-----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, LwtWKUWn00T2yrqBZ6Ib6BGildwwC58LGhMn34WHoQ/iSOg3cKn60HMyXOmJp41f rirZs8UsPujsbk92ixY9Iw== 0000950123-97-010524.txt : 19971222 0000950123-97-010524.hdr.sgml : 19971222 ACCESSION NUMBER: 0000950123-97-010524 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19971219 SROS: NONE SUBJECT COMPANY: 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: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-30489 FILM NUMBER: 97741687 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MILLER LLOYD I III CENTRAL INDEX KEY: 0000949119 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 4650 GORDON DRIVE CITY: NAPLES STATE: FL ZIP: 33940 BUSINESS PHONE: 9412628577 SC 13D/A 1 PORTA SYSTEMS CORP./LLOYD I. MILLER, III 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Amendment No. 1 Under the Securities Exchange Act of 1934 Porta Systems Corporation - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock $0.01 par value - -------------------------------------------------------------------------------- (Title of Class of Securities) 735647307 ------------------------------------------------------ (CUSIP Number) Lloyd I. Miller, III, 4550 Gordon Drive, Naples, Florida 34102 941-262-8577 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) October 27, 1997 ------------------------------------------------------ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box / /. Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 1 2 SCHEDULE 13D - ------------------------------ ------------------------------- CUSIP No. 735647307 Page 2 of 7 - ------------------------------ ------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Lloyd I. Miller, III ###-##-#### - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / / (b) / / - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* 00** - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) / / - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF 828,599*** SHARES --------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 823,769*** REPORTING --------------------------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 828,599*** --------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 823,769*** - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,652,368 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 19.3%**** - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN-IA-OO** - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! **See response to Item 3, herein. ***See response to Item 5(b), herein. **** See response to Item 5(c), herein. 2 3 AMENDMENT NO. 1 TO ORIGINAL REPORT ON SCHEDULE 13D This Amendment No. 1 to the statement on Schedule 13D filed on behalf of Lloyd I. Miller, III ("Miller") relates to the Common Stock, $0.01 par value per share (the "Shares") of Porta Systems Corporation, a Delaware corporation ("the Company"). The purpose of this Amendment is to report that since Miller's previous Schedule 13D filing, Miller has (i) purchased additional Shares, (ii) converted the all of his Zero Coupon Senior Subordinated Convertible Notes of the Company due January 2, 1998 (the "Notes"), pursuant to that certain tender offer (the "Tender Offer") set forth in the Supplemental Indenture to the Notes, dated October 10, 1997, and (iii) purchased additional Notes which Miller also converted to Shares pursuant to the Tender Offer. As a result of the Tender Offer, the outstanding shares of the Company have increased significantly, resulting in a decrease of the percentage of the Shares beneficially owned by Miller as reported in Miller's prior Schedule 13D filing. Item 3 is hereby amended and restated in its entirety as follows: Item 3. Source and Amount of Funds or Other Considerations. --------------------------------------------------- Miller is the Investment Adviser to Trust A-4 and Trust C (the "Trusts"). Trust A-4 was created pursuant to a Declaratory Judgment, signed by the Honorable Wayne F. Wilke for the Court of Common Pleas, Probate Division, Hamilton County, Ohio, on October 27, 1992, pursuant to which Trust A was split into four separate trusts, of which Trust A-4 was one. Trust A and Trust C were created pursuant to an Amended and Restated Trust Agreement, dated September 20, 1983 (the "Trust Agreement"). Miller was named as advisor to PNC Bank, Ohio, N.A. (formerly The Central Trust Company, N.A., Cincinnati, Ohio), the Trustee named in the Trust Agreement. Such appointment became effective on April 22, 1990, the date of death of Lloyd I. Miller, the Grantor of Trust A and Trust C. All of the Shares and Notes purchased by Miller as Investment Adviser to the Trusts were purchased by funds generated and held by the Trusts. The purchase price for the Shares and Notes was $886,539.68 for Trust A-4 and the purchase price for the Notes was $796,705.45 for Trust C. Miller is the manager of Milfam LLC, an Ohio limited liability company established pursuant to the Operating Agreement of Milfam LLC (the "Operating Agreement"), dated December 10, 1996. Milfam LLC is the managing general partner of (i) Milfam I, L.P., a Georgia limited partnership established pursuant to the Partnership Agreement for Milfam I, L.P. (the "Partnership Agreement"), dated December 11, 1996, and (ii) Milfam II, L.P. a Georgia limited Partnership established, pursuant to the Partnership Agreement for Milfam II, L.P. (the "Milfam II Partnership Agreement"), dated December 11, 1996. All of the Shares and Notes purchased by Miller on behalf of Milfam I, L.P. were purchased with money contributed to Milfam I, L.P. by its partners (as identified on the signature page of Exhibit 99.3, attached hereto), or money generated and held by Milfam I, L.P. All of the Shares purchased by Miller on behalf of Milfam II, L.P. were purchased with money contributed to Milfam II, L.P. by its partners (as identified on the signature page of Exhibit 99.4, attached hereto), or money generated and held by Milfam I, L.P. The purchase price for the Shares and Notes purchased by Miller on behalf of Milfam I, L.P. was $1,403,068.71. The purchase price for the Shares purchased by Miller on behalf of Milfam II, L.P. was $286,307.24. All of the Shares purchased by Miller on his own behalf, were purchased with personal funds generated and held by Miller. The purchase price for the Shares purchased by Miller on his own behalf was $123,130.00. Miller converted all of the Notes that had been purchased for (i) the Trusts, (ii) Milfam I, and (iii) Miller on his own behalf, to Shares pursuant to the Tender Offer, at the conversion price of $3.65. 3 4 Item 4 is hereby amended and restated in its entirety as follows: Item 4. Purpose of the Transaction. --------------------------- Miller considers his beneficial ownership reported herein of the 1,609,768 Shares, as an investment in the ordinary course of business. From time to time, Miller may acquire additional Shares or Notes or dispose of all of some of the Shares which he beneficially owns. From May 1997, through October 1997, Miller was involved in discussions with the Company to restructure the Notes which culminated in Miller agreeing to the terms of the Tender Offer and the Company executing a letter to Miller, dated October 9, 1997 agreeing to elect Miller to the Company's Board of Directors (See Exhibit 99.5 attached hereto) (to date, Miller has not yet been elected to the Company's Board of Directors). Other than Miller's pending election to the Company's Board of Directors, Miller does not have any plans or proposals that relate to the matters described in Item 4 of Schedule 13D. Item 5 is amended and restated in its entirety as follows: Item 5. Interest in Securities of the Issuer. ------------------------------------- (a) Miller beneficially owns 1,652,368 Shares (19.3% of the outstanding Shares, based on 8,567,913 Shares outstanding). As of the date hereof, 460,264 Shares are owned of record by Trust A-4, 363,505 Shares are owned of record by Trust C, 706,703 Shares are owned of record by Milfam I, L.P., 87,462 Shares are owned of record by Milfam II, L.P., and 34,434 Shares are owned of record by Miller on his own behalf. (b) Miller has shared voting power and shared dispositive power for all such Shares held of record by the Trusts and sole voting power and sole dispositive power for all such Shares held of record by Milfam I, L.P., Milfam II, L.P. and by Miller on his own behalf (see Item 6). (c) Since Miller's most recent Schedule 13D filing, Miller converted all of the Notes held by the Trusts, Milfam I, L.P., and Miller personally, to Shares pursuant to the Tender Offer at the conversion price of $3.65. The effective date of the conversion was November 4, 1997. Since the time of Miller's prior Schedule 13D filing the number of outstanding Shares has increased as a result of the Tender Offer resulting in a significant decrease in the percent of outstanding Shares beneficially owned by Miller, without his selling any Shares or Notes. The following tables detail the purchases of Shares by Trust A-4, Trust C, Milfam I, L.P. , Milfam II, L.P. and Miller on his own behalf, effected since Miller's last Schedule 13D filing. All of the transactions were open market transactions. 