As Filed with the Securities and Exchange Commission on October 22, 1997
Registration No. 333 -
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
TII INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 66-0328885
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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1385 Akron Street,
Copiague, NY 11726
(516) 789-5000
(Address, including zip code,
and telephone number,
including area code, of
registrant's principal
executive offices)
Timothy J. Roach, President
TII Industries, Inc.
1385 Akron Street
Copiague, NY 11726
(516) 789-5000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Copies to:
Richard A. Rubin, Esq. Stephen H. Kay, Esq.
Parker Chapin Flattau & Klimpl, LLP Squadron, Ellenoff, Plesent
1211 Avenue of the Americas & Sheinfeld, LLP
New York, New York 10036 551 Fifth Avenue
Telephone: (212) 704-6000 New York, New York 10176
Telecopy: (212) 704-6288 Telephone: (212) 661-6500
Telecopy: (212) 697-6686
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |_|
If the registrant elects to deliver its latest annual report to
security-holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. |_|
(facing page continued on next page)
<PAGE>
If this Form-is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
================================================================================
Title Of Each Proposed Proposed
Class Of Maximum Maximum
Securities Amount Offering Aggregate Amount Of
To Be To Be Price Offering Registration
Registered Registered(1) Per Share(2) Price(2) Fee
- --------------------------------------------------------------------------------
Common Stock,
$.01 par value 2,875,000 $7.53 $21,648,750 $6,560.23
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(1) Includes 375,000 shares subject to the Underwriters' over-allotment
option.
(2) Estimated solely for the purpose of calculating the registration fee
on the basis of, pursuant to Rule 457(c), the average of the high and
low reported sales prices per share of the registrant's Common Stock
on The Nasdaq National Market on October 21, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
================================================================================
SUBJECT TO COMPLETION, DATED OCTOBER __, 1997
2,500,000 Shares
[LOGO]
Common Stock
All of the 2,500,000 shares of Common Stock offered hereby are being
offered by TII Industries, Inc. ("TII" or the "Company").
The Company's Common Stock is included for trading on the Nasdaq
National Market under the symbol "TIII." On October 21, 1997, the last sale
price of the Common Stock on the Nasdaq National Market was $7 5/8 per share.
See "Price Range of Common Stock."
For a discussion of certain material factors that should be considered
in connection with an investment in the Common Stock, see "Risk Factors"
commencing on page 7 hereof.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- --------------------------------------------------------------------------------
Per Share...................$ $ $
Total (3)...................$ $ $
================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting offering expenses estimated to be approximately $500,000
payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock solely to cover over-allotments,
if any, on the same terms and conditions as the shares offered hereby. If
the option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
---------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them, and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Rodman & Renshaw, Inc., New York, New York
on or about November , 1997.
---------------
Rodman & Renshaw, Inc.
The date of this Prospectus is , 1997
<PAGE>
[Photograph] [Photograph]
TII's Unique Gas Tube The Company's Broadband NID
Overvoltage Surge Protectors Product Line
[Photograph] [Photograph]
The Company's recently developed One of the Company's
Coaxial Overvoltage Surge Protectors custom-designed Fiber Optic
Enclosures
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
(IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and the Company's financial statements, and the notes
thereto, appearing elsewhere in this Prospectus. Unless the context otherwise
requires, the terms "TII" or the "Company" refer to TII Industries, Inc. and its
subsidiaries. See "Risk Factors" for a discussion of certain factors that should
be considered by prospective investors. This Prospectus contains forward-looking
statements that involve known and unknown risks and uncertainties that may cause
the Company's actual results to be materially different from those anticipated
or discussed herein. Factors which may cause such differences are discussed in
cautionary statements accompanying such forward-looking statements and under the
caption "Risk Factors" in this Prospectus. Unless otherwise indicated, all
financial and share information set forth in the Prospectus assumes (i) a public
offering price of $7 5/8 per share and (ii) no exercise of the Underwriters'
over-allotment option.
THE COMPANY
TII designs, manufactures and markets overvoltage surge protectors,
network interface devices ("NIDs"), station electronics and fiber optic products
for use in the communications industry. The Company sells its products to
telephone operating companies ("telcos"), original equipment manufacturers
("OEMs"), cable television ("CATV") providers and competitive access providers
of communications services. The Company believes that the performance of its
products, together with its commitment to quality and service, has fostered
strong customer loyalty, leading four of the five Regional Bell Operating
Companies ("RBOCs") and most of the 1,300 independent telcos to specify one or
more of the Company's overvoltage surge protectors for use at their subscriber
station locations.
TII has been a leading supplier of subscriber station overvoltage
surge protectors to U.S. telcos for over 25 years. The Company believes that its
proprietary overvoltage surge protectors offer superior, cost-effective
performance features and characteristics, including high reliability, long life
cycles and advanced protection against adverse environmental conditions.
Overvoltage surge protectors are mandated in the United States by the National
Electric Code ("NEC") to be installed on subscriber telephone lines to prevent
injury to users and damage to their equipment due to surges caused by lightning
and other hazardous overvoltages. While similar requirements exist in most other
developed countries, a significant portion of the world's communications
networks remains unprotected from the effects of overvoltage surges.
The Company also markets a complete line of NIDs tailored to
customer specifications. NIDs house the Federal Communications Commission
("FCC") mandated demarcation point between telco-owned and subscriber-owned
property. The Company's NIDs typically also enclose its overvoltage surge
protectors and various station electronic products, which, among other things,
allow a telco to remotely test the integrity of its lines, thereby minimizing
costly maintenance dispatches. To address the demand for voice, high-speed data
and interactive video services, telcos and other communications providers are
expanding and upgrading their networks to accommodate the higher bandwidth
necessary to transmit these services. To meet its customers' needs, TII has
introduced a state-of-the-art broadband NID product line specifically designed
to house the telcos' technology of choice, whether traditional twisted pair
lines or high-bandwidth coaxial cable or fiber optic lines. The features and
functionality of the Company's broadband NIDs were instrumental in the Company
recently winning two major telco contracts.
As an integral part of the Company's broadband NID product line, the
Company recently developed a high-performance patented coaxial overvoltage surge
protector to safeguard coaxial cable lines. While providing superior overvoltage
surge protection, the Company's in-line coaxial overvoltage surge protector is
virtually transparent to the signal on the network, permitting high-bandwidth
signals to be transmitted without adversely affecting the signal. The Company
also markets its coaxial overvoltage surge protector to CATV providers. Proposed
revisions to the NEC, currently anticipated to take effect in 1999, would
require
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<PAGE>
overvoltage surge protection on all new or existing CATV lines intended to carry
voice, data or interactive video services.
The Company also produces and sells a line of fiber optic products,
including custom-designed enclosures and LIGHTRAX(R), a unique fiber optic
management system used to route sensitive fiber optic cable throughout a
facility.
Communications is one of the fastest growing industries in the world
today. The Company's strategy is to participate in the rapid growth of the
communications industry by: (i) growing its core business by capitalizing on its
reputation as a manufacturer of quality, high-performance products; (ii)
introducing new and innovative products that are complementary to its current
products; (iii) expanding into new markets, including CATV, international and
wireless markets; and (iv) investing in production facilities to increase its
manufacturing capacity, strengthen its technical capabilities, improve operating
efficiencies and reduce costs.
As a result of the Company's strong customer relationships, industry
expertise and commitment to quality, the Company has recently been awarded four
significant new contracts and contract extensions:
o In April 1997, the Company entered into a multi-year contract
extension to provide overvoltage surge protectors to Ameritech
Corporation.
o In July 1997, the Company was awarded a contract to provide
new broadband NID products to the Puerto Rico Telephone
Company ("PRTC").
o In September 1997, the Company won a multi-year contract to
provide new broadband NID products to a RBOC.
o In October 1997, the Company was awarded a contract to supply
custom designed fiber optic enclosures and splice trays to a
RBOC .
The Company was organized under the laws of the State of Delaware in
1971. The Company's principal executive office is located at 1385 Akron Street,
Copiague, New York 11726 and its telephone number is (516) 789-5000.
4
<PAGE>
The Offering
Common Stock Offered by the Company.............2,500,000 shares
Common Stock to be Outstanding after
the Offering(1)................................10,101,139 shares
Use of Proceeds.................................To purchase additional equipment
and leasehold improvements and
for working capital and general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol..................."TIII"
_____________________
(1) Excludes the following shares reserved for issuance: (i) 1,505,401 shares
subject to outstanding stock options granted to officers, directors,
employees and consultants under the Company's stock option plans at a
weighted average exercise price of $5.04 per share and an additional
187,500 shares subject to future grants under such plans; (ii) 300,000
shares issuable upon conversion of $750,000 of indebtedness due to an
unaffiliated third party and 100,000 shares subject to an option granted to
the holder of such indebtedness at an exercise price of $2.50 per share;
and (iii) 80,000 shares subject to warrants granted for consulting and
financial services at a weighted average exercise price of $6.46 per share.
See "Capitalization" and Note 9 of Notes to Consolidated Financial
Statements.
5
<PAGE>
Summary Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 25, 1993 June 24, 1994 June 30, 1995 June 28, 1996 June 27, 1997(1)
------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Selected Statement of Operations
Data:
Net sales ......................... $ 33,474 $ 40,147 $ 43,830 $ 44,513 $ 50,675
Gross profit ...................... 8,589 10,832 13,048 12,557 9,254
Operating income (loss) ........... 1,987 3,066 3,602 3,856 (892)
Net income (loss) ................. 1,212 2,389 2,942 3,737 (856)
Selected Per Share Data:
Net income (loss) per share-fully
diluted ........................... $ 0.28 $ 0.41 $ 0.51 $ 0.47 $ (0.12)
Weighted average shares outstanding
- fully diluted .................. 5,865 7,943 8,402 8,179 7,430
</TABLE>
As of June 27, 1997
-------------------
Actual As Adjusted(2)
--------- --------------
Selected Balance Sheet Data:
Working capital ...............................$19,655 $36,978
Total assets .................................. 42,823 60,146
Long-term debt and obligations under capital
leases, including current portion ........... 2,841 2,841
Stockholders' investment ...................... 33,011 50,334
- ---------------
(1) Includes non-recurring charges of $3.0 million ($2.9 million of which was
charged to cost of sales), which consisted of an increase to the allowance
for inventory, severance related costs and costs to close or relocate
certain production processes. Exclusive of these charges, the Company would
have reported a gross profit of $12.2 million, operating income of $2.1
million, net income of $2.0 million and fully diluted net income per share
of $0.26. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(2) Adjusted to reflect the sale by the Company of the 2,500,000 shares of
Common Stock offered hereby and the receipt of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
In evaluating the Company and its business, prospective investors
should carefully consider the following risk factors in addition to other
information included in this Prospectus.
RISK OF LOSS OF NEW CONTRACTS
The Company has recently been awarded contracts with a RBOC and the
PRTC for various products within its newly developed broadband NID product line.
To meet the delivery commitments established in these contracts, the Company
must expand production in order to begin volume deliveries of these products
during the second and third quarters of fiscal 1998. The broadband NID product
line has required, and will continue to require, significant capital investment
in production and test equipment, molds and fixtures, as well as the maintenance
of sufficient inventory levels, for much of which the Company is dependent upon
timely performance by outside vendors. The Company must also complete leasehold
improvements to its facilities in the Dominican Republic and, to a lesser extent
Puerto Rico, and train the workforce necessary to manufacture these products.
Should the Company's vendors fail to timely deliver the required equipment,
molds, fixtures or inventory components, or should the Company fail to complete
the leasehold improvements or train its workforce within the time constraints of
the contracts, the Company could lose these contracts. The loss of these
contracts, especially after the Company makes significant expenditures, could
have a material adverse effect on the Company. See "Business-Recent Contracts."
DEPENDENCE UPON KEY CUSTOMERS; LACK OF LONG TERM COMMITMENTS
Direct sales to the Company's RBOC customers, their known
distributors and OEMs known to use the Company's products as components in
equipment manufactured for RBOCs have historically accounted for a substantial
majority of the Company's net sales. The U.S. telephone industry is highly
consolidated with the five RBOCs and GTE Corporation servicing over 85% of all
subscriber lines. In most instances, the Company's sales are made under open
purchase orders received from time to time from its customers pursuant to master
supply contracts. Certain of such contracts permit the customer to terminate the
contract due to the availability of more advanced technology or the Company's
inability to deliver a product that meets the specifications on time, and
certain supply contracts provide that the RBOC may terminate the contract at any
time upon notice. While four out of the five RBOCs specify one or more of the
Company's overvoltage surge protectors for use at their station locations, the
loss of one or more RBOCs as purchasers of the Company's products, or a
substantial diminution in the orders received from such purchasers, could have a
material adverse effect on the Company. See "Business-Marketing and Sales."
MAINTENANCE OF INVENTORY LEVELS TO RESPOND TO CHANGING CUSTOMER NEEDS
The Company maintains significant levels of inventories to meet the
rapid delivery requirements of its customers. The introduction or announcement
by the Company or its competitors of products embodying new technologies,
improvements on existing technologies, or changes in industry standards or
customer requirements, could render the Company's existing products obsolete or
unmarketable. Most of the contracts under which the Company supplies its
products enable the customer to reduce or cease purchases with little or no
advance notice. There can be no assurance that one or more of the Company's
customers will not limit, defer or cease purchases of the Company's products
which could also result in inventory write-downs or allowances, charges to
earnings or otherwise have a material adverse effect on the Company. See
"Selected
7
<PAGE>
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Consolidated Financial Statements.
NEW PRODUCT INTRODUCTION AND EVOLVING INDUSTRY STANDARDS
The market for the Company's products is characterized by changing
technology, evolving industry standards, changes in customer requirements and
product introductions and enhancements. The Company's success will depend, in
large measure, upon its ability to rapidly identify and develop new,
competitively priced products to keep pace with continuing changes in technology
and customer preferences. Although, there can be no assurance that the Company
will be able to timely respond to changing industry and customer needs, the
Company continually seeks to improve its existing products and develop new
products and enhancements to meet the needs of its customers and the
marketplace. The Company believes that its future success will also depend in
part upon its ability to enhance its current product offerings and develop new
products that address its customers' needs for additional functionality and new
technologies. Product development cycles can be lengthy and are subject to
changing requirements and unforeseen factors which can result in delays. In
addition, new products or features, when first released by the Company, may
contain defects that, despite testing by the Company, are discovered only after
a product has been installed and used by customers. Delays, undetected defects
or product recalls could have a material adverse effect on the Company. See
"Business-Products."
COSTS ASSOCIATED WITH PRODUCTION OF NEW PRODUCTS
When the Company begins commercial production of new products, it
typically incurs increased costs. These increased costs result from, among other
things, the hiring of temporary personnel, the outsourcing of certain production
processes, initial purchases of materials in smaller than usual quantities,
lower initial manufacturing yields for the new products and additional freight
and expediting costs. The failure of the Company to adequately control these
increased production costs could have a material adverse effect on the Company.
See "Business-Competition."
TECHNOLOGICAL CHANGE IN OVERVOLTAGE SURGE PROTECTION
The Company's overvoltage surge protectors are based principally on
gas tube technology. Solid state surge protectors have been developed for use
within the telecommunications industry as a competitive technology to gas tubes.
While solid state overvoltage surge protectors are faster at reacting to surges,
gas tube overvoltage surge protectors have generally remained the station
overvoltage surge protection technology of choice by most telcos because of the
gas tube's ability to repeatedly withstand significantly higher energy surges
than solid state overvoltage surge protectors. However, as communications
equipment becomes more complex, the speed of the protector in reacting to a
surge may be perceived to be more critical than its energy handling
capabilities. Further, solid state protectors can be combined with gas tubes
into a hybrid overvoltage surge protector module. While generally more expensive
and complex than gas tube surge protectors, the hybrid surge protector can
provide the speed of a solid state protector with the energy handling capability
of a gas tube overvoltage surge protector. Although the Company has developed
solid state and hybrid surge protectors, the development by competitors of solid
state overvoltage surge protectors with increased energy handling capabilities
or lower cost, more reliable hybrid surge protectors could have a material
adverse effect on the Company. See "Business-Products" and "-Competition."
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<PAGE>
COMPETITION
The Company is subject to significant competition with respect to
all of its products. The Company's gas tube overvoltage surge protectors compete
with other companies' gas tube overvoltage surge protectors, as well as with
solid state and hybrid overvoltage surge protectors. Currently, the Company
sells most of its subscriber overvoltage surge protectors in NID housings
assembled by the Company or OEMs. Most NIDs sold in the United States are
produced by competitors of the Company, some of which also market overvoltage
surge protectors and station electronics. In addition, other suppliers to telcos
could enter the market and compete with the Company. Furthermore, the
Telecommunications Act of 1996 permits the RBOCs, which are presently the
principal users of the Company's products, to manufacture telecommunications
equipment. Accordingly, the RBOCs could decide to manufacture and supply their
own NIDs rather than purchase them from outside suppliers. Most of the Company's
competitors and many of those who could enter the Company's market are
well-established suppliers to the telcos and are, or are part of, large
corporations which have substantially greater assets, financial resources and
larger sales forces, manufacturing facilities and research and development
staffs than those of the Company. See "Business-Competition."
INDUSTRY CONSOLIDATION AND PRICING PRESSURE
The telcos have been going through a period of consolidation,
including, for example, the merger of SBC Communications into Pacific Telesis
Group, the merger of NYNEX Corporation into Bell Atlantic Corporation, and the
recent announcement by the government of Puerto Rico that it is considering the
divestiture of PRTC, possibly to another RBOC. As a result of this consolidation
and the telcos' resulting purchasing power, together with the strength of
certain of the Company's competitors, the pricing pressures in the markets in
which the Company competes have increased.
In virtually all instances in which the Company has master supply
contracts, including with the RBOCs, such contracts do not establish minimum
purchase commitments but govern other terms and conditions, including price. The
Company's supply contracts generally prohibit the Company from increasing the
price of its products sold thereunder for stated periods of time. Accordingly,
any significant increase in the Company's costs during such periods without
offsetting price increases could have a material adverse effect on the Company.
In addition, certain of the Company's RBOC supply contracts contain declining
price provisions. Such contractually mandated reductions in product selling
prices could adversely affect gross margins of the Company if it cannot achieve
corresponding reductions in unit manufacturing costs. See "Business-Raw
Materials." To offset this pressure on the Company's profit margin, the Company
intends to continue to develop new products with improved margins, enter new
markets where the Company believes its products can achieve higher margins and
improve operating efficiencies and reduce manufacturing costs. There can be no
assurance that the Company will be successful in its efforts. See
"Business-Manufacturing."
OFFSHORE MANUFACTURING
Except for its fiber optic products which are produced in North
Carolina, the Company manufactures its products in facilities in Puerto Rico and
the Dominican Republic. As a result, the Company is subject to certain risks of
doing business outside the mainland of the United States, such as the potential
for delays and added delivery expenses in meeting rapid delivery schedules of
its customers. Additionally, the Company's Dominican Republic operations are
subject to potential currency fluctuations, labor unrest and political
instability, restrictions on the transfer of funds, export duties and quotas and
U.S. customs and tariffs, and the potential for U.S. government sanctions, such
as embargos and restrictions on importation, should certain
9
<PAGE>
political or social events occur. Any such delays, unrest or sanctions could
have a material adverse effect on the Company. See "Business-Manufacturing" and
"-Properties."
INTERNATIONAL SALES
Although to date, the Company's export sales have not been material,
the Company intends to expand its sales and marketing efforts in foreign
countries which could pose certain risks, such as complying with multiple and
potential conflicting regulations and product specifications, export and import
limitations, tariffs, differences in intellectual property protection, currency
fluctuations, overlapping or different tax structures, political and economic
instability and trade restrictions. There can be no assurance that these efforts
will be effective or that the Company will achieve significant international
sales. See "Business-Marketing and Sales."
EXPIRATION OF LEASE FOR PUERTO RICO MANUFACTURING FACILITY
The Company's facilities in Puerto Rico have been operated under a
lease agreement with the Puerto Rico Industrial Development Company ("PRIDCO")
which has expired. The Company and PRIDCO have continued operating under the
terms of the lease while they have been negotiating a new lease. While the
Company believes it will be able to renegotiate this lease on commercially
reasonable terms, there can be no assurance that it will be able to do so. The
inability to renegotiate the lease would cause the Company to relocate to other
facilities in Puerto Rico. The costs associated with any such relocation and
attendant disruption of the Company's business operations could have a material
adverse effect on the Company. See "Business-Properties."
DEPENDENCE ON COMPONENT SUPPLIERS
Although the Company generally uses standard and widely available
components and supplies in the manufacture of its products, a gel used to seal
the terminals of its new modular station protectors is currently available from
a single source and the Company generally purchases many of its components and
supplies from a single or limited number of sources in order to obtain quantity
purchase discounts and maintain standardization and quality control over such
components. Certain components and supplies are obtained from manufacturers
located outside the United States which could subject the availability and
control thereof to changes in government policies, tariffs, import restrictions
and other factors beyond the Company's control. The Company has no contracts
with suppliers of the components utilized in the manufacture of its products
which extend for more than one year. While the Company has experienced no
material difficulties or delays in obtaining components or supplies in the past
and believes that substantially all raw materials it uses will continue to be
available in adequate quantities at competitive prices, there can be no
assurance that the Company will not experience delays in delivery, the absence
of components or supplies or increases in prices in the future which could have
a material adverse effect on the Company. See "Business-Raw Materials."
PATENT PROTECTION AND INFRINGEMENT RISKS; LICENSE AGREEMENTS
Although the Company has patent protection on certain of its
products or components thereof, it relies primarily on trade secrets and
nondisclosure agreements to protect its proprietary rights. There can be no
assurance that these protections will be adequate to protect its proprietary
rights, that others will not independently develop or otherwise acquire
equivalent or superior technology and obtain patent or other protections
thereon, or that the Company can maintain its technology as trade secrets. Also,
there can be no assurance that any patents the Company possesses will not be
invalidated, circumvented or challenged. In
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<PAGE>
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as the laws of the United States and may
require modifications to be made to the Company's products in order to obtain
any necessary foreign patents or government approvals, which could effect the
Company's ability to increase its international sales. The failure of the
Company to protect its intellectual property rights could have a material
adverse effect on the Company. See "Business-Patents and Trademarks."
While the Company believes its present products and technology do
not infringe the patents or intellectual property rights of others and is not
aware of any threatened patent or intellectual property infringement claims
against it, there can be no assurance that such claims will not be asserted
against the Company in the future. Should the Company decide to, or be forced
to, litigate such claims, such litigation could be expensive and time consuming,
could divert management's attention from other matters or could otherwise have a
material adverse effect on the Company, regardless of the outcome of the
litigation. An adverse determination in any such proceeding or failure to obtain
a license from a prevailing claimant on satisfactory terms could prevent the
Company from manufacturing and selling products covered by the patent or
intellectual property in question, which also could have a material adverse
effect on the Company.
In addition to protecting its trade secrets, know-how and
proprietary rights to technology, the Company has obtained, and may in the
future be required to obtain, licenses to patents or other proprietary rights of
third parties. Pursuant to certain of such licenses, the Company will be
obligated to pay royalties to third parties, including minimum royalties. No
assurance can be given that any licence required under any patent or other
proprietary rights would be made available to the Company on acceptable terms,
if at all. If the Company does not obtain any required licenses it could
experience delays in product development or interruptions of product sales while
it attempts to design around blocking patents, or it could find that the
development, manufacture or sale of products which require such licenses is
foreclosed. See "Business-Patents and Trademarks."
GOVERNMENT REGULATION
While the telecommunications industry is subject to regulation in
the United States, primarily by the FCC and various other state public service
or utility commissions, and in other countries, such regulations do not
typically apply directly to the Company. However, federal and state regulatory
agencies and commissions regulate the telcos and other communication access
providers who use the Company's products. The effects of such regulations, which
are under continuous review and subject to change, could adversely affect the
Company's customers and, therefore, the Company.
DEPENDENCE ON KEY MANAGEMENT AND PERSONNEL
The Company's success depends to a significant degree upon the
continuing contributions of its key management and technical personnel. In
particular, the Company's business would be materially adversely affected if it
were to lose the services of Timothy J. Roach, the Company's President and Chief
Executive Officer. The Company does not carry key man insurance on the life of
Mr. Roach. While the Company currently has a five-year employment agreement with
Mr. Roach which is automatically renewed annually, the loss of his services or
the services of certain of the Company's key management or technical personnel
could have a material adverse effect on the Company. See "Business-Research and
Development" and "Management."
11
<PAGE>
Furthermore, the Company's Revolving Credit Agreement with The Chase
Manhattan Bank (the "Revolving Credit Agreement") requires that Mr. Roach
continue to actively manage the Company's day-to- day operations and that Mr.
Roach, Alfred J. Roach, Chairman of the Board of Directors, and certain others
continue to own in the aggregate at least 7.5% of the outstanding Common Stock.
After giving effect to the completion of this offering, such persons would own
12.9% of the Company's outstanding Common Stock (12.4% assuming that the
Underwriters' over-allotment option is exercised in full) as of September 30,
1997.
BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company intends to use the net proceeds of this offering to
purchase equipment and leasehold improvements and for working capital and
general corporate purposes. The Company is not currently able to precisely
estimate the allocation of the net proceeds among these uses. The Company's
management will have broad discretion to allocate the net proceeds of this
offering and to determine the timing of expenditures. See "Use of Proceeds."
NO DIVIDENDS
The Company intends to retain any future earnings for use in its
business, and therefore, does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company's Revolving Credit Agreement
prohibits the Company from declaring and paying any dividends. See "Price Range
of Common Stock," "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources."
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Common Stock has at times been, and may in
the future be, subject to wide fluctuations. Factors that may adversely affect
the market price of the Common Stock include, among other things, quarter to
quarter variations in operating results, changes in earnings estimates by
analysts, announcements regarding technological innovations or new products,
announcements of gains or losses of significant customers or contracts,
prospects in the communications industry, changes in the regulatory environment,
market conditions and the sale or attempted sale of large amounts of the Common
Stock into the public markets. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the
public market following this offering could adversely affect the market price
for the Common Stock. As of the date of this Prospectus, but giving effect to
the completion of this offering, 8,772,976 shares of Common Stock (9,147,976
shares if the Underwriters' over-allotment option is exercised in full) will be
freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"). The remaining 1,328,163 shares of Common Stock
are owned by persons who may be deemed to be "affiliates" of the Company and are
presently eligible for sale under Rule 144 ("Rule 144") promulgated under the
Securities Act subject to Rule 144's volume and other limitations. Of such
shares, 500,000 shares are presently subject to an effective and current
registration statement under the Securities Act and, as such, are freely
tradeable without such limitations. In addition, 300,000 shares issuable upon
conversion of convertible indebtedness will, if and when converted, be eligible
for immediate sale under paragraph (k) of Rule 144 without any volume or other
limitation. See "Capitalization" and "Shares Eligible for Future Sale."
12
<PAGE>
The Company has registered, for future issuance under the Securities
Act, 1,692,901 shares of Common Stock subject to its stock option plans (of
which 1,505,401 shares were subject to outstanding options). Any such shares
issued upon the exercise of options by persons who are not affiliates of the
Company will be freely transferable upon issuance and any such shares issued to
affiliates will be eligible for sale under Rule 144 without any further holding
period but subject to certain volume and other limitations. Holders of warrants
to purchase 80,000 shares of Common Stock have the right, under certain
circumstances, to require the Company to file a registration statement under the
Securities Act to enable such holders to sell shares of Common Stock following
the exercise of such warrants. In addition, certain of such holders have certain
piggyback registration rights which have been waived in connection with this
offering.
The Company (except with respect to issuances upon exercise of
outstanding options, warrants and convertible securities), and its executive
officers and directors (who own an aggregate of 1,328,163 shares of Common Stock
and the right to acquire an additional 536,570 shares upon the exercise of
options which become exercisable within 180 days of the date of this
Prospectus), have agreed not to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of Rodman & Renshaw, Inc. ("Rodman"). See
"Underwriting."
ANTI-TAKEOVER CONSIDERATIONS
The affirmative vote of the holders of at least 75% of the Company's
outstanding shares of capital stock entitled to vote thereon is required to
authorize any merger or consolidation of the Company or any of its subsidiaries
with another entity, or a sale, lease or exchange by the Company of all or
substantially all of the assets of the Company and its subsidiaries taken as a
whole, if the other party to the transaction owns 10% or more of the Company's
voting stock in the election of directors (other than a person who was such
holder on December 3, 1979), or the dissolution of the Company, unless such
merger, consolidation, sale, lease or exchange (or a dissolution substantially
consistent therewith) was approved by the Company's Board of Directors prior to
the other party to the transaction acquiring such 10% interest. Mr. Alfred J.
Roach is the only person known to be a beneficial owner of 10% or more of the
Company's voting stock at December 3, 1979. Also, the Board of Directors is
divided into three classes, each of which is elected in successive years for
three year terms. Accordingly, any persons seeking to acquire voting control of
the Company solely through the election of directors would have to elect
directors at two annual stockholders' meetings in order to elect a majority of
the Board. Additionally, the Company's Certificate of Incorporation permits the
Company's directors to issue shares of Preferred Stock in one or more series and
to designate the terms of each series without further stockholder action. The
Company also is subject to Section 203 of the Delaware General Corporation Law
(the "DGCL") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
an "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder. These provisions could serve
to impede or prevent any attempts by outside persons or business concerns to
obtain control of the Company or have a depressive effect on the price of the
Common Stock. See "Description of Capital Stock."
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby
are estimated to be approximately $17.3 million ($20.0 million if the
Underwriter's over-allotment option is exercised in full) after deducting the
underwriting discount and estimated offering expenses payable by the Company.
The Company intends to use approximately $8.5 million to purchase additional
equipment and leasehold improvements primarily to increase its manufacturing
capacity for gas tube overvoltage surge protectors and thermoplastic molding for
its recently awarded broadband NID contracts. The balance of the net proceeds
will be used for working capital and general corporate purposes. Pending such
uses, the Company intends to invest these funds in short-term, investment grade,
interest-bearing securities. The Company believes that funds anticipated to be
generated from operations, together with available cash, marketable securities
and borrowings available under the Company's Revolving Credit Agreement are
adequate to finance the Company's operational and capital needs for the
foreseeable future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table sets forth, for each fiscal quarter of the
Company since the beginning of the Company's 1996 fiscal year, the high and low
sales prices of the Company's Common Stock on the Nasdaq National Market where
the Common Stock is traded under the symbol "TIII":
Fiscal Year Ended June 28, 1996: High Low
--------- ---------
First Quarter............................... $ 10 1/8 $ 6 5/8
Second Quarter.............................. 8 7/8 6 3/4
Third Quarter............................... 9 1/8 6 1/4
Fourth Quarter.............................. 7 3/4 5 7/8
Fiscal Year Ended June 27, 1997:
First Quarter............................... $ 7 1/8 $ 4 1/2
Second Quarter.............................. 7 1/8 5 1/4
Third Quarter............................... 7 4 1/8
Fourth Quarter.............................. 6 4 5/16
Fiscal Year Ending June 26, 1998:
First Quarter............................... $ 9 1/2 $ 5 1/8
Second Quarter through October 21, 1997..... 8 5/16 7 3/8
The last reported sale price of the Common Stock on October 21,
1997, as reported by the Nasdaq National Market was $7 5/8 per share. As of
September 30, 1997, there were approximately 620 holders of record of the Common
Stock.
