
financial and business matters so that he or she is capable of evaluating the
merits and risks of investment in the Shares and that the Participant is able
to bear the economic risk of such investment, (ii) the Participant shall have
been furnished the information regarding the Company required by Rule 506
issued pursuant to the Securities Act of 1933 ("Rule 506") and (iii) it shall
have taken all reasonable steps to assure that all other requirements of Rule
506 have been and will in the future be satisfied with respect to such award,
sale or offer. Subject to the express provisions of the Plan, sales, awards,
or offers made to different Participants, or to the same Participant at
different times, may be subject to terms, conditions and restrictions which
differ from each other.
8. Restrictions and Cash Bonus
The Award or sale of Shares under the Plan shall include the following
terms, conditions and restrictions:
(a) During the period of five (5) years after the Closing Date, the
Participant shall not sell, exchange, transfer, pledge, hypothecate or
otherwise dispose of the Shares awarded to or purchased by the Participant
with respect to which these restrictions shall not have lapsed pursuant to
paragraph (b) of this Section 8, unless he shall first, by notice in
writing, have offered to the Company for repurchase, at no cost to the
Company if the Shares were awarded or at their original purchase price if
purchased, such Shares.
(b) The restrictions imposed by paragraph (a) of this Section 8 shall
lapse as to the number of Shares equal to the following percentages of the
Shares awarded to or purchased by the Participant:
(1) Twenty percent (20%) of such Shares, on or after one (1)
year but prior to the end of two (2) years after the Closing Date;
(2) Forty percent (40%) of such Shares, on or after two (2)
years but prior to the end of three (3) years after the Closing Date;
(3) Sixty percent (60%) of such Shares, on or after three (3)
years but prior to the end of four (4) years after the Closing Date;
(4) Eighty percent (80%) of such Shares, on or after four (4)
years but prior to the end of five (5) years after the Closing Date;
and
(5) All such Shares, on or after five (5) years after the
Closing Date.
(c) As soon as practicable after the restrictions under paragraph (a)
of this Section 8 as to any Shares shall have lapsed, the Company shall pay
a cash bonus to the Participant equal to the fair market value of such
Shares as of the
<PAGE>
date of lapse if such Shares were awarded or equal to the excess of the
fair market value thereof as of the date of lapse over the original
purchase price of such Shares if such Shares were purchased. Notwithstanding
the foregoing, the aggregate of the cash bonuses paid in connection with
Shares as to which such restriction shall have lapsed shall not be
greater than a sum equal to twice the fair market value of the Shares
awarded to, or purchased by, the Participant, determined as of the
Closing Date.
(d) If the employment of the Participant should be terminated,
whether voluntarily or involuntarily, for any reason whatever, including
the Participant's death or disability, at any time prior to the end of five
(5) years from the Closing Date, such termination shall be deemed an offer
to the Company as described in paragraph (a) of this Section 8 at the price
and in respect of the number of Shares which would then be required to be
offered thereunder if the Participant wished to sell all of the Shares then
owned by him; provided, however, that, if a Participant shall die or become
totally disabled during a period within which an offer for repurchase would
be required as to some or all of the Shares, (i) the Participant, or his
estate, shall not be required to offer to the Company for repurchase that
number of shares otherwise required to be offered equal to the product of
twenty percent (20%) of the total number of Shares awarded or sold and a
fraction, the numerator of which shall be the number of full months of
active service by the Participant since the last anniversary of the Closing
Date and prior to his death or disability and the denominator of which
shall be twelve (12), (ii) the restriction imposed by said paragraph (a)
shall lapse as to the Shares which the Participant, or his estate, is not
required to offer for repurchase pursuant to the foregoing provision and
(iii) a cash bonus computed in accordance with paragraph (c) of this
Section 8 shall be paid in respect of such Shares to the Participant or his
estate.
(e) Notwithstanding any other provisions of the Plan, on the death of
a Participant such Shares may be transferred to his legal representatives
or his estate or to the person or persons entitled thereto by his will or
by the laws of descent and distribution; provided, however, that any Shares
so transferred as to which the restrictions imposed by the Company pursuant
to paragraphs (a) and (d) of this Section 8 shall not have lapsed shall
continue to be subject to the restrictions in respect thereof imposed by
said paragraphs (a) and (d).
(f) Notwithstanding any other provisions of this Section 8 or of the
Plan, all restrictions imposed by paragraphs (a) and (d) of this Section 8
shall lapse in the event of a "Change in Control", and the Company shall
pay a cash bonus in accordance with paragraph (c) of this Section 8 in
respect of all Shares as to which the restrictions shall lapse pursuant to
this subparagraph. (A Change of Control shall be deemed to occur upon (i)
the election of one or more individuals to the Board which election results
in one-third of the directors of the Company consisting of individuals who
have not been directors of the
<PAGE>
Company for at least two years, unless such individuals have been elected
as directors, or nominated for election as directors, by three-fourths of
the directors of the Company who have been directors of the Company for
at least two years and who are not Participants, (ii) the sale by the
Company of all or substantially all of its assets to any entity, the
consolidation of the Company with any entity, the merger of the Company
with any entity as a result of which merger the Company is not the
surviving entity as a publicly held corporation, or the sale or transfer
of shares of the Company by the Company and/or any one or more of its
shareholders in one or more transactions, related or unrelated, to one or
more entities under circumstances whereby any entity and its affiliates
shall own, after such sales and transfers, at least one-fourth, but less
than one-half, of the shares of the Company having voting power for the
election of directors, unless, in any such case, such sale,
consolidation, merger or transfer has been approved in advance by
three-fourths of the directors of the Company who have been directors of
the Company for at least two years and who are not Participants, or (iii)
the sale or transfer of shares of the Company by the Company and/or any
one or more of its shareholders, in one or more transactions, related or
unrelated, to one or more entities under circumstances whereby the entity
and its affiliates shall own, after such sales and transfers, at least
one-half of the shares of the Company having voting power for the
election of directors. Nothing contained in this definition shall limit
or restrict the right of any director who is a Participant from
participating in any discussions or voting on any matter referred to in
this definition at any meeting of the Board.)
9. Investment Representation
Each Participant shall execute and deliver to the Company, prior to the
delivery of any shares under the Plan, a written representation that he is
acquiring such Shares for his own account as an investment and not with a view
to, or in connection with, the distribution of any thereof.
10. Delivery of the Shares
Shares shall be registered in the name of the Participant on the stock and
transfer records of the Company and stock certificates delivered as soon as
practicable after an offer has been accepted; provided, however, notwithstanding
any provision of the Plan, the Company may delay registration on its stock and
transfer records and delivery of stock certificates to a Participant until
counsel for the Company shall have given an opinion, which opinion shall not be
unreasonably conditioned or withheld, that the delivery of such Shares to the
Participant is exempt from registration under the Securities Act of 1933 as in
force at the time for delivery thereof (it being understood, however, that the
certificates representing such Shares shall bear such legend limiting the sale
thereof under the Securities Act of 1933 as counsel for the Company shall
determine to be appropriate).
11. Legend and Deposit of Shares in Escrow
In light of the restrictions imposed by the Plan, (i) certificates of stock
representing Shares shall bear a legend to the effect that the Shares
represented thereby may not be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with the terms of the
Plan and the transfer agent for the Common Stock of the Company shall be so
instructed and (ii) the Participant shall deposit
<PAGE>
such certificates, together with a stock power or other instrument of
transfer, appropriately endorsed in blank with signature guaranteed, with an
escrow agent designed by the Committee under a deposit agreement requiring
the Shares to be held in escrow until an offer is required to be made or
until the restrictions as to such Shares shall have lapsed, and containing
such other terms and conditions as the Committee shall approve, all expenses
of any such escrow to be borne by the Company. During the period while the
Shares are held in escrow, the Participant as the registered holder of such
Shares shall be entitled to receive all dividends declared thereon and to
vote the same upon all matters.
12. Expenses of the Plan
All costs and expenses of the adoption and administration of the Plan shall
be borne by the Company, and none of such expenses shall be charged to any
Participant.
13. No Contractual Right to Participate and No Right to Continued Employment
Nothing in the Plan shall be deemed to give any executive, director,
officer or employee, or his or her legal representatives or assigns, or any
other person claiming under or through him, any contractual or other right to
participate in the benefits of the Plan. Nothing in the Plan and no award or
sale thereunder shall be construed to constitute or be evidence of any agreement
or understanding, express or implied, on the part of the Company to employ or
retain in its employ any Participant to whom Shares are awarded or sold for any
specific period of time.
14. Dilution and Other Adjustments
In the event of any change in the outstanding shares of Common Stock of the
Company by reason of any stock dividend or split, recapitalization, merger,
consolidation, combination or exchange of shares for other securities, or other
similar corporate change, the Committee shall make appropriate adjustments in
the total number of shares which may be offered for award or purchase under the
Plan and in the price, if any, and any and all such adjustments shall be
conclusive and binding upon all parties concerned.
15. Transferability
Except as otherwise specifically provided in the Plan, no right or interest
under the Plan of any Participant who has accepted an award or purchased Shares
shall be assignable or transferable, in whole or in part, either directly or by
operation of law or otherwise, including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, bankruptcy or in any other
manner and no such right or interest of any Participant shall be subject to any
obligation or liability of such Participant.
16. Withholding of Income Taxes
The Company shall have the right to deduct from any compensation due a
Participant from the Company any federal, state or local taxes required by law
to be withheld with respect to any event under the Plan which results in taxable
income to the Participant.
<PAGE>
17. Information About the Company
The Company has been subject to the reporting requirements of Section 13 of
the Securities Exchange Act of 1934 for more than a year prior to the adoption
of the Plan, has filed all reports and statements required to be filed pursuant
to that Section during that period of time and intends to continue to file all
reports and statements so required. The Company releases for publication on a
regular basis, quarterly and annually, summary statements of sales and earnings.
The Company will furnish to all Participants to whom Shares are delivered under
the Plan copies of all material furnished to its shareholders whether required
by law or furnished voluntarily, and shall make available to any such
Participant upon his written request free of charge a copy of the Company's
annual report on Form 10-K for any year during which any Shares purchased by him
continue to be registered in his name.
18. Amendment and Termination of the Plan
Unless sooner terminated as herein provided, the Plan shall terminate upon
the sale and/or award of all the Shares available for sale under the Plan
(including the Shares which may be repurchased in the future by the Company
pursuant to the provisions of Section 8 hereof). The Board, as it may deem
advisable, may at any time terminate, extend, or amend the Plan, provided,
however, that termination or amendment of the Plan shall not, without the
consent of any person affected thereby, modify or in any way affect any right or
obligation created prior to such termination or amendment, and provided,
further, however, that any amendment of the Plan which increases the number of
Shares reserved for the Plan must be approved by the affirmative vote of a
majority of the shares of Common Stock of the Company present in person or by
proxy at any special or Annual Meeting of Shareholders duly called before it may
take effect.
<PAGE>
CTS CORPORATION
1988 RESTRICTED STOCK AND CASH BONUS PLAN
APPENDIX A
"Change in Control" means the occurrence of any of the following events:
1. the attainment by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of aggregate beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 25% or more
of the combined voting power of the then outstanding securities
(the "Voting Stock") of CTS Corporation (the "Company") entitled
to vote generally in the election of directors of the Company;
provided, however, that for purposes of this Section 1, the
following will not be deemed to result in a Change in Control:
(A) any acquisition directly from the Company that is approved by
the Incumbent Board (as defined below), (B) any acquisition by
the Company and any change in the percentage ownership of Voting
Stock of the Company that results from such acquisition, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary, (D) any
acquisition by any Person pursuant to a Business Combination (as
defined below) that complies with clauses (I), (II) and (III) of
Section 3, (E) the beneficial ownership by Dynamics Corporation
of America ("DCA") of Voting Stock of the Company equal to less
than 25% of the combined voting power of the then outstanding
Voting Stock of the Company ("Exempt DCA Percentage"), or (F) the
beneficial ownership by The Gabelli Group, Inc., GAMCO Investors,
Inc. and Gabelli Funds, Inc. (collectively, "Gabelli") of Voting
Stock of the Company not equal to or in excess of 25% of the
combined voting power of the then outstanding Voting Stock of the
Company ("Exempt Gabelli Percentage"); or
2. individuals who, as of the Amendment Date (see below) constitute
the Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the
Board of Directors of the Company; provided, however, that any
individual becoming a Director subsequent to the Amendment Date
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of
the Directors then comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director,
without objection to such nomination) will be deemed to have been
a member of the Incumbent Board, but excluding, for this purpose,
any such individual becoming a Director as a result of an actual
or threatened election contest
<PAGE>
(within the meaning of Rule 14a-11 of the Exchange Act) with respect
to the election or removal of Directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors of the Company
(collectively, an "Election Contest"); or
3. consummation of (A) a reorganization, merger or consolidation,
(B) a sale or other disposition of all or substantially all of
the assets of the Company, or (C) a sale or other disposition of
all or substantially all of the assets ("Automotive Group
Assets") of the Company used in its Automotive Strategic Business
Unit (such reorganization, merger, consolidation or sale each, a
"Business Combination"), unless, in each case, immediately
following such Business Combination, (I) all or substantially all
of the individuals and entities who were the beneficial owners of
Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than
two-thirds of the then outstanding shares of common stock and the
combined voting power of the then outstanding Voting Stock of the
Company entitled to vote generally in the election of Directors
of the entity resulting from such Business Combination
(including, without limitation, an entity which as a result of
such transaction owns the Company, all or substantially all of
the Company's assets either directly or through one or more
subsidiaries or the Automotive Group Assets) in substantially the
same proportions relative to each other as their ownership,
immediately prior to such Business Combination, of the Voting
Stock of the Company, (II) no individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(other than the Company, such entity resulting from such Business
Combination, or any employee benefit plan (or related trust)
sponsored or maintained by the Company, any Subsidiary or such
entity resulting from such Business Combination or DCA or Gabelli
to the extent of the Exempt DCA Percentage or Exempt Gabelli
Percentage, respectively) beneficially owns, directly or
indirectly, 15% or more of the then outstanding shares of Voting
Stock of the entity resulting from such Business Combination, and
(III) at least two-thirds of the members of the Board of
Directors of the entity resulting from such Business Combination
were members of the Incumbent Board at the time of the execution
of the initial agreement or of the action of the Board of
Directors of the Company providing for such Business Combination;
or
4. approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company, except pursuant to a
Business Combination that complies with clauses (I), (II) and
(III) of Section 3; or
5. if and so long as DCA beneficially owns 15% or more of
<PAGE>
the combined voting power of the outstanding Voting Stock of the
Company, (A) the attainment by any Person of beneficial ownership
of 20% or more of the combined voting power of the then
outstanding Voting Stock of DCA ("DCA Voting Stock") (other than
as the result of an acquisition of DCA Voting Stock by (x) DCA
(and any change in the percentage ownership of DCA Voting Stock
that results from such acquisition), (y) any employee benefit
plan (or related trust) sponsored or maintained by DCA or any
subsidiary of DCA, or (z) the Company or any Subsidiary that is
approved by the Incumbent Board), or (B) individuals who, as of
the Amendment Date constitute the Board of Directors of DCA (the
"Incumbent DCA Board") cease for any reason to constitute at
least a majority of the Board of Directors of DCA; provided,
however, that any individual becoming a Director subsequent to
the Amendment Date whose election, or nomination for election by
DCA's shareholders, was approved by a vote of at least two-thirds
of the Directors of DCA then comprising the Incumbent DCA Board
(either by a specific vote or by approval of the proxy statement
of DCA in which such person is named as a nominee for director,
without objection to such nomination) will be deemed to have been
a member of the Incumbent DCA Board of Directors, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened Election
Contest; or
6. the occurrence of a "Board Shift". For this purpose, (I) a
"Board Shift" will be deemed to have occurred if 50% or more of
the members of the Board of the Company, or of any entity
resulting from a Business Combination, are persons who (A) are
employees of any beneficial owner of 20% or more of the Voting
Stock (a "20+% Holder") or (B) were nominated for election, or
voted for, by any such 20+% Holder unless such nomination or vote
was approved by a majority of the Unrelated Directors and (ii)
"Unrelated Directors" means Gerald H. Frieling, Jr., Lawrence J.
