-----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, E4g4vA7xpkTXqOBnx9f8wp8Ll+i/c1BFfoNpBZMBvJ1qYma42zlyuL2C8fPEhTRV xqL+xq61Zs0CGwjmC802qg== 0000891092-98-000106.txt : 19980331 0000891092-98-000106.hdr.sgml : 19980331 ACCESSION NUMBER: 0000891092-98-000106 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19980330 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PORTA SYSTEMS CORP CENTRAL INDEX KEY: 0000079564 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 112203988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-48839 FILM NUMBER: 98577459 BUSINESS ADDRESS: STREET 1: 575 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 BUSINESS PHONE: 5163649300 MAIL ADDRESS: STREET 1: 575 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 S-3 1 FORM S-3 As filed with the Securities and Exchange Commission on March 27, 1998 Commission File No. 333-_______ ================================================================================ SECURITIES AND EXCHANGE COMMISSION FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PORTA SYSTEMS CORP. (Exact name of registrant as specified in its charter) Delaware 11-2203988 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) Mr. William V. Carney Chairman of the Board and Chief Executive Officer Porta Systems Corp. 575 Underhill Boulevard 575 Underhill Boulevard Syosset, New York 11791 Syosset, New York 11791 (516) 364-9300 (516) 364-9300 (Address, including zip code, and (Name, address, including zip code, and telephone number, including area telephone number, including area code, code, of registrant's principal of agent for service) executive offices) With a copy to: Warren H. Esanu, Esq. Esanu Katsky Korins & Siger, LLP 605 Third Avenue New York, New York 10158 (212) 953-6000 Approximate date of commencement of proposed sale to the public: As soon as practical on or after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered of this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [x] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
========================================================================================================== Proposed Proposed Title of Each Class Maximum Maximum Securities to be Amount to be Offering Price Aggregate Amount of Registered Registered per Share(2) Offering Price Registration Fee - ---------------------------------------------------------------------------------------------------------- Common Stock, $.01 par 1,990,592 $3.8125 $7,589,132 $2,299.74 value(1) - ---------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value, 600,000 $3.00 $1,800,000 $545.45 issuable upon the exercise of the Series B Warrants - ---------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value, 500,000 $1.56 $780,000 $236.36 issuable upon the exercise of the Series A Warrants - ---------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value, 460,068 $3.00 $1,380,204 $418.24 issuable upon the exercise of the Foothill Warrants ==========================================================================================================
(1) Represents (a) 1,840,592 shares of Common Stock which are outstanding and (b) 150,000 shares of Common Stock issuable upon the exercise of the Series C Warrants. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended. The maximum offering price with respect to the outstanding shares of Common Stock and the Common Stock issuable upon the exercise of the Series C Warrants is based on the average of the high and low price of the Common Stock on the American Stock Exchange on March 17, 1998. The maximum offering price per share of the other warrants is the exercise price per share as provided in the warrants. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effectiveness until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine. 3,550,660 Shares PORTA SYSTEMS CORP. Common Stock, par value $.01 per share This prospectus relates to 3,550,660 shares of the Company's common stock, par value $.01 per share ("Common Stock"), that may be sold from time to time by certain selling stockholders ("Selling Stockholders") named under the caption "Selling Stockholders." Of these shares, 1,840,592 shares of Common Stock are outstanding shares that are owned by Selling Stockholders, 600,000 shares of Common Stock are issuable upon the exercise of Series B Common Stock Purchase Warrants (the "Series B Warrants"), 150,000 shares of Common Stock are issuable upon the exercise of Series C Common Stock Purchase Warrants, which may be issued in the future (the "Series C Warrants" and, together with the Series B Warrants, the "Financing Warrants"), 500,000 shares of Common Stock issuable upon the exercise of Series A Common Stock Purchase Warrants ("Series A Warrants"), issued to and which may be issued to Arnhold and S. Bleichroeder, Inc. ("Bleichroeder") and 460,068 shares of Common Stock issuable upon the exercise of warrants (the "Foothill Warrants") issued to Foothill Capital Corporation. The Financing Warrants, the Series A Warrants and the Foothill Warrants are collectively referred to as the "Warrants." For a further description of these securities, see "Background." The Company will receive none of the proceeds from the sale of the Common Stock owned by the Selling Stockholders. To the extent that the Selling Stockholders exercise the Warrants, the Company may receive up to (a) $1,800,000 from the exercise of the Series B Warrants, based on an exercise price of $3.00 per share, (b) $780,000 from the exercise of the Series A Warrants based on an exercise price of $1.56 per share, (c) $1,380,204 from the exercise of the Foothill Warrants, based on an exercise price of $3.00 per share, and (d) an amount to be determined from the 150,000 shares of Common Stock issuable upon the exercise of the Series C Warrants, which may be issued in the future. See "Background" for a description of the determination of the exercise price of the Series C Warrants. The Foothill Warrants and the Series A Warrants have cashless exercise provisions which will enable the holders of such warrants to receive the number of shares of Common Stock as has a value equal to the difference between the exercise price and the fair market value on the date of exercise. If the holders exercise such cashless exercise rights, the Company will not receive any proceeds from the exercise of such Financing Warrants or Series A Warrants, as the case may be. The cost of this registration statement, estimated at approximately $50,000, is being paid by the Company pursuant to agreements with the holders of the Common Stock and the Warrants. The Selling Stockholders have advised the Company that any transfer of the Warrants will be either pursuant to a sale at negotiated prices or by gift, and any sale of the Common Stock owned by the Selling Stockholders or issuable upon exercise of the Warrants held by the Selling Stockholders may be effected from time to time in transactions (which may include block transactions) by or for the account of the Selling Stockholders on the American Stock Exchange ("ASE") or in negotiated transactions, a combination of such methods of sale or otherwise. Sales may be made at fixed prices which may be changed, at market prices or in negotiated transactions, a combination of such methods of sale or otherwise. Such securities may also be transferred by gift. The Selling Stockholders may effect such transactions by selling securities directly to purchasers, through broker-dealers acting as agents for the Selling Stockholders or to broker-dealers who may purchase securities as principals and thereafter sell the securities from time to time on the ASE, in negotiated transactions or otherwise. Such broker-dealers, if any, may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders and/or the purchasers from whom such broker-dealer may act as agents or to whom they may sell as principals or otherwise (which compensation as to a particular broker-dealer may exceed customary commissions). The Selling Stockholders have advised the Company that no arrangements for the sale of any of the shares of Common Stock included in this Prospectus have been made. ---------- AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS," WHICH BEGIN ON PAGE 3. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is March ___, 1998 The Selling Stockholders understand that the anti-manipulative rules under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are set forth in Regulation M, may apply to its sales in the market and has furnished the Selling Stockholders with a copy of Regulation M. The Company has also informed the Selling Stockholders of the need for delivery of copies of this Prospectus. The Company furnishes its stockholders with annual reports containing audited financial statements and with such other periodic reports as the Company from time to time deems appropriate or as may be required by law. The Company uses the calendar year as its fiscal year. AVAILABLE INFORMATION The Company is subject to certain informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the regional offices of the Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such site is http//www.sec.gov. Such reports, proxy statements and other information can also be inspected at the offices of the American Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006-1881, on which the Company's Common Stock is listed. This Prospectus does not contain all of the information set forth in the Registration Statement, of which this Prospectus is a part, and exhibits thereto which the Company has filed with Commission under the Securities Act of 1933, as amended (the "Securities Act"), to which reference is hereby made. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents have been filed by the Company with the Commission (File No. I-8191) and are incorporated herein by reference: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 1997; (2) The Company's Proxy Statement for its 1997 Annual Meeting of Stockholders; (3) The Company's Current Report on Form 8-K, dated January 2, 1998, as filed with the Commission on February 6, 1998; and (4) The description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A, filed on April 26, 1977, which became effective on April 26, 1977. All documents filed pursuant to Section 13(a), 13(c), 14 or 15 of the 1934 Act after the date of this Prospectus shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded, to constitute a part of this Prospectus. - 2 - The Company will provide without charge to each person to whom this Prospectus is delivered, upon the written or oral request of any such person, a copy of the documents (excluding the exhibits thereto, unless such exhibits are specifically incorporated by reference into such document) referred to above which have been or may be incorporated herein by reference and not furnished herewith. Requests for such documents should be directed to Mr. Edward B. Kornfeld, Senior Vice President Operations and Chief Financial Officer, Porta Systems Corp., 575 Underhill Boulevard, Syosset, New York 11791, telephone (516) 364-9300. RISK FACTORS Purchasers of the Common Stock are cautioned that the statements in this Prospectus, including statements in documents incorporated by reference in this Prospectus, that are not descriptions of historical facts may be forward looking statements that are subject to risks and uncertainties. In particular, statements in this Prospectus, including any material incorporated by reference in this Prospectus, that state the Company's or management's intentions, beliefs, expectations, strategies, predictions or any other variations thereof or comparable phraseology of the Company's future activities or other future events or conditions are "forward-looking statements" as that term is defined under the Federal securities laws. Forward-looking statements are subject to risks, uncertainties and other factors, including, but not limited to, those identified under "Risk Factors," those described in Management's Discussion and Analysis of Financial Conditions and Results of Operations in the Company's Form 10-K for the year ended December 31, 1997, and in any other filings which are incorporated by reference in this Prospectus, as well as general economic conditions, any one or more of which could cause actual results to differ materially from those stated in such statements. An investment in the Company's Common Stock involves a high degree of risk. Purchasers of the shares of Common Stock should consider carefully, along with other factors, the following risks and should consult with his or her own legal, tax and financial advisors with respect thereto. Recent losses. For the year ended December 31, 1997, the Company incurred a net loss of $6.9 million, or $2.22 per share (basic and diluted), on sales of $62.2 million. The Company generated net income before extraordinary gains of $1.3 million, or $.57 per share ($.23 per share on a diluted basis), on sales of $58.0 million for the year ended December 31, 1996. Prior to 1996, the Company sustained significant losses before extraordinary gain, which amounted to $32.8 million, or $22.45 per share, on sales of $61.2 million for the year ended December 31, 1995, and $40.0 million, or $27.51 per share, on sales of $69.0 million for the year ended December 31, 1994. The loss in 1997 reflects a primarily non-cash charge of $11.5 million taken as a result of the reduction to $3.65 from $6.55 of the conversion price of the Company's Zero Coupon Senior Subordinated Notes due January 2, 1998 ("Zero Coupon Notes") and the conversion of Zero Coupon Notes into Common Stock at the reduced conversion price. The losses in 1995 and 1994 reflect declining gross margins, resulting from the Company's illiquidity and other cash problems, and reflected (i) the inability of the Company to purchase materials efficiently and to obtain materials from certain suppliers, (ii) the underabsorption of significant overhead costs allocated to costs of sales due to reduced sales volume, (iii) the need to rework inventory in order to fulfill customer orders and (iv) the losses from discontinued unprofitable business units. In the first quarter of 1996, the Company sold its fiber optics division, which had been operating at a loss. Working capital requirements. At December 31, 1997, the Company had a working capital of $6.3 million. Since December 31, 1997, the Company's working capital improved with the issuance of $6.0 million principal amount of 12% Subordinated Notes due January 3, 2000. The proceeds from the sale of such notes was used (i) to pay the $2.8 million outstanding principal balance of its Zero Coupon Notes which were due January 2, 1998, (ii) to reduce the Company's obligations to Foothill, its senior lender, by approximately $2.95 million and (iii) for working capital. At December 31, 1997, the Company owed Foothill $17.9 million in addition to standby letters of credit of approximately $6.8 million. Under the terms of the Company's agreement with Foothill, as amended, the Company's obligations to Foothill mature on August 31, 1999. The Company's obligations to Foothill are secured by security interests in substantially all of its assets. The Company's revolving credit agreement with Foothill has been the Company's principal source of funding for its operations since November 1994. Prior to August 31, 1999, the maturity date of its obligations to Foothill, it will be necessary for the Company either to extend its agreement with Foothill or negotiate lending agreements with other lending institutions. There can be no assurance that the Company will be able to extend its agreement with Foothill or enter into acceptable agreements with other lenders. The failure to obtain such necessary financing would have a material adverse effect upon the Company's business. - 3 - Dependence on foreign sales. Approximately 71%, 70% and 73% of the Company's sales for the years ended December 31, 1997, 1996 and 1995, respectively, were made to foreign telephone operating companies. In foreign markets, the Company faces considerable competition from other United States and foreign telephone equipment manufacturers most of which are larger and have substantially greater financial resources than the Company. In selling to customers in foreign countries, there are inherent risks not normally present in the case of sales to United States customers, including increased difficulty in identifying and designing systems compatible with purchasers' operational requirements, extended delays under the Company's Operational Support Systems ("OSS Systems") contracts in the completion of testing and purchaser acceptance phases and the Company's receipt of final payments, and political and economic change. In addition, to the extent that the Company establishes facilities in foreign countries, the Company faces risks associated with currency devaluation, difficulties in either converting local currency into dollars or transferring funds to the United States, local tax and currency regulations and political instability. Furthermore, OSS Systems are often marketed to lesser developed countries, which may be unable to fund the purchase without the assistance of the World Bank, a United Nations affiliate, or a similar organization, which both delays and complicates the execution of a contract and the timing of payments. Also, the economies of lesser developed countries are often unstable and, as a result, such countries may be unable to perform their obligations. Significant customers. During the years ended December 31, 1997, 1996 and 1995, the Company's five largest customers accounted for sales of $30.6 million, or approximately 49% of sales, $27.8 million, or approximately 48% of sales, and $31.5 million, or approximately 52% of sales, respectively. The Company's largest customer is British Telecommunications, plc ("BT"). Sales to BT for the 1997, 1996 and 1995 amounted to approximately $13.9 million, $11.3 million and $17.3 million, respectively, or approximately 22%, 20% and 28%, respectively, of the Company's sales for such years. Therefore, any significant interruption or decline in sales to BT may have a materially adverse effect upon the Company's operations. During 1996, sales to Philippines Long Distance Telephone were $7.0 million, or