TII INDUSTRIES INC, S-2/A, 1997-11-03

TII INDUSTRIES INC
S-2/A, 1997-11-03
SWITCHGEAR & SWITCHBOARD APPARATUS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1997

REGISTRATION NO. 333-38467
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 1

FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

TII INDUSTRIES, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 66-0328885
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>

------------------------

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)
------------------------

COPIES TO:

<TABLE>
<S> <C>
RICHARD A. RUBIN, ESQ. STEPHEN H. KAY, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP SQUADRON, ELLENOFF, PLESENT & SHEINFELD, LLP
1211 AVENUE OF THE AMERICAS 551 FIFTH AVENUE
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10176
TELEPHONE: (212) 704-6000 TELEPHONE: (212) 661-6500
TELECOPY: (212) 704-6288 TELECOPY: (212) 697-6686
</TABLE>

------------------------

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. [ ]
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. [ ]

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> 2

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 , 1997

2,500,000 SHARES

TII INDUSTRIES, INC.

[TII INDUSTRIES, INC. 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 29, 1997, the last sale price of the
Common Stock on the Nasdaq National Market was $6 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 6 HEREOF.

------------------------

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.

<TABLE>
<CAPTION>
================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- ------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
================================================================================================
</TABLE>

(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 December , 1997.

------------------------

RODMAN & RENSHAW, INC. SANDERS MORRIS MUNDY

The date of this Prospectus is , 1997
<PAGE> 3

[PHOTOGRAPH]

TII's network interface devices ("NIDs") house the Company's overvoltage
surge protectors and various station electronics and serve as the FCC mandated
demarcation point between telco-owned and subscriber-owned property. TII
recently introduced a line of broadband NIDs specifically designed to enclose
the telcos' technology of choice, whether traditional twisted pair lines or
high-bandwidth coaxial cable or fiber optic lines.

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."

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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 $6 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.
NIDs typically also enclose 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 an innovative
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 Company believes that the features and
functionality of its 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 overvoltage surge
protection, the Company's in-line coaxial overvoltage surge protector is
virtually transparent to 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 of interactive services.
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.

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<PAGE> 5

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. These products are used to connect the telcos' local and long distance
networks to their central offices, as well as to route fiber optic lines
throughout subscriber locations.

Communications is one of the fastest growing industries in the world today.
The Company's strategy for participating in the rapid growth of the
communications industry includes: (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:

- In April 1997, the Company entered into a multi-year contract
extension to provide overvoltage surge protectors to Ameritech
Corporation.

- In July 1997, the Company was awarded a contract to provide new
broadband NID products to the Puerto Rico Telephone Company
("PRTC").

- In September 1997, the Company won a multi-year contract to provide
new broadband NID products to Bell Atlantic Corporation ("Bell
Atlantic").

- In October 1997, the Company was awarded a contract to supply
custom-designed fiber optic enclosures and splice trays to Bell
Atlantic.

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.

THE OFFERING

<TABLE>
<S> <C>
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"
</TABLE>

- ---------------
(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.

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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------- QUARTER ENDED
JUNE JUNE JUNE JUNE JUNE ----------------------------
25, 24, 30, 28, 27, SEPTEMBER 27, SEPTEMBER 26,
1993 1994 1995 1996 1997(1) 1996 1997
------- ------- ------- ------- ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Net sales........................................ $33,474 $40,147 $43,830 $44,513 $50,675 $12,040 $13,503
Gross profit..................................... 8,589 10,832 13,048 12,557 9,254 3,184 2,450
Operating income (loss).......................... 1,987 3,066 3,602 3,856 (892) 806 (180)
Net income (loss)................................ 1,212 2,389 2,942 3,737 (856) 752 (160)

SELECTED PER SHARE DATA:
Net income (loss) per share -- primary........... $ 0.28 $ 0.45 $ 0.52 $ 0.48 $ (0.12) $ 0.10 $ (0.02)
Weighted average shares outstanding -- primary... 5,834 6,726 7,989 7,853 7,430 7,808 7,476
Net income (loss) per share -- fully diluted..... $ 0.28 $ 0.41 $ 0.51 $ 0.47 $ (0.12) $ 0.10 $ (0.02)
Weighted average shares outstanding -- fully
diluted....................................... 5,865 7,943 8,402 8,179 7,430 8,108 7,476
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 26, 1997
------------------------
ACTUAL AS ADJUSTED(2)
------- --------------
(UNAUDITED)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital...................................................................... $19,118 $ 34,104
Total assets......................................................................... 42,871 57,857
Long-term debt and obligations under capital leases, including current portion....... 2,718 2,718
Stockholders' investment............................................................. 33,539 48,525
</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."

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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 Bell Atlantic and 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 deliver timely 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 customer 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 subscriber 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 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

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be no assurance that the Company will be able to respond timely 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 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."

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. A substantial portion of the
Company's subscriber overvoltage surge protectors are used in NID housings
assembled by the Company or by 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."

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<PAGE> 9

INDUSTRY CONSOLIDATION AND PRICING PRESSURE

The telcos have been going through a period of consolidation, including,
for example, the merger of SBC Communications Inc. into Pacific Telesis Group,
the merger of NYNEX Corporation into Bell Atlantic 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 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. 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 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 international sales and marketing efforts 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."

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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 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 affect 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

The telecommunications industry is subject to regulation in the United
States and in other countries. In the United States, the FCC and various state
public service or utility commissions regulate the telcos and other
communication access providers who use the Company's products. While such
regulations do not typically apply directly to the Company, 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.

9
<PAGE> 11

Although compliance with applicable federal, state and local environmental
regulations has not had, and the Company does not believe compliance therewith
in the future will have, a material adverse effect on the Company's earnings,
capital expenditures or competitive position, there can be no assurance that
continued compliance will not have a material adverse effect on the Company in
the future.

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."

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.
As of the date of this Prospectus and after giving effect to the completion of
this offering, such persons would own 12.8% of the Company's outstanding Common
Stock (12.4% assuming that the Underwriters' over-allotment option is exercised
in full).

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

10
<PAGE> 12

other limitations. Of such remaining 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."

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 tradeable 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 60,000 shares of Common Stock have the
right, under certain circumstances and subject to certain limitations, to
require the Company to file a registration statement under the Securities Act
with respect to the shares underlying such warrants. Such holders also have
certain piggyback registration rights which have been waived in connection with
this offering. In addition, holders of warrants to purchase 20,000 shares of
Common Stock have the right, under certain circumstances and subject to certain
limitations, to require the Company to file a registration statement with
respect to the shares underlying such warrants. Such warrants, however, may not
be exercised during a period of 180 days following consummation of 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. See "Underwriting."

ANTI-TAKEOVER CONSIDERATIONS

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. 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."

11
<PAGE> 13

USE OF PROCEEDS

The net proceeds from the sale of the Common Stock offered hereby are
estimated to be approximately $15.0 million ($17.3 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."

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":

<TABLE>
<CAPTION>
HIGH LOW
----- ----
<S> <C> <C>
FISCAL YEAR ENDED JUNE 28, 1996:
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 29, 1997........................... 8 5/16 6 1/4
</TABLE>

The last reported sale price of the Common Stock on October 29, 1997, as
reported by the Nasdaq National Market was $6 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.

12
<PAGE> 14

CAPITALIZATION

(IN THOUSANDS)

The following table sets forth the capitalization of the Company as of
September 26, 1997 and as adjusted to give effect to the sale by the Company of
the 2,500,000 shares of Common Stock offered hereby:

<TABLE>
<CAPTION>
AS OF SEPTEMBER 26,
1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(UNAUDITED)
<S> <C> <C>
Current portion of long-term debt and obligations under capital
leases............................................................... $ 554 $ 554
Long-term debt......................................................... 836 836
Long-term obligations under capital leases............................. 1,328 1,328
------- -------
Total debt................................................... 2,718 2,718
------- -------
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; 7,593,077 and 10,093,077 (as adjusted) shares
issued(1)........................................................ 76 101
Warrants outstanding.............................................. 159 159
Capital in excess of par value.................................... 29,733 44,694
Retained earnings................................................. 3,839 3,839
Valuation adjustments to record marketable securities available
for sale at fair value........................................... 13 13
Less: 17,637 common shares in treasury, at cost................... (281) (281)
------- -------
Total stockholders' investment............................... 33,539 48,525
------- -------
Total capitalization....................................... $36,257 $51,243
======= =======
</TABLE>

- ---------------

(1) Excludes the following shares which were reserved for potential future
issuance at September 26, 1997: (i) 1,531,104 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 $5.03 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 advisory services at a
weighted average exercise price of $6.46 per share. See Note 9 of Notes to
Consolidated Financial Statements.

