SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant X
Filed by a Party other than the Registrant __
Check the appropriate box:
__ Preliminary Proxy Statement
__ Confidential. For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
X Definitive Proxy Statement
__ Definitive Additional Materials
__ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CTS CORPORATION
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee
X No fee required.
CTS CORPORATION
905 WEST BOULEVARD NORTH - ELKHART, INDIANA 46514
Notice of Annual Meeting of Shareholders
To Be Held April 24, 1998
To CTS Shareholders:
The Annual Meeting of Shareholders of CTS Corporation will be
held at 9:00 a.m. Eastern Standard Time, Friday, April 24, 1998, at
the CTS Corporate Office, 905 West Boulevard North, Elkhart,
Indiana 46514, for the following purposes:
1. To elect six directors to serve for one year and
until their successors are elected and qualified;
2. To transact other business properly presented at
the meeting.
Only shareholders of record at the close of business on
March 6, 1998 are entitled to notice of, and to vote at, the
meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting are a Proxy
Statement, a proxy and the Annual Report for the fiscal year ended
December 31, 1997.
By Order of the Board of Directors,
Jeannine M. Davis
Secretary
Elkhart, Indiana
March 18, 1998
It is important that your shares be represented at this meeting.
We urge you to date, sign and return your proxy promptly in the
enclosed envelope, which requires no postage if mailed in the
United States.
CTS CORPORATION
905 WEST BOULEVARD NORTH - ELKHART, INDIANA 46514
Proxy Statement
Voting Information
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of CTS
Corporation for the Annual Meeting of Shareholders to be held
April 24, 1998. If the enclosed proxy is signed and returned, it
may, nevertheless, be revoked by you at any time prior to being
voted, by written notice delivered to the Secretary. The Proxy
Statement and proxy were first mailed to shareholders about
March 18, 1998.
The Corporation had outstanding 14,312,499 shares of Common
Stock as of the close of business on March 6, 1998, the record date
for the Annual Meeting as set by the Board of Directors. Each
shareholder is entitled to one vote in person or by proxy for each
share of Common Stock owned on the record date. There are no other
voting securities. If the enclosed proxy is signed and returned,
the shares represented will be voted in the manner indicated except
that if any nominee for director is unable to serve at the time of
the Annual Meeting, the proxy will be voted in accordance with the
judgment on such matters of the persons acting as proxy.
Proxy solicitation will be principally by mail, but proxies
may also be solicited in person or by telephone. The expense of
this solicitation will be paid by the Corporation. Brokers and
certain other holders for beneficial owners will be reimbursed for
out-of-pocket expenses incurred in the solicitation of proxies from
the beneficial owners of shares held in their names. The
Corporation has retained Georgeson & Co., Inc. to assist in the
solicitation of proxies at an estimated cost of $5,000, plus
reasonable out-of-pocket expenses.
The Board of Directors is not aware of any business to be
acted upon at the Annual Meeting other than for which notice is
given, but in the event other business is properly presented at the
meeting, requiring a vote of the shareholders, the proxy will be
voted in accordance with the judgment on such matters of the
persons acting as proxy.
Shareholders are requested to exercise their right to vote by
completing and signing the enclosed proxy and returning it promptly
in the enclosed envelope. Unless otherwise specified by the
shareholder, all shares represented by valid proxies will be voted
in favor of the election of all director-nominees.
Securities Beneficially Owned by Principal Shareholders 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 6, 1998. 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.
Amount and Nature of
Beneficial Ownership On Percent
Beneficial Owner March 6, 1998(1) of Class
Gabelli Funds, Inc., 2,249,422(2) 15.72
GAMCO Investors, Inc.,
and Gemini Capital Management Ltd.
