-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oo2dUg4BRDY6izB6Pp0pxTO80H0aE/lYnbPtgQy8O3Dcx16CU5+elNmuk6kxDgaI 286HWhI7JkVy5cBy6KIY3A== 0000891092-98-000433.txt : 19981204 0000891092-98-000433.hdr.sgml : 19981204 ACCESSION NUMBER: 0000891092-98-000433 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19981203 EFFECTIVENESS DATE: 19981203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PORTA SYSTEMS CORP CENTRAL INDEX KEY: 0000079564 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 112203988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-8 SEC ACT: SEC FILE NUMBER: 333-68321 FILM NUMBER: 98763667 BUSINESS ADDRESS: STREET 1: 575 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 BUSINESS PHONE: 5163649300 MAIL ADDRESS: STREET 1: 575 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 S-8 1 FORM S-8 As filed with the Securities and Exchange Commission on December __, 1998 Registration No. 333 - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PORTA SYSTEMS CORP. (Exact name of registrant as specified in its charter) Delaware 11-2203988 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 575 Underhill Boulevard Syosset, New York 11791 (Address of Principal Executive Offices) (Zip Code) 1996 Stock Option Plan 1998 Non-Qualified Stock Option Plan (Full Title of Plans) Porta Systems Corp. 575 Underhill Boulevard Syosset, New York 11791 (516) 364-9300 (Name, address and telephone number, including area code, of agent for service) Copies to: Warren H. Esanu, Esq. Esanu Katsky Korins & Siger, LLP 605 Third Avenue New York, New York 10158 (212) 953-6000 Approximate date of commencement of proposed sale to the public: As soon as practical on or after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered of this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [x] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] . If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] . If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------- Proposed Proposed Title of securities maximum maximum to be Amount to be offering price aggregate Amount of registered registered per unit offering price registration fee - ---------------------------------------------------------------------------------------------- Common Stock, par 887,988 $2.467(1) $2,190,666.40 $647.25 value $.01 per share, issuable upon the exercise of options previously granted under the 1996 and 1998 Stock Option Plan - ---------------------------------------------------------------------------------------------- Common Stock, par 12,012 $1.6875(2) $20,270.25 $6.20 value $.01 per share, issuable upon the exercise of options to be granted under the 1996 Stock Option Plan - ----------------------------------------------------------------------------------------------
(1) Based on the weighted average exercise price of the options granted under the 1996 Stock Option Plan and the 1998 Non-Qualified Stock Option Plan. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended, based on the average of the high and low price of the Common Stock on the American Stock Exchange on December 1, 1998. PROSPECTUS (FORM S-3) 715,608 Shares PORTA SYSTEMS CORP. Common Stock, par value $.01 per share This prospectus relates to 715,608 shares ("Shares") of common stock, par value $.01 per share ("Common Stock"), of Porta Systems Corp., Delaware corporation (the "Company"), which may be sold from time to time by the selling stockholders ("Selling Stockholders") named under the caption "Selling Stockholders." The Shares are issuable upon the exercise of options granted to the Selling Stockholders pursuant to and upon the exercise of options (the "Options") granted or to be granted under the Company's 1996 Stock Option Plan (the "1996 Plan") and the Company's 1998 Non-Qualified Stock Option Plan (the "1998 Plan"). The 1996 Plan and the 1998 Plan are collectively referred to as the "Plans." The Company will receive various amounts, ranging from $1.4188 to $3.75 for each Share issued upon the exercise of Options, based on the exercise price of outstanding options granted under the Plans. The Company will receive none of the proceeds from the sale of Shares owned by the Selling Stockholders. The cost of this registration statement, estimated at approximately $10,000, is being paid by the Company, but all selling and other expenses incurred by the Selling Stockholders in connection with the sale of his or her Shares will be borne by the Selling Stockholders. The sale of Shares by Selling Stockholders may be effected from time to time in transactions (which may include block transactions) by or for the account of the Selling Stockholders on the American Stock Exchange ("ASE") or in negotiated transactions, a combination of such methods of sale or otherwise. Sales may be made at fixed prices which may be changed, at market prices or in negotiated transactions, a combination of such methods of sale or otherwise. The Shares may also be transferred by gift. The Options are non-transferable other than by will or by the laws of descent and distribution. The Selling Stockholders may effect such transactions by selling Shares directly to purchasers, through broker-dealers acting as agents for the Selling Stockholders or to broker-dealers who may purchase securities as principals and thereafter sell the Shares from time to time on the ASE, in negotiated transactions or otherwise. Such broker-dealers, if any, may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders and/or the purchasers from whom such broker-dealer may act as agents or to whom they may sell as principals or otherwise (which compensation as to a particular broker-dealer may exceed customary commissions). The Company is not aware of any arrangements by any Selling Stockholder for the sale of any of the Shares included in this Prospectus. ---------- AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS," WHICH BEGIN ON PAGE 3. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is December ___, 1998 The Selling Stockholders understand that the anti-manipulative rules under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are set forth in Regulation M, may apply to its sales in the market. The Company has furnished the Selling Stockholders with a copy of Regulation M. The Company has also informed the Selling Stockholders of the need for delivery of copies of this Prospectus. The Company furnishes its stockholders with annual reports containing audited financial statements and with such other periodic reports as the Company from time to time deems appropriate or as may be required by law. The Company uses the calendar year as its fiscal year. AVAILABLE INFORMATION The Company is subject to certain informational requirements of the Exchange Act, and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the regional offices of the Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such site is http//www.sec.gov. Such reports, proxy statements and other information can also be inspected at the offices of the American Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006-1881, on which the Company's Common Stock is listed. This Prospectus does not contain all of the information set forth in the Registration Statement, of which this Prospectus is a part, and exhibits thereto which the Company has filed with Commission under the Securities Act of 1933, as amended (the "Securities Act"), to which reference is hereby made. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents have been filed by the Company with the Commission (File No. 1-8191) and are incorporated herein by reference: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 1997; (2) Amendment No. 1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997; (3) The Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998; (4) The Company's Proxy Statement for its 1998 Annual Meeting of Stockholders; (5) The Company's Current Report on Form 8-K, dated January 2, 1998, as filed with the Commission on February 6, 1998; and 2 (6) The description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A, filed on April 26, 1977, which became effective on April 26, 1977. All documents filed pursuant to Section 13(a), 13(c), 14 or 15 of the 1934 Act after the date of this Prospectus shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, upon the written or oral request of any such person, a copy of the documents (excluding the exhibits thereto, unless such exhibits are specifically incorporated by reference into such document) referred to above which have been or may be incorporated herein by reference and not furnish herewith. Requests for such documents should be directed to Mr. Edward B. Kornfeld, Senior Vice President - Operations and Chief Financial Officer, Porta Systems Corp., 575 Underhill Boulevard, Syosset, New York 11791, telephone (516) 364- 9300. RISK FACTORS Purchasers of the Common Stock are cautioned that the statements in this Prospectus, including statements in documents incorporated by reference in this Prospectus, that are not descriptions of historical facts may be forward looking statements that are subject to risks and uncertainties. In particular, statements in this Prospectus, including any material incorporated by reference in this Prospectus, that state the Company's or management's intentions, beliefs, expectations, strategies, predictions or any other variations thereof or comparable phraseology of the Company's future activities or other future events or conditions are "forward-looking statements" as that term is defined under the Federal securities laws. Forward-looking statements are subject to risks, uncertainties and other factors, including, but not limited to, those identified under "Risk Factors," those described in Management's Discussion and Analysis of Financial Conditions and Results of Operations in the Company's Form 10-K for the year ended December 31, 1997, and in any other filings which are incorporated by reference in this Prospectus, as well as general economic conditions, any one or more of which could cause actual results to differ materially from those stated in such statements. An investment in the Company's Common Stock involves a high degree of risk. Purchasers of the shares of Common Stock should consider carefully, along with other factors, the following risks and should consult with his or her own legal, tax and financial advisors with respect thereto. Recent losses. For the nine months ended September 30, 1998, the Company had a net income of $1.3 million, or $.14 per share ($.13 per share on a diluted basis), on sales of $45.2 million. For the year ended December 31, 1997, the Company incurred a net loss of $6.9 million, or $2.22 per share (basic and diluted), on sales of $62.2 million. Although the Company generated income before extraordinary gains of $1.3 million, or $.57 per share ($.23 per share on a diluted basis), on sales of $58.0 million for the year ended December 31, 1996, prior to 1996 the Company sustained significant losses before extraordinary gain, which amounted to $32.8 million, or $22.45 per share, on sales of $61.2 million for the year ended December 31, 1995, and $40.0 million, or $27.51 per share, on sales of $69.0 million for the year ended December 31, 1994. The loss in 1997 reflects a primarily non-cash charge of $11.5 million taken as a result of the reduction to $3.65 from $6.55 in the conversion price of the Company's Zero Coupon Senior Subordinated Notes due January 2, 1998 ("Zero Coupon Notes") and the conversion of Zero Coupon Notes into Common Stock at the reduced conversion price. The losses in 1995 and 1994 reflect declining gross margins, resulting 3 from the Company's illiquidity and other cash problems, and reflected (i) the inability of the Company to purchase materials efficiently and to obtain materials from certain suppliers, (ii) the underabsorption of significant overhead costs allocated to costs of sales compared with the Company's standard costing methods, (iii) the need to rework inventory in order to fulfill customer orders and (iv) the losses and cash expenditures from unprofitable business units. In the first quarter of 1996, the Company sold its fiber optics division, which had been operating at a loss. Working capital requirements. At September 30, 1998, the Company had working capital of $12.7 million. The Company's working capital improved as a result of (i) increased accounts receivable, (ii) reduced balance of the Company's 6% Convertible Subordinated Debentures and (iii) lower balances of accounts payable, accrued expenses and accrued commissions. At September 30, 1998, the Company owed Foothill $10.7 million in addition to standby letters of credit of approximately $9.0 million and notes payable of $2.8 million. Under the terms of the Company's agreement with Foothill, as amended, the Company's obligations to Foothill mature on January 2, 2000. The Company's obligations to Foothill are secured by a security interest in substantially all of its assets. The Company's revolving credit agreement with Foothill has been the Company's principal source of funding for its operations since November 1994. Prior to January 2, 2000, the maturity date of its obligations to Foothill, it will be necessary for the Company either to extend its agreement with Foothill or negotiate lending agreements with other lending institutions. There can be no assurance that the Company will be able to extend its agreement with Foothill or enter into acceptable agreements with other lenders. The failure to obtain the necessary financing could have a material adverse effect upon the Company's business. Dependence on foreign sales. Approximately 71%, 70% and 73% of the Company's sales for the years ended December 31, 1997, 1996 and 1995, respectively, were made to foreign telephone operating companies. In foreign markets, the Company faces considerable competition from other United States and foreign telephone equipment manufacturers most of which are larger and have substantially greater financial resources than the Company. In selling to customers in foreign countries, there are inherent risks not normally present in the case of sales to United States customers, including increased difficulty in identifying and designing systems compatible with purchasers' operational requirements, extended delays under the Company's Operational Support Systems ("OSS Systems") contracts in the completion of testing and purchaser acceptance phases and the Company's receipt of final payments, and political and economic change. In addition, to the extent that the Company establishes facilities in foreign countries, the Company faces risks associated with currency devaluation, difficulties in either converting local currency into dollars or transferring funds to the United States, local tax and currency regulations and political instability. Furthermore, OSS Systems are often marketed to lesser developed countries, which may be unable to fund the purchase without the assistance of the World Bank, a United Nations affiliate, or a similar organization, which both delays and complicates the execution of a contract and the timing of payments. Also, the economies of lesser developed countries are often unstable and, as a result, such countries may be unable to perform their obligations. Significant customers. During the years ended December 31, 1997, 1996 and 1995, the Company's five largest customers accounted for sales of $30.6 million, or approximately 49% of sales, $27.8 million, or approximately 48% of sales, and $31.5 million, or approximately 52% of sales, respectively. The Company's largest customer is British Telecommunications, plc ("BT"). Sales to BT for 1997, 1996 and 1995 amounted to approximately $13.9 million, $11.3 million and $17.3 million, respectively, or approximately 22%, 20% and 28%, respectively, of the Company's sales for such years. Therefore, any significant interruption or decline in sales to BT may have a materially adverse effect upon the Company's operations. During 1996, sales to Philippines Long Distance Telephone were $7.0 million, or approximately 12% of sales. During 1995, sales to the Korea Telephone Company were $7.7 million, or approximately 13% of sales. No other customer accounted for 10% or more of the Company's sales for any of such years. Approximately 64% and 33% of accounts receivable at December 31, 1997 and 1996, respectively, are due from the Company's five largest customers. 