CTS CORP — Proxy Solicitation & Information Statement 2005

Mar 29, 2005

DEF 14A 1 c93123def14a.htm DEFINITIVE NOTICE AND PROXY def14a PAGEBREAK

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:

o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12

CTS CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

o Fee paid previously with preliminary materials.

o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

SEC 1913 (02-02) Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

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March 29, 2005

Dear CTS Shareholder:

You are cordially invited to attend the 2005 Annual Meeting of Shareholders of CTS Corporation. The meeting will be held on Wednesday, May 4, 2005, at 9:00 a.m. Central Daylight Time at the offices of the corporation located at 171 Covington Drive, Bloomingdale, Illinois 60108-3107.

The official notice of meeting, proxy statement and proxy form are enclosed. These materials were first mailed to shareholders on March 29, 2005. We hope you will attend the meeting in person. Whether you plan to attend the meeting or not, we encourage you to read this proxy statement and vote your shares. The vote of every shareholder is important.

We look forward to seeing you at the meeting.

Donald K. Schwanz
Chairman of the Board,
President and Chief
Executive Officer

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TOC

TABLE OF CONTENTS

Notice of Annual Meeting of Shareholders
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
ELECTION OF DIRECTORS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
CERTAIN BUSINESS RELATIONSHIPS
COMMITTEES OF THE BOARD
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
DIRECTOR COMPENSATION
STOCK OWNERSHIP INFORMATION
EXECUTIVE COMPENSATION
STOCK OPTIONS
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
PENSION PLAN
REPORT OF THE AUDIT COMMITTEE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
REPORT OF THE COMPENSATION COMMITTEE
STOCK PERFORMANCE GRAPH

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link1 "Notice of Annual Meeting of Shareholders"

Notice of Annual Meeting of Shareholders

May 4, 2005

To CTS Shareholders:

The Annual Meeting of Shareholders of CTS Corporation will be held at 9:00 a.m. Central Daylight Time, Wednesday, May 4, 2005, at the offices of the corporation located at 171 Covington Drive, Bloomingdale, Illinois 60108-3107.

Only shareholders of record at the close of business on March 18, 2005 may vote at this meeting or any adjournments that may take place. At the meeting, we will:

1. Elect a Board of Directors; and

2. Attend to other business properly presented at the meeting.

Your Board of Directors recommends that you vote in favor of the proposal described in this proxy statement.

By Order of the Board of Directors,
●
Richard G. Cutter
Secretary

March 29, 2005

Your vote is important.

Please date, sign and mail promptly the enclosed proxy,

which requires no postage if mailed in the United States.

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link1 "PROXY STATEMENT"

PROXY STATEMENT

link1 "ANNUAL MEETING OF SHAREHOLDERS"

ANNUAL MEETING OF SHAREHOLDERS

May 4, 2005

This proxy statement, which was first mailed to shareholders on March 29, 2005, is furnished in connection with the solicitation by the Board of Directors of CTS Corporation of proxies to be voted at the Annual Meeting of Shareholders to be held on Wednesday, May 4, 2005. Following is important information in a question-and-answer format regarding the Annual Meeting and this proxy statement.

Q:	What may I vote on?
A:	The election of nominees to serve on the Board of
Directors.
Q:	How does the Board recommend I vote?
A:	The Board recommends a vote FOR each of the
nominees identified in this proxy statement.
Q:	How will voting on any other business be
conducted?
A:	Although we do not know of any business to be
considered at the 2005 Annual Meeting other than as described in
this proxy statement, if any other business is properly
presented at the Annual Meeting, your signed proxy card gives
authority to Donald K. Schwanz, CTS’ Chairman, President
and Chief Executive Officer, and Richard G. Cutter, CTS’
Vice President, General Counsel and Secretary, to vote on those
matters at their discretion.
Q:	How many votes are needed for approval of each
item?
A:	Assuming that at least a majority of shares are
present, either in person or by proxy, at the Annual Meeting,
the nine director-nominees receiving the most votes will be
elected. Only votes cast for a nominee will be counted. Your
proxy will be voted for the nine nominees unless it contains
contrary instructions. Abstentions, broker non-votes and
instructions on your proxy to withhold authority to vote for one
or more of the nominees will result in those nominees receiving
fewer votes.
Q:	Who is entitled to vote?
A:	Shareholders as of the close of business on
March 18, 2005, (the “Record Date”) are entitled
to vote at the Annual Meeting. As of the Record Date,
36,741,228 shares of CTS common stock were issued and
outstanding. Every shareholder of common stock is entitled to
one vote for each share of common stock held on the Record Date.
Q:	How do I vote?
A:	Please sign and date each proxy card you receive
and return it at your earliest convenience in the prepaid
envelope provided. If you return your signed proxy card but do
not mark the boxes showing how you wish to vote, your shares
will be voted FOR each of the nominees. If you returned your
proxy card, you have the right to revoke your proxy or change
your vote at any time before the meeting by: notifying CTS’
Secretary; returning a later-dated proxy card; or voting in
person at the meeting.

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| Q. | How can I vote shares of stock that I hold
under the CTS Corporation Retirement Savings Plan (the
“401(k) Plan”)? |
| --- | --- |
| A. | JP Morgan Chase Bank, the 401(k) Plan Trustee
(the “Trustee”), will vote the shares in your account
according to your instructions. Follow the same procedures
described above for voting shares. If you return your signed
proxy card but do not mark the boxes showing how you wish to
vote, your shares will be voted FOR each of the nominees. You
may also change your instructions on how to vote your shares in
the manner described above. You may give instructions or change
instructions to the Trustee on how to vote your shares up until
April 28, 2005. On that date, your instructions will be
transmitted to the Trustee and cannot be changed. If you do not
instruct the Trustee on how to vote your shares, the Trustee
will vote your shares in the same proportion as the shares
properly voted by other participants who hold shares under the
401(k) Plan. |
| Q: | What does it mean if I get more than one proxy
card? |
| A: | It means you hold shares registered in more than
one account. Please sign and return all proxy cards you receive
to ensure that all your shares are voted. |
| Q: | Who solicits proxies and how much will this
proxy solicitation cost? |
| A: | Georgeson Shareholder Communications, Inc. was
hired by CTS to solicit votes for $5,500, plus reasonable
expenses. Automatic Data Processing, Inc. also distributes proxy
materials on CTS’ behalf and is reimbursed by CTS for
mailing and distribution expenses. CTS also reimburses banks,
brokers and other custodians, fiduciaries and nominees for their
costs of sending proxy and solicitation materials to its
shareholders. In addition, proxies may be solicited by executive
officers of CTS, for which no additional compensation is paid. |
| Q: | Other members of my household and I hold
shares of CTS stock in street name and we received only one copy
of the proxy statement and annual report. How can we receive
additional copies of these materials? |
| A: | Under the Securities and Exchange
Commission’s “householding” rules, a company or
broker who provides notice may deliver a single copy of the
proxy statement and annual report to shareholders who share an
address unless a shareholder submits contrary instructions. If
you would prefer to receive separate copies of these documents
in the future, you may notify your broker, you may direct a
written or oral request to CTS Corporation, Investor Relations,
905 West Boulevard North, Elkhart, Indiana 46514,
(574) 293-7511 or you may send an e-mail to
shareholder.services@ctscorp.com. If your household is currently
receiving multiple copies of the proxy statement and annual
report to shareholders and you would prefer to receive only a
single copy in the future, you may notify your broker or direct
a request to the address, phone number or e-mail address
immediately above. |
| Q: | How may a shareholder nominate a candidate for
election to the Board at CTS’ Annual Meeting of
Shareholders? |
| A: | Director candidates for 2006 may be nominated by
shareholders by sending a notice to CTS which must be received
no earlier than December 20, 2005, and no later than
February 3, 2006. The notice of nomination is required to
contain certain representations and information about the
nominee, which are described in CTS’ bylaws. Copies of the
bylaws may be obtained free of charge from the CTS Secretary
upon request or from CTS’ Web site at
http://www.ctscorp.com/ governance/bylaws.htm. |
| Q: | When are shareholder proposals for the 2006
Annual Meeting due? |
| A: | All shareholder proposals to be considered for
inclusion in next year’s proxy statement must be submitted
in writing and received by the Secretary of CTS at CTS’
Corporate Office no later than November 29, 2005. In
addition, CTS’ advance notice bylaw provisions require that
in order to be |

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presented from the floor of the 2006 Annual Meeting, any shareholder proposal, including the nomination of a candidate for director, must have been submitted in writing to CTS’ Secretary at CTS’ Corporate Office no earlier than December 20, 2005, and no later than February 3, 2006. Certain information is required to be included with shareholder proposals. This information is described in CTS’ bylaws, which are located on CTS’ Web site at http://www.ctscorp.com/ governance/bylaws.htm. A copy of the bylaws may be obtained free of charge from CTS’ Secretary.

