SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TII INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 66-0328885
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1385 Akron Street,
Copiague, NY 11726
(516) 789-5000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Timothy J. Roach, President
TII Industries, Inc.
1385 Akron Street
Copiague, NY 11726
(516) 789-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Richard A. Rubin, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
(212) 704-6130
Approximate date of commencement of proposed sale to public: From
time to time after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF MAXIMUM MAXIMUM
EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE PRICE FEE
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Common Stock,
$.01 par value 60,000 $ 6.5625 $ 393,750 $ 116.16
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(1) Pursuant to Rule 416(b), there is also covered hereby all additional
securities resulting from anti-dilution adjustments prior to the completion
of the distribution of such registered securities.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PROSPECTUS
60,000 Shares
TII INDUSTRIES, INC.
Common Stock
This Prospectus relates to 60,000 shares (the "Shares") of Common
Stock, $.01 par value per share ("Common Stock"), of TII Industries, Inc. ("TII"
or the "Company") which may be offered and sold from time to time by the Selling
Stockholders named herein. The Shares may be issued upon the exercise of
Warrants which were originally issued in September 1993 pursuant to an agreement
between the Company and Ladenburg, Thalmann & Co. Inc., a registered
broker-dealer, for the provision of financial consulting services to the Company
and are exercisable until August 31, 1998 (the "Warrants"). Certain of the
Warrants were subsequently transferred by that firm to the individual Selling
Stockholders, who were employees of that firm. See "Selling Stockholders."
The Shares may be offered for sale from time to time by the
Selling Stockholders, or their successors in interest, in the over-the-counter
market, in privately negotiated transactions or otherwise at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Shares may be sold directly by the Selling
Stockholders or through brokers or dealers. In connection with any such sales,
Selling Stockholders and brokers or dealers participating in such sales may be
deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). See "Plan of Distribution." The Shares covered
by this Prospectus may also be sold under Rule 144 promulgated under the
Securities Act, including paragraph (k) thereof ("Rule 144"), instead of under
this Prospectus, to the extent Rule 144 becomes available for such sale.
The Company will not receive any of the proceeds from the sale of
the Shares by the Selling Stockholders. However, if the Warrants are exercised
in full, the Company will receive an aggregate of $393,750, which it will use as
working capital. The Company will bear all expenses in connection with the
filing of the Registration Statement of which this Prospectus forms a part,
except that the Selling Stockholders will pay all discounts and commissions
payable to broker-dealers in connection with their sale of the Shares.
See "Risk Factors" beginning on page 4 for a discussion of
certain factors that should be considered by prospective investors.
The Common Stock of the Company is included on The Nasdaq Stock
Market's National Market System ("Nasdaq/NMS") under the symbol TIII. On
February 26, 1998, the closing sales price per share of the Common Stock on
Nasdaq/NMS was $4.625.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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The date of this Prospectus is March ___, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at 7 World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information electronically filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR"). The Common Stock is traded
on The Nasdaq National Market and such reports and other information can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This Prospectus does not contain all the information set forth in
the Registration Statement (No. 333-________ ) on Form S-3 (the "Registration
Statement") of which this Prospectus forms a part, including exhibits relating
thereto, which has been filed with the Commission in Washington, D.C. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement and the
exhibits thereto may be obtained, upon payment of the fee prescribed by the
Commission, or may be examined, without charge, at the principal office of the
Commission.
INFORMATION INCORPORATED BY REFERENCE
The following documents, filed by the Company with the Commission
(File No. 1-8048) pursuant to the Exchange Act, are incorporated herein by
reference: (i) the Company's Annual Report on Form 10-K for its fiscal year
ended June 27, 1997; (ii) the Company's Quarterly Reports on Form 10-Q for the
fiscal quarters ended September 26, 1997 and December 26, 1997; (iii) the
Company's Current Reports on Form 8-K dated (dates of earliest event reported)
July 29, 1997, January 6, 1998 and January 26, 1998; and (iv) the description of
the Common Stock contained in the Company's Registration Statement on Form 8-A
filed with the Commission on November 3, 1980 under the Exchange Act, including
any amendment or report filed by the Company for the purpose of updating such
description. Each document filed by the Company subsequent to the date of this
Prospectus pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
prior to the termination of this offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
such document. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON
(INCLUDING ANY BENEFICIAL OWNER) TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED,
UPON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY DOCUMENT
INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS UNLESS SUCH
EXHIBITS ARE EXPRESSLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). REQUESTS
SHOULD BE DIRECTED TO TII INDUSTRIES, INC., 1385 AKRON STREET, COPIAGUE, NEW
YORK 11726, (516) 789-5000, ATTENTION: PAUL G. SEBETIC, VICE PRESIDENT-FINANCE.
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Unless the context otherwise requires, the terms "TII" or the
"Company" refer to TII Industries, Inc. and its subsidiaries. In evaluating an
investment in the Company, prospective investors should consider the factors
discussed under the caption "Risk Factors" in addition to the other information
included herein and in the information incorporated herein by reference (see
"Information Incorporated by Reference," above). Certain statements included in
this Prospectus (and the information incorporated herein by reference)
concerning future results, future performance, intentions, objectives, plans and
expectations are forward-looking statements that are subject to a number of
known and unknown risks and uncertainties that may cause the Company's actual
results and performance to be materially different from those anticipated or
discussed herein. Certain factors which may cause such differences are discussed
in cautionary statements under the caption "Risk Factors" in this Prospectus.
The Company
TII designs, manufactures and markets overvoltage surge
protectors, network interface devices ("NIDs"), station electronics and fiber
optic products for use in the communications industry. The Company sells its
products to telephone operating companies ("telcos"), including to four of the
five Regional Bell Operating Companies ("RBOCs") and most of the 1,300
independent telcos, original equipment manufacturers ("OEMs"), cable television
("CATV") providers and competitive access providers of communications services.
TII has been a leading supplier of subscriber station overvoltage
surge protectors to U.S. telcos for over 25 years. The Company believes that its
proprietary overvoltage surge protectors offer superior, cost-effective
performance features and characteristics, including high reliability, long life
cycles and advanced protection against adverse environmental conditions.
Overvoltage surge protectors are mandated in the United States by the National
Electric Code ("NEC") to be installed on subscriber telephone lines to prevent
injury to users and damage to their equipment due to surges caused by lightning
and other hazardous overvoltages.
The Company also markets a complete line of NIDs tailored to
customer specifications. NIDs house the Federal Communications Commission
mandated demarcation point between telco-owned and subscriber-owned property.
NIDs typically also enclose overvoltage surge protectors and various station
electronic products, which, among other things, allow a telco to remotely test
the integrity of its lines, thereby minimizing costly maintenance dispatches. To
address the demand for voice, high-speed data and interactive video services,
telcos and other communications providers are expanding and upgrading their
networks to accommodate the higher bandwidth necessary to transmit these
services. To meet its customers' needs, TII has introduced a broadband NID
product line specifically designed to house the telcos' technology of choice,
whether traditional twisted pair lines or high-bandwidth coaxial cable or fiber
optic lines.
As an integral part of the Company's broadband NID product line,
the Company recently developed a high-performance patented coaxial overvoltage
surge protector to safeguard coaxial cable lines. While providing overvoltage
surge protection, the Company's in-line coaxial overvoltage surge protector is
virtually transparent to the network, permitting high-bandwidth signals to be
transmitted without adversely affecting the signal. The Company also markets its
coaxial overvoltage surge protector to CATV providers of interactive services.
Proposed revisions to the NEC, currently anticipated to take effect in 1999,
would require overvoltage surge protection on all new or existing CATV lines
intended to carry voice, data or interactive video services.
The Company also produces and sells a line of fiber optic
products, including custom-designed enclosures and LIGHTRAX(R), a unique fiber
optic management system used to route sensitive fiber optic cable throughout a
facility. These products are used to connect the telcos' local and long distance
networks to their central offices, as well as to route fiber optic lines
throughout subscriber locations.
The Company's principal executive office is located at 1385 Akron
Street, Copiague, New York 11726 and its telephone number is (516) 789-5000.
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RISK FACTORS
In evaluating the Company and its business, prospective investors
should carefully consider the following risk factors in addition to other
information included in this Prospectus and reports incorporated in this
Prospectus by reference.
RECENT NET LOSSES
The Company reported net losses of $2,325,000, $188,000, $160,000
and $2,492,000 for the quarters ended March 28, 1997, June 27, 1997, September
26, 1997 and December 26, 1997, respectively.
During the third quarter of fiscal 1997 (ended March 28, 1997), a
joint venture with which the Company had entered into a strategic arrangement to
develop and manufacture advanced overvoltage surge protectors was dissolved.
Following such dissolution, the Company increased its allowance for the
inventory which was produced for the joint venture. In addition, during the
third quarter of fiscal 1997, the Company implemented certain measures to reduce
costs and enhance profitability, including (i) reducing personnel, (ii) moving
certain production processes to the Company's lower cost facility in the
Dominican Republic, (iii) outsourcing certain manufacturing processes, (iv)
realigning the Company's sales and marketing force and (v) discontinuing certain
lower margin products. These actions resulted in non-recurring charges of
$3,000,000.
In September 1997 and July 1997, the Company was awarded
contracts with one RBOC and one independent telco, respectively, for various
products within its newly developed broadband NIDs product line. During the
fourth quarter of fiscal 1997 (ended June 27, 1997) and the first half of fiscal
1998 (ended December 26, 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 under one of the
new contracts. The losses were compounded in the second quarter of fiscal 1998,
principally by production disruptions, as the Company sought to meet its
customer's requested delivery schedules. These disruptions were primarily caused
by (i) the failure of certain vendors to meet the Company's delivery
requirements for required molds and inventory components, (ii) production
breakdowns which produced significant delays and yield losses during the initial
production process and (iii) 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 has initially based its
new Chief Operating Officer at its Puerto Rico facilities in order to assist in
improving the manufacturing process. With modifications resulting in some, but
minimal, disruption, the Company expects that it will be able to gear up
effectively for sales of products in its new broadband NID product line under
the second contract, production under which is expected to begin during the
latter part of the third or fourth quarter of fiscal 1998. There can, however,
be no assurances that the Company will become profitable.
RISK OF LOSS OF NEW CONTRACTS
To meet the delivery commitments established in the two recently
awarded contracts, the Company has been expanding production for volume
deliveries of these products which has begun in the third quarter of fiscal
1998. The broadband NID product line has required significant, and will require
some additional, capital investment in production and test equipment, molds and
fixtures, as well as the maintenance of sufficient inventory levels, for much of
which the Company is dependent upon timely performance by outside vendors. The
Company must also complete leasehold improvements to its facilities in the
Dominican Republic and may be required to train additional personnel to meet the
requirements of its new contracts and to increase production of broadband NIDs,
including under the new contracts. While the Company experienced production
disruptions in the second quarter of fiscal 1998 under one of the new contracts,
it has been able to retain this contract and is currently meeting shipment
schedules required under both contracts. Should similar disruptions occur in the
future, the Company could lose these contracts. Such loss could have a material
adverse effect on the Company.
