PORTA SYSTEMS CORP
10-K, 1996-04-01
TELEPHONE & TELEGRAPH APPARATUS
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(Mark One)

     [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   For the fiscal year ended December 31, 1995

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 [NO FEE REQUIRED]


                 For the transition period from_______to_______

                          Commission file number 1-8191

                               PORTA SYSTEMS CORP.
             (Exact name of registrant as specified in its charter)

Delaware                                                        11-2203988
(State or other jurisdiction                                   (I.R.S. Employer
of incorporation or organization)                            Identification No.)


575 Underhill Boulevard, Syosset, New York                             11791
(Address of principal executive offices)                             (Zip Code)

Registrant's telephone number, including area code:              (516) 364-9300

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $.01                     American Stock Exchange
          (Title of Class)                (Name of Exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

                                      None

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of this Form 10K or any amendment to this
Form 10K. [X]

     State aggregate market value of the voting stock held by  non-affiliates of
the registrant: $7,564,711 as of March 22, 1996.

     Indicate the number of shares outstanding of each of the registrant's class
of common stock, as of the latest practicable date:  10,086,281 shares of Common
Stock, par value $.01 per share, as of March 22, 1996.

                       DOCUMENTS INCORPORATED BY REFERENCE

The  registrant's  definitive proxy statement in connection with its 1996 Annual
Meeting  of  Stockholders  to be  filed  within  120  days of the  close  of the
registrant's  fiscal  year is  incorporated  by  reference  into Part III of the
Report.

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<PAGE>                                                                          

Item 1. Business

     Porta Systems Corp. (the "Company")  develops,  designs,  manufactures  and
markets a broad range of proprietary and standard  telecommunications  equipment
and  systems  for sale in the  United  States and  abroad.  The  Company's  core
products fall into three categories:

o    Computer-based  operational  support  systems  ("OSS")  which  automate the
     operational,  administrative,  maintenance  and  testing  functions  within
     telephone  companies.  These  systems are marketed  principally  to foreign
     telephone operating companies in developing countries and Europe.

o    Telecommunications  connection equipment and systems which are used both to
     connect   copper-wired   telecommunications   networks   and   to   protect
     telecommunications  equipment from voltage  surges.  The copper  connection
     equipment and systems are marketed to telephone  operating companies in the
     United  States and  foreign  countries,  with the  largest  customer  being
     British  Telecommunications  plc ("BT"),  and  manufacturers  and owners of
     telecommunications equipment.

o    To a significantly lesser extent, signal processing,  which are radio-based
     communications systems sold principally for military uses.

     In March,  1996 the Company sold its fiber optics connector  business.  See
     "Recent Developments".

     Porta Systems Corp. is a Delaware  corporation  incorporated in 1972 as the
successor  to a  New  York  corporation  incorporated  in  1969.  The  Company's
principal  offices are located at 575  Underhill  Boulevard,  Syosset,  New York
11791;  telephone  number,  516-364-9300.  References to the Company include its
subsidiaries, unless the context indicates otherwise.

Markets for the Company's Products

     The Company supplies  equipment and systems to telephone  companies for use
in providing  telecommunications  services to their  customers and to businesses
for use with their internal telecommunication systems. The markets served by the
Company are described below:

     Telecommunications  Systems in Emerging  Countries.  Telephone  networks in
certain regions of the world, notably Latin America,  Eastern Europe and certain
areas in the Asia/Pacific  region,  utilize telephone switching systems of older
analog  technology.  These networks were designed to carry voice traffic and are
not  well  suited  for high  speed  data  transmissions  or for  other  forms of
telecommunications that operate more effectively with digital telecommunications
equipment  and  lines.  The  telephone  networks  in  these  countries  are also
characterized by a very low ratio of telephone lines to population.

     A country with an emerging  telecommunications  network may want to rapidly
add access lines in order to increase  the  availability  of  telephone  service
among its  population  and to  significantly  upgrade  the  quality of the lines
already in service.  The  Company's OSS systems are designed to meet many of the
needs of a rapidly growing telephone network. These computerized  administrative
and  provisioning OSS systems  facilitate  rapid expansion  without a comparable
increase in the requirement for skilled technicians, while the computerized line
test  system  insures  increased  quality  and rapid  maintenance  and repair of



                                       1
<PAGE>

subscriber local loops. The automated data base which computerizes the inventory
and  maintenance  history of all  subscriber  lines in service helps to keep the
rapid growth under control.

     As a telephone  company expands the number of its subscriber lines, it also
requires  connection  equipment to  interconnect  and protect those lines in its
central  offices.  The  Company  provides a complete  line of copper  connection
equipment for this purpose. In the more advanced countries, the movement towards
fiber optic  circuits has resulted in a stagnation  or decline in the market for
copper connection equipment,  while the less developed countries,  such as those
with emerging networks or those upgrading to digital switching systems,  provide
a growing market for copper connection and protection equipment.

     During  1995,  approximately  47% of  the  Company's  sales  were  made  to
customers in emerging markets. Such sales include both OSS and copper connection
products.

     Digital Systems. In regions such as Western Europe, telephone networks have
achieved  an  acceptable  ratio of  available  telephone  lines  to  population.
However, the switching systems may utilize analog technology and are more suited
to carrying voice  transmissions.  These telephone companies are upgrading their
networks by replacing  the older  analog  switching  systems with newer  digital
systems.

     The increased sensitivity of the newer digital switches to small amounts of
voltage requires the telephone  company which is upgrading to digital  switching
systems to also  upgrade its  central  office  connection/protection  systems in
order to meet these more  stringent  protection  requirements.  The Company is a
major worldwide supplier of central office connection/protection systems.

     During  1995,  approximately  34% of  the  Company's  sales  were  made  to
customers in this category.

     Multi-Media Systems.  More advanced telephone  companies,  such as those in
the United  States and Japan,  are  upgrading  their  networks to carry not only
voice  traffic  but  also   increasing   volumes  of  many  different  forms  of
telecommunications,  such  as  video,  facsimile,  image  and  high  speed  data
transmission.   The  United  States  is  also   experiencing  the  emergence  of
alternative local carriers.  This rise in data  communications  requirements has
been fueled largely by the rapid growth of personal  computers and  workstations
connected  together  through local area  networks and their need to  communicate
both locally and throughout the nation. This rapid rise in the volume and speeds
of data communications in America's business  environment requires an upgrade of
the telecommunications distribution wiring systems within buildings and campuses
as well as within the external telephone networks.

     The  Company  offers a broad line of  systems  and  equipment  to upgrade a
building's  telecommunications  distribution  system  so that it can  serve  the
increased data communications speeds of today and tomorrow.

     During 1995, sales of multi-media  systrems  accounted for approximately 7%
of the Company's sales.

     Fiber Optics  Networks.  In March 1996,  the Company sold its  fiber-optics
connector business. See "Recent Developments".

                                       2
<PAGE>

     During 1995, sales of fiber optics products represented approximately 4% of
the Company's sales.

     Signal  Processing.  The Company's  line of signal  processing  products is
supplied  to  customers  in the  military  and  aerospace  industry  as  well as
manufacturers of medical equipment and video systems. The primary  communication
standard in new  military  and  aerospace  systems is the  MIL-STD-1553  Command
Response  Data  Bus,  and  applications  require  an  extremely  high  level  of
reliability and performance. Products are designed to be application specific to
satisfy the requirements of each military or aerospace program.  The Company has
earned a reputation in the aerospace  industry for developing and supplying cost
effective products with the highest reliability.

     The  Company's   wideband   transformers  are  required  for  ground  noise
elimination in video imaging systems and are used  extensively in television and
broadcast  industry,  medical  imaging and industrial  process  control.  If not
eliminated,  ground  noise  caused  by poor  electrical  system  wiring or power
supplies,  results in  significant  deterioration  in system  performance  (poor
picture  quality,  process  failures in  instrumentation,  etc.).  The  wideband
transformers  provide a cost effective and quick solution to the problem without
the need of redesign of the rest of the system.

     During 1995, signal processing  equipment accounted for approximately 8% of
the Company's sales.

Products

     The  first  of  the  Company's  two  principal  telecommunications  product
categories is  telecommunications  connection  equipment and systems,  which are
used by telephone operating companies,  by owners of private  telecommunications
equipment and by  manufacturers  and suppliers of telephone  central  office and
customer  premises  equipment.   The  second  of  the  Company's  two  principal
telecommunications  product  categories  is  operations  support  systems or OSS
systems, which are used primarily by telephone operating companies. A third line
of the Company's products, sold under the name North Hills Signal Processing, is
high frequency wideband transformers and MIL-STD-1553 data bus couplers.

     The table below shows,  for the last three fiscal years,  the  contribution
made  to  the   Company's   sales  by  each  of  its  major   segments   of  the
telecommunications  industry  (excluding sales from  discontinued  operations of
$2,979,000 for the period beginning January 1, 1993 and ended May 11, 1993):

                                       3
<PAGE>

                           Sales by Product Category
                            Years Ended December 31,



                        1995                1994                1993
                        ----                ----                ----
                                    (Dollars in thousands)

OSS Systems      $28,988        47%   $21,516        31%   $17,709        26%

Line Connect-
ing/Protecting
Equipment (*)     26,867        44%    40,800        59%    42,945        63%

Signal Proses
sing               4,857         8%     5,221         8%     5,485         8%

Other                469         1%     1,448         2%     2,002         3%
                 -------   -------    -------   -------    -------   -------


Total            $61,181       100%   $68,985       100%   $68,141       100%
                 =======   =======    =======   =======    =======   =======


(*)  Includes  sales of fiber  products of  $6,513,000 in 1995,  $12,150,000  in
     1994, and $8,654,000 in 1993.


     Operations Support Systems. The Company's OSS systems are used primarily by
telephone  operating  companies.  The  Company's  principal  OSS  system  is its
computer-based  testing  system--the Line Condition Report  ("LCR")--which  is a
major item of capital  equipment  and  typically  sells for prices  ranging from
several  hundred  thousand  to  several  million   dollars.   The  Company  also
manufactures  and sells a number of other  products  which are used in  testing,
maintenance and repair of telephone equipment.

     The LCR,  introduced in the mid-1970's,  was the first  computer-controlled
electronic  system  used to  automatically  test for and  diagnose  problems  in
customer  lines and to notify  service  personnel of required  maintenance.  The
associated  Mechanized Line Report ("MLR") data base system  provides  automated
record keeping  (including  repair and  disposition  records) and analyzes these
records for  identification of recurring  problems and equipment  deterioration.
The Company has devoted substantial resources to developing and obtaining market
acceptance  for its LCR/MLR  systems and has continued to modify and enhance its
LCR service features.  The Company's LCRs have been sold to telephone  operating
companies in a number of foreign countries as well as in the United States.

     The Company also develops  software-based  systems for telephone  companies
and provides telephone company line testing products to foreign  customers.  The
Company's software,  which can be packaged and integrated with the LCR, provides
additional OSS functions,  such as the automated assignment of telephone company
facilities for the provision of service.

                                       4
<PAGE>

     The Company's OSS systems are complex systems which, in most  applications,
incorporate  features  designed  to  respond  to  the  purchaser's   operational
requirements  and the particular  characteristics  of the purchaser's  telephone
system.  As a result,  the  negotiation  of a  contract  for an OSS system is an
individualized  and highly  technical  process.  In addition,  contracts for OSS
systems frequently provide for manufacturing,  delivery,  installation,  testing
and  purchaser  acceptance  phases  which take place over  periods  ranging from
several months to a year or more. Such contracts  typically contain  performance
guarantees  by the  Company  and clauses  imposing  penalties  on the Company if
"in-service"  dates  are  not  met.  The  installation,  testing  and  purchaser
acceptance  phases of these  contracts may last longer than  contemplated by the
contracts and, accordingly, amounts due under the contracts may not be collected
for extended periods.  Delays in purchaser  acceptance of the systems and in the
Company's  receipt of final contract payments have occurred in connection with a
number of foreign sales.  In addition,  the Company has experienced no steady or
predictable flow of orders for OSS systems.

     Telecommunications  Connection Equipment. The Company's  telecommunications
copper  connection/protection  equipment  and  systems  are  used  by  telephone
operating companies,  by owners of private  telecommunications  equipment and by
manufacturers  and suppliers of telephone  central office and customer  premises
equipment.   Products   of  the  types   comprising   the   Company's   line  of
telecommunications  connection  equipment are included as integral  parts of all
domestic and foreign telephone and telecommunications systems. Such products are
sold in a worldwide  market which grows  generally in proportion to increases in
the number of  telephone  subscribers  and owners of private  telecommunications
equipment,  as well as to  increases  in  upgrades to modern  digital  switching
technology.

     The Company's traditional connection equipment consists of connector blocks
and protection modules used by telephone companies to interconnect  copper-based
subscriber lines to switching  equipment  lines.  The protector  modules protect
central  office  personnel and equipment from unwanted  electrical  surges which
might find their way onto subscriber lines. The need for protection products has
increased  as a result of the  worldwide  move to digital  technology,  which is
extremely  sensitive  to damage by  electrical  overloads,  and because  private
owners of  telecommunications  equipment now have the  responsibility to protect
their equipment from damage from electrical surges.  Line  connecting/protecting
equipment  usually  incorporates  protector  modules to safeguard  equipment and
personnel from injury due to power surges.  Currently,  these products include a
variety of  connector  blocks,  protector  modules and frames used in  telephone
central switching offices, PBX installations and multiple user facilities.

     The  Company  also  has  developed  an  assortment  of  frames  for  use in
conjunction  with  the  Company's  traditional  line  of   connecting/protecting
products.  Frames  for the  interconnection  of copper  circuits  are  specially
designed  structures  which, when equipped with connector blocks and protectors,
interconnect  and  protect  telephone  lines and  distribute  them in an orderly
fashion, allowing access for repairs and changes in line connections. One of the
Company's frame products, the CAM frame, is designed to permit computer-assisted
analysis and  recording of the optimum  placement of  connections  for telephone
lines on the connector blocks mounted on the frame.

     The Company's  telecommunications copper  connection/protection  equipment,
including  its line  connecting/protecting  products,  is used by several of the
operating companies of the seven regional Bell holding companies,  as well as by
independent  telephone  operating  companies in the United  States and owners of
private telecommunications equipment. These products are also purchased by other
companies  for  inclusion  within  their  systems.  In addition,  the  Company's
telecommunications  connection  products  have been sold to telephone  operating


                                       5
<PAGE>

companies  in various  foreign  countries.  This  equipment is  compatible  with
existing  telephone  systems  both within and outside the United  States and can
generally  be  used  without  modification,  although  the  Company  can  design
modifications to accommodate the specific needs of its customers.

Marketing and Sales

     The Company  operates  through three  business units which are organized by
product line and with each having  responsibility for the sales and marketing of
its products.

     When  appropriate  to obtain  sales in foreign  countries,  the Company may
enter into arrangements and technology transfer agreements covering its products
with  local   manufacturers  and  participate  in  manufacturing  and  licensing
arrangements with local telephone equipment suppliers.

     In the United States and throughout the world, the Company uses independent
distributors  in the  marketing  of Company  products to the  customer  premises
equipment market. All distributors  marketing  copper-based products also market
directly competing products.  In addition,  the Company continues to promote the
direct marketing  relationships  it forged in the past with telephone  operating
companies.

     In 1985,  the Company  signed a three year  supply  contract  with  British
Telecommunications  plc  ("BT")  for the  Company's  line  connecting/protecting
products,  which contract was renewed for a period of sixteen years in May 1988.
The renewed contract requires no minimum purchases by BT. During 1995, 1994, and
1993, BT purchased $17,252,000,  $11,566,000, and $12,713,000,  respectively, of
the Company's  products.  During these years,  additional sales of the Company's
products were also made at the direction of BT to certain unaffiliated suppliers
to BT for resale to BT. The contract  also provides for a ten year cross license
which,  in  effect,  enables  BT to use  certain  of the  Company's  proprietary
information  to modify or enhance  products  provided  to BT and  permits  those
products  to be  manufactured  for its own  purposes.  The  Company  and BT have
further  modified  the  cross  license  to  provide  that such  products  may be
manufactured  by BT for its own purposes only if the Company is unable to supply
such  products  to BT.  Under the cross  license,  the  Company  is to be paid a
royalty on any products (including  modified or enhanced products)  manufactured
under the license,  and the Company is obligated to pay BT a royalty on products
the  Company   manufactures   and  sells  which  utilize  BT   enhancements   or
modifications.  The Company has engaged in no manufacturing  activity under this
cross license to date, although it has received certain royalties, which are not
significant  in amount,  from BT  pursuant to the license in respect of products
manufactured for BT by others.

     The Company's  OSS systems have  primarily  been sold to foreign  telephone
operating  companies,  and the contracts relating to OSS systems are principally
negotiated directly between the Company and these purchasers.

     The North Hills Signal Processing line of products have been sold primarily
to US military and aerospace prime contractors, and domestic OEMs and End Users.
Approximately  90% of the sales are  domestic,  with the  aerospace and military
accounting for 60%.

     The  following  table  sets  forth  for the last  three  fiscal  years  the
Company's sales to customers by geographic region:

                                       6
<PAGE>

                Sales to Customers By Geographic Region (1) (2)

                                     Year Ended December 31,
                                     ----------------------
                         1995               1994                   1993
                         ----               ----                   ----
                             (Dollars in thousands)

United States
and Puerto Rico   $16,445        27%   $24,150        35%    24,714        36%

United Kingdom     22,230        36%    17,761        26%    26,971        40%

Other Europe        2,831         5%     4,344         6%     2,750         4%

Latin America       4,743         8%     7,917        11%     8,665        13%

Asia/Pacific       13,470        22%    12,909        19%     4,068         6%

Middle East           899         1%     1,009         2%       691         1%

Other                 563         1%       895         1%       282      --
                  -------   -------    -------   -------    -------   -------

Total Sales       $61,181       100%   $68,985       100%   $68,141       100%
                  =======   =======    =======   =======    =======   =======


(1)  Excludes sales  attributable  to the Company's  discontinued  operations of
     $2,979,000  during the period  beginning  January 1, 1993 and ended May 11,
     1993.

(2)  For information regarding the amount of sales, operating profit or loss and
     identifiable assets attributable to each of the Company's geographic areas,
     see Note 22 to the Consolidated Financial Statements.

     In foreign markets,  the Company faces considerable  competition from other
United States and foreign  telephone  equipment  manufacturers  with substantial
resources.  In addition, the Company recognizes that, in selling to customers in
foreign countries,  there are inherent risks not normally present in the case of
sales to United States customers,  including increased difficulty in identifying
and designing  systems  compatible with  purchasers'  operational  requirements;
extended  delays under OSS systems  contracts in the  completion  of testing and
purchaser  acceptance  phases and the Company's  receipt of final payments;  and
political  and  economic  change.  In  addition,  to the extent that the Company
establishes facilities in foreign countries,  the Company faces risks associated
with currency devaluation,  inability to convert local currency into dollars and
political instability.

Manufacturing

     The  Company's   computer-based  testing  products  include  the  Company's
proprietary testing circuitry and computer programs, which have been upgraded to
provide platform independent solutions based on UNIX-type operating systems. The
testing products also incorporate  disk data storage,  data terminals  ("CRTs"),
teleprinters  and  minicomputers  purchased by the Company.  These  products are
installed and tested by the Company on its customers' premises.

                                       7
<PAGE>

     At  present,  the  Company's  manufacturing  operations  are  conducted  at
facilities located in Glen Cove, New York; Kingsville,  Texas; Matamoros, Mexico
and Korea.  The Company  from time to time also uses  subcontractors  to augment
various  aspects of its  production  activities  and  periodically  explores the
feasibility  of  conducting  operations at lower cost  manufacturing  facilities
located  abroad.  In  pursuing  sales   opportunities   with  foreign  telephone
companies, the Company may locate its production activities in foreign countries
which require domestic  involvement in the production of equipment purchased for
their telephone  systems and in foreign  countries  which, in addition,  require
full or partial technology transfers to domestic enterprises.

Source and Availability of Components

     The Company  purchases the standard  components  used in the manufacture of
its products from a number of suppliers and generally  attempts to assure itself
that the  components  are  available  from more  than one  source.  The  Company
purchases  the  minicomputers  used in its OSS systems  from  Digital  Equipment
Corporation  ("DEC').  However,  because the Company's  software is now platform
independent,  the Company could use other  computer  equipment in its systems if
the Company were unable to purchase DEC products. Other components, such as CRTs
and  teleprinters,  used in connecting  with the Company's  electronic  products
could be  obtained  from  alternate  sources  and  readily  integrated  with the
Company's products.

Backlog

     At December 31, 1995, the Company's  backlog was $22,569,000  compared with
approximately  $25,333,000  at  December  31,  1994.  Of the  December  31, 1995
backlog,  approximately  $17,091,000  represented  orders from foreign telephone
operating companies,  including $3,205,000 attributable to the contract with BT.
See "Marketing and Sales".  The Company expects to ship substantially all of its
December 31, 1995 backlog  during 1996.  However,  certain of the  Company's OSS
contracts provide for deliveries subsequent to December 31, 1996.

Patents

     The  Company is the owner of a number of utility  and  design  patents  and
patent  applications.  In  addition,  the  Company  has  sought  foreign  patent
protection for a number of its products.

     From  time  to  time  the  Company  enters  into  licensing  and  technical
information  agreements  under  which it  receives  or grants  rights to produce
certain specified  subcomponents used in certain of the Company's products or in
connection  with products  developed by the Company.  These  agreements  are for
varying  terms and provide for the payment of  royalties  or  technical  license
fees.

     While the Company considers patent protection  important to the development
of its  business,  and produces  certain  subcomponents  of its  products  under
licensing  agreements,  the Company believes that its success depends  primarily
upon its  engineering,  manufacturing  and marketing  skills.  Accordingly,  the
Company  does  not  believe  that  a  denial  of  any  of  its  pending   patent
applications,  expiration of any of its patents, a determination that any of the
patents which have been granted to it are invalid or the  cancellation of any of
its existing license  agreements  would have a materially  adverse effect on the
Company's business.

                                       8
<PAGE>

Competition

     The  telephone  equipment  market in which the  Company  does  business  is
characterized by intense competition,  rapid technological change and a movement
to private ownership of telecommunications equipment. In competing for telephone
operating  company  business,  the purchase  price of equipment  and  associated
operating  expenses have become significant  factors,  along with product design
and  long-standing  equipment  supply  relationships.  In the customer  premises
equipment  market,  the  Company is  functioning  in a market  characterized  by
distributors and installers of equipment and by commodity pricing.

     The Company  competes  directly with a number of large and small  telephone
equipment  manufacturers  in the United States,  with AT&T  continuing to be the
Company's   principal  United  States  competitor.   AT&T's  greater  resources,
extensive research and development  facilities,  long-standing  equipment supply
relationships with the operating companies of the regional holding companies and
history of  manufacturing  and marketing  products  similar in function to those
produced by the  Company  continue to be  significant  factors in the  Company's
competitive environment.

     Currently,  AT&T and a number of companies with greater financial resources
than the Company produce,  or have the design and manufacturing  capabilities to
produce,  products  competitive  with the  Company's  products.  In meeting this
competition,  the  Company  relies  primarily  on  the  performance  and  design
characteristics of its products of comparable  performance or design,  endeavors
to offer its products at prices and with  warranties that will make its products
competitive.

     In  connection  with  overseas  sales  of  its  line  connecting/protecting
equipment,  the Company has met with significant  competition from United States
and foreign  manufacturers of comparable  equipment and expects this competition
to continue. In addition to AT&T, a number of the Company's overseas competitors
have significantly greater resources than the Company.

     The Company competes directly with a limited number of substantial domestic
and international companies with respect to its sales of OSS systems. In meeting
this  competition,  the Company  relies  primarily  on the  features of its line
testing  equipment  and  endeavors  to offer such  equipment  at prices and with
warranties that will make it competitive.

Significant Customers

     Sales made to BT  amounted  to  $17,252,000,  or  approximately  28% of the
Company's 1995 sales.  Sales to Korea  Telecommunications  Authority amounted to
$7,651,000  or 13% in 1995  sales.  No  other  customers  account  for 5% of the
Company's  sales in 1995.  In  addition,  the former  Bell  operating  companies
continue to be the ultimate purchasers of a significant portion of the Company's
products sold in the United States,  while sales to foreign telephone  operating
companies  constitute  the major portion of the  Company's  foreign  sales.  The
Company's  contracts with these customers  require no minimum  purchases by such
customers.  Significant customers for the Signal Processing products include the
major US Aerospace  companies,  Department of Defense service depots and OEMs in
the medical  imaging  and process  control  equipment.  Both  catalog and custom
designed  products are sold to these  customers.  Some  contracts are multi-year
procurements.

                                       9
<PAGE>

Research and Development Activities

     During the fiscal years ended December 31, 1995, 1994 and 1993, the Company
spent approximately $6,103,000, $3,959,000, and $6,075,000, respectively, on its
research and  development  activities  (excluding  the research and  development
activities  from  discontinued  operations).  All research and  development  was
Company sponsored.

Employees

     As of March 15,  1996,  the  Company  had 354  employees  of which 139 were
employed in the United States,  144 were employed in Mexico, 28 were employed in
the United Kingdom, and 43 were employed in Korea. The Company believes that its
relations with its employees have been good, and it has never experienced a work
stoppage.  The  Company's  employees  are not  covered by  contracts  with labor
unions,  except for its hourly employees in Mexico who are covered by a contract
with the union  representing  such hourly employees that expires on December 31,
1996.

Recent Developments

Sale of Fiber Optics Business Segment

     On March 13, 1996 the Company sold the assets of its fiber optics  business
segment  to  Augat  Inc.  for   $7,893,000   and  assumption  by  the  buyer  of
approximately  $1,400,000  of certain  liabilities.  The  Company  received,  at
closing, $6,793,000. The balance was escrowed and will be released over the next
12  months  based  on  certain  conditions  being  met.  The  Company  generated
approximately  $6,500,000  of  revenue  in 1995.  The sales  proceeds  were used
primarily to reduce the Company's outstanding senior debt, with the balance used
to provide working capital for the Company's operations.

Amendment and Extension of Loan Agreement

     On March 13, 1996 the Company  amended and  extended  its Loan and Security
agreement with its senior  lender.  The term of this agreement was extended from
November  30, 1996 to November  30,  1998 and  provides  for waivers of previous
events  of  defaults.  The  agreement  additionally  provides  for a  $2,000,000
revolving  line of credit and a  $7,000,000  Letters  of Credit  and  Letters of
Credit Guarantee facility.  This facility is limited to a Borrowing Base that is
equal to 80% of eligible  accounts  receivable  and 60% of  eligible  inventory.
Interest  will be charged on all  outstanding  borrowings  (except  for  undrawn
Letters  of Credit and  Letters  of Credit  Guarantees)  at 12%.  The  agreement
requires  Facility Fees of $600,000  annually,  payable at a rate of $50,000 per
month  commencing  on  November  30,  1996  and  continuing  to  the  end of the
agreement.

     As part of the  agreement,  the  payment due on a  $2,474,000  non-interest
bearing  Deferred  Funding  Fee Note,  with  originally  scheduled  payments  of
$1,237,000,  $618,000 and  $619,000  due on November 30, 1995,  May 30, 1996 and
November  30,  1996,  respectively,  were  extended to  November  30,  1998.  In
addition,  the annual  Facility  Fee of $310,000,  due November 30, 1995,  and a
$300,000  non-interest  bearing  Net Worth  Enhancement  Fee Note  which was due
during 1995 and 1996 was also extended to November 30, 1998.

     This  agreement  calls for  amortization  of the principal of the term loan
commencing on June 30, 1997 as follows:  $250,000 each June 30, 1997,  September
30, 1997,  and on December 31, 1997,  and $325,000 each on March 31, 1998 and on
the last day of each quarter thereafter during the term of this agreement. There


                                       10
<PAGE>

is also a  provision  that  requires  the  Company  to pay  this  senior  lender
additional  principal,  beginning  with the periods  stated  above,  based on an
"Adjusted  Cash Flow Amount"  formula  calculation.  In addition,  the Agreement
includes  an interest  coverage  ratio  measured  quarterly  beginning  with the
quarter to end June 30, 1996 and to be measured each quarter of the agreement.

     This credit facility is secured by  substantially  all of the assets of the
Company.

     In connection with this agreement, the senior lender was issued warrants to
purchase  1,000,000 shares of the Company's common stock at $1 per share.  These
warrants are in addition to warrants previously issued to this senior lender.

6% Subordinated Debt Exchange Offer

     On November 30, 1995,  the Company  offered  holders of its 6%  Convertible
Subordinated Debentures due July 1, 2002, to exchange $1,000 principal amount of
such debt for 97 shares of the Company's common stock, par value $.01 per share,
and $767.22 of principal of a new Zero Coupon  Senior  Subordinated  Convertible
Note  due  January  2,  1998.  As of March  22,  1996  approximately  80% of the
outstanding  Debentures  have been  exchanged.  The Company  issued its new zero
coupon  notes and shares of Common  Stock.  This  transaction  will  improve the
Company's   balance  sheet  and  cash  flow  (see  "Management   Discussion  and
Analysis").

American Stock Exchange

     In 1995 the Company reported that it does not presently  satisfy all of the
American Stock Exchange's  financial guidelines for the continued listing of its
common stock. In the event that this situation is not remedied,  there can be no
assurance that the listing of its common stock will continue.

Item 2.  Properties

     The Company currently leases approximately 20,400 square feet of executive,
sales,  marketing and research and  development  space  located in Syosset,  New
York; 9,300 square feet of office space used for software development located in
Charlotte,   North  Carolina;  and  48,900  square  feet  of  manufacturing  and
warehousing  space at two  locations in  Kingsville,  Texas.  The Company owns a
31,000 square foot manufacturing and research and develolpment  facility located
in Glen Cove, New York.  These  facilities  represent  substantially  all of the
Company's office,  plant and warehouse space in the United States.  The Syosset,
New York lease was  extended to June 30, 1998;  the  Charlotte,  North  Carolina
lease expires in April 1997 and the Kingsville, Texas leases expire in July 1996
and December 1999. The aggregate annual rental is approximately $1,300,000.

     The Company's wholly-owned Mexican subsidiary, Porta Systems, S.A. de C.V.,
owns  its  approximately  40,000  square  foot  Matamoros,  Mexico  facility.  A
wholly-owned  subsidiary  of the Company  located in the United  Kingdom  owns a
34,261  square  foot  facility  located in  Coventry,  England,  which  facility
comprises all of the Company's  office,  plant and warehouse space in the United
Kingdom.

     The Company believes its properties are adequate for its needs.

                                       11
<PAGE>

Item 3.   Legal Proceedings

     The Company and certain of its present and former  officers  and  directors
are defendants in eight alleged class actions which have been  consolidated  and
are pending in the United States District Court for the Eastern  District of New
York. The actions allege violations of Section 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 under such Act. The plaintiffs  seek,  among
other remedies, unspecified monetary damages.

     In March 1996,  the Company  executed a Stipulation of Settlement to settle
the  class  action,  and an order of  preliminary  approval  of  settlement  was
approved by the Court. The agreement is subject to certain conditions precedent,
including the  maintenance  by the Company's  common stock of a certain  minimum
market value. The settlement, if consummated, will include a cash payment by the
Company's insurers and issuance by the Company of 1,100,000 shares of its common
stock,  to be distributed in accordance with a plan to be approved by the Court.
Under the agreement,  the Company is not required to contribute any cash towards
the proposed settlement.  The Company denies the material allegations and admits
no liability of any sort in connection  with the settlement and dismissal of the
action.  Notice of the court  hearing on the  settlement  has been sent to class
members, and the hearing is scheduled for June 7, 1996.

     The Company and its wholly-owned Mexican subsidiary, Porta Systems, S.A. de
C.V.,  were named,  together with numerous  other  entities,  as defendants in a
multi-plaintiff  lawsuit  captioned Alvear v. Leonard Electric Products Company,
et al. (Case Nos.  93-03-1354-A and  94-05-2553-A),  filed in the District Court
for  the  State  of  Texas  located  in  Cameron  County,  Texas.  The  material
allegations of the complaint charged that the defendants,  including the Company
and its  subsidiary,  had been  negligent  in their use and  handling of various
hazardous substances and that plaintiffs,  or their children, have been severely
injured and have suffered damage in unspecified amounts as a result.  Plaintiffs
have  also  requested  an  award  of  exemplary  damages.  The  Company  and its
subsidiary  agreed to settle  such  lawsuit  with the  plaintiffs  in return for
payment of a sum of $120,000 and the Partial Final Judgment with respect to such
settlement was executed by Judge Benjamin Euresti,  Jr. on November 23, 1994. An
intervention  filed by two  additional  plaintiffs by separate  counsel has been
settled with respect to one plaintiff for $2,500.  The other plaintiff cannot be
located and a motion has been filed for dismissal as to that plaintiff.

Item 4.  Submission of Matters to a Vote of Securities Holders

     During the fourth  quarter of 1995,  there were no matters  required  to be
submitted to a vote of security holders of the Company.

                                       12
<PAGE>

Item Pursuant to  Instruction 3 of Item 401 (b) of Regulation S-K:
Executive Officers of the Company as of March 31, 1996



                                                            First Elected to
Name and Position                   Age                     Position
                                   -----                    --------
Warren H. Esanu                     53                      1996                
Chairman of the Board

Edward R. Olson                     55                      1995
President,
Chief Operating Officer

William V. Carney                   58                      1988, 1989, 1990 and
Vice Chairman, Senior                                       1970, respectively
Vice President, Chief
Technical Officer and
Secretary

Michael A. Tancredi                 66                      1984 and 1978,
Vice President                                              respectively
Treasurer

Edward B. Kornfeld                  52                       1995
Vice President
Chief Financial Officer

John J. Gazzo                       53                      1984
Vice President

Prem G. Chandran                    44                      1995
Vice President

     All of the  Company's  officers  serve  at the  pleasure  of the  Board  of
Directors.  Of the executive officers listed above,  Messrs.  Esanu,  Carney and
Tancredi  are also  members  of the  Board  of  Directors.  There  is no  family
relationship between any of the executive officers listed above.

     Mr.  Esanu was elected  Chairman of the Board in March 1996.  He has been a
director  of the  Company  since 1989.  Mr.  Esanu will  continue to serve as of
counsel to Esanu  Katsky  Korins & Siger,  a position  he has held for more than
five years.  Esanu Katsky Korins & Siger is general counsel to the Company.  Mr.
Esanu is also a founding partner and Chairman of Paul Reed Smith Guitars Limited
Partnership  (Maryland),  a leading  manufacturer of  premium-priced  electrical
guitars.  He is also a senior  officer  and  director of a number of real estate
management  companies.  Mr.  Esanu  devotes  only a  portion  of his time to the
Company.

     Mr. Olson was elected  President and Chief Operating Officer of the Company
in  November  1995.  Mr.  Olson is also one of the  principals  of KPMG  BayMark
Strategies  LLC. Mr. Olson continues in this position while serving as President
and  Chief  Operating  Officer  of the  Company.  Prior  to 1994 Mr.  Olson  was
president of Ed Olson  Consulting  Group Ltd. for  approximately  five years. In


                                       13
<PAGE>

addition,  Mr.  Olson is a member of the Board of  Directors  and/or  officer of
various other corporations.  Mr. Olson devotes only a portion of his time to the
Company.

     Mr. Carney has been  Secretary and director  since 1970 and has been Senior
Vice  President  since November 1989 and Chief  Technical  Officer from December
1990.  He was  elected  Vice  Chairman  in  January  1988.  He was  Senior  Vice
President-Mechanical  Engineering  from  January  1988 to November  1989 and was
Senior Vice  President-Manufacturing  from March 1984 to February  1985,  Senior
Vice  President-Operations  from June 1977 to February  1984 and Vice  President
from 1970 to June 1977.

     Mr.  Tancredi has been Vice  President  since March 1984,  Treasurer  since
April 1978 and Director  since 1970.  He was Vice  President  from April 1978 to
February 1984 and Comptroller from April 1971 to March 1978.

     Mr.  Kornfeld  was  elected a Vice  President-Finance  and Chief  Financial
Officer of the Company in October 1995.  Prior to his election to this position,
Mr.  Kornfeld held  positions  with several  companies for more than five years,
including Excel Technology Inc. (Quantronix Corp.) and Anorad Corporation.

     Mr. Gazzo has been Vice President-Marketing of the Company since April 1993
and was general manager of its Porta Electronics  Division from November 1989 to
April 1993; he was the Company's Vice  President-Research  and Development  from
March 1984 to November  1989 and was Vice  President-Engineering  from  February
1978 to February 1984. Prior to that time, he was Chief Engineer of the Company.

     Mr. Chandran was elected an officer in December 1995. Mr. Chandran had been
with the Company as Assistant Vice President of Engineering since 1991. Prior to
1991, he was Vice President of Engineering of North Hills Electronics,  acquired
by the Company in 1991, for more than five years.




                                       14
<PAGE>

                                    Part II

Item 5.  Market for Registrant's Common Equity and Related
Stockholder Matters

     The Company's  Common Stock is traded on the American Stock Exchange,  Inc.
under the symbol PSI. The following table sets forth,  for the period January 1,
1994 through  December 31, 1995, the quarterly high and low sales prices for the
Company's Common Stock on the  consolidated  transaction  reporting  systems for
American Stock Exchange listed issues.

                                             High             Low
                                             ----             ---
1994
         First Quarter                      12  3/4          9  7/8
         Second Quarter                     10  7/8          9  3/4
         Third Quarter                       8  7/8          6
         Fourth                              6  3/4          4  1/2

1995     First Quarter                       6  1/4          3  3/8
         Second Quarter                      4  5/8          2  5/8
         Third Quarter                       4  3/8          1
         Fourth Quarter                      2  1/2             5/8


     The Company did not declare or pay any cash  dividends in 1995 or 1994.  It
is the present  policy of the  Company to retain  earnings to finance the growth
and  development of the business and therefore,  the Company does not anticipate
paying  cash  dividends  on its  Common  Stock  in the  foreseeable  future.  In
addition,  the  Company's  Amended  and  Restated  Loan and  Security  Agreement
prohibits the Company from paying cash dividends on its Common Stock.

     As of March 15,  1996,  the number of  holders  of record of the  Company's
Common Stock was 593.

Item 6.  Selected Financial Data

     The following  table sets forth  certain  selected  consolidated  financial
information  of the  Company.  For  further  information,  see the  Consolidated
Financial  Statements and other information set forth in Item 8 and Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations  set
forth in Item 7:

                                       15
<PAGE>

                                              Year Ended December 31,
<TABLE>
<CAPTION>

                                1995          1994         1993        1992         1991
                                ----          ----         ----        ----         ----
                                          (In thousands, except per share data)

<S>                          <C>          <C>          <C>          <C>          <C>      
Income Statement
Data:
   Sales                     $  61,181    $  68,985    $  68,141    $  68,993    $  81,957
   Operating
      income (loss)            (19,884)     (17,541)      (3,916)     (11,466)       8,971

   Income (loss) be-
      fore discontin-
      ued operations
      and  extraordinary
      item                     (29,297)     (39,995)      (7,493)      (8,539)       6,930
   Net Income
      (loss)                   (31,041)     (39,995)      (9,545)     (14,977)       8,498
   Income (loss)
      per share from
      continuing
      operations             $   (4.01)   $   (5.61)   $   (1.08)   $   (1.24)   $    1.06
   Cash dividends
      declared                    --           --           --           --           --
   Number of shares
   used in calcu-
   lating net in-
   come (loss) per
   share                         7,307        7,133        6,909        6,890        6,555
Balance Sheet
Data:
   Total Assets              $  60,591    $  84,963    $ 109,948    $ 130,345    $ 107,303
   Long-term debt
   excluding current
   maturities                $  55,389    $  57,310    $  49,931    $  34,205    $  20,430

   Stockholders' (deficit)
   equity                    ($ 29,323)   $   1,525    $  39,841    $  49,486    $  65,809


</TABLE>

                                       16
<PAGE>

Item 7.  Management Discussion and Analysis of Financial
Condition and Results of Operations.

     The Company's  consolidated  statements  of operations  for the three years
ended December 31, 1995 as a percentage of sales follows:

                                  Ended December 31,

                                     1995     1994     1993
                                     ----     ----     ----

Sales                                100%     100%     100%
Cost of sales                         92%      90%      73%
                                    ----     ----     ----
  Gross Profit                         8%      10%      27%
Selling, general and
administrative expenses               27%      29%      24%
Research and development expenses     10%       6%       9%
Litigation settlement                  2%      --       --
Writedown of net assets sold           1%      --       --
   Operating loss                    (33%)    (25%)     (6%)
Interest expense                     (14%)     (8%)     (7%)
Interest income                       --       --       --
Other                                 (1%)     (3%)     (4%)
                                             ----     ----
Loss from continuing
   operations before income
   taxes and minority interest       (47%)    (36%)    (17%)
Income tax (benefit) expense        --         22%      (6%)
                                    ----     ----     ----
Loss before discontinued
   operations                        (48%)    (58%)    (11%)
Provision for loss on disposal
   of discontinued operations          6%    --         (3%)
Extraordinary gain on early
extinguishment of debt                 3%    --       --
                                    ----     ----     ----


Net loss                             (51%)    (58%)    (14%)
                                    ----     ----     ----


                                       17
<PAGE>

Financial Condition

     The Company's working capital changed from $13,700,000 at December 31, 1994
to a working  capital  deficit of  $8,200,000 at December 31, 1995. At September
30,  1995,  the  Company  had a working  capital  deficit  of  $48,900,000.  The
improvement in working  capital from  September 30, 1995 primarily  results from
the following transactions regarding the Company's debt:

     In March 1996,  the Company's  loan and security  agreement with its senior
secured lender, Foothill Capital Corporation ("Foothill"), was amended. Pursuant
to the amendment,  the Company's obligations were extended from November 1996 to
November  1998 and  defaults  at  December  31, 1995 and through the date of the
amendment,  were waived by Foothill. As a result, the Company's  indebtedness to
Foothill, which was reflected as a current liability of $26,500,000 at September
30, 1995,  is treated as a long-term  liability of  $26,600,000  at December 31,
1995.

     In addition, as a result of a default under the interest payment provisions
of the Company's 6%  Subordinated  Debentures due 2002 (the  "Debentures"),  the
Company's   obligations  under  the  Debentures,   which  were  reflected  as  a
$32,000,000  current  liability  at  September  30,  1995,  would have also been
reflected as a current liability at December 31, 1995.  However,  as a result of
an exchange offer (the "Exchange  Offer") which,  as of March 22, 1996, had been
accepted by the holders of approximately 80% of the outstanding Debentures,  the
Company  issued its new zero coupon  notes due January 2, 1998 (Note) and shares
of common  stock in  exchange  for  Debentures.  The Company is  classifying  as
current  liabilities at December 31, 1995,  $6,600,000 of Debentures  which have
not been exchanged,  and the $25,700,000 of Debentures  exchanged as a long-term
liability, consistent with the payment terms of the Notes.

     As a result of the Exchange Offer, as of March 22, 1996, the Company issued
its new zero coupon notes in the aggregate  principal  amount of $22,000,000 and
issued  2,800,000  shares of Common  Stock in  exchange  for  Debentures  in the
principal  amount of  $28,700,000.  As of such  date,  the  principal  amount of
Debentures  outstanding was $6,600,000.  The Company is in default on payment of
interest on the Debentures which were not exchanged.  The Company has no past or
ongoing interest  obligation with respect to either the new zero coupon notes or
the Debentures which were exchanged. The aggregate annual interest obligation on
the Debentures  which had not been converted at March 22, 1996 is  approximately
$440,000,  as compared with the $2,200,000  aggregate annual interest obligation
with  respect to the  Debentures  which were  outstanding  prior to the Exchange
Offer.

     On March 13, 1996, the Company  consummated an agreement  pursuant to which
it sold certain assets and the buyer assumed  certain  liabilities and severance
obligations  related to the operations of the Company's fiber optics  management
and component business. Accordingly, at December 31, 1995, the net assets of the
fiber  optics  business  are  reflected  as "assets  held for sale,  net" at net
realizable  value,  based on the terms of the sale.  The net assets of the fiber
optics  business  were  sold  for  a  total  purchase  price  of   approximately
$8,000,000,   of  which  $1,100,000  is  held  in  escrow,  subject  to  certain
conditions, plus the assumption of approximately $1,400,000 in liabilities.  The
proceeds  were  applied to reduce  the  Company's  obligations  to  Foothill  in
accordance with the March 1996 amendment to the Foothill agreement.

     The sale of the fiber optics  business  benefited  the Company in two ways.
First the sale of this  business  enabled the  Company to close two  facilities,
with a resultant decrease in personnel and overhead costs, the benefits of which
are expected to be realized  commencing with the second quarter of 1996. Second,


                                       18
<PAGE>

the sale enabled the Company to amend and extend its agreement with Foothill, as
described above, and make a significant  payment to Foothill,  which reduces its
ongoing interest costs.

     The Company's  obligations to Foothill are secured by substantially  all of
the assets of the Company and its subsidiaries.  The agreement with Foothill was
extended  for two  years,  and the  Company  is no longer in  default  under its
agreement  with Foothill.  The agreement  with Foothill  requires the Company to
continue  to  meet  certain  financial  covenants.  See  Note  11  of  Notes  to
Consolidated Financial Statements.

     Inventory was reduced from  $20,100,000  at December 31, 1994 to $9,000,000
at December 31, 1995. This decrease resulted from an inventory reduction program
during 1995 and a $1,800,000 increase in the reserve for slow-moving or obsolete
inventory  at  December  31,  1995.  In  addition,  as a result of its  illiquid
condition,  certain vendors ceased shipping to the Company while others required
cash before delivery or cash on delivery. In addition, the inventory relating to
the Company's  fiber optics  business,  amounting to $1,400,000,  is included in
"Assets held for sale" at December 31, 1995.

     Capital expenditures in 1995 were $1,479,000. The Company does not have any
significant commitments at December 31, 1995 to acquire fixed assets.

     The Company's  liquidity problems have resulted in increased cost of sales,
resulting in lower gross profits. The gross margin for 1995 is 8%, and the gross
profit of  $4,700,000 is  significantly  less than either  selling,  general and
administrative  expenses of $16,600,000 and research and development expenses of
$6,100,000.  Accordingly, without a significant reduction of cost of goods sold,
the Company will not be able to operate  profitably.  To address this situation,
the Company has consummated  the above  transactions in 1996 to reduce costs and
is reviewing options to reduce other costs and operating expenses.

     The Company  continues  to require  cash for its  operations.  Foothill has
provided  the Company  with funds to meet its  immediate  cash  needs.  However,
unless the Company can reverse the negative trends in its operations,  it may be
unable to obtain cash from any sources, including Foothill. Although the Company
has no plans to sell any of its remaining operations,  no assurance can be given
that it will not be  necessary  for the  Company  to do so.  The  failure of the
Company  to obtain  cash when  needed is likely to  continue  to have an adverse
effect on its business.

Results of Operations

Years Ended December 31, 1995 and 1994

     The  Company's  continued  shortage  of working  capital has had a material
adverse  effect  upon its  operations  during  1995.  The effects of the working
capital shortage were compounded by the Company's defaults during 1995 under its
agreement with Foothill,  which resulted in curtailment of certain  advances and
letter of credit facilities.  Although the defaults were waived as a result of a
March 1996 amendment to the agreement  with  Foothill,  during most of 1995, the
Company was in default  under its agreement  with  Foothill.  Although  Foothill
provided  the  Company  with cash to meet its  immediate  needs,  its failure to
provide additional  advances and letter of credit facilities  adversely affected
the  Company's  operations.  In March 1996,  the Company  sold its fiber  optics
business.  Substantially  all of the proceeds  from the sale were used to reduce
the Company's obligations to Foothill.

                                       19
<PAGE>

     The  Company's  sales for 1995  decreased  by 11% from 1994  sales,  as the
Company experienced  continuing  liquidity problems which adversely affected the
Company's  operations.  Sales of OSS products were  $29,000,000,  a 35% increase
from OSS sales of  $21,500,000  in 1994,  principally  as a result of  increased
sales to BT and sales in the Asian market.  Sales of copper connection  products
decreased by  $8,200,000,  or 29%, from  $28,600,000  in 1994 to  $20,400,000 in
1995.  The reduction in such sales reflects a reduction in sales to Telefonos de
Mexico,  which  accounted for sales of $4,600,000 in 1994 and virtually no sales
in 1995, a $1,600,000 reduction in sales of copper connection products to BT, as
well as the effects of reduced  production  resulting from the Company's working
capital problems.  The Company believes that the significantly  reduced sales to
Telefonos de Mexico is due in part to the continuing  Mexican  financial crisis.
However,  no assurance can be given that any  improvement in the Mexican economy
will result in increased sales of the Company's products.

     Sales of  fiber  optics  products  declined  by  $5,700,000,  or 47%,  from
$12,200,000  in 1994 to $6,500,000 in 1995.  The decline  reflects the Company's
inability  to  produce  fiber  optics  products  as a  result  of its  financial
problems,  as the Company  allocated  its resources  principally  to the OSS and
copper  connection  businesses.  This allocation of resources also reflected the
Company's  decision  late in 1995 to sell the fiber  optics  business.  Sales of
fiber optics products in the fourth quarter of 1995 were less than $1,000,000.

     Sales from signal  processing  products,  representing  approximately 8% of
1995 sales, were also hampered by the Company's ongoing financial difficulties.

     Cost of sales in 1995,  as a percentage of sales,  increased  slightly from
1994, from 90% of sales in 1994 to 92% of sales in 1995. As a result of the high
cost of sales, the gross profit for 1995 was $4,700,000, which was significantly
less  than  selling,  general  and  administrative  expenses  and  research  and
development  expenses.  The high cost of sales  reflected  (i) a lower volume of
sales,  (ii) the inability of the Company to purchase  efficiently and to obtain
materials from certain suppliers,  (iii) the under-absorption of overhead costs,
(iv)  modification  of inventory in order to fulfill  customer  orders,  and (v)
significant  writedown of fiber optics  inventory  reflecting  the value of such
inventory  in  connection  with the sale of the fiber  optics  business in March
1996. In addition,  as part of the Company's ongoing evaluation of its inventory
and based on its 1995  level of  sales,  the  Company  increased  its  inventory
reserve by approximately $1,800,000 for slow-moving or obsolete inventory. Steps
taken to reduce  manufacturing  labor costs by reductions in direct and indirect
manufacturing personnel were not implemented until late in the second quarter of
1995 and are  reflected in cost of sales in the third and fourth  quarters.  The
reduction of facility,  personnel and overhead  costs from the sale of the fiber
optics business will first be reflected in the second quarter of 1996.

     Selling,  general and administrative  expenses decreased by $3,400,000,  or
17%, from  $20,000,000  in 1994 to  $16,600,000  in 1995.  The expense  decrease
reflects the Company's  efforts to reduce  personnel costs, as well as a reduced
level of sales and  marketing  activities.  To some  extent,  the effects of the
personnel reduction were offset by severance costs incurred during 1995.

     Research and development expenses increased by $2,100,000,  from $4,000,000
in 1994 to $6,100,000 in 1995, or 53%. The increase reflected a reduction in the
amount of software development costs which qualified for capitalization.

     In 1995, the Company incurred expenses of $1,100,000,  reflecting the value
of the  Company's  common  stock to be issued as a result of the  settlement  of


                                       20
<PAGE>

class  actions.  See "Item 3. Legal  Proceedings."  In  addition,  in 1995,  the
Company wrote down the net assets of its fiber optics business to net realizable
value to reflect the price at which the assets were sold in March 1996.

     As a result of the  foregoing,  the Company  sustained an operating loss of
$19,900,000, an increase of 14% from the operating loss of $17,500,000 in 1994.

     Interest expense increased  $2,900,000,  or 52%, from $5,600,000 in 1994 to
$8,500,000  in 1995.  The increase in interest  expense  reflects  substantially
higher  average  interest  rates and  increased  borrowings  under the Company's
agreement with Foothill as compared with the interest rate and borrowings  under
the Company's prior agreement with Chemical Bank. Although most of the increased
borrowings  reflect  additional  borrowings  for  operations,  $2,500,000 of the
additional  borrowings  result from the  purchase  by the Company of  Debentures
which were purchased  from Foothill in connection  with the March 1995 amendment
to the Foothill agreement.

     Other expenses of approximately  $900,000 include costs associated with the
modification  of the  Company's  agreement  with  Foothill in March 1995.  Other
expenses in 1994 related to the restructuring of the Company's secured debt when
Foothill  took over  Chemical  Bank's note from the Company and the terms of the
financing were modified.

     Income tax expense for 1995 was nominal,  reflecting primarily offshore and
Delaware  corporate  taxes.  The  $14,900,000  tax expense in 1994  results from
providing a valuation allowance for deferred income taxes.

     The $3,500,000  loss from the sale of  discontinued  operations  reflects a
reduction in the amount of the expected recovery from the sale by the Company in
1993 of its Israeli  subsidiaries  which were engaged in the manufacture of data
communications   connecting  equipment.  As  a  result  of  a  receivership  and
liquidation  proceedings  involving  the  purchaser  of  the  subsidiaries,  the
estimated recovery from the sale of such operations was reduced from $4,500,000,
which was the estimated  recovery at December 31, 1994, to $1,000,000,  which is
the estimated recovery at December 31, 1995.

     In connection  with the February 1995 amendment to the Company's  agreement
with  Foothill,  the Company  repurchased  from Foothill and retired  $3,900,000
principal amount of Debentures for approximately  $2,500,000 through an increase
of $3,000,000 in the term loan to Foothill and the repricing of certain warrants
granted to  Foothill.  The Company  recorded an  extraordinary  item,  a gain of
$1,800,000  million  on early  extinguishment  of this  debt,  representing  the
difference  between the book value of the debt and the approximate  market value
of the debt on the date of the transaction.

     As a result of the foregoing,  the Company sustained a loss from continuing
operations in 1995 of  $29,300,000,  or $4.01 per share, as compared with a loss
from  continuing  operations in 1994 of $40,000,000,  or $5.61 per share.  After
giving  effect to the loss on sale of  discontinued  operations  and the gain on
early  extinguishment  of debt, the Company sustained a net loss of $31,000,000,
or $4.25 per share,  for 1995,  as compared with a net loss of  $40,000,000,  or
$5.61 per share, in 1994.

     In  March  1996,  the  Company  sold the net  assets  of its  fiber  optics
business,  amended its agreement with Foothill and reduced its  indebtedness  to
Foothill.  In  addition,  through  March 22, 1996,  the Company  issued its zero
coupon notes in the principal  amount of $22,000,000 and issued 2,800,000 shares
of Common Stock in exchange for $28,800,000  principal  amount of Debentures and
accrued  interest of $1,600,000  at December 31, 1995,  pursuant to the Exchange
Offer.  These  transactions  enabled  the Company to reduce its  facilities  and


                                       21
<PAGE>

personnel  expenses,  reduce the  indebtedness  to Foothill  and reduce  ongoing
interest costs. The effects of these transactions will not be realized until the
second quarter of 1996. However,  the benefits to the Company from the reduction
in operating costs,  including  reductions  resulting from the sale of the fiber
optics business, and the reduced interest expense will not enable the Company to
operate  profitably unless it is able to significantly  reduce its cost of goods
sold or increase its sales margins and reduce its general overhead,  as to which
no assurance can be given.

Years Ending December 31, 1994  and 1993

     Sales from continuing  operations for the full year ended December 31, 1994
compared  to 1993 were up 1%  primarily  due to  increased  sales in each of the
first three  quarters  of 1994  compared  to the  similar  periods of 1993.  The
Company's sales from  continuing  operations for the fourth quarter of 1994 were
substantially below expectations,  notwithstanding  adequate backlog, due to the
continuation  of the shipment  delays caused by persistent  and worsening  parts
shortages  associated  with the reductions in borrowing  availability  under the
Company's  borrowing  agreement with its Senior Lender,  and a product mix which
resulted in shipment of lower priced and  margined  products.  In addition,  the
Company's fourth quarter 1994 OSS sales were generally and adversely impacted by
the intercreditor  disagreement which resulted in the Company allocating working
capital toward product  manufacture in connection  with the contract in order to
fulfill  its  agreement  with its  customer  and  slowing  performance  on other
contracts in the field due to resulting scarce working capital resources.

     Sales of OSS  equipment  during  the year  ended  December  31,  1994  were
$21,500,000  compared to  $17,700,000 in 1993, an increase of 21%, due primarily
to increased sales during 1994 by the Company's Korean joint venture subsidiary.
While sales of fiber  optic  connection/protection  products  for the year ended
December 31, 1994 increased to $12,151,000 compared to $8,854,000 in 1993, sales
of fiber optic connection/protection  products during the fourth quarter of 1994
were  adversely  affected  by the  reductions  in working  capital  availability
discussed above.  Sales of copper  connection/protection  products decreased 16%
during the year ended December 31, 1994 compared to 1993 due in part to shipment
delays  caused by  persistent  parts  shortages  during the three  months  ended
September  30, 1994 (which  accelerated  in the three months ended  December 31,
1994)  resulting from the reductions in working capital  availability  under the
Restated Credit Agreement,  as well as the inability of a supplier to ship parts
meeting quality  standards  required by the Company.  While shipments to British
Telecommunications  plc had fallen  during the three months ended  September 30,
1994, the Company was able to increase its shipments to this customer during the
fourth quarter of 1994. The Company's backlog for copper products  significantly
increased during this period due to increased  orders for these products.  Also,
the Company's  sales to Telefonos de Mexico,  which were  denominated in Mexican
pesos and which were  expected to be  approximately  the same in 1994 as in 1993
but more evenly  distributed  over all four quarters of the year, were adversely
affected in early December 1994 by the Mexican  economic crisis which caused the
Company  to   temporarily   halt   shipments  to  Telefonos  de  Mexico  pending
negotiations  with  Telefonos  de  Mexico to  determine  the  increased  pricing
consequences of such economic crisis. Sales of other products,  primarily Signal
Processing  products,  in the year ended December 31, 1994 were slightly  higher
than sales during 1993 although  sales of other products in the third and fourth
quarters of 1994 were also somewhat  affected by the operational  inefficiencies
resulting from the reductions in working capital availability.

     The dollar  amount of cost of sales for the year ended  December  31,  1994
increased approximately  $13,000,000 or 26% compared to 1993. Cost of sales as a
percentage  of sales for the year  ended  December  31,  1994  compared  to 1993


                                       22
<PAGE>

increased to 91% from 73%. The dollar  amount of cost of sales for the third and
fourth  quarters  of 1994  compared  to the  similar  periods of 1993 and to the
Company's  historical  cost of  sales  experience  were  particularly  high  and
negatively  impacted the entire year's results due to the unfavorable  impact on
the  Company's   operational   costs  of  the  reductions  in  working   capital
availability  under the Restated Credit  Agreement,  the effect of the Company's
concentrated  effort to reduce inventories and the sale of lower margin products
in order to generate cash  internally  to address such  reductions in externally
available  working  capital.  In addition,  the substantial  contribution of the
Company's joint venture in Korea, which sells lower margin OSS products,  to OSS
equipment  sales tended to increase cost of sales as a percentage of sales.  The
Company's   operational  costs  were  additionally   affected  by  manufacturing
inefficiencies  resulting from materials  shortages,  smaller  productions runs,
higher per unit  purchasing  and freight  costs as well as increased  numbers of
employees and idle labor  manufacturing time and maintenance of a fixed level of
expenses  associated  with the support of a higher level of OSS equipment  sales
than actually resulted in 1994. While the Company's effort to reduce inventories
resulted in increased  cash flow in the third and fourth  quarters of 1994,  the
consequences  of this  effort  was  higher  labor  costs  related  to  rework of
inventory and reduced  margins  associated  with the sale of certain slow moving
inventory at  unfavorable  prices.  Also,  the  Company's  aggressive  inventory
reduction program caused it to conclude, after sales of such inventory,  that no
easily  accessible  and  significant  market  remained for certain of its copper
products  in the  markets  traditionally  accessed  by the  Company or which the
Company  would  reasonably  be  able  to  access  in the  near  term  given  the
restructuring  and cost cutting  moves  described  elsewhere.  Accordingly,  the
Company  determined  to  make a  $2,000,000  provision  for  such  products.  In
addition, the Company has made a provision for approximately  $2,000,000 of high
density frames which it has in stock due to its discovery that such high density
frames contain defective parts sold to it by a vendor.  The Company is presently
considering  taking  action  against such vendor to recoup its losses  resulting
from such defective parts.

     The dollar amount of selling,  general and  administrative  expenses in the
year ended December 31, 1994,  increased by 22% compared to 1993, while selling,
general and  administrative  expenses as a percentage of sales  increased by 20%
during the year ended December 31, 1994 compared to 1993.  Selling,  general and
administrative  expenses  were  significantly  higher during the last quarter of
1994 compared to 1993 due to the costs of servicing its Asia/Pacific marketplace
and  selling  associated  with the  European  market and  commission  costs.  In
addition,  the impact of certain one time costs  associated  with the pursuit of
substitute financing, the costs of defense of certain lawsuits which the Company
was  defending  during these periods and the costs of settlement of one of these
lawsuits increased selling,  general and administrative expenses during the year
ended December 31, 1994.

     Research  and  development  expenses  for the year ended  December 31, 1994
compared  to 1993  decreased  significantly,  both as a dollar  amount  and as a
percentage  of sales,  in part because of a reduction in staff and related costs
due  primarily  to the  consolidation  of research  and  development  activities
previously  conducted  separately by companies  acquired in prior periods and in
part because of lower research and  development  requirements  for the Company's
more mature products.

     The  Company's  operating  loss for the year  ended  December  31,  1994 is
primarily  attributable  to a number of factors,  including  a shortfall  in the
volume  of sales,  a cost  structuring  for a much  larger  level of  sales,  an
inability  to adjust  the  organization  to deal with the sales  shortfall,  the
reductions in availability of working capital,  inventory reduction program, and
transaction  costs  related to both the Restated  Credit  Agreement  and the New
Credit Agreement.

                                       23
<PAGE>

     The  Company's  operating  loss for the year ended  December  31,  1993 was
$3,916,000  and  reflected  an improving  operational  trend during the last six
months of the year. A substantial  portion of this operating loss was due to low
volumes of production in comparison to manufacturing capacity, as well as, costs
associated with strategic investments in OSS and fiber optic areas being made by
the Company.  In addition,  and consistent with the Company's cost of sales, the
mix of product sales contributed to the extent of the loss.

     Interest  expense for the year ended  December  31,  1994  compared to 1993
increased due to higher  average  interest  rates  although such higher  average
rates were  offset by a  slightly  lower  borrowing  level  during  most of 1994
compared to 1993. Interest expenses increased substantially during 1993 compared
to 1992 due to  substantially  increased  debt  used to  finance  the  Company's
operating  losses and a full year's interest on the 6% Convertible  Subordinated
Debentures.

     As reported,  other  expenses for the year ended December 31, 1994 compared
to 1993 decreased.  However,  such 1994 expenses  included various advisory fees
required as a result of the  Company's  relationship  with its lending banks and
fees related to the costs of the Company's financing with both its lending banks
and its new senior lender,  which were partially offset by a $ 313,000 gain from
the satisfaction of the bank obligations.

     Other  expenses  for the year ended  December  31,  1993 are  predominantly
comprised of various  advisory fees relating to the negotiation and finalization
of the  Restated  Credit  Agreement  as well as fees  related  to the  Company's
unsuccessful efforts to acquire a telecommunications  manufacturing  business of
another company.

     The Company adopted Financial Accounting Standard No. 109 effective January
1, 1992 and, as of December  31,  1993,  had  recognized a deferred tax asset of
$13,955,000,   principally   relating  to  the  Company's  net  operating   loss
carryforwards.  In the third quarter of 1994, the Company,  after  reviewing the
deferred  tax asset in the context of its results of  operations  for such third
quarter,  recorded a valuation  allowance in the entire  amount of such deferred
tax asset,  which is  included  in 1994  income tax  expense.  As a result,  the
Company  recorded  income tax expense of $14,920,000 for the year ended December
31,  1994  compared  to income tax benefit of  $3,885,000  in 1993,  principally
relating to operating losses for United States income tax purposes. The decision
to record such valuation  allowance in 1994 was based on the criteria  contained
in  Financial  Accounting  Standard  No.  109,  generally  requiring a valuation
allowance when  cumulative  losses have been  experienced and there is a lack of
sufficient objective offsetting evidence to conclude that it is more likely than
not that the deferred tax asset will be utilized.

New Accounting Standards

     In October 1995,  the Financial  Accounting  Standards  Board (FASB) issued
Statement No. 123,  "Accounting  for  Stock-Based  Compensation",  which must be
adopted by the Company in 1996.  The Company  has elected not to  implement  the
fair value based accounting  method for employee stock options,  but has elected
to disclose, commencing in 1996, the pro-forma net income and earnings per share
as if such method had been used to account for stock-based  compensation cost as
described in the Statement.

     In March 1995,  The FASB issued  Statement  No.  121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of,"
which must also be adopted by the Company in 1996.  The effect of adopting  this
standard will be insignificant.

                                       24
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                   PORTA SYSTEMS CORP.
                                   (Registrant)


                                   By Warren H. Esanu
                                      ---------------
                                      Warren H. Esanu
                                      Chairman of the Board

Date:  April 1, 1996

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

                                   Date
                                   ----
Warren H. Esanu                    April 1, 1996
- ----------------
Warren H. Esanu
Chairman of the Board
and Director


Edward R. Olson                    April 1, 1996
- ---------------
Edward R. Olson
President


Edward B. Kornfeld                April 1, 1996
- ------------------
Edward B. Kornfeld
Vice President and
Chief Financial and
Accounting Officer


Howard D. Brous                   April 1, 1996
- ---------------
Howard D. Brous
Director


William V. Carney                 April 1, 1996 
- -----------------
William V. Carney
Director

                                       25
<PAGE>

                                  Date
                                  ----
Herbert H. Feldman                April 1, 1996
- ------------------
Herbert H. Feldman
Director


Stanley Kreitman                  April 1, 1996
- ----------------
Stanley Kreitman
Director


Michael A. Tancredi               April 1, 1996
- -------------------
Michael A. Tancredi
Director



                                       26
<PAGE>

Item 8.   Financial Statements and Supplement Data

Index                                                                      Page

Independent Auditor's Report ............................................   F-1

Consolidated Financial Statements and Notes:
     
     Consolidated Balance Sheets,
       December 31, 1995 and 1994 .......................................   F-2

     Consolidated Statement of Operations for the Years Ended
       December 31, 1995, 1994 and 1993 .................................   F-3

     Consolidated Statements of Stockholders' Equity for the
       Years Ended December 31, 1995, 1994 and 1993 .....................   F-4

     Consolidated Statements of Cash Flows for the Years Ended
       December 31, 1995, 1994 and 1993 .................................   F-5

     Notes to Consolidated Financial Statements .........................   F-6



Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure.

 None.

                                       27
<PAGE>

                                    PART III


Item 14.  Exhibits, Financial Statement Schedules and Reports on
          Form 8-K.

(a)  Documents filed as part of this Annual Report on Form 10-K:

     (i)  Financial Statements.

          See Index to Consolidated Financial Statements under
          Item 8 hereof.

     (ii) Financial Statement Schedules.

            None

     Schedules not listed above have been omitted for the reasons that they were
inapplicable or not required or the information is given elsewhere in the
financial statements.

     Separate financial statements of the registrant have been omitted since
restricted net assets of consolidated subsidiaries do not exceed 25% of
consolidated net assets.

     (b)  Reports on Form 8-K.

          A current report on Form 8-K dated November 30, 1994 was filed.




                                       28
<PAGE>

(c)  Exhibits

Exhibit No.    Description of Exhibit

   3.1    Certificate  of  Incorporation  of the  Company,  as  amended to date,
          incorporated  by  reference to Exhibit  4(a) of the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 1991.

   3.2    Certificate  of  Designation  of  Series B  Participating  Convertible
          Preferred Stock.

   3.3    By-laws of the Company, as amended to date.

   4.1    Amendment dated as of December 16, 1993 to the Warrant Agreement among
          the  Company,  Aster  Corporation  and  Chemical  Bank as successor to
          Manufacturers Hanover Trust Company as Warrant Agent,  incorporated by
          reference to Exhibit 4.2 of the  Company's  Annual Report on Form 10-K
          for the year ended December 31, 1993.

   4.2    Form of Rights  Agreement,  dated as of March  22,  1989  between  the
          Company and  Manufacturers  Hanover  Trust  Company,  as Rights Agent,
          incorporated by reference to the Company's  Registration  Statement on
          Form 8-A dated April 3, 1989.

   4.2.1  Amendment No. 1 to Rights  Agreement,  dated July 28, 1993 between the
          Company and Chemical  Bank (as  successor  by merger to  Manufacturers
          Hanover Trust Company), as Rights Agent,  incorporated by reference to
          the  Company's  Registration  Statement  on Form 8-A/A filed August 4,
          1993.

   4.3    Warrant issued to Aspen Grove Financial Corporation to Purchase 87,500
          Shares of Common  Stock  dated as of June 13,  1994,  incorporated  by
          reference to Exhibit 4(d) to the  Company's  Quarterly  Report on Form
          10-Q for the quarter ended June 30, 1994.

   4.4    Warrant  issued to Banque  Scandinave  en Suisse to  Purchase  100,000
          shares of Common  Stock  dated as of June 13,  1994,  incorporated  by
          reference to Exhibit 4(f) to the  Company's  Quarterly  Report on Form
          10-Q for the quarter ended June 30, 1994.

   4.5    Stock  Option  Agreement  dated as of May 15, 1994 between the Company
          and Stanley Kreitman, incorporated by reference to Exhibit 4(a) to the
          Company's Quarterly Report on Form 10-Q for the

                                       29
<PAGE>

          quarter ended September 30, 1994.

   4.6    Amended and Restated Loan and Security  Agreement dated as of November
          28,  1994,  between  the  Company and  Foothill  Capital  Corporation,
          incorporated by reference to Exhibit 2 to the Company's Current Report
          on Form 8-K dated November 30, 1994.

   4.7    Amendment  Number  One dated  February  13,  1995 to the  Amended  and
          Restated  Loan and  Security  Agreement  dated as of November 28, 1994
          between the Company and Foothill Capital Corporation.

   4.7.1  Letter Agreement dated as of February 13, 1995.

   4.7.2  Amendment  Number Two dated March 30, 1995 to the Amended and Restated
          Loan and Security  Agreement dated as of November 28, 1994 between the
          Company and Foothill Capital Corporation.

   4.7.3  Waiver of Default dated March 30, 1995.

   4.8    Secured Promissory Note dated November 28, 1994 made by the Company in
          favor of Foothill  Capital  Corporation,  incorporated by reference to
          Exhibit 4 to the Company's  Current  Report on Form 8-K dated November
          30, 1994.

   4.9    Amended and Restated Secured Promissory Note dated February 13, 1995.

   4.10   Deferred  Funding Fee Note dated November 28, 1994 made by the Company
          in favor of Foothill Capital Corporation, incorporated by reference to
          Exhibit 5 to the Company's  Current  Report on Form 8-K dated November
          30, 1994.

   4.11   Amendment  Number  Three to Amended  and  Restated  Loan and  Security
          Agreement  dated March 12,  1996,  between  the  Company and  Foothill
          Capital Corporation.

   4.12   Warrant to Purchase  Common  Stock of the Company  dated  November 28,
          1994 executed by the Company in favor of Foothill Capital Corporation,
          incorporated by reference to Exhibit 6 to the Company's Current Report
          on Form 8-K dated November 30, 1994.

   4.12.1 Amendment  Number  One to  Warrant  to  Purchase  Common  Stock of the
          Company dated as of February 13, 1995 executed by the Company in

                                       30


<PAGE>

          favor of Foothill Capital Corporation.

   4.13   Assignment of Loans,  Liens and Loan Documents dated November 28, 1994
          between  Chemical  Bank,  The  Bank  of  New  York,  Foothill  Capital
          Corporation,  the  Company  and  certain  of the  subsidiaries  of the
          Company,  incorporated  by  reference  to  Exhibit 3 to the  Company's
          Current Report on Form 8-K dated November 30, 1994.

   4.14   Warrant to Purchase  Common  Stock of the Company  dated  November 28,
          1994 executed by the Company in favor of Chemical  Bank,  incorporated
          by reference to Exhibit 12 to the Company's Current Report on Form 8-K
          dated November 30, 1994.

   4.15   Warrant to Purchase  Common  Stock of the Company  dated  November 28,
          1994  executed  by the  Company  in  favor  of The  Bank of New  York,
          incorporated  by  reference  to  Exhibit 13 to the  Company's  Current
          Report on Form 8-K dated November 30, 1994.

   4.16   Indenture dated as of July 1, 1992 between the Company and the Bank of
          New York as trustee,  incorporated by reference to Exhibit 4(a) of the
          Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
          1992.

   4.17   Form of Warrant to Purchase  Common  Stock of the Company  dated as of
          June 1, 1993 between the Company and Mallory  Factor,  incorporated by
          reference to Exhibit 4(f) of the  Company's  Quarterly  Report on Form
          10-Q for the quarter ended September 30, 1993.

   4.18   Form of Warrant  Agreement  dated as of August 12,  1993  between  the
          Company and Berenson  Minella & Company,  incorporated by reference to
          Exhibit 4(e) of the  Company's  Quarterly  Report on Form 10-Q for the
          quarter ended September 30, 1993.

   4.19   Lockbox Operating  Procedural  Agreement dated as of November 28, 1994
          among  Chemical Bank,  the Company and Foothill  Capital  Corporation,
          incorporated by reference to Exhibit 7 to the Company's Current Report
          on Form 8-K dated November 30, 1994.

   4.20   Security  Agreement,  dated  as of July  16,  1993,  made by Woo  Shin
          Electro-Systems Company to


                                       31



<PAGE>

          Chemical Bank, incorporated by reference to Exhibit 4(b) (iv) of the
          Company's Quarterly Report on Form 10-Q for the quarter ended
          June 30, 1993.

   4.21   Indenture  dated as of  November  30,  1995,  between  the Company and
          American Stock Transfer & Trust Company.

   10.1   Form of Split Dollar Agreement -- more than ten years, incorporated by
          reference to Exhibit l9(d) of the Company's  Quarterly  Report on Form
          10-Q for the quarter ended September 30, 1985.

   10.2   Form of Split Dollar Agreement -- less than ten years, incorporated by
          reference to Exhibit 19 (e) of The Company's  Quarterly Report on Form
          10-Q for the quarter ended September 30, 1985.

   10.3   Form of  Amendment  No. 1 to Split  Dollar  Agreement -- less than ten
          years  --  Acceleration  upon  change  of  control,   incorporated  by
          reference to Exhibit  10(i)(i) of the Company's  Annual Report on Form
          10-K for the year ended December 31, 1988.

   10.4   Form of  Executive  Salary  Continuation  Agreement,  incorporated  by
          reference to Exhibit l9(cc) of the Company's  Quarterly Report on Form
          10-Q for the quarter ended September 30, 1985.

   10.5   Agreement  dated as of January 1, 1990  between  the Company and Alpha
          Risk Management,  Inc.,  incorporated by reference to Exhibit 10(k) of
          the Company's  Annual Report on Form 10-K for the year ended  December
          31, 1990.

   10.6   Agreement  dated May 25, 1988 between British  Telecommunications  plc
          and the Company,  incorporated  by  reference to Exhibit  l9(a) of the
          Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
          1988.  Confidential  Treatment  granted document filed separately with
          the SEC.

   10.7   Lease dated December 17, 1990 between the Company and LBA  Properties,
          Inc.,  incorporated  by reference  to Exhibit 10 (d) of the  Company's
          annual report on Form 10-K for the year ended December 31, 1990.

   10.8   Asset Purchase  Agreement dated as of March 6, 1996 by and among Augat
          Inc., Porta Systems Corp. and


                                       32
<PAGE>

          certain of its Subsidiaries.

   10.9   Form of Employment  Contract dated October 2, 1995 between the Company
          and KPMG BayMark Strategies LLC's Crisis Management Group.

   10.10  Form of Employment Contract dated October 16, 1995 between the Company
          and Edward B. Kornfeld.

   10.11  Form of Employment  Contract  dated March 28, 1996 between the Company
          and Warren H. Esanu.

   10.12  Form of Executive Salary Continuation Agreement dated October 16, 1995
          between the Company and Edward B. Kornfeld.


   22.1   Subsidiaries of the Company.

   23     Consent of Independent Auditors







                                       33


<PAGE>

                          Independent Auditors' Report


The Board of Directors and
Stockholders of Porta Systems Corp.:

We have audited the  accompanying  consolidated  balance sheets of Porta Systems
Corp.  and  subsidiaries  as of  December  31,  1995 and 1994,  and the  related
statements of operations,  stockholders'  (deficit)  equity,  and cash flows for
each of the years in the  three-year  period  ended  December  31,  1995.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Porta Systems Corp.
and  subsidiaries  as of December  31,  1995 and 1994,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1995,  in  conformity  with  generally  accepted  accounting
principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated   financial   statements,   the  Company's  recurring  losses  from
operations and working capital and net capital  deficiencies  raise  substantial
doubt about its ability to continue as a going  concern.  Management's  plans in
regard to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.



                                                           KPMG PEAT MARWICK LLP

Jericho, New York
March 22, 1996



                                      F-1
<PAGE>


                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 1995 and 1994
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                 Assets                                         1995          1994
                                 ------                                         ----          ----
<S>                                                                          <C>            <C>  
Current assets:
  Cash and cash equivalents                                                  $  1,109       2,332
  Accounts receivable - trade, less allowance for doubtful
     accounts of $1,251 in 1995 and $585 in 1994                               12,626      13,964
  Inventories                                                                   8,979      20,146
  Prepaid expenses                                                                659       1,020
  Receivable from sale of discontinued operations                               1,000        --
                                                                             --------    --------
                  Total current assets                                         24,373      37,462
                                                                             --------    --------

Assets held for sale, net                                                       7,893        --
Property, plant and equipment, net                                              6,911      11,139
Receivable from sale of discontinued operations                                  --         4,500
Deferred computer software, net                                                 3,188       6,257
Goodwill, net of amortization of $2,265 in 1995 and $2,192 in 1994             11,793      19,032
Other assets                                                                    6,433       6,573
                                                                             --------    --------
                  Total assets                                               $ 60,591      84,963
                                                                             ========    ========
                 Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
  Convertible subordinated debentures                                        $  6,564        --
  Accounts payable                                                              8,302       9,690
  Accrued expenses                                                             10,502       6,065
  Accrued interest payable                                                      3,534       1,414
  Accrued commissions                                                           2,016       2,180
  Income taxes payable                                                            780         478
  Customer advances                                                               504       2,525
  Notes payable                                                                  --         1,237
  Short-term loans                                                                368         152
                                                                             --------    --------
                  Total current liabilities                                    32,570      23,741
                                                                             --------    --------
Long-term debt                                                                 26,645      21,000
Convertible subordinated debentures                                            25,660      35,073
Notes payable net of current maturities                                         3,084       1,237
Income taxes payable                                                              811       1,330
Other long-term liabilities                                                       385         400
Minority interest                                                                 759         657
                                                                             --------    --------
                  Total long-term liabilities                                  57,344      59,697
                                                                             --------    --------
Commitments and contingencies

Stockholders' (deficit) equity:
   Preferred stock, no par value; authorized 1,000,000 shares, none issued       --          --
   Common stock, par value $.01; authorized 20,000,000 shares,
      issued 7,461,806 shares in 1995 and 1994                                     75          75
   Additional paid-in capital                                                  33,248      32,888
   Foreign currency translation adjustment                                     (4,199)     (4,031)
   Accumulated deficit                                                        (56,074)    (25,033)
                                                                             --------    --------
                                                                              (26,950)      3,899
   Treasury stock, at cost, 166,700 and 154,700
      shares in 1995 and 1994, respectively                                    (2,066)     (1,938)
   Receivable for employee stock purchases                                       (307)       (436)
                                                                             --------    --------
                 Total stockholders' (deficit) equity                         (29,323)      1,525
                                                                             --------    --------
                 Total liabilities and stockholders' (deficit) equity        $ 60,591      84,963
                                                                             ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.



                                      F-2
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                  Years ended December 31, 1995, 1994 and 1993
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                   1995         1994        1993
                                                                   ----          ----       ----
<S>                                                              <C>           <C>         <C>   
Sales                                                            $ 61,181      68,985      68,141
Cost of sales                                                      56,444      62,530      49,539
                                                                 --------    --------    --------
                  Gross profit                                      4,737       6,455      18,602
                                                                 --------    --------    --------

Selling, general and administrative expenses                       16,556      20,037      16,443
Research and development expenses                                   6,103       3,959       6,075
Litigation settlement                                               1,100        --          --
Write-down of net assets held for sale to net realizable value        862        --          --
                                                                 --------    --------    --------
                  Total expenses                                   24,621      23,996      22,518
                                                                 --------    --------    --------
                  Operating loss                                  (19,884)    (17,541)     (3,916)
Interest expense                                                   (8,484)     (5,617)     (4,813)
Interest income                                                        87         251         357
Other, net                                                           (884)     (2,022)     (2,985)
                                                                 --------    --------    --------
                  Loss from continuing operations before
                     income taxes and minority interest           (29,165)    (24,929)    (11,357)
Income tax expense (benefit)                                           30      14,920      (3,885)
Minority interest                                                    (102)       (146)        (21)
                                                                 --------    --------    --------
                  Loss before discontinued operations             (29,297)    (39,995)     (7,493)
Provision for loss on disposal of discontinued operations          (3,500)       --        (2,052)
                                                                 --------    --------    --------
                  Loss before extraordinary item                  (32,797)    (39,995)     (9,545)

Extraordinary gain on early extinguishment of debt                  1,756        --          --
                                                                 --------    --------    --------
                  Net loss                                       $(31,041)    (39,995)     (9,545)
                                                                 ========    ========    ========
Per share amounts:
   Continuing operations                                         $  (4.01)      (5.61)      (1.08)
   Discontinued operations                                           (.48)       --          (.30)
   Extraordinary item                                                 .24        --          --
                                                                 --------    --------    --------
                  Net loss per share                             $  (4.25)      (5.61)      (1.38)
                                                                 ========    ========    ========
Weighted average shares outstanding                                 7,307       7,133       6,909
                                                                 ========    ========    ========
</TABLE>
                                                                                
          See accompanying notes to consolidated financial statements.