4 In November 1996, the Company amended its supply agreement with BT pursuant to which it sold line connecting/protecting products to BT. Pursuant to the amended agreement, the Company is no longer the exclusive supplier of these products to BT. The amended contract also provides for a cross-license which, in effect, enables BT to use certain of the Company's proprietary information to modify or enhance products provided to BT and permits those products to be manufactured by BT or others for its own purposes. In addition, the former Bell operating companies continue to be the ultimate purchasers of a significant portion of the Company's products sold in the United States, while sales to foreign telephone operating companies constitute the major portion of the Company's foreign sales. The Company's contracts with these customers require no minimum purchases by such customers. Significant customers for the Company's signal processing products include the major domestic aerospace companies, Department of Defense service depots and OEMs in the medical imaging and process control equipment industries. Both catalog and custom designed products are sold to these customers. Delays and unpredictability associated with OSS System contracts. OSS Systems are complex systems and, in most applications, incorporate features designed to respond to a purchaser's operational requirements and the particular characteristics of the purchaser's telephone system. As a result, the negotiation of a contract for an OSS System is an individualized and highly technical process. In addition, contracts for OSS Systems frequently provide for manufacturing, delivery, installation, testing and purchaser acceptance phases which take place over periods of up to a year or more. Such contracts typically contain performance guarantees by the Company and clauses imposing penalties on the Company if "in-service" dates are not met. The installation, testing and purchaser acceptance phases of these contracts may last longer than contemplated by the contracts and, accordingly, amounts due under the contracts may not be collected for extended periods. Delays in purchaser acceptance of the systems and in the Company's receipt of final contract payments have occurred in connection with a number of foreign sales. In addition, the Company has experienced no steady or predictable flow of orders for OSS Systems. Competition. The telephone equipment market in which the Company does business is characterized by intense competition, rapid technological change and a movement to private ownership of telecommunications equipment. In competing for telephone operating company business, the purchase price of equipment and associated operating expenses have become significant factors, along with product design and long-standing equipment supply relationships. In the customer premises equipment market, the Company operates in a market characterized by distributors and installers of equipment and by commodity pricing. The Company competes directly with a number of large and small telephone equipment manufacturers in the United States, with Lucent Technologies, Inc. ("Lucent") continuing to be the Company's principal United States competitor. Lucent's greater resources, extensive research and development facilities, long-standing equipment supply relationships with the operating companies of the regional holding companies and history of manufacturing and marketing products similar in function to those produced by the Company continue to be significant factors in the Company's competitive environment. Furthermore, in the past, competitors have used the Company's financial difficulties as a sales tool. Currently, Lucent and a number of companies with much greater financial resources than the Company produce, or have the design and manufacturing capabilities to produce, products competitive with the Company's products. In meeting this competition, the Company relies primarily on the performance and design characteristics of its products of comparable performance or design, and endeavors to offer its products at prices and with warranties that will make its products competitive. Access to current technological advances is important to the Company's ability to market its products. The inability of the Company to be able to offer products which incorporate such technology could have a material adverse effect upon its ability to market its products. 5 In connection with overseas sales of its line connecting/protecting equipment, the Company has met with significant competition from United States and foreign manufacturers of comparable equipment and expects this competition to continue. In addition to Lucent, a number of the Company's overseas competitors have significantly greater resources than the Company. The Company competes directly with a number of substantial domestic and international companies with respect to its sales of OSS Systems. In meeting this competition, the Company relies primarily on the features of its line testing equipment, its ability to customize systems and endeavors to offer such equipment at prices and with warranties that will make it competitive. Dependence upon key personnel. The Company may be dependent upon the continued employment of certain key employees, including senior executive officers. The failure of the Company to retain such employees may have a material adverse effect upon the Company's business. Legal proceedings. In July 1996, an action was commenced against the Company and certain present and former directors in the Supreme Court of the State of New York, New York County by certain stockholders and warrant holders of the Company who acquired their securities in connection with the acquisition by the Company of Aster Corporation. The complaint alleges breach of contract against the Company and breach of fiduciary duty against the directors arising out of an alleged failure to register certain restricted shares and warrants owned by the plaintiffs. The complaint seeks damages of $413,000; however, counsel for the plaintiff have advised the Company that additional plaintiffs may be added and, as a result, the amount of damages claimed may be substantially greater than the amount presently claimed. The Company believes that the defendants have valid defenses to the claims. The case is in the discovery stage. In July 1996, the Commission issued an order (the "Order") directing a private investigation of the Company to determine whether there has been a violation of Federal securities laws. The Commission indicated to counsel for the Company that the investigation relates to the position of the Commission staff that the independence of the Company's auditors for 1995, KPMG Peat Marwick LLP ("Peat Marwick"), was adversely impacted by certain relationships involving Peat Marwick, on one hand, and KPMG BayMark Strategies LLC ("BayMark") and Edward R. Olson, the President of BayMark and the Company's former interim president and chief operating officer, on the other hand. The Company is continuing to cooperate with the Commission's investigation. The Company retained BDO Seidman, LLP to reaudit the Company's 1995 financial statements, which reaudit resulted in no changes to the Company's 1995 financial statements as audited by Peat Marwick. The Company does not believe that the investigation will result in any material liability on the part of the Company. The Company has not been contacted by the Commission respecting this investigation since November 1996. Year 2000 Issue. Many existing computer programs use only two digits to identify a year in a date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. This issue is referred to as the "Year 2000 issue." The Company has initiated a company-wide program to prepare the Company's computer systems and applications to deal with the Year 2000 issue. The Company expects to incur internal staff costs and other expenses to prepare its systems for the year 2000. The Company expects both to replace existing systems and to upgrade other systems. The total cost of this effort is still being evaluated. Maintenance or modification costs will be expensed as incurred. Although the Company does not expect such costs to be material, there can be no assurance that such costs will not be material. No Common Stock dividends anticipated. The Company has not paid dividends on its Common Stock and does not anticipate paying dividends in the foreseeable future. The Company presently intends to retain future earnings, if any, in order to provide funds for use in the operation and expansion of its business and, accordingly, does not anticipate paying cash dividends on its Common Stock in the foreseeable future. In addition, the Company's agreement with Foothill prohibits payment of dividends. 6 USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Shares. To the extent that the Company receives any proceeds from the exercise of any Options held to be held by the Selling Stockholders, such proceeds will be used by the Company for working capital and general corporate purposes. SELLING STOCKHOLDERS The following table sets forth (i) the name of each Selling Stockholder, (ii) the nature of any position, office or other material relationship, if any, which each Selling Stockholder has had with the Company or any of its affiliates within the last three years, (iii) the number of shares of Common Stock owned by each Selling Stockholder prior to the offering, (iv) the number of shares of Common Stock offered for each Selling Stockholder's account, (v) the number of shares of Common Stock owned by each Selling Stockholder after completion of the offering, and (vi) the percentage owned by each Selling Stockholder after completion of the offering.
