-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FGEQs8qji9kx3hVQxueOhXm5haHKDeyNzCkRQCwP4hLg0YIBtQDqa3rLQRRjfhtL 0KXCMr8pXfPyYH481CGWkA== 0000026058-98-000010.txt : 19980813 0000026058-98-000010.hdr.sgml : 19980813 ACCESSION NUMBER: 0000026058-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CTS CORP CENTRAL INDEX KEY: 0000026058 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 350225010 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04639 FILM NUMBER: 98683849 BUSINESS ADDRESS: STREET 1: 905 W BLVD N CITY: ELKHART STATE: IN ZIP: 46514 BUSINESS PHONE: 2192937511 MAIL ADDRESS: STREET 1: 905 W BLVD NORTH CITY: ELKHART STATE: IN ZIP: 46514 10-Q 1 1998 2ND Q 10 Q 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 June 28, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _____________ to _________________ For Quarter Ended Commission File Number June 28, 1998 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 August 7, 1998: 13,658,503 Page 1 of 14 CTS CORPORATION FORM 10-Q INDEX Page No. PART I -- FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Earnings - For the Three Months and Six Months ended June 28, 1998, and June 29, 1997 3 Condensed Consolidated Balance Sheets - As of June 28, 1998, and December 31, 1997 4 Condensed Consolidated Statements of Cash Flows - For the Six Months Ended June 28, 1998, and June 29, 1997 5 Notes to Condensed Consolidated Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13 PART II -- OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14 Page 2 of 14 Part I. -- FINANCIAL INFORMATION Item 1. Financial Statements CTS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED (In thousands of dollars, except per share amounts) Three Months Ended Six Months Ended June 28, June 29, June 28, June 29, 1998 1997 1998 1997 Net sales $124,513 $107,482 $ 250,565 $198,751 Costs and expenses: Cost of goods sold 88,451 78,645 182,447 144,623 Selling, general and administrative expenses 17,062 12,042 32,513 23,866 Research and development expenses 3,717 3,075 7,175 6,049 Operating earnings 15,283 13,720 28,430 24,213 Other expenses (income): Interest expense 1,192 410 2,290 673 Other (351) (115) (1,705) (923) Total other expense (income) 841 295 585 (250) Earnings before income taxes 14,442 13,425 27,845 24,463 Income taxes 4,776 4,967 9,467 9,051 Net earnings $ 9,666 $ 8,458 $18,378 $15,412 Net earnings per share: Basic $ 0.69 $ 0.54 $ 1.28 $ 0.99 Diluted $ 0.66 $ 0.53 $ 1.22 $ 0.97 Cash dividends declared per share $ 0.06 $ 0.06 $ 0.12 $ 0.12 Average common shares outstanding: Basic 13,961,302 15,685,911 14,406,551 15,680,635 Diluted 14,577,842 15,869,831 15,065,196 15,834,660 See notes to condensed consolidated financial statements. Page 3 of 14 Part I. -- FINANCIAL INFORMATION CTS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands of dollars) June 28, December 31, 1998 1997* ASSETS (Unaudited) Current Assets: Cash $ 10,105 $ 39,847 Accounts receivable, less allowances (1998-$1,156; 1997-$1,074) 72,016 68,679 Inventories--Note B 50,972 56,007 Other current assets 7,237 5,327 Deferred income taxes 15,873 15,873 Total current assets 156,203 185,733 Property, Plant and Equipment, less accumulated depreciation (1998--$131,787; 1997--$130,907) 84,105 76,027 Other Assets Prepaid pension 65,215 61,738 Other 3,651 6,083 Total other assets 68,866 67,821 $309,174 $329,581 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations $ 6,255 $ 5,465 Accounts payable 25,099 28,200 Accrued liabilities 69,829 58,687 Total current liabilities 101,183 92,352 Long-term Obligations 72,621 63,474 Deferred Income Taxes 19,300 21,950 Postretirement Benefits 4,465 4,309 Shareholders' Equity: Preferred stock - authorized 25,000,000 shares without par value; none issued Common stock-authorized 75,000,000 shares without par value; issued 24,178,992 shares 189,928 186,794 Additional contributed capital 10,668 15,822 Retained earnings 179,843 163,169 Cumulative translation adjustment 849 694 381,288 366,479 Less cost of common stock held in treasury: 1998--10,413,756 shares; 1997--8,873,056 shares 269,683 218,983 Total shareholders' equity 111,605 147,496 $309,174 $329,581 *The balance sheet at December 31, 1997, has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements. Page 4 of 14 Part I. -- FINANCIAL INFORMATION CTS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (In thousands of dollars) Six Months Ended June 28, June 29, 1998 1997 Cash flows from operating activities: Net earnings $18,378 $ 15,412 Depreciation and amortization 8,942 7,635 (Increase) decrease, net of effects of the sale of Waring Products Division: Accounts receivable (7,414) (23,571) Inventories (1,756) 5,074 Other current assets (2,094) (1,076) Prepaid pension asset (3,477) (3,418) Other 1,300 349 Increase in: Accounts payable and accrued liabilities (1,379) 17,674 Total adjustments (5,878) 2,667 Net cash provided by operating activities 12,500 18,079 Cash flows from investing activities: Proceeds from sale of property and other assets 23,253 134 Capital