                                      F-3
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
            Consolidated Statements of Stockholders' (Deficit) Equity
                  Years ended December 31, 1995, 1994 and 1993
                                 (In thousands)



<TABLE>
<CAPTION>
                                                                                                       Receivable     Total
                                                                     Foreign     Retained                  for       Stock-
                                      Common Stock     Additional   Currency     Earnings               Employee     holders'
                                   No. of     Par Value  Paid-in   Translation (Accumulated  Treasury     Stock    (Deficit)/
                                   Shares      Amount    Capital   Adjustment    Deficit)      Stock    Purchases    Equity
                                   ------------------------------------------------------------------------------------------
<S>                                 <C>         <C>     <C>        <C>           <C>        <C>          <C>          <C>    
Balance at December 31, 1992        7,054       $71     $29,457    $(2,102)      $24,507    $(1,938)     $(509)       $49,486

Net loss 1993                           -         -           -          -        (9,545)         -          -         (9,545)
Stock issued                           28         -          92          -             -          -          -             92
Repayments of receivable                -         -           -          -             -          -         11             11
Warrants issued                         -         -         604          -             -          -          -            604
Foreign currency translation
   adjustment                           -         -           -       (807)            -          -          -           (807)
                                    -----------------------------------------------------------------------------------------
Balance at December 31, 1993        7,082        71      30,153     (2,909)       14,962     (1,938)      (498)        39,841


Net loss 1994                           -         -           -          -       (39,995)         -          -        (39,995)
Stock issued                          380         4       2,135          -             -          -          -          2,139
Warrants issued                         -         -         600          -             -          -          -            600
Write off of receivable for
   employee stock purchases             -         -           -          -             -          -         62             62
Foreign currency translation
   adjustment                           -         -           -     (1,122)            -          -          -         (1,122)
                                    -----------------------------------------------------------------------------------------
Balance at December 31, 1994        7,462        75      32,888     (4,031)      (25,033)    (1,938)      (436)         1,525


Net loss 1995                           -         -           -          -       (31,041)         -          -        (31,041)
Warrants issued                         -         -         360          -             -          -          -            360
Write off of receivable for
   employee stock purchases             -         -           -          -             -       (128)       129              1
Foreign currency translation
   adjustment                           -         -           -       (168)            -          -          -           (168)
                                    -----------------------------------------------------------------------------------------
Balance at December 31, 1995        7,462       $75     $33,248    $(4,199)     $(56,074)   $(2,066)     $(307)      $(29,323)
                                    =========================================================================================

</TABLE>

          See accompanying notes to consolidated financial statements


                                      F-4
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years ended December 31, 1995, 1994 and 1993
                             (Dollars in thousands)
<TABLE>
<CAPTION>


                                                                              1995        1994          1993
                                                                              ----        ----          ----
<S>                                                                         <C>          <C>          <C>    
Cash flows from operating activities:
    Net loss                                                                $(31,041)    (39,995)     (9,545)
    Adjustments to reconcile net loss to net cash
       (used in) provided by operating activities:
          Loss on disposal of discontinued operations                          3,500        --         2,052
          Gain on extinguishment or refinancing of indebtedness               (1,756)       (913)       --
          Non-cash financing costs                                             2,698         600         202
          Deferred income taxes                                                 --        13,955      (4,841)
          Depreciation and amortization                                        7,015       5,580       5,416
          Write off of employee notes receivable                                   1          62        --
          Amortization of discount on convertible subordinated debentures        603         442         426
          Minority interest                                                      102         163          21
    Changes in assets and liabilities:
       Accounts receivable                                                     1,338       2,598       4,640
       Inventories                                                             9,700       8,047       1,613

       Prepaid expenses                                                         (773)       (328)        178
       Other assets                                                            1,916        (330)     (1,857)
       Accounts payable, accrued expenses and other liabilities                4,167      10,414      (4,621)
                                                                            --------    --------    --------
                  Net cash (used in) provided by operating activities         (2,530)        295      (6,316)
                                                                            --------    --------    --------
Cash flows from investing activities:
    Capital additions, net of minor disposals                                 (1,749)     (1,107)     (1,559)
    Repayment of employee loans                                                 --          --            11
                                                                            --------    --------    --------
                  Net cash used in investing activities                       (1,749)     (1,107)     (1,548)
                                                                            --------    --------    --------
Cash flows from financing activities:
    Proceeds from issuance of debt                                             5,781      24,212      22,897
    Repayments of debt                                                        (2,500)    (22,299)    (19,397)
    Proceeds from issuance of common stock                                      --         2,139          92
    Repayments of notes payable/short-term loans                                --        (1,162)     (9,942)
                                                                            --------    --------    --------
                  Net cash provided by (used in) financing activities          3,281       2,890      (6,350)
                                                                            --------    --------    --------
Effect of exchange rates on cash                                                (225)     (1,473)       (807)
(Decrease) increase in cash and cash equivalents                              (1,223)        605     (15,021)
Cash and equivalents - beginning of year                                       2,332       1,727      16,748
                                                                            --------    --------    --------
Cash and equivalents - end of year                                          $  1,109       2,332       1,727
                                                                            ========    ========    ========
Supplemental cash flow information:
    Cash paid for interest                                                  $  2,915       4,196       4,135
                                                                            ========    ========    ========
    Cash paid for income taxes                                              $     73         128          80
                                                                            ========    ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.



                                      F-5
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1995 and 1994


(1)  Summary of Significant Accounting Policies

     Nature of Operations and Principles of Consolidation

     Porta Systems Corp.  (the  "Company")  designs,  manufactures  and  markets
        systems for the connection,  protection,  testing and  administration of
        public and private  telecommunications  lines and networks.  The Company
        has various  patents for copper and software  based products and systems
        that support voice,  data, image and video  transmission.  The Company's
        principal  customers are the U.S. regional telephone operating companies
        and foreign telephone companies.

     The accompanying consolidated  financial statements include the accounts of
        Porta Systems Corp. (the "Company") and its majority-owned or controlled
        subsidiaries.  All significant  intercompany  transactions  and balances
        have been eliminated in consolidation.

     Revenue Recognition

     Revenue, from other than contracts for specialized  products, is recognized
        when a product is shipped.  Revenues and earnings  relating to long-term
        contracts   for    specialized    products   are   recognized   on   the
        percentage-of-completion  basis primarily  measured by the attainment of
        milestones.  Anticipated  losses,  if any, are  recognized in the period
        determined.

     Cash Equivalents

     The Company considers investments with original  maturities of three months
        or less at the time of purchase to be cash equivalents. Cash equivalents
        consist of commercial paper.

     Inventories

     Inventories  are stated at the lower of cost (on the  average or  first-in,
        first-out methods) or market.

     Property, Plant and Equipment

     Property, plant and equipment are carried at cost.  Leasehold  improvements
        are amortized over the term of the lease. Depreciation is computed using
        the straight-line method over the related assets' estimated lives.

     Deferred Computer Software

     Software costs incurred for specific customer contracts are charged to cost
        of sales at the time revenues on such contracts are recognized. Software
        development  costs  relating to products the Company offers for sale are
        deferred in accordance with Statement of Financial  Accounting Standards
        (SFAS) No. 86 "Accounting for the Costs of Computer Software to Be Sold,
        Leased,  or Otherwise  Marketed".  These costs are  amortized to cost of
        sales over the periods that the related  product  will be sold,  up to a
        maximum of four years.  Amortization of computer  software costs,  which
        all  relate  to  products  the  Company  offers  for sale,  amounted  to
        approximately  $3,171,000,  $1,847,000 and $1,414,000 in 1995, 1994, and
        1993, respectively.

                                                                     (Continued)



                                      F-6
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


     Goodwill

     Goodwill represents the difference  between the purchase price and the fair
        market value of net assets acquired in business  combinations treated as
        purchases.  Goodwill is amortized on a straight-line basis over 18 to 40
        years.  At  December  31,  1995,  $7,242,000  of the  goodwill  is being
        amortized over  approximately 18 years and $4,551,000 is being amortized
        over 40 years.  The Company assesses the  recoverability  of unamortized
        goodwill  using the  undiscounted  projected  future cash flows from the
        related businesses.

     Income Taxes

     Deferred income taxes are recognized  based on the differences  between the
        tax bases of assets and  liabilities  and their reported  amounts in the
        financial  statements that will result in taxable or deductible  amounts
        in future years. Further, the effects of enacted tax law or rate changes
        are  included in income as part of  deferred  tax expense or benefit for
        the period that includes the enactment date.

     Puerto Rico income taxes were accrued prior to September 30, 1993 on income
        earned by a subsidiary  of the Company which had operated in Puerto Rico
        based on a ten year 90% industrial  tax exemption  effective for periods
        subsequent to May 28, 1987. The Company's subsidiary operating in Puerto
        Rico was liquidated by merger on September 30, 1993 (see note 9).

     Foreign Currency Translation

     Assets and liabilities of foreign  subsidiaries  are translated at year-end
        rates of exchange,  and revenues  and  expenses  are  translated  at the
        average rates of exchange for the year.  Gains and losses resulting from
        translation  are  accumulated in a separate  component of  stockholders'
        equity.  Gains and losses resulting from foreign  currency  transactions
        (transactions  denominated  in a  currency  other  than  the  functional
        currency) are included in net income or loss.

     Earnings (Loss) Per Share

     Earnings  per  share are  based on the  weighted  average  number of shares
        outstanding   and  common   equivalent   shares  arising  from  dilutive
        unexercised  stock  options.  Loss per  share  is based on the  weighted
        average number of shares  outstanding.  Fully diluted earnings per share
        information is not presented as it is anti-dilutive.

     Reclassifications

     Certain   reclassifications   have  been  made  to  conform   prior  years'
        consolidated financial statements to the 1995 presentation.

                                                                     (Continued)



                                      F-7
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     Use  of Estimates

     The preparation of  financial   statements  in  accordance  with  generally
        accepted accounting principles requires management to make estimates and
        assumptions  that affect reported  amounts of assets and liabilities and
        disclosure  of  contingent  assets  and  liabilities  at the date of the
        financial  statements and the reported  amounts of revenues and expenses
        during  the  reporting  period.  Among  the more  significant  estimates
        included in these  consolidated  financial  statements are the estimated
        allowance for doubtful accounts receivable,  inventory reserves, and the
        deferred tax asset valuation allowance. Actual results could differ from
        those and other estimates.

(2)   Liquidity

     The accompanying  consolidated  financial  statements  have  been  prepared
        assuming that the Company will continue as a going concern.  In 1995 and
        1994,  the Company  experienced  a lack of liquidity.  In addition,  the
        Company's  recurring  losses from operations and working capital and net
        capital deficiencies raise substantial doubt about the Company's ability
        to continue as a going concern. The consolidated financial statements do
        not  include any  adjustments  that might arise from the outcome of this
        uncertainty.

     The Company,  to enhance its liquidity,  sold the net assets related to its
        fiber  optics  business  in  March  1996  (note  4).  This  sale  raised
        approximately  $8  million  of cash and the  acquiring  company  assumed
        approximately  $1,400,000  of  liabilities.  The sale of this  business,
        which in 1995 and prior years sustained significant losses, eliminated a
        considerable  operating  cash drain. A majority of the proceeds from the
        sale were used to pay down a portion  of the  Company's  debt,  which in
        turn will reduce  ongoing  interest  costs and provide the Company  with
        working capital through the ability to then restructure its senior debt.
        In addition, through March 22, 1996, the Company exchanged approximately
        80% of its 6% subordinated  convertible  debt for  non-interest  bearing
        notes. This will reduce interest expense by approximately $1,700,000 per
        year. In addition,  the Company is reviewing various options in which it
        can  streamline  operations  or further  reduce  operating  expenses  to
        enhance the Company's ability to attain profitable operations.


                                                                     (Continued)



                                      F-8
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(3)  Discontinued Operations

     In 1992,  the  Company  recorded  the  sale of its  network  communications
        business,  for which it received $3,750,000 in cash and cash equivalents
        plus promissory notes,  which after an additional  provision for loss on
        disposal of discontinued operations of $2,052,000 in 1993, had a balance
        of $4,500,000.

     As a result of  liquidation  and  receivership  proceedings  involving  the
        indirect  parent of the buyer of the business,  the  estimated  recovery
        from the sale of such  operations  was reduced in the second  quarter of
        1995 to $1,000,000 which resulted in an additional provision for loss on
        disposal of discontinued operations of $3,500,000 in 1995. The remaining
        receivable at December 31, 1995 is collateralized,  at the option of the
        Company,  by either a $750,000 standby letter of credit or approximately
        54,000 shares of common stock of the entity which  acquired the business
        from receivership.  Such shares are held in escrow and have a fair value
        of  $1,387,000 at December 31, 1995 based on quoted  market  prices.  As
        part of an agreement with the Company's  primary  lender,  the remaining
        proceeds  from the sale of the network  communications  business must be
        applied to reduce the  outstanding  principal  balance of the  Company's
        term loan (note 11).

(4)  Assets Held for Sale

     On March 13, 1996, the Company  consummated an agreement  pursuant to which
        it sold certain  assets and the buyer assumed  certain  liabilities  and
        severance  obligations  related to the operations of the Company's fiber
        optics  management  and component  business for  $7,893,000,  subject to
        certain  adjustments.  The  Company  continues  to be liable for certain
        liabilities  amounting to approximately  $700,000,  related to its fiber
        optics facilities in Ireland. The Company received $6,793,000 at closing
        and the  remainder  was placed into two escrow funds to be released over
        the  next  year,  subject  to  certain  conditions,  including  a  final
        valuation of the net assets  transferred.  The proceeds  were  primarily
        used to repay long-term debt (note 11). As a result of the  transaction,
        the Company recorded a charge to operations in 1995 of $862,000 to write
        down the net assets sold to net realizable value. Net sales of the fiber
        optics business approximated $6,513,000, $12,150,000, and $8,654,000 for
        1995, 1994 and 1993, respectively.

     Net assets held for sale at net realizable  value as of  December  31, 1995
        consists of the following:

        Inventory                                                 $  1,467,000
        Fixed assets                                                 1,510,000
        Deferred computer software                                     319,000
        Goodwill                                                     5,897,000
        Other assets                                                   115,000
        Accounts payable and accrued liabilities                    (1,415,000)
                                                                    ----------
                                                                  $  7,893,000
                                                                  ============

                                                                     (Continued)




                                      F-9
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(5)  Joint Venture

     The Company entered  into a joint  venture  agreement  as of April 24, 1986
        with a Korean partner.  Unless  otherwise  terminated in accordance with
        the  joint  venture  agreement,  the joint  venture  will  terminate  on
        December  31,  2010.  In  addition,  the  Company  has  entered  into an
        agreement  with its  joint  venture  partner  whereby  the  Company  has
        obtained an option, exercisable for approximately $2,300, to purchase an
        additional 1% interest in Woo Shin Electro-Systems Co. (Woo Shin), which
        would  increase the Company's  ownership  percentage to 51%. The Company
        consolidates  the  operations of Woo Shin since the Company can obtain a
        controlling  interest at its  election for a nominal sum and Woo Shin is
        entirely  dependent  on the Company for the products it sells as well as
        receiving  management  assistance from the Company.  The interest in the
        joint venture not owned by the Company is shown as a minority interest.

(6)  Inventories

      Inventories consist of the following:
                                                     December 31,
                                                      ------------
                                              1995               1994
                                              ----                ----
          Parts and components             $ 5,370,000         11,838,000
          Work-in-process                      849,000          1,854,000
          Finished goods                     2,760,000          6,454,000
                                            ----------         ----------

                                           $ 8,979,000         20,146,000
                                            ==========         ==========

(7)   Property, Plant and Equipment

      Property, plant and equipment consists of the following:

<TABLE>
<CAPTION>

                                               December 31                   Estimated
                                        1995                1994           useful lives
                                        ----                ----           ------------
<S>                                 <C>                    <C>             <C>       
 Land                               $      246,000            246,000             -
 Buildings                               2,358,000          2,288,000         20 years
 Machinery and equipment                 8,426,000         15,149,000         5-8 years
 Furniture and fixtures                  3,379,000          5,057,000        5-10 years
 Transportation equipment                  240,000            372,000          4 years
 Tools and molds                         4,233,000          5,501,000          8 years
 Leasehold improvements                    827,000          3,539,000       Term of lease
 Construction in progress                        -             35,000
                                    --------------    ---------------
                                        19,709,000         32,187,000

 Less accumulated depreciation
    and amortization                    12,798,000         21,048,000
                                    --------------    ---------------

                                    $    6,911,000         11,139,000
                                    ==============    ===============
</TABLE>

     Total  depreciation  and  amortization  expense  for  1995,  1994  and 1993
        amounted  to  approximately   $3,610,000,   $3,242,000  and  $2,996,000,
        respectively.
                                                                     (Continued)




                                      F-10
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(8)  Accounts Receivable

     Accounts  receivable  included  approximately  $1,146,000 and $2,246,000 at
        December  31,  1995,   and  1994,   of  revenues   earned  but  not  yet
        contractually  billable relating to long-term  contracts for specialized
        products.  All such  amounts at December  31,  1995,  are expected to be
        billed in the  subsequent  year.  The  allowance  for doubtful  accounts
        receivable  was $1,251,000 and $585,000 as of December 31, 1995 and 1994
        respectively.  The  allowance  for doubtful  accounts  was  increased by
        provisions  of  $864,000,   $318,000,  and  $434,000  and  decreased  by
        writeoffs  of  $198,000,  $144,000,  and  $187,000  for the years  ended
        December 31, 1995, 1994, and 1993, respectively.

(9)  Income Taxes

     Included in loss from  continuing  operations is income (loss) from foreign
        operations of $1,272,000,  $(920,000) and $2,253,000, for 1995, 1994 and
        1993, respectively.

      The provision for income taxes consists of the following:

<TABLE>
<CAPTION>

                                         1995                        1994                        1993
                                         ----                        ----                        ----
                                 Current       Deferred      Current      Deferred       Current        Deferred

<S>                         <C>                              <C>          <C>                           <C>        
Federal                     $     (98,000)            -      800,000      12,670,000             -      (4,598,000)
State and foreign                 128,000             -      165,000       1,285,000       956,000        (243,000)
                               ----------    ----------     --------     -----------    ----------     -----------

             Total          $      30,000             -      965,000      13,955,000       956,000      (4,841,000)
                               ==========    ==========     ========     ===========    ==========     ===========
</TABLE>

     A  reconciliation  of the  Company's  income tax  provision  and the amount
        computed by applying the statutory  U.S.  federal income tax rate of 34%
        to loss before income taxes is as follows:

<TABLE>
<CAPTION>

                                                               1995            1994            1993
                                                               ----            ----            ----

<S>                                                     <C>                    <C>              <C>        
Tax benefit at statutory rate                           $   (10,554,000)       (8,526,000)      (3,861,000)
Increase (decrease) in income tax
   benefit resulting from:
      Increase in valuation allowance                        10,741,000        22,219,000                -
      Benefit of Puerto Rico industrial
          tax exemption                                               -           813,000         (152,000)
      State and foreign taxes, less
          applicable federal benefits                           132,000           147,000          645,000
      Other                                                    (289,000)          267,000         (517,000)
                                                           -------------   --------------    -------------

                                                        $        30,000        14,920,000       (3,885,000)
                                                           ============    ==============    =============
</TABLE>



                                                                     (Continued)



                                      F-11
<PAGE>


                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     The per common share  effect of the income tax savings from the Puerto Rico
        industrial  tax  exemption  for 1993 was $.02.  The  Company  has unused
        United  States tax net operating  loss  carryforwards  of  approximately
        $72,000,000  expiring  at  various  dates  between  2003  and  2010.  In
        addition,  the Company has net operating loss carryforwards arising from
        acquired companies of approximately $9,878,000. The carryforward amounts
        are subject to review by the Internal Revenue Service (IRS). As a result
        of the sale of the Company's  fiber optics  business  (note 4) in March,
        1996,  the above net  operating  loss  carryforwards  and  acquired  net
        operating  loss   carryforwards   will  be  reduced  by  $1,969,000  and
        $6,592,000,  respectively.  In addition, there are investment,  research
        and  development  and  job tax  credit  carryforwards  of  approximately
        $1,300,000 expiring at various dates between 1996 and 2001.

     The Company's net  operating  loss  carryforwards  expire in the  following
        years:

                       2003                       $   187,000
                       2007                        13,062,000
                       2008                        17,291,000
                       2009                        18,125,000
                       2010                        23,335,000
                                                  -----------
                                                  $72,000,000
                                                  ===========

     The components of the  deferred tax assets and  liabilities  as of December
        31, 1995 and 1994 were as follows:

                                                       1995            1994
                                                       ----            ----
Deferred tax assets:
   Inventory allowances                           $  4,157,000       3,508,000
   Allowance for doubtful accounts receivable          359,000         102,000
   Benefits of tax loss carryforwards               27,755,000      19,226,000
   Benefit plans                                     1,593,000         968,000
   Alternative minimum taxes                           293,000         293,000
   Depreciation                                        122,000            --
   Other                                                30,000         458,000
   Benefits of tax loss carryforwards of
      acquired businesses                            3,479,000       3,479,000
   Differences between tax basis and book basis
      of net assets of businesses acquired           3,165,000       3,165,000
                                                  ------------    ------------
                                                    40,953,000      31,199,000
   Valuation allowance                             (39,604,000)    (28,863,000)
                                                  ------------    ------------
                                                     1,349,000       2,336,000
                                                  ------------    ------------
Deferred tax liabilities:
   Capitalized software costs                       (1,349,000)     (1,821,000)
   Depreciation                                           --          (515,000)
                                                    (1,349,000)     (2,336,000) 
                                                   $       --      $       --
                                                   ===========     =========== 

                                                                     (Continued)



                                      F-12
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     In the third quarter of 1994, the Company, after reviewing the deferred tax
        asset in the  context  of its  results  of  operations  for  such  third
        quarter, recorded a valuation allowance in the entire amount of its then
        existing  deferred  tax asset,  which is included in income tax expense.
        This  decision  was based on the  criteria  contained  in SFAS No.  109,
        generally  requiring a valuation  allowance when cumulative  losses have
        been experienced and there is a lack of sufficient  objective offsetting
        evidence to conclude  that it is more likely than not that the  deferred
        tax asset will be utilized.

     During 1993, the Company repatriated all undistributed accumulated earnings
        of its subsidiary operating in Puerto Rico through a liquidation of such
        subsidiary  by means of a merger  into the  Company.  No  United  States
        income taxes were payable upon remittance of these earnings. Repatriated
        earnings accumulated prior to May 28, 1987 are not subject to tax by the
        Commonwealth of Puerto Rico; earnings accumulated  subsequent to May 28,
        1987 are subject to a maximum 10% tax at  repatriation.  In 1993 as part
        of the  liquidation,  the Company  repatriated  $24,279,000  in earnings
        accumulated prior to May 28, 1987 and $2,482,000 of earnings accumulated
        subsequent to May 28, 1987.

     The income tax returns  of the  Company  and its  subsidiary  operating  in
        Puerto Rico were  examined  by the IRS for the tax years ended  December
        31, 1989 and 1988.  As a result of this  examination,  the IRS increased
        the Puerto Rico subsidiary's  taxable income resulting from intercompany
        transactions,  with  a  corresponding  increase  in  the  Company's  net
        operating losses. The settlement amounted to approximately $953,000. The
        Company has entered  into a structured  settlement  with the IRS whereby
        monthly  payments  will be made along  with  certain  scheduled  balloon
        payments through February 1997.  Aggregate annual amounts payable by the
        Company,  including  interest on the unpaid amounts at a current rate of
        7%, is $514,000 in 1996 and  $223,000 in 1997.  As of December 31, 1995,
        the Company has not made all the required payments under the settlement.

     The income tax returns  of the  Company  and its  subsidiary  operating  in
        Puerto Rico were  examined  by the IRS for the tax years ended  December
        31, 1991 and 1990.  As a result of this  examination,  the IRS increased
        the Puerto Rico subsidiary's  taxable income resulting from intercompany
        transactions,  with  a  corresponding  increase  in  the  Company's  net
        operating losses. In settlement of this examination, the Company revoked
        its Section 936 election and included its  subsidiary  in the  Company's
        tax return.  Accordingly,  the adjustments  were offset  resulting in no
        deficiency.

(10) Notes Payable and Short-Term Loans

     The Company has  outstanding  $3,084,000  and  $2,474,000  of  non-interest
        bearing  deferred  funding  fee notes  payable  with its senior  lender,
        included in notes  payable at December 31, 1995 and 1994,  respectively.
        As of December 31, 1995 these deferred  funding fees are due on November
        30, 1998 (note 11). The Company's Korean  subsidiary also has short-term
        borrowings  with banks at December  31,  1995 and 1994 of  $368,000  and
        $152,000, respectively, bearing interest at 11%



                                                                     (Continued)


                                      F-13
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(11) Long-Term Debt

     On December 31, 1995 and 1994,  the Company's  long-term  debt consisted of
        senior debt under its credit  facility in the amount of $26,645,000  and
        $21,000,000, respectively.

     On November  28, 1994,  and as amended on February  13,  1995,  the Company
        consummated a financing  arrangement  with a senior  lender  whereby the
        senior lender  provided the Company  advances  under a revolving line of
        credit up to the lesser of $10 million or a borrowing  base equal to 80%
        of eligible accounts receivable and 50% of eligible inventory,  less the
        amount of letters of credit and letter of credit guarantees outstanding,
        and a  $13,502,188  term loan.  If the Company  sells its Glen Cove real
        property,  the first $1 million of  proceeds  must be used to reduce the
        term loan. In addition,  on February 13, 1995 the senior lender provided
        the Company with an advance under a net worth  enhancement (NWE) line of
        credit of $3 million.  The senior lender agreed to issue standby letters
        of credit or guarantees of payment in an amount not to exceed the lesser
        of $8 million or the borrowing  base less the amount  outstanding on the
        revolving  line of  credit.  If the senior  lender  must make an advance
        under a letter of credit or letter of credit guarantee, such amount will
        be deemed  outstanding  under the revolving  line of credit.  The credit
        facility is secured by substantially  all of the Company's  assets.  All
        obligations   except  undrawn  letters  of  credit,   letter  of  credit
        guarantees  and the  deferred  fee notes will bear  interest at 12%. The
        Company will incur a fee of 2% on the average balance of undrawn letters
        of credit and letter of credit guarantees outstanding.

     As of December 31, 1995, the Company violated certain  financial  covenants
        and was in default of its agreement with its senior lender. On March 13,
        1996,  the  Company  entered  into an  agreement  to extend its Loan and
        Security  Agreement  with its senior  lender from  November  30, 1996 to
        November  30,  1998,  which also  provided  for a waiver of all previous
        events of default. The agreement provides for loan principal payments of
        $250,000 on each of June 30, 1997,  September  30, 1997 and December 31,
        1997, and $325,000 commencing March 31, 1998 and on the last day of each
        quarter thereafter during the term of the agreement. Commencing June 30,
        1997,  the agreement  requires the Company to pay  additional  principal
        payments  if certain  "adjusted  cash flow  amounts",  as  defined,  are
        attained.  The March, 1996 amendment also requires that certain proceeds
        from the Company's sale of its fiber optics business (note 4), including
        $6,793,000 received at closing, the first $100,000 disbursed from escrow
        to the  Company  and  50% of any  additional  amounts  disbursed  to the
        Company,  must be paid  directly to the senior  lender.  The  $6,793,000
        received at closing was used to pay accrued  interest  through March 31,
        1996,  repay  the  $3,000,000  NWE  line of  credit  and  the  remainder
        partially  repaid  the  principal  balance  of the term  loan.  Upon the
        payment on March 13,  1996,  the lender made  available to the Company a
        $2,000,000 revolving line of credit.  Simultaneously,  and in accordance
        with the amended agreement,  the revolving line of credit maximum amount
        was reduced from $10,000,000 to $2,000,000 and the maximum available for
        letters  of  credit  or  guarantees  was  reduced  from   $8,000,000  to
        $7,000,000.  The outstanding balance of the term loan and revolving line
        of credit was  approximately  $20  million and  approximately  $900,000,
        respectively, after all the above transactions.


                                                                     (Continued)




                                      F-14
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     Through March 22,  1996,  the  Company  incurred  the  following  fees,  in
        connection  with this credit  facility:  In 1994, a one-time  $2,474,000
        deferred funding fee for the revolving line and term loan evidenced by a
        non-interest  bearing  promissory  note due and payable on November  30,
        1998,  (as of December 31, 1994,  $1,237,000  was due in 1995 before the
        March, 1996 amendment to the agreement). The Company incurred a $300,000
        NWE fee on February 13, 1995,  evidenced by a non-interest  bearing note
        due November 30, 1998 and a $310,000  facility fee on November 30, 1995,
        which amount has been added to the outstanding  principal balance of the
        deferred  funding  fee  note  and is also  due  November  30,  1998.  In
        consideration  of the  extension  of the  facility  term to November 30,
        1998, the agreement  requires a monthly facility fee payment of $50,000,
        commencing  November  30,  1996,  and  continuing  to  the  end  of  the
        agreement.  In  addition to the fees,  the  Company  incurred a $550,000
        investment  banking  fee and  attorney  and  filing  fees  amounting  to
        $319,000 included in other nonoperating expenses in 1994.

     In connection  with the credit  facility,  in  November,  1994 the  Company
        issued  warrants  to its senior  lender to  purchase  275,000  shares of
        common stock, immediately exercisable at $3.44 per share and expiring in
        November 1999,  together with warrants to purchase 137,500 shares of the
        Company's   common  stock  on  the  same  economic   terms  that  became
        exercisable on March 13, 1996. In connection with the extended agreement
        in March 1996, the Company granted additional  warrants to the lender to
        purchase 1,000,000 shares of common stock at $1 per share that expire in
        March  2001.  All such  warrants  provide the senior  lender  demand and
        "piggyback" registration rights.

     Financial  debt  covenants  include an  interest  coverage  ratio  measured
        quarterly commencing with the quarter ending June 30, 1996,  limitations
        on the incurrence of indebtedness,  limitations on capital expenditures,
        and  prohibitions  on declarations of any cash or stock dividends or the
        repurchase of the Company's stock.

     In connection with the amendment to the agreement on February 13, 1995, the
        Company  purchased from the senior lender $3.9 million  principal amount
        of  its 6%  Subordinated  Debentures  for  approximately  $2.5  million,
        including  accrued  interest.  Such  payment  was  financed  with  funds
        received  from the  increase in the term loan.  The Company  recorded an
        extraordinary   gain  on  the  early   extinguishment  of  the  debt  of
        $1,756,000.  Such gain represented the excess of the book value over the
        market  value of the debt with the premium  paid in excess of the market
        value of the debt of $782,000  reflected as additional  borrowing  costs
        over the remaining term of the facility.

     Maturities  of  the  Company's   long-term  debt,   including   convertible
        subordinated  debentures  (exclusive of $6,564,000  which are in default
        and have not been  exchanged as described in note 12 and are  classified
        as a current liability) and notes payable net of current maturities, are
        as follows:

                        1997                       $   750,000
                        1998                        54,639,000
                                                    ----------
                                                   $55,389,000
                                                   ===========

      Of the amount due in 1998, $6,793,000 was repaid on March 13, 1996.



                                                                     (Continued)




                                      F-15
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(12) 6% Convertible Subordinated Debentures

     As of December  31, 1995 and 1994 the Company had  outstanding  $32,224,000
        and $35,073,000 of its 6% convertible  Subordinated  Debentures due July
        1, 2002 (the Debentures),  net of original issue discounts  amortized to
        principal  over the term of the debt using the  effective  interest rate
        method, of $3,851,000 and $4,927,000,  respectively.  The face amount of
        the  outstanding  Debentures was $36,075,000 and $40,000,000 at December
        31, 1995 and 1994,  respectively.  The Debentures are convertible at any
        time prior to maturity, unless previously redeemed, into Common Stock of
        the  Company  at a  conversion  rate of 41.667  shares  for each  $1,000
        principal amount at maturity of Debentures,  subject to adjustment under
        certain circumstances.

      The Debentures are redeemable at the option of the Company, (a) in whole
          or in part, at redemption prices ranging from 89.626% of principal
          amount at maturity beginning July 1, 1995 to 100% of principal amount
          at maturity beginning July 1, 2001 and thereafter, together with
          accrued and unpaid interest to the Redemption Date, and (b) in whole
          at any time, at a redemption price equal to the issue price plus
          interest and that portion of the original issue discount and interest
          accrued to the redemption date, in the event of certain changes in
          United States taxation or the imposition of certain certification,
          information or other reporting requirements.

     Interest on the  Debentures is payable on July 1 of each year. The interest
        accrued as of December  31, 1995 and 1994  amounted  to  $3,244,000  and
        $1,200,000,  respectively.  As of  December  31,  1995 the Company is in
        default under the interest payment provisions of the Debentures.

     On November 30, 1995, the Company  offered the holders of its Debentures an
        exchange  of  such  debt  for  common  stock  and  zero  coupon   senior
        subordinated  convertible  notes (the  Notes) due  January 2, 1998.  The
        exchange  ratio is 97 shares of common stock and $767.22 of principal of
        Notes in exchange for $1,000  principal  amount of  Debentures.  Accrued
        interest on the Debentures would also be eliminated.  The Company may be
        required to file a registration statement for the common stock and Notes
        issued in the  exchange.  In  addition,  the Board of  Directors  of the
        Company,  subject to shareholder approval,  approved an amendment to the
        Company's certificate of incorporation  increasing the authorized common
        stock from 20 million to 40 million shares.





                                                                     (Continued)



                                      F-16
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     The unsecured Notes will not bear  interest  and there are no sinking  fund
        requirements. Each Note is convertible into common stock at a conversion
        price of $1.85 per share until May 1, 1996 and then at decreasing prices
        to $1.31 per share on November 1, 1996 and thereafter.  Accordingly,  in
        addition  to the  3,499,275  maximum  common  shares  issuable  from the
        exchange of the  Debentures,  the maximum  number of common  shares that
        could be issued upon  conversion,  if all Debentures  are exchanged,  is
        21,128,000.  In the event that the number of  outstanding  common shares
        will exceed  19,000,000,  in lieu of issuing  common stock for converted
        Notes,  the  Company  will  issue one  share of  Series B  Participating
        Convertible Preferred Stock for each 50 shares of common stock otherwise
        issuable upon conversion of the Notes. Such preferred stock will have 50
        votes per share and,  upon the filing of a  certificate  of amendment to
        increase the number of  authorized  common  shares to  40,000,000,  each
        share will  automatically  be converted  into 50 shares of common stock.
        The Notes are  redeemable  at the option of the Company at 79.48% of the
        principal  balance  increasing  periodically  to 100%  of the  principal
        balance on November 1, 1997.

     Subsequent to December  31, 1995 and through  March 22,  1996,  the Company
        exchanged approximately  $28,725,000 principal amount of the Debentures,
        net of unamortized  discount of $3,065,000,  for 2,786,325 shares of the
        Company's  common  stock  and  $22,038,000  principal  amount  of  Notes
        pursuant to the Exchange Offer.  Accordingly,  the Debentures exchanged,
        which were  outstanding at December 31, 1995,  have been classified as a
        long-term  liability,  consistent  with the payment  terms of the Notes.
        Since the remaining principal amount of $7,350,000 with a carrying value
        of $6,564,000 of Debentures not exchanged are in default,  such debt has
        been classified as a current liability at December 31, 1995.

     The exchange of the  Debentures  for the Notes  and  common  stock  will be
        accounted  for as a  troubled  debt  restructuring  in  accordance  with
        Statement of  Financial  Accounting  Standards  No. 15. Since the future
        principal  and  interest  payments  under  the  Notes  is less  than the
        carrying  value of the  Debentures,  The Notes will be recorded  for the
        amount  of  the  future  cash  payments,  and  not  discounted,  and  an
        extraordinary  gain on restructuring of approximately $3 million will be
        recorded.  Accordingly,  no future interest  expense will be recorded on
        the Notes.

(13) Leases

     At December 31, 1995, the Company and its subsidiaries leased manufacturing
        and administrative facilities,  equipment and automobiles under a number
        of operating  leases.  The Company is required to pay  increases in real
        estate taxes on the facilities in addition to minimum rents.  Total rent
        expense for 1995, 1994, and 1993 amounted to  approximately  $1,277,000,
        $1,397,000 and  $1,468,000,  respectively.  Minimum rental  commitments,
        exclusive of future escalation charges,  for each of the next five years
        are as follows:

                    1996                   $       547,000
                    1997                           399,000
                    1998                           328,000
                    1999                           312,000
                    2000                           273,000


                                                                     (Continued)



                                      F-17
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(14) Incentive Plans

     Under the Company's 1984 Employee  Incentive Plan, the Company  provided an
        opportunity to acquire  subordinated  convertible  debentures to certain
        employees  of the  Company and its  subsidiaries.  The  debentures  bore
        interest at 1% over the prime rate.  These  debentures  on issuance were
        convertible  into a  specified  number of shares  of Common  Stock.  The
        conversion  price was the fair  market  value on the date of purchase of
        the debentures.  Under the 1984 Plan, if requested, the Company loaned a
        purchaser of a debenture all or part of the cash  necessary to make such
        a  purchase.   Any  such  loan  was   evidenced   by  a  full   recourse
        interest-bearing  promissory  note payable to the Company for the amount
        borrowed.  This  plan  was  suspended  when the  Company's  stockholders
        approved the Company's 1986 Stock Option Plan.

     As of December 31,  1995,  there is $307,000 of employee  promissory  notes
        receivable  outstanding  related to  debentures  that were  converted to
        common stock. The maturity date of the notes was extended to April 1996.
        At December 31, 1995, the majority of such notes receivable have had the
        payment of interest  forgiven.  During 1993, $48,600 principal amount of
        debentures  was converted into 5,400 shares of Common Stock and $378,000
        principal amount of debentures and $378,000 of loans incurred  therewith
        matured in  accordance  with their  terms and were repaid by the Company
        and employees, respectively. During 1995, the Company wrote off $128,000
        of notes  receivable  and took  possession of the related shares held as
        collateral. Accordingly, the balance of the note has been recorded as an
        addition to treasury stock.

     In 1986, the  stockholders of the Company approved the Company's 1986 Stock
        Incentive  Plan  (1986  Plan),  subsequently  amending  it to permit the
        granting of options to purchase up to 850,000  shares of Common Stock to
        employees of the Company and its 50% or more owned subsidiaries whom the
        Company's Compensation Committee (Committee) determines are eligible for
        such grants.

     Options granted  under the 1986 Plan may be  incentive  stock  options,  as
        defined in the Internal Revenue Code, or options which are not incentive
        stock  options.  If options  granted are incentive  stock  options,  the
        option price payable upon exercise is determined by the Committee at the
        time the  option is  granted  but will not be less than 100% of the fair
        market  value of the Common  Stock on the date of grant and will be 110%
        of such fair  market  value on the date of grant if the  individual  who
        receives such option is the owner of 10% or more of the Company's Common
        Stock.  Incentive stock options are not exercisable  more than ten years
        from the date of grant,  except that, in the case of an incentive  stock
        option  granted to an  individual  who owns 10% or more of the Company's
        Common Stock,  such option must be exercised  within 5 years of the date
        of grant.  If options which are not incentive stock options are granted,
        the option price at the time of exercise may not be less than 50% of the
        fair market value at the time the option is granted.  Options  under the
        1986 Plan may be subject to exercise in such  installments as determined
        by the Committee.  The exercise price for all options  granted was equal
        to the fair market value at the date of grant.



                                                                     (Continued)



                                      F-18
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     Information regarding the 1986 Plan is as follows:

                                              Shares            Option
                                           under option          price

Balance, December 31, 1992                    615,910      7.5625 - 22.00

Exercised                                      (2,500)    7.5625 - 10.875
Canceled                                     (211,760)     7.5625 - 22.00
                                             --------     ---------------

Balance, December 31, 1993                    401,650      7.5625 - 17.50

Granted                                        10,000           9.875
Exercised                                      (1,000)         7.5625
Canceled                                       (6,775)    13.125 - 17.25
                                              -------    ---------------

Balance, December 31, 1994                    403,875     7.5625 - 17.50

Granted                                        30,000           1.00
Canceled                                     (152,075)      7.5625-17.50
                                             --------       ------ -----
Balance, December 31, 1995                    281,800         1.00-17.50
                                              =======       ============

     At December 31, 1995,  options to purchase  251,800 shares were exercisable
        and there were 525,575 options available for grant under the 1986 plan.

(15) Employee Benefit Plans

     The Company has deferred  compensation agreements with certain officers and
        employees,  with benefits  commencing at retirement  equal to 50% of the
        employee's base salary,  as defined.  Payments under the agreements will
        be  made  only  after  a  participant's   employment  with  the  Company
        terminates and then for a period of fifteen years  following the earlier
        of  attainment  of age 65 or death.  During  1995,  1994 and  1993,  the
        Company   accrued   approximately   $203,000,   $191,000  and  $162,000,
        respectively, under these agreements.

     In 1986,  the Company  established  the Porta Systems Corp.  401(k) Savings
        Plan (Savings Plan) for the benefit of eligible employees, as defined in
        the Savings  Plan.  Participants  contribute a specified  percentage  of
        their  base  salary up to a maximum  of 15%.  The  Company  will match a
        participant's  contribution  by an  amount  equal  to 75%  (subsequently
        changed  to  25%  as of  January  1,  1996)  of the  first  six  percent
        contributed  by the  participant.  A  participant  is 100% vested in the
        balance to his credit.  For the years ended December 31, 1995,  1994 and
        1993,  the  Company's  contribution  amounted to $379,000,  $417,000 and
        $475,000, respectively.

     The Company does not provide any other  post-retirement  benefits to any of
        its employees.



                                                                     (Continued)




                                      F-19
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(16) Stockholders' Equity

     During 1993,  the Company  issued  warrants to purchase  155,000  shares of
        Common Stock to certain consultants as partial remuneration for services
        provided. Warrants to purchase 135,000 shares were issued at an exercise
        price  approximating  the fair  market  value  at the date of grant  and
        warrants to purchase the  remaining  20,000  shares of Common Stock were
        issued at an exercise price of $1.00 per share.  In connection  with the
        issuance of these warrants, the Company recorded an expense of $202,000.
        Also, during 1993, warrants to purchase 20,000 shares of Common Stock at
        $1.00 per share were exercised.

     During 1994,  the Company  issued  warrants to purchase  412,500  shares of
        common  stock at an  exercise  price of $3.44  per  share to its  senior
        lender that expire in November,  1999, and warrants to purchase  265,000
        shares of common  stock at an  exercise  price of $3.50 per share to its
        former lenders in return for a discount with respect to the repayment of
        its debt. In connection with the issuance of these warrants, the Company
        recorded  deferred  financing  costs  of  $360,000  and  an  expense  of
        $600,000,  respectively.  In March 1996, the Company, in connection with
        an agreement to amend and extend certain long-term debt, issued warrants
        to purchase  1,000,000  shares of common  stock at an exercise  price of
        $1.00 per share that expire March, 2001 (note 11). As of March 22, 1996,
        all warrants issued to lenders are exercisable.

     In June  1994,   pursuant  to  a  private  placement  to  certain  offshore
        investors,   the  Company  sold  an  aggregate  of  375,000   shares  of
        unregistered  common  stock and  two-year  warrants  to acquire  187,500
        shares  of  common  stock at an  exercise  price of $11 per  share.  The
        Company received proceeds of $2,131,750 net of expenses.

(17) Shareholder Rights Plan

     The Company has adopted a Shareholder Rights Plan in which  preferred stock
        purchase  rights were  distributed to  stockholders as a dividend at the
        rate of one right for each common share.  Each right entitles the holder
        to buy from the Company one  one-hundredth  of a newly  issued  share of
        Series A junior  participating  preferred  stock at an exercise price of
        $35.00 per right.

     The rights  will  be  exercisable  only  if  a  person  or  group  acquires
        beneficial ownership of 20 percent or more of the Company's Common Stock
        or commences a tender or exchange offer upon  consummation of which such
        person or group would  beneficially own 20 percent or more of the Common
        Stock.

     If any person  becomes  the  beneficial  owner of 20 percent or more of the
        Company's  Common  Stock other than  pursuant to an offer for all shares
        which is fair to and otherwise in the best  interests of the Company and
        its stockholders, each right not owned by such person or related parties
        will  enable its  holders  to  purchase,  at the  right's  then  current
        exercise  price,  shares of Common  Stock of the Company (or, in certain
        circumstances as determined by the Board of Directors,  a combination of
        cash,  property,  common  stock or other  securities)  having a value of
        twice the  right's  exercise  price.  In  addition,  if the  Company  is
        involved  in a merger or other  business  combination  transaction  with
        another  person in which its shares are changed or  converted,  or sells
        more than 50 percent of its assets to another  person or  persons,  each
        right that has not previously  been exercised will entitle its holder to
        purchase,  at the right's then current exercise price,  common shares of
        such other person having a value of twice the right's exercise price.


                                                                     (Continued)



                                      F-20
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


     The Company will generally be entitled to redeem the rights, by action of a
        majority of the continuing  directors of the Company,  at $.01 per right
        at any time until the tenth business day following  public  announcement
        that a 20 percent position has been acquired.

(18) Fair Values of Financial Instruments

     Cash equivalents, accounts receivable,  accounts and notes payable, accrued
        expenses  and  short-term   loans  are  reflected  in  the  consolidated
        financial statements at fair value because of the short term maturity of
        these instruments.

     The  carrying  amount of the Company's  long-term  debt  approximates  fair
        value  as  the  extension  of  the  Loan  and  Security   Agreement  was
        renegotiated  on March 13, 1995 with similar terms to those that existed
        at December 31, 1995.

     The carrying amount and estimated  fair value of the  Company's  additional
        financial instruments are summarized as follows:

                                                          December 31, 1995
                                                     Carrying         Estimated
                                                      amount         fair value
                                                      ------         ----------
Receivable from sale of discontinued operations$    1,000,000         1,370,000
                                                   ==========         =========

Convertible subordinated debentures            $   32,224,000        12,626,000
                                                   ==========        ==========


     The estimated  fair value of the receivable  from the sale of  discontinued
        operations is based upon the quoted market price of the shares of common
        stock collateralizing the receivable.  Management's estimated fair value
        of the  convertible  subordinated  debentures  is based on market prices
        obtained from dealers of such debt.

(19) Major Customers

     Consolidated  sales  made  to  a  Korean  telephone   company  amounted  to
        $7,651,000,   $9,599,000  and   $3,330,000  in  1995,   1994  and  1993,
        respectively.  Sales made to a United Kingdom telephone company in 1995,
        1994 and 1993  amounted to  $17,252,000,  $11,566,000  and  $12,713,000,
        respectively.  Sales made to a Mexican  telephone  company in 1995, 1994
        and 1993 amounted to $41,000, $4,987,000 and $7,257,000, respectively.

(20) Contingencies

     At December 31, 1995, the Company was  contingently  liable for outstanding
        letters of credit aggregating  approximately  $5,323,000 as security for
        the performance of certain long-term  contracts and the borrowing from a
        bank of its Korean subsidiary.

     The Company is a party to  various  lawsuits  arising  out of the  ordinary
        conduct of its  business.  Management  believes  that the  settlement of
        these matters will not have a materially adverse effect on the financial
        position of the Company.

                                                                     (Continued)




                                      F-21
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(21) Legal Matters

     The Company and certain of its present  and former officers  and  directors
        are   defendants   in  eight  alleged  class  actions  which  have  been
        consolidated and are pending in the United States District Court for the
        Eastern  District of New York. The actions allege  violations of Section
        10(b) and 20(a) of the  Securities  Exchange  Act of 1934 and Rule 10b-5
        under such Act. The plaintiffs seek,  among other remedies,  unspecified
        monetary damages.

     In March 1996,  the Company  executed a Stipulation of Settlement to settle
        the class actions,  and an order of  preliminary  approval of settlement
        was  approved  by  the  Court.  The  agreement  is  subject  to  certain
        conditions precedent,  including the maintenance by the Company's common
        stock of a certain minimum market value. The settlement, if consummated,
        will  include a cash payment by the  Company's  insurers and issuance by
        the Company of 1,100,000  shares of its common stock,  to be distributed
        in  accordance  with a plan  to be  approved  by the  Court.  Under  the
        agreement,  the Company is not required to  contribute  any cash towards
        the proposed settlement. In connection with the settlement,  the Company
        recorded a charge to income of $1,100,000 in the fourth quarter of 1995,
        based upon the market value of the shares to be issued.

     The Companydenies the material  allegations  and admits no liability of any
        sort in  connection  with the  settlement  and  dismissal of the action.
        Notice of the court  hearing  on the  settlement  has been sent to class
        members,  and the hearing is scheduled for June 7, 1996.  The settlement
        is subject to the final approval of the court.

(22) Segment Disclosure

     The Company operates  exclusively  in  the   telecommunications   industry.
        Customers  include telephone  operating  companies and others within and
        outside the United States and its possessions.

     In the following table, intercompany sales are accounted for at cost plus a
        reasonable  profit.  Identifiable  assets for the  geographic  areas are
        those assets  identified  with the  operations  in each area.  Corporate
        assets consist  principally of cash and cash equivalents,  debt issuance
        costs,  employee loans for debentures and patents.  The Company does not
        allocate costs for product development,  marketing or management to each
        segment.  Thus, the  information  may not be indicative of the extent to
        which geographic areas contributed to the Company's consolidated results
        of operations.



                                                                     (Continued)



                                      F-22
<PAGE>

                      PORTA SYSTEMS CORP. AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


          Geographic area data for the years ended December 31, 1995, 1994 and
1993 are as follows:

<TABLE>
<CAPTION>

                                            1995           1994            1993
                                            ----           ----            ----
<S>                                    <C>               <C>             <C>       
Sales made from:
   United States and Puerto Rico to:
      U.S. customers                   $ 16,445,000      23,831,000      24,718,000
      Foreign customers                  12,875,000      11,069,000       5,828,000
      Intercompany                       14,849,000      25,102,000      27,068,000
                                       ------------    ------------    ------------

                                         44,169,000      60,002,000      57,614,000
                                       ------------    ------------    ------------

Korea-to customers                        7,651,000       9,599,000       3,330,000
                                       ------------    ------------    ------------

Europe-to customers                      24,174,000      19,847,000      27,264,000
Intercompany                              3,735,000         690,000       1,299,000
                                       ------------    ------------    ------------
                                         27,909,000      20,537,000      28,563,000

Other-to customers                           36,000       4,639,000       7,001,000
Intercompany                              2,410,000       3,796,000       2,716,000
                                       ------------    ------------    ------------

                                          2,446,000       8,435,000       9,717,000
                                       ------------    ------------    ------------

Intercompany eliminations               (20,994,000)    (29,588,000)    (31,083,000)
                                       ------------    ------------    ------------

Consolidated sales                     $ 61,181,000      68,985,000      68,141,000
                                       ============    ============    ============

Operating income loss
   United States and Puerto Rico        (22,549,000)    (16,621,000)     (6,383,000)
   Europe                                 2,279,000      (1,465,000)      2,341,000
   Korea                                    288,000         387,000        (113,000)
   Other                                     98,000         158,000         239,000
                                       ------------    ------------    ------------

Consolidated operating (loss)          $(19,884,000)    (17,541,000)     (3,916,000)
                                       ============    ============    ============

Identifiable assets:
   United States and  Puerto Rico        39,600,000      63,200,000      91,915,000
   Europe                                11,414,000      10,505,000       8,578,000
   Korea                                  2,540,000       2,491,000       2,459,000
   Other                                    623,000       1,248,000       1,112,000
                                       ------------    ------------    ------------

Consolidated identifiable assets         54,177,000      77,444,000     104,064,000

Corporate assets                          6,414,000       7,519,000       5,884,000
                                       ------------    ------------    ------------

Consolidated total assets              $ 60,591,000      84,963,000     109,948,000
                                       ============    ============    ============
</TABLE>

                                      F-23



                           CERTIFICATE OF DESIGNATION

                                       OF

                               PORTA SYSTEMS CORP.

               Series B Participating Convertible Preferred Stock


     Pursuant to Section 151(g) of the Delaware  General  Corporation Law, Porta
Systems Corp., a Delaware corporation (the  "Corporation"),  does hereby certify
as follows:

     1. The following  resolution  was duly adopted by the Board of Directors of
the Corporation on November 9, 1995:

          RESOLVED,   that  pursuant  to  Article  4  of  the   Certificate   of
     Incorporation of this Corporation,  there be created a series of the no par
     value Preferred Stock ("Preferred  Stock"), of this Corporation  consisting
     of four hundred thousand (400,000) shares, to be designated as the Series B
     Participating Convertible Preferred Stock ("Series B Preferred Stock"), and
     that the holders of such  shares  shall have the  rights,  preferences  and
     privileges set forth in Exhibit A to this Resolution; and it was further

          RESOLVED,  that the officers of this  Corporation  be, and they hereby
     are,  authorized  and  empowered to execute and file with the  Secretary of
     State of the State of Delaware,  a certificate of designation setting forth
     the  rights,  preferences  and  privileges  of the  holders of the Series B
     Preferred Stock.

     2. Set forth as Exhibit A to this  Certificate of Designation is a true and
correct copy of the rights,  preferences  and  privileges  of the holders of the
Series B Preferred Stock.

     IN WITNESS  WHEREOF,  Porta Systems Corp. has caused this certificate to be
signed by the chairman of the board and chief executive  officer and attested by
its assistant secretary this 8th day of December, 1995.



                                   By: /s/ Vincent F. Santulli
                                      ------------------------------------------
ATTEST:                               Vincent F. Santulli, Chairman of the Board
                                      and Chief Executive Officer


/s/ William V. Carney
- ------------------------------
William V. Carney, Secretary


<PAGE>

                                                                       Exhibit A

The  designation  of,  the  number  of  shares  constituting,  and  the  rights,
preferences, privileges and restrictions relating to, the Series B Participating
Convertible Preferred Stock are as follows:

     1. Designation and Number of Shares. The designation of this series of four
hundred thousand  (400,000)  shares of the  Corporation's no par value preferred
stock ("Preferred Stock"),  created by the Board of Directors of the Corporation
pursuant to the authority  granted to it by the certificate of  incorporation of
the Corporation is "Series B Participating  Convertible  Preferred Stock," which
is hereinafter  referred to as the "Series B Preferred Stock." In the event that
the  Corporation  does not  issue  the  maximum  number  of  shares  of Series B
Preferred  Stock  or in the  event  of the  conversion  of  shares  of  Series B
Preferred Stock into this  Corporation's  common stock, par value $.01 per share
("Common  Stock"),  pursuant to Paragraph 4 of this Certificate of Designations,
or in the event  that the  Corporation  shall  acquire  and cancel any shares of
Series B Preferred  Stock, the Corporation may, from time to time, by resolution
of the Board of  Directors,  reduce the  number of shares of Series B  Preferred
Stock  authorized,  provided,  that no such reduction shall reduce the number of
authorized  shares to a number which is less than the number of shares of Series
B Preferred Stock then issued or reserved for issuance.  The number of shares by
which  the  Series B  Preferred  Stock is  reduced  shall  have  the  status  of
authorized but unissued  shares of Preferred  Stock,  without  designation as to
series until such stock is once more  designated as part of a particular  series
by the Corporation's  Board of Directors.  The Series B Preferred Stock shall be
senior to the Corporation's Series A Junior Participating  Preferred Stock as to
dividends and upon voluntary or involuntary dissolution,  liquidation or winding
up.

     2. Dividend Rights.

          (a) (i) The holders of the Series B Preferred Stock shall  participate
     with  the  holders  of the  Corporation's  Common  Stock  in any  dividends
     declared,  set aside or paid which are payable by the  Corporation in cash,
     instruments of  indebtedness  of the Corporation or property on a share for
     share  basis as if the Series B Preferred  Stock and the Common  Stock were
     shares of a single  class,  except that there shall be paid with respect to
     the  Series B  Preferred  Stock an amount per share  equal to the  dividend
     payable  per share of Common  Stock  multiplied  by the number of shares of
     Common  Stock  into  which  one  share  of  Series  B  Preferred  Stock  is
     convertible pursuant to Paragraph 4 of this Certificate of Designations.

          (ii) In the event that, at the time of the  declaration  of a dividend
     as provided in Paragraph 2(a)(i) of this Certificate of Designations, there
     are outstanding other series of Preferred Stock or other classes of capital
     stock the holders of which participate with the holders of the Common Stock
     in such  dividend,  the  holders  of the  Series B  Preferred  Stock  shall
     participate with the holders of such other class or series of capital stock
     and the  holders  of the  Common  Stock;  provided,  however,  the terms of
     participation  between the holders of the Series B Preferred  Stock and the
     Common Stock shall be as set forth in said Paragraph 2(a)(i).

          (iii) No dividends  shall be declared,  set aside or paid with respect
     to the Common  Stock of this  Corporation  except as provided in  Paragraph
     2(a)(i) of this Certificate of Designations.

     (b) As long as any shares of Series B Preferred Stock are  outstanding,  no
dividends (other than a dividend payable in any series or class of capital stock
ranking junior to Series B Preferred  Stock as to both dividends and payments in
the event of voluntary or involuntary  dissolution,  liquidation or winding up),
shall be declared  or paid or set aside for  payment  and no other  distribution
shall be declared or made upon any such junior series or class of capital stock,
and no such junior  series or class of capital  stock or any series of Preferred
Stock on a  parity  with  Series B  Preferred  Stock  as to both  dividends  and
payments in the event of voluntary or  involuntary  dissolution,  liquidation or
winding  up  shall  be  redeemed,   purchased  or  otherwise  acquired  for  any
consideration  by the  Corporation  or by any  subsidiary  (which shall mean any
corporation or entity,  the majority of voting power to elect directors of which
is held directly or indirectly by the Corporation), except by conversion into or

<PAGE>



exchange for any such junior series or class of capital stock;  unless,  in each
case, the holders of a majority of the Series B Preferred Stock then outstanding
shall consent thereto.

     (c) In the  event  that any  holder  of  Series  B  Preferred  Stock  shall
surrender his shares for conversion pursuant to the provisions of Paragraph 4 of
this Certificate of  Designations,  the holder shall be entitled to dividends to
the extent provided for in Paragraph 4(c) of this Certificate of Designations.

     3. Voting Rights.

     (a)  Except as  otherwise  required  by law,  holders of shares of Series B
Preferred  Stock shall vote  together  with the Common  Stock,  as if the Common
Stock and the Series B Preferred  Stock were a single class;  provided,  that in
all matters the holders of the Series B Preferred  Stock shall have the right to
cast such number of votes per share of Series B Preferred Stock as are issuable,
on the record date for determining  holders entitled to vote, upon conversion of
one  share  of  Series  B  Preferred  Stock  pursuant  to  Paragraph  4 of  this
Certificate of Designations.

     (b) In the event  that,  pursuant  to  applicable  law,  the holders of the
Series B Preferred  Stock are required to vote as a single  class,  separate and
apart from the Common  Stock,  each holder of Series B Preferred  Stock shall be
entitled to one vote per share of Series B Preferred Stock on such matters.

     (c) The  Corporation  is not  restricted  from  creating  other  series  of
Preferred  Stock which may be senior or junior to or on a parity with the Series
B  Preferred   Stock  as  to  dividends   and/or  on  voluntary  or  involuntary
dissolution, liquidation or winding up without the consent of the holders of the
Series B Preferred Stock.

     4. Automatic Conversation into Common Stock.

     (a) Each share of Series B Preferred Stock will,  without any action on the
part of the holder thereof, automatically become and be converted into shares of
Common Stock at the conversion rate hereinafter  defined (the "Conversion Rate")
upon  the  filing  of  a  Certificate   of  Amendment  to  the   Certificate  of
Incorporation of the Corporation  increasing the number of authorized  shares of
Common Stock to at least forty million  (40,000,000) shares (the "Certificate of
Amendment").  The date on which  the  shares  of  Series B  Preferred  Stock are
converted is referred to as the "conversion date."

     (b) The  Conversion  Rate shall  mean the number of shares of Common  Stock
issuable  upon  conversion  of one (1) share of Series B  Preferred  Stock.  The
Conversion  Rate  shall be  fifty  (50)  shares  of  Common  Stock,  subject  to
adjustment as provided in Paragraph 4(e) of this Certificate of Designation.

     (c) Upon  conversion of the Series B Preferred  Stock pursuant to Paragraph
4(a) of this Certificate of Designations, the certificate representing shares of
Series B Preferred Stock shall automatically, and without any action on the part
of the holder,  become and be  converted  into shares of Common  Stock,  and the
Corporation  shall so advise each holder of Series B Preferred Stock,  provided,
that the  failure to so advise the  holders  shall not have any effect  upon the
automatic conversion of the Series B Preferred Stock. As promptly as practicable
on or after the  conversion  date,  the  Corporation or its transfer agent shall
issue and shall deliver a  certificate  or  certificates  for the number of full
shares of Common  Stock  issuable  upon such  conversion,  together  with a cash
payment in lieu of any fraction of any share,  as hereinafter  provided,  to the
person or persons  entitled to receive the same;  provided,  that  delivery of a
certificate   shall  be  deferred  until  receipt  by  the  Corporation  of  the
certificate for the shares of Series B Preferred Stock being  converted.  If, on
the conversion  date, there shall be declared but unpaid dividends on the Series
B  Preferred  Stock,  the  Corporation  shall,  at the time of  payment  of such
dividends,  pay to the converting  holder of Series B Preferred Stock the amount
of such unpaid dividends.  The Corporation may retain, and not distribute to the
holders of Series B Preferred  Stock which shall have been converted into Common

                                      - 2 -

<PAGE>

Stock, any dividends or distributions  payable to the holders of Common Stock of
record on a date subsequent to the date of such conversion until the Corporation
shall  have  received  the  certificates  representing  the  shares  of Series B
Preferred Stock so converted.

     (d) No  payment  or  adjustment  shall be made  upon any  conversion  or on
account of any accrued  dividends on the Series B Preferred  Stock or the Common
Stock issued upon such conversion.

     (e) The Conversion  Rate shall be subject to adjustment with respect to the
number of shares  of Common  Stock  issuable  upon  conversion  of the  Series B
Preferred Stock as follows:

          (i) In case the Corporation  shall after the date this  Certificate of
     Designations  is filed (the  "Filing  Date"),  (A) pay a dividend or make a
     distribution  on its shares of Common Stock in shares of Common Stock,  (B)
     subdivide,  split or reclassify its outstanding Common Stock into a greater
     number of  shares,  (C)  effect a reverse  split or  otherwise  combine  or
     reclassify its outstanding Common Stock into a smaller number of shares, or
     (D) issue any shares by  reclassification of its shares of Common Stock the
     Conversion  Rate in effect at the time of the record date for such dividend
     or distribution or of the effective date of such  subdivision,  combination
     or reclassification shall be proportionately adjusted so that the holder of
     the shares of Series B Preferred  Stock  converted after such date shall be
     entitled to receive the aggregate  number and kind of shares which, if such
     shares had been  converted  immediately  prior to such time,  he would have
     owned upon such conversion and been entitled to receive upon such dividend,
     subdivision, combination or reclassification. Such adjustment shall be made
     successively  whenever any event  listed in this  Paragraph  4(e)(i)  shall
     occur.

          (ii) In case the  Corporation  shall,  subsequent  to the Filing Date,
     issue rights or warrants to all holders of its Common Stock  entitling them
     to  subscribe  for or  purchase  shares  of  Common  Stock  (or  securities
     convertible into Common Stock) at a price (or having a conversion price per
     share) less than the current  market  price of the Common Stock (as defined
     in Paragraph  4(e)(iv) of this  Certificate of  Designations) on the record
     date mentioned  below, the Conversion Rate shall be adjusted by multiplying
     the  Conversion  Rate  in  effect  immediately  prior  to the  date of such
     issuance  by a  fraction,  of which the  numerator  shall be the  number of
     shares of Common Stock  outstanding  on such record date plus the number of
     additional shares of Common Stock offered for subscription or purchased (or
     into which the convertible  securities so offered are  convertible)  and of
     which the  denominator  shall be the  number  of  shares  of  Common  Stock
     outstanding  on  the  record  date  mentioned  below  plus  the  number  of
     additional shares of Common Stock which the aggregate offering price of the
     total  number  of  shares  of Common  Stock so  offered  (or the  aggregate
     conversion  price of the convertible  securities so offered) would purchase
     at such current market price per share of the Common Stock. Such adjustment
     shall be made successively  whenever such rights or warrants are issued and
     shall  become  effective   immediately   after  the  record  date  for  the
     determination of stockholders  entitled to receive such rights or warrants;
     and to the extent that  shares of Common  Stock or  securities  convertible
     into Common Stock are not delivered  after the expiration of such rights or
     warrants,  the Conversion  Rate shall be readjusted to the Conversion  Rate
     which would then be in effect had the adjustments made upon the issuance of
     such  rights or  warrants  been made upon the basis of delivery of only the
     number of shares of Common  Stock (or  securities  convertible  into Common
     Stock) actually delivered.

          (iii) In case the  Corporation  shall,  subsequent to the Filing Date,
     distribute to all holders of Common Stock evidences of its  indebtedness or
     assets  (excluding  cash  dividends  or  distributions  paid out of current
     earnings and dividends or distributions referred to in Paragraph 4(e)(i) of
     this  Certificate  of  Designations)  or  subscription  rights or  warrants
     (excluding  those referred to in Paragraph  4(e)(ii) of this Certificate of
     Designations),  then  in each  such  case  the  Conversion  Rate in  effect
     thereafter shall be determined by multiplying the Conversion Rate in effect
     immediately  prior thereto by a fraction,  of which the numerator  shall be
     the total number of shares of Common Stock  outstanding  multiplied  by the
     current  market  price per share of Common  Stock (as defined in  Paragraph
     4(e)(iv) of this Certificate of Designations), and of which the denominator
     shall be the total number of shares of Common Stock outstanding  multiplied
     by such  current  market  price per share of  Common  Stock,  less the fair
     market value (as  determined  by the  Corporation's  Board of Directors) of

                                      - 3 -

<PAGE>

     said assets or evidences of  indebtedness  so distributed or of such rights
     or warrants.  Such adjustment  shall be made  successively  whenever such a
     record  date is fixed.  Such  adjustment  shall be made  whenever  any such
     distribution  is made and  shall  become  effective  immediately  after the
     record date for the determination of stockholders  entitled to receive such
     distribution.

          (iv) For the purpose of any computation under Paragraphs  4(e)(ii) and
     (iii) of this  Certificate  of  Designations,  the current market price per
     share of Common  Stock at any date shall be deemed to be the average of the
     daily closing  prices for ten (10)  consecutive  business  days  commencing
     fifteen (15) business days before such date. The closing price for each day
     shall be the  reported  last  sale  price  regular  way or, in case no such
     reported sale takes place on such day, the average of the reported last bid
     and asked  prices  regular  way, in either case on the  principal  national
     securities  exchange  on which the Common  Stock is  admitted to trading or
     listed or The Nasdaq Stock Market,  or if not listed or admitted to trading
     on such  exchange or system,  the average of the  reported  highest bid and
     lowest  asked  prices as  reported by National  Association  of  Securities
     Dealers,  Inc. or the National Quotation Bureau,  Inc. or similar reporting
     service  selected  by the  Board of  Directors,  or if no such  prices  are
     available,  the current  market value shall be  determined in good faith by
     the Board of Directors.

          (v) No  increase  or  decrease  in the  Conversion  Rate  pursuant  to
     Paragraph  4(e)(ii) or (iii) of this  Certificate of Designations  shall be
     required unless such adjustment would require an increase or decrease of at
     least one percent (1%);  provided,  however,  that any adjustments which by
     reason of this  Paragraph  4(e)(v)  are not  required  to be made  shall be
     carried  forward and taken into account in any subsequent  adjustment.  All
     calculations  under  this  Paragraph  4(e)  shall  be made  to the  nearest
     one-hundredth (1/100) of a share.

          (vi)  The  Corporation  may  retain  a  firm  of  independent   public
     accountants of recognized  standing selected by the Board of Directors (who
     may be the regular  accountants  employed by the  Corporation)  to make any
     computation  required by Paragraph 4(a) of this Certificate of Designations
     or this  Paragraph  4(e),  and a  certificate  signed by such firm shall be
     conclusive evidence of the correctness of such adjustment.

          (vii) In the event that at any time, as a result of an adjustment made
     pursuant this  Paragraph  4(e),  the holder of shares of Series B Preferred
     Stock  thereafter  shall  become  entitled  to  receive  any  shares of the
     Corporation,  other than Common Stock,  thereafter the number of such other
     shares so receivable  upon conversion of shares of Series B Preferred Stock
     shall be subject to  adjustment  from time to time in a manner and on terms
     as nearly  equivalent as practicable to the provisions  with respect to the
     Common Stock contained in this Paragraph 4.

          (viii) In addition to the  adjustments  provided for in this Paragraph
     4(e), the Corporation may modify the Conversion Rate in a manner which will
     increase the number of shares of Common Stock  issuable upon  conversion of
     the  Series  B  Preferred  Stock  if the  Corporation  believes  that  such
     adjustment  is necessary or  desirable  in order to avoid  adverse  Federal
     income tax consequences to the holders of the Common Stock.

     (f)  Whenever  the  Conversion  Rate shall be  adjusted  as required by the
provisions  of  Paragraph  4(e)  of  this  Certificate  of   Designations,   the
Corporation shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal  office and with its stock transfer agent, if any, an
officer's  certificate  showing the adjusted  Conversion Rate,  setting forth in
reasonable  detail the facts  requiring  such  adjustment.  Each such  officer's
certificate  shall be made available at all  reasonable  times for inspection by
any holder of shares of Series B Preferred  Stock,  and the  Corporation  shall,
forthwith after each such  adjustment,  mail a copy of such certificate by first
class mail to the holder of Series B Preferred Stock at such holders'  addresses
set forth in the Corporation's books and records.


                                      - 4 -

<PAGE>

     (g) In case:

          (i) the  Corporation  shall pay any dividend or make any  distribution
     upon  Common  Stock  (other  than a regular  cash  dividend  payable out of
     retained earnings or cash surplus); or

          (ii) the  Corporation  shall offer to the holders of Common  Stock for
     subscription  or  purchase  by them  any  share of any  class or any  other
     rights, or

          (iii) any  reclassification  of the capital stock of the  Corporation,
     consolidation   or  merger  of  the   Corporation   with  or  into  another
     corporation,  sale,  lease or transfer of all or  substantially  all of the
     property and assets of the Corporation to another corporation, or voluntary
     or involuntary  dissolution,  liquidation or winding up of the  Corporation
     shall be effected;

then in any such case, the  Corporation  shall cause to be mailed by first class
mail to the record  holders of Series B  Preferred  Stock at least ten (10) days
prior to the date  specified in (A) and (B) below,  as the case may be, a notice
containing a brief  description  of the proposed  action and stating the date on
which (A) a record is to be taken for the purpose of such dividend, distribution
or rights,  or (B) such  reclassification,  consolidation,  merger,  conveyance,
lease, dissolution,  liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other  securities
shall receive cash or other  property  deliverable  upon such  reclassification,
reorganization,  consolidation,  merger, conveyance, dissolution, liquidation or
winding up.

     (h) In case of any reclassification, capital reorganization or other change
of  outstanding  shares of Common  Stock of the  Corporation,  or in case of any
consolidation or merger of the Corporation into another  corporation (other than
a merger with a subsidiary  in which merger the  Corporation  is the  continuing
corporation  and  which  does  not  result  in  any  reclassification,   capital
reorganization  or other  change of  outstanding  shares of Common  Stock or the
class  issuable upon  conversion of Series B Preferred  Stock) or in case of any
sale,  lease  or  conveyance  to  another  corporation  of the  property  of the
Corporation as an entirety,  the Corporation shall, as a condition  precedent to
such transaction,  cause effective  provisions to be made so that each holder of
the Series B Preferred  Stock shall have the right  thereafter by converting the
Series B Preferred  Stock, to receive the kind and amount of shares of stock and
other  securities and property  receivable upon such  reclassification,  capital
reorganization and other change, consolidation,  merger, sale or conveyance by a
holder of the number of shares of Common  Stock which  might have been  received
upon  conversion  of the  Series B  Preferred  Stock  immediately  prior to such
reclassification,  change,  consolidation,  merger, sale or conveyance. Any such
provision  shall  include  provision  for  adjustments  which shall be as nearly
equivalent  as may  be  practicable  to the  adjustments  provided  for in  this
Certificate  of  Designations.  The foregoing  provisions of this Paragraph 4(h)
shall similarly apply to successive  reclassifications,  capital reorganizations
and changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.

     (i) No fractional shares or script representing  fractional shares shall be
issued  upon the  conversion  of shares of Series B  Preferred  Stock.  If, upon
conversion  of all shares of Series B Preferred  Stock held,  the holder  would,
except for the  provisions  of this  Paragraph  4(i),  be  entitled to receive a
fractional share of Common Stock,  then an amount equal to such fractional share
multiplied by the fair market value per share of the Corporation's  Common Stock
on the last  business day prior to the  conversion  date,  as determined in good
faith by the Corporation's Board of Directors,  shall be paid by the Corporation
in cash to such holder. Such determination shall be made in the manner set forth
in  Paragraph  4(e)(iv) of this  Certificate  of  Designations,  except that the
business  day  prior  to the  conversion  date  shall  be  used  in  making  the
determination of fair market value.

     (j) The  Corporation  shall at all times,  upon and after the filing of the
Certificate  of  Amendment,  reserve and keep  available,  free from  preemptive

                                      - 5 -

<PAGE>

rights,  out of its  authorized  but unissued  Common Stock,  the full number of
shares of Common Stock then  deliverable  upon the  conversion  of all shares of
Series B Preferred Stock then outstanding.

     (k) The Common Stock  issuable  upon  conversion  of the Series B Preferred
Stock shall,  when so issued, be duly and validly  authorized and issued,  fully
paid and nonassessable.

     (l) Any shares of Series B  Preferred  Stock  which  shall at any time have
been cancelled or acquired by the Corporation or which shall have been converted
into Common Stock pursuant to this Paragraph 4, shall, after such acquisition or
conversion,  have the status of  authorized  but  unissued  shares of  Preferred
Stock, without designation as to series until such stock is once more designated
as part of a particular series by the Corporation's Board of Directors.

     5. No Right of Redemption.  The  Corporation  shall have no right to redeem
any shares of Series B Preferred Stock.

     6. Liquidation Rights.

     (a) (i) In the event of the  liquidation,  dissolution or winding up of the
Corporation, whether voluntary or involuntary, holders of the Series B Preferred
Stock  shall be  entitled  to receive  out of the assets of the  Corporation  an
amount  per share  equal to one cent  ($.01)  per share  plus a sum equal to all
unpaid dividends  theretofore  declared before any payment or distribution  upon
dissolution,  liquidation  or winding up shall be made on any series or class of
capital stock ranking  junior to Series B Preferred  Stock as to such payment or
distribution, and after all such payments or distributions have been made on any
series or class of capital stock ranking senior to the Series B Preferred  Stock
as to such payment or distribution.

     (ii) After payment of the preference set forth in Paragraph 6(a)(i) of this
Certificate of Designations and the payment of the liquidation preference due to
the holders of any class or series of capital stock of the Corporation  which is
senior to the Series B Preferred Stock in the event of liquidation,  dissolution
or winding up, the holders of the Series B Preferred  Stock and the Common Stock
shall participate in such distributions as if they were a single class of stock,
with each share of Series B Preferred  Stock being entitled to a distribution to
which he or she would have been  entitled  it the Series B  Preferred  Stock had
been converted immediately prior to the distribution.

     (iii) In the event that, at the time of such  liquidation,  dissolution  or
winding up,  there are  outstanding  other  series of  Preferred  Stock or other
classes of capital  stock the holders of which  participate  with the holders of
the Common  Stock in such event,  the  holders of the Series B  Preferred  Stock
shall  participate  with the  holders of such  other  class or series of capital
stock and the holders of the Common Stock;  however,  the terms of participation
between the holders of the Series B Preferred  Stock and the Common  Stock shall
be as set forth in Paragraph 6(a)(i) of this Certificate of Designations.

     (b) The sale, conveyance,  exchange or transfer (for cash, shares of stock,
securities or other  consideration)  of all or substantially all of the property
and  assets  of  the  Corporation  shall  be  deemed  a  voluntary  dissolution,
liquidation or winding up of the  Corporation  for purposes of this Paragraph 6.
The  merger  or  consolidation  of  the  Corporation  into  or  with  any  other
corporation or the merger or consolidation of any other corporation into or with
the Corporation, shall not be deemed to be a dissolution, liquidation or winding
up,  voluntary or  involuntary,  for the purposes of this Paragraph 6; provided,
however,  that the  merger or  consolidation  of the  Corporation  into  another
corporation  shall be  deemed  to be a  voluntary  dissolution,  liquidation  or
winding up of the  Corporation  for the  purposes  of this  Paragraph  6, unless
either (i) the  holders of all shares of Series B  Preferred  Stock  outstanding
upon the  effectiveness  of such merger or  consolidation  shall have the right,
upon such  effectiveness,  to receive for each share of Series B Preferred Stock
held by them  upon  such  effectiveness,  one  share of  preferred  stock of the
resulting  or  surviving  corporation,  which share  shall  have,  to the extent

                                      - 6 -

<PAGE>

practicable, dividend and voting rights and rights upon dissolution, liquidation
or winding up reasonably equivalent to those of such share of Series B Preferred
Stock,  and shall have the right to convert such share of  preferred  stock into
the number of shares of stock or other  securities or property  receivable  upon
such merger or  consolidation,  as the case may be, by a holder of the number of
shares of Common  Stock into which  such share of Series B  Preferred  Stock was
convertible  immediately  prior to such  merger  or  consolidation,  subject  to
adjustment as provided in Paragraph 4 of this  Certificate of  Designations,  or
(ii) the merger or  consolidation  was  approved by the holders of a majority of
the shares of Series B Preferred Stock then  outstanding  either at a meeting of
such  stockholders or by a written consent in lieu of a meeting.  The provisions
of this  Paragraph  6(b) shall not be construed to limit the  obligations of the
Corporation pursuant to Paragraph 4(h) of this Certificate of Designations.

     (c) In the event the assets of the Corporation  available for  distribution
to the  holders  of  shares  of  Series  B  Preferred  Stock  upon  dissolution,
liquidation or winding up of the Corporation,  whether voluntary or involuntary,
shall be  insufficient  to pay in full all  amounts  to which such  holders  are
entitled pursuant to Paragraph  6(a)(i) of this Certificate of Designations,  no
such  distribution  shall be made on account of any shares of any other class or
series of capital stock of the  Corporation  ranking on a parity with the shares
of Series B Preferred  Stock upon such  dissolution,  liquidation  or winding up
unless proportionate distributive amounts shall be paid on account of the shares
of Series B Preferred Stock,  ratably,  in proportion to the full  distributable
amounts for which  holders of all such parity shares are  respectively  entitled
upon such dissolution, liquidation or winding up.

     (d) Upon the dissolution, liquidation or winding up of the Corporation, the
holders of shares of Series B Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the  Corporation  available for  distribution to
its  stockholders  all amounts to which such  holders are  entitled  pursuant to
Paragraph  6(a)(i) of this Certificate of Designations  before any payment shall
be made to the holders of any class of capital stock of the Corporation  ranking
junior upon liquidation to Series B Preferred Stock.

     7. Rank of Series.  For purposes of this Certificate of  Designations,  any
stock of any series or class of the Corporation shall be deemed to rank:

          (a) prior to the shares of Series B Preferred  Stock,  as to dividends
     or upon liquidation,  dissolution or winding up, as the case may be, if the
     holders  of such  class or  classes  shall be  entitled  to the  receipt of
     dividends or of amounts  distributable  upon  dissolution,  liquidation  or
     winding  up of the  Corporation,  as the  case  may be,  in  preference  or
     priority to the holders of shares of Series B Preferred Stock;

          (b) on a parity  with  shares  of  Series  B  Preferred  Stock,  as to
     dividends or upon  liquidation,  dissolution or winding up, as the case may
     be, whether or not the dividend rates, dividend payment dates or redemption
     or  liquidation  prices per share or sinking  fund  provisions,  if any, be
     different  from those of Series B Preferred  Stock,  if the holders of such
     stock  shall  be  entitled  to  the  receipt  of  dividends  or of  amounts
     distributable   upon   dissolution,   liquidation  or  winding  up  of  the
     Corporation, as the case may be, in proportion to their respective dividend
     rates or liquidation prices,  without preference or priority,  one over the
     other,  as between  the  holders of such stock and the holders of shares of
     Series B Preferred Stock;

          (c) junior to shares of Series B Preferred  Stock as to  dividends  or
     upon  liquidation,  dissolution  or winding up, as the case may be, if such
     class  shall be  Common  Stock or if the  holders  of  shares  of  Series B
     Preferred  Stock shall be entitled  to receipt of  dividends  or of amounts
     distributable   upon   dissolution,   liquidation  or  winding  up  of  the
     Corporation,  as the case may be, in  preference or priority to the holders
     of shares of such class or classes.

     8. No Preemptive  Rights.  No holder of the Series B Preferred Stock shall,
as such holder,  be entitled as of right to purchase or subscribe for any shares
of  stock  of the  Corporation  of any  class  or any  series  now or  hereafter
authorized or any securities convertible into or exchangeable for any shares, or
any  warrants,  options,  rights  or  other  instruments  evidencing  rights  to

                                      - 7 -

<PAGE>

subscribe  for or purchase  any such shares,  whether  such shares,  securities,
warrants,  options,  rights or other  instruments  be  unissued  or  issued  and
thereafter acquired by the Corporation.

     9. Transfer Agent and  Registrar.  The  Corporation  may appoint a transfer
agent and registrar for the  issuance,  transfer and  conversion of the Series B
Preferred  Stock and for the payment of dividends to the holders of the Series B
Preferred Stock.


                                      - 8 -



                 AMENDMENT NUMBER THREE TO AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT


     This  Amendment  Number  Three to Amended and  Restated  Loan and  Security
Agreement  ("Amendment")  is entered into as of March 12,  1996,  by and between
FOOTHILL CAPITAL CORPORATION,  a California corporation ("Foothill"),  and PORTA
SYSTEMS CORP., a Delaware corporation ("Borrower"), in light of the following:

     FACT ONE:  Borrower and Foothill have previously  entered into that certain
Amended and Restated Loan and Security Agreement, dated as of November 28, 1994,
as amended by  Amendment  Number One to Amended and  Restated  Loan and Security
Agreement, dated as of February 13, 1995, and as amended by Amendment Number Two
to Amended and Restated Loan and Security Agreement,  dated as of March 30, 1995
(collectively, the "Agreement").

     FACT TWO:  Borrower and Foothill  desire to amend and  supplement  the Loan
Documents as provided for and on the conditions herein.

     NOW, THEREFORE,  Borrower and Foothill hereby amend and supplement the Loan
Documents as follows:

     1.  DEFINITIONS.  All initially  capitalized  terms used in this  Amendment
shall  have the  meanings  given to them in the  Agreement  unless  specifically
defined herein.

     2. AMENDMENTS AND SUPPLEMENTS.

     2.1. Renewal and Extension of Term of Agreement.  The term of the Agreement
expires on November 30, 1996.  Borrower and Foothill desire to renew the term of
the  Agreement  and extend the  expiration  date of the term of the Agreement to
November 30, 1998.  The  Agreement is amended as follows to reflect such renewal
and extension:

     A. The  definition  of "Renewal  Date" in Section 1.1 of the  Agreement  is
hereby amended by deleting such definition in its entirety and replacing it with
the following definition:

     "'Renewal Date' means November 30, 1996."

     B. Section 3.4 of the Agreement is hereby  amended by deleting such Section
in its entirety and replacing it with the following language:

          "3.4 Term.  This Agreement  shall become  effective upon the execution
     and delivery  hereof by Borrower  and  Foothill and shall  continue in full
     force and effect for a term  ending on November  30,  1998.  The  foregoing
     notwithstanding, Foothill shall have the right to terminate its obligations
     under this Agreement immediately and without notice upon the occurrence and
     during the continuation of an Event of Default."


<PAGE>

     2.2. Extend Warrants. Borrower and Foothill acknowledge and agree that as a
result of the renewal and  extension  of the term of the  Agreement  pursuant to
Section 2.1 above, the Extend Warrants have become exercisable.

     2.3. Registration Rights. Borrower acknowledges and agrees that pursuant to
Section 10 of the Funding Warrants, the Extend Warrants and the Renewal Warrants
(as  hereinafter  defined),  Borrower  can be  required  by  Foothill  to file a
registration  statement with respect to the shares of Borrower's  stock issuable
upon  exercise  of such  Warrants  before  any of  such  Warrants  are  actually
exercised  and that  Borrower's  failure to do so within  ninety (90) days after
receipt of written notice shall constitute an Event of Default.

     2.4.  Interest  Rate.  Section 2.5(a) of the Agreement is hereby amended by
deleting  such  Section in its  entirety  and  replacing  it with the  following
language:

          "(a) Interest Rate. All  Obligations,  except for undrawn L/Cs and L/C
     Guarantees, and the Deferred Fee Notes, shall bear interest, on the average
     Daily Balance,  at a per annum rate of twelve  percent (12%).  The Deferred
     Fee Notes shall not bear interest prior to an Event of Default."