One Corporate Center
Rye, NY 10580
Andrew Lozyniak 800,342(3) 5.59
Joseph P. Walker 684,484(4) 4.78
Gerald H. Frieling, Jr. 600,450(5) 4.20
Lawrence J. Ciancia 598,950(5) 4.18
Robert A. Profusek 597,450(5) 4.17
Jeannine M. Davis 183,173(6) 1.28
Patrick J. Dorme 88,109(7) *
Stanley J. Aris 37,366(8) *
Donald R. Schroeder 36,325(9) *
James N. Hufford 18,976(10) *
14 directors and officers 2,541,872(5,11) 17.76
as a group
___________________________
*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 525,000 shares held by Gabelli Funds, Inc., 1,665,422
shares held by GAMCO Investors, Inc., and 7,500 shares held by
Gemini Capital Management Ltd. which were reported on a joint
Schedule 13D Amendment filed February 12, 1998, 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 51,500 of the reported shares, and
except that Gabelli Funds, Inc. has sole dispositive and voting
power with respect to the 525,000 reported 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 CTS and, in
that event, the Proxy Voting Committee of each of the Funds will
respectively vote the Fund's 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
shares held by such Fund under special circumstances such as
regulatory considerations, and except that the power of Mr. Gabelli
and Gabelli Funds, Inc. is indirect with respect to Securities
beneficially owned directly by other Reporting Persons.
(3) Includes 1,884 shares attributed to Andrew Lozyniak's account in
the Dynamics Corporation of America Employee Savings and Investment
Plan as of December 31, 1997, the date of the most recent statement
of his account in the Plan. The number of shares attributed to Mr.
Lozyniak's account may not reflect shares that have accrued to his
account since the date of this statement. Also includes 300,000
shares subject to options all of which are currently exercisable.
Also includes 39,864 shares owned by Mr. Lozyniak's spouse,
beneficial ownership of which Mr. Lozyniak disclaims.
(4) Includes 12,165 shares attributed to Joseph P. Walker's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1997, 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 600,000 shares subject to
options all of which are currently exercisable. Also includes
2,250 shares owned by Mr. Walker's spouse, beneficial ownership of
which Mr. Walker disclaims.
(5) 597,450 of the shares shown as owned beneficially by each of Mr.
Ciancia, Mr. Frieling, Mr. Profusek and 14 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, Gerald H. Frieling,
Jr. and Robert A. Profusek, who were appointed by the Board of
Directors of CTS Corporation.
(6) Includes 1,013 shares attributable to Jeannine M. Davis' account
in the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1997, the most recent annual report of the Plan. The
number of shares attributed to Ms. Davis' account may not reflect
shares that have accrued to her account since the filing of the
Plan's last annual report. Also includes 154,800 shares subject to
options all of which are currently exercisable.
(7) Includes 2,229 shares attributed to Patrick J. Dorme's account in
the Dynamics Corporation of America Employee Savings and Investment
Plan, as of December 31, 1997, the date of the most recent
statement of his account in the Plan. The number of shares
attributed to Mr. Dorme's account may not reflect shares that have
accrued to his account since the date of the statement. Also
includes 37,520 shares owned by Mr. Dorme's spouse, beneficial
ownership of which Mr. Dorme disclaims.
(8) Includes 952 shares attributed to Stanley J. Aris' account in the
CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1997, 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 4,867 shares subject to
options all of which are currently exercisable.
(9) Includes 19,235 shares attributed to Donald R. Schroeder's account
in the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1997, 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 11,100 shares subject
to options all of which are currently exercisable.
(10) Includes 3,076 shares attributed to James N. Hufford's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1997, 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 11,700 shares subject
to options all of which are currently exercisable. Also includes
1,200 shares held in a trust for his spouse, of which he disclaims
beneficial ownership.
(11) Includes 1,137,967 shares subject to options all of which are
currently exercisable.
Election of Directors
At the Annual Meeting, six directors are to be elected for
terms of one year. Each director will hold office until the next
Annual Meeting of Shareholders and until his successor has been
elected and qualified. Each person listed below has been nominated
by the Board of Directors and has agreed to serve as a director, if
elected.
Year First
Elected
Director
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 Nominating and
Compensation Committees of CTS Corporation. During
the past five years, Mr. Frieling, age 67, 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, President and Chief
Executive Officer of Dynamics Corporation of
America, a wholly-owned subsidiary of CTS
Corporation; Member of the Nominating Committee of
CTS Corporation. During the past five years, Mr.