Ciancia and Joseph P. Walker or any successors thereto nominated
with the approval of such of the foregoing (or their successors
nominated as aforesaid) as may remain members of the Board of the
Company, or of any entity resulting from a Business Combination,
at the time of such nomination.
For purposes of Annex A, the "Amendment Date" is the effective date of the
amendment that includes this Annex A as a part of the Plan.
<PAGE>
Exhibit 10.6
CTS CORPORATION 1996 STOCK OPTION PLAN
FIRST: Shares Reserved for Options
Two hundred thousand (200,000) shares of CTS Corporation Common Stock,
without par value, which may be either authorized and unissued shares or shares
held as treasury stock, are reserved for issuance upon exercise of options
granted under the Plan. The number and kind of shares reserved for issuance may
be adjusted as provided by ITEM FOURTEENTH. Shares subject to an unexercised
installment of any canceled, surrendered or expired installment or option may be
again subject to option under the Plan.
SECOND: Administration
The Plan shall be administered by the CTS Corporation Compensation
Committee appointed by the Board of Directors, hereinafter the "Committee."
Within the provisions of the Plan, the Committee shall have full power and
authority:
(a) to determine and designate the recipients of options, the dates
options are granted, the number of shares subject to option,
option prices, option periods and option terms, except as limited
by ITEM FOURTH, and
(b) to prescribe, amend and rescind rules and procedures for
convenient administration of the Plan.
Action by the Committee shall be authorized or ratified by a majority of
the Committee members and may be without notice or meeting, by a writing signed
by a majority of the Committee members.
In any dispute or disagreement as to the interpretation of the Plan, or any
rule or procedure of the Committee, or any question, right or obligation under
the Plan, the decision of the Board of Directors shall be final and binding upon
all persons.
THIRD: Eligibility
Key employees, including officers, of CTS shall be eligible to receive
options and shall receive options when, and if, designated by the Committee.
Directors who are not also employees or officers of CTS shall not be eligible to
receive options.
FOURTH: Option Grant
The Committee shall determine and designate (i) the recipients of options,
(ii) the dates options are granted, (iii) the number of shares subject to
option, (iv) the option prices, and (v) the option periods.
FIFTH: Option Price
The option price shall be not less than the fair market value of the shares
on the date the option is granted. Fair market value of the shares shall be the
reported closing price of the shares on the New York
<PAGE>
Stock Exchange on the date the option is granted, or, if not reported on such
date, on the next preceding date for which such a closing price is reported.
SIXTH: Option Ceiling
The aggregate fair market value (determined as of the time the option is
granted) of the shares of Common Stock for which any participant may be granted
incentive stock options which become first exercisable in any calendar year,
shall not exceed $100,000.
SEVENTH: Option Grant Period
The period during which an option may be granted, shall, in no case, extend
more than ten years after the Plan is adopted, or the date such Plan is approved
by the stockholders, whichever is earlier.
EIGHTH: Option Exercise Period
The period during which an option may be exercised shall, in no case,
extend more than ten years after the date the option is granted.
NINTH: Option Terms
The options shall be irrevocable and shall, on the date of grant, conform
in all respects with the Plan and may be nonqualified or may conform with
Section 422A of the Internal Revenue Code of 1986, as amended, hereinafter the
"Code," or with any law supplemental thereto or substituted therefor.
Inconsistencies between an option and the Plan shall be resolved according to
the terms of the Plan.
TENTH: Exercise of Option
The right to exercise an option shall accrue in such annual and cumulative
installments and at such times as designated by the Committee, commencing at
least one year from the date the option is granted. Unless otherwise designated
by the Committee (i) the number of installments shall be equal to the total
number of years of the option period minus one; (ii) each installment shall be
equal to the total number of shares under option divided by the number of
installments; and (iii) each installment cumulatively shall permit the exercise
of any previously unexercised installment.
ELEVENTH: Payment
Payment of the option price shall be made upon exercise of any installment
of an option, and the person exercising such option shall supply the Committee
such pertinent information as the Committee may deem necessary. Payment may be
made in cash or in previously acquired CTS Common Stock. Except as provided in
ITEM THIRTEENTH, no option may be exercised unless, from the date the option is
granted to the date of exercise, the option holder is an employee of CTS. An
option holder shall have no rights as a stockholder with respect to shares
subject to option until such shares are issued.
TWELFTH: Nontransferability of Option
<PAGE>
Options shall not be assignable or transferable by the option holder other
than by will or by the laws of descent and distribution.
THIRTEENTH: Effect of Termination of Employment
Upon the death of an option holder, all unexpired installments of his
options shall be accelerated and shall accrue as of the date of death, and his
estate or the person or persons to whom his rights under the option shall pass
by will or by the laws of descent and distribution may exercise the options, but
only within one year after his death or, if sooner, until the option period
expires.
Upon total and permanent disability of an option holder, within the meaning
of Section 105(d)(4) of the Code, all unexpired installments of his options
shall be accelerated and shall accrue as of the date of such disability, and he
may exercise the options but only within one year of the date of such disability
or, if sooner, until the option period expires.
Upon retirement of an option holder, all unexpired installments of his
options shall be accelerated and shall accrue as of the date of retirement, and
he may exercise the options, but only within three months after retirement or,
if sooner, until the option period expires.
Upon termination of employment of the option holder with CTS for any
reason, other than death, disability, or retirement, he may exercise his options
only to the extent he is entitled by the option terms on the date of
termination, but such exercise may only be within thirty days after termination
or, if sooner, until the option period expires.
FOURTEENTH: Adjustment for Capital Change
The number, kind and price of shares subject to option and the number and
kind of securities or property reserved for issuance, and to be issued, upon
exercise of options shall be proportionately and appropriately adjusted by the
Committee to reflect the effects of stock splits, stock dividends and any other
change in the capital structure of CTS Corporation or to reflect any merger,
consolidation or exchange or sale of assets or shares of CTS Corporation.
FIFTEENTH: Amendment and Termination
The Board of Directors may modify or amend the Plan without stockholder
approval at any time for the purpose of conforming to changes in pertinent law
or government regulations or for any purpose permitted by law. In no event,
however, shall any such action of the Board of Directors (i) increase, except as
provided by ITEM FOURTEENTH, the number of shares of Common Stock which may be
issued hereunder, (ii) decrease the option price, provided by ITEM FIFTH, (iii)
change the class of eligible employees, provided by ITEM THIRD, (iv) change the
option ceiling, provided by ITEM SIXTH, or (v) impair any option granted prior
to such action.
<PAGE>
CTS CORPORATION
1996 STOCK OPTION PLAN
APPENDIX A
"Change in Control" means the occurrence of any of the following events:
1. the attainment by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of aggregate beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 25% or more
of the combined voting power of the then outstanding securities
(the "Voting Stock") of CTS Corporation (the "Company") entitled
to vote generally in the election of directors of the Company;
provided, however, that for purposes of this Section 1, the
following will not be deemed to result in a Change in Control:
(A) any acquisition directly from the Company that is approved by
the Incumbent Board (as defined below), (B) any acquisition by
the Company and any change in the percentage ownership of Voting
Stock of the Company that results from such acquisition, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary, (D) any
acquisition by any Person pursuant to a Business Combination (as
defined below) that complies with clauses (I), (II) and (III) of
Section 3, (E) the beneficial ownership by Dynamics Corporation
of America ("DCA") of Voting Stock of the Company equal to less
than 25% of the combined voting power of the then outstanding
Voting Stock of the Company ("Exempt DCA Percentage"), or (F) the
beneficial ownership by The Gabelli Group, Inc., GAMCO Investors,
Inc. and Gabelli Funds, Inc. (collectively, "Gabelli") of Voting
Stock of the Company not equal to or in excess of 25% of the
combined voting power of the then outstanding Voting Stock of the
Company ("Exempt Gabelli Percentage"); or
2. individuals who, as of the Amendment Date (see below) constitute
the Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the
Board of Directors of the Company; provided, however, that any
individual becoming a Director subsequent to the Amendment Date
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of
the Directors then comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director,
without objection to such nomination) will be deemed to have been
a member of the Incumbent Board, but excluding, for this purpose,
any such individual becoming a Director as a result of an actual
or threatened election contest
<PAGE>
(within the meaning of Rule 14a-11 of the Exchange Act) with
respect to the election or removal of Directors or other actual
or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board of Directors of the Company
(collectively, an "Election Contest"); or
3. consummation of (A) a reorganization, merger or consolidation,
(B) a sale or other disposition of all or substantially all of
the assets of the Company, or (C) a sale or other disposition of
all or substantially all of the assets ("Automotive Group
Assets") of the Company used in its Automotive Strategic Business
Unit (such reorganization, merger, consolidation or sale each, a
"Business Combination"), unless, in each case, immediately
following such Business Combination, (I) all or substantially all
of the individuals and entities who were the beneficial owners of
Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than
two-thirds of the then outstanding shares of common stock and the
combined voting power of the then outstanding Voting Stock of the
Company entitled to vote generally in the election of Directors
of the entity resulting from such Business Combination
(including, without limitation, an entity which as a result of
such transaction owns the Company, all or substantially all of
the Company's assets either directly or through one or more
subsidiaries or the Automotive Group Assets) in substantially the
same proportions relative to each other as their ownership,
immediately prior to such Business Combination, of the Voting
Stock of the Company, (II) no individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(other than the Company, such entity resulting from such Business
Combination, or any employee benefit plan (or related trust)
sponsored or maintained by the Company, any Subsidiary or such
entity resulting from such Business Combination or DCA or Gabelli
to the extent of the Exempt DCA Percentage or Exempt Gabelli
Percentage, respectively) beneficially owns, directly or
indirectly, 15% or more of the then outstanding shares of Voting
Stock of the entity resulting from such Business Combination, and
(III) at least two-thirds of the members of the Board of
Directors of the entity resulting from such Business Combination
were members of the Incumbent Board at the time of the execution
of the initial agreement or of the action of the Board of
Directors of the Company providing for such Business Combination;
or
4. approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company, except pursuant to a
Business Combination that complies with clauses (I), (II) and
(III) of Section 3; or
5. if and so long as DCA beneficially owns 15% or more of
<PAGE>
the combined voting power of the outstanding Voting Stock of the
Company, (A) the attainment by any Person of beneficial ownership
of 20% or more of the combined voting power of the then
outstanding Voting Stock of DCA ("DCA Voting Stock") (other than
as the result of an acquisition of DCA Voting Stock by (x) DCA
(and any change in the percentage ownership of DCA Voting Stock
that results from such acquisition), (y) any employee benefit
plan (or related trust) sponsored or maintained by DCA or any
subsidiary of DCA, or (z) the Company or any Subsidiary that is
approved by the Incumbent Board), or (B) individuals who, as of
the Amendment Date constitute the Board of Directors of DCA (the
"Incumbent DCA Board") cease for any reason to constitute at
least a majority of the Board of Directors of DCA; provided,
however, that any individual becoming a Director subsequent to
the Amendment Date whose election, or nomination for election by
DCA's shareholders, was approved by a vote of at least two-thirds
of the Directors of DCA then comprising the Incumbent DCA Board
(either by a specific vote or by approval of the proxy statement
of DCA in which such person is named as a nominee for director,
without objection to such nomination) will be deemed to have been
a member of the Incumbent DCA Board of Directors, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened Election
Contest; or
6. the occurrence of a "Board Shift". For this purpose, (I) a
"Board Shift" will be deemed to have occurred if 50% or more of
the members of the Board of the Company, or of any entity
resulting from a Business Combination, are persons who (A) are
employees of any beneficial owner of 20% or more of the Voting
Stock (a "20+% Holder") or (B) were nominated for election, or
voted for, by any such 20+% Holder unless such nomination or vote
was approved by a majority of the Unrelated Directors and (ii)
"Unrelated Directors" means Gerald H. Frieling, Jr., Lawrence J.
Ciancia and Joseph P. Walker or any successors thereto nominated
with the approval of such of the foregoing (or their successors
nominated as aforesaid) as may remain members of the Board of the
Company, or of any entity resulting from a Business Combination,
at the time of such nomination.
For purposes of Annex A, the "Amendment Date" is the effective date of the
amendment that includes this Annex A as a part of the Plan.
<PAGE>
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is entered into this day of , 19 by and
between (the "Officer") and CTS CORPORATION, an Indiana corporation (the
"Company").
WHEREAS, the Officer is an officer of the Company; and
WHEREAS, to induce the Officer to continue to serve as an officer, the
Company has provided for indemnification in Article XIX of its bylaws, a copy of
which is attached hereto as Exhibit A ("Bylaw Indemnity"), and has maintained
insurance and has a policy of continuing to maintain insurance for such persons
against liabilities or losses incurred by the Officer as a consequence of his
service in such capacity ("O & D Insurance"), to the extent available on terms
acceptable to the Company; and
WHEREAS, the Company has determined that O & D Insurance may not be
available to it on acceptable terms in the future; and
WHEREAS, in order to induce the Officer to serve as an Officer, the Company
is willing to provide the indemnification provided herein;
NOW, THEREFORE, in consideration of the premises and the Officer's continued
service as an officer, the parties hereto agree as follows:
Section 1. INDEMNIFICATION. The Company shall, to the fullest extent to
which it is empowered to do so under the Indiana Business Corporation Law, or
other applicable laws, as from time to time in effect, indemnify the Officer in
the event that he was or is made a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal,
by reason of the fact that he is or was an officer, director, employee or agent
of the Company, or who, while serving as such officer, director, employee or
agent of the Company, is or was serving at the request of the Company as an
officer, director, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including counsel fees), judgments, settlements, penalties and
fines (including excise taxes assessed with respect to employee benefit plans)
("Indemnifiable Expenses") actually or reasonably incurred by him in accordance
with such action, suit or proceeding (net of any related insurance proceeds
received by him or paid on his behalf), if the Officer (a) was wholly
successful, on the merits or otherwise, in the defense of any such action, suit
or proceeding or (b) acted in good faith and if he reasonably believed, in the
case of conduct in his official capacity, that his conduct was not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, he either had reasonable cause to believe his conduct was lawful or
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Officer did not meet the prescribed standard of conduct.