approximately 12% of sales. During 1995, sales to the Korea Telephone Company were $7.7 million, or approximately 13% of sales. No other customer accounted for 10% or more of the Company's sales for any of such years. Approximately 64% and 33% of accounts receivable at December 31, 1997 and 1996, respectively, are due from the Company's five largest customers. In November 1996, the Company amended its supply agreement with BT pursuant to which it sold line connecting/protecting products to BT. Pursuant to the amended agreement, the Company is no longer the exclusive supplier of these products to BT. The amended contract also provides for a cross-license which, in effect, enables BT to use certain of the Company's proprietary information to modify or enhance products provided to BT and permits those products to be manufactured by BT or others for its own purposes. In addition, the regional Bell operating companies continue to be the ultimate purchasers of a significant portion of the Company's products sold in the United States, while sales to foreign telephone operating companies constitute the major portion of the Company's foreign sales. The Company's contracts with these customers require no minimum purchases by such customers. Significant customers for the Company's signal processing products include the major domestic aerospace companies, Department of Defense service depots and OEMs in the medical imaging and process control equipment industries. Both catalog and custom designed products are sold to these customers. Delays and unpredictability associated with OSS System contracts. OSS Systems are complex systems and incorporate features designed to respond to a purchaser's operational requirements and the particular characteristics of the purchaser's telephone system. As a result, the negotiation of a contract for an OSS System is an individualized and highly technical process. In addition, contracts for OSS Systems frequently provide for manufacturing, delivery, installation, testing and purchaser acceptance phases which take place over periods of up to a year or more. Such contracts typically contain performance guarantees by the Company and clauses imposing penalties on the Company if "in- service" dates are not met. The installation, testing and purchaser acceptance phases of these contracts may last longer than contemplated by the contracts and, accordingly, amounts due under the contracts may be uncollected for extended periods. Delays in purchaser acceptance of the systems and in the Company's receipt of final contract payments have occurred in connection with a number of foreign sales. In addition, the Company has experienced no steady or predictable flow of orders for OSS Systems. Competition. The telephone equipment market in which the Company does business is characterized by intense competition, rapid technological change and a movement to private ownership of telecommunications systems. In competing for telephone operating company business, the purchase price of equipment and associated operating expenses are significant factors, along with product design and long-standing equipment supply relationships. In the customer premises - 4 - equipment market, the Company operates in a market characterized by distributors and installers of equipment and by commodity pricing. The Company competes directly with a number of large and small telephone equipment manufacturers in the United States. Lucent Technologies, Inc. ("Lucent") continues to be the Company's principal United States competitor. Lucent's greater resources, extensive research and development facilities, long-standing equipment supply relationships with regional operating companies and history of manufacturing and marketing products similar in function to those produced by the Company continue to be significant factors in the Company's competitive environment. Furthermore, in the past, competitors have used the Company's financial difficulties as a sales tool. Currently, Lucent and a number of companies with much greater financial resources than the Company produce, or have the design and manufacturing capabilities to produce, products competitive with the Company's products. In meeting this competition, the Company relies primarily on the performance and design characteristics of its products and endeavors to offer its products at prices and with warranties that will make them competitive. Access to current technological advances is important to the Company's ability to market its products and the inability of the Company to incorporate such technology in its products could have a material adverse effect. In connection with overseas sales of its line connecting/protecting equipment, the Company has met with significant competition from United States and foreign manufacturers of comparable equipment and expects this competition to continue. In addition to Lucent, a number of the Company's overseas competitors have significantly greater resources than the Company. The Company competes directly with a number of substantial domestic and international companies with respect to its sales of OSS Systems. In meeting this competition, the Company relies primarily on the features of its line testing equipment, its ability to customize systems and its ability to offer such equipment at prices and with warranties that will make them competitive. Dependence upon key personnel. The Company may be dependent upon the continued employment of certain key employees, including senior executive officers. The failure of the Company to retain such employees may have a material adverse effect upon the Company's business. Legal proceedings. In July 1996, an action was commenced against the Company and certain present and former directors in the Supreme Court of the State of New York, New York County by certain stockholders and warrant holders of the Company who acquired their securities in connection with the acquisition by the Company of Aster Corporation. The complaint alleges breach of contract against the Company and breach of fiduciary duty against the directors arising out of an alleged failure to register certain restricted shares and warrants owned by the plaintiffs. The complaint seeks damages of $413,000; however, counsel for the plaintiff have advised the Company that additional plaintiffs may be added and, as a result, the amount of damages claimed may be substantially greater than the amount presently claimed. The Company believes that the defendants have valid defenses to the claims. The case is in the discovery stage. In July 1996, the Commission issued an order (the "Order") directing a private investigation of the Company to determine whether there has been a violation of Federal securities laws. The Commission indicated to counsel for the Company that the investigation relates to the position of the Commission staff that the independence of the Company's auditors for 1995, KPMG Peat Marwick LLP ("Peat Marwick"), was adversely impacted by certain relationships involving Peat Marwick, KPMG BayMark Strategies LLC ("BayMark") and Edward R. Olson, the President of BayMark and the Company's former interim president and chief operating officer. The Company is continuing to cooperate with the Commission's investigation. The Company retained BDO Seidman, LLP to reaudit the Company's 1995 financial statements, which reaudit resulted in no changes to the Company's 1995 financial statements as audited by Peat Marwick. The Company does not believe that the investigation will result in any material liability on the part of the Company. The Company has not been contacted by the Commission respecting this investigation since November 1996. Year 2000 Issue. Many existing computer programs use only two digits to identify a year. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. This issue is referred to as the "Year 2000 issue." The Company has initiated a company-wide program to prepare the Company's computer systems and applications to deal with the Year 2000 issue. The Company expects to incur internal staff costs and other expenses to prepare - 5 - its systems for the year 2000. The Company expects both to replace existing systems and to upgrade other systems. The total cost of this effort is being evaluated. Although the Company does not expect such costs to be material, there can be no assurance that such costs will not be material. Possibility of delisting from the American Stock Exchange. The Company's Common Stock is presently listed on the ASE. To the extent that it does not meet the ASE's requirements for continued listing, it is possible that the Common Stock could be delisted from the ASE, and no assurance can be given that, if the Common Stock is delisted from the ASE, it will be eligible for listing on The Nasdaq Stock Market. Accordingly, in the event of such delisting, trading, if any, in the Common Stock would thereafter be conducted in the over-the-counter market in the so-called "pink sheets" or the Nasdaq's "Electronic Bulletin Board." Consequently, the liquidity of the Company's Common Stock could be impaired, not only in the number of securities which could be bought and sold, but also through delays in the timing of transactions, reduction in security analysts' and the news media's coverage of the Company, and lower prices for the Company's securities than might otherwise be attained. Risks of low-priced stocks; penny stock regulations. If the Company's securities were delisted from the ASE, they may become subject to Rule 15g-9 under the Exchange Act which imposes additional sales practice requirements on broker-dealers which sell such securities to persons other than established customers and institutional accredited investors. For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, the rule may affect the ability of broker-dealers to sell the Company's Common Stock. The foregoing penny stock restrictions do not apply to the Company's Common Stock as long as it is listed on the ASE and has certain price and volume information provided on a current and continuing basis or meet certain minimum net tangible assets or average revenue criteria. There can be no assurance that the Company's securities will qualify for exemption from these restrictions. In any event, even if the Company's securities are exempt from such restrictions, it would remain subject to Section 15(b)(6) of the Exchange Act, which gives the Commission the authority to prohibit any person that is engaged in unlawful conduct while participating in a distribution of a penny stock from associating with a broker-dealer or participating in a distribution of a penny stock, if the Commission finds that such a restriction would be in the public interest. No Common Stock dividends anticipated. The Company has not paid dividends on its Common Stock and does not anticipate paying dividends in the foreseeable future. The Company presently intends to retain future earnings, if any, in order to provide funds for use in the operation and expansion of its business and, accordingly, does not anticipate paying cash dividends on its Common Stock for the foreseeable future. In addition, the Company's agreement with Foothill prohibits payment of dividends. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the shares of Common Stock. To the extent that the Company receives any proceeds from the exercise of any Warrants held or to be held by the Selling Stockholders, such proceeds will be used by the Company for working capital and general corporate purposes. The Foothill Warrants and the Series A Warrants have cashless exercise provisions which will enable the holders of such warrants to receive the number of shares of Common Stock with a value equal to the difference between the exercise price and the fair market value on the date of exercise. If the holders exercise such cashless exercise rights, the Company will not receive any proceeds from the exercise of such Financing Warrants or Series A Warrants, as the case may be. BACKGROUND Conversion of Zero Coupon Notes On October 10, 1997, the Company executed a supplemental indenture ("Supplemental Indenture") with American Stock Transfer & Trust Company, pursuant to which the conversion price of the Company's Zero Coupon Notes was reduced to $3.65 from $6.55 per share. The Company has issued an aggregate of 6,464,415 shares of Common Stock upon conversion of Zero Coupon Notes in the principal amount of approximately $23.6 million. In connection with the execution of the Supplemental Indenture, the Company executed a registration rights agreement pursuant to which it agreed to register the shares - 6 - of Common Stock owned by those holders of the Zero Coupon Notes who, as a result of their conversion, became affiliates of the Company. Prior to the execution of the Supplemental Indenture, the Company obtained the agreement of certain holders of Zero Coupon Notes to convert their Zero Coupon Notes into Common Stock if the amended conversion terms became effective. In connection with such agreement, the Company agreed to elect Mr. Lloyd I. Miller, III as a director of the Company. Mr. Miller was elected as a director on March 17, 1998. Pursuant to an agreement dated May 1, 1997, between the Company and Bleichroeder relating to services rendered by Bleichroeder in connection with the negotiation and implementation of the amended conversion terms of the Zero Coupon Notes the Company issued Series A Warrants to purchase 400,000 shares of Common Stock to Bleichroeder, of which warrants to purchase 350,000 shares of Common Stock are presently exercisable and warrants to purchase 50,000 shares of Common Stock become exercisable in May 1998. The Company also agreed to issue to Bleichroeder Series A Warrants to purchase an additional 100,000 shares of Common Stock in the event that Bleichroeder provides services to the Company in connection with its efforts to find a new secured lender. The exercise price of the Series A Warrants is $1.56 per share. The Series A Warrants contain (i) a provision for cashless exercise of such warrants and (ii) provisions that protect Bleichroeder against dilution by adjustment of the exercise price in certain specified events, such as stock dividends, stock splits, mergers, sale of substantially all of the Company's assets and other similar events. January 1998 Interim Financing In January 1998, the Company issued and sold 60 units consisting of a 12% Note in the principal amount of $100,000 and Series B Warrants to purchase 10,000 shares of Common Stock at $3,00 per share, for $100,000 a unit. The Company agreed that, to the extent that any 12% Note is outstanding one year from the date on such Note was issued (the "Anniversary Date of the Note"), the Company shall issue to the holder of such Note on the Anniversary Date of the Note a Series C Warrant to purchase 25 shares of Common Stock for each $1,000 principal amount of 12% Note then outstanding. The Series C Warrant will have an exercise price equal to the average of the closing price of the Common Stock on each of the five trading days preceding the Anniversary Date of the Note. The $6.0 million gross proceeds from the sale of the units was used to pay the remaining principal amount of Zero Coupon Notes which had not been converted (approximately $2.8 million), and to pay a portion of the Company's debt to Foothill, the Company's secured lender (approximately $2.95 million). The balance was added to working capital. The Series B Warrants are exercisable during the period commencing on the date of issuance and terminating on December 31, 2002. The Series C Warrants, if issued, will be exercisable during the period commencing on the date of issuance and terminating on December 31, 2003. The Financing Warrants provide the holders with certain cashless exercise provisions in the event that the shares of Common Stock issuable upon the exercise of the Financing Warrants are not registered under the Securities Act. Furthermore, the Financing Warrants contain provisions that protect the holders thereof against dilution by adjustment of the exercise price in certain specified events, such as stock dividends, stock splits, mergers, sale of substantially all of the Company's assets and other similar events. In connection with the sale of the units, the Company issued 120,000 shares of Common Stock to Bleichroeder, which served as placement agent for the sale of the units. Foothill Warrants In January 1998, the Company amended its agreement with Foothill, as of November 30, 1997, to extend the expiration date of the agreement and the Company's obligations to Foothill under the agreement from November 30, 1998 to August 31, 1999. In connection with the amendment, the Company reduced to $3.00 per share the exercise price of warrants to purchase an aggregate of 460,068 shares of Common Stock which were held by Foothill and extended the term of such warrants to November 30, 2002. The Foothill Warrants contain (i) a provision for cashless exercise of such warrants and (ii) provisions that protect Foothill against dilution by adjustment of the exercise price in certain specified events, such as stock dividends, stock splits, mergers, sale of substantially all of the Company's assets and other similar events and certain sales of Common Stock at a price below the exercise price of the Foothill Warrants. - 7 - Conversion of 6% Convertible Subordinated Debentures In January 1998, the Company issued 330,372 shares of Common Stock in exchange for cancellation of $1.26 million principal amount of its 6% Convertible Subordinated Debentures Due July 1, 2002 ("6% Debentures") plus accrued interest. Pursuant to an agreement with the holders of such 6% Debentures, the Company agreed to register such shares pursuant to the Securities Act. SELLING STOCKHOLDERS The following table sets forth (i) the name of each Selling Stockholder, (ii) the nature of any position, office or other material relationship, if any, which each Selling Stockholder has had with the Company or any of its affiliates within the last three years, (iii) the number of shares of Common Stock owned by each Selling Stockholder prior to the offering, (iv) the number of shares of Common Stock offered for each Selling Stockholder's account and (v) the percentage owned by each Selling Stockholder after completion of the offering.
