-----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, Dt2oI4LsHGdSvk+p9BOe0ROqYgzm2iB2jZ2z2cQvQ+QzLB5ItexTUQu0m91LVWaP 92pFdMUj+KFpv6wqaNDd3A== 0000026058-02-000013.txt : 20020422 0000026058-02-000013.hdr.sgml : 20020422 ACCESSION NUMBER: 0000026058-02-000013 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 ITEM INFORMATION: Other events FILED AS OF DATE: 20020422 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CTS CORP CENTRAL INDEX KEY: 0000026058 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 350225010 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04639 FILM NUMBER: 02616420 BUSINESS ADDRESS: STREET 1: 905 W BLVD N CITY: ELKHART STATE: IN ZIP: 46514 BUSINESS PHONE: 2192937511 MAIL ADDRESS: STREET 1: 905 W BLVD NORTH CITY: ELKHART STATE: IN ZIP: 46514 8-K 1 currentreportcover.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported): April 19, 2002 (April 16, 2002) CTS CORPORATION (Exact Name of Registrant as Specified in Its Charter) Indiana 1-4639 35-0225010 (State or Other Jurisdiction (Commission File Numbers) (I.R.S. Employer of Incorporation) Identification No.s) 905 West Boulevard North Elkhart, Indiana 46514 (Address of Principal Executive Offices) (Zip Code) Registrants' Telephone Number, Including Area Code: (574) 293-7511 - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 5. Other Events. On April 16, 2002, CTS Corporation issued $25.0 million aggregate principal amount of 6 1/2% Convertible Subordinated Debentures pursuant to a Securities Purchase Agreement, dated April 15, 2002, among CTS Corporation and the purchasers named therein in a private placement. The debentures, which mature in five years, are unsecured obligations, convertible into CTS common stock at a conversion price of $20.053 per share. The Securities Purchase Agreement provides the purchasers of the debentures a 90-day option to purchase an additional $5.0 million aggregate principal amount of the debentures. At any time after the three-year anniversary of the issue date, the purchasers may accelerate the maturity of the debentures. CTS also has the right, after such three-year anniversary and under certain circumstances, to force conversion of the debentures into CTS common stock. The Securities Purchase Agreement is filed as Exhibit 99.1 hereto, and the form of debenture is filed as Exhibit 99.2 hereto. In connection with the private placement, CTS Corporation granted certain registration rights to the purchasers, as set forth in the Registration Rights Agreement, dated April 16, 2002, among CTS Corporation and the purchasers. The Registration Rights Agreement is filed as Exhibit 99.3 hereto. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Business Acquired. Not applicable. (b) Pro Forma Financial Information. Not applicable. (c) Exhibits. The following exhibits are filed with this report: Exhibit No. Exhibit Description 99.1 Securities Purchase Agreement, dated April 15, 2002, among CTS Corporation, Halifax Fund, L.P., DeAm Convertible Arbitrage Fund, Ltd., Palladin Overseas Fund, Ltd., Lancer Securities (Cayman) Ltd., Palladin Partners I, L.P., Steelhead Investments, Ltd. and Ram Trading, Ltd. 99.2 Form of 6 1/2% Convertible Subordinated Debenture 99.3 Registration Rights Agreement, dated April 16, 2002, among CTS Corporation, Halifax Fund, L.P., DeAm Convertible Arbitrage Fund, Ltd., Palladin Overseas Fund, Ltd., Lancer Securities (Cayman) Ltd., Palladin Partners I, L.P., Steelhead Investments, Ltd. and Ram Trading, Ltd. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CTS CORPORATION /s/ Richard G. Cutter ------------------------------------------------- By: Richard G. Cutter Vice President, Secretary and General Counsel Date: April 19, 2002 EXHIBIT INDEX Exhibit No. Exhibit Description 99.1 Securities Purchase Agreement, dated April 15, 2002, among CTS Corporation, Halifax Fund, L.P., DeAm Convertible Arbitrage Fund, Ltd., Palladin Overseas Fund, Ltd., Lancer Securities (Cayman) Ltd., Palladin Partners I, L.P., Steelhead Investments, Ltd. and Ram Trading, Ltd. 99.2 Form of 6 1/2 Convertible Subordinated Debenture 99.3 Registration Rights Agreement, dated April 16, 2002, among CTS Corporation, Halifax Fund, L.P., DeAm Convertible Arbitrage Fund, Ltd., Palladin Overseas Fund, Ltd., Lancer Securities (Cayman) Ltd., Palladin Partners I, L.P., Steelhead Investments, Ltd. and Ram Trading, Ltd. EX-99 3 exbt99-1.txt EXHIBIT 99.1 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of April 15, 2002, by and between CTS CORPORATION, an Indiana corporation (the "Company"), and each of the entities whose names appear on the signature pages hereof. Such entities are each referred to herein as a "Purchaser" and, collectively, as the "Purchasers". The Company wishes to sell to each Purchaser, and each Purchaser wishes to purchase, on the terms and subject to the conditions set forth in this Agreement, a 6 1/2% Convertible Subordinated Debenture in the form attached hereto as Exhibit A (a "Closing Debenture" and, together with each other Closing Debenture issued hereunder, the "Closing Debentures"). In connection with such purchase and sale, the Company has granted to each Purchaser an option to purchase an additional debenture with a conversion price the same as that applicable to, and otherwise with terms substantially identical to those contained in, the Closing Debentures (an "Option Debenture" and, together with each other Option Debenture issued hereunder, the "Option Debentures"). The Closing Debentures and the Option Debentures are collectively referred to herein as the "Debentures". The Debentures are convertible into shares (the "Conversion Shares") of the Company's common stock, without par value (the "Common Stock"). The Debentures and the Conversion Shares are collectively referred to herein as the "Securities". The Company has agreed to effect the registration of the Conversion Shares under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Rights Agreement of even date herewith by and between the Company and each Purchaser (the "Registration Rights Agreement"). The sale of the Debentures by the Company to the Purchasers will be effected in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("Regulation D"), as promulgated by the Securities and Exchange Commission (the "Commission") under the Securities Act. The Company and each Purchaser hereby agree as follows: 1. PURCHASE AND SALE OF DEBENTURES. ------------------------------- 1.1 Purchase of Closing Debentures. Upon the terms and subject to the satisfaction or waiver of the conditions set forth herein, the Company agrees to sell and each Purchaser agrees to purchase a Closing Debenture with a principal amount equal to the amount set forth below such Purchaser's name on the signature pages hereof. The purchase price for the Closing Debenture being purchased by a Purchaser (the "Purchase Price") shall be equal to the principal amount of such Closing Debenture. The aggregate Purchase Price to be paid by all of the Purchasers for the Closing Debentures shall be equal to twenty five million dollars ($25,000,000). The date on which the closing of the purchase and sale of the Closing Debentures occurs (the "Initial Closing") is hereinafter referred to as the "Initial Closing Date". Subject to the satisfaction or waiver of the conditions set forth herein, the Initial Closing will be deemed to occur when (A) this Agreement and the other Transaction Documents (as defined below) have been executed and delivered by the Company and each Purchaser (which delivery may be effected by facsimile transmission), and (B) full payment of each Purchaser's Purchase Price has been made by such Purchaser by wire transfer of immediately available funds against physical delivery by the Company of the duly executed Closing Debenture purchased by such Purchaser at the Initial Closing. 1.2 Purchase of Option Debentures. ----------------------------- (a) Each Purchaser shall have the right to purchase from the Company (the "Purchase Option"), at any time during the period beginning on the Initial Closing Date and ending on the ninetieth (90th) day thereafter (the "Option Period"), an Option Debenture with a principal amount of up to (A) five million dollars ($5,000,000) multiplied by (B) a fraction, the numerator of which is the principal amount of the Closing Debenture purchased by such Purchaser and the denominator of which is the aggregate principal amount of the Closing Debentures purchased by all of the Purchasers. (b) If a Purchaser wishes to exercise the Purchase Option, such Purchaser must deliver a written notice (an "Option Notice") to the Company during the Option Period specifying the principal amount of the Option Debenture that such Purchaser wishes to purchase. In the event that, upon the expiration of the Option Period (or such earlier date on which each of the Purchasers has notified the Company of its intentions regarding the purchase of the Option Debentures), less than all of the Purchasers have exercised the Purchase Option, the Company shall, within two (2) Business Days thereafter provide to each Purchaser which exercised the Purchase Option (the "Remaining Purchasers") a written notice (a "Remaining Debenture Notice") specifying the principal amount of the Option Debentures that remain unpurchased (the "Remaining Debentures"). The Remaining Purchasers may purchase the Remaining Debentures at the Option Closing on a pro rata basis (based on the principal amount of the Option Debenture purchased by each Remaining Purchaser relative to the aggregate principal amount of the Option Debentures purchased by all of the Remaining Purchasers) or in any other manner on which the Remaining Purchasers agree. In order to purchase a Remaining Debenture, a Remaining Purchaser must notify the Company in writing of the number of Remaining Debentures that such Remaining Purchaser wishes to purchase (not to exceed such Remaining Purchaser's pro rata share of the Remaining Debentures) within two (2) Business Days following delivery of the Remaining Debenture Notice. Upon the purchase of a Remaining Debenture by a Remaining Purchaser, the principal amount of such Remaining Debenture will be added to the principal amount of the Option Debenture being purchased by such Remaining Purchaser, and the Company shall not be obligated to issue a separate Remaining Debenture. (c) The date on which the closing (the "Option Closing") of the purchase and sale of the Option Debentures occurs (the "Option Closing Date") shall be the fifth (5th) Business Day following the end of the Option Period, or such other date to which the Company and the Remaining Purchasers agree. A Purchaser may rescind its Option Notice and terminate its purchase of the Option Debenture at any time prior to the Option Closing, for any reason in its sole discretion, without any further obligation or liability on its part with respect to such purchase. The Initial Closing and the Option Closing are together referred to herein as the "Closings" and the Initial Closing Date and the Option Closing Date are together referred to herein as the "Closing Dates". (d) At the Option Closing, (A) each Purchaser shall deliver to the Company, in immediately available funds, the purchase price for the Option Debenture being purchased by such Purchaser, which purchase price shall be equal to the principal amount of such Option Debenture, and (B) the Company shall deliver to such Purchaser (x) such Option Debenture, duly executed by an authorized officer of the Company, (y) an opinion of counsel, dated as of the Option Closing Date, substantially in the form of Exhibit 5.1.5 hereto, and (z) a certificate, signed by the Chief Executive Officer and Chief Financial Officer of the Company, certifying that the representations and warranties of the Company set forth in this Agreement are true and correct in all material respects as of the Option Closing Date as if made on such date and that the Company has complied with or performed in all material respects all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by the Company at or prior to the Option Closing, and acknowledging that such Purchaser may rely on such certificate as though it were a representation and warranty of the Company made herein. 1.3 Certain Definitions. When used herein, the following terms shall have the respective meanings indicated: "Affiliate" means, as to any Person (the "subject Person"), any other Person (a) that directly or indirectly through one or more intermediaries controls or is controlled by, or is under direct or indirect common control with, the subject Person, (b) that directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting equity of the subject Person, or (c) ten percent (10%) or more of the voting equity of which is directly or indirectly beneficially owned or held by the subject Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, through representation on such Person's Board of Directors or other management committee or group, by contract or otherwise. "Agreement" means this Agreement and any and all amendments, modifications, supplements, renewals, extensions or restatements hereof, and all attachments hereto. "Bankruptcy Events" has the meaning specified in Section 6.2(a). "Blockage Notice" has the meaning specified in Section 6.3(a). "Blockage Period" has the meaning specified in Section 6.3(a). "Business Day" means any day on which the New York Stock Exchange and commercial banks in the city of New York are open for business. "Conversion Price" has the meaning specified in the Debentures. "Debt" means as to any Person at any time (without duplication): (a) all indebtedness, liabilities and obligations of such Person for borrowed money; (b) all indebtedness, liabilities and obligations (contingent or otherwise) of such Person to pay the deferred purchase price of Property or services, except trade accounts payable of such Person arising in the ordinary course of business that are not past due by more than ninety (90) days; (c) all capital lease obligations of such Person; (d) all Debt of others guaranteed by such Person; (e) all indebtedness, liabilities and obligations secured by a Lien existing on Property owned by such Person, whether or not the indebtedness, liabilities or obligations secured thereby have been assumed by such Person or are non-recourse to such Person; and (f) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, bankers guarantees, surety or other bonds and similar instruments. "DSSP Plan" means the Company's direct stock purchase plan, as amended from time to time. "Environmental Law" means any federal, state, provincial, local or foreign law, statute, code or ordinance, principle of common law, rule or regulation, as well as any permit, order, decree, judgment or injunction issued, promulgated, approved or entered thereunder, relating to pollution or the protection, cleanup or restoration of the environment or natural resources, or to the public health or safety, or otherwise governing the generation, use, handling, collection, treatment, storage, transportation, recovery, recycling, discharge or disposal of hazardous materials. "Exchange Act" means the Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations thereunder (or respective successors thereto). "GAAP" means generally accepted accounting principles used in the United States, applied on a consistent basis, as set forth in opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the date in question. Accounting principles are applied on a "consistent basis" when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period. "Governmental Authority" means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation any stock exchange, securities market or self-regulatory organization. "Governmental Requirement" means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, license or other directive or requirement of any federal, state, county, municipal, parish, provincial or other Governmental Authority or any department, commission, board, court, agency or any other instrumentality of any of them. "Intellectual Property" means any U.S. or foreign patents, patent applications, trademarks, trade names, service marks, brand names, logos and other trade designations (including unregistered names and marks), trademark and service mark registrations and applications, copyrights and copyright registrations and applications, inventions, invention disclosures, protected formulae, formulations, processes, methods, trade secrets, computer software, computer programs and source codes, manufacturing research and similar technical information, engineering know-how, customer and supplier information, assembly and test data drawings or royalty rights. "Lien" means, with respect to any Property, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, tax lien, financing statement, pledge, charge, or other lien, charge, easement (other than any easement not materially impairing usefulness), encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such Property (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing). "Material Adverse Effect" means an effect that has a material and adverse consequence on (i) the consolidated business, operations, properties, financial condition, prospects or results of operations of the Company and its Subsidiaries taken as a whole or (ii) the ability of the Company to perform its obligations under this Agreement or the other Transaction Documents (as defined below). "Material Contracts" means, as to the Company or any of its Subsidiaries, any supply, purchase, service, employment, tax, indemnity, stockholder or other agreement or contract for which the aggregate amount or value of services performed or to be performed for or by, or funds or other Property transferred or to be transferred to or by, the Company or any such Subsidiary, or by which the Company or any such Subsidiary or any of their respective Properties is otherwise bound and any and all amendments, modifications, supplements, renewals or restatements thereof. "Maturity Date" with respect to a Debenture shall mean the five-year anniversary of the issue date for such Debenture, or such earlier date to which the Maturity Date may be accelerated pursuant to the terms of such Debenture. "NYSE" means the New York Stock Exchange, Inc. "Obligations" means any and all indebtedness, liabilities and obligations of the Company to the Purchaser evidenced by and/or arising pursuant to any of the Transaction Documents (including, without limitation, this Agreement and the Debentures), now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and several, including, without limitation, the obligations of the Company to repay principal of the Debentures, to pay interest on the Debentures (including, without limitation, interest accruing after any, if any, bankruptcy, insolvency, reorganization or other similar filing) and to pay all fees, indemnities, costs and expenses (including attorneys' fees) provided for in the Transaction Documents. "Permitted Liens" means the following: (a) encumbrances consisting of easements, rights-of-way, zoning restrictions or other restrictions on the use of real Property or imperfections to title that do not (individually or in the aggregate) materially impair the ability of the Company or any of its Subsidiaries to use such Property in its businesses, and none of which is violated in any material respect by existing or proposed structures or land use; (b) Liens for taxes, assessments or other governmental charges that are not delinquent or which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject to such Liens, and for which adequate reserves (as determined in accordance with GAAP) have been established; (c) Liens of mechanics, materialmen, warehousemen, carriers, landlords or other similar statutory Liens securing obligations that are not yet due and are incurred in the ordinary course of business or which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject to such Liens, and for which adequate reserves (as determined in accordance with GAAP) have been established; (d) Liens now existing or hereafter established pursuant to the terms of the Senior Credit Agreement ; and (e) other Liens permitted by the terms of the Senior Credit Agreement. "Person" means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity. "Property" means property and/or assets of all kinds, whether real, personal or mixed, tangible or intangible (including, without limitation, all rights relating thereto). "Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Restricted Payment" means (a) any redemption, conversion, exchange, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of the Company or any of its Subsidiaries now or hereafter outstanding; provided, however, that the Company may (i) contribute capital in the form of cash or other assets to any Subsidiary, the voting equity of which (other than qualifying shares) is owned entirely by the Company; (ii) permit any Subsidiary described in the immediately preceding clause (i) to transfer assets to any other such Subsidiary; and (iii) purchase up to an aggregate of two million (2,000,000) shares of Common Stock from its shareholders (such number being subject to adjustment for stock splits, stock dividends and similar events) as long as such purchase is made in compliance with all of the provisions of Rule 10b-18 under the Exchange Act, including without limitation the conditions set forth in paragraph (b) of such Rule, regardless of whether an exemption therefrom may be available to the Company at the time