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 December 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 January 28, 1997 was 7,430,837.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 27, June 28,
1996 1996
(unaudited)
-------- --------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,542 $ 2,883
Marketable securities available for sale 7,002 5,999
Receivables 6,471 7,084
Inventories 18,722 14,032
Prepaid expenses 430 388
-------- --------
Total current assets $ 34,167 $ 30,386
-------- --------
Fixed Assets
Property, plant and equipment 35,059 33,018
Less: Accumulated depreciation and amortization (22,868) (22,029)
-------- --------
Net fixed assets 12,191 10,989
-------- --------
Other Assets 1,562 1,448
-------- --------
TOTAL ASSETS $ 47,920 $ 42,823
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt and obligations under capital leases $ 381 $ 363
Accounts payable 8,341 5,185
Accrued liabilities 1,337 1,037
-------- --------
Total current liabilities 10,059 6,585
-------- --------
Long-Term Debt 859 853
Long-Term Obligations Under Capital Leases 1,410 1,523
-------- --------
Shareholders' Equity
Preferred Stock, par value $1.00 per share;
1,000,000 authorized and issuable in series; none issued -- --
Common Stock, par value $.01 per share; 30,000,000 shares
authorized; 7,448,474 and 7,446,975 shares issued at
December 27, 1996 and June 28, 1996, respectively 75 75
Warrants outstanding 159 120
Capital in excess of par value 29,052 29,046
Retained earnings 6,512 4,855
Valuation adjustment to record marketable securities available
for sale at fair value 75 47
-------- --------
35,873 34,143
Less - Treasury stock, at cost; 17,637 common shares (281) (281)
-------- --------
Total shareholders' equity 35,592 33,862
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 47,920 $ 42,823
======== ========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December December
27, 1996 29, 1995 27, 1996 29, 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 12,957 $ 11,241 $ 24,997 $ 20,841
Cost of sales 9,604 8,130 18,460 15,164
-------- -------- -------- --------
Gross profit 3,353 3,111 6,537 5,677
-------- -------- -------- --------
Operating expenses
Selling, general and administrative 1,721 1,394 3,355 2,887
Research and development 776 762 1,520 1,387
-------- -------- -------- --------
Total operating expenses 2,497 2,156 4,875 4,274
-------- -------- -------- --------
Operating income 856 955 1,662 1,403
Interest expense (49) (147) (169) (181)
Interest income 162 77 270 102
Other (expense) income (6) 10 0 10
-------- -------- -------- --------
Income before provision for income taxes 963 895 1,763 1,334
Provision for income taxes 58 -- 106 --
-------- -------- -------- --------
Net income $ 905 $ 895 $ 1,657 $ 1,334
======== ======== ======== ========
Net income per share - primary $ .12 $ .12 $ .22 $ .17
======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding 7,877 7,769 7,843 7,846
======== ======== ======== ========
Net income per share - fully diluted $ .12 $ .11 $ .21 $ .17
======== ======== ======== ========
Weighted average number of common
and common equivalent shares outstanding 8,177 8,176 8,143 8,199
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 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 -- -- 6 -- -- --
Warrants issued for financial
advisory services -- 39 -- -- -- --
Unrealized gain on marketable
securities available for sale -- -- -- -- 28 --
Net income for the six months
ended December 27, 1996 -- -- -- 1,657 -- --
------- ------- ------- ------- ------- -------
BALANCE, December 27, 1996 $ 75 $ 159 $29,052 $ 6,512 $ 75 $ (281)
======= ======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 27, 1996 AND DECEMBER 29, 1995 (unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,657 $ 1,334
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 839 857
Provision for inventory reserve, net 199 100
Amortization of other assets, net 25 93
Changes in assets and liabilities
Decrease (increase) in receivables 613 (150)
Increase in inventories (4,889) (2,956)
(Increase) decrease in prepaid expenses and other assets (181) 8
Increase (decrease) in accounts payable and
accrued liabilities 3,494 (583)
------- -------
Net cash provided by (used in) operating activities 1,757 (1,297)
------- -------
Cash Flows from Investing Activities:
Capital expenditures (1,944) (1,013)
Purchases of marketable securities (6,263) --
Maturities of marketable securities 5,289 228
------- -------
Net cash used in investing activities (2,918) (785)
------- -------
Cash Flows from Financing Activities:
Proceeds from exercise of options and warrants 6 5,738
Payment of long-term debt and obligations under capital leases (186) (1,834)
Redemption of Preferred Stock -- (2,763)
------- -------
Net cash (used in) provided by financing activities (180) 1,141
------- -------
Net decrease in cash and cash equivalents (1,341) (941)
Cash and Cash Equivalents, at beginning of period 2,883 1,152
------- -------
