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
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Part I
Financial Information
Porta Systems Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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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.
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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.
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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
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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
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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.
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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
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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.
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<PAGE>
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
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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.
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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
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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
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No reports on Form 8-K were filed during the quarter to which this
report relates.
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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
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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
<PAGE>
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
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,048
<SECURITIES> 0
<RECEIVABLES> 16,280
<ALLOWANCES> 630
<INVENTORY> 20,471
<CURRENT-ASSETS> 40,592
<PP&E> 32,528
<DEPRECIATION> 21,792
<TOTAL-ASSETS> 88,447
<CURRENT-LIABILITIES> 26,379
<BONDS> 61,175
<COMMON> 75
0
0
<OTHER-SE> 6,355
<TOTAL-LIABILITY-AND-EQUITY> 88,447
<SALES> 15,943
<TOTAL-REVENUES> 15,943
<CGS> 10,442
<TOTAL-COSTS> 10,442
<OTHER-EXPENSES> 700
<LOSS-PROVISION> 45
<INTEREST-EXPENSE> 1,926
<INCOME-PRETAX> (439)
<INCOME-TAX> 10
<INCOME-CONTINUING> (3,731)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,871
<CHANGES> 0
<NET-INCOME> (1,860)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