of such purchase; and (b) any payment or prepayment of principal of, premium, if any, or interest on, or any redemption, conversion, exchange, purchase, retirement or defeasance of, or payment with respect to, any Debt other than with respect to the Debentures or the Senior Debt. Notwithstanding the foregoing, "Restricted Payment" shall not include the issuance of securities upon exercise or conversion of the Company's options, warrants or other convertible securities outstanding as of the date hereof and set forth on Schedule 3.5 or the grant of additional options or warrants or the issuance of additional securities, in each such case under any Company stock option or restricted stock plan approved by the Board of Directors of the Company. "Senior Credit Agreement" means that certain Third Amended and Restated Senior Credit Agreement dated as of December 20, 2001 among the Company, the institutions from time to time parties thereto as lenders (the "Senior Lenders") and Bank One, NA, in its capacity as agent for itself and the Senior Lenders, together with its successors and assigns (the "Senior Agent"), including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, or any other "Loan Documents" under and as defined therein, and in each case, as amended, restated, modified, renewed, refunded, replaced, increased or refinanced from time to time by one or more facilities. With respect to replaced or refinanced agreements, the terms used herein shall have the nearest equivalent term, if any, as the definition contained in the Senior Credit Agreement. "Senior Debt" means (a)(i) the outstanding principal balance of all "Obligations" under and pursuant to the Senior Credit Agreement including, without limitation, reimbursement obligations under letters of credit issued pursuant to the Senior Credit Agreement and (ii) all obligations under interest rate or foreign currency hedging or commodity price hedging, swap, cap, collar or similar agreements of the Company to the Senior Agent, any Senior Lender or any of their respective affiliates, whether now existing or hereafter arising (and whether such indebtedness arises or accrues before or after the commencement of any bankruptcy, insolvency or receivership proceedings), including, without limitation, interest and fees accruing pre-petition or post-petition at the rate or rates prescribed in the Senior Credit Agreement and costs, expenses, and legal fees, whenever incurred (and whether or not such claims, interest, costs, expenses or fees are allowed or allowable in any such proceeding); (b) amounts disbursed or advanced (including, without limitation in connection with the provision of any financing or other financial accommodations pursuant to Section 364 of the Bankruptcy Code) by the Senior Lenders which the Senior Lenders, in their discretion, deem necessary or desirable to preserve or protect any "Collateral" (as defined in the Senior Credit Agreement) or to enhance the likelihood or maximize the amount of repayment of the Senior Debt, including, but not limited to, all protective advances, costs, expenses, and attorneys' and paralegals' fees, whensoever made, advanced or incurred by the Senior Lenders in connection with the Senior Debt or the collateral therefor; and (c) any Debt of the Company which by the express terms thereof does not rank junior to the Debentures. "Subordinated Debt" means Debt of the Company which meets each of the following requirements: (a) such Debt is wholly unsecured; and (b) such Debt is contractually subordinated, as to payment, whether upon a Liquidation Event or an Event of Default (as each such term is defined in the Debentures), to the payment in full of the Debentures and the Obligations pursuant to written agreements that are enforceable by any Purchaser against the holder of any such Debt . "Subordinated Debt Documents" means any and all agreements, documents and instruments now or hereafter evidencing or governing the subordination of any Subordinated Debt to the Obligations. "Subsidiary" means, with respect to any Person, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or Persons performing similar functions) of such corporation or entity (irrespective of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries. "Trading Day" shall mean any day on which the Common Stock is purchased and sold on the principal market on which the Common Stock is then listed or traded. "Transaction Documents" means (i) this Agreement, (ii) the Debentures, (iii) the Registration Rights Agreement and (iii) all other agreements, documents and other instruments executed and delivered by or on behalf of the Company or any of its officers at any Closing. "VWAP" on a Trading Day means the volume weighted average price of the Common Stock for such Trading Day as reported by Bloomberg Financial Markets or, if Bloomberg Financial Markets is not then reporting such prices, by a comparable reporting service of national reputation selected by the holders of a majority of the unpaid principal amount of the Debentures and reasonably satisfactory to the Company. 1.4 Other Definitional Provisions. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words "hereof", "herein" and "hereunder" and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. 2. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER. ------------------------------------------------ Each Purchaser hereby makes the following representations and warranties to the Company and agrees with the Company that, as of the date of this Agreement and as of the date of each Closing: 2.1 Authorization; Enforceability. Such Purchaser is duly and validly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization with full power and authority to purchase the Debentures and to execute and deliver this Agreement. This Agreement has been duly authorized, executed and delivered by such Purchaser and constitutes, and the Registration Rights Agreement has been duly authorized and when executed and delivered by such Purchaser will constitute, such Purchaser's valid and legally binding obligation, enforceable in accordance with its terms, except as such enforcement may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors' rights generally and (ii) general principles of equity. 2.2 No Conflicts. The execution, delivery and performance by such Purchaser of the Transaction Documents, and the consummation by such Purchaser of the transactions contemplated hereby and thereby do not and will not (i) result in a violation of such Purchaser's organizational documents, (ii) materially conflict with any agreement, indenture or instrument to which such Purchaser is a party, or (iii) result in a material violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Purchaser. Such Purchaser is not required to obtain any consent or authorization of any governmental agency in order for it to perform its obligations under any of the Transaction Documents. 2.3 Accredited Investor. Such Purchaser is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D, and is acquiring the Debentures solely for its own account as a principal and not with a present view to, and has no arrangement with any Person with respect to, the public resale or distribution of all or any part thereof, except pursuant to sales that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act; provided, however that in making such representation, such Purchaser does not agree to hold the Securities for any minimum or specific term and reserves the right to sell, transfer or otherwise dispose of the Securities at any time in accordance with the provisions of this Agreement and with Federal and state securities laws applicable to such sale, transfer or disposition. 2.4 Information. Such Purchaser has such knowledge and experience in financial and business matters in general and investments in particular that it is able to evaluate the merits and risks of an investment in the Debentures and to protect its own interests in connection with such investments. The Company has provided such Purchaser with information that such Purchaser considers necessary or appropriate regarding the business, operations and financial condition of the Company, and has granted to such Purchaser the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the Company and materials relating to the terms and conditions of the purchase and sale of the Debentures hereunder. Neither such information nor any other investigation conducted by such Purchaser or any of its representatives shall modify, amend or otherwise affect such Purchaser's right to rely on the Company's representations and warranties contained in this Agreement. 2.5 Not an Affiliate or Related Person. Such Purchaser is not (i) an officer, director of "affiliate" (as that term is defined in Rule 405 of the Act) of the Company or (ii) a "Related Party" of the Company, or any subsidiary, affiliate or other closely-related person of a "Related Party" of the Company, or a company or entity in which a "Related Party" of the Company has a substantial direct or indirect interest within the meaning of the rules of the NYSE. 2.6 Limitations on Disposition. Such Purchaser understands that there is no public trading market for the Debentures, that none is expected to develop, and that the Debentures must be held indefinitely unless such Debentures are converted or the obligations thereunder are paid in full. Such Purchaser acknowledges that, except as provided in the Registration Rights Agreement, the Securities have not been and are not being registered under the Securities Act and may not be transferred or resold without registration under the Securities Act or unless pursuant to an exemption therefrom. 2.7 Sales of Common Stock. (a) During the period sixty (60) days prior to the date of this Agreement, such Purchaser has not engaged in any short sales or hedging of any kind in anticipation of the transactions contemplated by this Agreement, and (b) during the term of this Agreement, such Purchaser will make all sales and other dispositions, including short sales, of the Common Stock in compliance with all applicable Federal and state securities laws. 2.8 Legend. Such Purchaser understands that the certificates representing the Securities may bear at issuance a restrictive legend in substantially the following form: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state, and may not be offered or sold unless a registration statement under the Securities Act and applicable state securities laws shall have become effective with regard thereto, or an exemption from registration under the Securities Act and applicable state securities laws is available in connection with such offer or sale." Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or transfer (including without limitation a pledge) of any of the Securities is registered pursuant to an effective registration statement, (B) such Securities have been sold pursuant to Rule 144 under the Securities Act or any successor provision ("Rule 144"), and such Purchaser provides the Company with customary seller's and broker's representation letters, or (C) such Securities are eligible for resale under Rule 144(k) or any successor provision, such Securities shall be issued without any legend or other restrictive language and, with respect to Securities upon which such legend is stamped, the Company shall issue new certificates without such legend to the holder upon request. 2.9 Reliance on Exemptions. Such Purchaser understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations and warranties of such Purchaser set forth in this Section 2 in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes the following representations and warranties to each Purchaser and agrees with each Purchaser that, as of the date of this Agreement and as of the date of each Closing: 3.1 Organization, Good Standing and Qualification. Each of the Company and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to carry on its business as now conducted. Each of the Company and its Subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify has had or would reasonably be expected to have a Material Adverse Effect. 3.2 Authorization; Consents. The Company has the requisite corporate power and authority to enter into and perform its obligations under the Transaction Documents, to issue and sell the Debentures to the Purchasers in accordance with the terms hereof and to issue the Conversion Shares upon conversion of the Debentures. Except as described on Schedule 3.2, all corporate action on the part of the Company by its officers, directors and stockholders necessary for the authorization, execution and delivery of, and the performance by the Company of its obligations under, the Transaction Documents has been obtained, and, based in part upon the representations of each Purchaser in this Agreement, no further consent or authorization of the Company, its Board of Directors, its stockholders, any governmental agency or organization (other than such approval as may be required under the Securities Act and applicable state securities laws in respect of the Registration Rights Agreement), or any other person or entity is required (pursuant to any rule of the NYSE or otherwise). The Company's Board of Directors has determined, at a duly convened meeting, that the issuance and sale of the Securities, and the consummation of the transactions contemplated hereby and by the other Transaction Documents (including without limitation the issuance of Conversion Shares in accordance with the terms of the Debentures), are in the best interests of the Company. 3.3 Enforcement. This Agreement constitutes, and the Registration Rights Agreement, when executed and delivered by the Company will constitute, the valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as such enforcement may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors' rights generally and (ii) general principles of equity. 3.4 Disclosure Documents; Agreements; Financial Statements; Other Information. The Company has filed with the Commission: (i) the Company's Annual Report on Form 10-K for the year ended December 31, 2001, (ii) all Current Reports on Form 8-K required to be filed with the Commission since December 31, 2001 and (iii) the Company's definitive Proxy Statement for its 2001 Annual Meeting of Stockholders (collectively, the "Disclosure Documents"). The Company is not aware of any event occurring on or prior to the date of such Closing (other than the transactions effected hereby) that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after such Closing. Each Disclosure Document, as of the date of the filing thereof with the Commission, conformed in all material respects to the requirements of the Exchange Act, and the rules and regulations thereunder and, as of the date of such filing, such Disclosure Document did not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All material agreements required to be filed as exhibits to the Disclosure Documents have been filed as required. Except as set forth in the Disclosure Documents or any schedule or exhibit attached hereto, the Company has no liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business which, under generally accepted accounting principles, are not required to be reflected in such financial statements and which, individually or in the aggregate, are not material to the consolidated business or financial condition of the Company and its Subsidiaries taken as a whole. As of their respective dates, the financial statements of the Company included in the Disclosure Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied at the times and during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments). 3.5 Capitalization; Debt Schedule. The capitalization of the Company as of the date hereof, including its authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company's stock option plans, the number of shares issuable and reserved for issuance pursuant to securities (other than the Debentures) exercisable for, or convertible into or exchangeable for any shares of Common Stock and the number of shares initially to be reserved for issuance upon conversion of the Debentures is set forth on Schedule 3.5 hereto. All of such outstanding shares of capital stock have been, or upon issuance will be, validly issued, fully paid and non-assessable. No shares of the capital stock of the Company are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances created by or through the Company. Except as disclosed on Schedule 3.5, or as contemplated herein, there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries. Schedule 3.5 sets forth a description of all outstanding Debt of the Company. 3.6 Due Authorization; Valid Issuance. The Debentures are duly authorized and, when issued, sold and delivered in accordance with the terms hereof, (a) will constitute the valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as such enforcement may be limited by (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors' rights generally, and (ii) general principles of equity and (b) based in part upon the representations of each Purchaser in this Agreement, will be issued, sold and delivered in compliance with all applicable Federal and state securities laws. The Conversion Shares are duly authorized and reserved for issuance and, when issued in accordance with the terms of the Debentures, will be duly and validly issued, fully paid and nonassessable, free and clear of any Liens imposed by or through the Company. 3.7 No Conflict with Other Instruments. Neither the Company nor any of its Subsidiaries is in violation of any provisions of its charter, Bylaws or any other governing document or in default (and no event has occurred which, with notice or lapse of time or both, would constitute a default) under any provision of any instrument or contract to which it is a party or by which it is bound, or of any provision of any Governmental Requirement applicable to the Company, which has had or would reasonably be expected to have a Material Adverse Effect. The (i) execution, delivery and performance of this Agreement and the other Transaction Documents and (ii) consummation of the transactions contemplated hereby and thereby (including without limitation the issuance of the Debentures, the payment of any amounts due thereunder (subject to the provisions of Section 6 hereof) and the reservation for issuance and issuance of the Conversion Shares) will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument or contract (including without limitation the Senior Credit Agreement) or an event which results in the creation of any Lien upon any assets of the Company or of any of its Subsidiaries or the triggering of any preemptive or anti-dilution rights (including without limitation pursuant to any "reset" or similar provisions) or rights of first refusal or first offer, or any other rights that would allow or permit the holders of the Company's securities to purchase shares of Common Stock or other securities of the Company (whether pursuant to a "poison pill" provision or otherwise), on the part of holders of the Company's securities. 3.8 Financial Condition; Taxes; Litigation. 3.8.1 The Company's financial condition is, in all material respects, as described in the Disclosure Documents, except for changes in the ordinary course of business and normal year-end adjustments that are not, in the aggregate, materially adverse to the consolidated business or financial condition of the Company and its Subsidiaries taken as a whole. Except as otherwise described in the Disclosure Documents, there has been no material adverse change to the Company's business, operations, properties, financial condition, prospects or results of operations since the date of the Company's most recent audited financial statements contained in the Disclosure Documents. 3.8.2 The Company and each of its Subsidiaries has filed all tax returns required to be filed by it and paid all taxes which are due, except for taxes which it reasonably disputes or which has not had or would not reasonably be expected to have a Material Adverse Effect. 3.8.3 Neither the Company nor any of its Subsidiaries is the subject of any pending or, to the Company's knowledge, threatened inquiry, investigation or administrative or legal proceeding by the Internal Revenue Service, the taxing authorities of any state or local jurisdiction, the Commission or any state securities commission or other governmental or regulatory entity which has had or would reasonably be expected to have a Material Adverse Effect. 3.8.4 Except as described in the Disclosure Documents, there is no claim, litigation or administrative proceeding pending, or, to the Company's knowledge, threatened or contemplated, against the Company or any of its Subsidiaries, or against any officer, director or employee of the Company or any such Subsidiary in connection with such person's employment therewith which has had or would reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which has had or would reasonably be expected to have a Material Adverse Effect. 3.9 Reporting Company; Form S-3. The Company is subject to the reporting requirements of the Exchange Act, has a class of securities registered under Section 12 of the Exchange Act, and has filed all reports required to be filed thereby since December 31, 2000. The Company is eligible to register the Conversion Shares for resale by each Purchaser on a registration statement on Form S-3 under the Securities Act. There exist no facts or circumstances known to the Company (including without limitation any required approvals or waivers of any circumstances that may delay or prevent the obtaining of accountant's consents) that could reasonably be expected to prohibit or delay the preparation and filing of a registration statement on Form S-3 that will be available for the resale of all Conversion Shares by each Purchaser. 