expenditures (11,005) (10,553) Investment in DCA (68,509) Acquisition related costs (3,329) Net cash provided by (used in) investing activities 8,919 (78,928) Cash flows from financing activities: Net proceeds from revolving credit 5,000 Term loan borrowings 50,000 Payments of long-term obligations (750) (214) Dividend payments (1,785) (1,881) Purchases of treasury stock (50,950) Other (2,870) (968) Net cash (used in) provided by financing activities (51,355) 46,937 Effect of exchange rate changes on cash 194 (389) Net decrease in cash (29,742) (14,301) Cash at beginning of year 39,847 44,957 Cash at end of period $ 10,105 $30,656 Supplemental cash flow information Cash paid during the period for: Interest $ 2,251 $ 558 Income Taxes--Net $ 9,961 $ 4,201 Noncash investing activities: Liabilities assumed in connection with the purchase of DCA $16,107 See notes to condensed consolidated financial statements. Page 5 of 14 Part I. -- FINANCIAL INFORMATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands of dollars except per share data) June 28, 1998 NOTE A--BASIS OF PRESENTATION The accompanying condensed consolidated interim financial statements have been prepared by CTS Corporation ("CTS" or "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The consolidated interim financial statements should be read in conjunction with the financial statements, notes thereto and other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The accompanying unaudited consolidated interim financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair presentation, in all material respects, of the financial position and results of operations for the periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B--INVENTORIES The components of inventory consist of the following: June 28, December 31, 1998 1997 Finished goods $ 7,212 $ 8,061 Work-in-process 24,759 26,036 Raw material 19,001 21,910 $50,972 $56,007 Page 6 of 14 NOTE C--LITIGATION AND CONTINGENCIES Contested claims involving various matters, including environmental claims brought by government agencies, are being litigated by CTS, both in legal and administrative forums. In the opinion of management, based upon currently available information, adequate provision for potential costs has been made, or the costs which could ultimately result from such litigation or administrative proceedings will not materially affect the consolidated financial position of the Company or the results of operations. Note D - Integration of DCA The Company is continuing the process that began in October of 1997 of evaluating the alternatives for the business units acquired from DCA. During the quarter, the Company substantially completed the sale of the Waring Products Division and closed the DCA corporate headquarters in Greenwich, Connecticut. The Company does not expect that the finalization of this process will have any significant effect on the consolidated financial position or results of operation of the Company. Note E - Earnings Per Share (EPS) FASB Statement No. 128, "Earnings per Share," requires companies to provide a reconciliation of the numerator and denominator of the basic and diluted EPS computations. The calculation below provides net earnings, average common shares outstanding and the resultant earnings per share for both basic and the diluted EPS for the second quarter and first half of 1998 and 1997. The other dilutive securities of 167,457 at June 28, 1998, consisted of shares of CTS common stock to be issued to DCA shareholders who have not yet tendered their DCA shares. Page 7 of 14 Net Net Earnings Shares Earnings (Numerator) (Denominator) Per Share Second Quarter 1998: Basic $9,666 13,961,302 $0.69 Effect of Dilutive Securities: Stock options 449,083 Other 167,457 Diluted $9,666 14,577,842 $0.66 Second Quarter 1997: Basic $8,458 15,685,911 $0.54 Effect of Dilutive Securities: Stock options 183,920 Other 0 Diluted $8,458 15,869,831 $0.53 First Half 1998: Basic $18,378 14,406,551 $1.28 Effect of Dilutive Securities: Stock options 487,166 Other 171,479 Diluted $18,378 15,065,196 $1.22 First Half 1997: Basic $15,412 15,680,635 $0.99 Effect of Dilutive Securities: Stock Options 154,025 Other 0 Diluted $15,412 15,834,660 $0.97 NOTE F - COMPREHENSIVE EARNINGS Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement requires that all items recognized under accounting standards as components of comprehensive earnings be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This statement also requires that an entity classify items of other comprehensive earnings by their nature in an annual financial statement. Other comprehensive earnings include Page 8 of 14 foreign currency translation adjustments. The Company's comprehensive earnings for the second quarter and first half of 1998 and the comparable period last year were as follows: Three Months Ended June 28, June 29, 1998 1997 (In thousands of dollars) Second Quarter Net earnings $9,666 $8,458 Other comprehensive earnings (loss)- translation adjustments (248) 463 Comprehensive