See "--Recent Net Losses."
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POTENTIAL NEED FOR ADDITIONAL FINANCING
The Company's Revolving Credit Agreement, under which it
presently may borrow up to $1,500,000 (the "Revolving Credit Agreement"), is
scheduled to expire on December 31, 1998. The Company is currently seeking to
replace this revolving credit facility with other bank financing that would
expand and extend the Company's borrowing capacity. Should the Company continue
to experience losses and not be able to obtain replacement financing at
sufficient levels, it may be required to obtain financing from other sources,
such as borrowings from institutional lenders or the sale and issuance of debt
or equity securities from private sources or in the public market. The Company's
ability to obtain such financing will be affected by such factors as its results
of operations, financial condition and business prospects. There can be no
assurance that the Company will be able to obtain such financing or, if such
financing is obtained, what the terms thereof will be.
DEPENDENCE UPON KEY CUSTOMERS; LACK OF LONG TERM COMMITMENTS
Direct sales to the Company's RBOC customers, their known
distributors and OEMs known to use the Company's products as components in
equipment manufactured for RBOCs have historically accounted for a substantial
majority of the Company's net sales. The U.S. telephone industry is highly
consolidated with the five RBOCs and GTE Corporation servicing over 85% of all
subscriber lines. In most instances, the Company's sales are made under open
purchase orders received from time to time from its customers pursuant to master
supply contracts. Certain of such contracts permit the customer to terminate the
contract due to the availability of more advanced technology or the Company's
inability to deliver a product that meets the specifications on time and certain
supply contracts provide that the customer may terminate the contract at any
time upon notice. While four of the five RBOCs specify one or more of the
Company's overvoltage surge protectors for use at their subscriber station
locations, the loss of one or more RBOCs as purchasers of the Company's
products, or a substantial diminution in the orders received from such
purchasers, could have a material adverse effect on the Company.
MAINTENANCE OF INVENTORY LEVELS TO RESPOND TO CHANGING CUSTOMER NEEDS
The Company maintains significant levels of inventories to meet
the rapid delivery requirements of its customers. The introduction or
announcement by the Company or its competitors of products embodying new
technologies, improvements on existing technologies or changes in industry
standards or customer requirements could render the Company's existing products
obsolete or unmarketable. Most of the contracts under which the Company supplies
its products enable the customer to reduce or cease purchases with little or no
advance notice. There can be no assurance that one or more of the Company's
customers will not limit, defer or cease purchases of the Company's products
which could also result in inventory write-downs or allowances, charges to
earnings or otherwise have a material adverse effect on the Company. See
"--Recent Net Losses."
NEW PRODUCT INTRODUCTION AND EVOLVING INDUSTRY STANDARDS
The market for the Company's products is characterized by
changing technology, evolving industry standards, changes in customer
requirements and product introductions and enhancements. The Company's success
will depend, in large measure, upon its ability to rapidly identify and develop
new, competitively priced products to keep pace with continuing changes in
technology and customer preferences. Although the Company continually seeks to
improve its existing products and develop new products and enhancements to meet
the needs of its customers and the marketplace, there can be no assurance that
the Company will be able to respond timely to changing industry and customer
needs. The Company believes that its future success will also depend in part
upon its ability to enhance its current product offerings and develop new
products that address its customers' needs for additional functionality and new
technologies. Product development cycles can be lengthy and are subject to
changing requirements and unforeseen factors which can result in delays. In
addition, new products or features, when first released by the Company, may
contain defects that, despite testing by the Company, are
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discovered only after a product has been installed and used by customers.
Delays, undetected defects or product recalls could have a material adverse
effect on the Company.
COSTS ASSOCIATED WITH PRODUCTION OF NEW PRODUCTS
When the Company begins commercial production of new products, it
typically incurs increased costs. These increased costs result from, among other
things, the hiring of temporary personnel, the outsourcing of certain production
processes, initial purchases of materials in smaller than usual quantities,
lower initial manufacturing yields and additional freight and expediting costs.
The failure of the Company to adequately control these increased production
costs could have a material adverse effect on the Company. See "--Recent Net
Losses."
TECHNOLOGICAL CHANGE IN OVERVOLTAGE SURGE PROTECTION
The Company's overvoltage surge protectors are based principally
on gas tube technology. Solid state surge protectors have been developed for use
within the telecommunications industry as a competitive technology to gas tubes.
While solid state overvoltage surge protectors are faster at reacting to surges,
gas tube overvoltage surge protectors have generally remained the station
overvoltage surge protection technology of choice by most telcos because of the
gas tube's ability to repeatedly withstand significantly higher energy surges
than solid state overvoltage surge protectors. However, as communications
equipment becomes more complex, the speed of the protector in reacting to a
surge may be perceived to be more critical than its energy handling
capabilities. Further, solid state protectors can be combined with gas tubes
into a hybrid overvoltage surge protector module. While generally more expensive
and complex than gas tube surge protectors, the hybrid surge protector can
provide the speed of a solid state protector with the energy handling capability
of a gas tube overvoltage surge protector. Although the Company has developed
solid state and hybrid surge protectors, the development by competitors of solid
state overvoltage surge protectors with increased energy handling capabilities,
or the development of lower cost, more reliable hybrid surge protectors, could
have a material adverse effect on the Company.
COMPETITION
The Company is subject to significant competition with respect to
all of its products. The Company's gas tube overvoltage surge protectors compete
with other companies' gas tube overvoltage surge protectors, as well as with
solid state and hybrid overvoltage surge protectors. A substantial portion of
the Company's subscriber overvoltage surge protectors are used in NID housings
assembled by the Company or by OEMs. Most NIDs sold in the United States are
produced by competitors of the Company, some of which also market overvoltage
surge protectors and station electronics. In addition, other suppliers to telcos
could enter the market and compete with the Company. Furthermore, the
Telecommunications Act of 1996 permits the RBOCs, which are presently the
principal users of the Company's products, to manufacture telecommunications
equipment. Accordingly, the RBOCs could decide to manufacture and supply their
own NIDs rather than purchase them from outside suppliers. Most of the Company's
competitors and many of those who could enter the Company's market are
well-established suppliers to the telcos and are, or are part of, large
corporations which have substantially greater assets, financial resources and
larger sales forces, manufacturing facilities and research and development
staffs than those of the Company.
INDUSTRY CONSOLIDATION AND PRICING PRESSURE
The telcos have been going through a period of consolidation. As
a result of this consolidation and the telcos' resulting purchasing power,
combined with the strength of certain of the Company's competitors, the pricing
pressures in markets in which the Company competes have increased.
In virtually all instances in which the Company has master supply
contracts, including with the RBOCs, such contracts do not establish minimum
purchase commitments but govern other terms and conditions, including
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price. The Company's supply contracts generally prohibit the Company from
increasing the price of its products sold thereunder for stated periods of time.
Accordingly, any significant increase in the Company's costs during such
periods, without offsetting price increases, could have a material adverse
effect on the Company. In addition, certain of the Company's RBOC supply
contracts contain declining price provisions. Such contractually mandated
reductions in product selling prices could adversely affect gross margins of the
Company if it cannot achieve corresponding reductions in unit manufacturing
costs.
OFFSHORE MANUFACTURING
Except for its fiber optic products, which are produced in North
Carolina, the Company manufactures its products in facilities in Puerto Rico and
the Dominican Republic. As a result, the Company is subject to certain risks of
doing business outside the mainland of the United States, such as the potential
for delays and added delivery expenses in meeting rapid delivery schedules of
its customers. Additionally, the Company's Dominican Republic operations are
subject to potential currency fluctuations, labor unrest and political
instability, restrictions on the transfer of funds, export duties and quotas and
U.S. customs and tariffs and the potential for U.S. government sanctions, such
as embargos and restrictions on importation, should certain political or social
events occur. Any such delays, unrest or sanctions could have a material adverse
effect on the Company.
INTERNATIONAL SALES
Although to date, the Company's export sales have not been
material, the Company intends to expand its international sales and marketing
efforts which could pose certain risks, such as complying with multiple and
potential conflicting regulations and product specifications, export and import
limitations, tariffs, differences in intellectual property protection, currency
fluctuations, overlapping or different tax structures, political and economic
instability and trade restrictions. There can be no assurance that these efforts
will be effective or that the Company will achieve significant international
sales.
EXPIRATION OF LEASE FOR PUERTO RICO MANUFACTURING FACILITY
The Company's facilities in Puerto Rico were operated under a
lease agreement with the Puerto Rico Industrial Development Company ("PRIDCO"),
which has expired. The Company and PRIDCO have continued operating under the
terms of the expired lease. While the Company believes it will be able to
renegotiate this lease on commercially reasonable terms, there can be no
assurance that it will be able to do so. The inability to renegotiate the lease
would cause the Company to relocate to other facilities in Puerto Rico. The
costs associated with any such relocation and attendant disruption of the
Company's business operations could have a material adverse effect on the
Company.
DEPENDENCE ON COMPONENT SUPPLIERS
Although the Company generally uses standard and widely available
components and supplies in the manufacture of its products, a gel used to seal
the terminals of its new modular station protectors is currently available from
a single source and the Company generally purchases many of its components and
supplies from a single or limited number of sources in order to obtain quantity
purchase discounts and maintain standardization and quality control over such
components. Certain components and supplies are obtained from manufacturers
located outside the United States, which could subject the availability and
control thereof to changes in government policies, tariffs, import restrictions
and other factors beyond the Company's control. The Company has no contracts
with suppliers of the components utilized in the manufacture of its products
which extend for more than one year. Except for delays encountered by the
Company in its attempt to accelerate production of its new broadband NID product
line for two new contracts, the Company has not experienced material
difficulties or delays in obtaining components or supplies in the past (see "--
Recent Net Losses"). While the Company believes that substantially all raw
materials it uses in the ordinary course will continue to be available in
adequate
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quantities at competitive prices, there can be no assurance that the Company
will not experience delays in delivery, the absence of components or supplies or
increases in prices in the future which could have a material adverse effect on
the Company.
PATENT PROTECTION AND INFRINGEMENT RISKS; LICENSE AGREEMENTS
Although the Company has patent protection on certain of its
products or components, it relies primarily on trade secrets and nondisclosure
agreements to protect its proprietary rights. There can be no assurance that
these protections will be adequate to protect its proprietary rights, that
others will not independently develop or otherwise acquire equivalent or
superior technology and obtain patent or other protections thereon, or that the
Company can maintain its technology as trade secrets. Also, there can be no
assurance that any patents the Company possesses will not be invalidated,
circumvented or challenged. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as the laws of
the United States and may require modifications to be made to the Company's
products in order to obtain any necessary foreign patents or government
approvals, which could affect the Company's ability to increase its
international sales. The failure of the Company to protect its intellectual
property rights could have a material adverse effect on the Company.