3.10 Listing on the NYSE. The Common Stock is listed on the NYSE and no suspension or restriction on the trading of the Common Stock on the NYSE exists or, to the Company's knowledge, is threatened or contemplated. The Company meets the continuing eligibility requirements for listing on the NYSE and has not received any notice from the NYSE that it may not currently satisfy such requirements or that such continued listing is in any way threatened. 3.11 Acknowledgement of Dilution. The Company acknowledges that the issuance of the Conversion Shares upon conversion of the Debentures may result in dilution of the outstanding shares of Common Stock. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Debentures is unconditional and absolute regardless of the effect of any such dilution. 3.12 Intellectual Property. The Company and its Subsidiaries each owns or possesses all Intellectual Property that is necessary or appropriate for the operation of its businesses as presently conducted and as proposed to be conducted, without any known conflict with the rights of others except where such failure to own or possess or conflict has not had and would not reasonably be expected to have a Material Adverse Effect. The consummation of the transactions contemplated by this Agreement and the other Transaction Documents will not alter or impair, individually or in the aggregate, any of such rights of the Company other than any alteration or impairment which would not reasonably be expected to have a Material Adverse Effect. To the Company's knowledge, none of its planned or current products or services infringes upon any Intellectual Property of any other Person, and no claim or litigation is pending or, to the knowledge of the Company, threatened against the Company contesting its right to sell or otherwise use any product or material or service which has had or would reasonably be expected to have a Material Adverse Effect. There is no violation by the Company of any right of the Company with respect to any material Intellectual Property owned or used by the Company except any violation which has not had and would not reasonably be expected to have a Material Adverse Effect. The Company's rights to such Intellectual Property are valid and enforceable and no registration relating thereto has lapsed, expired or terminated or is the subject of any claim or proceeding that could result in any such lapse, expiration or termination which has had or would reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries each has complied in all material respects with its obligations pursuant to any agreement relating to the Intellectual Property Rights that are the subject of licenses granted by third parties except for any non-compliance which has not had and would not reasonably be expected to have a Material Adverse Effect. 3.13 Registration Rights; Rights of Participation. (A) the Company has not granted or agreed to grant to any person or entity any rights (including "piggy-back" registration rights) to have any securities of the Company registered with the Commission or any other governmental authority which has not been satisfied and (B) no person or entity, including, but not limited to, current or former stockholders of the Company, underwriters, brokers, agents or other third parties, has any right of first refusal, preemptive right, right of participation, anti-dilutive right or any similar right to participate in, or to receive securities of the Company or other consideration as a result of, the transactions contemplated by this Agreement or the other Transaction Documents. 3.14 Solicitation; Other Issuances of Securities. Neither the Company nor any of its Subsidiaries or Affiliates, nor any person acting on its or their behalf, (i) has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities, (ii) has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under any circumstances that would require registration of the Securities under the Securities Act or (iii) based in part on the representations of each Purchaser in this Agreement, has issued any shares of Common Stock or shares of any series of preferred stock or other securities or instruments convertible into, exchangeable for or otherwise entitling the holder thereof to acquire shares of Common Stock which would be integrated with the sale of the Securities to the Purchaser or the issuance of the Conversion Shares for purposes of the Securities Act or of any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of the NYSE, nor will the Company or any of its Subsidiaries or Affiliates take any action or steps (other than as required by the terms of the Registration Rights Agreement) that would require registration of any of the Securities under the Securities Act or cause the offering of the Securities to be so integrated with other offerings. 3.15 Fees. Except for the fees owed by the Company to Granite Financial, the Company is not obligated to pay any compensation or other fee, cost or related expenditure to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby. The Company will indemnify and hold harmless the Purchaser from and against any claim by any person or entity alleging that the Purchaser is obligated to pay any such compensation, fee, cost or related expenditure in connection with the transactions contemplated hereby. 3.16 Foreign Corrupt Practices. To the knowledge of the Company, neither the Company, nor any of its Subsidiaries nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary, has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee, or (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. 3.17 Environment. Except as disclosed in the Disclosure Documents (i) there is no environmental liability, nor factors likely to give rise to any environmental liability, affecting any of the properties of the Company or any of its Subsidiaries that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect and (ii) neither the Company nor any of the Subsidiaries has violated any Environmental Law applicable to it now or previously in effect, other than such violations or infringements that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect. 3.18 Disclosure. No written statement, information, report, representation or warranty made by the Company in any Transaction Document or furnished to such Purchaser by or on behalf of the Company in connection with (i) the Transaction Documents, (ii) any transaction contemplated hereby or thereby, or (iii) such Purchaser's due diligence investigation of the Company contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein, in light of the circumstances in which made, not misleading. There is no fact known to the Company which has had a Material Adverse Effect, and there is no fact known to the Company which could reasonably be expected to have a Material Adverse Effect except as may have been disclosed in writing to such Purchaser. The Company has not disclosed to such Purchaser any event, circumstance or fact that would constitute material non-public information as of the date of this Agreement. 3.19 Property. The Company and its Subsidiaries have good and marketable title to all real Property and good and marketable title to all personal Property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all Liens, except for Permitted Liens. Any Property held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made or proposed to be made of such Property by the Company and its Subsidiaries. 3.20 Regulatory Permits. The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses except where the failure to possess such certificates, authorizations and permits has not had and would not reasonably be expected to have a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit that, if determined adversely to the Company, would reasonably be expected to have a Material Adverse Effect. 4. COVENANTS OF THE COMPANY AND THE PURCHASERS. ------------------------------------------- 4.1 The Company agrees with each Purchaser that it will, following each Closing: (a) file a Form D with respect to the Securities issued at such Closing as required under Regulation D and to provide a copy thereof to such Purchaser promptly after such filing; (b) take such action as the Company reasonably determines upon the advice of counsel is necessary to qualify the Debentures issued at such Closing for sale under applicable state or "blue-sky" laws or obtain an exemption therefrom, and shall provide evidence of any such action to such Purchaser at such Purchaser's request; and (c) (A) with respect to the Initial Closing, (i) issue a press release describing the transactions contemplated by this Agreement and the other Transaction Documents on or before the Business Day following the Initial Closing Date and (ii) file with the Commission a Form 8-K describing the terms of the transactions contemplated by this Agreement and the other Transaction Documents, with this Agreement and all exhibits attached to such Form 8-K as an exhibit thereto, on or before the third (3rd) Business Day following the Initial Closing Date in the form required by the Exchange Act and B) with respect to the Option Closing, issue a press release announcing the issuance of the Option Debentures on or before the Business Day following the Option Closing Date. 4.2 The Company agrees that it will, as long as the Purchaser or any Affiliate of the Purchaser beneficially owns any Securities: (a) maintain its corporate existence in good standing; (b) maintain, keep and preserve all of its Properties necessary in the proper conduct of its businesses in good repair, working order and condition (ordinary wear and tear excepted) and make all necessary repairs, renewals and replacements and improvements thereto, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; (c) pay or discharge before becoming delinquent (a) all taxes, levies, assessments and governmental charges imposed on it or its income or profits or any of its Property and (b) all lawful claims for labor, material and supplies, which, if unpaid, might become a Lien upon any of its Property, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; provided, however, that the Company shall not be required to pay or discharge any tax, levy, assessment or governmental charge, or claim for labor, material or supplies, whose amount, applicability or validity is being contested in good faith by appropriate proceedings being diligently pursued and for which adequate reserves have been established under GAAP; (d) comply with all Governmental Requirements applicable to the operation of its business, except for instances of noncompliance that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; (e) comply with all agreements, documents and instruments binding on it or affecting its Properties or business, including, without limitation, all Material Contracts, except for instances of noncompliance that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; and (f) timely file with the Commission all reports required to be filed pursuant to the Exchange Act and, during the two year period beginning on the date of this Agreement, refrain from terminating its status as an issuer required by the Exchange Act to file reports thereunder even if the Exchange Act or the rules or regulations thereunder would permit such termination. 4.3 Reservation of Common Stock. The Company shall, at all times that the Debentures are outstanding, have authorized and reserved for issuance, free from any preemptive rights, a number of shares of Common Stock equal to one hundred percent (100%) of the maximum number of shares of Common Stock issuable upon conversion of the outstanding Debentures in full at the Conversion Price then in effect (the "Reserved Amount"). The Company shall not reduce the number of shares reserved for issuance hereunder without the written consent of the holders of two-thirds of the aggregate principal amount of the Debentures then outstanding, unless, immediately following such reduction, the Reserved Amount shall represent at least one hundred percent (100%) of the maximum number of shares of Common Stock issuable upon conversion of the outstanding Debentures in full at the Conversion Price then in effect. The initial Reserved Amount shall be allocated pro rata among the Purchasers based on the principal amount of the Debentures issued to each Purchaser at the Initial Closing. Any increase in the Reserved Amount shall be allocated pro rata among the Holders based on the principal amount of the Debentures held by such Holder at the time of such increase. In the event that a Holder shall sell or otherwise transfer any of such Holder's Debentures, each transferee shall be allocated a pro rata portion of such transferor's Reserved Amount. Any portion of the Reserved Amount which remains allocated to any person or entity which does not hold any Debentures shall be reallocated to the remaining Holders pro rata based on the principal amount of the Debentures then held by such Holders. 4.4 Use of Proceeds. The Company shall use the proceeds from the sale of the Debentures to prepay Senior Debt arising under the Senior Credit Agreement, solely net of amounts permitted to be deducted from such proceeds pursuant to the Senior Credit Agreement for the purposes specified therein. 4.5 Restricted Payments. As long as any Obligations are outstanding, the Company will not, nor will it permit any Subsidiary of the Company to, make any Restricted Payments, except that: (a) the Company may make regularly scheduled payments of principal and interest accrued on any Subordinated Debt if and to the extent (but only if and to the extent) (i) permitted by the express terms of the Subordinated Debt Documents governing such Subordinated Debt, (ii) an Event of Default (as defined in the Debentures), or an event which with the lapse of time or giving of notice or both would constitute an Event of Default, has not occurred and is continuing, and (iii) such payment would not result in, or reasonably be expected to result in, an Event of Default; and (b) Subsidiaries of the Company may make Restricted Payments to the Company. 4.6 Transactions with Affiliates. The Company agrees that neither it nor any of its Subsidiaries will enter into, become a party to, or become liable in respect of, any contract or undertaking with any Affiliate except in the ordinary course of business and on terms not less favorable to the Company or such Subsidiary, as the case may be, than those which could be obtained if such contract or undertaking were an arms' length transaction with a person or entity other than an Affiliate. 4.7 Listing on NYSE. The Company shall (i) on or before the Initial Closing Date, submit such listing applications and take such action as may be necessary to list all of the Conversion Shares that may be issued by the Company (or such surviving entity) under the Debentures on the NYSE, and provide each Purchaser with reasonable evidence thereof and (ii) use its commercially reasonable efforts to maintain the listing of the Common Stock on the NYSE until the earlier to occur of (x) the date on which no Purchaser holds any Debentures or Registrable Securities (as defined in the Registration Rights Agreement) and (y) the fifth (5th anniversary of the Initial Closing Date. 4.8 Management Restrictions. During the period beginning on the date of this Agreement and ending on the ninetieth (90th) day following such date, no executive officer of the Company may, directly or indirectly, sell, transfer or otherwise dispose of (whether through the writing or purchase of options, futures or derivative instruments), or publicly announce (whether through the filing of a notice or otherwise) such individual's intention to dispose of, any Common Stock held or beneficially owned by such individual. 4.9 Use of Purchaser Name. Except as may be required by applicable law, the Company shall not use, directly or indirectly, any Purchaser's name or the name of any of its affiliates in any advertisement, announcement, press release or other similar communication unless it has received the prior written consent of any Purchaser for the specific use contemplated or as otherwise required by applicable law or regulation. 4.10 Company's Instructions to Transfer Agent. On or prior to the Initial Closing Date, the Company shall execute and deliver irrevocable written instructions to the transfer agent for its Common Stock (the "Transfer Agent"), and provide each Purchaser with a copy thereof, directing the Transfer Agent to issue certificates representing Conversion Shares upon conversion of the Debentures and receipt of a valid Conversion Notice (as defined in the Debentures) from a Purchaser, in the amount specified in such Conversion Notice, in the name of such Purchaser or its nominee, and to deliver such certificates to such Purchaser no later than the close of business on the third (3rd) business day following the related Conversion Date (as defined in the Debentures). Such certificates shall bear a restrictive legend to the extent and in the form required by the terms of this Agreement. As long as the Company shall instruct the transfer agent that, in lieu of delivering physical certificates representing shares of Common Stock to a Purchaser upon conversion of the Debentures, and as long as the Transfer Agent is a participant in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and such Purchaser has not informed the Company that it wishes to receive physical certificates therefor, and as long as this Agreement does not then require a restrictive legend to be placed on such shares, the transfer agent may effect delivery of Conversion Shares by crediting the account of such Purchaser or its nominee at DTC for the number of shares for which delivery is required hereunder within the time frame specified above for delivery of certificates. The Company represents to and agrees with each Purchaser that it will not give any instruction to the Transfer Agent that will conflict with the foregoing instruction or otherwise restrict such Purchaser's right to convert the Debentures or to receive Conversion Shares in accordance with the terms of the Debentures. In the event that the Company's relationship with the Transfer Agent should be terminated for any reason, the Company shall use its best efforts to cause the Transfer Agent to continue acting as transfer agent pursuant to the terms hereof until such time that a successor transfer agent is appointed by the Company and receives the instructions described above. 4.11 Consent under Senior Credit Agreement; Amendments, etc. The Company shall use its reasonable best efforts to obtain the consent of the Senior Agent and the "Required Lenders" (as defined in the Senior Credit Agreement) to the Transaction Documents and the transactions contemplated thereby, such consent to be subject to no conditions other than those which are satisfied prior to the Initial Closing Date. 5. CONDITIONS TO CLOSING. --------------------- 5.1 Conditions to Purchasers' Obligations at the Initial Closing. Each Purchaser's obligations at the Initial Closing, including without limitation its obligation to purchase a Closing Debenture, are conditioned upon the fulfillment (or waiver by such Purchaser) of each of the following events as of the Initial Closing Date: 5.1.1 the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of such date as if made on such date; 5.1.2 the Company shall have complied with or performed in all material respects all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by the Company on or before such Closing; 5.1.3 the Initial Closing Date shall occur on a date that is not later than April 16, 2002; 5.1.4 the Company shall have delivered to the Purchaser a certificate, signed by the Chief Executive Officer and Chief Financial Officer of the Company, certifying that the conditions specified in this paragraph 5.1 have been fulfilled as of the Initial Closing, it being understood that the Purchaser may rely on such certificate as though it were a representation and warranty of the Company made herein; 5.1.5 the Company shall have delivered to such Purchaser an opinion of counsel for the Company, dated as of such date, in such form and covering such matters as shall be acceptable to such Purchaser; 5.1.6 the Company shall have delivered duly executed certificates representing the Debenture being purchased by such Purchaser; 5.1.7 the Company shall have executed and delivered the Registration Rights Agreement; 5.1.8 the Common Stock shall be listed and actively traded on the NYSE; 5.1.9 each of the Company's executive officers shall have executed and delivered a letter agreement addressed to such Purchaser regarding such person's agreement to refrain from selling such person's holdings of Common Stock for ninety (90) days from the Initial Closing Date; and 5.1.10 the Company shall have received the consent of the Senior Agent and the "Required Lenders" (as defined in the Senior Credit Agreement) to the Transaction Documents and the transactions contemplated thereby, such consent to be subject to no conditions other than those which are satisfied prior to the Initial Closing Date. 5.2 Conditions to Company's Obligations at the Initial Closing. The Company's obligations at the Initial Closing are conditioned upon the fulfillment of each of the following events as of the date of such Closing: 5.2.1 the representations and warranties of each Purchaser set forth in this Agreement shall be true and correct in all material respects as of such date as if made on such date; 5.2.2 each Purchaser shall have complied with or performed all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by each Purchaser on or before such Closing; 5.2.3 each Purchaser shall have executed and delivered the Registration Rights Agreement; and 5.2.4 the Company shall have received the consent of the Senior Agent and the "Required Lenders" (as defined in the Senior Credit Agreement) to the Transaction Documents and the transactions contemplated thereby. 