-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Jr1crg+wSCOddgwJU3JsBs8ZdJ8nPMtr73NoG9VpfUmp2Ocj6FV99jnOjyW61Isx dmN7iB7p23EMjQZzn/t+mQ== 0000891092-95-000058.txt : 19950516 0000891092-95-000058.hdr.sgml : 19950516 ACCESSION NUMBER: 0000891092-95-000058 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PORTA SYSTEMS CORP CENTRAL INDEX KEY: 0000079564 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 112203988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08191 FILM NUMBER: 95539194 BUSINESS ADDRESS: STREET 1: 575 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 BUSINESS PHONE: 5163649300 MAIL ADDRESS: STREET 1: 575 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 10-Q 1 FORM 10-Q FOR PERIOD ENDING MARCH 31, 1995 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from..................to..................... Commission file number 1-8191 PORTA SYSTEMS CORP. (Exact name of registrant as specified in its charter) Delaware 11-2203988 (State or other jurisdiction of (I.R.S. Employer incoporation or organization) Identification No.) 575 Underhill Boulevard, Syosset, New York (Address of principal executive offices) 11791 (Zip Code) 516-364-9300 (Registrant's telephone number, including area code) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 7,307,106 shares as of May 10, 1995 Page 1 of 35 pages Index on page 13 Part I Financial Information Porta Systems Corp. and Subsidiaries Condensed Consolidated Balance Sheets (Dollars in thousands)
March 31, December 31, 1995 1994 (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Assets Current assets: Cash $ 2,048 $ 2,332 Accounts receivable - trade, net 16,280 13,964 Inventories 20,471 20,146 Prepaid expenses 1,793 1,020 -------- -------- Total current assets 40,592 37,462 -------- -------- Property, plant and equipment, at cost 32,528 32,187 Less accumulated depreciation and amortization (21,792) (21,048) -------- -------- Total 10,736 11,139 -------- -------- Other assets: Amounts receivable from sale of discontinued operations 4,500 4,500 Deferred computer software 5,923 6,257 Goodwill -- net of accumulated amortization 18,968 19,032 Other assets 7,728 6,573 -------- -------- 37,119 36,362 -------- -------- Total assets $ 88,447 $ 84,963 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Notes payable 1,689 1,253 Current maturities of long-term debt 150 152 Accounts payable 10,319 9,690 Accrued expenses 13,836 12,168 Income taxes payable 385 478 -------- -------- Total current liabilities 26,379 23,741 -------- -------- Long-term liabilities: 6% Convertible subordinated debentures due July 1, 2002 31,743 35,073 Long-term debt, net of current maturities 26,550 21,000 Other long-term liabilities 2,882 2,967 Minority interest 602 657 -------- -------- Total long-term liabilities $ 61,777 $ 59,697 -------- -------- Stockholders' equity: Preferred stock, no par value; authorized 1,000,000 shares of which 100,000 shares are designated as Series A; none issued -- -- Common stock, par value $.01; authorized 20,000,000 shares, issued 7,307,106 shares in 1995 and 7,082,889 in 1994 75 75 Additional paid-in capital 33,248 32,888 Foreign currency translation adjustment (3,765) (4,031) Accumulated deficit (26,893) (25,033) -------- -------- 2,665 3,899 Less shares held in treasury, at cost, 154,700 shares in 1995 and 1994 (1,938) (1,938) Receivable for employee stock purchases (436) (436) -------- -------- Total stockholders' deficit 291 1,525 -------- -------- Total liabilities and stockholders' equity $ 88,447 $ 84,963 ======== ========
See accompanying notes to condensed consolidated financial statements. -2- Porta Systems Corp. and Subsidiaries Condensed Consolidated Statements of Operations (Dollars in thousands except per share data) (Unaudited) Three Months Ended March 31, March 31, 1995 1994 - -------------------------------------------------------------------------------- Sales $15,943 $18,334 Cost of sales 11,142 11,576 ------ ------ Gross profit 4,801 6,758 Selling, general and administrative expenses 5,015 4,691 Research and development expenses 1,273 988 ------ ------ Total expenses 6,288 5,679 ------ ------ Operating income (loss) (1,487) 1,079 Interest expense (1,926) (1,162) Interest income 22 58 Other (385) 29 ------ ------ Income (loss) from continuing operations before income taxes and minority interest (3,776) 4 Income tax benefit (expense) (10) (20) Minority interest 55 (174) ------ ------ Net loss before extraordinary item (3,731) (190) ====== ====== Extraordinary Item: Gain on early extinguishment of debt 1,871 -- ------ ------ Net loss $(1,860) $ (190) ====== ====== Net loss per share: Loss before extraordinary item $ (0.52) $ (0.03) Extraordinary item $ 0.26 ------ ------ Net loss per share $ (0.26) $ (0.03) ====== ====== Weighted average shares outstanding (in thousands) 7,152 6,927 ====== ====== See accompanying notes to condensed consolidated financial statements. -3- Porta Systems Corp. and Subsidiaries Consolidated Statement of Cash Flows (Dollars in thousands) (Unaudited) Three Months Ended March 31, March 31, 1995 1994 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net loss $(1,860) $ (190) Adjustments to reconcile net loss to net cash used in operating activities: Gain on early extinguishment of debt (1,871) Depreciation and amortization 1,339 1,022 Accretion of convertible subordinated debentures 110 110 Minority interest (55) 192 ------ ------ Total (2,337) 1,134 Changes in assets and liabilities: Accounts receivable (2,316) (426) Inventories (325) (112) Prepaid expenses (773) (529) Deferred computer software (197) (480) Intangible and other assets (12) (191) Accounts payable 629 1,749 Accrued expenses 1,816 191 Other liabilities (178) (360) ------ ------ Net cash provided by (used in) operating activities (3,693) 976 ------ ------ Cash flows from investing activities: Capital additions, net of minor disposals (341) (425) ------ ------ Net cash used in investing activities (341) (425) ------ ------ Cash flows from financing