SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1996
Commission file number 1-8048
TII INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
State of incorporation: Delaware IRS Employer Identification No: 66-0328885
1385 Akron Street, Copiague, New York 11726
(Address and zip code of principal executive office)
(516) 789-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 [_]
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of November 1, 1996 was 7,430,337.
<PAGE>
TII INDUSTRIES, INC.
FORM 10-Q QUARTERLY REPORT
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1996
TABLE OF CONTENTS
Page
----
PART I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets at September 27, 1996 (unaudited)
and June 28, 1996 3
Consolidated statements of operations for the three months
ended September 27, 1996 and September 29, 1995 (unaudited) 4
Consolidated Statement of Shareholders' Equity for the three
months ended September 27, 1996 (unaudited) 5
Consolidated statements of cash flows for the three months
ended September 27, 1996 and September 29, 1995 (unaudited) 6
Notes to consolidated financial statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II. Other Information
SIGNATURE 9
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TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 27, June 28,
1996 1996
-------- --------
ASSETS (unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 883 $ 2,883
Marketable securities available for sale 7,300 5,999
Receivables 8,088 7,084
Inventories 15,723 14,032
Prepaid expenses 422 388
-------- --------
Total current assets $ 32,416 $ 30,386
-------- --------
Fixed Assets
Property, plant and equipment 34,023 33,018
Less: Accumulated depreciation and amortization (22,308) (22,029)
-------- --------
Next fixed assets 11,715 10,989
-------- --------
Other Assets 1,423 1,448
-------- --------
TOTAL ASSETS $ 45,554 $ 42,823
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt and obligation under capital leases $ 376 $ 363
Accounts payable 6,263 5,185
Accrued liabilities 2,007 1,037
-------- --------
Total current liabilities 8,646 6,585
-------- --------
Long-Term Debt 906 853
Long-Term Obligation Under Capital Leases 1,395 1,523
-------- --------
Commitments and Contingencies (see notes)
Shareholders' Equity
Preferred Stock, par value $1.00 per share; 1,000,000 authorized and
issuable in series -- --
Common Stock, par value $.01 per share; 30,000,000 shares authorized
(with one vote per share); 7,447,974 and 7,446,975 shares issued at
Sept. 27, 1996 and June 28, 1996, respectively 75 75
Class B Stock, par value $.01 per share; 10,000,000 shares authorized
(with each share having ten votes and convertible into one share of Common
Stock); no shares outstanding at September 27, 1996 and
June 28, 1996 -- --
Class C Stock, par value $.01 per share; 100,000 shares authorized
(non-voting); no shares issued -- --
Warrants outstanding 159 120
Capital in excess of par value 29,051 29,046
Retained earnings 5,607 4,855
Unrealized gain on marketable securities (4) 47
-------- --------
Less - Treasury stock, at cost; 17,637 common shares 34,888 34,143
Total shareholders' equity (281) (281)
-------- --------
34,607 33,862
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 44,554 $ 42,823
======== ========
</TABLE>
See notes to consolidated financial statements
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TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (unaudited)
(Dollars in Thousands, except per share data)
1996 1995
-------- --------
Net sales $ 12,040 $ 9,600
Cost of sales 8,856 7,034
-------- --------
Gross profit 3,184 2,566
-------- --------
Operating expenses
Selling, general and administrative 1,634 1,493
Research and development 744 625
-------- --------
Total operating expenses 2,378 2,118
-------- --------
Operating income 806 448
Interest expense (120) (34)
Interest income 108 18
Other income 6 7
-------- --------
Income before provision for income taxes 800 439
Provision for income taxes 48 --
-------- --------
Net income $ 752 $ 439
======== ========
Net income per share - primary $ .10 $ .06
======== ========
Weighted average number of common and
common equivalent shares outstanding 7,808 7,914
======== ========
Net income per share - fully diluted $ .10 $ .06
======== ========
Weighted average number of common
and common equivalent shares outstanding 8,108 7,914
======== ========
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1996 (unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Valuation
Adjustment
to record
Marketable
Capital Securities
in excess available for
Common Warrants of par Retained sale at Treasury
Stock Outstanding value Earnings fair value Stock
------ ----------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 28, 1996 $ 75 $ 120 $29,046 $ 4,855 $ 47 $ 281
Exercise of stock options -- -- 5 -- -- --
Warrants issued for financial
advisory services -- 39 -- -- -- --
Unrealized loss on marketable securities
available for sale -- -- -- -- (51) --
Net income for the three months
ended September 27, 1996 -- -- -- 752 -- --
------- ------- ------- ------- ------- -------
BALANCE, September 27, 1996 $ 75 $ 159 $29,051 $ 5,607 $ (4) $ 281
======= ======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statement
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1996 AND
SEPTEMBER 29, 1995 (unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 752 $ 439
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 279 433
Provision for inventory obsolescence, net 100 100
Amortization of other assets, net 25 20
Changes in assets and liabilities
Increase (decrease) in receivables (1,004) 575
Increase in inventories (1,791) (1,995)
Increase in prepaid expenses and other current assets (34) (102)
Increase (decrease) in accounts payable and accrued liabilities 2,087 (604)
------- -------
Net cash provided by (used in) operating activities 414 (1,134)
------- -------
Cash Flows from Investing Activities:
Capital expenditures (1,005) (519)
Purchasers or marketable securities (2,436) --
Maturities of marketable securities 1,084 (52)
------- -------
Net cash used in investing activities (2,357) (571)
------- -------
Cash Flows from Financing Activities:
Proceeds from exercise of options and warrants 5 5,665
Payment of long-term debt and obligations under capital leases (62) (1,817)
Redemption of Preferred Stock -- (2,763)
------- -------
Net cash (used in) provided by financing activities (57) 1,085
------- -------
Net decrease in cash and cash equivalents (2,000) (620)
Cash and Cash Equivalents, at beginning of period 2,883 1,152
------- -------
Cash and Cash Equivalents, at end of period $ 883 $ 532
======= =======
Supplemental Disclosure of Non-cash Transactions:
Capital leases entered into $ 21 $ --
======= =======
Cash paid during the period for:
Income taxes $ 24 $ --
======= =======
Interest $ 60 $ 33
======= =======
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Interim financial statements
The unaudited interim financial statements presented herein have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Regulation S-X
pertaining to interim financial statements. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements reflect all
adjustments, consisting of normal recurring adjustments and accruals which, in
the opinion of management, are considered necessary for a fair presentation of
financial position at September 27, 1996 and results of operations for the three
months ended September 27, 1996 and September 29, 1995. The financial statements
should be read in conjunction with the summary of significant accounting
policies and notes to consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended June 28, 1996. The
results of operations for the three months ended September 27, 1996 are not
necessarily indicative of the results that may be expected for the full year
ending June 27, 1997.
