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 September 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from _____________ to _________________
Commission File Number
1-4639
CTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-0225010
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
905 West Boulevard North
Elkhart, IN 46514
(Address of principal executive offices) (Zip Code)
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 October 31, 2001: 28,876,968.
Page 1
CTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
PART 1. -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Earnings - For the Three Months and Nine Months
ended September 30 32001, and October 1, 2000 3
Condensed Consolidated Balance Sheets -
As of September 30 42001, and December 31, 2000 4
Condensed Consolidated Statements of Cash
Flows - For the Nine Months Ended
September 30, 2001, and Oct 5er 1, 2000 5
Consolidated Statements of Comprehensive
Earnings - For the Three Months and Nine Months
Ended September 30 62001, and October 1, 2000 6
Notes to Condensed Consolidated Financial
Statements 7-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13-21
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 21
PART 2. -- OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 5. Other Items 21-22
Item 6. Exhibits and reports on Form 8-K 22-23
SIGNATURES 23
Page 2
Part 1 -- FINANCIAL INFORMATION
Item 1. Financial Statements
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS-UNAUDITED
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, October 1, September 30, October 1,
2001 2000 2001 2000
---- ---- ---- ----
Net sales $ 131,153 $ 222,052 $ 451,864 $ 633,129
Costs and expenses:
Cost of goods sold 102,551 159,294 359,819 443,030
Selling, general and
administrative expenses 19,669 21,716 62,383 69,008
Research and development
expenses 8,118 8,237 25,386 24,059
Amortization of intangibles 1,701 1,513 5,071 3,803
Restructuring and impairment
charges--Note C - - 14,011 -
------- ------ ------ ------
Operating earnings (loss) (886) 31,292 (14,806) 93,229
------- ------ ------- ------
Other(expense)income:
Interest expense (2,673) (3,160) (9,272) (9,427)
Interest income 168 200 517 646
Other (462) 1,273 (927) 1,042
------- ----- ------ ------
Total other expense (2,967) (1,687) (9,682) (7,739)
------- ------ ------ ------
Earnings(loss) before income taxes (3,853) 29,605 (24,488) 85,490
Income tax expense (benefit) (963) 8,290 (6,122) 23,938
------- ------ ------ ------
Earnings (loss) from continuing
operations (2,890) 21,315 (18,366) 61,552
Net loss from discontinued
operations, net of income
tax benefit of $355--Note F - - - (529)
--------- --------- --------- --------
Net earnings (loss) $ (2,890) $ 21,315 $(18,366) $ 61,023
========= ========= ========= ========
Earnings (loss) per share--Note J
Basic:
Continuing operations $ (0.10) $ 0.77 $ (0.66) $ 2.22
Discontinued operations - - - (0.02)
--------- --------- -------- --------
Net earnings (loss) per share $ (0.10) $ 0.77 $ (0.66) $ 2.20
========= ========= ======== ========
Diluted:
Continuing operations $ (0.10) $ 0.76 $ (0.66) $ 2.15
Discontinued operations - - - (0.02)
--------- ---------- -------- --------
Net earnings (loss) per share $ (0.10) $ 0.76 $ (0.66) $ 2.13
========= ========== ======== ========
Cash dividends declared
per share $ 0.03 $ 0.03 $ 0.09 $ 0.09
======== ========== ======== ========
Average common shares
outstanding:
Basic 28,495 27,748 27,955 27,764
Diluted 28,495 28,140 27,955 28,639
See notes to condensed consolidated financial statements.
Page 3
Part 1 -- FINANCIAL INFORMATION (Cont'd)
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
September 30, December 31,
2001 2000*
---- -----
ASSETS (Unaudited)
------
Current Assets
Cash $ 7,849 20,564
Accounts receivable, less allowances
(2001--$1,727; 2000--$1,837) 90,992 145,920
Inventories--Note B 63,961 104,316
Other current assets 10,067 8,920
Deferred income taxes 25,902 25,976
------- -------
Total current assets 198,771 305,696
Property, Plant and Equipment, less accumulated
depreciation(2001--$212,741; 2000--$189,219) 222,070 224,861
Other Assets
Prepaid pension asset 97,192 84,301
Intangible assets 48,068 53,606
Assets held for sale--Note E 26,766 2,566
Other 2,947 1,899
------- -------
Total other assets 174,973 142,372
------- -------
$595,814 $672,929
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current maturities of long-term debt--Note G $ 13,750 10,000
Notes payable 5,281 7,397
Accounts payable 58,223 100,394
Accrued liabilities 49,176 85,100
------- -------
Total current liabilities 126,430 202,891
Long-term debt--Note G 188,250 178,000
Other long-term obligations 2,976 6,689
Deferred income taxes 32,553 34,612
Postretirement benefits 4,430 4,380
Shareholders' Equity
Preferred stock-authorized 25,000,000 shares
without par value; none issued - -
Common stock-authorized 75,000,000 shares
without par value; 48,520,308
issued at September 30, 2001, and 48,436,908
shares issued at December 31, 2000 216,019 198,877
Additional contributed capital 9,521 14,558
Retained earnings 304,928 325,850
Cumulative translation adjustment (1,755) (1,561)
------- -------
528,713 537,724
Less cost of common stock held in treasury
2001 - 19,644,340 shares; - 2000 -
20,655,721 shares (287,538) (291,367)
-------- --------
Total shareholders' equity 241,175 246,357
-------- --------
$595,814 $672,929
======== ========
*The balance sheet at December 31, 2000, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
Page 4
Part 1 -- FINANCIAL INFORMATION (Cont'd)
CTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
(In thousands of dollars)
Nine Months Ended
-----------------
September 30, October 1,
2001 2000
---- ----
Cash flows from operating activities:
Net earnings (loss) $ (18,366) $ 61,023
Depreciation and amortization 39,858 33,008
Deferred income taxes (2,746) -
Loss from discontinued operations - 529
Prepaid pension asset (11,091) (11,560)
Income tax benefit related to exercised
stock options 3,687 6,395
Restructuring and impairment charges 14,011 -
Changes in assets and liabilities:
Accounts receivable 54,928 (12,505)
Inventories 30,968 (12,690)
Other current assets (1,147) (11,038)
Accounts payable and accrued liabilities (72,152) 28,222
Other (956) (624)
------- -------
Total adjustments 55,360 19,737
------- -------
Net cash provided by continuing operations 36,994 80,760
Net cash provided by discontinued operations - 318
------- -------
Net cash provided by operating activities 36,994 81,078
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment including discontinued
operations 5,000 5,580
Payment for purchase of CTS Wireless - (11,200)
Capital expenditures (71,927) (83,412)
Other (2,754) (2,935)
------- -------
Net cash used in investing activities (69,681) (91,967)
Cash flows from financing activities:
Payments of long-term obligations (20,000) (12,750)
Proceeds from issuance of long term
obligations 34,000 23,000
Dividend payments (2,554) (2,504)
Purchases of treasury stock - (11,207)
Stock options exercised 10,615 7,286
Other (2,116) -
------- -------
Net cash provided by
financing activities 19,945 3,825
Effect of exchange rate changes on cash 27 (976)
------- -------
Net decrease in cash (12,715) (8,040)
Cash at beginning of year 20,564 24,219
------- -------
Cash at end of period $ 7,849 $ 16,179
======== ========
Supplemental cash flow information
Cash paid during the period for:
Interest $ 9,469 $ 8,811
Income taxes--net $ 11,596 $ 11,516
See notes to condensed consolidated financial statements.
Page 5
Part 1 -- FINANCIAL INFORMATION (Cont'd)
CTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - UNAUDITED
(In thousands of dollars)
Three Months Nine Months
Ended Ended
----- -----
September 30, October 1, September 30, October 1,
2001 2000 2001 2000
---- ---- ---- ----
Net earnings (loss) $(2,890) $21,315 $(18,366) $61,023
Other comprehensive earnings
(loss):
Other translation adjustments 916 (775) (194) (2,385)
------- ------- -------- -------
Comprehensive earnings (loss) $(1,974) $20,540 $(18,560) $58,638
======= ======= ======== =======
See notes to condensed consolidated financial statements.
Page 6
Part 1 -- FINANCIAL INFORMATION (Cont'd)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
September 30, 2001
NOTE A--BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements have been
prepared by CTS Corporation (CTS or the Company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. 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, 2000.
The accompanying unaudited consolidated interim financial statements reflect, in
the opinion of management, all adjustments (consisting of normal recurring
items) necessary for a fair statement, in all material respects, of the
financial position, results of operations and cash flows for the periods
presented. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that 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.
Certain reclassifications have been made for the periods presented in the
financial statements to conform to the 2001 presentation.
NOTE B--INVENTORIES
Inventories consist of the following:
(In thousands)
September 30, December 31,
2001 2000
---- ----
Finished goods $ 23,816 $ 29,756
Work-in-process 4,838 16,490
Raw materials 35,307 58,070
------- --------
$63,961 $104,316
======= ========
Page 7
Part 1 -- FINANCIAL INFORMATION (Cont'd)
NOTE C--RESTRUCTURING AND IMPAIRMENT CHARGES
During the second quarter of 2001, CTS recorded $14.0 million of restructuring
and impairment charges relating to a plan to realign its operations. The plan
was implemented during the second quarter of 2001. The plan was designed to
permit the Company to operate more efficiently in the current environment and at
the same time be well positioned when the economy improves. Major actions under
the restructuring plan include transferring equipment from the Chung-Li, Taiwan
facility to Tianjin, China, closing the Chung-Li facility in the fourth quarter
of 2001 and disposing of the Longtan, Taiwan building. The plan also covers
transferring production from Sandwich, Illinois and Carlisle, Pennsylvania
facilities in the second quarter of 2002 and discontinuing the manufacture of
intermediate frequency surface acoustical wave filters ("IF SAWs"). CTS
anticipates completing a substantial portion of these activities within fiscal
2001 and the remainder in the first half of 2002.
Approximately $8.4 million relates to facility consolidations, including plant
closures and product consolidations. Included in this amount is approximately
$6.4 million of severance benefits associated with the separation of
approximately 1,275 employees. Approximately 10% of the employees to be severed
are managerial employees and 90% are nonmanagement employees. As of September
30, 2001, approximately $2.2 million of severance benefits, relating to
approximately 575 employees, had been paid. Of the remaining $2.0 million of
facility consolidation charges, $0.7 million has been paid.
The following table displays the year-to-date activity and restructuring reserve
balances as of September 30, 2001:
Other
($ in millions) Workforce Facility
Reductions Consolidation Total
---------- ------------- -----
Original restructuring
charge $6.4 $2.0 $8.4
Items paid (2.2) (0.7) (2.9)
---- ---- ----
September 30, 2001
reserve balance $4.2 $1.3 $5.5
==== ==== ====
The plan also includes a $7.4 million asset impairment charge resulting
primarily from the second quarter decision to discontinue the manufacture of IF
SAWs (included in CTS' electronic components segment). In accordance with
Financial Accounting Standard ("FAS") #121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of," an impairment charge was necessary to
write these assets down to their estimated fair value of $1.0 million. SAWs
production was stopped, and the related assets were held for disposal at the end
of the second quarter of 2001. Amounts included in the Consolidated Statement of
Earnings relating to the manufacture of surface acoustical wave filters were
insignificant in 2001.