Cash and Cash Equivalents, at end of period $ 1,542 $ 211
======= =======
Supplemental Disclosure of Non-cash Transactions:
Capital leases entered into $ 97 $ 32
======= =======
Cash paid during the period for:
Income taxes $ 42 $ --
======= =======
Interest $ 122 $ 60
======= =======
</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 December 27, 1996 and results of operations for the three
and six months ended December 27, 1996 and December 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 and six months ended December 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:
December 27,1996 June 28, 1996
---------------- -------------
Raw materials $ 6,916,000 $ 4,939,000
Work in process 4,933,000 4,879,000
Finished goods 6,873,000 4,214,000
----------- -----------
$18,722,000 $14,032,000
ITEM 2: 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
Sales increased 15% and 20% in the second quarter and the first half of fiscal
1997, respectively, over the comparable periods of 1996 and increased 8% from
the first quarter of 1997. Recently developed products make up the majority of
the increase. Sales of the Company's ANT related products (developed with Access
Network Technologies, a joint venture between Lucent Technologies Inc. and
Raychem Corporation) and fiber optic products contributed most significantly to
the increase.
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<PAGE>
Gross margin as a percentage of sales declined to 25.9% and 26.2% in the second
quarter and the first six months of fiscal 1997 from 27.7% and 27.2% in the
second quarter and the first six months of 1996, respectively. This decline was
principally due to higher raw material and manufacturing costs associated with
the introduction and start up of, and increasing volume of, new products
manufactured. The Company expects present gross margin percentage levels to
continue in the near term.
Selling, general and administrative expenses for the second quarter and the
first half of fiscal 1997, increased $327,000 or 24% and $468,000 or 16% from
the prior year periods, respectively. The increase resulted primarily from costs
associated with the Company's efforts to penetrate new markets, the expansion of
the Company's distribution channels and an increase in the Company's
administrative infrastructure to support its increasing sales base.
Research and development expenses increased 2% and 10% in the second quarter and
first half of fiscal 1997, respectively, although lower as a percentage of sales
in each fiscal 1997 period. The increase was due to the Company's continuing
development of new products for the telecommunications industry. After the close
of the quarter, the Company entered into a product development agreement with a
research and development firm to assist the Company in the development of
proprietary surge protection products for the telecommunication industry.
Accordingly, future research and development expenses are expected to be higher
than current levels.
Interest expense declined by $98,000 and $12,000 in the first quarter and first
half of fiscal 1997 from the respective comparable periods in fiscal 1996. Last
year's amounts included the amortization of debt origination costs that were
fully amortized as of September 1996.
Interest income increased by $85,000 over the prior year's second quarter and by
$168,000 over last year's first half 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 each
of the reported periods in fiscal year 1997. Fiscal year 1996 did not contain
such a provision, as the Company's net operating loss carry forwards were then
available to apply against such taxes.
As a result of the above, net income for the second quarter and the first six
months of fiscal year 1997 equaled $905,000 or $.12 per share and $1,657,000 or
$.21 per share (fully diluted), respectively, as compared to $895,000 or $.11
per share and $1,334,000 or $.17 per share (fully diluted) in the year earlier
periods.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1997, cash was provided principally by the
Company's net profit of $1,657,000, depreciation and amortization of $839,000;
and an increase in accounts payable and accrued liabilities of $3,494,000. These
sources and existing cash were used to finance capital expenditures of
$1,944,000 and the increase in inventories of $4,889,000 to support the
introduction of new products, and to help provide quicker response to customer
delivery requirements. While the Company does not currently anticipate any
material adverse impact on inventory resulting from the introduction of new
products, management is continuing to monitor this transition and any future
inventory valuation issues.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1996 Annual Meeting of Stockholders held on December 4, 1996,
by the votes indicated, stockholders
(1) Re-elected Timothy R. Graham, James R. Grover and Dorothy Roach to serve as
class II directors until the 1999 Annual Meeting of Stockholders and until
their respective successors are elected and qualified.
