SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 2, 1998
Porta Systems Corp.
(Exact name of Registrant as Specified in its Charter)
Delaware 1-8191 11-2203988
(State or other jurisdiction (Commission (IRS Employer
of incorporation File No.) Identification No.)
575 Underhill Boulevard, Syosset, New York 11791
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (516) 364-9300.
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Item 5. Other Events.
As reported in the Company's Form 10-Q for the quarter ended September 30,
1997, the Company executed a Supplemental Indenture dated October 10, 1997,
pursuant to which the conversion price of the Company's Zero Coupon Senior
Subordinated Notes Due January 2, 1998 (the "Zero Coupon Notes") Notes was
reduced to $3.65 from $6.55. As of January 29, 1998, the Company had 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.
On January 2, 1998, the maturity date of the Zero Coupon Notes, the
Company paid the remaining $2.8 million of Zero Coupon Notes.
In January 1998, the Company raised $6 million from the private placement
of 60 Units at $100,000 per Unit. Each Unit consisted of (a) the Company's 12%
Subordinated Note due January 3, 2000 (a "12% Note"), in the principal amount of
$100,000, and (b) a Series B Common Stock Purchase Warrant (a "Series B
Warrant") to purchase 10,000 shares of Common Stock at $3.00 per share through
December 31, 2002. In the event that any 12% Note is outstanding one year from
the date on which such 12% Note is issued (the "Anniversary Date of the Note"),
the Company shall issue to the holder of such 12% 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% Notes outstanding on the Anniversary Date of the
Note. The Series C Warrant will have an exercise price equal to the average of
the closing prices of the Common Stock on each of the five trading days
preceding the Anniversary Date of the Note with respect to which the Series C
Warrant is being issued and will expire on December 31, 2003. The proceeds from
the sale of the Units was used principally to pay the remaining principal amount
of Zero Coupon Notes which had not been converted (approximately $2.8 million),
and to reduce the Company's debt to Foothill Capital Corporation ("Foothill"),
the Company's secured lender (approximately $2.95 million). The balance of such
proceeds was added to working capital.
In January 1998, the Company amended its agreement with Foothill, as of
November 30, 1997, to extend the expiration date of 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.
On January 26, 1998, the Company entered into an agreement with holders of
$1.26 million principal amount of its 6% Convertible Subordinated Debentures Due
July 1, 2002 ("6% Debentures"). Pursuant to the agreement, the Company issued
330,372 shares of Common Stock in cancellation of the principal and interest due
on such 6% Debentures. The Company is in default on the approximately $385,000
principal amount of 6% Debentures which was outstanding at January 29, 1998 as a
result of the its failure to pay the interest payments due since June 30, 1994.
As of February 2, 1998, after giving effect to the transactions described
in this Form 8-K, there were 9,060,954 shares of Common Stock outstanding.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
4.1 Amendment No. Five dated as of November 30, 1997, to Amended and
Restated Loan an Security Agreement between Foothill Capital Corp.
("Foothill") and the Company, including amendments to the warrants
held by Foothill.
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10.1 Form of subscription agreement for Units, including the form of 12%
Note, Series B Warrant and Series C Warrant.
10.2 Agreement dated January 26, 1998, among the Company and Henley
Group, Ltd., Woodstead Associates, L.P., Lake Trust and Smith
Management Company, Inc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PORTA SYSTEMS CORP.
/s/ Edward B. Kornfeld
--------------------------------------
Date: February 2, 1998 Edward B. Kornfeld
Senior Vice President and Chief Financial Officer
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AMENDMENT NUMBER FIVE TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amendment Number Five to Amended and Restated Loan and Security
Agreement ("Amendment") is entered into as of November 30, 1997 by and between
FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), and PORTA
SYSTEMS CORP., a Delaware corporation ("Borrower"), in light of the following:
FACT ONE: Borrower and Foothill have previously entered into that certain
Amended and Restated Loan and Security Agreement, dated as of November 28, 1994,
as amended as of February 13, 1995, March 30, 1995, March 12, 1996 and August
26, 1997 (collectively, the "Agreement").
FACT TWO: Borrower and Foothill desire to further amend the Loan Agreement
as provided for and on the conditions herein.
NOW, THEREFORE, Borrower and Foothill hereby amend the Loan Agreement as
follows:
1. DEFINITIONS. All initially capitalized terms used in this Amendment
shall have the meanings given to them in the Agreement unless specifically
defined herein.
2. AMENDMENT.
2.1. Renewal and Extension of Term of Agreement. The term of the
Agreement expires on November 30, 1998. Borrower and Foothill desire to renew
the term of the Agreement and extend the expiration date of the term of the
Agreement to August 31, 1999. The Agreement is amended as follows to reflect
such renewal and extension:
A. The definition of "Renewal Date" in Section 1.1 of the Agreement
is hereby amended by deleting such definition in its entirety and replacing it
with the following definition:
"'Renewal Date' means August 31, 1999."
B. Section 3.4 of the Agreement is hereby amended by deleting such
Section in its entirety and replacing it with the following language:
"3.4 Term. This Agreement shall become effective upon the execution and
delivery hereof by Borrower and Foothill and shall continue in full force and
effect for a term ending on August 31, 1999. The foregoing notwithstanding,
Foothill shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default."
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3. REPRESENTATIONS AND WARRANTIES. Borrower hereby affirms to Foothill
that all of Borrower's representations and warranties set forth in the Agreement
are true, complete and accurate in all respects as of the date hereof.
4. NO DEFAULTS. Borrower hereby affirms to Foothill that no Event of
Default has occurred and is continuing as of the date hereof.
5. CONDITIONS PRECEDENT. The effectiveness of this Amendment is expressly
conditioned upon each of the following:
(a) Receipt by Foothill of an executed copy of this Amendment, and
(b) Borrower's agreement, as evidenced by its signature on this
Amendment, to modify its outstanding Warrants dated November 28, 1994 and
March 12, 1996, respectively, as provided on Exhibit A attached hereto.
6. COSTS AND EXPENSES. Borrower shall pay to Foothill all of Foothill's
out-of-pocket costs and expenses (including, without limitation, the fees and
expenses of its counsel, which counsel may include any local counsel deemed
necessary, search fees, filing and recording fees, documentation fees, appraisal
fees, travel expenses, and other fees) arising in connection with the
preparation, execution, and delivery of this Amendment and all related
documents.
7. LIMITED EFFECT. In the event of a conflict between the terms and
provisions of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other respects, the
Agreement, as amended and supplemented hereby, shall remain in full force and
effect.
8. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which when so executed and delivered shall be deemed to be an original. All
such counterparts, taken together, shall constitute one and the same Amendment.
This Amendment shall become effective upon the execution of a counterpart of
this Amendment by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first set forth above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:__________________________________
Title:_______________________________
2
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PORTA SYSTEMS CORP.,
a Delaware corporation
By:__________________________________
Title:_______________________________
3
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Each of the undersigned affiliates of Porta Systems Corp. ("Porta") is
aware of the terms of the above Amendment Number Five to Amended and Restated
Loan and Security Agreement, dated as of November 28, 1994 (the "Loan
Agreement"), and acknowledges that all of such affiliate's obligations under any
of the Collateral Documents (as defined in the Assignment Agreement) are and
shall continue in full force and effect in favor of Foothill Capital Corporation
("Foothill"), including the obligations to guarantee the obligations of Porta
owing to Foothill and to secure such obligations pursuant to the terms of such
Collateral Documents. "Assignment Agreement" shall have the meaning given to it
in the Loan Agreement.
ASTER CORPORATION
By:__________________________________
Name:________________________________
Title:_______________________________
CPI HOLDING CORP.
By:__________________________________
Name:________________________________
Title:_______________________________
CRITERION PLASTICS, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
DISPLEX, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
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MIROR TELEPHONY SOFTWARE, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
PORTA FOREIGN SALES CORP.
By:__________________________________
Name:________________________________
Title:_______________________________
PORTA SYSTEMS EXPORT CORP.
By:__________________________________
Name:________________________________
Title:_______________________________
PORTA SYSTEMS INTERNATIONAL CORP.
By:__________________________________
Name:________________________________
Title:_______________________________
PORTA SYSTEMS LEASING CORP.
By:__________________________________
Name:________________________________
Title:_______________________________
5
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PORTA SYSTEMS OVERSEAS CORP.
By:__________________________________
Name:________________________________
Title:_______________________________
LERO INDUSTRIES LTD.
By:__________________________________
Name:________________________________
Title:_______________________________
PORTA SYSTEMS, LIMITED
By:__________________________________
Name:________________________________
Title:_______________________________
VANDERHOFF BUSINESS SYSTEMS LTD.
By:__________________________________
Name:________________________________
Title:_______________________________
VANDERHOFF COMMUNICATIONS LTD.
By:__________________________________
Name:________________________________
Title:_______________________________
6
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PORTA SYSTEMS S.A. de C.V.
By:__________________________________
Name:________________________________
Title:_______________________________
7
<PAGE>
Exhibit A to Amendment Number Five
1. As of November 30, 1997, Foothill holds Warrants for the adjusted number
of shares of Borrower's Common Stock, $.01 par value, exercisable at the
following prices:
Exercise
No. of Shares Price
------------- --------
November 28, 1994 Warrant 164,627 $8.9828
March 12, 1996 Warrant 295,441 $3.3848
2. Borrower and Foothill each agrees to complete the following amendments to
each of the Warrants on or before January 15, 1998:
(a) The exercise price shall be reduced to $3.00 per share,
(b) The maturity date shall be extended to November 30, 2002,
(c) Upon written notice to Foothill, Borrower shall have the right
to require Foothill to exercise the Warrants at any time that
the closing price of Borrower's Common Stock is $6.00 or
greater on the 20 consecutive trading days immediately prior
to such notice, and
(d) Foothill shall have the right to make a cashless exercise of
the Warrants.
3. Borrower agrees to file a Registration Statement for the underlying shares
of Common Stock that are subject to the Warrants prior to March 31, 1998.
Please initial here.
Foothill Capital Corporation_____
Porta Systems Corp._____
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<PAGE>
AMENDMENT NUMBER ONE TO WARRANT
This Amendment Number One to Warrant ("Amendment") is executed and
delivered as of January __, 1998 by and between PORTA SYSTEMS CORP. (the
"Company") and FOOTHILL CAPITAL CORPORATION ("Foothill").
RECITALS
1. Company issued a warrant to Foothill on March 12, 1996 for the right to
purchase 1,000,000 shares of Common Stock of the Company at an exercise price of
$1.00 per share (the "Warrant").
2. As a result of certain adjustments provided under the terms of the
Warrant, the Warrant is currently exercisable into 295,441 shares of the
Company's Common Stock at an adjusted exercise price of $3.3848 per share.
3. Company and Foothill have entered into Amendment Number Five dated
November 30, 1997 to that certain Amended and Restated Loan and Security
Agreement, dated as of November 28, 1994 ("Loan Amendment").
4. As a condition precedent to the Loan Amendment, the Company and
Foothill have agreed to amend the Warrant exercise price and certain other
provisions as provided for herein.
NOW, THEREFORE, Company and Foothill hereby amend the Warrant as follows:
1. The face page and first paragraph of the Warrant is hereby modified in
its entirety to read as follows:
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND
MUST BE HELD INDEFINITELY UNLESS SUBSEQUENTLY REGISTERED UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR DISPOSED
OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
WARRANT
TO PURCHASE COMMON STOCK OF
PORTA SYSTEMS CORP.