CTS also recognized a pension plan curtailment gain of approximately $1.8
million in the second quarter of 2001 resulting from plant closures under the
restructuring plan.
Also during the second and third quarters, CTS recorded in cost of sales, $5.4
million and $0.8 million, respectively, of one-time charges, consisting
primarily of inventory write downs and equipment relocation costs relating to
restructuring activities.
Page 8
Part 1 -- FINANCIAL INFORMATION (Cont'd)
NOTE D--ACQUISITION
In 1999, CTS acquired certain assets and liabilities of the Component Products
Division of Motorola, Inc., hereafter referred to as "CTS Wireless."
The acquisition was accounted for under the purchase method of accounting. As
part of the purchase agreement, CTS may be obligated to pay additional amounts
depending upon increased sales and profitability of CTS Wireless through 2003.
For 1999, the calculation resulted in an additional payment of $11.2 million,
and an estimated liability of $15 million for 2000. In September 2001, CTS
offset its estimated obligation owed to Motorola against amounts due from
Motorola.
The maximum remaining potential payment under the purchase agreement was $52.2
million at September 30, 2001.
NOTE E--ASSETS HELD FOR SALE
Assets held for sale at September 30, 2001 are comprised principally of
equipment and facilities to be disposed of pursuant to the restructuring
activities commenced in fiscal year 2001. These assets are recorded at amounts
not in excess of what management currently expects to receive upon sale;
however, the amounts the Company will ultimately realize are dependent on
numerous factors, some of which are beyond management's ability to control, and
could differ materially from the amounts currently recorded.
NOTE F--DISCONTINUED OPERATIONS
During 1998, CTS finalized a plan to sell all of the businesses obtained in the
acquisition of Dynamics Corporation of America ("DCA") not strategic to CTS'
electronic components or electronic assemblies core business segments. During
the first quarter of 2000, the disposition of DCA acquired businesses was
completed resulting in a net loss of $0.5 million.
NOTE G--LONG-TERM DEBT
Long-term debt (including the current portion) increased from $188 million at
December 31, 2000, to $202 million at September 30, 2001. Interest rates on
these borrowings fluctuate based upon LIBOR, with adjustments based on the ratio
of CTS' consolidated total indebtedness to consolidated earnings before
interest, taxes, depreciation and amortization. CTS pays a commitment fee that
varies based on performance under certain financial covenants applicable to the
undrawn portion of the revolving credit agreement. Currently, that fee is 0.25
percent per annum. The credit agreement and term loans require, among other
things, that CTS maintain a minimum net worth, a minimum fixed charge coverage
ratio and a maximum leverage ratio. CTS has a total of $254 million of committed
credit facilities which are unsecured.
NOTE H--BUSINESS SEGMENTS
FAS # 131, "Disclosures about Segments of an Enterprise and Related
Information," requires companies to provide certain information about
Page 9
Part 1 -- FINANCIAL INFORMATION (Cont'd)
NOTE H--BUSINESS SEGMENTS (Cont'd)
their operating segments. CTS has two reportable segments: electronic components
and electronic assemblies. Electronic components are products which perform the
basic level electronic function for a given product family for use in customer
assemblies. Electronic components consist principally of wireless components
used in cellular handsets, automotive sensors used in commercial or consumer
vehicles, frequency control devices such as crystals and clock oscillators,
loudspeakers, resistor networks, switches and potentiometers. Electronic
assemblies are assemblies of electronic or electronic and mechanical products
which, apart from the assembly, may themselves be marketed as separate
stand-alone products. Such an assembly represents a completed, higher- level
functional product to be used in customer end products or assemblies. These
products consist principally of integrated interconnect systems products
containing backpanel and connector assemblies used in the telecommunications
industry, RF (radio frequency) Integrated Modules used in cellular handsets,
hybrid microcircuits used in the healthcare market and pointing sticks/cursor
controls for notebook computers.
Management evaluates performance based upon operating earnings before interest
and income taxes. Summarized financial information concerning CTS' reportable
business segments is shown in the following table:
(In thousands)
Electronic Electronic
Components Assemblies Total
---------- ---------- -----
Third Quarter 2001
------------------
Net sales to external
customers $ 70,202 $ 60,951 $131,153
Operating earnings (loss) $ (2,467) $ 1,581 $ (886)
Total assets $485,200 $110,614 $595,814
Third Quarter 2000
------------------
Net sales to external
customers $127,759 $ 94,293 $222,052
Operating earnings $ 22,207 $ 9,085 $ 31,292
Total assets $472,516 $135,335 $607,851
First Nine Months 2001
----------------------
Net sales to external
customers $250,649 $201,215 $451,864
Operating earnings(loss) $(16,690) $ 1,884 $(14,806)
Total assets $485,420 $110,394 $595,814
First Nine Months 2000
----------------------
Net sales to external
customers $402,740 $230,389 $633,129
Operating earnings $ 73,348 $ 19,881 $ 93,229
Total assets $472,516 $135,335 $607,851
Page 10
Part 1 -- FINANCIAL INFORMATION (Cont'd)
NOTE H--BUSINESS SEGMENTS (Cont'd)
Reconciling information between reportable segments and CTS' consolidated totals
is shown in the following table:
(In thousands)
Three Months Nine Months
Ended Ended
----- -----
September 30, October 1, September 30, October 1,
2001 2000 2001 2000
---- ---- ---- ----
Operating Earnings (Loss)
Total operating earnings (loss)
for reportable segments $ (886) $31,292 $(14,806) $93,229
Interest expense (2,673) (3,160) (9,272) (9,427)
Other income (expense) (294) 1,473 (410) 1,688
------- ------- -------- -------
Earnings (loss) before income
taxes $(3,853) $29,605 $(24,488) $85,490
======= ======= ======== =======
NOTE I--CONTINGENCIES
Certain processes in the manufacture of CTS' current and past products create
hazardous waste by-products as currently defined by federal and state laws and
regulations. CTS 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. In addition to these non-CTS sites, CTS
has an ongoing practice of providing reserves for probable remediation
activities at certain of its manufacturing locations and for claims and
proceedings against CTS with respect to other environmental matters. In the
opinion of management, based upon presently available information relating to
all such matters, 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 CTS.
Certain claims are pending against CTS with respect to matters arising out of
the ordinary conduct of its business and contracts relating to sales of
property. 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 CTS' consolidated financial position or results of
operations.
NOTE J--EARNINGS PER SHARE
FAS #128, "Earnings per Share," requires companies to provide a reconciliation
of the numerator and denominator of the basic and diluted earnings per share
(EPS) computations. The calculation below provides net earnings, average common
shares outstanding and the resultant earnings per share for both basic and
diluted EPS for the third quarter and first nine months of 2000. Approximately
315,000, for the third quarter of 2001, and 684,000, for the first nine months
of 2001, of common stock equivalents were excluded from the computation of
Page 11
Part 1 -- FINANCIAL INFORMATION (Cont'd)
NOTE J--EARNINGS PER SHARE (Cont'd)
diluted earnings per share due to their anti-dilutive effect. At October 1,
2000, the other dilutive securities include approximately 261,000 shares of CTS
common stock to be issued to DCA shareholders who have not yet tendered their
stock certificates for exchange in the DCA acquisition.
(In thousands, except per share amounts)
Earnings Shares Earnings
(Numerator) (Denominator) Per Share
================================================================================
Third Quarter 2000:
Basic EPS $21,315 27,748 $0.77
================================================================================
Effect of Dilutive
Securities:
Stock options 134
Other 258
--------------------------------------------------------------------------------
Diluted EPS $21,315 28,140 $0.76
================================================================================
First Nine Months of 2000:
Basic EPS $61,023 27,764 $2.20
================================================================================
Effect of Dilutive
Securities:
Stock Options 614
Other 261
--------------------------------------------------------------------------------
Diluted EPS $61,023 28,639 $2.13
================================================================================
NOTE K--INCOME TAXES
In 2001, CTS lowered its overall effective tax rate to 25% from 28% in 2000. The
reduction in income tax expense for 2001 results from a higher percentage of
income in lower tax rate jurisdictions.
NOTE L--ACCOUNTING PRONOUNCEMENTS
In 2001, the FASB issued Statements No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets," which are effective for CTS on
January 1, 2002. FAS No. 141 requires business combinations initiated after June
30, 2001 be accounted for using the purchase method of accounting. It also
specifies the types of acquired intangible assets that are required to be
recognized and reported separately from goodwill. FAS No. 142 requires goodwill
and certain intangibles no longer be amortized, but instead be tested for
impairment at least annually. CTS does not have any material amounts of goodwill
and therefore, does not expect any significant impairment of goodwill upon
adoption. CTS is still reviewing the provisions of this new standard and
evaluating the impact of adopting the standard.
Page 12
Part 1 -- FINANCIAL INFORMATION (Cont'd)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Changes in Financial Condition: Comparison of September 30, 2001 to
December 31, 2000
The following table highlights changes in balance sheet dollar amounts and
ratios and other information related to liquidity and capital resources:
(Dollars in thousands)
----------------------
September 30, December 31, Increase
2001 2000 (Decrease)
---- ---- ----------
Cash $ 7,849 $ 20,564 $ (12,715)
Accounts receivable, net 90,992 145,920 (54,928)
Inventories, net 63,961 104,316 (40,355)
Current assets 198,771 305,696 (106,925)
Accounts payable 58,223 100,394 (42,171)
Accrued liabilities 49,176 85,100 (35,924)
Current liabilities 126,430 202,891 (76,461)
Working capital 72,341 102,805 (30,464)
Current ratio 1.6 1.5 0.1
Long-term debt $202,000 $188,000 $ 14,000
Shareholders' equity 241,177 246,357 (5,180)
Long-term debt as a
percent of shareholders'
equity 84% 76% 8% pts.
Long-term debt as a
percent of capitalization 46% 43% 3% pts.
From December 31, 2000 to September 30, 2001, CTS' working capital decreased
$30.5 million. This net decrease was principally the result of reductions in
accounts receivable and inventories offset partially by a decreases in accounts
payable and accrued liabilities. The decreases were the result of lower sales
and related production volumes in 2001 due to the weak global economic
conditions.
The percentage of long-term debt to shareholders' equity increased due to the
increase in debt primarily to fund capital expenditures and the decrease in
shareholders' equity primarily resulting from decreased earnings, partially
offset by the impact of exercised stock options.
Capital expenditures were $71.9 million during the first nine months of 2001,
compared with $83.4 million for first nine months of 2000. The 2001 capital
expenditures are primarily for new products and technologies and building
projects in Asia.
Page 13
Part 1 -- FINANCIAL INFORMATION (Cont'd)
Changes in Financial Condition: Comparison of September 30, 2001 to
December 31, 2000 - Continued
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 2001, cash flows provided by operating activities
were $37.0 million, compared to $81.1 million in the first nine months of 2000.
