Document:

<PAGE>
                                                                               .
                                                                               .
                                                                               .
                                                                    EXHIBIT 10.2

MACQUARIE BANK LIMITED
ABN 46 008 583 542

<Table>

<S>                     <C>                                         <C>
No. 1 Martin Place      Telephone (612)8232 3333                    Treasury 8232 3600 Facsimile 8232  Facsimile 8232 4227
Sydney NSW  2000        Facsimile (612)8232 6926                    Foreign Exchange 8232 3666 Facsimile 8232 3019
GPO Box 4294            Telex 122246                                Metals and Mining 8232 3444 Facsimile 8232 3590
Sydney NSW 1164         Internet http://www.macquarie.com.au        Futures 8232 3555 Facsimile 8232 9743
                        DX 10287 SSE                                Debt Markets 8232 8569 Facsimile 8232 8341
                        SWIFT MACQAU2S                              Agricultural Commodities 8232 7672 Facsimile 8232 3533
</Table>

27 July 2004

Petro Quest Energy, L.L.C.
Attn:  Michael O. Aldridge
400 E. Kaliste Saloom Rd.
Suite 6000
Lafayette, Louisiana 70508

        Re:  Second Amendment to the Second Lien Secured Credit Agreement dated
             as of November 6, 2003 (as amended, the "Credit Agreement")
             between PetroQuest Energy, L.L.C. ("PetroQuest"), and Macquarie
             Bank Limited (in its individual capacity and as Administrative
             Agent, "Macquarie"), as assignee of Macquarie Americas Corp.

Dear Mike:

         The purpose of this letter is to document the adjustment to the G & A
Expenses of the Borrower and the Guarantor. As such, the following modification
is made to the Credit Agreement:

         Section 7.14 General and Administrative Expenses Permit Borrower's and
         Guarantor's consolidated G&A Expenses to exceed

                  (a) for each of the three calendar quarters commencing April
         1, 2004, July 1, 2004 and October 1, 2004 the lesser of (i) three
         million two hundred and fifty thousand dollars ($3,250,000) or (ii)
         thirty-one percent (31%) of the Tax Adjusted Gross Margin; provided,
         however, if Borrower's and Guarantor's consolidated G&A Expenses for
         any quarter exceed 31% of the Tax Adjusted Gross Margin, the maximum
         allowable consolidated G&A Expenses for Borrower and Guarantor during
         the immediately succeeding quarter will be 18% of the Tax Adjusted
         Gross margin; and provided further that a breach of clause (ii) of this
         Section 7.14 can only form the basis of an Event of Default if
         Borrower's and Guarantor's consolidated G&A Expenses exceed (x) 31% of
         the Tax Adjusted Gross Margin during any quarter and (y) 18% of the Tax
         Adjusted Gross Margin during the immediately succeeding quarter and
         provided further that,
<PAGE>
MACQUARIE BANK LIMITED                                                         2

         notwithstanding anything in this Section 7.14 to the contrary, the
         consolidated G&A Expenses of Borrower and Guarantor shall not exceed
         35% of the Tax Adjusted Gross Margin; and

                  (b) for each calendar quarter commencing January 1, 2005 the
         lesser of (i) three million dollars ($3,000,000) or (ii) thirty-one
         percent (31%) of the Tax Adjusted Gross Margin; provided, however, if
         Borrower's and Guarantor's consolidated G&A Expenses for any quarter
         exceed 31% of the Tax Adjusted Gross Margin, the maximum allowable
         consolidated G&A Expenses for Borrower and Guarantor during the
         immediately succeeding quarter will be 18% of the Tax Adjusted Gross
         margin; and provided further that a breach of clause (ii) of this
         Section 7.14 can only form the basis of an Event of Default if
         Borrower's and Guarantor's consolidated G&A Expenses exceed (x) 31% of
         the Tax Adjusted Gross Margin during any quarter and (y) 18% of the Tax
         Adjusted Gross Margin during the immediately succeeding quarter; and
         provided further that, notwithstanding anything in this Section 7.14 to
         the contrary, the consolidated G&A Expenses of Borrower and Guarantor
         shall not exceed 35% of the Tax Adjusted Gross Margin.

         Upon your acknowledgment of this letter, this modification will be
effective as of June 30, 2004. Except as expressly modified by the terms of this
letter, however, nothing in this letter will be construed as an amendment to or
waiver of any provision in the Credit Agreement or any of the other Loan
Documents.