Void After November 30, 2002
<PAGE>
PORTA SYSTEMS CORP., a Delaware corporation (the "Company"), hereby
certifies that, for value received the adequacy and receipt of which
are hereby acknowledged, FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), or its registered assigns (collectively,
the "Warrantholders"), is entitled, subject to the terms and
conditions set forth in this Warrant (said Warrant and any warrants
issued in exchange herefor or transfer or replacements hereof are
collectively referred to as the "Warrants"), to purchase from the
Company two hundred ninety-five thousand four hundred and forty-one
(295,441) fully paid and nonassessable shares of Common Stock of the
Company, par value $.01 per share (the "Common Stock," which term is
further defined in Section 4(i) hereof) in whole or in part, at any
time or from time to time until 5 p.m. California local time on
November 30, 2002 ("Exercise Period") at a purchase price equal to
$3.00 per share (the "Exercise Price"), the number of such shares of
Common Stock and the Exercise Price being subject to adjustment as
provided herein. The Company shall have the right to redeem any or
all of the Warrants for $.0001 per share of Common Stock subject to
the Warrants if, at any time on or after November 30, 1997 the
average closing price per share of the Common Stock on any 20
consecutive trading days ending no more than 10 days prior to the
date of the notice of redemption, has been at least 200% of the
Exercise Price in effect on such date. Notice of at least 30 days
prior to the date scheduled for such redemption (the "Call Date")
shall be given to Warrantholders in accordance with the provisions
of Section 13(b). Warrantholders shall continue to have the right to
exercise the Warrants until the close of business on the fifth
business day immediately preceding the Call Date.
2. The following is added after the last sentence of Paragraph 1:
In lieu of exercising this Warrant by payment of the Exercise Price,
the Warrantholder shall have the right to exchange or convert this
Warrant, in whole or in part, to the extent that this Warrant has
not been exercised for the number of shares of Common Stock
determined by (A) 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 (B)
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 1, 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:
(i) 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,
2
<PAGE>
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
(ii) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the current value shall be 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 services, on the last five (5) trading days
prior to the date of the exercise of this Warrant; or
(iii) 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.
3. The definition of "Additional Shares of Common Stock" set forth in
Paragraph 4 of the Warrant shall be amended by changing "March 12, 1996" to
"December 31, 1997."
4. Subparagraph (b) of Section 10 is deleted in its entirety and the
following shall be inserted to read as follows:
(b) Required Registration. The Company shall promptly prepare
and file a registration statement under the Securities Act covering
the Registrable Stock no later than March 31, 1998.
5. Subparagraph (i) of Paragraph 10(d) is restated in its entirety to read
as follows:
(i) In accordance with the Securities Act and the rules and
regulations of the Commission, prepare and file with the Commission
a registration statement on the form of registration statement
appropriate with respect to such securities and use its reasonable
best efforts to cause such registration statement to become and
remain effective for such period as necessary for the securities
covered by such registration statement to be sold, and prepare and
file with the Commission such amendments to such registration
statement and supplements to the prospectus contained therein as may
be necessary to keep such registration statement effective and such
registration statement and prospectus accurate and complete;
6. Notwithstanding any provision to the contrary, for purposes of
Paragraph 4 of the Warrant, adjustments, if any, shall be calculated after
December 31, 1997. The Company represents that since December 11, 1997 no event
has occurred which would require any adjustment pursuant to Paragraph 4 of the
Warrant based upon the amended Exercise Price set forth in this Amendment.
7. Except as modified herein, the Warrant remains in full force and effect
and has not been amended or modified.
3
<PAGE>
Company and Foothill have executed and delivered this Amendment as of the
date set forth in the first paragraph hereof.
PORTA SYSTEMS CORP.,
a Delaware corporation
By:__________________________________
Title:_______________________________
FOOTHILL CAPITAL CORPORATION
a California corporation
By:__________________________________
Title:_______________________________
4
<PAGE>
AMENDMENT NUMBER THREE TO WARRANT
This Amendment Number Three to Warrant ("Amendment") is executed and
delivered as of January __, 1998 by and between PORTA SYSTEMS CORP. (the
"Company") and FOOTHILL CAPITAL CORPORATION ("Foothill").
RECITALS
1. Company issued a warrant to Foothill on November 28, 1994, (which was
subsequently amended on February 13, 1995 and March 12, 1996) for the right to
purchase 412,500 shares of Common Stock of the Company at an exercise price of
$5.78 per share (the "Warrant").
2. As a result of certain adjustments provided under the terms of the
Warrant, the Warrant is currently exercisable into 164,627 shares of the
Company's Common Stock at an adjusted exercise price of $8.9828 per share.
3. Company and Foothill have entered into Amendment Number Five dated
November 30, 1997 to that certain Amended and Restated Loan and Security
Agreement, dated as of November 28, 1994 ("Loan Amendment").
4. As a condition precedent to the Loan Amendment, the Company and
Foothill have agreed to amend the Warrant exercise price and certain other
provisions as provided for herein.
NOW, THEREFORE, Company and Foothill hereby amend the Warrant as follows:
1. The face page and first paragraph of the Warrant is hereby modified in
its entirety to read as follows:
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND
MUST BE HELD INDEFINITELY UNLESS SUBSEQUENTLY REGISTERED UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR DISPOSED
OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
WARRANT
TO PURCHASE COMMON STOCK OF
PORTA SYSTEMS CORP.
Void After November 30, 2002
<PAGE>
PORTA SYSTEMS CORP., a Delaware corporation (the "Company"), hereby
certifies that, for value received the adequacy and receipt of which
are hereby acknowledged, FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), or its registered assigns (collectively,
the "Warrantholders"), is entitled, subject to the terms and
conditions set forth in this Warrant (said Warrant and any warrants
issued in exchange herefor or transfer or replacements hereof are
collectively referred to as the "Warrants"), to purchase from the
Company one hundred sixty-four thousand six hundred twenty-seven
(164,627) fully paid and nonassessable shares of Common Stock of the
Company, par value $.01 per share (the "Common Stock," which term is
further defined in Paragraph 4(i) hereof) in whole or in part, at
any time or from time to time until 5 p.m. California local time on
November 30, 2002 ("Exercise Period") at a purchase price equal to
$3.00 per share (the "Exercise Price"), the number of such shares of
Common Stock and the Exercise Price being subject to adjustment as
provided herein. The Company shall have the right to redeem any or
all of the Warrants for $.0001 per share of Common Stock subject to
the Warrants if, at any time on or after November 30, 1997 the
average closing price per share of the Common Stock on any 20
consecutive trading days ending no more than 10 days prior to the
date of the notice of redemption, has been at least 200% of the
Exercise Price in effect on such date. Notice of at least 30 days
prior to the date scheduled for such redemption (the "Call Date")
shall be given to Warrantholders in accordance with the provisions
of Section 13. Warrantholders shall continue to have the right to
exercise the Warrants until the close of business on the fifth
business day immediately preceding the Call Date.
2. The phrase in Paragraph 1 which reads "(or in the case of the Warrants
for the additional 135,500 shares if the Company exercises its right to extend
the Renewal Date, during the portion of the Exercise Period commencing with the
Renewal Date)" is hereby deleted in its entirety.
3. The following is added after the last sentence of Paragraph 1:
In lieu of exercising this Warrant by payment of the Exercise Price,
the Warrantholder shall have the right to exchange or convert this
Warrant, in whole or in part, to the extent that this Warrant has
not been exercised for the number of shares of Common Stock
determined by (A) 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 (B)
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 1, 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:
(i) 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
2
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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
(ii) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the current value shall be 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 services, on the last five (5) trading days
prior to the date of the exercise of this Warrant; or
(iii) 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.
4. The definition of "Additional Shares of Common Stock" set forth in
Paragraph 4 of the Warrant shall be amended by changing "November 28, 1994" to
"December 31, 1997."
5. Subparagraph (b) of Paragraph 10 is deleted in its entirety and the
following shall be inserted to read as follows:
(b) Required Registration. The Company shall promptly prepare
and file a registration statement under the Securities Act covering
the Registrable Stock no later than March 31, 1998.
6. Subparagraph (i) of Paragraph 10(d) is restated in its entirety to read
as follows:
(i) In accordance with the Securities Act and the rules and
regulations of the Commission, prepare and file with the Commission
a registration statement on the form of registration statement
appropriate with respect to such securities and use its reasonable
best efforts to cause such registration statement to become and
remain effective for such period as necessary for the securities
covered by such registration statement to be sold, and prepare and
file with the Commission such amendments to such registration
statement and supplements to the prospectus contained therein as may
be necessary to keep such registration statement effective and such
registration statement and prospectus accurate and complete;
7. Notwithstanding any provision to the contrary, for purposes of
Paragraph 4 of the Warrant, adjustments, if any, shall be calculated after
December 31, 1997. The Company represents
3
<PAGE>
that since December 11, 1997 no event has occurred which would require any
adjustment pursuant to Paragraph 4 of the Warrant based upon the amended
Exercise Price set forth in this Amendment.
8. Except as modified herein, the Warrant remains in full force and effect
and has not been amended or modified.
Company and Foothill have executed and delivered this Amendment as of the
date set forth in the first paragraph hereof.
PORTA SYSTEMS CORP.,
a Delaware corporation
By:__________________________________
Title:_______________________________
FOOTHILL CAPITAL CORPORATION
a California corporation
By:__________________________________
Title:_______________________________
4
Date: , 1998
Porta Systems Corp.
575 Underhill Boulevard
Syosset, New York 11791
Attention of Mr. William V. Carney
Chairman of the Board and Chief Executive Officer
Subscription Agreement
Dear Sirs:
Pursuant to a private offering by Porta Systems Corp., a Delaware corporation
(the "Company"), the undersigned (the "Subscriber") hereby tenders his or her
subscription for the Company's units (the "Units"), each Unit consisting of (a)
the Company's 12% Subordinated Note due January 3, 2000 (a "Note" and
collectively, the "Notes"), in the principal amount of $100,000, and (b) a
Series B Common Stock Purchase Warrant (a "Warrant" and collectively, the
"Warrants") to purchase ten thousand (10,000) shares of Common Stock. Fractional
Units may be purchased.
The purchase price of the Units is one hundred thousand dollars ($100,000) per
Unit. The Company is offering the Units to a limited number of accredited
investors, as defined in Rule 501 of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a private offering pursuant to Rule 506 of the Commission
under the Securities Act.
In addition to the Warrants, the Company may issue Series C Common Stock
Purchase Warrants (the "Additional Warrants") to the holders of the Notes on the
terms and subject to the conditions set forth in Paragraph 3 of this Agreement.
In consideration of the mutual covenants and agreements set forth herein, the
Company and the Subscriber hereby agree as follows:
1. (a) The Subscriber hereby agrees to purchase from the Company, and the
Company agrees to sell to the Subscriber, the number of Units set forth on the
signature page of this Agreement, at a purchase price of one hundred thousand
dollars ($100,000) per Unit. The aggregate purchase price of the Units
subscribed for by the Subscriber is set forth on the signature page of this
Agreement. Payment of the purchase price shall be made by check payable to
"Arnhold & S. Bleichroeder, Inc., as escrow agent for Porta Systems Corp." or by
wire transfer in accordance with the Subscription Instructions.
(b) The Company is offering an aggregate of thirty (30) Units on a
"best efforts, all or none" basis. If all thirty (30) Units are sold, the
Company may, in its discretion, sell up to an additional thirty (30) Units. All
proceeds from the sale of the initial thirty (30) Units will be held in escrow
until there shall be cleared funds in the escrow account of three million
dollars
<PAGE>
($3,000,000), at which time the proceeds from the sale of the Units shall be
paid to the Company. If there is not at least three million dollars ($3,000,000)
in cleared funds by the last day of the Subscription Period, the funds will be
returned to the Subscriber without interest or deduction. The date on which the
proceeds from the sale of the Units purchased by the Subscriber are paid to the
Company is referred to as the "Closing Date," and the date on which the initial
purchase of at least thirty (30) Units is consummated is referred to as the
"Initial Closing Date." If Units are sold in addition to the first thirty (30)
Units, the payment for such Units shall be made directly to the Company and
shall not be deposited into escrow.
(c) The Subscription Period is the period ending on December 31,
1997, which may be extended by the Company on one or more occasions, but not
subsequent to March 31, 1998.