For Votes Withheld
--- --------------
Timothy R. Graham 6,109,091 277,514
James R. Grover 6,108,107 278,498
Dorothy Roach 6,108,259 278,346
(2) Approved the adoption of amendments to the Company's Certificate of
Incorporation to remove the Company's Class B Stock and Class C Stock from
shares which the Company is authorized to issue, renumber and reletter
subsections and revise cross references as a result of such removal, and
correct minor typographical errors, and adoption of a Restated Certificate
of Incorporation which would integrate and combine the full text of the
Company's Certificate of Incorporation, as amended, into one combined
document.
For Against Abstain
--- ------- -------
6,253,714 24,652 108,239
(3) Ratified the selection by the Board of Directors of Arthur Andersen LLP as
the Company's independent public accountants for the fiscal year ended June
27, 1997.
For Against Abstain
--- ------- -------
6,346,311 24,416 15,878
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Restated Certificate of Incorporation of the Company, as
filed with the Secretary of State of the State of Delaware
on December 10, 1996
11. Statement Re: Computation of Per Share Earnings
27. EDGAR financial data schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended December 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: February 3, 1997 /s/ Paul G. Sebetic
-------------------
Paul G. Sebetic
Vice President-Finance & Chief
Financial Officer
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TII INDUSTRIES, INC.
It is hereby certified that:
1. The present name of the corporation (hereinafter referred to as
the "Corporation") is TII INDUSTRIES, INC. The name under which the Corporation
was originally incorporated is TII Corporation. The date of filing the original
Certificate of Incorporation with the Secretary of State of Delaware was
December 21, 1971.
2. The provisions of the Certificate of Incorporation of the
Corporation, as heretofore amended and/or supplemented, are hereby further
amended and, as herein amended, are hereby restated and integrated into the
single instrument which is hereinafter set forth.
3. The amendments and the Restated Certificate of Incorporation
hereinafter set forth have been duly adopted by the Board of Directors and
stockholders of the Corporation pursuant to the provisions of Sections 242 and
245 of the General Corporation Law of the State of Delaware.
4. The Certificate of Incorporation, as amended and restated, shall
read as follows:
<PAGE>
"RESTATED CERTIFICATE OF INCORPORATION
OF
TII INDUSTRIES, INC.
1. The name of the corporation is TII INDUSTRIES, INC.
2. The address of its registered office in the State of Delaware is No.
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The aggregate number of shares of stock of all classes which the
corporation shall have authority to issue is 31,000,000, consisting of
30,000,000 shares of Common Stock having a par value of $.01 per share, and
1,000,000 shares of Preferred Stock having a par value of $1.00 per share.
The powers, preferences and the relative, participating, optional and
other rights and the qualifications, limitations and restrictions of each class
of stock, and the express grant of authority to the Board of Directors to fix by
resolution the designations and the powers, preferences and rights of each share
of Preferred Stock and the qualifications, limitations and restrictions thereof,
which are not fixed by this Restated Certificate of Incorporation, are as
follows:
A. Common Stock
I. Dividends, etc.
Subject to the rights of the holders of Preferred Stock,
and subject to any other provisions of this Certificate of Incorporation, as
amended from time to time, holders of Common Stock shall be entitled to receive
such dividends and other distributions in cash, stock or property of the
corporation as may be declared thereon by the Board of Directors from time to
time out of assets or funds of the corporation legally available therefor.
2
<PAGE>
II. Voting
At every meeting of the stockholders each holder of
Common Stock shall be entitled to one (1) vote in person or by proxy for each
share of Common Stock standing in his name on the transfer books of the
corporation.
III. Liquidation Rights
In the event of any dissolution, liquidation or winding
up of the affairs of the corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and other liabilities of the
corporation, the holders of each series of Preferred Stock shall be entitled to
receive out of the net assets of the corporation, an amount for each share equal
to the amount fixed and determined by the Board of Directors in any resolution
or resolutions providing for the issuance of any particular series of Preferred
Stock, plus an amount equal to all dividends accrued and unpaid on shares of
such series to the date fixed for distribution, and no more, before any of the
assets of the corporation shall be distributed or paid over to the holders of
Common Stock. After payment in full of said amounts to the holders of Preferred
Stock of all series, the remaining assets and funds of the corporation shall be
divided among and paid ratably to the holders of Common Stock. If upon such
dissolution, liquidation or winding up, the assets of the corporation
distributable as aforesaid among the holders of Preferred Stock of all series
shall be insufficient to permit full payment to them of said preferential
amounts, then such assets shall be distributed among such holders, first in the
order of their respective preferences, and second, as to such holders who are
next entitled to such assets and who rank equally with regard to such assets,
ratably in proportion to the respective total amounts which they shall be
entitled to receive as provided in this subparagraph III. A merger or
consolidation of the corporation with or into any other corporation or a sale or
conveyance of all or any part of the assets of the corporation (which shall not
in fact result in the liquidation of the corporation and the distribution of
assets to stockholders) shall not be deemed to be a voluntary or involuntary
liquidation or dissolution or winding up of the corporation within the meaning
of this subparagraph III.