earnings $9,418 $8,921 Six Months Ended June 28, June 29, 1998 1997 First Half Net earnings $18,378 $15,412 Other comprehensive earnings (loss)- translation adjustments 155 (561) Comprehensive earnings $18,533 $14,851 Part I. -- FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Material Changes in Financial Condition: Comparison of June 28, 1998, to December 31, 1997 The following table highlights significant changes in balance sheet items and ratios and other information related to liquidity and capital resources: (Dollars in thousands) June 28, December 31, Increase 1998 1997 (Decrease) Cash $10,105 $ 39,847 $ (29,742) Accounts receivable, net 72,016 68,679 3,337 Inventories, net 50,972 56,007 (5,035) Current assets 156,203 185,733 (29,530) Accounts payable 25,099 28,200 (3,101) Other current liabilities 69,829 58,687 11,142 Current liabilities 101,183 92,352 8,831 Working capital 55,020 93,381 (38,361) Current ratio 1.54 2.01 (.47) Interest bearing debt 65,250 61,206 4,044 Net tangible worth 110,524 146,320 (35,796) Ratio of interest bearing debt to net tangible worth .59 .42 .17 Page 9 of 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) From December 31, 1997 to June 28, 1998, cash decreased by $29.7 million primarily due to common stock repurchases of $51.0 million, partially offset by cash proceeds from asset sales of $23.3 million. The Company's stock repurchases include the purchase of 0.7 million of CTS common shares from WHX Corporation on March 5, 1998, and 0.9 million shares in the open market and other transactions. On June 26, 1998, the Company announced the authorization by the Board of Directors to purchase an additional 500,000 shares of its stock from time to time in open market or privately negotiated transactions. The cash proceeds from asset sales represent the May 8, 1998 sale of the Waring Products division of DCA to Conair Corporation and sale of the Company's Bentonville, Arkansas facility and other assets during the first quarter of 1998. Working capital decreased $38.4 million due to the cash decrease of $29.7 million, as explained above, and increases in other current liabilities of $11.1 million relating primarily to the severance expenses associated with the retirement/termination of DCA executives and the termination of other DCA corporate employees. The current ratio decreased slightly due to the relative decrease in current assets, primarily cash, due to the level of common stock repurchases. The ratio of interest bearing debt to net tangible worth increased due to a $4.0 million net increase in debt and a decrease of $35.8 million in net tangible worth, relating primarily to the stock repurchase activity. Capital expenditures were $11.0 million during the first half, compared with $10.6 million for the same period a year earlier. These capital expenditures were primarily for increased manufacturing capacity, manufacturing improvement programs and new products. Page 10 of 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Material Changes in Results of Operations: Comparison of Second Quarter 1998 to Second Quarter 1997 The following table highlights changes in significant components of the consolidated statements of earnings for the three-month periods ending June 28, 1998, and June 29, 1997: (Dollars in thousands) June 28, June 29, Increase 1998 1997 (Decrease) Net sales $124,513 $107,482 $17,031 Gross earnings 36,062 28,837 7,225 Gross earnings as a percent of sales 28.96% 26.83% 2.13% Selling, general and administrative expenses 17,062 12,042 5,020 Selling, general and administrative expenses as a percent of sales 13.70% 11.20% 2.50% Research and development expenses 3,717 3,075 642 Operating earnings 15,283 13,720 1,563 Operating earnings as a percent of sales 12.27% 12.76% (0.49%) Interest expense 1,192 410 782 Earnings before income taxes 14,442 13,425 1,017 Income taxes 4,776 4,967 (191) Income tax rate 33.07% 37.00% (3.93%) Material Changes in Results of Operations: Comparison of Second Quarter 1998 to Second Quarter 1997 (Continued) Net sales increased by $17.0 million, or 15.8% from the second quarter of 1997. Sales increases occurred principally as a result of the inclusion of Dynamics Corporation of America (DCA) operating units partially offset by the 1998 sale of our domestic military and aerospace connector business, the decline in the disk drive industry and lower demand in Europe for our interconnect products. As a percent of total sales, sales of electronic components, electronic component assemblies and other products in the second quarter of 1997 were 52.8%, 26.6% and 20.6%, respectively. As a percentage of total sales, the second quarter of 1997 sales of electronic components, electronic component assemblies and other products were 56.3%, 43.3% and 0.4%, respectively. The increase in other products relates to the inclusion of DCA operations in 1998. Sales of electronic component assemblies decreased in 1998 due primarily to the 1997 sale of our domestic military and aerospace connector