SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant |X|
Filed by a party other than the registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14A-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Porta Systems Corp.
(Name of Registrant as Specified in its Charter)
N.A.
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE>
PORTA SYSTEMS CORP.
575 Underhill Boulevard
Syosset, New York 11791
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
July 31, 1997
----------
The 1997 Annual Meeting of Stockholders (the "Annual Meeting") of Porta
Systems Corp., a Delaware corporation (the "Company"), will be held at the
Company's corporate offices at 575 Underhill Boulevard, Syosset, New York, on
July 31, 1997, at 8:30 A.M., Eastern Daylight Savings Time, for the following
purposes:
1. To elect eight (8) directors to serve until the 1998 Annual Meeting of
Stockholders and until their successors shall be elected and
qualified;
2. To approve an amendment to the 1996 Stock Option Plan which, among
other things, increases the number of shares of Common Stock subject
to such plan from 100,000 shares to 450,000 shares;
3. To approve an amendment to the Company's certificate of incorporation
to decrease the number of authorized shares of Common Stock, par value
$.01 per share, to 20,000,000 shares from 40,000,000 shares.
4. To ratify the appointment of BDO Seidman, LLP as the Company's
independent auditors for the year ending December 31, 1997; and
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on June 2, 1997, as
the record date (the "Record Date") for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting. A copy of the Company's
Annual Report is being sent together with this Proxy Statement to all
stockholders of record on the Record Date. Additional copies are available on
request. A copy of the Company's list of stockholders as of the Record Date may
be reviewed by any stockholder for any purpose germane to the Annual Meeting
during ordinary business hours at the Company's corporate office at 575
Underhill Boulevard, Syosset, N.Y., for a period of ten days prior to the date
of the Annual Meeting.
By order of the Board of Directors
MICHAEL A. TANCREDI
Secretary
Syosset, New York
June 10, 1997
THE MATTERS BEING VOTED ON AT THE ANNUAL MEETING ARE IMPORTANT TO THE COMPANY,
AND CERTAIN OF THE MATTERS REQUIRE THE APPROVAL OF THE HOLDERS OF A MAJORITY OF
THE OUTSTANDING SHARES OF COMMON STOCK. IN ORDER THAT YOUR VOTE IS COUNTED AT
THE ANNUAL MEETING, PLEASE EXECUTE, DATE AND PROMPTLY MAIL THE ENCLOSED PROXY
CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON AT
THE ANNUAL MEETING IF THE PROXY IS REVOKED IN THE MANNER SET FORTH IN THE PROXY
STATEMENT.
<PAGE>
PORTA SYSTEMS CORP.
575 Underhill Boulevard
Syosset, New York 11791
----------
PROXY STATEMENT
1997 Annual Meeting of Stockholders
----------
GENERAL INFORMATION
The accompanying proxy and this Proxy Statement are furnished to the
stockholders of Porta Systems Corp., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies for use at the 1997 Annual Meeting
of Stockholders (the "Annual Meeting") of holders of its Common Stock, par value
$.01 per share (the "Common Stock"), to be held at the Company's corporate
offices at 575 Underhill Boulevard, Syosset, New York, at 8:30 A.M., Eastern
Daylight Savings Time, on July 31, 1997, and at any adjournments or
postponements thereof. The enclosed proxy is being solicited by the Board of
Directors of the Company.
At the Annual Meeting, stockholders will vote on (a) the election of eight
(8) directors to serve until the 1998 Annual Meeting of Stockholders and until
their successors shall be elected and qualified, (b) the approval of an
amendment to the 1996 Stock Option Plan which, among other things, increases the
number of shares of Common Stock subject to such plan from 100,000 shares to
450,000 shares; (c) the approval of an amendment to the Company's certificate of
incorporation to decrease the number of authorized shares of Common Stock, par
value $.01 per share, to 20,000,000 shares from 40,000,000 shares, (d) the
ratification of the appointment of BDO Seidman, LLP as the Company's independent
auditors for the year ending December 31, 1997, and (e) the transaction of such
other business as may properly come before the meeting or any adjournment
thereof. The Board of Directors does not know of any other matters which will be
voted upon at the Annual Meeting.
Stockholders are encouraged to review the detailed discussion presented in
this Proxy Statement and either return the completed and executed proxy or
attend the Annual Meeting.
Record Date, Outstanding Shares, Voting Rights and Proxies
Stockholders of record at the close of business on June 2, 1997 (the
"Record Date"), are entitled to notice and to vote at the Annual Meeting. As of
the close of business on the Record Date there were outstanding 2,191,896 shares
of Common Stock of the Company. The holders of the Common Stock are entitled to
one vote for each share owned of record on the Record Date.
The presence in person or by proxy of holders of a majority of the shares
of voting stock of the Company entitled to be voted will constitute a quorum for
the transaction of business at the Annual Meeting. If a stockholder files a
proxy or attends the Annual Meeting, his or her shares are counted as being
present at the Annual Meeting for purposes of determining whether there is
quorum, even if the stockholder abstains from voting on all matters. The vote
required for the election of directors and approval of other proposals is set
forth in the discussion of each proposal.
<PAGE>
Each stockholder of the Company is required to complete, sign, date and
return the enclosed proxy without delay in order to ensure that his or her
shares are voted at the Annual Meeting. The return of a signed proxy will not
affect a stockholder's right to attend the Annual Meeting and vote in person.
Any stockholder giving a proxy has the right to revoke it at any time before it
is exercised by executing and returning a proxy bearing a later date, by giving
a written notice of revocation to the Secretary of the Company, or by attending
the Annual Meeting and voting in person. There is no required form for a proxy
revocation. All properly executed proxies not revoked will be voted at the
Annual Meeting in accordance with the instructions contained therein.
If a proxy is signed and returned, but no specification is made with
respect to any or all of the proposals listed therein, the shares represented by
such proxy will be voted for all the proposals, including the Election of
Directors. Abstentions and broker non-votes are not counted as votes "for" or
"against" a proposal, but where the affirmative vote on the subject matter is
required for approval, abstentions and broker non-votes are counted in
determining the number of shares present or represented.
This proxy statement and the Annual Report to Stockholders for 1996 are
being mailed to stockholders on or about June 10, 1997.
Cost of Solicitation
The expenses of preparing, printing and mailing this notice of meeting and
proxy material and all other expenses of soliciting proxies will be borne by the
Company. In addition to the solicitation of proxies by the use of the mails,
directors, officers and regular employees of the Company, who will receive no
compensation in addition to their regular salary, may solicit proxies by mail,
telecopier, telephone or personal interview. The Company has retained Morrow &
Co., Inc. to aid in the solicitation of proxies, for which the Company will pay
an estimated $3,500 plus expenses. In addition, the Company will reimburse
brokerage firms, banks, trustees, nominees and other persons holding shares of
Common Stock of record for the expense of forwarding proxy material to the
beneficial owners of shares.