4 5 - -------------------------------------------------------------------------------- Trust A-4 - -------------------------------------------------------------------------------- Date of Transaction Number of Shares Price Per Share - -------------------------------------------------------------------------------- 11/7/97 2,500.00 3.274 - -------------------------------------------------------------------------------- 11/10/97 200.00 3.3425 - -------------------------------------------------------------------------------- 11/21/97 15,764.00 3,.51* - -------------------------------------------------------------------------------- 12/1/97 6,000.00 3.39 - -------------------------------------------------------------------------------- 12/5/97 3,900.00 3.328 - -------------------------------------------------------------------------------- 12/5/97 101.00 3.493 - -------------------------------------------------------------------------------- 12/9/97 11,800.00 3.14 - -------------------------------------------------------------------------------- 12/10/97 3,200.00 3.14 - -------------------------------------------------------------------------------- 12/12/97 20,000.00 3.015 - -------------------------------------------------------------------------------- Total 63,465.00 - -------------------------------------------------------------------------------- *Purchase of $57,541.50 in principal amount of the Notes at a purchase price of .9625 and converted to Shares pursuant to the Tender Offer. - -------------------------------------------------------------------------------- Trust C - -------------------------------------------------------------------------------- Date of Transaction Number of Shares Price Per Share - -------------------------------------------------------------------------------- 10/27/97 54,794.00 3.522* - -------------------------------------------------------------------------------- 11/26/97 27,397.00 3.540** - -------------------------------------------------------------------------------- Total 82,191.00 - -------------------------------------------------------------------------------- *Purchase of $200,000 in principal amount of the Notes at a purchase price of .965 and converted to Shares pursuant to the Tender Offer. **Purchase of $100,000 in principal amount of the Notes at a purchase price of .97 and converted to Shares pursuant to the Tender Offer. - -------------------------------------------------------------------------------- Milfam I, L.P. - -------------------------------------------------------------------------------- Date of Transaction Number of Shares Price Per Share - -------------------------------------------------------------------------------- 11/24/97 5,000.00 3.375 - -------------------------------------------------------------------------------- 11/26/97 8,000.00 3.438 - -------------------------------------------------------------------------------- 12/3/97 500.00 3.3275 - -------------------------------------------------------------------------------- 12/11/97 25,000.00 3.078 - -------------------------------------------------------------------------------- 12/16/97 17,400.00 2.99 - -------------------------------------------------------------------------------- 12/17/97 42,600.00 2.930 - -------------------------------------------------------------------------------- Total 98,500.00 - -------------------------------------------------------------------------------- 5 6 - -------------------------------------------------------------------------------- Milfam II, L.P. - -------------------------------------------------------------------------------- Date of Transaction Number of Shares Price Per Share - -------------------------------------------------------------------------------- 11/14/97 5,000.00 3.265 - -------------------------------------------------------------------------------- 12/5/97 25,000.00 3.3425 - -------------------------------------------------------------------------------- 12/8/97 2,000.00 3.78 - -------------------------------------------------------------------------------- 12/8/97 30,262.00 3.218 - -------------------------------------------------------------------------------- 12/8/97 13,200.00 3.253 - -------------------------------------------------------------------------------- 12/8/97 4,000.00 3.275 - -------------------------------------------------------------------------------- 12/10/97 8,000.00 3.155 - -------------------------------------------------------------------------------- Total 87,462.00 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Lloyd I. Miller III - -------------------------------------------------------------------------------- Date of Transaction Number of Shares Price Per Share - -------------------------------------------------------------------------------- 11/20/97 34,246.57 3.595* - -------------------------------------------------------------------------------- *Purchase of $125,000 in principal amount of the Notes at a purchase price of .985 and converted to Shares pursuant to the Tender Offer. (d) Milfam I, L.P. has the right to receive dividends from and proceeds of the sale of 706,703 Shares; Milfam II, L.P. has the right to receive dividends from and proceeds of the sale of 87,462 Shares; Trust A-4 has the right to receive dividends from and proceeds of the sale of 460,264 Shares; Trust C has the right to receive dividends from and proceeds of the sale of 363,505 Shares; and Miller has the right to receive dividends from and proceeds of the sale of 34,434 Shares. Item 6 Is hereby amended by adding the following language after the last paragraph. The Milfam II Partnership Agreement contains identical language to the language set forth above with respect to the Partnership Agreement. The Company has agreed to elect Miller as a member of the Company's Board of Directors. (See Item 4.) In connection with the beneficial ownership of the Shares, Miller has certain rights pursuant to that certain Registration Rights Agreement, dated October 10, 1997 attached hereto as Exhibit 99.6 Item 7 is hereby amended by adding the following Exhibits: Exhibit Document ------- -------- 99.4 Milfam II, L.P. Partnership Agreement, dated December 11, 1996. 99.5 Letter to Miller from the Company, dated October 9, 1997. 99.6 Registration Rights Agreement, dated October 10, 1997. 6 7 After reasonable inquiry and to the best knowledge and belief of the undersigned, I certify that the information set forth in this statement is true, complete and correct. Dated: December 19, 1997 By: /s/ Lloyd I. Miller, III ------------------------ Lloyd I. Miller, III 6 8 EXHIBIT INDEX Exhibit Document ------- -------- EX-99.4 Milfam II, L.P. Partnership Agreement, dated December 11, 1996. EX-99.5 Letter to Miller from the Company, dated October 9, 1997. EX-99.6 Registration Rights Agreement, dated October 10, 1997. 8 EX-99.4 2 PARTNERSHIP AGREEMENT, DATED DECEMBER 11, 1996 1 PARTNERSHIP AGREEMENT OF MILFAM II L.P. THIS PARTNERSHIP AGREEMENT is made and entered into as of the 11th day of December, 1996 between Milfam LLC, an Ohio limited liability company (herein referred to as the "General Partner"), Trust B under Section 6 of the Amended and Restated Trust U/A Lloyd I. Miller, dated September 20, 1983, Trust D under Section 8 of the Amended and Restated Trust U/A Lloyd I. Miller, dated September 20, 1983, Lloyd I. Miller, III, and Martin G. Miller (herein collectively referred to as the "Limited Partners"). DEFINED TERMS Capitalized words and phrases used in this Agreement have the following meanings: (a) "Act" means the Georgia Revised Uniform Limited Partnership Act law, as set forth in Sections 14-9-100 to -1204 of the Georgia Code Annotated, as amended from time to time (or any corresponding provisions of succeeding law). (b) "Agreement" or "Partnership Agreement" means this partnership agreement, as amended from time to time. Words such as "herein," "hereinafter," "hereof," "hereto" and "hereunder," refer to this Agreement as a whole, unless the context otherwise requires. (c) "Bankruptcy" of a Partner shall be deemed to have occurred 60 days after the happening of any of the following: (1) the filing of an application by a Partner for, or a consent to, the appointment of a trustee of the Partner's assets, (2) the filing by a Partner of a voluntary petition in bankruptcy or the filing of a pleading in any court of record admitting in writing the Partner's inability to pay the Partner's debts as they come due, (3) the making by a Partner of a general assignment for the benefit of creditors, (4) the filing by a Partner of an answer admitting the material allegations of, or consenting to, or defaulting in answering a bankruptcy petition filed against the Partner in any bankruptcy proceeding, or (5) the entry of an order, judgment, or decree by any court of competent jurisdiction adjudicating a Partner bankrupt or appointing a trustee of the Partner's assets, and that order, judgment, or decree continuing unstayed and in effect for a period of 60 days. (d) "Basis Point" means one hundredth of one percent (.01 percent), 100 Basis Points are equal to one percent. (e) "Capital Account" means, with respect to any Partner, the Capital Account maintained for such Partner in accordance with the following provisions: (i) To each Partner's Capital Account there shall be credited such Partner's Capital Contributions, such Partner's distributive share of Profits and any 2 items in the nature of income or gain which are specially allocated to such Partner. (ii) To each Partner's Capital Account there shall be debited the amount of cash and the Gross Asset Value of any Partnership Property distributed to such Partner pursuant to any provision of this Agreement net of liabilities assumed by the Partner or to which such property is subject, and such Partner's distributive share of Losses and any items in the nature of expenses or losses which are specially allocated to such Partner. (iii) In the event any interest in the Partnership is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred interest. The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. The General Partner shall make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Sections 1.704-1(b) and 1.704-2 of the Regulations. (f) "Capital Contribution" means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any property (other than money) contributed to the Partnership by such Partner. (g) "Code" means the Internal Revenue Code of 1986, as amended from time to time (or any corresponding provisions of succeeding law). (h) "Family" and "Family Member" mean Catherine Ward and her descendants and trusts created for their benefit. (i) "General Partner" means any Person who (i) is listed as such in Exhibit A, attached, or has become a General Partner pursuant to the terms of this Agreement, and (ii) has not ceased to be a General Partner pursuant to the terms of this Agreement. (j) "Gross Asset Value" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (i) The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset, as determined by the contributing Partner and the Partnership; (ii) The Gross Asset Value of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the General - 2 - 3 Partner, as of the following times: (a) the acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (b) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership Property as consideration for an interest in the Partnership