6. SUBORDINATION. ------------- 6.1 Obligations Subordinated to Senior Debt. The Company covenants and agrees, and each Purchaser likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Section 6, the payment of the principal of and interest on the Debentures and all other payment Obligations of the Company to any Purchaser hereunder or under any of the Transaction Documents, including pursuant to any guaranty made by or on behalf of, or indemnification obligations of, the Company or any right of set-off in favor of any Purchaser, are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Debt in cash, property or securities acceptable to the holders of Senior Debt. 6.2 Payment Over of Proceeds Upon Dissolution. ----------------------------------------- (a) In the event of (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization, adjustment, composition or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (ii) any liquidation, dissolution or other winding up of the Company whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company (collectively, "Bankruptcy Events"), then and in any such event: (A) the holders of Senior Debt (including the Senior Agent, on behalf of the Senior Lenders), shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Debt in cash, property or securities acceptable to the holders of Senior Debt, before any Purchaser is entitled to receive any payment from or on behalf of the Company on account of the Obligations; (B) any payment or distribution of assets by the Company of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which any Purchaser would be entitled but for the provisions of this Section 6, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other Subordinated Debt of the Company (except for any such payment or distribution (1) authorized by an unstayed, final, non-appealable order or decree stating that effect is being given to the subordination of such Obligations to the Senior Debt, and made by a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or (2) constituting securities which, if debt securities, are subordinated to at least the same extent as such Obligations to the payment of all Senior Debt then outstanding and which, in any case, do not mature or become subject to a mandatory redemption obligation prior to the one-year anniversary of the maturity of such Senior Debt (the "Permitted Junior Securities")) shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of all Senior Debt or their representative or representatives, ratably according to the aggregate amounts remaining unpaid on account of the principal of, and interest on, such Senior Debt held or represented by each, to the extent necessary to make payment in full of all such Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Debt; and (C) in the event that, notwithstanding the foregoing provisions of this Section 6, any Purchaser shall have received from or on behalf of the Company any payment or distribution of assets of any kind or character in violation of the foregoing subclauses (A) or (B), whether in cash, property or securities acceptable to the holders of Senior Debt, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other Subordinated Obligations of the Company (but excluding any Permitted Junior Securities) before all such Senior Debt is paid in full in cash, property or securities acceptable to the holders of Senior Debt, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all such Senior Debt remaining unpaid, to the extent necessary to pay all such Senior Debt in full in cash, property or securities, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt. (b) If there shall occur any consolidation of the Company with, or any merger of the Company into, another corporation or the liquidation or dissolution of the Company following any conveyance, transfer or lease of its properties and assets substantially as an entirety to another corporation, such consolidation, merger or liquidation shall not be deemed a Bankruptcy Event; provided, that no other Bankruptcy Event shall have occurred and be continuing at the time of such consolidation, merger or liquidation. 6.3 No Payment in Certain Circumstances. ----------------------------------- (a) In the event that (i) the Company shall fail to pay when due (after giving effect to any applicable grace periods), upon acceleration or otherwise, any amount or obligation with respect to Senior Debt (a "Payment Default") which Payment Default shall not have been cured or waived, and each Purchaser that is either an original party hereto or that is an assignee thereof as to which the Senior Agent has received actual notice receives written notice of such Payment Default from the Company or any holder of Senior Debt, or (ii) the Company shall fail to comply with the covenants contained in the Senior Credit Agreement, or any event of default under the Senior Credit Agreement (other than a Payment Default) shall occur and be continuing, which shall not have been cured or waived (a "Non-Payment Default"), and the Company and each Purchaser that is either an original party hereto or that is an assignee thereof as to which the Senior Agent has received actual notice receives written notice of such Non-Payment Default from the "Required Lenders" under and as defined in the Senior Credit Agreement (or the Senior Agent acting on their behalf) (a "Blockage Notice"); then no payment on account of the Obligations shall be made by the Company (x) in the case of any Payment Default, unless and until such Senior Debt shall have been paid in full in cash or until such Payment Default shall have been cured or waived, or (y) in the case of any Non-Payment Default, from the earlier of the date on which the Company or the Purchasers receives such Blockage Notice until the earlier of (1) 179 days after such date and (2) the date, if any, on which such Senior Debt to which such Non-Payment Default relates is paid in full in cash or such Non-Payment Default is waived by the holders of such Senior Debt or otherwise cured (a "Blockage Period"); provided, that only one Blockage Notice with respect to any Non-Payment Default may be given in any 360-day period. (b) In the event that, notwithstanding the foregoing, the Company shall make any payment to a Purchaser prohibited by the foregoing provisions of this Section 6.3, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section 6.3 shall not apply to any payment with respect to which Section 6.2 would apply. 6.4 Acceleration Rights; Remedies. If an Event of Default under the Debentures shall exist at any time that any Senior Debt shall be outstanding or any commitment with respect thereto has not been terminated, neither the Purchasers nor any other holder of the Debentures shall take any action, judicial or otherwise, to accelerate or to collect payment on or redeem, retire, repurchase or otherwise acquire, the Obligations or to pursue any other remedy arising out of such Event of Default prior to the earliest to occur of: (a) the payment in full of all Senior Debt in cash, property or securities acceptable to the holders of Senior Debt; (b) the occurrence or commencement of a Bankruptcy Event (with respect to which the provisions of Section 6.2 shall govern); (c) the expiration of ten (10) days immediately following the receipt by the Senior Agent of notice of the occurrence of such Event of Default from the holder or holders entitled to accelerate payments on the Obligations, and such holder's or holders' good faith intention to declare the unpaid amount of all Obligations to be immediately due and payable in accordance with the Transaction Documents, unless, during such period such Event of Default has been waived or cured; and (d) the acceleration of the maturity of any Senior Debt; provided, that any amount received by a Purchaser as a result of any acceleration permitted above, prior to payment in full of all Senior Debt in cash, property or securities acceptable to the holders of the Senior Debt, shall be paid to the Senior Agent if otherwise required by and then in accordance with the provisions of this Section 6. 6.5 Payments Otherwise Permitted. Nothing contained in this Section 6 or elsewhere in this Agreement or any of the Transaction Documents is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Debt, and the Purchasers, the obligation of the Company, which is absolute and unconditional, to pay to each Purchaser the principal of and interest on the Debenture held by such Purchaser and fulfill all of its other Obligations to such Purchaser as and when the same shall become due and payable in accordance with the terms of this Agreement or such other Transaction Documents, or is intended to or shall affect the relative rights of the Purchasers and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein prevent any Purchaser from exercising all remedies otherwise permitted by applicable law upon default, subject to the rights, if any, under this Section 6 of the holders of Senior Debt. If the Company fails because of this Section 6 to pay principal of or interest on any Debenture as and when due, or fails to fulfill any of its other Obligations under this Agreement or any other Transaction Document, such failure shall still be deemed an Event of Default (as defined in the Debentures). 6.6 No Waiver; Amendment. Except as expressly provided herein, no right of any present or future Senior Agent or other holder of Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such Senior Agent or holder of Senior Debt, or by any noncompliance by the Company with the terms, provisions and covenants of this Agreement, the Debentures or any other Transaction Document, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing, the Senior Agent and other holders of Senior Debt may at any time and from time to time, without the consent of or notice to any Purchaser, without incurring responsibility to the Purchasers and without impairing or releasing the subordination provided in this Section 6 or the obligations hereunder of the Purchasers to the Senior Agent or other holders of Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in any manner for the collection of Senior Debt; (iv) take additional collateral; (v) exercise or refrain from exercising or waiving any rights, powers or remedies against the Company and any other Person; or (vi) otherwise alter the terms of the Senior Debt. 6.7 Reliance. Upon any payment or distribution of assets of the Company referred to in this Section 6, each Purchaser shall be entitled to rely upon any unstayed, final, nonappealable order or decree entered by any court of competent jurisdiction for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Debt and other Debt of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 6. 6.8 Invalidated Payments. To the extent that the holders of the Senior Debt receive payments on, or proceeds of collateral for, the Senior Debt which are subsequently invalidated, declared to be fraudulent or preferential, set aside, avoided and/or required to be repaid by the holders of Senior Debt to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law, or equitable cause, then, to the extent of such payment or proceeds received, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by the holders of Senior Debt. 6.9 Amendment. Any material amendment to the provisions of this Section 6, or any other provision of this Agreement, the Debentures or any other Transaction Document that embodies the terms of this Section 6, shall not be effective against any holder of Senior Debt without the consent of the "Required Lenders" under and as defined in the Senior Credit Agreement (or the equivalent definition in any successor agreement). 6.10 Remedies. The holders of Senior Debt shall be entitled to enforce their rights under this Section 6 specifically, to recover damages by reason of any breach of any provision of this Section 6 and to exercise all other rights existing in their favor. Each Purchaser acknowledges and agrees that money damages may not be an adequate remedy for any breach of the provisions of this Section 6 and that holders of Senior Debt may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting bond or other security) in order to enforce or prevent any violation of the provisions of this Section 6. 6.11 Notices. The Company agrees to notify the Senior Agent upon the acceleration of any Obligations and the transfer of any Obligations specifying the name and address of the transferee. 6.12 Legend. In addition to any other legend required by this Agreement, the Company and each Purchaser, for themselves and their successors and assigns, covenant to cause each instrument representing or evidencing any of the Obligations to have affixed upon it a legend which reads substantially as follows: THIS DEBENTURE IS SUBORDINATED TO OTHER DEBT PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THE SECURITIES PURCHASE AGREEMENT, DATED AS OF APRIL 15, 2002, AS THE SAME MAY BE AMENDED, RESTATED, MODIFIED OR SUPPLEMENTED AND IN EFFECT FROM TIME TO TIME, WHICH, AMONG OTHER THINGS, SUBORDINATES THE ISSUER'S OBLIGATIONS HEREUNDER TO THE ISSUER'S OBLIGATIONS TO THE HOLDERS OF "SENIOR DEBT" AS DEFINED IN SAID SECURITIES PURCHASE AGREEMENT. 6.13 Purchasers' Relation to Senior Debt. With respect to the holders of Senior Debt, each Purchaser undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Section 6 (or, with respect to any Transaction Document, as such covenants and obligations are incorporated by reference in such Transaction Document, taking into account any related terms defined therein), and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Agreement or any other Transaction Documents against the Purchasers. No Purchaser shall be deemed to owe any fiduciary duty to the holders of Senior Debt. 7. MISCELLANEOUS. ------------- 7.1 Survival; Severability. The representations, warranties, covenants and indemnities made by the parties herein shall survive each Closing notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that in such case the parties shall negotiate in good faith to replace such provision with a new provision which is not illegal, unenforceable or void, as long as such new provision does not materially change the economic benefits of this Agreement to the parties. 7.2 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The Purchaser may assign its rights and obligations hereunder, other than those contained in paragraph 1.2 hereof, in connection with any private sale or transfer of the Debentures in accordance with the terms hereof and the terms of the Debentures, as long as, as a condition precedent to such transfer, the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this Agreement, in which case the term "Purchaser" shall be deemed to refer to such transferee as though such transferee were an original signatory hereto. The Company may not assign it rights or obligations under this Agreement. 7.3 No Reliance. Each party acknowledges that (i) it has such knowledge in business and financial matters as to be fully capable of evaluating this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby, (ii) it is not relying on any advice or representation of any other party in connection with entering into this Agreement, the other Transaction Documents or such transactions (other than the representations made in this Agreement or the other Transaction Documents), (iii) it has not received from such party any assurance or guarantee as to the merits (whether legal, regulatory, tax, financial or otherwise) of entering into this Agreement or the other Transaction Documents or the performance of its obligations hereunder and thereunder, and (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent that it has deemed necessary, and has entered into this Agreement and the other Transaction Documents based on its own independent judgment and on the advice of its advisors as it has deemed necessary, and not on any view (whether written or oral) expressed by such other party. 7.4 Independent Nature of Purchasers' Obligations and Rights. The obligations of each Purchaser hereunder are several and not joint with the obligations of the other Purchasers hereunder, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser hereunder. Nothing contained herein or in any other agreement or document delivered at the Closing, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. 7.5 Injunctive Relief. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to each Purchaser and that the remedy or remedies at law for any such breach will be inadequate and agrees, in the event of any such breach, in addition to all other available remedies, such Purchaser shall be entitled to an injunction restraining any breach and requiring immediate and specific performance of such obligations without the necessity of showing economic loss. 7.6 Governing Law; Jurisdiction. This Agreement shall be governed by and construed under the laws of the State of New York without regard to the conflict of laws provisions thereof. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 7.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 7.8 Headings. The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.9 Notices. Any notice, demand or request required or permitted to be given by the Company or a Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such delivery is made on a day that is not a Business Day, in which case such delivery will be deemed to be made on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows: If to the Company: CTS Corporation 905 West Boulevard North Elkhart, Indiana 46514 Attn: Chief Financial Officer/ General Counsel Tel: (219) 293-7511 Fax: (219) 293-6146 and if to any Purchaser, to such address for such Purchaser as shall appear on the signature page hereof executed by such Purchaser. Any party hereto may change its address for notices by designating a new address by notice given to the other parties in accordance with this Section 7.9. 7.10 Expenses. The Company and each Purchaser each shall pay all costs and expenses that it incurs in connection with the negotiation, execution, delivery and performance of this Agreement, provided, however, that the Company shall reimburse Halifax Fund, L.P. for all out-of-pocket expenses (including without limitation legal fees and expenses) incurred by it in connection its due diligence investigation of the Company and the negotiation, preparation, execution, delivery and performance of this Agreement and the other Transaction Documents in an amount not to exceed thirty five thousand dollars ($35,000). 7.11 Entire Agreement; Amendments. This Agreement and the other Transaction Documents constitute the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between or among the parties. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and the holders of at least a majority of the unpaid principal amount of the Debentures then outstanding, and no provision hereof may be waived other than by a written instrument signed by the party against whom enforcement of any such waiver is sought. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI --------------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Halifax Fund, L.P. By: /s/ MAURICE HRYSHKO ---------------------------------------------------- Maurice Hryshko Address: c/o The Palladin Group, L.P. 195 Maplewood Avenue Maplewood, NJ 07040 Fax: (973)-313-6494 Principal Amount of Debentures Purchased: $7,000,000 The above-described purchaser represents by its execution hereof that it is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933, as amended. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI ---------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer DeAM Convertible Arbitrage Fund, Ltd. By: /s/ MAURICE HRYSHKO ------------------------------------------------ Maurice Hryshko Address: c/o The Palladin Group, L.P. 195 Maplewood Avenue Maplewood, NJ 07040 Fax: (973)-313-6494 Principal Amount of Debentures Purchased: $5,000,000 The above-described purchaser represents by its execution hereof that it is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933, as amended. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI ---------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Palladin Overseas Fund, Ltd. By: /s/ MAURICE HRYSHKO ------------------------------------------------ Maurice Hryshko Address: c/o The Palladin Group, L.P. 195 Maplewood Avenue Maplewood, NJ 07040 Fax: (973)-313-6494 Principal Amount of Debentures Purchased: $1,000,000 The above-described purchaser represents by its execution hereof that it is an "accredited investor" as that term is defined in Rule 501 under the Securities Act of 1933, as amended, with assets of at least $30 million. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI ------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Lancer Securities (Cayman) Ltd. By: /s/ MAURICE HRYSHKO --------------------------------------------- Maurice Hryshko Address: c/o The Palladin Group, L.P. 195 Maplewood Avenue Maplewood, NJ 07040 (Fax): (973)-313-6494 Principal Amount of Debentures Purchased: $500,000 The above-described purchaser represents by its execution hereof that it is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933, as amended. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI -------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Palladin Partners I, L.P. By: /s/ MAURICE HRYSHKO ----------------------------------------------- Maurice Hryshko Address: c/o The Palladin Group, L.P. 195 Maplewood Avenue Maplewood, NJ 07040 Fax: (973)-313-6494 Principal Amount of Debentures Purchased: $500,000 The above-described purchaser represents by its execution hereof that it is an "accredited investor" as that term is defined in Rule 501 under the Securities Act of 1933, as amended, with assets of at least $30 million. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI -------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Steelhead Investments, Ltd. By: /s/ WILLIAM E. ROSE ----------------------------------------------- William E. Rose Address: c/o HBK Investments 300 Crescent Court, Suite 700 Dallas, TX 75201 Fax: (214)-758-1232 Principal Amount of Debentures Purchased: $6,000,000 The above-described purchaser represents by its execution hereof that it is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933, as amended. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI -------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Ram Trading, Ltd. By: /s/ JAMES R. PARK ---------------------------------------------- James R. Park Address: c/o Ritchie Capital Management 210 East State Street Batavia, IL 60510 Fax: (630)-761-0100 Principal Amount of Debentures Purchased: $5,000,000 The above-described purchaser represents by its execution hereof that it is a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act of 1933, as amended. EX-99 4 exbt99-2.txt EXHIBIT 99.2 FORM OF DEBENTURE THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE OR SOLD UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER OR SALE. THIS DEBENTURE DOES NOT REQUIRE PHYSICAL SURRENDER HEREOF IN THE EVENT OF A PARTIAL PAYMENT, REDEMPTION OR CONVERSION. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS DEBENTURE MAY BE LESS THAN THE PRINCIPAL AMOUNT INDICATED BELOW. THIS DEBENTURE IS SUBORDINATED TO OTHER DEBT PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THE SECURITIES PURCHASE AGREEMENT, DATED AS OF APRIL 15, 2002, AS THE SAME MAY BE AMENDED, RESTATED, MODIFIED OR SUPPLEMENTED AND IN EFFECT FROM TIME TO TIME, WHICH, AMONG OTHER THINGS, SUBORDINATES THE ISSUER'S OBLIGATIONS HEREUNDER TO THE ISSUER'S OBLIGATIONS TO THE HOLDERS OF "SENIOR DEBT" AS DEFINED IN SAID SECURITIES PURCHASE AGREEMENT. CTS CORPORATION 6 1/2 CONVERTIBLE SUBORDINATED DEBENTURE New York, New York $____________ Issue Date: April 16, 2002 FOR VALUE RECEIVED, CTS CORPORATION, an Indiana corporation (the "Corporation"), hereby promises to pay to the order of __________________ or its permitted successors or assigns (the "Holder") the sum of __________________ ($_______________) in same day funds, on or before the Maturity Date (as defined below). The Holder may convert amounts of principal of this Debenture into shares ("Conversion Shares") of the Corporation's common stock, without par value (the "Common Stock"), on the terms and subject to the conditions set forth herein. The Corporation has issued this Debenture pursuant to a Purchase Agreement, dated as of April 15, 2002 (the "Purchase Agreement"). The debentures issued by the Corporation pursuant to the Purchase Agreement, including this Debenture, are collectively referred to herein as the "Debentures". The following terms shall apply to this Debenture: 1. DEFINITIONS. "Business Day" means any day on which the New York Stock Exchange and commercial banks in the city of New York are open for business. "Change of Control Transaction" means the existence or occurrence of any of the following: (a) the sale, conveyance or disposition of all or substantially all of the assets of the Corporation, through its Subsidiaries or otherwise; (b) the effectuation of a transaction or series of transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of; (c) the consolidation, merger or other business combination of the Corporation with or into any other entity, immediately following which the prior stockholders of the Corporation fail to own, directly or indirectly, at least fifty percent (50%) of the surviving entity; (d) a transaction or series of transactions in which any Person or group acquires more than fifty percent (50%) of the voting power of the Corporation; (e) a transaction or series of transactions in which any Person (other than the Corporation or a wholly-owned subsidiary of the Corporation) or group acquires any capital stock (other than qualifying shares) of any subsidiary of the Corporation; provided, however, that any sale by the Corporation of the capital stock of a subsidiary of the Corporation shall not constitute a Change of Control Transaction, as long as at the time of such sale, or at any time thereafter, the fair market value of the assets of any such subsidiary (together with the assets of any other subsidiary the capital stock of which is acquired in reliance upon this proviso) do not comprise more than five percent (5%) of the fair market value of the non-cash assets of the Corporation; (f) any "Rule 13e-3 Transaction", as defined in Rule 13e-3 under the Securities Exchange Act of 1934, as amended, and (g) during any period of twelve (12) consecutive calendar months, individuals: (i) who were directors of the Corporation on the first day of such period, or (ii) whose election or nomination for election to the Board of Directors of the Corporation was recommended or approved by at least a majority of the directors then still in office who were directors of the Corporation on the first day of such period, or whose election or nomination for election was so approved, shall cease to constitute at least a majority of the Board of Directors of the Corporation. "Closing Bid Price" means the closing bid price for the Common Stock occurring on a given Trading Day on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets or, if Bloomberg Financial Markets is not then reporting such prices, by a comparable reporting service of national reputation selected by the Holder and reasonably acceptable to the Corporation (collectively, "Bloomberg") or if the foregoing does not apply, the last reported bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no bid price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on any of the foregoing bases, the Closing Bid Price of such security shall be the fair market value as reasonably determined by an investment banking firm selected by the Holder, and reasonably acceptable to the Corporation, with the costs of such appraisal to be borne by the Corporation. "Closing Price" means $17.437 (subject to adjustment for stock splits, stock dividends and similar events). "Conversion Price" means $20.053 (subject to adjustment as provided herein). "Convertible Securities" means any options, warrants or other securities convertible, exercisable or exchangeable into or for Common Stock, or rights to purchase or receive shares of Common Stock. "Debt" means as to any Person at any time (without duplication): (a) all indebtedness, liabilities and obligations of such Person for borrowed money; (b) all indebtedness, liabilities and obligations (contingent or otherwise) of such Person to pay the purchase price of Property or services, except trade accounts payable of such Person arising in the ordinary course of business that are not past due by more than ninety (90) days; (c) all capital lease obligations of such Person; (d) all Debt of others guaranteed by such Person; (e) all indebtedness, liabilities and obligations secured by a Lien existing on Property owned by such Person, whether or not the indebtedness, liabilities or obligations secured thereby have been assumed by such Person or are non-recourse to such Person; and (f) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, bankers guarantees, surety or other bonds and similar instruments. "Default Interest Rate" means the lower of (i) one year LIBOR plus one thousand (1,000) basis points and (ii) the maximum rate permitted by applicable law or by the applicable rules or regulations of any governmental agency or of any stock exchange or other self-regulatory organization having jurisdiction over the Corporation or the trading of its securities. "Execution Date" means the date on which the Purchase Agreement is executed and delivered by the parties thereto. "Governmental Authority" means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation any stock exchange, securities market or self-regulatory organization. "Initial Closing Date" has the meaning set forth in the Purchase Agreement. "Issue Date" means the date on which this Debenture is issued. "Junior Securities" means all equity securities of the Corporation issued and outstanding at any time. "Last Sale Price" means the last reported sale price for the Common Stock occurring on a given Trading Day on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg or such exchange or market or, if no such sale price is reported by Bloomberg or such exchange or market with respect to such Trading Day, the Closing Bid Price. "Lien" shall have the meaning set forth in the Purchase Agreement. "Liquidation Event" has the meaning specified in Section 7 hereof. "Market Price" means, as of any date, the average Last Sale Price for the Common Stock during the period of five (5) Trading Days immediately preceding (but not including) such date. "Maturity Date" means the five-year anniversary of the Issue Date; provided, however, that at any time after the three (3) year anniversary of the Issue Date, the Holder may, in its sole discretion, and upon written notice to the Corporation, accelerate the Maturity Date to a date that is no less than ten (10) Business Days after the date of such notice (an "Optional Acceleration"), it being understood that, so long as no Event of Default has occurred and is continuing hereunder, in no event shall an Optional Acceleration alone be deemed to constitute a default or an event of default under the Senior Credit Agreement, or an event which would permit or require the acceleration of any Senior Debt. "Obligations" means any and all indebtedness, liabilities and obligations of the Corporation to the holders of the Debentures evidenced by and/or arising pursuant to any of the Transaction Documents (including, without limitation, the Purchase Agreement and the Debentures), now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and several, including, without limitation, the obligations of the Corporation to repay principal of the Debentures, to pay interest on the Debentures (including, without limitation, interest accruing after any, if any, bankruptcy, insolvency, reorganization or other similar filing) and to pay all fees, indemnities, costs and expenses (including attorneys' fees) provided for in the Transaction Documents. "Person" means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity. "Registration Rights Agreement" means the agreement, dated as of April 15, 2002, between the Holder and the Corporation pursuant to which the Corporation has agreed to register shares of Common Stock. "Scheduled Interest Payment Date" means the first Business Day of each October and April following the Issue Date. "Senior Credit Agreement" means that certain Third Amended and Restated Senior Credit Agreement dated as of December 20, 2001 among the Corporation, the institutions from time to time parties thereto as lenders (the "Senior Lenders") and Bank One, NA, in its capacity as agent for itself and the Senior Lenders, together with its successors and assigns (the "Senior Agent"), including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, or any other "Loan Documents" under and as defined therein, and in each case, as amended, restated, modified, renewed, refunded, replaced, increased or refinanced from time to time by one or more facilities. With respect to replaced or refinanced agreements, the terms used herein shall have the nearest equivalent term, if any, as the definition contained in the Senior Credit Agreement. "Senior Debt" means (a)(i) the outstanding principal balance of all "Obligations" under and pursuant to the Senior Credit Agreement including, without limitation, reimbursement obligations under letters of credit issued pursuant to the Senior Credit Agreement and (ii) all obligations under interest rate or foreign currency hedging or commodity price hedging, swap, cap, collar or similar agreements of the Corporation to the Senior Agent, any Senior Lender or any of their respective affiliates, whether now existing or hereafter arising (and whether such indebtedness arises or accrues before or after the commencement of any bankruptcy, insolvency or receivership proceedings), including, without limitation, interest and fees accruing pre-petition or post-petition at the rate or rates prescribed in the Senior Credit Agreement and costs, expenses, and legal fees, whenever incurred (and whether or not such claims, interest, costs, expenses or fees are allowed or allowable in any such proceeding); (b) amounts disbursed or advanced (including, without limitation in connection with the provision of any financing or other financial accommodations pursuant to Section 364 of the Bankruptcy Code) by the Senior Lenders which the Senior Lenders, in their discretion, deem necessary or desirable to preserve or protect any "Collateral" (as defined in the Senior Credit Agreement) or to enhance the likelihood or maximize the amount of repayment of the Senior Debt, including, but not limited to, all protective advances, costs, expenses, and attorneys' and paralegals' fees, whensoever made, advanced or incurred by the Senior Lenders in connection with the Senior Debt or the collateral therefor; and (c) any Debt of the Corporation which by the express terms thereof does not rank junior to the Debentures. "Subordinated Debt" means Debt of the Corporation which meets each of the following requirements: (a) such Debt is wholly unsecured; and (b) such Debt is contractually subordinated, as to payment, whether upon a Liquidation Event or an Event of Default (as each such term is defined herein), to the payment in full of the Debentures and the Obligations pursuant to written agreements that are enforceable by the Holder against the holder of any such Debt. "Trading Day" means any day on which the Common Stock is purchased and sold on the principal securities exchange or market on which the Common Stock is then listed or traded. "VWAP" on a Trading Day means the volume weighted average price of the Common Stock for such Trading Day as reported by Bloomberg or, if Bloomberg is not then reporting such prices, by a comparable reporting service of national reputation selected by the Holders of a majority of the unpaid principal amount of the Debentures and reasonably satisfactory to the Corporation. Section 1.2 Other Definitional Provisions All definitions contained in this Debenture are equally applicable to the singular and plural forms of the terms defined. The words "hereof", "herein" and "hereunder" and words of similar import referring to this Debenture refer to this Debenture as a whole and not to any particular provision of this Debenture. 2. INTEREST. (a) Interest Accrual. This Debenture shall bear interest on the unpaid principal amount hereof ("Interest") at an annual rate of six and one-half percent (6 1/2%), computed on the basis of a 360-day year and calculated using the actual number of days elapsed since the Issue Date or the day on which interest was most recently paid, as the case may be. The Corporation shall pay to the Holder accrued and unpaid Interest in cash (i) on each Scheduled Interest Payment Date, (ii) on the Maturity Date and (iii) on any date on which the entire principal amount of this Debenture is paid in full (each of (i), (ii) and (iii) being referred to herein as an "Interest Payment Date"). (b) Default Interest. Any amount of Interest that is not paid on the relevant Interest Payment Date shall bear interest at the Default Interest Rate. The Corporation must pay interest at the Default Interest Rate in cash on or before the fifth (5th) Business Day following the last day of each calendar month in which such interest accrues. 3. CONVERSION. (a) Right to Convert. Subject to the conditions and limitations specifically provided herein, the Holder shall have the right to convert, at any time and from time to time after the Issue Date, the outstanding and unpaid principal amount of this Debenture (or any portion thereof equal to $5,000 or any integral multiple of $5,000 in excess thereof) into such number of fully paid and non-assessable Conversion Shares as is determined in accordance with the terms hereof (a "Conversion"). (b) Conversion Notice. In order to convert principal of this Debenture, the Holder shall send by facsimile transmission, at any time prior to 5:00 p.m., eastern time, on the Business Day on which the Holder wishes to effect such Conversion (the "Conversion Date"), a notice of conversion to the Corporation, in the form set forth on Annex I hereto, stating the amount of principal to be converted and a calculation of the number of shares of Common Stock issuable upon such Conversion (a "Conversion Notice"). The Holder shall not be required to physically surrender this Debenture to the Corporation in order to effect a Conversion; provided, however, that after this Debenture is converted in full, the Holder shall return this Debenture to the Corporation for cancellation. The Corporation shall maintain a record showing, at any given time, the unpaid principal amount of this Debenture and the date of each Conversion or other payment of principal hereof. The Holder shall amend Annex II hereto upon any such Conversion or payment of principal to reflect the unpaid principal amount hereof. In the case of a dispute as to the number of Conversion Shares issuable upon a Conversion (including without limitation as a result of adjustments to the Conversion Price made in accordance with Section 4 below), the Corporation shall promptly issue to the Holder the number of Conversion Shares that are not disputed and shall submit the disputed calculations to its independent accountants within two (2) Business Days of receipt of the Holder's Conversion Notice. The Corporation shall cause such accountants to calculate the Conversion Price as provided herein and to notify the Corporation and the Holder of the results in writing no later than five (5) Business Days following the day on which such accountant received the disputed calculations (the "Dispute Procedure"). Such accountant's calculation shall be deemed conclusive absent manifest error. The fees of any such accountant shall be borne by the party whose calculations are most at variance with those of such accountant. (c) Number of Conversion Shares; Conversion Price. The number of Conversion Shares to be delivered by the Corporation pursuant to a Conversion shall be equal the principal amount of this Debenture being converted divided by the Conversion Price in effect on the relevant Conversion Date. (d) Delivery of Common Stock Upon Conversion. Upon receipt of a Conversion Notice, the Corporation shall, no later than the close of business on the third (3rd) Business Day following the Conversion Date set forth in such Conversion Notice (the "Delivery Date"), issue and deliver or cause to be delivered to the Holder the number of Conversion Shares determined pursuant to paragraph 3(c) above, provided, however, that any Conversion Shares that are the subject of a Dispute Procedure shall be delivered no later than the close of business on the third (3rd) Business Day following the determination made pursuant thereto. The Corporation shall effect delivery of Conversion Shares to the Holder, without any restrictive legend except as provided by the terms of the Purchase Agreement, as long as the Corporation's designated transfer agent or co-transfer agent in the United States for the Common Stock (the "Transfer Agent") participates in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program ("FAST"), by crediting the account of the Holder or its nominee at DTC (as specified in the applicable Conversion Notice) with the number of Conversion Shares required to be delivered, no later than the close of business on such Delivery Date. In the event that the Transfer Agent is not a participant in FAST or if the Holder so specifies in a Conversion Notice or otherwise in writing on or before the Conversion Date, or if the Purchase Agreement then requires a restrictive legend to be placed on Conversion Shares, the Corporation shall effect delivery of Conversion Shares by delivering to the Holder or its nominee physical certificates representing such Conversion Shares, no later than the close of business on such Delivery Date. If any Conversion would create a fractional Conversion Share, such fractional Conversion Share shall be disregarded and the number of Conversion Shares issuable upon such Conversion, in the aggregate, shall be the next higher whole number of Conversion Shares. Conversion Shares delivered to the Holder shall not contain any restrictive legend unless such legend is required pursuant to the terms of the Purchase Agreement. 