2
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
AND SECURITY HOLDINGS OF MANAGEMENT
There are no persons known to the Company to be the beneficial owners of
five percent (5%) or more of the outstanding shares of Common Stock.
The following table sets forth, as of June 2, 1997, the number of
outstanding shares of Common Stock of the Company beneficially owned by each
current director of the Company, the Chief Operating Officer of the Company and
each of the four most highly compensated executive officers other than the Chief
Operating Officer, and all current directors and officers of the Company as a
group.
Percentage of
Shares of Common Stock Outstanding
Name Beneficially Owned (1) Common Stock
----- --------------------- -------------
William V. Carney.................... 48,023 (2) 2.2%
Seymour Joffe........................ 32,000 *
Howard D. Brous ..................... 37,200 (3) *
Warren H. Esanu ..................... 30,000 *
Herbert H. Feldman................... 2,000 (4) *
Stanley Kreitman .................... 2,500 (5) *
Robert Schreiber..................... 2,000 *
Michael A. Tancredi ................. 14,127 (6) *
Edward B. Kornfeld................... 3,000 (7) *
John J. Gazzo........................ 7,537 (8) *
All current directors and
executive officers as a
group (15 persons)................ 148,952 6.9%
- ----------
* Less than 1%
(1) Except as otherwise indicated each person has the sole power to vote and
dispose of all shares of Common Stock listed opposite his name.
(2) Includes 3,750 shares of Common Stock issuable upon the exercise of options
held by Mr. Carney.
(3) Represents 2,000 shares of Common Stock issuable upon the exercise of
options held by Mr. Brous.
(4) Represents 2,000 shares of Common Stock issuable upon exercise of options
held by Mr. Feldman.
(5) Represents 2,500 shares of Common Stock issuable upon exercise of options
held by Mr. Kreitman.
(6) Includes 2,470 shares of Common Stock issuable upon the exercise of options
held by Mr. Tancredi.
(7) Represents 3,000 shares issuable upon exercise of options held by Mr.
Kornfeld.
(8) Includes 3,750 shares of Common Stock issuable upon the exercise of options
held by Mr. Gazzo.
ELECTION OF DIRECTORS
Directors of the Company are elected annually by the stockholders to serve
until the next annual meeting of stockholders and until their respective
successors are duly elected. The by-laws of the Company provide that the number
of directors comprising the whole board shall be determined from time to time by
the Board of Directors. The Board of Directors has established the size of the
board at eight directors and is recommending that the eight incumbent directors
of the Company be re-elected. If any nominee becomes unavailable for any
3
<PAGE>
reason, a situation which is not anticipated, a substitute nominee may be
proposed by the Board of Directors, and any shares represented by proxy will be
voted for any substitute nominee, unless the Board reduces the number of
directors.
Messrs. William V. Carney, Michael A. Tancredi, Howard D. Brous, Warren H.
Esanu, Herbert H. Feldman and Stanley Kreitman were elected at the 1996 Annual
Meeting of Stockholders, for which proxies were solicited. Mr. Esanu resigned
from the board in October 1996 and was reelected by the board in April 1997. Mr.
Seymour Joffe was elected to the board in October 1996. Mr. Robert Schreiber was
elected to the board in April 1997.
<TABLE>
<CAPTION>
Principal Occupation Director
Name of Nominee or Employment Since Age
--------------- ------------------- ------- ---
<S> <C> <C> <C>
William V. Carney (1).......................... Chairman of the Board 1970 60
and Chief Executive Officer
of the Company
Seymour Joffe.................................. President and Chief 1996 67
Operating Officer of
the Company
Michael A. Tancredi............................ Senior Vice President, 1970 67
Secretary and Treasurer of
the Company
Howard D. Brous (1) (2) (3).................... President and Chief 1989 51
Executive Officer of
H. D. Brous & Co., Inc.,
a New York Stock
Exchange member firm
Warren H. Esanu (1) (2) (3).................... of counsel to Esanu 1997 54
Katsky Korins & Siger,
attorneys at law
Herbert H. Feldman (1) (2) (3)................. President, Alpha Risk 1989 63
Management, Inc.,
independent risk
management consultants
Stanley Kreitman (1) (2) (3)................... Vice Chairman, Manhattan 1995 64
Associates, investment advisors
Robert Schreiber (1) (2) (3)................... Chief Executive Officer of 1997 64
BLS Communications, Ltd.
</TABLE>
- ----------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
(3) Member of the Audit Committee of the Board of Directors.
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. 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.
4
<PAGE>
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. Mr. Joffe has been Chairman of JSI International, Inc.
which represents companies in the marketing and positioning of high-tech
products and services in the Asia Pacific area.
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 to 1989.
Mr. Brous has been President and Chief Executive Officer of H. D. Brous &
Co., Inc., a New York Stock Exchange member firm for more than the past five
years.
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, attorneys at law, for more than the past five years. Mr. Esanu is also a
founding partner and Chairman of Paul Reed Smith Guitars Limited Partnership
(Maryland), a leading manufacturer of premium-priced electrical guitars. He is
also a senior officer and director of a number of privately held real estate
management companies.
Mr. Feldman has been President of Alpha Risk Management, Inc., independent
risk management consultants, for more than the past five years. He is its sole
stockholder.
Mr. Kreitman has been Vice Chairman of Manhattan Associates, a firm of
investment advisors, since February 1994. For more than five years prior
thereto, he was President of United States Banknote Corp.
Mr. Schreiber has been Chief Executive Officer of BLS Communications for
more than the past five years.
The Board of Directors recommends a vote FOR the nominees listed above.
Approval Required
Provided that a quorum is present at the Annual Meeting, the eight
directors receiving the most votes are elected as directors for a term of one
year and until their successors are elected and qualified.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established Executive, Compensation
and Audit Committees.
The Executive Committee exercises all the powers of the Board of Directors
in the conduct of the Company's business to the full extent permitted by
Delaware law between meetings of the Board of Directors. The Executive
Committee's present members are Messrs. Carney, Brous, Esanu, Feldman, Kreitman
and Schreiber.
The Compensation Committee has been empowered to approve the compensation
of all senior Company employees, as well as to administer the Company's 1996
Stock Option Plan. See "Report of the Compensation Committee" below. The
Compensation Committee's present members are Messrs. Brous, Esanu, Feldman,
Kreitman and Schreiber. Mr. Feldman is its chairman.
The Audit Committee's principal responsibilities are to review the terms of
the engagement of the Company's independent auditors, review the Company's
policies and procedures with respect to internal auditing, accounting and
financial controls and review and discuss the Company's independent auditors'
reports and recommendations. The Audit Committee's present members are Messrs.
Kreitman, Brous, Esanu, Feldman and Schreiber. Mr. Kreitman is its chairman.
5
<PAGE>
Excluding actions by unanimous written consent, during 1996, the Board of
Directors held six meetings, the Executive Committee held no meetings, the Audit
Committee held four meetings and the Compensation Committee held three meetings.
