<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 27, 1997
Commission file number 1-8048
TII INDUSTRIES, INC.
(Exact Name of registrant as specified in its charter)
State of incorporation: DELAWARE I.R.S. Employer Identification
No. 66-0328885
1385 AKRON STREET, COPIAGUE, NEW YORK 11726
(516) 789-5000
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.01 par value
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant outstanding as
of September 12, 1997 held by non-affiliates of the registrant was approximately
$53,000,000. While such market value excludes the market value of shares which
may be deemed beneficially owned by executive officers and directors, this
should not be construed as indicating that all such persons are affiliates.
The number of shares of the Common Stock of the registrant outstanding as of
September 12, 1997 was 7,513,640.
<PAGE> 2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME POSITIONS
<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>
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(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
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<PAGE> 3
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.
Dare P. Johnston, 56, has been Vice President - Fiber Optic Operations
since December 1993. Ms. Johnston joined the Company in September 1993 with the
Company's acquisition of TII-Ditel, Inc., a designer, manufacturer and supplier
of fiber optic products. Prior to joining the Company, Ms. Johnston served in
various capacities with TII-Ditel, Inc. since January 1989, serving as President
since September 1990. Prior to joining Ditel, Inc., Ms. Johnston was employed by
NCNB National Bank of North Carolina since 1973, where she served as Senior Vice
President since October 1983. Ms. Johnston holds a Bachelor of Arts degree in
English from Duke University.
James A. Roach, 44, has served the Company in various capacities since
January 1982, serving as Vice President-Marketing and Sales since July 1987.
Dorothy Roach, 74, has been Secretary of the Company for more than the
past five years, served as Treasurer of the Company for more than five years
prior to relinquishing that position in December 1993 and, except for a brief
period, has been a director of the Company since 1964.
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<PAGE> 4
James R. Grover, Jr., 78, has been a director of the Company since
1978. Mr. Grover has been engaged in the private practice of law in the State of
New York since 1974, and has been General Counsel to the Company for more than
the past five years.
Dr. Joseph C. Hogan, 75, has been a director of the Company since
January 1974. Dr. Hogan served as Dean of the College of Engineering of the
University of Notre Dame from 1967 to 1981, following which he performed various
services for the University of Notre Dame until 1985, where he remains Dean
Emeritus. From 1985 until his retirement in 1987, Dr. Hogan was a Director of
Engineering Research and Resource Development at Georgia Institute of
Technology. He is past President of the American Society of Engineering
Education. Dr. Hogan is also a director of ABS.
William G. Sharwell, 75, has been as a director of the Company since
October 1995. Mr. Sharwell was President of Pace University in New York from
1984 until his retirement in 1990. He was Senior Vice President of American
Telephone & Telegraph Company (now AT&T Corporation) between 1976 and 1984, and
previously served as executive Vice President of Operations of New York
Telephone Company (now Bell Atlantic Corporation). Mr. Sharwell serves as an
independent general partner of Equitable Capital Partners, L.P. and Equitable
Capital Partners (Retirement Fund), L.P., registered investment companies under
the Investment Company Act of 1940. He is also a director of ABS.
Alfred J. Roach and Dorothy Roach are married. Timothy J. Roach is
their son and James R. Roach is their nephew. There are no other family
relationships among the Company's directors and executive officers.
The Company's Board of Directors presently consists of seven directors
divided into three classes. C. Bruce Barksdale, Dr. Joseph C. Hogan and William
G. Sharwell serve as Class I directors, James R. Grover, Jr. and Dorothy Roach
serve as Class II directors and Alfred J. Roach and Timothy J. Roach serve as
Class III directors. The term of office of Class III directors continues until
the Company's 1997 Annual Meeting of Stockholders scheduled to be held in
December 1997, the term of office of Class I directors continues until the next
succeeding annual meeting of stockholders and the term of office of Class II
directors continues until the second succeeding annual meeting of stockholders,
and in each case until their respective successors are elected and qualified. At
each annual meeting directors are chosen to succeed those in the class whose
term expires at that meeting.
Officers hold office until their successors are chosen and qualified.
Any officer elected or appointed by the Board of Directors may be removed at any
time by the Board.
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ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the Company's three fiscal years
ended June 27, 1997, information concerning the compensation paid by the Company
to Timothy J. Roach who served as the Company's Chief Executive Officer, and
each of the four other most highly compensated persons who were serving as
executive officers of the Company, at the end of the Company's fiscal year ended
June 27, 1997 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
SECURITIES
NAME AND ANNUAL COMPENSATION UNDERLYING ALL OTHER
----------------------------------------------
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
- ------------------ ---- ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
Timothy J. Roach............... 1997 $ 193,985 $ 6,976 50,000 $ 7,521(1)
Chief Executive Officer 1996 171,618 -- -- 7,586
1995 143,677 -- 200,000 7,282
Alfred J. Roach................ 1997 $ 150,000 $ 200(2) 50,000 --
Chairman of the Board 1996 150,000 200(2) -- --
1995 150,000 200(2) 200,000 --
Dare P. Johnston............... 1997 $ 129,825 $ 4,017 -- --
Vice President - 1996 120,779 -- 10,000 --
Fiber Optics Operations 1995 107,692 77,071 20,000 --
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>
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(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.
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<PAGE> 6
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
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION OPTION TERM
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ---- -------- ------------- ------- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Alfred J. Roach.......... 50,000 13% $4.50 7/24/06 $141,501 $358,592
Timothy J. Roach......... 50,000 13% 4.50 7/24/06 141,501 358,592
Paul G. Sebetic.......... 15,000 4% 4.50 7/24/06 42,450 107,578
10,000 3% 5.25 10/22/06 33,017 83,671
</TABLE>
Each option was granted at an exercise price equal to the market value
of the Company's Common Stock on the date of grant and is exercisable during a
ten year term (subject to early termination in certain instances) with respect
to 20% of the number of shares subject to the option in each annual period, on a
cumulative basis, commencing one year after the date of grant.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
No options were exercised by any of the Named Executive Officers during
the Company's fiscal year ended June 27, 1997. The following table contains
information with respect to the fiscal year-end value of unexercised options
held by the executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK
UNDERLYING UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY
JUNE 27, 1997 OPTIONS AT JUNE 27, 1997
---------------------------------------------- ----------------------------------------
NAME EXERCISABLE UNEXERCISABLE (1) EXERCISABLE UNEXERCISABLE (1)
- ---- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Alfred J. Roach 120,360 170,000 $201,170 $167,500
Timothy J. Roach 120,000 170,000 175,000 167,500
Dare P. Johnston 30,000 20,000 9,000 13,500
James A. Roach 25,000 20,000 22,600 13,500
Paul G. Sebetic - 25,000 - 23,750
</TABLE>
- ----------------
(1) Represents the closing price of the underlying Common Stock at fiscal
year-end minus the option exercise price.
