CTS CORPORATION
905 WEST BOULEVARD NORTH - ELKHART, INDIANA 46514
Notice of Annual Meeting of Shareholders
To Be Held April 25, 1997
To CTS Shareholders:
The Annual Meeting of Shareholders of CTS Corporation will be
held at 9:00 a.m. Eastern Standard Time, Friday, April 25, 1997, at
the CTS Corporate Headquarters, 905 West Boulevard North, Elkhart,
Indiana 46514, for the following purposes:
1. To elect five directors to serve for one year and
until their successors are elected and qualified;
2. To transact other business properly presented at
the meeting.
Only shareholders of record at the close of business on
March 7, 1997 are entitled to notice of, and to vote at, the
meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting are a Proxy
Statement, a proxy and the Annual Report for the fiscal year ended
December 31, 1996.
By Order of the Board of Directors,
Jeannine M. Davis
Secretary
Elkhart, Indiana
March 17, 1997
It is important that your shares be represented at this meeting.
We urge you to date, sign and return your proxy promptly in the
enclosed envelope, which requires no postage if mailed in the
United States.
CTS CORPORATION
905 WEST BOULEVARD NORTH - ELKHART, INDIANA 46514
Proxy Statement
Voting Information
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of CTS
Corporation for the Annual Meeting of Shareholders to be held
April 25, 1997. If the enclosed proxy is signed and returned, it
may, nevertheless, be revoked by you at any time prior to being
voted, by written notice delivered to the Secretary. The Proxy
Statement and proxy were first mailed to shareholders about
March 17, 1997.
The Corporation had outstanding 5,226,496 shares of Common
Stock as of the close of business on March 7, 1997, the record date
for the Annual Meeting as set by the Board of Directors. As a
result of shareholder action taken at the 1987 Annual Meeting,
1,020,000 shares of Common Stock owned by Dynamics Corporation of
America are not votable at the meeting. With the exception of
those shares, each shareholder is entitled to one vote in person or
by proxy for each share of Common Stock owned on the record date.
There are no other voting securities. If the enclosed proxy is
signed and returned, the shares represented will be voted in the
manner indicated except that if any nominee for director is unable
to serve at the time of the Annual Meeting, the proxy will be voted
in accordance with the judgment on such matters of the person or
persons acting as proxy.
Proxy solicitation will be principally by mail, but proxies
may also be solicited in person or by telephone. The expense of
this solicitation will be paid by the Corporation. Brokers and
certain other holders for beneficial owners will be reimbursed for
out-of-pocket expenses incurred in the solicitation of proxies from
the beneficial owners of shares held in their names. The
Corporation has retained Georgeson & Co., Inc. to assist in the
solicitation of proxies at an estimated cost of $5,000, plus
reasonable out-of-pocket expenses.
The Board of Directors is not aware of any business to be
acted upon at the Annual Meeting other than for which notice is
given, but in the event other business is properly presented at the
meeting, requiring a vote of the shareholders, the proxy will be
voted in accordance with the judgment on such matters of the person
or persons acting as proxy.
Shareholders are requested to exercise their right to vote by
completing and signing the enclosed proxy and returning it promptly
in the enclosed envelope. Unless otherwise specified by the
shareholder, all shares represented by valid proxies will be voted
in favor of the election of all director-nominees.
Securities Beneficially Owned by Principal
Shareholders and Management
The following table includes information with respect to all
persons and groups known to the Corporation to be beneficial owners
of more than five percent of the Common Stock of the Corporation on
March 7, 1997. The number of shares and the percent of class held
by each director and director-nominee is also stated.
Additionally, the number of shares and the percent of class held by
each executive officer of the Corporation included in the Summary
Compensation Table set forth under the caption "Executive
Compensation" below is included, together with the total number of
shares and percent of class held by all directors and officers as
a group.
Amount and Nature of
Beneficial Ownership On Percent
Beneficial Owner March 7, 1997 (1) of Class
Dynamics Corporation of America 2,303,100 (2) 44.07
475 Steamboat Road
Greenwich, CT 06830
The Gabelli Group, Inc. 1,212,100 (3) 23.19
GAMCO Investors, Inc.,
and Gabelli Funds, Inc.