if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; and (c) the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); (iii) The Gross Asset Value of any Partnership asset distributed to any Partner shall be the gross fair market value of such asset on the date of distribution; and (iv) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations; - provided, however, that Gross Asset Values shall not be adjusted to the extent the General Partner determines that an adjustment is not necessary or appropriate in connection with a transaction that would otherwise result in an adjustment. If the Gross Asset Value of an asset has been determined or adjusted, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses. (k) "Lehman Brothers Rate of Return" means the rate of return of the Lehman Brothers Intermediate Bond Index for the period in question expressed in Basis Points, as determined by a third party selected by the General Partner who is qualified to make such a determination. (l) "Limited Partner" means any Person whose name is set forth on Exhibit A of this Agreement as Limited Partner or who has been admitted as an additional or Substituted Limited Partner pursuant to the terms of this Agreement. "Limited Partners" means all such Persons. (m) "Net Cash Flow" means the gross cash proceeds from Partnership operations and from the sale or other disposition of assets of the Partnership less the portion thereof used to pay or establish reserves for all Partnership expenses, debt payments, capital improvements, replacements and contingencies, all as determined by the General Partner. "Net Cash Flow" shall not be reduced by depreciation, amortization, cost recovery deductions or similar allowances. - 3 - 4 (n) "Partners" means all General Partners and all Limited Partners, where no distinction is required by the context in which the term is used herein. "Partner" means any one of the Partners. (o) "Partnership" means the partnership formed pursuant to this Agreement and the partnership continuing the business of this Partnership in the event of dissolution as herein provided. (p) "Partnership Property" means all real and personal property acquired by the Partnership and any improvements thereto, and shall include both tangible and intangible property. (q) "Person" means any individual, partnership, corporation, trust or other entity. (r) "Profits" and "Losses" means, for each fiscal year or other period, an amount equal to the Partnership's taxable income or loss for such year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(l) shall be included in taxable income or loss), with the following adjustments: (i) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss; (ii) Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses shall be subtracted from such taxable income or loss; (iii) In the event the Gross Asset Value of any Partnership asset is adjusted, the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses. (iv) Gain or loss resulting from any disposition of Partnership Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (v) Notwithstanding any other provision herein, any items which are specially allocated shall not be taken into account in computing Profits or Losses. - 4 - 5 (s) "Regulations" means the Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). (t) "Standard & Poor's Rate of Return" means the rate of return of the Standard & Poor's Index for the period in question expressed in Basis Points, as determined by a third party selected by the General Partner who is qualified to make such a determination. (u) "Substituted Limited Partner" means any Person admitted to the Partnership as a Limited Partner pursuant to Article 6 hereof. (v) "Unit(s)" means any one (or part thereof) or more of the 1 million units that are authorized to be issued to Partners representing an interest in the Partnership as described in this Agreement. ARTICLE 1 NAME AND PURPOSES SECTION 1.1 FORMATION. The Partners do hereby form the Partnership as a limited partnership pursuant to the Act, for the purposes hereinafter described. SECTION 1.2 NAME AND OFFICE. The Partnership shall be conducted under the name of Milfam II L.P. (the "Partnership"). The principal office and place of business of the Partnership in Georgia shall be located at 1201 Peachtree Street, N.E., Atlanta Georgia 30361, or such other place as the General Partner may from time to time determine on prior notice to the Limited Partners. SECTION 1.3 PURPOSES AND POWERS. (a) The purposes of the Partnership and the business to be carried on and the objectives to be effected by it are: (i) To acquire, hold, and, in all respects, deal with stocks, bonds, and other investment securities and, in the sole discretion of the General Partner, to acquire one or more memberships on recognized national exchanges and to engage in any other business permitted by the Act in order to make a profit, increase Family wealth, and provide a means for members of the Family to become knowledgeable of and preserve Family assets; (ii) To provide a means for resolving any disputes that may arise among Family members with respect to the management of Family assets so as to - 5 - 6 preserve harmony among Family members and avoid costs associated with litigation; (iii) To maintain control of Family assets; (iv) To provide a means to consolidate certain Family assets; (v) To provide more centralized management for Family assets; (vi) To serve as liaison with outside advisors, such as legal counsel, accountants, banks and portfolio managers; (vii) To benefit from economies of scale that can be realized by consolidating Family assets; (viii) To provide a means of facilitating gifts to Family members without fractionalizing assets; (ix) To provide protection to Family assets from claims of creditors brought against Family members; (x) To prevent the transfer of a Family member's interest in Family assets in the event of a failed marriage; (xi) To provide flexibility in taking advantage of business and investment opportunities, to increase Family wealth and profits that are not available through trusts, corporations or other entities, and to make investments in accordance with the modern portfolio theory; (xii) To facilitate the administration and reduce the cost associated with the disability or probate of the estate of Family members and to reduce or eliminate probate and guardianship proceedings in foreign jurisdictions; (xiii) To promote knowledge of and communication about Family assets while allowing restrictions to be placed on disclosure of information thereby permitting confidentiality to be preserved as needed; (xiv) To enter into, continue, perform and carry out contracts of any kind necessary to, in connection with, or incidental to, the accomplishment of the purposes of the Partnership; (xv) To acquire any property, or any rights therein or appurtenant thereto, necessary for the accomplishment of such purposes; - 6 - 7 (xvi) To borrow money, and to issue evidence of indebtedness and to secure the same by mortgage, deed of trust, pledge or other lien, in furtherance of any or all of the purposes of the Partnership, and to continue in effect and assume any liabilities or indebtedness that may have been incurred by any predecessor partnership; and (xvii) To carry on any other activities necessary to, in connection with or incidental to the foregoing. SECTION 1.4 TERM. The Partnership shall continue in full effect until December 31, 2050, and thereafter from year to year with the agreement of all Partners, unless sooner dissolved and terminated as herein provided. SECTION 1.5 AGENT AND TAX MATTERS PARTNER. Lloyd I. Miller, III shall be the Tax Matters Partner for the Partnership for purposes of Section 6231(a)(7) of the Code. CT Corporation System shall be the agent for the Partnership for service of process in the State of Georgia. ARTICLE 2 CAPITAL CONTRIBUTIONS SECTION 2.1 CAPITAL CONTRIBUTIONS. Each Partner has made or will make a Capital Contribution to the Partnership in the amount set forth on Exhibit A. Contributions may be made in cash or property. In addition, a contribution may be made by delivery of a promissory note or other obligation to contribute cash or property. Each Partner's Capital Contribution is based upon the number of Units the Partner acquires. The Partnership is authorized to issue up to 100,000 Units at an initial cost of $1,000 per Unit. Fractional Units may be issued. SECTION 2.2 DIVERSIFICATION. The initial Capital Contribution made by each Partner will be in the form of stocks, bonds and other securities. No such Capital Contribution will be accepted by the Partnership if the acceptance thereof would cause the Partnership to be an "investment company" within the meaning of section 351 of the Code and the regulations thereunder. To provide further assurance that the Partnership will not be an investment company as a result of accepting a Capital Contribution made by any Partner, each Partner will be required to contribute, as such Partner's initial Capital Contribution, a "diversified portfolio of stocks and securities" within the meaning of Section 1.351-1(c)(6) of the Regulations. SECTION 2.3 FUTURE CAPITAL CONTRIBUTIONS. If the Partnership requires additional funding to provide working capital or for any other purpose, no Partner shall have any obligation to advance such funds personally to the Partnership except as otherwise provided herein. - 7 - 8 SECTION 2.4 LOANS TO THE PARTNERSHIP. Any Partner will be permitted to make loans to the Partnership from time to time in such amounts and on such terms as such Partner and the Partnership may agree. In no event, however, will a Partner be permitted to loan funds to the Partnership on terms less favorable to the Partnership than those that could be obtained from an unrelated creditor. SECTION 2.5 GENERAL PROVISIONS. A Limited Partner shall not be liable for any of the debts of the Partnership or be required to contribute any capital or lend any funds to the Partnership other than as expressly provided in this Agreement. The General Partner shall not have any personal liability for the repayment of the Capital Contributions of any Limited Partner, except as provided to the contrary in this Agreement. Unless otherwise provided herein, no interest will be paid on or imputed to any capital contributed