DIVIDEND POLICY
To date, the Company has paid no cash dividends. For the foreseeable
future, the Company intends to retain all earnings generated from operations for
use in the Company's business. Additionally, the Company's Revolving Credit
Agreement prohibits the payment of dividends. See Note 6 of Notes to
Consolidated Financial Statements.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as
of June 27, 1997 and as adjusted to give effect to the sale by the Company of
the 2,500,000 shares of Common Stock offered hereby:
As of June 27, 1997
--------------------
As
Actual Adjusted
-------- --------
(In thousands)
Current portion of long-term debt and obligations under
capital leases ...................................... $ 537 $ 537
Long-term debt ......................................... 839 839
Long-term obligations under capital leases ............. 1,465 1,465
-------- --------
Total debt .................................... 2,841 2,841
-------- --------
Stockholders' investment:
Preferred Stock, par value $1.00 per share;
1,000,000 authorized and issuable in series: no
shares outstanding ............................ -- --
Common Stock, par value $.01 per share;
30,000,000 shares authorized; 7,448,473 and
9,948,473 (as adjusted) shares issued (1) ..... 75 99
Warrants outstanding ............................. 159 159
Capital in excess of par value ................... 29,052 46,351
Retained earnings ................................ 3,999 3,999
Valuation adjustments to record marketable
securities available for sale at fair value ... 7 7
Less: 17,637 common shares in treasury, at cost . (281) (281)
-------- --------
Total stockholders' investment ................... 33,011 50,334
-------- --------
Total capitalization .................... $ 35,852 $ 53,175
======== ========
- --------------
(1) Excludes the following shares which were reserved for potential future
issuance at June 27, 1997: (i) 1,661,207 shares subject to outstanding
stock options granted to officers, directors, employees and consultants
under the Company's stock option plan at a weighted average exercise price
of $4.98 per share and an additional 187,500 shares subject to future
grants under such plans; (ii) 300,000 shares issuable upon conversion of
$750,000 of indebtedness due to an unaffiliated third party and 100,000
shares subject to an option granted to the holder of such indebtedness at
an exercise price of $2.50 per share; and (iii) 230,000 shares subject to
warrants granted for consulting and financial advisory services at a
weighted average exercise price of $7.14 per share. See Note 9 of Notes to
Consolidated Financial Statements.
16
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The following selected consolidated financial data as of June 28,
1996 and June 27, 1997 and for the three fiscal years in the period ended June
27, 1997 has been derived from the financial statements of the Company which
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included elsewhere
herein. The selected consolidated financial data as of June 25, 1993, June 24,
1994 and June 30, 1995 and for the two fiscal years in the period ended June 24,
1994 are derived from audited financial statements not included elsewhere
herein. The selected consolidated financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
June 25, 1993 June 24, 1994 June 30, 1995 June 28, 1996 June 27, 1997(1)
------------- ------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ..................... $ 33,474 $ 40,147 $ 43,830 $ 44,513 $ 50,675
Cost of sales ................. 24,885 29,315 30,782 31,956 41,421
-------- -------- -------- -------- --------
Gross profit ............... 8,589 10,832 13,048 12,557 9,254
-------- -------- -------- -------- --------
Operating expenses
Selling, general and
administrative ............. 5,232 5,666 6,827 5,881 7,061
Research and development ... 1,370 2,100 2,619 2,820 3,085
-------- -------- -------- -------- --------
Total operating expenses 6,602 7,766 9,446 8,701 10,146
-------- -------- -------- -------- --------
Operating income (loss) . 1,987 3,066 3,602 3,856 (892)
Interest expense .............. (875) ) (711) ) (718) ) (416) ) (287)
Interest income ............... -- -- -- 191 314
Other income .................. 100 34 58 106 72
-------- -------- -------- -------- --------
Income (loss) before provision
for income taxes .............. 1,212 2,389 2,942 3,737 (793)
Provision for income taxes ....... -- -- -- -- 63
-------- -------- -------- -------- --------
Net income (loss) ................ $ 1,212 $ 2,389 $ 2,942 $ 3,737 $ (856)
======== ======== ======== ======== ========
Selected Per Share Data:
Net income (loss) per share-
fully diluted .............. $ 0.28 $ 0.41 $ 0.51 $ 0.47 $ (0.12)
======== ======== ======== ======== ========
Weighted average of shares
outstanding-fully diluted .. 5,865 7,943 8,402 8,179 7,430
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
June 27, 1997
-------------------------------
June 25, 1993 June 24, 1994 June 30, 1995 June 28, 1996 Actual As Adjusted(2)
------------- ------------- ------------- ------------- ------------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Working capital .............. 10,212 6,734 15,947 23,801 19,655 36,978
Total assets ................. 28,066 29,378 34,414 42,823 42,823 60,146
Long-term debt and obligations
under capital leases,
including current portion . 10,263 7,552 2,767 2,739 2,841 2,841
Stockholders' investment ..... 12,439 15,137 25,183 33,862 33,011 50,334
</TABLE>
- ---------------
(1) Includes non-recurring charges of $3.0 million ($2.9 million of which was
charged to cost of sales), which consisted of an increase to the allowance
for inventory, severance related costs and costs to close or relocate
certain production processes. Exclusive of these charges, the Company would
have reported a gross profit of $12.2 million, operating income of $2.1
million, net income of $2.0 million and fully diluted net income per share
of $0.26. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(2) Adjusted to reflect the sale by the Company of the 2,500,000 shares of
Common Stock offered hereby and the receipt of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with Selected Financial Data and the Consolidated Financial Statements and notes
thereto appearing elsewhere in this Prospectus.
OVERVIEW
TII designs, manufactures and markets overvoltage surge protectors,
NIDs, station electronics and fiber optic products for use in the communications
industry. The Company has been a leading supplier of overvoltage surge
protectors to U.S. telcos for over 25 years.
The Company's net sales have increased from $29.7 million in fiscal
1992 to $50.7 million in fiscal 1997, a compound annual growth rate of 11.2%.
During fiscal 1997, the Company's overvoltage surge protectors, NIDs, station
electronics and other products, and fiber optic products contributed 65%, 23%,
6% and 6% of the Company's revenues, respectively. While it is expected that the
Company's overvoltage surge protectors will continue to account for a majority
of the Company's net sales for the foreseeable future, the Company expects that
its NID and fiber optic product lines will contribute a greater percentage of
net sales in the future.
Notwithstanding the growth in the Company's sales, the Company's
results of operations were adversely affected by several factors in fiscal 1997,
resulting in a net loss of $856,000.
During the third quarter of fiscal 1997, Access Network Technologies
("ANT"), a joint venture between Lucent Technologies, Inc. ("Lucent") and
Raychem Corporation ("Raychem") was dissolved. The Company had entered into a
strategic agreement with ANT in 1995 to develop and manufacture advanced
overvoltage surge protectors . The first products introduced by the joint
venture combined TII overvoltage surge protectors with a proprietary gel sealing
technology from Raychem that makes these products virtually impenetrable by
weather. Following such dissolution, the Company increased its allowance for the
inventory which was produced for ANT. The Company and Raychem have agreed to
continue to manufacture and market the products without the participation of
Lucent. In addition, during the third quarter of fiscal 1997, the Company put
into effect certain measures to reduce costs and enhance profitability. These
measures included the reduction of personnel, movement of certain production
processes to the Company's lower cost facility in the Dominican Republic,
outsourcing certain manufacturing steps, re-aligning the Company's sales and
marketing force and the discontinuation of certain lower margin products. These
actions resulted in non- recurring charges of $3.0 million ($2.9 million of
which was charged to cost of sales), which consisted of an increase to the
allowance for inventory, severance related costs and costs to close or move
certain production processes. Absent these charges, the Company would have
reported a gross profit of $12.2 million, operating income of $2.1 million, net
income of $2.0 million and fully diluted net income per share of $0.26.
During the fourth quarter of fiscal 1997, the Company incurred
manufacturing expenses associated with the accelerated production startup of
several new products, including the Company's new broadband NIDs. These
additional manufacturing expenses included the hiring of temporary personnel
during the initial phases of production, the outsourcing of certain production
processes, initial purchases of materials in smaller than usual quantities for
which volume discounts were not available and additional freight and other
expediting costs. Additionally, results were also adversely affected by
continuing expenditures relating to the Company's movement of certain production
processes to the Company's lower cost facility in the Dominican Republic.
19
<PAGE>
The Company expects that such costs and additional manufacturing expenses will
continue during the first half of fiscal 1998.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED JUNE 27,1997, JUNE 28,1996 AND JUNE 30, 1995
NET SALES
Net sales for fiscal 1997 increased by $6.2 million (13.8%) to $50.7
million from $44.5 million for fiscal 1996. Sales of overvoltage surge
protectors increased by $4.3 million over the prior year's sales, principally as
a result of increased sales of the Company's recently introduced modular station
protector. NID sales increased by $2.2 million due to increased purchases by
telco customers. Sales of fiber optic-related products increased by $1.6 million
primarily due to wider acceptance of the LIGHTRAX(R) product line. These
increases were partially offset by a decline of $1.9 million in sales of station
electronics and other products, including the absence in fiscal 1997 of $875,000
of shortfall payments received from AT&T Corporation ("AT&T") in fiscal 1996 as
a final payment under a contract that expired pursuant to which AT&T was
obligated to make certain payments to the extent it failed to make certain
purchases from the Company. Net sales for fiscal 1996 increased by $700,000
(1.6%) to $44.5 million from $43.8 million for fiscal 1995 as the Company
shipped principally the same mix of product to its customers during these
periods.
GROSS PROFIT
Gross profit for fiscal 1997 decreased by $3.3 million (26.3%) to
$9.3 million from $12.6 million for fiscal 1996. Gross profit as a percentage of
sales decreased for fiscal 1997 to 18.3% (24.0% before the non- recurring
charges) from 28.2% for fiscal 1996. Excluding the shortfall payment received
from AT&T without any related cost of sales, the Company's fiscal 1996 gross
profit margin would have been 26.8%. The Company's fiscal 1997 gross profit
margin was impacted by the non-recurring charges of $2.9 million and higher raw
material and manufacturing overhead costs. Furthermore, during the fourth
quarter of fiscal 1997, gross profit was adversely affected by manufacturing
costs associated with the accelerated production startup of several new
products, including the Company's new broadband NIDs, and continuing
expenditures relating to the movement of certain production processes to the
Company's lower cost facility in the Dominican Republic. The Company expects
these additional costs to continue during the first half of fiscal 1998 and that
gross profit as a percentage of sales should continue to be impacted during the
fiscal year. Gross profit for fiscal 1996 decreased by $491,000 (3.8%) to $12.6
million from $13.0 million for fiscal 1995 and gross profit as a percentage of
sales decreased for fiscal 1996 to 28.2% from 29.8% due primarily to increases
in raw material and other manufacturing costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for fiscal 1997
increased by $1.2 million (20.0%) to $7.0 million from $5.9 million for fiscal
1996. As a percentage of sales, selling, general and administrative expenses
increased for fiscal 1997 to 13.9% from 13.2% for fiscal 1996. The increase
resulted primarily from legal costs of an action in which the Company was a
plaintiff and from personnel, promotion and other costs associated with the
Company's increased efforts to win supply contracts for its new broadband NID
product line. Selling, general and administrative expenses for fiscal 1996
decreased by $946,000 (13.9%) to $5.9 million from $6.8 million for fiscal 1995
principally due to administrative staff and expense reduction. As
20
<PAGE>
a percentage of sales, selling, general and administrative expenses decreased
for fiscal 1996 to 13.2% from 15.6% for fiscal 1995.
RESEARCH AND DEVELOPMENT
Research and development expenses for fiscal 1997 increased by
$265,000 (9.4%) to $3.1 million from $2.8 million for fiscal 1996. As a
percentage of sales, research and development expenses for fiscal 1997 decreased
to 6.1% from 6.3% for fiscal 1996. The fiscal 1997 increase related primarily to
increases in costs associated with the development of the new broadband NID
product line and, to a lesser extent, increases in costs associated with the
development of new overvoltage surge protectors. Research and development
expenses for fiscal 1996 increased by $201,000 (7.7%) to $2.8 million from $2.6
million for fiscal 1995. As a percentage of sales, research and development
expenses for fiscal 1996 increased to 6.3% from 6.0% for fiscal 1995. Staff
increases and higher costs associated with developing new overvoltage surge
protectors for the ANT joint venture contributed to the fiscal 1996 increase.
INTEREST EXPENSE
Interest expense for fiscal 1997 decreased by $129,000 (31.0%) to
$287,000 from $416,000 for fiscal 1996 due to reduced debt levels and the
reduction of amortization of debt origination costs that ceased in September
1996. Interest expense for fiscal 1996 decreased by $302,000 (42.1%) to $416,000
from $718,000 for fiscal 1995 as debt levels declined significantly due to cash
received from the exercise of warrants and options in the fourth quarter of
fiscal 1995 and the first quarter of fiscal 1996.
PROVISION FOR INCOME TAXES
In fiscal 1997, the Company accrued a net provision of $63,000 for
income taxes resulting from the settlement of an examination of the Company's
federal income taxes for fiscal years 1994 and 1995.
NET INCOME
As a result of the foregoing, the Company incurred a net loss of
$856,000 for fiscal 1997 versus net income of $3.7 million for fiscal 1996 and
$2.9 million for fiscal 1995. Net loss per share equaled $0.12 per share for
fiscal 1997 versus fully diluted net income per share of $0.47 and $0.51 in
fiscal years 1996 and 1995, respectively.
INCOME TAXES
Due to its election to operate under Section 936 of the Internal
Revenue Code of 1986, as amended (the "Code"), the availability of certain net
operating loss carryforwards and exemptions from income taxes in Puerto Rico and
in the Dominican Republic, the Company has not been required to pay United
States federal, Puerto Rico or Dominican Republic taxes on most of its income.
The Company calculates its credit under Section 936 utilizing the economic
activity based credit. Based on fiscal 1997 levels of qualified wages, fringe
benefits and depreciation in Puerto Rico, the Company's economic activity based
credit limitation is approximately $3.5 million per annum. The amount of the
economic activity based Section 936 credit limitation available for fiscal 1997
will be sufficient to offset the U.S. federal income tax on Puerto Rico
possession income for the Company's 1997 fiscal year, as computed after
utilization of the Company's available net operating loss carryforwards of
approximately $334,000.
21
<PAGE>
Legislation enacted in the Small Business Job Protection Act of 1996
repealed the Section 936 credit for taxable years beginning after December 31,
1995 for the Company's 1997 fiscal year. However, since the Company had elected
the Section 936 credit, it is eligible to continue to claim a Section 936 credit
for an additional 10 years under a special grandfather rule subject to a maximum
limitation. If, however, the Company adds a substantial new line of business, it
would cease to be eligible to claim the Section 936 credit beginning with the
taxable year in which such new line of business is added. Based on the Company's
current level of Puerto Rico possession income and business plans, the Company
believes that it will be eligible to claim a Section 936 credit under the
grandfather rule.
The Company is subject to United States federal and applicable state
income taxes with respect to its non-Puerto Rico operations. As of June 27,
1997, the Company's U.S. subsidiaries have approximately $3.9 million of net
operating losses available for use through 2012, and $5.4 million of net
operating losses subject to an annual maximum utilization of $380,000 per year
due to an ownership change under Section 382 of the Code. See Note 8 of the
Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities
decreased from $8.9 million at the end of fiscal 1996 to $3.8 million at the end
of fiscal 1997, while working capital decreased to $19.7 million at the end of
fiscal 1997 from $23.8 million at the end of fiscal 1996.
During fiscal 1997, $352,000 of cash was used in operations,
primarily to fund increases in inventories (approximately $4.4 million or $1.5
million net of $2.9 million of allowances established). While the Company had a
net loss of $856,000, such loss included non-cash charges, including $1.9
million for depreciation and amortization.
Cash of $1.9 million was used in investing activities for capital
expenditures of $4.3 million offset, in part, by proceeds from sales and
maturities of marketable securities in excess of amounts reinvested of $2.4
million. Financing activities used $424,000 of cash for the payment of long-term
debt and obligations under capital leases.
The Company has no commitments for capital expenditures, but expects
to purchase new equipment and leasehold improvements in the normal course of
business.
The Company is a party to a Revolving Credit Loan Agreement with The
Chase Manhattan Bank which, at June 27, 1997, entitled the Company to have
outstanding borrowings of up to $4.0 million, reducing by $400,000 each calendar
quarter thereafter. As a result of the non-recurring charge of $3.0 million and
the increased level of investment in capital equipment during fiscal 1997, the
Company was not in compliance with the debt service ratio, capital expenditure
and net income covenants contained in its Revolving Credit Agreement. There is
no loan amount outstanding under the agreement and the Company has received a
waiver with respect to such non-compliance. See Note 6 of Notes to Consolidated
Financial Statements for further information concerning this facility, including
various financial maintenance covenants.
Funds anticipated to be generated from operations, together with
available cash, marketable securities, the availability of borrowings under the
Company's Revolving Credit Agreement and the proceeds of this offering are
considered to be adequate to finance the Company's operational and capital needs
for the foreseeable future. However, the Company may seek additional financing
for the acquisition of new product
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lines or additional products for its existing product lines should any such
acquisition opportunity present itself. Any such financing may involve
borrowings from banks or institutional lenders or the sale and issuance of debt
or equity securities from private sources or in public markets. The Company's
ability to obtain such financing will be affected by such factors as its results
of operations, financial condition, business prospects and restrictions
contained in credit facilities. There can be no assurance that the Company will
be able to, or the terms on which it may be able to, obtain any such financing.
IMPACT OF INFLATION
The Company does not believe its business is affected by inflation
to a greater extent than the general economy. The Company monitors the impact of
inflation and attempts to adjust prices where market conditions permit.
Inflation has not had a significant effect on the Company's operations during
any of the reported periods.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued a
new accounting pronouncement, SFAS No. 128, "Earnings Per Share," which will
change the current method of computing earnings per share. The new standard
requires presentation of "basic earnings per share" and "diluted earnings per
share" amounts, as defined. SFAS No. 128 will be effective beginning with the
Company's quarter ending December 26, 1997 and, upon adoption, all prior-period
earnings per share data presented will be restated to conform with the
provisions of the new pronouncement. Application earlier than the Company's
quarter ending December 26, 1997 is not permitted. The impact on previously
reported primary and fully diluted earnings per share will be immaterial.
In June 1997, the Financial Accounting Standards Board issued a new
accounting pronouncement, SFAS No. 130, "Reporting Comprehensive Income," which
is effective for financial statements with fiscal years beginning after December
15, 1997. Earlier application is permitted. SFAS No. 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general- purpose financial statements. The Company expects to adopt
SFAS No. 130 in fiscal 1998 and believes such adoption will not have a material
impact on its financial position or results of operations.
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BUSINESS
TII designs, manufactures and markets overvoltage surge protectors,
network interface devices ("NIDs"), station electronics and fiber optic products
for use in the communications industry. The Company sells its products to
telcos, OEMs, CATV providers and competitive access providers of communications
services. The Company believes that the performance of its products, together
with its commitment to quality and service, has fostered strong customer
loyalty, leading four of the five RBOCs and most of the 1,300 independent telcos
to specify one or more of the Company's overvoltage surge protectors for use at
their subscriber station locations.
TII has been a leading supplier of subscriber station overvoltage
surge protectors to U.S. telcos for over 25 years. The Company believes that its
proprietary overvoltage surge protectors offer superior, cost-effective
performance features and characteristics, including high reliability, long life
cycles and advanced protection against adverse environmental conditions.
Overvoltage surge protectors are mandated in the United States by the NEC to be
installed on subscriber telephone lines to prevent injury to users and damage to
their equipment due to surges caused by lightning and other hazardous
overvoltages. While similar requirements exist in most other developed
countries, a significant portion of the world's communications networks remains
unprotected from the effects of overvoltage surges.
The Company also markets a complete line of NIDs tailored to
customer specifications. NIDs house the FCC mandated demarcation point between
telco-owned and subscriber-owned property. The Company's NIDs typically also
enclose its overvoltage surge protectors and various station electronic
products, which, among other things, allow a telco to remotely test the
integrity of its lines, thereby minimizing costly maintenance dispatches. To
address the demand for voice, high-speed data and interactive video services,
telcos and other communications providers are expanding and upgrading their
networks to accommodate the higher bandwidth necessary to transmit these
services. To meet its customers' needs, TII has introduced a state-of-the-art
broadband NID product line specifically designed to house the telcos' technology
of choice, whether traditional twisted pair lines or high- bandwidth coaxial
cable or fiber optic lines. The features and functionality of the Company's
broadband NIDs were instrumental in the Company recently winning two major telco
contracts.
As an integral part of the Company's broadband NID product line, the
Company recently developed a high-performance patented coaxial overvoltage surge
protector to safeguard coaxial cable lines. While providing superior overvoltage
surge protection, the Company's in-line coaxial overvoltage surge protector is
virtually transparent to the signal on the network, permitting high-bandwidth
signals to be transmitted without adversely affecting the signal. The Company
also markets its coaxial overvoltage surge protector to CATV providers. Proposed
revisions to the NEC, currently anticipated to take effect in 1999, would
require overvoltage surge protection on all new or existing CATV lines intended
to carry voice, data or interactive video services.
The Company also produces and sells a line of fiber optic products,
including custom-designed enclosures and LIGHTRAX(R), a unique fiber optic
management system used to route sensitive fiber optic cable throughout a
facility.
Communications is one of the fastest growing industries in the world
today. The Company's strategy is to participate in the rapid growth of the
communications industry by: (i) growing its core business by capitalizing on its
reputation as a manufacturer of quality, high-performance products; (ii)
introducing new and innovative products that are complementary to its current
products; (iii) expanding into new markets, including
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CATV, international and wireless markets; and (iv) investing in production
facilities to increase its manufacturing capacity, strengthen its technical
capabilities, improve operating efficiencies and reduce costs.
INDUSTRY OVERVIEW
Communications is one of the fastest growing industries in the world
today. The growing dependence of individuals, businesses, universities and
governments on communications systems has been driven by numerous factors
including: (i) the advent, improvement and dramatic increase in the use of
electronic equipment over communications lines, such as personal computers,
modems, fax machines and answering machines; (ii) the increasing use and
availability of on-line information services such as the Internet, e-mail and
interactive video; (iii) the need to transmit vast amounts of information
quickly and more accurately; and (iv) changes in the workplace including the
growth of the small office/home office market.
The expanded utilization of communications networks has created a
need for the communication service providers (principally telcos) to keep pace
technologically. The increased transmission of high-speed data and video has
caused telcos and other communications access providers to expand and upgrade
their networks to broaden the bandwidth of their transmission lines over
traditional twisted pair copper lines and to install higher capacity coaxial
cable and fiber optic lines. The transmission of high-speed data and interactive
video require the transmission line to carry significantly more information than
a traditional voice line.
Rapid expansion in the communications industry has primarily
occurred since the landmark settlement in 1984, which resulted in AT&T's
spin-off of the then seven RBOCs, as well as rulings later in that year by the
FCC that further facilitated the direct connection of subscriber-owned
communications equipment to the telcos' networks. Providing customers with
unencumbered access to the telcos' networks has dramatically increased the
demand for customer premise equipment with more advanced features and
functionality which, in turn, has accelerated the need for more and higher
performing communication access lines. The Telecommunication Act of 1996 further
increased competition within the U.S. communications marketplace, requiring the
local telephone companies to provide access to local networks by CATV providers,
wireless communications companies and competitive access providers.
As a result of these changes, the number of telephone access lines
in the United States has increased from 111 million at the end of 1983 to 165
million at the end of 1996. Worldwide telephone access lines have increased from
371 million at the end of 1983 to 700 million at the end of 1996. By the year
2000, the number of access lines is expected to increase to almost 200 million
in the United States and to approximately 925 million worldwide.
In order to provide their subscribers with enhanced communication
services and share in the growth of communications, CATV providers have begun to
expand and upgrade their networks. At the close of 1996, over 63 million
households in the United States subscribed to CATV and by the end of 2000, CATV
subscribers are expected to grow to over 68 million.
The growth in communications has also spawned a rapidly expanding
wireless communications market, including cellular, microwave, satellite and
digital personal communications systems. While these services transmit signals
through the air, the signal ultimately is transmitted over coaxial cable at the
cell site, microwave station, satellite antenna or satellite dish, making them
vulnerable to lightning and other hazardous
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overvoltage surges. The cellular market has grown from less than 100,000
subscribers in 1985 to approximately 44.0 million at the end of 1996.
The Company is well positioned to take advantage of this growth
because its products are integral to the construction and maintenance of
communications networks.
Growth Strategy
The Company intends to participate in the rapidly growing
communications industry by leveraging its growing base of business and
reputation for quality and reliability, introducing new and innovative products,
expanding into new markets, and continuing to invest in production facilities.
GROWING ITS CORE BUSINESS. The Company believes that, as a leading
supplier of overvoltage surge protectors to the U.S. telephone industry for over
25 years, its overvoltage surge protectors provide significant growth
opportunities, as well as an important core technology for the development and
introduction of new and innovative products. The Company intends to capitalize
on its reputation as a manufacturer of quality, high-performance products to
increase sales of its core products.
INTRODUCING NEW AND INNOVATIVE PRODUCTS. Capitalizing on its close
relationships, the Company's strategy is to continue to work closely with
customers to help define their requirements and develop new and innovative
products. Employing this strategy, the Company recently introduced a broadband
NID product line to address the telcos' requirement for a single NID to
accommodate voice, high-speed data and interactive video services.
EXPANDING INTO NEW MARKETS. In addition to providing overvoltage
protection on coaxial lines in broadband NIDs, the coaxial overvoltage surge
protector is intended to be an integral part of comprehensive protection systems
being designed for the rapidly expanding wireless communications market,
including cellular, microwave, satellite and digital personal communications
systems. Although international sales to date have not been significant, the
Company believes international markets offer substantial opportunities for its
overvoltage surge protectors since a significant portion of the world's
communications networks remains unprotected from the destructive effects of
overvoltage surges.
INVESTING IN PRODUCTION FACILITIES. During fiscal 1997, the Company
continued to upgrade and improve its manufacturing facilities to enable it to
mass produce its new broadband NIDs to meet anticipated sales levels under
recently awarded contracts. The Company intends to continue investing in
production facilities to increase its manufacturing capacity, strengthen its
technical abilities, improve operating efficiencies and reduce costs.
RECENT CONTRACTS
As a result of the Company's strong customer relationships, industry
expertise and commitment to quality, the Company has recently been awarded four
significant new contracts and contract extensions:
o In April 1997, the Company entered into a multi-year contract
extension to provide overvoltage surge protectors to Ameritech
Corporation.
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o In July 1997, the Company was awarded a contract to provide
new broadband NID products to the Puerto Rico Telephone
Company.
o In September 1997, the Company won a multi-year contract to
provide new broadband NID products to a RBOC.
o In October 1997, the Company was awarded a contract to supply
custom designed fiber optic enclosures and splice trays to a
RBOC.
PRODUCTS
Overvoltage Surge Protectors. The Company designs, manufactures and
markets overvoltage surge protectors primarily for use by telcos on their
subscribers' home or business telephone lines. Surge protectors (i) protect the
subscribers and their equipment; (ii) reduce the subscribers' loss of service;
(iii) reduce the telcos' loss of revenue due to subscriber outages; and (iv)
reduce the telco costs to replace or repair damaged telco-owned equipment.
Overvoltage surge protectors differ in power capacity, application,
configuration and price to meet varying needs.
In the United States, overvoltage surge protectors are required by
the NEC to be installed on the subscriber's telephone lines. While similar
requirements exist in most other developed countries, a significant portion of
the world's communications networks remains unprotected from the destructive
effects of overvoltage surges.
GAS TUBE PROTECTORS
The Company's gas tubes represent the foundation upon which most of
the Company's current overvoltage surge protector products are based. The
principal component of the Company's overvoltage surge protector is a
proprietary two or three electrode gas tube. Overvoltage surge protection is
provided when the voltage on a telephone line elevates to a level preset in the
gas tube, at which time the gases in the tube instantly ionize, momentarily
disconnecting the phone or other equipment from the circuit while safely
conducting the hazardous surge into the ground. When the voltage on the telcos
line drops to a safe level, the gases in the tube return to their normal state,
returning the phone and other connected equipment to service. The Company's gas
tubes have been designed to withstand multiple high energy overvoltage surges
while continuing to operate over a long service life with minimal failure rates.
MODULAR STATION PROTECTORS
One of the Company's most advanced overvoltage surge protectors,
marketed under the trademark Totel Failsafe(R) ("TFS"), combines the Company's
three electrode gas tube with a thermally operated failsafe mechanism. The three
electrode gas tube is designed to protect equipment from hazardous overvoltage
surges and the failsafe mechanism is designed to insure that, under sustained
overvoltage conditions, the protector will become permanently grounded. The TFS
module's protector element is environmentally sealed to prevent damage to the
protector from severe moisture and industrial pollution. Another advanced
overvoltage surge protector, jointly manufactured with Raychem, combines the
Company's TFS protection element with Raychem's proprietary gel technology
making this modular surge protector virtually impervious to environmental
contamination while providing advanced overvoltage surge protection.
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COAXIAL PROTECTORS
In October 1996, TII was granted a U.S. patent for its new coaxial
transmission line surge protector. The patent provides broad coverage for its
in-line overvoltage surge protection on coaxial cable, an alternate method of
providing high-bandwidth signals. TII's gas tube coaxial surge protector is an
in-line protector that provides superior overvoltage surge protection for the
connected equipment while remaining virtually transparent to the signal on the
network. This permits high-bandwidth signals to be transmitted without adversely
affecting the signal. The coaxial overvoltage surge protector is also intended
to be marketed to CATV providers and to the rapidly expanding wireless
communications market, including, cellular, microwave, satellite and digital
personal communications systems.
SOLID STATE AND HYBRID OVERVOLTAGE SURGE PROTECTORS
Using purchased solid state components, the Company has developed a
line of solid state overvoltage surge protectors. While solid state overvoltage
surge protectors are faster than gas tube overvoltage surge protectors at
reacting to surges, a feature that some telcos believe important in protecting
certain of their sensitive equipment, they have lower energy handling capability
than gas tubes. When an overvoltage surge exceeds the energy handling capacity
of the solid state protector, it fails in a shorted mode causing the telephone
to cease operating. Therefore, the Company principally targets customers for its
solid state surge protectors in regions where there is a low incidence of
lightning, the source of the highest voltage surges on a communications line. As
communications equipment becomes more complex, speed of the protector to react
to a surge may be perceived to be more critical than energy handling
capabilities. In response, the Company is also combining solid state protectors
with the Company's gas tubes in hybrid overvoltage surge protectors. While
generally more expensive and complex than gas tube surge protectors, the hybrid
surge protector can provide the speed of solid state protectors with the energy
handling capability of a gas tube surge protector.
AC POWERLINE PROTECTORS
TII's powerline surge protectors utilize the Company's gas tubes and
solid state surge protection technology, and are principally for use by telcos
at their central office locations. These devices protect the connected
communication equipment against damage or destruction caused when overvoltage
surges enter equipment through the powerline.
Overvoltage surge protectors sold separately from NIDs accounted for
approximately 65%, 65% and 68% of the Company's net sales during the Company's
fiscal years 1997, 1996 and 1995, respectively.
NETWORK INTERFACE DEVICES. The Company designs, molds, assembles and
markets various NIDs. NIDs house the FCC mandated demarcation point between
telco-owned and subscriber-owned property. The Company's NIDs typically also
enclose its overvoltage surge protectors and various station electronic
products, which, among other things, allow telcos to remotely test the integrity
of their lines, thereby minimizing costly maintenance dispatches.
To address the demand for voice, high speed data and interactive
video services, telcos and other communication providers are expanding and
upgrading their networks to accommodate the higher bandwidth necessary to
transmit these services. In response, TII has recently developed a line of
patented broadband NIDs designed to enclose the telcos' technology of choice
needed to accommodate higher bandwidth signals, whether traditional twisted pair
lines or high-bandwidth coaxial cable or fiber optic lines. The Company's
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broadband NID product line is modular in design and thus facilitates expansion
to accommodate additional access lines subscribers may request in the future.