activities: Proceeds from additional long-term debt 5,550 -- Repayments of long-term debt (2,502) 500 Proceeds from issuance of common stock 0 8 Repayments of notes payable/short term loans 436 464 ------ ------ Net cash provided by financing activities 3,484 972 ------ ------ Effect of exchange rates on cash 266 (378) Increase(decrease) in cash and cash equivalents (284) 1,145 Cash and equivalents -- beginning of year 2,332 1,727 ------ ------ Cash and equivalents -- end of period $ 2,048 $ 2,872 ======= ======= Supplemental cash flow disclosure: Cash paid for interest expense $ 663 $ 489 ======= ======= Cash paid for income taxes $ 22 $ 34 ======= ======= See accompanying notes to condensed consolidated financial statements. -4- PORTA SYSTEMS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1: Management's Responsibility For Interim Financial Statements Including All Adjustments Necessary For Fair Presentation Management acknowledges its responsibility for the preparation of the accompanying interim consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of the results for the interim period presented. Results for the first three months of 1995 are not necessarily indicative of results for the year. Note 2: Discontinued Operations In January 1991, the Company purchased all of the outstanding stock of North Hills Electronics, Inc. ("North Hills") in a statutory merger. While owned by the Company, North Hills was primarily engaged in the manufacture of data communications connecting equipment. As part of its on-going program of re-focusing on its core businesses, the Company agreed on March 19, 1993 to sell the NetCom business conducted through its North Hills Electronics, Inc. and North Hills Israel Ltd. subsidiaries and closed such sale on May 11, 1993. The agreement of sale provided for the Company to receive consideration of $9,300,000 (of which $3,000,000 was paid in the form of promissory notes) subject to adjustments the Company disclosed could be material. Such adjustments were to be based on the completion of certain audits of the businesses sold, which have not been completed, and certain other factors. In an effort to resolve all issues relating to the sale, the parties have held discussions, and, based on such discussions to date, the Company expects adjustments of approximately $2,000,000 although there can be no assurance that adjustments greater than now anticipated will not ultimately result. Accordingly, an additional provision of $2,052,000 was made in 1993. However, because the purchaser's indirect parent, which is the maker of the promissory notes and the guarantor of the obligations of the purchaser under the agreement of sale, has entered into receivership proceedings in Israel and the $1,200,000 note due November 11, 1994 was not paid on that date, the Company has not been able to arrive at a resolution of issues relating to the sale. While the Company has conducted discussions with the temporary and permanent receivers of the purchaser's indirect parent in Israel with a view to resolving all issues, including the establishment of adjustments under the agreement of sale and the Company's receipt of amounts due to it, it is not possible for the Company to estimate at this time the length of any delay or the extent to which the realization of additional amounts due the Company will be diminished. There can be no assurance that adjustments under the -5- agreement substantially greater than now anticipated will not ultimately result. The Company intends to exercise all rights available to it with respect to realizing amounts owed to it under the agreement of sale. To date, the Company has received approximately $3,750,000 in cash or cash equivalents as a result of this disposition. Note 3: Inventories Inventories at March 31, 1995 have been computed using a standard cost system. Inventories at December 31, 1994 resulted from a physical inventory conducted on that date. The composition of inventories at the end of the respective periods is as follows: March 31, 1995 December 31, 1994 -------------- ----------------- (in thousands) Parts and Components $14,294 $11,838 Work in Process 1,822 1,854 Finished Goods 4,355 6,454 ------- ------- $20,471 $20,146 ------- ------- Note 4: Long Term Contracts Accounts receivable include approximately $1,448,868 at March 31, 1995 in excess costs and related profits over amounts billed relating to long-term contracts under which the Company provides specialized products to major international customers. Substantially all such amounts will be billed during the remainder of 1995. Note 5: Long-Term Debt At March 31, 1995, the Company's long-term debt primarily consisted of senior debt under its new credit facility in the amount of $26,550,000. On November 28, 1994, and as amended on February 13, 1995, the Company consummated a financing arrangement with a senior lender whereby the senior lender will provide the Company advances under a revolving line of credit up to the lesser of $10 million or a borrowing base equal to 80% of eligible accounts receivable and 50% of eligible inventory, less the amount of letters of credit and letter of credit guarantees outstanding, and a $13,502,188 term loan. If the Company sells its Glen Cove real property, the first $1 million of proceeds must be used to reduce the term loan. In addition, on February 13, 1995 the senior lender provided the Company with an advance under the net worth enhancement (NWE) line of credit of $3 million. The senior lender agreed to issue standby letters of credit or guarantees of payment in an amount not to exceed the lesser of $8 million or the borrowing base less the amount outstanding on the revolving line of credit. If the senior lender must make an advance under a letter of credit or letter of credit guarantee, such amount will be deemed outstanding under the revolving line of credit. The credit facility is secured by substantially all of the -6- Company's assets and has a term of two years with no interim