         To confirm your agreement to modify the Credit Agreement as described
in this letter, please execute the enclosed copy of this letter in the space
provided and return a fully executed original for our files. If you have any
questions, please contact Paul Beck at (713) 986-3601.

Very truly yours,

MACQUARIE BANK LIMITED,
an Australian incorporated bank

By:  /s/ NICHOLAS O'KANE
   --------------------------
Name: NICHOLAS O'KANE
     ------------------------
Title: EXECUTIVE DIRECTOR
      -----------------------

By:  /s/ THOMAS CULLINAN
   --------------------------
Name: Thomas Cullinan
     ------------------------
Title: Attorney
      -----------------------

Agreed on this 27 day of July, 2004.
<PAGE>
MACQUARIE BANK LIMITED                                                         3

PETROQUEST ENERGY, L.L.C.,
a Louisiana limited liability company

/s/ MICHAEL O. ALDRIDGE
-----------------------
Michael O. Aldridge
Treasurer

Acknowledged this 27th day of July, 2004.

BANK ONE, N.A.
a national banking association

By: /s/ Jo LINDA PAPADAKIS
   -------------------------
Name: Jo Linda Papadakis
     -----------------------
Title: Associate Director
      ----------------------exv4w7

 

EXHIBIT 4.7

[FORM OF FACE OF NOTE]

          [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS
A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS
SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON
OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN
PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY
OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.]1

          [THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE ''SECURITIES ACT OF 1933’’) OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER:

    (1) REPRESENTS THAT (A) IT IS A ''QUALIFIED INSTITUTIONAL BUYER’’ AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT OF 1933 OR (B) IT IS AN
INSTITUTIONAL “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)(1), (2),
(3) or (7) UNDER THE SECURITIES ACT OF 1933 (AN “INSTITUTIONAL ACCREDITED
INVESTOR”) THAT IS PURCHASING AT LEAST $100,000 IN AGGREGATE PRINCIPAL
AMOUNT OF THE SECURITY EVIDENCED HEREBY;

    (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE
SECURITY EVIDENCED HEREBY OR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF SUCH SECURITY EXCEPT (A) TO THE

	 	 	1 This legend should be included only if the Note is a Global Security.

 

 

COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER AS DEFINED IN, AND IN COMPLIANCE WITH, RULE 144A UNDER THE
SECURITIES ACT OF 1933, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT OF 1933 (IF AVAILABLE), (D)
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933 TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO WELLS FARGO BANK, N.A., AS TRUSTEE
(OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS AND
OPINION OF COUNSEL REQUIRED BY THE COMPANY OR THE TRUSTEE OR (E) PURSUANT
TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT OF 1933 AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF
SUCH TRANSFER; AND

    (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY
EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE
2(C) OR 2(E) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND.]2

          [THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION
RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED TO ON THE
REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO
COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS
AGREEMENT.]2

	 	 	2 This legend should be included only if the Note is a Transfer Restricted
Security.

 

 

CTS CORPORATION

2.125% Convertible Senior Subordinated Notes due 2024

$__________

      

			
	No.    
	 	CUSIP: 126501 AA 3

     CTS CORPORATION, an Indiana corporation (the “Company”, which term shall
include any successor Person under the Indenture referred to on the reverse
hereof), for value received, promises to pay to           , or
registered assigns, on May 1, 2024, the principal amount of           
Dollars[, or such lesser or greater principal amount at Stated Maturity as is
indicated in the records of the Trustee and the Depositary in accordance with
the Indenture].3

     In addition, for value received, the Company hereby promises to pay to the
Holder of this Note, or registered assigns, from May 11, 2004, or from the most
recent Interest Payment Date to which interest has been paid or provided for,
to, but not including, May 1, 2024, interest at an annual rate of 2.125% of the
principal amount of this Note. Interest on this Note is payable semi-annually
in arrears on May 1 and November 1 in each year (each, an “Interest Payment
Date”), with the first Interest Payment Date being November 1, 2004. Each
payment of cash interest on this Note will include interest accrued through the
day before the applicable Interest Payment Date.

     The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date shall, except as provided in the Indenture, be paid to
the Person in whose name this Note (or one or more predecessor Notes) is
registered at the close of business on the regular record date for such
interest, which shall be the April 15 or October 15 (whether or not a Business
Day), as the case may be, next preceding the corresponding Interest Payment
Date (a “Regular Record Date”). Any such interest and Additional Interest, not
so punctually paid or duly provided for shall forthwith cease to be payable to
the Holder on such Regular Record Date and may be paid (a) to the Person in
whose name this Note (or one or more predecessor Notes) is registered at the
close of business on a special record date for the payment of such defaulted
interest to be fixed by the Trustee (a “Special Record Date”), notice whereof
shall be given to Holders not less than 10 calendar days prior to such Special
Record Date, or (b) at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in the Indenture.