For purposes of any determination under this Section 1, a person shall be
deemed to have acted in good faith and to have otherwise met the applicable
standard of conduct set forth in Section 1 if his action is based on
information, opinions, reports, or statements, including financial statements
and other financial data, if prepared or presented by (1) one or more officers
or employees of the corporation or another enterprise whom he reasonably
believes to be reliable and competent in the matters presented; (2) legal
counsel, public accountants, appraisers or other persons as to matters he
reasonably believes are within the person's professional or expert competence;
or (3) a committee of the Board of Directors of the corporation or another
enterprise of which the person is not a member if he reasonably believes the
committee merits confidence. The term "another enterprise" as used in this
Section 3 shall mean any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise of which such person is or was
serving at the request of the corporation as a director, officer, partner,
trustee,
1
<PAGE>
employee or agent. The provisions of this paragraph shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standards of conduct set forth in this Section
1.
Section 2. METHOD OF INDEMNIFICATION. If the Officer is wholly successful,
on the merits or otherwise, in the defense of any action, suit or proceeding,
the Officer shall be entitled to receive from the Company, and the Company
hereby covenants and agrees to provide the Officer, within ten business days of
the Company's receipt of a written request of the Officer, accompanied by the
supporting documentation set forth below, reimbursement in cash for the total
amount of his Indemnifiable Expenses with respect thereto which shall not have
been previously reimbursed by the Company. In making a written request for such
reimbursement of Indemnifiable Expenses, the Officer shall submit to the Company
a schedule setting forth in reasonable detail his Indemnifiable Expenses and the
dollar amount expended for each such Indemnifiable Expense. Such schedule shall
be accompanied by a copy of the bill, agreement, judgment or other documentation
relating to each Indemnifiable Expense listed therein.
If the Officer is unsuccessful on the merits in the defense of any action,
suit or proceeding, the Officer shall be similarly entitled to receive from the
Company, and the Company covenants and agrees to provide the Officer,
reimbursement in cash for the total amount of his Indemnifiable Expenses with
respect thereto which shall not have been previously reimbursed by the Company,
within three business days after a determination has been made that the Officer
has met the applicable standards of conduct set forth in Section 1. Such
determination shall be made in good faith (1) by the Board by a majority vote of
a quorum consisting of directors who were not at the time parties to such
action, suit or proceeding; or (2) if a quorum cannot be obtained under
subdivision (1), by majority vote of a committee duly designated by the Board
(in which designation directors who are parties may participate), consisting
solely of two or more directors not at the time parties to such action, suit or
proceeding; or (3) by special legal counsel: (A) selected by the Board or its
committee in the manner prescribed in subdivision (1) or (2), or (B) if a quorum
of the Board cannot be obtained under subdivision (1) and a committee cannot be
designated under subdivision (2), selected by a majority vote of the full Board
(in which selection directors who are parties may participate); or (4) by the
shareholders, but stock owned by or voted under the control of directors who are
at the time parties to such action, suit or proceeding may not be voted on the
determination. The foregoing determination shall be made within ten business
days of the Company's receipt of a written request of the Officer, accompanied
by the supporting documentation described above, unless the determination is to
be made by the shareholders, in which case the Company covenants and agrees to
call a special meeting of the shareholders within ten business days of such
receipt. The evaluation of the reasonableness of expenses shall be made at the
same time and in the same manner; provided that if the determination that
indemnification is permissible is to be made by special legal counsel, the
evaluation as to the reasonableness of expenses shall be made by those entitled
to select such counsel.
Section 3. PAYMENT OF EXPENSES IN ADVANCE. Expenses previously incurred by
the Officer or reasonably expected by the Officer to be incurred in connection
with any action, suit or proceeding shall be paid for or reimbursed by the
Company in advance of the final disposition of such action, suit or proceeding,
within ten business days of the Company's receipt of a written request of the
Officer accompanied by a written affirmation of the Officer's good faith belief
that he has met the standards of conduct described in Section 1 of this
Agreement, and a schedule setting forth in reasonable detail the amount incurred
or reasonably expected to be incurred for any expenses, but only upon a
determination made in the manner and by any of the persons described in the
second paragraph of Section 2 of this Agreement that the facts then known to
them would not preclude indemnification hereunder because the Officer failed to
meet the applicable standards of conduct described in Section 1 of this
Agreement. The Officer hereby covenants and agrees with the Company to repay
such amount if it is ultimately determined that the Officer did not meet the
standards of conduct described in Section 1 of this Agreement. The Officer may
make as many requests for advances under this Section 3 as he deems reasonably
necessary to cover his actual or reasonably expected expenses.
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Section 4. PROVISIONS NOT EXCLUSIVE. The indemnification provided by this
Agreement shall not be deemed exclusive of any other right to be indemnified or
insured by the Company or any other person or entity to which the Officer may be
entitled under any statute, agreement, policy of insurance or surety, the
Articles of Incorporation or bylaws of the Company, any resolution of the Board
of Directors or shareholders, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue after the Officer has ceased to be an officer, employee or agent
of the Company, and shall inure to the benefit of his heirs, executors and
administrators.
Section 5. DEFINITIONS. For purposes of this Agreement, serving an employee
benefit plan at the request of the Company shall include any service as a
director, officer, employee or agent of the Company which imposes duties on, or
involves services by the Officer with respect to an employee benefit plan, its
participants, or beneficiaries. If the Officer acted in good faith and in a
manner he reasonably believed to be in the best interests of the participants
and beneficiaries of an employee benefit plan, he shall be deemed to have acted
in a manner "not opposed to the best interests of the Company" referred to in
Section 1 of this Agreement.
For purposes of this Agreement, "party" includes any individual who is or
was a plaintiff, defendant or respondent in any action, suit or proceeding, or
who is threatened to be made a named defendant or respondent in any action, suit
or proceeding.
For purposes of this Agreement, "Official capacity," when used with respect
to the Officer, shall mean the office of director of the Company and any office
of the Company held by the Officer or other employment or agency relationship
undertaken by the Officer on behalf of the Company. "Official capacity" does not
include service for any other foreign or domestic corporation or any
partnership, joint venture, trust, employee benefit plan, or other enterprise,
whether for profit or not.
Section 6. GOOD FAITH. The Company agrees to perform its obligations under
this Agreement in good faith; and in any litigation brought by the Officer to
enforce any such obligations, the Company shall have the burden of establishing
by a preponderance of the evidence that it (and the Board or a committee
thereof, if applicable) so performed such obligations, and in the absence of
fulfilling such burden, the Company hereby consents to the entry of the
judgment, decree and other relief sought by the Officer in such litigation and
further agrees not to appeal or otherwise resist the enforcement thereof.
Section 7. NOTICE. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered in person or mailed by United States registered mail, return receipt
requested, postage prepaid, as follows:
If to the Officer:
__________________________
__________________________
__________________________
If to the Company:
CTS Corporation
905 West Boulevard North
Elkhart, In 46514
Attention: General Counsel
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
Section 8. MISCELLANEOUS.
(a) This Agreement shall be binding on the successors and assigns of the
Company.
(b) This Agreement contains the entire agreement of the parties with respect
to the matters covered herein, and may not be amended except by a written
instrument executed by the parties hereto.
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(c) This Agreement shall be governed by and construed in accordance with the
substantive laws of the State of Indiana.
(d) The invalidity or unenforceability in any respect of any provision of
this Agreement shall not affect the validity or enforceability of such provision
in any other respect or of any other provision of this Agreement, all of which
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
<TABLE>
<S> <C>
THE OFFICER THE COMPANY
Jeannine M. Davis
Vice President, General
Counsel and Secretary
</TABLE>
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EXHIBIT 10.8
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of April 11,
1997, is made and entered by and between CTS Corporation, an Indiana corporation
(the "Company"), and (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a senior executive or a key employee of the
Company or one or more of its Subsidiaries and has made and is expected to
continue to make major contributions to the short- and long-term profitability,
growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as defined below) exists
and that the possibility of a Change in Control exists with respect to the
Company's principal stockholder;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives and key employees,
including the Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior executives and
key employees are not practically disabled from discharging their duties in
respect of a proposed or actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement for the
Executive to continue to remain in the ongoing employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:
(a) "Base Pay" means the Executive's annual base salary at a rate not
less than the Executive's annual fixed or base compensation as in effect
for Executive immediately prior to the occurrence of a Change in Control or
such higher rate as may be determined from time to time by the Board or a
committee thereof.
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(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b), the Executive:
(i) has been convicted of a criminal violation involving fraud,
embezzlement or theft in connection with his duties or in the course of his
employment with the Company or any Subsidiary;
(ii) has intentionally and wrongfully damaged property of the
Company or any Subsidiary;
(iii) has intentionally and wrongfully disclosed secret processes,
trade secrets or confidential information of the Company or any Subsidiary;
or
(iv) has intentionally and wrongfully engaged in any Competitive
Activity;
and any such act has been demonstrably and materially harmful to the
Company. For purposes of this Agreement, no act or failure to act on the
part of the Executive will be deemed to be "intentional" if it was due
primarily to an error in judgment or negligence, and will be deemed to be
"intentional" only if done or omitted to be done by the Executive not in
good faith and without reasonable belief that his action or omission was in
the best interest of the Company. Notwithstanding the foregoing, the
Executive will not be deemed to have been terminated for "Cause" hereunder
unless and until there is delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than two-thirds of the
Board then in office at a meeting of the Board called and held for such
purpose, after reasonable notice to the Executive and an opportunity for
the Executive, together with his counsel (if the Executive chooses to have
counsel present at such meeting), to be heard before the Board, finding
that, in the good faith opinion of the Board, the Executive committed an
act constituting "Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the Executive or
his beneficiaries to contest the validity or propriety of any such
determination.
(d) "Change in Control" means the occurrence during the Term of any
of the following events:
(i) the attainment by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of aggregate beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of the combined
voting power of the then outstanding Voting Stock of the Company
(including, for this purpose, any Voting Stock of
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the Company acquired prior to the Term); provided, however, that for
purposes of this Section 1(d)(i), the following will not be deemed to
result in a Change in Control: (A) any acquisition directly from the
Company that is approved by the Incumbent Board (as defined below), (B) any
acquisition by the Company and any change in the percentage ownership of
Voting Stock of the Company that results from such acquisition, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (D) any acquisition by any
Person pursuant to a Business Combination that complies with clauses (I),
(II) and (III) of Section 1(d)(iii), (E) the beneficial ownership by
Dynamics Corporation of America ("DCA") of Voting Stock of the Company
equal to less than 25% of the combined voting power then outstanding Voting
Stock of the Company ("Exempt DCA Percentage"), or (F) the beneficial
ownership by The Gabelli Group, Inc., GAMCO Investors, Inc. and Gabelli
Funds, Inc. (collectively, "Gabelli") of Voting Stock of the Company equal
to less than 25% of the combined voting power of the then outstanding
Voting Stock of the Company ("Exempt Gabelli Percentage"); and provided
further that, for purposes of computing the Exempt DCA Percentage and the
Exempt Gabelli Percentage, the denominator, but not the numerator, will
include all outstanding shares of stock of the Company that, by operation
of law, are not entitled to vote; or
(ii) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
Director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
a majority of the Directors then comprising the Incumbent Board (either by
a specific vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director, without objection to
such nomination) will be deemed to have been a member of the Incumbent
Board, but excluding, for this purpose, any such individual becoming a
Director as a result of an actual or threatened election contest (within
the meaning of Rule 14a-11 of the Exchange Act) with respect to the
election or removal of Directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board
(collectively, an "Election Contest"); or
(iii) consummation of (A) a reorganization, merger or
consolidation of the Company, (B) a sale or other disposition of all or
substantially all of the assets of the Company, or (C) a sale or other
disposition of all or substantially all of the assets ("Automotive Group
Assets") of the Company used in its Automotive Strategic Business Unit
(such reorganization, merger, consolidation or sale each, a "Business
Combination"), unless, in each case,
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immediately following such Business Combination, (I) all or substantially
all of the individuals and entities who were the beneficial owners of
Voting Stock of the Company immediately prior to such Business Combination
beneficially own, directly or indirectly, more than a majority of the then
outstanding shares of common stock and the combined voting power of the
then outstanding Voting Stock of the Company entitled to vote generally in
the election of Directors of the entity resulting from such Business
Combination (including, without limitation, an entity which as a result of
such transaction owns the Company, all or substantially all of the
Company's assets either directly or through one or more subsidiaries or the
Automotive Group Assets), (II) no Person (other than the Company, such
entity resulting from such Business Combination, or any employee benefit
plan (or related trust) sponsored or maintained by the Company, any
Subsidiary or such entity resulting from such Business Combination, or DCA
or Gabelli to the extent of the Exempt DCA Percentage or Exempt Gabelli
Percentage, respectively) beneficially owns, directly or indirectly, 15% or
more of the then outstanding shares of Voting Stock of the entity resulting
from such Business Combination, and (III) at least a majority of the
members of the Board of the entity resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the
initial agreement or of the action of the Board providing for such Business
Combination; provided, however, that if the Business Combination is
initiated by the Company and the Chief Executive Officer of the Company
immediately prior to such Business Combination constitutes the Chief
Executive Officer of the entity resulting from the Business Combination
immediately following the Business Combination and throughout the
twelve-month period thereafter, this Section 1(d)(iii) will be applied
without regard to clauses (I) and (II);
(iv) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company, except pursuant to a Business
Combination that complies with clauses (I), (II) and (III) of
Section 1(d)(iii); or
(v) if and so long as DCA beneficially owns 15% or more of the
combined voting power of the outstanding Voting Stock of the Company, (A)
the attainment by any Person of beneficial ownership of 20% or more of the
combined voting power of the then outstanding Voting Stock of DCA ("DCA
Voting Stock") (other than as the result of an acquisition of DCA Voting
Stock by (x) DCA (and any change in the percentage ownership of DCA Voting
Stock that results from such acquisition), (y) any employee benefit plan
(or related trust) sponsored or maintained by DCA or any subsidiary of DCA,
or (z) the Company or any Subsidiary that is approved by the Incumbent
Board), or (B) individuals who, as of the date hereof, constitute the Board
of Directors of DCA (the "Incumbent DCA Board") cease for any reason to
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constitute at least a majority of the Board of Directors of DCA; provided,
however, that any individual becoming a Director subsequent to the date
hereof whose election, or nomination for election by DCA's shareholders,
was approved by a vote of at least a majority of the Directors of DCA then
comprising the Incumbent DCA Board (either by a specific vote or by
approval of the proxy statement of DCA in which such person is named as a
nominee for director, without objection to such nomination) will be deemed
to have been a member of the Incumbent DCA Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened Election Contest.
(e) "Competitive Activity" means the Executive's participation,
without the written consent of an officer of the Company, in the management
of any business enterprise if such enterprise engages in substantial and
direct competition with the Company and such enterprise's sales of any
product or service competitive with any product or service of the Company
amounted to 25% of such enterprise's net sales for its most recently
completely fiscal year and if the Company's net sales of said product or
service amounted to 25% of the Company's net sales for its most recently
completed fiscal year. "Competitive Activity" does not include (i) the
mere ownership of securities in any such enterprise and the exercise of
rights appurtenant thereto or (ii) participation in the management of any
such enterprise other than in connection with the competitive operations of
such enterprise.