B. Preferred Stock
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this subsection B, to provide for the
issuance of the Preferred Stock in series, and by filing a certificate pursuant
to the General Corporation Law, to establish the number of shares to be included
in each such series, and to fix the designation, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of the shares of each such series. The authority of the Board
with respect to each series shall include, but not be limited to, determination
of the following:
(1) the number of shares constituting that series and
the distinctive designation of that series;
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<PAGE>
(2) whether the holders of shares of that series shall
be entitled to receive dividends and, if so, the rates, conditions and times of
such dividends, any preference of any such dividends to, and the relation to,
the dividends payable on any other class or classes of stock or any other series
of the same class and whether dividends shall be cumulative or noncumulative;
(3) whether the holders of that series shall have voting
rights in addition to the voting rights provided by law and, if so, the terms of
such voting rights;
(4) whether shares of that series shall be convertible
into, or exchangeable for, at the option of either the holder or the corporation
or upon the happening of a specified event, shares of any other class or classes
or of any other series of the same or other class or classes of stock of the
corporation and, if so, the terms and conditions of such conversion or exchange,
including provision for adjustment of the conversion or exchange rate in such
events as the Board of Directors may determine;
(5) whether shares of that series shall be redeemable
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(6) whether shares of that series shall be subject to
the operation of a retirement or sinking fund and, if so subject, the extent to
and the manner in which it shall be applied to the purchase or redemption of the
shares of that series, and the terms and provisions relative to the operation
thereof;
(7) the rights of shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation and any preference of any such rights to, and the relation to, the
rights in respect thereto of any other class or classes of stock or any other
series of the same class; and
(8) whether shares of that series shall be subject or
entitled to any other preferences, and the other relative, participating,
optional or other special rights and qualifications, limitations or restrictions
of shares of that series.
C. Authorized Shares of Capital Stock
Except as may be provided in the terms and conditions fixed by
the Board of Directors for any series of Preferred Stock, and in addition to any
other vote that may be required by statute, stock exchange regulations, this
Certificate of Incorporation or any amendment hereof, the number of authorized
shares of any class or classes of stock of the corporation may be increased or
decreased by the affirmative vote of the holders of a majority of the voting
power of the outstanding shares of capital stock of the corporation entitled to
vote.
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5. The corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the By-laws of the corporation, except that the affirmative vote of the holders
of at least 75% of the outstanding shares of capital stock of the corporation
entitled to vote in the election of directors (considered for this purpose as
one class) shall be required to make, alter or repeal, or to adopt any provision
inconsistent with, Sections 6, 10 or 11 of the Certificate of Incorporation or
Sections 1 or 2 of Article V or Article XII of the By-laws of the corporation.
7. Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board directors or in the by-laws of the corporation. Elections of directors
need not be by written ballot unless the by-laws of the corporation shall so
provide.
8. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
9. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
10. The number of directors which shall constitute the Board of
Directors shall be not less than five (5) nor more than nine (9). The exact
number of directors within the maximum and minimum limitation specified herein
shall be fixed from time to time by resolution of the Board of Directors. The
directors shall be classified with respect to the time during which they shall
severally hold office by dividing them into three classes, each class consisting
of one-third of the number of directors constituting the entire Board, as
authorized by resolution of the Board of Directors, and all
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directors of the corporation shall hold office until their successors shall be
elected and shall qualify or until their earlier resignation or removal.