13
<PAGE> 15

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 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 ended June 24, 1994 are derived from audited
financial statements not included elsewhere herein. The selected financial data
as of September 26, 1997 and for the quarters ended September 26, 1997 and
September 27, 1996 have been derived from unaudited financial statements of the
Company, which, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of results for such periods. The results for interim periods are not necessarily
indicative of the results to be expected for the entire year. 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>
YEAR ENDED QUARTER ENDED
---------------------------------------------------- -----------------------------
JUNE 25, JUNE 24, JUNE 30, JUNE 28, JUNE 27, SEPTEMBER 27, SEPTEMBER 26,
1993 1994 1995 1996 1997(1) 1996 1997
-------- -------- -------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................ $ 33,474 $ 40,147 $ 43,830 $ 44,513 $ 50,675 $12,040 $13,503
Cost of sales............................ 24,885 29,315 30,782 31,956 41,421 8,856 11,053
------- ------- ------- ------- ------- ------- -------
Gross profit............................. 8,589 10,832 13,048 12,557 9,254 3,184 2,450
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling, general and administrative.... 5,232 5,666 6,827 5,881 7,061 1,634 1,854
Research and development............... 1,370 2,100 2,619 2,820 3,085 744 776
------- ------- ------- ------- ------- ------- -------
Total operating expenses.......... 6,602 7,766 9,446 8,701 10,146 2,378 2,630
------- ------- ------- ------- ------- ------- -------
Operating income (loss).................. 1,987 3,066 3,602 3,856 (892) 806 (180)
Interest expense......................... (875) (711) (718) (416) (287) (120) (54)
Interest income.......................... -- -- -- 191 314 108 59
Other income............................. 100 34 58 106 72 6 15
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for income
taxes.................................. 1,212 2,389 2,942 3,737 (793) 800 (160)
Provision for income taxes............... -- -- -- -- 63 48 --
------- ------- ------- ------- ------- ------- -------
Net income (loss)........................ $ 1,212 $ 2,389 $ 2,942 $ 3,737 $ (856) $ 752 $ (160)
======= ======= ======= ======= ======= ======= =======
SELECTED PER SHARE DATA:
Net income (loss) per share -- primary... $ 0.28 $ 0.45 $ 0.52 $ 0.48 $ (0.12) $ 0.10 $ (0.02)
Weighted average shares
outstanding -- primary................. 5,834 6,726 7,989 7,853 7,430 7,808 7,476
Net income (loss) per share -- fully
diluted................................ $ 0.28 $ 0.41 $ 0.51 $ 0.47 $ (0.12) $ 0.10 $ (0.02)
Weighted average shares
outstanding -- fully diluted........... 5,865 7,943 8,402 8,179 7,430 8,108 7,476
</TABLE>

<TABLE>
<CAPTION>
AS OF AS OF
----------------------------------------------- SEPTEMBER 26, 1997
JUNE 25, JUNE 24, JUNE 30, JUNE 28, ------------------------
1993 1994 1995 1996 ACTUAL AS ADJUSTED(2)
-------- -------- -------- -------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital........................... $10,212 $ 6,734 $15,947 $23,801 $19,118 $ 34,104
Total assets.............................. 28,066 29,378 34,414 42,823 42,871 57,857
Long-term debt and obligations under
capital leases, including current
portion................................. 10,263 7,552 2,767 2,739 2,718 2,718
Stockholders' investment.................. 12,439 15,137 25,183 33,862 33,539 48,525
</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."

14
<PAGE> 16

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
approximately 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 and in the
first quarter of fiscal 1998, resulting in net losses of $856,000 and $160,000,
respectively.

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 a reduction of personnel, the movement of certain production
processes to the Company's lower cost facility in the Dominican Republic, the
outsourcing of certain manufacturing steps, the re-alignment of the Company's
sales and marketing force and the discontinuance 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) in the third quarter of fiscal
1997. These charges consisted of an increase to the allowance for inventory
primarily related to the ANT product line, as well as 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 in fiscal 1997.

During the fourth quarter of fiscal 1997 and first quarter of fiscal 1998,
the Company incurred additional manufacturing expenses associated with the
accelerated production startup of the Company's new broadband NID product line
in connection with recently awarded contracts. 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, lower initial manufacturing yields and additional freight and
other expediting costs. 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. The Company
expects these activities will be substantially completed by the end of the
second quarter of fiscal 1998 and that volume deliveries of its broadband NIDs
under recently awarded contracts will begin during the second and third quarters
of fiscal 1998. The Company anticipates that the completion of its relocation
program and the commencement of volume deliveries of its broadband NIDs will
have a positive impact on the Company's gross profit margin beginning in the
third quarter of fiscal 1998.

15
<PAGE> 17

RESULTS OF OPERATIONS

Fiscal Quarters Ended September 26, 1997 and September 27, 1996

Net Sales

Net sales for the first quarter of fiscal 1998 increased by $1.5 million
(12.2%) to $13.5 million from $12.0 million for the first quarter of fiscal
1997. Sales of NIDs increased by $887,000 due principally to an increase in NID
sales to a telco customer. Sales of fiber optic related products increased by
$516,000, primarily due to the continued acceptance of the LIGHTRAX(R) product
line. Sales of overvoltage surge protectors sold separately from NIDs decreased
by $140,000 primarily as a result of the increase in sales of NIDs, which
incorporate the Company's overvoltage surge protectors. Included in overvoltage
surge protector sales is a $389,000 increase over the first quarter of fiscal
1997 in sales of modular station protectors introduced in late fiscal 1995.
Sales of station electronics and other products increased by $223,000.

Gross Profit

Gross profit for the first quarter of fiscal 1998 decreased by $734,000
(23.1%) to $2.5 million from $3.2 million for the first quarter of fiscal 1997.
Gross profit as a percentage of sales decreased for the first quarter of fiscal
1998 to 18.1% from 26.4% for the first quarter of fiscal 1997. The Company's
gross profit margin for the first quarter of fiscal 1998 continued to be
impacted by additional material, labor and overhead costs associated with the
accelerated production startup of its broadband NID product line to meet
delivery schedules under recently awarded contracts. To a lesser extent, the
Company's gross margin was affected by moving costs relating to relocating
production processes from its Puerto Rico facility to its lower cost Dominican
Republic facility.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the first quarter of
fiscal 1998 increased by $220,000 (13.5%) to $1.9 million from $1.6 million for
the first quarter of fiscal 1997. As a percentage of sales, selling, general and
administrative expenses increased slightly for the first quarter of fiscal 1998
to 13.7% from 13.6% for the first quarter of fiscal 1997. The increase resulted
primarily from personnel, promotion and other costs associated the Company's
efforts to obtain new sales contracts.

Research and Development Expenses

Research and development expenses for the first quarter of fiscal 1998
increased by $32,000 (4.3%) to $776,000 from $744,000 for the first quarter of
fiscal 1997. As a percentage of sales, research and development expenses for the
first quarter of fiscal 1998 decreased to 5.7% from 6.2% for the first quarter
of fiscal 1997. The slight dollar increase related primarily to higher personnel
and other costs associated with product development for expansion of the
Company's broadband NID product line.

Interest Expense

Interest expense for the first quarter of fiscal 1998 decreased by $66,000
(55.0%) to $54,000 from $120,000 for the first quarter of fiscal 1997. Interest
expense for the first quarter of fiscal 1997 included amortization of debt
origination costs that ceased during such period.

Interest Income

Interest income for the first quarter of fiscal 1998 decreased by $49,000
(45.4%) to $59,000 from $108,000 for the first quarter of fiscal 1997. The
Company's use of cash and marketable securities since the first quarter of
fiscal 1997, primarily for capital expenditures, reduced funds available for
investment.

Net Income

As a result of the foregoing, the Company incurred a net loss of $160,000
for the first quarter of fiscal 1998 versus net income of $752,000 for the first
quarter of fiscal 1997. Net loss per share equaled $0.02 for the first quarter
of fiscal 1998 versus fully diluted net income per share of $0.10 for the first
quarter of fiscal 1997.

