SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 26, 1997
Commission file number 1-8048
TII INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
State of incorporation: DELAWARE IRS Employer Identification No: 66-0328885
1385 Akron Street, Copiague, New York 11726
(Address and zip code of principal executive office)
(516) 789-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of January 30, 1998 was 7,607,414.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 26, June 27,
1997 1997
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,212 $ 247
Marketable securities available for sale -- 3,552
Receivables 6,194 7,388
Inventories 18,394 15,574
Prepaid expenses 670 402
-------- --------
Total current assets 26,470 27,163
-------- --------
Fixed Assets
Property, plant and equipment 40,524 37,812
Less: Accumulated depreciation and amortization (24,603) (23,768)
-------- --------
Net fixed assets 15,921 14,044
-------- --------
Other Assets 1,636 1,616
-------- --------
TOTAL ASSETS $ 44,027 $ 42,823
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt and obligation under capital leases $ 662 $ 537
Accounts payable 7,596 5,833
Accrued liabilities 1,917 1,138
-------- --------
Total current liabilities 10,175 7,508
-------- --------
Long-Term Debt 830 839
Long-Term Obligation Under Capital Leases 1,873 1,465
-------- --------
2,703 2,304
-------- --------
Stockholders' Investment
Preferred Stock, par value $1.00 per share; 1,000,000 authorized
and issuable in series -- --
Common Stock, par value $.01 per share; 30,000,000 shares
authorized; 7,618,776 and 7,448,473 shares issued at
December 26, 1997 and June 27, 1997, respectively 76 75
Warrants outstanding 159 159
Capital in excess of par value 29,848 29,052
Retained earnings 1,347 3,999
Valuation adjustment to record marketable securities
available for sale at fair value -- 7
-------- --------
31,430 33,292
Less-Treasury stock, at cost; 17,637 common shares (281) (281)
-------- --------
Total stockholders' investment 31,149 33,011
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 44,027 $ 42,823
======== ========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December December
26, 1997 27, 1996 26, 1997 27, 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 10,103 $ 12,957 $ 23,606 $ 24,997
Cost of sales 9,610 9,604 20,663 18,460
-------- -------- -------- --------
Gross profit 493 3,353 2,943 6,537
-------- -------- -------- --------
Operating expenses
Selling, general and administrative 2,115 1,721 3,969 3,355
Research and development 792 776 1,568 1,520
-------- -------- -------- --------
Total operating expenses 2,907 2,497 5,537 4,875
-------- -------- -------- --------
Operating (loss) income (2,414) 856 (2,594) 1,662
Interest expense (53) (49) (107) (169)
Interest income 30 162 89 270
Other expense (55) (6) (40) 0
-------- -------- -------- --------
(Loss) Income before provision
for income taxes (2,492) 963 (2,652) 1,763
Provision for income taxes 0 58 0 106
-------- -------- -------- --------
Net (loss) income $ (2,492) $ 905 $ (2,652) $ 1,657
======== ======== ======== ========
Net (loss) income per share:
Basic ($ 0.33) $ 0.12 ($ 0.35) $ 0.22
======== ======== ======== ========
Diluted ($ 0.33) $ 0.12 ($ 0.35) $ 0.21
======== ======== ======== ========
Weighted average shares outstanding:
Basic 7,595 7,430 7,535 7,430
======== ======== ======== ========
Diluted 7,595 8,177 7,535 8,143
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS INVESTMENT
FOR THE SIX MONTHS ENDED DECEMBER 26, 1997 (unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Valuation
Adjustment
to record
Marketable
Capital securities
in excess available for
Common Warrants of par Retained sale at Treasury
Stock Outstanding value Earnings fair value Stock
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 27, 1997 $ 75 $ 159 $29,052 $ 3,999 $ 7 $ (281)
Exercise of stock options 1 -- 796 -- -- --
Unrealized loss on marketable securities
available for sale -- -- -- -- (7) --
Net loss for the six months
ended December 26, 1997 -- -- -- (2,652) -- --
------- ------- ------- ------- ------- -------
BALANCE, December 26, 1997 $ 76 $ 159 $29,848 $ 1,347 $ -- $ (281)
======= ======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 26, 1997 AND DECEMBER 27, 1996 (UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(2,652) $ 1,657
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 835 839
Provision for inventory reserve, net 199 199
Amortization of other assets, net 118 25
Changes in assets and liabilities
Decrease in receivables 1,194 613
Increase in inventories (3,019) (4,889)
Increase in prepaid expenses and other assets (413) (181)
Increase in accounts payable and accrued liabilities 2,542 3,494
------- -------
Net cash (used in)provided by operating activities (1,196) 1,757
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,983) (1,944)
Purchases of marketable securities (2,108) (6,263)
Sales and maturities of marketable securities 5,660 5,289
------- -------
Net cash provided by (used in) investing activities 1,569 (2,918)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options and warrants 797 6
Payment of long-term debt and obligations under capital leases (205) (186)
------- -------
Net cash provided by (used in) financing activities 592 (180)
------- -------
Net increase (decrease) in cash and cash equivalents 965 (1,341)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 247 2,883
------- -------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 1,212 $ 1,542
======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Capital leases entered into $ 729 $ 97
======= =======
Cash paid during the period for:
Income taxes $ 112 $ 42
======= =======
Interest $ 106 $ 122
======= =======
</TABLE>
See notes to consolidated financial statements
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<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements presented herein have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Regulation S-X
pertaining to interim financial statements. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements reflect all
adjustments, consisting of normal recurring adjustments and accruals which, in
the opinion of management, are considered necessary for a fair presentation of
the Company's consolidated financial position at December 26, 1997 and results
of operations and cash flows for the six months ended December 26, 1997 and
December 27, 1996. The financial statements should be read in conjunction with
the summary of significant accounting policies and notes to consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended June 27, 1997. The results of operations for the six months ended
December 26, 1997 are not necessarily indicative of the results that may be
expected for the full year ending June 26, 1998.