     Reference is hereby made to the further provisions of this Note set forth
on the reverse side of this Note, which further provisions shall for all
purposes have the same effect as if set forth at this place.

	 	 	3 This phrase should be included only if the Note is a Global Security.

 

 

     IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

	 	 	 	 	 
	Dated:
	 	CTS CORPORATION
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	
 
	

	 	Name:	 	 
	

	 	 	 	
 
	

	 	Title:	 	 
	

	 	 	 	
 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

     This is one of the Notes referred to in the within-mentioned Indenture.

	 	 	 	 	 
	Dated:
	 	WELLS FARGO BANK, N.A.,
	 
	 	as Trustee
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	
 

 

 

[FORM OF REVERSE OF NOTE]

2.125% Convertible Senior Subordinated Notes due 2024

     This Note is one of a duly authorized issue of 2.125% Convertible Senior
Subordinated Notes due 2024 (the “Notes”) of CTS CORPORATION, an Indiana
corporation (including any successor corporation under the Indenture
hereinafter referred to, the “Company”), issued under an Indenture, dated as of
May 11, 2004 (the “Indenture”), among the Company and Wells Fargo Bank, N.A.,
as Trustee (the “Trustee”). The terms of the Note include those stated in the
Indenture, those made part of the Indenture by reference to the Trust Indenture
Act of 1939, as amended (“TIA”), and those set forth in this Note. This Note
is subject to all such terms, and Holders are referred to the Indenture and the
TIA for a statement of all such terms. To the extent permitted by applicable
law, in the event of any inconsistency between the terms of this Note and the
terms of the Indenture, the terms of the Indenture shall control. Capitalized
terms used but not defined herein have the meanings assigned to them in the
Indenture referred to below unless otherwise indicated.

1. Interest.

     Interest on the Notes shall be computed on the basis of a 360-day year of
twelve 30-day months.

     If this Note is redeemed pursuant to Section 5 of this Note or the Holder
elects to require the Company to purchase this Note pursuant to Section 6 of
this Note, on a date that is after the Regular Record Date and on or before the
corresponding Interest Payment Date, interest and Additional Interest, if any,
accrued and unpaid hereon to, but excluding, the applicable Redemption Date,
Purchase Date or Fundamental Change Purchase Date shall be paid to the same
Holder to whom the Company pays the principal of this Note. Interest and
Additional Interest, if any, accrued and unpaid hereon at the Stated Maturity
also shall be paid to the same Holder to whom the Company pays the principal of
this Note.

     Interest and Additional Interest, if any, on Notes converted after the
close of business on a Regular Record Date but prior to the opening of business
on the corresponding Interest Payment Date shall be paid to the Holder of the
Notes on the Regular Record Date but, upon conversion, the Holder must pay the
Company an amount equal to the interest and Additional Interest, if any, which
has accrued and shall be paid on such Interest Payment Date. No such payment
need be made with respect to Notes converted after a Regular Record Date and
prior to the corresponding Interest Payment Date after being called for
redemption or upon acceleration.

     All references herein to interest accrued or payable as of any date shall,
without duplication, be deemed to include Additional Interest, if any, payable
pursuant to the Registration Rights Agreement.

2. Method of Payment.

     Payment of the principal of and interest on the Notes shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of

 

 

public and private debts. The Holder must surrender the Notes to the
Paying Agent to collect payment of principal. Payment of interest on
Certificated Securities in the aggregate principal amount of $5,000,000 or less
shall be made by check mailed to the address of the Person entitled thereto as
such address appears in the Register, and payment of interest on Certificated
Securities in aggregate principal amount in excess of $5,000,000 shall be made
by wire transfer in immediately available funds at the election of such Holder.
Notwithstanding the foregoing, so long as the Notes are registered in the name
of a Depositary or its nominee, all payments with respect to the Notes shall be
made by wire transfer of immediately available funds to the account of the
Depositary or its nominee. At the Stated Maturity, interest, Additional
Interest, if any, on Certificated Securities will be payable at the office or
agency of the Company described in the Indenture.