For use in various markets, the NID product line currently consists of
enclosures which will accommodate up to two, four or six access lines and the
Company is presently developing enclosures which will accommodate up to twelve
and twenty-five access lines. Designed with future technologies in mind, the
Company's broadband NIDs also accommodates TII's patented coaxial overvoltage
surge protector, as well as high-performance fiber optic connectors, produced
by, among others, the Company's subsidiary, TII-Ditel.
NID sales represented approximately 23%, 21% and 20% of the
Company's net sales during fiscal 1997, 1996 and 1995, respectively.
STATION ELECTRONICS AND OTHER PRODUCTS. The Company designs,
manufactures and markets station electronic products. Most subscriber electronic
devices are designed to be installed with an overvoltage surge protector,
typically in a NID. The Company's station electronics products include
maintenance termination units designed to interface with the telco's central
office test equipment, offering the telco remote testing capabilities. With this
product installed at the subscriber's home or business, a telco can determine
whether a defect or fault is in telco-owned or subscriber-owned equipment before
dispatching a costly maintenance vehicle. Another product automatically
identifies the calling party on a party line (located primarily in rural areas
of the United States and Canada) without operator assistance. The Company also
designs, manufactures and markets other products, including plastic housings,
wire terminals, enclosures, cabinets and various hardware products principally
for use by the telco industry.
Station electronics and other products sold separately from NIDs,
accounted for approximately 6%, 11% and 9% of the Company's net sales in fiscal
1997, 1996 and 1995, respectively.
FIBER OPTIC PRODUCTS. The Company's fiber optic product lines, sold
and marketed primarily to the RBOCs, OEMs and long distance companies under the
name TII-Ditel, include enclosures, splice trays, high performance cable
assemblies, and LIGHTRAX(R), a unique fiber management system used to route
sensitive fiber optic lines throughout a facility in which the fiber optic cable
is being installed. The Company integrates these products with purchased fiber
optic components to design and produce customized fiber optic cable assemblies
for the various interconnection points which join and extend fiber optic lines.
TII-Ditel makes products used to connect the telcos' local and long distance
networks to telco central offices as well as to route fiber optic lines
throughout subscriber locations.
TII-Ditel develops markets for its products by encouraging its
technical personnel to work closely with the engineering staffs of its customers
to provide applications assistance and formulate unique solutions to consumer
needs.
Sales of fiber optic products represented approximately 6%, 3% and
3% of the Company's net sales during fiscal 1997, 1996 and 1995, respectively.
RESEARCH AND DEVELOPMENT
As the telcos and other communications providers upgrade and expand
their networks to provide advanced telecommunication services, new product
opportunities continue to arise for the Company. Currently, the Company's
research and development ("R&D") and related marketing efforts are focused on
several major projects including:
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o Expanding the broadband NID product line to address
anticipated future requirements of the telcos and other
competitive access providers.
o Further developing coaxial cable overvoltage surge protectors
for telcos, CATV providers and wireless broadband
communication markets.
o Expanding the Company's fiber optic product line of enclosures
and fiber optic cable management systems to meet the growing
needs of existing and potential customers.
o Designing custom overvoltage surge protectors for OEMS for
installation throughout telco and other communication
networks.
o Designing gas tube, solid state and hybrid overvoltage surge
protectors for the varying specifications of the worldwide
communications markets.
The Company's R&D department currently consists of 24 persons
skilled and experienced in various technical disciplines, including physics,
electrical and mechanical engineering, with specialization in such fields as
electronics, metallurgy, plastics and fiber optics. The Company maintains
computer aided design equipment and laboratory facilities, which contain
sophisticated equipment, in order to develop and test its existing and current
products.
The Company's R&D expense was $3.1 million, $2.8 million, and $2.6
million during fiscal 1997, 1996 and 1995, respectively. All of such R&D was
Company sponsored.
MARKETING AND SALES
Prior to selling its products to a RBOC or other telco, the Company
must undergo a potentially lengthy product qualification process. Thereafter,
the Company continually submits successive generations of current products as
well as new products to such customers for qualifications. The Company believes
that its 25 years as a leading supplier of overvoltage surge protectors, its
current designation as a supplier to four of the five RBOCs of subscriber
overvoltage surge protectors and its strategy for developing products by working
closely with its customers provide a strong position from which it can market
its current and new products.
The Company sells to telcos primarily through its national sales
force, as well as through a network of distributors. TII also sells to long
distance carriers, CATV providers and OEMs, including other NID suppliers, which
incorporate the Company's overvoltage surge protectors into their products for
resale to telcos.
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The following customers accounted for more than 10% of the Company's
consolidated revenues during one or more of the years presented below:
For Year Ended
---------------------------------------------
June 30, June 28, June 27,
1995 1996 1997
---------------------------------------------
Siecor Corporation (1) 30% 26% 20%
NYNEX Corporation (2) 13% 15% 18%
Keptel, Inc. (1) * 12% 11%
- ---------------
* Asterisk denotes less than 10% for the period presented.
(1) Siecor Corporation and Keptel, Inc. are OEMs that supply NIDs to RBOCs.
Siecor Corporation and Keptel, Inc. are required by certain RBOCs to
purchase TII overvoltage surge protectors for inclusion into their NIDs.
(2) Subsequent to June 27, 1997, NYNEX Corporation merged into Bell Atlantic
Corporation.
Purchases of the Company's products are generally based on
individual customer purchase orders for delivery within thirty days under
general supply contracts. The Company, therefore, has no material firm backlog
of orders.
The Company's international sales equaled approximately $1.3 million
in fiscal 1997 (3% of net sales), $1.6 million in fiscal 1996 (4% of net sales),
and $1.0 million in fiscal 1995 (2% of net sales). International sales have been
made primarily to countries in the Caribbean, South and Central America, Canada
and Western Europe. Additionally, the Company believes that certain of its
products which are sold to distributors and OEMs are embodied in products which
are sold abroad. The Company requires foreign sales to be paid for in U. S.
currency. International sales are affected by such factors as exchange rates,
changes in protective tariffs and foreign government import controls. The
Company believes international markets offer substantial opportunities. While
the Company intends to devote additional sales and marketing efforts toward
increasing its international sales, there can be no assurance that these efforts
will be effective or that the Company will achieve significant international
sales.
MANUFACTURING
The Company produces its overvoltage surge protectors, NIDs and
station electronics at its facilities in Puerto Rico and the Dominican Republic.
The Company's facilities in Puerto Rico and the Dominican Republic have been ISO
9002 accredited since October 1994 and June 1995, respectively. The ISO
establishes global standards for manufacturing and quality. The Company
manufactures its fiber optic products at its facility in North Carolina.
The Company believes that the vertical integration of its
manufacturing processes gives the Company both cost and delivery advantages. The
manufacture of the Company's gas tubes requires vacuum ovens, specialized test
equipment and various processes developed by the Company. TII produces a
substantial portion of its NIDs and other plastic enclosures in its
thermoplastic molding facility in Puerto Rico. Many of the Company's products
contain numerous metal components produced with the Company's metal stamping and
forming equipment.
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As a result of the award of new contracts, including contracts for
the Company's broadband NIDs, the Company has begun the expansion of its
manufacturing facilities to increase its gas tube overvoltage surge protector
and thermoplastic molding capacities, as well as, to purchase the necessary
molds, test equipment and other equipment necessary to meet the anticipated
needs under these contracts. See "Risk Factors-Risk of Loss of New Contracts."
The Company's fiber optic products are assembled principally from
outside purchased components and plastic parts molded at its facility in North
Carolina.
TII uses a statistical process control method within its
manufacturing and engineering operations to establish quality standards, qualify
vendors, inspect incoming components, maintain in-process inspection and perform
final testing of finished goods.
RAW MATERIALS
The Company uses stamped, drawn and formed parts made out of a
variety of commonly available metals, ceramics and plastics as the primary
components of its gas tubes, overvoltage surge protectors, NIDs, other molded
plastic housings and fiber optic products. In manufacturing certain protectors
and station electronic products, the Company purchases commonly available solid
state components, printed circuit boards and standard electrical components such
as resistors, diodes and capacitors. In jointly manufacturing the modular
overvoltage surge protector with Raychem, the Company utilizes a proprietary gel
which is supplied exclusively by Raychem. While the Company has no contracts
with suppliers of the components utilized in the manufacture of its products
which extend for more than one year, the Company believes that the raw materials
it uses will continue to be available in sufficient supply at competitive
prices.
COMPETITION
The Company's gas tube overvoltage surge protectors not only compete
with other companies' gas tube overvoltage surge protectors, but also with solid
state overvoltage surge protectors. While solid state surge protectors are
faster reacting to surges, gas tube overvoltage surge protectors have generally
remained the subscriber overvoltage surge protection technology of choice by
virtually all telcos because of the gas tube's ability to repeatedly withstand
significantly higher energy surges than solid state surge protectors. This
enables gas tubes to survive longer in the field than solid state surge
protectors, reducing loss of service and costs in dispatching a maintenance
vehicle to replace the failed surge protector. Solid state overvoltage surge
protectors are used principally in telcos' central office switching centers
where speed is perceived to be more critical than energy handling capabilities,
and in regions where there is a low incidence of lightning. While the Company
believes that, for the foreseeable future, both gas tube and solid state
protectors will continue to be used as overvoltage surge protectors within the
telecommunication market, solid state surge protectors may gain market share
from gas tube surge protectors, especially where high speed response is
critical. Solid state and gas tube protectors are produced from different raw
materials, manufacturing processes and equipment. The Company has begun
developing and marketing overvoltage surge protectors incorporating purchased
solid state protectors on a limited basis.
TII, as well as other companies, have begun combining solid state
protectors with gas tubes into a hybrid surge protector module. While more
expensive and complex than gas tube surge protectors, the hybrid surge protector
can provide the speed of a solid state protector with the energy handling
capability of a gas tube surge protector. Hybrid surge protectors have been
field tested against gas tube and solid state surge protectors
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by several telcos. To date, to the Company's knowledge, telcos have not seen
significant enough improvement in protection of equipment or field life of the
protector to switch to the more expensive hybrid surge protectors.
Currently, the Company sells most of its subscriber overvoltage
surge protectors to the telcos in NID housings produced by the Company or OEMs,
who purchase the surge protectors from the Company. Most NIDs sold in the United
States are produced by competitors of the Company, some of which also market
overvoltage surge protectors and station electronics. In addition, other
suppliers to telcos could enter the market and compete with the Company.
The fiber optic market is characterized by innovation, rapidly
changing technology and new product development. The Company's success in this
area depends upon its ability to identify customer needs, develop new products
and keep pace with continuing changes in technology and customer preferences.
The Telecommunications Act of 1996 permits the RBOCs, which are
presently the principal users of the Company's products, to manufacture
telecommunications equipment. Accordingly, the RBOCs could decide to manufacture
and supply themselves with NIDs rather than purchase from outside suppliers.
Most of the Company's competitors and many of those who could enter the
Company's market are well established suppliers to the telcos, have a reputation
for quality and service and are, or are part of, large corporations which have
substantially greater assets, financial resources and larger sales forces,
manufacturing facilities and research and development staffs than those of the
Company. While most telcos evaluate, test and approve the overvoltage surge
protector and station electronics separately from the NID, the Company believes
there is a competitive advantage in offering the customer all of the components
of the NID including, the enclosure, the overvoltage surge protector, the
demarcation point and the station electronics.
Principal competitive factors include price, technology, delivery,
quality and reliability. The Company believes that its sales, marketing and R&D
departments, its high quality, low-cost production facilities, and its
overvoltage surge protection technology enable it to maintain its competitive
position.
PATENTS AND TRADEMARKS
The Company owns or has applied for a number of patents relating to
certain of its products or components thereof, and owns a number of registered
trademarks which are considered to be of value principally in identifying the
Company and its products. However, to maintain its industry position, the
Company relies primarily on technical leadership, trade secrets and
nondisclosure agreements of its proprietary rights. While the Company considers
its patents and trademarks to be important, especially in the early stages of
product marketing, it believes that, because of technological advances in its
industry, its success depends primarily upon its sales, engineering and
manufacturing skills.
The Company has entered into a license agreement with Citel S.A.
pursuant to which the Company is the sole licensee of a patent related to its
coaxial overvoltage surge protector. Pursuant to this agreement the Company has
agreed to pay a one-time payment and a royalty based on net revenues subject to
minimum annual payments. The term of the licensing agreement continues until the
expiration of the patent under the license in 2004 and may be terminated earlier
according to the provisions therein. TII, DITEL, LIGHTRAX and Totel Failsafe are
registered trademarks of the Company.
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REGULATION
While the telecommunications industry is subject to regulation in
the United States, primarily by the FCC and various other state public service
or utility commissions, and in other countries, such regulations do not
typically apply directly to the Company. However, federal and state regulatory
agencies and commissions regulate most of the telcos and other communications
access providers who use the Company's products. The effects of such
regulations, which are under continuous review and subject to change, could
adversely affect the Company's customers and, therefore, the Company.
The NEC requires that an overvoltage surge protector listed by
Underwriters Laboratories or another qualified electrical testing laboratory be
installed on virtually all subscriber telephone lines. Listing by Underwriters
Laboratories has been obtained by the Company where required.
Compliance with applicable federal, state and local environmental
regulations has not had, and the Company does not believe that compliance in the
future will have, a material adverse effect on its earnings, capital
expenditures or competitive position.
EMPLOYEES
On September 30, 1997, the Company had approximately 1,000 full-time
employees, of whom 898 were engaged in manufacturing and 44 in engineering and
new product development, with 58 being employed in executive, sales and
administrative positions. Of these employees, approximately 260 are employed at
the Company's Puerto Rico facilities and approximately 675 are employed at its
Dominican Republic facilities. Additionally, the Company has approximately 100
temporary employees of which approximately 85 were employed in connection with
the start-up of the Company's new broadband NID product line. The Company has
not experienced any work stoppage as a result of labor difficulties and believes
it has satisfactory employee relations. The Company is not a party to any
collective bargaining agreements.
PROPERTIES
The Company manufactures its non-fiber optic products in its
facilities in Puerto Rico and the Dominican Republic. The Company's facility in
Puerto Rico is in Toa Alta, approximately 20 miles southwest of San Juan, in two
single story buildings which, together with several smaller buildings, contain
an aggregate of approximately 43,000 square feet. These facilities also contain
certain of the Company's warehousing facilities and certain of its
administrative, research and development, quality assurance, sales and executive
offices. These facilities are operated under a lease agreement with the Puerto
Rico Industrial Development Company ("PRIDCO") which has expired. The Company
and PRIDCO have continued operating under the terms of the lease while
negotiating a new lease. While the Company believes it will be able to negotiate
this lease on commercially reasonable terms, there can be no assurance that it
will be able to do so. See "Risk Factors-Expiration of Lease for Puerto Rico
Manufacturing Facility."
The Company also leases a building consisting of approximately
73,000 square feet, in San Pedro De Macoris, Dominican Republic under a lease
which expires on November 1, 1998. This facility houses certain of the Company's
manufacturing activities.
34
<PAGE>
The Company leases a single story facility in Hickory, North
Carolina of approximately 10,000 square feet under a lease expiring December
1998. This facility houses its fiber optic manufacturing facilities as well as
certain research and development and administrative offices.
In addition, the Company occupies a single story building and a
portion of an adjacent building, consisting of an aggregate of approximately
14,000 square feet in Copiague, New York under a lease which expires in July
1998. These facilities house the Company's principal research and development
activities and certain of its marketing, administrative and executive offices,
as well as a warehouse for customer products.
The Company believes that its facilities and equipment are well
maintained and adequate to meet its current requirements. The Company believes
that the leases on each of the Dominican Republic, North Carolina and New York
facilities could either be renewed at competitive rates or facilities adequate
to meet its needs could be readily obtained.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceedings.
35
<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
Name Positions
---- ---------
Alfred J. Roach................... Chairman of the Board and Director
Timothy J. Roach.................. President and Chief Executive Officer,
Vice Chairman of the Board and Director
C. Bruce Barksdale................ Senior Vice President and Director
Paul G. Sebetic................... Vice President - Finance and Chief
Financial Officer
Virginia M. Hall.................. Vice President - Administration
Dare P. Johnston.................. Vice President - Fiber Optic Operations
James A. Roach.................... Vice President - Marketing and Sales
Dorothy Roach..................... Secretary and Director
James R. Grover, Jr.(1)........... Director
Joseph C. Hogan(1)(2)............. Director
William G. Sharwell(2)............ Director
- --------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee
Alfred J. Roach, 82, has served as Chairman of the Board of
Directors and a director of the Company and its predecessor from its founding in
1964, and was Chief Executive Officer of the Company from the Company's founding
until January 1995. Since September 1983, Mr. Roach has also served as Chairman
of the Board of Directors of American Biogenetic Sciences, Inc. ("ABS"), a
biotechnology research company. Mr. Roach devotes a majority of his time to the
affairs of ABS.
Timothy J. Roach, 50, has served the Company in various capacities
since December 1973. He has been President of the Company since July 1980, Chief
Operating Officer since May 1987, Vice Chairman of the Board since October 1993,
Chief Executive Officer since January 1995 and a director since January 1978.
Mr. Roach was a Captain in the United States Air Force for four years prior to
joining the Company and is a graduate of Harvard University's Business School
Program for Management Development. Mr. Roach has also served as Treasurer,
Secretary and a director of ABS since September 1983. Mr. Roach devotes
substantially all of his time to the affairs of the Company.
36
<PAGE>
C. Bruce Barksdale, 66, has been a Vice President of the Company
since August 1971, serving as Senior Vice President (responsible for customer
and product development) since October 1993, and a director of the Company since
1974. Mr. Barksdale holds a Bachelor of Science degree in Electrical Engineering
from the University of South Carolina.
Paul G. Sebetic, 33, has been Vice President-Finance and Chief
Financial Officer of the Company since October 1996. Mr. Sebetic joined the
Company in April 1996 as Corporate Controller. From November 1992 until joining
the Company, Mr. Sebetic held various financial management positions with V Band
Corporation, a telecommunications equipment manufacturer, serving as Controller
since August 1995. From February 1991 through August 1992, Mr. Sebetic was the
Financial Controller of the European operations of MacDermid Inc., a specialty
chemical manufacturer. Mr. Sebetic is a Certified Public Accountant and holds a
Masters of Business Administration in Finance from New York University.
Virginia M. Hall, 44, has served the Company in various capacities
since February 1976, serving as Vice President-Administration since December
1993 and Vice President-Contract Administration from September 1990 until
December 1993.
Dare P. Johnston, 56, has been Vice President - Fiber Optic
Operations since December 1993. Ms. Johnston joined the Company in September
1993 with the Company's acquisition of TII-Ditel, Inc., a designer, manufacturer
and supplier of fiber optic products. Prior to joining the Company, Ms. Johnston
served in various capacities with TII-Ditel, Inc. since January 1989, serving as
President since September 1990. Prior to joining Ditel, Inc., Ms. Johnston was
employed by NCNB National Bank of North Carolina since 1973, where she served as
Senior Vice President since October 1983. Ms. Johnston holds a Bachelor of Arts
degree in English from Duke University.
James A. Roach, 44, has served the Company in various capacities
since January 1982, serving as Vice President-Marketing and Sales since July
1987.
Dorothy Roach, 74, has been Secretary of the Company for more than
the past five years, served as Treasurer of the Company for more than five years
prior to relinquishing that position in December 1993 and, except for a brief
period, has been a director of the Company since 1964.
James R. Grover, Jr., 78, has been a director of the Company since
1978. Mr. Grover has been engaged in the private practice of law in the State of
New York since 1974, and has been General Counsel to the Company for more than
the past five years.
Dr. Joseph C. Hogan, 75, has been a director of the Company since
January 1974. Dr. Hogan served as Dean of the College of Engineering of the
University of Notre Dame from 1967 to 1981, following which he performed various
services for the University of Notre Dame until 1985, where he remains Dean
Emeritus. From 1985 until his retirement in 1987, Dr. Hogan was a Director of
Engineering Research and Resource Development at Georgia Institute of
Technology. He is past President of the American Society of Engineering
Education. Dr. Hogan is also a director of ABS.
William G. Sharwell, 75, has been as a director of the Company since
October 1995. Mr. Sharwell was President of Pace University in New York from
1984 until his retirement in 1990. He was Senior Vice President of American
Telephone & Telegraph Company (now AT&T Corporation) between 1976 and 1984, and
previously served as executive Vice President of Operations of New York
Telephone Company (now Bell
37
<PAGE>
Atlantic Corporation). Mr. Sharwell serves as an independent general partner of
Equitable Capital Partners, L.P. and Equitable Capital Partners (Retirement
Fund), L.P., registered investment companies under the Investment Company Act of
1940. He is also a director of ABS.
Alfred J. Roach and Dorothy Roach are married. Timothy J. Roach is
their son and James R. Roach is their nephew. There are no other family
relationships among the Company's directors and executive officers.
The Company's Board of Directors presently consists of seven
directors divided into three classes. C. Bruce Barksdale, Dr. Joseph C. Hogan
and William G. Sharwell serve as Class I directors, James R. Grover, Jr. and
Dorothy Roach serve as Class II directors and Alfred J. Roach and Timothy J.
Roach serve as Class III directors. The term of office of Class III directors
continues until the Company's 1997 Annual Meeting of Stockholders scheduled to
be held in December 1997, the term of office of Class I directors continues
until the next succeeding annual meeting of stockholders and the term of office
of Class II directors continues until the second succeeding annual meeting of
stockholders, and in each case until their respective successors are elected and
qualified. At each annual meeting directors are chosen to succeed those in the
class whose term expires at that meeting.
Officers hold office until their successors are chosen and
qualified. Any officer elected or appointed by the Board of Directors may be
removed at any time by the Board.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the Company's three fiscal years
ended June 27, 1997, information concerning the compensation paid by the Company
to Timothy J. Roach who served as the Company's Chief Executive Officer, and
each of the four other most highly compensated persons who were serving as
executive officers of the Company, at the end of the Company's fiscal year ended
June 27, 1997 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
NAME AND ---------------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
- ------------------ ---- ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Timothy J. Roach ........... 1997 $193,985 $ 6,976 50,000 $ 7,521(1)
Chief Executive Officer 1996 171,618 -- -- 7,586
1995 143,677 -- 200,000 7,282
Alfred J. Roach ............ 1997 $150,000 $ 200(2) 50,000 --
Chairman of the Board . 1996 150,000 200(2) -- --
1995 150,000 200(2) 200,000 --
Dare P. Johnston ........... 1997 $129,825 $ 4,017 -- --
Vice President - ...... 1996 120,779 -- 10,000 --
Fiber Optics Operations 1995 107,692 77,071 20,000 --
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
NAME AND ---------------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
- ------------------ ---- ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
James A. Roach.............. 1997 $111,564 $44,209 -- --
Vice President-Marketing 1996 106,440 24,347(3) 10,000 --
1995 100,098 39,554(3) 20,000 --
Paul G. Sebetic............. 1997 $105,254 $ 3,503 25,000 --
Vice President-Finance 1996 14,615(4) -- -- --
</TABLE>
- ---------------
(1) Includes (i) $1,172 representing the dollar value to Mr. Roach of the
portion of the premium paid by the Company on split dollar life insurance
policy during such year with respect to the deemed term life insurance
portion of the premiums and (ii) $6,349, representing the annual premium
paid by the Company on long-term disability insurance maintained by the
Company for the benefit of Mr. Roach.
(2) Required to be paid under Puerto Rico law.
(3) Commissions based on sales.
(4) Mr. Sebetic joined the Company in April 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning options granted
during the Company's fiscal year ended June 27, 1997 to the Named Executive
Officers:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation For
Underlying Granted to Exercise Option Term
Options Employees in Price Per Expiration -----------------------
Name Granted Fiscal Year Share Date 5% 10%
- ---- -------- ------------- ------- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Alfred J. Roach.................. 50,000 13% $4.50 7/24/06 $141,501 $358,592
Timothy J. Roach................. 50,000 13% 4.50 7/24/06 141,501 358,592
Paul G. Sebetic.................. 15,000 4% 4.50 7/24/06 42,450 107,578
10,000 3% 5.25 10/22/06 33,017 83,671
</TABLE>
Each option was granted at an exercise price equal to the market
value of the Company's Common Stock on the date of grant and is exercisable
during a ten year term (subject to early termination in certain instances) with
respect to 20% of the number of shares subject to the option in each annual
period, on a cumulative basis, commencing one year after the date of grant.
39
<PAGE>
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
No options were exercised by any of the Named Executive Officers
during the Company's fiscal year ended June 27, 1997. The following table
contains information with respect to the fiscal year-end value of unexercised
options held by the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
Number of Shares of Common Stock
Underlying Unexercised Options at Value of Unexercised In-the-Money
June 27, 1997 Options at June 27, 1997
-------------------------------- --------------------------------
Name Exercisable Unexercisable(1) Exercisable Unexercisable(1)
- ---- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Alfred J. Roach................... 120,360 170,000 $201,170 $167,500
Timothy J. Roach.................. 120,000 170,000 175,000 167,500
Dare P. Johnston.................. 30,000 20,000 9,000 13,500
James A. Roach.................... 25,000 20,000 22,600 13,500
Paul G. Sebetic................... - 25,000 - 23,750
</TABLE>
- ----------------
(1) Represents the closing price of the underlying Common Stock at fiscal
year-end minus the option exercise price.
REMUNERATION OF DIRECTORS
Non-employee directors receive a fee of $1,000 for each meeting of
the Board held and members of Committees of the Board receive a fee of $500 for
attending each meeting of the Committee of the Board on which such director
serves. Non-employee directors are also granted options to purchase 10,000
shares of the Company's Common Stock under the Company's 1994 Non-Employee
Director Stock Option Plan at the time such person becomes a non-employee
director and immediately following each annual meeting of stockholders at which
directors are elected. Each option granted is exercisable for period of ten
years subject to earlier termination at specified times following a non-employee
director's cessation of service) at an exercise price equal to 100% of the fair
market value on the date of grant of the shares subject thereto.
EMPLOYMENT AGREEMENTS
The Company and Timothy J. Roach are parties to an Amended and
Restated Employment Agreement, effective as of August 1, 1997, pursuant to which
Mr. Roach is to serve as the Company's President, Chief Executive Officer and
Chief Operating Officer. The Agreement provides for a five-year term presently
ending July 31, 2002, with automatic one-year extensions on each July 31 during
the term unless either party gives notice of termination at least 90 days prior
to such July 31 that the term of the Agreement is not to be extended. Under the
Agreement, Mr. Roach is presently entitled to an annual salary of $250,000 per
year, subject to increases and bonuses at the discretion of the Board of
Directors. In addition, the Agreement requires the Company to provide Mr. Roach
(whose principal place of business is the Company's executive offices in
Copiague, New York) with an allowance to reimburse him for the cost of
maintaining a place of abode in Puerto Rico, where the Company maintains its
principal manufacturing facilities, not to exceed 20% of his then salary and to
continue to maintain insurance benefits provided Mr. Roach at levels and terms
no less favorable than are currently in effect. Mr. Roach has agreed, among
other things, not to disclose
40
<PAGE>
confidential information of the Company and not to directly or indirectly
engage, during the term of the agreement and for two years thereafter, in any
activity which is competitive with the Company's business. In consideration for
such covenant, Mr. Roach is to receive, for each year during the two-year period
following termination of his employment, an amount equal to his highest salary
rate in effect at any time during the one-year period preceding the date of such
termination unless Mr. Roach's employment is terminated by reason of his death,
voluntary termination other than for "good reason" (in general, adverse changes
in his powers, duties, position or compensation or certain changes in the
location where his duties are to be performed) or disability, as defined, for
cause, as defined, and he is not capable of providing day-to-day services to a
competitor. In the event of termination of employment by reason of death or
disability, as defined, Mr. Roach or his beneficiary is entitled to receive a
continuation of his compensation for a period of one year and two years,
respectively. In the event Mr. Roach terminates his employment "for good
reason", the Company will also be required to pay him a sum equal to three times
the amount of his highest annual salary and highest bonus, for the current, or
two preceding fiscal years, subject to reduction, as to any amount that would
constitute a "parachute payment" under the Code, as amended, to the maximum
amount that would not constitute such a "parachute payment." In the event of the
termination of Mr. Roach's employment other than for cause, all outstanding
stock options then held by Mr. Roach shall fully vest.
Dare P. Johnston is a party to an Employment Agreement, dated
September 23, 1993, with the Company's subsidiary, TII-Ditel Inc., under which
Ms. Johnston is to serve as President/General Manager of the Ditel Fiber Optic
Division of the Company. The Agreement, as extended, provides for a term
expiring April 30, 2000. Under the Agreement, Ms. Johnston's current annual
salary is $133,000 per annum, subject to review at the end of each year of
employment, with Ms. Johnston to receive a salary increase of up to 10% per year
but not less than the percentage increase of a consumer price index. In the
event of the termination of Ms. Johnston's employment by the Company other than
for cause, death, disability or by Ms. Johnston following a reduction in rank or
authority, Ms. Johnston will be entitled to receive all compensation that she
would have received for the remaining term of her Agreement, but not less than
six months' compensation, in a lump sum, and all outstanding options then held
by Ms. Johnston shall fully vest. Ms. Johnston has agreed not to disclose
confidential information of the Company during or after her employment and that,
during the term of her employment and, for a period of two years thereafter, not
to directly or indirectly engage in certain activities which are competitive to
the Company.
Paul G. Sebetic is a party to an Employment Agreement, dated May 1,
1997, with the Company under which Mr. Sebetic is to serve as Vice
President-Finance. The Agreement provides for a term expiring April 30, 2000.
Under the Agreement, Mr. Sebetic's salary is presently $110,000 and is subject
to review at the end of each year of employment, with Mr. Sebetic to receive a
salary increase of 10% per year but not less that the increase in a consumer
price index. Mr. Sebetic is also to receive $6,000 per year as an allowance to
reimburse him for the cost of maintaining a place of abode in Puerto Rico. In
the event of the termination of Mr. Sebetic's employment by the Company, other
than for cause, death, disability or by Mr. Sebetic following a reduction in
rank or authority, Mr. Sebetic will be entitled to receive all compensation that
he would have received for the remaining term of his Agreement, but not less
than six months' compensation, in a lump sum, and all outstanding options held
by Mr. Sebetic shall fully vest. Mr. Sebetic has agreed not to disclose
confidential information of the Company during or after his employment and that,
during the term of his employment and, for a period of two years thereafter, not
to directly or indirectly engage in certain activities which are competitive to
the Company.
41
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee currently are Joseph C.
Hogan and William G. Sharwell. Mr. Sharwell was elected to the Committee in
August 1996 to replace James R. Grover, Jr., who served on the Committee with
Dr. Hogan during all of the Company's fiscal year ended June 30, 1996. The
Company has retained Mr. Grover as legal counsel during the Company's last
fiscal year and is retaining him during the Company's current fiscal year. Fees
paid Mr. Grover for services rendered to the Company during the Company's fiscal
year ended June 27, 1997 were $30,000.
STOCK OPTION PLANS
The Company currently maintains a 1995 Stock Option Plan (the "1995
Plan"), which enables the Company to grant options to purchase Common Stock to
employees of, and consultants to, the Company and its present and future
subsidiaries and a 1994 Non-Employee Director Stock Option Plan (the
"Non-Employee Director Plan"), which provides for the automatic grant of options
to nonemployee directors at the time a person becomes a non-employee director
and immediately following each annual meeting of stockholders at which directors
are elected. See "Management-Renumeration of Directors." Options to purchase
974,661 shares of Common Stock also remain outstanding under the Company's 1983
Stock Option Incentive Plan and 1986 Stock Option Plan, each of which have
terminated except with respect to outstanding options thereunder.