to the Partnership. SECTION 2.6 ADDITIONAL UNITS. The Partnership may increase the number of authorized Units with the consent of Partners holding a majority of the Units. The cost of additional Units will be determined by the General Partner by dividing the total value of Units outstanding by the number of Units outstanding. The determination will be made as nearly as practicable to the date on which additional Units are to be issued. ARTICLE 3 RIGHTS, POWERS AND DUTIES OF THE PARTNERS SECTION 3.1 MANAGEMENT AND CONTROL OF THE PARTNERSHIP. (a) The General Partner shall have the full and exclusive right to manage and control the business and affairs of the Partnership and to make all decisions regarding the affairs of the Partnership. In the course of such management, the General Partner may acquire, encumber, hold title to, pledge, sell, release or otherwise dispose of Partnership Property and interests therein when and upon such terms as it determines to be in the best interests of the Partnership. The General Partner shall have all of the rights, powers and obligations of a partner of a partnership without limited partners, except as otherwise provided under the Act. (b) No Limited Partner who is not also a General Partner shall participate in the management of or have any control over the Partnership's business nor have the power to represent, act for, sign for or bind the General Partner or the Partnership. (c) In fulfilling its obligations set forth in paragraph (a) above, and to the extent not inconsistent with that paragraph, the General Partner shall have the authority to borrow money in the name of the Partnership, and in connection with any such borrowing, to mortgage, pledge, encumber and hypothecate the assets of the Partnership. - 8 - 9 SECTION 3.2 AUTHORITY OF THE GENERAL PARTNER. In addition to the rights and powers the General Partner has under this Agreement and law, the General Partner shall, except to the extent otherwise provided herein, have all rights and powers required or appropriate to manage the Partnership business, including without limitation, the right to hire other professional advisors and other personnel to provide services to the Partnership. To accomplish the purposes of the Partnership the authority of the General Partner includes, but is not limited to the following: (a) to purchase, sell, invest in and deal in stocks, bonds, notes, evidence of indebtedness and any other securities of any person whether foreign or domestic; (b) to guarantee the financial transactions of others that are for the benefit of the Partnership; (c) to borrow money; (d) to sell, pledge, or dispose of assets of the Partnership; (e) to carry such insurance as the General Partner deems necessary; and (f) to perform all acts deemed appropriate by the General Partner to carry out the purposes of the Partnership. SECTION 3.3 AUTHORITY OF PARTNERS TO DEAL WITH THE PARTNERSHIP. The Partnership may acquire property or services from any Partner, or lease or sell any property to the any Partner provided the terms of such transactions are arm's-length and in furtherance of the purposes of the Partnership. SECTION 3.4 RESTRICTIONS ON THE AUTHORITY OF THE GENERAL PARTNER. (a) Without the unanimous consent of the Limited Partners, the General Partner shall not have the authority to: (i) Do any act in contravention of this Agreement; (ii) Do any act which would make it impossible to carry on the business of the Partnership; (iii) Confess a judgment against the Partnership; (iv) Admit a Person as a General Partner; or (v) Elect to dissolve the Partnership. - 9 - 10 SECTION 3.5 DUTIES AND OBLIGATIONS OF THE GENERAL PARTNER. (a) The General Partner shall use his best efforts to take all actions that may be necessary or appropriate for the continuation of the Partnership's valid existence as a limited partnership and for the acquisition, holding and operation of Partnership Property, in accordance with the provisions of this Agreement and applicable laws and regulations. (b) The General Partner shall at all times act with integrity and good faith and exercise diligence in all activities relating to the conduct of the Partnership business and in resolving conflicts of interest. (c) The General Partner shall prepare or cause to be prepared and shall file on or before the due date (or any extension thereof) all Federal, state and local tax returns required to be filed by the Partnership. The General Partner shall, to the extent that Partnership funds are available, cause the Partnership to pay any taxes payable by the Partnership. (d) The General Partner shall use its best efforts to cause the Partnership to be formed, reformed, qualified to do business or registered under any applicable assumed or fictitious name statute or similar law if required by such law in any state in which the Partnership then owns property or transacts business. (e) The General Partner shall have the sole and exclusive right to manage and operate the business of the Partnership with full and exclusive authority to act for and on behalf of and as agent of the Partnership and to take any and all reasonable actions deemed by the General Partner to be necessary or advisable in connection therewith. The General Partner shall operate the business of the Partnership in a commercially reasonable manner and shall do so at such time and in such manner as the General Partner, in its sole discretion, shall reasonably deem fit and further, shall endeavor and take all reasonable actions to operate the Partnership so as to provide income and capital growth for the Partners. SECTION 3.6 OTHER RIGHTS OF LIMITED PARTNERS. The Limited Partners shall not participate in the management or control of the business of, or transact any business for, the Partnership. The Limited Partners shall have no power to sign for or bind the Partnership in their capacity as Limited Partners. Limited Partners owning 90% or more of the outstanding Units held by Limited Partners will have the right to remove the General Partner at any time. SECTION 3.7 OTHER INTERESTS OF PARTNERS. The Partners may engage in or possess an interest in other business ventures of every nature and description, independently or with others, including, but not limited to, the investment business in all its aspects. Neither the Partnership nor the other Partners shall have any rights in and to such independent ventures or the income or profits derived therefrom. - 10 - 11 SECTION 3.8 COMPENSATION TO GENERAL PARTNER. In addition to any Profits that may be allocated to the General Partner, as compensation for various administrative, reporting, advisory and other services that are to be performed by the General Partner, the General Partner will receive a guaranteed payment equal to .25 percent (25 Basis Points) of the Gross Asset Value of all Partnership assets as of December 31 of each year. The fee will be payable in four equal quarterly installments during the succeeding and will be treated as earned during the succeeding year. The fee will be adjusted if the Partnership has a short taxable year. SECTION 3.9 CONFIDENTIALITY OF INFORMATION. The Partners acknowledge that they may receive information regarding the Partnership in the nature of trade secrets or that otherwise is confidential, the release of which may be damaging to the Partnership or Persons with which it does business. Each Partner shall hold in strict confidence any information it receives regarding the Partnership that is identified as being confidential (and if that information is provided in writing, that is so marked) and may not disclose it to any Person other than another Partner, except for disclosures (1) compelled by law, (2) to advisers or representatives of the Partner or Assignees of the Partner, but only if they have agreed to be bound by the provisions of this Section 3.9, or (3) of information that Partner also has received from a source independent of the Partnership that the Partner reasonably believes obtained that information without breach of any obligation of confidentiality. The Partners acknowledge that breach of the provisions of this Section 3.9 may cause irreparable injury to the Partnership for which monetary damages are inadequate, difficult to compute, or both. Accordingly, the Partners agree that the provisions of this Section 3.9 may be enforced by specific performance and other appropriate injunctive or equitable relief. ARTICLE 4 ALLOCATIONS SECTION 4.1 ALLOCATION OF PROFITS AND LOSSES. (a) PROFITS. Profits for any fiscal period shall be allocated among the Partners as follows: (1) First, Profits shall be allocated to Partners who have been allocated Losses pursuant to Section 4.1(b)(2) in proportion to the Losses so allocated to them until the cumulative amount of Profits allocated to Partners pursuant to this Section 4.1(a)(1) is equal to the cumulative amount of Losses allocated to Partners pursuant to Section 4.1(b)(2). - 11 - 12 (2) Second, Profits will be allocated to the General Partner based upon the investment performance of the Partnership during the calendar year (or other period agreed upon by the Partners). The Profits allocated to the General Partner will be determined as follows: (i) If the rate of return for equity investments earned by the Partnership for the year (or such other period as may be determined by the Partners) exceeds the Standard & Poor's Rate of Return by 100 Basis Points or more, the General Partner will be allocated Profits equal to .50 percent (50 Basis Points) of the average Gross Asset Value of equity investments held by the Partnership during such year (or other period determined by the Partners). If the rate of return for equity investments earned by the Partnership for the year (or such other period as may be determined by the Partners) does not exceed the Standard & Poor's Rate of Return by 100 Basis Points or more, the General Partner will be allocated Profits equal to .05 percent (5 Basis Points) of the average Gross Asset Value of equity investments held by the Partnership during such year (or other period determined by the Partners). If the period over which the rate of return is measured is greater than or less than one year, appropriate adjustments will be made to the amount by which the rate of the return earned by the Partnership on equity investments must