NOTE 2 - NET INCOME (LOSS) PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") requires the replacement of previously reported primary and fully diluted
earnings per share required by Accounting Principal Board Opinion No. 15 with
basic earnings per share and diluted earnings per share commencing with periods
ending after December 15, 1997. The calculation of basic earnings per share
excludes any dilutive effect of stock options, while diluted earnings per share
includes the dilutive effect of stock options. Per share amounts for the quarter
and six months ended December 27, 1996 have been restated to conform to the
requirements of SFAS 128.
NOTE 3 - INVENTORIES
Inventories, net of allowances, consisted of the following components:
December 26, June 27,
1997 1997
----------- -----------
Raw material $ 7,573,000 $ 4,996,000
Work in process 8,116,000 4,584,000
Finished goods 2,705,000 5,994,000
----------- -----------
$18,394,000 $15,574,000
=========== ===========
See notes to consolidated financial statements
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The following discussion and analysis should be read in conjunction with the
foregoing consolidated financial statements and notes thereto.
Overview
- --------
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 has been a leading supplier of
overvoltage surge protectors, primarily to U.S. telephone operating companies
("Telcos") for over 25 years.
To meet its customers' needs, the Company has introduced a line of broadband
NIDS with features and functionality that the Company believes were instrumental
in its recently winning two major contracts in July and September 1997. For
strategic purposes, the Company accepted orders under one of these contracts
which it believed it could fulfill under an aggressive delivery time schedule
that mandated it to seek to accelerate production.
During the second quarter and first half of fiscal 1998, the Company experienced
significant losses as a result of additional manufacturing costs incurred in
gearing up toward the accelerated production of its new broadband NID product
line for this contract, compounded, in the second quarter, principally by
production disruptions as the Company sought to meet its customers' requested
delivery schedules. These disruptions were primarily caused by the failure of
certain vendors to, in turn, meet the Company's delivery requirements for
required molds and inventory components, production breakdowns which produced
significant delays and yield losses during the initial production process and
delays in completing the training of permanent employees for both the Company's
Puerto Rico and Dominican Republic facilities, as well as temporary
manufacturing employees hired at its Puerto Rico facilities to meet the
accelerated production schedule.
The Company resolved most of the production issues toward the end of the second
quarter and expects increased sales and reduced expenses, with improved gross
profit margins, during the balance of the fiscal year. The Company has initially
based its new Chief Operating Officer at its Puerto Rico facilities in order to
assist in completing the process.
The Company also expects that, with some modifications, which should result in
some, but minimal, disruption, it will be able to gear up effectively for sales
of products in its new broadband NID product line to the second new customer,
production for which is expected to begin during the latter part of the third or
fourth quarter of fiscal 1998.
Results of Operations
- ---------------------
Net sales for the second quarter of fiscal 1998 decreased by $2.9 million or
22.0% from $13.0 million for the second quarter of fiscal 1997 to $10.1 million
for the second quarter of fiscal 1998. As discussed above, the decline in sales
in the second quarter resulted primarily from the production delays encountered
by the Company. Sales were also effected, to a lesser extent, by reduced sales
of station protectors which the Company believes was part of customer inventory
reductions and normal purchase volume fluctuations. Net sales for the six months
ended December 26, 1997 were $1.4 million or 6.6% lower than for the comparable
period in fiscal 1997 (declining from $25.0 million to $23.6 million). This
decrease was caused by the effects of the lower sales in the second quarter
offset, in part, by a $1.5 million sales increase in the first quarter of fiscal
1998. The Company believes that sales will be restored to more traditional
levels in the third quarter of fiscal 1998, ending March 27, 1998.
As a result of the production disruptions discussed above and increased
material, direct labor and freight costs, increased overtime, the hiring of
additional temporary workers, outsourcing of certain production functions,
product rework and higher manufacturing overhead incurred to meet customer's
desired delivery schedules, gross profit margins decreased in the second quarter
of fiscal 1998 to 4.9% of net sales from 25.9% of net sales for the second
quarter of fiscal 1997. These factors, coupled with start-up costs, as well as,
to a lesser extent, moving costs related to relocating production processes from
the Company's Puerto Rico facility to its lower cost Dominican Republic facility
incurred in the first quarter of fiscal 1998, were
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<PAGE>
the primary factors in the Company's gross profit margin for the first six
months of fiscal 1998 decreasing to 12.5% of net sales from 26.2% in the first
six months of fiscal 1997. As noted above, the Company expects its gross margins
to improve during the third and fourth quarters of fiscal 1998.
Selling, general and administrative expenses for the second quarter of fiscal
1998 increased by $397,000 (22.9%) to $2.1 million from $1.7 million for the
second quarter of fiscal 1997 and by $617,000 (18.4%) to $4.0 million from $3.4
million for the second quarter of fiscal 1997. The increases resulted primarily
from legal, accounting, printing and other expenses incurred in connection with
a withdrawn proposed public offering of common stock and, additionally, for the
six month period, additional personnel, promotion and other costs associated
with the Company's efforts in obtaining new sales contracts.
Research and development expenses increased by $16,000 (2.1%) to $792,000 in the
second quarter of fiscal 1998 over $776,000 for the comparable period in fiscal
1997 and by $48,000 (3.2%) to $1,568,000 in the first six months of fiscal 1998
compared to $1,520,000 in the first six months of fiscal 1997. These increases
were due primarily to a greater number of personnel employed in this area and
other costs associated with product development for the expansion of the
Company's broadband NID product line.
Interest expense for the second quarter of fiscal 1998 increased by $4,000 to
$53,000 from $49,000 in the second quarter of fiscal 1997 primarily as a result
of an increase in obligations under capital leases for machinery and equipment.
Interest expense for the first six months of fiscal 1998 was $62,000 lower than
in the first six months of fiscal 1997 (declining to $107,000 from $169,000),
which included amortization of debt origination costs that ceased during the
first quarter of fiscal 1997.
Interest income for the second quarter and first six months of fiscal 1998
decreased by $132,000 (to $30,000 from $162,000) and by $181,000 (to $89,000
from $270,000) from the respective comparable periods in fiscal 1997 due to a
reduced amount of funds available for investment.
