-----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, HGpLpPyMPH8QHnG2WzWB3yky3oN4xzIGouZryE21eqTL+/DljfNzQyorh3tdwyr3 2AZmZIrM+PXq+XI24rFUPg== 0000912057-97-018243.txt : 19970520 0000912057-97-018243.hdr.sgml : 19970520 ACCESSION NUMBER: 0000912057-97-018243 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19970516 SROS: NYSE GROUP MEMBERS: CTS CORP GROUP MEMBERS: CTS FIRST AQUISITION CORP. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DYNAMICS CORP OF AMERICA CENTRAL INDEX KEY: 0000030819 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 130579260 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: 1934 Act SEC FILE NUMBER: 005-20664 FILM NUMBER: 97610893 BUSINESS ADDRESS: STREET 1: 475 STEAMBOAT RD CITY: GREENWICH STATE: CT ZIP: 06830-7197 BUSINESS PHONE: 2038693211 MAIL ADDRESS: STREET 1: 475 STEAMBOAT RD CITY: GREENWICH STATE: CT ZIP: 06830-7197 FORMER COMPANY: FORMER CONFORMED NAME: CLAUDE NEON INC DATE OF NAME CHANGE: 19751008 FILED BY: 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: SC 14D1 BUSINESS ADDRESS: STREET 1: 905 W BLVD N CITY: ELKHART STATE: IN ZIP: 46514 BUSINESS PHONE: 2192937511 SC 14D1 1 SC 14D1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT (PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) ------------------------ DYNAMICS CORPORATION OF AMERICA (Name of Subject Company) ------------------------ CTS CORPORATION CTS FIRST ACQUISITION CORP. (Bidders) COMMON STOCK, PAR VALUE $.10 PER SHARE (Title of Class of Securities) 268039 10 4 (CUSIP Number of Class of Securities) JOSEPH P. WALKER Chairman, President and Chief Executive Officer CTS Corporation 905 West Boulevard North Elkhart, Indiana 46314 Telephone: (219) 293-7511 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Bidder) ------------------------ Copies to: ROBERT A. PROFUSEK, ESQ. Jones, Day, Reavis & Pogue 599 Lexington Avenue New York, New York 10022 Telephone: (212) 326-3939 MAY 16, 1997 (DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS) ------------------------ CALCULATION OF FILING FEE
TRANSACTION VALUATION* AMOUNT OF FILING FEE** $105,354,260 $21,071
* For purposes of calculating the filing fee only. This calculation assumes the purchase of up to 1,915,532 shares of Common Stock, par value $.10 per share (the "Shares") of Dynamics Corporation of America (the "Company") at a price of $55 per Share, net to the seller in cash, without interest thereon. ** The amount of the filing fee, calculated in accordance with Rule 0-11(d) of the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent of the aggregate value of cash offered by CTS First Acquisition Corp. for such number of Shares. / /* Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. 1. CTS CORPORATION (EIN: 35-0225010) - ---------------------------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) /X/ - ---------------------------------------------------------------------------------------------------- 3. SEC USE ONLY - ---------------------------------------------------------------------------------------------------- 4. SOURCE OF FUNDS BK - ---------------------------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) or 2(f) / / - ---------------------------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION Indiana - ---------------------------------------------------------------------------------------------------- 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 100 - ---------------------------------------------------------------------------------------------------- 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / / - ---------------------------------------------------------------------------------------------------- 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0.0% - ---------------------------------------------------------------------------------------------------- 10. TYPE OF REPORTING PERSON CO - ----------------------------------------------------------------------------------------------------
2 1. CTS FIRST ACQUISITION CORP. (EIN: Applied For) - ---------------------------------------------------------------------------------------------------- 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) /X/ - ---------------------------------------------------------------------------------------------------- 3. SEC USE ONLY - ---------------------------------------------------------------------------------------------------- 4. SOURCE OF FUNDS BK - ---------------------------------------------------------------------------------------------------- 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) or 2(f) / / - ---------------------------------------------------------------------------------------------------- 6. CITIZENSHIP OR PLACE OF ORGANIZATION New York - ---------------------------------------------------------------------------------------------------- 7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 - ---------------------------------------------------------------------------------------------------- 8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / / - ---------------------------------------------------------------------------------------------------- 9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 0% - ---------------------------------------------------------------------------------------------------- 10. TYPE OF REPORTING PERSON CO - ----------------------------------------------------------------------------------------------------
3 ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is Dynamics Corporation of America, a New York corporation (the "Company"). The address of the Company's principal executive offices is 475 Steamboat Road, Greenwich, Connecticut 06830. (b) This Tender Offer Statement on Schedule 14D-1 relates to the offer by CTS First Acquisition Corp. ("Purchaser"), a New York corporation and a wholly owned subsidiary of CTS Corporation, an Indiana corporation ("CTS"), to purchase up to 49.9% of the issued and outstanding shares of Common Stock, par value $.10 per share (the "Shares") of the Company, together with the associated purchase rights issued pursuant to the Rights Agreement, dated as of January 30, 1986, as amended on December 27, 1995, May 9, 1997 and May 12, 1997, between the Company and First National Bank of Boston, as Rights Agent, at a price of $55 per Share, net to the seller in cash, without interest thereon, on the terms and subject to the conditions set forth in the Offer To Purchase, dated May 16, 1997 (the "Offer To Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, constitute the "Offer"). According to the Company, there were 3,838,742 Shares outstanding as of May 8, 1997. Assuming no change in such number, the Offer is to purchase 1,915,500 Shares (subject to increase in accordance with the Merger Agreement in certain circumstances). The information set forth under "Introduction" in the Offer To Purchase annexed hereto as Exhibit (a)(1) is incorporated herein by reference. (c) The information set forth under "Special Considerations Relating to the Combination -- Price Range of Shares and CTS Shares; Dividends" in the Offer To Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d); (g) This Statement is being filed by Purchaser and CTS. The information set forth under "Introduction" and "Certain Information Concerning Purchaser and CTS" in the Offer To Purchase and Schedule I thereto is incorporated herein by reference. (e)-(f) During the last five years, neither Purchaser nor CTS, nor to the best knowledge of Purchaser or CTS, any of the persons listed on Schedule I to the Offer To Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which any such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a)-(b) The information set forth under "Introduction," "Special Considerations Relating to the Combination -- Fairness of the Offer," "Special Considerations Relating to the Combination -- Interest of Certain Persons in the Offer and the Merger," "Background of the Combination" and "The Merger and the Merger Agreement" in the Offer To Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a)-(b) The information set forth under "Miscellaneous -- Source and Amount of Funds" in the Offer To Purchase is incorporated herein by reference. (c) Not applicable. 4 ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(b);(e) The information set forth under "Introduction" and "Special Considerations Relating to the Combination -- Plans for the Company and CTS" in the Offer To Purchase is incorporated herein by reference. (c) The information set forth under "Special Considerations Relating to the Combination -- Interests of Certain Persons in the Offer and the Merger" and "Special Considerations Relating to the Combination -- Board Representation" in the Offer To Purchase is incorporated herein by reference. (d) The information set forth under "Introduction," "The Merger and the Merger Agreement -- The Merger" and "Special Considerations Relating to the Combination -- Price Range of Shares and CTS Shares; Dividends" in the Offer To Purchase is incorporate by reference. (f)-(g) The information set forth under "Special Considerations Relating to the Combination -- Certain Effects of the Offer" in the Offer To Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a)-(b) The information set forth under "Special Considerations Relating to the Combination -- Interests of Certain Persons in the Offer and the Merger" in the Offer To Purchase and Schedule I thereto is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth under "Introduction," "Special Considerations Relating to the Combination," "Background of the Combination" and "The Merger and the Merger Agreement" in the Offer To Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth under "Miscellaneous -- Fees and Expenses" in the Offer To Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth under "Certain Information Concerning Purchaser and CTS -- Selected Financial Information," "Certain Information Concerning Purchaser and CTS -- Certain Projections" and "Pro Forma Financial Data" in the Offer To Purchase is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth under "Special Considerations Relating to the Combination -- Interests of Certain Persons in the Offer and the Merger" in the Offer To Purchase is incorporated herein by reference. (b)-(c) The information set forth under "Introduction," "The Offer -- Conditions of the Offer" and "Certain Legal Matters and Regulatory Approvals" in the Offer To Purchase is incorporated herein by reference. (d)-(e) Not applicable. (f) The information set forth in the Offer To Purchase and the Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively, is incorporated herein by reference. 5 ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a) (1) Offer to Purchase, dated May 16, 1997. (2) Letter of Transmittal. (3) Notice of Guaranteed Delivery. (4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (7) Summary Advertisement being published on May 16, 1997. (b) Not applicable (c) (1) Agreement and Plan of Merger, dated as of May 9, 1997, among CTS, Purchaser and the Company. (Incorporated herein by reference to Exhibit 2 to Amendment No. 46 to the Schedule 13D of Dynamics Corporation of America, filed May 12, 1997, with respect to its investment in CTS Corporation.) (2) Employment Agreement, dated as of May 9, 1997, by and between CTS and Joseph P. Walker. (3) Employment Agreement, dated as of May 9, 1997, by and among CTS, the Company and Andrew Lozyniak. (Incorporated herein by reference to Exhibit 10.4 to Dynamics Corporation of America's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997.) (4) Employment Agreement, dated as of May 9, 1997, by and among CTS, the Company and Patrick J. Dorme. (Incorporated herein by reference to Exhibit 10.5 to Dynamics Corporation of America's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997.) (5) Employment Agreement, dated as of May 9, 1997, by and among CTS, the Company and Henry V. Kensing. (Incorporated herein by reference to Exhibit 10.6 to Dynamics Corporation of America's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997.) (d) Not applicable. (e) Not applicable. (f) Not applicable. 6 SIGNATURE After due inquiry and to the best of its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: May 16, 1997 CTS CORPORATION By: /s/ JOSEPH P. WALKER ------------------------------------------ Joseph P. Walker Chairman, President and Chief Executive Officer CTS FIRST ACQUISITION CORP. By: /s/ /S/ JOSEPH P. WALKER ------------------------------------------ Joseph P. Walker President 7 EXHIBIT INDEX
EXHIBIT NUMBER PAGE - --------- ----------- (a) (1) Offer to Purchase, dated May 16, 1997. (2) Letter of Transmittal. (3) Notice of Guaranteed Delivery. (4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (7) Summary Advertisement being published on May 16, 1997. (b) Not applicable. (c) (1) Agreement and Plan of Merger, dated as of May 9, 1997, among CTS, Purchaser and the Company. (Incorporated herein by reference to Exhibit 2 to Amendment No. 46 to the Schedule 13D of Dynamics Corporation of America, filed May 12, 1997, with respect to its investment in CTS Corporation.) (2) Employment Agreement, dated as of May 9, 1997, by and between CTS and Joseph P. Walker. (3) Employment Agreement, dated as of May 9, 1997, by and among CTS, the Company and Andrew Lozyniak. (Incorporated herein by reference to Exhibit 10.4 to Dynamics Corporation of America's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997.) (4) Employment Agreement, dated as of May 9, 1997, by and among CTS, the Company and Patrick J. Dorme. (Incorporated herein by reference to Exhibit 10.5 to Dynamics Corporation of America's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997.) (5) Employment Agreement, dated as of May 9, 1997, by and among CTS, the Company and Henry V. Kensing. (Incorporated herein by reference to Exhibit 10.6 to Dynamics Corporation of America's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997.) (d) Not applicable. (e) Not applicable. (f) Not applicable.
8 EX-99.(A)(1) 2 OFFER TO PURCHASE OFFER TO PURCHASE FOR CASH UP TO 49.9% OF THE OUTSTANDING COMMON STOCK OF DYNAMICS CORPORATION OF AMERICA AT $55.00 NET PER SHARE, BY CTS FIRST ACQUISITION CORP. A WHOLLY OWNED SUBSIDIARY OF CTS CORPORATION THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 13, 1997, UNLESS THE OFFER IS EXTENDED. THE BOARD OF DIRECTORS OF DYNAMICS CORPORATION OF AMERICA (THE "COMPANY") HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER, AND RECOMMENDS THAT HOLDERS OF SHARES OF COMMON STOCK OF THE COMPANY ("SHARES") WHO WISH TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. SEE ITEM 4 OF THE SCHEDULE 14D-9 MAILED TO SHAREHOLDERS SIMULTANEOUSLY WITH THIS OFFER TO PURCHASE. ------------------------ THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE THAT NUMBER OF SHARES WHICH CONSTITUTES AT LEAST 25% OF THE SHARES OUTSTANDING ON THE DATE OF PURCHASE (THE "MINIMUM SHARE CONDITION") AND THE RECEIPT OF A LEGAL OPINION AS TO CERTAIN TAX CONSEQUENCES OF THE MERGER. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE. SEE "THE OFFER -- CONDITIONS OF THE OFFER." ------------------------ According to the Company, there were 3,838,742 Shares outstanding as of May 8, 1997. Assuming no change in such number, the Offer is to purchase up to 1,915,500 Shares. Any Shareholder desiring to tender all or any portion of the Shareholder's Shares should either (i) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal, have such Shareholder's signature thereon guaranteed if required by instructions to the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such facsimile thereof) and any other required documents to the Depositary and either deliver the certificates for such Shares to the Depositary along with the Letter of Transmittal (or a facsimile thereof) or deliver such Shares pursuant to the procedure for book-entry transfer set forth in "The Offer - -- Procedures for Tendering Shares" prior to the expiration of the Offer or (ii) request such Shareholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such Shareholder. Any Shareholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply with the procedures for book-entry transfer described in this Offer To Purchase on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in "The Offer -- Procedures for Tendering Shares." Questions and requests for assistance or for additional copies of this Offer To Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery or other tender offer materials, may be directed to the Information Agent at its address and telephone number set forth on the back cover of this Offer To Purchase. ------------------------ THE DEALER MANAGER FOR THE OFFER IS: J.P. MORGAN & CO. --------------- May 16, 1997 TABLE OF CONTENTS
PAGE ----------- INTRODUCTION.............................................................................................. 1 SPECIAL CONSIDERATIONS RELATING TO THE COMBINATION........................................................ 3 Price Range of Shares and CTS Shares; Dividends................................................... 3 Fairness of the Offer............................................................................. 4 Interests of Certain Persons in the Offer and the Merger.......................................... 6 Board Representation.............................................................................. 7 Certain Effects of the Offer...................................................................... 7 Plans for the Company and CTS..................................................................... 9 Certain Federal Income Tax Consequences........................................................... 9 BACKGROUND OF THE COMBINATION............................................................................. 12 THE OFFER................................................................................................. 17 Terms of the Offer; Proration; Expiration Date.................................................... 17 Conditions of the Offer........................................................................... 19 Acceptance for Payment and Payment for Shares..................................................... 21 Procedures for Tendering Shares................................................................... 22 Withdrawal Rights................................................................................. 25 THE MERGER AND THE MERGER AGREEMENT....................................................................... 26 Agreements With Respect to the Offer.............................................................. 26 The Merger........................................................................................ 26 Procedures for Exchange of Certificates; Fractional Shares........................................ 27 Shareholder Approval of the Merger................................................................ 28 Representations and Warranties.................................................................... 28 Conduct of Business Pending Merger................................................................ 28 No-Shop Covenant.................................................................................. 30 Inducement Fee and Termination Fees............................................................... 31 Employee Benefits Matters......................................................................... 31 Indemnification; Directors' and Officers' Insurance............................................... 32 Conditions to the Consummation of the Merger...................................................... 32 Termination....................................................................................... 33 Amendments to CTS Charter and Bylaws.............................................................. 34 Dissenter's Rights................................................................................ 34 CERTAIN INFORMATION CONCERNING THE COMPANY................................................................ 35 General........................................................................................... 35 Selected Financial Information.................................................................... 35 Certain Projections............................................................................... 36 The Rights........................................................................................ 37 Certain Provisions of the Company's Certificate of Incorporation.................................. 38 CERTAIN INFORMATION CONCERNING PURCHASER AND CTS.......................................................... 38 Purchaser......................................................................................... 38 CTS............................................................................................... 38 Selected Financial Information.................................................................... 39 Certain Projections............................................................................... 40 Certain Employee Matters.......................................................................... 41 PRO FORMA FINANCIAL DATA.................................................................................. 42
PAGE ----------- CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS............................................................ 48 General........................................................................................... 48 New York Business Combination Statute............................................................. 48 Antitrust......................................................................................... 48 Other............................................................................................. 50 MISCELLANEOUS............................................................................................. 50 Source and Amount of Funds........................................................................ 50 Fees and Expenses................................................................................. 51 SCHEDULE I--INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF CTS AND PURCHASER........................................................... 52
To the Holders of Common Stock of Dynamics Corporation of America: INTRODUCTION CTS First Acquisition Corp., a New York corporation (the "Purchaser"), hereby offers to purchase up to 49.9% of the issued and outstanding shares of Common Stock (the "Shares") of Dynamics Corporation of America, a New York corporation (the "Company"), together with the associated purchase rights issued pursuant to the Company Rights Agreement (the "Rights"), at a price of $55.00 per Share (the "Offer Price"), net to the seller in cash, without interest thereon, on the terms and subject to the conditions set forth in this Offer To Purchase and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). According to the Company, there were 3,838,742 Shares outstanding as of May 8, 1997. Assuming no change in such number, the Offer is to purchase 1,915,500 Shares (subject to increase in accordance with the Merger Agreement in certain circumstances). Purchaser is a newly formed wholly owned subsidiary of CTS Corporation, an Indiana corporation ("CTS"). The Offer is being made to all holders of Shares ("Shareholders") pursuant to an Agreement and Plan of Merger, dated as of May 9, 1997 (the "Merger Agreement"), among CTS, Purchaser and the Company. The Merger Agreement provides, among other things, for the commencement of the Offer by Purchaser and further provides that, after the purchase of Shares pursuant to the Offer, subject to the satisfaction or waiver of certain conditions, the Company will be merged with and into Purchaser (the "Merger" and, together with the Offer, the "Combination"), with Purchaser surviving the Merger (the "Surviving Corporation") as a wholly owned subsidiary of CTS. In the Merger, subject to certain exceptions, each Share issued and outstanding immediately prior to the effective time of the Merger (the "Effective Time") will be converted at the Effective Time into the right to receive 0.88 (the "Exchange Ratio") fully paid and nonassessable shares of CTS Common Stock (the "CTS Shares") (the "Merger Consideration"). In connection with the Merger, CTS declared a stock split in the form of a 1:1 stock dividend (the "Stock Split") to be effective immediately following the Effective Time. If the Stock Split is so effective, the Exchange Ratio in the Merger will be 1.76 CTS Shares for each Share. The Offer is intended by Purchaser and CTS as the first step in the combination of the businesses of CTS and the Company. The purposes of the Offer are (i) to permit Shareholders who desire to receive cash for their Shares instead of CTS Shares the opportunity to do so and (ii) to limit the number of CTS Shares issued in the Merger. The purpose of the Merger is to combine the businesses of CTS and the Company. THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS, HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER, AND RECOMMENDS THAT SHAREHOLDERS WHO WISH TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. The Company has informed Purchaser and CTS that the reasons underlying such determinations are as described in Item 4 of the Schedule 14D-9 mailed to Shareholders simultaneously with this Offer To Purchase (the "Schedule 14D-9"). Wasserstein, Perella & Co., the Company's financial advisor ("WP&Co."), has delivered to the Company its opinion (the "WP&Co. Fairness Opinion") that the consideration to be received by the Shareholders in the Offer and the Merger, taken together, pursuant to the Merger Agreement is fair to the Shareholders from a financial point of view. A copy of the WP&Co. Fairness Opinion, which sets forth a description of the assumptions made, matters considered and limitations of the review undertaken, is included as part of the Schedule 14D-9. Shareholders are urged to review the WP&Co. Fairness Opinion in its entirety. The Company beneficially owns 2,303,100 CTS Shares (the "Company-Owned CTS Shares"), which represent 44.1% of the issued and outstanding CTS Shares and 24.5% of the CTS Shares having ordinary voting rights. Two officers of the Company are members of CTS' five-member Board of Directors (the 1 "CTS Board"). The entire CTS Board, as well as the members of the CTS Board who are not employees of the Company (the "Unaffiliated CTS Directors") voting separately, approved the Merger Agreement and the transactions contemplated thereby, including the Offer, following a determination by the Unaffiliated CTS Directors, and also by the entire CTS Board, that such transactions were fair to and in the best interests of CTS and its shareholders (other than the Company). The Offer is conditioned upon, among other things, (i) the satisfaction of the Minimum Share Condition, (ii) any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), having expired or been terminated prior to the expiration of the Offer, (iii) the receipt of a legal opinion as to certain tax consequences of the Merger, (iv) the absence of certain litigation, orders or other legal matters, (v) the representations and warranties of the Company in the Merger Agreement being materially true and correct as of the Expiration Date and the covenants of the Company in the Merger Agreement having been materially performed or complied with, (vi) the absence of any material adverse change, or any development that is reasonably likely to result in a material adverse change, in the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (vii) the Merger Agreement not having been terminated in accordance with its terms, (viii) no person having acquired beneficial ownership of Shares in excess of certain specified percentages, and (ix) certain other conditions set forth in "The Offer -- Conditions of the Offer." The consummation of the Merger is subject to the satisfaction or waiver of a number of conditions, including the adoption of the Merger Agreement by the requisite vote or consent of the Shareholders and the approval of the issuance of CTS Shares by shareholders of CTS (the "CTS Shareholders"). Under the New York Business Corporation Law (the "NYBCL"), the Shareholder vote necessary to adopt the Merger Agreement (the "Company Shareholder Vote") is the affirmative vote of at least two-thirds of the Shares, including Shares held by Purchaser and its affiliates. The affirmative vote of the holders of a majority of the votes cast by CTS Shares at a meeting of CTS Shareholders (the "CTS Shareholder Vote") is required to approve the issuance of CTS Shares in connection with the Merger. Pursuant to the Merger Agreement, (i) CTS has agreed to vote all Shares beneficially owned by it, including Shares purchased in the Offer, in favor of adoption of the Merger Agreement and (ii) the Company has agreed to vote all CTS Shares beneficially owned by it that have voting rights in favor of the issuance of CTS Shares in the Merger. The Merger Agreement is more fully described in "The Merger and the Merger Agreement." Certain federal income tax consequences of the Combination are described in "Special Considerations Relating to the Combination -- Certain Federal Income Tax Consequences." Tendering Shareholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 to the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer or the Merger. Purchaser will pay all charges and expenses of J.P. Morgan Securities Inc., as the Dealer Manager ("J.P. Morgan" and, in such capacity, the "Dealer Manager"), The First National Bank of Boston, as the depositary (the "Depositary"), and MacKenzie Partners, Inc., as the information agent (the "Information Agent"), in connection with the Offer. The Rights Agreement, dated as of January 30, 1986, as amended (the "Company Rights Agreement"), between the Company and The First National Bank of Boston, as Rights Agent (the "Rights Agent"), has been amended to provide that (i) the Rights issued thereunder will expire immediately prior to the Effective Time, (ii) neither CTS nor any of its Affiliates or Associates will be deemed an Acquiring Person, and (iii) neither a Distribution Date nor a Stock Acquisition Date (as such terms are defined in the Company Rights Agreement) will occur by reason of the execution of the Merger Agreement, the announcement or completion of the Offer, the consummation of the Merger or the consummation of the other transactions contemplated by the Merger Agreement. Unless the context otherwise requires, all references to Shares include the associated Rights, and all references to the Rights include the benefits that may inure to holders of the Rights pursuant to the Company Rights Agreement, including the right to receive any payment due upon redemption of the Rights. Purchaser believes that, as of May 16, 1997, the 2 Rights were not exercisable, Rights certificates had not been issued and the Rights were evidenced by the Share certificates. INFORMATION APPEARING OR INCORPORATED HEREIN IN RESPECT OF THE COMPANY, THE COMPANY BOARD AND THE WP&CO. FAIRNESS OPINION HAS BEEN FURNISHED TO PURCHASER AND CTS BY THE COMPANY. WHILE PURCHASER AND CTS HAVE NO REASON, AS OF THE DATE OF THIS OFFER TO PURCHASE, TO BELIEVE THAT SUCH INFORMATION IS INCORRECT IN ANY MATERIAL RESPECT, NONE OF PURCHASER, CTS, THEIR RESPECTIVE AFFILIATES OR ANY REPRESENTATIVE OF ANY OF THE FOREGOING ASSUMES ANY LIABILITY THEREFOR. THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING OF THE SHAREHOLDERS OR THE CTS SHAREHOLDERS OR AN OFFER TO SELL OR SOLICITATION OF OFFERS TO BUY CTS SHARES OR OTHER SECURITIES. ANY SUCH SOLICITATION WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS PURSUANT TO THE REQUIREMENTS OF SECTION 14(A) OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), AND ANY OFFER WILL BE MADE ONLY THROUGH A REGISTRATION STATEMENT AND PROSPECTUS PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, WHICH PROSPECTUS WILL ALSO CONSTITUTE A JOINT PROXY STATEMENT FOR THE MEETINGS OF SHAREHOLDERS OF THE COMPANY AND CTS RELATING TO THE MERGER (THE "JOINT PROXY STATEMENT/PROSPECTUS"). NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF CTS OR PURCHASER NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS OFFER TO PURCHASE, THE LETTER OF TRANSMITTAL AND THE SCHEDULE 14D-9 CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BY SHAREHOLDERS BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. SPECIAL CONSIDERATIONS RELATING TO THE COMBINATION PRICE RANGE OF SHARES AND CTS SHARES; DIVIDENDS THE COMPANY. According to the Company's Form 10-K for the year ended December 31, 1996 (the "Company 10-K"), the Shares are listed and principally traded on the New York Stock Exchange, Inc. (the "NYSE") under the symbol "DYA." The following table sets forth, for the periods indicated, the high and low sales prices per Share on the NYSE and the amount of cash dividends paid per Share, as reported in the Company 10-K for periods in 1995 and 1996 and as reported by published financial sources with respect to periods in 1997:
HIGH LOW ------- ------ Year Ended December 31, 1995: First Quarter...................................................................... $ 26 3/4 $ 19 1/2 Second Quarter..................................................................... 24 3/4 22 1/4 Third Quarter...................................................................... 24 5/8 22 1/2 Fourth Quarter..................................................................... 25 7/8 21 5/8 Year Ended December 31, 1996: First Quarter...................................................................... $ 24 7/8 $ 22 1/8 Second Quarter..................................................................... 27 7/8 23 1/4 Third Quarter...................................................................... 29 1/8 25 Fourth Quarter..................................................................... 29 1/4 27 7/8 Year Ended December 31, 1997: First Quarter...................................................................... $ 38 1/8 $ 26 1/2 Second Quarter (through May 14, 1997).............................................. 54 3/4 39 CASH DIVIDENDS ----------- Year Ended December 31, 1995: First Quarter...................................................................... $ 0.10 Second Quarter..................................................................... -0- Third Quarter...................................................................... 0.10 Fourth Quarter..................................................................... -0- Year Ended December 31, 1996: First Quarter...................................................................... $ 0.10 Second Quarter..................................................................... -0- Third Quarter...................................................................... 0.10 Fourth Quarter..................................................................... -0- Year Ended December 31, 1997: First Quarter...................................................................... $ 0.10 Second Quarter (through May 14, 1997).............................................. -0-