     2.5. Change in Amount and Payment Terms of Facility Fee.  Section 2.8(c) of
the Agreement  requires Borrower to pay Foothill a Facility Fee in the amount of
Three Hundred Ten Thousand Dollars ($310,000) on November 30 of each year during
the term of the Agreement. Borrower did not make the Facility Fee payment in the
amount of Three Hundred Ten Thousand Dollars ($310,000) which was originally due
on November  30, 1995.  Borrower  and  Foothill  agree that said amount shall be
added to the outstanding  principal balance of the Deferred Funding Fee Note. In
consideration  of the  renewal  and  extension  of the  term  of the  Agreement,
effective  with the Facility Fee payment which is due on November 30, 1996,  the
amount of the Facility Fee shall be  increased  from Three  Hundred Ten Thousand
Dollars ($310,000) to Six Hundred Thousand Dollars ($600,000).  However, instead
of being  payable in a lump sum on November 30 of each year,  the  Facility  Fee
shall be payable in monthly  installments  of Fifty Thousand  Dollars  ($50,000)
each  commencing  on November  30, 1996 and  continuing  on the last day of each
month  thereafter  during the term of the  Agreement.  The  Facility Fee monthly
installment  payments of Fifty Thousand Dollars  ($50,000) shall be deemed to be
fully-earned  and  non-refundable  effective  as of the last  day of each  month
during the term of the Agreement commencing November 30, 1996. Section 2.8(c) of
the Agreement shall be deemed to be amended to reflect the changes in the amount
and payment  terms of the  Facility  Fee as provided in this Section 2.5 of this
Amendment.

     2.6.  Other  Fees.  Section  2.8 of the  Agreement  is amended by  deleting
Section 2.8(a), Section 2.8(b) and Section 2.8(g) in their entirety.

     2.7. Loan  Amortization.  Section 2 of the  Agreement is hereby  amended by
adding the following new Section 2.9 at the end thereof:


                                        2

<PAGE>

          "2.9 Loan Amortization.  In addition to all other payments required to
     be made by  Borrower,  Borrower  shall make  payments  to  Foothill  in the
     following  amounts on the last day of each calendar  quarter  commencing on
     June 30, 1997: (a) Two Hundred Fifty Thousand  Dollars  ($250,000)  each on
     June 30, 1997,  September 30, 1997, and on December 31, 1997, and (b) Three
     Hundred Twenty Five Thousand Dollars  ($325,000) each on March 31, 1998 and
     on the last day of each calendar quarter  thereafter during the term of the
     Agreement.  In  addition  to the  foregoing  payments,  in the  event  that
     Borrower's  "Adjusted  Cash Flow  Amount"  for any of the  above-referenced
     calendar quarters exceeds the amount of the above-referenced  payment to be
     made on the  last  day of such  calendar  quarter,  Borrower  shall  pay to
     Foothill  fifty  percent  (50%) of such excess  amount by not later than 45
     days after each such calendar  quarter except that such excess amount shall
     be paid by not later  than 90 days after each  calendar  quarter  ending on
     December 31. For purposes hereof,  the "Adjusted Cash Flow Amount" for each
     calendar  quarter  shall be  calculated  in  accordance  with the following
     formula:  operating income plus  depreciation  plus  amortization  plus any
     other one time  accounting  adjustments  that are non-cash  items minus all
     interest  minus all fees paid to Foothill and minus Six Hundred Twenty Five
     Thousand  Dollars  ($625,000).  Borrower  shall  deliver to Foothill by not
     later  than 45 days  after  each  calendar  quarter  (commencing  with  the
     calendar  quarter  ending  on June  30,  1997),  a  certificate  signed  by
     Borrower's  chief  financial  officer  setting  forth  the  calculation  of
     Borrower's  Adjusted Cash Flow Amount for such calendar quarter except that
     such  certificate  may be  delivered  to Foothill by not later than 90 days
     after each calendar quarter ending on December 31."

     2.8. Augat, Inc. Sale.  Borrower has entered into a Letter of Intent and is
negotiating a purchase and sale  agreement with Augat,  Inc.  regarding the sale
(the "Sale  Transaction") of Borrower's  assets identified on Exhibit A attached
hereto (the  "Subject  Assets").  The Sale  Transaction  will occur on or before
April  15,  1996  (the  date of the  occurrence  of the Sale  Transaction  being
referred to herein as the "Sale Date").  The purchase  price payable to Borrower
in the Sale  Transaction  is Seven Million Eight Hundred  Ninety Three  Thousand
Dollars  ($7,893,000),  payable as follows: (a) Six Million Seven Hundred Ninety
Three  Thousand  Dollars  ($6,793,000)  in cash on the Sale Date (the "Sale Date
Payment"), and (b) One Million One Hundred Thousand Dollars ($1,100,000) in cash
to be  deposited  into two  escrow  accounts  on the Sale Date  (the  "Escrow").
Borrower shall make arrangements in form and substance  satisfactory to Foothill
for the Sale Date Payment,  the first One Hundred Thousand Dollars ($100,000) to
be disbursed to Borrower from Escrow and fifty  percent (50%) of any  additional
amounts to be disbursed to Borrower from Escrow to be paid directly to Foothill.
Amounts paid to Borrower in respect of employee severance  obligations shall not
be  considered to be part of the proceeds  from the Sale  Transaction.  The Sale
Date Payment will be applied as follows:  (x) first,  to pay Two Hundred  Eighty
Nine Thousand Six Hundred Nineteen Dollars and Ninety One Cents ($289,619.91) in
unpaid  interest and fees owed by Borrower to Foothill  together  with  interest
thereon at the rate of twelve  percent  (12%) per annum from  January 1, 1996 to
the date of receipt of the Sale Date  Payment,  (y)  second,  to pay in full the
Three Million Dollar ($3,000,000) outstanding principal balance of the NWE Line,
and (z) third,  to partially pay the outstanding  principal  balance of the Term

                                        3

<PAGE>

Loan.  Foothill  agrees to release its security  interest in the Subject  Assets
effective as of Foothill's receipt of the Sale Date Payment.

     2.9. Advance Under Revolving Line of Credit.  Upon receipt of the Sale Date
Payment and application  thereof in accordance with Section 2.8 above,  Foothill
will make  available for advance to Borrower  under the Revolving Line an amount
equal to Two Million One Hundred Forty Three Thousand Dollars ($2,143,000) minus
the amount of interest and fees (and accrued interest  thereon) paid pursuant to
Section 2.8(x) above.

     2.10. Restructure of Revolving Line of Credit; Letters of Credit and Letter
of Credit  Guaranty;  and Term  Loan.  Effective  upon  receipt of the Sale Date
Payment and application  thereof in accordance with Section 2.8 above,  Borrower
and Foothill desire to restructure the Revolving Line of Credit,  the Letters of
Credit and Letter of Credit Guaranty facility (the "L/C Facility"), and the Term
Loan by: (a) reducing the Revolving Line Maximum Amount from Ten Million Dollars
($10,000,000)  to Two Million  Dollars  ($2,000,000),  (b)  reducing the maximum
amount  available  to Borrower  under the Letters of Credit and Letter of Credit
Guaranty  facility  from Eight  Million  Dollars  ($8,000,000)  to Seven Million
Dollars  ($7,000,000),  and (c) increasing the outstanding  principal balance of
the  Term  Loan by an  amount  equal to the  amount  by  which  the  outstanding
Obligations  under the  Revolving  Line of Credit  exceed  Two  Million  Dollars
($2,000,000)  after  giving  effect to the advance  provided  for in Section 2.9
above. The Agreement is amended as follows to reflect such restructuring:

     A. The  definition  of  "Combined  Maximum  Amount" in  Section  1.1 of the
Agreement  is hereby  amended by deleting  such  definition  in its entirety and
replacing it with the following definition:

          "'Combined Maximum Amount' means Nine Million Dollars ($9,000,000)"

     B.  Section  2.1(a) of the  Agreement  is hereby  amended by deleting  such
Section in its entirety and replacing it with the following language:

          "2.1 Revolving Line of Credit. (a) Subject to the terms and conditions
     of this  Agreement,  Foothill  agrees to make  revolving  advances  (each a
     "Revolving  Advance")  to Borrower  under a  revolving  line of credit (the
     "Revolving Line") in an aggregate amount outstanding at any one time not to
     exceed the lesser of: (i) Two Million Dollars  ($2,000,000) (the "Revolving
     Line Maximum Amount"),  and (ii) the Borrowing Base less the amount of L/Cs
     and L/C Guarantees  outstanding pursuant to Section 2.2(b). For purposes of
     this Agreement,  "Borrowing Base" shall mean the sum of: (y) eighty percent
     (80%) of the amount of Eligible  Accounts;  plus (z) sixty percent (60%) of
     the amount of Eligible Inventory."

     C. Section 2.2 of the  Agreement is amended by deleting  Section  2.2(a) in
its entirety.

                                        4

<PAGE>

     D. Section  2.2(b) of the Agreement is amended by deleting the reference to
"Eight  Million  Dollars  ($8,000,000)"  and  replacing  it with "Seven  Million
Dollars ($7,000,000)"

     2.11.  Lock Box.  Section 2.6 of the Agreement is hereby  amended by adding
the following new sentence at the end thereof:

     "So long as no Event of Default has  occurred,  funds that are deposited in
     the Lock Box will only be  applied  by  Foothill  to  provisionally  reduce
     Obligations  that are at the time due and payable and any excess funds will
     be refunded to Borrower.  For  example,  so long as no Event of Default has
     occurred,  funds that are  deposited in the Lock Box will not be applied by
     Foothill to prepay Obligations under the Term Loan that are not at the time
     due and payable.  After the  occurrence  of an Event of Default,  all funds
     that  are  deposited  in  the  Lock  Box  may be  applied  by  Foothill  to
     provisionally reduce any and all Obligations."

     2.12. Financial Covenants.  Section 6.13 of the Agreement is hereby amended
by deleting  such Section in its entirety  and  replacing it with the  following
language:

          "6.13 Interest Coverage Ratio. Borrower shall maintain a ratio of: (a)
     EBITDA,  divided by (b)  interest  expense for such quarter of at least the
     "Stipulated  Ratio,"  measured on a fiscal  quarter-end  basis.  This ratio
     shall be measured  initially for the quarter  ending June 30, 1996. As used
     herein,  the  Stipulated  Ratio  shall  mean one to one  (1.0:1.0)  for the
     quarter ended June 30, 1996 and one and one-tenth to one (1.1:1.0) for each
     quarter thereafter."

     2.13. Sale of MRV  Communications,  Inc. Stock. In connection with the sale
of its Israeli  subsidiary,  Borrower received 54,665  unregistered  shares (the
"Shares") of common stock of MRV  Communications,  Inc., a Delaware  corporation
("MRV"),  whose  shares are traded on the Nasdaq  Stock  Market.  The Shares are
presently held in escrow pursuant to an order issued in an Israeli  receivership
proceeding.  MRV has  filed  with  the  Securities  and  Exchange  Commission  a
registration  statement  which  includes the Shares.  Upon  registration  of the
Shares,  Borrower  will sell the Shares at market price as soon as is reasonably
practical.  Borrower shall make arrangements in form and substance  satisfactory
to Foothill for the proceeds from the sale of the Shares (less related  expenses
and escrowed funds not to exceed  $225,000 in the aggregate) to be paid directly
to  Foothill.  The  proceeds  from the sale of the  Shares  will be  applied  to
partially pay the outstanding principal balance of the Term Loan.

     3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Foothill that
all of Borrower's  representations and warranties set forth in the Agreement are
true,  complete and  accurate in all  respects as of the date  hereof.  Borrower
hereby  represents  and warrants to Foothill  that all  information  provided to
Foothill in connection with the Sale  Transaction and the MRV Shares is true and
correct in all material  respects and does not omit any facts  necessary to make
such information not misleading in any material respect.

                                        5

<PAGE>

     4. NO DEFAULTS.  Borrower  hereby affirms to Foothill  that,  except as set
forth on Exhibit B attached  hereto,  no Event of Default  has  occurred  and is
continuing as of the date hereof.  Foothill affirms to Borrower that,  except as
set forth on Exhibit B attached hereto, Foothill has no current actual knowledge
that any Event of Default has occurred and is continuing as of the date hereof.

     5. CONSENT AND WAIVER.  Foothill hereby:  (a) consents to Borrower entering
into  the Sale  Transaction,  (b)  consents  to the  sale of the MRV  Shares  in
accordance with Section 2.13 above, and (c) waives the Event of Default (and the
Default Rate of interest applicable pursuant to Section 2.5(b) of the Agreement)
as a result of the matters  disclosed on Exhibit B attached hereto in respect of
periods prior to the date of this Amendment.

     6. CONDITIONS  PRECEDENT.  The  effectiveness of this Amendment,  including
Foothill's consent and waiver in Section 5 above, is expressly  conditioned upon
the following:

     A.  Foothill  and  Borrower  will  execute  amendments  to the  Amended and
Restated Term Note, the Deferred  Funding Fee Note and the NWE Deferred  Funding
Fee Note in the forms  attached  hereto as Exhibit C: (a) extending the maturity
date of such notes to November 30, 1998, and (b) reflecting the increases in the
outstanding  principal  balance of the  Amended and  Restated  Term Note and the
Deferred Funding Fee Note in accordance with the terms of this Amendment.

     B.  Concurrently  with the  execution  of this  Amendment,  Borrower  shall
execute and issue to  Foothill  warrants  to  purchase  one million  (1,000,000)
shares of Borrower's  common stock in the form attached hereto as Exhibit D (the
"Renewal  Warrants").  Borrower  also shall  execute  and  deliver to Foothill a
letter,  in the form attached  hereto as Exhibit D, confirming that the Exercise
Price  under the Funding  Warrants  and the Extend  Warrants  may be paid by the
cancellation of indebtedness owed by the Borrower to the Warrantholders.

     C. The Sale Transaction shall have been consummated and Foothill shall have
received the Sale Date Payment in accordance with Section 2.8 above by not later
than on April 15, 1996.

     D. Receipt by Foothill of an executed copy of this Amendment.

     E.  Receipt by  Foothill  of an opinion of  Borrower's  counsel in form and
substance  satisfactory  to Foothill  relating to this Amendment and the matters
referred to herein.

In the event the foregoing conditions have not been fulfilled by April 15, 1996,
this Amendment shall be null and void ab initio.

     7. COSTS AND  EXPENSES.  Borrower  shall pay to Foothill all of  Foothill's
out-of-pocket costs and expenses  (including,  without limitation,  the fees and

                                        6

<PAGE>

expenses of its  counsel,  which  counsel may include any local  counsel  deemed
necessary, search fees, filing and recording fees, documentation fees, appraisal
fees,  travel  expenses,   and  other  fees)  arising  in  connection  with  the
preparation,   execution,  and  delivery  of  this  Amendment  and  all  related
documents.

     8.  LIMITED  EFFECT.  In the  event of a  conflict  between  the  terms and
provisions of this Amendment and the terms and provisions of the Agreement,  the
terms and provisions of this Amendment shall govern. In all other respects,  the
Agreement,  as amended and supplemented  hereby,  shall remain in full force and
effect.

     9.  COUNTERPARTS;  EFFECTIVENESS.  This  Amendment  may be  executed in any
number of counterparts and by different parties on separate  counterparts,  each
of which when so executed and delivered  shall be deemed to be an original.  All
such counterparts,  taken together, shall constitute one and the same Amendment.
This  Amendment  shall become  effective  upon the execution of a counterpart of
this Amendment by each of the parties hereto.

     IN WITNESS  WHEREOF,  the parties hereto have executed this Amendment as of
the date first set forth above.


                                           FOOTHILL CAPITAL CORPORATION,
                                           a California corporation
                 
                 
                                           By: [ILLEGIBLE]
                                           ------------------------------------
                 
                                           Title:  Vice President
                                           ------------------------------------
                 
                 
                                           PORTA SYSTEMS CORP.,
                                           a Delaware corporation
                 
                                           By:
                                           ------------------------------------
                 
                                           Title:
                                           ------------------------------------

                                        7

<PAGE>

     Each of the  undersigned  affiliates of Porta  Systems  Corp.  ("Porta") is
aware of the terms of the above Amendment  Number Three, and the prior Amendment
Number Two and  Amendment  Number One, to Amended and Restated Loan and Security
Agreement,   dated  as  of  November  28,  1994  (the  "Loan  Agreement"),   and
acknowledges  that  all  of  such  affiliate's  obligations  under  any  of  the
Collateral  Documents  (as  defined in the  Assignment  Agreement)  is and shall
continue  in full  force and  effect in favor of  Foothill  Capital  Corporation
("Foothill"),  including the  obligations to guarantee the  obligations of Porta
owing to Foothill and to secure such  obligations  pursuant to the terms of such
Collateral Documents.  "Assignment Agreement" shall have the meaning given to it
in the Loan Agreement.


                                           ASTER CORPORATION
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           CPI HOLDING CORP.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           CRITERION PLASTICS, INC.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           DISPLEX, INC.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                        8

<PAGE>



                                           MIROR TELEPHONY SOFTWARE, INC.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           PORTA FOREIGN SALES CORP.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           PORTA SYSTEMS EXPORT CORP.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           PORTA SYSTEMS INTERNATIONAL CORP.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           PORTA SYSTEMS LEASING CORP.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            



                                        9

<PAGE>



                                           PORTA SYSTEMS OVERSEAS CORP.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           LERO INDUSTRIES LTD.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           PORTA SYSTEMS, LIMITED
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           VANDERHOFF BUSINESS SYSTEMS LTD.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            


                                           VANDERHOFF COMMUNICATIONS LTD.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            



                                       10

<PAGE>



                                           PORTA SYSTEMS S.A. de C.V.
            
            
                                           By:
                                           ------------------------------------
            
                                           Name:
                                           ------------------------------------
            
                                           Title:
                                           ------------------------------------
            



                                       11

<PAGE>

                    Attachment to Third Amendment to Amended
         and Restated Loan and Security Agreement by and between Porta
                 Systems Corp. and Foothill Capital Corporation


                                   EXHIBIT "A"

                                 SUBJECT ASSETS

All of the Debtors' right, title and interest in and to the assets  compromising
the  Debtors'  fiber  optics  business  (the  "Business"),   including,  without
limitation, all Acquired Assets that are being sold by the Debtors to Augat Inc.
pursuant  to an  Asset  Purchase  Agreement  dated  as of  March  6,  1996  (the
"Agreement"), including, without limitation:

          (i)    Fixed Assets;
          (ii)   Inventory;
          (iii)  Intellectual Property;
          (iv)   Contracts;
          (v)    Claims; and
          (vi)   Permits

DEFINITIONS:  For  purposes  of  this  Exhibit  "A"  the  following  additional
definitions shall apply:

     (i) "Fixed Assets" means any and all fixed assets relating to the Business,
including,  without  limitation,   machinery,   equipment,  tools  and  tooling,
furniture,  fixtures,  leasehold  improvements  and  motor  vehicles  listed  on
Schedule l.l(a)(i) of the Agreement, as set forth on Schedule I attached hereto,
and all  rights of the  Debtors to the  possession  or use of any  equipment  or
assets  owned by any  governmental  entity and any  warranties  relating  to the
foregoing, and such other fixed assets relating solely to the Business which are
acquired by the Debtors prior to the date of closing (the "Closing Date") of the
Agreement.

     (ii) "Inventory" means the Business's inventories of raw materials, work in
process, finished goods, supplies,  packaging materials, spare parts and similar
items, wherever located, used solely in connection with the Business, including,
without  limitation,   the  Inventory  listed  on  Schedule  l.l(a)(ii)  of  the
Agreement,  as set forth on Schedule II  attached  hereto,  except to the extent
that they have not been sold prior to the  Closing  Date and all such  Inventory
acquired by the Business up to and including the Closing Date.

     (iii) "Intellectual  Property" means all (A) patents,  patent applications,
patent   disclosures   and  all  related   continuation,   continuation-in-part,


<PAGE>

divisional,  reissue, re-examination,  utility model,  certificates of invention
and design patents,  patent  applications,  registrations  and  applications for
registrations,   which  relate  solely  to  the  Business,   including,  without
limitation,  the patents listed on Schedule l.l(a)(iii) of the Agreement, as set
forth  on  Schedule  III  attached  hereto;   (B)  trademarks,   service  marks,
tradedrafts,  logos,  tradenames  and  corporate  names  and  registrations  and
applications for registration thereof, which relate to the Business,  including,
without  limitation,  the  trademarks  listed  on  Schedule  l.l(a)(iii)  of the
Agreement,  as set forth on Schedule III attached  hereto;  (C)  copyrights  and
registrations  and applications for  registration  thereof,  which relate to the
Business;  (D) mask works and  registrations  and  applications for registration
thereof,  which  relate  to  the  Business;  (E)  computer  software,  data  and
documentation,  which relate to the Business, including, without limitation, the
software and documentation listed on Schedule  l.l(a)(iii) of the Agreement,  as
set forth on Schedule III attached  hereto;  (F) trade secrets and  confidential
business  information,  whether  patentable or nonpatentable  and whether or not
reduced  to  practice,   know-how,   manufacturing  and  product  processes  and
techniques,  research and  development  information,  copyrightable  works,  and
confidential   financial,   marketing  and  business  data,   pricing  and  cost
information,  business and marketing  plans and customer and supplier  lists and
information,  which relate solely to the Business;  (G) other proprietary rights
relating  to any of  the  foregoing  (including,  without  limitation,  remedies
against infringements thereof and rights of protection of interest therein under
the laws of all  jurisdictions);  (H) all manufacturing and procedural  manuals,
advertising and  promotional  materials,  studies,  reports and other printed or
written materials,  which relate to the Business, and books, records,  accounts,
ledgers, files,  documents,  correspondence,  lists,  architectural drawings and
specifications  and employment  records,  which relate to the Business;  and (I)
copies and tangible embodiments of any and all of the foregoing.

     (iv) "Contracts"  means all contracts,  agreements and instruments  (except
accounts and notes  receivable)  relating to the  Business,  including,  without
limitation,  the  contracts,  agreements  and  instruments  listed  on  Schedule
l.l(a)(iv) of the Agreement, as set forth on Schedule IV attached hereto.

     (v)  "Claims"  means all claims,  prepayments,  refunds,  causes of action,
choses  in action, rights of recovery, rights of setoff and rights of recoupment
relating  to  any  of  the  items  included   among  Fixed  Assets,   Inventory,
Intellectual Property and Contracts.

     (vi) "Permits" means all permits,  licenses,  registrations,  certificates,
orders,  approvals,  franchises,  variances  and  similar  rights  issued  by or
obtained from any foreign,  federal, state or local governmental,  regulatory or
administrative  authority  or agency,  court or  arbitrational  tribunal,  which

<PAGE>

relate to the Business,  including,  without limitation, those permits listed on
Schedule  l.l(a)(vi)  of the  Agreement,  as set forth on  Schedule  V  attached
hereto.

<PAGE>

                    Attachment to Third Amendment to Amended
         and Restated Loan and Security Agreement by and between Porta
                System Corp. and Foothill Capital Corporation


                                   EXHIBIT "B"

                                EVENTS OF DEFAULT

     Events of Default have  occurred and are  continuing  as of the date hereof
with respect to the  following (Section  references  relate  to  Sections of the
Agreement):

     8.1 Borrower has failed to pay certain Obligations when due and payable.

     8.2(a)  Borrower has failed or neglected to perform,  keep,  or observe the
covenants set forth in the following Sections of the Agreement: (i) in violation
of  Section  7.1,  Borrower  has  guaranteed   certain   indebtedness  of  Aster
Corporation  and  Aster  Ireland  Ltd.  in  favor  of  the  Ireland   Industrial
Development Authority, the successor to Shannon Free Airport Development Company
Limited;  (ii) in violation  of Section  7.2,  Borrower is subject to a contract
provision relating to prohibition  against alienation of certain assets owned by
Aster  (Ireland)  Limited  acquired in  connection  with the Grant Aid Agreement
among Shannon Free Airport Development Company Limited,  Aster (Ireland) Limited
and  Aster  Corporation  dated as of  January  6,  1989;  (iii)  Borrower  is in
violation of Section 6.13(a) through the date of the Amendment; (iv) Borrower is
in  violation  of Section  6.13(b)  through  the date of the  Amendment;  (v) in
violation of Section 7.6, Borrower has guaranteed certain  indebtedness of Aster
Corporation  and  Aster  (Ireland)  Ltd.  in  favor  of the  Ireland  Industrial
Development Authority;  (vi) in violation of Section 7.7, Borrower has conducted
an Exchange  Offer,  whereby  Borrower has exchanged and is offering to exchange
(A) 97 shares of Borrower's  common stock and (B) Borrower's  Zero Coupon Senior
Subordinated  Convertible  Notes  due  January  2,  1998  (the  "Notes")  ln the
principal  amount  of  $767.22  for  each  $1,000  stated  principal  amount  of
Borrower's  6%  Convertible  Subordinated  Debentures  due  July  1,  2002  (the
"Outstanding Debentures") and related accrued interest which has resulted in the
exchange  of  approximately  80% of the  Outstanding  Debentures  to  date,  and
Borrower  has  extended  the  Exchange  Offer until May 15, 1996 and may further
extend the  Exchange  Offer;  and (vii) in violation of Section 7.9, a Change of
Control may occur as a result of the common stock issued in connection  with the
Exchange Offer or issuable upon conversion of the Notes.

     8.2(b)  Borrower has failed or neglected to perform,  keep,  or observe the
following terms, provisions,  conditions,  covenants, or agreements contained in
Section 6 of the Agreement in violation of Section 6.4,  Borrower's auditors may
make certain qualifications in the audit of Borrower's Financial Statements with
respect to Borrower's continuation as a "going concern," illiquidity or

<PAGE>

                    Attachment to Third Amendment to Amended
         and Restated Loan and Security Agreement by and between Porta
                System Corp. and Foothill Capital Corporation

financial  condition and ongoing losses,  and losses are expected to continue at
least through the date of the  Amendment,  which losses in the fourth quarter of
l995 may  significantly  exceed  the per  quarter  losses  for the  first  three
quarters of l995.

     8.3 Borrower is in  violation of Section 8.3 on account of ongoing  losses,
which losses are referenced in Borrower's  Quarterly Report on Form 10-Q for the
Quarter  ended  September  30, 1995 and which are  expected to continue at least
through the date of the Amendment.

     8.10 In violation of Section 8.10,  Borrower has failed to pay interest due
and payable on the outstanding Debentures,  which may result in the acceleration
of the amounts due in respect of the remaining outstanding Debentures.


<PAGE>

                  AMENDMENT NUMBER ONE TO AMENDED AND RESTATED
                             SECURED PROMISSORY NOTE

     This Amendment Number One to Amended and Restated  Secured  Promissory Note
("Amendment")  is entered  into as of March 12,  1996,  by and between  FOOTHILL
CAPITAL CORPORATION,  a California corporation  ("Foothill"),  and PORTA SYSTEMS
CORP., a Delaware corporation ("Borrower"), in light of the following:

     FACT ONE:  Borrower  has executed  and  delivered to Foothill  that certain
Amended and Restated  Secured  Promissory  Note, dated February 13, 1995, in the
original principal amount of $13,502,187.50 (the "Note").

     FACT TWO:  Borrower and  Foothill  desire to amend the Note to increase the
outstanding principal balance of the Note and to extend the maturity date of the
Note as provided for and on the conditions herein.

     NOW, THEREFORE, Borrower and Foothill hereby amend the Note as follows:

     1.  The  outstanding  principal  balance  of  the  Note  has  increased  by
$_______________  from  $13,502,187.50  to  $_______________.  Accordingly,  all
references in the Note to the sum of  "$13,502,187.50"  are hereby replaced with
the sum of "_________________."

     2. Section 2 of the Note is hereby  amended by deleting such Section in its
entirety and replacing it with the following language:

          "2. Schedule of Payments

          Principal  and  interest  under  this  Note  shall be due and  payable
     according to the following schedule:  (a) interest shall be due and payable
     on the  first day of each  month  commencing  March 1, 1995 and  continuing
     thereafter  until this Note has been paid in full;  (b) principal  shall be
     due and payable on November 30, 1998."

     3.  COUNTERPARTS;  EFFECTIVENESS.  This  Amendment  may be  executed in any
number of counterparts and by different parties on separate  counterparts,  each
of which when so executed and delivered  shall be deemed to be an original.  All


<PAGE>

such counterparts,  taken together, shall constitute one and the same Amendment.
This  Amendment  shall become  effective  upon the execution of a counterpart of
this Amendment by each of the parties hereto.

     IN WITNESS  WHEREOF,  the parties hereto have executed this Amendment as of
the date first set forth above.

                                           FOOTHILL CAPITAL CORPORATION,
                                           a California corporation

                                           By:
                                           ------------------------------------
                 
                                           Title:
                                           ------------------------------------




                                           PORTA SYSTEMS CORP.,
                                           a Delaware corporation

                                           By:
                                           ------------------------------------
                 
                                           Title:
                                           ------------------------------------



<PAGE>

         AMENDMENT NUMBER ONE TO DEFERRED FUNDING FEE NOTE

     This Amendment  Number One to Deferred  Funding Fee Note  ("Amendment")  is
entered into as of March 12, 1996, by and between FOOTHILL CAPITAL  CORPORATION,
a California  corporation  ("Foothill"),  and PORTA  SYSTEMS  CORP.,  a Delaware
corporation ("Borrower"), in light of the following:

     FACT ONE:  Borrower  has executed  and  delivered to Foothill  that certain
Deferred  Funding Fee Note,  dated November 28, 1994, in the original  principal
amount of $2,474,394.73 (the "Note").

     FACT TWO:  Borrower and  Foothill  desire to amend the Note to increase the
outstanding principal balance of the Note and to extend the maturity date of the
Note as provided for and on the conditions herein.

     NOW, THEREFORE, Borrower and Foothill hereby amend the Note as follows:

     1. The outstanding  principal balance of the Note has increased by $310,000
from $2,474,394.73 to $2,784,394.73.  Accordingly, all references in the Note to
the sum of "$2,474,394.73" are hereby replaced with the sum of "$2,784,394.73."

     2. Section 2 of the Note is hereby  amended by deleting such Section in its
entirety and replacing it with the following language:

          "2. Schedule of Payments

          The outstanding principal balance of this Note shall be due in payable
     on November 30, 1998."

     3.  COUNTERPARTS;  EFFECTIVENESS.  This  Amendment  may be  executed in any
number of counterparts and by different parties on separate  counterparts,  each
of which when so executed and delivered  shall be deemed to be an original.  All
such counterparts,  taken together, shall constitute one and the same Amendment.
This  Amendment  shall become  effective  upon the execution of a counterpart of
this Amendment by each of the parties hereto.

     IN WITNESS  WHEREOF,  the parties hereto have executed this Amendment as of
the date first set forth above.

                                           FOOTHILL CAPITAL CORPORATION,
                                           a California corporation

                                           By:
                                           ------------------------------------
                 
                                           Title:
                                           ------------------------------------




<PAGE>


                                           PORTA SYSTEMS CORP.,
                                           a Delaware corporation

                                           By:
                                           ------------------------------------
                 
                                           Title:
                                           ------------------------------------


<PAGE>

              AMENDMENT NUMBER ONE TO NWE DEFERRED FUNDING FEE NOTE

     This Amendment Number One to NWE Deferred Funding Fee Note ("Amendment") is
entered into as of March 12, 1996, by and between FOOTHILL CAPITAL  CORPORATION,
a California  corporation  ("Foothill"),  and PORTA  SYSTEMS  CORP.,  a Delaware
corporation ("Borrower"), in light of the following:

     FACT ONE:  Borrower has executed and delivered to Foothill that certain NWE
Deferred  Funding Fee Note,  dated February 13, 1995, in the original  principal
amount of $300,000 (the "Note").

     FACT TWO:  Borrower and  Foothill  desire to amend the Note as provided for
and on the conditions herein.

     NOW, THEREFORE, Borrower and Foothill hereby amend the Note as follows:

     1. Section 2 of the Note is hereby  amended by deleting such Section in its
entirety and replacing it with the following language:

          "2. Schedule of Payments

          The outstanding principal balance of this Note shall be due in payable
     on November 30, 1998."

     2.  COUNTERPARTS;  EFFECTIVENESS.  This  Amendment  may be  executed in any
number of counterparts and by different parties on separate  counterparts,  each
of which when so executed and delivered  shall be deemed to be an original.  All
such counterparts,  taken together, shall constitute one and the same Amendment.
This  Amendment  shall become  effective  upon the execution of a counterpart of
this Amendment by each of the parties hereto.

     IN WITNESS  WHEREOF,  the parties hereto have executed this Amendment as of
the date first set forth above.

                                           FOOTHILL CAPITAL CORPORATION,
                                           a California corporation

                                           By:
                                           ------------------------------------
                 
                                           Title:
                                           ------------------------------------


                                           PORTA SYSTEMS CORP.,
                                           a Delaware corporation

                                           By:
                                           ------------------------------------
                 
                                           Title:
                                           ------------------------------------


<PAGE>

     THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT
     BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
     APPLICABLE STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS
     SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
     LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
     REQUIREMENTS.


                                     WARRANT

                           TO PURCHASE COMMON STOCK OF

                               PORTA SYSTEMS CORP.

                          ----------------------------
                            Void After March 11, 2001



     PORTA SYSTEMS CORP., a Delaware corporation (the "Company"), hereby
certifies that, for value received the adequacy and receipt of which are hereby
acknowledged, FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), or its registered assigns (collectively, the "Warrantholders"), is
entitled, subject to the terms and conditions set forth in this Warrant (said
Warrant and any warrants issued in exchange herefor or transfer or replacements
hereof are collectively referred to as the "Warrants"), to purchase from the
Company one million (1,000,000) fully paid and nonassessable shares of Common
Stock of the Company, par value $.01 per share (the "Common Stock," which term
is further defined in Paragraph 4(i) hereof) in whole or in part, at any time or
from time to time until 5 p.m. California local time on March 11, 2001
("Exercise Period") at a purchase price of One Dollar ($1.00) per share (the
"Exercise Price"), the number of such shares of Common Stock and the Exercise
Price being subject to adjustment as provided herein.

     1. Exercise of Warrant. The rights represented by this Warrant may be
exercised by the Warrantholders, in whole or in part (but not as to a fractional
share of Common Stock), during the Exercise Period by the presentation and
surrender of this Warrant with written notice of Warrantholders' election to
purchase, at the principal executive office of the Company, or at such other
address as the Company may designate by notice in writing to the Warrantholders
at the address of such Warrantholders appearing on the books of the Company, and
upon payment to the Company of the Exercise Price for such shares of Common
Stock. The Company agrees that the shares so purchased (the "Warrant Shares")
shall be deemed to have been


<PAGE>

issued to the Warrantholders as the record owner of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered together with the aforementioned written notice of election to
purchase, and payment for such Warrant Shares shall have been made as aforesaid.
Certificates for the Warrant Shares so purchased shall be delivered to the
Warrantholders within a reasonable time, not exceeding five (5) business days,
after the rights represented by this Warrant shall have been so exercised, and,
unless this Warrant has expired, a new Warrant representing the number of
shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the Warrantholders within such time.

     2. Exercise Price. Warrant Shares shall be purchased at the Exercise Price
set forth above, subject to adjustment as provided herein. Anything contained
herein to the contrary notwithstanding, at the option of the Warrantholders, the
Exercise Price may be paid in any one or a combination of the following forms:
(a) by wire transfer to the Company, (b) by certified or cashier's check to the
order of the Company, and/or (c) by the cancellation of any indebtedness owed by
the Company to the Warrantholders.

     3. Warrantholders Not Deemed Stockholders. The Warrantholders shall not be
entitled to vote or receive dividends or be deemed the holders of Common Stock,
nor shall anything contained herein be construed to confer upon the
Warrantholders, as holders of Warrants, any of the rights of a stockholder of
the Company or any right to vote upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue of stock, reclassification of stock,
change of par value or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends, except as otherwise provided herein, until this Warrant shall have
been exercised and the Warrant Shares receivable upon the exercise hereof shall
have become deliverable as provided in Paragraph 1 above.

     4. Adjustment of Number of Shares, Exercise Price and Nature of Securities
Issuable Upon Exercise of Warrants.

     (a) Exercise Price: Adjustment of Number of Shares. The Exercise Price
shall be subject to adjustment from time to time as hereinafter provided. Upon
each adjustment of the Exercise Price, the Warrantholders shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, a
number of shares obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the



                              2

<PAGE>

product thereof by the Exercise Price resulting from such adjustment.

     (b) Adjustment of Exercise Price Upon Issuance of Common Stock. If and
whenever after the date hereof the Company shall issue or sell Additional Shares
of Common Stock (as defined below) without consideration or for a consideration
per share less than the Current Market Price or the Exercise Price then in
effect immediately prior to the issuance or sale of such shares, then the
Exercise Price in effect immediately prior to such issuance or sale of such
shares shall be reduced to a number which shall be calculated by dividing (A) an
amount equal to the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing Exercise
Price plus (2) the aggregate consideration, if any, received by the Company upon
such issue or sale, by (B) the total number of shares of Common Stock
outstanding immediately after such issue or sale.

     No adjustment of the Exercise Price, however, shall be made in an amount
less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward, shall amount
to $.01 per share or more.

     The provisions of this Paragraph 4(b) shall not apply to any Additional
Shares of Common Stock which are (i) distributed to holders of Common Stock
pursuant to a stock split for which an adjustment is provided for under
Paragraph 4(f).

     As used in this Warrant, the following terms shall have the following
meanings:

     "Additional Shares of Common Stock" shall mean all shares of Common Stock
issued or issuable by the Company after March 12, 1996 which have not previously
been authorized for issuance prior to such date.

     "Fair Value" means the Fair Value of the appropriate security, property,
assets, business or entity as determined in accordance with the following
procedure: The Company and the holders of the Warrants and Warrant Shares, as
applicable, shall use their best efforts to mutually agree to a determination of
Fair Value within ten (10) days of the date of the event requiring that such a
determination be made. If the Company and such holders are unable to reach
agreement within said ten (10) day period, the Company shall within ten (10)
days of the expiration of the ten (10) day period above referred to retain an
independent nationally recognized investment banking or appraisal firm approved
by a majority of



                              3

<PAGE>

the holders of Warrants and Warrant Shares (which appraisal firm shall not be
the investment banking firm regularly retained by the Company or any of such
holders). Such firm shall determine (within thirty (30) days of their being
retained) the Fair Value of the security, property, assets, business or entity,
as the case may be, in question and deliver their opinion in writing to the
Company and to such holders, which determination shall be conclusive and binding
on the Company and such holders. The fees and expenses of any such determination
made by any such independent investment banking or appraisal firm shall be paid
by the Company.

     "Current Market Price" of a share of Common Stock or of any other security
on any date specified herein means the average of the daily closing prices for
the thirty (30) trading days before such date. The closing price for each day
shall be (i) the last sale price of shares of Common Stock or such other
security, regular way, on such date or, if no such sale takes place on such
date, the average of the closing bid and asked prices thereof on such date, in
each case as officially reported on the principal national securities exchange
on which the same are then listed or admitted to trading, or (ii) if no shares
of Common Stock or if no securities of the same class as such other security are
then listed or admitted to trading on any national securities exchange, the
average of the reported closing bid and asked prices thereof on such date in the
over-the-counter market as shown by the National Association of Securities
Dealers automated quotation system or, if no shares of Common Stock or if no
securities of the same class as such other security are then quoted in such
system, as published by the National Quotation Bureau, Incorporated or any
similar successor organization, then in either case as reported by any member
firm of the New York Stock Exchange selected by the Company.

     (c) Further Provisions for Adjustment of Exercise Price Upon Issuance of
Additional Shares of Common Stock and Convertible Securities. For purposes of
Paragraph 4(b), the following provisions shall also be applicable:

     (i) In case at any time on or after the date hereof, the Company shall
declare any dividend, or order any other distribution, upon any stock of the
Company of any class, payable in Additional Shares of Common Stock or by the
issuance of evidence of indebtedness, shares of stock or other securities which
are at any time directly or indirectly convertible into or exchangeable for
Additional Shares of Common Stock (all such indebtedness and securities are
referred to as "Convertible Securities") then the Exercise Price shall be
adjusted to that price determined by multiplying the Exercise Price per share of
Common Stock in effect immediately prior to such event by a fraction (A) the



                                        4

<PAGE>

numerator of which shall be the total number of outstanding shares of Common
Stock of the Company immediately prior to such event, and (B) the denominator of
which shall be the total number of outstanding shares of Common Stock of the
Company immediately after such event, treating as outstanding all shares of
Common Stock issuable upon conversions or exchanges of such Convertible
Securities.

     (ii) (A) In case at any time on or after the date hereof, the Company shall
in any manner issue or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, there
shall be determined the price per share for which Additional Shares of Common
Stock are issuable upon the conversion or exchange thereof, such determination
to be made by dividing (a) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof by (b) the maximum
aggregate number of Additional Shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities for such minimum aggregate amount
of additional consideration; and such issue or sale shall be deemed to be an
issue or sale for cash (as of the date of issue or sale of such Convertible
Securities) of such maximum number of Additional Shares of Common Stock at the
price per share so determined, and shall thereby cause an adjustment in the
Exercise Price, if such an adjustment is required by Paragraph 4(b) hereof.

     (B) If such Convertible Securities shall by their terms provide for an
increase or increases, with the passage of time, in the amount of additional
consideration, if any, payable to the Company, or in the rate of exchange upon
the conversion or exchange thereof, the adjusted Exercise Price shall, upon any
such increase becoming effective, be increased to such Exercise Price as would
have been in effect had the adjustments made upon the issuance of such
Convertible Securities been made upon the basis of (and the total consideration
received therefor) (a) the issuance of the number of shares of Common Stock
theretofore actually delivered upon the exercise of such Convertible Securities,
(b) the issuance of all Common Stock, all Convertible Securities and all rights
and options to purchase Common Stock issued after the issuance of such
Convertible Securities, and (c) the Convertible Securities originally issued
which at the time of such change are then still outstanding taking into account
the new exercise price; provided, however, that any such increase or increases
shall not exceed, in the aggregate, the amount of the original reduction of the
Exercise Price attributable to the Convertible Securities.




                                        5

<PAGE>

     (C) If any rights of conversion or exchange evidenced by such Convertible
Securities shall expire without having been exercised, the adjusted Exercise
Price shall forthwith be readjusted to such Exercise Price as would have been in
effect had an adjustment with respect to such Convertible Securities been made
on the basis that the only Additional Shares of Common Stock issued or sold were
those issued upon the conversion or exchange of such Convertible Securities, and
that they were issued or sold for the consideration actually received by the
Company upon such exercise, plus the consideration, if any, actually received by
the Company for the granting of such Convertible Securities.

     (iii) (A) In case at any time on or after the date hereof, the Company
shall in any manner grant or issue any rights or options to subscribe for,
purchase or otherwise acquire Additional Shares of Common Stock, whether or not
such rights or options are immediately exercisable, there shall be determined
the price per share for which Additional Shares of Common Stock are issuable
upon the exercise of such rights or options, such determination to be made by
dividing (a) the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of such rights or options if the maximum number of Additional
Shares were issued pursuant to such rights or options for such minimum aggregate
amount of additional consideration, by (b) the maximum number of Additional
Shares of Common Stock of the Company issuable upon the exercise of all such
rights or options for such minimum aggregate amount of additional consideration;
and the granting of such rights or options shall be deemed to be an issue or
sale for cash (as of the date of the granting of such rights or options) of such
maximum number of Additional Shares of Common Stock at the price per share so
determined, and shall thereby cause an adjustment in the Exercise Price, if such
an adjustment is required by Paragraph 4(b) hereof.

     (B) If such rights or options shall by their terms provide for an increase
or increases, with passage of time, in the amount of additional consideration
payable to the Company upon the exercise thereof, the adjusted Exercise Price
shall, upon any such increases becoming effective, be increased to such Exercise
Price as would have been in effect had the adjustments made upon the issuance of
such rights or options been made upon the basis of (and the total consideration
received therefor) (a) the issuance of the number of shares of Common Stock
theretofore actually delivered upon the exercise of such rights or options, (b)
the issuance of all Common Stock, all rights and options and all Convertible
Securities issued after the issuance of such rights and options, and (c) the
Convertible Securities



                                        6

<PAGE>

originally issued which at the time of such change are still outstanding taking
into account the new exercise price; provided, however, that any such increase
or increases in the Exercise Price shall not exceed, in the aggregate, the
amount of the original reduction of the Exercise Price attributable to the grant
of such rights or options.

     (C) If any such rights or options shall expire without having been
exercised, the adjusted Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been in effect had an adjustment with respect to
such rights or options been made on the basis that the only Additional Shares of
Common Stock so issued or sold were those issued or sold upon the exercise of
such rights or options and that they were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of such rights or
options.

     (iv) (A) In case at any time on or after the date hereof, the Company shall
grant any rights or options to subscribe for, purchase or otherwise acquire
Convertible Securities, there shall be determined the price per share for which
Additional Shares of Common Stock are issuable upon the exchange or conversion
of such Convertible Securities if such rights or options were exercised, such
determination to be made by dividing (a) the total amount, if any, received or
receivable by the Company as consideration for the issuance of such rights or
options, plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of such rights or options if the
maximum number of Convertible Securities were issued pursuant to such rights or
options for such minimum aggregate amount of additional consideration, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exchange or conversion of such Convertible Securities if the
maximum number of Additional Shares were issued pursuant to such Convertible
Securities for such minimum aggregate amount of additional consideration, by (b)
the maximum aggregate number of Additional Shares of Common Stock issuable upon
the exchange or conversion of the Convertible Securities for such minimum
aggregate amount of additional consideration; and the issue or sale of such
rights or options shall be deemed to be an issue or sale for cash (as of the
date of the granting of such rights or options) of such maximum number of
Additional Shares of Common Stock at the price per share so determined, and
thereby shall cause an adjustment in the Exercise Price, if such an adjustment
is required by Paragraph 4(b).

     (B) If such rights or options to subscribe for or otherwise acquire
Convertible Securities shall by their terms provide for an increase or
increases, with the passage of time, in the amount of additional



                                        7

<PAGE>

consideration payable to the Company upon the exercise, exchange or conversion
thereof, the adjusted Exercise Price shall, forthwith upon any such increase
becoming effective, be increased to such Exercise Price as would have been in
effect had the adjustments made upon the issuances of such rights or options
been made upon the basis of (and the total consideration received therefor) (a)
the issuance of the number of shares of Common Stock theretofore actually
delivered upon the exchange or conversion of such Convertible Securities (b) the
issuances of all Common Stock and all rights, options and Convertible Securities
issued after the issuance of such rights and options and (c) the Convertible
Securities originally issued which at the time of such change are then still
outstanding taking into account the new exercise price; provided, however, that
any such increase or increases shall not exceed, in the aggregate, the amount of
the original reduction of the Exercise Price attributable to the grant of such
rights or options.

     (C) If any such rights, options or rights of conversion or exchange of such
Convertible Securities shall expire without having been exercised, exchanged or
converted, the adjusted Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been in effect had an adjustment been made with
respect to such rights, options or rights of conversion or exchange of such
Convertible Securities on the basis that the only Additional Shares of Common
Stock so issued or sold were those issued or sold upon the exercise of such
rights or options and exchange or conversion of such Convertible Securities and
that they were issued or sold for the consideration actually received by the
Company upon exercise of such rights and options and exchange or conversion of
such Convertible Securities, plus the consideration, if any, actually received
by the Company for the granting of such rights, options or Convertible
Securities.

     (v) In any case where an adjustment has been made in the Exercise Price
upon the issuance of Convertible Securities or any rights or options to purchase
Convertible Securities or Additional Shares of Common Stock pursuant to this
Paragraph 4(c), no further adjustment shall be made at the time of the
conversion of any such Convertible Securities or at the time of the exercise of
any such rights or options.

     (vi) In case at any time on or after the issuance of this Warrant any
shares of Common Stock or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
payable to the Company shall be deemed to be the Fair Value of such
consideration. Whether or not the consideration so received is cash, the amount
thereof shall be



                                        8

<PAGE>

determined without deducting therefrom any expenses incurred or any underwriting
commissions or concessions or discounts paid or allowed by the Company in
connection therewith.

     (vii) In case at any time the Company shall fix a record date of the
holders of its Common Stock for the purpose of entitling them (a) to receive a
dividend or other distribution payable in Common Stock, Convertible Securities
or rights or options to purchase either thereof, or (b) to subscribe for or
purchase Common Stock, Convertible Securities or rights or options to purchase
either thereof, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed, pursuant to this Paragraph
4(c), to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be provided, however, that the Company
may elect to defer until the occurrence of such event (i) issuing to the holder
of any Warrant exercised after such record date the Warrant Shares and other
securities of the Company, if any, issuable upon such exercise over and above
the Warrant Shares and other securities of the Company, if any, issuable upon
such exercise on the basis of the Exercise Price prior to such adjustment and
(ii) paying to such holder any amount in cash in lieu of a fractional share
pursuant to Section 6 provided, however, that the Company deliver to such holder
a due bill or other appropriate instrument evidencing such holder's right to
receive such additional Warrant Shares, other securities and cash upon the
occurrence of the event requiring such adjustment.

     (viii) The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the Company, and
the disposition of any such shares shall be considered an issue or sale of
Common Stock for the purposes of this Paragraph 4(c).

     (d) Reorganization, Reclassification, Consolidation, Merger or Sale. If any
capital reorganization or reclassification of the capital stock of the Company,
or any consolidation or merger of the Company with another corporation, or the
sale of all or substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be entitled to receive
cash, stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Warrantholders shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant upon exercise of this Warrant and in lieu of the shares of the Common
Stock of the Company



                                        9

<PAGE>

immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such cash, shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of such Common
Stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, and in any such case appropriate provision shall
be made with respect to the rights and interest of the Warrantholders to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not effect
any consolidation, merger or sale of all or substantially all of the assets of
the Company unless prior to or simultaneous with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation, merger or purchase of such assets shall assume, by written
instrument executed and mailed or delivered to the Warrantholders, the
obligation to deliver to such Warrantholders such cash (or cash equivalent),
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Warrantholders may be entitled to receive and containing the
express assumption of such successor corporation of the due and punctual
performance and observance of each provision of this Warrant to be performed and
observed by the Company and of all liabilities and obligations of the Company
hereunder; provided, however, in the case of any consolidation or merger of the
Company with another corporation or the sale of all or substantially all of its
assets to another corporation effected in such a manner that the holders of
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, at the election of each
Warrantholder, in lieu of receiving such stock, securities or assets, such
Warrantholder shall receive cash equal to the Fair Value of the Common Stock
issuable upon exercise of the Warrant, less the Exercise Price payable upon
exercise thereof.

     In case any Additional Shares of Common Stock or Convertible Securities or
any rights or options to purchase any Additional Shares of Common Stock or
Convertible Securities shall be issued in connection with any merger of another
corporation into the Company, the amount of consideration therefor shall be
deemed to be the Fair Value of such portion of the assets of such merged
corporation as the Board of Directors of the Company shall in good faith
determine to be attributable to such Additional Shares of Common Stock,
Convertible Securities or rights or options, as



                              10

<PAGE>

the case may be, and the Exercise Price shall be adjusted in accordance with
this Paragraph 4(d).

     (e) Company to Prevent Dilution. In case at any time or from time to time
conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Section 4, and which would
materially and adversely affect the exercise rights of the Warrantholders under
any provision of this Warrant, unless the adjustment necessary shall be agreed
upon by the Company and the Warrantholders, the Board of Directors of the
Company shall appoint a firm of independent certified public accountants of
recognized standing, acceptable to the Warrantholders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Paragraph 4, necessary with respect to the Exercise Price and the number of
shares purchasable upon exercise of the Warrants, so as to preserve, without
dilution, the exercise rights of the Warrantholders. Upon receipt of such
opinion, such Board of Directors shall forthwith make the adjustments described
therein.

     (f) Stock Splits and Reverse Splits. In case at any time the Company shall
subdivide its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision shall
be proportionately reduced and the number of shares of Common Stock purchasable
pursuant to this Warrant immediately prior to such subdivision shall be
proportionately increased, and conversely, in case at any time the Company shall
combine its outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of shares of Common Stock purchasable
upon the exercise of this Warrant immediately prior to such combination shall be
proportionately reduced.

     (g) Dissolution, Liquidation and Wind-Up. In case the Company shall, at any
time prior to the expiration of this Warrant and prior to the exercise thereof,
dissolve, liquidate or wind up its affairs, the Warrantholders shall be
entitled, upon the exercise of this Warrant, to receive, in lieu of the shares
of Common Stock of the Company which such Warrantholders would have been
entitled to receive, the same kind and amount of assets as would have been
issued, distributed or paid to such Warrantholders upon any such dissolution,
liquidation or winding up with respect to such shares of Common Stock of the
Company, had such Warrantholders been the holders of record of the Warrant
Shares receivable upon the exercise of this Warrant on the record date for the
determination of those persons entitled to receive any such liquidating
distribution. After any such dissolution,



                              11

<PAGE>

liquidation or winding up which shall result in any cash distribution in excess
of the Exercise Price provided for by this Warrant, the Warrantholders may, at
each such Warrantholder's option, exercise the same without making payment of
the Exercise Price, and in such case the Company shall, upon the distribution to
said Warrantholders, consider that said Exercise Price has been paid in full to
it and in making settlement to said Warrantholders, shall deduct from the amount
payable to such Warrantholders an amount equal to such Exercise Price.

     (h) The Company's Chief Financial Officer Certificate. In each case of an
adjustment in the number of shares of Common Stock or other stock, securities or
property receivable on the exercise of the Warrants, the Company at its expense
shall cause the Company, Chief Financial Officer, to compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based, including a statement of (a) the consideration received or to be
received by the Company for any Additional Shares of Common Stock, rights,
options or Convertible Securities issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock of each class outstanding or
deemed to be outstanding, (c) the adjusted Exercise Price and (d) the number of
shares issuable upon exercise of this Warrant. The Company will forthwith mail a
copy of each such certificate to each Warrantholder.

     (i) Definition of Common Stock. As used herein, the term "Common Stock"
shall mean and include the Company's authorized common stock of any class or
classes, and shall also include any capital stock of any class of the Company
hereafter authorized which shall not be limited to a fixed sum or percentage of
par value in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, and shall include any
common stock of any class or classes resulting from any reclassification or
reclassifications thereof.

     5. Special Agreements of the Company.

     (a) Reservation of Shares. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be validly issued, fully paid and
nonassessable and free from all preemptive rights of any stockholder, and from
all taxes, liens and charges with respect to the issue thereof (other than taxes
in respect to any transfer occurring contemporaneously with such issue). The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the



                                       12

<PAGE>

Company will at all times have authorized, and reserved, a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented by
this Warrant. The Company hereby covenants and agrees to take all such action as
may be necessary to assure that the par value per share of the Common Stock is
at all times equal to or less than the Exercise Price.

     (b) Avoidance of Certain Actions. The Company will not, by amendment of its
Certificates of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, issue or sale of securities or otherwise, avoid or take
any action which would have the effect of avoiding the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in carrying out all of the provisions of
this Warrant and in taking all of such action as may be necessary or appropriate
in order to protect the rights of the Warrantholders against dilution or other
impairment of their rights hereunder.

     (c) Securing Governmental Approvals. If any shares of Common Stock required
to be reserved for the purposes of exercise of this Warrant require registration
with or approval of any governmental authority under any federal law (other than
the Securities Act of 1933, as amended (the "Securities Act")) or under any
state law before such shares may be issued upon exercise of this Warrant, the
Company will, at its expense, as expeditiously as possible, use its best efforts
to cause such shares to be duly registered or approved, as the case may be.

     (d) Listing on Securities Exchanges; Registration. If, and so long as, any
class of the Company's Common Stock shall be listed on any national securities
exchange (as defined in the Securities Exchange Act of 1934 (the "Exchange
Act")), the Company will, at its expense, obtain and maintain the approval for
listing upon official notice of issuance of all Warrant Shares receivable upon
the exercise of Warrants at the time outstanding and maintain the listing of
Warrant Shares after their issuance; and the Company will so list on such
national securities exchange, will register under the Exchange Act (or any
similar statute then in effect), and will maintain such listing of, any other
securities that at any time are issuable upon exercise of this Warrant if and at
the time any securities of the same class shall be listed on such national
securities exchange by the Company.

     (e) Communication to Shareholders. Any notice, document or other written
communication given or made by the Company to all holders of Common Stock as
such shall at the same time be provided to the Warrantholders.



                                       13

<PAGE>

     (f) Restrictions on Public Sale by the Company. The Company will not effect
any public or private sale or distribution of its convertible debt or equity
securities, including a sale pursuant to Regulation D under the Securities Act,
during the five (5) day period prior to, and during the fifteen (15) day period
beginning on, the closing date of each underwritten offering by the Company made
pursuant to a registration statement filed pursuant to Paragraphs 10(b) or
10(c); and, except as may be required under agreements entered into by the
Company prior to the date hereof, the Company shall cause each holder of its
privately placed convertible debt or equity securities issued by it at any time
on or after the date of this Warrant to agree not to effect any public sale or
distribution of any such securities during such period, including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act.

     (g) Compliance with Law. The Company shall comply with all material
applicable laws, rules and regulations of the United States and of all states,
municipalities and agencies and of any other jurisdiction applicable to the
Company, the violation of which would have a material adverse effect on the
Company and its subsidiaries taken as a whole, and shall do all things necessary
to preserve, renew and keep in full force and effect and in good standing its
corporate existence and authority necessary to continue its business.

     6. Fractional Shares. No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon exercise hereof, the Company shall pay to
the Warrantholder an amount in cash equal to such fraction multiplied by the
Current Market Price of one share of Common Stock.

     7. Notices of Stock Dividends, Subscriptions, Reclassifications,
Consolidations, Mergers, etc. If at any time: (i) the Company shall declare a
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall give to the Warrantholders at
the addresses of such Warrantholders as shown on the books of the Company, at
least twenty (20) days prior to the applicable



                              14

<PAGE>

record date hereinafter specified, a written notice summarizing such action or
event and stating the record date for any such dividend or rights (or, if a
record date is not to be selected, the date as of which the holders of Common
Stock of record entitled to such dividend or rights are to be determined), the
date on which any such reorganization, reclassification, consolidation, merger,
sale of assets, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected the holders of Common Stock
of record shall be entitled to effect any exchange of their shares of Common
Stock for cash (or cash equivalent) securities or other property deliverable
upon any such reorganization, reclassification, consolidation, merger, sale of
assets, dissolution, liquidation or winding up. The failure to give the notice
required by this Section 7 or any defect therein shall not affect the legality
or validity of any such action or event, or the vote upon any such action.

     8. Registered Holder; Transfer of Warrants or Warrant Shares.

     (a) Maintenance of Registration Books; Ownership of this Warrant. The
Company shall keep at its principal office a register in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration, transfer and exchange of this Warrant. The Company shall not at
any time, except upon the dissolution, liquidation or winding-up of the Company,
close such register so as to result in preventing or delaying the exercise or
transfer of this Warrant.

     The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration or transfer as provided in this
Paragraph 8.

     (b) Exchange and Replacement. This Warrant is exchangeable upon surrender
hereof by the registered holder to the Company at its principal office for new
Warrants of like tenor and date representing in the aggregate the right to
purchase the number of shares purchasable hereunder, each of such new Warrants
to represent the right to purchase such number of shares as shall be designated
by said registered holder at the time of surrender. Subject to compliance with
the provisions of Paragraphs 8 and 9, this Warrant and all rights hereunder are
transferable in whole or in part upon the books of the Company by the registered
holder hereof in person or by duly authorized attorney, and a new Warrant shall
be made and delivered by the Company, of the same tenor and date as this Warrant
but registered in the name of the transferee,



                                       15

<PAGE>

upon surrender of this Warrant, duly endorsed, to said office of the Company.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make and deliver a
new Warrant of like tenor, in lieu of this Warrant, without requiring the
posting of any bond or the giving of any other security. This Warrant shall be
promptly cancelled by the Company upon the surrender hereof in connection with
any exchange, transfer or replacement. The Company shall pay all expenses, taxes
and other charges payable in connection with the preparation, execution and
delivery of Warrants pursuant to this Paragraph 8.

     (c) Warrants and Warrant Shares Not Registered. The holder of this Warrant,
by accepting this Warrant, represents and acknowledges that this Warrant and the
Warrant Shares are not being registered under the Securities Act on the grounds
that the issuance of this Warrant and the offering and sale of such Warrant
Shares are exempt from registration under Section 4(2) of the Securities Act as
not involving any public offering.

     Notwithstanding any provisions contained in this Warrant to the contrary,
this Warrant and the Warrant Shares shall not be transferable except upon the
conditions specified in Paragraphs 8 and 9, which conditions are intended, among
other things, to insure compliance with the provisions of the Securities Act in
respect of the transfer of this Warrant or of such Warrant Shares.

     9. Restrictions on Transfer.

     (a) Each Warrant shall be stamped or otherwise imprinted with the legend
set forth on the first page of this Warrant.

     (b) Each stock certificate representing Warrant Shares shall be stamped or
otherwise imprinted with the following legend:

     THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
     REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
     STATE SECURITIES LAWS AND MUST BE HELD INDEFINITELY UNLESS SUBSEQUENTLY
     REGISTERED UNDER SAID ACT AND LAWS OR DISPOSED OF PURSUANT TO AN EXEMPTION
     FROM SUCH REGISTRATION REQUIREMENTS.

     (c) The Warrantholders agree that prior to any transfer of this Warrant
each Warrantholder will give written notice to the Company of its intention to
effect such a


                                       16

<PAGE>

transfer, describing such intended transfer, and that such Warrantholder will
not sell or transfer any or all of this Warrant without first delivering to the
Company (i) an opinion of counsel for the Company or an opinion, reasonably
satisfactory to counsel for the Company, of Buchalter, Nemer, Fields & Younger,
A Professional Corporation, or other counsel skilled in securities matters
(selected by such Warrantholder and reasonably satisfactory to the Company), to
the effect that such sale or transfer will be exempt from the registration and
prospectus delivery requirements of the Securities Act and in compliance with
applicable state securities laws, or (ii) an interpretative letter from the
Securities and Exchange Commission (the "Commission") to the effect that the
proposed transfer may be made without registration under the Securities Act; and
(iii) an agreement by the transferee to be bound by the provisions of this
Warrant, including, without limitation, this Section 9 relating to transfers,
and restrictions on transfers, of the Warrants and Warrant Shares; provided,
however, that the provisions of this Paragraph 9 shall not apply with respect to
any Warrants as to which there is a registration statement in effect under the
Securities Act at the time of the proposed transfer.

     10. Registration.

     (a) Registrable Stock. As used in this Paragraph 10, the term "Registrable
Stock" shall mean all Warrant Shares acquired by the Warrantholders upon
exercise of the Warrants. For purposes of this Paragraph 10, Warrant Shares
shall include shares of Common Stock, whether or not such securities have in
fact been issued, and stock or other securities of the Company issued upon
conversion of, in a stock split or reclassification of, or a stock dividend or
other distribution on, or in substitution or exchange for, or otherwise in
connection with, such Warrant Shares or in a merger or consolidation involving
the Company's assets. For the purpose of this Paragraph 10, a Warrantholder of
record shall be treated as the record holder of the related Warrant Shares then
issuable upon the conversion or exercise thereof. The only class of securities
which the Company is obligated to register under this Paragraph 10 is Common
Stock issuable upon exercise of the Warrants.

     (b) Required Registration. Whenever the Company shall receive a written
request therefor from any holder or holders of at least forty percent (40%) of
the shares of Registrable Stock, the Company shall promptly prepare and file a
registration statement under the Securities Act covering the Registrable Stock
which is the subject of such request and shall use its best efforts to cause
such registration statement to become effective as expeditiously as possible.
Upon the receipt of such request, the Company shall promptly give written notice
to all holders of Registrable


                                       17

<PAGE>

Stock that such registration is to be effected. The Company shall include in
such registration statement such Registrable Stock for which it has received
written requests to register such shares by the holders thereof within thirty
(30) days after the effectiveness of the Company's written notice to such other
holders. The Company shall be obligated to prepare, file and cause to become
effective only two (2) registration statements pursuant to this Section
(excluding therefrom any registration statement which is withdrawn prior to
effectiveness or otherwise or abandoned at the request of the holders of a
majority of the Registrable Stock sought to be registered in such registration
statement, provided, however, that such holders have elected to pay and have
paid to the Company in full the registration expenses theretofore incurred by
the Company and otherwise payable by the Company pursuant to paragraph (e) of
this Section 10). Except as hereinafter expressly provided or as provided in the
agreements identified on Schedule A, without the written consent of the holders
of a majority of the shares of Registrable Stock for which registration has been
requested pursuant to this Paragraph, neither the Company nor any other holder
of securities of the Company may include securities in such registration. If, in
the good faith judgment of the managing underwriter, if any, of such public
offering, the inclusion of all of the Registrable Stock covered by requests for
registration pursuant to this Paragraph 10(b) would materially and adversely
affect the successful marketing of a lesser amount of Registrable Stock, after
giving priority to the shares of Registrable Stock over all other persons who
may participate in such registration (except to the extent such priority would
be inconsistent with or breach the agreements identified on Schedule A), the
number of shares of Registrable Stock otherwise to be included in the
underwritten public offering shall be reduced to the required level with the
participation in such offering to be pro rata among the holders of Registrable
Stock requesting such registration, based upon the number of shares of
Registrable Stock owned by such holders; and those shares which are excluded
from the underwritten public offering shall be withheld from the market by the
holders thereof for a period, not to exceed ninety (90) days, which the managing
underwriter reasonably determines is necessary in order to effect the
underwritten public offering. The managing underwriter or underwriters of any
underwritten public offering requested pursuant to this Paragraph 10(b) shall be
selected by the Company. Notwithstanding anything to the contrary herein, the
Company shall have the right, from time to time, by written notice to any holder
of Registrable Stock who has made a registration demand pursuant to this Section
10 or had Registrable Stock included in an effective registration statement, as
applicable, (i) to delay the filing of a registration statement pursuant to this
Section 10 or (ii) to request that any selling holder of Registrable Stock under
an effective registration statement discontinue



                                       18

<PAGE>

dispositions of Registrable Stock pursuant to the registration statement
covering such Registrable Stock until further notice, in writing, from the
Company (and each such selling holder hereby agrees to discontinue any
distributions forthwith), if in the good faith judgment of the Company's Board
of Directors it would be adverse to the Company for such registration statement
to be filed, or for an effective registration statement to be amended (by
incorporation by reference to other documents or otherwise) in order to continue
to permit dispositions of Registrable Stock in compliance with applicable
securities laws, because such filing or amendment would interfere with any bona
fide financing, acquisition, corporate reorganization or other material
transaction involving the Company or any of its subsidiaries or would compel
premature disclosure thereof or of any other significant corporate development;
provided, however, that the Company shall not have the right to defer such
filing or to require discontinuance of such dispositions of Registrable Stock
for a period or periods exceeding 120 days in the aggregate in any one calendar
year during which the registration rights provided in this Section 10 are in
effect.

     (c) Incidental Registration. Each time the Company shall determine to file
a registration statement under the Securities Act (other than on Form S-8 or
Form S-4) in connection with the proposed offer and sale for money of any of its
securities by it or, pursuant to registration rights granted after the date
hereof, by any of its security holders the Company will give written notice of
its determination to all holders of Registrable Stock. Upon the written request
of a holder of any Registrable Stock, the Company will cause all such
Registrable Stock, the holders of which have so requested registration thereof,
to be included in such registration statement, all to the extent requisite to
permit the sale or other disposition by the prospective seller or sellers of the
Registrable Stock to be so registered in accordance with the terms of the
proposed offering. If the registration statement is to cover an underwritten
distribution, the Company shall use its best efforts to cause the Registrable
Stock requested for inclusion pursuant to this Paragraph 10(c) to be included in
the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters. If, in the good faith judgment of the
managing underwriter of such public offering, the inclusion of all of the
Registrable Stock requested to be registered would be reasonably likely to
adversely affect the successful marketing of the other shares proposed to be
offered, then the amount of the Registrable Stock to be included in the offering
shall be reduced to such number of shares of Registrable Stock that, in the
opinion of such underwriter or underwriters, can be sold without an adverse
effect on the price, timing or distribution of the securities to be included,
selected pro rata among the holders



                                       19

<PAGE>


of Registrable Stock which have requested to be included in such registration,
based on the fully diluted ownership of Registrable Stock of such holders.

     (d) Registration Procedures. If and whenever the Company is required by the
provisions of Paragraph 10(b) or 10(c) to effect the registration of Registrable
Stock under the Securities Act, the Company will, at its expense, as
expeditiously as possible:

          (i) In accordance with the Securities Act and the rules and
     regulations of the Commission, prepare and file with the Commission a
     registration statement on the form of registration statement appropriate
     with respect to such securities and use its reasonable best efforts to
     cause such registration statement to become and remain effective for a
     period of not less than ninety (90) days or such shorter period necessary
     for the securities covered by such registration statement to be sold, and
     prepare and file with the Commission such amendments to such registration
     statement and supplements to the prospectus contained therein as may be
     necessary to keep such registration statement effective and such
     registration statement and prospectus accurate and complete;

          (ii) If the offering is to be underwritten, in whole or in part, enter
     into a written underwriting agreement on customary terms with the holders
     of the Registrable Stock participating in such offering and the underwriter
     in form and substance reasonably satisfactory to the managing underwriter
     of the public offering and the holders of a majority of the Registrable
     Stock participating in such offering;

          (iii) Furnish to the holders of securities participating in such
     registration and to the underwriters of the securities being registered
     such reasonable number of copies of the registration statement, preliminary
     prospectus, final prospectus and such other documents as such underwriters
     and holders may reasonably request in order to facilitate the public
     offering of such securities;

          (iv) Use its best efforts to register or qualify the securities
     covered by such registration statement under such state securities or blue
     sky laws of such jurisdictions as such participating holders and
     underwriters may reasonably request provided, however, that the Company
     will not be required to qualify generally to do business in any
     jurisdiction where it is not then so qualified or to take any action which
     would subject it to taxation or general service of process in any such
     jurisdiction where it is not then so subject;



                                       20

<PAGE>

          (v) Notify the holders participating in such registration, promptly
     after it shall receive notice thereof, of the date and time when such
     registration statement and each post-effective amendment thereto has become
     effective or a supplement to any prospectus forming a part of such
     registration statement has been filed;

          (vi) Notify such holders promptly of any request by the Commission for
     the amending or supplementing of such registration statement or prospectus
     or for additional information;

          (vii) Prepare and file with the Commission, promptly upon the request
     of the holders holding a majority of the Registrable Stock, any amendments
     or supplements to such registration statement or prospectus which, in the
     opinion of counsel for such holders, is required under the Securities Act
     or the rules and regulations thereunder in connection with the distribution
     of the Registrable Stock by such holders;

          (viii) Prepare and promptly file with the Commission, and promptly
     notify such holders of the filing of, such amendments or supplements to
     such registration statement or prospectus as may be necessary to correct
     any statements or omissions if, at the time when a prospectus relating to
     such securities is required to be delivered under the Securities Act, any
     event has occurred as the result of which any such prospectus or any other
     prospectus as then in effect may include an untrue statement of a material
     fact or omit to state any material fact required to be stated therein or
     necessary to make the statements therein not misleading;

          (ix) In case any of such holders or any underwriter for any such
     holders is required to deliver a prospectus at a time when the prospectus
     then in circulation is not in compliance with the Securities Act or the
     rules and regulations of the Commission, prepare promptly upon request such
     amendments or supplements to such registration statement and such
     prospectus as may be necessary in order for such prospectus to comply with
     the requirements of the Securities Act and such rules and regulations;

          (x) Advise such holders, promptly after it shall receive notice or
     obtain knowledge thereof, of the issuance of any stop order by the
     Commission suspending the effectiveness of such registration statement or
     the initiation or threatening of any proceeding for that purpose and
     promptly use its reasonable best efforts to prevent the issuance of any
     stop order or to obtain its withdrawal if such stop order should be issued;

          (xi) If requested by the managing underwriter or underwriters or a
     holder of Registrable Stock



                                       21

<PAGE>

     being sold in connection with an underwritten offering, promptly
     incorporate in a prospectus supplement or post-effective amendment such
     information as the managing underwriters and the holders of a majority of
     the Registrable Stock being sold agree should be included therein relating
     to the plan of distribution with respect to such Registrable Stock,
     including information with respect to the Registrable Stock being sold to
     such underwriters, the purchase price being paid therefor by such
     underwriters and with respect to any other terms of the underwritten (or
     best efforts underwritten) offering of the Registrable Stock to be sold in
     such offering; and make all required filings of such prospectus supplement
     or post-effective amendment as soon as practicable after being notified of
     the matters to be incorporated in such prospectus supplement or
     post-effective amendment;

          (xii) Cooperate with the selling holders of Registrable Stock and the
     managing underwriters, if any, to facilitate the timely preparation and
     delivery of certificates representing Registrable Stock to be sold and not
     bearing any restrictive legends; and enable such Registrable Stock to be in
     such denominations and registered in such names as the managing
     underwriters may request at least two business days prior to any sale of
     Registrable Securities to the underwriters;

          (xiii) Prepare a prospectus supplement or post-effective amendment to
     the registration statement or the related prospectus or any document
     incorporated therein by reference or file any other required documents so
     that, as thereafter delivered to the purchasers of the Registrable Stock,
     the prospectus will not contain an untrue statement of material fact or
     omit to state any material fact necessary to make the statements therein
     not misleading;

          (xiv) Enter into such customary agreements (including an underwriting
     agreement) and take all such other actions in connection therewith as the
     holders of a majority of the Registrable Stock being sold or the managing
     underwriter, if any, deem necessary in order to expedite or facilitate the
     disposition of such Registrable Securities and in such connection, whether
     or not an underwriting agreement is entered into and whether or not the
     registration is an underwritten registration:

               (A) make such representations and warranties to the holders of
          such Registrable Stock and the underwriters, if any, in form,
          substance and scope as are customarily made by issuers to underwriters
          in primary underwritten offerings;




                                       22

<PAGE>

               (B) If an underwriting agreement is entered into, the same shall
          set forth in full the indemnification provisions and procedures of
          Paragraph 10(f) hereof with respect to all parties to be indemnified
          pursuant to said Paragraph; and

               (C) The Company shall deliver such documents and certificates as
          may be requested by the holders of the majority of the Registrable
          Stock being sold and the managing underwriters, if any, to evidence
          compliance with the terms of this Paragraph 10(d) and with any
          customary conditions contained in the underwriting agreement or other
          agreement entered into by the Company.

     The above shall be done at each closing under such underwriting or similar
     agreement or as and to the extent required thereunder;

          (xv) Make available for inspection by a representative of the holders
     of the Registrable Stock to be included in the registration statement, any
     underwriter participating in any disposition pursuant to a registration
     statement, and any attorney or accountant retained by the sellers or
     underwriter, all financial and other records, pertinent corporate documents
     and properties of the Company, and cause the Company's officers, directors
     and employees to supply all information reasonably requested by any such
     representative, underwriter, attorney or accountant in connection with the
     preparation of the registration statement; provided, that any records,
     information or documents that are designated by the Company in writing as
     confidential shall be kept confidential by such persons unless disclosure
     of such records, information or documents is required by court or
     administrative order, in which event such persons shall provide the Company
     with prompt prior written notice of such requirement and shall cooperate
     with the Company so that the Company may seek a protective order or other
     appropriate remedy ("Protective Action") provided further, that if Foothill
     assigns this warrant and such assignee is determined in good faith by the
     Company to be a competitor of the Company, the Company shall not be
     required to provide any such confidential information to such assignee
     pursuant to this paragraph (xv). In the event the Company fails to seek
     Protective Action, or such Protective Action is not obtained, such persons
     shall exercise reasonable best efforts to obtain assurance that
     confidential treatment will be accorded those records, information or
     documents which they are required to disclose by such court or
     administrative order;

          (xvi) Otherwise use its best efforts to comply with all applicable
     rules and regulations of the Commission, and make generally available to
     the Company's security holders, earning statements satisfying the
     provisions



                                       23

<PAGE>

     of Section 11(a) of the Securities Act, no later than forty-five (45) days
     after the end of any twelve (12) month period (or ninety (90) days, if such
     a period is a fiscal year) (i) commencing at the end of any fiscal quarter
     in which Registrable Stock is sold to underwriters in an underwritten
     offering, or, if not sold to underwriters in such an offering, (ii)
     beginning with the first month of the Company's first fiscal quarter
     commencing after the effective date of a registration statement;

          (xvii) Not file any amendment or supplement to such registration
     statement or prospectus to which a majority in interest of such holders has
     objected on the grounds that such amendment or supplement does not comply
     in all material respects with the requirements of the Securities Act or the
     rules and regulations thereunder, after having been furnished with a copy
     thereof at least three (3) business days prior to the filing thereof;
     provided, however, that the failure of such holders or their counsel to
     review or object to any amendment or supplement to such registration
     statement or prospectus shall not affect the rights of such holders or any
     controlling person or persons thereof or any underwriter or underwriters
     therefor under Paragraph 10(f) hereof; and

          (xviii) At the request of any such holder (i) furnish to such holder
     on the effective date of the registration statement or, if such
     registration includes an underwritten public offering, at the closing
     provided for in the underwriting agreement, an opinion, dated such date, of
     the counsel representing the Company for the purposes of such registration,
     addressed to the underwriters, if any, and to the holder or holders making
     such request, covering such matters with respect to the registration
     statement, the prospectus and each amendment or supplement thereto,
     proceedings under state and federal securities laws, other matters relating
     to the Company, the securities being registered and the offer and sale of
     such securities as are customarily the subject of opinions of issuer's
     counsel provided to underwriters in underwritten public offerings, and (ii)
     use its best effort to furnish to such holder letters in customary form
     dated each such effective date and such closing date, from the independent
     certified public accountants of the Company, addressed to the underwriters,
     if any, and to the holder or holders making such request, stating that they
     are independent certified public accountants within the meaning of the
     Securities Act and dealing with such matters of the type customarily
     covered by such "cold comfort letters" as the underwriters may reasonably
     request, or, if the offering is not underwritten, as such requesting holder
     or holders may reasonably request.




                                       24

<PAGE>

     (e) Expenses of Registration. All expenses incident to the Company's
performance of or compliance with this Warrant, including without limitation:

          (i) All registration and filing fees (including those with respect to
     filings required to be made with the National Association of Securities
     Dealers, Inc.);

          (ii) Subject to Section 2(d)(iv), fees and expenses of compliance with
     all securities or blue sky laws (including reasonable fees and
     disbursements of counsel for the underwriters or selling holders in
     connection with blue sky qualifications of the Registrable Stock in
     determination of their eligibility for investment under the laws of such
     jurisdictions as the managing underwriters or holders of a majority of the
     Registrable Stock being sold may designate);

          (iii) Printing, messenger, telephone and delivery expenses;

          (iv) Fees and disbursements of counsel for the Company and for the
     sellers of the Registrable Stock as hereinafter provided;

          (v) Fees and disbursements of all independent certified public
     accountants of the Company (including the expenses of any special audit and
     "comfort" letters required by or incident to such performance);

          (vi) Fees and disbursements of underwriters (excluding discounts,
     commissions or fees of underwriters, selling brokers, dealer managers or
     similar securities industry professionals relating to the distribution of
     the Registrable Stock or legal expenses of any person other than the
     Company and the selling holders); and

          (vii) Fees and expenses of other persons retained by the Company;

will be borne by the Company, regardless of whether the registration statement
becomes effective, except as provided in paragraph (b) of this Section 10.

     The Company will, in any event, pay its internal expenses (including
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on each securities exchange on which similar securities issued by
the Company are then listed, rating agency fees and the fees and expenses of any
person, including special experts, retained by the Company.


                                       25

<PAGE>

     In connection with the registration statement required hereunder, the
Company will reimburse the holders of Registrable Stock being registered
pursuant to the registration statement for the reasonable fees and disbursements
of not more than one counsel (or more than one counsel if a conflict exists
among such selling holders in the exercise of the reasonable judgment of counsel
for the selling holders and counsel for the Company) chosen by the holders of a
majority of such Registrable Stock.

     (f) Indemnification.

     (i) The Company hereby agrees to indemnify each of the Warrantholders in
connection with a registration of any of the securities purchased upon exercise
of the Warrants against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration statement,
preliminary or final prospectus, or other document incident to any such
registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and to reimburse the
Warrantholders (including officers and directors of the same and controlling
persons) for any legal and any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, provided, however, that the Company will not be liable in any such case
to the extent that any such claim, loss, damage or liability arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Company by a Warrantholder on their behalf for use in such
prospectus, or document (or related registration statement, notification or the
like) or any amendment or supplement thereto.

     (ii) Each Warrantholder agrees to indemnify the Company and its officers
and directors and each person, if any, who controls any thereof within the
meaning of Section 15 of the Securities Act and their respective successors
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement or alleged untrue
statement of a material fact contained in any prospectus, offering circular or
other document incident to any registration, qualification or compliance
relating to securities purchased pursuant to the Warrants (or in any related
registration statement,



                                       26

<PAGE>

notification or the like) or any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading and will reimburse the Company and each other
person indemnified pursuant to this subparagraph (ii) for any legal and any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, provided, however, that this
subparagraph (ii) shall apply only if (and only to the extent that) such
statement or omission was made in reliance upon information (including, without
limitation, written negative responses to inquiries) furnished to the Company by
a Warrantholder or on its behalf for use in such prospectus, or other document
(or related registration statement, notification or the like) or any amendment
or supplement thereto.

     (iii) Each party entitled to indemnification hereunder (the "Indemnified
Party") shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party (at such Indemnifying Party's expense) to assume the defense
of any claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be satisfactory to the Indemnified Party, and the Indemnified
Party may participate in such defense at such party's expense, and provided,
further, that the omission by any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Paragraph 10(f) except to the extent that the omission results in a failure of
actual notice to the Indemnifying Party and such Indemnifying Party is
materially damaged solely as a result of the failure to give notice. Neither the
Indemnifying Party nor the Indemnified Party, in the defense of any such claim
or litigation, shall, except with the consent of the other, 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 or Indemnifying Party, whichever is the case, of a release
from all liability in respect to such claim or litigation.

     (iv) If the indemnification provided for in this Paragraph 10(f) is
unavailable or insufficient to hold harmless an Indemnified Party in respect of
any losses, claims, damages, liabilities, expenses or actions in respect thereof
referred to herein, then the Indemnifying Party shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damages, liabilities, expenses or actions in such proportion as is



                                       27

<PAGE>

appropriate to reflect the relative fault of the Indemnifying Party on the one
hand, and the Indemnified Party on the other, in connection with the statements
or omissions which resulted in such losses, claims, damages, liabilities,
expenses or actions as well as any other relevant equitable considerations,
including the failure to give the notice required hereunder. The relative fault
of the Indemnifying Party and the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by the Indemnifying Party or
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Warrantholders agree that it would not be just and equitable
if contributions pursuant to this Paragraph 10(f) were determined by pro rata
allocation or by any other method of allocation which did not take account of
the equitable considerations referred to above. The amount paid or payable to an
Indemnified Party as a result of the losses, claims, damages, liabilities or
actions in respect thereof, referred to above, shall be deemed to include any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the contribution provisions of this Paragraph 10(f), in no event
shall the amount contributed by any seller of Registrable Stock exceed the
aggregate net offering proceeds received by such seller from the sale of
Registrable Stock to which such contribution or indemnification claim relates.
No person guilty of fraudulent misrepresentations (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation.

     (v) The indemnification required by this Paragraph 10(f) shall be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred.

     (g) Reporting Requirements Under Exchange Act. The Company shall maintain
the registration of its Common Stock under Section 12 of the Exchange Act and
shall keep effective such registration and shall timely file such information,
documents and reports as the Commission may require or prescribe under Section
13 of the Exchange Act, or otherwise. The Company shall (whether or not it shall
then be required to do so) timely file such information, documents and reports
as the Commission may require or prescribe under Section 13 or 15(d) (whichever
is applicable) of the Exchange Act. The Company shall forthwith upon request
furnish any holder of Registrable Stock (i) a written statement by the Company
that it has complied with such reporting requirements, (ii) a copy of the most
recent annual or quarterly report of



                                       28

<PAGE>

the Company, and (iii) such other reports and documents filed by the Company
with the Commission as such holder may reasonably request in availing itself of
an exemption for the sale of Registrable Stock without registration under the
Securities Act. The Company acknowledges and agrees that the purpose of the
requirements contained in this Paragraph 10(g) is to enable any such holder to
comply with the current public information requirement contained in paragraph
(c) of Rule 144 under the Securities Act should such holder ever wish to dispose
of any of the securities of the Company acquired by it without registration
under the Securities Act in reliance upon Rules 144 or 144A, as such rules may
be amended from time to time (or any other similar rule or regulation hereafter
adopted by the Commission). In addition, the Company shall take such other
measures and file such other information, documents and reports as shall
hereafter be required by the Commission as a condition to the availability of
Rule 144 and Rule 144A under the Securities Act (or any similar rule or
regulation hereafter adopted by the Commission).