The most significant reasons for the decrease in operating cash flow during 2001
were lower net earnings partially offset by net favorable changes in working
capital.
Cash flows used for investing activities totaled $69.7 million through the first
nine months of 2001. This use of cash was primarily for $71.9 million of capital
expenditures partially offset by $5.0 million of proceeds from the
sale/leaseback of property. In the first nine months of 2000, cash flows used
for investing activities totaled $92.0 million. This use of cash was primarily
for $83.4 million of capital expenditures and $11.2 million paid to Motorola,
Inc. related to the financial performance of CTS Wireless for the year ended
December 31, 1999 (Note D). This use of cash was partially offset by $5.6
million of net proceeds received from the sale of property, including
discontinued operations.
Cash flows provided by financing activities were $19.9 million in the first nine
months of 2001, consisting primarily of a net increase in debt of $14.0 million
and $10.6 million related to the exercise of stock options. These amounts were
partially offset by dividend payments of $2.6 million and other financing
activities related primarily to repayment of borrowings under short-term notes
payable. In the first nine months of 2000, cash flows provided by financing
activities were $3.8 million, consisting primarily of a net increase in debt of
$10.3 million, $7.3 million of proceeds from the exercise of stock options,
partially offset by $11.2 million of purchases of CTS stock and $2.5 million of
dividend payments.
CTS' capital expenditures for 2001 are presently expected to be approximately
$83 million, $71.9 million of which has been spent during the first nine months
of the year. These capital expenditures are primarily for new products and
technologies and building projects in Asia. In the CTS traditional product
lines, expenditures are required in the automotive and resistor product lines
for new product introduction and new technology. Projected capital expenditures
in 2001 for CTS Wireless projects include programs for the necessary equipment
to enable the reduction of product size and improve product performance as a
result of customer demands in the wireless handset industry. Expenditures for
new Asian facilities for CTS Wireless continue and totaled $32.3 million during
the first nine months of 2001.
During the second quarter of 2001, CTS implemented actions to restructure its
business in response to current market conditions. Major actions under the
restructuring plan include transferring equipment from the Chung-Li, Taiwan
facility to Tianjin, China, closing the Chung-Li facility in the fourth quarter
of 2001 and disposing of the Longtan, Taiwan building. The plan also covers
transferring production from the Sandwich, Illinois and Carlisle, Pennsylvania
facilities in the second quarter of 2002. Restructuring and related one-time
charges, including $2.1 million of severance recorded in the first quarter of
2001, are expected to aggregate $27 million, a substantial portion of which will
be incurred during 2001 and the remainder in the first half of 2002.
CTS has historically been able to fund its capital and operating needs through
its cash flows from operations and available credit under its bank credit
Page 14
Part 1 -- FINANCIAL INFORMATION (Cont'd)
Changes in Financial Condition: Comparison of September 30, 2001 to
December 31, 2000 - Continued
facilities. CTS currently has unsecured bank credit facilities totaling $254
million which mature over five years. The Company believes its current cash flow
and its ability to obtain additional cash, either through the issuance of
additional shares of common stock or other securities and utilization of bank
credit facilities, will be adequate to fund its working capital, restructuring
activities, capital expenditures and debt service requirements. However, as
discussed in Part 2, Item 5, "Other Information," many analysts have identified
recessionary trends worldwide and are predicting a continued downturn in the
U.S. economy in the aftermath of the terrorist attacks on the World Trade Center
and the Pentagon in September 2001. The global economic downturn is reflected in
slowing demand in the CTS-served automotive, communication and computer markets.
These served markets for our electronic components and assemblies have softened
and may continue to soften. As a result, CTS revenue and earnings have been
negatively affected and this softening demand may create pricing pressures which
could further affect revenue and earnings.
As a result of declining revenue and earnings, it is likely that we will be
unable to comply with the covenants in our existing credit facilities in the
fourth quarter of 2001, and that we will negotiate with our bank group to amend
the credit facilities. Those amendments may result in higher interest rates and
bank fees and the possible securitization of some of our assets. Renegotiation
will also make business growth through acquisition less likely in the next few
quarters.
In the event that the Company is unable to renegotiate the terms of its existing
credit facility on acceptable conditions, the Company will be required to seek
alternative sources of financing including, but not limited to, the negotiation
of a credit facility with a new bank group or the issuance of additional shares
of common/preferred stock or debt instruments in public or private transactions.
Page 15
Part 1 -- FINANCIAL INFORMATION (Cont'd)
Changes in Results of Operations: Comparison of Third Quarter 2001 to
Third Quarter 2000
The following table highlights changes in significant components of the
consolidated statements of earnings for the three-month periods ended September
30, 2001, and October 1, 2000.
(Dollars in thousands)
----------------------
September 30, October 1, Increase
2001 2000 (Decrease)
---- ---- ----------
Net sales $ 131,153 $222,052 $ (90,899)
Gross earnings 28,602 62,758 (34,156)
Gross earnings as a percent
of sales 21.8% 28.3% (6.5)% pts.
Selling, general and
administrative expenses 21,370 23,229 (1,859)
Selling, general and
administrative expenses as
a percent of sales 16.3% 10.5% 5.8 % pts.
Research and development
expenses 8,118 8,237 (119)
Operating earnings (loss) (886) 31,292 (32,178)
Operating earnings (loss)
as a percent of sales (0.7)% 14.1% (14.8)% pts.
Interest expense 2,673 3,160 (487)
Earnings (loss) from
continuing operations
before income taxes (3,853) 29,605 (33,458)
Income tax expense (benefit) (963) 8,290 (9,253)
Income tax rate 25.0% 28.0% (3.0)% pts.
Net earnings (loss) $ (2,890) $ 21,315 $(24,205)
Net sales decreased by $90.9 million, or 41% from the third quarter of 2000.
Sales decreases occurred in the electronic components and electronic assemblies
segments by $57.6 million and $33.3 million, respectively. The decreases are the
result of the weak global economic conditions and related effect on the primary
markets served by CTS' two business segments.
As a percentage of total sales, sales of electronic components and electronic
assemblies in the third quarter of 2001 were 54% and 46%, respectively. As a
percentage of total sales, the 2000 third quarter sales of electronic components
and electronic assemblies were 58% and 42%, respectively. Refer to Note H -
Business Segments, for a description of the Company's business segments.
The electronic components segment experienced a $57.6 million sales decrease, or
45% from the third quarter of 2000, primarily due to softness in the demand for
handset and communication infrastructure components.
Page 16
Part 1 -- FINANCIAL INFORMATION (Cont'd)
Changes in Results of Operations: Comparison of Third Quarter 2001 to
Third Quarter 2000
The electronic assemblies segment experienced a third quarter 2001 sales
decrease of $33.3 million, or 35% from the third quarter of 2000. The revenue
decrease was primarily a result of reduced demand for integrated interconnect
systems used in mass data storage systems for the computer equipment market.
Gross earnings dollars decreased primarily due to lower sales volume. The lower
percent of sales in both segments results principally from under absorbed
overheads caused by lower production levels. Also included in the third quarter
of 2001 is $0.8 million of one-time charges consisting primarily of equipment
relocation costs relating to the 2001 restructuring activities. Gross earnings
in the third quarter of 2001 include approximately $2.5 million to $3.0 million
related to the previous quarters of customer reimbursement obligations for
expenses associated with reduced production volumes.
Selling, general and administrative expenses were $21.4 million in third quarter
of 2001 versus $23.2 million in the prior year's quarter. The decrease relates
to overall expense control and lower sales volume.
Research and development expenses decreased $0.1 million to $8.1 million in
third quarter of 2001.
The operating loss for the third quarter of 2001 is largely due to under
absorbed overheads caused by lower production levels and $0.8 million of
one-time charges incurred during the quarter. This was partially offset by
selling and general and administrative expenses, which were $1.9 million lower
in the third quarter of 2001 as compared to the third quarter of 2000.
During the second quarter of 2001, CTS recorded $14.0 million of restructuring
and impairment charges relating to a plan to realign its operations. This plan
was implemented during the second quarter of 2001. The plan was designed to
permit the Company to operate more efficiently in the current environment and at
the same time be well positioned when the economy improves. Major actions under
the restructuring plan include transferring equipment from the Chung-Li, Taiwan
facility to Tianjin, China, closing the Chung-Li facility in the fourth quarter
of 2001 and disposition of the Longtan, Taiwan facility. This plan also covers
transferring production from Sandwich, Illinois and Carlisle, Pennsylvania
facilities in the second quarter of 2002 and discontinuing the manufacture of
intermediate frequency surface acoustical wave filters ("IF SAWs"). CTS
anticipates completing a substantial portion of these activities within fiscal
2001 and the remainder in the first half of 2002.
Approximately $8.4 million relates to facility consolidations, including plant
closures and product consolidations. Included in this amount is approximately
$6.4 million of severance benefits associated with the separation of
approximately 1,275 employees. Approximately 10% of the employees to be
Page 17
Part 1 -- FINANCIAL INFORMATION (Cont'd)
Changes in Results of Operations: Comparison of Third Quarter 2001 to
Third Quarter 2000
severed are managerial employees and 90% are nonmanagement employees. As of
September 30, 2001, approximately $2.2 million of severance benefits, relating
to approximately 575 employees, had been paid. Of the remaining $2.0 million of
facility consolidation charges, $0.7 million has been paid.
The plan also includes a $7.4 million asset impairment charge resulting
primarily from the second quarter decision to discontinue the manufacture of IF
SAWs (included in CTS' electronic components segment). In accordance with
Financial Accounting Standard ("FAS") #121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of," an impairment charge was necessary to
write these assets down to their estimated fair value of $1.0 million. SAWs
production was stopped, and the related assets were held for disposal at the end
of the second quarter of 2001. Amounts included in the Consolidated Statement of
Earnings relating to the manufacture of IF SAW filters were insignificant in
2001.
CTS also recognized a pension plan curtailment gain of approximately $1.8
million in the second quarter of 2001, resulting from plant closures under the
restructuring plan.
When completed, the manufacturing consolidations including those initiated in
the first quarter, are expected to generate approximately $25 million annually
in improved profitability when the plan is complete.
The effective tax rate decreased to 25.0% from the previous rate of 28%
primarily due to a shift in earnings to lower-tax jurisdictions.
Page 18
Part 1 -- FINANCIAL INFORMATION (Cont'd)
Changes in Results of Operations: Comparison of the First Nine Months of
2001 to the First Nine Months of 2000
The following table highlights changes in significant components of the
consolidated statements of earnings for the nine-month periods ended September
30, 2001, and October 1, 2000.
(Dollars in thousands)
----------------------
September 30, October 1, Increase
2001 2000 (Decrease)
---- ---- ----------
Net sales $451,864 $633,129 $(181,265)
Gross earnings 92,045 190,099 (98,054)
Gross earnings as a percent
of sales 20.4% 30.0% (9.6) pts.