However, in instances where the total number of directors constituting the
entire Board, as authorized by resolution of the Board of Directors, is a number
other than an integral multiple of three, the number of directors to be elected
each year shall reasonably approximate the number which would have been elected
had the total number of directors constituting the whole Board been an integral
multiple of three, as determined by the Board of Directors. At the meeting of
the stockholders of the corporation held for the election of the first such
classified Board, the directors of the first class (designated Class I) shall be
elected for a term of one year, the directors of the second class (designated
Class II) for a term of two years, and the directors of the third class
(designated Class III) for a term of three years, and, in each instance, until
their respective successors are elected and qualified. At each annual meeting of
stockholders held thereafter, the successors to the class of directors whose
term shall expire that year shall be elected to hold office for a term of three
years, so that the term of office of one class of directors shall expire in each
year. Any newly created directorships or any decrease in directorships, as
authorized by resolution of the Board of Directors, shall be so apportioned
among the classes as to make all classes as nearly equal in number as possible.
The directors shall have the power, from time to time, to increase or
decrease their own number, within the maximum and minimum limitations specified
therein, by resolution of the Board of Directors. Directors may not be removed
from office except for cause by the affirmative vote or not less than a majority
of the shares entitled to vote at an election of directors.
Newly created directorships resulting from an increase in the number of
directors and all vacancies occurring in the Board, including vacancies
occurring in the Board by reason of the removal of directors, may be filled by
the affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors, and directors so chosen shall hold office
until the next election of the class for which such directors shall have been
chosen, and until their successors shall be elected and qualified.
11. (a) Except as otherwise expressly provided in subparagraph
(c) of this Section 11, the affirmative vote of the holders of at least 75% of
the outstanding shares of capital stock of the corporation entitled to vote
thereon shall be required to authorize: (i) any merger, combination,
amalgamation or consolidation of the corporation or any of its subsidiaries with
or into any other corporation or entity; or (ii) any sale, lease or exchange by
the corporation of property or assets constituting all or substantially all of
the property and assets of the corporation and its subsidiaries taken as a whole
to or with any other corporation, person or other entity; or (iii) the
dissolution of the corporation if, in the case of (i) or (ii) above, as of the
record date for the determination of stockholders entitled to notice thereof and
to vote thereon, such other corporation, person or entity is the beneficial
owner, directly or indirectly, of 10% or more of the outstanding shares of
capital stock of the corporation entitled to vote in the election of directors
(considered for the purposes of this Section 11 as one class). Such affirmative
vote shall be required notwithstanding the fact that some lesser percentage may
be specified in any agreement or contract to which the corporation is a party
(including, but not limited to, any agreement with any stock exchange on which
any of the
6
<PAGE>
corporation's capital stock may be listed) and shall be in addition to any class
or series vote to which any class or series of stock of the corporation may be
entitled.
(b) For the purposes of this Section 11, any corporation,
person or other entity shall be deemed to be the beneficial owner of any shares
of capital stock of the corporation (i) which it has the right to acquire, hold
or vote pursuant to any agreement, or otherwise, or (ii) which are beneficially
owned, directly or indirectly (including shares deemed owned through application
of clause (i) above), by any other corporation, person or entity (A) with which
it or its "affiliate" or "associate" (as those terms are defined in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934
as in effect on December 1, 1979) has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of
capital stock of the corporation, or (B) which is its "affiliate" or
"associate". For the purpose of this Section 11, the outstanding shares of any
class of capital stock of the corporation shall include shares deemed owned
through the application of clauses (i) and (ii) above but shall not include any
other shares which may be issuable pursuant to any agreement, or upon exercise
of conversion rights, warrants, options or otherwise.
(c) The provisions of this Section 11 shall not apply to (i)
any transaction referred to in clauses (i) and (ii) of subparagraph (a) of this
Section 11 with any corporation of which a majority of the outstanding shares of
all capital stock entitled to vote in the election of directors (considered for
this purpose as one class) is owned beneficially by the corporation or its
subsidiaries if such transaction is not being carried out to circumvent the
requirements of this Section 11; or (ii) any transaction referred to in
subparagraph (a) of this Section 11 if the Board of Directors of the corporation
shall by resolution have approved, in the case of clause (iii) of subparagraph
(a) of this Section 11, such dissolution proposed by, or suggested on behalf of,
or approved a memorandum of understanding with such other corporation, person or
other entity with respect to, and substantially consistent with, a transaction
described in clauses (i) or (ii) of subparagraph (a) of this Section 11, with
any corporation, person or entity prior to the time such other corporation,
person or entity (except any person, corporation or entity who as of December 3,
1979 was the beneficial owner of at least 10% of the outstanding shares of stock
of the Company entitled to vote in the election of directors) became the owner
of 10% or more of the outstanding shares of capital stock of the corporation
entitled to vote in the election of directors (considered for this purpose as
one class).