While the Company believes that its present products and
technology do not infringe the patents or intellectual property rights of others
and is not aware of any threatened patent or intellectual property infringement
claims against it, there can be no assurance that such claims will not be
asserted against the Company in the future. Any litigation resulting from such
claims could be expensive and time consuming, could divert management's
attention from other matters or could otherwise have a material adverse effect
on the Company, regardless of the outcome of the litigation. An adverse
determination in any such proceeding or failure to obtain a license from a
prevailing claimant on satisfactory terms could prevent the Company from
manufacturing and selling products covered by the patent or intellectual
property in question, which also could have a material adverse effect on the
Company.
In addition to protecting its trade secrets, know-how and
proprietary rights to technology, the Company has obtained, and may in the
future be required to obtain, licenses to patents or other proprietary rights of
third parties. Pursuant to certain of such licenses, the Company will be
obligated to pay royalties to third parties, including minimum royalties. No
assurance can be given that any license required under any patent or other
proprietary rights would be made available to the Company on acceptable terms,
if at all. If the Company does not obtain any required licenses it could
experience delays in product development or interruptions of product sales while
it attempts to design around blocking patents, or it could find that the
development, manufacture or sale of products which require such licenses is
foreclosed.
GOVERNMENT REGULATION
The telecommunications industry is subject to regulation in the
United States and in other countries. In the United States, the Federal
Communications Commission and various state public service or utility
commissions regulate the telcos and other communication access providers who use
the Company's products. While such regulations typically do not apply directly
to the Company, the effects of such regulations, which are under continuous
review and subject to change, could adversely affect the Company's customers
and, therefore, the Company.
Although compliance with applicable federal, state and local
environmental regulations has not had, and the Company does not believe
compliance therewith in the future will have, a material adverse effect on the
Company's earnings, capital expenditures or competitive position, there can be
no assurance that continued compliance will not have a material adverse effect
on the Company in the future.
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<PAGE>
DEPENDENCE ON KEY MANAGEMENT AND PERSONNEL
The Company's success depends to a significant degree upon the
continuing contributions of its key management and technical personnel. In
particular, the Company's business would be materially adversely affected if it
were to lose the services of Timothy J. Roach, the Company's President and Chief
Executive Officer. The Company does not carry key man insurance on the life of
Mr. Roach. While the Company currently has a five-year employment agreement with
Mr. Roach which is automatically renewed annually, the loss of his services or
the services of certain of the Company's key management or technical personnel
could have a material adverse effect on the Company.
Furthermore, the Company's Revolving Credit Agreement requires
that Mr. Roach continue to actively manage the Company's day-to-day operations
and that Mr. Roach, Alfred J. Roach, Chairman of the Board of Directors, and
certain others continue to own in the aggregate at least 7.5% of the outstanding
Common Stock. As of February 15, 1998, and assuming the conversion of the
Preferred Shares at 95% of the closing bid price of the Company's Common Stock
on that date and the exercise of the Warrants (but none of the options held by
them under the Company's stock option plans), such persons would own 14.3% of
the Company's Common Stock that would have been outstanding on that date.
NO DIVIDENDS
The Company intends to retain any future earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company's Revolving Credit Agreement
prohibits the Company from declaring and paying any dividends.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Common Stock has at times been, and may
in the future be, subject to wide fluctuations. Factors that may adversely
affect the market price of the Common Stock include, among other things, quarter
to quarter variations in operating results, changes in earnings estimates by
analysts, announce ments regarding technological innovations or new products,
announcements of gains or losses of significant customers or contracts,
prospects in the communications industry, changes in the regulatory environment,
market conditions and the sale or attempted sale of large amounts of the Common
Stock into the public markets.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the
public market could adversely affect the market price for the Common Stock. In
addition to the Shares covered by this Prospectus, which may be sold following
exercise of the Warrants, as of February 15, 1998, 6,284,976 shares of Common
Stock were freely tradeable without restriction under the Securities Act. The
remaining 1,322,438 outstanding shares of Common Stock are owned by persons who
may be deemed to be "affiliates" of the Company and are presently eligible for
sale under Rule 144, subject to Rule 144's volume and other limitations. Of such
remaining shares, 500,000 shares are presently subject to an effective and
current registration statement under the Securities Act and, as such, are freely
tradeable without such limitations.
In addition, 300,000 shares, issuable upon conversion of
convertible indebtedness issued in 1991 to an unaffiliated third party, will, if
and when converted, be eligible for immediate sale under paragraph (k) of Rule
144 without any volume or other limitation. The Company has also registered, for
future issuance under the Securities Act, 2,436,000 shares of Common Stock
subject to its stock option plans (of which 2,313,126 shares were subject to
outstanding options on February 15, 1998). Any such shares issued upon the
exercise of options by persons who are not affiliates of the Company will be
freely tradeable upon issuance and any such shares issued to affiliates will be
eligible for sale under Rule 144 without any further holding period but subject
to certain volume and other limitations.
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<PAGE>
In addition to the Shares registered hereunder and the foregoing
shares, the Company has also registered for resale (i) 2,480,000 shares of
Common Stock which consist of (a) up to 2,280,000 shares of Common Stock which
may be issued upon conversion of 5,000 shares of the Company's Series C
Convertible Preferred Stock and (b) 200,000 shares which may be issued upon the
exercise of warrants which are exercisable until January 25, 2001 (the preferred
stock and the warrants were sold by the Company in a private placement in
January 1998) and (ii) 20,000 shares of Common Stock which are subject to future
issuance upon the exercise of warrants issued in July 1996 to purchase such
shares until July 15, 2001 at an exercise price of $6.15 per share (all of such
warrants were issued by the Company to a registered broker-dealer retained by
the Company to act as a financial advisor and were transferred by that firm to
certain of its employees).
ANTI-TAKEOVER CONSIDERATIONS
The Company's Certificate of Incorporation requires the
affirmative vote of the holders of at least 75% of the outstanding shares of
capital stock of the Company entitled to vote thereon to authorize: (i) any
merger or consolidation of the Company or any of its subsidiaries with or into
another entity; (ii) any sale, lease or exchange of all or substantially all of
the assets of the Company and its subsidiaries taken as a whole if, as of the
record date for determining stockholders entitled to vote on a matter in (i) or
(ii), the other party to the transaction beneficially owns 10% or more of the
Company's outstanding capital stock entitled to vote in the election of
directors (other than a person who beneficially owned at least 10% of the
Company's voting capital stock at December 3, 1979); or (iii) the dissolution of
the Company. The supermajority voting requirement does not apply to a
transaction with a person or entity who became such 10% beneficial owner after
the Company's Board of Directors approved the transaction in (i) or (ii) or as
to a dissolution of the Company if such dissolution is substantially consistent
with such an approved transaction. Mr. Alfred J. Roach is the only person known
to be a beneficial owner of 10% or more of the Company's voting stock at
December 3, 1979.
The Board of Directors is divided into three classes, each of
which is elected in successive years for three-year terms. Accordingly, any
persons seeking to acquire voting control of the Company solely through the
election of directors would have to elect directors at two annual stockholders'
meetings in order to elect a majority of the Board.
The Company's Certificate of Incorporation permits the Company's
directors to issue shares of Preferred Stock in one or more series and to
designate the terms of each series without further stockholder action. The
Company also is subject to Section 203 of the Delaware General Corporation Law
(the "DGCL") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
an "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder. These provisions could serve
to impede or prevent any attempts by outside persons or business concerns to
obtain control of the Company or have a depressive effect on the price of the
Common Stock. See "Description of Capital Stock."
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information, as at February 15,
1998, as to (i) each Selling Stockholder's beneficial ownership of the Company's
Common Stock prior to the offering of any Shares hereunder by such Selling
Stockholder, (ii) the number of Shares which may be offered for sale hereunder
and (iii) the number of shares of the Company's Common Stock to be beneficially
owned by such Selling Stockholder after the offering.
SHARES OF
COMMON
SHARES OF COMMON STOCK
STOCK BENEFICIALLY SHARES OF COMMON BENEFICIALLY
OWNED PRIOR TO STOCK TO BE OFFERED OWNED AFTER
NAME OFFERING(1) HEREUNDER(1) OFFERING
---- ----------- ------------ --------
Ladenburg,
Thalmann & Co. Inc. 40,500 40,500 0
Herbert Hochberg 9,750 9,750 0
Peter Graham 3,250 3,250 0
Ronald Kramer 3,250 3,250 0
Jay Petschek 3,250 3,250 0
- --------------------
(1) The Shares represent Common Stock underlying Warrants which were issued by
the Company to Ladenburg, Thalmann & Co. Inc., a registered broker-dealer
retained in September 1993 to provide financial consulting services. Certain of
the Warrants were subsequently transferred by that firm to the individual
Selling Stockholders who were employees of that firm. The Warrants are
exercisable at an exercise price of $6.5625 per share until August 31, 1998,
such exercise price and the number of Shares subject to the Warrants being
subject to potential anti-dilution adjustments in the event of, among other
things (a) stock dividends, splits, combinations and reclassifications, (b)
issuances of shares at a per share price less than the then per share market
price of the Common Stock and (c) issuances of options (except options
exercisable under employee benefit arrangements), warrants and convertible
securities if the total consideration per share to be received by the Company
therefor and upon exercise or conversion thereof is less than the then per share
market price of the Common Stock. The Shares underlying the Warrants have been
adjusted to reflect a 1-for-2.5 reverse stock split effected by the Company on
April 26, 1994.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a summary of certain provisions of the Company's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"), the Certificate of Designation containing the preferences and
relative rights and qualifications, limitations and restrictions of the
Company's Series C Convertible Preferred Stock (the "Series C Preferred Shares")
and the By-laws, all of which are exhibits incorporated by reference in the
Registration Statement of which this Prospectus forms a part. The following
discussion is qualified in its entirety by reference to such exhibits.
The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock, $.01 par value per share (the "Common
Stock"), and 1,000,000 shares of Preferred Stock, $ 1.00 par value per share,
issuable in series (the "Preferred Stock"). As of February 15, 1998, there were
issued and outstanding 7,607,414 shares of Common Stock and the only shares of
Preferred Stock outstanding are the 5,000 Preferred Shares.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share on
all matters submitted to a vote of stockholders. Subject to the rights of
holders of Preferred Stock, the holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor and, in the event of the liquidation, dissolution or
winding up of the Company, to share ratably in all assets remaining after the
payment of liabilities. There are no preemptive or other subscription rights,
conversion rights or redemption or sinking fund provisions with respect to the
Common Stock. All of the Company's presently issued and outstanding Common Stock
are fully paid and non-assessable.