Lozyniak, age 66, has served in his present
capacities at Dynamics Corporation of America. Mr.
Lozyniak's employment agreement provides that if he
and Mr. Dorme are not nominated for re-election to
the CTS Board of Directors throughout the term of
his agreement, then he may terminate his employment
and receive benefits thereunder, all as described
herein under the caption Certain Relationships and
Related Transactions.
JOSEPH P. WALKER 1987
Chairman of the Board, President and Chief
Executive Officer of CTS Corporation; Member of the
Nominating Committee of CTS Corporation. During
the past five years, Mr. Walker, age 59, 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 Committee and Chairman of the
Compensation Committee of CTS Corporation. During
the past five years, Mr. Ciancia, age 55, 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 wholly-owned
subsidiary of CTS Corporation. During the past
five years, Mr. Dorme, age 62, has served in his
present capacities at Dynamics Corporation of
America. Mr. Dorme's employment agreement
provides that if he and Mr. Lozyniak are not
nominated for re-election to the CTS Board of
Directors throughout the term of his agreement,
then he may terminate his employment and receive
benefits thereunder, all as described herein under
the caption Certain Relationships and Related
Transactions.
ROBERT A. PROFUSEK 1998
Partner and Head of the Merger Department of the
law firm of Jones, Day, Reavis & Pogue, New York
City, Member of the Audit and Compensation
Committees of CTS Corporation. During the past
five years, Mr. Profusek, age 48, has served in his
present capacity at Jones, Day, Reavis & Pogue.
The affirmative vote of the holders of a plurality of the shares
represented in person or by proxy at the meeting is required to
elect the director-nominees. The Board of Directors unanimously
recommends that the shareholders vote in favor of each of the
director-nominees named above.
In the event that any of such nominees are unable or unwilling to
serve as a director, an event which the Corporation does not
anticipate, the proxies hereby solicited will be voted for the
remaining nominees named above or for such substitute person or
persons as the Board of Directors may select.
Certain Relationships and Related Transactions
Mr. Profusek is a Partner and Head of the Merger Department of
the law firm of Jones, Day, Reavis & Pogue, a law firm which CTS
Corporation has retained for specific legal services and
litigation, on a case by case basis, from time to time, for over
five years.
CTS Corporation purchased directly from Mr. Dorme on
February 3, 1998 25,000 shares of CTS Corporation common stock,
15,000 shares of which were purchased from Mr. Dorme and 10,000
shares of which were purchased from Mr. Dorme's spouse, beneficial
ownership of which Mr. Dorme disclaims. The shares were purchased
for a price equal to the closing market price for CTS Common Stock
on February 3, 1998, which was $32.9375 per share.
Mr. Lozyniak has executed an employment agreement with the
Corporation, which provides that for a period of five years,
beginning October 16, 1997, Mr. Lozyniak will be employed by the
Corporation as Chairman of the Board, President and Chief Executive
Officer of Dynamics Corporation of America, a wholly-owned
subsidiary of the Corporation, and as a Member with Mr. Walker, of
the Office of the Chairman, at an initial annual salary of
$450,000. During the term of the agreement, if Mr. Lozyniak's
employment is terminated as a result of his death or disability,
for good reason (as defined) or by the Corporation without cause
(as defined), Mr. Lozyniak will receive severance benefits equal to
his then current base salary for the remainder of the term, and for
each full twelve-month period remaining in the term, the highest
annual aggregate cash and stock bonuses earned by him pursuant to
any annual bonus or incentive plan maintained by CTS or DCA in
respect of any of the five fiscal years of DCA or CTS ending
immediately prior to the fiscal year in which occurs the date of
termination. In addition, if Mr. Lozyniak's employment is
terminated by Mr. Lozyniak for good reason or by the Corporation
without cause, Mr. Lozyniak may instead elect to receive a lump sum
equal to 3-1/3 times the sum of his then current base salary and
$198,000, which is equal to the largest aggregate amount earned by
him as stock and cash bonuses for any of the five fiscal years
preceding the date of the employment agreement. Any payments to
Mr. Lozyniak are increased to compensate Mr. Lozyniak on an after-tax
basis for any excise tax payable by him pursuant to Section
280G of the Internal Revenue Code of 1986, as amended (the "Code").