Shares of Shares of Common Stock Common Stock Shares of Percentage Owned Prior Offered For Account Common Stock Owned Selling Stockholder to Offering (1) of Selling Stockholder Owned After Offering After Offering (2) ------------------- --------------- ----------------------- -------------------- ------------------ William V. Carney (3,5) 137,423 180,000 44,273 * Seymour Joffe (6) 94,196 127,000 26,646 * Michael A. Tancredi (7) 58,827 75,000 17,657 * Howard D. Brous (3,4,8) 19,000 36,000 0 * Warren H. Esanu (3,4,9) 57,000 34,000 30,000 * Herbert H. Feldman (3,4,10) 19,000 36,000 0 * Stanley Kreitman (3,4 and 11) 19,500 36,000 0 * Lloyd I. Miller III (12) 1,742,948 2,000 1,742,948 18.6% Robert Schreiber (13) 19,000 34,000 0 * Edward B. Kornfeld (14) 48,000 85,000 0 * John J. Gazzo (15) 28,057 16,750 16,157 * Prem G. Chandran (16) 240 10,240 0 * Edmund A. Chiodo (17) 438 10,438 0 * David L. Rawlings (18) 820 12,820 0 * William J. Novelli (19) 360 10,360 0 * Gerald C. Hammond (20) 0 10,000 0 *
(1) Includes shares of Common Stock issuable upon the exercise of Options granted under the 1996 Plan and the 1998 Plan that are currently exercisable or exerciable within 60 days of November 9, 1998. (2) Assumes exercise of all of such Selling Stockholder's Options and securities convertible into, or exercisable or exchangable for shares of Common Stock. Based on 9,298,713 shares of Common Stock outstanding. 7 (3) Member of the Executive Committee of the Board of Directors. (4) Member of the Audit and Compensation Committees of the Board of Directors. (5) Mr. Carney has been Chairman of the Board and Chief Executive Officer since October 1996. He was Vice Chairman from 1988 to October 1996, Senior Vice President from 1989 to October 1996, Chief Technical Officer since 1990 and Secretary from 1977 to October 1996 and 1,186 shares of Common Stock pledged to the Company to secure certain obligations to the Company. He also served as Senior Vice President-Mechanical Engineering from 1988 to 1989, Senior Vice President-Connector Products from 1985 to 1988, Senior Vice President-Manufacturing from 1984 to 1985 and Senior Vice President-Operations from 1977 to 1984. Includes 93,150 shares of Common Stock issuable upon the exercise of Options held by Mr. Carney,and 1,186 shares of Common Stock pledged to the Company to secure certain obligations to the Company. (6) Mr. Joffe was elected President and Chief Operating Officer in October of 1996. Mr. Joffe, who served as director of the Company from 1987 to 1992, has most recently served the Company as senior consultant to its Operations Support Systems (OSS) business. Includes 3,500 shares of Common Stock owned by Mr. Joffe's wife, 19,196 shares of Common Stock owned by Joffe Marketing International, Inc. ("JMI"), and 67,500 shares of Common Stock issuable upon the exercise of Options held by Mr. Joffe. JMI is owned 80% by Mr. Joffe and 20% by an unrelated Party. Mr. Joffe disclaims beneficial ownership of the shares owned by (a) JMI except to the extent of his equity interest therein and (b) his wife. (7) Mr. Tancredi has been Senior Vice President, Secretary and Treasurer since January 1997. He has been Vice President-Administration since 1995 and Treasurer since 1978, having served as Vice President-Finance and Administration from 1989 to 1995 and Vice-President-Finance from 1984-1989. Includes 47,170 shares of Common Stock issuable upon the exercise of Options held by Mr. Tancredi and 798 shares of Common Stock pledged to the Company to secure certain obligations to the Company. (8) Mr. Brous has been a director of the Company since 1989. Represents shares of Common Stock issuable upon the exercise of Options held by Mr. Brous. (9) Mr. Esanu was Chairman of the Board of the Company from March 1996 to October 1996 and director from 1989 to 1996, and re-appointed to the Board of Directors in April of 1997. He has been of counsel to Esanu Katsky Korins & Siger, LLP, which is counsel to the Company, for more than the past three years. Includes 27,000 shares of Common Stock issuable upon the exercise of (a) options held by Mr. Esanu and (b) a warrant held by Elmira Realty Management Corp. Pension and Profit Sharing Plan (the "ERMC Plan"). Under the terms of the ERMC Plan, Mr. Esanu has sole voting and dispositive power with respect to the shares issuable upon the exercise of the warrant. (10) Mr. Feldman has been a director of the Company since 1989. Represents shares of Common Stock issuable upon the exercise of Options held by Mr. Feldman. (11) Mr. Kreitman has been a director of the Company since 1970. Represents shares of Common Stock issuable upon the exercise of Options held by Mr. Kreitman. (12) Mr. Miller has been a director of the Company since March 1998. Includes 2,000 shares of Common Stock issuable upon the exercise of Options granted under the 1998 Plan. (13) Mr. Schreiber has been a director of the Company since April 1997. Includes shares of Common Stock issuable upon the exercise of Options granted under the 1996 Plan and the 1998 Plan. (14) Mr. Kornfeld has been Senior Vice President-Operations since 1996. He was Vice President-Finance and Chief Financial Officer of the Company from October 1995 until 1996. Includes shares of Common Stock issuable upon the exercise of Options granted under the 1996 Plan and the 1998 Plan. 8 (15) Mr. Gazzo has been Senior Vice President since March 1996. He was Vice President-Marketing of the Company from April 1993 until March 1996 and was general manager of its Porta Electronics Division from November 1989 to April 1993; he was the Company's Vice President-Research and Development from March 1984 to November 1989 and was Vice President-Engineering from February 1978 to February 184. Includes shares of Common Stock issuable upon the exercise of Options granted under the 1996 Plan and the 1998 Plan. (16) Mr. Chandran has been Vice President since December 1995. Includes shares of Common Stock issuable upon the exercise of Options granted under the 1996 Plan and the 1998 Plan. (17) Mr. Chiodo has been elected Vice President since March 1996. Mr. Chiodo had been with the Company since 1980. During that time he has held various positions in the Company, most recently as Assistant Vice President of OSS operations. Includes shares of Common Stock issuable upon the exercise of Options granted under the 1996 Plan and the 1998 Plan. (18) Mr. Rawlings has been elected Vice President since March 1996. Mr. Rawlings was the Assistant Vice President of Research and Development-Copper Products from 1992 until March 1996. Includes shares of Common Stock issuable upon the exercise of Options granted under the 1996 Plan and the 1998 Plan. (19) Mr. Novelli has been Vice President since December 1996. Mr. Novelli was the Assistant Vice President of Sales and Marketing-Copper Products from 1989 until December 1996. Includes shares of Common Stock issuable upon the exercise of Options granted under the 1996 Plan and the 1998 Plan. (20) Mr. Hammond has been Vice President-Strategic Development since March 1997. He was an Assistant Vice President-Research and Development from September 1992 until March 1997. Includes shares of Common Stock issuable upon the exercise of Options granted under the 1996 Plan and the 1998 Plan. Interests of Name Experts and Counsel. Warren H. Esanu, a director of the Company, is of counsel to Esanu Katsky Korins & Siger, LLP, counsel to the Company. Mr. Esanu has been granted Options exercisable for 35,000 and 15,000 shares of Common Stock under the 1996 Plan and 1998 Plan, respectively. The Options granted under the 1998 Plan have an exercise price of $3.25, and the Options granted under the 1996 Plan have an exercise price of $1.4188 and $1.50. PLAN OF DISTRIBUTION The sale of Shares by Selling Stockholders may be effected by selling such securities directly to purchasers, through broker-dealers acting as agents for the Selling Stockholders or to broker-dealers who may purchase shares of Common Stock as principals and thereafter sell the securities from time to time on the ASE, in negotiated transactions or otherwise. Such broker-dealers, if any, may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholder and/or the purchasers from whom such broker-dealer may act as agents or to whom they may sell as principals or otherwise (which compensation as to a particular broker-dealer may exceed customary commissions). The Selling Stockholders and broker-dealers, if any, acting in connection with such sales might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commission received by them and any profit on the resale of the securities might be deemed to be underwriting discounts and commissions under the Securities Act. LEGAL MATTERS The validity of the Common Stock offered hereby has been passed upon by Esanu Katsky Korins & Siger, LLP, legal counsel to the Company. Mr. Warren H. Esanu, a director of the Company, is of counsel to Esanu Katsky Korins & Siger, LLP. EXPERTS The consolidated financial statements incorporated by reference in this Prospectus and elsewhere in the Registration Statement to the extent and for the periods indicated in their report have been audited by BDO Seidman, LLP, independent certified public accountants, and are included herein in reliance upon the authority of such firm as experts in accounting and auditing in giving such report. 