exceed the Standard & Poor's Rate of Return in order for the General Partner to earn .50 percent rather than .05 percent of the Gross Asset Value of equity investments held by the Partnership. The rate of return on Partnership equity investments will be determined in the same manner that the Standard & Poor's Rate of Return is determined. (ii) If the rate of return for fixed income investments earned by the Partnership for the year (or such other period as may be determined by the Partners) exceeds the Lehman Brothers Rate of Return by 100 Basis Points or more, the General Partner will be allocated Profits equal to .50 percent (50 Basis Points) of the average Gross Asset Value of fixed income investments held by the Partnership during such year (or other period determined by the Partners). If the rate of return for fixed income investments earned by the Partnership for the year (or such other period as may be determined by the Partners) does not exceed the Lehman Brothers Rate of Return by 100 Basis Points or more, the General Partner will be allocated Profits equal to .05 percent (5 Basis Points) of the average Gross Asset Value of fixed income investments held by the Partnership during such year (or other period determined by the - 12 - 13 Partners). If the period over which the rate of return is measured is greater than or less than one year, appropriate adjustments will be made to the amount by which the rate of the return earned by the Partnership on equity investments must exceed the Lehman Brothers Rate of Return in order for the General Partner to earn .50 percent rather than .05 percent of the Gross Asset Value of fixed income investments held by the Partnership. The rate of return on Partnership fixed income investments will be determined in the same manner that the Lehman Brothers Rate of Return is determined. (3) Third, any remaining Profits shall be allocated among Partners based upon the number of Units held by each Partner in proportion to the number of Units outstanding. (b) LOSSES. Losses for any fiscal period shall be allocated among the Partners as follows: (1) First, Losses shall be allocated among Partners based upon the number of Units held by each Partner in proportion to the number of Units outstanding, except that Losses shall not be allocated pursuant to this Section 4.1(b)(1) to the extent such allocation would cause any Limited Partner to have a deficit in such Limited Partner's Capital Account at the end of such fiscal year. (2) Second, any Loss that cannot be allocated to a Limited Partner because it would create a deficit in such Limited Partner's Capital shall be allocated first to other Limited Partners for whom the allocation would not create a deficit in such Limited Partners' respective Capital Accounts in proportion to the positive balances in such Limited Partner's Capital Account and then to the General Partner. SECTION 4.2 TAX ALLOCATIONS: CODE SECTION 704(C). In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its initial Gross Asset Value. Any elections or other decisions relating to such allocations shall be made by the General Partner in any manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 4.2 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Partner's Capital - 13 - 14 Account or share of Profits, Losses, other items or distributions pursuant to any provision of this Agreement. SECTION 4.3 OTHER ALLOCATIONS RULES. (a) In the event additional Partners are admitted to the Partnership on different dates during any fiscal year, or their interests in the Partnership otherwise vary during the year, the Profits (or Losses) may be allocated to the Partners in accordance with Section 706, of the Code, or rules comparable to those allowed by Section 706 of the Code, using any convention permitted by law and selected by the General Partner. (b) For purposes of determining the Profits, Losses or any other items allocable to any period, Profits, Losses and any such other items shall be determined on a daily, monthly, or other basis, as determined by the General Partner using any permissible method under Section 706 of the Code and the Regulations thereunder. (c) Except as otherwise provided in this Agreement, all items of Partnership income, gain, loss, deduction and any other allocations not otherwise provided for shall be divided among the Partners in the same proportions as they share Profits or Losses, as the case may be, for the year. SECTION 4.4 NONRECOURSE LIABILITIES. The allocation provisions set forth in this Agreement are based on the premise that the Partnership has not incurred and will not incur any nonrecourse liabilities as that term is defined in Section 1.752-1(a)(2) of the Treasury regulations. If the Partnership should incur such liabilities, the Agreement will be amended to assure compliance with Section 704(b) of the Code and the Treasury regulations thereunder. ARTICLE 5 DISTRIBUTIONS SECTION 5.1 DISTRIBUTIONS TO GENERAL PARTNER. Distributions of Net Cash Flow for any period, if made, will be distributed first to the General Partner until the cumulative Net Cash Flow distributed to the General Partner under this Section 5.1 for the current and all past periods is equal to the cumulative Profits allocated to the General Partner for the current and all prior periods pursuant to Section 4.1(a)(2). SECTION 5.2 REMAINING NET CASH FLOW. After the distributions described in Section 5.1 have been made, if any additional distributions are made, the balance of the Net Cash Flow will be distributed among the Partners based upon the number of Units held by each Partner in proportion to the number of Units outstanding. The timing and the amount of distributions of Net Cash Flow will be in the sole discretion of the General Partner. - 14 - 15 ARTICLE 6 ASSIGNMENT OF LIMITED PARTNER'S INTEREST SECTION 6.1 GENERAL PROVISION. The Partnership interest of a Limited Partner, which includes the Units representing such interest, may be assigned in whole or in part as permitted by the provisions of this Article 6. SECTION 6.2 ASSIGNEES. The assignment, sale, transfer or pledge of a Partnership interest, in whole or in part, by a Limited Partner is permitted in accordance with the terms of this Agreement. Once an interest has been assigned, transferred, pledged or otherwise encumbered, the assignee, transferee, pledgee or otherwise (hereinafter, the "assignee") may not exercise any rights of a Limited Partner with respect to such interest except those granted to the assignee by the Act unless the assignee becomes a substitute Limited Partner in accordance with Section 6.3. An assignment entitles the assignee to receive, to the extent assigned, the assignor's Partnership interest, including, without limitation, any distributions associated with such interest. SECTION 6.3 PLEDGES. If any Partner or assignee at any time desires to pledge or hypothecate any or all of the interest in the Partnership then owned by him, he may do so provided (i) that such transaction is a bona fide pledge or hypothecation to a financial institution and (ii) that such financial institution at the time of such pledge agrees in writing to afford the other Partners a right of first refusal to repurchase the interest in the Partnership in the manner described in Section 6.5 in the event of the sale of such interest upon foreclosure. SECTION 6.4 TRANSFER TO FAMILY MEMBER. Any Partner may voluntarily assign, with or without consideration, all or any part of such Partner's interest in the Partnership to a Family Member provided such Family Member takes the interest subject to the restrictions set forth in this Agreement. SECTION 6.5 RIGHT OF FIRST REFUSAL. Except for transfers described in Section 6.4, if any Person desires to transfer any or all of the interest in the Partnership owned by him, or if any such interest becomes subject to an involuntary transfer such Person (the "Transferor") will so notify the Partnership and the other Partners in writing (the "Other Partners"). The notice will set forth the name and address of the proposed transferee, who, in the case of a sale, must be a bona fide prospective purchaser, the date of the proposed transfer, the proposed transfer price (in terms of a dollar amount) and the other terms and conditions of the proposed transfer. For a period of 60 days after receipt of such notice, the Partnership may purchase some or all of the offered interest by giving written notice to the Transferor. If the Partnership does not elect to purchase the entire interest, it shall notify the Other Partners of the portion of the interest it did not elect to purchase, and the Other Partners shall have 45 days after expiration of such 60-day period to purchase all, but not less than all, of the interest that the Partnership did not elect to purchase. Such purchase by the Other Partners will be in proportion to the ownership interest in - 15 - 16 the Partnership owned by such Other Partners (omitting, for purposes of such calculation, the ownership interest owned by the Transferor) unless they agree otherwise. If any of the Other Partners declines to purchase his proportion of such interest, the remaining Other Partners may purchase such interest in proportion to their interests in the Partnership (counting for this purpose only the interests in the Partnership of the Other Partners who wish to purchase some or all of the interest to be transferred). If all of the remaining interest proposed to be transferred is not agreed to be purchased by the Other Partners, the Transferor may transfer the remaining interest to the assignee. Any transfer must completed in accordance with the terms of the notice given to the Partnership. In addition, Persons to whom any interest is transferred must, as a condition to such transfer, enter into an agreement with the parties hereto (or all parties except the transferor) setting forth restrictions on transfer and other provisions for repurchase identical to the limitations imposed by this Agreement. SECTION 6.6 SUBSTITUTE LIMITED PARTNER. The assignee of the whole or a portion of a Partnership interest shall be admitted as a substitute Limited Partner upon compliance with the following conditions: (a) The assignee must deliver to the Partnership an executed counterpart of the instrument of assignment, satisfactory in substance and form to