PROPOSAL YOU MAY VOTE ON

ELECTION OF DIRECTORS There are nine nominees for election. Detailed information on each is provided on pages 4, 5 and 6. All directors are elected annually and serve a one-year term.

Your Board recommends a vote FOR each of these director-nominees. link1 "ELECTION OF DIRECTORS"

ELECTION OF DIRECTORS

CTS’ Articles of Incorporation provide that the number of directors will be between three and fifteen, as fixed from time to time by the Board of Directors. The CTS Board of Directors has established the current number of authorized directors at nine. All directors are elected to one-year terms or until their successors are elected and qualified.

Nominees For The Board of Directors. Each of the nominees named below is currently a director of CTS. The ages shown are as of the scheduled date for the 2005 Annual Meeting of Shareholders. Each of the nominees has agreed to serve as a director if elected by the shareholders. If one or more of the nominees unexpectedly becomes unavailable for election, the votes will be cast, pursuant to authority granted by the proxy, for such person or persons as may be designated by the present Board of Directors, or the authorized number of directors may be reduced accordingly.

WALTER S. CATLOW Director since 1999

Age 60

Mr. Catlow served as President of Ameritech Cellular Services, a wireless communications service provider, from 1998 until his retirement in 2000. Mr. Catlow previously served as Executive Vice President of Ameritech and as President of Ameritech International, Inc., where he directed Ameritech’s international investments and was responsible for global acquisitions and alliances. In 2004, Mr. Catlow was a member of the Audit Committee and Chairman of the Compensation Committee of CTS Corporation.

LAWRENCE J. CIANCIA Director since 1990

Age 62

Mr. Ciancia is a partner in Corporate Development International, Inc., a corporate search firm specializing in mergers, acquisitions and divestitures. He has served in this capacity since 1998. Previously, he served as President of Uponor ETI, a supplier of PVC pipe products, specialty chemicals and PVC compounds. In 2004, Mr. Ciancia was a member of the Audit Committee and the Nominating and Governance Committee of CTS Corporation.

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THOMAS G. CODY Director since 1998

Age 63

Mr. Cody has served as Vice Chairman of Federated Department Stores, Inc., a nationwide department store retailer, since February 2003. Prior to assuming this position, he served as Executive Vice President, Legal and Human Resources of Federated Department Stores, Inc. since 1992. Mr. Cody also serves as a director of LCA-Vision, Inc. In 2004, Mr. Cody was a member of the Compensation Committee and Finance Committee of CTS Corporation.

GERALD H. FRIELING, JR. Director since 1982

Age 75

Mr. Frieling has served as President of Frieling & Associates, a business consulting firm, since 1993. Previously, Mr. Frieling served as Chairman of the Board, CEO and Vice Chairman of the Board of Tokheim Corporation, a manufacturer of electronic and mechanical petroleum marketing systems. Mr. Frieling also serves as a director of Superior Metal Products Co., Inc. and Mossberg & Company. In 2004, Mr. Frieling was a member of the Audit Committee and Nominating and Governance Committee of CTS Corporation.

ROGER R. HEMMINGHAUS Director since 2000

Age 68

Mr. Hemminghaus is the retired Chairman and Chief Executive Officer of Ultramar Diamond Shamrock Corporation, a company that refined and marketed petroleum products on a retail and wholesale basis, serving from 1996 until 2000. Mr. Hemminghaus served as Chairman and Chief Executive Officer of Ultramar Diamond Shamrock, Inc. from 1996 until 1999. Mr. Hemminghaus is a past Chairman of the Federal Reserve Bank of Dallas. Mr. Hemminghaus also serves as a Director of Tandy Brand Accessories, Inc. and Xcel Energy, Inc. In 2004, Mr. Hemminghaus was a member of the Compensation Committee and Chairman of the Finance Committee of CTS Corporation.

MICHAEL A. HENNING Director since 2000

Age 65

Mr. Henning served as Deputy Chairman of Ernst & Young LLP from 1999 to 2000. Previously, he served as Chief Executive Officer of Ernst & Young International, Inc. from 1993 until 1999. Mr. Henning also serves as a Director of Omnicom Group, Inc. In 2004, Mr. Henning was a member of the Finance Committee and Chairman of the Audit Committee of CTS Corporation.

ROBERT A. PROFUSEK Director since 1998

Age 55

Mr. Profusek is a partner in Jones Day, a global law firm. Mr. Profusek has been a Jones Day lawyer since 1975, except for May 2000 through August 2002 during which time he served as Executive Vice President of Omnicom Group, Inc., a global communications company. Mr. Profusek also serves as a Director of Valero L.P. In 2004, Mr. Profusek was a member of the Compensation Committee and Chairman of the Nominating and Governance Committee of CTS Corporation.

DONALD K. SCHWANZ Director since 2001

Age 61

Donald K. Schwanz is Chairman of the Board, President and Chief Executive Officer of CTS. Mr. Schwanz was named Chief Executive Officer effective October 1, 2001 and was appointed Chairman of the Board of Directors on January 1, 2002. In January 2001, Mr. Schwanz was elected President and Chief Operating Officer of CTS. Prior to joining CTS in January 2001, he was President of the Industrial Control Business at Honeywell, Inc., an aerospace company, since 1999, and previously was President of Honeywell’s Space and Aviation Business. In 2004, Mr. Schwanz was a member of the Finance Committee.

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PATRICIA K. VINCENT Director since 2003

Age 46

Ms. Vincent is President of Customer and Field Operations, Xcel Energy, Inc., a utility company serving electricity and natural gas customers. She has served in this capacity since July 2003. Prior to assuming this position, she had served as President of the Retail Services Group of Xcel Energy since March 2001, and as Vice President of Marketing and Sales of Xcel Energy from August 2000 to March 2001. Previously, she was Vice President of Marketing and Sales of NCE from January 1999 to August 2000. In 2004, Ms. Vincent was a member of the Compensation Committee and the Nominating and Governance Committee.

Your Board recommends a vote FOR each of these director-nominees. link1 "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE"

SECTION 16(a) BENEFICIAL

OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires CTS’ directors, executive officers and certain persons who beneficially own more than 10% of CTS’ common stock to file with the Securities and Exchange Commission and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of CTS common stock. Executive officers, directors and greater than 10% shareholders are required to furnish CTS with copies of all Section 16(a) reports they file.

CTS Corporation prepares and files Section 16(a) reports on behalf of directors and executive officers. In 2004, however, CTS inadvertently failed to file on time a Form 4 on behalf of George Newhart, an executive officer of the corporation who has subsequently retired. A Form 4 was filed two days following the required two-day reporting period. The Form 4 reported that Mr. Newhart had declined to pay the purchase price for a grant of restricted stock, which would have vested on June 24, 2004, and thereby forfeited his right to the stock.