As a result of the foregoing, the Company incurred a net loss of $2,492,000
($0.33 per share on a basic earnings per share basis) for the three months ended
December 26, 1997 compared to net income of $905,000 ($0.12 per share on a basic
earnings per share basis) for the three months ended December 27, 1996. For the
six months ended December 26, 1997, the Company experienced a loss of $2,652,000
($0.35 per share on a basic earnings per share basis) compared to net income of
$1,657,000 ($0.22 per share on a basic earnings per share basis).
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities decreased to $1.2
million at the end of the second quarter of fiscal 1998 from $3.8 million at the
end of fiscal 1997. Working capital decreased to $16.3 million at the end of the
second quarter of fiscal 1998 from $19.7 million at the end of fiscal 1997.
During the first six months of fiscal 1998, $1.2 million of cash was used by
operations. The Company's principal use of cash was to fund the Company's net
loss during the period ($1.5 million, net of non-cash depreciation and
amortization expenses of $953,000). This was offset, in part, by cash provided
by a net change in assets and liabilities of approximately $304,000, primarily
from an increase of $2.5 million in accounts payable and accrued liabilities and
a $1.2 million decrease in receivables, offset to a large degree by a $3.0
million increase in inventories. The increase in inventories was due to the
Company's purchase of significant amounts of raw materials to support its new
product launch. However, due to the production disruptions mentioned previously
in this Report, a large portion of this product was not sold during the first
half of fiscal 1998.
During the first six months of fiscal 1998, cash of $1.6 million was provided by
investing activities. Proceeds from sales and maturities of marketable
securities in excess of amounts reinvested generated $3.6 million of cash, of
which $1.9 million was used for capital expenditures, primarily purchases of
machinery, equipment, tools and dies and leasehold improvements. Additionally,
during the first six months of fiscal 1998, financing activities provided
$592,000 of cash, with $797,000 realized from the exercise of stock options and
warrants being partially offset by the payment of $205,000 of long-term debt and
obligations under capital leases.
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<PAGE>
As a result of the net loss for the second quarter of fiscal 1998, the Company
was not in compliance with the debt service ratio and net income covenants
contained in its Revolving Credit Agreement. There were no loan amounts
outstanding under the agreement and the Company received a waiver with respect
to such non-compliance. Following the end of the quarter, the Company entered
into an amendment to the Revolving Credit Agreement in order to, among other
things, (i) fix the availability of the loan facility at $1.5 million for the
remaining term of the facility (in lieu of $2.8 million in availability at
December 31, 1997, reducing by $400,000 at the end of each calendar quarter
thereafter), (ii) adjust the interest rate applicable to borrowings to the
bank's prime rate through February 28, 1998 and thereafter to the bank's prime
rate plus 1% per annum and (iii) amend or delete certain financial covenants.
On January 26, 1998, the Company completed a private placement (the "Private
Placement") of 5,000 shares of its newly-created Series C Convertible Preferred
Stock (the "Preferred Shares") and warrants to purchase an aggregate of 200,000
shares of the Company's Common Stock (the "Warrants") for an aggregate purchase
price of $5.0 million. The Company paid a placement agent fee of $250,000 in
connection therewith. The Preferred Shares (i) bear no dividends, (ii) have a
liquidation preference of $1,150 per share, (iii) may be converted into shares
of the Company's Common Stock by the holders thereof, commencing May 27, 1998
(subject to acceleration in certain cases), in any thirty-day period, up to
one-third of the number of Preferred Shares purchased, at a conversion price
(with the Preferred Shares valued at $1,000 per share) equal to approximately
$7.08 per share until July 25, 1998 and (iv) thereafter at a conversion price
equal to the lower of $7.08 or 95% of the average closing bid prices of the
Company's Common Stock during the ten consecutive trading days immediately prior
to conversion (such conversion prices being subject to adjustment if certain
events occur), (v) may be redeemed by the Company until May 26, 1998 at a
redemption price of $1,150 per Preferred Share and (vi) may be redeemed in
certain instances at the option of the holders thereof at a price equal to the
higher of $1,150 per Preferred Share or the then closing bid price of the
underlying shares of Common Stock. The Warrants are exercisable until July 25,
2001 at an exercise price equal to approximately $7.03 per share, subject to
adjustment in certain cases. The Company has also agreed to file, at the
Company's expense, a registration statement under the Securities Act of 1933, as
amended, covering the potential resale by the investors of the shares of Common
Stock issuable upon conversion of the Preferred Shares and exercise of the
Warrants. The Company has also agreed to permit, with certain exceptions, the
investors to join in other registration statements filed by the Company. The net
proceeds from the Private Placement are intended to be used to purchase
additional equipment and leasehold improvements to increase the Company's
manufacturing capacity to support the contracts discussed above and certain
other contracts and for working capital.
Funds anticipated to be generated from operations, together with the proceeds
from the Private Placement, and available cash and borrowings under the
Company's Revolving Credit Agreement, are considered to be adequate to finance
the Company's operational and capital needs over at least the next twelve
months.
Forward Looking Statements
- --------------------------
In order to keep the Company's stockholders and investors informed of the
Company's future plans, this Report contains (and, from time to time, other
reports and oral or written statements issued by the Company or on its behalf by
its officers may contain) forward-looking statements concerning, among other
things, the Company's future plans and objectives that are or may be deemed to
be "forward-looking statements." The Company's ability to do this has been
fostered by the Private Securities Litigation Reform Act of 1995 which provides
a "safe harbor" for forward-looking statements to encourage companies to provide
prospective information so long as those statements are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement. The
Company believes that it is in the best interests of its stockholders to take
advantage of the "safe harbor" provisions of that Act. Such forward-looking
statements are subject to a number of known and unknown risks and uncertainties
that could cause the Company's actual results, performance and achievements to
differ materially from those described or implied in the forward-looking
statements.