     (h) Stockholder Information. The Company may require each holder of
Registrable Stock as to which any registration is to be effected pursuant to
this Paragraph 10 to furnish the Company such information with respect to such
holder and the distribution of such Registrable Stock as the Company may from
time to time reasonably request in writing and as shall be required by law or by
the Commission in connection therewith.

     11. Representation and Warranties. The Company hereby represents and
warrants to and covenants with each Warrantholder, and each holder of Warrant
Shares that:

     (a) Organization and Capitalization of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. As of the date hereof, the authorized capital of the
Company consists of twenty million (20,000,000) shares of Common Stock and one
million (1,000,000) shares of Preferred Stock. No unissued shares of Common
Stock are reserved for any purpose other than for issuance upon the exercise of
the Warrants, except as indicated on Schedule A hereto. As of the date hereof,
the Company has not issued or agreed to issue any stock purchase rights or
convertible securities other than the Warrants, except as indicated on Schedule
A hereto, and there are no preemptive rights in effect with respect to the
issuance of any shares of Common Stock. All the outstanding shares of Common
Stock and Preferred Stock have been validly issued without violation of any
preemptive or similar rights, are fully paid and nonassessable and have been
issued in compliance with all federal and applicable state securities laws.




                                       29

<PAGE>

     (b) Authority. The Company has full corporate power and authority to
execute and deliver this Warrant, to issue the shares of Common Stock issuable
upon exercise of this Warrant, and to perform all of its obligations hereunder,
and the execution, delivery and performance hereof has been duly authorized by
all necessary corporate action on its part. This Warrant has been duly executed
on behalf of the Company and constitutes the legal, valid and binding obligation
of the Company enforceable in accordance with its terms.

     (c) No Legal Bar. Neither the execution, delivery or performance of this
Warrant nor the issuance of the shares of Common Stock issuable upon exercise of
this Warrant will (a) conflict with or result in a violation of the Certificate
of Incorporation or By-Laws of the Company, (b) conflict with or result in a
violation of any law, statute, regulation, order or decree applicable to the
Company or any affiliate which violation would have a material adverse effect on
the Company and its subsidiaries, taken as a whole, or the Company's ability to
complete the transactions contemplated hereby, (c) require any consent or
authorization or filing with, or other act by or in respect of any governmental
authority or (d) result in a breach of, constitute a default under or constitute
an event creating rights of acceleration, termination or cancellation under any
mortgage, lease, contract, franchise, instrument or other agreement to which the
Company is a party or by which it is bound the effect of which would have a
material adverse effect on the Company and its subsidiaries taken as a whole.

     (d) Validity of Shares. When issued upon the exercise of this Warrant as
contemplated herein, the shares of Common Stock so issued will have been validly
issued and will be fully paid and nonassessable. On the date hereof, the par
value of the Common Stock is less than the Exercise Price per share of Common
Stock.

     12. Continuing Validity. A holder of Warrant Shares shall continue to be
entitled to all rights to which a Warrantholder is entitled pursuant to the
provisions of this Warrant except such rights as by their terms apply solely to
a Warrantholder, notwithstanding the fact that this Warrant has been exercised
or the period of exercisability has expired. The Company will, at the time of
any exercise of this Warrant, upon the request of the holder of the Warrant
Shares issued upon exercise hereof, acknowledge in writing, in form reasonably
satisfactory to such holder, the Company's continuing obligation to afford to
such holder all rights to which such holder shall continue to be entitled after
such exercise in accordance with the provisions of this Warrant; provided,
however, that if such holder shall fail to make any such request, such failure
shall not affect the continuing



                                       30

<PAGE>

obligation of the Company to afford to such holder all such rights.

     13. Miscellaneous Provisions.

     (a) Governing Law and Venue. This Warrant shall be deemed to have been made
in the State of California and the validity of this Warrant, the construction,
interpretation, and enforcement thereof, and the rights of the parties thereto
shall be determined under, governed by, and construed in accordance with the
internal laws of the State of California, without regard to principles of
conflicts of law. The parties agree that any action or proceeding arising in
connection with this Warrant shall be tried and litigated in the state or
federal courts located in the County of Los Angeles, State of California. The
Warrantholders and the Company each waive the right to a trial by jury and any
right each may have to assert the doctrine of forum non conveniens or to object
to venue to the extent any proceeding is brought in accordance with the
preceding sentence. Service of process, sufficient for personal jurisdiction in
any action against the Company, may be made by registered or certified mail,
return receipt requested, to its address indicated in Paragraph 13(b).

     (b) Notices. All notices hereunder shall be in writing and shall be deemed
to have been given by courier or facsimile at the time received, or five (5)
days after being mailed by certified mail, addressed to the address below stated
of the party to which notice is given, or to such changed address as such party
may have fixed by notice:

      To the Company:         Porta Systems Corp.
                              575 Underhill Boulevard
                              Syosset, New York  11791
                              Attn:  Vicent F. Santulli
                                     Chief Executive Officer
                              Facsimile No.:  (516) 682-4640
                            
      To the                  At the addresses of such holders as
      Warrantholders          they appear on the records of the
      or holder of            Company
      Warrant Shares        
                            
      With a copy to:         Buchalter, Nemer, Fields,
                                 & Younger
                              601 S. Figueroa Street, Ste. 2400
                              Los Angeles, California  90017-5704
                              Attn:  Robert C. Colton
                              Facsimile No.:  (213) 896-0400
                            
provided,  however, that any notice of change of address shall be effective only
upon receipt.



                                       31

<PAGE>

     (c) Successors and Assigns. This Warrant shall be binding upon and inure to
the benefit of the Company, the Warrantholders and the holders of Warrant Shares
and the successors, assigns and transferees of the Company, the Warrantholders
and the holders of Warrant Shares.

     (d) Attorneys' Fees. If any legal action or other proceeding is brought for
the enforcement of this Warrant, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Warrant, the successful or prevailing party or parties shall be entitled to
recover such reasonable attorneys' fees and other costs incurred in that action
or proceeding, in addition to any other relief to which it or they may be
entitled, as may be ordered in connection with such proceeding.

     (e) Entire Agreement; Amendments and Waivers. This Warrant sets forth the
entire understanding of the parties with respect to the transactions
contemplated hereby. The failure of any party to seek redress for the violation
or to insist upon the strict performance of any term of this Warrant shall not
constitute a waiver of such term and such party shall be entitled to enforce
such term without regard to such forbearance. This Warrant may be amended, the
Company may take any action herein prohibited or omit to take action herein
required to be performed by it, and any breach of or compliance with any
covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or written waiver of the majority in
interest of the Warrantholders, and then such consent or waiver shall be
effective only in the specific instance and for the specific purpose for which
given.

     (f) Severability. If any term of this Warrant as applied to any person or
to any circumstance is prohibited, void, invalid or unenforceable in any
jurisdiction, such term shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or invalidity without in any way affecting any other
term of this Warrant or affecting the validity or enforceability of this Warrant
or of such provision in any other jurisdiction.




                                       32

<PAGE>

     (g) Headings. The headings in this Warrant are inserted only for
convenience of reference and shall not be used in the construction of any of its
terms.

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officers on this 12th day of March, 1996.


                                           PORTA SYSTEMS CORP.,
                                           a Delaware Corporation
                                       
                                       
                                           By
                                             --------------------------------
                                               Name:
                                                    -------------------------
                                                Title:
                                                    -------------------------
                                       
                           



Attest:



- ----------------------------
Secretary


Accepted:

FOOTHILL CAPITAL CORPORATION


By                                 
  -------------------------------- 
    Name:                          
         ------------------------- 
     Title:                        
         ------------------------- 


                                       33

<PAGE>

                                   SCHEDULE A


Warrant to Purchase Common Stock, dated November 28, 1994, as amended, issued to
Foothill Capital Corporation.



                                       34

<PAGE>

                               Porta Systems Corp.
                               575 Underhill Blvd.
                               Syosset, N.Y. 11791


                                 March 12, 1996


Foothill Capital Corporation
11111 Santa Monica Blvd., Suite 1500
Los Angeles, California  90025-3333

      Re:  Amendment Number Two to Warrant

Gentlemen:

     Reference is made to that certain Warrant dated as of November 28, 1994, as
amended by Amendment Number One to Warrant dated as of February 13, 1995, issued
by Porta Systems Corp. to Foothill Capital Corporation (the "Warrant").

     This will confirm that Section 2 of the Warrant is hereby amended and
supplemented by adding the following sentence at the end thereof:

          "Anything contained herein to the contrary notwithstanding, at the
          option of the Warrantholders, the Exercise Price may be paid in any
          one or a combination of the following forms: (a) by wire transfer to
          the Company, (b) by certified or cashier's check to the order of the
          Company, and/or (c) by the cancellation of any indebtedness owed by
          the Company to the Warrantholders."


                                                  Very truly yours,



                                                  PORTA SYSTEMS CORP.



                                                  -----------------------------

Accepted:

Foothill Capital Corporation


- ----------------------------------



                               PORTA SYSTEMS CORP.
                                             Issuer

                                       TO


                     AMERICAN STOCK TRANSFER & TRUST COMPANY
                                                  Trustee



                                    INDENTURE
                          Dated as of November 1, 1995

                                   $30,000,000



                ZERO COUPON SENIOR SUBORDINATED CONVERTIBLE NOTES
                               DUE JANUARY 2, 1998



<PAGE>

                                    TIE-SHEET


of provisions of Trust Indenture Act of 1939 with Indenture dated as of November
1, 1995,  between  Porta  Systems  Corp.  and  American  Stock  Transfer & Trust
Company, Trustee:

Section of Act                                              Section of Indenture

310(a)  (1) and (2).........................................................8.09
310(a)  (3) and (4)...............................................Not applicable
310(a)  (5).................................................................8.09
310(b).............................................................8.08 and 8.10
310(c)............................................................Not applicable
311(a) and (b)..............................................................8.13
311(c)............................................................Not applicable
312(a)..........................................................6.01 and 6.02(a)
312(b) and (c)...................................................6.02(b) and (c)
313(a)...................................................................6.04(a)
313(b)  (1).......................................................Not applicable
313(b)  (2)..............................................................6.04(b)
313(c)...................................................................6.04(c)
313(d)...................................................................6.04(d)
314(a)......................................................................6.03
314(b)............................................................Not applicable
314(c)  (1) and (2)........................................................16.05
314(c)  (3).......................................................Not applicable
314(d)............................................................Not applicable
314(e).....................................................................16.05
314(f)............................................................Not applicable
315(a), (c) and (d).........................................................8.01
315(b)......................................................................7.08
315(e)......................................................................7.09
316(a)  (1)........................................................7.01 and 7.07
316(a)  (2).................................................................7.01
316(a)  last sentence.......................................................9.04
316(b)......................................................................7.04
317(a)......................................................................7.02
317(b)...................................................................5.04(a)
318(a).....................................................................16.07

- ------

            This tie-sheet is not part of the Indenture as executed.

                                      - 1 -
26012

<PAGE>


                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

PARTIES........................................................................1
RECITALS.......................................................................1
    Purpose of Indenture.......................................................1
    Form of Face of Note.......................................................1
    Form of Certificate of Authentication......................................2
    Form of Reverse of Note....................................................3
    Form of Conversion Notice..................................................6
    Form of Assignment.........................................................6
    Compliance with Legal Requirements.........................................7


                                  ARTICLE ONE.

                                  Definitions.

    SECTION 1.01.     Definitions............................................  7
             Board of Directors..............................................  7
             Business Day....................................................  7
             Common Stock....................................................  7
             Company  .......................................................  8
             Conversion Price................................................  8
             Event of Default................................................  8
             Exchange Offer..................................................  8
             Excluded Debt...................................................  8
             Indenture.......................................................  8
             Loan and Security Agreement.....................................  8
             Note or Notes; Outstanding......................................  8
             Noteholder......................................................  9
             Obligor  .......................................................  9
             Officers' Certificate...........................................  9
             Opinion of Counsel..............................................  9
             Outstanding Debentures..........................................  9
             Person   .......................................................  9
             Predecessor Note................................................ 10
             Principal Office of the Trustee................................. 10
             Responsible Officer............................................. 10
             Senior Debt..................................................... 10
             Series B Preferred Stock........................................ 10
             Subsidiary...................................................... 11
             Trigger Date.................................................... 11
             Trustee  ....................................................... 11
             Trust Indenture Act of 1939..................................... 11




                                       (i)

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                               Page
                                                                                                               ----

                                                    ARTICLE TWO.

                                    ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
                                               AND EXCHANGE OF NOTES.

<S>               <C>                                                                                          <C>
SECTION 2.01.     Designation, Amount and Issue of Notes....................................................... 11
SECTION 2.02.     Form of Notes................................................................................ 11
SECTION 2.03.     Date and Denomination of Notes............................................................... 11
SECTION 2.04.     Execution of Notes........................................................................... 12
SECTION 2.05.     Exchange and Registration of Transfer of Notes............................................... 12
SECTION 2.06.     Mutilated, Destroyed, Lost or Stolen Notes................................................... 13
SECTION 2.07.     Temporary Notes.............................................................................. 13
SECTION 2.08.     Cancellation of Notes Paid, etc.............................................................. 14


                                                   ARTICLE THREE.

                                                REDEMPTION OF NOTES.

SECTION 3.01.     Redemption Prices............................................................................ 14
SECTION 3.02.     Notice of Redemption; Selection of Notes..................................................... 14
SECTION 3.03.     Payment of Notes Called for Redemption....................................................... 15


                                                   ARTICLE FOUR.

                                              SUBORDINATION OF NOTES.

SECTION 4.01.     Agreement of Noteholders that Notes Subordinated to Extent Provided.......................... 15
SECTION 4.02.     Company not to Make Payments with Respect to Notes in Certain
         Circumstances......................................................................................... 15
SECTION 4.03.     Notes Subordinated to Prior Payment of all Senior Debt on Dissolution,
         Liquidation or Reorganization of Company.............................................................. 16
SECTION 4.04.     Noteholders to be Subrogated to Right of Holders of Senior Debt.............................. 17
SECTION 4.05.     Obligation of the Company Unconditional...................................................... 17
SECTION 4.06.     Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice...................... 17
SECTION 4.07.     Application by Trustee of Monies Deposited with It........................................... 18
SECTION 4.08.     Subordination Rights Not Impaired by Acts or Omissions of Company or Holders
         of Senior Debt........................................................................................ 18
SECTION 4.09.     Noteholders Authorize Trustee to effectuate Subordination of Notes........................... 18
SECTION 4.10.     Right of Trustee to Hold Senior Debt......................................................... 18
SECTION 4.11.     Article Four not to Prevent Events of Default................................................ 18

</TABLE>


                                      (ii)

<PAGE>

<TABLE>
<CAPTION>
                                                 TABLE OF CONTENTS

                                                                                                               Page
                                                                                                               ----
                                                   ARTICLE FIVE.

                                        PARTICULAR COVENANTS OF THE COMPANY.

<S>               <C>                                                                                          <C>
SECTION 5.01.     Payment of Principal......................................................................... 18
SECTION 5.02.     Offices for Notices and Payments, etc........................................................ 19
SECTION 5.03.     Appointments to Fill Vacancies in the Trustee's Office....................................... 19
SECTION 5.04.     Provision as to Paying Agent................................................................. 19
SECTION 5.05.     Corporate Existence.......................................................................... 19
SECTION 5.06.     Payment of Taxes and Other Claims............................................................ 20
SECTION 5.07.     Statement as to Compliance................................................................... 20


                                                    ARTICLE SIX.

                                        NOTEHOLDERS LISTS AND REPORTS BY THE
                                              COMPANY AND THE TRUSTEE.

SECTION 6.01.     Noteholders Lists............................................................................ 20
SECTION 6.02.     Preservation and Disclosure of Lists......................................................... 21
SECTION 6.03.     Reports by the Company....................................................................... 22
SECTION 6.04.     Reports by the Trustee....................................................................... 22


                                                   ARTICLE SEVEN.

                                            REMEDIES OF THE TRUSTEE AND
                                              NOTEHOLDERS ON EVENT OF
                                                      DEFAULT.

SECTION 7.01.     Events of Default............................................................................ 23
SECTION 7.02.     Payment of Notes on Default; Suit Therefor................................................... 25
SECTION 7.03.     Application of Monies Collected by Trustee................................................... 26
SECTION 7.04.     Proceedings by Noteholders................................................................... 26
SECTION 7.05.     Proceedings by Trustee....................................................................... 27
SECTION 7.06.     Remedies Cumulative and Continuing........................................................... 27
SECTION 7.07.     Direction of Proceedings and Waiver of Defaults by Majority of Noteholders................... 27
SECTION 7.08.     Notice of Defaults........................................................................... 28
SECTION 7.09.     Undertaking to Pay Costs..................................................................... 28



                                             ARTICLE EIGHT.

                                         CONCERNING THE TRUSTEE.

SECTION 8.01.     Duties and Responsibilities of Trustee....................................................... 28
</TABLE>


                                              (iii)

<PAGE>

<TABLE>
<CAPTION>
                                                 TABLE OF CONTENTS

                                                                                                               Page
                                                                                                               ----
<S>               <C>                                                                                          <C>
SECTION 8.02.     Reliance on Documents, Opinions, etc......................................................... 29
SECTION 8.03.     No Responsibility for Recitals, etc.......................................................... 30
SECTION 8.04.     Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes......................... 30
SECTION 8.05.     Monies to be held in Trust................................................................... 30
SECTION 8.06.     Compensation and Expenses of Trustee......................................................... 30
SECTION 8.07.     Officers' Certificate as Evidence............................................................ 30
SECTION 8.08.     Conflicting Interest of Trustee.............................................................. 31
SECTION 8.09.     Eligibility of Trustee....................................................................... 35
SECTION 8.10.     Resignation or Removal of Trustee............................................................ 35
SECTION 8.11.     Acceptance by Successor Trustee.............................................................. 36
SECTION 8.12.     Succession by Merger, etc.................................................................... 36
SECTION 8.13.     Limitation of Rights of Trustee as a Creditor................................................ 37


                                                   ARTICLE NINE.

                                            CONCERNING THE NOTEHOLDERS.

SECTION 9.01.     Action by Noteholders........................................................................ 40
SECTION 9.02.     Proof of Execution by Noteholders............................................................ 40
SECTION 9.03.     Who Are Deemed Absolute Owners............................................................... 40
SECTION 9.04.     Company Owned Notes Disregarded.............................................................. 40
SECTION 9.05.     Revocation of Consents; Future Holders Bound................................................. 40


                                                    ARTICLE TEN.

                                               NOTEHOLDERS' MEETINGS.

SECTION 10.01.    Purposes of Meetings......................................................................... 41
SECTION 10.02.    Call of Meetings by Trustee.................................................................. 41
SECTION 10.03.    Call of Meetings by Company or Noteholders................................................... 41
SECTION 10.04.    Qualifications for Voting.................................................................... 42
SECTION 10.05.    Regulations.................................................................................. 42
SECTION 10.06.    Voting....................................................................................... 42
SECTION 10.07.    No Delay of Rights by Meeting................................................................ 42


                                                  ARTICLE ELEVEN.

                                              SUPPLEMENTAL INDENTURES.


SECTION 11.01.    Supplemental Indentures without Consent of Noteholders....................................... 43
SECTION 11.02.    Supplemental Indentures with Consent of Noteholders.......................................... 43
</TABLE>


                                     (iv)

<PAGE>

<TABLE>
<CAPTION>
                                                 TABLE OF CONTENTS

                                                                                                               Page
                                                                                                               ----
<S>               <C>                                                                                          <C>
SECTION 11.03.    Compliance with Trust Indenture Act of 1939; Effect of Supplemental
         Indentures............................................................................................ 44
SECTION 11.04.    Notation on Notes............................................................................ 44
SECTION 11.05.    Evidence of Compliance of Supplemental Indenture to be Furnished
         Trustee............................................................................................... 44


                                                  ARTICLE TWELVE.

                                 CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE.

SECTION 12.01.    Company May Consolidate, etc., on Certain Terms.............................................. 44
SECTION 12.02.    Successor Corporation to be Substituted...................................................... 45
SECTION 12.03.    Opinion of Counsel to be Given Trustee....................................................... 45


                                                 ARTICLE THIRTEEN.

                                      SATISFACTION AND DISCHARGE OF INDENTURE.

SECTION 13.01.    Discharge of Indenture....................................................................... 45
SECTION 13.02.    Deposited Monies to be Held in Trust by Trustee.............................................. 46
SECTION 13.03.    Paying Agent to Repay Monies Held............................................................ 46
SECTION 13.04.    Return of Unclaimed Monies................................................................... 46


                                                 ARTICLE FOURTEEN.

                                      IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
                                              OFFICERS AND DIRECTORS.

SECTION 14.01.    Indenture and Notes Solely Corporate Obligations............................................. 46


                                                  ARTICLE FIFTEEN.

                                                CONVERSION OF NOTES.

SECTION 15.01.    Right to Convert............................................................................. 47
SECTION 15.02.    Exercise of Conversion Privilege; Issuance of Common Stock on
         Conversion; No Adjustment for Dividends............................................................... 47
SECTION 15.03.    Cash Payments in Lieu of Fractional Shares................................................... 48
SECTION 15.04.    Conversion Price............................................................................. 48
SECTION 15.05.    Adjustment of Conversion Price............................................................... 48
SECTION 15.06.    Effect of Reclassification, Consolidation, Merger or Sale.................................... 50
SECTION 15.07.    Taxes on Shares Issued....................................................................... 50
</TABLE>


                                      (v)

<PAGE>

<TABLE>
<CAPTION>
                                                 TABLE OF CONTENTS

                                                                                                               Page
                                                                                                               ----
<S>               <C>                                                                                          <C>
SECTION 15.08.    Reservation of Shares; Shares to be Fully Paid; Compliance with
         Governmental Requirements; Listing of Common Stock.................................................... 50
SECTION 15.09.    Limitation on Responsibility of Trustee...................................................... 51
SECTION 15.10.    Notice to Holders Prior to Certain Actions................................................... 51
SECTION 15.11.    Possible Issuance of Series B Preferred Stock................................................ 52


                                                  ARTICLE SIXTEEN.

                                             MISCELLANEOUS PROVISIONS.

SECTION 16.01.    Provisions Binding on Company's Successors................................................... 52
SECTION 16.02.    Official Acts by Successor Corporation....................................................... 52
SECTION 16.03.    Addresses for Notices, etc................................................................... 52
SECTION 16.04.    Governing Law................................................................................ 52
SECTION 16.05.    Evidence of Compliance with Conditions Precedent............................................. 53
SECTION 16.06.    Legal Holidays............................................................................... 53
SECTION 16.07.    Trust Indenture of 1939 to Control........................................................... 53
SECTION 16.08.    No Security Interest Created................................................................. 53
SECTION 16.09.    Benefits of Indenture........................................................................ 53
SECTION 16.10.    Entire Agreement............................................................................. 53
SECTION 16.11.    Gender and Number............................................................................ 53
SECTION 16.12.    Table of Contents, Headings, etc............................................................. 53
SECTION 16.13.    Execution in Counterparts.................................................................... 54
SECTION 16.14.    No Sinking Fund.............................................................................. 54
SECTION 16.15.    No Interest.................................................................................. 54
</TABLE>


                                     (vi)

<PAGE>

     THIS INDENTURE, dated as of November 1, 1995 between Porta Systems Corp., a
Delaware corporation (hereinafter sometimes called the "Company"),  and American
Stock Transfer & Trust Company,  a limited  purpose trust company duly organized
and  existing  under  the laws of the State of New York  (hereinafter  sometimes
called the "Trustee"),

                              W I T N E S S E T H :

     WHEREAS, for its lawful corporate purposes, the Company has duly authorized
the issue of its Zero Coupon Senior  Subordinated  Convertible Notes due January
2, 1998 (hereinafter  sometimes called the "Notes"),  in an aggregate  principal
amount of  $30,000,000,  and to provide the terms and conditions  upon which the
Notes are to be  authenticated,  issued  and  delivered,  the  Company  has duly
authorized the execution of this Indenture; and

     WHEREAS,  the Notes, the certificate of  authentication  to be borne by the
Notes and a form of conversion  notice are to be  substantially in the following
forms, respectively:

                             [FORM OF FACE OF NOTE]

REGISTERED                                                            REGISTERED
  NUMBER                                                              $

                               PORTA SYSTEMS CORP.

      ZERO COUPON SENIOR SUBORDINATED CONVERTIBLE NOTE DUE JANUARY 2, 1998

     PORTA SYSTEMS  CORP.,  a corporation  duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), for value received,
hereby promises to pay to               ,  or registered assigns,  the principal
sum of           Dollars  on  January  2,  1998,  at the office or agency of the
Company maintained for that purpose in the Borough of Manhattan, The City of New
York, in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts.

     Reference is made to the further  provisions  of this Note set forth on the
reverse hereof,  including,  without  limitation,  provisions  subordinating the
payment of principal of and premium,  if any, on the Notes to the prior  payment
in full of all  Senior  Debt,  as defined in the  Indenture  referred  to on the
reverse of this Note, and provisions giving the holder of this Note the right to
convert  this Note into Common  Stock of the Company on the terms and subject to
the  limitations  referred  to on the  reverse  of this  Note and as more  fully
specified in said Indenture. Such further provisions shall for all purposes have
the same effect as though fully set forth at this place.

     This Note shall be deemed to be a contract made under the laws of the State
of New York applicable to contracts  executed and to be performed  wholly within
such State,  and for all  purposes  shall be construed  in  accordance  with and
governed by the laws of said State.

     This Note shall not be valid or become obligatory for any purpose until the
certificate of authentication  hereon shall have been duly signed by the Trustee
under the Indenture.



                                       (1)

<PAGE>

     IN WITNESS  WHEREOF,  Porta Systems Corp. has caused this  instrument to be
duly executed under its corporate seal.

         Dated: ........................,

                                              PORTA SYSTEMS CORP.


[SEAL]                                        By...............................


Attest:


 . . . . . . . . . . . . . . . . . . . .


                     [FORM OF CERTIFICATE OF AUTHENTICATION]

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

                                             AMERICAN STOCK TRANSFER
                                              & TRUST COMPANY
                                                As Trustee


                                              By................................
                                                Authorized Officer


                                       (2)

<PAGE>

                            [FORM OF REVERSE OF NOTE]


                               PORTA SYSTEMS CORP.

      ZERO COUPON SENIOR SUBORDINATED CONVERTIBLE NOTE DUE JANUARY 2, 1998


     This  Note is one of a duly  authorized  issue  of  Notes  of the  Company,
designated as its Zero Coupon Senior Subordinated  Convertible Notes due January
2, 1998 (herein called the "Notes"),  in the aggregate principal amount of up to
Thirty  Million  Dollars  ($30,000,000),  all  issued or to be issued  under and
pursuant  to an  indenture  dated as of  November  1, 1995  (herein  called  the
"Indenture"),  duly executed and delivered in the Borough of Manhattan, The City
of New York,  by the  Company to American  Stock  Transfer & Trust  Company,  as
Trustee  (herein called the  "Trustee"),  to which  Indenture and all indentures
supplemental  thereto  reference is hereby made for a description of the rights,
limitations  of rights,  obligations,  duties and  immunities  thereunder of the
Trustee, the Company and the holders of the Notes.

     The payment of principal of and premium,  if any, on this Note is expressly
subordinated and subject in right of payment,  as provided in the Indenture,  to
the prior  payment of any and all Senior Debt of the Company,  as defined in the
Indenture,  and this Note is issued subject to such provisions,  and each holder
of this Note,  by accepting the same,  agrees,  expressly for the benefit of the
present and future holders of Senior Debt, whether now or hereafter outstanding,
to and shall be bound by such provisions.

     In case an Event of  Default,  as  defined  in the  Indenture,  shall  have
occurred and be continuing,  the principal hereof may be declared, and upon such
declaration shall become due and payable,  in the manner,  with the effect,  and
subject to the conditions provided in the Indenture.

     The Indenture contains  provisions  permitting the Company and the Trustee,
with the  consent  of the  holders  of not less than  sixty-six  and  two-thirds
percent  (66-2/3%)  in  aggregate  principal  amount  of the  Notes  at the time
outstanding,  evidenced as in the Indenture provided, to modify the Indenture or
any supplemental  indenture or the rights of the holders of the Notes; provided,
however,  that no such  modification  shall (i) extend the fixed maturity of any
Notes,  reduce the principal  amount thereof or change the currency in which the
Notes are payable, or impair the right to convert the Notes into Common Stock on
the terms set forth in the Indenture,  without the consent of each Noteholder so
affected;  or (ii) reduce the aforesaid percentage of principal amount of Notes,
the  consent of the  holders  of which is  required  for any such  modification,
without the consent of the holders of all of the Notes then  outstanding.  It is
also provided in the Indenture that,  prior to any declaration  accelerating the
maturity  of the  Notes,  the holder of not less than a  majority  in  aggregate
principal  amount  of the  Notes at the time  outstanding  may on  behalf of the
holders of all of the Notes waive any past default or Event of Default under the
Indenture and its consequences except a default in the payment of any premium on
or the  principal  of any of the Notes or a failure by the Company to effect any
conversion of this Note as provided in the Indenture. Any such consent or waiver
by the holder of this Note (unless  revoked as provided in the Indenture)  shall
be  conclusive  and  binding  upon such  holder and upon all future  holders and
owners  of  this  Note  and  any  Notes  which  may be  issued  in  exchange  or
substitution herefor irrespective of whether or not any notation thereof is made
upon  this  Note or  such  other  Notes.  The  Indenture  also  permits  certain
amendments without the consent of the holders of the Notes.

     No reference  herein to the  Indenture  and no provision of this Note or of
the  Indenture  shall alter or impair the  obligation  of the Company,  which is
absolute and  unconditional,  to pay the principal of this Note at the place, at
the respective times, and in the coin or currency herein prescribed.

     The Notes are issuable in fully  registered  form in  denominations  of one
thousand dollars ($1,000), any multiple of one thousand dollars ($1,000), and in
such other amounts as is provided in the  Indenture.  At the office or agency of

                                       (3)

<PAGE>

the Company in the Borough of Manhattan,  The City of New York and in the manner
and subject to the limitations provided in the Indenture, but without payment of
any service charge, Notes may be exchanged for a like aggregate principal amount
of Notes of other authorized denominations.

     The Notes may,  with certain  limitations  set forth in the  Indenture,  be
redeemed  at the option of the  Company,  as a whole at any time or in part,  or
from time to time,  prior to maturity,  upon mailing a notice of such redemption
not less than  thirty (30) nor more than sixty (60) days prior to the date fixed
for  redemption to the holders of Notes to be redeemed at their last  registered
addresses,  all as provided in the Indenture, at the following percentage of the
principal  amount if the Notes are called for  redemption  during the  following
periods:

         Three months ended                   Percent of Principal Amount
         ------------------                   ---------------------------
         February 1, 1996                                75.87%
         May 1, 1996                                     79.48%
         August 1, 1996                                  83.10%
         November 1, 1996                                86.71%
         February 1, 1997                                90.32%
         May 1, 1997                                     93.93%
         August 1, 1997                                  97.55%
         November 1, 1997 and thereafter                   100%

     Subject to the  provisions  of the  Indenture,  the  holder  hereof has the
right, at his option, at any time prior to the close of business on December 31,
1997,  or, as to all or any portion hereof called for  redemption,  the close of
business on the second business day prior to the date fixed for  redemption,  to
convert the principal hereof, or, if the principal amount hereof is greater than
one  thousand  dollars  ($1,000),  any  portion of such  principal  which is one
thousand dollars ($1,000), or a multiple thereof, into that number of fully paid
and nonassessable  shares of the Company's Common Stock obtained by dividing the
principal  amount  of this  Note  or  portion  thereof  to be  converted  by the
applicable  conversion  price  set  forth  below,  or such  conversion  price as
adjusted from time to time as provided in the Indenture,  upon surrender of this
Note,  together with a conversion  notice as provided in the  Indenture,  to the
Company at the office or agency of the Company  maintained  for that  purpose in
the Borough of Manhattan,  The City of New York and,  unless the shares issuable
on conversion are to be issued in the same name as this Note,  duly endorsed by,
or accompanied by  instruments of transfer in form  satisfactory  to the Company
duly executed by, the holder or by his duly authorized attorney:

         Note presented for conversion
         during three months ended                        Conversion Price
         -------------------------                        ----------------
         February 1, 1996                                       $2.22
         May 1, 1996                                             1.85
         August 1, 1996                                          1.58
         November 1, 1996 and thereafter                         1.31

No  adjustments  in respect of dividends  will be made upon any  conversion.  No
fractional shares will be issued upon any conversion,  but an adjustment in cash
will be made,  as provided  in the  Indenture,  in respect of any  fraction of a
share which would  otherwise be issuable upon the surrender of any Note or Notes
for conversion.

     The Indenture  also includes  provisions  pursuant to which,  under certain
circumstances,  the  Company  may  issue  shares of its  Series B  Participating
Preferred  Stock,  with no par value  ("Series  B  Preferred  Stock") in lieu of
shares of Common Stock upon conversion of the Notes.


                                       (4)

<PAGE>

     Upon due  presentment  for  registration  of  transfer  of this Note at the
office or agency of the  Company in the  Borough of  Manhattan,  The City of New
York, a new Note or Notes of  authorized  denominations  for an equal  aggregate
principal amount will be issued to the transferee in exchange  herefor,  subject
to the limitations provided in the Indenture,  without charge except for any tax
or other governmental charge imposed in connection therewith.

     Prior to due presentment for  registration  (of transfer) of this Note, the
Company,  the  Trustee,  any paying  agent,  any  conversion  agent and any Note
registrar may deem and treat the registered  holder hereof as the absolute owner
of this Note (whether or not this Note shall be overdue and  notwithstanding any
notation of  ownership  or other  writing  hereon made by anyone  other than the
Company or any Note registrar),  for the purpose of receiving payment hereof, or
on account hereof,  for the conversion  hereof and for all other  purposes,  and
neither the Company  nor the  Trustee  nor any paying  agent nor any  conversion
agent nor any Note  registrar  shall be affected by any notice to the  contrary.
All payments  made to, and all shares of Common Stock and/or  Series B Preferred
Stock  issued  upon  conversion  of this Note to,  or upon the  order  of,  such
registered  holder  shall,  to the  extent of the sum or sums paid or  principal
amount of this Note so  converted,  satisfy and  discharge  liability for monies
payable on this Note.

     No recourse for the payment of the principal of this Note, or for any claim
on any Note or otherwise in respect of any Note,  and no recourse  under or upon
any  obligation,  covenant or agreement  of the Company in the  Indenture or any
indenture  supplemental  thereto  or in  any  Note,  shall  be had  against  any
incorporator,  stockholder, officer, director, employee or agent, as such, past,
present  or  future,  of the  Company or of any  successor  corporation,  either
directly or through the Company or any successor corporation,  whether by virtue
of any  constitution,  statute  or  rule  of law  or by the  enforcement  of any
assessment or penalty or otherwise,  all such liability being, by the acceptance
hereof and as part of the consideration  for the issue hereof,  expressly waived
and released.




                                       (5)

<PAGE>

                           [FORM OF CONVERSION NOTICE]

TO PORTA SYSTEMS CORP.:

     The undersigned owner of this Note hereby irrevocably  exercises the option
to convert this Note, or portion hereof (which is $1,000 or a multiple  thereof)
below designated,  into shares of Common Stock (or, under certain  circumstances
set forth in the Indenture,  Series B Preferred Stock) of Porta Systems Corp. in
accordance with the terms of the Indenture referred to in this Note, and directs
that the shares issuable and deliverable upon the conversion,  together with any
check  in  payment  for  fractional  shares  and  any  Notes   representing  any
unconverted  principal amount hereof,  be issued and delivered to the registered
holder hereof unless a different name has been indicated below. If shares are to
be issued in the name of a person other than the  undersigned,  the  undersigned
will pay all transfer taxes payable with respect thereto.

Dated:                                 .........................................
                                                      Signature
                                              
                                        (to  be  medallion   guaranteed   by  an
                                        eligible  guarantor  institution  (bank,
                                        stockbroker,     savings     and    loan
                                        association,   or  credit   union   with
                                        membership  in  an  approved   signature
                                        guaranty medallion program), pursuant to
                                        Rule  17 Ad- 15  promulgated  under  the
                                        Securities  Exchange Act of 1934, if the
                                        shares are to be issued in the name of a
                                        person other than the registered  owner)

Fill in for registration of shares:

 ..........................................

 ..........................................

 ..........................................

      Please print name and address
       (including zip code number)

                                        Principal  amount  to be  converted  (if
                                        less than all):

                                               $   000

                                        ........................................
                                                 Social Security or Other
                                             Taxpayer Identification Number

                              [FORM OF ASSIGNMENT]

   FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto


- --------------------------------------------------------------------------------
                  (Please print name and address of transferee)

     this Note,  together with all right,  title and interest therein,  and does
hereby irrevocably constitute and appoint  ____________________________________,
as  Attorney,  to transfer  the within  Note on the books kept for  registration
thereof, with full power of substitution.

Dated:                      Signature:
     ------------------             -------------------------------------------
                                    (Signature must conform in all respects to 
                                      name of holder as specified on the face
                                                    of the Note)

Social Security or Other
Identifying Number of Transferee:
                                   -------------------------



Signature Guaranteed:

                                       (6)

<PAGE>


     AND WHEREAS, all acts and things necessary to make the Notes, when executed
by the  Company and  authenticated  and  delivered  by the  Trustee,  as in this
Indenture provided,  and issued, the valid, binding and legal obligations of the
Company,  and to constitute  these presents a valid  agreement  according to its
terms, have been done and performed, and the execution of this Indenture and the
issue hereunder of the Notes have in all respects been duly authorized;

     NOW, THEREFORE, THIS INDENTURE WITNESSETH:

     That in order to declare the terms and conditions upon which the Notes are,
and are to be, authenticated,  issued and delivered, and in consideration of the
premises, of the purchase and acceptance of the Notes by the holders thereof and
of the sum of one  dollar  duly paid to it by the  Trustee at the  execution  of
these  presents,  the  receipt  whereof  is  hereby  acknowledged,  the  Company
covenants and agrees with the Trustee,  for the equal and proportionate  benefit
of the respective holders from time to time of the Notes, as follows:


                                  ARTICLE ONE.

                                  DEFINITIONS.

     SECTION 1.01.  Definitions.  The terms defined in this Section 1.01 (except
as herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this  Indenture  and of any  indenture  supplemental  hereto
shall have the  respective  meanings  specified in this Section 1.01.  All other
terms used in this  Indenture  which are defined in the Trust  Indenture  Act of
1939, as amended,  or which are by reference  therein  defined in the Securities
Act of 1933, as amended (except as herein otherwise expressly provided or unless
the context otherwise requires),  shall have the meanings assigned to such terms
in said Trust  Indenture Act and in said  Securities Act as in force at the date
of the execution of this Indenture.

Board of Directors:

     The term  "Board of  Directors"  shall mean the Board of  Directors  of the
Company or the Executive Committee of such Board.

Business Day:

     The term  "Business Day" shall mean any day other than a Saturday or Sunday
or a day on which banking institutions in The City of New York are authorized or
obligated to close.

Common Stock:

     The term "Common Stock" shall mean, when used with reference to the capital
stock of the Company, the class of stock which, at the date of execution of this
Indenture, is designated as common stock of the Company, being its common stock,
par value  $.01 per  share,  and stock of any class or  classes  into which such
common stock or any such other class may thereafter be changed or  reclassified.
In case by reason of the  operation of Article  Fifteen of this  Indenture,  the
Notes shall be convertible into any other shares or other securities or property
of the Company or any other corporation,  any reference in this Indenture to the
conversion  of Notes  pursuant  to Article  Fifteen of this  Indenture  shall be
deemed to refer to and  include  conversion  of Notes into such other  shares or
other securities or property.


                                       (7)

<PAGE>

Company:

     The term "Company" shall mean Porta Systems Corp., a Delaware  corporation,
and subject to the provisions of Article Twelve of this Indenture  shall include
its successors and assigns.

Conversion Price:

     The term  "Conversion  Price"  shall have the meaning  specified in Article
Fifteen of this Indenture.

Event of Default:

     The term "Event of Default" shall mean any event  specified in Section 7.01
of this  Indenture,  continued  for the  period of time,  if any,  and after the
giving of the notice, if any, therein designated.

Exchange Offer:

     The term  "Exchange  Offer" shall mean the offer made by the Company to the
holders of the  Outstanding  Debentures  pursuant to a Notice of Exchange  Offer
dated November 30, 1995, and as more fully  described in a Disclosure  Statement
dated  November 30,  1995,  pursuant to which the Company  offered to issue,  in
exchange for each $1,000 stated principal amount of Outstanding Debentures,  (i)
97 shares of Common Stock, and (ii) Notes in the principal amount of $767.22.

Excluded Debt:

     The term "Excluded Debt" shall mean the Company's  obligations  pursuant to
the Loan and Security Agreement and the Outstanding Debentures.

Indenture:

     The term "Indenture" shall mean this instrument as originally  executed or,
if amended or supplemented as herein provided, as so amended or supplemented.

Loan and Security Agreement:

     The term "Loan and  Security  Agreement"  shall mean a certain  Amended and
Restated  Loan and  Security  Agreement  by and between the Company and Foothill
Capital  Corporation dated as of November 28, 1994, as the same shall be amended
and supplemented,  and including any agreements with other or subsequent lenders
who are or become  assignees or  participants in the loan or loans made pursuant
to such agreement.

Note or Notes; Outstanding:

     The terms "Note" or "Notes"  shall mean any Note or Notes,  as the case may
be, authenticated and delivered under this Indenture.

     The term "outstanding,"  when used with reference to Notes, shall,  subject
to the provisions of Section 9.04 of this Indenture,  mean, as of any particular
time, all Notes authenticated and delivered by the Trustee under this Indenture,
except

          (a) Notes  theretofore  cancelled  by the Trustee or  delivered to the
     Trustee for cancellation;


                                       (8)

<PAGE>

          (b) Notes, or portions thereof, for the payment or redemption of which
     monies in the necessary  amount shall have been deposited in trust with the
     Trustee or with any paying  agent  (other  than the  Company) or shall have
     been set aside and segregated in trust by the Company (if the Company shall
     act as its  own  paying  agent),  provided  that if  such  Notes  are to be
     redeemed prior to the maturity  thereof,  notice of such  redemption  shall
     have  been  given  as  provided  in  Article  Three of this  Indenture,  or
     provision  satisfactory to the Trustee shall have been made for giving such
     notice;

          (c) Notes in lieu of or in  substitution  for which  other Notes shall
     have been authenticated and delivered pursuant to the terms of Section 2.06
     of this  Indenture  unless proof  satisfactory  to the Trustee is presented
     that any such Notes are held by bona fide holders in due course; and

          (d) Notes  surrendered  for  conversion  into Common Stock pursuant to
     Article Fifteen of this Indenture or redeemed  pursuant to Article Three of
     this Indenture.

Noteholder:

     The terms  "Noteholder,"  "holder of Notes," or other similar terms,  shall
mean any person in whose name at the time a particular Note is registered on the
books of the Company kept for that purpose in accordance  with the terms of this
Indenture.

Obligor:

     The term "Obligor," when used with respect to the Notes, means every person
who is liable thereon.

Officers' Certificate:

     The term  "Officers'  Certificate,"  when used with respect to the Company,
shall mean a certificate  signed by the  President or any Vice  President and by
the  Vice  President--Finance  (if such  officer  shall  not also  sign the same
certificate as a Vice President),  the Controller, any Assistant Controller, the
Treasurer,  any Assistant Treasurer, the Secretary or any Assistant Secretary of
the Company.  Each such certificate shall include the statements provided for in
Section 16.05 of this Indenture if and to the extent  required by the provisions
of such Section.

Opinion of Counsel:

     The term "Opinion of Counsel" shall mean an opinion in writing,  reasonably
acceptable to the Trustee, signed by legal counsel, who may be an employee of or
counsel to the Company.  Each such opinion shall include the statements provided
for in Section  16.05 of this  Indenture,  if and to the extent  required by the
provisions of such Section.

Outstanding Debentures:

     The term  "Outstanding  Debentures" shall mean the Company's 6% Convertible
Subordinated  Debentures  due July 1, 2002,  which were  issued  pursuant  to an
indenture dated as of July 1, 1992, between the Company, as issuer, and The Bank
of New York, as trustee.

Person:

     The term "Person" shall mean a corporation,  an association, a partnership,
a  limited  liability  company,  an  organization,  a trust,  an  individual,  a
government or a political subdivision thereof or a governmental agency.



                                       (9)

<PAGE>

Predecessor Note:

     The term  "Predecessor  Note" of any  particular  Note means every previous
Note  evidencing  all or a portion  of the same debt as that  evidenced  by such
particular Note, and for the purposes of this definition, any Note authenticated
and  delivered  under  Section  2.06 of this  Indenture  in lieu of a mutilated,
destroyed,  lost or stolen Note shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Note.

Principal Office of the Trustee:

     The term  "principal  office of the  Trustee," or other  similar term shall
mean the  principal  office of the Trustee at which at any  particular  time its
corporate trust business shall be administered,  which office is, at the date of
this Indenture, located at 40 Wall Street, 46th Floor, New York, New York 10005.

Responsible Officer:

     The term  "Responsible  Officer,"  when used with  respect to the  Trustee,
shall mean the chairman or vice chairman of the board of directors, the chairman
or vice  chairman of the  executive  committee  of the board of  directors,  the
president,  any executive vice president,  any senior vice  president,  any vice
president, any assistant vice president, the cashier, any assistant cashier, any
senior trust officer,  any trust officer,  any assistant  trust officer,  or any
other  officer  or  assistant  officer  of the  Trustee  customarily  performing
functions  similar to those  performed  by the  persons who at the time shall be
such officers,  respectively,  or to whom any corporate trust matter is referred
because of his knowledge of and familiarity with the particular subject.

Senior Debt:

     The term "Senior Debt" shall mean the principal of and premium, if any, and
interest on the following:  (a) the Loan and Security  Agreement  (including all
interest accruing after the commencement of any bankruptcy or similar proceeding
of which the Company is the  subject,  whether or not a claim for  post-petition
interest is allowed as a claim in any such  proceeding,  and  including all fees
and other  similar  amounts  payable  in  connection  therewith),  (b) all other
indebtedness  of the  Company  (including  indebtedness  of  others  assumed  or
guaranteed by the Company) other than the Securities, whether outstanding on the
date of the Indenture or thereafter created,  incurred or assumed,  which is (i)
for money borrowed (which for all purposes  herein  includes  obligations of the
Company to repay  amounts  owing in  respect  of letters of credit,  overdrafts,
foreign  exchange  contracts,  bankers'  acceptances  and loans or advances from
banks,  whether  or not  evidenced  by notes  or  similar  instruments)  or (ii)
evidenced  by  a  note  or  similar  instrument  given  in  connection  with  an
acquisition of any businesses,  properties or assets of any kind (other than any
such  acquisition in the ordinary  course of business),  (c)  obligations of the
Company as lessee under leases  required to be  capitalized on the balance sheet
of the lessee under generally accepted accounting principles and (d) amendments,
renewals,  extensions,  modifications,  refinancings  and refundings of any such
indebtedness  or  obligation,  including  the  Notes,  unless in any case in the
instrument  creating  or  evidencing  any such  indebtedness  or  obligation  or
pursuant to which the same is outstanding it is provided that such  indebtedness
or obligation is not superior in right of payment to the Securities.  All of the
Company's  obligations  under  the  Notes  shall  be  senior  to  the  Company's
obligations  under  the  Outstanding  Debentures.  Neither  the  Notes  nor  the
Outstanding Debentures are included in the definition of Senior Debt.

Series B Preferred Stock:

     The term  "Series B  Preferred  Stock"  shall mean the  Company's  Series B
Participating Convertible Preferred Stock, with the holders having substantially
the rights, preferences and privileges set forth in a Certificate of Designation
filed with the  Secretary of State of Delaware on or about the date of execution
of this Indenture.


                                      (10)

<PAGE>

Subsidiary:

     The  term  "Subsidiary"  shall  mean  any  corporation  of which at least a
majority  of  the   outstanding   stock  having  voting  power  under   ordinary
circumstances  to elect a majority of the board of directors of said corporation
shall  at the time be owned by the  Company  or by the  Company  and one or more
Subsidiaries or by one or more Subsidiaries.

Trigger Date:

     The term  "Trigger  Date"  shall  mean the date on which the  number of the
Company's  issued and outstanding  Common Stock,  including any shares of Common
Stock issuable pursuant to Article Fifteen of this Indenture  (without regard to
the application of Section 15.11 of this Indenture),  shall be at least nineteen
million (19,000,000)  shares,  inclusive of shares of Common Stock issuable upon
conversion of Notes presented for conversion at such date.

Trustee:

     The term "Trustee"  shall mean American Stock Transfer & Trust Company and,
subject to the provisions of Article Eight of this Indenture, shall also include
its successors and assigns as Trustee hereunder.

Trust Indenture Act of 1939:

     The term "Trust  Indenture Act of 1939" shall mean the Trust  Indenture Act
of 1939 as it was in force at the date of execution of this Indenture, except as
provided in Sections 11.03 and 15.06 of this Indenture.


                                  ARTICLE TWO.

                   ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
                             AND EXCHANGE OF NOTES.

     SECTION 2.01.  Designation,  Amount and Issue of Notes.  The Notes shall be
designated as set forth in the title of the form of Note  hereinabove set forth.
Upon execution of this Indenture,  or from time to time  hereafter,  pursuant to
the Exchange Offer to the holders of the Outstanding  Debentures,  or otherwise,
the Company may execute and deliver to the Trustee for  authentication,  and the
Trustee  shall  thereupon  authenticate  and  deliver  said Notes to or upon the
written  order  of the  Company,  signed  by its  President  or any of its  Vice
Presidents  and its  Treasurer ar any of its  Assistant  Treasures,  without any
further action by the Company hereunder, Notes in the aggregate principal amount
of thirty million dollars ($30,000,000).

     SECTION  2.02.  Form of Notes.  The Notes,  the  Trustee's  certificate  of
authentication  and the  conversion  notice  to be borne by the  Notes  shall be
substantially  in the form as in this Indenture above recited.  Any of the Notes
may  have  imprinted  thereon  such  legends  or  endorsements  as the  officers
executing the same may approve (execution  thereof to be conclusive  evidence of
such  approval)  and as  are  not  inconsistent  with  the  provisions  of  this
Indenture,  or as may be  required  to  comply  with any law or with any rule or
regulation  made  pursuant  thereto or with any rule or  regulation of any stock
exchange on which the Notes may be listed, or to conform to usage.

     SECTION 2.03. Date and  Denomination of Notes.  The Notes shall be issuable
in fully  registered form in  denominations of one thousand dollars ($1,000) and
any  multiple  of  one  thousand  dollars  ($1,000).  However,  if a  holder  of
Outstanding  Debentures  accepts the  Exchange  Offer with respect to all of his
Outstanding  Debentures,  a  separate  Note may be  issued  to such  holder in a
principal amount less than one thousand dollars ($1,000). If the total principal
amount  of Notes to be  issued  to such  holder  exceeds  one  thousand  dollars
($1,000) or a multiple

                                      (11)

<PAGE>

thereof,  such  separate  Note  shall be  issued  in the  amount  by which  such
principal  amount exceeds such multiple.  If the total principal amount of Notes
to be issued to such holder is less than one thousand dollars ($1,000), a single
Note shall be issued for such total principal  amount.  Notes shall be numbered,
lettered or otherwise  distinguished  in such manner or in accordance  with such
plan as the officers of the Company  executing the same may  determine  with the
approval  of  the  Trustee  and  each  Note  shall  be  dated  the  date  of its
authentication.  No Note in a principal  amount other than one thousand  dollars
($1,000) or a multiple of one thousand  dollars  ($1,000) may be  transferred or
converted or redeemed except in whole.

     SECTION 2.04. Execution of Notes. The Notes shall be signed in the name and
on behalf to the Company by the facsimile signature of its President or, in lieu
thereof,  of any of its Vice  Presidents  or its  Treasurer  and attested by its
Secretary  or an Assistant  Secretary,  under its  corporate  seal (which may be
printed,  engraved or otherwise  reproduced thereon, by facsimile or otherwise).
For that  purpose the Company may adopt and use the  facsimile  signature of any
person  who has been or is or shall be such  officer.  Only such  Notes as shall
bear  thereon  a  certificate  of  authentication   substantially  in  the  form
hereinbefore recited, executed by the Trustee, shall be entitled to the benefits
of the Indenture or be valid or obligatory for any purpose.  Such certificate by
the Trustee upon any Note executed by the Company  shall be conclusive  evidence
that the  Note so  authenticated  has  been  duly  authenticated  and  delivered
hereunder and that the holder is entitled to the benefits of this Indenture.

     In case any  officer of the  Company who shall have signed any of the Notes
shall  cease to be such  officer  before  the  Notes so signed  shall  have been
authenticated and delivered by the Trustee, or disposed of by the Company,  such
Notes  nevertheless may be authenticated  and delivered or disposed of as though
the  person  who  signed  such  Notes had not  ceased to be such  officer of the
Company; and any Note may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Note,  shall be the proper  officers
of the Company, although at the date of the execution of this Indenture any such
person was not such an officer.

     SECTION 2.05.  Exchange and Registration of Transfer of Notes. Notes may be
exchanged for a like  aggregate  principal  amount of Notes of other  authorized
denominations.  Notes to be  exchanged  shall be  surrendered  at the  office or
agency to be maintained by the Company in the Borough of Manhattan,  The City of
New York,  and the Company  shall  execute and  register  and the Trustee  shall
authenticate  and  deliver  in  exchange  therefor  the Note or Notes  which the
Noteholder making the exchange shall be entitled to receive.

     The Company shall keep, at said office or agency in The City of New York, a
Note  register  in  which,  subject  to such  reasonable  regulations  as it may
prescribe,  the Company shall  register Notes and shall register the transfer of
Notes as provided in this Article Two. Such register shall be in written form or
in any  other  form  capable  of being  converted  into  written  form  within a
reasonable  time.  At all  reasonable  times  such  register  shall  be open for
inspection by the Trustee. So long as any of the Notes remain  outstanding,  the
Company  shall also at all times  maintain an office or agency in the Borough of
Manhattan,  The City of New York at which Notes may be presented for conversion,
transfer and exchange.  Upon due presentment for registration of transfer of any
Notes at any such office or agency,  the Company  shall execute and register and
the Trustee  shall  authenticate  and deliver in the name of the  transferee  or
transferees a new Note or Notes for an equal aggregate principal amount.

     All  Notes  presented  for   registration  of  transfer  or  for  exchange,
redemption,  conversion  or payment  shall (if so required by the Company or the
Trustee) be duly  endorsed  by, or be  accompanied  by a written  instrument  or
instruments of transfer in form satisfactory to the Company and the Trustee duly
executed by, the holder or his attorney duly authorized in writing. If presented
for transfer, the registered holder's signature shall be medallion guaranteed by
a New York bank or trust company or a member of the New York Stock Exchange.

     No  service  charge  shall  be made for any  exchange  or  registration  of
transfer of Notes,  but the Company may require  payment of a sum  sufficient to
cover any tax or other  governmental  charge  that may be imposed in  connection
therewith.


                                      (12)

<PAGE>

     The Company shall not be required to exchange or register a transfer of (a)
any Notes for a period of fifteen  (15) days next  preceding  any  selection  of
Notes to be redeemed,  or (b) any Notes  selected,  called,  or being called for
redemption  except, in the case of any Notes to be redeemed in part, the portion
thereof not so to be  redeemed,  or (c) any Notes  surrendered  for  conversion.
Nothing in this Section 2.05 shall be  construed to prohibit the  conversion  of
Notes  during the period  when the Notes may be  converted  pursuant  to Article
Fifteen of this Indenture.

     SECTION  2.06.  Mutilated,  Destroyed,  Lost or Stolen  Notes.  In case any
temporary or definitive  Notes shall become  mutilated or be destroyed,  lost or
stolen,  the Company in its  discretion  may  execute,  and upon its request the
Trustee  shall  authenticate  and  deliver,  a new Note,  bearing  a number  not
contemporaneously outstanding, in exchange and in substitution for the mutilated
Note,  or in lieu of and in  substitution  for the  Note so  destroyed,  lost or
stolen.  In every case the applicant for a substituted Note shall furnish to the
Company and to the Trustee  such  security  and  indemnity as may be required by
them  to  effectively  save  each  of  them  harmless,  and,  in  every  case of
destruction,  loss or theft, the applicant shall also furnish to the Company and
to the Trustee evidence to their satisfaction of the destruction,  loss or theft
of such Note and of the ownership thereof.

     The Trustee may authenticate any such substituted Note and deliver the same
upon the written request or  authorization  of any officer of the Company.  Upon
the issuance of any  substituted  Note, the Company may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses connected therewith and in addition a
further sum not  exceeding $2 for each Note so issued in  substitution.  In case
any Note  which has  matured  or is about to mature or is about to be  converted
into Common Stock shall become  mutilated or be destroyed,  lost or stolen,  the
Company may,  instead of issuing a substitute Note, pay or authorize the payment
of or convert or authorize the conversion of the same (without surrender thereof
except in the case of a mutilated  Note) if the applicant for such payment shall
furnish to the Company and to the Trustee such  security and indemnity as may be
required  by them to  effectively  save each of them  harmless  and,  in case of
destruction, loss or theft, evidence satisfactory to the Company and the Trustee
of the destruction, loss or theft of such Note and of the ownership thereof.

     Every  substituted  Note issued  pursuant to the provisions of this Section
2.06 by  virtue  of the fact that any Note is  destroyed,  lost or stolen  shall
constitute an additional contractual  obligation of the Company,  whether or not
the  destroyed,  lost or stolen  Note  shall be found at any time,  and shall be
entitled to all the benefits of this Indenture equally and proportionately  with
any and all other Notes duly issued hereunder. All Notes shall be held and owned
upon the express  condition  that the foregoing  provisions  are exclusive  with
respect to the  replacement or payment of mutilated,  destroyed,  lost or stolen
Notes and shall  preclude any and all other  rights or remedies  notwithstanding
any law or statute existing or hereafter enacted to the contrary with respect to
the  replacement  or payment or conversion of  negotiable  instruments  or other
securities without their surrender.

     SECTION 2.07. Temporary Notes. Pending the preparation of definitive Notes,
the Company may execute and the Trustee shall authenticate and deliver temporary
Notes  (printed  or  lithographed).  Temporary  Notes  shall be  issuable in any
authorized  denomination,  and  substantially in the form of the definitive Note
but with such  omissions,  insertions and  variations as may be appropriate  for
temporary Notes,  all as may be determined by the Company.  Every such temporary
Note shall be  authenticated  by the  Trustee  upon the same  conditions  and in
substantially  the same  manner,  and with the same  effect,  as the  definitive
Notes.  Without  unreasonable delay the Company shall execute and deliver to the
Trustee  definitive  Notes  and  thereupon  any or all  temporary  Notes  may be
surrendered in exchange therefor,  at the principal office of the Trustee in the
Borough of Manhattan,  The City of New York, and the Trustee shall  authenticate
and deliver  definitive  Notes in exchange for such temporary Notes. The Company
shall bear any and all reasonable costs associated with such exchange.  Until so
exchanged,  the  temporary  Notes shall in all  respects be entitled to the same
benefits under this Indenture as definitive  Notes  authenticated  and delivered
hereunder.


                                      (13)

<PAGE>

     SECTION 2.08.  Cancellation of Notes Paid,  etc. All Notes  surrendered for
the purpose of payment,  redemption,  conversion,  exchange or  registration  of
transfer,  shall,  if surrendered to the Company or any paying agent or any Note
registrar or any  conversion  agent,  be surrendered to the Trustee and promptly
cancelled by it, or, if surrendered to the Trustee,  shall be promptly cancelled
by it,  and no  Notes  shall be  issued  in lieu  thereof  except  as  expressly
permitted by any of the  provisions of this  Indenture.  The Trustee may destroy
cancelled Notes and deliver a certificate of such destruction to the Company. If
the Company shall acquire any of the Notes,  however, such acquisition shall not
operate as a redemption or satisfaction of the indebtedness  represented by such
Notes unless and until the same are surrendered to the Trustee for cancellation.


                                 ARTICLE THREE.

                              REDEMPTION OF NOTES.

     SECTION 3.01. Redemption Prices. The Company may, at its option, redeem all
or from time to time any part of the  Notes,  on notice as set forth in  Section
3.02 of this  Indenture,  and at the redemption  prices set forth in the form of
Note hereinabove recited.

     SECTION 3.02. Notice of Redemption; Selection of Notes. In case the Company
shall  desire to exercise  the right to redeem all,  or, as the case may be, any
part of the Notes of this Indenture,  it shall fix a date for redemption and it,
or, at its  request,  the  Trustee in the name of and at the risk and expense of
the  Company,  shall mail or cause to be mailed a notice of such  redemption  at
least  thirty (30),  and not more than sixty (60),  days prior to the date fixed
for  redemption  to the holders of Notes so to be redeemed as a whole or in part
at their last addresses as the same appear on the Notes  register.  Such mailing
shall be by first class mail. The notice if mailed in the manner herein provided
shall be  conclusively  presumed  to have been duly  given,  whether  or not the
holder receives such notice. In any case, failure to give such notice by mail or
any defect in the notice to the holder of any Note  designated for redemption as
a whole or in part shall not  affect the  validity  of the  proceedings  for the
redemption of any other Note.

     Each such  notice of  redemption  shall be given in the name of the Company
and specify the date fixed for redemption,  the redemption  price at which Notes
are to be  redeemed,  the place of payment,  and that  payment will be made upon
presentation  and  surrender of such Notes at the place of payment.  Such notice
shall also state the current conversion price and the date on which the right to
convert such Notes or portions  thereof into Common Stock will expire.  If fewer
than all the Notes are to be redeemed,  the notice of redemption  shall identify
the Notes to be redeemed.  In case any Note is to be redeemed in part only,  the
notice of redemption  shall state the portion of the principal amount thereof to
be  redeemed  and shall  state that on and after the date fixed for  redemption,
upon  surrender of such Note,  a new Note or Notes in principal  amount equal to
the unredeemed portion thereof will be issued.

     Prior to the redemption date specified in the notice of redemption given as
provided in this Section  3.02,  the Company  shall  deposit with the Trustee or
with one or more paying  agents an amount of money  sufficient  to redeem on the
redemption  date all the  Notes so  called  for  redemption  at the  appropriate
redemption price. If fewer than all the Notes are to be redeemed,  it shall give
the Trustee  notice not less than  forty-five  (45) days prior to the redemption
date as to the aggregate principal amount of Notes to be redeemed.

     If fewer  than all the Notes are to be  redeemed  or if any Notes are to be
redeemed in part only,  the  Trustee  shall  select,  pro rata or by lot, as the
Trustee shall deem  appropriate  and fair,  the Notes or portions  thereof to be
redeemed and shall as promptly as practicable notify the Company of the Notes or
portions  thereof  so  selected.  No Note of the  denomination  of one  thousand
dollars  ($1,000) or less shall be redeemed in part and Notes may be redeemed in
part only in multiples of one thousand  dollars  ($1,000).  If any Note selected
for partial redemption is converted in part after such selection,  the converted
portion of such Note shall be deemed (so far

                                      (14)

<PAGE>

as may be) to be the  portion  to be  selected  for  redemption.  The  Notes (or
portions  thereof) so selected  shall be deemed duly selected for redemption for
all purposes hereof,  notwithstanding that any such Note is converted as a whole
or in part before the mailing of the notice of redemption.

     Upon any redemption of less than all the Notes, the Company and the Trustee
may treat as outstanding  Notes  surrendered for conversion during the period of
fifteen (15) days next  preceding the mailing of a notice of redemption and need
not treat as outstanding any Note authenticated and delivered during such period
in exchange  for the  unconverted  portion of any Note  converted in part during
such period.

     SECTION  3.03.  Payment  of Notes  Called  for  Redemption.  If  notice  of
redemption  has been given as above  provided,  the Notes with  respect to which
such notice has been given shall, unless theretofore converted into Common Stock
pursuant to the terms of this Indenture,  become due and payable on the date and
at the place or places stated in such notice at the applicable redemption price.
On presentation and surrender of such Notes at a place of payment in said notice
specified,  the said Notes or the specified  portions  thereof shall be paid and
redeemed by the Company at the applicable redemption price.

     Upon  presentation  and  surrender of any Note  redeemed in part only,  the
Company  shall  execute and the Trustee  shall  authenticate  and deliver to the
holder  thereof,  at the  expense  of the  Company,  a new  Note  or  Notes,  of
authorized denominations, in principal amount equal to the unredeemed portion of
the Notes so presented and surrendered.


                                  ARTICLE FOUR.

                             SUBORDINATION OF NOTES.

     SECTION 4.01.  Agreement of Noteholders  that Notes  Subordinated to Extent
Provided.  The Company,  for itself,  its successors and assigns,  covenants and
agrees and each holder of the Notes by his acceptance thereof likewise covenants
and agrees  that the  payment of the  principal  of each and all of the Notes is
hereby expressly  subordinated,  to the extent and in the manner hereinafter set
forth, to the prior payment in full of all Senior Debt,  whether  outstanding on
the date hereof or incurred or created in the  future.  The  provisions  of this
Article Four shall constitute a continuing offer to all persons who, in reliance
upon such provisions,  become holders of, or continue to hold,  Senior Debt, and
such provisions are made for the benefit of the holders of Senior Debt, and such
holders  are hereby  made  obligees  hereunder  the same as if their  names were
written herein as such, and they and/or each of them may proceed to enforce such
provisions.

     SECTION 4.02. Company not to Make Payments with Respect to Notes in Certain
Circumstances.

     (a) Upon the maturity of any Senior Debt by lapse of time,  acceleration or
otherwise, all principal thereof and premium, if any, and interest thereon shall
first be paid in full,  or such payment duly provided for in cash or in a manner
satisfactory to the holder or holders of such Senior Debt, before any payment is
made on account of the  principal of the Notes or to acquire any of the Notes by
the Company.

     (b) Upon the  happening  of an event of default  with respect to any Senior
Debt,  as such event of default is defined  therein or in the  instrument  under
which it is  outstanding,  permitting  the holders to  accelerate  the  maturity
thereof,  and, if the default is other than default in payment of the  principal
of or premium,  if any, or interest on such Senior  Debt,  upon  written  notice
thereof  given to the  Company  and the Trustee by the holder or holders of such
Senior Debt or their  representative or representatives,  then, unless and until
such  event of default  shall have been cured or waived or shall have  ceased to
exist,  no payment shall be made by the Company with respect to the principal of
the Notes or to acquire any of the Notes.


                                      (15)

<PAGE>

     (c) In the event that, notwithstanding the provisions of this Section 4.02,
the Company shall make any payment to the Trustee on account of the principal of
the Notes,  after the  happening of a default in payment of the  principal of or
premium, if any, or interest on Senior Debt, or after receipt by the Company and
the Trustee of written  notice as provided in Section 4.06 of this  Indenture of
an event of default with respect to any Senior Debt, then, unless and until such
default or event of default shall have been cured or waived or shall have ceased
to exist,  such payment  (subject to the provisions of Sections 4.06 and 4.07 of
this Indenture)  shall be held by the Trustee,  in trust for the benefit of, and
shall be paid  forthwith  over and delivered to, the holders of Senior Debt (pro
rata as to each of such holders on the basis of the respective amounts of Senior
Debt held by them) or their representative or the trustee under the indenture or
other agreement (if any) pursuant to which any instruments evidencing any Senior
Debt may have  been  issued,  as their  respective  interests  may  appear,  for
application  to the  payment of all Senior Debt  remaining  unpaid to the extent
necessary  to pay all Senior Debt in full in  accordance  with the terms of such
Senior Debt, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Debt.

     (d) It is  understood  and  agreed  that  the  Trustee  shall  be  under no
obligation to enforce the Company's  agreement,  pursuant to Paragraphs  4.02(a)
and (b) of this  Indenture,  not to make payments to acquire any of the Notes or
to take any action upon the breach of such agreement.

     SECTION  4.03.  Notes  Subordinated  to Prior Payment of all Senior Debt on
Dissolution,  Liquidation or Reorganization of Company. Upon any distribution of
assets  of  the  Company  upon  any  dissolution,  winding  up,  liquidation  or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise),

     (a) The  holders of all  Senior  Debt shall  first be  entitled  to receive
payment in full of the  principal  thereof,  premium,  if any,  and interest due
thereon  before the holders of the Notes are  entitled to receive any payment on
account of the  principal of the Notes (other than payment in shares of stock of
the Company as reorganized  or  readjusted,  or securities of the Company or any
other  corporation  provided for by a plan of  reorganization  or  readjustment,
which stock and  securities are  subordinated  to the payment of all Senior Debt
and securities  received in lieu thereof which may at the time be  outstanding);
and

     (b) Any  payment or  distribution  of assets of the  Company of any kind or
character,  whether in cash,  property or securities (other than shares of stock
of the Company as reorganized or readjusted, or securities of the Company or any
other  corporation  provided for by a plan of  reorganization  or  readjustment,
which stock and  securities are  subordinated  to the payment of all Senior Debt
and securities  received in lieu thereof which may at the time be  outstanding),
to which the  holders of the Notes or the Trustee  would be entitled  except for
the provisions of this Article Four, shall be paid by the liquidating trustee or
agent or other person making such payment or distribution,  whether a trustee in
bankruptcy,  a  receiver  or  liquidating  trustee  or other  trustee  or agent,
directly   to  the   holders  of  Senior   Debt  or  their   representative   or
representatives,  or to the trustee or trustees under any indenture  under which
any instruments  evidencing any of such Senior Debt may have been issued, to the
extent  necessary to make payment in full of all Senior Debt  remaining  unpaid,
after  giving  effect to any  concurrent  payment or  distribution  or provision
therefor to the holders of such Senior Debt.

     (c) In the event that  notwithstanding  the  foregoing  provisions  of this
Section 4.03, any payment or  distribution  of assets of the Company of any kind
or  character,  whether in cash,  property or  securities  (other than shares of
stock of the Company as reorganized or readjusted,  or securities of the Company
or  any  other  corporation   provided  for  by  a  plan  of  reorganization  or
readjustment,  which stock and securities are subordinated to the payment of all
Senior Debt and  securities  received in lieu  thereof  which may at the time be
outstanding),  shall be  received  by the Trustee or the holders of the Notes on
account of principal or premium,  if any, on the Notes before all Senior Debt is
paid in full,  or  effective  provision  made for its  payment,  such payment or
distribution  (subject  to the  provisions  of  Section  4.06  and  4.07 of this
Indenture) shall be received and held in trust for and shall be paid over to the
holders of the Senior Debt remaining unpaid or unprovided for or their

                                      (16)

<PAGE>

representative  or  representatives,  or to the  trustee or  trustees  under any
indenture  under which any  instruments  evidencing  any of such Senior Debt may
have been issued,  for  application to the payment of such Senior Debt until all
such  Senior  Debt  shall  have been paid in full,  after  giving  effect to any
concurrent  payment or distribution or provision therefor to the holders of such
Senior Debt.

     SECTION  4.04.  Noteholders  to be Subrogated to Right of Holders of Senior
Debt.  Subject to the  payment in full of all Senior  Debt,  the  holders of the
Notes shall be subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of assets of the Company applicable to the Senior Debt
until all amounts owing on the Notes shall be paid in full,  and for the purpose
of such  subrogation,  no payments or distributions to the holders of the Senior
Debt by or on behalf of the  Company  or by or on behalf of the  holders  of the
Notes by virtue of this Article Four which otherwise would have been made to the
holders of the Notes shall, as between the Company and the holders of the Notes,
be deemed to be payment by the Company to or on account of the Senior  Debt,  it
being  understood  that the provisions of this Article Four are and are intended
solely for the purpose of  defining  the  relative  rights of the holders of the
Notes, on the one hand, and the holders of the Senior Debt, on the other hand.

     SECTION 4.05. Obligation of the Company Unconditional. Nothing contained in
this Article Four or elsewhere in this  Indenture or in the Notes is intended to
or shall  impair as between  the  Company  and the  holders  of the  Notes,  the
obligation of the Company,  which is absolute and  unconditional,  to pay to the
holders of the Notes the  principal  of Notes as and when the same shall  become
due and  payable in  accordance  with their  terms,  or is  intended to or shall
affect the  relative  rights of the  holders of the Notes and  creditors  of the
Company other than the holders of the Senior Debt, nor shall anything  herein or
therein prevent the Trustee or the holder of any Note from exercising all rights
and remedies  otherwise  permitted  by  applicable  law upon default  under this
Indenture, subject to the rights, if any, under this Article Four of the holders
of Senior  Debt in respect  of cash,  property,  or  securities  of the  Company
received upon the exercise of any such remedy.  Upon any  distribution of assets
of the Company  referred to in this Article  Four,  the Trustee,  subject to the
provisions of Section 8.01 of this Indenture, and the holders of the Notes shall
be  entitled  to rely upon any order or  decree  made by any court of  competent
jurisdiction in which any dissolution, winding up, liquidation or reorganization
proceedings are pending, or a certificate of the liquidating trustee or agent or
other  person  making any  distribution  to the Trustee or to the holders of the
Notes,  for the purpose of ascertaining  the persons  entitled to participate in
such distribution,  the holders of the Senior Debt and other indebtedness of the
Company,  the amount thereof or payable  thereon,  the amount or amounts paid or
distributed  thereon and all other facts  pertinent  thereto or to this  Article
Four.

     SECTION 4.06. Trustee Entitled to Assume Payments Not Prohibited in Absence
of Notice.  The Company shall give prompt  written  notice to the Trustee of any
default  under any Senior Debt or under any  agreement  pursuant to which Senior
Debt may have been issued.  Notwithstanding  the  provisions  of Section 4.01 of
this Indenture or any other provision of this  Indenture,  the Trustee shall not
at any time be charged with  knowledge of the existence of any facts which would
prohibit  the making of any payment of monies to or by the  Trustee,  unless and
until the Trustee shall have  received at the  principal  office of the Trustee,
Attention:  President,  written  notice  thereof from the Company or from one or
more  holders of Senior Debt or from any  trustee  therefor;  and,  prior to the
receipt of any such written  notice,  the Trustee,  subject to the provisions of
Section 8.01 of this Indenture, shall be entitled to assume conclusively that no
such facts exist.

     The Trustee  shall be  entitled to rely on the  delivery to it of a written
notice by a Person  representing  himself  to be a holder  of Senior  Debt (or a
trustee on behalf of such holder) to  establish  that such notice has been given
by a holder of Senior Debt or a trustee on behalf of any such holder or holders.
In the event that the Trustee  determines in good faith that further evidence is
required  with  respect to the right of any Person as a holder of Senior Debt to
participate  in any payment or  distribution  pursuant to this Article Four, the
Trustee may, at its discretion,  request such Person to furnish  evidence to the
reasonable  satisfaction  of the Trustee as to the amount of Senior Debt held by
such Person, the extent to which such Person is entitled to participate in such

                                      (17)

<PAGE>

payment or  distribution  and any other  facts  pertinent  to the rights of such
Person under this Article  Four,  and, if such  evidence is not  furnished,  the
Trustee may defer any payment to such Person pending  judicial  determination as
to the right of such Person to receive such  payment,  but the Trustee shall not
be obligated to institute a judicial proceeding for such purpose;  nor shall the
Trustee  be  charged  with  knowledge  of the  curing  or waiver of any event of
default of the character  referred to in Paragraph  4.02(b) of this Indenture or
that any event or any condition  preventing  any payment in respect of the Notes
shall have ceased to exist,  unless and until the Trustee shall have received an
Officers' Certificate to such effect.

     SECTION 4.07.  Application by Trustee of Monies Deposited with It. Anything
in this Indenture to the contrary notwithstanding,  any deposit of monies by the
Company with the Trustee or any paying  agent  (whether or not in trust) for the
payment of the principal of or premium, if any, on any Notes shall be subject to
the provisions of Sections 4.01,  4.02,  4.03 and 4.04 of this Indenture  except
that, if not less than three (3) Business Days prior to the date on which by the
terms of this  Indenture  any such  monies may become  payable  for any  purpose
(including,  without  limitation,  the  payment  of either the  principal  of or
premium, if any, on any Note and any amount immediately due and payable upon the
execution of any  instrument  acknowledging  satisfaction  and discharge of this
Indenture,  as provided in Article Thirteen of this Indenture) the Trustee shall
not have received with respect to such monies the notice provided for in Section
4.06  of  this  Indenture,  then,  anything  herein  contained  to the  contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply the same to the  purpose for which they were  received,  and
shall not be affected by any notice to the contrary  which may be received by it
on or after such date.

     SECTION  4.08.  Subordination  Rights Not  Impaired by Acts or Omissions of
Company or Holders of Senior Debt. No right of any present or future  holders of
any Senior Debt to enforce subordination as herein provided shall at any time in
any way be  prejudiced  or  impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith,  by any such holder,
or by any noncompliance by the Company with the terms,  provisions and covenants
of this Indenture, regardless of any knowledge thereof which any such holder may
have or be otherwise charged with.

     SECTION 4.09. Noteholders Authorize Trustee to effectuate  Subordination of
Notes.  Each  holder  of the  Notes by his  acceptance  thereof  authorizes  and
expressly  directs  the  Trustee  on his  behalf to take  such  action as may be
necessary  or  appropriate  to  effectuate  the  subordination  provided in this
Article Four and irrevocably  appoints the Trustee his attorney-in-fact for such
purpose.

     SECTION  4.10.  Right of Trustee to Hold Senior Debt.  The Trustee shall be
entitled to all of the rights set forth in this  Article  Four in respect of any
Senior  Debt at any time held by it to the same  extent  as any other  holder of
Senior Debt,  and nothing in Section 8.13 of this Indenture or elsewhere in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.

     SECTION 4.11. Article Four not to Prevent Events of Default. The failure to
make a payment on account of  principal  or  premium,  if any,  by reason of any
provision  in this  Article  Four  shall  not be  construed  as  preventing  the
occurrence of an Event of Default under Section 7.01 of this Indenture.


                                  ARTICLE FIVE.

                      PARTICULAR COVENANTS OF THE COMPANY.

     SECTION 5.01.  Payment of Principal.  The Company covenants and agrees that
it will duly and punctually pay or cause to be paid the principal of each of the
Notes at the places,  at the respective  times and in the manner provided herein
and in the Notes.


                                      (18)

<PAGE>

     SECTION 5.02. Offices for Notices and Payments,  etc. So long as any of the
Notes  remain  outstanding,  the  Company  shall  maintain  in  the  Borough  of
Manhattan,  The City of New York,  an  office  or agency  where the Notes may be
presented for payment,  an office or agency where the Notes may be presented for
registration  of transfer and for exchange  and  conversion  as provided in this
Indenture  and an office or agency  where  notices  and  demands  to or upon the
Company in respect of the Notes or of this Indenture may be served.  The Company
shall give to the Trustee  written notice of the location of each such office or
agency and of any change of location thereof.  In case the Company shall fail to
maintain  any such  office or agency  or shall  fail to give such  notice of the
location or of any change in the location thereof, presentations and demands may
be made and notices may be served at the principal  office of the Trustee in the
Borough of  Manhattan,  The City of New York.  The Company  hereby  appoints the
Trustee at the principal office of the Trustee in the Borough of Manhattan,  The
City of New York, its agent to receive all such presentations and demands.

     SECTION 5.03.  Appointments to Fill Vacancies in the Trustee's Office.  The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will  appoint,  in the manner  provided  in Section  8.10 of this  Indenture,  a
Trustee, so that there shall at all times be a Trustee hereunder.

     SECTION 5.04. Provision as to Paying Agent.

     (a) If the Company shall appoint a paying agent other than the Trustee,  it
shall  cause  such  paying  agent to  execute  and  deliver  to the  Trustee  an
instrument  in which such agent  shall  agree with the  Trustee,  subject to the
provisions of this Section 5.04,

          (1) that it  shall  hold all  sums  held by it as such  agent  for the
     payment of the principal of the Notes  (whether such sums have been paid to
     it by the  Company  or by any other  obligor on the Notes) in trust for the
     benefit of the holders of the Notes;

          (2) that it shall  give  the  Trustee  notice  of any  failure  by the
     Company  (or by any other  obligor on the Notes) to make any payment of the
     principal of and  premium,  if any, on the Notes when the same shall be due
     and payable; and

          (3) that it shall at any time  during the  continuance  of an Event of
     Default,  upon the written  request of the  Trustee,  forthwith  pay to the
     Trustee all sums so held by it as such agent.

     (b) If the Company shall act as its own paying agent, it shall on or before
each due date of the  principal of the Notes,  set aside,  segregate and hold in
trust for the benefit of the holders of the Notes a sum  sufficient  to pay such
principal  so  becoming  due and will  notify the Trustee of any failure to take
such action and of any failure by the Company (or by any other obligor under the
Notes) to make any  payment  of the  principal  of the Notes when the same shall
become due and payable.

     (c)  Anything in this Section  5.04 to the  contrary  notwithstanding,  the
Company  may, at any time,  for the  purpose of  obtaining  a  satisfaction  and
discharge of this Indenture, or for any other reason, pay or cause to be paid to
the  Trustee  all sums held in trust by it, or any paying  agent  hereunder,  as
required by this  Section  5.04,  such sums to be held by the  Trustee  upon the
trusts herein contained.

     (d)  Anything in this Section  5.04 to the  contrary  notwithstanding,  the
agreement  to hold sums in trust as provided in this  Section 5.04 is subject to
Sections 13.03 and 13.04 of this Indenture.

     SECTION  5.05.  Corporate  Existence.  Subject  to  Article  Twelve of this
Indenture,  the  Company  will do or cause to be done all  things  necessary  to
preserve  and keep in full  force and effect its  corporate  existence,  and all
material rights (charter and statutory) and franchises;  provided, however, that
the Company shall not be required to preserve any such right or franchise if the
Chief  Executive  Officer and Chief  Financial  Officer of the  Company  jointly

                                      (19)

<PAGE>

determine that the  preservation  thereof is no longer necessary or desirable in
the conduct of the business of the Company or that the abandonment thereof is in
the best interest of the Company.

     SECTION 5.06.  Payment of Taxes and Other Claims.  The Company will use its
best efforts to pay or discharge, or cause to be paid or discharged,  (a) before
the same may become a lien on the general  assets of the  Company,  all material
Federal  and/or state taxes and  assessments  charges levied or imposed upon the
Company or upon the income,  profits or property,  real or personal, or upon any
part thereof,  of the Company,  and (b) not later than thirty (30) days after it
becomes  a lien  on the  particular  assets,  all  material  claims  for  labor,
materials and supplies  which,  if unpaid,  might by law become a lien or charge
upon any material property of the Company;  provided,  however, that the Company
shall not be required to pay or discharge or cause to be paid or discharged  any
such tax, assessment, charge or claim whose amount, applicability or validity is
being  contested  in good faith by  appropriate  proceedings  and if the Company
shall have set aside on its books  reserves  deemed by it adequate  with respect
thereto.

     SECTION 5.07. Statement as to Compliance.

     (a) The Company  shall  deliver to the Trustee,  within one hundred  twenty
(120) days after the end of each fiscal year,  an Officer's  Certificate  of the
Company, stating, as to each signer thereof, that

          (1) a review of the  activities of the Company during such year and of
     performance under this Indenture has been made under his supervision, and

          (2) to the best of his  knowledge,  based on such review,  the Company
     has fulfilled all its  obligations  under this  Indenture  throughout  such
     year,  or,  if there  has been a  default  in the  fulfillment  of any such
     obligation,  specifying  each such default  known to him and the nature and
     status thereof.