3. Paying Agent, Registrar, Conversion Agent.

     Initially, Wells Fargo Bank, N.A. shall act as Paying Agent, Registrar and
Conversion Agent. The Company may appoint and change any Paying Agent,
Registrar and Conversion Agent without notice, other than notice to the
Trustee; provided that the Company shall maintain at least one Paying Agent in
the Borough of Manhattan, New York, New York, which shall initially be an
office or agency of the Trustee.

4. Indenture.

     The Notes are general senior obligations of the Company limited to up to
$60,000,000 (or up to $70,000,000 if the Initial Purchaser’s option to purchase
additional Securities set forth in the Purchase Agreement is exercised in full)
aggregate principal amount. The Indenture does not limit other indebtedness of
the Company, secured or unsecured.

5. Redemption of the Notes by the Company.

     Subject to the terms and conditions of the Indenture, the Company may, at
its option, redeem for cash all or a portion of the Notes at any time on or
after May 1, 2009 at a Redemption Price equal to 100% of the principal amount
of the Notes to be redeemed plus accrued and unpaid interest (including
Additional interest, if any) to, but not including, the Redemption Date.

     At least 20 calendar days but not more than 60 calendar days before a
Redemption Date, the Company shall mail a notice of redemption by first-class
mail, postage prepaid, to each Holder of Notes to be redeemed. Once notice of
redemption is given, Notes called for redemption become due and payable on the
Redemption Date and at the Redemption Price, except for Notes which are
converted in accordance with the terms of this Indenture. Upon surrender to
the Paying Agent, such Notes shall be paid at the Redemption Price. If the
Paying Agent holds, in accordance with the terms hereof, at 10:00 a.m., New
York City time, on the applicable Redemption Date, cash sufficient to pay the
Redemption Price of any Notes for which notice of redemption is given, then, on
such Redemption Date, such Notes shall cease to be outstanding and interest and
Additional Interest, if any, on such Notes shall cease to accrue, whether or
not such Notes are delivered to the Paying Agent, and the rights of the Holders
in

 

 

respect thereof shall terminate (other than the right to receive the
Redemption Price upon delivery of such Notes).

6. Purchase by the Company at the Option of the Holder on Specific Dates;
Purchase at the Option of the Holder Upon a Fundamental Change.

     Each Holder shall have the right, at the Holder’s option, but subject to
the provisions of the Indenture, to require the Company to purchase all of such
Holder’s Notes not theretofore called for redemption, or any portion of the
principal amount thereof that is equal to $1,000 or an integral multiple
thereof, on each of May 1, 2009, May 1, 2014 and May 1, 2019. The Company
shall be required to purchase such Notes at a purchase price in cash equal to
100% of the principal amount plus accrued and unpaid interest and Additional
Interest, if any, to, but excluding, the Purchase Date. To exercise such
right, a Holder shall deliver a Purchase Notice to the Paying Agent at any time
from the opening of business on the date that is 22 Business Days prior to the
relevant Purchase Date until the close of business on the second Business Day
prior to such Purchase Date.

     In the event that a Fundamental Change shall occur at any time prior to
the Stated Maturity, each Holder shall have the right, at the Holder’s option,
but subject to the provisions of the Indenture, to require the Company to
purchase all of such Holder’s Notes not theretofore called for redemption, or
any portion of the principal amount thereof that is equal to $1,000 or an
integral multiple thereof. The Company shall be required to purchase such
Notes at a purchase price in cash equal to 100% of the principal amount plus
any accrued and unpaid interest and Additional Interest, if any to, but
excluding, the Fundamental Change Purchase Date. To exercise such right, a
Holder shall deliver a Fundamental Change Purchase Notice to the Paying Agent
at any time on or before the 20th Business Day after the date of the Company’s
notice of the Fundamental Change (subject to extension to comply with
applicable law).

     Holders have the right to withdraw any Purchase Notice or Fundamental
Change Purchase Notice by delivering to the Paying Agent a written notice of
withdrawal in accordance with the provisions of the Indenture.

     If the Paying Agent holds, in accordance with the terms hereof, at 10:00
a.m., New York City time, on the applicable Purchase Date or Fundamental Change
Purchase Date, cash sufficient to irrevocably pay the Purchase Price or
Fundamental Change Purchase Price, as the case may be, of any Notes for which a
Purchase Price or Fundamental Change Purchase Notice, as the case may be, has
been tendered and not withdrawn pursuant to the Indenture, then, on such
Purchase Date or Fundamental Change Purchase Date, as the case may be, such
Notes shall cease to be outstanding and interest and Additional Interest, if
any, on such Notes shall cease to accrue, whether or not such Notes are
delivered to the Paying Agent, and the rights of the Holders in respect thereof
shall terminate (other than the right to receive the Purchase Price or
Fundamental Change Purchase Price, as the case may be, upon delivery of such
Notes).