(f) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under any and all employee benefit,
including retirement income and welfare benefit, policies, plans, programs
or arrangements in which Executive is entitled to participate, including
without limitation any stock option, performance share, performance unit,
stock purchase, stock appreciation, restricted stock, savings, pension,
supplemental executive retirement, or other retirement income or welfare
benefit, deferred compensation, incentive compensation, group or other life
(including "split dollar" life), health, medical/hospital or other
insurance (whether funded by actual insurance or self-insured by the
Company), disability, salary continuation, expense reimbursement and other
employee benefit policies, plans, programs or arrangements that may now
exist or any equivalent successor policies, plans, programs or arrangements
that may be adopted hereafter by the Company, providing perquisites,
benefits and service credit for benefits at least as great in the aggregate
as are payable thereunder prior to a Change in Control.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(h) "Incentive Pay" means an annual amount equal to not less than the
average aggregate annual bonus, incentive or other payments of cash
compensation, in addition to Base Pay, made or to be made in regard to
services rendered during the three consecutive fiscal years immediately
preceding the fiscal year in which the Change in Control occurred pursuant
to any bonus, incentive, profit-sharing, performance, discretionary pay or
similar agreement, policy, plan, program or arrangement (whether or not
funded) of the Company, or any successor thereto (including, without
limitation, any matching cash payment made with respect to restricted stock
awards vesting during such three-year period), providing benefits at least
as great as the benefits payable thereunder prior to a Change in Control.
(i) "Retirement Plans" means the retirement income, supplemental
executive retirement, excess benefits and retiree medical, life and similar
benefit plans providing retirement perquisites, benefits and service credit
for benefits at least as great in the aggregate as are payable thereunder
prior to a Change in Control.
(j) "Severance Period" means the period of time commencing on the
date of the first occurrence of a Change in Control and continuing until
the earlier of (i) the second anniversary of the occurrence of the Change
in Control, or (ii) the Executive's death; provided, however, that
commencing on each anniversary of the Change in Control, the Severance
Period will automatically be extended for an additional year unless, not
later than 90 calendar days prior to such anniversary date, either the
Company or the Executive gives written notice to the other that the
Severance Period is not to be so extended.
(k) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(l) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on December 31, 2000,
or (ii) the expiration of the Severance Period; provided, however, that
(A) commencing on January 1, 1998 and each January 1 thereafter, the term
of this Agreement will automatically be extended for an additional year
unless, not later than September 30 of the immediately preceding year, the
Company or the Executive gives written notice that it or the Executive, as
the case may be, does not wish to have the Term extended and (B) subject to
the last sentence of Section 9, if, prior to a Change in Control, the
Executive ceases for any reason to be an employee of the Company and any
Subsidiary, thereupon without further action the Term will be deemed to
have expired and this Agreement will immediately terminate and be of no
further effect. For purposes of this Section 1(l), the Executive will not
be deemed to have ceased to be an
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employee of the Company or any Subsidiary by reason of the transfer of
Executive's employment between the Company and any Subsidiary, or among any
Subsidiaries.
(m) "Termination Date" means the date on which the Executive's
employment is terminated, (the effective date of which will be the date of
termination, or such other date that may be specified by the Executive if
the termination is pursuant to Section 3(b)).
(n) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. Operation of Agreement. This Agreement will be effective and
binding immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the occurrence of a Change in Control at any
time during the Term, without further action, this Agreement will become
immediately operative.
3. Termination Following a Change in Control. (a) In
the event of the occurrence of a Change in Control, the Executive's employment
may be terminated by the Company during the Severance Period and the Executive
will be entitled to the benefits provided by Section 4 unless such termination
is the result of the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) The Executive becoming permanently disabled within the
meaning of, and beginning to actually receive disability benefits pursuant
to, the long-term disability plan in effect for, or applicable to,
Executive immediately prior to the Change in Control; or
(iii) Cause.
If, during the Severance Period, the Executive's employment is terminated by the
Company or any Subsidiary other than pursuant to Section 3(a)(i), 3(a)(ii) or
3(a)(iii), the Executive will be entitled to the benefits provided by Section 4
hereof.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary during
the Severance Period with the right to severance compensation as provided in
Section 4 upon the occurrence of one or more of the following events (regardless
of whether any other reason, other than Cause as hereinabove provided, for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the
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Company and/or a Subsidiary, as the case may be, which the Executive held
immediately prior to a Change in Control, or the removal of the Executive
as a Director of the Company (or any successor thereto) if the Executive
was a Director of the Company immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company and any Subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in the
aggregate of the Executive's Base Pay and Incentive Pay received from the
Company and any Subsidiary, or (C) the termination or denial of the
Executive's rights to Employee Benefits or a reduction in the scope or
value thereof, any of which is not remedied by the Company within 10
calendar days after receipt by the Company of written notice from the
Executive of such change, reduction or termination, as the case may be;
(iii) A determination by the Executive (which determination will be
conclusive and binding upon the parties hereto provided the determination
was made in good faith and, in all events, will be presumed to have been
made in good faith unless otherwise shown by the Company by clear and
convincing evidence) that a change in circumstances has occurred following
a Change in Control, including, without limitation, a change in the scope
of the business or other activities for which the Executive was responsible
immediately prior to the Change in Control, which has rendered the
Executive substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused Executive to suffer a substantial
reduction in, any of the authorities, powers, functions, responsibilities
or duties attached to the position held by the Executive immediately prior
to the Change in Control, which situation is not remedied within 10
calendar days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all of
its business and/or assets, or all or substantially all of the Automotive
Group Assets, as the case may be, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or otherwise)
to which all or substantially all of its business and/or assets, or all or
substantially all of the Automotive Group Assets, as the case may be, have
been transferred (directly or by operation of law) assumed all duties and
obligations of the Company under this Agreement pursuant to Section 11(a);
(v) The Company requires the Executive to have his principal location
of work changed to any location that is in excess of 35 miles from the
location thereof immediately
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prior to the Change in Control, or requires the Executive to travel away
from his office in the course of performing his responsibilities or duties
attached to his position at least 20% more (in terms of aggregate days in
any calendar year or in any calendar quarter when annualized for purposes
of comparison to any prior year) than was required of Executive in any of
the three full years immediately prior to the Change in Control without, in
either case, his prior written consent; or
(vi) Without limiting the generality or effect of the foregoing, any
material breach of this Agreement by the Company or any successor thereto
which is not remedied by the Company within 10 calendar days after receipt
by the Company of written notice from the Executive of such breach.
(c) A termination by the Company pursuant to Section 3(a) or by the
Executive pursuant to Section 3(b) that entitles the Executive to the benefits
provided by Section 4 (a "Qualifying Termination") will not affect any rights
that the Executive may have pursuant to any agreement, policy, plan, program or
arrangement of the Company providing Employee Benefits, which rights will be
governed by the terms thereof; provided, however, that any rights to severance
benefits to which Executive may be entitled upon a Qualifying Termination under
any employment or severance agreement (other than this Agreement) to which
Executive is a party at the time of such Qualifying Termination will be
superseded by this Agreement.
4. Severance Compensation. (a) If, following the occurrence of a
Change in Control, the Executive's employment is terminated during the Severance
Period other than pursuant to Sections 3(a)(i), 3(a)(ii) or 3(a)(iii), or if the
Executive terminates his employment pursuant to Section 3(b), the Company will
pay to the Executive (or other Person as appropriate) as severance benefits the
appropriate amounts described on Annex A within five business days after the
Termination Date and will continue to provide to the Executive the continuing
benefits described on Annex A for the periods described therein.
(b) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment or provide any benefit required to be
made or provided hereunder on a timely basis, the Company will pay interest on
the amount or value thereof at an annualized rate of interest equal to the
so-called composite "prime rate" as quoted from time to time during the relevant
period in the Midwest Edition of The Wall Street Journal. Such interest will be
payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the contrary,
the parties' respective rights and obligations under this Section 4 and under
Sections 5 and 7 will survive any termination or expiration of this Agreement or
the termination of
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the Executive's employment following a Change in Control for any reason
whatsoever.
5. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding, but subject to Section 5(h), in the
event that this Agreement becomes operative and it is determined (as hereafter
provided) that any payment or distribution by the Company or any of its
affiliates to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement, policy, plan, program
or arrangement, including without limitation any stock option, performance
share, performance unit, stock appreciation right or similar right, or the lapse
or termination of any restriction on, or the vesting or exercisability of, any
of the foregoing (a "Payment"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or
any successor provision thereto) by reason of being considered "contingent on a
change in ownership or control" of the Company, within the meaning of Section
280G of the Code (or any successor provision thereto) or to any similar tax
imposed by state or local law, or any interest or penalties with respect to such
tax (such tax or taxes, together with any such interest and penalties, being
hereafter collectively referred to as the "Excise Tax"), the Executive will be
entitled to receive an additional payment or payments (collectively, a "Gross-Up
Payment"); provided, however, that no Gross-up Payment will be made with respect
to the Excise Tax, if any, attributable to (i) any incentive stock option, as
defined by Section 422 of the Code ("ISO") granted prior to the execution of
this Agreement, or (ii) any stock appreciation or similar right, whether or not
limited, granted in tandem with any ISO described in clause (i). The Gross-Up
Payment will be in an amount such that, after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payment.
(b) Subject to the provisions of Section 5(f), all determinations
required to be made under this Section 5, including whether an Excise Tax is
payable by the Executive and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the Executive and the
amount of such Gross-Up Payment, if any, will be made by a nationally recognized
accounting firm (the "Accounting Firm") selected by the Executive in his sole
discretion. The Executive will direct the Accounting Firm to submit its
determination and detailed supporting calculations to both the Company and the
Executive within 30 calendar days after the Termination Date, if applicable, and
any such other time or times as may be requested by the Company or the
Executive. If the Accounting Firm determines that any Excise Tax is payable by
the Executive, the Company will pay the required Gross-Up Payment to the
Executive within five business days after receipt of such determination and
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calculations with respect to any Payment to the Executive. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it will, at the
same time as it makes such determination, furnish the Company and the Executive
an opinion that the Executive has substantial authority not to report any Excise
Tax on his federal, state or local income or other tax return. As a result of
the uncertainty in the application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty regarding
applicable state or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Section
5(f) and the Executive thereafter is required to make a payment of any Excise
Tax, the Executive will direct the Accounting Firm to determine the amount of
the Underpayment that has occurred and to submit its determination and detailed
supporting calculations to both the Company and the Executive as promptly as
possible. Any such Underpayment will be promptly paid by the Company to, or for
the benefit of, the Executive within five business days after receipt of such
determination and calculations.
(c) The Company and the Executive will each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by Section 5(b). Any determination by the Accounting Firm as to
the amount of the Gross-Up Payment will be binding upon the Company and the
Executive.
(d) The federal, state and local income or other tax returns filed by
the Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive will make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment.
If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive will, within five business days, pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section 5(b)
will be borne by the
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<PAGE>
Company. If such fees and expenses are initially paid by the Executive, the
Company will reimburse the Executive the full amount of such fees and expenses
within five business days after receipt from the Executive of a statement
therefor and reasonable evidence of his payment thereof.
(f) The Executive will notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment. Such
notification will be given as promptly as practicable but no later than
10 business days after the Executive actually receives notice of such claim and
the Executive will further apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid (in each case, to the
extent known by the Executive). The Executive will not pay such claim prior to
the earlier of (i) the expiration of the 30-calendar-day period following the
date on which he gives such notice to the Company and (ii) the date that any
payment of amount with respect to such claim is due. If the Company notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive will:
(i) provide the Company with any written records or documents in his
possession relating to such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim as the
Company reasonably requests in writing from time to time, including without
limitation accepting legal representation with respect to such claim by an
attorney competent in respect of the subject matter and reasonably selected by
the Company;
(iii) cooperate with the Company in good faith in order effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 5(f), the Company will control all proceedings taken in connection
with the contest of any claim contemplated by this Section 5(f) and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
(provided, however, that the Executive may participate therein at his own cost
and expense) and may, at its option, either direct the Executive to pay the
12
<PAGE>
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company determines; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company will advance the amount of such payment to the Executive on an
interest-free basis and will indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income or other tax, including interest
or penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such contested
claim will be limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive will be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(g) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 5(f), the Executive receives any refund with
respect to such claim, the Executive will (subject to the Company's complying
with the requirements of Section 5(f)) promptly pay to the Company the amount of
such refund (together with any interest paid or credited thereon after any taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), a determination is made that
the Executive will not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial or refund prior to the expiration of 30 calendar days after such
determination, then such advance will be forgiven and will not be required to be
repaid and the amount of any such advance will offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid by the Company to the
Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the contrary,
if (i) but for this sentence, the Company would be obligated to make a Gross-Up
Payment to the Executive, and (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided to the Executive under this
Agreement or otherwise does not exceed 1.12 multiplied by three times the
Executive's "base amount," then the payments and benefits to be paid or provided
under this Agreement will be reduced to the minimum extent necessary (but in no
event to less than zero) so that no portion of any payment or benefit to the
Executive, as so reduced, constitutes an "excess parachute payment." For
purposes of this Section 5(h), the terms "excess parachute payment," "present
value," "parachute payment," and "base amount" will have the meanings assigned
to them by Section 280G of the Code. The determination of whether any reduction
in such payments or
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<PAGE>
benefits to be provided under this Agreement is required pursuant to the
preceding sentence will be made at the expense of the Company, if requested by
the Executive or the Company, by the Accounting Firm. The fact that the
Executive's right to payments or benefits may be reduced by reason of the
limitations contained in this Section 5(h) will not of itself limit or otherwise
affect any other rights of the Executive other than pursuant to this Agreement.
In the event that any payment or benefit intended to be provided under this
Agreement or otherwise is required to be reduced pursuant to this Section 5(h),
the Executive will be entitled to designate the payments and/or benefits to be
so reduced in order to give effect to this Section 5(h). The Company will
provide the Executive with all information reasonably requested by the Executive
to permit the Executive to make such designation. In the event that the
Executive fails to make such designation within 10 business days of the
Termination Date, the Company may effect such reduction in any manner it deems
appropriate.
6. No Mitigation Obligation. The Company hereby acknowledges that
it will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date and that the
non-competition covenant contained in Section 8 will further limit the
employment opportunities for the Executive. Accordingly, the payment of the
severance compensation by the Company to the Executive in accordance with the
terms of this Agreement is hereby acknowledged by the Company to be reasonable,
and the Executive will not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
will any profits, income, earnings or other benefits from any source whatsoever
create any mitigation, offset, reduction or any other obligation on the part of
the Executive hereunder or otherwise, except as expressly provided in the
penultimate sentence of Paragraph 2 set forth on Annex A.
7. Legal Fees and Expenses. It is the intent of the Company that
the Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or
14
<PAGE>
defense of any litigation or other legal action, whether by or against the
Company or any Director, officer, stockholder or other person affiliated with
the Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the Company
irrevocably consents to the Executive's entering into an attorney-client
relationship with such counsel and, in that connection, the Company and the
Executive agree that a confidential relationship will exist between the
Executive and such counsel. Without respect to whether the Executive prevails,
in whole or in part, in connection with any of the foregoing, the Company will
pay and be solely financially responsible for any and all attorneys' and related
fees and expenses incurred by the Executive in connection with any of the
foregoing.
8. Competitive Activity. During a period ending one year following
the Termination Date, if the Executive has received or is receiving benefits
under Section 4, the Executive will not, without the prior written consent of
the Company, which consent will not be unreasonably withheld, engage in any
Competitive Activity.