16
<PAGE> 18

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, AT&T made the final payment under a contract pursuant to which AT&T
was obligated to make certain payments to the Company to the extent it failed to
make purchases of the Company's products. Net sales for fiscal 1996 increased by
$683,000 (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, 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. 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% for fiscal 1995 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 reductions. As 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 dollar 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.

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<PAGE> 19

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.

Interest Income

Interest income for fiscal 1997 increased by $123,000 (64.4%) to $314,000
from $191,000 for fiscal 1996 due primarily to additional funds invested which
arose from the exercise of warrants and options.

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 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 for fiscal 1997 versus
fully diluted net income per share of $0.47 and $0.51 for fiscal 1996 and 1995,
respectively.

INCOME TAXES

Due to its election to apply Section 936 of the Internal Revenue Code of
1986, as amended (the "Code"), and 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. Assuming the continuation of fiscal 1997 levels of qualified
wages, fringe benefits and depreciation in Puerto Rico, the Company's economic
activity based credit limitation would be 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.

Legislation enacted in the Small Business Job Protection Act of 1996
repealed the Section 936 credit for taxable years beginning with 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 for the
Company's fiscal years ending in 2003 through 2006. 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 fiscal 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.

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<PAGE> 20

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash, cash equivalents and marketable securities decreased to
$3.5 million at the end of the first quarter of fiscal 1998 from $3.8 million at
the end of fiscal 1997 and $8.9 million at the end of fiscal 1996. Working
capital decreased to $19.1 million at the end of the first quarter of fiscal
1998 from $19.7 million at the end of fiscal 1997 and $23.8 million at the end
of fiscal 1996.

During the first quarter of fiscal 1998, $502,000 of cash was provided by
operations. While the Company had a net loss of $160,000 for the first quarter
of fiscal 1998, such loss included non-cash charges, including $368,000 for
depreciation and amortization. The remaining cash flow from operations resulted
primarily from an $826,000 decrease in inventories, which was partially offset
by a decrease in accounts payable and accrued liabilities of $357,000 and an
increase in receivables of $343,000. During fiscal 1997, $352,000 of cash was
used in operations. While the Company had a net loss of $856,000 for fiscal
1997, such loss included non-cash charges, including $1.9 million for
depreciation and amortization. The primary use of cash in operating activities
was to fund increases in inventories (approximately $4.4 million or $1.5 million
net of $2.9 million of allowances established).

During the first quarter of fiscal 1998, cash of $452,000 was used in
investing activities for capital expenditures of $1.3 million offset, in part,
by proceeds from sales and maturities of marketable securities in excess of
amounts reinvested of $866,000. During fiscal 1997, 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.

During the first quarter of fiscal 1998, financing activities provided
$559,000, with $682,000 realized from the exercise of stock options and warrants
being partially offset by the payment of $123,000 of long-term debt and
obligations under capital leases. During fiscal 1997, financing activities used
$424,000 of cash for the payment of long-term debt and obligations under capital
leases.

The Company is a party to a Revolving Credit Agreement with The Chase
Manhattan Bank which, at June 27, 1997, entitled the Company to have outstanding
borrowings of up to $4.0 million, declining by $400,000 each calendar quarter
thereafter. The Company's obligations under the Revolving Credit Agreement are
secured by substantially all of the Company's U.S. assets, the capital stock of
most of it subsidiaries and its Puerto Rico accounts receivable. As a result of
the fiscal 1997 and first quarter of fiscal 1998 net losses 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. Following the completion of this offering, the
Bank may require the Company to renegotiate certain negative covenants contained
in the Revolving Credit Agreement to reflect the equity raised in this offering.
Unless an agreement on new covenants is reached within 45 days following
completion of this offering, the bank would be entitled to terminate the
Revolving Credit Agreement. The Company believes that it and the bank will be
able to negotiate mutually acceptable covenants. However, there can be no
assurance that the Company and the bank will be able to do so. See Note 6 of
Notes to Consolidated Financial Statements for further information concerning
this facility, including various financial maintenance covenants.

The Company has no commitments for capital expenditures, but expects to
purchase new equipment and leasehold improvements in the normal course of
business. The Revolving Credit Agreement limits the aggregate amount of the
Company's capital expenditures to $3.5 million in any fiscal year. However,
assuming completion of this offering on or prior to December 26, 1997, the
Company may make aggregate capital expenditures of $10.0 million during fiscal
1998 and 1999, subject to maximum capital expenditures of $6.0 million in fiscal
1998.

Funds anticipated to be generated from operations, together with available
cash, marketable securities, and the availability of borrowings under the
Company's Revolving Credit Agreement or 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 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

19
<PAGE> 21

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 obtain any such financing on terms acceptable to the Company.

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", 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 Company believes 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
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. SFAS 130
will be effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. The Company expects to
adopt SFAS No. 130 in fiscal 1999 and believes such adoption will not have a
material impact on its financial position or results of operations.

20
<PAGE> 22

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. NIDs typically also enclose
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 an innovative 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 Company believes that the features and functionality of its broadband
NIDs were instrumental in the Company recently winning two major telco
contracts.

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. These products are used to connect the telcos' local and long distance
network to their central offices as well as to route fiber optic lines
throughout subscriber locations.

The Company's strategy for participating in the rapid growth of the
communications industry includes: (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.

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

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<PAGE> 23

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 Telecommunications Act of 1996 further increased competition within the U.S.
communications marketplace, requiring the local telephone companies to provide
access to their networks to 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 telephone 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 end 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 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.

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<PAGE> 24

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 produce its new broadband NIDs in
volumes necessary 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:

- In April 1997, the Company entered into a multi-year contract
extension to provide overvoltage surge protectors to Ameritech
Corporation.

- In July 1997, the Company was awarded a contract to provide new
broadband NID products to PRTC.

- In September 1997, the Company won a multi-year contract to provide
new broadband NID products to Bell Atlantic.

- In October 1997, the Company was awarded a contract to supply custom
designed fiber optic enclosures and splice trays to Bell Atlantic.

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 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

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<PAGE> 25

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.

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, a protector's reaction speed to a
surge may be perceived to be more critical than its 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.

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<PAGE> 26

Network Interface Devices

The Company designs, molds, assembles and markets various NIDs. The
Company's 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 communications 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 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 their
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.

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<PAGE> 27

RESEARCH AND DEVELOPMENT

As the telcos and other communications providers upgrade and expand their
networks to provide advanced telecommunications 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:

- Expanding the broadband NID product line to address anticipated
future requirements of the telcos and other competitive access
providers.

- Further developing coaxial cable overvoltage surge protectors for
telcos, CATV providers and wireless broadband communications
markets.

- 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.

- Designing custom overvoltage surge protectors for OEMs for
installation throughout telco and other communications networks.

- 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.

The following customers accounted for more than 10% of the Company's
consolidated revenues during one or more of the years presented below:

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------
JUNE 30, JUNE 28, JUNE 27,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Siecor Corporation(1)................................... 30% 26% 20%
NYNEX Corporation(2).................................... 13% 15% 18%
Keptel, Inc.(1)......................................... * 12% 11%
</TABLE>

- ---------------
* 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.

26
<PAGE> 28

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.

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.

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 overvoltage surge 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 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

27
<PAGE> 29

protectors react faster 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 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.

28
<PAGE> 30

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.

GOVERNMENT REGULATION

The telecommunications industry is subject to regulation in the United
States and in other countries. In the United States, the FCC and various state
public service or utility commissions regulate most of the telcos and other
communications access providers who use the Company's products. While such
regulations do not typically apply directly to the Company, 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 October 31, 1997, the Company had approximately 1,100 full-time
employees, of whom 997 were engaged in manufacturing, 45 in engineering and new
product development and 58 in executive, sales and administrative positions. Of
these employees, approximately 260 are employed at the Company's Puerto Rico
facilities and approximately 775 are employed at its Dominican Republic
facilities. Additionally, the Company has approximately 135 temporary employees
of which approximately 125 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.

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.

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

29
<PAGE> 31

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

On October 30, 1997, the Company received a complaint in an action brought
in the Superior Court of Bayamon, Puerto Rico by a former employee alleging
wrongful termination of his employment and seeking damages of $3.8 million. The
Company believes the case is without merit and will not have a material adverse
effect on the Company's financial position. The Company is not a party to any
other material pending legal proceedings.