business, the decline in the disk drive industry and the lower European demand for our interconnect products. Gross earnings as a percentage of sales increased due to improvements in our microelectronics and electrocomponents businesses, partially offset by the inclusion of DCA lower margin businesses. Page 11 of 14 Selling, general and administrative expenses increased as a result of the inclusion of acquired DCA businesses. Research and development expenses increased 20.9% as the Company continued investment efforts in new product development and improvements. The effective tax rate decreased almost 4% points primarily due to higher earnings in the lower-tax jurisdictions. Material Changes in Results of Operations: Comparison of First Half 1998 to First Half 1997 The following table highlights changes in significant components of the consolidated statements of earnings for the six-month periods ending June 28,1998, and June 29,1997: (Dollars in thousands) June 28, June 29, Increase 1998 1997 (Decrease) Net sales $250,565 $198,751 $51,814 Gross earnings 68,118 54,128 13,990 Gross earnings as a percent of sales 27.19% 27.23% (0.04%) Selling, general and administrative expenses 32,513 23,866 8,647 Selling, general and administrative expenses as a percent of sales 12.98% 12.01% 0.97% Research and development expenses 7,175 6,049 1,126 Operating earnings 28,430 24,213 4,217 Operating earnings as a percent of sales 11.35% 12.18% (0.83%) Interest expense 2,290 673 1,617 Earnings before income taxes 27,845 24,463 3,382 Income taxes 9,467 9,051 416 Income tax rate 34.00% 37.00% (3.00%) Net sales increased by $51.8 million, or 26.1% from the first half of 1997. Sales increases occurred principally as a result of the inclusion of the acquired DCA, partially offset by the 1997 sale of our domestic military and aerospace connector business and the decline in the disk drive industry. As a percent of total sales, sales of electronic components, electronic component assemblies and other products in the first half of 1998 were 51.1%, 25.9% Page 12 of 14 and 23.0%, respectively. As a percentage of total sales, the first half of 1997 sales of electronic components, electronic component assemblies and other products were 58.3%, 41.3% and 0.4%, respectively. The increase in other products relates to the inclusion of DCA operations in 1998. Sales of electronic component assemblies decreased in 1998 due primarily to the 1997 sale of our domestic military and aerospace connector business and the decline in the disk drive industry. Gross earnings, as a percentage of sales decreased primarily due to the inclusion of lower margin DCA businesses, primarily offset by improvements in CTS core business margin from 27.2% to 31.3%, due to productivity improvements and expense control programs. Selling, general and administrative expenses in dollars increased as a result of the inclusion of acquired businesses. CTS businesses decreased in dollars due to continued cost control. Research and development expenses increased 18.6% as the Company continued investment efforts in new product development and improvements. The effective tax rate decreased by 3% points primarily due to higher earnings in the lower-tax jurisdictions. Part II -- OTHER INFORMATION Item 1. Legal Proceedings CTS is involved in litigation and in other administrative proceedings with government agencies regarding the protection of the environment, and other matters, the results of which are not yet determinable. In the opinion of management, based upon currently available information, adequate provision for anticipated costs has been made, or the ultimate costs resulting from such litigation or administrative proceedings will not materially affect the consolidated financial position of the Company or the results of operations. Page 13 of 14 Item 6. Exhibits and Reports on Form 8-K a. Exhibits 1 Severance agreements, dated March 31, 1998, between CTS Corporation and Andrew Lozyniak, Henry V. Kensing and Patrick K. Dorme. b. Forms 8-K None 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 Jeannine M. Davis George T. Newhart Vice President, Secretary Vice President, Corporate and General Counsel Controller and principal accounting officer Dated: August 12, 1998 Page 14 of 14 Exhibit 1 SETTLEMENT AGREEMENT This Settlement Agreement (the "Agreement") is made and entered into this 31st day of March, 1998, among CTS Corporation ("CTS"), Dynamics Corporation of America ("DCA"), and Andrew Lozyniak (the "Executive"). WHEREAS, CTS, DCA and Executive executed an Employment Agreement on the 9th day of May, 1997, which became effective on October 16, 1997 (the "Employment Agreement"); and WHEREAS, the parties now desire to modify the Employment Agreement as set forth herein and to settle all matters arising thereunder; NOW, THEREFORE, in consideration of the mutual premises and the respective covenants and agreements herein contained, the parties hereto agree as follows: 1. Operation of Agreement A. CTS, DCA and Executive hereby each agree