3 On May 9, 1997, the last full trading day before the public announcement of the Combination, the reported closing price of the Shares on the NYSE Composite Tape was $44 3/8 per share. On May 15, 1997, the last full trading day prior to the date hereof, the reported closing sales price of the Shares on the NYSE Composite Tape was $54 5/8 per Share. Shareholders are urged to obtain current market quotations for the Shares. In 1984, the Company established a regular semi-annual dividend rate of $0.10 per Share. Based on publicly available information, Purchaser does not believe there are any present or future restrictions on the Company's ability to continue this policy. The Merger Agreement provides that the Company may continue to pay its regular semi-annual dividends until the Effective Time. CTS. The CTS Shares are listed and principally traded on the NYSE under the symbol "CTS." The following table sets forth, for the quarters indicated, the high and low sales prices per share on the NYSE and the amount of cash dividends paid per share for periods in 1995, 1996 and 1997:
HIGH LOW ------- ------ Year Ended December 31, 1995: First Quarter...................................................................... $ 32 $ 27 3/8 Second Quarter..................................................................... 33 1/2 29 1/4 Third Quarter...................................................................... 34 1/2 29 15/16 Fourth Quarter..................................................................... 37 3/4 29 5/8 Year Ended December 31, 1996: First Quarter...................................................................... $ 38 5/8 $ 36 Second Quarter..................................................................... 47 37 3/8 Third Quarter...................................................................... 47 40 1/2 Fourth Quarter..................................................................... 43 38 1/8 Year Ended December 31, 1997: First Quarter...................................................................... $ 50 3/4 $ 41 Second Quarter (through May 14, 1997).............................................. 64 1/2 50 CASH DIVIDENDS ----------- Year Ended December 31, 1995: First Quarter...................................................................... .15 Second Quarter..................................................................... .15 Third Quarter...................................................................... .15 Fourth Quarter..................................................................... .15 Year Ended December 31, 1996: First Quarter...................................................................... .15 Second Quarter..................................................................... .15 Third Quarter...................................................................... .18 Fourth Quarter..................................................................... .18 Year Ended December 31, 1997: First Quarter...................................................................... .18 Second Quarter (through May 14, 1997).............................................. .18
On May 9, 1997, the last full trading day before the public announcement of the Combination, the reported closing price of CTS Shares on the NYSE Composite Tape was $61 3/4 per share. On May 15, 1997, the last full trading day prior to the date hereof, the reported closing sales price of shares of the Common Stock on the NYSE Composite Tape was $61 7/8 per Share. Shareholders are urged to obtain current market quotations for the CTS Shares. In 1996, CTS increased its quarterly dividend rate from $0.15 to $0.18 per CTS Share. The Merger Agreement permits CTS to continue to pay regular quarterly dividends. The payment of dividends on the CTS Shares is a matter for the discretion of the CTS Board and is subject to customary restrictions thereon. FAIRNESS OF THE OFFER The Company Board has determined that the Offer and the Merger are fair to and in the best interests of the Company and the Shareholders, has approved the Merger Agreement and the transactions contemplated thereby, including the Offer, and has recommended that Shareholders who wish to receive cash for their Shares accept the Offer and tender their Shares pursuant to the Offer. The Company has informed Purchaser and CTS that the background and factors underlying such determination are as described in Item 4 of the Schedule 14D-9, which is incorporated herein by this reference. WP&Co. has delivered to the Company the WP&Co. Fairness Opinion to the effect that the consideration in the Offer 4 and the Merger, taken together, to be received by the Shareholders pursuant to the Merger Agreement is fair to the Shareholders from a financial point of view. A copy of the WP&Co. Fairness Opinion, which sets forth a description of the assumptions made, matters considered and limitations on the review undertaken, is attached as Exhibit 12 to the Schedule 14D-9, is incorporated herein by this reference. Shareholders are urged to review the WP&Co. Fairness Opinion in its entirety. Additional information concerning factors considered by, and the determinations of, the Company Board regarding the Offer and the Merger is set forth in Items 3 and 4 of the Schedule 14D-9 and is incorporated herein by reference. The CTS Board, including the Unaffiliated CTS Directors voting separately, unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Offer, following a determination by the Unaffiliated CTS Directors, and thereafter by the entire CTS Board, that such transactions were fair to and in the best interests of CTS and the CTS Shareholders (other than the Company). In making such determination, the CTS Board, and the Unaffiliated Directors, considered various factors, including (i) the business, financial position, results of operations and prospects of CTS and the Company, and potential synergies resulting from the Combination (estimated at not less than $2.0 million, after tax, annually); (ii) the strategic fit between the Company's frequency control and heat dissipating businesses and CTS' existing operations, and the prospects for the Company's other operations; (iii) the expectation that the Combination would be accretive to CTS' net earnings in 1997 (excluding one- time transaction-related costs or charges) and thereafter; (iv) historical market prices for Shares and CTS Shares; (v) the potential impact of the Combination on market prices for CTS Shares as a result of the decrease in concentration of the ownership thereof and increase in the liquidity of the market for CTS Shares as well as the factors described above; (vi) the commitment of Messrs. Lozyniak, Dorme and Kensing to continue with the Company following the Combination under the terms of the Company Employment Contracts to be effective as of the Effective Time (which replace their existing employment/ change-in-control severance agreements with the Company); (vii) presentations by J.P. Morgan relating to the proposed combination; and (viii) the impact of the Combination on the non-shareholder constituencies of CTS (including the employees, suppliers and customers of CTS and communities in which offices or other facilities of CTS are located), which were believed to be generally favorable. The foregoing discussion of the factors considered and given weight by the CTS Board is not intended to be exhaustive. In view of the variety of factors considered in connection with its evaluation of the Combination, the CTS Board did not find it practicable to and did not attempt to rank or assign relative weights to the foregoing factors. In addition, individual members of the CTS Board may have given different weight to different factors. Each Shareholder must make his, her or its own decision whether to tender Shares pursuant to the Offer, whether to sell or retain Shares and how to vote or otherwise act in respect of the adoption of the Merger Agreement, and should give careful consideration to the terms of, and consequences resulting from, the Offer, the Merger and such other factors as such Shareholder determines to be relevant. Whether or not the Offer Price represents an acceptable return on investment for any particular Shareholder will necessarily depend on such Shareholder's individual investment criteria, liquidity requirements and other circumstances, as well as such assumptions as to future events (including the Company's and CTS' future results of operations), many of which events are outside of Company's and CTS' control. See "Certain Information Concerning the Company -- Selected Financial Information" and "-- Certain Projections;" "Certain Financial Information Concerning the Purchaser and CTS -- Selected Financial Information" and "-- Certain Projections;" and "Pro Forma Financial Data." Moreover, any analysis of the value of an investment in the Shares and CTS Shares is heavily dependent on the particular capitalization and discount rates and other investment criteria an investor determines to be appropriate for such investor's analysis. 5 INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER DIRECTORS AND OFFICERS. Andrew Lozyniak, the Chairman of the Board and President of the Company, and a director of the Company, is a director of CTS. Patrick J. Dorme, Vice President-Finance, Chief Financial Officer and director of the Company, is also a director of CTS. Certain of CTS' and Purchaser's executive officers and directors (or their spouses) beneficially own Shares in the amounts set forth on Schedule I hereto. On May 9, 1997, in connection with the execution of the Merger Agreement, CTS, the Company and each of Mr. Lozyniak, Mr. Dorme and Henry V. Kensing, Vice President, General Counsel and Secretary of the Company, entered into employment contracts to be effective at the Effective Time (collectively, the "Company Employment Contracts"). The Company Employment Contracts and certain other matters relating to the interests of Messrs. Lozyniak, Dorme and Kensing and other executive officers and directors of the Company are described in Item 3(b) of the Schedule 14D-9, which description is incorporated herein by this reference. It is expected that Messrs. Lozyniak and Dorme will continue as members of the CTS Board following the Effective Time. The failure to nominate either of them for election as a member of the CTS Board following the Effective Time constitutes grounds for termination by them of, and gives rise to the right to receive severance benefits under, the Company Employment Contracts. The failure to nominate either of Messrs. Lozyniak or Dorme for election to the CTS Board also constitutes grounds for Mr. Kensing to receive such benefits. It is anticipated that, as of the Effective Time, the CTS Board will initially be CTS' current five-member board, which includes Joseph P. Walker, Chairman, President and Chief Executive Officer of CTS, Messrs. Lozyniak and Dorme and the two present independent directors of CTS. It is also contemplated that, as promptly as practical following the Effective Time, the CTS Board will increase by at least two additional directors who qualify as independent directors under NYSE guidelines. See "-- Board Representation" for a description of certain procedures set forth in the Merger Agreement relating to the election of additional members of the CTS Board by the other members thereof. Mr. Lozyniak will also join CTS' Office of the Chairman with Mr. Walker and will focus on strategic issues while continuing to oversee the management of the Company's continuing operations. In addition, in connection with its approval of the Company Employment Contracts, CTS approved, subject to the completion of the Merger and the approval by CTS Shareholders, the award of an option to Mr. Lozyniak to purchase 100,000 CTS Shares at $62.50 per share. The option has a ten-year term from the Effective Time and vests as to 20% of the CTS Shares covered thereby on each of the first five annual anniversaries thereof, subject to immediate vesting if the average closing price for CTS Shares equals or exceeds $70.00 over a 20-trading-day period and upon certain terminations of Mr. Lozyniak's employment. The CTS Board also approved option awards (having substantially similar terms, and subject to the same conditions, as the option granted to Mr. Lozyniak) to Joseph P. Walker, in respect of 200,000 CTS Shares, and certain other executive officers of CTS in respect of 150,000 CTS Shares. In addition, the CTS Board approved CTS' entry into an employment agreement with Mr. Walker (the "CEO Employment Contract") to replace his existing employment agreement (which was to expire by its terms on June 24, 1997). See "Certain Information Concerning Purchaser and CTS -- Certain Employee Matters" for a discussion of the CEO Employment Contract and certain other matters. SECURITY OWNERSHIP. As of the date hereof, CTS beneficially owns 100 Shares and Purchaser beneficially owns no Shares. As of the date hereof, no executive officer or director of CTS or Purchaser, or to the knowledge of CTS or Purchaser, any of their associates, beneficially owns, or has the right to acquire, directly or indirectly, any Shares, except as set forth in Schedule I hereto. Mr. Walker has informed the Company that he intends to tender the Shares beneficially owned by him or his spouse pursuant to the Offer, and each of CTS and Mr. Walker intend, if such Shares are not accepted in the Offer for payment, to vote Shares beneficially owned by them in favor of the adoption of the Merger Agreement. Neither CTS 6 nor Purchaser, nor, to the knowledge of CTS or Purchaser, any of the executive officers and directors of CTS or Purchaser, has engaged in any transaction in Shares in the past 60 days. RELATED TRANSACTIONS. CTS paid the Company the following amounts for the purchase of products from the Company in each of 1994, 1995 and 1996: $233,000, $143,000 and $157,000, respectively. Purchaser and CTS believe that such purchases were on substantially comparable terms to those that would have been available in arms' length transactions involving unrelated persons. Each of Messrs. Lozyniak and Dorme has received directors' fees from CTS. Mr. Dorme was paid the following amounts: 1994: $23,500; 1995: $27,500; 1996: $28,000; and 1997 (through the date hereof): $11,833. Mr. Lozyniak was paid the following amounts: 1994: $24,000; 1995: $28,000; 1996: $28,500; and 1997 (through the date thereof): $12,000. Such directors' fees will no longer be payable to Messrs. Lozyniak and Dorme after the Effective Time under the CTS Board's current director compensation policies. BOARD REPRESENTATION The Merger Agreement provides that, promptly upon the purchase of Shares by Purchaser pursuant to the Offer, and from time to time thereafter, CTS will be entitled to designate such number of directors, rounded up to the next whole number, as will give CTS representation on the Company Board proportionate with the percentage of Shares purchased in the Offer, except that, if the number of Shares purchased pursuant to the Offer equals or exceeds 49.9% of the outstanding Shares, the Company has agreed that CTS' representatives will constitute a majority of the Company Board. Following the election or appointment of CTS' designees pursuant to the Merger Agreement and prior to the Effective Time, any amendment or termination of the Merger Agreement by the Company, extension by the Company for the performance or waiver of the obligations or other acts of CTS or Purchaser or waiver of the Company's rights thereunder requires the concurrence of a majority of the directors of the Company then in office who were directors on the date of the Merger Agreement and who voted to approve the Merger Agreement. Schedule I to the Schedule 14D-9 contains certain information about the persons expected to be designated by CTS to be so nominated or elected to the Company Board. As promptly as practicable following the Effective Time, CTS expects to increase the CTS Board and add two additional directors who qualify as independent directors under NYSE guidelines. The Merger Agreement provides that any additional directors elected or nominated for election by the CTS Board must be nominated by the unanimous vote of a committee of the CTS Board comprised of two Unaffiliated CTS Directors and one member who is not an Unaffiliated CTS Director (the "Board Committee"). Pursuant to the Merger Agreement, the Board Committee will initially be composed of Messrs. Walker, Lozyniak and Gerald H. Frieling, Jr. The Merger Agreement further provides that, from the Effective Time until the date immediately following the date of CTS' 1998 annual shareholder meeting or any adjournment or postponement thereof, only a person elected or nominated by the unanimous vote of the Board Committee may become an additional director by action of the CTS Board. See "-- Interests of Certain Persons in the Offer and the Merger" for a discussion of the expected composition of the CTS Board following the Offer and the Merger. It is expected that, following the Effective Time, the Board of Directors of the Surviving Corporation will be composed of Mr. Lozyniak and not fewer than two employees of CTS, including its Chairman and Chief Executive Officer. CERTAIN EFFECTS OF THE OFFER CTS has agreed with the Company to use reasonable efforts to cause the CTS Shares to be issued in the Merger to be approved for listing on the NYSE prior to the Effective Time and Purchaser and CTS do not know of any reason why such listing would not be approved. In connection with the Merger, immediately following the Effective Time, the Shares will be delisted from the NYSE and deregistered pursuant to Section 12(g)(4) of the Exchange Act. 7 The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and may reduce the number of Shareholders, which could adversely affect the liquidity and market value of the remaining Shares held by Shareholders between the time that Shares are purchased in the Offer and the Effective Time or in the event that Shares are purchased in the Offer and the Merger, for whatever reason, does not occur. Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for, or marketability of, the Shares or whether such reduction would cause market prices to be greater or less than the Offer Price. Depending on the number of Shares purchased pursuant to the Offer, following the completion of the Offer, the Shares may no longer meet the requirements of the NYSE for continued listing and may, therefore, be delisted from such exchange. According to the NYSE's published guidelines, the NYSE would consider delisting the Shares if, among other things, the number of publicly held Shares (excluding Shares held by officers, directors, and their immediate families and other concentrated holdings of 10% or more of the Shares) were less than 600,000, there were fewer than 1,200 holders of at least 100 shares or the aggregate market value of the publicly held Shares was less than $5 million. According to the Company, as of May 8, 1997, there were 3,838,742 Shares outstanding and as of February 26, 1997, there were 3,584 Shareholders of record. Assuming no change in such number of Shares, the Offer is to purchase 1,915,500 Shares (subject to increase in accordance with the Merger Agreement in certain circumstances). If, as a result of the purchase of Shares pursuant to the Offer, the Shares no longer meet the requirements of the NYSE for continued listing and the listing of Shares is discontinued, the market for the Shares could be adversely affected. If the Shares no longer meet the NYSE listing requirements, it is possible that the Shares would trade on another securities exchange or in the over-the-counter market and that price quotations for the Shares would be reported by such exchange or through the Nasdaq Stock Market, Inc.'s National Market ("NASDAQ") or other sources. The extent of the public market for the Shares and availability of such quotations would, however, depend upon such factors as the number of holders and/or the aggregate market value of the publicly held Shares at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. The Shares are currently registered under the Exchange Act. Registration of the Shares under the Exchange Act may be terminated upon application of the Company to the Securities and Exchange Commission (the "Commission") if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares and to the Commission and would make certain of the provisions of the Exchange Act no longer applicable to the Company. Such provisions include the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement pursuant to Section 14(a) in connection with a Shareholders' meeting and the related requirement of providing an annual report to Shareholders, and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 under the Securities Act. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares. Depending upon factors similar to those described above regarding listing and market quotations, the Shares may no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations and, therefore, could no longer be used as collateral for loans made by brokers. 8 PLANS FOR THE COMPANY AND CTS While it is anticipated that, following the Effective Time, the Company's frequency control and heat dissipating product lines will be integrated into complementary CTS operations, the Surviving Corporation is expected otherwise to be operated as a subsidiary of CTS following the Merger. Except as described elsewhere herein, Purchaser and CTS have no current plans or proposals that would result in an extraordinary corporate transaction, such as a merger or consolidation of the Surviving Corporation with or into any third entity, the sale or transfer of substantially all of the Surviving Corporation's assets to a third party or any other material changes in the Surviving Corporation's business. Following the Effective Time, however, CTS intends to evaluate and review the Surviving Corporation's operations and the potential opportunities for synergies with CTS' operations, and to consider what, if any, changes would be desirable in light of the results of such evaluations and reviews. After such review, it is possible that CTS will seek to dispose of certain businesses or assets of the Surviving Corporation. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following is a summary of the principal federal income tax consequences of the Offer and the Merger. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), the applicable Treasury Regulations promulgated thereunder, judicial authorities, administrative rulings and other applicable authorities, all as in effect as of the date hereof. Legislative, judicial or administrative authorities are subject to change, possibly on a retroactive basis, at any time and could alter or modify the statements and conclusions set forth below. It is assumed for purposes of this discussion that the Shares are held and will continue to be held as "capital assets" within the meaning of Section 1221 of the Code (i.e., in general, property held for investment). This discussion does not address all aspects of federal income taxation that may be relevant to a particular Shareholder in light of such Shareholder's particular investment circumstances, or those Shareholders subject to special treatment under the federal income tax laws (for example, life insurance companies, tax-exempt organizations, foreign corporations and nonresident alien individuals) or to Shareholders who acquired their Shares through the exercise of employee stock options or other compensation arrangements. In addition, the discussion does not address any aspect of foreign, state, local or estate and gift taxation that may be applicable to a Shareholder. No ruling has been or will be sought from the Internal Revenue Service (the "IRS") regarding the federal income tax consequences of the Offer and the Merger and thus no assurance can be given that the IRS will agree with the consequences described below. CONSEQUENCES OF THE OFFER AND EXERCISE OF DISSENTER'S RIGHTS. The sale of all of a Shareholder's Shares for cash pursuant to the Offer (or upon the exercise of dissenter's rights (see "The Merger and the Merger Agreement--Dissenter's Rights") in connection with the Merger), will be a taxable transaction for federal income tax purposes. In general, a Shareholder will recognize gain or loss for federal income tax purposes equal to the difference between the amount received and the adjusted tax basis in the Shares sold pursuant to the Offer (or received upon the exercise of dissenter's rights). Gain or loss must be determined specifically for each identifiable block of Shares (I.E, Shares acquired at the same cost in a single transaction). Such gain or loss will be capital gain or loss and will be long-term gain or loss if, on the date of sale, the Shares were held for more than a year. The foregoing assumes that a Shareholder who sells all of its Shares pursuant to the Offer or who dissents to the Merger will not own or acquire any CTS Shares or options with respect to CTS Shares, and will not be treated as owning any CTS Shares after the Offer and the Merger by attribution from a related party under Section 318 of the Code. The rules for determining whether shares owned by a related party will be treated as owned by a Shareholder by attribution are complex and may, in certain circumstances, be waived. A Shareholder who dissents or participates in the Offer should consult a tax advisor if (i) such Shareholder owns or will acquire any CTS Shares or options with respect to CTS Shares or (ii) a related party will own CTS Shares after the consummation of the Offer and the Merger, in order to determine 9 whether such shares will be attributed to such Shareholder and, if so, the tax consequences of such attribution. If the Merger does not occur or occurs but is treated as a taxable transaction for federal income tax purposes, this paragraph would not apply. CONSEQUENCES OF PARTICIPATION IN THE MERGER. The Offer and the Merger should be treated as a single integrated transaction for federal income tax purposes, and the following discussion assumes, as CTS and Purchaser expect to be the case, that the Merger will qualify as a reorganization under Section 368(a) of the Code. In such event, in general, (i) no gain or loss will be recognized by the Company, CTS or the Purchaser pursuant to the Offer and the Merger, (ii) no gain or loss will be recognized by a Shareholder who does not participate in the Offer and receives solely stock pursuant to the Merger, except to the extent that cash is received in lieu of a fractional CTS Share, as discussed below, and (iii) a Shareholder who receives a combination of cash and CTS Shares for such Shareholder's Shares pursuant to the Offer and the Merger will not recognize loss but will recognize gain, if any, to the extent of the lesser of (1) the cash received in the Offer and (2) the excess of the sum of the fair market value of the CTS Shares (including fractional shares) received pursuant to the Merger, and the amount of cash received pursuant to the Offer, over the Shareholder's adjusted tax basis in its Shares. For purposes of clause (iii), gain or loss must be calculated separately for each identifiable block of Shares surrendered pursuant to the Merger, and a loss realized on one block of Shares may not be used to offset a gain realized on another block of Shares. A Shareholder's recognized gain will be capital gain (and long-term capital gain if, at the Effective Time, the Shares were held for more than one year), unless the receipt of cash by the Shareholder has the effect of the distribution of a dividend as provided in Section 356(a)(2) of the Code. The receipt of cash by a Shareholder will not be considered to have the effect of a distribution of a dividend if the Shareholder's disposition of the Shares pursuant to the Offer effects a "meaningful reduction" in the Shareholder's stock interest or is "substantially disproportionate" with respect to the Shareholder, within the meaning of Section 302(b) of the Code. For purposes of making this determination, ownership of CTS Shares by related parties may be attributed to the Shareholder, as discussed above. The IRS has ruled that any reduction in interest of a minority stockholder owning a small number of shares in a publicly and widely held corporation who exercises no control over corporate affairs may constitute a "meaningful reduction." The qualification of the Merger as a reorganization under Section 368(a) of the Code will be subject to certain facts and conditions, including that there be "continuity of interest" by Shareholders in the CTS Shares. The Offer is conditioned upon the receipt by the Company and CTS of an opinion, dated as of the date of Purchaser's purchase of Shares pursuant to the Offer, from either Jones, Day, Reavis & Pogue ("Jones Day"), transactional counsel to CTS and Purchaser, or Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden Arps"), special counsel to the Company, to the effect that, based upon such representations, assumptions and conditions as the firm delivering such opinion deems necessary or appropriate, the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and that CTS, Purchaser and the Company will each be a party to such reorganization within the meaning of Section 368(b) of the Code. Because any such opinion will be rendered as a condition to consummation of the Offer and not as of the Effective Time of the Merger (except in the circumstances described below), no assurance can be given that the facts and conditions necessary for the Merger to qualify as a reorganization under Section 368(a) of the Code (which facts and conditions will be assumed or represented by the parties for purposes of such opinion) will be satisfied. If these facts and conditions are not satisfied, the Merger would be a taxable transaction for federal income tax purposes. In that case, Shareholders would recognize gain or loss on their exchange of Shares for CTS Shares (or for CTS Shares and cash, as the case may be), and the Company would be treated as if it sold all its assets to Purchaser in a taxable sale for federal income tax purposes. If Purchaser elects to proceed with the Merger in certain circumstances where the Minimum Share Condition is not met, the parties' obligations to consummate the Merger will be conditioned on their receipt of a similar opinion. See "The Merger and the Merger Agreement--Conditions to the Consummation of the Merger." 10 Each of the Company and CTS agreed in the Merger Agreement to use all reasonable efforts to cause the Merger to qualify as a reorganization under the meaning of Section 368(a) of the Code. TAX BASIS AND HOLDING PERIOD OF CTS SHARES RECEIVED IN THE MERGER. Assuming that the Merger qualifies as a reorganization under Section 368(a) of the Code, the aggregate tax basis of the CTS Shares received by a Shareholder in the Merger (including fractional shares deemed received) will be the same as the aggregate tax basis of the Shares converted in the Merger, increased by the amount of any gain recognized by the Shareholder (including any portion treated as dividend income, as described above), and decreased by the amount of cash received by the Shareholder pursuant to the Offer. The holding period of such CTS Shares will include the holding period of the Shares converted in the Merger, provided such Shares are held as a capital asset at the Effective Time. If a Shareholder has different tax bases or holding periods in respect of its Shares, it should consult its tax advisors prior to the Merger with regard to identifying the bases or holding periods of the particular CTS Shares received in the Merger, as several methods of determination may be available. CASH RECEIVED IN LIEU OF A FRACTIONAL CTS SHARE. Cash received by a Shareholder in lieu of a fractional CTS Share will be treated as received in redemption of such fractional CTS Share and, generally, gain or loss will be recognized, measured by the difference between the amount of cash received and the portion of the basis of the Shares exchanged that is allocable to such fractional CTS Share. In general, such gain or loss will constitute capital gain or loss, and will be long-term capital gain or loss if the holding period for such Shares was greater than one year at the Effective Time. PROPOSED LEGISLATION. Legislation has been proposed which would reduce capital gains rates for federal income tax purposes. However, there can be no assurance that such legislation will be enacted, or as to the effective date or final terms thereof. Shareholders are therefore urged to consult their own tax advisors with respect thereto. BACKUP TAX WITHHOLDING. Under the Code, a Shareholder may be subject, under certain circumstances, to "backup withholding" at a 31% rate with respect to payments made in connection with the Offer or the Merger. Backup withholding generally applies if the Shareholder (i) fails to furnish his or her social security number or other taxpayer identification number ("TIN"), (ii) furnishes an incorrect TIN, (iii) fails properly to report interest or dividends to the IRS, or (iv) under certain circumstances, fails to provide a certified statement to the IRS, signed under penalties of perjury, that the TIN provided is his or her correct number and that he or she is not subject to backup withholding. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax. Certain persons generally are exempt from backup withholding, including corporations and financial institutions. Certain penalties apply for failure to furnish correct information and for failure to include the reportable payments in income. Each Shareholder should consult with the Shareholder's tax advisor as to his or her qualifications for exemption from withholding and the procedure for obtaining such exemption. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM IN VIEW OF THEIR OWN PARTICULAR CIRCUMSTANCES. 