After giving effect to option exercises to date, the 1995 Plan
presently enables the Company to grant options to purchase 494,800 shares of
Common Stock, of which options to purchase 382,300 shares are presently subject
to outstanding options. The Company intends to seek stockholder approval of an
amendment to the 1995 Plan to increase the number of shares of Common Stock
subject thereto by 500,000 shares. The 1995 Plan permits the grant of either
"incentive stock options" which are designed to qualify for the favorable tax
treatment afforded under Section 422A of the Code ("ISOs") or non-qualified
stock options ("NQSOs"). Options granted to consultants may only be granted as
NQSOs. The exercise price of an option granted under the 1995 Plan cannot be
less than the fair market value of the Common Stock on the date of grant (except
that, in the case of ISOs granted to an employee who possesses more than 10% of
all classes of stock of the Company, the option exercise price may not be less
than 110% of such fair market value). The 1995 Plan is presently administered by
the Company's Compensation Committee which, among other things, is empowered (as
is the full Board of Directors) to determine, within the limits of the 1995
Plan, which employees and consultants are to be granted options, whether an
option granted is to be an ISO or a NQSO, the number of shares of Common Stock
to be subject to each option, the exercise price of each option, the term of
each option (which may not exceed ten years, except that the term of an option
granted to an employee who possesses more than 10% of all classes of stock of
the Company may not exceed five years), the dates at which and terms under which
an option may be exercised, whether to accelerate the date or the event for
exercise of any option and the form of payment of the exercise price and any
withholding taxes.
42
<PAGE>
CERTAIN TRANSACTIONS
Since fiscal 1982, the Company has leased equipment from PRC
Leasing, Inc. ("PRC"), a corporation wholly-owned by Alfred J. Roach, Chairman
of the Board of Directors and a director of the Company. On July 18, 1991, as an
inducement to the Company's then bank lenders to restructure the Company's
long-term bank loan, among other things, the Company acquired certain equipment
and replaced its leases for other equipment with a new lease. The equipment
lease (as subsequently amended, the "Equipment Lease") has a term expiring July
17, 1999 (subject to an automatic extension until July 17, 2001, unless
terminated by either party upon at least ninety days written notice prior to the
scheduled renewal period) and provides for rentals at the rate of $200,000 per
year. The Company believes that the rentals charged by PRC are comparable to the
rentals which would have been charged by unrelated leasing companies for similar
equipment.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of September 30,
1997, with respect to the beneficial ownership of Common Stock by (i) each
person (including any "group", as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) known by the Company to own more than 5% of the
outstanding shares of Common Stock; (ii) each director of the Company; (iii)
each Named Executive Officer; and (iv) all executive officers and directors of
the Company as a group. The Company understands that, except as noted below,
each beneficial owner has sole voting and investment power with respect to all
shares attributable to such owner.
<TABLE>
<CAPTION>
Amount and Percentage of Outstanding Shares Owned(1)
Name and Address Nature of -----------------------------------------
of Beneficial Before After
Beneficial Owner Ownership Offering Offering
---------------- --------- -------- --------
<S> <C> <C> <C>
Alfred J. Roach................................ 893,600(2) 11.6% 8.7%
Dorothy Roach.................................. 60,704(3) * *
Timothy J. Roach............................... 651,013(4) 8.4% 6.4%
Overseas Private Investment
Corporation.................................. 400,000(5) 5.0% 3.8%
C. Bruce Barksdale............................. 28,998(6) * *
James R. Grover, Jr............................ 35,600(7) * *
Joseph C. Hogan................................ 34,330(8) * *
William G. Sharwell............................ 35,000(9) * *
Dare P. Johnston .............................. 34,000(10) * *
James A. Roach................................. 39,488(11) * *
Paul G. Sebetic ............................... 7,000(12) * *
All executive officers and
directors as a group
(11 persons)...................................1,863,733(13) 23.0% 17.6%
</TABLE>
- ---------------
(1) Asterisk indicates that the percentage is less than one percent. Percent of
Class assumes the issuance of the Common Stock issuable upon the exercise
of options or conversion of indebtedness (to the extent exercisable or
convertible on or within 60 days after September 30, 1997) held by such
persons or entity but (except for the calculation of beneficial ownership
by all executive officers and directors as a group) by no other person or
entity.
(2) Includes 150,360 shares subject to options held under the Company's 1986
and 1995 Stock Option Plans. Excludes the shares owned by Mr. Roach's wife,
Dorothy Roach, reflected below in this table, as to which shares Mr. Roach
disclaims beneficial ownership. Mr. Roach's address is Route 2-Kennedy
Avenue, Guaynabo, Puerto Rico 00657.
44
<PAGE>
(3) Includes 8,960 shares subject to options held under the Company's 1986
Stock Option Plan. Excludes the shares owned by Mrs. Roach's husband,
Alfred J. Roach, reflected above in this table, as to which shares Mrs.
Roach disclaims beneficial ownership. Mrs. Roach's address is Route
2-Kennedy Avenue, Guaynabo, Puerto Rico 00657.
(4) Includes 968 shares owned by Mr. Roach's wife (who has sole voting and
dispositive power with respect to the shares owned by her and as to which
Mr. Roach disclaims beneficial ownership); and 150,000 shares subject to
options held under the Company's 1986 and 1995 Stock Option Plans. Mr.
Roach's address is c/o the Company, 1385 Akron Street, Copiague, NY 11726.
(5) Represents 300,000 shares issuable upon conversion of $750,000 of
indebtedness and 100,000 shares issuable upon the exercise of an option.
Overseas Private Investment Corporation's address is 1615 M Street, N.W.,
Washington, DC 20527.
(6) Includes 78 shares owned by Mr. Barksdale's children and 21,000 shares
subject to options held under the Company's 1983 Employee Incentive Stock
Option Plan and 1986 Stock Option Plan.
(7) Includes 25,000 shares subject to options held under the Company's 1994
Non-Employee Director Option Plan.
(8) Includes 34,250 shares subject to options held under the Company's 1986
Stock Option Plan and 1994 Non Employee Director Stock Option Plan.
(9) Represents 35,000 shares subject to options held under the Company's 1986
Stock Option Plan and 1994 Non Employee Director Option Plan.
(10) Represents 34,000 shares subject to options held under the Company's 1986
Stock Option Plan.
(11) Includes 1,000 shares owned by Mr. Roach's wife (who has sole voting and
dispositive power with respect to the shares owned by her and as to which
Mr. Roach disclaims beneficial ownership) and 31,000 shares subject to
options held under the Company's 1986 Stock Option Plan.
(12) Includes 5,000 shares subject to options held under the Company's 1995
Stock Option Plan.
(13) Includes 533,570 shares subject to options.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a summary of certain provisions of the Company's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and By-laws, as amended, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
The following discussion is qualified in its entirety by reference to such
exhibits.
The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, $.01 par value per share (the "Common Stock"), and
1,000,000 shares of Preferred Stock, $ 1.00 par value per share, issuable in
series (the "Preferred Stock"). As of the date of this Prospectus, there were
issued and outstanding 7,601,139 shares of Common Stock and no shares of
Preferred Stock.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share on all
matters submitted to a vote of stockholders. Subject to the rights of holders of
Preferred Stock, the holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor and, in the event of the liquidation, dissolution or winding
up of the Company, to share ratably in all assets remaining after the payment of
liabilities. There are no preemptive or other subscription rights, conversion
rights, or redemption or sinking fund provisions with respect to the Common
Stock. All of the Company's presently issued and outstanding Common Stock are
fully paid and non-assessable.
PREFERRED STOCK
The Preferred Stock is issuable in one or more series from time to
time at the discretion of the Board of Directors. The Board is authorized, with
respect to each series, to fix its designation, powers, preferences (including
with respect to dividends and on liquidation), rights (including voting,
dividend, conversion, sinking fund and redemption rights) and limitations.
Shares of Preferred Stock issued by action of the Board of Directors could be
utilized, under certain circumstances, as a method of making it more difficult
for a party to gain control of the Company without the approval of the Board of
Directors. The Company presently has no plans or arrangements for the issuance
of any Preferred Stock.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
Supermajority Vote Required for Certain Transactions
The Company's Certificate of Incorporation requires the affirmative
vote of the holders of at least 75% of the outstanding shares of capital stock
of the Company entitled to vote thereon to authorize (i) any merger or
consolidation of the Company or any of its subsidiaries with or into another
entity; (ii) any sale, lease or exchange of all or substantially all of the
assets of the Company and its subsidiaries taken as a whole if, as of the record
date for determining stockholders entitled to vote on a matter in (i) or (ii),
the other party to the transaction beneficially owns 10% or more of the
Company's outstanding capital stock entitled to vote in the election of
directors (other than a person who beneficially owned at least 10% of the
Company's voting capital stock at December 3, 1979); or (iii) the dissolution of
the Company. The supermajority voting requirement does not apply to a
transaction with a person or entity who became such 10% beneficial owner after
the Company's Board of Directors approved the transaction in (i) or (ii) or as
to a dissolution of the Company if such dissolution is substantially consistent
with such an approved transaction.
46
<PAGE>
Classification of Board of Directors and Removal of Directors
The Certificate of Incorporation and By-laws of the Company divide
the Board of Directors into three classes, designated Class I, Class II and
Class III, respectively, each class to be as nearly equal in number as possible.
The term of Class I, Class II and Class III directors will expire at the 1998,
1999 and 1997 annual meetings of stockholders, respectively, and in all cases
directors elected will serve until their respective successors are elected and
qualified. At each annual meeting of stockholders, directors will be elected to
succeed those in the class whose terms then expire, each elected director to
serve for a term expiring at the third succeeding annual meeting of stockholders
after such directors election, and until the directors successor is elected and
qualified. Thus, directors elected stand for election only once in three years.
The Certificate of Incorporation and By-laws of the Company also provide that
Directors may be removed only for cause by stockholders.
Amending the Foregoing Provisions
The Company's Certificate of Incorporation and By-laws further
provide that the affirmative vote of the holders of at least 75% of the
Company's outstanding voting stock is required to make, alter or repeal, or to
adopt any provision inconsistent with, the foregoing provisions of the Company's
Certificate of Incorporation or By- laws.
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of the DGCL.
In general, this statute prohibits a publicly held Delaware corporation from
engaging, under certain circumstances, in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless (i)
prior to the date at which the stockholder became an interested stockholder, the
board of directors approved either the business combination or the transaction
in which the person becomes an interested stockholder; (ii) the stockholder
acquires more than 85% of the outstanding voting stock of the corporation
(excluding shares held by directors who are officers or held in certain employee
stock plans) upon consummation of the transaction in which the stockholder
becomes an interested stockholder or (iii) the business combination is approved
by the board of directors and by at least 66 2/3% of the outstanding voting
stock of the corporation (excluding shares held by the interested stockholder)
at a meeting of stockholders (and not by written consent) held on or subsequent
to the date such stockholder became an interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
at any time within the prior three years did own) 15% or more of the
corporation's voting stock. Section 203 defines a "business combination" to
include, without limitation, mergers, consolidations, stock sales and asset
based transactions and other transactions resulting in a financial benefit to
the interested stockholder.
Anti-Takeover Effects
The foregoing provisions of the Company's Certificate of
Incorporation and By-laws and the effects of Section 203 of the DGCL could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. These provisions are intended to enhance the
continuity and stability of the Board of Directors and the policies formulated
by the Board of Directors and to discourage certain types of transactions that
may involve an actual or threatened change in control of the Company. These
provisions are also designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal and to discourage certain tactics that may be
used in proxy fights. However, such provisions may discourage third parties from
making tender offers for the Company's shares. As a result, the market price of
the Common Stock may not benefit from any
47
<PAGE>
premium that might occur in anticipation of a threatened or actual change in
control. Such provisions also may have the effect of preventing changes in the
management of the Company.
LIMITATION ON DIRECTORS' LIABILITY
In accordance with the DGCL, the Certificate of Incorporation
provides that the directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director except (i) for any breach of the director's duty of loyalty to the
Company and its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct, or knowing violation of law; (iii) under
Section 174 of the DGCL, which relates to unlawful payments of dividends and
unlawful stock repurchases and redemptions; or (iv) for any transaction from
which the director derived an improper personal benefit. This provision does not
eliminate a director's fiduciary duties; it merely eliminates the possibility of
damage awards against a director personally which may be occasioned by certain
unintentional breaches (including situations that may involve grossly negligent
business decisions) by the director of those duties. The provision has no effect
on the availability of equitable remedies, such as injunctive relief or
rescission, which might be necessitated by a director's breach of his or her
fiduciary duties. However, equitable remedies may not be available as a
practical matter where transactions (such as merger transactions) have already
been consummated. The inclusion of this provision in the Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful might otherwise have benefited
the Company and its stockholders.
INDEMNIFICATION
The Certificate of Incorporation and By-laws provide that the
Company shall indemnify its officers, directors, employees and agents to the
extent permitted by the DGCL. Section 145 of the DGCL provides that the Company
may indemnify any person who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than a
"derivative" action by or in the right of the Company) by reason of the fact
that such person is or was a director, officer, employee or agent of the
Company, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe was
unlawful. A similar standard of care is applicable in the case of derivative
actions, except that no indemnification shall be made where the person is
adjudged to be liable to the Company, unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action was
brought determines that such person is fairly and reasonably entitled to such
indemnity and such expenses.
TRANSFER AGENT AND REGISTRANT
The transfer agent and registrar for the Common Stock is Harris
Trust Company of New York, Wall Street Plaza, 88 Pine Street, New York, New York
10005.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the
public market following this offering could adversely affect the market price
for the Common Stock. As of the date of this Prospectus, but giving effect
48
<PAGE>
to the completion of this offering, 8,772,976 shares of Common Stock (9,147,976
shares if the Underwriters' over-allotment option is exercised in full) will be
freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"). The remaining 1,328,163 shares of Common Stock
are owned by persons who may be deemed to be "affiliates" of the Company and are
presently eligible for sale under Rule 144 ("Rule 144") promulgated under the
Securities Act subject to Rule 144's volume and other limitations. Of such
shares, 500,000 shares are presently subject to an effective and current
registration statement under the Securities Act and, as such, are freely
tradeable without such limitations. In addition, 300,000 shares issuable upon
conversion of convertible indebtedness will, if and when converted, be eligible
for immediate sale under paragraph (k) of Rule 144 without any volume or other
limitation.
The Company has registered, for future issuance under the Securities
Act, 1,692,901 shares of Common Stock subject to its stock option plans (of
which 1,505,401 shares were subject to outstanding options). Any such shares
issued upon the exercise of options by persons who are not affiliates of the
Company will be freely transferable upon issuance and any such shares issued to
affiliates will be eligible for sale under Rule 144 without any further holding
period but subject to certain volume and other limitations. Holders of warrants
to purchase 80,000 shares of Common Stock have the right, under certain
circumstances, to require the Company to file a registration statement under the
Securities Act to enable such holders to sell shares of Common Stock following
the exercise of such warrants. In addition, certain of such holders have certain
piggyback registration rights which have been waived in connection with this
offering.
The Company (except with respect to issuances upon exercise of
outstanding options, warrants and convertible securities), and its executive
officers and directors (who own an aggregate of 1,328,163 shares of Common Stock
and the right to acquire an additional 536,570 shares upon the exercise of
options which shall become exercisable within 180 days of the date of this
Prospectus), have agreed not to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of Rodman. See "Underwriting."
49
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Rodman &
Renshaw, Inc. ("Rodman") is acting as Representative, have severally agreed to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, the respective number of shares of Common Stock set forth opposite
their names below:
Underwriter Number of Shares
----------- ----------------
Rodman & Renshaw, Inc......................
--------
Total...................................... 2,500,000
=========
The Underwriting Agreement provides that the obligations of the
several Underwriters thereunder are subject to approval of certain legal matters
by counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
shares of Common Stock offered hereby if they are purchased.
The Representative has advised the Company that the Underwriters
propose to offer the shares of Common Stock initially to the public on the terms
set forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of $____ per share, and such dealers may reallow a
concession not in excess of $______ per share to certain other dealers who are
members of the National Association of Securities Dealers, Inc. After the public
offering, the offering price and other selling terms may be changed by the
Underwriters. The Common Stock is included for quotation on the Nasdaq National
Market.
The Company has granted to the Underwriters an over-allotment
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to an aggregate of 375,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. If the Underwriters exercise such over-allotment
option, then each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
shares of Common Stock offered hereby.
All executive officers and directors of the Company have agreed that
for a period of 180 days from the date of this Prospectus, they will not offer
for sale, sell, solicit an offer to buy, contract to sell, distribute, grant any
option for the sale of or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for any shares of Common Stock without the prior
written consent of Rodman on behalf of the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to certain payments that the Underwriters may be required to make in
respect thereof.
Certain of the Underwriters and selling group members that currently
act as market makers for the Common Stock may engage in "passive market making"
in the Common Stock on the Nasdaq National Market
50
<PAGE>
in accordance with Rule 103 of Regulation M during the distribution of the
Common Stock. In connection with this offering, certain of the Underwriters and
selling group members also may engage in transactions that stabilize, maintain
or otherwise affect the market price of the Common Stock. The Underwriters may
also create a short position for the account of the Underwriters by selling more
Common Stock in connection with this offering than they are committed to
purchase from the Company, and in each case may purchase Common Stock in the
open market following completion of this offering to cover all or a portion of
such short position. The Underwriters may also cover all or a portion of such
short position, up to 375,000 shares of Common Stock, by exercising the
over-allotment option referred to above. In addition, the Representatives may
impose "penalty bids" under contractual arrangements with the Underwriters,
whereby selling concessions allowed to syndicate members or other broker-dealers
in respect of the Common Stock sold in this offering for their account may be
reclaimed by the syndicate if such shares are repurchased by the syndicate in
stabilizing or covering transactions in the open market. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
which may be higher than the price that might otherwise prevail in the open
market. Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. None of
the transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time. Such transactions may be
effected on the Nasdaq National Market or otherwise.
The foregoing is a summary of the principal terms of the
Underwriting Agreement described above and does not purport to be complete.
Reference is made to a copy of such agreement which is filed as an exhibit to
the Registration Statement of which this Prospectus forms as part. See
"Available Information."
The Company is a party to an agreement with Rodman pursuant to which
Rodman is rendering financial advisory services to the Company for a three-year
term which began on July 1, 1996, subject to termination by either party on ten
days notice to the other. For its financial advisory services, Rodman is
receiving a fee of $3,000 per month and is being reimbursed for its reasonable
out-of-pocket expenses. The Company also agreed, subject to certain exceptions,
to indemnify and hold Rodman and each of its affiliates, stockholders,
directors, officers, employees and controlling persons against liabilities
incurred by them relating to or arising out of their activities under the
agreement. In connection with entering into the agreement, the Company granted
to Rodman warrants to purchase, until July 15, 2001, an aggregate of 20,000
shares of the Company's Common Stock at an exercise price of $6.15 per share,
120% of the closing price of the Common Stock on the Nasdaq National Market on
the date of grant. Rodman subsequently transferred the warrants to certain of
its employees. The warrants afford the holders thereof the right to require the
Company to register the shares issuable upon exercise of the warrants under the
Securities Act pursuant to a demand registration right.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon
by Parker Chapin Flattau & Klimpl, LLP, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Squadron, Ellenoff, Plesent
& Sheinfeld, LLP, New York, New York.
EXPERTS
The consolidated financial statements and Schedule, included or
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement, of which this Prospectus is a part, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are
51
<PAGE>
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
INFORMATION INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for its fiscal year ended
June 27, 1997 heretofore filed by the Company with the Commission (File No.
1-8048) pursuant to Section 13(a) of the Exchange Act are incorporated herein by
reference. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide, without charge, to each person (including
any beneficial owner) to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document incorporated
by reference in this prospectus (other than exhibits unless such exhibits are
expressly incorporated by reference in such documents). Requests should be
directed to TII Industries, Inc., 1385 Akron Street, Copiague, New York 11726,
(516) 789-5000, Attention: Paul G. Sebetic, Vice President-Finance.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at 7 World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information electronically filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR"). The Common Stock is traded
on the Nasdaq National Market and such reports and other information can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form S-2 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
the exhibits and schedules filed therewith. Statements contained in this
prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the Commission's principal office, and copies of all or any part of the
Registration Statement may be obtained from such office upon the payment of the
fees prescribed by the Commission.
52
<PAGE>
TII INDUSTRIES, INC, AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number
Report of Independent Public Accountants F-2
Consolidated Balance Sheets -
June 27, 1997 and June 28, 1996 F-3
Consolidated Statements of Operations for the
Three Years in the Period Ended June 27, 1997 F-4
Consolidated Statements of Stockholders'
Investment for the Three Years in the Period Ended
June 27, 1997 F-5
Consolidated Statements of Cash Flows for the
Three Years in the Period Ended June 27, 1997 F-6
Notes to Consolidated Financial Statements F-7 to F-18
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TII Industries, Inc.:
We have audited the accompanying consolidated balance sheets of TII Industries,
Inc. and subsidiaries as of June 27, 1997 and June 28, 1996, and the related
consolidated statements of operations, stockholders' investment and cash flows
for each of the three years in the period ended June 27, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TII Industries, Inc. and
subsidiaries as of June 27, 1997 and June 28, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
June 27, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
San Juan, Puerto Rico
September 19, 1997.
Stamp No. 1454624 of the
Puerto Rico Society of
Certified Public Accountants
has been affixed to the
original copy of this report.
F-2
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 27, 1997 AND JUNE 28, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 27, June 28,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 247 $ 2,883
Marketable securities available for sale 3,552 5,999
Receivables 7,388 7,084
Inventories 15,574 14,032
Prepaid expenses 402 388
-------- --------
Total current assets 27,163 30,386
-------- --------
Fixed Assets
Property, plant and equipment 37,812 33,018
Less: Accumulated depreciation and amortization (23,768) (22,029)
-------- --------
Net fixed assets 14,044 10,989
-------- --------
Other Assets 1,616 1,448
-------- --------
TOTAL ASSETS $ 42,823 $ 42,823
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt and obligations under
capital leases $ 537 $ 363
Accounts payable 5,833 5,185
Accrued liabilities 1,138 1,037
-------- --------
Total current liabilities 7,508 6,585
-------- --------
Long-Term Debt 839 853
Long-Term Obligations Under Capital Leases 1,465 1,523
-------- --------
2,304 2,376
-------- --------
Commitments and Contingencies (Note 11)
Stockholders' Investment
Preferred Stock, par value $1.00 per share; 1,000,000
authorized and issuable in series (Note 10)
Series A Cumulative Covertible Preferred Stock, 100,000
shares authorized; no shares outstanding at June 27, 1997
and June 28, 1996 -- --
Series B Cumulative Redeemable Preferred Stock, 20,000
shares authorized; no shares outstanding at June 27, 1997
and June 28, 1996 -- --
Common Stock, par value $.01 per share; 30,000,000 shares
authorized; 7,448,473 and 7,446,975 shares issued at
June 27, 1997 and June 28, 1996, respectively (Note 9) 75 75
Warrants outstanding 159 120
Capital in excess of par value 29,052 29,046
Retained earnings 3,999 4,855
Valuation adjustment to record marketable securities available
for sale at fair value 7 47
-------- --------
33,292 34,143
Less - Treasury stock, at cost; 17,637 common shares (281) (281)
-------- --------
Total stockholders' investment 33,011 33,862
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 42,823 $ 42,823
======== ========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS IN THE PERIOD ENDED JUNE 27, 1997
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
June June June
27, 1997 28, 1996 30, 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 50,675 $ 44,513 $ 43,830
-------- -------- --------
Cost of sales 41,421 31,956 30,782
Gross profit 9,254 12,557 13,048
-------- -------- --------
Operating expenses
Selling, general and administrative 7,061 5,881 6,827
Research and development 3,085 2,820 2,619
-------- -------- --------
Total operating expenses 10,146 8,701 9,446
-------- -------- --------
Operating (loss) income (892) 3,856 3,602
-------- -------- --------
Interest expense (287) (416) (718)
Interest income 314 191 --
Other income 72 106 58
-------- -------- --------
(Loss) income before provision for income tax (793) 3,737 2,942
Provision for income taxes 63 -- --
-------- -------- --------
Net (loss) income $ (856) $ 3,737 $ 2,942
======== ======== ========
Net (loss) income per share - primary $ (.12) $ .48 $ .52
======== ======== ========
Weighted average number of common and common
equivalent shares outstanding - primary 7,430 7,853 7,989
======== ======== ========
Net (loss) income per share - fully diluted $ (.12) $ .47 $ .51
======== ======== ========
Weighted average number of common and common
equivalent shares outstanding - fully diluted 7,430 8,179 8,402
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE THREE YEARS IN THE PERIOD ENDED JUNE 27, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Valuation
Adjustment
to record
Marketable
Capital Securities
Class B in excess Retained available
Preferred Common Common Warrants of par (Deficit) for sale at Treasury
Stock Stock Stock Outstanding value Earnings fair value Stock
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 24, 1994 $ 2,763 $ 38 $ 4 $ 120 $14,317 ($1,824) $ 0 ($ 281)
------- ------- ------- ------- ------- ------- ------- -------
Issuance of Common Stock from
exercise of private placement
Warrants and Unit Purchase
Options net of $571 of expenses -- 16 -- -- 6,802 -- -- --
Exercise of stock options -- 1 -- -- 275 -- -- --
Unrealized gain on marketable
securities available for sale -- -- -- -- -- -- 10 --
Net profit for the year -- -- -- -- -- 2,942 -- --
------- ------- ------- ------- ------- ------- ------- -------
BALANCE, June 30, 1995 2,763 55 4 120 21,394 1,118 10 (281)
Issuance of Common Stock from
exercise of private placement
Warrants and Unit Purchase
Options net of $128 of expenses -- 12 -- -- 5,421 -- -- --
Conversion of Class B Common
Stock -- 4 (4) -- -- -- -- --
Redemption of Series A Preferred
Stock (2,763) -- -- -- -- -- -- --
Exercise of stock options -- 4 -- -- 2,231 -- -- --
Unrealized gain on marketable
securities available for sale -- -- -- -- -- -- 37 --
Net profit for the year -- -- -- -- -- 3,737 -- --
------- ------- ------- ------- ------- ------- ------- -------
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 loss on marketable
securities available for sale -- -- -- -- -- -- (40) --
Net loss for the year -- -- -- -- -- (856) -- --
------- ------- ------- ------- ------- ------- ------- -------
BALANCE, June 27, 1997 $ 0 $ 75 $ 0 $ 159 $29,052 $ 3,999 $ 7 ($ 281)
======= ======= ======= ======= ======= ======= ======= =======
See notes to consolidated financial statements
</TABLE>
F-5
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS IN THE PERIOD ENDED JUNE 27, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
June 27, June 28, June 30,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($ 856) $ 3,737 $ 2,942
-------- -------- --------
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities
Depreciation and amortization 1,745 1,727 1,761
Increase in allowance for inventory 2,896 568 30
Amortization of other assets, net 180 278 241
Changes in assets and liabilities
Increase in receivables (304) (951) (554)
Increase in inventories (4,438) (2,322) (2,901)
(Increase) decrease in prepaid expenses and other assets (362) (257) (895)
Increase (decrease) in accounts payable and
accrued liabilities 787 (242) (225)
-------- -------- --------
Net cash (used in) provided by operating activities (352) 3,052 669
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,267) (549) (3,060)
Purchases of marketable securities available for sale (24,488) (6,533) --
Proceeds from sales and maturities of marketable securities
available for sale 26,895 1,645 1,327
-------- -------- --------
Net cash used by investing activities (1,860) (5,437) (1,733)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 6 7,656 7,094
Payment of long-term debt and obligations under capital leases (430) (1,969) (10,824)
Proceeds from issuance of long-term debt -- -- 6,039
Redemption of Preferred Stock -- (2,763) --
-------- -------- --------
Net cash (used in) provided by financing activities (424) 2,924 2,309
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (2,636) 539 1,245
Cash and Cash equivalents, at beginning of year 2,883 2,344 1,099
-------- -------- --------
Cash and Cash equivalants, at end of year $ 247 $ 2,883 $ 2,344
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Capital leases entered into $ 533 $ 1,938 $ 52
======== ======== ========
Valuation adjustment to record marketable securities
available for sale at fair value ($ 40) $ 37 $ 10
======== ======== ========
Cash paid during the period for income taxes $ 42 $ 0 $ 0
======== ======== ========
Cash paid during the period for interest $ 241 $ 174 $ 762
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: TII Industries, Inc. and subsidiaries (the "Company") are engaged in
the design, manufacture and sale of overvoltage surge protectors, network
interface devices, station electronics, and fiber optic enclosure products. The
majority of the Company's consolidated sales for each of the three years ended
June 27, 1997 resulted from sales of overvoltage protector products, which are
primarily manufactured in the Company's plants in Puerto Rico and the Dominican
Republic.
FISCAL YEAR: The Company reports on a 52-53 week year ending on the last Friday
in June.
CONSOLIDATION: The consolidated financial statements include the accounts of TII
Industries, Inc. and its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from such estimates.
MARKETABLE SECURITIES: The Company categorizes its marketable security
investments as available-for-sale securities, reported at fair value. Unrealized
gains and losses of available-for-sale securities are reported as a separate
component of stockholders' investment. At June 27, 1997 and June 28, 1996 the
portfolio consisted of federal backed agency bonds and notes and other liquid
investment grade investments with maturities ranging from three months to one
year. The primary investment goal being near-term liquidity and safety of
principal.
INVENTORIES: Inventories are stated at the lower of cost (materials, direct
labor and applicable overhead expenses on the first-in, first-out basis) or
market.
PROPERTY AND EQUIPMENT: Depreciation of property and equipment is recorded on
the straight-line method over the estimated useful life of the related property
and equipment (generally 10 years). Leasehold improvements are amortized on a
straight-line basis over the term of the respective leases, or over their
estimated useful lives, whichever is shorter.
REVENUE RECOGNITION: Sales are recorded as products are shipped and title
passes.
OTHER ASSETS: The Company follows the policy of deferring certain patent costs
which are amortized on a straight-line basis over the lesser of the life of the
product or the patent. Included within other assets is the cash surrender value
of approximately $50,000 relating to key-man life insurance policy with a face
amount in excess of $2,000,000.
F-7
<PAGE>
NET (LOSS) PROFIT PER COMMON SHARE: Net (loss) 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 which 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 (loss) profit of these
assumed transactions is considered in the computation.
PENDING ACCOUNTING PRONOUNCEMENTS: The FASB issued SFAS No. 128, Earnings per
Share, which will be effective with the Company's consolidated financial
statements for the fiscal year ending June 28, 1998. Under this standard, the
Company will replace its disclosure of primary earnings per share with basic
earnings per share and fully diluted will be replaced with dilutive earnings per
share. Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Upon adoption of the standard, prior period
amounts must be restated. The impact on previously reported primary and fully
diluted earnings per share will be immaterial.
STATEMENTS OF CASH FLOWS: All highly liquid instruments including those with an
original maturity of three months or less are considered cash equivalents. The
Company had cash equivalents of approximately $84,000 and $2,305,000 at June 27,
1997 and June 28, 1996, respectively.
RECLASSIFICATIONS: Certain reclassifications have been made in the accompanying
consolidated financial statements for the years ended June 28, 1996 and June 30,
1995 to conform with the presentation used in the June 27, 1997 consolidated
financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of cash, receivables,
accounts payable, and accrued liabilities approximate fair value because of the
short-term nature of these items. The carrying amount of the long term debt
approximates fair value because the interest rate this instrument bears is
equivalent to the current rates offered for debt of similar nature and maturity.
(2) COST REDUCTION PLAN: During the third quarter of fiscal year 1997, the
Company put into effect certain measures in accordance with a plan to reduce
costs and enhance profitability. This plan included the reduction of personnel,
movement of certain production processes to the Company's lower cost facility in
the Dominican Republic, outsourcing certain manufacturing steps, re-aligning its
sales and marketing forces and ceasing the sale of lower margin products. This
action resulted in non-recurring charges of $3.0 million, which consisted of an
increase to the allowance for inventory, severance related costs and costs to
close or move certain production processes.