(d) The Company has engaged Arnhold and S. Bleichroeder, Inc. (the
"Placement Agent") to serve as placement agent for the sale of the Units for
which it will receive compensation pursuant to an agreement with the Company.
2. The Company represents and warrants to the Subscriber as follows:
(a) Organization and Qualification. Each of the Company and each of
its subsidiaries is (i) a corporation duly organized and existing in good
standing under the laws of the jurisdiction in which it is incorporated and has
the requisite corporate power to own its properties and to carry on its business
as now being conducted and (ii) qualified to conduct business as a foreign
corporation to do business and in good standing in every jurisdiction in which
the nature of the business conducted by it makes such qualification necessary
and where the failure so to qualify would have a Material Adverse Effect. As
used in this Agreement, the term "Material Adverse Effect" means any material
adverse effect on (A) the Units, the Notes, the Warrants and the Warrant Shares
(collectively, the "Securities"); (B) the ability of the Company to perform its
obligations under this Agreement or under the Securities or (C) the business,
operations, properties or financial condition of the Company and its
subsidiaries, taken as a whole.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, to issue and sell the Securities pursuant to this Agreement and
the Securities and to issue the Warrant Shares in accordance with the terms of
the Warrants. The execution, delivery and performance of this Agreement and the
consummation by the Company of the transactions contemplated by this Agreement
(including without limitation the issuance of the Units and the issuance and
reservation for issuance of the Warrant Shares) have been duly authorized by the
Company's board of directors and no further consent or authorization of the
Company, its board of directors, or its stockholders is required. This Agreement
has been duly executed and delivered by the Company; and constitutes the valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.
(c) Capitalization. The authorized capital stock of the Company
consists of 1,000,000 shares of preferred stock, with no par value, and
20,000,000 shares of Common Stock. As of December 19, 1997, 8,476,889 shares of
Common Stock were issued. Additional shares
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<PAGE>
of Common Stock are reserved for issuance (i) as set forth in the SEC Documents,
as hereinafter defined; (ii) upon conversion of the Zero Coupon Senior
Subordinated Convertible Notes due January 2, 1998 ("Zero Notes") at the reduced
conversion price of $3.65 per share, to the extent that such Zero Notes had not
been converted at such date and (iii) upon exercise of warrants issued to
Arnhold and S. Bleichroeder, Inc. for services relating to the conversion of the
Zero Notes, and that other warrants or options may be issued or existing
warrants or options may be amended. All of the outstanding shares of capital
stock have been, or upon issuance will be, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company (including the Warrant
Shares) are subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances.
(d) Issuance of Shares. The Warrant Shares are duly authorized and
reserved for issuance. Upon exercise of the Warrants in accordance with the
terms thereof, the Warrant Shares will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances (other
than those incurred by the person exercising the Warrants) and will not be
subject to preemptive rights or other similar rights of stockholders of the
Company and will not impose personal liability upon the holder thereof.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company, the performance by the Company of its obligations
under this Agreement and the Securities, and the consummation by the Company of
the transactions contemplated by this Agreement (including, without limitation,
the reservation for issuance of the Warrant Shares and the issuance of the
Warrant Shares upon exercise of the Warrants) will not (i) result in a violation
of the Company's certificate of incorporation and by-laws, as currently in
effect (the "Organizational Documents") or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party or by which they are bound, or
result in a violation of any law, rule, regulation, order, judgment or decree
(including, based on the accuracy the Subscriber's representations and
warranties set forth in this Agreement, Federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or asset of the Company or any of its subsidiaries is bound or
affected (except, with respect to clause (ii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). The
Company is not in violation of its Organizational Documents, and neither the
Company nor any of its subsidiaries is in default (and no event has occurred
which, with notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any Contract, as hereinafter defined, to which
the Company or such subsidiary is a party or by which they are bound, except for
possible defaults or rights as would not, individually or in the aggregate, have
a Material Adverse Effect. The business of the Company and its subsidiaries,
taken as a whole, is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations the
sanctions which either singly or in the aggregate would not have a Material
Adverse Effect. The Company is not required to obtain any consent, approval,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self
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<PAGE>
regulatory agency or other party (each of the foregoing being referred to as a
"consent") in order for it to execute, deliver or perform any of its obligations
under this Agreement or the Securities, in each case in accordance with the
terms hereof or thereof other than filings required pursuant to the Securities
Act and applicable state securities laws and the listing of the Warrant Shares
on the American Stock Exchange ("Exchange") and except where the failure to
obtain any such consent would not have a Material Adverse Effect. The Company
does not presently meet the requirements for the continued listing of its Common
Stock on the Exchange; however, since at or about mid-November, when the Company
has advised the Exchange of the amended conversion terms for the Zero Notes, the
Company has received no notice from the Exchange of any intention, and the
Company has no reason to believe that the Exchange will take any action in the
near future, to delist the Common Stock from the Exchange.
(f) SEC Documents, Financial Statements. Except as set forth in the
SEC Documents, (i) the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") subsequent to December 31, 1995 (all of the
foregoing, including all material incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents"), (ii) as of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the Commission promulgated thereunder applicable to
the SEC Documents, (iii) none of the SEC Documents, at the time they were filed
with the Commission, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, (iv) as of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the Commission with respect thereto, and (v) such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except
(A) as may be otherwise indicated in such financial statements or the notes
thereto, or (B) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates of the respective
balance sheets and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
year-end audit adjustments). The Company has made available to the Subscribers
true and complete copies of the SEC Documents. None of the statements made in
any such SEC Documents is, or has been, required to be updated or amended under
applicable law except to the extent updated or amended in subsequent SEC
Documents. Except as set forth in the most recent financial statements of the
Company included in the SEC Documents, the Company has no material liabilities,
contingent or otherwise, other than (x) liabilities incurred in the ordinary
course of business subsequent to the date of such financial statements and (y)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements. Neither the Company nor its subsidiaries
is in breach or violation of any contracts, agreements, leases or other
instruments (each a "Contract") to which the Company or any subsidiary is a
party or by which the Company or any subsidiary is bound or
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<PAGE>
to which any of the properties or assets of the Company or any subsidiary is
subject, which breach or violation would have a Material Adverse Effect.
(g) Absence of Certain Changes. Since September 30, 1997, there has
been no material adverse change in the business, properties, operations,
financial condition, or results of operations of the Company, or to the best of
the Company's knowledge, its prospects, except as disclosed in the SEC
Documents.
(h) Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect.
(i) Intellectual Property. Each of the Company and its subsidiaries
owns or is licensed to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted
and as described in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996. To the best knowledge of the Company, neither the
Company nor any subsidiary of the Company infringes or is in conflict with any
right of any other person with respect to any Intangibles which, individually or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect.
(j) Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
(k) Disclosure. All information relating to or concerning the
Company set forth in this Agreement or included in the Disclosure Documents, as
hereinafter defined, taken together, is true and correct in all material
respects, and the Company has not omitted to state any material fact necessary
in order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading.
(l) Form S-3 Eligibility. As of date of this Agreement, the Company
was eligible to register the resale of its Common Stock on a registration
statement on Form S-3 under the Securities Act.
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<PAGE>
(m) No Integrated Offering. Neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any securities or solicited any offerers
to buy any security under circumstances that would require registration of the
Units being offered hereby under the Securities Act.
(n) No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with the Placement Agent, whose
commissions and fees will be paid for by the Company.
3. To the extent that any Note is outstanding one year from the date on
which such Note is issued (the "Anniversary Date of the Note"), the Company
shall issue to the holder of such Note on the Anniversary Date of the Note an
Additional Warrant to purchase 25 shares of Common Stock for each $1,000
principal amount of Notes outstanding on the Anniversary Date of the Note. The
Additional Warrant will have an exercise price equal to the average of the
closing prices of the Common Stock on each of the five trading days preceding
the Anniversary Date of the Note with respect to which the Additional Warrant is
being issued.
4. The Subscriber understands and agrees that, after the Company's receipt
of this Agreement, the Company will review the Subscriber's eligibility and will
determine whether to accept or reject this subscription in whole or in part. The
Company may determine to reject this subscription in whole or in part in its
sole and absolute discretion. In making such determination, the Company may
request, and the Subscriber agrees to provide, additional financial and other
information about the Subscriber. If this subscription is accepted in whole,
then the Company will issue the Units subscribed for to the Subscriber. If this
subscription is rejected in whole, this Agreement and any other subscription
materials will be promptly returned to the Subscriber and the Subscriber's
subscription payment will be refunded to the Subscriber without interest. In
that event, the Subscriber and the Company will have no further rights or claims
against each other by virtue of this Agreement. If this subscription is accepted
in part and rejected in part, the Company is authorized to amend this Agreement
to reflect the number of Units for which this subscription is accepted, and the
Company will issue the Notes and Warrants comprising the Units as to which this
subscription is accepted at the same time as if this subscription had been
accepted in whole.
5. The Subscriber hereby represents and warrants to, and covenants and
agrees with, the Company as follows:
(a) The Subscriber understands that the offer and sale of the Units
is being made only by means of this Agreement. In deciding to subscribe for
Units, the Subscriber has not considered any information other than that
contained in this Agreement and in the documents listed in Exhibit A to this
Agreement (the "Disclosure Documents"), a copy of each of which has been made
available to the Subscriber and reviewed by the Subscriber to the extent that
the Subscriber deemed necessary or advisable. In particular, the Subscriber
understands that the Company has not authorized the use of, and the Subscriber
confirms that he or she is not relying upon, any other information, written or
oral, other than material contained in this Agreement and the Disclosure
Documents. The Subscriber is aware that the purchase of the Units involves a
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<PAGE>
high degree of risk and that the Subscriber may sustain, and has the financial
ability to sustain, the loss of his or her entire investment. The Subscriber
understands that the Company has in the past incurred significant losses and no
assurance can be given that the Company will be profitable in the future, that
the Company does not meet the American Stock Exchange's requirements for the
continued listing of the Common Stock on such exchange and no assurance can be
given that there will continue to be a market for the Common Stock, that the
failure of the Company to raise funds, in addition to the proceeds from the sale
of the Units, may have a material adverse effect upon its business and, if
sufficient additional funds are not raised, the Company may not be able to pay
the Notes when due. The Subscriber understands that the net proceeds from the
sale of the Units is to be used to pay the principal amount of any Zero Notes
which have not been converted into Common Stock, that if such notes are not paid
when due, the Company will be in default with respect to such notes and the
Company does not have any sources from which to pay such notes other than from
the proceeds from the sale of the Units. Furthermore, in subscribing for the
Units, the Subscriber acknowledges that the Company has not made, and the
Subscriber is not relying in any manner upon, any projections or forecasts of
future operations, except to the extent that any projections or forecasts are
included in the SEC Documents. The Subscriber has had the opportunity to ask
questions of, and receive answers from, the Company's management regarding the
Company.
(b) The Subscriber represents to the Company that he or she (i) is
an accredited investor within the meaning of Rule 501 under the Securities Act,
(ii) understands that in order to be treated as an accredited investor, the
Subscriber must meet one of the tests for an accredited investor set forth on
Exhibit B to this Agreement, and (iii) has read Exhibit B and is an accredited
investor as set forth on the signature page of this Agreement. The Subscriber
further represents that he or she has such knowledge and experience in financial
and business matters as to enable him or her to understand the nature and extent
of the risks involved in purchasing the Units. The Subscriber is fully aware
that such investments can and sometimes do result in the loss of the entire
investment. The Subscriber can afford to sustain the loss of his or her entire
investment, and the Subscriber's purchase of the Units is being made from funds
which the Subscriber has allocated to high risk, illiquid investments and such
funds are not required by the Subscriber to meet his or her normal expenses. The
Subscriber has engaged his or her own counsel and accountants to the extent that
he deems it necessary.