Each of the nominees for director attended at least 75% of the aggregate number
of meetings of the Board of Directors and the committees on which he served that
were held during the period he served as such.
The Company does not have a nominating committee of the Board of Directors.
DIRECTORS' COMPENSATION
Each director who is not an employee of the Company and the Chairman
receives an annual fee of $16,000 for serving as a director of the Company, and
each chairman of a standing committee of the Board of Directors receives an
additional annual fee of $3,000. Each director receives a supplemental fee of
$1,200 for each Board and each committee meeting attended.
EXECUTIVE OFFICERS
Set forth below are the executive officers of the Company and information
concerning those officers who are not also directors of the Company.
Name Position
---- --------
William V. Carney ........... Chairman of the Board and Chief Executive Officer
Seymour Joffe ............... President and Chief Operating Officer
Michael A. Tancredi ......... Senior Vice President, Secretary and Treasurer
Edward B. Kornfeld .......... Senior Vice President-Operations and Chief
Financial Officer
John J. Gazzo ............... Senior Vice President
Prem G. Chandran ............ Vice President
Edmund A. Chiodo ............ Vice President
David L. Rawlings ........... Vice President
William J. Novelli .......... Vice President
Warren Marcus ............... Vice President
Gerald C. Hammond ........... Vice President
Mr. Kornfeld was elected a Senior Vice President-Operations in 1996. He has
served as Vice President-Finance and Chief Financial Officer of the Company
since October 1995. Prior to his election to this position, Mr. Kornfeld held
positions with several companies for more than five years, including Excel
Technology Inc. (Quantronix Corp.) and Anorad Corporation.
Mr. Gazzo was elected Senior Vice President in March 1996. He has been Vice
President-Marketing of the Company since April 1993 and was general manager of
its Porta Electronics Division from November 1989 to April 1993; he was the
Company's Vice President-Research and Development from March 1984 to November
1989 and was Vice President-Engineering from February 1978 to February 1984.
Prior to that time, he was Chief Engineer of the Company.
Mr. Chandran was elected Vice President in December 1995. Mr. Chandran had
been with the Company as Assistant Vice President of Engineering since 1991.
6
<PAGE>
Mr. Chiodo was elected Vice President in 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.
Mr. Rawlings was elected Vice President in March 1996. Mr. Rawlings has
been the Assistant Vice President of Research and Development-Copper Products
since 1992.
Mr. Novelli was elected Vice President in December 1996. Mr. Novelli has
been the Assistant Vice President of Sales and Marketing-Copper Products since
1989.
Mr. Marcus has been Vice President-International Sales since May 1996. He
served as a consultant to the Company from April 1993 to May 1996. He served
prior as a Vice President-Joint Ventures.
Mr. Hammond has been employed by the Company as an Assistant Vice
President-Research and Development since September 1992. He was elected as Vice
President-Strategic Development in March 1997.
EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following reports and
the performance graph appearing in this Proxy Statement shall not be
incorporated by reference into any such filings.
Description of Compensation
The Compensation Committee of the Company's Board of Directors (the
"Committee") consists of five independent, non-employee directors. The role of
the Committee, among other things, is to review and approve the broad
compensation policies of the Company with respect to its executives and various
components of the total compensation of the executive officers. The Committee
also examines and approves the elements of the Company's variable compensation
plans. The various components of executive compensation include the following:
Base Salary. Base salaries for executives and all other salaried employees
are paid within salary ranges established for each position. Each employee's
salary, including executives' salaries, is based on an annual assessment of
competitive pay and his or her contribution to the business.
Bonuses. The Company awards bonuses to executive officers and other
employees who have made a contribution to the Company's operations. The award of
bonuses to the Chief Executive Officer and the Chief Operating Officer is based
solely on certain corporate financial performance criteria, including return on
sales, return on equity and growth in sales compared to the previous year.
Bonuses awarded to other executive officers are based on corporate financial
performance criteria and individual performance.
Stock Options. The Company issued options under its 1996 Stock Option Plan.
See "Amendment to the 1996 Stock Option Plan" for information concerning options
issued to officers and directors of the Company.
The Company views stock options as a competitively appropriate component of
total compensation which provide long-term incentives, linking the interests of
executives and other employees receiving grants with those of the Company's
stockholders. Because of their long-term nature and the linkage of executive and
stockholder interests, stock options are the Company's only long-term incentive
compensation program.
7
<PAGE>
Supplementary Group Life and Long-Term Disability Insurance. The Company
makes available supplementary group life insurance coverage and special
long-term disability coverage to certain employees, including Messrs. Carney and
Gazzo. Supplementary group life insurance coverage is in an amount of $500,000
for each executive, and is in addition to the group life insurance benefit
provided to all employees, which is equal to twice an employee's salary, with a
maximum benefit of $250,000.
401(k) Plan. Effective as of November 1, 1986, the Company adopted a cash
or deferred savings plan (the "401(k) Plan") under section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"). Under the 401(k) Plan,
an employee who has completed at least one month of credited service and is at
least 20 1/2 years of age may elect to have the Company deduct under a salary
reduction agreement up to 15% of the employee's salary (subject to limitations
contained in the Code) and contribute this sum on behalf of the employee to the
401(k) Plan instead of paying it to the employee. The participating employee is
not taxed on that contribution. For the year ended December 31, 1996, the
Company matched each participant's contribution by matching a contribution in an
amount equal to 25% of the amount which the participant elected to defer in the
401(k) Plan. The Plan provides that in no case is the amount contributed by the
Company permitted to be greater than 25% of 6% of the participant's salary.
Supplemental Management Compensation Programs. The Company provides
supplemental management compensation program for certain management employees of
the Company designed to provide current and post-employment benefits in the
event of their retirement or death. The supplemental management compensation
program is comprised of a supplemental retirement income program and an equity
split-dollar program. The Company expects that substantially all of the cost of
these programs to the Company will eventually be recovered through the receipt
of proceeds of life insurance on the lives of covered employees. The Company's
1996 premium payments with respect to Messrs. Carney and Gazzo are included in
the Summary Compensation Table under the heading "All Other Compensation."
The supplemental retirement income program is intended to provide a
participating employee or his heirs or distributes annual retirement income
equal to 50% of the employee's 1984 base salary. Payments under the program will
be made for a period of fifteen years following the earlier of his attainment of
age 65 or his death.
The equity split-dollar program permits participating employees to acquire
additional whole life insurance coverage (subject to medical examination) on a
basis pursuant to which the Company participates in the payment of premiums and
the receipt of policy proceeds. The program is structured so that the Company
will recover from the policy proceeds the full amount of premiums it has paid on
each policy. Annual benefits under this program are determined by standard
actuarial computations of the full amount of insurance coverage purchased as
reduced by any recovery by the Company of the full amount of premiums paid on
the policy. The amount of insurance coverage purchased to date has been
determined by applying a participant's pro rata share of aggregate 1984 base
salary compensation as of April 1, 1984 of the covered group to the overall 1984
Company budget of $100,000 for premiums under this program and the supplemental
retirement income program to determine the premium amount allocable to any
participant and thereafter securing insurance coverage obtainable in 1984 for
such premium, given the age and medical history of the participant. The Company
will recover from policy proceeds the full amount of paid premiums. Messrs.