F-8
<PAGE>
(3) RECEIVABLES: Receivables consist of the following:
June 27, June 28,
1997 1996
-------- --------
(amounts in thousands)
Trade receivables $ 6,897 $ 6,685
Other receivables 544 521
------- -------
7,441 7,206
Less: allowance for
doubtful accounts (53) (122)
------- -------
$ 7,388 $ 7,084
======= =======
(4) INVENTORIES: Inventories consisted of the following:
June 27, June 28,
1997 1996
------- -------
(amounts in thousands)
Raw materials $ 7,426 $ 6,973
Work-in-process 4,584 4,879
Finished goods 5,994 4,214
------- -------
18,004 16,066
Less: Allowance for inventory (2,430) (2,034)
------- -------
$15,574 $14,032
======= =======
(5) ACCRUED LIABILITIES: Accrued liabilities consist of the following:
June 27, June 28,
1997 1996
(amounts in thousands)
Payroll, incentive and vacation $ 672 $ 603
Accrued payroll taxes 91 153
Legal and professional fees 135 113
Accrued rent 100 100
Other 140 68
------ ------
$1,138 $1,037
====== ======
F-9
<PAGE>
(6) LONG-TERM DEBT: The composition of long-term debt is as follows:
June 27, June 28,
1997 1996
(amounts in thousands)
Unsecured subordinated note payable on
July 19, 2001, bearing interest at 10%.
Convertible into Common Stock
at a conversion price of $2.50 per share. $750 $750
Installment notes payable through 2004,
bearing interest ranging from 8.0% to 9.5%.
Secured by assets with net book value of
approximately $299. 103 116
---- ----
853 866
Less current portion (14) (13)
---- ----
Long-term debt $839 $853
==== ====
The Company is also a party to a Revolving Credit Loan Agreement with Chase
Manhattan Bank, which, at June 27, 1997, entitled the Company to have
outstanding borrowings of up to $4,000,000, reducing by $400,000 each calendar
quarter thereafter. At June 27, 1997 and June 28, 1996, there were no
outstanding borrowings under the revolving loan facility. Loans bear interest at
(a) the greater of 1% above the bank's prime rate, 2% above a certificate of
deposit rate or 1.5% in excess of a federal funds rate or (b) 3% above the LIBOR
rate for periods selected by the Company. A commitment fee of 1/4 of 1% is
payable on the unused portion of the bank's commitment. Loans are secured
primarily by the Company's accounts receivable and continental United States
assets. The loan agreement requires the Company to maintain a minimum net worth
of $31,400,000, current ratio of 1.25 through fiscal 1997 and 1.50 thereafter,
debt service ratio of 1.35 and maximum ratio of debt to equity of 1.0, all as
defined, limits capital expenditures generally to $3,500,000 per annum and lease
obligations to $400,000 per annum (excluding rentals for the Company's Dominican
Republic facilities and the Company's equipment lease with PRC Leasing, Inc.).
In addition, the Company may not incur a consolidated net loss for any two
fiscal quarters in any four consecutive quarters and may not pay cash dividends
or repurchase capital stock without the consent of the bank. The Company
received a waiver from compliance with the debt service ratio, capital
expenditure and net loss covenants for fiscal 1997.
F-10
<PAGE>
Future minimum payments for long term debt are as follows:
Fiscal year Amount
1998 $ 14,000
1999 15,000
2000 17,000
2001 768,000
2002 17,000
Thereafter 22,000
---------
Total minimum payments 853,000
Less: current portion (14,000)
---------
$ 839,000
=========
(7) Obligation under capital leases: The Company leases equipment and vehicles
for its operations. These leases have been capitalized using interest rates
ranging from 7.9% to 14.9%. Future minimum payments under these leases are as
follows:
Fiscal year Amount
1998 $ 654,000
1999 652,000
2000 557,000
2001 288,000
2002 89,000
Thereafter 51,000
----------
Total minimum lease payments 2,291,000
Less: Amount representing interest (303,000)
----------
Present value of
net minimum lease payments 1,988,000
Less: Current portion of obligations
under capital lease (523,000)
----------
$1,465,000
==========
(8) INCOME TAXES: The Company's policy is to provide for income taxes based on
reported income, adjusted for differences that are not expected to ever enter
into the computation of taxes under applicable tax laws.
The Company has elected the application of Section 936 of the US Internal
Revenue Code (Code), and presently intends to continue to operate in a fashion
that will enable it to qualify for the Section 936 election. Under that section,
as long as the Company (on a non-consolidated basis) has cumulatively derived,
in its current and two preceding tax years, at least 80% of its gross income
from sources within Puerto Rico and at least 75% of its gross income from the
active conduct of a trade or business within Puerto Rico, as defined in the
Code, the Company is entitled to a federal tax credit in an amount equal to the
lesser of the United States federal tax attributable to its taxable income
arising from the active conduct of its business within Puerto Rico or the
economic activity based credit limitation. To the extent the Company has taxable
income arising from United States sources (e.g., income from investment or
operating activity in
F-11
<PAGE>
the U.S.), the Company would not be entitled to offset the related tax on such
income with the Section 936 tax credit.
The economic activity limitation on the amount of allowable credits under
Section 936 is based upon qualified wages paid for services performed in Puerto
Rico, fringe benefits, depreciation deductions and taxes in Puerto Rico. Based
on fiscal 1997 levels of qualified wages, fringe benefits, depreciation and
taxes in Puerto Rico, the Company's economic activity based credit limitation is
approximately $3,550,000 per annum. The amount of the economic activity based
Section 936 credit limitation available for fiscal 1997 will be sufficient to
offset the United States federal income tax on Puerto Rico source income for the
Company's 1997 fiscal year, as computed, after utilization of the Company's
available net operating loss carry-forwards of approximately $334,000.
Legislation included in the Minimum Wage/Small Business Job Protection Act of
1996 repealed the Section 936 credit for taxable years beginning after December
31, 1995. However, since the Company's Section 936 election was in effect for
its fiscal 1996 tax year, it is eligible to continue to claim a Section 936
credit until the year ended June 2006 under a special grandfather rule. If,
however, the Company adds a substantial new line of business, the Company would
cease to be eligible to claim the Section 936 credit beginning with the taxable
year in which such new line of business is added. Because the Company uses the
economic activity limitation, possession income eligible for the Section 936
credit in any tax year beginning after December 31, 2001 and before January 1,
2006 is subject to a cap equal to the Company's average inflation-adjusted
possession income for the three of the five most recent years ending before
October 14, 1995 determined by excluding the years in which the Company's
adjusted possession income was the highest and the lowest. In lieu of using a
five-year period to determine the base period years, the Company may elect to
use its last tax year ending in 1992 or a deemed taxable year which includes the
first ten months of the calendar year 1995. The Company's Section 936 credit for
each year during the grandfather period would continue to be subject to the
economic activity limitation (as discussed above). This legislation is effective
for the Company's 1997 fiscal year. Based on the Company's current level of
possession income and business plans, the Company believes that it will be
eligible to claim a Section 936 credit under the grandfather rule discussed
above.
As long as the Company's election under Section 936 is in effect, the Company
may not file a consolidated tax return with any of its subsidiaries for United
States income tax purposes, and the filing of consolidated returns is not
permitted under Puerto Rico income tax laws. Consequently, should the Company
itself sustain losses, those losses could not be used to offset the federal
taxable income of its subsidiaries; and, conversely, should the Company's
subsidiaries sustain losses, those losses could not be used to offset the
federal taxable income of the Company.
The Company has exemptions until June 2009 for Puerto Rico income tax and Puerto
Rico property tax purposes. The level of exemption is 90% for all purposes. The
Company also has net operating loss carryforwards available through fiscal 2004
to offset any remaining Puerto Rico taxable income. There are no limitations on
the Company's ability to utilize such net operating loss carryforwards to reduce
its Puerto Rico income tax. Furthermore, the Company's United States based
subsidiary operating in the Dominican Republic is exempt from taxation in that
country.
F-12
<PAGE>
In each of the years in the three-year period ended June 27, 1997, the Company's
U.S. based subsidiaries either generated operating losses or had net operating
loss carryforwards available to offset taxable income; therefore, for each of
these years there is no federal income tax provision.
At June 27, 1997, the Company had net operating loss carryforwards aggregating
approximately $15,126,000 which expire periodically through 2006, and along with
its subsidiaries had consolidated net operating loss carryforwards aggregating
approximately $24,439,000 which expire periodically through 2012 and general
business tax credit carryforward of approximately $343,000 which expire
periodically through 2012. As a result of a private placement in fiscal 1993
there was an ownership change within the meaning of Section 382 of the Code,
which limits the ability of the Company and its subsidiaries to utilize their
net operating losses and tax credit carryforwards. The maximum amount of net
operating loss and tax credit equivalent carryforwards which may be utilized in
any year (and which is utilized to offset income prior to the utilization of a
credit available under Section 936 of the Code) is approximately $334,000 per
year for the possessions corporation and approximately $380,000 per year for the
United States subsidiaries. The effect of the ownership change is somewhat
mitigated with respect to the Company as a result of its Section 936 election
since United States federal income tax is payable only to the extent such tax
exceeds the Company's Section 936 credit. In addition, net operating losses
generated subsequent to the ownership change are not subject to limitations and
may therefore be fully utilized. As of June 27, 1997, the Company's United
States subsidiaries have approximately $2,060,000 of net operating losses that
were generated subsequent to the ownership change and remain available for use
through 2012. In addition, the Company's United States subsidiaries have
available approximately $1,852,000 in unused Section 382 annual net operating
loss limitation carryforwards.
Temporary differences between income tax and financial reporting assets and
liabilities (primarily inventory valuation allowances, property and equipment
and accrued employee benefits) and net operating loss carryforwards give rise to
deferred tax assets in the amount of approximately $3,695,000 for which an
offsetting valuation allowance has been provided due to the uncertainty of
realizing any benefit in the future.
(9) COMMON STOCK: The Company is authorized to issue 30,000,000 shares of Common
Stock. On September 27, 1995, 321,284 shares of Class B Stock were converted
into Common Stock resulting in a reduction in outstanding Class B Stock to a
level that all remaining Class B Stock were automatically converted into Common
Stock. On December 4, 1996, at the 1996 Annual Meeting of Stockholders,
stockholders voted to approve an amendment to the Company's Certificate of
Incorporation which removed the Company's Class B Stock and Class C Stock from
shares which the Company is authorized to issue.
EMPLOYEE STOCK OPTION PLANS: The Company's 1995 Stock Option Plan (the "1995
Plan") permits the Compensation Committee of the Board of Directors to grant,
until September 2005, options to employees, officers, consultants and certain
members of the Board of Directors. 500,000 shares were reserved for issuance
under the 1995 Plan. Option terms (not to exceed 10 years), exercise prices (at
least 100% of the fair market value of the Company's Common Stock on the date of
grant) and exercise dates are determined by the Compensation Committee. Options
are also outstanding under the Company's 1983 Stock Option Incentive Plan and
1986 Stock Option Plan, although no further options may be granted under these
plans.
F-13
<PAGE>
A summary of activity under the employee stock option plans and information
relating to shares subject to option under the employee stock option plans for
the years ended June 27, 1997, June 28, 1996 and June 30, 1995 follows:
<TABLE>
<CAPTION>
June 27, 1997 June 28, 1996 June 30, 1995
---------- ---------- ----------
<S> <C> <C> <C>
Shares under option at beginning of period 1,238,207 1,269,387 501,415
Options granted during period 383,000 113,200 868,000
Options exercised during period (1,500) (80,380) (94,028)
Options canceled/expired during period (83,500) (64,000) (6,000)
---------- ---------- ----------
Shares under option at end of period 1,536,207 1,238,207 1,269,387
========== ========== ==========
Options exercisable at end of period 648,344 501,454 336,634
Shares available for future grant at end of period 112,500 469,000 126,257
Exercise price per share for options exercised
during period $2.50-4.63 $2.50-6.09 $2.50-4.63
Exercise price per share for options outstanding
at end of period $2.50-9.38 $2.50-9.69 $2.50-9.69
</TABLE>
The 1994 Non-Employee Director Stock Option Plan covers an aggregate of 200,000
shares of Common Stock and provides (i) Non-Employee Directors are granted
options to purchase 10,000 share of Common Stock annually upon their re-election
to the Board; (ii) all options granted vest in full immediately following their
grant; (iii) the term of options granted shall be for a term of ten years; and
(iv) the period following termination of service during which an Outside
Director may exercise an option shall be twelve months, except that an option
shall automatically terminate upon cessation of service as an Outside Director
for cause (such twelve month period being the same period following an Outside
Director's death or disability during which an option may be exercised).
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized for the stock option plans
as Accounting Principles Board (APB) Opinion 25 and related interpretations in
accounting for stock options plans is followed. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net (loss) income would have been
(increased) reduced to the pro forma amounts indicated in the table below.
F-14
<PAGE>
Fiscal Year Ended June
27, 1997 28, 1996
-------- --------
Net (loss) income
As reported ($856,000) $3,737,000
Pro forma ($1,161,000) $3,629,000
Primary (loss) income per share
As reported ($0.12) $0.48
Pro forma ($0.16) $0.46
The fair value of stock options granted during fiscal years 1997 and 1996 were
determined by using the Black Scholes option-pricing model which values options
based on the stock price at the date of grant, the expected life of the option,
the estimated volatility of the stock, expected dividend payments, and the risk
free interest rate over the expected life of the option. The following
assumptions were used in the pricing model: risk free interest rate of 6.2%;
expected dividend yield of 0%; expected option life of seven years and expected
volatility of 42.9%. The weighted average fair value of options granted during
fiscal 1997 and 1996 were $2.58 and $3.44, respectively.
Under SFAS 123, stock options granted prior to fiscal year 1996 are not required
to be included as compensation in determining pro forma net earnings.
OTHER OPTIONS AND WARRANTS OUTSTANDING: The holder of the Company's unsecured
subordinated note (see Note 5) has an option to purchase up to 100,000 shares of
Common Stock on or before July 18, 2001 at $2.50 per share. This option is
non-transferable and non-assignable and can be canceled by the Company prior to
its expiration if, with the prior written consent of the holder, the Company's
$750,000 ten-year convertible unsecured note payable is prepaid.
The Company also has an outstanding option to purchase up to a maximum of
150,000 shares of Common Stock on or before August 31, 1997 at $7.50 per share.
The Company also has warrants outstanding which allow the holder to purchase
60,000 shares of Common Stock at an exercise price of $6.56 per share which
expire in August 1998. During July 1996, the Company granted to a financial
advisory firm a warrant to purchase 20,000 shares of Common Stock at an exercise
price of $6.15 per share, which expires in July 2001.
(10) PREFERRED STOCK: The Company is authorized to issue up to 1,000,000 shares
of Preferred Stock in series, with each series having such powers, rights,
preferences, qualifications and restrictions as determined by the Board of
Directors. At June 27, 1997, the Company had authorized 100,000 shares of Series
A Cumulative Convertible Redeemable Preferred Stock (Series A Preferred Stock),
of which no shares were outstanding. During the 1996 fiscal year all 27, 626
shares were redeemed by the Company for the liquidation value and required
redemption amount of $2,763,000.
F-15
<PAGE>
(11) AGREEMENT WITH AT&T: On September 13, 1988, the Company and AT&T
Corporation entered into an agreement (the 1988 Agreement) settling all disputes
related to a prior agreement which the Company considered to have been breached.
The 1988 Agreement provided for annual payments to the Company which were
subject to reduction as a result of AT&T purchases. During fiscal 1996 and 1995,
the Company received payments of $875,000 and $777,000, respectively, for the
sales shortfall corresponding to the contract years ended December 31, 1995 and
1994, respectively. These receipts are included in net sales. As of June 28,
1996, there are no remaining payments scheduled to be received.
(12) SIGNIFICANT CUSTOMERS, EXPORT SALES AND FOREIGN COMPONENTS OF INCOME:
SIGNIFICANT CUSTOMERS: The following customers accounted for more than 10% of
the Company's consolidated revenues during one or more of the years presented
below:
Percentage of Net Sales
for Year Ended
-------------------------------
June 27, June 28, June 30,
1997 1996 1995
-------------------------------
Siecor Corporation(a) 20% 26% 30%
NYNEX 18% 15% 13%
Keptel, Inc.(a) 11% 12% *
* Asterisk denotes less than 10% for the period presented.
(a) Siecor Corporation and Keptel, Inc. are telecommunication equipment
companies that supply Network Interface Devices to Regional Bell Operating
Companies. Several Regional Bell Operating Companies have standardized on
TII station protectors and require Siecor and Keptel to purchase TII
station protectors for inclusion into their Network Interface Devices.
EXPORT SALES: For each of the three years ended June 27, 1997 export sales were
less than 10% of consolidated net sales.
FOREIGN COMPONENTS OF INCOME: Certain immaterial subsidiaries and components of
the Company operate outside the United States and Puerto Rico.
(13) COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS: The Company
leases real property and equipment with terms expiring through December 1998.
Substantially all of the real property leases contain escalation clauses related
to increases in property taxes. The leases require minimum annual rentals,
exclusive of real property taxes, of approximately $94,000 and $17,000 in fiscal
years 1998 and 1999, respectively. The Company has no lease commitments beyond
1998.
Since fiscal year 1982, the Company has leased equipment from PRC Leasing, Inc.
(PRC), a corporation owned by the Chairman of the Board of the Company. As
required by a loan restructuring in July 1991, all leases with PRC were replaced
by an agreement to lease certain
F-16
<PAGE>
equipment as a group at the rate of $200,000 per year. The lease was amended in
February 1993 to extend its term until July 17, 1996 and provide for extensions
until July 17, 1999 and July 17, 2001 unless canceled by either party upon
notice prior to the scheduled renewal period, with rentals at the rate of
$200,000 for each year of the lease. At June 27, 1997, accrued rent owed under
this agreement totaled $100,000. Although neither the Company nor PRC is
obligated to renew the equipment lease, it is the Company's intention to seek
renewals of the equipment lease for at least the next four years.
The equipment under lease from PRC was purchased by PRC at various times since
1982 when the Company began leasing equipment from PRC. The Company is advised
that PRC employs a depreciation schedule that fully depreciates assets over a
maximum of 10 years or the asset's useful life, whichever is shorter, and that
the original cost of assets under lease to the Company at June 27, 1997 was
approximately $2,803,000 with a current carrying value of approximately
$150,000. All equipment under lease has been of good quality and most, if not
all, equipment is expected to remain usable by the Company for at least four
more years. From time to time, new purchases of equipment by PRC may replace or
be added to the equipment under lease. It is both the Company's and PRC's
intention that these purchases will be to maintain the level of performance of
the equipment and not increase the rentals paid by the Company.
Rental expense, including property taxes, for fiscal 1997, 1996 and 1995 was
approximately $682,000, $636,000 and $613,000, respectively, including $200,000
each year relating to the equipment leases with PRC.
(14) PROFIT SHARING PLAN: During fiscal 1997, the Company established a defined
contribution pension plan through a 401(k) profit sharing plan. The plan covers
substantially all employees and requires the Company to match employees'
contributions up to specified limitations and subject to certain vesting
schedules.
F-17
<PAGE>
(15) QUARTERLY RESULTS (UNAUDITED): The following table reflects the unaudited
quarterly results of the Company for the fiscal years ended June 27, 1997 and
June 28, 1996:
<TABLE>
<CAPTION>
Fully
Diluted
Net Income
Gross Operating Net Income (Loss)
Net Sales Profit Income (Loss) Per Share
----------- --------- ----------- ----------- --------
Quarter Ended
- --------------
<S> <C> <C> <C> <C> <C>
1997 FISCAL YEAR
September 27, 1996 $12,040,000 3,184,000 $ 806,000 $ 752,000 $ 0.10
December 27, 1996 12,957,000 3,353,000 856,000 905,000 0.12
March 28, 1997(1) 12,535,000 357,000 (2,391,000) (2,325,000) (0.31)
June 27, 1997 13,143,000 2,360,000 (163,000) (188,000) (0.03)
1996 FISCAL YEAR
September 29, 1995 $ 9,600,000 2,566,000 $ 448,000 $ 439,000 $ 0.06
December 29, 1995 11,241,000 3,111,000 955,000 895,000 0.11
March 29, 1996(2) 12,136,000 4,190,000 1,852,000 1,781,000 0.22
June 28, 1996 11,536,000 2,690,000' 601,000 622,000 0.08
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes non-recurring charges of $3.0 million, which consisted of an
increase in the allowance for inventory, severance related costs, and costs
to close or move certain production processes.
(2) Includes payment received from AT&T Corporation of $875,000 in the third
quarter of fiscal 1996 for shortfalls of purchases by AT&T from the Company
under the Company's 1988 Agreement with AT&T.
F-17
<PAGE>
======================================= =======================================
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE
OFFERING MADE HEREBY, AND, IF GIVEN OR TII INDUSTRIES, INC.
MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE [LOGO]
COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES 2,500,000 Shares
OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY Common Stock
SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATES AS OF ---------------------------
WHICH SUCH INFORMATION IS FURNISHED.
PROSPECTUS
---------------------------
-----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.................. 3
Risk Factors........................ 7 Rodman & Renshaw, Inc.
Use of Proceeds.....................14
Price Range of Common Stock.........15
Dividend Policy.....................15
Capitalization......................16
Selected Financial Data.............17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations..........19 , 1997
Business............................24
Management..........................36
Principal Stockholders..............44
Description of Capital Stock........46
Shares Eligible for Future Sale.....48
Underwriting........................50
Legal Matters.......................51
Experts.............................51
Information Incorporated by
Reference..........................52
Additional Information..............52
Index to Consolidated Financial
Statements........................F-1
======================================= =======================================
II-1
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
It is estimated that the following expenses will be incurred in
connection with the proposed offering hereunder. All of such expenses will be
borne by the Company.
Registration fee - Securities and Exchange
Commission.....................................................$ 7,000
NASD filing fee.................................................. 2,667
Nasdaq Listing Fees.............................................. 15,000
Legal fees and expenses.......................................... 200,000
Accounting fees and expenses..................................... 50,000
Transfer agent fees and expenses................................. 20,000
Blue sky fees and expense (including counsel fees)............... 20,000
Printing and engraving expenses.................................. 150,000
Miscellaneous.................................................... 35,333
-----------
Total....................................$ 500,000
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides, in general, that a corporation incorporated under the
laws of the State of Delaware, such as the registrant, may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than a derivative action
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. In the case of a derivative action, a Delaware corporation
may indemnify any such person against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court determines such person is fairly and reasonably entitled to indemnity for
such expenses. Article XII of the registrant s By-laws provides that the
registrant shall so indemnify such persons. In addition, Article 12 of the
registrant's Restated Certificate of Incorporation as amended, provides, in
general, that no director of the registrant shall be personally liable to the
registrant or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any
II-2
<PAGE>
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 DGCL
(which provides that under certain circumstances, directors may be jointly and
severally liable for willful or negligent violations of the DGCL provisions
regarding the payment of dividends or stock repurchases or redemptions), as the
same exists or hereafter may be amended; or (iv) for any transaction from which
the director derived an improper personal benefit.
Reference is made to Section _____ of the Underwriting Agreement
filed as part of Exhibit 1 hereto.
ITEM 16. EXHIBITS:
Exhibit Number Description
1.* Form of Underwriting Agreement
3 (a)(1) Restated Certificate of Incorporation of the Company,
as filed with the Secretary of State of the State of Delaware
on December 10, 1996.Incorporated by reference to Exhibit 3 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 27, 1996 (File No. 1-8048).
3(b) By-laws of the Company, as amended. Incorporated by reference
to Exhibit 4.02 to Amendment No. 1 to the Company's
Registration Statement on Form S-3 (File No. 33- 64980).
4(a)(1)(A) Revolving Credit Loan Agreement dated January 31, 1995 among
TII International, Inc. ("International"), the Company and
Chemical Bank (the "Bank"). Incorporated by reference to
Exhibit 4.1(a) to the Company's Current Report on Form 8-K
dated January 31, 1995 (date of earliest event reported) (File
No. 1-8048).
4(a)(1)(B) First Amendment dated as of August 3, 1995 to the Revolving
Credit Agreement among International, the Company and the
Bank. Incorporated by reference to Exhibit 4(a)(1)(B) to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 28, 1996 (File No. 1-8048).
4(a)(1)(C) Second Amendment dated as of November 10, 1995 to the
Revolving Credit Agreement among International, the Company
and the Bank. Incorporated by reference to Exhibit 4(a)(1)(C)
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 28, 1996 (File No. 1-8048).
4(a)(1)(D) Third Amendment dated as of December 27, 1995 to the Revolving
Credit Agreement among International, the Company and the
Bank. Incorporated by reference to Exhibit 4(a)(1)(D) to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 28, 1996 (File No. 1-8048).
4(a)(1)(E) Fourth Amendment dated May 2, 1997 to the Revolving Credit
Agreement among International, the Company and the Bank.
Incorporated by reference to Exhibit 4 to the
II-3
<PAGE>
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 28, 1997 (File No. 1-8048).
4(a)(1)(F) Fifth Amendment and Waiver dated as of September 23, 1997 to
the Revolving Credit Agreement among International, the
Company and the Bank. Incorporated by reference to Exhibit
4(a)(1)(F) to the Company's Annual Report is Form 10-K for the
fiscal year ended June 27, 1997 (File No. 1-8048).
4(a)(1)(G)* Sixth Amendment and Waiver dated as of October 17, 1997 to the
Revolving Credit Agreement among International, the Company
and the Bank.
4(a)(2) Joint and Several Guaranty of Payment dated January 31, 1995
executed in favor of the Bank by the Company and TII
Industries NC, Inc., TII Dominicana, Inc., TII Electronics,
Inc.(since dissolved), Ditel, Inc.(now TII-Ditel, Inc.), TII
Corporation and Telecommunications Industries, Inc., direct or
indirect subsidiaries of the Company. Incorporated by
reference to Exhibit 4.1(b) to the Company's Current Report on
Form 8-K dated January 31, 1995 (date of earliest event
reported) (File No. 1-8048).
4(a)(3) Pledge Agreement dated January 31, 1995 between International
and the Bank. Incorporated by reference to Exhibit 4.1(c) to
the Company's Current Report on Form 8-K dated January 31,
1995 (date of earliest event reported) (File No. 1-8048).
4(a)(4) Security Agreement dated January 31, 1995 between the Company
and the Bank. Incorporated by reference to Exhibit 4.1(d) to
the Company's Current Report on Form 8-K dated January 31,
1995 (date of earliest event reported) (File No. 1-8048).
4(a)(5) Assignment of Accounts Receivable Agreement dated January 31,
1995 executed by the Company in favor of the Bank.
Incorporated by reference to Exhibit 4.1(e) to the Company's
Current Report on Form 8-K dated January 31, 1995 (date of
earliest event reported) (File No. 1-8048).
4(a)(6) Stock Pledge Agreement dated January 31, 1995 between the
Company and the Bank. Incorporated by reference to Exhibit
4.1(f) to the Company's Current Report on Form 8-K dated
January 31, 1995 (date of earliest event reported) (File No.
1-8048).
4(a)(7) Security Agreement dated January 31, 1995 between Ditel,
Inc.(now TII-Ditel, Inc.), an indirect subsidiary of the
Company, and the Bank. Incorporated by reference to Exhibit
4.1(g) to the Company's Current Report on Form 8-K dated
January 31, 1995 (date of earliest event reported) (File No.
1-8048).
10(a)(1)+ 1983 Employee Incentive Stock Option Plan of the Company, as
amended. Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 27, 1996 (File No. 1-8048).
5# Opinion of Parker Chapin Flattau & Klimpl, LLP as to the
legality of the Common Stock being offered and consent
10(a)(2) 1986 Stock Option Plan of the Company, as amended.
Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 27, 1996 (File No. 1-8048).
II-4
<PAGE>
10(a)(3)+ 1994 Non-Employee Director Stock Option Plan, as amended.
Incorporated by reference to Exhibit 99.01 to the Company's
Registration Statement on Form S-8, No. 33-64965.
10(a)(4)+ 1995 Stock Option Plan. Incorporated by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 27, 1996 (File No. 1-8048).
10(b)(1)+ Amended and Restated Employment Agreement dated as of August
1, 1997 between the Company and Timothy J Roach. Incorporated
by reference to Exhibit 10(b)(1)+ to the Company's Annual
Report is Form 10-K for the fiscal year ended June 27, 1997
(File No. 1-8048).
10(b)(2)+* Amended and Restated Employment Agreement dated as of May 1,
1997 between the Company and Paul G. Sebetic.
10(b)(3)(A)+ Employment Agreement dated September 23, 1993 between the
Company and Dare P. Johnston. Incorporated by reference to
Exhibit 10(b)(3)(A)+ to the Company's Annual Report is Form
10-K for the fiscal year ended June 27, 1997 (File No.
1-8048).
10(b)(3)(B)+ Extension dated as of June 2, 1997 to the Employment Agreement
dated September 23, 1993 between the Company and Dare P.
Johnston. Incorporated by reference to Exhibit 10(b)(3)(B)+ to
the Company's Annual Report is Form 10-K for the fiscal year
ended June 27, 1997 (File No. 1-8048).
10(c)(1)(A)+ Equipment Lease dated July 18, 1991 between PRC Leasing, Inc.
("PRC") and the Company. Incorporated by reference to Exhibit
10(b)(57) to the Company's Current Report on Form 8-K for the
month of July 1991 (File No. 1-8048).
10(c)(1)(B)+ Amendment dated July 18, 1992 to Equipment Lease dated July
18, 1991 between the Company and PRC. Incorporated by
reference to Exhibit 10(b)(67) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 25, 1993 (File No.
1-8048).
10(c)(1)(C)+ Second Amendment dated February 25, 1993 to Equipment Lease
dated July 18, 1991 between the Company and PRC. Incorporated
by reference to Exhibit 10(b)(7) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 25, 1993
(File No. 1-8048).
10(c)(1)(D) Restated Third Amendment dated December 14, 1993 to Equipment
Lease dated July 18, 1991 between the Company and PRC.
Incorporated by reference to Exhibit 4(d) to Amendment No. 2
to the Schedule 13D filed by Alfred J. Roach (File No.
1-8048).
10(d)(1) Lease Contract dated December 15, 1989 between the Company and
Puerto Rico Industrial Development Company. Incorporated by
reference to Exhibit 10(c)(1) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 29, 1990 (File No.
1-8048).
II-5
<PAGE>
10(d)(2) Consolidated Contract of Lease Renewal and Construction dated
February 1, 1994 between TII Dominicana, Inc., a subsidiary of
the Company, and The Industrial Development Corporation of the
Dominican Republic. Incorporated by reference to Exhibit
10(g)(2) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995 (File No. 1-8048).
11 Calculation of earnings per share. Incorporated by reference
to Exhibit 11 to the Company's Annual Report is Form 10-K for
the fiscal year ended June 27, 1997 (File No. 1-8048).
21 Subsidiaries of the Company. Incorporated by reference to
Exhibit 21 to the Company's Annual Report is Form 10-K for the
fiscal year ended June 27, 1997 (File No. 1-8048).
23(a)* Consent of Arthur Andersen LLP
23(b)# Consent of Parker Chapin Flattau & Klimpl, LLP (to be included
in Exhibit 5)
24* Powers of Attorney of certain officers and directors of the
registrant.
- ----------
* Filed herewith.
+ Management contract arrangement.
# To be filed by amendment.
II-6
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8, and the information required to
be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 15
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
II-7
<PAGE>
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Copiague, State of New York, on the 22nd day of
October, 1997.
TII INDUSTRIES, INC.
By: /s/ Timothy J. Roach
--------------------------
Timothy J. Roach, President
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed below by the following persons in the
capacities and on the 22nd day of October, 1997.
Signature Title
--------- -----
/s/ Alfred J. Roach Chairman of the Board
- --------------------------
Alfred J. Roach
/s/ Timothy J. Roach President, Chief Executive
- -------------------------- Officer and Director
Timothy J. Roach
/s/ Paul G. Sebetic Vice President-Finance
- -------------------------- (Principal Financial Officer and
Paul G. Sebetic Principal Accounting Officer)
/s/ C. Bruce Barksdale Director
- --------------------------
C. Bruce Barksdale
/s/ Dorothy Roach Director
- --------------------------
Dorothy Roach
/s/ Joseph c. Hogan Director
- --------------------------
Joseph C. Hogan
/s/ James R. Grover, Jr. Director
- --------------------------
James R. Grover, Jr.