9 PART II INFORMATION REQUESTED IN THE REGISTRATION STATEMENT Item 3 (Form S-8). Incorporation of Documents by Relevance. The following documents have been filed by Porta Systems Corp. (the "Company") with the Securities and Exchange Commission (the "Commission") (File No. 1-8191) and are incorporated herein by reference: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 1997; (2) Amendment No. 1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997; (3) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998; (4) The Company's Current Report on Form 8-K, dated January 2, 1998, as filed with the Commission on February 6, 1998; (5) All other reports filed by the Company pursuant to Section 13(a) and 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), since December 31, 1997; and (6) The description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A, filed on April 26, 1977, which became effective on April 26, 1977. All documents subsequently filed pursuant to Sections 13(a), 13(c), 14 and 15 of the Exchange Act prior to the filing of a post-effective amendment which indicates that all securities hereby have been sold or which deregisters securities then remaining unsold shall be deemed to be incorporated by reference in this Registration Statement and to be a part hereof from the date of filing of such documents. The exhibit index appears on page II-2 of this Registration Statement. Item 4 (Form S-8). Description of Securities. Not applicable. Item 5 (Form S-8). Interests of Named Experts and Counsel. Warren H. Esanu, a director of the Company, is of counsel to Esanu Katsky Korins & Siger, LLP, counsel to the Company. Mr. Esanu has been granted Options exercisable for 35,000 and 15,000 shares of Common Stock under the 1996 Plan and 1998 Plan, respectively. The Options granted under the 1998 Plan have a strike price of $3.25, and the Options granted under the 1996 Plan have a strike price of $1.4188 and $1.50. Item 6 (Form S-8 and Item 15 (Form S-3)). Indemnification of Officers and Directors. Under the Delaware General Corporation Law ("DGCL"), a corporation may indemnify any director, officer, employee or agent against expense (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any specified threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful. The Company's Certificate of Incorporation provides, among other things, that the Company shall indemnify, to the fullest extent permitted under the DGCL as it may be amended from time to time, any person who is or was a director or officer of the Company and who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company), by reason of the fact that such person (i) is or was a director or officer of the Company, or (ii) is or was II-1 serving at the request of the Company as director, officer, employee, agent of another corporation, partnership, joint venture, trust, or other enterprise (including service with respect to employee benefit plans), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) actually and reasonably incurred by such person in connection with such action, suit or proceeding. This indemnification continues as to a person who has ceased to be a director or officer of the Company and inures to the benefit of such person's heirs, executors and administrators. The right of indemnification under the Certificate of Incorporation is deemed to be a contract right. The Company also maintains directors and officers liability insurance ("D&O Insurance"). The D&O Insurance covers any person who has been or is an officer or director of the Company or of any of its subsidiaries for all expense, liability and loss (including attorneys' fees, investigation costs, judgments, fines, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred by such person in connection with such action, suit or proceeding. Item 7 (Form S-8). Exemption from Registration Claimed. Not applicable. Item 8 (Form S-8 and Item 16 (Form S-3)). Exhibits 4.1 1996 Stock Option Plan (incorporated by reference to Exhibit A to the Proxy Statement for the 1997 Annual Meeting of Stockholders). 4.2 1998 Non-Qualified Stock Option Plan. 5.1 Opinion of Esanu Katsky Korins & Siger, LLP. 23.1 Consent of BDO Seidman, LLP. 23.2 Consent of Esanu Katsky Korins & Siger, LLP (contained in Exhibit 5.1 hereto). 24.1 Power of Attorney (included on the signature page). Item 9 (Form S-8 and Item 17 (Form S-3)). Undertakings. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; II-2 provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (h) Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Syosset, State of New York on this 30th day of November, 1998. Porta Systems Corp. s/William V. Carney -------------------------------------------- William V. Carney, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes William V. Carney, Seymour Joffe and Edward B. Kornfeld or any of them acting in the absence of the others, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. Signature Title Date s/William V. Carney Chairman of the Board, November 30, 1998 - ------------------------------- Chief Executive Officer and William V. Carney Director (Principal Executive Officer) s/Edward B. Kornfeld Senior Vice President and November 30, 1998 - ------------------------------- Chief Financial Officer Edward B. Kornfeld (Principal Financial and Accounting Officer) s/Seymour Joffe Director November 30, 1998 - ------------------------------- Seymour Joffe s/Michael A. Tancredi Director November 30, 1998 - ------------------------------- Michael A. Tancredi s/Howard D. Brous Director November 30, 1998 - ------------------------------- Howard D. Brous s/Warren H. Esanu Director November 30, 1998 - ------------------------------- Warren H. Esanu s/Herbert H. Feldman Director November 30, 1998 - ------------------------------- Herbert H. Feldman s/Stanley Kreitman Director November 30, 1998 - ------------------------------- Stanley Kreitman s/Lloyd I. Miller, III Director November 30, 1998 - ------------------------------- Lloyd I. Miller, III s/Robert Schreiber Director November 30, 1998 - ------------------------------- Robert Schreiber II-4 EX-4.2 2 1998 NON-QUALIFIED STOCK OPTION PLAN Exhibit 4.2 PORTA SYSTEMS CORP. 1998 Non-Qualified Stock Option Plan 1. Purpose; Definitions. The purpose of the Porta Systems Corp. 1998 Non-Qualified Stock Option Plan (the "Plan") is to enable Porta Systems Corp. (the "Company") to attract, retain and reward key employees of the Company and its Subsidiaries and Affiliates, and others who provide services to the Company and its Subsidiaries and Affiliates, and strengthen the mutuality of interests between such key employees and such other persons and the Company's stockholders, by offering such key employees and such other persons incentives and/or other equity interests or equity-based incentives in the Company, as well as performance-based incentives payable in cash. For purposes of the Plan, the following terms shall be defined as set forth below: (a) "Affiliate" means any corporation, partnership, joint venture or other entity, other than the Company and its Subsidiaries, that is designated by the Board as a participating employer under the Plan, provided that the Company directly or indirectly owns at least 20% of the combined voting power of all classes of stock of such entity or at least 20% of the ownership interests in such entity. (b) "Board" means the Board of Directors of the Company. (c) "Book Value" means, as of any given date, on a per share basis (i) the stockholders' equity in the Company as of the last day of the immediately preceding fiscal year as reflected in the Company's consolidated balance sheet, subject to such adjustments as the Committee shall specify at or after grant, divided by (ii) the number of then outstanding shares of Stock as of such year-end date, as adjusted by the Committee for subsequent events. (d) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. (e) "Commission" means