7. Conversion.

     Subject to and in compliance with the provisions of the Indenture
(including, without limitation, the conditions to conversion of this Note set
forth in Section 12.1 thereof), a

 

 

Holder is entitled, at such Holder’s option, to convert the Holder’s Note
(or any portion of the principal amount thereof that is $1,000 or an integral
multiple thereof), into fully paid and non-assessable shares of Common Stock at
the Conversion Rate in effect on the date of conversion. The number of shares
of Common Stock issuable upon conversion of each $1,000 of principal amount of
Notes is initially 66.6667 shares of Common Stock, and is subject to adjustment
in certain events as set forth in the Indenture.

     Upon conversion, the Company shall have the right to deliver, in lieu of
shares of Common Stock, cash or a combination of cash and shares of Common
Stock as provided in the Indenture. The Company shall notify Holders of any
event triggering the right to convert the Notes as specified in the Indenture
in accordance with the Indenture.

     With respect to any conversion of a Note during a Registration Default
Period following satisfaction of any of the conditions to conversion described
in the Indenture (and during the prescribed time periods in respect thereof), a
Holder shall be entitled, subject to the Indenture, to 103% of the number of
shares of Common Stock that the Holder would have otherwise been entitled to
upon conversion in respect of the portion of the Conversion Obligation that the
Company settles in Common Stock.

     A Note in respect of which a Holder has delivered a Purchase Notice or
Fundamental Change Purchase Notice, as the case may be, exercising the right of
such Holder to require the Company to purchase such Note may be converted only
if such Purchase Notice or Fundamental Change Purchase Notice is withdrawn in
accordance with the terms of the Indenture.

     Except as described in the Indenture, the Company will not make any
payment in cash or Common Stock or other adjustment for accrued and unpaid
interest or Additional interest on any Notes when they are converted. The
Company’s delivery to the Holder of the full number of shares of Common Stock
into which the Note is convertible (or, at the Company’s option, cash, or a
combination of cash and Common Stock, in lieu thereof as provided in the
Indenture), together with any cash payment for such Holder’s fractional shares,
shall be deemed to satisfy the Company’s obligation to pay the principal amount
of the Note and to satisfy its obligation to pay accrued and unpaid interest
and Additional Interest, if any through the conversion date. As a result,
accrued interest, Additional Interest are deemed paid in full rather than
cancelled, extinguished or forfeited. Notwithstanding the foregoing, accrued
interest and Additional Interest, if any, will be payable upon any conversion
of Notes made concurrently with or after acceleration of the Notes following an
Event of Default.

     Before any Holder shall be entitled to convert any Notes into Common
Stock, such Holder shall, in the case of Global Securities, comply with the
Applicable Procedures of the Depositary in effect at that time, and in the case
of Certificated Securities, surrender such Securities, duly endorsed to the
Company or in blank, at the office of the Conversion Agent, and shall give
written notice to the Company at said office or place in the form of the
Conversion Notice attached to the Note that such Holder elects to convert the
same and shall state in writing therein the principal amount of Notes to be
converted (in whole or in part so long as the principal amount to be converted
is in multiples of $1,000) and the name or names (with addresses) in which such
Holder wishes the certificate or certificates for Common Stock to be issued.
Before

 

 

any such conversion, a Holder also shall pay all funds required, if any,
relating to interest or Additional Interest, if any, on the Notes, as provided
in the Indenture, and all taxes or duties, if any, as provided in the
Indenture.

     If the Company (i) reclassifies the Common Stock, (ii) is a party to a
consolidation, merger or binding share exchange or (iii) conveys, transfers or
leases all or substantially all of its properties and assets to any Person, the
right to convert a Note into shares of Common Stock may be changed into a right
to convert it into securities, cash or other assets of the Company or such
other Person, in each case in accordance with the Indenture.

8. Denominations; Transfer; Exchange.

     The Notes shall be issued in fully registered form, without coupons, in
denominations of $1,000 of the principal amount and integral multiples thereof.
A Holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. Neither the Company, the Registrar nor the
Trustee shall be required to exchange or register a transfer of (i) any Notes
selected for redemption (except, in the case of Notes to be redeemed in part,
the portion thereof not to be redeemed), or (ii) any Notes in respect of which
a Purchase Notice or a Fundamental Change Purchase Notice has been given and
not withdrawn by the Holder thereof in accordance with the terms of this
Indenture (except, in the case of Notes to be repurchased in part, the portion
thereof not to be repurchased), or (iii) any Notes surrendered for conversion
(except, in the case of Notes to be converted in part, the portion thereof not
to be converted).