655 Third Avenue
New York, NY 10017
Gerald H. Frieling, Jr. 200,150 (4) 3.83
Lawrence J. Ciancia 199,650 (4) 3.82
Patrick J. Dorme 199,150 (4, 10) 3.81
Andrew Lozyniak 199,150 (4, 10) 3.81
Joseph P. Walker 26,712 (5) *
Philip T. Christ 19,285 (6) *
Stanley J. Aris 11,114 (7) *
Donald R. Schroeder 10,341 (8) *
James N. Hufford 4,515 (9) *
13 directors and officers 295,316 (4, 11) 5.65
as a group
___________________________
*Less than 1%.
(1) Information with respect to beneficial ownership is based upon
information furnished by each shareholder or contained in filings
made with the Securities and Exchange Commission. Except where
otherwise indicated, the shareholders listed in the table have sole
voting and investment authority with respect to the shares owned by
them.
(2) Includes 1,020,000 shares for which voting authority was not
granted by a vote of the independent shareholders of the Corpora-
tion at the 1987 Annual Meeting of Shareholders, pursuant to the
Control Share Acquisition Chapter of the Indiana Business Corpora-
tion Law.
(3) Includes 215,500 shares held by Gabelli Funds, Inc., and 996,600
shares held by GAMCO Investors, Inc., which were reported on a
joint Schedule 13D filed March 6, 1996, the most recent filing by
such Reporting Persons. According to the Schedule 13D, each of the
Reporting Persons and Covered Persons has the sole power to vote or
direct the vote and sole power to dispose or to direct the
disposition of the Securities reported for it, either for its own
benefit or for the benefit of its investment clients or its
partners, as the case may be, except that GAMCO Investors, Inc.
does not have authority to vote 173,000 of the reported shares, and
except that Gabelli Funds, Inc. has sole dispositive and voting
power with respect to the 215,500 reported shares held by the
Funds, so long as the aggregate voting interest of all joint filers
does not exceed 25% of the issuer's total voting interest and, in
that event, the respective Proxy Voting Committee of each fund
(other than The Gabelli Growth Fund) will vote the shares held by
that Fund; except that, at any time, the Proxy Voting Committee of
each such Fund may take and exercise in its sole discretion the
entire voting power with respect to the shares held by such Fund
under special circumstances such as regulatory considerations; and
that the power of Mr. Gabelli and Gabelli Funds, Inc. is indirect
with respect to securities beneficially owned directly by other
Reporting Persons.
(4) 199,150 of the shares shown as owned beneficially by each of Mr.
Ciancia, Mr. Dorme, Mr. Frieling, Mr. Lozyniak and 13 directors and
officers as a group are the same shares, which shares are held by
The Northern Trust Company as Trustee of the CTS Corporation
Employee Benefit Plans Master Trust (the "Trust"). The Compensa-
tion Committee of the Board of Directors has voting and investment
authority over said shares. The present members of the Compensation
Committee are Lawrence J. Ciancia, Patrick J. Dorme, Gerald H.
Frieling, Jr., and Andrew Lozyniak, who were appointed by the Board
of Directors of CTS Corporation.
(5) Includes 4,012 shares attributed to Joseph P. Walker's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1996, the most recent annual report of the Plan. The
number of shares attributed to Mr. Walker's account may not reflect
shares that have accrued to his account since the filing of the
Plan's last annual report. Also includes 2,500 shares subject to
options exercisable on March 7, 1997, or which become exercisable
within 60 days thereafter.
(6) Includes 1,685 shares attributed to Philip T. Christ's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1996, the most recent annual report of the Plan. The
number of shares attributed to Mr. Christ's account may not reflect
shares that have accrued to his account since the filing of the
Plan's last annual report. Also includes 6,600 shares subject to
options exercisable on March 7, 1997, or which become exercisable
within 60 days thereafter.
(7) Includes 314 shares attributed to Stanley J. Aris' account in the
CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1996, the most recent annual report of the Plan. The
number of shares attributed to Mr. Aris' account may not reflect
shares that have accrued to his account since the filing of the
Plan's last annual report. Also includes 5,800 shares subject to
options exercisable on March 7, 1997, or which become exercisable
within 60 days thereafter.