PREFERRED STOCK
The Preferred Stock is issuable in one or more series from time
to time at the discretion of the Board of Directors. The Board is authorized,
with respect to each series, to fix its designation, powers, preferences
(including with respect to dividends and on liquidation), rights (including
voting, dividend, conversion, sinking fund and redemption rights) and
limitations. Shares of Preferred Stock issued by action of the Board of
Directors could be utilized, under certain circumstances, as a method of making
it more difficult for a party to gain control of the Company without the
approval of the Board of Directors.
The Company presently has no plans or arrangements for the
issuance of any additional Preferred Stock.
The Series C Preferred Shares bear no dividends, have a
liquidation preference of $1,150 per Preferred Share and have no voting rights,
except as required by the DGCL and with respect to (a) any changes to the
Certificate of Designation or the Company's Certificate of Incorporation which
would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Series C Preferred Shares and (b) any issuance of
any additional Series C Preferred Shares. The Series C Preferred Shares are
convertible into shares of the Company's Common Stock commencing on May 27,
1998, following which a holder may convert, in any thirty-day period, up to
one-third of the aggregate number of Series C Preferred Shares purchased by the
initial holder of such Series C Preferred Shares, subject to acceleration of the
conversion right in certain cases. The Series C Preferred Shares are convertible
into shares of the Company's Common Stock (a) at a conversion price equal to
approximately $7.08 per share (the "Fixed Conversion Price") until July 25, 1998
and (b) thereafter at a conversion price equal to the lower of (i) the Fixed
Conversion Price or (ii) 95% of the average of the closing bid prices of the
Company's Common Stock during the ten consecutive trading days immediately
preceding the conversion date of the Series C Preferred Shares. The Fixed
Conversion Price and percentage set forth above are subject to reduction subject
to certain exceptions, based upon periods of time that sales of shares of Common
Stock underlying the Series C Preferred Shares cannot be made under a
registration statement. The conversion price is also subject to anti-dilution
adjustments under a formula in certain circumstances, including, with certain
exceptions, (a) the issuances of Common Stock, or the issuance of securities
which are exercisable into,
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<PAGE>
exchangeable for or convertible into Common Stock, for a consideration
(including amounts receivable upon such exercise, exchange or conversion) at
below the then Fixed Conversion Price and (b) subdivisions or combination of the
Company's Common Stock. The Company is subject to potential penalties in the
event it fails to timely permit conversion of Series C Preferred Shares. The
Company is not obligated to issue more than 1,520,000 shares of Common Stock
upon conversion of Series C Preferred Shares (the "Exchange Cap") if the
issuance of a larger number would breach the Company's obligations under rules
and regulations of The Nasdaq Stock Market. If the Company cannot issue Common
Stock for any reason, including by reason of the Exchange Cap, or fails to have
sufficient shares registered under the Securities Act for resale, the Company is
to issue as many shares of Common Stock as it is able to issue without violating
any restriction and the holder of unconverted Series C Preferred Shares may,
among other things, require the Company to redeem those Series C Preferred
Shares which the Company is unable to convert at a redemption price per
Preferred Share equal to the greater of $1,150 or the closing bid price on the
proposed conversion date of the Common Stock which would have otherwise been
issued. To meet this potential obligation, the Company is registering an
aggregate of 2,280,000 shares of Common Stock (150% of the number of shares
subject to the Exchange Cap) under the Securities Act.
See "Risk Factors - Shares Eligible for Future Sale."
Unless converted or redeemed prior thereto, the Series C
Preferred Shares are to be automatically converted into Common Stock on January
26, 2003 (subject to possible delay in certain instances). The Company may also
require conversion of the Series C Preferred Shares at any time on or after
January 26, 2001, subject to the fulfillment of certain conditions.
The Series C Preferred Shares are redeemable, prior to
conversion, (a) at the option of the Company until May 26, 1998 at a redemption
price of $1,150 per Preferred Share and (b) at the option of the holders thereof
at a price equal to the higher of $1,150 or the then closing bid price of the
underlying shares of the Company's Common Stock in the event of certain business
combinations of the Company, the sale of substantially all of the Company's
assets or in the case of a purchase, tender or exchange offer for more than 50%
of the Company's Common Stock and in certain other cases, including the failure
of the Company to obtain effectiveness of the registration statement discussed
above by September 23, 1998, to maintain such registration statement effective
for specified periods of time, to maintain the listing of the Company's Common
Stock on Nasdaq/NMS or to convert Series C Preferred Shares.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BY-LAWS
Supermajority Vote Required for Certain Transactions
The Company's Certificate of Incorporation requires the
affirmative vote of the holders of at least 75% of the outstanding shares of
capital stock of the Company entitled to vote thereon to authorize: (i) any
merger or consolidation of the Company or any of its subsidiaries with or into
another entity; (ii) any sale, lease or exchange of all or substantially all of
the assets of the Company and its subsidiaries taken as a whole if, as of the
record date for determining stockholders entitled to vote on a matter in (i) or
(ii), the other party to the transaction beneficially owns 10% or more of the
Company's outstanding capital stock entitled to vote in the election of
directors (other than a person who beneficially owned at least 10% of the
Company's voting capital stock at December 3, 1979); or (iii) the dissolution of
the Company. The supermajority voting requirement does not apply to a
transaction with a person or entity who became such 10% beneficial owner after
the Company's Board of Directors approved the transaction in (i) or (ii) or as
to a dissolution of the Company if such dissolution is substantially consistent
with such an approved transaction.
Classification of Board of Directors and Removal of Directors
The Certificate of Incorporation and By-laws of the Company
divide the Board of Directors into three classes, designated Class I, Class II
and Class III, respectively, each class to be as nearly equal in number as
possible. At each annual meeting of stockholders, directors are elected to
succeed those in the class whose terms
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<PAGE>
then expire, each elected director to serve for a term expiring at the third
succeeding annual meeting of stockholders after such director's election, and
until the director's successor is elected and qualified. Thus, directors elected
stand for election only once in three years. The Certificate of Incorporation
and By-laws of the Company also provide that directors may be removed only for
cause by stockholders.
Amending the Foregoing Provisions
The Company's Certificate of Incorporation and By-laws further
provide that the affirmative vote of the holders of at least 75% of the
Company's outstanding voting stock is required to make, alter or repeal, or to
adopt any provision inconsistent with, the foregoing provisions of the Company's
Certificate of Incorporation or Bylaws.
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of the
DGCL. In general, this statute prohibits a publicly held Delaware corporation
from engaging, under certain circumstances, in a "business combination" with an
"interested stockholder" for a period of three years after the time that person
becomes an interested stockholder, unless: (i) prior to the time that person
became an interested stockholder, the board of directors approved either the
business combination or the transaction in which the person becomes an
interested stockholder; (ii) the person acquires more than 85% of the
outstanding voting stock of the corporation (excluding shares held by directors
who are officers or held in certain employee stock plans) upon consummation of
the transaction in which the person becomes an interested stockholder; or (iii)
the business combination is approved by the board of directors and by at least
66-2/3% of the outstanding voting stock of the corporation (excluding shares
held by the interested stockholder) at a meeting of stockholders (and not by
written consent) held at or subsequent to the time such person became an
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or at any time within the prior three
years did own) 15% or more of the corporation's outstanding voting stock.
Section 203 defines a "business combination" to include, without limitation,
mergers, consolidations, stock sales and asset based transactions and other
transactions resulting in a financial benefit to the interested stockholder.
Anti-Takeover Effects
The foregoing provisions of the Company's Certificate of
Incorporation and By-laws and the effects of Section 203 of the DGCL could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. These provisions are intended to enhance the
continuity and stability of the Board of Directors and the policies formulated
by the Board of Directors and to discourage certain types of transactions that
may involve an actual or threatened change in control of the Company. These
provisions are also designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal and to discourage certain tactics that may be
used in proxy fights. However, such provisions may discourage third parties from
making tender offers for the Company's shares. As a result, the market price of
the Common Stock may not benefit from any premium that might occur in
anticipation of a threatened or actual change in control. Such provisions also
may have the effect of preventing changes in the management of the Company.
LIMITATION ON DIRECTORS' LIABILITY
In accordance with the DGCL, the Certificate of Incorporation
provides that the directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director except (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, which relates to unlawful payments of dividends and
unlawful stock repurchases and redemptions or (iv) for any transaction from
which the director derived an improper personal benefit. This provision does not
eliminate a director's fiduciary duties; it merely eliminates the possibility of
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<PAGE>
damage awards against a director personally which may be occasioned by certain
unintentional breaches (including situations that may involve grossly negligent
business decisions) by the director of those duties. The provision has no effect
on the availability of equitable remedies, such as injunctive relief or
rescission, which might be necessitated by a director's breach of his or her
fiduciary duties. However, equitable remedies may not be available as a
practical matter where transactions (such as merger transactions) have already
been consummated. The inclusion of this provision in the Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefited
the Company and its stockholders.
INDEMNIFICATION
The Certificate of Incorporation and By-laws provide that the
Company shall indemnify its officers, directors, employees and agents to the
extent permitted by the DGCL. Section 145 of the DGCL provides, in general, that
the Company may indemnify any person who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
a "derivative" action by or in the right of the Company) by reason of the fact
that such person is or was a director, officer, employee or agent of the
Company, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. A similar standard of care is applicable in the
case of derivative actions, except that no indemnification shall be made where
the person is adjudged to be liable to the Company unless and only to the extent
that the Court of Chancery of the State of Delaware or the court in which such
action was brought determines that such person is fairly and reasonably entitled
to such indemnity and such expenses.
TRANSFER AGENT AND REGISTRANT
The transfer agent and registrar for the Common Stock is Harris
Trust Company of New York, Wall Street Plaza, 88 Pine Street, New York, New York
10005.
PLAN OF DISTRIBUTION
The Shares may be offered for sale, from time to time, by the
Selling Stockholders, or by their pledgees, donees, transferees or other
successors in interest, in the over-the-counter market, in privately negotiated
transactions or otherwise at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Shares covered by this Prospectus may also be sold under Rule 144 (including
paragraph (k) thereof) instead of under this Prospectus, to the extent available
for such sale. Shares under this Prospectus may be sold by one or more of the
following methods: (a) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; (b) purchases by a broker or dealer as
principal, and the resale by such broker or dealer for its account pursuant to
this Prospectus, including resale to another broker or dealer; (c) a block trade
in which the broker or dealer so engaged will attempt to sell the Shares as
agent but may position and resell a portion of the block as principal in order
to facilitate the transaction; or (d) negotiated transactions between Selling
Stockholders and purchasers without a broker or dealer. In connection with any
sales, a Selling Stockholder and broker or dealer participating in such sales
may be deemed "underwriters" within the meaning of the Securities Act.
Brokers or dealers selling under this Prospectus may receive
commissions, discounts or concessions from a Selling Stockholder and/or
purchasers of the Shares for whom such broker or dealers may act as agents, or
to whom they may sell as principal, or both (which compensation as to a
particular broker or dealer may be in excess of customary commissions). The
Selling Stockholders and any participating brokers or dealers may be deemed to
be "underwriters" within the meaning of the Securities Act. Any such
commissions, discounts or concessions
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<PAGE>
and any gain realized by such broker or dealer on the sale of Shares which it
purchases as a principal may be deemed to be underwriting compensation to the
broker or dealer.