9. Persons Deemed Owners.

     The registered Holder of this Note may be treated as the owner of this
Note for all purposes.

10. Unclaimed Money or Securities.

     The Trustee and the Paying Agent shall return to the Company upon written
request any cash or securities held by them for the payment of any amount with
respect to the Notes that remains unclaimed for two years, subject to
applicable unclaimed property law. After return to the Company, Holders
entitled to the money or securities must look to the Company for payment as
general creditors unless an applicable abandoned property law designates
another person.

11. Subordination.

     The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, expressly subordinate and subject in right of
payment to the prior payment in full of all Senior Debt of the Company, as
defined in the Indenture, whether outstanding at the date of the Indenture or
thereafter incurred, and this Note is issued subject to the provisions of the
Indenture with respect to such subordination. Each Holder of this Note, by
accepting the same, agrees to and shall be bound by such provisions and
authorizes the Trustee

 

 

on its behalf to take such action as may be necessary or appropriate to
effectuate the subordination so provided and appoints the Trustee his
attorney-in-fact for such purpose.

12. Relationship to Subordinated Debt.

     The Notes shall be “Senior Debt” (as therein defined) for purposes of the
Company’s 6-1/2% Convertible Subordinated Debentures issued on April 16, 2002.

13. Amendment; Waiver.

     Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent or affirmative
vote of the Holders of at least a majority in aggregate principal amount of the
outstanding Notes and (ii) certain Defaults may be waived with the written
consent or affirmative vote of the Holders of a majority in aggregate principal
amount of the outstanding Notes.

     The Company and the Trustee may amend the Indenture or the Notes without
the consent of any Holder to (a) add to the covenants of the Company for the
benefit of the Holders of Notes; (b) surrender any right or power herein
conferred upon the Company; (c) provide for conversion rights of Holders of
Notes if any reclassification or change of the Common Stock or any
consolidation, merger or sale of all or substantially all of the Company’s
assets occurs; (d) provide for the assumption of the Company’s obligations to
the Holders of Notes in the case of a merger, consolidation, conveyance,
transfer, sale, lease or other disposition pursuant to Article VII of the
Indenture; (e) increase the Conversion Rate; provided, however, that such
increase in the Conversion Rate shall not adversely affect the interests of the
Holders of Notes (after taking into account tax and other consequences of such
increase); (f) require the Company to settle its Conversion Obligation in cash
with respect to the principal amount of Notes surrendered for conversion if a
Principal Conversion Settlement Election has been made; (g) comply with the
requirements of the SEC in order to effect or maintain the qualification of
this Indenture under the TIA; (h) make any changes or modifications necessary
in connection with the registration of the Notes under the Securities Act as
contemplated in the Registration Rights Agreement; provided, however, that such
action pursuant to this clause (h) does not, in the good faith opinion of the
Board of Directors (as evidenced by a Board Resolution), adversely affect the
interests of the Holders of Notes in any material respect; (i) to evidence and
provide the acceptance of the appointment of a successor trustee hereunder; (j)
add guarantees with respect to the Notes or secure the Notes; (k) cure any
ambiguity, correct or supplement any provision in the Indenture which may be
inconsistent with any other provision therein or which is otherwise defective,
or to make any other provisions with respect to matters or questions arising
under the Indenture which the Company may deem necessary or desirable and which
shall not be inconsistent with the provisions of the Indenture; provided,
however, that such action pursuant to this clause (k) does not, in the good
faith opinion of the Board of Directors (as evidenced by a Board Resolution),
adversely affect the interests of the Holders of Notes in any material respect;
(l) to evidence the succession of another Person to the Company or any other
obligor upon the Notes, and the assumption by any such successor of the
covenants of the Company or such obligor herein and in the Notes, in each case
in compliance with the provisions of this Indenture; or (m) add or modify any
other provisions herein with respect to matters or questions arising hereunder
which the

 

 

Company and the Trustee may deem necessary or desirable and which shall
not adversely affect the interests of the Holders of Notes.