Based solely on written representations from reporting persons and on our review of Section 16(a) reports provided by those persons, CTS believes that all other required Section 16(a) filings were completed in a timely manner with respect to 2004. link1 "CERTAIN BUSINESS RELATIONSHIPS"

CERTAIN BUSINESS RELATIONSHIPS

Jones Day is a law firm which CTS has retained for specific legal services, on a case-by-case basis, for over ten years. The fees paid by CTS to Jones Day during 2004 were approximately .01% of Jones Day’s gross revenues for 2004. Mr. Profusek, a director standing for re-election, is a partner in Jones Day. Mr. Profusek satisfies the independent director criteria under the New York Stock Exchange Corporate Governance Listing Standards and the CTS Corporation Corporate Governance Guidelines. link1 "COMMITTEES OF THE BOARD"

COMMITTEES OF THE BOARD

Compensation Committee

The Compensation Committee is a standing committee of the Board of Directors. Directors Catlow, Cody, Hemminghaus, Profusek and Vincent are the current members of the Compensation Committee. Each member of the Committee is an independent director as defined by the New York Stock Exchange Corporate Governance Listing Standards and the CTS Corporation Corporate Governance Guidelines. The Committee held six meetings in 2004. A copy of the Compensation

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Committee Charter may be obtained free of charge from the CTS Secretary upon request or from CTS’ Web site at www.ctscorp.com/ governance/ compensationcharter.htm.

The Committee establishes executive compensation policies and reviews and approves senior executive salaries, incentive opportunity levels and employment agreements. The Committee reviews and approves corporate goals and objectives relevant to the CEO’s compensation, evaluates the CEO’s performance against those objectives and makes recommendations to the Board of Directors regarding CEO compensation. The Committee administers the CTS Corporation Management Incentive Plan and the CTS Corporation 2004 Omnibus Long-Term Incentive Plan.

Finance Committee

The Finance Committee is a standing committee of the Board of Directors. Directors Cody, Hemminghaus, Henning and Schwanz are the current members of the Finance Committee. The Committee held four meetings in 2004. A copy of the Finance Committee Charter may be obtained free of charge from the CTS Secretary upon request or from CTS’ Web site at www.ctscorp.com/governance/ financecharter.htm.

The Committee reviews and approves capital project appropriation requests for capital projects that are above certain prescribed limits. The Committee reviews and makes recommendations to the Board of Directors concerning financing arrangements, tax strategies, dividend policy, financial structure and similar matters.

Nominating and Governance Committee

The Nominating and Governance Committee is a standing committee of the Board of Directors. Directors Ciancia, Frieling, Profusek and Vincent are the current members of the Committee. Each member of the Committee is an independent director as defined by the New York Stock Exchange Corporate Governance Listing Standards and the CTS Corporation Corporate Governance Guidelines. The Committee held five meetings in 2004. A copy of the Nominating and Governance Committee Charter may be obtained free of charge from the CTS Secretary upon request or from CTS’ Web site at http://www.ctscorp.com/ governance/ governancecharter.htm.

The Committee reviews and makes recommendations to the Board concerning CTS’ Corporate Governance Guidelines and matters of corporate governance. The Committee recommends candidates for membership on the Board. CTS’ bylaws describe the process for nominating a candidate for election to the Board of Directors at the Annual Meeting of Shareholders. CTS’ bylaws are located on CTS’ Web site at www.ctscorp.com/ governance/ bylaws.htm. A copy of the bylaws may be obtained free of charge from the CTS Secretary. CTS does not have a formal policy concerning whether the Committee will consider director candidates recommended by shareholders. CTS did not receive any requests for the Committee to consider any director candidate. At this time, the Board of Directors does not believe a formal policy is necessary, because CTS’ bylaws provide a process for nomination of directors and no shareholder nominations for director have been received. The Committee will continue to monitor developments in this area and consider whether to adopt a formal policy on shareholder recommendation of director-nominees.

The Committee reviews with the Board, on an annual basis, the requisite skills and director characteristics of new Board members as well as the composition of the Board as a whole. This review includes an assessment of whether each non-management director qualifies as independent and consideration of the diversity, age, skills and experience of the directors in the context of the needs of the Board. Although the Committee has not established any specific minimum criteria or qualifications that a candidate must possess, the Committee seeks candidates who possess the experience necessary to make a valuable contribution to the Board. The Committee may retain search firms for the purpose of identifying and evaluating director candidates, but does not currently have any firm on

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retainer. The Committee considers director candidates identified by management and by non-management directors.

Audit Committee

The Audit Committee is a standing committee of the Board of Directors. Directors Catlow, Ciancia, Frieling and Henning are the current members of the Audit Committee. Each member of the Committee is financially literate and meets the independence standards applicable to audit committee members under the New York Stock Exchange Corporate Governance Listing Standards, as well as the CTS Corporation Corporate Governance Guidelines and the Audit Committee Charter. Mr. Henning qualifies as an audit committee financial expert under the criteria set forth in Item 401(h) of Regulation S-K. The Audit Committee held ten meetings in 2004. A copy of the Audit Committee Charter may be obtained free of charge from the CTS Secretary upon request or from CTS’ Web site at www.ctscorp.com/governance/auditcharter.htm.

The Audit Committee is responsible for appointing the independent auditor, approving engagement fees and all non-audit engagements, and reviewing the independence and quality of the auditor. The Committee reviews audit plans, audit reports and recommendations of the independent auditor and internal audit department. The Committee reviews systems of internal accounting controls and audit results. The Committee reviews and discusses with management CTS’ financial statements, earnings press releases and earnings guidance. The Committee also reviews CTS’ compliance with legal requirements and the CTS Code of Ethics. link1 "FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS"

FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS

During 2004, the Board of Directors had seven meetings. In 2004, all of the directors attended all or substantially all of the meetings of the Board of Directors and the committees of which they were members and all satisfied the 75% attendance threshold specified in Securities and Exchange Commission rules. It is the policy of the Board of Directors that each director endeavor to attend the annual meeting of shareholders, unless exigent circumstances arise. Eight of the nine directors standing for re-election at the 2004 Annual Meeting attended the meeting.

The Board of Directors has determined that each non-management director is an independent director and has no material relationship with CTS, apart from his or her service as a director. The independent directors are Walter S. Catlow, Lawrence J. Ciancia, Thomas G. Cody, Gerald H. Frieling, Jr., Roger R. Hemminghaus, Michael A. Henning, Robert A. Profusek, and Patricia K. Vincent. The Board of Directors made this determination by reference to the definition of an independent director contained in the New York Stock Exchange Corporate Governance Listing Standards and by reference to the standards set forth in the CTS Corporation Corporate Governance Guidelines. The CTS Corporation Corporate Governance Guidelines provide that an independent director is one who:

| • | Is not an employee of the corporation and has not
been an employee of the corporation for at least five years; |
| --- | --- |
| • | Is not an employee or affiliate of the
corporation’s present auditing firm or an auditing firm
retained by the corporation within the past five years and has
not been an employee or affiliate of such a firm for at least
five years; |
| • | Is not an employee of a company on whose board an
executive of the corporation presently serves as a director or
has served as a director within the past five years and has not
been an employee of such a company for at least five years; |
| • | Is not an employee of a company that accounts for
at least 2% or $1 million, whichever is greater, of the
corporation’s consolidated gross revenues, and has not been
an employee of such a company for at least five years; |

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| • | Is not an employee of any company for which the
corporation accounted for at least 2% or $1 million,
whichever is greater, of the company’s consolidated gross
revenues; and has not been an employee of such a company for at
least five years; |
| --- | --- |
| • | Is not an employee or director of any company
that invests in or trades CTS stock or that advises investors
concerning CTS stock; |
| • | Does not presently receive any direct or material
indirect compensation from the corporation other than the
standard director’s compensation package; |
| • | Has not received more than $100,000 per year in
direct compensation from the company, excluding the standard
director’s compensation package, during the past five years; |
| • | Does not have any other relationship with the
corporation or any other entity, including charitable and civic
organizations that in the opinion of the Board could be
considered to effect the director’s ability to exercise his
independent judgment as a director; |
| • | Is not an immediate family member of any
individual who would fail to meet the criteria for independence
set forth above. |

A copy of the Corporate Governance Guidelines may be obtained free of charge from the CTS Secretary upon request or from CTS’ Web site at http://www.ctscorp.com/governance/guidelines.htm.