Number Number of of Shares Shares Offered Number of Owned Prior For Account of Shares Owned Percentage Owned Selling Stockholder to Offering(1) Selling Stockholder(1) After Offering After Offering(2) ------------------- -------------- ---------------------- -------------- ----------------- Lloyd I. Miller, III (3),(5) 34,246 34,246 0 * Lloyd I. Miller, Trust A-2 (4), (5) 31,250 31,250 0 * Lloyd I. Miller, Trust A-4 (5) 464,063 464,063 0 * Lloyd I. Miller, Trust C (5) 363,705 363,705 0 * Milfam I, L.P. (5) 694,502 694,502 0 * Milfam II, L.P. (5) 110,462 110,642 0 * Lloyd I. Miller III Keogh Plan (4) 31,250 31,250 0 * Lloyd I. Miller, Trustee f/b/o Kimberly S. Miller (5), (6) 6,250 6,250 0 * Lloyd I. Miller, Trustee f/b/o Catherine C. Miller (5), (6) 6,250 6,250 0 * Lloyd I. Miller, custodian under Florida UGMA for Alexandra B. Miller (5), (6) 6,250 6,250 0 * Lloyd I. Miller, custodian under Florida UGMA for Lloyd I. Miller, IV (5), (6) 6,250 6,250 0 * Lloyd I. Miller, Trustee for the Lloyd I. Miller III, Generation Skipping Trust u/a/d 12/31/91 (5),(6) 6,250 6,250 0 * Dail Miller (5) 1,000 1,000 0 * Foothill Capital Corporation (7) 460,068 460,068 0 * Arnhold and S. Bleichroeder, Inc. (8) 1,064,076 757,500 306,576 3.5% Smith Management Company, Inc. 330,372 330,372 0 * Clarex Limited (9) 62,500 62,500 0 * Acamas Anstalt (9) 62,500 62,500 0 * Senvest International L.L.C. (9) 62,500 62,500 0 * Senvest Master Fund L.P. (10) 25,000 25,000 0 * Winston J. Churchill (10) 25,000 25,000 0 * The Spiro Family Foundation (10) 25,000 25,000 0 * Arthur M. Spiro, IRA (10) 25,000 25,000 0 * Intergroup Corp. (11) 12,500 12,500 0 * John V. Winfield (11) 12,500 12,500 0 * Portsmouth Square, Inc. (11) 12,500 12,500 0 * Santa Fe Financial Corp. (10) 25,000 25,000 0 *
- 8 -
Number Number of of Shares Shares Offered Number of Owned Prior For Account of Shares Owned Percentage Owned Selling Stockholder to Offering(1) Selling Stockholder(1) After Offering After Offering(2) ------------------- -------------- ---------------------- -------------- ----------------- Offshore Strategies Ltd. (10) 25,000 25,000 0 * Laterman & Co. L.P. (11) 12,500 12,500 0 * Laterman Strategies 90's LLC (10) 25,000 25,000 0 * Romulus Holdings (9) 62,500 62,500 0 * Elmira Realty Management Corp. Pension & Profit Sharing Plan (11), (12) 12,500 12,500 0 * Iroquois Builders (11) 12,500 12,500 0 * Bobbi & Steven Investment LLC (11) 12,500 12,500 0 * Lawrence J. Arem & Stephen T. Burmundy TTEE Klehr Harrison Harvey Branzburg & Ellers FBO Leonard Klehr (6) 6,250 6,250 0 *
- ---------- * Less than one percent. (1) Includes shares of Common Stock issuable upon the exercise of the Financing Warrants, Foothill Warrants and/or the Series A Warrants. The number of shares issuable upon exercise of Series C Warrants represents the maximum number of shares issuable upon exercise of such warrants if such Warrants are issued. See "Background -- January 1998 Interim Financing." (2) Assumes exercise of all of such Selling Stockholder's Financing Warrants, Foothill Warrants and/or Series A Warrants. Based on 9,060,954 shares of Common Stock outstanding. (3) In connection with the Company's agreement with certain holders of the Zero Coupon Notes to convert their debt securities into shares of Common Stock. Mr. Miller was elected to the Board of Directors on March 17, 1998. (4) Consists solely of 25,000 shares of Common Stock issuable upon the exercise of the Series B Warrants and 6,250 shares of Common Stock issuable upon the exercise of the Series C Warrants. (5) Mr. Miller is (a) the investment adviser for the Lloyd I. Miller, Trust A-2, the Lloyd I. Miller, Trust A-4, and the Lloyd I. Miller, Trust C, (b) the manager of the managing general partner of Milfam I, L.P. and Milfam II, L.P., and (c) the trustee of trusts and custodian of accounts for the benefit of his family members. The trustee of the Lloyd I. Miller, Trusts A-2, A-4 and C is PNC Bank, National Association. As a result of his investment advisory agreement, Mr. Miller has shared voting and dispositive power as to the shares held by Trust A-2, Trust A-4 and Trust C. He also has shared voting and dispositive power as to the shares held by the Lloyd I. Miller Trust f/b/o Kimberly Miller. Mr. Miller has sole voting and dispositive power as to all of the other shares, including the shares held in the custodial accounts and by the other trusts, except for the shares owned by his wife, Dail Miller, as to which he disclaims beneficial ownership. (6) Consists solely of 5,000 shares of Common Stock issuable upon the exercise of the Series B Warrants and 1,250 shares of Common Stock issuable upon the exercise of the Series C Warrants. (7) Consists solely of 460,068 shares of Common Stock issuable upon the exercise of the Foothill Warrants. (8) Consists of (a) 426,576 shares of Common Stock owned by Bleichroeder, (b) 350,000 shares of Common Stock issuable upon exercise of the Series A Warrants currently held by Bleichroeder, (c) 50,000 shares of Common Stock issuable upon exercise of the Series A Warrants to be issued in May 1998, (d) 100,000 shares of Common Stock issuable upon exercise of the Series A Warrants which may be issued to Bleichroeder under certain conditions, (e) 110,000 shares of Common Stock issuable upon the exercise of the Series B Warrants, and (f) 27,500 shares of Common Stock issuable upon the exercise of the Series C Warrants. - 9 - (9) Consists solely of 50,000 shares of Common Stock issuable upon the exercise of the Series B Warrants and 12,500 shares of Common Stock issuable upon the exercise of the Series C Warrants. (10) Consists solely of 20,000 shares of Common Stock issuable upon the exercise of the Series B Warrants and 5,000 shares of Common Stock issuable upon the exercise of the Series C Warrants (when issued). (11) Consists solely of 10,000 shares of Common Stock issuable upon the exercise of the Series B Warrants and 2,500 shares of Common Stock issuable upon the exercise of the Series C Warrants (when issued). (12) Warren H. Esanu, has been a director of the Company since April 1997. He also served as a director from 1989 to 1996 and as the Chairman of the Board from March 1996 to October 1996. He has sole voting and dispositive power with respect to these shares under the terms of the Elmira Realty Management Corp. Pension and Profit Sharing Plan. Mr. Esanu is of counsel to Esanu Katsky Korins & Siger, LLP, general counsel to the Company. PLAN OF DISTRIBUTION The Selling Stockholders have advised the Company that (i) any transfer of any of the Warrants held by the Selling Stockholders will be either pursuant to a sale in transactions at negotiated prices or by gift and (ii) any sales of the shares of Common Stock which are outstanding or which are issuable upon exercise of such warrants may be effected from time to time in transactions (which may include block transactions by or for the account of the Selling Stockholder) on the ASE or in negotiated transactions, a combination of such methods of sale or otherwise. Also, securities may be transferred by gift. The Selling Stockholders may effect such transactions by selling such securities directly to purchasers, through broker-dealers acting as agents for the Selling Stockholders or to broker-dealers who may purchase Warrants or shares of Common Stock as principals and thereafter sell the securities from time to time on the ASE, in negotiated transactions or otherwise. Such broker-dealers, if any, may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholder and/or the purchasers from whom such broker-dealer may act as agents or to whom they may sell as principals or otherwise (which compensation as to a particular broker-dealer may exceed customary commissions). Bleichroeder, which is one of the Selling Stockholder, is a registered broker-dealer, and may sell shares which it owns or which may be owned by its customers. However, Bleichroeder has no agreement or understanding with respect to any sale of its shares of Common Stock or any sales on behalf of other Selling Stockholders. The Selling Stockholders and broker-dealers, if any, acting in connection with such sales might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commission received by them and any profit on the resale of the securities might be deemed to be underwriting discount and commissions under the Securities Act. LEGAL MATTERS The validity of the Common Stock offered hereby has been passed upon by Esanu Katsky Korins & Siger, LLP, legal counsel to the Company. Mr. Warren H. Esanu, a director of the Company is of counsel to Esanu Katsky Korins & Siger, LLP. EXPERTS The consolidated financial statements incorporated by reference in this Prospectus and elsewhere in the Registration Statement to the extent and for the periods indicated in their report have been audited by BDO Seidman, LLP, independent certified public accountants, and are included herein in reliance upon the authority of such firm as experts in accounting and auditing in giving such report. INDEMNIFICATION OF DIRECTORS AND OFFICERS Under the Delaware General Corporation Law ("DGCL"), a corporation may indemnify any director, officer, employee or agent against expense (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any specified threatened, - 10 - pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful. The Company's Certificate of Incorporation provides, among other things, that the Company shall indemnify, to the fullest extent permitted under the DGCL as it may be amended from time to time, any person who is or was a director or officer of the Company and who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company), by reason of the fact that such person (i) is or was a director or officer of the Company, or (ii) is or was serving at the request of the Company as director, officer, employee, agent of another corporation, partnership, joint venture, trust, or other enterprise (including service with respect to employee benefit plans), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) actually and reasonably incurred by such person in connection with such action, suit or proceeding. This indemnification continues as to a person who has ceased to be a director or officer of the Company and inures to the benefit of such person's heirs, executors and administrators. The right of indemnification under the Certificate of Incorporation is deemed to be a contract right. The Company also maintains directors and officers liability insurance ("D&O Insurance"). The D&O Insurance covers any person who has been or is an officer or director of the Company or of any of its subsidiaries for all expense, liability and loss (including attorneys' fees, investigation costs, judgments, fines, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred by such person in connection with such action, suit or proceeding. - 11 - ================================================================================ --------------------------- TABLE OF CONTENTS Page ---- Available Information ........................................................2 Incorporation of Certain Documents by Reference ....................................................................2 Risk Factors..................................................................3 Use of Proceeds...............................................................6 Background....................................................................6 Selling Stockholders..........................................................8 Plan of Distribution..........................................................10 Legal Matters.................................................................10 Experts.......................................................................10 Indemnification of Officers and Directors.....................................10 --------------------------- ================================================================================ ================================================================================ 3,550,660 Shares Porta Systems Corp. Common Stock, par value $.01 per share ---------------- PROSPECTUS ---------------- March__, 1998 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution SEC Registration Fee............................................$3,500 Printing and EDGAR Filing Fees..................................$1,500 Legal Fees and Expenses........................................$35,000 Accounting Fees.................................................$5,000 Miscellaneous...................................................$5,000 ------- Total $50,000 ======= Item 15. Indemnification of Directors and Officers Section 145 of the General Corporation Law of the State of Delaware provides that a corporation may indemnify its officers and directors (or persons who have served, at the corporation's request, as officers or directors of another corporation) against the reasonable expenses, including attorneys' fees actually and reasonably incurred by them in connection with the defense of any action by reason of being or having been directors or officers, if such person shall have acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that if such action shall be in the right of the corporation, no such indemnification shall be provided as to any claim, issue or matter as to which such person shall have been judged to have been liable to the corporation unless and to the extent that the Court of Chancery of the State of Delaware, or any other court in which the suit may be brought, shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification. Item 16. Exhibits 4.1 Form of Subscription Agreement for Units, including the form of the 12% Note, the Series B Warrant and the Series C Warrant (incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K, dated January 2, 1998, as filed with the Commission on February 6, 1998 (the "January 1998 Form 8-K")). 4.2 Registration Rights Agreement, dated as of October 10, 1997, by and between the Company and the Holders of the Zero Coupon Notes described therein. 4.3 Warrant to Purchase Common Stock of the Company, dated November 28, 1994 executed by the Company in favor of Foothill (incorporated by reference to Exhibit 6 to the Company's Current Report on Form 8-K, dated November 30, 1994, as filed with the Commission on December 15, 1994). 4.4 Amendment Number One to Warrant to Purchase Common Stock of the Company, dated February 13, 1995, executed by the Company in favor of Foothill (incorporated by reference to Exhibit 4.12.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 4.5 Amendment Number Five, dated as of November 30, 1997, to Amended and Restated Loan an Security Agreement between Foothill and the Company, including amendments to the Foothill Warrants (incorporated by reference from Exhibit 4.1 to the January 1998 Form 8-K). 4.6 Agreement dated January 26, 1998, among the Company and Henley Group, Ltd., Woodstead Associates, L.P., Lake Trust and Smith Management Company, Inc. (incorporated by reference from Exhibit 10.2 to the January 1998 Form 8-K). 4.7 Agreement, dated May 1, 1997, between Bleichroeder and the Company. 4.8 Form of Series A Common Stock Purchase Warrant. 5.1 Opinion of Esanu Katsky Korins & Siger, LLP. 23.1 Consent of Esanu Katsky Korins & Siger, LLP (contained in Exhibit 5.1 hereto). II-1 23.2 Consent of BDO Seidman, LLP. 24.1 Power of Attorney (included on the signature page to this Registration Statement). Item 17. Undertakings (a) The undersigned registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement with respect to the following: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic report filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) that for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for the purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (h) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Syosset, New York, on March 23, 1998. Porta Systems Corp. By: s/ William V. Carney ---------------------------------------- William V. Carney, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes William V. Carney, Seymour Joffe and Edward B. Kornfeld or any of them acting in the absence of the others, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. Signature Title Date --------- ----- ---- s/William V. Carney Chairman of the Board, March 23, 1998 - ------------------------- Chief Executive Officer and William V. Carney Director (Principal Executive Officer) s/Edward B. Kornfeld Senior Vice President and March 23, 1998 - ------------------------- Chief Financial Officer Edward B. Kornfeld (Principal Financial and Accounting Officer) s/Seymour Joffe Director March 23, 1998 - ------------------------- Seymour Joffe s/Michael A. Tancredi Director March 23, 1998 - ------------------------- Michael A. Tancredi s/Howard D. Brous Director March 23, 1998 - ------------------------- Howard D. Brous s/Warren H. Esanu Director March 23, 1998 - ------------------------- Warren H. Esanu s/Herbert H. Feldman Director March 23, 1998 - ------------------------- Herbert H. Feldman s/Stanley Kreitman Director March 23, 1998 - ------------------------- Stanley Kreitman s/Lloyd I. Miller, III Director March 23, 1998 - ------------------------- Lloyd I. Miller, III s/Robert Schreiber Director March 23, 1998 - ------------------------- Robert Schreiber II-3 EX-4.2 2 REGISTRATION RIGHTS AGREEMENT Exhibit 4.2 - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT between PORTA SYSTEMS CORP. and THE HOLDERS DESCRIBED HEREIN ----------------------------------- Dated as of October 10, 1997 ----------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- 1. Definitions ........................................................... 1 2. Initial Registration Under the Securities Act ......................... 3 (a) Shelf Registration .............................................. 3 (b) Rights Under Sections 3 and 4 Conditional ....................... 3 3. Securities Act Registration on Request ................................ 3 (a) Request ......................................................... 3 (b) Registration Statement Form ..................................... 4 (c) Effective Registration Statement ................................ 5 (d) Priority in Requested Registration .............................. 5 (e) Shelf Registrations ............................................. 