These include, but are not limited to, general economic and business conditions;
the Company's ability to fulfill its growth strategies; the Company's ability to
market its existing, recently developed and new products; potential changes in
customer spending and purchasing policies and practices; the risks inherent in
new product introductions, such as start-up delays which
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<PAGE>
could result in the loss of the contracts and uncertainty of customer acceptance
of deliveries; the Company's ability to realize upon its inventories; dependence
on third parties for certain product components and equipment; avoiding the
inherent risks of offshore manufacturing; the regulatory environment applicable
to the telecommunications industry; competition; potential technological changes
and changes in industry standards, including the Company's ability to timely
develop new products and adapt its existing products to technological changes;
the Company's ability to attract and retain technologically qualified personnel
and certain management; the renewal of the Company's lease for its manufacturing
facilities in Puerto Rico on satisfactory terms or finding replacement
facilities in Puerto Rico; the retention of the tax benefits provided by its
Puerto Rico and Dominican Republic operations; the Company's ability to protect
its proprietary rights; and the availability of financing on satisfactory terms
to support the Company's growth.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on January 21, 1998, the
Company's stockholders:
(a) Elected the following to serve as Class III directors of the
Company until the Company's Annual Meeting of Stockholders to be held in the
year 2000 and until their respective successors are elected and qualified, by
the following votes:
For Withheld
--------- ---------
Alfred J. Roach 6,319,982 230,025
Timothy J. Roach 6,323,506 226,501
(b) Approved an amendment to the Company's 1995 Stock Option Plan to
increase the number of shares of the Company's Common Stock which may be issued
thereunder from 500,000 to 1,250,000 shares, by the following vote:
For Against Abstain Non-Votes
--------- ------- ------- ---------
2,556,430 564,509 17,447 3,411,621
(c) Ratified the selection by the Board of Directors of Arthur
Andersen LLP as the Company's independent public accountants for the Company's
fiscal year ending June 26, 1998, by the following vote:
For Against Abstain
--------- ------- -------
6,507,470 25,836 16,701
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
No. Description
4.1 Certificate of Designation, as filed with the
Secretary of State of the State of Delaware on
January 26, 1998. Incorporated by reference to
Exhibit 4.1 to the Company's Current Report on
Form 8-K dated (date of earliest event reported)
January 26, 1998. (File No. 1-8048).
10.1 The Company's 1995 Stock Option Plan, as amended.
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10.2 Employment Agreement dated as of January 21, 1998
between the Company and James A. Roach.
11. Statement re: Computation of Per Share Earnings.
27. EDGAR Financial Data Schedule.
99.1 Form of Warrant issued to the investors in the
Company's January 26, 1998 private placement.
Incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated (date
of earliest event reported) January 26, 1998.
(File No. 1-8048).
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter for which this Report is
filed. However, following the end of the quarter, the Company filed the
following Reports on Form 8-K dated (date of earliest event reported): (i)
January 6, 1998 reporting under Item 5 - Other Events and Item 7 - Financial
Statements and Exhibits and (ii) January 28, 1998 reporting under Item 5 - Other
Events and Item 7 - Financial Statements and Exhibits.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TII INDUSTRIES, INC.
Date: February 6, 1998 /s/ Paul G. Sebetic
-----------------------------
Paul G. Sebetic
Vice President-Finance and
Chief Financial Officer
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1995 STOCK OPTION PLAN
of
TII INDUSTRIES, INC.
(as amended effective December 3, 1997)
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is designed to
provide an incentive to employees (including directors and officers who are
employees) and to consultants who are not employees of TII Industries, Inc., a
Delaware corporation (the "Company"), and its present and future subsidiary
corporations, as defined in Paragraph 19 ("Subsidiaries"), and to offer an
additional inducement in obtaining the services of such employees and
consultants. The Plan provides for the grant of "incentive stock options"
("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and nonqualified stock options which do not qualify as
ISOs ("NQSOs"), but the Company makes no representation or warranty, express or
implied, as to the qualification of any option as an "incentive stock option"
under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of common stock, $.01 par value per
share, of the Company ("Common Stock") for which options may be granted under
the Plan shall not exceed 1,250,000. Such shares of Common Stock may, in the
discretion of the Board of Directors of the Company (the "Board of Directors"),
consist either in whole or in part of authorized but unissued shares of Common
Stock or shares of Common Stock held in the treasury of the Company. Subject to
the provisions of Paragraph 13, any shares of Common Stock subject to an option
which for any reason expires, is canceled or is terminated unexercised or which
ceases for any reason to be exercisable shall again become available for the
granting of options under the Plan. The Company shall at all times during the
term of the Plan reserve and keep available such number of shares of Common
Stock as will be suf ficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Board of Directors of the Company (the "Board of Directors") which, to the
extent it shall determine, may delegate its powers with respect to the
administration of the Plan to a committee of the Board of Directors (the
"Committee") consisting of not less than two directors, each of whom shall be a
"non-employee director" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Securities Exchange Act of 1934, as amended
(as the same may be in effect and interpreted from time to time, "Rule 16b-3").
References in the Plan to determinations or actions by the Committee shall be
deemed to include determinations and actions by the Board of Directors. A
<PAGE>
majority of the members of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is
present, and any acts approved in writing by all members without a meeting,
shall be the acts of the Committee.