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<PAGE> 7
REMUNERATION OF DIRECTORS
Non-employee directors receive a fee of $1,000 for each meeting of the
Board held and members of Committees of the Board receive a fee of $500 for
attending each meeting of the Committee of the Board on which such director
serves. Non-employee directors are also granted options to purchase 10,000
shares of the Company's Common Stock under the Company's 1994 Non-Employee
Director Stock Option Plan at the time such person becomes a non-employee
director and immediately following each annual meeting of stockholders at which
directors are elected. Each option granted is exercisable for period of ten
years subject to earlier termination at specified times following a non-employee
director's cessation of service) at an exercise price equal to 100% of the fair
market value on the date of grant of the shares subject thereto.
EMPLOYMENT AGREEMENTS
The Company and Timothy J. Roach are parties to an Amended and Restated
Employment Agreement, effective as of August 1, 1997, pursuant to which Mr.
Roach is to serve as the Company's President, Chief Executive Officer and Chief
Operating Officer. The Agreement provides for a five-year term presently ending
July 31, 2002, with automatic one-year extensions on each July 31 during the
term unless either party gives notice of termination at least 90 days prior to
such July 31 that the term of the Agreement is not to be extended. Under the
Agreement, Mr. Roach is presently entitled to an annual salary of $250,000 per
year, subject to increases and bonuses at the discretion of the Board of
Directors. In addition, the Agreement requires the Company to provide Mr. Roach
(whose principal place of business is the Company's executive offices in
Copiague, New York) with an allowance to reimburse him for the cost of
maintaining a place of abode in Puerto Rico, where the Company maintains its
principal manufacturing facilities, not to exceed 20% of his then salary and to
continue to maintain insurance benefits provided Mr. Roach at levels and terms
no less favorable than are currently in effect. Mr. Roach has agreed, among
other things, not to disclose confidential information of the Company and not to
directly or indirectly engage, during the term of the agreement and for two
years thereafter, in any activity which is competitive with the Company's
business. In consideration for such covenant, Mr. Roach is to receive, for each
year during the two-year period following termination of his employment, an
amount equal to his highest salary rate in effect at any time during the
one-year period preceding the date of such termination unless Mr. Roach's
employment is terminated by reason of his death, voluntary termination other
than for "good reason" (in general, adverse changes in his powers, duties,
position or compensation or certain changes in the location where his duties are
to be performed) or disability, as defined, for cause, as defined, and he is not
capable of providing day-to-day services to a competitor. In the event of
termination of employment by reason of death or disability, as defined, Mr.
Roach or his beneficiary is entitled to receive a continuation of his
compensation for a period of one year and two years, respectively. In the event
Mr. Roach terminates his employment "for good reason", the Company will also be
required to pay him a sum equal to three times the amount of his highest annual
salary and highest bonus, for the current, or two preceding fiscal years,
subject to reduction, as to any amount that would constitute a "parachute
payment" under the Code to the maximum amount that would not
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<PAGE> 8
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
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<PAGE> 9
Mr. Grover for services rendered to the Company during the Company's fiscal year
ended June 27, 1997 were $30,000.
STOCK OPTION PLANS
The Company currently maintains a 1995 Stock Option Plan (the "1995
Plan"), which enables the Company to grant options to purchase Common Stock to
employees of, and consultants to, the Company and its present and future
subsidiaries and a 1994 Non-Employee Director Stock Option Plan (the
"Non-Employee Director Plan"), which provides for the automatic grant of options
to nonemployee directors at the time a person becomes a non-employee director
and immediately following each annual meeting of stockholders at which directors
are elected. See "-Renumeration of Directors." Options to purchase
974,661 shares of Common Stock also remain outstanding under the Company's 1983
Stock Option Incentive Plan and 1986 Stock Option Plan, each of which have
terminated except with respect to outstanding options thereunder.
After giving effect to option exercises to date, the 1995 Plan
presently enables the Company to grant options to purchase 494,800 shares of
Common Stock, of which options to purchase 382,300 shares are presently subject
to outstanding options. The Company intends to seek stockholder approval of an
amendment to the 1995 Plan to increase the number of shares of Common Stock
subject thereto by 500,000 shares. The 1995 Plan permits the grant of either
"incentive stock options" which are designed to qualify for the favorable tax
treatment afforded under Section 422A of the Code ("ISOs") or non-qualified
stock options ("NQSOs"). Options granted to consultants may only be granted as
NQSOs. The exercise price of an option granted under the 1995 Plan cannot be
less than the fair market value of the Common Stock on the date of grant (except
that, in the case of ISOs granted to an employee who possesses more than 10% of
all classes of stock of the Company, the option exercise price may not be less
than 110% of such fair market value). The 1995 Plan is presently administered by
the Company's Compensation Committee which, among other things, is empowered (as
is the full Board of Directors) to determine, within the limits of the 1995
Plan, which employees and consultants are to be granted options, whether an
option granted is to be an ISO or a NQSO, the number of shares of Common Stock
to be subject to each option, the exercise price of each option, the term of
each option (which may not exceed ten years, except that the term of an option
granted to an employee who possesses more than 10% of all classes of stock of
the Company may not exceed five years), the dates at which and terms under which
an option may be exercised, whether to accelerate the date or the event for
exercise of any option and the form of payment of the exercise price and any
withholding taxes.