9. Employment Rights. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any termination of
employment of the Executive or the removal of the Executive from the office or
position in the Company or any Subsidiary following the commencement of any
discussion with a third person that ultimately results in a Change in Control
will be deemed to be a termination or removal of the Executive after a Change in
Control for purposes of this Agreement.
10. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
11. Successors and Binding Agreement. (a) The Company will require
any successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Company whether by purchase,
merger, consolidation, reorganization or otherwise (and such successor will
thereafter be deemed the "Company" for the purposes of this Agreement), but
15
<PAGE>
will not otherwise be assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto will, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 11(a) and 11(b). Without limiting the generality or effect of the
foregoing, the Executive's right to receive payments hereunder is not
assignable, transferable or delegable, whether by pledge, creation of a security
interest, or otherwise, other than by a transfer by Executive's will or by the
laws of descent and distribution and, in the event of any attempted assignment
or transfer contrary to this Section 11(c), the Company will have no liability
to pay any amount so attempted to be assigned, transferred or delegated.
12. Notices. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or one business day after having been sent
by a nationally recognized overnight courier service such as Federal Express,
UPS, or Purolator, addressed to the Company (to the attention of the Secretary
of the Company) at its principal executive office and to the Executive at his
principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except that notices of changes
of address will be effective only upon receipt.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Indiana, without giving effect to the
principles of conflict of laws of such State.
14. Validity. If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
16
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15. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
CTS CORPORATION
By:________________________________
________________________________
17
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Annex A
Severance Compensation
(1) A lump sum payment in an amount equal to _____ times the sum of
(A) Base Pay (at the highest rate in effect for any period prior to the
Termination Date), plus (B) Incentive Pay (determined in accordance with the
standards set forth in Section 1(h)).
(2) For a period of _____ months following the Termination Date (the
"Continuation Period"), the Company will arrange to provide the Executive with
Employee Benefits that are welfare benefits (but not stock option, performance
share, performance unit, stock purchase, stock appreciation, restricted stock or
similar compensatory benefits) substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 3(b)(ii)). During the Continuation Period, the Company
will continue benefits available to Executive under the Company's "split dollar"
life insurance program and will pay the premiums thereon. If and to the extent
that any benefit described in this Paragraph 2 is not or cannot be paid or
provided under any policy, plan, program or arrangement of the Company or any
Subsidiary, as the case may be, then the Company will itself pay or provide for
the payment to the Executive, his dependents and beneficiaries, of such Employee
Benefits. Employee Benefits otherwise receivable by the Executive pursuant to
this Paragraph 2 will be reduced to the extent comparable welfare benefits are
actually received by the Executive from another employer during the Continuation
Period following the Executive's Termination Date, and any such benefits
actually received by the Executive will be reported by the Executive to the
Company. The notification period applicable to Executive under the Consolidated
Omnibus Budget Reconciliation Act of 1986 (COBRA) will not commence until
termination of the Continuation Period.
(3) In addition to the retirement income, supplemental executive
retirement, and other benefits to which Executive is entitled under the
Company's Retirement Plans, a lump sum payment in an amount equal to the
actuarial equivalent of the excess of (x) the retirement pension and the
medical, life and other benefits that would be payable to the Executive under
the Retirement Plans if Executive had continued to be employed through the
Continuation Period given the Executive's Base Pay (at the highest rate in
effect for any period prior to the Termination Date) (without regard to any
amendment to the Retirement Plans made subsequent to a Change in Control which
adversely affects in any manner the computation of retirement or welfare
benefits thereunder), over (y) the retirement pension and the medical, life and
other benefits that the Executive is entitled to receive (either immediately or
on a deferred basis)
18
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under the Retirement Plans. For purposes of this subsection, "actuarial
equivalent" will be determined using the same methods and assumptions utilized
under the Company's qualified retirement plan for salaried employees in effect
immediately prior to the Change in Control.
(4) In lieu of Executive's right, if any, to receive benefits
constituting non-cash "perquisites," including annual physicals, tax return
preparation and car allowances, a lump sum payment in an amount equal to the
lesser of (a) $50,000, or (b) 10% of the aggregate of Executive's Base Pay and
Incentive Pay.
(5) An amount up to $15,000 for outplacement services by a firm
selected by the Executive.
19
<PAGE>
CTS CORPORATION
905 West Boulevard North
Elkhart, IN 46514
Phone: (219)293-7511
Fax: (219)293-6146
{Date}
{Employee name and address}
Dear _________________:
A question has arisen regarding the operation of the severance and option
agreements (collectively, the "Agreements") between the Company and you. This
letter agreement constitutes a binding interpretation of and amendment to the
Agreements, effective as of the date hereof.
Notwithstanding anything in the Agreements to the contrary, in addition to
any of the other events or circumstances set forth in Section 1(d), a "Change in
Control" will be deemed to have occurred for all purposes thereof in the event
of a Board Shift. For this purpose, (I) a "Board Shift" will be deemed to have
occurred if 50% or more of the members of the Board of the Company, or of any
entity resulting from a Business Combination, are persons who (A) are employees
of any beneficial owner of 20% or more of the Voting Stock (a "20+% Holder") or
(B) were nominated for election, or voted for, by any such 20+% Holder unless
such nomination or vote was approved by a majority of the Unrelated Directors
and (ii) "Unrelated Directors" means Gerald H. Frieling, Jr., Lawrence J.
Ciancia and Joseph P. Walker or any successors thereto nominated with the
approval of such of the foregoing (or their successors nominated as aforesaid)
as may remain members of the Board of the Company, or of any entity resulting
from a Business Combination, at the time of such nomination.
Very truly yours,
CTS CORPORATION
BY:
---------------------------
{Title of officer}
Acknowledged and Agreed to
as of the date first above
written:
- ----------------------------
{Name of Employee}
<PAGE>
EXHIBIT 21.1
CTS CORPORATION AND SUBSIDIARIES
CTS Corporation (Registrant), an Indiana corporation
SUBSIDIARIES
CTS Corporation (Delaware), a Delaware corporation
CTS of Panama, Inc., a Republic of Panama corporation
CTS Components Taiwan, Ltd.,(1) a Taiwan, Republic of China corporation
CTS Singapore Pte., Ltd., a Republic of Singapore corporation
CTS Electro de Matamoros, S.A.,(1) a Republic of Mexico corporation
CTS Export Corporation, a Virgin Islands corporation
CTS Japan, Inc., a Japan corporation
CTS of Canada, Ltd., a Province of Ontario (Canada) corporation
CTS Manufacturing (Thailand) Ltd.,(1) a Thailand corporation
CTS Electronics Hong Kong Ltd.,(1) a Hong Kong corporation
CTS Corporation U.K. Ltd., a United Kingdom corporation
CTS Printex, Inc., a California corporation
CTS Micro Peripherals, Inc., a California corporation
Micro Peripherals Singapore (Private) Limited, a Republic of Singapore
corporation
Corporations whose names are indented are subsidiaries of the preceding
non-indented corporations. Except as indicated, each of the above subsidiaries
is 100% owned by its parent company. Operations of all subsidiaries and
divisions are consolidated in the financial statements filed.
- ------------------------
(1) Less than 1% of the outstanding shares of stock is owned of record by
nominee shareholders pursuant to national laws regarding resident or nominee
ownership.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Joint Proxy Statement/Prospectus
of CTS Corporation and Dynamics Corporation of America for the registration of
CTS Corporation's Common Stock and to the incorporation by reference therein of
our reports dated February 26, 1997, with respect to the consolidated financial
statements and schedules of Dynamics Corporation of America included in its
Annual Report (Form 10-K) for the year ended December 31, 1996, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Stamford, Connecticut
September 2, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of CTS Corporation
of our report dated January 27, 1997, which appears on page 19 of the CTS
Corporation 1996 Annual Report which is incorporated by reference in its Annual
Report on Form 10-K/A for the year ended December 31, 1996. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedule, which appears on page S-1 of such Annual Report on Form 10-K/A. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Price Waterhouse LLP
Chicago, Illinois
August 29, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF J.P. MORGAN SECURITIES INC.
We hereby consent to the use of our opinion, dated as of July 17, 1997, to
the Board of Directors of CTS Corporation included as Appendix C to the Joint
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of CTS First Acquisition Corp. and
Dynamics Corporation of America and to the references to such opinion in such
Joint Proxy Statement/Prospectus under the captions "The Summary," "The
Merger-Background of the Merger," "The Merger--Reasons for the Merger;
Recommendations of the Boards of Directors" and "The Merger--Opinions of
Financial Advisors."
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ J.P. MORGAN SECURITIES INC.
August 29, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF WASSERSTEIN PERELLA & CO., INC.
We hereby consent to the filing of our opinion, dated as of July 17, 1997,
as an Appendix to the Joint Proxy Statement/Prospectus (the "Proxy Statement")
constituting part of the Registration Statement on Form S-4 of CTS Corporation
(the "Registration Statement") and to the reference to us under the captions
"Summary" and "The Merger--Background of the Merger," "The Merger--Reasons for
the Merger; Recommendations of the Boards of Directors" and "The
Merger--Opinions of Financial Advisors" in the Proxy Statement.
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of the Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ WASSERSTEIN PERELLA & CO
New York, New York
August 29, 1997
<PAGE>
EXHIBIT 99.1
CTS CORPORATION
905 WEST BOULEVARD NORTH
ELKHART, INDIANA 46514
SEPTEMBER 2, 1997
Dear Shareholder:
You are invited to a special meeting of shareholders at 9:00 a.m., local
time, on October 16, 1997, at CTS' corporate headquarters located at 905 West
Boulevard North, Elkhart, Indiana.
At the meeting, CTS shareholders will be asked to approve the issuance of
CTS common stock in the previously announced merger with Dynamics Corporation of
America ("DCA") and related amendments to CTS' articles of incorporation which
would, among other things, increase CTS' authorized capitalization to provide
sufficient authorized capitalization for the merger and the previously announced
stock split in the form of a dividend to CTS shareholders of record on October
24, 1997 (subject to completion of the merger). In the merger, each DCA common
share not owned by CTS will, at the election of DCA shareholders, be converted
into either $58.00 in cash or 0.88 CTS common shares. The cash consideration
will be prorated to the extent that the total number of DCA common shares for
which cash elections are made exceeds 49.9% of DCA's common shares less the DCA
common shares owned by CTS prior to the merger. At the date of the printing of
this Joint Proxy Statement/Prospectus, holders of approximately 18.2% of the
outstanding DCA common shares would be eligible to receive cash in the Merger.
At the meeting, CTS shareholders will also be asked to consider and vote on
certain employee stock options granted in connection with the merger.
CTS owns 31.7% of the DCA shares, substantially all of which CTS acquired in
a tender offer made in accordance with the CTS-DCA merger agreement. Following
the tender offer, four CTS designees became members of DCA's 13-member Board of
Directors. DCA has owned CTS shares for more than ten years and currently owns
43.9% of the outstanding CTS shares and 30.3% of the voting power of CTS shares.
During such ten-year period, two DCA officers have been members of CTS'
five-member Board of Directors. The CTS shares owned by DCA will be voted in
favor of each of the matters to be considered at the shareholders meeting and
described herein. Accordingly, CTS shareholder approval of each such matter will
be assured if holders of 28.4% of the CTS shares not owned by DCA likewise so
vote.
Approval of the merger by DCA shareholders requires a two-thirds vote. CTS
has agreed to vote the DCA shares it owns in favor of such approval, as has WHX
Corporation ("WHX"), which holds approximately 13.5% of DCA's outstanding
shares. In addition, DCA directors and officers intend to vote their 7.1% of
DCA's outstanding shares in favor of such approval. Accordingly, DCA shareholder
approval of the merger will be assured if holders of 30.2% of the DCA shares not
owned by CTS, DCA's directors and officers and WHX likewise so vote.
The entire CTS Board of Directors, as well as the members of the CTS Board
who are not officers of DCA (the "Unaffiliated CTS Directors") voting
separately, approved the CTS-DCA merger agreement and the transactions
contemplated thereby, following a determination by the Unaffiliated CTS
Directors, and also by the entire CTS Board, that such transactions were fair to
and in the best interests of CTS and its shareholders (other than DCA). The CTS
Board unanimously recommends that CTS shareholders vote "FOR" the approval of
the issuance of CTS shares in the CTS-DCA merger and the related amendments to
CTS' charter, as well as the grant of options described in the accompanying
joint proxy statement/prospectus.
The merger marks the beginning of an exciting new chapter in CTS' 100-year
history. CTS has substantially improved its results of operations over the past
three years through its commitment to quality, cost control and product
innovation. The merger will create a company expected to have a market
capitalization of over $425 million (based on recent stock market prices). In
addition, the merger, when combined with a stock split in the form of a 1:1
stock dividend expected to be effected shortly after the merger, is expected to
increase substantially the liquidity in the market for CTS shares and decrease
the concentration of ownership of CTS shares.
Additional information relating to the merger, the merger agreement and the
option grants to be considered at the shareholders meeting is set forth in the
accompanying material. Please review this material carefully.
It is important that your CTS shares be represented at the shareholders
meeting, regardless of the number of shares you hold. Whether or not you plan to
attend the meeting, please sign, date and return your proxy card in the enclosed
postage-paid envelope as soon as possible. If you later decide to attend the
meeting and vote in person, or if you wish to revoke your proxy for any reason
prior to the vote at the meeting, you may do so and your proxy will have no
further effect. If you attend the meeting, you may vote in person even though
you previously mailed your proxy.
Very truly yours,
/s/ Joseph P. Walker
Joseph P. Walker
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT 99.2
CTS CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 16, 1997
To the Shareholders of CTS Corporation:
A special meeting of shareholders of CTS Corporation (the "CTS Shareholders
Meeting") will be held at 9:00 a.m., local time, on October 16, 1997 at CTS'
corporate headquarters located at 905 West Boulevard North, Elkhart, Indiana,
for the following purposes:
1. To consider and to vote on a proposal to approve the (i) issuance of CTS
Common Stock ("CTS Shares") pursuant to the Amended and Restated
Agreement and Plan of Merger, dated as of July 17, 1997 (the "Merger
Agreement"), among CTS, CTS First Acquisition Corp., a wholly owned
subsidiary of CTS ("Sub"), and Dynamics Corporation of America ("DCA")
pursuant to which, among other things, DCA will merge (the "Merger") with
and into Sub and (ii) adoption of certain amendments to CTS' articles of
incorporation described in the accompanying Joint Proxy
Statement/Prospectus (the "Charter Amendments"), including an increase in
CTS' authorized capitalization necessary to effect the Merger. In the
Merger, subject to certain exceptions, each share of DCA Common Stock
("DCA Shares") outstanding immediately prior to the effective time of the
Merger (the "Effective Time") (other than DCA Shares owned by CTS) will
be converted into the right to receive, at the holder's election, either
$58.00 in cash (subject to proration) or 0.88 (the "Exchange Ratio")
fully paid and non-assessable CTS Shares. CTS has declared a stock split
in the form of a 1:1 stock dividend (the "Stock Split") to shareholders
of record on October 24, 1997, subject to certain conditions including
the completion of the Merger and the approval of the Charter Amendments.