the Securities and Exchange Commission or any successor thereto. (f) "Committee" means the Committee referred to in Section 2 of the Plan. If at any time no Committee shall be in office, then the functions of the Committee specified in the Plan shall be exercised by the Board. (g) "Company" means Porta Systems Corp., a Delaware corporation, or any successor corporation. (h) "Disability" means disability as determined under procedures established by the Committee for purposes of this Plan. (i) "Early Retirement" means retirement, with the express consent of the Company, from active employment with the Company and any Subsidiary or Affiliate prior to Normal Retirement (as hereinafter defined). (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended, from time to time, and any successor thereto. (k) "Non-Employee Director" means a director of the Company who is not otherwise employed by the Company or any Subsidiary or Affiliate. (l) "Non-Qualified Stock Option" means any Stock Option that is not intended to be and designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code. (m) "Normal Retirement" means retirement from active employment with the Company and any Subsidiary or Affiliate on or after age 65. (n) "Plan" means this Porta Systems Corp. 1998 Non-Qualified Stock Option Plan, as hereinafter amended from time to time. (o) "Retirement" means Normal Retirement or Early Retirement. (p) "Stock" means the common stock, par value $.01 per share, of the Company or any class of common stock into which such common stock may hereafter be converted or for which such common stock may be exchanged as part of a recapitalization, reorganization or similar transaction; (q) "Stock Option" or "Option" means any option to purchase shares of Stock granted pursuant to Section 5 of the Plan. (r) "Subsidiary" means any corporation or other business association, including a partnership or limited liability company (other than the Company) in an unbroken chain of corporations or other business associations beginning with the Company if each of the corporations or other business associations (other than the last corporation in the unbroken chain) owns equity interests (including stock or partnership interests) possessing 50% or more of the total combined voting power of all classes of equity in one of the other corporations or other business associations in the chain. In addition, the terms "Change in Control," "Potential Change in Control" and "Change in Control Price" shall have meanings set forth, respectively, in Paragraphs 6(b), (c) and (d) of the Plan and the term "Cause" shall have the meaning set forth in Paragraph 5(b)(viii) of the Plan. 2. Administration. (a) The Plan shall be administered by a Committee of not less than two Non-Employee Directors, who shall be appointed by the Board and who shall serve at the pleasure of the Board. If and to the extent that no Committee exists which has the authority to so administer the Plan, the functions of the Committee specified in the Plan shall be exercised by the Board. Notwithstanding the foregoing, in the event that the Company is not subject to the Exchange Act or in the event that the administration of the Plan by a Committee of Non-Employee Directors is not required in order for the Plan to meet the test of Rule 16b-3 of the Commission under the Exchange Act, or any subsequent rule, then the Committee need not be composed solely of Non-Employee Directors. As long as said Rule 16b-3 requires, as a condition to the officers and directors obtaining the benefit of such rule, that the Committee be composed of Non-Employee Directors, each member or alternate member of the Committee shall not be entitled to any grants under the Plan (except grants pursuant to Paragraph 4(b) of the Plan) or under any other plans of the Corporation or its affiliates, except to the extent that participation in a plan would not cause such person to cease being a Non-Employee Directors for purposes of said Rule 16b-3. (b) The Committee shall have full authority to grant Stock Options, pursuant to the terms of the Plan, to officers and other persons eligible under Section 4 of the Plan. In particular, the Committee shall have the authority: (i) to select the officers and other eligible persons to whom Stock Options may from time to time be granted pursuant to the Plan; - 2 - (ii) to determine whether and to what extent Non-Qualified Stock Options are to be granted pursuant to the Plan, to one or more eligible persons; (iii) to determine the number of shares to be covered by each such award granted pursuant to the Plan; (iv) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted under the Plan, including, but not limited to, the share price or exercise price and any restriction or limitation, or any vesting, acceleration or waiver of forfeiture restrictions regarding any Stock Option or other award and/or the shares of Stock relating thereto, based in each case on such factors as the Committee shall, in its sole discretion, determine; (v) to determine whether, to what extent and under what circumstances a Stock Option may be settled in cash or other securities of the Company under Paragraph 5(b)(ix) of the Plan instead of Stock; (vi) to determine whether, to what extent and under what circumstances Option grants and/or other awards under the Plan and/or other cash awards made by the Company are to be made, and operate, on a tandem basis with other awards under the Plan and/or cash awards made outside of the Plan in a manner whereby the exercise of one award precludes, in whole or in part, the exercise of another award, or on an additive basis; (vii) to determine whether, to what extent and under what circumstances Stock and other amounts payable with respect to an award under this Plan shall be deferred either automatically or at the election of the participant, including any provision for any determination or method of determination of the amount (if any) deemed to be earned on any deferred amount during any deferral period; and (viii) to determine an aggregate number of awards and the type of awards to be granted to eligible persons employed or engaged by the Company and/or any specific Subsidiary, Affiliate or division and grant to management the authority to grant such awards, provided that no awards to any person subject to the reporting and short-swing profit provisions of Section 16 of the Exchange Act may be granted awards except by the Committee. (c) The Committee shall have the authority to adopt, alter and repeal such rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any award issued under the Plan and any agreements relating thereto, and otherwise to supervise the administration of the Plan. (d) All decisions made by the Committee pursuant to the provisions of the Plan shall be made in the Committee's sole discretion and shall be final and binding on all persons, including the Company and Plan participants. 3. Stock Subject to Plan. (a) The total number of shares of Stock reserved and available for distribution under the Plan shall be four hundred fifty thousand (450,000) shares of Common Stock. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. In the event that awards are granted in tandem such that the exercise of one award precludes the exercise of another award then, for the purpose of determining the number of shares of Stock as to which awards shall have been granted, the maximum number of shares of Stock issuable pursuant to such tandem awards shall be used. (b) If any shares of Stock that have been optioned cease to be subject to a Stock Option, such shares shall again be available for distribution in connection with future awards under the Plan. - 3 - (c) In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split, stock distribution, reverse split, combination of shares or other change in corporate structure affecting the Stock, such substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the Plan, in the number of shares issuable pursuant to Paragraph 4(b) of the Plan, in the number and option price of shares subject to outstanding Options granted under the Plan, as may be determined to be appropriate by the Committee, in its sole discretion, provided that the number of shares subject to any award shall always be a whole number. 