Selling, general and
administrative expenses 67,454 72,811 (5,357)
Selling, general and
administrative expenses as
a percent of sales 14.9% 11.5% 3.4% pts.
Research and development
expenses 25,386 24,059 1,327
Restructuring and impairment
charges 14,011 - 14,011
Operating earnings (loss) (14,806) 93,229 (108,035)
Operating earnings (loss)
as a percent of sales (3.3)% 14.7% (18.0)% pts.
Interest expense 9,272 9,427 (155)
Earnings (loss) from
continuing operations
before income taxes (24,488) 85,490 (109,978)
Income tax expense (benefit) (6,122) 23,938 (30,060)
Income tax rate 25.0% 28.0% (3.0)% pts.
Net loss from discontinued
operations, net of income tax
benefit of $355 - (529) 529
Net earnings (loss) $ (18,366) $ 61,023 $ (79,389)
Net sales decreased by $181.3 million, or 29% from the first nine months of
2000. Sales decreases were $152.1 million in the electronic component segments
and $29.2 million in the electronic assemblies segment. The decrease was due to
weak global economic conditions and related effect in the primary markets served
by CTS' two business segments.
Page 19
Part 1 -- FINANCIAL INFORMATION (Cont'd)
Changes in Results of Operations: Comparison of the First Nine Months of
2001 to the First Nine Months of 2000
As a percentage of total sales, sales of electronic components and electronic
assemblies in the first nine months of 2001 were 55% and 45%, respectively. In
the first nine months of 2000, as a percentage of total sales, sales of
electronic components and electronic assemblies were 64% and 36%, respectively.
Refer to Note H - Business Segments, for a description of the Company's business
segments.
The decrease in the electronic components segment was primarily due to softness
in the demand for wireless products used in handsets.
The decrease in the electronic assemblies segment was experienced primarily as a
decline in the sales of RF integrated modules used in wireless handsets.
Gross earnings dollars decreased primarily due to lower sales levels. The lower
percent of sales in both segments results principally from under absorbed
overheads caused by lower production levels, combined with a shift to lower
margin products in the electronic assemblies segment. Also included in the first
nine months of 2001 is $6.2 million of one- time charges consisting primarily of
inventory write downs and equipment relocation costs relating to the 2001
restructuring plan and $2.1 million of severance recorded in the first quarter.
Selling, general and administrative expenses decreased due to overall expense
control and lower sales volume.
Research and development expenses increased as a result of activities related to
our wireless product lines that will support new product applications for
multi-functional cellular phones, PDA's, two-way radios and global positioning
systems (GPS). These and other programs are directed to improve product
performance and to achieve miniaturization through advanced technology and
integration, and new product development in other product lines, most notably
automotive and resistor.
During the first nine months of 2001, CTS recorded $14 million of restructuring
and impairment charges relating to a plan to realign its operations.
The decrease in operating earnings dollars was primarily due to lower volumes as
a result of the overall softness in the served markets, particularly the
wireless handset demand within both the electronic components and electronic
assemblies segments. Also, operating earnings were lower due to the $14 million
restructuring and impairment charges and $8.3 million related one-time charges
recorded during the first nine months of 2001.
The effective tax rate decreased to 25.0% from the previous rate of 28.0%
primarily due to a shift in earnings to lower-tax jurisdictions.
The accounting for discontinued operations was finalized following the
completion of sale of the discontinued operations in the first quarter of 2000,
resulting in a $0.02 unfavorable impact on earnings per share.
Page 20
Part 1 -- FINANCIAL INFORMATION (Cont'd)
Changes in Results of Operations: Comparison of First Nine Months of
2001 to First Nine Months of 2000
Statements about the Company's earnings outlook and its plans, estimates and
beliefs concerning the future are forward-looking statements, within the meaning
of the Private Securities Litigation Reform Act of 1995, based on the Company's
current expectations. Actual results may differ materially from those stated in
the forward-looking statements due to a variety of factors which could affect
the Company's operating results, liquidity and financial condition. We undertake
no obligations to publicly update or revise any forward-looking statements.
Factors that could impact future results include among others: the impact of the
September 11 terrorist attack, the U.S. response to the attack, and the general
slowdown in the overall economy; the Company's successful execution of its
restructuring, consolidation and cost reduction plans; pricing pressures and
demand for the Company's products, especially if economic conditions worsen or
do not recover in the key markets for the Company's products; and risks
associated with our international operations, including trade and tariff
barriers, exchange rates and political risks. Investors are encouraged to
examine the Company's SEC filings, which more fully describe the risks and
uncertainties associated with the Company's business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in CTS' market risk since December 31, 2000.
Part 2 -- 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. See
also Note I--"Contingencies" in the financial statements.
Item 5. Other Information
Listed below are the material changes in the risks related to CTS' business
since December 31, 2000:
WE FACE RISKS RESULTING FROM THE GLOBAL ECONOMIC SLOWDOWN WHICH AFFECT OUR
CREDIT FACILITY OBLIGATIONS.
Many analysts have identified recessionary trends worldwide are
predicting a continued downturn in the U.S. economy in the aftermath of
Page 21
Part 2 -- OTHER INFORMATION (Cont'd
Item 5. Other Information (Cont'd)
the terrorist attacks on the World Trade Center and the Pentagon in September
2001. The global economic downturn is reflected in slowing demand in the
CTS-served automotive, communication and computer markets. These served markets
for our electronic components and assemblies have softened and may continue to
soften. As a result, CTS revenue and earnings have been negatively affected and
this softening demand may create pricing pressures which could further affect
revenue and earnings.
As a result of declining revenue and earnings, it is likely that we will be
unable to comply with the covenants in our existing credit facilities in the
fourth quarter of 2001, and that we will negotiate with our bank group to amend
the credit facilities. Those amendments may result in higher interest rates and
bank fees and the possible securitization of some of our assets. Renegotiation
will also make business growth through acquisition less likely in the next few
quarters.
In the event that the Company is unable to renegotiate the terms of its existing
credit facility on acceptable conditions, the Company will be required to seek
alternative sources of financing including, but not limited to, the negotiation
of a credit facility with a new bank group or the issuance of additional shares
of common/preferred stock or debt instruments in public or private transactions.
WE FACE RISKS CONCERNING THE SUCCESS OF OUR RESTRUCTURING, CONSOLIDATION
AND COST REDUCTION PLANS
During the second quarter of 2001, CTS recorded $14 million of restructuring and
impairment charges relating to a plan to realign its operations. The plan was
implemented during the second quarter of 2001. The plan was designed to permit
us to operate more efficiently in the current environment and at the same time
be well positioned when the economy improves.
The restructuring plan is proceeding on schedule. The anticipated savings
associated with the plan were based on revenue volumes expected at the time the
plan was implemented. If the expected revenue volumes are not met during the
next two fiscal years, some of the expected savings may be delayed or not
achieved. Additional restructuring activities and related charges may be
required in the event that the current business environment deteriorates further
or the Company identifies other areas for cost savings.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
(10) (a) Employment Agreement, dated September 7, 2001, between the
Company and Donald K. Schwanz
(10) (b) Consulting Agreement, dated September 28, 2001, between the
Company and Joseph P. Walker
Page 22
Part 3 -- OTHER INFORMATION (Cont'd)
Item 6. Exhibits and Reports on Form 8-K (Cont'd)
(10) (c) Stock Option Agreement, dated September 7, 2001,
between the Company and Joseph P. Walker
(10) (d) Employee Stock Option Agreement, dated October 1, 2001,
between the Company and Donald K. Schwanz
(10) (e) Amended Nonqualified Stock Option Agreement, dated
September 7, 2001, between the Company and Jeannine M.
Davis
(10) (f) Prototype Severance Agreement with certain officers and
general managers
b. Reports on Form 8-K
During the three month period ending September 30, 2001, CTS filed one
report on Form 8-K, dated September 10, 2001, under Item 5, "Other
Events," reporting the appointment of Donald K. Schwanz to succeed
Joseph P. Walker as Chief Executive Officer later in 2001.
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.
CTS CORPORATION CTS CORPORATION
/S/ Jeannine M. Davis /S/ Vinod M. Khilnani
--------------------------- -----------------------------
Jeannine M. Davis Vinod M. Khilnani
Executive Vice President, Senior Vice President
Administration, and and Chief Financial Officer
Secretary
Dated: November 5, 2001
Page 23
Exhibit (10) (a)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of the 7th
day of September, 2001, by and among CTS Corporation, an Indiana corporation
(the "Company"), and Donald K. Schwanz (the "Executive").
WHEREAS, the Executive will be named as President and Chief Executive
Officer of the Company effective as of October 1, 2001, and the Board of
Directors of the Company ("Board of Directors") desires to secure the continued
employment of the Executive in accordance herewith;
WHEREAS, the Company and the Executive have entered into a severance
agreement (the "Severance Agreement"), effective as of January 17, 2001;
WHEREAS, the Executive is willing to commit himself to be employed by the
Company on the terms and conditions herein set forth; and
WHEREAS, the parties desire that this Agreement setting forth the terms and
conditions for the employment relationship of the Executive with the Company
take effect on October 1, 2001 ("Effective Date");
NOW, THEREFORE, in consideration of the mutual premises and the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Operation of Agreement; Employment and Term.
(a) This Agreement shall become effective and binding on the Effective
Date.
(b) Employment. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, in accordance with the terms and
provisions of this Agreement.
(c) Term. The term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue until the fifth (5th) anniversary of the
Effective Date.
2. Duties and Powers of Executive.
(a) Position. For the period during which the Executive provides services
to the Company (the "Employment period"), the Executive shall serve as President
and Chief Executive Officer of the Company and will have such duties,
responsibilities and authority as are customarily incident to the principal
Page 24
executive officer of a publicly traded corporation. The Executive will report
solely to the Board of Directors. During the Employment Period, and excluding
any periods of vacation and sick leave to which the Executive is entitled, the
Executive shall devote substantially all of his attention and time during normal
working hours to the business and affairs of the Company and shall use his
reasonable best efforts to carry out his responsibilities faithfully and
efficiently. It shall not be considered a violation of the foregoing for the
Executive to serve on corporate, industry, civic or charitable boards or
committees, as long as such activities do not materially interfere with the
performance of his responsibilities with the Company in accordance with this
Agreement.
(b) Board Membership. The Board of Directors shall propose the Executive
for reelection to such Board throughout the Term, and shall continue the
Executive as a member of the Board throughout the Term. The sole remedy for
breach of this provision shall be the remedy set forth in Section 5(c) of this
Agreement.
(c) Location. The Executive's services shall be performed primarily at the
Company's current office in Elkhart, Indiana, and in no event shall the
Executive be required to perform services at a location more than 25 miles from
the Company's current office, in each case, except for such reasonable travel
obligations as are substantially consistent with the Executive's present travel
obligations. Throughout the Employment Period, the Executive shall be provided
with appropriate office space and secretarial services commensurate with his
title and position.