6 (f) Continuing Obligation to Register ............................... 6 4. Piggyback Registration ................................................ 6 5. Expenses .............................................................. 7 6. Registration Procedures ............................................... 8 7. Underwritten Offerings ................................................ 11 (a) Underwriting Agreement .......................................... 11 (b) Piggyback Underwritten Offerings; Priority ...................... 12 (c) Holders of Registrable Common Stock to be Parties to Underwriting Agreement ............................... 12 (d) Selection of Underwriters for Piggyback Underwritten Offering ........................................... 13 8. Preparation; Reasonable investigation ................................. 13 (a) Registration Statements ......................................... 13 (b) Confidentiality ................................................. 13 9. Indemnification ....................................................... 13 (a) Indemnification by the Company .................................. 13 (b) Indemnification by the Offerors and Sellers ..................... 14 (c) Notices of Losses, etc .......................................... 15 (d) Contribution .................................................... 15 (e) Other Indemnification ........................................... 16 (f) Indemnification Payments ........................................ 16 -i- Page ---- 10. Registration Rights to Others ......................................... 16 11. Adjustments Affecting Registrable Common Stock ........................ 16 12. Rule 144 and Rule 144A ................................................ 16 13. Amendments and Waivers ................................................ 17 14. Nominees for Beneficial Owners ........................................ 17 15. Assignment 16. Calculation of Percentage or Number of Shares of Registrable Common Stock ........................................... 17 17. Miscellaneous ......................................................... 18 (a) Further Assurances .............................................. 18 (b) Headings ........................................................ 18 (c) No Inconsistent Agreements ...................................... 18 (d) Remedies ........................................................ 18 (e) Entire Agreement ................................................ 18 (f) Notices ......................................................... 18 (g) Governing Law ................................................... 19 (h) Severability .................................................... 19 (i) Counterparts .................................................... 19 ii REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of October 10, 1997 (this "Agreement"), by and among Porta Systems Corp., a Delaware corporation (the "Company"), and those security holders of the Company who, in connection with their conversion of Zero Coupon Senior Subordinated Notes due January 2, 1998 ("Notes"), become Affiliates of the Company as a result of their conversion of the Notes (the "Holders"). To induce the holders of the Notes who, as a result of their conversion of the Notes, become Affiliates of the Company, to convert the Notes and receive shares of Common Stock issued by the Company, the Company has undertaken to register Registrable Common Stock (as hereinafter defined) under the Securities Act (as hereinafter defined) and to take certain other actions with respect to the Registrable Common Stock. This Agreement sets forth the terms and conditions of such undertaking. In consideration of the premises and the mutual agreements set forth herein, the parties hereto hereby agree as follows: 1. Definitions. Unless otherwise defined herein, capitalized terms used herein and in the recitals above shall have the following meanings: "Affiliate" of a Person means any Person that controls, is under common control with, or is controlled by, such other Person. For purposes of this definition, "control" means the ability of one Person to direct the management and policies of another Person. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to be closed. "Commission" means the U.S. Securities and Exchange Commission. "Common Stock" means the shares of common stock, $0.01 par value per share, of the Company. "Exchange" means the principal stock exchange or market on which the Common Stock is traded, which is presently the American Stock Exchange, Inc. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, or any similar or successor statute. "Excusable Reason" means the occurrence of negotiations with respect to material agreements prior to the announcement of the execution of the agreement or the termination of the negotiations and other similar material corporate events to which the Company is a party or expects to be a party if, in the reasonable judgment of the Company, disclosure of the negotiations or other event would be adverse to the best interests of the Company provided that the Company is continuing to treat such negotiations as confidential and provided further that the period during which the Company is precluded from filing the registration statement (or suspended the use of an effective registration statement) as a result thereof has not exceeded 60 days and provided further that the Company shall not be permitted to avoid filing a registration statement (or to suspend the use of an effective registration statement) for an Excusable Reason more than twice in any one-year period. "Expenses" means, except as set forth in Section 5 hereof, all expenses incident to the Company's performance of or compliance with its obligations under this Agreement, including, without limitation, all registration, filing, listing, stock exchange and NASD fees, all fees and expenses of complying with state securities or blue sky laws (including fees, disbursements and other charges of counsel for the underwriters only in connection with blue sky filings), all word processing, duplicating and printing expenses, messenger and delivery expenses, all rating agency fees, the fees, disbursements and other charges of counsel for the Company and of its independent public accountants, including the expenses incurred in connection with "cold comfort" letters required by or incident to such performance and compliance, any fees and disbursements of underwriters customarily paid by issuers of securities and, with respect to registration statements other than a Shelf Registration, up to $15,000 of the reasonable fees, disbursements and other charges of one firm of counsel (per registration statement prepared) to the Holders of Registrable Common Stock (selected by the Holders holding a majority of the shares of Registrable Common Stock covered by such registration), but excluding from the definition of Expenses underwriting discounts and commissions and applicable transfer taxes, if any, which discounts, commissions and transfer taxes shall be borne by the seller or sellers of Registrable Common Stock in all cases. "Initiating Holders" has the meaning set forth in Section 3(a) hereof. "NASD" means the National Association of Securities Dealers, Inc. "NASDAQ" means the Nasdaq Stock Market and includes The Nasdaq National Market and The Nasdaq SmallCap Market. "Notes" means the Company's Zero Coupon Senior Subordinated Convertible Notes due January 2, 1998. "Person" means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint stock company, trust, unincorporated organization, governmental or regulatory body or subdivision thereof or other entity. "Public Offering" means a public offering and sale of Common Stock pursuant to an effective registration statement under the Securities Act. "Registrable Common Stock" means any shares of Common Stock held by the Holders immediately following the conversion of the Notes as to which and only for so long as registration pursuant to the Securities Act is required for public sale without regard to volume limitations, as adjusted to reflect any merger, consolidation, recapitalization, reclassification, split-up, stock dividend, rights offering or reverse stock split made, declared or effected with respect to the Common Stock. -2- "Requesting Holders" has the meaning set forth in Section 4 hereof. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar or successor statute. "Selling Holders" means the Holders of Registrable Common Stock requested to be registered pursuant to Section 3(a) hereof. "Shelf Registration" means a shelf registration statement pursuant to Rule 415 promulgated under the Securities Act. "Transfer" means any transfer, sale, assignment, pledge, hypothecation or other disposition of any interest. "Transferor" and "Transferee" have correlative meanings. 2. Initial Registration Under the Securities Act. (a) Shelf Registration. The Company shall (i) cause to be filed not later than 45 days after the date hereof a Shelf Registration statement providing for the sale by the Holders of all of the Registrable Common Stock and (ii) use its best efforts to have such Shelf Registration thereafter declared effective by the Commission not later than 60 days after the date of filing, subject to any delay for an Excusable Reason. The Shelf Registration shall register the Registrable Common Stock for resale by the Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company agrees to use its best efforts to keep the Shelf Registration continuously effective until the end of the eighteenth month following the date such Shelf Registration is declared effective by the Commission or such shorter period which will terminate when all of the Registrable Common Stock covered by the Shelf Registration has been sold pursuant to the Shelf Registration, excluding from the calculation of such eighteen-month period any period of time during which the Shelf Registration was unavailable for use by the Holders due to any stop order, injunction or other order or requirement of the Commission or other governmental or regulatory agency or court as contemplated by Section 2(b)(ii) or for any other reason including an Excusable Reason. (b) Rights Under Sections 3 and 4 Conditional. So long as the Company has complied and continues to remain in compliance with Section 2(a) of this Agreement, the Holders shall have no right to cause the filing of a registration statement pursuant to Section 3 hereof or to participate in an offering under a registration statement pursuant to Section 4 hereof. 3. Securities Act Registration on Request. (a) Request. If at any time after March 31, 1998, the Company does not make available to the Holders for any reason (other than an Excusable Reason) the Shelf Registration statement contemplated by Section 2 hereof, one or more Holders (the "Initiating Holders") may make a written request (the "Initiating Request") to the Company for the registration with the Commission under the Securities Act of all or part of such Initiating -3- Holders' Registrable Common Stock; provided, however, that such request shall be made by one or more Holders of at least 10% of the outstanding shares of Registrable Common Stock, which request shall specify the number of shares to be disposed of and the proposed plan of distribution therefor. Upon the receipt of any Initiating Request for registration pursuant to this paragraph, the Company promptly shall notify in writing all other Holders of the receipt of such request and will use its best efforts to effect, at the earliest possible date (taking into account any delay that may result from any special audit required by applicable law), such registration under the Securities Act, including a Shelf Registration (if then eligible), of (i) the Registrable Common Stock which the Company has been so requested to register by such Initiating Holder, and (ii) all other Registrable Common Stock which the Company has been requested to register by any other Holders by written request given to the Company within 30 days after the giving of written notice by the Company to such other Holders of the Initiating Request, all to the extent necessary to permit the disposition (in accordance with Section 3(b) hereof) of the Registrable Common Stock so to be registered; provided, that, (A) if the intended method of distribution is an underwritten public offering, the Company shall not be required to effect such registration pursuant to this Section 3(a) unless such underwriting shall be conducted on a "firm commitment" basis, (B) subject to the last sentence of Section 5 hereof, any Holder whose Registrable Common Stock was to be included in any such registration, by written notice to the Company, may withdraw such request and, on receipt of such notice of the withdrawal of such request from Holders holding a percentage of Common Stock, such that the Holders that have not elected to withdraw do not hold, in the aggregate, the requisite percentage of the Common Stock to initiate a request under this Section 3(a), the Company need not effect such registration, and (C) the Company shall not be required to effect any registration to be effected pursuant to this Section 3(a) unless at least 10% of the shares of Registrable Common Stock outstanding at the time of such request is to be included in such registration. (b) Registration Statement Form. Registrations under Section 3(a) hereof shall be on such appropriate registration form prescribed by the Commission under the Securities Act as shall be selected by the Company and as shall permit the disposition of the Registrable Common Stock pursuant to an underwritten offering unless the Selling Holders holding at least a majority of the shares of Registrable Common Stock requested to be included in such registration statement determine otherwise, in which case pursuant to the method of disposition determined by such Selling Holders. The Company agrees to include in any such -4- registration statement filed pursuant to Section 3(a) hereof all information which any Selling Holder, upon advice of counsel, shall reasonably request. (c) Effective Registration Statement. A registration requested pursuant to Section 3(a) hereof shall not be deemed to have been effected (i) unless a registration statement with respect thereto has been declared effective by the Commission and remains effective in compliance with the provisions of the Securities Act and the laws of any state or other jurisdiction applicable to the disposition of all Registrable Common Stock covered by such registration statement until such time as all of such Registrable Common Stock have been disposed of in accordance with such registration statement, (ii) if, after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental or regulatory agency or court for any reason other than a violation of applicable law solely by the Selling Holders and has not thereafter become effective, or (iii) if, in the case of an underwritten offering, the conditions to closing specified in an underwriting agreement to which the Company is a party are not satisfied other than by reason of any breach or failure by the Selling Holders, or are not otherwise waived. The Holders of Registrable Common Stock to be excluded in a registration statement may at any time terminate a request for registration made pursuant to Section 3(a) in accordance with Section 3(a)(ii)(B). Expenses incurred in connection with a request for registration terminated pursuant to this paragraph shall be paid in accordance with the last sentence of Section 5 hereof. (d) Priority in Requested Registration. If a registration under Section 3(a) hereof involves an underwritten public offering, and the managing underwriter of such underwritten offering shall advise the Company in writing (with a copy to each Holder requesting that Registrable Common Stock be included in such registration statement) that, in its opinion, the number of shares of Registrable Common Stock requested to be included in such registration exceeds the number of such securities that can be sold in such offering within a price range stated to such managing underwriter by Selling Holders owning at least a majority of the shares of Registrable Common Stock requested to be included in such registration to be acceptable to such Selling Holders, the Company shall include in such registration, to the extent of the number and type of securities which the Company is advised can be sold in such offering, all Registrable Common Stock requested to be registered pursuant to Section 3(a) hereof, pro rata among the Selling Holders on the basis of the number of shares of Registrable Common Stock requested to be registered by all such holders, and no other shares of Common Stock, whether to be sold by the Company or any other Person. -5- (e) Shelf Registrations. If a demand made pursuant to Section 3(a) hereof is for a Shelf Registration, the period for which such Shelf Registration must remain effective need not extend beyond the period set forth in Section 2(a) hereof or such shorter period which will terminate when all of the Registrable Common Stock covered by the Shelf Registration has been sold pursuant thereto. (f) Continuing Obligation to Register. No registration effected under this Section 3 shall relieve the Company of its obligation to effect the Shelf Registration under Section 2 hereof or of its obligation to permit the registration of Registrable Common Stock under Section 4 hereof. 