principal repayments and may be extended for a third year at the Company's option by paying the senior lender an extention fee of 2% of the then outstanding term loan balance plus the maximum amounts of the revolving and NWE lines. All obligations except undrawn letters of credit, letter of credit guarantees and the deferred fee notes will bear interest at 12%, except that to the extent the agreement is extended for the third year, interest will then be at the higher of 12% or the reference rate (highest prime rate of specific banks) plus 4%. The Company will incur a fee of 2% on the average balance of undrawn letters of credit and letter of credit guarantees outstanding. Note 6: Legal Matters Since April 1, 1993, plaintiffs have filed seven complaints alleging class actions in the U.S. District Court for the Eastern District of New York against the Company and several of its directors who are also officers of the Company alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The plaintiffs seek, among other things, unspecified money damages. The Company intends to vigorously defend these suits; however management cannot presently determine what, if any, damages may be sustained as a result of these actions. No reserves for any such losses have been recorded. -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company's consolidated statements of operations for the periods indicated below, shown as a percentage of sales, are as follows: Three Months Ended March 31, ------------------ 1995 1994 ---- ---- Sales 100% 100% Cost of sales 69% 63% Gross profit 31% 37% Selling, general and administrative expenses 32% 26% Research and development expenses 8% 5% Operating income (loss) (9%) 6% Interest expense -- net (12%) (6%) Other (2%) - Income tax benefit (expense) - - Minority interest - (1%) Extraordinary item 11% - Net loss (12%) (1%) ----- ---- The Company's sales from continuing operations by product line for the periods ended March 31, 1995 and 1994 are as follows: Three Months Ended March 31, -------------------- 1995 1994 ---- ---- Line connection/protection equipment $ 9,017 57% $11,252 62% OSS equipment $ 5,473 34% $ 4,619 25% Other $ 1,453 9% $ 2,463 13% ------- --- ------- --- $15,943 100% $18,334 100% Financial Condition The Company's previous credit agreement with its banks, which was in place until November 28, 1995, provided for periodic mandatory and permanent reductions in borrowing availability throughout its duration. These reductions in borrowing availability during 1994 caused a need for additional working capital and resulted in a number of operational problems, including parts shortages and shipment delays, which continued -8- during the first quarter of 1995. Although the Company began a restructuring of certain of its operational activities during the first quarter of 1995 designed to result in significant improvements in operational efficiency, the anticipated effects of this restructuring are not expected to be fully reflected in the Company's results of operations until subsequent quarters, although such effects did have a partial impact on the results of operations for the three months ended March 31, 1995. The Company replaced its credit agreement with its banks by agreeing as of November 28, 1994 with a new institutional lender to provide a two year (with an additional third year at the option of the Company) credit facility (the "New Credit Agreement") which provides for no interim principal repayments and for borrowings bearing interest at 12% per annum as well as the payment of certain additional fees over the term of the New Credit Agreement. As originally executed, the New Credit Agreement provided for a $11,000,000 term loan, a revolving credit facility of up to $10,000,000 (subject to the application of a defined borrowing base dependent upon the level of certain of the Company's receivables and inventory from time to time) and an additional $10,000,000 of availability for letters of credit and certain other uses, and is secured by substantially all of the Company's assets. The various fees the Company has paid or agreed to pay in connection with its securing of the New Credit Agreement have adversely and materially impacted its results of operations during the quarter ended March 31, 1995 and will continue to do so for the remainder of 1995. In addition, such fees will have an impact on the Company's liquidity during the latter portion of 1995. The Company and its new senior lender agreed to modify the New Credit Agreement as of February 13, 1995 to provide for $3,000,000 additional borrowing availability (which the Company drew on to meet its immediate working capital needs). In connection with this modification, the Company and its new senior lender agreed to apply the existing borrowing base under the New Credit Agreement against all outstanding amounts up to the $10,000,000 limit of the revolving credit facility and outstanding letters of credit (which, as revised, may not aggregate more than $8,000,000 at any one time), and to provide for a $13,500,000 term loan. In connection with such modification, the Company repurchased from its lender and retired $3,900,000 principal amount of its 6% Subordinated Debentures for approximately $2,500,000, including interest, which cash amount was paid by an increase in the term loan, and the Company agreed to reprice the per share exercise price of warrants to purchase shares of the Company's Common Stock granted to the new senior lender to $3.58 per share. At March 31, 1995, the Company was in compliance with the financial covenants contained in its New Credit Agreement. -9- At March 31, 1995 and May 10, 1995, the Company had borrowed $26,500,000 under its New Credit Agreement and had no additional borrowing availability under such agreement. At present, while the Company has outstanding and presently collectable accounts receivable which should permit it to service its indebtedness and meet its operating requirements in the short term, its ability to