14. Defaults and Remedies.

     If any Event of Default, other than as a result of certain events of
bankruptcy, insolvency or reorganization of the Company as specified in the
Indenture, occurs and is continuing, the principal amount of all the Notes may
be declared due and payable in the manner and with the effect provided in the
Indenture. If an Event of Default occurs as a result of certain events of
bankruptcy, insolvency or reorganization of the Company as provided in the
Indenture, the principal amount of all the Notes shall become due and payable
immediately without any declaration or other act on the part of the Trustee or
any Holder, all as and to the extent provided in the Indenture.

15. Trustee Dealings with the Company.

     Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with and collect obligations owed to it
by the Company or its Affiliates and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee.

16. Calculations in Respect of Notes.

     The Company or its agents shall be responsible for making all calculations
called for under ARTICLE XII of the Indenture, including, but not limited to,
determination of the Closing Sale Price of Applicable Stock, the Note Price,
the number of shares of Common Stock or other Applicable Stock and/or the
amount of cash issuable or payable upon conversion and the amounts of interest
and Additional Interest, if any, on the Notes. Any calculations made in good
faith and without manifest error shall be final and binding on Holders of the
Notes. The Company or its agents shall be required to deliver to the Trustee a
schedule of its calculations and the Trustee shall be entitled to conclusively
rely upon the accuracy of such calculations without independent verification.

17. No Recourse Against Others.

     No recourse under or upon any obligation, covenant or agreement contained
in this Indenture, or in any Note, or because of any indebtedness evidenced
thereby, shall be had against any incorporator, as such, or against any past,
present or future stockholder, officer or director, as such, of the Company or
of any successor, either directly or through the Company or any successor,
under any rule of law, statute or constitutional provision or by the
enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of the Notes by the Holders and as part of the consideration for the
issue of the Notes.

 

 

18. Authentication.

     This Note shall not be valid or obligatory for any purpose until an
authorized signatory of the Trustee (or a duly authorized authentication agent)
signs, manually or by facsimile, the Trustee’s Certificate of Authentication on
the other side of this Note.

19. Abbreviations.

     Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).

20. INDENTURE TO CONTROL; GOVERNING LAW.

     IN THE CASE OF ANY CONFLICT BETWEEN THE PROVISIONS OF THIS NOTE AND THE
INDENTURE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PROVISIONS OF THE
INDENTURE SHALL CONTROL. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture which has in it the text of this Note in larger
type. Requests may be made to:

	 
	CTS CORPORATION

	905 West Boulevard North

	Elkhart, Indiana 46514

	Attention: Chief Financial Officer

	Facsimile No.: (574) 293-0251

21. Registration Rights.

     The Holders of the Notes may be entitled to the benefits of a Registration
Rights Agreement, dated as of May 11, 2004, among the Company and Bear, Stearns
& Co. Inc., as amended, modified or supplemented in accordance therewith,
including the receipt of Additional Interest upon a Registration Default (as
defined in such agreement).

 

 

ASSIGNMENT FORM

To assign this Note, fill in the form below:

I or we assign and transfer this Note to

 

(Insert assignee’s soc. sec. or tax ID no.)

 

(Print or type assignee’s name, address and zip code)

 

and irrevocably appoint            
           
           
           
           
           
           
           
           
           
           
           
           
           

agent to transfer
this Note on the books of the Company. The agent may substitute another to act
for him.

	 	 	 	 	 
	

	 	 	 	Your Signature(s):
	Date:
	 	 	 	 
	

	 	
 
	 	
 
	

	 	 	 	(Sign exactly as your name(s) appears on the
	

	 	 	 	other side of this Note)
	 
	 	 	 	 
	Signature Guaranteed

	 
	 	 	 	 
	

	Participant in a Recognized Signature

	Guarantee Medallion Program

	 
	 	 	 	 
	By:
	 	 	 	 
	

	 	
 	 	 
	

	 	Authorized Signatory	 	 

 

 

OPTION OF HOLDER TO ELECT PURCHASE

If you wish to have this Note purchased by the Company pursuant to ARTICLE IV
(Purchase at the Option of Holders on Specific Dates) or ARTICLE V (Purchase at
the Option of Holders Upon a Fundamental Change) of the Indenture, check the
box: ARTICLE IV o ARTICLE V o.

If this Note is to be purchased by the Company pursuant to ARTICLE IV of the
Indenture, check the box for the applicable Purchase Date: May 1, 2009 o May 1,
2014 o May 1, 2019 o.

If you wish to have a portion of this Note purchased by the Company pursuant to
ARTICLE IV or ARTICLE V of the Indenture, as applicable, state the amount (in
principal amount): $           .