Note 2 - Net profit per common share
Net profit per common and common equivalent share is calculated using the
weighted average number of common shares outstanding and the net additional
number of shares that would be issuable upon the exercise of dilutive stock
options and warrants assuming that the Company used the proceeds received to
purchase additional shares (up to 20% of shares outstanding) at market value,
retire debt and invest any remaining proceeds in U.S. government securities. The
effect on net profit of these assumed transactions is considered in the
computation.
Note 3 - Inventories
Inventories consisted of the following components:
September 27, June 28,
1996 1996
--------------- ----------------
(amounts in thousands)
Raw material $ 5,378 $ 4,939
Work in process 6,262 4,879
Finished goods 4,083 4,214
--------------- ---------------
$15,723 $14,032
=============== ===============
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
The following discussion and analysis should be read in conjunction with the
foregoing consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 1997 increased 25.4% over the year
earlier period to $12,040,000 from $9,600,000. The Company experienced growth in
sales in each of its station protector, network interface device and fiber optic
product lines as well as ANT related products.
Cost of sales as a percentage of revenues increased to 73.6% in the first
quarter of fiscal 1997 from 73.3% in the prior year's first quarter. This was
principally due to raw material, manufacturing and start up costs associated
with the increasing volume of new products manufactured, partially offset by
improved absorption of fixed manufacturing overhead costs from the increased
sales volume.
Selling, general and administrative expenses increased $141,000 or 9.4%
resulting primarily from increased administrative and selling expenses related
to the increased sales volume and the introduction of new products.
Research and development expenses increased by $119,000, or 19.0%, to $744,000
in the first quarter of fiscal 1997 from $625,000 in the first quarter of fiscal
1996. The increase was due to the Company's continuing development of new
products for the telecommunications industry.
Interest expense increased to $120,000 compared to $34,000 incurred in the prior
year's first quarter as the obligations under capitalized leases increased from
the prior year's quarter. Interest income increased by $90,000 over the prior
year's quarter due to additional funds invested, which arose primarily from the
exercise of options and warrants, as well as from funds generated from the
Company's operations.
The Company accrued a provision for certain state and local income taxes in the
first quarter of fiscal 1997. The first quarter of fiscal 1996 did not contain
such a provision, as the Company utilized net operating loss carry forwards to
shelter income from tax during the 1996 fiscal year.
As a result of the above, net profit of $752,000 or 6.2% of net sales, increased
71.3% from the prior year's first quarter net profit of $439,000 or 4.6% of net
sales.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of fiscal 1997, cash was provided principally by
the Company's net profit of $752,000, depreciation and amortization of $279,000;
and an increase in accounts payable and accrued liabilities of $2,087,000. These
sources and existing cash were used to finance the increase in inventories of
$1,791,000 to support the introduction of new products, capital expenditures of
$1,005,000, and an increase in receivables of $1,004,000.
Funds anticipated to be generated from operations, together with available cash,
marketable securities, and borrowings available under the Company's Revolving
Credit Agreement, are considered to be adequate to finance the Company's
operational and capital needs for the foreseeable future.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1* 1983 Employee Incentive Stock Option Plan of
the Company, as amended.
10.2* 1986 Stock Option Plan of the Company, as
amended.
10.3* 1995 Stock Option Plan of the Company, as
amended.
11. Statement Re: Computation of Per Share Earnings
27. EDGAR financial data schedule
* Compensatory Plans
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 27, 1996.
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.
TII INDUSTRIES, INC.
Date: November 8, 1996 /s/ Paul G. Sebetic
---------------------------
Paul G. Sebetic
Vice President-Finance & Chief
Financial Officer
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Tii industries, inc.
--------------------
1983 Employee Incentive Stock Option Plan
-----------------------------------------
(as amended effective August 15, 1996)
1. Purpose. The TII Industries, Inc. 1983 Employee Incentive Stock
Option Plan (the "Plan") is intended to provide a method whereby employees
(including officers and directors) of TII Industries, Inc. (the "Company") and
its subsidiaries who are making and are expected to continue making substantial
contributions to the successful management and growth of the Company and its
subsidiaries may be offered an opportunity to acquire common stock, $.01 par
value per share ("Common Stock"), of the Company in order to increase their
proprietary interests in the Company and their incentive to remain in and
advance in the employ of the Company and its subsidiaries. Accordingly, the
Company may, from time to time, grant to such employees as may be selected in
the manner hereinafter provided incentive stock options, as defined in Section
422 of the Internal Revenue Code of 1986, as amended, or any corresponding
provisions of any succeeding law ("Code"), to purchase Common Stock of the
Company ("Incentive Stock Options" or "Options") on the terms and conditions
hereinafter set forth.
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board of Directors") which, to the extent it
shall determine, may delegate its powers with respect to the administration of
the Plan to a committee (the "Committee") appointed by the Board of Directors,
the Committee to consist of two or more members of the Board of Directors, each
of whom is a "non-employee director" within the meaning of Rule 16b-3 of the
rules and regulations (as amended, "Rule 16b-3") promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Exchange
Act"). References in the Plan to determinations or actions by the Committee
shall be deemed to include determinations and actions by the Board of Directors.
Subject to the terms and conditions of the Plan, the Committee shall have
exclusive authority to select the employees to whom Options shall be granted, to
determine the number of shares of Common Stock to be covered by each Option, the
time at which each option shall be granted, the Option Exercise Price (as
hereinafter defined), the term during which options may be exercised and the
form of option agreement under the Plan ("Option Agreement").
The Board of Directors may at any time appoint or remove members of
the Committee and may fill vacancies however caused in the Committee. The
Committee shall select one of its members as its Chairman and shall hold its
meetings at such time and place and in such manner as it shall deem advisable.
All actions of the Committee shall be taken by a majority of its members and can
be taken by unanimous written consent in lieu of a meeting. The Committee shall
keep records of its meetings and shall make such rules and regulations for the
conduct of its business as it shall deem advisable.
3. Interpretation and Amendment. The interpretation and construction
of any terms or conditions of the Plan, or of any Option Agreement or other
matters related to the Plan, by the Committee shall be final and conclusive. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan.
-1-
<PAGE>
The Board of Directors may at any time terminate or from time to time
modify or suspend the Plan; provided, however, that no such action shall impair
any Incentive Stock Options theretofore granted; and provided further, that
without the affirmative vote of the holders of at least a majority of the voting
stock of the Company present, or represented, and entitled to vote at a duly
held meeting: (a) the total number of shares of Common Stock which may be issued
under the Plan (except as permitted by Section 9) or the aggregate fair market
value of shares of Common stock which may be issued under the Plan to any one
employee shall not be increased; (b) the Option Exercise Price shall not be
decreased (except as permitted by Section 9) ; (c) the term of the Plan or any
Incentive Stock Option shall not be extended; (d) requirements as to eligibility
for participation in the Plan shall not be modified; and (e) the benefits
accruing to participants under the Plan shall not be materially increased.