30
<PAGE> 32

MANAGEMENT

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------- ---------------------------------------------
<S> <C>
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
</TABLE>

- ---------------
(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.

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.

31
<PAGE> 33

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 since 1971, served as
Treasurer of the Company from 1979 to 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 since 1977.

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 Atlantic). 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 A. 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
January 1998, 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

32
<PAGE> 34

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--Fiber Optics 1996 120,779 -- 10,000 --
Operations 1995 107,692 77,071 20,000 --
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
ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF PRICE APPRECIATION
SECURITIES TOTAL OPTIONS 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>
Alfred J. Roach................ 50,000 13.1% $4.50 7/24/06 $141,501 $358,592
Timothy J. Roach............... 50,000 13.1% 4.50 7/24/06 141,501 358,592
Paul G. Sebetic................ 15,000 3.9% 4.50 7/24/06 42,450 107,578
10,000 2.6% 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). The options vest
in five equal annual installments, commencing one year after the date of grant.

33
<PAGE> 35

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 Named Executive Officers:

<TABLE>
<CAPTION>
NUMBER OF SHARES OF VALUE OF UNEXERCISED
COMMON STOCK UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
JUNE 27, 1997 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 less the option exercise price multiplied by the number of
underlying shares of Common Stock.

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 a 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. 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 with an allowance, not to exceed 20% of his then salary, to
reimburse him for the cost of maintaining a secondary residence in Puerto Rico,
where the Company maintains its principal manufacturing facilities. The Company
will also 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 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), disability or for cause 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, 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

34
<PAGE> 36

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 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.

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 non-employee
directors at the time a person becomes a non-employee director and immediately
following each annual meeting of stockholders at which directors are elected.
Options to purchase 974,661 shares of Common Stock also remain outstanding under
the Company's 1983 Employee Incentive Stock Option Plan and 1986 Stock Option
Plan, each of which have terminated except with respect to outstanding options
thereunder. See "--Remuneration of Directors."

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<PAGE> 37

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.

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.

36
<PAGE> 38

PRINCIPAL STOCKHOLDERS

The following table sets forth information, as of October 31, 1997, with
respect to the beneficial ownership of Common Stock by (i) each person 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>
PERCENTAGE OF
BENEFICIAL
OWNERSHIP(1)
AMOUNT AND ---------------------
NATURE OF BEFORE AFTER
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OFFERING OFFERING
- -------------------------------------------------------- -------------------- -------- --------
<S> <C> <C> <C>
Alfred J. Roach(2)...................................... 891,600 11.5% 8.7%
Timothy J. Roach(3)..................................... 651,013 8.4% 6.4%
C. Bruce Barksdale(4)................................... 29,998 * *
James R. Grover, Jr.(5)................................. 35,600 * *
Joseph C. Hogan(6)...................................... 34,330 * *
Dorothy Roach(7)........................................ 60,704 * *
William G. Sharwell(8).................................. 35,000 * *
Dare P. Johnston(9)..................................... 36,000 * *
James A. Roach(10)...................................... 39,488 * *
Paul G. Sebetic(11)..................................... 7,000 * *
All executive officers and directors as a group (11
persons)(12).......................................... 1,864,733 22.9% 17.5%
</TABLE>

- ---------------

(1) Asterisk indicates that the percentage is less than one percent. Percentage
of beneficial ownership 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 October 31, 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.

(3) 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.

(4) Includes 78 shares owned by Mr. Barksdale's children and 22,000 shares
subject to options held under the Company's 1983 Employee Incentive Stock
Option Plan and 1986 Stock Option Plan.

(5) Includes 25,000 shares subject to options held under the Company's 1994
Non-Employee Director Stock Option Plan.

(6) Includes 34,250 shares subject to options held under the Company's 1986
Stock Option Plan and 1994 Non-Employee Director Stock Option Plan.

(7) 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.

(8) Represents 35,000 shares subject to options held under the Company's 1986
Stock Option Plan and 1994 Non-Employee Director Stock Option Plan.

(9) Represents 36,000 shares subject to options held under the Company's 1986
Stock Option Plan.

(10) 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.

(11) Includes 5,000 shares subject to options held under the Company's 1995
Stock Option Plan.

(12) Includes 536,570 shares subject to options.

37
<PAGE> 39

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, which are incorporated by reference 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

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

38
<PAGE> 40

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 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,

39
<PAGE> 41

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 REGISTRAR

The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank, 311 West Monroe Street, Chicago, Illinois 60606.

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
tradeable 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 remaining
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.

40
<PAGE> 42

underlying such warrants. Such warrants, however, may not be exercised for a
period of 180 days following consummation of 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 and Renshaw, Inc. See "Underwriting."

41
<PAGE> 43

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Rodman &
Renshaw, Inc. ("Rodman") and Sanders Morris Mundy are acting as Representatives,
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:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------------ ---------
<S> <C>
Rodman & Renshaw, Inc...................................................
Sanders Morris Mundy....................................................
---------
Total.............................................................. 2,500,000
=========
</TABLE>

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 Representatives have 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 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

42
<PAGE> 44

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 harmless 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, subject to certain
restrictions, to require the Company to register the shares issuable upon
exercise of the warrants by filing a registration statement under the Securities
Act. Such warrants, however, may not be exercised during a period of 180 days
following consummation of this offering.

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 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, as amended, 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 is 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.

43
<PAGE> 45

AVAILABLE 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.

44
<PAGE> 46

TII INDUSTRIES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Public Accountants........................................ F-2
Consolidated Balance Sheets -- June 28, 1996 and June 27, 1997 (audited) and
September 26, 1997 (unaudited)................................................ F-3
Consolidated Statements of Operations for the three years in the period ended
June 27, 1997 (audited) and for the quarters ended September 27, 1996 and
September 26, 1997 (unaudited)................................................ F-4
Consolidated Statements of Stockholders' Investment for the three years in the
period ended June 27, 1997 (audited) and for the quarter ended September 26,
1997 (unaudited).............................................................. F-5
Consolidated Statements of Cash Flows for the three years in the period ended
June 27, 1997 (audited) and for the quarters ended September 27, 1996 and
September 26, 1997 (unaudited)................................................ F-6
Notes to Consolidated Financial Statements...................................... F-7
</TABLE>

F-1
<PAGE> 47

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> 48

TII INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER
JUNE 28, JUNE 27, 26,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.............................. $ 2,883 $ 247 $ 856
Marketable securities available for sale............... 5,999 3,552 2,692
Receivables............................................ 7,084 7,388 7,731
Inventories............................................ 14,032 15,574 14,649
Prepaid expenses....................................... 388 402 358
-------- -------- --------
Total current assets........................... 30,386 27,163 26,286
-------- -------- --------
Fixed Assets
Property, plant and equipment.......................... 33,018 37,812 39,130
Less: Accumulated depreciation and amortization........ (22,029) (23,768) (24,077)
-------- -------- --------
Net fixed assets............................... 10,989 14,044 15,053
-------- -------- --------
Other Assets............................................. 1,448 1,616 1,532
-------- -------- --------
Total Assets................................... $ 42,823 $ 42,823 $ 42,871
======== ======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt and obligations under
capital leases...................................... $ 363 $ 537 $ 554
Accounts payable....................................... 5,185 5,833 5,361
Accrued liabilities.................................... 1,037 1,138 1,253
-------- -------- --------
Total current liabilities...................... 6,585 7,508 7,168
-------- -------- --------
Long-Term Debt........................................... 853 839 836
Long-Term Obligations Under Capital Leases............... 1,523 1,465 1,328
-------- -------- --------
2,376 2,304 2,164
-------- -------- --------
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 Convertible Redeemable Preferred
Stock, 100,000 shares authorized; no shares
outstanding at June 28, 1996, June 27, 1997 and
September 26, 1997................................ -- -- --
Series B Cumulative Redeemable Preferred Stock,
20,000 shares authorized; no shares outstanding at
June 28, 1996, June 27, 1997 and September 26,
1997.............................................. -- -- --
Common Stock, par value $.01 per share; 30,000,000
shares authorized; 7,446,975, 7,448,473 and
7,593,077 shares issued at June 28, 1996, June 27,
1997 and September 26, 1997 respectively (Note 9)... 75 75 76
Warrants outstanding................................... 120 159 159
Capital in excess of par value......................... 29,046 29,052 29,733
Retained earnings...................................... 4,855 3,999 3,839
Valuation adjustment to record marketable securities
available for sale at fair value.................... 47 7 13
-------- -------- --------
34,143 33,292 33,820
Less -- Treasury stock, at cost; 17,637 common
shares.............................................. (281) (281) (281)
-------- -------- --------
Total stockholders' investment................. 33,862 33,011 33,539
-------- -------- --------
Total Liabilities and Stockholders'
Investment................................... $ 42,823 $ 42,823 $ 42,871
======== ======== ========
</TABLE>