(c) All of the information provided by the Subscriber in his
Confidential Investor Questionnaire (the "Questionnaire"), is true and correct
in all material respects. The Subscriber acknowledges that the Company is
relying on such statements and the Subscriber's representations contained in
this Agreement in executing this Agreement and issuing the Units and its counsel
is relying on such statements and representations in rendering its opinion
pursuant to Paragraph 6(a) of this Agreement, and the Subscriber agrees to
indemnify and hold harmless the Company, and its officers, directors,
controlling persons and counsel from and against all manner of loss, liability,
damage or expense which they or any of them may incur as a result of any
material misstatement of fact or omission of a material fact set forth in the
Subscriber's Questionnaire or as a result of any misrepresentation by the
Subscriber in this Agreement. The Subscriber further agrees to notify the
Company immediately upon the
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<PAGE>
occurrence of any event which makes the information contained in the
Subscriber's Questionnaire inaccurate or misleading in any material respect.
(d) The Subscriber is acquiring the Units pursuant to this Agreement
for investment and not with a view to the sale or distribution thereof, for his
or her own account and not on behalf of others; has not granted any other person
any interest or participation in or right or option to purchase all or any
portion of the Units; is aware that the Units are restricted securities within
the meaning of Rule 144 of the Commission under the Securities Act, and may not
be sold or otherwise transferred other than pursuant to an effective
registration statement or an exemption from registration; and understands and
agrees that the Units may bear the Company's standard investment legend. The
Subscriber understands the meaning of these restrictions.
(e) The Subscriber will not transfer the Units or the securities
comprising or underlying the Units, except in compliance with all applicable
Federal and state securities laws and regulations. The Subscriber understands
and agrees that the Company is not obligated to recognize any transfer of the
Units unless it is satisfied in its sole discretion that there has been
compliance with such securities laws and regulations, and, in such connection,
the Company may request an opinion of counsel acceptable to the Company as to
the availability of any exemption.
(f) The Subscriber has been informed by the Company that the
issuance of the Units pursuant to this Agreement will be exempt under Section
4(2) or 4(6) of the Securities Act and/or Regulation D, and in particular, Rule
506, of the Commission under the Securities Act and applicable exemption under
state securities laws, and the Subscriber understands that such exemption is
dependent upon the accuracy of the information contained in the Subscriber's
Questionnaire and the Subscriber's representations set forth in this Agreement.
(g) The Subscriber represents and warrants that, except as set forth
in such Subscriber's Questionnaire, no broker or finder was involved directly or
indirectly in connection with the Subscriber's purchase of the Units pursuant to
this Agreement except to the extent that the Placement Agent was involved. The
Subscriber shall indemnify and hold harmless the Company from and against any
manner of loss, liability, damage or expense, including fees and expenses of
counsel, resulting from a breach of the Subscriber's warranty contained in this
Paragraph 5(g).
(h) To the extent that the Subscriber has deemed it necessary, the
Subscriber has consulted his or her own legal, accounting, tax, investment and
other advisors.
(i) If the Subscriber is a corporation, all corporate action
necessary for the execution, delivery and performance by the Subscriber has been
taken and the person executing this Agreement on behalf of the Subscriber is an
authorized officer of the Subscriber. If the Subscriber is a limited partnership
or limited liability company, the person executing this Agreement is a general
partner or managing member of the Subscriber. If the Subscriber is a trust,
estate or other fiduciary, the person executing this Agreement is the trustee,
executor, administrator or other fiduciary.
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<PAGE>
6. (a) It shall be a condition precedent to the release of the purchase
price from escrow on the Initial Closing Date that, on the Initial Closing Date,
the Placement Agent, on behalf of the Subscriber and other purchasers of Units,
shall have received the opinion of counsel to the Company, in form reasonably
satisfactory to the Placement Agent, that:
(i) The Company is a corporation organized and existing under
the laws of the State of Delaware with the corporate power to conduct it
business as the same is presently conducted.
(ii) All corporate action necessary for the execution and
delivery by the Company of this Agreement, the Notes and the Warrants has been
taken, and this Agreement constitutes, and the Notes and Warrants, when issued
upon payment in full of the purchase price of the Units pursuant to this
Agreement will constitute, the valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except as enforceability
may be affected by customary principles governing equitable relief generally and
to any applicable bankruptcy, moratorium, equitable subordination, insolvency,
fraudulent conveyance, usury or other laws affecting creditors' rights and their
enforcement generally, and except that no opinion is given as to the
enforceability of any indemnification provisions.
(iii) The shares of Common Stock issuable upon exercise of the
Warrants have been reserved for issuance and, when issued in accordance with the
terms of the Warrants, will be duly and validly authorized and issued, fully
paid and nonassessable.
(iv) In reliance upon the accuracy of the representations and
warranties of the Subscriber and the other purchasers of Units contained in this
Agreement and the Questionnaire and assuming that the Company files in a timely
manner a Form D pursuant to Regulation D of the Commission pursuant to the
Securities Act, the sale of the Units is exempt from the registration
requirements of the Securities Act.
(b) The Company shall pay the reasonable fees and expenses of
counsel for the Placement Agent in connection with the sale of the Units.
7. (a) The Company agrees that it will file a registration statement
covering the Warrant Shares not later than one hundred twenty (120) days after
the Initial Closing Date, will use its best efforts to have such registration
statement declared effective at the earliest practical date and will keep such
registration statement effective until the first to occur of (i) the sale of all
of the Warrant Shares or (ii) one (1) year from last day on which the Warrants
or the Additional Warrants may be exercised. It shall be a condition to the
obligations of the Company to include the Warrant Shares of the Subscriber in
any registration statement that the Subscriber shall provide the Company in a
timely manner with such information as the Company may reasonably request in
connection with the registration statement, including, but not limited to,
information concerning the Subscriber, any underwriter engaged by the
Subscriber, the proposed manner of distribution of the registered securities and
any specific information relating to the Subscriber
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<PAGE>
requested by the Commission or any stock market on which the Company's Common
Stock is traded (collectively, "Seller Information").
(b) The following provision shall also be applicable:
(i) Following the effective date of the registration
statement, the Company shall, upon the request of the Subscriber, forthwith
supply the Subscriber with such number of prospectuses meeting the requirements
of the Securities Act as shall be reasonably requested by the Company to permit
the Subscriber to make a public distribution of the Warrant Shares from time to
time offered or sold by the Subscriber, provided that the Subscriber shall from
time to time furnish the Company with any Seller Information as the Company
shall request in writing. The Company shall also use its best efforts to qualify
the Warrant Shares for sale in such states as the Subscriber may reasonably
request; provided, however, that the Company shall not be required to qualify
Warrant Shares in any state for which the Company would be required to qualify
to conduct business as a foreign corporation or otherwise be subject to the
jurisdiction of courts in such state for matters not relating to the offering.
(ii) The Company shall bear the entire cost and expense of the
preparation and filing of the registration statement pursuant to this Paragraph
7. The Subscriber shall, however, pay the fees of his or her own counsel and
accountants and any transfer taxes or underwriting discounts or commissions
applicable to the shares sold by Subscriber pursuant thereto.
(iii) The Company shall indemnify and hold harmless the
Subscriber and each underwriter, within the meaning of the Securities Act, who
may purchase from or sell any Securities for the Subscriber from and against any
and all losses, claims, damages and liabilities caused by any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement under the Securities Act or any prospectus included therein required
to be filed or furnished by reason of this Paragraph 7 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 the Subscriber
or any such underwriter 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 Seller Information furnished in writing 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
the Subscriber or underwriter shall at the same time indemnify the Company, its
directors, each officer signing the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act and each other
person (the "other holders"), whose securities are being offered or sold
pursuant to such registration statement, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or any
prospectus required to be filed or furnished by
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<PAGE>
reason of this Paragraph 7 or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, insofar as such losses, claims, damages
or liabilities are caused by any untrue statement or alleged untrue statement or
omission based upon Seller Information furnished to the Company in writing by
the Subscriber or underwriter expressly for use therein.
(iv) If any action or claim shall be brought or asserted by a
person entitled to indemnification pursuant to Paragraph 7(b)(iii) this
Agreement (an "indemnified party") against the Company or any underwriter
engaged by the Company or any person controlling the Company or such underwriter
or against the Subscriber or any underwriter engaged by the Subscriber or any
person controlling the Subscriber or such underwriter, in respect of which
indemnity may be sought pursuant to said Paragraph 7(b)(iii) (an "indemnifying
party"), the indemnified party shall promptly notify the indemnifying party in
writing, and the indemnifying party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all legal and other expenses. The failure of the indemnified
party to notify the indemnifying party will not relieve the indemnifying party
of any liability for indemnification which it may have to the indemnified party
other than pursuant to Paragraph 7(b)(iii) of this Agreement. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (A) the employment
thereof has been specifically authorized by the indemnifying party in writing,
or (B) the indemnifying party has failed to assume the defense and employ
counsel as provided in this Paragraph 7(b)(iv), or (C) the named parties to any
such action (including any impleaded parties) include both an indemnified party
and an indemnifying party, and in the judgment of the counsel for the
indemnifying party, it is advisable for the indemnified party or controlling
person to be represented by separate counsel (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the indemnified party or such controlling person), it being understood, however,
that the indemnifying party shall, in connection with any one such action or
separate but substantially similar or related actions arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys at any time in each jurisdiction
for all indemnified parties (whether pursuant to this Agreement or any other
agreements granting registration rights), which firm shall be designated in
writing by all the indemnified parties. The indemnifying party shall not be
liable for any settlement of any such action effected by an indemnified party
without the written consent of the indemnifying party (which shall not be
withheld unreasonably in light of all factors of importance to such indemnified
party), but if settled with such written consent, or if there be a final
judgment or decree for the plaintiff in any such action by a court of competent
jurisdiction and the time to appeal shall have expired or the last appeal shall
have been denied, the indemnifying party agrees to indemnify and hold harmless
the indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(v) The making of any request for prospectuses shall not
impose on any Subscriber any obligation to exercise any Warrants or Additional
Warrants or sell any Warrant Shares.
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<PAGE>
(vi) Notwithstanding any other provision of this Paragraph 7,
the Subscriber shall not have any right to have his or her Warrant Shares
included in any registration statement in the event that all of the Warrant
Shares issued upon exercise of all Warrants and Additional Warrants issued by
the Company may be sold without regard to quantity limitation pursuant to Rule
144 of the Commission or any successor rule.
8. All notices provided for in this Agreement shall be in writing signed
by the party giving such notice, and delivered personally or sent by overnight
courier or messenger against receipt thereof or sent by registered or certified
mail (air mail if overseas), return receipt requested or by telecopier of
receipt of transmission is confirmed or if transmission is confirmed by mail as
provided in this Paragraph 8. Notices shall be deemed to have been received on
the date of personal delivery or telecopy or, if sent by certified or registered
mail, return receipt requested, shall be deemed to be delivered on the fifth
(5th) business day after the date of mailing. Notices shall be sent to the
Company at 575 Underhill Boulevard, Syosset, New York 11791, telecopier (516)
682-4655, Attention of Mr. William V. Carney, Chairman of the Board and Chief
Executive Officer, and to the Subscriber at his or her address and telecopier
number set forth on the signature page or to such other address as any party
shall designate in the manner provided in this Paragraph 8.
9. (a) This Agreement constitutes the entire agreement between the parties
relating to the subject matter hereof, superseding any and all prior or
contemporaneous oral and prior written agreements, understandings and letters of
intent. This Agreement may not be modified or amended nor may any right be
waived except by a writing which expressly refers to this Agreement, states that
it is a modification, amendment or waiver and is signed by all parties with
respect to a modification or amendment or the party granting the waiver with
respect to a waiver. No course of conduct or dealing and no trade custom or
usage shall modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such State. Each party hereby (i) irrevocably consents
and agrees that any legal or equitable action or proceeding arising under or in
connection with this Agreement or any document or instrument delivered with
respect to this Agreement and/or the Units shall be brought exclusively in any
Federal or state court in the County of New York or Nassau, State of New York,
and (ii) irrevocably submits to and accepts, with respect to its properties and
assets, generally and unconditionally, the jurisdiction of the aforesaid courts.