     (b) The Company shall promptly  notify the Trustee if the Company's  fiscal
year is  changed  so that the end  thereof  is on any date  other  than the then
current fiscal year end date.

     (c) The  Company  will  deliver  to the  Trustee,  forthwith  upon a senior
executive  officer  becoming aware that the Company is in a material  default in
the performance or observance of any material  covenant,  agreement or condition
contained  in this  Indenture  or that any Event of  Default  has  occurred,  an
Officers'  Certificate  specifying with  particularity  such default or Event of
Default and  further  stating  what  action the Company has taken,  is taking or
proposes to take with respect thereto.


                                  ARTICLE SIX.

                      NOTEHOLDERS LISTS AND REPORTS BY THE
                            COMPANY AND THE TRUSTEE.

     SECTION 6.01.  Noteholders  Lists. The Company covenants and agrees that it
will furnish or cause to be furnished to the Trustee,  semi-annually and at such
other times as the Trustee may request in writing, within thirty (30) days after
receipt by the Company of any such  request,  a list in such form as the Trustee
may reasonably  require of the names and addresses of the holders of Notes as of
a date not more than  fifteen  (15) days prior to the time such  information  is
furnished,  except that no such list need be furnished so long as the Trustee is
acting as Note registrar.

                                      (20)

<PAGE>

     SECTION 6.02. Preservation and Disclosure of Lists.

     (a) The  Trustee  shall  preserve,  in as  current a form as is  reasonably
practicable,  all  information  as to the names and  addresses of the holders of
Notes  contained in the most recent list  furnished to it as provided in Section
6.01 of this  Indenture.  The Trustee may  destroy any list  furnished  to it as
provided  in  Section  6.01 of this  Indenture  upon  receipt  of a new  list so
furnished.

     (b) In case three (3) or more holders of Notes (hereinafter  referred to as
"applicants")  apply in  writing  to the  Trustee  and  furnish  to the  Trustee
reasonable  proof that each such  applicant  has owned a Note for a period of at
least  six  (6)  months  preceding  the  date  of  such  application,  and  such
application  states that the applicants desire to communicate with other holders
of Notes with respect to their  rights  under this  Indenture or under the Notes
and is accompanied by a copy of the form of proxy or other  communication  which
such  applicants  propose to transmit,  then the Trustee shall,  within five (5)
Business Days after the receipt of such application, at its election, either,

          (1) afford such applicants access to the information  preserved at the
     time by the Trustee in accordance with the provisions of Paragraph  6.02(a)
     of this Indenture, or

          (2) inform such applicants as to the approximate  number of holders of
     Notes whose names and addresses appear in the information  preserved at the
     time by the Trustee in accordance with the provisions of Paragraph  6.02(a)
     of  this  Indenture,  and as to the  approximate  cost of  mailing  to such
     Noteholders the form of proxy or other communication,  if any, specified in
     such application.

     If the Trustee  shall elect not to afford  such  applicants  access to such
information,  the Trustee shall,  upon the written  request of such  applicants,
mail to each  Noteholder  whose  name  and  address  appear  in the  information
preserved  at the time by the  Trustee  in  accordance  with the  provisions  of
Paragraph  6.02(a)  of this  Indenture  a copy of the  form of  proxy  or  other
communication  which is specified in such request,  with  reasonable  promptness
after a tender to the Trustee of the  material  to be mailed and of payment,  or
provision for the payment, of the reasonable expenses of mailing,  unless within
five (5) days after such tender,  the Trustee shall mail to such  applicants and
file within the Securities and Exchange Commission,  together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interests of the holders
of Notes or would be in  violation of  applicable  law.  Such written  statement
shall specify the basis of such opinion.  If said Commission,  after opportunity
for a hearing upon the objections  specified in the written  statement so filed,
shall enter an order refusing to sustain any of such objections or if, after the
entry of an order sustaining one or more such objections,  said Commission shall
find,  after notice and  opportunity  for hearing,  that all the  objections  so
sustained have been met and shall enter an order so declaring, the Trustee shall
mail copies of such material to all such Noteholders with reasonable  promptness
after the entry of such order and the  renewal  of such  tender;  otherwise  the
Trustee  shall  be  relieved  of any  obligation  or  duty  to  such  applicants
respecting their application.

     (c) Each and every holder of the Notes,  by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any paying agent nor the Note registrar shall be held  accountable by reason
of the  disclosure of any such  information as to the names and addresses of the
holders of Notes in accordance with the provisions of Paragraph  6.02(b) of this
Indenture, regardless of the source from which such information was derived, and
that the Trustee shall not be held accountable by reason of mailing any material
pursuant to a request made under Paragraph 6.02(b).


                                      (21)

<PAGE>

     SECTION 6.03. Reports by the Company.

     (a) The  Company  covenants  and  agrees to file with the  Trustee,  within
fifteen  (15)  days  after the  Company  is  required  to file the same with the
Securities  and  Exchange  Commission,  copies of the annual  reports and of the
information,  documents  and other reports (or copies of such portions of any of
the foregoing as said  Commission may from time to time by rules and regulations
prescribe)  which the  Company  may be  required  to file  with said  Commission
pursuant to Section 13 or Section 15(d) of the Securities  Exchange Act of 1934;
or, if the Company is not required to file  information,  documents,  or reports
pursuant  to either of such  sections,  then to file with the  Trustee  and said
Commission,  in accordance  with rules and  regulations  prescribed from time to
time by said Commission,  such of the  supplementary  and periodic  information,
documents,  and  reports  which may be  required  pursuant  to Section 13 of the
Securities  Exchange Act of 1934, in respect of a security listed and registered
on a national securities exchange as may be prescribed from time to time in such
rules and regulations.

     (b) The  Company  covenants  and  agrees to file with the  Trustee  and the
Securities and Exchange Commission, in accordance with the rules and regulations
prescribed from time to time by said  Commission,  such additional  information,
documents,  and reports  with  respect to  compliance  by the  Company  with the
conditions and covenants provided for in this Indenture, as may be required from
time to time by such  rules  and  regulation,  including,  in the case of annual
reports, if required by such rules and regulations,  certificates or opinions of
independent public accountants,  conforming to the requirements of Section 16.05
of this Indenture,  as to compliance  with  conditions or covenants,  compliance
with which is subject to verification by accountants.

     (c) The Company  covenants and agrees to transmit by mail to all holders of
Notes as the names and  addresses of such holders  appear upon the Note register
within  thirty  (30) days  after  the  filing  thereof  with the  Trustee,  such
summaries of any information, documents, and reports required to be filed by the
Company  pursuant  to  Paragraphs  6.03(a) and (b) of this  Indenture  as may be
required by rules and regulations prescribed from time to time by the Securities
and Exchange Commission; and

     (d) The Company  covenants  and agrees to furnish to the Trustee,  not less
often than annually,  an Officers' Certificate as to such officers' knowledge of
such  obligor's   compliance  with  all  conditions  and  covenants  under  this
Indenture.  For purposes of this Paragraph  6.03(d),  such  compliance  shall be
determined  without  regard  to any  period  of grace or  requirement  of notice
provided under this Indenture.

     SECTION 6.04. Reports by the Trustee.

     (a) On or before the date the registration  statement covering the Notes is
declared effective by the Securities and Exchange Commission,  and in every year
thereafter  on or  before  the  anniversary  thereof,  so long as any  Notes are
outstanding,  the Trustee shall transmit to the  Noteholders,  as hereinafter in
this  Section  6.04  provided,  a brief report dated as of 30 days prior to such
anniversary  with respect to any of the following events which may have occurred
within the previous twelve (12) months (but if no such event has occurred within
such period no report need be transmitted):

          (1) any change to its eligibility under Section 8.09 of this Indenture
     or its qualification under Section 8.08 of this Indenture;

          (2) the creation of or any material change to a relationship specified
     in Paragraphs 6.04(a)(1) through (10) of this Indenture;

          (3) the character and amount of advances (and if the Trustee elects so
     to state,  the  circumstances  surrounding  the making thereof) made by the
     Trustee (as such) which remain  unpaid on the date of such report,  and for
     the  reimbursement of which it claims or may claim a lien or charge,  prior
     to that of the Notes,  on any  property or funds held or collected by it as
     Trustee,  except that the Trustee  shall not be required (but may elect) to

                                      (22)

<PAGE>

     state such advances if such advances so remaining unpaid aggregate not more
     than  one-half of one percent  (1/2 of 1%) of the  principal  amount of the
     Notes outstanding on the date of such report;

          (4)  the  amount,  interest  rate,  and  maturity  date  of all  other
     indebtedness owing by the Company (or by any other obligor on the Notes) to
     the Trustee in its individual capacity,  on the date of such report, with a
     brief  description  of any property held as collateral  security  therefor,
     except an indebtedness  based upon a creditor  relationship  arising in any
     manner  described  in  Paragraphs  8.13(b)(2),  (3),  (4) or  (6)  of  this
     Indenture;

          (5) any change to the property and funds,  if any,  physically  in the
     possession of the Trustee, as such, on the date of such report;

          (6) any additional issue of Notes which the Trustee has not previously
     reported; and

          (7) any action taken by the Trustee in the  performance  of its duties
     under this Indenture which it has not previously  reported and which in its
     opinion  materially  affects  the  Notes,  except  action in  respect  of a
     default,  notice of which has been or is to be withheld by it in accordance
     with the provisions of Section 7.08 of this Indenture.

     (b) The Trustee shall transmit to the Noteholders, as hereinafter provided,
a brief report with respect to the  character and amount of any advances (and if
the  Trustee  elects so to  state,  the  circumstances  surrounding  the  making
thereof)  made by the  Trustee  (as  such),  since  the date of the last  report
transmitted  pursuant to the  provisions of Paragraph  6.04(a) of this Indenture
(or, if no such report has yet been so transmitted,  since the date of execution
of this Indenture), for the reimbursement of which it claims or may claim a lien
or charge  prior to that of the Notes on property or funds held or  collected by
it as  Trustee,  and  which  it has not  previously  reported  pursuant  to this
Paragraph 6.04(b), except that the Trustee shall not be required (but may elect)
to report such advances if such advances  remaining unpaid at any time aggregate
ten percent (10%) or less of the principal  amount of Notes  outstanding at such
time, such report to be transmitted within ninety (90) days after such time.

     (c) Reports  pursuant to this Section 6.04 shall be  transmitted by mail to
all holders of Notes as the names and  addresses of such  holders  appear on the
Note register, with copies sent to the Company.

     (d) A copy of each such report shall,  at the time of such  transmission to
Noteholders,  be filed by the Trustee  with each stock  exchange  upon which the
Notes are listed  and also with the  Securities  and  Exchange  Commission.  The
Company  shall  notify the Trustee  when and as the Notes  become  listed on any
stock exchange.


                                 ARTICLE SEVEN.

                           REMEDIES OF THE TRUSTEE AND
                             NOTEHOLDERS ON EVENT OF
                                    DEFAULT.

     SECTION 7.01. Events of Default.  "Event of Default," wherever used herein,
means any one of the  following  events  (whatever  the reason for such Event of
Default and whether it shall be occasioned by the  provisions of Article Four of
this Indenture or be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment,  decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

     (a)  default  in the  payment  of the  principal  of any Note  when due and
payable,  as therein or herein  provided,  whether at the stated  maturity or by
declaration of  acceleration,  call for  redemption,  exercise of the repurchase
right or otherwise; or

                                      (23)

<PAGE>

     (b) either (i) failure by the Company to make any payment at final maturity
in respect of any  outstanding  Indebtedness  (other than  Excluded  Debt) in an
amount in excess of one million U.S. dollars  (U.S.$1,000,000) or the equivalent
thereof in any other currency or composite  currency and the continuance of such
failure  for a period of sixty (60) days  after  written  notice  thereof by any
trustee or other representative of the holders thereof to the Company, or to the
Company by or on behalf of the  holders  of not less than  twenty  five  percent
(25%) in  principal  amount of such  Indebtedness,  or (ii)  declaration  of any
default,  beyond any period of grace,  with respect to any  Indebtedness  (other
than Excluded Debt),  which default results in the acceleration by the holder(s)
thereof of  Indebtedness  in an amount in excess of five  million  U.S.  dollars
(U.S.$5,000,000)  or the  equivalent  thereof in any other currency or composite
currency without such  Indebtedness  having been discharged or such acceleration
having been cured,  waived,  rescinded or annulled within a period of sixty (60)
days after written notice thereof by any trustee or other  representative of the
holders thereof to the Company, or to the Company by or on behalf of the holders
of not  less  than  twenty  five  percent  (25%)  in  principal  amount  of such
Indebtedness;  provided,  however,  that if,  prior to the entry of  judgment in
favor of any trustee with respect to any  Indebtedness or in favor of any holder
of any Indebtedness or other representative of the holders thereof, such failure
or default under such indenture or instrument  shall be remedied or cured by the
Company,  or waived by the holders of such  Indebtedness,  and such acceleration
shall be rescinded,  then the Event of Default under the this Paragraph  7.01(b)
shall be deemed likewise to have been remedied, cured or waived;  "Indebtedness"
being defined to mean  obligations  of, or guaranteed or assumed by, the Company
for borrowed money, including obligations evidenced by bonds, debentures,  notes
or other similar  instruments (it being understood that  "Indebtedness" does not
include  obligations  to pay the  purchase  price  of goods  if such  goods  are
acquired,  and such  obligations  are  incurred,  in the ordinary  course of the
Company's business or other obligations to trade creditors); or

     (c) a default  by the  Company  in the  performance  or  observance  in any
material  respect of any term,  covenant,  warranty or agreement in the Notes or
this  Indenture  and the  continuance  thereof  for a period of ninety (90) days
after  receipt by the Company of notice  thereof from the Trustee or the holders
of not less than twenty-five  percent (25%) in aggregate principal amount of the
Notes  issued  pursuant to this  Indenture,  such  percentage  to be  determined
without  giving effect to any  reduction in  outstanding  principal  amount as a
result of the  conversion  or  redemption  of Notes,  purchases  of Notes by the
Company or any other  events or  transactions  which have the effect of reducing
the  principal  amount of Notes  outstanding,  such notice to state that it is a
Notice  of  Default  and to set forth in  reasonable  detail  the  nature of the
default; or

     (d) the entry of a decree or order by a court  having  jurisdiction  in the
premises adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization,  arrangement, adjustment or composition
of or in  respect  of the  Company  under  Federal  bankruptcy  law or any other
applicable Federal or State law, or appointing a receiver, liquidator, assignee,
trustee,  sequestrator  or  other  similar  official  of the  Company  or of any
substantial  part of its property,  or ordering the winding up or liquidation of
its affairs,  and the  continuance  of any such decree or order  unstayed and in
effect for a period of sixty (60) consecutive days; or

     (e) the  institution  by the Company of  proceedings  to be  adjudicated  a
bankrupt or insolvent,  or the consent by it to the institution of bankruptcy or
insolvency  proceedings  against it, or the filing by it of a petition or answer
or consent seeking  reorganization or relief under Federal bankruptcy law or any
other  applicable  Federal or State law,  or the  consent by it to the filing of
such  petition  or to  the  appointment  of a  receiver,  liquidator,  assignee,
trustee,  sequestrator or similar  official of the Company or of any substantial
part of its property,  or the making by it of an  assignment  for the benefit of
creditors,  or the  admission by it in writing of its inability to pay its debts
generally as they become due, or the taking of  corporate  action by the Company
in furtherance of any such action.

     In  case  one  or  more  Events  of  Default  shall  have  occurred  and be
continuing,  unless the principal of all of the Notes shall have already  become
due and payable,  either the Trustee or the holders of not less than twenty-five


                                      (24)

<PAGE>

percent (25%) in aggregate principal amount of the Notes issued pursuant to this
Indenture,  such  percentage  to be  determined  without  giving  effect  to any
reduction  in  outstanding  principal  amount as a result of the  conversion  or
redemption  of Notes,  purchases  of Notes by the Company or any other events or
transactions  which have the effect of reducing  the  principal  amount of Notes
outstanding, by notice in writing to the Company (and to the Trustee if given by
Noteholders),  may declare the  principal of all the Notes to be due and payable
immediately,  and upon any such  declaration  the same shall become and shall be
immediately  due  and  payable,  anything  in  this  Indenture  or in the  Notes
contained to the contrary notwithstanding.  This provision,  however, is subject
to the  condition  that if, at any time after the  principal  of the Notes shall
have been so declared  due and payable,  and before any  judgement or decree for
the payment of the monies due shall have been obtained or entered as hereinafter
provided,  the  Company  shall  pay or  shall  deposit  with the  Trustee  a sum
sufficient  to pay the  principal  of any and all of the Notes  which shall have
become due otherwise than by  acceleration  and all sums paid or advanced by the
Trustee hereunder and the reasonable compensation,  expenses,  disbursements and
advances of the Trustee,  its agents and counsel, and any and all defaults under
this Indenture, other than the nonpayment of principal of Notes which shall have
become due by  acceleration,  shall have been  remedied;  then and in every such
case the holders of a majority in aggregate  principal  amount of the Notes then
outstanding,  by written notice to the Company and to the Trustee, may waive all
defaults and rescind and annul such  declaration  and its  consequences;  but no
such waiver or  rescission  and  annulment  shall  extend to or shall affect any
subsequent default, or shall impair any right consequent thereon.

     In case the Trustee  shall have  proceeded  to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned because
of such  rescission  or  annulment  or for any other  reason or shall  have been
determined adversely to the Trustee, then and in every such case the Company and
the Trustee shall be restored respectively to their several positions and rights
hereunder,  and all rights,  remedies  and powers of the Company and the Trustee
shall continue as though no such proceeding had been taken.

     SECTION  7.02.  Payment of Notes on  Default;  Suit  Therefor.  The Company
covenants  that in case default shall be made in the payment of the principal of
any of the Notes as and when the same shall have become due and payable  whether
at maturity of the Notes or in connection with any redemption, by declaration or
otherwise,  then,  upon  demand of the  Trustee,  the  Company  shall pay to the
Trustee,  for the benefit of the holders of the Notes,  the whole  amount of the
principal of the Note that then shall have become due and, in addition  thereto,
such further  amount as shall be  sufficient to cover the  reasonable  costs and
expenses  of  collection,  including  the  reasonable  compensation,   expenses,
disbursements and advances of the Trustee, its agents and counsel.

     In case the Company  shall fail  forthwith  to pay such  amounts  upon such
demand,  the Trustee,  in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or  proceedings  at law or in
equity for the  collection of the sums so due and unpaid,  and may prosecute any
such action or proceeding to judgment or final decree,  and may enforce any such
judgment or final decree  against the Company or any other  obligor on the Notes
and collect in the manner  provided by law out of the property of the Company or
any other obligor on the Notes wherever  situated the monies adjudged or decreed
to be payable.

     In case there shall be pending  proceedings  for the  bankruptcy or for the
reorganization  of the Company or any other  obligor on the Notes under Title 11
of the United  States Code or any other  applicable  law, or in case a receiver,
liquidator,  assignee,  trustee,  custodian,  sequestrator (or similar official)
shall have been  appointed for the property of the Company or such other Obligor
or in the case of any other similar judicial proceedings relative to the Company
or other Obligor upon the Notes,  or to the creditors or property of the Company
or such other Obligor, the Trustee, irrespective of whether the principal of the
Notes shall then be due and payable as therein  expressed or by  declaration  or
otherwise  and  irrespective  of whether the Trustee  shall have made any demand
pursuant  to the  provisions  of  this  Section  7.02,  shall  be  entitled  and
empowered, by intervention in such proceedings or otherwise, to file and prove a
claim or claims for the whole amount of principal owing and unpaid in respect of
the Notes,  and,  in case of any  judicial  proceedings,  to file such proofs of
claim and other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee and of the  Noteholders  allowed in such judicial

                                      (25)

<PAGE>

proceedings  relative to the Company or any other  Obligor on the Notes,  its or
their creditors, or its or their property, and to collect and receive any monies
or other property  payable or deliverable on any such claims,  and to distribute
the same after the  deduction  of its charges and  expenses;  and any  receiver,
assignee or trustee in bankruptcy or reorganization is hereby authorized by each
of the Noteholders to make such payments to the Trustee,  and, in the event that
the  Trustee  shall  consent  to the  making of such  payments  directly  to the
Noteholders,  to  pay to the  Trustee  any  amount  due  it for  the  reasonable
compensation,  expenses,  disbursements and advances of the Trustee,  its agents
and  counsel  and  any  amounts  due  the  Trustee  under  Section  8.06 of this
Indenture. To the extent that such payment of reasonable compensation, expenses,
disbursements  and advances and counsel fees out of the trust estate in any such
proceedings shall be denied for any reason, payment of the same shall be secured
by a lien on,  and shall be paid out of, any and all  distributions,  dividends,
monies,  securities  and other  property  which the  holders of the Notes may be
entitled to receive in such  proceedings,  whether in  liquidation  or under any
plan of reorganization or arrangement or otherwise.

     Nothing  herein  contained  shall be deemed to  authorize  the  Trustee  to
authorize  or  consent  to or  adopt on  behalf  of any  Noteholder  any plan of
reorganization  or  arrangement,  affecting  the  Notes  or  the  rights  of any
Noteholders,  or to authorize the Trustee to vote in respect of the claim of any
Noteholder in any such proceeding.

     All rights or action and of asserting claims under this Indenture, or under
any of the Notes,  may be enforced by the Trustee  without the possession of any
of the  Notes,  or the  production  thereof  in any  trial or  other  proceeding
relative  thereto,  and any such suit or  proceeding  instituted  by the Trustee
shall be  brought  in its own  name as  trustee  of an  express  trust,  and any
recovery  of  judgment  shall be for the  ratable  benefit of the holders of the
Notes.

     SECTION 7.03.  Application of Monies  Collected by Trustee.  Subject to the
provisions  of  Article  Four of this  Indenture,  any monies  collected  by the
Trustee pursuant to Section 7.02 of this Indenture shall be applied in the order
following,  at the date or dates fixed by the Trustee  for the  distribution  of
such monies,  upon  presentation of the several Notes,  and stamping thereon the
payment, if only partially paid, and upon surrender thereof if fully paid:

          FIRST:  To the  payment  of  costs  and  expenses  of  collection  and
     reasonable  compensation to and expenses and  disbursements of the Trustee,
     its  agents,   attorneys  and  counsel,  and  of  all  other  expenses  and
     liabilities  incurred,  and all advances  made, by the Trustee  except as a
     result of its negligence or bad faith;

          SECOND:  In case the  principal  of the  outstanding  Notes shall have
     become due, by declaration or otherwise, to the payment of the whole amount
     then owing and unpaid upon the Notes for  principal and in case such monies
     shall be  insufficient  to pay in full the whole  amounts so due and unpaid
     upon the Notes, then to the payment of such principal without preference or
     priority of any Note over any other Note,  ratably to the aggregate of such
     principal.

          SECTION 7.04. Proceedings by Noteholders.  No holder of any Note shall
     have  any  right by  virtue  of or by  availing  of any  provision  of this
     Indenture to institute  any suit,  action or proceeding in equity or at law
     upon or under or with respect to this Indenture or for the appointment of a
     receiver or trustee, or for any other remedy hereunder,  unless such holder
     previously shall have given to the Trustee written notice of default and of
     the  continuance  thereof,  as hereinbefore  provided,  and unless also the
     holders of not less than twenty-five  percent (25%) in aggregate  principal
     amount of the Notes then  outstanding  shall have made written request upon
     the Trustee to institute such action, suit or proceeding in its own name as
     Trustee  under this  Indenture  and shall have  offered to the Trustee such
     reasonable  indemnity  and  security as it may  require  against the costs,
     expenses and liabilities to be incurred therein or thereby, and the Trustee
     for sixty (60) days after its receipt of such notice,  request and offer of
     indemnity  and security,  shall have  neglected or refused to institute any
     such action,  suit or proceeding,  it being  understood  and intended,  and
     being expressly covenanted by the taker and holder of every Note with every
     other  taker and holder  and the  Trustee,  that no one or more  holders of
     Notes shall have any right

                                      (26)

<PAGE>

in any manner  whatever  by virtue of or by availing  of any  provision  of this
Indenture to affect, disturb or prejudice the rights of any other holder of such
Notes,  or to obtain or seek to obtain  priority over or preference to any other
such holder, or to enforce any right under this Indenture,  except in the manner
herein provided and for the equal,  ratable and common benefit of all holders of
Notes.

     Notwithstanding  any other  provisions  in this  Section  7.02 or any other
section  of this  Indenture,  the  right of any  holder  of any Note to  receive
payment of the  principal  of such Note,  on or after the  respective  due dates
expressed in such Note,  or to institute  suit for the  enforcement  of any such
payment on or after such  respective  dates  against  the  Company  shall not be
impaired or affected without the consent of such holder.

     Anything in this Indenture to the contrary  notwithstanding,  the holder of
any Note,  without  the consent of either the Trustee or the holder of any other
Note,  in his own behalf and for his own benefit may enforce,  and may institute
and maintain any  proceeding  suitable to enforce,  his rights of  conversion as
provided in this Indenture.

     SECTION 7.05.  Proceedings by Trustee. In case of an Event of Default,  the
Trustee may in its  discretion  proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate  judicial proceedings as the Trustee
shall deem most  effectual to protect and enforce any of such rights,  either by
suit in equity or by action at law or by proceedings in bankruptcy or otherwise,
whether for the specific  enforcement of any covenant or agreement  contained in
this Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or  equitable  right vested in the Trustee by this
Indenture or by law.

     SECTION 7.06. Remedies  Cumulative and Continuing.  All powers and remedies
given by this Article Seven to the Trustee or to the  Noteholders  shall, to the
extent  permitted by law, be deemed  cumulative and not exclusive of any thereof
or of any other powers and  remedies  available to the Trustee or the holders of
the Notes, by judicial  proceedings or otherwise,  to enforce the performance or
observance of the covenants and agreements  contained in this Indenture,  and no
delay  or  omission  of the  Trustee  or of any  holder  of any of the  Notes to
exercise any right or power  accruing upon any default  occurring and continuing
as aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such  default  or an  acquiescence  therein;  and,  subject to the
provisions  of Section 7.04 of this  Indenture,  every power and remedy given by
this  Article  Seven  or by law  to the  Trustee  or to the  Noteholders  may be
exercised from time to time, and as often as shall be deemed  expedient,  by the
Trustee or by the Noteholders.

     SECTION 7.07.  Direction of Proceedings  and Waiver of Defaults by Majority
of Noteholders.  The holders of a majority in aggregate  principal amount of the
Notes at the time outstanding determined in accordance with Section 9.04 of this
Indenture  shall  have the  right to  direct  the  time,  method,  and  place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee; provided, however, that (subject to
the  provisions  of Section 8.01 of this  Indenture)  the Trustee shall have the
right to decline to follow any such direction if the Trustee shall be advised by
its counsel that the action or  proceeding so directed may not lawfully be taken
or if the Trustee in good faith by its board of directors or trustees, executive
committee,  or a trust  committee of directors  or trustees  and/or  Responsible
Officers  shall  determine  that the action or  proceedings  so  directed  could
involve the Trustee in personal liability. Prior to any declaration accelerating
the  maturity of the Notes,  the holders of a majority  in  aggregate  principal
amount of the Notes at the time  outstanding may on behalf of the holders of all
of the Notes  waive  any past  default  or Event of  Default  hereunder  and its
consequences  except a default in the payment of the principal of the Notes or a
failure by the  Company to convert any Notes into  Common  Stock.  Upon any such
waiver, the Company,  the Trustee and the holders of the Notes shall be restored
to their former positions and rights hereunder, respectively; but no such waiver
shall extend to any  subsequent  or other  default or Event of Default or impair
any right consequent thereon. Whenever any default or Event of Default hereunder
shall have been waived as permitted by this Section 7.07,  said default or Event
of Default  shall for all purposes of the Notes and this  Indenture be deemed to
have been cured and to be not continuing.

                                      (27)

<PAGE>

     SECTION 7.08.  Notice of Defaults.  The Trustee  shall,  within ninety (90)
days after the occurrence of a default, mail to all Noteholders as the names and
addresses of such holders appear upon the registry books of the Company,  notice
of all defaults known to the Trustee, unless such defaults shall have been cured
before the giving of such  notice (the term  "defaults"  for the purpose of this
Section 7.08 being hereby defined to be the events  specified in Section 7.01 of
this Indenture,  not including  periods of grace, if any, provided for therein);
and provided that, except in the case of default in the payment of the principal
of any of the Notes,  the Trustee shall be protected in withholding  such notice
if and so long as the board of directors,  the executive  committee,  or a trust
committee of directors and/or Responsible  Officers of the Trustee in good faith
determines  that the  withholding  of such  notice  is in the  interests  of the
Noteholders.

     SECTION  7.09.  Undertaking  to Pay Costs.  All  parties to this  Indenture
agree, and each holder of any Note by his acceptance  thereof shall be deemed to
have agreed,  that any court of  competent  jurisdiction  may in its  discretion
require,  in any suit for the  enforcement  of any  right or remedy  under  this
Indenture, or in any suit against the Trustee for any action taken or omitted by
it as Trustee,  the filing by any party  litigant in such suit of an undertaking
to pay the costs of such suit and that such court may in its  discretion  assess
reasonable  costs,  including  reasonable  attorneys  fees,  against  any  party
litigant  in such  suit,  having  due regard to the merits and good faith of the
claims or defenses made by such party litigant; provided, that the provisions of
this Section 7.09 shall not apply to any suit instituted by the Trustee,  to any
suit  instituted  by any  Noteholder,  or group of  Noteholders,  holding in the
aggregate  more  than  ten  percent  (10%)  in  principal  amount  of the  Notes
outstanding,  or to any suit instituted by any Noteholder for the enforcement of
the payment of the  principal of any Note on or after the due date  expressed in
such Note or to any suit for the enforcement of the right to convert any Note in
accordance with the provisions of Article Fifteen of this Indenture.


                                 ARTICLE EIGHT.

                             CONCERNING THE TRUSTEE.

     SECTION 8.01. Duties and Responsibilities of Trustee. The Trustee, prior to
the  occurrence  of an Event of  Default  and after the  curing of all Events of
Default which may have occurred, undertakes to perform such duties and only such
duties  as are  specifically  set forth in this  Indenture.  In case an Event of
Default has  occurred  (which has not been cured or waived)  the  Trustee  shall
exercise such of the rights and powers vested in it by this  Indenture,  and use
the same  degree of care and  skill in their  exercise,  as a prudent  man would
exercise or use under the circumstances in the conduct of his own affairs.

     No provisions of this  Indenture  shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct, except that

          (a)  prior to the  occurrence  of an Event of  Default  and  after the
     curing or waiving of all Events of Default which may have occurred:

               (1) the duties and obligations of the Trustee shall be determined
          solely by the express  provisions of this  Indenture,  and the Trustee
          shall not be liable  except  for the  performance  of such  duties and
          obligations as are  specifically  set forth in this Indenture,  and no
          implied  covenants or  obligations  shall be read into this  Indenture
          against the Trustee; and

               (2) in the absence of bad faith on the part of the  Trustee,  the
          Trustee may  conclusively  rely, as to the truth of the statements and
          the  correctness  of  the  opinions   expressed   therein,   upon  any
          certificates  or opinions  furnished to the Trustee and  conforming to
          the  requirements  of this  Indenture;  but,  in the  case of any such
          certificates   or  opinions  which  by  any   provisions   hereof  are
          specifically  required to be  furnished  to the  Trustee,  the Trustee

                                      (28)

<PAGE>

          shall be under a duty to examine the same to determine  whether or not
          they conform to the requirements of this Indenture;

          (b) the Trustee  shall not be liable for any error of judgment made in
     good faith by a Responsible  Officer or Officers of the Trustee,  unless it
     shall  be  proved  that the  Trustee  was  negligent  in  ascertaining  the
     pertinent facts; and

          (c) the Trustee  shall not be liable with  respect to any action taken
     or omitted to be taken by it in good faith in accordance with the direction
     of the holders of not less than a majority in principal amount of the Notes
     at the time  outstanding  determined  as provided  in Section  9.04 of this
     Indenture  relating  to the  time,  method  and  place  of  conducting  any
     proceeding for any remedy available to the Trustee, or exercising any trust
     or power conferred upon the Trustee, under this Indenture.

     None of the  provisions  contained  in this  Indenture  shall  require  the
Trustee to expend or risk its own funds or otherwise  incur  personal  financial
liability in the  performance  of any of its duties or in the exercise of any of
its rights or powers,  if there is  reasonable  ground  for  believing  that the
repayment of such funds or adequate  indemnity against such risk or liability is
not reasonably assured to it.

     SECTION 8.02.  Reliance on Documents,  Opinions,  etc.  Except as otherwise
provided in Section 8.01 of this Indenture,

          (a) the  Trustee  may rely and shall be  protected  in acting upon any
     resolution,  certificate,  statement,  instrument, opinion, report, notice,
     request,  consent,  order,  bond,  debenture  or other  paper  or  document
     believed by it to be genuine and to have been  signed or  presented  by the
     proper party or parties;

          (b) any request,  direction,  order or demand of the Company mentioned
     herein shall be sufficiently  evidenced by an Officers' Certificate (unless
     other evidence in respect thereof be herein specifically  prescribed);  and
     any resolution of the Board of Directors may be evidenced to the Trustee by
     a copy thereof certified by the Secretary or an Assistant  Secretary of the
     Company;

          (c) the Trustee may consult with its or the Company's counsel, and any
     advice or Opinion of Counsel shall be full and complete  authorization  and
     protection  in respect of any action  taken or omitted by it  hereunder  in
     good faith and in accordance with such advice or Opinion of Counsel;

          (d) the Trustee  shall be under no  obligation  to exercise any of the
     rights or powers  vested in it by this  Indenture at the request,  order or
     direction of any of the  Noteholders,  pursuant to the  provisions  of this
     Indenture,  unless  such  Noteholders  shall have  offered  to the  Trustee
     reasonable   security  and  indemnity  against  the  costs,   expenses  and
     liabilities which may be incurred therein or thereby;

          (e) the Trustee shall not be liable for any action taken or omitted by
     it in  good  faith  and  believed  by it to be  authorized  or  within  the
     discretion or rights or powers conferred upon it by this Indenture;

          (f)  prior to the  occurrence  of an Event of  Default  and  after the
     curing or waiving of all Events of Default,  the Trustee shall not be bound
     to  make  any  investigation  into  the  facts  or  matters  stated  in any
     resolution,  certificate,  statement,  instrument, opinion, report, notice,
     request,  consent, order, approval, bond, debenture,  note, coupon or other
     paper or document  unless  requested  in writing to do so by the holders of
     not less than a majority in principal amount of the Notes then outstanding;
     provided,  however,  that if the payment  within a  reasonable  time to the
     Trustee of the costs,  expenses or liabilities  likely to be incurred by it
     in the making of such investigation is, in the opinion of the Trustee,  not
     reasonably  assured to the  Trustee by the  security  afforded to it by the
     terms of this Indenture,  the Trustee may require  additional  security and
     reasonable  indemnity against such expense or lability as a condition to so
     proceeding; and

                                      (29)

<PAGE>

          (g) the Trustee may execute any of the trusts or powers  hereunder  or
     perform any duties  hereunder  either  directly or by or through  agents or
     attorneys and the Trustee shall not be  responsible  for any  misconduct or
     negligence  on the part of any agent or attorney  appointed  by it with due
     care hereunder.

     SECTION 8.03. No Responsibility  for Recitals,  etc. The recitals contained
in this  Indenture  and in the Notes  (except in the  Trustee's  certificate  of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no  responsibility  for the correctness or completeness of the same. The
Trustee  makes no  representations  as to the  validity or  sufficiency  of this
Indenture or of the Notes or of their authorization by the Company.  The Trustee
shall not be accountable  for the use or application by the Company of any Notes
or the  proceeds  of any Notes  authenticated  and  delivered  by the Trustee in
conformity with the provisions of this Indenture.

     SECTION 8.04.  Trustee,  Paying Agents,  Conversion Agents or Registrar May
Own  Notes.  The  Trustee or any paying  agent or any  conversion  agent or Note
registrar,  in its  individual  or any other  capacity,  may become the owner or
pledgee  of Notes  with the same  rights it would  have if it were not  Trustee,
paying agent, conversion agent or Note registrar.

     SECTION  8.05.  Monies to be held in Trust.  Subject to the  provisions  of
Sections 13.03 and 13.04 of this  Indenture,  all monies received by the Trustee
shall,  until  used or  applied  as  herein  provided,  be held in trust for the
purposes for which they were received.

     SECTION 8.06.  Compensation and Expenses of Trustee.  The Company covenants
and agrees to pay to the Trustee  from time to time,  and the  Trustee  shall be
entitled  to,  reasonable  compensation  (which  shall  not  be  limited  by any
provision  of law in  regard to the  compensation  of a  trustee  of an  express
trust),  and the Company will pay or reimburse  the Trustee upon its request for
all  reasonable  expenses,  disbursements  and advances  incurred or made by the
Trustee in accordance  with any of the provisions of this  Indenture  (including
the reasonable compensation and the expenses,  disbursements and advances of its
agents and counsel and of all persons not  regularly  in its employ)  except any
such expense,  disbursement  or advance as may arise from its  negligence or bad
faith.  The Company also  covenants to indemnify the Trustee for, and to hold it
harmless against,  any loss, liability or expense incurred without negligence or
bad faith on the part of the Trustee and  arising out of or in  connection  with
the acceptance or administration of this trust, including the costs and expenses
of  defending  itself  against  any  claim of  liability  in the  premises.  The
obligations of the Company under this Section 8.06 to compensate the Trustee and
to pay or reimburse the Trustee for expenses,  disbursements  and advances shall
constitute additional indebtedness hereunder. Such additional indebtedness shall
be secured by lien prior to that of the Notes upon all  property  and funds held
or collected by the Trustee as such,  except funds held in trust for the benefit
of the holders of particular  Notes.  Any expenses  incurred or compensation for
services  rendered  by the  Trustee  after an Event of Default  are  intended to
constitute expenses of administration under any applicable bankruptcy law.

     SECTION  8.07.  Officers'  Certificate  as  Evidence.  Except as  otherwise
provided in Section 8.01 of this Indenture,  whenever in the  administration  of
the  provisions  of this  Indenture  the  Trustee  shall  deem it  necessary  or
desirable that a matter be proved or established prior to taking or omitting any
action  hereunder,  such matter  (unless  other  evidence in respect  thereof be
herein  specifically  prescribed) may, in the absence of negligence or bad faith
on the part of the Trustee,  be deemed to be conclusively proved and established
by an Officers' Certificate  delivered to the Trustee, and such Certificate,  in
the absence of negligence or bad faith on the part of the Trustee, shall be full
warrant  to the  Trustee  for any  action  taken  or  omitted  by it  under  the
provisions of this Indenture upon the faith thereof.


                                      (30)

<PAGE>

     SECTION 8.08. Conflicting Interest of Trustee.

     (a) If the  Trustee  has or shall  acquire  any  conflicting  interest,  as
defined in this Section 8.08, then,  within ninety (90) days after  ascertaining
that it has such conflicting  interest,  and if the default,  as defined in this
Section 8.08, to which such  conflicting  interest relates has not been cured or
duly  waived or  otherwise  eliminated  before the end of such  ninety  (90) day
period, the Trustee shall either eliminate such conflicting  interest or, except
as otherwise  provided in this Section 8.08,  resign, and the Company shall take
prompt  steps to have a  successor  appointed  in the manner and with the effect
specified in Section 8.10 of this Indenture.

     (b) In the event that the Trustee shall fail to comply with the  provisions
of Paragraph 8.08(a) of this Indenture,  the Trustee shall, within ten (10) days
after the  expiration  of such ninety (90) day period,  transmit  notice of such
failure to all  holders of Notes,  as the names and  addresses  of such  holders
appear upon the registry books of the Company.

     (c) For the purpose of this Section  8.08,  the Trustee  shall be deemed to
have a conflicting  interest if an Event of Default,  exclusive of any period of
grace or requirement of notice, shall have occurred and be continuing, and:

          (1) the Trustee is trustee  under  another  indenture  under which any
     other securities, or certificates of interest or participation in any other
     securities,  of the Company,  are outstanding,  or is trustee for more than
     one  outstanding  series of  securities,  as defined in this Section  8.08,
     under a single  indenture of the Company,  unless such other indenture is a
     collateral  trust  indenture  under which the only  collateral  consists of
     Notes issued under this  Indenture;  provided  that there shall be excluded
     from the operation of this Paragraph 8.08(c)(1) any other series under such
     indenture,  and  any  other  indenture  or  indentures  under  which  other
     securities,   or  certificates  of  interest  or   participation  in  other
     securities of the Company,  are  outstanding if (i) this Indenture and such
     other  indenture  or  indentures  (and all  series of  securities  issuable
     thereunder) are wholly unsecured and rank equally, and such other indenture
     or  indentures  (and such series) are hereafter  qualified  under the Trust
     Indenture Act of 1939, unless the Securities and Exchange  Commission shall
     have found and  declared  by order  pursuant  to Section  305(b) or Section
     307(c) of the Trust  Indenture Act of 1939 that  differences  exist between
     the  provisions of this  Indenture  (or such series) and the  provisions of
     such other  indenture or indentures (or such series) which are so likely to
     involve a material  conflict  of interest  as to make it  necessary  in the
     public  interest or for the  protection  of  investors  to  disqualify  the
     Trustee from acting as such under this  Indenture and such other  indenture
     or  indentures,  or (ii) the  Company  shall have  sustained  the burden of
     proving, on application to the Securities and Exchange Commission and after
     opportunity for hearing thereon,  that the trusteeship under this Indenture
     and such other indenture or under more than one outstanding  series under a
     single  indenture  is not so  likely  to  involve a  material  conflict  of
     interest  as to  make  it  necessary  in the  public  interest  or for  the
     protection of investors to disqualify the Trustee from acting as such under
     one of such indentures;

          (2) the Trustee or any of its  directors or  executive  officers is an
     underwriter for an obligor upon the Notes issued under this Indenture;

          (3) the  Trustee  directly  or  indirectly  controls or is directly or
     indirectly controlled by or is under direct or indirect common control with
     an underwriter for the Company;

          (4) the Trustee or any of its  directors  or  executive  officers is a
     director,  officer, partner, employee,  appointee, or representative of the
     Company,  or of an  underwriter  (other  than the  Trustee  itself) for the
     Company who is currently  engaged in the business of  underwriting,  except
     that (A) one (1) individual may be a director  and/or an executive  officer
     of the  Company,  but may not be at the same time an  executive  officer of
     both the  Trustee  and the  Company;  (B) if and so long as the  number  of
     directors  of the  Trustee  in  office  is  more  than  nine  (9),  one (1)
     additional  individual may be a director and/or an executive officer of the
     Trustee  and a  director  of  the  Company;  and  (C)  the  Trustee  may be
     designated  by the Company or by an  underwriter  for the Company to act in

                                      (31)

<PAGE>

     the capacity of transfer agent, registrar,  custodian, paying agent, fiscal
     agent, escrow agent, or depositary,  or in any other similar capacity,  or,
     subject to the provisions of Paragraph 8.8(c)(1) of this Indenture,  to act
     as trustee whether under an indenture or otherwise;

          (5) ten percent (10%) or more of the voting  securities of the Trustee
     is  beneficially  owned by the  Company  or by any  director,  partner,  or
     executive  officer thereof,  or twenty percent (20%) or more of such voting
     securities is beneficially owned,  collectively,  by any two (2) or more of
     such persons;  or ten percent (10%) or more of the voting securities of the
     Trustee is  beneficially  owned either by an underwriter for the Company or
     by any director,  partner, or executive officer thereof, or is beneficially
     owned, collectively, by any two (2) or more such persons;

          (6) the  Trustee  is the  beneficial  owner of, or holds a  collateral
     security for an  obligation  which is in default,  (A) five percent (5%) or
     more of the voting  securities,  or ten percent  (10%) or more of any other
     class of security,  of the Company,  not  including  the Notes issued under
     this Indenture and securities  issued under any other indenture under which
     the Trustee is also trustee,  or (B) ten percent (10%) or more of any class
     of security of an underwriter for the Company;

          (7) the  Trustee is the  beneficial  owner of, or holds as  collateral
     security for an obligation  which is in default,  five percent (5%) or more
     of the  voting  securities  of any  person  who,  to the  knowledge  of the
     Trustee,  owns ten percent  (10%) or more of the voting  securities  of, or
     controls  directly or  indirectly  or is under  direct or  indirect  common
     control with, the Company;

          (8) the  Trustee is the  beneficial  owner of, or holds as  collateral
     security for an obligation  which is in default,  ten percent (10%) or more
     of any  class of  security  of any  person  who,  to the  knowledge  of the
     Trustee,  owns fifty percent (50%) or more of the voting  securities of the
     Company; or

          (9) the Trustee owns, on the date of an Event of Default (exclusive of
     any period of grace or  requirement  of notice) or any  anniversary of such
     Event of Default while such Event of Default  remains  outstanding,  in the
     capacity of executor,  administrator,  testamentary or inter vivos trustee,
     guardian,  committee or conservator,  or in any other similar capacity,  an
     aggregate of twenty-five percent (25%) or more of the voting securities, or
     of any class of  security,  of any person,  the  beneficial  ownership of a
     specified percentage of which would have constituted a conflicting interest
     under Paragraphs 8.08(c)(6),  (7), or (8) of this Indenture. As to any such
     securities  of  which  the  Trustee  acquired  ownership  through  becoming
     executor, administrator or testamentary trustee of an estate which included
     them,  the  provisions of the  preceding  sentence  shall not apply,  for a
     period of not more than two (2) years from the date of such acquisition, to
     the  extent  that such  securities  included  in such  estate do not exceed
     twenty-five  percent (25%) of such voting securities or twenty-five percent
     (25%) of any such class of security.  Promptly  after the dates of any such
     Events of  Default  and  annually  in each  succeeding  year that the Notes
     remain in default,  the Trustee  shall make a check of its holdings of such
     securities in any of the  above-mentioned  capacities as of such dates.  If
     the Company  fails to make payment in full of principal of any of the Notes
     when and as the same  becomes due and payable,  and such failure  continues
     for thirty (30) days  thereafter,  the Trustee shall make a prompt check of
     its holdings of such securities in any of the above-mentioned capacities as
     of the date of the  expiration  of such thirty  (30) day period and,  after
     such date,  notwithstanding  the  foregoing  provisions  of this  Paragraph
     8.08(c)(9),  all such securities so held by the Trustee, with sole or joint
     control over such securities  vested in it, shall, but only so long as such
     failure shall continue,  be considered as though  beneficially owned by the
     Trustee for the  purposes  of  Paragraphs  8.08(c)(6),  (7) and (8) of this
     Indenture; or

          (10)  except  under  the   circumstances   described   in   Paragraphs
     8.13(b)(1), (2), (3), (4), (5), or (6) of this Indenture, the Trustee shall
     be or shall become a creditor of the Company.


                                      (32)

<PAGE>

     The  specifications  of  percentages  in  Paragraphs   8.08(c)(5)  to  (9),
inclusive,  shall not be  construed  as  indicating  that the  ownership of such
percentages  of the  securities of a person is or is not necessary or sufficient
to  constitute  direct  or  indirect  control  for  the  purposes  of  Paragraph
8.08(c)(3) or (7) of this Indenture.

     For the  purposes  of  Paragraph  8.08(c)(1)  only,  the  term  "series  of
securities"  or "series" means a series,  class or group of securities  issuable
under an indenture  pursuant to whose terms  holders of one such series may vote
to direct the  Trustee,  or  otherwise  take  action  pursuant to a note of such
holders,  separately from holders of another such series;  provided that "series
of securities"  or "series" shall not include any series of securities  issuable
under an indenture if all such series rank equally and are wholly unsecured.

     For the purposes of Paragraphs  8.08(c)(6),  (7), (8) and (9) only, (A) the
terms  "security"  and  "securities"  shall include only such  securities as are
generally known as corporate securities, but shall not include any note or other
evidence of  indebtedness  issued to evidence an obligation to repay monies lent
to a person by one or more  banks,  trust  companies  or banking  firms,  or any
certificate  of  interest  or  participation  in any such  note or  evidence  of
indebtedness;  (B) an obligation shall be deemed to be in default when a default
in payment of principal  shall have  continued  for thirty (30) days or more and
shall not have been  cured;  and (C) the  Trustee  shall not be deemed to be the
owner or holder of (i) any security  which it holds as  collateral  security (as
trustee or otherwise)  for an  obligation  which is not in default as defined in
clause (B) above,  or (ii) any security  which it holds as  collateral  security
under  this  Indenture,  irrespective  of any  default  hereunder,  or (iii) any
security  which it holds as an agent for  collection,  or as  custodian,  escrow
agent, or depositary, or in any similar respective capacity.

     Except  as  provided  in the next  preceding  paragraph  of this  Paragraph
8.08(c),  the word  "security" or  "securities"  as used in this Indenture shall
mean any note, stock, treasury stock, bond, debenture, evidence of indebtedness,
certificate  of  interest  or  participation  in any  profit-sharing  agreement,
collateral-trust  certificate,  pre-organization  certificate  or  subscription,
transferable share, investment contract,  voting-trust certificate,  certificate
of deposit for a security,  fractional  undivided  interest in oil, gas or other
mineral rights, or, in general,  any interest or instrument  commonly known as a
"security" or any  certificate  of interest or  participation  in,  temporary or
interim  certificate  for,  receipt  for,  guarantee  of, or warrant or right to
subscribe to or purchase, any of the foregoing.

     (d) For the purposes of this Section 8.08:

          (1) the term  "underwriter"  when used with  reference  to the Company
     shall mean every  person  who,  within one (1) year prior to the time as of
     which the determination is made, has purchased from the Company with a view
     to,  or has  offered  or sold  for the  Company  in  connection  with,  the
     distribution of any security of the Company outstanding at such time or has
     participated  or has had a direct  or  indirect  participation  in any such
     undertaking,  or has  participated or has had a participation in the direct
     or indirect  underwriting of any such undertaking,  but such term shall not
     include  a person  whose  interest  was  limited  to a  commission  from an
     underwriter   or  dealer   not  in  excess  of  the  usual  and   customary
     distributors' or sellers' commission.

          (2) The term  "director"  shall mean any director of a corporation  or
     any   individual   performing   similar   functions  with  respect  to  any
     organization whether incorporated or unincorporated.

          (3) The term  "person"  shall mean an  individual,  a  corporation,  a
     partnership,  a limited liability  company,  an association,  a joint-stock
     company,  a trust,  an  unincorporated  organization,  or a  government  or
     political subdivision thereof. As used in this paragraph,  the term "trust"
     shall  include  only  a  trust  where  the  interest  or  interests  of the
     beneficiary or beneficiaries are evidenced by a security.

          (4) The term  "voting  security"  shall  mean any  security  presently
     entitling  the  owner  or  holder  thereof  to  vote  in the  direction  or
     management  of the affairs of a person,  or any  security  issued  under or

                                      (33)

<PAGE>

     pursuant  to any  trust,  agreement  or  arrangement  whereby a trustee  or
     trustees  or agent or agents for the owner or holder of such  security  are
     presently entitled to vote in the direction or management of the affairs of
     a person.

          (5) The term "Company" shall mean any obligor upon the Notes.

          (6) The term "executive officer" shall mean the president,  every vice
     president,  every  trust  officer,  the  cashier,  the  secretary,  and the
     treasurer  of a  corporation,  and any  individual  customarily  performing
     similar functions with respect to any organization  whether incorporated or
     unincorporated,  but  shall  not  include  the  chairman  of the  board  of
     directors.

     The percentages of voting securities and other securities specified in this
Section 8.08 shall be calculated in accordance with the following provisions:

          (A) A specified  percentage  of the voting  securities of the Trustee,
     the Company or any other  person  referred to in this Section 8.08 (each of
     whom is referred to as a "person" in this  paragraph)  means such amount of
     the outstanding  voting securities of such person as entitles the holder or
     holders  thereof to cast such specified  percentage of the aggregate  votes
     which the holders of all the outstanding  voting  securities of such person
     are entitled to cast in the  direction or management of the affairs of such
     person.

          (B) A specified  percentage of a class of securities of a person means
     such  percentage  of the  aggregate  amount  of  securities  of  the  class
     outstanding.

          (C) The term "amount,"  when used in regard to  securities,  means the
     principal  amount if relating to evidences of  indebtedness,  the number of
     shares if relating to capital  shares,  and the number of units if relating
     to any other kind of security.

          (D) The term  "outstanding"  means  issued  and not held by or for the
     account  of the  issuer.  The  following  securities  shall  not be  deemed
     outstanding within the meaning of this definition:

               (i)  Securities  of an issuer held in a sinking fund  relating to
          securities of the issuer of the same class;

               (ii)  Securities  of an issuer held in a sinking fund relating to
          another class of securities of the issuer, if the obligation evidenced
          by such other class of securities is not in default as to principal or
          interest or otherwise;

               (iii) Securities pledged by the issuer thereof as security for an
          obligation of the issuer not in default as to principal or interest or
          otherwise;

               (iv)  Securities held in escrow if placed in escrow by the issuer
          thereof;  provided,  however,  that any voting securities of an issuer
          shall be deemed  outstanding  if any  person  other than the issuer is
          entitled to exercise the voting rights thereof.

          (E) A  security  shall be  deemed to be of the same  class as  another
     security  if both  securities  confer  upon the holder or  holders  thereof
     substantially the same rights and privileges;  provided,  however, that, in
     the case of  secured  evidences  of  indebtedness,  all of which are issued
     under a single  indenture,  differences  in the interest  rates or maturity
     dates  of  various  series  thereof  shall  not  be  deemed  sufficient  to
     constitute such series different  classes;  and provided further,  that, in
     the  case  of  unsecured  evidences  of  indebtedness,  differences  in the
     interest rates or maturity dates thereof shall not be deemed  sufficient to
     constitute  them securities of different  classes,  whether or not they are
     issued under a single indenture.


                                      (34)

<PAGE>

     SECTION 8.09.  Eligibility of Trustee.  The Trustee  hereunder shall at all
times be a corporation organized and doing business under the laws of the United
States or any State or  Territory  thereof  or the  District  of  Columbia  or a
corporation or other person permitted to act as  "institutional  trustee" by the
Securities  and Exchange  Commission,  which is authorized  under the applicable
laws to exercise  corporate trust powers,  having a combined capital and surplus
of at  least  ten  million  dollars  ($10,000,000)  subject  to  supervision  or
examination by Federal,  State,  Territorial,  or District of Columbia authority
and having its  principal  office and place of business in The City of New York.
If such corporation  publishes reports of condition at least annually,  pursuant
to  law  or to  the  requirements  of the  aforesaid  supervising  or  examining
authority,  then for the purposes of this Section 8.09 the combined  capital and
surplus  of such  corporation  shall be deemed to be its  combined  capital  and
surplus  as set forth in its most  recent  report  of  condition  so  published.
Neither  the  Company,  nor  any  person  directly  or  indirectly  controlling,
controlled by, or under common control with the Company may serve as Trustee. In
case at any time the Trustee shall cease to be eligible in  accordance  with the
provisions of this Section 8.09,  the Trustee  shall resign  immediately  in the
manner and with the effect specified in Section 8.10 of this Indenture.

     SECTION 8.10. Resignation or Removal of Trustee. (a) The Trustee may at any
time resign by giving written  notice of such  resignation to the Company and by
mailing notice thereof to the holders of Notes at their  addresses as they shall
appear on the  registry  books of the  Company.  Upon  receiving  such notice of
resignation,  the Company shall promptly appoint a successor  trustee by written
instrument, in duplicate,  executed by order of the Board of Directors, one copy
of which instrument shall be delivered to the resigning  Trustee and one copy to
the successor trustee.  If no successor trustee shall have been so appointed and
have  accepted  appointment  within  sixty (60) days  after the  mailing of such
notice of resignation to the Noteholders, the resigning Trustee may petition any
court of competent  jurisdiction for the appointment of a successor trustee,  or
any  Noteholder  who has been a bona fide holder of a Note or Notes for at least
six (6) months may, subject to the provisions of Section 7.09 of this Indenture,
on behalf of himself and all others similarly situated,  petition any such court
for the appointment of a successor trustee. Such court may thereupon, after such
notice,  if any,  as it may deem  proper  and  prescribe,  appoint  a  successor
trustee.

     (b) In case at any time any of the following shall occur --

          (1) the Trustee shall fail to comply with the  provisions of Paragraph
     8.08(a) of this Indenture after written request  therefor by the Company or
     by any Noteholder who has been a bona fide holder of a Note or Notes for at
     least six (6) months, or

          (2) the Trustee  shall cease to be  eligible  in  accordance  with the
     provisions of Section 8.09 of this Indenture and shall fail to resign after
     written request therefor by the Company or by any such Noteholder, or

          (3) the Trustee shall become incapable of acting, or shall be adjudged
     a bankrupt or  insolvent,  or a receiver of the Trustee or of its  property
     shall be  appointed or any public  officer  shall take charge or control of
     the   Trustee  or  of  its   property   or  affairs   for  the  purpose  of
     rehabilitation, conservation or liquidation,

then,  in any such  case,  the  Company  may remove the  Trustee  and  appoint a
successor trustee by written instrument, in duplicate,  executed by order of the
Board of Directors,  one (1) copy of which  instrument shall be delivered to the
Trustee so removed and one (1) copy to the successor trustee, or, subject to the
provisions of Section 7.09 of this Indenture, any Noteholder who has been a bona
fide  holder of a Note or Notes for at least six (6)  months  may,  on behalf of
himself  and all others  similarly  situated,  petition  any court of  competent
jurisdiction  for the removal of the Trustee and the  appointment of a successor
trustee.  Such court may  thereupon,  after such notice,  if any, as it may deem
proper and  prescribe,  remove the  Trustee  and  appoint a  successor  trustee;
provided,  however,  that,  except in the case of a default  in the  payment  of
principal of the Notes,  the Trustee shall not be required to resign as provided
by this Section 8.10 if the Trustee shall have  sustained the burden of proving,
on application to the Securities  and Exchange  Commission and  opportunity  for

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<PAGE>

hearing  thereon,  that (i) the Event of Default may be cured or waived during a
reasonable period and under the procedures  described in such  application,  and
(ii) a stay of the Trustee's  duty to resign will not be  inconsistent  with the
interests  of  any  Noteholder.   The  filing  of  such  an  application   shall
automatically  stay the  performance  of the duty to resign until the Securities
and Exchange Commission orders otherwise.

     (c) The holders of a majority in aggregate principal amount of the Notes at
the time outstanding may at any time remove the Trustee and nominate a successor
trustee which shall be deemed  appointed as successor  trustee unless within ten
(10) days after such nomination the Company objects  thereto,  in which case the
Trustee  so  removed  or any  Noteholders,  upon the  terms and  conditions  and
otherwise as provided in Paragraph  8.10(a) of this Indenture,  may petition any
court of competent jurisdiction for an appointment of a successor trustee.

     (d)  Any  resignation  or  removal  of the  Trustee  and  appointment  of a
successor  trustee  pursuant to any of the provisions of this Section 8.10 shall
become  effective upon  acceptance of  appointment  by the successor  trustee as
provided in Section 8.11 of this Indenture.

     SECTION  8.11.  Acceptance  by Successor  Trustee.  Any  successor  trustee
appointed  as  provided  in  Section  8.10  of  this  Indenture  shall  execute,
acknowledge  and  deliver  to the  Company  and to its  predecessor  trustee  an
instrument accepting such appointment  hereunder,  and thereupon the resignation
or removal of the predecessor  trustee shall become effective and such successor
trustee,  without any further act, deed of conveyance,  shall become vested with
all the rights,  powers,  duties and obligations of its  predecessor  hereunder,
with like effect as if originally named as trustee herein; but, nevertheless, on
the written  request of the  Company or of the  successor  trustee,  the trustee
ceasing to act shall,  upon  payment of any amounts  then due it pursuant to the
provisions of Section 8.06 of this Indenture,  execute and deliver an instrument
transferring to such successor  trustee all the rights and powers of the trustee
so ceasing to act. Upon request of any such successor trustee, the Company shall
execute any and all instruments in writing for more fully and certainly  vesting
in and  confirming  to such  successor  trustee all such rights and powers.  Any
trustee ceasing to act shall,  nevertheless,  retain a lien upon all property or
funds  held or  collected  by such  trustee to secure  any  amounts  then due it
pursuant to the provisions of Section 8.06 of this Indenture.

     No successor  trustee shall accept  appointment as provided in this Section
8.11  unless at the time of such  acceptance  such  successor  trustee  shall be
qualified  under the  provisions of Section 8.08 of this  Indenture and eligible
under the provisions of Section 8.09 of this Indenture.

     Upon  acceptance of appointment by a successor  trustee as provided in this
Section 8.11,  the Company  shall mail notice of the  succession of such trustee
hereunder to the holders of Notes at their addresses as they shall appear on the
registry  books of the Company.  If the Company fails to mail such notice within
ten (10) days after  acceptance of  appointment  by the successor  trustee,  the
successor  trustee  shall  cause such  notice to be mailed at the expense of the
Company.

     SECTION 8.12.  Succession by Merger,  etc. Any  corporation  into which the
Trustee may be merged or converted or with which it may be consolidated,  or any
corporation resulting from any merger,  conversion or consolidation to which the
Trustee shall be a party, or any corporation  succeeding to all or substantially
all of the trust business of the Trustee,  shall be the successor to the Trustee
hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto.

     In case at the time such  successor  to the  Trustee  shall  succeed to the
trusts created by this Indenture any of the Notes shall have been  authenticated
but not delivered,  any such successor to the Trustee may adopt the  certificate
of  authentication  of any  predecessor  trustee,  and  deliver  such  Notes  so
authenticated;  and in case at that  time any of the  Notes  shall not have been
authenticated,  any successor to the Trustee may authenticate  such Notes either
in the name of any predecessor trustee hereunder or in the name of the successor
trustee; and in all such cases such certificates shall have the full force which

                                      (36)

<PAGE>

it is anywhere in the Notes or in this Indenture  provided that the  certificate
of the  Trustee  shall  have;  provided,  however,  that the  right to adopt the
certificate of authentication of any predecessor  Trustee or authenticate  Notes
in the name of any  predecessor  Trustee  shall apply only to its  successor  or
successors by mergers, conversion or consolidation.

     SECTION 8.13. Limitation of Rights of Trustee as a Creditor.

     (a) Subject to the provisions of Paragraph 8.13(b), if the Trustee shall be
or shall become a creditor, directly or indirectly, secured or unsecured, of the
Company within three (3) months prior to a default, as defined Paragraph 8.13(c)
of this Indenture,  or subsequent to such a default, then, unless and until such
default  shall be  cured,  the  Trustee  shall  set  apart and hold in a special
account for the benefit of the  Trustee  individually,  the holders of the Notes
and  the  holders  of  other  indenture  securities  (as  defined  in  Paragraph
8.13(c)(2) of this Indenture):

          (1) an amount  equal to any and all  reductions  in the amount due and
     owing upon any claim as such  creditor  in respect of  principal,  effected
     after the beginning of such three (3) month period and valid as against the
     Company and its other creditors,  except any such reduction  resulting from
     the  receipt  or  disposition  of  any  property   described  in  Paragraph
     8.13(a)(2) of this Indenture,  or from the exercise of any right of set-off
     which the Trustee could have exercised if a petition in bankruptcy had been
     filed by or against the Company upon the date of such default; and

          (2) all  property  received  by the Trustee in respect of any claim as
     such  creditor,   either  as  security  therefor,  or  in  satisfaction  or
     composition  thereof,  or otherwise,  after the beginning of such three (3)
     month period,  or an amount equal to the proceeds of any such property,  if
     disposed of, subject,  however,  to the rights,  if any, of the Company and
     its other creditors in such property or such proceeds.

     Nothing herein contained, however, shall affect the right of Trustee

          (A) to retain for its own account (i) payments  made on account of any
     such claim by any person  (other than the Company)  who is liable  thereon,
     and  (ii)  the  proceeds  of the bona  fide  sale of any such  claim by the
     Trustee  to  a  third  person,  and  (iii)   distributions  made  in  cash,
     securities,  or other  property  in respect  of claims  filed  against  the
     Company in bankruptcy or receivership or in proceedings for  reorganization
     pursuant to Title 11 of the United States Code or any other applicable law;

          (B) to realize,  for its own account,  upon any property held by it as
     security  for any such  claim,  if such  property  was so held prior to the
     beginning of such three (3) month period;

          (C) to  realize,  for its own  account,  but only to the extent of the
     claim hereinafter  mentioned,  upon any property held by it as security for
     any such claim, if such claim was created after the beginning of such three
     (3) month  period and such  property  was  received  as  security  therefor
     simultaneously with the creation thereof,  and if the Trustee shall sustain
     the burden of proving  that at the time such  property  was so received the
     Trustee had no  reasonable  cause to believe that a default,  as defined in
     Paragraph  8.13(c) of this Indenture,  would occur within three (3) months;
     or

          (D) to receive  payment on any claim  referred to in paragraph  (B) or
     (C), against the release of any property held as security for such claim as
     provided in such paragraph (B) or (C), as the case may be, to the extent of
     the fair value of such property.

     For  the  purposes  of  Paragraphs  8.13(a)(2)(B),  (C) and  (D),  property
substituted after the beginning of such three (3) month period for property held
as security at the time of such  substitution  shall,  to the extent of the fair
value of the property  released,  have the same status as the property released,
and,  to the extent  that any claim  referred  to in any of such  paragraphs  is
created in renewal of or in  substitution  for or for the purpose of repaying or


                                      (37)

<PAGE>

refunding any  pre-existing  claim of the Trustee as such  creditor,  such claim
shall have the same status as such pre-existing claim.

     If the Trustee shall be required to account, the funds and property held in
such special account and the proceeds  thereof shall be apportioned  between the
Trustee,  the Noteholders and the holders of other indenture  securities in such
manner that the  Trustee,  the  Noteholders  and the holders of other  indenture
securities  realize,  as a result of  payments  from such  special  account  and
payments of  dividends  on claims  filed  against the Company in  bankruptcy  or
receivership  or in proceedings for  reorganization  pursuant to Title 11 of the
United  States Code or any other  applicable  law, the same  percentage of their
respective claims, figured before crediting to the claim of the Trustee anything
on account of the  receipt by it from the  Company of the funds and  property in
such  special  account  and before  crediting  to the  respective  claims of the
Trustee,  the  Noteholders,  and  the  holders  of  other  indenture  securities
dividends on claims filed against the Company in bankruptcy or  receivership  or
in proceedings for reorganization pursuant to Title 11 of the United States Code
or any other applicable law, but after crediting  thereon receipts on account of
the indebtedness  represented by their respective  claims from all sources other
than from such dividends and from the funds and property so held in such special
account.  As used  in this  paragraph,  with  respect  to any  claim,  the  term
"dividends"  shall  include any  distribution  with  respect to such  claim,  in
bankruptcy or  receivership  or in proceedings  for  reorganization  pursuant to
Title 11 of the United  States Code or any other  applicable  law,  whether such
distribution  is made in cash,  securities,  or other  property,  but  shall not
include any such  distribution  with respect to the secured portion,  if any, of
such claim. The court in which such bankruptcy,  receivership, or proceeding for
reorganization  is pending shall have  jurisdiction (i) to apportion between the
Trustee,  the  Noteholders,  and the holder of other  indenture  securities,  in
accordance with the provisions of this paragraph, the funds and property held in
such  special  account  and  the  proceeds  thereof,  or  (ii)  in  lieu of such
apportionment,  in whole or in part, to give to the provisions of this paragraph
due consideration in determining the fairness of the distributions to be made to
the Trustee,  the Noteholders and the holders of other indenture securities with
respect to their respective  claims, in which event it shall not be necessary to
liquidate or to appraise the value of any  securities or other  property held in
such special  account or as security  for any such claim,  or to make a specific
allocation of such  distributions as between the secured and unsecured  portions
of such  claims,  or otherwise to apply the  provisions  of this  paragraph as a
mathematical formula.

     Any Trustee who has  resigned or been removed  after the  beginning of such
three (3) month  period  shall be subject to the  provisions  of this  Paragraph
8.13(a) as though such  resignation or removal had not occurred.  If any Trustee
has  resigned or been  removed  prior to the  beginning  of such three (3) month
period,  it shall be subject to the provisions of this Paragraph  8.13(a) if and
only if the following conditions exist:

          (i) the  receipt of property  or  reduction  of claim which would have
     given rise to the  obligation  to account if such Trustee had  continued as
     trustee, occurred after the beginning of such three (3) month period; and

          (ii) such receipt of property or reduction  of claim  occurred  within
     three (3) months after such resignation or removal.

     (b) There shall be excluded from the operation of Paragraph 8.13(a) of this
Indenture a creditor relationship arising from:

          (1) the  ownership  or  acquisition  of  securities  issued  under any
     indenture,  or any security or securities having a maturity of one (1) year
     or more at the time of acquisition by the Trustee:

          (2) advances  authorized  by a  receivership  or  bankruptcy  court of
     competent jurisdiction, or by this Indenture, for the purpose of preserving
     any  property  which  shall  at any  time be  subject  to the  lien of this
     Indenture or of discharging  tax liens or other prior liens or encumbrances
     thereon,  if notice of such advances and of the  circumstances  surrounding
     the  making  thereof  is  given to the  Noteholders  at the time and in the

                                      (38)

<PAGE>

     manner  provided in Section 6.04 of this  Indenture with respect to reports
     pursuant to Paragraph 6.04(a) and (b) of this Indenture, respectively;

          (3)  disbursements  made in the  ordinary  course of  business  in the
     capacity  of  trustee  under  an  indenture,   transfer  agent,  registrar,
     custodian,  paying  agent,  fiscal agent or  depositary,  or other  similar
     capacity;

          (4) an  indebtedness  created  as a result  of  services  rendered  or
     premises  rented;  or an  indebtedness  created  as a  result  of  goods or
     securities  sold in a cash  transaction as defined in Paragraph  8.13(c) of
     this Indenture;

          (5) the  ownership of stock or of other  securities  of a  corporation
     organized under the provisions of Section 25(a) of the Federal Reserve Act,
     as amended, which is directly or indirectly a creditor of the Company; or

          (6) the  acquisition,  ownership,  acceptance  or  negotiation  of any
     drafts, bills of exchange, acceptances or obligations which fall within the
     classification of self-liquidating paper as defined in Paragraph 8.13(c) of
     this Indenture.

     (c) As used in this Section 8.13;

          (1) The term "default"  shall mean any failure to make payment in full
     of (A)  the  principal  of any of the  Notes  or (B)  the  principal  of or
     interest  upon  any of the  other  indenture  securities  when  and as such
     principal or interest becomes due and payable;

          (2) The term "other indenture  securities"  shall mean securities upon
     which the Company is an obligor (as defined in the Trust  Indenture  Act of
     1939)  outstanding under any other indenture (A) under which the Trustee is
     also trustee,  (B) which contains provisions  substantially  similar to the
     provisions of Paragraph  8.13(a) of this  Indenture,  and (C) under which a
     default exists at the time of the  apportionment  of the funds and property
     held in said special account;

          (3) The term "cash  transaction"  shall mean any  transaction in which
     full payment for goods or  securities  sold is made within seven days after
     delivery  of the  goods or  securities  in  currency  or in checks or other
     orders drawn upon banks or bankers and payable upon demand;

          (4) The term  "self-liquidating  paper" shall mean any draft,  bill of
     exchange,  acceptance or  obligation  which is made,  drawn,  negotiated or
     incurred  by the  Company  for  the  purpose  of  financing  the  purchase,
     processing,  manufacture,  shipment,  storage  or sale of  goods,  wares or
     merchandise  and  which  is  secured  by  documents  evidencing  title  to,
     possession  of, or a lien upon,  the  goods,  wares or  merchandise  or the
     receivables  or  proceeds  arising  from  the sale of the  goods,  wares or
     merchandise  previously  constituting  the  security;   provided  that  the
     security is received by the Trustee simultaneously with the creation of the
     creditor  relationship  with the Company arising from the making,  drawing,
     negotiating  or incurring of the draft,  bill of  exchange,  acceptance  or
     obligation;

          (5) The term "Company" shall mean any obligor upon the Notes.



                                      (39)

<PAGE>

                                  ARTICLE NINE.

                           CONCERNING THE NOTEHOLDERS.

     SECTION  9.01.  Action by  Noteholders.  Whenever in this  Indenture  it is
provided  that the  holders of a specified  percentage  in  aggregate  principal
amount of the Notes may take any action  (including  the making of any demand or
request, the giving of any notice,  consent or waiver or the taking of any other
action)  the fact that at the time of taking any such action the holders of such
specified  percentage have joined therein may be evidenced (a) by any instrument
or any number of  instruments of similar tenor executed by Noteholders in person
or by agent or proxy  appointed in writing,  or (b) by the record of the holders
of Notes voting in favor thereof at any meeting of  Noteholders  duly called and
held in  accordance  with  the  provisions  of this  Article  Nine,  or (c) by a
combination  of such  instrument  or  instruments  and any such record of such a
meeting of Noteholders.

     SECTION 9.02. Proof of Execution by Noteholders.  Subject to the provisions
of Sections 8.01,  8.02 and 10.05 of this  Indenture,  proof of the execution of
any instrument by a Noteholder or his agent or proxy shall be sufficient if made
in accordance with such reasonable rules and regulations as may be prescribed by
the  Trustee or in such  manner as shall be  satisfactory  to the  Trustee.  The
ownership  of Notes  shall be  proved  by the  registers  of such  Notes or by a
certificate of the Note registrar.

     The  record of any  Noteholders'  meeting  shall be  proved  in the  manner
provided in Section 10.06 of this Indenture.

     SECTION 9.03. Who Are Deemed Absolute Owners. The Company, the Trustee, any
paying agent, any conversion agent and any Note registrar may deem the person in
whose name any Note shall be registered upon the books of the Company to be, and
may treat him as,  the  absolute  owner of such Note  (whether  or not such Note
shall be overdue and  notwithstanding any notation of ownership or other writing
thereon) for the Trustee of receiving  payment of or on account of the principal
of and premium,  if any, on such Note,  for  conversion of such Note and for all
other purposes; and neither the Company nor the Trustee nor any paying agent nor
any conversion  agent nor any Note registrar  shall be affected by any notice to
the  contrary.  All such  payments so made to any holder for the time being,  or
upon his order  shall be valid,  and,  to the extent of the sum or sums so paid,
effectual to satisfy and discharge  the  liability  for monies  payable upon any
such Note.

     SECTION 9.04. Company Owned Notes Disregarded.  In determining  whether the
holders of the requisite  aggregate  principal amount of Notes have concurred in
any direction, consent, waiver or other action under this Indenture, Notes which
are owned by the  Company  or any  other  Obligor  on the Note or by any  person
directly or indirectly  controlling or controlled by or under direct or indirect
common  control  with the  Company or any other  Obligor  on the Notes  shall be
disregarded  and  deemed  not to be  outstanding  for the  purpose  of any  such
determination; provided that for the purposes of determining whether the Trustee
shall be protected in relying on any such  direction,  consent,  waiver or other
action only Notes which the Trustee knows are so owned shall be so  disregarded.
Notes so owned  which  have  been  pledged  in good  faith  may be  regarded  as
outstanding for the purposes of this Section 9.04 if the pledgee shall establish
to the  satisfaction  of the Trustee the pledgee's  right to vote such Notes and
that the pledgee is not the Company or any other Obligor or a person directly or
indirectly  controlling  or  controlled  by or under  direct or indirect  common
control with the Company or any such other Obligor.  In the case of a dispute as
to such right,  any  decision  by the  Trustee  taken upon the advice of counsel
shall be full  protection to the Trustee.  The Trustee may request and rely upon
an  Officers'  Certificate  with respect to whether a  Noteholder  controls,  is
controlled by, or is under common control with, the Company.

     SECTION 9.05.  Revocation of Consents;  Future Holders  Bound.  At any time
prior to (but not after) the  evidencing to the Trustee,  as provided in Section
9.01 of this  Indenture,  of the  taking  of any  action by the  holders  of the
percentage  in  aggregate  principal  amount  of the  Notes  specified  in  this
Indenture in connection with such action, any holder of a Note the serial number
of which is shown by the  evidence to be  included in the Notes,  the holders of

                                      (40)

<PAGE>

which have  consented  to such  action may,  by filing  written  notice with the
Trustee at its principal office and upon proof of holding as provided in Section
9.02 of this Indenture,  revoke such action so far as concerns such Note. Except
as aforesaid any such action taken by the holder of any Note shall be conclusive
and  binding  upon such  holder and upon all future  holders  and owners of such
Note, irrespective of whether or not any notation in regard thereto is made upon
such Note or any Note issued in exchange or substitution therefor.


                                  ARTICLE TEN.

                             NOTEHOLDERS' MEETINGS.

     SECTION 10.01. Purposes of Meetings. A meeting of Noteholders may be called
at any time and from time to time pursuant to the provisions of this Article Ten
for any of the following purposes:

          (1) to give any notice to the  Company or to the  Trustee,  or to give
     any directions to the Trustee,  or to consent to the waiving of any default
     hereunder and its  consequences,  or to take any other action authorized to
     be taken by Noteholders  pursuant to any of the provisions of Article Seven
     of this Indenture;

          (2) to remove the Trustee and nominate a successor trustee pursuant to
     the provisions of Article Eight of this Indenture;

          (3)  to  consent  to  the  execution  of an  indenture  or  indentures
     supplemental  hereto  pursuant to the  provisions  of Section 11.02 of this
     Indenture; or

          (4) to take any other action authorized to be taken by or on behalf of
     the holders of any specified  aggregate principal amount of the Notes under
     any other provision of this Indenture or under applicable law.

     SECTION  10.02.  Call of Meetings  by Trustee.  The Trustee may at any time
call a meeting of Noteholders  to take any action  specified in Section 10.01 of
this  Indenture,  to be held at such time and at such  place in the  Borough  of
Manhattan, The City of New York, as the Trustee shall determine. Notice of every
meeting of the Noteholders, setting forth the time and the place of such meeting
and in general terms the action  proposed to be taken at such meeting,  shall be
mailed  to  holders  of Notes at their  addresses  as they  shall  appear on the
registry books of the Company.  Such notice shall be mailed not less than twenty
(20) nor more than ninety (90) days prior to the date fixed for the meeting.

     Any meeting of Noteholders  shall be valid without notice if the holders of
all Notes  then  outstanding  are  present in person or by proxy or if notice is
waived before or after the meeting by the holders of all Notes outstanding,  and
if  the  Company  and  the  Trustee  are  either  present  by  duly   authorized
representatives or have, before or after the meeting, waived notice.

     SECTION 10.03.  Call of Meetings by Company or Noteholders.  In case at any
time the Company,  pursuant to a resolution  of its Board of  Directors,  or the
holders of at least ten percent (10%) in aggregate principal amount of the Notes
then  outstanding,  shall  have  requested  the  Trustee  to call a  meeting  of
Noteholders,  by written request  setting forth in reasonable  detail the action
proposed to be taken at the meeting,  and the Trustee  shall not have mailed the
notice of such meeting  within  twenty (20) days after  receipt of such request,
then the Company or such Noteholders may determine the time and the place in the
Borough of  Manhattan  for such  meeting  and may call such  meeting to take any
action authorized in Section 10.01 of this Indenture,  by mailing notice thereof
as provided in Section 10.02 of this Indenture.


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     SECTION  10.04.  Qualifications  for Voting.  To be entitled to vote at any
meeting of  Noteholders  a person shall (a) be a holder of one (1) or more Notes
or (b) be a person appointed by an instrument in writing as proxy by a holder of
one or more  Notes.  The only  persons who shall be entitled to be present or to
speak at any meeting of  Noteholders  shall be the  persons  entitled to vote at
such meeting and their  counsel and any  representatives  of the Trustee and its
counsel and any representatives of the Company and its counsel.

     SECTION 10.05.  Regulations.  Notwithstanding  any other provisions of this
Indenture,  the  Trustee  may make such  reasonable  regulations  as it may deem
advisable for any meeting of  Noteholders,  in regard to proof of the holding of
Notes and of the  appointment of proxies,  and in regard to the  appointment and
duties of  inspectors  of votes,  the  submission  and  examination  of proxies,
certificates  and other  evidence of the right to vote,  and such other  matters
concerning the conduct of the meeting as it shall think fit.

     The  Trustee  shall,  by an  instrument  in  writing,  appoint a  temporary
chairman  of the  meeting,  unless the  meeting  shall  have been  called by the
Company or by  Noteholders  as provided in Section 10.03 of this  Indenture,  in
which case the Company or the Noteholders  calling the meeting,  as the case may
be, shall in like manner appoint a temporary chairman.  A permanent chairman and
a permanent  secretary of the meeting shall be elected by vote of the holders of
a majority  in  principal  amount of the Notes  represented  at the  meeting and
entitled to vote.

     Subject to the provisions of Section 9.04 of this Indenture, at any meeting
each  Noteholder  or proxy shall be  entitled to one vote for each one  thousand
dollars ($1,000) principal amount of Notes held or represented by him; provided,
however,  that no vote shall be cast or counted at any meeting in respect of any
Note  challenged as not  outstanding and ruled by the chairman of the meeting to
be not  outstanding.  The  chairman of the  meeting  shall have no right to vote
other than by virtue of Notes held by him or instruments in writing as aforesaid
duly designating him as the person to vote on behalf of other  Noteholders.  Any
meeting of Noteholders  duly called pursuant to the provisions of Sections 10.02
or 10.03 of this  Indenture may be adjourned  from time to time by a majority of
those  present  and the  meeting  may be held as so  adjourned  without  further
notice.

     SECTION  10.06.  Voting.  The vote  upon any  resolution  submitted  to any
meeting of Noteholders  shall be by written ballots on which shall be subscribed
the signatures of the holders of Notes or of their  representatives by proxy and
the principal  amount of the Notes held or  represented  by them.  The permanent
chairman of the meeting  shall  appoint  two (2)  inspectors  of votes who shall
count all votes cast at the meeting for or against any  resolution and who shall
make and file with the secretary of the meeting their verified  written  reports
in  duplicate  of all votes cast at the  meeting.  A record in  duplicate of the
proceedings of each meeting of Noteholders shall be prepared by the secretary of
the meeting and there shall be attached to said record the  original  reports of
the  inspectors of votes any vote by ballot taken thereat and  affidavits by one
(1) or more persons  having  knowledge of the facts  setting forth a copy of the
notice of the  meeting  and  showing  that said notice was mailed as provided in
Section 10.02 of this Indenture.  The record shall show the principal  amount of
the Notes voting in favor of or against or abstaining from any  resolution.  The
record shall be signed and verified by the affidavits of the permanent  chairman
and secretary of the meeting and one (1) of the duplicates shall be delivered to
the Company and the other to the Trustee to be preserved by the Trustee.

     Any record so signed  and  verified  shall be  conclusive  evidence  of the
matters therein stated.

     SECTION  10.07.  No Delay of Rights by Meeting.  Nothing  contained in this
Article Ten shall be deemed or construed  to  authorize or permit,  by reason of
any call of a meeting  of  Noteholders  or any  rights  expressly  or  impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise of
any  right  or  rights  conferred  upon or  reserved  to the  Trustee  or to the
Noteholders under any of the provisions of this Indenture or of the Notes.



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<PAGE>

                                 ARTICLE ELEVEN.

                            SUPPLEMENTAL INDENTURES.