Carney, Gazzo and one other executive officer currently participate in this
program.
8
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee endorses the principles of executive
compensation described above.
As part of its responsibilities, the Committee meets each December to
determine the base salary of the senior executives of the Company for the next
year and bonuses for the current year. The Committee also meets, from time to
time, to determine whether individual grants of stock options should be awarded
to senior executives as well as to other employees of the Company. In
discharging these responsibilities, the Committee reviews the performance of the
Company relative to its goals. In addition, with the assistance of the Chief
Executive Officer, the Committee reviews the individual performance of the other
senior executive officers. The Committee also evaluates the performance of the
Chief Executive Officer and the Chief Operating Officer, as reflected in the
financial performance of the Company, to determine base salary and bonus. The
Committee subsequently reports on its evaluation and compensation determinations
to the other non-employee directors.
Based on the performance of the Company in both 1995 and 1996, the
Committee determined that, generally, no bonuses would be paid to employees,
including the Chief Executive Officer and other executive officers for such
years.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company and its
subsidiaries to its Chief Executive Officer and its four most highly compensated
executive officers, other than the Chief Executive Officer, and one other person
who was an executive officer during a portion of the year, whose salary and
bonus earned exceeded $100,000 for the most recent fiscal year.
9
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------- ---------------------
Other Restricted Options, All Other
Annual Stock SARs Compen-
Name and Compensa- Awards (Number sation
Principal Position Year Salary Bonus tion (Dollars) of Shares) (1)
----------------- ---- ------ -------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
William V. Carney (2)......... 1996 $ 170,038 -- -- -- -- $ 31,685
Chairman of the Board 1995 162,000 -- -- -- -- 35,750
and Chief Executive Officer 1994 162,000 -- -- -- -- 35,840
Seymour Joffe................. 1996 35,346 -- -- -- -- 35,531
President and 1995 -- -- -- -- -- 5,000
Chief Operating Officer
Warren H. Esanu(2)............ 1996 110,769 -- -- -- -- 1,327
Chairman of the Board 1995 -- -- -- -- -- --
1994 -- -- -- -- -- --
Vincent F. Santulli (2)....... 1996 55,288 -- -- -- -- 90,431
Chairman of the Board 1995 275,000 -- -- -- -- 50,868
and Chief Executive Officer 1994 275,000 -- -- -- -- 48,959
Edward B. Kornfeld............ 1996 147,489 -- -- -- -- 2,026
Senior Vice President, 1995 30,153 -- -- -- 3,000 --
Operations 1994 -- -- -- -- -- --
Chief Financial Officer
John J. Gazzo ................ 1996 141,836 -- -- -- -- 25,535
Senior Vice President 1995 140,000 -- -- -- -- 31,455
OSS Division 1994 140,000 -- -- -- -- 36,477
Michael A. Tancredi .......... 1996 122,618 -- -- -- -- 1,830
Senior Vice President, 1995 122,000 -- -- -- -- 6,930
Secretary and Treasurer 1994 122,000 -- -- -- -- 6,930
Edmund Chiodo................. 1996 113,437 -- -- -- -- 1,678
Vice President Operations 1995 107,000 -- -- -- -- 6,930
OSS Division 1994 105,930 -- -- -- -- 6,930
</TABLE>
- ----------
(1) "All Other Compensation" includes severance payments, to the extent
applicable, the Company's payment to the executive's account pursuant to
the Company's 401(k) Plan, premiums paid with respect to the equity split
dollar program, group life insurance in amounts greater than that available
to all employees and special long term disability coverage and amounts
equal to market interest on certain preexisting borrowings in connection
with awards under the Company's 1984 Employee Incentive Plan as set forth
on the table below.
(2) Mr. Santulli resigned as Chairman of the Board, Chief Executive Officer and
as a director effective April 1, 1996. Mr. Esanu was Chairman of the Board
from April 1996 until October 1996. Mr. Carney, who was Vice Chairman until
October 1996, was elected Chairman of the Board and Chief Executive Officer
in October 1996.
10
<PAGE>
Set forth below is a chart which shows the component of "All Other
Compensation" listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
Mr. Mr. Mr. Mr. Mr. Mr. Mr.
Carney Esanu Santulli Kornfeld Gazzo Tancredi Chiodo
------- ------ ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Company 401(k) Match........... $2,210 $1,327 -- $2,026 $2,210 $1,830 $1,678
Equity Split Dollar............ 21,062 -- 28,038 -- 17,486 -- --
Supplemental Insurance........ 3,378 -- 2,364 -- 2,450 -- --
Forgiveness of Interest on
Employee Debentures ......... 5,035 -- 11,029 -- 3,389 -- --
Consulting Fees................ -- -- 49,000 -- -- -- --
</TABLE>
Certain of the Company's officers named in the Summary Compensation Table
or their affiliates are parties to employment, consulting or other agreements
providing for compensation during and after their employment with the Company.
See "Compensation Committee Interlocks and Insider Participation".
Employment Agreements. The Company has employment agreements with Messrs.
Carney, Joffe, Kornfeld, Tancredi and Gazzo. The agreements continue on a
year-to-year basis, for January 1 of each year, unless terminated by the Company
on prior notice of not less than 120 days for Mr. Carney, 90 days for Messrs.
Tancredi and Gazzo and 60 days for Messrs. Joffe and Kornfeld. Salary is
determined by the Board of Directors, except that the salary may not be reduced
except as a part of a salary reduction program applicable to all executive
officers. Upon death or termination of employment as a result of a disability,
the officer or his estate is to receive a payment equal to three months salary.
Upon a termination without cause, Mr. Carney is entitled to receive his then
current salary for 18 months plus one month for each full year of service with
the Company up to a total maximum of 30 months. Mr. Gazzo and Mr. Tancredi are
entitled to receive as a severance payment his then current salary for a period
of six months following the date of termination plus an additional period equal
to one month for each full year of service with the Company up to a maximum
total of 24 months, and Mr. Kornfeld is entitled to receive as a severance
payment his then current salary for a period of twelve months plus an additional
period equal to one month for each year of severance up to a maximum total of 24
months. In the event that an executive is covered by an executive severance
agreement, including the Salary Continuation Agreements (as described below),
which provides for payments upon termination subsequent to a change of control
of the Company, the severance arrangements described in this paragraph would not
be applicable if the executive is entitled to severance payments under the
executive severance agreement.