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<PAGE> 10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information, as of September 30, 1997,
with respect to the beneficial ownership of Common Stock by (i) each person
(including any "group", as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) known by the Company to own more than 5% of the
outstanding shares of Common Stock; (ii) each director of the Company; (iii)
each Named Executive Officer; and (iv) all executive officers and directors of
the Company as a group. The Company understands that, except as noted below,
each beneficial owner has sole voting and investment power with respect to all
shares attributable to such owner.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
---------------- --------- ------
<S> <C> <C>
Alfred J. Roach.................................. 893,600(2) 11.6%
Dorothy Roach.................................... 60,704(3) *
Timothy J. Roach................................. 651,013(4) 8.4%
Overseas Private Investment
Corporation.................................... 400,000(5) 5.0%
C. Bruce Barksdale............................... 28,998(6) *
James R. Grover, Jr.............................. 35,600(7) *
Joseph C. Hogan.................................. 34,330(8) *
William G. Sharwell.............................. 35,000(9) *
Dare P. Johnston ................................ 34,000(10) *
James A. Roach................................... 39,488(11) *
Paul G. Sebetic ................................. 7,000(12) *
All executive officers and
directors as a group
(11 persons)..................................... 1,863,733(13) 23.0%
</TABLE>
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(1) Asterisk indicates that the percentage is less than one percent.
Percent of Class assumes the issuance of the Common Stock issuable upon
the exercise of options or conversion of indebtedness (to the extent
exercisable or convertible on or within 60 days after September 30,
1997) held by such persons or entity but (except for the calculation of
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<PAGE> 11
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 8,960 shares subject to options held under the Company's 1986
Stock Option Plan. Excludes the shares owned by Mrs. Roach's husband,
Alfred J. Roach, reflected above in this table, as to which shares Mrs.
Roach disclaims beneficial ownership. Mrs. Roach's address is Route
2-Kennedy Avenue, Guaynabo, Puerto Rico 00657.
(4) Includes 968 shares owned by Mr. Roach's wife (who has sole voting and
dispositive power with respect to the shares owned by her and as to
which Mr. Roach disclaims beneficial ownership); and 150,000 shares
subject to options held under the Company's 1986 and 1995 Stock Option
Plans. Mr. Roach's address is c/o the Company, 1385 Akron Street,
Copiague, NY 11726.
(5) Represents 300,000 shares issuable upon conversion of $750,000 of
indebtedness and 100,000 shares issuable upon the exercise of an
option. Overseas Private Investment Corporation's address is 1615 M
Street, N.W., Washington, DC 20527.
(6) Includes 78 shares owned by Mr. Barksdale's children and 21,000 shares
subject to options held under the Company's 1983 Employee Incentive
Stock Option Plan and 1986 Stock Option Plan.
(7) Includes 25,000 shares subject to options held under the Company's 1994
Non-Employee Director Option Plan.
(8) Includes 34,250 shares subject to options held under the Company's 1986
Stock Option Plan and 1994 NonEmployee Director Stock Option Plan.
(9) Represents 35,000 shares subject to options held under the Company's
1986 Stock Option Plan and 1994 NonEmployee Director Option Plan.
(10) Represents 34,000 shares subject to options held under the Company's
1986 Stock Option Plan.
(11) Includes 1,000 shares owned by Mr. Roach's wife (who has sole voting
and dispositive power with respect to the shares owned by her and as to
which Mr. Roach disclaims beneficial ownership) and 31,000 shares
subject to options held under the Company's 1986 Stock Option Plan.
(12) Includes 5,000 shares subject to options held under the Company's 1995
Stock Option Plan.
(13) Includes 533,570 shares subject to options.
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<PAGE> 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who
beneficially own more than 10% of the Company's Common Stock, to timely file
initial statements of stock ownership and statements of changes of beneficial
ownership with the Securities and Exchange Commission and furnish copies of
those statements to the Company. Based solely on a review of the copies of the
statements furnished to the Company to date, or written representations that no
statements were required, the Company believes that all statements required to
be filed by such persons with respect to the Company's fiscal year ended June
27, 1997 were timely filed, except that Joseph C. Hogan was late in reporting
the exercise of a stock option covering 500 shares of Common Stock.
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<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT
ON FORM 8-K
(a) Exhibits, Financial Statements and Schedule
1. Financial Statements
See Index to Consolidated Financial Statements on page F-1.
2. Financial Statement Schedules
The following consolidated financial statement schedule is
filed herewith;
Page Number
Report of Independent Public Accountants............. S-1
Schedule II - Valuation and Qualifying Accounts...... S-2
Information required by other schedules called for by Regulation S-X is
either not applicable or the information required therein is included in the
financial statements or notes thereto
3. Exhibits
Exhibit Number Description
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).
-13-
<PAGE> 14
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)x Fifth Amendment and Waiver dated as of
September 23, 1997 to the Revolving Credit
Agreement among International, the Company
and the Bank. Incorporated by reference to
Exhibit 4(a)(1)(F) to the Company's Annual
Report is Form 10-K for the fiscal year
ended June 27, 1997 (File No. 1-8048).
4(a)(1)(G)*
Sixth Amendment and Waiver dated as of
October 17, 1997 to the Revolving Credit
Agreement among International, the Company
and the Bank.
4(a)(2) Joint and Several Guaranty of Payment dated
January 31, 1995 executed in favor of the
Bank by the Company and TII Industries NC,
Inc., TII Dominicana, Inc., TII Electronics,
Inc.(since dissolved), Ditel, Inc.(now
TII-Ditel, Inc.), TII Corporation and
Telecommunications Industries, Inc., direct
or indirect subsidiaries of the Company.
Incorporated by reference to Exhibit 4.1(b)
to the Company's Current Report on Form 8-K
dated January 31, 1995 (date of earliest
event reported) (File No. 1-8048).
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<PAGE> 15
4(a)(3) Pledge Agreement dated January 31, 1995
between International and the Bank.
Incorporated by reference to Exhibit 4.1(c)
to the Company's Current Report on Form 8-K
dated January 31, 1995 (date of earliest
event reported) (File No. 1-8048).
4(a)(4) Security Agreement dated January 31, 1995
between the Company and the Bank.