In any such litigation, each party waives personal service of any summons,
complaint or other process, and agrees that the service thereof may be made by
in the manner for giving of notices provided for in Paragraph 8 of this
Agreement (other than by telecopier).
(c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
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<PAGE>
(d) In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
(e) Each party shall, without payment of any additional
consideration by any other party, at any time on or after the sale of the Units
take such further action and execute such other and further documents and
instruments as the other party may request in order to provide the other party
with the benefits of this Agreement.
(f) All references to any gender shall be deemed to include the
masculine, feminine or neuter gender, the singular shall include the plural, and
the plural shall include the singular.
(g) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same document.
(h) The various representations, warranties, and covenants set forth
in this Agreement or in any other writing delivered in connection therewith
shall survive the issuance of the Units.
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<PAGE>
Please confirm your agreement with the foregoing by signing this Agreement
where indicated.
Very truly yours,
Number of Units
Subscribed for:
___________________________________
_____________ Name of Subscriber
Total
Purchase Price: By:________________________________
(Signature)
_____________
Title, if applicable_______________
Address:_______________________________
_______________________________________
Telecopier Number:____________
Social Security No. or Tax I.D. No.:_________________
The Subscriber is an accredited investor based on the following paragraphs of
Exhibit B to this Agreement:________________
Accepted this day of
, 1997
PORTA SYSTEMS CORP.
By:________________________________
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<PAGE>
Exhibit A
Disclosure Documents
1. Form of Note.
2. Form of Series B Warrant
3. Form of Series C Warrant
4. Form 10-K for the years ended December 31, 1996 (included in Item 8)
and 1995.
5. Form 10-Q for the quarters ended September 30, 1997, June 30, 1997,
March 31, 1997, September 30, 1996, June 30, 1996 and March 31,
1996.
6. Form 8-K quarterly reports filed subsequent to December 31, 1995.
7. Annual report to stockholders for the year ended December 31, 1996.
8. Proxy statement for the 1997 and 1996 Annual Meetings of
Stockholders.
9. Press releases relating to the amendment to the conversion terms of
the Company's Zero Coupon Senior Subordinated Convertible Notes due
January 2, 1998.
- ----------
The documents referred to in Items 5, 6, 7, 8 and 9 comprise the SEC
Documents. Exhibits to the SEC Documents, which are not included, will be
provided to Subscriber without charge on request.
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<PAGE>
Exhibit B
A Subscriber who meets any one of the following tests is an accredited
investor:
(a) The Subscriber is an individual who has a net worth, or joint net
worth with the Subscriber's spouse, of at least $1,000,000.
(b) The Subscriber is an individual who had individual income of more than
$200,000 (or $300,000 jointly with the Subscriber's spouse) for the past two
years, and the Subscriber has a reasonable expectation of having income of at
least $200,000 (or $300,000 jointly with the Subscriber's spouse) for the
current year.
(c) The Subscriber is an officer or director of the Company.
(d) The Subscriber is a bank as defined in section 3(a)(2) of the
Securities Act or any savings and loan association or other institution as
defined in section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity.
(e) The Subscriber is a broker or dealer registered pursuant to section 15
of the Securities Exchange Act of 1934.
(f) The Subscriber is an insurance company as defined in section 2(13) of
the Securities Act.
(g) The Subscriber is an investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
section 2(a)(48) of that Act.
(h) The Subscriber is a small Business Investment Company licensed by the
U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958.
(i) The Subscriber is an employee benefit plan within the meaning of Title
I of the Employee Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in section 3(21) of such Act,
which is either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has total assets
in excess of $5,000,000 or, if a self-directed plan, with investment decisions
made solely by persons that are accredited investors.
(j) The Subscriber is a private business development company as defined in
section 202(a)(22) of the Investment Advisers Act of 1940.
(k) The Subscriber is an organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, not formed
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<PAGE>
for the specific purpose of acquiring the securities offered, with total assets
in excess of $5,000,000.
(l) The Subscriber is a trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) of the Commission under the Securities Act.
(m) The Subscriber is an entity in which all of the equity owners are
accredited investors (i.e., all of the equity owners meet one of the tests for
an accredited investor).
If an individual investor qualifies as an accredited investor, such
individual may purchase the Units in the name of his individual retirement
account ("IRA").
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<PAGE>
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. IT MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR STATE LAW OR AN OPINION OF
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
PORTA SYSTEMS CORP.
12% Subordinated Note due January 3, 2000
N- New York, New York
$ 0,000 January , 1998
FOR VALUE RECEIVED, Porta Systems Corp., a Delaware corporation (the
"Company"), hereby promises to pay to the order of __________________________
("Registered Holder") the principal amount of ________________ thousand dollars
($ 0,000), on January 3, 2000, subject to earlier prepayment as hereinafter
provided. Interest on such principal amount shall be payable at the rate of
twelve percent (12%) per annum semiannually on the first day of each July and
January to Registered Holder of this Note on the fifteenth day of the previous
month, the first such interest payment date being July 1, 1998. If any payment
of interest on or principal of this Note is due is on a day on not a business
day, such payment shall be made on the next day which is a business day. A
business day shall mean a day other than a day on which banks in the City of New
York are permitted or required to be closed. Payments of principal and interest
shall be made in lawful money of the United States of America against
presentment of this Note. Interest shall be payable, to the extent permitted by
law, at the rate equal to the lesser of (i) sixteen percent (16%) per annum or
(ii) the maximum rate permitted by law, on the entire unpaid principal amount of
this Note (x) from and after the time that such unpaid principal amount shall
have become due and payable (whether at maturity or by acceleration) and (y)
during the period that the Company is in default of the provisions of Paragraphs
2(a)(i) and (ii) of this Note regardless of whether payment of the principal of
this Note has been accelerated pursuant to Paragraph 2(a) of this Note. This
Note is one of a series of the Company's 12% Subordinated Notes due January 3,
2000 (collectively, the "Notes"), in the aggregate principal amount of not less
than three million dollars ($3,000,000) which were issued as part of a private
placement (the "Private Placement") of units, each unit consisting of (a) a Note
in the principal amount of one hundred thousand dollars ($100,000), and (b) a
Series B Common Stock Purchase Warrant to purchase ten thousand (10,000) shares
of the Company's common stock. Reference in this Note to the "Notes" shall mean
all of the Notes issued pursuant to the Private Placement.
ARTICLE 1.
Particular Covenants of the Company
(a) Payment of Principal and Interest. The Company will duly and
punctually pay or cause to be paid the principal amount of this Note and the
interest thereon at the time and in the manner specified in this Note.
(b) Payment Pursuant to Call Provisions.
(i) The Company shall advise the Registered Holder of this Note by
written notice (the "Offering Notice") within ten (10) business days after the
completion of a Qualified
<PAGE>
Offering, as hereinafter defined. The Offering Notice shall state that the
Company has completed a Qualified Offering and shall briefly describe the
Qualified Offering. The Registered Holder of this Note shall have the right,
exercisable by written notice (the "Call Notice") to the Company given within
twenty (20) business days after the date of the Offering Notice, to require the
Company to prepay the principal of this Note, plus accrued interest. The Company
shall prepay the principal of this Note, together with accrued interest, within
ten (10) business days after its receipt of the Call Notice.
(ii) A Qualified Offering shall mean either (A) the public or
private sale of its equity securities (exclusive of securities sold pursuant to
the exercise of warrants or options) or (B) the issuance of unsecured
indebtedness, in either case in an amount which is not less than the greater of
(x) three million dollars ($3,000,000) or (y) the then-outstanding principal
amount of Notes. Equity securities includes shares of any class of capital stock
and any notes, debentures or other debt instruments upon the conversion or
exchange of which shares of any class of capital stock may be issued. Net
proceeds shall mean the gross proceeds less any underwriting discount or
commission, finder's or broker's fees and legal, accounting, printing and other
expenses of the offering.
ARTICLE 2.
Events of Default and Acceleration
(a) Events of Default Defined. The entire unpaid principal amount of this
Note, together with interest thereon shall, on written notice from the
Registered Holders of Notes in the principal amount of not less than fifty
percent (50%) of the aggregate principal amount of Notes then outstanding,
forthwith become and be due and payable if any one or more Events of Default
shall have occurred (for any reason whatsoever and whether such happening shall
be voluntary or involuntary or be affected or come about by operation of law
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and be
continuing. An Event of Default shall occur:
(i) if failure shall be made in the due and punctual payment of the
principal of the Notes when and as the same shall become due and payable whether
at maturity or otherwise, and such failure shall have continued for five (5)
business days;
(ii) if failure shall be made in the due and punctual payment of any
installment of interest on the Notes when and as the same shall become due and
payable, and such failure shall have continued for ten (10) business days;
(iii) if the maturity of any Senior Indebtedness shall be
accelerated as a result of a breach of or default under any instrument governing
the terms of such Senior Indebtedness.
(iv) if the Company shall consent to the appointment of a receiver,
trustee or liquidator of itself or of a substantial part of its property, or
shall admit in writing its inability to pay its debts generally as they become
due, or shall make a general assignment for the benefit of creditors, or shall
file a voluntary petition in bankruptcy, or an answer seeking reorganization in
a proceeding under any bankruptcy law (as now or hereafter in effect) or an
answer admitting the material allegations of a petition filed against the
Company, in any such proceeding, or shall by voluntary petition, answer or
consent, seek relief under the provisions of any other now existing
- 2 -
<PAGE>
or future bankruptcy or other similar law providing for the reorganization or
winding up of corporations, or an arrangement, composition, extension or
adjustment with its or their creditors, or shall, in a petition in bankruptcy
filed against it or them be adjudicated a bankrupt, or the Company or its
directors or the holders of a majority of its equity interest shall vote to
dissolve or liquidate the Company;
(v) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without consent of the Company, a receiver,
trustee or liquidator of the Company or of all or any substantial part of the
property of the Company, or approving a petition filed against the Company
seeking a reorganization or arrangement of the Company under the Federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any State thereof, or any substantial part of the property of the
Company shall be sequestered; and such order, judgment or decree shall not be
vacated or set aside or stayed within ninety (90) days from the date of the
entry thereof; or
(vi) if, under the provisions of any law for the relief or aid of
debtors, any court of competent jurisdiction shall assume custody or control of
the Company or of all or any substantial part of the property of the Company and
such custody or control shall not be terminated or stayed within ninety (90)
days from the date of assumption of such custody or control.
(b) Rights of Note Holder. Nothing in this Note shall be construed to
modify, amend or limit in any way the right of the holder of this Note to bring
an action against the Company in the event the Company fail to pay principal of
or interest on this Note when due.
ARTICLE 3.
Subordination
(a) Agreement of Subordination. The Company, for itself, its successors
and assigns, covenants and agrees, and the Registered Holder by his or her
acceptance of this Note likewise covenants and agrees, that the payment of the
principal of and interest on this Note is hereby expressly subordinated, to the
extent and in the manner hereinafter set forth, to the prior payment in full of
all Senior Indebtedness, as hereinafter defined. The provisions of this Article
3 shall constitute a continuing offer to all persons who, in reliance upon such
provision, become holders of, or continue to hold, Senior Indebtedness, and such
provisions are made for the benefit of the holders of Senior Indebtedness, and
such holders are hereby made obligees hereunder the same as if their names were
written herein as such, and they and/or each of them may proceed to enforce such
provisions.
(b) Company Not to Make Payments with Respect to Note in Certain
Circumstances.
(i) Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all principal thereof and premium, if any, and
interest thereon shall first be paid in full, or such payment duly provided for
in cash or in a manner satisfactory to the holder or holders of such Senior
Indebtedness, before any payment is made by the Company (A) on account of the
principal of or interest on this Note or (B) to acquire this Note.