4. Participants. Incentive Stock Options shall be granted to employees
of the Company or its subsidiaries who are selected by the Committee from time
to time. The term "employees" shall include officers and directors who are
employees of the Company or its subsidiaries. The term "parent" or a
"subsidiary' shall mean "parent corporation" or a "subsidiary corporation" as
defined in Section 424 of the Code. No Incentive Stock Option shall be granted
to an employee who, at the time the Incentive Stock Option would otherwise be
granted, owns (or is deemed to own under Section 424(d) of the Code) capital
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of capital stock of the Company, or any parent or any subsidiary
of the Company; provided, however, that an Incentive Stock Option may be granted
to such an employee if the Option Exercise Price per share of Common Stock to be
acquired by the exercise of such Option is at least one hundred and ten percent
(110%) of the fair market value per share of Common Stock at the time such
Option is granted, and such Option is not exercisable after the expiration of
five (5) years from the date such Option is granted.
Receipt of stock options under any other stock option plan maintained
by the Company or any subsidiary shall not, for that reason, preclude an
employee from receiving Incentive Stock Options under the Plan.
5. Shares of Common Stock Subject to the Plan. Subject to Section 9,
no more than an aggregate of six hundred twenty thousand (620,000) shares of
Common Stock may be issued and sold pursuant to the Plan. The shares of Common
Stock issued and sold under the Plan will be the Company's authorized but
unissued shares of Common Stock.
Should any Incentive Stock Option expire or terminate for any reason
without having been exercised in full, the unsold shares of Common Stock covered
thereby shall be added to the shares of Common Stock otherwise available for
option hereunder.
The aggregate fair market value (determined at the time an Incentive
Stock Option is granted) of the shares of Common Stock for which any employee
may be granted Incentive Stock Options in any calendar year or part thereof
through January 8, 1992 may not exceed $100,000 plus
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<PAGE>
any available carryover for such year. The term "available carryover" shall mean
the "unused limit carryover" permitted by Section 422A(c)(4) of the Code (as
such section existed prior to its repeal). In the case of Incentive Stock
Options granted to any employee after December 31, 1986, the aggregate fair
market value (determined at the time an Incentive Stock Option is granted) of
the shares of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by such employee during any calendar year shall
not exceed $100,000.
6. Terms and Conditions of Options. Incentive Stock options shall be
in such form and on such terms and conditions as the Committee shall from time
to time approve, subject to the following terms and conditions (in addition to
those specifically required by other provisions in this Plan):
(a) An Incentive Stock option shall state the number of shares of
Common Stock to which it relates and no fractional shares of Common Stock
shall be issued.
(b) The option price per share of Common Stock issuable upon the
exercise of an Incentive Stock Option ("Option Exercise Price") shall not
be less than one hundred percent (100%) of the fair market value per share
of Common Stock on the date of grant of such Option.
(c) The term of an incentive Stock option shall not be more than ten
(10) years from the date such Option is granted.
(d) An Incentive Stock Option granted prior to January 9, 1992 may not
be exercised while there is outstanding (within the meaning of Section
422A(c)(7) of the Code, as such section existed prior to its repeal) any
incentive stock option which was granted before the granting of such
Incentive Stock Option to the employee to purchase any capital stock in the
Company or in any corporation which, at the time of granting of such
Incentive Stock Option, is a parent or a subsidiary corporation the Company
or any predecessor corporation of any such corporation.
7. Termination of Employment. In the event that the holder of an
Option granted pursuant to the Plan shall cease to be employed by the Company or
by a subsidiary of the Company for any reason other than disability (within the
meaning of Section 22(e)(3) of the Code), retirement with the consent of the
Company or death, any Incentive Stock Options granted to such person pur suant
to the Plan shall terminate on the date of termination of employment or on a
date not more than three (3) months after the date of termination of employment
(as determined by the Committee in its sole discretion) , but in no event may an
Incentive Stock Option be exercised after the date on which such Option would
have expired and, during such period as the Incentive Stock option may be
exercised, such Option may only be exercised to the extent exercisable at the
date of termination of employment. If the holder of an Incentive Stock option
ceases to be employed by reason of such disability or retires with the consent
of the Company, such Option shall terminate one (1) year after the date of
disability and not later than three (3) months after the date of retirement (as
determined
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<PAGE>
by the Committee), but in no event may an Incentive Stock Option be exercised
after the date on which such Option would have (except for termination of
employment) expired and, during such period as the Incentive Stock Option may be
exercised, such Option may only be exercised to the extent exercisable at the
date of termination of employment.
Solely for purposes of the Plan, the transfer of an employee from the
employ of the Company to the employ of a subsidiary of the Company, or
vice-versa, or from one subsidiary of the Company to another shall not be deemed
a termination of employment.
8. Death. If an employee shall die while employed by the Company or by
any subsidiary of the Company or during the periods referred to in Section 7
during which an Option may be exercised, then his estate, personal
representative or beneficiary shall have the right, for a period of one (1) year
(or within such shorter period as may be specified by the Committee in the
Option Agreement) after the employee dies, to exercise those Incentive Stock
Options granted to the employee which were exercisable by him at the time of his
death, but in no event may an Incentive Stock Option be exercised after the date
on which such Option would have (except for termination of employment) expired.
9. Stock Splits, Mergers, etc. In case of any stock split, stock
dividend or similar transaction which increases or decreases the number of
outstanding shares of Common Stock, appropriate adjustment shall be made by the
Board of Directors, whose determination shall be final, to the number of shares
of Common Stock which may be purchased under the Plan and the number and Option
Exercise Price of the shares of Common Stock which may be purchased under any
outstanding Incentive Stock Options. In the case of a merger, sale of assets or
similar transaction which results in a replacement of the shares of Common Stock
with stock of another corporation, the Company will make a reasonable effort,
but shall not be required, to replace any outstanding Incentive Stock Options
with comparable options to purchase the stock of such other corporation, or will
provide for immediate exercisability of all outstanding Incentive Stock Options,
with all Incentive Stock Options which are not exercised within the time period
specified by the Board of Directors being terminated.
10. Transferability. Incentive Stock Options shall not be assignable
or transferable except by will or the laws of descent and distribution and,
during an employee's lifetime, may be exercised only by him.
11. Option Agreements. Option Agreements granting Incentive Stock
Options under the Plan shall be in writing, duly executed and delivered by or on
behalf of the Company and the employee and shall contain such terms and
conditions as the Committee deems advisable. If there is any conflict between
the terms and conditions of any Option Agreement and of the Plan, the terms and
conditions of the Plan shall control.