Incorporated by reference to Exhibit 4.1(d)
to the Company's Current Report on Form 8-K
dated January 31, 1995 (date of earliest
event reported) (File No. 1-8048).
4(a)(5) Assignment of Accounts Receivable Agreement
dated January 31, 1995 executed by the
Company in favor of the Bank. Incorporated
by reference to Exhibit 4.1(e) to the
Company's Current Report on Form 8-K dated
January 31, 1995 (date of earliest event
reported) (File No. 1-8048).
4(a)(6) Stock Pledge Agreement dated January 31,
1995 between the Company and the Bank.
Incorporated by reference to Exhibit 4.1(f)
to the Company's Current Report on Form 8-K
dated January 31, 1995 (date of earliest
event reported) (File No. 1-8048).
4(a)(7) Security Agreement dated January 31, 1995
between Ditel, Inc.(now TII-Ditel, Inc.), an
indirect subsidiary of the Company, and the
Bank. Incorporated by reference to Exhibit
4.1(g) to the Company's Current Report on
Form 8-K dated January 31, 1995 (date of
earliest event reported) (File No. 1-8048).
10(a)(1)+ 1983 Employee Incentive Stock Option Plan of
the Company, as amended. Incorporated by
reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended September 27, 1996 (File No.
1-8048).
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.
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<PAGE> 16
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)+x Amended and Restated Employment Agreement
dated as of August 1, 1997 between the
Company and Timothy J Roach. Incorporated by
reference to Exhibit 10(b)(1)+ to the
Company's Annual Report is Form 10-K for the
fiscal year ended June 27, 1997 (File No. 1-
8048).
10(b)(2)+* Amended and Restated Employment Agreement
dated as of May 1, 1997 between the Company
and Paul G. Sebetic.
10(b)(3)(A)+x Employment Agreement dated September 23,
1993 between the Company and Dare P.
Johnston. Incorporated by reference to
Exhibit 10(b)(3)(A)+ to the Company's Annual
Report is Form 10- K for the fiscal year
ended June 27, 1997 (File No. 1-8048).
10(b)(3)(B)+x 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
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<PAGE> 17
PRC. Incorporated by reference to Exhibit
4(d) to Amendment No. 2 to the Schedule 13D
filed by Alfred J. Roach (File No. 1-8048).
10(d)(1) Lease Contract dated December 15, 1989
between the Company and Puerto Rico
Industrial Development Company. Incorporated
by reference to Exhibit 10(c)(1) to the
Company's Annual Report on Form 10-K for the
fiscal year ended June 29, 1990 (File No. 1-
8048).
10(d)(2) Consolidated Contract of Lease Renewal and
Construction dated February 1, 1994 between
TII Dominicana, Inc., a subsidiary of the
Company, and The Industrial Development
Corporation of the Dominican Republic.
Incorporated by reference to Exhibit
10(g)(2) to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30,
1995 (File No. 1-8048).
11 x 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 x 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 x Consent of Arthur Andersen LLP
27 x Financial data schedule (file electronically
only).
- ----------
* Filed herewith.
+ Management Contract or arrangement
x Previously filed with original filing of this Report
(b) Report on Form 8-K
No Reports on Form 8-K were filed during the last quarter of the year
ended June 27, 1997.
-17-
<PAGE> 18
UNDERTAKING
The undersigned 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 and Exchange
Act of 1934 and the total amount of securities authorized under any of such
instruments does not exceed 10% of the total assets of the Registrant and its
subsidiaries on a consolidated basis.
-18-
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TII INDUSTRIES, INC.
(Registrant)
October 24, 1997 By /s/ Paul G. Sebetic
------------------------
Paul G. Sebetic,
Vice President-Finance and
Chief Financial Officer
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<PAGE> 20
EXHIBIT INDEX
Exhibit No. Description
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.
10(b)(2) Amended and Restated Employment Agreement dated as
of May 1, 1997 between the Company and Paul G.
Sebetic.
<PAGE> 1
Exhibit 4(a)(1)(G)
SIXTH AMENDMENT AND WAIVER dated as of
October 17, 1997 to the Revolving Credit
Loan Agreement dated January 31, 1995 (the
"Agreement"), as amended by the First
Amendment dated as of August 3, 1995, the
Second Amendment and Waiver dated as of
November 10, 1995, Amendment of Revolving
Credit Loan Agreement dated December 27,
1995, the Fourth Amendment and Waiver dated
as of May 2, 1997, and the Fifth Amendment
and Waiver dated as of September 23, 1997
(the Agreement together with each of the
amendments, the "Loan Agreement") among TII
International, Inc., a Delaware Corporation
with offices at 1385 Akron Street, Copiague,
New York 11726 (the "Borrower"), TII
Industries, Inc., a Delaware corporation
with offices at 1385 Akron Street, Copiague,
New York 11726 ("Industries") and The Chase
Manhattan Bank (f/k/a Chemical Bank), a New
York State Banking corporation with offices
at 395 North Service Road, Suite 302,
Melville, New York 11747 (the "Bank") and to
the Master Lease Purchase Agreement Number
00009, dated January 12, 1998, as amended by
a letter dated February 1, 1996 (the "Lease
Agreement") by and between the Borrower and
Chase Equipment Leasing, Inc. (f/k/a
ChemLease Worldwide, Inc.) ("Leasing").
Capitalized terms used but not otherwise
defined herein shall have the meanings set
forth in the Loan Agreement.
WHEREAS, the Lease Agreement provides that the financial covenants
contained in any credit facility provided by the Bank to the Borrower shall
apply to the Lease Agreement as continuing covenants; and
WHEREAS, the Borrower and Industries have requested and the Bank and
Leasing have each agreed, subject to the terms and conditions of this Sixth
Amendment and Waiver, to amend and waive compliance with certain provisions of
the Loan Agreement and the Lease Agreement (by incorporation) to reflect
requests made by the Borrower to the Bank and Leasing in the manner hereafter
set forth;
NOW, THEREFORE, In consideration of the premises and of other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Waiver of and Amendment to Article 7, Negative Covenant, Section 7.16.