The CTS Corporate Governance Guidelines encourage all directors to participate in director continuing education programs. The corporation reimburses directors for attendance at such programs. In addition, management monitors and reports to the directors regarding significant corporate governance initiatives. The directors also receive a presentation on new developments in corporate governance no less frequently than annually.

The Board of Directors has adopted CTS stock ownership guidelines that apply to non-employee directors and executives in order to align their interests with those of shareholders and promote enduring shareholder value. The guidelines are administered by the Compensation Committee. A copy of the guidelines may be obtained free of charge from CTS’ Secretary upon request.

CTS has adopted a Code of Ethics that applies to all of its employees, including its principal executive officer, principal financial officer and principal accounting officer or controller. A copy of CTS Code of Ethics may be obtained free of charge from the CTS Secretary upon request or from CTS’ Web site at www.ctscorp.com/governance/code of ethics.htm.

It is the policy of the Board of Directors to hold an executive session of non-management directors at each regular scheduled Board of Directors meeting. Chairmanship of the executive sessions is rotated among all non-management directors on an alphabetical basis.

Shareholders may address written communications to individual directors, including non-management directors, or to the Board of Directors as a whole, in care of the CTS Secretary at CTS’ Corporate Office, 905 West Boulevard North, Elkhart, Indiana, 46514. Such communications must include the name and address of the shareholder, as they appear on the record books of CTS and the name and address of the beneficial owner, if any, on whose behalf the communication is submitted. The Secretary will compile such communications and forward them to the directors on a periodic basis. However, the Secretary has authority to disregard any communication which is primarily an advertisement or solicitation or which is threatening, obscene or similarly inappropriate in nature. Communications that have been disregarded for these reasons may be reviewed by any non-management director upon request.

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link1 "DIRECTOR COMPENSATION"

DIRECTOR COMPENSATION

Employee directors receive no additional compensation for serving on the Board of Directors or Board Committees. Non-employee directors receive the following fees for their service on the Board: annual board retainer — $24,000; annual retainer for each Audit Committee member — $4,000; annual retainer for each Finance, Nominating and Governance and Compensation Committee Member — $2,500; additional annual retainer for Audit Committee Chairman — $4,000; additional annual retainer for Compensation Committee Chairman — $3,000; additional annual retainer for Finance and Nominating and Governance Chairman — $2,000; meeting fee for each Board or Committee Meeting — $1,500. Effective in 2003, the Board adopted a policy providing that all committee meetings, including special meetings called by the committee chairman, are compensated at the regular meeting fee rate. Special activity by the committee chairman, as well as any special activity by another committee member that is requested or approved by the committee chairman, is also compensated at the regular meeting fee rate. Non-employee directors are reimbursed by the corporation for reasonable travel expenses related to their performance of services and for director education programs.

In 1990, CTS adopted the CTS Corporation Stock Retirement Plan for Non-Employee Directors. Under that plan, a deferred stock unit account was established for each non-employee director. Through January 2004, 800 common stock units and additional units representing dividends on CTS common stock paid were credited annually to each non-employee director’s account. When a non-employee director retires from the Board, he or she receives one share of CTS common stock for each deferred stock unit credited to his or her account. On December 1, 2004, the Board of Directors amended the plan to preclude crediting any additional units to the deferred stock unit accounts. On December 1, 2004, each non-employee director received a grant of restricted stock units under the CTS Corporation 2004 Omnibus Long-term Incentive Plan equivalent to the number of deferred stock units which would have been credited to the director for 2004 service under the Stock Retirement Plan for Non-Employee Directors. Under the terms of this award, each non-employee director will receive one share of CTS common stock for each restricted stock unit upon retirement from the Board.

In 2002, the Board established a $30,000 annual stock-based compensation target for each non-employee director. Through 2004, this target was achieved by calculating the value of the 800 common stock units to be credited under the CTS Corporation Stock Retirement Plan for Non-Employee Directors based on the closing price of CTS common stock on the New York Stock Exchange on the credit date. If the calculated value of the common stock units was less than $30,000, each non-employee director received a stock option award sufficient to make up the difference between that value and $30,000, based on the closing price of CTS common stock on the New York Stock Exchange on the credit date. For 2005, the stock-based compensation target was achieved by awarding each non-employee director 2,300 restricted stock units under the CTS Corporation 2004 Omnibus Long-term Incentive Plan. The awards were granted on December 1, 2004 and became distributable on January 11, 2005 absent a deferral election by the non-employee director. Upon distribution, one share of CTS common stock for each restricted stock unit is transferred to the non-employee director.

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link1 "STOCK OWNERSHIP INFORMATION"

STOCK OWNERSHIP INFORMATION

Five Percent Owners of Common Stock. The table below lists information about the persons known by CTS to beneficially own at least 5% of CTS’ common stock as of March 18, 2005. This information is derived solely from the most recent Schedules 13D and 13G and Form 13F-HR filed by these persons with the Securities and Exchange Commission.

Name and Address — FMR(1)	3,415,000	9.3%
82 Devonshire Street
Boston, MA 02109
Gabelli Funds LLC(2)	3,445,947	9.4%
One Corporate Center
Rye, New York 10580-1435
Dimensional Fund Advisors, Inc.(3)	2,750,650	7.5%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Barclays Global Investors, N.A. et al.(4)	2,102,160	5.7%
45 Fremont Street
San Francisco, CA 94105
Columbia Wanger
Asset Management L.P. et al.(5)	1,862,000	5.1%
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606

| (1) | As reported in the Form 13F-HR filed
February 14, 2005. |
| --- | --- |
| (2) | As reported in the Schedule 13D/A filed
June 8, 2004, Gabelli Funds LLC has sole power to vote and
dispose of 454,600 shares; GAMC Investors, Inc. has sole
power to vote 2,639,947 shares and sole power to dispose of
2,919,847 shares; Gabelli Advisers, Inc. has sole power to
vote and dispose of 25,000 shares; Gabelli Securities, Inc.
has sole power to vote and dispose of 10,000 shares; and
MJG Associates, Inc. has sole power to vote and dispose of
36,500 shares. |
| (3) | As reported in the Schedule 13G filed
February 9, 2005, Dimensional Fund Advisors, Inc. has sole
voting power and sole dispositive power over the shares. |
| (4) | As reported in the Schedule 13G filed
February 14, 2005, Barclays Global Fund Advisors has
sole power to vote and dispose of 924,163 shares and
Barclays Global Investors, N.A. has sole power to vote 963,842
and sole power to dispose of 1,177,997 shares. |
| (5) | As reported in the Schedule 13G filed
February 14, 2005, Columbia Wanger Asset Management, L.P.
has shared power to vote and shared power to dispose of the
shares. |

Directors’ and Officers’ Stock Ownership. The following table shows how much CTS common stock each Named Executive Officer, as identified in footnote 1 to the Summary Compensation Table set forth under “Executive Compensation,” and each director-nominee beneficially owned as of March 18, 2005, including shares covered by stock options exercisable within 60 days of March 18, 2005. Please note that, as reported in this table, beneficial ownership includes those shares a director or officer has the power to vote or transfer, as well as shares owned by immediate family members that reside in the same household with the director or officer. The shares shown as beneficially owned by James L. Cummins and all current directors and officers as a group do not include 1,458,900 shares held by the Northern Trust Company as Trustee of the CTS Corporation Employee Benefit Plans Master Trust. The CTS Corporation Employee Benefit Plan Investment Committee has voting and investment

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authority over those shares. Mr. Cummins and another executive officer are members of that committee.