12. Exercise of Options. An employee electing to exercise an Incentive
Stock Option shall give written notice to the Company of such election and of
the number of shares of
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<PAGE>
Common Stock which he has elected to acquire. An employee shall have no rights
of a shareholder with respect to the shares of Common Stock to be acquired by
the exercise of an Incentive Stock Option until the issuance to him of a
certificate representing such Common Stock; provided, however, that until such
certificates are issued, any employee using existing shares of Common Stock in
payment of an Option Exercise Price (pursuant to Section 13) shall continue to
have the rights of a stockholder with respect to such existing shares of Common
Stock.
It is a condition to the exercise of any Option that either (a) a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to such shares shall be effective at the time of
exercise or (b) there is an exemption from registration under the Securities Act
for the issuance of shares of Common Stock upon such exercise. Nothing herein
shall be construed as requiring the Company to register, or perfect an exception
from registration of, the shares subject to any Option under the Securities Act.
Each Option shall be subject to the further requirement that, if at any time the
Committee shall determine, in its discretion, that the listing or qualification
of the shares subject to such Option on any securities exchange or under
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a con dition of, or in connection with, the
granting of such Option, or the issue of shares thereunder, such Option may not
be exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
13. Payment. The Option Exercise Price shall be payable upon the
exercise of an Incentive Stock Option and shall be paid in cash, by certified
check or in shares of Common Stock, in the discretion of the Committee. If
shares of Common Stock are tendered as payment of the Option Price, the value of
such shares of Common Stock shall be their fair market value as of the date of
exercise.
14. Continuance of Employment. Neither the Plan nor any Option
Agreement shall impose any obligation on the Company or any subsidiary to
continue to employ any employee.
15. Term of Plan. No Incentive Stock Option shall be granted pursuant
to the Plan after May 8, 1993.
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TII INDUSTRIES, INC.
1986 Stock Option Plan
----------------------
(as amended effective August 15 , 1996)
1. Purpose. The TII Industries, Inc. 1986 Stock Option Plan (the
"Plan") is intended to provide a method whereby employees (including officers
and directors) of TII Industries, Inc. (the "Company") and its subsidiaries who
are making and are expected to continue making substantial contributions to the
successful management and growth of the Company and its subsidiaries may be
offered an opportunity to acquire common stock, $.01 par value per share
("Common Stock"), of the Company in order to increase their proprietary
interests in the Company and their incentive to remain in and advance in the
employ of the Company and its subsidiaries. Accordingly, the Company may, from
time to time, grant to such employees as may be selected in the manner
hereinafter provided options to purchase Common Stock of the Company on the
terms and conditions hereinafter set forth. Such options may be in the form of
incentive stock options ("Incentive Stock Options"), as defined in Section 422
of the Internal Revenue Code of 1986, as amended, or any corresponding
provisions of succeeding law (the "Code"), or in the form of options which do
not qualify as options described in Section 422 of the Code ("Non-Qualified
Stock Options"). The Incentive Stock Options and the Non-Qualified Stock Options
sometimes are referred to herein individually as an "Option" and collectively as
"Options."
2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board of Directors") which, to the extent it
shall determine, may delegate its powers with respect to the administration of
the Plan to a committee (the "Committee") appointed by the Board of Directors,
the Committee to consist of two or more members of the Board of Directors, each
of whom is a "non-employee director" within the meaning of Rule 16b-3 of the
rules and regulations (as amended, "Rule 16b-3") promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Exchange
Act"). References in the Plan to determinations or actions by the Committee
shall be deemed to include determinations and actions by the Board of Directors.
Subject to the terms and conditions of the Plan, the Committee shall have
exclusive authority to select the employees to whom Options shall be granted, to
determine whether Options shall be Incentive Stock Options or Non-Qualified
Stock Options, to determine the number of shares of Common Stock to be covered
by each option, the time at which each Option shall be granted, the Option
Exercise Price (as hereinafter defined), the term during which options may be
exercised and the form of option agreement under the Plan ("Option Agreement").
The Board of Directors may at any time appoint or remove members of
the Committee and may fill vacancies however caused in the Committee. The
Committee shall select one of its members as its Chairman and shall hold its
meetings at such time and place and in such manner as it shall deem advisable.
All actions of the Committee shall be taken by a majority of its members and can
be taken by unanimous written consent in lieu of a meeting. The Committee shall
keep records
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of its meetings and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
3. Interpretation and Amendment. The interpretation and construction
of any terms or conditions of the Plan, or of any Option Agreement or other
matters related to the Plan, by the Committee shall be final and conclusive. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan.
The Board of Directors may at any time terminate or from time to time
modify or suspend the Plan; provided, however, that no such action shall impair
any Option theretofore granted; and provided further, that without the
affirmative vote of the holders of at least a majority of the voting stock of
the Company present, or represented, and entitled to vote at a duly held
meeting: (a) the total number of shares of Common Stock which may be issued
under the Plan (except as permitted by Section 9) shall not be increased; (b)
the option price per share of Common Stock issuable upon the exercise of an
Option as set forth in Section 6(b) (hereinafter referred to collectively as the
"Option Exercise Price") shall not be decreased (except as permitted by Section
9); (c) the term of the Plan shall not be extended; (d) requirements as to
eligibility for participation in the Plan shall not be modified; and (e) the
benefits accruing to participants under the Plan shall not be materially
increased.
4. Participants. Options shall be granted to employees of the Company
(or any company which is a parent or subsidiary of the Company) who are selected
by the Committee from time to time. The term "employees" shall include officers
and directors who are employees of the Company or its subsidiaries. Solely for
purposes of granting Non-Qualified Options, the term "employees" shall also
include consultants to the Company or its subsidiaries and officers and
directors who are not employees of the Company or its subsidiaries. The term
"parent" or a "subsidiary" shall mean "parent corporation" or a "subsidiary
corporation" as defined in Section 424 of the Code.
Options may be granted to the same employee on more than one occasion.
Receipt of stock options under any other stock option plan maintained by the
Company or any subsidiary shall not, for that reason, preclude an employee from
receiving Options under the Plan. No Incentive Stock Option shall be granted to
an employee who, at the time the Incentive Stock Option would other-wise be
granted, owns (or is deemed to own under Section 424(d) of the Code) capital
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of capital stock of the Company, its parent or any subsidiary of
the Company; provided, however, that an Incentive Stock Option may be granted to
such an employee if the Option Exercise Price per share of Common Stock to be
acquired by the exercise of such Option is at least one hundred and ten percent
(110%) of the fair market value per share of Common Stock at the time such
Option is granted, and such Option is not exercisable after the expiration of
five (5) years from the date such Option is granted.
5. Shares of Common Stock Subject to the Plan. Subject to Section 9,
no more than an aggregate of 1,950,000 shares of Common Stock may be issued and
sold pursuant to the Plan
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(after giving effect to the 1 for 2 1/2 reverse split effected by the Company on
April 26, 1994). The shares of Common Stock issued and sold under the Plan will
be the Company's authorized but unissued shares of Common Stock.