4. Piggyback Registration. If at any time after March 31, 1998, the Company does not make available to the Holders for any reason (other than an Excusable Reason) the Shelf Registration statement contemplated by Section 2(a) hereof and at any time proposes to register any of its securities under the Securities Act by registration on any forms other than Form S-4 or S-8 (or any successor or similar form(s)), whether or not pursuant to registration rights granted to other holders of its securities and whether or not for sale for its own account, it shall give prompt written notice to all of the Holders of its intention to do so and of such Holders' rights (if any) under this Section 4, which notice, in any event, shall be given at least 10 Business Days prior to such proposed registration. Upon the written request of any Holder receiving notice of such proposed registration that is a Holder of Registrable Common Stock (a "Requesting Holder") made within 5 Business Days after the receipt of any such notice (3 Business Days if the Company states in such written notice or gives telephonic notice to the relevant securityholders, with written confirmation to follow promptly thereafter, stating that (i) such registration will be on Form S-3 and (ii) such shorter period of time is required because of a planned filing date), which request shall specify the Registrable Common Stock intended to be disposed of by such Requesting Holder and the minimum offering price per share at which the Holder is willing to sell its Registrable Common Stock, the Company shall, subject to Section 7(b) hereof, effect the registration under the Securities Act of all Registrable Common Stock which the Company has been so requested to register by the Requesting Holders thereof; provided, that, (A) prior to the effective date of the registration statement filed in connection with such registration, promptly following receipt of notification by the Company from the managing underwriter of the price at which such securities are to be sold, the Company shall so advise the attorney-in-fact for the Requesting Holders of such price, and if such price is below the minimum price which any Requesting Holder shall have indicated to be acceptable to such Requesting Holder, such Requesting Holder shall then have the right irrevocably to withdraw its request to have its Registrable Common Stock included in such registration statement, by delivery of written notice of such withdrawal to the Company promptly but in any event before the execution of the underwriting agreement on behalf of such Holder, without prejudice to the rights of any Holder or Holders of Registrable Common Stock to include Registrable Common Stock in any future registration (or registrations) pursuant to this Section 4 or to cause -6- such registration to be effected as a registration under Section 2 or Section 3(a) hereof, as the case may be; (B) if at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Requesting Holder and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Common Stock in connection with such registration (but not from any obligation of the Company to pay the Expenses in connection therewith), without prejudice, however, to the rights of any Holder to include Registrable Common Stock in any future registration (or registrations) pursuant to this Section 4 or to cause such registration to be effected as a registration under Section 2 or 3(a) hereof, as the case may be, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Common Stock, for the same period as the delay in registering such other securities; and (C) if such registration involves an underwritten offering, each Requesting Holder shall sell its Registrable Securities on the same terms and conditions as those that apply to the Company, if the Company is offering Common Stock. No registration effected under this Section 4 shall relieve the Company of its obligation to effect any registration upon request under Section 3(a) hereof or of its obligation to effect the Shelf Registration under Section 2 hereof. 5. Expenses. The Company shall pay all Expenses in connection with any registration initiated pursuant to Section 2(a), 3(a) or 4 hereof, whether or not such registration shall become effective and whether or not all or any portion of the Registrable Common Stock originally requested to be included in such registration is ultimately included in such registration. Notwithstanding the foregoing, if any request for registration made pursuant to Section 3(a) hereof is withdrawn or terminated by the Selling Holders prior to the registration becoming effective, the Expenses incurred in connection with such request shall be borne by the Selling Holders pro rata on the basis of the number of shares of Registrable Common Stock requested to be registered pursuant to such demand by each Selling Holder, provided, however, that, in the case of an underwritten Public Offering, if such request for registration is withdrawn or terminated by the Selling Holders prior to the registration becoming effective because the offering price of the Registrable Common Stock requested to be registered would, in the opinion of the managing underwriter of such offering, be less than 90% of the estimated offering price of the Common Stock as indicated in writing by the managing underwriter prior to the initial filing of such registration statement with the Commission, the Company shall pay 50% of the Expenses in connection with such registration and the Selling Holders shall pay the remaining 50% on a pro rata basis. -7- 6. Registration Procedures. If and whenever the Company is required to effect any registration under the Securities Act as provided in Sections 2(a), 3(a) and 4 hereof, the Company shall, as expeditiously as possible: (a) subject to Section 6(c) hereof, prepare and file with the Commission (promptly and, in the case of any registration pursuant to Section 3(a), in any event within 45 days) the requisite registration statement to effect such registration and thereafter use its best efforts to cause such registration statement to become effective; provided, however, that the Company may discontinue any registration of its securities that are not shares of Registrable Common Stock (and, under the circumstances specified in Section 4 hereof, its securities that are shares of Registrable Common Stock) at any time prior to the effective date of the registration statement relating thereto; (b) notify each seller of Registrable Common Stock and other securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and subject to Section 6(c) hereof, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Common Stock covered by such registration statement until such time as all of such Registrable Common Stock has been disposed of in accordance with the method of disposition set forth in such registration statement; (c) before filing any registration statement or prospectus or any amendments or supplements thereto, furnish to and afford the Holders of the Registrable Common Stock, one firm of counsel for the Holders designated by the Holders of a majority of the Registrable Common Stock included in the registration statement (the "Holders Counsel") and the managing underwriters, if any designated by the Holders, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (at least ten (10) Business Days prior to such filing). The Company shall not file any registration statement or prospectus or any amendments or supplements thereto in respect of which the Holders must be afforded an opportunity to review prior to the filing of such document, if the Holders of a majority of the shares of Registrable Common Stock covered by such registration statement, the Holders Counsel, or the managing underwriters, if any, shall reasonably object. Any registration statement, when declared effective by the Commission or when subsequently amended (by an amendment which is declared effective by the Commission) or any prospectus in the form included in the registration statement as declared effective by the Commission or when subsequently supplemented will not contain an untrue statement of a 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; -8- (d) use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness of a registration statement, and in any event shall, within thirty (30) days of such cessation of effectiveness, use its best efforts to amend the registration statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional registration statement pursuant to Rule 415 covering all of the Registrable Common Stock and use its best efforts to cause the subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to remain effective; (e) if requested by the managing underwriters, if any, or the Holders of a majority of the Registrable Common Stock being sold in connection with an underwritten offering, (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters, if any, or such Holders or counsel reasonably request to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement. or post-effective amendment, and (iii) supplement or make amendments to such registration statement; (f) furnish to each seller of Registrable Common Stock covered by such registration statement such number of copies of such drafts and final conformed versions of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits and any documents incorporated by reference), such number of copies of such drafts and final versions of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request in writing; (g) use its best efforts (i) to register or qualify all Registrable Common Stock under such other securities or blue sky laws of such states or other jurisdictions of the United States of America as the sellers of Registrable Common Stock covered by such registration statement shall reasonably request in writing, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect, (iii) to prevent the issuance of any order suspending the effectiveness of a registration statement or of any order preventing or suspending the use of a prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Common Stock for sale in any jurisdiction, and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest possible moment, and (iv) to take any other action that may be reasonably necessary or advisable to enable such sellers to consummate the disposition in such jurisdictions of the securities to be sold by such sellers, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subsection (g) be obligated to be so qualified, to subject itself to taxation in such jurisdiction or to consent to general service of process in any such jurisdiction; (h) use its best efforts to cause all Registrable Common Stock and other securities covered by such registration statement to be registered with or approved by such -9- other federal or state governmental agencies or authorities as may be necessary in the opinion of counsel to the Company and counsel to the seller or sellers of Registrable Common Stock to enable the seller or sellers thereof to consummate the disposition of such Registrable Common Stock in the manner set forth in the registration statement; (i) in connection with any underwritten offering, use its best efforts to obtain and, if obtained, furnish to each seller of Registrable Common Stock, and each such seller's underwriters, if any, a signed (i) opinion of counsel for the Company, dated the date of the closing under the underwriting agreement, reasonably satisfactory in form and substance to the Holders Counsel, and (ii) "comfort" letter, dated the effective date of such registration statement and signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, reasonably satisfactory in form and substance to the Holders Counsel, in each case, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' comfort letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' comfort letters delivered to underwriters in underwritten public offerings of securities and, in the case of the accountants' comfort letter, such other financial matters, and, in the case of the legal opinion, such other legal matters, as the sellers of the Registrable Common Stock covered by such registration statement or the underwriters, if any, may reasonably request; (j) otherwise comply with all applicable rules and regulations of the Commission and any other governmental agency or authority having jurisdiction over the offering, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder, and furnish to each seller of Registrable Common Stock at least ten days prior to the filing thereof a copy of any amendment or supplement to such registration statement or prospectus; (k) use its best efforts to cause all such Registrable Common Stock covered by such registration statement (i) to be listed on the Exchange, if the listing of such Registrable Common Stock is then permitted under the rules thereof or (ii) if the Company is not required pursuant to clause (i) above to list such securities covered by such registration statement on such Exchange, use its best efforts to secure designation of all Registrable Common Stock covered by such registration statement as a NASDAQ "national market system security" within the meaning of Rule 11Aa2-l of the Commission or, failing that, to secure NASDAQ authorization for such Registrable Common Stock and, without limiting the generality of the -10- foregoing, to arrange for at least two market makers to register with the NASD as such with respect to such Registrable Common Stock; (1) file all annual and quarterly reports required by the Exchange Act, and, in the event that the Company is no longer subject to the reporting requirements of the Exchange Act, file the reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the Commission thereunder in the same manner as if it were subject to such reporting requirements; and (m) provide a transfer agent for such Registrable Common Stock covered by such Registration Statement no later than the effective date thereof (which transfer agent shall also maintain the share register for the Common Stock). The Company may require each seller of Registrable Common Stock as to which any registration is being effected to furnish the Company such information regarding such seller and the distribution of the securities covered by such registration statement as the Company may from time to time reasonably request in writing and as is required by applicable laws and regulations. Each Holder agrees that as of the date that a final prospectus is made available to it for distribution to prospective purchasers of Registrable Common Stock it shall cease to distribute copies of any preliminary prospectus prepared in connection with the offer and sale of such Registrable Common Stock. Each Holder further agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in subsection (b) of this Section 6, such Holder shall forthwith discontinue such Holder's disposition of Registrable Common Stock pursuant to the registration statement relating to such Registrable Common Stock until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by subsection (b) of this Section 6 and, if so directed by the Company, shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus relating to such Registrable Common Stock current at the time of receipt of such notice. 7. Underwritten Offerings. (a) Underwriting Agreement. In the event of an underwritten offering of Registrable Common Stock, the Company shall enter into an underwriting agreement as is customary in underwritten offerings and take all such other actions as are reasonably requested by the managing underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Common Stock, and in such connection, (i) make such representations and warranties to the underwriters, with respect to the business of the Company and its subsidiaries and the registration statement, prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as is reasonable, and (ii) include in such underwriting agreement indemnification provisions and procedures no less favorable than those set forth in Section 9 of this Agreement (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Common Stock covered by such Registration Statement and the managing underwriters or agents) with respect to all parties -11- to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (b) Piggyback Underwritten Offerings; Priority. If the Company proposes to register any of its securities under the Securities Act as contemplated by Section 4 hereof and such securities are to be distributed by or through one or more underwriters, the Company shall, if requested by any Requesting Holders, use its best efforts to arrange for such underwriters to include all of the Registrable Common Stock to be offered and sold by such Requesting Holders among the securities of the Company to be distributed by such underwriters; provided, that, if the managing underwriter of such underwritten offering shall advise the Company in writing (with a copy to the Requesting Holders) that if all the Registrable Common Stock requested to be included in such registration (together with all other shares of Common Stock of other stockholders of the Company requested to be so included pursuant to "piggyback' rights granted to such stockholders) were so included, in its opinion, the number and type of securities proposed to be included in such registration would exceed the number and type of securities which could be sold in such offering within a price range acceptable to the Company (such writing to state the basis of such opinion and the approximate number and type of securities which may be included in such offering without such effect), then the Company shall include in such registration, to the extent of the number and type of securities which the Company is so advised can be sold in such offering, (i) first, securities that the Company proposes to issue and sell for its own account and (ii) second, Registrable Common Stock requested to be registered by Requesting Holders pursuant to Section 4 hereof and Common Stock of any other stockholders of the Company requesting registration as aforesaid, pro rata, among such holders on the basis of the number of shares of Common Stock requested to be registered by all such holders. Any Requesting Holder may withdraw its request to have all or any portion of its Registrable Common Stock included in any such offering by notice to the Company within 1O Business Days after receipt of a copy of a notice from the managing underwriter pursuant to this section 7(b). (c) Holders of Registrable Common Stock to be Parties to Underwriting Agreement. The Holders of Registrable Common Stock to be distributed by underwriters in an underwritten offering contemplated by subsections (a) or (b) of this Section 7 shall be parties to the underwriting agreement between the Company and such underwriters and any such Holder, at its option, may require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Holders and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Holders. No such Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters except that each such Holder shall be required to make representations, warranties and agreements regarding such Holder, such Holder's Registrable Common Stock and such Holder's intended method of distribution. The Selling Holders shall appoint an attorney-in-fact who shall -12- be authorized to negotiate with the underwriter on behalf of the Selling Holders and to execute the underwriting agreement and related documentation on their behalf. (d) Selection of Underwriters for Underwritten Offering. The underwriter or underwriters of each underwritten offering, if any, of the Registrable Common Stock to be registered pursuant to Section 2(a) or 3(a) hereof (i) shall be a nationally recognized underwriter (or underwriters), (ii) shall be selected by the Selling Holders owning at least a majority of the shares of Registrable Common Stock to be registered and (iii) shall be reasonably acceptable to the Company. The underwriter or underwriters of each piggyback underwritten offering pursuant to Section 4 shall be a nationally recognized underwriter (or underwriters) selected by the Company. 