(d) The Board of Directors of the corporation shall have the
power and duty to determine for the purposes of this Section 11, on the basis of
information then known to it, whether and when (i) any corporation, person or
other entity beneficially owns 10% or more of the outstanding shares of capital
stock of the corporation entitled to vote in the election of directors
(considered for this purpose as one class), and/or is an "affiliate" or
"associate" of another; (ii) any proposed sale, lease, exchange or other
disposition involves all or substantially all of the assets of the corporation
and its subsidiaries taken as a whole; (iii) any transaction referred to in
subparagraph (a) of this Section 11 with any corporation of which a majority of
the outstanding shares of all capital stock entitled to vote in the election of
directors (considered for this purpose as one class) is owned beneficially by
the corporation or its subsidiaries is being carried out to circumvent the
requirement
7
<PAGE>
of this Section 11; and (iv) any memorandum of understanding referred to in
subparagraph (c) of this Section 11 is substantially consistent with the
transaction to which it relates. Any such determination by the Board shall be
conclusive and binding for all purposes of this Section 11.
12. No director of the corporation shall be personally liable to the
corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Delaware General Corporation Law hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation, in addition to the limitation of personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
Delaware Corporation Law. Any repeal or modification of this Article by the
stockholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
corporation existing at the time of such repeal or modification."
Signed on December 4, 1996
/s/ Timothy J. Roach
----------------------------------
Timothy J. Roach, President
8
TII INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December December
27, 1996 29, 1995 27, 1996 29, 1995
---------- ---------- ---------- ----------
PRIMARY EARNINGS PER SHARE
<S> <C> <C> <C> <C>
Shares used in computing earnings per share:
Weighted average number of shares of
common stock outstanding 7,430,000 7,066,000 7,430,000 6,486,000
Weighted average number of shares of
class B common stock outstanding -- -- -- 370,000
Weighted average number of shares of
Series A preferred stock outstanding -- -- -- 159,000
Incremental shares attributed to common stock
equivalents - options and warrants 447,000 703,000 413,000 831,000
---------- ---------- ---------- ----------
7,877,000 7,769,000 7,843,000 7,846,000
========== ========== ========== ==========
Earnings:
Net profit $ 905,000 $ 895,000 $1,657,000 $1,334,000
Add: Interest expense reduction 22,000 -- 32,000 --
---------- ---------- ---------- ----------
$ 927,000 $ 895,000 $1,689,000 $1,334,000
========== ========== ========== ==========
Earnings per common and common equivalent share $ 0.12 $ 0.12 $ 0.22 $ 0.17
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE
Shares used in computing earnings per share:
Weighted average number of shares outstanding 7,430,000 7,066,000 7,430,000 6,486,000
Weighted average number of shares of
class B common stock outstanding -- -- -- 370,000
Weighted average number of shares of
Series A preferred stock outstanding -- -- -- 159,000
Incremental shares attributed to common stock
equivalents - options and warrants 447,000 810,000 413,000 884,000
OPIC loan 300,000 300,000 300,000 300,000
---------- ---------- ---------- ----------
8,177,000 8,176,000 8,143,000 8,199,000
========== ========== ========== ==========
Earnings:
Net profit $ 905,000 $ 895,000 $1,657,000 $1,334,000
Add: Interest expense reduction 41,000 19,000 70,000 38,000
---------- ---------- ---------- ----------
$ 946,000 $ 914,000 $1,727,000 $1,372,000
========== ========== ========== ==========
Earnings per common and common equivalent share $ 0.12 $ 0.11 $ 0.21 $ 0.17
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000277928
<NAME> TII INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-27-1996
<CASH> 1,542
<SECURITIES> 7,002
<RECEIVABLES> 6,471
<ALLOWANCES> 54
<INVENTORY> 18,722
<CURRENT-ASSETS> 34,167
<PP&E> 35,059
<DEPRECIATION> 22,868
<TOTAL-ASSETS> 47,920
<CURRENT-LIABILITIES> 10,059
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 35,517
<TOTAL-LIABILITY-AND-EQUITY> 47,920
<SALES> 24,997
<TOTAL-REVENUES> 24,997
<CGS> 18,460
<TOTAL-COSTS> 4,875
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169
<INCOME-PRETAX> 1,763
<INCOME-TAX> 106
<INCOME-CONTINUING> 1,657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,657
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.21
</TABLE>