     SECTION 11.01. Supplemental Indentures without Consent of Noteholders.  The
Company,  when authorized by the resolutions of the Board of Directors,  and the
Trustee,  without consent of the  Noteholders,  may from time to time and at any
time enter into an indenture or indentures  supplemental  hereto for one or more
of the following purposes:

          (a) to make  provision  with respect to the  conversion  rights of the
     holders of Notes  pursuant  to the  requirements  of Section  15.06 of this
     Indenture;

          (b) to evidence the succession of another  corporation to the Company,
     or successive successions,  and the assumption by the successor corporation
     of the  covenants,  agreements and  obligations of the Company  pursuant to
     Article Twelve of this Indenture;

          (c) to add to the  covenants of the Company  such  further  covenants,
     restrictions  or conditions  for the protection of the holders of the Notes
     as the Board of  Directors  and the  Trustee  shall  consider to be for the
     protection  of the  holders of Notes;  and to make the  occurrence,  or the
     occurrence and continuance,  of a default in any such additional covenants,
     restrictions or conditions a default or an Event of Default  permitting the
     enforcement  of  all  or  any of the  several  remedies  provided  in  this
     Indenture as herein set forth;  provided,  however,  that in respect of any
     such  additional  covenant,  restriction  or  condition  such  supplemental
     indenture may provide for a particular period of grace after default (which
     period  may be  shorter  or longer  than that  allowed in the case of other
     defaults) or may provide for an immediate  enforcement upon such default or
     may limit the remedies available to the Trustee upon such default; or

          (d) to cure any  ambiguity or to correct or  supplement  any provision
     contained herein or in any supplemental indenture which may be defective or
     inconsistent   with  any  other  provision   contained  herein  or  in  any
     supplemental  indenture,  or to make  such  other  provisions  in regard to
     matters or questions arising under this Indenture which shall not adversely
     affect the interests of the holders of the Notes.


     The Trustee is hereby  authorized to join with the Company in the execution
of any such supplemental  indenture,  to make any further appropriate agreements
and  stipulations  which may be therein  contained and to accept the conveyance,
transfer and assignment of any property  thereunder but the Trustee shall not be
obligated  to,  but may in its  discretion,  enter  into any  such  supplemental
indenture  which affects the Trustee's  own rights,  duties or immunities  under
this Indenture or otherwise.

     Any  supplemental  indenture  authorized by the  provisions of this Section
11.01 may be executed by the Company and the Trustee  without the consent of the
holders of any of the Notes at the time outstanding,  notwithstanding any of the
provisions of Section 11.02 of this Indenture.

     SECTION 11.02.  Supplemental  Indentures with Consent of Noteholders.  With
the consent  (evidence  as provided in Section  9.01 of this  Indenture)  of the
holders of not less than sixty-six and two-thirds percent (66 2/3%) in aggregate
principal  amount  of the  Notes  at the time  outstanding,  the  Company,  when
authorized by the  resolutions  of the Board of  Directors,  and the Trustee may
from  time  to time  and at any  time  enter  into an  indenture  or  indentures
supplemental  hereto for the purpose of adding any  provisions to or changing in
any manner or  eliminating  any of the  provisions  of this  Indenture or of any
supplemental  indenture  or of modifying in any manner the rights of the holders
of the Notes; provided, however, that no such supplemental indenture shall (i)

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extend the fixed maturity of any Note, or reduce the principal amount thereof or
make the  principal  thereof  payable  in any coin or  currency  other than that
provided  in the Notes,  or impair the right to  convert  the Notes into  Common
Stock  and/or  Series B  Preferred  Stock,  as the case may be, on the terms set
forth  herein,  without the consent of the holder of each Note so  affected,  or
(ii) reduce the aforesaid percentage of Notes, the holders of which are required
to consent to any such supplement indenture,  without the consent of the holders
of all Notes then outstanding.

     Upon the request of the Company,  accompanied by a copy of the  resolutions
of the Board of  Directors  certified by its  Secretary  or Assistant  Secretary
authorizing  the  execution  of any such  supplemental  indenture,  and upon the
filing with the Trustee of evidence of the consent of  Noteholders as aforesaid,
the Trustee  shall join with the Company in the  execution of such  supplemental
indenture unless such  supplemental  indenture affects the Trustee's own rights,
duties or  immunities  under  this  Indenture  or  otherwise,  in which case the
Trustee may in its  discretion,  but shall not be obligated  to, enter into such
supplemental indenture.

     It shall not be  necessary  for the consent of the  Noteholders  under this
Section  11.02 to  approve  the  particular  form of any  proposed  supplemental
indenture,  but it  shall  be  sufficient  if such  consent  shall  approve  the
substance thereof.

     SECTION  11.03.  Compliance  with Trust  Indenture  Act of 1939;  Effect of
Supplemental  Indentures.  Any supplemental  indenture  executed pursuant to the
provisions of this Article  Eleven shall comply with the Trust  Indenture Act of
1939,  as then in  effect.  Upon the  execution  of any  supplemental  indenture
pursuant to the provisions of this Article  Eleven,  this Indenture shall be and
be deemed to be modified and amended in accordance  therewith and the respective
rights,  limitation of rights,  obligations,  duties and  immunities  under this
Indenture of the Trustee,  the Company and the holders of Notes shall thereafter
be determined,  exercised and enforced hereunder subject in all respects to such
modifications  and  amendments  and all the  terms  and  conditions  of any such
supplemental  indenture  shall  be and be  deemed  to be part of the  terms  and
conditions of this Indenture for any and all purposes.

     SECTION 11.04.  Notation on Notes. Notes  authenticated and delivered after
the execution of any supplemental  indenture  pursuant to the provisions of this
Article  Eleven may bear a notation  in form  approved  by the Trustee as to any
matter  provided  for in such  supplemental  indenture.  If the  Company  or the
Trustee shall so determine,  new Notes so modified as to conform, in the opinion
of the Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared and executed by the
Company,  authenticated  by the Trustee and  delivered in exchange for the Notes
then outstanding, upon surrender of such Notes then outstanding.

     SECTION  11.05.  Evidence of  Compliance  of  Supplemental  Indenture to be
Furnished Trustee.  The Trustee,  subject to the provisions of Sections 8.01 and
8.02 of this Indenture,  may require, and shall be entitled to receive, and rely
on, an Officers'  Certificate  and an Opinion of Counsel as conclusive  evidence
that any  supplemental  indenture  executed  pursuant  hereto  complies with the
requirements of this Article Eleven.


                                 ARTICLE TWELVE.

               CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE.

     SECTION 12.01. Company May Consolidate,  etc., on Certain Terms. Subject to
the  provisions of Section 12.02 of this  Indenture,  nothing  contained in this
Indenture or in any of the Notes shall  prevent any  consolidation  or merger of
the Company with or into any other  corporation or corporations  (whether or not
affiliated with the Company),  or successive  consolidations or mergers in which
the Company or its successor or successors shall be a party or parties, or shall
prevent any sale,  conveyance  or lease (or  successive  sales,  conveyances  or

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<PAGE>

leases) of all or substantially all of the property of the Company, to any other
corporation  (whether or not affiliated with the Company)  authorized to acquire
and operate the same;  provided,  however,  and the Company hereby covenants and
agrees, that upon any such  consolidation,  merger,  sale,  conveyance or lease,
other than any such sale,  conveyance  or lease by the Company to a  Subsidiary,
the due and punctual payment of the principal of all of the Notes,  according to
their tenor,  and the due and punctual  performance and observance of all of the
covenants and conditions of this Indenture to be performed by the Company, shall
be  expressly  assumed,  by  supplemental  indenture  satisfactory  in form  and
substance  to  the  Trustee,  executed  and  delivered  to  the  Trustee  by the
corporation  (if other than the Company) formed by such  consolidation,  or into
which the Company shall have been merged, or by the corporation which shall have
acquired or leased such property.

     SECTION 12.02. Successor Corporation to be Substituted. In case of any such
consolidation,  merger, sale, conveyance or lease and upon the assumption by the
successor corporation, by supplemental indenture,  executed and delivered to the
Trustee and  satisfactory  in form and substance to the Trustee,  of the due and
punctual  payment of the  principal of and premium,  if any, on all of the Notes
and the due and punctual  performance  of all of the covenants and conditions of
this Indenture to be performed by the Company,  such successor corporation shall
succeed to and be substituted for the Company, with the same effect as if it had
been named  herein as the party of the first part.  Such  successor  corporation
thereupon may cause to be signed, and may issue either in its own name or in the
name of Porta Systems Corp.,  any or all of the Notes issuable  hereunder  which
theretofore  shall not have been  signed by the  Company  and  delivered  to the
Trustee;  and,  upon the  order of such  successor  corporation  instead  of the
Company  and  subject  to all the  terms,  conditions  and  limitations  in this
Indenture prescribed, the Trustee shall authenticate and shall deliver any Notes
which  previously  shall have been signed and  delivered  by the officers of the
Company to the Trustee for  authentication,  and any Notes which such  successor
corporation  hereafter shall cause to be signed and delivered to the Trustee for
that  purpose.  All the Notes so issued in all respects have the same legal rank
and benefit under this Indenture as the Notes  theretofore or thereafter  issued
in accordance  with the terms of this  Indenture as though all of such Notes had
been issued at the date of the execution  hereof. In the event of any such sale,
conveyance  or  lease  (other  than any such  sale,  conveyance  or lease by the
Company  to a  Subsidiary),  the  person  named as the  "Company"  in the  first
paragraph of this Indenture or any successor which shall  thereafter have become
such in the manner prescribed in this Article Twelve may be dissolved,  wound up
and liquidated at any time thereafter and such person shall be released from its
liabilities  as obligor  and maker of the Notes and from its  obligations  under
this Indenture.

     In case of any such consolidation,  merger, sale,  conveyance or lease such
changes in phraseology  and form (but not in substance) may be made in the Notes
thereafter to be issued as may be appropriate.

     SECTION 12.03. Opinion of Counsel to be Given Trustee. The Trustee, subject
to Sections 8.01 and 8.02 of this Indenture,  may require, and shall be entitled
to receive,  and rely on, an Opinion of Counsel as conclusive  evidence that any
such consolidation,  merger, sale, conveyance,  or lease and any such assumption
complies with the provisions of this Article Twelve.


                                ARTICLE THIRTEEN.

                    SATISFACTION AND DISCHARGE OF INDENTURE.

     SECTION 13.01.  Discharge of Indenture.  When (a) the Company shall deliver
to the Trustee for cancellation all Notes theretofore  authenticated (other than
any Notes which shall have been  destroyed,  lost or stolen and in lieu of or in
substitution for which other Notes shall have been  authenticated and delivered)
and not theretofore cancelled, or (b) all the Notes not theretofore cancelled or
delivered to the Trustee for cancellation shall have become due and payable,  or
are by their terms to become due and payable within one year or are to be called
for redemption  within one year under  arrangements  satisfactory to the Trustee
for the giving of notice of  redemption  by the Trustee in the name,  and at the
expense of the Company,  and the Company  shall  deposit  with the  Trustee,  in

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trust,  funds (which  thereupon shall become  immediately due and payable to the
holders of Notes)  sufficient to pay at maturity or upon  redemption  all of the
Notes (other than any Notes which shall have been mutilated,  destroyed, lost or
stolen which have been  replaced,  paid or converted as provided in Section 2.06
of this  Indenture)  not  theretofore  cancelled or delivered to the Trustee for
cancellation,  including  principal but  excluding,  however,  the amount of any
monies for the payment of principal of the Notes (1) theretofore  deposited with
the  Trustee and repaid by the  Trustee to the  Company in  accordance  with the
provisions  of  Section  13.04 of this  Indenture,  or (2) paid to any  State or
Territory  or the  District of Columbia  pursuant to its  unclaimed  property or
similar  laws,  and if in either case the Company  shall also pay or cause to be
paid all other sums payable hereunder by the Company,  then this Indenture shall
cease to be of  further  effect,  and the  Trustee,  on  demand  of the  Company
accompanied by an Officers' Certificate and an Opinion of Counsel as required by
Section  16.05 of this  Indenture  and at the cost and  expense of the  Company,
shall execute proper instruments  acknowledging  satisfaction of and discharging
this Indenture. The obligations of the Company to the Trustee, and the Trustee's
rights and remedies  under Article Eight of this  Indenture,  including  without
limiting the generality of the foregoing,  Section 8.06 of this Indenture  shall
survive termination of this Indenture.

     The Trustee shall notify the Noteholders, at the expense of the Company, of
the immediate  availability of the amount  referred to in Paragraph  13.01(b) of
this Indenture by mailing a notice,  first class postage prepaid, to the holders
of Notes at their addresses as they appear on the Note register.

     SECTION 13.02. Deposited Monies to be Held in Trust by Trustee.  Subject to
Article Four and to Section 13.04 of this Indenture,  all monies  deposited with
the Trustee  pursuant to Section 13.01 of this Indenture  shall be held in trust
and applied by it to the  payment,  either  directly or through any paying agent
(including the Company if acting as its own paying agent), to the holders of the
particular  Notes for the payment or  redemption  of which such monies have been
deposited  with the  Trustee,  of all sums due and to  become  due  thereon  for
principal and premium, if any.

     SECTION 13.03. Paying Agent to Repay Monies Held. Upon the satisfaction and
discharge  of this  Indenture  all monies  then held by any paying  agent of the
Notes (other than the Trustee) shall,  upon demand of the Company,  be repaid to
it or paid to the  Trustee,  and  thereupon  such paying agent shall be released
from all further liability with respect to such monies.

     SECTION 13.04.  Return of Unclaimed  Monies.  Any monies  deposited with or
paid to the Trustee for payment of the principal of or premium, if any, on Notes
and not  applied  but  remaining  unclaimed  by the holders of Notes for six (6)
years after the date upon which the  principal  of or  premium,  if any, on such
Notes, as the case may be, shall have become due and payable, shall be repaid to
the Company by the  Trustee on demand and all  liability  of the  Trustee  shall
thereupon  cease;  and the holder of any of the Notes shall thereafter look only
to the Company for any payment which such holder may be entitled to collect.


                                ARTICLE FOURTEEN.

                    IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
                             OFFICERS AND DIRECTORS.

     SECTION  14.01.  Indenture  and  Notes  Solely  Corporate  Obligations.  No
recourse for the payment of the principal of or premium, if any, on any Note, or
for any claim based  thereon or  otherwise in respect  thereof,  and no recourse
under or upon any  obligation,  covenant  or  agreement  of the  Company in this
Indenture or in any supplemental  indenture,  or in any Notes, or because of the
creation  of any  indebtedness  represented  thereby,  shall be had  against any
incorporator,  stockholder, officer, director, employee or agent, as such, past,
present  or  future,  of the  Company or of any  successor  corporation,  either
directly or through the Company or any successor corporation,  whether by virtue
of any  constitution,  statute  or  rule of law,  or by the  enforcement  of any

                                      (46)

<PAGE>

assessment or penalty or otherwise;  it being expressly understood that all such
liability is hereby  expressly  waived and released as a condition  of, and as a
consideration for, the execution of this Indenture and the issue of the Notes.


                                ARTICLE FIFTEEN.

                              CONVERSION OF NOTES.

     SECTION 15.01.  Right to Convert.  Subject to and upon  compliance with the
provisions of this Article Fifteen, the holder of any Note shall have the right,
at his option,  at any time prior to the close of business on December  31, 1997
(or if such Note is called for redemption,  the conversion right with respect to
such Note shall  terminate at 5:00 PM New York City time on the second  business
day prior to the date such Note is to be redeemed  pursuant to Article  Three of
this  Indenture,  unless  the  Company  shall  default in the  payment  due upon
redemption thereof) to convert the principal amount of any such Note, or, in the
case of any Note of a denomination  greater than one thousand dollars  ($1,000),
any  portion of such  principal  which is one  thousand  dollars  ($1,000)  or a
multiple  thereof,  into that number of fully paid and  nonassessable  shares of
Common Stock (as such shares shall then be constituted) obtained by dividing the
principal  amount of the Note or portion  thereof  surrendered for conversion by
the Conversion Price, by surrender of the Note so to be converted in whole or in
part in the  manner  provided  in  Section  15.02  of this  Indenture.  Notes in
denominations  of one  thousand  dollars  ($1,000) or less may be  converted  in
whole, but not in part.

     SECTION 15.02. Exercise of Conversion  Privilege;  Issuance of Common Stock
on Conversion;  No Adjustment for Dividends. In order to exercise the conversion
privilege,  the  holder of any Note to be  converted  in whole or in part  shall
surrender such Note at an office or agency maintained by the Company pursuant to
Section 5.02 of this  Indenture  and shall give written  notice of conversion in
the form  provided  on the Note to the Company at such office or agency that the
holder  elects to convert  such Note or the portion  thereof  specified  in said
notice.  Such notice shall also state the name or names (with  address) in which
the  certificate  or  certificates  for shares of Common  Stock  which  shall be
issuable  on such  conversion  shall be  issued,  and  shall be  accompanied  by
transfer  taxes, if required  pursuant to Section 15.07 of this Indenture.  Each
Note surrendered for conversion shall,  unless the shares issuable on conversion
are to be issued  in the same name as the  registration  of such  Note,  be duly
endorsed by, or be accompanied  by instruments of transfer in form  satisfactory
to the Company duly executed by, the holder or his duly authorized attorney.

     As promptly as practicable after the surrender of such Note and the receipt
of such notice and funds,  if any,  as  aforesaid,  the Company  shall issue and
shall deliver at such office or agency to such holder,  or on his written order,
a certificate or  certificates  for the number of full shares  issuable upon the
conversion of such Note or portion  thereof in accordance with the provisions of
this Article  Fifteen and a check or cash in respect of any fractional  interest
in respect of a share of Common Stock  arising upon such  conversion as provided
in Section 15.03 of this Indenture.  In case any Note of a denomination  greater
than one thousand dollars  ($1,000) shall be surrendered for partial  conversion
and subject to Section 2.03 of this Indenture, the Company shall execute and the
Trustee  shall  authenticate  and  deliver to or upon the  written  order of the
holder of the Note so surrendered, without charge to him, a new Note or Notes in
authorized   denominations  in  an  aggregate  principal  amount  equal  to  the
unconverted portion of the surrendered Note.

     Each conversion  shall be deemed to have been effected on the date on which
such Note shall have been  surrendered  and such notice shall have been received
by the Company,  as aforesaid,  and the person in whose name any  certificate or
certificates  for shares of Common Stock shall be issuable upon such  conversion
shall be deemed to have  become on said date the  holder of record of the shares
represented thereby; provided, however, that any such surrender on any date when
the stock  transfer  books of the Company shall be closed shall  constitute  the
person in whose  name the  certificates  are to be issued as the  record  holder
thereof for all purposes on the next succeeding day on which such stock transfer
books are open, but such conversion  shall be at the conversion  price in effect

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<PAGE>

on the date upon  which such Note shall  have been  surrendered.  No  adjustment
shall be made for  dividends on any shares  issued upon the  conversion  of such
Note as provided in this Article Fifteen.

     SECTION 15.03.  Cash Payments in Lieu of Fractional  Shares.  No fractional
shares of Common Stock or scrip  representing  fractional shares shall be issued
upon  conversion  of  Notes.  If more  than one Note  shall be  surrendered  for
conversion at one time by the same holder, the number of full shares which shall
be issuable  upon  conversion  shall be  computed on the basis of the  aggregate
principal  amount of the Notes (or  specified  portions  thereof  to the  extent
permitted  hereby) so  surrendered.  If any fractional  shares of stock would be
issuable  upon the  conversion  of any Note or Notes,  the Company shall make an
adjustment  therefor in cash at the current  market value  thereof.  The current
market value of a share of Common  Stock shall be the closing  price on the date
(which is not a legal  holiday as defined  in Section  16.06 of this  Indenture)
immediately preceding the day on which the Notes (or specified portions thereof)
are deemed to have been  converted and such closing price shall be determined as
provided in Paragraph 15.05(d) of the Indenture.

     SECTION 15.04. Conversion Price. The Conversion Price shall be as specified
in the form of Note set forth in the  Recitals  of this  Indenture,  subject  to
adjustment as provided in this Article Fifteen, based on the Conversion Price in
effect on the date the Note is surrendered for conversion as provided in Section
15.02 of this Indenture.  The Conversion Price shall not be affected by the date
of issuance of any Note.

     SECTION 15.05.  Adjustment of Conversion  Price. The Conversion Price shall
be adjusted from time to time as follows:

          (a) In case the Company shall on any one or more  occasions  after the
     date of this Indenture (i) effect a stock split or pay a dividend or make a
     distribution in shares of its capital stock (whether shares of Common Stock
     or of capital stock of any other  class),  (ii)  subdivide its  outstanding
     Common Stock, or (iii) combine its outstanding  Common Stock into a smaller
     number of shares or otherwise  effect a reverse split, the Conversion Price
     in effect immediately prior thereto shall be adjusted so that the holder of
     any Note thereafter surrendered for conversion shall be entitled to receive
     the number of shares of capital  stock of the  Company  which he would have
     owned or have been  entitled to receive  after the  happening of any of the
     events  described above had such Note been converted  immediately  prior to
     the happening of such event. An adjustment made pursuant to this subsection
     (a) shall become effective immediately after the record date in the case of
     a dividend and shall become effective  immediately after the effective date
     in the  case  of a  subdivision  or  combination.  If,  as a  result  of an
     adjustment  made  pursuant to this  subsection  (a), the holder of any Note
     thereafter  surrendered  for  conversion  shall become  entitled to receive
     shares of two (2) or more  classes of  capital  stock of the  Company,  the
     Board of Directors  (whose  determination  shall be conclusive and shall be
     described in a written  statement filed with the Trustee and the conversion
     agent) shall  determine  the  allocation of the adjusted  Conversion  Price
     between or among shares of such classes of capital stock.

          (b) In case the Company  shall issue rights or warrants to all holders
     of its Common Stock entitling them (for a period expiring within forty-five
     (45) days  after the  record  date  mentioned  below) to  subscribe  for or
     purchase  Common  Stock at a price per share less than the  current  market
     price per share of Common Stock (as defined in  Paragraph  15.05(d) of this
     Indenture)  at the  record  date  for  the  determination  of  stockholders
     entitled to receive such rights or warrants, the Conversion Price in effect
     immediately  prior  thereto  shall be adjusted so that the same shall equal
     the  price  determined  by  multiplying  the  Conversion  Price  in  effect
     immediately  prior to the date of  issuance of such rights or warrants by a
     fraction  of which the  numerator  shall be the  number of shares of Common
     Stock  outstanding  on the date of issuance of such rights or warrants plus
     the number of shares which the aggregate offering price of the total number
     of shares so offered would  purchase at such current  market price,  and of
     which the  denominator  shall be the  number  of  shares  of  Common  Stock
     outstanding  on the date of issuance  of such  rights or warrants  plus the
     number of  additional  shares of Common Stock offered for  subscription  or
     purchase.  Such  adjustment  shall be made  successively  whenever any such
     rights or warrants are issued, and shall become effective immediately after

                                      (48)

<PAGE>

     such record date. In determining whether any rights or warrants entitle the
     holders to  subscribe  for or purchase  shares of Common Stock at less than
     such current market price, and in determining the aggregate  offering price
     of such  shares,  there  shall  be taken  into  account  any  consideration
     received  by the Company  for such  rights or  warrants,  the value of such
     consideration,  if  other  than  cash,  to be  determined  by the  Board of
     Directors.

          (c) In case the Company shall  distribute to all holders of its Common
     Stock evidences of its indebtedness or assets  (excluding cash dividends or
     distributions  paid from retained  earnings of the Company) or subscription
     rights or warrants  (excluding  those referred to in Paragraph  15.05(b) of
     this  Indenture),  then in each such  case the  Conversion  Price  shall be
     adjusted so that the same shall equal the price  determined by  multiplying
     the  Conversion  Price  in  effect  immediately  prior  to the date of such
     distribution  by a fraction  of which the  numerator  shall be the  current
     market price per share (as defined in Paragraph 15.05(d) of this Indenture)
     of the Common Stock on the record date maintained  below less the then fair
     market value (as determined by the Board of Directors of the Company, whose
     determination  shall be  conclusive,  and described in a certificate  filed
     with the Trustee) of the portion of the assets of evidences of indebtedness
     so distributed or of such rights or warrants applicable to one (1) share of
     Common Stock,  and the  denominator  shall be the current  market price per
     share  (as  defined  in  Paragraph  15.05(d))  of the  Common  Stock.  Such
     adjustment shall become effective immediately after the record date for the
     determination of stockholders entitled to receive such distribution.

          (d) For the purpose of any computation  under Paragraphs  15.05(b) and
     (c) of this  Indenture,  the current market price per share of Common Stock
     at any date shall be deemed to be the average of the daily  closing  prices
     for the thirty (30)  consecutive  trading days  commencing  forty-five (45)
     trading  days before the day in  question.  The closing  price for each day
     shall be (i) the last sale  price of the Common  Stock if the Common  Stock
     shall be listed or admitted  for trading on the New York or American  Stock
     Exchange or any successor  exchange or The NASDAQ Stock Market or any other
     automated  quotation  system,  or if no sale  occurred  on such  date,  the
     closing bid price of the Common Stock on such  exchange or market,  or (ii)
     if the Common Stock shall not be included in any automated quotation system
     listed on any such exchange,  the closing bid quotation for Common Stock as
     reported by the NASDAQ or the National Quotation Bureau  Incorporation.  If
     Common Stock is quoted on a national  securities or central  market system,
     in lieu of a market or quotation  system described above, the closing price
     shall be determined in the manner set forth in clause (i) of this Paragraph
     15.05(d) if bid and asked  quotations are reported but actual  transactions
     are not,  and in the  manner  set  forth in clause  (ii) of this  Paragraph
     15.05(d) if actual transactions are reported. If none of the conditions set
     forth  above is met,  the closing  price of Common  Stock on any day or the
     average of such  closing  prices for any  period  shall be the fair  market
     value of Common Stock as  determined by a member firm of the New York Stock
     Exchange, Inc. selected by the Board of Directors of the Company.

          (e) No adjustment  in the  Conversion  Price shall be required  unless
     such  adjustment  would  require an  increase  or  decrease of at least two
     percent (2%) in such price;  provided,  however, that any adjustments which
     by reason of this  Paragraph  15.05(e) are not required to be made shall be
     carried  forward and taken into account in any subsequent  adjustment.  All
     calculations  under this Article  Fifteen shall be made to the nearest cent
     or to the nearest  one-hundredth  (1/100th) of a share, as the case may be.
     Anything in this Section 15.05 to the contrary notwithstanding, the Company
     shall be entitled  to make such  reductions  in the  Conversion  Price,  in
     addition to those required by this Section  15.05,  as it in its discretion
     shall  determine  to be  advisable  in  order  that  any  stock  dividends,
     subdivision  of  shares,  distribution  of  rights  to  purchase  stock  or
     securities,  or distribution of securities convertible into or exchangeable
     for stock  hereafter made by the Company to its  stockholders  shall not be
     taxable.

          (f) Whenever the Conversion Price is adjusted, as herein provided, the
     Company shall promptly file with the Trustee and any conversion agent other
     than the Trustee an  Officers'  Certificate  setting  forth the  Conversion
     Price after such  adjustment  and setting  forth a brief  statement  of the
     facts   requiring  such   adjustment.   Promptly  after  delivery  of  such
     certificate,  the Company shall prepare a notice of such  adjustment of the
     Conversion  Price setting forth the adjusted  Conversion Price and the date

                                      (49)

<PAGE>

     on which such  adjustment  becomes  effective and shall mail such notice of
     such  adjustment of the Conversion  Price to the holder of each Note at his
     last address appearing on the Note register provided for in Section 2.05 of
     this Indenture.

          (g) In  any  case  in  which  this  Section  15.05  provides  that  an
     adjustment  shall become effective  immediately  after a record date for an
     event, the Company may defer until the occurrence of such event (i) issuing
     to the holder of any Note  converted  after such record date and before the
     occurrence  of such event the  additional  shares of Common Stock  issuable
     upon such  conversion  by reason of the  adjustment  required by such event
     over and above the Common Stock issuable upon such conversion before giving
     effect to such adjustment and (ii) paying to such holder any amount in cash
     in lieu of any fraction pursuant to Section 15.03 of this Indenture.

     SECTION 15.06. Effect of Reclassification,  Consolidation,  Merger or Sale.
If any of the following events occur, namely (i) any  reclassification or change
of  outstanding  shares of Common Stock  issuable  upon  conversion of the Notes
(other than a change in par value, or from par value to no par value, or from no
par value to par value,  or as a result of a subdivision or  combination),  (ii)
any  consolidation  or merger  to which  the  Company  is a party  other  than a
consolidation  or merger in which the Company is the continuing  corporation and
which does not result in any reclassification of, or change (other than a change
in par  value,  or from par value to no par  value,  or from no par value to par
value or as a result of a subdivision or combination) in,  outstanding shares of
Common Stock,  or (iii) any sale or conveyance of the  properties  and assets of
the Company as, or substantially as, an entirety to any other corporation;  then
the Company or such  successor or  purchasing  corporation,  as the case may be,
shall execute with the Trustee a supplemental  indenture (which shall conform to
the Trust  Indenture  Act of 1939 as in force at the date of  execution  of such
supplemental  indenture)  providing that each Note shall be convertible into the
kind and amount of shares of stock and other  securities or property  receivable
upon such reclassification, change, consolidation, merger, sale or conveyance by
a holder of the number of shares of Common Stock  issuable  upon  conversion  of
such Notes immediately prior to such  reclassification,  change,  consolidation,
merger,  sale or  conveyance.  Such  supplemental  indenture  shall  provide for
adjustments  which shall be as nearly  equivalent as may be  practicable  to the
adjustments provided for in this Article Fifteen. The Company shall cause notice
of the execution of such  supplemental  indenture to be mailed to each holder of
Notes,  at his address  appearing on the Note  register  provided for in Section
2.05 of this Indenture.

     The  above  provisions  of this  Section  15.06  shall  similarly  apply to
successive reclassifications, consolidations, mergers and sales.

     SECTION 15.07.  Taxes on Shares Issued.  The issue of stock certificates on
conversions of Notes shall be made without  charge to the converting  Noteholder
for any tax in respect of the issue thereof.  The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and  delivery of stock in any name other than that of the holder of
any Note  converted,  and the Company  shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting the
issue  thereof  shall have paid to the  Company  the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.

     SECTION 15.08.  Reservation of Shares;  Shares to be Fully Paid; Compliance
with  Governmental  Requirements;  Listing of Common  Stock.  The Company  shall
provide, free from preemptive rights, out of its authorized but unissued shares,
or out of shares  held in its  treasury,  sufficient  shares to provide  for the
conversion of the Notes from time to time as Notes are presented for conversion.

     Before  taking any action  which would  cause an  adjustment  reducing  the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable  upon  conversion  of the Notes,  the Company  will take all  corporate
action which may, in the opinion of its counsel,  be necessary in order that the
Company  may  validly and  legally  issue  shares of such  Common  Stock at such
adjusted Conversion Price.


                                      (50)

<PAGE>

     The Company  covenants  that all shares of Common Stock which may be issued
upon conversion of Notes will upon issue be fully paid and  nonassessable by the
Company  and free from all taxes,  liens and charges  with  respect to the issue
thereof.

     The Company  covenants that if any shares of Common Stock to be issued upon
conversion  of Notes  hereunder  require  registration  with or  approval of any
governmental  authority under any Federal or state law before such shares may be
validly  issued  upon  conversion,  the  Company  will  in  good  faith  and  as
expeditiously as possible endeavor to secure such  registration or approval,  as
the case may be.

     The Company further covenants that in the event that the Common Stock shall
be listed on any  registered  stock  exchange or any other  national  securities
exchange the Company will, if permitted by the rules of such exchange,  list and
keep listed and for sale so long as the Common  Stock shall be so listed on such
exchange,  upon  official  notice of issuance,  all Common Stock  issuable  upon
conversion of the Notes.

     SECTION 15.09. Limitation on Responsibility of Trustee. Neither the Trustee
nor any authenticating agent nor any conversion agent shall at any time be under
any duty or responsibility to any holder of Notes to determine whether any facts
exist which may require any adjustment of the Conversion  Price, or with respect
to the nature or extent of any such adjustment when made, or with respect to the
method  employed,  or herein or in any  supplemental  indenture  provided  to be
employed,  in making the same. Neither the Trustee nor any authenticating  agent
nor any conversion  agent shall be  accountable  with respect to the validity or
value  (or the  kind  or  amount)  of any  shares  of  Common  Stock,  or of any
securities  or property,  which may at any time be issued or delivered  upon the
conversion of any Note; and neither the Trustee nor any authenticating agent nor
any conversion agent makes any representation with respect thereto.  Neither the
Trustee  nor  any  authenticating  agent  nor  any  conversion  agent  shall  be
responsible  for any  failure of the  Company to issue,  transfer or deliver any
shares of Common Stock or stock  certificates or other securities or property or
cash upon the  surrender of any Note for the purpose of  conversion or to comply
with any of the covenants of the Company contained in this Article Fifteen.

     SECTION 15.10. Notice to Holders Prior to Certain Actions. In case:

          (a) the Company shall  declare a dividend (or any other  distribution)
     on its Common Stock (other than in cash out of retained earnings); or

          (b) the Company  shall  authorize  the  granting to the holders of its
     Common Stock of right or warrant to subscribe  for or purchase any share of
     any class or any other rights or warrants; or

          (c) of any  reclassification of the Common Stock of the Company (other
     than a subdivision  or combination of its  outstanding  Common Stock,  or a
     change  in par  value,  or from par value to no par  value,  or from no par
     value to par value) or, of any consolidation or merger to which the Company
     is a party and for which  approval  of any  shareholders  of the Company is
     required,  or of the sale or  transfer of all or  substantially  all of the
     assets of the Company; or

          (d)  of the  voluntary  or  involuntary  dissolution,  liquidation  or
     winding up of the Company;

the Company shall cause to be filed with the Trustee and conversion agent and to
be mailed  to each  holder of Notes at his last  address  appearing  on the Note
register,  provided  for in  Section  2.05 of this  Indenture,  as  promptly  as
possible  but in any event at least  fifteen  (15) days prior to the  applicable
date hereinafter  specified,  a notice stating (x) the date on which a record is
to be  taken  for the  purpose  of such  dividend,  distribution  or  rights  or
warrants,  or, if a record is not to be taken,  the date as of which the holders
of Common  Stock of record to be  entitled  to such  dividend,  distribution  or
rights are to be  determined,  or (y) the date on which  such  reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected  to  become  effective,  and the date as of which it is  expected  that
holders of Common  Stock of record  shall be entitled to exchange  their  Common

                                      (51)

<PAGE>



Stock for securities or other property  deliverable upon such  reclassification,
consolidation,  merger, sale, transfer, dissolution,  liquidation or winding up.
Failure  to give such  notice,  or any  defect  therein,  shall not  affect  the
legality  or  validity  of  such   dividend,   distribution,   reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.

     SECTION 15.11. Possible Issuance of Series B Preferred Stock.

     (a) In the event that, at the time any Notes are  presented for  conversion
pursuant to this Article  Fifteen on or after the Trigger Date, the Trustee will
issue,  in respect of each Note presented for conversion on or after the Trigger
Date,  shares of a Series B  Preferred  Stock as  follows:  For each  fifty (50)
shares of Common Stock  otherwise  issuable  (but for this  Paragraph  15.11(a))
pursuant to this Article  Fifteen,  the Trustee will issue one share of Series B
Preferred  Stock;  provided,  however,  that the Trustee  shall issue  shares of
Common Stock to the extent that the number of shares of Common  Stock  otherwise
issuable  upon  conversion of all Notes  presented for  conversion by any holder
thereof  pursuant  to this  Article  Fifteen  exceeds a  multiple  of fifty (50)
shares.

     (b) The provisions of Paragraph  15.11(a) of this Indenture  shall cease to
apply at such time as the Company's  certificate of  incorporation is amended to
increase  the  authorized  Common Stock to at least forty  million  (40,000,000)
shares.

     (c) The  Trustee  may rely on a  certificate  from the  Company  and/or the
transfer  agent for the  Company's  Common  Stock as to the  number of shares of
Common Stock  outstanding  and the filing of a  certificate  of amendment to the
Company's certificate of incorporation.


                                ARTICLE SIXTEEN.

                            MISCELLANEOUS PROVISIONS.

     SECTION  16.01.  Provisions  Binding  on  Company's  Successors.   All  the
covenants, stipulations,  promises and agreements in this Indenture contained by
the Company shall bind its successors and assigns whether so expressed or not.

     SECTION  16.02.  Official  Acts  by  Successor  Corporation.   Any  act  or
proceeding by any provision of this Indenture  authorized or required to be done
or performed by any board,  committee or officer of the Company shall and may be
done and  performed  with like force and effect by the like board,  committee or
officer of any  corporation  that shall at the time be the lawful sole successor
of the Company.

     SECTION  16.03.  Addresses for Notices,  etc. Any notice or demand which by
any  provision of this  Indenture is required or permitted to be given or served
by the  Trustee or by the holders of Notes on the Company may be given or served
by being  deposited  postage  prepaid by registered or certified  mail in a post
office letter box addressed  (until another address is filed by the Company with
the Trustee) to Porta Systems  Corp.,  575 Underhill  Blvd.,  Syosset,  New York
11791,  Attn.:  President,  with a copy to Warren H. Esanu,  Esq.,  Esanu Katsky
Korins & Siger,  605  Third  Avenue,  New  York,  New York  10158.  Any  notice,
direction,  request or demand by any  Noteholder to or upon the Trustee shall be
deemed to have been  sufficiently  given or made, for all purposes,  if given or
made in writing at the  principal  office of the Trustee,  Attention:  Corporate
Trust Department.

     SECTION 16.04.  Governing Law. This Indenture and each Note shall be deemed
to be a  contract  made  under the laws of the State of New York  applicable  to
contracts  executed and to be performed  wholly  within such State,  and for all
purposes shall be construed in accordance  with and governed by the laws of said
State.


                                      (52)

<PAGE>

     SECTION 16.05. Evidence of Compliance with Conditions  Precedent.  Upon any
application  or demand by the  Company to the Trustee to take or omit any action
under any of the provisions of this Indenture,  the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent,  if any,
provided for in this Indenture  (including any covenants  compliance  with which
constitutes a condition  precedent) relating to the proposed action or omission,
as the case may be, have been  complied  with and an Opinion of Counsel  stating
that, in the opinion of such counsel,  all such  conditions  precedent have been
complied with.

     Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided for
in this Indenture (other than certificates  provided pursuant to Section 6.03(d)
of this  Indenture,  for which only clause (1) shall apply) shall  include (1) a
statement  that the person  making  such  certificate  or opinion  has read such
covenant or condition;  (2) a brief  statement as to the nature and scope of the
examination or investigation  upon which the statements or opinion  contained in
such  certificate or opinion are based;  (3) a statement that, in the opinion of
such person,  he has made such  examination or  investigation as is necessary to
enable him to express an informed  opinion as to whether or not such covenant or
condition has been complied  with;  and (4) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.

     SECTION 16.06.  Legal  Holidays.  In any case where the date of maturity of
the Notes or the date  fixed for  redemption  of any Note will be in The City of
New York,  New York a legal holiday or a day on which banking  institutions  are
authorized by law or executive  order to close,  then payment of such  principal
and premium,  if any, of the Notes need not be made on such date but may be made
on the next  succeeding  day not in such city a legal  holiday or a day on which
banking  institutions are authorized by law or executive order to close with the
same force and effect as if made on the date of  maturity  or the date fixed for
redemption.

     SECTION  16.07.  Trust  Indenture of 1939 to Control.  If and to the extent
that any provision of this Indenture limits, qualifies, or conflicts with duties
imposed by  operation  of any of Sections  310 to 317,  inclusive,  of the Trust
Indenture Act of 1939, such imposed duties shall control.

     SECTION 16.08. No Security Interest  Created.  Nothing in this Indenture or
in the Notes,  expressed or implied, shall be construed to constitute a security
interest under the Uniform  Commercial  Code or similar  legislation,  as now or
hereafter  enacted  and in effect,  in any  jurisdiction  where  property of the
Company or its Subsidiaries is located.

     SECTION 16.09.  Benefits of Indenture.  Nothing in this Indenture or in the
Notes,  express or  implied,  shall give to any  person,  other than the parties
hereto,  any paying agent,  any conversion  agent,  any Note registrar and their
successors  hereunder and the holders of Notes,  and the holders of Senior Debt,
any  benefit  or any  legal or  equitable  right,  remedy  or claim  under  this
Indenture.

     SECTION 16.10.  Entire  Agreement.  This Indenture  constitutes  the entire
agreement between the parties hereto,  superseding all prior or  contemporaneous
oral and prior written agreements, understandings and letters of intent covering
the same subject matter,  and may not be modified or amended except as expressly
permitted  by this  Indenture,  and any such  amendment  shall be evidenced by a
written instrument that expressly refers to this Indenture and is signed by both
parties.  No trade custom or usage and no course of conduct or dealing  shall be
construed to modify or amend this Indenture.

     SECTION 16.11. Gender and Number. All references to the masculine, feminine
or neuter gender shall include the other  genders,  the plural shall include the
singular and the singular shall include the plural.

     SECTION 16.12. Table of Contents,  Headings, etc. The table of contents and
the titles and headings of the articles and sections of this Indenture have been
inserted for  convenience  of reference  only,  are not to be  considered a part
hereof,  and shall in no way modify or restrict  any of the terms or  provisions
hereof.

                                      (53)

<PAGE>

     SECTION 16.13. Execution in Counterparts. This Indenture may be executed in
any  number  of  counterparts,  each of  which  shall be an  original,  but such
counterparts shall together constitute but one and the same instrument.

     SECTION 16.14.  No Sinking Fund. The Company is not required to provide for
the  retirement  or  redemption  of any Notes through the operation of a sinking
fund.

     SECTION 16.15. No Interest. The Notes do not bear interest.

     AMERICAN  STOCK  TRANSFER & TRUST COMPANY hereby accepts the trusts in this
Indenture declared and provided,  upon the terms and conditions  hereinabove set
forth.

     IN WITNESS  WHEREOF,  PORTA SYSTEMS CORP.  has caused this  Indenture to be
signed and acknowledged by its President or one of its Vice Presidents,  and its
corporate  seal to be  affixed  hereunto,  and the  same to be  attested  by its
Secretary or an Assistant Secretary, and AMERICAN STOCK TRANSFER & TRUST COMPANY
has caused this Indenture to be signed and  acknowledged by one of its Officers,
and has caused its  corporate  seal to be  affixed  hereunto  and the same to be
attested by its Secretary or one of its Assistant Secretaries, as of the day and
year first written above.

                                         PORTA SYSTEMS CORP.

[SEAL]
                                         By  /s/ Edward R. Olson
                                            -----------------------------
             /s/ William V. Carney                     President

             Secretary

                                         AMERICAN STOCK TRANSFER
                                          & TRUST COMPANY

[SEAL]
                                         By  /s/ Herbert J. Lemmer
                                            -----------------------------
             /s/ Susan Silber                           (Title)

             Assistant Secretary




                                      (54)

<PAGE>

STATE OF New York
                            ss.:
COUNTY OF

     On the 8th day of Dec., 1995, before me personally came Edward R. Olson, to
me known,  who,  being by me duly  sworn did  depose  and say that he resides at
11306  Harborside  Cluster,  Reston,  VA 22091 that he is Pres. of PORTA SYSTEMS
CORP.,  one of the  corporations  described  in and  which  executed  the  above
instrument; that he knows the corporate seal of said corporation;  that the seal
affixed to said instrument is such corporate seal; that it was so affixed by the
authority of the Board of Directors of said corporation;  and that he signed his
name thereto by like authority.

                                             /s/ Susan Canale

                                             Notary Public

                                             SUSAN CANALE
                                             Notary Public, State of New York
                                             No. 4991019
                                             Qualified in Suffolk County
                                             Certified in Nassau County
                                             Commission Expires January 21, 1996





STATE OF
                            ss.:
COUNTY OF

     On the 14 day of Dec., 1995,  before me personally came Herb Lemmer,  to me
known,  who,  being by me duly  sworn did  depose and say that he resides at 318
Orenda  Circle,  Westfield  NJ 07090 that he is Vice  Pres.  of  AMERICAN  STOCK
TRANSFER & TRUST  COMPANY,  one of the entities  described in and which executed
the above instrument;  that he knows the corporate seal of said entity; that the
seal  affixed to the said  instrument  is such  corporate  seal;  that it was so
affixed by authority of the Board of Directors of said corporation;  and that he
signed his name thereto by like authority.

                                             /s/ Robert Shiner

                                             Notary Public

                                             Commission expires 12/31/95  [Seal]





                                      (55)



                            ASSET PURCHASE AGREEMENT



                                     Between



                                   AUGAT INC.



                                       and



                               PORTA SYSTEMS CORP.
                            AND CERTAIN SUBSIDIARIES





                                  March 6, 1996

<PAGE>

                                  TABLE OF CONTENTS

                                                                       Page
                                                                       ----

              1.1  Purchase and Sale of Assets.....................     1
              1.2  Assumption of Liabilities.......................     3
              1.3  Purchase Price..................................     7
              1.4  The Closing.....................................     8
              1.5  Allocation of Purchase Price....................     9
              1.6  Post-Closing Adjustments........................     9
              1.7  Further Assurances..............................    11

         ARTICLE II - REPRESENTATIONS AND WARRANTIES
                        OF THE SELLER..............................    12

              2.1  Organization, Qualification and
                     Corporate Power...............................    12
              2.2  Authority.......................................    12
              2.3  Noncontravention................................    12
              2.4  Subsidiaries....................................    13
              2.5  Actions.........................................    13
              2.6  Tax Matters.....................................    13
              2.7  Ownership and Condition of Assets...............    13
              2.8  Intellectual Property...........................    14
              2.9  Real Property; Leases...........................    16
              2.10 Contracts.......................................    16
              2.11 Powers of Attorney..............................    18
              2.12 Insurance.......................................    18
              2.13 Litigation......................................    18
              2.14 Product Warranty................................    18
              2.15 Employees.......................................    18
              2.16 Employee Benefits...............................    19
              2.17 Environmental Matters...........................    20
              2.18 Legal Compliance................................    22
              2.19 Permits.........................................    22
              2.20 Certain Business Relationships With Affiliates..    22
              2.21 Brokers' Fees...................................    23
              2.22 Customers and Suppliers.........................    23
              2.23 Government Contracts............................    23
              2.24 Disclosure......................................    23

         ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE BUYER     24

              3.1  Organization....................................    24
              3.2  Authorization of Transaction....................    24
              3.3  Noncontravention................................    24
              3.4  Brokers' Fees...................................    24

         ARTICLE IV - PRE-CLOSING COVENANTS........................    25

                                         -i-

<PAGE>

              4.1  Notices and Consents............................    25
              4.2  Operation of Business...........................    26
              4.3  Full Access.....................................    27
              4.4  Exclusivity.....................................    27
              4.5  Bulk Transfers Law..............................    27

         ARTICLE V - CONDITIONS TO CLOSING.........................    27

              5.1  Conditions to Obligations of the Buyer..........    27
              5.2  Conditions to Obligations of the Seller.........    29

         ARTICLE VI - POST-CLOSING COVENANTS.......................    30

              6.1  Proprietary Information.........................    30
              6.2  No Solicitation.................................    30
              6.3  Non-Competition; Referral of Customers..........    30
              6.4  Sharing of Data.................................    31
              6.5  Use of Name.....................................    32
              6.6  Cooperation in Litigation.......................    32
              6.7  Accounts Receivable of the Seller...............    32
              6.8  Business Employees..............................    33

         ARTICLE VII - INDEMNIFICATION.............................    34

              7.1  Indemnification.................................    34
              7.2  Claims for Indemnification......................    34
              7.3  Defense by the Indemnifying Party...............    35
              7.4  Payment of Indemnification Obligation...........    36
              7.5  Survival and Limitation of Liability............    36
              7.6  Subsidiaries....................................    36

         ARTICLE VIII - TERMINATION................................    37

              8.1  Termination of Agreement........................    37
              8.2  Effect of Termination...........................    37

         ARTICLE IX - DEFINITIONS..................................    37

         ARTICLE X - DISPUTE RESOLUTION............................    39

              10.1 General.........................................    39
              10.2 Arbitration.....................................    39

         ARTICLE XI - MISCELLANEOUS................................    40

              11.1  Press Releases and Announcements...............    40
              11.2  No Third Party Beneficiaries...................    40
              11.3  Entire Agreement...............................    40
              11.4  Succession and Assignment......................    41
              11.5  Counterparts...................................    41

                                        -ii-

<PAGE>

              11.6  Headings.......................................    41
              11.7  Notices........................................    41
              11.8  Governing Law..................................    42
              11.9  Best Knowledge.................................    42
              11.10 Amendments and Waivers.........................    42
              11.11 Severability...................................    42
              11.12 Expenses.......................................    42
              11.13 Specific Performance...........................    43
              11.14 Construction...................................    43
              11.15 Incorporation of Exhibits and Schedules........    43


          Exhibit A - Form of Escrow Agreement

          Exhibit A-1 - Form of Second Escrow Agreement

          Exhibit B - Form of Bill of Sale

          Exhibit C - Form of Instrument of Assumption of Liabilities

          Exhibit D - Form of Opinion of Counsel to the Seller

          Exhibit E - Form of Transitional Services Agreement

          Exhibit F - Form of Opinion of Counsel to the Buyer

          Schedules

          Disclosure Schedule




                                        -iii-

<PAGE>

                            ASSET PURCHASE AGREEMENT


     This Agreement is entered into as of March 6, 1996 by and between Augat
Inc., a Massachusetts corporation (the "Buyer"), Porta Systems Corp., a Delaware
corporation ("Porta"), and the subsidiaries of Porta set forth on Schedule 1
attached hereto (collectively, the "Subsidiaries"). All references in this
Agreement to the "Seller" shall be deemed to include Porta and each and every
one of the Subsidiaries. The Buyer and the Seller are referred to collectively
herein as the "Parties."

                              Preliminary Statement

     The Buyer desires to purchase, and the Seller desires to sell, the business
and assets comprising the Seller's fiber optics business (including, without
limitation, fiber management systems and fiber optic components) (the
"Business"), for the consideration set forth in this Agreement and the
assumption by the Buyer of certain of the Seller's liabilities relating to the
Business set forth in this Agreement, all subject to the terms and conditions
hereof.

     NOW, THEREFORE, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.

                                    ARTICLE I

                                  THE PURCHASE

     1.1 Purchase and Sale of Assets.

     (a) Upon and subject to the terms and conditions of this Agreement, the
Buyer shall purchase from the Seller, and the Seller shall sell, transfer,
convey, assign and deliver to the Buyer, at the Closing (as defined in Section
1.4(a)), for the consideration specified below in this Article I, all right,
title and interest in and to the following (collectively, the "Acquired
Assets"):

          (i) the Seller's fixed assets relating to the Business, including
     machinery, equipment, tools and tooling, furniture, fixtures, leasehold
     improvements and motor vehicles and all rights of the Seller to the
     possession or use of any equipment or assets owned by any Governmental
     Entity (as defined below) and any warranties relating to the foregoing, all
     of which is set forth on Schedule 1.1(a)(i) attached hereto and other fixed
     assets relating solely to the Business which are acquired by the Seller

<PAGE>

     in the Ordinary Course of Business, as hereinafter defined, prior to the
     Closing Date (collectively "Fixed Assets").

          (ii) the Business's inventories of raw materials, work in process,
     finished goods, supplies, packaging materials, spare parts and similar
     items (collectively "Inventory") used solely in connection with the
     Business as of November 29, 1995 and set forth on Schedule 1.1(a)(ii)
     attached hereto to the extent that they have not been sold prior to the
     Closing Date and all such Inventory acquired by the Business after November
     29, 1995 to and including the Closing Date;

          (iii) all (A) patents, patent applications, patent disclosures and all
     related continuation, continuation-in-part, divisional, reissue,
     re-examination, utility model, certificate of invention and design patents,
     patent applications, registrations and applications for registrations
     listed in Schedule 1.1(a)(iii), (B) trademarks, service marks, trade
     drafts, logos, tradenames and corporate names and registrations and
     applications for registration thereof listed in Schedule 1.1(a)(iii), (C)
     copyrights and registrations and applications for registration thereof
     listed in Schedule 1.1(a)(iii), (D) mask works and registrations and
     applications for registration thereof listed in Schedule 1.1(a)(iii), (E)
     computer software, data and documentation listed in Schedule 1.1(a)(iii),
     (F) trade secrets and confidential business information, whether patentable
     or nonpatentable and whether or not reduced to practice, know-how,
     manufacturing and product processes and techniques, research and
     development information, copyrightable works, and confidential financial,
     marketing and business data, pricing and cost information, business and
     marketing plans and customer and supplier lists and information relating
     solely to the Business, (G) other proprietary rights relating to any of the
     foregoing (including without limitation remedies against infringements
     thereof and rights of protection of interest therein under the laws of all
     jurisdictions) and (H) copies and tangible embodiments thereof (the items
     referred to in this Section 1.1(a)(iii) being collectively referred to as
     the "Intellectual Property"); provided, however, notwithstanding anything
     contained in this Agreement and except as set forth in Section 6.5, the
     Buyer shall not be permitted to use and shall not possess any proprietary
     rights in the names "Porta" or "Criterion" or any combination thereof or
     words phonetically similar to such names; and provided, further, that (a)
     the Seller shall have the right, without payment of any royalty or other
     fee, to use any item of Intellectual Property in the conduct or
     administration of its businesses other than the Business in the same manner
     as such items were used in such other businesses or for administrative
     purposes prior to the Closing Date, and (b) the Buyer shall have the right,
     without payment of any royalty or other fee, to use any item of

                                         -2-

<PAGE>

     intellectual property retained by the Seller to the extent necessary for
     the conduct of the Business as presently conducted by the Seller;

          (iv) the contracts, agreements and instruments set forth on Schedule
     1.1(a)(iv) attached hereto (collectively, the "Assigned Contracts"), except
     accounts and notes receivable;

          (v) all claims, prepayments, refunds, causes of action, choses in
     action, rights of recovery, rights of setoff and rights of recoupment
     relating to the Acquired Assets described in subparagraph (i) through (iv);

          (vi) all permits, licenses, registrations, certificates, orders,
     approvals, franchises, variances and similar rights ("Permits") issued by
     or obtained from any foreign, federal, state or local governmental,
     regulatory or administrative authority or agency, court or arbitrational
     tribunal (a "Governmental Entity") relating to the Business as set forth on
     Schedule 1.1(a)(vi) attached hereto;

          (vii) all manufacturing and procedural manuals, advertising and
     promotional materials, studies, reports and other printed or written
     materials relating to the Business as well as copies of all books, records,
     accounts, ledgers, files, documents, correspondence, lists, architectural
     drawings or specifications, employment records relating to the Business;
     and

          (viii) all goodwill of the Business.

     (b) Notwithstanding the provisions of Section 1.1(a) (unless otherwise
listed on Schedules 1.1(a)(i) through (iv) inclusive), the Acquired Assets shall
not include any of the following (collectively, the "Excluded Assets"): (i) cash
on hand or in transit, whether or not used in the Business, (ii) accounts and
notes receivable to the Closing Date, (iii) the assets associated or used,
wholly or partially, with the Seller's Operating Support Systems, Signal
Processing or Copper Connection businesses or associated or used in any of the
Seller's business activities other than the Business, including, administrative
activities, (iv) books of original entry, (v) Seller's corporate franchises,
(vi) assets listed on Schedule 1.1(b) attached hereto; and (vii) the names
"Porta," "Criterion" or any name or combination of names using either or both of
"Porta" and "Criterion" or words phonetically similar to such names.

     1.2 Assumption of Liabilities.

     (a) Upon and subject to the terms and conditions of this Agreement, the
Buyer shall assume and become responsible for,

                                       -3-

<PAGE>

from and after the Closing, all of the following liabilities of the Seller
(collectively, the "Assumed Liabilities");

     (i) the liabilities of the Seller incurred in connection with the Business
as of October 27, 1995, as set forth in the Accounts Payable Aging dated
November 30, 1995 (the "November 30, 1995 Statement") and attached hereto as
Schedule 1.2(a)(i), which includes accounts payable, unearned progress payments,
advances received by the Seller and other current liabilities, to the extent
they have not been paid or discharged prior to the Closing;

     (ii) all liabilities of the Seller incurred in connection with the Business
after October 27, 1995 and prior to the Closing Date in the ordinary course of
business consistent with past custom and practice ("Ordinary Course of
Business") and which are of the same type as those set forth on the November 30,
1995 Statement, which include accounts payable, unearned progress payments,
advances received by the Seller and other current liabilities, to the extent
that they have not been paid or discharged prior to the Closing; provided that
this clause (ii) shall not encompass any such liabilities which relate to any
breach of contract, breach of warranty (but excluding warranty costs assumed by
the Buyer pursuant to Section 1.2(a)(v)), tort, infringement or violation of law
or which arose out of any charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand;

     (iii) all obligations of the Seller relating to periods after the Closing
under the Assigned Contracts, together with obligations of the Seller under the
Assigned Contracts that were not by the terms of such Assigned Contracts
required to be performed until after the Closing;

     (iv) severance obligations set forth on Schedule 1.2(a)(iv) (which have
been determined in accordance with the Seller's existing severance policy set
forth in Section 2.16(d) of the Disclosure Schedule), with respect to the
"Business Employees" of the Seller as provided in Section 6.8 of this Agreement,
and certain other obligations specified in Section 6.8. As used herein, the term
"Business Employees" shall mean all employees who are employed by the Seller in
connection with the Business and listed on Schedule 1.2(a)(iv) as well as all
employees who, on and subsequent to the date of this Agreement and prior to the
Closing Date, are employed by the Seller in connection with the Business, who
shall be listed on a supplement to Schedule 1.2(a)(iv) to be delivered to the
Buyer on the second day prior to the scheduled Closing Date; and



                                       -4-

<PAGE>

     (v) during the period ending 180 days after the Closing Date, up to a
maximum of $100,000 in actual out-of-pocket cost to the Buyer, obligations of
the Seller to its customers for the repair, replacement or return of Business
products shipped prior to the Closing Date. If a claim for repair and
replacement shall be made during such 180-day period, so long as the Buyer's
maximum $100,000 obligation hereunder shall not have been reached, the Buyer
shall continue to be obligated to make repairs and replacements of such
products, including subsequent repairs on products repaired or replaced during
such period. To the extent that the Seller shall be obligated for the repair and
replacement of products sold prior to the Closing Date, the Buyer shall give the
Seller prompt notice, shall certify to the Seller that the claim for repair or
replacement of the product is bona fide and under warranty, shall assist the
Seller in resolving any questions concerning the claims and shall complete the
repair or replacement at the Seller's expense but at the Buyer's actual cost.

     (b) The Buyer shall not assume or become responsible for, and the Seller
shall remain liable for, any and all liabilities or obligations (whether known
or unknown, whether absolute or contingent, whether liquidated or unliquidated,
whether due or to become due, and whether claims with respect thereto are
asserted before or after the Closing) of the Seller which are not Assumed
Liabilities (collectively, the "Retained Liabilities"). The Retained Liabilities
shall include, without limitation, the following:

          (i) all liabilities of the Seller for costs and expenses incurred in
     connection with this Agreement or the consummation of the transactions
     contemplated by this Agreement;

          (ii) all liabilities or obligations of the Seller under this Agreement
     or any agreement or instrument attached as an exhibit hereto or
     contemplated to be entered into hereby, all as listed on Schedule
     1.2(b)(ii) (collectively, the "Ancillary Agreements");

          (iii) all liabilities of the Seller for any Taxes relating to periods
     preceding the Closing Date;

          (iv) all liabilities and obligations of the Seller under any
     contracts, agreements or instruments which are not Assigned Contracts
     unless assumed pursuant to Section 1.2(a)(i) or (ii);

          (v) all obligations of the Seller incurred or arising prior to the
     Closing under the Assigned Contracts and required to be satisfied prior to
     the Closing, and all liabilities for any breach or default by the Seller
     prior to the Closing under

                                       -5-

<PAGE>

     any Assigned Contract, which obligations shall remain with the Seller even
     if their existence does not become known until after the Closing;

          (vi) all obligations of the Seller for repair, replacement or return
     of products shipped prior to the Closing, except as set forth in Section
     1.2(a)(v);

          (vii) all liabilities of the Seller for any product liability claim
     relating to products shipped prior to the Closing (other than certain
     product warranty claims under Section 1.2)(a)(v));

          (viii) all liabilities and obligations of the Seller arising out of
     events, conduct or conditions existing or occurring prior to the Closing
     Date that constitute a violation of or noncompliance with any law, rule or
     regulation, any judgment, decree or order of any Governmental Entity or any
     Permit;

          (ix) all liabilities resulting from (A) any releases of any Materials
     of Environmental Concern (as defined in Section 2.17(b)) into the
     environment in connection with the operation of the Business by the Seller
     or any predecessor business or company prior to the Closing Date; (B) the
     existence of any Materials of Environmental Concern at any site on which
     the business or operations of the Business or any predecessor business or
     company was conducted prior to the Closing Date; (C) any release of any
     Materials of Environmental Concern at any location if such release, under
     any Environmental Law, results in liability on the part of the Seller or
     any predecessor business or company; or (D) any violation of any
     Environmental Law by the Seller or any predecessor business or company
     which occurred prior to the Closing Date;

          (x) all liabilities of the Seller for injury to or death of persons or
     damage to or destruction of property occurring prior to the Closing
     (including, without limitation, any workers compensation claim);

          (xi) except as otherwise provided in any of the Assigned Contracts,
     Sections 1.2(a)(iv) and 6.8, all liabilities and obligations of the Seller
     for all compensation and benefits accrued by employees of the Seller
     employed in the Business prior to the Closing, including without
     limitation, accrued vacation time and sick leave, premiums or benefits
     under any Employee Benefit Plan (as defined in Section 2.16(a)) and
     severance pay. Without limiting the foregoing, the Buyer shall not assume
     any liabilities of the Seller for medical, dental and disability (both
     long-term and short-term) benefits (other than sick pay, to the extent set
     forth in Section 6.8), whether insured or self-insured,

                                       -6-

<PAGE>

     owed to employees or former employees of the Seller based upon (A) exposure
     to conditions in existence prior to the Closing or (B) disabilities
     existing prior to the Closing (including any such disabilities which may
     have been aggravated following the Closing); and

          (xii) all liability of the Seller arising out of any claim, suit,
     action, arbitration, proceeding, investigation or other similar matter
     which commenced or relates to the ownership of the Acquired Assets or the
     operation of the Business on or prior to the Closing.

     (c) The Buyer hereby agrees that all obligations and liabilities assumed
pursuant to Section 1.2(a) shall be paid promptly by the Buyer in accordance
with their respective terms in the Ordinary Course of Business.

     1.3 Purchase Price.

     (a) Subject to adjustment pursuant to Section 1.6, the purchase price to be
paid by the Buyer for the Acquired Assets shall be $7,893,000, payable, at the
Seller's option, by wire transfer or other delivery of immediately available
funds which shall be disbursed as set forth in Section 1.3(b). Such amount, as
it may be adjusted pursuant to Section 1.6, is referred to as the "Purchase
Price."

     (b) At the Closing, the Buyer shall pay (i) to the Seller the sum of
$6,793,000 of the Purchase Price, (ii) to State Street Bank & Trust Company, as
escrow agent (the "Escrow Agent"), the sum of $1,000,000 of the Purchase Price,
which, together with interest thereon, is referred to as the "Escrow Fund" and
(iii) to the Escrow Agent the sum of $100,000, which, together with interest
thereon, is referred to as the "Second Escrow Fund." The Escrow Fund shall be
maintained by the Escrow Agent in an interest-bearing escrow account and held in
escrow pursuant to the terms of an escrow agreement substantially in the form
attached hereto as Exhibit A. The Escrow Fund shall be disbursed as follows:
Payment shall be made to the Buyer to the extent of any final determination of
either (A) an adjustment to the Purchase Price determined in accordance with
Section 1.6 of this Agreement or (B) any obligation of the Seller to the Buyer
pursuant to Article VII of this Agreement. Six months from the Closing Date, the
Escrow Agent shall pay to the Seller an amount equal to $500,000 minus all
amounts payable by the Escrow Agent to the Buyer as a result of a final
determination pursuant to Section 1.6 or any bona fide unresolved claims
pursuant to Article VII of this Agreement. Twelve months from the Closing Date,
the Escrow Agent shall pay to the Seller the entire remaining Escrow Fund less
the


                                       -7-

<PAGE>

amount of any bona fide unresolved claims. In the event that all of the Escrow
Fund is not paid to the Seller twelve months from the Closing Date as a result
of a bona fide unresolved claim, the Escrow Agent shall, within five (5) days
after a final determination of all bona fide unresolved claims made by the Buyer
pursuant to Article VII, pay to the Seller the balance of the Escrow Fund after
satisfying any obligations to the Buyer as a result of a final determination of
such bona fide unresolved claims.

     (c) The Second Escrow Fund shall be maintained by the Escrow Agent in an
interest-bearing account and held in escrow pursuant to the terms of an escrow
agreement substantially in the form of Exhibit A-1 to this Agreement. The Second
Escrow Fund shall be disbursed as set forth in this Section 1.3(c). Attached to
this Agreement as Schedule 1.3(c) is a list of fixed assets (the "Grant Assets")
which are in the possession of Aster (Ireland) Ltd., a Bermuda corporation
("Aster Ireland"), and which are subject to a 1989 grant from the Industrial
Development Agency of Ireland (the "IDA"). Pursuant to an agreement between
Aster Ireland and the IDA, Aster Ireland is prohibited from transferring title
to the Grant Assets to the Buyer without the written approval of the IDA.
Although the Grant Assets are a part of the Acquired Assets, title to the Grant
Assets will not be transferred to Buyer at Closing. In the event that the Seller
shall not have received approval of the IDA and transferred the Grant Assets to
the Buyer not later than six months after the Closing Date, then, in such event,
the Second Escrow Fund shall be paid over to the Buyer and the Seller shall
continue to own the Grant Assets and such assets will not be a part of the
Acquired Assets. In the event that title to the Grant Assets is transferred to
Buyer prior to the expiration of such six month period, the Second Escrow Fund
shall be immediately paid to the Seller. On the Closing Date, the Buyer may, at
its option, have a representative present at the premises of Aster Ireland to
confirm the presence of the Grant Assets on the Closing Date.

     1.4 The Closing.

     (a) The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109, commencing at 9:00 a.m. on March 15, 1996, or on
such later date as the parties shall mutually agree (the "Closing Date").

     (b) At the Closing:

          (i) the Seller shall deliver to the Buyer the certificates,
     instruments and documents referred to in Section 5.1;

                                         -8-

<PAGE>

          (ii) the Buyer shall deliver to the Seller the certificates,
     instruments and documents referred to in Section 5.2;

          (iii) the Seller shall execute and deliver to the Buyer a bill of sale
     substantially in the form attached hereto as Exhibit B and execute and
     deliver or obtain, as appropriate, such other instruments of conveyance
     (e.g., trademark assignments, patent assignments, copyright and other
     intellectual property licenses) as the Buyer may reasonably request in
     order to effect the sale, transfer, conveyance and assignment to the Buyer
     of valid ownership of the Acquired Assets;

          (iv) the Buyer shall execute and deliver to the Seller an instrument
     of assumption of liabilities substantially in the form attached hereto as
     Exhibit C and such other instruments as the Seller may reasonably request
     in order to effect the assumption by the Buyer of the Assumed Liabilities;

          (v) the Buyer shall pay to the Seller the Purchase Price by payments
     to the Seller and the Escrow Agent as specified in Section 1.3;

          (vi) subject to the provisions of Section 2.7(b), the tangible assets
     being purchased by the Buyer shall be purchased on a "where is" basis, and,
     on the Closing Date, the Buyer shall have the right to possession and
     control of such assets; and

          (vii) the Buyer and the Seller shall execute and deliver to each other
     a cross-receipt evidencing the transactions referred to above.

     1.5 Allocation of Purchase Price. The Buyer and the Seller agree to
allocate the Purchase Price among the Acquired Assets and the noncompetition
agreement set forth in Section 6.3 hereof for all purposes (including financial
accounting and tax purposes) in accordance with the allocation schedule attached
hereto as Schedule 1.5. The parties acknowledge that such allocation has been
made in the manner required by 1060 of the Code (as defined in Section 2.7).

     1.6 Post-Closing Adjustments. The Purchase Price set forth in Section 1.3
shall be subject to adjustment after the Closing Date as follows:

          (a) Within 120 days after the Closing Date, the Buyer shall prepare
     and deliver to the Seller a statement (the "Initial Closing Statement")
     setting forth (i) the Inventory and Accounts Payable transferred to or
     assumed by the Buyer at the Closing,

                                         -9-

<PAGE>

     (ii) Fixed Assets which were included on Schedule 1.1(a)(i) but were not
     delivered to the Buyer at the Closing and (iii) Fixed Assets which were not
     listed on Schedule 1.1(a)(i) but were delivered to the Seller at the
     Closing. The Initial Closing Statement shall set forth the aggregate value
     of the Inventory attaching supporting documentation, and the value of each
     Fixed Asset listed therein. Such assets shall be valued as follows:

          (i) Inventory shall be valued as set forth on Schedule 1.1(a)(ii) of
     this Agreement, with any Inventory not included on such schedule being
     valued at the Seller's book value, without any reduction for reserves, with
     the book value of any work in process being the value set forth on the
     Seller's general ledger in the Ordinary Course of Business, as of the close
     of business on the business day immediately preceding the Closing Date, the
     method of determining the value of such work in process to be determined in
     the same manner as the value of work in process set forth in Schedule
     1.1(a)(ii) of this Agreement, which was $193,000.

          (ii) Fixed Assets shall be valued at the Seller's net book value or,
     to the extent Seller's net book value is not specifically set forth on
     Schedule 1.1(a)(i) as of the date of this Agreement, the Parties shall use
     their best efforts to agree upon the fair market value of each such Fixed
     Asset, which fair market value will be determined after a deduction for
     ordinary wear and tear.

          (b) The Seller shall deliver to the Buyer within 30 days after
     receiving the Initial Closing Statement a detailed statement describing its
     objections (if any) thereto. Failure of the Seller to so object to the
     Initial Closing Statement shall constitute acceptance thereof, whereupon
     the Initial Closing Statement shall be deemed to be the Closing Statement.
     The Buyer and the Seller shall use reasonable efforts to resolve any such
     objections, but if they do not reach a final resolution within 15 days
     after the Buyer has received the statement of objections, the Buyer and the
     Seller shall select a "Big Six" accounting firm which is not engaged by
     either party (the "Neutral Accountants") mutually acceptable to them to
     resolve any remaining objections. If the Buyer and the Seller are unable to
     agree on the choice of the Neutral Accountants, the selection of such Big
     Six accounting firm shall be made in accordance with the rules then
     obtaining of the American Arbitration Association in Boston, Massachusetts.
     The Neutral Accountants promptly shall determine the computation of the Net
     Asset Difference (as hereinafter defined) in the manner set forth in this
     Section 1.6. The determination of Net Asset Difference by the Neutral
     Accountants shall be conclusive and binding upon the Buyer and the Seller;
     provided, however, that the Neutral Accountants shall have no power or
     authority to modify or

                                        -10-

<PAGE>

     amend the provisions of this Agreement. The provisions of Articles VII and
     X shall not apply to this Section 1.6.

          (c) The Buyer and the Seller shall share equally the fees and expenses
     of the Neutral Accountants in connection with the resolution of any dispute
     pursuant to Section 1.6(b) of this Agreement.

          (d) The "Net Asset Difference" shall mean the value of the Inventory
     transferred to the Buyer on the Closing Date, minus (i) the Accounts
     Payable assumed by the Buyer on the Closing Date, minus (ii) the value of
     any Fixed Assets listed on Schedule 1.1(a)(i) which were not delivered to
     the Buyer, plus (iii) the value of any Fixed Assets which are not listed on
     Schedule 1.1(a)(i) but were delivered to the Buyer, all valued in the
     manner set forth in Section 1.6(a). If the Net Asset Difference is either
     greater or less than $2,116,000 by more than $100,000, then, if there is an
     excess, the Buyer shall pay the Seller the amount of the excess, or, if
     there is a deficiency, the Escrow Agent shall pay to the Buyer from the
     Escrow Fund the amount of such deficiency. Payments pursuant to this
     Section 1.6(d) shall bear interest from the Closing Date at the rate of
     interest announced by Citibank N.A. on the Closing Date as its prime rate.
     The Seller's obligation to the Buyer, and the Buyer's obligation to the
     Seller, pursuant to this Section 1.6(d) shall not exceed $1,000,000. Any
     payment pursuant to this Section 1.6(d) shall be made by wire transfer or
     other transfer of immediately available funds, as the payee may request.
     For example, if the Net Asset Difference is $3,000,000, then the Buyer
     shall pay the Seller $784,000 ($3,000,000 - $100,000 - $2,116,000 =
     $784,000). If the Net Asset Difference is $1,600,000, then the Escrow Agent
     shall pay to the Buyer $416,000 ($2,116,000 - $100,000 - $1,600,000 =
     $416,000).

          (e) If the Purchase Price is adjusted pursuant to this Section 1.6,
     the allocation of the Purchase Price among the Acquired Assets as set forth
     in Schedule 1.5 attached hereto shall be modified to reflect increases or
     decreases in the various asset categories which give rise to such
     adjustments.

     1.7 Further Assurances. At any time and from time to time after the
Closing, at the request of either Party, the other Party shall, without further
consideration, execute and deliver such other instruments of sale, transfer,
conveyance, assignment and assumption, and take such action as the requesting
Party may reasonably request, in order to effectuate the terms of this
Agreement.




                                        -11-

<PAGE>

                                   ARTICLE II

                    REPRESENTATIONS AND WARRANTIES OF THE SELLER

     The Seller represents and warrants to Buyer that the statements contained
in this Article II are true and correct, except as set forth in the disclosure
schedule attached hereto (the "Disclosure Schedule"). For the purposes of this
Article II, all representations and warranties of the Seller shall be deemed to
have been made by Porta and, to the extent applicable, each and every
Subsidiary, jointly and severally.

     2.1 Organization, Qualification and Corporate Power. The Seller is a
corporation duly organized, validly existing and in corporate standing under the
laws of the state of its incorporation. The Seller is duly qualified to conduct
business and is in corporate and tax good standing under the laws of each
jurisdiction where the failure to so qualify or be in good standing would have a
material adverse effect on the Business. The Seller has all requisite corporate
power and authority to carry on the Business and to own and use the properties
owned and used by it in the Business.

     2.2 Authority. The Seller has all requisite power and authority to execute
and deliver this Agreement and the Ancillary Agreements and to perform its
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Ancillary Agreements and the performance by the Seller of this
Agreement and the Ancillary Agreements and the consummation by the Seller of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Seller. This
Agreement has been duly and validly executed and delivered by the Seller and
constitutes a valid and binding obligation of the Seller, enforceable against
the Seller in accordance with its terms.

     2.3 Noncontravention. Neither the execution and delivery of this Agreement
or the Ancillary Agreements by the Seller, nor the consummation by the Seller of
the transactions contemplated hereby or thereby, will (a) conflict with or
violate any provision of the certificate of incorporation or by-laws of the
Seller, (b) except as set forth in Section 2.3 of the Disclosure Schedule,
require on the part of the Seller any filing with, or any permit, authorization,
consent or approval of, any Governmental Entity, (c) conflict with, result in a
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any material contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or

                                        -12-

<PAGE>

mortgage for borrowed money, instrument of indebtedness, Security Interest (as
defined below) or other arrangement to which the Seller is a party or by which
the Seller is bound or to which any of its assets is subject relating to the
Business, (d) result in the imposition of any Security Interest upon any of the
Acquired Assets except those imposed upon or resulting from the Buyer's actions,
conduct or agreements or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Seller or any of its properties or
assets. For purposes of this Agreement, "Security Interest" means any mortgage,
pledge, security interest, encumbrance, charge, judgment, order, decree,
stipulation, injunction or other lien (whether arising by contract or by
operation of law).

     2.4 Subsidiaries. The Subsidiaries are the only corporations, partnerships,
joint ventures or other entities owned by Porta that are engaged in the Business
and that own any of the Acquired Assets.

     2.5 Actions. Since December 1, 1995, the Seller has not taken any of the
actions set forth in paragraphs (a) through (g) of Section 4.2.

     2.6 Tax Matters. The Seller has filed all federal, state and local tax
returns which are required to be filed and has paid all taxes, interest,
penalties, assessments and deficiencies which have become due or which had been
claimed to be due and which relate to the Acquired Assets or the Business. There
are no liens for taxes on the Acquired Assets. As used herein, "Taxes" means all
income, franchise, real estate, sales, use and withholding taxes and other
employee benefits, taxes or imposts relating to the Acquired Assets or the
Business. None of the Acquired Assets is property that is required to be treated
as being owned by any other person pursuant to the safe harbor lease provisions
of former Section 168(f)(8) of the Internal Revenue Code of 1986, as amended
(the "Code"). None of the Acquired Assets is "tax exempt use property" within
the meaning of Section 168(h) of the Code. None of the Acquired Assets directly
or indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code. The Seller is not a person other than a United States person
within the meaning of the Code. The transactions contemplated herein are not
subject to tax withholding under Section 3406 of the Code, under subchapter A of
chapter 3 of the Code, or under any other provision of law.

     2.7 Ownership and Condition of Assets.

     (a) The Seller is the true and lawful owner of, and has good title to, all
of the Acquired Assets, free and clear of all Security Interests, except as set
forth in Section 2.7(a) of the

                                        -13-

<PAGE>

Disclosure Schedule. Upon execution and delivery by the Seller to the Buyer of
the instruments of conveyance referred to in Section 1.4(b)(iii), the Buyer will
become the true and lawful owner of, and will receive good title to, the
Acquired Assets, free and clear of all Security Interests other than those set
forth in Section 2.7(a) of the Disclosure Schedule.

     (b) The Acquired Assets are suitable for the purpose for which they are
intended for the conduct of the Business as presently conducted. The tangible
Acquired Assets are generally, in the aggregate, free from material defects,
have been maintained in accordance with normal industry practice, are in good
operating condition and repair (subject to normal wear and tear) and are
suitable for the purposes for which they presently are used.

     (c) To the best of Seller's knowledge, the Acquired Assets represent all of
the assets of such kind of the Seller and its Affiliates that are used solely in
the Business.

     2.8 Intellectual Property.

     (a) Except as set forth in Schedule 2.8(a) of the Disclosure Schedule, (i)
the Seller owns or has the right to use all Intellectual Property necessary for
the operation of the Business as presently conducted, and, to the Seller's best
knowledge, the Intellectual Property constitutes substantially all intellectual
property used in the Business and (ii) upon execution and delivery by the Seller
to the Buyer of the instruments of conveyance referred to in Section
1.4(b)(iii), the Intellectual Property will be owned or available for use by the
Buyer. To the best knowledge of the Seller, (i) no other person or entity has
any rights to any of the Intellectual Property used in the Business (except
pursuant to agreements or licenses specified in Section 2.8(c) or 2.8(d) of the
Disclosure Schedule) and (ii) no other person or entity is infringing, violating
or misappropriating any of the Intellectual Property owned by the Seller and
used in the Business.

     (b) To the best knowledge of the Seller, except as set forth on Schedule
2.8(a) of the Disclosure Schedule, the business, operations and activities of
the Business as presently conducted have not infringed or violated, or
constituted a misappropriation of, and do not now infringe or violate, or
constitute a misappropriation of, any Intellectual Property rights of any other
person or entity; and the Seller has not received any complaint, claim or notice
alleging any such infringement, violation or misappropriation.

     (c) Section 2.8(c) of the Disclosure Schedule and Schedule 1.1(a)(iii)
together identify (i) each patent or patent

                                      -14-

<PAGE>

registration which is being transferred by the Seller to the Buyer pursuant to
this Agreement, (ii) each pending patent application or application for
registration which the Seller has made with respect to any Intellectual
Property, and (iii) each license or other agreement pursuant to which the Seller
has granted any rights to any third party with respect to any such Intellectual
Property. To the best of its knowledge, the Seller has delivered to the Buyer
correct and complete copies of all such patents, registrations, applications,
licenses and agreements (as amended to date) and has made available to the Buyer
correct and complete copies of all other written documentation evidencing
ownership of, and any claims or disputes relating to, each such item. Except as
set forth in Section 2.8(c) of the Disclosure Schedule, with respect to each
such item of Intellectual Property that the Seller owns, the Seller has not
agreed to indemnify any person or entity for or against any infringement,
misappropriation or other conflict with respect to such item.

     (d) Section 2.8(d) of the Disclosure Schedule identifies each item of
Intellectual Property used exclusively in connection with the operation of the
Business that is owned by a party other than the Seller, and the absence of
which would have a material adverse effect on the continued operation of the
Business as presently conducted. The Seller has supplied the Buyer with correct
and complete copies of all licenses, sublicenses or other agreements (as amended
to date) pursuant to which the Seller uses such Intellectual Property, all of
which are listed on Section 2.8(d) of the Disclosure Schedule. Except as set
forth in Section 2.8(d) of the Disclosure Schedule, with respect to each such
item of Intellectual Property:

          (i) the license, sublicense or other agreement, covering such item is
     legal, valid, binding, enforceable and in full force and effect;

          (ii) such license, sublicense or other agreement, the absence of which
     would have a material adverse effect on the Business, is assignable by the
     Seller to the Buyer without the consent or approval of any party, and such
     license, sublicense or other agreement will continue to be in full force
     and effect without acceleration immediately following the Closing in
     accordance with the terms thereof as in effect prior to the Closing;

          (iii) with regard to such license, sublicense or other agreement, the
     Seller is not in breach or default in any material respect, and no event
     has occurred which with notice or lapse of time would constitute a breach
     or default or permit termination, modification or acceleration thereunder;


                                      -15-

<PAGE>

          (iv) to the Seller's best knowledge, the underlying item of
     Intellectual Property is not subject to any outstanding judgment, order,
     decree, stipulation or injunction; and

          (v) the Seller has not agreed to indemnify any person or entity for or
     against any interference, infringement, misappropriation or other conflict
     with respect to such item.

     2.9 Real Property; Leases. Section 2.9 of the Disclosure Schedule lists the
Assigned Contracts that are real property leases or subleases. The Seller has
delivered to the Buyer correct and complete copies of the leases and subleases
(as amended to date) listed in Section 2.9 of the Disclosure Schedule. With
respect to each lease and sublease listed in, and except as set forth in,
Section 2.9 of the Disclosure Schedule:

          (a) to the best of its knowledge, the lease or sublease is legal,
     valid, binding, enforceable and in full force and effect;

          (b) the lease or sublease is assignable by the Seller to the Buyer
     without the consent or approval of any party;

          (c) with regard to the lease or sublease, the Seller is not in
     material breach or default, and no event has occurred which, with notice or
     lapse of time, would constitute a material breach or default or permit
     termination, modification, or acceleration thereunder;

          (d) there are no material disputes, oral agreements or forbearance
     programs in effect as to the lease or sublease;

          (e) the Seller has not assigned, transferred, conveyed, mortgaged,
     deeded in trust or encumbered any interest in the leasehold or
     subleasehold; and

          (f) all facilities leased or subleased thereunder are supplied with
     utilities.

     2.10 Contracts.

     (a) Section 2.10 of the Disclosure Schedule lists the following written
arrangements and agreements of the Seller which relate to the Acquired Assets or
the Business:

          (i) any written arrangement (or group of related written arrangements)
     for the lease of personal property from or to third parties providing for
     lease payments in excess of $25,000 per annum;


                                      -16-

<PAGE>

          (ii) any written arrangement (or group of related written
     arrangements), in each case involving more than $25,000, for the purchase
     or sale of raw materials, commodities, supplies, products or other personal
     property or for the furnishing or receipt of services (A) which calls for
     performance over a period of more than one year or (B) in which the Seller
     has granted manufacturing rights, "most favored nation" pricing provisions
     or marketing or distribution rights relating to any products or territory
     or has agreed to purchase a minimum quantity of goods or services or has
     agreed to purchase goods or services exclusively from a certain party;

          (iii) any written arrangement establishing a partnership or joint
     venture;

          (iv) any written arrangement (or group of related written
     arrangements) under which the Seller has created, incurred, assumed, or
     guaranteed (or may create, incur, assume, or guarantee) indebtedness
     (including capitalized lease obligations) involving more than $25,000 or
     under which it has imposed (or may impose) a Security Interest on any of
     the Acquired Assets, tangible or intangible;

          (v) any written arrangement concerning confidentiality or
     noncompetition; and

          (vi) any other written arrangement (or group thereof) not entered into
     in the Ordinary Course of Business under which the consequences of a
     default or termination would have a material adverse effect on the Business
     taken as a whole.