Mr. Lozyniak's employment agreement also provides, among other
things, for his receipt of split-dollar life insurance coverage,
supplemental retirement benefits, together with eligibility to
participate in annual and long-term (including stock-based)
incentive programs, on the same basis as other senior executives of
the Corporation and participation in other benefit programs and
policies at the level provided at the commencement of the term of
the employment agreement and, for the ten year period following
retirement, post-retirement medical coverage.
Mr. Dorme has executed an employment agreement with the
Corporation, which provides that for a period of five years,
beginning October 16, 1997, Mr. Dorme will be employed by the
Corporation as Vice President and Chief Financial Officer of
Dynamics Corporation of America, a wholly-owned subsidiary of the
Corporation, at an initial annual salary of $169,944. During the
term of the agreement, if Mr. Dorme's employment is terminated as
a result of his death or disability, for good reason (as defined)
or by the Corporation without cause (as defined), Mr. Dorme will
receive severance benefits equal to his then current base salary
for the remainder of the term, and for each full twelve month
period remaining in the term, the highest annual aggregate cash and
stock bonuses earned by him pursuant to any annual bonus or
incentive plan maintained by CTS or DCA in respect of any of the
five fiscal years of DCA or CTS ending immediately prior to the
fiscal year in which occurs the date of termination. In addition,
if Mr. Dorme's employment is terminated by Mr. Dorme for good
reason or by the Corporation without cause, Mr. Dorme may instead
receive a lump sum equal to 3-1/3 times the sum of his then current
base salary and $139,500, which is equal to the largest aggregate
amount earned by him as stock and cash bonuses for any of the five
fiscal years preceding the date of the employment agreement. Any
payments to Mr. Dorme are increased to compensate Mr. Dorme on an
after-tax basis for any excise tax payable by him pursuant to
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"). Mr. Dorme's employment agreement also provides, among
other things, for his receipt of split-dollar life insurance
coverage, supplemental retirement benefits, together with
eligibility to participate in annual and long-term (including
stock-based) incentive programs, on the same basis as other senior
executives of the Corporation and participation in other benefit
programs and policies at the level provided at the commencement of
the term of the employment agreement and, for the ten year period
following retirement, post-retirement medical coverage.
On February 13, 1998, the Corporation received notice from
Stanley J. Aris of his intent to retire from employment with the
Corporation on July 31, 1998. As part of Mr. Aris' retirement
planning, Mr. Aris surrendered to the Corporation the option
granted to him in 1997 to purchase 150,000 shares of CTS Common
Stock, in exchange for deferred cash payments equal to the option
bargain element, based on the market price for CTS Common Stock on
February 13, 1998.
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 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, 1997, all Section 16(a) filing requirements
applicable to its Executive Officers, directors and greater than
ten percent beneficial owners were timely met.
Board of Directors and Standing Committees
During 1997, the Board of Directors held seventeen meetings.
The standing committees of the Board of Directors in 1997 included
an Audit Committee, an Executive Committee, a Compensation
Committee, and a Nominating Committee. The Executive Committee was
dissolved in October, 1997.
The Audit Committee, which prior to October 16, 1997 consisted
of Lawrence J. Ciancia, Patrick J. Dorme, Gerald H. Frieling, Jr.
and Andrew Lozyniak, held three meetings in 1997. The Audit
Committee currently consists of Lawrence J. Ciancia, Gerald H.
Frieling, Jr. and Robert A. Profusek. The Committee performs the
following principal functions: recommendation of the engagement or
discharge of the Corporation's independent accountants; review of
the audit plan and results of the auditing engagement with the
independent accountants; review of the adequacy of the
Corporation's internal accounting controls; and review of the
independence of the independent accountants and the audit fees of
the independent accountants.
The Executive Committee, which consisted in 1997 of Gerald H.
Frieling, Jr., Andrew Lozyniak and Joseph P. Walker, held four
meetings in 1997. The Committee reviewed and advised management on
financial and operational matters between meetings of the Board of
Directors.