that Executive's employment at DCA and membership on the DCA Board of Directors and any and all boards of subsidiary corporations thereof shall terminate, effective at the close of business on March 31, 1998 ("Date of Termination"). B. Executive will continue to serve as a member of CTS' Board of Directors through CTS' 1999 Annual Meeting of Shareholders but will not be eligible to participate in any compensation arrangements for non-employee directors except reimbursement of out-of-pocket expenses in accordance with CTS' policies applicable to directors, and except for rights heretofore accrued under the CTS Corporation Stock Retirement Plan for Non-employee Directors. C. Nothing contained herein is intended to be an admission or acknowledgment by any of CTS, DCA, or Executive that Executive's employment has been terminated for Good Reason or for Cause, as those terms are defined in the Employment Agreement. D. Except as set forth herein, all prior agreements, understandings, representations, and arrangements of any kind between (a) Executive and (b) CTS and/or DCA are hereby canceled in their entirety and are of no further effect. 2. Compensation and Benefits A. CTS agrees to fulfill and perform all of the obligations which are set forth in Sections 6(a), 6(d) and 6(e) of the Employment Agreement, except that CTS will fulfill the obligations under Section 6(a)(ii) of the Employment Agreement by making the payments required by subsection (ii)(B) thereof, pursuant to Executive's election dated January 26, 1998. Executive hereby acknowledges and agrees that his rights under this Section 2 constitute his entire rights to compensation and benefits from CTS, DCA, or any affiliated entity under the Employment Agreement. B. CTS will pay the Executive (or, in the event of his death, his legal representative) 54 equal monthly payments of $33,333.33, beginning on April 1, 1998 and continuing on the first day of each month thereafter, through and including September 1, 2002. C. On each of April 1, 1999, April 1, 2000, April 1, 2001 and April 1, 2002, CTS will pay the Executive (or, in the event of his death, his legal representative) an amount equal to $626,000.00. D. The payments to be made by CTS pursuant to B. and C. above shall be made by bank wire transfer of immediately available funds to an account designated in writing by Executive to CTS. E. Executive shall retain all rights accrued heretofore and through the Date of Termination under the Dynamics Corporation of America Employee Savings and Investment Plan, the Retirement Plan for Employees of Dynamics Corporation of America, any directors' and officers' liability insurance policy of DCA or CTS, rights to indemnification under any written agreement with CTS or under the Certificate of Incorporation or by-laws of DCA or CTS, and any and all rights to reimbursement of reasonable out-of-pocket expenses incurred prior to the Date of Termination. 3. Repurchase of CTS Common Stock CTS agrees to buy, and Executive agrees to sell, for a purchase price of $6,454,800.00 in the aggregate, or $32.60 per share, 198,000 shares of CTS common stock (the "Shares"). CTS will pay the purchase price by bank wire transfer of immediately available funds to an account designated in writing by Executive to CTS (a "Designated Account") against delivery by Executive to CTS of certificates evidencing the Shares, duly executed in blank, or accompanied by an irrevocable stock power, duly executed in blank. Alternatively, CTS will make the payment of the purchase price by bank wire transfer of immediately available funds to a Designated Account immediately upon receipt of evidence reasonably satisfactory to CTS that Executive has irrevocably instructed Merrill Lynch & Co. ("Merrill") to transfer the Shares from Executive's account at Merrill to CTS' account at Merrill. At the request of CTS, Executive will duly execute and deliver such documentation as CTS may reasonably request to evidence the purchase and sale contemplated by this paragraph. 4. Stock Option Buy-Out CTS will also pay Executive, on April 1, 1998 by bank wire transfer of immediately available funds to the account designated by Executive pursuant to paragraph 2.D. above, $3,531,000.00 in exchange for Executive's option on 300,000 shares of CTS common stock and Executive will surrender his rights under the Stock Option Agreement between CTS and Executive dated October 31, 1997. 5. Consulting Arrangement A. During the second calendar quarter of 1998, Executive agrees to remain available, for up to 200 hours, on an irregular, part-time basis to render, free of any charge except reimbursement of out-of-pocket expenses in accordance with CTS' policies applicable to senior executives, consulting and advisory services related to the DCA businesses and reasonably requested and authorized by CTS. B. CTS will cooperate with Executive in giving him advance notice of any consulting services so requested, and will not require that such services be rendered at a location other than DCA's current offices in Greenwich, Connecticut or at other than normal business hours without Executive's agreement thereto in his sole discretion. To the extent that Executive fails to render the full 200 hours of consulting services contemplated herein by June 30, 1998, regardless of the reason therefor, his obligation hereunder will expire without liability to CTS, DCA or any other person. 