4. ADJUSTMENTS TO CONVERSION PRICE. (a) Adjustment to Conversion Price Due to Stock Split and Similar Events. If, prior to the Conversion of all of the principal amount of this Debenture, or payment in full of all amounts payable by the Corporation hereunder, (A) the number of outstanding shares of Common Stock is increased by a stock split, a reclassification of the Common Stock, or other similar event, the Conversion Price shall be proportionately reduced, which reduction shall be effected at the time such event takes place; (B) the number of outstanding shares of Common Stock is decreased by a reverse stock split, combination or reclassification of shares or other similar event, the Conversion Price shall be proportionately increased, which increase shall be effected at the time such event takes place; or (C) the number of shares of Common Stock is increased by a stock dividend on the Common Stock, the Conversion Price shall be proportionately reduced, which reduction shall be effected on the record date for the determination of holders of Common Stock to receive such dividend; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this Section 4(a) to reflect the actual payment of such dividend. (b) Adjustment to Conversion Price Due to Distribution of Certain Warrants and Rights. If, prior to the Conversion of all of the principal amount of this Debenture, or payment in full of all amounts payable by the Corporation hereunder, the Corporation issues rights or warrants to all or substantially all holders of its Common Stock entitling them (for a period commencing no earlier than the record date described below and expiring not more than 60 days after such record date) to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price per share (or having a conversion price per share) less than the Market Price on the record date for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction of which (x) the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered, which shall be determined by multiplying the number of shares of Common Stock issuable upon conversion of such convertible securities by the conversion price per share of Common Stock pursuant to the terms of such convertible securities) would purchase at the Market Price on such record date, and of which (y) the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after such record date. If at the end of the period during which such rights or warrants are exercisable not all rights or warrants shall have been exercised, the adjusted Conversion Price shall be immediately readjusted to what it would have been based upon the number of additional shares of Common Stock actually issued (or the number of shares of Common Stock issuable upon conversion of convertible securities actually issued). (c) Adjustments to Conversion Price Due to Certain Non-Cash Distributions. If, prior to the Conversion of all of the principal amount of this Debenture, or payment in full of all amounts payable by the Corporation hereunder, the Corporation shall distribute to all or substantially all holders of its Common Stock any shares of capital stock of the Corporation (other than Common Stock), evidences of indebtedness or other non-cash assets (including securities of any person other than the Corporation but excluding (1) dividends or distributions paid exclusively in cash or (2) dividends or distributions referred to in subsection (a) of this Section 4), or shall distribute to all or substantially all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (excluding those rights and warrants referred to in subsection (b) of this Section 4), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the current Conversion Price by a fraction of which the numerator will be the Market Price on the record date mentioned below less the fair market value on such record date (as reasonably determined in good faith by the Board of Directors, whose determination shall be conclusive evidence of such fair market value) of the portion of the capital stock, evidences of indebtedness or other non-cash assets so distributed or of such rights or warrants applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the record date), and of which the denominator shall be the Market Price on such record date. Such adjustment shall be made successively whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution. (d) Adjustment to Conversion Price Due to Certain Cash Distributions. If, prior to the Conversion of all of the principal amount of this Debenture, or payment in full of all amounts payable by the Corporation hereunder, the Corporation shall, by dividend or otherwise, at any time distribute (a "Triggering Distribution") to all or substantially all holders of its Common Stock cash in an aggregate amount that, together with the aggregate amount of (A) any cash and the fair market value (as reasonably determined in good faith by the Board of Directors, whose determination shall be conclusive evidence thereof) of any other consideration payable in respect of any tender offer by the Corporation or a Subsidiary of the Corporation for Common Stock consummated within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 4 has been made and (B) all other cash distributions to all or substantially all holders of its Common Stock made within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 4 has been made, exceeds an amount equal to three percent (3.0%) of the product of the Market Price on the Business Day (the "Determination Date") immediately preceding the day on which such Triggering Distribution is declared by the Corporation multiplied by the number of shares of Common Stock outstanding on the Determination Date (excluding shares held in the treasury of the Corporation), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying such Conversion Price in effect immediately prior to the Determination Date by a fraction of which the numerator shall be the Market Price on the Determination Date less the sum of the aggregate amount of cash and the aggregate fair market value (as reasonably determined in good faith by the Board of Directors, whose determination shall be conclusive evidence of such fair market value) of any such other consideration so distributed, paid or payable within such 12 months (including, without limitation, the Triggering Distribution) applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the Determination Date) and the denominator shall be such Market Price on the Determination Date, such reduction to become effective immediately prior to the opening of business on the day following the date on which the Triggering Distribution is paid. (e) Potential Re-Adjustments. In any case in which this Section 4 shall require that an adjustment be made following a record date or a Determination Date, as the case may be, established for purposes of this Section 4, the Corporation may elect to defer issuing to the Holder of any Debenture converted after such record date or Determination Date the shares of Common Stock and other capital stock of the Corporation issuable upon such conversion over and above the shares of Common Stock and other capital stock of the Corporation issuable upon such conversion only on the basis of the Conversion Price prior to adjustment; and, in lieu of the shares the issuance of which is so deferred, the Corporation shall issue or cause its transfer agents to issue due bills or other appropriate evidence prepared by the Corporation of the right to receive such shares. If any distribution in respect of which an adjustment to the Conversion Price is required to be made as of the record date or Determination Date therefor is not thereafter made or paid by the Corporation for any reason, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect if such record date had not been fixed or such effective date or Determination Date had not occurred. (f) Adjustment Due to Merger, Consolidation, Etc. If, prior to the Conversion of the entire principal amount of this Debenture, or payment in full of all amounts payable by the Corporation hereunder, there shall be any merger, consolidation, business combination, tender offer by a Person other than the Corporation, exchange of shares, recapitalization, reorganization, redemption or other similar event, as a result of which shares of Common Stock shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Corporation or another entity (an "Exchange Transaction"), then upon the Conversion of this Debenture occurring after consummation of such Exchange Transaction (a "Subsequent Conversion"), the Holder shall have the right to receive the same amount and type of consideration (including without limitation, stock, securities and/or other assets), and on the same terms as a holder of shares of Common Stock would be entitled to receive in connection with the consummation of such Exchange Transaction, had this Debenture been converted immediately prior to such Exchange Transaction at the Conversion Price applicable to such Subsequent Conversion, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof shall thereafter be applicable as nearly as may be practicable in relation to any securities thereafter deliverable upon the Conversion of this Debenture. The Corporation shall not effect any Exchange Transaction unless (i) it (or, in the case of a tender offer, the offering party) first gives to the Holder ten (10) days prior written notice of such Exchange Transaction (an "Exchange Notice"), and makes a public announcement of such event at the same time that it gives such notice (it being understood that the filing by the Corporation of a Form 8-K with the Securities and Exchange Commission for the purpose of disclosing the anticipated consummation of the Exchange Transaction shall constitute an Exchange Notice for purposes of this provision) and (ii) the resulting successor or acquiring entity (if not the Corporation) assumes by written instrument the obligations of the Corporation hereunder, including the terms of this subparagraph 4(f), and under the Purchase Agreement and the Registration Rights Agreement. (g) No Fractional Shares. If any adjustment under this Section 4 would create a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon Conversion shall be the next higher whole number of shares. (h) Exceptions to Adjustment of Conversion Price. No adjustment to the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least one percent (1%) in the Conversion Price as last adjusted; provided, however, that any adjustments which by reason of this Section 4(h) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. No adjustment to the Conversion Price shall be required (i) for a change in the par value or a change to no par value of the Common Stock, or (ii) for issuance of Common Stock or the grant or distribution or redemption of any rights to the Corporation's shareholders pursuant to (A) a Corporation plan for reinvestment of dividends (including the DSSP, as that term is defined in the Purchase Agreement) or (B) any shareholder rights or so-called "poison pill" plan, provided, however, that with respect to this subsection (B), such adjustment shall be made on a weighted average basis when and to the extent that any shares of Common Stock are subsequently issued pursuant to such rights or plan unless such shares are issued under the Company's existing (or any subsequent) rights plan as a result of (i) the Holder attaining the status of an Acquiring Person (within the meaning of CTS' existing rights plan) or any similar definition in any subsequent rights plan or (ii) the Holder or any of its Affiliates commence a tender offer or exchange offer and such offer results in a Distribution Date (within the meaning of the Corporation's existing rights plan) or any similar definition in any subsequent rights plan. All calculations under this Section 4 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. 5. MANDATORY CONVERSION. (a) Mandatory Conversion. The Corporation shall have the right, upon the satisfaction (or waiver by the Holder) of each of the Mandatory Conversion Conditions as of the Mandatory Conversion Date (each as defined below), to require conversion of this Debenture (a "Mandatory Conversion"). In the event of a Mandatory Conversion, the Corporation and the Holder shall follow the procedures for Conversion set forth in Section 3 above, with the Mandatory Conversion Date (as defined below) deemed to be the Conversion Date for purposes hereof, except that the Holder shall not be required to send a Conversion Notice as contemplated by paragraph (b) of Section 3. (b) Mandatory Conversion Notice. In order to effect a Mandatory Conversion hereunder, the Corporation must deliver to the Holder written notice thereof (a "Mandatory Conversion Notice") on or before 5:00 p.m. (eastern time) on a Business Day (the "Mandatory Conversion Notice Date") that is at least ten (10) Trading Days prior to the date on which such Mandatory Conversion is to be effected (the "Mandatory Conversion Date") and, at the same time that it delivers such notice, the Corporation shall confirm delivery thereof with the Holder by telephone. Notwithstanding the delivery by the Corporation of a Mandatory Conversion Notice, nothing contained herein shall be deemed to limit in any way (i) the right of the Holder to convert this Debenture prior to the Mandatory Conversion Date or (ii) the availability of any and all remedies that are provided to the Holder hereunder, including without limitation in the event that the Corporation fails to deliver Conversion Shares upon a Mandatory Conversion as required by the terms of Section 3 hereof. (c) Mandatory Conversion Conditions. The Mandatory Conversion Conditions are as follows: (i) at least three (3) years shall have elapsed since the Issue Date; (ii) VWAP shall have been greater than the Conversion Price by at least one hundred and seventy five percent (175%) for at least twenty (20) Trading Days during any period of thirty (30) consecutive Trading Days occurring after the third anniversary of the Issue Date; (iii) the Corporation shall have authorized and reserved for issuance the number of shares of Common Stock required to effect the Mandatory Conversion; (iv) the Registration Statement shall have been declared effective and shall be available to the Holder, and shall cover the number of Registrable Securities required by the Registration Rights Agreement (including without limitation all Conversion Shares to be issued on the relevant Mandatory Conversion Date); (v) the Common Stock shall be listed on the New York Stock Exchange and trading in the Common Stock on such market shall not have been suspended; and (vi) an Event of Default (as defined below), or an event that with the passage of time or giving of notice, or both, would constitute an Event of Default, shall not have occurred and be continuing as of the Mandatory Conversion Date or as of the date of the Mandatory Conversion Notice. 6. REDEMPTION. (a) Mandatory Redemption. In the event that an Event of Default (as defined below) occurs, the Holder shall have the right, upon written notice to the Corporation (a "Mandatory Redemption Notice"), to have all or any portion of the unpaid principal amount of this Debenture, plus all accrued and unpaid Interest thereon, redeemed by the Corporation (a "Mandatory Redemption") at the Mandatory Redemption Price (as defined below) in same day funds. The Mandatory Redemption Notice shall specify the effective date of such Mandatory Redemption (the "Mandatory Redemption Date"), which date must be at least ten (10) Business Days following the Business Day on which the Mandatory Redemption Notice is delivered to the Corporation, and the amount of principal and Interest to be redeemed. In order to effect a Mandatory Redemption hereunder, the Holder must deliver a Mandatory Redemption Notice no later than the close of business on the Business Day immediately following the Business Day on which an Event of Default is no longer continuing; provided, however, that with respect to a Change of Control Transaction, the Holder must deliver a Mandatory Redemption Notice no later than the close of business on the third (3rd) Business Day following the date on which the Change of Control Transaction is effected. (b) Mandatory Redemption Price. For purposes hereof, "Mandatory Redemption Price" shall mean the unpaid principal hereof and all accrued and unpaid Interest hereon multiplied by one hundred and ten percent (110%); provided, however, that if the Event of Default giving rise to a Mandatory Redemption is a Change of Control Transaction, the Mandatory Redemption Price shall be equal to the unpaid principal hereof and all accrued and unpaid Interest hereon multiplied by one hundred and five percent (105%). (c) Payment of Mandatory Redemption Price. (i) The Corporation shall pay the Mandatory Redemption Price to the Holder within five (5) Business Days of the Mandatory Redemption Date. In the event that the Corporation redeems the entire remaining unpaid principal amount of this Debenture, and pays to the Holder all Interest accrued thereon and all other amounts due in connection therewith, the Holder shall return this Debenture to the Corporation for cancellation. (ii) If the Corporation fails to pay the Mandatory Redemption Price to the Holder within five (5) Business Days of the Mandatory Redemption Date, the Holder shall be entitled to interest thereon at the Default Interest Rate from the Mandatory Redemption Date until the date on which Mandatory Redemption Price has been paid in full. (d) Events of Default. Each of the following events shall be deemed an "Event of Default": (i) the Common Stock is not listed on the New York Stock Exchange or the American Stock Exchange or quoted on the Nasdaq National Market, or trading in the Common Stock has been suspended on such exchange or market for any period in excess of five (5) consecutive Trading Days; (ii) a Change of Control Transaction occurs or a Liquidation Event occurs or is publicly announced; (iii) the Corporation breaches or provides notice of its intent to breach, in a material respect, any covenant or other material term or condition of this Debenture (including without limitation any payment obligation thereunder), the Purchase Agreement, or the Registration Rights Agreement, including but not limited to the failure to deliver Conversion Shares on or before the Delivery Date therefor, and such breach continues for a period of ten (10) Business Days after written notice by the Holder to the Corporation; (iv) any representation or warranty made by the Corporation contained in this Debenture, the Purchase Agreement, the Registration Rights Agreement or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby or thereby is inaccurate or misleading in any material respect as of the date such representation or warranty was made; and (v) a default occurs under or with respect to any instrument that evidences Debt of the Corporation, after giving effect to any applicable grace or cure period and to any waiver granted in writing by the holder of such Debt and the result thereof is to cause such Debt to become due and payable prior to its stated maturity. 7. PRIORITY ON LIQUIDATION. In the event of (x) any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to the Corporation or to its creditors, as such, or to its assets or (y) the dissolution or other winding up of the Corporation, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy proceedings, or (z) any assignment for the benefit of creditors or any marshalling of the material assets or material liabilities of the Corporation (each a "Liquidation Event"), then, and in any such event, the Holder of this Debenture shall first be entitled to receive payment in full of all principal of, and all Interest and other amounts due or to become due on, this Debenture before any payment on account of principal, premium, if any, interest, dividends or any other amounts is made on any Debt (other than Senior Debt) of the Corporation or Junior Securities, whether on account of any purchase, exchange or redemption or other acquisition of such Debt or Junior Securities, at maturity or otherwise. 8. SUBORDINATION. Notwithstanding anything to the contrary contained herein, this Debenture and the Corporation's obligation to make any payment of principal, interest, premium, liquidated damages or any other amounts hereunder shall constitute a portion of the "Obligations" under and as defined in the Purchase Agreement and, as such, shall be subordinated to the prior payment in full and in cash of the Senior Debt on the terms provided in Section 6 of the Purchase Agreement, all of which are incorporated herein by reference. By its acceptance hereof, the Holder agrees to be bound by the terms of the Purchase Agreement, including Section 6 thereof, as if such Holder were a "Purchaser" thereunder, whether or not such Holder is a signatory thereto. 