			Shares
			Held in
		Options	401(k)	Directors’
	Shares	Exercisable	Plan as of	Deferred		% of
	Beneficially	Within	December 31,	Common		Shares
Name	Owned	60 Days	2004	Stock Units	Total	Outstanding
Walter S. Catlow	5,139(1)	6,400	0	4,098	15,637	*
Lawrence J. Ciancia	6,256(1)	6,400	0	16,365	29,021	*
Thomas G. Cody	4,145(1)	6,400	0	4,722	15,267	*
James L. Cummins	77,899(2)	20,700	890	0	99,489	*
Richard G. Cutter	8,500	18,700	536	0	27,736	*
Gerald H. Frieling, Jr.	9,283(1)	6,400	0	19,020	34,703	*
Roger R. Hemminghaus	7,132(1)	6,400	0	3,267	16,799	*
Michael A. Henning	4,131(1)	6,400	0	3,267	13,798	*
Vinod M. Khilnani	20,300	32,600	1,561	0	54,461	*
Robert A. Profusek	5,945(1)(3)	6,400	0	4,722	17,067	*
Donald R. Schroeder	61,158	28,100	40,618	0	129,876	*
Donald K. Schwanz	23,000	133,000	0	0	156,000	*
Patricia K. Vincent	3,107(1)	800	0	800	4,707	*
All Current Directors and Officers as a Group (16
persons)	262,695	326,550	58,550	56,261	704,056	1.9 %

• Less than 1%.

| (1) | Includes restricted stock units that are
distributable upon the director’s separation from service
and convert on a one-to-one basis to shares of CTS common stock
upon distribution. |
| --- | --- |
| (2) | Includes 1,800 shares held by
Mr. Cummins’ sons and 1,840 shares held by
Mr. Cummins’ spouse in the 401(k) plan.
Mr. Cummins disclaims any beneficial interest with respect
to these shares. |
| (3) | Includes 1,800 shares held by
Mr. Profusek’s daughter. Mr. Profusek disclaims
any beneficial interest with respect to these shares. |

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link1 "EXECUTIVE COMPENSATION"

EXECUTIVE COMPENSATION

Summary Compensation Table

		Annual				Long-Term
		Compensation				Compensation
						Restricted	Securities
				Other Annual		Stock	Underlying	All Other
		Salary	Bonus	Compensation		Award(s)(2)(3)	Options	Compensation(4)
Name and Principal Position(1)	Year	($)	($)	($)		($)	(#)	($)
Donald K. Schwanz	2004	$ 693,477	$ 658,905	$ 56,312(5	)	$ 452,640	37,000	$ 13,524
Chairman, President	2003	$ 651,538	$ 534,947	$ 80,386(6	)	$ 97,800	72,000	$ 10,902
and Chief Executive Officer	2002	$ 630,000	$ 0	$ 15,880(5	)	$ 61,600	60,000	$ 4,902
Vinod M. Khilnani	2004	$ 306,585	$ 201,670	$ 46,880(5	)	$ 198,720	17,500	$ 6,000
Senior Vice President and	2003	$ 286,846	$ 163,049	$ 22,500(5	)	$ 90,360	20,000	$ 6,000
Chief Financial Officer	2002	$ 262,498	$ 0	$ 11,360(5	)	$ 46,200	15,000	$ 5,423
Donald R. Schroeder	2004	$ 284,423	$ 153,513	$ 34,580(5	)	$ 215,280	10,500	$ 10,056
Executive Vice President	2003	$ 272,269	$ 77,367	$ 12,509(5	)	$ 58,680	18,000	$ 10,902
and Chief Technology Officer	2002	$ 257,500	$ 0	$ —		$ 41,696	15,000	$ 8,622
James L. Cummins	2004	$ 220,508	$ 145,049	$ 30,024(5	)	$ 143,520	7,200	$ 7,710
Senior Vice President	2003	$ 210,486	$ 119,645	$ 10,199(5	)	$ 48,900	14,500	$ 7,710
Administration	2002	$ 204,636	$ 0	$ 25,774(7	)	$ 33,996	12,000	$ 7,445
Richard G. Cutter	2004	$ 216,346	$ 126,499	$ 19,811(5	)	$ 132,480	7,200	$ 4,902
Vice President, General	2003	$ 206,240	$ 104,206	$ 5,775(5	)	$ 56,200	14,500	$ 4,902
Counsel and Secretary	2002	$ 195,340	$ 0	$ —		$ 19,250	8,000	$ 6,441

| (1) | The persons named in this table are referred to
as the Named Executive Officers. |
| --- | --- |
| (2) | The amounts shown in this column for 2004 reflect
grants of the following numbers of restricted stock units:
Donald K. Schwanz, 41,000 restricted stock units;
Vinod M. Khilnani, 18,000 restricted stock units;
Donald R. Schroeder, 3,500 restricted stock units and
16,000 restricted stock units; James L. Cummins, 13,000
restricted stock units and Richard G. Cutter, 12,000
restricted stock units. Each of these restricted stock unit
awards vests in installments of 20% per year beginning on the
first anniversary of the grant with the exception of
Mr. Schroeder’s award of 3,500 restricted stock units,
which will vest in its entirety eighteen months from the grant
date. Upon vesting, one share of CTS common stock for each
restricted stock unit is transferred to the grantee. The grantee
does not receive dividends on restricted stock units. At
December 31, 2004, no portion of the restricted stock unit
awards described above had vested, and the net values of those
restricted stock units were as follows: Donald K. Schwanz,
$544,890; Vinod M. Khilnani, $239,220; Donald R.
Schroeder, $259,155; James L. Cummins, $172,770 and
Richard G. Cutter, $159,480. |
| (3) | The amounts shown in this column for 2003 reflect
grants of the following numbers of shares: Donald K.
Schwanz, 10,000 shares; Vinod M. Khilnani,
3,000 shares and 7,000 shares; Donald R.
Schroeder, 6,000 shares; James L. Cummins,
5,000 shares and Richard G. Cutter, 1,000 shares
and 5,000 shares. The amounts shown in this column for 2002
reflect grants of the following numbers of shares:
Donald K. Schwanz, 8,000 shares; Vinod M.
Khilnani, 6,000 shares; Donald R. Schroeder,
5,415 shares; James L. Cummins, 4,415 shares and
Richard G. Cutter, 2,500 shares. Restricted stock
awards vest in installments of 20% per year beginning on the
first anniversary of the grant. Dividends are paid on restricted
stock at the same rate applicable to unrestricted shares. At
December 31, 2004, the number and net value of restricted
shares held by Named Executive Officers on which transfer
restrictions had not lapsed were as follows: Donald K.
Schwanz, 14,800, $196,692; Vinod M. Khilnani, 13,200,
$175,428; Donald R. Schroeder 8,049, $106,971;
James L. Cummins 6,649, $88,365 and Richard G. Cutter,
6,300, $83,727. |
| (4) | The components of this column for 2004 are as
follows: Donald K. Schwanz, $6,000 CTS match under 401(k)
Plan, $7,524 imputed income on term life insurance; Vinod M.
Khilnani, $6,000 CTS match under 401(k) Plan;
Donald R. Schroeder, $6,000 CTS match under
401(k) Plan, $4,056 |