8. Preparation; Reasonable Investigation. (a) Registration Statements. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company shall give each Holder of Registrable Common Stock registered under such registration statement, the underwriter, if any, and its respective counsel and accountants the reasonable opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and shall give each of them such reasonable access to its books and records and such reasonable opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the reasonable opinion of any such Holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. (b) Confidentiality. Each Holder of Registrable Common Stock shall maintain the confidentiality of any confidential information received from or otherwise made available by the Company to such Holder of Registrable Common Stock and identified in writing by the Company as confidential. Information that (i) is or becomes available to a Holder of Registrable Common Stock from a public source, (ii) is disclosed to a Holder of Registrable Common Stock by a third-party source who the Holder of Registrable Common Stock reasonably believes has the right to disclose such information or (iii) is or becomes required to be disclosed by a Holder of Registrable Common Stock by law, including by court order, shall not be deemed to be confidential information for purposes of this Agreement. 9. Indemnification. (a) Indemnification by the Company. In connection with any registration statement filed by the Company pursuant to Section 2(a), 3(a) or 4 hereof, the Company shall, and hereby agrees to, indemnify and hold harmless, each Holder and seller of any Registrable Common Stock covered by such registration statement and each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Holder or seller or any such underwriter, and their respective directors, officers, partners, agents and Affiliates (each, a "Company Indemnitee" for purposes of this Section 9(a)), against any losses, claims, damages, liabilities (or actions or proceedings, -13- whether commenced or threatened, in respect thereof and whether or not such Indemnified Party is a party thereto), joint or several, and expenses, including, without limitation, the reasonable fees, disbursements and other charges of one legal counsel for all of such Company Indemnitees (which counsel shall be reasonably acceptable to all such Company Indemnitees) and reasonable costs of investigation, to which such Company Indemnitee may become subject under the Securities Act or otherwise (collectively, a "Loss" or "Losses"), insofar as such Losses arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered or otherwise offered or sold under the Securities Act or otherwise, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto (collectively, "Offering Documents"), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances in which they were made not misleading; provided, that, the Company shall not be liable in any such case to the extent that any such Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such Offering Documents in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by or on behalf of such Company Indemnitee specifically stating that it is expressly for use therein; and provided, further, that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Common Stock or any other Person, if any, who controls such underwriter, in any such case to the extent that any such Loss arises out of such Person's failure to send or give a copy of the final prospectus (including any documents incorporated by reference therein), as the same may be then supplemented or amended, to the person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Common Stock to such Person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Company Indemnitee and shall survive the transfer of such securities by such Company Indemnitee. (b) Indemnification by the Offerors and Sellers. In connection with any registration statement filed by the Company pursuant to Section 2(a), 3(a) or 4 hereof in which a Holder has registered for sale Registrable Common Stock, each such Holder or seller of Registrable Common Stock shall, and hereby agrees to, indemnify and hold harmless the Company and each of its directors, officers, employees and agents, each other Person, if any, who controls the Company and each other seller and such seller's directors, officers, stockholders, partners, employees, agents and affiliates (each, a "Holder Indemnitee" for purposes of this Section 9(b)), against all Losses insofar as such Losses arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Offering Documents (or any document incorporated by reference therein) or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in the light of circumstances in which they were made not misleading, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Holder or seller of Registrable Common Stock specifically stating that it is expressly for use therein; provided, however, that the liability of such -14- indemnifying party under this Section 9(b) shall be limited to the amount of the net proceeds received by such indemnifying party in the offering giving rise to such liability. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Holder Indemnitee and shall survive the transfer of such securities by such Holder. (c) Notices of Losses, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a Loss referred to in the preceding subsections of this Section 9, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Section 9, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such Loss, to assume and control the defense thereof, in each case at its own expense, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after its assumption of the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall be liable for any settlement of any such action or proceeding effected without its written consent, which shall not be unreasonably withheld. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such Loss or which requires action on the part of such indemnified party or otherwise subjects the indemnified party to any obligation or restriction to which it would not otherwise be subject (d) Contribution. If the indemnification provided for in this Section 9 shall for any reason be unavailable to an indemnified party under subsection (a) or (b) of this Section 9 in respect of any Loss, then, in lieu of the amount paid or payable under subsection (a) or (b) of this Section 9, the indemnified party and the indemnifying party under subsection (a) or (b) of this Section 9 shall contribute to the aggregate Losses (including legal or other expenses reasonably incurred in connection with investigating the same) (i) in such proportion as is appropriate to reflect the relative fault of the Company and the prospective sellers of Registrable Common Stock covered by the registration statement which resulted in such Loss or action in respect thereof, with respect to the statements, omissions or action which resulted in such Loss or action in respect thereof, as well as any other relevant equitable considerations, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and such prospective sellers, on the other hand, from their sale of Registrable Common Stock; provided, that, for purposes of this clause (ii), the relative benefits received by the prospective sellers shall be deemed not to exceed the amount received by such sellers. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be -15- entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The obligations, if any, of the Selling Holders of Registrable Common Stock to contribute as provided in this subsection (d) are several in proportion to the relative value of their respective Registrable Common Stock covered by such registration statement and not joint. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or Loss effected without such Personal consent. (e) Other Indemnification. The Company and, in connection with any registration statement filed by the Company pursuant to Section 2(a) each Holder shall, and, in connection with any registration statement filed by the Company pursuant to Section 3(a) or 4, each Holder who has registered for sale Registrable Common Stock, shall, with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority other than the Securities Act, indemnify Holder indemnitees and Company Indemnitees, respectively, against Losses, or, to the extent that indemnification shall be unavailable to a Holder Indemnitee or Company Indemnitee, contribute to the aggregate Losses of such Holder Indemnitee or Company Indemnitee in a manner similar to that specified in the preceding subsections of this Section 9 (with appropriate modifications), provided, that, the Holder shall be liable only if and to the extent that such Loss arises out of or is based upon written information furnished to the Company through an instrument duly executed by or on behalf of such Holder specifically stating that it is expressly for use in connection with such registration or qualification; and provided, further, that the aggregate liability of such Holder under this Section 9 shall be limited to the amount of the net proceeds received by such Holder in the offering giving rise to such liability. (f) Indemnification Payments. The indemnification and contribution required by this Section 9 shall be made by periodic payments of the amount thereof during the course of any investigation or defense, as and when bills are received or any Loss is incurred. 10. Registration Rights to Others. If the Company shall at any time hereafter provide to any holder of any securities of the Company rights with respect to the registration of such securities under the Securities Act or the Exchange Act, such rights shall not be in conflict with or adversely affect any of the rights provided in this Agreement to the Holders of Registrable Common Stock. 11. Adjustments Affecting Registrable Common Stock. The Company shall not effect or permit to occur any combination, subdivision or reclassification of Registrable Common Stock that would materially adversely affect the ability of the Holders to include such Registrable Common Stock in any registration of its securities under the Securities Act contemplated by this Agreement or the marketability of such Registrable Common Stock under any such registration or other offering. 12. Rule 144 and Rule 144A. The Company shall take all actions required to be taken on the part of the Company in order to enable Holders to sell Registrable Common Stock without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to -16- time, (b) Rule 144A under the Securities Act, as such Rule may be amended from time to time, or (c) any similar rules or regulations hereafter adopted by the Commission, including, without limiting the generality of the foregoing, filing on a timely basis all reports required to be filed under the Exchange Act. Upon the request of any Holder, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. 13. Amendments and Waivers. Any provision of this Agreement may be amended, modified or waived if, but only if, the written consent to such amendment, modification or waiver has been obtained from (i) except as provided in clause (ii) below, the Holder or Holders of at least 66-2/3% of the shares of Registrable Common Stock affected by such amendment, modification or waiver and (ii) in the case of any amendment, modification or waiver of any provision of Section 5 hereof or this Section 13, or as to the percentages of Holders required for any amendment, modification or waiver, or any amendment, modification or waiver which adversely affects any right and/or obligation under this Agreement of any Holder, the written consent of each Holder so affected. 14. Nominees for Beneficial Owners. In the event that any Registrable Common Stock is held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election in writing delivered to the Company, be treated as the Holder of such Registrable Common Stock for purposes of any request or other action by any Holder or Holders pursuant to this Agreement or any determination of the number or percentage of shares of Registrable Common Stock held by any Holder or Holders contemplated by this Agreement. If the beneficial owner of any Registrable Common Stock so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Common Stock. 15. Assignment. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. Any Holder may assign to any Transferee of its Registrable Common Stock its rights and obligations under this Agreement (except with respect to shares of Registrable Common Stock sold pursuant to Rule 144 under the Securities Act, under any registration statement or otherwise in a manner such that the shares are no longer subject to restrictions from further public resale under the Securities Act without regard to volume limitations), provided that the Company shall receive written notice of such transfer and that such Transferee shall agree in writing with the parties hereto prior to the assignment to be bound by this Agreement as if it were an original party hereto, whereupon such assignee shall for all purposes be deemed to be a Holder under this Agreement. Except as provided above or otherwise permitted by this Agreement, neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any Holder without the prior written consent of the other parties hereto. The Company may not assign this Agreement or any right, remedy, obligation or liability arising hereunder or by reason hereof. 16. Calculation of Percentage or Number of Shares of Registrable Common Stock. For purposes of this Agreement, all references to percentage or number of shares of Registrable Common Stock or Common Stock shall be calculated based upon the number of -17- shares of Registrable Common Stock or Common Stock, as the case may be, outstanding at the time such calculation is made and shall exclude any Registrable Common Stock or Common Stock, as the case may be, owned by the Company or any subsidiary of the Company. 17. Miscellaneous. (a) Further Assurances. Each of the parties hereto shall execute such documents and other papers and perform such further acts as may be reasonably required or desirable to carry out the provisions of this Agreement and the transactions contemplated hereby. (b) Headings. The headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any provisions hereof. (c) No Inconsistent Agreements. The Company will not hereafter enter into any agreement which is inconsistent with the rights granted to the Holders in this Agreement. (d) Remedies. Each Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and the Company hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (e) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein, and there are no restrictions, promises, representations, warranties, covenants, or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties hereto with respect to the subject matter hereof. (f) Notices. Any notices or other communications to be given hereunder by any party to another party shall be in writing, shall be delivered personally, by telecopy, by certified or registered mall, postage prepaid, return receipt requested, or by Federal Express or other comparable delivery service, in the case of a Holder, to the address of such Holder as shown on the Company's shareholder records, and in the case of the Company, as follows: -18- Porta Systems Corp. 575 Underhill Blvd. Syosset, NY l1791 Attention: Mr. William V. Carney Chairman of the Board and Chief Executive Officer -and- Mr. Edward B. Kornfeld Chief Financial Officer Tel: 516 364-93O0 Fax: 516 682-4655 with a copy to: Esanu Katsky Korins & Siger, LLP 605 Third Avenue New York, NY 10158 Attention: Warren H. Esanu, Esq. Tel: 212 953-6000 Fax: 212 953-6899 Notice shall be effective when delivered if given personally, when receipt is acknowledged if telecopied, three Business Days after mailing if given by registered or certified mail as described above, and one Business Day after deposit if given by Federal Express or comparable delivery service. (g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made to be performed entirely in such State. Any action against the Company may be brought solely in the Federal or State Courts located in New York County, New York. (h) Severability. Notwithstanding any provision of this Agreement, neither the Company nor any other party hereto shall be required to take any action which would be in violation of any applicable Federal or state securities law. The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. (i) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same Agreement. -19- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PORTA SYSTEMS CORP. By: /s/ EDWARD B. KORNFELD --------------------------------- Name: Edward B. Kornfeld Title: Senior Vice president Chief Financial Officer -20- EX-4.7 3 AGREEMENT Exhibit 4.7 [Letterhead of Arnhold and S. Bleichroeder, Inc.] May 1, 1997 Mr. William V. Carney Chairman of the Board and Chief Executive Officer Porta Systems Corp. 575 Underhill Boulevard Syosset, NY 11791 Dear Bill: Arnhold and S. Bleichroeder, Inc. ("A&SB") is pleased to act as financial advisor to Porta Systems Corp. ("Porta" or the "Company") rendering investment banking