6. Releases A. Except for rights under this Settlement Agreement, Executive hereby irrevocably releases and waives any right, claim or cause of action of any kind, known or unknown, at law or in equity, which he had or has against CTS, DCA, any affiliate of either of them and/or any of their respective officers, directors, employees or agents. B. Except for rights under this Settlement Agreement, CTS and DCA, on behalf of themselves and their respective affiliates, officers, directors, employees and agents, hereby irrevocably release and waive any right, claim or cause of action of any kind, known or unknown, at law or in equity, which any one of them had or has against Executive and/or any of his heirs, executors or administrators. 7. Miscellaneous A. The parties restate and incorporate, as if set forth herein in their entirety, Sections 7, 8, 9 and 10 of the Employment Agreement. B. DCA's current office in Greenwich, Connecticut shall remain in operation through June 30, 1998, and Executive will be entitled to utilize the office space and facilities and secretarial services currently available to Executive, for any and all business or personal purposes through that date. IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date above written. DYNAMICS CORPORATION CTS CORPORATION OF AMERICA By: By: Jeannine M. Davis Joseph P. Walker Assistant Secretary Chairman of the Board, and Director President and Chief Executive Officer Executive ANDREW LOZYNIAK Exhibit 1 (Continued) SETTLEMENT AGREEMENT This Settlement Agreement (the "Agreement") is made and entered into this 31st day of March, 1998, among CTS Corporation ("CTS"), Dynamics Corporation of America ("DCA"), and Henry V. Kensing (the "Executive"). WHEREAS, CTS, DCA and Executive executed an Employment Agreement on the 9th day of May, 1997, which became effective on October 16, 1997 (the "Employment Agreement"); and WHEREAS, the parties now desire to modify the Employment Agreement as set forth herein and to settle all matters arising thereunder; NOW, THEREFORE, in consideration of the mutual premises and the respective covenants and agreements herein contained, the parties hereto agree as follows: 1. Operation of Agreement A. CTS, DCA and Executive hereby each agree that Executive's employment at DCA and membership on the DCA Board of Directors and any and all boards of subsidiary corporations thereof shall terminate, effective at the close of business on March 31, 1998 ("Date of Termination"). B. Nothing contained herein is intended to be an admission or acknowledgment by any of CTS, DCA, or Executive that Executive's employment has been terminated for Good Reason or for Cause, as those terms are defined in the Employment Agreement. C. Except as set forth herein, all prior agreements, understandings, representations, and arrangements of any kind between (a) Executive and (b) CTS and/or DCA are hereby canceled in their entirety and are of no further effect. 2. Compensation and Benefits A. CTS agrees to fulfill and perform all of the obligations which are set forth in Sections 6(a), 6(d) and 6(e) of the Employment Agreement, except that CTS will fulfill the obligations under Section 6(a)(ii) of the Employment Agreement by making the payments required by subsection (ii)(B) thereof, pursuant to Executive's election dated January 26, 1998. Executive hereby acknowledges and agrees that his rights under this Section 2 constitute his entire rights to compensation and benefits from CTS, DCA, or any affiliated entity under the Employment Agreement. B. CTS will pay the Executive (or, in the event of his death, his legal representative) 54 equal monthly payments of $15,145.78, beginning on April 1, 1998 and continuing on the first day of each month thereafter, through and including September 1, 2002. C. On each of April 1, 1999, April 1, 2000, April 1, 2001 and April 1, 2002, CTS will pay the Executive (or, in the event of his death, his legal representative) an amount equal to $682,000.00. D. The payments to be made by CTS pursuant to B. and C. above shall be made by bank wire transfer of immediately available funds to an account designated in writing by Executive to CTS. E. Executive shall retain all rights accrued heretofore and through the Date of Termination under the Dynamics Corporation of America Employee Savings and Investment Plan, the Retirement Plan for Employees of Dynamics Corporation of America, any directors' and officers' liability insurance policy of DCA or CTS, rights to indemnification under any written agreement with CTS or under the Certificate of Incorporation or by-laws of DCA or CTS, and any and all rights to reimbursement of reasonable out-of-pocket expenses incurred prior to the Date of Termination. 