Salary Continuation Agreements. The Company is a party to Salary
Continuation Agreements with Messrs. Carney, Kornfeld, Tancredi and Gazzo. The
Salary Continuation Agreements provide that, in the event that a change of
control of the Company occurs and the executive's employment with the Company is
subsequently terminated by the Company other than for cause, death or
disability, or is terminated by the executive as a result of a substantial
alteration in the executive's duties, compensation or other benefits, the
executive shall be entitled to the payment by the Company of an amount equal to
the executive's monthly salary at the rate in effect as of the date of the
executive's termination (or, if higher, as in effect immediately prior to the
change in control) plus the pro rata monthly amount of the executive's most
recent annual bonus paid immediately before the change of control multiplied by
18. For purposes of the Salary Continuation Agreements, a change of control is
defined as one which would be required to be reported in response to the proxy
rules under the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the acquisition of beneficial ownership, directly or indirectly, by a person or
group of persons of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities, or, during
any period of two consecutive years, if individuals who at the beginning of such
period constituted the Board of Directors of the
11
<PAGE>
Company cease for any reason to constitute at least a majority thereof unless
the election of each new director was nominated or ratified by at least
two-thirds of the directors then still in office who were directors at the
beginning of the period. The change in control must occur during the term of the
Salary Continuation Agreement, which in each case is currently through December
31, 1996 and is renewed automatically unless the Company gives 60 days written
notice prior to January 1 of any year of its election not to renew the
agreement. If such a change of control occurs during the effectiveness of the
Salary Continuation Agreement, any termination during the eighteen months
following the change of control will result in the compensation described above.
Borrowings From the Company in Connection with the Company's 1984 Employee
Incentive Plan. In connection with the award of certain debentures to employees
(the "Employee Debentures") under the Company's 1984 Employee Incentive Plan
(the "1984 Plan"), which has terminated, the Board of Directors authorized the
Company in 1985 and 1986 to offer loans to employees receiving awards to
facilitate the purchase of such Employee Debentures. Also, the Board of
Directors authorized an extension of the maturity of loans to certain employees
who elected to convert certain Employee Debentures into Common Stock.
Accordingly, loans of $62,940 and $42,360, borrowed by Messrs. Carney and Gazzo,
respectively, in connection with such conversion, were outstanding as of April
17, 1997. Such extension loans are due April 1, 1999 and bear floating interest
at a rate which is subject to adjustment each July 1 and January 1 based on a
rate equal to 110% of certain United States government obligations.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, Herbert H. Feldman, Howard D. Brous, Warren H. Esanu and
Stanley Kreitman served as members of the Company's Compensation Committee.
During 1996, Alpha Risk Management, Inc., an independent risk management
consulting company of which Mr. Feldman is president and sole shareholder,
received an aggregate of $36,000 in retainer fees in connection with its
provision of ongoing risk management services relating to the Company's
corporate insurance coverage. The arrangement is cancelable by either party upon
ten days prior notice. Also during 1996, the law firm of Esanu Katsky Korins &
Siger, to which Mr. Esanu is of counsel, provided legal services to the Company,
for which it received fees of $790,000. Esanu Katsky Korins & Siger is
continuing to render legal services to the Company during 1997.
12
<PAGE>
PERFORMANCE GRAPH
The following graph shows changes over the past five years in the value of
$100 invested in: (a) Porta Systems Corp. Common Stock; (b) The Standard and
Poor's 500 Index and (c) an SIC peer group consisting of five companies whose
principal business activity is the manufacture of communications equipment:
Andrew Corp., DSC Communications Corp., M/A-Com Inc., Northern Telecom Limited
and Scientific Atlanta, Inc. The year-end values of each investment are based on
the share price appreciation plus the monthly reinvestment of dividends. Total
stockholder returns from each investment can be calculated from the year-end
investment values shown beneath the graph provided below.
TOTAL RETURN TO STOCKHOLDERS
December 31, 1991 to December 31, 1996
[The following table represents a line chart in the printed material]
Indexed/Cumulative Returns
<TABLE>
<CAPTION>
Base
Period Return Return Return Return Return
Company/Index Name 1991 1992 1993 1994 1995 1996
- ------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Porta Systems Corp. ............... 100 60.91 41.12 20.30 2.79 1.32
S&P 500 Index ..................... 100 107.62 118.46 120.03 165.13 203.05
S&P Communications Equipment
Manufacturers ................... 100 107.86 103.76 118.37 177.14 207.46
</TABLE>
This total stockholder return model assumes reinvested dividends in Porta
Systems Corp.
Prepared by Standard & Poor's Compustat, a division of McGraw-Hill.
13
<PAGE>
AMENDMENT TO THE 1996 STOCK OPTION PLAN
The Board of Directors believes that in order to attract and retain the
services of executive and other key employees and outside directors, it is
necessary for the Company to have the ability and flexibility to provide a
compensation package which compares favorably with those offered by other
companies. Accordingly, in April 1996, the Board of Directors adopted, and in
June 1996 the stockholders approved, the 1996 Stock Option Plan (the "1996
Plan"), covering 100,000 shares of Common Stock. The Board of Directors believes
that an increase in the number of shares of Common Stock subject to options
available under the 1996 Plan is in the best interest of the Company and its
stockholders. Accordingly, in May 1997, the Board of Directors approved, subject
to stockholder approval, an amendment to the 1996 Plan increasing the number of
shares subject to options from 100,000 shares to 450,000 shares of Common Stock.
The Company had another stock option plan, the 1986 stock option plan (the
"1986 Plan"), pursuant to which options to purchase 170,000 shares of Common
Stock could be granted. The 1986 Plan expired in March 1996. As of May 31, 1997,
an aggregate of 16,397 shares of Common Stock had been issued pursuant to the
1986 Plan and 16,397 shares of Common Stock were subject to outstanding options
under such plan.
The 1996 Plan does not have an expiration date except that incentive stock
options, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, cannot be issued subsequent to ten years from the date the 1996 Plan
was approved by the Board of Directors. Set forth below is a summary of the 1996
Plan, but this summary is qualified in its entirety by reference to the full
text of the 1996 Plan, a copy of which is filed as Exhibit A to this Proxy
Statement.
The 1996 Plan, as amended, is authorized for 450,000 shares of Common
Stock. As of May 31, 1997, no shares of Common Stock had been issued pursuant to
the 1996 Plan, 87,448 shares of Common Stock were subject to options under the
1996 Plan, none of which options were exercisable.
The 1996 Plan provides for the automatic grant to non-management directors
of non-qualified options to purchase 2,000 shares of Common Stock on May 1st of
each year. Such options have an exercise price equal to the average closing
price of the Common Stock on the last ten trading days in April of such year.
Messrs. Howard D. Brous, Warren H. Esanu, Herbert H. Feldman, Stanley Kreitman
and Robert Schreiber are the present directors who qualify as non-management
directors under the 1996 Plan. The 1996 Plan imposes no limit on the number of
officers and other key employees to whom awards may be made. Messrs. William V.
