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