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| | imputed income on term life insurance;
James L. Cummins, $6,000 CTS match under 401(k) Plan,
$1,710 imputed income on term life insurance and Richard G.
Cutter, $4,902 imputed income on term life insurance. |
| --- | --- |
| (5) | Reflects cash payments in connection with the
lapse of transfer restrictions on restricted shares. |
| (6) | Includes $18,756 which represents the difference
between the CTS book value and the Kelly Blue Book private party
value of the vehicle Mr. Schwanz purchased from CTS, a
perquisite allowance of $15,600 and cash payment in connection
with the lapse of transfer restrictions on restricted shares
of $26,130. |
| (7) | Includes $8,790, which represents the difference
between the CTS book value and the Kelly Blue Book private party
value of the vehicle that Mr. Cummins purchased from CTS
and a perquisite allowance of $10,350. |

Employment Agreement With Donald K. Schwanz. Mr. Schwanz has an employment agreement with CTS which provides that for five years beginning on October 1, 2001 (the “Term”), Mr. Schwanz will be employed by CTS as President and Chief Executive Officer, at an initial annual salary of $630,000. During the Term of the agreement, if Mr. Schwanz’s employment is terminated as a result of his death or disability, for good reason (as defined in the agreement) or by CTS without cause (as defined in the agreement), Mr. Schwanz will receive severance benefits equal to his then current annual salary for the remainder of the Term, plus an annual bonus for each year remaining in the Term equal to the largest cash and stock bonus that he received for any year during the Term, but no less than $330,000. In addition, if Mr. Schwanz’s employment is terminated by Mr. Schwanz for good reason or by CTS without cause, Mr. Schwanz may instead receive a lump sum equal to 3 1/3 times the sum of his then current annual salary and the largest cash and stock bonus that he received for any year during the Term, but no less than $330,000. Any payments to Mr. Schwanz upon a change in control are increased to compensate Mr. Schwanz for any excise tax payable by him pursuant to Section 280G of the Internal Revenue Code of 1986, as amended. The payments and benefits to Mr. Schwanz under his employment agreement are reduced automatically by any corresponding payments or benefits under his severance agreement described below.

Mr. Schwanz’s employment agreement also provides for an enhanced pension benefit under which for every year of service he accrues after June 30, 2002, an extra year will be credited to him for pension calculation purposes.

Change in Control Severance Agreements. Each of the Named Executive Officers has executed a severance agreement with CTS, which becomes operative only upon a change in control of CTS. The term of each agreement is automatically extended each January 1 unless notice is given otherwise. Severance benefits are provided if within three years of a change in control, a covered executive terminates his employment for good reason (as defined in the agreement) or his employment is terminated for any reason other than cause (as defined in the agreement), disability or death. Severance benefits include: (i) a lump sum equal to three times the sum of the greater of base salary at the time of the change in control or average base salary over the three years prior to termination plus the greater of average incentive pay over the three years prior to the change in control or target incentive pay for the year in which the change in control occurred; (ii) continued participation for 36 months following termination in welfare benefit plans and similar benefit programs; (iii) 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 remained employed; (iv) a lump sum payment ($105,000 for Mr. Schwanz and $67,500 for the other Named Executive Officers) in lieu of any perquisites the executive would otherwise have been provided; (v) outplacement services; (vi) reimbursement of legal, tax and estate planning expense related to the severance agreement; (vii) reimbursement of relocation expenses incurred during the 36 month period following termination; (viii) a lump sum payment equal to target incentive pay for the year in which the termination occurs, prorated based on actual service during the year; and (ix) accelerated vesting, exercise rights and

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lapse of restrictions on equity based compensation awards. In addition, if any payments made to a covered executive are subject to excise tax under Section 4999 of the Internal Revenue Code, CTS will make an additional payment to put the executive in the same after-tax position as if no excise tax had been imposed.

link1 "STOCK OPTIONS"

STOCK OPTIONS

The following table reflects information about stock options awarded to the Named Executive Officers in 2004. These stock options are exercisable in four substantially equal annual installments commencing on June 9, 2005, in accordance with the terms set forth in the stock option agreements. Upon termination of employment due to death or total and permanent disability, the option would continue to vest on its schedule and would be exercisable for one year following the termination date. Upon termination of employment due to qualified retirement (as defined in the stock option agreements), the option would continue to vest on its schedule and would be exercisable for one year following the date on which the final installment becomes exercisable. Upon termination of employment for any other reason, the option would be exercisable within the three month period following the termination date, but only to the extent vested as of the termination date.

Option Grants in Last Fiscal Year

					Potential Realizable
					Value at Assumed
					Annual Rates
Individual Grants					Of Stock Price
					Appreciation for
	Number of	% of Total			Option Term (1)
	Securities	Options
	Underlying	Granted to	Exercise
	Options	Employees	Price	Expiration
Name	Granted	In 2004	($)/Share	Date	5%	10%
Donald K. Schwanz	37,000	34.7%	$ 11.04	6-8-2014	$ 256,891	$ 651,012
Vinod M. Khilnani	17,500	16.4%	$ 11.04	6-8-2014	$ 121,502	$ 307,911
Donald R. Schroeder	10,500	9.8%	$ 11.04	6-8-2014	$ 72,901	$ 184,747
James L. Cummins	7,200	6.8%	$ 11.04	6-8-2014	$ 49,990	$ 126,683
Richard G. Cutter	7,200	6.8%	$ 11.04	6-8-2014	$ 49,990	$ 126,683

(1) Potential realizable value is determined by assuming an initial value equal to the option price per share, the market closing price for CTS common stock on the date of grant, and applying the stated annual appreciation rate compounded annually for the remaining term of the option, subtracting the exercise price and multiplying the remainder by the number of shares subject to options granted. Actual gains, if any, on stock option exercises are dependent on the future performance of the common stock and overall stock market conditions.

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link1 "AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES"

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR

AND FISCAL YEAR-END OPTION VALUES

			Number of		Value of
			Securities Underlying		Unexercised
	Shares		Unexercised Options		In-the-Money Options
	Acquired	Value	at Fiscal Year-End (#)		at Fiscal Year-End ($)
	On Exercise	Realized
Name	(#)	($)	Exercisable	Unexercisable	Exercisable	Unexercisable
Donald K. Schwanz	0	0	112,500	241,500	$ 230,880	$ 440,490
Vinod M. Khilnani	0	0	27,600	44,900	$ 60,084	$ 133,391
Donald R. Schroeder	0	0	25,100	34,400	$ 58,279	$ 112,376
James L. Cummins	0	0	18,700	26,000	$ 46,527	$ 87,648
Richard G. Cutter	0	0	16,700	24,000	$ 35,347	$ 76,468

link1 "PENSION PLAN"

PENSION PLAN

The following table shows the estimated annualized retirement benefits payable to a covered participant in the CTS Corporation Pension Plan (the “Plan”) who is a salaried employee. The benefit formula is calculated as 1.25% of average monthly pay during the highest three calendar years of a participant’s last ten calendar years of service, multiplied by a participant’s credited service to arrive at the annualized benefit below.

Pension Plan Table

	Years of Service
Annual
Compensation	15	20	25	30	35
$ 200,000	$ 37,500	$ 50,000	$ 62,500	$ 75,000	$ 87,500
$ 300,000	$ 56,250	$ 75,000	$ 93,750	$ 112,500	$ 131,250
$ 400,000	$ 75,000	$ 100,000	$ 125,000	$ 150,000	$ 175,000
$ 600,000	$ 112,500	$ 150,000	$ 187,500	$ 225,000	$ 262,500
$ 800,000	$ 150,000	$ 200,000	$ 250,000	$ 300,000	$ 350,000
$ 1,000,000	$ 187,500	$ 250,000	$ 312,500	$ 375,000	$ 437,500
$ 1,200,000	$ 225,000	$ 300,000	$ 375,000	$ 450,000	$ 525,000
$ 1,400,000	$ 262,500	$ 350,000	$ 437,500	$ 525,000	$ 612,500

Covered compensation is essentially equal to the salary and bonus columns in the Summary Compensation Table, together with the cash payments received in connection with the lapse of transfer restrictions on restricted shares as described in footnote (3) to the Summary Compensation Table. These benefits are not subject to any deduction for social security or other offsets. The years of service credited to the Named Executive Officers as of December 31, 2004 are: Donald K. Schwanz — 4.56 years; Vinod M. Khilnani — 3.78 years; Donald R. Schroeder — 32.44 years; James L. Cummins — 27.78 years; and Richard G. Cutter — 5.56 years.