While the Selling Stockholders are not restricted in selling
Shares during any periods of time, they may not, in any thirty-day period,
convert more than one-third of the number of Preferred Shares purchased by them
in the Private Placement. The Selling Stockholders have been advised by the
Company that during the time each is engaged in distributing Shares covered by
this Prospectus, each must comply with the requirements of the Securities Act
and Rule 10b-5 and Regulation M under the Exchange Act, and pursuant thereto,
among other things: (i) may not engage in any stabilization activity in
connection with the Company's securities; (ii) must furnish each broker through
which Common Stock covered by this Prospectus may be offered with the number of
copies of this Prospectus which are required by each broker; and (iii) may not
bid for or purchase any securities of the Company or attempt to induce any
person to purchase any of the Company's securities other than as permitted under
the Exchange Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby was passed upon
by Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York,
New York 10036.
EXPERTS
The consolidated financial statements and schedules of TII
Industries, Inc. incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended June 27, 1997 have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial statements
and schedules are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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<PAGE>
No person has been authorized in
connection with the offering made
hereby to give any information or to
make any representation not contained
in this Prospectus or a supplement to
this Prospectus, and, if given or
made, such information or
representation must not be relied upon
as having been authorized by the
Company, the Selling Stockholders or
any other person. Neither this
Prospectus nor any supplement to this
Prospectus constitutes an offer to
sell or a solicitation of an offer to 60,000 Shares
buy, any securities other than the
securities to which it relates or an
offer to sell or the solicitation of TII INDUSTRIES, INC.
an offer to buy such securities in any
jurisdiction where, or to any person
to whom it is unlawful to make such an Common Stock
offer or solicitation. Neither the
delivery of this Prospectus nor any
supplement to this Prospectus nor any
sale made hereunder or thereunder
shall, under any circumstances, create
any implication that there has been no
change in the affairs of the Company
since the date hereof or thereof or PROSPECTUS
that the information contained herein
is correct as of any time subsequent
to the dates as of which such
information is furnished.
-----------------
TABLE OF CONTENTS
Page
----
Available Information................2
Information Incorporated by
Reference...........................2
The Company..........................3
Risk Factors.........................4
Selling Stockholders................11
Description of Capital Stock........12
Plan of Distribution................15
Legal Matters.......................16
Experts.............................16 March ___, 1998
II-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
It is estimated that the following expenses will be incurred in
connection with the proposed offering hereunder. All of such expenses will be
borne by the Company.
Registration fee - Securities and Exchange ..........
Commission ........................................ $ 116.16
Legal fees and expenses ............................. 2,500.00
Accounting fees and expenses ........................ 500.00
Printing and engraving expenses ..................... 250.00
Miscellaneous ....................................... 133.84
------------
Total ..................... $ 3,500.00
============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides, in general, that a corporation incorporated under the
laws of the State of Delaware, such as the registrant, may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than a derivative action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. In the case of a derivative action, a Delaware corporation
may indemnify any such person against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court determines such person is fairly and reasonably entitled to indemnity for
such expenses. Article XII of the registrant's By-laws provides that the
registrant shall so indemnify such persons. In addition, Article 12 of the
registrant's Restated Certificate of Incorporation, as amended, provides, in
general, that no director of the registrant shall be personally liable to the
registrant or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the DGCL (which provides
that, under certain circumstances, directors may be jointly and severally liable
for willful or negligent violations of the DGCL provisions regarding the payment
of dividends or stock repurchases or redemptions), as the same exists or
hereafter may be amended; or (iv) for any transaction from which the director
derived an improper personal benefit.
II-2
<PAGE>
Item 16. Exhibits:
Exhibit Number Description
4(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).
4(a)(2) 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).
4(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).
5* Opinion of Parker, Chapin, Flattau & Klimpl, LLP as to the
legality of the Common Stock being offered and consent.
23(a)* Consent of Arthur Andersen LLP.
23(b)* Consent of Parker Chapin Flattau & Klimpl, LLP (to be included in
Exhibit 5).
24* Powers of Attorney of certain officers and directors of the
registrant (included as part of the signature page on page II-5
of this filing).
99* Form of Warrant held by the Selling Stockholders.
- ----------
* Filed herewith.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Copiague, State of New York, on the 27th day of
February, 1998.
TII INDUSTRIES, INC.
By: /s/ Timothy J. Roach
-------------------------
Timothy J. Roach, President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints each of Timothy J. Roach, Paul
G. Sebetic and Leonard W. Suroff and each of them with power of substitution, as
his attorney-in-fact, in all capacities, to sign any amendments to this
registration statement (including post-effective amendments) and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-facts or their substitutes may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 27th day of February, 1998.
Signature Title
--------- -----
/s/ Alfred J. Roach Chairman of the Board
- ---------------------------
Alfred J. Roach
/s/ Timothy J. Roach President (Chief Executive Officer)
- --------------------------- and Director
Timothy J. Roach
/s/ Paul G. Sebetic Vice President - Finance (Chief
- --------------------------- Financial and Accounting Officer)
Paul G. Sebetic
/s/ C. Bruce Barksdale Director
- ---------------------------
C. Bruce Barksdale
/s/ Dorothy Roach Director
- ---------------------------
Dorothy Roach
/s/ Joseph C. Hogan Director
- ---------------------------
Joseph C. Hogan
/s/ William G. Sharwell Director
- ---------------------------
William G. Sharwell
/s/ James R. Grover, Jr. Director
- ---------------------------
James R. Grover, Jr.
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
4(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).
4(a)(2) 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).
4(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).
5* Opinion of Parker, Chapin, Flattau & Klimpl, LLP as to the
legality of the Common Stock being offered and consent.
23(a)* Consent of Arthur Andersen LLP.
23(b)* Consent of Parker Chapin Flattau & Klimpl, LLP (to be included in
Exhibit 5).
24* Powers of Attorney of certain officers and directors of the
registrant (included as part of the signature page on page II-5
of this filing).
99* Form of Warrant held by the Selling Stockholders.
- ----------
* Filed herewith.
II-6
PARKER CHAPIN FLATTAU & KLIMPL, LLP
[LETTERHEAD]
February 27, 1998
TII Industries, Inc.
1385 Akron Street
Copiague, New York 11726
Gentlemen:
We have acted as counsel to TII Industries, Inc, a Delaware
corporation (the "Company"), in connection with a Registration Statement on Form
S-3 (the "Registration Statement") being filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, covering an aggregate
of 60,000 shares of the Company's Common Stock, $.01 par value (the "Warrant
Shares"), which may be issued upon the exercise of warrants that have been
granted by the Company.
In connection with the foregoing, we have examined originals or
copies, satisfactory to us, of all such corporate records and of all such
agreements, certificates and other documents as we have deemed relevant and
necessary as a basis for the opinion hereinafter expressed. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the original
documents of all documents submitted to us as copies or facsimiles. As to any
facts material to such opinion we have, to the extent that relevant facts were
not independently established by us, relied on certificates of public officials
and certificates of officers or other representatives of the Company.
Based upon and subject to the foregoing, we are of the opinion
that the Warrant Shares, when paid for and issued upon the exercise of the
warrants, in accordance with the terms and provisions thereof, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
/s/ PARKER CHAPIN FLATTAU & KLIMPL, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated September 19, 1997,
included in TII Industries, Inc.'s Form 10-K for the year ended June 27, 1997,
and to all references to our firm included in this registration statement.
/s/ Arthur Andersen LLP
San Juan, Puerto Rico,
February 27, 1998.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. WL-3 Shares _________
Aggregate Warrant Price $ _________
FOR VALUE RECEIVED, TII Industries, Inc. (the "Company"), a
Delaware corporation, hereby certifies that _____________________ , or his
permitted assigns, is entitled to purchase from the Company, at any time or from
time to time commencing September 1, 1993 and prior to 5:00 P.M., New York City
time then current, on August 31, 1998, __________ fully paid and non-assessable
shares of the common stock, $.01 par value, of the Company at the purchase price
of $2.625 per share (said number of shares and exercise price being at the date
of original issuance of the Warrants and prior to any adjustments made or
required to be made under Section 3). Hereinafter, (i) said common stock,
together with any other equity securities which may be issued by the Company
with respect thereto or in substitution therefor, is referred to as the "Common
Stock", (ii) the shares of the Common Stock purchasable hereunder are referred
to as the "Warrant Shares", (iii) the aggregate purchase price payable hereunder
for each of the Warrant Shares is referred to as the "Aggregate Warrant Price",
(iv) the price payable hereunder for each of the Warrant Shares is referred to
as the "Per Share Warrant Price" and (v) this warrant and all warrants hereafter
issued in exchange or substitution for this warrant are referred to as the
"Warrants". The Aggregate Warrant Price is not subject to adjustment. The Per
Share Warrant Price is subject to adjustment as hereinafter provided; in the
event of any such adjustment, the number of Warrant Shares shall be adjusted by
dividing the Aggregate Warrant Price by the Per Share Warrant Price in effect
immediately after such adjustment.
1. Exercise of Warrant
(a)This Warrant may be exercised, in whole at any time or in part
from time to time commencing September 1, 1993 (the "Commencement Date") and
prior to 5:00 P.M., New York City time then current on August 31, 1998 (the
"Expiration Date"), by the holder of this Warrant (the "Holder") by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Section 10 hereof, together with proper
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part. Payment for the Warrant Shares shall be made
by certified or official bank check, payable to the order of the Company. If
this Warrant is exercised in part, this Warrant must be exercised for a number
of whole shares of the Common Stock, and the Holder is entitled to receive a new
Warrant covering the number of Warrant Shares in respect of which this Warrant
has not been exercised and setting forth the proportionate part of the Aggregate
Warrant Price applicable to such Warrant Shares. Upon such exercise and
surrender of this Warrant, the Company will (i) issue a certificate or
certificates in the name of the Holder for the largest number of whole shares of
the Common Stock to which the Holder shall be entitled and, if this Warrant is
exercised in whole, in lieu of any fractional share of the
<PAGE>
Common Stock to which the Holder shall be entitled, pay cash equal to the fair
value of such fractional share (determined in such reasonable manner as the
Board of Directors of the Company shall determine), and (ii) deliver the other
securities and properties then receivable upon the exercise of this Warrant, or
the proportionate part thereof if this Warrant is exercised in part, pursuant to
the provisions of this Warrant.