Compliance with Section 7.16 of the Loan Agreement is hereby waived for
the Fiscal Quarter ending September 26, 1997, provided that the
Consolidated Net Loss during such Fiscal Quarter does not exceed Five
Hundred Thousand and No/100 Dollars ($500,000).
-20-
<PAGE> 2
The Borrower, Industries and the Subsidiaries will be permitted to
Incur (i) a Consolidated Net Loss for fiscal Quarter ending December
26, 1997 provided that such loss for such Fiscal Quarter does not
exceed Five Hundred Thousand and No/100 Dollars ($500,000) and (ii) a
Consolidated Net Loss (excluding extraordinary gains) for four Fiscal
Quarters in the four Fiscal Quarter period ending March 27, 1998; and
two Fiscal Quarters in the four Fiscal Quarter period ending June 26,
1998.
2. Waiver of and Amendment to Article 7, Negative Covenants. Section 7.17
Debt Service Ratio.
Compliance with Section 7.17 of the Loan Agreement is hereby waived for
the Fiscal Quarter ending September 26, 1997 to permit the Debt Service Ratio of
Industries and its subsidiaries to be no less than -0.6 to 1 for such Fiscal
Quarter. The Borrower, Industries and the Subsidiaries will be permitted to have
a Debt Service Ratio of not less than (i) -0.7 to 1 for the Fiscal Quarter
ending December 26, 1997; (ii) -0.7 to 1 for the Fiscal Quarter ending March 27,
1998 and (iii) -0.1 to 1 for the Fiscal Quarter ending June 26, 1998.
3. Amendment to Article 8. Events of Default. Section 8.01(n).
Section 8.01(n) is hereby deleted in its entirety and replaced with the
following:
(n) (i) the Roach Family Member shall cease to own
7.5% of all voting stock in Industries, or (ii)
Timothy J. Roach shall cease to actively manage the
day-to-day operations of the Borrower and the
Guarantors;
4. Amendment to Article 6. Affirmative Covenants applicable to the Loans.
Article 6. Of the Loan Agreement is hereby amended by the addition of
the following section:
Section 6.16. Equity Offering. Borrower, Industries
and the Subsidiaries agrees that in the event that
Borrower, Industries and/or the Subsidiaries complete
one or more equity offering (whether private or
public or a combination thereof) in an amount equal
to or greater than $3,500,000 in the aggregate
(collectively, the "Equity Offering") the Bank and
the Borrower, Industries and the Subsidiaries will
agree to a modification of the existing negative
covenants contained in Article 7 of this Loan
Agreement to reflect the equity raised as a result of
the Equity Offering, provided that if no agreement is
reached within 45 days following completion of the
Equity Offering, the Bank, in its sole discretion,
may terminate the commitment and declare all amounts
outstanding pursuant to this Loan Agreement, the Note
and the other Financing Documents to be immediately
due and payable. The Bank may require another such
modification for each Equity Offering that occurs
after such a modification.
-21-
<PAGE> 3
Expenditures
Section 7.09 shall be modified by adding the following language to the
end of the existing covenant:
except that during fiscal years ending June 26, 1998 and June
25, 1999, the Borrower, Industries and the Subsidiaries shall
be permitted to make capital expenditures (including capital
leases) for property, plant, machinery and equipment in an
amount not to exceed $10,000,000 in the aggregate during such
Fiscal Years, provided that (i) the capital expenditures
incurred during Fiscal Year ending June 26, 1998 shall not
exceed $6,000,000 and (ii) the Equity Offering is completed by
December 26, 1997, and raises gross proceeds (before
discounts, commissions and expenses) of at least $7,000,000.
THIS SIXTH AMENDMENT AND WAIVER shall be construed and enforced in
accordance with the laws of the State of New York.
Except as expressly amended or waived hereby, the Loan Agreement and
the Lease Agreement shall remain in full force and affect in accordance with the
original terms thereof. This Sixth Amendment and Waiver herein is limited
specifically to the matters set forth above and does not constitute directly or
by implication a waiver or amendment of any other provision of the Loan
Agreement or the Lease Agreement or any breach, default or Event of Default
which may occur or may have occurred under the Loan Agreement or the Lease
Agreement.
The Borrower and Industries hereby represent and warrant that, after
giving effect to this Sixth Amendment and Waiver, no Event of Default or
defaults exists under the Loan Agreement, the Lease Agreement or any other
related documents.
THIS SIXTH AMENDMENT AND WAIVER may be executed in any number of
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute but one Sixth Amendment and Waiver.
THIS SIXTH AMENDMENT AND WAIVER shall become effective when duly
executed counterparts hereof which, when taken together bear the signatures of
each of the parties hereto shall have been delivered to the Bank and Leasing.
IN WITNESS WHEREOF, the Borrower, Industries, the Bank and Leasing have
caused
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<PAGE> 4
this Sixth Amendment and Waiver to be duly executed by their duly authorized
officers all as of the date and year first above written.
TII INTERNATIONAL, INC.
BY: /s/ Paul G. Sebetic
Paul G. Sebetic, Vice President
TII INDUSTRIES, INC.
BY: /s/ Paul G. Sebetic
Paul G. Sebetic, Vice President
THE CHASE MANHATTAN BANK
BY: /s/ Christopher G. Zimmerman
Christopher G. Zimmerman, Vice President
CHASE EQUIPMENT LEASING, INC.
BY: /s/ Raymond P. Masalitis
Raymond P. Masalitis, Vice President
-23-
<PAGE> 5
CONSENT
The undersigned, as Guarantors of the obligations of TII International,
Inc. Hereby Consent to the execution and delivery by TII International, Inc. and
TII Industries, Inc. of this Sixth Amendment and Waiver and hereby confirm that
they remain fully bound by the terms of the Joint and Several Guaranty of
Payment dated January 31, 1995 to which they are a party.
TII INTERNATIONAL, INC.
BY: /s/ Paul G. Sebetic
Paul G. Sebetic, Vice President
TII INDUSTRIES, INC.
BY: /s/ Paul G. Sebetic
Paul G. Sebetic, Vice President
TII DITEL, INC.
BY: /s/ Paul G. Sebetic
Paul G. Sebetic, Vice President
TII CORPORATION
BY: /s/ Paul G. Sebetic
Paul G. Sebetic, Vice President
-24-
<PAGE> 6
TELECOMMUNICATIONS INDUSTRIES, INC.