3. Compensation.
The Executive shall receive the following compensation for his services
hereunder to the Company:
(a) Salary. During the Employment Period, the Executive's monthly base
salary ("Base Salary") shall be $52,500, payable in accordance with the
Company's general payroll practices as in effect from time to time and subject
to annual review by the Board of Directors for increase (but not decrease) each
year during the Employment Period.
(b) Incentive Compensation. During the Employment Period, the Executive
shall be eligible to participate in the Company's short-term and long-term
incentive compensation plans, including equity-based compensation plans, on a
basis no less favorable than that of other senior executives of the Company.
Under the CTS Corporation Management Incentive Bonus Plan as in effect on the
Page 25
Effective Date, the Executive's target bonus percentage shall be sixty- five
percent (65%) of his salary. Under any successor plan to the CTS Corporation
Management Incentive Bonus Plan as in effect on the Effective Date, the
Executive shall be entitled to participate at a level which will, at a minimum,
provide him a comparable opportunity to earn a benefit comparable to that
available to him under the CTS Corporation Management Incentive Bonus Plan as in
effect on the Effective Date.
(c) Other Benefits. During the Employment Period, the Executive shall be
eligible to participate in all other savings, retirement, welfare (including
without limitation medical, dental, hospitalization and life insurance) and
fringe benefit plans, practices, policies and programs on a basis no less
favorable to the Executive than in effect on the date hereof. During the
Employment Period, the Company shall make available to the Executive, at its
cost and expense, an automobile on a basis substantially similar to that in
effect on the date hereof.
(d) Enhanced Retirement Benefits. For every year of service earned by
Executive after June 30, 2002, an extra year of service shall be credited to
Executive under the provisions of the CTS Corporation Salaried Employees'
Pension Plan and the CTS Corporation Supplemental Executive Retirement Plan (the
"Plans"). The extra years of service so credited to the Executive shall apply
only to enhance his retirement benefits and not to shorten the vesting schedules
included in the Plans. No changes in the benefit formula or method of
calculating same under the Plans after the Effective Date, which reduce benefits
thereunder, will apply to Executive's benefits under the Plans.
4. Expenses. The Company shall reimburse the Executive for all reasonable
expenses, including those for travel and entertainment, properly incurred by him
in the performance of his duties hereunder in accordance with policies
established from time to time by the Company.
5. Termination of Employment.
(a) Death; Disability. The Employment Period shall terminate automatically
upon the Executive's death or Disability during such period, in which case the
Executive shall be entitled to the payments and benefits set forth in Section
6(a) of this Agreement. For purposes of this Agreement, "Disability" shall be
deemed to occur if, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been absent from the full-time
performance of his duties with the Company for a period of six (6) consecutive
months, the Company shall have given the Executive a Notice of Termination (as
Page 26
defined in paragraph (e) of this Section 5) for Disability and, within thirty
(30) days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of his duties.
(b) By the Company for Cause. The Company may terminate the Executive's
employment hereunder for Cause, in which case the Executive shall be entitled to
the payments and benefits set forth in Section 6(b) of this Agreement. For
purposes of this Agreement, "Cause" shall mean (i) the willful and continued
failure by the Executive to substantially perform the Executive's duties with
the Company (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness or any such actual or anticipated
failure after the issuance of a Notice of Termination for Good Reason by the
Executive pursuant to paragraph (f) of this Section 5) after a written demand
for substantial performance is delivered to the Executive by the Board of
Directors, which demand specifically identifies the manner in which such Board
believes that the Executive has not substantially performed the Executive's
duties, or (ii) the willful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company or its subsidiaries,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company and (y) in the event of a dispute
concerning the application of this provision, no claim by the Company that Cause
exists shall be given effect unless the Company establishes to the Board of
Directors by clear and convincing evidence that Cause exists.
(c) By the Executive for Good Reason. The Executive may terminate his
employment during the Employment Period for Good Reason (unless Cause exists),
in which case the Executive shall be entitled to the payments and benefits set
forth in Section 6(a) of this Agreement. For purposes of this Agreement, "Good
Reason" shall mean (i) the occurrence, without the written consent of the
Executive, of an event constituting a material breach of this Agreement
(including without limitation a breach of Section 2(b) or 2(c) of this
Agreement) by the Company that has not been fully cured within ten (10) days
after written notice thereof has been given by the Executive to the Company, or
(ii) any reason, at the Executive's discretion, during the three-month period
following the occurrence of a "Change in Control," as defined in paragraph (d)
of this Section 5.
(d) Definition of Change in Control. A "Change in Control" shall be deemed
to have occurred if the event set forth in any one of the following paragraphs
shall have occurred:
Page 27
(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-2 of 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 the Company
acquired prior to the Term); provided, however, that for purposes of this
Section 5(d), 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, or (D) any acquisition
by any Person pursuant to a Business Combination that complies with clauses (I),
(II) and (III) of Section 5(d)(iii) below; or
(ii) individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least
two-thirds of the Board of Directors; 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
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 (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; or
(iii) consummation of (A) a reorganization, merger or consolidation of the
Company or (B) a sale or other disposition of all or substantially all of the
assets of the Company (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
Page 28
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 or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries), (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, 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 providing for such Business
Combination; or
(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 5(d)(iii);
(e) By the Company Other Than for Cause or by the Executive without Good
Reason. Notwithstanding any other provision of this Agreement, the Company may
terminate the Executive's employment other than for Cause, in which case the
Executive shall be entitled to the payments and benefits set forth in Section
6(a) of this Agreement, and the Executive may terminate his employment other
than for Good Reason (as defined in paragraph (c) of this Section 5), in which
case the Executive shall be entitled to the payments and benefits set forth in
Section 6(b) of this Agreement.
(f) Notice of Termination. Any termination by the Company or by the
Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 10(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) if the Date of
Termination (as defined in paragraph (f) of this Section 5) is other than the
date of receipt of such notice, specifies the termination date (which date shall
be not more than thirty (30) days after the giving of such notice). The failure
Page 29
by the Executive or the Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good Reason shall not
waive any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing the Executive's rights
hereunder. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the membership of the Board of Directors (excluding the
Executive if the Executive is then a member of such Board) at a meeting of such
Board which was called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before such Board) finding
that, in the good faith opinion of such Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(g) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Executive for Good Reason, the date of receipt
of the Notice of Termination or any later date specified therein, as the case
may be, (ii) if the Executive's employment is terminated by the Company, the
date on which the Company notifies the Executive of such termination (except in
the event of a termination for Cause), (iii) if the Executive's employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of his duties during such thirty (30) day period), and (iv) if the
Executive's employment is terminated by reason of death, the date of death.
6. Obligations of the Company Upon Termination.
(a) Termination for Good Reason or Other Than for Cause. If the Executive
shall terminate his employment for Good Reason or the Company shall terminate
the Executive's employment for any reason other than Cause, including
Disability, or if such employment shall be terminated by reason of death, the
Executive shall be entitled to the following benefits:
(i) the Company shall pay to the Executive a lump sum amount in cash equal
to the sum of (A) the Executive's Base Salary through the Date of Termination to
the extent not theretofore paid, (B) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon) and any
Page 30
accrued vacation pay and (C) any other amounts due the Executive as of the Date
of Termination, in each case to the extent not theretofore paid. (The amounts
specified in clauses (A), (B) and (C) shall be hereinafter referred to as the
"Accrued Obligation"). The amounts specified in this Section 6(a)(i) shall be
paid within thirty (30) days after the Date of Termination; and
(ii) in lieu of any severance benefit otherwise payable to the Executive,
(A) if the Executive shall terminate his employment for Good Reason or the
Company shall terminate the Executive's employment for any reason other
than Disability or Cause, the Company shall pay the Executive a lump sum
amount, in cash, within five days following the Date of Termination, equal
to three and one-third (3 1/3) times the sum of (1) twelve (12) times Base
Salary, and (2) an amount equal to the largest aggregate amount earned by
the Executive as stock and cash bonuses for any year in the Term but not
less than $330,000; and
(B) if the termination of the Executive's employment is by reason of death or
Disability, or, if the Executive so elects, in lieu of the payments
described in paragraph (A) of this Section 6(ii), the Company shall
continue to pay the Executive (or, in the event of his death, his legal
representative) for the remainder of the Term (1) the Base Salary as in
effect immediately prior to the Date of Termination, in accordance with the
Company's general payroll practices, and (2) for each full twelve-month
period remaining in the Term, the highest annual aggregate cash and stock
bonuses earned by the Executive pursuant to any annual bonus or incentive
plan maintained by the Company in respect of any year in the Term but not
less than $330,000, payable in accordance with the Company's practices with
respect to the payment of bonuses.
(b) Termination for Other Reason. If the Executive's employment shall be
terminated by the Company for Cause or by the Executive other than for Good
Reason, death or Disability, the Company shall not have any further
obligations to the Executive under this Agreement other than the obligation
to pay to the Executive the Accrued Obligation and any postemployment
benefits to which the Executive is entitled under the terms of the
Company's employee benefit plans.
(c) Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration, conducted
before a panel of three arbitrators sitting in Elkhart, Indiana, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction.
Page 31
(d) Legal Fees. The Company shall also pay to the Executive all reasonable
legal fees and expenses incurred by the Executive in disputing in good
faith any issue hereunder relating to the termination of the Executive's
employment, in seeking in good faith to obtain or enforce any benefit or
right provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of section 4999 of
the Code to any payment or benefit provided hereunder. Such payments shall
be made within five (5) business days after delivery of the Executive's
written requests for payment accompanied with such evidence of fees and
expenses incurred as is reasonable.
(e) Gross-Up. If any of the payments or benefits received or to be received by
the Executive (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any Person (as defined in
Section 5(d) of this Agreement) whose actions result in a Change in Control
or any Person affiliated with the Company or such Person) (such payments or
benefits, excluding the Gross-Up Payment (as defined below), being
hereinafter referred to as the "Total Payments") will be subject to the
excise tax imposed under section 4999 of the Code ("Excise Tax"), the
Company shall pay to the Executive an additional amount (the "Gross-Up
Payment") such that the net amount retained by the Executive, after
deduction of any Excise Tax on the Total Payments and any federal, state
and local income and employment taxes and Excise Tax upon the Gross-Up
Payment, shall be equal to the Total Payments.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as "parachute payments" (within the meaning of
section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax
Counsel") reasonably acceptable to the Executive and selected by the accounting
firm which was, immediately prior to the date hereof, the Company's independent
auditor, or in the event of a Change in Control, was, immediately prior to the
Change in Control, the Company's independent auditor (the "Auditor"), such
payments or benefits (in whole or in part) do not constitute parachute payments,
including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess
parachute payments" within the meaning of section 280G(b)(l) of the Code shall
be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel,
such excess parachute payments (in whole or in part) represent reasonable
Page 32
compensation for services actually rendered (within the meaning of section
280G(b)(4)(B) of the Code) in excess of the "Base Amount," as defined in section
280G(b)(3) of the Code, allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Gross-Up Payment is to
be made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the Date of
Termination (or if there is no Date of Termination, then the date on which the
Gross-Up Payment is calculated for purposes of this Section 6.2), net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes.