(b) In lieu of exercising this Warrant in the manner set forth in
Subsection 1(a) above, this Warrant may be exercised between the Commencement
Date and the Expiration Date by surrender of the Warrant without payment of any
other consideration, commission or remuneration, together with the cashless
exercise subscription form at the end hereof, duly executed, but the number of
Warrant Shares to be issued in exchange for the Warrant shall be the product of
(x) the excess of the Per Share Market Price (as defined in Subsection 5(e)
below) of the Common Stock on the date of surrender of the Warrant and the
exercise subscription form over the Per Share Warrant Price and (y) the number
of Warrant Shares subject to the portion of this Warrant being exercised
pursuant to Subsection 1(a) above divided by the Per Share Market Price of the
Common Stock on such date. Upon such exercise and surrender of this Warrant, the
Company will (i) issue a certificate or certificates in the name of the Holder
for the largest number of whole shares of the Common Stock to which the Holder
shall be entitled pursuant to this Subsection 1(b) and in lieu of any fractional
share of the Common Stock to which the Holder shall be entitled, pay cash equal
to the fair value of such fractional share (determined in such reasonable manner
as the Board of Directors of the Company shall determine), and (ii) deliver the
other securities and properties then receivable upon the exercise of this
Warrant, pursuant to the provisions of this Warrant. Warrant Shares so applied
in payment of the Per Share Warrant Price shall no longer be issuable under this
Warrant.
2. Reservation of Warrant Shares
The Company agrees that, prior to the expiration of this Warrant,
the Company will at all times have authorized and in reserve, and will keep
available, solely for issuance or delivery upon the exercise of this Warrant,
such number of shares of the Common Stock and such amount of other securities
and properties as from time to time shall be deliverable to the Holder upon the
exercise of this Warrant, free and clear of all restrictions on sale or transfer
(except such as may be imposed under applicable Federal and State securities
laws) and free and clear of all preemptive rights and all other rights to
purchase securities of the Company.
3. Protection Against Dilution
(a) If, at any time or from time to time after the date of this
Warrant, the Company shall distribute to the holders of its outstanding Common
Stock: (i) securities, other than shares of Common Stock, or (ii) property,
other than cash without in either case payment therefor, with respect to Common
Stock, then, and in each such case, the Holder, upon the exercise of this
Warrant, shall be entitled to receive the securities and property which the
Holder would
-2-
<PAGE>
hold on the date of such exercise if, on the date of this Warrant, the Holder
had been the holder of record of the number of shares of the Common Stock
subscribed for upon such exercise and, during the period from the date of this
Warrant to and including the date of such exercise, had retained such shares and
the securities and properties receivable by the Holder during such period.
Notice of each such distribution shall be forthwith mailed to the Holder.
(b) If, at any time or from time to time after the date of this
Warrant, the Company shall (i) pay a dividend or make a distribution on its
capital stock in shares of Common Stock, (ii) subdivide its outstanding shares
of Common Stock into a greater number of shares, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares or (iv) issue by
reclassification of its Common Stock any shares of capital stock of the Company,
the Per Share Warrant Price in effect immediately prior to such action shall be
adjusted so that the Holder of any Warrant thereafter exercised shall be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which he would have owned or been entitled to receive immediately
following the happening of any of the events described above had this Warrant
been exercised immediately prior thereto. An adjustment made pursuant to this
Subsection 3 (b) shall become effective immediately after the record date in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
Subsection 3 (b), the holder of any Warrant thereafter surrendered for exercise
shall become entitled to receive shares of two or more classes of capital stock
or shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Per Share Warrant Price between
or among shares of such classes or capital stock or shares of Common Stock and
other capital stock.
(c) Except as provided in Subsection 3(e), in case the Company
shall hereafter issue or sell any shares of Common Stock for a consideration per
share less than the Per Share Market Price of Common Stock (determined pursuant
to Subsection 5(e)) as of the close of business on the business day last
preceding the date on which such issuance or sale was authorized by the
Company's Board of Directors, the Per Share Warrant Price shall be adjusted as
of the date of such issuance or sale so that the same shall equal the price
determined by multiplying the then existing Per Share Warrant Price as of the
close of business on the business day last preceding the date on which such
issuance or sale was authorized by the Company's Board of Directors by a
fraction, the numerator of which shall be the sum of (A) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale multiplied
by the Per Share Market Price as of the close of business on the business day
last preceding the date on which such issuance or sale was authorized by the
Company's Board of Directors plus (B) the aggregate consideration received by
the Company for the issuance or sale of capital stock, rights, options or
warrants to acquire capital stock, or securities convertible into capital stock
of the Company (including with respect to the securities contemplated by this
Subsection 3(c)) since the last previous change in the Per Share Warrant
-3-
<PAGE>
Price or, if there has been no such previous change, since the issuance of this
Warrant, and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately after such issuance or sale multiplied by
the Per Share Market Price as of the close of business on the business day last
preceding the date on which such issuance or sale was authorized by the
Company's Board of Directors.
(d) Except as provided in Subsection 3(e), in case the Company
shall hereafter issue or sell any rights, options, warrants or securities
convertible into Common Stock entitling the holders thereof to purchase Common
Stock or to convert such securities into Common Stock for a consideration per
share (determined by dividing (i) the total amount, if any, received or
receivable by the Company in consideration of the issuance or sale of such
rights, options, warrants or convertible securities plus the total
consideration, if any, payable to the Company upon exercise or conversion
thereof (the "Total Consideration") by (ii) the number of additional shares of
Common Stock issuable upon exercise or conversion of such securities) which is
less than the then Per Share Market Price of Common Stock (determined pursuant
to Subsection 5(e)) as of the close of business on the business day last
preceding the date on which such issuance or sale was authorized by the
Company's Board of Directors, the Per Share Warrant Price shall be adjusted as
of the date of such issuance or sale so that the same shall equal the price
determined by multiplying the then existing Per Share Warrant Price by a
fraction, the numerator of which shall be the sum of (A) the number of shares of
Common Stock outstanding immediately prior to such issuance or sale multiplied
by the Per Share Market Price as of the close of business on the business day
last preceding the date on which such issuance or sale was authorized by the
Company's Board of Directors plus (3) the Total Consideration plus (C) the
aggregate amount of consideration received by the Company for the issuance or
sale of capital stock, rights, options or warrants to acquire capital stock, or
securities convertible into capital stock of the Company (excluding with respect
to securities contemplated by this Subsection (d)) since the last previous
change in the Per Share Warrant Price or, if there has been no such previous
change, since the issuance of the Warrant, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately after such issuance
or sale plus the maximum number of additional shares of Common Stock issuable
upon exercise of the rights, options, warrants or the conversion of securities
convertible into Common Stock which causes an adjustment under this Subsection
3(d) multiplied by the Per Share Market Price as of the close of business on the
business day last preceding the date on which such issuance or sale was
authorized by the Company's Board of Directors. No further adjustments of the
Per Share Warrant Price shall be made upon the actual issuance of Common Stock
upon the exercise of such rights, options, warrants or securities convertible
into Common Stock. Upon the expiration of any such right, option or warrant, or
termination of any right to convert any such convertible securities, without
exercise, the Per Share Warrant Price then in effect shall forthwith
automatically be increased to the Per Share Warrant Price that would have been
in effect at the time of such expiration or termination had such right, option,
warrant or convertible securities, to the extent outstanding immediately prior
to such expiration or termination, never been issued, and the shares issuable
thereunder shall no longer be deemed outstanding.
-4-
<PAGE>
(e) Notwithstanding any provision herein to the contrary, no
adjustment to the Per Share Warrant Price (nor number of Warrant Shares subject
to this Warrant) shall be made pursuant to this Section 3 upon the issuance or
sale by the Company of any Common Stock upon the exercise or conversion of (i)
the Warrants (and all similar Warrants originally issued to the initial Holder
of the Warrants as of September 1, 1993), (ii) all options, warrants and
convertible securities of the Company outstanding on September 1, 1993
(including any extensions of the expiration or termination dates or repricings
thereof) and (iii) options to purchase shares of the Company's capital stock
which may be granted to employees (including employees who are officers and/or
directors of the Company) of the Company under any stock option plan, restricted
stock, stock purchase or other similar benefit arrangement now or hereafter
adopted by the Board of Directors of the Company.
(f) In case of any consolidation or merger to which the Company
is a party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another entity
of the property of the Company as an entirety or substantially as an entirety,
or in the case of any statutory exchange of securities with another entity
(including any exchange effectuated in connection with a merger of any other
corporation with the Company other than a merger in which the Company is the
continuing corporation) the Holder of this Warrant shall have the right
thereafter to exercise such Warrant for the kind and amount of securities, cash
or other property which he would have owned or have been entitled to receive
immediately after such consolidation, merger, statutory exchange, sale or
conveyance had this Warrant been exercised immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale or conveyance and
in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Subsection 3(f) shall similarly apply
to successive consolidations, mergers, statutory exchanges, sales or conveyances
of property as an entirety or substantially as an entirety. Notice of any such
consolidation, merger, statutory exchange, sale or conveyance, and of said
provisions so proposed to be made, shall be mailed to the Holder not less than
20 days prior to such event. A sale of all or substantially all of the assets of
the Company for a consideration consisting primarily of securities shall be
deemed a consolidation or merger for the foregoing purposes.
(g) No adjustment in the Per Share Warrant Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; provided, however, that any adjustments
which by reason of this Subsection 3(g) are not required to be made shall be
carried forward and taken into account in any subsequent adjustments and
provided further, however, that adjustments shall be required and made in
accordance with the provisions of this Section 3 (other than this Subsection
3(g)) not later than
-5-
<PAGE>
such time as may be required in order to preserve the tax-free nature of a
distribution to the Holder of this Warrant or Common Stock. All calculations
under this Section 3 shall be made to the nearest cent or the nearest 1/100th of
a share, as the case may be. Anything in this Section 3 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Per Share Warrant Price, in addition to those required by this Section 3, as it
in its discretion shall deem to be advisable in order that any stock dividend,
subdivision of shares or distribution of rights to purchase stock or securities
convertible or exchangeable for stock hereafter made by the Company to its
shareholders shall not be taxable.
(h) Whenever the Per Share Warrant Price is adjusted as provided
in this Section 3 and upon any modification of the rights of the Holder of this
Warrant in accordance with this Section 3, the Company shall, at its own
expense, within ten (10) days of such adjustment or modification, deliver to the
holder of this Warrant a certificate of the Principal Financial Officer of the
Company setting forth the unaudited Per Share Warrant Price and the number of
Warrant Shares after such adjustment or the effect of such modification, a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same.
(i) If the Board of Directors of the Company shall declare any
dividend or other distribution in cash with respect to the Common Stock, other
than out of earned surplus, the Company shall mail notice thereof of the Holder
not less than 10 days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution.
(j) In the event of the exercise of all or part of this Warrant
after the record date for any event described in Subsection 3(a) or (b) but
prior to the effective or payment date therefor, the Company may defer until the
effective or payment date issuing (and, in case of any stock combination or
reclassification that would result in the Holder being entitled to fewer shares
of Common Stock, the Company need not issue) to the Holder any shares or
property in addition to (or in excess of) that which the Holder would be
entitled to own prior to such payment or effective date had the Holder exercised
this Warrant (or portion thereof exercised) immediately prior to such record
date.