4. Eligibility. (a) Officers and other key employees, consultants and directors of the Company and its Subsidiaries and Affiliates (but excluding, except as to Paragraph 4(b) of this Plan, members of the Committee and any person who serves only as a director) who are responsible for or contribute to the management, growth and/or profitability of the business of the Company and/or its Subsidiaries and Affiliates are eligible to be granted awards under the Plan. (b) Each person who is a Non-Employee Director on February 2, 1998 shall, on such date, be granted a Non-Qualified Stock Option to purchase fifteen thousand (15,000) shares of Common Stock. Such options shall be exercisable, during the five-year period commencing February 2, 1999, at a price per share equal to the closing price of the Common Stock on February 2, 1998. The provisions of this Paragraph 4(b) may not be amended more than one (1) time in any six (6) month period other than to comport with changes in the Code or the Employee Retirement Income Security Act ("ERISA") or the rules thereunder. 5. Stock Options. (a) Administration. Stock Options may be granted alone, in addition to or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve. Stock Options granted under the Plan shall be Non-Qualified Stock Options. (b) Option Grants. Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee, in its sole discretion, shall deem desirable: (i) Option Price. The option price per share of Stock purchasable under a Stock Option shall be determined by the Committee at the time of grant. (ii) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than six (6) years after the date the Option is granted. (iii) Exercisability. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at or after grant. If the Committee provides, in its sole discretion, that any Stock Option is exercisable only in installments, the Committee may waive such installment exercise provisions at any time at or after grant in whole or in part, based on such factors as the Committee shall, in its sole discretion, determine. (iv) Method of Exercise. (A) Subject to whatever installment exercise provisions apply under Paragraph 5(b)(iii) of the Plan, Stock Options may be exercised in whole or in part at any time during the option - 4 - period, by giving written notice of exercise to the Company specifying the number of shares to be purchased. Such notice shall be accompanied by payment in full of the purchase price, either by check, note or such other instrument, securities or property as the Committee may accept. As and to the extent determined by the Committee, in its sole discretion, at or after grant, payments in full or in part may also be made in the form of Stock already owned by the optionee. (B) No shares of Stock shall be issued until full payment therefor has been received by the Company. In the event of any exercise by note or other instrument, the shares of Stock shall not be issued until such note or other instrument shall have been paid in full, and the exercising optionee shall have no rights as a stockholder until such payment is made. (C) Subject to Paragraph 5(b)(iv)(B) of the Plan, an optionee shall generally have the rights to dividends or other rights of a stockholder with respect to shares subject to the Option when the optionee has given written notice of exercise, has paid in full for such shares, and, if requested, has given the representation described in Paragraph 9(a) of the Plan. (v) Non-Transferability of Options. No Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee's lifetime, only by the optionee or optionee's legal representative. (vi) Termination by Death. If an optionee's employment by the Company and any Subsidiary or Affiliate terminates by reason of death, any Stock Option held by such optionee may thereafter be exercised, to the extent such option was exercisable at the time of death or on such accelerated basis as the Committee may determine at or after grant (or as may be determined in accordance with procedures established by the Committee), by the legal representative of the estate or by the legatee of the optionee under the will of the optionee, for a period of one year (or such other period as the Committee may specify at grant) from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. (vii) Termination by Reason of Disability or Retirement. If an optionee's employment by the Company and any Subsidiary or Affiliate terminates by reason of a Disability or Normal or Early Retirement, any Stock Option held by such optionee may thereafter be exercised by the optionee, to the extent it was exercisable at the time of termination or on such accelerated basis as the Committee may determine at or after grant (or as may be determined in accordance with procedures established by the Committee), for a period of one year (or such other period as the Committee may specify at grant) from the date of such termination of employment or until the expiration of the stated term of such Stock Option, whichever period is the shorter; provided, however, that if the optionee dies within such one-year period (or such other period as the Committee shall specify at grant), any unexercised Stock Option held by such optionee shall thereafter be exercisable to the extent to which it was exercisable at the time of death for a period of one year from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter. (viii) Other Termination. Unless otherwise determined by the Committee (or pursuant to procedures established by the Committee) at or after grant, if an optionee's employment by the Company and any Subsidiary or Affiliate terminates for any reason other than death, Disability or Normal or Early Retirement, the Stock Option shall thereupon terminate; provided, however, that if the optionee is involuntarily terminated by the Company or any Subsidiary or Affiliate without Cause, including a termination resulting from the Subsidiary, Affiliate or division in which the optionee is employed or engaged, ceasing, for any reason, to be a Subsidiary, Affiliate or division of the Company, such Stock Option may be exercised, to the extent otherwise exercisable on the date of termination, for a period of three months (or seven months in the case of a person subject to the reporting and short-swing profit provisions of Section 16 of the Exchange Act) from the date of such termination or until the expiration of the stated term - 5 - of such Stock Option, whichever is shorter. For purposes of this Plan, "Cause" means a felony conviction of a participant or the failure of a participant to contest prosecution for a felony, or a participant's willful misconduct or dishonesty. (ix) Buyout Provisions. The Committee may at any time offer to buy out for a payment in cash or Stock, an option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the optionee at the time that such offer is made. 6. Change in Control Provisions. (a) Impact of Event. In the event of a "Change in Control," as defined in Paragraph 6(b) of the Plan, or a "Potential Change in Control," as defined in Paragraph 6(c) of the Plan, but, with respect to a Potential Change of Control, only if and to the extent so determined by the Committee or the Board at or after grant (subject to any right of approval expressly reserved by the Committee or the Board at the time of such determination), the following acceleration and valuation provisions shall apply: (i) Any Stock Options awarded under the Plan not previously exercisable and vested shall become fully exercisable and vested. (ii) The value of all outstanding Stock Options, to the extent vested, shall to the extent determined by the Committee in its sole discretion at or after grant but prior to any Change in Control, be purchased by the Company ("cashout") in a manner determined by the Committee, in its sole discretion, on the basis of the "Change in Control Price" as defined in Paragraph 6(d) of the Plan as of the date such Change in Control or such Potential Change in Control is determined to have occurred or such other date as the Committee may determine prior to the Change in Control. (b) Definition of "Change in Control". For purposes of Paragraph 6(a) of the Plan, a "Change in Control" means the happening of any of the following: (i) When any "person" (as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) of the Exchange Act, including a "group" as defined in Section 13(d) of the Exchange Act, but excluding the Company and any Subsidiary and any employee benefit plan sponsored or maintained by the Company or any Subsidiary and any trustee of such plan acting as trustee) directly or indirectly becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; provided, however, that a Change of Control shall not arise if such acquisition is approved by the board of directors or if the board of directors or the Committee determines that such acquisition is not a Change of Control or if the board of directors authorizes the issuance of the shares of Common Stock (or securities convertible into Common Stock or upon the exercise of which shares of Common