BY: /s/ Paul G. Sebetic
Paul G. Sebetic, Vice President
TII DOMINICANA, INC.
BY: /s/ Paul G. Sebetic
Paul G. Sebetic, Vice President
-25-
<PAGE> 1
Exhibit 10(b)(2)
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 1st day of May, 1997 by and between TII
INDUSTRIES, INC., a Delaware corporation, having a place of business at 1385
Akron Street, Copiague, New York 11726 (hereinafter designated and referred to
as "Company"), and Paul G. Sebetic residing at 59 Highland Avenue, Sea Cliff, NY
11579 (hereinafter designated and referred to as "Employee" or ["him"] ["her"]).
WHEREAS, Company desires to continue to employ the Employee as Vice
President, Finance of the Company; and
WHEREAS, the Employee is willing to continue such employment by the
Company, all in accordance with provisions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained the parties hereto agree as follows:
1. Term: The term of this Agreement shall be for a period of three (3)
years commencing May 1, 1997 and automatically terminating on April 30,
2000, subject to earlier termination as provided herein or unless
extended by mutual consent of both parties in writing sixty (60) days
prior to the end of the term of this Agreement or any extension
thereof, but nothing herein shall require the Company or Employee to
agree to any specific term or condition or to any continuation of
Employee's employment beyond the end of the term of this Agreement.
2. Employment: Subject to the terms and conditions and for the
compensation hereinafter set forth, the Company employs the Employee
for and during the term of this Agreement.
-26-
<PAGE> 2
Employee is hereby employed by the Company as Vice President, Finance.
The Employee does hereby accept such employment and agrees to use [his]
[her] best efforts and to devote all normal business time, during the
term of this Agreement, to the performance of [his] [her] duties
faithfully, diligently and to the best of [his] [her] abilities upon
the conditions hereinafter set forth. Employee shall report to the
President or his designee. Employee's primary place of work shall be on
Long Island, New York and Employee agrees to spend such time, from time
to time, at the Company's other facilities and to visit customers, and
vendors, and various industry associations as required to fulfill [his]
[her] duties and responsibilities as contemplated herein.
3. Compensation: During the term of this Agreement, the Company agrees to
pay Employee, and Employee agrees to accept, annual salary of One
Hundred, Ten Thousand dollars ($110,000.00) payable every two weeks,
less all applicable taxes, for all services rendered by Employee
hereunder. Employee's annual salary shall be reviewed at the end of
each year of employment hereunder and shall receive an increase of up
to 10% per year but not less than the percentage of increase of the
Local Component of the National Consumer Index issued by the United
States Department of Labor unless financial factors of the Company deem
otherwise as determined by the President. In addition, Employee shall
be eligible to participate in the Company's Executive Bonus Plan should
the Company adopt one.
4. Expenses:
a. The Company shall reimburse Employee, not less often than
monthly, for all reasonable and actual business expenses
incurred by [him] [her] in connection with [his] [her] service
to the Company, upon submission of appropriate vouchers and
expense account reports.
-27-
<PAGE> 3
b. The Company shall provide the Employee with an allowance to
reimburse him for the cost of maintaining a place of abode in
the Commonwealth of Puerto Rico, in the amount of Six Thousand
Dollars ($6,000.00) per year. Company acknowledges that
Employee is a resident of the State of New York and that
Employee shall not be required to change his residence.
Company and Employee both acknowledge that the discharge of
the Employee's duties will require his presence in the
Commonwealth of Puerto Rico from time to time.
5. Company Car: The Company shall provide Employee with a Company car for
Employee's use for business purposes in accordance with standard
Company guidelines. This car shall be insured and registered with the
Motor Vehicle Department by the Company. Employee is responsible for
proper maintenance, gasoline, traffic violation fines, etc. Repairs for
other than routine maintenance shall be the responsibility of the
Company.
6. Benefits: The Company shall provide medical and dental insurance and
such other benefits, in accordance with the applicable Company benefit
plans, as such plans may exist from time to time. The Employee shall be
entitled to annual vacation in accordance with the Company's policy.
7. Extent of Service: The Employee during the term of this Agreement shall
devote [his] [her] full normal business time, attention and energy and
render [his] [her] best efforts and skill to the business of the
Company.
8. Restrictive Covenant:
a. Employee acknowledges that: (I) the business in which the
Company is engaged is intensely competitive and that [his]
[her] employment by the Company will require that [she] [he]
have access to and knowledge of confidential information of
the
-28-
<PAGE> 4
Company, including , but not limited to, certain of the
Company's confidential plans for the creation, acquisition or
disposition of products, expansion plans, product development
plans, methods of pricing, special customer requirements for
service, information on methods of servicing the customer,
operational information such as formulas, financial status,
and plans and personnel information, which are of vital
importance to the success of the Company's business, and are
"trade secrets" of the Company; (ii) the direct or indirect
disclosure of any such confidential information to existing or
potential competitors of the Company would place the Company
at a competitive disadvantage and would cause damage,
financial and otherwise, to the Company's business; and (iii)
by [his] [her] training, experience and expertise, some of
[his] [her] services to the Company will be special and
unique.
Employee understands and agrees that such trade secrets give
or may give the Company a significant competitive advantage. Employee further
recognizes that the success of the Company depends on keeping confidential both
the trade secrets already developed or to be acquired and any future
developments of trade secrets. Employee understands that in [his] [her] capacity
with the Company [he] [she] will be entrusted with knowledge of such trade
secrets and, in recognition of the importance thereof and in consideration of
[his] [her] employment by the Company hereunder, agrees that [he] [she] will
not, without the consent of the President in writing, make any disclosure of
trade secrets now or hereafter possessed by the Company to any person,
partnership, corporation or entity either during or after the term hereunder,
except to such employees of the Company or its subsidiaries or affiliates, if
any, as may be necessary in the regular course of business and except as may be
required pursuant to any court order, judgment or decision form any court of
competent
-29-
<PAGE> 5
jurisdiction. The provisions of this Section 8[A] shall continue in full force
and effect notwithstanding any termination of this Agreement.
b. Employee agrees that during the term of [his] [her] employment
with the Company and for a period of two years thereafter [he]
[she] will not directly or indirectly become affiliated as an
officer, director, employee or consultant or as a substantial
security holder with any other company or entity whose
business is directly or indirectly competitive with any
business then being planned or conducted by the Company or its
divisions and subsidiaries. For the purpose hereof,
"substantial security holder" shall mean ownership, directly
or indirectly, of more than 3% of any class of securities of a
company or partnership interest in any partnership or
indebtedness of any such entity in excess of $25,000. The
provisions of this Section 8[B] shall continue in full force
and effect notwithstanding any termination of this Agreement.