Subject to the express provisions of the Plan, the Committee shall have
the authority, in its sole discretion, to determine the employees and the
consultants who shall be granted options; the times when options shall be
granted; whether an option granted to an employee shall be an ISO or a NQSO; the
number of shares of Common Stock to be subject to each option; the term of each
option; the date each option shall become exercisable; whether an option shall
be exercisable in whole, in part or in installments and, if in installments, the
number of shares of Common Stock to be subject to each install ment, whether the
installments shall be cumulative, the date each installment shall become
exercisable and the term of each installment; whether to accelerate the date of
exercise of any option or installment; whether shares of Common Stock may be
issued upon the exercise of an option as partly paid and, if so, the dates when
future installments of the exercise price shall become due and the amounts of
such installments; the exercise price of each option; the form of payment of the
exercise price; the fair market value of a share of Common Stock; whether to
restrict the sale or other disposition of the shares of Common Stock acquired
upon the exercise of an option and, if so, whether to waive any such
restriction; whether to subject the exercise of all or any portion of an option
to the fulfillment of contingencies as specified in the contract referred to in
Paragraph 11 (the "Contract"), including without limitation, contingencies
relating to entering into a covenant not to compete with the Company, any of its
Subsidiaries or a Parent (as defined in Paragraph 19), to financial objectives
for the Company, any of its Subsidiaries or a Parent, a division of any of the
foregoing, a product line or other category, and/or the period of continued
employment of the optionee with the Company, any of its Subsidiaries or a
Parent, and to determine whether such contingencies have been met; the amount,
if any, necessary to satisfy the Company's obligation to withhold taxes or other
amounts; whether an optionee is Disabled (as defined in Paragraph 19); to
construe the respective Contracts and the Plan; with the consent of the
optionee, to cancel or modify an option, provided such modified provision would
be permitted to be included in an option on the date of modification, and
further, provided, that, in the case of a modification (within the meaning of
Section 424(h) of the Code) of an ISO, such option as modified would be
permitted to be granted on the date of such modification under the terms of the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; and to make all other determinations necessary or advisable for
administering the Plan. Any controversy or claim arising out of or relating to
the Plan, any option granted under the Plan or any Contract shall be determined
unilaterally by the Committee in its sole discretion. The determinations of the
Committee on the matters referred to in this Paragraph 3 shall be conclusive and
binding on the parties. No member or former member of the Committee shall be
liable for any action, failure to act or determination made in good faith with
respect to the Plan or any option hereunder.
4. ELIGIBILITY. The Committee may from time to time, in its sole
discretion, consistent with the purposes of the Plan, grant options to employees
(including officers and directors who are employees) of, and to consultants to,
the Company or any of its Subsidiaries. Such options granted shall cover such
number of shares of Common Stock as the Committee may determine in its
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<PAGE>
sole discretion; provided, however, that the maximum number of shares subject to
options that may be granted to any employee during any calendar year under the
Plan (the "162(m) Maximum") shall not exceed 100,000 shares; and further,
provided, that the aggregate market value (determined at the time the option is
granted in accordance with Paragraph 5) of the shares of Common Stock for which
any eligible employee may be granted ISOs under the Plan or any other plan of
the Company, or of a Parent or a Subsidiary of the Company, which are
exercisable for the first time by such optionee during any calendar year shall
not exceed $100,000. Such limitation shall be applied by taking ISOs into
account in the order in which they were granted. Any option (or the portion
thereof) granted in excess of such amount shall be treated as an NQSO.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Committee in its sole discretion;
provided, however, the exercise price of an ISO shall not be less than the fair
market value of the Common Stock subject to such option on the date of grant;
and further, provided, that if, at the time an ISO is granted, the optionee owns
(or is deemed to own under Section 424(d) of the Code) stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, of any of its Subsidiaries or of a Parent, the exercise price of such
ISO shall not be less than 110% of the fair market value of the Common Stock
subject to such ISO on the date of grant.
The fair market value of a share of Common Stock on any day shall be (a)
if the principal market for the Common Stock is a national securities exchange,
the average of the highest and lowest sales prices per share of Common Stock on
such day as reported by such exchange or on a composite tape reflecting
transactions on such exchange, (b) if the principal market for the Common Stock
is not a national securities exchange and the Common Stock is quoted on The
Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price information is
available with respect to the Common Stock, the average of the highest and
lowest sales prices per share of Common Stock on such day on Nasdaq, or (ii) if
such information is not available, the average of the highest bid and lowest
asked prices per share of Common Stock on such day on Nasdaq, or (c) if the
principal market for the Common Stock is not a national securities exchange and
the Common Stock is not quoted on Nasdaq, the average of the highest bid and
lowest asked prices per share of Common Stock on such day as reported on the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; provided, however, that if clauses (a), (b) and (c) of this
Paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the fair market value of the Common Stock shall be
determined by the Board by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options.
6. TERM. The term of each option granted pursuant to the Plan shall
be such term as is established by the Committee, in its sole discretion;
provided, however, that the term of each ISO granted pursuant to the Plan shall
be for a period not exceeding 10 years from the date of grant thereof; and
further, provided, that if, at the time an ISO is granted, the optionee owns (or
is deemed to own under Section 424(d) of the Code) stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
of any of its Subsidiaries or of a Parent, the term
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<PAGE>
of the ISO shall be for a period not exceeding five years from the date of
grant. Options shall be subject to earlier termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Contract permits installment
payments) (a) in cash or by certified check or (b) if the applicable Contract
permits, with the consent of the Committee, with previously acquired shares of
Common Stock having an aggregate fair market value on the date of exercise
(determined in accordance with Paragraph 5) equal to the aggregate exercise
price of all options being exercised, or with any combination of cash, certified
check or shares of Common Stock
The Committee may, in its sole discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
notice, together with a copy of the optionee's irrevocable instructions to a
broker acceptable to the Committee to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of an option
shall not have the rights of a stockholder with respect to such shares of Common
Stock until the date of issuance of a stock certificate to him for such shares;
provided, however, that until such stock certificate is issued, any optionee
using previously acquired shares of Common Stock in payment of an option
exercise price shall continue to have the rights of a stockholder with respect
to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be
expressly provided in the applicable Contract, any optionee whose relationship
with the Company, its Subsidiaries and Parent as an employee or consultant has
terminated for any reason (other than his death or Disability) may exercise such
option, to the extent exercisable on the date of such termination, at any time
within three months after the date of termination, but not thereafter and in no
event after the date the option would otherwise have expired; provided, however,
that if such relationship is terminated either (a) for cause, or (b) without the
consent of the Company, such option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be deemed
to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual
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<PAGE>
on military, sick leave or other bona fide leave of absence shall continue to be
considered an employee for purposes of the Plan during such leave if the period
of the leave does not exceed 90 days, or, if longer, so long as the individual's
right to reemployment with the Company (or a related corporation) is guaranteed
either by statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave.