2. To consider and to vote on a proposal to approve, subject to the
completion of the Merger, the grant of employee stock options (the
"Options") to certain executive officers of CTS and DCA.
3. To transact such other business as may properly come before the CTS
Shareholders Meeting including any motion to adjourn to a later date to
permit further solicitation of proxies if necessary.
Information regarding the matters to be acted upon at the CTS Shareholders
Meeting is contained in the Joint Proxy Statement/Prospectus accompanying this
notice. A copy of the Merger Agreement is attached as Annex A thereto. The Joint
Proxy Statement/Prospectus and the Annexes thereto form a part of this Notice.
The close of business on September 5, 1997 is the record date (the "CTS
Record Date") for determining the holders of CTS Shares entitled to receive
notice of, and to vote at, the CTS Shareholders Meeting and any adjournments or
postponements thereof.
The approval of the foregoing proposals requires the affirmative vote of a
majority of the votes cast by holders of record of CTS Shares present in person
or represented by proxy and entitled to vote at the CTS Shareholders Meeting,
provided that, in the case of the Merger proposal, the total votes cast (whether
for or against) represents at least a majority of the CTS Shares entitled to
vote.
By order of the CTS Board of Directors,
/s/ Jeannine M. Davis
Jeannine M. Davis
SECRETARY
Elkhart, Indiana
September 2, 1997
<PAGE>
EXHIBIT 99.3
DYNAMICS CORPORATION OF AMERICA
475 STEAMBOAT ROAD
GREENWICH, CONNECTICUT 06830
SEPTEMBER 2, 1997
Dear Shareholder:
You are invited to DCA's 1997 annual meeting of shareholders at 10:30 a.m.
local time, on October 16, 1997, at the Greenwich Library, West Putnam Avenue at
Deerfield Drive, Greenwich, Connecticut. At the meeting, DCA shareholders will
be asked to approve the previously announced merger with CTS Corporation ("CTS")
and to elect directors and ratify the appointment of independent auditors. In
the merger, DCA shareholders (other than CTS) will have the option of receiving
either $58.00 in cash (subject to proration) or 0.88 CTS common shares for each
DCA share. The DCA-CTS merger agreement also contemplates that, subject to CTS
shareholder approval of the issuance of CTS Shares in the merger and related
amendments to CTS' charter to increase its authorized capitalization, CTS will
effect a stock split in the form of a 1:1 stock dividend to shareholders of
record on October 24, 1997.
DCA has owned CTS shares for more than ten years and currently owns 43.9% of
the issued and outstanding CTS shares and 30.3% of the voting power of CTS
shares. During such ten-year period, two DCA officers have been members of CTS'
five-member Board of Directors. CTS owns 31.7% of the DCA shares, substantially
all of which CTS acquired in a tender offer made in accordance with the merger
agreement. Following the tender offer, four CTS designees became members of
DCA's 13-member Board of Directors. The DCA shares owned by CTS will be voted in
favor of each of the matters to be considered at the shareholders meeting.
Approval of the merger by DCA shareholders requires a two-thirds vote. CTS
has agreed to vote the DCA shares it owns in favor of such approval, as has WHX
Corporation ("WHX"), which holds approximately 13.5% of DCA's outstanding
shares. In addition, DCA directors and officers intend to vote their 7.1% of
DCA's outstanding shares in favor of such approval. Accordingly, DCA shareholder
approval of the merger will be assured if holders of 30.2% of the DCA shares not
owned by CTS, DCA's directors and officers and WHX likewise so vote.
The DCA Board has unanimously approved the DCA-CTS merger agreement and the
transactions contemplated thereby, and determined that such transactions are
fair to, and are in the best interests of, DCA and its shareholders. The DCA
Board (with CTS' designees abstaining) unanimously recommends that the
shareholders of DCA vote "FOR" adoption of the DCA-CTS merger agreement, the
election of DCA directors and the ratification of the appointment of independent
auditors.
The Cash Consideration may be different from the trading price for DCA
Shares on the NYSE from time to time prior to the Effective Time of the Merger.
On August 29, 1997, the last trading day prior to the date of the Joint Proxy
Statement/Prospectus, the closing sales price for DCA Shares as reported on the
NYSE was $71.00 per share. The amount of Cash Consideration is fixed at $58.00
per DCA Share, regardless of changes in the market prices for DCA Shares. DCA
shareholders are urged to obtain current market quotations for DCA Shares.
The merger presents an opportunity for DCA's shareholders to participate in
the future growth of both CTS and DCA. DCA has had a major equity stake in CTS
for over a decade, and DCA's shareholders are now in a position to benefit
directly from CTS' profitability and growth.
Additional information relating to the merger, the merger agreement, the
election of directors and the ratification of the appointment of independent
auditors to be considered at the DCA shareholders meeting is set forth in the
accompanying Joint Proxy Statement/Prospectus. Please review this material
carefully. For a discussion of the procedures to be followed in order to recieve
the $58.00 per share in cash, including the deadline for making such election,
see "Other Terms of the Merger and the Merger Agreement--Procedures for Cash
Election" in the accompanying Joint Proxy Statement/Prospectus.
It is important that your DCA shares be represented at the DCA shareholders
meeting, regardless of the number of shares you hold. Whether or not you plan to
attend the meeting, please sign, date and return your proxy card in the enclosed
postage paid envelope as soon as possible. If you later decide to attend the
meeting and vote in person, or if you wish to revoke your proxy for any reason
prior to the vote at the meeting, you may do so and your proxy will have no
further effect. If you attend the meeting, you may vote in person, if you wish,
even though you previously mailed your proxy.
Very truly yours,
/s/ Andrew Lozyniak
Andrew Lozyniak
CHAIRMAN OF THE BOARD
AND PRESIDENT
<PAGE>
EXHIBIT 99.4
DYNAMICS CORPORATION OF AMERICA
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 16, 1997
To the Shareholders of Dynamics Corporation of America:
The 1997 annual meeting of Dynamics Corporation of America (the "DCA
Shareholders Meeting") will be held at 10:30 a.m., local time, on October 16,
1997 at the Greenwich Library, West Putnam Avenue at Deerfield Drive, Greenwich,
Connecticut, for the following purposes:
1. To consider and vote upon a proposal to adopt the Amended and Restated
Agreement and Plan of Merger, dated as of July 17, 1997 (the "Merger
Agreement"), among DCA, CTS Corporation ("CTS") and CTS First Acquisition
Corp., a wholly owned subsidiary of CTS ("Sub"), pursuant to which, among
other things, DCA will merge (the "Merger") with and into Sub. In the
Merger, subject to certain exceptions, each share of DCA Common Stock
("DCA Shares") issued and outstanding immediately prior to the effective
time of the Merger (the "Effective Time") will be converted into the
right to receive, at the holder's election, either $58.00 in cash
(subject to proration) or 0.88 (the "Exchange Ratio") fully paid and
non-assessable shares of CTS Common Stock ("CTS Shares"). In connection
with the Merger, CTS declared a stock split in the form of a 1:1 stock
dividend (the "Stock Split") to shareholders of record on October 24,
1997, subject to certain conditions, including the completion of the
Merger. DCA shareholders are entitled to dissenters' rights in the Merger
under New York law as described in the Joint Proxy Statement/Prospectus
accompanying this notice.
2. To consider and vote on the election of directors to the DCA Board of
Directors, four in the class of directors whose term expires at the 2000
annual meeting of DCA shareholders, one in the class of directors whose
term expires at the 1998 annual meeting of DCA shareholders and one in
the class of directors whose term expires at the 1999 annual meeting of
DCA shareholders.
3. To consider and vote on the ratification of the appointment of Ernst &
Young LLP ("Ernst & Young"), as DCA's independent auditors for 1997.
4. To transact such other business as may properly come before the DCA
Shareholders Meeting, including any motion to adjourn to a later date to
permit further solicitation of proxies if necessary.
Information regarding the matters to be acted upon at the DCA Shareholders
Meeting is contained in the Joint Proxy Statement/Prospectus accompanying this
notice. A copy of the Merger Agreement is attached as Annex A thereto. The Joint
Proxy Statement/Prospectus and the Annexes thereto form a part of this Notice.
The close of business on September 5, 1997 is the record date ("DCA Record
Date") for determining the holders of DCA Shares entitled to receive notice of,
and to vote at, the DCA Shareholders Meeting and any adjournments or
postponements thereof.
The adoption of the Merger Agreement requires the affirmative vote of at
least two-thirds of the DCA Shares outstanding as of the DCA Record Date and the
approval of the remaining proposals requires the affirmative vote of the holders
of record of a majority of the DCA Shares present in person or by proxy and
entitled to vote at the DCA Shareholders Meeting.
DCA originally scheduled its 1997 annual shareholders meeting for May 2,
1997 and sent to shareholders proxy materials relating thereto. That meeting was
postponed to October 16, 1997 in order to permit DCA shareholders to consider
the Merger and other matters described in the accompanying Joint Proxy
Statement/ Prospectus, which supersedes the prior proxy materials in their
entirety.
By order of the Board of Directors,
/s/ Henry V. Kensing
Henry V. Kensing
SECRETARY
Greenwich, Connecticut
September 2, 1997
<PAGE>
EXHIBIT 99.5
FORM OF ELECTION AND
LETTER OF TRANSMITTAL
FOR SHARES OF
DYNAMICS CORPORATION OF AMERICA
COMMON STOCK
This Form of Election and Letter of Transmittal (this "Form of Election") is
to be used by record holders of common stock ("DCA Shares") of Dynamics
Corporation of America ("DCA") to elect (an "Election") to receive Stock
Consideration or (subject to certain limitations described below) Cash
Consideration upon conversion of such holder's DCA Shares in the Merger
contemplated by the Amended and Restated Agreement and Plan of Merger, dated as
of May 9, 1997, and amended and restated on July 17, 1997 (the "Merger
Agreement"), by and among CTS Corporation ("CTS"), CTS First Acquisition Corp.
("Sub") and DCA.
Pursuant to the Merger Agreement, DCA will merge with and into Sub (the
"Merger"). Capitalized terms used but not defined herein have the meanings given
to them in the Joint Proxy Statement/Prospectus dated September 2, 1997 of CTS
and DCA relating to the Merger (the "Joint Proxy Statement/Prospectus").
The Merger Agreement provides that each DCA Share issued and outstanding
immediately prior to the Effective Time will be converted in the Merger into the
right to receive, at the holder's option, either $58.00 in cash (the "Cash
Consideration") or 0.88 CTS Shares (the "Stock Consideration" and, together with
the Cash Consideration, the "Merger Consideration"). The Cash Consideration will
be prorated to the extent that the total number of DCA Shares for which cash
elections are made exceeds 49.9% of the outstanding DCA Shares less the DCA
Shares beneficially owned by CTS or Sub immediately prior to the Merger. As of
August 29, 1997, holders of approximately 18.2% of the outstanding DCA Shares
would be eligible to receive cash in the Merger.
The Cash Consideration may be different from the trading price for DCA
Shares on the NYSE from time to time prior to the Effective Time of the Merger.
On August 29, 1997, the last trading day prior to the date of the Joint Proxy
Statement/Prospectus, the closing sales prices for DCA Shares as reported on the
NYSE was $71.00 per share. The amount of Cash Consideration is fixed at $58.00
per DCA Share, regardless of changes in the market prices for DCA Shares. DCA
shareholders are urged to obtain current market quotations for DCA Shares.
THE EXCHANGE AGENT IS STATE STREET BANK AND TRUST COMPANY.
BY
REGULAR U.S. MAIL:
State Street Bank and Trust Company
Corporate Reorganization
Department
P.O. Box 9061
Boston, Massachusetts 02205-9061
BY HAND:
Securities Transfer and
Reporting Services, Inc.
One Exchange Plaza
55 Broadway, 3rd Floor
New York, New York 10006
BY OVERNIGHT COURIER:
State Street Bank and Trust Company
Corporate Reorganization
Department
70 Campanelli Drive
Braintree, Massachusetts 02184
IN ORDER TO RECEIVE THE CASH CONSIDERATION, THIS FORM OF ELECTION, TOGETHER WITH
CERTIFICATES FOR DCA SHARES AND ANY OTHER DOCUMENTS REQUIRED HEREBY, MUST BE
RECEIVED BY THE EXCHANGE AGENT AT ITS ADDRESS SET FORTH ABOVE PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE BUSINESS DAY IMMEDIATELY PRECEDING THE DAY OF
THE DCA SHAREHOLDERS MEETING (THE "ELECTION DEADLINE"). SUBJECT TO CHANGES IN
THE DATE OF THE DCA SHAREHOLDERS MEETING, THE ELECTION DEADLINE IS OCTOBER 15,
1997.
DCA SHAREHOLDERS (A "SHAREHOLDER") WHO DO NOT TIMELY SUBMIT A PROPERLY
COMPLETED FORM OF ELECTION ON OR BEFORE THE ELECTION DEADLINE WILL BE DEEMED TO
HAVE ELECTED TO RECEIVE THE STOCK CONSIDERATION. ANY SHAREHOLDER MAY AT ANY TIME
PRIOR TO THE ELECTION DEADLINE CHANGE A PREVIOUSLY MADE ELECTION BY WRITTEN
NOTICE TO THE EXCHANGE AGENT ACCOMPANIED BY A PROPERLY COMPLETED, LATER-DATED
FORM OF ELECTION.
IN ORDER TO RECEIVE THE STOCK CONSIDERATION, SHAREHOLDERS MUST SUBMIT A
PROPERLY COMPLETED FORM OF ELECTION TOGETHER WITH CERTIFICATES FOR DCA SHARES
AND ANY OTHER DOCUMENTS REQUIRED HEREBY. HOLDERS OF DCA SHARES ELECTING TO
RECEIVE STOCK CONSIDERATION WILL RECEIVE CERTIFICATES (AND CASH IN RESPECT OF
FRACTIONAL SHARES) REPRESENTING THE STOCK CONSIDERATION AS SOON AS REASONABLY
PRACTICABLE FOLLOWING THE LATER OF (I) THE EFFECTIVE TIME OR (II) THE EXCHANGE
AGENT'S RECEIPT OF A PROPERLY COMPLETED FORM OF ELECTION, TOGETHER WITH
CERTIFICATES FOR DCA SHARES AND ANY OTHER DOCUMENTS REQUIRED HEREBY.
DO NOT SEND THIS FORM OF ELECTION TO CTS OR DCA, BUT RATHER TO THE EXCHANGE
AGENT AS DESCRIBED ABOVE.
DELIVERY OF THIS FORM OF ELECTION AND CERTIFICATES REPRESENTING DCA SHARES
OTHER THAN TO THE EXCHANGE AGENT AT THE ADDRESS SHOWN ABOVE DOES NOT CONSTITUTE
A VALID DELIVERY. YOU MUST SIGN THIS FORM OF ELECTION WHERE INDICATED BELOW AND
COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED.
<PAGE>
Ladies and Gentlemen:
In accordance with the Merger Agreement, the undersigned, as the registered
holder(s) of the certificates for DCA Shares listed below or the assignee(s) of
such registered holder(s), hereby makes the Election(s) indicated below with
respect to the number of DCA Shares specified below. Such Election(s) is subject
to the terms and conditions set forth in (i) the Joint Proxy
Statement/Prospectus, (ii) the Merger Agreement, a copy of which is attached to
the Joint Proxy Statement/Prospectus as Annex A, and (iii) the Instructions
hereto set forth below.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE JOINT PROXY
STATEMENT/PROSPECTUS ACCOMPANYING THIS FORM OF ELECTION.