Carney, Seymour Joffe and Michael A. Tancredi, who are officers and directors,
as well as six other officers of the Company are eligible for options under the
1996 Plan.
The amendment to the 1996 Plan also provides for the grant of a
non-qualified stock option to each non-employee director to purchase 15,000
shares of Common Stock at $1.50 per share, which was the fair market value on
May 8, 1997, the date the amendment was approved by the Board of Directors. Such
options have a term of ten years. The non-employee directors who received such
options were Messrs. Brous, Esanu, Feldman, Kreitman and Schreiber.
Options under the 1996 Plan may be granted to key employees, including
officers and directors of the Company and its subsidiaries, except that members
and alternate members of the stock option committee are not eligible for options
under the 1996 Plan other than the automatic grant of options described above or
pursuant to the amendment to the 1996 Plan. On May 8, 1997, options to purchase
an aggregate of 256,280 shares of Common Stock at an exercise price of $1.50 per
share, which was the fair market value on the date of grant, were granted to 31
employees, including Messrs. William V. Carney, Seymour Joffe, Michael A.
Tancredi, Edward B. Kornfeld, John J. Gazzo and Edmund Chiodo, who received
options to purchase 86,250, 32,500, 42,530, 23,000, 5,000 and 5,000 shares of
Common Stock, respectively.
14
<PAGE>
The 1996 Plan is to be administered by a committee of at least two
disinterested directors to be appointed by the Board (the "Committee"). Any
member or alternate member of the Committee shall not be eligible to receive
options under the 1996 Plan (except as to the automatic grant of options to
non-management directors, as described above) or under any plan of the Company
or any of its affiliates. The Committee has broad discretion in determining the
persons to whom stock options are to be granted, the terms and conditions of the
grant, including whether the option is a nonqualified stock option or an
incentive stock option, the exercise price and term and the restrictions and
forfeiture conditions. If no committee is appointed, the functions of the
committee shall be performed by the Board of Directors. The Compensation
Committee serves as the Committee under the 1996 Plan.
Tax consequences of awards provided under the 1996 Plan are dependent upon
the type of options granted. The grant of an incentive or nonqualified stock
options does not result in any taxable income to the recipient or deduction to
the Company. Upon exercise of a nonqualified stock option, the recipient
recognizes income in the amount by which the fair market value on the date of
exercise exceeds the exercise price of the option, and the Company receives a
corresponding tax deduction. In the case of incentive stock options, no income
is recognized to the employee, and no deduction is available to the Company, if
the stock issued upon exercise of the option is not transferred within two years
from the date of grant or one year from the date of exercise, whichever occurs
later. However, the exercise of an incentive stock option may result in
additional taxes through the application of the alternative minimum tax. In the
event of a sale or other disqualifying transfer of stock issued upon exercise of
an incentive stock option, the employee realizes income, and the Company
receives a tax deduction, equal to the amount by which the lesser of the fair
market value at the date of exercise or the proceeds from the sale exceeds the
exercise price. When compensation is to be recognized by the employee,
appropriate arrangements are to be made with respect to the payment of
withholding tax.
The following table sets forth information concerning options granted
during the year ended December 31, 1996 pursuant to the 1996 Plan. No stock
appreciation rights ("SARs") were granted.
Option Grants in Year Ended December 31, 1996
<TABLE>
<CAPTION>
Percent of
Number of Total Options
Shares Granted to
Underlying Employees in Exercise Price
Options Granted Fiscal Year Per Share Expiration Date
--------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
William V. Carney ................... 3,750 4.7 2.00 8/7/02
Seymour Joffe ....................... 35,000 44.2 2.375 10/16/02
Warren H. Esanu ..................... -- -- -- --
Vincent F. Santulli ................. -- -- -- --
Edward B. Kornfeld .................. 3,000 3.8 2.00 8/7/02
19,000 24.0 2.375 10/16/02
Michael A. Tancredi ................. 2,470 3.1 2.00 8/7/02
John J. Gazzo ....................... 3,750 4.7 2.00 8/7/02
Edmund A. Chiodo .................... 438 0.6 2.00 8/7/02
All current executive officers ...... 71,378 90.1 -- --
All non-officer directors(1) ........ 6,000 7.6 3.6875 5/1/02
All other employees ................. 1,830 2.3 -- --
</TABLE>
- ----------
(1) Represents options automatically granted to non-employee directors pursuant
to the 1996 Plan.
15
<PAGE>
The following table sets forth information concerning the exercise of
options and warrants during the year ended December 31, 1996 and the year-end
value of options held by the Company's officers named in the Summary
Compensation Table.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Options at
Fiscal Year End Fiscal Year End
------------------ ------------------
Shares Acquired Value Exercisable/ Exercisable/
Name Upon Exercise Realized Unexercisable Unexercisable
----- -------------- -------- ------------------ ------------------
<S> <C> <C> <C> <C>
William V. Carney................... -- -- 3,750/ --/
3,750 --
Seymour Joffe....................... -- -- --/ --/
35,000 --
Warren H. Esanu.................... -- -- --/ --/
2,000 --
Vincent F. Santulli................. -- -- --/ --/
-- -- --
Edward B. Kornfeld.................. -- -- 3,000/ --/
-- -- 22,000 --
John J. Gazzo....................... -- -- 3,750/ --/
-- -- 3,750 --
Michael A. Tancredi................ -- -- 2,470/ --/
-- 2,470
Edmund Chiodo...................... -- -- 438/ --/
-- -- 438 --
</TABLE>
The adoption of the amendment to the Company's 1996 Plan requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock.
Proxies received in response to this solicitation will, in the absence of
contrary specification, be voted in favor of the approval of amendment to the
1996 Plan.
The Board of Directors recommends a vote FOR the amendment to the 1996
Plan.
16
<PAGE>
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
The Board of Directors has proposed an amendment to the Company's
certificate of incorporation which would amend the Company's certificate of
incorporation by decreasing the number of authorized shares of Common Stock, par
value $.01 per share, from 40,000,000 shares to 20,000,000 shares. The adoption
of the amendment would not effect any change in the Company's outstanding Common
Stock.
Financial Statements
The audited financial statements for the year ended December 31, 1996 and
1995 together with the related Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are included in the Annual Report,
and unaudited financial statements together with the related Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
are included in the Company's Form 10-Q Quarterly Report for the three months
ended March 31, 1997, are incorporated by reference in this Proxy Statement.
Vote Required
The amendment to the certificate of incorporation requires the approval of
the holders of a majority of the outstanding shares of Common Stock.
Discussion of the Amendment
In June 1996, at the time of the 1996 Annual Meeting, there were
outstanding approximately 10,300,000 shares of Common Stock. In addition, the
Company had reserved for issuance an additional 27,000,000 shares of Common
Stock. In view of the need for additional shares of Common Stock, at the 1996
Annual Meeting the stockholders approved an amendment to the Company's
certificate of incorporation which increased the authorized Common Stock from
20,000,000 to 40,000,000.