11 BACKGROUND OF THE COMBINATION On March 27, 1997, WHX Corporation ("WHX") sent a letter to the Company proposing to acquire the Company in a merger in which all of the outstanding Shares would be converted into the right to receive $40 per Share in cash (the "WHX Merger Proposal"). In its March 27, 1997 letter, WHX stated it had no interest in increasing the equity stake which the Company holds in CTS, or in changing the nature of the current relationship between the Company and CTS. WHX also stated that it would be prepared to increase its offer to the Company if additional information demonstrated that a higher price was warranted, and asked the Company to respond by the close of business on the next day (which was Good Friday). Mr. Lozyniak advised WHX that he would not be able to review the WHX Merger Proposal with the Company Board until the following week and would communicate further with WHX promptly thereafter. On March 31, 1997, WHX announced an offer to purchase up to 649,000 Shares, subject to downward adjustment, at a price of $40 per Share in cash (the "Initial WHX Tender Offer"). WHX also filed preliminary proxy materials with the Commission on March 31, 1997 relating to the solicitation of proxies by WHX for use at the Company's 1997 annual meeting of Shareholders (the "Company Annual Meeting") to (i) elect four WHX nominees to the Company Board, (ii) adopt changes to the Company's By-laws to (a) permit holders of at least 9.9% of the outstanding Shares to call a special meeting of Shareholders and (b) permit the removal of directors at any time with or without cause, and (iii) repeal any By-law changes adopted by the Company Board after March 14, 1997 and prior to the adoption of such resolution. To obtain advice and assistance in considering the WHX Merger Proposal and the Initial WHX Tender Offer or an alternative business combination, the Company engaged WP&Co. as its financial advisor and Skadden Arps as its outside counsel. On April 5, 1997, Joseph P. Walker and Andrew Lozyniak met to discuss a possible business transaction. Mr. Walker indicated a price range of $45.00 per Share, payable in CTS Shares and cash, for such a transaction. Mr. Lozyniak indicated in this meeting that he would be willing to instruct the Company's advisors to pursue further discussions of a possible transaction, but did not respond to Mr. Walker's price indication. To obtain advice and assistance in considering possible strategic benefits that could result from a business combination and the issues that would be required to be considered if such a transaction were to be pursued, CTS engaged J.P. Morgan as CTS' financial advisor pursuant to an engagement letter dated April 9, 1997, Sommer & Barnard as counsel in respect to matters of Indiana law and possible litigation and Jones Day as transactional counsel. From April 16, 1997 through April 25, 1997, representatives of J.P. Morgan met on various occasions with certain members of senior management of the Company and representatives of WP&Co. to discuss certain aspects of the business, operations and prospects of the Company. In connection therewith, the Company furnished J.P. Morgan certain Company projections. See "Certain Information Concerning the Company--Certain Projections." On April 9, 1997, WHX amended the Initial WHX Tender Offer (as amended, the "Second WHX Tender Offer"), among other things, to increase the tender offer price and WHX Merger Proposal price to $45 per Share. In an effort to move forward from the discussions conducted at the April 5, 1997 meeting, representatives of CTS delivered to representatives of the Company a draft merger agreement on April 9, 1997. In response, representatives of the Company informed representatives of CTS that, while the Company was not prepared at that time to commence negotiations of the detailed terms of a business combination transaction, the proposed draft merger agreement was unacceptable, particularly provisions therein requiring the Company to grant to CTS an option on the CTS Shares beneficially owned by the Company, a ten-year standstill that would operate regardless of whether the transaction closed and a fiduciary-out provision that was limited to superior acquisition proposals meeting specified criteria. 12 On April 9 and 11, 1997, the Company Board met to discuss the Second WHX Tender Offer and possible actions to be taken by the Company. At the April 11, 1997 meeting, the Company Board unanimously rejected the Second WHX Tender Offer as inadequate and not in the best interests of the Shareholders of the Company and unanimously recommended that holders of Shares reject the Second WHX Tender Offer and not tender their Shares pursuant thereto. The Company Board also determined to explore alternative transactions to maximize shareholder value, including a possible business combination with CTS. In reaching its determination to reject the Second WHX Tender Offer, the Company Board considered a number of factors, including the opinion of WP&Co. to the effect that, based upon and subject to the matters reviewed with the Company Board, the $45 per Share cash consideration offered to holders of Shares pursuant to the Second WHX Tender Offer was inadequate from a financial point of view to such holders. At the April 11, 1997 meeting, the Company Board also (i) postponed the Company Annual Meeting to August 1, 1997, (ii) added two directors to the Company Board (resulting in the Company Board being divided into three, rather than two, classes), (iii) amended the Company's By-laws to (a) eliminate the shareholders' ability to remove directors without cause, (b) raise to two-thirds the percentage of Shares needed to call a special meeting of Shareholders, (c) add advance notice provisions for Shareholders to nominate persons for election to the Company Board or to propose business at annual or special shareholders' meetings, and (d) remove an inconsistent, and ineffective, provision purporting to allow the holders of a majority of the Shares to amend the By-laws (the Company's Restated Certificate of Incorporation, as amended (the "Company Charter"), which controls over the By-laws, provides for an 80% vote to amend the By-laws), and (iv) approved certain employee benefits matters. As a result of these actions, it will take at least two annual meetings to replace a majority of the Company Board. As discussed below, WHX has challenged the validity of certain of these actions in litigation. At an April 11, 1997 meeting, the CTS Board considered, on a preliminary basis, alternatives that may be available to it in the circumstances, including the matters discussed in the meeting between Messrs. Walker and Lozyniak at their April 5, 1997 meeting (Messrs. Lozyniak and Dorme having excused themselves from such discussion). On April 14, 1997, the Company commenced litigation against WHX in Federal District Court in Connecticut (the "Connecticut Court") alleging, among other things, violations of the federal securities laws. On April 17, 1997, WHX filed a counterclaim in the action pending in the Connecticut Court seeking a declaratory judgment that Article XV of the Company Charter is invalid and unenforceable. Article XV provides, in general, that 80% of the outstanding voting stock of the Company is required to approve a merger of the Company with another person if the other person is the "beneficial owner" of 5% or more of the outstanding voting stock of the Company unless the Company Board approves such a merger before the acquisition of such ownership. The NYBCL only requires a two-thirds approval by shareholders. Subsequently, WHX amended its counterclaim, among other things, to challenge certain actions taken by the Company Board at its April 11, 1997 meeting. On April 14, 1997, the Company and CTS signed a confidentiality agreement providing that, subject to the terms of the agreement, each company would keep confidential certain non-public information furnished by the other. Starting April 16, 1997, representatives of the Company, including representatives of WP&Co. and financial and operational executives of the Company, commenced discussions with representatives of CTS, including representatives of J.P. Morgan, concerning the operations of the Company and areas of potential synergy between the Company and CTS. On April 16, 1997, Mr. Walker, Mr. Lozyniak and representatives of J.P. Morgan, WP&Co., Jones Day and Skadden Arps met to discuss a potential business combination transaction. The specific price proposed by CTS to be paid therein was not discussed at that meeting. On April 17, 1997, representatives of CTS informed representatives of the Company that the price proposed to be paid by CTS was at $50.00 per Share, consisting of approximately 50% cash and approximately 50% CTS Shares. This proposal of CTS 13 was rejected by representatives of the Company in a conference call with representatives of CTS later that day. The CTS Board met on April 24, 1997. At this meeting, the CTS Board determined that it would be appropriate to establish a directorate committee comprised of the two CTS directors who were not employed by either CTS or the Company to facilitate discussions of a possible business combination transaction between CTS and the Company (the "CTS Board Committee"). On April 25, 1997, the day of CTS' 1997 annual meeting of shareholders (the "CTS Annual Meeting"), representatives of the Company and of other shareholders of CTS discussed the possible adjournment of the CTS Annual Meeting. Following discussions between representatives of CTS and the Company, the CTS Annual Meeting was adjourned to June 16, 1997. On April 29, 1997, the Connecticut Court entered a preliminary injunction against WHX in connection with the Initial WHX Tender Offer. The Connecticut Court ordered WHX to make further and complete disclosures on certain issues and to extend its tender offer for an additional 20 days. On April 30, 1997, WHX amended the Second WHX Tender Offer to provide that WHX is offering to purchase any and all outstanding Shares and to condition its tender offer on the inapplicability of the Company Rights Plan and Section 912 of the NYBCL, which prohibits certain transactions, including mergers, between a New York corporation, such as the Company, and a stockholder that beneficially own 20% or more of the outstanding voting stock of such corporation for a period of five years after the acquisition of such ownership, unless the acquisition of such ownership is approved in advance by the board of directors of the company (as so amended, the "Third WHX Tender Offer"). The Third WHX Tender Offer is scheduled to expire on May 20, 1997. During April 29-30, 1997, the CTS Board Committee received presentations from WP&Co. and J.P. Morgan as to such firms' views regarding the Company and CTS and the possible terms of a business combination transaction involving the two companies. In addition, the CTS Board Committee conducted discussions with representatives of CTS and the Company with respect to other matters relevant to a possible business combination transaction. On April 30, 1997, the Company executed a confidentiality agreement with a substantial multinational entity that has existing relationships with CTS and has from time to time indicated a desire to pursue a business combination or other transactions with the Company or CTS, (the "Third Party"). The confidentiality agreement contained an 18-month standstill provision that prohibited the Third Party from, among other things, making any proposal to acquire securities or assets of the Company. Thereafter, representatives of the Company met with representatives of the Third Party and provided the Third Party with certain information concerning the Company. Representatives of CTS had engaged in preliminary discussions with representatives of the Third Party on April 29, 1997. On May 1, 1997, representatives of J.P. Morgan met with representatives of WP&Co. and informally discussed a possible $55.00 per share offer for the Company, with approximately 50% of the consideration in cash and 50% in CTS Shares. A meeting of the CTS Board was held on May 2, 1997, at which the status of efforts regarding the possible business combination with the Company was reviewed with the CTS Board (Messrs. Lozyniak and Dorme having excused themselves from such discussion). It was the consensus of the Unaffiliated CTS Directors that the parties should continue to pursue a possible business combination transaction with the Company. Commencing on May 5, 1997, representatives of the Company and CTS engaged in substantially continuous negotiations of the terms for such a transaction, including definitive documentation. The Company Board met on May 7, 1997 to discuss the status of negotiations and the terms of a possible transaction with CTS. The Company Board also adopted an amendment to the Company Rights Plan to prevent the Rights from separating from the Company Common Stock as a result of WHX amending its offer to purchase any and all Shares. 14 On May 7, 1997, a meeting of the CTS Board was held at which the possible business combination with the Company was reviewed with the assistance of J.P. Morgan, Sommer & Barnard and Jones Day. The presentations to and discussions by the CTS Board (Messrs. Lozyniak and Dorme having excused themselves therefrom) were wide-ranging and detailed, and included, among other things, (i) a presentation by Sommer & Barnard regarding the duties of directors in considering a possible business combination, (ii) a review by senior management of the discussions conducted to date with representatives of the Company, (iii) a detailed review by Jones Day of the draft merger documentation and the status of discussions thereon between the parties, (iv) a review by senior management as to how a combination could be implemented, including the expected composition of the board of directors and senior management of the combined company, and (v) a presentation by J.P. Morgan of its preliminary views of the possible transaction. The CTS Board also received a detailed presentations regarding the terms of the Executive Employment Contracts and the CEO Employment Contract. The CTS Board also met in the morning of May 9, 1997. At that meeting, the CTS Board as an entirety, and the Unaffiliated CTS Directors separately, approved the Combination. Later in the morning of May 9, 1997, the Company received a letter from the Third Party proposing to acquire the Company at $54 per Share in cash, subject to a number of conditions, including satisfactory completion of financial, legal, tax and environmental due diligence, exclusive negotiation between the Company and the Third Party regarding the acquisition of the Company (which would have required the cessation of negotiations between the Company and CTS) and a $10 million break-up fee (the "Third Party Proposal"). The Third Party also sent a letter to CTS that same morning indicating an intention to pursue the possible acquisition of the Company and a desire to work with CTS' management in connection therewith. Representatives of CTS contacted representatives of the Company in the morning of May 9, 1997 to report that CTS had approved the Merger Agreement earlier that morning, that CTS had received the above-described letter from the Third Party, that CTS believed that the Merger Agreement had been substantially negotiated and could be signed later that day, that CTS had invested substantial time and effort negotiating with the Company and that CTS did not wish to invest further time and effort discussing a transaction with the Company if the Company were not willing to sign a Merger Agreement on the terms which had been discussed. Accordingly, representatives of CTS informed representatives of the Company that CTS would terminate further discussions of a business combination if the Merger Agreement were not approved by the Company and signed that day. Representatives of CTS also said that CTS would not increase the consideration it was proposing in the Combination. In light of the Third Party Proposal, representatives of the Company proposed that CTS reduce the break-up fee contemplated by the draft merger documents which the parties had been discussing. CTS agreed in these discussions to reduce the fee to $2 million upon signing and $4 million under certain circumstances. Later that day, the Company Board met to continue the discussions begun on May 7, 1997 regarding a possible business combination transaction with CTS. At the meeting, the Company Board considered the Third Party Proposal, the Third WHX Tender Offer and CTS' proposal. The Company Board received a presentation by representatives of WP&Co. relating to financial considerations with respect to the transactions contemplated by the Merger Agreement with CTS. Representatives of WP&Co. delivered the WP&Co.'s Fairness Opinion. See "Special Considerations Relating to the Combination--Fairness of Offer." For a further description of the Company Board's deliberations, and a discussion of the reasons for its recommendation, see Item 4 of the Schedule 14D-9, which is incorporated herein by this reference. During the deliberations of the Company Board on May 9, 1997, representatives of the Third Party sent a second letter to the Company that removed the due diligence condition in its first letter and clarified that its proposal was not subject to the consent or approval by CTS. Representatives of the Company held further discussions with representatives of CTS regarding the break-up fee proposed by CTS, as a result of which CTS agreed to reduce the fee to $2 million upon the signing of the Merger Agreement and $3 15 million under certain circumstances. See "The Merger and the Merger Agreement--Inducement Fee and Termination Fees." The Company Board did not communicate with the Third Party regarding the Third Party Proposal in light of (i) the fact that, while there could be no assurance that the Company and the Third Party could agree as to the final terms of a merger agreement, the Company and CTS had substantially negotiated the terms of the Merger Agreement, (ii) CTS' statement that if the Merger Agreement were not approved that day that it would terminate further discussions of a business combination transaction, (iii) WP&Co.'s opinion as to the fairness of the consideration provided for in the Merger Agreement (and the fact that representatives of WP&Co. were aware of the Third Party Proposal when they delivered such opinion), and (iv) the Company Board's belief that the break-up fee and other features of the Merger Agreement would not deter a more attractive offer to acquire the Company. After discussion and further analysis, at its May 9, 1997 meeting, the Company Board unanimously determined to approve the Offer and the Merger. See "Special Considerations Relating to the Combination -- Fairness of the Offer." In addition, the Company Board unanimously recommended that (i) Shareholders who wish to receive cash for their Shares accept the Offer and tender their Shares pursuant thereto and (ii) Shareholders vote in favor of approval and adoption of the Merger Agreement and the Merger. At the May 9, 1997 meeting, the Company Board also reaffirmed its determination that the Third WHX Tender Offer was inadequate and not in the best interests of the Company and its Shareholders and reaffirmed its recommendation to the Shareholders that they reject the Third WHX Tender Offer and not tender their Shares pursuant thereto. Finally, the Company Board also adopted an amendment to the Company Rights Plan to make it inapplicable to the Offer, the Merger and the other transactions contemplated by the Merger Agreement. See "Introduction." CTS and the Company signed the Merger Agreement on the evening of May 9, 1997 and publicly announced the transaction on May 11, 1997. WHX has sent a notice, dated May 8, 1997, to the Company, in compliance with the Company's advance-notice By-law provisions adopted on April 11, 1997 (i) nominating six persons for election to the Company Board at the Company Annual Meeting and (ii) proposing that a non-binding Shareholder resolution be presented to the Company's shareholders at the Company Annual Meeting recommending that the Company Board take all actions necessary, including removing any anti-takeover devices of the Company, to effect the Third WHX Tender Offer or to effect a transaction with a third party for cash consideration in excess of $45 per Share. On May 9, 1997, WHX filed revised preliminary proxy materials with the Commission relating to the solicitation of proxies by WHX for use at the Company Annual Meeting regarding these matters. On May 14, 1997, a representative of WHX stated in an analyst conference call that WHX was reviewing its options with respect to the Company. On May 16, 1997, Purchaser commenced the Offer. 16 THE OFFER TERMS OF THE OFFER; PRORATION; EXPIRATION DATE. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any extension or amendment), Purchaser will accept for payment and pay for Shares which are validly tendered prior to the Expiration Date and not properly withdrawn in accordance with the procedures set forth under "--Withdrawal Rights" and which represent up to 49.9% of the total number of Shares. The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, June 13, 1997, unless and until Purchaser, in accordance with the terms of the Offer and the Merger Agreement, shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall refer to the latest time and date at which the Offer, as so extended by Purchaser, shall expire. Promptly after the Expiration Date, Purchaser will notify the tendering Shareholder as to the number of Shares out of the total number of Shares tendered by the Shareholders which Purchaser has accepted for purchase. If more than 49.9% of the Shares are validly tendered prior to the Expiration Date and not properly withdrawn, Purchaser will, upon the terms and subject to the conditions of the Offer, accept for payment and pay for only 49.9% of the Shares on a pro rata basis, with adjustments to avoid purchases of fractional Shares, based upon the number of Shares validly tendered prior to the Expiration Date and not properly withdrawn. Because of the difficulty of determining precisely the number of Shares validly tendered and not withdrawn, if proration is required, Purchaser would not expect to be able to announce the final results of proration or pay for Shares until at least five NYSE trading days after the Expiration Date. Preliminary results of proration will be announced by press release as promptly as practicable after the Expiration Date. Shareholders may obtain such preliminary information from the Information Agent and may also be able to obtain such preliminary information from their brokers. The Offer is conditioned upon, among other things, (i) the satisfaction of the Minimum Share Condition, (ii) any applicable waiting period under the HSR Act having expired or been terminated prior to the expiration of the Offer, (iii) the receipt of a legal opinion as to certain tax consequences of the Merger, (iv) the absence of certain litigation, orders or other legal matters, (v) the representations and warranties of the Company in the Merger Agreement being materially true and correct as of the Expiration Date and the covenants of the Company in the Merger Agreement having been materially performed or complied with, (vi) the absence of any material adverse change, or any development that is reasonably likely to result in a material adverse change, in the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (vii) the Merger Agreement not having been terminated in accordance with its terms, (viii) no person having acquired beneficial ownership of Shares in excess of certain specified percentages, and (ix) certain other conditions contained in this Offer. See "--Conditions of the Offer." Subject to the terms of the Merger Agreement, Purchaser expressly reserves the right (but will not be obligated) to waive any or all of the conditions of the Offer. Pursuant to the Merger Agreement, in the event any condition to the Offer is not satisfied or waived at the time the Expiration Date would otherwise occur, (1) Purchaser must extend the Expiration Date for an aggregate of 20 additional business days (the "First Extension Period") to the extent necessary to permit such condition to be satisfied and (2) Purchaser may, in its sole discretion, extend the Expiration Date for up to 20 additional business days after the First Extension Period. Subject to the terms of the Merger Agreement and the rights of tendering Stockholders to withdraw their Shares in accordance with the procedures set forth under "--Withdrawal Rights," Purchaser will retain all tendered Shares until the Expiration Date. Subject to the terms of the Merger Agreement described in the immediately succeeding paragraph and to applicable law, Purchaser expressly reserves the right to extend the period of time during which the 17 Offer is open by giving oral or written notice of such extension to the Depositary and by making a public announcement of such extension. Purchaser also expressly reserves the right, subject to applicable law (including applicable rules of the Commission) and to the terms of the Merger Agreement, at any time or from time to time, (i) to delay acceptance for payment of, or payment for, any Shares, regardless of whether the Shares were theretofore accepted for payment, or to terminate the Offer and not accept for payment or pay for any Shares not theretofore accepted for payment or paid for, upon the occurrence of any of the conditions specified in "--Conditions of the Offer," by giving oral or written notice of such delay in payment or termination to the Depositary, and (ii) to waive any conditions or otherwise amend the Offer in any respect, by giving oral or written notice to the Depositary. Any extension, delay in payment, termination or amendment will be followed as promptly as practicable by public announcement, the announcement in the case of an extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which Purchaser may choose to make any public announcement, Purchaser will have no obligation to publish, advertise or otherwise communicate any such announcement, otherwise than by issuing a release to the Dow Jones News Service or as otherwise may be required by law. The reservation by Purchaser of the right to delay acceptance for payment of, or payment for, Shares is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires that Purchaser pay the consideration offered or return the Shares deposited by or on behalf of Shareholders promptly after the termination or withdrawal of the Offer. Any delay in acceptance for payment or payment beyond the time permitted by applicable law will be effectuated by an extension of the period of time during which the Offer is open. Pursuant to the terms of the Merger Agreement, without the prior written consent of the Company, Purchaser will not (and CTS will cause Purchaser not to) (i) decrease or change the form of consideration payable in the Offer, (ii) change the conditions to the Offer, (iii) impose additional conditions to the Offer, (iv) increase the number of Shares to be purchased pursuant to the Offer to more than 50.1% of the Shares (calculated on a fully diluted basis), (v) extend the Expiration Date (except as required by law and except as described in the second preceding paragraph), or (vi) amend any term of the Offer in any manner materially adverse to Shareholders (including without limitation to result in any extension which would be inconsistent with the preceding provisions of this sentence); provided, however, that, (a) subject to the applicable legal requirements, CTS may cause Purchaser to waive any condition to the Offer other than the Minimum Share Condition and the Tax Opinion Condition (see "-- Conditions of the Offer") in CTS' sole discretion and (b) the Offer may be extended in connection with an increase in the consideration to be paid pursuant to the Offer so as to comply with applicable rules and regulations of the Commission. Assuming the prior satisfaction or waiver of the conditions to the Offer, CTS will cause Purchaser to accept for payment, and pay for, in accordance with the terms of the Offer, all Shares (up to 49.9% of the total number of Shares unless increased in accordance with the Merger Agreement) validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the Expiration Date. If Purchaser makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which the Offer must remain open following material changes in the terms of the Offer or information concerning the Offer, other than a change in price or a change in percentage of securities sought, will depend upon the facts and circumstances, including the relative materiality of the changed terms or information. In the Commission's view, an offer should generally remain open for a minimum of five business days from the date a material change is first published, sent or given to shareholders. With respect to a change in price or a change in percentage of securities sought (other than an increase in the number of shares sought not in excess of 2% of the shares), a minimum ten business day period is required to allow for adequate dissemination to shareholders and investor response. As used in this Offer To Purchase, except for references to provisions in the Merger Agreement, "business day" has the meaning set forth in Rule 14d-1 under the Exchange Act. Accordingly, if, prior to the Expiration Date, Purchaser increases or decreases the number of Shares being sought (including a change 18 in or waiver of the Minimum Share Condition), or increases or decreases the consideration offered pursuant to the Offer, and if the Offer is scheduled to expire at any time earlier than the period ending on the tenth business day from the date that notice of such increase or decrease is first published, sent or given to holders of Shares, the Offer will be extended at least until the expiration of such ten business day period. As of the date of this Offer To Purchase, the Rights are evidenced by the certificates representing Shares and do not trade separately. Accordingly, by tendering a certificate representing Shares, a Shareholder is automatically tendering a similar number of associated Rights. If, however, pursuant to the Rights Agreement or for any other reason, the Rights detach and separate certificates representing rights ("Rights Certificates") are issued, Shareholders will be required to tender one Right for each Share tendered in order to effect a valid tender of such Share. The Company has provided Purchaser with its Shareholder list and security position listings for the purpose of disseminating the Offer to the Shareholders. This Offer To Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record Shareholders and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the Shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. CONDITIONS OF THE OFFER Notwithstanding any other provision of the Offer, Purchaser will not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares promptly after expiration or termination of the Offer), to pay for any Shares, and may postpone the acceptance for payment or, subject to the restrictions referred to above, payment for any Shares tendered, and, subject to the terms of the Merger Agreement, may amend or terminate the Offer (whether or not any Shares have theretofore been purchased or paid for pursuant to the Offer) unless the following conditions have been satisfied: (i) the Minimum Share Condition; (ii) any applicable waiting periods under the HSR Act shall have expired or been terminated prior to the expiration of the Offer; (iii) either Jones Day or Skadden Arps shall have delivered to CTS and the Company an opinion, dated as of the date of purchase, to the effect that, based upon such representations, assumptions and conditions as the firm delivering such opinion deems necessary or appropriate, the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and that CTS, Purchaser and the Company will each be a party to such reorganization within the meaning of Section 368(b) of the Code (the "Tax Opinion Condition"), and (iv) if at any time on or after the date of the Merger Agreement and before acceptance for payment of, or payment for, such Shares, any of the following events shall have occurred and be continuing: (a) any United States or foreign governmental entity or authority or any United States or foreign court of competent jurisdiction in the United States or any foreign country shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order which is in effect and which (1) restricts, prevents or prohibits consummation of the transactions contemplated by the Merger Agreement, including the Offer or the Merger, (2) prohibits, limits or otherwise adversely affects the ownership or operation by CTS or any of its subsidiaries of all or any portion of the business or assets of the Company and its subsidiaries or compels the Company, CTS or any of their subsidiaries to dispose of or hold separate all or any portion of the business or assets of the Company and its subsidiaries, or (3) imposes limitations on the ability of CTS, Purchaser or any other subsidiary of CTS to exercise effectively full rights of ownership of any Shares, including without limitation the right to vote any Shares acquired by Purchaser pursuant to the Offer or otherwise on all matters properly presented to the Company's Shareholders, 19 including without limitation the approval and adoption of the Merger Agreement and the transactions contemplated thereby; (b) there shall be instituted or pending any action or proceeding before any United States or foreign court or governmental entity or authority by any United States or foreign governmental entity or authority seeking any order, decree or injunction having any effect set forth in (a) above; (c) the representations and warranties of the Company contained in the Merger Agreement (without giving effect to the materiality, material adverse effect or knowledge limitations contained therein) shall not be true and correct as of the Expiration Date (as the same may be extended from time to time) as though made anew on and as of such date (except for representations and warranties made as of a specified date, which shall not be true and correct as of the specified date), except for any breach or breaches which, in the aggregate, could not be reasonably expected to have a material adverse effect on the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, or on the ability of the Company to perform any of its obligations under the Merger Agreement; (d) the Company shall not have performed or complied in all material respects with its covenants under the Merger Agreement to which it is a party and such failure continues until the later of (1) 15 calendar days after actual receipt by it of written notice from CTS setting forth in detail the nature of such failure or (2) the Expiration Date; (e) there shall have occurred any material adverse change, or any development that is reasonably likely to result in a material adverse change, in the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole; (f) the Merger Agreement shall have been terminated in accordance with its terms; (g) the Company Board shall have withdrawn or materially modified or changed (including by amendment of Schedule 14D-9) in a manner adverse to Purchaser or CTS its recommendation of the Offer, the Merger or any of the transactions contemplated by the Merger Agreement; (h) there shall have occurred (1) any general suspension of, or limitation on prices for, trading in securities on the NYSE, (2) a decline of at least 20% in either the Dow Jones Average of Industrial Stocks or the Standard & Poor's 500 Index from the date of the Merger Agreement, or (3) the declaration of a banking moratorium or any limitation or suspension of payments in respect of the extension of credit by banks or other lending institutions in the United States; or (i) it shall have been publicly disclosed or CTS shall have otherwise learned that (1) any person or "group" (as defined in Section 13(d)(3) of the Exchange Act), other than CTS or its affiliates or any group of which any of them is a member or any affiliate controlled by it or which is referred to in clause (2) below, shall have acquired beneficial ownership (determined pursuant to Rule 13d-3 promulgated under the Exchange Act) of more than 20% of the Shares, (2) any such person or group which has filed a Schedule 13D prior to the date of the Merger Agreement disclosing beneficial ownership of 20% or more of the Shares shall have acquired beneficial ownership of 25% or more of the Shares, or (3) any person or group shall have entered into a definitive agreement or agreement in principle with the Company with respect to a merger, consolidation or other business combination with the Company. The foregoing conditions are for the sole benefit of Purchaser and its affiliates and may be asserted by Purchaser, or CTS on behalf of Purchaser, regardless of the circumstances (including without limitation any action or inaction by Purchaser or any of its affiliates other than a material breach by Purchaser or CTS of the Merger Agreement) giving rise to any such condition or may be waived by Purchaser, in whole or in part, from time to time in its sole discretion, except as otherwise provided in the Merger Agreement. The failure by Purchaser at any time to exercise any of the foregoing rights will not be deemed a waiver of 20 any such right and each such right will be deemed an ongoing right and may be asserted at any time and from time to time. Any good faith determination by Purchaser concerning any of the events described herein will be final and binding. Pursuant to the Merger Agreement, CTS may not cause Purchaser to waive the Minimum Share Condition and the Tax Opinion condition without the Company's consent. A public announcement will be made of a material change in, or waiver of, such conditions to the extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act, and the Offer will be extended in connection with any such change or waiver to the extent required by such rules. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will purchase, by accepting for payment, and will pay for, all Shares (up to 49.9% of the total number of Shares) which are validly tendered prior to the Expiration Date (and not properly withdrawn in accordance with the procedures set forth under "--Withdrawal Rights") promptly after the later to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the conditions set forth in "--Conditions of the Offer." Purchaser expressly reserves the right, in its discretion, to delay acceptance for payment of, or, subject to applicable rules of the Commission, payment for, Shares in order to comply in whole or in part with any applicable law. In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates") or timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Shares, if such procedure is available, into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in "--Procedures for Tendering Shares," (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, or, in the case of a book-entry transfer, an Agent's Message (as defined below), and (iii) any other documents required by the Letter of Transmittal. See "--Procedures for Tendering Shares." The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against the participant. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn if, as and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance of such Shares for payment. Payment for Shares accepted pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering Shareholders for the purpose of receiving payments from Purchaser and transmitting payments to such tendering Shareholders. If, for any reason, acceptance for payment of any Shares tendered pursuant to the Offer is delayed, or Purchaser is unable to accept for payment Shares tendered pursuant to the Offer, then, without prejudice to Purchaser's rights under "--Conditions of the Offer," the Depositary may, nevertheless, on behalf of Purchaser, retain the tendered Shares, and such Shares may not be withdrawn, except to the extent that the tendering Shareholders are entitled to withdrawal rights as described in "--Withdrawal Rights" and as otherwise required by Rule 14e-1(c) under the Exchange Act. Under no circumstances will interest on the purchase price for Shares be paid by Purchaser, regardless of any delay in making such payment. Purchaser will pay any stock transfer taxes incident to the transfer to it of validly tendered Shares, except as otherwise provided in Instruction 6 of the Letter of Transmittal, as well as any charges and expenses of the Depositary and the Information Agent. 21 No fees or commissions will be paid to brokers, dealers or other persons (other than the Information Agent and the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer. If any tendered Shares are not accepted for payment for any reason pursuant to the terms and conditions of the Offer, or if Share Certificates are submitted evidencing more Shares than are tendered, Share Certificates evidencing Shares not purchased will be returned, without expense to the tendering Shareholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure set forth in "--Procedures for Tendering Shares," such Shares will be credited to an account maintained at such Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the Offer. If, prior to the Expiration Date, Purchaser increases the consideration to be paid per Share pursuant to the Offer, Purchaser will pay such increased consideration for all such Shares purchased pursuant to the Offer, whether or not such Shares were tendered prior to such increase in consideration. Subject to the terms of the Merger Agreement, Purchaser reserves the right to transfer or assign, in whole at any time, or in part from time to time, to CTS or one or more direct or indirect wholly owned subsidiaries of CTS, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, provided that any such transfer or assignment will not relieve Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering Shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. PROCEDURES FOR TENDERING SHARES VALID TENDER OF SHARES. In order for Shares to be validly tendered pursuant to the Offer, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message (in the case of any book-entry transfer) and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer To Purchase prior to the Expiration Date and either (i) the Share Certificates evidencing tendered Shares must be received by the Depositary at one of such addresses or Shares must be tendered pursuant to the procedure for book-entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case prior to the Expiration Date, or (ii) the tendering Shareholder must comply with the guaranteed delivery procedures described below. No alternative, conditional or contingent tenders will be accepted. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH A BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect to the Shares at each of the Book-Entry Transfer Facilities for purposes of the Offer within two business days after the date of this Offer To Purchase, and any financial institution that is a participant in either of the Book-Entry Transfer Facilities' system may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at a Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Shares may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer To Purchase prior to the Expiration Date or the tendering Shareholder must comply with the guaranteed delivery procedures described below. The confirmation of a book-entry transfer of shares into the Depositary's account at a Book Entry Transfer Facility as described above is referred to as a "Book-Entry Confirmation." DELIVERY OF 22 DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. SIGNATURE GUARANTEE. Signatures on all Letters of Transmittal must be guaranteed by a firm which is a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program (each, an "Eligible Institution"), unless the Shares tendered thereby are tendered (i) by a registered holder of Shares who has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. See Instruction 1 of the Letter of Transmittal. If a Share Certificate is registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or a Share Certificate not accepted for payment or not tendered is to be returned, to a person other than the registered holder(s), then the Share Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed as described above. See Instructions 1 and 5 of the Letter of Transmittal. GUARANTEED DELIVERY. If a Shareholder desires to tender Shares pursuant to the Offer and such Shareholder's Share Certificates are not immediately available or time will not permit all required documents to reach the Depositary prior to the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, such Shares may nevertheless be tendered if all the following conditions are satisfied: (i) the tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser herewith, is received by the Depositary as provided below prior to the Expiration Date; and (iii) in the case of a guarantee of Shares, the Share Certificates for all tendered Shares, in proper form for transfer, or a Book-Entry Confirmation, together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantee (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by such Letter of Transmittal, are received by the Depositary within three NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. Any Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery. IN ALL CASES, SHARES SHALL NOT BE DEEMED VALIDLY TENDERED, UNLESS A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE) IS RECEIVED BY THE DEPOSITARY. Notwithstanding any other provision hereof, payment for Shares purchased pursuant to the Offer will, in all cases, be made only after timely receipt by the Depositary of (i) the Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the delivery of such Shares, if available, (ii) a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) and (iii) any other documents required by the Letter of Transmittal. DISTRIBUTION OF RIGHTS. Holders of Shares will be required to tender one Right for each Share tendered to effect a valid tender of such Share. Unless and until the Distribution Date occurs (see "Certain Information Concerning the Company--The Rights"), the Rights are represented by and transferred with the Shares. Accordingly, if the Distribution Date does not occur prior to the Expiration Date of the Offer, a tender of Shares will constitute a tender of the associated Rights. If a Distribution Date has occurred, certificates representing a number of Rights equal to the number of Shares being tendered must be 23 delivered to the Depositary in order for such Shares to be validly tendered. If a Distribution Date has occurred, a tender of Shares without Rights constitutes an agreement by the tendering Shareholder to deliver certificates representing a number of Rights equal to the number of Shares tendered pursuant to the Offer to the Depositary within three NYSE trading days after the date such certificates are distributed. Purchaser reserves the right to require that it receive such certificates prior to accepting Shares for payment. If a Distribution Date has occurred, unless the Rights are redeemed prior to the Expiration Date, Shareholders who sell their Rights separately from their Shares and do not otherwise acquire Rights may not be able to satisfy the requirements of the Offer for the tender of Shares. Payment for Shares tendered and purchased pursuant to the Offer will be made only after timely receipt by the Depositary of, among other things, such certificates, if such certificates have been distributed to holders of Shares. Purchaser will not pay any additional consideration for the Rights tendered pursuant to the Offer. DETERMINATION OF VALIDITY. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tendered Shares pursuant to any of the procedures described above will be determined by Purchaser in its sole discretion, whose determination will be final and binding on all parties. Purchaser reserves the absolute right to reject any or all tenders of any Shares determined by it not to be in proper form or if the acceptance for payment of, or payment for, such Shares may, in the opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the absolute right, in its sole discretion, to waive any of the conditions of the Offer or any defect or irregularity in any tender with respect to Shares of any particular Shareholder, whether or not similar defects or irregularities are waived in the case of other Shareholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of CTS, Purchaser, the Company, the Depositary, the Information Agent, the Dealer Manager or any other person will be under any duty to give notification of any defects or irregularities in tenders or will incur any liability for failure to give any such notification. APPOINTMENT AS PROXY. By executing a Letter of Transmittal as set forth above, a tendering Shareholder irrevocably appoints designees of Purchaser as such Shareholder's proxies, each with full power of substitution and resubstitution, to the full extent of such Shareholder's rights with respect to the Shares tendered by such Shareholder and accepted for payment by Purchaser (and any and all noncash dividends, distributions, rights, other Shares or other securities issued or issuable in respect of such Shares after the date that the Shares are accepted for payment). All such proxies shall be considered coupled with an interest in the tendered Shares. This appointment will be effective if, when and only to the extent that, Purchaser accepts such Shares for payment pursuant to the Offer. Upon such acceptance for payment, all prior proxies given by such Shareholder with respect to such Shares and other securities will, without further action, be revoked, and no subsequent proxies may be given. The designees of Purchaser will, with respect to the Shares and other securities for which the appointment is effective, be empowered to exercise all voting and other rights of such Shareholder as they in their sole discretion may deem proper at any annual, special, adjourned or postponed meeting of the Shareholders by written consent or otherwise, and Purchaser reserves the right to require that, in order for Shares or other securities to be deemed validly tendered, immediately upon Purchaser's acceptance for payment of such Shares, Purchaser must be able to exercise full voting rights with respect to such Shares. In the event that WHX proceeds with the proxy solicitation relating to the Company's Annual Meeting and proposals made by WHX for consideration thereof described in "Background of the Combination," Purchaser presently intends to vote any Shares over which it has voting power, including pursuant to any proxy appointments described herein, against such proposals. 24 CERTAIN TAX MATTERS. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE FOR SHARES PURCHASED PURSUANT TO THE OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH SHAREHOLDER. SEE INSTRUCTION 9 OF THE LETTER OF TRANSMITTAL. SEE "SPECIAL CONSIDERATIONS RELATING TO THE COMBINATION-- CERTAIN FEDERAL INCOME TAX CONSEQUENCES." GENERAL. Purchaser's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering Shareholder and Purchaser upon the terms and subject to the conditions of the Offer. WITHDRAWAL RIGHTS Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after July 14, 1997. If Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering Shareholders are entitled to withdrawal rights as described in this Section. Any such delay will be by an extension of the Offer to the extent required by law. The reservation by Purchaser of the right to delay the acceptance or purchase of or payment for Shares is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires Purchaser to pay the consideration offered or to return Shares deposited by or on behalf of Shareholders promptly after the termination or withdrawal of the Offer. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer To Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in "--Procedures for Tendering Shares," any notice of withdrawal must also specify the name and number of the account at a Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Purchaser, in its sole discretion, whose determination will be final and binding. No withdrawal of Shares will be deemed to have been made properly until all defects and irregularities have been cured or waived. None of CTS, Purchaser, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered at any time prior to the Expiration Date by following the procedures described in "--Procedures for Tendering Shares." 25 THE MERGER AND THE MERGER AGREEMENT THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE MERGER AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT, WHICH IS INCORPORATED BY REFERENCE AND A COPY OF WHICH HAS BEEN FILED WITH THE COMMISSION AS AN EXHIBIT TO THE SCHEDULE 14D-1. THE MERGER AGREEMENT MAY BE EXAMINED, AND COPIES OBTAINED FROM THE OFFICES OF THE COMMISSION, IN THE SAME MANNER AS SET FORTH IN "CERTAIN INFORMATION CONCERNING PURCHASER AND CTS--SELECTED FINANCIAL INFORMATION." AGREEMENTS WITH RESPECT TO THE OFFER The Merger Agreement contemplates the commencement of the Offer and prescribes the conditions to the consummation of the Offer. See "The Offer--Conditions of the Offer." Without the prior written consent of the Company, Purchaser has agreed not to (and CTS has agreed to cause Purchaser not to) (i) decrease the Offer Price or change the form of the Offer consideration, (ii) change the conditions to the Offer or impose additional conditions to the Offer, (iii) increase the number of Shares to be purchased pursuant to the Offer to more than 50.1% of the Shares (calculated on a fully diluted basis), (iv) extend the Expiration Date (except (a) as required by applicable law and (b) that, in the event that any condition to the Offer is not satisfied or waived at the time that the Expiration Date would otherwise occur, (1) Purchaser must extend the Expiration Date for an aggregate of 20 additional business days (the "First Extension Date") to the extent necessary to permit such condition to be satisfied and (2) Purchaser may, in its sole discretion, extend the Expiration Date for up to 20 additional business days after the First Extension Date, or (v) amend any term of the Offer in any manner materially adverse to the Shareholders (including without limitation to result in any extension which would be inconsistent with the preceding provisions of this sentence), provided, however, that, (a) subject to applicable legal requirements, CTS may cause Purchaser to waive any condition to the Offer other than the Minimum Share Condition and the Tax Opinion Condition (see "The Offer--Conditions of the Offer"), in CTS' sole discretion, and (b) the Offer may be extended in connection with an increase in the consideration to be paid pursuant to the Offer to comply with applicable rules and regulations of the Commission. THE MERGER Subject to the terms and conditions of the Merger Agreement and in accordance with the NYBCL, at the Effective Time the Company will merge with and into Purchaser. Purchaser will be the surviving corporation in the Merger, and will continue its corporate existence under New York law. Purchaser's charter will be the Certificate of Incorporation of the Surviving Corporation, and Purchaser's By-laws will be the By-Laws of the Surviving Corporation. As of the Effective Time, by virtue of the Merger and without any action on the part of any holder of Shares, each issued and outstanding Share other than Shares owned by the Company, CTS or any wholly owned subsidiary of the Company or CTS (or Shares accepted for payment by Purchaser pursuant to the Offer), will be converted into the right to receive 0.88 fully paid and nonassessable CTS Shares (except that cash will be paid in lieu of fractional shares as described under "--Procedures for Exchange of Certificates; Fractional Shares"). As of the Effective Time, all such Shares will no longer be outstanding, will automatically be cancelled and retired and will cease to exist and each holder of a certificate representing any Shares will cease to have any rights in respect thereto except the right to receive the Merger Consideration and any cash in lieu of fractional shares. See "--Procedures for Exchange of Certificates; Fractional Shares." Any Shares owned immediately prior to the Effective Time by the Company, CTS or any of their wholly owned subsidiaries will be cancelled. If the Stock Split is effective immediately after the Effective Time, the Exchange Ratio will be adjusted to be 1.76, rather than 0.88. 26 PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES As soon as reasonably practicable after the Effective Time, The First National Bank of Boston or another bank or trust company designated by CTS, in its capacity as Exchange Agent (the "Exchange Agent"), will send a transmittal letter to each Shareholder whose Shares were converted into CTS Shares in the Merger. The transmittal letter will contain instructions with respect to the surrender of certificates previously representing the Shares converted in the Merger. After the Effective Time, each certificate that previously represented Shares will represent only the right to receive CTS Shares into which such Shares were converted in the Merger and the right to receive cash in lieu of fractional Shares as described below. Holders of certificates previously representing Shares will not be paid dividends or distributions on the CTS Shares into which such Shares have been converted with a record date after the Effective Time, and will not be paid cash in lieu of fractional CTS Shares, until such certificates are surrendered to the Exchange Agent for exchange. When such certificates are surrendered, any unpaid dividends and any cash in lieu of fractional CTS Shares payable as described below will be paid without interest. In the event of a transfer of ownership of the Shares which is not registered in the transfer records of the Company, a certificate representing the proper number of CTS Shares may be issued to a person other than the person in whose name the certificate so surrendered is registered if such certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such issuance shall pay any transfer or other taxes required by reason of the issuance of CTS Shares to a person other than the registered holder of such certificate or establish to the satisfaction of CTS that such tax has been paid or is not applicable. All CTS Shares issued upon conversion of the Shares (including any cash paid in lieu of any fractional CTS Shares) will be deemed to have been issued in full satisfaction of all rights pertaining to such Shares. No fractional CTS Shares will be issued to any Shareholder upon surrender of certificates previously representing the Shares. For each fractional share that would otherwise be issued, CTS will make available to such Shareholder an amount in cash determined in the manner set out in the next two succeeding paragraphs. As promptly as practicable following the Effective Time, the Exchange Agent will determine the excess of (i) the number of whole CTS Shares delivered to the Exchange Agent by CTS pursuant to the Merger Agreement over (ii) the aggregate number of whole CTS Shares to be distributed to Shareholders pursuant to the Merger (such excess being herein called the "Excess Shares"). The Exchange Agent will sell the Excess Shares at then-prevailing prices on the NYSE and will hold the proceeds of such sale or sales, in trust for such Shareholders entitled thereto (the "Common Share Trust"). Promptly following such sale or sales, the Exchange Agent will determine the portion of the Common Share Trust to which each Shareholder is entitled, if any, by multiplying the amount of the aggregate net proceeds comprising the Common Share Trust by a fraction, the numerator of which is the amount of the fractional share interest to which such Shareholder is entitled (after taking into account all Shares held at the Effective Time by such Shareholder) and the denominator of which is the aggregate amount of fractional share interests to which all Shareholders are entitled. Notwithstanding the preceding paragraph, CTS may elect at its option, exercised prior to the Effective Time, in lieu of the issuance and sale of Excess Shares and the making of the payments hereinabove contemplated, to pay each Shareholder an amount in cash equal to the product obtained by multiplying (i) the fractional share interest to which such Shareholder (after taking into account all Shares held at the Effective Time by such Shareholder) would otherwise be entitled by (ii) the average closing price for a CTS Share as reported on the NYSE Composite Transaction Tape (as reported in the WALL STREET JOURNAL, or, if not reported thereby, any other authoritative source) (the "Average Closing Price") for the ten trading days prior to the closing date of the Merger. 27 SHAREHOLDER APPROVAL OF THE MERGER The Merger Agreement provides that the Company and CTS will, as soon as practicable following the date of the Merger Agreement, duly call, give notice of, convene and hold a meeting of their respective shareholders for the purpose of approving the Merger Agreement and the transactions contemplated thereby (in the case of the Company) and for the purpose of approving the CTS Charter Amendments and the issuance of CTS Shares in connection with the Merger (in the case of CTS). The affirmative vote of the holders of two-thirds of the voting power of all the voting shares at the Company's Shareholder meeting is required to approve and adopt the Merger Agreement. The affirmative vote of the holders of a majority of the voting power of all outstanding CTS Shares voting as a single class at the CTS Shareholder meeting is required to approve the amendments to the CTS Articles of Incorporation described in "-- Amendments to CTS Charter and Bylaws" and the affirmative vote of the holders of the CTS Shares at the CTS Shareholder meeting is required to approve the issuance of CTS Shares in connection with the Merger. The Company currently owns 44.1% of the issued and outstanding CTS Shares, 24.5% of which has voting rights (the "Company-Owned CTS Stock"). The Company has agreed that, during the period from May 9, 1997 until the Effective Time or the termination of the Merger Agreement in accordance with its terms, (i) it will not sell, transfer or pledge any Company-Owned CTS Shares or any other equity securities of CTS beneficially owned by it ("CTS Securities") and (ii) it will vote the CTS Securities in favor of the adoption of the proposed CTS Charter Amendments and the approval of the other transactions contemplated by the Merger Agreement or in furtherance thereof and against any competing transaction and certain other material changes in CTS' business and corporate governance. CTS has similarly agreed in respect to the Company's equity securities owned by it or its Subsidiaries (including Purchaser), including Shares purchased in the Offer, and has agreed to substantially similar transfer restrictions. In addition, the Company has agreed that, during the period from May 9, 1997 to the Offer Completion Date (as defined under "--No Shop Covenant") plus two calendar days (unless the second calendar day is not a business day, in which case the period will include the business day following the second calendar day) (the "Open Period") it will take all actions, including voting the CTS Securities in favor thereof, as are requested by CTS to adjourn or postpone CTS' 1997 annual shareholders meeting to such date within the Open Period as may be requested by CTS. CTS and the Company have agreed that, in any event, the parties will take all actions that may be required to adjourn CTS' 1997 annual shareholders meeting to June 24, 1997. REPRESENTATIONS AND WARRANTIES The Merger Agreement contains customary representations and warranties relating to, among other things, (i) organization, standing and corporate power; (ii) subsidiaries; (iii) capital structures; (iv) authorization, execution, delivery, performance and enforceability of, and required consents, approvals, orders and authorizations of governmental authorities relating to, the Merger Agreement; (v) the accuracy of information in documents filed with the Commission and the absence of undisclosed liabilities; (vi) the accuracy of information supplied in connection with this Offer To Purchase and the related filings with the Commission; (vii) absence of material changes or events; (viii) the absence of material litigation; (ix) required shareholder votes; (x) the satisfaction of certain state takeover statutes; (xi) engagement and payment of fees of brokers, investment bankers, finders and financial advisors; (xii) receipt of fairness opinions; (xiii) ownership of the other parties' capital stock; (xiv) the inapplicability of the Company Rights Agreement; (xv) certain employment agreements between the Company, CTS and certain of the Company's and CTS' employees; and (xvi) certain tax matters. CONDUCT OF BUSINESS PENDING MERGER Pursuant to the Merger Agreement, CTS and the Company have each agreed to carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as conducted prior to the execution of the Merger Agreement and, to the extent consistent therewith, use all reasonable efforts to preserve intact their current business organizations, use reasonable efforts to keep available the services of their current officers and other key employees and preserve their relationships with those persons and entities having business dealings with them to the end that their goodwill and 28 ongoing businesses will be unimpaired at the Effective Time. In addition, CTS and the Company have each agreed that during the period from May 9, 1997 to the Effective Time, among other things and subject to certain exceptions, neither it nor any of its subsidiaries may: (i) declare, set aside or pay any dividends on, or make any other distributions in respect of, any capital stock, other than certain dividends and distributions by a subsidiary and other than the regular quarterly or semi-annual dividends, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or purchase, redeem or otherwise acquire any shares of its capital stock or its significant subsidiaries' capital stock or any rights, warrants or options to acquire any such securities; provided, however, CTS may (A) effect the Stock Split and (B) under certain conditions, declare a dividend of rights in connection with the adoption of a rights plan (the "CTS Rights"); (ii) issue, deliver, sell, pledge or otherwise encumber any shares of capital stock, any other voting securities or any securities convertible into or any rights, warrants or options to acquire any such shares, other than pursuant to existing employee stock options, the issuance of CTS Rights and the Stock Split; (iii) amend its certificate or articles, as applicable, of incorporation, by-laws or other comparable organizational documents; or (iv) make any material change to accounting methods, principles or practices, except as may be required by generally accepted accounting principles. The Company has further agreed, among other things and subject to certain exceptions, that neither it nor any of its subsidiaries will: (i) acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business entity or other business organization; (ii) sell, lease, license, mortgage or otherwise encumber or subject to any lien or otherwise dispose of any properties or assets, other than (A) in the ordinary course of business or (B) sales of assets that individually or in the aggregate do not exceed $1 million; (iii) incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for short-term borrowings incurred in the ordinary course of business consistent with past practice; (iv) make any loans, advances or capital contributions to, or investments in, any other person, other than to subsidiaries or to officers and to employees for travel, business or relocation expenses in the ordinary course of business; (v) make or agree to make any new capital expenditure other than as set forth in existing operating budgets; (vi) except as required by law or contemplated by the Merger Agreement, enter into, adopt or amend in any material respect or terminate any employee benefit plan or any other agreement, plan or policy involving the Company or any of its subsidiaries and one or more of their directors, officers or employees, or materially change any actuarial or other assumption used to calculate funding obligations with respect to any Company pension plans, or change the manner in which contributions to any Company pension plans are made or the basis on which such contributions are determined; or (vii) increase the compensation of any director, executive officer or other key employee of the Company or pay any benefit or amount not required by a plan or arrangement as in effect on the date of this Agreement to any such person; (viii) enter into any contract or agreement, written or oral, with any affiliate, associate or relative of CTS, or make any payment to or for the benefit of, directly or indirectly, any of the foregoing; or 29 (ix) make any amendment to, or waive or enter into or give any binding interpretation of, any term of a certain agreement with certain Shareholders. NO-SHOP COVENANT Pursuant to the Merger Agreement, the Company and CTS will not, directly or indirectly, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action designed to facilitate, any inquiries or the making of any Takeover Proposal or (ii) participate in any discussions or negotiations regarding any Takeover Proposal; provided, however, that if, at any time prior to, with respect to the Company, the Offer Completion Date or, with respect to CTS, the Effective Time, the Company Board (with respect to the Company) or the Unaffiliated CTS Directors (with respect to CTS) determine in good faith, after consultation with advisors, that the failure to do so would create a reasonable possibility of a breach of their fiduciary duties to its shareholders under applicable law, such party may, in response to a Takeover Proposal which was not solicited by it or which did not otherwise result from a breach of the covenant described in this paragraph, furnish information with respect to it and its subsidiaries to any person pursuant to a customary confidentiality agreement and participate in negotiations regarding such Takeover Proposal. Except as expressly permitted by the Merger Agreement, neither the Company Board nor the CTS Board, nor any committee thereof, will (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to the other party, the approval or recommendation by such board of directors or such committee of the Merger or the Merger Agreement, (ii) approve or recommend, or propose publicly to approve or recommend, any Takeover Proposal, or (iii) cause such party to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to any Takeover Proposal (an "Acquisition Agreement"). Notwithstanding the foregoing, in the event that prior to the earlier to occur of (a) the date on which Purchaser purchases shares pursuant to the Offer and (b) the Effective Time (the "Offer Completion Date"), the Company Board (with respect to the Company) or a majority of the members of the CTS Board who are Unaffiliated CTS Directors (with respect to CTS) determines in good faith, (and with respect to the Company, after the Company has received a Takeover Proposal and with respect to CTS, after CTS has received a Takeover Proposal) and after consultation with advisors, that the failure to do so would create a reasonable possibility of a breach of their fiduciary duties to its shareholders under applicable law, the Company Board (with respect to the Company) or a majority of the members of the CTS Board who are Unaffiliated CTS Directors (with respect to CTS) may withdraw or modify its approval or recommendation of the Offer, the Merger or the Merger Agreement, approve or recommend a Takeover Proposal, or terminate the Merger Agreement (such termination, a "Fiduciary Out"), but only if (A) the terminating party pays its respective termination fee (see "-- Inducement Fee and Termination Fees") and (B) with respect to the Company's Fiduciary Duty, prior to any such termination which is to be effective within two business days of CTS' 1997 annual shareholders meeting or any postponement or adjournment thereof, the Company shall have given CTS at least two business days notice of the effectiveness of such termination. A "Takeover Proposal" is defined, with respect to either the Company or CTS, to be any inquiry, proposal or offer from any person or entity relating to any direct or indirect acquisition or purchase of 20% or more of such party's and its subsidiaries' assets or 20% or more of any class of equity securities of such party or any of its subsidiaries, any tender offer or exchange offer that if consummated would result in any person owning 20% or more of any class of equity securities of such party or any of its subsidiaries or any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving such party or any of its subsidiaries other than the transactions contemplated by the Merger Agreement. 