See notes to consolidated financial statements

F-3
<PAGE> 49

TII INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
------------------------------ -----------------------------
JUNE 30, JUNE 28, JUNE 27, SEPTEMBER 27, SEPTEMBER 26,
1995 1996 1997 1996 1997
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 43,830 $ 44,513 $ 50,675 $12,040 $13,503
Cost of sales.............................. 30,782 31,956 41,421 8,856 11,053
------- ------- ------- ------- -------
Gross profit..................... 13,048 12,557 9,254 3,184 2,450
------- ------- ------- ------- -------
Operating expenses
Selling, general and administrative...... 6,827 5,881 7,061 1,634 1,854
Research and development................. 2,619 2,820 3,085 744 776
------- ------- ------- ------- -------
Total operating expenses......... 9,446 8,701 10,146 2,378 2,630
------- ------- ------- ------- -------
Operating income (loss).......... 3,602 3,856 (892) 806 (180)
Interest expense........................... (718) (416) (287) (120) (54)
Interest income............................ -- 191 314 108 59
Other income............................... 58 106 72 6 15
------- ------- ------- ------- -------
Income (loss) before provision
for income tax................. 2,942 3,737 (793) 800 (160)
Provision for income taxes................. -- -- 63 48 --
------- ------- ------- ------- -------
Net income (loss)................ $ 2,942 $ 3,737 $ (856) $ 752 $ (160)
======= ======= ======= ======= =======
Net income (loss) per share -- primary..... $ .52 $ .48 $ (.12) $ 0.10 $ (0.02)
======= ======= ======= ======= =======
Weighted average shares outstanding --
primary.................................. 7,989 7,853 7,430 7,808 7,476
======= ======= ======= ======= =======
Net income (loss) per share -- fully
diluted.................................. $ .51 $ .47 $ (.12) $ 0.10 $ (0.02)
======= ======= ======= ======= =======
Weighted average shares
outstanding -- fully diluted............. 8,402 8,179 7,430 8,108 7,476
======= ======= ======= ======= =======
</TABLE>

See notes to consolidated financial statements

F-4
<PAGE> 50

TII INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
VALUATION
ADJUSTMENT
TO RECORD
MARKETABLE
CLASS CAPITAL SECURITIES
B IN EXCESS RETAINED AVAILABLE FOR
PREFERRED COMMON COMMON WARRANTS OF PAR (DEFICIT) 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) $ -- $(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.... -- 75 -- 159 29,052 3,999 7 (281)
Exercise of stock
options................. -- 1 -- -- 681 -- -- --
Unrealized gain on
marketable securities
available for sale...... -- -- -- -- -- -- 6 --
Net loss for the quarter
ended September 26,
1997.................... -- -- -- -- -- (160) -- --
------- --- --- ---- ------- ------- ---- -----
BALANCE, September 26,
1997 (unaudited)........ $ -- $ 76 $ -- $ 159 $29,733 $ 3,839 $ 13 $ (281)
======= === === ==== ======= ======= ==== =====
</TABLE>

See notes to consolidated financial statements

F-5
<PAGE> 51

TII INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED ENDED
------------------------------ -----------------------------
JUNE 30, JUNE 28, JUNE 27, SEPTEMBER 27, SEPTEMBER 26,
1995 1996 1997 1996 1997
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 2,942 $ 3,737 $ (856) $ 752 $ (160)
-------- ------- -------- ------- -------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization................ 1,761 1,727 1,745 279 309
Increase in allowance for inventory.......... 300 568 2,896 100 99
Amortization of other assets, net............ 241 278 180 25 59
Changes in assets and liabilities
Increase in receivables.................... (554) (951) (304) (1,004) (343)
(Increase) decrease in inventories......... (2,901) (2,322) (4,438) (1,791) 826
(Increase) decrease in prepaid expenses and
other assets............................ (895) (257) (362) (34) 69
(Decrease) increase in accounts payable and
accrued liabilities..................... (225) (242) 787 2,087 (357)
-------- ------- -------- ------- -------
Net cash provided by (used in) operating
activities............................ 669 3,052 (352) 414 502
-------- ------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (3,060) (549) (4,267) (1,005) (1,318)
Purchases of marketable securities available for
sale......................................... -- (6,533) (24,488) (2,436) (2,108)
Proceeds from sales and maturities of marketable
securities available for sale................ 1,327 1,645 26,895 1,084 2,974
-------- ------- -------- ------- -------
Net cash used by investing activities... (1,733) (5,437) (1,860) (2,357) (452)
-------- ------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and
warrants..................................... 7,094 7,656 6 5 682
Payment of long-term debt and obligations under
capital leases............................... (10,824) (1,969) (430) (62) (123)
Proceeds from issuance of long-term debt........ 6,039 -- -- -- --
Redemption of Preferred Stock................... -- (2,763) -- -- --
-------- ------- -------- ------- -------
Net cash provided by (used in) financing
activities............................ 2,309 2,924 (424) (57) 559
-------- ------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents........................... 1,245 539 (2,636) (2,000) 609
Cash and Cash equivalents, at beginning of year... 1,099 2,344 2,883 2,883 247
-------- ------- -------- ------- -------
Cash and Cash equivalents, at end of year......... $ 2,344 $ 2,883 $ 247 $ 883 $ 856
======== ======= ======== ======= =======
SUPPLEMENTAL DISCLOSURE
Non-cash transactions
Capital leases entered into.................. $ 52 $ 1,938 $ 533 $ 21 $ --
======== ======= ======== ======= =======
Valuation adjustment to record marketable
securities available for sale at fair
value...................................... $ 10 $ 37 $ (40) $ (51) $ 6
======== ======= ======== ======= =======
Cash paid during the period for:
Income taxes................................. $ -- $ -- $ 42 $ 24 $ 112
======== ======= ======== ======= =======
Interest..................................... $ 762 $ 174 $ 241 $ 60 $ 53
======== ======= ======== ======= =======
</TABLE>

See notes to consolidated financial statements

F-6
<PAGE> 52

TII INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997

AND THE UNAUDITED QUARTERS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997

(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 reported
period 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.

Unaudited Financial Statements: The consolidated balance sheet as of
September 26, 1997, the consolidated statements of operations and cash flows for
the quarters ended September 27, 1996 and September 26, 1997, and the
consolidated statement of stockholders' investment for the quarter ended
September 26, 1997 and related information contained in these notes have been
prepared by management of the Company without audit. In the opinion of
management, all accruals (consisting of normal recurring accruals) which are
necessary for a fair presentation of financial position, results of operations
and cash flows for such periods have been made. Results for an interim period
should not be considered as indicative of results for a full year.

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. 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 less than 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> 53

TII INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997
AND THE UNAUDITED QUARTERS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997

Net Income (Loss) Per Common Share: Net income (loss) 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 income (loss) 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 quarter ending December 27, 1997. 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 $2,305,000,
$84,000 and $882,000 at June 28, 1996, June 27, 1997 and September 26, 1997
(unaudited), respectively.

Reclassifications: Certain reclassifications have been made in the
accompanying consolidated financial statements for the years ended June 30, 1995
and June 28, 1996 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.