Notwithstanding the foregoing, except as may otherwise be expressly
provided in the applicable Contract, options granted under the Plan shall not be
affected by any change in the status of the optionee so long as the optionee
continues to be an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent (regardless of having changed from one to the other or
having been transferred from one corporation to another).
Nothing in the Plan or in any option granted under the Plan shall confer
on any optionee any right to continue in the employ of, or as a consultant to,
the Company, its Parent or any of its Subsidiaries, or interfere in any way with
any right of the Company, its Parent or any of its Subsidiaries to terminate the
optionee's relationship at any time for any reason whatsoever without liability
to the Company, its Parent or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an individual optionee dies
(a) while he is an employee of, or a consultant to, the Company, any of its
Subsidiaries or a Parent, (b) within three months after the termination of such
relationship (unless such termination was for cause or without the consent of
the Company) or (c) within one year following the termination of such
relationship by reason of Disability, his option may be exercised, to the extent
exercisable on the date of his death, by his Legal Representative (as defined in
Paragraph 19) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee of, or a consultant to,
the Company, its Parent or any Subsidiary has terminated by reason of Disability
may exercise his option, to the extent exercisable upon the effective date of
such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the
exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise, or (b) there be an exemption from registration
under the Securities Act for the issuance of the shares of Common Stock upon
such exercise. Nothing herein shall be construed as requiring the Company to
register shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
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<PAGE>
The Committee may require, in its sole discretion, as a condition to the
exercise of any option that the optionee execute and deliver to the Company his
representations and warranties, in form, substance and scope satisfactory to the
Committee, which the Committee determines are necessary or convenient to
facilitate the perfection of an exemption from the registration requirements of
the Securities Act or other legal requirement, including without limitation that
(a) the shares of Common Stock to be issued upon the exercise of the option are
being acquired by the optionee for his own account, for investment only and not
with a view to the resale or distribution thereof, and (b) any subsequent resale
or distribution of shares of Common Stock by such optionee will be made only
pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior to any offer of
sale or sale of such shares of Common Stock provide the Company with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in its sole
discretion, that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to, or in connection with, the granting
of an option or the issue of shares of Common Stock thereunder, such option may
not be exercised in whole or in part unless such listing, qualification, consent
or approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Not withstanding any
other provision of the Plan, in the event of a stock dividend, split-up,
combination, reclassification, recapitalization, merger in which the Company is
the surviving corporation, or exchange of shares or the like which results in a
change in the number or kind of those shares of Common Stock which are
outstanding immediately prior to such event, the aggregate number and kind of
shares subject to the Plan, the aggregate number and kind of shares subject to
each outstanding option and the exercise price thereof, and the 162(m) Maximum
shall be appropriately adjusted by the Board of Directors, whose determination
shall be conclusive and binding on all parties.
In the event of (a) the liquidation or dissolution of the Company, or
(b) a merger in which the Company is not the surviving corporation or a
consolidation, any outstanding options shall terminate upon the earliest of any
such event, unless other provision is made therefor in the transaction.
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<PAGE>
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by
the Board of Directors on September 20, 1995. No option may be granted under the
Plan after September 19, 2005. The Board of Directors, without further approval
of the Company's stockholders, may at any time suspend or terminate the Plan, in
whole or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with, conform to or adopt the provisions of Rule 16b-3, Section 162(m) of the
Code or any change in applicable law, regulations, rulings or interpretations of
administrative agencies; provided, however, that no amendment shall be effective
without the requisite prior or subsequent stockholder approval which would (a)
except as contemplated in Paragraph 12, increase the maximum number of shares of
Common Stock for which options may be granted under the Plan or the 162(m)
Maximum, (b) materially increase the benefits accruing to participants under the
Plan or (c) change the eligibility requirements to receive options hereunder. No
termination, suspension or amendment of the Plan shall, without the consent of
the holder of an existing and outstanding option affected thereby, adversely
affect his rights under such option. The power of the Committee to construe and
administer any options granted under the Plan prior to the termination or
suspension of the Plan nevertheless shall continue after such termination or
during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.
15. WITHHOLDING TAXES. As a condition of exercise of an Option, each
employee shall, no later than the date of exercise of such option, pay to the
Company in cash or make arrangements satisfactory to the Committee regarding
payment of any federal, state or local taxes of any kind required by law to be
withheld upon the exercise of such option. In its discretion, the Committee may
provide for the Company's acceptance or retention of Common Stock as payment of
an employee's liability for tax required to be withheld by the Company.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws, (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock, or (c) permit the Company to determine the
occurrence of a "disqualifying disposition," as described in Section 421(b) of
the Code,
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<PAGE>
of the shares of Common Stock issued or transferred upon the exercise of an ISO
granted under the Plan.
The Company shall pay all issuance taxes with respect to the issuance of
shares of Common Stock upon the exercise of an option granted under the Plan, as
well as all fees and expenses incurred by the Company in connection with such
issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares of
Common Stock pursuant to the exercise of options under the Plan shall be added
to the general funds of the Company and used for such corporate purposes as the
Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) or assume the prior options of such Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms shall
be defined as set forth below:
(a) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, any of
its Subsidiaries or a Parent in a transaction to which Section 424(a) of the
Code applies (or would apply if the option assumed or substituted were an ISO),
or any Parent or any Subsidiary of such corporation.
(b) Disability. The term "Disability" shall mean a permanent
and total disability within the meaning of Section 22(e)(3) of the Code.
(c) Legal Representative. The term "Legal Representative"
shall mean the executor, administrator or other person who at the time is
entitled by law to exercise the rights of a deceased or incapacitated optionee
with respect to an option granted under the Plan.
(d) Parent. The term "Parent" shall have the same definition
as "parent corporation" in Section 424(e) of the Code.
(e) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may be
granted hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions.