In the event that the Excise Tax is finally determined to be less than the
amount taken into account hereunder in calculating the Gross-Up Payment, the
Executive shall repay to the Company within five (5) business days following the
time that the amount of such reduction in the Excise Tax is finally determined,
the portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income and employment taxes imposed on the Gross-Up Payment
being repaid by the Executive, to the extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's
taxable income and wages for purposes of federal, state and local income and
employment taxes, plus interest on the amount of such repayment at 120% of the
rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder in
calculating the Gross-Up Payment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by the Executive
with respect to such excess) within five (5) business days following the time
that the amount of such excess is finally determined. The Executive, the Company
shall each reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total Payments.
(f) Nonduplication of Benefits. Notwithstanding any of the foregoing, the
benefits payable under this Section 6 shall not be duplicative of, and
shall be reduced without further action by, any corresponding benefits paid
or provided to the Executive under the Severance Agreement.
7. Full Settlement; Mitigation.
The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform their obligations hereunder shall not be
subject to any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
Page 33
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts (including amounts for damages
for breach) payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment.
8. Confidential Information.
The Executive shall hold in a fiduciary capacity for the benefit of the
Company all secret, confidential information, knowledge or data relating to the
Company or any of its affiliated companies and their respective businesses which
shall have been obtained by the Executive during his employment by the Company
or any of its affiliated companies and that shall not have been or now or
hereafter have become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). The Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it.
9. Successors.
(a) Assignment by Executive. This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable
by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) Assumption. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets thereof to expressly assume
and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform this Agreement if no
such succession had taken place. As used in this Agreement, the Company
shall mean the Company as hereinbefore defined and any successor to its
businesses and/or assets as aforesaid that assumes and agrees to perform
this Agreement by operation of law, or otherwise.
Page 34
10. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Indiana, without reference to its principles of
conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended, modified, repealed, waived, extended or discharged except by an
agreement in writing signed by the party against whom enforcement of such
amendment, modification, repeal, waiver, extension or discharge is sought.
No person, other than pursuant to a resolution of its Board of Directors
(or a committee thereof), as the case may be, shall have authority on
behalf of the Company to agree to amend, modify, repeal, waive, extend or
discharge any provision of this Agreement or take any other action in
respect thereto.
(b) Notices. All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return-receipt requested, postage prepaid, addressed, in
the case of the Company, to the Company's headquarters and, in the case of
the Executive, to the address on the signature page of this Agreement or,
in either case, to such other address as any party shall have subsequently
furnished to the other parties in writing. Notice and communications shall
be effective when actually received by the addressee.
(c) Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any amounts due and payable under this
Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) No Waiver. Any party's failure to insist upon strict compliance with any
provision hereof or the failure to assert any right such party may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c) of this
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(f) Entire Agreement; Survival. This Agreement entered into as of the date
hereof among the Company and the Executive contains the entire agreement of
the Executive and the Company or its predecessors or subsidiaries with
respect to the subject matter of the Agreement, and all promises,
representations, understandings, arrangements and prior agreements, other
than the Severance Agreement, are merged into, and superseded by, the
Agreement. Any provision hereof which by its terms applies in whole or part
after a termination of the Executive's employment hereunder shall survive
such termination.
Page 35
IN WITNESS WHEREOF, the Executive has executed this Agreement and, pursuant
to due authorization from its Board of Directors, the Company has caused this
Agreement to be executed, as of the day and year first above written.
CTS CORPORATION
By: /S/ Jeannine M. Davis
---------------------
Name: Jeannine M. Davis
Title: Executive Vice President
Administration and Secretary
/S/ Donald K. Schwanz
---------------------
DONALD K. SCHWANZ
Address: 51297 Grand Oaks Ct.
Granger, IN 46530
Page 36
Exhibit (10) (b)
CONSULTING AGREEMENT
This Agreement made between Joseph P. Walker (hereinafter "Consultant") and
CTS Corporation, an Indiana corporation, (hereinafter "CTS") relating to
consulting services to be performed for CTS in accordance with the following
terms:
1. Term: Effective October 1, 2001, Consultant shall supply professional
services to CTS for a three year period ending September 30, 2004.
Consultant may, with or without cause, terminate this Agreement during its
term upon a minimum of thirty (30) days written notice to CTS.
2. Scope of Consulting and Advisory Services: During the term of this
Agreement, Consultant agrees to remain available on an irregular, part-time
basis to render consulting and advisory services from time to time as
requested by the Chief Executive officer of CTS.
3. Consultant's Fee: In consideration for consulting services, CTS shall
pay to Consultant $250,000 for the first year, $175,000 for the second year
and $125,000 for the third year, plus reimburse Consultant for necessary
business expenses approved by CTS. Consulting fees will be paid in equal
monthly installments. Invoices for expenses submitted by Consultant are due
upon receipt by CTS.
4. Additional Consideration: As additional consideration for the consulting
services, CTS agrees to provide to Consultant financial planning and tax
preparation services comparable to those provided to him on his retirement
date, during the term of this Agreement.
5. Office Space and Administrative Support: During the term of this Agreement,
CTS will provide Consultant with office space and administrative support,
at a cost not to exceed $750 per month.
6. Independent Contractual Relationship: Consultant agrees that this
Consulting Agreement creates only an independent contractual relationship
between the parties and does not establish an employment relationship or
entitle Consultant to any of the benefits thereof.
7. Assignment of Patents: Consultant agrees to, and does hereby sell, assign
and transfer to CTS Consultant's entire right, title and interest in and to
all inventions, discoveries, trade secrets, shop rights, proprietary
rights, improvements, processes, developments, methods, formulas and
designs Consultant may invent, conceive, discover, develop or learn during,
or in connection with, consulting and advisory services by Consultant for
CTS. Consultant also agrees at any time, upon request and at the expense of
CTS, to execute and deliver any and all documents and do all lawful acts
considered necessary or desirable by CTS, to obtain letters patent in the
United States Patent Office and in foreign countries, to establish,
maintain, secure and publish title in CTS to said inventions, applications
and letters patent, and to defend, establish or otherwise preserve the
validity of said letters patent, against any and all infringes.
Page 37
8. Confidential Information: Consultant shall at all times, both during the
term of this Agreement and thereafter, hold inviolate and not, directly or
indirectly, disclose, make, sell, make application for letters patent or
publish any secret or confidential information or knowledge as to
inventions, discoveries, trade secrets, shop rights, proprietary rights,
improvements, processes, developments, methods, formulas and designs owned
or used by CTS, whether invented, conceived, discovered, developed or
learned by Consultant or obtained directly or indirectly from employees of
CTS or submitted by any other person, firm or corporation to CTS unless
authorized to do so in writing to CTS.
9. Agreement Not to Compete and Not to Hire: Consultant agrees that during
the term of this Agreement Consultant will not engage in any business,
either directly or indirectly, or through substantial ownership, that is
competitive with CTS. Consultant also agrees not to hire or cause any other
party to hire any employee of CTS.
10. Applicable Law and Assignability: This Agreement and all questions arising
in connection therewith shall be governed by the laws of the State of
Indiana. All rights, benefits and duties of CTS under this Agreement shall
be transferable by CTS to its successors and assignees, and all covenants
and agreements herein shall inure to the benefit of, and be enforceable by,
or against, CTS' successors and assignees.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
this 28th day of September, 2001.
CTS Corporation
By: /S/ Donald K. Schwanz
-------------------------
Donald K. Schwanz
CONSULTANT
/S/ Joseph P. Walker
--------------------
Joseph P. Walker
Page 38
Exhibit (10) (c)
CTS CORPORATION 2001 STOCK OPTION PLAN:
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (hereafter, "Agreement") made this 7th day of
September, 2001, (hereinafter, "Option Date") by and between CTS Corporation, an
Indiana corporation (hereinafter, "CTS"), and Joseph P. Walker.
WHEREAS, CTS desires to recognize and reward Joseph P. Walker for the value
he created at CTS during his tenure as Chief Executive Officer; and
W I T N E S S E T H
Section 1: Option Grant
CTS hereby grants to Joseph P. Walker the right and option to purchase all
or any part of an aggregate of 50,000 shares of CTS Common Stock, without par
value, on the terms and conditions set forth below (hereinafter the "Option").
Section 2: Purchase Price
The purchase price per share for CTS Common Stock subject to this Option
shall be $17.15, the reported closing price per share on the New York Stock
Exchange on September 7, 2001.
Section 3: Option Exercise Period
Except as provided in Section 6, this Option is not exercisable until one
year after the Option Date. This Option is exercisable in three substantially
equal cumulative annual installments commencing on September 7, 2002. This
option and all rights hereunder shall expire on September 6, 2005.
Section 4: Payment
Payment for this Option must be made at the time of exercise and may be
made in cash or in previously acquired CTS Common Stock, which has been held for
at least six months, or a combination thereof. If payment is made in whole or
part by previously acquired CTS Common Stock, then the value per share of such
stock is the reported closing price per share of CTS Common Stock on the New
York Stock Exchange on the date the Option is exercised or, if not reported on
such date, the next preceding date for which such a closing price is reported.
Payment may be made by surrender of shares or by attestation by submission of
the prescribed Attestation Form. Subsequent to the use of previously owned
shares of CTS Common Stock as consideration for the exercise of all or a part of
this Option, the shares so utilized may not be used again in payment for the
exercise of this Option or any other option for CTS stock for a period of one
year.
Section 5: Nontransferability of Option
This Option may not be assigned or transferred by Joseph P. Walker other
than by will or by the laws of descent and distribution, and is exercisable,
during his lifetime, only by him. Any attempt by Joseph P. Walker to assign or
transfer this Option will be null, void and without effect.
Page 39
Section 6: Death, Disability or Change of Control
In the event of Joseph P. Walker's death or total and permanent disability
(as defined in 22(e)(3) of Title 26 of the Internal Revenue Code), all
unexercised and unexpired installments of this Option, vested and unvested, will
immediately become exercisable in full and may be exercised any time before the
Option expires.