30 INDUCEMENT FEE AND TERMINATION FEES As an inducement to CTS and Purchaser to enter into the Merger Agreement and perform their respective obligations thereunder, on May 9, 1997, the Company paid $2.0 million to CTS (the "Inducement Fee"). The Inducement Fee is not subject to refund or return for any reason whatever and may not be used as an offset against or otherwise applied to any obligation of the Company, including without limitation the obligation to pay a termination fee. In addition, the Merger Agreement provides that the Company will pay CTS a $3.0 million fee in the event that (i) a Takeover Proposal with respect to the Company (other than WHX Corporation's $45.00 cash tender offer) is made known to the Company or any of its subsidiaries or has been made directly to Shareholders generally or any person or entity publicly announces an intention (whether or not conditional) to make such a Takeover Proposal and thereafter the Merger Agreement is terminated by the Company or CTS because either the Merger has not been consummated by September 30, 1997 or the Company Shareholders have not approved the Merger at the shareholders meeting called for such purpose, (ii) the Merger Agreement is terminated (a) by the Company pursuant to its Fiduciary Out or (b) by CTS because the Company Board or any committee thereof has (1) withdrawn or modified in a manner adverse to CTS its approval or recommendation of the Offer, the Merger or the Merger Agreement or failed to reconfirm its approval within the prescribed time, (2) has approved or recommended, or proposed publicly to do so, any Takeover Proposal with respect to the Company, (3) caused the Company to enter into an Acquisition Agreement or, (4) resolved to take any of the foregoing actions. The Merger Agreement provides that CTS will pay the Company a $5.0 million fee in the event that (i) a Takeover Proposal with respect to CTS is made known to CTS or any of its subsidiaries or has been made directly to shareholders generally or any person or entity publicly announces an intention (whether or not conditional) to make such a Takeover Proposal and thereafter the Merger Agreement is terminated by CTS or the Company because either the Merger has not been consummated by September 30, 1997 or CTS' Shareholders have not approved the issuance of CTS Shares in connection with the Merger and adopted the CTS Charter Amendments at the shareholders meeting called for such purpose, (ii) the Merger Agreement is terminated (a) by CTS pursuant to its Fiduciary Out or (b) by the Company because the CTS Board or any committee thereof has (1) withdrawn or modified in a manner adverse to the Company its approval or recommendation of the Offer, the Merger or the Merger Agreement or failed to reconfirm its approval within the prescribed time, (2) has approved or recommended, or proposed publicly to do so, any Takeover Proposal with respect to CTS, (3) caused CTS to enter into an Acquisition Agreement, or (4) resolved to take any of the foregoing actions. Except as described above, all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring the cost or expense, except that the Company and CTS will each pay one half of the cost of (1) filing, printing and mailing the Joint Proxy Statement (including SEC filing fees) and (ii) the HSR filing. EMPLOYEE BENEFITS MATTERS Pursuant to the Merger Agreement, with respect to each CTS "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), including plans or policies providing severance benefits and vacation entitlement ("CTS Plans"), if the Effective Time occurs, service with the Company will be treated as service with CTS purposes of determining eligibility to participate, vesting and entitlement to benefits (other than the accrual of benefits under any defined benefit pension plan) unless, and to the extent that, the recognition of such service would result in a duplication of benefits. Such service also will apply for purposes of satisfying any waiting periods, evidence of insurability requirements or the application of any preexisting condition limitations under any CTS Plan. Employees of the Company will be given credit under any CTS Plan in which they are eligible to participate for amounts paid under a corresponding Company benefit plan during the same period for 31 purposes of applying deductibles, copayments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms and conditions of the CTS Plans. Following the Effective Time, CTS will cause the Surviving Corporation to honor in accordance with their terms all employment, severance and other compensation agreements and arrangements of the Company, including but not limited to severance benefit plans, the existence or terms of which do not involve any material breach of any representation, warranty or covenant of the Company under the Merger Agreement. For a description of certain employment agreements and other employee benefits matters relating to the Merger, see "Special Considerations Relating to the Combination--Interest of Certain Persons in the Offer and the Merger." INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE The Merger Agreement provides that all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time existing in favor of the current or former directors or officers of the Company or its subsidiaries as provided in their respective certificates of incorporation or by-laws (or comparable organizational documents) will be assumed by CTS and CTS will be directly responsible for such indemnification, without further action, as of the Effective Time and will continue in full force and effect in accordance with their respective terms. In addition, from and after the Effective Time, directors and officers of the Company who become or remain directors or officers of CTS or Purchaser will be entitled to the same indemnity rights and protections (including those provided by directors' and officers' liability insurance) as are afforded to other directors and officers of CTS. For a period of six years after the Effective Time, CTS will, and will cause the Surviving Corporation to, maintain policies of directors' and officers' liability insurance equivalent in all material respects to those maintained by or on behalf of the Company and its subsidiaries on the date of the Merger Agreement (and having at least the same coverage and containing terms and conditions which are no less advantageous to the persons currently covered by such policies as insureds) with respect to matters existing or occurring at or prior to the Effective Time; provided, however, that if the aggregate annual premiums for such insurance at any time during such period exceed 200% of the per annum rate of premium currently paid by the Company and its subsidiaries for such insurance on the date of the Merger Agreement, then CTS will cause the Surviving Corporation to, and the Surviving Corporation will, provide the maximum coverage that shall then be available at an annual premium equal to 200% of such rate. CONDITIONS TO THE CONSUMMATION OF THE MERGER Each party's obligation to effect the Merger is subject to the satisfaction or waiver on or prior to the closing date of the Merger (the "Closing Date") of various conditions which include, in addition to other customary closing conditions, the following: (i) the Shareholders shall have approved the Merger Agreement and the Merger and the CTS Shareholders shall have approved the issuance of CTS Shares in connection with the Merger and adopted the CTS Charter Amendments; (ii) no judgment, order, decree, statute, law, ordinance, rule, regulation, temporary restraining order, injunction or other order enacted, entered, promulgated, enforced or issued by any court or other governmental entity or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect (each, a "Restraint"); and (iii) the Joint Proxy Statement/Prospectus shall have become effective and shall not be the subject of any stop order or proceedings seeking a stop order. 32 CTS' obligation to effect the Merger is also subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (i) the Company shall have performed in all material respects all obligations to be performed by it on or before the earlier of (i) such time as CTS controls the Company Board pursuant to the Merger Agreement and (ii) the Closing Date; and (ii) Purchaser shall have accepted for payment and paid for Shares pursuant to the Offer; provided, however, that CTS may not invoke this condition if Purchaser fails to purchase Shares in violation of the terms of the Merger Agreement. The Company's obligation to effect the Merger is also subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (i) Purchaser and CTS having performed in all material respects all obligations to be performed by them, and (ii) Purchaser having accepted for payment and paid for at least 25% of the Shares pursuant to the Offer. If (i) the Minimum Share Condition is not satisfied on the Expiration Date and (ii) the average closing price of CTS Shares for the ten trading days prior to the Expiration Date multiplied by the Exchange Ratio is at least $55.00, CTS and Purchaser may elect, by written notice from CTS to the Company not later than the first business day after the Expiration Date, to proceed with the Merger, in which case the Company, CTS and Purchaser will be obligated to effect the Merger subject to all of the conditions specified in the preceding paragraphs except for the conditions with respect to purchase of Shares in the Offer. If CTS and Purchaser elect to proceed with the Merger in these circumstances, the parties obligations to effect the Merger will be subject to the additional condition that either Jones Day or Skadden Arps deliver an opinion, dated as of the Closing Date, to the same effect as the opinion to be delivered in satisfaction of the Tax Opinion Condition. See "The Offer -- Conditions of the Offer." TERMINATION The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after approval by the Shareholders and the CTS Shareholders: (i) by mutual written consent of CTS and the Company (including without limitation in connection with the entry into any other agreement between the Company and CTS); (ii) by CTS, if the Offer shall have expired or been withdrawn or terminated in accordance with the terms thereof without any Shares being purchased by CTS thereunder by reason of the failure of any condition set forth in the section entitled "The Offer -- Conditions of the Offer"; (iii) by either CTS or the Company: (a) if the Merger has not been consummated by September 30, 1997; provided, however, that the right to terminate the Merger Agreement pursuant to this clause will not be available to any party whose failure to perform any of its obligations under the Merger Agreement results in the failure of the Merger to be consummated by such time, (b) if the Company Shareholder Approval shall not have been obtained, (c) if the CTS Shareholder Approval shall not have been obtained, or (d) if any governmental entity shall have issued a Restraint or taken any other action permanently enjoining, restraining or otherwise prohibiting the consummation of the Offer, the Merger or any of the other transactions contemplated by the Merger Agreement and such Restraint or other action shall have become final and nonappealable; (iv) by CTS, if the Company Board or any committee thereof shall have (a) withdrawn or modified in a manner adverse to CTS its approval or recommendation of the Offer, the Merger or the Merger Agreement or failed to reconfirm its approval or recommendation within five business days 33 after a written request to do so, (b) approved or recommended, or proposed publicly to approve or recommend, any Takeover Proposal with respect to the Company, (c) caused the Company to enter into an Acquisition Agreement, or (d) resolved to take any of the foregoing actions; (v) by CTS, upon exercise of its Fiduciary Out at any time prior to the Offer Completion Date; (vi) by the Company, if the CTS Board or any committee thereof shall have (A) withdrawn or modified in a manner adverse to the Company its approval or recommendation of the Offer, the Merger or the Merger Agreement or failed to reconfirm its approval or recommendation within five business days after a written request to do so, (B) approved or recommended, or proposed publicly to approve or recommend, any Takeover Proposal with respect to CTS, (C) caused CTS to enter into a Acquisition Agreement, or (D) resolved to take any of the foregoing actions; (vii) by the Company at or prior to the Offer Completion Date, if CTS or Purchaser shall have breached or failed to perform in any material respect any of its representations, warranties or covenants required to be performed by them under the Merger Agreement at or prior to the Offer Completion Date, which breach or failure to perform cannot be or has not been cured within 30 days after the giving of written notice to CTS and Purchaser of such breach (provided that the Company is not then in material breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement that cannot or has not been cured within 30 days after giving notice to the Company of such breach); and (viii) by the Company, upon exercise of its Fiduciary Out at any time prior to the Offer Completion Date. AMENDMENTS TO CTS CHARTER AND BYLAWS In connection with the Merger, effective as of the Effective Time, CTS' Articles of Incorporation will be amended (the "CTS Charter Amendments"), among other things, to (i) increase the authorized capital of CTS from 8,000,000 shares of Common Stock to 75,000,000 shares of Common Stock and 25,000,000 shares of Preferred Stock (the terms of which will be fixed by the CTS Board), (ii) increase the maximum and minimum size of the CTS Board to 15 and three, respectively, with the exact size to be determined by the CTS Board, and (iii) expand the required indemnification to the extent allowable by law and to provide procedures for the resolution of disputes over compliance with the applicable standard of care. The CTS Charter Amendments will require the affirmative vote of a majority of the CTS Shares outstanding, but will not become effective unless the issuance of CTS Shares in the Merger is also approved by CTS Shareholders. Also, effective as of the Effective Time and subject to the occurrence thereof, CTS' Bylaws will be amended to, among other things, provide that a majority of the CTS Board (rather than two-thirds) may amend or take substantially all other actions under CTS' Bylaws. DISSENTER'S RIGHTS Under the NYBCL, Shareholders are not entitled to dissenter's rights by reason of the Offer. However, if the Merger is consummated, Shareholders will be entitled to appraisal rights under the NYBCL. Shareholders who follow the procedures in Section 623 of the NYBCL will be entitled to have their Shares appraised by a New York court and to receive payment of the "fair value" of such Shares as determined by such court. The procedures therefor will be described in full in the Joint Proxy Statement/ Prospectus. 34 CERTAIN INFORMATION CONCERNING THE COMPANY GENERAL The Company is a New York corporation whose principal executive offices are located at 475 Steamboat Road, Greenwich, Connecticut 06830-7197. The Company is a diversified manufacturer of commercial and industrial products founded in 1924. The Company's eight plants are located in California, Connecticut, Ohio and Pennsylvania. Its six separate business units manufacture electronic components, mobile vans and transportable shelters for specialized electronic and medical diagnostic equipment, portable electric housewares and commercial appliances, air distribution equipment, specialized air-conditioning equipment and generator sets. SELECTED FINANCIAL INFORMATION Set forth below is a summary of certain consolidated financial information with respect to the Company and its subsidiaries for its quarter ended March 31, 1997 and its fiscal years ended December 31, 1996, 1995 and 1994, excerpted from financial statements presented in the Company's Quarterly Report on Form 10-Q for the first quarter of 1997 (the "Company 10-Q"), the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "Company 10-K") and other documents filed by the Company with the Commission. More comprehensive financial information is included in such reports (including management's discussion and analysis of results of operations and financial position) and other documents filed by the Company with the Commission, and the financial information summary set forth below is qualified in its entirety by reference to such reports and other documents, and all the financial information and related notes contained therein. The Company 10-Q, the Company 10-K and such other documents may be examined and copies may be obtained from the offices of the Commission or the NYSE in the manner set forth below. 35 DYNAMICS CORPORATION OF AMERICA SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, ------------------------ ---------------------------------- MARCH 31, MARCH 31, 1997 1996 1996 1995 1994 ----------- ----------- ---------- ---------- ---------- INCOME STATEMENT INFORMATION: Net Sales............................................ $ 30,402 $ 27,864 $ 129,206 $ 114,164 $ 107,700 Income (loss) from continuing operations before equity investment in CTS........................... 1,171 (834) 76 1,364 5,106 Income from equity investment in CTS................. 2,637 4,060 10,280 4,411 3,618 Income from continuing operations.................... 3,808 3,226 10,356 5,775 8,724 PER SHARE INFORMATION: Income from continuing operations.................... 1.00 .84 2.71 1.50 2.25 Reclassification of provision for Fermont disposition........................................ -- .07 .07 .25 -- Net income........................................... 1.00 .91 2.78 1.75 2.25 Dividends per common share........................... .10 .10 .20 .20 .20
AT DECEMBER 31, AT MARCH 31, ---------------------- 1997 1996 1995 ------------ ---------- ---------- BALANCE SHEET INFORMATION: Total Current Assets............................... $ 53,386 $ 49,350 $ 50,793 Equity Investment in CTS........................... 86,478 84,046 77,180 Total Assets....................................... 148,226 140,736 134,301 Total Liabilities.................................. 29,858 25,698 28,827 Total Shareholders' Equity......................... 118,368 115,038 105,474
The Company is subject to the information and reporting requirements of the Exchange Act and is required to file reports and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities, any material interests of such persons in transactions with the Company and other matters is required to be disclosed in proxy statements distributed to the Shareholders and filed with the Commission. These reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and also should be available for inspection and copying at prescribed rates at the following regional offices of the Commission: Seven World Trade Center, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains an Internet web site at http:// www.sec.gov that contains reports, proxy statements and other information. The Shares are listed on the NYSE, and reports, proxy statements and other information concerning the Company should also be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. CERTAIN PROJECTIONS In the course of discussions giving rise to the Merger Agreement (see "Background of the Combination"), representatives of the Company furnished representatives of CTS certain business and financial 36 information that was not publicly available, including certain financial projections for 1997 and 1998 (the "Company Projections"). The Company Projections included certain projections for the years 1997 and 1998 prepared solely for the Company's internal purposes. None of such projected financial information provided by the Company to CTS was prepared for publication or with a view to complying with the published guidelines of the Commission regarding projections or with the AICPA Guide for Prospective Financial Statements, and such information is being included in the Offer To Purchase solely because it was furnished to CTS in connection with the discussions giving rise to the Merger Agreement. The independent accountants of the Company, Ernst & Young LLP have neither examined nor compiled the prospective financial information set forth below and, accordingly, do not express an opinion or any other form of assurance with respect thereto. The reports of Ernst & Young LLP incorporated by reference in this Offer To Purchase relate to the historical financial information of the Company and, do not extend to the prospective financial information and should not be read to do so. THE PROJECTED FINANCIAL INFORMATION SET FORTH BELOW NECESSARILY REFLECTS NUMEROUS ASSUMPTIONS WITH RESPECT TO GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS, MANY OF WHICH ARE INHERENTLY UNCERTAIN OR BEYOND THE COMPANY'S OR CTS' CONTROL, AND DOES NOT TAKE INTO ACCOUNT ANY CHANGES IN THE COMPANY'S OPERATIONS OR CAPITAL STRUCTURE WHICH MAY RESULT FROM THE OFFER AND THE MERGER. SEE "SPECIAL CONSIDERATIONS RELATING TO THE COMBINATION -- PLANS FOR THE COMPANY AND CTS." IT IS NOT POSSIBLE TO PREDICT WHETHER THE ASSUMPTIONS MADE IN PREPARING THE PROJECTED FINANCIAL INFORMATION WILL BE VALID AND ACTUAL RESULTS MAY PROVE TO BE MATERIALLY HIGHER OR LOWER THAN THOSE CONTAINED IN THE PROJECTIONS. NO SPECIFIC ASSUMPTIONS RELATING TO SUCH PROJECTIONS WERE FURNISHED BY THE COMPANY OR CTS, ALTHOUGH CERTAIN INFORMATION PERTINENT TO THE COMPANY PROJECTIONS WAS FURNISHED BY THE COMPANY OR CTS. THE INCLUSION OF THIS INFORMATION SHOULD NOT BE REGARDED AS AN INDICATION THAT THE COMPANY, CTS OR ANYONE ELSE WHO RECEIVED THIS INFORMATION CONSIDERED IT A RELIABLE PREDICTOR OF FUTURE EVENTS, AND THIS INFORMATION SHOULD NOT BE RELIED ON AS SUCH. NONE OF CTS, PURCHASER, THE COMPANY OR ANY OF THEIR RESPECTIVE REPRESENTATIVES ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF THE PROJECTED FINANCIAL INFORMATION, AND THE COMPANY HAS MADE NO REPRESENTATION TO CTS REGARDING SUCH INFORMATION.
1997 1998 --------- --------- (AMOUNTS IN MILLIONS) Net Sales............................................................................ $ 148.6 $ 170.9 Cost of goods sold................................................................... 115.4 132.7 Earnings before interest and taxes, before equity earnings from CTS.................. 6.0 6.9 Net earnings, before equity earnings from CTS........................................ $ 4.3 $ 5.0
THE RIGHTS The Company Rights Agreement is described in the Company's Form 8-A, dated January 30, 1986 (the "Company 8-A"), the Company 8-K, dated as of December 27, 1995, the Company 8-K, dated May 9, 1997, and the Company 8-K, dated May 12, 1997 filed with the Commission, each of which is incorporated herein by this reference. The Rights will be represented by the Share Certificates and will not be exercisable, or transferable apart from the Shares, until (i) 10 days after the public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, the beneficial ownership of 20 percent or more of the Shares in a transaction not approved by the Board prior to such transaction (an "Acquiring Person"), or (ii) such date as the Company Board shall determine following the first public announcement of the commencement of, or the intent of any individual, firm, corporation or other entity (other than the Company) to commence, a tender or exchange offer for 25% or more of the outstanding Shares. As soon as practicable after such date (the "Distribution Date"), separate certificates evidencing the Rights will be mailed to holders of record of Shares as of the close of business on the Distribution Date and such separate certificates alone will evidence the Rights. For a description of the amendments to the Company Rights Agreement effected in connection with the Merger, see "Introduction." 37 Shareholders are required to tender one associated Right for each Share tendered in order to effect a valid tender of such Share. If the Distribution Date (as defined) does not occur prior to the Expiration Date, a tender of Shares will automatically constitute a tender of the associated Rights. See "The Offer -- Procedures for Tendering Shares." CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION Article XV of the Company's Certificate of Incorporation provides, among other things, that the affirmative vote of not less than 80% of the outstanding stock of the Company entitled to vote thereon (the "80% Vote") is required to approve any of the following transactions with an individual, corporation or other entity (collectively, a "Combination Partner") who is a beneficial owner (as such term is defined in the Company Certificate of Incorporation) of 5% or more of the outstanding capital stock of the Company entitled to vote in the election of directors: (i) any agreement for merger or consolidation of the Company or any subsidiary with or into a Combination Partner, or the merger of any other Combination Partner into the Company or any subsidiary, (ii) any sale, lease, exchange, mortgage or pledge to any other Combination Partner of all or substantially all of the property and assets of the Company or any subsidiary, or any part of such assets having a fair market value greater than 50% of the fair market value of the total assets of the Company or such subsidiary, or (iii) the issuance or transfer by the Company or any subsidiary of any voting securities of the Company or any subsidiary having a fair market value of more than $1,000,000 in exchange or payment for the securities or property and assets (including cash) of any Combination Partner. Notwithstanding the preceding sentence, the 80% Vote is not required if the Company owns a majority of the Combination Partner's voting stock or if the Company Board approves the transaction before such Combination Partner becomes a 5% or more beneficial owner of such capital stock. At the time that the Company Board approved the Merger Agreement, Purchaser or CTS did not own 5% of the Shares. Therefore, the 80% Vote is inapplicable to the Merger Agreement or the Merger, and the affirmative vote of the holders of two-thirds of the Shares is the only vote required to approve the Merger Agreement and the Merger. CERTAIN INFORMATION CONCERNING PURCHASER AND CTS PURCHASER Purchaser is a New York corporation which was recently organized in connection with the Offer. The principal offices of Purchaser are located at 905 West Boulevard North, Elkhart, Indiana 46514. Purchaser is a newly formed wholly owned subsidiary of CTS. Until immediately prior to the time that Purchaser will purchase Shares pursuant to the Offer, it is not expected that Purchaser will have any significant assets or liabilities or engage in activities other than those activities incident to the Offer and the Merger and the other transactions contemplated by the Merger Agreement. CTS CTS is an Indiana corporation with its principal executive offices located at 905 West Boulevard North, Elkhart, Indiana 46514. CTS designs, manufactures and sells a broad line of electronic components principally serving original equipment manufacturers in the automotive, computer, communications, instrument and controls, defense and aerospace industries. CTS products are engineered and manufactured at 16 facilities worldwide and include automotive control devices, interconnect products, frequency control devices, resistor networks and hybrid microcircuits. The name, citizenship, business address, principal occupation or employment and five-year employment history for each of the directors and executive officers of CTS and Purchaser are set forth in Schedule I hereto. Except as disclosed in this Offer To Purchase (including Schedule I hereto), neither CTS nor Purchaser, nor, to the knowledge of CTS or Purchaser, any of the persons listed in Schedule I hereto, any associate or subsidiary of such persons or any of the respective directors, executive officers or subsidiaries of the foregoing (i) beneficially owns any equity security of the Company, (ii) has effected any transaction in any equity security of the Company during the past 60 days, (iii) has any contract, 38 arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, without limitation, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities of the Company, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, or (iv) except as set forth in this Offer To Purchase, has had any transactions with the Company, or any of its executive officers, directors or affiliates that would require reporting under the rules of the Commission. Except as set forth in this Offer To Purchase (see "Background of the Combination"), there have been no contacts, negotiations or transactions between CTS or Purchaser, or their respective subsidiaries, or, to the knowledge of CTS or Purchaser, any of the persons listed in Schedule I hereto, on the one hand, and the Company or its executive officers, directors or affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, election of directors, or a sale or other transfer of a material amount of assets. SELECTED FINANCIAL INFORMATION Set forth below is a summary of certain consolidated financial information with respect to CTS and its subsidiaries for the quarter ended March 30, 1997 and for its fiscal years ended December 31, 1996, 1995 and 1994, excerpted from financial statements presented in CTS' Quarterly Report on Form 10-Q for the quarter ended March 30, 1997 (the "CTS 10-Q"), CTS' Annual Report on Form 10-K for the year ended December 31, 1996 (the "CTS 10-K") and other documents filed by CTS with the Commission. More comprehensive financial information is included in such reports (including management's discussion and analysis of results of operations and financial position) and other documents filed by CTS with the Commission, and the financial information summary set forth below is qualified in its entirety by reference to such reports and other documents, and all the financial information and related notes contained therein. The CTS 10-Q, the CTS 10-K and such other documents may be examined and copies may be obtained from the offices of the Commission or the NYSE in the manner set forth below. CTS CORPORATION SELECTED CONSOLIDATED FINANCIAL INFORMATION (in thousands, except per share amounts)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, ------------------------ ---------------------------------- MARCH 30, MARCH 31, 1997 1996 1996 1995 1994 ----------- ----------- ---------- ---------- ---------- INCOME STATEMENT INFORMATION: Net sales............................................ $ 91,269 $ 80,186 $ 321,297 $ 300,157 $ 268,707 Earnings before taxes................................ 11,038 7,006 33,602 27,684 21,487 Net earnings......................................... 6,954 4,414 21,170 17,164 13,967 PER CTS SHARE INFORMATION: Net earnings applicable to CTS Shares................ $ 1.32 $ 0.83 $ 4.03 $ 3.30 $ 2.70 Dividends declared................................... .18 .15 .69 .60 .45
AT DECEMBER 31, AT MARCH 30, ---------------------- 1997 1996 1995 ------------ ---------- ---------- BALANCE SHEET INFORMATION: Total current assets................................ $ 150,619 $ 138,201 $ 126,113 Net property, plant and equipment................... 56,919 56,103 50,696 Total assets........................................ 263,982 249,372 227,127 Total liabilities................................... 92,845 83,140 80,874 Total shareholders' equity.......................... 171,137 166,232 146,253
CTS is subject to the information and reporting requirements of the Exchange Act and is required to file reports and other information with the Commission relating to its business, financial condition and 39 other matters. Information, as of particular dates, concerning CTS' directors and officers, their remuneration, stock options granted to them, the principal holders of CTS' securities, any material interests of such persons in transactions with CTS and other matters is required to be disclosed in proxy statements distributed to CTS Shareholders and filed with the Commission. These reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and also should be available for inspection and copying at prescribed rates at the following regional offices of the Commission: Seven World Trade Center, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of this material may also be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains an Internet web site at http://www.sec.gov that contains reports, proxy statements and other information. The CTS Shares are listed on the NYSE, and reports, proxy statements and other information concerning CTS should also be available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. CERTAIN PROJECTIONS In the course of discussions giving rise to the Merger Agreement (see "Background of the Combination"), representatives of CTS furnished representatives of the Company certain business and financial information that was not publicly available, including CTS' business plan (the "CTS Business Plan"). CTS' Business Plan included certain projections for the years 1997 through 2000 prepared solely for CTS' internal purposes. None of such projected financial information provided by CTS to the Company was prepared for publication or with a view to complying with the published guidelines of the Commission regarding projections or with the AICPA Guide for Prospective Financial Statements, and such information is being included in this Offer To Purchase solely because it was furnished to the Company in connection with the discussions giving rise to the Merger Agreement. The independent accountants of CTS, Price Waterhouse LLP, have neither examined nor compiled the prospective financial information set forth below and, accordingly, do not express an opinion or any other form of assurance with respect thereto. The reports of Price Waterhouse LLP incorporated by reference in this Offer To Purchase relate to the historical financial information of CTS and do not extend to the prospective financial information and should not be read to do so. THE PROJECTED FINANCIAL INFORMATION SET FORTH BELOW NECESSARILY REFLECTS NUMEROUS ASSUMPTIONS WITH RESPECT TO GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS, MANY OF WHICH ARE INHERENTLY UNCERTAIN OR BEYOND CTS' CONTROL, AND DOES NOT TAKE INTO ACCOUNT ANY CHANGES IN THE CTS' OPERATIONS OR CAPITAL STRUCTURE WHICH WILL RESULT FROM THE OFFER AND THE MERGER. SEE "SPECIAL CONSIDERATIONS RELATING TO THE COMBINATION-- PLANS FOR THE COMPANY AND CTS" AND "MISCELLANEOUS--SOURCE AND AMOUNT OF FUNDS." IT IS NOT POSSIBLE TO PREDICT WHETHER THE ASSUMPTIONS MADE IN PREPARING THE PROJECTED FINANCIAL INFORMATION WILL BE VALID AND ACTUAL RESULTS MAY PROVE TO BE MATERIALLY HIGHER OR LOWER THAN THOSE CONTAINED IN THE PROJECTIONS. THE INCLUSION OF THIS INFORMATION SHOULD NOT BE REGARDED AS AN INDICATION THAT THE COMPANY, CTS OR ANYONE ELSE WHO RECEIVED THIS INFORMATION CONSIDERED IT A RELIABLE PREDICTOR OF FUTURE EVENTS, AND THIS INFORMATION SHOULD NOT BE RELIED ON AS 40 SUCH. NEITHER CTS, PURCHASER, THE COMPANY NOR ANY OF THEIR RESPECTIVE REPRESENTATIVES ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF THE PROJECTED FINANCIAL INFORMATION, AND CTS HAS MADE NO REPRESENTATION TO THE COMPANY REGARDING SUCH INFORMATION.