(ii) Upon the happening of an event of default with respect to any
Senior Indebtedness, as such event of default is defined therein or in the
instrument under which it is
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<PAGE>
outstanding, permitting the holders to accelerate the maturity thereof, and, if
the default is other than default in payment of the principal of or premium, if
any, or interest on such Senior Indebtedness, upon written notice thereof given
to the Company by the holder or holders of such Senior Indebtedness or their
representative or representatives, then, unless and until such event of default
shall have been cured or waived or shall have ceased to exist, no payment shall
be made by the Company (A) on account of the principal of or interest on this
Note or (B) to acquire this Note.
(iii) In the event that, notwithstanding the provision of this
Paragraph 3(b), the Company shall make any payment to the Registered Holder on
account of the principal of or interest on this Note after the happening of a
default in payment of the principal of or premium, if any, or interest on,
Senior Indebtedness or after receipt by the Company of written notice of an
event of default with respect to any Senior Indebtedness and after written
notice of such default or event of default is given by the Company to the
Registered holder, then unless and until such default or event of default shall
have been cured or waived or shall have ceased to exist, such payment shall be
held by the Registered Holder in trust for the benefit of, and shall be paid
forthwith over and delivered to, the holders of Senior Indebtedness (pro rata as
to each of such holders on the basis of the respective amounts of Senior
Indebtedness held by them) or their representative or the trustee under the
indenture or other agreement (if any) pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in accordance with the terms of such Senior Indebtedness, after giving effect to
any concurrent payment or distribution to or for the holders of Senior
Indebtedness.
(c) Note Subordinated to Prior Payment of all Senior Indebtedness on
Dissolution, Liquidation or Reorganization of Company. Upon any distribution of
assets of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise):
(i) The holders of all Senior Indebtedness shall first be entitled
to receive payment in full of the principal thereof, premium, if any, and
interest due thereon before the Registered Holder is entitled to receive any
payment on account of the principal of or interest on this Note (other than
payment of shares of stock of the Company as reorganized or readjusted, or
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment which stock and securities are subordinated to
the payment of all Senior Indebtedness and securities received in lieu thereof
which may at the time be outstanding); and
(ii) Any payment or distribution of assets of the Company of any
kind or character whether in cash, property or securities (other than shares of
stock of the Company as reorganized or readjusted, or securities of the Company
or any other corporation provided for by a plan of reorganization or
readjustment which stock and securities are subordinated to the payment of all
Senior Indebtedness and securities received in lieu thereof which may at the
time be outstanding), to which the Registered Holder would be entitled except
for the provisions of this Article 3, shall be paid by the liquidating trustee
or agent or other person making such payment of distribution, whether a trustee
in bankruptcy, a receiver or liquidating trustee or other trustee or agent,
directly to the holders of Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior
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<PAGE>
Indebtedness may have been issued, to the extent necessary to make payment in
full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution or provision therefor to the holders of such
Senior Indebtedness.
(iii) In the event that notwithstanding the foregoing provision of
this Article 3, any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (other than shares of
stock of the Company as reorganized or readjusted, or securities of the Company
or any other corporation provided for by a plan of reorganization or
readjustment which stock and securities are subordinated to the payment of all
Senior Indebtedness and securities received in lieu thereof which may at the
time be outstanding), shall be received by the Registered Holder on account of
principal of or interest on this Note before all Senior Indebtedness is paid in
full, or effective provision made for its payment or distribution, such payment
or distribution shall be received and held in trust for and shall be paid over
to the holders of the Senior Indebtedness remaining unpaid or unprovided for or
their representative or representatives, or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, for application to the payment of such Senior Indebtedness
until all such Senior Indebtedness shall have been paid in full, after giving
effect to any concurrent payment or distribution or provision therefor to the
holders of such Senior Indebtedness.
(d) Noteholder to be Subrogated to Right of Holders of Senior
Indebtedness. Subject to the payment in full of all Senior Indebtedness, the
Registered Holder shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until all amounts owing on this Note shall
be paid in full, and, for the purpose of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness by or on behalf of the
Company or by or on behalf of the Registered Holder by virtue of this Article 3
which otherwise would have been made to the holders of this Note shall, as
between the Company and the Registered Holder, be deemed to be payment by the
Company to or on account of the Senior Indebtedness, it being understood that
the provisions of this Article 3 are, and are intended solely, for the purpose
of defining the relative rights of the holders of this Note, on the one hand,
and the holders of the Senior Indebtedness, on the other hand.
(e) Obligation of the Company Unconditional. Nothing contained in this
Article 3 or elsewhere in this Note is intended to or shall impair as between
the Company and the Registered Holder, the obligation of the Company, which is
absolute and unconditional, to pay to the Registered Holder the principal of and
interest on this Note as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Registered Holder and creditors of the Company other than the
holders of the Senior Indebtedness, nor shall anything herein or therein prevent
the Registered Holder of this Note from exercising all remedies otherwise
permitted by applicable law upon default under this Note, subject to the rights,
if any, under this Article 3 of the holders of Senior Indebtedness in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy. Upon any distribution of assets of the Company referred to in this
Article 3, the holders of this Note shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other person making any
distribution to the Registered Holder for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the
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<PAGE>
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 3.
(f) Subordination Rights Not Impaired by Acts or Omissions of the Company
or Holders of Senior Indebtedness. No right of any present or future holders of
any Senior Indebtedness to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms, provisions and
covenants of this Note, regardless of any knowledge thereof which any such
holder may have or be otherwise charged with.
(g) Definition of Senior Indebtedness. The term "Senior Indebtedness" is
defined to mean the principal of and premium, if any, and interest on the
following: (i) all indebtedness and obligations (other than the Notes) that are
created, assumed or guaranteed by the Company, whether before or after the
issuance of the Notes, that are (A) for money borrowed or (B) secured by
purchase money mortgages or other similar security interests given by the
Company or any subsidiary on real or personal property, (ii) all obligations of
the Company or of others which are guaranteed by the Company, whether existing
on or after the issuance of the Notes, as lessee under a lease of real or
personal property, which in accordance with generally accepted accounting
principles have been capitalized, unless, with respect to any indebtedness or
obligations described in clause (i) or (ii) of this Paragraph 3(g), the
instrument creating or evidencing such indebtedness expressly provides that such
indebtedness is not superior in right of payment of the Notes, (iii) all
indebtedness or obligations of a kind not described in said clause (i) or (ii)
which were incurred or guaranteed by the Company in connection with the
acquisition of an existing business or assets, whether by means of a merger,
consolidation, stock acquisition or acquisition of all or part of the assets of
a corporation, partnership, limited lability company, business trust, sole
proprietorship or other entity, or otherwise, and (iv) any deferrals, renewals,
extensions or refundings of any of the foregoing, unless, in the case of any
particular indebtedness or obligation or renewal, extension or refunding
thereof, under the express provisions of the instrument creating or evidencing
the same, or pursuant to which the same is outstanding, such indebtedness or
other obligation or such renewal, extension or refunding thereof is not superior
in right of payment to this Note. Senior Indebtedness shall not include (a) the
Company's 6% Convertible Subordinated Debentures Due July 1, 2002, on which the
Company is presently in default, (b) indebtedness incurred for compensation to
employees, or (c) other indebtedness incurred in the ordinary course of business
for goods, materials, or services or any obligations of the Company under, or in
respect of, leases other than as hereinbefore described. There are no
restrictions on the right of the Company to incur Senior Indebtedness.
(h) Right of Registered Holder to Hold Senior Indebtedness. The Registered
Holder shall be entitled to all of the rights set forth in this Article 3 in
respect of any Senior Indebtedness at any time held by the Registered Holder to
the same extent as any other holder of Senior Indebtedness, and nothing in this
Article 3 or elsewhere in this Note shall be construed to deprive the Registered
Holder of any of its rights as such holder.
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<PAGE>
ARTICLE 4.
Miscellaneous
(a) Transferability. No transfer of this Note shall be effective unless
such transfer is made in compliance with all applicable Federal and state
securities laws and the Registered Holder shall provide to the Company an
opinion of counsel, which counsel and opinion shall be reasonably acceptable to
the Company, as to the exemption from the registration requirements of the
Securities Act of 1933, as amended, and applicable state securities laws. The
Company shall be entitled to treat as the owner of this Note only the person
shown as the Registered Holder on its books and records, regardless of whether
the Company has any contrary knowledge.
(b) WAIVER OF TRIAL BY JURY. IN ANY LEGAL PROCEEDING TO ENFORCE PAYMENT OF
THIS NOTE, THE COMPANY AND, BY THE ACCEPTANCE OF THIS NOTE, THE REGISTERED
HOLDER, THE NOTEHOLDER WAIVES TRIAL BY JURY.
(c) Right of Prepayment. The Company may prepay the Notes at whole at any
time or in part from time to time, on not less than ten (10) nor more than forty
(40) days' written notice without payment of any penalty or premium; provided,
that any partial prepayment of the Notes shall be in an amount which is not less
than the lesser of one million dollars ($1,000,000). Any prepayment shall by
accompanied by payment of accrued interest to the date of payment. Prepayment
shall be made, to the extent practical, proportional as to the Registered
Holders of the outstanding Notes based on the respective principal amounts of
their Notes; provided, that the Company may redeem in full the Notes of any
Registered Holder the principal amount of whose Note is not significant relative
to the total outstanding principal amount of Notes.
(d) Notice to Company. Notice to the Company shall be given to the Company
at their principal executive offices, presently located at 575 Underhill
Boulevard, Syosset, New York 11791, or to such other address as the Company may,
from time to time, advise the Registered Holder of this Note.
(e) Governing Law. This Note shall be governed by the laws of the State of
New York applicable to agreements executed and to be performed wholly within
such State. The Company, and by acceptance of this Note, the Registered Holder,
consents to the exclusive jurisdiction of the United States District Court for
the Southern or Eastern District of New York and Supreme Court of the State of
New York in the County of Nassau or New York in any action relating to or
arising out of this Note.
IN WITNESS WHEREOF, the Company has executed this Note on the date and
year first aforesaid.
PORTA SYSTEMS CORP.
By: ________________________
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<PAGE>
Warrant to
WB- Purchase
** ,000**
Shares
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD,
ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACTS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS,
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 December 31, 2002
SERIES B COMMON STOCK PURCHASE WARRANT
OF
PORTA SYSTEMS CORP.
This is to certify that, FOR VALUE RECEIVED, ___________________________
or assigns ("Holder"), is entitled to purchase, subject to the provisions of
this Warrant, from Porta Systems Corp., a Delaware corporation (the "Company"),
at an exercise price of three and 00/100 dollars ($3.00) per share, subject to
adjustment as provided in this Warrant (the "Exercise Price"),
____________________ thousand (___,000) shares of the Company's common stock,
par value $.01 per share ("Common Stock") 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 on at 5:00
P.M. New York City time on December 31, 2002; 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 securities issuable upon exercise of this Warrant and the price
to be paid for such securities may also be adjusted from time to time as
hereinafter set forth. Reference in the Warrant to the "Series B Warrants" or
the "Warrants" shall mean any or all of the Series B Common Stock Purchase
Warrants issued by the Company. The shares of Common Stock issuable upon
exercise of this Warrant are referred to as the "Warrant Shares."
(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
hereof 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 Warrant Shares
specified in such form. If this Warrant should be exercised in part only, 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 Warrant Shares
<PAGE>
purchasable hereunder. Upon receipt by the Company of this 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
Warrant Shares issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to the
Holder. Payment of the Exercise Price of this Warrant may also be made by the
application, first of accrued interest and then principal of the Company's 12%
Subordinated Notes due January 3, 2000, by tendering such notes for cancellation
(to the extent set forth in the Purchase Form). To the extent that the entire
principal balance plus accrued interest on such note is not applied to exercise
of this Warrant, the Company shall issue to the Holder a new note for the
remaining balance of the principal amount of such note.