/s/ William G. Sharwell Director
- --------------------------
William G. Sharwell
II-9
<PAGE>
EXHIBITS:
Exhibit Number Description
- -------------- -----------
1.* Form of Underwriting Agreement
3 (a)(1) Restated Certificate of Incorporation of the Company,
as filed with the Secretary of State of the State of Delaware
on December 10, 1996.Incorporated by reference to Exhibit 3 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 27, 1996 (File No. 1-8048).
3(b) By-laws of the Company, as amended. Incorporated by reference
to Exhibit 4.02 to Amendment No. 1 to the Company's
Registration Statement on Form S-3 (File No. 33- 64980).
4(a)(1)(A) Revolving Credit Loan Agreement dated January 31, 1995 among
TII International, Inc. ("International"), the Company and
Chemical Bank (the "Bank"). Incorporated by reference to
Exhibit 4.1(a) to the Company's Current Report on Form 8-K
dated January 31, 1995 (date of earliest event reported) (File
No. 1-8048).
4(a)(1)(B) First Amendment dated as of August 3, 1995 to the Revolving
Credit Agreement among International, the Company and the
Bank. Incorporated by reference to Exhibit 4(a)(1)(B) to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 28, 1996 (File No. 1-8048).
4(a)(1)(C) Second Amendment dated as of November 10, 1995 to the
Revolving Credit Agreement among International, the Company
and the Bank. Incorporated by reference to Exhibit 4(a)(1)(C)
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 28, 1996 (File No. 1-8048).
4(a)(1)(D) Third Amendment dated as of December 27, 1995 to the Revolving
Credit Agreement among International, the Company and the
Bank. Incorporated by reference to Exhibit 4(a)(1)(D) to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 28, 1996 (File No. 1-8048).
4(a)(1)(E) Fourth Amendment dated May 2, 1997 to the Revolving Credit
Agreement among International, the Company and the Bank.
Incorporated by reference to Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 28, 1997 (File No. 1-8048).
4(a)(1)(F) Fifth Amendment and Waiver dated as of September 23, 1997 to
the Revolving Credit Agreement among International, the
Company and the Bank. Incorporated by reference to Exhibit
4(a)(1)(F) to the Company's Annual Report is Form 10-K for the
fiscal year ended June 27, 1997 (File No. 1-8048).
4(a)(1)(G)* Sixth Amendment and Waiver dated as of October 17, 1997 to the
Revolving Credit Agreement among International, the Company
and the Bank.
4(a)(2) Joint and Several Guaranty of Payment dated January 31, 1995
executed in favor of the Bank by the Company and TII
Industries NC, Inc., TII Dominicana, Inc., TII Electronics,
Inc.(since dissolved), Ditel, Inc.(now TII-Ditel, Inc.), TII
Corporation and Telecommunications Industries, Inc., direct or
indirect subsidiaries of the Company. Incorporated by
reference to Exhibit 4.1(b) to the Company's Current Report on
Form 8-K dated January 31, 1995 (date of earliest event
reported) (File No. 1-8048).
4(a)(3) Pledge Agreement dated January 31, 1995 between International
and the Bank. Incorporated by reference to Exhibit 4.1(c) to
the Company's Current Report on Form 8-K dated January 31,
1995 (date of earliest event reported) (File No. 1-8048).
<PAGE>
Exhibit Number Description
- -------------- -----------
4(a)(4) Security Agreement dated January 31, 1995 between the Company
and the Bank. Incorporated by reference to Exhibit 4.1(d) to
the Company's Current Report on Form 8-K dated January 31,
1995 (date of earliest event reported) (File No. 1-8048).
4(a)(5) Assignment of Accounts Receivable Agreement dated January 31,
1995 executed by the Company in favor of the Bank.
Incorporated by reference to Exhibit 4.1(e) to the Company's
Current Report on Form 8-K dated January 31, 1995 (date of
earliest event reported) (File No. 1-8048).
4(a)(6) Stock Pledge Agreement dated January 31, 1995 between the
Company and the Bank. Incorporated by reference to Exhibit
4.1(f) to the Company's Current Report on Form 8-K dated
January 31, 1995 (date of earliest event reported) (File No.
1-8048).
4(a)(7) Security Agreement dated January 31, 1995 between Ditel,
Inc.(now TII-Ditel, Inc.), an indirect subsidiary of the
Company, and the Bank. Incorporated by reference to Exhibit
4.1(g) to the Company's Current Report on Form 8-K dated
January 31, 1995 (date of earliest event reported) (File No.
1-8048).
10(a)(1)+ 1983 Employee Incentive Stock Option Plan of the Company, as
amended. Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 27, 1996 (File No. 1-8048).
5# Opinion of Parker Chapin Flattau & Klimpl, LLP as to the
legality of the Common Stock being offered and consent
10(a)(2) 1986 Stock Option Plan of the Company, as amended.
Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 27, 1996 (File No. 1-8048).
10(a)(3)+ 1994 Non-Employee Director Stock Option Plan, as amended.
Incorporated by reference to Exhibit 99.01 to the Company's
Registration Statement on Form S-8, No. 33-64965.
10(a)(4)+ 1995 Stock Option Plan. Incorporated by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 27, 1996 (File No. 1-8048).
10(b)(1)+ Amended and Restated Employment Agreement dated as of August
1, 1997 between the Company and Timothy J Roach. Incorporated
by reference to Exhibit 10(b)(1)+ to the Company's Annual
Report is Form 10-K for the fiscal year ended June 27, 1997
(File No. 1-8048).
10(b)(2)+* Amended and Restated Employment Agreement dated as of May 1,
1997 between the Company and Paul G. Sebetic.
10(b)(3)(A)+ Employment Agreement dated September 23, 1993 between the
Company and Dare P. Johnston. Incorporated by reference to
Exhibit 10(b)(3)(A)+ to the Company's Annual Report is Form
10-K for the fiscal year ended June 27, 1997 (File No.
1-8048).
10(b)(3)(B)+ Extension dated as of June 2, 1997 to the Employment Agreement
dated September 23, 1993 between the Company and Dare P.
Johnston. Incorporated by reference to Exhibit 10(b)(3)(B)+ to
the Company's Annual Report is Form 10-K for the fiscal year
ended June 27, 1997 (File No. 1-8048).
10(c)(1)(A)+ Equipment Lease dated July 18, 1991 between PRC Leasing, Inc.
("PRC") and the Company. Incorporated by reference to Exhibit
10(b)(57) to the Company's Current Report on Form 8-K for the
month of July 1991 (File No. 1-8048).
<PAGE>
Exhibit Number Description
- -------------- -----------
10(c)(1)(B)+ Amendment dated July 18, 1992 to Equipment Lease dated July
18, 1991 between the Company and PRC. Incorporated by
reference to Exhibit 10(b)(67) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 25, 1993 (File No.
1-8048).
10(c)(1)(C)+ Second Amendment dated February 25, 1993 to Equipment Lease
dated July 18, 1991 between the Company and PRC. Incorporated
by reference to Exhibit 10(b)(7) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 25, 1993
(File No. 1-8048).
10(c)(1)(D) Restated Third Amendment dated December 14, 1993 to Equipment
Lease dated July 18, 1991 between the Company and PRC.
Incorporated by reference to Exhibit 4(d) to Amendment No. 2
to the Schedule 13D filed by Alfred J. Roach (File No.
1-8048).
10(d)(1) Lease Contract dated December 15, 1989 between the Company and
Puerto Rico Industrial Development Company. Incorporated by
reference to Exhibit 10(c)(1) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 29, 1990 (File No.
1-8048).
10(d)(2) Consolidated Contract of Lease Renewal and Construction dated
February 1, 1994 between TII Dominicana, Inc., a subsidiary of
the Company, and The Industrial Development Corporation of the
Dominican Republic. Incorporated by reference to Exhibit
10(g)(2) to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995 (File No. 1-8048).
11 Calculation of earnings per share. Incorporated by reference
to Exhibit 11 to the Company's Annual Report is Form 10-K for
the fiscal year ended June 27, 1997 (File No. 1-8048).
21 Subsidiaries of the Company. Incorporated by reference to
Exhibit 21 to the Company's Annual Report is Form 10-K for the
fiscal year ended June 27, 1997 (File No. 1-8048).
23(a)* Consent of Arthur Andersen LLP
23(b)# Consent of Parker Chapin Flattau & Klimpl, LLP (to be included
in Exhibit 5)
24* Powers of Attorney of certain officers and directors of the
registrant.
- ----------
* Filed herewith.
+ Management contract arrangement.
# To be filed by amendment.
2,500,000 Shares
TII INDUSTRIES. INC.
Common Stock
UNDERWRITING AGREEMENT
_____________, 1997
Rodman & Renshaw, Inc.
c/o Rodman & Renshaw, Inc.
225 Liberty Street
2 World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named in
Schedule I attached hereto.
Ladies and Gentlemen:
TII Industries, Inc., a Delaware corporation (the "Company") proposes
to sell to you and the other underwriters named in Schedule I attached hereto
(the "Underwriters"), for whom you are acting as the Representative, an
aggregate of 2,500,000 shares (the "Firm Shares") of the Company's Common Stock,
$.01 par value per share (the "Common Stock") to be issued and sold by the
Company. In addition, the Company proposes to grant to the Underwriters an
option to purchase up to an additional 375,000 shares (the "Option Shares") of
Common Stock for the purpose of covering over-allotments in connection with the
sale of the Firm Shares. The Firm Shares and the Option Shares are together
called the "Shares."
1. Sale and Purchase of the Shares. On the basis of the
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company agrees to issue and sell the Firm Shares, to the
several Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase at the purchase price per share of Common Stock
of $_____ (the "Initial Price"), the
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aggregate number of Firm Shares set forth opposite such Underwriter's
name in Schedule I attached hereto. The Underwriters agree to offer the
Firm Shares to the public as set forth in the Prospectus.
(b) The Company grants to the several Underwriters an option to
purchase all or any part of the number of Option Shares at the Initial
Price. The number of Option Shares to be purchased by each Underwriter
shall be the same percentage (adjusted by the Representative to
eliminate fractions) of the total number of Option Shares to be
purchased by the Underwriters as such Underwriter is purchasing of the
Firm Shares. Such option may be exercised only to cover over-allotments
in the sales of the Firm Shares by the Underwriters and may be exercised
in whole or in part at any time on or before 12:00 noon, New York City
time, on the business day before the Firm Shares Closing Date (as
defined below), and from time to time thereafter within 30 days after
the date of this Agreement, upon written or telegraphic notice, or
verbal or telephonic notice confirmed by written or telegraphic notice,
by the Representative to the Company no later than 12:00 noon, New York
City time, on the business day before the Firm Shares Closing Date or at
least two business days before any Option Shares Closing Date (as
defined below), as the case may be, setting forth the number of Option
Shares to be purchased and the time and date (if other than the Firm
Shares Closing Date) of such purchase.
2. Delivery and Payment. Delivery by the Company of the Firm Shares
to the Representative for the respective accounts of the Underwriters, and
payment of the purchase price by certified or official bank check or checks
payable in New York Clearing House (next day) funds to the Company, shall take
place at the offices of Rodman & Renshaw, Inc., at 225 Liberty Street, 2 World
Financial Center, New York, New York, 10281, at 10:00 a.m., New York City time,
on the third business day following the date on which the public offering of the
Shares commences (unless such date is postponed in accordance with the
provisions of Section 10(b)), or at such time and place on such other date, not
later than 10 business days after the date of this Agreement, as shall be agreed
upon by the Company and the Representative (such time and date of delivery and
payment are called the "Firm Shares Closing Date"). The public offering of the
Shares shall be deemed to have commenced at the time, which is the earlier of
(a) the time, after the Registration Statement (as defined in Section 4 below)
becomes effective, of the release by you for publication of the first newspaper
advertisement which is subsequently published relating to the Shares or (b) the
time, after the Registration Statement becomes effective, when the Shares are
first released by you for offering by the Underwriters or dealers by letter or
telegram.
In the event the option with respect to the Option Shares is exercised,
delivery by the Company of the Option Shares to the Representative for the
respective accounts of the Underwriters and payment of the purchase price by
certified or official bank check or checks payable in New York Clearing House
(next day) funds to the Company shall take place at the offices of Rodman &
Renshaw, Inc. specified above at the time and on the date (which may be the same
date as, but in no event shall be earlier than, the Firm Shares Closing Date)
specified in the notice referred to in Section 1(b) (such time and date of
delivery and payment is called the "Option
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Shares Closing Date"). The Firm Shares Closing Date and the Option Shares
Closing Dates are called, individually, a "Closing Date" and, together, the
"Closing Dates."
Certificates evidencing the Shares shall be registered in such names and
shall be in such denominations as the Representative shall request at least two
full business days before the Firm Shares Closing Date or the Option Shares
Closing Date, as the case may be, and shall be made available to the
Representative for checking and packaging, at such place as is designated by the
Representative, on the full business day before the Firm Shares Closing Date or
the Option Shares Closing Date, as the case may be.
3. Public Offering. The Company understands that the Underwriters
propose to make a public offering of the Shares, as set forth in and pursuant to
the Prospectus (as defined in Section 4 below), as soon after the effective date
of the Registration Statement and the date of this Agreement as the
Representative deems advisable. The Company hereby confirms that the
Underwriters and dealers have been authorized to distribute or cause to be
distributed each preliminary prospectus and are authorized to distribute the
Prospectus (as from time to time amended or supplemented if the Company
furnishes amendments or supplements thereto to the Underwriters).
4. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement,
and may have filed one or more amendments thereto, on Form S-2
(Registration No. 333-_____), including in such registration
statement and each such amendment a related preliminary
prospectus (a "Preliminary Prospectus"), for the registration of
the Shares and the Option Shares, in conformity with the
requirements of the Securities Act of 1933, as amended (the
"Act"). In addition, the Company has filed or will promptly file
a further amendment to such registration statement, in the form
heretofore delivered to you. As used in this Agreement, the term
"Registration Statement" means such registration statement, as
amended, and any registration statement filed pursuant to Rule
462(b) of the Act, on file with the Commission at the time such
registration statement becomes effective (including the
prospectus, financial statements, exhibits, and all other
documents filed as a part thereof or incorporated by reference
directly or indirectly therein (such incorporated documents
being herein collectively "Incorporated Documents")), provided
that such Registration Statement, at the time it becomes
effective, may omit such information as is permitted to be
omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the General Rules and
Regulations promulgated under the Act (the "Regulations"), which
information ("Rule 430 Information") shall be deemed to be
included in such Registration Statement when a final prospectus
is filed with the Commission in
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accordance with Rules 430A and 424(b)(1) or (4) of the
Regulations; the term "Preliminary Prospectus" means each
prospectus included in the Registration Statement, or any
amendments thereto, before it becomes effective under the Act,
the form of prospectus omitting Rule 430A Information included
in the Registration Statement when it becomes effective, if
applicable (the "Rule 430A Prospectus"), and any prospectus
filed by the Company with your consent pursuant to Rule 424(a)
of the Regulations; and the term "Prospectus" means the final
prospectus included as part of the Registration Statement,
except that if the prospectus relating to the securities covered
by the Registration Statement in the form first filed on behalf
of the Company with the Commission pursuant to Rule 424(b) of
the Regulations shall differ from such final prospectus, the
term "Prospectus" shall mean the prospectus as filed pursuant to
Rule 424(b) from and after the date on which it shall have first
been used.
(ii) When the Registration Statement becomes effective,
and at all times subsequent thereto to and including the Closing
Dates, and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the
Underwriters or a dealer, and during such longer period until
any post-effective amendment thereto shall become effective, the
Registration Statement (and any post-effective amendment
thereto) and the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment
or supplement to the Registration Statement or the Prospectus)
will contain all statements which are required to be stated
therein in accordance with the Act and the Regulations, will
comply with the Act and the Regulations, and will not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading, and no event will have
occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus which
has not then been set forth in such an amendment or supplement;
if a Rule 430A Prospectus is included in the Registration
Statement at the time it becomes effective, the Prospectus filed
pursuant to Rules 430A and 424(b)(1) or (4) will contain all
Rule 430A Information; and each Preliminary Prospectus, as of
the date filed with the Commission, did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading; except that no representation
or warranty is made in this Section 4(a)(ii) with respect to
statement or omissions made in reliance upon and in conformity
with written information furnished to the Company as stated in
Section 7(b) with respect to any Underwriter by or on behalf of
such Underwriter through the Representative expressly for
inclusion in any Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement
thereto. Each of the Incorporated Documents complies in all
material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder.
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(iii) The Company has not distributed and will not
distribute, prior to the later of the Option Shares Closing Date
and the completion of the Underwriters' distribution of the
Common Stock, any offering material in connection with the
offering and sale of the Common Stock other than a Preliminary
Prospectus, Prospectus or the Registration Statement.
(iv) Neither the Commission nor the "blue sky" or
securities authority of any jurisdiction have issued an order (a
"Stop Order") suspending the effectiveness of the Registration
Statement, preventing or suspending the use of any Preliminary
Prospectus, the Prospectus, the Registration Statement, or any
amendment or supplement thereto, refusing to permit the
effectiveness of the Registration Statement, or suspending the
registration or qualification of the Firm Shares or the Option
Shares nor has any of such authorities instituted or threatened
to institute any proceedings with respect to a Stop Order.
(v) Any contract, agreement, instrument, lease, or
license required to be described in the Registration Statement
or the Prospectus has been properly described therein. Any
contract agreement, instrument, lease, or license required to be
filed as an exhibit to the Registration Statement has been filed
with the Commission as an exhibit to or has been incorporated as
an exhibit by reference into the Registration Statement.
(vi) The Company has no subsidiary or subsidiaries and
does not control, directly or indirectly, any corporation,
partnership, joint venture, association or other business
organization, except for those listed on Schedule II hereto and
for those permitted to be excluded pursuant to Item 601, Exhibit
21 or Regulation S-K (each such corporation singly a
"Subsidiary" and collectively, the "Subsidiaries"). Each of the
Company and each of the Subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws
of the jurisdiction of incorporation, with full corporate power
and authority, and all necessary consents, authorizations,
approvals, orders, licenses, certificates, and permits of and
from, and declarations and filings with, all federal, state,
possession, local, foreign and other governmental authorities
and all courts and other tribunals, to own, lease, license, and
use its properties and assets and to carry on its business as
now being conducted and in the manner described in the
Prospectus. Each of the Company and each of the Subsidiaries is
duly qualified to do business and is in good standing in each
jurisdiction in which its ownership, leasing, licensing, or
character, location or use of property and assets or the conduct
of its business makes such qualification necessary. Neither the
Company nor any Subsidiary owns, leases or licenses any property
or conduct any business outside the United States of America,
except as described in the Prospectus.
(vii) The authorized capital stock of the Company
consists of 30,000,000 shares of Common Stock, of which
8,099,440 shares are outstanding and 1,000,000
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shares of Preferred Stock, $1.00 par value per share (the
"Preferred Stock"), none of which are outstanding. Each
outstanding share of Common Stock and each outstanding share of
capital stock of each Subsidiary has been duly and validly
authorized and issued, fully paid, and non-assessable, without
any personal liability attaching to the ownership thereof and
has not been issued and is not owned or held in violation of any
preemptive rights of shareholders and, in the case of the
Subsidiaries, is owned of record and beneficially by the
Company, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and
voting trusts. There is no commitment, plan, preemptive right or
arrangement to issue, and no outstanding option, warrant, or
other right calling for the issuance of, shares of capital stock
of the Company or of any Subsidiary or any security or other
instrument which by its terms is convertible into, exercisable
for, or exchangeable for capital stock of the Company or of any
Subsidiary, except as may be properly described in the
Prospectus. There is outstanding no security or other instrument
which by its terms is convertible into or exchangeable for
capital stock of the Company or of any Subsidiary, except as may
be properly described in the Prospectus.
(viii) The consolidated financial statements of the
Company and the Subsidiaries included in the Registration
Statement and the Prospectus fairly present, with respect to the
Company and its Subsidiaries the financial position, the
consolidated results of operations, and the other information
purported to be shown therein at the respective dates and for
the respective periods to which they apply. Such financial
statements have been prepared in accordance with generally
accepted accounting principles (except to the extent that
certain footnote disclosures regarding any stub period may have
been omitted in accordance with the applicable rules of the
Commission under the Exchange Act) consistently applied
throughout the periods involved, are correct and complete, and
are in accordance with the books and records of the Company and
the Subsidiaries. The accountants whose report on the audited
financial statements is filed with the Commission as a part of
the Registration Statement are, and during the periods covered
by their report(s) included in the Registration Statement and
the Prospectus were, independent certified public accountants
with respect to the Company and the Subsidiaries within the
meaning of the Act and the Regulations. No other financial
statements are required by Form S-2 or otherwise to be included
in the Registration Statement or the Prospectus. There has at no
time been a material adverse change in the financial condition,
results of operations, business, properties, assets,
liabilities, or future prospects of the Company or any
Subsidiary from the latest information set forth in the
Registration Statement or the Prospectus, except as may be
properly described in the Prospectus.
(ix) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation before any court or before any public body or
board pending, threatened, or in prospect (or any basis
therefor)
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with respect to the Company, any Subsidiary, or any of their
respective operations, business, properties, or assets, except
as may be properly described in the Prospectus or such as
individually or in the aggregate do not now have and will not in
the future have a material adverse effect upon the operations,
business, properties, assets or financial condition of the
Company. Neither the Company nor any of the Subsidiaries is
involved in any labor dispute, nor is such dispute threatened,
which dispute would have a material adverse effect upon the
operations, business, properties, assets or financial condition
of the Company or the Subsidiaries. Neither the Company nor the
Subsidiaries is in violation of, or in default with respect to,
any law, rule, regulation, order, judgment, or decree; nor is
the Company or the Subsidiaries required to take any action in
order to avoid any such violation or default.
(x) The Company and each of the Subsidiaries has good
and marketable title in fee simple absolute to all real
properties and good title to all other properties and assets
which the Prospectus indicates are owned by it, and has valid
and enforceable leasehold interests in each of such items, free
and clear of all liens, security interests, pledges, charges,
encumbrances, and mortgages (except as may be properly described
in the Prospectus). No real property owned, leased, licensed or
used by the Company or the Subsidiaries lies in an area which
is, or to the knowledge of the Company or the Subsidiaries will
be, subject to zoning, use or building code restrictions which
would prohibit, and no state of facts relating to the actions or
inaction of another person or entity or his or its ownership,
leasing, licensing or use of any real or personal property
exists or will exist which would prevent, the continued
effective ownership, leasing, licensing or use of such real
property in the business of the Company or the Subsidiaries as
presently conducted or as the Prospectus indicates it
contemplates conducting (except as may be properly described in
the Prospectus).
(xi) Neither the Company nor any of the Subsidiaries,
nor to the knowledge of the Company and the Subsidiaries, any
other party, is now or is expected by the Company to be in
violation or breach of, or in default with respect to, complying
with any term, obligation or provision of any contract,
agreement, instrument, lease, license, indenture, mortgage, deed
of trust, note, arrangement or understanding which is material
to the Company and the Subsidiaries or by which any of its
properties or business may be bound or affected, and no event
has occurred which with notice or lapse of time or both would
constitute such a default, and each such contract, agreement,
instrument, lease, license, indenture, mortgage, deed
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of trust, note, arrangement or understanding is in full force
and is the legal, valid and binding obligation of the parties
thereto and is enforceable as to them in accordance with its
terms. The Company and each of the Subsidiaries enjoys peaceful
and undisturbed possession under all leases and licenses under
which it is operating. Neither the Company nor any of the
Subsidiaries is a party to or bound by any contract, agreement,
instrument, lease, license, indenture, mortgage, deed of trust,
note, arrangement or understanding, or subject to any charter or
other restriction, which has had or may in the future have a
material adverse effect on the financial condition, results of
operations, business, properties, assets, liabilities or future
prospects of the Company or any of the Subsidiaries. Neither the
Company nor any of the Subsidiaries is in violation or breach
of, or in default with respect to, any term of its certificate
of incorporation (or other charter document) or by-laws or of
any franchise, license, permit, judgment, decree, order,
statute, rule or regulation.
(xii) The Company and each of the Subsidiaries has filed
all federal, state, local, possession and foreign tax returns
which are required to be filed through the date hereof, or have
received extensions thereof, and have paid all taxes shown on
such returns and all assessments received by it to the extent
that the same are material and have become due. The Company has
made adequate charges, accruals and reserves in its applicable
financial statements in respect of all federal, state,
possession and foreign income and franchise taxes for all
periods as to which the tax liability of the Company has not
been finally determined.
(xiii) All patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights,
copyright applications, franchises, and other intangible
properties and assets listed in the Registration Statement under
"Business-Patents and Trademarks" (all of the foregoing being
collectively herein called "Intangibles") that the Company and
the Subsidiaries own, possesses or have pending, or under which
they are licensed, are in good standing and uncontested. There
is no right under any Intangible necessary to the business of
the Company or the Subsidiaries as presently conducted or as the
Prospectus indicates the Company or the Subsidiaries
contemplates conducting (except as may be so described in the
Prospectus). Neither the Company nor any of the Subsidiaries has
infringed, is infringing, or has received any notice of
infringement with respect to asserted Intangibles of others. To
the knowledge of the Company and each of the Subsidiaries, there
is no infringement by others of Intangibles of the Company or
the Subsidiaries. To the knowledge of the Company and the
Subsidiaries, there is no Intangible of others which has had or
may in the future have a materially adverse effect on the
financial condition, results of operations, business,
properties, assets, liabilities or future prospects of the
Company and the Subsidiaries.
(xiv) Neither the Company nor any of the Subsidiaries
nor any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any of the
Subsidiaries has, directly or indirectly: used any corporate
funds for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any
bribe, rebate, payoff, influence
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payment, kickback, or other unlawful payment. No transaction has
occurred between or among the Company and any of its officers or
directors or any affiliates or affiliates of any such officer or
director, except as described in the Prospectus.
(xv) The Company has all requisite power and authority
to execute, deliver and perform this Agreement. All necessary
corporate proceedings of the Company have been duly taken to
authorize the execution, delivery and performance of this
Agreement. This Agreement has been duly authorized, executed,
and delivered by the Company, is the legal, valid and binding
obligation of the Company, and is enforceable as to the Company
in accordance with its terms. No consent, authorization,
approval, order, license, certificate or permit of or from, or
declaration or filing with, any federal, state, possession,
local, foreign or other governmental authority or any court or
other tribunal is required by the Company for the execution,
delivery or performance by the Company of this Agreement (except
filings under the Act which have been or will be made before the
applicable Closing Date and such consents consisting only of
consents under "blue sky" or securities laws which have been
obtained at or prior to the date of this Agreement). No consent
of any party to any contract, agreement, instrument, lease,
license, indenture, mortgage, deed of trust, note, arrangement
or understanding to which the Company is a party, or to which
any of its respective properties or assets are subject, is
required for the execution, delivery or performance of this
Agreement, and the execution, delivery and performance of this
Agreement, will not violate, result in a breach of, conflict
with, accelerate the due date of any payments under, or (with or
without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under any such
contract, agreement, instrument, lease, license, indenture,
mortgage, deed of trust, note, arrangement, or understanding, or
violate or result in a breach of any term of the certificate of
incorporation (or other charter document) or by-laws of the
Company, or violate, result in a breach of, or conflict with any
law, rule, regulation, order, judgment or decree binding on the
Company or to which any of its operations, business, properties
or assets are subject.
(xvi) The Firm Shares and the Option Shares are duly and
validly authorized. The Firm Shares, when issued and delivered
in accordance with this Agreement, and the Option Shares, when
delivered in accordance with this Agreement, will be duly and
validly issued, fully paid, and non-assessable, without any
personal liability attaching to the ownership thereof, and will
not be issued in violation of any preemptive rights of
shareholders, optionholders, warrantholders and any other
persons and the Underwriters will receive good title to the Firm
Shares and Option Shares purchased by them, respectively, free
and clear of all liens, security interests, pledges, charges,
encumbrances, shareholders' agreements and voting trusts.
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(xvii) The Common Stock, the Preferred Stock, the Firm
Shares and the Option Shares conform to all statements relating
thereto contained in the Registration Statement or the
Prospectus.
(xviii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as may otherwise be properly described
therein, there has not been any material adverse change in the
assets or properties, business or results of operations or
financial condition of the Company or any of the Subsidiaries,
whether or not arising from transactions in the ordinary course
of business; neither the Company nor any of the Subsidiaries has
sustained any material loss or interference with its business or
properties from fire, explosion, earthquake, flood or other
calamity, whether or not covered by insurance; since the date of
the latest balance sheet included in the Registration Statement
and the Prospectus, except as reflected therein, neither the
Company nor any of the Subsidiaries has undertaken any liability
or obligation, direct or contingent, except for liabilities or
obligations undertaken in the ordinary course of business; and
the Company has not (A) issued any securities or incurred any
liability or obligation, primary or contingent, for borrowed
money, (B) entered into any transaction not in the ordinary
course of business, or (C) declared or paid any dividend or made
any distribution on any of its capital stock or redeemed,
purchased or otherwise acquired or agreed to redeem, purchase or
otherwise acquire any shares of its capital stock.
(xix) Neither the Company nor any of the Subsidiaries,
nor any of their officers, directors or affiliates (as defined
in the Regulations), has taken or will take, directly or
indirectly, prior to the termination of the underwriting
syndicate contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in
the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of
the Company, to facilitate the sale or resale of any of the Firm
Shares or the Option Shares.
(xx) The Company has obtained from each of its executive
officers and directors and principal shareholders, their
enforceable written agreement, in form and substance
satisfactory to counsel for the Underwriters, that for a period
of 180 days from the date on which the public offering of the
Shares commences they will not, without the prior written
consent of Rodman & Renshaw, Inc., offer, pledge, sell, contract
to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any shares of Common Stock or other
securities of the Company (or any security or other instrument
which by its terms is convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of
the Company, including, without limitation, any shares of Common
Stock issuable under any employee stock options), beneficially
owned by them, except with respect to Shares being sold in
connection herewith or their being a beneficial owner of any
such Shares;
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(xxi) The Company is not, and does not intend to conduct
its business in a manner in which it would be, an "investment
company" as defined in Section 3(a) of the Investment Company
Act of 1940 (the "Investment Company Act").
(xxii) No person or entity has the right to require
registration of shares of Common Stock or other securities of
the Company because of the filing or effectiveness of the
Registration Statement, except such person or entities from whom
written waivers of such rights have been received prior to the
date hereof.
(xxiii) Except as may be set forth in the Prospectus,
neither the Company nor any of the Subsidiaries has incurred any
liability for a fee, commission or other compensation on account
of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(xxiv) No transaction has occurred between or among the
Company or any of the Subsidiaries and any of their respective
officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not
described in the Registration Statement and the Prospectus.
(xxv) The Common Stock, including the Shares, are
authorized for quotation on the Nasdaq National Market.
(xxvi) Neither the Company nor any of the Subsidiaries
nor any of their affiliates is presently doing business with the
government of Cuba or with any person or affiliate located in
Cuba. If, at any time after the date that the Registration
Statement is declared effective with the Commission or with the
Florida Department of Banking and Finance (the "Florida
Department"), whichever date is later, and prior to the end of
the period referred to in the first clause of Section 4(a)(ii)
hereof, the Company commences engaging in business with the
government of Cuba or with any person or affiliate located in
Cuba, the Company will so inform the Florida Department within
ninety days after such commencement of business in Cuba, and
during the period referred to in Section 4(a)(ii) hereof will
inform the Florida Department within ninety days after any
change occurs with respect to previously reported information.