services in connection with transactions the Company may undertake including restructuring existing debt obligations of the Company, capital raising and mergers and acquisitions (together the "Possible Transactions"). This letter is to confirm our understanding with respect to our engagement (the "Letter Agreement"). A&SB will assist the Company in analyzing, structuring, negotiating and effecting the Possible Transactions on the terms and conditions of this letter. In this regard, we propose to undertake certain activities on your behalf, including, if appropriate, the following: (1) negotiating with the holders of the Company's Zero Coupon Debentures regarding the restructuring of such obligations; (2) assisting the Company in the refinancing of debt due to Foothill Capital; (3) advising the Company in the negotiations and as to the structure and form of the Possible Transactions; (4) rendering such other financial advisory and investment banking services as may time to time be agreed upon by A&SB and the Company. MEMBER OF THE NEW YORK STOCK EXCHANGE AND OTHER PRINCIPAL EXCHANGES -2- It is understood that A&SB makes no commitment to underwrite the Company's debt or equity securities. In addition, Porta has the right not to accept any or all offers with respect to the Possible Transactions. As compensation for these advisory services, the Company agrees to pay A&SB as follows: (i) For general advisory services, 50,000 five-year warrants per annum for two years with an exercise price equal to $1.56, the closing price of Porta's common stock on April 30, 1997. These warrants will vest immediately upon execution of this Letter Agreement. (ii) Upon the completion of a restructuring of the Zero Coupon Debentures, 300,000 five-year warrants with an exercise price equal to $1.56. These warrants will vest immediately upon issuance. In the event that (a) at least 33% of the Zero Coupon Debentures are not converted into common stock, preferred stock or some other equity-like security, or (b) at least 33% of the Zero Coupon Debentures are not forgiven by such holders, A&SB shall receive only 100,000 warrants under (ii) above. (iii) Upon the completion of the refinancing of Foothill Capital's debt obligations with a new lender, 100,000 five-year warrants with an exercise price equal to $1.56. These warrants will vest immediately upon issuance. (iv) Upon consummation of other Possible Transactions (excluding (i) - (iii) above), A&SB shall be paid fees at normal and customary investment banking rates, to be agreed upon in separate Letter Agreements between the Company and A&SB. All warrants received by A&SB as compensation for its services, shall contain customary terms including anti-dilution (not including dilution due to (i) - (iii) above) and cashless exercise provisions (whereby A&SB will receive stock based upon the difference between the exercise price and market price of the Company's stock) provisions and appropriate registration rights. In addition to any fees that may be payable to A&SB under this Letter Agreement, the Company agrees to reimburse A&SB, upon request from time to time, for its reasonable out-of-pocket expenses incurred in connection with A&SB's activities under this Letter Agreement. In connection with A&SB's engagement, the Company will furnish A&SB with all -3- information concerning the Company which A&SB reasonably deems appropriate and will provide A&SB with access to the Company's officers, directors, accountants and counsel, it being understood that A&SB will rely upon such information supplied by the Company and its officers and agents without any independent investigation or verification thereof. All non-public information concerning the Company which is given to A&SB will be used solely in the course of the performance of our services hereunder and will be treated confidentially by us for so long as it remains non-public. Except as otherwise required by law, A&SB will not disclose this information to a third party without the Company's consent. If A&SB is required by a court of competent jurisdiction to disclose any such information, it shall notify, to the extent consistent with the court's order, the Company at least 5 days before making any such disclosure. The Company agrees to indemnify A&SB and its affiliates and their respective directors, officers, employees, agents and controlling persons (A&SB and each person being an "Indemnified Party") from and against any and all losses, claims, damages and liabilities, joint and several, to which such Indemnified Party may become subject under any applicable federal or state law, or otherwise, related to or arising out of any business transaction contemplated by this Letter Agreement or the engagement of A&SB pursuant to, and the performance by A&SB of the services contemplated by, this Letter Agreement and will reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party. The Company will not be liable under the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court to have resulted primarily from A&SB's bad faith or gross negligence, provided however, selection of counsel shall be subject to reasonable approval of the Company. The indemnification provided for in this Letter Agreement shall be in addition to any rights that either party may have at common law or otherwise. This engagement shall cease upon termination of this Letter Agreement, which may be effected by agreement of the parties hereto any time and by either party upon 30 days' prior written notice, such notice which may be given at any time. Provisions relating to indemnification and out-of-pocket expenses will survive any termination, and the provisions relating to the payment of fees described on page 2 of this Letter Agreement will survive such termination for a period of 6 months. -4- Please confirm that the foregoing is in accordance with your understanding by signing and returning to us the enclosed duplicate of this letter. Very truly yours, ARNOLD AND S. BLEICHROEDER, INC. By:/s/ Gary L. Fuhrman ------------------------------------- Gary L. Fuhrman Co-Director of Investment Banking Accepted: PORTA SYSTEMS CORP. By:/s/ William V. Carney ---------------------------------------- William V. Carney Chairman and Chief Executive Officer EX-4.8 4 WARRANT TO PURCHASE SHARES OF COMMON STOCK Exhibit 4.8 Warrant to Purchase WA- ** ** Shares of Common Stock NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. Void after 5:00 P.M. New York City time on ________, ____ SERIES A COMMON STOCK PURCHASE WARRANT OF PORTA SYSTEMS CORP. This is to certify that, FOR VALUE RECEIVED, Arnhold and S. Bleichroeder, Inc. or registered assigns ("Holder"), is entitled to purchase, on the terms and subject to the provisions of this Warrant, from Porta Systems Corp., a Delaware corporation (the "Company"), at an exercise price per share of one and 56/100 dollars ($1.56), ___________________________ shares of common stock, par value $.01 per share ("Common Stock"), of the Company at any time during the period (the "Exercise Period"), as hereinafter defined. The Exercise Period shall mean the period commencing on the date of issuance of this Warrant and ending at 5:00 P.M. New York City time, on ________, ____; provided, however, that if such date is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day. The number of shares of Common Stock to be issued upon the exercise of this Warrant and the price to be paid for a share of Common Stock may be adjusted from time to time in the manner set forth in this Warrant. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares," and the exercise price for the purchase of a share of Common Stock pursuant to this Warrant, as the same may be adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." Reference in the Warrant to the "Series A Warrants" shall mean any or all of the warrants designated as Series A Common Stock Purchase Warrants by the Company. (a) EXERCISE OF WARRANT. (1) This Warrant may be exercised in whole at any time or in part from time to time during the Exercise Period by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares of Common Stock specified in such form. Payment of the Exercise Price may be made either by check (subject to collection) in the amount of the Exercise Price or by delivery of such number of shares of Common Stock as has a current value, determined in the manner provided for in Paragraph (a)(2) of this Warrant (with the current value being based on the market price of the Common Stock on the date the Warrant, accompanied by the shares of Common Stock delivered in respect of such exercise, is received by the Company or its transfer agent), equal to the Exercise Price. If this Warrant should be exercised in part only, whether pursuant to this Paragraph (a)(1) or pursuant to Paragraph (a)(2) of this Warrant, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder hereof to purchase the balance of the shares of Common Stock purchasable hereunder. Upon receipt by the Company of this - 1 - Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. (2) In lieu of exercising this Warrant by payment of the Exercise Price pursuant to Paragraph (a)(1) of this warrant, the Holder shall have the right to exchange this Warrant, in whole or in part to the extent that this Warrant has not been exercised pursuant to said Paragraph (a)(1), for the number of shares of Common Stock determined by (i) multiplying (x) the number of shares as to which this Warrant is being exercised by (y) the difference between the current value per share of Common Stock on the date of exercise and the Exercise Price per share, as in effect on such date, and (ii) dividing the result so obtained by the current value per share of Common Stock on the date of exercise. The date of exercise shall mean, for purposes of this Paragraph (a)(2), the date on which this Warrant accompanied by the notice of exercise is received by the Company. The current value per share of Common Stock shall be determined as follows: (A) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the Nasdaq Stock Market ("Nasdaq") or other automated quotation system which provides information as to the last sale price, the current value shall be the average of the reported last sale prices of one share of Common Stock on such exchange or system on the last five (5) trading days prior to the date of exercise of this Warrant, or if, on any of such dates, no such sale is made on such day, the average of the closing bid and asked prices for such date on such exchange or system shall be used; or (B) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current value shall be the mean the average of the reported last bid and asked prices of one share of Common Stock as reported by Nasdaq, the National Quotation Bureau, Inc. or other similar reporting service, on the last five (5) trading day prior to the date of the exercise of this Warrant; or (C) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value of one share of Common Stock shall be an amount, not less than book value, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. (b) RESERVATION OF SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of this Warrant and that it shall not, without the prior approval of the holders of a majority of the Warrants then outstanding, increase the par value of the Common Stock. (c) FRACTIONAL SHARES. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise of this Warrant, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined in the manner set forth in Paragraph (a)(2) of this Warrant, except that the price shall be based on the closing price on the last trading day before the date of exercise. (d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Subject to the provisions of Paragraph (k) of this Warrant, upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the - 2 - assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. (e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this Warrant, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth in this Warrant. (f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows: (1) In case the Company shall, subsequent to _________, ____, (A) pay a dividend or make a distribution on its shares of Common Stock in shares of Common Stock (B) subdivide or reclassify its outstanding Common Stock into a greater number of shares, or (C) combine or reclassify its outstanding Common Stock into a smaller number of shares or otherwise effect a reverse split, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the Holder of this Warrant exercised after such date shall be entitled to receive the aggregate number and kind of shares which, if this Warrant had been exercised immediately prior to such time, he would have owned upon such exercise and been entitled to receive upon such dividend, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed in this Paragraph (f)(1) shall occur. (2) In case the Company shall, subsequent to _________, ____, issue rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (or having a conversion price per share) less than the current market price of the Common Stock (as defined in Paragraph (f)(5) of this Warrant) on the record date mentioned below, the Exercise Price shall be adjusted so that the same shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the date of such issuance by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the record date mentioned below plus the number of shares determined by multiplying the price or the conversion price at which additional shares of Common Stock are offered by the number of shares of Common Stock being offered by the number of shares being issued, including shares being issued upon conversion of any convertible securities, and dividing the result so obtained by the current market price of the Common Stock, and of which 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 for subscription or purchased (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such rights or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants; and to the extent that shares of Common Stock or securities convertible into Common Stock are not delivered after the expiration of such rights or warrants, the Exercise Price shall be readjusted to the Exercise Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered. - 3 - (3) In case the Company shall, subsequent to _________, ____, distribute to all holders of Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions paid out of current earnings and dividends or distributions referred to in Paragraph (f)(1) of this Warrant or subscription rights or warrants (excluding those referred to in Paragraph (f)(2) of this Warrant), then in each such case the Exercise Price in effect thereafter shall be determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of shares of Common Stock outstanding multiplied by the current market price per share of Common Stock (as defined in Paragraph (f)(5) of this Warrant), less the fair market value (as determined by the Company's Board of Directors) of said assets or evidences of indebtedness so distributed or of such rights or warrants, and of which the denominator shall be the total number of shares of Common Stock outstanding multiplied by such current market price per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution. (4) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Paragraphs (f)(1), (2) or (3) of this Warrant, the number of shares of Common Stock purchasable upon exercise of each Warrant shall simultaneously be adjusted by multiplying the number of shares of Common Stock issuable upon exercise of each Warrant in effect on the date thereof by the Exercise Price in effect on the date thereof and dividing the product so obtained by the Exercise Price, as adjusted. In no event shall the Exercise Price per share be less than the par value per share, and, if any adjustment made pursuant to Paragraph (f)(1), (2) or (3) would result in an exercise price of less than the par value per share, then, in such event, the Exercise Price per share shall be the par value per share. The Company agrees not to increase the par value of the Common Stock other than in connection with a reverse split or combination or shares or other recapitalization, in which event any such increase shall not be greater that which would result from the application of the adjustments provided in Paragraph (f)(1) of this Warrant to the par value. (5) For the purpose of any computation under Paragraphs (f)(2) and (3) of this Warrant, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily closing prices for thirty (30) consecutive trading days commencing forty five (45) trading days before such date. The closing price for each day shall be the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported last bid and asked prices regular way, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed or on Nasdaq, or if not listed or admitted to trading on such exchange or such market, the average of the reported highest bid and reported lowest asked prices as reported by Nasdaq, the National Quotation Bureau, Inc. or other similar organization if Nasdaq is no longer reporting such information, or if not so available, the fair market price as determined by the Board of Directors. (6) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($0.01) in such price; provided, however, that any adjustments which by reason of this Paragraph (f)(6) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Paragraph (f) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Paragraph (f) to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Paragraph (f), as it in its discretion shall determine to be advisable in order that any dividend or distribution in shares of Common Stock, subdivision, reclassification or combination of Common Stock, issuance of warrants to purchase Common Stock or distribution of evidences of indebtedness or other assets (excluding cash dividends) referred to hereinabove in this Paragraph (f) hereafter made by the Company to the holders of its Common Stock shall not result in any tax to the holders of its Common Stock or securities convertible into Common Stock. - 4 - (7) The Company may retain a firm of independent public accountants of recognized standing selected by the Board of Directors (who may be the regular accountants engaged by the Company) to make