(3) RECEIVABLES

Receivables consisted of the following (dollars in thousands):

<TABLE>
<CAPTION>
JUNE 28, JUNE 27, SEPTEMBER 26,
1996 1997 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables........................ $6,685 $6,897 $ 7,648
Other receivables........................ 521 544 136
------ ------ ------
7,206 7,441 7,784
Less: allowance for doubtful accounts.... (122) (53) (53)
------ ------ ------
$7,084 $7,388 $ 7,731
====== ====== ======
</TABLE>

F-8
<PAGE> 54

TII INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997
AND THE UNAUDITED QUARTERS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997

(4) INVENTORIES

Inventories consisted of the following (dollars in thousands):

<TABLE>
<CAPTION>
JUNE 28, JUNE 27, SEPTEMBER 26,
1996 1997 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................. $ 6,973 $ 7,426 $ 8,253
Work-in-process........................... 4,879 4,584 6,988
Finished goods............................ 4,214 5,994 1,937
------- ------- -------
16,066 18,004 17,178
Less: Allowance for inventory............. (2,034) (2,430) (2,529)
------- ------- -------
$ 14,032 $ 15,574 $14,649
======= ======= =======
</TABLE>

(5) ACCRUED LIABILITIES

Accrued liabilities consisted of the following (dollars in thousands):

<TABLE>
<CAPTION>
JUNE 28, JUNE 27, SEPTEMBER 26,
1996 1997 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll, incentive and vacation.......... $ 603 $ 672 $ 640
Accrued payroll taxes.................... 153 91 193
Legal and professional fees.............. 113 135 234
Accrued rent............................. 100 100 150
Other.................................... 68 140 36
------ ------ ------
$1,037 $1,138 $ l,253
====== ====== ======
</TABLE>

(6) LONG-TERM DEBT

The composition of long-term debt was as follows (dollars in thousands):

<TABLE>
<CAPTION>
JUNE 28, JUNE 27, SEPTEMBER 26,
1996 1997 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
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 $ 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............ 116 103 100
---- ---- ----
866 853 850
Less current portion..................... (13) (14) (14)
---- ---- ----
Long-term debt........................... $853 $839 $ 836
==== ==== ====
</TABLE>

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 28, 1996, June 27, 1997 and September 26, 1997

F-9
<PAGE> 55

TII INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997
AND THE UNAUDITED QUARTERS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997

(unaudited), 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 and
for the quarter ended September 26, 1997 (unaudited).

Future minimum payments for long term debt as of June 27, 1997 were as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
------------------------------------------------------------------ --------
<S> <C>
1998.............................................................. $ 14,000(a)
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
========
</TABLE>

- ---------------

(a) Remaining aggregate payments for fiscal 1998 as of September 26, 1997 were
$11,000 (unaudited).

(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:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
1998............................................................. $ 654,000(a)
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
==========
</TABLE>

- ---------------

(a) Remaining aggregate payments for fiscal 1998 as of September 26, 1997 were
$471,000 (unaudited).

F-10
<PAGE> 56

TII INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997
AND THE UNAUDITED QUARTERS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997

(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 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 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.

F-11
<PAGE> 57

TII INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997
AND THE UNAUDITED QUARTERS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997

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.

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

F-12
<PAGE> 58

TII INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997
AND THE UNAUDITED QUARTERS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997

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.

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 30, 1995, June 28, 1996 and June 27, 1997 follows:

<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 28, 1996 JUNE 27, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Shares under option at beginning of
period.................................... 501,415 1,269,387 1,238,207
Options granted during period............... 868,000 113,200 383,000
Options exercised during period............. (94,028) (80,380) (1,500)
Options canceled/expired during period...... (6,000) (64,000) (83,500)
--------- --------- ---------
Shares under option at end of period........ 1,269,387 1,238,207 1,536,207
========= ========= =========
Options exercisable at end of period........ 336,634 501,454 648,344
Shares available for future grant at end of
period.................................... 126,257 469,000 112,500
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 - 9.69 $2.50 - 9.69 $2.50 - 9.38
</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 income (loss) would have been
reduced (increased) to the pro forma amounts indicated in the table below.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
JUNE 27,
JUNE 28, 1996 1997
------------- -----------
<S> <C> <C>
Net income (loss)
As reported..................................... $ 3,737,000 $ (856,000)
Pro forma....................................... $ 3,629,000 $(1,161,000)
Primary income (loss) per share
As reported..................................... $ 0.48 $ (0.12)
Pro forma....................................... $ 0.46 $ (0.16)
</TABLE>

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

F-13
<PAGE> 59

TII INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997
AND THE UNAUDITED QUARTERS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997

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 holder of 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 exercised
this option in August 1997 with respect to 14,500 shares and the remainder of
the option expired. 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.

(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 1995 and 1996, the Company received
payments of $777,000 and $875,000, 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.

F-14
<PAGE> 60

TII INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997
AND THE UNAUDITED QUARTERS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997

(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:

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
FOR YEAR ENDED
----------------------------------
JUNE 30, JUNE 28, JUNE 27,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Siecor Corporation(a)........................... 30% 26% 20%
NYNEX........................................... 13% 15% 18%
Keptel, Inc.(a)................................. * 12% 11%
</TABLE>

- ---------------
* 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 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 1995, 1996 and 1997
was approximately $613,000, $636,000 and $682,000, respectively, including
$200,000 each year relating to the equipment leases with PRC.

F-15
<PAGE> 61

TII INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND JUNE 27, 1997
AND THE UNAUDITED QUARTERS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 26, 1997

(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.

(15) QUARTERLY RESULTS (UNAUDITED)

The following table reflects the unaudited quarterly results of the Company
for the fiscal years ended June 26, 1996 and June 27, 1997:

<TABLE>
<CAPTION>
FULLY
DILUTED
NET INCOME
GROSS OPERATING NET INCOME (LOSS)
QUARTER ENDED NET SALES PROFIT INCOME (LOSS) PER SHARE
------------------------ ----------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
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(a)....... 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
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(b)....... 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)
</TABLE>

- ---------------

(a) 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.

(b) 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.

F-16
<PAGE> 62

[Photograph]

TII-Ditel designs, manufactures and markets fiber optic assemblies which are
used to connect the telcos' local and long distance networks to their central
offices, as well as to route fiber optic lines throughout subscriber locations.

[Photograph]

TII's patented in-line coaxial surge protector is designed to provide
overvoltage protection while remaining virtually transparent to communications
networks, permitting high-bandwidth signals to be transmitted without adversely
affecting the signal.

[Photograph]

TII's gas tubes represent the foundation upon which most of the Company's
current overvoltage surge protectors are based and provide protection from
surges caused by lightning and other hazardous overvoltages to both subscribers
and their equipment.

<PAGE> 63

======================================================

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 12
Price Range of Common Stock........... 12
Dividend Policy....................... 12
Capitalization........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 21
Management............................ 31
Principal Stockholders................ 37
Description of Capital Stock.......... 38
Shares Eligible for Future Sale....... 40
Underwriting.......................... 42
Legal Matters......................... 43
Experts............................... 43
Information Incorporated by
Reference........................... 43
Available Information................. 44
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

======================================================
======================================================

[TII INDUSTRIES LOGO]

TII INDUSTRIES, INC.

2,500,000 SHARES

COMMON STOCK
------------------------

PROSPECTUS
------------------------

RODMAN & RENSHAW, INC.

SANDERS MORRIS MUNDY

, 1997
======================================================
<PAGE> 64

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.

<TABLE>
<S> <C>
Registration fee -- Securities and Exchange Commission.................... $ 7,000
NASD filing fee........................................................... 2,667
Nasdaq Listing Fees....................................................... 17,500
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............................................................. 32,833
--------
Total........................................................... $500,000
========
</TABLE>

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 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.

In addition, the registrant maintains directors' and officers'
reimbursement and liability insurance with an aggregate coverage limit of
$8,000,000.

Reference is made to Section 7 of the Underwriting Agreement filed as part
of Exhibit 1 hereto.

II-1
<PAGE> 65

ITEM 16. EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- -------------------------------------------------------------------
<C> <C> <S>
1x -- 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. Incorporated by reference to Exhibit 4(a)(1)(G) to Amendment
to the Company's Annual Report on Form 10-K for the fiscal year
ended June 27, 1997 (File No. 1-8048).
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).
</TABLE>

II-2
<PAGE> 66

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- -------------------------------------------------------------------
<C> <C> <S>
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).
5++ -- Opinion of Parker, Chapin, Flattau & Klimpl, LLP as to the legality
of the Common Stock being offered and consent.
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).
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. Incorporated by reference
to Exhibit 10(b)(2) to Amendment to the Company's Annual Report on
Form 10-K for the fiscal year ended June 27, 1997 (File No.
1-8048).
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 on Form 10-K for the
fiscal year ended June 27, 1997 (File No. 1-8048).
</TABLE>

II-3
<PAGE> 67

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- -------------------------------------------------------------------
<C> <C> <S>
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)(A) -- 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)(1)(B)* -- Letter Agreement dated August 15, 1996 between Crown Tool & Die
Company, Inc. and Puerto Rico Industrial Development Company.
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)
24x -- Powers of Attorney of certain officers and directors of the
registrant.
</TABLE>

- ---------------

<TABLE>
<S> <C>
* Filed herewith.
+ Management contract or arrangement
++ To be filed by amendment.
x Previously filed with the initial filing of this Registration Statement.
</TABLE>

II-4
<PAGE> 68

ITEM 17. UNDERTAKINGS.