ESTIMATES FOR THE YEAR ENDING DECEMBER 31, ------------------------------------------ 1997 1998 1999 2000 --------- --------- --------- --------- (IN MILLIONS) Net sales............................................................ $ 351.2 $ 402.0 $ 452.1 $ 527.4 Cost of goods sold................................................... 262.1 298.0 335.3 389.4 Earnings before interest and taxes................................... 37.7 52.9 62.5 80.5 Net earnings......................................................... $ 22.9 $ 32.4 $ 38.5 $ 50.3
The principal assumptions underlying the foregoing projections are as follows: (i) Sales are projected to increase at a compounded annual rate of approximately 15% over the period 1997 to 2000, based primarily on assumed increased sales of existing and new automotive, interconnect and microelectronic products. (ii) Gross margin percentage are assumed to improve in 1998 and remain constant through 1999 and 2000, as CTS implements continued cost control efficiency and productivity improvements. Sales per employee are assumed to grow from $91,000 in 1997 to $122,000 in 2000. (iii) Earnings before interest and taxes are assumed to grow from 11% in 1997 to 15% in 2000, primarily based upon the sales increases and cost and expense controls. Operating expenses are assumed to be 15% of net sales in 1997 and are assumed to fall to 11% in the year 2000. (iv) Interest expense is assumed to be essentially constant and to drop significantly in 2000, due to a balloon payment on a term loan due at the end of 1999. (v) The tax rate is assumed to be CTS' current effective rate of 37%. As indicated above, the foregoing projections were prepared for CTS' internal purposes and do not reflect or give effect to the Offer or the Merger and transactions related thereto (including the financing for the Offer) and, accordingly, are not necessarily indicative of the results of operations of CTS following the Offer or the Merger. CERTAIN EMPLOYEE MATTERS Mr. Walker's salary under the CEO Employment Contract is $500,000 per year, subject to review by the CTS Board for increases, but not decreases, each year. During the term of the CEO Employment Contract, if Mr. Walker's employment is terminated as a result of his death or disability, for good reason (as defined) or by CTS without cause (as defined), Mr. Walker will receive severance benefits equal to his base salary for the remainder of the term, plus an annual bonus for each year remaining in the term equal to the largest cash and stock bonus that he received during the five fiscal years preceding the date of termination. In addition, if Mr. Walker's employment is terminated by Mr. Walker for good reason or by CTS without cause, Mr. Walker may instead receive a lump sum equal to 3-1/3 times his base salary and the largest cash and stock bonus that he received during the five fiscal years preceding the date of the employment agreement. Any payments to Mr. Walker upon a change in control are increased to compensate Mr. Walker for any excise tax payable by him pursuant to Section 280G of the Code. The payments and benefits to Mr. Walker under his employment agreement are reduced automatically by any corresponding payments or benefits under his severance agreement (described below). 41 CTS entered into severance agreements, dated April 11, 1997, with each of its nine executive officers and seven other key employees of CTS. The agreements have a rolling three-year term which is automatically extended each January 1 thereafter unless notice is given otherwise. The severance agreements become operative only upon a change in control of CTS (as defined). Severance benefits are provided if, upon a change in control, CTS terminates a covered executive's employment without cause or the executive terminates his employment for good reason (each as defined). Severance compensation under the agreements includes a multiple (two or three, depending upon level of job responsibility) of base salary, a multiple (two or three, depending upon level of job responsibility) of the average annual incentive compensation awarded to the executive during the three fiscal years preceding the fiscal year in which the change in control occurred, the continued participation for a number of months following termination in welfare benefits plans and other similar benefit programs, a lump sum payment equal to the increase in actuarial value of the benefits under CTS' qualified and supplemental retirement plans that the executive would have received had he or she remained employed, outplacement services, and, in lieu of perquisites provided immediately prior to the change in control, the payment of the lesser of $50,000 or 10% of the total base salary and incentive compensation. In addition, if any payments made to the executive are subject to the excise tax under Section 280G of the Code, CTS will make an additional payment in an amount to put the executive in the same after-tax position as if no excise tax had been imposed; provided that if certain thresholds are not met, payments will be reduced so that no excise tax applies. PRO FORMA FINANCIAL DATA The following Unaudited Condensed Consolidated Pro Forma Statements of Operations of CTS for the three months ended March 30, 1997 and the year ended December 31, 1996 present unaudited pro forma operating results for CTS as if the Combination, including the reacquisition of the Company-Owned CTS Shares effected thereby, had occurred as of the beginning of each such period. The following Unaudited Condensed Consolidated Pro Forma Balance Sheet of CTS presents the unaudited pro forma financial condition of CTS as if the Combination had occurred as of March 30, 1997. For purposes of the following pro forma financial data, the total purchase price paid by CTS in the Combination is estimated to be total $220.0 million, consisting of the sum of (i) $105.2 million in cash for the purchase of 1,915,500 Shares pursuant to the Offer, (ii) $106.1 million in CTS Shares (valued for this purpose at $62.50, being the quotient of the $55.00 per Share cash price in the Offer divided by the Exchange Ratio), and (iii) $8.7 million of transaction costs. Such purchase price has been allocated in the following pro forma financial data to the estimated fair value of the net tangible operating assets and inventory of the Company ("Net Company Operating Assets") and the Company-Owned CTS Shares as follows: (i) Net Company Operating Assets: $33.9 million and (ii) Company-Owned CTS Shares: $186.1 million. (See Note (1) below.) Following the Effective Time, CTS will be required to allocate finally the purchase price to the fair value of the Company's assets and liabilities; such allocation will vary from the allocations in the following pro forma financial data based on various factors, including appraisals of the operating assets and liabilities of the Company and the identification and valuation of intangible assets (which CTS believes are not material in the following pro forma financial data). In addition, following the Effective Time, CTS will finally determine the purchase price for purposes of accounts for the Combination. The purchase price as finally defined will vary from the amounts assumed in the following pro forma financial data based on the actual transaction costs. In the event that the actual value of the Company-Owned CTS Shares reacquired as a result of the Merger, which will be determined primarily by reference to the post-Combination value of the CTS Shares, is materially lower than the $80.80 per Company-Owned CTS Share value assumed in the following pro forma financial data, CTS may be required to charge the difference to net earnings currently to reflect the amount of such difference, net of differences as required in the other components of the purchase price allocation described above. CTS estimates that, assuming no other change in such components, the amount of any such charge will equal $2.3 million for each $1 of difference between the 42 $80.80 per Company-Owned CTS Share and the actual post-Combination value for CTS Shares. Any such charge will, however, be a non-cash item which CTS does not believe will have any material adverse effect on its prospective financial position or results of operations. CTS has received a financing commitment for Credit Facilities providing for up to $125 million of borrowings to fund the purchase of Shares pursuant to the Offer and the payment of transaction costs and expenses, and for general corporate purposes. While CTS expects annual after-tax cost savings of not less than $2 million resulting from the Combination, such estimated savings have not been reflected in the pro forma financial data because their realization is not assured. The following pro forma financial data is presented for informational purposes only and is not necessarily indicative of CTS' operating results or financial position that would have occurred had the Combination and other transactions described herein been consummated at the dates indicated, nor is it necessarily indicative of the future operating results or financial position of CTS following the Combination. The unaudited pro forma condensed consolidated financial data should be read in conjunction with the consolidated financial statements of each of CTS and the Company and the related notes thereto contained in the CTS Form 10-K, the CTS 10-Q, the Company 10-K and the Company 10-Q, all of which are incorporated herein by reference. 43 CTS CORPORATION UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET MARCH 30, 1997 (IN THOUSANDS)
PRO FORMA ADJUSTMENTS CTS ---------------------- CORPORATION THE COMPANY DEBITS CREDITS PRO FORMA ----------- ------------- ---------- ---------- ----------- Assets Total Current Assets................ $ 150,619 $ 53,386 $ 2,000(1) $ 25,000(1) $ 181,005 Property, plant & equipment--net.......... 56,919 6,126 63,045 Goodwill.................................. 3,861 -- 3,861 Prepaid pension expense................... 51,826 -- 51,826 Equity investment in CTS.................. -- 86,478 86,478(1) -- Other assets.............................. 757 2,236 2,993 ----------- ------------- ---------- ---------- ----------- Total Assets........................ $ 263,982 $ 148,226 $ 2,000 $ 111,478 $ 302,730 ----------- ------------- ---------- ---------- ----------- ----------- ------------- ---------- ---------- ----------- Liabilities and Shareholders' Equity Current Liabilities Current maturities of long-term obligations........................... 2,416 49 2,465 Accounts payable........................ 22,965 7,380 30,345 Accrued liabilities..................... 35,793 17,859 8,727(1) 62,379 ----------- ------------- ---------- ----------- Total Current Liabilities........... 61,174 25,288 -- 8,727 95,189 Long-term obligations..................... 11,210 2,862 80,210(1) 94,282 Deferred income taxes..................... 16,146 394 16,540 Other liabilities......................... 4,315 1,314 5,629 ----------- ------------- ---------- ---------- ----------- Total Liabilities................... 92,845 29,858 -- 88,937 211,640 Shareholders' Equity Common stock............................ 33,401 382 382(1) 106,063(1) 139,464 Additional paid-in capital.............. -- 11,777 11,777(1) -- Retained earnings....................... 150,125 106,740 106,740(1) 150,125 Other................................... 349 (531) 531(1) 349 ----------- ------------- ---------- ---------- ----------- 183,875 118,368 118,899 106,594 289,938 Less cost of common stock held in treasury.......................... 12,738 -- 186,110(1) 198,848 -- -- ----------- ------------- ---------- ---------- ----------- Total shareholders' equity.......... 171,137 118,368 305,009 106,594 91,090 ----------- ------------- ---------- ---------- ----------- Total Liabilities and Shareholders' Equity................................ $ 263,982 $ 148,226 $ 305,009 $ 195,531 $ 302,730 ----------- ------------- ---------- ---------- ----------- ----------- ------------- ---------- ---------- -----------
See accompanying Notes to Pro Forma Financial Data. 44 CTS CORPORATION UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 30, 1997 (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS ---------------------- CTS THE COMPANY DEBITS CREDITS PRO FORMA --------- ------------- --------- ----------- ----------- Net sales......................................... $ 91,269 $ 30,402 $ 121,671 Cost of goods sold................................ 65,978 22,211 88,189 Selling, general and administrative expenses...... 11,824 5,948 17,772 Research and development expenses................. 2,974 244 3,218 --------- ------------- --------- ----- ----------- Operating Income.............................. 10,493 1,999 -- -- 12,492 Other income (expense)--net....................... 545 (140) 1,500(2) (1,408) 313(3) --------- ------------- --------- ----- ----------- Earnings before income tax.................... 11,038 1,859 1,813 -- 11,084 Income taxes...................................... 4,084 688 725(4) 4,047 Income from equity investment in CTS (net of income tax charge).............................. -- 2,637 2,637(5) -- --------- ------------- --------- ----- ----------- Net Income.................................... $ 6,954 $ 3,808 $ 4,450 $ 725 $ 7,037 --------- ------------- --------- ----- ----------- --------- ------------- --------- ----- ----------- Net earnings per share........................ $ 1.32 $ 1.00 $ 1.51 --------- ------------- ----------- --------- ------------- ----------- Average common and common equivalent shares outstanding (thousands)..................... 5,267 3,820 4,661 --------- ------------- ----------- --------- ------------- ----------- Net earnings per share assuming the Stock Split....................................... $ 0.75 ----------- -----------
See accompanying Notes to Pro Forma Financial Data. 45 CTS CORPORATION UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS -------------------- CTS THE COMPANY DEBITS CREDITS PRO FORMA ---------- ------------- --------- --------- ----------- Net sales......................................... $ 321,297 $ 129,206 $ 450,503 Cost of goods sold................................ 233,801 104,245 338,046 Selling, general and administrative expenses...... 43,333 23,294 66,627 Research and development expenses................. 10,743 1,435 12,178 ---------- ------------- --------- --------- ----------- Operating Income.............................. 33,420 232 -- -- 33,652 Other income (expense)--net....................... 182 154 6,000(2) (6,914) 1,250(3) ---------- ------------- --------- --------- ----------- Earnings before income tax.................... 33,602 386 7,250 -- 26,738 Income taxes...................................... 12,432 59 2,900(4) 9,591 Income from equity investment in CTS (net of income tax benefit)............................. -- 10,280 10,280(5) -- ---------- ------------- --------- --------- ----------- Net Income.................................... $ 21,170 $ 10,607 $ 17,530 $ 2,900 $ 17,147 ---------- ------------- --------- --------- ----------- ---------- ------------- --------- --------- ----------- Net earnings per share........................ $ 4.03 $ 2.78 $ 3.68 ---------- ------------- ----------- ---------- ------------- ----------- Average common and common equivalent shares outstanding (thousands)..................... 5,259 3,820 4,661 ---------- ------------- ----------- ---------- ------------- ----------- Net earnings per share assuming the Stock Split....................................... $ 1.84 ----------- -----------
See accompanying Notes to Pro Forma Financial Data. 46 NOTES TO PRO FORMA FINANCIAL DATA (IN THOUSANDS) (1) Adjustments record the effects of the Combination and reacquisition of Company-Owned CTS Shares held by the Company and the elimination of the historical stockholders equity of the Company and its 44.1% equity investment in CTS. - Acquisition cost of all the outstanding Shares at $55 per Share: Cash......................................................... $ 25,000 Debt......................................................... 80,210 CTS Shares issued (1,697,000 CTS Shares x $62.50 106,063 per CTS Share)............................................... $ --------- $ 211,273 --------- - Transaction costs............................................ 8,727 --------- Total pro forma purchase price............................... $ 220,000 --------- --------- - Allocated to: Inventory.................................................... $ 2,000 Net Company Operating Assets................................. 31,890 Company-Owned CTS Shares..................................... 186,110 --------- $ 220,000 --------- ---------
(2) Adjustment records the additional interest expense associated with the $80,210 of borrowings assumed to be incurred in connection with the Combination at an assumed 7.5% effective annual interest rate. (3) Adjustment records the assumed reduction in interest income earned (at a 5% per annum rate) on the $25,000 of CTS cash used to finance a portion of the purchase of Shares in the Offer. (4) Adjustment records the tax effect of aggregating the asssumed rate of 40% to the adjustments described in Notes (2) and (3). (5) Adjustment records the elimination of the Company's equity earnings from its 44.1% CTS equity ownership. 47 CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS GENERAL Except as set forth below, based upon an examination of publicly available filings made by the Company with the Commission and other publicly available information concerning the Company and the representations and warranties of the Company in the Merger Agreement, neither Purchaser nor CTS is aware of any licenses or other regulatory permits that appear to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by Purchaser's acquisition of Shares (and the indirect acquisition of the stock of the Company's subsidiaries) as contemplated herein, or of any filings, approvals or other actions by or with any domestic (federal or state), foreign or supranational governmental authority or administrative or regulatory agency that would be required prior to the acquisition of Shares (or the indirect acquisition of the stock of the Company's subsidiaries) by Purchaser pursuant to the Offer as contemplated herein. Should any such approval or other action be required, it is Purchaser's present intention to seek such approval or action. However, Purchaser does not presently intend to delay the purchase of Shares tendered pursuant to the Offer pending the receipt of any such approval or the taking of any such action (subject to Purchaser's right to delay or decline to purchase Shares if any of the conditions in "The Offer -- Conditions of the Offer" shall have occurred). There can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to the business of the Company, CTS or Purchaser or that certain parts of the businesses of the Company, CTS or Purchaser might not have to be disposed of or held separate or other substantial conditions complied with in order to obtain such approval or other action or in the event that such approval was not obtained or such other action was not taken, any of which could cause Purchaser to elect to terminate the Offer without the purchase of the Shares thereunder. Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this Section. See "The Offer -- Conditions of the Offer." NEW YORK BUSINESS COMBINATION STATUTE Section 912 of the NYBCL prohibits any person who is the "beneficial owner" of 20% or more of the outstanding voting stock of a corporation and therefore is an "interested shareholder" from engaging in certain business combinations (including a merger) with such corporation for a period of five years following the date on which such person first became an interested shareholder, unless the transaction by which such person became an interested shareholder or the business combination is approved by the board of directors of the corporation prior to the date on which such person became an interested shareholder. The Company has represented in the Merger Agreement that the Company Board has approved the Merger Agreement and the consummation of the Merger and the other transactions contemplated thereby and that such approval constitutes approval of the Company Board of the Merger and the other transactions contemplated by the Merger Agreement under Section 912 of the NYBCL and Article XV of the Company's Certificate of Incorporation. See "Certain Information Concerning the Company -- Certain Provisions of the Company's Certificate of Incorporation." If an assertion is made that CTS or Purchaser has not complied with the provisions of any state takeover statute, CTS and Purchaser reserve the right to challenge the validity or applicability of any state law allegedly applicable to the Merger and nothing in this Offer To Purchase nor any action taken in connection herewith is intended as a waiver of that right. ANTITRUST Under the HSR Act and the rules that have been promulgated thereunder, certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division and the FTC and certain waiting period requirements have been satisfied. The acquisition of 48 Shares pursuant to the Offer and the Merger is subject to such requirements. See "The Offer -- Conditions of the Offer." CTS filed with the FTC and the Antitrust Division a Premerger Notification and Report Form in connection with the purchase of Shares pursuant to the Offer on Monday, May 12, 1997. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares pursuant to the Offer may not be consummated until the expiration of a 15-calendar day waiting period following the filing by CTS and notification to the Company of such filing. Accordingly, it is expected that the waiting period under the HSR Act applicable to the Offer will expire at 11:59 p.m., New York City time, on Tuesday, May 27, 1997, unless, prior to the expiration or termination of the waiting period, the FTC or the Antitrust Division extends the waiting period by requesting additional information or documentary material from CTS. If either the FTC or the Antitrust Division were to request additional information or documentary material from CTS, the waiting period would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by CTS with such request. Thereafter, the waiting period could be extended by court order or by consent of CTS. CTS and the Company will file with the FTC and the Antitrust Division a Premerger Notification and Report Form in connection with the purchase of Shares pursuant to the Merger on Friday, May 16, 1997. Under the provisions of the HSR Act applicable to the Merger, the Merger may not be consummated until the expiration of a 30-calendar day waiting period following the filing by CTS and the Company. Accordingly, it is expected that the waiting period under the HSR Act applicable to the Merger will expire at 11:59 p.m., New York City time, on Sunday, June 15, 1997, unless, prior to the expiration or termination of the waiting period, the FTC or the Antitrust Division extends the waiting period by requesting additional information or documentary material from CTS or the Company. If either the FTC or the Antitrust Division were to request additional information or documentary material from CTS or the Company, the waiting period would expire at 11:59 p.m., New York City time, on the twentieth calendar day after the date of substantial compliance by CTS and the Company with such request. Thereafter, the waiting period could be extended by court order or by consent of CTS and the Company. The waiting period under the HSR Act may be terminated by the FTC and the Antitrust Division prior to its expiration. If the acquisition of Shares is delayed pursuant to a request by the FTC or the Antitrust Division for additional information or documentary material pursuant to the HSR Act, the Offer may be extended (subject to the terms of the Merger Agreement) and in any event the purchase of and payment for Shares will be deferred until ten days after the request is substantially complied with, unless the waiting period is sooner terminated by the FTC and the Antitrust Division. See "The Offer -- Terms of the Offer; Proration; Expiration Date." Only one extension of such waiting period pursuant to a request for additional information is authorized by the HSR Act and the rules promulgated thereunder, except by court order or by consent of CTS. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See "The Offer - -- Withdrawal Rights." Although the Company is required to file certain information and documentary material with the Antitrust Division and the FTC in connection with the Offer, neither the Company's failure to make such filings nor a request from the Antitrust Division or the FTC for additional information or documentary material made to the Company will extend the waiting period. The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by Purchaser pursuant to the Offer. At any time before or after the purchase by Purchaser of Shares pursuant to the Offer, either of the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares, pursuant to the Offer or the consummation of the Merger or seeking the divestiture of Shares purchased by Purchaser or the divestiture of substantial assets of CTS, its subsidiaries or the Company. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. 49 Based upon an examination of publicly available information relating to the businesses in which the Company is engaged, Purchaser believes that the acquisition of Shares pursuant to the Offer and the Merger would not violate antitrust laws. Purchaser believes that retention of all of the operations of the Company and Purchaser should be permitted under the antitrust laws. Nevertheless, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made, or, if such challenge is made, what the result will be. OTHER Purchaser is not aware of any jurisdiction where the making of the Offer is prohibited by any administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, Purchaser cannot comply with any such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on behalf of Purchaser by the Dealer Manager or one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. MISCELLANEOUS SOURCE AND AMOUNT OF FUNDS Purchaser estimates that the total amount of funds required to purchase Shares pursuant to the Offer and to pay related costs and expenses will be approximately $113.9 million. CTS has received a financing commitment for credit facilities (the "Credit Facilities") of up to $125.0 million from NBD Bank, N.A., as agent bank and arranger (the "Agent") for a group of lenders. The Credit Facilities will consist of an unsecured six-year amortizing term loan of up to $50.0 million and an unsecured six-year revolving credit facility of up to $75.0 million. The availability of the Credit Facilities is subject to the following conditions: (i) satisfaction of the conditions to the Offer; (ii) the Merger Agreement not having been amended, waived or modified in any material respect without the approval of the Agent (such approval not to be unreasonably withheld); (iii) the absence of any material breach under the Merger Agreement; and (iv) certain other conditions customary for credit facilities of this type. The Credit Facilities will replace CTS' existing revolving credit facility from NBD Bank, N.A. CTS expects that the Credit Facilities will provide sufficient availability to finance the Offer and related costs and expenses and to provide for CTS' and its subsidiaries' ongoing working capital needs. Pricing under the Credit Facilities will initially be set at LIBOR plus 0.50% per annum through March 31, 1998, with adjustments thereafter based on the ratio of CTS' consolidated total indebtedness to consolidated EBITDA. A commitment fee of 0.175% per annum will accrue on the undrawn portion of the revolving credit facility. As of May 14, 1997, based on the prevailing three-month LIBOR rate of 5.8%, the effective annual interest rate (including assumed debt issuance costs) is estimated to be not more than 7.5%. The term loan will amortize on a quarterly basis in aggregate installments of $0 in 1997, $3.0 million in 1998, $5.0 million in 1999, $10.0 million in 2000, $10.0 million in 2001, $10.0 million in 2002 and $12.0 million in 2003. CTS will also be required to prepay the term loan with the net proceeds of asset sales in excess of $10.0 million per annum, the net proceeds of certain debt financings, 50% of the net proceeds of equity financings involving the sale of CTS treasury stock in excess of $30.0 million and 50% of the net proceeds of all other equity financings in excess of $5.0 million. The Credit Facilities will include certain representations and warranties and covenants customary for facilities of this type, including: (i) financial maintenance tests consisting of a fixed charge coverage ratio, a leverage ratio and a minimum tangible net worth test; (ii) preservation of corporate existence, compliance with laws, maintenance of properties and insurance and reporting requirements; and (iii) limitations 50 (subject to certain baskets and exceptions) on indebtedness, liens, mergers and acquisitions, sales of assets and other fundamental changes, investments, guarantees, transactions with affiliates, leases, cash dividends and stock repurchases and redemptions during the continuance of any default under the Credit Facilities, and certain hedging obligations. The Credit Facilities will also include customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross defaults to other indebtedness, bankruptcy events, defaults in satisfaction of money judgments, certain events under the Employee Retirement Income Security Act of 1974, as amended, and a change of control of CTS (defined as (i) any person together with its affiliates becoming the beneficial owner of 40% or more of the combined voting power of CTS' common stock or (ii) during any period of 12 months persons constituting a majority of the CTS Board at the beginning of such period (and persons whose election to the CTS Board was approved by such persons) ceasing to constitute such a majority). Purchaser's obligation to purchase Shares tendered pursuant to the Offer is not subject to financing. Following the Effective Time, CTS expects to consider possible transactions that may alter its capital structure, including the possible refinancing of a portion of the indebtedness under the Credit Facilities and possible stock repurchases. There can, however, be no assurances as to the nature, timing or terms of any such transaction. FEES AND EXPENSES Purchaser has retained MacKenzie Partners, Inc. to act as the Information Agent in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, facsimile, telegraph and personal interviews and may request brokers, dealers and other nominee Shareholders to forward materials relating to the Offer to beneficial owners of Shares. The Information Agent will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. In addition, The First National Bank of Boston has been retained as the Depositary. The Depositary has not been retained to make solicitations or recommendations in its role as Depositary. The Depositary will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. CTS has retained J.P. Morgan to act as its financial advisor and as the Dealer Manager. Pursuant to a letter agreement dated April 9, 1997, CTS agreed to pay J.P. Morgan for its services, including its services as Dealer Manager, (i) $100,000 upon the execution of such letter agreement, (ii) $400,000 upon delivery to CTS of a fairness opinion, and (iii) $400,000 upon the consummation of the Merger (or, in certain circumstances, upon the Expiration Date) for its services as financial advisor to CTS. CTS also agreed to reimburse J.P. Morgan for all reasonable expenses, including the reasonable fees and disbursements of legal counsel, and to indemnify J.P. Morgan against liabilities and expenses in connection therewith, including liabilities under federal securities laws. Except as set forth above, Purchaser will not pay any fees or commissions to any broker or dealer or any other person for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will, upon request only, be reimbursed by Purchaser for customary mailing and handling expenses incurred by them in forwarding material to their customers. CTS FIRST ACQUISITION CORP. May 16, 1997 51 SCHEDULE I INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF CTS AND PURCHASER DIRECTORS AND EXECUTIVE OFFICERS OF CTS. The following table sets forth the name, age, business address, present principal occupation, and employment and material occupations, positions, offices, or employments for the past five years of certain directors, officers and employees of CTS. Unless otherwise indicated, the principal business address of each director and executive officer is 905 West Boulevard North, Elkhart, Indiana 46514 and each occupation set forth opposite an individual's name refers to employment with CTS. Each person listed below is a citizen of the United States. Directors are identified with a single asterisk.
PRESENT PRINCIPAL OCCUPATION SHARES OR EMPLOYMENT AND FIVE-YEAR BENEFICIALLY NAME AND AGE EMPLOYMENT HISTORY OWNED - --------------------------------------------- --------------------------------------------- ----------------- Joseph P. Walker*............................ Chairman of the Board, President and Chief 853(1) Age: 58 Executive Officer and Chairman of the Executive Committee of CTS. During the past five years, Mr. Walker has served in his present capacities at CTS. Mr. Walker is a director of NBD Bank, N.A. Gerald H. Frieling, Jr*...................... Vice Chairman of the Board of Tokheim 0 Age: 66 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. During the past five years, Mr. Frieling served as Chairman of the Board and Chief Executive Officer of Tokheim Corporation, and in his present capacity at Frieling and Associates. Andrew Lozyniak*............................. Chairman of the Board and President of the 181,428(2) Age: 65 Company; Chairman of the Compensation Committee and Member of the Executive and Audit Committees of CTS. During the past five years, Mr. Lozyniak has served in his present capacities at the Company, Mr. Lozyniak serves as a director of the Company and Physicians Health Services, Inc.
52
PRESENT PRINCIPAL OCCUPATION SHARES OR EMPLOYMENT AND FIVE-YEAR BENEFICIALLY NAME AND AGE EMPLOYMENT HISTORY OWNED - --------------------------------------------- --------------------------------------------- ----------------- Lawrence J. Ciancia*......................... Vice President, Growth and Development, of 0 Age: 54 Uponor U.S., Inc. (a supplier of PVC pipe products, specialty chemicals and PVC compounds); Member of the Audit and Compensation Committees of CTS. During the past five years, Mr. Ciancia has served as President, Chief Executive Officer and Chief Operating Officer of Uponor ETI Company, formerly Concorde Industries, Inc. Patrick J. Dorme*............................ Vice President and Chief Financial Officer of 34,944(3) Age: 61 the Company; Member of the Audit and Compensation Committees of CTS. During the past five years, Mr. Dorme has served in his present capacities at the Company. Mr. Dorme serves as a director of the Company. Philip T. Christ............................. Group Vice President of CTS. During the past 0 Age: 66 five years, Mr. Christ has served in his present capacity at CTS. Stanley J. Aris.............................. Vice President Finance and Chief Financial 0 Age: 57 Officer of CTS. During the past five years, Mr. Aris has served in his present capacity at CTS and prior to that, as a business consultant. Jeannine M. Davis............................ Vice President, General Counsel and Secretary 0 Age: 48 of CTS. During the past five years, Ms. Davis has served in her present capacity at CTS. James L. Cummins............................. Vice President Human Resources of CTS. During 0 Age: 42 the past five years, Mr. Cummins has served in his present capacity at CTS and prior to that, as Director, Human Resources, of CTS. James N. Hufford............................. Vice President Research, Development and 0 Age: 57 Engineering of CTS. During the past five years, Mr. Hufford has served in his present capacity at CTS and prior to that, as Director of Corporate Research, Development and Engineering of CTS.
53
PRESENT PRINCIPAL OCCUPATION SHARES OR EMPLOYMENT AND FIVE-YEAR BENEFICIALLY NAME AND AGE EMPLOYMENT HISTORY OWNED - --------------------------------------------- --------------------------------------------- ----------------- Donald R. Schroeder.......................... Vice President Sales and Marketing of CTS. 0 Age: 49 During the past five years, Mr. Schroeder has served in his present capacity at CTS and prior to that as Business Development Manager for the CTS Microelectronics business unit. George T. Newhart............................ Corporate Controller of CTS. During the past 0 Age: 54 five years, Mr. Newhart has served in his present capacity at CTS. Gary N. Hoipkemier........................... Treasurer of CTS. During the past five years, 0 Age: 42 Mr. Hoipkemier has served in his present capacity at CTS.