(2) If, at any time subsequent to the one hundred sixty fifth
(165th) day following the Issue Date, as hereinafter defined, the Warrant Shares
are not covered by an effective registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), and only for so long as the Warrant
Shares are not covered by such an effective registration statement, the Holder
of this Warrant shall have the cashless exercise right as set forth in Paragraph
(a)(3) of this Warrant.
(3) The cashless exercise right shall mean the right to either:
(A) exchange or convert this Warrant, in whole or in part to
the extent that this Warrant has not previously been exercised, 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 as of 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 as of the date
of exercise; or
(B) exercise this Warrant, in whole or in part, by delivery of
such number of shares of Common Stock as has a current value equal to the
Exercise Price.
(4) The date of exercise shall mean the date on which this Warrant
accompanied by the notice of exercise is received by the Company or its transfer
agent.
(5) 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
- 2 -
<PAGE>
(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 SECURITIES. 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 value of such fractional share, determined in the
manner set forth in Paragraph (a)(5) of this Warrant, except that the current
value shall mean 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 (j) 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 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.
- 3 -
<PAGE>
(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 herein.
(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) If the Company shall, subsequent to the first date on which the
Company shall have issued a Series B Warrant (the "Issue Date"), (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 the Issue Date, issue
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
current market price of the Common Stock (as defined in Paragraph (f)(5) of this
Warrant) on the record date mentioned below, the Exercise Price shall be
adjusted so that the Exercise Price shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the date of such
issuance by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on the record date mentioned below plus the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of which 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.
- 4 -
<PAGE>
(3) In case the Company shall, subsequent to the Issue Date,
distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph (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.
(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 ten (10)
consecutive trading days commencing twenty (20) 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 on Nasdaq, or if not listed or admitted to trading on such exchange or
such System, 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
- 5 -
<PAGE>
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.
(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 employed 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.
(10) 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 (8), inclusive, of
this Warrant.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of Paragraph (f) of this Warrant subsequent to the
Effective Date, 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 or securities, as the case may be, 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 or any holder of a Warrant
executed and delivered pursuant to Paragraph (a) and the Company shall,
forthwith after each such adjustment, mail, by certified mail, a copy of such
certificate to the Holder or any such holder at such holder's address set forth
in the Company's Warrant Register.
- 6 -
<PAGE>
(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 the 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 with a
subsidiary in which merger 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 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. In the event that in connection with any such capital
reorganization or reclassification, consolidation, merger, sale or conveyance,
additional shares of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole in part, for a security of the Company other
than Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of Paragraph (f) of this Warrant.
(j) TRANSFER TO COMPLY WITH THE SECURITIES ACT. 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:
- 7 -
<PAGE>
(1) To a person who, in the reasonable 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 Securities Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provisions of this
Paragraph (j) 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
(2) to any person upon delivery of a prospectus then meeting the
requirements of the Securities Act relating to such securities and the offering
thereof for such sale or disposition.
Dated as of December __, 1997
PORTA SYSTEMS CORP.
By: ________________________
- 8 -
<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 transferring to
the Company for cancellation the Company's 12% Subordinated Note due
January 3, 2000 in the principal amount of $__________ , which shall be
applied to the purchase price of the Warrant as provided in Paragraph
(a)(1) of the Warrant.
_____ 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)(2) of this Warrant..
_____ The undersigned hereby irrevocably elects to exercise this Warrant as to
__________ shares subject to this Warrant by exchange or convert this
Warrant (to the extent of such number of shares) pursuant to the provision
of Paragraph (a)(2) of this Warrant, the number of shares of Common Stock
being issuable as a result of such exchange or conversion to be determined
in accordance with said Paragraph (a)(2).
INSTRUCTIONS FOR REGISTRATION OF SHARES
Name_____________________________________________
(Please typewrite or print in block letters)
Signature________________________________________
Social Security or Employer Identification No. _____________
- 9 -
<PAGE>
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 Shares represented by this Warrant or any other security
issued or issuable upon exercise of this Warranty to which such right is
exercisable and does hereby irrevocably constitute and appoint
____________________________ attorney to transfer the same on the books of the
Company with full power of substitution.
Dated: _______________, 19__
Signature_________________________________
Signature Medallion Guaranteed:
_________________________
- 10 -
<PAGE>
Warrant to
WC- Purchase
** **
Shares
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD,
ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACTS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS,
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 December 31, 2003
SERIES C COMMON STOCK PURCHASE WARRANT
OF
PORTA SYSTEMS CORP.
This is to certify that, FOR VALUE RECEIVED, __________ or assigns
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from Porta Systems Corp., a Delaware corporation (the "Company"), at an exercise
price of (1) ($______) per share, subject to adjustment as provided in this
Warrant (the "Exercise Price"), ________________________ thousand ( ,000) shares
of the Company's common stock, par value $.01 per share ("Common Stock") 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 on at 5:00 P.M. New York City time on December 31, 2003;
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 securities issuable upon
exercise of this Warrant and the price to be paid for such securities may also
be adjusted from time to time as hereinafter set forth. Reference in the Warrant
to the "Series C Warrants" or the "Warrants" shall mean any or all of the Series
C Common Stock Purchase Warrants issued by the Company. The shares of Common
Stock issuable upon exercise of this Warrant are referred to as the "Warrant
Shares."
(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
hereof to the Company at its principal office, or at the office of its stock
transfer agent, if any, with the Purchase Form annexed
- --------
(1) If the Series C Warrant is issued the exercise price shall determined in
accordance with Paragraph 3 of the Subscription Agreement.
<PAGE>
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form. If this Warrant should be
exercised in part only, 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 Warrant Shares purchasable
hereunder. Upon receipt by the Company of this 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 Warrant Shares
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such Warrant
Shares shall not then be actually delivered to the Holder. Payment of the
Exercise Price of this Warrant may also be made by the application, first of
accrued interest and then principal of the Company's 12% Subordinated Notes due
January 3, 2000, by tendering such notes for cancellation (to the extent set
forth in the Purchase Form). To the extent that the entire principal balance
plus accrued interest on such note is not applied to exercise of this Warrant,
the Company shall issue to the Holder a new note for the remaining balance of
the principal amount of such note.
(2) If, at any time subsequent to the one hundred sixty fifth
(165th) day following the Issue Date, as hereinafter defined, the Warrant Shares
are not covered by an effective registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), and only for so long as the Warrant
Shares are not covered by such an effective registration statement, the Holder
of this Warrant shall have the cashless exercise right as set forth in Paragraph
(a)(3) of this Warrant.
(3) The cashless exercise right shall mean the right to either:
(A) exchange or convert this Warrant, in whole or in part to
the extent that this Warrant has not previously been exercised, 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 as of 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 as of the date
of exercise; or
(B) exercise this Warrant, in whole or in part, by delivery of
such number of shares of Common Stock as has a current value equal to the
Exercise Price.
(4) The date of exercise shall mean the date on which this Warrant
accompanied by the notice of exercise is received by the Company or its transfer
agent.
(5) 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
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<PAGE>
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 SECURITIES. 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 value of such fractional share, determined in the
manner set forth in Paragraph (a)(5) of this Warrant, except that the current
value shall mean 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 (j) 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 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
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<PAGE>
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 herein.
(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) If the Company shall, subsequent to the first date on which the
Company shall have issued a Series C Warrant (the "Issue Date"), (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 the Issue Date, issue
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
current market price of the Common Stock (as defined in Paragraph (f)(5) of this
Warrant) on the record date mentioned below, the Exercise Price shall be
adjusted so that the Exercise Price shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the date of such
issuance by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding on the record date mentioned below plus the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of which 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
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<PAGE>
the basis of delivery of only the number of shares of Common Stock (or
securities convertible into Common Stock) actually delivered.
(3) In case the Company shall, subsequent to the Issue Date,
distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph (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.
(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 ten (10)
consecutive trading days commencing twenty (20) 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 on Nasdaq, or if not listed or admitted to trading on such exchange or
such System, 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
- 5 -
<PAGE>
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.
(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 employed 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.
(10) 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 (8), inclusive, of
this Warrant.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of Paragraph (f) of this Warrant subsequent to the
Effective Date, 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 or securities, as the case may be, 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 or any holder of a Warrant
executed and delivered pursuant to Paragraph (a) and the Company shall,
forthwith after each such adjustment,
- 6 -
<PAGE>
mail, by certified mail, a copy of such certificate to the Holder or any such
holder at such 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 the 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 with a
subsidiary in which merger 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 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. In the event that in connection with any such capital
reorganization or reclassification, consolidation, merger, sale or conveyance,
additional shares of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole in part, for a security of the Company other
than Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of Paragraph (f) of this Warrant.
- 7 -
<PAGE>
(j) TRANSFER TO COMPLY WITH THE SECURITIES ACT. 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 reasonable 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 Securities Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provisions of this
Paragraph (j) 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
(2) to any person upon delivery of a prospectus then meeting the
requirements of the Securities Act relating to such securities and the offering
thereof for such sale or disposition.
Dated as of , 199_
PORTA SYSTEMS CORP.
By: ________________________
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<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 transferring to
the Company for cancellation the Company's 12% Subordinated Note due
January 3, 2000 in the principal amount of $__________, which shall be
applied to the purchase price of the Warrant as provided in Paragraph
(a)(1) of the Warrant.
_____ 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)(2) of this Warrant..
_____ The undersigned hereby irrevocably elects to exercise this Warrant as to
__________ shares subject to this Warrant by exchange or convert this
Warrant (to the extent of such number of shares) pursuant to the provision
of Paragraph (a)(2) of this Warrant, the number of shares of Common Stock
being issuable as a result of such exchange or conversion to be determined
in accordance with said Paragraph (a)(2).
-------------
INSTRUCTIONS FOR REGISTRATION OF SHARES
Name _____________________________________________
(Please typewrite or print in block letters)
Signature ________________________________________
Social Security or Employer Identification No. ____________
- 9 -
<PAGE>
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 Shares represented by this Warrant or any other security
issued or issuable upon exercise of this Warranty to which such right is
exercisable and does hereby irrevocably constitute and appoint
_____________________ attorney to transfer the same on the books of the Company
with full power of substitution.
Dated: _________________, 19__
Signature ___________________________
Signature Medallion Guaranteed:
__________________________
- 10 -
Porta Systems Corp.
575 Underhill Blvd.
Syosset, New York 11791
January 26, 1998
Henley Group, Ltd.
Woodstead Associates, L.P.
Lake Trust
Smith Management Company, Inc.
c/o Smith Management Company, Inc.
885 Third Avenue, 34th floor
New York, New York 10022
Re: Porta Systems Corp. 6% Convertible Subordinated Debentures Due
July 1, 2002
--------------------------------------------------------------
Gentlemen:
This Agreement will set forth the terms pursuant to which Henley Group,
Ltd., Woodstead Associates, L.P. and Lake Trust (collectively, "Holders" and
each, individually, a "Holder") will exchange 6% Convertible Subordinated
Debentures Due July 1, 2002 ("Debentures") of Porta Systems Corp., a Delaware
corporation (the "Company"), for shares of the Company's common stock, par value
$.01 per share ("Common Stock").
1. Each Holder represents and warrants that (a) the Holders are the sole
beneficial owners of Debentures (the "Exchange Debentures") in the aggregate
principal amount of one million two hundred sixty thousand U.S. dollars
(US$1,260,000), with each Holder being the sole beneficial owner of the
principal amount of Debentures set forth after such Holder's name under the
heading "Principal Amount" in Exhibit A to this Agreement, (b) the Exchange
Debentures are not subject to any pledge, lien, hypothecation or any encumbrance
and (c) the Holders have the right to enter into this Agreement and effect the
exchange provided for in this Agreement.