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<PAGE>
Neither the Plan nor any Contract shall be construed or interpreted with
any presumption against the Company by reason of the Company causing the Plan or
Contract to be drafted. Whenever from the context it appears appropriate, any
term stated in either the singular or plural shall include the singular and
plural, and any term stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan or any Contract shall not affect
the validity, legality or enforceability of any other provision, all of which
shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes present in person or by proxy at the next duly held
meeting of the Company's stockholders at which a quorum is present. No options
granted hereunder may be exercised prior to such approval; provided, however,
that the date of grant of any option shall be determined as if the Plan had not
been subject to such approval. Notwithstanding the foregoing, if the Plan is not
approved by a vote of the stockholders of the Company on or before September 19,
1996, the Plan and any options granted hereunder shall terminate.
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EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 21st day of January, 1998 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 James A. Roach residing at 1143 Cross Creek Circle, Altamonte
Springs, FL 32714 (hereinafter designated and referred to as "Employee" or
["him"] ["her"]).
WHEREAS, Company desires to continue to employ the Employee as Vice
President, Sales 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 January 21, 1998 and automatically terminating on January
20, 2001, subject to earlier termination as provided herein or unless extended
by mutual consent of both parties in writing sixty (60) days prior to the end of
the term of this Agreement or any extension thereof, but nothing herein shall
require the Company or Employee to agree to any specific term or condition or to
any continuation of Employee's employment beyond the end of the term of this
Agreement.
2. Employment: Subject to the terms and conditions and for the
compensation hereinafter set forth, the Company employs the Employee for and
during the term of this Agreement. Employee is hereby employed by the Company as
Vice President, Sales. 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
<PAGE>
Employee agrees to spend such time, from time to time, in New York, and 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, Thirty-One Thousand, Seven Hundred dollars ($131,700.00) 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 as determined by the
Company's Compensation Committee of the Board of Directors, 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 or a sales bonus or commission plan should the Company adopt one.
4. Expenses:
(A) The Company shall reimburse Employee, not less often than
monthly, for all reasonable and actual business expenses incurred by [him] [her]
in connection with [his] [her] service to the Company, upon submission of
appropriate vouchers and expense account reports.
(B) The Company shall provide the Employee with an allowance to
reimburse him for the cost of maintaining a place of abode in the Commonwealth
of Puerto Rico, which allowance shall not exceed twenty percent of the
Employee's then salary computed in accordance with 3 above. Company acknowledges
that Employee is a resident of the State of Florida 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.
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<PAGE>
5. Company Car: The Company shall provide Employee with a Company
car for Employee's use for business purposes in accordance with standard Company
guidelines. This car shall be insured and registered with the Motor Vehicle
Department by the Company. Employee is responsible for proper maintenance,
gasoline, traffic violation fines, etc. Repairs for other than routine
maintenance shall be the responsibility of the Company.
6. Benefits: The Company shall provide medical and dental insurance
and such other benefits, in accordance with the applicable Company benefit
plans, as such plans may exist from time to time. The Employee shall be entitled
to annual vacation in accordance with the Company's policy.
7. Extent of Service: The Employee during the term of this
Agreement shall devote [his] [her] full normal business time, attention and
energy and render [his] [her] best efforts and skill to the business of the
Company.
8. Restrictive Covenant:
(A) Employee acknowledges that: (i) the business in which the
Company is engaged is intensely competitive and that [his] [her] employment by
the Company will require that [she] [he] have access to and knowledge of
confidential information of the Company, including , but not limited to, certain
of the Company's confidential plans for the creation, acquisition or disposition
of products, expansion plans, product development plans, methods of pricing,
special customer requirements for service, information on methods of servicing
the customer, operational information such as formulas, financial status, and
plans and personnel information, which are of vital importance 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]
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<PAGE>
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 from any court of competent jurisdiction. The
provisions of this Section 8[A] shall continue in full force and effect
notwithstanding any termination of this Agreement.
(B) Employee agrees that during the term of [his] [her] employment
with the Company and for a period of two years thereafter [he] [she] will not
directly or indirectly become affiliated as an officer, director, employee or
consultant or as a substantial security holder with any other company or entity
whose business is directly or indirectly competitive with any business then
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.
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<PAGE>
9. Discoveries, etc.:
(A) The Company shall be the owner, without further
compensation, of all rights of every kind in and with respect to any reports,
materials, inventions, processes, discoveries, improvements, modifications,
know-how or trade secrets hereafter made, prepared, invented, discovered,
acquired, suggested or reduced to practice (hereinafter designated and referred
to as "Property Rights") by Employee in connection with Employee's performance
of [his] [her] duties pursuant to this Agreement, and the Company shall be
entitled to utilize and dispose of such in such manner as it may determine.
(B) The Employee agrees to and shall promptly disclose to the
President or his designee all Property Rights (whether or not patentable) made,
discovered or conceived of by [him] [her], alone or with others, at any time
during [his] [her] employment with the Company, whether on the Company's or
[his] [her] own time and irrespective of whether on or off the Company's
premises, provided only that such Property Rights (1) relate to or are useful in
any phase of the business in which the Company may be engaged during the period
of employment, or (2) relate to any subject matter or problems within the scope
of Employee's employment, or (3) relate to or involve the use of any data or
information of which the Employee has been or may become informed by reason of
employment with the Company. The Employee hereby appoints the Company as
Employee's 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,
-5-
<PAGE>
discoveries or improvements, during [his] [her] employment by the Company.
Employee's cooperation after [his] [her] employment is subject to [his] [her]
availability and the Company agrees to reimburse Employee for loss of income and
expenses incurred in connection therewith. Said cooperation shall not be
withheld by Employee.
10. Confidential Information: Employee recognizes and acknowledges
that the Company, through the expenditure of considerable time and money, will
acquire, has developed and will continue to develop in the future, information,
skills, confidential information, know-how, formulae, technical expertise and
methods relating to or forming part of the Company's services and products and
conduct of its business, and that the same are confidential and proprietary, and
are "trade secrets" of the Company. Employee understands and agrees that such
trade secrets give or may give the Company a significant competitive advantage.