The Compensation Committee, which prior to October 16, 1997
consisted of Lawrence J. Ciancia, Patrick J. Dorme, Gerald H.
Frieling, Jr. and Andrew Lozyniak, held four meetings in 1997. The
Compensation Committee currently consists of Lawrence J. Ciancia,
Gerald H. Frieling, Jr. and Robert A. Profusek. The Committee
performs the function of establishing officer compensation
arrangements and amounts. The Committee also administers the CTS
Corporation 1986 Stock Option Plan, the CTS Corporation 1996 Stock
Option Plan, the 1997 Stock Options, the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, and the CTS Corporation
Management Incentive Plan.
The Nominating Committee, consisting of Gerald H. Frieling,
Jr., Andrew Lozyniak and Joseph P. Walker, held one meeting in
1997. The Committee performs the function of nominating persons to
serve as members of the Board of Directors. There is currently no
formal procedure in place for the submission of nominations to the
Nominating Committee.
Each director-nominee attended a minimum of 97% of the
meetings of the Board of Directors and the committees to which he
was assigned during 1997.
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 1997
exceeded $100,000. Information which is not required to be
disclosed in the table is identified by the letters "N/R."
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER(2) AWARD(S)(3) OPTIONS COMPENSATION(4)
($) ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph P. Walker(5,6) 1997 441,977 386,700 N/R 0 600,000 7,006
Chairman of the 1996 342,167 205,300 N/R 0 0 6,007
Board, President and 1995 327,411 196,400 N/R 0 10,000 11,270
Chief Executive
Officer
Stanley J. Aris(6) 1997 181,340 142,800 N/R 0 150,000 3,600
Vice President 1996 174,309 104,600 N/R 0 0 3,375
Finance and Chief 1995 168,078 100,800 N/R 37,375 8,500 5,994
Financial Officer
Jeannine M. Davis(6) 1997 131,279 91,900 N/R 0 150,000 4,707
Vice President, 1996 121,179 72,700 N/R 0 0 4,005
General Counsel and 1995 115,421 69,300 N/R 37,375 6,300 4,064
Secretary
Donald R. Schroeder(6) 1997 130,594 91,400 N/R 0 0 4,766
Vice President, Sales 1996 126,692 76,000 N/R 0 0 4,464
and Marketing 1995 119,481 71,700 N/R 0 5,500 39,428
James N. Hufford(6) 1997 126,235 88,400 N/R 0 0 4,266
Vice President, 1996 122,464 73,500 N/R 0 0 3,978
Research Development 1995 115,126 69,100 N/R 37,375 5,750 4,520
and Engineering
</TABLE>
(1) Includes bonuses paid pursuant to the CTS Corporation Management
Incentive Plan, as described in the Report of the Compensation
Committee below.
(2) The 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 1997, Joseph P. Walker held 12,000
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, 1997 was $383,250. 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: 1997 - $92,500; 1996 - $75,000; and 1995 - $62,000.
At the end of fiscal year 1997, Stanley J. Aris held 4,800
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, 1997 was $153,300. 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: 1997 -
$38,075; 1996 - $26,925; and 1995 - $15,500.
At the end of fiscal year 1997, Jeannine M. Davis held 1,800
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, 1997 was $57,488. For Jeannine M. Davis, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock
and Cash Bonus Plan for the three identified years were: 1997 -
$32,150; 1996 - $23,325; and 1995 - $12,100.
At the end of fiscal year 1997, Donald R. Schroeder held 1,200
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, 1997 was $38,325. 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: 1997 -
$11,200; 1996 - $8,175; and 1995 - $7,425.
At the end of fiscal year 1997, James N. Hufford held 1,800
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, 1997 was $57,488. 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: 1997 -
$14,950; 1996 - $8,175; and 1995 - $0.
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, 1997 -
$3,600; 1996 - $3,375; and 1995 - $3,465; for Stanley J. Aris, 1997
- - $3,600; 1996 - $3,375; and 1995 - $3,465; for Jeannine M. Davis,
1997 - $3,600; 1996 - $3,375; and 1995 - $3,465; for Donald R.