- ------------------------ (1) Mrs. Walker owns these 853 shares. Mr. Walker disclaims beneficial ownership of such Shares. (2) In addition, Mrs. Lozyniak owns 15,100 Shares. Mr. Lozyniak disclaims beneficial ownership of such Shares. (3) In addition, Mrs. Dorme owns 18,000 Shares. Mr. Dorme disclaims beneficial ownership of such Shares. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The directors of Purchaser are: Joseph P. Walker, Stanley J. Aris, Jeannine M. Davis, James L. Cummins and Donald R. Schroeder. The executive officers of Purchaser are: Joseph P. Walker, President; Jeannine M. Davis, Vice President and Secretary; and Stanley J. Aris, Treasurer. Each of the directors or executive officers of Purchaser are officers and/or directors of CTS. Information concerning the name, business address, present principal occupation, and employment and material occupations, positions, offices or employments for the past five years is found in the table above. The principal address of Purchaser and the current business address of each individual enumerated above is 905 West Boulevard North, Elkhart, Indiana 46514. Each such person is a citizen of the United States. 54 Manually executed facsimile copies of the Letter of Transmittal, properly completed and duly signed, will be accepted. The Letter of Transmittal, certificates for the Shares and any other required documents should be sent by each Shareholder or his broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below: THE DEPOSITARY FOR THE OFFER IS: THE FIRST NATIONAL BANK OF BOSTON BY HAND: BY OVERNIGHT COURIER: BY MAIL: Securities Transfer and Bank of Boston Bank of Boston Reporting Services, Inc. Corporate Agency and Corporate Agency and One Exchange Plaza Reorganization Reorganization 55 Broadway, 3rd Floor Mail Stop 45-02-53 Mail Stop 45-02-53 New York, New York 10006 150 Royall Street P.O. Box 1889 Canton, Massachusetts 02021 Boston, Massachusetts 02105-1889 BY FACSIMILE TRANSMISSION: (for Eligible Institutions Only) (617) 575-2233 CONFIRM FACSIMILE BY TELEPHONE: (617) 575-3120
Any questions or requests for assistance or additional copies of the Offer To Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and locations listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: [LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (call collect) or Call Toll Free (800) 322-2885 THE DEALER MANAGER FOR THE OFFER IS: J.P. MORGAN & CO. 60 Wall Street Mail Stop 2860 New York, New York 10260 (212) 648-3251 (call collect) or Call Toll Free (800) 600-3799 EX-99.(A)(2) 3 LETTER OF TRANSMITTAL Exhibit 99(a)(2) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF DYNAMICS CORPORATION OF AMERICA PURSUANT TO OFFER TO PURCHASE DATED MAY 16, 1997 BY CTS FIRST ACQUISITION CORP., A WHOLLY OWNED SUBSIDIARY OF CTS CORPORATION THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 13, 1997, UNLESS THE OFFER IS EXTENDED. THE DEPOSITARY FOR THE OFFER IS: THE FIRST NATIONAL BANK OF BOSTON BY HAND: BY OVERNIGHT COURIER: BY MAIL: Securities Transfer and Bank of Boston Bank of Boston Reporting Services, Inc. Corporate Agency and Corporate Agency and One Exchange Plaza Reorganization Reorganization 55 Broadway, 3rd Floor Mail Stop 45-02-53 Mail Stop 45-02-53 New York, New York 10006 150 Royall Street P.O. Box 1889 Canton, Massachusetts 02021 Boston, Massachusetts 02015-1889
BY FACSIMILE TRANSMISSION: (for Eligible Institutions Only) (617) 573-2233 CONFIRM FACSIMILE BY TELEPHONE (CALL COLLECT) (617) 575-3120 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal ("Letter of Transmittal") is to be completed by shareholders of Dynamics Corporation of America ("Shareholders") either if certificates ("Share Certificates") evidencing Shares (as defined below) and/or certificates ("Rights Certificates") evidencing Rights (as defined below) are to be forwarded herewith, or if delivery of Shares and/or Rights is to be made by book-entry transfer to the Depositary's account at the Depository Trust Company or The Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility") pursuant to the book-entry transfer procedure described in "The Offer--Procedures For Tendering Shares" of the Offer To Purchase (as defined below). Delivery of documents to a Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures does not constitute delivery to the Depositary. If the Rights separate from the Shares and are evidenced by Rights Certificates (the "Rights Separation"), Shareholders will be required to tender one Right for each Share tendered in order to effect a valid tender of Shares. Unless the Rights Separation occurs, a tender of Shares will also constitute a tender of the associated Rights. / / CHECK HERE IF TENDERED SHARES AND/OR RIGHTS ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of Tendering Institution: _________________________________________ CHECK BOX OF APPLICABLE BOOK-ENTRY TRANSFER FACILITY: / / The Depository Trust Company / / Philadelphia Depository Trust Company Account Number: ________________________________________________________ Transaction Code Number: _______________________________________________ Shareholders whose Share Certificates are not immediately available or who cannot deliver either their Certificates for, or a Book-Entry Confirmation (as defined in the Offer To Purchase) with respect to their Shares and all other required documents to the Depositary prior to the Expiration Date (as defined in the Offer To Purchase) may tender their Shares according to the guaranteed delivery procedure set forth in the Offer To Purchase. See Instruction 2 hereof. / / CHECK HERE IF TENDERED SHARES AND/OR RIGHTS ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s): _______________________________________ Window Ticket Number (if any): _________________________________________ Date of Execution of Notice of Guaranteed Delivery: ____________________ Name of Institution which Guaranteed Delivery: _________________________ IF DELIVERED BY BOOK-ENTRY TRANSFER, CHECK BOX OF BOOK-ENTRY TRANSFER FACILITY: / / The Depository Trust Company / / Philadelphia Depository Trust Company Account Number: ________________________________________________________ Transaction Code Number: _______________________________________________ DESCRIPTION OF SHARES TENDERED NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE CERTIFICATE(S) TENDERED (ATTACH (PLEASE FILL IN, IF BLANK) ADDITIONAL LIST IF NECESSARY) TOTAL NUMBER OF SHARES REPRESENTED NUMBER OF CERTIFICATE BY SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** TOTAL SHARES:
* Need not be completed by Shareholders tendering by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares being delivered to the Depositary are being tendered. See Instruction 4. DESCRIPTION OF RIGHTS TENDERED NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) RIGHTS CERTIFICATE(S) TENDERED* (Please fill in, if blank) (Attach additional list if necessary) TOTAL NUMBER OF RIGHTS REPRESENTED NUMBER OF CERTIFICATE BY RIGHTS NUMBER(S)** CERTIFICATE(S)** TENDERED*** TOTAL RIGHTS:
* Need not be completed if the Rights Separation has not occurred. ** Need not be completed if tender of Rights is made by book-entry transfer. *** Unless otherwise indicated, it will be assumed that all Rights being delivered to the Depositary are being tendered. See Instruction 4. The names and addresses of the registered holders should be printed, if not already printed above, exactly as they appear on the certificates tendered hereby. The certificates and number of Shares and/or Rights that the undersigned wishes to tender should be indicated in the appropriate boxes. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY.
Ladies and Gentlemen: The undersigned hereby tenders to CTS First Acquisition Corp., a New York corporation ("Purchaser") and a wholly owned subsidiary of CTS Corporation, an Indiana corporation, the above described shares of common stock, par value $.10 per share (the "Shares") of Dynamics Corporation of America, a New York corporation (the "Company"), together with the associated purchase rights issued pursuant to the Company Rights Agreement (the "Rights") at a price of $55.00 (the "Offer Price") per Share (including associated Rights), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer To Purchase, dated May 16, 1997 (the "Offer To Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). The Offer has been made pursuant to an Agreement and Plan of Merger, dated as of May 9, 1997, among the Company, the Purchaser and CTS (the "Merger Agreement"), according to which the Offer will be followed by a merger in which each outstanding Share (subject to certain exceptions) will be converted into the right to receive 0.88 shares of fully paid and nonassessable shares of CTS common stock. The Merger Agreement has been approved by the Board of Directors of the Company. The undersigned understands that Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares and Rights tendered pursuant to the Offer, but any such transfer or assignment will not relieve Purchaser of its obligations under the Offer or prejudice the rights of the tendering Shareholders to receive payment for Shares and Rights validly tendered and accepted for payment pursuant to the Offer. Subject to, and effective upon, acceptance for payment of the Shares and Rights tendered herewith, in accordance with the terms of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser all right, title and interest in and to all the Shares and Rights that are being tendered hereby (and any and all non-cash dividends, distributions, rights, other Shares and Rights or other securities issued or issuable in respect thereof or declared, paid or distributed in respect of such Shares and Rights on or after May 16, 1997 ("Distribution")) and irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares and Rights and any Distribution, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver certificates for such Shares and Rights and any Distribution, or transfer ownership of such Shares and Rights and any Distribution on the account books maintained by the Book-Entry Transfer Facility, together, in either case, with all accompanying evidence of transfer and authenticity to, or upon the order of Purchaser, (ii) present such Shares and Rights and any Distribution for transfer on the books of the Company, and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares and Rights and any Distribution, all in accordance with the terms of the Offer. By executing this Letter of Transmittal, the undersigned irrevocably appoints each designee of Purchaser as attorney-in-fact and proxy of the undersigned, each with full power of substitution and resubstitution, to the full extent of the undersigned's rights with respect to all Shares and Rights tendered hereby and accepted for payment and paid for by Purchaser (and any Distribution), including without limitation, the right to vote such Shares and Rights (and any Distribution) in such manner as each such attorney and proxy or his substitute shall, in his sole discretion, deem proper, and otherwise to act (including pursuant to written consent) with respect to all the Shares and Rights tendered hereby that have been accepted for payment by the Purchaser prior to the time of such vote or action (and any Distribution of said Shares on or after May 16, 1997) which the undersigned is entitled to vote or consent with respect to any meeting of Shareholders of the Company, whether annual or special, and whether or not an adjourned meeting. All such powers of attorney and proxies, being deemed to be irrevocable, shall be considered coupled with an interest in the Shares and Rights tendered with this Letter of Transmittal. Such appointment will be effective when, and only to the extent that, Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior powers of attorney and proxies given by the undersigned with respect to such Shares and Rights (and any Distribution) will be revoked, without further action. The designees of Purchaser will, with respect to the Shares and Rights (and any Distribution) for which such appointment is effective, be empowered to exercise all voting and other rights of the undersigned with respect to such Shares and Rights (and any Distribution) as they in their sole discretion may deem proper. Purchaser reserves the absolute right to require that, in order for Shares and Rights to be deemed validly tendered, immediately upon the acceptance for payment of such Shares and Rights, Purchaser or its designees will be able to exercise full voting rights with respect to such Shares and Rights (and any Distribution), including voting at any meeting of Shareholders then scheduled. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares and Rights tendered hereby and any Distribution that the undersigned own(s), and that, when such Shares and Rights are accepted for payment by Purchaser, Purchaser will acquire good, marketable and unencumbered title thereto and to any Distribution, free and clear of all liens, restrictions, charges and encumbrances, and that none of such Shares and Rights and Distributions will be subject to any adverse claim. The undersigned, upon request, shall execute and deliver all additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares and Rights tendered hereby and any Distribution. In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of Purchaser any Distribution in respect of the Shares and Rights tendered hereby, accompanied by appropriate documentation of transfer, and, pending such remittance and transfer or appropriate assurance thereof, Purchaser shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the Offer Price of the Shares and Rights tendered hereby or deduct from the Offer Price, the amount or value of such Distribution as determined by Purchaser in its sole discretion. No authority herein conferred or agreed to be conferred shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned. All obligations of the undersigned hereunder shall be binding upon the heirs, executors, personal and legal representatives, administrators, trustees in bankruptcy, successors and assigns of the undersigned. Except as stated in the Offer To Purchase, this tender is irrevocable. The undersigned understands that tenders of Shares and Rights pursuant to any one of the procedures described in "The Offer--Procedures for Tendering Shares" of the Offer To Purchase and in the Instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer. Purchaser's acceptance for payment of Shares and Rights tendered pursuant to the Offer will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer To Purchase, Purchaser may not be required to accept for payment any of the Shares and Rights tendered hereby. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please issue the check for the Offer Price and/or return any Share Certificates and/or Right Certificates not tendered or accepted for payment, in the name(s) of the registered holder(s) appearing above under "Description of Shares Tendered." Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions," please mail the check for the Offer Price and/or return any certificates not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under "Description of Shares Tendered." In the event that the box entitled "Special Payment Instructions" and/or "Special Delivery Instructions" are completed, please issue the check for the Offer Price and/or return any certificates not purchased or not tendered or accepted for payment in the name(s) of, and/or mail such check and/or return such Share Certificates to the person(s) so indicated. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please credit any Shares and Rights tendered hereby and delivered by book-entry transfer, but which are not purchased, by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares or Rights from the name of the registered holder(s) thereof if Purchaser does not accept for payment any of the Shares or Rights tendered hereby. SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7 OF THIS LETTER OF TRANSMITTAL) To be completed ONLY if certificates not tendered or not purchased and/or the check for the Offer Price of Shares purchased are to be issued in the name of someone other than the undersigned. Issue check and/or certificates to: Name: ________________________________________________________________________ (Please Print) Address: _____________________________________________________________________ (Include Zip Code) ______________________________________________________________________________ Taxpayer Identification or Social Security Number (See Substitute Form W-9) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7 OF THIS LETTER OF TRANSMITTAL) To be completed ONLY if certificates not tendered or not purchased and/or the check for the Offer Price of Shares purchased are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown above. Mail check and/or certificates to: Name: ________________________________________________________________________ (Please Print) Address: _____________________________________________________________________ (Include Zip Code) PLEASE SIGN HERE -------------------------------------------------------------- -------------------------------------------------------------- SIGNATURE(S) OF HOLDER(S) Dated: ----------------, 1997 (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share Certificate(s) and/or Right Certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by Share Certificates and/or Right Certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information. See Instruction 5 of this Letter of Transmittal.) Name(s): ------------------------------------------------------------------------------ (Please Print) Capacity (full title): ----------------------------------------------------------------------- Address: ------------------------------------------------------------------------------ (Include Zip Code) Area Code and Telephone Number: ---------------------------------------------------------- Tax Identification or Social Security Number: -------------------------------------------------- PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN GUARANTEE OF SIGNATURE(S) (See Instructions 1 and 5 of this Letter of Transmittal) Authorized Signature(s): ---------------------------------------------------------------- ---------------------------------------------------------------- Name(s): ------------------------------------------------------------------------------ (Please Print) Title: ------------------------------------------------------------------------------ Name of Firm: ----------------------------------------------------------------------------- Address: ------------------------------------------------------------------------------ (Include Zip Code) Area Code and Telephone Number: ---------------------------------------------------------- Dated: ----------------, 1997 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a firm which is a bank, broker, dealer, credit union, savings association, or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program (each, an "Eligible Institution"). No signature guarantee is required on this Letter of Transmittal (i) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares and/or Rights) of Shares and/or Rights tendered herewith, unless such holder(s) has completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" included herein, or (ii) if such Shares and/or Rights are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES AND/OR RIGHTS CERTIFICATES. This Letter of Transmittal is to be used either if Share Certificates and/or Rights Certificates are to be forwarded herewith or if Shares and/or Rights are to be delivered by book-entry transfer pursuant to the procedure set forth in "The Offer--Procedures for Tendering Shares" of the Offer To Purchase. Share Certificates and/or Rights Certificates, or confirmation of a book-entry transfer of such Shares and/or Rights, if such procedure is available, into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedures set forth in "The Offer--Procedures for Tendering Shares" of the Offer To Purchase, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message, as defined in the Offer To Purchase) and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date (as defined in "The Offer-- Terms of the Offer; Proration; Expiration Date" of the Offer To Purchase). If Share Certificates and/or Rights Certificates are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Shareholders whose Share Certificates and/or Rights Certificates are not immediately available, who cannot deliver their Share Certificates and/ or Rights Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares and/or Rights pursuant to the guaranteed delivery procedure described in "The Offer--Procedures for Tendering Shares" of the Offer To Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Purchaser herewith, must be received by the Depositary prior to the Expiration Date; and (iii) in the case of a guarantee of Shares and/or Rights, the Share Certificates and/or Rights Certificates, in proper form for transfer, or a confirmation of a book-entry transfer of such Shares and/or Rights, if such procedure is available, into the Depositary's account at a Book-Entry Transfer Facility, together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange, Inc. trading days after the date of execution of the Notice of Guaranteed Delivery, all as described in "The Offer--Procedures for Tendering Shares" of the Offer To Purchase. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES, RIGHT CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE SOLE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. By execution of this Letter of Transmittal (or a facsimile hereof), all tendering Shareholders waive any right to receive any notice of the acceptance of their Shares and/or Rights for payment. 3. INADEQUATE SPACE. If the space provided herein under "Description of Shares Tendered" is inadequate, the certificate numbers, the number of Shares evidenced by such Share Certificates or Rights Certificates and the number of Shares and Rights tendered should be listed on a separate schedule and attached hereto. 4. PARTIAL TENDERS. (Not applicable to shareholders who tender by book-entry transfer.) If fewer than all the Shares or Rights evidenced by any certificate delivered to the Depositary herewith are to be tendered hereby, fill in the number of Shares or Rights which are to be tendered in the box entitled "Number of Shares Tendered." In such cases, new certificate(s) evidencing the remainder of the Shares or Rights that were evidenced by the Share Certificates or Right Certificates delivered to the Depositary herewith will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the box entitled "Special Delivery Instructions," as soon as practicable after the expiration or termination of the Offer. All Shares and Rights evidenced by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares and Rights tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any other change whatsoever. If any Shares or Rights tendered hereby are owned of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares or Rights tendered hereby are registered in the names of different holders, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of such certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares and Rights tendered hereby, no endorsements of certificates or separate stock powers are required, unless payment is to be made to, or certificates evidencing Shares or Rights not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s), in which case, the certificate(s) evidencing the Shares and Rights tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such certificate(s). Signatures on such Share Certificate(s), Rights Certificate(s) and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares and Rights tendered hereby, the certificate(s) tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such certificate(s). Signatures on such certificate(s) and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificate(s) or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Purchaser of such person's authority so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, Purchaser will pay all stock transfer taxes with respect to the sale and transfer of any Shares and Rights to it or its order pursuant to the Offer. If, however, payment of the Offer Price of any Shares or Rights purchased is to be made to, or certificate(s) evidencing Shares or Rights not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s), the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such other person will be deducted from the Offer Price of such Shares and Rights purchased, unless evidence satisfactory to Purchaser of the payment of such taxes, or exemption therefrom, is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) EVIDENCING THE SHARES AND/OR RIGHTS TENDERED HEREBY. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the Offer Price of any Shares and Rights tendered hereby is to be issued, or Certificate(s) evidencing Shares and Rights not tendered or not purchased are to be issued, in the name of a person other than the person(s) signing this Letter of Transmittal or if such check or any such Share Certificate and Right Certificate is to be sent to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal but at an address other than that shown in the box entitled "Description of Shares Tendered," the appropriate boxes on this Letter of Transmittal must be completed. Shares and Rights tendered hereby by book-entry transfer may request that Shares and Rights not purchased be credited to such account maintained at the Book-Entry Transfer Facility as such Shareholder may designate in the box entitled "Special Payment Instructions" on the reverse hereof. If no such instructions are given, all such Shares and Rights not purchased will be returned by crediting the account at the Book-Entry Transfer Facility as the account from which such Shares and Rights were delivered. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance may be directed to the Information Agent at their respective addresses or telephone numbers set forth herein. Additional copies of the Offer To Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. 9. SUBSTITUTE FORM W-9. Each tendering Shareholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN") on the Substitute Form W-9 which is provided under "Important Tax Information" below, and to certify, under penalties of perjury, that such number is correct and that such Shareholder is not subject to backup withholding of federal income tax. If a tendering Shareholder has been notified by the Internal Revenue Service that such Shareholder is subject to backup withholding, such Shareholder must cross out item (2) of the Certification box of the Substitute Form W-9, unless such Shareholder has since been notified by the Internal Revenue Service that such Shareholder is no longer subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the tendering Shareholder to 31% federal income tax withholding on the payment of the Offer Price of all Shares purchased from such Shareholder. If the tendering Shareholder has not been issued a TIN and has applied for one or intends to apply for one in the near future, such Shareholder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% on all payments of the Offer Price to such Shareholder until a TIN is provided to the Depositary. 10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s) representing Shares or Rights has been lost, destroyed or stolen, the Shareholder should promptly notify the Depositary. The Shareholder will then be instructed as to the steps that must be taken in order to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE HEREOF), PROPERLY COMPLETED AND DULY EXECUTED, WITH ANY REQUIRED SIGNATURE GUARANTEES, OR AN AGENT'S MESSAGE (TOGETHER WITH SHARE CERTIFICATES AND/OR RIGHTS CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). IMPORTANT TAX INFORMATION Under the federal income tax law, a Shareholder whose tendered Shares and Rights are accepted for payment is required by law to provide the Depositary (as payer) with such shareholder's correct TIN on Substitute Form W-9 below. If such Shareholder is an individual, the TIN is such Shareholder's social security number. If the Depositary is not provided with the correct TIN, the Shareholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such Shareholder with respect to Shares and Rights purchased pursuant to the Offer may be subject to backup withholding of 31%. Certain Shareholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such individual must submit a statement, signed under penalties of perjury, attesting to such individual's exempt status. Forms of such statements can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies with respect to a Shareholder, the Depositary is required to withhold 31% of any payments made to such Shareholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments that are made to a Shareholder with respect to Shares and Rights purchased pursuant to the Offer, the Shareholder is required to notify the Depositary of such Shareholder's correct TIN by completing the form below certifying (a) that the TIN provided on Substitute Form W-9 is correct (or that such Shareholder is awaiting a TIN), and (b) that (i) such Shareholder has not been notified by the Internal Revenue Service that such Shareholder is subject to backup withholding as a result of a failure to report all interest or dividends or (ii) the Internal Revenue Service has notified such Shareholder that such shareholder is no longer subject to backup withholding. WHAT NUMBER TO GIVE THE DEPOSITARY The Shareholder is required to give the Depositary the social security number or employer identification number of the record holder of the Shares and Rights tendered hereby. If the Shares and Rights are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the tendering Shareholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, the Shareholder should write "Applied For" in the space provided for the TIN in Part I, and sign and date the Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% of all payments of the Offer Price to such Shareholder until a TIN is provided to the Depositary. SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN FORM W-9 THE BOX AT RIGHT AND CERTIFY BY Social Security Number SIGNING AND DATING BELOW. OR Employer Identification Number (If awaiting TIN write "Applied For") PART 2--For Payees Exempt From Backup Withholding, see the enclosed Guidelines Taxpayer Identification and complete as instructed therein. CERTIFICATION--Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or a Taxpayer Identification Number has not been issued to me and DEPARTMENT OF THE either (a) I have mailed or delivered an application to receive a TREASURY Taxpayer Identification Number to the appropriate Internal Revenue INTERNAL REVENUE Service ("IRS") or Social Security administration office or (b) I SERVICE intend to mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer Identification Number PAYER'S REQUEST within sixty (60) days, 31% of all reportable payments made to me FOR TAXPAYER hereafter will be withheld until I provide a number), and IDENTIFICATION (2) I am not subject to backup withholding because (a) I am exempt from NUMBER (TIN) backup withholding, (b) I have not been notified by the IRS that I am subject to backup withholding as a result of failure to report all interest or dividends or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of under reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines.) SIGNATURE: DATE: , 1997
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU WROTE "APPLIED FOR" INSTEAD OF A TIN IN THE SUBSTITUTE FORM W-9. CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center of Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld until I provide a number, but will be refunded if I provide a certified taxpayer identification number within 60 days. Signature: ---------------------------------------- Dated: -------------------------------------------
THE DEPOSITARY FOR THE OFFER IS: THE FIRST NATIONAL BANK OF BOSTON BY HAND: BY OVERNIGHT COURIER: BY MAIL: Securities Transfer and Bank of Boston Bank of Boston Corporate Reporting Services, Inc. Corporate Agency and Agency and Reorganization One Exchange Plaza Reorganization Mail Stop 45-02-53 55 Broadway, 3rd Floor Mail Stop 45-02-53 P.O. Box 1889 New York, New York 10006 150 Royall Street Boston, Massachusetts Canton, Massachusetts 02021 02015-1889
BY FACSIMILE TRANSMISSION: (for Eligible Institutions Only) (617) 575-2233 CONFIRM FACSIMILE BY TELEPHONE (CALL COLLECT) (617) 575-3120 Any questions or requests for assistance or additional copies of the Offer To Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and locations listed below. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: [LOGO] 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (call Collect) or Call Toll Free (800) 322-2885 THE DEALER MANAGER FOR THE OFFER IS: J.P. MORGAN & CO. 60 Wall Street Mail Stop 2860 New York, New York 10260 (212) 648-3251 (call collect) (800) 600-3799 (toll free) EX-99.(A)(3) 4 NOTICE OF GUAR. DEL. Exhibit 99(a)(3) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF DYNAMICS CORPORATION OF AMERICA As set forth in "The Offer--Procedures for Tendering Shares" of the Offer To Purchase (as defined below), this form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if the certificates representing shares of common stock (the "Shares"), par value $0.10 per share of Dynamics Corporation of America (the "Company") and/or the certificates representing the associated rights (the"Rights") issued pursuant to the Rights Agreement, dated as of January 30, 1986, as amended, between the Company and First National Bank of Boston, as Rights Agent, are not immediately available or time will not permit all required documents to reach the Depositary prior to the Expiration Date (as defined in the Offer To Purchase) or the procedures for book-entry transfer cannot be completed on a timely basis. Such form may be delivered by hand or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution (as defined below). See "The Offer--Procedures for Tendering Shares" of the Offer To Purchase. THE DEPOSITARY FOR THE OFFER IS: THE FIRST NATIONAL BANK OF BOSTON BY HAND: BY OVERNIGHT COURIER: BY MAIL: Securities Transfer and Bank of Boston Bank of Boston Reporting Services, Inc. Corporate Agency Corporate Agency and One Exchange Plaza Reorganization Reorganization 55 Broadway, 3rd Floor Mail Stop 45-02-53 Mail Stop 45-02-53 New York, New York 10006 150 Royall Street P.O. Box 1889 Canton, Massachusetts 02021 Boston, Massachusetts 02015-1889
BY FACSIMILE TRANSMISSION: (for Eligible Institutions Only) (617) 575-2233 CONFIRM FACSIMILE BY TELEPHONE (CALL COLLECT) (617) 575-3120 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. Ladies and Gentlemen: The undersigned hereby tenders to CTS First Acquisition Corp., a New York corporation and a wholly owned subsidiary of CTS Corporation, an Indiana corporation, upon the terms and subject to the conditions set forth in the Offer To Purchase, dated May 16, 1997 (the "Offer To Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"), receipt of each of which is hereby acknowledged, the number of Shares and/or Rights specified below pursuant to the guaranteed delivery procedures described in "The Offer--Procedures for Tendering Shares" of the Offer To Purchase.