Upon a Change of Control of CTS Corporation, as defined herein, all
unexercised and unexpired installments of this Option, vested and unvested, will
immediately become exercisable in full and may be exercised any time before the
Option expires. As used herein, Change of Control means the occurrence 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-2 of
the Exchange Act) of 25% or more of the combined voting power of the then
outstanding securities (the "Voting Stock") of CTS entitled to vote generally in
the election of directors; provided, however, that for purposes of this
Subsection (i), the following will not be deemed to result in a Change in
Control: (A) any acquisition directly from CTS that is approved by the Incumbent
Board (defined below), (B) any acquisition by CTS and any change in the
percentage ownership of Voting Stock of CTS that results from such acquisition,
(C) any acquisition by any employee benefit plan or related trust sponsored or
maintained by CTS or any subsidiary of CTS, or (D) any acquisition by any Person
pursuant to a Business Combination (defined below) that complies with clauses
(I), (II) and (III) of Subsection (iii) below; or (ii) individuals who, as of
the effective date of the Plan constitute the Board of Directors of CTS (the
"Incumbent Board") cease for any reason to constitute at least two-thirds of the
Board of Directors of CTS; provided, however, that any individual becoming a
director subsequent to the effective date of the Plan whose election, or
nomination for election by CTS' 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 CTS 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 of Directors of CTS; or (iii) consummation of (A) a
reorganization, merger or consolidation, or (B) a sale or other disposition of
all or substantially all of the assets of CTS (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
CTS 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 CTS
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 CTS, or all or substantially all of CTS'
assets either directly or through one or more subsidiaries) in substantially the
same proportions relative to each other as their ownership immediately prior to
such Business Combination of the Voting Stock of CTS, (II) no individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (other than CTS, such entity resulting from such Business Combination, or
any employee benefit plan or related trust sponsored or maintained by CTS, any
subsidiary of CTS or such entity resulting from such Business Combination)
beneficially owns, directly or indirectly, 15% or more of the then outstanding
shares of Voting Stock of the entity resulting from such Business Combination,
Page 40
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 CTS Board of Directors providing for such Business Combination; or (iv)
approval by the shareholders of CTS of a complete liquidation or dissolution of
CTS, except pursuant to a Business Combination that complies with clauses (I),
(II) and (III) of Subsection (iii) hereof.
Section 7: Adjustment for Capital Change
The number, kind and price of shares subject to this Option will be
proportionately and appropriately adjusted by the Compensation Committee of CTS
to reflect the effects of stock splits, stock dividends and any other change in
the capital structure of CTS or to reflect any merger, consolidation or exchange
or sale of assets or shares of CTS.
Section 8: Controlling Feature of Plan
Inconsistencies, if any, between this Agreement and the CTS Corporation
2001 Stock Option Plan, will be resolved according to the terms of the Plan.
Section 9: Rights as Option Holder
Joseph P. Walker has no rights as a shareholder of CTS with respect to
shares subject to this Option until such shares are issued upon exercise.
Section 10: Construction of this Agreement
This Agreement is made pursuant to and will be construed, interpreted and
governed by the laws of the State of Indiana without regard to the conflict of
law provisions of any jurisdiction.
Section 11: Severability
If any provision of this Agreement is held to be invalid, illegal or
unenforceable, that will not affect or impair, in any way, the validity,
legality or enforceability of the remainder of this Agreement.
IN WITNESS WHEREOF, Joseph P. Walker has signed this Stock Option
Agreement, and CTS has caused this Stock Option Agreement to be signed by a duly
authorized officer of CTS, as of the date first written above.
/S/ Joseph P. Walker
--------------------
Joseph P. Walker
CTS CORPORATION
By /S/ Jeannine M. Davis
------------------------
Jeannine M. Davis
Executive Vice President
Administration and Secretary
Page 41
Exhibit (10) (d)
CTS CORPORATION 2001 STOCK OPTION PLAN:
EMPLOYEE STOCK OPTION AGREEMENT
THIS EMPLOYEE STOCK OPTION AGREEMENT (hereafter, "Agreement") made this 1st
day of October, 2001, (hereinafter, "Option Date") by and between CTS
Corporation, an Indiana corporation (hereinafter, "CTS"), and Donald K. Schwanz,
an employee of CTS or a subsidiary or division of CTS (hereinafter, "Employee").
WHEREAS, CTS desires to create an additional incentive for the Employee
to continue his or her services with CTS and to stimulate his or her interest in
the growth and profitability of CTS, and
WHEREAS, CTS desires to increase the Employee's personal participation
in the success of CTS through the acquisition of an equity interest in CTS;
W I T N E S S E T H
Section 1: Option Grant
CTS hereby grants to the Employee the right and option to purchase all
or any part of an aggregate of 100,000 shares of CTS Common Stock, without par
value, on the terms and conditions set forth below (hereinafter the "Option").
Section 2: Purchase Price
The purchase price per share for CTS Common Stock subject to this
Option shall be $14.02, the reported closing price per share on the New York
Stock Exchange on the date this Option is granted.
Section 3: Option Exercise Period
Except as provided in Section 6, this Option is not exercisable until
one year after the Option Date. This Option will become exercisable as follows:
33,333 shares on October 1, 2005; 33,333 shares on October 1, 2006 and 33,334
shares on October 1, 2007. This option and all rights hereunder shall expire on
September 30, 2011.
Section 4: Payment
Payment for this Option must be made at the time of exercise and may be
made in cash or in previously acquired CTS Common Stock, which has been held for
at least six months, or a combination thereof. If payment is made in whole or
part by previously acquired CTS Common Stock, then the value per share of such
stock is the reported closing price per share of CTS Common Stock on the New
York Stock Exchange on the date the Option is exercised or, if not reported on
such date, the next preceding date for which such a closing price is reported.
Payment may be made by surrender of shares or by attestation by submission of
the prescribed Attestation Form. Subsequent to the use of previously owned
shares of CTS Common Stock as consideration for the exercise of all or a part of
this Option, the shares so utilized may not be used again in payment for the
exercise of this Option or any other option for CTS stock for a period of one
year.
Section 5: Nontransferability of Option
This Option may not be assigned or transferred by the Employee other
than by will or by the laws of descent and distribution, and is exercisable,
during the Employee's lifetime, only by him or her. Any attempt by the Employee
to assign or transfer this Option will be null, void and without effect.
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Section 6: Separation from Employment or Change of Control
In the event of the termination of employment of the Employee with CTS
due to Employee's qualified retirement (as used herein, a qualified retirement
means that Employee's date of termination occurs after completing at least five
years of service and attaining age 62), he may exercise the Option only to the
extent permitted by the Option terms on the date of retirement, any time before
the Option expires. All shares subject to this Option which are not exercisable
as of the Employee's date of termination will be canceled.
In the event of the termination of employment of the Employee with CTS
for any reason other than qualified retirement, he may exercise the Option only
to the extent permitted by the Option terms on the date of termination, and only
within the three month period immediately following Employee's date of
termination. All shares subject to this Option which are not exercisable as of
the Employee's date of termination will be canceled.
Upon a Change of Control of CTS Corporation, as defined herein, all
unexercised and unexpired installments of this Option, vested and unvested, will
immediately become exercisable in full and may be exercised anytime before the
Option expires. As used herein, Change of Control means the occurrence 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-2 of
the Exchange Act) of 25% or more of the combined voting power of the then
outstanding securities (the "Voting Stock") of CTS entitled to vote generally in
the election of directors; provided, however, that for purposes of this
Subsection (i), the following will not be deemed to result in a Change in
Control: (A) any acquisition directly from CTS that is approved by the Incumbent
Board (defined below), (B) any acquisition by CTS and any change in the
percentage ownership of Voting Stock of CTS that results from such acquisition,
(C) any acquisition by any employee benefit plan or related trust sponsored or
maintained by CTS or any subsidiary of CTS, or (D) any acquisition by any Person
pursuant to a Business Combination (defined below) that complies with clauses
(I), (II) and (III) of Subsection (iii) below; or (ii) individuals who, as of
the effective date of the Plan constitute the Board of Directors of CTS (the
"Incumbent Board") cease for any reason to constitute at least two-thirds of the
Board of Directors of CTS; provided, however, that any individual becoming a
director subsequent to the effective date of the Plan whose election, or
nomination for election by CTS' 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 CTS 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 of Directors of CTS; or (iii) consummation of (A) a
reorganization, merger or consolidation, or (B) a sale or other disposition of
all or substantially all of the assets of CTS (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
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the individuals and entities who were the beneficial owners of Voting Stock of
CTS 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 CTS
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 CTS, or all or substantially all of CTS'
assets either directly or through one or more subsidiaries) in substantially the
same proportions relative to each other as their ownership immediately prior to
such Business Combination of the Voting Stock of CTS, (II) no individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (other than CTS, such entity resulting from such Business Combination, or
any employee benefit plan or related trust sponsored or maintained by CTS, any
subsidiary of CTS or such entity resulting from such Business Combination)
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 CTS Board of Directors providing for such Business Combination; or (iv)
approval by the shareholders of CTS of a complete liquidation or dissolution of
CTS, except pursuant to a Business Combination that complies with clauses (I),
(II) and (III) of Subsection (iii) hereof.
Section 7: Adjustment for Capital Change
The number, kind and price of shares subject to this Option will be
proportionately and appropriately adjusted by the Compensation Committee of CTS
to reflect the effects of stock splits, stock dividends and any other change in
the capital structure of CTS or to reflect any merger, consolidation or exchange
or sale of assets or shares of CTS.
Section 8: Controlling Feature of Plan
Inconsistencies, if any, between this Agreement and the CTS Corporation
2001 Stock Option Plan, will be resolved according to the terms of the Plan.
Section 9: Rights of Employee as Option Holder
The Employee has no rights as a shareholder of CTS with respect to
shares subject to this Option until such shares are issued upon exercise.
Section 10: Consideration for Option
In consideration for the grant of this Option, Employee acknowledges
and agrees as follows:
Option gain and unexercised options will be forfeited if Employee
engages in certain activities. If, at any time within one year after termination
of Employee's employment with CTS, Employee engages in any activity in
competition with any activity of CTS, or contrary or harmful to the interests of
CTS, including, but not limited to: (i) accepting employment with or serving as
a consultant, advisor or in any other capacity to an employer that is in
competition with or acting against the interests of CTS, including employing or
recruiting any present, former or future employee of CTS; or (ii) disclosing or
misusing any confidential information or material concerning CTS or relating to
any of its businesses, then (A) this Option shall terminate effective on the
date on which Employee enters into such activity, unless terminated sooner by
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operation of another term or condition of this Option, or the Plan, and (B) any
option gain realized by Employee from any exercise of this Option, during the
six month period prior to the termination of Employee's employment with CTS or
after Employee's employment with CTS ends, shall be paid by Employee to CTS.
By accepting this Agreement, Employee consents to a deduction from any
amounts CTS may owe him or her from time to time (including amounts owed as
wages or other compensation, fringe benefits, or vacation pay, as well as any
other amounts owed to Employee by CTS), to the extent of the amount Employee
owes CTS under this Section. Whether or not CTS elects to make any set-off in
whole or in part, if CTS does not recover by means of set-off the full amount
Employee owes, calculated as set forth above, Employee agrees to pay immediately
the unpaid balance to CTS.
Section 11: Construction of this Agreement
This Agreement is made pursuant to and will be construed, interpreted
and governed by the laws of the State of Indiana without regard to the conflict
of law provisions of any jurisdiction.
Section 12: Severability
If any provision of this Agreement is held to be invalid, illegal or
unenforceable, that will not affect or impair, in any way, the validity,
legality or enforceability of the remainder of this Agreement.
IN WITNESS WHEREOF, Employee has signed this Employee Stock Option
Agreement, and CTS has caused this Employee Stock Option Agreement to be signed
by a duly authorized officer of CTS, as of the date first written above.
by: /S/ Donald K. Schwanz
---------------------
Donald K. Schwanz
CTS CORPORATION
by: /S/ Jeannine M. Davis
-------------------------
Jeannine M. Davis
Executive Vice President
Administration and Secretary
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Exhibit (10) (e)
AMENDED
CTS CORPORATION
Nonqualified Stock Option Agreement
RECITALS:
A. Jeannine M. Davis (the "Optionee") is an employee of CTS Corporation, an
Indiana corporation, or a subsidiary thereof, (collectively, the
"Corporation").