Schroeder, 1997 - $3,600; 1996 - $3,375; and 1995 - $2,592; and for
James N. Hufford, 1997 - $3,600; 1996 - $3,375; and 1995 - $3,135;
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, 1997 - $0; 1996 - $0; and 1995 - $5,310; for Stanley J.
Aris, 1997 - $0; 1996 - $0; and 1995 - $2,529; for Jeannine M.
Davis, 1997 - $1,107; 1996 - $630; and 1995 - $599; for Donald R.
Schroeder, 1997 - $1,166; 1996 - $1,089; and 1995 - $929; and for
James N. Hufford, 1997 - $666; 1996 - $603; and 1995 - $1,386.
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 1997 - $3,406; for 1996 -
$2,632; and for 1995 - $2,495. 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 five years,
beginning May 9, 1997, Mr. Walker will be employed by the
Corporation as Chairman of the Board, President and Chief Executive
Officer at an initial annual salary of $500,000. During the term
of the agreement, if Mr. Walker's employment is terminated as a
result of his death or disability, for good reason (as defined) or
by the Corporation without cause (as defined), Mr. Walker will
receive severance benefits equal to his then current annual 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 the Corporation without cause,
Mr. Walker may instead receive a lump sum equal to 3-1/3 times the
sum of his then current annual salary and the largest cash and
stock bonus that he received during the five fiscal years preceding
the date of the employment agreement. Any payments to Mr. Walker
upon a change in control are increased to compensate Mr. Walker for
any excise tax payable by him pursuant to Section 280G of the
Internal Revenue Code of 1986, as amended (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.
The named Executive Officers of the Corporation, as well as all
officers and six other key employees, have executed severance
agreements with the Corporation, which 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 the Corporation (as
defined). Severance benefits are provided if, upon a change in
control, the Corporation 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 the Corporation's
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 $50,000 or 10%
of the total base salary and incentive compensation. In addition,
if any payments made to the executive are subject to the excise tax
under Section 280G of the Code, the Corporation will make an
additional payment in an amount to put the executive in the same
after-tax position as if no excise tax had been imposed provided
that, if certain thresholds are not met, payments will be reduced
so that no excise tax applies.
(6) The Corporation has entered into Indemnification Agreements with
each of the named Executive Officers, all other Executive Officers
of the Corporation and the directors of the Corporation, which
provide that the Corporation agrees to indemnify the officer, to
the fullest extent allowed by the bylaws of the Corporation and the
Indiana Business Corporation Law, in the event that he/she was or
is made a party or threatened to be made a party to any action,
suit or proceeding by reason of the fact that he/she is an officer
of the Corporation. The indemnification agreements provide
indemnification for acts occurring prior to the execution of the
agreements.
Stock Options
Shown below is information on grants of options for CTS
Corporation Common Stock awarded to the named Executive Officers in
1997.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1997
INDIVIDUAL GRANTS(1)
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
For Option Term(2)
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted(3) in 1997 ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Joseph P. Walker 600,000 50% $20.83 5-8-2007 7,860,240 19,918,980
Stanley J. Aris 150,000 12.5% $20.83 5-8-2007 1,965,060 4,979,745
Jeannine M. Davis 150,000 12.5% $20.83 5-8-2007 1,965,060 4,979,745
Donald R. Schroeder 0 0% N/A N/A N/A N/A
James N. Hufford 0 0% N/A N/A N/A N/A
</TABLE>
(1) These options were granted to the named Executive Officers on
May 9, 1997 and were approved by the shareholders of the
Corporation on October 16, 1997. Mr. Lozyniak was also granted a
similar option for 300,000 shares.
(2) Potential realizable value is determined by assuming an initial
value of $20.83 per share, the market closing price for CTS
Corporation Common Stock on the date of grant after taking into
account the post-grant 3:1 stock split, and applying the stated
annual appreciation rate compounded annually for the remaining term
of the option (ten years), subtracting the exercise price and
multiplying the remaining number by the number of shares subject to
options granted. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock and
overall stock market conditions.
(3) All options became exercisable on October 16, 1997.