At the 1996 Annual Meeting the stockholders also approved a one-for-five
reverse split of the Common Stock, which reduced the number of outstanding
shares of Common Stock to approximately 2,060,000 shares and the number of
shares of Common Stock reserved for issuance to approximately 5,400,000 shares.
On the Record Date, there were 2,191,896 shares of Common Stock outstanding and
approximately 5,000,000 shares of Common Stock reserved for issuance. The board
of directors believes that reduced number of authorized shares of Common Stock
will provide it with sufficient shares of Common Stock to satisfy its presently
anticipated requirements for Common Stock. In the event that the board deems it
appropriate to issue shares of Common Stock in excess of the 20,000,000
authorized shares, it will seek stockholder approval for such increase.
In addition, the board of directors believes that the reduction in
authorized shares of Common Stock could provide the Company with considerable
savings in franchise taxes.
The rights of the holders of Common Stock will not be affected by the
amendment.
The Board of Directors recommends a vote FOR the amendment to the Company's
certificate of incorporation.
17
<PAGE>
SELECTION OF INDEPENDENT AUDITORS
It is proposed that the stockholders ratify the selection of BDO Seidman,
LLP as the independent public accountants for the Company for the year ended
December 31, 1997. The Audit Committee and the Board of Directors have approved
the selection of BDO Seidman, LLP as the Company's independent public auditors.
However, in the event approval of the proposal is not obtained, the selection of
the independent auditors will be reconsidered by the Board of Directors.
BDO Seidman, LLP was the independent certified public accountants for 1996
and 1995. At no time since their engagement have they had any direct or indirect
financial interest in or any connection with the Company or any of its
subsidiaries other than as independent auditors.
Representatives of BDO Seidman, LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they so desire. Such
representatives are also expected to be available to respond to appropriate
questions.
The Company's independent public accountants for the year ended December
31, 1994 was KPMG Peat Marwick LLP, whose report on such financial statements is
included in the Company's annual report on Form 10-K for the year ended December
31, 1996. Representatives of such firm are not expected to be present at the
Annual Meeting.
The Company changed accountants following the issuance by the Securities
and Exchange Commission of an order directing a private investigation of the
Company arising out of the position of the SEC staff that the independence of
KPMG Peat Marwick LLP was adversely impacted by certain relationships involving
such firm and KPMG BayMark Strategies LLC, and Mr. Edward R. Olson, the
president of KPMG BayMark Strategies LLC who was serving as the Company's
interim president and chief operating officer. The decision to change
accountants was made by the Company's Audit Committee and approved by the Board
of Directors. There were no disagreements with KPMG Peat Marwick LLP, whether or
not resolved, on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
Vote Required
The proposal to ratify the selection of BDO Seidman, LLP as the Company's
independent auditors requires the approval of a majority of the shares of Common
Stock present and voting, provided that a quorum is present.
The Board of Directors recommends a vote FOR the ratification of BDO
Seidman, LLP as the Company's independent auditors.
18
<PAGE>
INCORPORATION BY REFERENCE
The Company incorporates into this Proxy Statement the audited financial
statements for the years ended December 31, 1996 and 1995 together with the
related Management's Discussion and Analysis of Liquidity and Capital Resources
and Results of Operations, which are included in the Annual Report, and
unaudited financial statements together with the related Management's Discussion
and Analysis of Liquidity and Capital Resources and Results of Operations which
are included in the Company's Form 10-Q Quarterly Report for the three months
ended March 31, 1997. A copy of the Annual Report is being mailed to
stockholders of record on the Record Date concurrently with the mailing of this
Proxy Statement. Additional copies of the Annual Report will be provided by the
Company without charge upon request. Copies of the Form 10-Q for the quarter
ended March 31, 1997, without exhibits, will also be provided without charge
upon request. Requests for copies of the Annual Report or Form 10-Q should be
made as provided under "Other Matters".
OTHER MATTERS
Any proposal which a stockholder wishes to present at the 1998 Annual
Meeting of Stockholders must be received by the Company at its executive offices
at 575 Underhill Boulevard, Syosset, New York 11791, not later than January 31,
1998.
Copies of the Company's Form 10-K for the year ended December 31, 1996 and
Form 10-Q for the quarter ended March 31, 1997, without exhibits, may be
obtained without charge by writing to Mr. Michael A. Tancredi, Senior Vice
President, Secretary and Treasurer, Porta Systems Corp., 575 Underhill
Boulevard, Syosset, New York 11791. Exhibits will be furnished upon request and
upon payment of a handling charge of $.25 per page, which represents the
Company's reasonable cost of furnishing such exhibits.
The Board of Directors does not know of any matters to be presented at the
Annual Meeting other than as set forth in this Proxy Statement. However, if any
matters properly come before the meeting, the holders of proxies solicited by
the Board of Directors intend to exercise their discretion in voting on such
other matters.
By order of the Board of Directors
MICHAEL A. TANCREDI
Secretary
June 10, 1997
19
<PAGE>
Exhibit A
PORTA SYSTEMS CORP.
1996 Stock Option Plan (as amended through May 8, 1997)
1. Purpose; Definitions.
The purpose of the Porta Systems Corp. 1996 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) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) as promulgated by the Commission under the Exchange Act, or any
successor definition adopted by the Commission.
(j) "Early Retirement" means retirement, with the express consent for
purposes of this Plan of the Company at or before the time of such retirement,
from active employment with the Company and any Subsidiary or Affiliate pursuant
to the early retirement provisions of the applicable pension plan of such
entity.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended,
from time to time, and any successor thereto.
A-1
<PAGE>
(l) "Fair Market Value" means, as of any given date, the market price of
the Stock as determined by or in accordance with the policies established by the
Committee in good faith; provided, that, in the case of an Incentive Stock
Option, the Fair Market Value shall be determined in accordance with the Code
and the Treasury regulations under the Code.
(m) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422A of
the Code.
(n) "Non-Management Director" means a director of the Company who is not
otherwise employed by the Company or any Subsidiary or Affiliate, provided,
however, that any person who is employed by the Company or any of its
subsidiaries and is an officer of the Company but does not receive compensation
from the Company for services as an officer shall be deemed a Non-Management
Director.
(o) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(p) "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Affiliate on or after age 65.
(q) "Plan" means this Porta Systems Corp. 1996 Stock Option Plan, as
hereinafter amended from time to time.
(r) "Retirement" means Normal Retirement or Early Retirement.
(s) "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;
(t) "Stock Option" or "Option" means any option to purchase shares of Stock
(including Restricted Stock and Deferred Stock, if the Committee so determines)
granted pursuant to Section 5 of the Plan.
(u) "Subsidiary" means any corporation or other business association,
including a partnership (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
Disinterested Persons, 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
Disinterested Persons 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 of Disinterested Persons. 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 Disinterested
Persons, each member or alternate member of the Committee shall not be entitled
A-2
<PAGE>
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 Disinterested Person 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;
(ii) to determine whether and to what extent Incentive Stock Options
and/or Non-Qualified Stock Options, or any combination thereof, 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)(x) 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 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.