3. Consulting Arrangement A. During the second calendar quarter of 1998, Executive agrees to remain available, for up to 200 hours, on an irregular, part-time basis to render, free of any charge except reimbursement of out-of-pocket expenses in accordance with CTS' policies applicable to senior executives, consulting and advisory services related to the DCA businesses and reasonably requested and authorized by CTS. B. CTS will cooperate with Executive in giving him advance notice of any consulting services so requested, and will not require that such services be rendered at a location other than DCA's current offices in Greenwich, Connecticut or at other than normal business hours without Executive's agreement thereto in his sole discretion. To the extent that Executive fails to render the full 200 hours of consulting services contemplated herein by June 30, 1998, regardless of the reason therefor, his obligation hereunder will expire without liability to CTS, DCA or any other person. 4. Releases A. Except for rights under this Settlement Agreement, Executive hereby irrevocably releases and waives any right, claim or cause of action of any kind, known or unknown, at law or in equity, which he had or has against CTS, DCA, any affiliate of either of them and/or any of their respective officers, directors, employees or agents. B. Except for rights under this Settlement Agreement, CTS and DCA, on behalf of themselves and their respective affiliates, officers, directors, employees and agents, hereby irrevocably release and waive any right, claim or cause of action of any kind, known or unknown, at law or in equity, which any one of them had or has against Executive and/or any of his heirs, executors or administrators. 5. Miscellaneous A. The parties restate and incorporate, as if set forth herein in their entirety, Sections 7, 8, 9 and 10 of the Employment Agreement. B. DCA's current office in Greenwich, Connecticut shall remain in operation through June 30, 1998, and Executive will be entitled to utilize the office space and facilities and secretarial services currently available to Executive, for any and all business or personal purposes through that date. IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date above written. DYNAMICS CORPORATION OF CTS CORPORATION AMERICA By: By: Jeannine M. Davis Joseph P. Walker Assistant Secretary Chairman of the Board, and Director President and Chief Executive Officer Executive HENRY V. KENSING Exhibit 1 (Continued) SETTLEMENT AGREEMENT This Settlement Agreement (the "Agreement") is made and entered into this 31st day of March, 1998, among CTS Corporation ("CTS"), Dynamics Corporation of America ("DCA"), and Patrick J. Dorme (the "Executive"). WHEREAS, CTS, DCA and Executive executed an Employment Agreement on the 9th day of May, 1997, which became effective on October 16, 1997 (the "Employment Agreement"); and WHEREAS, the parties now desire to modify the Employment Agreement as set forth herein and to settle all matters arising thereunder; NOW, THEREFORE, in consideration of the mutual premises and the respective covenants and agreements herein contained, the parties hereto agree as follows: 1. Operation of Agreement A. CTS, DCA and Executive hereby each agree that Executive's employment at DCA and membership on the DCA Board of Directors and any and all boards of subsidiary corporations thereof shall terminate, effective at the close of business on March 31, 1998 ("Date of Termination"). B. Executive further agrees to resign from the CTS Board of Directors on or before July 1, 1998. Executive will not be eligible to participate in any compensation arrangements for non-employee directors except reimbursement of out-of-pocket expenses in accordance with CTS' policies applicable to directors, and except for rights heretofore accrued under the CTS Corporation Stock Retirement Plan for Non-employee Directors. C. Nothing contained herein is intended to be an admission or acknowledgment by any of CTS, DCA, or Executive that Executive's employment has been terminated for Good Reason or for Cause, as those terms are defined in the Employment Agreement. D. Except as set forth herein, all prior agreements, understandings, representations, and arrangements of any kind between (a) Executive and (b) CTS and/or DCA are hereby canceled in their entirety and are of no further effect. 