service such indebtedness and meet operating requirements depends on its generating cash through internal means, including the collection of such accounts receivable in a timely fashion. The Company believes that, with stringent management of its accounts payable and with timely collection of its accounts receivable, it should generate sufficient cash during the second quarter to permit the Company to service interest payments in connection with its New Credit Agreement. However, the Company presently believes that it will have to rely on the grace period for payment of interest due under its 6% Convertible Subordinated Debentures in order to generate sufficient funds to service such interest payment. In addition, it is likely that, in order to obtain the cash necessary to service interest payments due under both the New Credit Agreement and the Debentures, the Company may therefore be forced to aggressively manage its other expense commitments and may experience further liquidity problems which may adversely impact operating results for the second and the third quarters of 1995. If it should find itself unable to meet such requirements or service its indebtedness, the Company could seek to raise needed funds through additional financing or, if such financing is unavailable on favorable terms, through the sale of one or more of its lines of business or subsidiaries, or seek to find a business combination partner or the sale of the entire Company. Results of Operations The Company's sales for the three months ended March 31, 1995 decreased from the same period of the prior year by 13% as the Company experienced continuing cash constraints which adversely affected the Company's operations. Sales of fiber products fell substantially, primarily due to the effects of the Company's liquidity problems. Sales of copper based connection/protection products in general in the three months ended March 31, 1995 were lower than the same period in 1994, as a result of decreased purchases by British Telecommunications plc because of timing decisions by BT with regard to such purchases. Also, no sales to Telefonos de Mexico were recorded in the three months ended March 31, 1995 due to the Mexican financial crisis which began in December 1994. U.S. sales of copper based connection/protection products remained generally the same. Sales of OSS equipment during the three months ended March 31, 1995 increased compared to the same period of 1994 due to the Company's level of performance under OSS contracts generally during this period. Sales of other products decreased due primarily to decreased third party sales of plastic molded -10- product in the three months ended March 31, 1995 partially offset by certain price increases. The dollar amount of cost of sales for the three months ended March 31, 1995 remained almost the same compared to the three months ended March 31, 1994, while sales decreased 13%. Cost of sales as a percentage of sales for the three months ended March 31, 1995 compared to the same period of 1994 increased due to the effects of the previously discussed cash constraints having the effect of limiting operating performance. The increase in cost of sales as a percentage of sales was also affected by the negative impact of lower volumes in the three months ended March 31, 1995 compared to 1994. The dollar amount of selling, general and administrative expenses increased significantly, and selling, general and administrative expenses as a percentage of sales also increased significantly during the three months ended March 31, 1995 compared to the prior year due in large part to the effects of severance costs associated with the Company's restructuring actions taken in the three months ended March 31, 1995, partially offset by a reduction in commission expense associated with the lower volume of sales. Research and development expenses for the three months ended March 31, 1995 increased significantly, both as a dollar amount and as a percentage of sales, from the prior year period because of a concentration of efforts in areas which resulted in expenses that did not qualify for capitalization under FASB No. 86. Although overall research and development activity was comparable in the three months ended March 31, 1995 and 1994, net research and development expenses in the three months ended March 31, 1995 were higher. Interest expense was significantly higher for the period ended March 31, 1995 compared with the same period in 1994 as a result of substantially higher average interest rates including under the New Credit Agreement and substantially higher amounts of borrowings outstanding. Other expense includes costs associated with the modification of the Company's New Credit Agreement during the three months ended March 31, 1995 described under "Financial Condition" above which were not present in the similar period of 1994. In the three month period ended March 31, 1995, the Company's reported tax expense was generally the same as that in the similar period of the prior year and was comprised primarily of offshore tax expense as was the case in the prior period. -11- During the three months ended March 31, 1995, the Company recorded a benefit of $55,000 representing the minority interest in the losses of its Korean subsidiary during this period compared to a charge to income of $174,000 recorded during the same period of the prior year due to profits incurred by its Korean subsidiary during the three months ended March 31, 1994. In conjunction with the modification of the Company's New Credit Agreement on February 13, 1995 and as discussed above under "Financial Condition", the Company repurchased from its senior lender and retired $3,900,000 principal amount of its 6% Convertible Subordinated Debentures for approximately $2,500,000 through an increase in the term loan under the New Credit Agreement and the repricing of certain warrants granted to the senior lender. The Company included as an extraordinary item a gain of $1,871,000 on