Section 415 of the Internal Revenue Code of 1986, as amended (the “Code”), generally places a limit of $165,000 on the amount of annual pension benefits that may be paid from the Plan. Section 401(a)(17) of the Code limits the amount of annual compensation that may be taken into account in calculating a benefit under the Plan to $205,000. The Plan includes a supplemental benefit for named participants that allows for payment of benefit amounts, to the extent permitted by the Code in excess of the benefit amounts that would be permitted by those provisions. Each of the Named Executive Officers also participates in an unfunded supplemental retirement plan adopted in 2003 that provides that the participant will receive a benefit equal to the difference between his actual benefit

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under the Plan and the benefit that would have been payable under the Plan without regard to these limits, and, with the exception of Mr. Schwanz, the participant’s benefit is enhanced by increasing the percentage of compensation included in the benefit formula by .1% for each full year of participation in the unfunded plan to a maximum of 1.75% of average monthly pay during the highest three calendar years of a participant’s last ten calendar years of service. As described on page 14 under the heading “Employment Agreement with Donald K. Schwanz”, the unfunded supplemental retirement plan may be used to pay enhanced retirement benefits in special situations.

link1 "REPORT OF THE AUDIT COMMITTEE"

REPORT OF THE AUDIT COMMITTEE

The Audit Committee acts pursuant to its written charter adopted by the Board of Directors, a copy of which was attached as Appendix A to the proxy statement for the 2003 Annual Meeting of Shareholders. All members of the Audit Committee are financially literate and independent as defined in the New York Stock Exchange Corporate Governance Listing Standards.

The Audit Committee has reviewed and discussed with CTS management and PricewaterhouseCoopers LLP (“PwC”), CTS’ independent auditor, the audited consolidated financial statements of the Company for 2004; has discussed with PwC the matters required to be discussed by Statement on Auditing Standards No. 61; has received from the independent auditor the written disclosures and letter required by Independence Standards Board Standard No. 1; and has discussed with the independent auditor the auditor’s independence. Based on the review and discussions described above, the Audit Committee recommended to the Board of Directors that the financial statements be included in CTS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2004, for filing with the Securities and Exchange Commission.

CTS CORPORATION 2004 AUDIT COMMITTEE

Michael A. Henning, Chairman	Walter S. Catlow
Lawrence J. Ciancia	Gerald H. Frieling, Jr.

link1 "INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM"

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PwC is CTS’ independent registered public accounting firm. PwC representatives will attend the Annual Meeting to be available to respond to appropriate questions by shareholders and to have the opportunity to make statements, if they desire.

The following table presents fees for professional audit services and other services provided by PwC to CTS for the years ended December 31, 2003 and December 31, 2004. The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the independent registered public accounting firm. The Audit Committee annually reviews audit and non-audit services proposed to be rendered by PwC during the fiscal year. The Audit Committee has delegated authority to the Audit Committee Chairman to grant pre-approval of services by the independent registered public accounting firm, provided that the Chairman reports on any such pre-approval decisions at the next scheduled meeting of the Audit Committee. None of the services rendered by PwC were approved by the Audit Committee after the services were rendered pursuant to the de minimis exception established under the rules of the Securities and Exchange Commission.

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	Audit Fees(1)	Audit-Related — Fees(2)	Tax Fees(3)	All Other — Fees(4)
2003	$ 665,000	$ 97,200	$ 496,868	$ 78,172
2004	$ 1,239,000	$ 68,511	$ 217,038	$ 2,559

| (1) | For 2004, Audit Fees consist of $498,000 billed
for services related to compliance with Sarbanes-Oxley
Section 404 and $741,000 for audit services. For 2003,
Audit Fees consist of $665,000 billed for audit services. |
| --- | --- |
| (2) | For 2004, Audit-Related Fees consist of $68,511
for services related to PwC’s audit of CTS’ employee
benefit plans. For 2003, Audit-Related fees consist of $9,200
billed for services related to compliance with Sarbanes-Oxley
Section 404 and $88,000 related to PwC’s audit of
CTS’ employee benefits plans. |
| (3) | Tax Fees consist of fees for domestic and
international tax services such as tax compliance, tax planning
and tax advice. For 2003 and 2004, these include fees for
services related to the reorganization of CTS’ subsidiary
structure, services related to tax returns and applications for
determination of plan qualification status, and advice regarding
transfer pricing and other tax issues. |
| (4) | All Other Fees consist of fees for routine,
permissible non-audit services that the Audit Committee has
determined do not impair the independence of the auditor. For
2003, these include fees for services related to CTS’
qualified supplemental executive retirement plan and fees for
research services. For 2004, these include fees for research
related services. |

link1 "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION"

COMPENSATION COMMITTEE INTERLOCKS

AND INSIDER PARTICIPATION

Directors Catlow, Cody, Hemminghaus, Profusek and Vincent served as members of the Compensation Committee during 2004. Mr. Profusek is a partner in Jones Day, a law firm which CTS has retained for specific legal services on a case-by-case basis for over ten years. During 2004, no executive officer of CTS served as a director of any other entity for which any CTS director was an executive officer. Each member of the Compensation Committee is an independent director under the New York Stock Exchange Corporate Governance Listing Standards and the CTS Corporation Corporate Governance Guidelines. link1 "REPORT OF THE COMPENSATION COMMITTEE"

REPORT OF THE COMPENSATION COMMITTEE

The Committee’s Responsibilities: The Compensation Committee of the Board has responsibility for setting and administering CTS’ executive compensation policies. The Committee is composed entirely of independent directors. Reports of the Committee’s actions and decisions are presented to the full Board. The purpose of this report is to summarize the principles, specific program objectives and other factors considered by the Committee in reaching its determinations regarding executive compensation.

Compensation Philosophy: The Committee has implemented executive compensation programs which are intended to:

| • | Encourage strong financial and operational
performance of CTS; |
| --- | --- |
| • | Link compensation to the interests of
shareholders; |
| • | Emphasize performance-based compensation; and |
| • | Provide a competitive level of total compensation
necessary to attract and retain talented and experienced
executives. |

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Compensation Methodology: The Committee believes that CTS’ executive compensation programs reflect this philosophy and provide executives with strong incentives to maximize CTS’ performance and enhance shareholder value. The executive compensation programs consist of both annual and long-term components and include performance-based and equity-based components. Historically, the Committee has reviewed market data and assesses CTS’ competitive position in the area of executive compensation. CTS also retains independent compensation and benefits consultants to assist in evaluating executive compensation programs. The Committee uses an independent consultant to provide additional assurance that CTS’ executive compensation programs are reasonable and appropriate.