(Please Type or Print) Number of Shares (if Rights, so indicate): Names of Registered Holder(s): Certificate Nos. (if available): ------------------------------------------------ ------------------------------------------------ ----------------------------------------------------------- ----------------------------------------------------------- Address: If Shares or Rights will be tendered by book-entry ------------------------------------------------ transfer, check one box / / The Depositary Trust Company ------------------------------------------------ / / Philadelphia Depositary Trust Company ------------------------------------------------ Account Number Area Code and Telephone Number: ------------------------------------------------ - ----------------------------------------------------------------------------------------------------------------- PLEASE SIGN HERE: x ---------------------------------------------------------- x ---------------------------------------------------------- (Signature(s)) (Dates)
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a participant in the Security Transfer Agents Medallion Program ("Eligible Institution"), hereby (a) represents that the tender of Shares and/or Rights effected hereby complies with Rule 14e-4 under the Securities Exchange Act of 1934, as amended, and (b) guarantees that either the certificates representing the Shares and/or Rights tendered hereby in proper form for transfer, or timely confirmation of a book-entry transfer of such Shares into the Depositary's account (pursuant to procedures set forth in "The Offer--Procedures for Tendering Shares" in the Offer To Purchase), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees and any other documents required by the Letter of Transmittal, will be received by the Depositary at one of its addresses set forth above within three New York Stock Exchange trading days after the date of execution hereof. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares and Rights to the Depositary within the time period shown herein. Failure to do so could result in financial loss to such Eligible Institution. - -------------------------------------------- -------------------------------------------- Name of Firm (Authorized Signature) - -------------------------------------------- -------------------------------------------- Address (Please Print Name) - --------------------------------------------- --------------------------------------------- (City, State, Zip Code) (Title) - --------------------------------------------- --------------------------------------------- (Area Code and Telephone Number) (Date)
DO NOT SEND SHARES CERTIFICATES OR RIGHT CERTIFICATES WITH THIS NOTICE. SHARE CERTIFICATES AND RIGHT CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. EX-99.(A)(4) 5 LETTER TO BROKER/DEALER Exhibit 99(a)(4) Offer To Purchase for Cash Up to 49.9% Of the Outstanding Common Stock of Dynamics Corporation of America at $55.00 Net Per Share by CTS First Acquisition Corp. a Wholly Owned Subsidiary of CTS Corporation THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 13, 1997, UNLESS THE OFFER IS EXTENDED. May 16, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We are asking you to contact your clients for whom you hold shares of common stock, par value $.10 per share (the "Shares"), of Dynamics Corporation of America, a New York corporation (the "Company"). Please bring to their attention as promptly as possible the offer being made by CTS First Acquisition Corp., a New York corporation ("Purchaser") and a wholly owned subsidiary of CTS Corporation, an Indiana corporation ("CTS"), to purchase Shares of the Company, together with the associated purchase rights issued pursuant to the Company Rights Agreement (the "Rights") at a price of $55.00 per Share (and associated Right), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer To Purchase, dated May 16, 1997 (the "Offer To Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") enclosed herewith. The Offer has been made pursuant to an Agreement and Plan of Merger, dated as of May 9, 1997, among the Company, the Purchaser and CTS (the "Merger Agreement"), according to which the Offer will be followed by a merger in which each outstanding common share of the Company will be converted into the right to receive 0.88 shares of CTS common stock. The Merger Agreement has been approved by the Board of Directors of the Company. For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, or who hold Shares registered in their own names, we are enclosing the following documents: 1. Offer To Purchase, dated May 16, 1997; 2. Letter of Transmittal to be used by holders of Shares and/or Rights in accepting the Offer. Facsimile copies of the Letter of Transmittal may be used to accept the Offer; 3. Notice of Guaranteed Delivery to be used to accept the Offer if the certificates evidencing such Shares and/or Rights are not immediately available or time will not permit all required documents to reach the Depositary prior to the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis; 4. A letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominees, with space provided for obtaining such clients' instructions with regard to the Offer; 5. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. Return envelope addressed to the Depositary. We are asking you to contact your clients for whom you hold Shares registered in your name (or in the name of your nominee) or who hold Shares registered in their own names. Please bring the Offer to their attention as promptly as possible. The Purchaser will not pay any fees or commissions to any broker or dealer or any other person (other than the Information Agent) for soliciting tenders of Shares pursuant to the Offer. You will be reimbursed by the Purchaser for customary mailing expenses incurred by you in forwarding any of the enclosed materials to your clients. The Purchaser will pay or cause to be paid any stock transfer taxes payable on the sale and transfer of Shares to it or its order, except as otherwise provided in Instruction 6 of the Letter of Transmittal. YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 13, 1997, UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, (1) a duly executed and properly completed Letter of Transmittal, and, if necessary, any other required documents should be sent to the Depositary and (2) either certificates representing the tendered Shares and/or Rights should be delivered to the Depositary, or such Shares and/or Rights should be tendered by book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities (as defined in the Offer To Purchase), all in accordance with the Instructions set forth in the Letter of Transmittal and the Offer To Purchase. If holders of Shares and/or Rights wish to tender, but it is impracticable for them to forward their certificates or other required documents to the Depositary prior to the expiration of the Offer or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in "The Offer--Procedures for Tendering Shares" of the Offer To Purchase. Any inquiries you may have with respect to the Offer should be addressed to the Information Agent at the address and telephone number as set forth on the back cover page of the Offer To Purchase. Additional copies of the above documents may be obtained from the Information Agent, at the address and telephone number set forth on the back cover of the Offer To Purchase. Very truly yours, J.P. MORGAN SECURITIES INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS AN AGENT OF CTS, PURCHASER, THE DEPOSITARY OR THE INFORMATION AGENT OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED AND THE STATEMENTS CONTAINED THEREIN. EX-99.(A)(5) 6 LETTER TO CLIENTS Exhibit 99(a)(3) Offer To Purchase for Cash Up to 49.9% Of the Outstanding Common Stock of Dynamics Corporation of America at $55.00 Net Per Share by CTS First Acquisition Corp. a Wholly Owned Subsidiary of CTS Corporation THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 13, 1997, UNLESS THE OFFER IS EXTENDED. May 16, 1997 To Our Clients: Enclosed for your consideration is an Offer To Purchase, dated May 16, 1997 (the "Offer To Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") in connection with the Offer by CTS First Acquisition Corp., a New York corporation ("Purchaser"), and a wholly owned subsidiary of CTS Corporation, an Indiana corporation ("CTS"), to purchase shares of common stock, par value $.10 per share (the "Shares") of Dynamics Corporation of America, a New York corporation (the "Company"), together with the associated purchase rights issued pursuant to the Company Rights Agreement (the "Rights"), at a price of $55.00 per Share (and associated Right), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer. If the Rights separate from the Shares and are evidenced by Rights Certificates (the "Rights Separation") Shareholders will be required to tender one Right for each Share tendered in order to effect a valid tender of Shares. Unless the Rights Separation occurs, a tender of Shares will also constitute a tender of the associated Rights. THE MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF SHARES AND/ OR RIGHTS HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE THE HOLDER OF RECORD OF SHARES AND/OR RIGHTS HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES AND/OR RIGHTS CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES AND/OR RIGHTS HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to have us tender on your behalf any or all of the Shares and Rights held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is invited to the following: 1. The tender price is $55.00 per Share (and associated Right), net to the seller in cash. 2. The Offer, and withdrawal rights will expire at 12:00 Midnight, New York City time, on Friday, June 13, 1997, unless the Offer is extended. 3. The Offer is being made for less than all of the outstanding Shares and Rights. 4. Tendering Shareholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by Purchaser pursuant to the Offer. 5. The Offer is conditioned upon, among other things, there have been validly tendered and not withdrawn prior to the Expiration Date (as defined in the Offer To Purchase) a number of Shares which constitutes at least 25% of the Shares outstanding on the date of purchase. 6. The Offer has been made pursuant to an Agreement and Plan of Merger, dated as of May 9, 1997, among the Company, the Purchaser and CTS (the "Merger Agreement"), according to which the Offer will be followed by a merger in which each outstanding common share of the Company will be converted into the right to receive 0.88 shares of CTS common stock. The Merger Agreement has been approved by the Board of Directors of the Company. The Offer is made solely by the Offer To Purchase and the related Letter of Transmittal and is being made to all holders of Shares and Rights. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares and Rights pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares and Rights in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by the Dealer Managers or one or more registered broker or dealer licensed under the laws of such jurisdiction. If you wish to have us tender any or all of your Shares and Rights, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Shares and Rights, all such Shares and Rights will be tendered unless otherwise specified on the instruction form set forth in this letter. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE UP TO 49.9% OF THE OUTSTANDING COMMON STOCK OF DYNAMICS CORPORATION OF AMERICA The undersigned acknowledge(s) receipt of your letter and the enclosed Offer To Purchase, dated May 16, 1997 (the "Offer To Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"), in connection with the offer by CTS First Acquisition Corp., a New York corporation ("Purchaser") and a wholly owned subsidiary of CTS Corporation, an Indiana corporation, to purchase shares of common stock, par value $.10 per share (the "Shares") of Dynamics Corporation of America (the "Company"), a New York corporation, together with the associated purchase rights issued pursuant to the Company Rights Agreement (the "Rights"), at a price of $55.00 per Share and associated Right, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer. This will instruct you to tender to Purchaser the number of Shares and Rights indicated below (or, if no number is indicated in either appropriate space below, all Shares and Rights) held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. NUMBER OF SHARES TO BE TENDERED* PLEASE SIGN HERE Number of Shares (and associated Rights) to be tendered: ------ Shares (and associated Rights) Account Number: -------------
- --------------------------------------------------------------------------------- , ----------------- - --------------------------------------------------------------- Signature(s) Date - --------------------------------------------------------------------------------- Please Print Name(s) - --------------------------------------------------------------------------------- Taxpayer Identification or Social Security Number(s) - --------------------------------------------------------------------------------- Area Code and Telephone Number(s)
* Unless otherwise indicated, it will be assumed that all Shares and Rights held by us for your account are to be tendered. EX-99.(A)(6) 7 TAX GUIDELINES Exhibit 99(a)(b) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -- Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer.
- ----------------------------------------------------- GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF -- - ----------------------------------------------------- 1. An individual's The individual account 2. Two or more The actual owner of individuals (joint the account or, if account) combined funds, any one of the individuals(1) 3. Husband and wife The actual owner of (joint account) the account or, if joint funds, either person(1) 4. Custodian account of The minor(2) a minor (Uniform Gift to Minors Act) 5. Adult and minor The adult or, if the (joint account) minor is the only contributor, the minor(1) 6. Account in the name The ward, minor, or of guardian or incompetent committee for a person(3) designated ward, minor, or incompetent person 7. a. The usual The revocable savings grantor-trustee(1) trust account (grantor is also trustee) b. So-called trust account that is The actual owner(1) not a legal or valid trust under State law 8. Sole proprietorship The owner(4) account - ----------------------------------------------------- GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF -- - ----------------------------------------------------- 9. A valid trust, Legal entity (Do not estate, or pension furnish the trust trust identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, The organization charitable, or educational organization account 12. Partnership account The partnership held in the name of the business 13. Association, club, The organization or other tax-exempt organization 14. A broker or The broker or registered nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that received agricultural program payments
- --------------------------------------------- - --------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's, or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a), or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Payments of mortgage interest to you. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYOR. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS--If you fail to include any portion of an includable payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 20% on any portion of an underpayment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION-- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(7) 8 SUMMARY ADVERTISMENT EXHIBIT 99(a)(7) THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION OF AN OFFER TO SELL SHARES. THE OFFER IS MADE SOLELY BY THE OFFER TO PURCHASE, DATED MAY 16, 1997, AND THE RELATED LETTER OF TRANSMITTAL AND ANY AMENDMENTS OR SUPPLEMENTS THERETO AND IS BEING MADE TO ALL HOLDERS OF SHARES. THE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS OF SHARES IN ANY JURISDICTION IN WHICH THE MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. IN ANY JURISDICTION WHERE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER SHALL BE DEEMED TO BE MADE ON BEHALF OF CTS FIRST ACQUISITION CORP. BY J.P. MORGAN SECURITIES INC. OR ONE OR MORE REGISTERED BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH JURISDICTION. NOTICE OF OFFER TO PURCHASE FOR CASH UP TO 49.9% OF THE OUTSTANDING COMMON STOCK OF DYNAMICS CORPORATION OF AMERICA AT $55.00 NET PER SHARE BY CTS FIRST ACQUISITION CORP., A WHOLLY OWNED SUBSIDIARY OF CTS CORPORATION CTS First Acquisition Corp., a New York corporation ("Purchaser"), hereby offers to purchase up to 49.9% of the issued and outstanding shares of Common Stock (the "Shares") of Dynamics Corporation of America, a New York corporation (the "Company"), together with the associated stock purchase rights (the "Rights"), at a price of $55.00 per Share (the "Offer Price"), net to the seller in cash, without interest thereon, on the terms and subject to the conditions set forth in the Offer to Purchase, dated May 16, 1997 (the "Offer To Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). According to the Company, there were 3,838,742 Shares outstanding as of May 8, 1997. Assuming no change in such number, the Offer is to purchase 1,915,500 Shares (subject to increase in accordance with the Merger Agreement in certain circumstances). Purchaser is a newly formed wholly owned subsidiary of CTS Corporation, an Indiana corporation ("CTS"). Following consummation of the Offer, Purchaser intends to effect the Merger as described below. Unless the context otherwise requires, all references to Shares include the associated Rights, and all references to the Rights include the benefits that may enure to holders of the Rights pursuant to the Rights Agreement, dated January 30, 1986, as amended, between the Company and First National Bank of Boston, as Rights Agent, including the right to receive any payment due upon redemption of the Rights. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, JUNE 13, 1997, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, (i) there being validly tendered and not withdrawn prior to the Expiration Date that number of Shares which constitutes at least 25% of the Shares outstanding on the date of purchase (the "Minimum Share Condition"), (ii) any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, having expired or been terminated prior to the expiration of the Offer, (iii) the receipt of an opinion as to certain tax consequences of the Merger, (iv) the absence of certain litigation, orders or other legal matters, (v) the representations and warranties of the Company in the Merger Agreement being materially true and correct as of the Expiration Date and the covenants of the Company in the Merger Agreement having been materially performed or complied with, (vi) the absence of any material adverse change, or any development that is reasonably likely to result in a material adverse change, in the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, (vii) the Merger Agreement not having been terminated in accordance with its terms, (viii) no person having acquired beneficial ownership of Shares in excess of certain specified percentages, and (ix) certain other conditions contained in the Offer To Purchase. THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND THE SHAREHOLDERS, HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER, AND RECOMMENDS THAT SHAREHOLDERS WHO WISH TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of May 9, 1997 (the "Merger Agreement"), among CTS, Purchaser and the Company. The Merger Agreement provides, among other things, for the commencement of the Offer by Purchaser and further provides that, after the purchase of Shares pursuant to the Offer, subject to the satisfaction or waiver of certain conditions including approval of certain matters by the Company's and CTS' shareholders, the Company will be merged with and into Purchaser (the "Merger"), with Purchaser surviving the Merger as a wholly owned subsidiary of CTS. In the Merger, subject to certain exceptions, each Share issued and outstanding immediately prior to the effective time of the Merger (the "Effective Time") will be converted at the Effective Time into the right to receive 0.88 (the "Exchange Ratio") fully paid and nonassessable shares of CTS Common Stock (the "CTS Shares"). In connection with the Merger, CTS declared a split in the form of a 1:1 stock dividend (the "Stock Split") to be effective as of immediately following the Effective Time. If the Stock Split is so effective, the Exchange Ratio will be 1.76 CTS Shares for each Share. Upon the terms and subject to the conditions of the Offer, if Shares are validly tendered prior to the Expiration Date and not properly withdrawn, Purchaser will accept for payment only 49.9% of the then-outstanding Shares, on a pro rata basis, with adjustments to avoid purchases of fractional Shares, based upon the number of Shares validly tendered prior to the Expiration Date and not properly withdrawn. Because of the difficulty of determining precisely the number of Shares validly tendered and not withdrawn, if proration is required, Purchaser would not expect to be able to announce the final results of proration or pay for Shares until at least five New York Stock Exchange trading days after the Expiration Date. Preliminary results of proration will be announced by press release as promptly as practicable after the Expiration Date. Shareholders may obtain such preliminary information from the Information Agent and may also be able to obtain such preliminary information from their brokers. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered and not properly withdrawn if, as and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance of such Shares for payment. Payment for Shares accepted pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering Shareholders for the purpose of receiving payments from Purchaser and transmitting payments to such tendering Shareholders. If, for any reason, acceptance for payment of any Shares tendered pursuant to the Offer is delayed, or Purchaser is unable to accept for payment Shares tendered pursuant to the Offer, then, without prejudice to Purchaser's rights the Depositary may, nevertheless, on behalf of Purchaser, retain the tendered Shares, and such Shares may not be withdrawn, except to the extent that the tendering Stockholders are entitled to withdrawal rights as described in "The Offer -- Withdrawal Rights" in the Offer To Purchase and as otherwise required by Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under no circumstances will interest on the purchase price for Shares be paid by Purchaser, regardless of any delay in making such payment. Upon the deposit of funds with the Depositary for the purpose of making payments to tendering Shareholders, Purchaser's obligation to make such payment will be satisfied and tendering Shareholders must thereafter look solely to the Depositary for payment of amounts owed to them by reason of the acceptance for payment of Shares pursuant to the Offer. In all cases, payment for Shares purchased pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates") or timely confirmation of a book-entry transfer of such Shares, if such procedure is available, into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company pursuant to the procedures set forth in "The Offer -- Procedures for Tendering Shares" in the Offer To Purchase, (ii) the Letter of Transmittal, properly completed and duly executed, or, in the case of a book-entry transfer, an Agent's Message, and (iii) any other documents required by the Letter of Transmittal. The Purchaser expressly reserves the right, in its discretion, subject to the terms of Merger Agreement, at any time and from time to time, to extend for any reason the period of time during which the Offer is open by giving oral or written notice of such extension to the Depositary and by making a public announcement of such extension. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of a tendering Shareholder to withdraw any tendered Shares. The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, June 13, 1997, unless and until Purchaser, in accordance with the terms of the Offer and Merger Agreement, shall have extended the period of time during which the Offer is open. If any of the conditions of the Offer has not been satisfied on or prior to the Expiration Date, the Merger Agreement requires Purchaser to extend the Offer for an aggregate of 20 additional business days to permit the condition to be satisfied; Purchaser may further extend the Offer in such circumstances for up to an additional 20 business days. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn at any time after July 14, 1997 unless theretofore accepted for payment as provided in the Offer To Purchase. To be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth in the Offer To Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holders, if different from the person who tendered such Shares. If Share Certificates evidencing shares to be withdrawn have been delivered or otherwise identified to the Depositary then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in "The Offer -- Procedures for Tendering Shares" in the Offer To Purchase, any notice of withdrawal must also specify the name and number of the account at a Book-Entry Transfer Facility to be credited with the withdrawn Shares. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered at any time prior to the Expiration Date by following the procedures described in "The Offer -- Procedures for Tendering Shares" in the Offer To Purchase. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tendered Shares pursuant to any of the procedures described above will be determined by Purchaser in its sole discretion, whose determination will be final and binding on all parties. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering Shareholders are entitled to withdrawal rights as described in "The Offer -- Withdrawal Rights" in the Offer To Purchase. Any such delay will be by an extension of the Offer to the extent required by law. The information required to be disclosed by Rule 14d-6(e)(1)(vii) under the Exchange Act is contained in the Offer To Purchase and is incorporated herein by reference. The Company has provided the Purchaser with the Company's shareholder list and security position listings for the purpose of disseminating the Offer to the Shareholders and is mailing its Schedule 14D 9 simultaneously with the Offer To Purchase. The Offer To Purchase and the related Letter of Transmittal will be mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. THE OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance, and requests for copies of the Offer To Purchase, the Letter of Transmittal and other tender offer materials, may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below. Shareholders may also contact brokers, dealers, commercial banks and trust companies for additional copies of the Offer To Purchase, the Letter of Transmittal or other tender offer materials. Purchaser will pay all charges and expenses of J.P. Morgan Securities Inc., as the Dealer Manager, The First National Bank of Boston, as the Depositary, and MacKenzie Partners, Inc., as the Information Agent, in connection with the Offer. No fees or commissions will be paid to brokers, dealers or other persons (other than the Information Agent and the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: [MacKenzie Logo] 156 Fifth Avenue New York, New York 10010 (212) 029-5500 (call collect) or CALL TOLL FREE (800) 322-2885 The Dealer Manager for the Offer is: J.P. MORGAN & CO. 60 Wall Street Mail Stop 2860 New York, New York 10260 (212) 648-3251 (call collect) (800) 600-3799 (toll free) May 16, 1997 EX-99.(C)(2) 9 EMPLOYMENT AGREEMENT EXHIBIT 99(C)(2) EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of the 9th day of May, 1997, by and among CTS Corporation, an Indiana corporation (the "Company"), and Joseph P. Walker (the "Executive"). WHEREAS, the Company, a wholly owned subsidiary of the Company ("Merger Sub") and Dynamics Corporation of America, a New York corporation ("DCA"), have entered into an Agreement and Plan of Merger (the "Merger Agreement"), dated as of May __, 1997, pursuant to which, among other things, DCA will be merged with and into Merger Sub as of the "Effective Time," as defined in the Merger Agreement; WHEREAS, the Executive is currently serving as Chairman, President and Chief Executive Officer of the Company, 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 an employment agreement (the "Employment Agreement"), effective as of June 24, 1994, and a severance agreement (the "Severance Agreement"), effective as of April 11, 1997; WHEREAS, the Executive is willing to commit himself to be employed by the Company on the terms and conditions herein set forth and in lieu of the terms and conditions of the Employment Agreement; and WHEREAS, the parties desire to enter into this Agreement as of the Effective Time, setting forth the terms and conditions for the employment relationship of the Executive with the Company; 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 be effective and binding immediately upon its execution. (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 date (the "Effective Date") on which the Effective Time occurs 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 in such office and have such authority, duties and responsibilities as specified in Exhibit A hereto. 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 business 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 $41,667, 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. - 2 - (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. (c) Split-Dollar Policy. The Company shall (i) during the Employment Period, continue to pay the annual premium, at the same annual rate and in the same month as paid by the Company in 1997, on the individual "split dollar" life insurance policy issued with respect to the Executive ("Policy"), and (ii) notwithstanding the assignment of the Policy to the Company as collateral heretofore executed by the Executive ("Collateral Assignment"), not take any action to reduce the annual premium, borrow against the cash surrender value of the Policy or endanger in any way any benefit available to the Executive and shall not be entitled to be repaid to the extent of its interest in the Policy until the earlier of the death of the insured under the Policy or the surrender of the Policy by the Executive. (d) 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. 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 Board of Directors. 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 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. - 3 - (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: (i) the attainment by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of aggregate beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of the combined voting power of the then outstanding Voting Stock of the Company (including, for this purpose, any Voting Stock of - 4 - 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, (D) any acquisition by any Person pursuant to a Business Combination that complies with clauses (I), (II) and (III) of Section 5(d)(iii), (E) the beneficial ownership by DCA of Voting Stock of the Company equal to less than 25% of the combined voting power then outstanding Voting Stock of the Company ("Exempt DCA Percentage"), or (F) the beneficial ownership by The Gabelli Group, Inc., GAMCO Investors, Inc. and Gabelli Funds, Inc. (collectively, "Gabelli") of Voting Stock of the Company equal to less than 25% of the combined voting power of the then outstanding Voting Stock of the Company ("Exempt Gabelli Percentage"); and provided further that, for purposes of computing the Exempt DCA Percentage and the Exempt Gabelli Percentage, the denominator, but not the numerator, will include all outstanding shares of stock of the Company that, by operation of law, are not entitled to vote; or (ii) individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority 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 a majority of the Directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) will be deemed to have been a member of the Incumbent Board, but excluding, for this purpose, any such individual becoming a Director as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Exchange Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (collectively, an "Election Contest"); (iii) consummation of (A) a reorganization, merger or consolidation of the Company, (B) a sale or other disposition of all or substantially all of the assets of the Company, or (C) a sale or other disposition of all or substantially all of the assets ("Automotive Group Assets") of the Company used in its Automotive Strategic Business Unit (such reorganization, merger, consolidation or sale - 5 - 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 a majority of the then outstanding shares of common stock and the combined voting power of the then outstanding Voting Stock of the Company entitled to vote generally in the election of Directors of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company, all or substantially all of the Company's assets either directly or through one or more subsidiaries or the Automotive Group Assets), (II) no Person (other than the Company, such entity resulting from such Business Combination, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any Subsidiary or such entity resulting from such Business Combination, or DCA or Gabelli to the extent of the Exempt DCA Percentage or Exempt Gabelli Percentage, respectively) beneficially owns, directly or indirectly, 15% or more of the then outstanding shares of Voting Stock of the entity resulting from such Business Combination, and (III) at least a majority of the members of the Board of 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; provided, however, that if the Business Combination is initiated by the Company and the Chief Executive Officer of the Company immediately prior to such Business Combination constitutes the Chief Executive Officer of the entity resulting from the Business Combination immediately following the Business Combination and throughout the twelve-month period thereafter, this Section 5(d)(iii) will be applied without regard to clauses (I) and (II); (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that complies with clauses (I), (II) and (III) of Section 5(d)(iii); (v) if and so long as DCA beneficially owns 15% or more of the combined voting power of the outstanding Voting Stock of the Company, (A) the attainment by any Person of beneficial ownership of 20% or more of the combined voting power of the then outstanding Voting Stock of DCA ("DCA Voting Stock") (other than as the result of an acquisition of DCA Voting Stock by (x) DCA (and any change in the percentage ownership of DCA Voting Stock that results from such acquisition), (y) any employee benefit plan (or related trust) sponsored or maintained by DCA or any subsidiary of DCA, or (z) the Company or any Subsidiary that - 6 - is approved by the Incumbent Board), or (B) individuals who, as of the date hereof, constitute the Board of Directors of DCA (the "Incumbent DCA Board") cease for any reason to constitute at least a majority of the Board of Directors of DCA; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by DCA's shareholders, was approved by a vote of at least a majority of the Directors of DCA then comprising the Incumbent DCA Board (either by a specific vote or by approval of the proxy statement of DCA in which such person is named as a nominee for director, without objection to such nomination) will be deemed to have been a member of the Incumbent DCA Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened Election Contest; or (vi) in addition to any of the other events or circumstances set forth in this Section 5(d), a "Change in Control" will be deemed to have occurred for all purposes thereof in the event of a Board Shift. For this purpose, (A) a "Board Shift" will be deemed to have occurred if 50% or more of the members of the Board of Directors, or of any entity resulting from a Business Combination, are persons who (I) are employees of any beneficial owner of 20% or more of the Voting Stock (a "20+% Holder") or (II) were nominated for election, or voted for, by any such 20+% Holder unless such nomination or vote was approved by a majority of the Unrelated Directors, and (B) "Unrelated Directors" means Gerald H. Frieling, Jr., Lawrence J. Ciancia and Joseph P. Walker or any successors thereto nominated with the approval of such of the foregoing (or their successors nominated as aforesaid) as may remain members of the Board of Directors, or of any entity resulting from a Business Combination, at the time of such nomination. (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 - 7 - 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 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 - 8 - thereon) and any 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) $355,300, which is equal to the largest aggregate amount earned by the Executive as stock and cash bonuses for any of the five fiscal years preceding that in which the Effective Date occurs; 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 of the five fiscal years of the Company ending immediately prior to the fiscal year in which occurs the Date of Termination, 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 - 9 - rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. (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 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 - 10 - 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 - 11 - Company may have against the Executive or others. In no 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. 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 - 12 - 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 - 13 - its terms applies in whole or part after a termination of the Executive's employment hereunder shall survive such termination. 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: ------------------------------------- Name: Stanley J. Aris Title: Vice President Finance and Chief Financial Officer ---------------------------------------- JOSEPH P. WALKER Address: 56179 Dana Drive Bristol, Indiana 46507 - 14 - EXHIBIT A Joseph P. Walker Mr. Walker will be the Chairman, President and Chief Executive Officer of the Company and will have such duties, responsibilities and authority as are customarily incident to the principal executive officer of a publicly traded corporation. Mr. Walker will report solely to the Board of Directors. In addition, Mr. Walker will be a member with the President of DCA of the Company's Office of the Chairman. As such, Mr. Walker and the President of DCA will consult on a regular basis as to strategic matters affecting the Company and DCA. Mr. Walker will, however, have all powers and authorities of the Chairman, President and Chief Executive Officer of the Company. - A-1 - -----END PRIVACY-ENHANCED MESSAGE-----