Delivery of the Merger Consideration corresponding to the Election(s) made
hereunder will be made as soon as reasonably practicable after the Effective
Time, provided that surrender of certificates for DCA Shares is made in
acceptable form. The undersigned acknowledges that surrender is not made in
acceptable form until the Exchange Agent has received this Form of Election, or
a copy hereof, duly completed and signed, together, in the circumstances in
which evidences of authority are required hereby, with all accompanying
evidences of authority in satisfactory form to the Exchange Agent. Upon request,
the undersigned will execute and deliver any additional document that CTS or the
Exchange Agent reasonably deems necessary or appropriate in connection with the
surrender of certificates for DCA Shares or in connection with the exchange
contemplated hereby. The undersigned also understands that delivery of
certificates for surrendered DCA Shares shall be made only to the Exchange
Agent, and risk of loss and title to certificates for DCA Shares shall pass only
upon proper delivery of such certificates to the Exchange Agent.
The undersigned represents that the undersigned has full authority to
surrender the certificates for DCA Shares surrendered hereby without
restriction, and that, upon payment by CTS of the Merger Consideration for the
shares represented by such certificates in accordance with the Election(s)
indicated below, CTS will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. Subject to consummation of the Merger, the undersigned hereby
appoints designees of CTS as the undersigned's attorney-in-fact, with full power
of substitution, for the purpose of causing the DCA Shares represented by the
accompanying certificates to be converted into the Merger Consideration
corresponding to the Election(s) made above and the instructions contained in
this Form of Election. All authority conferred by this Form of Election and the
surrender of the enclosed certificates for DCA Shares are irrevocable, will bind
the successors, assigns, heirs, executors, administrators and legal
representatives of the undersigned and will survive, and not be affected by, the
death or incapacity of the undersigned. If certificates for DCA Shares are not
delivered herewith, there is furnished a properly completed and executed Notice
of Guaranteed Delivery.
The purpose of the election procedure is to permit Shareholders to express
their preferences for the type of Merger Consideration they wish to receive in
the Merger. THE UNDERSIGNED ACKNOWLEDGES THAT, AS A RESULT OF THE PRORATION AND
OTHER LIMITATIONS SET FORTH IN THE MERGER AGREEMENT, THE UNDERSIGNED MAY RECEIVE
MERGER CONSIDERATION OTHER THAN THAT ELECTED BELOW.
In lieu of any fractional share of CTS, CTS will pay to each former
shareholder of DCA who otherwise would be entitled to receive a fractional share
of CTS an amount equal to a pro rata portion of the net proceeds of the sale by
the Exchange Agent of CTS Shares representing the aggregate of all such
fractional shares and the aggregate dividends or other distributions that are
payable with respect to such CTS Shares, if any.
Unless otherwise directed by written instructions attached hereto, please
issue one stock certificate for the shares of CTS and/or one check for the cash
portion of the Merger Consideration to which the undersigned is entitled, as the
case may be. Unless otherwise specified under "Special Payment Instructions" or
"Special Mailing Instructions" below, the undersigned requests that the
undersigned's certificate and/or check, as the case may be, be issued in the
name and mailed to the address of the undersigned as set forth below.
Please complete the following boxes to indicate the DCA Shares to which this
Form of Election relates and the Election(s) made with respect to such DCA
Shares.
2
<PAGE>
PLEASE READ THE INSTRUCTIONS SET FORTH AT THE END OF THIS FORM OF ELECTION
CAREFULLY BEFORE COMPLETING THIS FORM OF ELECTION.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DESCRIPTION OF DCA SHARES SURRENDERED
<CAPTION>
CERTIFICATE(S) BEING SURRENDERED
(ATTACH SEPARATE SCHEDULE IF NECESSARY)
CERTIFICATE NUMBER OF SHARES
NAME(S)OF REGISTERED HOLDER(S) NUMBERS (OR REPRESENTED BY
AS SHOWN ON THE CERTIFICATE(S) AND REGISTERED CERTIFICATES (OR
ADDRESS(ES) ACCOUNT REGISTERED NUMBER OF SHARES
OF SUCH REGISTERED HOLDERS NUMBER) ACCOUNT) SURRENDERED*
<S> <C> <C> <C>
<CAPTION>
<S> <C> <C> <C>
TOTAL SHARES:
<CAPTION>
* Unless otherwise indicated, the registered holder(s) will be deemed to have surrendered all of
the shares represented by such certificates (or registered accounts).
</TABLE>
ELECTION
Check one or more of the boxes below to make the indicated Election and specify
the number of shares to which such Election applies:
Cash Consideration / / Number of Shares________________
Stock Consideration / / Number of Shares________________
IF NO BOX IS CHECKED, THE DCA SHARES OF THE REGISTERED HOLDER(S) TO WHICH THIS
FORM OF ELECTION RELATES WILL BE DEEMED TO BE SHARES IN RESPECT OF WHICH AN
ELECTION HAS BEEN MADE TO RECEIVE THE STOCK CONSIDERATION.
3
<PAGE>
NOTE: ALL SHAREHOLDERS MUST SIGN HERE AND
ON THE ACCOMPANYING SUBSTITUTE FORM W-9
Dated: ________________, 1997
______________________________________________________________________________
(Signature(s) of Registered holder(s) or Authorized Signatory)
______________________________________________________________________________
(Signature(s) of Registered holder(s) or Authorized Signatory)
Telephone Number _____________________________________________________________
(Include Area Code)
Must be signed above by registered holder(s) exactly as name(s) appear(s) on
the certificate(s) to which this Form of Election relates as indicated above
or by person(s) authorized to become registered holder(s). See Instruction 3.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, please provide the following information
and see instruction 3(e).
Name(s) ______________________________________________________________________
PLEASE PRINT
Capacity (full title) ________________________________________________________
<TABLE>
<S> <C> <C>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL MAILING INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 7) (SEE INSTRUCTION 4)
TO BE COMPLETED ONLY IF THE CERTIFICATE(S) To be completed ONLY if the certificate(s)
REPRESENTING CTS SHARES AND ANY CHECK(S) FOR representing CTS Shares and any check(s) for
CASH CONSIDERATION OR CASH ISSUED IN LIEU OF the Cash Consideration or cash issued in lieu
FRACTIONAL SHARES OF CTS SHARES ARE TO BE of fractional shares of CTS Shares are to be
ISSUED IN THE NAME(S) OF SOMEONE OTHER THAN mailed to an address other than indicated
the name(s) which appear on the above.
certificate(s). YOUR SIGNATURE(S) MUST BE
GUARANTEED ON THE FORM BELOW.
ISSUE TO: MAIL TO:
PLEASE PRINT PLEASE PRINT
(attach separate schedule if necessary)
Name: Name:
Address: Address:
(Include Zip Code) (Include Zip Code)
Tax Identification or Social Security Attention:
Number(s) of Person(s) Named in this Box:
/ / PLEASE CHECK BOX IF THIS IS A
PERMANENT ADDRESS CHANGE.
(Also complete the Substitute Form W-9)
</TABLE>
4
<PAGE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTION 3(G))
Authorized Signature(s) ________________________________________________________
Title __________________________________________________________________________
Name of Firm ___________________________________________________________________
Dated ____________________________________________________________________, 1997
PLEASE RETURN THIS FORM OF ELECTION AND YOUR CERTIFICATE(S)
REPRESENTING DCA SHARES COVERED HEREBY TO THE EXCHANGE AGENT IN THE
ENCLOSED ENVELOPE.
5
<PAGE>
*IMPORTANT TAX INFORMATION*
Please be advised that, regardless of whether you have previously furnished
a taxpayer identification number (Social Security number for individual, or
employer identification number for corporation(s)) (a "TIN") or the
certification on Form W-9 with respect to dividend payments, you must again
furnish this number, certified to be correct under penalties of perjury, to
assure that backup withholding of 31% will not be implemented. Certification
should be made to the Exchange Agent on the Substitute Form W-9 below. If the
certificates representing DCA Shares covered by this Form of Election are
registered in more than one name or are not registered in the name of the actual
holder, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report.
<TABLE>
<S> <C> <C>
PAYER'S NAME:
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT THE RIGHT AND Social Security Number
FORM W-9 CERTIFY BY SIGNING AND DATING BELOW, OR IF A TIN HAS NOT BEEN or Employer
Please fill in your Name ISSUED TO YOU, PLEASE CHECK THE BOX IN PART 3 BELOW. Identification Number
and Address:
- ------------------------
- ------------------------
- ------------------------
</TABLE>
<TABLE>
<S> <C>
DEPARTMENT OF TREASURY PART 2--For payees exempt from backup withholding, see the enclosed
PAYER'S REQUEST FOR TAXPAYER Guidelines for Certification of Taxpayer Identification Number on
IDENTIFICATION NUMBER (TIN) Substitute Form W-9.
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to
be issued to me) and
(2) I am not subject to backup withholding under the provisions of Section 3406 of the Internal Revenue Code of
1986, as amended, either because (i) I am exempt from backup withholding, (ii) I have not been notified by
the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to
report all interest or dividends or (iii) the IRS has notified me that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are
subject to backup withholding because of under reporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding you received another notification
from the IRS that you are no longer subject to backup withholding, do not cross out item (2).
</TABLE>
<TABLE>
<S> <C>
PART 3
SIGNATURE DATE , 1997 Awaiting TIN / /
</TABLE>
6
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed an application to
receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that, notwithstanding
that I have checked the box in Part 3 (and have completed this Certificate of
Awaiting Taxpayer Identification Number), all reportable payments made to me
prior to the time I provide the Exchange Agent with a properly certified
taxpayer identification number may be subject to a 31% backup withholding tax.
SIGNATURE_______________________________ DATE________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU.
7
<PAGE>
INSTRUCTIONS
1. GENERAL. This Form of Election is to be used by registered holders of DCA
Shares to make an election to receive Cash Consideration or Stock Consideration,
or to indicate that they have no preference as to the form of Merger
Consideration to be received with respect to their DCA Shares in the Merger and
to submit their DCA Shares in exchange for Merger Consideration. When making
elections, Shareholders should read carefully these Instructions and the
information set forth in the Joint Proxy Statement/ Prospectus. In order to
receive the Cash Consideration, a properly completed and duly executed copy of
this Form of Election, together with certificates for DCA Shares, and any other
documents required by this Form of Election must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
October 15, 1997, or if the date of the DCA Shareholders Meeting is other than
October 16, 1997, the business day immediately preceding the day of the DCA
Shareholders Meeting (the "Election Deadline"). The DCA Shares held by a
registered holder of DCA Shares who does not submit a Form of Election with
respect to those shares that is received by the Exchange Agent prior to the
Election Deadline, or who indicates no preference as to the form of Merger
Consideration to be received, will be deemed by CTS, pursuant to the Merger
Agreement, to have elected to receive the Stock Consideration. The method of
delivery of this Form of Election, certificates for DCA Shares and all other
required documents to the Exchange Agent is at the option and risk of the
electing holder and, except as otherwise provided below, the delivery will be
deemed made only when actually received by the Exchange Agent. Instead of
delivery by mail, it is recommended that the holder use an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
delivery to the Exchange Agent before the Election Deadline. All Elections will
be void and of no effect if the Merger is not consummated and, in that event,
certificates submitted in connection therewith will be returned to the persons
submitting them.
The Cash Consideration may be different from the trading price for DCA
Shares on the NYSE prior to the Effective Time of the Merger. On August 29,
1997, the last trading day prior to the date of the Joint Proxy
Statement/Prospectus, the closing sales price for DCA Shares as reported on the
NYSE was $71.00 per share. The amount of Cash Consideration is fixed at $58.00
per DCA Share, regardless of changes in the market prices for DCA Shares. DCA
shareholders are urged to obtain current market quotations for DCA Shares.
2. ELECTION AND SURRENDER BY HOLDER. Only a registered holder of DCA Shares
may make an Election and surrender certificates for the Merger Consideration
corresponding to such Election. Any beneficial owner of DCA Shares who is not
the registered holder and who wishes to make an Election and surrender
certificates should arrange with the registered holder to execute and deliver
this Form of Election reflecting such Election or must, prior to completing and
executing this Form of Election and delivering the certificates, either make
appropriate arrangements to register ownership of the certificates in such
beneficial owner's name or obtain a properly completed stock power from the
registered holder.
3. SIGNATURES ON THIS FORM OF ELECTION; STOCK POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
(a) If this Form of Election is signed by the registered holder of the
certificates for DCA Shares described above, the signature must correspond
exactly with the name as written on the face of the certificates (or account
statement) without alteration, enlargement or any change whatsoever.
(b) If any certificates for DCA Shares (or registered accounts) are owned of
record by two or more joint owners, all such owners must sign this Form of
Election. If any certificates for DCA Shares are registered in different names
on several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Form of Election as there are different
registrations of certificates.
(c) When this Form of Election is signed by the registered holder or holders
of certificates listed herein and surrendered hereby, and the Merger
Consideration therefor is to be delivered to the registered holder, no
endorsements on certificates or separate stock powers are required. In any other
case, such holder or holders must either properly endorse the certificates
surrendered or transmit properly completed separate stock powers with this Form
of Election, with the signatures on the endorsement or stock powers guaranteed
by an Eligible Institution (as defined below).
8
<PAGE>
(d) If this Form of Election is signed by a person other than the registered
holder or holders of any DCA Shares represented by certificates listed herein,
such certificates must be endorsed or accompanied by appropriate stock powers,
in each case signed as the name or names of the registered holder or holders
appears on the certificates, and the signatures on such certificates or stock
powers must be guaranteed by an Eligible Institution.
(e) If this Form of Election or any certificate for DCA Shares or stock
powers is signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by CTS, evidence satisfactory to CTS of their authority so to act
must be submitted with this Form of Election.
(f) Endorsements on certificates for DCA Shares or signatures on stock
powers required by this Instruction 3 must be guaranteed by an Eligible
Institution.
(g) Except as otherwise provided in this Instruction 3(g), all signatures on
this Form of Election must be guaranteed by a bank, brokerage firm, savings and
loan association or credit union, in any case with membership in an approved and
recognized Medallion Signature Guarantee Program (an "Eligible Institution").
Signatures on this Form of Election need not be guaranteed if this Form of
Election is signed by the registered holder(s) of the DCA Shares surrendered
herewith and such holder(s) have not completed the box set forth herein entitled
"Special Payment Instructions" or the box entitled "Special Mailing
Instructions."
4. SPECIAL PAYMENT AND MAILING INSTRUCTIONS. Electing holders of DCA Shares
should indicate, in the applicable box or boxes, the name and address to which
certificates for CTS Shares or checks for cash are to be issued or sent, if
different from the name and address of the person signing this Form of Election.
In the case of issuance in a different name, the taxpayer identification or
social security number of the person named must also be set forth.