(8) Includes 6,341 shares attributed to Donald R. Schroeder's account
in the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1996, the most recent annual report of the Plan. The
number of shares attributed to Mr. Schroeder's account may not
reflect shares that have accrued to his account since the filing of
the Plan's last annual report. Also includes 2,000 shares subject
to options exercisable on March 7, 1997, or which become exercisable
within 60 days thereafter.
(9) Includes 1,015 shares attributed to James N. Hufford's account in
the CTS Corporation Retirement Savings Plan, as shown as of
December 31, 1996, the most recent annual report of the Plan. The
number of shares attributed to Mr. Hufford's account may not
reflect shares that have accrued to his account since the filing of
the Plan's last annual report. Also includes 2,100 shares subject
to options exercisable on March 7, 1997, or which become exercisable
within 60 days thereafter. Also includes 400 shares held in
a trust for his spouse, of which he disclaims beneficial ownership.
(10) Messrs. Dorme and Lozyniak are directors of Dynamics Corporation
of America.
(11) Includes 29,400 shares subject to options exercisable on March 7,
1997, or which become exercisable within 60 days thereafter.
Election of Directors
At the Annual Meeting, five directors are to be elected for
terms of one year. Each director will hold office until the next
Annual Meeting of Shareholders and until his successor has been
elected and qualified. Each person listed below has been nominated
by the Board of Directors and has agreed to serve as a director, if
elected.
Year First
Elected
Director
GERALD H. FRIELING, JR. 1982
Vice Chairman of the Board of Tokheim Corporation
(a manufacturer of petroleum dispensing equipment,
systems and control devices); President of Frieling
and Associates (a consulting firm); Chairman of the
Audit Committee and Member of the Executive and
Compensation Committees of CTS Corporation. During
the past five years, Mr. Frieling, age 66, served
as Chairman of the Board and Chief Executive
Officer of Tokheim Corporation, and in his present
capacity at Frieling and Associates.
ANDREW LOZYNIAK 1987
Chairman of the Board and President of Dynamics
Corporation of America (a manufacturer of
electrical appliances and electronic devices,
fabricated metal products and equipment, and power
and controlled environmental systems); Chairman of
the Compensation Committee and Member of the
Executive and Audit Committees of CTS Corporation.
During the past five years, Mr. Lozyniak, age 65,
has served in his present capacities at Dynamics
Corporation of America. Mr. Lozyniak serves as a
director of Dynamics Corporation of America and
Physicians Health Services, Inc.
JOSEPH P. WALKER 1987
Chairman of the Board, President and Chief
Executive Officer of CTS Corporation; Chairman of
the Executive Committee of CTS Corporation. During
the past five years, Mr. Walker, age 58, has served
in his present capacities at CTS. Mr. Walker is a
director of NBD Bank, N.A.
LAWRENCE J. CIANCIA 1990
Vice President, Growth and Development, of Uponor
U.S., Inc. (a supplier of PVC pipe products,
specialty chemicals and PVC compounds); Member of
the Audit and Compensation Committees of CTS
Corporation. During the past five years, Mr.
Ciancia, age 54, has served as President, Chief
Executive Officer and Chief Operating Officer of
Uponor ETI Company, formerly Concorde Industries,
Inc.
PATRICK J. DORME 1993
Vice President and Chief Financial Officer of
Dynamics Corporation of America (a manufacturer of
electrical appliances and electronic devices,
fabricated metal products and equipment, and power
and controlled environmental systems); Member of
the Audit and Compensation Committees of CTS
Corporation. During the past five years, Mr.
Dorme, age 61, has served in his present capacities
at Dynamics Corporation of America. Mr. Dorme
serves as a director of Dynamics Corporation of
America.
The affirmative vote of the holders of a plurality of the shares
represented in person or by proxy at the meeting is required to
elect the director-nominees. The Board of Directors unanimously
recommends that the shareholders vote in favor of each of the
director-nominees named above.
In the event that any of such nominees are unable or unwilling to
serve as a director, an event which the Corporation does not
anticipate, the proxies hereby solicited will be voted for the
remaining nominees named above or for such substitute person or
persons as the Board of Directors may select.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires
the Corporation's directors and Executive Officers, and persons who
own more than ten percent of a registered class of the
Corporation's equity securities, to file with the Securities and
Exchange Commission and the New York Stock Exchange initial reports
of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Corporation. Executive
Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Corporation with copies
of all Section 16(a) forms they file.