9. MISCELLANEOUS. (a) Failure to Exercise Rights not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof. All rights and remedies of the Holder hereunder are cumulative and not exclusive of any rights or remedies otherwise available. (b) Notices. Any notice, demand or request required or permitted to be given by the Corporation or the Holder pursuant to the terms of this Debenture shall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such delivery is made on a day that is not a Business Day, in which case such delivery will be deemed to be made on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows: If to the Corporation: CTS Corporation 905 West Boulevard North Elkhart, Indiana 46514 Attn: Chief Financial Officer/General Counsel Tel: (219) 293-7511 Fax: (219) 293-6146 and if to the Holder, at such address as the Holder shall have furnished the Corporation in writing. Each of the Corporation and the Holder may change its address for notices by designating a new address by notice given to the other in accordance with this Section 9(b). (c) Amendments. No amendment, modification or other change to, or waiver of any provision of, this Debenture may be made unless such amendment, modification, change or waiver is set forth in writing and is executed and delivered by the Corporation and the Holders of at least a majority of the unpaid principal amount of the Debentures, it being understood that, (i) notwithstanding anything to the contrary contained in any Debenture, upon such execution and delivery, each Debenture (including any Debenture held by a Holder who did not execute and deliver such agreement ) shall be deemed to incorporate any amendment, modification, change or waiver effected thereby as of the effective date thereof and (ii) any such amendment, modification, change or waiver shall be subject to Section 6.9 of the Purchase Agreement, as incorporated herein by reference. (d) Transfer of Debenture. The Holder may sell, transfer or otherwise dispose of all or any part of this Debenture (including without limitation pursuant to a pledge) to any person or entity as long as such sale, transfer or disposition is (i) the subject of an effective registration statement under the Securities Act of 1933, as amended, or (ii) is exempt from registration thereunder and, if requested by the Corporation, the Holder delivers to the Corporation an opinion of counsel reasonably satisfactory to the Corporation (with respect to the counsel rendering the opinion and the form and substance of the opinion) to the effect of such exemption if requested by the Corporation, and (iii) does not result in the number of unaffiliated persons or entities who hold Debentures to be greater than ten (10). From and after the date of any such sale, transfer or disposition, the transferee hereof shall be deemed to be the Holder of a debenture in the principal amount acquired by such transferee, and the Corporation shall, as promptly as practicable, issue and deliver to such transferee a new debenture identical in all respects to this Debenture (but, if deemed appropriate by the Corporation, reflecting all principal amounts previously paid or converted), in the name of such transferee. The Corporation shall be entitled to treat the original Holder as the holder of this entire Debenture unless and until it receives written notice of the sale, transfer or disposition hereof. (e) Lost or Stolen Debenture. Upon receipt by the Corporation of evidence of the loss, theft, destruction or mutilation of this Debenture, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Corporation, and upon surrender and cancellation of the Debenture, if mutilated, the Corporation shall execute and deliver to the Holder a new Debenture identical in all respects to this Debenture. (f) Governing Law. This Debenture shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of law provisions thereof. (g) Successors and Assigns. The terms and conditions of this Debenture shall inure to the benefit of and be binding upon the respective successors (whether by merger or otherwise) and permitted assigns of the Corporation and the Holder. The Corporation may not assign its rights or obligations under this Debenture except as specifically required or permitted pursuant to the terms hereof and of the Purchase Agreement. [Signature Page to Follow] IN WITNESS WHEREOF, the Corporation has caused this Debenture to be signed in its name by its duly authorized officer on the date first above written. CTS CORPORATION By:____________________________ Name: Title: ANNEX I NOTICE OF CONVERSION The undersigned hereby elects to convert principal of the 6 1/2% Convertible Subordinated Debenture (the "Debenture") issued by CTS CORPORATION (the "Corporation") into shares of common stock ("Common Stock") of the Corporation according to the terms and conditions of the Debenture. Unless the undersigned indicates otherwise herein or in writing to the Corporation, the undersigned has sold or, immediately following the undersigned's receipt thereof, will sell such shares of Common Stock under an effective registration statement. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Debenture. Date of Conversion: -------------------------- Principal Amount of Debenture to be Converted: -------------------------- Number of Shares of Common Stock to be Issued: -------------------------- Name of Holder: -------------------------- Address: -------------------------- Signature: -------------------------- Name: Title: Holder Requests Delivery to be made: (check one) By Delivery of Physical Certificates to the Above Address Through Depository Trust Corporation (Account ) ANNEX II Schedule of Decreases of Principal Amount Principal Amount of Balance Decrease Date $[ ],000,000 ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- ------------------- ------------------- ----------------- EX-99 5 exbt99-3.txt EXHIBIT 99.3 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April 15, 2002, by and between CTS CORPORATION, an Indiana corporation (the "Company"), and each of the entities whose names appear on the signature pages hereof. Such entities are each referred to herein as a "Purchaser" and, collectively, as the "Purchasers". The Company has agreed, on the terms and subject to the conditions set forth in the Securities Purchase Agreement of even date herewith (the "Securities Purchase Agreement"), to issue and sell to each Purchaser named therein a 6 1/2% Convertible Subordinated Debenture (a "Closing Debenture" and, together with each other Closing Debenture issued thereunder, the "Closing Debentures"). In connection with such purchase and sale, the Company has granted to each Purchaser an option to purchase an additional debenture (an "Option Debenture" and, together with each other Option Debenture issued under the Securities Purchase Agreement, the "Option Debentures"). The Closing Debentures and the Option Debentures are collectively referred to herein as the "Debentures". The Debentures will be, upon the issuance thereof, convertible into shares (the "Conversion Shares") of the Company's common stock, without par value (the "Common Stock"), pursuant to the terms thereof. In order to induce each Purchaser to enter into the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the "Securities Act"), and under applicable state securities laws. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Securities Purchase Agreement. In consideration of each Purchaser entering into the Securities Purchase Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS. ----------- For purposes of this Agreement, the following terms shall have the meanings specified: (a) "Holder" means any person owning or having the right to acquire, through conversion of the Debentures or otherwise, Registrable Securities, including initially each Purchaser and thereafter any permitted assignee thereof who agrees in writing to be bound by the terms and conditions of this Agreement; (b) "Effective Date" means the date on which a Registration Statement is declared effective by the Securities and Exchange Commission (the "Commission"); (c) "Filing Deadline" means, in the case of the Initial Registration Statement, the Initial Filing Deadline and, in the case of the Option Registration Statement, the Option Filing Deadline; (d) "Initial Filing Deadline" means the thirtieth (30th) day following the Initial Closing Date; (e) "Initial Registration Deadline" means the one hundred and twentieth (120th) day following the Initial Closing Date; (f) "Initial Registration Statement" means the Registration Statement relating to resales of the Registrable Securities issued or issuable upon the conversion of the Closing Debentures; (g) "Option Filing Deadline" means the thirtieth (30th) day following the Option Closing Date; (h) "Option Registration Deadline" means the one hundred and twentieth (120th) day following the Option Closing Date; (i) "Option Registration Statement" means the Registration Statement relating to resales of the Registrable Securities issued or issuable upon the conversion or exercise of the Option Debentures; (j) "Register", "registered" and "registration" refer to a registration effected pursuant to this Agreement by preparing and filing a registration statement or statements, including any post-effective amendments, in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act ("Rule 415") or any successor rule providing for the offering of securities on a continuous or delayed basis (a "Registration Statement"), and the declaration or ordering of effectiveness of such Registration Statement by the Commission; (k) "Registration Period" has the meaning set forth in paragraph 2(c) below; and (l) "Registrable Securities" means the Conversion Shares and any other shares of Common Stock issuable pursuant to the terms of the Debentures, and any shares of capital stock issued or issuable from time to time (with any adjustments) in replacement of, in exchange for or otherwise in respect of the Conversion Shares. 2. REGISTRATION. ------------ (a) Initial Registration Statement. On or before the Initial Filing Deadline, the Company shall prepare and file with the Commission the Initial Registration Statement on Form S-3 as a "shelf" registration statement under Rule 415 covering the resale of a number of shares of Registrable Securities equal to one hundred percent (100%) of the number of shares of Common Stock issuable on the Initial Closing Date pursuant to the Closing Debentures at the conversion price then in effect. The Initial Registration Statement shall state, to the extent permitted by Rule 416 under the Securities Act, that it also covers such indeterminate number of shares of Common Stock as may be required to effect conversion of the Closing Debentures in order to prevent dilution resulting from stock splits, stock dividends or similar events. (b) Option Registration Statement. On or before the Option Filing Deadline, the Company shall prepare and file with the Commission the Option Registration Statement on Form S-3 as a "shelf" registration statement under Rule 415 covering the resale of the number of shares of Registrable Securities equal to one hundred percent (100%) of the number of shares of Common Stock issuable on the Option Closing Date pursuant to the Option Debentures at the conversion price then in effect. The Option Registration Statement shall also state, to the extent permitted by Rule 416 under the Securities Act, that it covers such indeterminate number of shares of Common Stock as may be required to effect conversion of the Option Debentures in order to prevent dilution resulting from stock splits, stock dividends or similar events. (c) Effectiveness. The Company shall use its commercially reasonable efforts to cause each Registration Statement to become effective as soon as practicable following the filing thereof, but in no event later than the applicable Registration Deadline. The Company shall respond promptly to any and all comments made by the staff of the Commission with respect to a Registration Statement (but in no event later than ten (10) Business Days following the Company's receipt thereof), and shall submit to the Commission, within two (2) Business Days after the Company learns that no review of a Registration Statement will be made by the staff of the Commission or that the staff of the Commission has no further comments on such Registration Statement, as the case may be, a request for acceleration of the effectiveness of such Registration Statement to a time and date not later than forty-eight (48) hours after the submission of such request. The Company will maintain the effectiveness of each Registration Statement until the earlier to occur of (i) the date on which all of the Registrable Securities eligible for resale thereunder have been publicly sold pursuant to either such Registration Statement or Rule 144 and (ii) the date on which all of the Registrable Securities remaining to be sold under such Registration Statement (in the reasonable opinion of counsel to the Holder) may be immediately sold to the public pursuant to Rule 144(k) (the period beginning on the Initial Closing Date and ending on the earlier to occur of (i) or (ii) above being referred to herein as the "Registration Period"). (d) Registration Default. If (A) a Registration Statement is not filed on or before the applicable Filing Deadline or declared effective by the Commission on or before the applicable Registration Deadline or (B) after a Registration Statement has been declared effective by the Commission, sales of Registrable Securities cannot be made by a Holder under such Registration Statement for any reason not within the exclusive control of such Holder (other than such Registrable Securities as are then freely saleable pursuant to Rule 144(k) and other than during an Allowed Delay (as defined below)), (each of (A) and (B) ) being referred to herein as a "Registration Default"), the Company shall make payments to each Holder equal to (i) for the first thirty (30) day period in which a Registration Default occurs (prorated for any period of less than thirty days), one-half of one percent (0.5%) of the principal amount of the Debentures then held by such Holder and (ii) for each thirty day period in which a Registration Default exists thereafter (prorated for any period of less than thirty days), one percent (1%) of such principal amount. Such payment shall be in addition to any other remedies available to each Holder at law or in equity or pursuant to the terms hereof or the Securities Purchase Agreement, the Debentures, or otherwise. 3. PIGGYBACK REGISTRATION. ----------------------- If at any time prior to the expiration of the Registration Period, (i) the Company proposes to register shares of Common Stock under the Securities Act, other than on Form S-8 or any successor form, in connection with a public offering of such shares for cash (a "Proposed Registration") and (ii) a Registration Statement covering the resale of all of the Registrable Securities is not then effective and available for sales thereof by the Holders, the Company shall, at such time, promptly give each Holder written notice of such Proposed Registration. Each Holder shall have ten (10) Business Days from its receipt of such notice to deliver to the Company a written request specifying the amount of Registrable Securities that such Holder intends to sell and such Holder's intended method of distribution. Upon receipt of such request, the Company shall use its best efforts to cause all Registrable Securities which the Company has been requested to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such Holder; provided, however, that the Company shall have the right to postpone or withdraw any Proposed Registration without obligation to the Holder. If, in connection with any underwritten public offering for the account of the Company or for stockholders of the Company that have contractual rights to require the Company to register shares of Common Stock, the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may be included in a Proposed Registration because, in the judgment of such underwriter(s), marketing or other factors dictate such limitation is necessary to facilitate such offering, then the Company shall be obligated to include in such Proposed Registration only such limited portion of the Registrable Securities with respect to which each Holder has requested inclusion hereunder as such underwriter(s) shall permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in a Proposed Registration, in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Proposed Registration or are not entitled to pro rata inclusion with the Registrable Securities; and provided, further, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities having the right to include such securities in the Proposed Registration. 4. OBLIGATIONS OF THE COMPANY. -------------------------- In addition to performing its obligations hereunder, including without limitation those pursuant to paragraphs 2(a), (b) and (c) above, the Company shall, with respect to each Registration Statement: (a) prepare and file with the Commission, other than during an Allowed Delay (as defined below), such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act or to maintain the effectiveness of such Registration Statement during the Registration Period, or as may be reasonably requested by a Holder in order to incorporate information concerning such Holder or such Holder's intended method of distribution; (b) on or before the Initial Closing, secure the listing of all Registrable Securities on the New York Stock Exchange, and provide each Holder with reasonable evidence thereof; (c) furnish to each Holder such number of copies of the prospectus included in such Registration Statement, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Holder may reasonably request in order to facilitate the disposition of such Holder's Registrable Securities, and the Company consents to the use of such prospectus and any amendment or supplement thereto in accordance with applicable law and the terms hereof by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities in accordance with the plan and manner of distribution which is attached hereto as Annex A and which will be included in the prospectus; (d) use all commercially reasonable efforts to register or qualify the Registrable Securities under the securities or "blue sky" laws of such jurisdictions within the United States as shall be reasonably requested from time to time by a Holder, and do any and all other acts or things which may be necessary or advisable to enable such Holder to consummate the public sale or other disposition of the Registrable Securities in such jurisdictions; provided that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 4(d), (ii) file any general consent to service of process or (iii) subject itself to taxation in any such jurisdiction if it is not so subject; (e) in the event of a Proposed Registration that takes the form of an underwritten public offering in which Holders of Registrable Securities will participate, enter into (together with all Holders proposing to distribute Registrable Securities through such underwriting) and perform its obligations under an underwriting agreement, in usual and customary form reasonably acceptable to the Company, with the managing underwriter of such offering; (f) notify each Holder immediately after becoming aware of the occurrence of any event as a result of which the prospectus included in such Registration Statement, as then in effect, contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and as promptly as practicable, prepare, file and furnish to each Holder a reasonable number of copies of a supplement or an amendment to such prospectus as may be necessary so that such prospectus does not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, provided that, for not more than (x) fifteen (15) consecutive Business Days or a total of not more than forty-five (45) calendar days in any twelve (12) month period, in connection with pending corporate developments, public filings with the Commission or similar events, or (y) thirty (30) consecutive Business Days in any twelve (12) month period in the event of a proposed or pending merger, acquisition, financing or similar transaction, the Company may delay the disclosure of material non-public information concerning such transaction the public disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company, in the best interests of the Company and which may, based on the advice of outside counsel, be delayed under applicable law or regulation (an "Allowed Delay"); provided, further, that the Company shall promptly (i) notify each Holder in writing of the existence of an Allowed Delay (but in no event, without the prior written consent of such Holder and the agreement of such Holder to maintain such information in confidence, shall the Company disclose to such Holder any of the facts or circumstances regarding any material non-public information) and (ii) advise each Holder in writing to cease all sales under such Registration Statement until the termination of the Allowed Delay; (g) use all commercially reasonable efforts to prevent the issuance of any stop order or other order suspending the effectiveness of such Registration Statement and, if such an order is issued, to obtain the withdrawal thereof at the earliest possible time and to notify each Holder of the issuance of such order and the resolution thereof; (h) notify each Holder of the termination of an Allowed Delay or the resolution of an order referred to in Section 4(g) (i) furnish to each Holder, on the date that such Registration Statement becomes effective, (x) a letter, dated such date, of outside counsel representing the Company addressed to such Holder, confirming the effectiveness of such Registration Statement and, to the knowledge of such counsel, the absence of any stop order, and (y) in the case of an underwritten Proposed Registration, (A) a copy of an opinion, dated the closing date of such Proposed Registration, of such outside counsel, in such form and substance as is required to be given to the underwriters, and (B) a letter addressed to such Holder, dated such closing date, from the Company's independent certified public accountants, in such form and substance as is required to be given by the Company's independent certified public accountants to such underwriters; (j) provide to each Holder and its representatives the reasonable opportunity to conduct a reasonable inquiry of the Company's financial and other records during normal business hours and make available its officers, directors and employees for questions regarding information which such Holder may reasonably request in order to fulfill any due diligence obligation on its part; (k) permit one counsel for each unaffiliated Holder to review such Registration Statement and all amendments and supplements thereto, and any comments made by the staff of the Commission concerning the Registration Statement and the Company's responses thereto, within a reasonable period of time prior to the filing thereof with the Commission (or, in the case of comments made by the staff of the Commission, within a reasonable period of time following the receipt thereof by the Company), provided that such counsel shall deliver any comments to the Company on any such amendment, supplement or comments within 24 hours of its receipt thereof; and (l) in the event that, at any time, the number of shares available under such Registration Statement is insufficient to cover one hundred percent 100% of the Registrable Securities eligible for resale thereunder and issuable under the related Debentures (such number to be determined using the conversion price in effect on such dates and without regard to any restriction on the ability of a Holder to convert such Holder's Debentures as of such date) the Company shall promptly amend such Registration Statement or file a new registration statement, in any event as soon as practicable, but not later than the tenth (10th) day following notice from a Holder of the occurrence of such event, so that such Registration Statement or such new registration statement, or both, covers no less than one hundred percent (100%) of the Registrable Securities eligible for resale thereunder and issuable under the related Debentures (such number to be determined using the Conversion Price in effect on such dates and without regard to any restriction on the ability of a Holder to convert such Debentures as of such date). Any Registration Statement filed pursuant to this paragraph 4 shall state that, to the extent permitted by Rule 416 under the Securities Act, such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Debentures. Unless and until such amendment or new Registration Statement becomes effective, each Holder shall have the rights described in Section 2(d) above. 