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.

The undersigned registrant hereby undertakes to furnish to the Securities
and Exchange Commission, upon request, all constituent instruments defining the
rights of holders of long-term debt of the registrant and its consolidated
subsidiaries not filed herewith. Such instruments have not been filed since none
are, nor are being, registered under Section 12 of the Securities Exchange Act
of 1934 and the total amount of securities authorized under any such instruments
does not exceed 10% of the total assets of the registrant and its subsidiaries
on a consolidated basis.

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 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-5
<PAGE> 69

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 amendment to the
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 31st 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 amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the 31st day of October, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>

/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 Principal Accounting Officer)
Paul G. Sebetic

/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

*By: /s/ TIMOTHY J. ROACH
- ---------------------------------------------
Timothy J. Roach,
Attorney-in-Fact
</TABLE>

II-6
<PAGE> 70

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
----- ------------------------------------------------------------- -----
<C> <C> <S> <C>
1x -- 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. Incorporated by reference to Exhibit
4(a)(1)(G) to Amendment to the Company's Annual Report on
Form 10-K for the fiscal year ended June 27, 1997 (File No.
1-8048).
</TABLE>

<PAGE> 71

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
----- ------------------------------------------------------------- -----
<C> <C> <S> <C>
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).
5++ -- Opinion of Parker, Chapin, Flattau & Klimpl, LLP as to the
legality of the Common Stock being offered and consent.
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).
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).
</TABLE>

<PAGE> 72

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
----- ------------------------------------------------------------- -----
<C> <C> <S> <C>
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. Incorporated by
reference to Exhibit 10(b)(2) to Amendment to the Company's
Annual Report on Form 10-K for the fiscal year ended June 27,
1997 (File No. 1-8048).
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 on 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)(A) -- 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)(1)(B)* -- Letter Agreement dated August 15, 1996 between Crown Tool &
Die Company, Inc. and Puerto Rico Industrial Development
Company.
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).
</TABLE>

<PAGE> 73

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
----- ------------------------------------------------------------- -----
<C> <C> <S> <C>
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)
24x -- Powers of Attorney of certain officers and directors of the
registrant.
</TABLE>

- ---------------

<TABLE>
<S> <C>
* Filed herewith.
+ Management contract or arrangement
++ To be filed by amendment.
x Previously filed with the initial filing of this Registration Statement.
</TABLE>

<PAGE> 1
EXHIBIT 10(d)(1)(B)

GOBIERNO DE PUERTO RICO
ADMINISTRACION DE FOMENTO ECONOMICO
COMPANIA DE FOMENTO INDUSTRIAL

335 Ave. F.D. Roosevelt Telefono (787) 758-4747
San Juan, Puerto Rico 00918 Facsimil (787) 250-1999

August 15, 1996

Mr. John S. Marshall
Vicepresident
Crown Tool and Die Corp.
P.O. Box 433
Toa Alta, Puerto Rico 00954

Dear Mr. Marshall:

We refer to your request, on behalf of Crown Tool and Die Corp., for an
authorization to enter our Project No. T-1231-0-77 of 22,561 square feet,
located in Toa Alta, Puerto Rico, (hereinafter referred to as the "Property")
for improvements, installation of machinery and equipment, for light
manufacturing and warehousing purposes. Please be advised that we hereby grant
such Permit to Enter and authorize our Conservation Office to deliver to Crown
Tool and Die Corp. the above mentioned Property, under the following terms and
conditions:

1. This Permit to Enter to the Property shall be effective on the date of the
delivery of the Property and for a period of three (3) months. This term can be
extended upon mutual agreement between the parties herein.

2. Rent - $2.75 per square foot per annum, payable in advance in equal monthly
installments, commencing on the first day of the month following the
commencement of the term hereof. Tenant shall pay rent for an area of 18,961 sq.
ft. due to a 3,600 sq. ft. floor area which is actually damaged.

3. Insurance - During the term hereof, Crown Tool & Die, Corp. shall provide and
keep in force the insurance policies for the benefit of PRIDCO according to such
risks, terms and conditions as specified in Annex "A" of this Permit to Enter.
The words Tenant, Landlord and Lease Contract include in said Annex "A" are
hereby substituted for Crown Tool & Die Corp., PRIDCO and Permit to Enter,
respectively.

4. Use of the Property - The Property shall be delivered in its present
condition in coordination with PRIDCO's Conservation and Construction Office and
shall be used by Crown Tool and Die Corp. and its affiliates for improvements,
installation of machinery and equipment, for light manufacturing and warehousing
purposes. Crown Tool and Die Corp. cannot assign this Permit to
<PAGE> 2
CROWN TOOL & DIE CORP.
PAGE 2

Enter, nor lease or sublease the Property, in whole or in part to any private
entity or government agency, without the previous written consent of PRIDCO.

5. Maintenance - During the term of this Permit Crown Tool and Die Corp. shall
keep and maintain the Property in thorough repair, good order and in safe
condition and return it to PRIDCO in the same condition as same was delivered to
Crown Tool & Die Corp. broom-clean, in good order and safe condition, reasonable
wear and tear (except to the extent of insurance proceeds which may be retained
by PRIDCO) and for damage from fire or other insured against casualty, excepted.

Any damages to the Property covered by this Permit to Enter shall be repaired at
your own cost and expense except for damages to the 3,600 sq. ft. area referred
to in article 2, above. Crown Tool and Die Corp. acknowledges having been
informed by PRIDCO that the maximum floor load capacity is 150 pounds per square
foot. Therefore storage shall not exceed such maximum capacity. Notwithstanding,
PRIDCO will repair any cracks caused by the existing structural floor damage in
the Property, if any occurs.

6. Crown Tool and Die Corp. shall indemnify and hold harmless PRIDCO from any
and against all suits, claims and demands of every kind and nature resulting or
related to the use of the Property.

7. Crown Tool and Die Corp., shall make no alterations, additions or
improvements to the Property (except those outlined in the layout drawing
attached as exhibit B hereto) without the prior written consent of PRIDCO, which
consent shall not be unreasonably withheld or delayed.

8. PRIDCO reserves the right to inspect the Property during the term of this
Permit and to cancel the same with a previous notification to Crown Tool & Die,
Corp. of thirty (30) days.

9. Crown Tool and Die Corp. agrees and undertakes to take such steps and install
such equipment as may be necessary to prevent any hazard or noise which may be
created by its activities that may in any way or manner unduly affect the
operations of other industries. Therefore, Crown Tool and Die Corp. hereby
releases and saves harmless PRIDCO from any and all claims or demands arising
therefrom or in connection therewith.

10. If required by PRIDCO, Crown Tool and Die Corp. shall furnish to PRIDCO a
Resolution from its Board of Directors, authorizing or ratifying this Permit to
Enter and evidence of its registration in the Department of State of the Common
wealth of Puerto Rico and the name and address of its resident agent.

11. Crown Tool and Die Corp. agrees and undertakes to abide by and comply with
any permits, rules, regulations and/or requisites of the Planning Board of
Puerto Rico, the Health Department, the

-2-
<PAGE> 3
CROWN TOOL & DIE CORP.
PAGE 3

Environmental Protection Agency, the Aqueduct and Sewer Authority, the Fire
Department, the Permits and Regulations Administration or any other Agency,
whether local or federal, having jurisdiction thereon, applicable to the
intended use of the Property and if requested by PRIDCO shall submit evidence of
such compliances, it being agreed and understood that noncompliance to any and
all of such permits, rules, regulations or requirement shall be deemed an event
of default under the provisions of this Permit to Enter.