To the Corporation's knowledge, based solely on its review of
the copies of such reports furnished to the Corporation and written
representations that no other reports were required during the year
ended December 31, 1996, all Section 16(a) filing requirements
applicable to its Executive Officers, directors and greater than
ten percent beneficial owners were complied with.
Board of Directors and Standing Committees
During 1996, the Board of Directors held six meetings. The
standing committees of the Board of Directors include an Audit
Committee, an Executive Committee and a Compensation Committee.
The Audit Committee, consisting of Lawrence J. Ciancia,
Patrick J. Dorme, Gerald H. Frieling, Jr. and Andrew Lozyniak, held
two meetings in 1996. The Committee performs the following
principal functions: recommendation of the engagement or discharge
of the Corporation's independent accountants; review of the plan
and results of the auditing engagement with the independent
accountants; review of the adequacy of the Corporation's internal
accounting controls; and review of the independence of the
independent accountants and the audit fees of the independent
accountants.
The Executive Committee, consisting of Gerald H. Frieling,
Jr., Andrew Lozyniak and Joseph P. Walker, held five meetings in
1996. The Committee reviews and advises management on financial
and operational matters between meetings of the Board of Directors.
The Compensation Committee, consisting of Lawrence J. Ciancia,
Patrick J. Dorme, Gerald H. Frieling, Jr. and Andrew Lozyniak, held
three meetings in 1996. The Committee performs the function of
recommending officer compensation arrangements and amounts to the
Board of Directors. The Committee also administers the CTS
Corporation 1986 Stock Option Plan, the CTS Corporation 1996 Stock
Option Plan, the CTS Corporation 1988 Restricted Stock and Cash
Bonus Plan, and the CTS Corporation Management Incentive Plan.
Each director-nominee attended 100% of the meetings of the
Board of Directors and the committees to which he was assigned
during 1996.
Executive Compensation
The following table sets forth annual and long-term
compensation information for each of the last three fiscal years of
the Chief Executive Officer and the four highest compensated
Executive Officers whose salary and bonus for fiscal year 1996
exceeded $100,000. Information which is not required to be
disclosed in the table is identified by the letters "N/R."
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Restricted Securities
Name and Stock Underlying All Other
Principal Salary Bonus(1) Other(2) Award(s)(3) Options Compensation(4)
Position Year ($) ($) ($) ($) (#) ($)
Joseph P. Walker (5, 6) 1996 342,167 205,300 N/R 0 0 6,007
Chairman of the 1995 327,411 196,400 N/R 0 10,000 11,270
Board, President and 1994 311,878 147,200 N/R 231,250 0 8,496
Chief Executive Officer
Philip T. Christ (6) 1996 203,903 122,400 N/R 0 0 11,363
Group Vice 1995 178,775 107,300 N/R 231,000 8,000 7,677
President 1994 168,301 90,200 N/R 0 5,000 7,326
Stanley J. Aris (6) 1996 174,309 104,600 N/R 0 0 3,375
Vice President 1995 168,078 100,800 N/R 37,375 8,500 5,994
Finance and Chief 1994 160,105 75,600 N/R 57,813 3,000 4,991
Financial Officer
Donald R. Schroeder (6) 1996 126,692 76,000 N/R 0 0 4,464
Vice President, Sales 1995 119,481 71,700 N/R 0 5,500 39,428
and Marketing 1994 N/R N/R N/R N/R N/R N/R
James N. Hufford (6) 1996 122,464 73,500 N/R 0 0 3,978
Vice President 1995 115,126 69,100 N/R 37,375 5,750 4,520
Research Development 1994 N/R N/R N/R N/R N/R N/R
and Engineering
(1) Includes bonuses paid pursuant to the CTS Corporation Management
Incentive Plan, as described in the Report of the Compensation
Committee below.
(2) The value of other personal benefits received from the Corporation
by the named Executive Officers is below the reporting threshold
for perquisites.
(3) At the end of fiscal year 1996, Joseph P. Walker held 6,000
restricted shares, issued pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, on which the transfer
restrictions had not lapsed, the market value of which at
December 31, 1996 was $256,500. At the time that such restrictions
lapse, a cash bonus is paid in an amount equal to the market value
of the shares on the date the restriction lapses. For Joseph P.