(k) If the consideration received or to be received by the
Company with respect to any Common Stock, rights, options, warrants or
securities convertible into Common Stock (including any future consideration
which may be received): (i) is cash, the amount thereof shall be the amount of
cash to be received and/or (ii) is a consideration other than cash, the amount
of such other consideration shall be deemed to be the fair market value of such
consideration as determined by the Board of Directors of the Company, in the
case of (i) and/or (ii) without deduction therefrom of any expenses incurred or
any underwriting commissions, discounts or concessions paid or allowed by the
Company.
4. Fully Paid Stock: Taxes
The Company agrees that the shares of the Common Stock
represented by each and
-6-
<PAGE>
every certificate for Warrant Shares delivered on the exercise of this Warrant
in accordance with the terms hereof shall, at the time of such delivery, be
validly issued and outstanding, fully paid and non-assessable, and not subject
to preemptive rights or other contractual rights to purchase securities of the
Company, and the Company will take all such actions as may be necessary to
assure that the par value or stated value, if any, per share of the Common Stock
is at all times equal to or less than the then Per Share Warrant Price. The
Company further covenants and agrees that it will pay, when due and payable, any
and all Federal and state stamp, original issue or similar taxes which may be
payable in respect of the issue of any Warrant Share or certificate therefor.
5. Registration Under Securities Act of 1933
(a) The Company agrees that if, on one occasion during the period
commencing on September 1, 1994, and ending on the earlier to occur of the
second anniversary of the exercise of this Warrant or September 1, 2000, the
Holder and/or the Holders of any other Warrants and/or Warrant Shares who or
which shall hold, in the aggregate, not less than 50% of the sum of (i) the
number of Warrant Shares subject to then outstanding Warrants and (ii) Warrant
Shares outstanding at such time and not previously sold pursuant to this Section
5, request that the Company file a registration statement under the Securities
Act of 1933, as amended (the "Act"), covering all or any of the Warrant Shares
(but not less than 75,000 Warrant Shares) the Company will (i) promptly notify
the Holder and all other registered Holders, if any, of other Warrant and/or
Warrant Shares that such registration statement will be filed and that the
Warrant Shares which are then held, and/or which may be acquired upon the
exercise of Warrants, by the Holder and such Holders will be included in such
registration statement at the Holder's and such Holders' request, (ii) cause
such registration statement to cover all Warrant Shares which it has been so
requested to include, (iii) use its best efforts to cause such registration
statement to become effective as soon as practicable and to remain effective and
current until such time as an amendment is required to be filed pursuant to the
provisions of Section 10(a)(3) of the Act, provided, however, that if such
registration statement is on a registration form that may be kept current be
means of incorporating by reference periodic reports filed by the Company under
Section 13 of the Securities Exchange Act of 1934, two years from the effective
date of such registration statement, and (iv) subject to Subsection 5(c) below
use its best efforts to take all other action necessary under any Federal or
state law or regulation of any governmental authority to permit all Warrant
Shares which it has been so requested to include in such registration statement
to be sold or otherwise disposed of and (c) subject to Subsection 5(a)(iii), use
its best efforts to maintain such compliance with each such Federal and state
law and regulation of any governmental authority for the period necessary for
the Holder and such Holders to effect the proposed sale or other disposition.
(b) The Company agrees that if, at any time and from time to time
during the period commencing on September 1, 1994 and ending on the earlier to
occur of the second anniversary of the exercise of this Warrant or September 1,
2000, the Board of Directors of
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the Company shall authorize the filing of a registration statement (any such
registration statement being sometimes hereinafter called a "Subsequent
Registration Statement") under the Act (otherwise than pursuant to Subsection
5(a) hereof and otherwise than in connection with mergers, acquisitions,
exchange offers or recapitalizations on Form S-4 (or a successor form thereto),
subscription offers, dividend reinvestment plans and stock option or other
employee benefit plans) in connection with the proposed offer of any of its
securities by it or any of its shareholders, the Company will (i) promptly
notify the Holder and all other registered Holders, if any, of other Warrants
and/or Warrant Shares that such Subsequent Registration Statement will be filed
and that the Warrant Shares which are then held, and/or which may be acquired
upon the exercise of the Warrants, by the Holder and such Holders will be
included in such Subsequent Registration Statement at the Holder's and such
Holders' request, (ii) use its best efforts to cause such Subsequent
Registration Statement to cover all Warrant Shares which it has been so
requested to include, (iii) use its best efforts to cause such Subsequent
Registration Statement to cover all Warrant Shares which it has be so requested
to include, (iii) use its best efforts to cause such Subsequent Registration
Statement to become effective as soon as practicable and to remain effective and
current until such time as an amendment is required to be filed pursuant to the
provisions of Section 10(a)(3) of the Act, provided, however, that if such
registration statement is on a registration form that may be kept current by
means of incorporating by reference periodic reports filed by the Company under
Section 13 of the Securities Exchange Act of 1934, two years from the effective
date of such registration statement, and (iv) subject to Subsection 5(a)(iii),
use its best efforts to take all other action necessary under any Federal or
state law or regulation of any governmental authority to permit all Warrant
Shares which it has been so requested to include in such Subsequent Registration
Statement to be sold or otherwise disposed of and will use its best efforts to
maintain such compliance with each such Federal and state law and regulation of
any governmental authority for the period necessary for the Holder and such
holders to effect the proposed sale or other disposition. Notwithstanding
anything to the contrary in this Subsection 5(b), if any such Subsequent
Registration Statement relates to an underwritten offering and the managing
underwriter(s) of such offering advises in writing that in its opinion the
inclusion in such Subsequent Registration Statement of any of the Warrant Shares
exceeds the number of securities that can be sold in such offering or could
materially and adversely affect the price that could be obtained in such
offering, then the number of Warrant Shares to be included in such Subsequent
Registration Statement shall be reduced on a pro rata basis amount among the
Warrant Shares proposed to be included in such Subsequent Registration Statement
and all other securities proposed to be sold in the offering to such number that
such managing underwriter(s) advises could be included in such underwriting
without interfering with the successful marketing of the securities otherwise
proposed to be sold in the offering. Furthermore, it shall be a condition to
participation in any underwritten offering that a holder of the Warrant Shares
who elects to participate in the Subsequent Registration Statement execute and
deliver an Underwriting Agreement with the proposed underwriters of such
offering.
(c) Whenever the Company is required pursuant to the provisions
of this Section 5
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to include Warrant Shares in a registration statement, the Company shall (i)
furnish each Holder of any such Warrant Shares and each underwriter of such
Warrant Shares with such copies of the prospectus, including the preliminary
prospectus, conforming to the Act (and such other documents as each such Holder
or each such underwriter may reasonably request) in order to facilitate the sale
or distribution of the Warrant Shares, (ii) use its best effort to register or
qualify such Warrant Shares under the blue sky laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holders of any such Warrant Shares
and each underwriter of Warrant Shares being sold by such Holders shall
reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold provided that the Company shall not be required to qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Subsection 5(c).
(d) The Company shall pay all expenses incurred in connection
with any registration or other action pursuant to the provisions of this
Section, including up to $25,000 of attorneys' fees and expenses for one counsel
representing the Holder(s) of the Warrant Shares covered by such registration
statement incurred in connection with such registration or other action other
than underwriting discounts and applicable transfer taxes relating to the
Warrant Shares.
(e) The Per Share Market Price of Common Stock shall mean the
price of a share of Common Stock on the relevant date, determined on the basis
of (i) the last reported sale price of the Common Stock as reported on the
NASDAQ National Market System ("NASDAQ") or, if there is no such reported sale
on the day in question, on the basis of the average of the closing bid and asked
quotations as so reported, or, (ii) if the Common Stock is not listed on NASDAQ,
the last reported sale price of the Common Stock on such national securities
exchange upon which the Common Stock is listed, or, (iii) if neither (i) nor
(ii) is applicable, on the basis of the average of the closing bid and asked
quotations on the day in question in the over-the-counter market as reported by
the National Association of Securities Dealers' Automated Quotations System, or
if not so quoted, as reported by National Quotation Bureau, Incorporated or
similar organization.
(f) Notwithstanding anything in this Section 5 to the contrary:
the Company shall be entitled to postpone the filing of any registration
statement otherwise required to be prepared and filed by it and shall not be
obligated to keep an effective registration statement current (i) to the extent
and during such time as is reasonably necessary to prepare the financial
statements of the Company for the fiscal period most recently ended prior to
such written request or required to be included with respect to another entity
by reason of an acquisition or otherwise, (ii) for a period of up to 90 days if
the Company would be required to disclose in such registration statement the
existence of any fact relating to a material business situation, transaction or
negotiation not otherwise publicly disclosed (which right to postpone
registration shall terminate upon the public disclosure by the Company of the
existence of such fact) and
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(iii) during the 180-day period following the effectiveness of a registration
statement filed by the Company in connection with an underwritten primary or a
secondary offering of its securities.
(g) Notwithstanding anything to this Section 5 to the contrary,
the Company will have no such obligation to prepare and file a registration
statement or include Warrant Shares in any registration which it prepares and
files: (i) if it provides to the Holders so requesting registration an opinion
of counsel, in form and substance reasonably satisfactory to such Holder, to the
effect that the Warrant Shares for which registration is being requested may be
sold under Rule 144 under the Act or otherwise in open market transactions
without registration and without compliance with Rule 144 under the Act and (ii)
if, within thirty days after it receives any request for such registration, it
agrees to purchase for cash within twenty (20) days thereafter (the Holder
hereof hereby grants the Company the right and option to so purchase such
Warrants and Warrant Shares in such circumstances) the Warrants and Warrant
Shares for which registration has been requested at a price equal to (A) in the
case of Warrants, the difference between the then Per Share Market Price of the
Common Stock and the Per Share Warrant Price of such Warrants multiplied by the
number of Warrant Shares being purchased or (B) in the case of Warrant Shares,
the then Per Share Market Price of the Common Stock multiplied by the number of
Warrant Shares being purchased.