Should any Option expire or terminate for any reason without having
been exercised in full, the unsold shares of Common Stock covered thereby shall
be added to the shares of Common Stock otherwise available for option hereunder.
The aggregate fair market value (determined at the time an Incentive
Stock Option is granted) of the shares of Common Stock for which any employee
may be granted Incentive Stock Options in any calendar year or part thereof
through December 31, 1986 under the Plan (or under any other plan of the Company
or any parent or subsidiary of the Company) may not exceed $100,000 plus any
available carryover for such year. The term "available carryover" shall mean the
"unused limit carryover" permitted by Section 422A(c)(4) of the Code (as such
section existed prior to its repeal). In the case of Incentive Stock Options
granted to any employee after December 31, 1986, the aggregate fair market value
(determined at the time an Incentive Stock Option is granted) of the shares of
Common Stock with respect to which Incentive Stock Options are exercisable for
the first time by such employee during any calendar year shall not exceed
$100,000.
The maximum number of shares of Common Stock that may be subject to
options granted to any one individual in any calendar year is 100,000.
6. Terms and Conditions of Options. Options shall be in such form and
on such terms and conditions as the Committee shall from time to time approve,
subject to the following terms and conditions (in addition to those specifically
required by other provisions in this Plan):
(a) An Option shall state the number of shares of Common Stock to
which it relates and no fractional shares of Common Stock shall be issued.
(b) The option price per share of Common Stock issuable upon the
exercise ("Option Exercise Price") of an Incentive Stock Option shall not be
less than one hundred percent (100%) of the fair market value per share of
Common Stock on the date of grant of such Option. The Option Exercise Price per
share of Common Stock issuable upon exercise of a Non-Qualified Stock Option
shall not be less than fifty-percent (50%) of the fair market value per share of
Common Stock on the date of grant of such Option.
(c) The term of an Option shall not be more than ten (10) years from
the date such Option is granted. The term of a Non-Qualified Stock Option shall
not be more than ten (10) years and one (1) day from the date such Option is
granted.
(d) An Incentive Stock Option may not be exercised while there is
outstanding (within the meaning of Section 422A(c)(7) of the Code as such
section existed prior to its repeal) any Incentive Stock Option which was
granted before the granting of such Incentive Stock Option to the
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employee to purchase any capital stock in the Company or in any corporation
which, at the time of granting of such Incentive Stock Option, is a parent or a
subsidiary corporation of the Company or in any predecessor corporation of any
such corporation; provided, however, that this provision shall not apply to any
Option granted after December 31, 1986.
7. Termination of Employment. In the event that the holder of an
Option granted pursuant to the Plan shall cease to be employed by the Company or
by a parent or subsidiary of the Company for any reason other than disability
(within the meaning of Section 22(e)(3) of the Code), retirement with the
consent of the Company or death, any Options granted to such person pursuant to
the Plan shall terminate on the date of termination of employment or on a date
not more than three (3) months after the date of termination of employment (as
determined by the Committee in its sole discretion), but in no event may an
Option be exercised after the date on which such Option would have expired and,
during such period as the Option may be exercised, such Option may only be
exercised to the extent exercisable at the date of termination of employment. If
the holder of an Option ceases to be employed by reason of such disability or
retires with the consent of the Company, such Option shall terminate one (1)
year after the date of disability and not later than three (3) months after the
date of retirement (as determined by the Committee), but in no event may an
Option be exercised after the date on which such Option would have expired
(except for termination of employment) and, during such period as the Option may
be exercised, such Option may only be exercised to the extent exercisable at the
date of termination of employment.
Solely for purposes of the Plan, the transfer of an employee from the
employ of the Company to the employ of a subsidiary of the Company, or
vice-versa, or from one subsidiary of the Company to another shall not be deemed
a termination of employment.
8. Death. If an employee shall die while employed by the Company or by
any parent or subsidiary of the Company or during the periods referred to in
Section 7 during which an Option may be exercised, then his estate, personal
representative or beneficiary shall have the right, for a period of one (1) year
(or within such shorter period as may be specified by the Committee in the
Option Agreement) after the employee dies, to exercise those Options granted to
the employee which were exercisable by him at the time of his death, but in no
event may an Option be exercised after the date on which such Option would have
(except for termination of employment) expired.
9. Stock Splits, Mergers, etc. In case of any stock split, stock
dividend or similar transaction which increases or decreases the number of
outstanding shares of Common Stock, appropriate adjustment shall be made by the
Board of Directors, whose determination shall be final, to the number of shares
of Common Stock which may be purchased under the Plan, the maximum number of
shares of Common Stock that may be subject to options granted to any one
individual in any calendar year and the number and Option Exercise Price of the
shares of Common Stock which may be purchased under any outstanding Options. In
the case of a merger, sale of assets or similar transaction which results in a
replacement of the shares of Common Stock with stock of another corporation, the
Company will make a reasonable effort, but shall not be required, to replace any
outstanding Options with comparable Options to purchase the stock of such other
corporation, or
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<PAGE>
will provide for immediate exercisability of all outstanding Options, with all
Options which are not exercised within the time period specified by the Board of
Directors being terminated.
10. Transferability Options shall not be assignable or transferable
except by will or the laws of descent and distribution and, during an employee's
lifetime, may be exercised only by him.
11. Option Agreements Option Agreements granting Options under the
Plan shall be in writing, duly executed and delivered by or on behalf of the
Company and the employee and shall contain such terms and conditions as the
Committee deems advisable. If there is any conflict between the terms and
conditions of any Option Agreement and of the Plan, the terms and conditions of
the Plan shall control.
12. Exercise of Options. An employee electing to exercise an Option
shall give written notice to the Company of such election and of the number of
shares of Common Stock which he has elected to acquire. An employee shall have
no rights of a shareholder with respect to the shares of Common Stock to be
acquired by the exercise of an Option until the issuance to him of a certificate
representing such Common Stock; provided, however, that until such certificates
are issued, any employee using existing shares of Common Stock in payment of an
Option Exercise Price (pursuant to Section 13) shall continue to have the rights
of a stockholder with respect to such existing shares of Common Stock.
It is a condition to the exercise of any Option that either (a) a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to such shares shall be effective at the time of
exercise or (b) there is an exemption from registration under the Securities Act
for the issuance of shares of Common Stock upon such exercise. Nothing herein
shall be construed as requiring the Company to register, or perfect an exemption
from registration of, the shares subject to any Option under the Securities Act.
Each Option shall be subject to the further requirement that, if at any time the
Committee shall determine, in its discretion, that the listing or qualification
of the shares subject to such Option on any securities exchange or under
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the granting
of such Option, or the issue of shares thereunder, such Option may not be
exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
13. Payment. The Option Exercise Price shall be payable upon the
exercise of an Option and shall be paid in cash, by certified check or in shares
of Common Stock, in the discretion of the Committee. If shares of Common Stock
are tendered as payment of the Option Price, the value of such shares of Common
Stock shall be their fair market value as of the date of exercise.