(xxvii) Except as described in the Prospectus: (i) there
are no outstanding loans, advances or guaranties of indebtedness
by the Company which are required to be described in the
Prospectus to or for the benefit of any of its "affiliates," as
such term is defined in Rule 405 under the Act, or any of the
officers or directors of the Company, or any of the members of
the "immediate family" (as that term is defined in Item 404(a)
of Regulation S-K under the Act) of any of such officers or
directors, or any of the "associates" (as that term is defined
in Rule 405 under the Act) of any of such officers, directors or
family members; and (ii) there are no material agreements or
understandings between the Company and any of the
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members of the immediate family of any of the officers or
directors of the Company, or any of the associates of any of
such officers, directors or family members.
(xxviii) The Company maintains a system of accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxix) Except as would not, individually or in the
aggregate, result in a material adverse change (i) the company
is not in violation of any federal, state, possession, local or
foreign law or regulation relating to pollution or protection of
human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including without limitation,
laws and regulations relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum and
petroleum products (collectively, "Materials of Environmental
Concern"), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which violation includes, but is not
limited to, noncompliance with any permits or other governmental
authorizations required for the operation of the business of the
Company under applicable Environmental Laws, or noncompliance
with the terms and conditions thereof, nor has the Company
received any written communication, whether from a governmental
authority, citizens group, employee or otherwise, that alleges
that the Company is in violation of any Environmental Law; (ii)
there is no claim, action or cause of action filed with a court
or governmental authority, no investigation with respect to
which the Company has received written notice, and no written
notice by any person or entity alleging potential liability for
investigatory costs, cleanup costs, governmental responses
costs, natural resources damages, property damages, personal
injuries, attorneys' fees or penalties arising out of, based on
or resulting from the presence, or release into the environment,
of any Material of Environmental Concern at any location owned,
leased or operated by the Company, now or in the past
(collectively, "Environmental Claims"), pending or, to the best
of the Company's knowledge, threatened against the Company or
any person or entity whose liability for any Environmental Claim
the Company has retained or assumed either contractually or by
operation of law; and (iii) to the best of the Company's
knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including,
without limitation, the
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release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that reasonably could result
in a violation of any Environmental Law or form the basis of a
potential Environmental Claim against the Company or against any
person or entity whose liability for any Environmental Claim the
Company has retained or assumed either contractually or by
operation of law.
5. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject, in the
Representative's sole discretion, to each of the following terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a)(i) of this Agreement.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and
no order suspending the effectiveness of the Registration Statement
shall be in effect and no proceedings for such purpose shall be pending
before or threatened by the Commission, and any requests for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the satisfaction of the Representative.
(c) The representations and warranties of the Company contained
in this Agreement and in the certificates delivered pursuant to Section
5(d) shall be true and correct when made and on and as of each Closing
Date as if made on such date and the Company shall have performed all
covenants and agreements and satisfied all the conditions contained in
this Agreement required to be performed or satisfied by it or them at or
before such Closing Date.
(d) The Representative shall have received on each Closing Date
a certificate, addressed to the Representative and dated such Closing
Date, of the chief executive or chief operating officer and the chief
financial officer of the Company to the effect that the persons
executing such certificate have carefully examined the Registration
Statement, the Prospectus and this Agreement and that the
representations and warranties of the Company in this Agreement are true
and correct on and as of such Closing Date with the same effect as if
made on such Closing Date and the Company has performed all covenants
and agreements and satisfied all conditions contained in this Agreement
required to be performed or satisfied by it at or prior to such Closing
Date.
(e) The Representative shall have received at the time this
Agreement is executed and on each Closing Date, signed letters from
Arthur Andersen LLP addressed to the Representative and dated,
respectively, the date of this Agreement and each such Closing Date, in
form and scope reasonably satisfactory to the Representative, with
reproduced copies or signed counterparts thereof for each of the
Underwriters confirming
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that they are independent accountants within the meaning of the Act and
the Regulations, that the response to Item 10 of the Registration
Statement is correct in so far as it relates to them and stating in
effect that:
(i) in their opinion the audited financial statements
and financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus and
reported on by them comply as to form in all material respects
with the applicable accounting requirements of the Act, the
Exchange Act and the related published rules and regulations
thereunder;
(ii) on the basis of a reading of the amounts included
in the Registration Statement and the Prospectus under the
heading "Summary Financial Data" which would not necessarily
reveal matters of significance with respect to the comments set
forth in such letter, a reading of the minutes of the meetings
of the shareholders and directors of the Company, and inquiries
of certain officials of the Company who have responsibility for
financial and accounting matters of the Company as to
transactions and events subsequent to the date of the latest
audited financial statements, except as disclosed in the
Registration Statement and the Prospectus, nothing came to their
attention which caused them to believe that:
(A) the amounts in "Summary Financial Data," and
included or incorporated by reference in the
Registration Statement and the Prospectus do not agree
with the corresponding amounts in the audited financial
statements from which such amounts were derived; or
(B) with respect to the Company, there were, at
a specified date not more than five business days prior
to the date of the letter, any decreases in net sales,
income before income taxes and net income or any
increases in long-term debt of the Company or any
decreases in the capital stock, working capital or the
shareholders' equity in the Company, as compared with
the amounts shown on the Company's audited Balance Sheet
for the fiscal year ended June 27, 1997 included in the
Registration Statement or the audited Statement of
Operations, for such year; and
(iii) they have performed certain other procedures as a
result of which they determined that information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from
the general accounting records of the Company) set forth in the
Registration Statement and the Prospectus and reasonably
specified by the Representative agrees with the accounting
records of the Company.
References to the Registration Statement and the Prospectus in
this paragraph (e) are to such documents as amended and supplemented at
the date of such letter.
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(f) The Representative shall have received on each Closing Date
from Parker Chapin Flattau & Klimpl, LLP, counsel for the Company, an
opinion, addressed to the Representative and dated such Closing Date,
and in form and scope satisfactory to counsel for the Underwriters, with
reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease,
license and use its properties and assets and to conduct its
business in the manner described in the Prospectus. To the
knowledge of such counsel, the Company has no subsidiary and
does not control, directly or indirectly any corporation,
partnership, joint venture, association or other business
organization except for those listed on Schedule II attached
hereto and those permitted to be excluded in a registration
statement pursuant to Item 601, Exhibit 21 of Regulation S-K
(each such corporation singly a "Subsidiary" and collectively,
the "Subsidiaries"). Each of the Subsidiaries has been duly
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, with full corporation
power and authority to own, lease, license and use its
properties and assets and to conduct its business in the manner
described in the Prospectus. To the knowledge of such counsel,
the Company has all necessary consents, authorizations,
approvals, orders, certificates and permits of and from, and
declarations and filings with, all federal, state, possession,
local, foreign and other governmental authorities and all courts
and other tribunals, to own, lease, license and use its
properties and assets and to conduct its business in the manner
described in the Prospectus. The Company and each of the
Subsidiaries is duly qualified to do business and is in good
standing, in each jurisdiction where the failure to be so
qualified could have a material adverse effect on the operating
condition (financial and otherwise) or business of the Company
and each of the Subsidiaries. Neither the Company nor any
Subsidiary owns, leases or licenses any property or conducts any
business outside the United States of America, except as may be
described in the Prospectus.
(ii) The Company has authorized, issued and outstanding
capital stock as set forth in the "actual" column of the
capitalization table under the caption "Capitalization" in the
Prospectus. The certificates evidencing the Shares are in due
and proper legal form. Each outstanding share of Common Stock
has been duly and validly authorized and issued, fully paid, and
non-assessable, without any personal liability attaching to the
ownership thereof, and has not been issued and is not owned or
held in violation of any preemptive right of shareholders. To
the knowledge of such counsel, all of the capital stock of the
Subsidiaries is owned of record and beneficially by the Company,
free and clear of all liens, security interests, pledges,
changes, encumbrances, stockholders' agreements and voting
trusts. To the knowledge of such counsel, there is no
commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for
15
<PAGE>
the issuance of, any share of capital stock of the Company or
any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for capital
stock of the Company, except as may be properly described in the
Prospectus. To the knowledge of such counsel, there is
outstanding no security or other instrument which by its terms
is convertible into, exercisable for or exchangeable for capital
stock of the Company, except as may be properly described in the
Prospectus.
(iii) To the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other proceeding
(formal or informal), or investigation before any court or
before any public body or board pending, threatened, or in
prospect (or any basis therefor) with respect to the Company,
any of the Subsidiaries or any of their respective operations,
businesses, properties, assets, or financial condition except as
may be properly described in the Prospectus or such as
individually or in the aggregate do not now have and will not in
the future have a material adverse effect upon the operations,
business, properties, assets, or financial condition of the
Company or any of the Subsidiaries. To the knowledge of such
counsel, neither the Company nor any of the Subsidiaries is
involved in any labor dispute, nor is such dispute threatened,
which dispute would have a material adverse effect upon the
operations, business, properties, assets or financial condition
of the Company or any of the Subsidiaries. Neither the Company
nor any of the Subsidiaries is in violation of, or in default
with respect to, any law, rule, regulation, order, judgment, or
decree, except as may be properly described in the Prospectus or
such as in the aggregate do not now have and will not in the
future have a material adverse effect upon the operations,
business, properties, assets, or financial condition of the
Company or any of the Subsidiaries; nor is the Company or any of
the Subsidiaries required to take any action in order to avoid
any such violation or default.
(iv) To the knowledge of such counsel, neither the
Company, any of the Subsidiaries, nor any other party is now or
is expected by the Company or any of the Subsidiaries to be in
violation or breach of, or in default with respect to, complying
with any term, obligation or provision of any contract,
agreement, instrument, lease, license, indenture, mortgage, deed
of trust, note, arrangement or understanding which is material
to the Company or any of the Subsidiaries or by which any of its
properties or businesses may be bound or affected and no event
has occurred which with notice or lapse of time or both would
constitute such a default.
(v) Neither the Company nor any of the Subsidiaries is
in violation or breach of, or in default with respect to, any
term of its certificate of incorporation (or other charter
document) or by-laws.
(vi) The Company has all requisite power and authority
to execute, deliver and perform this Agreement and to issue and
sell the Shares. All necessary
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<PAGE>
corporate proceedings of the Company have been taken to
authorize the execution, delivery and performance by the Company
of this Agreement. This Agreement has been duly authorized,
executed and delivered by the Company, is the legal, valid and
binding obligation of the Company and (subject to applicable
bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally) is enforceable as
to the Company in accordance with its terms. No consent,
authorization, approval, order, license, certificate or permit
of or from, or declaration or filing with, any federal state,
possession, local, foreign or other governmental authority or
any court or other tribunal is required by the Company, for the
execution, delivery or performance by the Company of this
Agreement (except filings under the Act which have been made
prior to the Closing Date and consents consisting only of
consents under "blue sky" or securities laws). To the knowledge
of such counsel, no consent of any party to any contract,
agreement, instrument, lease, license, indenture, mortgage, deed
of trust, note, arrangement or understanding to which the
Company is a party, or to which any of their respective
properties or assets are subject, is required for the execution,
delivery or performance of this Agreement; and the execution,
delivery and performance of this Agreement will not violate,
result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any
party to terminate or call a default under any such contract,
agreement, instrument, lease, license, indenture, mortgage, deed
of trust, note, arrangement or understanding, in each case known
to such counsel, or violate or result in a breach of any term of
the certificate of incorporation (or other charter document) or
by-laws of the Company, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or
decree binding on the Company or to which any of its operations,
businesses, properties or assets are subject.
(vii) The Firm Shares and the Option Shares are duly and
validly authorized. Such opinion delivered at each of the
Closing Dates shall state that each Share, as the case may be,
to be delivered on that date is duly and validly issued, fully
paid, and non-assessable, with no personal liability attaching
to the ownership thereof, and is not issued in violation of any
preemptive rights of shareholders, and the Underwriters have
received good title to the Shares purchased by them from the
Company for the consideration contemplated herein and in good
faith and without notice of any adverse claim within the meaning
of the Uniform Commercial Code, free and clear of any liens,
security interests, pledges, charges, encumbrances,
shareholders' agreements, voting trusts and other claims. The
Common Stock, the Preferred Stock, the Firm Shares and the
Option Shares conform to all statements relating thereto
contained in the Registration Statement or the Prospectus.
(viii) To the knowledge of such counsel, any contract,
agreement, instrument, lease or license required to be described
in the Registration Statement or the Prospectus has been
properly described therein. To the knowledge of such counsel,
any contract, agreement, instrument, lease or license required
to be filed
17
<PAGE>
as an exhibit to the Registration Statement has been filed with
the Commission as an exhibit to or has been incorporated as an
exhibit by reference into the Registration Statement.
(ix) Insofar as statements in the Prospectus purport to
summarize the status of litigation or the provisions of laws,
rules, regulations, orders, judgments, decrees, contracts,
agreements, instruments, leases or licenses, such statements
have been prepared or reviewed by such counsel and to the
knowledge of such counsel, accurately reflect the status of such
litigation and provisions purported to be summarized and are
correct in all material respects.
(x) The Company is not an "investment company" as
defined in Section 3(a) of the Investment Company Act and, if
the Company conducts its business as set forth in the
Prospectus, will not become an "investment company" and will not
be required to be registered under the Investment Company Act.
(xi) To the knowledge of such counsel, no person or
entity has the right to require registration of shares of Common
Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statement except such
persons or entities from whom written waivers of such rights
have been received prior to the Closing Date.
(xii) The Registration Statement has become effective
under the Act. No Stop Order has been issued and no proceedings
for that purpose has been instituted or are threatened, pending,
or to such counsel's knowledge, contemplated.
(xiii) The Registration Statement, any Rule 430A
Prospectus, and the Prospectus, and any amendment or supplement
thereto (other than financial statements and other financial
data and schedules which are or should be contained in any
thereof, as to which such counsel need express no opinion),
comply as to form in all material respects with the requirements
of the Act and the Regulations. To the knowledge of such
counsel, the conditions for the use of Form S-2 have been
satisfied with respect to the Registration Statement.
(xiv) Such counsel has no reason to believe that any of
the Registration Statement, any Rule 430A Prospectus, or the
Prospectus, or any amendment or supplement thereto (other than
financial statements and other financial data and schedules
which are or should be contained in any thereof, as to which
such counsel need express no opinion), contains any untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading.
(xv) To the knowledge of such counsel, since the
effective date of the Registration Statement, no event has
occurred which should have been set forth in
18
<PAGE>
an amendment or supplement to the Registration Statement or the
Prospectus which has not been set forth in such an amendment or
supplement.
(xvi) The agreement of each officer, director and
principal stockholder of the Company, stating that for a period
of 180 days from the date on which the public offering of the
Shares commences, such officer, director and principal
stockholder will not, without the prior written consent of
Rodman & Renshaw, Inc., offer, pledge, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any other
securities of the Company or any security or other instrument
which by its terms is convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of
the Company, including, without limitation, any shares of Common
Stock issuable under any employee stock options), beneficially
owned by such individual has been duly and validly authorized,
executed and delivered by such individual and constitutes the
legal, valid and binding obligation of such individual
enforceable against such individual in accordance with its
terms.
In addition, such counsel shall state that such counsel has
participated in the preparation of the Registration Statement and the Prospectus
and in conferences with officers and other representatives of the Company,
representatives of the Representative and representatives of the independent
accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, although such counsel has not independently verified and is not passing
upon and does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus (except as specified in the foregoing opinion), on the basis of the
foregoing and relying as to materiality upon the representations of executive
officers of the Company after conferring with such executive officers, no facts
have come to the attention of such counsel which lead such counsel to believe
that the Registration Statement at the time it became effective contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or that the Prospectus, except for the financial statements and other financial
and statistical data included therein as to which counsel need express no
opinion, as amended or supplemented on the date thereof contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
In rendering their opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Date, of other counsel retained
by the Company as to laws of any jurisdiction other than the Federal laws of the
United States, the General Corporate Law of the states of Delaware and New York,
provided that (1) each such local counsel is reasonably acceptable to the
Representative and (2) such reliance is expressly authorized by each opinion so
relied upon and a copy of each such opinion is addressed to the Representative
and is in form and substance reasonably satisfactory to them and their counsel.
In addition, such counsel may rely, as to matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers
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of the Company, provided that executed copies of such certificates are provided
to the Representative.
(g) The Representative shall have received on each Closing Date
from Morgan& Finnegan, patent counsel to the Company, an opinion, addressed to
the Representative and dated such Closing Date, and in form and scope
satisfactory to counsel for the Representative with respect to such patent
matters as the Representative may reasonably require.
(h) The Representative shall have received on each Closing Date
from McConnell Valdez and ____________________, local counsel to the Company, an
opinion, addressed to the Representative and dated such Closing Date and in form
and scope satisfactory to counsel for the Representative with respect to such
matters as the Representative may reasonably require.
(i) All proceedings taken in connection with the sale of the
Firm Shares and the Option Shares as herein contemplated shall be satisfactory
in form and substance to the Representative and its counsel, and the
Underwriters shall have received from Squadron, Ellenoff, Plesent & Sheinfeld,
LLP, a favorable opinion, addressed to the Representative and dated such Closing
Date, with respect to the Shares, the Registration Statement and the Prospectus,
and such other related matters, as the Representative may reasonably request,
and the Company shall have furnished to Squadron, Ellenoff, Plesent & Sheinfeld,
LLP, such documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
6. Covenants of the Company.
(a) The Company covenants and agrees as follows:
(i) The Company shall use its best efforts to cause the
Registration Statement to become effective as promptly as
possible. If the Registration Statement has become or becomes
effective with a form of prospectus omitting Rule 430A
information, or filing of the Prospectus is otherwise required
under Rule 424(b), the Company will file the Prospectus,
properly completed, pursuant to Rule 424(b) within the time
period prescribed and will provide evidence satisfactory to you
of such timely filing. The Company shall notify you immediately,
and confirm such notice in writing, (A) when the Registration
Statement and any post-effective amendment thereto become
effective, (B) of the receipt of any comments from the
Commission or the "blue sky" or securities authority of any
jurisdiction regarding the Registration Statement, any
post-effective amendment thereto, the Prospectus, or any
amendment or supplement thereto, and (C) of the receipt of any
notification with respect to a Stop Order. The Company shall not
file any amendment of the Registration Statement or supplement
to the Prospectus unless the Company has furnished the
Representative a copy for their review prior to filing and shall
not file any such proposed amendment or supplement to which the
Representative reasonably object. The Company shall use its best
efforts to prevent the issuance
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of any Stop Order and, if issued, to obtain as soon as possible
the withdrawal thereof.
(ii) During the time when a prospectus relating to the
Shares is required to be delivered hereunder or under the Act or
the Regulations, comply so far as it is able with all
requirements imposed upon it by the Act, as now existing and as
hereafter amended, and by the Regulations, as from time to time
in force, so far as necessary to permit the continuance of sales
of or dealings in the Shares in accordance with the provisions
hereof and the Prospectus. If, at any time when a prospectus
relating to the Shares is required to be delivered under the Act
and the Regulations, any event as a result of which the
Prospectus as then amended or supplemented would include any
untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the
light of the circumstances under which they were made not
misleading, or if it shall be necessary to amend or supplement
the Prospectus to comply with the Act or the Regulations, the
Company promptly shall prepare and file with the Commission,
subject to the third sentence of paragraph (i) of this Section
6(a), an amendment or supplement which shall correct such
statement or omission or an amendment which shall effect such
compliance.
(iii) The Company shall make generally available to its
security holders and to the Representative as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date (or 90 days if such
12-month period coincides with the Company's fiscal year), an
earnings statement (which need not be audited) of the Company,
covering such 12-month period, which shall satisfy the
provisions of Section 11(a) of the Act or Rule 158 of the
Regulations.
(iv) The Company shall furnish to the Representative and
counsel for the Underwriters, without charge, signed copies of
the Registration Statement (including all exhibits thereto,
Incorporated Documents and amendments thereto) and to each other
Underwriter a copy of the Registration Statement (without
exhibits thereto or Incorporated Documents) and all amendments
thereof and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act or the
Regulations, as many copies of any preliminary prospectus and
the Prospectus and any amendments thereof and supplements
thereto as the Representative may reasonably request.
(v) The Company shall cooperate with the Representative
and its counsel in endeavoring to qualify the Shares for offer
and sale under the laws of such jurisdictions as the
Representative may designate and shall maintain such
qualifications in effect so long as required for the
distribution of the Shares; provided, however, that the Company
shall not be required in connection therewith, as a condition
thereof, to qualify as a foreign corporation or to execute a
general
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consent to service of process in any jurisdiction or subject
itself to taxation as doing business in any jurisdiction.
(vi) For a period of five years after the date of this
Agreement, the Company shall supply to the Representative, and
to each other Underwriter who may so request in writing, copies
of such financial statements and other periodic and special
reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock and
to furnish to the Representative a copy of each annual or other
report it shall be required to file with the Commission.
(vii) Without the prior written consent of the
Representative, for a period of 180 days from the date on which
a public offering of the Shares commences, the Company shall not
issue, sell or register with the Commission or otherwise dispose
of, directly or indirectly, any securities of the Company (or
any securities convertible into or exercisable or exchangeable
for securities of the Company), except for the issuance of the
Shares pursuant to the Registration Statement.
(viii) If the Company elects to rely on Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement
with the Commission in compliance with Rule 462(b) and pay the
applicable fees in accordance with Rule 111 promulgated under
the Act by the earlier of (i) 10:00 p.m., Eastern Standard Time,
on the date of this Agreement or (ii) the time confirmations are
sent or given, as specified by Rule 462(b)(2).
(ix) On or before completion of this offering, the
Company shall make all filings required under applicable
securities laws and by the Nasdaq National Market.
(x) Prior to each Closing Date and for a period of 25
days thereafter, the Representative shall be given reasonable
written prior notice of any press release or other direct or
indirect communication and of any press conference with respect
to the Company, the financial condition, results of operations,
business, properties, assets, liabilities of the Company, or
this offering.
(b) The Company agrees to pay, or reimburse if paid by the
Representative, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses
relating to the registration and public offering of the Shares including
those relating to: (i) the preparation, printing, filing and
distribution of the Registration Statement including all exhibits
thereto, each preliminary prospectus, the Prospectus, all amendments and
supplements to the Registration Statement and the Prospectus, and any
documents required to be delivered with any Preliminary Prospectus or
the Prospectus, and the printing, filing and distribution of the
Agreement Among Underwriters, this Agreement and related documents; (ii)
the preparation and delivery of certificates for the Shares to the
Underwriters; (iii) the registration or qualification of the
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Shares for offer and sale under the securities or Blue Sky laws of the
various jurisdictions referred to in Section 6(a)(v), including the fees
and disbursements of counsel for the Underwriters in connection with
such registration and qualification and the preparation, printing,
distribution and shipment of preliminary and supplementary Blue Sky
memoranda; (iv) the furnishing (including costs of shipping and mailing)
to the Representative and to the Underwriters of copies of each
preliminary prospectus, the Prospectus and all amendments or supplements
to the Prospectus, and of the several documents required by this Section
to be so furnished, as may be reasonably requested for use in connection
with the offering and sale of the Shares by the Underwriters or by
dealers to whom Shares may be sold; (v) the filing fees of the National
Association of Securities Dealers, Inc. in connection with its review of
the terms of the public offering; (vi) the furnishing (including costs
of shipping and mailing) to the Representative and to the Underwriters
of copies of all reports and information required by Section 6(a)(vi);
(vii) inclusion of the Shares for quotation on the NASDAQ National
Market System; and (viii) all transfer taxes, if any, with respect to
the sale and delivery of the Shares by the Company to the Underwriters.
Except as otherwise contemplated by Section 9 hereof, the Underwriters
will pay their own counsel fees and expenses to the extent not otherwise
covered by clause (iii) above, and their own travel and travel-related
expenses in connection with the distribution of the Shares.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act
against any and all losses, claims, damages and liabilities, joint or
several (including any reasonable investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding or any claim asserted), to which
they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment thereof or supplement
thereto, or arise out of or are based upon any omission or alleged
omission to state therein such fact required to be stated therein or
necessary to make such statements therein not misleading. Such indemnity
shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) on account of any losses, claims, damages
or liabilities arising from the sale of the Shares to any person by such
Underwriter if such untrue statement or omission or alleged untrue
statement or omission was made in
23
<PAGE>
such preliminary prospectus, the Registration Statement or the
Prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by the
Representative on behalf of any Underwriter specifically for use
therein. In no event shall the indemnification agreement contained in
this Section 7(a) inure to the benefit of any Underwriter on account of
any losses, claims, damages, liabilities or actions arising from the
sale of the Shares upon the public offering to any person by such
Underwriter if such losses, claims, damages, liabilities or actions
arise out of, or are based upon, a statement or omission or alleged
omission in a preliminary prospectus and if, in respect to such
statement, omission or alleged omission, the Prospectus differs in a
material respect from such preliminary prospectus and a copy of the
Prospectus has not been sent or given to such person at or prior to the
confirmation of such sale to such person. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each person, if any, who
controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, each director of the Company, and each
officer of the Company who signs the Registration Statement, to the same
extent as the foregoing indemnity from the Company to each Underwriter,
but only insofar as such losses, claims, damages or liabilities arise
out of or are based upon any untrue statement or omission or alleged
untrue statement or omission which was made in any Preliminary
Prospectus, any Rule 430A Prospectus, the Registration Statement or the
Prospectus, or any amendment thereof or supplement thereto, which were
made in reliance upon and in conformity with information furnished in
writing to the Company by the Representative on behalf of any
Underwriter for specific use therein; provided, however, that the
obligation of each Underwriter to indemnify the Company (including any
controlling person, director or officer thereof) shall be limited to the
underwriting discount applicable to the Shares purchased by such
Underwriter hereunder. For all purposes of this Agreement, the amounts
of the selling concession and reallowance set forth in the Prospectus
constitute the only information furnished in writing by or on behalf of
any Underwriter expressly for inclusion in any Preliminary Prospectus,
any Rule 430A Prospectus, the Registration Statement or the Prospectus
or any amendment or supplement thereto.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of all
papers served. No indemnification provided for in Section 7(a) or 7(b)
shall be available to any party who shall fail to give notice as
provided in this Section 7(c) if the party to whom notice was not given
was unaware of the proceeding to which such notice would have related
and was prejudiced by the failure to give such notice but the omission
so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to
any indemnified party for contribution or otherwise than under
24
<PAGE>
this Section. In case any such action, suit or proceeding shall be
brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and
the approval by the indemnified party of such counsel, the indemnifying
party shall not be liable to such indemnified party for any legal or
other expenses, except as provided below and except for the reasonable
costs of investigation subsequently incurred by such indemnified party
in connection with the defense thereof. The indemnified party shall have
the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the employment of counsel by such indemnified party has
been authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have reasonably concluded that there may be a
conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which
case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party), or (iii) the
indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of
counsel employed by the indemnified party shall be at the expense of the
indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its
written consent, which consent shall not be unreasonably withheld or
delayed.
8. Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in Sections 7(a) and
(b) is due in accordance with its terms but for any reason is held to be
unavailable from the Company or the Underwriters, the Company and the
Underwriters shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted, but after deducting any contribution
received by the Company from persons other than the Underwriters, persons who
control the Company within the meaning of the Act, officers of the Company who
signed the Registration Statement and directors of the Company, who may also be
liable for contribution) to which the Company and one or more of the
Underwriters may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Underwriters shall be deemed to be in
the same proportion as (x) the total proceeds from the Offering (net of
underwriting discounts but before deducting expenses) received
25
<PAGE>
by the Company from the sale of the Shares, as set forth in the table on the
cover page of the Prospectus (but not taking into account the use of the
proceeds of such sale of Shares by the Company), bear to (y) the underwriting
discount received by the Underwriters, as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company and the Underwriters
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact related to information supplied by
the Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 8, in no case shall any Underwriter (except as may be provided in
the Agreement Among Underwriters) be liable or responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder, provided, however that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company within the
meaning of the Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
subject in each case to the immediately preceding sentence of this Section 8.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section, notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties from whom
contribution may be sought shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent. The Underwriters' obligations to contribute
pursuant to this Section 8 are several in proportion to their respective
underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with respect to the
Shares to be purchased on any Closing Date by the Representative by notifying
the Company at any time prior to the purchase of the Shares:
(a) in the absolute discretion of the Representative at or
before any Closing Date: (i) if on or prior to such date, any domestic
or international event or act or occurrence has materially disrupted, or
in the opinion of the Representative will in the future materially
disrupt, the securities markets; (ii) if there has occurred any new
outbreak or material escalation of hostilities or other calamity or
crisis the effect of which on the financial markets of the United States
is such as to make it, in the judgment of the Representative,
inadvisable to proceed with the Offering; (iii) if there shall be such a
material adverse
26
<PAGE>
change in general financial, political or economic conditions or the
effect of international conditions on the financial markets in the
United States such as to make it, in the judgment of the Representative,
inadvisable or impracticable to market the Shares; (iv) if trading in
the Shares has been suspended by the Commission or trading generally on
the New York Stock Exchange, Inc., the American Stock Exchange, Inc. or
the Nasdaq National Market System has been suspended or limited, or
minimum or maximum ranges for prices for securities shall have been
fixed, or maximum ranges for prices for securities have been required,
by said exchanges or by order of the Commission, the National
Association of Securities Dealers, Inc., or any other governmental or
regulatory authority; or (v) if a banking moratorium has been declared
by any state or federal authority, or
(b) at or before any Closing Date, if any of the conditions
specified in Section 5 shall not have been fulfilled when and as
required by this Agreement.
If this Agreement is terminated pursuant to any of its provisions the
Company shall not be under any liability to any Underwriter, and no Underwriter
shall be under any liability to the Company, except that (y) if this Agreement
is terminated by the Representative or the Underwriters because of any failure,
refusal or inability on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company will reimburse the
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder and (z) no Underwriter who shall have failed or refused to
purchase the Shares agreed to be purchased by it under this Agreement, without
some reason sufficient hereunder to justify cancellation or termination of its
obligations under this Agreement, shall be relieved of liability to the Company
or to the other Underwriters for damages occasioned by its failure or refusal.
10. Substitution of Underwriters. If one or more of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representative may find one or more substitute underwriters to
purchase such Shares or make such other arrangements as the Representative may
deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representative, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date:
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares
that all the Underwriters are obligated to purchase on such Closing
Date, then each of the nondefaulting Underwriters shall be obligated to
purchase such Shares on the terms herein set forth in proportion to
their respective obligations hereunder; provided, that in no event shall
the maximum number of Shares that any Underwriter has agreed to purchase
pursuant to Section 1 be
27
<PAGE>
increased pursuant to this Section 10 by more than one-ninth of such
number of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date,
then the Company shall be entitled to an additional business day within
which it may, but is not obligated to, find one or more substitute
underwriters reasonably satisfactory to the Representative to purchase
such Shares upon the terms set forth in this Agreement.
In any such case, either the Representative or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representative and the Company. If the number
of Shares to be purchased on such Closing Date by such defaulting Underwriter or
Underwriters shall exceed 10% of the Shares that all the Underwriters are
obligated to purchase on such Closing Date, and none of the nondefaulting
Underwriters or the Company shall make arrangements pursuant to this Section
within the period stated for the purchase of the Shares that the defaulting
Underwriters agreed to purchase, this Agreement shall terminate with respect to
the Shares to be purchased on such Closing Date without liability on the part of
any nondefaulting Underwriter to the Company and without liability on the part
of the Company, except as provided in Sections 6(b), 7, 8 and 9. The provisions
of this Section shall not in any way affect the liability of any defaulting
Underwriter to the Company or the nondefaulting Underwriters arising out of such
default. A substitute underwriter hereunder shall become an Underwriter for all
purposes of this Agreement.
11. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers, and
of the Underwriters set forth in or made pursuant to this Agreement shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 6(b), 7, 8
and 9 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the Underwriters,
the Company and their respective successors and assigns and, to the extent
expressed herein, for the benefit of persons controlling any of the
Underwriters, or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.