6. Indemnification
(a) The Company agrees to indemnify and hold harmless each
selling holder of Warrant Shares and each person who controls any such selling
holder within the meaning of Section 15 of the Act, and each and all of them,
from and against any and all losses, claims, damages, liabilities or actions,
joint or several, to which any selling holder of Warrant Shares or they or any
of them may become subject under the Act or otherwise and to reimburse the
persons indemnified as above for any reasonable legal or other expenses
(including the cost of any investigation and preparation) incurred by them in
connection with any litigation or threatened litigation, whether or not
resulting in any liability, but only insofar as such losses, claims, damages,
liabilities or actions arise out of or are based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement pursuant to which Warrant Shares were registered under the Act
(hereinafter called a "Registration Statement"), any preliminary prospectus, the
final prospectus or any amendment or supplement thereto (or in any application
or document filed in connection therewith) or document executed by the Company
based upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to register or qualify the Warrant Shares under the
securities laws thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or (ii) the employment by the Company of any device, scheme or
artifice to defraud, or the engaging by the Company in any act, practice or
course of conduct which operates or would operate as a fraud or deceit, or any
conspiracy with respect thereto, in which the Company shall participate, in
connection with the issuance and
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sale of any of the Warrant Shares; provided, however, that (i) the indemnity
agreement contained in this Subsection 6(a) shall not extend to any selling
holder of Warrant Shares in respect of any such losses, claims, damages,
liabilities or actions arising out of, or based upon, any such untrue statement
or alleged untrue statement, or any such omission or alleged omission, if such
statement or omission was based upon and made in conformity with information
furnished in writing to the Company by a selling holder of Warrant Shares
specifically for use in connection with the preparation of such Registration
Statement, any final prospectus, any preliminary prospectus or any such
amendment or supplement thereto. The Company agrees to pay any legal and other
expenses for which it is liable under this Subsection 6(a) from time to time
(but not more frequently than monthly) within 30 days after its receipt of a
bill therefor.
(b) Each selling holder of Warrant Shares, severally and not
jointly, will indemnify and hold harmless the Company, its directors, its
officers who shall have signed the Registration Statement and each person, if
any, who controls the Company within the meaning of Section 15 of the Act to the
same extent as the foregoing indemnify from the Company, but in each case to the
extent, and only to the extent, that any statement in or omission from or
alleged omission from such Registration Statement, any final prospectus, any
preliminary prospectus or any amendment or supplement thereto was made in
reliance upon information furnished in writing to the Company by such selling
holder of Warrant Shares specifically for use in connection with the preparation
of the Registration Statement, any final prospectus or any preliminary
prospectus or any such amendment or supplement thereto, provided however, that
the obligation of any holder of Warrant Shares to indemnify the Company under
the provisions of this Subsection 6 (b) shall be limited to the product of the
number of Warrant Shares being sold by the selling holder and the market price
of the Common Stock on the date of the sale to the public of these Warrant
Shares. Each selling holder of Warrant Shares agrees to pay any legal and other
expenses for which it is liable under this Subsection 6(b) form time to time
(but not more frequently than monthly) within 30 days after receipt of a bill
therefor.
(c) if any action is brought against a person entitled to
indemnification pursuant to the foregoing Subsection 6 (a) or (b) (an
"indemnified party") in respect of which indemnity may be sought against a
person granting indemnification (an "indemnifying party") pursuant to such
Subsection, such indemnified party shall promptly notify such indemnifying party
in writing of the commencement thereof, but the omission so to notify the
indemnifying party of any such action shall not release the indemnifying party
from any liability it may have to such indemnified party otherwise than on
account of the indemnity agreement contained in Subsection 6(a) or (b). In case
any such action is brought against an indemnified party and it notifies an
indemnifying party of the commencement thereof, the indemnifying party against
which a claim is to be made will be entitled to participate therein at its own
expense and, to the extent that it may wish, to assume at its own expense the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
provided, however, that (i) if the defendants in any such action include both
the indemnified party and the indemnifying party and the
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indemnified party shall have reasonably concluded based upon advice of counsel
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party shall have the right to select
separate counsel to assert such legal defenses and otherwise to participate in
the defense of such action on behalf of such indemnified party or parties and
(ii) in any event, the indemnified party shall be entitled to have counsel
chosen by such indemnified party participate in, but not conduct, the defense at
the expense of the indemnifying party. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with proviso (i) to the next
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel), (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (ii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. An indemnifying party shall not be liable for
any settlement of any action or proceeding effected without its written consent.
(d) In order to provide for just an equitable contribution in
circumstances in which the indemnity agreement provided for in Subsection 6 (a)
is unavailable to a selling holder of Warrant Shares in accordance with its
terms, the Company and the selling holder of Warrant Shares shall contribute to
the aggregate losses, claims, damages and liabilities of the nature contemplated
by said indemnity agreement incurred by the Company and the selling holder of
Warrant Shares in such proportions as is appropriate to reflect the relative
benefits received by the Company and the selling holder of Warrant Shares from
any offering of the Warrant Shares; provided, however, that if such allocation
is not permitted by applicable law or if the indemnified party failed to give
the notice required under Subsection 6 (c), then the relative fault of the
Company and the selling holder of Warrant Shares in connection with the
statements or omissions which resulted in such losses, claims, damages and
liabilities and other relevant equitable considerations will be considered
together with such relative benefits.
(e) The respective indemnity and contribution agreements by the
Company and the selling holder of Warrant Shares in Subsection 6 (a), (b), (c)
and (d) shall remain operative and in full force and effect regardless of (i)
any investigation made by any selling holder of Warrant Shares or by or on
behalf of any person who controls such selling holder or by the Company or any
controlling person of the Company or any director or any officer of the Company,
(ii) payment for any of the Warrant Shares or (iii) any termination of this
Agreement, and shall survive the delivery of the Warrant Shares, and any
successor of the Company, or any of selling holder of Warrant Shares or of any
person who controls the Company or of any selling holder of Warrant Shares, as
the case may be, shall be entitled to
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the benefit of such respective indemnity and contribution agreements. The
respective indemnity and contribution agreements by the Company and the selling
holder of Warrant Shares contained in Subsection 6(a), (b), (c) and (d) shall be
in addition to any liability which the Company and the selling holder of Warrant
Shares may otherwise have.
7. Limited Transferability
(a) This Warrant is not transferable or assignable by the Holder
except it may be transferred in compliance with Subsection (b) and with respect
to not less than 20,000 Warrant Shares, this Warrant may be transferred and
assigned: (i) to Ladenburg, Thalmann & Co. Inc., any successor firm or
corporation of Ladenburg, Thalmann & Co. Inc., (ii) to any of the officers or
employees of Ladenburg, Thalmann & Co. Inc. or of any such successor firm or
(iii) in the case of an individual pursuant to such individual's last will and
testament or the laws of descent and distribution and is so transferable only
upon the books of the Company which it shall cause to be maintained for the
purpose. The Company may treat the registered holder of this Warrant as he or it
appears on the Company's books at any time as the Holder for all purposes. The
Company shall permit any Holder of a Warrant or his or its duly authorized
attorney, upon written request during ordinary business hours, to inspect and
copy or make extracts from its books showing the registered Holders of Warrants.
All Warrants will be dated the same date as this Warrant.
(b) By acceptance hereof, the Holder represents and warrants that
this Warrant is being acquired, and all Warrant Shares to be purchased upon the
exercise of this Warrant will be acquired, by the Holder solely for the account
of such Holder and not with a view to the fractionalization and distribution
thereof and will not be sold or transferred except in accordance with the
applicable provisions of the Act and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder, and the Holder agrees that
neither this Warrant nor any of the Warrant Shares may be sold or transferred
except under cover of a Registration Statement under the Act which is effective
and current with respect to such Warrant Shares or pursuant to an opinion, in
form and substance reasonably acceptable to the Company, that registration under
the Act is not required in connection with such sale or transfer. Any Warrant
Shares issued upon exercise of this Warrant shall bear the following legend:
"The Securities represented by this certificate
have not been registered under the Securities Act of 1933 and are
restricted securities (within the meaning of the rules and
regulations promulgated thereunder). Such securities may not be
sold or transferred except pursuant to a Registration Statement
under such Act which is effective and current with respect to
such securities or pursuant to an opinion of counsel reasonably
satisfactory to the Company that such sale or transfer is exempt
from the registration requirements of such Act."
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8. Loss, Etc., of Warrant
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, and of indemnity reasonably
satisfactory to the Company, if lost, stolen or destroyed, and upon surrender
and cancellation of this Warrant, if mutilated, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder a new Warrant of like date, tenor and denomination.
9. Warrant Holder not Shareholder
Except as otherwise provided herein, this Warrant does not confer
upon the Holder any right to vote or to consent to or receive a notice as a
shareholder of the Company, as such, in respect of any matters whatsoever, or
any other rights or liabilities as a shareholder, prior to the exercise hereof.
10. Communication
No notice or other communication under this Warrant shall be
effective unless, but any notice or other communication shall be effective and
shall be deemed to have been given if, the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:
(a) the Company at 1385 Akron Street, Copiague, New York 11726 or
such other address as the Company has designated in writing to the Holder; or
(b) the Holder at ___________________________, or such other
address as the Holder has designated in writing to the Company.
All notices shall be effective when mailed in the manner
described above, except that elections to exercise this Warrant shall be
effective when received by the Company with proper payment therefor.
11. Headings
The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.
12. Applicable Law
This Warrant shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to the principles
of conflicts of law thereof.
IN WITNESS WHEREOF, TII INDUSTRIES, INC. has caused this Warrant to be signed by
its President and its corporate seal to be hereunto affixed and attested by its
Assistant Secretary
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as of the lst day of September, 1993.
ATTEST: TII INDUSTRIES, INC.
___________________________ By:____________________________
Frances Giambanco, Timothy J. Roach
Assistant Secretary President
[Corporate Seal]
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SUBSCRIPTION
The undersigned, ______________________________________ pursuant to the
provisions of Subsection 1(a) of the foregoing Warrant, hereby agrees to
subscribe for and purchase __________________________ shares of the Common Stock
of TII INDUSTRIES, INC. covered by said Warrant, and makes payment therefor in
full at the price per share provided by said Warrant.
Dated:_______________________ Signature:_________________________
Address:___________________________
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ASSIGNMENT
FOR VALUE RECEIVED, _____________________________________ hereby
sells, assigns and transfers unto _____________________________________ the
foregoing Warrant and all rights evidenced thereby, and does irrevocably
constitute and appoint _______________________________________ , attorney, to
transfer said Warrant on the books of TII INDUSTRIES, INC.
Dated:_________________ Signature:_________________________
Address:___________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _______________________________________
hereby assigns and transfers unto __________________ the right to purchase
_____________________________________ shares of the Common Stock of TII
INDUSTRIES, INC. by the foregoing Warrant, and a proportionate part of said
Warrant and the rights evidenced hereby, and does irrevocably constitute and
appoint______________, attorney, to transfer that part of said Warrant on the
books of TII INDUSTRIES, INC.
Dated:_________________ Signature:_________________________
Address:___________________________
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CASHLESS EXERCISE SUBSCRIPTION FORM
The undersigned, ____________________, pursuant to the provisions
of Subsection 1(b) of the foregoing Warrant, hereby agrees to subscribe for and
purchase ______ shares of the Common Stock of TII Industries, Inc. (the
"Company") covered by said Warrant, and makes payment therefor by exchanging a
portion of such shares to pay the Aggregate Warrant Price therefor, and
authorizes the Company to calculate the number of shares of Common Stock
issuable following such exchange, all as determined pursuant to Subsection l(b)
of the foregoing Warrant.
Dated:_________________ Signature:_________________________
Address:___________________________
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