Walker, the cash payments made pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan for the three identified years
were: 1996 - $75,000; 1995 - $62,000; and 1994 - $49,250.
At the end of fiscal year 1996, Philip T. Christ held 6,000
restricted shares, issued pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, on which the transfer
restrictions had not lapsed, the market value of which on
December 31, 1996 was $256,500. For Philip T. Christ, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock
and Cash Bonus Plan for the three identified years were: 1996 -
$69,375; 1995 - $24,200; and 1994 - $19,150.
At the end of fiscal year 1996, Stanley J. Aris held 2,300
restricted shares, issued pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, on which the transfer
restrictions had not lapsed, the market value of which on
December 31, 1996 was $98,325. For Stanley J. Aris, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock
and Cash Bonus Plan for the three identified years were: 1996 -
$26,925; 1995 - $15,500; and 1994 - $0.
At the end of fiscal year 1996, Donald R. Schroeder held 600
restricted shares, issued pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, on which the transfer
restrictions had not lapsed, the market value of which on
December 31, 1996 was $25,650. For Donald R. Schroeder, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock
and Cash Bonus Plan for the three identified years were: 1996 -
$8,175; 1995 - $7,425 and 1994 - N/R.
At the end of fiscal year 1996, James N. Hufford held 800
restricted shares, issued pursuant to the CTS Corporation 1988
Restricted Stock and Cash Bonus Plan, on which the transfer
restrictions had not lapsed, the market value of which on
December 31, 1996 was $34,200. For James N. Hufford, the cash
payments made pursuant to the CTS Corporation 1988 Restricted Stock
and Cash Bonus Plan for the three identified years were: 1996 -
$8,175; 1995 - $0 and 1994 - N/R.
The restrictions on 20% of the shares awarded under this Plan lapse
at the end of each of the five years following acquisition of the
shares. Regular dividends are paid to holders of restricted stock
awarded under this Plan. This Plan includes a change of control
provision which provides that, upon a change of control of the
Corporation, as defined in the Plan, all restrictions on shares
awarded under the Plan will lapse and cash bonuses will be paid
relative to those shares.
(4) Includes (i) the Corporation's matching contributions to the CTS
Corporation Retirement Savings Plan on behalf of the named
Executive Officers as follows: for Joseph P. Walker, 1996 -
$3,375; 1995 - $3,465; and 1994 - $3,465; for Philip T. Christ,
1996 - $3,375; 1995 - $3,465; and 1994 - $3,465; for Stanley J.
Aris, 1996 - $3,375; 1995 - $3,465; and 1994 - $3,465; for
Donald R. Schroeder, 1996 - $3,375; 1995 - $2,592; and 1994 - N/R;
and for James N. Hufford, 1996 - $3,375; 1995 - $3,135; and 1994 -
N/R; and (ii) the premiums paid by the Corporation on the term life
insurance policies with face values greater than $50,000 provided
to each of the named Executive Officers as follows: for Joseph P.
Walker, 1996 - $0; 1995 - $5,310; and 1994 - $5,031; for Philip T.
Christ, 1996 - $7,988; 1995 - $4,212; and 1994 - $3,861; for
Stanley J. Aris, 1996 - $0; 1995 - $2,529; and 1994 - $1,526; for
Donald R. Schroeder, 1996 - $1,089; 1995 - $929; and 1994 - N/R;
and for James N. Hufford, 1996 - $603; 1995 - $1,386; and 1994 -
N/R.
For Joseph P. Walker, also includes the imputed income value of the
term life insurance portion of the coverage under a "split dollar"
life insurance policy as follows: for 1996 - $2,632; for 1995 -
$2,495; and for 1994 - $0. For Donald R. Schroeder, also includes
for 1995 employee relocation expenses paid by the Corporation.
(5) Joseph P. Walker has executed an employment agreement with the
Corporation, which provides that for a period of three years,
beginning June 24, 1994, Mr. Walker will be employed by the
Corporation as Chairman of the Board, President and Chief Executive
Officer, at an initial annual salary of $319,725. Termination of
Mr. Walker's employment agreement by the Corporation, for reasons
other than cause as defined in the agreement, entitles Mr. Walker
to receive his then current annual salary for the number of months
remaining under his agreement, the same to be paid in equal monthly
payments.