the General Partner that contains a statement of the assignor's desire that the assignee be admitted as a substitute Limited Partner and the assignee's agreement to be bound by this Agreement. This condition shall be deemed to be met in the case of a Successor in Interest, defined hereinafter. (b) The General Partner, in its sole discretion, must consent in writing to the admission of the assignee as a substitute Limited Partner. (c) The assignor and the assignee must execute and acknowledge such instruments as the General Partner may deem necessary or desirable to effect such admission, and the assignee agrees to pay all expenses in connection with such admission. SECTION 6.7 DEATH OF LIMITED PARTNER. The Partnership shall not be dissolved, wound up and terminated upon the death, insanity, incompetency or bankruptcy of a Limited Partner. If a Limited Partner shall die or be declared insane, incompetent or bankrupt, he shall cease to be a Limited Partner and, if designated by the Limited Partner, his Successor in Interest, as hereinafter defined, shall succeed to the interest of the former Limited Partner in the Profits, Losses, credits and distributions of the Partnership. A Limited Partner's Successor in Interest shall be such person as the Limited Partner, from time to time, has designated in writing. In the event that a Limited Partner fails to designate a Successor in Interest, or if the person designated is not then living, or for any reason renounces or disclaims the Partnership interest or is unable to succeed to such Partnership interest, the Successor in Interest shall be the spouse of the former Limited Partner. If the spouse is not then living or for any other reason is unable to succeed to the Partnership interest, or if the spouse renounces or disclaims such Partnership interest, or if there is no spouse, the Successor in Interest shall be the executor or administrator of the deceased - 16 - 17 Limited Partner's estate, the guardian of an insane or incompetent Limited Partner's estate, or the trustee in bankruptcy of a bankrupt Limited Partner's estate, who shall hold or distribute such Partnership interest in accordance with applicable fiduciary law. SECTION 6.8 RESTRICTIONS ON SUCCESSOR IN INTEREST. The Successor in Interest shall be subject to all of the restrictions specified in this Article 6 applicable to the assignee of an interest and shall not become a substitute Limited Partner except upon compliance with the conditions hereinabove specified. The Successor in Interest shall be entitled to receive all sums payable with respect to the interest of the Partner to which the Successor in Interest succeeds. If agreed to by the General Partner, the Successor in Interest of a deceased former Limited Partner shall be deemed to be the recipient, for federal income tax purposes, of the portion of the deceased former Limited Partner's distributive share of the Profit or Loss (or items thereof) of the Partnership for the taxable year during which the deceased former Limited Partner died in proportion to the part of the year that the Successor in Interest is entitled to such Profit or Loss. SECTION 6.9 WITHDRAWAL OF LIMITED PARTNER. No Limited Partner may withdraw from the Partnership prior to termination of the Partnership. ARTICLE 7 SALE OF A GENERAL PARTNER'S INTEREST SECTION 7.1 GENERAL RESTRICTION. A General Partner shall not transfer all or any part of his interest in the Partnership without obtaining the consent of Limited Partners owning a majority of the Units held by Limited Partners. ARTICLE 8 EVENTS OF WITHDRAWAL SECTION 8.1 PROCEDURE FOLLOWING EVENT OF WITHDRAWAL. Upon the occurrence of an Event of Withdrawal, the General Partner concerned shall cease to be a member of the Partnership and the Partnership shall have the option to liquidate the Partnership interest of such General Partner. The Partnership and all its Partners shall be notified of such event by the withdrawing General Partner or his legal representative or by any remaining General Partner. SECTION 8.2 EXERCISE OF OPTION. The Partnership shall exercise its option by serving written notice upon the General Partner concerned or the legal representative of such General Partner within ninety (90) days from the date it receives notification of the Event of Withdrawal. The purchase price to be paid by the Partnership for the interest shall equal the fair market value of such interest, as determined by agreement of the parties or by appraisal if they cannot agree - 17 - 18 as of the date of such notice, and shall be paid in full by cashier's check or certified check at the closing or on such other terms as the parties agree. SECTION 8.3 CONTINUATION OF PARTNERSHIP. If the Partnership exercises its option, the Partnership shall not dissolve, wind up and terminate but its business shall be continued if there is a remaining General Partner or, if there is not a remaining General Partner, if the Limited Partners consent in writing to the continuation of the business of the Partnership and to the appointment of a new General Partner effective as of the date of withdrawal of the former General Partner. The interests of the Partners shall be adjusted appropriately to reflect the liquidation of the General Partner's interest and, if applicable, the admission of a new General Partner. SECTION 8.4 TERMINATION. Upon the occurrence of an Event of Withdrawal at such time as the Partnership has a sole General Partner, the Partnership shall be dissolved, wound up and terminated unless all of the Limited Partners consent in writing to the continuance of the Partnership as contemplated in Sections 8.3. SECTION 8.5 EVENT OF WITHDRAWAL DEFINED. For purposes of this Agreement, an Event of Withdrawal shall include the occurrence of any event set forth in Section 14-9-602 of the Act upon compliance with any notification requirements imposed by the Act. A voluntary withdrawal by a General Partner will not be in violation of this Agreement provided the General Partner provides written notice to Limited Partners holding 2/3 or more of the Partnership Units held by Limited Partners at least 10 days in advance of such withdrawal. ARTICLE 9 PROVISIONS APPLICABLE TO ALL ASSIGNMENTS AND TRANSFERS SECTION 9.1 GENERAL RESTRICTIONS. Notwithstanding anything to the contrary in this Agreement, any assignment or purchase under Articles 6, 7 or 8 may be prohibited by the General Partner if such assignment or purchase would, in the opinion of counsel for the Partnership, result in the termination of the Partnership under Section 708(b)(l)(B) of the Code. SECTION 9.2 SECTION 6050K. Upon the transfer or assignment of any Partnership interest, the transferor or assignor must provide to the Partnership the information set forth in Section 6050 K of the Code, and the Partnership shall furnish the required information to the Internal Revenue Service, the transferor and the transferee as required by such section. - 18 - 19 ARTICLE 10 TERMINATION OF THE PARTNERSHIP SECTION 10.1 EVENTS CAUSING TERMINATION. The Partnership shall dissolve, wind up and terminate upon the first to occur of the following: (a) The expiration of the term of the Partnership; (b) The occurrence of an Event of Withdrawal unless the business of the Partnership is continued as provided in Article 8; (c) Upon the written consent of all Partners. SECTION 10.2 PROCEDURE ON TERMINATION. Upon the occurrence of an event described in Section 10.1, the General Partner (or, if none, a Limited Partner appointed by the Limited Partners) shall proceed to liquidate and wind up the business of the Partnership. Upon fifteen (15) days' prior written notice to all of the Partners identifying the assets to be sold, the liquidating Partner(s) may, in lieu of selling the Partnership assets, convey undivided interests in the assets to the Partners or distribute the assets in kind to the Partners. The Partnership assets and the proceeds of any liquidation sale shall be applied and distributed at the closing of any sale in the following order of priority: (a) To the payment of all debts and liabilities of the Partnership and all expenses of liquidation. (b) To the setting up of such reserves as the liquidating Partners may deem necessary for any contingent liabilities of the Partnership. Any reserves shall be deposited with an escrowee to be applied to the discharge of any contingent liabilities, and, at the expiration of whatever period the liquidating Partner may deem advisable, the balance shall be distributed as provided in clause (c) below. (c) The balance, if any, shall be distributed to the Partners in accordance with their Capital Accounts, adjusted to reflect the Gross Asset Value of each asset, notwithstanding any statutory priorities the Limited Partners may have under the provisions of the laws of the Act. SECTION 10.