9. Discoveries, etc.:
a. The Company shall be the owner, without further compensation,
of all rights of every kind in and with respect to any
reports, materials, inventions, processes, discoveries,
improvements, modifications, know-how or trade secrets
hereafter made, prepared, invented, discovered, acquired,
suggested or reduced to practice (hereinafter designated and
referred to as "Property Rights") by Employee in connection
with Employee's performance of [his] [her] duties pursuant to
this Agreement, and the Company shall be entitled to utilize
and dispose of such in such manner as it may determine.
-30-
<PAGE> 6
b. The Employee agrees to and shall promptly disclose to the
President or his designee all Property Rights (whether or not
patentable) made, discovered or conceived of by [him] [her],
alone or with others, at any time during [his] [her]
employment with the Company, whether on the Company's or [his]
[her] own time and irrespective of whether on or off the
Company's premises, provided only that such Property Rights
(1) relate to or are useful in any phase of the business in
which the Company may be engaged during the period of
employment, or (2) relate to any subject matter or problems
within the scope of Employee's employment, or (3) relate to or
involve the use of any data or information of which the
Employee has been or may become informed by reason of
employment with the Company. The Employee hereby appoints the
Company as Employee's attorney-in-fact to execute in
accordance with the laws of any country patent applications,
assignments or other documents considered necessary or
desirable by the Company. Any such Property Rights will be the
sole and exclusive property of the Company, and Employee will
execute any assignments requested by the Company of [his]
[her] right, title or interest in any such Property Rights
without further demand or consideration, and, in addition, the
Employee will also provide the Company with any other
instruments or documents requested by the Company, at the
Company's expense, as may be necessary or desirable in
applying for and obtaining patents with respect thereto in the
United States and all foreign countries. The Employee also
agrees to cooperate with the Company in the prosecution or
defense of any patent claims or litigation or proceedings
involving inventions, trade secrets, trademarks, service
marks, secret processes, discoveries or improvements, during
[his] [her] employment by the
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<PAGE> 7
Company. Employee's cooperation after [his] [her] employment
is subject to [his] [her] availability and the Company agrees
to reimburse Employee for loss of income and expenses incurred
in connection therewith. Said cooperation shall not be
withheld by Employee.
10. Confidential Information: Employee recognizes and acknowledges that the
Company, through the expenditure of considerable time and money, will
acquire, has developed and will continue to develop in the future,
information, skills, confidential information, know-how, formulae,
technical expertise and methods relating to or forming part of the
Company's services and products and conduct of its business, and that
the same are confidential and proprietary, and are "trade secrets" of
the Company. Employee understands and agrees that such trade secrets
give or may give the Company a significant competitive advantage.
Employee further recognizes that the success of the Company depends on
keeping confidential both the trade secrets already developed or to be
acquired and any future developments of trade secrets. Employee
understands that in [his] [her] capacity with the Company [he] [she]
will be entrusted with knowledge of such trade secrets and, in
recognition of the importance thereof and in consideration of [his]
[her] employment by the Company hereunder, agrees that [he] [she] will
not, without the consent of the President in writing, make any
disclosure of trade secrets now or hereafter possessed by the Company
to any person, partnership, corporation or entity either during or
after the term hereunder, except to such employees of the Company or
its subsidiaries or affiliates, if any, as may be necessary in the
regular course of business and except as may be required pursuant to
any court order, judgment or decision from any court of competent
jurisdiction. The provisions of this Section shall continue in full
force and effect notwithstanding any termination of the Agreement.
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11. Irreparable Harm: Employee agrees that any breach or threatened breach
by Employee of provisions set forth in Section Eight (8), Nine (9), and
Ten (10) of this Agreement, would cause the Company irreparable harm
and the Company may obtain injunctive relief against such actual or
threatened conduct and without the necessity of a bond.
12. Return of Company Property: Employee agrees that following the
termination of [his] [her] employment for any reason, [he] [she] shall
return all property of the Company which is then in or thereafter comes
into [his] [her] possession, including, but not limited to, documents,
contracts, agreements, plans, photographs, customer lists, books,
notes, electronically stored data and all copies of the foregoing as
well as any other materials or equipment supplied by the Company to the
Employee.
13. Termination:
a. Death: In the event of the Employee's death during the term of
[his] [her] employment, this Agreement shall automatically
terminate on the date of death, and Employee's estate shall be
entitled to payment of Employee's salary until date of death.
All other benefits and compensation described herein shall
terminate on the date of death unless otherwise stipulated in
the applicable Company plan.
b. Disability: In the event the Employee, by reason of physical
or mental incapacity, shall be disabled for a period of at
least two (2) consecutive months or three (3) months in the
aggregate in any twelve (12) month period of this Agreement or
any extension hereof, the Company shall have the option at any
time thereafter to terminate Employee's employment and to
terminate this Agreement. Such termination to be effective ten
(10) days after the Company gives written notice of such
termination to the Employee, and all obligations of the
Company hereunder shall
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cease upon the date of such termination unless otherwise
stipulated in the appropriate Company plan. "Incapacity" as
used herein shall mean the inability of the Employee to
perform [his] [her] normal duties.