2. Holders agree, within ten (10) business days from the date of this
Agreement, to exchange the Exchange Debentures for an aggregate of three hundred
thirty thousand three hundred seventy two (330,372) shares (the "Exchange
Shares") of Common Stock. The number of Exchange Shares issuable in respect of
the Exchange Debentures owned by each Holder is set forth after such Holder's
name under the heading "Exchange Shares" in Exhibit A to this Agreement.
Delivery of the Exchange Debentures shall be made to the Company's transfer
agent, American Stock Transfer & Trust Company ("AST&T"). The Company will
instruct AST&T to issue the Exchange Shares in the name of Smith Management
Company, Inc. ("Smith") and deliver the certificates for the Exchange Shares to
Smith at its address set forth at the beginning of this Agreement. In exchanging
the Exchange Debentures for the Exchange Shares, the Holders are waiving any
rights they have or may have to interest on the Exchange Debentures.
<PAGE>
Hurley Group, Ltd.
Woodstead Associates, L.P.
Lake Trust
Smith Management Co., Inc.
January 26, 1998
Page 2
3. Holders jointly and severally represent and warrant that (a) each
Holder is an accredited investor within the meaning of Rule 501 of the
Securities and Exchange Commission (the "Commission" ) under the Securities Act
of 1933, as amended (the "Securities Act"), (b) each Holder is acquiring the
Exchange Shares for its own account for investment and not with a view to the
sale or distribution thereof, (c) all corporate or partnership action necessary
for each Holder to execute this Agreement has been taken and (d) this Agreement
constitutes the valid, binding and enforceable obligation of each Holder. Each
Holder and Smith understand that the certificates for the Exchange Shares shall
bear the Company's standard investment legend. Smith agrees that it will not
transfer the Exchange Shares except pursuant to an effective registration
statement or an exemption from the registration requirements of the Securities
Act and applicable state law, in which event Smith will deliver to the Company
an opinion of counsel as to the availability of such exemption, such opinion and
such counsel to be reasonably acceptable to the Company.
4. Each Holder represents and warrants that its Federal taxpayer
identification number is as set forth after such Holder's name under the heading
"Tax ID Number" on Exhibit A to this Agreement, and at the request of the
Company, will execute and deliver to the Company a Form W-8 or W-9 to such
effect.
5. The Company represents and warrants that (a) all corporate action
necessary for the execution of this Agreement by the Company and the performance
by the Company of its terms has been taken, (b) this Agreement constitutes the
valid, binding and enforceable obligation of the Company and (c) the Exchange
Shares, when issued pursuant to this Agreement, will be duly and validly
authorized and issued, fully paid and nonassessable.
6. (a) The Company agrees that it will include the Exchange Shares in the
next registration statement filed by the Company with the Commission, and that
it will file such registration statement with the Commission not later than
April 30, 1998. The Company agrees that it will keep the registration statement
covering the Exchange Shares effective for such time as the registration
statement is otherwise being kept effective; provided, however, that the Company
shall not be required to either file or keep the registration statement
effective as to the Exchange Shares subsequent to two years from the date of
this Agreement. It shall be a condition to the obligations of the Company to
include the Exchange Shares in any registration statement that Smith shall
provide the Company in a timely manner with such information as the Company may
request in connection with the registration statement, including, but not
limited to, information concerning Smith, any underwriter engaged by Smith and
the proposed manner of distribution of the registered securities and any
specific information requested by the Commission, any stock exchange or market
or the National Association of Securities Dealers, Inc.
<PAGE>
Hurley Group, Ltd.
Woodstead Associates, L.P.
Lake Trust
Smith Management Co., Inc.
January 26, 1998
Page 3
(b) The following provision shall also be applicable:
(i) Following the effective date of the registration
statement, the Company shall, upon the request of Smith, forthwith supply Smith
with such number of prospectuses meeting the requirements of the Securities Act
as Smith shall reasonably request to permit Smith to make a public distribution
of the Exchange Shares from time to time. The Company shall also use its best
efforts to qualify the Exchange Shares for sale in such states as the Company is
qualifying the other securities being registered pursuant to the registration
statement as Smith may reasonably request.
(ii) The Company shall bear the entire cost and expense of the
preparation and filing of the registration statement pursuant to this Paragraph
6. Smith shall, however, bear the fees of its own counsel and accountants and
any transfer taxes or underwriting discounts or commissions applicable to the
Exchange Shares being sold by Smith pursuant thereto.
(iii) The Company shall indemnify and hold harmless Smith and
each underwriter, within the meaning of the Securities Act, who may purchase
from or sell any Exchange Shares for Smith from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement under the
Securities Act or any prospectus included therein required to be filed or
furnished by reason of this Paragraph 6 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 Smith or any such underwriter 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 or required to be furnished to the Company by Smith or any
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 Smith and any such underwriter shall at
the same time indemnify the Company, its directors, each officer signing the
registration statement, each person, if any, who controls the Company within the
meaning of the Securities Act and each other person (the "other holders"), whose
securities are being offered or sold pursuant to such registration statement,
from and against any and all losses, claims, damages and liabilities caused by
any untrue statement or alleged untrue statement of a material fact contained in
any registration statement or any prospectus required to be filed or furnished
by reason of this Paragraph 6 or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not
<PAGE>
Hurley Group, Ltd.
Woodstead Associates, L.P.
Lake Trust
Smith Management Co., Inc.
January 26, 1998
Page 4
misleading, insofar as such losses, claims, damages or liabilities are caused by
any untrue statement or alleged untrue statement or omission based upon written
information furnished to the Company by Smith or any such underwriter expressly
for use therein.
(iv) If any action or claim shall be brought or asserted by a
person entitled to indemnification pursuant to Paragraph 6(b)(iii) this
Agreement (an "indemnified party") against the Company or any underwriter
engaged by the Company or any person controlling the Company or such underwriter
or against Smith or any underwriter engaged by Smith or any person controlling
Smith or such underwriter, in respect of which indemnity may be sought pursuant
to said Paragraph 6(b)(iii) (an "indemnifying party"), the indemnified party
shall promptly notify the indemnifying party in writing, and the indemnifying
party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the indemnified party and the payment of all legal
and other expenses. The failure of the indemnified party to notify the
indemnifying party will not relieve the indemnifying party of any liability for
indemnification which it may have to the indemnified party other than pursuant
to Paragraph 6(b)(iii) of this Agreement. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (A) the employment thereof has been
specifically authorized by the indemnifying party in writing, or (B) the
indemnifying party has failed to assume the defense and employ counsel as
provided in this Paragraph 6(b)(iv), or (C) the named parties to any such action
(including any impleaded parties) include both an indemnified party and an
indemnifying party, and in the judgment of the counsel for the indemnifying
party, it is advisable for the indemnified party or controlling person to be
represented by separate counsel (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of the indemnified
party or such controlling person), it being understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys at any time in each jurisdiction for all
indemnified parties (whether pursuant to this Agreement or any other agreements
granting registration rights), which firm shall be designated in writing by a
majority of the indemnified parties (based on the number of shares being
registered by the indemnified parties if the indemnified parties are selling
stockholders), except that if the indemnified parties include the Company, the
Company shall designate counsel. The indemnifying party shall not be liable for
any settlement of any such action effected by an indemnified party without the
written consent of the indemnifying party (which shall not be withheld
unreasonably in light of all factors of importance to such indemnified party),
but if settled with such written consent, or if there be a final judgment or
decree for the plaintiff in any such action by a court of competent jurisdiction
and the time to appeal shall have expired or the last appeal shall have been
denied, the indemnifying
<PAGE>
Hurley Group, Ltd.
Woodstead Associates, L.P.
Lake Trust
Smith Management Co., Inc.
January 26, 1998
Page 5
party agrees to indemnify and hold harmless the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
(v) Smith shall not engage an underwriter for the sale of the
Exchange Shares without the prior consent of the Company.
7. All notices provided for in this Agreement shall be in writing signed
by the party giving such notice, and delivered personally or sent by overnight
courier or messenger against receipt thereof or sent by registered or certified
mail, return receipt requested or by telecopier of receipt of transmission is
confirmed or if transmission is confirmed by mail as provided in this Paragraph
7. Notices shall be deemed to have been received on the date of personal
delivery or telecopy or, if sent by certified or registered mail, return receipt
requested, shall be deemed to be delivered on the fifth (5th) business day after
the date of mailing. Notices shall be sent to the parties at their respective
addresses set forth at the beginning of this Agreement or, if by telecopier, to
the Company at (516) 682-4655 or to Holders or Smith at (212) 751-9502. Notice
to the Company should be sent to the attention of Mr. Edward B. Kornfeld, Senior
Vice President and Chief Financial Officer and notice to any Holder or Smith
should be sent to the attention of David A. Persing, Esq., Senior Vice President
- -- General Counsel. Any party may change the address, telecopier number of
person to whom notice should be given by notice in the manner provided in this
Paragraph 7.
8. (a) This Agreement constitutes the entire agreement of the parties with
respect to its subject matter, superseding and terminating any and all prior or
contemporaneous oral and prior written agreements, understandings, letters of
intent, representations and warranties between or among the parties with respect
to the subject matter of this Agreement. No part of this Agreement may be
modified or amended, nor may any right be waived, except by a written instrument
which expressly refers to this Agreement, states that it is a modification or
amendment of this Agreement or a waiver and is signed by the parties to this
Agreement, or, in the case of waiver, by the party granting the waiver. No
course of conduct or dealing or trade usage or custom and no course of
performance shall be relied on or referred to by any party to contradict,
explain or supplement any provision of this Agreement, it being acknowledged by
the parties to this Agreement that this Agreement is intended to be, and is, the
complete and exclusive statement of the agreement with respect to its subject
matter. Any waiver shall be limited to the express terms thereof and shall not
be construed as a waiver of any other provisions or the same provisions at any
other time or under any other circumstances.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within
<PAGE>
Hurley Group, Ltd.
Woodstead Associates, L.P.
Lake Trust
Smith Management Co., Inc.
January 26, 1998
Page 6
such State. Each party hereby (i) irrevocably consents and agrees that any legal
or equitable action or proceeding arising under or in connection with this
Agreement or any document or instrument delivered with respect to this Agreement
and/or the Units shall be brought exclusively in any Federal or state court in
the County of New York, State of New York,(ii) agrees that any process in any
action commenced in such court under this Agreement may be served upon him
personally, by certified or registered mail, return receipt requested, or by an
overnight courier service which obtains evidence of delivery, with the same full
force and effect as if personally served upon him in New York City in addition
to any other method of service permitted by law, and (iii) waives any claim that
the jurisdiction of any such tribunal is not a convenient forum for any such
action and any defense of lack of in personam jurisdiction with respect thereto.
(c) This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
(d) In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
(e) Each party shall, without payment of any additional
consideration by any other party, at any time on or after the date of this
Agreement, take such other action and execute such other and further documents
and instruments as the other party may request in order to provide the other
party with the benefits of this Agreement.
(f) All references to any gender shall be deemed to include the
masculine, feminine or neuter gender, the singular shall include the plural, and
the plural shall include the singular.
(g) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same document.
[Balance of page intentionally left blank]
<PAGE>
Hurley Group, Ltd.
Woodstead Associates, L.P.
Lake Trust
Smith Management Co., Inc.
January 26, 1998
Page 7
Please confirm your agreement with the foregoing by signing this Agreement
where indicated and returning it to the Company.
PORTA SYSTEMS CORP.
By:__________________________
AGREED TO AND ACCEPTED:
SMITH MANAGEMENT COMPANY, INC. HENLEY GROUP, LTD.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
WOODSTEAD ASSOCIATES, L.P. LAKE TRUST
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
<PAGE>
Exhibit A
Information Concerning Holders
Name Tax ID Number Principal Amount Exchange Shares
- ---- ------------- ---------------- ---------------
Henley Group, Ltd. N.A. $ 815,000 213,693
Woodstead Associates, L.P. 76-0278088 100,000 26,220
Lake Trust 13-3624838 345,000 90,459
---------- -------
Total $1,260,000 330,372
========== =======