Employee further recognizes that the success of the Company depends on keeping
confidential both the trade secrets already developed or to be acquired and any
future developments of trade secrets. Employee understands that in [his] [her]
capacity with the Company [he] [she] will be entrusted with knowledge of such
trade secrets and, in recognition of the importance thereof and in consideration
of [his] [her] employment by the Company hereunder, agrees that [he] [she] will
not, without the consent of the President in writing, make any disclosure of
trade secrets now or hereafter possessed by the Company to any person,
partnership, corporation or entity either during or after the term hereunder,
except to such employees of the Company or its subsidiaries or affiliates, if
any, as may be necessary in the regular course of business and except as may be
required pursuant to any court order, judgment or decision from any court of
competent jurisdiction. The provisions of this Section shall continue in full
force and effect notwithstanding any termination of the Agreement.
11. Irreparable Harm: Employee agrees that any breach or threatened
breach by Employee of provisions set forth in Section Eight (8), Nine (9), and
Ten (10) of this Agreement, would cause the Company irreparable harm and the
Company may obtain
-6-
<PAGE>
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 cease upon the date of such
termination unless otherwise stipulated in the appropriate Company plan.
"Incapacity" as used herein shall mean the inability of the Employee to perform
[his] [her] normal duties.
(C) Company's Rights to Terminate This Agreement:
(a) The Company shall have the right, before the
expiration of the term of this Agreement and during any extension hereof, to
terminate this Agreement and to discharge Employee for cause (hereinafter
"Cause"), and all compensation to Employee shall cease to accrue upon discharge
of the Employee for Cause. For the purposes of this
-7-
<PAGE>
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).
(b) If the Company elects to terminate Employee's
employment for Cause, the Company shall first give Employee written notice and a
period of ten (10) days to cure such Cause, and if such Cause is not cured in
said ten (10 ) days, such termination shall be effective five (5) days after the
Company gives written notice of such failure to cure to the Employee. In the
event of a termination of the Employee's employment for Cause in accordance with
the provisions of Section 11[C][b], the Company shall have no further obligation
to the Employee, except for the payment of salary through the date of such
termination from employment.
(c) Notwithstanding anything in this Agreement to
the contrary, the Company may terminate the Employee's employment for reasons
other than Cause.
(D) Employee's Right to Terminate This Agreement:
(a) If the Company elects to reduce in rank or
authority the Employee's duties under this Agreement, without the mutual
agreement of the Employee, the Employee shall first give Company written notice
and a period of ten (10) days to cure same, and if same is not cured in said ten
(10) days Employee may terminate this Agreement effective five (5) days after
the Employee gives written notice of such failure to cure.
(E) Severance: In the event the Employee's employment
hereunder shall be terminated by the Company for other than Cause, death or
disability, or by the Employee pursuant to Section 13 [D] hereof, (1) the
Employee shall thereupon receive as severance pay in a lump sum the amount of
Compensation pursuant to Section 3 hereof and bonuses which the Employee would
have received for the remaining term of this Agreement
-8-
<PAGE>
(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 one
year's compensation and bonus; and (2) the Employee's (and [his] [her])
dependents') participation in any medical, dental and other insurance plans
shall be continued, or equivalent benefits provided to [him] [her] or them by
the Company, at no cost to [him] [her] or them, for a period of one year from
the termination; and (3) any options granted to the Employee which have not, by
the terms of the options, vested, shall be deemed to have vested at the
termination of employment, and shall thereafter be exercisable for the maximum
period of time allowed for exercise thereof under the terms of the applicable
Company stock option plan(s), provided that such period shall not be less than
90 days following such termination. An election by the Employee to terminate
[his] [her] employment under the provisions of Section 13[D] shall not be deemed
a voluntary termination of employment of the Employee for the purpose of
interrupting the provisions of any of the Company's employee benefits plans,
programs or policies.
14. Waiver: Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed as a waiver of any other
breach or default hereof.
15. Governing Law: The validity of this Agreement or of any of the
provisions hereof shall be determined under and according to the laws of the
State of New York, and this Agreement and its provisions shall be construed
according to the laws of the State of New York, without reference to its choice
of law rules.
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
-9-
<PAGE>
Employee: James A. Roach
1143 Cross Creek Circle
Altamonte Springs, FL 32714
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 not invalidate any others. Moreover, if any one or more of the
provisions contained in this Agreement shall be held to be excessively broad
-10-
<PAGE>
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.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
TII INDUSTRIES, INC.
By: /s/ Timothy J. Roach
------------------------
Timothy J. Roach
President, CEO and
Vice Chairman of the Board
Employee:
/s/ James A. Roach
--------------------------
James A. Roach
-12-
TII INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December December
26, 1997 27, 1996 26, 1997 27, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DILUTED EARNINGS PER SHARE
Shares used in computing earnings per share:
Weighted average shares outstanding 7,595,000 7,430,000 7,535,000 7,430,000
Incremental shares attributed to common
stock equivalent - options and warrants -- 447,000 -- 413,000
OPIC convertible debenture -- 300,000 -- 300,000
----------- ----------- ----------- -----------
7,595,000 8,177,000 7,535,000 8,143,000
=========== =========== =========== ===========
Earnings:
Net (loss) profit ($2,492,000) $ 905,000 ($2,652,000) $ 1,657,000
Add: Interest expense reduction -- 41,000 -- 70,000
----------- ----------- ----------- -----------
($2,492,000) $ 946,000 ($2,652,000) $ 1,727,000
=========== =========== =========== ===========
Diluted earnings per share ($ 0.33) $ 0.12 ($ 0.35) ($ 0.21)
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000277928
<NAME> TII INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-26-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> DEC-26-1997
<CASH> 1,212
<SECURITIES> 0
<RECEIVABLES> 6,194
<ALLOWANCES> 53
<INVENTORY> 18,394
<CURRENT-ASSETS> 26,470
<PP&E> 40,524
<DEPRECIATION> 24,603
<TOTAL-ASSETS> 44,027
<CURRENT-LIABILITIES> 10,175
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 31,073
<TOTAL-LIABILITY-AND-EQUITY> 44,027
<SALES> 23,606
<TOTAL-REVENUES> 23,606
<CGS> 20,663
<TOTAL-COSTS> 5,537
<OTHER-EXPENSES> (49)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> (2,652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,652)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