<TABLE>
<CAPTION>
OPTION EXERCISES IN 1997
AND FISCAL YEAR END 1997 OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Fiscal Year-End Fiscal Year-End
Shares Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Joseph P. Walker 0 0 615,000/15,000 $6,956,663/$292,163
Stanley J. Aris 8,955 $478,140 154,867/14,100 $1,760,922/$282,211
Jeannine M. Davis 4,600 $342,700 154,800/12,300 $1,759,617/$252,203
Donald R. Schroeder 0 0 11,100/8,400 $227,567/$164,874
James N. Hufford 0 0 11,700/8,550 $239,254/$167,796
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors,
comprised of Lawrence J. Ciancia, Gerald H. Frieling, Jr., and
Robert A. Profusek, 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.
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 1997, 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, Mr. Walker is
eligible for a bonus in an amount equal to 50% of his base salary
for the subject year; Mr. Aris is eligible for a bonus in an amount
equal to 45% of his base salary for the subject year, and each of
the other 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 87.5%
of the annual salary of the Plan participants.
For 1997, the Corporation achieved 175% of its ROA target
under the 1997 CTS Corporation Management Incentive Plan.
Accordingly, the named Executive Officers received formula bonuses
under the Plan equal to between 70% and 87.5% of their base
salaries.
For 1996 and 1995, the Corporation achieved 150% of its ROA
target under the respective CTS Corporation Management Incentive
Bonus Plans. Accordingly, the named Executive Officers received
formula bonuses under the Plans 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 and 1997 Stock Options
The Compensation Committee administers the CTS Corporation
1996 Stock Option Plan, predecessor stock option plans and the 1997
Stock Options identified in the Option Grants Table, 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. The 1986 and 1996 Stock Option Plans
have change of control provisions under which, upon a change of
control of the Corporation, all outstanding options accelerate and
accrue and become immediately exercisable.
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 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 1997. 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.
This Plan has a change of control provision under which, upon
a change of control of the Corporation, all restrictions on shares
awarded under the Plan lapse and cash bonuses will be paid on those
shares.
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
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, Gerald H. Frieling, Jr.,
and Robert A. Profusek
STOCK PERFORMANCE CHART
The following graph compares the cumulative total shareholder
return on the Corporation's Common Stock 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.
VALUE OF $100 INVESTED DECEMBER 1992
COMPARATIVE OF FIVE-YEAR TOTAL CUMULATIVE RETURN
December December December December December December
31, 1992 31, 1993 31, 1994 31, 1995 31, 1996 31, 1997
CTS CORP. 100 115.17 164.68 228.19 262.64 594.49
S&P 500 100 110.08 111.53 153.45 188.68 251.63
TECHNOLOGY 500 100 123.01 143.37 206.51 292.98 369.43
CTS Corporation Salaried Employees' Pension Plan
The CTS Corporation Salaried Employees' Pension Plan is a
retirement plan for exempt salaried employees of some CTS Corporation
divisions and subsidiaries. The benefit formula is calculated
as 1% of a participant's highest average monthly pay during any
three calendar years of a participant's last ten calendar years of
service, multiplied by a participant's credited service. The
credited service for the named Executive Officers as of
December 31, 1997, is as follows: Joseph P. Walker, 9.78 years,
Stanley J. Aris, 5.78 years, Jeannine M. Davis, 17.78 years,
Donald R. Schroeder, 25.44 years and James N. Hufford, 32.2 years.
Covered compensation for the named Executive Officers is essentially
equivalent to the amount reported in the Annual Compensation
Section of the Summary Compensation Table above under the Salary
and Bonus columns. No benefit under this plan is subject to Social
Security or other offsets.