(6) The Corporation has entered into Indemnification Agreements with
each of the named Executive Officers and all other Executive
Officers of the Corporation which provide that the Corporation
agrees to indemnify the officer, to the fullest extent allowed by
the bylaws of the Corporation and the Indiana Business Corporation
Law, in the event that he/she was or is made a party or threatened
to be made a party to any action, suit or proceeding by reason of
the fact that he/she is an officer of the Corporation. The
indemnification agreements provide indemnification for acts
occurring prior to the execution of the agreements.
Stock Options
No options for CTS Corporation Common Stock were awarded to
the named Executive Officers in 1996.
OPTION EXERCISES IN 1996
AND FISCAL YEAR END 1996 OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Shares Year-End Year-End
Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized Unexercisable Unexercisable
Joseph P. Walker -0- -0- 2,500/7,500 $13,438/$40,313
Philip T. Christ -0- -0- 6,100/8,900 $92,988/$87,263
Stanley J. Aris -0- -0- 5,300/8,200 $76,063/$70,875
Donald R. Schroeder -0- -0- 2,000/4,500 $18,325/$29,238
James N. Hufford -0- -0- 2,100/4,650 $18,863/$30,044
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors,
comprised of Lawrence J. Ciancia, Patrick J. Dorme, Gerald H.
Frieling, Jr., and Andrew Lozyniak, submits this report of
Executive Compensation to the Corporation's shareholders.
Compensation Principles and Philosophy
The Compensation Committee of the Board of Directors has
implemented executive compensation policies and programs designed
to achieve the following objectives:
Attract and retain key executives and managers
Align the financial interests of key executives and
managers with those of the shareholders of the
Corporation
Reward individual performance
Reward Corporate performance
These objectives are achieved through a combination of annual
and longer term compensation arrangements including base salary,
annual cash incentive compensation, and long-term incentive
compensation through stock options and restricted stock awards, in
addition to medical, pension and other benefits available to
employees in general.
The four principal components of the Executive Officer
Compensation package at CTS Corporation are: base salary, the CTS
Corporation Management Incentive Plan, the CTS Corporation Stock
Option Plans and the CTS Corporation 1988 Restricted Stock and Cash
Bonus Plan.
Base Salary
The base salary of the Executive Officers of CTS Corporation
is determined in the same manner as the salaries of all exempt
salaried employees of the Corporation. A job classification system
is utilized to determine appropriate salary ranges for each
Executive Officer position, based on qualifications, job responsibilities
and market factors. The goal of CTS Corporation's job
classification system is that Executive Officers, and employees in
general, are paid a salary which is commensurate with their
qualifications, duties and responsibilities and which is competi-
tive in the market place. The Corporation retained Towers Perrin
to assess the current salaries and job classifications of the
Executive Officers compared with market data for similar positions
at similar companies and to provide periodic updates upon request.
The report from Towers Perrin indicated that the salaries of the
Corporation's Executive Officers are generally below competitive
median salaries. When the financial performance of the Corporation
permits, salary adjustments above the Corporation's salary budget
for all exempt salaried employees are considered for those in the
lower portion of their salary range, if individual performance
warrants such consideration.
During each of the past three years, the named Executive
Officers have been granted salary increases in the same range
established for all exempt salaried employees of the Corporation,
except that on occasion, certain officer salaries were increased at
higher rates in response to competitive salary information provided
by Towers Perrin.
CTS Corporation Management Incentive Plan
All Executive Officers of the Corporation are participants in
the CTS Corporation Management Incentive Plan, which provides cash
compensation incentives, based on the financial performance of the
Corporation. For 1996, financial performance was measured on the
basis of achieving target levels of return on assets (ROA). When
Plan financial objectives are met at the 100% level, each of the
named Executive Officers is eligible for a bonus in an amount equal
to 40% of his/her base salary for the subject year. Maximum
incentive payments under this Plan range from 10% to 60% of the
annual salary of the Plan participants.
For 1996, the Corporation achieved 150% of its ROA target
under the 1996 CTS Corporation Management Incentive Plan.
Accordingly, the named Executive Officers received formula bonuses
under the Plan equal to 60% of their base salaries.
For 1995, the Corporation achieved 150% of its ROA target
under the 1995 CTS Corporation Management Incentive Plan.