     (b) To the best of its knowledge, the Seller has delivered to the Buyer a
correct and complete copy of each written arrangement (as amended to date)
listed in Section 2.10 of the Disclosure Schedule. With respect to each written
arrangement so listed, to the best of its knowledge: (i) the written arrangement
is legal, valid, binding and enforceable and in full force and effect; (ii) the
written arrangement is assignable by the Seller to the Buyer (or the Seller may
enter into a subcontracting arrangement with the Buyer with regard to such
written arrangement) without the consent or approval of any party (except as set
forth in Section 2.10 of the Disclosure Schedule); and (iii) the Seller is not
in material breach or default, and no event has occurred which with notice or
lapse of time would constitute a material breach or default or permit
termination or acceleration under the written arrangement. To the best of its
knowledge, the Seller is not a party to any oral contract, agreement or other
arrangement which, if reduced to written form, would be required to be listed in
Section 2.10 of the Disclosure Schedule under the terms of this Section 2.10.

                                        -17-

<PAGE>

     2.11 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Seller relating to the Acquired Assets or the
Business.

     2.12 Insurance. Section 2.12 of the Disclosure Schedule sets forth a true,
correct and complete list of all insurance policies insuring the Acquired Assets
or the Business, specifying the type of coverage, the amount of coverage, the
premium, the insurer and the expiration date of each such policy (collectively,
the "Insurance Policies") and all claims made under such Insurance Policies
relating to the Acquired Assets or the Business since January 1, 1995. True,
correct and complete copies of all of the Insurance Policies have been
previously delivered by the Seller to the Buyer. Except as set forth on Section
2.12 of the Disclosure Schedule, no cancellation, amendment or increase of
deductibles, percentages or premiums is threatened with respect to the Insurance
Policies that would have a material adverse effect on the Business or the
Acquired Assets.

     2.13 Litigation. Section 2.13 of the Disclosure Schedule identifies, and
contains a brief description of, (a) any unsatisfied judgment, order, decree,
stipulation or injunction and (b) any claim, complaint, action, suit,
proceeding, hearing or investigation of or before any Governmental Entity or
before any arbitrator, in each case, relating to or affecting the Acquired
Assets or the Business which is currently pending or, to the best of Seller's
knowledge, threatened (all of the foregoing in this clause (b) being
collectively referred to as "Litigation"). Other than as set forth in Section
2.13 of the Disclosure Schedule, there is no such Litigation. None of the
complaints, actions, suits, proceedings, hearings and investigations set forth
in Section 2.13 of the Disclosure Schedule are likely to result in the
imposition of any material liability on the Buyer or have a material adverse
effect on the Business or the Acquired Assets.

     2.14 Product Warranty. No product manufactured, sold, leased or delivered
by the Seller in connection with the Business is subject to any guaranty,
warranty, right of return or other indemnity beyond the standard terms and
conditions of sale or lease, which are set forth in Section 2.14 of the
Disclosure Schedule or in one or more of the Assigned Contracts. Section 2.14 of
the Disclosure Schedule sets forth the aggregate expenses incurred by the Seller
in fulfilling its obligations under its guaranty, warranty, right of return and
indemnity provisions in connection with the Business during 1995.

     2.15 Employees. Schedule 1.2(a)(iv) contains a list of all Business
Employees, along with the position and the annual rate of compensation of each
such person, the severance payment required under this Agreement and the timing
of the payments (determined in

                                        -18-

<PAGE>

accordance with the Seller's severance policy set forth in Section 2.16(d) of
the Disclosure Schedule), and sick and vacation pay due such employee. Except as
set forth in Schedule 2.15 of the Disclosure Schedule, each Business Employee
has entered into a confidentiality and assignment of inventions agreement with
the Seller, a copy of which has previously been delivered to the Buyer and which
is assignable by the Seller to the Buyer. Except as set forth in Section 2.15 of
the Disclosure Schedule, the Seller is not a party to or bound by any collective
bargaining agreement relating to the Business, nor, since January 1, 1995, has
the Seller experienced any strikes, grievances, claims of unfair labor practices
or other collective bargaining disputes, in connection with the Business. The
Seller has no knowledge of any organizational effort made or threatened since
January 1, 1995 by or on behalf of any labor union with respect to the Business
Employees.

     2.16 Employee Benefits.

     (a) Section 2.16(a) of the Disclosure Schedule contains a complete and
accurate list of all Employee Benefit Plans (as defined below) maintained, or
contributed to, by the Seller, or any ERISA Affiliate (as defined below). For
purposes of this Agreement, "Employee Benefit Plan" means any "employee pension
benefit plan" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), any "employee welfare benefit plan"
(as defined in Section 3(1) of ERISA). For purposes of this Agreement, "ERISA
Affiliate" means any entity which is a member of (i) a controlled group of
corporations (as defined in Section 414(b) of the Code, (ii) a group of trades
or businesses under common control (as defined in Section 414(c) of the Code),
or (iii) an affiliated service group (as defined under Section 414(m) of the
Code or the regulations under Section 414(o) of the Code), any of which include
the Seller. Complete and accurate copies of all Employee Benefit Plans which
have been reduced to writing have been provided to the Buyer, and the Seller has
provided the Buyer with written summaries of any such plans which have not been
reduced to writing. All Employee Benefit Plans are in compliance in all material
respects with the currently applicable provisions of ERISA and the Code and the
regulations thereunder.

     (b) Except as set forth in Section 2.16(b) of the Disclosure Schedule, all
the Employee Benefit Plans that are intended to be qualified under Section
401(a) of the Code have received determination letters from the Internal Revenue
Service to the effect that such Employee Benefit Plans are qualified and the
plans and the trusts related thereto are exempt from federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code, no such determination
letter has been revoked and

                                        -19-

<PAGE>

revocation has not been threatened, and no such Employee Benefit Plan has been
amended since the date of its most recent determination letter or application
therefor in any respect, and no act or omission has occurred, that would
adversely affect its qualification or materially increase its cost.

     (c) Section 2.16(c) of the Disclosure Schedule discloses each agreement or
plan, including without limitation any stock option plan, stock appreciation
right plan, restricted stock plan, stock purchase plan, severance benefit plan,
or any Employee Benefit Plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.

     (d) Section 2.16(d) of the Disclosure Schedule sets forth the Seller's
severance policy.

     (e) The Parties agree that the provisions of this Section 2.16 shall apply
only to the United States Subsidiaries.

     2.17 Environmental Matters.

     (a) Except as set forth in Section 2.17(a) of the Disclosure Schedule, the
Seller has complied, and is as of the Closing Date in compliance, with all
Environmental Laws (as defined below) applicable to the Acquired Assets or the
Business, except for violations of Environmental Laws that do not, individually
or in the aggregate, have a material adverse effect on the assets, business,
financial condition or results of operations of the Business. On or about
February 27, 1996, all hazardous waste at the Seller's Hopkinton, Massachusetts
facility was removed by a hazardous waste transporter to an appropriate off-site
facility. There is no pending or, to the best knowledge of the Seller,
threatened civil or criminal litigation, written notice of violation, formal
administrative proceeding, or investigation, inquiry or information request by
any Governmental Entity, relating to any Environmental Law applicable to the
Acquired Assets or the Business, except for litigation, notices of violations,
formal administrative proceedings or investigations, inquiries or information
requests that will not, individually or in the aggregate, have a material
adverse effect on the assets, business, financial condition or results of
operations of the Seller and the Business as presently conducted. For purposes
of this Agreement, "Environmental Law" means any federal, state, regional,
county or local law, statute, rule or regulation relating to the environment or
occupational health and safety, including without limitation any statute,
regulation or order

                                      -20-

<PAGE>

pertaining to (i) treatment, storage, disposal, generation and transportation of
industrial, toxic or hazardous substances or solid or hazardous waste; (ii) air,
water and noise pollution; (iii) groundwater and soil contamination; (iv) the
release or threatened release into the environment of industrial, toxic or
hazardous substances, or solid or hazardous waste, including without limitation
emissions, discharges, injections, spills, escapes or dumping of pollutants,
contaminants or chemicals; (v) the protection of wild life, marine sanctuaries
and wetlands, including without limitation all endangered and threatened
species; (vi) storage tanks, vessels and containers; (vii) underground and other
storage tanks or vessels, abandoned, disposed or discarded barrels, containers
and other closed receptacles; (viii) health and safety of employees and other
persons; and (ix) manufacture, processing, use, distribution, treatment,
storage, disposal, transportation or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or oil or petroleum
products or solid or hazardous waste. As used above, the terms "release" and
"environment" shall have the meaning set forth in the federal Comprehensive
Environmental Compensation, Liability and Response Act of 1980 ("CERCLA").

     (b) Except as set forth in Section 2.17(b) of the Disclosure Schedule,
there have been no releases of any Materials of Environmental Concern (as
defined below) into the environment at any parcel of real property or any
facility formerly or currently owned, leased, operated or controlled by the
Seller at which the business or operations of the Business have been or are
currently conducted. With respect to any such releases of Materials of
Environmental Concern, the Seller has given all required notices to Governmental
Entities (copies of which have been provided to the Buyer). For purposes of this
Agreement, "Materials of Environmental Concern" means any chemicals, pollutants
or contaminants, hazardous substances (as such term is defined under CERCLA),
solid wastes and hazardous wastes (as such terms are defined under the federal
Resources Conservation and Recovery Act), toxic materials, oil or petroleum and
petroleum products or any other material subject to regulation under any
Environmental Law.

     (c) Set forth in Section 2.17(c) of the Disclosure Schedule is a list of
all environmental reports, investigations and audits (conducted by or on behalf
of the Seller, and whether done at the initiative of the Seller or directed by a
Governmental Entity) relating to premises currently owned, leased or operated by
the Seller at which the business or operations of the Business have been or are
currently conducted. Complete and accurate copies of each such report, or the
results of each such investigation or audit, have been provided to the Buyer.

                                      -21-

<PAGE>

     (d) Set forth in Section 2.17(d) of the Disclosure Schedule is a list of
all of the solid and hazardous waste transporters and treatment, storage and
disposal facilities that have been utilized by the Seller in connection with the
Business since January 1, 1995.

     2.18 Legal Compliance. To the best of Seller's knowledge, the Seller is
conducting the business and operations of the Business in compliance in all
material respects with all applicable federal, state, local and foreign laws,
regulations and orders. Except as set forth on Section 2.18 of the Disclosure
Schedule, the Seller has not since January 1, 1995 received any notice or
communication alleging a material violation affecting the Business from any
foreign, federal, state or local Governmental Entity.

     2.19 Permits. Section 2.19 of the Disclosure Schedule sets forth a list of
all Permits (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of leased real
property) issued to or held by the Seller relating to the Acquired Assets or the
Business. To the Seller's best knowledge, such listed Permits are the only
Permits that are required for the Seller to conduct the Business as presently
conducted, each such Permit is in full force and effect, and no suspension or
cancellation of any such Permit is threatened or pending. Except as set forth in
Section 2.19 of the Disclosure Schedule, each such Permit is assignable by the
Seller to the Buyer without the consent or approval of any party.

     2.20 Certain Business Relationships With Affiliates. Except for any Assumed
Liabilities and except as set forth on Section 2.20 of the Disclosure Schedule
or the other Disclosure Schedules hereto, neither the Seller (with respect to
its operations other than the Business) nor any Affiliate of the Seller (a) has
any claim or cause of action against the Seller in connection with the Business,
except salaries or other compensation, reimbursement of expenses, accrued
vacation time and severance obligations with respect to Business Employees as
described herein and in the Schedules hereto, or (b) owes any money to the
Seller in connection with the Business. Section 2.20 of the Disclosure Schedule
describes any transaction or relationships between the Seller (with respect to
its operations other than the Business) and its Affiliates, on the one hand, and
the Business, on the other hand, which have occurred since January 1, 1995 other
than transactions in the Ordinary Course of Business. For purposes of this
Agreement, the term "Affiliates" shall have the meaning ascribed to such term in
Rule 12b-2 promulgated under the Securities Exchange Act of 1934.



                                      -22-

<PAGE>

     2.21 Brokers' Fees. Except as set forth in Section 2.21 of the Disclosure
Schedule, the Seller has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.

     2.22 Customers and Suppliers. Section 2.22 of the Disclosure Schedule sets
forth a list of (a) each customer that accounted for more than 5% of the
revenues of the Business during the period from January 1, 1995 through November
30, 1995 and the amount of revenues accounted for by such customer during each
such period and (b) each supplier that is the sole supplier of any significant
material, product, component or service used in the Business.

     2.23 Government Contracts. To the best of Seller's knowledge, except as set
forth in Schedule 2.23 to the Disclosure Schedule, the Seller has not received
any notice that the Seller has been suspended or debarred or threatened
therewith from bidding on contracts or subcontracts with any Governmental Entity
in connection with its conduct of the Business; and the consummation of the
transactions contemplated by this Agreement will not result in any such
suspension or debarment of the Seller or the Buyer (excluding suspensions or
debarments resulting from the identity, actions or conduct of the Buyer). In
connection with its conduct of the Business, to the best of its knowledge, the
Seller has not been and is not now being audited or investigated by the United
States Government Accounting Office, the United States Department of Defense or
any of its agencies, the Defense Contract Audit Agency, the contracting or
auditing function of any Governmental Entity with which it is contracting, the
United States Department of Justice, the Inspector General of any United States
Governmental Entity, or any prime contractor with a Governmental Entity; nor, to
the best of its knowledge, has any such audit or investigation been threatened.
Except as set forth on Section 2.23 of the Disclosure Schedule, the Seller has
no agreements, contracts or commitments relating to the Business which require
it to obtain or maintain a security clearance with any Governmental Entity.

     2.24 Disclosure. The representations and warranties by the Seller contained
in this Article II, including the statements contained in the Disclosure
Schedule or any other document, certificate or other instrument delivered to or
to be delivered by or on behalf of the Seller pursuant to this Agreement, taken
as a whole, do not contain any untrue statement of a material fact or omit to
state any material fact necessary, in light of the circumstances under which it
was or will be made, in order to make such statements, taken as a whole, not
misleading.




                                        -23-

<PAGE>

                                   ARTICLE III

                   REPRESENTATIONS AND WARRANTIES OF THE BUYER

     The Buyer represents and warrants to the Seller as follows:

     3.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.

     3.2 Authorization of Transaction. The Buyer has all requisite power and
authority to execute and deliver this Agreement and the Ancillary Agreements and
to perform its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Ancillary Agreements by the Buyer and the performance
of this Agreement and the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby by the Buyer have been duly and
validly authorized by all necessary corporate action on the part of the Buyer.
This Agreement has been duly and validly executed and delivered by the Buyer and
constitutes a valid and binding obligation of the Buyer, enforceable against it
in accordance with its terms.

     3.3 Noncontravention. Neither the execution and delivery of this Agreement
or the Ancillary Agreements by the Buyer, nor the consummation by the Buyer of
the transactions contemplated hereby or thereby, will (a) conflict or violate
any provision of the articles of organization or by-laws of the Buyer, (b)
require on the part of the Buyer any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, (c) conflict with, result in
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of, create in any party any right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest or other arrangement to which the Buyer is a
party or by which it is bound or to which any of its assets is subject, or (d)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Buyer or any of its properties or assets.

     3.4 Brokers' Fees. Except as set forth in Section 3.4 of the Disclosure
Schedule, the Buyer has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.





                                        -24-

<PAGE>

                                   ARTICLE IV

                              PRE-CLOSING COVENANTS

     4.1 Notices and Consents.

     (a) The Seller shall use its reasonable efforts to obtain, at its expense,
all such material waivers, permits, consents, approvals or other authorizations
from third parties and Governmental Entities, and to effect all such
registrations, filings and notices with or to third parties and Governmental
Entities, as may be necessary in connection with the transactions contemplated
by this Agreement.

     (b) To the extent that the Seller's rights under any Assigned Contract or
any Acquired Asset to be assigned to Buyer hereunder may not be assigned (as a
result of either the provisions thereof, applicable law or the inability of the
Seller to obtain consent for such assignment in accordance with Section 4.1(a))
without the consent of another party which has not been obtained at the time of
the Closing (a "Non-Consented Assigned Asset"), this Agreement shall not
constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof or be unlawful, and the Seller, at its expense,
shall thereafter continue to use its reasonable efforts to obtain any such
required consent(s) as promptly as possible. To the maximum extent permitted by
law and the Non-Consented Assigned Asset, after the Closing and until such time,
if any, as the requisite consent shall be obtained, the Seller shall act as the
Buyer's agent in order to obtain for the Buyer the benefits under such
Non-Consented Assigned Asset and shall cooperate, to the maximum extent
permitted by law and the Non-Consented Assigned Asset, with the Buyer in any
other reasonable arrangement (including, without limitation, a subcontracting
arrangement) designed to provide such benefits to Buyer; and the Seller, at the
Buyer's discretion, control and expense, shall bring suit in the Seller's name
to protect all rights of the Parties under any such Non-Consented Assigned Asset
(so long as the Buyer shall advance costs and indemnify the Seller for any
liability of the Seller arising from such suit). The Buyer shall assume the
Seller's liabilities and obligations with respect to any Non-Consented Assigned
Assets only to the extent the Buyer obtains the benefit thereof under this
Section 4.1(b). Nothing in this Section 4.1(b) shall (i) relieve the Seller of
its obligation to obtain a consent to the assignment of an Assigned Contract as
a condition to Closing as set forth in Section 5.1(a) or (ii) affect the
Purchase Price.

     4.2 Operation of Business. Except as contemplated by this Agreement, during
the period from the date of this Agreement to

                                        -25-

<PAGE>

the Closing Date, the Seller shall use reasonable efforts to conduct the
operations of the Business in the Ordinary Course of Business in substantial
compliance with applicable laws and regulations and, to the extent consistent
therewith, use reasonable efforts (i) to preserve intact its current business
organization, keep its physical assets in current working condition, ordinary
wear and tear excepted, and (ii) keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it. In furtherance of the foregoing,
with respect to the Business, prior to the Closing, the Seller shall not,
without the written consent of the Buyer:

          (a) acquire, sell, lease, encumber or dispose of any assets relating
     to the Business, other than purchases and sales of assets in the Ordinary
     Course of Business;

          (b) create, incur or assume any debt not currently outstanding
     (including obligations in respect of capital leases) in connection with the
     Business, other than in the Ordinary Course of Business;

          (c) hire new Business Employees, enter into, adopt or amend any
     Employee Benefit Plan or any employment or severance agreement or
     arrangement relating to the Business Employees of the type described in
     Section 2.16 or increase in any manner the compensation or fringe benefits
     of, or materially modify the employment terms of, the Business Employees,
     generally or individually, or pay any Business Employee any benefit not
     required by the terms of any existing Employee Benefit Plan in effect on
     the date hereof;

          (d) mortgage or pledge any of the property or assets of the Business
     or subject any such assets to any Security Interest (except for the
     existing Security Interest of Foothill Capital Corporation), other than in
     the Ordinary Course of Business;

          (e) sell, assign, transfer, license or sublicense any Intellectual
     Property used in the Business, other than in the Ordinary Course of
     Business;

          (f) enter into, amend, terminate, take or omit to take any action that
     would constitute a violation of or default under, or waive any rights
     under, any material contract or agreement relating to the Business in
     excess of $25,000; or

          (g) make or commit to make any capital expenditure in excess of
     $25,000 per item, or total capital expenditures in excess of $50,000 in the
     aggregate, in connection with the Business.

                                      -26-

<PAGE>

     4.3 Full Access. The Seller shall permit representatives of the Buyer to
have full access (upon reasonable notice, at all reasonable times, and in a
manner so as not to interfere with the normal business operations of the Seller)
to all premises, properties, financial and accounting records, contracts, other
records and documents, and personnel, of or pertaining to the Business.

     4.4 Exclusivity. During the term of this Agreement, the Seller shall not,
and the Seller shall use its best efforts to cause its Affiliates and each of
its officers, directors, employees, representatives and agents (for so long as
such persons or entities remain in such capacities) not to, directly or
indirectly, encourage, solicit, initiate, engage or participate in discussions
or negotiations with any person or entity (other than the Buyer) concerning any
merger, consolidation, sale of material assets or other business combination
involving the Business. The Seller may enter into negotiations or any agreement
unrelated to the Business so long as such negotiations or agreements do not
prevent consummation of the transaction contemplated herein, and the Seller may
advise other parties of the terms of this Section 4.4.

     4.5 Bulk Transfers Law. The Buyer and the Seller each hereby waive
compliance with the provisions of the applicable bulk transfer statutes.


                                    ARTICLE V

                              CONDITIONS TO CLOSING

     5.1 Conditions to Obligations of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to the satisfaction, or waiver by the Buyer, of the following
conditions:

          (a) subject to the provisions of Section 4.1, the Seller shall have
     obtained all waivers, permits, consents, approvals or other authorizations
     from Governmental Entities the absence of which would render the Buyer
     unable to operate the Business substantially in the manner operated prior
     to the Closing, and all approvals, consents, authorizations and waivers
     from other third parties as set forth on Schedule 5.1(a) (collectively, the
     "Critical Consents") required for the Buyer to consummate the transactions
     contemplated.

          (b) the representations and warranties of the Seller set forth in
     Article II shall be true and correct in all material respects as of the
     Closing Date as if made as of the Closing Date,

                                      -27-

<PAGE>

     except for representations and warranties made as of a specific date, which
     shall be true and correct as of such specific date;

          (c) the Seller shall have performed or complied with in all material
     respects its agreements and covenants required to be performed or complied
     with under this Agreement as of or prior to the Closing Date;

          (d) no action, suit or proceeding shall be pending before any
     Governmental Entity wherein an unfavorable judgment, order, decree,
     stipulation or injunction would (i) prevent consummation of the
     transactions contemplated by this Agreement, (ii) cause the transactions
     contemplated by this Agreement to be rescinded following consummation, or
     (iii) materially adversely affect the right of the Buyer to own, operate or
     control any of the Acquired Assets or to conduct the Business as currently
     conducted, and no such judgment, order, decree, stipulation or injunction
     shall be in effect;

          (e) the Seller shall have delivered to the Buyer a certificate
     (without qualification) as to the compliance with each of the conditions
     specified in clauses (a), (b) and (c) of this Section 5.1;

          (f) the Buyer shall have received from counsel to the Seller an
     opinion addressed to the Buyer and dated as of the Closing Date
     substantially in the form of Exhibit D attached hereto;

          (g) the Seller shall have executed and delivered an agreement for the
     provision of transitional services (the "Transitional Services Agreement")
     substantially in the form of Exhibit E attached hereto;

          (h) the Acquired Assets shall be free and clear of all Security
     Interests and the Seller shall have obtained and delivered to the Buyer the
     full and complete release and discharge of the Security Interest of
     Foothill Capital Corporations in form and substance reasonably satisfactory
     to the Buyer; provided, however, that the Security Interest of the
     Industrial Development Agency of Ireland need not be discharged as long as
     $100,000 shall have been placed in the Escrow Fund pursuant to Section
     1.3(c) of this Agreement;

          (i) Porta and each Subsidiary shall have executed and delivered to the
     Buyer a certificate as to incumbency and resolutions of the Board of
     Directors (and, if required, stockholders) approving this Agreement and the
     consummation of the transactions contemplated hereby; and


                                      -28-

<PAGE>

          (j) all actions to be taken by the Seller in connection with the
     consummation of the transactions contemplated hereby and all certificates,
     opinions, instruments and other documents required to effect the
     transactions contemplated hereby shall be reasonably satisfactory in form
     and substance to the Buyer.

     5.2 Conditions to Obligations of the Seller. The obligation of the Seller
to consummate the transactions to be performed by it in connection with the
Closing is subject to the satisfaction, or waiver by the Seller, of the
following conditions:

          (a) the representations and warranties of the Buyer set forth in
     Article III shall be true and correct in all material respects as of the
     Closing Date as if made as of the Closing Date, except for representations
     and warranties made as of a specific date, which shall be true and correct
     as of such date;

          (b) the Buyer shall have performed or complied in all material
     respects with its agreements and covenants required to be performed or
     complied with under this Agreement as of or prior to the Closing Date,
     including payment of the Purchase Price in accordance with Section 1.3;

          (c) no action, suit or proceeding shall be pending wherein an
     unfavorable judgment, order, decree, stipulation or injunction would (i)
     prevent consummation of any transaction contemplated by this Agreement or
     (ii) cause any of the transactions contemplated by this Agreement to be
     rescinded following consummation;

          (d) the Buyer shall have delivered to the Seller a certificate
     (without qualification as to knowledge, materially or otherwise) as to the
     compliance with each of the conditions specified in clauses (a) and (b) of
     this Section 5.2;

          (e) the Seller shall have received from counsel to the Buyer an
     opinion addressed to the Seller and dated as of the Closing Date,
     substantially in the form of Exhibit F attached hereto;

          (f) the Buyer shall have executed and delivered the Transitional
     Services Agreement; and

          (g) all actions to be taken by the Buyer in connection with the
     consummation of the transactions contemplated hereby and all certificates,
     opinions, instruments and other documents required to effect the
     transactions contemplated hereby shall be reasonably satisfactory in form
     and substance to the Seller.



                                      -29-

<PAGE>

                                   ARTICLE VI

                             POST-CLOSING COVENANTS

     6.1 Proprietary Information. From and after the Closing, the Seller shall
hold in confidence, and shall use its best efforts to cause all of its
Affiliates (for so long as such persons or entities remain Affiliates) to hold
in confidence, all knowledge, information and documents of a confidential nature
or not generally known to the public with respect to the Business or the Buyer
(including without limitation the financial information, confidential technical
information or data relating to the materials, products or components sold, or
the services offered, in connection with the Business and names of customers of
the Business) and shall not disclose or make use of the same without the written
consent of the Buyer, except to the extent that such knowledge, information or
documentation (a) shall have become public knowledge other than through a breach
of this Agreement by the Seller, (b) is presently used by the Seller in any of
its businesses other than the Business, (c) is developed or obtained by the
Seller without violation of any confidentiality obligation or without reference
to such confidential information, (d) is independently developed by the Seller
without reference to such confidential information, or (e) is delivered by the
Seller pursuant to legal process, in which event the Seller shall promptly
advise the Buyer of such legal process.

     6.2 No Solicitation. For a period of 30 months after the Closing Date, the
Seller shall not, and shall use its best efforts to cause its Affiliates (for so
long as such persons and entities remain Affiliates) not to, either directly or
indirectly as a director, officer or employee or otherwise, solicit or attempt
to induce any Restricted Employee (as defined below) to terminate his or her
employment with the Buyer. For purposes of this Agreement, a "Restricted
Employee" shall mean any person who either (i) was an employee of the Buyer on
either the date of this Agreement or the Closing Date or (ii) was a Business
Employee on the Closing Date and received an employment offer from the Buyer on
or before the Closing Date which offer was accepted by such employee.

     6.3 Non-Competition; Referral of Customers.

     (a) For a period of 30 months after the Closing Date, the Seller shall not,
and shall use its best efforts to cause its Affiliates (for so long as such
persons and entities remain Affiliates) not to, either directly or indirectly,
as a stockholder, investor, partner, director, officer, employee, consultant or
otherwise, develop, manufacture, market, sell, perform or offer any material,
product, component or service in


                                      -30-

<PAGE>

the fiber optic business as conducted as the Business by the Seller as of the
Closing Date.

     (b) The Seller, for itself or on behalf of its employees and other
Affiliates (for so long as such persons and entities remain Affiliates), agrees
that the duration and geographic scope of the noncompetition provision set forth
in this Section 6.3 are reasonable. In the event that any court or arbitrator
determines that the duration or the geographic scope, or both, are unreasonable
and that such provision is to that extent unenforceable, the Parties agree that
the provision shall remain in full force and effect for the greatest time period
and in the greatest area that would not render it unenforceable. The Parties
intend that this noncompetition provision shall be deemed to be a series of
separate covenants, one for each and every county of each and every state of the
United States of America and every country or geopolitical subdivision of every
country outside the United States of America where this provision is intended to
be effective.

     (c) The Seller shall, and shall use its best efforts to cause its
Affiliates (for so long as such persons and entities remain Affiliates) to,
refer all inquiries regarding the Business and its products and services to the
Buyer. The Seller shall notify its Affiliates in writing promptly after the
Closing that the Business has been sold to the Buyer, and such notice shall
inform such Affiliates of the Seller's obligations under this Section 6.3(c).
Such notice shall be in form and substance reasonably satisfactory to the Buyer.

     6.4 Sharing of Data.

     (a) The Buyer shall have the right, at its cost and expense, for a period
of four years following the Closing Date to have reasonable access to such
books, records and accounts, including financial and tax information,
correspondence, production records, employment records and other records of the
Seller for the limited purposes of enabling the Buyer to comply with its
obligations under applicable securities, tax, environmental, employment or other
laws and regulations. During such four year period, the Seller shall not destroy
any such books, records or accounts retained by it without first providing the
Buyer with the opportunity to obtain or copy such books, records or accounts.

     (b) Promptly upon request by the Buyer made at any time following the
Closing Date, to the extent possible the Seller shall grant the Buyer the
opportunity to copy any and all files pertaining to the Acquired Assets or the
business or operations of


                                      -31-

<PAGE>

the Business held by any federal, state, county or local authorities, agencies
or instrumentalities.

     6.5 Use of Name. The Seller hereby authorizes the Buyer to use the names
Aster, Aster Ireland and all variations or phonetically similar names, and
agrees upon closing to discontinue using any such names and promptly to change
the name of any Affiliates of the Seller currently using any of them. In
addition, the Seller agrees that the Buyer may use the names "Criterion,"
"Porta" and variations or phonetically similar names only as follows: During a
transition period after the Closing not to exceed six months, the Buyer may use
such names to sell existing finished goods, finished goods completed pursuant to
the Transitional Services Agreement by the Seller for the Buyer and finished
goods contemplated from all work in process and raw materials of the Business as
of the Closing Date and to make tooling changes. Thereafter, until two years
from the Closing Date, the Buyer may use such names to liquidate such finished
goods which already bear such names.

     6.6 Cooperation in Litigation. From and after the Closing Date, each Party
shall fully cooperate with the other in the defense or prosecution of any
litigation or proceeding already instituted or which may be instituted hereafter
against or by such other Party relating to or arising out of the conduct of the
Business prior to or after the Closing Date (other than litigation arising out
of the transactions contemplated by this Agreement). The Party requesting such
cooperation shall pay the reasonable out-of-pocket expenses incurred in
providing such cooperation (including legal fees and disbursements) by the Party
providing such cooperation and by its officers, directors, employees and agents,
but shall not be responsible for reimbursing such Party or its officers,
directors, employees and agents, for their time spent in such cooperation.

     6.7 Accounts Receivable of the Seller. With respect to the Seller's
receivables shown on Schedule 6.7, and any others generated by the Business in
the Ordinary Course of Business from the date shown on Schedule 6.7 through the
Closing Date, that have not been paid or discharged on or before the Closing
Date (collectively the "Accounts Receivable"), all such Accounts Receivable
shall belong to the Seller and, to the extent the Buyer receives any payments on
account of such Accounts Receivable, such payments shall be promptly forwarded
to the Seller. Any receivables generated by the Business from and after the
Closing Date shall belong to the Buyer and, to the extent the Seller receives
any payments on account of such accounts receivable, such payments shall be
promptly forwarded to the Buyer.



                                      -32-

<PAGE>

     6.8 Business Employees. The Buyer shall, at its election with respect to
each Business Employee, either (i) offer employment to such Business Employee or
(ii) not offer employment to such Business Employee, in which event (and with
respect to any Business Employee who declines the Buyer's offer of employment)
the Buyer shall (A) pay to the Seller, at the Closing, an amount equal to the
aggregate severance payments due to such Business Employees as set forth on
Schedule 1.2(a)(iv) (such severance payments to be paid by the Buyer to the
Seller to exclude any related amounts owed or owing by the Seller to any
governmental agency or authority by the Seller or its Affiliates with respect to
FICA, medicare or otherwise), and (B) pay to such Business Employee an amount
equal to his or her proportionate share, as determined by the Seller, of accrued
vacation and sick pay for all such Business Employees; provided, however, that
the Buyer's obligation shall not exceed in the aggregate the lesser of one-half
of any such accrued vacation and sick pay for all such Business Employees or
$37,500. The full amount of such severance payments paid by the Buyer to the
Seller shall (less required withholding) be paid over by the Seller to the
Business Employees as hereafter provided in accordance with Schedule 1.2(a)(iv),
except with respect to Mr. Maiolo, whose severance obligations shall be paid out
over a 12-month period after the Closing in accordance with Mr. Maiolo's
severance arrangement with the Seller. Effective as of the Closing, or upon
termination of the Transitional Services Agreement in the case of Business
Employees performing services thereunder, the Seller shall terminate the
employment of each Business Employee who is not offered employment by the Buyer
or who is offered such employment but does not accept and shall make severance
payments to said persons. No severance shall be paid or payable by the Buyer
pursuant to this Agreement or the Seller's existing severance policy with
respect to any Business Employee who accepts employment with the Buyer. If the
Buyer offers employment, such employment shall be terminable by the Buyer at
will, except as to Business Employees whose contracts are included in the
Disclosure Schedule, as to whom the employment offer shall, unless other
arrangements are accepted by the Business Employee, be for the unexpired term of
the employment agreement, each of which shall be an Assumed Contract. The Buyer
shall offer each Business Employee to whom an offer of employment is made,
compensation not less than that currently earned and a benefit package
substantially equivalent to that presently provided to such employee. The Buyer
shall, subject to the terms of any Assumed Contract and the terms of this
Agreement, including its obligation to pay severance, have complete discretion
to change any of the terms or conditions of employment, compensation or benefits
relating to any such employee at any time and shall not be obligated to pay
severance benefits to any Business Employees who accept the Buyer's offer of
employment. If any Business Employee of the Seller who is hired pursuant to this
Section 6.8 by the Buyer becomes a participant in

                                      -33-

<PAGE>

any employee pension plan, such Business Employee shall be given credit under
such plan for vesting purposes only, with respect to the service of such
Business Employee with the Seller prior to becoming such a participant (and not
with respect to the accrual of benefits). The Seller hereby consents to the
hiring of such Business Employees by the Buyer and waives, with respect to the
employment by the Buyer of Business Employees, any claims or rights the Seller
may have against the Buyer or any such Business Employee under any
noncompetition, confidentiality or employment agreement, but only with respect
to the Business.

                                   ARTICLE VII

                                 INDEMNIFICATION

     7.1 Indemnification. Each Party (in such capacity, the "Indemnifying
Party") shall indemnify the other Party and their respective Affiliates (in such
capacity, the "Indemnified Party") in respect of, and hold the Indemnified Party
harmless against, any and all debts, obligations and other liabilities (whether
absolute, accrued, contingent, fixed or otherwise, or whether known or unknown,
or due or to become due or otherwise), monetary damages, fines, fees, penalties,
interest obligations, deficiencies, losses and expenses (including, without
limitation, amounts paid in settlement, interest, court costs, reasonable costs
of investigators, fees and reasonable expenses of attorneys, accountants,
financial advisors and other experts, and other expenses of litigation)
(collectively, "Damages") incurred or suffered by the Indemnified Party
resulting from, relating to or constituting:

          (a) a breach of any representation or warranty contained in this
     Agreement;

          (b) any failure to perform any covenant or agreement of the
     Indemnifying Party contained in this Agreement; or

          (c) any Retained Liabilities with respect to the Seller and any
     Assumed Liabilities with respect to the Buyer.

     7.2 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder, the Indemnified Party shall promptly notify the
Indemnifying Party of the claim and, when known, the facts constituting the
basis for such claim; provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party shall relieve the
Indemnifying Party from any liability or obligation hereunder except to the
extent of any damage or liability caused by or arising out of such failure. In
the event of any such claim for indemnification hereunder resulting from or in
connection with any claim made or legal proceedings commenced by a third party,
the notice to the

                                      -34-

<PAGE>

Indemnifying Party shall specify, if known, the amount or an estimate of the
amount of the liability arising therefrom. The Indemnified Party shall not
settle or compromise any claim by a third party for which it is seeking
indemnification hereunder without the prior written consent of the Indemnifying
Party (which shall not be unreasonably withheld).

     7.3 Defense by the Indemnifying Party. In connection with any claim for
indemnification hereunder resulting from or arising out of any claim made or
legal proceeding commenced by a third party, the Indemnifying Party, at its sole
cost and expense, may, upon written notice to the Indemnified Party given within
20 days after the date of the notice of the claim from the Indemnified Party
pursuant to Section 7.2, assume the defense of such claim or legal proceeding
with counsel approved by the Indemnified Party, which approval shall not be
unreasonably withheld, conditioned or delayed, if (i) the third party seeks
monetary damage only and (ii) an adverse resolution of the third party's claim
would not have a material adverse effect on the Indemnified Party. The Parties
hereby agree that Esanu Katsky Korins & Siger and Hale and Dorr are deemed to be
approved counsel hereunder. If the Indemnifying Party so assumes such a defense,
the Indemnified Party shall be entitled to participate in (but not control) such
defense, with its counsel and at its own expense (except that the Indemnified
Party will be responsible for the reasonable fees and expenses of the separate
counsel if the Indemnified Party concludes that the counsel the Indemnifying
Party has selected has a conflict of interest). In addition, if the Indemnifying
Party so assumes such defense, it shall take all steps necessary in the defense
or settlement thereof; provided however, that the Indemnifying Party shall not
consent to any settlement or to the entry of any judgment with respect to a
claim or legal proceeding which does not include a complete release of the
Indemnified Party from all liability with respect thereto or which imposes any
liability on the Indemnified Party without the written consent of the
Indemnified Party. If the Indemnifying Party does not assume the defense of any
such claim or legal proceeding, (a) the Indemnified Party may defend against
such claim or legal proceeding (with the Indemnifying Party responsible for the
reasonable fees and expenses of counsel for the Indemnified Party) in such
manner as it may deem appropriate, provided, however, the Indemnified Party
shall not be permitted to settle such claim or legal proceeding without the
prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed and (b) the Indemnifying party shall be
entitled to participate in (but not control) the defense of such action, with
its counsel and at its own expense. The Indemnifying Party shall not be required
to pay the fees and expenses of more than one counsel representing all
Indemnified Parties in any jurisdiction.

                                      -35-

<PAGE>

     7.4 Payment of Indemnification Obligation. All indemnification by the
Indemnifying Party hereunder shall be effected by payment of cash or delivery of
a cashier's or certified check in the amount of the indemnification liability.

     7.5 Survival and Limitation of Liability.

     (a) The representations, warranties, covenants and agreements of the
Parties set forth in this Agreement (i) shall survive the Closing and the
consummation of the transactions contemplated hereby and continue in full force
and effect until two years after the Closing Date and (ii) shall not be affected
by any examination made for or on behalf of the Buyer or the knowledge of any of
the Buyer's officers, directors, stockholders, employees or agents. If a notice
of a claim is given pursuant to Section 7.2 before expiration of the applicable
survival period, then (notwithstanding the expiration of such time period) all
representations and warranties applicable to such claim shall survive until, but
only for purposes of, the resolution of such claim.

     (b) Notwithstanding anything contained in this Agreement, the Buyer and the
Seller hereby acknowledge and agree that (i) other than a Purchase Price
adjustment pursuant to Section 1.6, no claim, action or proceeding shall arise
under this Agreement until Damages, in the aggregate, exceed $100,000, after
which all indemnification obligations of either party shall be due and payable
in full from the first dollar, and (ii) the aggregate maximum liability of each
of the Parties pursuant to this Agreement for a Purchase Price adjustment
pursuant to Section 1.6 shall be $1,000,000 and for any other actions, claims or
proceedings brought in connection with this Agreement shall be $5,000,000 (such
amount, the "Damages Limit"), and, accordingly, neither party shall be permitted
to seek, obtain or collect any judgment, arbitration award, damages award or
other remedy for breach of this Agreement or any of the terms, conditions,
representations, warranties, agreements or undertakings set forth herein in
excess of the Damages Limit (regardless of whether any claim, action, proceeding
or suit with respect to any such breach is styled, without limitation, as a
claim for indemnification, expectation damages, loss of profits, breach of
representations, warranties or covenants, other contract damages or monetary
loss). Notwithstanding the foregoing provisions of this Section 7.5(b), nothing
herein shall limit the liability of the Seller with respect to the Retained
Liabilities or the Buyer with respect to the Assumed Liabilities.

     7.6 Subsidiaries. For the purposes of this Article VII, any indemnification
obligation of the Seller shall be deemed to be a joint and several obligation of
Porta and each Subsidiary.

                                      -36-

<PAGE>

                                  ARTICLE VIII

                                   TERMINATION

     8.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Closing as provided below:

          (a) the Parties may terminate this Agreement by mutual written
     consent;

          (b) the Buyer may terminate this Agreement by giving written notice to
     the Seller in the event the Seller is in breach, and the Seller may
     terminate this Agreement by giving written notice to the Buyer in the event
     the Buyer is in breach, of any material representation, warranty, or
     covenant contained in this Agreement, which breach is not cured within 15
     days of the receipt of notice by the breaching Party delivered in
     accordance with the provisions of Section 11.7 of this Agreement;

          (c) the Buyer may terminate this Agreement by giving written notice to
     the Seller if the Closing shall not have occurred on or before the March
     15, 1996 by reason of the failure of any condition precedent under Section
     5.1 hereof (unless the failure results primarily from prior breach by the
     Buyer of any representation, warranty or covenant contained in this
     Agreement); or

          (d) the Seller may terminate this Agreement by giving written notice
     to the Buyer if the Closing shall not have occurred on or before March 15,
     1996 by reason of the failure of any condition precedent under Section 5.2
     hereof (unless the failure results primarily from a prior breach by the
     Seller of any representation, warranty or covenant contained in this
     Agreement).

     8.2 Effect of Termination. If either Party terminates this Agreement
pursuant to Section 8.1, all obligations of the Parties hereunder shall
terminate without any liability of either Party to the other Party (except for
any liability of either Party for breaches of this Agreement occurring prior to
such termination).


                                   ARTICLE IX

                                   DEFINITIONS

     For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.



                                      -37-

<PAGE>

             Defined Term                          Section
             ------------                          -------

             Accounts Receivable                   6.7
             Acquired Assets                       1.1(a)
             Affiliate                             2.20
             Ancillary Agreements                  1.2(b)(ii)
             Assigned Contracts                    1.1(a)(iv)
             Assumed Liabilities                   1.2(a)
             Aster Ireland                         1.3(c)
             Best Knowledge                        11.9
             Business                              Preliminary Statement
             Business Employees                    1.2(a)(iv)
             Buyer                                 Preliminary Statement
             CERCLA                                2.20(a)
             Closing                               1.4(a)
             Closing Statement                     1.6(b)
             Closing Date                          1.4(a)
             Code                                  2.6
             Critical Consents                     5.1(a)
             Damages                               7.1
             Damages Limit                         7.5(b)
             Disclosure Schedule                   Article II
             Employee Benefit Plan                 2.19(a)
             Environmental Law                     2.20(a)
             ERISA                                 2.19(a)
             ERISA Affiliate                       2.19(a)
             Escrow Agent                          1.3(b)
             Escrow Fund                           1.3(b)
             Excluded Assets                       1.1(b)
             Fixed Assets                          1.1(a)(i)
             Governmental Entity                   1.1(a)(vii)
             Grant Assets                          1.3(c)
             IDA                                   1.3(c)
             Initial Closing Statement             1.6(a)
             Intellectual Property                 1.1(a)(iii)
             Inventory                             1.1(a)(ii)
             Materials of Environmental Concern    2.20(b)
             Neutral Accountants                   1.6(b)
             Non-Consented Assigned Asset          4.2(b)
             November 30, 1995 Statement           1.2(a)(i)
             Ordinary Course of Business           1.2(a)(ii)
             Parties                               Introduction
             Permits                               1.1(a)(vi)
             Purchase Price                        1.3
             Restricted Employee                   6.2
             Retained Liabilities                  1.2(b)
             Second Escrow Fund                    1.3(c)
             Security Interest                     2.3
             Seller                                Introduction
             Taxes                                 2.7
             Transitional Services Agreement       5.1(g)

                                      -38-

<PAGE>

                                    ARTICLE X

                               DISPUTE RESOLUTION

     10.1 General. In the event that any dispute should arise between the Buyer
and the Seller with respect to any matter covered by this Agreement, other than
the calculation of the adjustment to the Purchase Price (as to which any dispute
shall be resolved solely as provided in Section 1.6), the Buyer and the Seller
shall resolve such dispute in accordance with the procedures set forth in this
Article 10, subject to the Damage Limit.

     10.2 Arbitration.

     (a) Either the Buyer or the Seller may submit any matter referred to in
Section 10.1 to arbitration by notifying the other Party, in writing, of such
dispute. Within 10 days after receipt of such notice, the Buyer and the Seller
shall jointly designate in writing one arbitrator to resolve the dispute;
provided, that if the Parties cannot agree on an arbitrator within such 10-day
period, the arbitrator shall be selected in accordance with the procedures of
the American Arbitration Association. The arbitrator so designated shall not be
an employee, consultant, officer, director, stockholder, counsel or accountant
of any Party or any Affiliate of any Party to this Agreement.

     (b) Within 15 days after the designation of the arbitrator, the arbitrator,
the Buyer and the Seller shall meet, at which time the Buyer and the Seller
shall be required to set forth in writing all disputed issues and a proposed
ruling on each such issue.

     (c) The arbitrator shall set a date for a hearing, which shall be no later
than 30 days after the submission of written proposals pursuant to Section
10.2(b), to discuss each of the issues identified by the Buyer and the Seller.
Each such party shall have the right to be represented by counsel. The
arbitration shall be governed by the Commercial Arbitration Rules of the
American Arbitration Association; provided, that the arbitrator shall have sole
discretion with regard to the admissibility of evidence, and the arbitration
shall have no power to alter or amend any provisions of this Agreement.

     (d) The arbitrator shall use his or her best efforts to rule on each
disputed issue within 30 days after the completion of the hearing described in
Section 10.2(c). The determination of the arbitrator as to the resolution of any
dispute shall be binding and conclusive upon all Parties. All rulings of the
arbitrator shall be in writing and shall be delivered to the Parties.

                                      -39-

<PAGE>

     (e) The attorneys' fees of the Parties in any arbitration shall be borne by
them or as determined by the arbitrator, together with the fees of the
arbitrator and the costs and expenses of the arbitration.

     (f) Any arbitration pursuant to this Section 10.2 shall be conducted in
Boston, Massachusetts. Any arbitration award may be entered in and enforced by
any court of competent jurisdiction and shall be final and binding upon the
Parties.

     (g) Notwithstanding the foregoing, nothing in this Section 10.2 shall be
construed as limiting in any way the right of a Party to seek injunctive relief,
with respect to any actual or threatened breach of this Agreement, from a court
of competent jurisdiction.


                                   ARTICLE XI

                                  MISCELLANEOUS

     11.1 Press Releases and Announcements. Neither Party shall issue any press
release or announcement relating to the subject matter of this Agreement without
the prior written approval of the other Party; provided, however, that either
Party may make any public disclosure it believes in good faith is required by
law or regulation (in which case the disclosing Party shall advise the other
Party and provide it with a copy of the proposed disclosure prior to making such
disclosure).

     11.2 No Third Party Beneficiaries. This Agreement (including, without
limitation, Section 6.8 hereof) shall not confer any rights or remedies upon any
person other than the Parties and their respective successors and permitted
assigns.

     11.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations and letters of intent
(including the letter of intent dated December 22, 1995) by or between the
Parties, written or oral, that may have related in any way to the subject matter
hereof; provided, however, that the non-disclosure provisions of the letter of
intent, dated December 22, 1995 by and between the Parties, and any other
non-disclosure agreements executed by the Parties, shall survive until the
Closing, whereupon they shall terminate, except that the Buyer's non-disclosure
obligations shall survive the Closing and remain in full force and effect with
respect to the businesses of the Seller other than the Business.


                                      -40-

<PAGE>

     11.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. Neither Party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided that the Buyer may assign its rights and
interests but not its obligations hereunder to an Affiliate of the Buyer.

     11.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

     11.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

     11.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered upon
receipt sent by U.S. registered or certified mail, return receipt requested,
postage prepaid, or by a reputable nationwide overnight courier service, with
receipt acknowledged in each case to the intended recipient as set forth below:

      If to the Seller:                       Copy to:
      -----------------                       --------

      Porta Systems Corp.                     Esanu Katsky Korins & Siger
      575 Underhill Boulevard                 605 Third Avenue
      Syosset, NY  11793                      New York, NY 10158
      Attention: Vincent F. Santulli          Telecopy: (212) 953-6899
                 Edward Kornfeld              Attention: Warren Esanu, Esq.


      If to the Buyer:                        Copy to:
      ----------------                        --------

      Augat Inc.                              Hale and Dorr
      89 Forbes Boulevard                     60 State Street
      Mansfield, MA  02048                    Boston, MA 02109
      Attention:  Mr. Ronald Hoover           Telecopy: (617)526-5000
                  John E. Lynch, Jr., Esq.    Attention:  Thomas E. Neely, Esq.


Either Party may also give any notice, request, demand, claim, or other
communication hereunder by personal delivery or telecopy, but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the individual for whom it is
intended.



                                      -41-

<PAGE>

Any notice sent by telecopy shall be followed by a confirmation copy sent by
reputable overnight business courier. Either Party may change the address to
which notices, requests, demands, claims, and other communications hereunder are
to be delivered by giving the other Party notice in the manner herein set forth.

     11.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts, without
regard to any otherwise applicable conflict of laws principles.

     11.9 Best Knowledge. For the purposes of this Agreement, the term "best of
Seller's knowledge" or words of like import shall mean the best knowledge of the
executive officers of the Seller and any other person listed on Schedule 11.9
hereto.

     11.10 Amendments and Waivers. The Parties may mutually amend any provision
of this Agreement at any time prior to the Closing with the prior authorization
of their respective Boards of Directors. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by each
of the Parties. No waiver by either Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.

     11.11 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.

     11.12 Expenses. Except as set forth in Sections 1.6, 6.6, 7.3 and 10.2(e),
each Party shall bear its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.

                                      -42-

<PAGE>

     11.13 Specific Performance. Each Party acknowledges and agrees that the
other Party would be damaged irreparably in the event any of the provisions of
Sections 6.1, 6.2 and 6.3 are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each Party agrees that the other
Party shall be entitled to an injunction or injunctions to prevent breaches of
such provisions of this Agreement and to enforce specifically such provisions of
this Agreement in any action instituted in any court of the United States or any
state thereof having jurisdiction over the Parties and the matter, in addition
to any other remedy to which it may be entitled, at law or in equity.

     11.14 Construction. The language used in this Agreement shall be deemed to
be the language chosen by the Parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against either Party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise.

     11.15 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.









                                        -43-

<PAGE>

     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as an
instrument under seal as of the date first above written.

                                       Buyer:

                                       AUGAT INC.


                                       By: /s/ [ILLEGIBLE]
                                          --------------------------------
                                       Title:  Vice President
                                             -----------------------------
                                             
                                       Seller:

                                       PORTA SYSTEMS CORP.


                                       By:
                                          --------------------------------
                                       Title:
                                             -----------------------------

                                       Subsidiaries:

                                       ASTER CORPORATION


                                       By:
                                          --------------------------------
                                       Title:
                                             -----------------------------

                                       ASTER IRELAND LTD.


                                       By:
                                          --------------------------------
                                       Title:
                                             -----------------------------

                                       ASTER TECHNOLOGIES LIMITED


                                       By:
                                          --------------------------------
                                       Title:
                                             -----------------------------


                                        -44-

<PAGE>

                                       CRITERION PLASTICS, INC.


                                       By:
                                          --------------------------------
                                       Title:
                                             -----------------------------

                                       PORTA SYSTEMS S.A. de C.V.


                                       By:
                                          --------------------------------
                                       Title:
                                             -----------------------------

                                       PORTA SYSTEMS LIMITED


                                       By:
                                          --------------------------------
                                       Title:
                                             -----------------------------






                                        -45-

<PAGE>

Exhibit A



                                ESCROW AGREEMENT


     This Escrow Agreement is entered into as of March _ , 1996, by and among
Augat Inc., a Massachusetts corporation (the "Buyer"), Porta Systems Corp., a
Delaware corporation (the "Seller") and State Street Bank and Trust Company (the
"Escrow Agent").

     WHEREAS, the Buyer and the Seller have entered into an Asset Purchase
Agreement dated as of March 6, 1996 (the "Agreement") pursuant to which the
Buyer has acquired the Company's fiber optics business.

     WHEREAS, the Agreement provides that an escrow fund will be established to
hold a portion of the Purchase Price.

     WHEREAS, the parties hereto desire to establish the terms and conditions
pursuant to which such escrow fund will be established and maintained.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

     1. Defined Terms. Capitalized terms used in this Agreement and not
otherwise defined, if any, shall have the meanings given them in the Agreement.

     2. Escrow. Contemporaneously with the execution of this Agreement, the
Buyer has delivered to the Escrow Agent, and the Escrow Agent acknowledges
receipt of, a wire transfer from the Buyer's account at the State Street Bank
and Trust Company, in the amount of $1,000,000. Such sum, together with any
interest earned thereon, is referred to herein as the "Escrow Fund." The Escrow
Fund shall be invested in accordance with Section 5. The Escrow Agent agrees to
accept delivery of the Escrow Fund and to hold such Escrow Fund in escrow
subject to the terms and conditions of this Agreement.

     3. Administration of Escrow Fund. The Escrow Agent shall administer the
Escrow Fund as follows:

     (a) If the Buyer believes that the Buyer has a claim against the Seller as
a result of which the Buyer is entitled to a payment from the Escrow Fund, the
Buyer shall give notice (the "Claim Notice") to the Escrow Agent and the Seller.
The Claim Notice shall set forth the Buyer's claim in reasonable detail
including the amount of claimed to be due (the "Claimed Amount").
<PAGE>

     (b) Within five days of receipt of the Claim Notice, the Escrow Agent shall
transmit to the Seller a copy of the Claim Notice and all supporting
documentation provided to the Escrow Agent by the Buyer.

     (c) If, by the close of business on the 20th business day following the
date that the Escrow Agent transmits the Claim Notice and supporting
documentation to the Seller, the Escrow Agent shall not have received written
notice (the "Response Notice") from the Seller that the Seller disputes any or
all of the claim, the Escrow Agent shall pay the Claimed Amount to the Buyer. If
the Seller dispute a portion, but not all, of the Claimed Amount, the Escrow
Agent shall pay to the Buyer the amount not in dispute.

     (d) With respect to any amount in dispute, the Escrow Agent shall not make
any disposition until and unless the Escrow Agent shall have received either
joint written instructions from the Buyer and the Seller or in accordance with
Section 7(d) hereof.

     (e) On [six months  from the date of this  Agreement]  (the "First  Payment
Date"),  the  Escrow  Agent  shall pay over to the  Seller  an  amount  equal to
$500,000 minus the sum of (i) all payments  theretofore made by the Escrow Agent
to the Buyer  pursuant  to this  Agreement  and (ii) all  Claimed  Amounts  with
respect to which the Escrow  Agent  received a Claim  Notice  prior to 5:00 P.M.
Boston, Massachusetts time on the business day before the First Payment Date.

     (f) On [twelve months from the date of this Agreement] (the "Second Payment
Date"), the Escrow Agent shall pay over to the Seller an amount equal to the
amount by which the Escrow Fund exceeds all Claimed Amounts with respect to
which the Escrow Agent received a Claim Notice prior to 5:00 P.M. Boston,
Massachusetts time on the business day before the Second Payment Date.

     (g) Any funds remaining in the Escrow Fund subsequent to the Second Payment
Date shall be retained by the Escrow Agent and not disbursed until the Escrow
Agent shall have received either joint written instructions of the Buyer and the
Seller or in accordance with Section 7(d) hereof.

     4. Right of Escrow Agent. Upon disbursement of the Escrow Fund in
accordance with Section 3 hereof, the Escrow Agent may withhold from any payment
due either the Buyer or the Seller an amount equal to such party's share of the
Escrow Agent's fees.

     5. Investment of Escrow Fund. Any monies held in the Escrow Fund shall be
invested by the Escrow Agent, to the extent permitted by law and as directed by
the Seller, in (i) obligations issued or guaranteed by the United States of


                                      -2-
<PAGE>

America or any agency or instrumentality thereof, (ii) obligations including
certificates of deposit and bankers' acceptances) of banks which at the date of
their last public reporting had total assets in excess of $500,000,000, (iii)
commercial paper rated at least A-1 or P-1 or, if not rated, issued by companies
having outstanding debt rated at least AA or Aa and (iv) money market mutual
funds invested exclusively in some or all of the securities described in the
foregoing clauses (i), (ii) and (iii).

     6. Fees and Expenses. The Buyer and the Seller agree to pay the Escrow
Agent compensation for its normal services hereunder as set forth on Schedule A
hereto (the "Escrow Fee"). the Escrow Agent shall be entitled to reimbursement
on demand for all expenses incurred in connection with the administration of the
escrow created hereby which are in excess of its compensation for normal
services hereunder, including without limitation, payment of any legal fees
incurred by the Escrow Agent in connection with resolution of any claim by any
party hereunder. The Buyer and the Seller shall each pay one-half of the fees
and expenses of the Escrow Agent for the services to be rendered by the Escrow
Agent hereunder.

     7. Limitation of Escrow Agent's Liability.

     (a) The Buyer and the Seller acknowledge and agree that the Escrow Agent
(i) shall not be responsible for any of the agreements referred to herein but
shall be obligated only for the performance of such duties as are specifically
set forth in this Escrow Agreement, (ii) shall not be obligated to take any
legal or other action hereunder which might in its judgment involve any expense
or liability unless it shall have been furnished with acceptable
indemnification, (iii) may rely on and shall be protected in acting or
refraining from acting upon any written notice, instruction, instrument,
statement, request or document furnished to it hereunder and believed by it to
be genuine and to have been signed or presented by the proper person, and shall
have no responsibility for determining the accuracy thereof, and (ii) may
consult counsel satisfactory to it, including house counsel, and the opinion of
such counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted be it hereunder in good faith and in
accordance with the opinion of such counsel.

     (b) Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers or employees hereunder except in the
case of gross negligence or willful misconduct. The Buyer and the Seller,
jointly and severally, covenant and agree to indemnify the Escrow

                                      -3-
<PAGE>

Agent and hold it harmless without limitation from and against any loss,
liability or expense of any nature incurred by the Escrow Agent arising out of
or in connection with the Agreement or with the administration of its duties
hereunder, including but not limited to legal fees and other costs and expenses
of defending or preparing to defend against any claim or liability in the
premises, unless such loss, liability or expense shall be caused by the Escrow
Agent's willful misconduct or gross negligence. In no event shall the Escrow
Agent be liable for indirect, punitive, special or consequential damages.

     (c) The Buyer and the Seller, jointly and severally, agree to assume any
and all obligations imposed now or hereafter by any applicable tax law with
respect to the payment of Escrow Funds under this Agreement, and to indemnify
and hold the Escrow Agent harmless from and against any taxes, additions for
late payment, interest, penalties and other expenses, that may be assessed
against the Escrow Agent on any such payment or other activities under this
Agreement. The Buyer and the Seller undertake to instruct the Escrow Agent in
writing with respect to the Escrow Agent's responsibility for withholding and
other taxes, assessments or other governmental charges, certifications and
governmental reporting in connection with its acting as Escrow Agent under this
Agreement. The Buyer and the Seller, jointly and severally, agree to indemnify
and hold the Escrow Agent harmless from any liability on account of taxes,
assessments or other governmental charges, including without limitation the
withholding or deduction or the failure to withhold or deduct same, and any
liability for failure to obtain proper certifications or to properly report to
governmental authorities, to which the Escrow Agent may be or become subject in
connection with or which arises out of this Agreement, including costs and
expenses (including reasonable legal fees), interest and penalties.

     (d) Dispute Resolution. It is understood and agreed that should any dispute
arise with respect to the delivery, ownership, right of possession, and/or
disposition of the Escrow Fund, or should any claim be made upon the Escrow Fund
by a third party, the Escrow Agent upon receipt of written notice of such
dispute or claim by the parties hereto or by a third party, is authorized and
directed to remain in its possession without liability to anyone, all or any of
the Escrow Fund until such dispute shall have been settled either by the mutual
agreement of the parties, of by a final order, decree or judgment of a court in
the United States of America, the time for perfection of an appeal of such
order, decree or judgment having expired. The Escrow Agent may, but shall be
under no duty whatsoever to, institute or defend any legal proceedings which
relate to the Escrow Fund.

                                      -4-
<PAGE>

     (e) Consent to Jurisdiction and Service. The Buyer and the Seller hereby
absolutely and irrevocably consent and submit to the jurisdiction of the Federal
or state courts sitting in Boston, Massachusetts in connection with any actions
or proceedings brought against the Buyer and/or the Seller by the Escrow Agent
arising out of or relating to this Escrow Agreement. In any such action or
proceeding, the Buyer and the Seller hereby absolutely and irrevocably waive
personal service of any summons, complaint, declaration or other process and
hereby absolutely and irrevocably agree that the service thereof may be made by
certified or registered first-class mail directed to the Buyer and/or the
Seller, as the case may be, at their respective addresses in accordance with
Section 9 hereof.

     (f) Force Majeure. Neither the Buyer nor the Seller nor the Escrow Agent
shall be responsible for delays or failures in performance resulting from
actions beyond its control. Such acts shall include but not be limited to acts
of God, strikes, lockouts, riots, acts of war, epidemics, governmental
regulations superimposed after the fact, fire, communication line failures,
computer viruses, power failures, earthquakes or other disasters.

     8. Termination. This Agreement shall terminate upon the disbursement by the
Escrow Agent of all of the Escrow Funds in accordance with this Agreement;
provided that the provisions of Section 7 shall survive such termination.

     9. Notices. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instrumentation or communication shall be deemed to have
been delivered two business days after it is sent by registered or certified
mail, return receipt requested, postage prepaid, or one business day after it is
sent via a reputable nationwide overnight courier service.

         If to the Buyer:                   Copy to:
         ----------------                   --------
         Augat Inc.                         Hale and Dorr
         89 Forbes Boulevard                60 State Street
         Mansfield, MA 02048                Boston, MA 02109
         Attn: John E. Lynch, Jr., Esq.     Attn.: Thomas E Neely, Esq.

                                      -5-

<PAGE>

         If to the Seller:
         -----------------
         Porta Systems Corp.                Esanu Katsky Korins & Siger
         575 Underhill Boulevard            605 Third Avenue
         Sagosset., NY 11793                New York, NY 10158
         Attn.: Vincent F. Santulli         Telecopy: 212-953-6899
                Edward Kornfeld             Attn.: Warren Esanu, Esq.

        If to the Escrow Agent:
        -----------------------
        State Street Bank and Trust Co.
        2 International Place
        4th Floor - Corporate Trust
        Boston, Mass. 02110
        Attn.: ____________

Any party may give any notice, instruction or communication in connection with
this Agreement using any other means (including personal delivery, telecopy or
ordinary mail), but no such notice, instruction or communication shall be deemed
to have been delivered unless and until it is actually received by the party to
whom it was sent. Any party may change the address to which notices,
instructions or communications are to be delivered by giving the other parties
to this Agreement notice thereof in the manner set forth in this Section 9.

     10. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by
delivering a resignation to the parties to this Escrow Agreement, not less than
60 days' prior to the date when such resignation shall take effect. In such
event, the Buyer may appoint a successor Escrow Agent without the consent of the
Seller so long as such successor is a bank with assets of at least $500 million,
and may appoint any other successor Escrow Agent with the consent of the Seller,
which consent shall not be unreasonably withheld. If, following receipt by the
Buyer and the Seller of the Escrow Agent's resignation, the Buyer provides to
the Escrow Agent written instructions with respect to the appointment of a
successor Escrow Agent and directions for the transfer of any Escrow Fund then
held by the Escrow Agent to such successor, the Escrow Agent shall act in
accordance with such instructions and promptly transfer such Escrow Fund to such
designated successor.

                                      -6-
   

<PAGE>

     11. General.

     (a) Governing Law, Assigns. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts without regard to conflict-of-law principles and shall be binding
upon and inure to the benefit of, the parties hereto and their respective
successors and assigns.

     (b) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

     (c) Entire Agreement. Except as set forth in the Agreement, this Escrow
Agreement constitutes the entire understanding and agreement of the parties with
respect to the subject matter of this Agreement and supersedes all prior
agreements or understandings, written or oral, between the parties with respect
to the subject matter hereof.

     (d) Waivers. No waiver by any party hereto of any condition or of any
breach of any provision of this Escrow Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.

     (e) Amendment. This Agreement may be amended only with the written consent
of the Buyer, the Seller and the Escrow Agent.

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.


                                           AUGAT INC.



                                           By:
                                              ---------------------------
                                           Name:
                                           Title:


                                       -7-

<PAGE>


                                           PORTA SYSTEMS CORP.


                                           By:
                                              ---------------------------
                                           Name:
                                           Title:




                                           STATE STREET BANK AND TRUST COMPANY


                                           By:
                                              ---------------------------
                                           Name:
                                           Title:


                                      -8-
<PAGE>



                                   Schedule A

     The fees to be paid to the Escrow Agent for the administration of the
Escrow Fund hereunder are $ per annum.


                                       -9-



<PAGE>

                                   Exhibit A-1

                             SECOND ESCROW AGREEMENT


     This Second Escrow Agreement is entered into as of March , 1996, by and
among Augat, Inc., a Massachusetts corporation (the "Buyer"). Porta Systems
Corp., a Delaware corporation (the "Seller") and State Street Bank and Trust
Company (the "Escrow Agent").

     WHEREAS, the Buyer and the Seller have entered into an Asset Purchase
Agreement dated as of March 6, 1996 (the "Agreement") pursuant to which the
Buyer has acquired the Company's fiber optics business.

     WHEREAS, the Agreement provides that the Second Escrow Fund will be
established to hold a portion of the Purchase Price.

     WHEREAS, the parties hereto desire to establish the terms and conditions
pursuant to which such escrow fund will be established and maintained.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

     l. Defined Terms. Capitalized terms used in this Agreement and not
otherwise defined, if any, shall have the meanings given them in the Agreement.

     2. Escrow. Contemporaneously with the execution of this Agreement the Buyer
has delivered to the Escrow Agent, and the Escrow Agent acknowledges receipt of,
a wire transfer from the Buyer's account at the State Street Bank and Trust
Company, in the amount of $100,000. Such sum, together with any interest earned
thereon, is referred to herein as the "Second Escrow Fund." The Second Escrow
Fund shall be invested in accordance with Section 5. The Escrow Agent agrees to
accept delivery of the Second Escrow Fund and to hold such Second Escrow Fund in
escrow subject to the terms and conditions of this Agreement.

     3. Administration of Second Escrow Fund. The Escrow Agent shall administer
the Second Escrow Fund as follows:

     (a) If the Buyer or the Seller (the "First Party") believes that it has a
claim to payment from the Second Escrow Fund, it shall give notice (the "Claim
Notice") to the Escrow Agent and the other party (the "Second Party"). The Claim
Notice shall set forth the First Party's claim in reasonable detail including
the amount of claimed to be due (the "Claimed Amount").
<PAGE>

     (b) Within five days of receipt of the Claim Notice, the Escrow Agent shall
transmit to the Second Party a copy of the Claim Notice and all supporting
documentation provided to the Escrow Agent.

     (c) If, by the close of business on the 20th business day following the
date that the Escrow Agent transmits the Claim Notice and supporting
documentation to the Second Party, the Escrow Agent shall not have received
written notice (the "Response Notice" ) from the Second Party that it disputes
any or all of the claim, the Escrow Agent shall pay the Claimed Amount to the
First Party. If the other party disputes a portion, but not all, of the Claimed
Amount, the Escrow Agent shall pay to the First Party the amount not in dispute.

     (d) With respect to any amount in dispute, the Escrow Agent shall not make
any disposition until and unless the Escrow Agent shall have received either
joint written instructions from the Buyer and the Seller or in accordance with
Section 7(d) hereof.

     (e) On [six months from the date of this Agreement], the Escrow Agent shall
pay over to the Seller the Second Escrow Fund minus the sum of all Claimed
Amounts with respect to which the Escrow Agent received a Claim Notice from the
Buyer prior to 5:00 P.M. Boston, Massachusetts time on the business day before
the First Payment Date.

     (f) Any funds remaining in the Second Escrow Fund and not disbursed in
accordance with this Section shall be retained by the Escrow Agent and not
disbursed until the Escrow Agent shall have received either joint written
instructions of the Buyer and the Seller or in accordance with Section 7(d)
hereof.

     4. Right of Escrow Agent. Upon disbursement of the Second Escrow Fund in
accordance with Section 3 hereof, the Escrow Agent may withhold from any payment
due either the Buyer or the Seller an amount equal to such party's share of the
Escrow Agent's fees.

     5. Investment of Second Escrow Fund. Any monies held in the Second Escrow
Fund shall be invested by the Escrow Agent, to the extent permitted by law and
as directed by the Seller, in (i) obligations issued or guaranteed by the United
States of America or any agency or instrumentality thereof, (ii) obligations
(including certificates of deposit and bankers' acceptances) of banks which at
the date of their last public reporting had total assets in excess of
$500,000,000, (iii) commercial paper rated at

                                      -2-

<PAGE>

least A-1 or P-1 or, if not rated, issued by companies having outstanding debt
rated at least AA or Aa and (iv) money market mutual funds invested exclusively
in some or all of the securities described in the foregoing clauses (i), (ii)
and (iii).

     6. Fees and Expenses. The Buyer and the Seller agree to pay the Escrow
Agent compensation for its normal services hereunder as set forth on Schedule A
hereto (the "Escrow Fee"). The Escrow Agent shall be entitled to reimbursement
on demand for all expenses incurred in connection with the administration of the
escrow created hereby which are in excess of it compensation for normal services
hereunder including without limitation, payment of any legal fees incurred by
the Escrow Agent in connection with resolution of any claim by any party
hereunder. The Buyer and the Seller shall each pay one-half of the fees and
expenses of the Escrow Agent for the services to be rendered by the Escrow Agent
hereunder.

     7. Limitation of Escrow Agent's Liability.

     (a) The Buyer and the Seller acknowledge and agree that the Escrow Agent
(i) shall not be responsible for any of the agreements referred to herein but
shall be obligated only for the performance of such duties as are specifically
set forth in this Second Escrow Agreement, (ii) shall not be obligated to take
any legal or other action hereunder which might in its judgment involve any
expense or liability unless it shall have been furnished with acceptable
indemnification, (iii) may rely on and shall be protected in acting or
refraining from acting upon any written notice, instruction, instrument,
statement, request or document furnished to it hereunder and believed by it to
be genuine and to have been signed or presented by the proper person, and shall
have no responsibility for determining the accuracy thereof, and (iv) may
consult counsel satisfactory to it, including house counsel, and the opinion of
such counsel shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion of such counsel.

     (b) Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers or employees hereunder except in the
case of gross negligence or willful misconduct. The Buyer and the Seller,
jointly and severally, covenant and agree to indemnify the Escrow Agent and hold
it harmless without limitation from and against any loss, liability or expense
of any nature incurred by the Escrow Agent arising out of or in connection with
the Agreement or with the administration of its duties hereunder, including but
not limited to legal fees and other costs and expenses of defending or

                                      -3-

<PAGE>

preparing to defend against any claim or liability in the premises, unless such
loss, liability or expense shall be caused by the Escrow Agent's willful
misconduct or gross negligence. In no event shall the Escrow Agent be liable for
indirect, punitive, special or consequential damages.

     (c) The Buyer and the Seller, jointly and severally, agree to assume any
and all obligations imposed now or hereafter by any applicable tax law with
respect to the payment of the Second Escrow Funds under this Agreement, and to
indemnify and hold the Escrow Agent harmless from and against any taxes,
additions for late payment, interest, penalties and other expenses, that may be
assessed against the Escrow Agent on any such payment or other activities under
this Agreement. The Buyer and the Seller undertake to instruct the Escrow Agent
in writing with respect to the Escrow Agent's responsibility for withholding and
other taxes, assessments or other governmental charges, certifications and
governmental reporting in connection with its acting as Escrow Agent under this
Agreement. The Buyer and the Seller, jointly and severally, agree to indemnify
and hold the Escrow Agent harmless from any liability on account of taxes,
assessments or other government charges, including without limitation the
withholding or deduction or the failure to withhold or deduct same, and any
liability for failure to obtain proper certifications or to properly report to
governmental authorities, to which the Escrow Agent may be or become subject in
connection with or which arises out of this Agreement, including costs and
expenses (including reasonable legal fees), interest and penalties.

     ( d) Dispute Resolution . It is understood and agreed that should any
dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Second Escrow Fund, or should any claim be made upon
the Second Escrow Fund by a third party, the Escrow Agent upon receipt of
written notice of such dispute or claim by the parties hereto or by a third
party, is authorized and directed to retain in its possession without liability
to anyone, all or any of the Second Escrow Fund until such dispute shall have
been settled either by the mutual agreement of the parties, or by a final order,
decree or judgment of a court in the United States of America, the time for
perfection of an appeal of such order, decree or judgment having expired. The
Escrow Agent may, but shall be under no duty whatsoever to, institute or defend
any legal proceedings which relate to the Second Escrow Fund.


                                       -4-

<PAGE>

     (e) Consent to Jurisdiction and Service. The Buyer and the Seller hereby
absolutely and irrevocably consent and submit to the jurisdiction of the Federal
or state courts sitting in Boston, Massachusetts in connection with any actions
or proceedings brought against the Buyer and/or the Seller by the Escrow Agent
arising out of or relating to this Second Escrow Agreement. In any such action
or proceeding, the Buyer and the Seller hereby absolutely and irrevocably waive
personal service of any summons, complaint, declaration or other process and
hereby absolutely and irrevocably agree that the service thereof may be made by
certified or registered first-class mail directed to the Buyer and/or the
Seller, as the case may be, at their respective addresses in accordance with
Section 9 hereof.

     (f) Force Majeure. Neither the Buyer nor the Seller nor the Escrow Agent
shall be responsible for delays or failures in performance resulting from
actions beyond its control. Such acts shall include but not be limited to acts
of God, strikes, lockouts, riots, acts of war, epidemics, governmental
regulations superimposed after the fact, fire, communication line failures,
computer viruses, power failures, earthquakes or other disasters.

     8. Termination. This Agreement shall terminate upon the disbursement by the
Escrow Agent of all of the Second Escrow Funds in accordance with this
Agreement; provided that the provisions of Section 7 shall survive such
termination.

     9. Notices. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered two business days after it is sent by registered or certified
mail, return receipt requested, postage prepaid, or one business day after it is
sent via a reputable nationwide overnight courier service.

         If to the Buyer:                   Copy to:
         ----------------                   --------
         Augat Inc.                         Hale and Dorr
         89 Forbes Boulevard                60 State Street
         Mansfield, MA 02048                Boston, MA 02109
         Attn: John E. Lynch, Jr., Esq.     Attn: Thomas E. Neely, Esq.



                                       -5-


<PAGE>

         If to the Seller:
         -----------------
         Porta Systems Corp.                Esanu Katsky Korins & Siger
         575 Underhill Boulevard            605 Third Avenue
         Sagosset, NY 11793                 New York, NY 10158
         Attn.: Vincent F. Santulli         Telecopy: 212-953-6899
                Edwaxd Kornfeld             Attn: Warren Esanu, Esq.


         If to the Escrow Agent:
         -----------------------
         State Street Bank and Trust Co.
         2 International Place
         4th Floor - Corporate Trust
         Boston, Mass. 02110
         Attn.: --


Any party may give any notice, instruction or communication in connection with
this Agreement using any other means (including personal delivery, telecopy or
ordinary mail), but no such notice, instruction or communication shall be deemed
to have been delivered unless and until it is actually received by the party to
whom it was sent. Any party may change the address to which notices,
instructions or communications are to be delivered by giving the other parties
to this Agreement notice thereof in the manner set forth in this Section 9.

     10. Successor Escrow Agent. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by
delivering a resignation to the parties to this Second Escrow Agreement, not
less than 60 days' prior to the date when such resignation shall take effect. In
such event the Buyer may appoint a successor Escrow Agent without the consent of
the Seller so long as such successor is a bank with assets of at least $500
million, and may appoint any other successor Escrow Agent with the consent of
the Seller, which consent shall not be unreasonably withheld. If, following
receipt by the Buyer and the Seller of the Escrow Agent's resignation, the Buyer
provides to the Escrow Agent written instructions with respect to the
appointment of a successor Escrow Agent and directions for the transfer of any
Second Escrow Fund then held by the Escrow Agent to such successor, the Escrow
Agent shall act in accordance with such instructions and promptly transfer such
Second Escrow Fund to such designated successor.



                                       -6-
<PAGE>

    11. General.

     (a) Governing Law, Assigns. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts without regard to conflict-of-law principles and shall be binding
upon, and inure to the benefit of the parties hereto and their respective
successors and assigns.

     (b) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     (c) Entire Agreement. Except as set forth in the Agreement, this Second
Escrow Agreement constitutes the entire understanding and agreement of the
parties with respect to the subject matter of this Agreement and supersedes all
prior agreements or understandings, written or oral, between the parties with
respect to the subject matter hereof.

     (d) Waivers. No waiver by any party hereto of any condition or of any
breach of any provision of this Second Escrow Agreement shall be effective
unless in writing. No waiver by any party of any such condition or breach, in
any one instance, shall be deemed to be a further or continuing waiver of any
such condition or breach of a waiver of any other condition or breach of any
other provision contained herein.

     (e) Amendment, This Agreement may be amended only with the written consent
of the Buyer, the Seller and the Escrow Agent.

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.


                                           AUGAT INC.


                                           By:
                                              ---------------------------
                                           Name:
                                           Title:




                                       -7-


<PAGE>


                                           PORTA SYSTEMS CORP.


                                           By:
                                              ---------------------------
                                           Name:
                                           Title:





                                          STATE STREET BANK AND TRUST COMPANY

                                           By:
                                              ---------------------------
                                           Name:
                                           Title:


                                       -8-
<PAGE>


                                   Schedule A

     The fees to be paid to the Escrow Agent for the administration of the
Escrow Fund hereunder are $ per annum.


                                       -9-



<PAGE>

                                   Exhibit B

                                  BILL OF SALE

     This Bill of Sale dated this      day of March,  1996,  from Porta  Systems
Corp., a Delaware corporation ("Porta"),  and the Subsidiaries,  as hereinafter,
which,  together with Porta,  are referred to  collectively as the "Sellers" and
each,  individually,  as a "Seller," to Augat Inc., a Massachusetts  corporation
(the "Buyer").

                              W I T N E S S E T H:

     WHEREAS,  pursuant to a certain purchase  agreement (the "Agreement") dated
as of March 6, 1996,  between  the  Sellers  and the Buyer,  Porta has agreed to
sell,  transfer,  convey,  assign and deliver the Acquired Assets, as defined in
the  Agreement,  to the Buyer,  and the Buyer has  agreed to assume the  Assumed
Liabilities, as defined in the Agreement; and

     WHEREAS, certain of the Acquired Assets are owned by one of more of Porta's
subsidiaries, namely, Aster Corporation, a Delaware corporation, Aster (Ireland)
Ltd., a Burmuda corporation, Aster Technologies Limited, an Ireland corporation,
Criterion  Plastics,  Inc., a Texas  corporation,  Porta Systems S.A. de C.V., a
Mexican  corporation,  and Porta Systems Limited,  a United Kingdom  corporation
(collectively, the "Subsidiaries");

     WHEREFORE,  for  good  and  valuable  consideration,  the  receipt  and the
sufficiency  of  which is  hereby  acknowledged,  the  Sellers  hereby  agree as
follows:

     1. The Sellers  hereby sell,  transfer,  convey,  assign and deliver to the
Buyer,  its  successors  and assigns,  to have and to hold  forever,  all of the
Acquired  Assets,  other than the Grant Assets,  as defined in Section 1.3(c) of
the Agreement.

     2. The Sellers  hereby  covenant and agree that they and each of them will,
at the  request of the Buyer and  without  further  consideration,  execute  and
deliver,  and will  cause its  employees  to  execute  and  deliver,  such other
instruments of sale,  transfer,  conveyance and assignment,  and take such other
action as may  reasonably  be  necessary  to more  effectively  sell,  transfer,
convey,  assign and  deliver  to, and vest in, the  Buyer,  its  successors  and
assigns,  title to the  Acquired  Assets  hereby  sold,  transferred,  conveyed,
assigned and delivered, all as set forth in the Agreement.

     3. The Sellers do hereby irrevocably  constitute and appoint the Buyer, its
successors  and  assigns,  its true and  lawful  attorney,  with  full  power of
substitution, in its name or otherwise, and on behalf of the Sellers, or for its
own use, to claim, demand, collect and receive at any time and from time to time
any and all assets,  properties,  claims, accounts and other rights, tangible or
intangible,  hereby sold, transferred,  conveyed, assigned and delivered, and to
prosecute the same at law or in equity and, upon discharge thereof, to complete,
execute  and deliver  any and all  necessary  instruments  of  satisfaction  and
release.

     4. This sale,  transfer,  conveyance  and  assignment has been executed and
delivered by the Sellers in accordance  with the Agreement and is expressly made
subject to those  liabilities,  obligations and commitments  which the Buyer has
expressly  assumed  and agreed to pay,  perform  and  discharge  pursuant to the
Agreement and a certain  Instrument of Assumption  executed by the Buyer of even
date herewith.

<PAGE>


     5. Each of the  Sellers,  by its  execution  of this Bill of Sale,  and the
Buyer, by its acceptance of this Bill of Sale,  hereby  acknowledges  and agrees
that neither the representations and warranties nor the obligations,  rights and
remedies  of any party  under  the  Agreement  shall be  deemed to be  enlarged,
modified or altered in any way by this Bill of Sale.

     IN WITNESS  WHEREOF,  the Sellers and the Buyer have caused this instrument
to be duly executed under seal as of and on the date first above written.

                                SELLERS:                               
                                
                                PORTA SYSTEMS CORP.
                                
                                By:
                                -------------------------------     
                                Vincent F. Santulli, Chairman
                                


                                ASTER CORPORATION
                                

                                By:
                                -------------------------------   
                                Vincent F. Santulli, Chairman
                                


                                
                                ASTER (IRELAND) LTD.
                                

                                By:
                                -------------------------------      
                                Vincent F. Santulli, Chairman
                                


                                
                                ASTER TECHNOLOGIES LIMITED
                                

                                By:
                                -------------------------------
                                Vincent F. Santulli, Chairman
                                


                                
                                CRITERION PLASTICS, INC.
                                

                                By:
                                -------------------------------
                                Vincent F. Santulli, Chairman


                                
                                -2-
<PAGE>
                                
                                PORTA SYSTEMS S.A. de C.V.
                                

                                By:
                                ------------------------------- 
                                Vincent F. Santulli, Chairman
                                


                                
                                PORTA SYSTEMS LIMITED
                                
                                
                                By:
                                -------------------------------      
                                John Terrill, Director
                                
                                
 ACCEPTED:
 
 BUYER:  AUGAT INC.
 
 By:
    ----------------------------
 Title:
       -------------------------
 
                                
                                      -3-


<PAGE>

                                   Exhibit C

                     INSTRUMENT OF ASSUMPTION OF LIABILITIES


     This Instrument of Assumption of Liabilities dated March , 1996, is made by
Augat Inc., a Massachusetts corporation (the "Buyer"), in favor of Porta Systems
Corp., a Delaware corporation, and the Subsidiaries, as hereinafter defined,
which, together with Porta, are referred to collectively as the "Sellers" and
each, individually, as a "Seller." All capitalized words and terms used in this
Instrument of Assumption of Liabilities and not defined herein shall have the
respective meanings ascribed to them in the Asset Purchase Agreement dated as of
March 6, 1996 between the Seller and the Buyer (the "Agreement").