The following table shows the annual benefits payable under
the plan to persons in specified compensation and credited service
classifications at normal retirement age of 65:
PENSION TABLE*
Years of Participation
Compensation 15 Years 20 Years 25 Years 30 Years 35 Years
$150,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
200,000 30,000 40,000 50,000 60,000 70,000
250,000 37,500 50,000 62,500 75,000 87,500
300,000 45,000 60,000 75,000 90,000 105,000
400,000 60,000 80,000 100,000 120,000 140,000
500,000 75,000 100,000 125,000 150,000 175,000
600,000 90,000 120,000 150,000 180,000 210,000
700,000 105,000 140,000 175,000 210,000 245,000
800,000 120,000 160,000 200,000 240,000 280,000
*The benefit limitation under the Internal Revenue Code of 1986, as
amended, for 1998 is $130,000. No more than $160,000 (as adjusted
from time to time for cost-of-living increases of $10,000 or more)
of cash compensation may be taken into account in calculating
benefits under this plan.
In order to maintain the level of total retirement benefits
which, but for the Internal Revenue Code limitation on compensation
which may be taken into account, would otherwise be payable under
this plan, two actions were taken in 1996. A supplemental benefit
was added to this plan, and a Nonqualified Excess Benefit
Retirement Plan was adopted. The named Executive Officers and other
officers and key managers whose regular plan benefits, as described
above, are negatively impacted by the Internal Revenue Code
compensation limitation, will be beneficiaries of these actions,
under which any benefits otherwise lost will be restored.
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
$15,000 per year for service on the Board of Directors, a meeting
fee of $1,500 for each meeting of the Board of Directors attended
in person, and $750 for each meeting of the Board of Directors
attended by telephone. In addition, each eligible member of the
Nominating Committee and each member of the Compensation Committee
is entitled to receive an annual retainer of $1,000, and each
member of the Audit Committee is entitled to receive an annual
retainer of $1,500, together with a meeting fee of $1,500 for
attending each committee meeting of which he is a member, except
that he is entitled to receive $750 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, except that on January 1 of each year starting in 1998, a
deferred stock account in the name of each nonemployee director is
credited with 300 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 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
and on October 17, 1997, the Corporation credited to the deferred
stock account of each such director 1,000 Common Stock Units. 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. Three members of the Board of Directors are
currently eligible to participate in the Plan. The Corporation
expensed $205,100 in 1997 in respect of Common Stock Units credited
to the accounts of the eligible directors as a group pursuant to
the Plan.
Corporation's Independent Accountants
The Corporation's independent accountants are Price Waterhouse.
Representatives of the independent accountants will attend
the Annual Meeting, to be available to respond to appropriate
questions by shareholders and to have the opportunity to make
statements, if they so desire.
Shareholder Proposals
To be considered for inclusion in the 1999 proxy solicitation
material and proxy, shareholder proposals must be received by the
Corporation at its Corporate Offices no later than November 20,
1998.
1997 Annual Report on S.E.C. Form 10-K
Upon the written request of a CTS shareholder owning shares of
Common Stock on the record date, to Jeannine M. Davis, Secretary of
CTS Corporation, 905 West Boulevard North, Elkhart, Indiana 46514,
the Corporation will provide to such shareholder, without charge,
a copy of its 1997 Annual Report on S.E.C. Form 10-K, including the
financial statements and financial statement schedules.
Jeannine M. Davis
Secretary
Elkhart, Indiana
March 18, 1998
<TABLE>
<CAPTION>
CTS CORPORATION PROXY
905 West Boulevard North, Elkhart, Indiana 46514
This Proxy is Solicited on Behalf of
the Board of Directors
1998 Annual Meeting of Shareholders The undersigned, having received the
Notice of Annual Meeting of Shareholders
and the Proxy Statement hereby appoints
Joseph P. Walker and Jeannine M. Davis as
proxies, each with the power to appoint his
or her substitute, and 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 under-
signed on March 6, 1998, at the Annual
Meeting of Shareholders originally convened
on April 24, 1998 and at any adjournment
thereof.
<S> <C> <C>
1. ELECTION OF DIRECTORS FOR ALL nominees listed below WITHHOLD AUTHORITY
to vote for all nominees listed below
FOR SOME of the nominees listed
below (See INSTRUCTION)
L. J. Ciancia, P. J. Dorme, G. H. Frieling, Jr., A. Lozyniak, R. A. Profusek, J. P. Walker
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 election of all nominees.
2. 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.
</TABLE>
Signature______________________________
Signature______________________________
If Held Jointly
Dated______________________________,1998
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