Accordingly, the named Executive Officers received formula bonuses
under the Plan equal to 60% of their base salaries.
This Plan also authorizes the Compensation Committee to grant
discretionary bonuses when the Committee deems it appropriate to do
so. No significant discretionary bonuses have been paid to the
named Executive Officers during any of the three years for which
compensation is disclosed.
CTS Corporation 1996 Stock Option Plan
The Compensation Committee administers the CTS Corporation
1996 Stock Option Plan and predecessor stock option plans and
determines to whom options will be granted, the dates of such
option grants, the number of shares subject to option, the option
price, option periods and option terms. No options were granted to
Executive Officers of the Corporation during 1996 under these
Plans.
CTS Corporation 1988 Restricted Stock and Cash Bonus Plan
The CTS Corporation 1988 Restricted Stock and Cash Bonus Plan
was adopted by the shareholders in 1989 for the purpose of
providing incentives to selected key employees who contribute or
are expected to contribute materially to the success of the
Corporation, and to closely align the financial interests of these
key employees with those of the Corporation's shareholders. The
participants are selected and their level of participation
determined by the Compensation Committee.
Shares acquired by participants pursuant to the Plan are
subject to restriction that, during the period of five years after
the date of acquisition, the participant may not sell, transfer or
otherwise dispose of such shares as to which the restrictions shall
not have lapsed. The restrictions lapse as to 20% of the shares
acquired pursuant to the Plan at the end of each year following the
acquisition of the shares. When the restrictions lapse, a cash
bonus is paid to the participant equal to the fair market value of
such shares as of the date of such lapse. In no event may the cash
bonuses payable to any participant be greater than twice the fair
market value of such shares on the date they were originally
acquired.
Dividends are paid to participants in this Plan on all shares
awarded to them under the Plan. The Plan also provides for
appropriate adjustment to the number of shares awarded in the event
of a stock dividend, stock split, recapitalization, merger,
combination or exchange of shares for other securities.
No awards under the Plan were made to the named Executive
Officers in 1996. The number of shares previously awarded to the
named Executive Officers, their market value, vesting schedules,
and bonuses paid relative thereto, are set forth in the Summary
Compensation Table above and the footnotes thereto.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as
amended, limits to $1,000,000 per person the amount that the
Corporation may deduct for compensation paid to any of its most
highly compensated officers in any year after 1993. The levels of
compensation paid to the Corporation's Executive Officers do not
exceed this limit. The Compensation Committee currently intends
for all compensation paid to its Executive Officers to be tax
deductible to the Company pursuant to Section 162(m).
Respectfully Submitted,
CTS CORPORATION COMPENSATION COMMITTEE
Lawrence J. Ciancia, Patrick J. Dorme,
Gerald H. Frieling, Jr. and Andrew Lozyniak
STOCK PERFORMANCE CHART
The following graph compares the cumulative total shareholder
return on the Corporation's Common Stock for the last five fiscal
years with the cumulative total return on the S & P 500 Index and
an index of peer companies over the same period.
CTS Corporation Salaried Employees' Pension Plan
The CTS Corporation Salaried Employees' Pension Plan is a
retirement plan for exempt salaried employees of some CTS Corporation
divisions and subsidiaries. The benefit formula is calculated
as 1% of a participant's highest average monthly pay during any
three calendar years of a participant's last ten calendar years of
service, multiplied by a participant's credited service. The
credited service for the named Executive Officers as of
December 31, 1996, is as follows: Joseph P. Walker, 8.78 years,
Philip T. Christ, 7.56 years, Stanley J. Aris, 4.78 years,
Donald R. Schroeder, 24.44 years and James N. Hufford, 31.2 years.
Covered compensation for the named Executive Officers is essentially
equivalent to the amount reported in the Annual Compensation
Section of the Summary Compensation Table above under the Salary
and Bonus columns. No benefit under this plan is subject to Social
Security or other offsets.