14. Agreements Regarding Withholding Taxes. As a condition to the
exercise of an Option, each employee shall, no later than the date of exercise
of such Option, pay to the Company in cash or make arrangements satisfactory to
the Committee regarding payment of any federal, state
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or local taxes of any kind required by law to be withheld upon the exercise of
such Option. In its discretion, the Committee may provide for the Company's
acceptance or retention of Common Stock as payment of an employee's liability
for tax required to be withheld by the Company.
15. Continuance of Employment. Neither the Plan nor any Option
Agreement shall impose any obligation on the Company or any parent or subsidiary
to continue to employ any employee.
16. Term of Plan. No Option shall be granted pursuant to the Plan
after January 7, 1996.
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1995 STOCK OPTION PLAN
of
TII INDUSTRIES, INC.
(as amended effective August 15, 1996)
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is designed to
provide an incentive to employees (including directors and officers who are
employees) and to consultants who are not employees of TII Industries, Inc., a
Delaware corporation (the "Company"), and its present and future subsidiary
corporations, as defined in Paragraph 19 ("Subsidiaries"), and to offer an
additional inducement in obtaining the services of such employees and
consultants. The Plan provides for the grant of "incentive stock options"
("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and nonqualified stock options which do not qualify as
ISOs ("NQSOs"), but the Company makes no representation or warranty, express or
implied, as to the qualification of any option as an "incentive stock option"
under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 12,
the aggregate number of shares of common stock, $.01 par value per share, of the
Company ("Common Stock") for which options may be granted under the Plan shall
not exceed 500,000. Such shares of Common Stock may, in the discretion of the
Board of Directors of the Company (the "Board of Directors"), consist either in
whole or in part of authorized but unissued shares of Common Stock or shares of
Common Stock held in the treasury of the Company. Subject to the provisions of
Paragraph 13, any shares of Common Stock subject to an option which for any
reason expires, is canceled or is terminated unexercised or which ceases for any
reason to be exercisable shall again become available for the granting of
options under the Plan. The Company shall at all times during the term of the
Plan reserve and keep available such number of shares of Common Stock as will be
suf ficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board
of Directors of the Company (the "Board of Directors") which, to the extent it
shall determine, may delegate its powers with respect to the administration of
the Plan to a committee of the Board of Directors (the "Committee") consisting
of not less than two directors, each of whom shall be a "non-employee director"
within the meaning of Rule 16b-3 (or any successor rule or regulation)
promulgated under the Securities Exchange Act of 1934, as amended (as the same
may be in effect and interpreted from time to time, "Rule 16b-3"). References in
the Plan to determinations or actions by the Committee shall be deemed to
include determinations and actions by the Board of Directors. A majority of the
members of the Committee shall constitute a quorum, and the acts of a majority
of the
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<PAGE>
members present at any meeting at which a quorum is present, and any acts
approved in writing by all members without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the Committee shall have the
authority, in its sole discretion, to determine the employees and the
consultants who shall be granted options; the times when options shall be
granted; whether an option granted to an employee shall be an ISO or a NQSO; the
number of shares of Common Stock to be subject to each option; the term of each
option; the date each option shall become exercisable; whether an option shall
be exercisable in whole, in part or in installments and, if in installments, the
number of shares of Common Stock to be subject to each install ment, whether the
installments shall be cumulative, the date each installment shall become
exercisable and the term of each installment; whether to accelerate the date of
exercise of any option or installment; whether shares of Common Stock may be
issued upon the exercise of an option as partly paid and, if so, the dates when
future installments of the exercise price shall become due and the amounts of
such installments; the exercise price of each option; the form of payment of the
exercise price; the fair market value of a share of Common Stock; whether to
restrict the sale or other disposition of the shares of Common Stock acquired
upon the exercise of an option and, if so, whether to waive any such
restriction; whether to subject the exercise of all or any portion of an option
to the fulfillment of contingencies as specified in the contract referred to in
Paragraph 11 (the "Contract"), including without limitation, contingencies
relating to entering into a covenant not to compete with the Company, any of its
Subsidiaries or a Parent (as defined in Paragraph 19), to financial objectives
for the Company, any of its Subsidiaries or a Parent, a division of any of the
foregoing, a product line or other category, and/or the period of continued
employment of the optionee with the Company, any of its Subsidiaries or a
Parent, and to determine whether such contingencies have been met; the amount,
if any, necessary to satisfy the Company's obligation to withhold taxes or other
amounts; whether an optionee is Disabled (as defined in Paragraph 19); to
construe the respective Contracts and the Plan; with the consent of the
optionee, to cancel or modify an option, provided such modified provision would
be permitted to be included in an option on the date of modification, and
further, provided, that, in the case of a modification (within the meaning of
Section 424(h) of the Code) of an ISO, such option as modified would be
permitted to be granted on the date of such modification under the terms of the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; and to make all other determinations necessary or advisable for
administering the Plan. Any controversy or claim arising out of or relating to
the Plan, any option granted under the Plan or any Contract shall be determined
unilaterally by the Committee in its sole discretion. The determinations of the
Committee on the matters referred to in this Paragraph 3 shall be conclusive and
binding on the parties. No member or former member of the Committee shall be
liable for any action, failure to act or determination made in good faith with
respect to the Plan or any option hereunder.
4. ELIGIBILITY. The Committee may from time to time, in its sole
discretion, consistent with the purposes of the Plan, grant options to employees
(including officers and directors who are employees) of, and to consultants to,
the Company or any of its Subsidiaries. Such options granted shall cover such
number of shares of Common Stock as the Committee may determine in its sole
discretion; provided, however, that the maximum number of shares subject to
options that may
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<PAGE>
be granted to any employee during any calendar year under the Plan (the "162(m)
Maximum") shall not exceed 100,000 shares; and further, provided, that the
aggregate market value (determined at the time the option is granted in
accordance with Paragraph 5) of the shares of Common Stock for which any
eligible employee may be granted ISOs under the Plan or any other plan of the
Company, or of a Parent or a Subsidiary of the Company, which are exercisable
for the first time by such optionee during any calendar year shall not exceed
$100,000. Such limitation shall be applied by taking ISOs into account in the
order in which they were granted. Any option (or the portion thereof) granted in
excess of such amount shall be treated as an NQSO.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock under
each option shall be determined by the Committee in its sole discretion;
provided, however, the exercise price of an ISO shall not be less than the fair
market value of the Common Stock subject to such option on the date of grant;
and further, provided, that if, at the time an ISO is granted, the optionee owns
(or is deemed to own under Section 424(d) of the Code) stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, of any of its Subsidiaries or of a Parent, the exercise price of such
ISO shall not be less than 110% of the fair market value of the Common Stock
subject to such ISO on the date of grant.