the early extinguishment of this debt, representing the difference between the principal amount of the debt retired less the related amount of the unamortized original issue discount and the approximate market value of the debt on the date of the transaction. PART II Item 1. Legal Proceedings. As previously disclosed, seven complaints alleging class actions pending in the U.S. District Court for the Eastern District of New York were consolidated, and styled "In re Porta Systems Securities Litigation." On or about September 9, 1993, plaintiffs in those cases filed a consolidated amended and supplemental complaint naming as defendants the Company and certain of its present or former officers and directors. On or about November 11, 1994, plaintiffs in those cases filed a revised third consolidated amended and supplemental class action complaint (the "amended complaint"). The amended complaint alleges violations of the anti-fraud provisions of Sections 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder and Section 20(a) of the Exchange Act based on the Company's April 1, 1993 announcement that certain revenue attributable to a sale of a line test system previously recorded during 1992 was being reversed during the fourth quarter and that the Company would suffer a loss for the year ended December 31, 1992. The amended complaint also alleges that certain other public statements made by the Company during 1992 were false, including statements relating to anticipated sales and the divestiture of its North Hills Israel, Ltd. subsidiary and the NetCom business of its North Hills Electronics, Inc. subsidiary. The amended complaint alleges that the Company and certain of the other named defendants knew or should have known that statements contained in various of the Company's public filings and press releases -12- misrepresented material facts concerning the Company and its financial prospects, resulting in the Company's reported revenues and profits for the second and third quarters of 1992 being misstated, and the market price of the Company's Common Stock being artificially inflated during the purported class period. The plaintiffs seek, among other things, unspecified money damages. The Company moved under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the complaint. Following the Court's denial of that motion by order entered October 13, 1994, on or about November 11, 1994, defendants filed an answer to the amended complaint, denying the material factual allegations of the amended complaint and asserting affirmative defenses to the alleged claims. Discovery is in progress. The Company intends to continue to defend this action. As previously disclosed, on or about April 23, 1993, a complaint alleging a class action entitled Klein v. Porta Systems Corporation et al. was filed in Delaware Chancery Court naming as defendants the Company and certain of its current and former officers and directors, and alleging certain violations of Delaware law, including breach of fiduciary duty, fraudulent misrepresentation, concealment, and nondisclosure. An amended complaint was filed on or about October 4, 1993. The amended complaint alleged substantially the same facts as those alleged in the New York action, and the claims were likewise based on allegations concerning the Company's April 1, 1993 announcement and certain other allegedly false and misleading public statements made by the Company during 1992. The plaintiff sought, among other things, unspecified money damages on behalf of the alleged class of shareholders. Prior to filing an answer in which the material factual allegations of the amended complaint would have been denied, the Company and other defendants moved to dismiss or stay the action in view of the prior pending litigation in New York. In a decision dated April 21, 1994, the Court granted the motion to stay the Delaware action pending the outcome of the earlier filed New York litigation. Subsequently, by stipulation so-ordered by the Court on April 22, 1994, the Delaware action was dismissed without prejudice. The plaintiff (and his counsel) have since joined the action pending in New York. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Sequential Page No. ------------------- 3.1 By-Laws of the Company, as amended to date 16 27 Financial Data Schedule 35 (b) Reports on Form 8-K -13- No reports on Form 8-K were filed during the quarter to which this report relates. -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PORTA SYSTEMS CORP. Date: May 12, 1995 By /s/Vincent F. Santulli ---------------------- Vincent F. Santulli Chairman of the Board Chief Executive Officer Date: May 12, 1995 By /s/Michael A. Tancredi ---------------------- Michael A. Tancredi Vice President-Finance and Treasurer -15- EX-3 2 EXHIBIT 3.1 Exhibit 3.1 As amended through April 24, 1995 BY-LAWS OF PORTA SYSTEMS CORP. ARTICLE I Offices Section 1. The registered office shall be in Wilmington, Delaware. Section 2. The Corporation may have offices also at other such places within and without the State of Delaware as the board of directors may from time to time determine or as the business of the Corporation may required. ARTICLE II Meeting of Stockholders Section 1. Meetings of stockholders shall be held at such place, within or without the State of Delaware, as shall be designated from time to time by the board of directors. Section 2. Annual meetings of stockholders shall, unless otherwise provided by the board of directors, be held on the fourth Thursday in May each year it not a legal holiday, and if a legal holiday, then on the next full business day following at 3:00 P.M. at which time they shall elect a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour thereof, shall be given to each stockholder entitled to vote thereat not less than ten or more than sixty days before the date of the meeting. Section 4. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty or less than ten days before the date of such meeting, and not more than sixty days prior to any other action. A determination of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 5. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order with the address of the number of voting shares registered in the name of each. Such list shall open for ten days to the examination of any stockholder, for any purpose 2 germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, or which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, and shall be produced and kept at the same time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 6. Special meeting of stockholders may be called by the board of directors, by the chairman of the board or by the stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such notice shall state the purpose or purposes of the proposed meeting. Section 7. Written notice of a special meeting of stockholders, stating the place, date, hour and purpose thereof, shall be given by the secretary to each stockholder entitled to vote thereat not less than ten or more than sixty days before the date fixed for the meeting. Section 8. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 9. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of stockholders, the stockholders 3 entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time without notice other than announcement at the meeting if the adjournment is not more than thirty days and a new record date is not fixed for the adjourned meeting, until a quorum shall be present or represented. If a quorum shall be present or represented at such adjourned meeting any business may be transacted which might have been transacted at the original meeting. Section 10. When a quorum is present at any meeting, the affirmative vote of a majority of the votes cast shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 11. Each stockholder shall at every meeting of stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Two inspectors of election may be appointed by the board of directors, or if not so appointed, then by the presiding office of the meeting. If inspectors of election are appointed, all questions regarding the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by such inspectors of election. Section 12. Whenever the vote of the stockholders at 4 a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provisions of the statutes, the meeting and vote of stockholders may be dispensed with if all of the stockholders who would have been entitled to vote, or less than all but not less than the holders of a majority of the stock entitled to vote, upon the action if such meeting were held shall consent in writing to such corporate action being taken; provided that the written consent shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. ARTICLE III Directors Section 1. The number of directors which shall constitute the whole board shall be seven. By amendment of this by-law the number may be increased or decreased from time to time by the board of directors or the stockholders within the limits permitted by law, but no decrease in the number of directors shall change the term of any director in office at the time thereof. The directors shall be elected at the annual meeting of stockholders, except as provided in Section 2 of this article, and each director shall hold office until his successor 5 is elected and qualified or until his earlier resignation or removal. Any director may resign at any time upon written notice to the Corporation. Any director may be removed either with or without cause, at any time by the affirmative vote of the majority in interest of the holders of record of the stock having voting power, and the vacancy in the board of directors caused by such removal may be filled by the stockholders at the time of such removal. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, and each of the directors so chosen shall hold office until the next annual election and until his successor is elected and qualified or until his earlier resignation or removal. Section 3. The business and affairs of the Corporation shall be managed by or under the direction of its board of directors which shall exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. Section 4. The first meeting of each newly elected board of directors shall be held immediately following the adjournment of the annual meeting of stockholders and at the place thereof. No notice of such meeting shall be necessary to the directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting 6 is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors. Section 5. The board of directors of the Corporation or any committee thereof may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors. Special meetings of the board of directors may be called by the chairman of the board, the president or by two or more directors. Meetings of committees of the board of directors may be called by the chairman of the board of directors, by the president or by the chairman of each committee. Notice of special meetings of the board of directors or of any committee shall be given by the secretary or the assistant secretary to each director at least three days before the meeting if by mail or at least 24 hours before the meeting if given in person or by telephone, by telegraph or by facsimile transmission. The notice need not specify the business to be transacted. Section 6. At meetings of the board of directors, three of the directors at the time in office but in no event less than one third of the full number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting 7 from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 7. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees of the board of directors, each committee to consist of one or more of the directors of the Corporation, which, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the Corporation, including the power and authority to declare a dividend and to authorize the issuance of stock, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority to amend the certificate of incorporation, adopt an agreement of merger or consolidation, recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amend the by-laws of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Unless the board of directors designates one or more directors as alternate members of any committee, who may replace an absent or disqualified member at any meeting of the committee, the members of any such committee present at any meeting and not disqualified from voting may, whether or not they constitute a quorum, unanimously appoint another member of the board of directors to act at the meeting in the place of any absent or 8 disqualified member of such committee. At meetings of any such committee, a majority of the members or alternate members of such committee shall constitute a quorum for the transaction of business and the act of a majority of the members or alternate members present at any meeting at which there is a quorum shall be the act of the committee. Section 8. The committee shall keep regular minutes of their proceedings. Section 9. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the board or of such committee, as the case may be, and such written consent is filed with the minutes of proceeding of the board or committee. Section 10. The members of the board of directors or any committee thereof may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 11. The directors may be paid their expenses of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors and a stated fee as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like reimbursement 9 and compensation for attending committee meetings. Section 12. The board of directors may, in its discretion, appoint any person or persons to the position of advisory director for a one year term. An advisory director may be appointed or reappointed annually at the annual meeting or from time to time, but the occurrence of any event which in the case of a director would create a vacancy in the board of directors shall not be deemed to create a vacancy in the position of an advisory director. Each advisory director shall serve in an advisory capacity to the board of directors or any of its committees, and will be notified of each meeting of the board of directors and any of its committee meetings, and will have the privilege of attending meetings of the board of directors or any of its committees. No advisory director shall be entitled to vote on any business coming before the board of directors or any of its commitees, nor shall any advisory director be counted as a member of the board of directors or any of its committees in determining the number necessary to constitute a quorum on for the purpose of determining whether a quorum is present or for any other purpose whatsoever. Each advisory director, if not otherwise an employee of the Corporation, shall be entitled to receive such amounts as may be fixed from time to time by the board of directors as the advisory director's compensation for attending meetings and shall be reimbursed for all reasonable expenses in attending and returning from meetings of the board of directors or any of its committees. 10 ARTICLE IV Notices Section 1. Notices to directors and stockholders mailed to them at their addresses appearing on the books of the Corporation shall be deemed to be given at the time when deposited in the United States mail. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V Officers Section 1. The officers of the Corporation shall be chosen by the board of directors at its first meeting after each annual meeting of stockholders and shall consist of a Chairman of the Board of Directors and a president, each of whom shall be selected from among the directors, one or more vice presidents, a secretary and a treasurer. The board of directors may choose 11 also such additional officers or assistant officers as it may deem advisable. Any number of officers may be held by the same person. Section 2. The board of directors may appoint such other officers and agents as it desires who shall hold their officers for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 3. The officers of the Corporation shall hold office at the pleasure of the board of directors. Each officer shall hold his office until his successor is elected and qualified or until his earlier resigantion or removal. Any officer may resign at any time upon written notice to the Corporation. Any officer elected or appointed by the board of directors may be removed at any time by the board of directors. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise shall be filled by the board of directors. Section 4. The chairman of the board of directors shall preside at all meetings of the board of directors and shall perform such other duties as from time to time may be assigned to the chairman by the board of directors or the executive committee if there be one. Section 5. The board of directors may designate one or more vice chairman. The vice chairman or vice chairmen shall have and perform such duties as from time to time may be assigned to the vice chairman by the board of directors, the executive committee if there be one or the chairman of the board 12 of directors. Section 6. The chief executive officer shall be the general and active manager of the business of the Corporation under the supervision of the board of directors or the executive committee if there be one and shall have all authority and power so to act. He may delegate such authority and power to other officers of the Corporation to the extent he deems appropriate from time to time. He shall have the general power to execute bonds, deeds and contracts in the name of the Corporation and to affix the seal or cause the seal to be affixed to all instruments requiring such except to the extent the signing and execution thereof shall be delegated by him or the board of directors or the executive committee if there be one to some other officer or agent of the Corporation. Section 