12. Tenant agrees that this Permit to Enter to the Property is entered into by
and between the parties herein in consideration and in connection that Crown
Tool and Die Corp. is in the process of executing a long term lease contact
covering the Property, project T-0149-0-52 and a parking lot to be constructed.
That contract will authorize Crown Tool and Die to sublease any part of the
Property to its affiliate TII Industries, Inc. or to any other affiliate. The
term of the long-term lease shall be ten (10) years and the rent shall be
computed as follows except that rent for project T-0149-0-52 for the period
after 10/31/94 shall be invoiced to TII Industries on a month to month basis at
an annual rent of $2.20 per sq. ft:

<TABLE>
<CAPTION>
Year Rent per square foot per annum
---- ------------------------------
<S> <C>
1 $2.75
2 $2.95
3 $3.20
4 $3.45
5 $3.60
6-10 $4.10
</TABLE>

Said long term lease contract is actually subject to the endorsements or
approvals of PRIDCO's Planning and Environmental Offices the Aqueduct and Sewer
Authority, the Planning Board of Puerto Rico, the Permits and Regulations Office
(ARPE) and of the Administrator of the Economic Development Administration.

13. PRIDCO will lease to Crown Tool and Die Corp. A parking area to be
constructed by PRIDCO on Lot 1B for at least 186 parking spaces at a monthly
rental rate of $600.00 commencing on the first day of the month following the
date of delivery of said parking area.

-3-
<PAGE> 4
CROWN TOOL & DIE CORP.
PAGE 4

If in agreement, please have the enclosed copy of this Permit to Enter to the
Property signed by an authorized officer of your company, and return same to our
attention at your earliest convenience.
The temporary lease contract of June 27, 1996 is null and void.

Cordially,

JosueAcquino
Acting, Vicepresident of Finance

ACCEPTED BY:________________________

DATE:________________________________

S.S.P. #:_______________________________

-4-
<PAGE> 5
ANNEX "A"

INSURANCE: Pursuant to the foregoing, Tenant shall maintain, during the
term of this LEASE CONTRACT, at its own cost and expense a Comprehensive General
Liability Policy. Said Policy shall: (i) be for a combined single limit of no
less than $500,000.00; (ii) hold Landlord harmless against any and all liability
as hereinafter stated, "Tenant shall indemnify, save harmless and defend
Landlord and agents, servants and employees of Landlord against and from any and
all liability, fines, suits, claims, demands, expenses, including attorney's
fees, and actions of any kind or nature arising by reason of injury to person or
property including the loss of use resulting thereof or, violation of law
occurring in the Premises caused in whole or in part by any negligent act or
omission on the part of Tenant or an employee (whether or not acting within the
scope of his employment), servant, agent, licensee, visitor, assignor or
undertenant of Tenant, or by any negligent use or occupancy of the Premises or
any breach, violation non-performance of any covenant in this LEASE CONTRACT on
the part of Tenant to be observed of performed. "This indemnity agreement has to
be quoted verbatim in an endorsement and made a part of the Comprehensive
General Liability Policy." Landlord may require additional reasonable limits of
public liability insurance and coverage, when changing circumstances so require.

PROPERTY INSURANCE: Tenant recognize that the rent provided for herein
does not include any element to indemnify, repair, replace or make whole Tenant,
his employees, servants, agents, licenses, visitors, assignees, or undertenant
for any loss or damage to any property or injury to any person in the Premises.

Accordingly, during the term of this LEASE CONTRACT, Tenant shall keep the
building standing upon the Premises at the commencement of the term hereof or
thereafter erected upon the Premises, including all equipment appurtenant to the
Premises and all alterations, changes, additions and improvements, insured for
the benefit of Landlord and Tenant, as their respective interest may appear, in
an amount at least equal to the percentages stated below (as Landlord may from
to time determine). The basis of the Property Insurance shall be Replacement
Cost and the coverage an "All Risks" Property Insurance Policy. Coverage
included in the All Risks Form:

1. Fire - "Building & Contents Form"
a. Building - 100% of insurable value exclusive of Foundations.
b. Contents - All equipment appurtenant to the Premises (State
Value on Policy)

2. Additional Coverage under the Fire Policy.
a. Extended Coverage Endorsement - 100% of insurable value
exclusive of foundations.
b. Earthquake - 100% of insurable value including foundations.
c. Vandalism and Malicious Mischief Endorsement.

-1-
<PAGE> 6
PAGE 2

d. Improvements and Betterment's - For all alteration, changes,
additions and improvements.

3. Landslide and Floor whenever applicable and/or necessary and if
available on commercially reasonable terms.

4. Boiler and Machinery (if any) - 100% of insurable value.

5. Pollution Liability Policy - if necessary.

ADDITIONAL PROVISIONS ABOUT INSURANCE: All the insurance policies herein
required from Tenant, shall be obtained in form and substance acceptable to
Landlord with insurance companies duly authorized to do business in Puerto Rico,
having an "A" and a higher financial rating according to Best's Insurance
Report; and shall include Landlord as additional insured. Tenant shall instruct
the corresponding insurer to deliver such policies or certified copies of
Certificates of Insurance, in lieu of, directly to Landlord. Landlord reserves
the right no to deliver possession of the Premises to Tenant, unless, and until
two (2) days after such original policies, or certified copies or certificates
have been deposited with Landlord.

Furthermore, said policies, shall: (i) provide that they may not be
canceled by the insurer for nonpayment or otherwise, until at least thirty (30)
days after service of notice by registered or certified mail of the proposed
cancellation upon Landlord, and (ii) be promptly renewed by Tenant upon
expiration and Tenant shall, within thirty (30) days after such renewal, deliver
to Landlord adequate evidence of the payment of premiums thereon. If such
premiums or any of them shall not be so paid, Landlord may procure the same in
the manner set forth for governmental agencies, and Tenant shall reimburse
Landlord any amount so paid. This reimbursement being due and payable with the
next installment of rent. In the event that Tenant fails to make this payment
when due, it shall be subject to the following provisions:

a. LATE PAYMENTS AND PAYMENT BY LANDLORD: In the event that (i) Tenant
makes late payment; or fails to make payments to Landlord, in whole or in part,
of the rent, or of the additional rent, or of any of the other payments of money
required to be paid by Landlord within ten (10) days following receipt by Tenant
of written or personal notice from Landlord that such amount was not received,
when and as due and payable; or if (ii) Landlord, without assuming any
obligation to do so, after any notice or grace period provided hereunder,
performs or causes to be performed, by Tenant, and fails to refund Landlord any
amounts of money paid or incurred by Landlord in performing or causing the
performance of such acts of obligations, when and as due and payable, Tenant
undertakes and agrees to pay Landlord as additional rent, interest on such late
paid or unpaid rents, and/or on such other payments of money required to be
paid, and/or on any such amounts of money required to be refunded, from and
after the date when payment thereof matures or becomes due and payable, until
full payment, at the rate of twelve per cent (12%) per annum, or

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if such 12% interest, is unlawful, then and in such event, at the highest
maximum prevailing rate of interest on commercial unsecured loans as fixed by
the Board of Regulatory Rates of Interest and Financial Charges, created under
Law #1, approved on October 12, 1973 (10 LPRA 998), as amended, or by any
successor statute or regulation thereof.

b. In the event that Tenant fails to make reimbursements on due premiums
already paid by Landlord, it shall be considered an event of default under this
LEASE CONTRACT and shall be subject to the provisions stated in "A" above. It is
expressly agreed and understood, that payment by Landlord of any such premiums
shall not be deemed to waive or release the default in the payment thereof by
Tenant nor the right of Landlord to take such action as may be available
hereunder as in the case of default in the payment of rent.

Tenant shall not breach nor permit to be breached any of the conditions or
provisions of any of said policies, and Tenant shall so perform and satisfy the
requirements of the companies of good standing and acceptable to Landlord shall
be willing to write and such insurance.

Tenant shall cooperate with Landlord in connection with the collection of
any insurance moneys that may be due in the event of loss and shall execute and
deliver to Landlord such proofs of loss and other instruments that may be
required for the purpose of facilitating the recovery of any such insurance
moneys, and in the event that Tenant shall fail or neglect so to cooperate or to
execute, acknowledge and deliver any such instrument, Landlord, in addition to
any other remedies, may as the agent or attorney-in fact of Tenant, execute and
deliver any proof of loss or any other instruments as may seem desirable to
Landlord and any mortgage for the collection of such insurance moneys.

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Exhibit 23.A

[Arthur Andersen LLP Letterhead]

October 31, 1997

Mr. Paul G. Sebetic
Chief Financial Officer
TII Industries, Inc.
1385 Alcron Street
Copiague, New York 11726-2996

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
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