The following table shows the annual benefits payable under
the plan to persons in specified compensation and credited service
classifications at normal retirement age of 65:
PENSION TABLE*
Years of Participation
Compensation 15 Years 20 Years 25 Years 30 Years 35 Years
$100,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000 $ 35,000
125,000 18,750 25,000 31,250 37,500 43,750
150,000 22,500 30,000 37,500 45,000 52,500
175,000 26,250 35,000 43,750 52,500 61,250
200,000 30,000 40,000 50,000 60,000 70,000
225,000 33,750 45,000 56,250 67,500 78,750
250,000 37,500 50,000 62,500 75,000 87,500
300,000 45,000 60,000 75,000 90,000 105,000
400,000 60,000 80,000 100,000 120,000 140,000
*The benefit limitation under the Internal Revenue Code of 1986, as
amended, for 1997 is $120,000. No more than $160,000 (as adjusted
from time to time for cost-of-living increases of $10,000 or more)
of cash compensation may be taken into account in calculating
benefits under this plan.
In order to maintain the level of total retirement benefits
which, but for the Internal Revenue Code limitation on compensation
which may be taken into account, would otherwise be payable under
this plan, two actions were taken in 1996. A supplemental benefit
was added to this plan, and a Nonqualified Excess Benefit
Retirement Plan was adopted. The named Executive Officers and other
officers and key managers whose regular plan benefits are
negatively impacted by the Internal Revenue Code compensation
limitation, will be beneficiaries of these actions, under which any
benefits otherwise lost will be restored.
Director Compensation
Each member of the Board of Directors, who is not an employee
or an officer of the Corporation, is paid an annual retainer of
$13,000 per year for service on the Board of Directors, a meeting
fee of $1,000 for each meeting of the Board of Directors attended
in person, and $500 for each meeting of the Board of Directors
attended by telephone. In addition, each member of the Executive
Committee and each member of the Compensation Committee is entitled
to receive an annual retainer of $500, and each member of the Audit
Committee is entitled to receive an annual retainer of $1,000,
together with a meeting fee of $1,000 for attending each meeting of
a committee of which he is a member, except that he is entitled to
receive $500 per meeting for a second or subsequent meeting held on
the same day and for any such meetings attended by telephone.
On April 27, 1990 the Corporation adopted the CTS Corporation
Stock Retirement Plan for Nonemployee Directors of the Corporation
(the "Plan"). Under the Plan, separate accounts are opened by the
Corporation in the names of nonemployee directors. On January 1 of
each year, starting in 1991, a deferred stock account in the name
of each nonemployee director is credited with 100 Common Stock
Units if said director was a nonemployee director of the
Corporation on the last day of the immediately preceding calendar
year or ceased to be a director during such preceding calendar year
by reason of his retirement, disability or death. In addition, on
May 1, 1990, the Corporation credited to the deferred stock account
of each such director 50 Common Stock Units for each complete
calendar year of his service to the Corporation as a nonemployee
director prior to May 1, 1990. Each deferred stock account will
also be credited with Common Stock Units when credits equivalent to
cash dividends on the shares in an account aggregate an amount
equal to the value of a share of Common Stock on a dividend payment
date. All deferred Common Stock Units in a director's account will
be distributed in Common Stock as of the January 1st after the
director leaves the Board of Directors. Until such time, the
Corporation's obligation under the Plan is an unsecured promise to
deliver shares of Common Stock. No Common Stock will be held in
trust or as a segregated fund because of the adoption of the Plan.
Four members of the Board of Directors are currently eligible to
participate in the Plan. The Corporation expensed $17,100 in 1996
in respect of Common Stock Units credited to the accounts of the
eligible directors as a group pursuant to the Plan.
Corporation's Independent Accountants
The Corporation's independent accountants are Price Water-
house. Representatives of the independent accountants will attend
the Annual Meeting, to be available to respond to appropriate
questions by shareholders and to have the opportunity to make
statements, if they so desire.
Shareholder Proposals
To be considered for inclusion in the 1998 proxy solicitation
material and proxy, shareholder proposals must be received by the
Corporation at its Corporate Offices no later than November 21,
1997.
1996 Annual Report on S.E.C. Form 10-K
Upon the written request of a CTS shareholder owning shares of
Common Stock on the record date, to Jeannine M. Davis, Secretary of
CTS Corporation, 905 West Boulevard North, Elkhart, Indiana 46514,
the Corporation will provide to such shareholder, without charge,
a copy of its 1996 Annual Report on S.E.C. Form 10-K, including the
financial statements and financial statement schedules.
Jeannine M. Davis
Secretary
Elkhart, Indiana
March 17, 1997