B. The Board of Directors of the Corporation (the "Board") has on May 9,
1997 authorized the execution of a stock option agreement in the form
hereof ("Agreement"), as of such date (the "Date of Grant"), subject to
shareholder approval and certain other conditions which approval has been
obtained and conditions have been satisfied as of the date hereof.
C. The option granted hereby is intended to be a nonqualified stock option
and will not be treated as an "incentive stock option" within the meaning
of that term under Section 422 of the Internal Revenue Code of 1986 (the
"Code").
NOW, THEREFORE, subject to the terms and conditions herein set forth, the
Corporation hereby grants to the Optionee a nonqualified option (the "Option")
to purchase 150,000 Common Shares (the "Option Shares") at an exercise price per
Option Share equal to $20.83 (the "Exercise Price").
1. Vesting of Option. (a) Unless terminated as hereinafter provided, the
Option will be fully exercisable as of the date of this Agreement.
(b) To the extent that the Option is exercisable in accordance with the
terms of this Section 1, it may be exercised in whole or in part from time to
time thereafter.
2. Termination of Option. The option will terminate automatically and without
further action on the earliest of the following dates:
(a) the date of the termination by the Corporation of the Optionee's
employment for Cause as defined herein;
(b) two years after the termination of the Optionee's employment with the
Corporation by reason of his or her death;
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(c) two years after the voluntary termination by the Optionee of his
employment with the Corporation for any reason or the termination by the
Corporation of the Optionee's employment with the Corporation for any reason
other than Cause, or
(d) ten years after the Date of Grant, if the Optionee remains in
continuous employment with the Corporation during that ten-year period.
As used herein, "Cause" means that the Optionee:
(i) has been convicted of a criminal violation involving fraud, embezzlement or
theft in connection with his or her duties or in the course of his or her
employment with the Corporation; or
(ii) has intentionally and wrongfully disclosed secret processes, trade secrets
or confidential information of the Corporation;
and any such act has been demonstrably and materially harmful to the
Corporation. For purposes of this Agreement, no act or failure to act on the
part of the Optionee 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 Optionee not in good faith and without
reasonable belief that his action or omission was in the best interest of the
Corporation.
3. Payment of Exercise Price. The Exercise Price may be paid (a) in cash or
check or other cash equivalent acceptable to the Corporation, (b) by actual
or constructive transfer to the Corporation of nonforfeitable,
nonrestricted Common Shares owned by the Optionee for a minimum of six
months prior to the date of such exercise, or (c) by any combination of the
foregoing methods of payment. Constructive, rather than actual, surrender
of Common Shares owned by the Optionee is permitted, provided that the
Internal Revenue Service deems such constructive surrender as an actual
exchange for tax purposes, and further provided that Optionee provides
evidence satisfactory to the Corporation of his ownership of such
constructively surrendered Common Shares. Nonforfeitable, nonrestricted
Common Shares that are transferred by the Optionee in payment of all or any
part of the Exercise Price will be valued at the reported closing price per
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share of CTS Common Stock on the New York Stock Exchange on the date the
Option is exercised or, if not reported on such date, the next preceding
date for which such closing price is reported. The requirement of payment
in cash will be deemed satisfied if the Optionee makes arrangements that
are satisfactory to the Corporation with a broker that is a member of the
National Association of Securities Dealers, Inc. to sell a sufficient
number of the Option Shares which are being purchased pursuant to the
exercise so that the net proceeds of the sale transaction will at least
equal the amount of the aggregate Exercise Price, plus interest at the
"applicable Federal rate" within the meaning of that term under Section
1274 of the Code, or any successor provision thereto, for the period from
the date of exercise to the date of payment, and pursuant to which the
broker undertakes to deliver to the Corporation the amount of the aggregate
Exercise Price, plus such interest, not later than the date on which the
sale transaction will settle in the ordinary course of business.
As a further condition precedent to the exercise of this Option, the
Optionee shall comply with all regulations and requirements of any regulatory
authority having control of, or supervision over, the issuance of Common Shares
and in connection therewith shall execute any documents which the Compensation
Committee shall in its sole discretion deem necessary or advisable.
4. Compliance with Law. The Corporation will make reasonable efforts to comply
with all applicable securities laws; provided, however, that
notwithstanding any other provision of this agreement, the Option will not
be exercisable if the exercise thereof would result in a violation of any
such law.
5. Consideration for Option. In consideration for the grant of this Option,
Optionee agrees that for a period of one year following the termination of
his or her employment with the Corporation, he or she will not render
services of any kind to any business engaged in, or about to become engaged
in, research or development, marketing, leasing or selling of any product,
which is the same as, or similar to, a product of the Corporation to which
Optionee was exposed during the last two years of his or her employment
with the Corporation.
Optionee further agrees not to communicate or disclose to any person,
firm or corporation either directly or indirectly any knowledge or information
acquired during his or her employment with the Corporation, or any subsidiary or
division thereof, concerning business plans and strategies, inventions, trade
secrets, customer or price lists or any other confidential information with
respect to the property or business of the Corporation or any subsidiary or
division thereof.
6. Right to Terminate Employment or Service and Adjust Compensation. No
provision of this Agreement will limit in any way whatsoever any right that
the Corporation may otherwise have to terminate the employment or adjust
the compensation of the Optionee at any time.
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7. Relation to Other Benefits. Any economic or other benefit to the Optionee
under this Agreement will not be taken into account in determining any
other benefits to which the Optionee may be entitled under any
profit-sharing, retirement or other benefit or compensation plan maintained
by the Corporation or under any employment agreement or severance agreement
between the Optionee and the Corporation, and will not affect the amount of
any life insurance coverage available to any beneficiary under any life
insurance plan covering employees of the Corporation.
8. Transferability. The option may be transferred during the lifetime of
the Optionee, only to (i) a member of Optionee's immediate family; (ii) a
trust for the benefit of members of Optionee's immediate family; or (iii) a
partnership or other entity of which family members of the Optionee are the
sole owners; provided that such transfer is effected by Optionee in strict
compliance with all applicable laws and regulations.
Notwithstanding the foregoing, this Section shall not be construed to
entitle the Optionee to compel the Corporation to file any registration
statement or take any other action which may be necessary to enable the Optionee
to exercise his right of transfer under this Section.
9. Withholding Taxes. To the extent that the Corporation is required to
withhold any federal, state, local or foreign taxes in connection with any
benefit realized by the Optionee under this Agreement, and the amounts
otherwise available to the Corporation for such withholding are
insufficient, it shall be a condition to the realization of any such
benefit that the Optionee make arrangements satisfactory to the Corporation
for payment of the balance of any taxes required to be withheld. Subject to
applicable law, any such arrangements may without limitation include
voluntary or mandatory relinquishment of a portion of any such benefit or
the surrender of outstanding Common Shares. The Corporation and the
Optionee may also make similar arrangements with respect to the payment of
taxes on which withholding is not required.
10. Adjustments. The number, type and price of Option Shares covered by this
Option shall be proportionately and appropriately adjusted by the
Compensation Committee of the Corporation in good faith to reflect changes
in the capital structure of the corporation by reason of any stock split or
dividend, recapitalization, merger, consolidation, combination or exchange
of shares for other securities or other similar corporate change. In
addition, in the event of any merger, consolidation or other transaction or
event having a similar effect, the Optionee may elect to receive awards
economically equivalent to the Option provided hereunder in respect of
securities of the surviving entity of such transaction.
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11. Severability. In the event that one or more of the provision of this
Agreement may be invalidated for any reason by a court, any provision so
invalidated will be deemed to be separable from the other provisions
hereof, and the remaining provisions hereof will continue to be valid and
fully enforceable.
12. Governing Law. This Agreement is made under, and will be construed in
accordance with, the laws of the State of Indiana, without giving effect to
the principle of conflict of laws of such State.
This Amended Agreement is executed by the Corporation on this 7th day
of September, 2001.
CTS CORPORATION
By: /S/ Joseph P. Walker
------------------------
The undersigned Optionee hereby acknowledges receipt of an executed
original of this Amended Agreement and accepts the Option granted hereunder,
subject to the terms and conditions hereinabove set forth.
/S/ Jeannine M. Davis
---------------------
Optionee
Date: 9/7/01
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Exhibit (10) (f)
SEVERANCE AGREEMENT
This Severance Agreement ("Agreement") is made and entered into this
_____ day of _______, 2001, by and between CTS Corporation, an Indiana
Corporation ("CTS") and ______________________________ ("Executive").
WHEREAS, Executive is employed by CTS in a senior management
position; and
WHEREAS, the parties desire to memorialize their agreement
regarding Executive's post-employment salary continuation under various
circumstances.
NOW, THEREFORE, in consideration of the foregoing and the
covenants and agreements of the parties herein contained, the parties
agree as follows:
1. If Executive' employment with CTS is terminated for any reason other than
death, disability, voluntary termination by Executive or for cause by CTS,
then for a period of __________ months beginning on the date of termination
("Salary Continuation Period", Executive will continue to receive his or
her salary as in effect on the date of termination, the same to be paid
according to the regular pay schedule for CTS exempt-salaried employees;
provided, however, that Executive' salary will be permanently discontinued
if, at any time during the Salary Continuation Period, the Board of
Directors or Chief Executive Officer determines that Executive has engaged
in any activity in competition with any activity of CTS or contrary or
harmful to the interests of CTS, including, but not limited to: (i)
accepting employment with or serving as a consultant, advisor or in any
other capacity to an employer that is in competition with or acting against
the interests of CTS, including employing or recruiting any present, former
or future employee of CTS; or (ii) disclosing or misusing any confidential
information or material concerning CTS or relating to any of its business.
"Cause" means an act or failure to act determined by the Board of Directors
or the Chief Executive Officer to be in violation of Company policy or
materially detrimental to the interests of CTS or any of its subsidiaries.
Page 51
2. This Agreement will terminate and be of no further effect if Executive'
employment with CTS is terminated as a result of Executive' death,
disability or voluntary termination or by CTS for cause.
3. This Agreement shall not affect any other agreements between the Executive
and CTS pertaining to confidentiality of information, assignment of
patents, stock options, indemnification, change of control of CTS, or any
other subject.
4. This Agreement may be assigned by CTS to its successors and shall be
binding upon its successors. Executive may not assign this Agreement.
5. This Agreement cannot be modified orally. All modifications to this
Agreement must be in a written agreement, signed by the party against whom
enforcement of any waiver, change, extension or discharge is sought.
6. This Agreement and all questions arising in connection herewith shall be
governed by the laws of the State of Indiana, with venue in any court of
competent jurisdiction located in the State of Indiana.
CTS CORPORATION
By: __________________________
Donald K. Schwanz
President & CEO
EXECUTIVE:
------------------------------
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