5. OBLIGATIONS OF EACH HOLDER. -------------------------- In connection with the registration of Registrable Securities pursuant to a Registration Statement, each Holder shall: (a) timely furnish to the Company in writing such information regarding itself and the intended method of disposition of such Registrable Securities as the Company shall reasonably request in order to effect the registration thereof; (b) upon receipt of any notice from the Company of the happening of any event of the kind described in paragraphs 4(f) or 4(g), immediately discontinue any sale or other disposition of such Registrable Securities pursuant to such Registration Statement until the filing of an amendment or supplement as described in paragraph 4(f) or withdrawal of the stop order referred to in paragraph 4(g) and notification from the Company to such effect pursuant to paragraph 4(h) hereof; (c) in the event of an underwritten offering of such Registrable Securities in a Proposed Registration in which such Holder participates, enter into a customary and reasonable underwriting agreement and execute such other documents as the managing underwriter for such offering may reasonably request; (d) to the extent required by applicable law, deliver a prospectus to the purchaser of such Registrable Securities and comply with the method of distribution specified therein; (e) notify the Company when it has sold all of the R egistrable Securities held by it; and (f) notify the Company in writing in the event that any information supplied by such Holder in writing for inclusion in such Registration Statement or related prospectus is untrue or omits to state a material fact required to be stated therein or necessary to make such information not misleading in light of the circumstances then existing. 6. INDEMNIFICATION. --------------- In the event that any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the extent permitted by law, the Company shall indemnify and hold harmless each Holder, the officers, directors, employees, agents and representatives of such Holder, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, claims, damages, liabilities or reasonable out-of-pocket expenses (whether joint or several) (collectively, including legal or other expenses reasonably incurred in connection with investigating or defending same, "Losses"), insofar as any such Losses arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Subject to the provisions of paragraph 6(c) below, the Company will reimburse such Holder, and each such officer, director, employee, agent, representative or controlling person, for any legal or other expenses as reasonably incurred by any such entity or person in connection with investigating or defending any Loss; provided, however, that the foregoing indemnity shall not apply to amounts paid in settlement of any Loss if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be obligated to indemnify any person for any Loss to the extent that such Loss is based upon and is in conformity with written information furnished by such person expressly for use in such Registration Statement. (b) To the extent permitted by law, each Holder who is named in such Registration Statement as a selling stockholder, acting severally and not jointly, shall indemnify and hold harmless the Company, the officers, directors, employees, agents and representatives of the Company, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, against any Losses to the extent (and only to the extent) that any such Losses are based upon and in conformity with written information furnished by such Holder expressly for use in such Registration Statement. Subject to the provisions of paragraph 6(c) below, such Holder will reimburse any legal or other expenses as reasonably incurred by the Company and any such officer, director, employee, agent, representative, or controlling person, in connection with investigating or defending any such Loss; provided, however, that the foregoing indemnity shall not apply to amounts paid in settlement of any such Loss if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided, further, that, in no event shall any indemnity under this subsection 6(b) exceed the net proceeds resulting from the sale of the Registrable Securities sold by such Holder under such Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the reasonably incurred fees and expenses of one such counsel for all indemnified parties to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate under applicable standards of professional conduct due to actual or potential conflicting interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6 with respect to such action, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6 or with respect to any other action unless the indemnifying party is materially prejudiced as a result of not receiving such notice. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 6 is unavailable or insufficient to hold harmless an indemnified party for any reason, the Company and each Holder agree, severally and not jointly, to contribute to the aggregate Losses to which the Company or such Holder may be subject in such proportion as is appropriate to reflect the relative fault of the Company and such Holder in connection with the statements or omissions which resulted in such Losses; provided, however, that in no case shall such Holder be responsible for any amount in excess of the proceeds resulting from the sale of the Registrable Securities sold by it under the Registration Statement. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company or by such Holder. The Company and each Holder agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this Section 6, each person who controls a Holder within the meaning of either the Securities Act or the Exchange Act and each officer, director, employee, agent or representative of such Holder shall have the same rights to contribution as such Holder, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act and each officer, director, employee, agent or representative of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). (e) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which such indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement (i) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding; provided that such unconditional release may be subject to a parallel release of a claimant or plaintiff by such indemnified party from all liability in respect of claims or counterclaims asserted by such indemnified party, and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of any indemnified party; provided, further, that, as to each indemnified party withholding such consent, the maximum amount of the losses, damages or liabilities in respect of which such indemnified party may seek indemnification hereunder with respect to such claim is limited to the amount that the indemnifying party would have paid to or on behalf of such indemnified party had such indemnified party consented to such settlement. (f) The obligations of the Company and each Holder under this Section 6 shall survive the conversion of the Debentures in full, the completion of any offering or sale of Registrable Securities pursuant to a Registration Statement under this Agreement, or otherwise. 7. REPORTS. ------- With a view to making available to each Holder the benefits of Rule 144 under the Securities Act ("Rule 144") and any other similar rule or regulation of the Commission that may at any time permit such Holder to sell Registrable Securities of the Company to the public without registration, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) furnish to such Holder, so long as such Holder owns any Registrable Securities, forthwith upon written request (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) to the extent not publicly available through the Commission's EDGAR database, a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested by such Holder in connection with such Holder's compliance with any rule or regulation of the Commission which permits the selling of any such securities without registration. 8. SUBORDINATION. ------------- Notwithstanding anything to the contrary contained herein, this Agreement and the Company's obligations to make payment of any amounts hereunder shall constitute a portion of the "Obligations" under and as defined in the Securities Purchase Agreement and, as such, shall be subordinated to the prior payment in full and in cash of the "Senior Debt" under and as defined in the Securities Purchase Agreement on the terms provided in Section 6 thereof, all of which are incorporated herein by reference. Each Holder agrees to be bound by the terms of the Securities Purchase Agreement, including Section 6 thereof, as if such Holder were a "Purchaser" thereunder, whether or not such Holder is a signatory thereto. 9. MISCELLANEOUS. ------------- (a) Expenses of Registration. All reasonable expenses, other than underwriting discounts and commissions and fees and expenses of counsel to each Holder, incurred in connection with the registrations, filings or qualifications described herein, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, the fees and disbursements of counsel for the Company, and the fees and disbursements of accountants for the Company shall be borne by the Company. (b) Amendment; Waiver. Any provision of this Agreement may be amended or waived only pursuant to a written instrument executed by the Company and the holders of at least a majority of the principal amount of the Debentures then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder, each future Holder, and the Company. The failure of any party to exercise any right or remedy under this Agreement or otherwise, or the delay by any party in exercising such right or remedy, shall not operate as a waiver thereof. (c) Notices. Any notice, demand or request required or permitted to be given by the Company or a Holder pursuant to the terms of this Agreement shall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such delivery is made on a day that is not a Business Day, in which case such delivery will be deemed to be made on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows: If to the Company: CTS Corporation 905 West Boulevard North Elkhart, Indiana 46514 Attn: Chief Financial Officer/General Counsel Tel: (219) 293-7511 Fax: (219) 293-6146 and if to a Holder, to such address as shall be designated by such Holder in writing to the Company. (d) Assignment. Upon the transfer of a Debenture or Registrable Securities by a Holder, the rights of such Holder hereunder with respect to such Debenture or securities so transferred shall be assigned automatically to the transferee thereof as long as: (i) the Company is, within a reasonable period of time following such transfer, furnished with written notice of the name and address of such transferee, (ii) the transferee agrees in writing with the Company to be bound by all of the provisions hereof, and (iii) such transfer is made in accordance with the applicable requirements of the Securities Purchase Agreement; provided, however, that the registration rights granted in this Agreement shall not be transferred to any person or entity that receives a Debenture or Registrable Securities pursuant to an effective registration statement under the Securities Act or pursuant to a public transaction under Rule 144 or any successor provision thereto. (e) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall be deemed one and the same instrument. This Agreement, once executed by a party, may be delivered to any other party hereto by facsimile transmission. (f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflict of laws provisions thereof. [Signature Page to Follow] IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI ---------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Halifax Fund, L.P. By: /s/ MAURICE HRYSHKO ------------------------------------------------ Maurice Hryshko IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI --------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer DeAM Convertible Arbitrage Fund, Ltd. By: /s/ MAURICE HRYSHKO ----------------------------------------------- Maurice Hryshko IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI ---------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Palladin Overseas Fund, Ltd. By: /s/ MAURICE HRYSHKO ------------------------------------------------- Maurice Hryshko IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI --------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Lancer Securities (Cayman) Ltd. By: /s/ MAURICE HRYSHKO ----------------------------------------------- Maurice Hryshko IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI ---------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Palladin Partners I, L.P. By: /s/ MAURICE HRYSHKO ------------------------------------------------ Maurice Hryshko IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI ----------------------------------------------- Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Steelhead Investments, Ltd. By: /s/ WILLIAM E. ROSE ------------------------------------------------- William E. Rose IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. CTS CORPORATION By: /s/ VINOD M. KHILNANI ------------------------------------------------ Name: Vinod M. Khilnani Title: Senior Vice President and Chief Financial Officer Ram Trading, Ltd. By: /s/ JAMES R. PARK -------------------------------------------------- James R. Park ANNEX A Plan of Distribution The selling security holders may sell the securities from time to time on any stock exchange or automated interdealer quotation system on which the securities are listed, in the over-the-counter market, in privately negotiated transactions or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at prices otherwise negotiated. The selling security holders may sell the securities by one or more of the following methods: (a) block trades in which the broker or dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by the broker or dealer for its own account; (c) ordinary brokerage transactions and transactions in which the broker solicits purchases; (d) privately negotiated transactions; (e) short sales; (f) through option or derivatives transactions; and (g) any combination of any of these methods of sale. The selling security holders may engage brokers and dealers, and any brokers or dealers may arrange for other brokers or dealers to participate in effecting sales of the securities. These brokers, dealers or underwriters may act as principals, or as an agent of a selling security holder. Broker-dealers may agree with a selling security holder to sell a specified number of the securities at a stipulated price per security. If the broker-dealer is unable to sell securities acting as agent for a selling security holder, it may purchase as principal any unsold securities at the stipulated price. Broker-dealers who acquire securities as principals may thereafter resell the securities from time to time in transactions on any stock exchange or automated interdealer quotation system on which the securities are then listed, at prices and on terms then prevailing at the time of sale, at prices related to the then-current market price or in negotiated transactions. Broker-dealers may use block transactions and sales to and through broker-dealers, including transactions of the nature described above. The selling security holders may also sell the securities that qualify in accordance with Rule 144 under the Securities Act of 1933, as amended, rather than pursuant to this prospectus, regardless of whether the securities are covered by this prospectus. To the extent required under the Securities Act of 1933, as amended, the aggregate amount of selling security holders' securities being offered and the terms of the offering, the names of any agents, brokers, or dealers and any applicable commission with respect to a particular offer will be set forth in an accompanying prospectus supplement. Any dealers, brokers or agents participating in the distribution of the securities may receive compensation in the form of underwriting discounts, concessions, commissions or fees from a selling security holder and/or purchasers of selling security holders' securities, for whom they may act (which compensation as to a particular broker-dealer might be in excess of customary commissions). The selling security holders and any brokers, dealers or agents that participate in the distribution of the securities may be deemed to be "underwriters" within the meaning of the Securities Act of 1933, as amended, and any discounts, concessions, commissions or fees received by them and any profit on the resale of the securities sold by them may be deemed to be underwriting discounts and commissions. A selling security holder may enter into hedging transactions with broker-dealers and the broker-dealers may engage in short sales of the securities in the course of hedging the positions they assume with that selling security holder, including, without limitation, in connection with distributions of the securities by those broker-dealers. The selling security holders and other persons participating in the sale or distribution of the securities will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including Regulation M. This regulation may limit the timing of purchases and sales of any of the securities by the selling security holders and any other person. The anti-manipulation rules under the Securities Exchange Act of 1934, as amended, may apply to sales of securities in the market and to the activities of the selling security holders and their affiliates. Furthermore, Regulation M may restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities with respect to the particular securities being distributed for a period of up to five business days before the distribution. These restrictions may affect the marketability of the securities and the ability of any person or entity to engage in market-making activities with respect to the securities. The Company has agreed to indemnify in certain circumstances the selling security holders against certain liabilities, including liabilities under the Securities Act of 1933, as amended. The selling security holders have agreed to indemnify the Company in certain circumstances against certain liabilities, including liabilities under the Securities Act of 1933, as amended. -----END PRIVACY-ENHANCED MESSAGE-----