any computation required by this Paragraph (f), and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment. (8) In the event that at any time, as a result of an adjustment made pursuant to Paragraph (f)(1) of this Warrant, the Holder of any Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Paragraphs (f)(1) to (6), inclusive, of this Warrant. (9) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in this and similar Warrants initially issued by the Company. (g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of Paragraph (f) of this Warrant, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price and the adjusted number of shares of Common Stock issuable upon exercise of each Warrant, determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the Holder, and the Company shall, forthwith after each such adjustment, mail, by first class mail, a copy of such certificate to the Holder at the Holder's address set forth in the Company's Warrant Register. (h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (1) if the Company shall pay any dividend or make any distribution upon Common Stock (other than a regular cash dividend payable out of retained earnings) or (2) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights or (3) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail, return receipt requested, to the Holder, at least fifteen days prior to the date specified in clauses (i) and (ii), as the case may be, of this Paragraph (h) a notice containing a brief description of the proposed action and stating the date on which (i) a record is to be taken for the purpose of such dividend, distribution or rights, or (ii) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. (i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger in which the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale - 5 - or conveyance by a holder of the number of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Paragraph (i) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. (j) REGISTRATION UNDER THE SECURITIES ACT OF 1933. (1) (A) In the event that, at any time during the five year period commencing _________, ____, the Company registers its securities pursuant to the Securities Act of 1933, as amended (the "Securities Act"), in connection with a public offering of its securities (other than a registration statement on Form S-4 or S-8 or subsequent similar forms), the Company shall advise the registered holders of the Series A Warrants or the Warrant Shares (each such person being referred to herein as a "holder") by written notice at least one (1) week prior to the filing of any registration statement under the Securities Act covering securities of the Company and will upon the request of any such holder include in any such registration statement such information as may be required to permit a public offering of the Warrant Shares; provided, however, that the Company shall not be required to include such Warrant Shares in a registration statement relating solely to an offering by the Company of securities for its own account if the managing underwriter shall have advised the Company that the inclusion of such Warrant Shares will have a material adverse effect upon the ability of the Company to sell securities for its own account, and provided further that the holders are not treated less favorably than others having piggyback registration rights. The Company shall keep such registration statement current for a period of nine (9) months from the effective date of such registration statement or for such longer period as the registration statement may be used without the inclusion in such registration statement of financial statements covering a period subsequent to the financial statements initially included, other than by incorporation by reference from filings under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), but in no event later than such date as all of the registered Warrant Shares shall have been sold. In connection with such registration, if requested by the managing underwriter as a condition to the inclusion of the Warrant Shares in the registration statement, the holders shall agree put to sell or otherwise distribute the Warrant Shares pursuant to the registration statement for such period (the "lock-up period") as the managing underwriter shall request, in which event the Company will keep the registration statement effective for nine (9) months after the expiration of the lock-up period or such longer period as is hereinbefore provided; provided, however, that the holders are not treated less favorably than others having piggyback registration rights. (B) If the Company shall have failed to include the Warrant Shares in a registration statement by April 30, 1998, then, if, thereafter, but prior to May 1, 2002, the majority holder, as hereinafter defined, shall give notice to the Company at any time when the Warrant Shares are not included in an effective registration statement, to the effect that such holder contemplates the sale of the Warrant Shares under such circumstances that a public distribution (within the meaning of the Securities Act) of the Warrant Shares will be involved, then the Company shall, subject to Paragraph (j)(1)(C) of this Warrant, within ninety (90) days after receipt of such notice, file a registration statement pursuant to the Act, to the end that the Warrant Shares may be sold under the Securities Act as promptly as practicable thereafter, and the Company will use its best efforts to cause such registration to become effective; provided that such holder shall furnish the Company with appropriate information (relating to the intentions of such holder) in connection therewith as the Company shall reasonably request in writing. The Company shall keep such registration statement current for such period as the majority holder may request, which shall not exceed nine (9) months or such longer period as the registration statement may be used without the inclusion in such registration statement of financial statements covering a period subsequent to the financial statements initially included, other than by incorporation by reference from filings under the Exchange Act, but in no event later than such date as all of the registered Warrant Shares shall have been sold. Upon receipt of notice the Company shall promptly give notice to the holder holders of Series A Warrants and shall, at the request of such holders, include their Warrant Shares in the same manner as if they had given the notice pursuant to this Paragraph (j)(1)(B). The holders - 6 - of the Series A Warrants shall be entitled to only one (1) demand registration right pursuant to this Paragraph (j)(1)(B). (C) Notwithstanding the provisions of Paragraph (j)(1)(B), the Company shall be entitled to defer the filing of the registration statement demanded pursuant to said Paragraph (j)(1)(B) under the following circumstances. (i) In the event that the Company has completed an acquisition or contemplates an acquisition for which financial statements of the acquired company are required to be included in the registration statement, the Company shall not be required to file the registration statement until forty-five (45) days after the required financial statements for the company which was or is to be acquired have been received by the Company. (ii) In the event that, at any time, the Company shall be engaged in confidential negotiations with respect to a business transaction or business agreement which would have to be disclosed in a registration statement, the Company's obligation to file the registration statement or any amendment to a registration statement and the Company's obligation to keep a registration statement current shall be deferred until forty-five (45) days after the first to occur of (x) the date that such negotiations have been terminated, or (y) the date that the transaction has been consummated, or (z) the date that an agreement relating to the transaction has been executed and the Company has publicly announced the transaction. (2) The following provision of this Paragraph (j) shall also be applicable: (A) The Company shall bear the entire cost and expense of any registration of securities initiated by it under Paragraph (j)(1)(A) of this Warrant or filed pursuant to Paragraph (j)(1)(B) of this Warrant. Any holder whose Warrant Shares are included in any such registration statement pursuant to this Paragraph (j) shall, however, bear the fees of his own counsel and accountants and any transfer taxes or underwriting discounts or commissions applicable to the Warrant Shares sold by him pursuant thereto. (B) The Company shall indemnify and hold harmless each holder and each underwriter, within the meaning of the Securities Act, who may purchase from or sell for any such holder any Warrant Shares from and against any and all losses, claims, damages and liabilities (including fees and expenses of counsel, which counsel shall, if, in the reasonable opinion of counsel for the Company, the representation by such counsel of both the Company and the indemnified parties constitutes a conflict of interest under applicable Code of Professional Responsibility, be separate from counsel for the Company, provided, that the Company shall not be required to pay the fees of more than one firm representing all holders and all other parties who are entitled to indemnification as a result of the same or similar allegations, which counsel shall be selected by the holders of a majority of the shares held by all of such indemnified parties) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereto or any registration statement under the Securities Act or any prospectus included therein required to be filed or furnished by reason of this Paragraph (j) or any application or other filing under any state securities law caused by any omission or alleged omissions to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading to which such holder or any such underwriter or any of them may become subject under the Securities Act, the Exchange Act, or other Federal or state statutory law or regulation, at common law or otherwise, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or alleged untrue statement or omission or alleged omission based upon information furnished to the Company by any such holder or underwriter expressly for use therein, which indemnification shall include each person, if any, who controls any such underwriter within the meaning of the Securities Act; provided, however, that any such holder or underwriter shall at the same time indemnify the Company, its directors, each officer signing the related registration statement, each person, if any, who controls the Company within the meaning of the Securities Act and each other holder, in the manner set forth in this Paragraph (j)(2)(B), from and against any and all losses, claims, damages and liabilities caused by any untrue - 7 - statement of a material fact contained in any registration statement or any prospectus required to be filed or furnished by reason of this Paragraph (j) or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission based upon information furnished to the Company by any such holder or underwriter expressly for use therein. (C) Neither the giving of any notice by any holder nor the making of any request for prospectuses shall impose any upon any holder making such request any obligation to sell any Warrant Shares or exercise any Warrants. (D) In connection with any registration statement filed pursuant to this Paragraph (j), the Company shall supply prospectuses and qualify the Warrant Shares for sale in such states as the Warrant holders may reasonably designates, provided, that the Company shall not be required to qualify or register the Warrant Shares in any jurisdiction where such qualification or registration would require the Company to submit generally to the jurisdiction of such state. (E) As a condition to the inclusion of the Warrant Shares of the holder of this Warrant, such holder shall (i) furnish the information and indemnification as set forth in Paragraph (j)(2)(B) of this Warrant and (ii) agree not to sale or otherwise transfer any Warrant Shares pursuant to a registration statement upon receipt of advice from the Company that the registration statement is no longer current until the holder is advised that the Warrant Shares may be sold pursuant to the registration statement. (F) The registration rights contained in this Paragraph (j) as they relate to this Warrant are personal to the Holder of this Warrant and may not be assigned to any purchaser or other transferee of Warrant Shares other than the estate, executors, administrators or legal representatives of the Holder of this Warrant. (3) The term "majority holder" shall mean the holders of at least a majority of the shares of Common Stock for which the Series A Warrants (considered in the aggregate) are exercisable and shall include any owner or combination of owners of such securities, which ownership shall be calculated by determining the number of shares of Common Stock held by such owner or owners resulting from the exercise of any Series A Warrant after giving effect to any stock dividend, split, reverse split or other recapitalization and the number of shares of Common Stock issuable upon exercise of any unexercised Series A Warrants. (4) The Company's agreements with respect to the Warrant Shares in this Paragraph (j) shall continue in effect regardless of the exercise of the Warrants. (k) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant or the Warrant Shares or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows: (1) To a person who, in the opinion of counsel for the Company, is a person to whom this Warrant or Warrant Shares may legally be transferred without registration and without the delivery of a current prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Paragraph (k) with respect to any resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; or - 8 - (2) to any person upon delivery of a prospectus then meeting the requirements of the Act relating to such securities and the offering thereof for such sale or disposition. Dated as of _________, ____ PORTA SYSTEMS CORP. By: _________________________________ William V. Carney Chairman of the Board and Chief Executive Officer - 9 - PURCHASE FORM Dated: ________________________ , 19___ ________ The undersigned hereby irrevocably exercises this Warrant to the extent of purchasing ______ shares of Common Stock and hereby makes payment of $________ in payment of the Exercise Price therefor. _______ The undersigned hereby irrevocably exercises this Warrant to the extent of purchasing _______ shares of Common Stock and hereby makes payment of $_______ in payment of the Exercise Price therefor by delivery of shares of Common Stock pursuant to Paragraph (a)(1) of this Warrant. _______ The undersigned hereby irrevocably elects to exchange this Warrant to the extent of _______ shares of Common Stock pursuant to the provision of Paragraph (a)(2) of this Warrant. ---------- INSTRUCTIONS FOR REGISTRATION OF STOCK Name _____________________________________________ (Please typewrite or print in block letters) Signature ________________________________________ Social Security or Employer Identification No. ____________________ ASSIGNMENT FORM FOR VALUE RECEIVED, hereby sells, assigns and transfer unto Name _____________________________________________ (Please typewrite or print in block letters) Address ___________________________________________ Social Security or Employer Identification No. _____________________ The right to purchase Common Stock represented by this Warrant to the extent of ________ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ______________________ attorney to transfer the same on the books of the Company with full power of substitution. Dated:____________________ , 19___ Signature ________________________________________ Signature Medallion Guaranteed: _______________________________ - 10 - EX-5.1 5 OPINION OF ESANU KATSKY KORINS & SIGER, LLP Exhibit 5.1 March 26, 1998 16450/019 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Porta Systems Corp. Gentlemen: We refer to the registration statement on Form S-3 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), filed by Porta Systems Corp., a Delaware corporation (the "Company"), with the Securities and Exchange Commission. Terms defined in the Registration Statement and not otherwise defined in this Opinion shall have the same meanings in this Opinion as in the Registration Statement. We have examined the originals or photocopies or certified copies of such records of the Company, certificates of officers of the Company and public officials, and other documents as we have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as certified copies or photocopies and the authenticity of the originals of such latter documents. Based on our examination mentioned above, we are of the opinion that the outstanding shares of Common Stock and the shares of Common Stock issuable upon the exercise of the Warrants ("Warrant Shares") being registered to be sold by the Selling Stockholders (i) in the case of the outstanding shares of Common Stock, are duly authorized, validly issued, fully paid and non-assessable and (ii) in the case of the Warrant Shares, are duly authorized and, when issued upon exercise of the Warrants in accordance with the terms thereof, will be validly issued, fully paid and non-assessable. Securities and Exchange Commission March 26, 1998 Page 2 We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm under "Legal Matters" in the related Prospectus. In giving the foregoing consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission. Very truly yours, s/Esanu Katsky Korins & Siger, LLP ESANU KATSKY KORINS & SIGER, LLP EX-23.2 6 CONSENT OF BDO SEIDMAN, LLP Exhibit 23.2 Consent of Independent Certified Public Accountants Porta Systems Corp. Syosset, New York We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement of our report dated March 9, 1998 relating to the financial statements of Porta Systems Corp. ("Porta") appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO Seidman, LLP -------------------------- BDO SEIDMAN, LLP Mitchel Field, New York March 24, 1998 -----END PRIVACY-ENHANCED MESSAGE-----