     WHEREAS, pursuant to a certain asset purchase agreement (the "Agreement")
dated as of March 6, 1996, between the Sellers and the Buyer, Porta has agreed
to sell, transfer, convey, assign and deliver the Acquired Assets, as defined in
the Agreement, to the Buyer, and the Buyer has agreed to assume the Assumed
Liabilities, as defined in the Agreement; and

     WHEREAS, certain of the Acquired Assets are owned by one or more of Porta's
subsidiaries, namely, Aster Corporation, a Delaware corporation, Aster (Ireland)
Ltd., a Bermuda corporation, Aster Technologies Limited, an Ireland corporation,
Criterion Plastics, Inc., a Texas corporation, Porta Systems S.A. de C.V., a
Mexican corporation, and Porta Systems Limited, a United Kingdom corporation
(collectively, the "Subsidiaries");

     NOW, THEREFORE, for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Buyer hereby agrees as
follows:

     1. The Buyer hereby assumes and agrees to perform, pay and discharge the
liabilities, obligations and commitments of the Seller referred to in the
Agreement as the "Assumed Liabilities."

     2. As provided in the Agreement, the Buyer does not hereby assume or agree
to perform, pay or discharge, and the Seller shall remain unconditionally liable
for, from and after the date hereof, all other liabilities, obligations and
commitments, fixed or contingent, of the Seller, which are referred to in the
Agreement as the "Retained Liabilities."

     3. The Buyer, by its execution of this Instrument of Assumption of
Liabilities, and the Seller, by its acceptance of this Instrument of Assumption
of Liabilities, each hereby acknowledges and agrees that neither the
representations and warranties nor the rights and remedies to either party under

<PAGE>



the Agreement shall be deemed to be enlarged, modified or altered in any way by
such execution and acceptance of this instrument.

     IN WITNESS WHEREOF, the Buyer and the Seller have caused this instrument to
be duly executed under seal as of and on the date first above written.


                              BUYER:  AUGAT INC.



                              By:
                                 --------------------------------------

                              Title:
                                    -----------------------------------


ACCEPTED:

SELLERS:  PORTA SYSTEMS CORP.



By:
   --------------------------

Title:
      -----------------------

ASTER CORPORATION



By:
   -----------------------------
   Vincent F. Santulli, Chairman




ASTER (IRELAND) CORPORATION



By:
   -----------------------------
   Vincent F. Santulli, Chairman





                                      -2-


<PAGE>

 ASTER TECHNOLOGIES LIMITED


 By:
   -------------------------------
    Vincent F. Santulli, Chairman


 CRITERION PLASTICS, INC.



 By:
   -------------------------------
    Vincent F. Santulli, Chairman




 PORTA SYSTEMS S.A. de C.V.


 By:
   -------------------------------
    Vincent F. Santulli, Chairman




 PORTA SYSTEMS LIMITED



By:
   -------------------------
    John Terrill, Director



                                      -3-

<PAGE>

                                    Exhibit D


                                  March , 1996







Augat Inc.                                                              16450-15
89 Forbes Boulevard
Mansfield, MA 02048

                             Rs: Porta Systems Corp.

Ladies and Gentlemen:

     This opinion is being  furnished by us, as counsel for Porta Systems Corp.,
a Delaware corporation ("Porta"), and certain of its subsidiaries,  namely Aster
Corporation,  a Delaware corporation ("Aster"),  Aster (Ireland) Ltd., a Bermuda
corporation,  Aster  Technologies  Limited,  an Ireland  corporation,  Criterion
Plastics, Inc., a Texas corporation ("Criterion"), Porta Systems S.A. de C.V., a
Mexican  corporation,  and Porta Systems Limited,  a United Kingdom  corporation
(collectively,  the  "Subsidiaries"),  pursuant  to  Section  5.1 of  the  Asset
Purchase  Agreement  dated as of March 6, 1996 (the  "Agreement") by and between
Augut Inc., a  Massachusetts  corporation  (the "Buyer"),  and the Porta and the
Subsidiaries  (collectively "Sellers").  Capitalized terms not otherwise defined
in this Opinion have the respective  meanings ascribed to them in the Agreement.
In this  connection  we have  examined  and  have  relied  upon  the  followings
documents:

     (a)  The  certificate  of  incorporation  of Porta,  Aster  and  Criterion,
          certified  by the  Secretary  of State of their  respective  states of
          incorporation;

     (b)  The by-laws of Porta, Aster and Criterion, as in effect on the date of
          this Opinion, as certified by the Secretary of such corporation;

     (c)  Certificates,  dated as of a recent date, of the Secretary of State of
          the state of  incorporation  certifying to the legal existence and the
          good  standing  (including  tax) of Porta,  Aster and Criterion in the
          respective state of incorporation (the "Good Standing Certificates");

     (d)  Certified  copies of  resolutions of the Boards of Directors of Porta,
          Aster and  Criterion  approving  the sale of the  Acquired  Assets and
          authorizing,   among  other  things,   the  execution,   delivery  and
          performance by them of the Agreement, the Bill of Sale and the
<PAGE>

Augat Inc.
March   , 1996
Page 2


          other Ancillary Agreements refereed to in the Agreement (collectively,
          the "Sellers' Documents");


     (e)  A lien search (the "Lien  Search") by CT Corporation  System  covering
          Porta,  Aster and Criterion  dated on or about  February 7, 1996,  and
          attached to Schedule to the Disclosure Schedule.

     (f)  UCC-3  or other  instruments  releasing  liens  executed  by  Foothill
          Capital Corporation  ("Foothill")  covering the Acquired Assets as set
          forth therein (collectively, the "Lien Releases").

     (g)  Such other documents, instruments and certificates (including, but not
          limited to,  certificates  of public  official  and officers of one or
          more of the Sellers) as we have  considered  necessary for purposes of
          this Opinion.

     In our examination,  we have, with your consent, assumed the genuineness of
all signatures,  the authenticity of all documents submitted to us as originals,
the  conformity  to originals  of all  documents  submitted to us as  certified,
photocopies  (including telecopies) or conformed copies, the authenticity of the
originals of such copies,  and the due  execution  and delivery of all documents
where due executions is a prerequisite  to the  effectiveness  thereof.  We have
been furnished with, and with your consent relied upon,  certificates of, and/or
other  information  provided by, the Company as to certain factual matters which
have not independently  verified.  In addition, we have relied upon certificates
from public officials as to the matters set forth in such certificates.  We have
assumed that the Agreement and the Ancillary Agreements  accurately describe and
contain the mutual  understanding  of the  parties as to all  matters  contained
therein, and that no other agreements or understanding exist between the parties
with respect thereto.

     Insofar  as this  Opinion  relates  to factual  matters,  information  with
respect to which is in the  possession of the Sellers,  we have relied  (without
independent  investigation)  upon  representations  made  to us by one  or  more
officers or employees  of the  Sellers,  including  the  representations  of the
Sellers  contained  in the  Agreement.  With respect to the opinion set forth in
Paragraph 7 of this Opinion, we have relied,  with your approval,  entirely upon
certificates  of the  Sellers  as to  the  factual  matters  contained  in  said
paragraphs which we have not independently verified.

     This Opinion is governed by and shall be interpreted in accordance with the
Legal Opinion  Accord (the  "Accord") of the ABA Section of Business Law (1991).
As a  consequence,  it is  subject  to a number of  qualifications,  exceptions,
definitions,  limitations  on  coverage  and  other  limitations,  all  as  more
particularly  described  in the  Accord,  and  this  Opinion  should  be read in
conjunction therewith.  The terms "knowledge of" or "known to" and words of like
import, as used in this Opinion,  shall mean "Actual  Knowledge" as such term is
used in the Accord, without us having made any independent inquiry. Furthermore,
knowledge  of any  person  gained in a capacity  other  than as counsel  for the
Company shall not be deemed to be knowledge of this firm.
<PAGE>

Augat Inc.
March   , 1996
Page  3

     For purposes of this  opinion,  we have assumed that the Agreement and each
Ancillary  Agreement  has been duly  authorized,  executed and  delivered by all
signatories  thereto other than the Sellers,  that all signatories thereto other
than the Sellers have the legal  capacity and all requisite  power and authority
to effect the  transactions  contemplated  by the  Agreement  and the  Ancillary
Agreements, and that the Agreement and each Ancillary Agreement is the valid and
binding   obligation  of  all  signatories   thereto  other  than  the  Sellers,
enforceable  against  them in  accordance  with its terms.  We do not render any
opinion as to the  application  of any  federal or state law  regulation  to the
power,  authority or  compliance of any party to the Agreement and the Ancillary
Agreements  other than the  Sellers.  We  express no opinion  herein as Buyer or
Foothill,  including,  without  limitation,  whether the  Agreement or any other
instrument  constitutes  a valid and binding  obligation  of, or is  enforceable
against, the Buyer or Foothill.

     Our  opinion  expressed  in  Paragraph  1 insofar  as it relates to the due
organization, legal existence and corporate good standing of Porta and Aster, as
corporations  incorporated in the State of Delaware, and as to the existence and
good standing of Criterion, as a corporation  incorporated under the laws of the
state of Texas, is based solely on the Good Standing  Certificates,  as rendered
as of the respective dates of such certificates and is limited accordingly.

     We express no  opinion  as to the laws of any state or  jurisdiction  other
than the General Corporation Law of the State of Delaware, the laws of the State
of New York and the federal  laws,  of the United  States.  Accordingly,  to the
extent  that any other laws  govern any of the matters as to which we express an
opinion  below,  we have  assumed  with  your  permission,  without  independent
investigation,  that the laws of such jurisdiction are identical to those of the
State of New York,  and we express no opinion as to whether such  assumption  is
reasonable or correct; except that nothing in this opinion shall be construed to
relate,  directly or indirectly,  to (i) any Subsidiary other than Aster (except
to the extent  expressly set forth in Paragraphs 1 and 7 of this Opinion),  (ii)
any  Acquired  Assets which are located  outside the United  States or (iii) the
applicability of the laws of any jurisdiction outside the United States.

     On the basis of and subject to the foregoing, we are of the opinion that:

     1.   Porta and Aster are corporations dully organized, validly existing and
          in good standing under the laws of the State of Delaware. Criterion is
          an existing  corporation  which is in good standing  under the laws of
          the State of Texas

     2.   Porta and Aster have all  requisite  power and  authority to own their
          respective properties,  to carry on their respective businesses as now
          being conducted,  to execute and deliver the Sellers' Documents and to
          consummate the transactions contemplated thereby.

     3.   The  execution  and  delivery  of  the  Sellers'   Documents  and  the
          consummation of the transactions  contemplated  thereby have been duly
          authorized by all requisite  corporate action on the part of the Porta
          and Aster.
<PAGE>

Augat Inc.
March   , 1996
Page 4


     4.   The Sellers'  Documents have been duly executed and delivered by Porta
          and Aster,  and constitute the valid and binding  obligations of Porta
          and  Aster,   enforceable   against  them  in  accordance  with  their
          respective terms.

     5.   Porta and Aster  have the  right  and power to sell,  convey,  assign,
          transfer and deliver the Acquired Assets as provided in the Agreement,
          and, to the best of our  knowledge,  based solely on our review of the
          Lien Search without independent  investigation and assuming the proper
          and  timely  filing or  recording  of the Lien  Releases,  there is no
          mortgage,  pledge,  lease,  lien,  security  interest,  charge,  title
          retention or other security  arrangement or any other encumbrance upon
          or affecting the Acquired  Assets located in the states covered by the
          Lien Search, except as set forth on the Disclosure Schedules.

     6.   The  execution,  delivery  and  performance  by Porta and Aster of the
          Sellers'   Documents  and  the   consummation   of  the   transactions
          contemplated  thereby,  will  not  result  in  any  violation  of  the
          certificate  of  incorporation  or bylaws  of Porta or  Aster,  or any
          applicable statute, law, regulation, or, to the best of our knowledge,
          order or decree of any court or governmental  authority which is known
          to us, or, to the best of our knowledge,  conflict  with,  result in a
          breach or termination of, constitute a default under, or result in the
          creation of any lien, charge, encumbrance or restriction on any of the
          Acquired  Assets under any agreement or other  instrument  known to us
          which Porta or Aster is a party, except as set forth on the Disclosure
          Schedules.

     7.   We know of no action,  proceeding,  suit or  investigation  pending or
          threatened against Porta, Aster or Criterion which may have an adverse
          effect on such corporation's  ability to convey the Acquired Assets to
          the Buyer.

     This Opinions id qualified by the following.

     A.   We are  admitted  to  practice  in the  State  of New York and are not
          opining as to the law of any other jurisdiction except for Porta's and
          Aster's   organization   and  authority  under  the  Delaware  General
          Corporation   Law.  We  express  no  opinion  as  the  enforcement  or
          interpretation by any court,  administrative  agency,  arbitrator,  or
          other  authority of any other state with respect to the  construction,
          interpretation,  legality  or  validity  of  any  agreements  or as to
          matters  involving  choices or  conflicts  of law. In  particular,  we
          recognize  that Criterion is  incorporated  in, and its facilities are
          located in, the State of Texas,  and this  Opinion is qualified in its
          entirety  with  respect to any matters  which may be governed by Texas
          law.

     B.   The  enforceability  of the  rights and  remedies  of any party to any
          agreement  against any other party thereto may be subject to customary
          principles  governing equitable relief generally,  including,  without
          limitation,  concepts of materiality,  reasonableness,  good faith and
          fair  dealing,   and  to  any   applicable   bankruptcy,   insolvency,
          reorganization,
<PAGE>

Augat Inc.
March   , 1996
Page 5


          moratorium,  fraudulent  conveyance,  usury  or other  laws  affecting
          creditor's rights and their enforcement generally.

     C.   No opinion is expressed as to whether any particular provisions of any
          agreement will be  enforceable by a decree of specific  performance or
          other equitable  relief,  or that the  enforcement  thereof may not be
          limited by  defenses  such as  estoppel,  waiver  and other  equitable
          considerations.

     D.   This Opinion is further qualified to the extent that it may be subject
          to or affected by statutory or decisional law  concerning  recourse by
          creditors  to  security in the absence of notice or hearing and duties
          and standards imposed on creditors and parties to contracts, including
          without  limitation,  requirements of good faith,  reasonableness  and
          fair dealing.

     This Opinion is based upon currently existing statutes,  rules, regulations
and judicial  decisions  and upon facts known to us on the date of this Opinion,
and we  disclaim  any  obligation  to advise  you of any  change in any of these
sources of law or subsequent  legal or factual  developments  which might affect
any matters or opinions set forth as to any matters.

     Please note that we are opining only as to the matters  expressly set forth
in this Opinion, and no opinion should be inferred as to any other matters.

     This Opinion is furnished to you in your capacity as the Buyer  pursuant to
Section 5.1 of the  Agreement,  and may not be used or relied upon for any other
purpose or by any other  person or entity  without  our  express  prior  written
consent.

     This is to advise you that Warren H. Esanu, Esq., who is of counsel to this
firm,  is a director of the Company,  a member of the  executive  committee  and
chairman of the audit committee of the board of directors

                                                  
                                                  Very truly yours,




                                                  Esanu Katsky Korins & Siger









<PAGE>



                          [LETTERHEAD OF HALE AND DORR]

March 6, 1996


VIA FACSIMILE

John Lynch, Jr., Esquire
Augat Inc.
89 Forbes Boulevard
Mansfield, MA  02048

Warren Esanu, Esquire
Esanu Ratsky Korins & Siger
605 Third Avenue, 16th Floor
New York, NY  10158

Dear Jack and Warren:

     Transmitted herewith is the revised Transitional Services Agreement which
replaces the version faxed earlier today. Please destroy the earlier version and
append this version as Exhibit E to the Asset Purchase Agreement.

                                   Very truly yours,


                                   /s/ Sean A. Cote
                              
                                   Sean A. Cote


SAC/ped

Attachment


<PAGE>

                                                                       Exhibit E

                         TRANSITIONAL SERVICES AGREEMENT


     This agreement is entered into in connection with the Asset Purchase
Agreement of even date herewith (the "Agreement") by and among Porta Systems
Corp. and certain of its subsidiaries (collectively, the "Seller") and Augat
Inc. (the "Buyer"). Defined terms used below have the meanings given in the
Agreement.

     In order to facilitate the consummation of the transactions contemplated by
the Agreement, the Seller and the Buyer agree that the Seller shall render, for
the consideration set forth below, certain production services and other
services described below at the Seller's locations in Matamoros, Mexico and its
Criterion Plant in Kingsville, Texas. Such production services will include the
Seller's customary production support and direct labor activities as rendered
prior to the Closing Date in the production and support of the Acquired Assets
at the Matamoros and Kingsville locations. Illustrative of such production
services are materials planning and control; purchasing; warehousing, shiping
and receiving; material handling; production control; quality inspectors and
quality control support services; machine and tool maintenance; support
materials and supplies (non-inventory); heat, light and power; and payroll and
related accounting support services.
<PAGE>

     The Buyer will pay $34 per standard labor hour at the Matamoros facility,
and $55 per standard labor hour at the Kingsville facility, for production
services, and $34 per actual labor hour at the Matamoros facility, and $55 per
actual labor hour at the Kingsville facility, for the Seller's services in
providing inventory shipping, plant packing and closing out the Seller's fiber
optics business. In addition to the hourly rates set forth above, the Buyer will
pay the Seller, for contributions to overhead, $2,500 per week during the term
hereof (or a lesser prorated amount should the term end during a week). The
Seller will provide production services hereunder consistent with its provision
thereof prior to the Closing Date and will maintain insurance coverages on the
Matamoros and Kingsville properties.

     The Seller will invoice the Buyer on a weekly (Saturday through Friday end
of day) basis, forwarding to the Buyer such charged standard and actual labor
hours as reasonably approved by a representative of the Buyer and the Seller.
The Buyer shall advance to the Seller S5,000 per week in order to finance
provision of the services hereinabove described, against which approved invoices
will be charged. The seller shall remit to the Buyer any unused balance of said
advances upon termination of this agreement.

                                    

                                      --2--
<PAGE>

     All shipping, out-warehousing, customs duties, customs brokers, demurrage,
trucking costs and other similar expenses directly related to the goods produced
will be paid by the Buyer.

     This Transitional Services Agreement will expire not later than April 15,
1996, provided that it will expire earlier upon the runout of validated customer
backlog in accordance with the attached list from the Matamoros and Kingsville
facilities existing as of the Closing Date, with reasonable adjustments thereto
to take into account customer changes and cancellations and adjustments
occurring in the normal course of business. At the Closing, the Buyer shall
deliver supplies and inventory in accordance with the attached list required to
fulfill customer backlog.


         Executed as of               , 1996.


                                    Augat Inc.



                                    By:               
                                      ----------------------------

                                    Name:
                                        --------------------------

                                    Title:
                                        --------------------------


                                    Porta Systems Corp.

                                    By:               
                                      ----------------------------

                                    Name:
                                        --------------------------

                                    Title:
                                        --------------------------


                                      --3--


<PAGE>

                         [LETTERHEAD OF HALE AND DORR]





                               _________________ , 1996


Porta Systems Corp.
575 Underhill Boulevard
Syosset, NY 11793

Ladies and Gentlemen:

     This opinion is being furnished pursuant to Section 5.2 of the Asset
Purchase Agreement dated as of March 6, 1996 (the "Agreement") by and between
Augat Inc., a Massachusetts corporation (the "Buyer"), and Porta Systems Corp.,
a Delaware corporation (the "Seller"). Capitalized terms not otherwise defined
herein have the respective meanings described to them in the Agreement.

     We have acted as counsel to the Buyer in connection which the Agreement,
providing for the sale by the Seller to the Buyer of certain of the assets and
business of the Seller as described in the Agreement, and the assumption by the
Buyer of certain liabilities of the Seller as described in the Agreement. As
such counsel, we have assisted in the preparation of the Agreement, the Bill of
Sale, the Instrument of Assumption and the other Ancillary Agreements described
in the Agreement.

     We have also examined and are familiar with and have relied upon the
following documents:

     (a)  The articles of organization and bylaws, as amended, of the Buyer;

     (b)  A certificate, dated as of a recent date, of the Secretary of State of
          the Commonwealth of Massachusetts certifying to the legal existence
          and the good standing (including tax) of the Buyer in Massachusetts;

     (c)  Resolutions of the Board of Directors of the Buyer approving the
          purchase of the Acquired Assets and authorizing, among other things,
          the execution, delivery and performance by the Buyer of the Agreement,
          the Instrument of Assumption and the other Ancillary



<PAGE>


_______________, 1996
 Page 2



          Agreements referred to in the Agreement (collectively, the "Buyer's
          Documents"); and

     (d)  Such other documents, instruments and certificates "including, but not
          limited to, certificates of public officials and officers of the
          Buyer) as we have considered necessary for purposes of this opinion.

     In our examination of the documents described above, we have assumed the
genuineness of all signatures. the legal capacity of each signatory to such
documents, the authenticity of all documents submitted to us as originals, the
conformity to original documents of documents submitted to us as certified,
facsimile or photostatic copies and the authenticity of the originals of such
latter documents. We have assumed that the Agreement and the Ancillary
Agreements accurately describe and contain the mutual understanding of the
parties as to all matters contained therein, and that no other agreements or
understanding exist between the parties with respect thereto.

     Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of the Buyer, we have relied (without
independent investigation) upon representations made to us by one or more
officers or employees of the Buyer, including the representations of the Buyer
contained in the Agreement, and nothing has come to our attention leading us to
question the accuracy of such information.

     Any reference herein to "our best knowledge," "known to us," or to any
matter "coming to our attention" or, "of which we are aware" or any variation of
any of the foregoing, shall mean the conscious awareness of the attorneys in
this firm who have rendered substantive attention to this transaction (including
the preparation of the Agreement and the transactions contemplated thereby) of
the existence or absence of any facts which would contradict our opinions set
forth below. We have not undertaken any independent investigation to determine
the existence or absence of such facts, and no inference as to our knowledge of
the existence or absence of such facts should be drawn from the fact of our
representation of the Buyer.

     For purposes of this opinion, we have assumed that the Agreement and each
Ancillary Agreement has been duly authorized, executed and delivered by all
signatories thereto other than the Buyer, that all signatories thereto other
than the Buyer have the legal capacity and all requisite power and authority to
effect the transactions contemplated by the Agreement and the Ancillary
<PAGE>

_____________, 1996
Page 3



Agreements, and that the Agreement and each Ancillary Agreement is the valid and
binding obligation of all signatures thereto other than the Buyer, enforceable
against them in accordance with its terms. We do not render any opinion as to
the application of any federal or state law or regulation to the power,
authority or compliance of any party to the Agreement and the Ancillary
Agreements other than the Buyer. We express no opinion herein as to the Seller,
including, without limitation, whether the Agreement constitutes a valid and
binding obligation of, or is enforceable against, the Seller.

     Our opinion expressed in paragraph 1 below insofar as it relates to the due
organization, legal existence and corporate good standing of the Buyer as a
corporation incorporated in the Commonwealth of Massachusetts is based solely on
the certificate referred to in paragraph (b) above, is rendered as of the date
of such certificate and is limited accordingly.

     The opinions hereinafter expressed are qualified to the extent that they
may be subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, usury, fraudulent transfer or other laws affecting
the rights and remedies of creditors generally; (ii) statutory or decisional law
concerning recourse by creditors to security in the absence of notice or
hearing; and (iii) duties and standards imposed on creditors and parties to
contracts, including without limitation, requirements of good faith,
reasonableness and fair dealing. Furthermore, we express no opinion as to the
availability of any equitable or specific remedy or defense upon any breach of
any of the covenants, warranties or other provisions contained in any of such
agreements, instruments or documents, insofar as the availability of such
remedies or defenses may be subject to the discrection of a court.

     We express no opinion as to the laws of any state or jurisdiction other
than the laws of the Commonwealth of Massachusetts and the federal laws of the
United States. Accordingly, to the extent that any other laws govern any of the
matters as to which we express an opinion below, we have assumed with your
permission, without independent investigation, That the laws of such
jurisdiction are identical to those of the Commonwealth of Massachusetts, and we
express no opinion as to whether such assumption is reasonable or correct.

<PAGE>
______________, 1996
Page 4


     On the basis of and subject to the foregoing, we are o(pound) the opinion
that:

     1.   The Buyer is a corporation duly organized, validly existing and in
          good standing under the laws of the Commonwealth of Massachusetts. The
          Buyer has all requisite power and authority to carry on its business
          as now being conducted, to execute and deliver the Buyer's Documents
          and to consummate the transactions contemplated thereby.

     2.   The execution and delivery of the Buyer's Documents, and the
          consummation of the transactions contemplated thereby, have been duly
          authorized by all requisite corporate action on the part of the Buyer.

     3.   The Buyer's Documents have been duly executed and delivered by the
          Buyer and constitute the valid and binding obligations of the Buyer,
          enforceable against it in accordance with their respective terms.

     4.   The execution, delivery and performance by the Buyer of the Buyer's
          Documents and the consummation of the transactions contemplated
          thereby, will not result in any violation of the Buyer's articles of
          organization or bylaws, or any applicable statute, law, regulation,
          or, to the best of our knowledge, order or decree of any court or
          governmental authority, or, to the best of our knowledge, conflict
          with, result in a breach or termination of, or constitute a default
          under, any agreement or other instrument known to us to which the
          Buyer is a party.

     5.   We know of no action, proceeding, suit or investigation pending or
          threatened against the Buyer which may have an adverse effect on the
          Buyer's ability to perform its obligations under the Agreement.

     This opinion is based upon currently existing statutes. rules, regulations
and judicial decisions and upon facts known to us on the date hereof, and we
disclaim any obligation to advise you of any change in any of these sources of
law or subsequent legal or factual developments which might affect any matters
or opinions set forth herein.
<PAGE>

____________, 1996
Page 5

     Please note that we are opinion only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters.

     This opinion is furnished to you in your capacity as the Seller pursuant to
Section 5.2 of the Agreement, and may not be used or relied upon for any other
purpose or by any other person or entity without our express prior written
consent.

                                          Very truly yours,



                                          Hale and Dorr



                                                                    Exhibit 10.9

                     [LETTERHEAD OF KMPG BAYMARK STRATEGIES]

October 2, 1995

Mr. Vincent F. Santulli
Chairman and Chief Executive Officer
PORTA SYSTEMS CORP.
575 Underhill Boulevard
Syosset, NY 11791

Dear Mr. Santulli:

We are pleased to submit this letter agreement ("Agreement") which sets forth
the terms and conditions under which KPMG BayMark Strategies LLC's Crisis
Management Group ("KPMG BayMark") agrees to provide turnaround management and
consulting services, including serving as interim management, to PORTA SYSTEMS
CORP. ("Company".) In doing so, we will report directly to you.

Background

The Company manufactures fiber optic couplers, testing equipment, and connector
products for the telecommunications industry. The Company has negative cash flow
from operations and is unprofitable. Its sales have declined from $82 million in
1991 to $69 million in 1994, and it is extremely highly l everaged. The
Company's shares are traded on the American Stock Exchange (ASE-PSI), although
it is in danger of being de-listed due to not satisfying the required financial
guidelines. The company's lender, Foothill Capital, has placed the Company in
non-monetary default and has required it to susp end payments for 225 days on
$36 million of 6% convertible subordinated debentures.

We met with you August 15 and discussed the major issues you saw facing the
Company and your desire to increase shareholder value.

Qualifications

KPMG BayMark Strategies LLC is an independent firm in a strategic alliance with
KPMG Peat Marwick LLP, the world's largest professional services firm. Our
principals have an average of twenty years experience in the process of
turnaround management, and have
<PAGE>


conducted engagements in most major industries. The combination of our skills in
turnaround management and KPMG's resources offers a highly qualified and
reliable solution to troubled company situations.

Management Team

As Managing Principal of KPMG BayMark's Crisis Management Group, I will
personally direct this engagement. I will assume the title of Chief Operating
Officer of the Company, direct the turnaround effort, and report directly to you
as Chief Executive Officer. During the course of this engagement, I will ensure
that the appropriate resources are brought to this engagement. These resources
may include KPMG BayMark Strategies' associates, as welt as retaining other
professionals under a separate sub-contract.

Approach

We will take a hands-on approach in conducting this engagement. Specifically, we
will assess the financial viability, operations, risks, and opportunities at
PORTA SYSTEMS CORP. In this regard we will make inquiries, survey facilities,
conduct interviews with key personnel, and perform analysis on information made
available to us. Our evaluation will be directed towards those business
activities and related financial data you have identified as being of concern to
you. This work will be performed with a view toward the development of specific
short term and long term business strategies for P ORTA SYSTEMS CORP.

We will take whatever emergency actions are required to increase the chances
that the Company can survive, diagnose the causes of failure, and assist you and
the Board of Directors in deciding if the Company's performance can be improved,
or if it would be better to sell or liquidate it. If the Boa rd and we agree
that shareholder value can best be enhanced by improving the Company's
performance, rather than selling it, we will restructure the business around a
plan we develop, and manage the Company accordingly. We will use a three phase
approach, as described below:

Phase One: Assume Management Responsibility

During Phase One, we will put in place a arrangement team that will lead the
turnaround effort. As stated earlier in this Agreement, I will assume the title
of Chief Operating Officer and report directly to you. Accordingly, you will
include me as a named party on the Company's officers and directo rs, or
similar, liability insurance policy. We will evaluate management, establish
control of the Company's cash flow, and begin educating and motivating the
management team for the effort that lies ahead.

In addition, we will take whatever actions are necessary to enable the Company
to survive. These may include establishing positive operating cash flow as soon
as possible, raising sufficient cash to implement the chosen turnaround
strategy, and protecting and developing the resources needed to susta in the
turnaround effort.

The Emergency Action Phase is a dynamic period. Many decisions are made as new
facts are learned and circumstances unfold. Flexibility in decision-making is
key to stabilizing the Company and developing a turnaround plan.
<PAGE>

Typically, the initial assessment will be completed within the first thirty (30)
days of our engagement, and we anticipate completion of Phase One in two to
three months. However, unforeseen events may require us to spend more time to
accomplish this phase.

Phase Two: Detailed Situation Analysis

During Phase Two, we will conduct a detailed situation analysis to determine the
causes of decline. From this analysis we will determine whether or not the
Company's financial performance can be systematically improved, the type of
strategy most appropriate for the situation, and the form of an action plan for
implementing the chosen strategy to increase shareholder value.

We will seek to determine if there is one or more core business around which a
turnaround may be attempted; if adequate bridge financing is available; if
adequate organizational resources are available; and if employees ca n be
motivated to help improve the Company's performance. We will assess the
strengths and weaknesses of the Company's financial, marketing, production,
engineering, and organizational functions. We will assess the Company's
strategic competitive position and develop a preliminary strategy that ref lects
the circumstances.

Typically, we can complete Phase Two in about three months, however unforeseen
circumstances may require us to spend more time to complete this phase.

Phase Three: Business Restructuring and Growth

During Phase Three, we will seek to restructure the Company in cooperation with
all parties at interest, to focus on increased profitability and return on
assets and equity. Usually, this process includes improving the financial,
marketing, and production functions in an orderly and systematic man ner, while
restructuring the Company for competitive effectiveness. We will develop reward
and compensation systems that reinforce the turnaround effort, and motivate
people to think "profits and return on investment."

In addition, we will seek to institutionalize the changes adopted thus far, with
a strong emphasis on profitability, return on equity, and the enhancement of
value-added processes. We will seek out opportunities for profitable growth and
build the competitive strengths the Company will need to ex ploit such
opportunities. As we enter Phase Three, we will have stopped the cash bleeding,
lowered the break-even, restructured the Company to produce positive cash flow
from operations, and begun the process of growing sales and profits to increase
shareholder value.

Typically, we can complete Phase Three in six months to a year. However,
unforeseen circumstances may require us to spend additional time to accomplish
this phase.

As circumstances warrant, we will recruit managers who will oversee the
day-to-day activities of the Company and report directly to me. At all times, I
will be your direct contact for this engagement.
<PAGE>

Fees

PORT SYSTEMS CORP. agrees to pay KPMG BayMark based on the value of our
services. PORTA SYSTEMS CORP. agrees to pay KPMG BayMark a management fee of
$250,000, payable at the rate of $20,000 on the first of each month for the
first five months of the engagement and $15,000 on the first of each month for
the remaining ten months of the engagement. This fee will be pro-rated to the
date of acceptance for the current month. In addition, PORTA SYSTEMS CORP.
agrees to pay KPMG BayMark "success fees" as follows:

Five percent (5%) of the Company's quarterly Earning Before Interest Taxes
(EBIT) at the end of each quarter during our engagement and for three (3) years
immediately following the end of our engagement and termination of this
agreement.

One percent (1%) of the face amount of total excess inventory bartered,
liquidated, or otherwise disposed of as approved by the CEO of PORTA SYSTEMS
CORP.

One-half percent (0.5%) of the face amount of total debt restructured or
modified, excluding debentures.

Additionally, PORTA SYSTEMS CORP. agrees to pay KPMG BayMark all mutually
agreed, out-of-pocket expenses. A separate invoice for out-of pocket expenses
will be submitted monthly and is due and payable on receipt.

Indemnification

PORTA SYSTEMS CORP. agrees to indemnify KPMG BayMark Strategies LLC from any and
all risks inherent in projects of this nature. Specifically, you agree to
indemnify and hold harmless KPMG BayMark Strategies LLC, its principals,
directors, officers, employees, agents, and controlling persons against and from
any and all losses, claims, damages, or liabilities asserted against us in
connection with our conclusions, advice, decisions, or actions resulting from
our involvement with PORTA SYSTEMS CORP. We are conducting this engagement on a
best efforts basis, and no guarantee can be made as to its outcome. Moreover,
we are independent contractors and are not employees of the Company.

In addition, you agree that the Company will deposit its payroll taxes when due
and furnish us a report bi-monthly demonstrating that all trust fund moneys have
been deposited in accordance with Federal and State Tax requirements. The
Company's failure to deposit trust fund moneys when due shall co nstitute a
material breach of this Agreement. In such event, we will immediately withdraw
from this engagement, and the termination terms listed below shall apply.

Termination/Expiration

The term of this Agreement is fifteen (15) months. Either party may terminate
this Agreement at any time by giving the other party at least thirty (30) days
written notice of such termination. If the Company terminates this agreement for
any reason before the end of the ninth month, it shall pay t o KPMG BayMark the
sum of $60,000 as an early termination fee. Notwithstanding the forgoing, the
provisions concerning "success fees" shall survive any early termination by the

<PAGE>

sum of $60,000 as an early termination fee. Notwithstanding the forgoing, the
provisions concerning "success fees" shall surv ive any termination by the
Company for a period of one year from the date of termination, unless
specifically stated otherwise under the "FEES" provisions of this agreement.

Survivability

All obligations resulting from the terms and conditions of this agreement shall
remain in full force and effect and survive and convey in the event the company
is sold, acquired, or otherwise experiences a change in ownership.

Exclusivity

PORTA SYSTEMS CORP. agrees that it has retained KPMG BayMark on an exclusive
basis to provide it with turnaround management services. Accordingly, no other
advisors, consultants, or intermediaries will be retained by the Company without
the consent of KPMG BayMark. This provision does not apply to the Company's
existing relationships with its attorneys, accountants, or investment bankers.

If the foregoing terms meet with your approval, please indicate your acceptance
by signing and returning to KPMG BayMark the enclosed copy of this letter, along
with a check in the amount of $20,000, signifying your authorization to proceed.

We retain the right to  unilaterally  terminate this Agreement at the end of the
thirty (30) day initial  assessment in which case,  this entire  agreement  will
become null and void effective the date of such determination.

Very truly yours,

KPMG BayMark Strategies LLC

/s/ Edward R. Olson
- -----------------------
Edward R. Olson
Principal

Agreed to and Accepted By:

[ILLEGIBLE]
- --------------------------
Authorized Signature

Chairman, CEO
- --------------------------
Title

October 2, 1995
- --------------------------
Date 11-3-95



                                                                   Exhibit 10.10


                              EMPLOYMENT AGREEMENT

     THIS AGREEMENT, made and entered into as of October 16, 1995, by and
between Porta Systems Corp., a Delaware corporation (the "Company") and Edward
B. Kornfeld (the "Executive").

     WHEREAS, the Executive is being employed by the Company in a management
position and the Company wishes to continue to employ the Executive upon the
terms and conditions set forth in this Agreement; and

     WHEREAS, the Executive is willing to serve in the employ of the Company
upon the terms and conditions set forth in this Agreement;

     NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements hereinafter set forth, the Company and the Executive agree as
follows:

     1. EMPLOYMENT AND DUTIES. (a) The Company hereby employees the Executive
pursuant to this Agreement to render full-time exclusive services to the Company
during the Term (as defined in Section 2 hereof) as a Vice President of the
Company or in such other executive capacity as may be designated by the
Chairman or the Chief Operating Officer of the Company from time to time. In
performing such duties, the Executive shall be subject to the direction of such
officers of the Company as may be designated by the Chairman or Chief Operating
Officer of the Company from time to time. The Executive hereby accepts such
employment and agrees to devote his full-time, attention and best efforts
exclusively to performing the duties described above.

     (b) The Executive agrees to perform such duties as may be assigned or
delegated to him by the Chairman or Chief Operating Officer of the Company and
to be bound by the policies of the Company and its Affiliates as in effect from
time to time. The Executive further agrees to accept election, and to serve,
during all or part of a Term, as an employee, officer or director of an
"Affiliate" as defined in Section (6) (f) hereof if assigned or elected to such
position by the Board of Directors of the Company or by the board of directors
or similar governing body of any Affiliate, and to per form such services for
any such Affiliate as may be assigned, without additional compensation therefor
other than that specified in this Agreement.

     2. TERM. The Company shall employ the Executive pursuant to this Agreement
for a period commending on the date
<PAGE>

hereof and ending on December 31, 1998, which period shall automatically be
extended for an additional twelve-month period on December 31 of each year after
the date hereof while the Agreement remains in effect unless the Company shall
have given notice to the Executive, at least 90 days prior to s uch December 31,
that it has elected to terminate this Agreement at the then expiration date of
this Agreement, subject to the earlier termination at any time during the
Executive's period of employment, as hereinafter provided (the "Term")

     3. COMPENSATION. (a) The Company shall pay the Executive an annual salary
for the services to be rendered by him from the date hereof at an annual rate to
be reviewed by the Board of Directors of the Company ("Board") at least
annually, but which amount shall in no event be fixed at an amount less than the
Executive's annual salary rate last fixed by the Board, payable in periodic
installments in accordance with the Company's regular payroll practices as in
effect from time to time ("Salary"). Notwithstanding the foregoing, the
Executive's Salary may be reduced if and to the ex tent that the salaries
payable to all executive officers of the Company shall be reduced on a uniform
or percentage basis.

     (b) The Executive shall be entitled to participate in and receive the
benefits under any pension plans, bonus arrangements, health, life, accident and
disability insurance plans or programs and any other employee benefit or fringe
benefit plans, perquisites or arrangements which the Company m akes available
generally to other employees of the Company to the extent that the Executive is
otherwise eligible to participate in such plans or arrangements pursuant to the
provisions of such plans or arrangements as they may be in effect from time to
time.

     (c) During the period of his employment hereunder, the Executive shall be
entitled to three (3) weeks paid non-cumulative vacation each year or such
greater period of vacation consistent with the Company's policy with respect to
vacation in effect from time to time.

          4. TERMINATION OF EMPLOYMENT. (a) The Executive's employment hereunder
shall terminate automatically as of the date of his death or upon the
Executive's termination due to disability as determined by the Company's
long-term disability carrier at that time. In the event of termination for death
or long-term disability the Company shall pay to the Executive's estate or
beneficiary or to the Executive, in full satisfaction of its liabilities
hereunder, a payment equal to three months' salary.

     (b) The Company may at any time at its option, exercised by not less than
10 days written notice to the Executive, terminate his employment for "Cause"
(as hereinafter defined). In the event of termination for Cause, the Company
shall have no further obligations or liabilities to the Executi ve hereunder.


                                       -2-
<PAGE>

For purposes of this Agreement, the term Cause means any conviction (or plea of
nolo contender) of the Executive of a felony or misdemeanor (other than for
motor vehicle or similar minor offenses) under the laws of the United States of
any state thereof; any material breach by the Executive of this Agr eement or
any material failure of the Executive to perform his duties hereunder;
intentional dishonesty or gross negligence by the Executive in the performance
of this duties hereunder; the failure by the Executive to comply with any
policies of the Company or any Affiliate for which he renders ser vices; or
conduct on the part of the Executive which damages the reputation of the
Company, which achieves general notoriety with respect to conduct or alleged
conduct by the Executive which is scandalous, immoral or illegal or which is
disruptive of the business and affairs of the Company and its Affiliates.

     (c) The Company may at any time at its option, exercised by not less than
10 days written notice to the Executive (or pay in lieu thereof), terminate his
employment prior to the expiration of the Term other than for Cause, provided
that, if the Company so terminates the Executive's employment other than for
Cause, the Executive shall be entitled to continue to receive, as severance,
payment of Salary at the most recent annual rate in effect prior to the date of
such termination for a period of six months following the date of such
termination of employment, plus one additional month of Salary at such rate for
each full year of service with the Company prior to such termination; provided,
however, that in no event shall the amount of severance payable under this
Section 4(c) be less than twelve (12) months' Salary or exceed a maximum of [24]
months' salary and provided further that the amount of severance payable under
this Section 4(c) shall continue to be paid in the event of the Executive's
death after termination of his employment. If the annual bonus payable to the
Executive has already been determined by the Company a the time his employment
is terminated other than for Cause, the Executive shall receive a bonus payment
in such amount following his termination of employment. In all other
circumstances, no bonus shall be payable to Executive under this Section 4(c)
following his termination of employment. The Company shall continue to pay
insurance premiums for the same medical and dental health care benefits to which
the Executive was entitled prior to such termination for the period of time
permitted under the relevant policy but no longer than the period of such salary
continuance, provided that the Company's medical and dental health carrier or ca
rriers are willing to continue to provide such coverage upon the payment of such
premium or premiums.

     (d) The parties agree that the severance amount payable to the Executive
pursuant to Section 4(c) shall constitute liquidated damages in the event of
termination of this Agreement

                                       -3-
<PAGE>

by the Company other than for Cause. The parties agree that the damages payable
to the Executive in the event of such termination would be difficult to estimate
accurately, the severance amount bears a reasonable relationship to the amount
of damages anticipated by the parties as of the date hereof and the severance
amount is not a penalty. In reliance on the validity of this liquidated damages
provision, the Company has waived any obligation of the Executive to mitigate
damages by seeking other employment and the severance amount shall not be
reduced by compensation earned in such other employment.

     (e) In the event of the Executive's termination of employment other than
for Cause, the Company shall have no further obligations or liabilities to the
Executive hereunder, other than to make such severance payments as provided in
Section 4(c), to provide such medical and dental benefits as provided in Section
4(c) and to receive benefits under stock plans, life insurance arrangements and
supplemental retirement arrangements in accordance with the terms of agreements
with the Executive on these matters. Upon payment of the amounts provided in
Section 4(c), the Company shall have no further liability of any kind or nature
whatsoever to the Executive under law or this Agreement relating to his
employment. The payment to the Executive under Section 4(c) shall be in lieu of
and in discharge of any obligations of the Company to the Executive for Salary,
bonus, or under any separation or severance pay plan or for other compensation
or expectation of remuneration or benefit in connection with the Executive's
employment or the termination thereof. In consideration for the payments
hereunder, the Executive hereby irrevocably and unconditionally releases and
discharges the Company and each of the Company's successors, shareholders,
Affiliates, directors, officers, employees, representatives, agents, assigns,
attorneys, divisions (and agents, directors, officers, employees,
representatives and attorneys of such successors, shareholders, Affiliates and
divisions) and all persons acting by, through or under or in concert with any of
them from any and all charges, complaints, claims, liabilities, obligations,
controversies, damages, causes of action, costs and expenses of any nature
whatsoever, at law or at equity, whether known or unknown, arising now or in the
future, including but not limited to rights under any federal, state or local
laws respecting the terms and conditions of employment, in connection with the
Executive's employment by the Company and the termination thereof under this
Agreement.

     (f) The Executive agrees that he will provide at least 6 months written
notice of his intent to terminate this Agreement prior to the expiration of the
initial or any extended term. The Executive agrees that, without the prior
written consent of the Company, he will not take any action, solicit any
proposals, or engage in discussions or negotiations that could be expected to
result in a breach of his agreement in this Section 4(f).



                                   -4-
<PAGE>

     5. COVENANTS. (a) In view of the fact that the Company is engaged in
specialized businesses, which businesses are conducted throughout the world, and
the information, research and marketing data developed by the Company are
confidential, the Executive agrees that, during the Term and f or a period equal
to the period during which payments are made pursuant to Section 4(c) hereof, he
will not directly or indirectly engage in the business substantially conducted
by the Company or any Affiliate at the date of such termination and for which
the Executive performed material services d uring the period of his employment,
either for himself or for any person, employer, business or other entity in
competition with the Company or such Affiliate, engage in any such business on
his own account, or become interested in any such business, directly or
indirectly, as an individual, partner, shareholder, officer, director,
principal, agent, employee, trustee, consultant or in any other relationship or
capacity; provided, however, that nothing contained herein shall be deemed to
prohibit the Executive from acquiring solely as an investment up to two (2)
percent of the issued and o utstanding shares of capital stock of any public
corporation engaged in any such competitive business. During the Term and for a
period equal to the period during which the Executive receives payments pursuant
to Section 4(c) hereof, the Executive and any entity controlled by him or by
which he is employed shall not solicit, interfere with, hire, offer to hire or
induce any person who is or was an officer, employee customer, supplier or agent
of the Company or any Affiliate to discontinue his or her relationship with the
Company or such Affiliate or to accept employment by any other entity or person.

     (c) The Executive agrees to keep secret and retain in the strictest
confidence all confidential matters which relate to the Company or any
Affiliate, including, without limitation, customer lists, trade secrets, pricing
policies and other business affairs of the Company and any Aff iliate learned by
him from the Company or any Affiliate or otherwise heretofore or hereafter, and
not to disclose any such confidential matter to anyone outside the Company or
any Affiliate, whether during or after his period of service with the Company,
except in the course of performing his dutie s hereunder. Upon request by the
Company, the Executive agrees to deliver promptly to the Company upon
termination of his services for the Company, or at any time thereafter as the
Company may request, all Company memoranda, notes, records, reports, manuals,
drawings, designs, computer files in an y media and other documents (and all
copies thereof) relating to the Company's or any Affiliate's business and all
property of the Company or any Affiliate associated therewith, which he may then
possess or have under his control.

     (d) The Executive agrees that all processes, technologies and inventions,
including new contributions, improvements, formats, packages, programs, systems,
machines, compositions of matter manufactured, developments, applications and
discoveries which are related in any manner to th e business

                                      -5-

<PAGE>

(commercial or experimental) of the Company or any of its Affiliates
(collectively, "New Developments"), whether patentable or not, conceived,
developed, invented or made by him or jointly with others during the period of
his employment with the Company, shall belong to the Company and the Company
shall be the sole owner of all the products and proceeds of the Executive's
services, including intellectual or literary property in any form. The Executive
shall further: promptly disclose such New Developments to the Company; assign to
the Company, without additional compensation, all patent or other rights to such
New Developments for the United States and foreign countries; sign all papers
necessary to carry out the foregoing; and give a reasonable amount of testimony
in support of his inventorship.

     (e) If the Executive commits a material breach of any of the provisions of
this Section 5 or Section 4(f), the Company or any Affiliate shall have the
right and remedy to have the provisions of this Agreement specifically enforced
by any court of competent jurisdiction, it being acknowledged by the Executive
and agreed that any such breach will cause irreparable injury to the Company or
such Affiliate and that money damages will not provide an adequate remedy to the
Company or such Affiliate. Such rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company or any
Affiliate at law or in equity. The provisions of this Section 5 shall survive
the expiration or termination of this Agreement.

     6. MISCELLANEOUS. (a) Neither of the parties hereto shall have the right to
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other party; provided, however, that this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of the
Company upon any sale of all or substantially all of the Company's assets, or
upon any merger or consolidation of the Company with or into any other
corporation, all as though such successors and assigns of the Company and their
respective successors and assigns were the Company.

     (b) The Agreement and the relationships of the parties in connection with
the subject matter of this Agreement shall be construed and enforced according
to the laws of the State of New York without giving effect to the conflict of
laws rules thereof.

     (c) This Agreement contains the full and complete agreement of the parties
relating to the employment of the Executive hereunder and supersedes all prior
agreements, arrangements or understandings, whether written or oral, relating
thereto. This Agreement may not be amended, modified or supplemented, and no
provision or requirement hereof may be waived, except by written instrument
signed by the party to be charged. Notwithstanding the foregoing, in the event
the Executive is covered by an executive severance agreement which


                                    -6-

<PAGE>

provides benefits payable upon the termination of the Executive's employment
following a change in control of the Company, the provisions of this Agreement
which provide severance payments shall not be applicable if the Executive
becomes entitled to receive payments under such executive severance agreement.

     (d) If any provision of this Agreement is held to be invalid or enforceable
by any judgment of a tribunal of competent jurisdiction, the remainder of this
Agreement shall not be affected by such judgment, and this Agreement shall be
carried out as nearly as possible according to its original terms and intent.

     (e) Any dispute or question arising from this Agreement or its
interpretation shall be settled exclusively by arbitration in New York, N.Y.
accordance with the commercial rules then in effect of the American Arbitration
Association. Judgment upon an award rendered by the arbitrator(s) may be entered
in any court of competent jurisdiction, including courts in the state of New
York. Any award so rendered shall be final and binding upon the parties hereto.
All costs and expenses of the arbitrator(s) shall be paid as determined by such
arbitrator(s), and all costs and expenses of experts, witnesses and other
persons retained by the parties shall be borne by them respectively. In the
event that injunctive relief shall become necessary under this Agreement, either
of the parties shall have the right to seek provisional remedies prior to an
ultimate resolution by arbitration.

     (f) As used herein, the term "Affiliate" shall mean any corporation or
business entity controlling, controlled by or under common control with the
Company.

     (g) Any notice required or permitted to be given under this Agreement shall
be sufficient if it is in writing, and if it is sent by registered mail ~o his
residence, in the case of the Executive, and to the Secretary of the Company at
its principal executive offices, in the case of the Company, or to such other
person or address as either party shall designate in writing to the other.

     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.

                                                  Porta Systems Corp.
                                          
                                                  By: [ILLEGIBLE]
                                                     ----------------
                                                  Name:
                                                  Title:

                                                   
                                                      [ILLEGIBLE]      
                                                     ----------------  
                                                        Executive



                                 -7-


                                                                   Exhibit 10.11

                                                                [CONFORMED COPY]

                              EMPLOYMENT AGREEMENT

     AGREEMENT  dated as of the 28 day of  March,  1996,  by and  between  Porta
Systems Corp., a Delaware corporation with its principal office at 575 Underhill
Blvd., Syosset, New York 11791 (the "Company"), and Warren H. Esanu, residing at
20 East 84th Street, New York, NY 10028 (the "Executive").

                              W I T N E S S E T H:

     WHEREAS,  the  Company  desires  to  obtain  the  benefits  of  Executive's
knowledge, skill and ability and to employ Executive on the terms and conditions
hereinafter set forth; and

     WHEREAS,  Executive  desires to provide his  services to the Company and to
accept  employment by the Company on the terms and  conditions  hereinafter  set
forth;

     NOW,  THEREFORE,  in consideration of the mutual promises set forth in this
Agreement, the parties agree as follows:

     1. Employment and Duties.

     (a) Subject to the terms and conditions  hereinafter set forth, the Company
hereby employs Executive as the Chairman of the Board of the Company.  Executive
shall report to the Company's Board of Directors (the "Board").  Executive shall
perform  his  duties  and  responsibilities  customarily  associated  with  such
position,  and he shall have such other duties and  responsibilities  consistent
with such  position as the Board may assign to him from time to time.  Executive
shall also serve as a member of the executive  committee of the Board and of the
boards of directors of each of its subsidiaries (other than foreign subsidiaries
for which a U.S. citizen or resident may not serve as a directors).

     (b) In addition,  Executive  shall serve as a director of the  Company,  if
elected,  for which he shall receive such  compensation as is provided from time
to time to so-called  "outside  directors,"  and in such  executive  capacity or
capacities  with  respect  to any  affiliate  of the  Company to which he may be
elected or appointed,  provided that such duties are not inconsistent with those
of the Chairman of the Board of the Company.

<PAGE>

     (c) This Agreement  shall have an initial term commencing as of the date of
this  Agreement  and expiring on March 31, 1999 and  continuing  thereafter on a
year-to-year  basis unless terminated by either party by written notice given no
later than  ninety  (90) days prior to  expiration  of the  initial  term or any
one-year  extension.  The Term of this Agreement  shall include the initial term
and all one-year extensions.

     2.  Acceptance  of  Employment.  Executive  hereby  accepts the  employment
contemplated by this Agreement.  During the Term, Executive shall devote such of
his  business  time and  attention to the  performance  of his duties under this
Agreement as he shall, in his sole discretion, deem necessary, and shall perform
his duties  diligently,  in good faith and in a manner  consistent with the best
interests  of the  Company.  Executive  may perform his duties at the  Company's
office or at his office in New York City, and will not be required to be present
at the Company's offices more than one day per week. The Company understands and
agrees Executive will continue his other business activities, including, but not
limited to the practice of law and real estate investment and management.

     3. Compensation and Other Benefits.

     (a) (i) For his services to the Company  during the Term, the Company shall
pay  Executive a salary  ("Salary")  at the annual rate of two hundred  thousand
dollars  ($200,000).  Commencing  April 1, 1997 and on each  April 1  thereafter
during the Term of this Agreement, Executive shall receive an increase in Salary
equal to the lesser of (i) the  increase  in cost of living  index or (ii) seven
and one-half  percent  (7.5%) of the Salary then in effect.  The Salary shall be
payable  in such  installments  as the  Company  regularly  pays  its  executive
officers, but not less frequently than semi-monthly.

     (ii) The cost of living increase shall be computed as follows:

          (A) The cost of living index, as hereinafter  defined, for each March,
     commencing  March 1997, shall be compared with the cost of living index for
     March of the  previous  year.  The cost of living  increase  shall mean the
     percentage  increase in the cost of living index from the previous March to
     the March as of which the computation is made. Such determination  shall be
     made as soon as

                                      - 2 -


<PAGE>

     possible  after  release  of the cost of  living  index for the March as of
     which the  computation is being made,  and the Company  shall,  on the next
     payroll date, pay to Executive any  additional  Salary accrued but not paid
     pending determination of the cost of living increase.

          (B) The cost of living index shall mean the "Consumers Price Index for
     Urban  Wage  Earners  and  Clerical  Workers  (Revised  Series)  - New York
     Metropolitan  Area",  published  by the Bureau of Labor  Statistics  of the
     United States  Department of Labor. If the said cost of living index in its
     form as of the date of this  Agreement  or the  calculation  basis  thereof
     shall be revised  therefrom or  discontinued,  the parties shall attempt in
     good faith to adjust the provisions of this Paragraph 3(a).

     (b) Executive will be eligible for discretionary  bonuses determined by the
Board,  and he will be eligible to participate  in any executive  officers bonus
pool. 

     (c) In addition to Salary and any Bonus payable  pursuant to Paragraph 3(b)
of this Agreement,  Executive shall receive the following  benefits:  

          (i) health  insurance,  disability,  accident and life  insurance  and
     officer's  life  insurance  for  Executive to the extent such  benefits are
     currently  in  effect or will be put into  effect  for  executive  officers
     during  the  term  of  this  Agreement  and to the  extent  that  Executive
     qualifies  therefor;  and 

          (iii)  vacation  in  accordance  with  Company  policy  for  executive
     officers, all of which may be carried forward if not used.

     (d)  The  Company  shall,  contemporaneously  with  the  execution  of this
Agreement,  grant to Executive a non-qualified option (the "Option") to purchase
five hundred thousand  (500,000) shares of the Company's common stock, par value
$.01 per share ("Common Stock") at an exercise price equal to the fair value per
share, as hereinafter  defined.  The fair value per share shall mean the average
of the closing prices of the Common Stock on the American Stock Exchange  during
the last ten (10)  trading  days in the month of March 1996;  provided,  that if
there is no closing price on any such day,  the average  of the  closing bid and

                                      - 3 -


<PAGE>

asked  prices  shall be used for  such  day.  The  Option  shall be  exercisable
immediately and shall expire on March 31, 2006.

     4. Reimbursement of Expenses. The Company shall pay or reimburse Executive,
upon presentation of proper expense statements, for all authorized, ordinary and
necessary  out-of-pocket expenses reasonably incurred by Executive in connection
with the  performance of his services  pursuant to this  Agreement  hereunder in
accordance with the Company's  expense  reimbursement  policy. 

     5. Termination of Employment.

     (a) Executive's  employment hereunder shall terminate  immediately upon the
death of Executive.

     (b)  Executive's  employment  may be  terminated by the Company by not less
than thirty (30) days' written  notice in the event of  Executive's  Disability.
The term  "Disability"  shall mean any  illness,  disability  or  incapacity  of
Executive  which prevents him from  substantially  performing his regular duties
for a period of three (3) consecutive months or four (4) months, even though not
consecutive, in any twelve (12) month period.

     (c) The Company  may  terminate  Executive's  employment,  immediately  and
without  notice,  for cause,  in which  event no further  compensation  shall be
payable to  Executive.  The term  "Cause"  shall mean either (i)  conviction  of
Executive  of any felony or (ii)  repeated  failure to perform the duties of his
position  following  written  notice from the Board  setting forth in reasonable
detail the basis for the  proposed  termination  and  Executive  being  given an
opportunity  to meet with the  Board and to  dispute  the  claims  raised in the
notice.

     (d) In the event that the Company terminates  Executive's  employment other
than as provided in Paragraphs  5(a) and (c), the Company shall pay to Executive
as severance  payments his Salary at the rate provided in this Agreement for (i)
six (6) months if such termination  occurs prior to April 1, 1997, (ii) nine (9)
months if such  termination  occurs  subsequent  to March 31,  1997 and prior to
April  1,  1998,  and  (iii)  twelve  (12)  months  if such  termination  occurs
subsequent  to March 31, 1998 or if the Company  fails to renew this  Agreement.

                                      - 4 -

<PAGE>

Such  payments  shall be paid at such times as the  Company  pays its  executive
officers.  The period during which severance is being paid to Executive pursuant
to this Paragraph 5(d) is referred to as a "Severance Payment Period."

     (e) In the event of any  termination of Executive's  employment,  including
termination  for cause,  Executive  shall be  entitled  to all rights  under the
Company's  benefit plans which had vested as of the date of  termination  of his
employment.  In  addition,  for a period of  eighteen  (18)  months  after  such
termination, the Company shall provide Executive with the hospitalization,  life
insurance,  medical and major medical benefits which would have been provided to
Executive if he had continued in the employ of the Company.

     (f)  The  Company  shall,  contemporaneously  with  the  execution  of this
Agreement,  enter into a Salary Continuation Agreement in substantially the form
provided by the Company to its senior executive officers.

     6. Trade Secrets and Proprietary Information. Executive agrees that he will
not,  during or after the Term of this Agreement or thereafter,  use or disclose
to any person, firm,  corporation,  partnership,  business trust,  individual or
other business  entity any trade secrets or proprietary  information  concerning
the Company's or any of its subsidiaries' products, services, business, proposed
products  and  services,   marketing   strategy  and  research  and  development
activities; except that nothing in this Agreement shall be construed to prohibit
him  from  using or  disclosing  such  information  if it  shall  become  public
knowledge  other than by or as a result of  disclosure  by a person not having a
right to make such disclosure and complying with legal process.

     7.  Covenant  Not to Compete.  Executive  recognizes  that the scope of the
Company's  business is  international  and is not limited to any single state or
region.  Executive  covenants and agrees that during the Term of this  Agreement
and during the Severance  Payment Period,  he will not engage in any business in
the United States whether as officer, director, consultant,  partner, guarantor,
principal,  agent,  employee,  advisor or in any manner (other than as counsel),
which directly  competes with the business of the Company as it is engaged in at

                                      - 5 -

<PAGE>

the  time of the  termination  of this  Agreement,  unless  at the  time of such
termination or thereafter during the  non-competition  period the Company ceases
to be  engaged  in  such  activity,  provided,  however,  that  nothing  in this
Paragraph 7(a) shall be construed to prohibit  Executive from owning an interest
of not more  than  five  percent  (5%) of any  public  company  engaged  in such
activities, and nothing in this Paragraph 7(a) shall be construed to restrict or
limit in any matter (i) the practice of law by Executive or any firm of which he
is a partner,  employee,  of counsel or otherwise affiliated or (ii) the parties
to which Executive or any entity in which he has an affiliation may rent,  lease
or sell real property.

     8.  Inventions and  Discoveries.  Executive  agrees promptly to disclose in
writing to the Company any  invention or discovery  made by him during the Term,
in the capacity of an executive  officer of the Company,  in the any business in
which  the  Company  or  any of its  subsidiaries  in  then  engaged,  and  such
inventions  and  discoveries  shall be the  Company's  sole  property.  Upon the
Company's  request,  Executive  shall  execute  and  assign to the  Company  all
applications  for  copyrights  and patent  letters of the United States and such
foreign countries as the Company may designate,  and Executive shall execute and
deliver to the Company such other  instruments as the Company deems necessary to
vest in the Company the sole  ownership of all  exclusive  rights in and to such
inventions  and  discoveries,  as  well as the  copyrights  and/or  patents.  If
services in connection  with  applications  for  copyrights  and/or  patents are
performed by Executive at the  Company's  request after the  termination  of his
employment,  the Company shall pay him reasonable compensation for such services
rendered after termination of this Agreement.

     9.  Injunctive  Relief.  Executive  agrees that his violation or threatened
violation of any of the  provisions of  Paragraphs 6, 7 and 8 of this  Agreement
shall cause immediate and irreparable  harm to the Company.  In the event or any
breach or threatened breach of said provisions,  Executive consents to the entry
of preliminary  and permanent  injunctions by a court of competent  jurisdiction
prohibiting  such party from any  violation  or  threatened  violation  of these
provisions  and  compelling  Executive  to comply  with these  provisions.  This

                                      - 6 -

<PAGE>

Paragraph 9 shall not affect or limit,  and the  injunctive  relief  provided in
this  Paragraph 9 shall be in addition to, any other  remedies  available to the
Company at law or in equity.In  the event an  injunction  is issued  against any
such  conduct  by  Executive,  the period  referred  to in  Paragraph  7 of this
Agreement  shall  continue  until the later of the  expiration of the period set
forth  therein or one (1) month from the date a final  judgment  enforcing  such
provisions is entered and the time for appeal has lapsed.

     10.  Indemnification.  The Company shall provide  Executive with payment of
legal fees and  indemnification  to the maximum extent permitted by the Delaware
General Corporation Law.

     11. Legal Services.  The Company  acknowledges that Executive will continue
his legal practice.  Any law firm of which Executive is a partner,  an employee,
of counsel  or  otherwise  affiliated  may  perform  services  for the  Company.
Services  rendered  by  Executive  in his  capacity as an attorney of counsel to
Esanu Katsky Korins & Siger or as a partner,  employee,  of counsel or any other
affiliation  to or with any other law firm shall be in addition to his  services
as an executive officer of the Company,  and the Company will pay the legal fees
and disbursements of such firm.

     12. Miscellaneous.

     (a)  Executive  represents,  warrants,  covenants  and agrees that he has a
right to enter into this  Agreement,  that he is not a party to any agreement or
understanding,  oral  or  written,  which  would  prohibit  performance  of  his
obligations under this Agreement, and that he will not use in the performance of
his obligations  hereunder any proprietary  information of any other party which
he is legally prohibited from using.

     (b) Any notice under the  provisions  of this  Agreement  shall be given in
writing and by hand,  overnight  courier or messenger  service,  against  signed
receipt or  acknowledgment  of receipt,  registered  or certified  mail,  return
receipt requested, or telecopier or similar means of communication if receipt is
acknowledged  or if  transmission  is  confirmed  by  mail as  provided  in this
Paragraph 12(c), to the parties at their  respective  addresses set forth at the

                                      - 7 -

<PAGE>

beginning of this Agreement or by telecopier to the Company at (516) 682-4655 or
to Executive  at (212)  953-6899,  with notice to the Company  being sent to the
attention  of the  individual  who  executed  this  Agreement  on  behalf of the
Company.  Either  party  may,  by like  notice,  change the  person,  address or
telecopier number to which notice should be sent.

     (c) If any term, covenant or condition of this Agreement or the application
thereof  to any party or  circumstance  shall,  to any  extent,  be  invalid  or
unenforceable, the remainder of this Agreement, or the application of such term,
covenant or condition to parties or  circumstances  other than those as to which
it is held  invalid or  unenforceable,  shall not be  affected  thereby and each
term,  covenant or condition of this Agreement shall be valid and be enforced to
the fullest  extent  permitted  by law, and any court  having  jurisdiction  may
reduce the scope of any  provision of this  Agreement  so that it complies  with
applicable law.

     (d) This  Agreement  constitutes  the entire  agreement  of the Company and
Executive as to the subject  matter  hereof,  superseding  all prior  written or
prior  or  contemporaneous  oral  understanding  or  agreements,  including  any
previous  employment  agreements,  or understandings with respect to the subject
matter covered in this Agreement. This Agreement may not be modified or amended,
nor may any right be waived,  except by a writing which expressly refers to this
Agreement, states that it is intended to be a modification,  amendment or waiver
and is signed by both parties in the case of a  modification  or amendment or by
the party  granting  the  waiver.  No course of conduct or dealing  between  the
parties  and no custom or trade  usage shall be relied upon to vary the terms of
this  Agreement.  The failure of a party to insist upon strict  adherence to any
term of this  Agreement  on any  occasion  shall not be  considered  a waiver or
deprive that party of the right  thereafter  to insist upon strict  adherence to
that term or any other term of this Agreement.

     (e) Neither  party hereto shall have the right to assign or transfer any of
its or his rights hereunder.

     (f) This  Agreement  shall be binding  upon and inure to the benefit of the
parties   hereto   and   their   respective   heirs,   successors,    executors,
administrators, and assigns.

                                      - 8 -

<PAGE>

     (g) The headings in this  Agreement are for  convenience  of reference only
and  shall not  affect in any way the  construction  or  interpretation  of this
Agreement.

     (h) This  Agreement  shall be governed by and construed in accordance  with
the  laws of the  State  of New  York  applicable  to  contracts  made and to be
performed  wholly within such State,  except that the provisions of Paragraph 10
shall be governed by the Delaware  General  Corporation Law. Each of the parties
hereby (i) irrevocably consents and agrees that any legal or equitable action or
proceeding  arising under or in connection  with this Agreement shall be brought
exclusively  in any Federal or state  court in the County of New York,  State of
New York, (ii) by execution and delivery of this Agreement,  irrevocably submits
to and  accepts,  with  respect to its  properties  and  assets,  generally  and
unconditionally,  the  jurisdiction of the aforesaid court and (iii) agrees that
any  action  against  such party may be  commenced  by service of process by any
method set forth in Paragraph 11(b) of this Agreement, other than by telecopier,
to such party as provided in said Paragraph 11(b).

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                                            PORTA SYSTEMS CORP.



                                            By:Michael A. Tancredi
                                               --------------------------------
                                               Name:
                                               Title: Vice President-Treasurer


                                               William V. Carney
                                               --------------------------------
                                               Vice Chairman


                                               Warren H. Esanu
                                               --------------------------------
                                               Warren H. Esanu


                                      - 9 -



                                                                   Exhibit 10.12

                        Executive Continuation Agreement

     This Agreement, made and entered into in the town of Syosset, New York,
effective as of October 16, 1995, by and between Porta Systems Corp., a Delaware
corporation with its principal executive offices at 575 Underhill Boulevard,
Syosset, New York (the "Corporation"), and Edward B. Kornfeld, an individual
residing at 3 Hampshire Court, Holbrook, New York 11741 (the "Executive").

     WHEREAS, the Compensation Committee of the Board of Directors of the
Corporation has recommended, and the Board of Directors of the Corporation has
approved, the Corporation entering into agreements with certain key executives
of the Corporation and its subsidiaries who are from time to time designated by
the Board of Directors; and

     WHEREAS, the Executive is a key executive of the Corporation or one of its
subsidiaries;

     NOW, THEREFORE, to induce the Executive to remain in his current position,
and to compensate the Executive for his valuable services to the Corporation and
its subsidiaries should his services be terminated under circumstances
hereinafter described, and for other good and valuable consideration, the
receipt and adequacy of which each party acknowledges, the Corporation and the
Executive agree as follows:

     1. Term. This Agreement shall commence on the date hereof and shall
continue until December 31, 1995 and, unless the Corporation gives written
notice to the Executive of its election not to extend or renew this Agreement at
least sixty (60) days prior to January l of any year, effective January 1 of
each year, commencing January l, 1996, the term of this Agreement shall be
extended and renewed automatically for one (l) additional year; provided
however, said notice not to extend or renew shall only be effective if similar
notices not to extend or renew are given to other executives of the Corporation
who are similarly subject to Executive Continuation Agreements.

     2. Compensation Payable. No compensation shall be payable under this
Agreement unless and until there shall have been a change in Control of the
Corporation (as defined in paragraph 3 hereof) while the Executive is still an
employee of the Corporation and the Executive's employment by the Corporation
terminates in the manner which would entitle him to the benefit of the payments
under paragraph 4 hereof.

     3. Change in Control. For purposes of this Agreement, a "Change in Control"
shall mean a change in control of a nature that would be required to be reported
in response to Item 6(f) of Schedule 14A of Regulation 14A promulgated under the
Securities

                                       
<PAGE>

Exchange Act of 1934, as amended (the "Exchange Act"); provided that, without
limitation, such a Change in Control shall also be deemed to have occurred if
(i) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the Corporation representing 25% or more of the combined voting
power of the Corporation's then outstanding securities; or (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of the Directors of the Corporation cease for any reason to
constitute at least a majority thereof unless the election of each new director
was nominated or ratified by at least two-thirds of the directors then still in
office who were directors at the beginning of such period.

     4. Termination After Change of Control. If any of the events described in
paragraph 3 hereof constituting a Change of Control shall have occurred, the
Executive shall be entitled to the benefits provided in this paragraph 4 hereof
upon the subsequent termination of his employment unless such termination is (a)
because of the Executive's death, or (b) by the Corporation for Cause or
Disability as provided in paragraph 5 or 6 hereof, or (c) by the Corporation and
occurs more than eighteen (18) months subsequent to the date of the Change of
Control or (d) by the Executive for Good Reason and occurs more than eighteen
(18) months subsequent to the date of the Change of Control. In the event the
Executive shall become entitled to receive benefits under this paragraph 4, the
Corporation shall pay to the Executive as severance pay in one lump sum on the
fifth day following the Date of Termination or, at the election of the
Executive, in equal monthly installments the following amounts:

          (i) the Executive's full salary through the Date of Termination at the
     rate in effect at the time the Notice of Termination is given; and

          (ii) In lieu of any further salary payments to the Executive for the
     periods subsequent to the Date of Termination, an amount equal to the
     product of (A) the sum of the Executive's monthly salary at the rate in
     effect as of the Date of Termination, or if higher, as in effect
     immediately prior to the Change in Control, plus the pro rata monthly
     amount of his most recent annual executive bonus or, if higher, his most
     recent annual bonus paid immediately prior to the Change of Control,
     multiplied by (B) 18.

     5. Discharge for Cause. The Corporation, through action taken by a majority
of its entire Board of Directors at a meeting held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with his counsel, to be heard before the Board of Directors), may at



                                       2
<PAGE>

any time at its option, exercised by notice to the Executive, terminate his
services for Cause (as hereinafter defined). In the event of termination for
Cause, the Corporation shall have no further obligations or liabilities to the
Executive thereunder. For purposes of this Agreement, the term "Cause" means (i)
any conviction of the Executive of a felony under the laws of the United States
or any state thereof; or (ii) the willful and continued failure by the Executive
to substantially perform his duties with the Corporation (other than such
failure resulting from his incapacity due to physical or mental illness), after
a demand for substantial performance is delivered to the Executive by the Board
of Directors which specifically identifies the manner in which the Board of
Directors believes the Executive has not substantially performed his duties. For
purpose of this paragraph 5, no act or failure to act on the Executive's part
shall be considered "willful" unless done, or omitted to be done by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Corporation.

     6. Death or Incapacitv. In the event of the Executive's death during the
term of this Agreement prior to his becoming entitled to benefits under
paragraph 4, this Agreement shall terminate on the date of his death and no
benefits shall be payable thereunder. In the event that, during the term of this
Agreement prior to his becoming entitled to benefits under paragraph 4, the
Executive shall become totally incapacitated by any physical or mental illness
or disability for a period of one hundred eighty consecutive days and within
thirty (30) days after written notice of termination is given the Executive
shall not have returned to the full-time performance of his duties, the
Corporation may terminate this Agreement for "Disability" and no benefits shall
be payable hereunder.

     7. Termination by Executive for Good Reason. The Executive may terminate
his employment with the Corporation for "Good Reason" at any time within
eighteen (18) months of a Change in Control and in such circumstances will be
entitled to the benefits provided in paragraph 4 hereto. For purposes of this
Agreement, "Good Reason" shall mean the occurrence of any one of the following
events without the Executive's express written consent: (i) the assignment of
the Executive to any duties substantially inconsistent with his position,
duties, responsibilities or status with the Corporation immediately prior to the
Change in Control, or any removal of the Executive from, or any failure to
reelect him to his then current position, except in connection with a
termination of his employment for Cause or Disability; (ii) a reduction by the
Corporation in the amount of the Executive's base salary or other employee
perquisites as compared to that which was paid or made available to him
immediately prior to the Change in Control; (iii) the failure by the Corporation
to continue to provide the Executive with substantially similar bonus
opportunities as enjoyed immediately prior to the Change in Control or benefits
the



                                       3
<PAGE>

Executive enjoyed under the Corporation's benefit programs in which he was
participating at the time of the Change in Control; (iv) the failure by the
Corporation to provide the Executive with the number of paid vacation days to
which he was entitled in accordance with the Corporation's normal vacation
policy or arrangement with the Executive in effect at the time of the Change in
Control; (v) the relocation of the Executive's principal office to a location
more than twenty-five (25) miles from the location of such office immediately
prior to the Change in Control; (vi) requiring travel on the Corporation's
business to an extent substantially greater than the Executive's business travel
obligations immediately prior to the Change in Control; (vii) any failure of the
Corporation to obtain the express written assumption of the obligation to
perform this Agreement by any successor; or (viii) any breach by the Corporation
of any of the provisions of this Agreement or any failure by the Corporation to
carry out any of its obligations hereunder.

     8. Date of Termination. "Date of Termination" shall mean the date on which
the Notice of Termination is given.

     9. Notices. All notices required or permitted to be given hereunder shall
be by registered or certified mail addressed to the respective parties at their
addresses hereinabove set forth or at such other addresses as may hereafter be
designated in writing by such party and all such notices shall be deemed to be
given on the date when such notice was mailed. Notices sent to the Corporation
shall be sent to the attention of the President of the Corporation. Any
termination by the Corporation pursuant to paragraph 5 above shall be
communicated by written notice of termination to the Executive. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide the basis for termination of the Executive's employment under the
provision so indicated.

     10. Non-Competition. Solely in the event that the Executive terminates his
employment for Good Reason pursuant to paragraph 7 hereof, then for the eighteen
(18) month period thereafter, the Executive shall not directly or indirectly
engage in, as a director, officer, employee or stockholder, in any business,
association, or corporation (other than the Corporation, or any subsidiary or
successor of it) that is engaged in whole or in part in a business that is in
substantial and direct competition with the business of the Corporation or any
of its subsidiaries, provided that the Executive may own not in excess of 5% of
any class of securities of any such competitive entity that is registered under
section 12 of the Securities Exchange Act of 1934, as amended, or is otherwise
publicly traded.

     11. Merger or Consolidation. In the event the Corporation shall merge into
or consolidate with another corporation, or


                                       4
<PAGE>

appointed by the Executive, each such appointment to be made within ten (10)
days after the expiration of the fifteen (15) day period referred to above, and
the third arbitrator to be appointed by the first two arbitrators within twenty
(20) days after the expiration of such ten (10) day period. If the first two
arbitrators cannot reach agreement on the third arbitrator within said twenty
(20) day period, the third arbitrator shall be an impartial arbitrator appointed
by the President of the American Arbitration Association within thirty (30) days
after the expiration of said twenty (20) day period. Hearings of the
arbitrator(s) shall be held in New York, New York, unless the parties agree
otherwise. Judgement upon an award rendered by the arbitrator(s) may be entered
in any court of competent jurisdiction, including courts in the state of New
York. Any award so rendered shall be final and binding upon the parties hereto.
Subject to paragraph 15 hereof, all costs and expenses of the arbitrator(s)
shall be paid as determined by such arbitrator(s), and all costs and expenses of
experts, witnesses and other persons retained by the parties shall be borne by
them respectively.

     15. Indemnification for Expenses and Advancement of Expenses. (a) Upon the
occurrence of a Change in Control, the Corporation shall pay, and indemnify the
Executive against, all costs and expenses, including without limitation the fees
and expenses of attorneys, arbitrators, experts and witnesses, incurred on or on
behalf of the Executive in connection with any arbitration or legal claim or
proceeding arising from this Agreement or the interpretation thereof, to the
extent that the Executive is successful, on the merits or otherwise, in any such
claim or proceeding. If the Executive is not wholly successful in such claim or
proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such claim or proceeding, then the
Corporation shall indemnify the Executive against all such costs and expenses
incurred by him or on his behalf in connection with each successfully resolved
claim, issue or matter. For the purposes of this paragraph 15, and without
limiting the foregoing, the termination of any claim, issue or matter in any
such claim or proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.

     (b) The Corporation shall advance all such costs and expenses incurred by
or on behalf of the Executive in connection with any such claim or proceeding
within twenty (20) days after the receipt by the Corporation of a statement or
statements from the Executive requesting such advance or advances from time to
time, whether prior to or after final disposition of such claim or proceeding.
Such statement or statements shall reasonably evidence the costs and expenses
incurred by the Executive and shall include or be preceded or accompanies by an
undertaking by or on behalf of the Executive to repay any costs and expenses


                                       5
<PAGE>

advanced if it shall ultimately be determined that the Executive is not entitled
to be indemnified against such costs and expenses.

     16. Tax Withholding. The Corporation shall have the right to withhold from
any transfer or payment made to the Executive or to any other person hereunder,
whether such payment is to be made in cash or other property all applicable
Federal, state, city or other taxes or foreign taxes as they shall be required,
in the determination of the Corporation, pursuant to any statue or governmental
regulation or ruling.

     17. Miscellaneous. In the event that the Executive shall die after becoming
entitled to benefits hereunder but prior to the complete payment thereof, all
such remaining amounts shall be paid to the Executive's estate or beneficiary.
No provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing signed by the
Executive and such officer as may be specifically designated by the Board of
Directors of the Corporation and such provision shall be modified, waived or
discharged only to the extent set forth in such writing. This Agreement sets
forth the entire agreement of the parties hereto and supersedes any prior
expressions of intent or understanding, whether written or oral, with respect to
the subject matter hereof. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the state of New
York. The invalidity or unenforceability of any provision of this Agreement
shall in no way effect the validity or enforceability of any other provision.
For purposes of this Agreement, the term "subsidiary" shall mean any corporation
or business entity controlled by the corporation in question, and the term
"affiliate" shall mean and include any corporation or business entity
controlling, controlled by, or under common control with the corporation in
question.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above set forth.

                                               PORTA SYSTEMS CORP.

                                               By: [ILLEIGBLE]
                                                  --------------------
                                                  Title:

Dated:   [ILLEIGBLE]                               [ILLEIGBLE]
      ---------------------------                 --------------------
                                                  Executive   

                                       7



                                                                      Exhibit 21

                          Subsidiaries of the Company

     The following table sets forth the name and state or other jurisdiction of
incorporation of each of the Company's subsidiaries (excluding subsidiaries
which taken individually or in the aggregate would not constitute significant
subsidiaries as that term is defined in Rule 12b-2 of the Securities Exchange
Act of 1934) as of December 31, 1993. Each subsidiary is wholly owned and its
financial statements are included in the Consolidated Financial Statements of
the Company.

     Porta Systems Leasing Corp. - Delaware
     Porta Systems Foreign Sales Corp. - U.S. Virgin Islands
     Porta Systems Limited - United Kingdom
     Vanderhoff Communications Limited - United Kingdom
     Vanderhoff Business Systems Limited - United Kingdom
     Lero Industries Limited - United Kingdom
     Porta Systems, S.A. de C.V. - Mexico
     Criterion Plastics, Inc. - Texas
     Miror Telephony Software, Inc. - North Carolina
     Aster Corporation - Delaware
     Aster (Ireland) Ltd. - Bermuda

     All corporations listed above do business under their respective corporate
names.



                      [Letterhead of KPMG Peat Marwick LLP]


                        Consent of Independent Auditors

Board of Directors
Porta Systems Corp.:

We consent to the  incorporation  by reference in the  registration  statements;
(Reg.  No.  2-95117) on Form S-8,  (Reg.  No.  2-65375) on Form S-8,  (Reg.  No.
33-12146) on Form S-8 and (Reg. No. 33-41992) on Form S-8 of Porta Systems Corp.
and  subsidiaries  of  our  report  dated  March  22,  1996,   relating  to  the
consolidated  balance  sheets of Porta  Systems  Corp.  and  subsidiaries  as of
December  31,  1995  and  1994  and  the  related  consolidated   statements  of
operations,  stockholders'  equity  and cash  flows for each of the years in the
three-year  period ended  December 31, 1995,  which report  appears in the Porta
Systems Corp. annual report on Form 10-K.

Our report dated March 22, 1996,  contains an explanatory  paragraph that states
that the Company's  recurring losses from operations and working capital and net
capital  deficiencies raise substantial doubt about its ability to continue as a
going  concern.  The  consolidated  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.

                                                  KPMG Peat Marwick LLP

                                                  KPMG PEAT MARWICK LLP

Jericho, New York
March 29, 1996

<TABLE> <S> <C>


<ARTICLE>                     5
<LEGEND>
     THIS SCHEDULE  CONTAINS SUMMARY  FINANCIAL  INFORMATION  EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>                                   1,000
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                              DEC-31-1995
<PERIOD-START>                                 JAN-01-1995
<PERIOD-END>                                   DEC-31-1995
<CASH>                                               1,109
<SECURITIES>                                             0
<RECEIVABLES>                                       13,877
<ALLOWANCES>                                         1,251
<INVENTORY>                                          8,979
<CURRENT-ASSETS>                                    24,373
<PP&E>                                              19,709
<DEPRECIATION>                                      12,798
<TOTAL-ASSETS>                                      60,591
<CURRENT-LIABILITIES>                               32,570
<BONDS>                                             25,660
                                    0
                                              0
<COMMON>                                                75
<OTHER-SE>                                          29,398
<TOTAL-LIABILITY-AND-EQUITY>                        60,591
<SALES>                                             61,181
<TOTAL-REVENUES>                                    61,181
<CGS>                                               56,444
<TOTAL-COSTS>                                       24,621
<OTHER-EXPENSES>                                       884
<LOSS-PROVISION>                                       666
<INTEREST-EXPENSE>                                   8,397
<INCOME-PRETAX>                                    (29,163)
<INCOME-TAX>                                            30
<INCOME-CONTINUING>                                (29,297)
<DISCONTINUED>                                      (3,500)
<EXTRAORDINARY>                                      1,756
<CHANGES>                                                0
<NET-INCOME>                                       (31,041)
<EPS-PRIMARY>                                        (4.25)
<EPS-DILUTED>                                        (4.25)
        


</TABLE>


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