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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) Subject to Paragraph 6(b)(v) of the Plan, 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.
(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) On each May 1 of each year commencing May 1, 1996, each person who is a
Non-Management Director on such date shall be granted a nonqualified option to
purchase two thousand (2,000) shares of Common Stock (or such lesser number of
shares of Common Stock as remain available for grant at such date under the
Plan, divided by the number of Non-Management Directors at such date). Such
options shall be exercisable, beginning six months after the date of grant, at a
price per share equal to the greater of (i) the average of the closing price of
the Common Stock (or, if the closing price is not reported on any such day, the
average of the high bid and low asked prices on such date) for the last ten (10)
trading days in April of such year or (ii) the par value of one share of Stock,
and such Option shall expire on the earlier of (i) ten years from the date of
grant, or (ii) twelve (12) months from the date such Non-Management Director
ceases to be a director of the Company if such Non-Management Director ceases to
be a director because of his death or Disability or (iii) seven (7) months from
the date such Non-Management Director ceases to be a director if such
Non-Management Director ceases to be a director other than as a result of his
death or Disability. 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. In addition, there shall be granted to each person who is
a Non-Management Director on May 8, 1997, an option to purchase fifteen thousand
shares of Common Stock at the closing price of the Common Stock on such date.
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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 may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified
Stock Options. The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of 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 ten (10)
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 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. Subject to Paragraph 5(b)(ix) of the Plan
with respect to Incentive Stock Options, 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
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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. Subject to
Paragraph 5(b)(ix) of the Plan with respect to Incentive Stock Options, 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. In the event of termination of employment by reason of
Disability or Normal or Early Retirement, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for
purposes of Section 422A of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(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 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) Incentive Stock Options.
(A) Anything in the Plan to the contrary notwithstanding, no term
of this Plan relating to Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under
Section 422A of the Code, or, without the consent of the optionee(s)
affected, to disqualify any Incentive Stock Option under such Section
422A.
(B) To the extent required for "incentive stock option" status
under Section 422A(b)(7) of the Code (taking into account applicable
Treasury regulations and pronouncements), the Plan shall be deemed to
provide that the aggregate Fair Market Value (determined as of the
time of grant) of the Stock with respect to which Incentive Stock
Options are exercisable for the first time by the optionee
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during any calendar year under the Plan and/or any other stock option
plan of the Company or any Subsidiary or parent corporation (within
the meaning of Section 425 of the Code) after 1986 shall not exceed
$100,000. If Section 422A is hereafter amended to delete the
requirement now in Section 422A(b)(7) that the plan text expressly
provide for the $100,000 limitation set forth in Section 422A(b)(7),
then this Paragraph 5(b)(ix)(B) shall no longer be operative and the
Committee may accelerate the dates on which the incentive stock option
may be exercised.
(C) To the extent permitted under Section 422A of the Code or the
applicable regulations thereunder or any applicable Internal Revenue
Service pronouncement:
(I) If (x) a participant's employment is terminated by
reason of death, Disability or Retirement and (y) the portion of
any Incentive Stock Option that is otherwise exercisable during
the post-termination period specified under Paragraphs 5(b)(vi)
and (vii) of the Plan, applied without regard to the $100,000
limitation contained in Section 422A(b)(7) of the Code, is
greater than the portion of such option that is immediately
exercisable as an "incentive stock option" during such
post-termination period under Section 422A, such excess shall be
treated as a Non-Qualified Stock Option; and
(II) if the exercise of an Incentive Stock Option is
accelerated by reason of a Change in Control, any portion of such
option that is not exercisable as an Incentive Stock Option by
reason of the $100,000 limitation contained in Section 422A(b)(7)
of the Code shall be treated as a Non-Qualified Stock Option.
(x) 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 unless otherwise 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
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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 percent 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
(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 highest per share price which is (i) 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) 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.
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(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 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) 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
without 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; and 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.
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10. Effective Date of Plan.
The Plan shall be effective as of the date the Plan is approved by the
Board, subject to the approval of the Plan by a majority of the votes cast by
the holders of the Company's Common Stock at the next annual or special meeting
of stockholders. Any grants made under the Plan prior to such approval shall be
effective when made (unless otherwise specified by the Committee at the time of
grant), but shall be conditioned on, and subject to, such approval of the Plan
by such stockholders.
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. Notwithstanding the foregoing, no Incentive Stock Option may be granted
after the tenth (10th) anniversary of the date this Plan was approved by the
Board, although Incentive Stock Options granted prior to such date may extend
beyond such date.
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PROXY PORTA SYSTEMS CORP.
1997 ANNUAL MEETING OF STOCKHOLDERS--JULY 31, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William V. Carney and Seymour Joffe or
either one of them acting in the absence of the other, with full power of
substitution or revocation, proxies for the undersigned, to vote at the 1997
Annual Meeting of Stockholders of Porta Systems Corp. (the "Company"), to be
held at 8:30 a.m., local time, on Thursday, July 31, 1997, at the offices of the
Corporation at 575 Underhill Boulevard, Syosset, New York 11791, and at any
adjournment or adjournments thereof, according to the number of votes the
undersigned might cast and with all powers the undersigned would possess if
personally present.
(1) To elect the following eight (8) directors:
William V. Carney, Seymour Joffe, Michael A. Tancredi, Howard D. Brous,
Warren H. Esanu, Herbert H. Feldman, Stanley Kreitman and Robert Schreiber.
[ ] FOR all nominees listed above (except as marked to the contrary
below).
[ ] Withhold authority to vote for all nominees listed above.
INSTRUCTION: To withhold authority to vote for any individual nominee, print
that nominee's name below.
________________________________________________________________________________
(2) To approve an amendment to the 1996 Stock Option Plan which, among other
things increases the number of shares of Common Stock subject to such plan
from 100,000 to 450,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) To approve an amendment to the Company's certificate of incorporation to
decrease the number of authorized shares of Common Stock, par value $.01
per share, to 20,000,000 shares from 40,000,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(4) To ratify the appointment of BDO Seidman, LLP as the Company's independent
auditors for the year ending December 31, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
<PAGE>
(5) In their discretion, upon the transaction of such other business as may
properly come before the meeting.
All of the above as set forth in the Proxy Statement, dated June 10, 1997
The shares represented by this proxy will be voted on Items 1, 2, 3 and 4
as directed by the stockholder, but if no direction is indicated, will be voted
FOR Items 1,2,3 and 4.
If you plan to attend the meeting please indicate below:
I plan to attend the meeting [ ]
Dated:............................, 1997
........................................
........................................
(Signature(s))
Please sign exactly as name(s) appear
hereon. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
Please date, sign and mail this proxy in
the enclosed envelope, which requires no
postage if mailed in the United States.