The fair market value of a share of Common Stock on any day shall be (a) if
the principal market for the Common Stock is a national securities exchange, the
average of the highest and lowest sales prices per share of Common Stock on such
day as reported by such exchange or on a composite tape reflecting transactions
on such exchange, (b) if the principal market for the Common Stock is not a
national securities exchange and the Common Stock is quoted on The Nasdaq Stock
Market ("Nasdaq"), and (i) if actual sales price information is available with
respect to the Common Stock, the average of the highest and lowest sales prices
per share of Common Stock on such day on Nasdaq, or (ii) if such information is
not available, the average of the highest bid and lowest asked prices per share
of Common Stock on such day on Nasdaq, or (c) if the principal market for the
Common Stock is not a national securities exchange and the Common Stock is not
quoted on Nasdaq, the average of the highest bid and lowest asked prices per
share of Common Stock on such day as reported on the OTC Bulletin Board Service
or by National Quotation Bureau, Incorporated or a comparable service; provided,
however, that if clauses (a), (b) and (c) of this Paragraph are all
inapplicable, or if no trades have been made or no quotes are available for such
day, the fair market value of the Common Stock shall be determined by the Board
by any method consistent with applicable regulations adopted by the Treasury
Department relating to stock options.
6. TERM. The term of each option granted pursuant to the Plan shall be such
term as is established by the Committee, in its sole discretion; provided,
however, that the term of each ISO granted pursuant to the Plan shall be for a
period not exceeding 10 years from the date of grant thereof; and further,
provided, that if, at the time an ISO is granted, the optionee owns (or is
deemed to own under Section 424(d) of the Code) stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company, of
any of its Subsidiaries or of a Parent, the term
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<PAGE>
of the ISO shall be for a period not exceeding five years from the date of
grant. Options shall be subject to earlier termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof), to the extent
then exercisable, shall be exercised by giving written notice to the Company at
its principal office stating which option is being exercised, specifying the
number of shares of Common Stock as to which such option is being exercised and
accompanied by payment in full of the aggregate exercise price therefor (or the
amount due on exercise if the Contract permits installment payments) (a) in cash
or by certified check or (b) if the applicable Contract permits, with the
consent of the Committee, with previously acquired shares of Common Stock having
an aggregate fair market value on the date of exercise (determined in accordance
with Paragraph 5) equal to the aggregate exercise price of all options being
exercised, or with any combination of cash, certified check or shares of Common
Stock
The Committee may, in its sole discretion, permit payment of the exercise
price of an option by delivery by the optionee of a properly executed notice,
together with a copy of the optionee's irrevocable instructions to a broker
acceptable to the Committee to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an option
shall not have the rights of a stockholder with respect to such shares of Common
Stock until the date of issuance of a stock certificate to him for such shares;
provided, however, that until such stock certificate is issued, any optionee
using previously acquired shares of Common Stock in payment of an option
exercise price shall continue to have the rights of a stockholder with respect
to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or issued
under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, any optionee whose relationship with the
Company, its Subsidiaries and Parent as an employee or consultant has terminated
for any reason (other than his death or Disability) may exercise such option, to
the extent exercisable on the date of such termination, at any time within three
months after the date of termination, but not thereafter and in no event after
the date the option would otherwise have expired; provided, however, that if
such relationship is terminated either (a) for cause, or (b) without the consent
of the Company, such option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be deemed to
exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual
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<PAGE>
on military, sick leave or other bona fide leave of absence shall continue to be
considered an employee for purposes of the Plan during such leave if the period
of the leave does not exceed 90 days, or, if longer, so long as the individual's
right to reemployment with the Company (or a related corporation) is guaranteed
either by statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave.
Notwithstanding the foregoing, except as may otherwise be expressly
provided in the applicable Contract, options granted under the Plan shall not be
affected by any change in the status of the optionee so long as the optionee
continues to be an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent (regardless of having changed from one to the other or
having been transferred from one corporation to another).
Nothing in the Plan or in any option granted under the Plan shall confer on
any optionee any right to continue in the employ of, or as a consultant to, the
Company, its Parent or any of its Subsidiaries, or interfere in any way with any
right of the Company, its Parent or any of its Subsidiaries to terminate the
optionee's relationship at any time for any reason whatsoever without liability
to the Company, its Parent or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be expressly
provided in the applicable Contract, if an individual optionee dies (a) while he
is an employee of, or a consultant to, the Company, any of its Subsidiaries or a
Parent, (b) within three months after the termination of such relationship
(unless such termination was for cause or without the consent of the Company) or
(c) within one year following the termination of such relationship by reason of
Disability, his option may be exercised, to the extent exercisable on the date
of his death, by his Legal Representative (as defined in Paragraph 19) at any
time within one year after death, but not thereafter and in no event after the
date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable Contract,
any optionee whose relationship as an employee of, or a consultant to, the
Company, its Parent or any Subsidiary has terminated by reason of Disability may
exercise his option, to the extent exercisable upon the effective date of such
termination, at any time within one year after such date, but not thereafter and
in no event after the date the option would otherwise have expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the exercise of
any option that either (a) a Registration Statement under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the shares of Common
Stock to be issued upon such exercise shall be effective and current at the time
of exercise, or (b) there be an exemption from registration under the Securities
Act for the issuance of the shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Company to register shares subject to
any option under the Securities Act or to keep any Registration Statement
effective or current.
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<PAGE>
The Committee may require, in its sole discretion, as a condition to the
exercise of any option that the optionee execute and deliver to the Company his
representations and warranties, in form, substance and scope satisfactory to the
Committee, which the Committee determines are necessary or convenient to
facilitate the perfection of an exemption from the registration requirements of
the Securities Act or other legal requirement, including without limitation that
(a) the shares of Common Stock to be issued upon the exercise of the option are
being acquired by the optionee for his own account, for investment only and not
with a view to the resale or distribution thereof, and (b) any subsequent resale
or distribution of shares of Common Stock by such optionee will be made only
pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior to any offer of
sale or sale of such shares of Common Stock provide the Company with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in its sole
discretion, that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to, or in connection with, the granting
of an option or the issue of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Not withstanding any other
provision of the Plan, in the event of a stock dividend, split-up, combination,
reclassification, recapitalization, merger in which the Company is the surviving
corporation, or exchange of shares or the like which results in a change in the
number or kind of those shares of Common Stock which are outstanding immediately
prior to such event, the aggregate number and kind of shares subject to the
Plan, the aggregate number and kind of shares subject to each outstanding option
and the exercise price thereof, and the 162(m) Maximum shall be appropriately
adjusted by the Board of Directors, whose determination shall be conclusive and
binding on all parties.