Stock may be issued) to such persons; or (ii) When, during any period of twenty-four consecutive months during the existence of the Plan, the individuals who, at the beginning of such period, constitute the Board (the "Incumbent Directors") cease for any reason other than death, Disability or Retirement to constitute at least a majority thereof, provided, however, that a director who was not a director at the beginning of such 24-month period shall be deemed to have satisfied such 24-month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of, or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such 24-month period) or by prior operation of this Paragraph 6(b)(ii); or - 6 - (iii) The occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a Subsidiary through purchase of assets, or by merger, or otherwise. (c) Definition of Potential Change in Control. For purposes of Paragraph 6(a) of the Plan, a "Potential Change in Control" means the happening of any one of the following: (i) The approval by stockholders of an agreement by the Company, the consummation of which would result in a Change in Control of the Company as defined in Section 6(b) of the Plan; or (ii) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Company or a Subsidiary or any Company employee benefit plan or any trustee of such plan acting as such trustee) of securities of the Company representing five percent or more of the combined voting power of the Company's outstanding securities and the adoption by the Board of Directors of a resolution to the effect that a Potential Change in Control of the Company has occurred for purposes of this Plan. (d) Change in Control Price. For purposes of this Section 6, "Change in Control Price" means the per share price which is the highest of (i) that reported on the principal stock exchange or market on which the Stock is traded or (ii) the average of the highest bid and asked prices as reported by such exchange or market, or (iii) that paid or offered in any bona fide transaction related to a potential or actual Change in Control of the Company at any time during the sixty-day period immediately preceding the occurrence of the Change in Control (or, where applicable, the occurrence of the Potential Change in Control event), in each case as determined by the Committee. 7. Amendments and Termination. (a) The Board may amend, alter, or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made which would impair the rights of an optionee or participant under a Stock Option theretofore granted, without the optionee's or participant's consent, and no amendment will be made without approval of the stockholders if such amendment requires stockholder approval under state law or if stockholder approval is necessary in order that the Plan comply with Rule 16b-3 of the Commission under the Exchange Act or any substitute or successor rule or if stockholder approval is necessary in order to enable the grant pursuant to the Plan of options or other awards intended to confer tax benefits upon the recipients thereof. (b) The Committee may amend the terms of any Stock Option or other award theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights or any holder without the holder's consent. The Committee may also substitute new Stock Options for previously granted Stock Options (on a one for one or other basis), including previously granted Stock Options having higher option exercise prices. (c) Subject to the provisions of Paragraphs 7(a) and (b) of the Plan, the Board shall have broad authority to amend the Plan to take into account changes in applicable securities and tax laws and accounting rules, as well as other developments. 8. Unfunded Status of Plan. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a participant or optionee by the Company, nothing contained in this Plan shall give any such participant or optionee any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other - 7 - arrangements to meet the obligations created under the Plan to deliver Stock or payments in lieu of or with respect to awards under this Plan; provided, however, that, unless the Committee otherwise determines with the consent of the affected participant, the existence of such trusts or other arrangements shall be consistent with the "unfunded" status of the Plan. 9. General Provisions. (a) If the Stock issuable pursuant to the Plan is not subject to a currently effective registration statement pursuant to the Securities Act of 1933, as amended, the Committee may require each person purchasing shares pursuant to a Stock Option or other award under the Plan to represent to and agree with the Company in writing that the optionee or participant is acquiring the shares for investment and not with a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates or shares of Stock or other securities delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Commission, any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. (b) Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; furthermore, such arrangements may be either generally applicable or applicable only in specific cases. (c) Neither the adoption of the Plan nor the grant of any award pursuant to the Plan shall confer upon any employee of the Company or any Subsidiary or Affiliate any right to continued employment with the Company or a Subsidiary or Affiliate, as the case may be, nor shall it interfere in any way with the right of the Company or a Subsidiary or Affiliate to terminate the employment of any of its employees at any time. (d) No later than the date as of which an amount first becomes includible in the gross income of the participant for Federal income tax purposes with respect to any award under the Plan, the participant shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any Federal, state, or local taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, withholding obligations may be settled with Stock, including Stock that is part of the award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional on such payment or arrangements and the Company and its Subsidiaries or Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the participant. 10. Effective Date of Plan. The Plan shall be effective February 2, 1998, the date the Plan was approved by the Board. 11. Term of Plan. Stock Options may be granted pursuant to the Plan until this Plan shall be terminated; but, awards granted prior to such termination may extend beyond that date. - 8 - EX-5.1 3 OPINION OF ESANU KATSKY KORINS & SIGER, LLP Exhibit 5.1 December 2, 1998 16450/019 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Porta Systems Corp. Gentlemen: We refer to the registration statement on Form S-8 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), filed by Porta Systems Corp., a Delaware corporation (the "Company"), with the Securities and Exchange Commission. Terms defined in the Registration Statement and not otherwise defined in this Opinion shall have the same meanings in here as in the Registration Statement. We have examined the originals or photocopies or certified copies of such records of the Company, certificates of officers of the Company and public officials, and other documents as we have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as certified copies or photocopies and the authenticity of the originals of such latter documents. Based on our examination mentioned above, we are of the opinion that the shares of Common Stock issuable upon the exercise of the Options granted or to be granted under the 1996 Plan and the 1998 Plan (collectively, the "Plans") are duly authorized and, when issued upon exercise of the Options in accordance with the respective terms of the Plans, will be validly issued, fully paid and non-assessable. Please note that Warren H. Esanu, Esq., who is of counsel to this firm, is a director of the Company. Securities and Exchange Commission December 2, 1998 Page 2 We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm under "Legal Matters" in the related Prospectus. In giving the foregoing consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission. Very truly yours, s/Esanu Katsky Korins & Siger, LLP ESANU KATSKY KORINS & SIGER, LLP EX-23.1 4 CONSENT OF BDO SEIDMAN, LLP Exhibit 23.1 Consent of Independent Certified Public Accountants Porta Systems Corp. Syosset, New York We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement of our report dated March 9, 1998 relating to the financial statements of Porta Systems Corp. (the "Company") appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO Seidman, LLP -------------------------- BDO SEIDMAN, LLP Melville, New York December 2, 1998 -----END PRIVACY-ENHANCED MESSAGE-----