c. Company's Rights to Terminate This Agreement:
i. The Company shall have the right, before the
expiration of the term of this Agreement and during
any extension hereof, to terminate this Agreement and
to discharge Employee for cause (hereinafter
"Cause"), and all compensation to Employee shall
cease to accrue upon discharge of the Employee for
Cause. For the purposes of this Agreement, the term
"Cause" shall mean the Employee's (I) violation of
the Company's written policy or specific written
directions of the President or his designee, and/or
Board of Directors, which directions are consistent
with normally acceptable business practices or the
failure to observe, or the failure or refusal to
perform any obligations required to be performed in
accordance with this Agreement, (ii) if the President
determines that Employee has committed a demonstrable
act (or omission) of malfeasance seriously
detrimental to the Company (which shall not include
any exercise of business judgment in good faith).
ii. If the Company elects to terminate Employee's
employment for Cause, the Company shall first give
Employee written notice and a period of ten (10) days
to cure such Cause, and if such Cause is not cured in
said ten (10 ) days, such termination shall be
effective five (5) days after the Company gives
written notice of such failure to cure to the
Employee. In the event of a termination of the
Employee's employment for Cause in accordance with
the
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provisions of Section 11[C][b], the Company shall
have no further obligation to the Employee, except
for the payment of salary through the date of such
termination from employment.
iii. Notwithstanding anything in this Agreement to the
contrary, the Company may terminate the Employee's
employment for reasons other than Cause.
d. Employee's Right to Terminate This Agreement:
i. If the Company elects to reduce in rank or authority
the Employee's duties under this Agreement, without
the mutual agreement of the Employee, the Employee
shall first give Company written notice and a period
of ten (10) days to cure same, and if same is not
cured in said ten (10) days Employee may terminate
this Agreement effective five (5) days after the
Employee gives written notice of such failure to
cure.
e. Severance: In the event the Employee's employment hereunder
shall be terminated by the Company for other than Cause, death
or disability, or by the Employee pursuant to Section 13 [D]
hereof, (1) the Employee shall thereupon receive as severance
pay in a lump sum the amount of Compensation pursuant to
Section 3 hereof and bonuses which the Employee would have
received for the remaining term of this Agreement (including
any extension of the Agreement mutually agreed upon by the
parties), provided, however, that in no event shall such lump
sum payment be less than six months compensation and bonus;
and (2) the Employee's (and [his] [her]) dependents')
participation in any medical, dental and other insurance plans
shall be continued, or equivalent benefits provided to [him]
[her] or them by the Company, at no cost to [him] [her] or
them, for a period of one year from the termination; and
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(3) any options granted to the Employee which have not, by the
terms of the options, vested, shall be deemed to have vested
at the termination of employment, and shall thereafter be
exercisable for the maximum period of time allowed for
exercise thereof under the terms of the applicable Company
stock option plan(s), provided that such period shall not be
less than 90 days following such termination. An election by
the Employee to terminate [his] [her] employment under the
provisions of Section 13[D] shall not be deemed a voluntary
termination of employment of the Employee for the purpose of
interrupting the provisions of any of the Company's employee
benefits plans, programs or policies.
14. Waiver: Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any other
breach or default hereof.
15. Governing Law: The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws
of the State of New York, and this Agreement and its provisions shall
be construed according to the laws of the State of New York, without
reference to its choice of law rules.
16. Notice: Any notice required to be given pursuant to the provisions of
this Agreement shall be in writing and by facsimile or registered or
certified mail or equivalent (i.e., Federal Express) and mailed to the
following addresses:
Company: TII Industries, Inc.
1385 Akron Street
Copiague, New York 11726
Attention: Timothy J. Roach
President
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<PAGE> 12
Employee: Paul G. Sebetic
59 Highland Ave.
Sea Cliff, NY 11579
17. Assignment: The Employee's assignment of this Agreement or any interest
herein, or any monies due or to become due by reason of the terms
hereof, without the prior written consent of the Company shall be void.
This Agreement shall be assignable and binding to a corporation or
other business entity that succeeds to all or substantially all of the
business of the Company through merger, consolidation, corporate
reorganization or by acquisition of all or substantially all of the
assets of the Company and which assumes Company's obligations under
this Agreement.
18. Miscellaneous: This Agreement contains the entire understanding between
the parties hereto and supersedes all other oral and written agreements
or understandings between them. No modification or addition hereto or
waiver or cancellation of any provision shall be valid except by a
writing signed by the party to be charged therewith.
19. Obligations of a Continuing Nature: It is expressly understood and
agreed that the covenants, agreements and restrictions undertaken by or
imposed on either party hereunder, which are stated to exist or
continue after termination of Employee's employment with the Company,
shall exist and continue on both parties irrespective of the method or
circumstances of such termination from employment or termination of
this Agreement.
20. Severability: Employee agrees that if any of the covenants, agreements
or restrictions on the part of Employee are held to be invalid by any
court of competent jurisdiction, such holding will not invalidate any
of the other covenants, agreements and/or restrictions herein contained
and such invalid provisions shall be severable so that the invalidity
of any such provision shall
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<PAGE> 13
not invalidate nay others. Moreover, if any one or more of the
provisions contained in this Agreement shall be held to be excessively
broad as to duration, activity or subject, such provisions shall be
construed by limiting and reducing them so as to be enforceable to the
maximum extent allowed by applicable law.
21. Representation: Employee represents and warrants that [he] [she] has
the legal right to enter into this Agreement and to perform all of the
duties and obligations on [his] [her] part to be performed hereunder in
accordance with its terms and that [she] [he] is not a party to any
agreement or understanding, written or oral, which prevents Employee
from entering into this Agreement or performing all of [his] [her]
duties and obligations hereunder. In the event of a breach of such
representation or warranty on [his] [her] part or if there is any other
legal impediment which prevents [him] [her] from entering into this
Agreement or performing all of [his] [her] duties and obligations
hereunder, the Company shall have the right to terminate this Agreement
in accordance with Section 13[C] [a]. Without limiting the foregoing,
Employee represents and warrants that [he] [she] is not a party to any
agreement which prohibits or limits [his] [her] ability to fulfill
[his] [her] duties and responsibilities contemplated herein.
22. Descriptive Headings: The paragraph headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
TII INDUSTRIES, INC.
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<PAGE> 14
By: /s/ Timothy J. Roach
Timothy J. Roach
President, CEO and
Vice Chairman of the Board
Employee:
/s/ Paul G. Sebetic
Paul G. Sebetic
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