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS. In the event the Partnership is "liquidated" within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations, (i) distributions shall be made pursuant to Article 10 to the Partners who have positive Capital Accounts in compliance with Section 1.704-1(b)(2)(ii)(b)(2) of the Regulations, and (ii) if any Partner's Capital Account has a deficit balance (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation - 19 - 20 occurs), such Partner shall contribute to the capital of the Partnership the amount necessary to restore such deficit balance to zero in compliance with Section 1.704-1 (b)(2)(ii)(b)(3) of the Regulations. In the discretion of the General Partner, a pro rata portion of the distributions that would otherwise be made to the Partners pursuant to the preceding sentence may be: (a) Distributed to a trust established for the benefit of the Partners for the purposes of liquidating Partnership assets, collecting amounts owed to the Partnership, and paying any contingent or unforeseen liabilities or obligations of the Partnership or of the Partners arising out of or in connection with the Partnership. The assets of any such trust shall be distributed to the Partners from time to time, in the reasonable discretion of the General Partner, in the same proportions as the amount distributed to such trust by the Partnership would otherwise have been distributed to the Partners pursuant to this Agreement; or (b) Withheld to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided that such withheld amounts shall be distributed to the Partners as soon as practicable. SECTION 10.4 RIGHTS OF PARTNERS. Except as otherwise provided in this Agreement, each Partner shall look solely to the assets of the Partnership for the return of his Capital Contribution and shall have no right or power to demand or receive property other than cash from the Partnership. No Partner shall have priority over any other Partner as to the return of his Capital Contributions, distributions or allocations. ARTICLE 11 FISCAL MATTERS SECTION 11.1 BOOKS AND RECORDS. The General Partner shall maintain full and accurate books of the Partnership at the Partnership's principal place of business, showing all receipts and expenditures, assets and liabilities, Profits and Losses, and all other records necessary for recording the Partnership's business and affairs, including those sufficient to record the allocations and distributions provided for in Article 4 and Article 5. The books of the Partnership shall be kept on either a cash or an accrual basis as determined by the General Partner. Each Partner and his duly authorized representatives shall at all times during regular business hours have access to and may inspect and copy any of such books and records. SECTION 11.2 PARTNERSHIP YEAR. The annual accounting period of the Partnership shall be the calendar year. SECTION 11.3 PARTNERSHIP BANK ACCOUNTS. The General Partner shall receive all moneys of the Partnership and shall deposit the same in one or more banking accounts. All expenditures - 20 - 21 by the General Partner shall be made by checks drawn against the Partnership accounts. Withdrawals from Partnership accounts shall be made upon such signature or signatures as the General Partner shall authorize. SECTION 11.4 ACCOUNTING DECISIONS. All decisions as to accounting matters, except as specifically provided to the contrary herein, shall be made by the General Partner. SECTION 11.5 FEDERAL INCOME TAX ELECTIONS. The decision to make or not make any other election that is described in the Code including, without limitation, a Section 754 election, shall be made in the discretion of the General Partner. ARTICLE 12 ALTERNATIVE DISPUTE RESOLUTION ("ADR"); BINDING ARBITRATION 12.1 AGREEMENT TO USE PROCEDURE. The Partners have entered into this Agreement in good faith in the belief that it is mutually advantageous to them. It is with that same spirit of cooperation that they pledge to attempt to resolve any dispute amicably without the necessity of litigation. Accordingly, they agree if any dispute arises between them relating to this Agreement (the "Dispute"), they will first utilize the procedures specified in this Article 12 (the "Procedure") prior to any Additional Proceedings. 12.2 INITIATION OF PROCEDURE. The Partner seeking to initiate the Procedure (the "Initiating Partner") shall give written notice to the other Partners, describing in general terms the nature of the Dispute, the Initiating Partner's claim for relief an identifying one or more individuals with authority to negotiate the Dispute on such Partner's behalf. The Partner(s) receiving such notice (the "Responding Partner," whether one or more) shall have five (5) business days within which to designate by written notice to the Initiating Partner, one or more individuals with authority to negotiate the Dispute on such Partner's behalf. The individuals so designated shall be known as the "Authorized Individuals." The Initiating Partner and the Responding Partner shall collectively be referred to as the "Disputing Partners" or individually "Disputing Partner." 12.3 DIRECT NEGOTIATIONS. The Authorized Individuals shall be entitled to make such investigation of the Dispute as they deem appropriate, but agree to promptly, and in no event later than thirty (30) days from the date of the Initiating Partner's written notice, meet to discuss resolution of the Dispute. The Authorized Individuals shall meet at such times and places and with such frequency as they may agree. If the Dispute has not been resolved within thirty (30) days from the date of their initial meeting, the Disputing Partners shall cease direct negotiations and shall submit the Dispute to mediation in accordance with the following procedure. - 21 - 22 12.4 SELECTION OF MEDIATOR. The Authorized Individuals shall have five (5) business days from the date they cease direct negotiations to submit to each other a written list of acceptable qualified attorney-mediators not affiliated with any of the Partners. Within five (5) days from the date of receipt of such list, the Authorized Individuals shall rank the mediators in numerical order of preference and exchange such rankings. If one or more names are on both lists, the highest ranking person shall be designated as the mediator. If no mediator has been selected under this procedure, the Disputing Partners agree jointly to request a State or Federal District Judge of their choosing (or if they cannot agree, the Chief Judge of the United States District Court for the county in which the principal office of the Partnership is located, and if that Judge refuses to act, the Presiding Judge of the State Administrative Judicial Region for said county) to supply within ten (10) business days a list of potential qualified attorney-mediators. Within five (5) business days of receipt of the list, the Authorized Individuals shall again rank the proposed mediators in numerical order of preference and shall simultaneously exchange such list and shall select as the mediator the individual receiving the highest combined ranking. If such mediator is not available to serve, they shall proceed to contact the mediator who was next highest in ranking until they are able to select a mediator. 12.5 TIME AND PLACE OF MEDIATION. In consultation with the mediator selected, the Authorized Individuals shall promptly designate a mutually convenient time and place for the mediation, and unless circumstances require otherwise, such time to be not later than forty-five (45) days after selection of the mediator. 12.6 EXCHANGE OF INFORMATION. In the event any Disputing Partner to this Agreement has substantial need for information in the possession of another Disputing Partner to this Agreement in order to prepare for the mediation, all Disputing Partners shall attempt in good faith to agree to procedures for the expeditious exchange of such information, with the help of the mediator if required. 12.7 SUMMARY OF VIEWS. At least seven (7) days prior to the first scheduled session of the mediation, each Disputing Partner shall deliver to the mediator and to the other Disputing Partners a concise written summary of its views on the matter in Dispute, and such other matters required by the mediator. The mediator may also request that a confidential issue paper be submitted by each Disputing Partner to him. 12.8 PARTIES TO BE REPRESENTED. In the mediation, each Disputing Partner shall be represented by an Authorized Individual and may be represented by counsel. In addition, each Disputing Partner may, with permission of the mediator, bring such additional Persons as needed to respond to questions, contribute information, and participate in the negotiations. 12.9 CONDUCT OF MEDIATION. The mediator shall determine the format for the meetings, designed to assure that both the mediator and the Authorized Individuals have an opportunity to hear an oral presentation of each Disputing Partner's views on the matter in dispute, and that the authorized parties attempt to negotiate a resolution of the matter in dispute, with or without the - 22 - 23 assistance of counsel or others, but with the assistance of the mediator; to this end, the mediator is authorized to conduct both joint meetings and separate private caucuses with the Disputing Partners. The mediation session shall be private. To the extent permitted under applicable law, the mediator will keep confidential all information learned in private caucus with any Disputing Partner unless specifically authorized by such Disputing Partner to make disclosure of the information to the other Disputing Partner. The Disputing Partners commit to participate in the proceedings in good faith with the intention of resolving the Dispute if at all possible. 12.10 TERMINATION OF PROCEDURE. The Disputing Partners agree to participate in the mediation procedure to its conclusion. The mediation shall be terminated (1) by the execution of a settlement agreement by the Disputing Partners, (2) by a declaration of the mediator that the mediation is terminated, or (3) by a written declaration of a Disputing Partner to the effect that the mediation process is terminated at the conclusion of one full day's mediation session. Even if the mediation is terminated without a resolution of the Dispute, the Disputing Partners agree not to terminate negotiations and not to commence any litigation or other legal proceedings to resolve the Dispute ("Additional Proceedings") prior to the expiration of five (5) days following the mediation. Notwithstanding the foregoing, any Disputing Partner may commence Additional Proceedings within such five (5) day period if the Dispute could be barred by an applicable statute of limitations. 12.11 FEES OF MEDIATION; DISQUALIFICATION. The fees and expenses of the mediator shall be shared equally by the Disputing Partners. The mediator shall be disqualified as a witness, consultant, expert or counsel for any Disputing Partner with respect to the Dispute and any related matters. 12.12 CONFIDENTIALITY. To the extent permitted under applicable law, the mediation process shall be confidential, and no stenographic, visual or audio record shall be made. All conduct, statements, promises, offers, views and opinions, whether oral or written, made in the course of the mediation by any Disputing Partner, their agents, employees, representatives or other invitees and by the mediator shall be confidential and shall, in addition and where appropriate, be deemed privileged. To the extent permitted under applicable law, such conduct, statements, promises, offers, views and opinions shall not be discoverable or admissible for any purpose, including impeachment, in any litigation or other proceeding involving the parties, and shall not be disclosed to anyone not an agent, employee, expert, witness, or representative of any of the Partners; provided, however, that evidence otherwise discoverable or admissible is not excluded from discovery or admission as a result of its use in the mediation. 