7. In the absence or disability of the chairman of the board, the president shall preside at meetings of the board of directors. The president shall have general power to execute bonds, deeds and contracts in the name of the Corporation and to affix the corporate seal. The president shall perform such other duties as may be assigned to him from time to time and have such other powers as the board of directors or the executive committee if there be one may from time to time prescribe. Section 8. The vice presidents shall act under the direction of the chief executive officer or the president. They shall perform such duties and have such powers as the chief executive officer or the president or the board of directors or 13 the executive committee if there be one may from time to time prescribe. The board of directors or the executive committee if there be one may designate one or more executive vice presidents or may otherwise specify the order of seniority of the vice presidents. Section 9. The secretary shall act under the discretion of the president. Subject to the direction of the president, he shall attend all meetings of the board of directors and all meetings of stockholders and record the proceedings in a book to be kept for that purpose and shall perform like duties for the committees designated by the board of directors when required. He shall give, or cause to be given, notice of all meetings of stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the president or the board of directors. He shall keep in safe custody the seal of the Corporation and cause it to be affixed to any instrument requiring it. Section 10. The assistant secretaries in the order of their seniority, unless otherwise determined by the president or the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary. They shall perform such other duties and have other powers as the president or the board of directors may from time to time prescribe. Section 11. The treasurer shall act under the direction of the president. Subject to the direction of the president, he shall have the custody of the corporate funds and 14 securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of directors. He shall disburse the funds of the Corporation as may be ordered by the president or the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation. Section 12. The assistant treasurers in the order of their seniority, unless otherwise determined by the president or the board of directors, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer. They shall perform such other duties and have such other powers as the president or the board of directors may from time to time prescribe. Section 13. The controller shall act under the direction of the president. Subject to the direction of the president, he shall be in charge of the accounts of the Corporation. The controller shall perform such other duties and have such other powers as the president or the board of directors may from time to time prescribe. 15 ARTICLE VI Certificates of Stock Section 1. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the chairman of the board or the president or a vice president and the treasurer or an assistant treasurer or the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 2. Any of or all the signatures on a certificate may be facsimile. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall cease to be such officer before such certificate is issued, it may be issued with the same effect as if he were such officer at the date of issue. The seal of the Corporation or a facsimile thereof may, but need not, be affixed to certificates of stock. Section 3. The board of directors may direct a few certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of any affidavit of that fact by the person claiming the certificate or certificates to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of of directors may, in its discretion and as a condition precedent to the issuance thereof, require the 16 owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate or certificates alleged to have been lost, stolen or destroyed. Section 4. Upon surrender to the Corporation or a transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation, if it is satisfied that all provisions of the certificate of incorporation, of the by-laws and of the law regarding the transfer of shares have been duly complied with, to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5. The Corporation shall be entitled to recognize the person registered on its books as the owner of shares to be the exclusive owner for all purposes including voting and dividends, and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 17 ARTICLE VII Miscellaneous Section 1. There may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for the purpose of additional property, or for such other purpose as the director shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve. Section 2. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. Section 3. The fiscal year of the Corporation shall be fixed by resolution of the board of directors. Section 4. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 18 ARTICLE VIII Amendments Section 1. The by-laws may be amended by the stockholders at any annual or special meeting of stockholders, provided notice of intention to amend shall have been contained in the notice of the meeting. Section 2. The board of directors by a majority vote of the whole board at any meeting may amend these by-laws, including by-laws adopted by the stockholders, provided the stockholders may from time to time specify particular provisions of the by-laws which shall not be amended by the board of directors. 19 EX-27 3 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1995 MAR-31-1995 2,048 0 16,280 630 20,471 40,592 32,528 21,792 88,447 26,379 61,175 75 0 0 6,355 88,447 15,943 15,943 10,442 10,442 700 45 1,926 (439) 10 (3,731) 0 1,871 0 (1,860) (.26) (.26)
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