2. Compensation and Benefits A. CTS agrees to fulfill and perform all of the obligations which are set forth in Sections 6(a), 6(d) and 6(e) of the Employment Agreement, except that CTS will fulfill the obligations under Section 6(a)(ii) of the Employment Agreement by making the payments required by subsection (ii)(B) thereof, pursuant to Executive's election dated January 26, 1998. Executive hereby acknowledges and agrees that his rights under this Section 2 constitute his entire rights to compensation and benefits from CTS, DCA, or any affiliated entity under the Employment Agreement. B. CTS will pay the Executive (or, in the event of his death, his legal representative) 54 equal monthly payments of $12,588.44, beginning on April 1, 1998 and continuing on the first day of each month thereafter, through and including September 1, 2002. C. On each of April 1, 1999, April 1, 2000, April 1, 2001 and April 1, 2002, CTS will pay the Executive (or, in the event of his death, his legal representative) an amount equal to $682,000.00. D. The payments to be made by CTS pursuant to B. and C. above shall be made by bank wire transfer of immediately available funds to an account designated in writing by Executive to CTS. E. Executive shall retain all rights accrued heretofore and through the Date of Termination under the Dynamics Corporation of America Employee Savings and Investment Plan, the Retirement Plan for Employees of Dynamic Corporation of America, any directors' and officers' liability insurance policy of DCA or CTS, rights to indemnification under any written agreement with CTS or under the Certificate of Incorporation or by-laws of DCA or CTS, and any and all rights to reimbursement of reasonable out-of-pocket expenses incurred prior to the Date of Termination. 3. Repurchase of CTS Common Stock CTS agrees to buy, and Executive agrees to sell, for a purchase price of $924,536.00 in the aggregate, or $32.60 per share, 28,360 shares of CTS common stock (the "Shares"). CTS will pay the purchase price by bank wire transfer of immediately available funds to an account designated in writing by Executive to CTS (a "Designated Account") against delivery by Executive to CTS of certificates evidencing the Shares, duly executed in blank, or accompanied by an irrevocable stock power, duly executed in blank. Alternatively, CTS will make the payment of the purchase price by bank wire transfer of immediately available funds to a Designated Account immediately upon receipt of evidence satisfactory to CTS that Executive has irrevocably instructed Merrill Lynch & Co. ("Merrill") to transfer the Shares from Executive's account at Merrill to CTS' account at Merrill. At the request of CTS, Executive will duly execute and deliver such documentation as CTS may reasonably request to evidence the purchase and sale contemplated by this paragraph. 4. Consulting Arrangement A. During the second calendar quarter of 1998, Executive agrees to remain available, for up to 200 hours, on an irregular, part-time basis to render, free of any charge except reimbursement of out-of-pocket expenses in accordance with CTS' policies applicable to senior executives, consulting and advisory services related to the DCA businesses and reasonably requested and authorized by CTS. B. CTS will cooperate with Executive in giving him advance notice of any consulting services so requested, and will not require that such services be rendered at a location other than DCA's current offices in Greenwich, Connecticut or at other than normal business hours without Executive's agreement thereto in his sole discretion. To the extent that Executive fails to render the full 200 hours of consulting services contemplated herein by June 30, 1998, regardless of the reason therefor, his obligation hereunder will expire without liability to CTS, DCA or any other person. 5. Releases A. Except for rights under this Settlement Agreement, Executive hereby irrevocably releases and waives any right, claim or cause of action of any kind, known or unknown, at law or in equity, which he had or has against CTS, DCA, any affiliate of either of them and/or any of their respective officers, directors, employees or agents. B. Except for rights under this Settlement Agreement, CTS and DCA, on behalf of themselves and their respective affiliates, officers, directors, employees and agents, hereby irrevocably release and waive any right, claim or cause of action of any kind, known or unknown, at law or in equity, which any one of them had or has against Executive and/or any of his heirs, executors or administrators. 6. Miscellaneous A. The parties restate and incorporate, as if set forth herein in their entirety, Sections 7, 8, 9 and 10 of the Employment Agreement. B. DCA's current office in Greenwich, Connecticut shall remain in operation through June 30, 1998 and Executive will be entitled to utilize the office space and facilities and secretarial services currently available to Executive, for any and all business or personal purposes through that date. IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date above written. DYNAMICS CORPORATION OF CTS CORPORATION AMERICA By: By: Jeannine M. Davis Joseph P. Walker Assistant Secretary Chairman of the Board, and Director President and Chief Executive Officer Executive PATRICK J. DORME EX-27 2
5 6-MOS DEC-31-1998 MAR-30-1998 JUN-28-1998 10,105 0 72,016 1,156 50,972 156,203 215,982 131,787 309,174 101,183 0 0 0 189,928 (78,323) 309,174 124,513 124,513 88,451 109,230 (351) 0 1,192 14,442 4,776 9,666 0 0 0 9,666 0.69 0.66
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