5. GUARANTEED DELIVERY PROCEDURES. If any certificates representing DCA
Shares with respect to which this Form of Election relates are not delivered
herewith, there must be furnished a guarantee of delivery of such shares on the
Notice of Guaranteed Delivery form provided with this Form of Election from a
trust company organized in the United States, a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. A Form of Election accompanied by such a Notice of Guaranteed
Delivery shall be subject to the condition that the certificates covered by such
guarantee are in fact delivered to the Exchange Agent no later than 5:00 p.m.,
New York City time, on the third business day after the Form of Election is
received by the Exchange Agent. DCA Shares represented by any such certificates
that are not so delivered will be deemed by CTS to be shares for which no
election has been made and shall be converted into the Stock Consideration.
6. REVOCATION OF ELECTION. Any Election may be revoked until the Election
Deadline. To revoke an Election, a written notice of revocation must be received
by the Exchange Agent as its address set forth on the cover of this Form of
Election prior to the Election Deadline. Any such notice or revocation must (i)
specify the name of the registered holder having made the Election to be
revoked, (ii) identify the certificate(s) for DCA Shares with respect to which
the Election is to be revoked and (iii) be signed by the record holder in the
same manner as the original signature on the Form of Election by which such
Election was made. A new Election may be made by submitting a new Form of
Election.
7. TRANSFER TAXES. If certificates for CTS Shares are to be delivered to or
are to be registered or issued in the name of, any person other than the
registered holder of the DCA Shares surrendered hereby, or if certificates for
surrendered DCA Shares are registered in the name of any person other than the
person(s) signing this Form of Election, or if a transfer tax is imposed for any
reason other than solely as a result of the surrender of certificates for DCA
Shares for the Merger Consideration, then the amount of any such transfer taxes
(whether imposed on the registered holder or on any other persons) will be
payable by the surrendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Form of Election, the
amount of such transfer taxes will be billed directly to such surrendering
holder.
9
<PAGE>
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the DCA Shares listed in this Form of
Election.
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for DCA Shares have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions as soon as possible. In the event of a mutilated, lost, stolen or
destroyed certificate, certain procedures will be required to be completed
before this Form of Election can be processed. Because these procedures may take
a substantial amount of time to complete, notice of any mutilated, lost, stolen
or destroyed certificate should be provided to the Exchange Agent as soon as
possible.
9. TAX IDENTIFICATION NUMBER. Federal income tax law generally requires that
a holder whose certificates for DCA Shares are surrendered for the Merger
Consideration must provide CTS (as payor) with such holder's correct Taxpayer
Identification Number ("TIN") on Substitute Form W-9 above, which, in the case
of a surrendering holder who is an individual, is his or her social security
number. If the DCA Shares relating to this Form of Election are held in more
than one name or are not held in the name of the actual owner, consult the
enclosed Guidelines for Certification of Taxpayer's Identification Number on
Substitute Form W-9 (the "W-9 Guidelines") for additional instructions. If CTS
(through the Exchange Agent) is not provided with the current TIN, or if any
other information is not correctly provided, such surrendering holder may be
subject to up to a $50 penalty imposed by the Internal Revenue Service (plus
additional penalties if a holder willfully makes a false certification). In
addition, delivery to such surrendering holder of the Merger Consideration may
be subject to backup withholding in an amount equal to 31% of all reportable
payments. Backup withholding is not an additional federal income tax. Rather,
the federal income tax liability of persons subject to backup withholding will
be reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained provided that the required
information is furnished to the Internal Revenue Service.
Exempt holders of DCA Shares (including, among others, corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. (In order to satisfy CTS that a foreign individual
qualifies as an exempt recipient, that holder must submit a statement, signed
under penalties of perjury, attesting to that individuals's exempt status. Such
statements can be obtained from the Exchange Agent.) See the enclosed W-9
Guidelines for additional instructions.
To prevent backup withholding, each electing holder of DCA Shares must
provide its correct TIN by completing the Substitute Form W-9 set forth above,
certifying that the TIN provided is correct and that (i) the holder is exempt
from backup withholding, (ii) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. The box in Part 3 of the Substitute Form W-9 above may be checked
if the electing holder of DCA Shares has not been issued a TIN and has applied
for a TIN or intends to apply for a TIN in the near future. If the box in Part 3
is checked, the electing holder must also complete the Certificate of Awaiting
Taxpayer Identification Number contained in the Substitute Form W-9 in order to
avoid backup withholding. Notwithstanding that the box in Part 3 is checked (and
the Certificate of Awaiting Taxpayer Identification Number is completed), CTS
may withhold 31% of any Merger Consideration provided in exchange for the DCA
Shares prior to the time it is provided with a properly certified TIN. Backup
withholding will continue until such holder furnishes its TIN to CTS (through
the Exchange Agent).
10. ELECTION PROCEDURE. Subject to the proration procedures described below
(see Instruction 12), each record holder of DCA Shares (other than Dissenting
Shares) outstanding immediately prior to the effective time of the Merger (the
"Effective Time") is entitled to submit an election specifying the Merger
Consideration preferred in respect of each such share--either Cash Consideration
or Stock Consideration. Alternatively, a record holder may indicate that the
record holder has no preference as between Cash Consideration and Stock
Consideration for such shares. If a holder does not indicate a preference, his
or her DCA Shares will be converted into the Stock Consideration. All elections
are to be made on this Form of Election.
10
<PAGE>
To receive the Cash Consideration, Election Forms must be received by the
Exchange Agent at its office set forth herein no later than 5:00 p.m., New York
City time, on October 15, 1997, or, if the date of the DCA Shareholders Meeting
is other than October 16, 1997, on the business day immediately preceding the
day of the DCA Shareholders Meeting. To make a proper election, a holder of DCA
Shares must have delivered to the Exchange Agent at the address specified above
prior to the Election Deadline the following:
(a) a Form of Election properly completed in accordance with these
Instructions and signed by the record holder of the DCA Shares as to which
such election is being made; and
(b) either (i) the certificates for such shares or (ii) an appropriate
guarantee of delivery of certificates for such shares.
SHAREHOLDERS WHO PERFECT AN ELECTION MAY NOT RECEIVE THE ELECTED CASH
CONSIDERATION IN FULL DUE TO PRORATION LIMITATIONS IN THE MERGER AGREEMENT (SEE
INSTRUCTION 12). SHAREHOLDERS ARE ALSO URGED TO CONSIDER THE DIFFERING FEDERAL
INCOME TAX CONSEQUENCES IN MAKING THE ELECTION, AS DISCUSSED IN THE JOINT PROXY
STATEMENT/PROSPECTUS.
11. MERGER CONSIDERATION. Except for Dissenting Shares and shares owned
directly or indirectly by DCA or CTS (which will be canceled at the Effective
Time), each DCA Share outstanding immediately prior to the Effective Time will
be converted at the Effective Time into the right to receive from CTS the Merger
Consideration. The Merger Consideration will consist of (i) $58.00 per DCA
Share, subject to proration (the "Cash Consideration"), or (ii) 0.88 CTS Shares
per DCA Share (the "Stock Consideration").
The Cash Consideration may be different from the trading price for DCA
Shares on the NYSE from time to time prior to the Effective Time of the Merger.
On August 29, 1997, the last trading day prior to the date of the Joint Proxy
Statement/Prospectus, the closing sales price for DCA Shares as reported on the
NYSE was $71.00 per share. The amount of Cash Consideration is fixed at $58.00
per DCA Share, regardless of changes in the market prices for DCA Shares. DCA
shareholders are urged to obtain current market quotations for DCA Shares.
12. PRORATION. The Cash Consideration will be prorated to the extent that
the total number of DCA Shares for which cash elections are made exceeds 49.9%
of the outstanding DCA Shares immediately prior to the Merger less the number of
DCA Shares beneficially owned by CTS or Sub immediately prior to the Merger. As
of August 29, 1997, holders of approximately 18.2% of the outstanding DCA Shares
would be eligible to receive cash in the Merger. The maximum number of DCA
Shares entitled to the Cash Consideration is hereinafter referred to as the
"Maximum Cash Shares." In the event that the aggregate number of DCA Shares for
which an election for Cash Consideration was made exceeds the Maximum Cash
Shares, all holders of DCA Shares electing to receive the Cash Consideration
will be converted into the right to receive Merger Consideration in the
following manner:
(i) The number of DCA Shares for which an election for Cash
Consideration was made on each Form of Election to be converted into the
Cash Consideration shall be determined by multiplying the number of DCA
Shares for which an election for Cash Consideration was made on such Form of
Election by a fraction, the numerator of which is the Maximum Cash Shares
and the denominator of which is the total number of DCA Shares for which an
election for Cash Consideration was made, rounded down to the nearest whole
number.
(ii) All DCA Shares for which an election for Cash Consideration was
made and which were not converted into the Cash Consideration in accordance
with (i) shall be converted into the Stock Consideration.
13. REQUESTS FOR ADDITIONAL COPIES. Questions relating to the procedure for
making a Election or surrendering certificates, as well as requests for
assistance or for additional copies of the Joint Proxy Statement/Prospectus or
this Form of Election, may be directed to the Exchange Agent at the address set
forth on the cover of this Form of Election or at 1-800-426-5523 (toll free).
14. MISCELLANEOUS. CTS reserves the absolute right, which it may assign in
whole or in part to the Exchange Agent, to determine whether Forms of Election
have been properly completed, signed and
11
<PAGE>
submitted or revoked and to disregard immaterial defects in Forms of Election.
The decision of CTS or the Exchange Agent in such matters shall be conclusive
and binding.
NONE OF CTS, SUB, DCA OR THE EXCHANGE AGENT WILL BE UNDER ANY OBLIGATION
WHATSOEVER TO NOTIFY ANY PERSON OF ANY DEFECT IN A FORM OF ELECTION SUBMITTED TO
THE EXCHANGE AGENT OR ANY OTHER IRREGULARITY IN CONNECTION WITH THE SUBMISSION
OF A FORM OF ELECTION AND ACCOMPANYING DOCUMENTS, NOR WILL ANY OF THEM INCUR ANY
LIABILITY FOR FAILURE TO GIVE SUCH NOTIFICATION. THE DCA SHARES OF A HOLDER
COVERED BY THE SUBMISSION OF A FORM OF ELECTION THAT IS DETERMINED BY CTS OR THE
EXCHANGE AGENT TO BE INVALID AND THAT IS NOT CORRECTED BY THE ELECTION DEADLINE
WILL BE DEEMED BY CTS, PURSUANT TO THE MERGER AGREEMENT, TO BE CONVERTED INTO
THE STOCK CONSIDERATION. ANY DISPUTE CONCERNING THE VALIDITY OR EFFECTIVENESS OF
A FORM OF ELECTION (INCLUDING ANY DISPUTES INVOLVING THE INTERPRETATION OF THESE
INSTRUCTIONS) WILL BE DETERMINED BY CTS, WHOSE DETERMINATION WILL BE CONCLUSIVE
AND BINDING.
PLEASE RETURN THIS FORM OF ELECTION AND YOUR CERTIFICATE(S) REPRESENTING DCA
SHARES COVERED HEREBY TO THE EXCHANGE AGENT IN THE ENCLOSED ENVELOPE.
12
<PAGE>
EXHIBIT 99.6
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF SHARES
OF COMMON STOCK
OF
DYNAMICS CORPORATION OF AMERICA
As set forth in "Other Terms of the Merger and the Merger
Agreement--Procedures for Cash Election" of the Joint Proxy Statement/Prospectus
(as defined below), this form, or a form substantially equivalent to this form,
must be used to make an election to receive Cash Consideration or Stock
Consideration (as these terms are defined in the Joint Proxy
Statement/Prospectus) (an "Election") if the certificates representing shares of
common stock (the "Shares") of Dynamics Corporation of America (the "Company")
are not available or, in the case of elections to receive Cash Consideration,
time will not permit all required documents to reach the Exchange Agent prior to
the Election Deadline (as defined in the Joint Proxy Statement/Prospectus) or
the procedures for book-entry transfer cannot be completed on a timely basis.
Such form may be delivered by hand or transmitted by telegram, facsimile
transmission or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution (as defined below). See "Other Terms of the Merger and the
Merger Agreement -- Procedures for Cash Election" of the Joint Proxy
Statement/Prospectus.
THE EXCHANGE AGENT FOR THE ELECTION IS:
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C>
BY HAND: BY OVERNIGHT COURIER: BY MAIL:
Securities Transfer and State Street Bank State Street Bank
Reporting Services, Inc. and Trust Company and Trust Company
One Exchange Plaza Corporate Reorganization Corporate Reorganization
55 Broadway, 3rd Floor Department Department
New York, New York 10006 70 Campanelli Dr. P.O. Box 9061
Braintree, Massachusetts Boston, Massachusetts
02184 02205-9061
</TABLE>
BY FACSIMILE TRANSMISSION:
(for Eligible Institutions Only)
(617) 794-6333
CONFIRM FACSIMILE BY TELEPHONE (CALL COLLECT)
(617) 794-6388
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A
FORM OF ELECTION/LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE
MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE FORM OF
ELECTION/LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby delivers to CTS Corporation, an Indiana corporation
("CTS"), upon the terms and subject to the conditions set forth in the Joint
Proxy Statement/Prospectus, dated September 2, 1997 of CTS and the Company (the
"Joint Proxy Statement/Prospectus"), and the related Form of Election/Letter of
Transmittal, receipt of each of which is hereby acknowledged, the number of DCA
Shares specified below pursuant to the guaranteed delivery procedures described
in "Other Terms of the Merger and the Merger Agreement -- Procedures for Cash
Election" of the Joint Proxy Statement/ Prospectus.
<TABLE>
<S> <C>
(Please Type or Print) Names of Registered Holder(s):
Number of DCA Shares:
Certificate Nos. (if available):
If DCA Shares will be tendered by book- Address:
entry transfer, check one box
/ / The Depositary Trust Company
/ / Philadelphia Depositary Trust Company
Account Number Area Code and Telephone Number:
PLEASE SIGN HERE:
X
X
(Signature(s)) (Dates)
</TABLE>
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<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Guarantee Program or
the Stock Exchange Medallion Program ("Eligible Institution"), hereby (a)
represents that the tender of DCA Shares effected hereby complies with Rule
14e-4 under the Securities Exchange Act of 1934, as amended, and (b) guarantees
that either the certificates representing the DCA Shares tendered hereby in
proper form for transfer, or timely confirmation of a book-entry transfer of
such DCA Shares into the Exchange Agent's account (pursuant to procedures set
forth in "Other Terms of the Merger and the Merger Agreement -- Procedures for
Cash Election" in the Joint Proxy Statement/Prospectus), with Form of
Election/Letter of Transmittal, will be received by the Exchange Agent at one of
its addresses set forth above no later than 5:00 p.m. New York City time on the
third business day after the Form of Election/Letter of Transmittal is received
by the Exchange Agent. The Eligible Institution that completes this form must
communicate the guarantee to the Exchange Agent and must deliver the
certificates for DCA Shares to the Exchange Agent within the time period shown
herein. Failure to do so could result in financial loss to such Eligible
Institution.
<TABLE>
<S> <C>
Name of Firm (Authorized Signature)
Address (Please Print Name)
(City, State, Zip Code) (Title)
(Area Code and Telephone Number) (Date)
</TABLE>
DO NOT SEND DCA SHARE CERTIFICATES WITH THIS NOTICE.
DCA SHARE CERTIFICATES SHOULD BE SENT WITH YOUR FORM OF
ELECTION/LETTER OF TRANSMITTAL.
-3-