Components of Compensation:

| • | Base Salary: Annual base salary is designed to
compensate CTS executives for their qualifications,
responsibilities and performance. The Committee’s objective
is to compensate executives at approximately the fiftieth
percentile of base salaries paid for similar positions at
similarly situated companies. |
| --- | --- |
| • | Annual Incentives: CTS has maintained an annual
management incentive plan for a number of years that provides
cash compensation incentives based on the financial performance
of CTS. The Committee establishes the performance measures and
approves the payouts under the plan for each executive officer.
Under the 2004 Management Incentive Plan, the committee
established specific financial objectives based on CTS’
sales, CTS’ earnings per share (“EPS”) and/or the
contribution to EPS of specific business units. For 2004, CTS
achieved the established sales and EPS targets and certain
business units achieved their established contribution to EPS
targets. Each of the executive officers qualified for a bonus
under the terms of the 2004 Management Incentive Plan. |
| • | Long-Term, Stock-Based Compensation: CTS
historically used two forms of long-term, stock-based
incentives, restricted stock grants and stock options, under
shareholder-approved plans. In 2004, CTS introduced a new form
of equity compensation, restricted stock unit grants, under the
shareholder-approved CTS Corporation Omnibus Long-term Incentive
Plan. The Committee believes that stock ownership and
stock-based compensation are valuable tools for motivating
employees to improve the long-term performance of CTS. The
Committee also believes that they are the best way to tie a
significant amount of an executive’s potential income to
enhanced shareholder value. CTS’ stock compensation plans
have change of control provisions under which, upon a change of
control of CTS, benefits thereunder accelerate and vest
immediately. |

The Committee has generally awarded stock options that provide for a purchase price equal to market value of the stock on the date of the grant and which vest over a four-year period. During 2004, the Committee granted options for a total of 79,400 shares to the Named Executive Officers, as described in the chart entitled “Option Grants in Last Fiscal Year” on page 15 of this proxy statement. In 2004, the Committee began using awards of restricted stock units in place of restricted stock. These awards distribute to the recipient one share of CTS common stock for each unit upon vesting. Most of these awards vest in installments over five years. To recognize significant individual contributions, the Committee may grant individual awards using alternative vesting schedules or distribution options. In 2004, the Committee granted a total of 103,500 restricted stock units to Named Executive Officers, as described in the “Summary Compensation Table” on page 13 of this proxy statement. The Committee has followed the recent debate concerning the equity-linked compensation practices of publicly-traded companies and intends to continue to focus on developments in this area.

Compensation for the Chief Executive Officer (“CEO”): The Committee annually reviews and makes recommendations to the Board of Directors regarding the CEO’s compensation. Using surveys and other available compensation data, the Committee strives to establish a base salary range for the

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CEO with a midpoint approximately equal to the fiftieth percentile of CEO base salaries paid by other comparable corporations. In September 2001, Donald K. Schwanz entered into an employment agreement to serve as Chief Executive Officer of CTS, the terms of which are summarized on page 14 of this proxy statement. At that time, use of CEO comparative compensation data supplied by Towers Perrin led to the establishment of Mr. Schwanz’s base salary at $630,000. The Board annually reviews Mr. Schwanz’s base salary. In 2002, the Board made no adjustment to Mr. Schwanz’s base salary. The Board increased Mr. Schwanz’s annual base salary to $670,000 in 2003 and to $713,600 in 2004. CTS’ annual management incentive plan provides cash bonuses based on the financial performance of CTS. Mr. Schwanz received a bonus of $658,905 for fiscal year 2004 under the 2004 Management Incentive Plan. In determining long-term, stock-based compensation, the Committee considers CTS’ financial performance and relative shareholder return, the value of similar awards to CEOs at comparable companies and the awards given to the CEO in past years. In 2004, Mr. Schwanz received stock options on 37,000 shares and a grant of 41,000 restricted stock units.

Deductibility of Certain Executive Compensation: Federal income tax law caps at $1,000,000 the deductible compensation per year for each of the Named Executive Officers in the proxy statement, subject to certain exceptions. In developing and implementing executive compensation policies and programs, the Compensation Committee considers whether particular payments and awards are deductible for federal income tax purposes, along with other relevant factors. Consistent with this policy, the Committee has taken what it believes to be appropriate steps to maximize the deductibility of executive compensation. While it is the general intention of the Committee to meet the requirements for deductibility, the Committee may approve payment of non-deductible compensation from time to time if circumstances warrant. The Committee will continue to review and monitor its policy with respect to the deductibility of compensation.

CTS CORPORATION 2004 COMPENSATION COMMITTEE

Walter S. Catlow, Chairman	Thomas G. Cody
Roger R. Hemminghaus	Robert A. Profusek
Patricia K. Vincent

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link1 "STOCK PERFORMANCE GRAPH"

STOCK PERFORMANCE GRAPH

Comparison of Five-Year Cumulative Return

The following graph compares the cumulative total shareholder return on CTS common stock with the Standard & Poor’s 500 Stock Index and the Standard & Poor’s 500 Information Technology Stock Index for the years 2000 through 2004. The graph assumes that $100 was invested on December 31, 1999 in each of CTS common stock, the S&P 500 Stock Index and the S&P 500 Information Technology Stock Index.

		INDEXED RETURNS
	Base	Years Ending
	Period
Company/Index	1999	2000	2001	2002	2003	2004
CTS CORP	$ 100	$ 48.47	$ 21.29	$ 10.53	$ 15.83	$ 18.47
S&P 500 INDEX	$ 100	$ 90.90	$ 80.09	$ 62.39	$ 80.29	$ 89.03
S&P 500 INFORMATION TECHNOLOGY	$ 100	$ 59.10	$ 43.81	$ 27.42	$ 40.37	$ 41.40

2004 Annual Report on Form 10-K

Upon receipt of the written request of a CTS shareholder owning shares of common stock on the Record Date addressed to Richard G. Cutter, Secretary of CTS Corporation, 905 West Boulevard North, Elkhart, Indiana 46514, CTS will provide to such shareholder, without charge, a copy of its 2004 Annual Report on Form 10-K, including the financial statements and financial statement schedule. The report is also available on CTS’ Web site at www.ctscorp.com.

By Order of the Board of Directors,
●
Richard G. Cutter
Secretary

Elkhart, Indiana

March 29, 2005

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YOUR VOTE IS IMPORTANT

Regardless of whether you plan to attend the Annual Meeting of Shareholders, you can be sure your shares are represented at the meeting by promptly returning your proxy in the enclosed envelope.

ê Please fold and detach card at perforation before mailing. ê

CTS Corporation Proxy/Voting Instruction Card

This Proxy, when properly executed, will be voted in the manner directed herein. If not otherwise marked, this Proxy will be voted FOR the election of all nominees listed below.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL NOMINEES LISTED BELOW.

1. ELECTION OF DIRECTORS

Nominees:	(02) L. J. Ciancia	(03) T. G. Cody	(04) G. H. Frieling, Jr.
(05) R. R. Hemminghaus	(06) M. A. Henning	(07) R. A. Profusek	(08) D. K. Schwanz
(09) P. K. Vincent

q
To withhold authority to vote for any individual nominee, write that nominee’s name or number below:

1. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting, or any adjournment thereof.

IMPORTANT — THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE

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CTS CORPORATION c/o National City Bank Corporate Trust Operations Locator 5352 P. O. Box 92301 Cleveland, OH 44101-4301

Proxy must be signed and dated below. ê Please fold and detach card at perforation before mailing. ê

CTS Corporation Proxy/Voting Instruction Card

This proxy is solicited on behalf of the Board of Directors for the Annual Meeting of Shareholders on May 4, 2005.

The undersigned, having received the Notice of Annual Meeting of Shareholders and the Proxy Statement hereby appoints Donald K. Schwanz and Richard G. Cutter as proxies, each with the power to appoint his or her substitute, and hereby authorizes them to represent and to vote, as designated on the reverse, all shares of Common Stock of CTS Corporation held of record by the undersigned on March 18, 2005, at the Annual Meeting of Shareholders originally convened on May 4, 2005 and at any adjournment thereof.

| Signature |
| --- |
| Signature If Held Jointly |
| Date: , 2005 |
| Please sign exactly as shown hereon. When shares are held by joint tenants,
both must sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If partnership,
please sign in partnership name by authorized person. |