All notices and communications hereunder shall be in writing and mailed
or delivered, or by telefax or telegraph if subsequently confirmed by letter,
(a) if to the Representative, to Rodman & Renshaw, Inc., 225 Liberty Street, 2
World Financial Center, New York, New York 10281, Attention: John J. Borer, III,
Managing Director, telecopy: (212) 416-7439/49, (b) if to the
28
<PAGE>
Company, to the Company's agent for service as such agent's address appears on
the cover page of the Registration Statement.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict of laws.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, or neuter, singular or plural, as the identity of the
person or persons or entity or entities require.
All section headings herein are for convenience of reference only and
are not part of this Agreement, and no construction or inference shall be
derived therefrom.
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
TII INDUSTRIES, INC.
By: _________________________________
Name: ___________________________
Title: __________________________
29
<PAGE>
Confirmed on behalf of itself
and as the Representative of the several Underwriters
named in Schedule I annexed hereto:
RODMAN & RENSHAW, INC.
By:______________________________
Name: John J. Borer, III
Title: Managing Director
30
<PAGE>
SCHEDULE I
Number of Firm
Shares to be
NAME OF UNDERWRITER Purchased
- ------------------- ---------
Rodman & Renshaw, Inc.................................
Total 2,500,000
============
31
<PAGE>
SCHEDULE II
Subsidiaries of the Company
Name State of Jurisdiction of Corporation
- ---- ------------------------------------
TII Corporation Delaware
TII International, Inc. Delaware
Telecommunications Industries, Inc. New York
TII Dominicana, Inc. Delaware
Crown Tool & Die Company, Inc. Puerto Rico
TII-Ditel, Inc. North Carolina
32
SIXTH AMENDMENT AND WAIVER dated as of October 17, 1997
to the Revolving Credit Loan Agreement dated January 31,
1995 (the "Agreement"), as amended by the First
Amendment dated as of August 3, 1995, the Second
Amendment and Waiver dated as of November 10, 1995,
Amendment of Revolving Credit Loan Agreement dated
December 27, 1995, the Fourth Amendment and Waiver dated
as of May 2, 1997, and the Fifth Amendment and Waiver
dated as of September 23, 1997 (the Agreement together
with each of the amendments, the "Loan Agreement") among
TII International, Inc., a Delaware Corporation with
offices at 1385 Akron Street, Copiague, New York 11726
(the "Borrower"), TII Industries, Inc., a Delaware
corporation with offices at 1385 Akron Street, Copiague,
New York 11726 ("Industries") and The Chase Manhattan
Bank (f/k/a Chemical Bank), a New York State Banking
corporation with offices at 395 North Service Road,
Suite 302, Melville, New York 11747 (the "Bank") and to
the Master Lease Purchase Agreement Number 00009, dated
January 12, 1998, as amended by a letter dated February
1, 1996 (the "Lease Agreement") by and between the
Borrower and Chase Equipment Leasing, Inc. (f/k/a
ChemLease Worldwide, Inc.) ("Leasing"). Capitalized
terms used but not otherwise defined herein shall have
the meanings set forth in the Loan Agreement.
WHEREAS, the Lease Agreement provides that the financial covenants
contained in any credit facility provided by the Bank to the Borrower shall
apply to the Lease Agreement as continuing covenants; and
WHEREAS, the Borrower and Industries have requested and the Bank and
Leasing have each agreed, subject to the terms and conditions of this Sixth
Amendment and Waiver, to amend and waive compliance with certain provisions of
the Loan Agreement and the Lease Agreement (by incorporation) to reflect
requests made by the Borrower to the Bank and Leasing in the manner hereafter
set forth;
NOW, THEREFORE, In consideration of the premises and of other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Waiver of and Amendment to Article 7, Negative Covenant, Section
7.16.
Compliance with Section 7.16 of the Loan Agreement is hereby waived
for the Fiscal Quarter ending September 26, 1997, provided that the
Consolidated Net Loss during such Fiscal Quarter does not exceed
Five Hundred Thousand and No/100 Dollars ($500,000). The Borrower,
Industries and the Subsidiaries will be permitted to Incur (i) a
Consolidated
<PAGE>
Net Loss for fiscal Quarter ending December 26, 1997 provided that
such loss for such Fiscal Quarter does not exceed Five Hundred
Thousand and No/100 Dollars ($500,000) and (ii) a Consolidated Net
Loss (excluding extraordinary gains) for four Fiscal Quarters in the
four Fiscal Quarter period ending March 27, 1998; and two Fiscal
Quarters in the four Fiscal Quarter period ending June 26, 1998.
2. Waiver of and Amendment to Article 7, Negative Covenants. Section
7.17 Debt Service Ratio.
Compliance with Section 7.17 of the Loan Agreement is hereby waived
for the Fiscal Quarter ending September 26, 1997 to permit the Debt Service
Ratio of Industries and its subsidiaries to be no less than -0.6 to 1 for such
Fiscal Quarter. The Borrower, Industries and the Subsidiaries will be permitted
to have a Debt Service Ratio of not less than (i) -0.7 to 1 for the Fiscal
Quarter ending December 26, 1997; (ii) -0.7 to 1 for the Fiscal Quarter ending
March 27, 1998 and (iii) -0.1 to 1 for the Fiscal Quarter ending June 26, 1998.
3. Amendment to Article 8. Events of Default. Section 8.01(n).
Section 8.01(n) is hereby deleted in its entirety and replaced with
the following:
(n) (i) the Roach Family Member shall cease to own 7.5%
of all voting stock in Industries, or (ii) Timothy J.
Roach shall cease to actively manage the day-to-day
operations of the Borrower and the Guarantors;
4. Amendment to Article 6. Affirmative Covenants applicable to the
Loans.
Article 6. Of the Loan Agreement is hereby amended by the addition
of the following section:
Section 6.16. Equity Offering. Borrower, Industries and
the Subsidiaries agrees that in the event that Borrower,
Industries and/or the Subsidiaries complete one or more
equity offering (whether private or public or a
combination thereof) in an amount equal to or greater
than $3,500,000 in the aggregate (collectively, the
"Equity Offering") the Bank and the Borrower, Industries
and the Subsidiaries will agree to a modification of the
existing negative covenants contained in Article 7 of
this Loan Agreement to reflect the equity raised as a
result of the Equity Offering, provided that if no
agreement is reached within 45 days following completion
of the Equity Offering, the Bank, in its sole
discretion, may terminate the commitment and declare all
amounts outstanding pursuant to this Loan Agreement, the
Note and the other Financing Documents to be immediately
due and payable. The Bank may require another such
modification for each Equity Offering that occurs after
such a modification.
2
<PAGE>
Expenditures
Section 7.09 shall be modified by adding the following language to
the end of the existing covenant:
except that during fiscal years ending June 26, 1998 and
June 25, 1999, the Borrower, Industries and the
Subsidiaries shall be permitted to make capital
expenditures (including capital leases) for property,
plant, machinery and equipment in an amount not to
exceed $10,000,000 in the aggregate during such Fiscal
Years, provided that (i) the capital expenditures
incurred during Fiscal Year ending June 26, 1998 shall
not exceed $6,000,000 and (ii) the Equity Offering is
completed by December 26, 1997, and raises gross
proceeds (before discounts, commissions and expenses) of
at least $7,000,000.
THIS SIXTH AMENDMENT AND WAIVER shall be construed and enforced in
accordance with the laws of the State of New York.
Except as expressly amended or waived hereby, the Loan Agreement and
the Lease Agreement shall remain in full force and affect in accordance with the
original terms thereof. This Sixth Amendment and Waiver herein is limited
specifically to the matters set forth above and does not constitute directly or
by implication a waiver or amendment of any other provision of the Loan
Agreement or the Lease Agreement or any breach, default or Event of Default
which may occur or may have occurred under the Loan Agreement or the Lease
Agreement.
The Borrower and Industries hereby represent and warrant that, after
giving effect to this Sixth Amendment and Waiver, no Event of Default or
defaults exists under the Loan Agreement, the Lease Agreement or any other
related documents.
THIS SIXTH AMENDMENT AND WAIVER may be executed in any number of
counterparts, each of which shall constitute an original but all of which, when
taken together, shall
constitute but one Sixth Amendment and Waiver.
THIS SIXTH AMENDMENT AND WAIVER shall become effective when duly
executed counterparts hereof which, when taken together bear the signatures of
each of the parties hereto
shall have been delivered to the Bank and Leasing.
IN WITNESS WHEREOF, the Borrower, Industries, the Bank and Leasing
have caused
3
<PAGE>
this Sixth Amendment and Waiver to be duly executed by their duly authorized
officers all as of the date and year first above written.
TII INTERNATIONAL, INC.
BY: /s/ Paul G. Sebetic
-------------------------------------
Paul G. Sebetic, Vice President
TII INDUSTRIES, INC.
BY: /s/ Paul G. Sebetic
-------------------------------------
Paul G. Sebetic, Vice President
THE CHASE MANHATTAN BANK
BY: /s/ Christopher G. Zimmerman
-------------------------------------
Christopher G. Zimmerman, Vice President
CHASE EQUIPMENT LEASING, INC.
BY: /s/ Raymond P. Masalitis
-------------------------------------
Raymond P. Masalitis, Vice President
4
<PAGE>
CONSENT
The undersigned, as Guarantors of the obligations of TII
International, Inc. Hereby Consent to the execution and delivery by TII
International, Inc. and TII Industries, Inc. of this Sixth Amendment and Waiver
and hereby confirm that they remain fully bound by the terms of the Joint and
Several Guaranty of Payment dated January 31, 1995 to which they are a party.
TII INTERNATIONAL, INC.
BY: /s/ Paul G. Sebetic
-------------------------------------
Paul G. Sebetic, Vice President
TII INDUSTRIES, INC.
BY: /s/ Paul G. Sebetic
-------------------------------------
Paul G. Sebetic, Vice President
TII DITEL, INC.
BY: /s/ Paul G. Sebetic
-------------------------------------
Paul G. Sebetic, Vice President
TII CORPORATION
BY: /s/ Paul G. Sebetic
-------------------------------------
Paul G. Sebetic, Vice President
5
<PAGE>
TELECOMMUNICATIONS INDUSTRIES, INC.
BY: /s/ Paul G. Sebetic
-------------------------------------
Paul G. Sebetic, Vice President
TII DOMINICANA, INC.
BY: /s/ Paul G. Sebetic
-------------------------------------
Paul G. Sebetic, Vice President
6
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 1st day of May, 1997 by and between TII
INDUSTRIES, INC., a Delaware corporation, having a place of business at 1385
Akron Street, Copiague, New York 11726 (hereinafter designated and referred to
as "Company"), and Paul G. Sebetic residing at 59 Highland Avenue, Sea Cliff, NY
11579 (hereinafter designated and referred to as "Employee" or ["him"] ["her"]).
WHEREAS, Company desires to continue to employ the Employee as Vice
President, Finance of the Company; and
WHEREAS, the Employee is willing to continue such employment by the
Company, all in accordance with provisions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained the parties hereto agree as follows:
1. Term: The term of this Agreement shall be for a period of three
(3) years commencing May 1, 1997 and automatically terminating on April 30,
2000, subject to earlier termination as provided herein or unless extended by
mutual consent of both parties in writing sixty (60) days prior to the end of
the term of this Agreement or any extension thereof, but nothing herein shall
require the Company or Employee to agree to any specific term or condition or to
any continuation of Employee's employment beyond the end of the term of this
Agreement.
2. Employment: Subject to the terms and conditions and for the
compensation hereinafter set forth, the Company employs the Employee for and
during the term of this Agreement. Employee is hereby employed by the Company as
Vice President, Finance. The Employee does hereby accept such employment and
agrees to use [his] [her] best efforts and to devote all normal
<PAGE>
business time, during the term of this Agreement, to the performance of [his]
[her] duties faithfully, diligently and to the best of [his] [her] abilities
upon the conditions hereinafter set forth. Employee shall report to the
President or his designee. Employee's primary place of work shall be on Long
Island, New York and Employee agrees to spend such time, from time to time, at
the Company's other facilities and to visit customers, and vendors, and various
industry associations as required to fulfill [his] [her] duties and
responsibilities as contemplated herein.
3. Compensation: During the term of this Agreement, the Company
agrees to pay Employee, and Employee agrees to accept, annual salary of One
Hundred, Ten Thousand dollars ($110,000.00) payable every two weeks, less all
applicable taxes, for all services rendered by Employee hereunder. Employee's
annual salary shall be reviewed at the end of each year of employment hereunder
and shall receive an increase of up to 10% per year but not less than the
percentage of increase of the Local Component of the National Consumer Index
issued by the United States Department of Labor unless financial factors of the
Company deem otherwise as determined by the President. In addition, Employee
shall be eligible to participate in the Company's Executive Bonus Plan should
the Company adopt one.
4. Expenses:
[A] The Company shall reimburse Employee, not less often than
monthly, for all reasonable and actual business expenses incurred by [him] [her]
in connection with [his] [her] service to the Company, upon submission of
appropriate vouchers and expense account reports.
[B] The Company shall provide the Employee with an allowance to
reimburse him for the cost of maintaining a place of abode in the Commonwealth
of Puerto Rico, in the amount of Six Thousand Dollars ($6,000.00) per year.
Company acknowledges that Employee is a resident of
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<PAGE>
the State of New York and that Employee shall not be required to change his
residence. Company and Employee both acknowledge that the discharge of the
Employee's duties will require his presence in the Commonwealth of Puerto Rico
from time to time.
5. Company Car: The Company shall provide Employee with a Company
car for Employee's use for business purposes in accordance with standard Company
guidelines. This car shall be insured and registered with the Motor Vehicle
Department by the Company. Employee is responsible for proper maintenance,
gasoline, traffic violation fines, etc. Repairs for other than routine
maintenance shall be the responsibility of the Company.
6. Benefits: The Company shall provide medical and dental insurance
and such other benefits, in accordance with the applicable Company benefit
plans, as such plans may exist from time to time. The Employee shall be entitled
to annual vacation in accordance with the Company's policy.
7. Extent of Service: The Employee during the term of this
Agreement shall devote [his] [her] full normal business time, attention and
energy and render [his] [her] best efforts and skill to the business of the
Company.
8. Restrictive Covenant:
[A] Employee acknowledges that: (I) the business in which the
Company is engaged is intensely competitive and that [his] [her] employment by
the Company will require that [she] [he] have access to and knowledge of
confidential information of the Company, including , but not limited to, certain
of the Company's confidential plans for the creation, acquisition or disposition
of products, expansion plans, product development plans, methods of pricing,
special customer requirements for service, information on methods of servicing
the customer, operational information such as formulas, financial status, and
plans and personnel information, which are of vital importance
-3-
<PAGE>
to the success of the Company's business, and are "trade secrets" of the
Company; (ii) the direct or indirect disclosure of any such confidential
information to existing or potential competitors of the Company would place the
Company at a competitive disadvantage and would cause damage, financial and
otherwise, to the Company's business; and (iii) by [his] [her] training,
experience and expertise, some of [his] [her] services to the Company will be
special and unique.
Employee understands and agrees that such trade secrets give or
may give the Company a significant competitive advantage. Employee further
recognizes that the success of the Company depends on keeping confidential both
the trade secrets already developed or to be acquired and any future
developments of trade secrets. Employee understands that in [his] [her] capacity
with the Company [he] [she] will be entrusted with knowledge of such trade
secrets and, in recognition of the importance thereof and in consideration of
[his] [her] employment by the Company hereunder, agrees that [he] [she] will
not, without the consent of the President in writing, make any disclosure of
trade secrets now or hereafter possessed by the Company to any person,
partnership, corporation or entity either during or after the term hereunder,
except to such employees of the Company or its subsidiaries or affiliates, if
any, as may be necessary in the regular course of business and except as may be
required pursuant to any court order, judgment or decision form any court of
competent jurisdiction. The provisions of this Section 8[A] shall continue in
full force and effect notwithstanding any termination of this Agreement.
[B] Employee agrees that during the term of [his] [her]
employment with the Company and for a period of two years thereafter [he] [she]
will not directly or indirectly become affiliated as an officer, director,
employee or consultant or as a substantial security holder with any other
company or entity whose business is directly or indirectly competitive with any
business then
-4-
<PAGE>
being planned or conducted by the Company or its divisions and subsidiaries. For
the purpose hereof, "substantial security holder" shall mean ownership, directly
or indirectly, of more than 3% of any class of securities of a company or
partnership interest in any partnership or indebtedness of any such entity in
excess of $25,000. The provisions of this Section 8[B] shall continue in full
force and effect notwithstanding any termination of this Agreement.
9. Discoveries, etc.:
[A] The Company shall be the owner, without further
compensation, of all rights of every kind in and with respect to any reports,
materials, inventions, processes, discoveries, improvements, modifications,
know-how or trade secrets hereafter made, prepared, invented, discovered,
acquired, suggested or reduced to practice (hereinafter designated and referred
to as "Property Rights") by Employee in connection with Employee's performance
of [his] [her] duties pursuant to this Agreement, and the Company shall be
entitled to utilize and dispose of such in such manner as it may determine.
[B] The Employee agrees to and shall promptly disclose to the
President or his designee all Property Rights (whether or not patentable) made,
discovered or conceived of by [him] [her], alone or with others, at any time
during [his] [her] employment with the Company, whether on the Company's or
[his] [her] own time and irrespective of whether on or off the Company's
premises, provided only that such Property Rights (1) relate to or are useful in
any phase of the business in which the Company may be engaged during the period
of employment, or (2) relate to any subject matter or problems within the scope
of Employee's employment, or (3) relate to or involve the use of any data or
information of which the Employee has been or may become informed by reason of
employment with the Company. The Employee hereby appoints the Company as
Employee's
-5-
<PAGE>
attorney-in-fact to execute in accordance with the laws of any country patent
applications, assignments or other documents considered necessary or desirable
by the Company. Any such Property Rights will be the sole and exclusive property
of the Company, and Employee will execute any assignments requested by the
Company of [his] [her] right, title or interest in any such Property Rights
without further demand or consideration, and, in addition, the Employee will
also provide the Company with any other instruments or documents requested by
the Company, at the Company's expense, as may be necessary or desirable in
applying for and obtaining patents with respect thereto in the United States and
all foreign countries. The Employee also agrees to cooperate with the Company in
the prosecution or defense of any patent claims or litigation or proceedings
involving inventions, trade secrets, trademarks, service marks, secret
processes, discoveries or improvements, during [his] [her] employment by the
Company. Employee's cooperation after [his] [her] employment is subject to [his]
[her] availability and the Company agrees to reimburse Employee for loss of
income and expenses incurred in connection therewith. Said cooperation shall not
be withheld by Employee.
10. Confidential Information: Employee recognizes and acknowledges
that the Company, through the expenditure of considerable time and money, will
acquire, has developed and will continue to develop in the future, information,
skills, confidential information, know-how, formulae, technical expertise and
methods relating to or forming part of the Company's services and products and
conduct of its business, and that the same are confidential and proprietary, and
are "trade secrets" of the Company. Employee understands and agrees that such
trade secrets give or may give the Company a significant competitive advantage.
Employee further recognizes that the success of the Company depends on keeping
confidential both the trade secrets already developed or to be acquired
-6-
<PAGE>
and any future developments of trade secrets. Employee understands that in [his]
[her] capacity with the Company [he] [she] will be entrusted with knowledge of
such trade secrets and, in recognition of the importance thereof and in
consideration of [his] [her] employment by the Company hereunder, agrees that
[he] [she] will not, without the consent of the President in writing, make any
disclosure of trade secrets now or hereafter possessed by the Company to any
person, partnership, corporation or entity either during or after the term
hereunder, except to such employees of the Company or its subsidiaries or
affiliates, if any, as may be necessary in the regular course of business and
except as may be required pursuant to any court order, judgment or decision from
any court of competent jurisdiction. The provisions of this Section shall
continue in full force and effect notwithstanding any termination of the
Agreement.
11. Irreparable Harm: Employee agrees that any breach or threatened
breach by Employee of provisions set forth in Section Eight (8), Nine (9), and
Ten (10) of this Agreement, would cause the Company irreparable harm and the
Company may obtain injunctive relief against such actual or threatened conduct
and without the necessity of a bond.
12. Return of Company Property: Employee agrees that following the
termination of [his] [her] employment for any reason, [he] [she] shall return
all property of the Company which is then in or thereafter comes into [his]
[her] possession, including, but not limited to, documents, contracts,
agreements, plans, photographs, customer lists, books, notes, electronically
stored data and all copies of the foregoing as well as any other materials or
equipment supplied by the Company to the Employee.
-7-
<PAGE>
13. Termination:
[A] Death: In the event of the Employee's death during the term
of [his] [her] employment, this Agreement shall automatically terminate on the
date of death, and Employee's estate shall be entitled to payment of Employee's
salary until date of death. All other benefits and compensation described herein
shall terminate on the date of death unless otherwise stipulated in the
applicable Company plan.
[B] Disability: In the event the Employee, by reason of physical
or mental incapacity, shall be disabled for a period of at least two (2)
consecutive months or three (3) months in the aggregate in any twelve (12) month
period of this Agreement or any extension hereof, the Company shall have the
option at any time thereafter to terminate Employee's employment and to
terminate this Agreement. Such termination to be effective ten (10) days after
the Company gives written notice of such termination to the Employee, and all
obligations of the Company hereunder shall cease upon the date of such
termination unless otherwise stipulated in the appropriate Company plan.
"Incapacity" as used herein shall mean the inability of the Employee to perform
[his] [her] normal duties.
[C] Company's Rights to Terminate This Agreement:
[a] The Company shall have the right, before the
expiration of the term of this Agreement and during any extension hereof, to
terminate this Agreement and to discharge Employee for cause (hereinafter
"Cause"), and all compensation to Employee shall cease to accrue upon discharge
of the Employee for Cause. For the purposes of this Agreement, the term "Cause"
shall mean the Employee's (I) violation of the Company's written policy or
specific written directions of the President or his designee, and/or Board of
Directors, which directions are consistent with
-8-
<PAGE>
normally acceptable business practices or the failure to observe, or the failure
or refusal to perform any obligations required to be performed in accordance
with this Agreement, (ii) if the President determines that Employee has
committed a demonstrable act (or omission) of malfeasance seriously detrimental
to the Company (which shall not include any exercise of business judgment in
good faith).
[b] If the Company elects to terminate Employee's
employment for Cause, the Company shall first give Employee written notice and a
period of ten (10) days to cure such Cause, and if such Cause is not cured in
said ten (10 ) days, such termination shall be effective five (5) days after the
Company gives written notice of such failure to cure to the Employee. In the
event of a termination of the Employee's employment for Cause in accordance with
the provisions of Section 11[C][b], the Company shall have no further obligation
to the Employee, except for the payment of salary through the date of such
termination from employment.
[c] Notwithstanding anything in this Agreement to the
contrary, the Company may terminate the Employee's employment for reasons other
than Cause.
[D] Employee's Right to Terminate This Agreement:
[a] If the Company elects to reduce in rank or authority
the Employee's duties under this Agreement, without the mutual agreement of the
Employee, the Employee shall first give Company written notice and a period of
ten (10) days to cure same, and if same is not cured in said ten (10) days
Employee may terminate this Agreement effective five (5) days after the Employee
gives written notice of such failure to cure.
[E] Severance: In the event the Employee's employment hereunder
shall be terminated by the Company for other than Cause, death or disability, or
by the Employee pursuant to Section 13 [D] hereof, (1) the Employee shall
thereupon receive as severance pay in a lump sum
-9-
<PAGE>
the amount of Compensation pursuant to Section 3 hereof and bonuses which the
Employee would have received for the remaining term of this Agreement (including
any extension of the Agreement mutually agreed upon by the parties), provided,
however, that in no event shall such lump sum payment be less than six months
compensation and bonus; and (2) the Employee's (and [his] [her]) dependents')
participation in any medical, dental and other insurance plans shall be
continued, or equivalent benefits provided to [him] [her] or them by the
Company, at no cost to [him] [her] or them, for a period of one year from the
termination; and (3) any options granted to the Employee which have not, by the
terms of the options, vested, shall be deemed to have vested at the termination
of employment, and shall thereafter be exercisable for the maximum period of
time allowed for exercise thereof under the terms of the applicable Company
stock option plan(s), provided that such period shall not be less than 90 days
following such termination. An election by the Employee to terminate [his] [her]
employment under the provisions of Section 13[D] shall not be deemed a voluntary
termination of employment of the Employee for the purpose of interrupting the
provisions of any of the Company's employee benefits plans, programs or
policies.
14. Waiver: Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any other
breach or default hereof.
15. Governing Law: The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of the
State of New York, and this Agreement and its provisions shall be construed
according to the laws of the State of New York, without reference to its choice
of law rules.
-10-
<PAGE>
16. Notice: Any notice required to be given pursuant to the
provisions of this Agreement shall be in writing and by facsimile or registered
or certified mail or equivalent (i.e., Federal Express) and mailed to the
following addresses:
Company: TII Industries, Inc.
1385 Akron Street
Copiague, New York 11726
Attention: Timothy J. Roach
President
Employee: Paul G. Sebetic
59 Highland Ave.
Sea Cliff, NY 11579
17. Assignment: The Employee's assignment of this Agreement or any
interest herein, or any monies due or to become due by reason of the terms
hereof, without the prior written consent of the Company shall be void. This
Agreement shall be assignable and binding to a corporation or other business
entity that succeeds to all or substantially all of the business of the Company
through merger, consolidation, corporate reorganization or by acquisition of all
or substantially all of the assets of the Company and which assumes Company's
obligations under this Agreement.
18. Miscellaneous: This Agreement contains the entire understanding
between the parties hereto and supersedes all other oral and written agreements
or understandings between them. No modification or addition hereto or waiver or
cancellation of any provision shall be valid except by a writing signed by the
party to be charged therewith.
19. Obligations of a Continuing Nature: It is expressly understood
and agreed that the covenants, agreements and restrictions undertaken by or
imposed on either party hereunder, which are stated to exist or continue after
termination of Employee's employment with the Company, shall
-11-
<PAGE>
exist and continue on both parties irrespective of the method or circumstances
of such termination from employment or termination of this Agreement.
20. Severability: Employee agrees that if any of the covenants,
agreements or restrictions on the part of Employee are held to be invalid by any
court of competent jurisdiction, such holding will not invalidate any of the
other covenants, agreements and/or restrictions herein contained and such
invalid provisions shall be severable so that the invalidity of any such
provision shall not invalidate nay others. Moreover, if any one or more of the
provisions contained in this Agreement shall be held to be excessively broad as
to duration, activity or subject, such provisions shall be construed by limiting
and reducing them so as to be enforceable to the maximum extent allowed by
applicable law.
21. Representation: Employee represents and warrants that [he] [she]
has the legal right to enter into this Agreement and to perform all of the
duties and obligations on [his] [her] part to be performed hereunder in
accordance with its terms and that [she] [he] is not a party to any agreement or
understanding, written or oral, which prevents Employee from entering into this
Agreement or performing all of [his] [her] duties and obligations hereunder. In
the event of a breach of such representation or warranty on [his] [her] part or
if there is any other legal impediment which prevents [him] [her] from entering
into this Agreement or performing all of [his] [her] duties and obligations
hereunder, the Company shall have the right to terminate this Agreement in
accordance with Section 13[C] [a]. Without limiting the foregoing, Employee
represents and warrants that [he] [she] is not a party to any agreement which
prohibits or limits [his] [her] ability to fulfill [his] [her] duties and
responsibilities contemplated herein.
-12-
<PAGE>
22. Descriptive Headings: The paragraph headings contained herein
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
TII INDUSTRIES, INC.
By: /s/ Timothy J. Roach
-----------------------------
Timothy J. Roach
President, CEO and
Vice Chairman of the Board
Employee:
/s/ Paul G. Sebetic
--------------------------------
Paul G. Sebetic
-13-
ARTHUR
ANDERSEN
[Letterhead]
_______________________________
Arthur Andersen LLP
October 22, 1997 _______________________________
American International Plaza
Mr. Paul G. Sebetic 12th Floor
Chief Financial Officer 250 Munoz Rivera Avenue Hato Rey
TII Industries, Inc. P.O. Box 362260
1385 Akron Street San Juan PR 00936-2260
Copiague, New York 11726-2996 809 754 3905
Dear Mr. Sebetic:
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
Very truly yours,
/s/ Arthur Andersen LLP
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Timothy J. Roach and Paul G. Sebetic, and
each of them, acting individually or jointly, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign the
Registration Statement to which this Power of Attorney is being filed as an
exhibit (the "Registration Statement"), or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and any and all amendments
(including post-effective amendments) to the Registration Statement or such
other registration statement, and to file each of the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in- fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 22nd day of October, 1997.
/s/Alfred J. Roach
---------------------------
Alfred J. Roach
<PAGE>
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Timothy J. Roach and Paul G. Sebetic, and
each of them, acting individually or jointly, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign the
Registration Statement to which this Power of Attorney is being filed as an
exhibit (the "Registration Statement"), or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and any and all amendments
(including post-effective amendments) to the Registration Statement or such
other registration statement, and to file each of the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in- fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 22nd day of October, 1997.
/s/Timothy J. Roach
---------------------------
Timothy J. Roach
<PAGE>
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Timothy J. Roach and Paul G. Sebetic, and
each of them, acting individually or jointly, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign the
Registration Statement to which this Power of Attorney is being filed as an
exhibit (the "Registration Statement"), or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and any and all amendments
(including post-effective amendments) to the Registration Statement or such
other registration statement, and to file each of the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in- fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 22nd day of October, 1997.
/s/ Paul G. Sebetic
---------------------------
Paul G. Sebetic
<PAGE>
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Timothy J. Roach and Paul G. Sebetic, and
each of them, acting individually or jointly, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign the
Registration Statement to which this Power of Attorney is being filed as an
exhibit (the "Registration Statement"), or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and any and all amendments
(including post-effective amendments) to the Registration Statement or such
other registration statement, and to file each of the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in- fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 22nd day of October, 1997.
/s/ C. Bruce Barksdale
---------------------------
C. Bruce Barksdale
<PAGE>
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Timothy J. Roach and Paul G. Sebetic, and
each of them, acting individually or jointly, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign the
Registration Statement to which this Power of Attorney is being filed as an
exhibit (the "Registration Statement"), or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and any and all amendments
(including post-effective amendments) to the Registration Statement or such
other registration statement, and to file each of the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in- fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 22nd day of October, 1997.
/s/Dorothy Roach
---------------------------
Dorothy Roach
<PAGE>
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Timothy J. Roach and Paul G. Sebetic, and
each of them, acting individually or jointly, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign the
Registration Statement to which this Power of Attorney is being filed as an
exhibit (the "Registration Statement"), or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and any and all amendments
(including post-effective amendments) to the Registration Statement or such
other registration statement, and to file each of the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in- fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 22nd day of October, 1997.
/s/Joseph C. Hogan
---------------------------
Joseph C. Hogan
<PAGE>
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Timothy J. Roach and Paul G. Sebetic, and
each of them, acting individually or jointly, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign the
Registration Statement to which this Power of Attorney is being filed as an
exhibit (the "Registration Statement"), or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and any and all amendments
(including post-effective amendments) to the Registration Statement or such
other registration statement, and to file each of the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in- fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 22nd day of October, 1997.
/s/James R. Grover, Jr.
---------------------------
James R. Grover, Jr.
<PAGE>
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Timothy J. Roach and Paul G. Sebetic, and
each of them, acting individually or jointly, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign the
Registration Statement to which this Power of Attorney is being filed as an
exhibit (the "Registration Statement"), or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and any and all amendments
(including post-effective amendments) to the Registration Statement or such
other registration statement, and to file each of the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in- fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 22nd day of October, 1997.
/s/William G. Sharwell
---------------------------
William G. Sharwell