If certificated, the serial numbers of the Notes to be delivered for purchase
are:           .

     Any purchase of Notes pursuant hereto shall be pursuant to the terms and
conditions specified in the Indenture.

	 	 	 	 	 
	

	 	 	 	Your Signature(s):
	 
	 	 	 	 
	

	 	 	 	
 
	Date:

		 	 	(Sign exactly as your name(s) appears on the
	

	 	
 	 	 
	

	 	 	 	other side of this Note)
	 
	 	 	 	 
	Signature Guaranteed

	 
	 	 	 	 
	

	Participant in a Recognized Signature

	Guarantee Medallion Program

	By:
	 	 	 	 
	

	 	
 	 	 
	Authorized Signatory

 

 

CONVERSION NOTICE

To convert this Note into Common Stock of the Company (or cash or a combination
of Common Stock and cash, if the Company so elects), check the box o.

To convert only part of this Note, state the principal amount to be converted
(which must be $1,000 or an integral multiple thereof):                    .

If you want the stock certificate made out in another person’s name fill in the
form below:

 

(Insert the other person’s soc. sec. or tax ID no.)

(Print or type the other person’s name, address and zip code)

 

	 	 	 	 	 
	

	 	 	 	Your Signature(s):
	Date:
	 	 	 	 
	

	 	
 
	 	
 
	

	 	 	 	(Sign exactly as your name(s) appears on
	

	 	 	 	the other side of this Note)
	Signature Guaranteed

	 
	 	 	 	 
	

	Participant in a Recognized Signature

	Guarantee Medallion Program

	 
	 	 	 	 
	By:
	 	 	 	 
	

	 	
 	 	 
	

	 	Authorized Signatory	 	 

 

 

TRANSFER CERTIFICATE4

Re: 2.125% Convertible Senior Subordinated Notes due 2024

(the “Notes”) of CTS Corporation (the “Company”)

     This certificate relates to $           principal amount of Notes owned in
(check applicable box)

o book-entry                      odefinitive form by                     (the “Transferor”).

     The Transferor has requested a Registrar or the Trustee to exchange or
register the transfer of such Notes.

     In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with transfer
restrictions relating to the Notes as provided in Section 2.6 and Section 2.12
of the Indenture dated as of May 11, 2004 between the Company and Wells Fargo
Bank, N.A., as Trustee (the “Indenture”), and the transfer of such Note is
being made pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the “Securities Act”) (check applicable box) or the
transfer or exchange, as the case may be, of such Note does not require
registration under the Securities Act because (check applicable box):

	 	 	 
	o

	 	Such Note is being acquired for the Transferor’s own account,
without transfer; or
	 
	 	 
	o

	 	Such Note is being transferred to the Company or a
Subsidiary; or
	 
	 	 
	o

	 	Such Note is being transferred to a person that the
Transferor reasonably believes is a “qualified institutional
buyer,” as defined in, and in compliance with, Rule 144A
under the Securities Act; or
	 
	 	 
	o

	 	Such Note is being transferred pursuant to the exemption from
the registration requirements of the Securities Act under
Rule 144 (or any successor thereto) (“Rule 144”) under the
Securities Act; or
	 
	 	 
	o

	 	Such Note is being transferred pursuant to an effective
registration statement under the Securities Act; or
	 
	 	 
	o

	 	Such Note is being transferred pursuant to an exemption from
the registration requirements of the Securities Act to an
institutional investor that is an “accredited investor” (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act) that, prior to the transfer,
furnishes to the Trustee such certifications and opinion of
counsel required by the Company or the Trustee.

	 	 	4 This certificate should only be included if this Security is a Transfer
Restricted Security.

 

 

     The Transferor acknowledges and agrees that, if the transferee will hold
any such Notes in the form of beneficial interests in a global Note that is a
“restricted security” within the meaning of Rule 144 under the Securities Act,
then such transfer can be made only pursuant to Rule 144A under the Securities
Act and such transferee must be a “qualified institutional buyer,” as defined
in Rule 144A, or an institutional investor that is an “accredited investor” (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act).

	 	 	 
	

	 	

	Date:

	 	Signature(s) of Transferor

(If the registered owner is a corporation, partnership or fiduciary, the title
of the person signing on behalf of such registered owner must be stated.)

	 	 	 	 
	Signature Guaranteed

	 
	 	 	 
	

	Participant in a Recognized Signature

	Guarantee Medallion Program

	 
	 	 	 
	By:
	 	 
	

	 	
 
	

	 	Authorized Signatory

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