In the event of (a) the liquidation or dissolution of the Company, or (b) a
merger in which the Company is not the surviving corporation or a consolidation,
any outstanding options shall terminate upon the earliest of any such event,
unless other provision is made therefor in the transaction.
-6-
<PAGE>
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the
Board of Directors on September 20, 1995. No option may be granted under the
Plan after September 19, 2005. The Board of Directors, without further approval
of the Company's stockholders, may at any time suspend or terminate the Plan, in
whole or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with, conform to or adopt the provisions of Rule 16b-3, Section 162(m) of the
Code or any change in applicable law, regulations, rulings or interpretations of
administrative agencies; provided, however, that no amendment shall be effective
without the requisite prior or subsequent stockholder approval which would (a)
except as contemplated in Paragraph 12, increase the maximum number of shares of
Common Stock for which options may be granted under the Plan or the 162(m)
Maximum, (b) materially increase the benefits accruing to participants under the
Plan or (c) change the eligibility requirements to receive options hereunder. No
termination, suspension or amendment of the Plan shall, without the consent of
the holder of an existing and outstanding option affected thereby, adversely
affect his rights under such option. The power of the Committee to construe and
administer any options granted under the Plan prior to the termination or
suspension of the Plan nevertheless shall continue after such termination or
during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan shall
be transferable otherwise than by will or the laws of descent and distribution,
and options may be exercised, during the lifetime of the optionee, only by the
optionee or his Legal Representatives. Except to the extent provided above,
options may not be assigned, transferred, pledged, hypothecated or disposed of
in any way (whether by operation of law or otherwise) and shall not be subject
to execution, attachment or similar process, and any such attempted assignment,
transfer, pledge, hypothecation or disposition shall be null and void ab initio
and of no force or effect.
15. WITHHOLDING TAXES. As a condition of exercise of an Option, each
employee shall, no later than the date of exercise of such option, pay to the
Company in cash or make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind required by law to be
withheld upon the exercise of such option. In its discretion, the Committee may
provide for the Company's acceptance or retention of Common Stock as payment of
an employee's liability for tax required to be withheld by the Company.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend or
legends upon the certificates for shares of Common Stock issued upon exercise of
an option under the Plan and may issue such "stop transfer" instructions to its
transfer agent in respect of such shares as it determines, in its discretion, to
be necessary or appropriate to (a) prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act and any
applicable state securities laws, (b) implement the provisions of the Plan or
any agreement between the Company and the optionee with respect to such shares
of Common Stock, or (c) permit the Company to determine the occurrence of a
"disqualifying disposition," as described in Section 421(b) of the Code,
-7-
<PAGE>
of the shares of Common Stock issued or transferred upon the exercise of an ISO
granted under the Plan.
The Company shall pay all issuance taxes with respect to the issuance of
shares of Common Stock upon the exercise of an option granted under the Plan, as
well as all fees and expenses incurred by the Company in connection with such
issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares of Common
Stock pursuant to the exercise of options under the Plan shall be added to the
general funds of the Company and used for such corporate purposes as the Board
of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) Constituent Corporation. The term "Constituent Corporation" shall
mean any corporation which engages with the Company, any of its Subsidiaries or
a Parent in a transaction to which Section 424(a) of the Code applies (or would
apply if the option assumed or substituted were an ISO), or any Parent or any
Subsidiary of such corporation.
(b) Disability. The term "Disability" shall mean a permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
(c) Legal Representative. The term "Legal Representative" shall mean
the executor, administrator or other person who at the time is entitled by law
to exercise the rights of a deceased or incapacitated optionee with respect to
an option granted under the Plan.
(d) Parent. The term "Parent" shall have the same definition as
"parent corporation" in Section 424(e) of the Code.
(e) Subsidiary. The term "Subsidiary" shall have the same definition
as "subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may be granted
hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions.
-8-
<PAGE>
Neither the Plan nor any Contract shall be construed or interpreted with
any presumption against the Company by reason of the Company causing the Plan or
Contract to be drafted. Whenever from the context it appears appropriate, any
term stated in either the singular or plural shall include the singular and
plural, and any term stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability of
any provision in the Plan or any Contract shall not affect the validity,
legality or enforceability of any other provision, all of which shall be valid,
legal and enforceable to the fullest extent permitted by applicable law.
22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes present in person or by proxy at the next duly held
meeting of the Company's stockholders at which a quorum is present. No options
granted hereunder may be exercised prior to such approval; provided, however,
that the date of grant of any option shall be determined as if the Plan had not
been subject to such approval. Notwithstanding the foregoing, if the Plan is not
approved by a vote of the stockholders of the Company on or before September 19,
1996, the Plan and any options granted hereunder shall terminate.
-9-
TII INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 27, 1996 September 27, 1996
------------------ ------------------
PRIMARY EARNINGS PER SHARE
<S> <C> <C>
Shares used in computing earnings per share:
Weighted average number of shares of common stock outstanding 7,429,000 6,275,000
Weighted average number of shares of class B common stock outstanding -- 370,000
Weighted average number of shares of Series A preferred stock outstanding -- 317,000
Incremental shares attributed to common stock
equivalents-options and warrants 379,000 952,000
---------- ----------
7,808,000 7,914,000
========== ==========
Earnings:
Net profit $ 752,000 $ 439,000
Add: Interest expense reduction 10,000 --
---------- ----------
762,000 439,000
Earnings per common and common equivalent share $ 0.10 $ 0.06
========== ==========
FULLY DILUTED EARNINGS PER SHARE
Shares used in computing earnings per share:
Weighted average number of shares of common stock outstanding 7,429,000 6,275,000
Weighted average number of shares of class B common stock outstanding -- 370,000
Weighted average number of shares of Series A preferred stock outstanding -- 317,000
Incremental shares attributed to common stock
equivalents-options and warrants 379,000 952,000
OPIC loan 300,000 --
---------- ----------
8,108,000 7,914,000
========== ==========
Earnings:
Net profit $ 752,000 $ 439,000
Add: Interest expense reduction 29,000 --
---------- ----------
$ 781,000 $ 439,000
========== ==========
Earnings per common and common equivalent share $ 0.10 $ 0.06
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000277928
<NAME> TII INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-27-1996
<CASH> 883
<SECURITIES> 7,300
<RECEIVABLES> 7,084
<ALLOWANCES> 122
<INVENTORY> 15,723
<CURRENT-ASSETS> 32,416
<PP&E> 34,023
<DEPRECIATION> 22,308
<TOTAL-ASSETS> 45,554
<CURRENT-LIABILITIES> 8,646
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 34,532
<TOTAL-LIABILITY-AND-EQUITY> 45,554
<SALES> 12,040
<TOTAL-REVENUES> 12,040
<CGS> 8,856
<TOTAL-COSTS> 2,378
<OTHER-EXPENSES> (6)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 800
<INCOME-TAX> 48
<INCOME-CONTINUING> 752
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 752
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