12.13 ARBITRATION. Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination, or invalidity thereof which the Partners are unable to resolve using other procedures in this Article 12, shall be settled by arbitration in accordance with the rules of American Arbitration Association by one or more arbitrators appointed under such rules, in the place determined by the parties to the dispute, or if they cannot agree on the location, in Cincinnati, Ohio. The decision of the arbitrator shall be final and binding upon all parties - 23 - 24 hereto. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The expenses of arbitration shall be borne equally by the Partners who are parties to the dispute. ARTICLE 13 GENERAL PROVISIONS SECTION 13.1 NOTICES. Except as otherwise provided in this Agreement, any and all notices, consents, waivers, requests, votes or other instruments or communications provided for under this Agreement shall be in writing, signed by the party giving the same and shall be deemed properly given only if sent by registered or certified United States mail, postage prepaid, addressed: (a) in the case of the Partnership or the General Partner, to the Partnership or the General Partner, as the case may be, at the principal place of business of the Partnership, (b) in the case of any Partner to such Partner at his address set forth in the records of the Partnership. Each Partner may, by notice to the Partnership, specify any other address for the receipt of such instruments of communications. Any such communication sent by telegram shall be properly given when received by the person to whom it is sent. SECTION 13.2 INDEMNIFICATION OF GENERAL PARTNER. A General Partner shall not be liable to the Partnership or the Limited Partners for any act or omission performed or omitted by the General Partner in good faith pursuant to the authority granted to the General Partner by the Partnership Agreement, but not for fraud, bad faith or gross negligence. The Partnership shall indemnify the General Partner for any loss or damage incurred by the General Partner on behalf of the Partnership in or in furtherance of the Partnership interests, except for liability arising out of fraud, bad faith or gross negligence. If a claim for indemnification against liabilities under the Securities Act of 1933 (other than for expenses incurred in successful defense) is asserted against the Partnership by the General Partner under the Agreement or otherwise, the Partnership 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 of whether such indemnification by it is against public policy, and will be governed by the final adjudication of such issue. In the event the General Partner pays any debt of the Partnership, the General Partner shall be reimbursed therefor from Partnership assets. SECTION 13.3 INTEGRATION. This Agreement embodies the entire agreement and understanding among the Partners relating to the subject matter hereof, and supersedes all prior agreements and understandings relating to such subject matter. SECTION 13.4 APPLICABLE LAW. This Agreement and the rights of the Partners shall be governed by and construed and enforced in accordance with the laws of the State of Georgia. - 24 - 25 SECTION 13.5 COUNTERPARTS. This Agreement may be executed in several counterparts and all so executed shall constitute one Agreement binding on all the parties hereto, notwithstanding that all the parties are not signatory to the original counterpart. SECTION 13.6 SEPARABILITY. In case any one or more of the provisions contained in this Agreement or any application thereof shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and any other application thereof shall not in any way be affected or impaired thereby. SECTION 13.7 BINDING EFFECT. Except as herein otherwise provided to the contrary, this Agreement shall be binding upon, and inure to the benefit of, the Partners and their respective heirs, executors, administrators, successors and permitted assigns. SECTION 13.8 CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner is not required to deliver or mail a copy of the Partnership's certificate of limited partnership or any other certificate to any of the Limited Partners. SECTION 13.9 AUTHORITY TO AMEND. Amendments to this Agreement shall require the approval of the General Partner and the Limited Partners owning a majority of the outstanding Units held by Limited Partners. Notwithstanding the foregoing, no Partner's interest in Profits, Losses or cash distributions will be reduced without the consent of that Partner. A copy of any amendment shall be mailed in advance to all of the Limited Partners. SECTION 13.10 GENDER. Wherever the context shall so require, all words herein in a particular gender shall be deemed to include other genders where applicable. In addition, singular words shall include the plural and plural words shall include the singular. SECTION 12.11 MEETINGS. Meetings of the Partners shall be held not less than fifteen (15) days nor more than thirty (30) days after receipt of written notice from the General Partner. The General Partner will give notice of a meeting at any time upon their own choosing or within five (5) days after they shall receive demand for a meeting from Limited Partners who own at least thirty percent of the outstanding Units. - 25 - 26 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first above written. [General Partner] MILFAM LLC, an Ohio limited liability company By: /s/ LLOYD I. MILLER, III ------------------------ LIMITED PARTNERS: Trust B under Section 6 of the Amended and Restated Trust U/A Lloyd I. Miller, dated September 20, 1983 By: /s/ BLAIR THOMPSON ------------------ Trust D under Section 8 of the Amended and Restated Trust U/A Lloyd I. Miller, dated September 20, 1983 By: /s/ STEVEN HENDRICKSON ----------------------- /s/ LLOYD I. MILLER, III ------------------------ Lloyd I. Miller, III /s/ MARTIN G. MILLER -------------------- Martin G. Miller - 26 - 27 MILFAM II L.P., A GEORGIA LIMITED PARTNERSHIP PARTNERSHIP AGREEMENT THE INTEREST REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE LAW. THE INTEREST HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (i) AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (ii) AN OPINION OF COUNSEL SATISFACTORY TO THE MILFAM II L.P. (THE "PARTNERSHIP") TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT AND SUCH LAWS. EX-99.5 3 LETTER TO MILLER FROM COMPANY, DATED OCT. 9, 1997 1 Porta Systems Corp. 575 Underhill Blvd. Syosset, New York 11731 October 9, 1997 BY TELECOPIER: (941) 282-8025 Mr. Lloyd Miller 4550 Gordon Drive Naples, Florida 33940 Re: Porta Systems Corp. Dear Mr. Miller: You hereby represent to Porta Systems Corp. (the "Company") that you own or otherwise control and have the right to convert not less than $4.6 million principal amount of the Company's Zero Coupon Senior Subordinated Convertible Notes due January 2, 1996 (the "Notes") and you agree to convert the Notes in accordance with a certain letter agreement (the "Letter Agreement") dated the date of this Letter between you and the Company. All terms defined in the Letter Agreement and used in this Letter shall have the same meanings in this Letter as in the Letter Agreement. In reliance upon the foregoing representation and based on (i) your converting at least $4.6 million principal amount of Notes in accordance with the Amended Terms and (ii) holders of the Required Percentage of Notes converting their Notes in accordance with the Amended Terms, the Company agrees to elect you as a director at the first meeting of the board of directors following the Closing Date and to recommend that you be included as one of the Company's nominees for election as a director at the Company's 1996 Annual Meeting of Stockholders. PORTA SYSTEMS CORP. By: /s/ MICHAEL A. TANCREDI ----------------------------------- Name: Michael A. Tancredi Title: Senior Vice President Secretary and Treasurer EX-99.6 4 REGISTRATION RIGHTS AGREEMENT, DATED OCT. 10, 1997 1 REGISTRATION RIGHTS AGREEMENT between PORTA SYSTEMS CORP. and THE HOLDERS DESCRIBED HEREIN Dated as of October 10, 1997 2 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- 3
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..................................................................................... 17 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- 4 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 5 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- 6 "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- 7 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- 8 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 included 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- 9 (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- 10 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- 11 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- 12 (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- 13 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- 14 foregoing, to arrange for at least two market makers to register with the NASD as such with respect to such Registrable Common Stock; (l) 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- 15 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 10 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- 16 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- 17 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- 18 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- 19 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 Person's 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- 20 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- 21 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- 22 Porta Systems Corp. 575 Underhill Blvd. Syosset, NY 11791 Attention: Mr. William V. Carney Chairman of the Board and Chief Executive Officer -and- Mr. Edward B. Kornfeld Chief Financial Officer Tel: 516 364-9300 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- 23 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 and Chief Financial Officer -20- -----END PRIVACY-ENHANCED MESSAGE-----